Mackinac Financial Corporation Reports 2020 Second Quarter Results and COVID-19 Progress

Rhea-AI Summary

Mackinac Financial Corporation (MFNC) reported a net income of $3.45 million, or $0.33 per share, for Q2 2020, a slight decrease from $3.67 million in Q2 2019. Year-to-date net income is $6.50 million, down from $6.84 million in 2019. Total assets increased to $1.52 billion from $1.33 billion a year ago. The bank funded $150 million in Payroll Protection Program (PPP) loans, supporting over 1,000 businesses. Non-interest income rose to $2.37 million, while non-interest expenses increased due to COVID-19 related costs. The corporation remains well-capitalized with stable credit quality.

Positive

• Total assets increased to $1.52 billion, a year-over-year growth from $1.33 billion.
• Total revenue rose to $18.81 million for Q2 2020, compared to $17.87 million in Q2 2019.
• Non-interest income improved to $2.37 million, driven by mortgage and SBA sales.
• Successfully funded $150 million in PPP loans, supporting over 1,000 small businesses.

Negative

• Net income decreased to $3.45 million in Q2 2020 from $3.67 million in Q2 2019.
• Year-to-date net income fell to $6.50 million, down from $6.84 million in 2019.
• Core operating margin declined to 3.75% from 4.43% in the same period last year, due to margin compression.

MANISTIQUE, Mich., July 30, 2020 (GLOBE NEWSWIRE) -- Mackinac Financial Corporation (Nasdaq: MFNC) (“we”, or the “Corporation”) the bank holding company for mBank (“the Bank”) today announced 2020 second quarter net income of $3.45 million, or $.33 per share, compared to 2019 second quarter net income of $3.67 million, or $.34 per share.  Net income for the first two quarters of 2020 was $6.50 million, or $.61 per share, compared to $6.84 million, or $.64 per share for the same period of 2019.

Total assets of the Corporation at June 30, 2020 were $1.52 billion, compared to $1.33 billion at June 30, 2019.  Shareholders’ equity at June 30, 2020 totaled $164.16 million, compared to $157.84 million at June 30, 2019.  Book value per share outstanding equated to $15.58 at the end of the second quarter 2020, compared to $14.70 per share outstanding a year ago.  Tangible book value at quarter-end was $139.88 million, or $13.28 per share outstanding, compared to $133.24 million, or $12.40 per share outstanding at the end of the second quarter 2019. 

Additional notes:

• mBank, the Corporation’s primary asset, recorded net income of $3.88 million for the second quarter of 2020 and $7.28 million for the first six months of 2020.
   
• As reflected in the size of the balance sheet, the Corporation funded approximately $150 million of Payroll Protection Program (“PPP”) loans in the second quarter with origination fees totaling approximately $5.1 million.  These loans are supporting over one thousand small businesses throughout our footprint with the majority of recipients residing in the Upper Peninsula and Northern Michigan.   
   
• Only $15.3 million of commercial loan payment deferrals remain from peak levels of approximately $201 million, equating to a reduction of 92%.
   
• Non-interest income was very solid for the second quarter including strong secondary market mortgage fees of $1.51 million and premiums on the sale of Small Business Administration (SBA) guaranteed loans of $274 thousand. Year-to-date secondary market mortgage fees were $2.05 million and SBA premiums $984 thousand.  The residential mortgage pipeline resides at very robust levels and we expect sustained output from this line of business as we look to upcoming quarters.
   
• Core operating margin, which is net of accretion from acquired loans that were subject to purchase accounting adjustments and PPP loan origination fees, was 3.75%.  However, we also estimate, on a non-GAAP basis, that PPP loan yields (not inclusive of fee income) are roughly a 26 basis point strain.  Estimated core operating margin is approximately 4.01%.

