<PAGE>

                                  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 March 31, 2006

                                       OR

                 [ ] 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)

<TABLE>
<S>                                         <C>
                MICHIGAN                                 38-2062816
    (State or other jurisdiction of         (I.R.S. Employer Identification No.)
     incorporation or organization)
</TABLE>

<TABLE>
<S>                                                      <C>
 130 SOUTH CEDAR STREET, MANISTIQUE, MI                     49854
(Address of principal executive offices)                 (Zip Code)
</TABLE>

Registrant's telephone number, including area code: (800) 200-7032

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
                                        ---      ---

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

                                    Yes       No  X
                                        ---      ---

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

As of April 30, 2006, there were outstanding 3,428,695 shares of the
registrant's common stock, no par value.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
                                      INDEX

<TABLE>
<CAPTION>
                                                                        Page No.
                                                                        --------
<S>                                                                     <C>
PART I. FINANCIAL INFORMATION

   Item 1. Financial Statements

      Condensed Consolidated Balance Sheets - March 31, 2006
      (Unaudited), December 31, 2005 and March 31, 2005 (Unaudited)..       1

      Condensed Consolidated Statements of Operations - Three Months
      Ended March 31, 2006 (Unaudited) and March 31, 2005
      (Unaudited)....................................................       2

      Condensed Consolidated Statements of Changes in Shareholders'
      Equity - Three Months Ended March 31, 2006 (Unaudited)
      and March 31, 2005 (Unaudited).................................       3

      Condensed Consolidated Statements of Cash Flows - Three Months
      Ended March 31, 2006 (Unaudited) and March 31, 2005
      (Unaudited)....................................................       4

      Notes to Condensed Consolidated Financial
      Statements (Unaudited).........................................       5

   Item 2. Management's Discussion and Analysis of Financial
           Condition and Results of Operations.......................      13

   Item 3. Quantitative and Qualitative Disclosures about Market
           Risk......................................................      23

   Item 4. Controls and Procedures...................................      26

PART II. OTHER INFORMATION

   Item 1. Legal Proceedings.........................................      27

   Item 6. Exhibits and Reports on Form 8-K..........................      32

SIGNATURES ..........................................................      33
</TABLE>

<PAGE>

                         MACKINAC FINANCIAL CORPORATION

                          PART I FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                March 31,    December 31,     March 31,
                                                                  2006           2005           2005
                                                               -----------   ------------   ------------
                                                               (Unaudited)                   (Unaudited)
<S>                                                            <C>           <C>            <C>
ASSETS
   Cash and due from banks                                      $  6,220       $  4,833       $  3,656
   Federal funds sold                                             12,000          3,110         10,207
                                                                --------       --------       --------
      Cash and cash equivalents                                   18,220          7,943         13,863
   Interest-bearing deposits in other financial institutions         853          1,025             14
   Securities available for sale                                  34,140         34,210         52,298
   Federal Home Loan Bank stock                                    4,855          4,855          4,805

   Total loans                                                   264,471        239,771        194,831
      Allowance for loan losses                                   (5,415)        (6,108)        (6,836)
                                                                --------       --------       --------
   Net loans                                                     259,056        233,663        187,995
   Premises and equipment                                         12,318         11,987         10,588
   Other real estate held for sale                                   952            945          1,515
   Other assets                                                    4,197          4,094          4,138
                                                                --------       --------       --------
      Total assets                                              $334,591       $298,722       $275,216
                                                                ========       ========       ========

LIABILITIES AND SHAREHOLDERS' EQUITY
   Liabilities:
      Noninterest-bearing deposits                              $ 20,463       $ 19,684       $ 19,722
      Interest-bearing deposits                                  247,491        212,948        185,517
                                                                --------       --------       --------
         Total deposits                                          267,954        232,632        205,239
   Borrowings                                                     36,417         36,417         38,135
   Other liabilities                                               3,047          3,085          2,988
                                                                --------       --------       --------
      Total liabilities                                          307,418        272,134        246,362

   Shareholders' equity:
      Preferred stock - No par value:
         Authorized -500,000 shares, no shares outstanding            --             --             --
      Common stock - No par value:
         Authorized - 18,000,000 shares
         Issued and outstanding - 3,428,695                       42,489         42,412         42,335
      Accumulated deficit                                        (14,961)       (15,461)       (13,338)
      Accumulated other comprehensive loss                          (355)          (363)          (143)
                                                                --------       --------       --------
      Total shareholders' equity                                  27,173         26,588         28,854
                                                                --------       --------       --------
      Total liabilities and shareholders' equity                $334,591       $298,722       $275,216
                                                                ========       ========       ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                                                              1.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Dollars in Thousands, Except per Share Data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                        Three Months
                                                       Ended March 31,
                                                      ----------------
                                                       2006      2005
                                                      ------   -------
<S>                                                   <C>      <C>
Interest income:
   Interest and fees on loans:
      Taxable                                         $4,499   $ 3,059
      Tax-exempt                                         194       242
   Interest on securities:
      Taxable                                            273       462
      Tax-exempt                                          41        42
   Other interest income                                 168       183
                                                      ------   -------
      Total interest income                            5,175     3,988
                                                      ------   -------
Interest expense:
   Deposits                                            2,080     1,130
   Borrowings                                            416       653
                                                      ------   -------
      Total interest expense                           2,496     1,783
                                                      ------   -------
Net interest income                                    2,679     2,205
Provision for loan losses                               (600)       --
                                                      ------   -------
Net interest income after provision for loan losses    3,279     2,205
                                                      ------   -------
Other income:
   Service fees                                          111       161
   Loan and lease fees                                    17         7
   Net security losses                                    --        (1)
   Net gains on sales of loans                            40        --
   Gain on sale of property and equipment                 --         2
   Other                                                  48        15
                                                      ------   -------
      Total other income                                 216       184
                                                      ------   -------
Other expense:
   Salaries and employee benefits                      1,594     1,504
   Occupancy                                             317       226
   Furniture and equipment                               156       159
   Data processing                                       154       246
   Accounting, legal and consulting fees                 200       318
   Loan and deposit                                      129       293
   Telephone                                              49        60
   Advertising                                            70       139
   Penalty on prepayment of FHLB borrowings               --     4,320
   Other                                                 328       365
                                                      ------   -------
      Total other expense                              2,997     7,630
                                                      ------   -------
Income (loss) before provision for income taxes          498    (5,241)
Provision for income taxes                                --        --
                                                      ------   -------
Net income (loss)                                     $  498   $(5,241)
                                                      ======   =======
Income (loss) per common share:
   Basic                                              $  .15   $ (1.53)
                                                      ======   =======
   Diluted                                            $  .15   $ (1.53)
                                                      ======   =======
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                                                              2.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
      CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                             (Dollars in Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                           Three Months Ended
                                                March 31,
                                           ------------------
                                             2006      2005
                                           -------   --------
<S>                                        <C>       <C>
Balance, beginning of period               $26,588   $ 34,730
Stock option compensation                       79         --
Net income (loss) for period                   498     (5,241)
Net unrealized gain (loss) on securities
   available for sale                            8       (635)
                                           -------   --------
   Total comprehensive income (loss)           506     (5,876)
                                           -------   --------
Balance, end of period                     $27,173   $ 28,854
                                           =======   ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                                                              3.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                             Three Months Ended
                                                                                 March 31,
                                                                            -------------------
                                                                              2006       2005
                                                                            --------   --------
<S>                                                                         <C>        <C>
   CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income (loss)                                                     $    498   $ (5,241)
      Adjustments to reconcile net income (loss) to
         net cash provided by (used in) operating activities:
         Depreciation and amortization                                           243        248
         FHLB stock dividend                                                      --        (51)
         (Gain) loss on sale of assets                                            --         (4)
         Change in other assets                                                 (134)     1,551
         Change in other liabilities                                             (38)    (1,090)
                                                                            --------   --------
   Net cash provided by (used in) Operating activities                           569     (4,587)
                                                                            --------   --------
   CASH FLOWS FROM INVESTING ACTIVITIES:
      Net decrease in interest-bearing deposits in other financial
         institutions                                                            172     18,521
      Payment for purchases of securities available for sale                      --    (16,009)
      Proceeds from sale of securities available for sale                         --     18,674
      Proceeds from calls and maturities of securities available for sale         70      1,447
      Net (increase) decrease in loans                                       (25,400)     8,840
      Capital expenditures                                                      (535)        --
      Proceeds from sale of premises, equipment and other real estate             --        214
      Purchase of minority interest in subsidiary of mBank                        79
                                                                            --------   --------
   Net cash provided (used in) by Investing activities                       (25,614)    31,687
                                                                            --------   --------
   CASH FLOWS FROM FINANCING ACTIVITIES:
      Net increase (decrease) in deposits                                     35,322    (10,411)
      Proceeds from issuance of debt                                              --      1,651
      Principal payments on borrowings                                            --    (48,555)
                                                                            --------   --------
   Net cash provided by (used in) Financing activities                        35,322    (57,315)
                                                                            --------   --------
Net Increase (Decrease) in Cash and Cash Equivalents                          10,277    (30,215)
Cash and Cash Equivalents at Beginning of Period                               7,943     44,078
                                                                            --------   --------
Cash and Cash Equivalents at End of Period                                  $ 18,220   $ 13,863
                                                                            ========   ========

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Paid During the Period for:
      Interest                                                              $  2,382   $  1,896
      Income taxes                                                                --         --

NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfers of Foreclosures from Loans to Other Real Estate Held for Sale            7         31
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                                                              4.

<PAGE>

                         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 three-month period ended
     March 31, 2006 are not necessarily indicative of the results that may be
     expected for the year ending December 31, 2006. 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, 2005.

     The preparation of financial statements in conformity with generally
     accepted accounting principles 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 period. Actual results could differ from those estimates.

     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.

     ALLOWANCE FOR LOAN LOSSES

     The allowance for loan losses includes specific allowances related to
     commercial loans, which 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 collectibility 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 collectibility.

