N@N

Mackinac Financial Corporation Announces 2010 Results of Operations/Asset Quality

^{Published on 2011-02-11 12:50:50 - Market Wire}
 

MANISTIQUE, MI--(Marketwire - February 11, 2011) - Mackinac Financial Corporation (NASDAQ: [ MFNC ]), the holding company for mBank, reported a loss of $1.160 million or $.34 per share, for the year ended December 31, 2010, compared to a net income of $1.907 million, or $.56 per share, for 2009. Weighted average shares outstanding for both years amounted to 3,419,736.

The loss to the Corporation this year was primarily the result of credit charges and write-downs on an isolated pocket of older loans and pieces of other real estate owned located primarily in Southeast Michigan. The company took an aggressive workout posture throughout 2010 to move these assets out of the bank to eliminate on-going carrying costs and administrative expenses.

 Earnings Analysis -------------------------------------------------------------------------- 2010 2009 2008 -------- --------- -------- Income before tax and preferred dividends, as reported: $ (3,917) $ 3,536 $ 2,659 Credit related costs: Loan loss provision 6,500 3,700 2,300 OREO write-downs/gains and losses 2,753 208 (80) Noncore income: Security gains 215 1,471 64 Gain on sale of branch offices - 1,208 - -------- --------- -------- "Adjusted" income before taxes and preferred dividends $ 5,121 $ 4,765 $ 4,815 ======== ========= ======== (Excluding items, noted above) 

As you will note from the chart above, the company's "core earnings" run rate outside of extraordinary credit related charges and other one-time items has improved as the result of lowered funding costs from the significant growth in our core deposit base, control of non-interest expenses, and increases in non-interest income from our SBA/USDA lending programs and secondary market 1-4 family loan sales. It should be noted that the subsidiary bank posted a small profit for the year of approximately $83,000.

Paul Tobias, Chairman of MFNC, commenting on the overall results for 2010, stated, "During 2010 we recognized the losses associated with a few large credits, booked prior to the recession, that were well secured at the time of loan origination but suffered from operating models that could not withstand the severe recession and the deterioration of collateral values in Southeastern Michigan. Despite the challenging times, we have made significant progress to increase our franchise value. Our remaining portfolio continues to perform satisfactorily and asset quality matrices continue to outperform peers. We are confident that credit related expenses will decrease in 2011 and return to normal levels in 2012."

Listed below are several key points relative to our 2010 results:

• We grew core bank deposits by $80 million. This reduced our reliance on wholesale deposits by $115.4 million, reducing balance sheet risk. We experienced core deposit growth in all of our markets, with $40 million in Northern Lower Michigan, $11 million in Southeast Michigan and $29 million in the Upper Peninsula. Most of our 2010 deposit growth occurred in low cost transactional accounts which grew by $44 million.
  
  
• We continued to experience good loan demand with approximately $114 million of new loan production. At 2010 year-end, the Corporation's loans stood at $383.086 million, a slight decrease from the 2009 year-end balances of $384.310 million. Our total outstanding loans declined by $1.2 million after reductions for loan sales, (both SBA/USDA and secondary market) amortization and payoffs, some associated with the elimination of problem assets. We continue to be highly successful in producing well priced high quality loans in the Upper Peninsula with 2010 loan production of $81 million. Loan production totaled $22 million in Northern Lower Michigan and $11 million in Southeast Michigan where the market have been hit the hardest by the recession.
  
  
• In 2010 we had continued success in the origination and sales of SBA/USDA loans with total fee income of $.9 million in 2010 compared to $.5 million in fee income during 2009. We continue to be a state leader in these programs.
  
  
• One of our initiatives for 2010 was the expansion of our consumer lending program by hiring several key mortgage loan producers and the centralization of our consumer lending processing. This was successful, with secondary market fee income of $.5 million in 2010 compared to $.3 million in 2009 and an increase in total consumer loan production from $39 million in 2009 to $60 million in 2010. We also have retained the servicing of approximately $27 million of mortgage loans which provides future refinancing opportunities and is a source of core deposits.
  
