MACKINAC FINANCIAL CORP /MI/ - FORM 10-Q

Attached files

file	filename
EX-31.2 - EX-31.2 - MACKINAC FINANCIAL CORP /MI/	a15-12100_1ex31d2.htm
EX-32.2 - EX-32.2 - MACKINAC FINANCIAL CORP /MI/	a15-12100_1ex32d2.htm
EX-31.1 - EX-31.1 - MACKINAC FINANCIAL CORP /MI/	a15-12100_1ex31d1.htm
XML - IDEA: XBRL DOCUMENT - MACKINAC FINANCIAL CORP /MI/	R9999.htm
EX-32.1 - EX-32.1 - MACKINAC FINANCIAL CORP /MI/	a15-12100_1ex32d1.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

o TRANSITION REPORT UNDER 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

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

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

Large Accelerated Filer o	Accelerated Filer o

Non-accelerated Filer o	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

As of June 30, 2015, there were outstanding 6,239,250 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, 2015 (Unaudited), December 31, 2014 and June 30, 2014 (Unaudited)	3

	Condensed Consolidated Statements of Operations — Three and Six Months Ended June 30, 2015 (Unaudited) and June 30, 2014 (Unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income — Three and Six Months Ended June 30, 2015 (Unaudited) and June 30, 2014 (Unaudited)	5

	Condensed Consolidated Statements of Changes in Shareholders’ Equity — Three and Six Months Ended June 30, 2015 (Unaudited) and June 30, 2014 (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2015 (Unaudited) and June 30, 2014 (Unaudited)	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49

Item 4.	Controls and Procedures	52

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	53

Item 6.	Exhibits and Reports on Form 8-K	53

SIGNATURES		54

Table of Contents

MACKINAC FINANCIAL CORPORATION

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

	June 30,			December 31,			June 30,
	2015			2014			2014
	(Unaudited)						(Unaudited)
ASSETS

Cash and due from banks	$	16,658		$	21,947		$	20,744
Federal funds sold	3			—			2
Cash and cash equivalents	16,661			21,947			20,746

Interest-bearing deposits in other financial institutions	5,338			5,797			235
Securities available for sale	60,561			65,832			47,374
Federal Home Loan Bank stock	2,169			2,973			3,060

Loans:
Commercial	447,086			433,566			374,565
Mortgage	150,998			148,984			113,332
Consumer	17,163			18,385			15,043
Total Loans	615,247			600,935			502,940
Allowance for loan losses	(5,600		)	(5,140		)	(5,097		)
Net loans	609,647			595,795			497,843

Premises and equipment	12,584			12,658			9,790
Other real estate held for sale	2,392			3,010			1,947
Deferred tax asset	10,013			11,498			9,097
Deposit based intangibles	1,136			1,196			—
Goodwill	3,805			3,805			—
Other assets	11,032			19,274			5,777

TOTAL ASSETS	$	735,338		$	743,785		$	595,869

LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES:
Deposits:
Noninterest bearing deposits	$	108,068		$	95,498		$	73,732
NOW, money market, interest checking	198,482			212,565			148,242
Savings	29,921			28,015			15,658
CDs<$100,000	133,582			134,951			143,140
CDs>$100,000	28,731			30,316			23,151
Brokered	90,037			105,628			80,093
Total deposits	588,821			606,973			484,016

Fed funds purchased	15,000			—			—
Borrowings	49,483			49,846			42,087
Other liabilities	6,288			12,970			3,289
Total liabilities	659,592			669,789			529,392

SHAREHOLDERS’ EQUITY:
Preferred stock - No par value:
Authorized - 500,000 shares , none issued and outstanding	—			—			—
Common stock and additional paid in capital - No par value
Authorized - 18,000,000 shares
Issued and outstanding - 6,239,250; 6,266,756 and 5,527,690 respectively	61,461			61,679			53,703
Retained earnings	13,851			11,804			12,325
Accumulated other comprehensive income
Unrealized gains(losses) on available for sale securities	483			562			—
Minimum pension liability	(49		)	(49		)	449

Total shareholders’ equity	75,746			73,996			66,477

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	735,338		$	743,785		$	595,869

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,
	2015		2014		2015		2014
	(Unaudited)				(Unaudited)
INTEREST INCOME:
Interest and fees on loans:
Taxable	$	7,742	$	6,373	$	15,967	$	12,654
Tax-exempt	3		—		6		23
Interest on securities:
Taxable	261		244		563		481
Tax-exempt	53		14		94		27
Other interest income	40		32		102		80
Total interest income	8,099		6,663		16,732		13,265

INTEREST EXPENSE:
Deposits	801		800		1,624		1,622
Borrowings	298		204		588		391
Total interest expense	1,099		1,004		2,212		2,013

Net interest income	7,000		5,659		14,520		11,252
Provision for loan losses	200		191		505		374
Net interest income after provision for loan losses	6,800		5,468		14,015		10,878

OTHER INCOME:
Deposit service fees	244		192		428		349
Income from loans sold on the secondary market	282		139		449		242
SBA/USDA loan sale gains	282		166		400		548
Mortgage servicing income	199		89		230		102
Net security gains	259		—		269		—
Other	84		64		198		100
Total other income	1,350		650		1,974		1,341

OTHER EXPENSE:
Salaries and employee benefits	2,916		2,523		5,963		5,064
Occupancy	626		546		1,202		1,084
Furniture and equipment	390		303		789		622
Data processing	359		288		714		574
Advertising	120		123		246		230
Professional service fees	279		276		580		607
Loan and deposit	125		83		263		162
Writedowns and losses on other real estate held for sale	20		14		37		14
FDIC insurance assessment	140		90		248		175
Telephone	106		82		238		164
Other	619		570		1,176		1,309
Total other expenses	5,700		4,898		11,456		10,005

Income before provision for income taxes	2,450		1,220		4,533		2,214
Provision for income taxes	836		414		1,548		748

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	1,614		806		2,985		1,466

INCOME PER COMMON SHARE:
Basic	$	.26	$	.15	$	.48	$	.27
Diluted	$	.26	$	.14	$	.48	$	.26

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,			June 30,			June 30,
	2015			2014			2015			2014

Net income	$	1,614		$	806		$	2,985		$	1,466

Other comprehensive income
Change in securities available for sale:
Unrealized gains (losses) arising during the period	(461		)	150			72			345
Reclassification adjustment for securities gains included in net income	(259		)	—			(269		)	—
Tax effect	380			(45		)	118			(112		)
Unrealized gains (losses) on available for sale securities	(340		)	105			(79		)	233

Total comprehensive income	$	1,274		$	911		$	2,906		$	1,699

Table of Contents

MACKINAC FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in Thousands)

(Unaudited)

Three Months Ended

June 30,

2015

Common

Accumulated

Shares of

Stock and

Other

Common

Additional

Retained

Comprehensive

Stock

Paid in Capital

Earnings

Income

Total

Balance, beginning of period

6,257,450

61,558

12,706

774

75,038

Net income for period

—

1,614

—

1,614

Other comprehensive income

Net unrealized gain on securities available for sale

—

(340

)

(340

)

Actuarial loss on defined benefit pension obligation

—

Total comprehensive income

—

1,614

(340

)

1,274

Stock compensation

—

144

—

144

Issuance of common stock:

Restricted stock award vesting

3,000

—

Repurchase of common stock

(21,200

)

(241

)

—

(241

)

Dividend on common stock

—

(469

)

—

(469

)

Balance, end of period

6,239,250

61,461

13,851

434

75,746

	Three Months Ended
	June 30,
	2014
		Common					Accumulated
	Shares of	Stock and					Other
	Common	Additional		Retained			Comprehensive
	Stock	Paid in Capital		Earnings			Income		Total

Balance, beginning of period	5,527,690	$	53,590	$	11,796		$	344	$	65,730

Net income for period	—	—		806			—		806
Other comprehensive income
Net unrealized gain on securities available for sale	—	—		—			105		105
Actuarial loss on defined benefit pension obligation	—	—		—			—		—
Total comprehensive income	—	—		806			105		911
Stock compensation	—	113		—			—		113
Issuance of common stock:
Restricted stock award vesting	—	—		—			—		—
Repurchase of common stock	—	—		—			—		—
Dividend on common stock	—	—		(277		)	—		(277		)

Balance, end of period	5,527,690	$	53,703	$	12,325		$	449	$	66,477

Table of Contents

MACKINAC FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in Thousands)

(Unaudited)

Six Months Ended

June 30,

2015

Common

Accumulated

Shares of

Stock and

Other

Common

Additional

Retained

Comprehensive

Stock

Paid in Capital

Earnings

Income

Total

Balance, beginning of period

6,266,756

61,679

11,804

513

73,996

Net income for period

—

2,985

—

2,985

Other comprehensive income

Net unrealized gain on securities available for sale

—

(79

)

(79

)

Actuarial loss on defined benefit pension obligation

—

Total comprehensive income

—

2,985

(79

)

2,906

Stock compensation

—

288

—

288

Issuance of common stock:

Restricted stock award vesting

16,194

—

Repurchase of common stock

(43,700

)

(506

)

—

(506

)

Dividend on common stock

—

(938

)

—

(938

)

Balance, end of period

6,239,250

61,461

13,851

434

75,746

	Six Months Ended
	June 30,
	2014
			Common						Accumulated
	Shares of		Stock and						Other
	Common		Additional			Retained			Comprehensive
	Stock		Paid in Capital			Earnings			Income		Total

Balance, beginning of period	5,541,390		$	53,621		$	11,412		$	216	$	65,249

Net income for period	—		—			1,466			—		1,466
Other comprehensive income
Net unrealized gain on securities available for sale	—		—			—			233		233
Actuarial loss on defined benefit pension obligation	—		—			—			—		—
Total comprehensive income	—		—			1,466			233		1,699
Stock compensation	—		225			—			—		225
Issuance of common stock:
Restricted stock award vesting	—		—			—			—		—
Repurchase of common stock	(13,700	)	(143		)	—			—		(143		)
Dividend on common stock	—		—			(553		)	—		(553		)

Balance, end of period	5,527,690		$	53,703		$	12,325		$	449	$	66,477

Table of Contents

MACKINAC FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

	Six Months Ended
	June 30,
	2015			2014
Cash Flows from Operating Activities:
Net income	$	2,985		$	1,466
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	841			751
Provision for loan losses	505			374
Deferred income taxes, net	1,548			748
(Gain) on sales/calls of securities	(269		)	—
(Gain) on sale of loans sold to secondary market	(362		)	(191		)
Origination of loans held for sale in the secondary market	(22,420		)	(11,170		)
Proceeds from sale of loans in the secondary market	22,782			11,361
Loss on sale of premises, equipment, and other real estate held for sale	12			41
Writedown of other real estate held for sale	25			2
Stock compensation	288			225
Change in other assets	8,574			149
Change in other liabilities	(6,682		)	(111		)
Net cash provided by operating activities	7,827			3,645

Cash Flows from Investing Activities:
Net (increase) in loans	(14,715		)	(19,354		)
Net decrease (increase) in interest bearing deposits in other financial institutions	459			(225		)
Purchase of securities available for sale	(10,016		)	(3,243		)
Proceeds from maturities, sales, calls or paydowns of securities available for sale	14,939			504
Proceeds from FHLBI repurchases of excess capital stock	804			—
Capital expenditures	(674		)	(798		)
Proceeds from sale of premises, equipment, and other real estate	1,049			742
Net cash (used in) investing activities	(8,154		)	(22,374		)

Cash Flows from Financing Activities:
Net (decrease) increase in deposits	(18,152		)	17,717
Increase in fed funds purchased	15,000			—
Net activity on lines of credit	(163		)	—
Net (decrease) increase in borrowings	(200		)	4,235
Repurchase of common stock	(506		)	(143		)
Dividend on common stock	(938		)	(553		)
Net cash provided by (used in) financing activities	(4,959		)	21,256

Net (decrease) increase in cash and cash equivalents	(5,286		)	2,527
Cash and cash equivalents at beginning of period	21,947			18,219

Cash and cash equivalents at end of period	$	16,661		$	20,746

Supplemental Cash Flow Information:
Cash paid during the year for:
Interest	$	2,218		$	2,009
Income taxes	150			25

Noncash Investing and Financing Activities:
Transfers of Foreclosures from Loans to Other Real Estate Held for Sale (net of adjustments made through the allowance for loan losses)	495			282

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited condensed consolidated financial statements of Mackinac Financial Corporation (the “Corporation”) have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. The unaudited consolidated financial statements and footnotes thereto should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2014.

In order to properly reflect some categories of other income and other expenses, reclassifications of expense and income items have been made to prior period numbers. The “net” other income and other expenses was not changed due to these reclassifications.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of investment securities, the valuation of foreclosed real estate, deferred tax assets, and mortgage servicing rights.

Acquired Loans

Loans acquired with evidence of credit deterioration since inception and for which it is probable that all contractual payments will not be received are accounted for under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”). These loans are recorded at fair value at the time of acquisition, with no carryover of the related allowance for loan losses. Fair value of acquired loans is determined using a discounted cash flow methodology based on assumptions about the amount and timing of principal and interest payments, principal prepayments and principal defaults and losses, and current market rates. In recording the fair values of acquired impaired loans at acquisition date, management calculates a non-accretable difference (the credit component of the purchased loans) and an accretable difference (the yield component of the purchased loans).

Over the life of the acquired loans, management continues to estimate cash flows expected to be collected on pools of loans sharing common risk characteristics, which are treated in the aggregate when applying various valuation techniques. Management evaluates at each balance sheet date whether the present value of our pools of loans determined using the effective interest rates has decreased significantly and if so, recognize a provision for loan loss in our consolidated statement of income. For any significant increases in cash flows expected to be collected, we adjust the amount of the accretable yield recognized on a prospective basis over the pool’s remaining life.

Performing acquired loans are accounted for under FASB Topic 310-20, Receivables — Nonrefundable Fees and Other Costs. Performance of certain loans may be monitored and based on management’s assessment of the cash flows and other facts available, portions of the accretable difference may be delayed or suspended if management deems appropriate. The Corporation’s policy for determining when to discontinue accruing interest on performing acquired loans and the subsequent accounting for such loans is essentially the same as the policy for originated loans.

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance for Loan Losses

The allowance for loan losses includes specific allowances related to commercial loans, when they have been judged to be impaired. A loan is impaired when, based on current information, it is probable that the Corporation will not collect all amounts due in accordance with the contractual terms of the loan agreement. These specific allowances are based on discounted cash flows of expected future payments using the loan’s initial effective interest rate or the fair value of the collateral if the loan is collateral dependent.

The Corporation continues to maintain a general allowance for loan losses for loans not considered impaired. The allowance for loan losses is maintained at a level which management believes is adequate to provide for possible loan losses. Management periodically evaluates the adequacy of the allowance using the Corporation’s past loan loss experience, known and inherent risks in the portfolio, composition of the portfolio, current economic conditions, and other factors. The allowance does not include the effects of expected losses related to future events or future changes in economic conditions. This evaluation is inherently subjective since it requires material estimates that may be susceptible to significant change. Loans are charged against the allowance for loan losses when management believes the collectability of the principal is unlikely. In addition, various regulatory agencies periodically review the allowance for loan losses. These agencies may require additions to the allowance for loan losses based on their judgments of collectability.

In management’s opinion, the allowance for loan losses is adequate to cover probable losses relating to specifically identified loans, as well as probable losses inherent in the balance of the loan portfolio as of the balance sheet date.

Stock Compensation Plans

On May 22, 2012, the Company’s shareholders approved the Mackinac Financial Corporation 2012 Incentive Compensation Plan, under which current and prospective employees, non-employee directors and consultants may be awarded incentive stock options, non-statutory stock options, shares of restricted stock units (“RSUs”), or stock appreciation rights. The aggregate number of shares of the Company’s common stock issuable under the plan is 575,000, which included 392,152 option shares outstanding at that time. Awards are made at the discretion of management. Compensation cost equal to the fair value of the award is recognized over the vesting period.

