##### 



For Release:
    
    July 28, 2006Nasdaq:
    
    MFNCContact:
    
    Investor Relations at (888) 343-8147Website:
    
    www.bankmbank.com
 
     4




---



##### 



Forward-Looking Statements
 This release contains certain forward-looking statements. Words such as anticipates, believes,
estimates, expects, intends, should, will, and variations of such words and similar
expressions are intended to identify forward-looking statements: as defined by the Private
Securities Litigation Reform Act of 1995. These statements reflect managements current beliefs as
to expected outcomes of future events and are not guarantees of future performance. These
statements involve certain risks, uncertainties and assumptions that are difficult to predict with
regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and
outcomes may materially differ from what may be expressed or forecasted in such forward-looking
statements. Factors that could cause a difference include among others: changes in the national
and local economies or market conditions; changes in interest rates and banking regulations; the
impact of competition form traditional or new sources; and the possibility that anticipated cost
savings and revenue enhancements from mergers and acquisitions, bank consolidations, branch
closings and other sources may not be fully realized at all or within specified time frames as well
as other risks and uncertainties including but not limited to those detailed from time to time in
filings of the Company with the Securities and Exchange Commission. These and other factors may
cause decisions and actual results to differ materially from current expectations. Mackinac
Financial Corporation undertakes no obligation to revise, update, or clarify forward-looking
statements to reflect events or conditions after the date of this release.
 5




---



##### 



MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL HIGHLIGHTS
 (Dollars in thousands, except per share data)*
    
    For The Period EndedJune 30,
    
    
    December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005(Unaudited)
    
    
    
    
    
    
    (Unaudited)Selected Financial Condition Data (at end of period):Total assets
    
    $
    352,497
    
    
    $
    298,722
    
    
    $
    276,111Total loans
    
    
    283,110
    
    
    
    239,771
    
    
    
    204,503Total deposits
    
    
    284,165
    
    
    
    232,632
    
    
    
    207,814Borrowings and subordinated debentures
    
    
    37,617
    
    
    
    36,417
    
    
    
    36,484Total shareholders equity
    
    
    27,179
    
    
    
    26,588
    
    
    
    28,517Selected Statements of Income Data(six months and year ended):Net interest income
    
    $
    5,614
    
    
    $
    9,780
    
    
    $
    4,593Income (loss) before taxes
    
    
    663
    
    
    
    (7,364
    )
    
    
    (5,818
    )Net income (loss)
    
    
    688
    
    
    
    (7,364
    )
    
    
    (5,818
    )Income (loss) per common share  Basic
    
    
    0.20
    
    
    
    (2.15
    )
    
    
    (1.70
    )Income (loss) per common share  Diluted
    
    
    0.20
    
    
    
    (2.15
    )
    
    
    (1.70
    )Three Months EndedNet interest income
    
    $
    2,935
    
    
    $
    2,680
    
    
    $
    2,388Income (loss) before taxes
    
    
    165
    
    
    
    (1,028
    )
    
    
    (577
    )Net income (loss)
    
    
    190
    
    
    
    (1,028
    )
    
    
    (577
    )Income (loss) per common share  Basic
    
    
    .05
    
    
    
    (0.30
    )
    
    
    (0.17
    )Income (loss) per common share  Diluted
    
    
    .05
    
    
    
    (0.30
    )
    
    
    (0.17
    )Selected Financial Ratios and Other Data (six months and year ended):Performance Ratios:Net interest margin
    
    
    3.63
    %
    
    
    3.64
    %
    
    
    3.63
    %Efficiency ratio
    
    
    95.21
    
    
    
    160.43
    
    
    
    205.52Return on average assets
    
    
    0.42
    
    
    
    (2.58
    )
    
    
    (4.06
    )Return on average equity
    
    
    5.11
    
    
    
    (25.63
    )
    
    
    (39.18
    )Average total assets
    
    $
    330,980
    
    
    $
    285,896
    
    
    $
    287,252Average total shareholders equity
    
    $
    27,135
    
    
    $
    28,732
    
    
    $
    29,781Average loans to average deposits ratio
    
    
    99.64
    %
    
    
    98.17
    %
    
    
    95.51
    %Common Share Data (at end of period):Market price per common share
    
    $
    10.27
    
    
    $
    9.10
    
    
    $
    15.23Book value per common share
    
    $
    7.93
    
    
    $
    7.76
    
    
    $
    8.32Common shares outstanding
    
    
    3,428,695
    
    
    
