Mackinac Financial Corporation Reports First Quarter 2016 Results

MANISTIQUE, MI--(Marketwired - May 9, 2016) - Mackinac Financial Corporation (NASDAQ: MFNC) (the "Corporation"), the bank holding company for mBank, today announced first quarter 2016 income of $1.132 million, or $.18 per share, compared to net income of $1.371 million, or $.22 per share, for the first quarter of 2015. The 2015 first quarter income was positively impacted by a one-time $.283 million credit mark accretion under GAAP from the acquired loan portfolio from Peninsula Bank (Pen). 2015 income adjusted for this item was $1.088 million, or $.17 per share. Total assets of the Corporation at March 31, 2016 totaled $732.932 million compared to $728.844 million at March 31, 2015.

Shareholders' equity at March 31, 2016 totaled $77.395 million, compared to $75.038 million on March 31, 2015. The tangible book value per share equated to $11.64 on March 31, 2016 compared to $11.20 per share a year ago. Weighted average shares outstanding totaled 6,214,083 shares in the 2016 first quarter compared to 6,256,475 for the same period in 2015.

Some highlights for the first quarter include:

• mBank, the Corporation's primary asset, recorded net income of $1.486 million in the first quarter of 2016, compared to $1.627 million for the first quarter of 2015. 2015 income less the $.283 million one-time item was $1.344 million.
  
  
• Total loan production during the first three months of 2016 was $44.9 million versus $31.5 million for the same period in 2015, an increase of $13.4 million.
  
  
• Announcement of the purchase of First National Bank of Eagle River (Wisconsin) was made on January 19, 2016, and represents the company's first expansion outside of Michigan. The transaction was closed on April 29, 2016 and is expected to add approximately $125 million in assets, $80 million in loans and $100 million in core deposits to the company.
  
  
• Net interest margin has remained strong at 4.33% despite the continued low interest rate environment.
  
  
• Active secondary mortgage market activity with non-interest income stemming from that business line increasing from $.167 million to $.267 million year over year.
  
  
• Quarterly dividend on common stock of $.10 per share compared to $.075 per share one year ago.
  
  

Loans and Non-performing Assets

Total loans at March 31, 2016 were $618.625 million, an increase of $20.894 million from March 31, 2015 balances of $597.731 million. New loan production was solid in the 2016 first quarter at $44.9 million, although some larger loan payoffs and normal loan principal amortization resulted in flat outstanding loan balances since year end. Commenting on new loan production and overall lending activities, Kelly W. George, President and CEO of mBank stated, "We are very pleased with our overall loan production for the quarter with almost $26 million in new commercial originations and over $14 million in consumer, primarily mortgage, where we have seen a nice uptick in secondary market activity. We expect that trend to continue as we move into our more seasonal lending origination months and with the addition of our new Wisconsin markets through the recent acquisition of First National Bank of Eagle River. We are very excited to enter these markets given their close business ecology with our Upper Peninsula markets and similar clients in lending types and needs. Even with the favorable production that has outpaced 2015 significantly, we have not seen the aggregate loan balances grow comparatively as we would have anticipated with this level of production. Some of this is attributable to normal amortization of the portfolio, but some is also due to the competition for good earning assets and our decision to remain steadfast on our pricing and credit structures to maintain long term balance sheet stability and allow some legacy loan relationships to exit where appropriate structures could not be attained. We continue to monitor this issue closely and do not view the issue as a trend that will continue and loan growth should increase at these production levels throughout the year." 

Nonperforming loans totaled $1.717 million, .28% of total loans at March 31, 2016 compared to $11.850 million, or 1.98%, of total loans at March 31, 2015 and down from the $2.539 million from December 31, 2015. Total loan delinquencies greater than 30 days resided at a nominal .63%, or $3.818 million, at the end of the period. Mr. George, commenting on credit quality, stated, "Our credit quality risk metrics and overall loan portfolio payment performance remains strong with no significant loan issues within the portfolio. We continue to carry very low levels of ORE and what we do have is disposed of quickly to alleviate any long term carrying costs. As with the Peninsula Bank acquisition, in which our expectations have proven accurate to date, we are comfortable with our diligence on the Eagle River loan portfolio and corresponding purchase accounting marks and expect similar good results with the overall value and performance of the loans we are acquiring." 