COVID-19 Operating Update

Upon the onset of the COVID-19 pandemic, management took proactive measures and moved quickly to implement protocols and adjust operations to continue to serve all constituencies.  These protocols have been refined throughout the second quarter as the pandemic operating environment evolved within the Corporation’s respective regions.  Speaking to these ongoing operational activities, President of the Corporation and President and CEO of mBank, Kelly W. George, stated, “When the Coronavirus crisis started to heighten around mid-March, we began to swiftly activate our pandemic response plan in each critical risk area of the bank. We subsequently closed our lobby access in the middle of March and began serving clients who needed in-person transactions almost exclusively via drive-thru windows. Most of our branch lobbies are now open to the public and all are operating under enhanced safety and cleaning protocol.  Overall, the majority of our bank footprint, outside of Southeast Michigan, resides in markets where active COVID-19 cases are very nominal compared to other areas of the country.  This is a trend we hope continues so that we do not need to take steps back to a more restrictive pandemic operating environment. The much lower COVID-19 case totals in most of our Northern Michigan and Wisconsin regions led to a sustained uptick in commerce activity, starting around Memorial Day, for both our tourism and retail industries. Specifically, hotel occupancies have come back to more normalized levels for this time of year. We remain cautiously optimistic that these positive health and commerce conditions can be maintained throughout our more traditionally busier seasonal months as we continue into the latter part of summer and early fall.”

Revenue & PPP Recognition

Total revenue of the Corporation for second quarter 2020 was $18.81 million, compared to $17.87 million for the second quarter of 2019.  Total interest income for the second quarter was $16.44 million, compared to $16.76 million for the same period in 2019. The 2020 second quarter interest income included accretive yield of $320 thousand from combined credit mark accretion associated with acquisitions, compared to $741 thousand in the same period of 2019.

The second quarter 2020 interest income was also positively impacted by the recognition of a portion of the PPP loan origination fees that were earned during the quarter:

• The bank originated approximately $150 million of PPP loans in the second quarter.
• The origination efforts resulted in fees earned of $5.09 million, which are deferred and will be recognized over the life of the PPP loans, which is 24 months.
• Fee income of $2.13 million was recognized in the current quarter, offsetting $1.7 million of direct origination costs and the $425 thousand of accretion of the deferred fees.
• The remaining deferred fees of $2.97 million will be accreted over the remaining 21 months, or accelerated upon early payoff of the PPP loans.

Loan Production and Portfolio Mix

Total balance sheet loans at June 30, 2020 were $1.15 billion, which is inclusive of $149.82 million of PPP loans, compared to June 30, 2019 balances of $1.06 billion.  Total loans under management reside at $1.44 billion, which includes $281.27 million of service retained loans.  Driven by strong mortgage refinance activity, overall traditional loan production (non-PPP) for the first six months of 2020 was $174.81 million, compared to $184.6 million for the same period of 2019.  When including PPP loans, total production was $324.63 million. Of the total production, traditional commercial loans equated to $64 million, consumer $111 million and the aforementioned $150 million of PPP.  Within the consumer totals was $86 million of secondary market mortgage production.  In total, 77% of PPP funds went to existing mBank clients. There were also 295 new customers that received PPP loans and 44 included a new deposit relationship.

Overall Quarterly Loan Production: https://www.globenewswire.com/NewsRoom/AttachmentNg/1b182b32-f73d-4874-84ed-4fa4f1e95cc7

New Loan Production (less PPP loans): https://www.globenewswire.com/NewsRoom/AttachmentNg/b01df5cc-99c1-40eb-9e92-3aec0898e83f

Commenting on new loan production and overall lending activities, Mr. George stated, “As can be seen from our production totals, we had a very busy second quarter, which was dominated by record mortgage production and PPP activity. The overall make up of the portfolio remains well diversified. We also continue to partake in some other specific pandemic-based relief programs that are being sponsored at the state and federal levels to help support the working capital needs of our local small businesses in terms of reopening. The relatively low number of virus cases in the majority of our footprint provide a safer environment for tourists to travel via automobile driving the strong local commerce uptick we have seen over the last several months. Our northern markets are also seeing heightened real estate activity from families and businesses looking to avoid a possible second wave of the virus and relocate for an overall healthier quality of life where working remote may become more of the norm for some time. These attributes, coupled with lack of large concentrations of inventory, have driven up prices and shortened marketing times for everything from second homes to vacant land.”

