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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

☐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.

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

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

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

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


	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)


		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

Section 1: 10-Q (10-Q)