MFNC Mackinac Financial Corporation

Mackinac Financial Corporation (Nasdaq: MFNC) (“we”, or the “Corporation”) the bank holding company for mBank (“the Bank”) today announced 2021 second quarter net income of $2.94 million, or $.28 per share, compared to 2020 second quarter net income of $3.45 million, or $.33 per share. The 2021 second quarter results included expenses related to the pending merger with Nicolet Bankshares, Inc. (Green Bay, WI) (“Nicolet”), which had an estimated after-tax impact of $391 thousand on earnings. Adjusted net income (net of transaction related expenses) for the second quarter of 2021 was $3.34 million, or $.32 per share. Weighted average shares outstanding for the second quarter of 2021 were 10,550,393 compared to 10,533,589 for the same period of 2020.

Total assets of the Corporation at June 30, 2021 were $1.52 billion, compared to $1.52 billion at June 30, 2020. Shareholders’ equity at June 30, 2021 totaled $171.92 million, compared to $164.16 million at June 30, 2020. Book value per share outstanding equated to $16.30 at the end of the second quarter 2021, compared to $15.58 per share outstanding a year ago. Tangible book value at quarter-end was $148.31 million, or $14.06 per share outstanding, compared to $139.88 million, or $13.28 per share outstanding at the end of the second quarter 2020.

Additional notes:

• mBank, the Corporation’s primary asset, recorded net income of $3.82 million for the second quarter of 2021, compared to $3.88 million for the second quarter of 2020. Transaction expenses were minimal at the bank level for the period and did not meaningfully impact mBank net income.
• Non-interest income remained solid for the quarter, including secondary market mortgage fees and gains on sale of $982 thousand and premiums on the sale of Small Business Administration (SBA) guaranteed loans of $869 thousand.
• Core operating margin, which is net of accretion from acquired loans that were subject to purchase accounting adjustments and Paycheck Protection Program (“PPP”) fees, was 4.16%.
• On April 12, 2021 the Board of Directors of MFNC announced the signing of a definitive agreement for Nicolet to acquire the Corporation. On July 15, 2021 the shareholders of MFNC voted (either in-person or via proxy) to approve the transaction at a Special Shareholder meeting of the Corporation. The transaction is still 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 second quarter 2021 was $16.61 million, compared to $18.81 million for the second quarter of 2020. The majority of the variance is due to the higher levels of FASB (GAAP) recognition of PPP loan fee income in the 2020 period. Total interest income for the second quarter 2021 was $14.19 million, compared to $16.44 million for the same period in 2020. The year-over-year variance in interest income, once again, was related to the aforementioned timing of PPP recognition in 2020. The 2021 second quarter interest income also included accretive yield of $642 thousand from combined credit mark accretion associated with acquisitions, compared to $320 thousand in the same period of 2020.  

PPP fee income for the second quarter of 2021 was $1.43 million, compared to $2.13 million for the second quarter of 2020. As of June 30, 2021, the Corporation has $2.166 million of PPP fee income that has been received but not recognized. Recognition of the remaining PPP fees will occur in accordance with FASB guidance based on normal amortization or acceleration upon the forgiveness of the PPP loan by the SBA. Current monthly amortization / recognition is approximately $163 thousand.

Loan Production and Portfolio Mix

Total balance sheet loans at June 30, 2021 were $978 million, compared to June 30, 2020 balances of $1.15 billion. Total loans under management reside at $1.215 billion, which includes $236.88 million of service retained loans. Overall loan production for the first six months of 2021 was $218.90 million, which included $57.67 million of PPP loans. The remaining $161.22 million was inclusive of, but not limited to, $67.99 million of secondary market loans, $63.3 million of commercial loans and $16.97 million of conventional balance sheet mortgage loans.  

