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Mackinac Financial Corporation Reports Second Quarter and Six Months 2010 Results

MANISTIQUE, MI -- (Marketwire) -- 08/10/10 -- Mackinac Financial Corporation (NASDAQ: MFNC), the bank holding company for mBank (the "Bank"), today announced a second quarter 2010 loss of $2.488 million or $.73 per share compared to net income of $.461 million, or $.13 per share for the second quarter of 2009. Net income for the first six months of 2010 totaled $1.038 million, or $.30 per share, compared to $.551 million, or $.16 per share, for the same period in 2009. The second quarter results include a provision for loan losses of $2.800 million and $1.800 million of write-downs of OREO properties. Operating results for the six month period in 2010 include a $3.700 million provision, the $1.800 million OREO write-downs, and a $3.500 million deferred tax benefit. Total shareholders' equity at June 30, 2010 totaled $56.231 million, compared to $53.939 million on June 30, 2009, an increase of $2.292 million, or 4.25%. Book value of common shareholders' equity was $13.34 per share at June 30, 2010 compared to $12.55 per share at June 30, 2009.

Income before tax, and excluding the loan loss provisions and OREO write-downs for the second quarter of 2010 amounted to $1.086 million compared to $1.020 million in 2009 while the 2010 six month adjusted income would total $2.286 million compared to $1.667 million in 2009. Outside of the credit items impacting this quarter, the company continues to gain positive momentum in terms of its core earning asset base with a sound balance sheet structure, coupled with strong core deposit growth which has been a central focus of this year's business initiatives. Core deposits totaled $271.026 million at June 30, 2010, a 29.2% increase from 2009 year end core deposits of $209.828 million.

The larger loan loss provisions, along with the OREO write-downs, primarily reflect the continued deterioration of a few large existing nonperforming credit relationships in Southeast Michigan and two smaller relationships which emerged this year. In addition, a portion of the provision was to increase the general allowance for loan losses, which stands at 1.65% at June 30, 2010, in recognition of the remaining adverse economic factors associated with the stagnant and depressed commercial real estate markets in many metropolitan areas such as Southeast Michigan. The OREO write-down includes a $1.4 million adjustment on a vacant parcel of land in Southeast Michigan which has decreased in value by more than 75% since the inception of the credit relationship in 2006.

Nonperforming assets at the end of the second quarter of 2010 totaled $16.719 million, 3.34% of total assets, a reduction of $4.322 million from 2009 year end balances of $21.041 million. Kelly George, President and Chief Executive Officer of mBank, commented, "We are working aggressively to reduce our nonperforming asset levels. We expect additional reductions in future periods, including a third quarter reduction resulting from a forward contract sale of a $3.2 million commercial property. Nonaccrual loans represent 2.87% of total loans and loan delinquencies greater than 30 days have remained stable and continue to reside below peer levels and manageable. The company's Texas Ratio remained satisfactory at 26.71%. We will continue our timely and aggressive efforts in the identification and resolution of nonperforming assets which should result in more normalized loan loss provisions and lowered credit related costs in future periods."

Loans at June 30, 2010 totaled $384.839 million, a 3.45% increase from the $372.004 million at June 30, 2009, and were relatively unchanged from 2009 year end balances of $384.310 million. Mr. George stated, "Given the current economic environment, and competitive requirements for loan pricing and credit quality, we are pleased with current year to date production which totaled $36.0 million, 75% of this production originated in the Upper Peninsula. We continue to see loan opportunities, not only in the Upper Peninsula, but also in Lower Michigan and our current pipeline is promising. A part of our success in loan production is attributed to our expertise with the SBA and USDA loan guarantee programs. These programs benefit us with new loan opportunities along with a secondary source of balance sheet liquidity and the potential for significant fee income when the guaranteed portion is sold. Thus far in 2010 we have sold $5.8 million of these loan balances and recognized $.449 million in gains."

Total assets of the Corporation at June 30, 2010 were $500.774 million, down $5.530 million, or 1.09% from the $506.304 million in total assets reported at June 30, 2009 and down $14.603 million, or 2.83%, from total assets of $515.377 million at year-end 2009. Asset totals at June 30, 2010 reflect the decrease of $11.571 million in securities.

