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Mackinac Financial Corporation Reports First Quarter 2012 Results

MANISTIQUE, MI -- (Marketwire) -- 05/02/12 -- Mackinac Financial Corporation (NASDAQ: MFNC), the bank holding company for mBank (the "Bank"), today announced first quarter 2012 income of $.498 million or $.15 per share compared to net income of $.256 million, or $.07 per share for the first quarter of 2011. The Corporation's primary asset, mBank, recorded net income of $.800 million for the first quarter of 2012. The first quarter results include a provision for loan losses of $.495 million and negligible ORE writedowns and losses. Operating results for the same period in 2011 include no provision for loan losses, and $.467 million of ORE writedowns and losses.

Total shareholders' equity at March 31, 2012 totaled $56.095 million, compared to $54.097 million on March 31, 2011, an increase of $1.998 million, or 3.69%. Book value of common shareholders' equity was $13.19 per share at March 31, 2012 compared to $12.67 per share at March 31, 2011.

Weighted average shares outstanding totaled 3,419,736 for both periods. The common stock warrants outstanding of 379,310 shares were slightly dilutive, at approximately $.01 per share, for the 2012 first quarter, as the market value of our stock remained above the $4.35 strike price.

Some highlights for the first quarter include:

  • Strong loan production, with loan balances increasing by $13.156 million. A good backlog of over $20 million of new loans has been adjudicated and is ready to close in the next 60 days. Some of these loans are SBA transactions which will lead to improved noninterest income levels for the next couple quarters.

  • Improved net interest margin at 4.17% compared to 3.92% for the first quarter of 2011.

  • Core deposit growth of $6.462 million.

  • Secondary mortgage loan income of $.262 million, compared to $.079 million in the first quarter of 2011.

  • Improved credit quality with a Texas Ratio of 16.84% compared to 24.96% one year ago.

Loans and Non-performing Assets

Total loans at March 31, 2012 were $414.402 million, a 10.62% increase from the $374.609 million at March 31, 2011 and up $13.156 million from year-end 2011 total loans of $401.246 million. Commenting on loan growth, Kelly W. George, President and CEO of mBank, stated, "We are seeing good loan opportunities in all of our markets, but are especially pleased with the resurgence of good commercial lending opportunities in Southeast Michigan, which bodes well for our organization and is a good economic indicator for the State of Michigan. We are also highly encouraged with the 1-4 family mortgage lending momentum continuing from late last year during a traditionally slow time of the year in our Northern markets. This should bode well for increased lending activities as we enter our peak mortgage lending periods within the late second and third quarters."

Nonperforming loans totaled $6.857 million, 1.65% of total loans at March 31, 2012 compared to $9.964 million, or 2.66% of total loans at March 31, 2011 and down $1.136 million from December 31, 2011. Nonperforming assets were reduced by $4.694 million from a year ago and stood at 2.04% of total assets. Total loan delinquencies resided at 1.17% or $4.8 million, almost solely made up of non-accrual commercial loans. George, commenting on credit quality, stated, "We believe that we will have further reductions of our nonperforming assets as the economy continues to improve and ORE properties become more marketable. Our nonperforming assets are manageable and our associated costs are now more in line with a normal business climate."

Margin Analysis

Net interest margin in the first quarter of 2012 increased to $4.763 million, 4.17%, compared to $4.141 million, or 3.92%, in the first quarter of 2011. The interest margin increase was largely due to decreased funding costs. George stated, "We expect some margin pressure as we progress through the year due to increased competition on pricing for new loans and renewals. More banks are now on the offense and we expect pricing to be very competitive."

Deposits

Total deposits of $412.088 million at March 31, 2012 increased by 2.82% from deposits of $400.783 million on March 31, 2011. Total deposits on March 31, 2012 deposits were up $7.299 million from year-end 2011 deposits of $404.789 million. The overall increase in deposits for the first three months of 2012 is comprised of an increase in noncore deposits of $.837 million and increased core deposits of $6.462 million. George, commenting on core deposits, stated, "We are now into the third full year of a low interest rate environment. Our liabilities have all repriced and we believe we are at the low point of this economic cycle. Our strategy going forward will focus on deposit retention and further reduction of interest rate risk."

