Mackinac Financial Corporation Reports 2021 First Quarter Financial Results

Mackinac Financial Corporation (Nasdaq: MFNC) (“we”, or the “Corporation”) the bank holding company for mBank (“the Bank”) today announced 2021 first quarter net income of $3.88 million, or $.37 per share, compared to 2020 first quarter net income of $3.05 million, or $.28 per share. Weighted average shares outstanding for the first quarter of 2021 were 10,522,899 compared to 10,717,967 for the same period of 2020.

Total assets of the Corporation at March 31, 2021 were $1.51 billion, compared to $1.36 billion at March 31, 2020. Shareholders’ equity at March 31, 2021 totaled $170.18 million, compared to $160.06 million at March 31, 2020. Book value per share outstanding equated to $16.13 at the end of the first quarter 2021, compared to $14.93 per share outstanding a year ago. Tangible book value at quarter-end was $146.40 million, or $13.88 per share outstanding, compared to $135.61 million, or $12.87 per share outstanding at the end of the first quarter 2020.

Additional notes:

mBank, the Corporation’s primary asset, recorded net income of $4.26 million for the first quarter of 2021.
The Bank funded approximately $53 million of Paycheck Protection Program (PPP) loans in the first quarter of 2021 with origination fees totaling approximately $2.78 million. These loans continue to support small businesses throughout our footprint with the majority of recipients residing in the Upper Peninsula and Northern Michigan.
Non-interest income was very solid for the quarter including secondary market mortgage fees and gains on sale of $1.30 million and premiums on the sale of Small Business Administration (SBA) guaranteed loans of $433 thousand.
The residential mortgage pipeline resides at robust levels and we expect strong output from this line of business as we look to upcoming quarters.
Core operating margin, which is net of accretion from acquired loans and PPP fees that were subject to purchase accounting adjustments, was 4.14%.
On April 12, 2021 the Board of Directors of MFNC announced the signing of a definitive agreement for Nicolet Bankshares (Green Bay, WI) to acquire the Corporation. The transaction is expected to close in the third quarter of 2021. Specific information regarding the transaction can be found at www.bankmbank.com.

Revenue & PPP Recognition

Total revenue of the Corporation for first quarter 2021 was $17.29 million, compared to $17.60 million for the first quarter of 2020. Total interest income for the first three months of 2021 was $14.89 million, compared to $15.67 million for the same period in 2020. The 2021 first quarter interest income included accretive yield of $237 thousand from combined credit mark accretion associated with acquisitions, compared to $818 thousand in the same period of 2020.

The first quarter 2021 interest income was also positively impacted by recognition of a portion of the PPP loan origination fees that were earned during the quarter:

The bank originated approximately $53 million of PPP loans in the first quarter.
The origination efforts resulted in fees earned of $2.78 million, which are subject to FASB accounting guidance for recognition.
In accordance with applicable accounting guidance, the bank recognized $826 thousand in pre-tax fee revenue that offset ASC 310-20 eligible origination costs.
This recognition resulted in $1.95 million of fees remaining to be accreted over the expected life of the PPP loan pool, which will initially be 12-months unless acceleration occurs due to the loans being paid off or forgiven before maturity.
The amount accreted during the second quarter was $296 thousand.
The total amount of PPP fees that were recognized in the second quarter was $1.12 million, leaving $1.66 million to be accreted or accelerated upon payoff.

Loan Production and Portfolio Mix

Total balance sheet loans at March 31, 2021 were $1.06 billion, compared to March 31, 2020 balances of $1.04 billion. Total loans under management reside at $1.31 billion, which includes $244.14 million of service retained loans. Overall loan production for the first three months of 2021 was $133.56 million, which included $53.73 million of PPP loans. The remaining $79.8 million was inclusive of $35.1 million of secondary market loans, compared to total production of $66.9 million in the first quarter 2020, which was inclusive of $19.0 million of secondary market production.

Overall Quarterly Loan Production is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/4f450277-ef09-4a10-8450-2f908fce2b32

Credit Quality

Nonperforming loans totaled $5.02 million, or .47% of total loans (.53% when excluding PPP loans) at March 31, 2021, compared to $6.42 million, or .61% of total loans at March 31, 2020. Total loan delinquencies greater than 30 days resided at .43% (.48% when excluding PPP loans), compared to 1.23% in 2020. The nonperforming assets to total assets ratio resided at .45% (.48 when excluding PPP loans) for the first quarter of 2021, compared to .64% for the first quarter of 2020. The Corporation currently has no commercial loans in full payment deferral and a nominal $5.3 million that remain in the interest- only portion of their COVID-19 loan modification period. These loans are expected to return to normal principal and interest payments over the next quarter. There are $300 thousand of consumer loans that remain in full payment deferral. Total loans in some type of COVID-19 payment modification are a minimal .59% of total loans. There remains no sign of any adverse systemic issues or deterioration in the loan portfolio and we expect good payment performance as we look to our stronger commerce months ahead.