     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 OPTION PLANS

     The Corporation sponsors three stock option plans. One plan was approved
     during 2000 and applies to officers, employees, and nonemployee directors.
     This plan was amended as a part of the December 2004 stock offering and
     recapitalization. The amendment, approved by shareholders, increased the
     shares available under this plan by 428,587 shares from the original 25,000
     (adjusted for the 1:20 split), to a total authorized share balance of
     453,587. The other two plans, one for officers and employees and the other
     for nonemployee directors, were approved in 1997. A total of 30,000 shares
     (adjusted for the 1:20 split), were made available for grant under


                                                                              5.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     these plans. Options under all of the plans are granted at the discretion
     of a committee of the Corporation's Board of Directors. Options to purchase
     shares of the Corporation's stock are granted at a price equal to the
     market price of the stock at the date of grant. The committee determines
     the vesting of the options when they are granted as established under the
     plan.

     The Corporation adopted SFAS No. 123 (Revised) "Share Based Payments" in
     the first quarter of 2006. This Statement supersedes APB Opinion No. 25
     "Accounting for Stock Issued to Employees" and its related implementation
     guidance. Under Opinion No. 25, issuing stock options to employees
     generally resulted in recognition of no compensation cost. This adoption
     resulted in the recognition of after tax compensation expense in the amount
     of $79,000 for the three months ended March 31, 2006. The expense recorded
     recognizes the current period vesting of options outstanding. The first
     quarter 2005 after tax compensation expense, using this same accounting
     treatment would have amounted to $19,000. The per share impact of this
     accounting change was negligible for 2006.

2.   RECENT ACCOUNTING PRONOUNCEMENT

     The Corporation adopted SFAS No. 123 (Revised) "Share Based Payments" in
     the first quarter of 2006. The Corporation does not expect a material
     impact on the results of operations for 2006 as a result of this change,
     with $79,000 reported as expense in the first quarter.

3.   EARNINGS (LOSS) PER SHARE

     Earnings (loss) per share are based upon the weighted average number of
     shares outstanding.

     The following shows the computation of basic and diluted earnings (loss)
     per share for the three months ended March 31, 2006 and 2005 (dollars in
     thousands, except per share data):

     Additional shares issued as a result of option exercises would not be
     dilutive in either three month period.

<TABLE>
<CAPTION>
                                                                  Three Months Ended
                                                                      March 31,
                                                               -----------------------
                                                                  2006         2005
                                                               ----------   ----------
<S>                                                            <C>          <C>
Basic loss per common share:
   Net income (loss)                                           $      498   $   (5,241)
                                                               ==========   ==========
   Weighted average common shares outstanding                   3,428,695    3,428,695
                                                               ==========   ==========
      Basic income (loss) per common share                     $      .15   $    (1.53)
                                                               ----------   ----------
Diluted income (loss) per common share:
   Net loss                                                    $      498   $   (5,241)
                                                               ==========   ==========
   Weighted average common shares outstanding
      for basic income  per common share                        3,428,695    3,428,695
   Add: Dilutive effect of assumed exercise of stock options           --           --
                                                               ----------   ----------
   Average shares and dilutive potential common shares          3,428,695    3,428,695
      Diluted income (loss) per common share                   $      .15   $    (1.53)
                                                               ==========   ==========
</TABLE>


                                                                              6.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

4.   INVESTMENT SECURITIES

     The amortized cost and estimated fair value of investment securities
     available for sale as of March 31, 2006, December 31, 2005, and March 31,
     2005 are as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                             March 31, 2006          December 31, 2005         March 31, 2005
                                         ----------------------   ----------------------   ----------------------
                                         Amortized    Estimated   Amortized    Estimated   Amortized    Estimated
                                            Cost     Fair Value      Cost     Fair Value      Cost     Fair Value
                                         ---------   ----------   ---------   ----------   ---------   ----------
<S>                                      <C>         <C>          <C>         <C>          <C>         <C>
US Agencies                               $30,971      $30,338     $30,980      $30,354     $34,998      $34,466
Obligations of states and political
   subdivisions                             3,524        3,802       3,593        3,856       3,710        4,004
Corporate securities                           --           --          --           --         668          675
Mortgage-related securities                    --           --          --           --      13,065       13,153
                                          -------      -------     -------      -------     -------      -------
   Total securities available for sale    $34,495      $34,140     $34,573      $34,210     $52,441      $52,298
                                          =======      =======     =======      =======     =======      =======
</TABLE>

     The amortized cost and estimated fair value of investment securities
     pledged to secure FHLB borrowings and customer relationships were $24.519
     million and $23.990 million respectively at March 31, 2006.

5.   LOANS

     The composition of loans at March 31, 2006, December 31, 2005, and March
     31, 2005 is as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                             March 31,   December 31,   March 31,
                                               2006          2005          2005
                                             ---------   ------------   ---------
<S>                                          <C>         <C>            <C>
Commercial real estate                        $134,089     $118,637      $100,911
Commercial, financial and agricultural          56,958       56,686        43,632
One to four family residential real estate      50,119       44,660        45,425
Consumer                                         2,300        2,285         2,277
Construction                                    21,005       17,503         2,586
                                              --------     --------      --------
   Total loans                                $264,471     $239,771      $194,831
                                              ========     ========      ========
</TABLE>

     LOANS - ALLOWANCE FOR LOAN LOSSES

     An analysis of the allowance for loan losses for the three months ended
     March 31, 2006, the year ended December 31, 2005, and the three months
     ended March 31, 2005 is as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                 March 31,   December 31,   March 31,
                                    2006         2005          2005
                                 ---------   ------------   ---------
<S>                              <C>         <C>            <C>
Balance at beginning of period    $6,108        $6,966       $6,966
Provision for loan losses           (600)           --           --
Recoveries on loans                   12           134           97
Loans charged off                   (105)         (992)        (227)
                                  ------        ------       ------
   Balance at end of period       $5,415        $6,108       $6,836
                                  ======        ======       ======
</TABLE>


                                                                              7.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

5.   LOANS (Continued)

     In the first quarter of 2006, net charge-off activity was minimal at
     $93,000, or .04% of average loans outstanding compared to net charge-offs
     of $130,000, or .07% of average loans, in the first quarter of 2005. In the
     first quarter of 2006 the Corporation reduced the allowance for loan losses
     by recording a negative provision amounting to $600,000. This reduction in
     the reserve was made in recognition of the improved credit quality existent
     in the loan portfolio and is discussed in more detail under "Management's
     Discussion and Analysis."

     LOANS - 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. The interest income recorded and that
     which would have been recorded had nonaccrual and renegotiated loans been
     current, or not troubled was not material to the consolidated financial
     statements for the three months ended March 31, 2006 and 2005.

     Information regarding impaired loans as of March 31, 2006, December 31,
     2005, and March 31, 2005 is as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                                        Valuation Reserve
                                                                                              ------------------------------------
                                                       March 31,   December 31,   March 31,   March 31,   December 31,   March 31,
                                                          2006         2005          2005        2006         2005         2005
                                                       ---------   ------------   ---------   ---------   ------------   ---------
<S>                                                    <C>         <C>            <C>         <C>         <C>            <C>
Balances, at period end
   Impaired loans with specific valuation reserve         $--         $   --        $   85       $ --          $--          $83
   Impaired loans with no specific valuation reserve                     114         2,187                                   --
                                                          ---         ------        ------       ----          ---          ---
      Total impaired loans                                $--         $  114        $2,272       $ --          $--          $83
                                                          ===         ======        ======       ====          ===          ===
   Impaired loans on nonaccrual basis                     $--         $   15        $2,272       $ --          $--          $83
   Impaired loans on accrual basis                                        99            --                                   --
                                                          ---         ------        ------       ----          ---          ---
      Total impaired loans                                $--         $  114        $2,272       $ --          $--          $83
                                                          ===         ======        ======       ====          ===          ===
Average investment in impaired loans                      $71         $1,922        $3,290
Interest income recognized during impairment                1             78            21
Interest income that would have been recognized
   on an accrual basis                                     --            134            55
Cash-basis interest income recognized                      --             76            21
</TABLE>

     The average investment in impaired loans was approximately $.071 million
     for the three-months ended March 31, 2006, $1.9 million for the year ended
     December 31, 2005, and $3.290 million for the three months ended March 31,
     2005, respectively. Impacting the impaired loan balances in 2005 was a sale
     of nonperforming assets in late December which included $1.0 million of
     nonaccrual loans.


                                                                              8.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

5.   LOANS (Continued)

     LOANS - RELATED PARTIES

     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):

<TABLE>
<CAPTION>
                                                                 March 31,   December 31,   March 31,
                                                                    2006         2005          2005
                                                                 ---------   ------------   ---------
<S>                                                              <C>         <C>            <C>
Loans outstanding, beginning of period                             $ 578         $  63         $ 63
New loans                                                             --            56           --
Net activity on revolving lines of credit                            805           578           --
Repayment                                                             --          (119)         (11)
Change in related party interest                                    (491)           --           --
                                                                   -----         -----         ----
   Loans outstanding, end of period                                $ 892         $ 578         $ 52
                                                                   =====         =====         ====
</TABLE>

     There were no loans to related parties classified substandard at March 31,
     2006, December 31, 2005, and March 31, 2005 respectively. In addition to
     the outstanding balances above, there were unused commitments to related
     parties amounting to approximately $320,000.

