SOURCE: Mackinac Financial Corporation

August 03, 2005 08:12 ET

Mackinac Financial Corporation Reports Second Quarter 2005 and Six Months Results of Operations

MANISTIQUE, MI -- (MARKET WIRE) -- August 3, 2005 -- Mackinac Financial Corporation (NASDAQ: MFNC), the bank holding company for mBank (the "Bank"), today announced a second quarter 2005 loss of $.577 million, or $.17 per share, compared to a loss of $1.600 million, or $4.56 per share for the second quarter of 2004. The loss for the six months amounted to $5.818 million, or $1.70 per share, compared to a loss of $3.267 million, or $9.31 per share, in the six months ended June 30, 2004. The results of operations for the first six months of 2005 include a penalty of $4.320 million on the prepayment of $48.555 million of the FHLB borrowings. Excluding this prepayment penalty, the net loss in the first six months of 2005 amounted to $1.498 million. Weighted average shares in the three months and six months ended June 30, 2005 totaled 3,428,695 compared to 350,958 weighted average shares outstanding for the same periods in 2004.

Paul Tobias, Chairman and Chief Executive Officer, commented, "In the second quarter of 2005 we made considerable progress in the execution of our business plan. We are experiencing excellent loan demand and have grown our loan portfolio by $671,000 since year-end despite experiencing an unusual level of payouts and refinancing of approximately $28.7 million. We have a good pipeline of diversified loans that we expect to close in the near term and look forward to continued strong loan demand. We introduced the new "mBank" to our markets in the second quarter and are pleased with the initial response to our new name and new consumer product lineup. We are beginning to experience increased lobby traffic and more importantly new account openings and growth in core deposits."

Total assets of the Corporation at June 30, 2005 were $276.048 million, down 20.0 percent from the $345.042 million in total assets reported at June 30, 2004. Second quarter-end total assets were down 18.7 percent from the $339.497 million of total assets at year-end 2004.

Total loans at the end of the second quarter of 2005 increased $.671 million, or .3 percent from year-end 2004 total loans of $203.832 million. During the first and second quarter of 2005 mBank generated $10.1 million and $36.9 million in new loans, respectively. This was offset by the unusual level, $28.7 million, of loan payoffs mentioned previously.

Total deposits of $207.814 million at June 30, 2005 were down $7.836 million, or 3.6 percent from year-end 2004 deposits of $215.650 million. The Bank experienced decreases in deposits during the second quarter of 2005 largely due to maturing of Internet deposits. Mr. Tobias added, "We have made good progress thus far this year re-branding the bank and developing a marketing campaign to help our talented branch team introduce our revised product line to our customers. We are pleased with the initial signs of interest following our rollout and believe that we will see growth in our customer base and growth in core deposits as we move into the fall."

The Bank's credit quality has improved dramatically in the past twelve months with nonperforming loans, as a percent of loans, at .47% compared to 5.69% at June 30, 2004. Nonperforming assets, which amounted to $50.438 million, or 11.94% of assets at December 31, 2003, were reduced to $3.273 million, 1.19% of assets at June 30, 2005. Tobias, commenting on credit quality, stated," We have a strong credit culture that has allowed mBank to identify and remove the old problem loans and book new loans with confidence. This credit culture encourages our lending staff to concentrate on high quality loan production and is expected to reduce operating expense in future periods."

Shareholders' equity at June 30, 2005 totaled $28.517 million, or $8.32 per share. The Corporation is well capitalized with Tier 1 capital in excess of 9.5% and total risk-based capital in excess of 13.5%.

Tobias concluded, "We are pleased with our progress. Our lending team has been successful in closing loans and securing new relationships for mBank The initial growth in core deposits that we are seeing is encouraging. We have many challenges ahead and look forward to returning the Corporation to profitability."

Mackinac Financial Corporation is a registered bank holding company which owns mBank. 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
                                        --------------------
                                 June 30,    December 31,       June 30,
                                  2005           2004             2004
                                ---------    ------------       --------
                               (Unaudited)                     (Unaudited)
Selected Financial
 Condition Data
 (at end of period):
Total assets                  $  276,048     $   339,497      $   345,042
Total loans                      204,503         203,832          233,032
Total deposits                   207,814         215,650          235,646
Borrowings and
 subordinated
 debentures                       36,484          85,039           99,087
Total shareholders'
 equity                       $   28,517     $    34,730      $     5,885

Selected Statements of
 Income Data
 (six months and
  year ended):
Net interest income           $    4,593     $     8,238      $     4,478
Loss before taxes                 (5,818)         (1,448)          (3,267)
Net loss                          (5,818)         (1,595)          (3,267)
Loss per common share -
 Basic                             (1.70)          (3.23)           (9.31)
Loss per common share -
 Diluted                           (1.70)          (3.23)           (9.31)