    3,428,695
    
    
    
    3,428,695Other Data (at end of period):Allowance for loan losses
    
    $
    5,415
    
    
    $
    6,108
    
    
    $
    6,636Non-performing assets
    
    $
    498
    
    
    $
    1,059
    
    
    $
    3,273Allowance for loan losses to total loans
    
    
    1.91
    %
    
    
    2.55
    %
    
    
    3.24
    %Non-performing assets to total assets
    
    
    0.14
    %
    
    
    0.35
    %
    
    
    1.19
    %Number of:Branch locations
    
    
    13
    
    
    
    12
    
    
    
    12
 
 *
    
    Historical per share data has been adjusted for the 20:1 reverse stock split distributed in December 2004. 6




---



##### 



MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands except per share data)
    
    June 30,
    
    
    December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005(Unaudited)
    
    
    
    
    
    
    (Unaudited)ASSETSCash and due from banks
    
    $
    5,529
    
    
    $
    4,833
    
    
    $
    11,477Federal funds sold
    
    
    12,535
    
    
    
    3,110
    
    
    
    8,767Cash and cash equivalents
    
    
    18,064
    
    
    
    7,943
    
    
    
    20,244Interest-bearing deposits in other financial
institutions
    
    
    893
    
    
    
    1,025
    
    
    
    Securities available for sale
    
    
    33,870
    
    
    
    34,210
    
    
    
    36,166Federal Home Loan Bank stock
    
    
    4,855
    
    
    
    4,855
    
    
    
    4,855Total loans
    
    
    283,110
    
    
    
    239,771
    
    
    
    204,503Allowance for loan losses
    
    
    (5,415
    )
    
    
    (6,108
    )
    
    
    (6,636
    )Net loans
    
    
    277,695
    
    
    
    233,663
    
    
    
    197,867Premises and equipment
    
    
    12,748
    
    
    
    11,987
    
    
    
    10,496Other real estate held for sale
    
    
    52
    
    
    
    945
    
    
    
    2,312Other assets
    
    
    4,320
    
    
    
    4,094
    
    
    
    4,171Total assets
    
    $
    352,497
    
    
    $
    298,722
    
    
    $
    276,111LIABILITIES AND SHAREHOLDERS EQUITYLiabilities:Non-interest-bearing deposits
    
    $
    21,773
    
    
    $
    19,684
    
    
    $
    21,033Interest-bearing deposits
    
    
    262,391
    
    
    
    212,948
    
    
    
    186,781Total deposits
    
    
    284,164
    
    
    
    232,632
    
    
    
    207,814Borrowings
    
    
    37,617
    
    
    
    36,417
    
    
    
    36,484Other liabilities
    
    
    3,537
    
    
    
    3,085
    
    
    
    3,296Total liabilities
    
    
    325,318
    
    
    
    272,134
    
    
    
    247,594Shareholders 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 shares
    
    
    42,567
    
    
    
    42,412
    
    
    
    42,412Accumulated deficit
    
    
    (14,772
    )
    
    
    (15,461
    )
    
    
    (13,915
    )Accumulated other comprehensive income
    
    
    (616
    )
    
    
    (363
    )
    
    
    20Total shareholders equity
    
    
    27,179
    
    
    
    26,588
    
    
    
    28,517Total liabilities and shareholders equity
    
    $
    352,497
    
    
    $
    298,722
    
    
    $
    276,111
 7




---



##### 



MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in thousands except per share data)
    
    Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Interest income:Interest and fees on loans:Taxable
    
    $
    5,182
    
    
    $
    3,201
    
    
    $
    9,681
    
    
    $
    6,260Tax-exempt
    
    
    192
    
    
    
    230
    
    
    
    385
    
    
    
    472Interest on securities:Taxable
    
    
    274
    
    
    
    434
    
    
    
    547
    
    
    
    896Tax-exempt
    
    
    41
    
    
    
    42
    
    
    
    82
    
    
    
    84Other interest income
    
    
    194
    
    
    
    110
    
    
    
    363
    
    
    
    293Total interest income
    
    
    5,883
    
    
    
    4,017
    
    
    
    11,058
    
    
    
    8,005Interest expense:Deposits
    
    
    2,509
    
    
    
    1,198
    
    
    
    4,589
    
    
    
    2,328Borrowings
    
    
    439
    
    
    
    431
    
    
    
    855
    
    
    
    1,084Total interest expense
    
    
    2,948
    
    
    