Margin Analysis, Funding and Liquidity

Net interest income for first quarter 2021 was $13.78 million, resulting in a Net Interest Margin (NIM) of 4.52%, compared to $13.40 million in the first quarter 2020 and a NIM of 4.60%. Core operating margin, which is net of accretion from acquired loans that were subject to purchase accounting adjustments (as well as PPP impact for the 2021 period), was 4.14% for the first quarter of 2021, compared to 4.32% for the same period of 2020.

Margin Analysis Per Quarter is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/6792bddd-857d-40a7-affe-d09627009945

Total bank deposits (excluding brokered deposits) have increased by approximately $261 million year-over-year from $999.09 million at March 31, 2020 to $1.26 billion at first quarter-end 2021. Total brokered deposits have decreased significantly and were $13.35 million at March 31, 2021, compared to $96.29 million at March 31, 2020, a decrease of 86%. FHLB (Federal Home Loan Bank) borrowings have also decreased from $64.12 million at March 31, 2020 to $53.46 million at March 31, 2021. The company plans to retire an additional $25 million of FHLB borrowings in June 2021. Overall access to short-term functional liquidity remains very strong through multiple sources, if needed.

Noninterest Income / Expense

First quarter 2021 Noninterest Income was $2.40 million, compared to $1.94 million for the same period of 2020. The significant year-over-year improvement is mainly due to the increase of secondary market mortgage sales. Noninterest Expense for the first quarter of 2021 was $11.85 million, compared to $11.37 million for the same period of 2020. The expense variance was largely a result of PPP related expenses.

Assets and Capital

Both the Corporation and the Bank are “well-capitalized” with total risk-based capital to risk-weighted assets of 15.34% and 14.62% and tier 1 capital to total tier 1 average assets at the Corporation of 9.63% and at the bank of 9.16%. The leverage ratio is calculated inclusive of PPP loan balances.

Paul D. Tobias, Chairman and Chief Executive Officer of the Corporation and Chairman of mBank concluded, “As we move toward closing of the Nicolet transaction, the company continues to work on behalf of all constituencies to make the transition as smooth as possible while maintaining best-in-class service to our valued clients. We know that with our experience on the buy-side and Nicolet being an active acquirer, we have two dedicated teams that will complete this process in the best manner possible.”

Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets in excess of $1.5 billion 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 28 branch locations: ten in the Upper Peninsula, ten in the Northern Lower Peninsula, one in Oakland County, Michigan, and seven in Northern Wisconsin. The Corporation’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: risks that the Company’s proposed merger with Nicolet Bankshares, Inc. (“Nicolet”) will not be consummated due to inability to obtain shareholder or regulatory approval or to satisfy certain closing conditions, or if consummated, the possibility that any of the anticipated benefits of the proposed merger will not be realized; 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, 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.

Important Information and Where to Find It

Certain communications in this release relate to the proposed merger transaction involving Nicolet and Mackinac. In connection with the proposed merger, Nicolet and Mackinac will file a joint proxy statement/‌prospectus on Form S-4 and other relevant documents concerning the merger with the Securities and Exchange Commission (the “SEC”). BEFORE MAKING ANY VOTING OR INVESTMENT DECISION, INVESTORS ARE URGED TO READ THE JOINT PROXY STATEMENT/‌PROSPECTUS AND ANY OTHER DOCUMENTS TO BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED MERGER OR INCORPORATED BY REFERENCE IN THE JOINT PROXY STATEMENT/‌PROSPECTUS BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT NICOLET, MACKINAC AND THE PROPOSED MERGER. When available, the joint proxy statement/‌prospectus will be delivered to shareholders of Nicolet and Mackinac. Investors may obtain copies of the joint proxy statement/prospectus and other relevant documents (as they become available) free of charge at the SEC’s website (www.sec.gov). Copies of the documents filed with the SEC by Nicolet will be available free of charge on Nicolet’s website at www.nicoletbank.com. Copies of the documents filed with the SEC by Mackinac will be available free of charge on Mackinac’s website at www.bankmbank.com.

