Mackinac Financial Corporation Reports Nine Month and Third

MANISTIQUE, MI--(Marketwired - Oct 30, 2015) - Mackinac Financial Corporation (NASDAQ: MFNC) (the "Corporation"), the bank holding company for mBank, today announced third quarter 2015 net income of $1.018 million or $.16 per share compared to net income available to common shareholders of $.886 million, or $.16 per share for the third quarter of 2014. The 2015 third quarter 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 costs and a prepayment penalty, and (ii) regulatory audit costs incurred in connection with our approval as an SBA preferred lender. Operating results for the first nine months of 2015 totaled $4.003 million or $.64 per share compared to $2.352 million or $.43 per share for the same period in 2014. Total assets of the Corporation at September 30, 2015 totaled $754.972 million, compared to $613.943 million at September 30, 2014.

Shareholders' equity at September 30, 2015 totaled $76.091 million, compared to $67.132 million on September 30, 2014. The book value per share equated to $12.18 on September 30, 2015 compared to $12.06 per share a year ago. Weighted average shares outstanding totaled 6,247,416 for the first nine months of 2015 compared to 5,532,966 for the same period in 2014.

The acquisition of Peninsula Financial Corporation ("PFC"), the holding company for Peninsula Bank, in December 2014 added approximately $125 million in assets, $70 million in loan balances and $100 million in deposits to our organization. In connection with this acquisition we increased shareholders equity by $7.804 million, issued 695,361 shares of our common stock and added approximately 350 new shareholders.

Key highlights for the first nine months of 2015 results include:

mBank, the Corporation's primary asset, recorded net income of $5.003 million in the first nine months of 2015, compared to $3.654 million for the same period in 2014, a 36.92% increase following the seamless integration of Peninsula Bank.
The Corporation recorded "pre-tax, pre-provision" income of $6.932 million for the first nine months of 2015, compared to $4.116 million for the same period in 2014, an increase of 68%.
Healthy new bank loan growth with production of $175.409 million and $18.971 million of "net" balance sheet growth.
Strong net interest margin, which improved to 4.29% compared to 4.20% in the first nine months of 2014.
Increased contribution from secondary mortgage market activity. Income from this source in the 2015 nine month period totaled $.750 million compared to $.455 million in the 2014 nine month period.

Loans and Nonperforming Assets

Total loans at September 30, 2015 were $619.906 million, a $101.533 million increase from $518.373 million at September 30, 2014, of which approximately $70.0 million is due to the PFC acquisition. The Corporation is up $18.971 million, 3.16%, from year-end 2014 total loans of $600.935 million. In addition to the aforementioned balance sheet totals, the company services $229.769 million of sold mortgage loans and $65.830 million of sold SBA and USDA loans. Total loans under management now total $916 million.

New loan production totaled $175.409 million with the Upper Peninsula contributing $100.091 million, the Northern Lower Peninsula $42.590 million and Southeast Michigan $32.728 million. Commercial loan production accounted for $103.503 million of the nine month total, with consumer loans, primarily 1-4 family mortgages, of $71.906 million. Commenting on new loan production and overall lending activities, Kelly W. George, President and CEO of mBank stated, "We are very pleased with the new loan opportunities in all our markets which is up $35 million from the prior year same period and we have seen continued new home purchase mortgage business throughout the year as well. Our net loan balances did not quite increase in line with production as we experienced approximately $25 - $30 million of unanticipated loan payoffs due in part to customers moving to other institutions for pricing and terms that were outside of our loan underwriting guidelines. We have also passed on several loan transactions where we ascertained that loan structures required some form of government guarantee and the clients were able to obtain more traditional financing elsewhere. We have a healthy loan pipeline for the remainder of the year for both commercial and mortgage business and expect this momentum to continue into next year."

