SOURCE: Mackinac Financial Corporation

Mackinac Financial Corporation

July 30, 2014 15:38 ET

Mackinac Financial Corporation Reports Six Month and Second Quarter 2014 Results

MANISTIQUE, MI--(Marketwired - Jul 30, 2014) - Mackinac Financial Corporation (NASDAQ: MFNC), the bank holding company for mBank (the "Bank"), today announced second quarter 2014 income of $.806 million or $.15 per share compared to net income available to common shareholders of $1.197 million, or $.22 per share for the second quarter of 2013. Operating results for the first six months of 2014 totaled $1.466 million or $.27 per share compared to $1.873 million or $.34 per share for the same period in 2013. The consolidated operating results for 2014 were impacted by costs associated with strategic initiatives. The Corporation incurred $.272 million of expenses related to acquisition initiatives and also recorded an after tax loss from the asset based lending subsidiary of $.297 million. The combination of these two initiatives had a negative after tax impact of $.477 million, or $.09 per share.

Weighted average shares totaled 5,529,290 shares for the six month period in 2014 and 5,527,690 shares in the 2014 second quarter compared to 5,557,842 shares for the six month period and 5,556,133 shares in the second quarter of 2013.

The Corporation's subsidiary, mBank, recorded net income of $2.404 million for the first six months of this year compared to $2.538 million for the same period in 2013. The largest adverse variance was noninterest income as it decreased primarily as a result of a reduced level of fees and gains on the sale of loans from secondary market mortgage lending of $.365 million from prior year period given the national mortgage refinance slowdown.

Total assets of the Corporation at June 30, 2014 were $595.869 million, up 7.65% from the $553.501 million reported at June 30, 2013 and up 4.03% from the $572.800 million of total assets at year-end 2013. The Corporation and the Bank are both "well-capitalized" with Tier 1 Capital at both the Corporation and the Bank of 10.50%.

Key highlights for the first six months of 2014 results include:

  • Continued strong credit quality with a Texas Ratio of 6.43% compared to 9.02% one year ago, with nonperforming assets of $4.599 million, a $1.865 million reduction from a year earlier.

  • Healthy new loan growth, with six-month production of $86 million and balance sheet growth of $19 million.

  • Net interest income in the first half of 2014 increased to $11.252 million, 4.21%, compared to $10.425 million, or 4.17%, in the first half of 2013.

  • Continued success in SBA/USDA lending with gains on the sale of these loans of $.549 million, compared to $.663 million a year earlier.

  • The recent announcement of the pending acquisition of Peninsula Bank, a 127-year old, $132 million asset bank headquartered in the Upper Peninsula with six banking locations in Marquette County.

Loans and Nonperforming Assets

Total loans at June 30, 2014 were $502.940 million, a 10.40% increase from the $455.555 million at June 30, 2013 and up $19.108 million from year-end 2013 total loans of $483.832 million. In addition to the aforementioned balance sheet totals, the company services $138 million of sold mortgage loans and $60 million of sold SBA and USDA loans. Total loans under management now reside at $701 million. 

New loan production totaled $85.8 million with the Upper Peninsula contributing $52.3 million, the Northern Lower Peninsula $14.8 million and Southeast Michigan $18.7 million. Commercial loan production accounted for $55.9 million of the six month total, with consumer, primarily 1-4 family mortgages of $29.9 million. Commenting on new loan production and overall lending activities, Kelly W. George, President and CEO of mBank stated, "We were pleased with our overall continued success in new loan production for the first half of 2014 in light of the very harsh and elongated winter in Northern Michigan where the majority of our lending activities reside. The weather stymied business development especially within the retail loan segments. Loan balance growth did accelerate in the second quarter with good activity in all of our markets and lending segments, and our pipeline remains good moving into the remainder of the year." 

Nonperforming loans totaled $2.652 million, .53% of total loans at June 30, 2014 compared to $3.983 million, or .87% of total loans at June 30, 2013 and up $.628 million from December 31, 2013. Nonperforming assets were reduced by $1.865 million from a year ago and stood at .77% of total assets and equated to $4.599 million. Total loan delinquencies greater than 30 days resided at a nominal .63% or $3.145 million. George, commenting on credit quality, stated, "Our micro credit risk metrics and overall loan portfolio payment performance remains strong. We are diligent within our loan origination structures and will not stretch our prudent lending parameters for new loans. From a macro perspective, our loan origination mix and concentrations remain well manageable and will improve with the mix and types of loans that will be acquired in the Peninsula Bank acquisition." 