Total deposits of $405.784 were lower than deposit totals reported at June 30, 2009 of $413.152 million and 2009 year-end deposits of $421.389 million. The decreased deposit level was due entirely to lower levels of brokered deposits, a very positive initiative given the current regulatory climate for this type of funding source, which totaled $111.106 million at June 30, 2010 compared to $175.176 million at 2009 year end and $184.805 million at June 30, 2009.

Noninterest income totaled $.593 million in the second quarter of 2010, compared to $.439 million in the same period in 2009. Noninterest income for the six month period in 2010 amounted to $1.400 million compared to $.830 million in 2009. The increase in noninterest income for 2010 is primarily due to gains that were recognized for SBA loan sales. The Corporation also recognized $.215 million in gains from the sale of securities which was recorded in the first quarter of 2010. Noninterest expense totaled $5.331 million in the second quarter, an increase of $1.860 million from the second quarter of 2009. This increase stems primarily from the $1.800 million of OREO write-downs recorded in the 2010 second quarter. On a year to date basis 2010 noninterest expense totaled $8.959 million, an increase of $2.249 million when compared to the six months ended June 30, 2009. The increase in expenses is primarily attributed to costs associated with nonperforming assets which were $2.1 million higher in 2010 and included the OREO write-down.

MFNC Chairman and CEO Paul Tobias concluded, "We remain focused on increasing shareholder value. The loss for the second quarter is disappointing but a momentary setback in our forward progress towards increased profitability. Our core earnings are increasing. We continue to look for opportunities that will enhance the franchise value including FDIC assisted transactions along with traditional acquisitions that will be accretive to earnings and additive to our core deposit objectives."

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 11 branch locations; seven 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             For The Period Ended
 share data)                            ----------------------------------
                                         June 30,  December 31,  June 30,
                                           2010        2009        2009
                                        ----------  ----------  ----------
                                        (Unaudited)             (Unaudited)
Selected Financial Condition Data (at
 end of period):
Assets                                  $  500,774  $  515,377  $  506,304
Loans                                      384,839     384,310     372,004
Investment securities                       34,942      46,513      95,620
Deposits                                   405,784     421,389     413,152
Borrowings                                  36,140      36,140      36,210
Shareholders' Equity                        56,231      55,299      53,939

Selected Statements of Income Data (six
 months and year ended):
Net interest income                     $    8,045  $   16,287  $    7,546
Provision for loan losses                    3,700       3,700         700
Income (Loss) before taxes and
 preferred dividend                         (3,214)      3,536         967
Net income                                   1,038       1,907         551
Income per common share - Basic                .30         .56         .16
Income per common share - Diluted              .30         .56         .16

Three Months Ended:
Net interest income                     $    4,023  $    4,431  $    4,051
Income (Loss) before taxes and
 preferred dividend                         (3,514)        (16)        870
Net income (Loss)                           (2,488)       (180)        461
Income (Loss) per common share - Basic       (0.73)       (.05)        .13
Income (Loss) per common share -
 Diluted                                     (0.73)       (.05)        .13
Weighted average shares outstanding      3,419,736   3,419,736   3,419,736

Selected Financial Ratios and Other
 Data (six months and year ended):
Performance Ratios:
Net interest margin                           3.53%       3.59%       3.47%
Efficiency ratio                             77.08       73.37       79.25
Return on average assets                       .41         .39         .23
Return on average common equity               3.70        3.77        2.42

Average total assets                    $  505,703  $  493,652  $  473,074
Average total common shareholders'
 equity                                 $   56,506  $   50,531  $   45,856
Average loans to average deposits ratio      93.59%      92.99%      95.90%

Common Share Data (at end of period):
Market price per common share           $     6.50  $     4.64  $     4.50
Book value per common share             $    13.34  $    13.10  $    12.55
Common shares outstanding                3,419,736   3,419,736   3,419,736
Other Data (at end of period):
Allowance for loan losses               $    6,371  $    5,225  $    4,119
Non-performing assets                   $   16,719  $   21,041  $   14,825
Allowance for loan losses to total
 loans                                        1.66%       1.36%       1.11%
Non-performing assets to total assets         3.34%       4.08%       2.93%
Texas Ratio*                                 26.71%      34.77%      25.54%
Number of:
   Branch locations                             11          10          11
   FTE Employees                               105         100         102

