Mackinac Financial Corporation Reports Strong Earnings

MANISTIQUE, MI--(Marketwired - Feb 3, 2016) - Mackinac Financial Corporation (NASDAQ: MFNC) (the "Corporation"), the bank holding company for mBank, today announced 2015 net income of $5.596 million, or $.90 per share, compared to net income $1.700 million, or $.30 per share in 2014. The 2015 results include one-time charges related to (i) the transfer of our asset based lending subsidiary assets to mBank, which charges included unamortized debt issue and dissolution costs of the subsidiary, and (ii) regulatory audit costs incurred in connection with our approval as an SBA preferred lender, along with a deferred tax valuation adjustment of $.322 million. The net positive impact of these items was approximately $.02 per share.

In 2014, the Corporation had nonrecurring transaction related expenses totaling $2.475 million. These "one-time" costs reduced the reported net income in 2014 by $1.810 million, or $.32 per share, on an after tax basis. The adjusted net income for 2014 (not inclusive of the nonrecurring transaction related expenses) would equate to $3.510 million, or $.62 per share.

Shareholders' equity at December 31, 2015 totaled $76.602 million, compared to $73.996 million on December 31, 2014. The book value per share equated to $12.32 on December 31, 2015 compared to $11.81 per share a year ago. Weighted average shares outstanding totaled 6,247,416 in 2015 compared to 5,592,738 in 2014.

Key highlights for the 2015 results include:

mBank, the Corporation's primary asset, recorded net income of $6.940 million in 2015, compared to $4.856 million, as adjusted for nonrecurring transaction related expenses, in 2014, a 43% increase following the seamless integration of Peninsula Bank.
The Corporation recorded "pre-tax, pre-provision" income of $9.133 million in 2015, compared to $6.504 million, as adjusted for nonrecurring transaction related expenses, for the same period in 2014, an increase of 25%.
Nonperforming asset reduction of $1.546 million, or 22.25%, from 2014 year-end. Nonperforming assets equate to a nominal .73% of total assets for 2015 and a Texas Ratio of 7.04%. Year-end nonperforming assets represent a reduction of $4.949 million from September 30, 2015.
Strong net interest margin, which improved to 4.30% compared to 4.19% in 2014. The margin was positively affected by the accretive impact of the "marks" to Peninsula acquired loans by approximately 19 basis points.
Increased contribution from secondary mortgage market activity. Income from this source in 2015 totaled $1.071 million compared to $.637 million in 2014.
The recently announced agreement to acquire First National Bank of Eagle River, a Wisconsin community bank with $140 million of assets as of December 31, 2015, for $12.5 million in cash. The acquisition is expected to be consummated in the second quarter of 2016, and should provide further earnings accretion.

Loans and Nonperforming Assets

Total loans at December 31, 2015 were $618.394 million, a $17.459 million increase from $600.935 million at December 31, 2014. In addition to the aforementioned balance sheet totals, the company services $224.612 million of sold mortgage loans and $63.460 million of sold SBA and USDA loans. Total loans under management now total $906 million.

New loan production totaled $234.271 million with the Upper Peninsula contributing $133.738 million, the Northern Lower Peninsula $56.142 million and Southeast Michigan $44.391 million. Commercial loan production accounted for $137.198 million of the total, with consumer loans, primarily 1-4 family mortgages, of $97.073 million. Commenting on new loan production and overall lending activities, Kelly W. George, President and CEO of mBank stated, "2015 was our best year in terms of new loan production since the recap of the company in December of 2004. We saw positive trends and good opportunities in all our markets and were very pleased with the significant increase in the mortgage lending area. SBA activities slowed some given the very competitive market conditions which in turn led to many more lenders looking at these transactions in conventional lending ways, which can be more appealing to borrowers. Actual outstanding's growth was stunted due in part to several larger clients who exited the bank for rates and terms we could not match prudently for long term balance sheet stability. We are optimistic we will carry over this loan momentum into 2016 and see further market improvements in part with the addition of the new Wisconsin region we will be entering."

