<PAGE>

                                                             OMB APPROVAL
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  SCHEDULE 14A

          Proxy Statement Pursuant to Section 14(a) of the Securities
                     Exchange Act of 1934 (Amendment No.  )

Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ]  Preliminary Proxy Statement
[ ]  CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
     RULE 14a-6(e)(2))
[X]  Definitive Proxy Statement
[ ]  Definitive Additional Materials
[ ]  Soliciting Material Pursuant to Section 240.14a-12

                            Mackinac Financial Corp
--------------------------------------------------------------------------------
                (Name of Registrant as Specified In Its Charter)

--------------------------------------------------------------------------------
    (Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (check the appropriate box):

[X]  No fee required.

[ ]  Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

     1) Title of each class of securities to which transaction applies:

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     2) Aggregate number of securities to which transaction applies:

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     3) Per unit price or other underlying value of transaction computed
        pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
        filing fee is calculated and state how it was determined):

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     4) Proposed maximum aggregate value of transaction:

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     5) Total fee paid:

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[ ]  Fee paid previously with preliminary materials.

[ ]  Check box if any part of the fee is offset as provided by Exchange Act
     Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
     paid previously. Identify the previous filing by registration statement
     number, or the Form or Schedule and the date of its filing.

     1) Amount Previously Paid:

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     2) Form, Schedule or Registration Statement No.:

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     4) Date Filed:

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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.

SEC 1913 (02-02)


<PAGE>

                            (MACKINAC FINANCIAL LOGO)
                             130 SOUTH CEDAR STREET
                           MANISTIQUE, MICHIGAN 49854
                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

                             TO BE HELD MAY 31, 2006

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Mackinac
Financial Corporation (the "Corporation"), a Michigan corporation, will be held
on Wednesday, May 31, 2006, at 12:00 noon, at the Comfort Inn, 726 East
Lakeshore Drive, Manistique, Michigan 49854, for the following purposes:

          1. To elect three (3) Directors, each to hold office for a three-year
          term.

          2. To transact such other business as may properly come before the
          annual meeting, all in accordance with the accompanying proxy
          statement.

The Board of Directors has fixed April 24, 2006, as the record date for the
determination of shareholders entitled to notice of and to vote at the meeting
or any adjournment of the meeting.

                                        By order of the Board of Directors

                                        -s- PAUL D. TOBIAS
                                        Paul D. Tobias
                                        Chairman and Chief Executive Officer

YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE DATE AND
SIGN THE ENCLOSED PROXY FORM, INDICATE YOUR CHOICE WITH RESPECT TO THE MATTERS
TO BE VOTED UPON, AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. NOTE THAT IF
THE STOCK IS HELD IN MORE THAN ONE NAME, ALL PARTIES MUST SIGN THE PROXY FORM.

Dated: May 1, 2006

<PAGE>

                         MACKINAC FINANCIAL CORPORATION
                             130 SOUTH CEDAR STREET
                           MANISTIQUE, MICHIGAN 49854

                                 PROXY STATEMENT

This proxy statement and the enclosed proxy are furnished in connection with the
solicitation of proxies by the Board of Directors of Mackinac Financial
Corporation (the "Corporation"), a Michigan corporation, to be voted at the
Annual Meeting of Shareholders of the Corporation to be held on Wednesday, May
31, 2006, at 12:00 noon, at the Comfort Inn, 726 East Lakeshore Drive,
Manistique, Michigan 49854, for the purposes set forth in the accompanying
notice and in this proxy statement.

This proxy statement is being mailed on or about May 1, 2006, to all holders of
record of common stock of the Corporation as of the record date. The Board of
Directors of the Corporation has fixed the close of business on April 24, 2006,
as the record date for the determination of shareholders entitled to notice of
and to vote at the meeting and any adjournment of the meeting. As of April 24,
2006, there were 3,428,695 shares of common stock outstanding. Each outstanding
share will entitle the holder to one vote on each matter presented for vote at
the meeting.

If a proxy in the enclosed form is properly executed and returned to the
Corporation, the shares represented by the proxy will be voted at the meeting
and any adjournment of the meeting. If a shareholder specifies a choice, the
proxy will be voted as specified. If no choice is specified, the shares
represented by the proxy will be voted for the election of all of the nominees
named in the proxy statement and in accordance with the judgment of the persons
named as proxies with respect to any other matter which may come before the
meeting. A proxy may be revoked before exercise by notifying the Chief Executive
Officer of the Corporation in writing or in open meeting, by submitting a proxy
of a later date or attending the meeting and voting in person. All shareholders
are encouraged to date and sign the enclosed proxy, indicate your choice with
respect to the matters to be voted upon, and return it to the Corporation.

Votes cast at the meeting and submitted by proxy are counted by the inspectors
of the meeting, who are appointed by the Corporation. A plurality of the votes
cast at the meeting is required to elect the nominees as Directors of the
Corporation. The three nominees who receive the largest number of affirmative
votes cast at the meeting will be elected as Directors. Shares not voted at the
meeting, whether by broker nonvote, or otherwise, will not be treated as votes
cast at the meeting and will have no effect on the outcome of the voting. An
abstention will have no effect on the voting for Directors.

                              ELECTION OF DIRECTORS

The Bylaws of the Corporation provide for a Board of Directors consisting of a
minimum of five (5) and a maximum of sixteen (16) members. The Board of
Directors has fixed the number of Directors at eight (8). The Articles of
Incorporation of the Corporation and the Bylaws also provide for the division of
the Board of Directors into three (3) classes of nearly equal size with
staggered three-year terms of office. Three persons have been nominated for
election to the Board, each to serve a three-year term expiring at the 2009
Annual Meeting of Shareholders.

Unless otherwise directed by a shareholder's proxy, the persons named as proxy
holders in the accompanying proxy will vote for Messrs. Aspatore, Orley and
Paschke, the nominees named below. Messrs. Aspatore, Orley, and Paschke are
currently Directors of the Corporation, and its subsidiary, mBank (the "Bank"),
and members of the class of Directors of the Corporation whose terms expire at
the 2006 Annual Meeting. In the event that any of the nominees shall become
unavailable, which is not anticipated, the Board of Directors at its discretion,
may reduce the number of Directors or designate substitute nominees, in which
event the enclosed proxy will be voted for such substitute nominees. Proxies
cannot be voted for a greater number of persons than the number of nominees
named.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF MESSRS. ASPATORE,
ORLEY AND PASCHKE, THE THREE PERSONS NOMINATED BY THE BOARD.

<PAGE>

INFORMATION ABOUT DIRECTORS AND NOMINEES

DIRECTOR INFORMATION

The following information has been furnished to the Corporation by the
respective Directors. Each of them has been engaged in the occupations stated
below during the periods indicated, or if no period is indicated, for more than
five years.

