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Mackinac Financial Corporation Reports First Quarter 2010 Results

MANISTIQUE, MI -- (Marketwire) -- 04/30/10 -- Mackinac Financial Corporation (NASDAQ: MFNC), the bank holding company for mBank (the "Bank") today announced first quarter 2010 income of $3.526 million or $1.03 per share compared to net income of $.090 million, or $.03 per share for the first quarter of 2009. Operating results for the first quarter of 2010 included the recognition of a $3.500 million deferred tax benefit related to NOL carry-forwards. This deferred tax benefit was recognized in accordance with GAAP accounting which requires the benefit to be recognized when "it is more likely than not" that the NOL will be utilized within the carry-forward period.

In the first quarter of 2010 a provision for loan losses of $.900 million was booked in comparison to a provision of $.550 million in the first quarter of 2009. The 2010 first quarter also includes the preferred dividend expense of $.185 million. Weighted average shares outstanding amounted to 3,419,736 in both periods.

Net interest margin in the first quarter of 2010 increased to $4.022 million, 3.51%, compared to $3.495 million, or 3.35%, in the first quarter of 2009. The interest margin declined from 3.74% in the fourth quarter of 2009 largely due to the sale of approximately $40 million of investment securities late in 2009, the proceeds of which will be used to pay off brokered deposit maturities but is currently in overnight funds yielding .25%. Kelly W. George, President and Chief Executive Officer of mBank, stated, "During 2009, we experienced margin improvement from decreased rates on wholesale funding and also benefitted from our disciplined loan pricing which included establishing interest rate floors on new and renewing loans. The temporary decline in our net interest margin is due to our decision, late in the 2009 fourth quarter, to deleverage our balance sheet in anticipation of narrowing interest rate spreads. We expect our margin to improve as we progress through the year reducing our current excess liquidity through the funding of new loans and payment of maturing brokered deposits."

Noninterest income, at $.807 million in the first quarter of 2010, increased $.416 million from the first quarter 2009 level of $.391 million. The most significant reason for the increase between periods was the increased activity in the sale of loans, which totaled $.316 million in 2010 versus $.058 million in the same period in 2009. Noninterest income in the first quarter of 2010 also includes $.215 million of security gains.

Noninterest expense totaled $3.629 million in the first quarter of 2010, an increase of $.390 million, or 12.04%. Increased expenses in the first quarter reflect the added cost of aggressive nonperforming asset remediation, along with an increase in FDIC insurance premiums of $.097 million. The expenses related to nonperforming assets include increased legal costs and expenses associated with OREO, which contributed to the overall increase in this expense category from $.136 million in the first quarter of 2009 to $.395 million in the 2010 first quarter.

Total assets of the Corporation at March 31, 2010 were $502.427 million, up 7.73% from the $466.375 million reported at March 31, 2009. First quarter 2010 total assets were down 2.51% from the $515.377 million of total assets at year-end 2009.

Total loans at March 31, 2010 were $377.311 million, a 1.76% increase from the $370.776 million at March 31, 2009. Total loans at the end of the first quarter of 2010 were down $6.999 million from year-end 2009 total loans of $384.310 million. George stated, "Loan growth in the first quarter was impacted by $22.8 million in normal principal reduction and pay-downs. The $22.8 million in reductions included $3.2 million in SBA loan sales, and the move of $2.1 million of nonperforming loans to OREO and a reduction of $4.5 million on another nonperforming loan relationship that was sold. Our first quarter new loan production was relatively strong at $15.0 million, with new production occurring in all regions, but strongest in the Upper Peninsula with $8.2 million. We are still seeing good loan growth opportunities and expect to continue our recent successes in SBA lending."

Total deposits of $405.212 million at March 31, 2010 were up 5.04% percent from deposits of $385.757 million on March 31, 2009. First quarter 2010 deposits were down $16.177 million from year-end 2009 deposits of $421.389 million. The overall reduction in deposits for the first quarter of 2010 is comprised of a decrease in noncore deposits of $42.576 million which was partially offset with increased core deposits of $26.399 million. George, commenting on the increased core deposits, stated, "In 2009, one of our primary objectives and accomplishments was core deposit growth. In the first quarter of 2010, we continued to grow core deposits and will remain focused on this growth to reduce our overall dependency on wholesale deposits. We developed an aggressive 2010 plan for increasing deposits by actively promoting extremely attractive transactional deposit products along with competitive core deposit pricing on our CD products. We have been quite successful thus far in 2010 and expect continued deposit growth for the remainder of the year."