MFNC Composition of Loans June 30, 2020: https://www.globenewswire.com/NewsRoom/AttachmentNg/4c6e26ae-7e8a-4bea-a511-ca5b84062de4

Credit Quality and COVID-19 Loan Activity

Nonperforming loans totaled $6.124 million, or .53% (.61% excluding PPP balances) of total loans at June 30, 2020, compared to $6.416 million, or .61% of total loans at March 31, 2020 and $4.673 million, or .44% of total loans at June 30, 2019. Total loan delinquencies greater than 30 days resided at .54% (.61% excluding PPP balances), compared to 1.23% a quarter ago, and 1.05% in 2019.  The nonperforming assets to total assets ratio resided at .55% (.61% excluding PPP balances) for the second quarter of 2020, compared to .51% for the second quarter of 2019.   

COVID-19 related loan deferral activity has slowed significantly in the second quarter reducing by 90% from peak levels and equating to a nominal 2.3% of total loans. Of the original $219.60 million of payment deferred loans, $196.70 have already returned to contractual obligations of either principal and interest or interest only, for a short period, as they come off of full payment deferral to build up cash flow.

COVOD-19 Loan Modifications Still in Deferral: https://www.globenewswire.com/NewsRoom/AttachmentNg/62488d0a-feed-4513-9ee8-c5211faae69c

Of the $15.3 million of commercial loans still in payment deferral, there are no significant concentrations, with the largest single borrower categories being rental properties ($4.60 million) and Hotels ($4.00 million). Hotel specific loan deferrals have reduced significantly from $65.60 million, or a 94% reduction.    

Breakdown of the $15.3M of CML COVID-19 Mods: https://www.globenewswire.com/NewsRoom/AttachmentNg/fc5fdbe6-0dab-4358-9d8d-49b9d7c22320

The second quarter provision for loan losses was $100 thousand.  This amount was consistent with past quarters.  As a result of COVID-19, the qualitative factors for economic conditions were adjusted within the Allowance for Loan Losses (ALLL) calculation and methodology at the end of the first quarter of 2020. These adjustments did not lead to a larger provision.  Management will actively refine the provision and loan reserves as client impact and broader economic data both regionally and nationally from the pandemic becomes more clear. Coupled with the health data specific to our region and footprint that could also negatively impact the current uptick in business activity.  The Corporation is not currently required to utilize CECL.

Commenting on overall credit risk, Mr. George stated, “The credit book has seen no signs of any systemic adverse trends, and the vast majority of our COVID-19 loan deferments are now expired with very few requests for extensions. While certainly not clear of all headwinds, we remain cautiously optimistic on the second half of 2020 in terms of overall credit performance given further national stimulus actions are probable and expect more clarity to evolve as to the virus spread and containment measures. Both factors helping to reduce the possibility of returning to business closures and/or a resetting of improving consumer confidence within our local markets provided a larger second wave does not materialize. Also, we remain ever vigilant in terms of monitoring deterioration in any isolated specific situations that could arise for a client or two where provisions could be needed in light of ongoing pandemic conditions within a particular industry that we all know can still change quickly.”   

Margin Analysis, Funding and Liquidity

Net interest income for second quarter 2020 was $14.46 million, resulting in a Net Interest Margin (NIM) of 4.51%, compared to $14.0 million in the second quarter 2019 and a NIM of 4.76%.  Core operating margin, which is net of accretion from acquired loans that were subject to purchase accounting adjustments and recognized PPP fee income, was 3.75% for the second quarter of 2020, compared to 4.43% for the same period of 2019.  Items impacting margin, outside of the overall current low interest rate environment, include higher than normal cash balances as well as negative impact from the yields associated with PPP loans.  On a non-GAAP basis, management currently estimates the direct negative impact of the PPP loan balances for the second quarter to be .26%.  Estimated adjusted core margin for the second quarter is 4.01%.

