Mackinac Financial Corporation Reports Third Quarter and Nine Months 2006 Results of Operations

MANISTIQUE, MI -- (MARKET WIRE) -- October 27, 2006 -- Mackinac Financial Corporation (NASDAQ: MFNC), the bank holding company for mBank (the "Bank") today announced third quarter 2006 income of $690,000, or $.20 per share, compared to a loss of $518,000, or $.15 per share, for the third quarter of 2005. Net income for the first nine months of 2006 totaled $1.378 million, or $.40 per share, compared to a loss of $6.336 million, $1.85 per share, for the same period in 2005. The 2006 nine months operations include a $600,000 negative provision, recorded in the first quarter, in recognition of improved credit quality and a $500,000 deferred tax benefit recorded in the third quarter. The deferred tax benefit was recorded in accordance with generally accepted accounting principles for recognition of a portion of the benefits to be derived from NOL carry-forwards. The 2005 results include a penalty of $4.320 million on the prepayment of $48.555 million of the FHLB borrowings. Excluding the provision and deferred tax adjustment in 2006 and the prepayment penalty recorded in 2005, the net income in the first nine months of 2006 amounted to $278,000, compared to an adjusted loss of $2.016 million for the same period in 2005. The nine month 2006 results also include $234,000 of stock option expense, required under the new accounting rules for stock compensation plans, as well as $400,000 of expenses incurred to pursue legal action against the Corporation's former accountants. The costs associated with the pursuit of this legal action have surpassed our earlier estimates but management and the Corporation's Board of Directors believe the case has merit and is in the best interests of shareholders. Legal expenses for this action are projected to be $250,000 in the fourth quarter which will carry the case through trial.

Paul Tobias, Chairman and Chief Executive Officer, commented, "In the third quarter we experienced a slowdown in loan closings but are encouraged with our robust pipeline which should provide strong loan growth in the fourth quarter despite the economic downturn evidenced throughout the state of Michigan. Core deposit growth continued in the third quarter and we will continue to emphasize future growth of transactional account balances. We are pleased with loan and deposit growth thus far in 2006, yet we recognize the challenges ahead for continuing our rate of growth while maintaining capital ratios, margin, and credit quality. We believe that we can continue to generate profitable incremental growth, but we do expect margin compression in this weaker market."

Total assets of the Corporation at September 30, 2006 were $363.191 million, up 29.44 percent from the $280.590 million in total assets reported at September 30, 2005. September 30, 2006 total assets were up 21.58 percent from the $298.722 million of total assets at year-end 2005.

Total loans at September 30, 2006 were $292.614 million, up from $218.462 million at September 30, 2005 or a 33.94 percent increase. Total loans at September 30, 2006 increased $52.843 million, or 22.04 percent from year-end 2005 total loans of $239.771 million. Tobias stated, "Loan growth has been an integral part of our business plan and we have been successful in attaining this growth while maintaining our discipline for pricing and credit quality."

Total deposits of $293.494 million at September 30, 2006 were up 37.62 percent from deposits of $213.268 million on September 30, 2005. Deposits were up $60.862 million, or 26.16 percent from year-end 2005 deposits of $232.632 million. Deposit growth in 2006 includes increases in out-of-market brokered deposits totaling $31.648 million with the remaining $29.214 million representing bank core deposit growth of 15.46 percent. Mr. Tobias added, "Bank deposit growth is a key element of our strategic plan to build franchise value and maintain adequate interest margins. We are continually reviewing our deposit products and offering rates in our efforts to increase core deposits."

The Bank's credit quality remains excellent, with total nonperforming assets at September 30, 2006 of $2.091 million. Tobias commenting on credit quality stated, "Our success in growing our loan portfolio without sacrificing credit quality is a testament to our credit culture which places a high emphasis on the front-end review and analysis by lenders and credit review staff, along with a final review and approval by our strong loan committee."

Shareholders' equity at September 30, 2006 totaled $28.226 million, or $8.23 per share. The Corporation is well capitalized with Tier 1 capital in excess of 8 percent and total risk-based capital in excess of 10 percent.