The Corporation, in August 2012 and March 2014, granted Restricted Stock Units (“RSUs”) to members of the Board of Directors and Management. In August 2012, 148,500 RSUs were granted at a market value of $7.91 and will vest equally over a four year term. In exchange for the grant of these RSUs various previously issued stock option awards were surrendered. In March 2014, 52,774 RSUs were granted at a market value of $12.95, also vesting equally over a four year term. In March 2015, 37,730 RSUs were granted at a market value of $11.15, also vesting over a four year term. The RSUs were awarded at no cost to the employee. Compensation cost to be recognized over the four year vesting periods, is $1.175 million, $.683 million and $.421 million, respectively. On August 31, 2013 and 2014, the Corporation issued 37,125 shares and 37,125 shares of its common stock for vested RSUs, respectively. In March 2015, the Corporation issued 13,194 shares of its common stock for vested RSUs. In May 2015, the Corporation granted 3,000 shares, which were immediately vested and issued.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (FASB) issued guidance on the recognition of revenue from contracts with customers. Revenue recognition will depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application. The guidance is effective January 1, 2018 and early adoption is not permitted. The company is currently evaluating the impact of the new guidance and the method of adoption in the consolidated financial results.

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. EARNINGS PER SHARE

Diluted earnings per share, which reflects the potential dilution that could occur if outstanding stock options were exercised and stock awards were fully vested and resulted in the issuance of common stock that then shared in our earnings, is computed by dividing net income by the weighted average number of common shares outstanding and common stock equivalents, after giving effect for dilutive shares issued.

The following shows the computation of basic and diluted earnings per share for the three and six months ended June 30, 2015 and 2014 (dollars in thousands, except per share data):

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
(Numerator):
Net income available to common shareholders	$	1,614	$	806	$	2,985	$	1,466
(Denominator):
Weighted average shares outstanding - basic	6,247,004		5,527,690		6,251,713		5,529,290
Effect of dilutive stock options and vesting of restricted stock units	42,594		90,001		27,514		55,642
Weighted average shares outstanding - diluted	6,289,598		5,617,691		6,279,227		5,584,932
Income per common share:
Basic	$	.26	$	.15	$	.48	$	.27
Diluted	$	.26	$	.14	$	.48	$	.26

4. INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities available for sale as of June 30, 2015, December 31, 2014 and June 30, 2014 are as follows (dollars in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value

*June 30, 2015*

US Agencies	$	24,876	$	87	$	(42	)	$	24,921
Corporate Bonds	12,433		87		(1		)	12,519
US Agencies - MBS	12,604		227		(71		)	12,760
Obligations of states and political subdivisions	9,916		591		(146		)	10,361

Total securities available for sale	$	59,829	$	992	$	(260	)	$	60,561

December 31, 2014

US Treasury	$	5,287	$	3	$	(10	)	$	5,280
US Agencies	22,667		144		(94		)	22,717
Corporate Bonds	12,558		116		—			12,674
US Agencies - MBS	13,461		262		(35		)	13,688
Obligations of states and political subdivisions	10,930		685		(142		)	11,473

Total securities available for sale	$	64,903	$	1,210	$	(281	)	$	65,832

June 30, 2014

US Agencies - MBS	$	6,598	$	253	$	—		$	6,851
US Agencies	17,755		91		(258		)	17,588
Corporate Bonds	15,691		189		—			15,880
Obligations of states and political subdivisions	6,441		400		(2		)	6,839
Other	216		—		—			216

Total securities available for sale	$	46,701	$	933	$	(260	)	$	47,374

The Corporation has evaluated gross unrealized losses that exist within the portfolio and considers them temporary in nature. The Corporation has both the ability and the intent to hold the investment securities until their respective maturities and therefore does not anticipate the realization of the temporary losses.

The amortized cost and estimated fair value of investment securities pledged to secure FHLB borrowings and customer relationships were $4.276 million and $4.456 million, respectively, at June 30, 2015.

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. LOANS

The composition of loans is as follows (dollars in thousands):

	June 30,		December 31,		June 30,
	2015		2014		2014

Commercial real estate	$	320,013	$	315,387	$	274,500
Commercial, financial, and agricultural	107,205		101,895		89,515
One to four family residential real estate	142,276		139,553		105,868
Construction :
Consumer	8,722		9,431		7,464
Commerical	19,868		16,284		10,550
Consumer	17,163		18,385		15,043

Total loans	$	615,247	$	600,935	$	502,940

The Corporation completed the acquisition of Peninsula Financial Corporation on December 5, 2014. The acquired loans were divided into loans with evidence of credit quality deterioration, which are accounted for under ASC 310-30 (“acquired impaired”) and loans that do not meet that criteria, which are accounted for under ASC 310-20 (“acquired nonimpaired”). The acquired impaired loans totaled $10.312 million. The Corporation recorded these loans at fair value taking into account a number of factors, including remaining life, estimated loss, estimated value of the underlying collateral and net present values of cash flows. In the first half of 2015, the Corporation had positive resolution of one acquired nonperforming loan which resulted in the recognition of approximately $.429 million of the accretable interest.

The table below details the acquired portfolio at June 30, 2015 (dollars in thousands):

	Acquired			Acquired			Acquired
	Impaired			Non-impaired			Total

Loans acquired - contractual payments	$	11,433		$	52,515		$	63,948
Nonaccretable difference	(1,509		)	—			(1,509		)
Expected cash flows	9,924			52,515			62,439
Accretable yield	(503		)	(1,692		)	(2,195		)
Carrying balance at June 30, 2015	$	9,421		$	50,823		$	60,244

The table below presents a rollforward of the accretable yield on acquired loans for the six months ended June 30, 2015 (dollars in thousands):

	Acquired			Acquired			Acquired
	Impaired			Non-impaired			Total

Balance, December 31, 2014	$	744		$	2,042		$	2,786
Accretion	(429		)	(350		)	(779		)
Reclassification from nonaccretable difference	188			—			188
Balance at June 30, 2015	$	503		$	1,692		$	2,195

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. LOANS (Continued)

An analysis of the allowance for loan losses for the six months ended June 30, 2015, the year ended December 31, 2014, and the six months ended June 30, 2014 is as follows (dollars in thousands):

	June 30,			December 31,			June 30,
	2015			2014			2014

Balance at beginning of period	$	5,140		$	4,661		$	4,661
Loans charged off	(158		)	(1,046		)	(115		)
Recoveries on loans previously charged off	113			325			177
Provision	505			1,200			374

Balance at end of period	$	5,600		$	5,140		$	5,097

In the first half of 2015, net charge-offs were $.045 million, .01% of average loans, compared to net recoveries of $62,000 in the same period in 2014. In the first half of 2015, the Corporation recorded a provision for loan loss of $.505 million compared to $.374 million in the first half of 2014. The Corporation’s allowance for loan loss reserve policy calls for a measurement of the adequacy of the reserve at each quarter end. This process includes an analysis of the loan portfolio to take into account increases in loans outstanding and portfolio composition, historical loss rates, and specific reserve requirements of nonperforming loans.

A breakdown of the allowance for loan losses and recorded balances in loans at June 30, 2015 is as follows (dollars in thousands):

				Commercial,						One to four
	Commercial			financial and			Commercial			family residential			Consumer
	real estate			agricultural			construction			real estate			construction			Consumer			Unallocated			Total
*Three Months Ended June 30, 2015*
*Allowance for loan loss reserve:*
Beginning balance ALLR	$	2,770		$	2,353		$	144		$	244		$	6		$	19		$	(9	)	$	5,527
Charge-offs	—			(110		)	—			(30		)	—			(7		)	—			(147		)
Recoveries	11			—			—			1			—			8			—			20
Provision	(231		)	328			(16		)	67			(1		)	7			46			200
Ending balance ALLR	$	2,550		$	2,571		$	128		$	282		$	5		$	27		$	37		$	5,600

*Six Months Ended June 30, 2015*
*Allowance for loan loss reserve:*
Beginning balance ALLR	$	2,813		$	1,539		$	142		$	285		$	6		$	13		$	342		$	5,140
Charge-offs	—			(110		)	—			(30		)	—			(18		)	—			(158		)
Recoveries	92			—			—			1			1			19			—			113
Provision	(355		)	1,142			(14		)	26			(2		)	13			(305		)	505
Ending balance ALLR	$	2,550		$	2,571		$	128		$	282		$	5		$	27		$	37		$	5,600

*At June 30,2015*
*Loans:*
Ending balance	$	320,013		$	107,205		$	19,868		$	142,276		$	8,722		$	17,163		$	—		$	615,247
Ending balance ALLR	(2,550		)	(2,571		)	(128		)	(282		)	(5		)	(27		)	(37		)	(5,600		)
Net loans	$	317,463		$	104,634		$	19,740		$	141,994		$	8,717		$	17,136		$	(37	)	$	609,647

*Ending balance ALLR:*
Individually evaluated	$	570		$	1,591		$	—		$	53		$	—		$	18		$	—		$	2,232
Collectively evaluated	1,980			980			128			229			5			9			37			3,368
Acquired with deteriorated credit quality	—			—			—			—			—			—			—			—
Total	$	2,550		$	2,571		$	128		$	282		$	5		$	27		$	37		$	5,600

*Ending balance Loans:*
Individually evaluated	$	1,984		$	4,905		$	—		$	368		$	—		$	33		$	—		$	7,290
Collectively evaluated	312,969			102,110			19,762			137,846			8,722			17,127			—			598,536
Acquired with deteriorated credit quality	5,060			190			106			4,062			—			3			—			9,421
Total	$	320,013		$	107,205		$	19,868		$	142,276		$	8,722		$	17,163		$	—		$	615,247

Impaired loans, by definition, are individually evaluated.

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. LOANS (Continued)

A breakdown of the allowance for loan losses and recorded balances in loans at December 31, 2014 is as follows (dollars in thousands):

				Commercial,						One to four
	Commercial			financial and			Commercial			family residential			Consumer
	real estate			agricultural			construction			real estate			construction			Consumer			Unallocated			Total
Allowance for loan loss reserve:
Beginning balance ALLR	$	1,849		$	1,378		$	80		$	516		$	25		$	148		$	665		$	4,661
Charge-offs	(19		)	(663		)	—			(290		)	—			(74		)	—			(1,046		)
Recoveries	131			78			50			22			—			44			—			325
Provision	852			746			12			37			(19		)	(105		)	(323		)	1,200
Ending balance ALLR	$	2,813		$	1,539		$	142		$	285		$	6		$	13		$	342		$	5,140

Loans:
Ending balance	$	315,387		$	101,895		$	16,284		$	139,553		$	9,431		$	18,385		$	—		$	600,935
Ending balance ALLR	(2,813		)	(1,539		)	(142		)	(285		)	(6		)	(13		)	(342		)	(5,140		)
Net loans	$	312,574		$	100,356		$	16,142		$	139,268		$	9,425		$	18,372		$	(342	)	$	595,795

Ending balance ALLR:
Individually evaluated	$	704		$	492		$	—		$	19		$	—		$	1		$	—		$	1,216
Collectively evaluated	2,109			1,047			142			266			6			12			342			3,924
Acquired with deteriorated credit quality	—			—			—			—			—			—			—			—
Total	$	2,813		$	1,539		$	142		$	285		$	6		$	13		$	342		$	5,140

Ending balance Loans:
Individually evaluated	$	1,374		$	863		$	—		$	768		$	—		$	72		$	—		$	3,077
Collectively evaluated	308,661			100,330			16,126			134,908			9,216			18,305			—			587,546
Acquired with deteriorated credit quality	5,352			702			158			3,877			215			8			—			10,312
Total	$	315,387		$	101,895		$	16,284		$	139,553		$	9,431		$	18,385		$	—		$	600,935

Impaired loans, by definition, are individually evaluated.

A breakdown of the allowance for loan losses and recorded balances in loans at June 30, 2014 is as follows (dollars in thousands):

				Commercial,						One to four
	Commercial			financial and			Commercial			family residential			Consumer
	real estate			agricultural			construction			real estate			construction			Consumer			Unallocated			Total
Three Months Ended June 30, 2014
Allowance for loan loss reserve:
Beginning balance ALLR	$	1,756		$	1,572		$	41		$	391		$	16		$	114		$	993		$	4,883
Charge-offs	—			(3		)	—			(13		)	—			(17		)	—			(33		)
Recoveries	20			15			3			8			—			10			—			56
Provision	(146		)	85			(4		)	(41		)	(1		)	4			294			191
Ending balance ALLR	$	1,630		$	1,669		$	40		$	345		$	15		$	111		$	1,287		$	5,097

Six Months Ended June 30, 2014
Allowance for loan loss reserve:
Beginning balance ALLR	$	1,849		$	1,378		$	80		$	516		$	25		$	148		$	665		$	4,661
Charge-offs	(1		)	(65		)	—			(16		)	—			(33		)	—			(115		)
Recoveries	74			59			6			14			—			24			—			177
Provision	(292		)	297			(46		)	(169		)	(10		)	(28		)	622			374
Ending balance ALLR	$	1,630		$	1,669		$	40		$	345		$	15		$	111		$	1,287		$	5,097

At June 30,2014
Loans:
Ending balance	$	274,500		$	89,515		$	10,550		$	105,868		$	7,464		$	15,043		$	—		$	502,940
Ending balance ALLR	(1,630		)	(1,669		)	(40		)	(345		)	(15		)	(111		)	(1,287		)	(5,097		)
Net loans	$	272,870		$	87,846		$	10,510		$	105,523		$	7,449		$	14,932		$	(1,287	)	$	497,843

Ending balance ALLR:
Individually evaluated	$	189		$	1,110		$	—		$	118		$	—		$	21		$	—		$	1,438
Collectively evaluated	1,441			559			40			227			15			90			1,287			3,659
Total	$	1,630		$	1,669		$	40		$	345		$	15		$	111		$	1,287		$	5,097

Ending balance Loans:
Individually evaluated	$	609		$	1,744		$	—		$	622		$	—		$	64		$	—		$	3,039
Collectively evaluated	273,891			87,771			10,550			105,246			7,464			14,979			—			499,901
Total	$	274,500		$	89,515		$	10,550		$	105,868		$	7,464		$	15,043		$	—		$	502,940

Impaired loans, by definition, are individually evaluated.

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. LOANS (Continued)

As part of the management of the loan portfolio, risk ratings are assigned to all commercial loans. Through the loan review process, ratings are modified as believed to be appropriate to reflect changes in the credit. Our ability to manage credit risk depends in large part on our ability to properly identify and manage problem loans.

To do so, we operate a credit risk rating system under which our credit management personnel assign a credit risk rating to each loan at the time of origination and review loans on a regular basis to determine each loan’s credit risk rating on a scale of 1 through 8, with higher scores indicating higher risk. The credit risk rating structure used is shown below.

In the context of the credit risk rating structure, the term Classified is defined as a problem loan which may or may not be in a nonaccrual status, dependent upon current payment status and collectability.

Strong (1)

Borrower is not vulnerable to sudden economic or technological changes. They have “strong” balance sheets and are within an industry that is very typical for our markets or type of lending culture. Borrowers also have “strong” financial and cash flow performance and excellent collateral (low loan to value or readily available to liquidate collateral) in conjunction with an impeccable repayment history.

Good (2)

Borrower shows limited vulnerability to sudden economic change. These borrowers have “above average” financial and cash flow performance and a very good repayment history. The balance sheet of the company is also very good as compared to peer and the company is in an industry that is familiar to our markets or our type of lending. The collateral securing the deal is also very good in terms of its type, loan to value, etc.

Average (3)

Borrower is typically a well-seasoned business, however may be susceptible to unfavorable changes in the economy, and could be somewhat affected by seasonal factors. The borrowers within this category exhibit financial and cash flow performance that appear “average” to “slightly above average” when compared to peer standards and they show an adequate payment history. Collateral securing this type of credit is good, exhibiting above average loan to values, etc.

Acceptable/Acceptable Watch (4)

A borrower within this category exhibits financial and cash flow performance that appear adequate and satisfactory when compared to peer standards and they show a satisfactory payment history. The collateral securing the request is within supervisory limits and overall is acceptable. Borrowers rated acceptable could also be newer businesses that are typically susceptible to unfavorable changes in the economy, and more than likely could be affected by seasonal factors.

Special Mention (5)

The borrower may have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Examples of this type of credit include a start-up company fully based on projections, a documentation issue that needs to be corrected or a general market condition that the borrower is working through to get corrected.

