SOURCE: Mackinac Financial Corporation

July 28, 2006 08:00 ET

Mackinac Financial Corporation Reports Second Quarter and Six Months 2006 Results of Operations

MANISTIQUE, MI -- (MARKET WIRE) -- July 28, 2006 -- Mackinac Financial Corporation (NASDAQ: MFNC), the bank holding company for mBank (the "Bank"), today announced second quarter 2006 income of $190,000 or $.05 per share compared to a loss of $577,000 or $.17 per share for the second quarter of 2005. Net income for the first six months of 2006 totaled $688,000, or $.20 per share, compared to a loss of $5.818 million, $1.70 per share, for the same period in 2005. The 2006 six months operations include a $600,000 negative provision, recorded in the first quarter, in recognition of improved credit quality. The 2005 results include a penalty of $4.320 million on the prepayment of $48.555 million of the FHLB borrowings. Excluding the provision adjustment and the prepayment penalty, the net income in the first half of 2006 amounted to $88,000, compared to an adjusted loss of $1.498 million for the same period in 2005. The six month 2006 results also include $158,000 of stock option expense, required under the new accounting rules for stock compensation plans, as well as $240,000 of expenses incurred to pursue legal action against the Corporation's former accountants. The costs associated with the Corporation's legal action include approximately $185,000 for the retention of and subsequent research performed by an expert witness.

Paul Tobias, Chairman and Chief Executive Officer, commented, "The first half of 2006 reflects the Corporation's growth that has established our foundation for profitability. The balance sheet growth we have attained in the last year has resulted in profitability each month in 2006 at mBank, our principal subsidiary. This balance sheet growth reflects excellent commercial loan production without compromising the bank's strong credit profile."

Total assets of the Corporation at June 30, 2006 were $352.497 million, up 27.67 percent from the $276.111 million in total assets reported at June 30, 2005. June 30, 2006 total assets were up 18.00 percent from the $298.722 million of total assets at year-end 2005.

Total loans at June 30, 2006 were $283.110 million, up from $204.503 million at June 30, 2005 or a 38.44 percent increase. Total loans at June 30, 2006 increased $43.339 million, or 18.08 percent from year-end 2005 total loans of $239.771 million. Tobias stated, "This loan growth resulted from the successful execution of our market strategy, which is driven by highly qualified commercial lenders, supported by a skilled and responsive credit review team. We have also experienced a resurgence of consumer loan activity in our northern branch locations, which we believe demonstrates our progress in reestablishing trust and confidence within our markets."

Total deposits of $284.164 million at June 30, 2006 were up 36.74 percent from deposits of $207.814 million on June 30, 2005. Deposits were up $51.532 million, or 22.15 percent from year-end 2005 deposits of $232.632 million. Deposit growth in 2006 includes increases in out of market brokerage deposits totaling $33.588 million with the remaining $17.944 million representing bank core deposit growth of 9.50%. Mr. Tobias added, "Bank deposit growth is a key element of our strategic plan to build franchise value and maintain adequate interest margins. We are continually reviewing our deposit products and offering rates in our efforts to increase core deposits."

The Bank's credit quality remains excellent, with total nonperforming assets at June 30, 2006 of $.498 million. Tobias commenting on credit quality stated, "Credit quality is critical. We recognize that with high levels of loan production there is a need for more diligence on the front end credit review process."

Shareholders' equity at June 30, 2006 totaled $27.179 million, or $7.93 per share. The Corporation is well capitalized with Tier 1 capital in excess of 8% and total risk-based capital in excess of 10%.

Tobias concluded, "The first six months of 2006 show that we continue to make progress towards our goal of robust profitability, despite the new costs associated with stock options and pursuit of legal action against former accountants of the Corporation. We are optimistic about the remainder of 2006. We remain focused on our plan elements of quality loan production, increasing core deposits, and controlling noninterest expense."

