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Section 1: 10-Q (10-Q)

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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 June 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 August 8, 2019, there were outstanding 10,740,712 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 – June 30, 2019 (Unaudited), December 31, 2018

 

1

 

 

 

 

 

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

 

2

 

 

 

 

 

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

 

3

 

 

 

 

 

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

 

4

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2019 (Unaudited) and June 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

 

30

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

    

June 30,

    

December 31,

 

 

 

2019

 

2018

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

60,680

 

$

64,151

 

Federal funds sold

 

 

10

 

 

 6

 

Cash and cash equivalents

 

 

60,690

 

 

64,157

 

 

 

 

 

 

 

 

 

Interest-bearing deposits in other financial institutions

 

 

12,465

 

 

13,452

 

Securities available for sale

 

 

110,348

 

 

116,748

 

Federal Home Loan Bank stock

 

 

4,924

 

 

4,924

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

Commercial

 

 

755,176

 

 

717,032

 

Mortgage

 

 

284,864

 

 

301,461

 

Consumer

 

 

20,663

 

 

20,371

 

Total Loans

 

 

1,060,703

 

 

1,038,864

 

Allowance for loan losses

 

 

(5,306)

 

 

(5,183)

 

Net loans

 

 

1,055,397

 

 

1,033,681

 

 

 

 

 

 

 

 

 

Premises and equipment

 

 

23,166

 

 

22,783

 

Other real estate held for sale

 

 

2,125

 

 

3,119

 

Deferred tax asset

 

 

4,609

 

 

5,763

 

Deposit based intangibles

 

 

5,380

 

 

5,720

 

Goodwill

 

 

19,574

 

 

22,024

 

Other assets

 

 

32,045

 

 

25,669

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,330,723

 

$

1,318,040

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Noninterest bearing deposits

 

$

276,776

 

$

241,556

 

NOW, money market, interest checking

 

 

344,213

 

 

368,890

 

Savings

 

 

111,438

 

 

111,358

 

CDs<$250,000

 

 

256,689

 

 

225,236

 

CDs>$250,000

 

 

11,640

 

 

13,737

 

Brokered

 

 

114,097

 

 

136,760

 

Total deposits

 

 

1,114,853

 

 

1,097,537

 

 

 

 

 

 

 

 

 

Federal funds purchased

 

 

 —

 

 

2,905

 

Borrowings

 

 

46,232

 

 

57,536

 

Other liabilities

 

 

11,798

 

 

7,993

 

Total liabilities

 

 

1,172,883

 

 

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

 

 

129,262

 

 

129,066

 

Retained earnings

 

 

27,734

 

 

23,466

 

Accumulated other comprehensive income (loss)

 

 

 

 

 

 

 

Unrealized gains (losses) on available for sale securities

 

 

1,062

 

 

(245)

 

Minimum pension liability

 

 

(218)

 

 

(218)

 

Total shareholders’ equity

 

 

157,840

 

 

152,069

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

1,330,723

 

$

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

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

(Unaudited)

 

(Unaudited)

 

INTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

$

15,586

 

$

12,071

 

$

30,181

 

$

22,461

 

Tax-exempt

 

 

42

 

 

31

 

 

89

 

 

56

 

Interest on securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

680

 

 

560

 

 

1,383

 

 

932

 

Tax-exempt

 

 

85

 

 

79

 

 

183

 

 

148

 

Other interest income

 

 

367

 

 

197

 

 

752

 

 

396

 

Total interest income

 

 

16,760

 

 

12,938

 

 

32,588

 

 

23,993

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

2,515

 

 

1,602

 

 

4,869

 

 

2,838

 

Borrowings

 

 

248

 

 

523

 

 

486

 

 

1,033

 

Total interest expense

 

 

2,763

 

 

2,125

 

 

5,355

 

 

3,871

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

13,997

 

 

10,813

 

 

27,233

 

 

20,122

 

Provision for loan losses

 

 

200

 

 

100

 

 

300

 

 

150

 

Net interest income after provision for loan losses

 

 

13,797

 

 

10,713

 

 

26,933

 

 

19,972

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposit service fees

 

 

408

 

 

323

 

 

814

 

 

592

 

Income from mortgage loans sold on the secondary market

 

 

355

 

 

277

 

 

667

 

 

454

 

SBA/USDA loan sale gains

 

 

29

 

 

83

 

 

154

 

 

134

 

Net mortgage servicing fees (amortization)

 

 

128

 

 

(2)

 

 

248

 

 

(10)

 

Other

 

 

190

 

 

182

 

 

344

 

 

307

 

Total other income

 

 

1,110

 

 

863

 

 

2,227

 

 

1,477

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

5,511

 

 

4,923

 

 

10,946

 

 

9,077

 

Occupancy

 

 

1,004

 

 

928

 

 

2,085

 

 

1,739

 

Furniture and equipment

 

 

723

 

 

644

 

 

1,441

 

 

1,175

 

Data processing

 

 

708

 

 

586

 

 

1,417

 

 

1,090

 

Advertising

 

 

214

 

 

192

 

 

523

 

 

387

 

Professional service fees

 

 

547

 

 

397

 

 

981

 

 

701

 

Loan origination expenses and deposit and card related fees

 

 

184

 

 

148

 

 

363

 

 

274

 

Writedowns and losses on other real estate held for sale

 

 

73

 

 

40

 

 

101

 

 

66

 

FDIC insurance assessment

 

 

77

 