Substandard (6)

Substandard loans are classified assets exhibiting a number of well-defined weaknesses that jeopardize normal repayment. The assets are no longer adequately protected due to declining net worth, lack of earning capacity, or insufficient collateral offering the distinct possibility of the loss of a portion of the loan principal. Loans classified as substandard clearly represent troubled and deteriorating credit situations requiring constant supervision.

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. LOANS (Continued)

Doubtful (7)

Loans in this category exhibit the same, if not more pronounced weaknesses used to describe the substandard credit. Loans are frozen with collection improbable. Such loans are not yet rated as Charge-off because certain actions may yet occur which would salvage the loan.

Charge-off/Loss (8)

Loans in this category are largely uncollectible and should be charged against the loan loss reserve immediately.

General Reserves:

For loans with a credit risk rating of 5 or better and any loans with a risk rating of 6 or 7 with no specific reserve, reserves are established based on the type of loan collateral, if any, and the assigned credit risk rating. Determination of the allowance is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogenous loans based on historical loss experience, and consideration of current environmental factors and economic trends, all of which may be susceptible to significant change.

Using a historical average loss by loan type as a base, each loan graded as higher risk is assigned a specific percentage. The residential real estate and consumer loan portfolios are assigned a loss percentage as a homogenous group. If, however, on an individual loan the projected loss based on collateral value and payment histories are in excess of the computed allowance, the allocation is increased for the higher anticipated loss. These computations provide the basis for the allowance for loan losses as recorded by the Corporation.

Commercial construction loans in the amount of $2.559 million, $3.251 million and $3.153 million for the periods ended June 30, 2015, December 31, 2014 and June 30, 2014, respectively did not receive a specific risk rating. These amounts represent loans made for land development and unimproved land purchases.

Below is a breakdown of loans by risk category as of June 30, 2015 (dollars in thousands):

							(4)
	(1)		(2)		(3)		Acceptable/		(5)		(6)		(7)		Rating
	Strong		Good		Average		Acceptable Watch		Sp. Mention		Substandard		Doubtful		Unassigned		Total

Commercial real estate	$	3,655	$	27,372	$	135,941	$	145,302	$	—	$	7,743	$	—	$	—	$	320,013
Commercial, financial and agricultural	10,384		5,236		38,729		46,181		—		6,675		—		—		107,205
Commercial construction	141		421		2,894		13,349		—		504		—		2,559		19,868
One-to-four family residential real estate	480		1,124		3,459		3,903		—		5,351		—		127,959		142,276
Consumer construction	—		—		—		—		—		—		—		8,722		8,722
Consumer	27		—		42		2		—		31		—		17,061		17,163

Total loans	$	14,687	$	34,153	$	181,065	$	208,737	$	—	$	20,304	$	—	$	156,301	$	615,247

Below is a breakdown of loans by risk category as of December 31, 2014 (dollars in thousands):

							(4)
	(1)		(2)		(3)		Acceptable/		(5)		(6)		(7)		Rating
	Strong		Good		Average		Acceptable Watch		Sp. Mention		Substandard		Doubtful		Unassigned		Total

Commercial real estate	$	859	$	28,740	$	129,791	$	147,624	$	—	$	8,373	$	—	$	—	$	315,387
Commercial, financial and agricultural	3,227		4,577		33,794		57,295		—		3,002		—		—		101,895
Commercial construction	80		441		2,282		9,324		—		906		—		3,251		16,284
One-to-four family residential real estate	297		1,074		3,207		5,882		—		5,745		—		123,348		139,553
Consumer construction	—		—		—		—		—		—		—		9,431		9,431
Consumer	53		—		3		10		—		11		—		18,308		18,385

Total loans	$	4,516	$	34,832	$	169,077	$	220,135	$	—	$	18,037	$	—	$	154,338	$	600,935

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. LOANS (Continued)

Below is a breakdown of loans by risk category as of June 30, 2014 (dollars in thousands):

							(4)
	(1)		(2)		(3)		Acceptable/		(5)		(6)		(7)		Rating
	Strong		Good		Average		Acceptable Watch		Sp. Mention		Substandard		Doubtful		Unassigned		Total

Commercial real estate	$	15	$	25,065	$	121,108	$	126,593	$	—	$	1,719	$	—	$	—	$	274,500
Commercial, financial and agricultural	2,107		4,418		31,875		46,320		—		4,795		—		—		89,515
Commercial construction	—		460		2,919		3,616		—		402		—		3,153		10,550
One to four family residential real estate	—		2,329		1,303		4,344		—		—		—		97,892		105,868
Consumer construction	—		—		—		—		—		—		—		7,464		7,464
Consumer	—		—		20		39		—		—		—		14,984		15,043

Total loans	$	2,122	$	32,272	$	157,225	$	180,912	$	—	$	6,916	$	—	$	123,493	$	502,940

Impaired Loans

Nonperforming loans are those which are contractually past due 90 days or more as to interest or principal payments, on nonaccrual status, or loans, the terms of which have been renegotiated to provide a reduction or deferral on interest or principal. Interest income recorded during impairment for the three and six months ended June 30, 2015 was $.105 million and $.628 million, respectively. Interest income that would have been recognized during these periods was $.236 million and $.831 million, respectively. For the three and six months ended June 30, 2014, the amounts that would have been recognized were $.029 million and $.053 million, respectively.

The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Loans are considered impaired when, based on current information and events, it is probable the Corporation will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loans basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan losses. In determining the estimated fair value of purchased loans, management considers a number of factors including the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, net present value of cash flows expected to be received, among others. Purchased loans are accounted for in accordance with guidance for certain loans acquired in a transfer (ASC 310-30), when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the acquirer will not collect all contractually required principal and interest payments. The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in expected cash flows will result in a reversal of the provision for loan losses to the extent of prior charges and then an adjustment to accretable yield, which would have a positive impact on interest income. The ASC 310-30 mark on impaired loans totaled $2.978 million. The accretable yield in this impaired loans was estimated at $.619 million. The Corporation recorded $.429 million due to the positive resolution of one large acquired nonperforming commercial loan relationship in the first quarter of 2015 and no accretable yield of the loan mark in 2014.

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. LOANS (Continued)

The following table reflects the contractually required payments receivable, cash flows expected to be collected, and fair value of the credit impaired Peninsula loans at June 30, 2015:

Contractually required payments including interest	$	11,433
Less: nonaccretable difference	(1,509		)
Cash flows expected to be collected	9,924
Less: accretable yield	(503		)
Fair value of credit impaired loans acquired	$	9,421

The following is a summary of impaired loans and their effect on interest income (dollars in thousands):

											Three Months Ended				Six Months Ended
					QTD		YTD				Interest Income		Interest Income		Interest Income		Interest Income
	Nonaccrual		Accrual		Average		Average		Related		Recognized		on		Recognized		on
	Basis		Basis		Investment		Investment		Valuation Reserve		During Impairment		Accrual Basis		During Impairment		Accrual Basis
*June 30, 2015*

*With no valuation reserve:*
Commercial real estate	$	1,418	$	3,328	$	4,862	$	5,607	$	—	$	66	$	83	$	533	$	566
Commercial, financial and agricultural	69		190		229		517		—		2		3		19		21
Commercial construction	—		106		174		281		—		1		1		3		7
One to four family residential real estate	1,291		2,645		4,094		4,708		—		36		52		72		113
Consumer construction	22		—		23		131		—		—		1		—		1
Consumer	29		3		30		21		—		—		—		1		1

*With a valuation reserve:*
Commercial real estate	$	981	$	—	$	981	$	753	$	570	$	—	$	15	$	—	$	20
Commercial, financial and agricultural	4,836		—		5,704		3,599		1,591		—		71		—		90
Commercial construction	—		—		—		—		—		—		—		—		—
One to four family residential real estate	866		—		667		599		82		—		10		—		12
Consumer construction	—		—		—		—		—		—		—		—		—
Consumer	—		—		—		—		—		—		—		—		—

*Total:*
Commercial real estate	$	2,399	$	3,328	$	5,843	$	6,360	$	570	$	66	$	98	$	533	$	586
Commercial, financial and agricultural	4,905		190		5,933		4,116		1,591		2		74		19		111
Commercial construction	—		106		174		281		—		1		1		3		7
One to four family residential real estate	2,157		2,645		4,761		5,307		82		36		62		72		125
Consumer construction	22		—		23		131		—		—		1		—		1
Consumer	29		3		30		21		—		—		—		1		1
Total	$	9,512	$	6,272	$	16,764	$	16,216	$	2,243	$	105	$	236	$	628	$	831

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. LOANS (Continued)

									Interest Income		Interest Income
	Nonaccrual		Accrual		Average		Related		Recognized		on
	Basis		Basis		Investment		Valuation Reserve		During Impairment		Accrual Basis
December 31, 2014

With no valuation reserve:
Commercial real estate	$	632	$	5,352	$	532	$	—	$	—	$	7
Commercial, financial and agricultural	74		702		685		—		—		27
Commercial construction	—		158		11		—		—		—
One to four family residential real estate	1,844		3,877		656		—		—		25
Consumer construction	274		215		15		—		—		—
Consumer	—		8		1		—		—		1

With a valuation reserve:
Commercial real estate	$	227	$	—	$	229	$	227	$	—	$	18
Commercial, financial and agricultural	774		—		1,109		484		—		45
Commercial construction	—		—		—		—		—		—
One to four family residential real estate	114		—		116		9		—		7
Consumer construction	—		—		—		—		—		—
Consumer	—		—		—		—		—		—

Total:
Commercial real estate	$	859	$	5,352	$	761	$	227	$	—	$	25
Commercial, financial and agricultural	848		702		1,794		484		—		72
Commercial construction	—		158		11		—		—		—
One to four family residential real estate	1,958		3,877		772		9		—		32
Consumer construction	274		215		15		—		—		—
Consumer	—		8		1		—		—		1
Total	$	3,939	$	10,312	$	3,354	$	720	$	—	$	130

											Three Months Ended				Six Months Ended
					QTD		YTD				Interest Income		Interest Income		Interest Income		Interest Income
	Nonaccrual		Accrual		Average		Average		Related		Recognized		on		Recognized		on
	Basis		Basis		Investment		Investment		Valuation Reserve		During Impairment		Accrual Basis		During Impairment		Accrual Basis
June 30, 2014

With no valuation reserve:
Commercial real estate	$	278	$	—	$	279	$	304	$	—	$	—	$	4	$	—	$	8
Commercial, financial and agricultural	82		—		97		140		—		—		2		—		4
Commercial construction	—		—		—		—		—		—		—		—		—
One to four family residential real estate	37		—		38		97		—		—		—		—		3
Consumer construction	—		—		—		—		—		—		—		—		—
Consumer	—		—		3		6		—		—		—		—		—

With a valuation reserve:
Commercial real estate	$	176	$	—	$	176	$	176	$	104	$	—	$	3	$	—	$	7
Commercial, financial and agricultural	1,726		—		1,157		918		1,110		—		13		—		20
Commercial construction	—		—		—		—		—		—		—		—		—
One to four family residential real estate	346		—		279		299		100		—		7		—		11
Consumer construction	—		—		—		—		—		—		—		—		—
Consumer	7		—		7		8		1		—		—		—		—

Total:
Commercial real estate	$	454	$	—	$	455	$	480	$	104	$	—	$	7	$	—	$	15
Commercial, financial and agricultural	1,808		—		1,254		1,058		1,110		—		15		—		24
Commercial construction	—		—		—		—		—		—		—		—		—
One to four family residential real estate	383		—		317		396		100		—		7		—		14
Consumer construction	—		—		—		—		—		—		—		—		—
Consumer	7		—		10		14		1		—		—		—		—
Total	$	2,652	$	—	$	2,036	$	1,948	$	1,315	$	—	$	29	$	—	$	53

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. LOANS (Continued)

A summary of past due loans at June 30, 2015, December 31, 2014 and June 30, 2014 is as follows (dollars in thousands):

	June 30,						December 31,						June 30,
	2015						2014						2014
	30-89 days		90+ days				30-89 days		90+ days				30-89 days		90+ days
	Past Due		Past Due/				Past Due		Past Due/				Past Due		Past Due/
	(accruing)		Nonaccrual		Total		(accruing)		Nonaccrual		Total		(accruing)		Nonaccrual		Total

Commercial real estate	$	963	$	2,398	$	3,361	$	1,857	$	859	$	2,716	$	602	$	454	$	1,056
Commercial, financial and agricultural	1		4,905		4,906		104		848		952		5		1,808		1,813
Commercial construction	271		—		271		—		—		—		—		—		—
One to four family residential real estate	1,104		2,297		3,401		1,412		1,958		3,370		141		383		524
Consumer construction	—		23		23		38		274		312		—		—		—
Consumer	30		29		59		88		—		88		57		7		64

Total past due loans	$	2,369	$	9,652	$	12,021	$	3,499	$	3,939	$	7,438	$	805	$	2,652	$	3,457

A roll-forward of nonperforming loan activity for the three months ended June 30, 2015 (dollars in thousands):

	For the Three Months Ended June 30, 2015
				Commercial,						One to four
	Commercial			Financial and			Commercial			family residential			Consumer
	Real Estate			Agricultural			Construction			real estate			Construction		Consumer			Total

NONACCRUAL

Beginning balance	$	2,418		$	6,998		$	266		$	2,067		$	23	$	29		$	11,801

Principal payments	(26		)	(1,993		)	—			(35		)	—		(8		)	(2,062		)
Charge-offs	—			(100		)	(266		)	(113		)	—		(9		)	(488		)
Advances	—			—			—			—			—		—			—
Class transfers	—			—			—			—			—		—			—
Transfers to OREO	—			—			—			(150		)	—		—			(150		)
Transfers to accruing	—			—			—			—			—		—			—
Transfers from accruing	—			—			—			380			—		17			397
Other	6			—						8			—		—			14

Ending balance	$	2,398		$	4,905		$	—		$	2,157		$	23	$	29		$	9,512

A roll-forward of nonperforming loan activity for the three months ended June 30, 2014 (dollars in thousands):

	For the Three Months Ended June 30, 2014
				Commercial,					One to four
	Commercial			Financial and			Commercial		family residential			Consumer
	Real Estate			Agricultural			Construction		real estate			Construction		Consumer			Total

NONACCRUAL

Beginning balance	$	455		$	730		$	—	$	299		$	—	$	7		$	1,491

Principal payments	(3		)	(63		)	—		(14		)	—		—			(80		)
Charge-offs	—			—			—		—			—		(6		)	(6		)
Advances	—			—			—		—			—		—			—
Class transfers	—			—			—		—			—		—			—
Transfers to OREO	—			—			—		—			—		—			—
Transfers to accruing	—			—			—		—			—		—			—
Transfers from accruing	—			1,139			—		89			—		6			1,234
Other	2			2			—		9			—		—			13

Ending balance	$	454		$	1,808		$	—	$	383		$	—	$	7		$	2,652

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. LOANS (Continued)

A roll-forward of nonperforming loan activity for the first six months ended June 30, 2015 (dollars in thousands):

	For the Six Months Ended June 30, 2015
				Commercial,						One to four
	Commercial			Financial and			Commercial			family residential			Consumer
	Real Estate			Agricultural			Construction			real estate			Construction			Consumer			Total

NONACCRUAL

Beginning balance	$	859		$	848		$	—		$	1,958		$	274		$	—		$	3,939

Principal payments	(101		)	(1,996		)	—			(56		)	—			(8		)	(2,161		)
Charge-offs	—			(100		)	(266		)	(113		)	—			(9		)	(488		)
Advances	—			—			—			—			—			—			—
Class transfers	—			—			250			—			(250		)	—			—
Transfers to OREO	—			—			—			(229		)	—			—			(229		)
Transfers to accruing	(419		)	—			—			(60		)	—			—			(479		)
Transfers from accruing	2,030			6,153			—			643			—			46			8,872
Other	29			—			16			14			(1		)	—			58

Ending balance	$	2,398		$	4,905		$	—		$	2,157		$	23		$	29		$	9,512

A roll-forward of nonperforming loan activity for the first six months ended June 30, 2014 (dollars in thousands):

	For the Six Months Ended June 30, 2014
				Commercial,					One to four
	Commercial			Financial and			Commercial		family residential			Consumer
	Real Estate			Agricultural			Construction		real estate			Construction		Consumer			Total

NONACCRUAL

Beginning balance	$	572		$	811		$	—	$	611		$	—	$	30		$	2,024

Principal payments	(102		)	(81		)	—		(22		)	—		(4		)	(209		)
Charge-offs	—			(53		)	—		(3		)	—		(25		)	(81		)
Advances	—			—			—		—			—		—			—
Class transfers	—			—			—		—			—		—			—
Transfers to OREO	(26		)	—			—		(256		)	—		—			(282		)
Transfers to accruing	—			(10		)	—		(127		)	—		—			(137		)
Transfers from accruing	—			1,139			—		171			—		6			1,316
Other	10			2			—		9			—		—			21

Ending balance	$	454		$	1,808		$	—	$	383		$	—	$	7		$	2,652

A roll-forward of nonperforming loan activity during the year ended December 31, 2014 (dollars in thousands):

				Commercial,					One to four
	Commercial			Financial and			Commercial		family residential			Consumer
	Real Estate			Agricultural			Construction		real estate			Construction		Consumer			Total

NONACCRUAL

Beginning balance	$	572		$	811		$	—	$	611		$	—	$	30		$	2,024

Principal payments	(104		)	(692		)	—		(35		)	—		(4		)	(835		)
Charge-offs	(18		)	(435		)	—		(206		)	—		(32		)	(691		)
Advances	—			—			—		—			—		—			—
Transfers to OREO	(233		)	—			—		(357		)	—		—			(590		)
Transfers to accruing	—			(10		)	—		(127		)	—		—			(137		)
Transfers from accruing	—			1,167			—		685			—		6			1,858
Acquired impaired loans	632			—			—		1,375			274		—			2,281
Other	10			7			—		12			—		—			29

Ending balance	$	859		$	848		$	—	$	1,958		$	274	$	—		$	3,939

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. LOANS (Continued)

Troubled Debt Restructuring

Troubled debt restructurings (“TDR”) are determined on a loan-by-loan basis. Generally restructurings are related to interest rate reductions, loan term extensions and short term payment forbearance as means to maximize collectability of troubled credits. If a portion of the TDR loan is uncollectible (including forgiveness of principal), the uncollectible amount will be charged off against the allowance at the time of the restructuring. In general, a borrower must make at least six consecutive timely payments before the Corporation would consider a return of a restructured loan to accruing status in accordance with FDIC guidelines regarding restoration of credits to accrual status.