Nonperforming loans totaled $8.028 million, 1.30% of total loans at September 30, 2015, down $1.624 million from June 30, 2015 balances of $9.652 million and up $4.089 million from 2014 year end balances of $3.939 million. Total loan delinquencies greater than 30 days resided at a nominal 1.47%, or $9.134 million. Mr. George, commenting on credit quality, stated, "Our credit quality risk metrics and overall loan portfolio payment performance remains strong with no systemic issues within any segments of the portfolio. Of note, we expect to exit in the fourth quarter from the previously reported community development paper mill loan transaction for which we remain adequately reserved. This was the primary reason for the increase in nonperforming loans for 2015."

Margin Analysis

Net interest income in the first nine months of 2015 increased to $21.755 million, 4.29%, compared to $17.138 million, or 4.20%, in the first nine months of 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, "We have been successful in maintaining our strong net interest margin within this historically low interest rate cycle through the use of continued targeted funding strategies and disciplined loan pricing in efforts to mitigate longer term interest rate risk where we maintain a favorable balance sheet position in a rising interest rate environment. We continue to look for any loan and investment opportunities that fit our balance sheet structure but will not take unnecessary risk or extend durations in order to enhance short term yields. In addition, we are pleased that our purchase accounting marks through our loan due diligence completed for the PFC acquisition have proven accurate in augmenting margin dollars."

Deposits

Total deposits of $622.334 million at September 30, 2015 increased by $131.128 million ($100 million from the PFC acquisition noted above) from deposits of $491.206 million on September 30, 2014 and increased $15.361 million from year end deposits of $606.973 million. Mr. George, commenting on core deposits and overall liquidity needs, stated, "The Corporation maintains a strong liquidity position to fund operations and loan growth. We proactively review our short and long term funding needs and review our pricing levels within the different segments of our deposit products in order to best manage our net interest margin to capture as many dollars as we can. 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 growth durations, and cover any potential short term funding gaps that could arise to protect our balance sheet in various interest rate change stress tests."

Noninterest Income/Expense

Noninterest income, at $2.747 million in the first nine months of 2015, increased $.638 million from the first nine months 2014 level of $2.109 million. The primary reason for the improvement was increased year over year activity in the secondary mortgage market. Income from this source totaled $.750 million compared to $.455 million in the 2014 nine month period. Noninterest expense, at $17.570 million in the first nine months of 2015, increased $2.439 million, or 16.12% from the first nine months of 2014. The 2015 increase from the first nine months of 2014 was largely attributable to the PFC acquisition 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 overall expense base, which continues to reside at below peer levels.

Assets and Capital

Total assets of the Corporation at September 30, 2015 were $754.972 million, up $141.029 million from the $613.943 million reported at September 30, 2014, with approximately $125 million attributable to the acquisition of PFC in December 2014, and up from the $743.785 million of total assets at year-end 2014. Common shareholders' equity at September 30, 2015 totaled $76.091 million, or $12.18 per share, compared to $67.132 million, or $12.06 per share on September 30, 2014. The Corporation and the Bank are both "well-capitalized" with Tier 1 Capital at the Corporation of 9.02% and 9.92% 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 believe that we will have additional accretive opportunities in the near term as the regulatory and operating costs for smaller banks dictate a larger asset base. Early in the fourth quarter we moved MCC, our asset based lending subsidiary, into mBank to take advantage of a lower cost of funds. 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 $750 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

(Dollars in thousands, except per share data)		As of and for the Period Ending September 30, 2015			As of and for the Year Ending December 31, 2014			As of and for the Period Ending September 30, 2014
		(Unaudited)						(Unaudited)
Selected Financial Condition Data (at end of period):
Assets		$	754,972		$	743,785		$	613,943
Loans			619,906			600,935			518,373
Investment securities			54,432			65,832			48,742
Deposits			622,334			606,973			491,206
Borrowings			49,593			49,846			52,409
Shareholders' equity			76,091			73,996			67,132


Selected Statements of Income Data (nine months and year ended):
Net interest income		$	21,755		$	23,527		$	17,138
Income before taxes			6,077			2,829			3,555
Net income			4,003			1,700			2,352
Income per common share - Basic*			.64			.30			.43
Income per common share - Diluted*			.64			.30			.42
Weighted average shares outstanding			6,247,416			5,592,738			5,532,966
Weighted average shares outstanding- Diluted			6,278,817			5,653,811			5,594,040