Margin Analysis

Net interest income in the first quarter of 2016 remained mostly flat at $7.288 million, or 4.33%, compared to $7.520 million, or 4.53%, in the first quarter of 2015. The 2015 net interest income and margin were positively impacted by the previously mentioned one-time accretion item from the Pen loan portfolio. Mr. George stated, "We have been successful in maintaining our strong net interest margin within this historically low interest rate cycle though the use of continued targeted funding strategies and disciplined loan pricing in efforts to mitigate longer term interest rate risk. Our balance sheet remains well positioned to take advantage of any future upward short term interest rate movements should they occur this year. We will remain committed to our core banking philosophy which emphasizes loan growth as the best asset to invest in to benefit and help grow the economic bases in our local communities, which in turn also provides the best overall returns to our shareholders."

Deposits

Total deposits of $592.978 million at March 31, 2016 decreased by $4.935 million, from deposits of $597.913 million on March 31, 2015 and were down from year end deposits of $610.323 million. Mr. George, commenting on core deposits and overall liquidity needs, stated "The Corporation maintains a strong liquidity position to fund operations and loan growth. We proactively review our short and long term funding needs and review our pricing levels within the different segments of our deposit products in order to best manage our net interest margin to capture as many dollars as we can. Given the fairly flat growth pattern in our loan book near term, we have managed our deposit portfolio to maintain our margin and profitability."

Noninterest Income/Expense

Noninterest income, at $.627 million in the first quarter of 2016, increased $.003 million from the first quarter 2015 level of $.624 million. Year over year non-interest income levels remained flat even with a decrease in SBA\USDA sales which totaled $.118 million in the 2015 first quarter. Secondary market fees increased $.100 million in the first quarter of 2016 compared to first quarter of 2015. Noninterest expense, at $6.198 million in the first quarter of 2016, increased $.442 million, or 8%, from the first quarter of 2015. The increase from the first quarter of 2015 was largely attributable to strategic costs attributable to the First National Bank of Eagle River acquisition as well as customary employee compensation and retention related costs to ensure our personnel infrastructure keeps pace with our growing asset base and subsequent regulatory platform monitoring needs. 

Assets and Capital

Total assets of the Corporation at March 31, 2016 were $732.932 million, up $4.088 million from the $728.844 million reported at March 31, 2015 and down $6.337 million from the $739.269 million of total assets at year-end 2015. Common shareholders' equity at March 31, 2016 totaled $77.395 million, or $12.42 per share, compared to $75.038 million, or $11.99 per share on March 31, 2015. The Corporation and the Bank are both "well-capitalized" with Tier 1 Capital at the Corporation of 11.54% and 12.83% at the Bank.

Paul D. Tobias, Chairman and Chief Executive Officer of Mackinac concluded, "We are pleased with the fairly priced acquisition opportunities that we are seeing and very satisfied with the execution of each of the Peninsula Bank and First National Bank of Eagle River mergers. Our strategy of complimentary organic and acquired growth allows us to maintain discipline in the pricing and credit risk profile of our loans in these competitive times while still increasing our asset base to help spread our costs. This allows us to improve both short term earnings growth and long term stability and shareholder value."

Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets in excess of $730 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 20 branch locations; thirteen in the Upper Peninsula, three in the Northern Lower Peninsula, one in Oakland County, Michigan, and three in Northern Wisconsin. The Company'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," "view," 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
(Dollars in thousands, except per share data)			As of and For the Quarter Ending March 31, 2016				As of and For the Year Ending December 31, 2015				As of and For the Quarter Ending March 31, 2015
			(Unaudited)				(Unaudited)				(Unaudited)
Selected Financial Condition Data (at end of period):
Assets			$	732,932			$	739,269			$	728,844
Loans				618,625				618,394				597,731
Investment securities				54,021				53,728				63,313
Deposits				592,978				610,323				597,913
Borrowings				56,454				45,754				49,839
Shareholders' equity				77,395				76,602				75,038
Selected Statements of Income Data:
Net interest income			$	7,288			$	29,120			$	7,520
Income before taxes				1,717				7,929				2,083
Net income				1,132				5,596				1,371
Income per common share - Basic				.18				.90				.22
Income per common share - Diluted				.18				.89				.22
Weighted average shares outstanding				6,214,083				6,247,416				6,256,475
Weighted average shares outstanding- Diluted				6,214,083				6,278,817				6,268,742
Selected Financial Ratios and Other Data:
Performance Ratios:
Net interest margin				4.33	%			4.30	%			4.53	%
Return on average assets				.62				.76				.75
Return on average equity				5.89				7.41				7.54
Average total assets			$	737,088			$	738,688			$	737,496
Average total shareholders' equity				77,284				75,545				73,776
Average loans to average deposits ratio				101.87	%			100.52	%			99.78	%
Common Share Data at end of period:
Market price per common share			$	10.25			$	11.49			$	11.39
Book value per common share				12.42				12.32				11.99
Tangible book value per share				11.64				11.54				11.20
Dividends paid per share, annualized				.400				.400				.300
Common shares outstanding				6,231,246				6,217,620				6,257,450
Other Data at end of period:
Allowance for loan losses			$	4,824			$	5,004			$	5,527
Non-performing assets			$	4,401			$	4,863			$	14,482
Allowance for loan losses to total loans				.78	%			.81	%			.92	%
Non-performing assets to total assets				.60	%			.66	%			1.99	%
Texas ratio				5.61	%			6.34	%			19.16	%
Number of:
	Branch locations			17				17				17
	FTE Employees			178				173				168

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
					March 31, 2016				December 31, 2015				March 31, 2015
					(Unaudited)								(Unaudited)
ASSETS
Cash and due from banks					$	18,013			$	25,005			$	24,242
Federal funds sold						3				3				4
	Cash and cash equivalents					18,016				25,008				24,246
Interest-bearing deposits in other financial institutions						4,989				5,089				5,832
Securities available for sale						54,021				53,728				63,313
Federal Home Loan Bank stock						2,169				2,169				2,973
Loans:
	Commercial					455,575				450,275				428,439
	Mortgage					147,600				152,272				152,016
	Consumer					15,450				15,847				17,276
		Total Loans				618,625				618,394				597,731
			Allowance for loan losses			(4,824	)			(5,004	)			(5,527	)
	Net loans					613,801				613,390				592,204
Premises and equipment						12,491				12,524				12,614
Other real estate held for sale						2,684				2,324				2,632
Deferred tax asset						8,523				9,213				10,332
Deposit based intangibles						1,046				1,076				1,167
Goodwill						3,805				3,805				3,805
Other assets						11,387				10,943				9,726
TOTAL ASSETS					$	732,932			$	739,269			$	728,844
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
	Noninterest bearing deposits				$	117,704			$	122,775			$	104,689
	NOW, money market, interest checking					207,068				202,784				206,824
	Savings					31,994				30,882				29,470
	CDs < $250,000					116,995				124,084				147,602
	CDs > $250,000					7,910				8,532				9,471
	Brokered					111,307				121,266				99,857
			Total deposits			592,978				610,323				597,913
	Borrowings					56,454				45,754				49,839
	Other liabilities					6,105				6,590				6,054
		Total liabilities				655,537				662,667				653,806
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 - 6,231,246; 6,217,620; and 6,257,450 shares respectively					61,184				61,133				61,558
	Retained earnings					15,746				15,221				12,706
	Accumulated other comprehensive income
			Unrealized gains on available for sale securities			514				297				823
			Minimum pension liability			(49	)			(49	)			(49	)
		Total shareholders' equity				77,395				76,602				75,038
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY					$	732,932			$	739,269			$	728,844