Credit Quality

Nonperforming loans totaled $4.93 million, or .50% of total loans (.53% when excluding PPP loans) at June 30, 2021, compared to $6.12 million, or .53% of total loans at June 30, 2020. Total loan delinquencies greater than 30 days resided at .46% (.49% when excluding PPP loans), compared to .54% in 2020.  The nonperforming assets to total assets ratio resided at .41% (.41% when excluding PPP loans) for the second quarter of 2021, compared to .55% for the second quarter of 2020. The Corporation currently has no commercial loans in principal deferral and a nominal $2.08 million that remain in the interest only portion of their COVID-19 loan modification period. There are no consumer loans that remain in full payment deferral. Total loans in some type of COVID-19 payment modification are a minimal .21% of total loans. There remains no sign of any adverse systemic issues or deterioration in the loan portfolio.  

Margin Analysis, Funding and Liquidity

Net interest income for second quarter 2021 was $13.22 million, resulting in a Net Interest Margin (NIM) of 4.56%, compared to $14.36 million in the second quarter 2020 and a NIM of 4.51%. Net interest income was impacted by the aforementioned PPP recognition for the 2020 period. Core operating margin, which is net of accretion from acquired loans that were subject to purchase accounting adjustments as well as PPP impact, was 4.16% for the second quarter of 2021, compared to 3.75% for the same period of 2020.

Total bank deposits were $1.29 billion at June 30, 2021, compared to $1.14 billion at first quarter-end 2020, an increase of approximately $150 million. Total brokered deposits have decreased significantly and were $13.35 million at June 30, 2021, compared to $90.48 million at June 30, 2020, a decrease of $77 million. FHLB (Federal Home Loan Bank) borrowings have also decreased from $63.31 million at June 30, 2020 to $28.11 million at June 30, 2021.   Overall access to short-term functional liquidity remains very strong through multiple sources, if needed.

Noninterest Income / Expense

Second quarter 2021 Noninterest Income was $2.42 million, compared to $2.37 million for the same period of 2020. Noninterest Expense for the second quarter of 2021 was $11.91 million, compared to $12.35 million for the same period of 2020. When giving effect to the $495 thousand of pre-tax transaction expenses ($391 thousand after-tax), noninterest expense was $11.42 million for the second quarter of 2021.

Capital

Both the Corporation and the Bank are “well-capitalized” with total risk-based capital to risk-weighted assets of 15.64% and 15.76% and tier 1 capital to total tier 1 average assets at the Corporation of 9.68% and at the Bank of 9.38%. 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, “With the recent MFNC shareholder approval of the Nicolet transaction, we have moved one step closer to the consummation of the merger. As we approach the closing of the 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 thank all of our shareholders, clients and employees for being a part of Mackinac Financial.”

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: 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.

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
						June 30,			December 31,			June 30,
(Dollars in thousands, except per share data)							2021			2020			2020
						(Unaudited)						(Unaudited)
Selected Financial Condition Data (at end of period):
Assets						$	1,518,952		$	1,501,730		$	1,518,473
Loans							978,055			1,077,592			1,153,790
Investment securities							101,955			111,836			108,703
Deposits							1,307,154			1,258,776			1,227,552
Borrowings							28,441			63,479			114,466
Shareholders' equity							171,919			167,864			164,157
Selected Statements of Income Data (six months and year ended)
Net interest income						$	27,044		$	54,806		$	27,855
Income before taxes							8,006			17,056			8,235
Net income							6,825			13,473			6,505
Income per common share - Basic							.65			1.27			.61
Income per common share - Diluted							.64			1.27			.61
Weighted average shares outstanding - Basic							10,536,722			10,580,044			10,625,778
Weighted average shares outstanding- Diluted							10,582,597			10,580,044			10,552,581
Three Months Ended:
Net interest income						$	13,266		$	13,899		$	14,458
Income before taxes							3,728			4,614			4,373
Net income							2,945			3,644			3,454
Income per common share - Basic							.28			.35			.33
Income per common share - Diluted							.28			.35			.33
Weighted average shares outstanding - Basic							10,550,393			10,536,023			10,533,589
Weighted average shares outstanding- Diluted							10,617,422			10,536,023			10,460,802
Selected Financial Ratios and Other Data:
Performance Ratios:
Net interest margin							4.54	%		4.37	%		4.55	%
Efficiency ratio							74.09			71.84			73.23
Return on average assets							.91			.92			.93
Return on average equity							8.09			8.19			8.05
Average total assets						$	1,517,185		$	1,464,674		$	1,411,081
Average total shareholders' equity							170,217			164,505			162,556
Average loans to average deposits ratio							81.71	%		93.34	%		95.91	%
Common Share Data at end of period:
Market price per common share						$	19.76		$	12.76		$	10.37
Book value per common share							16.30			15.99			15.58
Tangible book value per share							14.06			13.71			13.28
Dividends paid per share, annualized							.56			.56			.56
Common shares outstanding							10,550,393			10,500,758			10,533,589
Other Data at end of period:
Allowance for loan losses						$	5,651		$	5,816		$	5,355
Non-performing assets							6,276			7,210			8,350
Allowance for loan losses to total loans							.58	%		.54	%		.46	%
Non-performing assets to total assets							.41	%		.48	%		.55	%
Texas ratio							4.08	%		4.82	%		4.22	%
Number of:
Branch locations							28			28			29
FTE Employees							291			315			315