<Table>
<Caption>

                                                                                Director of
                                  Age          Principal Occupation          Corporation Since
                                  ---          --------------------          -----------------

<S>                               <C>   <C>                                  <C>


NOMINEES STANDING FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING IN 2009
Walter J. Aspatore...............  63   Investment Banking, Amherst                 2004
                                        Partners
Robert H. Orley..................  50   Real Estate Developer, Vice                 2004
                                        President and Secretary of Real
                                        Estate Investment Group, Inc.
Randolph C. Paschke..............  56   From May 1970 to August                     2004
                                        2002 -- worked in Tax Services at
                                        Arthur Anderson, LLP. Served as a
                                        partner in Arthur Anderson, LLP
                                        from September 1982 until August
                                        2002. Served as Managing
                                        Partner -- U.S. International Tax
                                        Trade Services at Arthur Anderson,
                                        LLP from 2001 -- 2002. Served as
                                        Managing Partner-Great Lakes
                                        International Tax Services at
                                        Arthur Anderson, LLP from
                                        1999 -- 2001. From August 2002 to
                                        present-Chair, Department of
                                        Accounting in the School of
                                        Business Administration at Wayne
                                        State University.

CONTINUING DIRECTORS

                             DIRECTORS WHOSE TERMS EXPIRE IN 2007
Eliot R. Stark...................  53   Executive Vice President and Chief          2004
  (See below for prior                  Financial Officer of the
     occupations)                       Corporation and the Bank from
                                        December 2004 to present.
Paul D. Tobias...................  55   Chairman and Chief Executive                2004
                                        Officer of
  (See below for prior                  the Corporation and Chairman of
     occupations)                       the Bank from December 2004 to
                                        present.

                             DIRECTORS WHOSE TERMS EXPIRE IN 2008
C. James Bess....................  68   Vice Chairman of the Corporation            2003
                                        and the
  (See below for prior                  Bank
     occupations)
Dennis B. Bittner................  57   Owner and President, Bittner                2001
                                        Engineering
</Table>



The Corporation's Board has considered the independence of the nominees for
election at the Annual Meeting and the continuing Directors under the rules of
the Nasdaq Stock Market ("Nasdaq"). The Board has determined that all of the
nominees and continuing Directors are independent under Nasdaq rules except Mr.
Tobias, Chairman and Chief Executive Officer of the Corporation and Chairman of
the Bank, Mr. Bess, Vice Chairman of the Corporation and the Bank and Mr. Stark,
Executive Vice President and Chief Financial Officer of the Corporation and the
Bank. Messrs. Tobias, Bess and Stark are not independent because of their
services as Executive Officers of the Corporation.


                                        2

<PAGE>

EXECUTIVE OFFICERS

The Executive Officers of the Corporation serve at the pleasure of the Board of
Directors. Set forth below are the current Executive Officers of the Corporation
and a brief explanation of their principal employment during the last five
years. Additional information concerning employment agreements of Executive
Officers of the Corporation is included elsewhere in the Proxy under the heading
"Executive Compensation."

PAUL D. TOBIAS -- Age 55 -- Chairman of the Board and Chief Executive Officer.
Mr. Tobias was appointed to his present position with the Corporation and as
Chairman of the Bank on December 16, 2004. Mr. Tobias was appointed Chief
Executive Officer of the Bank in July 2005. Prior to this, Mr. Tobias served as
Chief Executive Officer of Munder Capital Management from April of 1995 to
October 1999. From January of 2000 to the present, he has served as Chairman and
Chief Executive Officer of Mackinac Partners, LLC.

C. JAMES BESS -- Age 68 -- Vice Chairman. Mr. Bess has served as Vice Chairman
of the Corporation and the Bank since July 15, 2005. Mr. Bess served as
President and Chief Executive Officer of the Bank and Vice Chairman of the
Corporation from December 16, 2004 to July 2005. Mr. Bess served as President
and Chief Executive Officer of the Corporation and Bank from August 2003 to
December 15, 2004. Prior to such time, Mr. Bess served as President and Chief
Executive Officer of The Commercial and Savings Bank of Millersburg, Ohio from
December 2000 to July 2003. Mr. Bess served as President and Chief Executive
Officer of Security Dollar Bank of Niles, Ohio from February 2000 through
November 2000. Mr. Bess was engaged as a consultant to various financial service
companies from January 1, 1999 to February 2000.

ELIOT R. STARK -- Age 53 -- Executive Vice President and Chief Financial
Officer. Mr. Stark was appointed to his current positions with the Corporation
and the Bank on December 16, 2004. From June of 1995 to January of 2001, Mr.
Stark served as Executive Vice President of Compuware Corporation. From January
of 2001 to the present, he has served as the Managing Director of Mackinac
Partners Consultants.

ERNIE R. KRUEGER -- Age 56 -- Senior Vice President and Controller. Prior to his
current position with the Corporation, Mr. Krueger served as a financial
consultant from 1997 to 2000 with First Union Securities and from 2000 to 2002
with Smith Barney.

BOARD OF DIRECTORS MEETINGS AND COMMITTEES

Audit Committee

The Audit Committee is a separately-designated standing Committee of the Board
of Directors established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended. The Audit Committee has
responsibility for:

       - Appointing or replacing the Corporation's independent auditors;

       - Overseeing the work of the independent auditors (including resolution
         of any disagreements between management and the auditors regarding
         financial reporting);

       - Reviewing the independent auditors' performance, qualifications and
         independence;

       - Approving all auditing and permitted non-auditing services to be
         performed by the independent auditors with limited exceptions;

       - Reviewing the Corporation's financial statements, internal audit
         function and system of internal controls;

       - Overseeing compliance by the Corporation with legal and regulatory
         requirements and with the Corporation's Code of Business Conduct and
         Ethics; and

       - Producing the report required by federal securities regulations for
         inclusion in the Corporation's Proxy Statement.

The current members of the Audit Committee are Messrs. Paschke (chairman),
Aspatore and Orley, all of whom are independent. The Board has determined that
Mr. Paschke is an "audit committee financial expert"


                                        3

<PAGE>

as that term is defined by the Securities and Exchange Commission. The Audit
Committee held 7 meetings in 2005. Messrs. Aspatore, Orley and Paschke all
attended the majority of these meetings.

Nominating Committee

The Nominating Committee is responsible for:

       - Identifying new candidates who are qualified to serve as Directors of
         the Corporation;

       - Recommending to the Board of Directors the candidates for election to
         the Board and for appointment to the Board's Committees; and

       - Considering any nominations for Director submitted by shareholders.

The current members of the Nominating Committee are Messrs. Aspatore (chairman),
Orley and Paschke. All members are independent under the Nasdaq Stock Market
rules defining independence. The Nominating Committee held 1 meeting in 2005.
Messrs. Aspatore, Orley and Paschke were in attendance.

The Board of Directors has adopted a Charter for the Nominating Committee. A
copy of this Charter was filed, as Appendix A, with the Corporation's 2004
proxy. In the past, the committee has identified potential nominees through
recommendations made by executive officers and non-management directors and has
evaluated them based on their resumes and through references and personal
interviews. No shareholder, other than an officer or director, has ever
submitted a suggestion for a nominee, but if the committee were to receive such
a suggestion, it expects it would evaluate that potential nominee in
substantially the same manner.