  
• We improved our net interest margin from 3.74% in the fourth quarter of 2009 to 3.88% in 2010's fourth quarter. Given our current funding structure, we expect to see this improve throughout 2011 as well.
  
  
• We had an overall reduction in nonperforming assets from $21.0 million at the end of 2009 to $16.1 million at the end of 2010. As noted above, the resolution of problem assets during 2010 impacted our earnings but we divested these problem loans and OREO properties so that we could eliminate holding costs and forego the opportunity cost that impacts longer-term shareholder value creation.
  
  

Total assets of the Corporation at December 31, 2010 were $478.696 million, a decrease of $36.681 million from 2009 year end assets of $515.377 million. The decline in assets was largely attributed to a reduction in excess liquidity which was used to pay off maturing wholesale deposits. Total deposits decreased from $421.389 million at the end of 2009 to $386.778 million at 2010 year end. Kelly W. George, President and Chief Executive Officer of mBank, commenting on the deposit growth, "We continue to focus our efforts on growing the Bank's core deposits because we believe this translates into real franchise value and improves our overall balance sheet risk. As noted above, in 2010, we were extremely successful in growing bank deposits in all of our markets, and this will continue to be a primary objective of the 2011 business plan as well."

Nonperforming assets decreased by $4.9 million, from $21.0 million at 2009 year end to $16.1 million at year end 2010. Nonperforming loans totaled $10.6 million, or 2.76% of total loans at December 31, 2010. Nonaccrual loans now reside at 1.55%, a reduction from 3.74% at year-end 2009. Nonperforming assets at December 31, 2010 represented 3.37% of total assets, compared to 4.08% of total assets at December 31, 2009. Kelly W. George commented, "Our current level of nonperforming assets, while still below peers and manageable with a Texas Ratio of 27%, continues to provide some challenges given the time needed in terms of real estate holding periods to work through these issues. Most of these assets are secured with some form of property and reside in areas of the state that were hit the hardest in terms of the recession. We have updated evaluations on all our remaining OREO pieces and larger problem assets and will continue to focus on early identification and resolution to minimize carrying costs, collateral deterioration and incremental loss."

Net interest income for the year ended December 31, 2010 was $16.385 million compared to $16.287 million for the year ended December 31, 2009. The margin percentage for 2010 was 3.66% compared to 3.59% in 2009.

We recognize the importance of cost control, especially in times of economic slowdown. In 2010 our total noninterest expense was $16.597 million compared to $13.802 million in 2009. The increase in 2010 was primarily attributable to costs associated with higher levels of nonperforming assets. As stated previously, OREO write-downs totaled $2.753 million in 2010 compared to $.208 million in 2009, an increase of $2.545 million.

Shareholders' equity totaled $53.882 million at December 31, 2010, compared to $55.299 million at the end of 2009, a decrease of $1.417 million. This decrease includes the consolidated net loss of $1.160 million, the capital contribution impact of stock options and amortization of preferred stock issue costs along with the decrease in equity due to the decline in the market value of held-for-sale investments, which amounted to $.5 million.

The capital position remains strong at the Corporation with a Tier 1 ratio of 9.25% and Total Risk Based Capital of 12.62%. The Bank is also well capitalized with a Tier 1 ratio of 8.09% and Total Risk Based Capital of 11.18%.

Mr. Tobias concluded, "As we enter 2011, we are focusing on organic growth. We will continue to be granular and selective in our lending activities, focusing on SBA/USDA loans. We will continue to grow core deposits and control expenses. We are confident that as 2011 evolves we will show continuous improvement and by 2012 show increased earnings potential of this franchise. We are proud that we have been able to build shareholders equity to $12.63 per share and are eager to build an earnings record that will allow our stock to reflect its intrinsic value."

Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets in excess of $450 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 For The Years Ended December 31, (Dollars in thousands, except per share data) 2010 2009 ----------- ----------- (Unaudited) (Unaudited) Selected Financial Condition Data (at end of period): Assets $ 478,696 $ 515,377 Loans 383,086 384,310 Investment securities 33,860 46,513 Deposits 386,779 421,389 Borrowings 36,069 36,140 Shareholders' equity 53,882 55,299 Selected Statements of Income Data: Net interest income $ 16,385 $ 16,287 Income before taxes and preferred dividend (3,917) 3,536 Net income (1,160) 1,907 Income per common share - Basic (.34) .56 Income per common share - Diluted (.34) .56 Weighted average shares outstanding 3,419,736 3,419,736 Selected Financial Ratios and Other Data: Performance Ratios: Net interest margin 3.66% 3.59% Efficiency ratio 72.57 72.24 Return on average assets (.23) .39 Return on average equity (2.06) 3.77 Average total assets $ 502,993 $ 493,652 Average total shareholders' equity 56,171 50,531 Average loans to average deposits ratio 94.36% 92.99% Common Share Data at end of period: Market price per common share $ 4.58 $ 4.64 Book value per common share $ 12.63 $ 13.10 Common shares outstanding 3,419,736 3,419,736 Other Data at end of period: Allowance for loan losses $ 6,613 $ 5,225 Non-performing assets $ 16,125 $ 21,041 Allowance for loan losses to total loans 1.73% 1.36% Non-performing assets to total assets 3.37% 4.08% Texas ratio 26.66% 34.77% Number of: Branch locations 11 10 FTE Employees 110 100 MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, December 31, (Dollars in thousands) 2010 2009 ------------ ------------ (Unaudited) (Audited) ASSETS Cash and due from banks $ 22,719 $ 18,433 Federal funds sold 12,000 27,000 ------------ ------------ Cash and cash equivalents 34,719 45,433 Interest-bearing deposits in other financial institutions 713 678 Securities available for sale 33,860 46,513 Federal Home Loan Bank stock 3,423 3,794 Loans: Commercial 308,677 305,670 Mortgage 68,473 74,350 Installment 5,936 4,290 ------------ ------------ Total Loans 383,086 384,310 Allowance for loan losses (6,613) (5,225) ------------ ------------ Net loans 376,473 379,085 Premises and equipment 9,660 10,165 Other real estate held for sale 5,562 5,804 Other assets 14,286 23,905 ------------ ------------ TOTAL ASSETS $ 478,696 $ 515,377 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Non-interest-bearing deposits $ 41,264 $ 35,878 Interest-bearing deposits: NOW, Money Market, Checking 134,703 95,790 Savings 17,670 18,207 CDs < $100,000 96,976 59,953 CDs > $100,000 22,698 36,385 Brokered 73,467 175,176 ------------ ------------ Total deposits 386,778 421,389 Borrowings: Federal funds purchased - - Short-term 20,000 15,000 Long-term 16,069 21,140 ------------ ------------ Total borrowings 36,069 36,140 Other liabilities 1,967 2,549 ------------ ------------ Total liabilities 424,814 460,078 Shareholders' equity: Preferred stock - No par value: Authorized 500,000 shares, no shares outstanding 10,706 10,514 Common stock and additional paid in capital - No par value Authorized - 18,000,000 shares Issued and outstanding - 3,419,736 shares 43,525 43,493 Accumulated deficit (961) 199 Accumulated other comprehensive income (loss) 612 1,093 ------------ ------------ Total shareholders' equity 53,882 55,299 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 478,696 $ 515,377 ============ ============ MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data) For The Years Ended December 31, 2010 2009 2008 ---------- ----------- ----------- INTEREST INCOME: (Unaudited) (Audited) (Audited) Interest and fees on loans: Taxable $ 21,091 $ 20,521 $ 22,555 Tax-exempt 188 292 404 Interest on securities: Taxable 1,406 2,783 1,293 Tax-exempt 28 19 5 Other interest income 127 93 305 ---------- ----------- ----------- Total interest income 22,840 23,708 24,562 ---------- ----------- ----------- INTEREST EXPENSE: Deposits 5,607 6,431 10,115 Borrowings 848 990 1,583 ---------- ----------- ----------- Total interest expense 6,455 7,421 11,698 ---------- ----------- ----------- Net interest income 16,385 16,287 12,864 Provision for loan losses 6,500 3,700 2,300 ---------- ----------- ----------- Net interest income after provision for loan losses 9,885 12,587 10,564 ---------- ----------- ----------- OTHER INCOME: Service fees 990 1,023 838 Net security gains 215 1,471 64 Net gains on sale of secondary market loans 1,407 830 120 Proceeds from settlement of lawsuits - - 3,475 Other 183 1,427 156 ---------- ----------- ----------- Total other income 2,795 4,751 4,653 ---------- ----------- ----------- OTHER EXPENSES: Salaries and employee benefits 6,918 6,583 6,886 Occupancy 1,313 1,385 1,374 Furniture and equipment 806 805 771 Data processing 740 862 844 Professional service fees 627 603 508 Loan and deposit 4,620 1,793 489 Telephone 193 187 170 Advertising 297 322 305 Other 1,084 1,262 1,211 ---------- ----------- ----------- Total other expenses 16,598 13,802 12,558 ---------- ----------- ----------- Income before provision for income taxes (3,918) 3,536 2,659 Provision for (benefit of) income taxes (3,500) 1,120 787 ---------- ----------- ----------- ---------- ----------- ----------- NET INCOME $ (418) $ 2,416 $ 1,872 ---------- ----------- ----------- Preferred dividend expense 742 509 - ---------- ----------- ----------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ (1,160) $ 1,907 $ 1,872 ========== =========== =========== INCOME PER COMMON SHARE Basic $ (0.34) $ .56 $ .55 ========== =========== =========== Diluted $ (0.34) $ .56 $ .55 ========== =========== =========== MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES LOAN PORTFOLIO AND CREDIT QUALITY (Dollars in thousands) Loan Portfolio Balances (at end of period): December 31, December 31, 2010 2009 ------------- ------------- (Unaudited) (Audited) Commercial Loans: Real estate - operators of nonresidential buildings $ 58,114 $ 48,689 Hospitality and tourism 37,737 45,315 Operators of nonresidential buildings 16,598 12,619 Real estate agents and managers 15,857 24,242 Other 135,411 150,214 ------------- ------------- Total Commercial Loans 263,717 281,079 1-4 family residential real estate 75,074 67,232 Consumer 5,283 4,290 Construction Commercial 33,330 24,591 Consumer 5,682 7,118 ------------- ------------- Total Loans $ 383,086 $ 384,310 ============= ============= Credit Quality (at end of period): December 31, December 31, 2010 2009 ------------ ------------ (Unaudited) (Audited) Nonperforming Assets: Nonaccrual loans $ 5,921 $ 14,368 Loans past due 90 days or more - - Restructured loans 4,642 869 ------------ ------------ Total nonperforming loans 10,563 15,237 Other real estate owned 5,562 5,804 ------------ ------------ Total nonperforming assets $ 16,125 $ 21,041 ============ ============ Nonperforming loans as a % of loans 2.76% 3.96% ------------ ------------ Nonperforming assets as a % of assets 3.37% 4.08% ------------ ------------ Reserve for Loan Losses: At period end $ 6,613 $ 5,225 ------------ ------------ As a % of average loans 1.72% 1.39% ------------ ------------ As a % of nonperforming loans 62.61% 34.29% ------------ ------------ As a % of nonaccrual loans 111.69% 36.37% ------------ ------------ Texas