Three Months Ended
Net interest income           $    2,388      $    1,900      $     2,467
Income (loss) before
 taxes                              (577)          2,580           (1,600)
Net income (loss)                   (577)          2,433           (1,600)
Income (loss) per
 common share - Basic               (.17)           8.25            (4.56)
Income (loss) per
 common share - Diluted             (.17)           8.25            (4.56)

Selected Financial Ratios
 and Other Data
 (six months and year ended):
Performance Ratios:
Net interest margin                 3.63%           2.57%            2.57%
Efficiency ratio                  205.52          103.05           148.86
Return on average assets           (4.06)           (.44)           (1.66)
Return on average equity          (39.18)         (18.64)          (75.75)

Average total assets          $  287,252      $  365,024      $   393,618
Average total shareholders'
 equity                       $   29,781      $    8,555      $     8,626
Average loans to average
 deposits ratio                    95.51%          97.40%           95.68%

Common Share Data
 (at end of period):
Market price per
 common share                 $    15.23      $    17.97      $     36.40
Book value per
 common share                 $     8.32      $    10.13      $     16.77
Common shares
 outstanding                   3,428,695       3,428,695          350,958

Other Data
 (at end of period):
Allowance for loan losses      $   6,636      $    6,966      $    10,850
Non-performing assets          $   3,273      $    6,037      $    16,819
Allowance for loan losses
 to total loans                     3.24%           3.42%            4.66%
Non-performing assets to
 total assets                       1.19%           1.78%            4.87%
Number of:
   Branch locations                   12              12               15

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


              MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED BALANCE SHEETS

(Dollars in thousands             June 30,     December 31,     June 30,
 except per share data)             2005           2004           2004
                                 ----------    -----------     ---------
                                 (Unaudited)                  (Unaudited)
ASSETS
  Cash and due from banks        $   11,477    $    4,230      $    5,707
  Federal funds sold                  8,767        39,848           9,333
                                 ----------    ----------      ----------
        Cash and cash
         equivalents                 20,244        44,078          15,040

  Interest-bearing deposits in
   other financial institutions           -        18,535          15,726
  Securities available for sale      36,166        57,075          64,552
  Federal Home Loan Bank stock        4,855         4,754           4,652
  Total loans                       204,503       203,832         233,032
        Allowance for loan losses    (6,636)       (6,966)        (10,850)
                                 ----------    ----------      ----------
  Net loans                         197,867       196,866         222,182

  Premises and equipment             10,496        10,739          12,430
  Other real estate held for
   sale                               2,312         1,730           3,557
  Other assets                        4,108         5,720           6,903
                                 ----------    ----------      ----------

        Total assets             $  276,048    $  339,497      $  345,042
                                 ==========    ==========      ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
   Liabilities:
         Non-interest-bearing
          deposits               $   21,033    $   20,956      $   21,477
         Interest-bearing
          deposits                  186,781       194,694         214,169
                                 ----------    ----------      ----------
               Total deposits       207,814       215,650         235,646

   Borrowings                        36,484        85,039          86,637
   Subordinated debentures                -             -          12,450
   Other liabilities                  3,233         4,078           4,424
                                 ----------    ----------      ----------
        Total liabilities           247,531       304,767         339,157

   Shareholders' equity:
      Preferred stock -
       No par value:
         Authorized 500,000 shares,
         no shares outstanding            -             -               -
      Common stock - No par value:
         Authorized 18,000,000 shares
         Issued and outstanding -
         3,428,695, 3,428,695 and
         350,958, respectively       42,412        42,335          16,175
       Accumulated deficit          (13,915)       (8,097)         (9,769)
      Accumulated other
       comprehensive income              20           492            (521)
                                 ----------    ----------      ----------

       Total shareholders'
        equity                       28,517        34,730           5,885

      Total liabilities and
       shareholders' equity      $  276,048    $  339,497      $  345,042
                                 ==========    ==========      ==========


              MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands          Three Months Ended       Six Months Ended
 except per share data)        June 30,   June 30,     June 30,   June 30,
                                 2005       2004         2005       2004
                               -------    -------      -------    -------
                             (Unaudited)(Unaudited)  (Unaudited)(Unaudited)
Interest income:
   Interest and fees on loans:
     Taxable                   $ 3,201    $ 4,069      $ 6,260    $ 7,865
     Tax-exempt                    230        324          472        643
   Interest on securities:
     Taxable                       434        574          896      1,272
     Tax-exempt                     42         43           84         86
   Other interest income           110        143          293        263
                               -------    -------      -------    -------
     Total interest income       4,017      5,153        8,005     10,129
                               -------    -------      -------    -------