Margin Analysis

Net interest income in the first half of 2014 increased to $11.252 million, 4.21%, compared to $10.425 million, or 4.17%, in the first half of 2014. George stated, "The growth of our net interest income and stability of our net interest margin is a direct reflection of our continued pricing discipline for loans and deposits within our various markets. We will continue our efforts to maintain our strong net interest margin within this historically low interest rate cycle though the use of continued targeted funding strategies and disciplined loan pricing and terms in efforts to mitigate longer term interest rate risk. 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 for the best overall returns to our shareholders."

Deposits

Total deposits of $484.016 million at June 30, 2014 increased by 8.06% from deposits of $447.907 million on June 30, 2013 and were up $17.717 million from year-end deposits $466.299 million. The overall increase in deposits for the first six months of 2014 from year-end is comprised of an increase in core deposits, mostly in certificates of deposits. George, commenting on core deposits and overall liquidity needs, stated, "The Corporation maintains a strong liquidity position to fund operations and loan growth, especially as we move through the seasonal quarters where many of our lodging and tourism clients are the busiest. We will also utilize alternative funding sources such as internet CDs and small levels of wholesale deposits when deemed necessary to structure different liabilities to match asset durations, and cover any potential short term funding gaps that could arise."

Noninterest Income/Expense

Noninterest income, at $1.341 million in the first half of 2014, decreased $.668 million from the first half 2013 level of $2.009 million. Noninterest income decreased primarily as a result of a reduced level of fees and gains on the sale of loans from secondary market mortgage lending of $.336 million from prior year period. Noninterest expense, at $10.005 million in the first half of 2014, increased $1.171 million, or 13.26% from the same period in 2013. The largest increase from the first half of 2013 was in salaries and benefits, largely reflective of the compensation packages for the staff up of our asset based lending subsidiary formed in the third quarter of 2013. We also had increased occupancy costs between periods due primarily to our new Marquette branch office, which we moved into late in 2013. We incurred some additional legal costs as well in the first half of 2014 for the exploration of an acquisition and additional SEC filing work needed this year.

Assets and Capital

Total assets of the Corporation at June 30, 2014 were $595.869 million, up 7.65% from the $553.501 million reported at June 30, 2013 and up $23.069 million from the $572.800 million of total assets at year-end 2013. The increase in assets during the first half of 2014 was primarily loan growth.

Total common shareholders' equity at June 30, 2014 was $66.477 million, or $12.03 per share, compared to $62.520 million, or $11.26 per share on June 30, 2013, an increase of $3.950 million, or 6.31 %. 

Paul D. Tobias, Chairman and Chief Executive Officer, concluded, "We are very excited about our recently announced acquisition of Peninsula State Bank. This marks a milestone for your Corporation as we seek to merge with the second oldest community bank in Michigan. This fine bank is within our largest and growing commerce hub in the Upper Peninsula. We expect this acquisition to be accretive in 2014 and beyond. In addition, our organic growth will be enhanced when our asset based lending subsidiary grows to a level that sustains profitability later this year. This new business is complementary to our commercial lending and to our SBA/USDA efforts. We expect our returns from both of these initiatives to produce positive returns on our investment and add to shareholder value in the near future."

Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets in excess of $590 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 11 branch locations; seven in the Upper Peninsula, three in the Northern Lower Peninsula and one in Oakland County, 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 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," 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)
  June 30,
2014
    December 31,
2013
    June 30,
2013
 
    (Unaudited)           (Unaudited)  
Selected Financial Condition Data (at end of period):                        
Assets   $ 595,869     $ 572,800     $ 553,501  
Loans     502,940       483,832       455,555  
Investment securities     47,374       44,388       47,307  
Deposits     484,016       466,299       447,907  
Borrowings     42,087       37,852       35,925  
Common Shareholders' Equity     66,477       65,249       62,520  
Shareholders' equity     66,477       65,249       66,520  
                         
                         
Selected Statements of Income Data (six months and year ended):                        
Net interest income   $ 11,252     $ 21,399     $ 10,425  
Income before taxes and preferred dividend     2,214       5,534       3,125  
Net income     1,466       5,629       1,873  
Income per common share - Basic*     .27       1.01       .34  
Income per common share - Diluted*     .26       1.00       .34  
Weighted average shares outstanding     5,529,290       5,558,313       5,557,842  
Weighted average shares outstanding- Diluted     5,623,192       5,650,058       5,557,842  
                         
