SOURCE: Mackinac Financial Corporation

Mackinac Financial Corporation

February 03, 2016 15:12 ET

Mackinac Financial Corporation Reports Strong Earnings Growth for 2015

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

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