Nicolet, Mackinac and certain of their directors, executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from the shareholders of Nicolet and the shareholders of Mackinac in connection with the proposed merger. Information about the directors and executive officers of Nicolet and Mackinac will be included in the joint proxy statement/‌prospectus for the proposed transaction filed with the SEC. Information about the directors and executive officers of Nicolet is also included in the proxy statement for its 2021 annual meeting of shareholders, which was filed with the SEC on March 2, 2021. Information about the directors and executive officers of Mackinac is also included in the proxy statement for its 2021 annual meeting of shareholders, which was filed with the SEC on April 22, 2021. Additional information regarding the interests of such participants and other persons who may be deemed participants in the transaction will be included in the joint proxy statement/prospectus and the other relevant documents filed with the SEC when they become available.

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIESSELECTED FINANCIAL HIGHLIGHTS

	As of and For the			As of and For the			As of and For the
	Period Ending			Year Ending			Period Ending
	March 31,			December 31,			March 31,
(Dollars in thousands, except per share data)	2021			2020			2020
	(Unaudited)						(Unaudited)
Selected Financial Condition Data (at end of period):
Assets	$	1,508,248		$	1,501,730		$	1,356,381
Loans		1,063,756			1,077,592			1,044,177
Investment securities		109,414			111,836			114,734
Deposits		1,273,279			1,258,776			1,095,381
Borrowings		53,459			63,479			67,120
Shareholders’ equity		170,176			167,864			160,060

Selected Statements of Income Data (three months and year ended)
Net interest income	$	13,778		$	54,806		$	13,397
Income before taxes		4,278			17,056			3,862
Net income		3,880			13,473			3,051
Income per common share - Basic		0.37			1.27			0.28
Income per common share - Diluted		0.37			1.27			0.28
Weighted average shares outstanding - Basic		10,522,899			10,580,044			10,717,967
Weighted average shares outstanding- Diluted		10,522,899			10,580,044			10,817,470

Selected Financial Ratios and Other Data:
Performance Ratios:
Net interest margin		4.52	%		4.37	%		4.60	%
Efficiency ratio		73.19			71.84			73.78
Return on average assets		1.04			0.92			0.93
Return on average equity		9.31			8.19			7.54

Average total assets	$	1,512,496		$	1,464,674		$	1,321,134
Average total shareholders’ equity		169,023			164,505			162,661
Average loans to average deposits ratio		84.26	%		93.34	%		97.30	%

Common Share Data at end of period:
Market price per common share	$	14.02		$	12.76		$	10.45
Book value per common share		16.13			15.99			15.20
Tangible book value per share		13.88			13.71			12.87
Dividends paid per share, annualized		0.56			0.56			0.56
Common shares outstanding		10,550,393			10,500,758			10,533,589

Other Data at end of period:
Allowance for loan losses	$	5,842		$	5,816		$	5,292
Non-performing assets		6,716			7,210			8,644
Allowance for loan losses to total loans		0.55	%		0.54	%		0.51	%
Non-performing assets to total assets		0.45	%		0.48	%		0.64	%
Texas ratio		4.41	%		4.82	%		6.13	%

Number of:
Branch locations		28			28			29
FTE Employees		310			315			316

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS

	March 31,			December 31,			March 31,
	2021			2020			2020
	(Unaudited)						(Unaudited)
ASSETS

Cash and due from banks	$	239,831		$	218,901		$	97,041
Federal funds sold		3,661			76			31
Cash and cash equivalents		243,492			218,977			97,072

Interest-bearing deposits in other financial institutions		2,427			2,917			8,825
Securities available for sale		109,414			111,836			114,734
Federal Home Loan Bank stock		4,924			4,924			4,924

Loans:
Commercial		818,584			819,907			760,357
Mortgage		226,780			238,705			263,445
Consumer		18,392			18,980			20,375
Total Loans		1,063,756			1,077,592			1,044,177
Allowance for loan losses		(5,842	)		(5,816	)		(5,292	)
Net loans		1,057,914			1,071,776			1,038,885

Premises and equipment		25,010			25,518			24,522
Other real estate held for sale		1,692			1,752			2,228
Deferred tax asset		2,492			3,303			3,154
Deposit based intangibles		4,200			4,368			4,874
Goodwill		19,574			19,574			19,574
Other assets		37,109			36,785			37,589

TOTAL ASSETS	$	1,508,248		$	1,501,730		$	1,356,381

LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES:
Deposits:
Noninterest bearing deposits	$	443,956		$	414,804		$	278,191
NOW, money market, interest checking		478,181			450,556			369,003
Savings		137,134			130,755			109,818
CDs<$250,000		190,320			202,266			227,924
CDs>$250,000		10,337			15,224			14,152
Brokered		13,351			45,171			96,293
Total deposits		1,273,279			1,258,776			1,095,381

