MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL HIGHLIGHTS (Dollars in thousands except per share September December September data) 30, 31, 30, 2006 2005 2005 --------- --------- --------- (Unaudited) (Unaudited) Selected Financial Condition Data (at end of period): Total assets $ 363,191 $ 298,722 $ 280,590 Total loans 292,614 239,771 218,462 Total deposits 293,494 232,632 213,268 Borrowings 38,307 36,417 36,417 Total shareholders' equity 28,226 26,588 27,900 Selected Statements of Income Data (nine months and year ended): Net interest income $ 8,566 $ 9,780 $ 7,100 Income (loss) before taxes 853 (7,364) (6,336) Net income (loss) 1,378 (7,364) (6,336) Income (loss) per common share - Basic .40 (2.15) (1.85) Income (loss) per common share - Diluted .40 (2.15) (1.85) Three Months Ended Net interest income $ 2,952 $ 2,680 $ 2,507 Income (loss) before taxes 190 (1,028) (518) Net income (loss) 690 (1,028) (518) Income (loss) per common share - Basic .20 (.30) (.15) Income (loss) per common share - Diluted .20 (.30) (.15) Selected Financial Ratios and Other Data (nine months and year ended): Performance Ratios: Net interest margin 3.53% 3.64% 3.54% Efficiency ratio 93.82 160.43 112.11 Return on average assets .54 (2.58) (.73) Return on average equity 6.71 (25.63) (26.92) Average total assets $ 341,646 $ 285,896 $ 280,506 Average total shareholders' equity $ 27,440 $ 28,732 $ 28,112 Average loans to average deposits ratio 98.86% 98.17% 99.33% Common Share Data (at end of period): Market price per common share $ 10.56 $ 9.10 $ 10.99 Book value per common share $ 8.23 $ 7.76 $ 8.14 Common shares outstanding 3,428,695 3,428,695 3,428,695 Other Data (at end of period): Allowance for loan losses $ 5,316 $ 6,108 $ 6,589 Non-performing assets $ 2,091 $ 1,059 $ 3,905 Allowance for loan losses to total loans 1.82% 2.55% 3.02% Non-performing assets to total assets .58% .35% 1.39% Number of: Branch locations 13 12 12 MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands except per share September December September data) 30, 31, 30, 2006 2005 2005 --------- --------- --------- (Unaudited) (Unaudited) ASSETS Cash and due from banks $ 5,537 $ 4,833 $ 5,333 Federal funds sold 11,949 3,110 4,849 --------- --------- --------- Cash and cash equivalents 17,486 7,943 10,182 Interest-bearing deposits in other financial institutions 889 1,025 1,282 Securities available for sale 36,129 34,210 35,506 Federal Home Loan Bank stock 4,152 4,855 4,855 Total loans 292,614 239,771 218,462 Allowance for loan losses (5,316) (6,108) (6,589) --------- --------- --------- Net loans 287,298 233,663 211,873 Premises and equipment 12,643 11,987 11,268 Other real estate held for sale 26 945 1,948 Other assets 4,568 4,094 3,676 --------- --------- --------- Total assets $ 363,191 $ 298,722 $ 280,590 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Non-interest-bearing deposits $ 22,826 $ 19,684 $ 19,690 Interest-bearing deposits 270,668 212,948 193,578 --------- --------- --------- Total deposits 293,494 232,632 213,268 Borrowings 38,307 36,417 36,417 Other liabilities 3,164 3,085 3,005 --------- --------- --------- Total liabilities 334,965 272,134 252,690 Shareholders' equity: Preferred stock - No par value: Authorized 500,000 shares, no shares outstanding - - - Common stock - No par value: Authorized 18,000,000 shares Issued and outstanding - 3,428,695 shares 42,646 42,412 42,412 Accumulated deficit (14,083) (15,461) (14,434) Accumulated other comprehensive income (337) (363) (78) --------- --------- --------- Total shareholders' equity 28,226 26,588 27,900 --------- --------- --------- Total liabilities and shareholders' equity $ 363,191 $ 298,722 $ 280,590 ========= ========= ========= MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands except per share data) Three Months Ended Nine Months Ended -------------------- -------------------- September September September September 30, 30, 30, 30, 2006 2005 2006 2005 --------- --------- --------- --------- (Unaudited)(Unaudited)(Unaudited)(Unaudited) Interest income: Interest and fees on loans: Taxable $ 5,635 $ 3,547 $ 15,316 $ 9,807 Tax-exempt 189 222 575 694 Interest on securities: Taxable 306 282 852 1,178 Tax-exempt 5 42 87 126 Other interest income 268 177 631 470 --------- --------- --------- --------- Total interest income 6,403 4,270 17,461 12,275 --------- --------- --------- --------- Interest expense: Deposits 2,951 1,338 7,540 3,666 Borrowings 500 425 1,355 1,509 --------- --------- --------- --------- Total interest expense 3,451 1,763 8,895 5,175 --------- --------- --------- --------- Net interest income 2,952 2,507 8,566 7,100 Provision for loan losses - - (600) - --------- --------- --------- --------- Net interest income after provision for loan losses 2,952 