SOURCE: Mackinac Financial Corporation

Mackinac Financial Corporation

May 09, 2016 10:59 ET

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  
                                 

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