Margin Analysis Per Quarter: https://www.globenewswire.com/NewsRoom/AttachmentNg/06b3df92-9ce7-4c7e-bb34-b3453efed0ef

Total bank deposits (excluding brokered deposits) have increased by $136.31 million year-over-year from $1.00 billion at June 30, 2019 to $1.137 billion at second quarter-end 2020.  Total brokered deposits have also decreased and were $90.48 million at June 30, 2020, compared to $114.10 million at June 30, 2019, a decrease of 21%.  However, brokered deposits have increased by roughly $32 million since year-end 2019.  This increase is the direct result of the bank taking precautionary measures to augment its cash position at the onset of the COVID-19 pandemic and some funding of PPP loans.  FHLB (Federal Home Loan Bank) borrowings were also mostly flat at $65 million since the end of 2019.  The Corporation utilized the Payroll Protection Program Liquidity Facility (PPPLF) to fund a portion of the PPP loan originations.  The current balance of the PPPLF is approximately $51 million.  Overall access to short term functional liquidity remains very strong through multiple sources. 

Mr. George stated, “We are pleased with our organic efforts in terms of core deposit growth this year within the more challenging pandemic environment. Core deposit growth just in July equates to approximately $25M supporting the commerce buildup we have seen since reopening in later May throughout our various business segments. We continue to carry large levels of liquidity in light of PPP and we also put some conservative measures in place at the onset of the pandemic to ensure funds availability given the large unknowns. These liquidity levels should continue to normalize through the rest of the year as PPP winds down and some wholesale funding sources mature. The large drop in rates in late quarter one has led to unavoidable margin compression, but we have been proactive in continuing to review and market price our deposit offerings to best offset the dollars lost.”

Noninterest Income / Expense

Second quarter 2020 noninterest income was $2.37 million, compared to $1.11 million for the same period of 2019.  The significant year-over-year improvement is mainly a combination of the secondary market mortgage and SBA sales.  The SBA 7A sales were not inclusive of any PPP loan fees, all of which are recognized through interest income.  Noninterest Expense for the second quarter of 2020 was $12.35 million, compared to $10.26 million for the same period of 2019.  For comparison purposes, noninterest expense for the first quarter of 2020 equated to $11.37 million.  The quarter-over-quarter change was heavily impacted by the direct PPP expenses that were offset by corresponding PPP fee recognition as well as some pandemic related operating items.  Specific non-recurring items associated with COVID-19 and PPP equated to $949 thousand and included $125 thousand of COVID-related compensation for retail centric employees, and $824 thousand of direct PPP related origination costs. Management expects expenses to normalize in the coming quarters in light of the one-time nature of these items.

Assets and Capital

Total assets of the Corporation at June 30, 2020 were $1.52 billion, compared to $1.33 billion at June 30, 2019.  Shareholders’ equity at June 30, 2020 totaled $164.16 million, compared to $157.84 million at June 30, 2019.  Book value per share outstanding equated to $15.58 at the end of the second quarter 2020, compared to $14.70 per share outstanding a year ago.  Tangible book value at quarter end was $139.88 million, or $13.28 per share outstanding, compared to $133.24 million, or $12.40 per share outstanding at the end of the second quarter 2019. 

Both the Corporation and the Bank are “well-capitalized” with total risk-based capital to risk-weighted assets of 13.79% at the Corporation and 13.30% at the Bank and tier 1 capital to total tier 1 average assets (the “leverage ratio”) at the Corporation of 9.45% and at the Bank of 8.93%.  The leverage ratio is calculated inclusive of PPP loan balances.  The Corporation is monitoring the impact of the recent pandemic-associated market volatility on its Goodwill asset.  The Corporation continues to conduct Goodwill impairment analysis to confirm the value of this intangible asset as market events unfold.

