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Mackinac Financial Corporation Surpasses $1 Billion in Total Assets, Announces Six-Month and Second Quarter 2017 Results

MANISTIQUE, Mich., July 27, 2017 (GLOBE NEWSWIRE) -- Mackinac Financial Corporation (Nasdaq:MFNC) (the “Corporation”), the bank holding company for mBank, today announced second quarter 2017 income of $1.680 million, or $.27 per share, compared to a loss of $.125 million or ($.02) per share for the second quarter of 2016. Net income for the first six months of 2017 totaled $3.406 million, or $.54 per share, compared to $1.007 million, or $.16 per share, for the same period in 2016. Total assets of the Corporation at June 30, 2017 totaled $1.027 billion, compared to $892.328 million at June 30, 2016. Weighted average shares for 2017 totaled 6,282,551, compared to 6,220,906 shares in the same period of 2016.

The period-to-period comparison above includes the effect of the Corporation’s April 2016 acquisition of First National Bank of Eagle River (“Eagle River”). In connection with this acquisition, the Corporation had GAAP pre-tax transaction related expenses totaling $2.516 million recorded in the second quarter of 2016. These costs, largely associated with the early termination of the Eagle River data processing system, reduced the reported net income for the 2016 second quarter by $1.712 million, or $.27 per share, on an after-tax basis. The adjusted net income for the second quarter of 2016 (exclusive of the transaction related expenses) would equate to $1.588 million, or $.25 per share. Adjusted net income for the first six months of 2016 for the Corporation was $2.770 million, or $.45 per share.

Highlights for the first six months of 2017 include:

  • mBank, the Corporation’s subsidiary bank, recorded six-month net income of $4.113 million compared to $1.807 million in 2016. Excluding $2.216 million of transaction related expenses at the bank ($1.462 million after tax), net income was $3.270 million for the first six months of 2016, equating to a 26% increase, as adjusted, compared to the same period in 2017.
  • The Corporation and mBank surpassed the billion-dollar asset threshold during the quarter and ended the period at $1.027 billion and $1.023 billion of total assets, respectively.
  • Total interest income of $21.462 million through June 2017 compared to $17.403 million for the same period in 2016.
  • Net interest margin remains solid, at 4.21%. Net interest income increased from $15.284 million in 2016 to $18.485 million in 2017, a 21% increase.
  • Credit quality remains strong with a Texas Ratio of 9.91%
  • Continued momentum in the asset based lending division, Mackinac Commercial Credit (“MCC”), with loan production of $16.1 million, an increase of 200% from the same period of 2016.

Loans and Nonperforming Assets

Total loans at June 30, 2017 were $790.753 million an increase from $725.635 million at June 30, 2016, of which approximately $28.0 million is attributable to the August 2016 Niagara Bancorporation (“Niagara”) acquisition. In addition to the balance sheet totals, the Corporation services $210.160 million of sold mortgage loans and $40.097 million of sold SBA and USDA loans. Total loans under management as of second quarter end were $1.041 billion.

New loan production totaled $131.0 million, with the Upper Peninsula contributing $59.8 million, the Northern Lower Peninsula $26.2 million, Southeast Michigan $17.5 million, Wisconsin $11.4 million and MCC, $16.1 million. Commercial loan production accounted for $63.7 million of the total, with consumer loans, primarily 1-4 family mortgages, totaling $51.2 million, inclusive of $30.0 million of secondary market origination. Commenting on new loan production and overall lending activities, Kelly W. George, President and CEO of mBank stated, “We are pleased to have had consistent loan production thus far in 2017 compared to 2016 in a changing origination environment from years past. We have accomplished good loan activity in light of increased interest rates that challenge both sides of our balance sheet in terms of garnering acceptable margins for fixed rate loans to support growth. The seasonality of our business and markets has kicked in with significant new loan fundings in July and we anticipate the remaining third quarter and early fourth quarter will remain an active period for lending originations throughout all lines of business. Proactive officer calling efforts and business development initiatives continue to be a primary focus within all our markets and business segments given the changing lending landscape and the outlook for potential future upward rate moves from the Fed.”

