MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL HIGHLIGHTS (Dollars in thousands, except per share data) For The Period Ended ------------------------------------- September December September 30, 31, 30, 2007 2006 2006 ----------- ----------- ----------- (Unaudited) (Unaudited) Selected Financial Condition Data (at end of period): Total assets $ 401,213 $ 382,791 $ 363,191 Total loans 344,149 322,581 292,614 Total deposits 321,371 312,421 293,494 Borrowings and subordinated debentures 38,239 38,307 38,307 Total shareholders' equity 38,697 28,790 28,226 Selected Statements of Income Data (nine months and year ended): Net interest income $ 10,007 $ 11,593 $ 8,566 Income before taxes 2,136 1,216 878 Net income 9,636 1,716 1,378 Income per common share - Basic 2.81 .50 .40 Income per common share - Diluted 2.81 .50 .40 Three Months Ended: Net interest income $ 3,560 $ 3,027 $ 2,952 Income before taxes 555 338 190 Net income 8,055 338 690 Income per common share - Basic 2.35 .10 .20 Income per common share - Diluted 2.35 .10 .20 Selected Financial Ratios and Other Data (nine months and year ended): Performance Ratios: Net interest margin 3.62% 3.51% 3.53% Efficiency ratio 79.94 93.95 93.83 Return on average assets 3.32 .49 .54 Return on average equity 42.07 6.19 6.71 Average total assets $ 387,597 $ 347,927 $ 341,646 Average total shareholders' equity $ 30,627 $ 27,744 $ 27,440 Average loans to average deposits ratio 103.89% 99.77% 98.86% Common Share Data (at end of period): Market price per common share $ 8.75 $ 11.50 $ 10.56 Book value per common share $ 11.29 $ 8.40 $ 8.23 Common shares outstanding 3,428,695 3,428,695 3,428,695 Weighted average shares outstanding 3,428,695 3,428,695 3,428,695 Other Data (at end of period): Allowance for loan losses $ 5,022 $ 5,006 $ 5,316 Non-performing assets $ 3,623 $ 2,965 $ 2,091 Allowance for loan losses to total loans 1.46% 1.55% 1.82% Non-performing assets to total assets .90% .77% .58% Number of: Branch locations 13 13 13 FTE Employees 105 99 97 MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September December September 30, 31, 30, 2007 2006 2006 ----------- ----------- ----------- (unaudited) (unaudited) ASSETS Cash and due from banks $ 7,364 $ 4,865 $ 5,537 Federal funds sold 947 5,841 11,949 ----------- ----------- ----------- Cash and cash equivalents 8,311 10,706 17,486 Interest-bearing deposits in other financial institutions 6,995 856 889 Securities available for sale 17,973 32,769 36,129 Federal Home Loan Bank stock 3,794 3,794 4,152 Loans: Commercial 285,680 261,726 238,481 Mortgage 54,962 58,014 51,341 Installment 3,507 2,841 2,792 ----------- ----------- ----------- Total Loans 344,149 322,581 292,614 Allowance for loan losses (5,022) (5,006) (5,316) ----------- ----------- ----------- Net loans 339,127 317,575 287,298 Premises and equipment 12,733 12,453 12,643 Other real estate held for sale 451 26 26 Other assets 11,829 4,612 4,568 ----------- ----------- ----------- TOTAL ASSETS $ 401,213 $ 382,791 $ 363,191 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Non-interest-bearing deposits $ 28,325 $ 23,471 $ 22,826 Interest-bearing deposits: NOW and Money Market 87,262 73,188 73,797 Savings 12,831 13,365 13,915 CDs < $100,000 90,220 89,585 85,236 CDs > $100,000 24,432 23,645 20,305 Brokered 78,301 89,167 77,415 ----------- ----------- ----------- Total deposits 321,371 312,421 293,494 Borrowings 38,239 38,307 38,307 Other liabilities 2,906 3,273 3,164 ----------- ----------- ----------- Total liabilities 362,516 354,001 334,965 Shareholders' equity: Preferred stock - No par value: Authorized 500,000 shares, no shares outstanding Common stock and additional paid in capital - No par value Authorized - 18,000,000 shares Issued and outstanding - 3,428,695 shares 42,810 42,722 42,646 