Interest expense:
   Deposits                      1,198      1,378        2,328      3,043
   Borrowings                      431      1,189        1,084      2,370
   Subordinated debentures           -        119            -        238
                               -------    -------      -------    -------
     Total interest expense      1,629      2,686        3,412      5,651
                               -------    -------      -------    -------

Net interest income              2,388      2,467        4,593      4,478
Provision for loan losses            -          -            -          -
                               -------    -------      -------    -------
Net interest income after
 provision for loan losses       2,388      2,467        4,593      4,478
                               -------    -------      -------    -------

Other income:
   Service fees                    172        287          333        580
   Loan and lease fees               4          4            6          9
   Net security gains               98          -           97          -
   Net gains on sale of loans       13          8           20         20
   (Loss) on sale of branches        -       (254)           -       (254)
   Other                            83         18           98        371
                               -------    -------      -------    -------
     Total other income            370         63          554        726
                               -------    -------      -------    -------

Other expenses:
   Salaries, commissions,
    and related benefits         1,606      1,354        3,110      2,853
   Furniture and equipment         138        235          297        493
   Occupancy                       247        279          473        626
   Data processing                 246        348          492        703
   Accounting, legal, and
    consulting fees                228        572          546        978
   Loan and deposit expense        250        600          543      1,093
   Telephone                        77         19          137        232
   Advertising expense             243         26          382         43
   Penalty on prepayment of
    FHLB borrowings                  -          -        4,320          -
   Other                           300        697          665      1,450
                               -------    -------      -------    -------
     Total other expenses        3,335      4,130       10,965      8,471
                               -------    -------      -------    -------

Loss before provision for
 income taxes                     (577)    (1,600)      (5,818)    (3,267)
Provision for income taxes           -          -            -          -
                               -------    -------      -------    -------

Net loss                       $  (577)   $(1,600)     $(5,818)   $(3,267)
                               =======    =======      =======    =======
Loss per common share:
   Basic                       $  (.17)   $ (4.56)     $ (1.70)   $ (9.31)
                               =======    =======      =======    =======
   Diluted                     $  (.17)   $ (4.56)     $ (1.70)   $ (9.31)
                               =======    =======      =======    =======


              MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                     LOAN PORTFOLIO AND CREDIT QUALITY

(Dollars in thousands)

Loan Portfolio Balances (at end of period):

                                     June 30,    December 31,    June 30,
                                       2005          2004          2004
                                    ---------     ---------     ---------
   Commercial Loans
   Hospitality and tourism          $  43,208     $  52,659     $  45,932
   Gaming                               9,717        14,310        19,344
   Petroleum                            8,115         7,718         4,648
   Forestry                             5,180         2,245         1,182
   Other                               86,099        76,133       114,046
                                    ---------     ---------     ---------
     Total Commercial Loans           152,319       153,065       185,152

   1-4 family residential real estate  43,012        45,292        44,457
   Consumer                             2,153         2,379         2,678
   Construction                         7,019         3,096           745
                                    ---------     ---------     ---------

     Total Loans                    $ 204,503     $ 203,832     $ 233,032
                                    =========     =========     =========


Credit Quality (at end of period):

                                     June 30,    December 31,    June 30,
                                       2005          2004          2004
                                    ---------     ---------     ---------
   Nonperforming Assets
   Nonaccrual loans                 $     959     $   4,307     $   8,789
   Loans past due 90 days or more           2             -             -
   Restructured loans                       -             -         4,473
                                    ---------     ---------     ---------
     Total nonperforming loans            961         4,307        13,262
   Other real estate owned              2,312         1,730         3,557
                                    ---------     ---------     ---------
     Total nonperforming assets     $   3,273     $   6,037     $  16,819
                                    =========     =========     =========
   Nonperforming loans as a
    % of loans                            .47 %        2.11 %        5.69 %
   Nonperforming assets as a
    % of assets                          1.19 %        1.78 %        4.87 %
   Reserve for Loan Losses:
   At period end                    $   6,636     $   6,966     $  10,850
                                    ---------     ---------     ---------
   As a % of loans                       3.24 %        3.42 %        4.66 %
                                    ---------     ---------     ---------
   As a % of nonperforming loans       690.53 %      161.74 %       81.81 %
                                    ---------     ---------     ---------
   As a % of nonaccrual loans          691.97 %      161.74 %      123.45 %
                                    =========     =========     =========

   Charge-off Information:
     Average loans                  $ 198,618     $ 244,730     $ 266,791
                                    ---------     ---------     ---------
     Net charge-offs                $     330     $  15,039     $  11,155
                                    ---------     ---------     ---------
     Charge-offs as a % of
      average loans                       .17 %        6.15 %        4.18 %
                                    ---------     ---------     ---------

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