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
				Three Months Ended
				March 31,
				2016				2015
				(Unaudited)
INTEREST INCOME:
	Interest and fees on loans:
		Taxable		$	7,960			$	8,225
		Tax-exempt			2				3
	Interest on securities:
		Taxable			262				302
		Tax-exempt			31				41
	Other interest income				55				62
		Total interest income			8,310				8,633
INTEREST EXPENSE:
	Deposits				769				823
	Borrowings				253				290
		Total interest expense			1,022				1,113
Net interest income					7,288				7,520
Provision for loan losses					-				305
Net interest income after provision for loan losses					7,288				7,215
OTHER INCOME:
	Deposit service fees				216				184
	Income from loans sold on the secondary market				267				167
	SBA/USDA loan sale gains				-				118
	Mortgage servicing income				(54	)			31
	Net security gains				97				10
	Other				101				114
		Total other income			627				624
OTHER EXPENSE:
	Salaries and employee benefits				3,387				3,047
	Occupancy				640				576
	Furniture and equipment				383				399
	Data processing				345				355
	Advertising				156				126
	Professional service fees				241				301
	Loan and deposit				127				138
	Writedowns and losses on other real estate held for sale				16				17
	FDIC insurance assessment				108				108
	Telephone				112				132
	Transaction related expenses				106				-
	Other				577				557
		Total other expenses			6,198				5,756
Income before provision for income taxes					1,717				2,083
Provision for income taxes					585				712
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS				$	1,132			$	1,371
INCOME PER COMMON SHARE:
	Basic			$	.18			$	.22
	Diluted			$	.18			$	.22

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,
					2016				2015				2015
					(Unaudited)				(Unaudited)				(Unaudited)
	Commercial Loans:
	Real estate - operators of nonresidential buildings				$	102,427			$	102,620			$	106,286
	Hospitality and tourism					46,555				41,300				45,995
	Lessors of residential buildings					29,194				25,930				21,545
	Gasoline stations and convenience stores					21,614				21,647				13,965
	Commercial construction					14,489				15,330				18,019
	Real estate agents and managers					12,277				11,225				9,717
	Other					229,019				232,223				212,912
		Total Commercial Loans				455,575				450,275				428,439
	1-4 family residential real estate					135,641				140,502				142,283
	Consumer					15,450				15,847				17,276
	Consumer construction					11,959				11,770				9,733
		Total Loans			$	618,625			$	618,394			$	597,731
Credit Quality (at end of period):
					March 31,				December 31,				March 31,
					2016				2015				2015
					(Unaudited)				(Unaudited)				(Unaudited)
		Nonperforming Assets :
		Nonaccrual loans			$	1,523			$	2,353			$	11,801
		Loans past due 90 days or more				44				32				49
		Restructured loans				150				154				-
			Total nonperforming loans			1,717				2,539				11,850
		Other real estate owned				2,684				2,324				2,632
			Total nonperforming assets		$	4,401			$	4,863			$	14,482
		Nonperforming loans as a % of loans				.28	%			.41	%			1.98	%
		Nonperforming assets as a % of assets				.60	%			.66	%			1.99	%
		Reserve for Loan Losses:
		At period end			$	4,824			$	5,004			$	5,527
		As a % of average loans				.78	%			.83	%			.92	%
		As a % of nonperforming loans				280.96	%			197.09	%			46.64	%
		As a % of nonaccrual loans				316.74	%			212.66	%			46.84	%
		Texas Ratio				5.61	%			6.34	%			19.16	%
		Charge-off Information (year to date):
			Average loans		$	615,684			$	602,904			$	600,052
			Net charge-offs (recoveries)		$	180			$	1,340			$	(83	)
			Charge-offs as a % of averageloans, annualized			.12	%			.22	%			N/M	%