Noninterest Income/Expense

Noninterest income, at $.606 million in the first quarter of 2012, increased $.029 million from the first quarter 2011 level of $.577 million with the largest drivers of this income coming from the secondary market mortgage area, which totaled $.298 million in the first quarter.

Noninterest expense, at $3.834 million in the first quarter of 2012, decreased $.225 million, or 5.54% from the first quarter of 2011. The Corporation continues to look for ways to control costs and remains below peer levels in terms of salary and benefits as a percentage of total assets residing at 1.58%.

Assets and Capital

Total assets of the Corporation at March 31, 2012 were $506.496 million, up 2.78 % from the $492.790 million reported at March 31, 2011 and up 1.64% from the $498.311 million of total assets at year-end 2011. Common Shareholders' equity at March 31, 2011 totaled $45.119 million, or $13.19 per share, compared to $43.340 million, or $12.67 per share on March 31, 2011. The Corporation and the Bank are both "well-capitalized" with Tier 1 Capital at the Corporation of 9.95% and 9.24% at the Bank.

Paul D. Tobias, Chairman and Chief Executive Officer, concluded, "We are pleased with our first quarter operating results. Our loan production is picking up and our pipeline is strong, which will lead to increased net interest income in future periods. Our credit quality continues to improve and we expect increased noninterest revenue, mainly from SBA/USDA loan sales later this year."

"Looking forward, we expect to complete our recently announced investment from the Steinhardt family and our common stock rights offering later in the second quarter. This will provide the funding necessary to eliminate our TARP preferred stock and the associated 379,310 common stock warrants which are substantially 'in the money.' This redemption and the access to the capital and the funding that accompanies an association with the Steinhardt's will be significant catalysts in the execution of our long-term strategic plan for franchise growth and increasing shareholder value."

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     March 31,     December 31,    March 31,
 per share data)                     2012           2011           2011
                                -------------  -------------  -------------
                                 (Unaudited)                   (Unaudited)
Selected Financial Condition
 Data (at end of period):
Assets                          $     506,496  $     498,311  $     492,790
Loans                                 414,402        401,246        374,609
Investment securities                  36,788         38,727         37,543
Deposits                              412,088        404,789        400,783
Borrowings                             35,997         35,997         36,069
Common Shareholders' Equity            45,119         44,342         43,340
Shareholders' equity                   56,095         55,263         54,097


Selected Statements of Income
 Data:
Net interest income             $       4,763  $      17,929  $       4,141
Income before taxes and
 preferred dividend                     1,040          3,316            659
Net income                                496          1,452            256
Income per common share - Basic           .15            .42            .07
Income per common share -
 Diluted                                  .14            .41            .07
Weighted average shares
 outstanding                        3,419,736      3,419,736      3,419,736
Weighted average shares
 outstanding- Diluted               3,524,953      3,500,204      3,419,736

Selected Financial Ratios and
 Other Data:
Performance Ratios:
Net interest margin                      4.17%          4.06%          3.92%
Efficiency ratio                        71.01          68.43          75.73
Return on average assets                  .40            .30            .22
Return on average common equity          4.53           3.30           2.40
Return on average equity                 3.62           2.66           1.92

Average total assets            $     503,412  $     489,539  $     478,861
Average common shareholders'
 equity                                44,229         43,940         43,147
Average total shareholders'
 equity                                55,418         54,561         53,870
Average loans to average
 deposits ratio                         98.73%         98.05%         98.27%


Common Share Data at end of
 period:
Market price per common share   $        7.00  $        5.42  $        6.02
Book value per common share     $       13.19  $       12.97  $       12.67
Common shares outstanding           3,419,736      3,419,736      3,419,736

Other Data at end of period:
Allowance for loan losses       $       5,382  $       5,251  $       6,184
Non-performing assets           $      10,351  $      11,155  $      15,045
Allowance for loan losses to
 total loans                             1.30%          1.31%          1.65%
Non-performing assets to total
 assets                                  2.04%          2.24%          3.05%
Texas ratio                             16.84%         18.43%         24.96%

Number of:
 Branch locations                          11             11             11
 FTE Employees                            114            116            108



              MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS

                                  March 31,     December 31,    March 31,
                                     2012           2011           2011
                                -------------  -------------  -------------
                                 (Unaudited)                   (Unaudited)
ASSETS

Cash and due from banks         $      16,912  $      20,071  $      41,715
Federal funds sold                     14,000         13,999         12,000
                                -------------  -------------  -------------
  Cash and cash equivalents            30,912         34,070         53,715

Interest-bearing deposits in
 other financial institutions              10             10            734
Securities available for sale          36,788         38,727         37,543
Federal Home Loan Bank stock            3,060          3,060          3,423

Loans:
  Commercial                          318,810        311,215        287,760
  Mortgage                             81,953         83,106         81,404
  Consumer                             13,639          6,925          5,445
                                -------------  -------------  -------------
    Total Loans                       414,402        401,246        374,609
      Allowance for loan losses        (5,382)        (5,251)        (6,184)
                                -------------  -------------  -------------
  Net loans                           409,020        395,995        368,425

Premises and equipment                  9,774          9,627          9,715
Other real estate held for sale         3,494          3,162          5,081
Deferred Tax Asset                      7,958          8,427          8,773
Other assets                            5,480          5,233          5,381
                                -------------  -------------  -------------

TOTAL ASSETS                    $     506,496  $     498,311  $     492,790
                                =============  =============  =============

LIABILITIES AND SHAREHOLDERS'
 EQUITY

LIABILITIES:
Deposits:
  Noninterest bearing deposits  $      52,470  $      51,273  $      39,269
  NOW, money market, interest
   checking                           151,614        152,563        154,420
  Savings                              13,601         14,203         17,691
  CDs < $100,000                      137,501        130,685        104,258
  CDs > $100,000                       24,066         23,229         21,803
  Brokered                             32,836         32,836         63,342
                                -------------  -------------  -------------
    Total deposits                    412,088        404,789        400,783

Borrowings                             35,997         35,997         36,069
Other liabilities                       2,316          2,262          1,841
                                -------------  -------------  -------------
  Total liabilities                   450,401        443,048        438,693

SHAREHOLDERS' EQUITY:
Preferred stock - No par value:
  Authorized 500,000 shares,
   Issued and outstanding -
   11,000 shares                       10,976         10,921         10,757
Common stock and additional paid
 in capital - No par value
  Authorized - 18,000,000 shares
  Issued and outstanding -
   3,419,736 shares                    43,525         43,525         43,525
  Retained earnings                       990            492           (705)
  Accumulated other
   comprehensive income                   604            325            520
                                -------------  -------------  -------------

    Total shareholders' equity         56,095         55,263         54,097
                                -------------  -------------  -------------

TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY           $     506,496  $     498,311  $     492,790
                                =============  =============  =============



               MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS

                                                      Three Months Ended
                                                          March 31,
                                                 ---------------------------
                                                      2012          2011
                                                 ------------- -------------
                                                         (Unaudited)
INTEREST INCOME:
  Interest and fees on loans:
    Taxable                                      $       5,580 $       5,136
    Tax-exempt                                              32            42
  Interest on securities:
    Taxable                                                264           282
    Tax-exempt                                               7             7
  Other interest income                                     25            33
                                                 ------------- -------------
    Total interest income                                5,908         5,500
                                                 ------------- -------------

INTEREST EXPENSE:
  Deposits                                                 983         1,219
  Borrowings                                               162           140
                                                 ------------- -------------
    Total interest expense                               1,145         1,359
                                                 ------------- -------------

Net interest income                                      4,763         4,141
Provision for loan losses                                  495             -
                                                 ------------- -------------
Net interest income after provision for loan
 losses                                                  4,268         4,141
                                                 ------------- -------------

OTHER INCOME:
  Deposit service fees                                     194           217
  Income from secondary market loans sold                  298            78
  SBA/USDA loan sale gains                                   -           236
  Mortgage servicing income                                 85             -
  Other                                                     29            46
                                                 ------------- -------------
    Total other income                                     606           577
                                                 ------------- -------------