Tobias concluded, "The execution of our 2006 Plan has been a challenge and we recognize that increasing future profitability is dependent upon building a strong foundation. While our Oakland County execution is behind our original plan, we believe that we are making significant progress, beating other new market entrants, and building a platform that will provide long term value to shareholders. Our focus is to continue to provide this platform for future success by maintaining credit quality, growing core deposits by expanding our customer relationships and maintaining staffing excellence in all of our markets. We remain committed toward our goal of robust profitability. We strive toward this goal by executing the growth of loans and core deposits and exercising the disciplines of pricing and cost control."

Mackinac Financial Corporation is a registered bank holding company which owns mBank. The Bank has 13 offices; nine in the Upper Peninsula and four in Lower 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 checking and savings accounts, time deposits, interest bearing transaction accounts, safe deposit facilities, real estate mortgage lending, and direct and indirect consumer financing.

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     September  December   September
 data)                                        30,        31,        30,
                                             2006       2005       2005
                                           ---------  ---------  ---------
                                          (Unaudited)           (Unaudited)
Selected Financial Condition Data (at end
 of period):
Total assets                               $ 363,191  $ 298,722  $ 280,590
Total loans                                  292,614    239,771    218,462
Total deposits                               293,494    232,632    213,268
Borrowings                                    38,307     36,417     36,417
Total shareholders' equity                    28,226     26,588     27,900

Selected Statements of Income Data (nine
 months and year ended):
Net interest income                        $   8,566  $   9,780  $   7,100
Income (loss) before taxes                       853     (7,364)    (6,336)
Net income (loss)                              1,378     (7,364)    (6,336)
Income (loss) per common share - Basic           .40      (2.15)     (1.85)
Income (loss) per common share - Diluted         .40      (2.15)     (1.85)

Three Months Ended
Net interest income                        $   2,952  $   2,680  $   2,507
Income (loss) before taxes                       190     (1,028)      (518)
Net income (loss)                                690     (1,028)      (518)
Income (loss) per common share - Basic           .20       (.30)      (.15)
Income (loss) per common share - Diluted         .20       (.30)      (.15)

Selected Financial Ratios and Other Data
 (nine months and year ended):
Performance Ratios:
Net interest margin                             3.53%      3.64%      3.54%
Efficiency ratio                               93.82     160.43     112.11
Return on average assets                         .54      (2.58)      (.73)
Return on average equity                        6.71     (25.63)    (26.92)

Average total assets                       $ 341,646  $ 285,896  $ 280,506
Average total shareholders' equity         $  27,440  $  28,732  $  28,112
Average loans to average deposits ratio        98.86%     98.17%     99.33%

Common Share Data (at end of period):
Market price per common share              $   10.56  $    9.10  $   10.99
Book value per common share                $    8.23  $    7.76  $    8.14
Common shares outstanding                  3,428,695  3,428,695  3,428,695

Other Data (at end of period):
Allowance for loan losses                  $   5,316  $   6,108  $   6,589
Non-performing assets                      $   2,091  $   1,059  $   3,905
Allowance for loan losses to total loans        1.82%      2.55%      3.02%
Non-performing assets to total assets            .58%       .35%      1.39%
Number of:
   Branch locations                               13         12         12



             MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED BALANCE SHEETS


(Dollars in thousands except per share     September  December   September
 data)                                        30,        31,        30,
                                             2006       2005       2005
                                           ---------  ---------  ---------
                                          (Unaudited)           (Unaudited)
ASSETS
   Cash and due from banks                 $   5,537  $   4,833  $   5,333
   Federal funds sold                         11,949      3,110      4,849
                                           ---------  ---------  ---------
      Cash and cash equivalents               17,486      7,943     10,182

   Interest-bearing deposits in other
    financial institutions                       889      1,025      1,282
   Securities available for sale              36,129     34,210     35,506
   Federal Home Loan Bank stock                4,152      4,855      4,855

   Total loans                               292,614    239,771    218,462
      Allowance for loan losses               (5,316)    (6,108)    (6,589)
                                           ---------  ---------  ---------
   Net loans                                 287,298    233,663    211,873

   Premises and equipment                     12,643     11,987     11,268
   Other real estate held for sale                26        945      1,948
   Other assets                                4,568      4,094      3,676
                                           ---------  ---------  ---------

      Total assets                         $ 363,191  $ 298,722  $ 280,590
                                           =========  =========  =========

LIABILITIES AND SHAREHOLDERS' EQUITY
   Liabilities:
      Non-interest-bearing deposits        $  22,826  $  19,684  $  19,690
      Interest-bearing deposits              270,668    212,948    193,578
                                           ---------  ---------  ---------
         Total deposits                      293,494    232,632    213,268