    1,629
    
    
    
    5,444
    
    
    
    3,412Net interest income
    
    
    2,935
    
    
    
    2,388
    
    
    
    5,614
    
    
    
    4,593Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    (600
    )
    
    
    Net interest income after provision for loan
losses
    
    
    2,935
    
    
    
    2,388
    
    
    
    6,214
    
    
    
    4,593Other income:Service fees
    
    
    122
    
    
    
    172
    
    
    
    232
    
    
    
    333Loan and lease fees
    
    
    19
    
    
    
    4
    
    
    
    36
    
    
    
    6Net security gains
    
    
    
    
    
    
    98
    
    
    
    
    
    
    
    97Net gains on sale of loans
    
    
    42
    
    
    
    13
    
    
    
    83
    
    
    
    20Other
    
    
    68
    
    
    
    83
    
    
    
    116
    
    
    
    98Total other income
    
    
    251
    
    
    
    370
    
    
    
    467
    
    
    
    554Other expenses:Salaries, commissions, and related benefits
    
    
    1,496
    
    
    
    1,606
    
    
    
    3,090
    
    
    
    3,110Furniture and equipment
    
    
    155
    
    
    
    138
    
    
    
    311
    
    
    
    297Occupancy
    
    
    293
    
    
    
    247
    
    
    
    610
    
    
    
    473Data processing
    
    
    182
    
    
    
    246
    
    
    
    336
    
    
    
    492Accounting, legal, and consulting fees
    
    
    414
    
    
    
    228
    
    
    
    614
    
    
    
    546Loan and deposit expense
    
    
    98
    
    
    
    250
    
    
    
    228
    
    
    
    543Telephone
    
    
    51
    
    
    
    77
    
    
    
    100
    
    
    
    137Advertising expense
    
    
    107
    
    
    
    243
    
    
    
    177
    
    
    
    382Penalty on prepayment of FHLB borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,320Other
    
    
    225
    
    
    
    300
    
    
    
    552
    
    
    
    665Total other expenses
    
    
    3,021
    
    
    
    3,335
    
    
    
    6,018
    
    
    
    10,965Income (loss) before income taxes
    
    
    165
    
    
    
    (577
    )
    
    
    663
    
    
    
    (5,818
    )Provision for (benefit of) income taxes
    
    
    (25
    )
    
    
    
    
    
    
    (25
    )
    
    
    Net income (loss)
    
    $
    190
    
    
    $
    (577
    )
    
    $
    688
    
    
    $
    (5,818
    )Income (loss) per common share:Basic
    
    $
    0.05
    
    
    $
    (0.17
    )
    
    $
    0.20
    
    
    $
    (1.70
    )Diluted
    
    $
    0.05
    
    
    $
    (0.17
    )
    
    $
    0.20
    
    
    $
    (1.70
    )
 8




---



##### 



MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
LOAN PORTFOLIO AND CREDIT QUALITY
  Loan Portfolio Balances (at end of period):
 June 30,
    
    
    December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005Commercial LoansHospitality and tourism
    
    $
    37,754
    
    
    $
    37,681
    
    
    $
    43,208Real estate  operators of
nonresidential buildings
    
    
    35,478
    
    
    
    28,217
    
    
    
    16,479Real estate agents and managers
    
    
    15,628
    
    
    
    10,588
    
    
    
    6,328New car dealers
    
    
    10,002
    
    
    
    9,995
    
    
    
    5,005Other
    
    
    101,637
    
    
    
    88,842
    
    
    
    81,299Total Commercial Loans
    
    
    200,499
    
    
    
    175,323
    
    
    
    152,3191-4 family residential real estate
    
    
    48,931
    
    
    
    44,660
    
    
    
    43,012Consumer
    
    
    2,632
    
    
    
    2,285
    
    
    
    2,153Construction
    
    
    31,048
    
    
    
    17,503
    
    
    
    7,019Total Loans
    
    $
    283,110
    
    
    $
    239,771
    
    
    $
    204,503
 Credit Quality (at end of period):
 June 30,
    
    
    December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005Nonperforming AssetsNonaccrual loans
    
    $
    446
    
    
    $
    15
    
    
    $
    959Loans past due 90 days or more
    
    
    
    
    
    
    99
    
    
    
    2Restructured loans
    
    
    
    
    
    
    
    
    
    
    Total nonperforming loans
    
    
    446
    
    
    
    114
    
    
    
    961Other real estate owned
    
    
    52
    
    
    