6.   BORROWINGS

     Borrowings consist of the following at March 31, 2006, December 31, 2005,
     and March 31, 2005 (dollars in thousands):

<TABLE>
<CAPTION>
                                                                 March 31,   December 31,   March 31,
                                                                    2006         2005          2005
                                                                 ---------   ------------   ---------
<S>                                                              <C>         <C>            <C>
Federal Home Loan Bank advances at rates ranging from 4.35%
   to 5.16% maturing in 2010 and 2011                             $35,000       $35,000      $35,000
Term loan credit, with a correspondent bank, Canadian prime
   less 1/2%                                                           --            --        1,651
Farmers Home Administration, fixed-rate note payable, maturing
   August 24, 2024, interest payable at 1%                          1,417         1,417        1,484
                                                                  -------       -------      -------
                                                                  $36,417       $36,417      $38,135
                                                                  =======       =======      =======
</TABLE>

     In the first quarter of 2005, the Corporation prepaid $48.555 million of
     the Federal Home Loan Bank ("FHLB") borrowings and incurred a prepayment
     penalty of $4.320 million. This early payoff of FHLB borrowings reduced
     interest rate risk and better positions the Corporation for future match
     funding of loan growth.

     The Federal Home Loan Bank borrowings are collateralized at March 31, 2006,
     by the following: a collateral agreement on the Corporation's one to four
     family residential real estate loans with a book value of approximately
     $21.740 million; U.S. government agencies with an amortized cost and
     estimated fair value of $24.519 million and $23.990 million, respectively;
     and Federal Home Loan Bank stock owned by the Bank totaling $4.855 million.
     Prepayment of the remaining advances is subject to the provisions and
     conditions of


                                                                              9.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

6.   BORROWINGS (Continued)

     the credit policy of the Federal Home Loan Bank of Indianapolis in effect
     as of March 31, 2006.

     The U.S.D.A. Rural Development borrowing is collateralized by loans
     totaling $774,000 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 $785,000, and guaranteed by the Corporation.

7.   STOCK OPTION PLANS

     A summary of stock option transactions for the three months ended March 31,
     2006 and 2005 and the year ended December 31, 2005, is as follows:
     (Historical stock option information has been adjusted for the 1:20 reverse
     stock split which occurred in December, 2004).

<TABLE>
<CAPTION>
                                               March 31,   December 31,   March 31,
                                                  2006         2005          2005
                                               ---------   ------------   ---------
<S>                                            <C>         <C>            <C>
Outstanding shares, at beginning of period       375,417      282,999       282,999
Granted during the period                             --      112,500            --
Expired during the period                          1,500       20,082            --
                                                --------     --------      --------
Outstanding shares at end of period              373,917      375,417       282,999
                                                ========     ========      ========
Weighted average exercise price per share
   at end of period                             $  12.60     $  14.15      $ 34.55
                                                ========     ========      ========
Shares available for grant, at end of period      90,988       89,488       138,899
                                                ========     ========      ========
</TABLE>

     There were no options granted in the first quarter of 2006 or 2005.

     Following is a summary of the options outstanding and exercisable at March
31, 2006:

<TABLE>
<CAPTION>
                              Number               Weighted Average
     Exercise       -------------------------          Remaining         Weighted Average
   Price Range      Outstanding   Exercisable   Contractual Life-Years    Exercise Price
----------------    -----------   -----------   ----------------------   ----------------
<S>                 <C>           <C>           <C>                      <C>
      $9.16            12,500         2,500               9.8                 $  9.16
      $9.75           257,152       120,861               8.7                    9.75
      $11.50           40,000         8,000               9.5                   11.50
      $12.00           60,000        12,000               9.2                   12.00
$156.00 - $240.00       3,545         3,545               5.0                  186.75
$300.00 - $406.60         720           720               3.3                  345.00
                      -------       -------               ---                 -------
                      373,917       147,626               8.9                 $ 12.60
                      =======       =======               ===                 =======
</TABLE>

8.   CAPITAL

     On December 16, 2004, the Corporation consummated a recapitalization
     through the issuance of $30 million of common stock in a private placement.
     The net proceeds of this offering amounted to $26.2 million. This
     recapitalization provided the funding to enable the Corporation to
     recapitalize the Bank with a $15.5 million capital infusion. This capital
     infusion provided the Bank with enough capital to be deemed a "well
     capitalized" institution by regulatory standards.


                                                                             10.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

9.   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):

<TABLE>
<CAPTION>
                                            March 31,   December 31,   March 31,
                                               2006         2005          2005
                                            ---------   ------------   ---------
<S>                                         <C>         <C>            <C>
Commitments to extend credit:
   Fixed rate                                $ 1,815       $ 2,118      $ 1,054
   Variable rate                              37,889        31,557       12,578
Standby letters of credit - Variable rate      9,290        10,493       11,338
Credit card commitments - Fixed rate           3,068         3,135        2,810
                                             -------       -------      -------
                                             $52,062       $47,303      $27,780
                                             =======       =======      =======
</TABLE>

     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.

     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 loans to entities within the hospitality


                                                                             11.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

9.   COMMITMENTS, CONTINGENCIES, AND CREDIT RISK (Continued)

     and tourism industry. This concentration represents $38.045 million, or
     19.91%, of the commercial loan portfolio at March 31, 2006. The remainder
     of the commercial loan portfolio is diversified in such categories as
     gaming, petroleum, forestry, and agriculture. 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 locality.


                                                                             12.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISUCSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                                 OF OPERATIONS

FORWARD-LOOKING STATEMENTS

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:

     -    Impact of continued operating losses;

     -    Asset growth of the Corporation may be constrained in order to
          maintain regulatory defined "well capitalized" equity to asset ratios;

     -    The highly regulated environment in which the Corporation operates
          could adversely affect its ability to carry out its strategic plan due
          to restrictions on new products, funding opportunities or new market
          entrances;

     -    General economic conditions, either nationally or in the state(s) in
          which the Corporation does business;

     -    Legislation or regulatory changes which affect the business in which
          the Corporation is engaged;

     -    Changes in the interest rate environment which increase or decrease
          interest rate margins;

     -    Changes in securities markets with respect to the market value of
          financial assets and the level of volatility in certain markets such
          as foreign exchange;

     -    Significant increases in competition in the banking and financial
          services industry resulting from industry consolidation, regulatory
          changes and other factors, as well as action taken by particular
          competitors;

     -    The ability of borrowers to repay loans;

     -    The effects on liquidity of unusual decreases in deposits;

     -    Changes in consumer spending, borrowing, and saving habits;

     -    Technological changes;

     -    Acquisitions and unanticipated occurrences which delay or reduce the
          expected benefits of acquisitions;

     -    Difficulties in hiring and retaining qualified management and banking
          personnel;

     -    The Corporation's ability to increase market share and control
          expenses;

     -    The effect of compliance with legislation or regulatory changes;

     -    The effect of changes in accounting policies and practices;

     -    The costs and effects of existing and future litigation and of adverse
          outcomes in such litigation.

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.


                                                                             13.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISUCSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                           OF OPERATIONS (Continued)

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 and Form
10-K for the year-ended December 31, 2005. Throughout this discussion, the term
"Bank" refers to mBank, formerly known as North Country Bank and Trust, the
principal banking subsidiary of the Corporation.

FINANCIAL OVERVIEW

Year-to-date consolidated net income was $.498 million through March 31, 2006,
compared to net loss of $5.241 million for the same period in 2005. Basic income
per share was $.15 for the three months ended March 31, 2006, compared to a loss
of $1.53 for the same period in 2005. The results of operations for the first
quarter of 2006 include a $600,000 negative loan loss provision, which reduced
the Corporation's allowance for loan loss reserve in recognition of improved
credit quality. The first quarter of 2005 results include a penalty of $4.320
million on the prepayment of $48.555 million of the FHLB borrowings. Excluding
the provision and the prepayment penalty, the net loss in the first quarter of
2006 amounted to $.102 million, compared to an adjusted loss of $.921 million
for the same period in 2005. Total assets increased $35.869 million from
December 31, 2005, to March 31, 2006. The loan portfolio increased $24.700
million in the first quarter of 2006, from December 31, 2005 balances of
$239.771 million. Deposits totaled $267.954 million at March 31, 2006, an
increase of $35.322 million from the $232.632 million at December 31, 2005.

FINANCIAL CONDITION

CASH AND CASH EQUIVALENTS

Cash and cash equivalents increased $10.277 million in the first quarter of
2006. See further discussion of the change in cash and cash equivalents in the
Liquidity section.

INVESTMENT SECURITIES

Available-for-sale securities decreased $.070 million, or .20%, from December
31, 2005, to March 31, 2006, with the balance on March 31, 2006, totaling
$34.140 million. The decrease during the first quarter was due to a combination
of maturities, calls, and paydowns of securities. Investment securities are
utilized in an effort to manage interest rate risk and liquidity. As of March
31, 2006, investment securities with an estimated fair value of $20.130 million
were pledged.

LOANS

Through the first quarter of 2006, loan balances increased by $24.700 million,
or 10.3% from December 31, 2005 balances of $239.771 million. During the first
quarter, the Bank experienced loan production of $30.1 million. Enhancements to
the loan approval process and exception reporting further provide for a more
effective management of risk in the loan portfolio. 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 changes to the loan approval process and exception
reporting, management can effectively manage the risk in the loan portfolio. As
shown in the table below, all segments of the loan portfolio increased in the
first quarter of 2006. 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.