Paul D. Tobias, Chairman and Chief Executive Officer of the Corporation and Chairman of mBank concluded, “We have weathered this economic storm thus far in a manner that has allowed us to protect our shareholders’ investment by growing our capital base and controlling our credit risk.  While management acknowledges that, more likely than not, there will be challenges ahead for all banks, we can only get through the whole pandemic if we first get through the initial 120 days.  We are the same bank currently as we were going into this and continue to be well-capitalized, appropriately conservative and have plenty of liquidity.  Our commitment is to continue with our steadfast efforts to help our employees, customers and communities through this crisis while managing the bank for continued success.  It is at times like this where the value of a community bank is demonstrated in the marketplace through the customers that we have helped.”

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 29 branch locations; eleven 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: the effects of the COVID-19 pandemic, particularly potentially negative effects on our customers, borrowers, third party service providers and our liquidity; 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 Corporation 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.

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

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED 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)	2020			2019			2019
	(Unaudited)						(Unaudited)
Selected Financial Condition Data (at end of period):
Assets	$	1,518,473		$	1,320,069		$	1,330,723
Loans		1,153,790			1,058,776			1,060,703
Investment securities		108,703			107,972			110,348
Deposits		1,227,552			1,075,677			1,114,853
Borrowings		114,466			64,551			46,232
Shareholders' equity		164,157			161,919			157,840
Selected Statements of Income Data (six months and year ended)
Net interest income	$	27,855		$	53,907		$	27,233
Income before taxes		8,235			17,710			8,653
Net income		6,505			13,850			6,836
Income per common share - Basic	.61				1.29		.64
Income per common share - Diluted	.61				1.29		.64
Weighted average shares outstanding - Basic		10,625,778			10,737,653			10,730,477
Weighted average shares outstanding- Diluted		10,552,581			10,757,507			10,739,471
Three Months Ended:
Net interest income	$	14,458		$	13,350		$	13,997
Income before taxes		4,373			4,350			4,644
Net income		3,454			3,296			3,669
Income per common share - Basic	.33			.31			.34
Income per common share - Diluted	.33			.31			.34
Weighted average shares outstanding - Basic		10,533,589			10,748,712			10,740,712
Weighted average shares outstanding- Diluted		10,460,802			10,768,841			10,752,070
Selected Financial Ratios and Other Data:
Performance Ratios:
Net interest margin		4.55	%		4.57	%		4.65	%
Efficiency ratio		73.23			69.10			68.94
Return on average assets	.93				1.04			1.04
Return on average equity		8.05			8.78			8.89
Average total assets	$	1,411,081		$	1,332,882		$	1,323,321
Average total shareholders' equity		162,556			157,831			155,098
Average loans to average deposits ratio		95.91	%		95.03	%		95.22	%
Common Share Data at end of period:
Market price per common share	$	10.37		$	17.56		$	15.80
Book value per common share		15.58			15.06			14.70
Tangible book value per share		13.28			12.77			12.40
Dividends paid per share, annualized	.560			.520			.480
Common shares outstanding		10,533,589			10,748,712			10,740,712
Other Data at end of period:
Allowance for loan losses	$	5,355		$	5,308		$	5,306
Non-performing assets	$	8,350		$	7,377		$	6,798
Allowance for loan losses to total loans	.53		%	.49		%	.50		%
Non-performing assets to total assets	.55		%	.56		%	.51		%
Texas ratio		4.22	%		4.41	%		4.91	%
Number of:
Branch locations		29			29			29
FTE Employees		315			304			301