Three Months Ended:
Net interest income		$	7,235		$	6,389		$	5,886
Income before taxes			1,544			(726	)		1,341
Net income			1,018			(652	)		886
Income per common share - Basic			.16			(.13	)		.16
Income per common share - Diluted*			.16			(.13	)		.16
Weighted average shares outstanding*			6,238,963			5,770,104			5,540,200
Weighted average shares outstanding- Diluted			6,278,009			5,770,104			5,611,959

Selected Financial Ratios and Other Data:
Performance Ratios:
Net interest margin			4.29	%		4.19	%		4.20	%
Efficiency ratio			72.11			74.43			77.34
Return on average assets			.72			.28			.53
Return on average equity			7.09			2.57			4.77

Average total assets		$	740,593		$	605,612		$	590,001
Average total shareholders' equity			75,436			66,249			65,862
Average loans to average deposits ratio			100.08	%		103.98	%		103.52	%


Common Share Data at end of period:
Market price per common share		$	10.10		$	11.85		$	11.30
Book value per common share			12.18			11.81			12.06
Tangible book value per share			11.39			11.01
Dividends per share, annualized			.400			.225			.200
Common shares outstanding			6,249,595			6,266,756			5,564,815

Other Data at end of period:
Allowance for loan losses		$	5,779		$	5,140		$	5,279
Non-performing assets		$	10,324		$	6,949		$	4,538
Allowance for loan losses to total loans			.93	%		.86	%		1.02	%
Non-performing assets to total assets			1.37	%		.93	%		.74	%
Texas ratio			13.41	%		9.37	%		6.27	%

Number of:
	Branch locations		17			17			11
	FTE Employees		173			160			134

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

				September 30,			December 31,			September 30,
				2015			2014			2014
				(Unaudited)						(Unaudited)
ASSETS

Cash and due from banks				$	28,581		$	21,947		$	22,399
Federal funds sold					10,000			-			2
	Cash and cash equivalents				38,581			21,947			22,401

Interest-bearing deposits in other financial institutions					5,089			5,797			235
Securities available for sale					54,432			65,832			48,742
Federal Home Loan Bank stock					2,169			2,973			3,060

Loans:
	Commercial				446,327			433,566			383,759
	Mortgage				156,764			148,984			119,039
	Consumer				16,815			18,385			15,575
		Total Loans			619,906			600,935			518,373
			Allowance for loan losses		(5,779	)		(5,140	)		(5,279	)
	Net loans				614,127			595,795			513,094

Premises and equipment					12,670			12,658			9,821
Other real estate held for sale					2,296			3,010			1,843
Deferred tax asset					9,326			11,498			8,681
Deposit based intangibles					1,106			1,196
Goodwill					3,805			3,805
Other assets					11,371			19,274			6,066

TOTAL ASSETS				$	754,972		$	743,785		$	613,943

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES:
Deposits:
	Noninterest bearing deposits			$	114,769		$	95,498		$	84,073
	NOW, money market, interest checking				213,737			212,565			173,793
	Savings				31,742			28,015			15,263
	CDs < $100,000				129,715			134,951			130,821
	CDs > $100,000				27,272			30,316			24,891
	Brokered				105,099			105,628			62,365
			Total deposits		622,334			606,973			491,206

	Federal funds purchased				-			-			7,500
	Borrowings				49,593			49,846			44,909
	Other liabilities				6,954			12,970			3,196
		Total liabilities			678,881			669,789			546,811

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 - 6,249,595; 6,266,756 and 5,564,815 respectively			61,320			61,679			53,800
		Retained earnings			14,229			11,804			12,923
		Accumulated other comprehensive income
			Unrealized gains (losses) on available for sale securities		591			562			409
			Minimum pension liability		(49	)		(49	)		-

		Total shareholders' equity			76,091			73,996			67,132

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY				$	754,972		$	743,785		$	613,943