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS

		June 30,				December 31,				June 30,
		2021				2020				2020
		(Unaudited)								(Unaudited)
ASSETS
Cash and due from banks		$	341,436			$	218,901			$	126,398
Federal funds sold			10,041				76				28,110
Cash and cash equivalents			351,477				218,977				154,508
Interest-bearing deposits in other financial institutions			2,427				2,917				7,831
Securities available for sale			101,955				111,836				108,703
Federal Home Loan Bank stock			4,473				4,924				4,924
Loans:
Commercial			738,429				819,907				878,521
Mortgage			221,388				238,705				255,524
Consumer			18,238				18,980				19,745
Total Loans			978,055				1,077,592				1,153,790
Allowance for loan losses			(5,651	)			(5,816	)			(5,355	)
Net loans			972,404				1,071,776				1,148,435
Premises and equipment			24,533				25,518				25,448
Other real estate held for sale			1,343				1,752				2,226
Deferred tax asset			2,496				3,303				1,727
Deposit based intangibles			4,031				4,368				4,706
Goodwill			19,574				19,574				19,574
Other assets			34,239				36,785				40,391
TOTAL ASSETS		$	1,518,952			$	1,501,730			$	1,518,473
LIABILITIES AND SHAREHOLDERS EQUITY
LIABILITIES:
Deposits:
Noninterest bearing deposits		$	459,716			$	414,804			$	385,811
NOW, money market, interest checking			501,251				450,556				386,029
Savings			141,729				130,755				123,771
CDs<$250,000			178,723				202,266				226,971
CDs>$250,000			12,384				15,224				14,488
Brokered			13,351				45,171				90,482
Total deposits			1,307,154				1,258,776				1,227,552
Federal funds purchased
Borrowings			28,441				63,479				114,466
Other liabilities			11,438				11,611				12,298
Total liabilities			1,347,033				1,333,866				1,354,316
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			127,624				127,164				127,213
Retained earnings			43,189				39,318				35,295
Accumulated other comprehensive income (loss)
Unrealized (losses) gains on available for sale securities			1,689				1,965				2,059
Minimum pension liability			(583	)			(583	)			(410	)
Total shareholders equity			171,919				167,864				164,157
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY		$	1,518,952			$	1,501,730			$	1,518,473