Ratio 26.66% 34.77% ------------ ------------ Charge-off Information (year to date): Average loans $ 384,347 $ 374,796 ------------ ------------ Net charge-offs $ 5,112 $ 2,752 ------------ ------------ Charge-offs as a % of average loans 1.33% .73% ------------ ------------ MACKINAC FINANCIAL CORPORATION FIVE YEAR OVERVIEW QUARTER ENDED -------------------------------------------------------- (Unaudited) -------------------------------------------------------- December September June March December 31, 30, 30, 31, 31, 2010 2010 2010 2010 2009 --------- --------- --------- --------- --------- BALANCE SHEET (Dollars in thousands) Total loans $ 383,086 $ 382,727 $ 384,839 $ 377,311 $ 384,310 Allowance for loan losses (6,613) (5,437) (6,371) (4,737) (5,225) --------- --------- --------- --------- --------- Total loans, net 376,473 377,290 378,468 372,574 379,085 Intangible assets - - - - - Total assets 478,696 499,006 500,774 502,427 515,377 Core deposits 290,614 287,055 271,026 236,227 209,828 Noncore deposits (1) 96,165 117,469 134,758 168,985 211,561 --------- --------- --------- --------- --------- Total deposits 386,779 404,524 405,784 405,212 421,389 Total borrowings 36,069 36,069 36,140 36,140 36,140 Total shareholders' equity 53,882 55,987 56,231 58,722 55,299 Total shares outstanding 3,419,736 3,419,736 3,419,736 3,419,736 3,419,736 AVERAGE BALANCES (Dollars in thousands) Assets $ 488,320 $ 512,335 $ 502,942 $ 508,495 $ 514,102 Loans 385,296 385,268 382,169 384,640 386,203 Deposits 393,266 416,847 405,449 413,897 418,280 Equity 55,015 56,668 57,889 55,109 55,665 INCOME STATEMENT (Dollars in thousands) Net interest income $ 4,276 $ 4,064 $ 4,023 $ 4,022 $ 4,431 Provision for loan losses 1,800 1,000 2,800 900 2,300 --------- --------- --------- --------- --------- Net interest income after provision 2,476 3,064 1,223 3,122 2,131 Total noninterest income 747 648 593 807 1,503 Total noninterest expense 4,037 3,601 5,330 3,629 3,650 --------- --------- --------- --------- --------- Income before taxes (814) 111 (3,514) 300 (16) Provision for income taxes 1,093 30 (1,212) (3,411) (22) --------- --------- --------- --------- --------- Net income (1,907) 81 (2,302) 3,711 6 --------- --------- --------- --------- --------- Preferred dividend expense 185 185 186 185 186 --------- --------- --------- --------- --------- Net income available to common shareholders $ (2,092) $ (104) $ (2,488) $ 3,526 $ (180) ========= ========= ========= ========= ========= PER SHARE DATA Earnings $ (.61) $ (.03) $ (.73) $ 1.03 $ (.05) Book value per common share 12.63 13.26 13.34 14.08 13.10 Market value, closing price 4.58 5.10 6.50 4.72 4.64 ASSET QUALITY RATIOS Nonperforming loans/total loans 2.76 % 2.94 % 2.87 % 2.62% 3.96% Nonperforming assets/total assets 3.37 3.41 3.34 3.51 4.08 Allowance for loan losses/total loans 1.73 1.42 1.66 1.26 1.36 Allowance for loan losses/nonperfo- rming loans 62.61 48.34 57.69 47.87 34.29 Texas ratio (2) 26.66 27.68 26.71 27.76 34.77 PROFITABILITY RATIOS Return on average assets (1.70)% (.08)% (1.98)% 2.81% (.14)% Return on average equity (15.09) (0.73) (17.24) 25.95 (1.28) Net interest margin 3.88 3.69 3.56 3.51 3.74 Efficiency ratio 65.05 75.98 76.04 78.12 71.03 Average loans/average deposits 97.97 92.42 94.26 92.93 92.33 CAPITAL ADEQUACY RATIOS Tier 1 leverage ratio 9.25 % 9.22 % 9.38 % 9.85% 9.75% Tier 1 capital to risk weighted assets 11.36 11.73 11.65 12.48 11.92 Total capital to risk weighted assets 12.62 12.98 12.91 13.69 13.17 Average equity/average assets 11.27 11.06 11.51 10.84 10.83 Tangible equity/tangible assets 11.27 11.06 11.51 10.84 10.83 (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