Nonperforming assets at the end of the first quarter of 2010 totaled $17.619 million, a reduction of $3.422 million from 2009 year end balances. Nonperforming loans were reduced $5.341 million. This decrease in nonperforming assets in the first quarter is the result of an aggressive nonperforming asset remediation program. George, commenting on credit quality, stated, "We are working diligently to reduce nonperforming assets. Our first quarter reductions are a result of aggressive remediation tactics that we deployed to mitigate longer term carrying costs associated with nonperforming assets. In addition to current period reductions, we also entered into a forward contract for the sale of a $3.2 million commercial property that should occur in the third quarter further reducing nonperforming assets."

Common Shareholders' equity at March 31, 2010 totaled $48.160 million, or $14.08 per share, compared to $41.864 million, or $12.24 per share on March 31, 2009.

Paul D. Tobias, Chairman and Chief Executive Officer, concluded, "We look for 2010 to be another year in which we position MFNC for continued profitability improvement and core deposit growth which will continue to enhance shareholder value. In the 2010 first quarter we again made progress through the recognition of the $3.5 million in deferred tax benefit, a reduction in our balances of nonperforming assets through aggressive remediation, and by increasing core deposits."

Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets in excess of $500 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 10 branch locations; six in the Upper Peninsula, three in the Northern Lower Peninsula and one in Oakland County, Michigan. The Company's banking services include commercial lending and treasury management products and services geared toward small to mid-sized businesses, as well as a full array of personal and business deposit products and consumer loans.

Forward-Looking Statements

This release contains certain forward-looking statements. Words such as "anticipates," "believes," "estimates," "expects," "intends," "should," "will," and variations of such words and similar expressions are intended to identify forward-looking statements: as defined by the Private Securities Litigation Reform Act of 1995. These statements reflect management's current beliefs as to expected outcomes of future events and are not guarantees of future performance. These statements involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. Factors that could cause a difference include among others: changes in the national and local economies or market conditions; changes in interest rates and banking regulations; the impact of competition from traditional or new sources; and the possibility that anticipated cost savings and revenue enhancements from mergers and acquisitions, bank consolidations, branch closings and other sources may not be fully realized at all or within specified time frames as well as other risks and uncertainties including but not limited to those detailed from time to time in filings of the Company with the Securities and Exchange Commission. These and other factors may cause decisions and actual results to differ materially from current expectations. Mackinac Financial Corporation undertakes no obligation to revise, update, or clarify forward-looking statements to reflect events or conditions after the date of this release.

             MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                     SELECTED FINANCIAL HIGHLIGHTS

(Dollars in thousands, except per share data)

                                           For The Period Ended
                                ------------------------------------------
                                  March 31,    December 31,     March 31,
                                    2010           2009           2009
                                ------------   ------------   ------------
                                (Unaudited)    (Unaudited)    (Unaudited)
Selected Financial Condition
 Data (at end of period):
Assets                          $    502,427   $    515,377   $    466,375
Loans                                377,311        384,310        370,776
Investment securities                 36,841         46,513         51,071
Deposits                             405,212        421,389        385,757
Borrowings                            36,140         36,140         36,210
Shareholders' Equity                  58,722         55,299         41,864


Selected Statements of Income
 Data:
Net interest income             $      4,022   $     16,287   $      3,495
Income before taxes and
 preferred dividend                      300          3,536             97
Net income                             3,526          1,907             90
Income per common share - Basic         1.03            .56            .03
Income per common share -
 Diluted                                1.03            .56            .03
Weighted average shares
 outstanding                       3,419,736      3,419,736      3,419,736


Selected Financial Ratios and
 Other Data:
Performance Ratios:
Net interest margin                     3.51%          3.59%          3.35%
Efficiency ratio                       78.12          73.37          82.36
Return on average assets                2.81            .39            .08
Return on average equity               25.95           3.77            .87

Average total assets            $    508,495   $    493,652   $    454,741
Average total shareholders'
 equity                               55,109         50,531         41,813
Average loans to average
 deposits ratio                        92.93%         92.99%         99.54%