                                                                             14.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISUCSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                           OF OPERATIONS (Continued)

Following is a summary of the loan portfolio at March 31, 2006, December 31,
2005, and March 31, 2005 (dollars in thousands):

<TABLE>
<CAPTION>
                                          March 31,   Percent of   December 31,   Percent of   March 31,   Percent of
                                             2006        Total         2005          Total        2005        Total
                                          ---------   ----------   ------------   ----------   ---------   ----------
<S>                                       <C>         <C>          <C>            <C>          <C>         <C>
Commercial real estate                     $134,089      50.70%      $118,637        49.48%     $100,911      51.79%
Commercial, financial, and agricultural      56,958      21.54         56,686        23.64        43,632      22.39
1-4 family residential real estate           50,119      18.95         44,660        18.63        45,425      23.32
Consumer                                      2,300        .87          2,285          .95         2,277       1.17
Construction                                 21,005       7.94         17,503         7.30         2,586       1.33
                                           --------     ------       --------       ------      --------     ------
Total loans                                $264,471     100.00%      $239,771       100.00%     $194,831     100.00%
                                           ========     ======       ========       ======      ========     ======
</TABLE>

Following is a table showing the significant industry types in the commercial
loan portfolio as of March 31, 2006, December 31, 2005, and March 31, 2005
(dollars in thousands):

<TABLE>
<CAPTION>
                                         March 31, 2006                            December 31, 2005
                            ----------------------------------------   ----------------------------------------
                                          Percent of     Percent of                  Percent of     Percent of
                            Outstanding   Commerical   Shareholders'   Outstanding   Commerical   Shareholders'
                              Balance        Loans         Equity        Balance        Loans         Equity
                            -----------   ----------   -------------   -----------   ----------   -------------
<S>                         <C>           <C>          <C>             <C>           <C>          <C>
Hospitality and tourism       $ 38,045       19.91%       140.01%        $ 37,681       21.49%        141.72%
Gaming                           7,181        3.76         26.43            7,553        4.31          28.41
Petroleum                        6,664        3.49         24.52            6,508        3.71          24.48
Forestry                         5,332        2.79         19.62            5,370        3.06          20.20
Other                          133,825       70.05        492.49%         118,211       67.43         444.60%
                              --------      ------                       --------      ------
   Total Commercial Loans     $191,047      100.00%                      $175,323      100.00%
                              ========      ======                       ========      ======

<CAPTION>
                                         March 31, 2005
                            ----------------------------------------
                                          Percent of     Percent of
                            Outstanding   Commerical   Shareholders'
                               Balance       Loans         Equity
                            -----------   ----------   -------------
<S>                         <C>           <C>          <C>
Hospitality and tourism       $ 45,390       31.40%       157.31%
Gaming                          12,618        8.73         43.73
Petroleum                        7,939        5.49         27.51
Forestry                         5,486        3.80         19.01
Other                           73,110       50.58        253.38%
                              --------      ------
   Total Commercial Loans     $144,543      100.00%
                              ========      ======
</TABLE>

Management has made considerable progress in reducing concentrations of
hospitality and tourism loans, which reduced exposure to this economic segment
and lowered overall loan portfolio risk. Management expects further reductions
in concentrations of hospitality and tourism loans through a combination of new
loans in other industries and paydowns and maturities of current portfolio loans
in this sector.

CREDIT QUALITY

The allowance for loan losses is maintained by management at a level considered
to be adequate to cover probable losses related to specifically identified
loans, as well as losses inherent in the balance of the loan portfolio. At March
31, 2006, the allowance for loan losses was 2.05% of total loans outstanding
compared to 2.55% at December 31, 2005 and 3.51% at March 31, 2005.

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 amounted to $.093 million, .04% of average loans
outstanding, compared to $.130 million, .07% of average loans outstanding, for
the three months ended March 31, 2006 and 2005, respectively. The Corporation,
in recognition of the continued improvement in credit quality which has occurred
since 2004, reduced the reserve for loan loss by $600,000 in the first quarter
of 2006. The reduction of the reserve results in a current reserve balance that
is more representative of the relevant risk inherent within the Corporation's
loan portfolio. The current level of charge-offs is below historical levels and
projected charge-off activity, based upon current levels of nonperforming loans,
is not expected to attain historical levels. Additions or reductions to the
reserve in future periods will be dependent upon a combination of future loan
growth, nonperforming loan balances and charge-off activity. There were no new
significant problem loans or loan downgrades identified during the first quarter
of 2006.


                                                                             15.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
 ITEM 2. MANAGEMENT'S DISUCSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                            OF OPERATIONS (Continued)

The table below shows period end balances of non-performing assets (dollars in
thousands):

<TABLE>
<CAPTION>
                                      March 31,   December 31,   March 31,
                                         2006         2005          2005
                                      ---------   ------------   ---------
<S>                                   <C>         <C>            <C>
NONPERFORMING ASSETS:
Nonaccrual loans                       $   --      $      15      $ 2,272
Loans past due 90 days or more             --             99           --
Restructured loans                         --             --           --
                                       ------      ---------      -------
   Total nonperforming loans               --            114        2,272
Other real estate owned                   952            945        1,515
                                       ------      ---------      -------
   Total nonperforming assets          $  952      $   1,059      $ 3,787
                                       ======      =========      =======
Nonperforming loans as a % of loans        --           0.05%        1.17%
                                       ------      ---------      -------
Nonperforming assets as a % of assets    0.28           0.35%        1.38%
                                       ------      ---------      -------
RESERVE FOR LOAN LOSSES:
At period end                          $5,415      $   6,108      $ 6,836
                                       ------      ---------      -------
As a % of loans                          2.05%          2.55%        3.51%
                                       ------      ---------      -------
As a % of nonperforming loans             N/A       5,357.89%      300.88%
                                       ------      ---------      -------
As a % of nonaccrual loans                N/A            N/M%      300.88%
                                       ======      =========      =======
</TABLE>

Following is the allocation of the allowance for loan losses as of March 31,
2006, December 31, 2005, and March 31, 2005 (dollars in thousands):

<TABLE>
<CAPTION>
                                                   March 31,   December 31,   March 31,
                                                      2006         2005          2005
                                                   ---------   ------------   ---------
<S>                                                <C>         <C>            <C>
Commercial, financial, and agricultural loans        $1,279       $1,492        $1,423
One to four family residential real estate loans         43           17            97
Consumer loans                                           --           --            --
Unallocated and general reserves                      4,093        4,599         5,316
                                                     ------       ------        ------
Totals                                               $5,415       $6,108        $6,836
                                                     ======       ======        ======
</TABLE>

The following ratios assist management in the determination of the Corporation's
credit quality:

<TABLE>
<CAPTION>
                                                                     March 31,   December 31,   March 31,
                                                                        2006         2005          2005
                                                                     ---------   ------------   ---------
<S>                                                                  <C>         <C>            <C>
Allowance to total loans                                                 2.05%         2.55%        3.51%
Average loans outstanding, for the quarters and year, respectively   $250,735      $207,928     $199,703
Net charge-offs to average outstanding loans                             0.04%          .41%         .07%
Nonperforming loans to gross loans                                       0.00%          .05%        1.17%
</TABLE>

Total nonperforming loans decreased $.114 million since December 31, 2005.
During 2005, nonperforming loans were reduced through a combination of loan
sales, charge-offs, and external refinancing. Late in 2005, the Bank sold $2.1
million of nonperforming assets, which included $1.0 million of nonperforming
loans.

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 a loan review


                                                                             16.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
 ITEM 2. MANAGEMENT'S DISUCSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                            OF OPERATIONS (Continued)

consultant to perform a review of the loan portfolio. The opinion of this
consultant upon completion of the independent review provided findings similar
to management on the overall adequacy of the reserve. The Corporation has
engaged this same consultant for loan review during 2006.

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 which is grouped with other assets on the
condensed consolidated balance sheet.

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

<TABLE>
<CAPTION>
                                                              Three Months Ended      Year Ended       Three Months Ended
                                                                March 31, 2006     December 31, 2005     March 31, 2005
                                                              ------------------   -----------------   ------------------
<S>                                                           <C>                  <C>                 <C>
Balance at beginning of period                                       $945               $ 1,730              $1,730
Other real estate transferred from loans due to foreclosure             7                   632                  31
Other real estate transferred to premises and equipment                --                  (358)                 --
Other real estate sold/written down                                    --                (1,059)               (246)
                                                                     ----               -------              ------
   Balance at end of period                                          $952               $   945              $1,515
                                                                     ====               =======              ======
</TABLE>

During the first three months of 2006, the Corporation received real estate in
lieu of loan payments of $7,000. Other real estate is initially valued at the
lower of cost or the fair value less selling costs. After the initial receipt,
management periodically reevaluates the recorded balance. Any additional
reduction in the fair value results in a write-down of other real estate.
Write-downs on other real estate may be recorded based on subsequent evaluations
of current realizable fair values.

DEPOSITS

The Corporation had an increase in deposits in the first quarter of 2006. Total
deposits increased by $35.322 million, or 15.18%, in the first quarter of 2006.
This growth in deposits included $26.414 million of non-core deposits, mostly
brokered certificates of deposit. The Corporation continues to evaluate its
deposit products and pricing alternatives in an effort to fund loan growth as
economically as possible.

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

<TABLE>
<CAPTION>
                                    March 31,                December 31,                March 31,
                                       2006     % of Total       2005       % of Total      2005     % of Total
                                    ---------   ----------   ------------   ----------   ---------   ----------
<S>                                 <C>         <C>          <C>            <C>          <C>         <C>
Demand deposit accounts              $ 20,463       7.64%      $ 19,684         8.46%     $ 19,721       9.61%
NOW and money market                   67,467      25.18         64,566        27.75        51,701      25.19
Savings and IRAs                       22,903       8.55         22,555         9.70        25,687      12.52
Certificates of Deposit <$100,000      72,605      27.10         67,725        29.11        53,458      26.05
                                     --------     ------       --------       ------      --------     ------
   Total core deposits                183,438      68.46        174,530        75.02       150,567      73.36

Certificates of Deposit >$100,000      15,246       5.69         12,335         5.30        11,070       5.39
Internet CDs <$100,000                 26,231       9.79         28,113        12.08        39,099      19.05
Internet CDs >$100,000                  7,700       2.87          7,698         3.31         4,503       2.19
Brokered CDs                           35,339      13.19          9,956         4.28            --         --
                                     --------     ------       --------       ------      --------     ------
   Total non-core deposits             84,516      31.54         58,102        24.98        54,672      26.64
                                     --------     ------       --------       ------      --------     ------
   Total deposits                    $267,954     100.00%      $232,632       100.00%     $205,239     100.00%
                                     ========     ======       ========       ======      ========     ======
</TABLE>


                                                                             17.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISUCSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                            OF OPERATIONS (Continued)

BORROWINGS

In the first quarter of 2005 the Corporation prepaid $48.555 million of the FHLB
borrowings in order to reduce interest rate risk and to better match earning
assets and funding sources. The remaining FHLB borrowings carry fixed interest
rates and mature in 2010 and 2011. The remaining FHLB borrowings are callable
quarterly at the option of the FHLB and can also be converted to variable rates,
at the option of the FHLB, should rates rise above certain index levels. These
borrowings are secured by a blanket collateral agreement on the Bank's
residential mortgage loans and specific assignment of other assets. Management
may increase FHLB borrowings in the future as a source for funding future loan
production. In the first quarter of 2005, the Bank borrowed $2 million in
Canadian dollars from a correspondent bank in order to reduce the risk of an
asset sensitive foreign exchange position. This term loan was repaid in 2005.