The Corporation has, in accordance with generally accepted accounting principles and per recently enacted accounting standard updates, evaluated all loan modifications to determine the fair value impact of the underlying asset. The carrying amount of the loan is compared to the expected payments to be received, discounted at the loan’s original rate, or for collateral dependent loans, to the fair value of the collateral.

A summary of troubled debt restructurings for the periods indicated is as follows (dollars in thousands):

	Six months ended			Twelve months ended			Six months ended
	June 30,			December 31,			June 30,
	2015			2014			2014
	Number of	Recorded		Number of	Recorded		Number of	Recorded
	Modifications	Investment		Modifications	Investment		Modifications	Investment

Commercial real estate	3	$	1,216	—	$	—	—	$	—
Commercial, financial and agricultural	3	268		—	—		—	—
Commercial construction	4	266		—	—		—	—
One to four family residential real estate	20	1,538		1	89		1	89
Consumer construction	—	—		—	—		—	—
Consumer	—	—		—	—		—	—

Total troubled debt restructurings	30	$	3,288	1	$	89	1	$	89

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. LOANS (Continued)

A roll-forward of troubled debt restructuring during the three months ended June 30, 2015 (dollars in thousands):

				Commercial,						One to four			Consumer and
	Commercial			Financial and			Commercial			family residential			Consumer
	Real Estate			Agricultural			Construction			real estate			Construction		Total
ACCRUING

Beginning balance	$	1,654		$	1,454		$	849		$	1,303		$	—	$	5,260

Principal payments	(7		)	(13		)	(5		)	(14		)	—		(39		)
Charge-offs	—			—			—			—			—		—
Advances	—			—			—			—			—		—
New restructured	—			—			—			—			—		—
Transferred out of TDR	—			—			—			—			—		—
Transfers to nonaccrual	—			—			—			(60		)	—		(60		)

Ending Balance	$	1,647		$	1,441		$	844		$	1,229		$	—	$	5,161

NONACCRUAL

Beginning balance	$	569		$	—		$	266		$	295		$	—	$	1,130

Principal payments	(93		)	—			(266		)	(9		)	—		(368		)
Charge-offs	—			—			—			—			—		—
Advances	—			—			—			—			—		—
New restructured	—			—			—			—			—		—
Transfers to foreclosed properties	—			—			—			—			—		—
Transfers from accruing	—			—			—			60			—		60

Ending Balance	$	476		$	—		$	—		$	346		$	—	$	822

TOTALS

Beginning balance	$	2,223		$	1,454		$	1,115		$	1,598		$	—	$	6,390

Principal payments	(100		)	(13		)	(271		)	(23		)	—		(407		)
Charge-offs	—			—			—			—			—		—
Advances	—			—			—			—			—		—
New restructured	—			—			—			—			—		—
Transfers out of TDRs	—			—			—			—			—		—
Tansfers to nonaccrual	—			—			—			(60		)	—		(60		)
Transfers to foreclosed properties	—			—			—			—			—		—
Transfers from accruing	—			—			—			60			—		60

Ending Balance	$	2,123		$	1,441		$	844		$	1,575		$	—	$	5,983

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. LOANS (Continued)

A roll-forward of troubled debt restructuring during the three months ended June 30, 2014 (dollars in thousands):

				Commercial,				One to four			Consumer and
	Commercial			Financial and		Commercial		family residential			Consumer
	Real Estate			Agricultural		Construction		real estate			Construction		Total
ACCRUING

Beginning balance	$	1,009		$	1,186	$	858	$	187		$	—	$	3,240

Principal payments	(2		)	—		—		—			—		(2		)
Charge-offs	—			—		—		—			—		—
Advances	—			—		—		—			—		—
New restructured	—			—		—		—			—		—
Transferred out of TDR	—			—		—		—			—		—
Transfers to nonaccrual	—			—		—		(89		)	—		(89		)

Ending Balance	$	1,007		$	1,186	$	858	$	98		$	—	$	3,149

NONACCRUAL

Beginning balance	$	—		$	508	$	—	$	—		$	—	$	508

Principal payments	—			—		—		—			—		—
Charge-offs	—			—		—		—			—		—
Advances	—			—		—		—			—		—
New restructured	—			—		—		—			—		—
Transfers to foreclosed properties	—			—		—		—			—		—
Transfers from accruing	—			—		—		89			—		89

Ending Balance	$	—		$	508	$	—	$	89		$	—	$	597

TOTALS

Beginning balance	$	1,009		$	1,694	$	858	$	187		$	—	$	3,748

Principal payments	(2		)	—		—		—			—		(2		)
Charge-offs	—			—		—		—			—		—
Advances	—			—		—		—			—		—
New restructured	—			—		—		—			—		—
Transfers out of TDRs	—			—		—		—			—		—
Tansfers to nonaccrual	—			—		—		(89		)	—		(89		)
Transfers to foreclosed properties	—			—		—		—			—		—
Transfers from accruing	—			—		—		89			—		89

Ending Balance	$	1,007		$	1,694	$	858	$	187		$	—	$	3,746

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. LOANS (Continued)

A roll-forward of troubled debt restructuring during the six months ended June 30, 2015 (dollars in thousands):

				Commercial,						One to four			Consumer and
	Commercial			Financial and			Commercial			family residential			Consumer
	Real Estate			Agricultural			Construction			real estate			Construction		Total
ACCRUING

Beginning balance	$	1,007		$	1,186		$	852		$	60		$	—	$	3,105

Principal payments	(7		)	(13		)	(8		)	(14		)	—		(42		)
Charge-offs	—			—			—			—			—		—
Advances	—			—			—			—			—		—
New restructured	647			268			—			1,243			—		2,158
Transferred out of TDRs	—			—			—			—			—		—
Transfers from accruing	—			—			—			—			—		—
Transfers to nonaccruing	—			—			—			(60		)	—		(60		)

Ending Balance	$	1,647		$	1,441		$	844		$	1,229		$	—	$	5,161

NONACCRUAL

Beginning balance	$	—		$	—		$	—		$	—		$	—	$	—

Principal payments	(93		)	—			(266		)	(9		)	—		(368		)
Charge-offs	—			—			—			—			—		—
Advances	—			—			—			—			—		—
New restructured	569			—			266			295			—		1,130
Transfers to accruing	—			—			—			—			—		—
Transfers from accruing	—			—			—			60			—		60

Ending Balance	$	476		$	—		$	—		$	346		$	—	$	822

TOTALS

Beginning balance	$	1,007		$	1,186		$	852		$	60		$	—	$	3,105

Principal payments	(100		)	(13		)	(274		)	(23		)	—		(410		)
Charge-offs	—			—			—			—			—		—
Advances	—			—			—			—			—		—
New restructured	1,216			268			266			1,538			—		3,288
Transfers out of TDR	—			—			—			—			—		—
Transfers to nonaccrual	—			—			—			(60		)	—		(60		)
Transfers to accruing	—			—			—			60			—		60
Transfer from accruing	—			—			—			—			—		—

Ending Balance	$	2,123		$	1,441		$	844		$	1,575		$	—	$	5,983

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. LOANS (Continued)

A roll-forward of troubled debt restructuring during the six months ended June 30, 2014 (dollars in thousands):

				Commercial,					One to four			Consumer and
	Commercial			Financial and			Commercial		family residential			Consumer
	Real Estate			Agricultural			Construction		real estate			Construction		Total
ACCRUING

Beginning balance	$	3,520		$	1,186		$	858	$	99		$	—	$	5,663

Principal payments	(2,513		)	—			—		(3		)	—		(2,516		)
Charge-offs	—													—
Advances	—													—
New restructured	—													—
Transferred out of TDRs	—													—
Transfers from accruing	—			—			—		91			—		91
Transfers to nonaccruing	—			—			—		(89		)	—		(89		)

Ending Balance	$	1,007		$	1,186		$	858	$	98		$	—	$	3,149

NONACCRUAL

Beginning balance	$	—		$	523		$	—	$	91		$	—	$	614

Principal payments	—			(15		)	—		—			—		(15		)
Charge-offs	—			—			—		—			—		—
Advances	—			—			—		—			—		—
New restructured	—			—			—		—			—		—
Transfers to accruing	—			—			—		(91		)	—		(91		)
Transfers from accruing	—			—			—		89			—		89

Ending Balance	$	—		$	508		$	—	$	89		$	—	$	597

TOTALS

Beginning balance	$	3,520		$	1,709		$	858	$	190		$	—	$	6,277

Principal payments	(2,513		)	(15		)	—		(3		)	—		(2,531		)
Charge-offs	—			—			—		—			—		—
Advances	—			—			—		—			—		—
New restructured	—			—			—		—			—		—
Transfers out of TDR	—			—			—		—			—		—
Transfers to nonaccrual	—			—			—		(89		)	—		(89		)
Transfers to accruing	—			—			—		89			—		89
Transfer from accruing	—			—			—		—			—		—

Ending Balance	$	1,007		$	1,694		$	858	$	187		$	—	$	3,746

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. LOANS (Continued)

A roll-forward of troubled debt restructuring during the year ended December 31, 2014 (dollars in thousands):

				Commercial,						One to four			Consumer and
	Commercial			Financial and			Commercial			family residential			Consumer
	Real Estate			Agricultural			Construction			real estate			Construction		Total
ACCRUING

Beginning balance	$	3,520		$	1,186		$	858		$	99		$	—	$	5,663

Principal payments	(2,513		)	—			(6		)	(4		)	—		(2,523		)
Charge-offs	—			—			—			(37		)	—		(37		)
Advances	—			—			—			—			—		—
New restructured	—			—			—			—			—		—
Transferred out of TDR	—			—			—			91			—		91
Transfers to nonaccrual	—			—			—			(89		)	—		(89		)

Ending Balance	$	1,007		$	1,186		$	852		$	60		$	—	$	3,105

NONACCRUAL

Beginning balance	$	—		$	523		$	—		$	91		$	—	$	614

Principal payments	—			(319		)	—			—			—		(319		)
Charge-offs	—			(204		)	—			(37		)	—		(241		)
Advances	—			—			—			—			—		—
New restructured	—			—			—			—			—		—
Transfers to foreclosed properties	—			—			—			(143		)	—		(143		)
Transfers from accruing	—			—			—			89			—		89

Ending Balance	$	—		$	—		$	—		$	—		$	—	$	—

TOTALS

Beginning balance	$	3,520		$	1,709		$	858		$	190		$	—	$	6,277

Principal payments	(2,513		)	(319		)	(6		)	(4		)	—		(2,842		)
Charge-offs	—			(204		)	—			(74		)	—		(278		)
Advances	—			—			—			—			—		—
New restructured	—			—			—			—			—		—
Transfers out of TDRs	—			—			—			91			—		91
Tansfers to nonaccrual	—			—			—			(89		)	—		(89		)
Transfers to foreclosed properties	—			—			—			(143		)	—		(143		)
Transfers from accruing	—			—			—			89			—		89

Ending Balance	$	1,007		$	1,186		$	852		$	60		$	—	$	3,105

The above includes loans with revolving privileges which are scoped out of ASC 310-30 and certain loans which the Corporation elected to treat under the cost recovery method of accounting.

Loans were recorded at fair value in accordance with FASB ASC 805, Business Combinations. No allowance for loan losses related to the acquired loans is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit. Loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC 820. The fair value estimated associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows.

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. LOANS (Continued)

Insider Loans

The Bank, in the ordinary course of business, grants loans to the Corporation’s executive officers and directors, including their families and firms in which they are principal owners. Activity in such loans is summarized below (dollars in thousands):

	Six months ended			Year ended			Six months ended
	June 30,			December 31,			June 30,
	2015			2014			2014

Loans outstanding, beginning of period	$	8,789		$	9,043		$	9,043
New loans	—			33			—
Net activity on revolving lines of credit	110			1,390			1,178
Principal payments	(2,539		)	(1,677		)	(1,523		)

Loans outstanding, end of period	$	6,360		$	8,789		$	8,698

There were no loans to related parties classified substandard as of June 30, 2015, December 31, 2014 or June 30, 2014. In addition to the outstanding balances above, there were unfunded commitments of $3.255 million to related parties at June 30, 2015.

6. GOODWILL AND OTHER INTANGIBLE ASSETS

During the fourth quarter of 2014, the Corporation recorded $3.805 million of goodwill and $1.206 million of deposit based intangible assets associated with the acquisition of Peninsula.

The excess of the cost of acquired entities over the fair value of identifiable assets acquired less liabilities assumed is recorded as goodwill. In accordance with FASB ASC 350 (SFAS No. 142, Goodwill and Other Intangible Assets), amortization of goodwill and indefinite-lived assets is not recorded. However, the recoverability of goodwill and other intangible assets are annually tested for impairment. Intangible assets, including core deposits and customer business relationships, are amortized primarily on straight-line basis over their estimated useful lives. The Corporation is currently amortizing the deposit based intangible over a ten-year estimated life.

The deposit based intangible is reported net of accumulated amortization at $1.136 million at June 30, 2015. Amortization expense in the first half of 2015 is $.060 million. Amortization expense for the next five years is expected to be at $.121 million per year.

7. SERVICING RIGHTS

Mortgage Loans

Mortgage servicing rights (“MSRs”) are recorded when loans are sold in the secondary market with servicing retained. As of June 30, 2015, the Corporation had obligations to service approximately $227.552 million of residential first mortgage loans. The valuation is based upon the net present value of the projected revenues over the expected life of the loans being serviced, as reduced by estimated internal costs to service these loans. The fair value of the capitalized servicing rights approximates the carrying value. The key economic assumptions used in determining the fair value of the mortgage servicing rights include an annual constant prepayment speed of 9.34% and a discount rate of 9.19% for June 30, 2015.