Common Share Data (at end of
 period):
Market price per common share   $       4.72   $       4.64   $       4.00
Book value per common share     $      14.08   $      13.10   $      12.24
Common shares outstanding          3,419,736      3,419,736      3,419,736

Other Data (at end of period):
Allowance for loan losses       $      4,737   $      5,225   $      4,793
Non-performing assets           $     17,619   $     21,041   $     15,252
Allowance for loan losses to
 total loans                            1.26%          1.36%          1.29%
Non-performing assets to total
 assets                                 3.51%          4.08%          3.27%
Number of:
     Branch locations                     10             10             13
     FTE Employees                       103            100            101








              MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS

                                  March 31,    December 31,     March 31,
(Dollars in thousands)              2010           2009           2009
                                ------------   ------------   ------------
                                (unaudited)                   (unaudited)
ASSETS

Cash and due from banks         $     19,359   $     18,433   $     21,394
Federal funds sold                    36,000         27,000              -
                                ------------   ------------   ------------
   Cash and cash equivalents          55,359         45,433         21,394

Interest-bearing deposits in
 other financial institutions            700            678            569
Securities available for sale         36,841         46,513         51,071
Federal Home Loan Bank stock           3,794          3,794          3,794

Loans:
   Commercial                        296,271        305,670        295,595
   Mortgage                           76,996         74,350         71,554
   Installment                         4,044          4,290          3,627
                                ------------   ------------   ------------
     Total Loans                     377,311        384,310        370,776
       Allowance for loan
        losses                        (4,737)        (5,225)        (4,793)
                                ------------   ------------   ------------
   Net loans                         372,574        379,085        365,983

Premises and equipment                10,060         10,165         11,134
Other real estate held for sale        7,723          5,804          2,199
Other assets                          15,376         23,905         10,231
                                ------------   ------------   ------------

TOTAL ASSETS                    $    502,427   $    515,377   $    466,375
                                ============   ============   ============

LIABILITIES AND SHAREHOLDERS'
 EQUITY
LIABILITIES:
Deposits:
   Noninterest bearing deposits $     30,356   $     35,878   $     31,541
   NOW, money market, checking       109,374         95,790         75,026
   Savings                            20,675         18,207         19,585
   CDs < $100,000                     75,822         59,953         70,708
   CDs > $100,000                     30,173         36,385         26,886
   Brokered                          138,812        175,176        162,011
                                ------------   ------------   ------------
       Total deposits                405,212        421,389        385,757

Borrowings:
     Federal Home Loan Bank           35,000         35,000              -
     Other                             1,140          1,140         36,210
                                ------------   ------------   ------------
       Total borrowings               36,140         36,140         36,210
Other liabilities                      2,353          2,549          2,544
                                ------------   ------------   ------------
     Total liabilities               443,705        460,078        424,511

Shareholders' equity:
   Preferred stock - No par
    value:
     Authorized 500,000 shares,
      11,000 shares issued and
      outstanding                     10,562         10,514              -
   Common stock and additional
    paid in capital - No par
    value
     Authorized - 18,000,000
      shares
     Issued and outstanding -
      3,419,736 shares                43,502         43,493         42,833
     Accumulated earnings
      (deficit)                        3,724            199         (1,618)
     Accumulated other
      comprehensive income               934          1,093            649
                                ------------   ------------   ------------

       Total shareholders'
        equity                        58,722         55,299         41,864
                                ------------   ------------   ------------

TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY           $    502,427   $    515,377   $    466,375
                                ============   ============   ============







               MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF OPERATIONS

                                                   Three Months Ended
                                                        March 31,
                                               ---------------------------
(Dollars in thousands except per share data)       2010           2009
                                               ------------   -------------
                                               (Unaudited)    (Unaudited)
INTEREST INCOME:
     Interest and fees on loans:
          Taxable                              $      5,191   $       5,002
          Tax-exempt                                     52              90
     Interest on securities:
          Taxable                                       397             459
          Tax-exempt                                      7               1
     Other interest income                               40               2
                                               ------------   -------------
          Total interest income                       5,687           5,554
                                               ------------   -------------

INTEREST EXPENSE:
     Deposits                                         1,457           1,778
     Borrowings                                         208             281
                                               ------------   -------------
          Total interest expense                      1,665           2,059
                                               ------------   -------------

Net interest income                                   4,022           3,495
Provision for loan losses                               900             550
                                               ------------   -------------
Net interest income after provision for loan
 losses                                               3,122           2,945
                                               ------------   -------------

