MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL HIGHLIGHTS (Dollars in thousands, except per share data) For The Period Ended ---------------------------------------- June 30, December 31, June 30, 2008 2007 2007 ------------ ----------- ----------- (Unaudited) (Unaudited) Selected Financial Condition Data (at end of period): Total assets $ 437,327 $ 408,880 $ 393,319 Total loans 362,122 355,079 338,896 Total deposits 356,976 320,827 321,246 Borrowings and subordinated debentures 36,280 45,949 38,307 Total shareholders' equity 40,975 39,321 30,485 Selected Statements of Income Data (six months and year ended): Net interest income $ 6,163 $ 13,417 $ 6,447 Income before taxes 2,808 2,923 1,581 Net income 1,908 10,163 1,581 Income per common share - Basic .56 2.96 .46 Income per common share - Diluted .56 2.96 .46 Three Months Ended: Net interest income $ 3,118 $ 3,410 $ 3,269 Income before taxes 2,644 787 546 Net income 1,769 527 546 Income per common share - Basic .52 .15 .16 Income per common share - Diluted .52 .15 .16 Selected Financial Ratios and Other Data (six months and year ended): Performance Ratios: Net interest margin 3.16% 3.60% 3.57% Efficiency ratio 91.85 79.46 82.79 Return on average assets .92 2.59 .84 Return on average equity 9.61 31.05 10.68 Average total assets $ 417,964 $ 392,313 $ 381,238 Average total shareholders' equity $ 39,945 $ 32,731 $ 29,836 Average loans to average deposits ratio 107.72% 104.94% 103.84% Common Share Data (at end of period): Market price per common share $ 7.00 $ 8.98 $ 9.45 Book value per common share $ 11.98 $ 11.47 $ 8.89 Common shares outstanding 3,419,736 3,428,695 3,428,695 Weighted average shares outstanding 3,424,314 3,428,695 3,428,695 Other Data (at end of period): Allowance for loan losses $ 3,585 $ 4,146 $ 4,920 Non-performing assets $ 8,008 $ 5,234 $ 5,126 Allowance for loan losses to total loans .99% 1.17% 1.45% Non-performing assets to total assets 1.83% 1.28% 1.30% Number of: Branch locations 12 12 13 FTE Employees 96 100 106 MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, December 31, June 30, (Dollars in thousands) 2008 2007 2007 ----------- ----------- ----------- (unaudited) (unaudited) ASSETS Cash and due from banks $ 7,115 $ 6,196 $ 7,518 Federal funds sold 19,274 166 3,489 ----------- ----------- ----------- Cash and cash equivalents 26,389 6,362 11,007 Interest-bearing deposits in other financial institutions 387 1,810 3,687 Securities available for sale 23,230 21,597 24,086 Federal Home Loan Bank stock 3,794 3,794 3,794 Loans: Commercial 292,645 288,839 274,783 Mortgage 65,869 62,703 60,575 Installment 3,608 3,537 3,538 ----------- ----------- ----------- Total Loans 362,122 355,079 338,896 Allowance for loan losses (3,585) (4,146) (4,920) ----------- ----------- ----------- Net loans 358,537 350,933 333,976 Premises and equipment 11,377 11,609 12,471 Other real estate held for sale 3,395 1,226 77 Other assets 10,218 11,549 4,221 ----------- ----------- ----------- TOTAL ASSETS $ 437,327 $ 408,880 $ 393,319 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Non-interest-bearing deposits $ 27,741 $ 25,557 $ 28,811 Interest-bearing deposits: NOW, Money Market, Checking 78,703 81,160 73,994 Savings 15,171 12,485 12,422 CDs < $100,000 78,678 80,607 96,546 CDs > $100,000 28,252 22,355 24,879 Brokered 128,431 98,663 84,594 ----------- ----------- ----------- Total deposits 356,976 320,827 321,246 Borrowings: Federal funds purchased - 7,710 - Short-term - 1,959 - Long-term 36,280 36,280 38,307 ----------- ----------- ----------- Total borrowings 36,280 45,949 38,307 Other liabilities 3,096 2,783 3,281 ----------- ----------- ----------- Total liabilities 396,352 369,559 362,834 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 - 3,419,736; 