* Texas Ratio: Non-performing Assets divided by Total Equity plus Allowance
  for Loan Losses




             MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED BALANCE SHEETS


                                         June 30,  December 31,   June 30,
(Dollars in thousands)                     2010        2009        2009
                                        ----------  ----------  ----------
                                        (unaudited)             (unaudited)
ASSETS

Cash and due from banks                 $   39,165  $   18,433  $   12,189
Federal funds sold                          12,000      27,000           -
                                        ----------  ----------  ----------
   Cash and cash equivalents                51,165      45,433      12,189

Interest-bearing deposits in other
 financial institutions                        678         678         618
Securities available for sale               34,942      46,513      95,620
Federal Home Loan Bank stock                 3,794       3,794       3,794

Loans:
   Commercial                              302,228     305,670     296,392
   Mortgage                                 78,428      74,350      71,777
   Installment                               4,183       4,290       3,835
                                        ----------  ----------  ----------
     Total Loans                           384,839     384,310     372,004
       Allowance for loan losses            (6,371)     (5,225)     (4,119)
                                        ----------  ----------  ----------
   Net loans                               378,468     379,085     367,885

Premises and equipment                      10,085      10,165      11,064
Other real estate held for sale              5,676       5,804       4,950
Other assets                                15,966      23,905      10,184
                                        ----------  ----------  ----------

TOTAL ASSETS                            $  500,774  $  515,377  $  506,304
                                        ==========  ==========  ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
   Deposits:
     Noninterest bearing deposits       $   41,434  $   35,878  $   33,368
     NOW, money market, checking           118,909      95,790      75,974
     Savings                                20,110      18,207      21,411
     CDs < $100,000                         90,573      59,953      72,139
     CDs > $100,000                         23,652      36,385      25,455
     Brokered                              111,106     175,176     184,805
                                        ----------  ----------  ----------
       Total deposits                      405,784     421,389     413,152

   Borrowings:
     Federal Home Loan Bank                 35,000      35,000      35,000
     Other                                   1,140       1,140       1,210
                                        ----------  ----------  ----------
       Total borrowings                     36,140      36,140      36,210
   Other liabilities                         2,619       2,549       3,003
                                        ----------  ----------  ----------
     Total liabilities                     444,543     460,078     452,365

TOTAL SHAREHOLDERS' EQUITY                  56,231      55,299      53,939
                                        ----------  ----------  ----------

TOTAL LIABILITIES AND SHAREHOLDERS'
 EQUITY                                 $  500,774  $  515,377  $  506,304
                                        ==========  ==========  ==========




             MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF OPERATIONS


(Dollars in thousands except per    Three Months Ended   Six Months Ended
 share data)                             June 30,            June 30,
                                    ------------------- -------------------
                                      2010      2009      2010      2009
                                    --------  --------- --------  ---------
                                        (Unaudited)         (Unaudited)
INTEREST INCOME:
     Interest and fees on loans:
          Taxable                   $  5,227  $   5,104 $ 10,418  $  10,106
          Tax-exempt                      47         84       99        174
     Interest on securities:
          Taxable                        356        673      753      1,132
          Tax-exempt                       7          3       14          4
     Other interest income                37         14       77         16
                                    --------  --------- --------  ---------
          Total interest income        5,674      5,878   11,361     11,432
                                    --------  --------- --------  ---------

INTEREST EXPENSE:
     Deposits                          1,439      1,566    2,896      3,344
     Borrowings                          212        261      420        542
                                    --------  --------- --------  ---------
          Total interest expense       1,651      1,827    3,316      3,886
                                    --------  --------- --------  ---------

Net interest income                    4,023      4,051    8,045      7,546
Provision for loan losses              2,800        150    3,700        700
                                    --------  --------- --------  ---------
Net interest income after provision
 for loan losses                       1,223      3,901    4,345      6,846
                                    --------  --------- --------  ---------

OTHER INCOME:
     Service fees                        252        271      474        514
     Net security gains                    -          -      215          -
     Net gains on sale of secondary
      market loans                       276         84      575        142
     Other                                65         84      136        174
                                    --------  --------- --------  ---------
          Total other income             593        439    1,400        830
                                    --------  --------- --------  ---------