OTHER INCOME:
     Service fees                                       223             243
     Net security gains                                 215               -
     Net gains on sale of secondary market
      loans                                             316              58
     Other                                               53              90
                                               ------------   -------------
       Total noninterest income                         807             391
                                               ------------   -------------

OTHER EXPENSE:
     Salaries and employee benefits                   1,720           1,597
     Occupancy                                          345             378
     Furniture and equipment                            194             189
     Data processing                                    189             220
     Professional service fees                          173             153
     Loan and deposit                                   395             136
     FDIC insurance assessment                          222             125
     Telephone                                           47              43
     Advertising                                         72              78
     Other                                              272             320
                                               ------------   -------------
       Total noninterest expense                      3,629           3,239
                                               ------------   -------------

Income before provision for income taxes                300              97
Provision for income taxes                           (3,411)              7
                                               ------------   -------------
NET INCOME                                            3,711              90
                                               ------------   -------------

Preferred dividend and accretion of discount            185               -

                                               ------------   -------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS           3,526              90
                                               ============   =============

INCOME PER COMMON SHARE:
     Basic                                     $       1.03   $         .03
                                               ============   =============
     Diluted                                   $       1.03   $         .03
                                               ============   =============






            MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                 LOAN PORTFOLIO AND CREDIT QUALITY

(Dollars in thousands)

Loan Portfolio Balances (at end of period):

                                  March 31,    December 31,     March 31,
                                    2010           2009           2009
                                -------------  -------------  -------------
Commercial Loans
Real estate - operators of
 nonresidential buildings       $      49,753  $      48,689  $      40,457
Hospitality and tourism                44,820         45,315         35,224
Real estate agents and managers        21,529         24,242         28,012
Operators of nonresidential
 buildings                             13,170         12,619         13,512
Other                                 138,964        150,214        151,732
                                -------------  -------------  -------------
   Total Commercial Loans             268,236        281,079        268,937

1-4 family residential real
 estate                                70,087         67,232         65,792
Consumer                                4,044          4,290          3,627
Construction
   Commercial                          28,035         24,591         26,658
   Consumer                             6,909          7,118          5,762
                                -------------  -------------  -------------

   Total Loans                  $     377,311  $     384,310  $     370,776
                                =============  =============  =============



Credit Quality (at end of period):

                                  March 31,    December 31,     March 31,
                                    2010           2009           2009
                                ------------   ------------   ------------
Nonperforming Assets:
Nonaccrual loans                $      9,027   $     14,368   $     12,461
Loans past due 90 days or more             -              -              -
Restructured loans                       869            869            592
                                ------------   ------------   ------------
   Total nonperforming loans           9,896         15,237         13,053
Other real estate owned                7,723          5,804          2,199
                                ------------   ------------   ------------
   Total nonperforming assets   $     17,619   $     21,041   $     15,252
                                ============   ============   ============
Nonperforming loans as a % of
 loans                                  2.62%          3.96%          3.52%
                                ------------   ------------   ------------
Nonperforming assets as a % of
 assets                                 3.51%          4.08%          3.27%
                                ------------   ------------   ------------
Reserve for Loan Losses:
At period end                   $      4,737   $      5,225   $      4,793
                                ------------   ------------   ------------
As a % of loans                         1.26%          1.39%          1.29%
                                ------------   ------------   ------------
As a % of nonperforming loans          47.87%         34.29%         36.72%
                                ------------   ------------   ------------
As a % of nonaccrual loans             52.48%         36.37%         38.46%
                                ============   ============   ============

Charge-off Information (year to
 date):
   Average loans                     384,640        374,796        370,943
                                ------------   ------------   ------------
   Net charge-offs                     1,389          2,752             34
                                ------------   ------------   ------------
   Charge-offs as a % of
    average loans                        .36%           .73%           .01%
                                ------------   ------------   ------------





      MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES QUARTERLY FINANCIAL
                                    HIGHLIGHTS

                                     QUARTER ENDED
             -------------------------------------------------------------
                                      (Unaudited)
             -------------------------------------------------------------
             March 31,  December 31,   September 30,  June 30,   March 31,
               2010         2009           2009         2009       2009
             ---------  ------------   -------------  ---------  ---------
BALANCE
 SHEET
 (Dollars in
 thousands)