3,428,695; and 3,428,695 shares, respectively 42,773 42,843 42,780 Accumulated deficit (1,672) (3,582) (12,162) Accumulated other comprehensive income (loss) (126) 60 (133) ----------- ----------- ----------- Total shareholders' equity 40,975 39,321 30,485 ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 437,327 $ 408,880 $ 393,319 =========== =========== =========== MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands except per share Three Months Six Months data) Ended Ended June 30, June 30, ----------------- ----------------- 2008 2007 2008 2007 -------- -------- -------- -------- (Unaudited) (Unaudited) INTEREST INCOME: Interest and fees on loans: Taxable $ 5,604 $ 6,448 $ 11,704 $ 12,681 Tax-exempt 102 143 210 314 Interest on securities: Taxable 271 293 537 594 Tax-exempt 2 - 3 - Other interest income 81 166 170 366 -------- -------- -------- -------- Total interest income 6,060 7,050 12,624 13,955 -------- -------- -------- -------- INTEREST EXPENSE: Deposits 2,551 3,267 5,616 6,489 Borrowings 391 514 845 1,019 -------- -------- -------- -------- Total interest expense 2,942 3,781 6,461 7,508 -------- -------- -------- -------- Net interest income 3,118 3,269 6,163 6,447 Provision for loan losses 750 - 750 - -------- -------- -------- -------- Net interest income after provision for loan losses 2,368 3,269 5,413 6,447 -------- -------- -------- -------- OTHER INCOME: Service fees 194 185 368 346 Net security gains - - 65 - Net gains on sale of secondary market loans 49 91 97 199 Proceeds from lawsuit settlements 3,475 - 3,475 470 Other 29 66 52 240 -------- -------- -------- -------- Total other income 3,747 342 4,057 1,255 -------- -------- -------- -------- OTHER EXPENSES: Salaries and employee benefits 2,075 1,672 3,882 3,410 Occupancy 348 327 703 661 Furniture and equipment 190 166 368 323 Data processing 216 210 437 381 Professional service fees 79 174 232 325 Loan and deposit 144 79 254 151 Telephone 39 59 84 117 Advertising 60 91 120 183 Other 320 287 582 570 -------- -------- -------- -------- Total other expenses 3,471 3,065 6,662 6,121 -------- -------- -------- -------- Income before provision for income taxes 2,644 546 2,808 1,581 Provision for (benefit of) income taxes 875 - 900 - -------- -------- -------- -------- NET INCOME $ 1,769 $ 546 $ 1,908 $ 1,581 ======== ======== ======== ======== INCOME PER COMMON SHARE: Basic $ .52 $ .16 $ .56 $ .46 ======== ======== ======== ======== Diluted $ .52 $ .16 $ .56 $ .46 ======== ======== ======== ======== 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, 2008 2007 2007 ---------- ---------- ---------- Commercial Loans Real estate - operators of nonresidential buildings $ 41,778 $ 41,597 $ 41,662 Hospitality and tourism 35,053 37,604 37,286 Real estate agents and managers 27,495 29,571 31,937 New car dealers 10,716 10,569 10,270 Other 148,539 130,546 117,058 ---------- ---------- ---------- Total Commercial Loans 263,581 249,887 238,213 1-4 family residential real estate 60,882 57,613 55,090 Consumer 3,608 3,537 3,538 Construction Commercial 29,064 38,952 36,570 Consumer 4,987 5,090 5,485 ---------- ---------- ---------- Total Loans $ 362,122 $ 355,079 $ 338,896 ========== ========== ========== Credit Quality (at end of period): June 30, December 31, June 30, 2008 2007 2007 --------- --------- --------- Nonperforming Assets: Nonaccrual loans $ 4,613 $ 3,298 $ 4,758 Loans past due 90 days or more - 710 291 --------- --------- --------- Total nonperforming loans 4,613 4,008 5,049 Other real estate owned 3,395 1,226 77 --------- --------- --------- Total nonperforming assets $ 8,008 $ 5,234 $ 5,126 ========= ========= ========= Nonperforming loans as a % of loans 1.27% 1.13% 1.49% --------- --------- --------- Nonperforming assets as a % of assets 1.83% 