Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

mfnc_Current folio_10Q

Table of Contents

mac

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from <> to <>

 

Commission file number: 0-20167

 

MACKINAC FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

MICHIGAN

 

38-2062816

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

 

130 SOUTH CEDAR STREET, MANISTIQUE, MI

 

49854

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (888) 343-8147

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

 

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Commmon Stock, No par value

 

MFNC

 

The NASDAQ Stock Market, LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒     No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☒     No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer  ☐

 

Accelerated Filer  ☒

 

 

 

Non-accelerated Filer     ☐    

 

Smaller reporting company  ☒

Emerging growth company  ☐ 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes  ☐     No  ☒

 

As of November 08, 2019, there were outstanding 10,748,712 shares of the registrant’s common stock, no par value.

 

 

 

Table of Contents

MACKINAC FINANCIAL CORPORATION

 

INDEX

 

 

 

 

 

 

 

    

Page No.

 

 

 

 

PART I. 

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1. 

Financial Statements

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets – September 30, 2019 (Unaudited), December 31, 2018

 

1

 

 

 

 

 

Condensed Consolidated Statements of Operations — Three and Nine Months Ended September 30, 2019 (Unaudited) and September 30, 2018 (Unaudited)

 

2

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income — Three and Nine Months Ended September 30, 2019 (Unaudited) and September 30, 2018 (Unaudited)

 

3

 

 

 

 

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity — Nine Months Ended September 30, 2019 (Unaudited) and September 30, 2018 (Unaudited)

 

4

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2019 (Unaudited) and September 30, 2018 (Unaudited)

 

6

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

7

 

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

31

 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

 

43

 

 

 

 

Item 4. 

Controls and Procedures

 

46

 

 

 

 

PART II. 

OTHER INFORMATION

 

 

 

 

 

 

Item 1. 

Legal Proceedings

 

47

 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds 

 

47

 

 

 

 

Item 6. 

Exhibits and Reports on Form 8-K

 

47

 

 

 

 

SIGNATURES 

 

48

 

 

 

 

 

Table of Contents

MACKINAC FINANCIAL CORPORATION

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

 

2019

 

2018

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

66,722

 

$

64,151

 

Federal funds sold

 

 

16,202

 

 

 6

 

Cash and cash equivalents

 

 

82,924

 

 

64,157

 

 

 

 

 

 

 

 

 

Interest-bearing deposits in other financial institutions

 

 

11,275

 

 

13,452

 

Securities available for sale

 

 

107,091

 

 

116,748

 

Federal Home Loan Bank stock

 

 

4,924

 

 

4,924

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

Commercial

 

 

752,715

 

 

717,032

 

Mortgage

 

 

287,013

 

 

301,461

 

Consumer

 

 

20,214

 

 

20,371

 

Total Loans

 

 

1,059,942

 

 

1,038,864

 

Allowance for loan losses

 

 

(5,308)

 

 

(5,183)

 

Net loans

 

 

1,054,634

 

 

1,033,681

 

 

 

 

 

 

 

 

 

Premises and equipment

 

 

23,709

 

 

22,783

 

Other real estate held for sale

 

 

2,618

 

 

3,119

 

Deferred tax asset

 

 

4,599

 

 

5,763

 

Deposit based intangibles

 

 

5,212

 

 

5,720

 

Goodwill

 

 

19,574

 

 

22,024

 

Other assets

 

 

38,823

 

 

25,669

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,355,383

 

$

1,318,040

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Noninterest bearing deposits

 

$

285,887

 

$

241,556

 

NOW, money market, interest checking

 

 

375,267

 

 

368,890

 

Savings

 

 

110,455

 

 

111,358

 

CDs<$250,000

 

 

250,506

 

 

225,236

 

CDs>$250,000

 

 

12,964

 

 

13,737

 

Brokered

 

 

78,500

 

 

136,760

 

Total deposits

 

 

1,113,579

 

 

1,097,537

 

 

 

 

 

 

 

 

 

Federal funds purchased

 

 

 —

 

 

2,905

 

Borrowings

 

 

70,079

 

 

57,536

 

Other liabilities

 

 

11,560

 

 

7,993

 

Total liabilities

 

 

1,195,218

 

 

1,165,971

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

Common stock and additional paid in capital - No par value Authorized - 18,000,000 shares                                            Issued and outstanding - 10,740,712 and 10,712,745 respectively

 

 

129,292

 

 

129,066

 

Retained earnings

 

 

29,949

 

 

23,466

 

Accumulated other comprehensive income (loss)

 

 

 

 

 

 

 

Unrealized gains (losses) on available for sale securities

 

 

1,142

 

 

(245)

 

Minimum pension liability

 

 

(218)

 

 

(218)

 

Total shareholders’ equity

 

 