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7. SERVICING RIGHTS (CONTINUED)

The following summarizes mortgage servicing rights capitalized and amortized, along with the aggregate activity in related valuation allowances (dollars in thousands):

	Six Months Ended			Year Ended			Six Months Ended
	June 30,			December 31,			June 30,
	2015			2014			2014

Balance at beginning of period	$	1,994		$	1,129		$	1,129
Additions from loans sold with servicing retained	200			636			75
MSRs acquired in Peninsula transaction	—			539			—
Amortization	(259		)	(310		)	(143		)

Balance at end of period	$	1,935		$	1,994		$	1,061

Commercial Loans

The Corporation also retains the servicing on commercial loans that have been sold. These loans were originated and underwritten under the SBA and USDA government guarantee programs, in which the guaranteed portion of the loan was sold to a third party with servicing retained. The balance of these sold loans with servicing retained at June 30, 2015 and June 30, 2014 was approximately $66 million and $60 million. The Corporation valued these servicing rights at $.185 million as of June 30, 2015 and June 30, 2014. This valuation was established in consideration of the discounted cash flow of expected servicing income over the life of the loans.

8. BORROWINGS

Borrowings consist of the following at June 30, 2015, December 31, 2014 and June 30, 2014 (dollars in thousands):

	June 30,		December 31,		June 30,
	2015		2014		2014

Federal Home Loan Bank fixed rate advances at June 30, 2015 with a weighted average rate of 1.68% maturing in 2016, 2018 and 2019	$	35,000	$	35,000	$	35,000

Correspondent bank line of credit - holding company	10,000		8,000		500

Bank line of credit - wholly-owned asset based lending subsidiary	1,205		3,367		2,835

Correspondent bank term note, current floor rate of 4%, maturing December 28, 2017	2,500		2,700		2,900

USDA Rural Development, fixed-rate note payable, maturing August 24, 2024, interest payable at 1%	778		779		852

	$	49,483	$	49,846	$	42,087

The Federal Home Loan Bank borrowings are collateralized at June 30, 2015 by the following: a collateral agreement on the Corporation’s one to four family residential real estate loans with a book value of approximately $39.095 million, mortgage related and municipal securities with an amortized cost and fair value of $4.276 million and $4.456 million, respectively; and Federal Home Loan Bank stock owned by the Bank totaling $2.169 million. Prepayment of the advances is subject to the provisions and conditions of the credit policy of the Federal Home Loan Bank of Indianapolis in effect as of June 30, 2015.

The USDA Rural Development borrowing is collateralized by loans totaling $.118 million originated and held by the Corporation’s wholly owned subsidiary, First Rural Relending, and an assignment of a demand deposit account in the amount of $.732 million, and guaranteed by the Corporation.

The Corporation currently has two banking borrowing relationships. The first relationship consists of a non-revolving line of credit and a term note. The line of credit bears interest at 90-day LIBOR plus 2.75%, with a floor rate of 4.00% and has an initial term that expires on December 28, 2017. The term note bears the same interest and matures on March 22, 2017 and requires quarterly principal payments of $100,000 beginning June 30, 2014. This relationship is secured by all of the outstanding mBank stock. The second borrowing relationship consists of a $10 million revolving line of credit, which can be increased to $25 million upon request, used to support asset based lending activities at a wholly-owned subsidiary that currently bears interest at 90-day LIBOR plus 2.75% and has an initial term that expires on September 10, 2016. This line of credit it secured by an assignment of all collateral securing the outstanding loan balances of our asset based lending subsidiary.

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9. DEFINED BENEFIT PENSION PLAN

The Corporation acquired the Peninsula Financial Corporation noncontributory defined benefit pension plan. Effective December 31, 2005, the plan was amended to freeze participation in the plan; therefore, no additional employees are eligible to become participants in the plan. The benefits are based on years of service and the employee’s compensation at the time of retirement. The Plan was amended effective December 31, 2010, to freeze benefit accrual for all participants. Expected contributions to the Plan in 2015 are $.114 million. The anticipated distributions over the next five years and thereafter are detailed in the table below:

2015	$	132,026
2016	130,003
2017	127,902
2018	128,608
2019	126,361
Thereafter	701,944
Total	$	1,346,844

At June 30, 2015, the plan’s assets had a fair value of $2.107 million and the Corporation had a net liability of $1.183 million. The accumulated benefit obligation was $3.290 million.

Assumptions in the actuarial valuation are:

	2015

Weighted average discount rate	3.98	%
Rate of increase in future compensation levels	N/A
Expected long-term rate of return on plan assets	8.00	%

The expected long-term rate of return on plan assets reflects management’s expectations of long-term average rates of return on funds invested to provide for benefits included in the projected benefit obligation. The expected return is based on the outlook for inflation, fixed income returns and equity returns, while also considering historical returns, asset allocation and investment strategy. The discount rate assumption is based on investment yields available on AA rated long-term corporate bonds.

The primary investment objective is to maximize growth of the pension plan assets to meet the projected obligations to the beneficiaries over a long period of time, and to do so in a manner that is consistent with the Corporation’s risk tolerance. The intention of the plan sponsor is to invest the plan assets in mutual funds with the following asset allocation:

	Target	Actual
	Allocation	Allocation

Equity securities	50% to 70%	60	%
Deb securitites	30% to 50%	40	%

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10. STOCK COMPENSATION PLANS

Restricted Stock Awards

The Corporation’s restricted stock awards require certain service-based or performance requirements and have a vesting period of four years. Compensation expense is recognized on a straight-line basis over the vesting period. Shares are subject to certain restrictions and risk of forfeiture by the participants.

The Corporation, in August 2012 and March 2014, granted Restricted Stock Units (“RSUs”) to members of the Board of Directors and Management. In August 2012, 148,500 RSUs were granted at a market value of $7.91 and will vest equally over a four year term. In exchange for the grant of these RSUs various previously issued stock option awards were surrendered. In March 2014, 52,774 RSUs were granted at a market value of $12.95, also vesting equally over a four year term. In March 2015, 37,730 RSUs were granted at a market value of $11.15, also vesting over a four year term. The RSUs were awarded at no cost to the employee. Compensation cost to be recognized over the four year vesting periods, is $1.175 million, $.683 million and $.421 million, respectively. On August 31, 2013 and 2014, the Corporation issued 37,125 shares and 37,125 shares of its common stock for vested RSUs, respectively. In March 2015, the Corporation issued 13,194 shares of its common stock for vested RSUs. In May, 2015, the Corporation granted 3,000 shares, which were immediately vested and issued.

A summary of changes in our nonvested shares for the year follows:

			Weighted Average
	Number		Grant Date
	Outstanding		Fair Value

Nonvested balance at January 1, 2015	127,024		$	10.07
Granted during the period	40,730		11.15
Vested during the period	(16,194	)	12.95
Nonvested balance at June 30, 2015	151,560		$	10.03

A summary of stock option transactions for the six months ended June 30, 2015 and 2014, and the year ended December 31, 2014, is as follows:

	June 30,			December 31,			June 30,
	2015			2014			2014

Outstanding shares at beginning of year	20,000			237,152			237,152
Granted during the period	—			—			—
Exercised during the period				(70,502		)	—
Expired / forfeited during the period	(10,000		)	(146,650		)	—

Outstanding shares at end of period	10,000			20,000			237,152

Exercisable shares at end of period	2,000			4,000			124,861

Weighted average exercise price per share at end of period	$	10.65		$	11.33		$	9.80

Shares available for grant at end of period	—			—			—

There were no options granted in the first six months of 2015 and 2014.

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10. STOCK COMPENSATION PLANS (Continued)

Following is a summary of the options outstanding and exercisable at June 30, 2015:

					Weighted Average
Exercise		Number			Remaining
Price		Outstanding	Exercisable	Unvested Options	Contractual Life-Years

$	10.65	10,000	2,000	8,000	1.46

Options issued since the Corporation’s recapitalization in December of 2004 call for 20% immediate vesting upon issue and subsequent vesting to occur over a two to five year period, based upon the market value appreciation of the underlying Corporation’s stock. Compensation related to these options was expensed based upon the vesting period without consideration given to market value appreciation. There are no future compensation expenses related to existing option programs.

11. INCOME TAXES

A valuation allowance is provided against deferred tax assets when it is more likely than not that some or all of the deferred tax asset will not be realized. The net operating loss carryforwards expire twenty years from the date they originated. These carryforwards, if not utilized, will begin to expire in the year 2023. A portion of the NOL and all of the credit carryforwards are subject to the limitations for utilization as set forth in Section 382 of the Internal Revenue Code. The annual limitation is $1.400 million for the NOL and the equivalent value of tax credits, which is approximately $.476 million. These limitations for use were established in conjunction with the recapitalization of the Corporation in December 2004.

The Corporation has reported deferred tax assets of $10.013 million at June 30, 2015, which is net of a valuation allowance of $.760 million. Management evaluated the deferred tax valuation allowance as of June 30, 2015 and determined that no adjustment to the valuation was warranted. The remaining valuation allowance pertains to the existing tax credit carryovers, which will only be utilized after all net operating loss carryforwards. Since a portion of these tax credits may expire before that occurs, a valuation allowance for these has been established. The Corporation will continue to evaluate the future benefits from these carryforwards in order to determine if any adjustment to the deferred tax asset is warranted.

12. FAIR VALUE MEASUREMENTS

Fair value estimates, methods, and assumptions are set forth below for the Corporation’s financial instruments:

Cash, cash equivalents, and interest-bearing deposits - The carrying values approximate the fair values for these assets.

Securities - Fair values are based on quoted market prices where available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Federal Home Loan Bank stock — Federal Home Loan Bank stock is carried at cost, which is its redeemable value and approximates its fair value, since the market for this stock is limited.

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12. FAIR VALUE MEASUREMENTS (Continued)

Loans - Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, residential mortgage, and other consumer. The fair value of loans is calculated by discounting scheduled cash flows using discount rates reflecting the credit and interest rate risk inherent in the loan.

The methodology in determining fair value of nonaccrual loans is to average them into the blended interest rate at 0% interest. This has the effect of decreasing the carrying amount below the risk-free rate amount and, therefore, discounts the estimated fair value.

Impaired loans are measured at the estimated fair value of the expected future cash flows at the loan’s effective interest rate or the fair value of the collateral for loans which are collateral dependent. Therefore, the carrying values of impaired loans approximate the estimated fair values for these assets.

Deposits - The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits and savings, is equal to the amount payable on demand at the reporting date. The fair value of time deposits is based on the discounted value of contractual cash flows applying interest rates currently being offered on similar time deposits.

Borrowings - Rates currently available for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt. The fair value of borrowed funds due on demand is the amount payable at the reporting date.

Accrued interest - The carrying amount of accrued interest approximates fair value.

Off-balance-sheet instruments - The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the current interest rates, and the present creditworthiness of the counterparties. Since the differences in the current fees and those reflected to the off-balance-sheet instruments at year-end are immaterial, no amounts for fair value are presented.

The following table presents information for financial instruments at June 30, 2015, December 31, 2014 and June 30, 2014 (dollars in thousands):

		June 30, 2015				December 31, 2014				June 30, 2014
	Level in Fair	Carrying		Estimated		Carrying		Estimated		Carrying		Estimated
	Value Hierarchy	Amount		Fair Value		Amount		Fair Value		Amount		Fair Value

Financial assets:
Cash and cash equivalents	Level 1	$	16,661	$	16,661	$	21,947	$	21,947	$	20,746	$	20,746
Interest-bearing deposits	Level 2	5,338		5,338		5,797		5,797		235		235
Securities available for sale	Level 2	60,561		60,561		65,832		65,832		47,374		47,374
Federal Home Loan Bank stock	Level 2	2,169		2,169		2,973		2,973		3,060		3,060
Net loans	Level 3	609,647		610,364		595,795		596,429		497,843		499,609
Accrued interest receivable	Level 3	1,749		1,680		1,680		1,680		1,485		1,485

Total financial assets		$	696,125	$	696,773	$	694,024	$	694,658	$	570,743	$	572,509

Financial liabilities:
Deposits	Level 2	$	588,821	$	588,105	$	606,973	$	606,534	$	484,016	$	485,230
Borrowings	Level 2	49,483		50,123		49,846		50,280		42,087		42,699
Accrued interest payable	Level 3	229		205		205		205		186		186

Total financial liabilties		$	638,533	$	638,433	$	657,024	$	657,019	$	526,289	$	528,115

Limitations - Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Corporation’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Corporation’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12. FAIR VALUE MEASUREMENTS (Continued)

matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on-and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include premises and equipment, other assets, and other liabilities. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

The following is information about the Corporation’s assets and liabilities measured at fair value on a recurring basis at June 30, 2015, and the valuation techniques used by the Corporation to determine those fair values.

Level 1: In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to access.

Level 2: Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3: Level 3 inputs are unobservable inputs, including inputs available in situations where there is little, if any, market activity for the related asset or liability.

The fair value of all investment securities at June 30, 2015 and June 30, 2014 were based on level 2 inputs. There are no other assets or liabilities measured on a recurring basis at fair value. For additional information regarding investment securities, please refer to “Note 4 Investment Securities.”

The Corporation had no Level 3 assets or liabilities on a recurring basis as of June 30, 2015, December 31, 2014 or June 30, 2014.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Corporation’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

The Corporation also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include loans and other real estate owned. The Corporation has estimated the fair values of these assets using Level 3 inputs, specifically discounted cash flow projections.

Assets Measured at Fair Value on a Nonrecurring Basis at June 30, 2015

Quoted Prices

Significant

in Active Markets

Other Observable

Unobservable

Total Losses for

Balance at

for Identical Assets

Inputs

Three Months Ended

Six Months Ended

(dollars in thousands)

June 30, 2015

(Level 1)

(Level 2)

(Level 3)

June 30, 2015

Assets

Impaired loans

15,784

—

15,784

142

Other real estate owned

2,392

—

2,392

162

179

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12. FAIR VALUE MEASUREMENTS (Continued)

Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2014

(dollars in thousands)	Balance at December 31, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses for Year Ended December 31, 2014
Assets

Impaired loans	$	1,658	$	—	$	—	$	1,658	$	857
Other real estate owned	3,010		—		—		3,010		280
									$	1,137

Assets Measured at Fair Value on a Nonrecurring Basis at June 30, 2014

			Quoted Prices		Significant		Significant
			in Active Markets		Other Observable		Unobservable		Total Losses for		Total Losses for
	Balance at		for Identical Assets		Inputs		Inputs		Three Months Ended		Six Months Ended
(dollars in thousands)	June 30, 2014		(Level 1)		(Level 2)		(Level 3)		June 30, 2014		June 30, 2014
Assets

Impaired loans	$	2,652	$	—	$	—	$	2,652	$	22	$	430
Other real estate owned	1,947		—		—		1,947		14		14
									$	36	$	444

The Corporation had no investments subject to fair value measurement on a nonrecurring basis.

Impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Corporation estimates the fair value of the loans based on the present value of expected future cash flows using management’s best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals).

13. SHAREHOLDERS’ EQUITY

In December 2014, the Corporation consummated the previously announced acquisition of Peninsula Financial Corporation with a combination of cash and MFNC stock. Peninsula Financial Corporation was a bank holding company with The Peninsula Bank as its wholly-owned subsidiary. Peninsula was headquartered in Ishpeming, Michigan with six branch locations. The purchase price of the acquisition was $12.420 million with a combination of cash and MFNC common stock. MFNC issued 695,361 shares of its common stock and an increase shareholder equity of $7.804 million in recording this transaction, after the reduction for issuance costs of $.130 million. The Corporation recorded assets with a fair value of $112.766 million, including loans of $67.139 million, as well as $100.950 million of deposits.

The Corporation currently has a share repurchase program. The program is conducted under authorizations from time to time by the Board of Directors. The Corporation repurchased 43,700 shares thus far in 2015, 13,700 shares in 2014 and 55,594 shares in 2013. The share repurchases were conducted under Board authorizations made and publically announced of $600,000 on February 27, 2013, an additional $600,000 on December 17, 2013 and an additional $750,000 on April 28, 2015. None of these authorizations has an expiration date.

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

14. COMMITMENTS, CONTINGENCIES AND CREDIT RISK

Financial Instruments With Off-Balance-Sheet Risk

The Corporation is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

The Corporation’s exposure to credit loss, in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit, is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. These commitments are as follows (dollars in thousands):

	June 30,		December 31,		June 30,
	2015		2014		2014
Commitments to extend credit:
Variable rate	$	57,269	$	44,134	$	54,048
Fixed rate	23,892		24,191		18,604
Standby letters of credit - Variable rate	6,281		6,072		5,742
Credit card commitments - Fixed rate	3,397		3,267		3,234

	$	90,839	$	77,664	$	81,628

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The commitments are structured to allow for 100% collateralization on all standby letters of credit.