The Nominating Committee will consider candidates nominated by shareholders in
accordance with the procedures set forth in the Corporation's Bylaws and
Articles of Incorporation. Under the Corporation's Bylaws and Articles of
Incorporation, nominations other than those made by the Board of Directors or
the Nominating Committee, must be made pursuant to timely notice in proper
written form to the Secretary of the Corporation. To be timely, a shareholder's
request to nominate a person for election to the Board, together with the
written consent of such person to serve as a Director, must be received by the
Secretary of the Corporation not less than 60 nor more than 90 days prior to the
first anniversary date of the Annual Meeting of Shareholders in the immediately
preceding year. To be in proper written form, the notice must contain certain
information concerning the nominee and the shareholder submitting the
nomination.

With respect to each person proposed to be nominated, the Nominating Committee
shall be provided with the following information: (i) the name, address
(business and residence), date of birth, principal occupation or employment of
such person (present and for the past five (5) years); (ii) the number of shares
of the Corporation such person beneficially owns (as such term is defined by
Section 13(d) of the Securities Exchange Act of 1934, as amended [the "Exchange
Act"]); and (iii) any other information relating to such person that would be
required to be disclosed in a definitive proxy statement to shareholders
prepared in connection with an election of Directors pursuant to Section 14(a)
of the Exchange Act. The Nominating Committee may require any proposed nominee
to furnish additional information as may be reasonably required to determine the
qualifications of such person to serve as a Director of the Corporation. No
person shall be eligible for election as a Director of the Corporation unless
nominated in accordance with the procedures set forth in the Bylaws and Articles
of Incorporation.

Compensation Committee

The current Compensation Committee of the Board of Directors is comprised of
Robert H. Orley (chairman), Walter J. Aspatore and Randolph C. Paschke, each of
whom is independent under the Nasdaq Stock Market rules defining independence.
One meeting of this Committee was held in 2005. Messrs. Aspatore and Paschke
were in attendance. This Committee's primary functions are to recommend annually
to the Board the salary of the Executive Officers, review with management the
annual projected salary ranges and recommend those for Board approval, and
review the written personnel policy and the employee benefit package annually.
The


                                        4

<PAGE>

primary responsibilities of the Compensation Committee are to ensure that the
compensation available to the Board of Directors and officers of the
Corporation:

       - Enables the Corporation to attract and retain high quality leadership;

       - Provides competitive compensation opportunities;

       - Supports the Corporation's overall business strategy; and

       - Maximizes shareholder value.

ATTENDANCE OF DIRECTORS

The Board of Directors held a total of 12 meetings during 2005. No Director
attended less than 75% of the aggregate number of meetings of the Board of
Directors and the Committees on which he served in 2005, with the exception of
Mr. Orley, who attended 65% of the Board of Directors meetings and 56% of the
Committee meetings. There are no family relationships between or among any of
the Directors, nominees, or Executive Officers of the Corporation.

COMMUNICATION WITH DIRECTORS AND ATTENDANCE AT ANNUAL MEETINGS

The Corporation's Board provides a process for shareholders to send
communications to the Board or any of the Directors. Shareholders may send
written communications to the Board or any one or more of the individual
Directors by mail, c/o Corporate Secretary, Mackinac Financial Corporation, 130
South Cedar Street, Manistique, MI 49854. All communications will be compiled by
the Corporation's Corporate Secretary and submitted to the Board or the
individual Directors on a regular basis unless such communications are
considered, in the reasonable judgment of the Corporate Secretary, to be
improper for submission to the intended recipient(s). Examples of shareholder
communications that would be considered improper for submission include without
limitation, customer complaints, solicitations, communications that do not
relate directly or indirectly to the Corporation's business, or communications
that relate to improper or irrelevant topics.

It is the Corporation's policy that all of the Directors and nominees for
election as Directors at the Annual Meeting attend the Annual Meeting except in
cases of extraordinary circumstances. All of the nominees for election at the
2005 Annual Meeting of Shareholders and all other Directors attended the 2005
Annual Meeting of Shareholders. The Corporation expects all nominees and
Directors to attend the 2006 Annual Meeting.

REMUNERATION OF DIRECTORS

The members of the Board of Directors currently receive remuneration in the form
of monthly attendance fees, committee fees and an annual retainer. In 2004 Mr.
Bess was paid $1,000 per month in Director fees and Mr. Bittner was paid an
annual retainer of $1,200 and $1,000 per month. The remainder of the current
Directors of the Corporation and Bank received no fees in 2004. For 2005, the
external, non-employee Directors of the Corporation and the Bank received an
annual retainer of $15,000, and a fee of $750 for each meeting that was held by
the Board of Directors of the Corporation. Messrs. Aspatore, Orley and Paschke
received an award of 10,000 option shares to purchase the Corporation's common
stock. Attendance is a requirement in order for the Directors to be paid the
monthly fee. There is no anticipated change for Director remuneration in 2006.

The Corporation's 2000 Stock Incentive Plan provides for the grant of options to
eligible Directors (i.e., nonemployee Directors of the Corporation or the Bank)
in addition to key employees. Options are granted at the discretion of the
Compensation Committee of the Board of Directors of the Corporation. The term of
each option is ten (10) years, subject to earlier termination in certain events,
and the option price is 100% of fair market value on the date of grant. The
options issued to Messrs. Tobias and Stark were granted at an exercise price of
$9.75 per share, which was the fair market value of the Corporation's common
stock sold in the private placement to recapitalize the Corporation. In 2005,
Messrs. Aspatore, Bittner, Paschke and Orley were each granted 10,000 option
shares exercisable at $11.50 per share, which was the fair market value on the
date of the grant.



                                        5

<PAGE>

                             EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth the compensation received by the named Executive
Officers for the three years ended December 31, 2005:

<Table>
<Caption>

                                                                            Long-Term
                                                                           Compensation
                                       Annual Compensation               ---------------
            Name and                   -------------------     Other        Number of         All Other
       Principal Position       Year    Salary      Bonus    Annual(3)   Options Granted   Compensation(4)
       ------------------       ----   --------   --------   ---------   ---------------   ---------------

<S>                             <C>    <C>        <C>        <C>         <C>               <C>

Paul D. Tobias *............... 2005   $225,000   $ 25,000    $   -0-            -0-           $14,992
  Chairman and Chief            2004      6,923        -0-        -0-        150,005               -0-
  Executive Officer of the
  Corporation and Chairman of
  the Bank
C. James Bess.................. 2005   $202,446   $360,000(1) $   -0-            -0-           $28,138
  Vice Chairman of the          2004    360,000    907,740(2)  12,000            -0-            88,970
  Corporation                   2003    152,163     10,000      5,000            -0-            21,104
Kelly W. George................ 2005   $175,000   $200,000(1) $   -0-         20,000           $35,351
  President and Chief Lending   2004    175,000    311,774(2)     -0-            -0-            47,515
  Officer of the Bank
Joseph E. Petterson............ 2005   $ 76,655   $175,000(1) $   -0-            -0-           $12,621
  Executive Vice President of   2004    175,000    288,173(2)     -0-            -0-            17,931
  the Corporation
  and the Bank
Eliot R. Stark *............... 2005   $200,000   $ 25,000    $   -0-            -0-           $14,989
  Executive Vice President and  2004      6,154        -0-        -0-        107,147               -0-
  Chief Financial Officer of
  the Corporation and the Bank
Ernie R. Krueger............... 2005   $135,000   $ 70,000(1) $   -0-         10,000           $23,050
  Senior Vice President and     2004    131,667     50,000(2)     -0-            -0-            29,898
  Controller of the Corporation
  and the Bank
</Table>


   *  The 2004 compensation for Messrs. Tobias and Stark is shown from December
      15, 2004 to December 31, 2004, the period in 2004 in which they served as
      Executive Officers.