Federal funds purchased								22,790
Borrowings		53,459			63,479			67,120
Other liabilities		11,334			11,611			11,030
Total liabilities		1,338,072			1,333,866			1,196,321

SHAREHOLDERS’ EQUITY:
Common stock and additional paid in capital - No par value Authorized - 18,000,000 shares Issued and outstanding - 10,550,393; 10,500,758 and 10,533,589 respectively		127,397			127,164			127,003
Retained earnings		41,721			39,318			33,316
Accumulated other comprehensive income (loss)
Unrealized (losses) gains on available for sale securities		1,641			1,965			151
Minimum pension liability		(583	)		(583	)		(410	)
Total shareholders’ equity		170,176			167,864			160,060

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,508,248		$	1,501,730		$	1,356,381

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months Ended
	March 31,
		2021			2020

	(Unaudited)
INTEREST INCOME:
Interest and fees on loans:
Taxable	$	14,122		$	14,613
Tax-exempt		20			74
Interest on securities:
Taxable		524			621
Tax-exempt		142			87
Other interest income		84			270
Total interest income		14,892			15,665

INTEREST EXPENSE:
Deposits		889			1,927
Borrowings		225			341
Total interest expense		1,114			2,268

Net interest income		13,778			13,397
Provision for loan losses		50			100
Net interest income after provision for loan losses		13,728			13,297

OTHER INCOME:
Deposit service fees		257			403
Income from loans sold on the secondary market		1,302			538
SBA/USDA loan sale gains		433			710
Mortgage servicing amortization		241			189
Net security gains		36			-
Other		129			97
Total other income		2,398			1,937

OTHER EXPENSE:
Salaries and employee benefits		6,824			6,051
Occupancy		1,183			1,124
Furniture and equipment		842			802
Data processing		770			825
Advertising		113			212
Professional service fees		498			498
Loan origination expenses and deposit and card related fees		450			381
Writedowns and losses on other real estate held for sale		(52	)		3
FDIC insurance assessment		140			150
Communications expense		241			213
Other		839			1,113
Total other expenses		11,848			11,372

Income before provision for income taxes		4,278			3,862
Provision for income taxes		398			811

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	3,880		$	3,051

INCOME PER COMMON SHARE:
Basic	$	0.37		$	0.28
Diluted	$	0.37		$	0.28

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIESLOAN PORTFOLIO AND CREDIT QUALITY

(Dollars in thousands)

Loan Portfolio Balances (at end of period):

	March 31,		December 31,		March 31,
	2021		2020		2020
	(Unaudited)		(Audited)		(Unaudited)
Commercial Loans:
Real estate - operators of nonresidential buildings	$	137,356	$	138,992	$	136,477
Hospitality and tourism		105,077		100,237		94,734
Lessors of residential buildings		51,288		52,035		48,529
Gasoline stations and convenience stores		27,562		29,046		26,495
Logging		16,756		18,651		21,380
Commercial construction		49,240		47,698		29,971
Other		431,305		433,248		402,771
Total Commercial Loans		818,584		819,907		760,357

1-4 family residential real estate		214,034		227,044		244,059
Consumer		18,392		18,980		20,375
Consumer construction		12,746		11,661		19,386

Total Loans	$	1,063,756	$	1,077,592	$	1,044,177

Credit Quality (at end of period):

	March 31,			December 31,			March 31,
	2021			2020			2020
	(Unaudited)			(Audited)			(Unaudited)
Nonperforming Assets :
Nonaccrual loans	$	5,024		$	5,458		$	6,416
Loans past due 90 days or more		-			-			-
Restructured loans		-			-			-
Total nonperforming loans		5,024			5,458			6,416
Other real estate owned		1,692			1,752			2,228
Total nonperforming assets	$	6,716		$	7,210		$	8,644
Nonperforming loans as a % of loans		0.47	%		0.51	%		0.61	%
Nonperforming assets as a % of assets		0.45	%		0.48	%		0.64	%
Reserve for Loan Losses:
At period end	$	5,842		$	5,816		$	5,292
As a % of outstanding loans		0.55	%		0.54	%		0.51	%
As a % of nonperforming loans		116.28	%		106.56	%		82.48	%
As a % of nonaccrual loans		116.28	%		106.56	%		82.48	%
Texas Ratio		4.41	%		4.82	%		6.13	%