OTHER EXPENSE:
  Salaries and employee benefits                         1,975         1,824
  Occupancy                                                345           365
  Furniture and equipment                                  228           194
  Data processing                                          228           176
  Professional service fees                                180           153
  Loan and deposit                                         141           179
  Writedowns and losses on other real estate
   held for sale                                            11           467
  FDIC insurance assessment                                159           285
  Telephone                                                 55            51
  Advertising                                               98            88
  Other                                                    414           277
                                                 ------------- -------------
    Total other expenses                                 3,834         4,059
                                                 ------------- -------------

Income before provision for income taxes                 1,040           659
Provision for income taxes                                 349           214
                                                 ------------- -------------

NET INCOME                                                 691           445
                                                 ------------- -------------

Preferred dividend and accretion of discount               193           189

                                                 ------------- -------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS      $         498 $         256
                                                 ============= =============

INCOME PER COMMON SHARE:
  Basic                                          $         .15 $         .07
                                                 ============= =============
  Diluted                                        $         .14 $         .07
                                                 ============= =============



               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,
                                        2012          2011          2011
                                   ------------- ------------- -------------
                                    (Unaudited)   (Unaudited)    (Audited)
Commercial Loans:
Real estate - operators of
 nonresidential buildings          $      78,769 $      75,391 $      58,132
Hospitality and tourism                   33,452        33,306        35,016
Lessors of nonresidential
 buildings                                15,460        16,499        17,091
Real estate agents and managers           13,296        10,617        15,518
Other                                    155,717       155,657       138,565
                                   ------------- ------------- -------------
  Total Commercial Loans                 296,694       291,470       264,322

1-4 family residential real estate        81,953        77,332        75,663
Consumer                                   8,524         6,925         5,445
Construction
  Commercial                              22,116        19,745        23,438
  Consumer                                 5,115         5,774         5,741
                                   ------------- ------------- -------------

  Total Loans                      $     414,402 $     401,246 $     374,609
                                   ============= ============= =============



Credit Quality (at end of period):


                                  March 31,     December 31,    March 31,
                                     2012           2011           2011
                                -------------  -------------  -------------
                                 (Unaudited)    (Unaudited)    (Unaudited)
Nonperforming Assets:
Nonaccrual loans                $       4,457  $       5,490  $       9,859
Loans past due 90 days or more              -              -              -
Restructured loans                      2,400          2,503            105
                                -------------  -------------  -------------
  Total nonperforming loans             6,857          7,993          9,964
Other real estate owned                 3,494          3,162          5,081
                                -------------  -------------  -------------
  Total nonperforming assets    $      10,351  $      11,155  $      15,045
                                =============  =============  =============
Nonperforming loans as a % of
 loans                                   1.65%          1.99%          2.66%
                                -------------  -------------  -------------
Nonperforming assets as a % of
 assets                                  2.04%          2.24%          3.05%
                                -------------  -------------  -------------
Reserve for Loan Losses:
At period end                   $       5,382  $       5,251  $       6,184
                                -------------  -------------  -------------
As a % of average loans                  1.30%          1.35%          1.65%
                                -------------  -------------  -------------
As a % of nonperforming loans           78.49%         65.69%         62.06%
                                -------------  -------------  -------------
As a % of nonaccrual loans             120.75%         95.65%         62.72%
                                -------------  -------------  -------------
Texas Ratio                             16.84%         18.43%         24.96%
                                -------------  -------------  -------------

Charge-off Information (year to
 date):
  Average loans                 $     404,048  $     388,115  $     380,066
                                -------------  -------------  -------------
  Net charge-offs               $         364  $       3,662  $         429
                                -------------  -------------  -------------
  Charge-offs as a % of average
   loans                                  .10%           .94%           .11%
                                -------------  -------------  -------------




                                       QUARTER ENDED
                                        (Unaudited)


                 March 31, December 31, September 30,  June 30,   March 31,
                   2012        2011         2011        2011        2011
                ----------  ----------   ----------  ----------  ----------
BALANCE SHEET
 (Dollars in
 thousands)