Credit card commitments are commitments on credit cards issued by the Corporation’s subsidiary and serviced by other companies. These commitments are unsecured.

Legal Proceedings and Contingencies

In the normal course of business, the Corporation is involved in various legal proceedings. For expanded discussion on the Corporation’s legal proceedings, see Part II, Item 1, “Legal Proceedings” in this report.

Concentration of Credit Risk

The Bank grants commercial, residential, agricultural, and consumer loans throughout Michigan. The Bank’s most prominent concentration in the loan portfolio relates to commercial real estate loans to operators of nonresidential buildings. This concentration at June 30, 2015 represents $102.380 million, or 22.90%, compared to $103.598 million, or 27.66%, of the commercial loan portfolio on June 30, 2014. The remainder of the commercial loan portfolio is diversified in such categories as hospitality and tourism, real estate agents and managers, new car dealers, gaming, petroleum, forestry, agriculture and construction. Due to the diversity of the Bank’s locations, the ability of debtors of residential and consumer loans to honor their obligations is not tied to any particular economic sector.

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Forward Looking Statements/Risk Factors

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Corporation intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of these safe harbor provisions. Forward-looking statements which are based on certain assumptions and describe future plans, strategies, or expectations of the Corporation, are generally identifiable by use of the words “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project”, or similar expressions. The Corporation’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could cause actual results to differ from the results in forward-looking statements include, but are not limited to:

RISK FACTORS

Risks Related to our Lending and Credit Activities

· Our business may be adversely affected by conditions in the financial markets and economic conditions generally, as our borrowers’ ability to repay loans and the value of the collateral securing our loans decline.

· Weakness in the markets for residential or commercial real estate, including the secondary residential mortgage loan markets, could reduce our net income and profitability.

· As a community banking organization, the Corporation’s success depends upon local and regional economic conditions and has different lending risks than larger banks.

We manage our credit exposure through careful monitoring of loan applicants and loan concentrations in particular industries and through loan approval and review procedures. We have established an evaluation process designed to determine the adequacy of our allowance for loan losses. While this evaluation process uses historical and other objective information, the classification of loans and the establishment of loan losses is an estimated based on experience, judgment and expectations regarding borrowers and economic conditions, as well as regulator judgments. We can make no assurance that our loan loss reserves will be sufficient to absorb future loan losses of prevent a material adverse effect on its business, profitability or financial condition.

· Our allowance for loan losses may be insufficient.

Continuing deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans, and other factors, both within and outside of our control, may require an increase in our allowance for loan losses.

Risks Related to Our Operations

· We are subject to interest rate risk.

Our earnings and cash flows are largely dependent upon our net interest income, which is the difference between interest income on interest-earning assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds. There are many factors which influence interest rates that are beyond our control, including but not limited to general economic conditions and governmental policy, in particular, the policies of the FRB.

· Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition.

· Our controls and procedures may fail or be circumvented.

· Impairment of deferred income tax assets could require charges to earnings, which could result in an adverse impact on our results of operations.

In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some allowance requires management to evaluate all available evidence, both negative and positive. Positive evidence necessary to overcome the negative evidence includes whether future taxable income in sufficient amounts and character within the carry back and carry forward periods is available under the tax law, including the use of tax planning strategies. When negative evidence (e.g. cumulative losses in recent years, history of operating loss or tax credit carry forwards expiring unused) exists, more positive evidence than negative evidence will be necessary. At December 31, 2014, net deferred tax assets are approximately $11.498 million. If a valuation allowance becomes

Table of Contents

MACKINAC FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Forward Looking Statements/Risk Factors (Continued)

necessary with respect to such balance, it could have a material adverse effect on our business, results of operations and financial condition.

· Our information systems may experience an interruption of breach in security.

Risks Related to Legal and Regulatory Compliance

· We operate in a highly regulated environment, which could increase our cost structure or have other negative impacts on our operations.

· The full impact of the recently enacted Dodd-Frank Act is currently unknown and subject to significant uncertainty.

Strategic Risks

· Maintaining or increasing our market share may depend on lowering prices and market acceptance of new products and services.

· Future growth or operating results may require us to raise additional capital but that capital may not be available.

Reputation Risks

· Unauthorized disclosure of sensitive of confidential client or customer information, whether through a breach of our computer system or otherwise, could severely harm our business.

Liquidity Risks

· We could experience an unexpected inability to obtain needed liquidity.

The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds. We seek to ensure our funding needs are met by maintaining an appropriate level of liquidity through asset/liability management.

Risks Related to an Investment in Our Common Stock

· Limited trading activity for shares of our common stock may contribute to price volatility.

· Our securities are not an insured deposit.

· You may not receive dividends on your investment in common stock.

Our ability to pay dividends is dependent upon our receipt of dividends from the Bank, which is subject to regulatory restrictions. Such restrictions, which govern state-chartered banks, generally limit the payment of dividends on bank stock to the bank’s undivided profits after all payments of all necessary expenses, provided that the bank’s surplus equals or exceeds its capital.

These risks and uncertainties should be considered in evaluating forward-looking statements. Further information concerning the Corporation and its business, including additional factors that could materially affect the Corporation’s financial results, is included in the Corporation’s filings with the Securities and Exchange Commission. All forward-looking statements contained in this report are based upon information presently available and the Corporation assumes no obligation to update any forward-looking statements.

The following discussion will cover results of operations, asset quality, financial position, liquidity, interest rate sensitivity, and capital resources for the periods indicated. The information included in this discussion is intended to assist readers in their analysis of, and should be read in conjunction with, the consolidated financial statements and related notes and other supplemental information presented elsewhere in this report. This discussion should be read in conjunction with the consolidated financial statements and footnotes contained in the Corporation’s Annual Report

Table of Contents

MACKINAC FINANCIAL CORPORATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

and Form 10-K for the year-ended December 31, 2014. Throughout this discussion, the term “Bank” refers to mBank, the principal banking subsidiary of the Corporation.

FINANCIAL OVERVIEW

The Corporation recorded second quarter 2015 income of $1.614million or $.26 per share compared to net income available to common shareholders of $.806 million, or $.15 per share for the second quarter of 2014. Operating results for the first six months of 2015 totaled $2.985 million or $.48 per share, compared to $1.466 million, or $.27 per share, for the same period in 2014.

Weighted average shares totaled 6,251,713 shares for the six month period in 2015 and 6,247,004 shares in the 2015 second quarter compared to 5,529,290 shares for the six month period in 2014 and 5,527,690 shares in the 2014 second quarter.

The net interest margin for the second quarter of 2015 increased to $7.000 million, or 4.17%, compared to $5.659 million, or 4.18% in the second quarter of 2014. The six month margin in 2015 was $14.520 million, or 4.35% compared to $11.252 million, or 4.21%.

Total assets of the Corporation at June 30, 2015 were $735.338 million, up by $139.469 million, or 23.41% from the $595.869 million in total assets reported at June 30, 2014 and down by $8.447 million, or 1.14%, from total assets of $743.785 million at year-end 2014. The loan portfolio increased $14.312 million, or 2.38%, from December 31, 2014 balances of $600.935 million. Deposits totaled $588.821 million at June 30, 2015, a decrease of $18.152 million from the $606.973 million at December 31, 2014.

The acquisition of Peninsula Financial Corporation (“PFC”), the holding company for Peninsula Bank, in December 2014 added approximately $125 million in assets, $70 million in loan balances and $100 million in deposits to our organization. In connection with this acquisition, we increased shareholders’ equity by $7.804 million, issued 695,361 shares of our common stock and added approximately 350 new shareholders.

FINANCIAL CONDITION

Cash and Cash Equivalents

Cash and cash equivalents decreased $5.286 million during the first half of 2015. See further discussion of the change in cash and cash equivalents in the Liquidity section.

Investment Securities

Securities available for sale decreased $5.271 million from December 31, 2014 to June 30, 2015, with the balance on June 30, 2015, totaling $60.561 million. Investment securities are utilized in an effort to manage interest rate risk and liquidity. As of June 30, 2015, investment securities with an estimated fair value of $4.456 million were pledged.

Loans

Through the first half of 2015, loan balances increased by $14.312 million, or 2.38%, from December 31, 2014 balances of $600.935 million. During the first half of 2015, the Bank had total loan production of $114.8 million, which included $22.4 million of secondary market loan production. This loan production, however, was offset by loan principal runoff, paydowns and amortization, SBA/USDA loan sales of $5.612 million, and nonperforming loans transferred to other real estate owned (“OREO”) amounting to $.495 million.

Management continues to actively manage the loan portfolio, seeking to identify and resolve problem assets at an early stage. Management believes a properly positioned loan portfolio provides the most attractive earning asset yield available to the Corporation and, with a diligent loan approval process and exception reporting, management can effectively manage the risk in the loan portfolio. Management intends to continue loan growth within its markets for mortgage, consumer, and commercial loan products while concentrating on loan quality, industry concentration issues, and competitive pricing.

Table of Contents

Following is a summary of the loan portfolio at June 30, 2015, December 31, 2014 and June 30, 2014 (dollars in thousands):

	June 30,		Percent of		December 31,		Percent of		June 30,		Percent of
	2015		Total		2014		Total		2014		Total
Commercial real estate	$	320,013	52.01	%	$	315,387	52.48	%	$	274,500	54.58	%
Commercial, financial, and agricultural	107,205		17.42		101,895		16.96		89,515		17.80
One to four family residential real estate	142,276		23.13		139,553		23.22		105,868		21.05
Construction:
Consumer	8,722		1.42		9,431		1.57		7,464		1.48
Commercial	19,868		3.23		16,284		2.71		10,550		2.10
Consumer	17,163		2.79		18,385		3.06		15,043		2.99
Total loans	$	615,247	100.00	%	$	600,935	100.00	%	$	502,940	100.00	%

Following is a table showing the significant industry types in the commercial loan portfolio as of June 30, 2015, December 31, 2014 and June 30, 2014 (dollars in thousands):

	June 30, 2015						December 31, 2014						June 30, 2014
	Outstanding		Percent of		Percent of		Outstanding		Percent of		Percent of		Outstanding		Percent of		Percent of
	Balance		Loans		Capital		Balance		Loans		Capital		Balance		Loans		Capital

Real estate - operators of nonres bldgs	$	102,380	22.90	%	135.16	%	$	106,644	24.60	%	144.12	%	$	103,598	27.66	%	155.84	%
Hospitality and tourism	42,391		9.48		55.96		46,211		10.66		62.45		42,111		11.24		63.35
Lessors of residential buildings	22,419		5.01		29.60		19,776		4.56		26.73		14,912		3.98		22.43
Commercial construction	19,868		4.44		26.23		16,284		3.76		22.01		10,550		2.82		15.87
Gasoline and convenience stores	14,601		3.27		19.28		13,841		3.19		18.71		11,881		3.17		17.87
Lessors of other real estate property	10,088		2.26		13.32		9,130		2.11		12.34		9,160		2.45		13.78
Other	235,339		52.64		310.69		221,680		51.12		299.58		182,353		48.68		274.31

Total Commercial Loans	$	447,086	100.00	%			$	433,566	100.00	%			$	374,565	100.00	%

Management recognizes the additional risk presented by the concentration in certain segments of the portfolio. On a historical basis, the Corporation’s highest concentration of credit risk was the hospitality and tourism industry. Management does not consider the current loan concentrations in hospitality and tourism to be problematic, and has no intention of further reducing loans to this industry segment. Management does not believe that its current portfolio composition has increased exposure related to any specific industry concentration as of June 30, 2015. The current concentration of real estate related loans represents a broad customer base composed of a high percentage of owner occupied developments.

Our residential real estate portfolio predominantly includes one to four family adjustable rate mortgages that have repricing terms generally from one to three years, construction loans to individuals and bridge financing loans for qualifying customers. As of June 30, 2015, our residential loan portfolio totaled $150.998 million, or 24.54% of our total outstanding loans.

Due to the seasonal nature of many of the Corporation’s commercial loan customers, loan payment terms provide flexibility by structuring payments to coincide with the customer’s business cycle. The lending staff evaluates the collectability of the past due loans based on documented collateral values and payment history. The Corporation discontinues the accrual of interest on loans when, in the opinion of management, there is an indication that the borrower may be unable to meet the payments as they become due. Upon such discontinuance, all unpaid accrued interest is reversed. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Credit Quality

Management analyzes the allowance for loan losses in detail on a monthly basis to determine whether the losses inherent in the portfolio are properly reserved for. Net charge-offs for the six months ended June 30, 2015 amounted to $45,000, compared to recoveries of $62,000 for the same period in 2014. The current reserve balance is representative of the relevant risk inherent within the Corporation’s loan portfolio. Additions or reductions to the

Table of Contents

reserve in future periods will be dependent upon a combination of future loan growth, nonperforming loan balances and charge-off activity.

The table below shows period end balances of nonperforming assets (dollars in thousands):

	June 30,			December 31,			June 30,
	2015			2014			2014
Nonperforming Assets:
Nonaccrual Loans	$	8,690		$	3,939		$	2,055
Loans past due 90 days or more	140			—			—
Restructured loans	822			—			597
Total nonperforming loans	9,652			3,939			2,652
Other real estate owned	2,392			3,010			1,947
Total nonperforming assets	$	12,044		$	6,949		$	4,599
Nonperforming loans as a % of loans	1.57		%	.66		%	.53		%
Nonperforming assets as a % of assets	1.64		%	.93		%	.77		%
Reserve for Loan Losses:
At period end	$	5,600		$	5,140		$	5,097
As a % of loans	.91		%	.86		%	1.01		%
As a % of nonperforming loans	58.02		%	130.49		%	192.19		%
As a % of nonaccrual loans	64.44		%	130.49		%	248.03		%
Texas ratio*	15.76		%	9.37		%	6.43		%

*calculated by taking total nonperforming assets divided by total equity plus reserve for loan losses

Nonperforming assets at $12.044 million have increased in 2015 by $5.095 million from the $6.949 million at 2014 year end. This increase in nonperforming assets is due almost entirely to one large credit, an approximate $7.5 million local loan relationship, which the bank entered into in 2011 as a Chapter 11 bankruptcy reorganization. This relationship was established in conjunction with several other state and federal government lending parties who provided various loan guarantees, in order to preserve a long standing paper mill in our headquarters market and save over 150 jobs.

The following ratios provide additional information relative to the Corporation’s credit quality:

	At Period End
	June 30, 2015			December 31, 2014			June 30, 2014
				.
Total loans, at period end	$	615,247		$	600,935		$	502,940
Average loans for the year	$	603,711		$	509,749		$	489,656

	For the Period Ended
	Six Months Ended			Twelve Months Ended			Six Months Ended
	June 30, 2015			December 31, 2014			June 30, 2014

Net charge-offs (recoveries) during the period	$	45		$	721		$	(62	)
Net charge-offs to average loans, annualized	.01		%	.14		%	N/M		%

Management continues to address market issues impacting its loan customer base. In conjunction with the Corporation’s senior lending staff and the bank regulatory examinations, management reviews the Corporation’s loans, related collateral evaluations, and the overall lending process. The Corporation also utilizes an outside loan review consultant to perform a review of the loan portfolio. Historically, this independent review has provided findings similar to management as to the overall adequacy of the loan loss reserve and has substantiated the Corporation’s loan rating system. In 2015, the Corporation will again utilize a consultant for loan review.

As of June 30, 2015, the allowance for loan losses represented .91% of total loans. At June 30, 2015, the allowance included specific reserves in the amount of $2.232 million, as compared to $1.216 million at December 31, 2014 and $1.438 million at June 30, 2014. In management’s opinion, the allowance for loan losses is adequate to cover probable losses related to specifically identified loans, as well as probable losses inherent in the balance of the loan portfolio.

Table of Contents

As part of the process of resolving problem credits, the Corporation may acquire ownership of collateral which secured such credits. The Corporation carries this collateral in other real estate on the balance sheet.