SHAREHOLDERS' EQUITY

Total shareholders' equity increased $.585 million from December 31, 2005 to
March 31, 2006. The increase is comprised of net income, contributed capital of
$79,000 in recognition of stock option expense and an $8,000 increase in the
market value of securities. The Board of Directors does not anticipate declaring
any dividends in the near future. The declaration of dividends is contingent on
a variety of factors including regulatory and state statutes, and the
Corporation's return to profitability.

RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income before provision for loan losses for the quarter ended March
31, 2006, increased by $.474 million, or 21.50% compared to the same period one
year ago. This increase in net interest income was a result of the combination
of increased average balances and increased rates. The Corporation continues to
benefit from prime rate increases due to the amount of assets repricing with
each increase. This benefit has been declining in recent periods as the
Corporation initiated steps as a part of its ALCO Committee to reduce interest
rate risk. More discussion is included relative to repricing and asset
sensitivity under the caption "Interest Rate Risk" elsewhere in this report.

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.

<TABLE>
<CAPTION>
                                                                         Three Months Ended
                               -----------------------------------------------------------------------------------------------------
                                      AVERAGE BALANCES         AVERAGE RATES     INTEREST                    2006-2005
                               ------------------------------  -------------  --------------  --------------------------------------
                                     March 31,                    March 31,       March 31,    Income/                        Rate/
                               ------------------   Increase/  -------------  --------------   Expense   Volume     Rate     Volume
(dollars in thousands)           2006      2005    (Decrease)    2006  2005    2006    2005   Variance  Variance  Variance  Variance
                               --------  --------  ----------   ----   ----   ------  ------  --------  --------  --------  --------
<S>                            <C>       <C>       <C>         <C>     <C>    <C>     <C>     <C>       <C>       <C>       <C>
Loans (1,2)                    $250,735  $199,703   $ 51,032    7.59%  6.70%  $4,693  $3,301   $1,393    $ 844      $437       112
Taxable securities               31,029    50,475    (19,446)   3.57   3.71      273     462     (189)    (178)      (18)        7
Nontaxable securities             3,214     3,315       (101)   5.17   5.14       41      42       (1)      (1)       --        --
Federal funds sold                9,424    16,521     (7,097)   4.43   2.26      103      92       11      (40)       89       (38)
Other interest-earning assets     5,776    10,730     (4,954)   4.63   3.48       65      91      (26)     (42)       30       (14)
                               --------  --------   --------    ----   ----   ------  ------   ------    -----      ----      ----
   Total earning assets         300,178   280,744     19,434    6.99   5.76    5,175   3,988    1,188      583       538        67
                               --------  --------   --------
Reserve for loan losses          (6,049)   (6,953)       904
Cash and due from banks           6,339     5,047      1,292
Intangible assets                   319       440       (121)
Other assets                     18,222    17,576        646
                               --------  --------   --------
   Total assets                $319,009  $296,854   $ 22,155
                               ========  ========   ========
NOW and money market deposits  $ 67,892  $ 53,033   $ 14,859    2.86   1.56      478     204      274       57       170        47
Savings deposits                 15,336    18,372     (3,036)   1.22   1.02       46      46       --       (8)        9        (1)
Time deposits                   149,108   116,565     32,543    4.23   3.06    1,556     880      677      246       336        94
Borrowings                       36,417    52,011    (15,594)   4.63   5.09      416     653     (237)    (196)      (59)       18
                               --------  --------   --------    ----   ----   ------  ------   ------    -----      ----      ----
   Total interest-bearing
      liabilities               268,753   239,981     28,772    3.77   3.01    2,496   1,783      714       99       456       158
Demand deposits                  19,384    21,064     (1,680)
Other liabilities                 3,817     5,117     (1,300)
Shareholders' equity             27,055    30,692     (3,637)
                               --------  --------   --------
   Total liabilities and
      shareholders' equity     $319,009  $296,854   $ 22,155
                               ========  ========   ========
Rate spread                                                     3.22%  2.75%
                                                                ----   ----   ------  ------   ------    -----      ----      ----
Net interest margin/revenue                                     3.62%  3.19%  $2,679  $2,205   $  474    $ 484      $ 82      $(91)
                                                                ====   ====   ======  ======   ======    =====      ====      ====
</TABLE>

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

(2)  Interest income on loans includes loan fees.


                                                                             18.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISUCSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                            OF OPERATIONS (Continued)

PROVISION FOR LOAN LOSSES

The Corporation records a provision for loan losses at a level it believes is
necessary to maintain the allowance at an adequate level after considering
factors such as loan charge-offs and recoveries, changes in the mix of loans in
the portfolio, loan growth, and other economic factors. In recognition of the
improved credit quality, the Corporation reduced its loan loss reserve by
$600,000 in the first quarter of 2006. There was no provision for loan losses in
the first quarter of 2005. Management continues to monitor the loan portfolio
for changes which may impact the required allowance for loan losses. A provision
for loan losses may be required for future periods if credit quality should
deteriorate or loan growth is such that the general reserve is no longer deemed
adequate.

OTHER INCOME

Other income increased by $.032 for the quarter ended March 31, 2006, compared
to the quarter ended March 31, 2005. Service fees decreased $.050 million, while
loan and lease income increased $.010 million and other noninterest income
increased $.033 million. The decline in service fees is primarily due to the
introduction of new "no fee" deposit products in an attempt to stimulate growth
in transactional account deposits. In the first quarter of 2006, the Corporation
recognized $40,000 of revenue due to mortgage loans produced and sold in the
secondary market. The secondary market activity is expected to have a greater
impact in future quarters. Other noninterest income was positively impacted in
the first quarter of 2006 from a gain due to foreign currency transactions which
amounted to $22,000.

The following table details noninterest income for the three months ended March
31, 2006, and March 31, 2005 (dollars in thousands):

     Noninterest Income

<TABLE>
<CAPTION>
                                                Three Months Ended
                                                     March 31,       % Increase
                                                ------------------   (Decrease)
                                                   2006   2005        2006-2005
                                                   ----   ----       ----------
<S>                                             <C>       <C>        <C>
Service fees                                       $111   $161         (31.06)%
Loan and lease fee income                            17      7         142.86
Gain on sale of loans                                40     --         100.00
Gain (loss) on sale of property and equipment        --      2        (100.00)
Other noninterest income                             48     15         220.00
                                                   ----   ----        -------
   Subtotal                                         216    185          16.76
                                                   ----   ----        -------
Net Securities gains (losses)                        --     (1)        100.00
                                                   ----   ----        -------
   Total noninterest income                        $216   $184          17.39%
                                                   ====   ====        =======
</TABLE>

OTHER EXPENSES

Other expenses decreased $4.633 million for the quarter ended March 31, 2006,
compared to the same period in 2005. The prepayment penalty on FHLB borrowings
incurred by the Corporation in the first quarter of 2005 amounted to $4.320
million and was the primary reason for the decrease. Salaries, commissions, and
related benefits increased modestly, by $90,045, during the first quarter of
2006, compared to the first quarter of 2005. The $92,000 decrease in data
processing costs is the result of a full systems conversion which occurred in
the fourth quarter of 2005. The $164,000 decrease in loan and deposit expense is
due in large part to the reduction in FDIC insurance premiums which amounted to
$138,000 in the first quarter of 2005 compared to $23,000 in 2006, a reduction
of $115,000. This reduction in premium was due to the improved capital position
of the Bank which resulted in the removal of the Cease and Desist Order in the
first quarter of 2005. Management continually reviews all areas of noninterest
expense for cost reduction opportunities that will not impact service quality
and employee morale.


                                                                             19.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
     ITEM 2. MANAGEMENT'S DISUCSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS (Continued)

The following table details noninterest expense for the three months ended March
31, 2006 and March 31, 2005 (dollars in thousands):

Noninterest Expenses

<TABLE>
<CAPTION>
                                                Three Months
                                                   Ended
                                                 March 31,      % Increase
                                              ---------------   (Decrease)
                                               2006     2005     2006-2005
                                              ------   ------   ----------
<S>                                           <C>      <C>      <C>
Salaries, commissions, and related benefits   $1,594   $1,504       5.98%
Occupancy                                        317      226      40.27
Furniture and equipment                          156      159      (1.89)
Data processing                                  154      246     (37.40)
Accounting, legal, and consulting fees           200      318     (37.11)
Loan and deposit                                 129      293     (55.97)
Telephone                                         49       60     (18.33)
Advertising                                       70      139     (49.64)
Penalty - prepayment of  FHLB borrowings          --    4,320    (100.00)
Other                                            328      365     (10.14)
                                              ------   ------    -------
   Total noninterest expense                  $2,997   $7,630     (60.72)%
                                              ======   ======    =======
</TABLE>

FEDERAL INCOME TAXES

There was no tax provision for the first quarter of 2006 and 2005. The
Corporation's results of operations for 2006 and 2005 do not reflect the impact
of federal income taxes due to large NOL carryforwards. The Corporation has
approximately $36.5 million of NOL carryforward along with various tax credit
carryforwards of $2.1 million. The NOL and tax credit carryforward benefit is
dependent upon the future profitability of the Corporation; therefore no future
benefit of these deferred items has been recorded. The Corporation will
reevaluate these deferred items in future periods to determine whether or not
recognition of all or a portion of the benefit is appropriate in accordance with
FASB Statement No. 109, "Accounting for Income Taxes."