Total loans     $  414,402  $  401,246   $  391,903  $  394,812  $  374,609
Allowance for
 loan losses        (5,382)     (5,251)      (5,838)     (6,155)     (6,184)
                ----------  ----------   ----------  ----------  ----------
 Total loans,
  net              409,020     395,995      386,065     388,657     368,425
Intangible
 assets                  -           -            -           -           -
Total assets       506,496     498,311      498,598     492,373     492,790
Core deposits      355,186     348,724      346,843     329,958     315,638
Noncore
 deposits (1)       56,902      56,065       58,215      69,709      85,145
                ----------  ----------   ----------  ----------  ----------
 Total deposits    412,088     404,789      405,058     399,667     400,783
Total
 borrowings         35,997      35,997       35,997      36,069      36,069
Common
 shareholders'
 equity             45,119      44,342       44,613      43,973      43,340
Total
 shareholders'
 equity             56,095      55,263       55,479      54,784      54,097
Total shares
 outstanding     3,419,736   3,419,736    3,419,736   3,419,736   3,419,736

AVERAGE
 BALANCES
 (Dollars in
 thousands)

Assets          $  503,412  $  487,304   $  497,333  $  494,481  $  478,861
Loans              404,048     396,197      397,665     378,250     380,066
Deposits           409,250     390,940      403,957     401,549     386,743
Common Equity       44,469      44,325       44,105      43,354      43,138
Equity              55,418      55,219       54,998      54,138      53,870

INCOME
 STATEMENT
 (Dollars in
 thousands)

Net interest
 income         $    4,763  $    4,901   $    4,709  $    4,178  $    4,141
Provision for
 loan losses           495       1,300          400         600           -
                ----------  ----------   ----------  ----------  ----------
 Net interest
  income after
  provision          4,268       3,601        4,309       3,578       4,141
Total
 noninterest
 income                606         725        1,006       1,348         577
Total
 noninterest
 expense             3,834       4,221        3,960       3,729       4,059
                ----------  ----------   ----------  ----------  ----------
Income before
 taxes               1,040         105        1,355       1,197         659
Provision for
 income taxes          349          27          455         402         214
                ----------  ----------   ----------  ----------  ----------
 Net income            691          78          900         795         445
                ----------  ----------   ----------  ----------  ----------
Preferred
 dividend
 expense               193         192          193         192         189
                ----------  ----------   ----------  ----------  ----------
Net income
 (loss)
 available to
 common
 shareholders   $      498  $     (114)  $      707  $      603  $      256
                ==========  ==========   ==========  ==========  ==========

PER SHARE DATA

Earnings        $      .15  $     (.03)  $      .21  $      .18  $      .07
Book value per
 common share        13.19       12.97        13.05       12.86       12.67
Market value,
 closing price        7.00        5.42         5.46        6.00        6.02

ASSET QUALITY
 RATIOS

Nonperforming
 loans/total
 loans                1.65%       1.99%        2.47%       2.39%       2.66%
Nonperforming
 assets/total
 assets               2.04        2.24         2.99        2.89        3.05
Allowance for
 loan
 losses/total
 loans                1.30        1.31         1.49        1.56        1.65
Allowance for
 loan
 losses/nonper-
 forming loans       78.49       65.69        60.35       65.19       62.06
Texas ratio (2)      16.84       18.43        24.28       23.38       24.96

PROFITABILITY
 RATIOS

Return on
 average assets        .40%       (.09)%        .56%        .49%        .22%
Return on
 average common
 equity               4.53       (1.02)        6.35        5.58        2.40
Return on
 average equity       3.62        (.82)        5.10        4.47        1.92
Net interest
 margin               4.17        4.38         4.14        3.79        3.92
Efficiency
 ratio               71.01       69.04        67.39       67.84       75.73
Average
 loans/average
 deposits            98.73      101.34        98.44       94.20       98.27

CAPITAL
 ADEQUACY
 RATIOS

Tier 1 leverage
 ratio                9.95%      10.08%        9.73%       9.50%       9.70%
Tier 1 capital
 to risk
 weighted
 assets              11.55       11.62        11.65       11.40       11.61
Total capital
 to risk
 weighted
 assets              12.80       12.87        12.97       12.66       12.86
Average
 equity/average
 assets              11.01       11.33        11.06       10.95       11.25
Tangible
 equity/tangible
 assets            11.01       11.33        11.06       10.95       11.25

(1) Noncore deposits includes Internet CDs, brokered deposits and CDs
greater than $100,000
(2) Texas ratio equals nonperforming assets divided by shareholders' equity
plus allowance for loan losses

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