    945
    
    
    
    2,312Total nonperforming assets
    
    $
    498
    
    
    $
    1,059
    
    
    $
    3,273Nonperforming loans as a % of
loans
    
    
    0.16
    %
    
    
    0.05
    %
    
    
    0.47
    %Nonperforming assets as a %
of assets
    
    
    0.14
    %
    
    
    0.35
    %
    
    
    1.19
    %Reserve for Loan Losses:At period end
    
    $
    5,415
    
    
    $
    6,108
    
    
    $
    6,636As a % of loans
    
    
    1.91
    %
    
    
    2.55
    %
    
    
    3.24
    %As a % of nonperforming loans
    
    
    1,214.13
    %
    
    
    5,357.89
    %
    
    
    690.53
    %As a % of nonaccrual loans
    
    
    1,214.13
    %
    
    
    N/M
    %
    
    
    691.97
    %Charge-off Information:Average loans
    
    $
    273,686
    
    
    $
    207,928
    
    
    $
    198,618Net charge-offs
    
    $
    93
    
    
    $
    858
    
    
    $
    330Charge-offs as a % of
average loans
    
    
    0.03
    %
    
    
    0.41
    %
    
    
    0.17
    %
 9




---



##### 



AverageAverage
    
    Average
    
    Average
    
    Shareholders'
    
    Return on Average
    
    Net Interest
    
    Efficiency
    
    Net Income
    
    Book ValueQuarter Ended
    
    Assets
    
    Loans
    
    Deposits
    
    Equity
    
    Assets
    
    Equity
    
    Margin
    
    Ratio
    
    Per Share
    
    Per ShareJune 30, 2006
    
    $
    342,821
    
    
    $
    273,686
    
    
    $
    274,591
    
    
    $
    27,213
    
    
    
    0.22
    %
    
    
    2.82
    %
    
    
    3.64
    %
    
    
    91.41
    %
    
    $
    0.05
    
    
    $
    7.93March 31, 2006
    
    
    319,007
    
    
    
    250,735
    
    
    
    254,720
    
    
    
    27,055
    
    
    
    0.63
    
    
    
    7.47
    
    
    
    3.62
    
    
    
    99.37
    
    
    
    0.15
    
    
    
    7.93December 31, 2005
    
    
    288,619
    
    
    
    224,386
    
    
    
    219,967
    
    
    
    27,288
    
    
    
    (1.41
    )
    
    
    (14.95
    )
    
    
    3.96
    
    
    
    128.37
    
    
    
    (0.30
    )
    
    
    7.76September 30, 2005
    
    
    280,506
    
    
    
    209,795
    
    
    
    211,197
    
    
    
    28,112
    
    
    
    (0.73
    )
    
    
    (7.39
    )
    
    
    3.79
    
    
    
    112.11
    
    
    
    (0.15
    )
    
    
    8.14June 30, 2005
    
    
    277,754
    
    
    
    197,545
    
    
    
    206,875
    
    
    
    28,879
    
    
    
    (0.83
    )
    
    
    (8.01
    )
    
    
    3.67
    
    
    
    119.07
    
    
    
    (0.17
    )
    
    
    8.32March 31, 2005
    
    
    296,856
    
    
    
    199,703
    
    
    
    209,035
    
    
    
    30,692
    
    
    
    (7.16
    )
    
    
    (69.25
    )
    
    
    3.21
    
    
    
    300.96
    
    
    
    (1.53
    )
    
    
    8.42December 31, 2004
    
    
    327,543
    
    
    
    218,962
    
    
    
    211,685
    
    
    
    8,455
    
    
    
    2.95
    
    
    
    114.17
    
    
    
    2.48
    
    
    
    71.83
    
    
    
    8.25
    
    
    
    10.13September 30, 2004
    
    
    346,078
    
    
    
    226,951
    
    
    
    236,418
    
    
    
    6,096
    
    
    
    (0.87
    )
    
    
    (49.53
    )
    
    
    2.25
    
    
    
    120.66
    
    
    
    (2.17
    )
    
    
    18.44June 30, 2004
    
    
    372,246
    
    
    
    244,515
    
    
    
    260,031
    
    
    
    7,628
    
    
    
    (1.72
    )
    
    
    (84.13
    )
    
    
    2.28
    
    
    
    146.88
    
    
    
    (4.56
    )
    
    
    16.77
 
 *
    
    Historical per share data has been adjusted for the 20:1 reverse stock split distributed in December 2004. 
 10