OTHER EXPENSES:
     Salaries and employee benefits    1,781      1,561    3,501      3,158
     Occupancy                           345        355      690        733
     Furniture and equipment             197        222      391        411
     Data processing                     205        224      394        444
     Professional service fees           161        144      334        297
     Loan and deposit                  2,239        512    2,856        773
     Telephone                            45         46       92         89
     Advertising                          72         80      144        158
     Other                               285        326      557        646
                                    --------  --------- --------  ---------
          Total other expenses         5,330      3,470    8,959      6,709
                                    --------  --------- --------  ---------

Income (Loss) before provision for
 income taxes                         (3,514)       870   (3,214)       967
Provision for (benefit of) income
 taxes                                (1,212)       271   (4,623)       278
                                    --------  --------- --------  ---------

NET INCOME (LOSS)                     (2,302)       599    1,409        689
                                    --------  --------- --------  ---------

Preferred dividend expense               186        138      371        138

                                    --------  --------- --------  ---------
NET INCOME (LOSS) AVAILABLE TO
 COMMON SHAREHOLDERS                $ (2,488) $     461 $  1,038  $     551
                                    ========  ========= ========  =========

INCOME (LOSS) PER COMMON SHARE:
     Basic                          $  (0.73) $     .13 $    .30  $     .16
                                    ========  ========= ========  =========
     Diluted                        $  (0.73) $     .13 $    .30  $     .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,
                                            2010        2009        2009
                                        ----------- ----------- -----------
Commercial Loans
Real estate - operators of
 nonresidential buildings               $    50,000 $    48,689 $    44,087
Hospitality and tourism                      43,883      45,315      35,033
Commercial construction                      27,219      24,591      26,125
Real estate agents and managers              20,727      24,242      24,614
Other                                       160,399     162,833     166,533
                                        ----------- ----------- -----------
   Total Commercial Loans                   302,228     305,670     296,392

1-4 family residential real estate and
 construction                                78,428      74,350      71,777
Consumer                                      4,183       4,290       3,835
                                        ----------- ----------- -----------

   Total Loans                          $   384,839 $   384,310 $   372,004
                                        =========== =========== ===========


Credit Quality (at end of period):

                                         June 30,  December 31,   June 30,
                                           2010        2009        2009
                                        ----------  ----------  ----------
Nonperforming Assets :
Nonaccrual loans                        $   10,174  $   14,368  $    9,283
Loans past due 90 days or more                   -           -           -
Restructured loans                             869         869         592
                                        ----------  ----------  ----------
   Total nonperforming loans                11,043      15,237       9,875
Other real estate owned                      5,676       5,804       4,950
                                        ----------  ----------  ----------
   Total nonperforming assets           $   16,719  $   21,041  $   14,825
                                        ==========  ==========  ==========
Nonperforming loans as a % of loans           2.87%       3.96%       2.65%
                                        ----------  ----------  ----------
Nonperforming assets as a % of assets         3.34%       4.08%       2.93%
                                        ----------  ----------  ----------
Reserve for Loan Losses:
At period end                           $    6,371  $    5,225  $    4,119
                                        ----------  ----------  ----------
As a % of average loans                       1.66%       1.39%       1.11%
                                        ----------  ----------  ----------
As a % of nonperforming loans                57.69%      34.29%      41.71%
                                        ----------  ----------  ----------
As a % of nonaccrual loans                   62.62%      36.37%      44.37%
                                        ==========  ==========  ==========

Charge-off Information (year to date):
   Average loans                           383,398     374,796     371,278
                                        ----------  ----------  ----------
   Net charge-offs                           2,554       2,752         858
                                        ----------  ----------  ----------
   Charge-offs as a % of average loans         .67%        .73%        .23%
                                        ----------  ----------  ----------




             MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                      QUARTERLY FINANCIAL HIGHLIGHTS