160,165

 

 

152,069

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

1,355,383

 

$

1,318,040

 

 

1

Table of Contents

MACKINAC FINANCIAL CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands, Except per Share Data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

(Unaudited)

 

(Unaudited)

 

INTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

$

14,829

 

$

14,097

 

$

45,010

 

$

36,558

 

Tax-exempt

 

 

45

 

 

25

 

 

134

 

 

81

 

Interest on securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

675

 

 

723

 

 

2,058

 

 

1,655

 

Tax-exempt

 

 

78

 

 

84

 

 

261

 

 

232

 

Other interest income

 

 

403

 

 

362

 

 

1,155

 

 

758

 

Total interest income

 

 

16,030

 

 

15,291

 

 

48,618

 

 

39,284

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

2,464

 

 

1,698

 

 

7,333

 

 

4,536

 

Borrowings

 

 

242

 

 

379

 

 

728

 

 

1,412

 

Total interest expense

 

 

2,706

 

 

2,077

 

 

8,061

 

 

5,948

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

13,324

 

 

13,214

 

 

40,557

 

 

33,336

 

Provision for loan losses

 

 

50

 

 

50

 

 

350

 

 

200

 

Net interest income after provision for loan losses

 

 

13,274

 

 

13,164

 

 

40,207

 

 

33,136

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposit service fees

 

 

383

 

 

414

 

 

1,197

 

 

1,006

 

Income from mortgage loans sold on the secondary market

 

 

586

 

 

423

 

 

1,253

 

 

877

 

SBA/USDA loan sale gains

 

 

496

 

 

184

 

 

650

 

 

318

 

Net mortgage servicing fees

 

 

238

 

 

110

 

 

486

 

 

123

 

Other

 

 

175

 

 

212

 

 

519

 

 

496

 

Total other income

 

 

1,878

 

 

1,343

 

 

4,105

 

 

2,820

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

5,669

 

 

5,600

 

 

16,615

 

 

14,627

 

Occupancy

 

 

987

 

 

963

 

 

3,072

 

 

2,702

 

Furniture and equipment

 

 

768

 

 

681

 

 

2,209

 

 

1,856

 

Data processing

 

 

785

 

 

720

 

 

2,202

 

 

1,810

 

Advertising

 

 

203

 

 

258

 

 

726

 

 

645

 

Professional service fees

 

 

536

 

 

421

 

 

1,517

 

 

1,122

 

Loan origination expenses and deposit and card related fees

 

 

314

 

 

242

 

 

677

 

 

516

 

Writedowns and losses on other real estate held for sale

 

 

(24)

 

 

36

 

 

77

 

 

102

 

FDIC insurance assessment

 

 

(141)

 

 

201

 

 

70

 

 

544

 

Communications

 

 

221

 

 

171

 

 

681

 

 

478

 

Transaction related expenses

 

 

 —

 

 

350

 

 

 —

 

 

2,463

 

Other

 

 

1,126

 

 

975

 

 

3,105

 

 

2,758

 

Total other expenses

 

 

10,444

 

 

10,618

 

 

30,951

 

 

29,623

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

 

 

4,708

 

 

3,889

 

 

13,361

 

 

6,333

 

Provision for  income taxes

 

 

989

 

 

820

 

 

2,806

 

 

1,331

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

3,719

 

$

3,069

 

$

10,555

 

$

5,002

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.35

 

$

0.29

 

$

0.98

 

$

0.60

 

Diluted

 

$

0.35

 

$

0.29

 

$

0.98

 

$

0.60

 

 

 

2

Table of Contents

MACKINAC FINANCIAL CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS COMPREHENSIVE INCOME

(Dollars in Thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2019

    

2018

 

2019

    

2018

 

Net income

 

$

3,719

 

$

3,069

 

$

10,555

 

$

5,002

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains arising during the period

 

 

101

 

 

(1,787)

 

 

1,756

 

 

(930)

 

Tax effect

 

 

(21)

 

 

375

 

 

(369)

 

 

195

 

Net change in unrealized gains on available for sale securities

 

 

80

 

 

(1,412)

 

 

1,387

 

 

(735)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$

3,799

 

$

1,657

 

$

11,942

 

$

4,267

 

 

 

3

Table of Contents

 

 

MACKINAC FINANCIAL CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in Thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2019

 

 

 

 

 

Common

 

 

 

Accumulated

 

 

 

 

 

Shares of

 

Stock and

 

 

 

Other

 

 

 

 

 

Common

 

Additional

 

Retained

 

Comprehensive

 

 

 

 

    

Stock

    

Paid in Capital

    

Earnings

    

Income (loss)

    

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

10,712,745

 

$

129,066

 

$

23,466

 

$

(463)

 

$

152,069

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for period

 

 —

 

 