2,507 9,166 7,100 --------- --------- --------- --------- Other income: Service fees 133 137 365 470 Loan and lease fees 23 5 59 11 Net security gains (1) (1) (1) 96 Net gains on sale of loans 66 17 149 37 Other 19 96 135 194 --------- --------- --------- --------- Total other income 240 254 707 808 --------- --------- --------- --------- Other expenses: Salaries, commissions, and related benefits 1,487 1,555 4,577 4,665 Occupancy 333 275 943 748 Furniture and equipment 159 133 470 430 Data processing 176 234 512 726 Accounting, legal, and consulting fees 341 204 955 750 Loan and deposit expense 78 153 305 696 Telephone 55 66 155 203 Advertising expense 70 314 247 696 Penalty on prepayment of FHLB borrowings - - - 4,320 Other 303 345 856 1,010 --------- --------- --------- --------- Total other expenses 3,002 3,279 9,020 14,244 --------- --------- --------- --------- Income (loss) before income taxes 190 (518) 853 (6,336) Provision for (benefit of) income taxes (500) - (525) - --------- --------- --------- --------- Net income (loss) $ 690 $ (518) $ 1,378 $ (6,336) ========= ========= ========= ========= Income (loss) per common share: Basic $ .20 $ (.15) $ .40 $ (1.85) ========= ========= ========= ========= Diluted $ .20 $ (.15) $ .40 $ (1.85) ========= ========= ========= ========= MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES LOAN PORTFOLIO AND CREDIT QUALITY (Dollars in thousands) Loan Portfolio Balances (at end of period): September December September 30, 31, 30, 2006 2005 2005 --------- --------- --------- Commercial Loans Hospitality and tourism $ 37,287 $ 37,681 $ 40,424 Real estate - operators of nonresidential buildings 35,965 28,217 24,837 Real estate agents and managers 19,744 10,588 7,837 New car dealers 10,049 9,995 5,005 Other 102,341 88,842 81,623 --------- --------- --------- Total Commercial Loans 205,386 175,323 159,726 1-4 family residential real estate 51,341 44,660 42,490 Consumer 2,792 2,285 2,108 Construction 33,095 17,503 14,138 --------- --------- --------- Total Loans $ 292,614 $ 239,771 $ 218,462 ========= ========= ========= Credit Quality (at end of period): September December September 30, 31, 30, 2006 2005 2005 --------- --------- --------- Nonperforming Assets Nonaccrual loans $ 2,065 $ 15 $ 1,957 Loans past due 90 days or more - 99 - Restructured loans - - - --------- --------- --------- Total nonperforming loans 2,065 114 1,957 Other real estate owned 26 945 1,948 --------- --------- --------- Total nonperforming assets $ 2,091 $ 1,059 $ 3,905 ========= ========= ========= Nonperforming loans as a % of loans .71% 0.05% 0.90% --------- --------- --------- Nonperforming assets as a % of assets .58% 0.35% 1.39% --------- --------- --------- Reserve for Loan Losses: At period end $ 5,316 $ 6,108 $ 6,589 --------- --------- --------- As a % of loans 1.82% 2.55% 3.02% --------- --------- --------- As a % of nonperforming loans 257.43% 5,357.89% 336.69% --------- --------- --------- As a % of nonaccrual loans 257.43% N/M% 336.69% ========= ========= --------- Charge-off Information: Average loans $ 271,351 $ 207,928 $ 202,381 --------- --------- --------- Net charge-offs $ 192 $ 858 $ 377 --------- --------- --------- Charge-offs as a % of average loans .07% .41% .19% --------- --------- --------- MACKINAC FINANCIAL CORPORATION QUARTERLY FINANCIAL SUMMARY *(Dollars in thousands, except per share data) Average Average Average Average Shareholders' Quarter Ended Assets Loans Deposits Equity -------- -------- -------- ------------ September 30, 2006 $ 362,632 $ 289,210 $ 296,608 $ 28,041 June 30, 2006 342,820 273,686 274,591 27,213 March 31, 2006 319,007 250,735 254,720 27,055 December 31, 2005 288,619 224,386 219,967 27,288 September 30, 2005 280,506 209,785 211,197 28,112 June 30, 2005 277,754 197,545 206,875 28,879 March 31, 2005 296,856 199,703 209,035 30,692 December 31, 2004 327,543 218,962 211,685 8,455 September 30, 2004 346,078 226,951 236,418 6,096 Net Book Return on Average Net Effi- Income Value ---------------- Interest ciency Per Per Quarter Ended Assets Equity Margin Ratio Share Share ------- ------- ------- ------- ------- -------- September 30, 2006 .75% 9.76% 3.36% 91.17% $ 0.20 $ 7.93 June 30, 2006 .22 2.82 3.62 91.41 0.05 7.93 March 31, 2006 .63 7.47 3.62 99.37 0.15 7.93 December 31, 2005 (1.41) (14.95) 3.96 128.37 (0.30) 7.76 September 30, 2005 (0.73) (7.39) 3.79 112.11 (0.15) 8.14 June 30, 2005 (0.83) (8.01) 3.67 119.07 (0.17) 8.32 March 31, 2005 (7.16) (69.25) 3.21 300.96 (1.53) 8.42 December 31, 2004 2.95 114.17 2.48 71.83 8.25 10.13 September 30, 2004 (0.87) (49.53) 2.25 120.66 (2.17) 18.44 *Historical per share data has been adjusted for the 20:1 reverse stock split distributed in December 2004.
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