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS

		For the Three Months Ended						For the Six Months Ended
		June 30,						June 30,
			2021			2020			2021			2020
		(Unaudited)						(Unaudited)
INTEREST INCOME:
Interest and fees on loans:
Taxable		$	13,414		$	15,549		$	27,535		$	30,162
Tax-exempt			20			55			40			129
Interest on securities:
Taxable			503			560			1,028			1,180
Tax-exempt			132			152			274			240
Other interest income			120			125			204			395
Total interest income			14,189			16,441			29,081			32,106
INTEREST EXPENSE:
Deposits			723			1,707			1,612			3,634
Borrowings			200			276			425			617
Total interest expense			923			1,983			2,037			4,251
Net interest income			13,266			14,458			27,044			27,855
Provision for loan losses			50			100			100			200
Net interest income after provision for loan losses			13,216			14,358			26,944			27,655
OTHER INCOME:
Deposit service fees			265			236			522			640
Income from loans sold on the secondary market			982			1,511			2,284			2,049
SBA/USDA loan sale gains			869			274			1,302			984
Mortgage servicing amortization			154			204			395			393
Net security gains			0			0			36			0
Other			154			142			283			238
Total other income			2,424			2,367			4,822			4,304
OTHER EXPENSE:
Salaries and employee benefits			6,306			7,009			13,130			13,060
Occupancy			1,092			1,008			2,275			2,132
Furniture and equipment			818			804			1,660			1,606
Data processing			707			852			1,477			1,677
Advertising			176			312			289			524
Professional service fees			515			574			1,013			1,072
Loan origination expenses and deposit and card related fees			419			406			869			787
Writedowns and losses on other real estate held for sale			84			30			32			34
FDIC insurance assessment			150			165			290			315
Communications expense			259			224			500			437
Transaction related expenses			495			-			495			-
Other			891			968			1,730			2,080
Total other expenses			11,912			12,352			23,760			23,724
Income before provision for income taxes			3,728			4,373			8,006			8,235
Provision for income taxes			783			919			1,181			1,730
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS		$	2,945		$	3,454		$	6,825		$	6,505
INCOME PER COMMON SHARE:
Basic		$	.28		$	.33		$	.65		$	.61
Diluted		$	.28		$	.33		$	.64		$	.61

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIESLOAN PORTFOLIO AND CREDIT QUALITY

(Dollars in thousands)

Loan Portfolio Balances (at end of period):

	June 30,			December 31,			June 30,
		2021			2020			2020
	(Unaudited)			(Audited)			(Unaudited)
Commercial Loans:
Real estate - operators of nonresidential buildings	$	130,222		$	138,992		$	136,299
Hospitality and tourism		100,162			100,237			98,981
Lessors of residential buildings		53,016			52,035			48,852
Gasoline stations and convenience stores		26,583			29,046			28,463
Logging		17,408			18,651			22,283
Commercial construction		48,205			47,698			38,712
Other		362,833			433,248			504,931
Total Commercial Loans		738,429			819,907			878,521
1-4 family residential real estate		210,364			227,044			235,467
Consumer		18,238			18,980			19,745
Consumer construction		11,024			11,661			20,057
Total Loans	$	978,055		$	1,077,592		$	1,153,790

Credit Quality (at end of period):

	June 30,			December 31,			June 30,
		2021			2020			2020
	(Unaudited)			(Audited)			(Unaudited)
Nonperforming Assets :
Nonaccrual loans	$	4,927		$	5,458		$	6,124
Loans past due 90 days or more		6			-			-
Restructured loans		-			-			-
Total nonperforming loans		4,933			5,458			6,124
Other real estate owned		1,343			1,752			2,226
Total nonperforming assets	$	6,276		$	7,210		$	8,350
Nonperforming loans as a % of loans		.50	%		.51	%		.53	%
Nonperforming assets as a % of assets		.41	%		.48	%		.55	%
Reserve for Loan Losses:
At period end	$	5,651		$	5,816		$	5,355
As a % of outstanding loans		.58	%		.54	%		.46	%
As a % of nonperforming loans		114.56	%		106.56	%		87.44	%
As a % of nonaccrual loans		114.69	%		106.56	%		87.44	%
Texas Ratio		4.08	%		4.82	%		4.22	%
Charge-off Information (year to date):
Average loans	$	1,051,518		$	1,117,132		$	1,097,382
Net charge-offs (recoveries)	$	264		$	492		$	153
Charge-offs as a % of average
loans, annualized		.05	%		.04	%		.03	%

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES QUARTERLY FINANCIAL HIGHLIGHTS

