##### 



First Quarter 2006 in-Review
  
    
    Continued momentum in loan production;
    
    Credit Quality:
 ×
    
    No nonaccrual loans at quarter-end;×
    
    Nonperforming assets less than $1 million at quarter-end.
 
    
    Core deposit growth in the first quarter of $8.9 million, an increase of 5.1%;
    
    Noninterest expense lowest since the recapitalization;
 Loan Production
  NEW LOAN PRODUCTION
  2005
    
    
    
    
    
    
    2006First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    2005
    
    
    FirstQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Total
    
    
    QuarterREGIONUpper Peninsula
    
    $
    6,861
    
    
    $
    9,099
    
    
    $
    9,090
    
    
    $
    19,263
    
    
    $
    44,313
    
    
    $
    7,592Northern Lower
Peninsula
    
    
    686
    
    
    
    12,449
    
    
    
    9,698
    
    
    
    13,786
    
    
    
    36,619
    
    
    
    7,621Oakland County
    
    
    1,100
    
    
    
    12,480
    
    
    
    10,434
    
    
    
    12,813
    
    
    
    36,827
    
    
    
    14,884TOTAL
    
    $
    8,647
    
    
    $
    34,028
    
    
    $
    29,222
    
    
    $
    45,862
    
    
    $
    117,759
    
    
    $
    30,097




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##### 



Credit Quality
  Core Deposit Growth




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##### 



DEPOSIT ACCOUNT ACTIVITY(dollars in thousands)2005
    
    
    20061st
    
    
    2nd
    
    
    3rd
    
    
    4th
    
    
    1stQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterCore deposit balances
    
    $
    150,567
    
    
    $
    156,195
    
    
    $
    162,303
    
    
    $
    174,530
    
    
    $
    183,438Deposit balance,
change
    
    $
    (2,282
    )
    
    $
    5,628
    
    
    $
    6,108
    
    
    $
    12,227
    
    
    $
    8,908Accounts opened
    
    
    272
    
    
    
    880
    
    
    
    956
    
    
    
    1,428
    
    
    
    1236Accounts closed
    
    
    461
    
    
    
    748
    
    
    
    603
    
    
    
    867
    
    
    
    655Net change
    
    
    (189
    )
    
    
    132
    
    
    
    353
    
    
    
    561
    
    
    
    581Total accounts
    
    
    15,837
    
    
    
    15,922
    
    
    
    16,294
    
    
    
    18,415
    
    
    
    19,063Average balance, per
account
    
    $
    9,507
    
    
    $
    9,810
    
    
    $
    9,960
    
    
    $
    9,477
    
    
    $
    9,622(in whole dollars)
 Noninterest Income
  Noninterest Expense
 NONINTEREST EXPENSE(dollars in thousands)
    
    2005
    
    
    2006First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    FirstQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterTotal noninterest expense
    
    $
    7,630
    
    
    $
    3,335
    
    
    $
    3,279
    
    
    $
    4,011
    
    
    $
    2,997Less:Penalty  prepayment FHLB
borrowings
    
    
    4,320
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Data processing conversion costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    815
    
    
    
    Noninterest expense, as adjusted
    
    $
    3,310
    
    
    $
    3,335
    
    
    $
    3,279
    
    
    $
    3,196
    
    
    $
    2,997




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##### 



*The efficiency ratio calculation excludes the FHLB prepayment penalty and the data processing conversion costs.
 Capital
  Looking Forward
   
 Paul D. Tobias




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##### 



Mackinac Financial Corporation Selected Financial Highlights
   (dollars in thousands, except per share data)
    
    For The Period EndedMarch 31,
    
    
    December 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2005(Unaudited)
    
    
    
    
    
    (Unaudited)Selected Financial Condition Data (at end of period):Total assets
    
    $
    334,591
    
    
    $
    298,722
    
    
    $
    275,216Total loans
    
    
    264,471
    
    
    
    239,771
    
    
    
    194,831Total deposits
    
    
    267,954
    
    
    
    232,632
    
    
    
    205,239Borrowings and subordinated debentures
    
    
    36,417
    
    
    
    36,417
    
    
    
    38,135Total shareholders equity
    
    
    27,173
    
    
    
    26,588
    
    
    
    28,854Selected Statements of Income Data:Net interest income
    
    $
    2,679
    
    
    $
    9,780
    
    
    $
    2,205Income
(loss) before taxes
    
    
    498
    
    
    
    (7,364
    )
    
    
    (5,241
    )Net income (loss)
    
    
    498
    
    
    
    (7,364
    )
    
    
    (5,241
    )Income (loss) per common share  Basic
    
    
    .15
    
    
    
    (2.15
    )
    
    
    (1.53
    )Income (loss) per common share  Diluted
    
    
    .15
    
    
    
    (2.15
    )
    
    
    (1.53
    )Selected Financial Ratios and Other Data:Performance Ratios:Net interest margin
    
    
    3.62
    %
    
    
    3.64
    %
    
    
    3.21
    %Efficiency ratio
    
    
    99.37
    %
    
    
    160.43
    
    
    
    300.96Return on average assets
    
    
    .63
    
    
    
    (2.58
    )
    
    
    (7.16
    )Return on average equity
    
    
    7.47
    
    
    
    (25.63
    )
    
    
    (69.25
    )Average total assets
    
    $
    319,007
    
    
    $
    285,896
    
    
    $
    296,856Average total shareholders equity
    
    $
    27,055
    
    
    $
    28,732
    
    
    $
    30,692Average loans to average deposits ratio
    
    
    126.73
    %
    
    
    98.17
    %
    
    
    95.54
    %Common Share Data (at end of period):Market price per common share
    
    $
    9.81
    
    
    $
    9.10
    
    
    $
    18.13Book value per common share
    
    $
    7.93
    
    
    $
    7.76
    
    
    $
    8.42Common shares outstanding
    
    
    3,428,695
    
    
    
    3,428,695
    
    
    
    3,428,695Other Data (at end of period):Allowance for loan losses
    
    $
    5,415
    
    
    $
    6,108
    
    
    $
    6,836Non-performing assets
    
    $
    952
    
    
    $
    1,059
    
    
    $
    3,787Allowance for loan losses to total loans
    
    
    2.05
    %
    
    
    2.55
    %
    
    
    3.51
    %Non-performing assets to total assets
    
    
    .28
    %
    
    
    .35
    %
    
    
    1.38
    %Number of:Branch locations
    
    
    13
    
    
    
    12
    
    
    
    12
   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 ShareMarch 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
    )
    
    
    16.77March 31, 2004
    
    
    412,808
    
    
    
    289,027
    
    
    
    283,190
    
    
    
    9,522
    
    
    
    (1.62
    )
    
    
    (70.22
    )
    
    
    2.04
    
    
    
    163.37
    
    
    
    (4.75
    )
    
    
    26.70December 31, 2003
    
    
    439,426
    
    
    
    309,851
    
    
    
    306,848
    
    
    
    11,266
    
    
    
    (2.23
    )
    
    
    (86.77
    )
    
    
    1.70
    
    
    
    181.17
    
    
    
    (7.02
    )
    
    
    30.49