 

187

 

 

211

 

 

343

 

Communications

 

 

232

 

 

152

 

 

460

 

 

307

 

Transaction related expenses

 

 

 —

 

 

1,976

 

 

 —

 

 

2,165

 

Other

 

 

990

 

 

904

 

 

1,979

 

 

1,681

 

Total other expenses

 

 

10,263

 

 

11,077

 

 

20,507

 

 

19,005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

 

 

4,644

 

 

499

 

 

8,653

 

 

2,444

 

Provision for  income taxes

 

 

975

 

 

103

 

 

1,817

 

 

511

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

3,669

 

$

396

 

$

6,836

 

$

1,933

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME PER COMMON SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.34

 

$

0.05

 

$

0.64

 

$

0.27

 

Diluted

 

$

0.34

 

$

0.05

 

$

0.64

 

$

0.27

 

 

 

2

Table of Contents

MACKINAC FINANCIAL CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS COMPREHENSIVE INCOME

(Dollars in Thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2019

    

2018

 

2019

    

2018

 

Net income

 

$

3,669

 

$

396

 

$

6,836

 

$

1,933

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains arising during the period

 

 

822

 

 

1,392

 

 

1,795

 

 

857

 

Tax effect

 

 

(173)

 

 

(291)

 

 

(488)

 

 

(180)

 

Net change in unrealized gains on available for sale securities

 

 

649

 

 

1,101

 

 

1,307

 

 

677

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$

4,318

 

$

1,497

 

$

8,143

 

$

2,610

 

 

 

3

Table of Contents

 

 

MACKINAC FINANCIAL CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in Thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

June 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

 

 —

 

 

 —

 

 

6,836

 

 

 —

 

 

6,836

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain on securities available for sale

 

 —

 

 

 —

 

 

 —

 

 

1,307

 

 

1,307

 

Total comprehensive income

 

 —

 

 

 —

 

 

6,836

 

 

1,307

 

 

8,143

 

Stock compensation

 

 —

 

 

196

 

 

 —

 

 

 —

 

 

196

 

Issuance of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock award vesting

 

27,967

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Dividend on common stock

 

 —

 

 

 —

 

 

(2,568)

 

 

 —

 

 

(2,568)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

 

10,740,712

 

$

129,262

 

$

27,734

 

$

844

 

$

157,840

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

June 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

 

 —

 

 

 —

 

 

1,933

 

 

 —

 

 

1,933

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain on securities available for sale

 

 —

 

 

 —

 

 

 —

 

 

677

 

 

677

 

Total comprehensive income

 

 —

 

 

 —

 

 

1,933

 

 

677

 

 

2,610

 

Stock compensation

 

 —

 

 

274

 

 

 —

 

 

 —

 

 

274

 

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

 

 

32,524

 

 

 —

 

 

 —

 

 

32,524

 

Dividend on common stock

 

 —

 

 

 —

 

 

(2,042)

 

 

 —

 

 

(2,042)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

 

10,712,745

 

$

128,880

 

$

19,602

 

$

385

 

$

148,867

 

 

4

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

June 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

 

$

129,204

 

$

25,347

 

$

195

 

$

154,746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for period

 

 —

 

 

 —

 

 

3,669

 

 

 —

 

 

3,669

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized loss on securities available for sale

 

 —

 

 

 —

 

 

 —

 

 

649

 

 

649

 

Actuarial loss on defined benefit pension obligation

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Total comprehensive income

 

 —

 

 

 —

 

 

3,669

 

 

649

 

 

4,318

 

Stock compensation

 

 —

 

 

58

 

 

 —

 

 

 —

 

 

58

 

Issuance of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock award vesting

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Dividend on common stock

 

 —

 

 

 —

 

 

(1,282)

 

 

 —

 

 

(1,282)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

 

10,740,712

 

$

129,262

 

$

27,734

 

$

844

 

$

157,840

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2018

 

 

 

 

 

Common

 

 

 

Accumulated

 

 

 

 

 

Shares of

 

Stock and

 

 

 

Other

 

 

 

 

 

Common

 

Additional

 

Retained

 

Comprehensive

 

 

 

 

    

Stock

    

Paid in Capital

    

Earnings

    

Income

    

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

6,332,560

 

$

62,080

 

$

20,493

 

$

(716)

 

$

81,857

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for period

 

 —

 

 

 —

 

 

396

 

 

 —

 

 

396

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain on securities available for sale

 

 —

 

 

 —

 

 

 —

 

 

1,101

 

 

1,101

 

Actuarial loss on defined benefit pension obligation

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Total comprehensive income

 

 —

 

 

 —

 

 

396

 

 

1,101

 

 

1,497

 

Stock compensation

 

 —

 

 

175

 

 

 —

 

 

 —

 

 

175

 

Issuance of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock award vesting

 

8,000

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

FFNM acquisition

 

2,146,378

 

 

34,101

 

 

 

 

 

 

 

 

34,101

 

Capital raise, net of offering costs

 

2,225,807

 

 

32,524

 

 

 

 

 

 

 

 

32,524

 

Dividend on common stock

 

 —

 

 

 —

 

 

(1,287)

 

 

 —

 

 

(1,287)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

 

10,712,745

 

$

128,880

 

$

19,602

 

$

385

 

$

148,867

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

Table of Contents

MACKINAC FINANCIAL CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

    

2019

    

2018

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net income

 

$

6,836

 

$

1,933