   Borrowings                                 38,307     36,417     36,417
   Other liabilities                           3,164      3,085      3,005
                                           ---------  ---------  ---------
      Total liabilities                      334,965    272,134    252,690

   Shareholders' equity:
      Preferred stock - No par value:
      Authorized 500,000 shares, no shares
       outstanding                                 -          -          -
      Common stock - No par value:
      Authorized 18,000,000 shares
      Issued and outstanding - 3,428,695
       shares                                 42,646     42,412     42,412
      Accumulated deficit                    (14,083)   (15,461)   (14,434)
      Accumulated other comprehensive
       income                                   (337)      (363)       (78)
                                           ---------  ---------  ---------

      Total shareholders' equity              28,226     26,588     27,900
                                           ---------  ---------  ---------

      Total liabilities and shareholders'
       equity                              $ 363,191  $ 298,722  $ 280,590
                                           =========  =========  =========


              MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF OPERATIONS


(Dollars in thousands except per
 share data)                     Three Months Ended    Nine  Months Ended
                                --------------------  --------------------
                                September  September  September  September
                                   30,        30,        30,        30,
                                  2006       2005       2006       2005
                                ---------  ---------  ---------  ---------
                               (Unaudited)(Unaudited)(Unaudited)(Unaudited)
Interest income:
   Interest and fees on loans:
      Taxable                   $   5,635  $   3,547  $  15,316  $   9,807
      Tax-exempt                      189        222        575        694
   Interest on securities:
      Taxable                         306        282        852      1,178
      Tax-exempt                        5         42         87        126
   Other interest income              268        177        631        470
                                ---------  ---------  ---------  ---------
      Total interest income         6,403      4,270     17,461     12,275
                                ---------  ---------  ---------  ---------

Interest expense:
   Deposits                         2,951      1,338      7,540      3,666
   Borrowings                         500        425      1,355      1,509
                                ---------  ---------  ---------  ---------
      Total interest expense        3,451      1,763      8,895      5,175
                                ---------  ---------  ---------  ---------

Net interest income                 2,952      2,507      8,566      7,100
Provision for loan losses               -          -       (600)         -
                                ---------  ---------  ---------  ---------
Net interest income after
 provision for loan losses          2,952      2,507      9,166      7,100
                                ---------  ---------  ---------  ---------

Other income:
   Service fees                       133        137        365        470
   Loan and lease fees                 23          5         59         11
   Net security gains                  (1)        (1)        (1)        96
   Net gains on sale of loans          66         17        149         37
   Other                               19         96        135        194
                                ---------  ---------  ---------  ---------
      Total other income              240        254        707        808
                                ---------  ---------  ---------  ---------

Other expenses:
   Salaries, commissions, and
    related benefits                1,487      1,555      4,577      4,665
   Occupancy                          333        275        943        748
   Furniture and equipment            159        133        470        430
   Data processing                    176        234        512        726
   Accounting, legal, and
    consulting fees                   341        204        955        750
   Loan and deposit expense            78        153        305        696
   Telephone                           55         66        155        203
   Advertising expense                 70        314        247        696
   Penalty on prepayment of FHLB
    borrowings                          -          -          -      4,320
   Other                              303        345        856      1,010
                                ---------  ---------  ---------  ---------
      Total other expenses          3,002      3,279      9,020     14,244
                                ---------  ---------  ---------  ---------

Income (loss) before income
 taxes                                190       (518)       853     (6,336)
Provision for (benefit of)
 income taxes                        (500)         -       (525)         -
                                ---------  ---------  ---------  ---------

Net income (loss)               $     690  $    (518) $   1,378  $  (6,336)
                                =========  =========  =========  =========
Income (loss) per common share:
   Basic                        $     .20  $    (.15) $     .40  $   (1.85)
                                =========  =========  =========  =========
   Diluted                      $     .20  $    (.15) $     .40  $   (1.85)
                                =========  =========  =========  =========



               MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
                      LOAN PORTFOLIO AND CREDIT QUALITY

(Dollars in thousands)

Loan Portfolio Balances (at end of period):


