2018-05-10 / News

Mackinac Financial Corporation reports first quarter 2018 results, announces expected FFNM transaction completion

MANISTIQUE – Mackinac Financial Corporation (Nasdaq: MFNC) (the “Corporation”), the bank holding company for mBank, recently announced first quarter 2018 income of $1.54 million, or $.24 per share, compared to net income of $1.73 million, or $.28 per share, for the first quarter of 2017. As expected, the 2018 first quarter results were impacted by expenses related to the acquisition of First Federal of Northern Michigan (FFNM) that was announced January 16, 2018. In connection with the acquisition, the Corporation had GAAP pre-tax transaction related expenses totaling $189 thousand. Additionally, the Corporation consolidated two southeast Michigan offices during the first quarter that will create long-term cost efficiencies but required a one-time pre-tax early lease termination expense of $64 thousand. These one-time costs reduced the reported net income for the quarter by $200 thousand, on an after-tax basis. The adjusted net income for the first quarter of 2018 (exclusive of the transaction related expenses and the lease termination expense) would equate to $1.74 million, or $.28 per share.

Total assets of the Corporation at March 31, 2018 were $983.93 million compared to $976.64 million at March 31, 2017. Shareholders’ equity at March 31, 2018 totaled $81.86 million, compared to $80.01 million on March 31, 2017. The tangible book value per share equated to $11.73 on March 31, 2018 compared to $11.47 per share a year ago. Weighted average shares outstanding totaled 6,304,203 shares in the 2018 first quarter compared to 6,270,034 for the same period in 2017.

Subject to both MFNC and FFNM shareholder approvals, the company is expecting to close the transaction on May 18, 2018. Special shareholder meetings of each company to facilitate the requisite votes are scheduled for May 10, 2018. All required regulatory approvals have been attained. mBank, the Corporation’s primary asset, recorded net income of $2.05 million in the first quarter of 2018, compared to $2.06 million, in 2017. Combined acquisition-related and lease termination expenses totaled $99 thousand at the bank level, with an after-tax impact of $78 thousand. Adjusted core net income (exclusive of the expenses noted above) for first quarter 2018 was $2.13 million.

Total revenue of the company for the first three months of 2018 equated to $11.67 million compared to $11.37 million for the same period of 2017. Total interest income was $11.06 million for the first quarter of 2018 and $10.60 for the same period in 2017. The 2017 first quarter interest income included accretive yield of $175 thousand from the performing credit mark associated with the December 2014 Peninsula Bank (Pen) acquisition. The accretion from Pen was fully amortized as of December 2017 with no impact on first quarter 2018 interest income or net interest margin. The non-interest income portion of total revenue decreased slightly year over year from $776 thousand in 2017 to $614 thousand in 2018. The primary reason for this was a $121 thousand decrease in secondary market mortgage sale revenue from declining refinancing activities in light of higher interest rates. However, premium gain per sale has improved year-over-year and purchased home transaction activity has been consistent with prior period results.

Total balance sheet loans at March 31, 2018 were $812.44 million, a $25.90 million increase from March 31, 2017 balances of $786.55 million. Total loans under management now reside at $1.05 billion which amount includes $236 million of service retained loans. New loan production was consistent for the 2018 first quarter at $45 million. Commercial originations accounted for $30 million, with retail, predominantly mortgage, equating to $15 million.

Commenting on new loan production and overall lending activities, Kelly W. George, President and CEO of mBank stated, “Loan production remains consistent with prior year in terms of the normal seasonality of this quarter within our business model. Outside of our secondary market mortgage activity that has slowed some, which was consistent with industry wide trends, we see good momentum in the loan pipelines for both consumer and commercial loans in all our regions as we move into the second quarter where we expect increased production levels. We are very excited about the new markets we are adding from FFNM and look forward to aggressively competing for good quality loans throughout their trade areas immediately after the transaction is complete.”

Nonperforming loans totaled $4.34 million, .53% of total loans at March 31, 2018 compared to $3.73 million, or .47%, of total loans at March 31, 2017. Total loan delinquencies greater than 30 days resided at a nominal .69%, or $7.43 million at the end of the period, down from .79% in 2017.

Commenting on overall credit risk, Mr. George stated, “Loan portfolio performance remains strong with no material credit issues within any of the business segments. Purchase accounting marks from the previously acquired banks have continued to prove accurate, attaining expected accretion levels. The acquired loan portfolio from FFNM should provide accretive results to our bottom line and support in overall granularity and concentration levels from a macro perspective.”

Net interest income in the first quarter of 2018 resided at $9.31 million, or 4.19%, compared to $9.17 million, or 4.19%, in the first quarter of 2017, which included the aforementioned Pen accretion. First quarter 2018 total interest expense was $1.75 million versus $1.43 million for the same period of 2017. Of the $316 thousand increase from previous year, $153 thousand was attributable to interest on brokered CDs due to repricing experienced from normal maturities and renewals at market rates. An additional $101 thousand of the total was a result of increased expense on our CD & IRA products due to some slightly higher rates offered for competitive reasons.

Mr. George stated, “We have been successful in maintaining our strong net interest margin in the rising rate environment where each rate increase should have positive impact on the income generated from our loan portfolio. However, wholesale funding rates have risen more aggressively than what can be achieved on our loan base due to competitive reasons. With the lower cost core deposit base we will be acquiring from FFNM, we expect to reposition the balance sheet and remove some of the more volatile and higher cost wholesale funding sources that we have been utilizing. This should greatly stabilize our funding and position us very well on the liability side for 2018. We will also continue to proactively monitor, in all our markets, as to when a need could occur to move pricing up on our core transactional accounts due to expected market pressures, a challenge all banks will face this year.”

Noninterest expense, at $7.93 million in the first quarter of 2018, increased $751 thousand from the first quarter 2017 total of $7.18 million. The expense variance from the first quarter of 2017 was partially attributable to normal salary and wage increases and additional staffing. A portion of the wage variance resulted from the Corporation opting to increase its minimum hourly wage for all entry level staff from $10.40 to $12.00 (as many companies did following tax reform in December 2017). Furthermore, the aforementioned $253 thousand of pre-tax onetime expenses is a component of the yearover-year variation as are some indirect transaction expenses related to cyber and infrastructure changes in preparation for the larger operating platform following the FFNM acquisition.

Total assets of the Corporation at March 31, 2018 were $983.93 million compared to $976.64 million at March 31, 2017. Shareholders’ equity at March 31, 2018 totaled $81.86 million, compared to $80.01 million on March 31, 2017. The tangible book value per share equated to $11.73 on March 31, 2018 compared to $11.47 per share a year ago. The Corporation is “adequately-capitalized” and the Bank is “well-capitalized” with total risk-based capital to risk weighted assets of 9.43% and 11.73%, respectively.

Paul D. Tobias, Chairman and Chief Executive Officer of Mackinac concluded, “We remain very pleased with our overall performance and the progress we have made in the announcement, preparation and targeted close of the FFNM transaction. We will remain focused on that integration, our normal operations and ensuring that we create the long-term value we seek to produce as a management team. We will continue to evaluate potential acquisition partners opportunistically while organically growing assets and earnings. We are well positioned for continued value creation for our shareholders while maintaining our safe and sound risk profile.”

Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets in excess of $980 million 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 23 branch locations; eleven 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 midsized businesses, as well as a full array of personal and business deposit products and consumer loans.

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