Mackinac Financial Corporation Surpasses $1 Billion in Total Assets, Announces Six-Month and Second Quarter 2017 Results

MANISTIQUE, Mich., July 27, 2017 (GLOBE NEWSWIRE) -- Mackinac Financial Corporation (Nasdaq:MFNC) (the “Corporation”), the bank holding company for mBank, today announced second quarter 2017 income of $1.680 million, or $.27 per share, compared to a loss of $.125 million or ($.02) per share for the second quarter of 2016.  Net income for the first six months of 2017 totaled $3.406 million, or $.54 per share, compared to $1.007 million, or $.16 per share, for the same period in 2016.  Total assets of the Corporation at June 30, 2017 totaled $1.027 billion, compared to $892.328 million at June 30, 2016.  Weighted average shares for 2017 totaled 6,282,551, compared to 6,220,906 shares in the same period of 2016.

The period-to-period comparison above includes the effect of the Corporation’s April 2016 acquisition of First National Bank of Eagle River (“Eagle River”).  In connection with this acquisition, the Corporation had GAAP pre-tax transaction related expenses totaling $2.516 million recorded in the second quarter of 2016. These costs, largely associated with the early termination of the Eagle River data processing system, reduced the reported net income for the 2016 second quarter by $1.712 million, or $.27 per share, on an after-tax basis.  The adjusted net income for the second quarter of 2016 (exclusive of the transaction related expenses) would equate to $1.588 million, or $.25 per share.  Adjusted net income for the first six months of 2016 for the Corporation was $2.770 million, or $.45 per share. 

Highlights for the first six months of 2017 include:

• mBank, the Corporation’s subsidiary bank, recorded six-month net income of $4.113 million compared to $1.807 million in 2016.  Excluding $2.216 million of transaction related expenses at the bank ($1.462 million after tax), net income was $3.270 million for the first six months of 2016, equating to a 26% increase, as adjusted, compared to the same period in 2017.    
   
• The Corporation and mBank surpassed the billion-dollar asset threshold during the quarter and ended the period at $1.027 billion and $1.023 billion of total assets, respectively.
   
• Total interest income of $21.462 million through June 2017 compared to $17.403 million for the same period in 2016.
   
• Net interest margin remains solid, at 4.21%. Net interest income increased from $15.284 million in 2016 to $18.485 million in 2017, a 21% increase.
   
• Credit quality remains strong with a Texas Ratio of 9.91%
   
• Continued momentum in the asset based lending division, Mackinac Commercial Credit (“MCC”), with loan production of $16.1 million, an increase of 200% from the same period of 2016.

Loans and Nonperforming Assets

Total loans at June 30, 2017 were $790.753 million an increase from $725.635 million at June 30, 2016, of which approximately $28.0 million is attributable to the August 2016 Niagara Bancorporation (“Niagara”) acquisition. In addition to the balance sheet totals, the Corporation services $210.160 million of sold mortgage loans and $40.097 million of sold SBA and USDA loans. Total loans under management as of second quarter end were $1.041 billion. 

New loan production totaled $131.0 million, with the Upper Peninsula contributing $59.8 million, the Northern Lower Peninsula $26.2 million, Southeast Michigan $17.5 million, Wisconsin $11.4 million and MCC, $16.1 million.  Commercial loan production accounted for $63.7 million of the total, with consumer loans, primarily 1-4 family mortgages, totaling $51.2 million, inclusive of $30.0 million of secondary market origination. Commenting on new loan production and overall lending activities, Kelly W. George, President and CEO of mBank stated, “We are pleased to have had consistent loan production thus far in 2017 compared to 2016 in a changing origination environment from years past.  We have accomplished good loan activity in light of increased interest rates that challenge both sides of our balance sheet in terms of garnering acceptable margins for fixed rate loans to support growth. The seasonality of our business and markets has kicked in with significant new loan fundings in July and we anticipate the remaining third quarter and early fourth quarter will remain an active period for lending originations throughout all lines of business.  Proactive officer calling efforts and business development initiatives continue to be a primary focus within all our markets and business segments given the changing lending landscape and the outlook for potential future upward rate moves from the Fed.”   
  
