Mackinac Financial Corporation: Reports 2019 first quarter results

MANISTIQUE, Mich., May 01, 2019 (GLOBE NEWSWIRE) — Mackinac Financial Corporation (Nasdaq: MFNC) (the “Corporation”), the bank holding company for mBank, today announced 2019 first quarter net income of $3.17 million, or $.30 per share, compared to 2018 first quarter net income of $1.54 million, or $.24 per share.  The 2018 first quarter results included expenses related to the acquisition of First Federal of Northern Michigan (“FFNM”), which had an after-tax impact of $200 thousand on earnings.  Adjusted net income (net of transaction related and other one-time expenses) for the first quarter of 2018 was $1.74 million or $.28 per share.  First quarter 2019 net income compared to 2018 adjusted net income increased by $1.43 million, or 82%.

Weighted average shares outstanding for the first quarter 2019 were 10,720,127 compared to 6,304,203 for the same period of 2018.  The Corporation issued 2,146,378 new shares for the FFNM purchase in May 2018 and issued an additional 2,225,807 shares related to the common stock offering completed in June 2018. 

Total assets of the Corporation at March 31, 2019 were $1.32 billion, compared to $983.93 million at March 31, 2018.  Shareholders’ equity at March 31, 2019 totaled $154.75 million, compared to $81.86 million at March 31, 2018.  Book value per share outstanding equated to $14.41 at the end of the first quarter 2019 compared to $12.93 per share outstanding a year ago.  Tangible book value at quarter-end was $129.97 million or $12.10 per share outstanding compared to $74.30 million or $11.73 per share at the end of the first quarter 2018. 

Additional notes:

  • mBank, the Corporation’s primary asset, recorded net income of $3.46 million for the first quarter of 2019, compared to $2.05 million for the same period of 2018, equating to an increase of $1.41 million or 69%. The increase in net income equated to an improvement in Return on Average Assets at the bank from .85% in first quarter 2018 to 1.06% in the first quarter of 2019.
     
  • Reliance on higher-cost brokered deposits continues to decrease significantly from $191.46, million or 23.73% of total deposits at the end of the first quarter 2018, to $136.76 million, or 12.46% of total deposits at year-end 2018 to a first quarter 2019 balance of $119.18, million or 10.86% of total deposits. 
     
  • Total core bank deposits increased $17.29 million in the first quarter of 2019 through more proactive sales activity in the treasury management line of business and increased marketing efforts in key retail markets. 
     
  • New loan production of $81.4 million in the first quarter of 2019, compared to $44.9 million in 2018 first quarter. 
     
  • First quarter 2019 net interest margin remains strong at 4.55%.  Core operating margin, which is net of accretion from acquired loans that were subject to purchase accounting adjustments, was 4.37%.  
     
  • mBank was awarded the 2018 Diversity Community Lender of the Year award from the U.S. Small Business Administration of Michigan for its continued work and commitment to using government sponsored loan programs to provide funding to local businesses and provide the capital they need to grow and strengthen communities. mBank was selected based on superior support provided to advance diverse participation among small businesses from historically underrepresented groups including minorities, women, and veterans.  Community activities were also considered in the selection process.

Revenue

Total revenue of the Corporation for first quarter 2019 was $16.95 million compared to $11.67 million for the first quarter of 2018.  Total interest income for the first three months of 2019 was $15.83 million compared to $11.06 million for the same period in 2018. The 2019 first quarter interest income included accretive yield of $526 thousand from combined credit mark accretion associated with acquisitions compared to $204 thousand in the same period of 2018. 

Loan Production and Portfolio Mix

Total balance sheet loans at March 31, 2019 were $1.05 billion compared to March 31, 2018 balances of $812.44 million.  Total loans under management reside at $1.38 billion, which includes $329.87 million of service retained loans.  Overall loan production for the first three months of 2019 was $81.4 million compared to $44.9 million in the first quarter 2018, an increase of $36.5 million, or 80.9%.  Increased production was evident in all lines of business and across the entire market footprint.  As illustrated in the chart below, first quarter production levels were similar to historical production levels in our busier seasonal months.