Mackinac Financial Corporation is a registered bank holding company which owns mBank. The Bank has 13 offices, nine in the Upper Peninsula and four in Lower 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 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

                                     -------------------------------------
                                                   December
                                       June 30,       31,       June 30,
                                         2006        2005         2005
                                     ------------  ---------  ------------
                                     (Unaudited)              (Unaudited)
Selected Financial Condition Data
 (at end of period):
Total assets                         $    352,497  $ 298,722  $    276,111
Total loans                               283,110    239,771       204,503
Total deposits                            284,165    232,632       207,814
Borrowings and subordinated
 debentures                                37,617     36,417        36,484
Total shareholders' equity                 27,179     26,588        28,517

Selected Statements of Income Data
 (six months and year ended):
Net interest income                  $      5,614  $   9,780  $      4,593
Income (loss) before taxes                    663     (7,364)       (5,818)
Net income (loss)                             688     (7,364)       (5,818)
Income (loss) per common share -
 Basic                                       0.20      (2.15)        (1.70)
Income (loss) per common share -
 Diluted                                     0.20      (2.15)        (1.70)

Three Months Ended
Net interest income                  $      2,935  $   2,680  $      2,388
Income (loss) before taxes                    165     (1,028)         (577)
Net income (loss)                             190     (1,028)         (577)
Income (loss) per common share -
 Basic                                        .05      (0.30)        (0.17)
Income (loss) per common share -
 Diluted                                      .05      (0.30)        (0.17)

Selected Financial Ratios and Other
 Data (six months and year ended):
Performance Ratios:
Net interest margin                          3.63%      3.64%         3.63%
Efficiency ratio                            95.21     160.43        205.52
Return on average assets                     0.42      (2.58)        (4.06)
Return on average equity                     5.11     (25.63)       (39.18)

Average total assets                 $    330,980  $ 285,896  $    287,252
Average total shareholders' equity   $     27,135  $  28,732  $     29,781
Average loans to average deposits
 ratio                                      99.64%     98.17%        95.51%

Common Share Data (at end of
 period):
Market price per common share        $      10.27  $    9.10  $      15.23
Book value per common share          $       7.93  $    7.76  $       8.32
Common shares outstanding               3,428,695  3,428,695     3,428,695

Other Data (at end of period):
Allowance for loan losses            $      5,415  $   6,108  $      6,636
Non-performing assets                $        498  $   1,059  $      3,273
Allowance for loan losses to total
 loans                                       1.91%      2.55%         3.24%
Non-performing assets to total
 assets                                      0.14%      0.35%         1.19%
Number of:
   Branch locations                            13         12            12

* 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 except per                   December
 share data)                           June 30,       31,       June 30,
                                         2006        2005         2005
                                     ------------  ---------  ------------
                                     (Unaudited)              (Unaudited)
ASSETS
  Cash and due from banks            $      5,529  $   4,833  $     11,477
  Federal funds sold                       12,535      3,110         8,767
                                     ------------  ---------  ------------
    Cash and cash equivalents              18,064      7,943        20,244

  Interest-bearing deposits in other
   financial institutions                     893      1,025             -
  Securities available for sale            33,870     34,210        36,166
  Federal Home Loan Bank stock              4,855      4,855         4,855
  Total loans                             283,110    239,771       204,503
    Allowance for loan losses              (5,415)    (6,108)       (6,636)
                                     ------------  ---------  ------------
     Net loans                            277,695    233,663       197,867

  Premises and equipment                   12,748     11,987        10,496
  Other real estate held for sale              52        945         2,312
  Other assets                              4,320      4,094         4,171
                                     ------------  ---------  ------------

          Total assets               $    352,497  $ 298,722  $    276,111
                                     ============  =========  ============

LIABILITIES AND SHAREHOLDERS' EQUITY
  Liabilities:
    Non-interest-bearing deposits    $     21,773  $  19,684  $     21,033
    Interest-bearing deposits             262,391    212,948       186,781
                                     ------------  ---------  ------------
      Total deposits                      284,164    232,632       207,814

  Borrowings                               37,617     36,417        36,484
  Other liabilities                         3,537      3,085         3,296
                                     ------------  ---------  ------------
    Total liabilities                     325,318    272,134       247,594