Accumulated deficit (4,107) (13,745) (14,083) Accumulated other comprehensive (loss) (6) (187) (337) ----------- ----------- ----------- Total shareholders' equity 38,697 28,790 28,226 ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 401,213 $ 382,791 $ 363,191 =========== =========== =========== MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- 2007 2006 2007 2006 ---------- ---------- ---------- ---------- INTEREST INCOME: Interest and fees on loans: Taxable $ 6,929 $ 5,635 $ 19,610 $ 15,316 Tax-exempt 118 189 432 575 Interest on securities Taxable 263 306 857 852 Tax-exempt - 5 - 87 Other interest 209 268 575 631 ---------- ---------- ---------- ---------- Total interest income 7,519 6,403 21,474 17,461 ---------- ---------- ---------- ---------- INTEREST EXPENSE: Deposits 3,443 2,951 9,932 7,540 Borrowings 516 500 1,535 1,355 ---------- ---------- ---------- ---------- Total interest expense 3,959 3,451 11,467 8,895 ---------- ---------- ---------- ---------- Net interest income 3,560 2,952 10,007 8,566 Provision for loan losses 400 - 400 (600) ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 3,160 2,952 9,607 9,166 ---------- ---------- ---------- ---------- OTHER INCOME: Service fees 169 133 515 365 Net gains on sale of secondary market loans 165 66 364 149 Proceeds from settlement of lawsuit - - 470 - Other 62 41 302 193 ---------- ---------- ---------- ---------- Total other income 396 240 1,651 707 ---------- ---------- ---------- ---------- OTHER EXPENSE: Salaries and employee benefits 1,695 1,487 5,106 4,577 Occupancy 322 333 983 943 Furniture and equipment 178 159 501 470 Data processing 196 176 577 512 Professional service fees 78 341 403 955 Loan and deposit 63 78 214 305 Telephone 68 55 185 155 Advertising 97 70 280 247 Other 304 303 873 831 ---------- ---------- ---------- ---------- Total other expense 3,001 3,002 9,122 8,995 ---------- ---------- ---------- ---------- Income before income taxes 555 190 2,136 878 Provision for (benefit of) income taxes (7,500) (500) (7,500) (500) ---------- ---------- ---------- ---------- NET INCOME $ 8,055 $ 690 $ 9,636 $ 1,378 ========== ========== ========== ========== INCOME PER COMMON SHARE: Basic $ 2.35 $ .20 $ 2.81 $ .40 ========== ========== ========== ========== Diluted $ 2.35 $ .20 $ 2.81 $ .40 ========== ========== ========== ========== MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES LOAN PORTFOLIO AND CREDIT QUALITY (Dollars in thousands) Loan Portfolio Balances (at end of period): September 30, December 31, September 30, 2007 2006 2006 ------------- ------------- ------------- Commercial Loans Real estate - operators of nonresidential buildings $ 43,422 $ 44,308 $ 35,965 Hospitality and tourism 37,479 30,826 37,287 Real estate agents and managers 25,662 25,071 19,744 Offices of holding companies 10,831 4,989 1,496 Other 122,460 120,523 110,894 ------------- ------------- ------------- Total Commercial Loans 239,854 225,717 205,386 1-4 family residential real estate 54,962 58,014 51,341 Construction 45,826 36,009 33,095 Consumer 3,507 2,841 2,792 ------------- ------------- ------------- Total Loans $ 344,149 $ 322,581 $ 292,614 ============= ============= ============= Average loans for the period $ 327,810 $ 278,953 $ 271,351 ============= ============= ============= Credit Quality (at end of period): September 30, December 31, September 30, 2007 2006 2006 ------------- ------------- ------------- Nonperforming Assets : Nonaccrual loans $ 3,136 $ 2,899 $ 2,065 Loans past due 90 days or more 36 40 - Restructured loans - - - ------------ ------------ ------------ Total nonperforming loans 3,172 2,939 2,065 Other real estate owned 451 26 26 ------------ ------------ ------------ Total nonperforming assets $ 3,623 $ 2,965 $ 2,091 ============ ============ ============ Nonperforming loans as a % of loans .92% .91% .71% ------------ ------------ ------------ Nonperforming assets as a % of assets .90% .77% .58% ------------ ------------ ------------ Reserve for Loan Losses: At period end $ 5,022 $ 5,006 $ 5,316 ------------ ------------ ------------ As a % of loans 1.46% 1.55% 1.82% ------------ ------------ ------------ As a % of nonperforming loans 158.32% 170.33% 257.43% ------------ ------------ ------------ As a % of nonaccrual loans 160.14% 172.68% 257.43% ------------ ------------ ------------ Net charge-offs as a % of average loans .12% .08% .07% ============ ============ ============ MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES QUARTERLY FINANCIAL HIGHLIGHTS QUARTER ENDED (Unaudited) ----------------------------------------------------- September June March December September 30, 30, 31, 31, 30, 2007 2007 2007 2006 2006 --------- --------- --------- --------- --------- BALANCE SHEET (Dollars in thousands) Total loans $ 344,149 $ 338,896 $ 318,421 $ 322,581 $ 292,614 Allowance for loan losses (5,022) (4,920) (4,975) (5,006) (5,316) --------- --------- --------- --------- --------- Total loans, net 339,127 333,976 313,446 317,575 287,298 Intangible assets 143 163 182 205 237 Total assets 401,213 393,319 375,644 382,791 363,191 Core deposits 218,638 211,773 201,529 199,609 195,774 Noncore deposits (1) 102,733 109,473 102,883 112,812 97,720 --------- --------- --------- --------- --------- Total deposits 321,371 321,246 304,412 312,421 293,494 Total borrowings 38,239 38,307 38,307 38,307 38,307 Total shareholders' equity 38,697 30,485 29,932 28,790 28,226 Total shares outstanding 3,428,695 3,428,695 3,428,695 3,428,695 3,428,695 AVERAGE BALANCES (Dollars in thousands) Assets $ 400,105 $ 382,065 $ 380,403 $ 366,566 $ 362,632 Loans 340,391 324,721 318,072 301,508 289,210 Deposits 327,293 309,469 309,619 294,755 296,608 Equity 32,184 30,412 29,254 28,646 28,041 INCOME STATEMENT (Dollars in thousands) Net interest income $ 3,560 $ 3,269 $ 3,178 $ 3,027 $ 2,952 Provision for loan losses 400 - - (261) - --------- --------- --------- --------- --------- Net interest income after provision 3,160 3,269 3,178 3,288 2,952 Total noninterest income 396 342 913 276 240 Total noninterest expense 3,001 3,065 3,056 3,226 3,002 --------- --------- --------- --------- --------- Income before taxes 555 546 1,035 338 190 Provision for income taxes (7,500) - - - (500) --------- --------- --------- --------- --------- Net income $ 8,055 $ 546 $ 1,035 $ 338 $ 690 ========= ========= ========= ========= ========= PER SHARE DATA Earnings - basic $ 2.35 $ .16 $ .30 $ .10 $ .20 Earnings - diluted 2.35 .16 .30 .10 .20 Book value 11.29 8.89 8.73 8.40 8.23 Market value, closing price 8.75 9.45 9.26 11.50 10.56 ASSET QUALITY RATIOS Nonperforming loans/total loans .92% 1.49% 1.53% .91% .71% Nonperforming assets/total assets .90 1.30 1.33 .77 .58 Allowance for loan losses/total loans 1.46 1.45 1.56 1.55 1.82 Allowance for loan losses/nonperformi- ng loans 158.32 97.45 102.32 170.33 257.43 PROFITABILITY RATIOS Return on average assets 7.99% .57% 1.10% .37% .75% Return on average equity 99.30 7.20 14.35 4.68 9.76 Net interest margin 3.71 3.60 3.55 3.44 3.36 Efficiency ratio 74.71 83.21 82.40 94.60 91.17 Average loans/average deposits 104.00 104.93 102.73 102.29 97.51 CAPITAL ADEQUACY RATIOS Tier 1 leverage ratio 8.03% 7.97% 7.85% 7.85% 7.81% Tier 1 capital to risk weighted assets 9.03 8.85 9.16 8.77 9.36 Total capital to risk weighted assets 10.28 10.10 10.41 10.02 10.62 Average equity/average assets 8.04 7.96 7.69 7.81 7.73 Tangible equity/tangible assets, period end 9.61 7.71 7.92 7.47 7.71 (1) Noncore deposits includes Internet CDs, brokered deposits and CDs greater than $100,000
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