The following table represents the activity in other real estate for the periods indicated (dollars in thousands):

	Six Months Ended			Year Ended			Six Months Ended
	June 30, 2015			December 31, 2014			June 30 2014

Balance, at beginning of period	$	3,010		$	1,884		$	1,884
Net purchase accounting adjustments	—			1,193			—
Other real estate transferred from loans due to foreclosure	495			588			282
Other real estate sold, net of purch accounting adjustments	(1,076		)	(375		)	(205		)
Writedowns on other real estate held for sale, incl purch acct. adj	(25		)	(228		)	(2		)
(Loss) on sale of other real estate held for sale	(12		)	(52		)	(12		)

Balance, at end of period	$	2,392		$	3,010		$	1,947

During the first half of 2015, the Corporation received real estate in lieu of loan payments of $.495 million. Other real estate is initially valued at the lower of cost or the fair value less selling costs. After the initial receipt, management periodically re-evaluates the recorded balances and any additional reductions in the fair value result in a write-down of other real estate.

Deposits

The Corporation had a decrease in deposits in the first six months of 2015. Total deposits decreased by $18.152 million, or 2.99%, in the first half of 2015. The decrease in deposits for the first half of 2015 is composed of a decrease in noncore deposits of $17.176 million and a decrease in core deposits of $.976 million. In recent years, the Corporation has strategically emphasized the growth of core deposits. This strategic initiative is supported with an individual incentive plan, along with the introduction of several new deposit products and competitive deposit pricing. Most recently, we have experienced some declines in core deposits. A portion of these decreases can be attributed to individual customer deposit reductions due to various business related needs. Management also utilizes brokered deposits as a funding source, which provides flexibility in managing interest rate risk for fixed rate longer term loan fundings.

Management continues to monitor existing deposit products in order to stay competitive as to both terms and pricing. It is the intent of management to be aggressive in its markets to grow core deposits with an emphasis placed on transactional deposits.

The following table represents detail of deposits at the end of the periods indicated (dollars in thousands):

	June 30,				December 31,				June 30,
	2015		% of Total		2014		% of Total		2014		% of Total

Noninterest bearing	$	108,068	18.35	%	$	95,498	15.73	%	$	73,732	15.23	%
NOW, money market, checking	198,482		33.71		212,565		35.02		148,242		30.63
Savings	29,921		5.08		28,015		4.62		15,658		3.24
Certificates of Deposit <$100,000	133,582		22.69		134,951		22.23		143,140		29.57
Total core deposits	470,053		79.83		471,029		77.60		380,772		78.67

Certificates of Deposit >$100,000	28,731		4.88		30,316		5.00		23,151		4.78
Brokered CDs	90,037		15.29		105,628		17.40		80,093		16.55
Total non-core deposits	118,768		20.17		135,944		22.40		103,244		21.33

Total deposits	$	588,821	100.00	%	$	606,973	100.00	%	$	484,016	100.00	%

Borrowings

The Corporation also utilizes FHLB borrowings as a source of funding. At June 30, 2015, this source of funding totaled $35 million and the Corporation secured this funding by pledging loans and investments. The $35 million of FHLB borrowings has a weighted average maturity of 2.10 years and a weighted average rate of 1.68% at June 30, 2015. The Corporation also has a USDA Rural Development loan held by its wholly owned subsidiary, First Rural

Table of Contents

Relending that has an outstanding balance of $.779 million, with a fixed interest rate of 1% that matures in August 2024.

In addition to the above, the Corporation currently has two banking borrowing relationships. The first relationship consists of a line of credit and a term note. The line of credit bears interest at 90-day LIBOR plus 2.75%, with a floor rate of 4.00% and has an initial term that expires on December 28, 2017. The term note bears the same interest and matures on March 22, 2017 and requires quarterly principal payments of $100,000 beginning June 30, 2014. The second borrowing relationship consists of a $10 million revolving line of credit, which can be increased to $25 million upon request, used to support asset based lending activities at a wholly-owned subsidiary that currently bears interest at 90-day LIBOR plus 2.75% and has an initial term that expires on September 10, 2016.

Shareholders’ Equity

Total shareholders’ equity increased $1.750 million from December 31, 2014 to June 30, 2015. Contributing to the increase in shareholders’ equity was net income available to common shareholders of $2.985 million, a reduction for cash dividends on common stock of $.938 million, increases due to stock compensation of $.288 million, a decrease in the market value of securities of $.079 million and a decrease due to the repurchase of common stock of $.506 million.

In December 2014, the Corporation consummated the previously announced acquisition of Peninsula Financial Corporation with a combination of cash and the Corporation’s common stock. Peninsula Financial Corporation was a bank holding company with The Peninsula Bank as its wholly-owned subsidiary. Peninsula was headquartered in Ishpeming, Michigan with six branch locations. The purchase price of the acquisition was $12.420 million with a combination of cash and the Corporation’s common stock. The Corporation issued 695,361 shares of its common stock and an increase in shareholder equity of $7.804 million in recording this transaction, after the reduction for issuance costs of $.130 million. The Corporation recorded assets with a fair value of $112.766 million, including loans of $67.139 million, as well as $100.950 million of deposits.

RESULTS OF OPERATIONS

Summary

The Corporation reported net income available to common shareholders of $2.985 million, or $.48 per share, in the first half of 2015, compared to $1.466 million or $.27 per share for the first half of 2014. The first half results include a provision for loan losses of $.505 million. Operating results for the same period in 2014 include a provision for loan losses of $.374 million.

Net Interest Income

Net interest income is the Corporation’s primary source of core earnings. Net interest income represents the difference between the average yield earned on interest earning assets and the average rate paid on interest bearing obligations. The net interest income is impacted by economic and competitive factors that influence rates, loan demand, and the availability of funding.

Net interest margin on a fully taxable equivalent basis amounted to $7.005 million, 4.17% of average earning assets, in the second quarter of 2015, compared to $5.661 million, and 4.18% of average earning assets, in the second quarter of 2014. In the first six months of 2015, net interest margin increased to $14.571 million, 4.36% of average earning assets, compared to $11.277 million, 4.22 % of average earning assets, for the same period in 2014.

Table of Contents

The following table presents the amount of interest income from average interest-earning assets and the yields earned on those assets, as well as the interest expense on average interest-bearing obligations and the rates paid on those obligations. All average balances are daily average balances.

	Three Months Ended
																		2015-2014
	Average Balances									Average Rates				Interest				Income/									Rate/
	June 30,						Increase/			June 30,				June 30,				Expense			Volume			Rate			Volume
(dollars in thousands)	2015			2014			(Decrease)			2015		2014		2015		2014		Variance			Variance			Variance			Variance

Loans (1,2,3)	$	607,330		$	492,922		$	114,408		5.12	%	5.18	%	$	7,746	$	6,370	$	1,376		$	1,478		$	(83	)	$	(19	)
Taxable securities	54,354			45,515			8,839			2.27		2.15		307		244		63			47			13			3
Nontaxable securities (2)	4,115			1,828			2,287			.97		3.73		10		17		(7		)	21			(13		)	(15		)
Federal funds sold	3			3			—			—		—		—		—		—			—			—			—
Other interest-earning assets	8,172			3,160			5,012			1.96		4.32		40		34		6			54			(19		)	(29		)
Total earning assets	673,974			543,428			130,546			4.82		4.92		8,103		6,665		1,438			1,600			(102		)	(60		)
Reserve for loan losses	(5,488		)	(4,960		)	(528		)
Cash and due from banks	26,008			16,272			9,736
Fixed Assets	12,657			9,883			2,774
Other Real Estate	2,446			2,112			334
Other assets	23,382			14,415			8,967
Total assets	$	732,979		$	581,150		$	151,829

NOW and money market deposits	$	149,898		$	96,397		$	53,501		.31	%	.22	%	$	115	$	54	$	61		$	30		$	20		$	11
Interest checking	52,885			47,288			5,597			.18		.24		24		28		(4		)	3			(7		)	—
Savings deposits	29,714			15,151			14,563			.11		.11		8		4		4			4			—			—
CDs <$100,000	130,568			145,494			(14,926		)	1.00		1.19		327		433		(106		)	(44		)	(69		)	7
CDs >$100,000	28,920			23,229			5,691			1.07		1.26		77		73		4			18			(11		)	(3		)
Brokered deposits	96,547			72,781			23,766			1.03		1.15		249		208		41			68			(20		)	(7		)
Borrowings	54,653			43,043			11,610			2.19		1.90		298		204		94			55			31			8
Total interest-bearing liabilities	543,185			443,383			99,802			.81		.91		1,098		1,004		94			134			(56		)	16
Demand deposits	105,734			69,380			36,354
Other liabilities	8,496			2,834			5,662
Shareholders’ equity	75,564			65,553			10,011
Total liabilities and shareholders’ equity	$	732,979		$	581,150		$	151,829
Rate spread										4.01	%	4.01	%
Net interest margin/revenue										4.17	%	4.18	%	$	7,005	$	5,661	$	1,344		$	1,466		$	(46	)	$	(76	)

	Six Months Ended
																		2015-2014
	Average Balances									Average Rates				Interest				Income/									Rate/
	June 30,						Increase/			June 30,				June 30,				Expense			Volume			Rate			Volume
(dollars in thousands)	2015			2014			(Decrease)			2015		2014		2015		2014		Variance			Variance			Variance			Variance

Loans (1,2,3)	$	603,711		$	489,656		$	114,055		5.34	%	5.22	%	$	15,975	$	12,687	$	3,288		$	2,955		$	270		$	63
Taxable securities	58,020			44,392			13,628			1.96		2.19		563		481		82			148			(50		)	(16		)
Nontaxable securities (2)	3,295			1,668			1,627			8.75		4.96		143		41		102			40			31			31
Federal funds sold	3			3			—			—		—		—		—		—			—			—			—
Other interest-earning assets	8,322			3,115			5,207			2.47		5.24		102		81		21			135			(43		)	(71		)
Total earning assets	673,351			538,834			134,517			5.03		4.97		16,783		13,290		3,493			3,278			208			7
Reserve for loan losses	(5,345		)	(4,907		)	(438		)
Cash and due from banks	22,806			20,038			2,768
Fixed Assets	12,673			10,085			2,588
Other Real Estate	2,588			2,085			503
Other assets	29,152			14,799			14,353
Total assets	$	735,225		$	580,934		$	154,291

NOW and money market deposits	$	158,044		$	106,565		$	51,479		.29	%	.22	%	$	231	$	114	$	117		$	55		$	42		$	20
Interest checking	51,955			40,228			11,727			.19		.22		48		44		4			13			(7		)	(2		)
Savings deposits	29,103			14,365			14,738			.10		.10		14		7		7			7			—			—
CDs <$100,000	130,843			148,390			(17,547		)	1.06		1.21		685		892		(207		)	(105		)	(115		)	13
CDs >$100,000	29,286			23,217			6,069			1.07		1.33		155		153		2			40			(30		)	(8		)
Brokered deposits	98,063			70,183			27,880			1.01		1.18		491		412		79			164			(61		)	(24		)
Borrowings	54,629			40,937			13,692			2.17		1.93		588		391		197			131			50			16
Total interest-bearing liabilities	551,923			443,885			108,038			.81		0.91		2,212		2,013		199			305			(121		)	15
Demand deposits	100,511			68,875			31,636
Other liabilities	7,826			2,666			5,160
Shareholders’ equity	74,965			65,508			9,457
Total liabilities and shareholders’ equity	$	735,225		$	580,934		$	154,291
Rate spread										4.22	%	4.06	%
Net interest margin/revenue										4.36	%	4.22	%	$	14,571	$	11,277	$	3,294		$	2,973		$	329		$	(8	)

(1) For purposes of these computations, nonaccruing loans are included in the daily average loan amounts outstanding.

(2) The amount of interest income on loans and nontaxable securities has been adjusted to a tax euivalent basis, using a 34% tax rate

(3) Interest income on loans includes fees

In the past several years of a low interest rate environment, the Corporation repriced all of its brokered deposits along with the majority of its bank time deposits. This repricing of liabilities is the primary reason for the increased interest margin, on a fully taxable equivalent basis in recent reported periods.

During this relatively low interest environment, the Corporation has also repriced a significant portion of its loan portfolio. Management has been diligent when repricing maturing or new loans in establishing interest rate floors in order to maintain our improved interest rate spread. The Corporation is anticipating some margin pressure in future periods as we continue to see extremely competitive pricing on new and renewable loans.

Table of Contents

Provision for Loan Losses

The Corporation records a provision for loan losses when it believes it is necessary to adjust the allowance for loan losses to maintain an adequate level after considering factors such as loan charge-offs and recoveries, changes in identified levels of risk in the loan portfolio, changes in the mix of loans in the portfolio, loan growth, and other economic factors. During the first half of 2015, the Corporation determined through this analysis that a $.505 million provision for loan loss was required, compared to $.374 million in the first half of 2014. There were net charge-offs of $45,000 in the first half of 2015, compared to recoveries of $62,000 for the same period in 2014.

Other Income

Other income, at $1.974 million in the first half of 2015, increased $.633 million from the first half of 2014 level of $1.341 million. Included in other income in the first half of 2015 were net security gains of $.269 million, as well as increased income from secondary market loans sold.

Management continues to evaluate deposit products and services for ways to better serve its customer base and also enhance service fee income through a broad array of products that price services based on income contribution and cost attributes.

The following table details other income for the three and six months ended June 30, 2015 and 2014 (dollars in thousands):

	Three Months Ended								Six Months Ended
	June 30,								June 30,
					Increase/(Decrease)								Increase/(Decrease)
	2015		2014		Dollars		Percent		2015		2014		Dollars			Percent

Deposit service fees	$	244	$	192	$	52	27.08	%	$	428	$	349	$	79		22.64	%
Income from secondary market loans sold	282		139		143		102.88		449		242		207			85.54
SBA/USDA loan sale gains	282		166		116		69.88		400		548		(148		)	(27.01	)
Mortgage servicing income	199		89		110		123.60		230		102		128			125.49
Net security gains	259		—		259		N/M		269		—		269			N/M
Other noninterest income	84		64		20		31.25		198		100		98			98.00

Total other income	$	1,350	$	650	$	700	107.69	%	$	1,974	$	1,341	$	633		47.20	%

Other Expense

For the first half of 2015, the Corporation recorded other expense of $11.456 million compared to $10.005 million in 2014, an increase of $1.451 million. The largest increase from the first half of 2014 was in salaries and benefits, largely attributed to the PFC acquisition in December 2014.

The following table details other expense for the three and six months ended June 30, 2015 and 2014 (dollars in thousands):

	Three Months Ended									Six Months Ended
	June 30,									June 30,
					Increase/(Decrease)									Increase/(Decrease)
	2015		2014		Dollars			Percentage		2015		2014		Dollars			Percentage

Salaries and employee benefits	$	2,916	$	2,523	$	393		15.58	%	$	5,963	$	5,064	$	899		17.75	%
Occupancy	626		546		80			14.65		1,202		1,084		118			10.89
Furniture and equipment	390		303		87			28.71		789		622		167			26.85
Data processing	359		288		71			24.65		714		574		140			24.39
Advertising	120		123		(3		)	(2.44	)	246		230		16			6.96
Professional service fees	279		276		3			1.09		580		607		(27		)	(4.45	)
Loan and deposit	125		83		42			50.60		263		162		101			62.35
Writedowns and losses on other real estate held for sale	20		14		6			42.86		37		14		23			164.29
FDIC insurance premiums	140		90		50			55.56		248		175		73			41.71
Telephone	106		82		24			29.27		238		164		74			45.12
Other	619		570		49			8.60		1,176		1,309		(133		)	(10.16	)
Total other expense	$	5,700	$	4,898	$	802		16.37	%	$	11,456	$	10,005	$	1,451		14.50	%

Table of Contents

Federal Income Taxes

The Corporation recorded a deferred tax expense for the six months ended June 30, 2015 of $1.548 million, compared to $.748 million a year earlier.

LIQUIDITY

Liquidity is defined as the ability to generate cash at a reasonable cost to fulfill lending commitments and support asset growth, while satisfying the withdrawal demands of customers and make payments on existing borrowing commitments. The Bank’s principal sources of liquidity are core deposits and loan and investment payments and prepayments. Providing a secondary source of liquidity is the available for sale investment portfolio. As a final source of liquidity, the Bank can exercise existing credit arrangements.

Current balance sheet liquidity consists of $16.661 million in cash and due from balances, negligible fed funds sold, $56.105 million of unpledged investment securities. Although current liquidity is deemed adequate, management will increase on hand liquidity in the near term by issuing brokered CDs in order to fund anticipated loan growth.