Nonperforming assets totaled $7.798 million, or .76% of total assets at June 30, 2017 compared to $6.813 million, or .76% of total assets at June 30, 2016. Total loan delinquencies greater than 30 days resided at a nominal .59%, or $4.693 million. George, commenting on credit quality stated, “Our loan portfolio remains sound with no material weaknesses showing in any of the different loan segments during the first half of this year and continued strong payment performance with very nominal levels of problem assets and delinquent obligations. We remain diligent in both the micro aspects of underwriting credits, as well as identifying and avoiding the macro risks associated with concentrations of different types of commercial loans we are cautious to put on our balance sheet. Certain types of commercial real-estate loans we may have looked to adjudicate in prior years have been passed on this year given acceptable returns could not be garnered for the structure or industry type risk of such credits. Maintaining a diverse client base and prudently mixed loan portfolio of business and retail loans remains highly important as we continue to grow, should another economic or real estate downturn occur as we seek to avoid overreliance on any one type of loan or segment.”

Margin/Deposit Analysis

Net interest income for the first six months of 2017 increased to $18.485 million, a 4.21% net interest margin compared to $15.284 million, or 4.25%, in 2016. Total deposits of $848.245 million June 30, 2017 included approximately $54 million in deposits acquired with the Niagara acquisition. The growth of total deposits was approximately $110 million year-over-year. George, commenting on core deposits and overall liquidity, stated “The Corporation maintains a strong short-term liquidity position made up of various components of core and wholesale funding sources, as well as unpledged investments to support loan growth and operations. We review the mix of funding sources through various internal committees to ensure it is appropriate as we seek to maximize margin dollars while remaining competitive in terms of pricing to procure in-market core deposits and grow our client base. Focus on deposits has become especially important with changing client banking habits and demographics, as well as customer desire for more electronic and mobile based banking products and services. In June, we secured some longer-term bulk funding with a 4-year $25 million FHLB borrowing to help support new fixed rate commercial lending originations and lock in margin given the outlook for continued rising interest rates. It is becoming more and more difficult to sell variable rate loans in the upward rate environment and maintaining the longer term structural integrity of our balance sheet is critically important to ensure consistent earnings growth year over year, rather than stretch for short term gains in the current year.”

Noninterest Income/Expense

Noninterest income, at $1.571 million, was a $.048 million increase over the June 30, 2016 level of $1.523 million. Noninterest expense was $14.694 million for the first half of 2017 compared to $15.091 million for the same period of 2016. The 2016 total included $2.516 million of transaction-related expenses. Excluding these charges, noninterest expense totaled $12.575 million. The largest increase from 2016 was in salaries and benefits and other areas directly impacted by increased operating scale primarily related to the acquisitions of Eagle River and Niagara. The Corporation was able to achieve the expected level of cost efficiencies contemplated with the 2016 acquisitions.

Assets and Capital

Total assets of the Corporation at June 30, 2017 were $1.027 billion, up $135.122 million from the $892.328 million of total assets at June 30, 2016. Total common shareholders’ equity at June 30, 2017 was $81.313 million, or $12.92 per share, compared to $77.081 million, or $12.38 per share at June 30, 2016. Capital levels remain consistent with past periods as Tier 1 Common Equity resided at 6.93% of average assets at the Corporation and 9.14% at mBank.

In closure, Chairman and CEO of the Corporation Paul D. Tobias stated, “We are very pleased with the consistency of our earnings for the first half of 2017 as well as their improvement over the same period of 2016. The scale that we have achieved through both organic growth and acquisitions is beginning to materialize since direct costs of the transactions were all recognized last year. We believe reaching $1 billion in assets is an important milestone for the Corporation. With our growth, we will certainly be subject to change in various areas of our company, however, what will not change is our focus on serving our valued clients and investing in the communities, both legacy and acquired, where we conduct business. We are very excited about the direction of the Corporation and increased opportunities to increase shareholder value through acquisitions and organic growth.”

Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets in excess of $1 billion 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 24 branch locations; twelve in the Upper Peninsula, four in the Northern Lower Peninsula, one in Oakland County, Michigan and seven in Northern Wisconsin. 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,” “view,” 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
As of and For the As of and For the As of and For the
Period Ending Year Ending Period Ending
June 30, December 31, June 30,
(Dollars in thousands, except per share data) 2017 2016 2016
(Unaudited) (Unaudited)
Selected Financial Condition Data (at end of period):
Assets $1,027,450 $983,520 $892,328
Loans 790,753 781,857 725,635
Investment securities 82,212 86,273 71,114
Deposits 848,245 823,512 738,363
Borrowings 92,024 67,579 70,604
Shareholders' equity 81,313 78,609 77,081
Selected Statements of Income Data (six months and year ended):
Net interest income $18,485 $33,098 $15,284
Income before taxes 5,162 6,766 1,566
Net income 3,406 4,483 1,007
Income per common share - Basic .54 .72 .16
Income per common share - Diluted .54 .72 .16
Weighted average shares outstanding 6,282,551 6,236,067 6,220,906
Weighted average shares outstanding- Diluted 6,298,515 6,268,703 6,241,367
Three Months Ended:
Net interest income $9,319 $9,118 $7,996
Income before taxes 2,547 2,500 (151)
Net income 1,680 1,698 (125)
Income per common share - Basic .27 .27 (.02)
Income per common share - Diluted .27 .27 (.02)
Weighted average shares outstanding 6,294,930 6,263,371 6,227,730
Weighted average shares outstanding- Diluted 6,307,883 6,316,452 6,256,386
Selected Financial Ratios and Other Data:
Performance Ratios:
Net interest margin 4.21% 4.19% 4.25%
Efficiency ratio 71.61 79.69 89.10
Return on average assets .70 .52 .26
Return on average equity 8.57 5.73 2.58
Average total assets $982,374 $865,573 $785,881
Average total shareholders' equity 80,158 78,300 78,383
Average loans to average deposits ratio 95.38% 98.14% 101.68%
Common Share Data at end of period:
Market price per common share $13.99 $13.47 $11.01
Book value per common share 12.92 12.55 12.38
Tangible book value per share 11.69 11.29 11.23
Dividends paid per share, annualized .480 .400 .400
Common shares outstanding 6,294,930 6,263,371 6,226,246
Other Data at end of period:
Allowance for loan losses $5,133 $5,020 $4,733
Non-performing assets $7,798 $8,906 $6,813
Allowance for loan losses to total loans .65%.64% .65%
Non-performing assets to total assets .76%.91% .76%
Texas ratio 9.91% 11.76% 9.13%
Number of:
Branch locations 24 23 20
FTE Employees 235 222 209


MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31, June 30,
2017 2016 2016
(Unaudited) (Unaudited)
ASSETS
Cash and due from banks$78,972 $44,620 $40,226
Federal funds sold 10,006 2,135 9
Cash and cash equivalents 88,978 46,755 40,235
Interest-bearing deposits in other financial institutions 14,312 14,047 7,184
Securities available for sale 82,212 86,273 71,114
Federal Home Loan Bank stock 3,250 2,911 2,639
Loans:
Commercial 559,388 543,573 503,508
Mortgage 212,306 218,171 206,007
Consumer 19,059 20,113 16,120
Total Loans 790,753 781,857 725,635
Allowance for loan losses (5,133) (5,020) (4,733)
Net loans 785,620 776,837 720,902
Premises and equipment 16,654 15,891 14,699
Other real estate held for sale 4,050 4,782 3,492
Deferred tax asset 6,639 8,760 10,147
Deposit based intangibles 2,047 2,172 1,992
Goodwill 5,694 5,694 5,173
Other assets 17,994 19,398 14,751
TOTAL ASSETS$1,027,450 $983,520 $892,328
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest bearing deposits$156,970 $164,179 $149,435
NOW, money market, interest checking 259,423 286,622 251,140
Savings 61,741 58,315 48,978
CDs<$250,000 143,169 141,629 130,053
CDs>$250,000 10,077 8,489 5,417
Brokered 216,865 164,278 153,340
Total deposits 848,245 823,512 738,363
Federal funds purchased - 6,000 -
Borrowings 92,024 67,579 70,604
Other liabilities 5,868 7,820 6,280
Total liabilities 946,137 904,911 815,247
SHAREHOLDERS' EQUITY:
Common stock and additional paid in capital - No par value
Authorized - 18,000,000 shares
Issued and outstanding - 6,294,930; 6,263,371; and 6,231,246 shares respectively 61,782 61,583 61,283
Retained earnings 19,101 17,206 14,982
Accumulated other comprehensive income
Unrealized gains (losses) on available for sale securities 508 (102) 865
Minimum pension liability (78) (78) (49)
Total shareholders' equity 81,313 78,609 77,081
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$1,027,450 $983,520 $892,328


MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
2017 2016 2017 2016
(Unaudited) (Unaudited)
INTEREST INCOME:
Interest and fees on loans:
Taxable $10,260 $8,684 $20,217 $16,644
Tax-exempt 19 13 52 15
Interest on securities:
Taxable 396 304 795 566
Tax-exempt 75 26 154 57
Other interest income 116 66 244 121
Total interest income 10,866 9,093 21,462 17,403
INTEREST EXPENSE:
Deposits 1,054 771 2,013 1,540
Borrowings 493 326 964 579
Total interest expense 1,547 1,097 2,977 2,119
Net interest income 9,319 7,996 18,485 15,284
Provision for loan losses 50 150 200 150
Net interest income after provision for loan losses 9,269 7,846 18,285 15,134
OTHER INCOME:
Deposit service fees 268 248 540 464
Income from loans sold on the secondary market 316 339 614 606
SBA/USDA loan sale gains 89 166 149 166
Mortgage servicing income (9) (8) (17) (62)
Net security gains - 12 - 109
Other 131 139 285 240
Total other income 795 896 1,571 1,523
OTHER EXPENSE:
Salaries and employee benefits 3,658 3,519 7,455 6,906
Occupancy 776 640 1,561 1,280
Furniture and equipment 544 425 1,025 808
Data processing 489 333 950 678
Advertising 174 181 297 337
Professional service fees 405 257 726 498
Loan and deposit 155 155 334 282
Writedowns and losses on other real estate held for sale 243 (14) 255 2
FDIC insurance assessment 189 117 346 225
Telephone 134 122 291 234
Transaction related expenses - 2,449 - 2,516
Other 750 709 1,454 1,325
Total other expenses 7,517 8,893 14,694 15,091
Income before provision for income taxes 2,547 (151) 5,162 1,566
Provision for income taxes 867 (26) 1,756 559
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS 1,680 (125) 3,406 1,007
INCOME PER COMMON SHARE:
Basic $.27 $(.02) $.54 $.16
Diluted $.27 $(.02) $.54 $.16


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,
2017 2016 2016
(Unaudited) (Unaudited) (Unaudited)
Commercial Loans:
Real estate - operators of nonresidential buildings$114,129 $121,861 $111,523
Hospitality and tourism 73,109 68,025 48,295
Lessors of residential buildings 30,719 27,590 26,662
Gasoline stations and convenience stores 19,903 20,509 20,582
Logging 18,143 19,903 19,203
Commercial construction 10,145 11,505 18,576
Other 293,240 274,180 258,667
Total Commercial Loans 559,388 543,573 503,508
1-4 family residential real estate 200,771 205,945 194,167
Consumer 19,059 20,113 16,120
Consumer construction 11,535 12,226 11,840
Total Loans$790,753 $781,857 $725,635


Credit Quality (at end of period):
June 30, December 31, June 30,
2017 2016 2016
(Unaudited) (Unaudited) (Unaudited)
Nonperforming Assets :
Nonaccrual loans$3,644 $3,959 $3,177
Loans past due 90 days or more - - -
Restructured loans 104 165 144
Total nonperforming loans 3,748 4,124 3,321
Other real estate owned 4,050 4,782 3,492
Total nonperforming assets$7,798 $8,906 $6,813
Nonperforming loans as a % of loans.47%.53%.46%
Nonperforming assets as a % of assets.76%.91%.76%
Reserve for Loan Losses:
At period end$5,133 $5,020 $4,733
As a % of average loans.65%.64%.73%
As a % of nonperforming loans 136.95% 121.73% 142.52%
As a % of nonaccrual loans 140.86% 126.80% 148.98%
Texas Ratio 9.91% 11.76% 9.13%
Charge-off Information (year to date):
Average loans$784,823 $703,047 $652,573
Net charge-offs (recoveries)$88 $584 $421
Charge-offs as a % of average
loans, annualized.02%.08%.13%


MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL HIGHLIGHTS
QUARTER ENDED
(Unaudited)
June 30 March 31 December 31 September 30 June 30,
2017 2017 2016 2016 2016
BALANCE SHEET (Dollars in thousands)
Total loans$790,753 $786,546 $781,857 $756,804 $725,635
Allowance for loan losses (5,133) (5,146) (5,020) (4,862) (4,733)
Total loans, net 785,620 781,400 776,837 751,942 720,902
Total assets 1,027,450 976,635 983,520 959,121 892,328
Core deposits 621,303 633,160 650,745 660,867 579,606
Noncore deposits 226,942 188,660 172,767 146,313 158,757
Total deposits 848,245 821,820 823,512 807,180 738,363
Total borrowings 92,024 66,279 67,579 67,730 70,604
Total shareholders' equity 81,313 80,009 78,609 78,285 77,081
Total tangible equity 73,572 72,205 70,743 70,356 69,916
Total shares outstanding 6,294,930 6,294,930 6,263,371 6,263,371 6,226,246
Weighted average shares outstanding 6,294,930 6,270,034 6,263,371 6,238,756 6,227,730
AVERAGE BALANCES (Dollars in thousands)
Assets$984,236 $980,491 $958,781 $930,353 $834,674
Loans 787,143 782,477 771,279 734,702 689,462
Deposits 820,375 825,309 800,508 780,265 679,183
Equity 81,013 79,293 78,406 78,027 79,481
INCOME STATEMENT (Dollars in thousands)
Net interest income$9,319 $9,166 $9,118 $8,696 $7,996
Provision for loan losses 50 150 250 200 150
Net interest income after provision 9,269 9,016 8,868 8,496 7,846
Total noninterest income 795 776 1,141 1,489 896
Total noninterest expense 7,517 7,177 7,509 7,285 8,893
Income before taxes 2,547 2,615 2,500 2,700 (151)
Provision for income taxes 867 889 802 922 (26)
Net income available to common shareholders$1,680 $1,726 $1,698 $1,778 $(125)
Income pre-tax, pre-provision$2,597 $2,765 $2,750 $2,900 $(1)
PER SHARE DATA
Earnings$.27 $.28 $.27 $.29 $(.02)
Book value per common share 12.92 12.71 12.55 12.50 12.38
Tangible book value per share 11.69 11.47 11.29 11.23 11.23
Market value, closing price 13.99 13.72 13.47 11.49 11.01
Dividends per share .120 .120 .100 .100 .100
ASSET QUALITY RATIOS
Nonperforming loans/total loans .47 % .47 % .53 % .62 % .46 %
Nonperforming assets/total assets .76 .84 .91 .83 .76
Allowance for loan losses/total loans .65 .65 .64 .64 .65
Allowance for loan losses/nonperforming loans 136.95 137.96 121.73 104.13 142.52
Texas ratio 9.91 10.60 11.76 10.55 9.13
PROFITABILITY RATIOS
Return on average assets .68 % .71 % .70 % .76 % (.06)%
Return on average equity 8.32 8.83 8.62 9.06 (.63)
Net interest margin 4.24 4.19 4.14 4.18 4.19
Average loans/average deposits 95.95 94.81 96.35 94.16 101.51
CAPITAL ADEQUACY RATIOS
Tier 1 leverage ratio 7.02 % 6.77 % 7.18 % 7.29 % 7.68 %
Tier 1 capital to risk weighted assets 8.57 8.49 8.80 8.22 8.76
Total capital to risk weighted assets 9.21 9.15 9.45 8.81 9.39
Average equity/average assets (for the quarter) 8.23 8.09 8.18 8.39 9.52
Tangible equity/tangible assets (at quarter end) 7.22 7.45 7.25 7.40 7.90


Contact: Paul D. Tobias, (248) 290-5901 / ptobias@bankmbank.com Jesse A. Deering, (248) 290-5906 /jdeering@bankmbank.com Website: www.bankmbank.com

Source:Mackinac Financial Corporation