Three Months Ended:                        
Net interest income   $ 5,659     $ 5,626     $ 5,269  
Income before taxes and preferred dividend     1,220       1,057       1,897  
Net income     806       2,910       1,197  
Income per common share - Basic     .15       .52       .22  
Income per common share - Diluted*     .15       .51       .22  
Weighted average shares outstanding*     5,527,690       5,555,952       5,556,133  
Weighted average shares outstanding- Diluted     5,557,563       5,555,952       5,556,133  
                         
Selected Financial Ratios and Other Data:                        
Performance Ratios:                        
Net interest margin     4.21 %     4.17 %     4.17 %
Efficiency ratio     78.95       67.46       70.22  
Return on average assets     .51       1.01       .69  
Return on average common equity     4.51       9.07       6.13  
Return on average equity     4.51       8.26       5.41  
                         
Average total assets   $ 580,934     $ 555,152     $ 544,887  
Average common shareholders' equity     65,508       62,082       61,590  
Average total shareholders' equity     65,508       68,172       69,847  
Average loans to average deposits ratio     103.78 %     103.46 %     104.26 %
                         
                         
Common Share Data at end of period:                        
Market price per common share   $ 12.90     $ 9.90     $ 8.88  
Book value per common share   $ 12.03     $ 11.77     $ 11.26  
Common shares outstanding     5,527,690       5,541,390       5,554,459  
                         
Other Data at end of period:                        
Allowance for loan losses   $ 5,097     $ 4,661     $ 5,177  
Non-performing assets   $ 4,599     $ 3,908     $ 6,464  
Allowance for loan losses to total loans     1.01 %     .96 %     1.14 %
Non-performing assets to total assets     .77 %     .68 %     1.17 %
Texas ratio     6.43 %     5.59 %     9.02 %
                         
Number of:                        
Branch locations     11       11       11  
FTE Employees     134       133       128  
                         
*Earnings per share data for 2012 restated for common stock issuance  
   
 
 
         MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
          CONSOLIDATED BALANCE SHEETS
                   
    June 30,     December 31,     June 30,  
    2014     2013     2013  
    (Unaudited)           (Unaudited)  
ASSETS                        
                         
Cash and due from banks   $ 20,744     $ 18,216     $ 26,216  
Federal funds sold     2       3       3  
Cash and cash equivalents     20,746       18,219       26,219  
                         
Interest-bearing deposits in other financial institutions     235       10       10  
Securities available for sale     47,374       44,388       47,307  
Federal Home Loan Bank stock     3,060       3,060       3,060  
                         
Loans:                        
  Commercial     374,565       359,368       343,561  
  Mortgage     113,332       110,663       98,559  
  Consumer     15,043       13,801       13,435  
    Total Loans     502,940       483,832       455,555  
      Allowance for loan losses     (5,097 )     (4,661 )     (5,177 )
  Net loans     497,843       479,171       450,378  
                         
Premises and equipment     9,790       10,210       10,536  
Other real estate held for sale     1,947       1,884       2,481  
Deferred tax asset     9,097       9,933       8,367  
Other assets     5,777       5,925       5,143  
                         
TOTAL ASSETS   $ 595,869     $ 572,800     $ 553,501  
                         
LIABILITIES AND SHAREHOLDERS' EQUITY                        
                         
LIABILITIES:                        
Deposits:                        
  Noninterest bearing deposits   $ 73,732     $ 72,936     $ 64,736  
  NOW, money market, interest checking     148,242       149,123       146,203  
  Savings     15,658       13,039       12,229  
  CDs < $100,000     143,140       140,495       134,767  
  CDs > $100,000     23,151       23,159       25,091  
  Brokered     80,093       67,547       64,881  
    Total deposits     484,016       466,299       447,907  
                         
  Borrowings     42,087       37,852       35,925  
  Other liabilities     3,289       3,400       3,149  
    Total liabilities     529,392       507,551       486,981  
                         
SHAREHOLDERS' EQUITY:                        
  Preferred stock - No par value:                        
    Authorized - 500,000 shares, none issued and outstanding     -       -       4,000  
  Common stock and additional paid in capital - No par value                        
    Authorized - 18,000,000 shares                        
    Issued and outstanding - 5,527,690; 5,541,390 and 5,557,859 respectively     53,703       53,621       53,934  
    Retained earnings     12,325       11,412       8,156  
    Accumulated other comprehensive income     449       216       430  
                           
      Total shareholders' equity     66,477       65,249       66,520  
                         
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 595,869     $ 572,800     $ 553,501  
 
 
 
     MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF OPERATIONS
         
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2014   2013   2014   2013
    (Unaudited)   (Unaudited)
INTEREST INCOME:                        
  Interest and fees on loans:                        
    Taxable   $ 6,373   $ 6,014   $ 12,654   $ 11,903
    Tax-exempt     -     28     23     55
  Interest on securities:                        
    Taxable     244     241     481     481
    Tax-exempt     14     6     27     13
  Other interest income     32     32     80     63
    Total interest income     6,663     6,321     13,265     12,515
                         
INTEREST EXPENSE:                        
  Deposits     800     886     1,622     1,763
  Borrowings     204     166     391     327
    Total interest expense     1,004     1,052     2,013     2,090
                         
Net interest income     5,659     5,269     11,252     10,425
Provision for loan losses     191     100     374     475
Net interest income after provision for loan losses     5,468     5,169     10,878     9,950
                         
OTHER INCOME:                        
  Deposit service fees     192     175     349     337
  Income from loans sold on the secondary market     139     279     242     578
  SBA/USDA loan sale gains     166     554     548     663
  Mortgage servicing income     89     182     102     285
  Other     64     61     100     146
    Total other income     650     1,251     1,341     2,009
                         
OTHER EXPENSE:                        
  Salaries and employee benefits     2,523     2,375     5,064     4,681
  Occupancy     546     363     1,084     745
  Furniture and equipment     303     255     622     525
  Data processing     288     268     574     533
  Advertising     123     111     230     215
  Professional service fees     276     320     607     545
  Loan and deposit     83     45     162     118
  Writedowns and losses on other real estate held for sale     14     87     14     89
  FDIC insurance assessment     90     95     175     200
  Telephone     82     63     164     145
  Other     570     541     1,309     1,038
    Total other expenses     4,898     4,523     10,005     8,834
                         
Income before provision for income taxes     1,220     1,897     2,214     3,125
Provision for income taxes     414     637     748     1,052
                         
NET INCOME     806     1,260     1,466     2,073
                         
Preferred dividend and accretion of discount     -     63     -     200
                         
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS   $ 806   $ 1,197   $ 1,466   $ 1,873
                         
INCOME PER COMMON SHARE:                        
  Basic   $ .15   $ .22   $ .27   $ .34
  Diluted   $ .15   $ .22   $ .26   $ .34
 
 
 
 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,
    2014   2013   2013
    (Unaudited)   (Unaudited)   (Unaudited)
  Commercial Loans:                  
  Real estate - operators of nonresidential buildings   $ 103,598   $ 100,333   $ 95,510
  Hospitality and tourism     42,111     45,360     42,833
  Lessors of residential buildings     14,912     14,191     13,377
  Gasoline stations and convenience stores     11,881     11,534     11,038
  Real estate agents and managers     11,388     10,922     9,472
  Commercial construction     10,550     10,904     16,053
  Other     180,125     166,124     155,278
    Total Commercial Loans     374,565     359,368     343,561
                     
  1-4 family residential real estate     105,868     103,768     94,254
  Consumer     15,043     13,801     13,435
  Consumer construction     7,464     6,895     4,305
                     
    Total Loans   $ 502,940   $ 483,832   $ 455,555
                   
                   
Credit Quality (at end of period):                  
                   
    June 30,     December 31,     June 30,  
    2014     2013     2013  
    (Unaudited)     (Unaudited)     (Unaudited)  
  Nonperforming Assets :                        
  Nonaccrual loans   $ 2,055     $ 1,410     $ 3,983  
  Loans past due 90 days or more     -       -       -  
  Restructured loans     597       614       -  
    Total nonperforming loans     2,652       2,024       3,983  
  Other real estate owned     1,947       1,884       2,481  
    Total nonperforming assets   $ 4,599     $ 3,908     $ 6,464  
  Nonperforming loans as a % of loans     .53 %     .42 %     .87 %
  Nonperforming assets as a % of assets     .77 %     .68 %     1.17 %
  Reserve for Loan Losses:                        
  At period end   $ 5,097     $ 4,661     $ 5,177  
  As a % of average loans     1.04 %     1.01 %     1.14 %
  As a % of nonperforming loans     192.19 %     230.29 %     129.98 %
  As a % of nonaccrual loans     248.03 %     330.57 %     129.98 %
  Texas Ratio     6.43 %     5.59 %     9.02 %
                           
  Charge-off Information (year to date):                        
    Average loans   $ 489,656     $ 462,500     $ 453,023  
    Net charge-offs (recoveries)   $ (62 )   $ 2,232     $ 516  
    Charge-offs as a % of average loans     N/M %     .48 %     .23 %
 