Charge-off Information (year to date):
Average loans	$	1,078,022		$	1,117,132		$	1,047,144
Net charge-offs (recoveries)	$	24		$	492		$	116
Charge-offs as a % of average
loans, annualized		0.01	%		0.04	%		0.04	%

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES QUARTERLY FINANCIAL HIGHLIGHTS


	QUARTER ENDED
	(Unaudited)
	March 31,			December 31,			September 30,			June, 30			March 31,
		2021			2020			2020			2020			2020
BALANCE SHEET (Dollars in thousands)

Total loans	$	1,063,756		$	1,077,592		$	1,144,325		$	1,153,790		$	1,044,177
Allowance for loan losses		(5,842	)		(5,816	)		(5,832	)		(5,355	)		(5,292	)
Total loans, net		1,057,914			1,071,776			1,138,493			1,148,435			1,038,885
Total assets		1,508,248			1,501,730			1,522,917			1,518,473			1,356,381
Core deposits		1,249,591			1,198,381			1,195,062			1,122,582			984,936
Noncore deposits		23,688			60,395			85,825			104,970			110,445
Total deposits		1,273,279			1,258,776			1,280,887			1,227,552			1,095,381
Total borrowings		53,459			63,479			63,505			114,466			67,120
Total shareholders' equity		170,176			167,864			166,168			164,157			160,060
Total tangible equity		146,402			143,922			142,057			139,877			135,612
Total shares outstanding		10,550,393			10,500,758			10,533,589			10,533,589			10,533,589
Weighted average shares outstanding		10,522,899			10,536,023			10,533,589			10,533,589			10,717,967

AVERAGE BALANCES (Dollars in thousands)

Assets	$	1,512,496		$	1,505,869		$	1,536,128		$	1,501,423		$	1,321,134
Earning assets		1,235,235			1,252,038			1,303,102			1,290,012			1,171,551
Loans		1,078,022			1,118,665			1,154,670			1,147,620			1,047,144
Noninterest bearing deposits		426,890			422,081			422,134			346,180			284,677
Deposits		1,279,362			1,255,669			1,269,658			1,211,694			1,076,206
Equity		169,023			167,459			165,450			161,811			162,661

INCOME STATEMENT (Dollars in thousands)

Net interest income	$	13,778		$	13,898		$	13,052		$	14,458		$	13,397
Provision for loan losses		50			400			400			100			100
Net interest income after provision		13,728			13,498			12,652			14,358			13,297
Total noninterest income		2,398			2,779			3,116			2,367			1,937
Total noninterest expense		11,848			11,663			11,561			12,352			11,372
Income before taxes		4,278			4,614			4,207			4,373			3,862
Provision for income taxes		398			970			883			919			811
Net income available to common shareholders	$	3,880		$	3,644		$	3,324		$	3,454		$	3,051
Income pre-tax, pre-provision	$	4,328		$	5,014		$	4,607		$	4,473		$	3,962

PER SHARE DATA

Earnings per common share	$	0.37		$	0.35		$	0.32		$	0.33		$	0.28
Book value per common share		16.13			15.99			15.78			15.58			15.20
Tangible book value per share		13.88			13.71			13.49			13.28			12.87
Market value, closing price		14.02			12.76			9.65			10.37			10.45
Dividends per share		0.14			0.14			0.14			0.14			0.14

ASSET QUALITY RATIOS

Nonperforming loans/total loans		0.47	%		0.51	%		0.47	%		0.53	%		0.61	%
Nonperforming assets/total assets		0.45			0.48			0.48			0.55			0.64
Allowance for loan losses/total loans		0.55			0.54			0.51			0.46			0.51
Allowance for loan losses/nonperforming loans		116.28			106.56			107.72			87.44			82.48
Texas ratio		4.41			4.82			4.91			4.22			6.13

PROFITABILITY RATIOS

Return on average assets		1.04	%		0.96	%		0.86	%		0.93	%		0.93	%
Return on average equity		9.31			8.66			7.99			8.58			7.54
Net interest margin		4.52			4.42			3.98			4.51			4.60
Average loans/average deposits		84.26			89.09			90.94			94.71			97.30

CAPITAL ADEQUACY RATIOS

Tier 1 leverage ratio		9.63	%		9.63	%		9.20	%		9.45	%		10.20	%
Tier 1 capital to risk weighted assets		14.74			14.48			13.91			13.27			12.89
Total capital to risk weighted assets		15.34			15.07			14.49			13.79			13.41
Average equity/average assets (for the quarter)		11.18			11.12			10.77			10.78			12.31