LIQUIDITY

As a result of the Corporation's renewed capital strength, from the
recapitalization in December 2004, the Corporation is now able to pursue sources
of liquidity, such as lines of credit from correspondent banks, borrowings from
the Federal Home Loan Bank and possible issuance of subordinated debt. The
liquidity issues faced, the Corporation's actions taken to address them, and the
liquidity plan for 2006 are discussed below.

During the first quarter of 2006, the Corporation increased cash and cash
equivalents by $10.277 million. As shown on the Corporation's condensed
consolidated statement of cash flows, liquidity was primarily impacted from
growth in loans funded by deposits. The Corporation prepaid $48.555 million in
FHLB borrowings in the first quarter of 2005. The Corporation utilized short
term liquidity sources such as federal funds sold and time deposits in other
financial institutions to fund the prepayment. In the first quarter of 2006, the
Corporation funded loan growth of $25.400 million, with deposit growth which
amounted to $35.322 million. The excess deposit growth resulted in an increase
in federal funds balances.

It is anticipated that during the remainder of 2006, the Corporation will fund
anticipated loan production with a combination of core deposit growth and
noncore funding, primarily brokered CD's.

The Corporation's parent company is dependent upon its primary operating
subsidiary, the Bank, for sources of cash to fund its operating needs. At March
31, 2006, the Corporation's parent had a balance of $1.026 million in cash and
cash equivalents. The Corporation is currently negotiating a line of credit with
a correspondent bank. This line of credit will provide additional resources
necessary to provide additional capital infusions to the Bank if needed.


                                                                             20.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
     ITEM 2. MANAGEMENT'S DISUCSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS (Continued)

The Corporation's liquidity plan for 2006 includes strategies to increase core
deposits in the Corporation's local markets. The introduction of new products
through an extensive advertising campaign commenced in the first quarter of
2005, with a goal of increasing core deposits to reduce the dependency on
noncore, out of market, deposits. The Corporation's liquidity plan for 2006
calls for augmenting local deposit growth efforts with brokered CD funding, to
the extent necessary. The Corporation has also reestablished Bank borrowing
lines at correspondent banks to provide additional sources of liquidity.

CAPITAL AND REGULATORY

During the first quarter of 2006, capital increased by $.585 million, as a
result of the net income of $.498 million. This compares to a decrease in
capital during the same period in the previous year of $5.876 million, resulting
primarily from a net loss of $5.241 million and a decrease in the unrealized
gain on securities available for sale of $.635 million. The increase in the 2006
first quarter is comprised of net income, contributed capital of $79,000 in
recognition of stock option expense and an increase of $8,000 in the market
value of securities.

The Corporation and the Bank are required to maintain certain levels of capital
under government regulation. There are several measurements of regulatory
capital and the Corporation is required to meet minimum requirements under each
measurement. The federal banking regulators have also established capital
classifications beyond the minimum requirements in order to risk-rate deposit
insurance premiums and to provide trigger points for prompt corrective action in
the event an institution becomes financially troubled. Although the Corporation
and the Bank are well capitalized, the Bank is operating under an informal
agreement which requires a minimum Tier 1 Capital ratio of 8%.

The following table details sources of capital for the periods indicated
(dollars in thousands):

<TABLE>
<CAPTION>
                                            March 31,   December 31,   March 31,
                                               2006         2005         2005
                                            ---------   ------------   ---------
<S>                                         <C>         <C>            <C>
CAPITAL STRUCTURE
Shareholders' equity                        $ 27,173      $ 26,588     $ 28,854
                                            --------      --------     --------
Total capitalization                        $ 27,173      $ 26,588     $ 28,854
                                            --------      --------     --------
Tangible capital                            $ 26,874      $ 26,258     $ 28,430
                                            --------      --------     --------
INTANGIBLE ASSETS
   Core deposit premium                     $    299      $    330     $    424
   Other identifiable intangibles                 --            --           --
                                            --------      --------     --------
Total intangibles                           $    299      $    330     $    424
                                            --------      --------     --------
REGULATORY CAPITAL
Tier 1 capital:
   Shareholders' equity                     $ 27,173      $ 26,588     $ 28,854
Net unrealized (gains) losses on
   available for sale securities                 355           363          143
   Minority interest                              60            --           80
   Less: intangibles                            (299)         (330)        (424)
                                            --------      --------     --------
      Total Tier 1 capital                  $ 27,289      $ 26,621     $ 28,653
                                            --------      --------     --------
Tier 2 Capital:
   Allowable reserve for loan losses        $  3,517      $  3,184     $  2,585
   Qualifying long-term debt                                    --           --
                                            --------      --------     --------
      Total Tier 2 capital                     3,517         3,184        2,585
                                            --------      --------     --------
      Total capital                         $ 30,806      $ 29,805     $ 31,238
                                            ========      ========     ========
Risk-adjusted assets                        $279,442      $251,796     $202,584
                                            ========      ========     ========
Capital ratios:
   Tier 1 Capital to risk weighted assets       8.54%         9.23%       14.14%
   Total Capital to risk weighted assets        9.74%        10.57%       15.42%
   Tier 1 Capital to average assets            11.00%        11.84%        9.67%
</TABLE>


                                                                             21.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
 ITEM 2. MANAGEMENT'S DISUCSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                           OF OPERATIONS (Continued)

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.

Presented below is a summary of the capital position in comparison to generally
applicable regulatory requirements:

<TABLE>
<CAPTION>
                                                     Tier 1        Tier 1           Total
                                                   Capital to     Capital to      Capital to
                                                     Average    Risk-Weighted   Risk-Weighted
                                                     Assets         Assets          Assets
                                                   ----------   -------------   -------------
<S>                                                <C>          <C>             <C>
Regulatory minimum for capital adequacy purposes      4.00%          4.00%           8.00%
Regulatory defined well capitalized guideline         5.00%          6.00%          10.00%

The Corporation:
   March 31, 2006                                     8.54%          9.74%          11.00%
   December 31, 2005                                  9.23%         10.57%          11.84%

The Bank:
   March 31, 2006                                     8.20%          9.36%          10.62%
   December 31, 2005                                  8.80%         10.09%          11.35%
</TABLE>


                                                                             22.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
       ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 also has $34.140 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 offers deposit products with 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.

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 speed of change
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 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.


                                                                             23.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

The following is the Corporation's opportunities at March 31, 2006 (dollars in
thousand):

<TABLE>
<CAPTION>
                                          1-90     91 - 365     >1-5     Over 5
                                          Days       Days      Years     Years      Total
                                        --------   --------   -------   -------   --------
<S>                                     <C>        <C>        <C>       <C>       <C>
Interest-earning assets:
   Loans                                $181,629      7,505    56,556    18,781   $264,471
   Securities                                 --      3,449    27,310     3,381     34,140
   Other (1)                              17,708         --        --        --     17,708
                                        --------   --------   -------   -------   --------
   Total interest-earning assets         199,337     10,954    83,866    22,162    316,319
                                        --------   --------   -------   -------   --------
   Interest-bearing obligations:
   NOW, Money Market and Savings          82,771         --        --        --     82,771
   Time deposits                          49,444     92,175    22,338       763    164,720
   Borrowings                                 --         --    35,000     1,417     36,417
                                        --------   --------   -------   -------   --------
   Total interest-bearing obligations    132,215     92,175    57,338     2,180    283,908
                                        --------   --------   -------   -------   --------
Gap                                     $ 67,122   $(81,221)  $26,528   $19,982   $ 32,411
                                        ========   ========   =======   =======   ========
Cumulative gap                          $ 67,122   $(14,099)  $12,429   $32,411
                                        ========   ========   =======   =======
</TABLE>

(1)  Includes Federal Home Loan Bank Stock

The above analysis indicates that at March 31, 2006, the Corporation had a
cumulative liability sensitivity gap position of $14.099 million within the
one-year time frame. The Corporation's cumulative liability sensitive gap
suggests that if market interest rates continue to increase in the next twelve
months, the Corporation has the potential to earn less net interest income.
Conversely, if market interest rates decrease in the next twelve months, the
above GAP position suggests the Corporation's net interest income would
increase.

At December 31, 2005, the Corporation had a cumulative liability sensitivity gap
position of $1.311 million within the one-year time frame. The Corporation's
cumulative liability sensitive gap suggested that if market interest rates
increased in the next twelve months, the Corporation had the potential to earn
less net interest income. Conversely, if market interest rates continued to
decrease over a twelve-month period, the December 31, 2005, gap position
suggested the Corporation's net interest income would increase.

The increase in the gap position from December 31, 2005 to March 31, 2006
resulted from the use of short term liabilities to fund loan growth. This was
done in order to reduce interest rate risk and better match assets and
liabilities. 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 savings
accounts as repricing within 90 days, while experience suggests that these
categories of deposits are actually comparatively resistant to rate sensitivity.

The borrowings in the gap analysis include FHLB advances as fixed-rate advances.
These advances give the FHLB the option to convert from a fixed-rate advance to
an adjustable rate advance with quarterly repricing at three-month LIBOR Flat.
The exercise of this conversion feature by the FHLB would impact the repricing
dates currently assumed in the analysis.

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.


                                                                             24.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

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. The Corporation entered into a term loan
payable in Canadian dollars during the first quarter of 2005 in order to offset
the foreign exchange exposure due to an asset sensitive position. As of March
31, 2006, the Corporation had excess Canadian liabilities of $.036 million (or
$.031 million in U.S. dollars). 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.