  (1) Represents payment pursuant to employee contract provision on removal of
      formal regulatory Cease and Desist Order for Messrs. Bess, $360,000;
      George, $175,000; Petterson, $175,000; and Krueger, $50,000. Messrs.
      George and Krueger also received annual bonuses in 2005 of $25,000 and
      $20,000, respectively.

  (2) Represents payment pursuant to employee contract provision on change in
      control triggered by recapitalization of the Corporation.

  (3) Represents Director fees paid.

  (4) The amounts shown include the taxable amount of group life insurance cost
      paid by the Corporation for Messrs. Tobias, $414; Bess, $5,539; George,
      $324; Petterson, $655; Stark, $414; and Krueger, $1,373. Other
      compensation for Messrs. Bess, George, Petterson and Krueger includes the
      amounts paid by the Corporation for housing, auto expenses and the taxable
      portion of the benefit of a corporate owned auto provided for Mr. Bess
      ($3,402) and Mr. Krueger ($1,800).


                                        6

<PAGE>

EMPLOYMENT AND CONSULTING AGREEMENTS

The Corporation has employment agreements with Executive Officers as described
below.

PAUL D. TOBIAS -- Mr. Tobias's agreement provides for him to be employed and
appointed as our Chairman of the Board and the Chief Executive Officer of the
Corporation and the Chairman of the Board of the Bank. He is to receive an
initial annual base salary of $225,000, subject to annual increases by the
Board. We are to develop an incentive plan or plans for annual cash bonuses to
be awarded to eligible employees (including Mr. Tobias).

The agreement has an initial three-year term which renews for an additional year
on each anniversary date of the agreement unless we or Mr. Tobias elects to not
renew at least sixty (60) days prior to the renewal date.

In addition to the compensation noted above, the agreement provides for health
and other benefits to be provided to him at least substantially equivalent to
other management employees holding comparable positions. The agreement also
requires us to reimburse him for all reasonable out-of-pocket expenses in
connection with his employment, including a car allowance of $750 per month and
a per diem allowance for living expenses while in Manistique, Michigan, of at
least $100 per day, not to exceed $1,000 in any calendar month, but subject to
upward adjustment upon demonstration that the reasonable ordinary living
expenses exceed the per diem amount. We have also agreed in the employment
agreement to pay the reasonable costs of an office in Oakland County and a
personal secretary and other assistance unless we otherwise provide him with an
office and support staff in that county.

Under the agreement, Mr. Tobias was awarded options under the Corporation's 2000
Stock Incentive Plan to purchase 150,005 shares of common stock at an exercise
price of $9.75 per share.

If the agreement is terminated, we are to make termination payments in amounts
and in a lump sum or over time depending on the reason the agreement is
terminated. The table below summarizes the termination payments under the
agreement.

<Table>
<Caption>

          Reason for Termination                     Termination Payments
          ----------------------                     --------------------

<S>                                       <C>

By us for cause.......................... No termination payments required
By us without cause and not due to
  disability, or by the Executive for
  Good Reason............................ Three years; base salary, highest bonus
                                          and benefits
Death.................................... One year; base salary and benefits
Disability............................... Two years; base salary and benefits,
                                          subject to reduction for long term
                                          disability benefits received by the
                                          Executive
Following a Change in Control, either by
  Executive Good Reason or by us other
  than for cause or disability........... Lump sum; 300% of aggregate of base
                                          salary and highest bonus. Three years for
                                          benefits.
By Executive without Good Reason
  following a Change in Control.......... Lump sum; 100% of base salary and highest
                                          bonus
By mutual agreement...................... Per the mutual agreement
</Table>


The agreement provides for a specified adjustment to the termination payments
should they be determined to constitute a parachute payment under Section 280G
of the Internal Revenue Code. The agreement also provides for us to pay interest
at an annual rate equal to 120% of the applicable federal rate and to indemnify
Mr. Tobias for expenses, including reasonable attorneys' and consultants' fees,
incurred to collect any unpaid amounts. We are also required to indemnify him
for costs and expenses, on an as incurred basis, as a result of any dispute or
controversy, regardless of the outcome of the dispute or controversy.

The agreement includes confidentiality obligations of Mr. Tobias and provides
that he will not engage in competitive activities while employed by us. If his
employment is terminated, the restriction on Mr. Tobias's competitive activities
will continue after termination in certain instances for a period of 1 to 3
years, depending on the reason for the termination.



                                        7

<PAGE>

C. JAMES BESS -- Mr. Bess and the Corporation, on July 15, 2005, entered into an
amendment of an original employment agreement dated August 10, 2004. This
amended agreement replaced the original agreement, and provided for Mr. Bess to
be employed as the Vice Chairman of the Corporation and the Bank. The agreement
has an original term of two years.

He is to receive base salary at the annual rate of $150,000 and an additional
incentive bonus in accordance with our, or the Bank's policy or plan for the
first year of the contract. Effective July 1, 2006, Mr. Bess's salary will be
reduced to $75,000 for the remainder of his contract term. In addition, we are
to provide him with a per diem allowance for living expenses while in
Manistique, Michigan, of at least $125 per day. In addition, we are to provide
him with the use of the automobile presently used by him through June 30, 2006,
and thereafter be reimbursed for mileage in conjunction with business travel. He
will also be entitled to participate in our and the Bank's employee benefit
plans.

The agreement provides that if his employment is terminated as a result of his
disability, by us without cause or if we elect to not extend the term of the
agreement, he will be entitled to his base salary for a period of one year,
except that, if termination occurs during the initial 18 month period, he will
only be entitled to the payments for the shorter on one year or the balance of
the initial period. The agreement includes confidentiality obligations, but does
not include any non-competition provisions.

KELLY W. GEORGE -- Mr. George's agreement provides for him to be employed as our
President and Chief Lending Officer of the Bank. He is to receive an initial
annual base salary of $175,000, subject to annual increases by the Board. We are
to develop an incentive plan or plans for annual cash bonuses to be awarded to
eligible employees (including Mr. George).

The agreement has an initial three-year term which renews for additional one-
year terms after the initial employment period unless we or Mr. George elects
not to renew prior to the termination date.

In addition to the compensation noted above, the agreement provides for health
and other benefits to be provided to him at least substantially equivalent to
other management employees holding comparable positions. The agreement also
requires us to reimburse him for all reasonable out-of-pocket expenses in
connection with his employment, including a car allowance of $450 per month.

Under the agreement, Mr. George was awarded options under the Corporation's 2000
Stock Incentive Plan to purchase 20,000 shares of common stock at an exercise
price of $12.00 per share.