Nonperforming assets totaled $7.798 million, or .76% of total assets at June 30, 2017 compared to $6.813 million, or .76% of total assets at June 30, 2016.  Total loan delinquencies greater than 30 days resided at a nominal .59%, or $4.693 million. George, commenting on credit quality stated, “Our loan portfolio remains sound with no material weaknesses showing in any of the different loan segments during the first half of this year and continued strong payment performance with very nominal levels of problem assets and delinquent obligations. We remain diligent in both the micro aspects of underwriting credits, as well as identifying and avoiding the macro risks associated with concentrations of different types of commercial loans we are cautious to put on our balance sheet. Certain types of commercial real-estate loans we may have looked to adjudicate in prior years have been passed on this year given acceptable returns could not be garnered for the structure or industry type risk of such credits. Maintaining a diverse client base and prudently mixed loan portfolio of business and retail loans remains highly important as we continue to grow, should another economic or real estate downturn occur as we seek to avoid overreliance on any one type of loan or segment.”        

Margin/Deposit Analysis

Net interest income for the first six months of 2017 increased to $18.485 million, a 4.21% net interest margin compared to $15.284 million, or 4.25%, in 2016.  Total deposits of $848.245 million June 30, 2017 included approximately $54 million in deposits acquired with the Niagara acquisition. The growth of total deposits was approximately $110 million year-over-year.  George, commenting on core deposits and overall liquidity, stated “The Corporation maintains a strong short-term liquidity position made up of various components of core and wholesale funding sources, as well as unpledged investments to support loan growth and operations. We review the mix of funding sources through various internal committees to ensure it is appropriate as we seek to maximize margin dollars while remaining competitive in terms of pricing to procure in-market core deposits and grow our client base. Focus on deposits has become especially important with changing client banking habits and demographics, as well as customer desire for more electronic and mobile based banking products and services. In June, we secured some longer-term bulk funding with a 4-year $25 million FHLB borrowing to help support new fixed rate commercial lending originations and lock in margin given the outlook for continued rising interest rates. It is becoming more and more difficult to sell variable rate loans in the upward rate environment and maintaining the longer term structural integrity of our balance sheet is critically important to ensure consistent earnings growth year over year, rather than stretch for short term gains in the current year.”

Noninterest Income/Expense

Noninterest income, at $1.571 million, was a $.048 million increase over the June 30, 2016 level of $1.523 million. Noninterest expense was $14.694 million for the first half of 2017 compared to $15.091 million for the same period of 2016.  The 2016 total included $2.516 million of transaction-related expenses. Excluding these charges, noninterest expense totaled $12.575 million.  The largest increase from 2016 was in salaries and benefits and other areas directly impacted by increased operating scale primarily related to the acquisitions of Eagle River and Niagara. The Corporation was able to achieve the expected level of cost efficiencies contemplated with the 2016 acquisitions.

Assets and Capital

Total assets of the Corporation at June 30, 2017 were $1.027 billion, up $135.122 million from the $892.328 million of total assets at June 30, 2016.  Total common shareholders’ equity at June 30, 2017 was $81.313 million, or $12.92 per share, compared to $77.081 million, or $12.38 per share at June 30, 2016.  Capital levels remain consistent with past periods as Tier 1 Common Equity resided at 6.93% of average assets at the Corporation and 9.14% at mBank. 

In closure, Chairman and CEO of the Corporation Paul D. Tobias stated, “We are very pleased with the consistency of our earnings for the first half of 2017 as well as their improvement over the same period of 2016.  The scale that we have achieved through both organic growth and acquisitions is beginning to materialize since direct costs of the transactions were all recognized last year.  We believe reaching $1 billion in assets is an important milestone for the Corporation.  With our growth, we will certainly be subject to change in various areas of our company, however, what will not change is our focus on serving our valued clients and investing in the communities, both legacy and acquired, where we conduct business.  We are very excited about the direction of the Corporation and increased opportunities to increase shareholder value through acquisitions and organic growth.” 

Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets in excess of $1 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 24 branch locations; twelve in the Upper Peninsula, four in the Northern Lower Peninsula, one in Oakland County, Michigan and seven in Northern Wisconsin.  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,” “view,” 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.