MFNC Reports Results for 2013 Third Quarter

Manistique, Michigan – Mackinac Financial Corporation (Nasdaq: MFNC), the bank holding company for mBank (the “Bank”), today announced third quarter 2013 income of $.846 million or $.15 per share compared to net income available to common shareholders of $.897 million, or $.21 per share for the third quarter of 2012.  Operating results for the first nine months of 2013 totaled $2.719 million or $.49 per share compared to $2.536 million or $.60 per share, excluding the $3.0 million deferred tax valuation adjustment, for the same period in 2012.  
 
Weighted average shares totaled 5,559,108 shares for the nine month period in 2013 compared to 3,857,002 million in 2012 and 5,562,835 shares in the 2013 third quarter compared to 4,722,029 shares in 2012.  The increase in outstanding shares for 2013 reflects the issuance of 2.138 million shares of common stock in August of 2012. Quarterly and nine month per share earnings for 2012 have been adjusted for the common stock issuance.
 
The Corporation’s subsidiary, mBank, recorded net income of $3.820 million for the first nine months of this year compared to $3.577 million, excluding the deferred tax valuation adjustment, for the same period in 2012.
 
Total assets of the Corporation at September 30, 2013 were $567.917 million, up 3.05 % from the $551.117 million reported at September 30, 2012 and up 4.02% from the $545.980 million of total assets at year-end 2012. The Corporation and the Bank are both “well-capitalized” with Tier 1 Capital at the Corporation of 10.90% and 10.20% at the Bank.
 
Key highlights for the first nine months of 2013 results include:
 
  • Continued strong credit quality with a Texas Ratio of 9.56% with nominal nonperforming loans of $4.313 million, a $.977 million reduction from a year earlier. 
  • Loan growth of $23.318 million, or 5.19% in the first nine months of 2013.
  • Stability and above peer average net interest margin at 4.15%.
  • Nine month secondary mortgage loan income of $.781 million.
  • Continued success in SBA/USDA lending with gains on the sale of these loans of $.798 million in the first nine months of 2013. The corporation continues to be a state leader within these various loan programs ranking 9th in terms of the number of SBA 7A loans originated, 30, and 13th based on total dollars equating to $9.553 million for the most recent SBA fiscal year end of September 30th, 2013.   
  • Redemption, at par, of $7.0 million of the Corporation’s $11.0 million Series A Preferred stock.
  • Mackinac Commercial Credit completed initial staffing and is processing asset based loan and factoring opportunities. 
 
Loans and Nonperforming Assets
 
Total loans at September 30, 2013 were $472.495 million, an 8.88% increase from the $433.958 million at September 30, 2012 and up $23.318 million from year-end 2012 total loans of $449.177 million. In addition to the balance sheet totals, the company services $126 million of sold mortgage loans, up from $78 million at September 30, 2012.  We also service another $71 million of sold SBA and USDA loans. Total loans under management now $670 million.  The Corporation had total new loan production of $139 million in the first nine months of this year.  Comprising the total production were $60 million in commercial loans, and $79 million in retail, $72 million of which were mortgages.  The Upper Peninsula continues to drive a large majority of the new originations, totaling $97 million, with Northern Lower production of $34 million and Southeast Michigan with $8 million. 
 
Commenting on new loan production, Kelly W. George, President and Chief Executive Officer of mBank stated, “We are seeing good loan opportunities in all of our markets but Southeast Michigan from a commercial lending growth standpoint has been stymied due to increased competition as more larger and non-traditional lenders turned to offense with rates and terms we were not comfortable entertaining for our balance sheet structure. We also remain cautiously optimistic with our mortgage lending activity as it continues to perform well given the recent volatility of rates we have experienced, with a good mix of home purchases and refinances. We are closely monitoring the mortgage markets as we look toward the future. Our commercial pipeline remains good throughout all our regions heading into the end of the year for both traditional and SBA/USDA guaranteed loans we expect to close.”  
 
Nonperforming loans totaled $4.313 million, .91% of total loans at September 30, 2013 compared to $5.290 million, or 1.22% of total loans at September 30, 2012 and down $.374 million from December 31, 2012.  Nonperforming assets were reduced by $1.920 million from a year ago and stood at 1.21% of total assets.  Total loan delinquencies resided at .36% or $4.313 million, almost solely made up of non-accrual commercial loans.  George, commenting on overall credit quality, “We remain pleased with the overall credit  performance metrics  of our loan portfolio from both a micro perspective as noted above, as well as from a macro perspective with all industry segments performing satisfactory with a good diversification of loan types being originated. Our performance metrics have improved and our current level of nonperforming assets has resulted in lower costs, which we believe will continue.  We will remain diligent in our timely monitoring on any problem loans that arise and will stay true to our core underwriting principles and will not stretch credit quality even with more banks lending and competition fierce for new loans to augment balance sheet growth.”
 