Total loans  $ 377,311  $    384,310   $     384,100  $ 372,004  $ 370,776
Allowance
 for loan
 losses         (4,737)       (5,225)         (4,081)    (4,119)    (4,793)
             ---------  ------------   -------------  ---------  ---------
   Total
    loans,
    net        372,574       379,085         380,019    367,885    365,983
Intangible
 assets              -             -               -          6         26
Total assets   502,427       515,377         513,180    506,304    466,375
Core
 deposits      236,227       209,828         200,541    202,892    196,860
Noncore
 deposits
 (1)           168,985       211,561         218,040    210,260    188,897
             ---------  ------------   -------------  ---------  ---------
   Total
    deposits   405,212       421,389         418,581    413,152    385,757
Total
 borrowings     36,140        36,140          36,140     36,210     36,210
Total
 shareholders'
 equity         58,722        55,299          55,766     53,939     41,864
Total shares
 outstanding 3,419,736     3,419,736       3,419,736  3,419,736  3,419,736

AVERAGE
 BALANCES
 (Dollars in
 thousands)

Assets       $ 508,495  $    514,102   $     513,687  $ 491,205  $ 454,740
Loans          384,640       386,203         370,310    371,609    370,943
Deposits       413,897       418,280         419,102    401,510    372,669
Equity          55,109        55,665          54,594     49,855     41,813

INCOME
 STATEMENT
 (Dollars in
 thousands)

Net interest
 income      $   4,022  $      4,431   $       4,310  $   4,051  $   3,495
Provision
 for loan
 losses            900         2,300             700        150        550
             ---------  ------------   -------------  ---------  ---------
   Net
    interest
    income
    after
    pro-
    vision       3,122         2,131           3,610      3,901      2,945
Total
 noninterest
 income            807         1,503           2,418        439        391
Total
 noninterest
 expense         3,629         3,650           3,443      3,470      3,239
             ---------  ------------   -------------  ---------  ---------
Income
 before
 taxes             300           (16)          2,585        870         97
Provision
 for income
 taxes          (3,411)          (22)            864        271          7
             ---------  ------------   -------------  ---------  ---------
   Net
    income       3,711             6           1,721        599         90
             ---------  ------------   -------------  ---------  ---------
Preferred
 dividend
 expense           185           186             185        138          -
             ---------  ------------   -------------  ---------  ---------
Net income
 available
 to common
 share-
 holders     $   3,526  $       (180)  $       1,536  $     461  $      90
             =========  ============   =============  =========  =========

PER SHARE
 DATA

Earnings     $    1.03  $       (.05)  $         .45  $     .13  $     .03
Book value
 per common
 share           14.08         13.10           13.25      12.73      12.24
Market
 value,
 closing
 price            4.72          4.64            4.10       4.50       4.00

ASSET
 QUALITY
 RATIOS

Nonperforming
 loans/total
 loans            2.62%         3.96 %          3.00%      2.66%      3.52%
Nonperforming
 assets/total
 assets           3.51          4.08            3.38       2.93       3.27
Allowance
 for loan
 losses/
 total
 loans            1.26          1.36            1.06       1.11       1.29
Allowance
 for loan
 losses/non-
 performing
 loans           47.87         34.29           35.40      41.71      36.72

PROFITABILITY
 RATIOS

Return on
 average
 assets           2.81%         (.14)%          1.19%       .38%       .08%
Return on
 average
 equity          25.95         (1.28)          11.16       3.71        .87
Net interest
 margin           3.51          3.74            3.66       3.58       3.35
Efficiency
 ratio           78.12         71.03           70.09      76.55      82.36
Average
 loans/average
 deposits        92.93         92.33           88.36      92.55      99.54

CAPITAL
 ADEQUACY
 RATIOS

Tier 1
 leverage
 ratio            9.85%         9.75 %          9.74%      9.65%      7.86%
Tier 1
 capital to
 risk
 weighted
 assets          12.48         11.92           12.18      11.94       9.31
Total
 capital to
 risk
 weighted
 assets          13.69         13.17           13.19      13.00      10.56
Average
 equity/
 average
 assets          10.84         10.83           10.63      10.15       9.19
Tangible
 equity/
 tangible
 assets          10.84         10.83           10.87      10.65       8.97

(1)  Noncore deposits includes Internet CDs, brokered deposits and CDs
greater than $100,000

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