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

Total loans        $ 384,839   $ 377,311  $ 384,310   $ 384,100  $ 372,004
Allowance for loan
 losses               (6,371)     (4,737)    (5,225)     (4,081)    (4,119)
                   ---------   ---------  ---------   ---------  ---------
   Total loans,
    net              378,468     372,574    379,085     380,019    367,885
Intangible assets          -           -          -           -          6
Total assets         500,774     502,427    515,377     513,180    506,304
Core deposits        271,026     236,227    209,828     200,541    202,892
Noncore deposits(1)  134,758     168,985    211,561     218,040    210,260
                   ---------   ---------  ---------   ---------  ---------
   Total deposits    405,784     405,212    421,389     418,581    413,152
Total borrowings      36,140      36,140     36,140      36,140     36,210
Total shareholders'
 equity               56,231      58,722     55,299      55,766     53,939
Total shares
 outstanding       3,419,736   3,419,736  3,419,736   3,419,736  3,419,736

AVERAGE BALANCES
 (Dollars in
 thousands)

Assets             $ 502,942   $ 508,495  $ 514,102   $ 513,687  $ 491,205
Loans                382,169     384,640    386,203     370,310    371,609
Deposits             405,449     413,897    418,280     419,102    401,510
Equity                57,889      55,109     55,665      54,594     49,855

INCOME STATEMENT
 (Dollars in
 thousands)

Net interest
 income            $   4,023   $   4,022  $   4,431   $   4,310  $   4,051
Provision for loan
 losses                2,800         900      2,300         700        150
                   ---------   ---------  ---------   ---------  ---------
   Net interest
    income after
    provision          1,223       3,122      2,131       3,610      3,901
Total noninterest
 income                  593         807      1,503       2,418        439
Total noninterest
 expense               5,330       3,629      3,650       3,443      3,470
                   ---------   ---------  ---------   ---------  ---------
Income (Loss)
 before taxes         (3,514)        300        (16)      2,585        870
Provision for
 (benefit of)
 income taxes         (1,212)     (3,411)       (22)        864        271
Preferred dividend
 expense                 186         185        186         185        138
                   ---------   ---------  ---------   ---------  ---------
Net income (loss)
 available to
 common
 shareholders      $  (2,488)  $   3,526  $    (180)  $   1,536  $     461
                   =========   =========  =========   =========  =========

PER SHARE DATA

Earnings (Losses)
 - basic           $    (.73)  $    1.03  $    (.05)  $     .45  $     .13
Earnings
 (Losses)- diluted      (.73)       1.03       (.05)        .45        .13
Book value  per
 common share          13.34       14.08      13.10       13.25      12.55
Market value,
 closing price          6.50        4.72       4.64        4.10       4.50

ASSET QUALITY
 RATIOS

Nonperforming
 loans/total loans      2.87%       2.62%      3.96%       3.00%      2.65%
Nonperforming
 assets/total
 assets                 3.34        3.51       4.08        3.38       2.93
Allowance for loan
 losses/total
 loans                  1.66        1.26       1.36        1.06       1.11
Allowance for loan
 losses/
 nonperforming loans   57.69       47.87      34.29       35.40      41.71
Texas Ratio(2)         26.71       27.76      34.77       28.99      25.54

PROFITABILITY
 RATIOS

Return on average
 assets                (1.98)%      2.81%      (.14)%      1.19%       .38%
Return on average
 equity               (17.24)      25.95      (1.28)      11.16       3.71
Net interest margin     3.56        3.51       3.74        3.66       3.58
Efficiency ratio       76.04       78.12      71.03       70.09      76.55
Average loans/average
 deposits              94.26       92.93      92.33       88.36      92.55

CAPITAL ADEQUACY
 RATIOS

Tier 1 leverage
 ratio                  9.38%       9.85%      9.75%       9.74%      9.65%
Tier 1 capital to
 risk weighted
 assets                11.65       12.48      11.92       12.18      11.94
Total capital to
 risk weighted
 assets                12.91       13.69      13.17       13.19      13.00
Average
 equity/average
 assets                11.51       10.84      10.83       10.63      10.15
Tangible
 equity/tangible
 assets                11.51       10.84      10.83       10.87      10.65

(1) Noncore deposits includes Internet CDs, brokered deposits and CDs
    greater than $100,000
(2) Texas Ratio: Nonperforming Assets divided by Total Equity plus
    Allowance for Loan Losses

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