                                                                             25.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
                         ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision of and with the participation
of the Corporation's management, including the President and Chief Executive
Officer, and the Chief Financial Officer, of the effectiveness of the design and
operation of the Corporation's disclosure controls and procedures (as such term
is defined in Rules 13-a 15(e) and 15d-15(e) under the Securities and Exchange
Act of 1934, as amended (the "Exchange Act")) as of the end of the period
covered by this report. Based on that evaluation the Corporation's management,
including the President and Chief Executive Officer, have concluded that, as of
the end of such period, the Corporation's disclosure controls and procedures
were effective in timely alerting them to material information relating to the
Corporation (including its consolidated subsidiaries) required to be disclosed
but the Corporation in the reports that it files or submits under the Exchange
Act.

There was no change in the Corporation's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that occurred during the Corporation's fiscal quarter ended March
31, 2006 that has materially affected, or is reasonably likely to materially
affect, the Corporation's internal control over financial reporting.


                                                                             26.

<PAGE>

                         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. In addition, the Corporation or the Bank
is subject to an informal agreement with regulatory authorities and the
litigation described below. Information regarding the informal agreement is
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" under the caption "Capital and Regulatory" in this
report, and is incorporated here by reference. The litigation that is not
routine and incidental to the business of banking is described below.

Shareholder's Derivative Litigation

Damon Trust v. Bittner, et al.

In an action styled Virginia M. Damon Trust v. North Country Financial
Corporation, Nominal Defendant, and Dennis Bittner, Bernard A. Bouschor, Ronald
G. Ford, Sherry L. Littlejohn, Stanley J. Gerou II, John D. Lindroth, Stephen
Madigan, Spencer Shunk, Michael Hendrickson, Glen Tolksdorf, and Wesley Hoffman,
filed in the U.S. District Court for the Western District of Michigan on July 1,
2003, a shareholder of the Corporation has brought a shareholder's derivative
action under Section 27 of the Exchange Act against the Corporation and certain
of its current and former directors and senior executive officers. The
Complaint, which demands a jury trial, is brought on behalf of the Corporation
against the individual defendants. It alleges that the individual defendants
have caused loss and damage to the Corporation through breaches of their
fiduciary duties of oversight and supervision by failing i) adequately to
safeguard the assets of the Corporation, (ii) to ensure that adequate
administrative, operating, and internal controls were in place and implemented,
(iii) to ensure that the Corporation was operated in accordance with
legally-prescribed procedures, and (iv) to oversee the audit process to ensure
that the Corporation's assets were properly accounted for and preserved. The
Complaint further alleges that the individual defendants violated Section 14(a)
of the Exchange Act by making materially false and misleading statements in the
proxy statement mailed to shareholders in connection with the annual meeting of
the Corporation held May 29, 2000, and the adoption by the shareholders at that
meeting of the Corporation's 2000 Stock Incentive Plan. The Complaint also
alleges that Mr. Ford and Ms. Littlejohn, through a series of compensation
arrangements, stock options, and employment agreements obtained by them through
improper means resulting from the offices they held with the Corporation,
received excessive compensation, to the injury of the Corporation. Among other
things, the Complaint is based upon allegations of material misstatements or
omissions in filings made by the Corporation with the SEC, and deficiencies in
the Corporation's policies and procedures for safe and sound operation,
including its directorate and management personnel and practices, credit
underwriting, credit administration, and policies regarding asset/liability
management, liquidity, funds management, and investments, and its compliance
with all applicable laws and regulations, including Regulations O and U of the
Board, FDIC Rules and Regulations, and the Michigan Banking Code of 1999. The
Complaint seeks (i) rescission of the approval of the 2000 Stock Incentive Plan
and return of all stock and options granted under the Plan, (ii) a declaration
that the individual defendants breached their fiduciary duty to the Corporation,
(iii) an order to the individual defendants to account to the Corporation for
all losses and/or damages by reason of the acts and omissions alleged, (iv) an
order to each of the individual defendants to remit to the Corporation all
salaries and other compensation received for periods during which they breached
their fiduciary duties, (v) compensatory damages in favor of the Corporation,
(vi) injunctive relief, and (vii) interest, costs, and attorney's and expert's
fees.

By letter dated September 17, 2003, and expressly without prejudice to the
argument that any such written demand is not required, plaintiff's counsel
purported to make a written demand that the Corporation pursue a number of
indicated putative claims against: (1) present and former officers and directors
of the Corporation who also are the individual defendants in the Damon action,
and (2) the certified public accounting firm of Wipfli, Ullrich, Bertelson, LLP.

On September 18, 2003, the Corporation filed a motion to dismiss the Damon
action because plaintiff did not satisfy the mandatory precondition, under
Section 493a of the Michigan Business Corporation Act ("MBCA"), M.C.L. Section
450.1493a, for filing a shareholder derivative action that the shareholder must
first have submitted a written demand that the Corporation pursue in its own
right the claims asserted by the shareholder (the plaintiff here). Certain of
the individual defendants in the Damon action filed their own motion to dismiss
on November 25, 2003,


                                                                             27.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
                     PART II. OTHER INFORMATION (Continued)

in which motion the other individual defendants later joined. The plaintiff
filed an Opposition to both motions to dismiss on January 9, 2004, and on
January 30, 2004, the defendants filed reply briefs in support of their motions
to dismiss.

On March 22, 2004, the Court issued an Opinion and Order granting in part and
denying in part the motions to dismiss in the Damon case. The Court dismissed
the Section 14(a) claim against all of the defendants as barred by the statute
of limitations and, as further grounds, dismissed that claim as to those who
were not directors at the time of the mailing of the proxy statement. The Court
has permitted the plaintiff to proceed with its breach of fiduciary duty claims
against the Directors on the grounds that the plaintiff cured its procedural
failings by subsequently transmitting a demand letter as required by Section 493
of the MBCA.

On April 19, 2004, the Court entered an Order Granting Stipulation to Grant
Plaintiff Leave to File Amended Complaint and to Grant Related Relief to All
Parties. On May 14, 2004, the plaintiff filed an Amended Complaint and,
thereafter, all Defendants timely filed Answers to the Amended Complaint. In its
Answer, the Corporation averred that the plaintiff's claims are asserted for and
on behalf of the Corporation, that the plaintiff does not assert any claims
against the Corporation and, therefore, the Corporation properly should be
realigned as a plaintiff in the action.

During the above described proceedings, on November 11, 2003, the Corporation
filed a motion, as permitted by section 495 of the MBCA, M.C.L. Section
450.1495, requesting the Court to appoint a disinterested person to conduct a
reasonable investigation of the claims made by the plaintiff and to make a good
faith determination whether the maintenance of the derivative action is in the
best interests of the Corporation. After additional written submissions to the
Court by the defendants and the plaintiff concerning the issues presented by
this motion, and after several conferences with the Court, on May 20, 2004, the
Court entered an Order adopting the parties' written stipulations concerning the
appointment of a disinterested person and the manner of conducting the
investigation of the claims made by the plaintiff and making recommendations as
to whether the maintenance of the derivative action is in the best interests of
the Corporation.

On July 14, 2004, the Court convened a settlement conference among counsel for
all parties and counsel for the individual defendants' insurer. Although a
settlement was not achieved, at the direction of the Court, the parties'
respective counsel agreed to continue settlement discussions.

By Order of the Court dated November 2, 2004, the report of the disinterested
person was timely filed with the Corporation on October 23, 2004, and the action
was stayed until November 22, 2004. On December 22, 2004, the plaintiff filed a
motion with the Court seeking a scheduling conference among the Court and the
parties. The Court granted the plaintiff's motion on January 10, 2005. On
January 13, 2005, the parties to the action and the individual defendants'
insurer entered into an agreement regarding limited disclosure of the report of
the disinterested person to the insurer and counsel for the parties on the terms
and conditions set forth in the agreement. Also on January 13, 2005, a
scheduling conference was held with the Court, and was adjourned to February 14,
2005.

On February 9, 2005, the parties filed a joint status report with the Court. A
further status conference was held on February 14, 2005. At that time, the Court
entered a Stipulated Protective Order regarding limited dissemination of the
report of the disinterested person. Also on February 14, in a separate Order,
the Court required the parties to complete their respective review of the report
and communicate among themselves regarding their positions. Absent a negotiated
resolution, the Corporation was given the opportunity until March 21, 2005, to
file an appropriate motion to dismiss. On March 21, 2005, consistent with the
determinations of the disinterested person in his report, the Corporation filed
with the Court a motion to dismiss (i) all the breach of fiduciary duty claims
against defendants Bittner, Bouschor, Gerou, Lindroth, Madigan, Shunk,
Hendrickson, and Tolksdorf, (ii) the breach of fiduciary duty claims against
defendant Hoffman, except for one claim identified by the disinterested person
in his report, and (iii) the excess compensation claims against defendants Ford
and Littlejohn. The plaintiff opposed the motion to dismiss.

In an Order dated September 6, 2005, the Court stayed the proceedings in this
case against defendant Littlejohn, in light of her filing for personal
bankruptcy under Chapter 7 of the Bankruptcy Code in the U.S. Bankruptcy Court
for the Western District of Michigan on August 9, 2005.


                                                                             28.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
                     PART II. OTHER INFORMATION (Continued)

In an Opinion and Order, each dated September 7, 2005, the Court granted the
Corporation's motion and dismissed with prejudice (i) all the breach of
fiduciary duty claims against defendants Bittner, Bouschor, Gerou, Lindroth,
Madigan, Shunk, Hendrickson, and Tolksdorf, (ii) the breach of fiduciary duty
claims against defendant Hoffman, except for one claim identified by the
disinterested person in his report, and (iii) the excess compensation claims
against defendants Ford and Littlejohn. The Court directed that the case proceed
with the claim against defendant Hoffman with respect to his involvement in
defendant Ford's December 21, 2001 employment agreement, and with respect to the
breach of fiduciary duty claims against defendants Ford and Littlejohn, subject
to the stay regarding proceedings against defendant Littlejohn.

A Case Management Order was entered by the Court on September 16, 2005. The
Court also scheduled a mediation among the parties, the Corporation, and its
insurer for November 15, 2005.