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	June 30,				December 31,				June 30,
	2020				2019				2019
	(Unaudited)								(Unaudited)
ASSETS
Cash and due from banks	$	126,398			$	49,794			$	60,680
Federal funds sold		28,110				32				10
Cash and cash equivalents		154,508				49,826				60,690
Interest-bearing deposits in other financial institutions		7,831				10,295				12,465
Securities available for sale		108,703				107,972				110,348
Federal Home Loan Bank stock		4,924				4,924				4,924
Loans:
Commercial		878,521				765,524				755,176
Mortgage		255,524				272,014				284,864
Consumer		19,745				21,238				20,663
Total Loans		1,153,790				1,058,776				1,060,703
Allowance for loan losses		(5,355	)			(5,308	)			(5,306	)
Net loans		1,148,435				1,053,468				1,055,397
Premises and equipment		25,448				23,608				23,166
Other real estate held for sale		2,226				2,194				2,125
Deferred tax asset		1,727				3,732				4,609
Deposit based intangibles		4,706				5,043				5,380
Goodwill		19,574				19,574				19,574
Other assets		40,391				39,433				32,045
TOTAL ASSETS	$	1,518,473			$	1,320,069			$	1,330,723
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Noninterest bearing deposits	$	385,811			$	287,611			$	276,776
NOW, money market, interest checking		386,029				373,165				344,213
Savings		123,771				109,548				111,438
CDs<$250,000		226,971				233,956				256,689
CDs>$250,000		14,488				12,775				11,640
Brokered		90,482				58,622				114,097
Total deposits		1,227,552				1,075,677				1,114,853
Federal funds purchased		—				6,225				—
Borrowings		114,466				64,551				46,232
Other liabilities		12,298				11,697				11,798
Total liabilities		1,354,316				1,158,150				1,172,883
SHAREHOLDERS’ EQUITY:
Common stock and additional paid in capital - No par value Authorized - 18,000,000 shares Issued and outstanding - 10,533,589; 10,748,712 and 10,740,712 respectively		127,213				129,564				129,262
Retained earnings		35,295				31,740				27,734
Accumulated other comprehensive income (loss)
Unrealized (losses) gains on available for sale securities		2,059				1,025				1,062
Minimum pension liability		(410	)			(410	)			(218	)
Total shareholders’ equity		164,157				161,919				157,840
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,518,473			$	1,320,069			$	1,330,723

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
	(Unaudited)						(Unaudited)
INTEREST INCOME:
Interest and fees on loans:
Taxable	$	15,549		$	15,586		$	30,162		$	30,181
Tax-exempt		55			42			129			89
Interest on securities:
Taxable		560			680			1,180			1,383
Tax-exempt		152			85			240			183
Other interest income		125			367			395			752
Total interest income		16,441			16,760			32,106			32,588
INTEREST EXPENSE:
Deposits		1,707			2,515			3,634			4,869
Borrowings		276			248			617			486
Total interest expense		1,983			2,763			4,251			5,355
Net interest income		14,458			13,997			27,855			27,233
Provision for loan losses		100			200			200			300
Net interest income after provision for loan losses		14,358			13,797			27,655			26,933
OTHER INCOME:
Deposit service fees		236			408			640			814
Income from loans sold on the secondary market		1,511			355			2,049			667
SBA/USDA loan sale gains		274			29			984			154
Mortgage servicing amortization		204			128			393			248
Other		142			190			238			344
Total other income		2,367			1,110			4,304			2,227
OTHER EXPENSE:
Salaries and employee benefits		7,009			5,511			13,060			10,946
Occupancy		1,008			1,004			2,132			2,085
Furniture and equipment		804			723			1,606			1,441
Data processing		852			708			1,677			1,417
Advertising		312			214			524			523
Professional service fees		574			547			1,072			981
Loan origination expenses and deposit and card related fees		406			184			787			363
Writedowns and losses on other real estate held for sale		30			73			34			101
FDIC insurance assessment		165			77			315			211
Communications expense		224			232			437			460
Other		968			990			2,080			1,979
Total other expenses		12,352			10,263			23,724			20,507
Income before provision for income taxes		4,373			4,644			8,235			8,653
Provision for income taxes		919			975			1,730			1,817
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	3,454		$	3,669		$	6,505		$	6,836
INCOME PER COMMON SHARE:
Basic	$  .33			$  .34			$  .61			$  .64
Diluted	$   .33			$  .34			$  .61			$  .64