If the agreement is terminated, we are to make termination payments in amounts
and in a lump sum or over time depending on the reason the agreement is
terminated. The table below summarizes the termination payments under the
agreement.

<Table>
<Caption>

          Reason for Termination                     Termination Payments
          ----------------------                     --------------------

<S>                                       <C>

By death, us for cause, or expiration of
  employment contract term............... No termination payments required
By us without cause or disability........ The greater of one year or remainder of
                                          contract term, base salary, highest bonus
                                          and benefits
Following a Change in Control, either by
  Executive Good Reason or by us other
  than for cause or disability........... Lump sum; 200% of aggregate of base
                                          salary and highest bonus.
By mutual agreement...................... Per the mutual agreement
</Table>


The agreement provides for a specified adjustment to the termination payments
should they be determined to constitute a parachute payment under Section 280G
of the Internal Revenue Code.

The agreement includes confidentiality obligations of Mr. George and provides
that he will not engage in competitive activities while employed by us. If his
employment is terminated, the restriction on his competitive activities will
continue after termination in certain instances for a period of 1 to 3 years,
depending on the reason for the termination.



                                        8

<PAGE>

ELIOT R. STARK -- Mr. Stark's agreement provides for him to be employed and
appointed as our Executive Vice President and Chief Financial Officer of the
Corporation and the Bank. He is to receive an initial annual base salary of
$200,000, subject to annual increases by the Board. We are to develop an
incentive plan or plans for annual cash bonuses to be awarded to eligible
employees (including Mr. Stark).

The agreement has an initial three-year term which renews for an additional year
on each anniversary date of the agreement unless we or Mr. Stark elects to not
renew at least sixty (60) days prior to the renewal date.

In addition to the compensation noted above, the agreement provides for health
and other benefits to be provided to Mr. Stark at least substantially equivalent
to other management employees holding comparable positions. The agreement also
requires us to reimburse him for all reasonable out-of-pocket expenses in
connection with his employment, including a car allowance of $750 per month and
a per diem allowance for living expenses while in Manistique, Michigan, of at
least $100 per day, not to exceed $1,000 in any calendar month, but subject to
upward adjustment upon demonstration that the reasonable ordinary living
expenses exceed the per diem amount. We have also agreed in the employment
agreement to pay the reasonable costs of an office in Oakland County and a
personal secretary and other assistance unless we otherwise provide him with an
office and support staff in that county.

Under the agreement, Mr. Stark is to be awarded options under the Corporation's
2000 Stock Incentive Plan to purchase 107,147 shares of common stock at an
exercise price of $9.75 per share.

If the agreement is terminated, we are to make termination payments in amounts
and in a lump sum or over time depending on the reason the agreement is
terminated. The table below summarizes the termination payments under the
agreement.

<Table>
<Caption>

          Reason for Termination                     Termination Payments
          ----------------------                     --------------------

<S>                                       <C>

By us for cause.......................... No termination payments required
By us without cause and not due to
  disability, or by the Executive for
  Good Reason............................ Three years; base salary, highest bonus
                                          and benefits
Death.................................... One year; base salary and benefits
Disability............................... Two years; base salary and benefits,
                                          subject to reduction for long term
                                          disability benefits received by the
                                          Executive
Following a Change in Control, either by
  Executive Good Reason or by us other
  than for cause or disability........... Lump sum; 300% of aggregate of base
                                          salary and highest bonus. Three years for
                                          benefits.
By Executive without Good Reason
  following a Change in Control.......... Lump sum; 100% of base salary and highest
                                          bonus
By mutual agreement...................... Per the mutual agreement
</Table>


The agreement provides for a specified adjustment to the termination payments
should they be determined to constitute a parachute payment under Section 280G
of the Internal Revenue Code. The agreement also provides for us to pay interest
at an annual rate equal to 120% of the applicable federal rate and to indemnify
Mr. Stark for expenses, including reasonable attorneys' and consultants' fees,
incurred to collect any unpaid amounts. We are also required to indemnify him
for costs and expenses, on an as incurred basis, as a result of any dispute or
controversy, regardless of the outcome of the dispute or controversy.

The agreement includes confidentiality obligations of Mr. Stark and provides
that he will not engage in competitive activities while employed by us. If his
employment is terminated, the restriction on his competitive activities will
continue after termination in certain instances for a period of 1 to 3 years,
depending on the reason for the termination.

ERNIE R. KRUEGER -- Mr. Krueger's agreement provides for him to be employed as
our Senior Vice President and Controller of the Corporation and the Bank. He is
to receive an initial annual base salary of $135,000, subject to annual
increases by the Board. We are to develop an incentive plan or plans for annual
cash bonuses to be awarded to eligible employees (including Mr. Krueger).



                                        9

<PAGE>

The agreement has an initial three-year term which renews for additional one-
year terms after the initial employment period unless we or Mr. Krueger elects
not to renew prior to the termination date.

In addition to the compensation noted above, the agreement provides for health
and other benefits to be provided to Mr. Krueger at least substantially
equivalent to other management employees holding comparable positions. The
agreement also requires us to reimburse him for all reasonable out-of-pocket
expenses in connection with his employment, including a car allowance of $450
per month and a living expense of $1,000 per month.

Under the agreement, Mr. Krueger was awarded options under the Corporation's
2000 Stock Incentive Plan to purchase 10,000 shares of common stock at an
exercise price of $12.00 per share.

If the agreement is terminated, we are to make termination payments in amounts
and in a lump sum or over time depending on the reason the agreement is
terminated. The table below summarizes the termination payments under the
agreement.

<Table>
<Caption>

                                                     Termination Payments
          Reason for Termination
          ----------------------                     --------------------
<S>                                       <C>

By death, us for cause, or expiration of
  employment contract term............... No termination payments required
By us without cause or disability........ The greater of one year or remainder of
                                          contract term, base salary and highest
                                          bonus and benefits
Following a Change in Control, either by
  Executive Good Reason or by us other
  than for cause or disability........... Lump sum; 200% of aggregate of base
                                          salary and highest bonus.
By mutual agreement...................... Per the mutual agreement
</Table>


The agreement provides for a specified adjustment to the termination payments
should they be determined to constitute a parachute payment under Section 280G
of the Internal Revenue Code.

OPTION GRANTS IN LAST FISCAL YEAR

The Corporation's 2000 Stock Incentive Plan provides for the grant of options to
key employees of the Corporation as well as eligible Directors. Options are
granted at the discretion of the Compensation Committee of the Board of
Directors of the Corporation. The term of each option is up to ten (10) years,
subject to earlier termination in certain events, and the option price is 100%
of fair market value on the date of grant.

The following table provides information on options granted in 2005 to the
executives listed in the Executive Compensation Table and the potential
realizable value of the options.