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL HIGHLIGHTS
			QUARTER ENDED
			(Unaudited)
			March 31, 2016			December 31, 2015			September 30, 2015			June 30, 2015			March 31, 2015
BALANCE SHEET (Dollars in thousands)
Total loans			$	618,625		$	618,394		$	619,906		$	615,247		$	597,731
Allowance for loan losses				(4,824	)		(5,004	)		(5,779	)		(5,600	)		(5,527	)
	Total loans, net			613,801			613,390			614,127			609,647			592,204
Total assets				732,932			739,269			754,972			735,338			728,844
Core deposits				473,761			480,525			509,466			490,003			488,585
Noncore deposits				119,217			129,798			112,868			98,818			109,328
	Total deposits			592,978			610,323			622,334			588,821			597,913
Total borrowings				56,454			45,754			49,593			64,483			49,839
Total shareholders' equity				77,395			76,602			76,091			75,746			75,038
Total tangible equity				72,544			71,721			71,180			70,805			70,066
Total shares outstanding				6,231,246			6,217,620			6,249,595			6,236,250			6,257,450
Weighted average shares outstanding				6,214,083			6,225,614			6,247,416			6,245,553			6,256,475
AVERAGE BALANCES (Dollars in thousands)
Assets			$	737,088		$	733,035		$	751,153		$	732,979		$	737,496
Loans				615,684			613,846			614,315			607,330			600,052
Deposits				604,363			602,857			624,528			594,266			601,834
Equity				77,284			75,871			76,362			75,564			73,776
INCOME STATEMENT (Dollars in thousands)
Net interest income			$	7,288		$	7,365		$	7,235		$	7,000		$	7,520
Provision for loan losses				-			349			350			200			305
	Net interest income after provision			7,288			7,016			6,885			6,800			7,215
Total noninterest income				627			1,142			773			1,350			624
Total noninterest expense				6,198			6,306			6,114			5,700			5,756
Income before taxes				1,717			1,852			1,544			2,450			2,083
Provision for income taxes				585			259			526			836			712
Net income available to common shareholders			$	1,132		$	1,593		$	1,018		$	1,614		$	1,371
Income pre-tax, pre-provision			$	1,717		$	2,201		$	1,894		$	2,650		$	2,388
PER SHARE DATA
Earnings			$	.18		$	.26		$	.16		$	.26		$	.22
Book value per common share				12.42			12.32			12.18			12.15			11.99
Tangible book value per share				11.64			11.54			11.39			11.35			11.20
Market value, closing price				10.25			11.49			10.10			10.53			11.39
Dividends per share				.100			.100			.100			.075			.075
ASSET QUALITY RATIOS
Nonperforming loans/total loans				.28	%		.50	%		1.30	%		1.57	%		1.98	%
Nonperforming assets/total assets				.60			.73			1.37			1.64			1.99
Allowance for loan losses/total loans				.78			.81			.93			.91			.92
Allowance for loan losses/nonperforming loans				280.96			197.09			71.99			58.02			46.64
Texas ratio (1)				5.61			6.34			13.41			15.76			19.16
PROFITABILITY RATIOS
Return on average assets				.62	%		.86	%		.54	%		.88	%		.75	%
Return on average equity				5.89			8.33			5.28			8.57			7.54
Net interest margin				4.33			4.34			4.18			4.17			4.53
Efficiency ratio				78.90			72.16			76.13			69.94			74.27
Average loans/average deposits				101.87			101.82			98.36			102.20			99.78
CAPITAL ADEQUACY RATIOS
Tier 1 leverage ratio				9.55	%		9.81	%		9.02	%		9.14	%		8.75	%
Tier 1 capital to risk weighted assets				10.82			10.23			10.28			10.18			10.33
Total capital to risk weighted assets				11.57			11.94			11.17			11.04			11.22
Average equity/average assets (for the quarter)				10.49			11.19			10.19			10.31			10.00
Tangible equity/tangible assets (at quarter end)				9.96			9.77			9.49			9.68			9.68
(1) Texas ratio equals nonperforming assets divided by tangible shareholders' equity plus allowance for loan losses