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
LOAN PORTFOLIO AND CREDIT QUALITY

(Dollars in thousands)
Loan Portfolio Balances (at end of period):
	June 30,			December 31,			June 30,
	2020			2019			2019
	(Unaudited)			(Audited)			(Unaudited)
Commercial Loans:
Real estate - operators of nonresidential buildings	$	136,299		$	141,965		$	143,897
Hospitality and tourism		98,981			97,721			92,809
Lessors of residential buildings		48,852			51,085			49,489
Gasoline stations and convenience stores		28,463			27,176			26,974
Logging		22,283			22,136			21,666
Commercial construction		38,712			40,107			36,803
Other		504,931			385,334			383,538
Total Commercial Loans		878,521			765,524			755,176
1-4 family residential real estate		235,467			253,918			273,813
Consumer		19,745			21,238			20,663
Consumer construction		20,057			18,096			11,051
Total Loans	$	1,153,790		$	1,058,776		$	1,060,703

Credit Quality (at end of period):

	June 30,			December 31,			June 30,
	2020			2019			2019
	(Unaudited)			(Audited)			(Unaudited)
Nonperforming Assets :
Nonaccrual loans	$	6,124		$	5,172		$	4,673
Loans past due 90 days or more		-			11			-
Restructured loans		-			-			-
Total nonperforming loans		6,124			5,183			4,673
Other real estate owned		2,226			2,194			2,125
Total nonperforming assets	$	8,350		$	7,377		$	6,798
Nonperforming loans as a % of loans	.53		%	.49		%	.44		%
Nonperforming assets as a % of assets	.55		%	.56		%	.51		%
Reserve for Loan Losses:
At period end	$	5,355		$	5,308		$	5,306
As a % of outstanding loans	.46		%	.50		%	.50		%
As a % of nonperforming loans		87.44	%		102.41	%		113.55	%
As a % of nonaccrual loans		87.44	%		102.63	%		113.55	%
Texas Ratio		4.22	%		4.41	%		4.91	%
Charge-off Information (year to date):
Average loans	$	1,097,382		$	1,047,439		$	1,049,383
Net charge-offs (recoveries)	$	153		$	260		$	177
Charge-offs as a % of average
loans, annualized	.03		%	.02		%	.03		%

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES QUARTERLY FINANCIAL HIGHLIGHTS