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

			Three Months Ended				Nine Months Ended
			September 30,				September 30,
			2015		2014		2015		2014
			(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
INTEREST INCOME:
	Interest and fees on loans:
		Taxable	$	8,019	$	6,651	$	23,986	$	19,305
		Tax-exempt		3		4		9		27
	Interest on securities:
		Taxable		282		230		845		711
		Tax-exempt		35		14		129		41
	Other interest income			46		34		148		114
		Total interest income		8,385		6,933		25,117		20,198

INTEREST EXPENSE:
	Deposits			843		813		2,467		2,435
	Borrowings			307		234		895		625
		Total interest expense		1,150		1,047		3,362		3,060

Net interest income				7,235		5,886		21,755		17,138
Provision for loan losses				350		187		855		561
Net interest income after provision for loan losses				6,885		5,699		20,900		16,577

OTHER INCOME:
	Deposit service fees			196		168		624		517
	Income from loans sold on the secondary market			301		212		750		455
	SBA/USDA loan sale gains			40		-		440		548
	Mortgage servicing income			9		313		239		415
	Net security gains			133		-		402		-
	Other			94		75		292		174
		Total other income		773		768		2,747		2,109

OTHER EXPENSE:
	Salaries and employee benefits			3,139		2,481		9,102		7,545
	Occupancy			602		511		1,804		1,595
	Furniture and equipment			370		305		1,159		927
	Data processing			327		288		1,041		862
	Advertising			153		114		399		344
	Professional service fees			348		276		928		883
	Loan and deposit			136		144		399		306
	Writedowns and losses on other real estate held for sale			104		176		141		190
	FDIC insurance assessment			135		92		383		267
	Telephone			108		84		346		248
	Other			692		655		1,868		1,964
		Total other expenses		6,114		5,126		17,570		15,131

Income before provision for income taxes				1,544		1,341		6,077		3,555
Provision for income taxes				526		455		2,074		1,203

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS			$	1,018	$	886	$	4,003	$	2,352

INCOME PER COMMON SHARE:
	Basic		$	.16	$	.16	$	.64	$	.43
	Diluted		$	.16	$	.16	$	.64	$	.42

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
LOAN PORTFOLIO AND CREDIT QUALITY

(Dollars in thousands)

Loan Portfolio Balances (at end of period):


		September 30,		December 31,		September 30,
		2015		2014		2014
		(Unaudited)		(Unaudited)		(Unaudited)
Commercial Loans:
Real estate - operators of nonresidential buildings		$	102,897	$	106,644	$	100,912
Hospitality and tourism			41,156		46,211		42,538
Lessors of residential buildings			25,911		19,776		16,262
Gasoline stations and convenience stores			17,077		13,841		11,626
Commercial construction			15,498		16,284		12,242
Lessors of other real estate property			7,088		9,130		9,067
Other			236,700		221,680		191,112
	Total Commercial Loans		446,327		433,566		383,759

1-4 family residential real estate			144,807		139,553		110,310
Consumer			16,815		18,385		15,575
Consumer construction			11,957		9,431		8,729

	Total Loans	$	619,906	$	600,935	$	518,373

Credit Quality (at end of period):

		September 30,			December 31,			September 30,
		2015			2014			2014
		(Unaudited)			(Unaudited)			(Unaudited)
Nonperforming Assets :
Nonaccrual loans		$	7,226		$	3,939		$	2,098
Loans past due 90 days or more			-			-			-
Restructured loans			802			-			597
	Total nonperforming loans		8,028			3,939			2,695
Other real estate owned			2,296			3,010			1,843
	Total nonperforming assets	$	10,324		$	6,949		$	4,538
Nonperforming loans as a% of loans			1.30	%		.66	%		.52	%
Nonperforming assets as a% of assets			1.37	%		.93	%		.74	%
Reserve for Loan Losses:
At period end		$	5,779		$	5,140		$	5,279
As a% of average loans			.95	%		1.01	%		1.06	%
As a% of nonperforming loans			71.99	%		130.49	%		195.88	%
As a% of nonaccrual loans			79.98	%		130.49	%		251.62	%
Texas Ratio			13.41	%		9.37	%		6.27	%