Margin Analysis
 
Net interest income in the first nine months of 2013 increased to $15.773 million, or 4.15%, compared to $14.712 million, or 4.19%, in the same period in 2012.  The increase in net interest income is due primarily to increased levels of earning assets.  George, commenting on margin items stated, “We have managed our margin prudently in this continued low interest rate environment. We have used some extended term wholesale funding sources given the inability to get market clients to move into these longer terms liabilities to match fund longer term fixed rate loans as best we can to help mitigate longer term interest rate risk should rates move forward more quickly than market indicators foresee. We also continue to offer very competitive variable rate loans with interest rate floors to protect the margin in the near term, and balance the overall interest rate risk in the portfolio.” 
 
Deposits
 
Total deposits of $461.688 million at September 30, 2013 increased 5.08% from deposits of $439.363 million on September 30, 2012.  Total deposits on September 30, 2013 were up $27.131 million from year-end 2012 deposits of $434.557 million.  The overall increase in deposits for the nine months of 2013 is comprised of an increase in noncore deposits of $24.461 million and an increase in core deposits of $2.670 million. George, commenting on core deposits, stated, “ Though not as robust as previous years with respect to our overall core deposit growth, we remain pleased that our overall net growth has been concentrated in transactional accounts even with reducing rates on these types of accounts and certificates as well, in order to enhance our net interest margin. We experienced some certificate withdrawals from primarily rate driven clients that has stunted overall core deposit growth. We continue to monitor our markets to remain competitive in pricing and to maintain our core deposit relationships with service and products to serve their needs. We also experienced some withdrawals by several of our larger commercial accounts as they have utilized their liquidity for business expansion opportunities and general debt pay downs given their limited investment options. We supplemented our deposit growth with manageable levels of noncore deposits to manage interest rate risk in this prolonged low interest rate cycle, and also aligns our funding costs with rates and maturities on loans as noted previously.”
 
Noninterest Income
 
Noninterest income, at $2.747 million in the first nine months of 2013, decreased $.313 million from the same period in 2012 of $3.060 million.  Levels of income from secondary market mortgage activities and gains from SBA/USDA loan sales were lower in 2013. Income from secondary mortgage activities totaled $.781 million in 2013 compared to $.844 million in 2012.  SBA/USDA loan sale gains were behind 2012 with 2013 year to date gains of $.798 million compared to 2012 gains of $1.126 million.
 
Noninterest Expense
 
Noninterest expense, at $13.193 million in the first nine months of 2013, increased $.785 million, or 6.33% from the same period in 2012. A significant portion of this increase in expense, approximately $.300 million was due to the initial start-up and operational costs of our newly formed asset based lending subsidiary. We are also experiencing added costs given the growth of the company’s operating platform and the need to keep pace both from a personnel, and infrastructure standpoint, with the changing internal risk profile of the company and external banking regulatory environment. Our overall non-interest expense base remains at, or below peer levels and we remain diligent in overseeing that the expense base is well controlled.
 
Capital
 
Total shareholders’ equity at September 30, 2013 was $67.045 million, compared to $72.945 million on September 30, 2012, a decrease of $5.900 million, or 8.09%.  Common shareholders’ equity was $63.045 million, or $11.30 per share at September 30, 2013 compared to $61.945 million, or $11.14 per share at September 30, 2012 and $61.448 million, or $11.05 per share on December 31, 2012.
 
Paul D. Tobias, Chairman and Chief Executive Officer, concluded, “Our operating results reflect strong loan production and balance sheet growth, improved credit quality and a sustainable above average interest margin. We recognize the challenges to improving our operating results, but are confident that current momentum, the strength of our balance sheet and access to capital will help us improve our returns on equity.
 
Looking forward, we believe that as the economy continues to improve, opportunities for franchise expansion will present themselves. We retired $7 million of our preferred stock and intend to retire the remaining $4.0 million balance prior to 2013 year-end. After the preferred redemption our capital will still exceed regulatory “well-capitalized” ratios. With our strong capital base and improving core earnings generation, coupled with our stable and experienced management team, we stand ready to create shareholder value through either organic growth or acquisition.”
 
Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets in excess of $550 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.


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