1.28% 1.30% --------- --------- --------- Reserve for Loan Losses: At period end $ 3,585 $ 4,146 $ 4,920 --------- --------- --------- As a % of average loans 1.00% 1.24% 1.53% --------- --------- --------- As a % of nonperforming loans 77.72% 103.44% 97.45% --------- --------- --------- As a % of nonaccrual loans 77.72% 125.71% 103.41% ========= ========= ========= Charge-off Information (year to date): Average loans 360,176 333,415 321,414 --------- --------- --------- Net charge-offs 1,310 1,260 86 --------- --------- --------- Charge-offs as a % of average loans .36% .38% .03% --------- --------- --------- MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES QUARTERLY FINANCIAL HIGHLIGHTS QUARTER ENDED ----------------------------------------------------- (Unaudited) ----------------------------------------------------- June 30, March 31, Dec. 31, Sept. 30, June 30, 2008 2008 2007 2007 2007 --------- --------- --------- --------- --------- BALANCE SHEET (Dollars in thousands) Total loans $ 362,122 $ 360,056 $ 355,079 $ 344,149 $ 338,896 Allowance for loan losses (3,585) (3,924) (4,146) (5,022) (4,920) --------- --------- --------- --------- --------- Total loans, net 358,537 356,132 350,933 339,127 333,976 Intangible assets 85 104 124 143 163 Total assets 437,327 417,175 4,088,880 401,213 393,319 Core deposits 200,293 203,445 199,809 218,638 211,773 Noncore deposits (1) 156,683 122,602 121,018 102,733 109,473 --------- --------- --------- --------- --------- Total deposits 356,976 326,047 320,827 321,371 321,246 Total borrowings 36,280 48,849 45,949 38,239 38,307 Total shareholders' equity 40,975 39,633 39,321 38,697 30,485 Total shares outstanding 3,419,736 3,428,695 3,428,695 3,428,695 3,428,695 AVERAGE BALANCES (Dollars in thousands) Assets $ 418,246 $ 417,682 $ 406,308 $ 400,105 $ 382,065 Loans 362,574 357,778 350,050 340,391 324,721 Deposits 332,725 336,016 324,194 327,293 309,469 Equity 40,399 39,491 38,973 32,184 30,412 INCOME STATEMENT (Dollars in thousands) Net interest income $ 3,118 $ 3,045 $ 3,410 $ 3,560 $ 3,269 Provision for loan losses 750 - - 400 - --------- --------- --------- --------- --------- Net interest income after provision 2,368 3,045 3,410 3,160 3,269 Total noninterest income 3,747 310 355 396 342 Total noninterest expense 3,471 3,191 2,978 3,001 3,065 --------- --------- --------- --------- --------- Income before taxes 2,644 164 787 555 546 Provision for income taxes 875 25 260 (7,500) - --------- --------- --------- --------- --------- Net income $ 1,769 $ 139 $ 527 $ 8,055 $ 546 ========= ========= ========= ========= ========= PER SHARE DATA Earnings - basic $ .52 $ .04 $ .15 $ 2.35 $ .46 Earnings - diluted .52 .04 .15 2.35 .46 Book value 11.98 11.56 11.47 11.29 8.89 Market value, closing price 7.00 8.50 8.98 8.75 9.45 ASSET QUALITY RATIOS Nonperforming loans/total loans 1.27% 0.94% 1.13% .92% 1.49% Nonperforming assets/total assets 1.83 1.08 1.28 .90 1.30 Allowance for loan losses/total loans .99 1.09 1.17 1.46 1.45 Allowance for loan losses/nonperforming loans 77.22 116.06 103.42 158.32 97.45 PROFITABILITY RATIOS Return on average assets 1.70% 0.13% .51% 7.99% .57% Return on average equity 17.62 1.42 5.36 99.30 7.20 Net interest margin 3.19 3.13 3.55 3.71 3.60 Efficiency ratio 88.45 95.34 78.02 74.71 83.21 Average loans/ average deposits 108.97 106.48 107.98 104.00 104.93 CAPITAL ADEQUACY RATIOS Leverage ratio 8.56% 7.85% 8.05% 8.03% 7.97% Tier 1 capital ratio 9.48 8.84 8.97 9.03 8.85 Total capital ratio 10.45 9.92 10.13 10.28 10.10 Average equity/ average assets 9.66 9.45 9.59 8.04 7.96 Tangible equity/ tangible assets 9.35 9.48 9.59 9.61 7.71 (1) Noncore deposits includes Internet CDs, brokered deposits and CDs greater than $100,000
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