	QUARTER ENDED
	(Unaudited)
	June 30,				March 31,				December 31,				September 30,				June 30,
		2021				2021				2020				2020				2020
BALANCE SHEET (Dollars in thousands)
Total loans	$	978,055			$	1,063,756			$	1,077,592			$	1,144,325			$	1,153,790
Allowance for loan losses		(5,651	)			(5,842	)			(5,816	)			(5,832	)			(5,355	)
Total loans, net		972,404				1,057,914				1,071,776				1,138,493				1,148,435
Total assets		1,518,952				1,508,248				1,501,730				1,522,917				1,518,473
Core deposits		1,281,419				1,249,591				1,198,381				1,195,062				1,122,582
Noncore deposits		25,735				23,688				60,395				85,825				104,970
Total deposits		1,307,154				1,273,279				1,258,776				1,280,887				1,227,552
Total borrowings		28,441				53,459				63,479				63,505				114,466
Total shareholders' equity		171,919				170,176				167,864				166,168				164,157
Total tangible equity		148,314				146,402				143,922				142,057				139,877
Total shares outstanding		10,550,393				10,550,393				10,500,758				10,533,589				10,533,589
Weighted average shares outstanding		10,550,393				10,522,899				10,536,023				10,533,589				10,533,589
AVERAGE BALANCES (Dollars in thousands)
Assets	$	1,522,548			$	1,512,496			$	1,505,869			$	1,536,128			$	1,501,423
Earning assets		1,168,006				1,235,235				1,252,038				1,303,102				1,290,012
Loans		1,025,306				1,078,022				1,118,665				1,154,670				1,147,620
Noninterest bearing deposits		452,881				426,890				422,081				422,134				346,180
Deposits		1,295,982				1,279,362				1,255,669				1,269,658				1,211,694
Equity		171,411				169,023				167,459				165,450				161,811
INCOME STATEMENT (Dollars in thousands)
Net interest income	$	13,266			$	13,778			$	13,898			$	13,052			$	14,458
Provision for loan losses		50				50				400				400				100
Net interest income after provision		13,216				13,728				13,498				12,652				14,358
Total noninterest income		2,424				2,398				2,779				3,116				2,367
Total noninterest expense		11,912				11,848				11,663				11,561				12,352
Income before taxes		3,728				4,278				4,614				4,207				4,373
Provision for income taxes		783				398				970				883				919
Net income available to common shareholders	$	2,945			$	3,880			$	3,644			$	3,324			$	3,454
Income pre-tax, pre-provision	$	3,778			$	4,328			$	5,014			$	4,607			$	4,473
PER SHARE DATA
Earnings per common share	$	.28			$	.37			$	.35			$	.32			$	.33
Book value per common share		16.30				16.13				15.99				15.78				15.58
Tangible book value per share		14.06				13.88				13.71				13.49				13.28
Market value, closing price		19.76				14.02				12.76				9.65				10.37
Dividends per share		.14				.14				.14				.14				.14
ASSET QUALITY RATIOS
Nonperforming loans/total loans		.50		%		.47		%		.51		%		.47		%		.53		%
Nonperforming assets/total assets		.41				.45				.48				.48				.55
Allowance for loan losses/total loans		.58				.55				.54				.51				.46
Allowance for loan losses/nonperforming loans		114.56				116.28				106.56				107.72				87.44
Texas ratio		4.08				4.41				4.82				4.91				4.22
PROFITABILITY RATIOS
Return on average assets		.78		%		1.04		%		.96		%		.86		%		.93		%
Return on average equity		6.89				9.31				8.66				7.99				8.58
Net interest margin		4.56				4.52				4.42				3.98				4.51
Average loans/average deposits		79.11				84.26				89.09				90.94				94.71
CAPITAL ADEQUACY RATIOS
Tier 1 leverage ratio		9.68		%		9.63		%		9.63		%		9.20		%		9.45		%
Tier 1 capital to risk weighted assets		15.64				14.74				14.48				13.91				13.27
Total capital to risk weighted assets		16.25				15.34				15.07				14.49				13.79
Average equity/average assets (for the quarter)		11.26				11.18				11.12				10.77				10.78

Contact:        Jesse A. Deering, EVP & Chief Financial Officer (248) 290-5906 /jdeering@bankmbank.comWebsite:        www.bankmbank.com