	QUARTER ENDED
	(Unaudited)
	June 30,				March 31,				December 31,				September 30,				June 30,
		2020				2020				2019				2019				2019
BALANCE SHEET (Dollars in thousands)
Total loans	$	1,153,790			$	1,044,177			$	1,058,776			$	1,059,942			$	1,060,703
Allowance for loan losses		(5,355	)			(5,292	)			(5,308	)			(5,308	)			(5,306	)
Total loans, net		1,148,435				1,038,885				1,053,468				1,054,634				1,055,397
Total assets		1,518,473				1,356,381				1,320,069				1,355,383				1,330,723
Core deposits		1,122,582				984,936				1,004,280				1,022,115				989,116
Noncore deposits		104,970				110,445				71,397				91,464				125,737
Total deposits		1,227,552				1,095,381				1,075,677				1,113,579				1,114,853
Total borrowings		114,466				67,120				64,551				70,079				46,232
Total shareholders' equity		164,157				160,060				161,919				160,165				157,840
Total tangible equity		139,877				135,612				137,302				135,379				133,236
Total shares outstanding		10,533,589				10,533,589				10,748,712				10,740,712				10,740,712
Weighted average shares outstanding		10,533,589				10,717,967				10,748,712				10,740,712				10,740,712
AVERAGE BALANCES (Dollars in thousands)
Assets	$	1,501,423			$	1,321,134			$	1,347,916			$	1,354,220			$	1,326,827
Earning assets		1,290,012				1,171,551				1,205,241				1,204,782				1,179,584
Loans		1,147,620				1,047,144				1,081,294				1,065,337				1,051,998
Noninterest bearing deposits		346,180				284,677				283,259				284,354				260,441
Deposits		1,211,694				1,076,206				1,080,359				1,124,433				1,103,413
Equity		161,811				162,661				161,588				159,453				156,491
INCOME STATEMENT (Dollars in thousands)
Net interest income	$	14,458			$	13,397			$	13,350			$	13,324			$	13,997
Provision for loan losses		100				100				35				50				200
Net interest income after provision		14,358				13,297				13,315				13,274				13,797
Total noninterest income		2,367				1,937				1,848				1,878				1,110
Total noninterest expense		12,352				11,372				10,813				10,444				10,263
Income before taxes		4,373				3,862				4,350				4,708				4,644
Provision for income taxes		919				811				1,054				989				975
Net income available to common shareholders	$	3,454			$	3,051			$	3,296			$	3,719			$	3,669
Income pre-tax, pre-provision	$	4,473			$	3,962			$	4,385			$	4,758			$	4,844
PER SHARE DATA
Earnings per common share	$	.33			$	.28			$	.31			$	.35			$	.34
Book value  per common share		15.58				15.20				15.06				14.91				14.70
Tangible book value per share		13.28				12.87				12.77				12.60				12.40
Market value, closing price		10.37				10.45				17.56				15.46				15.80
Dividends per share		.140				.140				.140				.140				.120
ASSET QUALITY RATIOS
Nonperforming loans/total loans		.53	%			.61	%			.49	%			.46	%			.44	%
Nonperforming assets/total assets		.55				.64				.56				.55				.51
Allowance for loan losses/total loans		.46				.51				.50				.50				.50
Allowance for loan losses/nonperforming loans		87.44				82.48				102.41				109.33				113.55
Texas ratio		4.22				6.13				4.41				5.31				4.91
PROFITABILITY RATIOS
Return on average assets		.93	%			.93	%			.97	%			1.09	%			1.11	%
Return on average equity		8.58				7.54				8.09				9.25				9.40
Net interest margin		4.51				4.60				4.39				4.39				4.76
Average loans/average deposits		94.71				97.30				100.09				94.74				95.34
CAPITAL ADEQUACY RATIOS
Tier 1 leverage ratio		9.45	%			10.20	%			10.09	%			9.81	%			9.74	%
Tier 1 capital to risk weighted assets		13.27				12.89				12.71				12.39				12.20
Total capital to risk weighted assets		13.79				13.41				13.22				12.90				12.72
Average equity/average assets (for the quarter)		10.78				12.31				11.99				11.77				11.80

FAQ

What were Mackinac Financial Corporation's earnings for Q2 2020?

Mackinac Financial Corporation reported a net income of $3.45 million, or $0.33 per share, for Q2 2020.

How did total assets of Mackinac Financial Corporation change in 2020?

As of June 30, 2020, total assets increased to $1.52 billion, up from $1.33 billion at the same time last year.

What is the impact of PPP loans on Mackinac Financial Corporation's operations?

The corporation funded approximately $150 million in Payroll Protection Program loans, benefiting over 1,000 small businesses.

How did Mackinac Financial Corporation's revenue perform in Q2 2020?

Total revenue for Q2 2020 was $18.81 million, compared to $17.87 million in Q2 2019.

What is the current status of the loan deferrals at Mackinac Financial Corporation?

As of Q2 2020, only $15.3 million of commercial loans are in payment deferral, representing a 92% reduction from peak levels.