Nonperforming loans totaled $3.079 million, .50% of total loans at December 31, 2015, down $4.949 million from September 30, 2015 balances of $8.028 million and down $1.546 million from 2014 year end balances of $3.939 million. Total loan delinquencies greater than 30 days resided at a nominal .58%, or $3.543 million. Mr. George, commenting on credit quality stated, "Our credit quality remains one of the Corporation's major strengths, with all segments of the loan portfolio performing well on a micro level. From a macro perspective, we remain diverse in terms of the types of originations throughout the various regions of the company which produces low portfolio concentration risk should a negative economic event occur. We remain at very low levels of problem loans through a disciplined loan underwriting culture that does not stretch proven credit parameters for short term gains. This is coupled with a timely and efficient identification and resolution workout process should a loan default, in order to minimize long term carrying costs and reduce overall loss exposure. This process proved well for 2015 as we were very successful in reducing problem assets acquired from the Peninsula Bank transaction with positive gains to the Corporation from our diligence marks."

Margin Analysis

Net interest income in 2015 increased to $29.120 million, or 4.30%, compared to $23.527 million, or 4.19%, in 2014. The increase in net interest income was largely due to the PFC acquisition as we increased earning assets by approximately $90 million. We also had increased net interest contribution due to the accretive attributes associated with the purchase accounting adjustments related to PFC loan marks under GAAP. Mr. George stated, "As noted above, we were pleased with the accretive resolutions of the exited Peninsula loans and ORE acquired in that transaction supporting our initial review of their lending assets. In terms of our core margin, we expect continued pressure from a highly competitive lending environment coupled with historically still low credit borrowing rates. However, we remain positive in our ability to prudently manage interest rate risk within the balance sheet for long term stability in terms of loan rates, and continue to capture increasing levels of margin dollars with well-structured liability pricing as well."

Deposits

Total deposits of $610.323 million at December 31, 2015 increased by $3.350 million from deposits of $606.973 million on December 31, 2014. Mr. George, commenting on core deposits and overall liquidity needs, stated "The Corporation maintains a strong liquidity position to fund loans and operations. Core deposit generation this year was reduced from previous years in a managed way given the stunted loan outstandings growth mentioned above, in an effort to maximize margin dollars. We supplemented core funding needs as customary through the use of targeted brokered deposits to better match loan pricing and term structures. We actively review in market deposit pricing and remain competitive, but are not willing to match up rates to keep non relationship type clients. This issue has become ever increasing throughout this year and is expected to continue with the slight uptick in rates from various different types of financial depository institutions."

Noninterest Income/Expense

Noninterest income, at $3.889 million in 2015, increased $.777 million from the 2014 level of $3.112 million. The primary reason for the improvement was increased year over year activity in the secondary mortgage market. Income from this source totaled $1.071 million compared to $.637 million in 2014. Noninterest expense, at $23.876 million in 2015, increased $1.266 million, or 5.60% from 2014. The 2015 increase was largely attributable to the Peninsula transaction in December 2014 in terms of salaries and benefits, occupancy expense of acquired branch offices and some early 2015 data processing costs prior to conversion. We remain diligent in monitoring and controlling our expense base given the governance and regulatory needs that come with a growing and more complex company. We continue to reside at or below peer levels in terms of overall costs to our asset base, and were pleased with the level of efficiencies we gained through the Peninsula transaction spreading our cost base over a larger platform.

Assets and Capital

Total assets of the Corporation at December 31, 2015 were $739.269 million, down $4.516 million from the $743.785 million reported at December 31, 2014. Common shareholders' equity at December 31, 2015 totaled $76.602 million, or $12.32 per share, compared to $73.996 million, or $11.81 per share on December 31, 2014. The Corporation and the Bank are both "well-capitalized" with Tier 1 Capital at the Corporation of 9.81% and 10.56% at the Bank.

Paul D. Tobias, Chairman and Chief Executive Officer of the Corporation added, "With the acquisition of PFC, the combination of our organizations has resulted in accretive earnings as planned, and we expect this contribution to continue in future periods. The expansion of our footprint from this business combination provided us with increased growth opportunities in the western part of Marquette County and tangent markets. Our increased asset size resulted in the anticipated operational and scale efficiencies, which contributed to earnings accretion. We are looking forward to the expansion of our franchise into neighboring Wisconsin. As customary, subject to regulatory approval, we will be closing this transaction in the second quarter and we are confident that it is a great cultural fit and business fit. We will look for additional true community bank partners in Wisconsin and Michigan as the year progresses.