During the first six months of 2015, the Corporation decreased cash and cash equivalents by $5.286 million. As shown on the Corporation’s condensed consolidated statement of cash flows, liquidity was impacted by cash used in investing activities, with a net increase in loans of $14.715 million and a net increase in investments of $4.923 million. The management of bank liquidity for funding of loans and deposit maturities and withdrawals includes monitoring projected loan fundings and scheduled prepayments and deposit maturities within a 30 day period, a 30- to 90- day period and from 90 days until the end of the year. This funding forecast model is completed weekly.

The Corporation’s primary source of liquidity on a stand-alone basis is dividends from the Bank. The Corporation also has a line of credit with a correspondent bank with current availability of $2.500 million. The Corporation’s current plan for dividends from the Bank are dependent upon the profitability of the Bank, growth of assets at the Bank and the level of capital needed to stay “well capitalized.”

Table of Contents

Liquidity is managed by the Corporation through its Asset and Liability Committee (“ALCO”). The ALCO Committee meets monthly to discuss asset and liability management in order to address liquidity and funding needs to provide a process to seek the best alternatives for investments of assets, funding costs, and risk management. The liquidity position of the Bank is managed daily, thus enabling the Bank to adapt its position according to market fluctuations. Core deposits are important in maintaining a strong liquidity position as they represent a stable and relatively low cost source of funds. The Bank’s liquidity is best illustrated by the mix in the Bank’s core and noncore funding dependence ratio, which explains the degree of reliance on noncore liabilities to fund long-term assets.

Core deposits are herein defined as demand deposits, NOW (negotiable order withdrawals), money markets, savings and certificates of deposit under $100,000. Noncore funding consists of certificates of deposit greater than $100,000, brokered deposits, and FHLB and Farmers’ Home Administration borrowings. At June 30, 2015, the Bank’s core deposits in relation to total funding were 71.95% compared to 72.38% at June 30, 2014. These ratios indicated at June 30, 2015, that the Bank has decreased its reliance on noncore deposits and borrowings to fund the Bank’s long-term assets, namely loans and investments. The bank believes that by maintaining adequate volumes of short-term investments and implementing competitive pricing strategies on deposits, it can ensure adequate liquidity to support future growth. The Bank also has correspondent lines of credit available to meet unanticipated short-term liquidity needs. As of June 30, 2015, the Bank had $13.375 million of unsecured lines available and additional funding sources available if secured. The bank believes that its liquidity position remains strong to meet both present and future financial obligations and commitments, events or uncertainties that have resulted or are reasonably likely to result in material changes with respect to the Bank’s liquidity.

From a long-term perspective, the Corporation’s strategy is to increase core deposits in the Corporation’s local markets. Management continually evaluates deposit products offered in order to remain competitive in its goal of increasing core deposits. The Corporation will and has the ability to augment local deposit growth efforts with wholesale CD funding.

CAPITAL AND REGULATORY

The Corporation is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and possibly additional discretionary—actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Corporation’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Management has determined that, as of June 30, 2015, the Corporation is well capitalized.

Effective January 1, 2015, the Corporation was subject to new capital requirements due to the Basel III regulation, including:

· A new minimum ratio of Common Equity Tier I Capital to risk-weighted assets of 4.5%;

· An increase in the minimum required amount of Additional Tier 1 Capital to 6% of risk-weighted assets;

· A continuation of the current minimum required amount of Total Capital (Tier 1 plus Tier 2) at 8% of risk-weighted assets; and

· A minimum leverage ratio of Tier I Capital to total assets equal to 4% in all circumstances.

In order to be “well-capitalized” under the new guidelines, a depository institution must maintain a Common Equity Tier 1 Capital ratio of 6.5% or more; an Additional Tier 1 Capital ratio of 8% or more; a Total Capital ratio of 10% or more; and a leverage ratio of 5% or more.

The Corporation’s and the Bank’s actual capital and ratios compared to generally applicable regulatory requirements as of June 30, 2015 are as follows (dollars in thousands):

Table of Contents

Actual

Adequacy Purposes

Well-Capitalized

Amount

Ratio

Amount

Ratio

Amount

Ratio

Total capital to risk weighted assets:

Consolidated

71,653

11.0

51,902

> 8.0

64,878

10.0

mBank

76,228

11.9

51,156

> 8.0

63,946

10.0

Tier 1 capital to risk weighted assets:

Consolidated

66,053

10.2

38,927

> 6.0

51,902

8.0

mBank

70,807

11.1

38,367

> 6.0

51,156

8.0

Common equity Tier 1 capital to risk weighted assets

Consolidated

66,053

10.2

29,195

> 4.5

42,171

6.5

mBank

70,807

11.1

28,776

> 4.5

41,565

6.5

Tier 1 capital to average assets:

Consolidated

66,053

9.1

28,901

> 4.0

36,126

5.0

mBank

70,807

9.9

28,587

> 4.0

35,733

5.0

Regulatory capital is not the same as shareholders’ equity reported in the accompanying condensed consolidated financial statements. Certain assets cannot be considered assets for regulatory purposes, such as acquisition intangibles and noncurrent deferred tax benefits.

INTEREST RATE RISK

In general, the Corporation attempts to manage interest rate risk by investing in a variety of assets which afford it an opportunity to reprice assets and increase interest income at a rate equal to or greater than the interest expense associated with repricing liabilities.

Interest rate risk is the exposure of the Corporation to adverse movements in interest rates. The Corporation derives its income primarily from the excess of interest collected on its interest-earning assets over the interest paid on its interest-bearing obligations. The rates of interest the Corporation earns on its assets and owes on its obligations generally are established contractually for a period of time. Since market interest rates change over time, the Corporation is exposed to lower profitability if it cannot adapt to interest rate changes. Accepting interest rate risk can be an important source of profitability and shareholder value; however, excess levels of interest rate risk could pose a significant threat to the Corporation’s earnings and capital base. Accordingly, effective risk management that maintains interest rate risk at prudent levels is essential to the Corporation’s safety and soundness.

Loans are the most significant earning asset. Management offers commercial and real estate loans priced at interest rates which fluctuate with various indices such as the prime rate or rates paid on various government issued securities. In addition, the Corporation prices the majority of fixed rate loans so it has an opportunity to reprice the loan within 12 to 36 months.

The Corporation has established interest rate floors on approximately $146.699 million of its variable rate commercial loans. These interest rate floors will result in a “lag” on the repricing of these variable rate loans when and if interest rates increase in future periods. Approximately $115.052 million of the “floor rate” loan balances will reprice with a 100 basis point increase on the prime rate, with another $31.475 million repricing in the next 100 basis point prime rate increase.

The Corporation also has $60.561 million of securities providing for scheduled monthly principal and interest payments as well as unanticipated prepayments of principal. These cash flows are then reinvested into other earning assets at current market rates. The Corporation also has federal funds sold to correspondent banks as well as other interest-bearing deposits with correspondent banks. These funds are generally repriced on a daily basis.

The Corporation has $336.471 million of transactional accounts, of which $108.068 million consists of noninterest bearing demand deposit balances. Transaction account balances have increased significantly in the last year due in part to the Corporation’s focus on these low costs accounts by developing new attractive products and increased sales efforts to municipalities, schools and businesses. These transactional account balances provide additional repricing flexibility in changing interest rate environments since they have no scheduled maturities and interest rates can be reset at any time.

Table of Contents

MACKINAC FINANCIAL CORPORATION

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Other deposit products have a variety of terms ranging from deposits whose interest rates can change on a weekly basis to certificates of deposit with repricing terms of up to five years. Longer term deposits generally include penalty provisions for early withdrawal.

Beyond general efforts to shorten the loan pricing periods and extend deposit maturities, management can manage interest rate risk by the maturity periods of securities purchased, selling securities available for sale, and borrowing funds with targeted maturity periods, among other strategies. Also, the rate of interest rate changes can impact the actions taken since the rate environment affects borrowers and depositors differently.

Exposure to interest rate risk is reviewed on a regular basis. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect of interest rate changes on net interest income and to structure the composition of the balance sheet to minimize interest rate risk and at the same time maximize income. Management realizes certain risks are inherent and that the goal is to identify and minimize the risks. Tools used by management include maturity and repricing analysis and interest rate sensitivity analysis. The Bank has monthly asset/liability meetings with an outside consultant to review its current position and strategize about future opportunities on risks relative to pricing and positioning of assets and liabilities.

Table of Contents

The difference between repricing assets and liabilities for a specific period is referred to as the gap. An excess of repricable assets over liabilities is referred to as a positive gap. An excess of repricable liabilities over assets is referred to as a negative gap. The cumulative gap is the summation of the gap for all periods to the end of the period for which the cumulative gap is being measured.

Assets and liabilities scheduled to reprice are reported in the following time frames. Those instruments with a variable interest rate tied to an index and considered immediately repricable are reported in the 1- to 90-day time frame. The estimates of principal amortization and prepayments are assigned to the following time frames.

The following are the Corporation’s repricing opportunities at June 30, 2015 (dollars in thousands):

1-90

91 - 365

>1-5

Over 5

Days

Years

Total

Interest-earning assets:

Loans

242,843

142,400

228,608

1,396

615,247

Securities

9,574

5,178

34,804

11,005

60,561

Other (1)

3,863

1,173

2,474

—

7,510

Total interest-earning assets

256,280

148,751

265,886

12,401

683,318

Interest-bearing obligations:

NOW, money market, savings, interest checking

228,403

—

228,403

Time deposits

24,575

94,087

43,530

121

162,313

Brokered CDs

5,000

35,893

49,144

—

90,037

Federal funds purchased

15,000

—

15,000

Borrowings

174

10,000

38,984

325

49,483

Total interest-bearing obligations

273,152

139,980

131,658

446

545,236

Gap

(16,872

)

8,771

134,228

11,955

138,082

Cumulative gap

(16,872

)

(8,101

)

126,127

138,082

(1) Includes Federal Home Loan Bank Stock

The above analysis indicates that at June 30, 2015, the Corporation had a cumulative liability sensitivity gap position of $8.101 million within the one-year time frame. The Corporation’s cumulative liability sensitive gap suggests that if market interest rates were to increase in the next twelve months, the Corporation has the potential to earn less net interest income, since more liabilities would reprice at higher rates than assets. Conversely, if market interest rates decrease in the next twelve months, the above gap position suggests the Corporation’s net interest income would increase. A limitation of the traditional gap analysis is that it does not consider the timing or magnitude of non-contractual repricing or expected prepayments. In addition, the gap analysis treats savings, NOW, and money market accounts as repricing within 90 days, while experience suggests that these categories of deposits are actually comparatively resistant to rate sensitivity.

At December 31, 2014, the Corporation had a cumulative liability sensitivity gap position of $8.027 million within the one-year time frame.

The borrowings in the gap analysis include $35.000 million of FHLB advances that have a weighted average maturity of 2.10 years and a weighted average rate of 1.68%.

The Corporation’s primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk and foreign exchange risk. The Corporation has no market risk sensitive instruments held for trading purposes. The Corporation has limited agricultural-related loan assets and therefore has minimal significant exposure to changes in commodity prices. Any impact that changes in foreign exchange rates and commodity prices would have on interest rates are assumed to be insignificant.

Table of Contents

Evaluating the exposure to changes in interest rates includes assessing both the adequacy of the process used to control interest rate risk and the quantitative level of exposure. The Corporation’s interest rate risk management process seeks to ensure that appropriate policies, procedures, management information systems, and internal controls are in place to maintain interest rate risk at prudent levels with consistency and continuity. In evaluating the quantitative level of interest rate risk, the Corporation assesses the existing and potential future effects of changes in interest rates on its financial condition, including capital adequacy, earnings, liquidity, and asset quality.

In addition to changes in interest rates, the level of future net interest income is also dependent on a number of variables, including: the growth, composition and levels of loans, deposits, and other earning assets and interest-bearing obligations, and economic and competitive conditions; potential changes in lending, investing, and deposit strategies; customer preferences; and other factors.

FOREIGN EXCHANGE RISK

In addition to managing interest rate risk, management also actively manages risk associated with foreign exchange. The Corporation provides foreign exchange services, makes loans to, and accepts deposits from, Canadian customers primarily at its banking offices in Sault Ste. Marie, Michigan. To protect against foreign exchange risk, the Corporation monitors the volume of Canadian deposits it takes in and then invests these Canadian funds in Canadian commercial loans and securities. Management believes the exposure to short-term foreign exchange risk is minimal and at an acceptable level for the Corporation.

OFF-BALANCE-SHEET RISK

Derivative financial instruments include futures, forwards, interest rate swaps, option contracts and other financial instruments with similar characteristics. The Corporation currently does not enter into futures, forwards, swaps, or options. However, the Corporation is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit and involve to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the condensed consolidated balance sheets. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates and may require collateral from the borrower if deemed necessary by the Corporation. Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party up to a stipulated amount and with specified terms and conditions.

Commitments to extend credit and standby letters of credit are not recorded as an asset or liability by the Corporation until the instrument is exercised.

IMPACT OF INFLATION AND CHANGING PRICES

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and results of operations in historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Corporation’s operations. Nearly all the assets and liabilities of the Corporation are financial, unlike industrial or commercial companies. As a result, the Corporation’s performance is directly impacted by changes in interest rates, which are indirectly influenced by inflationary expectations. The Corporation’s ability to match the interest sensitivity of its financial assets to the interest sensitivity of its financial liabilities tends to minimize the effect of changes in interest rates on the Corporation’s performance. Changes in interest rates do not necessarily move to the same extent as changes in the price of goods and services.

Table of Contents

MACKINAC FINANCIAL CORPORATION

ITEM 4. CONTROLS AND PROCEDURES

As of June 30, 2015, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Our management, which includes our principal executive officer and our principal financial officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud.

A control system, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints; additionally, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Corporation have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate due to changes in conditions; also the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Our principal executive officer and principal accounting officer have concluded, based on our evaluation of our disclosure controls and procedures, that our disclosure controls and procedures, as defined, under Rule 13a-15 of the Securities Exchange Act of 1934 are effective as of June 30, 2015.

Changes in Internal Control Over Financial Reporting

There were no changes in the Corporation’s internal control over financial reporting that occurred during the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Table of Contents

MACKINAC FINANCIAL CORPORATION

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Corporation and its subsidiaries are subject to routine litigation incidental to the business of banking.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Corporation currently has a share repurchase program. The program is conducted under authorizations from time to time by the Board of Directors. The shares reported in the table below are covered by Board authorizations made and publically announced for $600,000 on February 27, 2013, an additional $600,000 on December 17, 2013 and an additional $750,000 on April 28, 2015. None of these authorizations has an expiration date.

Issuer purchase of Equity Securities

				Total number of
				shares purchased	Maximum
				as part of a	dollars
				publically	yet to
	Total number of	Average price		announced	be used for
Period of purchases	shares purchased	paid per share		plan or program	stock purchases

April 1, 2015 to April 30, 2015	11,000	$	11.48	11,000	$	905,663
May 1, 2015 to May 31, 2015	4,000	$	11.38	4,000	860,137
June 1, 2015 to June 30, 2015	6,200	$	11.16	6,200	790,938

Total Second Quarter 2015	21,200	$	11.37	21,200

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

Exhibit 31.1 Rule 13a-14(a) Certification of Chief Executive Officer.

Exhibit 31.2 Rule 13a-14(a) Certification of Chief Financial Officer.

Exhibit 32.1 Section 1350 Certification of Chief Executive Officer.

Exhibit 32.2 Section 1350 Certification of Chief Financial Officer.

101.INS XBRL Instance Document.

101.SCH XBRL Taxonomy Extension Schema Document.

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	MACKINAC FINANCIAL CORPORATION
	(Registrant)


Date: August 14, 2015	By:	/s/ Paul D. Tobias
		PAUL D. TOBIAS,
		CHAIRMAN AND CHIEF EXECUTIVE OFFICER
		(principal executive officer)


	By:	/s/ Ernie R. Krueger
		ERNIE R. KRUEGER
		EVP/CHIEF FINANCIAL OFFICER
		(principal financial and accounting officer)

MACKINAC FINANCIAL CORP /MI/ - FORM 10-Q - August 14, 2015

Attached files

MACKINAC FINANCIAL CORP /MI/ Reports