     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 shares                      42,567     42,412        42,412
  Accumulated deficit                     (14,772)   (15,461)      (13,915)
  Accumulated other comprehensive
   income                                    (616)      (363)           20
                                     ------------  ---------  ------------

  Total shareholders' equity               27,179     26,588        28,517
                                     ------------  ---------  ------------

  Total liabilities and
   shareholders' equity              $    352,497  $ 298,722  $    276,111
                                     ============  =========  ============


MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS
OF OPERATIONS


(Dollars in thousands
 except per share data)    Three Months Ended         Six  Months Ended
                        ------------------------  ------------------------
                          June 30,     June 30,     June 30,     June 30,
                            2006         2005         2006         2005
                        -----------  -----------  -----------  -----------
                        (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)
Interest income:
  Interest and fees on
   loans:
    Taxable             $     5,182  $     3,201  $     9,681  $     6,260
    Tax-exempt                  192          230          385          472
  Interest on
   securities:
    Taxable                     274          434          547          896
    Tax-exempt                   41           42           82           84
  Other interest income         194          110          363          293
                        -----------  -----------  -----------  -----------
    Total interest
     income                   5,883        4,017       11,058        8,005
                        -----------  -----------  -----------  -----------

Interest expense:
  Deposits                    2,509        1,198        4,589        2,328
  Borrowings                    439          431          855        1,084
                        -----------  -----------  -----------  -----------
    Total interest
     expense                  2,948        1,629        5,444        3,412
                        -----------  -----------  -----------  -----------

Net interest income           2,935        2,388        5,614        4,593
Provision for loan
 losses                           -            -         (600)           -
                        -----------  -----------  -----------  -----------
Net interest income
 after provision for
 loan losses                  2,935        2,388        6,214        4,593
                        -----------  -----------  -----------  -----------

Other income:
  Service fees                  122          172          232          333
  Loan and lease fees            19            4           36            6
  Net security gains              -           98            -           97
  Net gains on sale of
   loans                         42           13           83           20
  Other                          68           83          116           98
                        -----------  -----------  -----------  -----------
    Total other income          251          370          467          554
                        -----------  -----------  -----------  -----------

Other expenses:
  Salaries,
   commissions, and
   related benefits           1,496        1,606        3,090        3,110
  Furniture and
   equipment                    155          138          311          297
  Occupancy                     293          247          610          473
  Data processing               182          246          336          492
  Accounting, legal,
   and consulting fees          414          228          614          546
  Loan and deposit
   expense                       98          250          228          543
  Telephone                      51           77          100          137
  Advertising expense           107          243          177          382
  Penalty on prepayment
   of FHLB borrowings             -            -            -        4,320
  Other                         225          300          552          665
                        -----------  -----------  -----------  -----------
    Total other
     expenses                 3,021        3,335        6,018       10,965
                        -----------  -----------  -----------  -----------

Income (loss) before
 income taxes                   165         (577)         663       (5,818)
Provision for (benefit
 of) income taxes               (25)           -          (25)           -
                        -----------  -----------  -----------  -----------

Net income (loss)       $       190  $      (577) $       688  $    (5,818)
                        ===========  ===========  ===========  ===========
Income (loss) per
 common share:
  Basic                 $      0.05  $     (0.17) $      0.20  $     (1.70)
                        ===========  ===========  ===========  ===========
  Diluted               $      0.05  $     (0.17) $      0.20  $     (1.70)
                        ===========  ===========  ===========  ===========


             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,
                                        2006         2005         2005
                                    ------------ ------------ ------------
Commercial Loans
Hospitality and tourism             $     37,754 $     37,681 $     43,208
Real estate - operators of
 nonresidential buildings                 35,478       28,217       16,479
Real estate agents and managers           15,628       10,588        6,328
New car dealers                           10,002        9,995        5,005
Other                                    101,637       88,842       81,299
                                    ------------ ------------ ------------
   Total Commercial Loans                200,499      175,323      152,319

1-4 family residential real estate        48,931       44,660       43,012
Consumer                                   2,632        2,285        2,153
Construction                              31,048       17,503        7,019
                                    ------------ ------------ ------------