Early in the fourth quarter we moved Mackinac Commercial Credit, our asset based lending subsidiary, into mBank to take advantage of a lower cost of funds and improved marketing opportunities being within the larger bank. This activity is now contributing to earnings and we expect that contribution to accelerate as the market for closely monitored loans grows as the credit cycle ages. In conclusion, we remain committed to our shareholders in all of our endeavors to increase value by building a safe and sound company with strong asset growth, increasing core earnings per share and growing returns on equity."

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 17 branch locations; thirteen 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, 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

		As of and for the			As of and For the
		Year Ending			Year Ending
		December 31,			December 31,
(Dollars in thousands, except per share data)		2015			2014
		(Unaudited)
Selected Financial Condition Data (at end of period):
Assets		$	739,269		$	743,785
Loans			618,394			600,935
Investment securities			53,728			65,832
Deposits			610,323			606,973
Borrowings			45,754			49,846
Shareholders' equity			76,602			73,996


Selected Statements of Income Data:
Net interest income		$	29,120		$	23,527
Income before taxes			7,929			2,829
Net income			5,596			1,700
Income per common share - Basic			.90			.30
Income per common share - Diluted			.89			.30
Weighted average shares outstanding			6,247,416			5,592,738
Weighted average shares outstanding- Diluted			6,278,817			5,653,811


Selected Financial Ratios and Other Data:
Performance Ratios:
Net interest margin			4.30	%		4.19	%
Efficiency ratio			72.12			74.43
Return on average assets			.76			.28
Return on average equity			7.41			2.57

Average total assets		$	738,688		$	605,612
Average total shareholders' equity			75,545			66,249
Average loans to average deposits ratio			100.52	%		103.98	%


Common Share Data at end of period:
Market price per common share		$	11.49		$	11.85
Book value per common share			12.32			11.81
Tangible book value per share			11.54			11.01
Dividends per share, annualized			.400			.300
Common shares outstanding			6,217,620			6,266,756

Other Data at end of period:
Allowance for loan losses		$	5,004		$	5,140
Non-performing assets		$	5,403		$	6,949
Allowance for loan losses to total loans			.81	%		.86	%
Non-performing assets to total assets			.73	%		.93	%
Texas ratio			7.04	%		9.37	%

Number of:
	Branch locations		17			17
	FTE Employees		173			160




MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

				December 31,			December 31,
				2015			2014
				(Unaudited)
ASSETS

Cash and due from banks				$	25,005		$	21,947
Federal funds sold					3			-
	Cash and cash equivalents				25,008			21,947

Interest-bearing deposits in other financial institutions					5,089			5,797
Securities available for sale					53,728			65,832
Federal Home Loan Bank stock					2,169			2,973

Loans:
	Commercial				454,831			433,566
	Mortgage				147,442			148,984
	Consumer				16,121			18,385
		Total Loans			618,394			600,935
			Allowance for loan losses		(5,004	)		(5,140	)
	Net loans				613,390			595,795

Premises and equipment					12,524			12,658
Other real estate held for sale					2,324			3,010
Deferred tax asset					9,213			11,498
Deposit based intangibles					1,076			1,196
Goodwill					3,805			3,805
Other assets					10,943			19,274

TOTAL ASSETS				$	739,269		$	743,785

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES:
Deposits:
	Noninterest bearing deposits			$	122,775		$	95,498
	NOW, money market, interest checking				202,784			212,565
	Savings				30,882			28,015
	CDs < $100,000				105,859			134,951
	CDs > $100,000				26,757			30,316
	Brokered				121,266			105,628
		Total deposits			610,323			606,973

	Federal funds purchased				-			-
	Borrowings				45,754			49,846
	Other liabilities				6,590			12,970
		Total liabilities			662,667			669,789

SHAREHOLDERS' EQUITY:
	Preferred stock - No par value:
		Authorized - 500,000 shares,Issued and outstanding - none and 4,000 shares			-			-
	Common stock and additional paid in capital - No par value
		Authorized - 18,000,000 shares
		Issued and outstanding - 6,217,620 and 6,266,756 respectively			61,133			61,679
		Retained earnings			15,221			11,804
		Accumulated other comprehensive income
			Unrealized gains (losses) on available for sale securities		297			562
			Minimum pension liability		(49	)		(49	)