Charge-off Information (year to date):
	Average loans	$	607,284		$	509,749		$	496,383
	Net charge-offs (recoveries)	$	216		$	721		$	(57	)
	Charge-offs as a% of average loans		.05	%		.14	%		N/M	%

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL HIGHLIGHTS


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

Total loans		$	619,906		$	615,247		$	597,731		$	600,935		$	518,373
Allowance for loan losses			(5,779	)		(5,600	)		(5,527	)		(5,140	)		(5,279	)
	Total loans, net		614,127			609,647			592,204			595,795			513,094
Total assets			754,972			735,338			728,844			743,785			613,943
Core deposits			489,963			470,053			468,622			471,029			403,950
Noncore deposits			132,371			118,768			129,291			135,944			87,256
	Total deposits		622,334			588,821			597,913			606,973			491,206
Total borrowings			49,593			64,483			49,839			49,846			52,409
Total shareholders' equity			76,091			75,746			75,038			73,996			67,132
Total tangible equity			71,180			70,805			70,066			68,995			67,132
Total shares outstanding			6,249,595			6,236,250			6,257,450			6,266,756			5,564,815
Weighted average shares outstanding			6,247,416			6,245,553			6,256,475			5,770,104			5,540,200

AVERAGE BALANCES (Dollars in thousands)

Assets		$	751,153		$	732,979		$	737,496		$	651,935		$	607,840
Loans			614,315			607,330			600,052			549,411			509,618
Deposits			624,528			594,266			601,834			522,155			494,599
Equity			76,362			75,564			73,776			67,397			66,558

INCOME STATEMENT (Dollars in thousands)

Net interest income		$	7,235		$	7,000		$	7,520		$	6,389		$	5,886
Provision for loan losses			350			200			305			639			187
	Net interest income after provision		6,885			6,800			7,215			5,750			5,699
Total noninterest income			773			1,350			624			1,003			768
Total noninterest expense			6,114			5,700			5,756			7,479			5,126
Income before taxes			1,544			2,450			2,083			(726	)		1,341
Provision for income taxes			526			836			712			(74	)		455
Net income available to common shareholders		$	1,018		$	1,614		$	1,371		$	(652	)	$	886
Income pre-tax, pre-provision		$	1,894		$	2,650		$	2,388		$	(87	)	$	1,528

PER SHARE DATA

Earnings		$	.16		$	.26		$	.22		$	(.13	)	$	.16
Book value per common share			12.18			12.15			11.99			11.81			12.06
Tangible book value per share			11.39			11.35			11.20			11.01			12.06
Market value, closing price			10.10			10.53			11.39			11.85			11.30
Dividends per share			.100			.075			.075			.075			.05

ASSET QUALITY RATIOS

Nonperforming loans/total loans			1.30	%		1.57	%		1.98	%		.66	%		.52	%
Nonperforming assets/total assets			1.37			1.64			1.99			.93			.74
Allowance for loan losses/total loans			.93			.91			.92			.86			1.02
Allowance for loan losses/nonperforming loans			71.99			58.02			46.64			130.49			195.88
Texas ratio ⁽¹⁾			13.41			15.76			19.16			9.37			6.27

PROFITABILITY RATIOS

Return on average assets			.54	%		.88	%		.75	%		(.40	)%		.58	%
Return on average equity			5.28			8.57			7.54			(3.84	)		5.28
Net interest margin			4.18			4.17			4.53			4.19			4.20
Efficiency ratio			76.13			69.94			74.27			70.27			73.83
Average loans/average deposits			98.36			102.20			99.78			105.22			103.03

CAPITAL ADEQUACY RATIOS

Tier 1 leverage ratio			9.02	%		9.14	%		8.75	%		8.57	%		10.23	%
Tier 1 capital to risk weighted assets			10.28			10.18			10.33			10.23			11.68
Total capital to risk weighted assets			11.17			11.04			11.22			11.07			12.68
Average equity/average assets (for the quarter)			10.19			10.31			10.00			10.34			10.95
Tangible equity/tangible assets (at quarter end)			9.49			9.68			9.68			9.25			10.93

⁽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 Nine Month and Third Quarter 2015 Results