 —

 

 

10,555

 

 

 —

 

 

10,555

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain on securities available for sale

 

 —

 

 

 —

 

 

 —

 

 

1,387

 

 

1,387

 

Total comprehensive income

 

 —

 

 

 —

 

 

10,555

 

 

1,387

 

 

11,942

 

Stock compensation

 

 —

 

 

226

 

 

 —

 

 

 —

 

 

226

 

Issuance of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock award vesting

 

27,967

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Dividend on common stock

 

 —

 

 

 —

 

 

(4,072)

 

 

 —

 

 

(4,072)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

 

10,740,712

 

$

129,292

 

$

29,949

 

$

924

 

$

160,165

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

 

 

 

Common

 

 

 

Accumulated

 

 

 

 

 

Shares of

 

Stock and

 

 

 

Other

 

 

 

 

 

Common

 

Additional

 

Retained

 

Comprehensive

 

 

 

 

    

Stock

    

Paid in Capital

    

Earnings

    

Income (Loss)

    

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

6,294,930

 

$

61,981

 

$

19,711

 

$

(292)

 

$

81,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for period

 

 —

 

 

 —

 

 

5,002

 

 

 —

 

 

5,002

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain on securities available for sale

 

 —

 

 

 —

 

 

 —

 

 

(735)

 

 

(735)

 

Total comprehensive income

 

 —

 

 

 —

 

 

5,002

 

 

(735)

 

 

4,267

 

Stock compensation

 

 —

 

 

475

 

 

 —

 

 

 —

 

 

475

 

Issuance of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock award vesting

 

45,630

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

FFNM acquisition

 

2,146,378

 

 

34,101

 

 

 

 

 

 

 

 

34,101

 

Capital raise, net of offering costs

 

2,225,807

 

 

32,451

 

 

 —

 

 

 —

 

 

32,451

 

Dividend on common stock

 

 —

 

 

 —

 

 

(3,327)

 

 

 —

 

 

(3,327)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

 

10,712,745

 

$

129,008

 

$

21,386

 

$

(1,027)

 

$

149,367

 

 

4

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

September 30,

 

 

 

2019

 

 

 

 

 

Common

 

 

 

 

Accumulated

 

 

 

 

 

 

Shares of

 

Stock and

 

 

 

 

Other

 

 

 

 

 

 

Common

 

Additional

 

Retained

 

Comprehensive

 

 

 

 

 

    

Stock

    

Paid in Capital

    

Earnings

    

Income (Loss)

    

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

10,740,712

 

$

129,262

 

$

27,734

 

$

844

 

$

157,840

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for period

 

 —

 

 

 —

 

 

3,719

 

 

 —

 

 

3,719

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized loss on securities available for sale

 

 —

 

 

 —

 

 

 —

 

 

80

 

 

80

 

Actuarial loss on defined benefit pension obligation

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Total comprehensive income

 

 —

 

 

 —

 

 

3,719

 

 

80

 

 

3,799

 

Stock compensation

 

 —

 

 

30

 

 

 —

 

 

 —

 

 

30

 

Issuance of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock award vesting

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Dividend on common stock

 

 —

 

 

 —

 

 

(1,504)

 

 

 —

 

 

(1,504)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

 

10,740,712

 

$

129,292

 

$

29,949

 

$

924

 

$

160,165

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

 

 

 

Common

 

 

 

Accumulated

 

 

 

 

 

Shares of

 

Stock and

 

 

 

Other

 

 

 

 

 

Common

 

Additional

 

Retained

 

Comprehensive

 

 

 

 

    

Stock

    

Paid in Capital

    

Earnings

    

Income

    

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

10,712,745

 

$

128,880

 

$

19,602

 

$

385

 

$

148,867

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for period

 

 —

 

 

 —

 

 

3,069

 

 

 —

 

 

3,069

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain on securities available for sale

 

 —

 

 

 —

 

 

 —

 

 

(1,412)

 

 

(1,412)

 

Actuarial loss on defined benefit pension obligation

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Total comprehensive income

 

 —

 

 

 —

 

 

3,069

 

 

(1,412)

 

 

1,657

 

Stock compensation

 

 —

 

 

201

 

 

 —

 

 

 —

 

 

201

 

Issuance of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock award vesting

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

FFNM acquisition

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 —

 

Capital raise, net of offering costs

 

 —

 

 

(73)

 

 

 —

 

 

 —

 

 

(73)

 

Dividend on common stock

 

 —

 

 

 —

 

 

(1,285)

 

 

 —

 

 

(1,285)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

 

10,712,745

 

$

129,008

 

$

21,386

 

$

(1,027)

 

$

149,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

Table of Contents

MACKINAC FINANCIAL CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

    

2019

    

2018

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net income

 

$

10,555