<Table>
<Caption>

                                                                                             Assumed Annual
                                                                                             Rates of Stock
                                          Percent of Total                                  Appreciation of
                             Shares        Options Granted                                    Option Term
                           Underlying      to Employees in   Exercise Price   Expiration   -----------------
                        Options Granted      Fiscal Year        Per Share        Date         5%       10%
                        ---------------   ----------------   --------------   ----------   -------   -------

<S>                     <C>               <C>                <C>              <C>          <C>       <C>

Paul D. Tobias.........         -0-              -0-%            $  N/A              N/A   $   N/A   $   N/A
C. James Bess..........         -0-              -0-                N/A              N/A       N/A       N/A
Kelly W. George........      20,000               28              12.00        6/10/2014    12,000    24,000
Joseph E. Petterson....         -0-              -0-                N/A              N/A       N/A       N/A
Eliot R. Stark.........         -0-              -0-                N/A              N/A       -0-       N/A
Ernie R. Krueger.......      10,000               14              12.00        6/10/2014     6,000    12,000
</Table>





                                       10

<PAGE>

AGGREGATE STOCK OPTION EXERCISES IN 2005 AND YEAR-END OPTION VALUES

The following table provides information on the exercise of stock options during
2005 by the executives listed in the Summary Compensation Table and the value of
unexercised options at December 31, 2005.

<Table>
<Caption>

                                                   Number of Shares           Value of Unexercised
                         Shares                 Underlying Unexercised        In-the-Money Options
                        Acquired                 Options at 12/31/05             at 12/31/05(1)
                           on       Value   -----------------------------  -------------------------
                        Exercise  Realized  # Exercisable/# Unexercisable  Exercisable/Unexercisable
                        --------  --------  -----------------------------  -------------------------

<S>                     <C>       <C>       <C>                            <C>

Paul D. Tobias.........   $-0-      $-0-            70,502/79,503                  $ -0-/$-0-
C. James Bess..........    -0-       -0-                  N/A/N/A                     N/A/N/A
Kelly W. George........    -0-       -0-             4,000/16,000                   -0- / -0-
Joseph E. Petterson....    -0-       -0-                  N/A/N/A                    N/A $N/A
Eliot R. Stark.........    -0-       -0-            50,359/56,788                   -0- / -0-
Ernie R. Krueger.......    -0-       -0-              2,000/8,000                   -0- / -0-
</Table>


  (1) Values are based on the difference between the last reported sale price of
      the Corporation's common stock on December 31, 2005 ($9.10), and the
      exercise prices of the options.

EQUITY COMPENSATION PLAN INFORMATION

The following table reflects information about the securities authorized for
issuance under the Corporation's equity compensation plans as of December 31,
2005.

<Table>
<Caption>

                                       (a)                 (b)                   (c)
                                                                         Number of Securities
                                                                       Remaining Available for
                              Number of Securities   Weighted-Average   Future Issuance Under
                                to be Issued Upon   Exercise Price of    Equity Compensation
                                   Exercise of         Outstanding         Plans (Excluding
                              Outstanding Options,  Options, Warrants    Securities Reflected
        Plan Category          Warrants and Rights      and Rights          in Column (a))
        -------------         --------------------  -----------------  -----------------------

<S>                           <C>                   <C>                <C>                      <C>

Equity compensation plans
  approved by security
  holders....................        282,999              $34.55               138,899
Equity compensation plans not
  approved by security
  holders....................            N/A                 --                    N/A
                                     -------              ------               -------
  TOTAL......................        282,999              $34.55               138,899
                                     =======              ======               =======

</Table>


COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION

Members of the Compensation Committee who served during 2005 were Robert H.
Orley (Chairman), Walter J. Aspatore and Randolph C. Paschke. All members are
considered independent. No one who served on the Compensation Committee is or
ever has been an officer or employee of the corporation or any of its
subsidiaries.

                          COMPENSATION COMMITTEE REPORT

Decisions on the compensation of the Corporation's Executive Officers in 2005
were made by the Board's Compensation Committee comprised of nonemployee
Directors. The current Compensation Committee consists of Robert H. Orley
(Chairman), Walter J. Aspatore and Randolph C. Paschke. This Committee report
addresses the Corporation's compensation policies and programs for the year
ended December 31, 2005.

Base Salary -- Excluding consideration of other relevant factors, which may
include individual performance, experience, expertise and tenure, the Board
intends to maintain the base salaries of the Corporation's Executive Officers
and senior managers within peer group levels.


                                       11

<PAGE>

Members of the Compensation Committee considered numerous factors, including
individual performance, financial results of the Corporation, and relative peer
compensation in rewarding 2005 bonuses to executive officers of the Corporation.

Annually, the Committee reviews and approves the Corporation's annual salary
structure and benefit programs for consideration by the entire Board of
Directors. The Committee's recommendation is based upon compensation levels
established by the Corporation's peers and evaluations by consultants.

Long-Term Incentives -- To align the interests of its Executive Officers and
senior managers with the Corporation's shareholders, the Board's compensation
strategy provides for a 401(k) matching contribution and equity-based
compensation under the Corporation's stock compensation plans. Each of the
Corporation's compensation plans has been adopted by the Board of Directors, and
the equity-based compensation plans have been approved by the Corporation's
shareholders.

                             Compensation Committee
         Robert H. Orley     Walter J. Aspatore     Randolph C. Paschke

                             AUDIT COMMITTEE REPORT

The Corporation has established an Audit Committee of the Board of Directors,
which currently consists of Randolph C. Paschke (Chairman), Walter J. Aspatore
and Robert H. Orley.

The Board of Directors has determined that each of the Audit Committee members
is independent, as independence for Audit Committee members is defined in the
listing standards of the Nasdaq Stock Market and the rules of the Securities and
Exchange Commission. The Board of Directors has adopted a written Audit
Committee Charter. A copy of the Charter was included as Appendix B on the
Corporation's 2004 Proxy.

The Audit Committee has reviewed and discussed the Corporation's audited
financial statements with management.

The Audit Committee has discussed with the independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61 (SAS 61),
"Communication with Audit Committees," as amended, by the Auditing Standards
Board of the American Institute of Certified Public Accountants. The Audit
Committee has considered the compatibility of the provision of non-audit
services with maintaining the auditors' independence.

The Audit Committee has received the written disclosures and the letter from the
independent accountants required by Independence Standards Board No. 1,
"Independence Discussions with Audit Committees," as amended, and has discussed
with the independent accountant the independent accountant's independence.

Based on the review and discussions referred to above, the Audit Committee has
recommended to the Board of Directors that the audited financial statements be
included in the Corporation's Annual Report on Form 10-K for 2005.

                                 Audit Committee
         Randolph C. Paschke     Walter J. Aspatore     Robert H. Orley



                                       12

<PAGE>

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table summarizes fees for professional services rendered by Plante
& Moran, PLLC, the principal accountant for the years ended December 31, 2005
and 2004:

<Table>
<Caption>

                                                                2005      2004
                                                                ----      ----

<S>                                                           <C>       <C>

Audit fees(1)................................................ $131,116  $105,000
Audit-related fees(2)........................................   10,000     8,475
Tax fees(3)..................................................   17,500    34,133
All other fees(4)............................................   44,899   131,142
                                                              --------  --------
Total fees................................................... $203,515  $278,950
                                                              ========  ========

</Table>


  (1) Audit fees consist of fees billed for professional services performed by
      Plante & Moran for the audit of the Company's annual financial statements
      and internal control over financial reporting included in Form 10-K, the
      review of financial statements included in the Company's 10-Q filings and
      services that are normally provided in connection with regulatory filings
      or engagements.