                                              September  December September
                                                  30,       31,       30,
                                                 2006      2005      2005
                                              --------- --------- ---------
Commercial Loans
Hospitality and tourism                       $  37,287 $  37,681 $  40,424
Real estate - operators of nonresidential
 buildings                                       35,965    28,217    24,837
Real estate agents and managers                  19,744    10,588     7,837
New car dealers                                  10,049     9,995     5,005
Other                                           102,341    88,842    81,623
                                              --------- --------- ---------
   Total Commercial Loans                       205,386   175,323   159,726

1-4 family residential real estate               51,341    44,660    42,490
Consumer                                          2,792     2,285     2,108
Construction                                     33,095    17,503    14,138
                                              --------- --------- ---------

   Total Loans                                $ 292,614 $ 239,771 $ 218,462
                                              ========= ========= =========

Credit Quality (at end of period):

                                           September   December  September
                                               30,        31,        30,
                                              2006       2005       2005
                                           ---------  ---------  ---------
Nonperforming Assets
Nonaccrual loans                           $   2,065  $      15  $   1,957
Loans past due 90 days or more                     -         99          -
Restructured loans                                 -          -          -
                                           ---------  ---------  ---------
   Total nonperforming loans                   2,065        114      1,957
Other real estate owned                           26        945      1,948
                                           ---------  ---------  ---------
   Total nonperforming assets              $   2,091  $   1,059  $   3,905
                                           =========  =========  =========
Nonperforming loans as a % of loans              .71%      0.05%      0.90%
                                           ---------  ---------  ---------
Nonperforming assets as a % of assets            .58%      0.35%      1.39%
                                           ---------  ---------  ---------
Reserve for Loan Losses:
At period end                              $   5,316  $   6,108  $   6,589
                                           ---------  ---------  ---------
As a % of loans                                 1.82%      2.55%      3.02%
                                           ---------  ---------  ---------
As a % of nonperforming loans                 257.43%  5,357.89%    336.69%
                                           ---------  ---------  ---------
As a % of nonaccrual loans                    257.43%       N/M%    336.69%
                                           =========  =========  ---------

Charge-off Information:
   Average loans                           $ 271,351  $ 207,928  $ 202,381
                                           ---------  ---------  ---------
   Net charge-offs                         $     192  $     858  $     377
                                           ---------  ---------  ---------
   Charge-offs as a % of average loans           .07%       .41%       .19%
                                           ---------  ---------  ---------



                      MACKINAC FINANCIAL CORPORATION

                        QUARTERLY FINANCIAL SUMMARY


  *(Dollars in thousands, except per share data)
                                                                Average
                             Average     Average     Average  Shareholders'
Quarter Ended                Assets       Loans      Deposits     Equity
                             --------    --------    --------  ------------
September 30, 2006         $  362,632  $  289,210  $  296,608     $  28,041
June 30, 2006                 342,820     273,686     274,591        27,213
March 31, 2006                319,007     250,735     254,720        27,055
December 31, 2005             288,619     224,386     219,967        27,288
September 30, 2005            280,506     209,785     211,197        28,112
June 30, 2005                 277,754     197,545     206,875        28,879
March 31, 2005                296,856     199,703     209,035        30,692
December 31, 2004             327,543     218,962     211,685         8,455
September 30, 2004            346,078     226,951     236,418         6,096


                                                            Net      Book
                     Return on Average    Net     Effi-   Income     Value
                      ----------------  Interest  ciency    Per       Per
Quarter Ended         Assets   Equity    Margin   Ratio    Share     Share
                      -------  -------  -------  -------  -------  --------
September 30, 2006        .75%    9.76%    3.36%   91.17% $  0.20   $  7.93
June 30, 2006             .22     2.82     3.62    91.41     0.05      7.93
March 31, 2006            .63     7.47     3.62    99.37     0.15      7.93
December 31, 2005       (1.41)  (14.95)    3.96   128.37    (0.30)     7.76
September 30, 2005      (0.73)   (7.39)    3.79   112.11    (0.15)     8.14
June 30, 2005           (0.83)   (8.01)    3.67   119.07    (0.17)     8.32
March 31, 2005          (7.16)  (69.25)    3.21   300.96    (1.53)     8.42
December 31, 2004        2.95   114.17     2.48    71.83     8.25     10.13
September 30, 2004      (0.87)  (49.53)    2.25   120.66    (2.17)    18.44


*Historical per share data has been adjusted for the 20:1 reverse stock
split distributed in December 2004.

Contact Information: Contact: Investor Relations (888) 343-8147 Website: www.bankmbank.com