Overall Quarterly Loan Production: http://www.globenewswire.com/NewsRoom/AttachmentNg/f4235c3a-e5c1-4244-8009-48e68637b163

First Quarter 2019 New Loan Production: http://www.globenewswire.com/NewsRoom/AttachmentNg/6a3a71a6-1885-409e-94c1-ac84a68fa59c

Payoff activity, outside of normal amortization, continued to somewhat constrain portfolio growth and was elevated once again in the first quarter with $27.9 million of total commercial credits paid off ahead of scheduled maturity. Out of this $27.9 million, approximately $10 million resulted from collateral divestments by various borrowers, and another  $8.2 million in client relationships were refinanced into real estate investment trusts at pricing and structure terms that the Corporation does not offer within our traditional bank lending guidelines.

As noted in the charts below, the loan portfolio remains well balanced between fixed and variable rate loans and diversified in terms of geography.  This prudent diversification should help mitigate both interest rate risk and concentration risk should the current elongated good credit cycle outlook begin to turn bearish in light of any adverse national market economic conditions that may arise.

Loan Composition March 31, 2019: http://www.globenewswire.com/NewsRoom/AttachmentNg/e176bfdb-dccc-4eec-a563-febe48f669cd

Total Loans by Region March 31, 2019: http://www.globenewswire.com/NewsRoom/AttachmentNg/5291d05c-3951-47d1-b024-1f3d8fecd02e

Commenting on new loan production and overall lending activities, President of the Corporation and President and CEO of mBank, Kelly W. George, stated, “Overall loan production increased significantly throughout the first quarter and outpaced last year’s totals by $36 million during the seasonally slowest origination period of the year. Additional markets and the full integration of the new lending teams from the two acquisitions last year provided positive impact to these totals, as expected.   Further, secondary market mortgage activity has been significantly augmented by our larger bank platform and the market expansion in 2018 appears to be positively tempering some seasonality in that specific business line. The first quarter has also provided for a strong pipeline of commercial loan transactions that we expect will close and fund in the second quarter, which are some larger lines of credit and construction loans that will take a period of time to fully draw throughout the year.”

“We continue to monitor payoff activity on the commercial side given the continued competitive pressure for loans from all types of lending conduits.  We will stay true to our underwriting and pricing discipline and not stretch to keep credits on the books that could negatively impact our balance sheet long term. In addition, we are very proud of our continued focus on building our communities through providing capital to small businesses and supporting them through a variety of resources. This commitment remains a cornerstone of our culture and was rewarded by the Small Business Administration (SBA), which recognized the bank with the Diversity Community Lender of the Year Award for 2018. Our commercial lenders do a great job of looking for opportunities to use the various programs from the SBA and other governmental agencies, which are so important in communities such as ours to help augment lending terms for businesses and provide the capital necessary for job creation and economic growth throughout our local markets.”      

Credit Quality

Nonperforming loans totaled $5.59 million, or .53% of total loans at March 31, 2019 compared to $4.34 million, or .53% of total loans at March 31, 2018. Total loan delinquencies greater than 30 days resided at a nominal .95%, compared to .69% in 2018.  The Nonperforming assets to total assets ratio resided at .57% for first quarter of 2019 compared to .70% for the first quarter of 2018.

Commenting on overall credit risk, Mr. George stated, “As expected, we have normalized the slight increase in our non-performing and problem loan credit ratios that occurred in 2018 following the FFNM and Lincoln acquisitions. We have seen no signs of any adverse systemic issues in terms of increased payment period times for legacy clients or material deterioration in commercial client financial statements in any of our core industries in which we lend. We also carry a very low level of Other Real Estate Owned, limiting expenses and time and expense in resolution of those properties. Purchase accounting marks from the previously acquired banks have continued to prove accurate, attaining expected accretion levels which should continue into 2019.”

Margin Analysis and Funding

Net interest income for first quarter 2019 was $13.24 million, resulting in a Net Interest Margin (NIM) of 4.55% compared to $9.31 million in the first quarter 2018 and a NIM of 4.19%.  Core operating margin, which is net of accretion from acquired loans that were subject to purchase accounting adjustments, was 4.37% for the first quarter 2019.  Comparatively, net interest income for the fourth quarter of 2018 resided at $13.79 million, a NIM of 4.64%, and core NIM of 4.32%.  As illustrated in the chart below, while total Net Interest Margin decreased slightly quarter-over-quarter, the decrease resulted from $420 thousand less in purchase accounting interest income (accretion) from acquired loans.  This decrease consisted of a $155 thousand decrease in performing accretion, which is following its expected schedule and a $265 thousand decrease in non-performing accretion, which is less predictable as to when it will be recognized. 