  (2) Represents fees for review and audit of employee 401(k) employee benefit
      plan.

  (3) Represents fees billed for tax services, including tax reviews and
      planning. For 2005, a majority of the fees in this category represent
      preparation of 2005 consolidated tax returns.

  (4) The majority of all other fees, $44,899, represent fees paid for
      regulatory compliance work performed.

The Audit Committee is required to review and pre-approve both audit and non-
audit services to be provided by the independent auditor (other than with
respect to de minimis exceptions permit by the Sarbanes-Oxley Act of 2002).
During 2005, all services provided by Plante Moran, PLLC were pre-approved by
the Audit Committee. To the extent required by the rules of the Nasdaq Stock
Market or any other applicable legal or regulatory requirements, approval of
non-audit services shall be disclosed to investors in periodic reports required
by Section 13(a) of the Securities Exchange Act of 1934.

                INDEBTEDNESS OF AND TRANSACTIONS WITH MANAGEMENT

Certain of the Directors and officers of the Corporation have had and are
expected to have in the future, transactions with the Bank, or have been
Directors or officers of corporations, or members of partnerships or limited
liability companies, which have had and are expected to have in the future,
transactions with the Bank. In the opinion of management, all such transactions
(i) were made in the ordinary course of business, (ii) on substantially the same
terms, including interest rates and collateral, as those prevailing at the same
time for comparable transactions with other customers, and (iii) did not involve
more than normal risk of collectibility or present other unfavorable features.
The outstanding indebtedness to Directors and Executive Officers as of December
31, 2005, consisted of the following: a line of credit to Dennis B. Bittner in
the amount of $350,000, which had a 2005 year-end balance of $86,000. Robert H.
Orley also has a related party interest in a line of credit in the amount of
$496,000, which had a 2005 year-end balance of $491,000. Both lines of credit
referred to above bear interest at prevailing market rates for similar credit
arrangements at the Bank. The largest outstanding balance during 2005, was
$350,000 for Mr. Bittner and $496,000 for Mr. Orley.



                                       13

<PAGE>

                      BENEFICIAL OWNERSHIP OF COMMON STOCK

As of April 24, 2006, no person was known by management to be the beneficial
owner of more than 5% of the outstanding common stock of the Corporation, except
as follows:

<Table>
<Caption>

              Name and Address of                Amount and Nature of
                Beneficial Owner                 Beneficial Ownership  Percent of Class
              -------------------               ---------------------  ----------------

<S>                                             <C>                    <C>

Financial Stocks Capital....................... 340,000 Common Shares        9.92%
Partners III LP
441 Vine Street, Suite 507
Cincinnati, OH 45202
Gerlach & Co. ................................. 300,000 Common Shares        8.75%
FBO Banc Fund VI LP
C/O Midbanc VI LP
208 LaSalle Street, Suite 1680
Chicago, IL 60604
Hot Creek Ventures 2, LP....................... 300,000 Common Shares        8.75%
6900 South McCarran Blvd., Suite 3040
Reno, NV 89509
Endicott Partners.............................. 299,700 Common Shares        8.74%
237 Park Avenue, Suite 801
New York, NY 10017
Axia Partners Qualified LP..................... 298,206 Common Shares        8.70%
C/O Axia Capital Management LLC
425 Eagle Rock Avenue
Roseland, NJ 07068
Wellington Management Company LLP.............. 212,380 Common Shares        6.20%
75 State Street
Boston, MA 02109
PRB Investors, LP.............................. 181,503 Common Share         5.29%
600 Third Ave., 17(th) Floor
New York, NY 10016
</Table>


The information in the following table sets forth the beneficial ownership of
the Corporation's common stock by each of the Corporation's Directors, each of
the Executive Officers listed in the Summary Compensation Table and by all
Directors and Executive Officers of the Corporation as a group, as of April 24,
2006. Except as noted, beneficial ownership is direct and the person indicated
has sole voting and investment power.

<Table>
<Caption>

                                                  Amount and Nature of
            Name of Beneficial Owner            Beneficial Ownership(1)  Percent of Class
            ------------------------            -----------------------  ----------------

<S>                                             <C>                      <C>


Walter J. Aspatore.............................           4,564                   *
C. James Bess..................................             --                    *
Dennis B. Bittner..............................           2,387                   *
Kelly W. George................................           4,000                   *
Ernie R. Krueger...............................           2,000                   *
Robert H. Orley................................          27,641                   *
Randolph C. Paschke............................           7,128                   *
Joseph E. Petterson............................             --                    *
Eliot R. Stark.................................          76,000(2)             2.13%
Paul D. Tobias.................................         121,784(3)             3.42%
                                                        -------                ----
All Directors and Executive Officers as a group
  (10 persons).................................         211,236                6.89%
                                                        =======                ====

</Table>


 * Less than 1.0%


                                       14

<PAGE>

  (1) Includes options for Mr. Aspatore (2,000), Mr. Bittner (2,325), Mr. George
      (4,000), Mr. Krueger (2,000), Mr. Orley (2,000), Mr. Paschke (2,000), Mr.
      Stark (50,359), Mr. Tobias (70,502), and for all Directors and officers as
      a group (135,186).

  (2) Includes 25,641 shares owned by Mr. Stark in his IRA account.

  (3) Includes 10,256 shares owned by Tobias Capital LLC, which is 35% owned by
      Mr. Tobias and his wife.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's
officers and Directors, and persons who own more than 10% of the Corporation's
common stock to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Based solely on a review of filings
furnished to it, the Corporation noted that late filings were made by Messrs.
Aspatore, Bittner, George, Krueger and Paschke. Each of Messrs. Aspatore,
George, Krueger and Paschke were untimely in the filing of one report on Form 4
relative to the grant to them of options during 2005. Mr. Bittner was untimely
in the filing of a Form 3 relative to his appointment to the Board and
shareholders at the time of appointment, a Form 4 relative to a change in
beneficial ownership in 2004, and a Form 4 relative to the grant to him of
options in 2005.



                                       15

<PAGE>

                      SHAREHOLDER RETURN PERFORMANCE GRAPH

Set forth below is a line graph comparing the yearly percentage change in the
cumulative total shareholder return on the Corporation's common stock with that
of the cumulative total return on the NASDAQ Bank Stocks Index and the NASDAQ
Market Index for the five-year period ended December 31, 2005. The following
information is based on an investment of $100, on December 31, 2000 in the
Corporation's common stock, the NASDAQ Bank Stocks Index, and the NASDAQ Market
Index, with dividends reinvested. Prior to April 18, 2000, there had been only
limited trading in the Corporation's common stock, there had been no market
makers for such shares, and the Corporation's common stock had not traded on any
stock exchange or on the NASDAQ market. Accordingly, the returns reflected in
the following graph and table for the period prior to April 18, 2000 are based
on sale prices of the Corporation's stock of which management is aware. There
may have been sales at higher or lower prices of which management is not aware.
Between April 18, 2000 and August 30, 2001, the Corporation's common stock was
traded on the NASDAQ Bulletin Board. From August 31, 2001 to December  15, 2004,
the Corporation's common stock traded on the NASDAQ SmallCap Market under the
symbol "NCFC." Effective with the recapitalization and the 20:1 reverse stock
split on December 16, 2004, the Corporation's stock began trading on the NASDAQ
Small Cap Market under the symbol "MFNC".