   Total Loans                      $    283,110 $    239,771 $    204,503
                                    ============ ============ ============



Credit Quality (at end of period):


                                   June 30,    December 31,    June 30,
                                     2006          2005          2005
                                 ------------  ------------  ------------
Nonperforming Assets
Nonaccrual loans                 $        446  $         15  $        959
Loans past due 90 days or more              -            99             2
Restructured loans                          -             -             -
                                 ------------  ------------  ------------
   Total nonperforming loans              446           114           961
Other real estate owned                    52           945         2,312
                                 ------------  ------------  ------------
   Total nonperforming assets    $        498  $      1,059  $      3,273
                                 ============  ============  ============
Nonperforming loans as a % of
 loans                                   0.16%         0.05%         0.47%
                                 ------------  ------------  ------------
Nonperforming assets as a % of
 assets                                  0.14%         0.35%         1.19%
                                 ------------  ------------  ------------
Reserve for Loan Losses:
At period end                    $      5,415  $      6,108  $      6,636
                                 ------------  ------------  ------------
As a % of loans                          1.91%         2.55%         3.24%
                                 ------------  ------------  ------------
As a % of nonperforming loans        1,214.13%     5,357.89%       690.53%
                                 ------------  ------------  ------------
As a % of nonaccrual loans           1,214.13%          N/M%       691.97%
                                 ============  ============  ============

Charge-off Information:
   Average loans                 $    273,686  $    207,928  $    198,618
                                 ------------  ------------  ------------
   Net charge-offs               $         93  $        858  $        330
                                 ------------  ------------  ------------
   Charge-offs as a % of average
    loans                                0.03%         0.41%         0.17%
                                 ------------  ------------  ------------


                      MACKINAC FINANCIAL CORPORATION

                        QUARTERLY FINANCIAL SUMMARY

   *(Dollars in thousands, except per share data)


                                                                Average
                           Average      Average     Average   Shareholders'
Quarter Ended             Assets        Loans       Deposits     Equity
-------------           ------------ ------------ ------------ ------------
June 30, 2006           $    342,821 $    273,686 $    274,591 $     27,213
March 31, 2006               319,007      250,735      254,720       27,055
December 31, 2005            288,619      224,386      219,967       27,288
September 30, 2005           280,506      209,795      211,197       28,112
June 30, 2005                277,754      197,545      206,875       28,879
March 31, 2005               296,856      199,703      209,035       30,692
December 31, 2004            327,543      218,962      211,685        8,455
September 30, 2004           346,078      226,951      236,418        6,096
June 30, 2004                372,246      244,515      260,031        7,628




                               Return on Average       Net
                               -----------------     Interest   Efficiency
Quarter Ended                 Assets      Equity      Margin      Ratio
-------------               ----------  ----------  ----------  ----------
June 30, 2006                     0.22%       2.82%       3.64%      91.41%
March 31, 2006                    0.63        7.47        3.62       99.37
December 31, 2005                (1.41)     (14.95)       3.96      128.37
September 30, 2005               (0.73)      (7.39)       3.79      112.11
June 30, 2005                    (0.83)      (8.01)       3.67      119.07
March 31, 2005                   (7.16)     (69.25)       3.21      300.96
December 31, 2004                 2.95      114.17        2.48       71.83
September 30, 2004               (0.87)     (49.53)       2.25      120.66
June 30, 2004                    (1.72)     (84.13)       2.28      146.88


                                                Net Income   Book Value
Quarter Ended                                    Per Share    Per Share
-------------                                   ------------ ------------
June 30, 2006                                   $      0.05  $       7.93
March 31, 2006                                         0.15          7.93
December 31, 2005                                     (0.30)         7.76
September 30, 2005                                    (0.15)         8.14
June 30, 2005                                         (0.17)         8.32
March 31, 2005                                        (1.53)         8.42
December 31, 2004                                      8.25         10.13
September 30, 2004                                    (2.17)        18.44
June 30, 2004                                         (4.56)        16.77



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

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