		Total shareholders' equity			76,602			73,996

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY				$	739,269		$	743,785




MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS

			For the Years Ended
			December 31,
			2015		2014		2013
			(Unaudited)		(Audited)		(Audited)
INTEREST INCOME:
	Interest and fees on loans:
		Taxable	$	32,034	$	26,461	$	24,295
		Tax-exempt		13		30		105
	Interest on securities:
		Taxable		1,095		962		961
		Tax-exempt		162		64		34
	Other interest income			209		152		128
		Total interest income		33,513		27,669		25,523

INTEREST EXPENSE:
	Deposits			3,251		3,218		3,468
	Borrowings			1,142		924		656
		Total interest expense		4,393		4,142		4,124

Net interest income				29,120		23,527		21,399
Provision for loan losses				1,204		1,200		1,675
Net interest income after provision for loan losses				27,916		22,327		19,724

OTHER INCOME:
	Deposit service fees			836		701		667
	Income from loans sold on the secondary market			1,071		637		1,028
	SBA/USDA loan sale gains			610		757		951
	Mortgage servicing income			547		675		790
	Net security gains			455		54		73
	Other			370		288		429
		Total other income		3,889		3,112		3,938

OTHER EXPENSE:
	Salaries and employee benefits			12,449		10,303		9,351
	Occupancy			2,424		2,129		1,481
	Furniture and equipment			1,551		1,268		1,102
	Data processing			1,381		1,150		1,071
	Advertising			507		449		436
	Professional service fees			1,270		1,163		1,069
	Loan and deposit			955		699		617
	Writedowns and losses on other real estate held for sale			332		280		265
	FDIC insurance assessment			506		362		385
	Telephone			455		327		303
	Nonrecurring transaction related expenses			-		2,475		-
	Other			2,046		2,005		2,048
		Total other expenses		23,876		22,610		18,128

Income before provision for income taxes				7,929		2,829		5,534
Provision for (benefit of) income taxes				2,333		1,129		(403	)

NET INCOME			$	5,596	$	1,700	$	5,937

Preferred dividend and accretion of discount				-		-		308

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS			$	5,596	$	1,700	$	5,629

INCOME PER COMMON SHARE:
	Basic		$	.90	$	.30	$	1.01
	Diluted		$	.89	$	.30	$	1.00

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

LOAN PORTFOLIO AND CREDIT QUALITY

(Dollars in thousands)

Loan Portfolio Balances (at end of period):


		December 31,		December 31,
		2015		2014
		(Unaudited)		(Unaudited)
Commercial Loans:
Real estate - operators of nonresidential buildings		$	102,620	$	106,644
Hospitality and tourism			41,300		46,211
Lessors of residential buildings			25,930		19,776
Gasoline stations and convenience stores			21,647		13,841
Commercial construction			15,330		16,284
Lessors of other real estate property			7,055		9,130
Other			236,393		221,680
	Total Commercial Loans		450,275		433,566

1-4 family residential real estate			140,502		139,553
Consumer			15,847		18,385
Consumer construction			11,770		9,431

	Total Loans	$	618,394	$	600,935

Credit Quality (at end of period):


		December 31,			December 31,
		2015			2014
		(Unaudited)			(Unaudited)
Nonperforming Assets :
Nonaccrual loans		$	2,363		$	3,939
Loans past due 90 days or more			32			-
Restructured loans			684			-
	Total nonperforming loans		3,079			3,939
Other real estate owned			2,324			3,010
	Total nonperforming assets	$	5,403		$	6,949
Nonperforming loans as a % of loans			.50	%		.66	%
Nonperforming assets as a % of assets			.73	%		.93	%
Reserve for Loan Losses:
At period end		$	5,004		$	5,140
As a % of average loans			.83	%		1.01	%
As a % of nonperforming loans			162.57	%		130.49	%
As a % of nonaccrual loans			211.76	%		130.49	%
Texas Ratio			6.62	%		9.37	%

Charge-off Information (year to date):
	Average loans	$	602,904		$	509,749
	Net charge-offs (recoveries)	$	1,284		$	721
	Charge-offs as a % of average loans		.21	%		.14	%




MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES QUARTERLY FINANCIAL HIGHLIGHTS