                     COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
                      AMONG MACKINAC FINANCIAL CORPORATION
                    NASDAQ MARKET INDEX AND PEER GROUP INDEX

(PERFORMANCE GRAPH)

                   ASSUMES $100 INVESTED ON DECEMBER 31, 1999
                      ASSUMES DIVIDEND PAYMENTS REINVESTED
                         FISCAL YEARS ENDING DECEMBER 31

<Table>
<Caption>

                                         2000    2001    2002    2003    2004    2005
                                        ------  ------  ------  ------  ------  ------

<S>                                     <C>     <C>     <C>     <C>     <C>     <C>

Mackinac Financial Corporation          100.00  122.64   41.60   30.06   15.43    7.82
NASDAQ Bank Stocks Index                100.00  109.09  111.02  142.25  157.60  155.38
NASDAQ Market Index                     100.00   79.71   55.60   83.60   90.63   92.62
</Table>


Source: Hemscott, Inc, Richmond, Virginia.



                                       16

<PAGE>

                RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS

INDEPENDENT AUDITORS

The financial statements of the Corporation for the year ended December 31, 2005
have been examined by Plante & Moran, PLLC, an independent registered public
accounting firm. A representative of Plante & Moran, PLLC is expected to be at
the meeting and will have an opportunity to make a statement and will be
available to answer appropriate questions. Plante & Moran, PLLC has been
appointed by the Audit Committee of the Board of Directors as the independent
public accountants of the Corporation and its subsidiaries for the year ending
December 31, 2005 and 2004.

CHANGES OF ACCOUNTANTS

There was no change of the Corporation's independent public accountants during
2004 and 2005.

                              SHAREHOLDER PROPOSALS

A proposal submitted by a shareholder for the 2007 Annual Meeting of
Shareholders must be sent to the Secretary of the Corporation, 130 South Cedar
Street, Manistique, Michigan 49854 and must be received by the Corporation no
later than January 25, 2007 to be eligible for inclusion in the Corporation's
proxy materials for the 2007 Annual Meeting of Shareholders. A shareholder
proposal must (i) comply with the other requirements in the Corporation's Bylaws
and Articles of Incorporation as to form and content, and (ii) be received by
the Corporation (a) at least 30 days prior to the meeting, or (b) not later than
the close of business on the (10(th)) day following the date on which notice of
the scheduled meeting was first mailed to the shareholders, if less than 40 days
notice of the meeting is given by the Corporation, in order to be considered at
the meeting.

                                  OTHER MATTERS

A shareholder who intends to present a proposal to the 2006 Annual Meeting of
Shareholders, other than pursuant to Rule 14a-8 under the Securities Exchange
Act of 1934, must provide the Corporation with notice of such intention by at
least April 24, 2006, or the persons named in the proxy to vote the proxies will
have discretionary voting authority at the 2006 Annual Meeting with respect to
any such proposal without discussion of the matter in the Corporation's proxy
statement.

The Board of Directors is not aware of any matter to be presented for action at
the meeting, other than the matters set forth herein. If any other business
should properly come before the meeting, the proxy will be voted regarding the
matter in accordance with the best judgment of the persons authorized in the
proxy, and discretionary authority to do so is included in the proxy.

The cost of soliciting proxies will be borne by the Corporation. If requested,
the Corporation will reimburse banks, brokerage houses and other custodians,
nominees and certain fiduciaries for their reasonable expenses incurred in
mailing proxy materials to their principals. In addition to solicitation by
mail, officers and other employees of the Corporation and its subsidiaries may
solicit proxies by telephone, facsimile or in person, without compensation other
than their regular compensation.

The Annual Report of the Corporation for 2005 is included with this proxy
statement. Copies of the report will also be available for all shareholders
attending the annual meeting.

THE ANNUAL REPORT ON FORM 10-K TO THE SECURITIES AND EXCHANGE COMMISSION WILL BE
PROVIDED FREE TO SHAREHOLDERS UPON WRITTEN REQUEST. WRITE SHAREHOLDER RELATIONS
DEPARTMENT, MACKINAC FINANCIAL CORPORATION, 130 SOUTH CEDAR STREET, MANISTIQUE,
MICHIGAN 49854.

Shareholders are urged to sign and return the enclosed proxy in the enclosed
envelope. A prompt response will be helpful and appreciated.


                                       17

<PAGE>

                                REVOCABLE PROXY
                         MACKINAC FINANCIAL CORPORATION

[X]  PLEASE MARK VOTES AS IN THIS EXAMPLE

               THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.

     The undersigned hereby appoints Paul D. Tobias and Eliot R. Stark, or
either of them, with power of substitution in each, proxies to vote, as
designated hereon, all of the undersigned's shares of Common Stock of
MACKINAC FINANCIAL CORPORATION, at the Annual Meeting of Shareholders to be held
at the Comfort Inn, 726 East Lakeshore Drive, Manistique, MI 49854, on May 31,
2006, at 12:00 noon, and any and all adjournments thereof:

Please be sure to sign and date         Date ___________________________________
this Proxy in the box below.


Stockholder sign above                  Co-holder (if any) sign above

                                                             WITH-    FOR ALL
                                                 FOR ALL   HOLD ALL    EXCEPT

1.   Election of Directors
     (except as marked to the contrary below):     [ ]        [ ]       [ ]

     WALTER J. ASPATORE
     ROBERT H. ORLEY
     RANDOLPH C. PASCHKE

INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK "FOR
ALL EXCEPT" AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.

________________________________________________________________________________

2.   IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
     MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT
     THEREOF.

     The Board of Directors recommends a vote "FOR" the nominees listed above.

     PROPERLY EXECUTED PROXIES WILL BE VOTED AS MARKED AND, IF NOT MARKED, WILL
BE VOTED "FOR" ALL OF THE NOMINEES.

                             YOUR VOTE IS IMPORTANT.

     Whether or not you plan to attend, you can be sure your shares are
represented at the meeting by promptly returning your completed proxy in the
enclosed postage-paid envelope which is addressed to our tabulation service at:

                         Registrar and Transfer Company
                                10 Commerce Drive
                         Cranford, New Jersey 07016-3572

    DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.

                         MACKINAC FINANCIAL CORPORATION
                             130 SOUTH CEDAR STREETc
                           MANISTIQUE, MICHIGAN 49854

     Please date, sign exactly as your name appears hereon, and mail promptly in
the enclosed envelope which requires no postage if mailed in the United States.
When signing as attorney, executor, administrator, trustee, guardian, etc., give
full title as such. If shares are held jointly both owners must sign.

                              PLEASE ACT PROMPTLY
                    SIGN, DATE & MAIL YOUR PROXY CARD TODAY

IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED
BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.

________________________________________

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