 
 
  MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES   
  QUARTERLY FINANCIAL HIGHLIGHTS  
 
    QUARTER ENDED  
    (Unaudited)  
    June 30,     March 31,     December 31,     September 30,     June 30,  
    2014     2014     2013     2013     2013  
BALANCE SHEET (Dollars in thousands)                                        
                                         
Total loans   $ 502,940     $ 485,862     $ 483,832     $ 472,495     $ 455,555  
Allowance for loan losses     (5,097 )     (4,883 )     (4,661 )     (4,959 )     (5,177 )
  Total loans, net     497,843       480,979       479,171       467,536       450,378  
Total assets     595,869       583,592       572,800       567,917       553,501  
Core deposits     380,772       384,846       375,593       375,166       357,935  
Noncore deposits     103,244       90,864       90,706       86,522       89,972  
  Total deposits     484,016       475,710       466,299       461,688       447,907  
Total borrowings     42,087       38,852       37,852       35,852       35,925  
Common shareholders' equity     66,477       65,730       65,249       63,045       62,520  
Total shareholders' equity     66,477       65,730       65,249       67,045       66,520  
Total shares outstanding     5,527,690       5,527,690       5,541,390       5,581,339       5,554,459  
Weighted average shares outstanding     5,527,690       5,530,908       5,555,952       5,562,835       5,556,133  
                                         
AVERAGE BALANCES (Dollars in thousands)                                        
                                         
Assets   $ 581,150     $ 580,717     $ 569,443     $ 560,089     $ 548,455  
Loans     492,923       486,354       479,321       464,324       456,937  
Deposits     469,720       473,951       461,630       456,191       439,780  
Common Equity     65,553       65,462       62,950       62,134       62,483  
Equity     65,553       65,462       66,906       66,134       67,483  
                                         
INCOME STATEMENT (Dollars in thousands)                                        
                                         
Net interest income   $ 5,659     $ 5,593     $ 5,626     $ 5,348     $ 5,269  
Provision for loan losses     191       183       825       375       100  
  Net interest income after provision     5,468       5,410       4,801       4,973       5,169  
Total noninterest income     650       691       1,191       738       1,251  
Total noninterest expense     4,898       5,107       4,935       4,359       4,523  
Income before taxes     1,220       994       1,057       1,352       1,897  
Provision for income taxes     414       334       (1,911 )     456       637  
  Net income     806       660       2,968       896       1,260  
Preferred dividend expense     -       -       58       50       63  
Net income available to common shareholders   $ 806     $ 660     $ 2,910     $ 846     $ 1,197  
                                         
PER SHARE DATA                                        
                                         
Earnings   $ .15     $ .12     $ .52     $ .15     $ .22  
Book value per common share     12.03       11.89       11.77       11.30       11.26  
Market value, closing price     12.90       12.54       9.90       9.10       8.88  
                                         
ASSET QUALITY RATIOS                                        
                                         
Nonperforming loans/total loans     .53 %     .31 %     .42 %     .91 %     .87 %
Nonperforming assets/total assets     .77       .63       .68       1.21       1.17  
Allowance for loan losses/total loans     1.01       1.01       .96       1.09       1.14  
Allowance for loan losses/nonperforming loans     192.19       327.50       230.29       114.98       129.98  
Texas ratio (1)     6.43       5.18       5.59       9.56       9.02  
                                         
PROFITABILITY RATIOS                                        
                                         
Return on average assets     .56 %     .46 %     2.03 %     .60 %     .88 %
Return on average common equity     4.93       4.09       18.34       5.40       7.69  
Return on average equity     4.93       4.09       17.26       5.08       7.12  
Net interest margin     4.18       4.25       4.24       4.12       4.16  
Efficiency ratio     77.55       80.57       66.94       70.64       68.02  
Average loans/average deposits     104.94       102.62       103.83       101.78       103.90  
                                         
CAPITAL ADEQUACY RATIOS                                        
                                         
Tier 1 leverage ratio     10.50 %     10.25 %     10.31 %     10.90 %     11.01 %
Tier 1 capital to risk weighted assets     11.86       11.79       11.83       12.45       12.74  
Total capital to risk weighted assets     12.87       12.79       12.79       13.47       13.85  
Average equity/average assets (for the quarter)     11.28       11.27       11.75       11.81       12.30  
Tangible equity/tangible assets (at quarter end)     11.16       11.26       11.75       11.81       12.30  
                                         
(1)Texas ratio equals nonperforming assets divided by shareholders' equity plus allowance for loan losses  

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