On October 21, 2005, without the required permission of the Court, the plaintiff
filed a Third Amended Complaint which (A) deleted (i) substantive allegations
previously asserted against defendants Bittner, Bouschor, Gerou, Lindroth,
Madigan, Shunk, Hendrickson, and Tolksdorf, (ii) the claim brought under Section
14 of the Exchange Act, (iii) allegations that the defendants engaged in acts to
"artificially inflate the price" of the Corporation's stock, and (iv) the
previous allegations quantifying damages to the Corporation at $40 million
(instead alleging "million of dollars" in damages), and (B) otherwise appears to
have been drafted to comport with the Court's Opinion and Order dated September
7, 2005. The Third Amended Complaint continues to include allegations against
defendant Littlejohn, notwithstanding the Court's September 6, 2005 Order
staying the case against her because of her personal bankruptcy filing. Before
the defendants responded to the Third Amended Complaint, the Court entered an
Order on October 31, 2005, striking the Third Amended Complaint because the
required permission of the Court was not obtained for its filing. The Court's
Order affords plaintiff seven days in which to submit a stipulated order for
filing of the Third Amended Complaint, or the filing of a motion to permit its
filing. Plaintiff subsequently filed a motion for leave to file a Third Amended
Complaint, and the Court has taken the motion under advisement after conducting
a hearing on the motion on December 6, 2005.

The mediation scheduled by the Court among the parties, the Corporation, and its
insurer was held on November 15, 2005. No settlement was reached. A continuation
of the mediation has been scheduled for April 26, 2006 by the parties, which are
conducting discovery in preparation for the mediation.

On November 22, 2005, the U.S. Bankruptcy Court for the Western District of
Michigan entered an Order granting the plaintiff's motion to lift the automatic
stay under 11 U.S.C. Section 362 and to permit plaintiff to continue the Damon
action against defendant Littlejohn, to the extent that plaintiff limits its
recovery to insurance proceeds. On December 14, 2005, the Bankruptcy Court
entered an order discharging defendant Littlejohn as a debtor in bankruptcy.

On March 3, 2006, the Court amended the Case Management Order to extend the
discovery and motion cutoff deadlines in the Damon case.

Prosecution of this case is the responsibility of the plaintiff and its counsel.
The Corporation's role will be to monitor the case and to respond to discovery
requests from the parties. Any settlement or judgment ultimately obtained by
plaintiff in this action, net of fees and expenses of counsel for plaintiff,
will inure to the benefit of the Corporation.

If a settlement is not reached as a result of the mediation, the Corporation
will incur additional legal fees and expenses in monitoring the plaintiff's
prosecution of the case on behalf of the Corporation and in responding to the
parties' requests for discovery directed to it. At this time the Corporation
cannot accurately estimate the amount of any such future legal fees and
expenses.

Damon Trust v. Wipfli

On August 27, 2004, a second shareholder's derivative action, styled Virginia M.
Damon Trust v. Wipfli Ullrich Bertelson, LLP, and North Country Financial
Corporation, Nominal Defendant, was filed in the Michigan Circuit Court for
Grand Traverse County by the same shareholder which brought the derivative
action discussed above. The complaint, which demands a jury trial, is brought on
behalf of the Corporation against Wipfli Ullrich Bertelson, LLP ("Wipfli") under
the Michigan Accountant Liability statute, M.C.L. 600.2962. It alleges that
Wipfli damaged


                                                                             29.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
                     PART II. OTHER INFORMATION (Continued)

the Corporation by (i) failing to conduct and oversee, with the due care and
competence required of professional accountants, the annual audit of the
Corporation's financial statements for its fiscal years ending December 31, 2000
and December 31, 2001, (ii) failing to provide, with requisite due care and
competence, the internal audit, regulatory compliance, and financial reporting
services Wipfli had agreed to provide the Corporation after August 28, 2002,
when Wipfli resigned as its auditors to undertake such consulting services,
(iii) failing to exercise due care and competence required to ensure that the
Corporation's financial statements conformed to applicable regulatory accounting
principles ("RAP") and generally accepted accounting principles ("GAAP"), (iv)
failing to make full disclosure that the Corporation's administrative,
operating, and internal controls were inadequate to prevent loss and damage to
its assets, and (v) failing to conduct a diligent and careful "review" of the
Corporation's quarterly financial statements during its fiscal years 2000 and
2001 and the first and second quarters of 2002.

The complaint further alleges that Wipfli undertook in writing (i) to provide
professional services, including auditing services, accounting services for
preparation of audited financial statements, advice regarding financial
statement disclosure, and preparation of annual reports for regulators,
including the annual report required by section 36 of the Federal Deposit
Insurance Act, and (ii) to ensure that the Corporation had sufficient systems in
place to determine whether it was in compliance with RAP and other regulations
of the FDIC and the OFIS. The complaint alleges that Wipfli (i) failed to
conduct its audits of the Corporation's financial statements in accordance with
generally accepted auditing standards ("GAAS"), (ii) negligently represented
that the Corporation's audited annual financial statements for the year ended
December 31, 2000 were fairly presented in all material respects, (iii)
negligently conducted reviews of the Corporation's quarterly financial
statements for the interim quarters of 2000, 2001 and 2002, and (iv) negligently
audited the Corporation's financial statements for the fiscal years 2000 and
2001 by failing to obtain or review sufficient documentation failing to limit
the scope of the audit in light of such failure to obtain or review sufficient
documentation, failing to verify the accuracy of information obtained from the
Corporation for the audit, failing to limit the scope of the audit in light of
such failure to verify the accuracy of the information obtained from the
Corporation, and substantially underestimating the Corporation's liabilities and
misrepresenting its solvency.

The complaint also alleges that Wipfli is a party responsible for the
Corporation's liability in any securities fraud action arising out of a material
overstatement of its financial results. The complaint claims contribution and
indemnification from Wipfli on behalf of the Corporation under the Private
Securities Litigation Reform Act of 1995 for any liability it may incur in any
such securities fraud action.

On October 12, 2004, Wipfli removed the second shareholder's derivative action
to the U.S. District Court for the Western District of Michigan. By stipulation
between the respective counsel for the Corporation and the plaintiff, the
Corporation was initially granted until December 10, 2004, to file its first
response to the Complaint, which period was extended by a Stipulated Order until
January, 2005.

On January 10, 2005, the Corporation filed its Answer to the Complaint in the
second shareholder's derivative action. Also on that date, a joint status report
was filed with the Court by all parties. A scheduling conference was held with
the Court on January 13, 2005. On that date, the Court entered a Preliminary
Case Management Order, affording the Corporation the opportunity until February
3, 2005, to make a motion to realign the Corporation in, or to dismiss, the
litigation.

On February 3, 2005, the Corporation filed a Motion to realign the Corporation
as the plaintiff, and to dismiss the Virginia M. Damon Trust as a party, in the
second shareholder's derivative action. The plaintiff, Virginia M. Damon Trust,
filed a brief opposing the Corporation's motion. Oral argument on the
Corporation's motion was held before the Court on March 7, 2005. The Court took
the matter under advisement.

In an Order dated September 29, 2005, the Court realigned the Corporation as the
plaintiff and made the Corporation exclusively responsible for prosecuting all
further aspects of the case, including any settlement. In the same Order, the
Court stated that the Virginia M. Damon Trust would remain as a nominal
plaintiff in the case, entitled to notice.

A Case Management Order was entered by the Court on January 27, 2006. The Court
also scheduled a mediation among the parties for June, 2006. The parties have
jointly retained a facilitator to conduct a non-binding mediation on June 20 and
21, 2006. Pursuant to the Court's order, the parties intend to exchange
documents and expert reports prior to that mediation.


                                                                             30.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
                     PART II. OTHER INFORMATION (Continued)

Litigation of the types involved in the actions described above can be complex,
time-consuming, and often protracted. The Corporation has incurred substantial
expense for legal and other professional fees as a result of these actions. The
Corporation anticipates that it will incur additional such expenses in
connection with the two actions described above. The Corporation does not
believe that legal costs associated with the Damon action noted above will be
material for 2006. The amount of the costs to be incurred for 2006 pertaining to
the Wipfli action is unknown; however, the Corporation believes it will not be
in excess of $200,000.


                                                                             31.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
                     PART II. OTHER INFORMATION (Continued)

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

    Exhibit 3.1    Articles of Incorporation, as amended, incorporated herein by
                   reference to exhibit 3.1 of the Corporation's Quarterly
                   Report on Form 10-Q for the quarter ended September 30, 1999.

    Exhibit 3.2    Amended and Restated Bylaws, incorporated herein by reference
                   to exhibit 3.1 of the Corporation's Quarterly Report on Form
                   10-Q for the quarter ended September 30, 2001.

    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.


                                                                             32.

<PAGE>

                         MACKINAC FINANCIAL CORPORATION

                                   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)


May 12, 2006                            By: /s/ Paul D. Tobias
Date                                        ------------------------------------
                                            PAUL D. TOBIAS,
                                            CHAIRMAN AND CHIEF EXECUTIVE OFFICER
                                            (principal executive officer)


                                        By: /s/ Ernie R. Krueger
                                            ------------------------------------
                                            ERNIE R. KRUEGER
                                            SENIOR VICE PRESIDENT /CONTROLLER
                                            (principal accounting officer)


                                                                             33.

<PAGE>
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
    NO:                                  DESCRIPTION
    ---                                  -----------
<S>          <C>
Exhibit 3.1  Articles of Incorporation, as amended, incorporated herein by
             reference to exhibit 3.1 of the Corporation's Quarterly Report on
             Form 10-Q for the quarter ended September 30, 1999.

Exhibit 3.2  Amended and Restated Bylaws, incorporated herein by reference to
             exhibit 3.1 of the Corporation's Quarterly Report on Form 10-Q for
             the quarter ended September 30, 2001.

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.
</TABLE>