Margin breakdown by quarter: http://www.globenewswire.com/NewsRoom/AttachmentNg/53d4eb6d-32fb-45f1-a8d7-23db0c00c233

Total bank deposits (excluding brokered deposits) have increased by $362.73 million year-over-year from $615.34 million at March 31, 2018 to $978.07 million at first quarter-end 2019.  Total brokered deposits have decreased significantly and were $119.18 million at March 31, 2019 compared to $191.46 million at March 31, 2018, a decrease of 38%.  FHLB (Federal Home Loan Bank) borrowings were also reduced from $60 million at the end of the first quarter 2018 to $47 million at the end of the first quarter 2019. 

Funding Sources March 31, 2019: http://www.globenewswire.com/NewsRoom/AttachmentNg/2d3d920d-0d58-49f8-a6bd-577931d7653b

Funding Sources March 31, 2018: http://www.globenewswire.com/NewsRoom/AttachmentNg/045c27cf-3a29-4f3d-bd10-c131a87a2834

Mr. George stated, “Core bank deposits have increased significantly year-over-year as a result of both our 2018 acquisition activity and strong deposit gathering efforts in our branches and by our treasury management team.  Our bank deposits are up $17 million since year end 2018 and have allowed for an additonal $17 million reduction in higher cost brokered deposits over the course of the first quarter. With continued focus and progress, we have significantly lessened our reliance on wholesale funding while maintaining a strong liquidity position.  Our focus on new core deposit procurement remains a key initiative for 2019 as we look to continue to wind down our wholesale funding sources through continued aggressive marketing and business development initiatives in our higher volume markets.”

Noninterest Income / Expense

First quarter 2019 Noninterest Income was $1.12 million compared to $614 thousand for the same period of 2018.  The significant year-over year improvement is a combination of the scale provided by the two 2018 acquisitions as well as continued focus on drivers of noninterest income, including secondary market mortgage and SBA sales. Noninterest Expense for the first quarter of 2019 was $10.24 million compared to $7.93 million for the same period of 2018.  The expense variance from 2018 was heavily impacted by the additional expense related to the larger bank platform following the FFNM and Lincoln transactions, including additional salary, benefits and occupancy costs as well as some transaction related expenses.  For comparison purposes, noninterest expense remains slightly improved quarter-over-quarter with the fourth quarter of 2018 equating to $10.68 million.

Assets and Capital

Total assets of the Corporation at March 31, 2019 were $1.32 billion, compared to $983.93 million at March 31, 2018.  Shareholders’ equity at March 31, 2019 totaled $154.75 million compared to $81.86 million at March 31, 2018.  Book value per share outstanding equated to $14.41 at the end of the first quarter 2019 compared to $12.93 per share outstanding a year ago.  Tangible book value at quarter-end was $129.97 million or $12.10 per share outstanding compared to $74.30 million, or $11.73 per share, at the end of the first quarter 2018.   Both the common stock offering and the acquisitions had positive impacts on the Corporation’s overall capitalization and regulatory capital ratios. Both the Corporation and the Bank are “well-capitalized” with total risk-based capital to risk-weighted assets of 12.79% and 12.58% and tier 1 capital to total tier 1 average assets at the Corporation of 9.54% and at the bank of 9.44%.

Paul D. Tobias, Chairman and Chief Executive Officer of the Corporation and Chairman of mBank concluded, “We believe that the first quarter of 2019 reflects the positive impact of our 2018 acquisitions and organic growth efforts with an improved balance sheet and higher bottom line net income levels. We reviewed several external opportunities for acquisition later in 2018 and in the first quarter of this year, but pricing levels were too high.  We will continue to be receptive to acquisitions with sound economics as we focus on organic growth, credit trends and operating efficiencies in 2019.”

Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets in excess of $1.3 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 Company’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: 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 Company 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.