		QUARTER ENDED
		(Unaudited)
		December 31,			September 30,			June 30,			March 31,			December 31,
		2015			2015			2015			2015			2014
BALANCE SHEET (Dollars in thousands)

Total loans		$	618,394		$	619,906		$	615,247		$	597,731		$	600,935
Allowance for loan losses			(5,004)			(5,779)			(5,600)			(5,527)			(5,140)
	Total loans, net		613,390			614,127			609,647			592,204			595,795
Total assets			739,269			754,972			735,338			728,844			743,785
Core deposits			462,300			489,963			470,053			468,622			471,029
Noncore deposits			148,023			132,371			118,768			129,291			135,944
	Total deposits		610,323			622,334			588,821			597,913			606,973
Total borrowings			45,754			49,593			64,483			49,839			49,846
Total shareholders' equity			76,602			76,091			75,746			75,038			73,996
Total tangible equity			71,721			71,180			70,805			70,066			68,995
Total shares outstanding			6,217,620			6,249,595			6,236,250			6,257,450			6,266,756
Weighted average shares outstanding			6,225,614			6,247,416			6,245,553			6,256,475			5,770,104

AVERAGE BALANCES (Dollars in thousands)

Assets		$	733,035		$	751,153		$	732,979		$	737,496		$	651,935
Loans			613,846			614,315			607,330			600,052			549,411
Deposits			602,857			624,528			594,266			601,834			522,155
Equity			75,871			76,362			75,564			73,776			67,397

INCOME STATEMENT (Dollars in thousands)

Net interest income		$	7,365		$	7,235		$	7,000		$	7,520		$	6,389
Provision for loan losses			349			350			200			305			639
	Net interest income after provision		7,016			6,885			6,800			7,215			5,750
Total noninterest income			1,142			773			1,350			624			1,003
Total noninterest expense			6,306			6,114			5,700			5,756			7,479
Income before taxes			1,852			1,544			2,450			2,083			(726)
Provision for income taxes			259			526			836			712			(74)
Net income available to common shareholders		$	1,593		$	1,018		$	1,614		$	1,371		$	(652)
Income pre-tax, pre-provision		$	2,201		$	1,894		$	2,650		$	2,388		$	(87)

PER SHARE DATA

Earnings		$	.26		$	.16		$	.26		$	.22		$	(.13)
Book value per common share			12.32			12.18			12.15			11.99			11.81
Tangible book value per share			11.54			11.39			11.35			11.20			11.01
Market value, closing price			11.49			10.10			10.53			11.39			11.85
Dividends per share			.100			.100			.075			.075			.075

ASSET QUALITY RATIOS

Nonperforming loans/total loans			.50	%		1.30	%		1.57	%		1.98	%		.66	%
Nonperforming assets/total assets			.73			1.37			1.64			1.99			.93
Allowance for loan losses/total loans			.81			.93			.91			.92			.86
Allowance for loan losses/nonperforming loans			162.57			71.99			58.02			46.64			130.49
Texas ratio ⁽¹⁾			7.04			13.41			15.76			19.16			9.37

PROFITABILITY RATIOS

Return on average assets			.86	%		.54	%		.88	%		.75	%		(.40)	%
Return on average equity			8.33			5.28			8.57			7.54			(3.84)
Net interest margin			4.34			4.18			4.17			4.53			4.19
Efficiency ratio			72.16			76.13			69.94			74.27			70.27
Average loans/average deposits			101.82			98.36			102.20			99.78			105.22

CAPITAL ADEQUACY RATIOS

Tier 1 leverage ratio			9.81	%		9.02	%		9.14	%		8.75	%		8.57	%
Tier 1 capital to risk weighted assets			10.23			10.28			10.18			10.33			10.23
Total capital to risk weighted assets			11.94			11.17			11.04			11.22			11.07
Average equity/average assets (for the quarter)			11.19			10.19			10.31			10.00			10.34
Tangible equity/tangible assets (at quarter end)			9.77			9.49			9.68			9.68			9.25

⁽¹⁾Texas ratio equals nonperforming assets divided by tangible shareholders' equity plus allowance for loan losses

Contact Information:

Contact:
Ernie R. Krueger
(906) 341-7158

Website: www.bankmbank.com

Mackinac Financial Corporation Reports Strong Earnings Growth for 2015