10-K

FORM 10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                    

Commission file number 0-20167

MACKINAC FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

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

130 South Cedar Street, Manistique, Michigan 49854
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (888) 343-8147

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   o      No   þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o       No   þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   þ       No   o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.   o

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

Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(Do not check if a smaller reporting company)

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

The aggregate market value of the common stock held by non-affiliates of the Registrant, based on a per share price of $7.00 as of June 30, 2008, was $10.6 million. As of March 30, 2009, there were outstanding, 3,419,736 shares of the Corporation’s Common Stock (no par value).

Documents Incorporated by Reference:

Portions of the Corporation’s Annual Report to Shareholders for the year ended December 31, 2008, are incorporated by reference into Parts I and II of this Report.

Portions of the Corporation’s Proxy Statement for the 2009 Annual Meeting of Shareholders are incorporated by reference into Part III of this Report.

TABLE OF CONTENTS

PART I
	ITEM 1. BUSINESS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
PART II
	ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCK HOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY
	ITEM 6. SELECTED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
	ITEM 9A. CONTROLS AND PROCEDURES
PART III
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION
	ITEM 11. EXECUTIVE COMPENSATION
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
	ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
	ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
	ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SIGNATURES
EX-3.1
EX-3.2.A
EX-3.2.B
EX-3.2.C
EX-13
EX-21
EX-23.1
EX-31
EX-32.1
EX-32.2

PART I

ITEM 1. BUSINESS

Mackinac Financial Corporation (the “Corporation”) was incorporated under the laws of the state of Michigan on December 16, 1974. The Corporation changed its name from “First Manistique Corporation” to “North Country Financial Corporation” on April 14, 1998. On December 16, 2004, the Corporation changed its name from North Country Financial Corporation to Mackinac Financial Corporation. The Corporation owns all of the outstanding stock of its banking subsidiary, mBank (the “Bank”). The Corporation also owns three non-bank subsidiaries: First Manistique Agency, presently inactive; First Rural Relending Company, a relending company for nonprofit organizations; and North Country Capital Trust, a statutory business trust which was formed solely for the issuance of trust preferred securities. The Bank also has four non-bank subsidiaries: NCB Real Estate Company, which owns real estate used by the Bank; mBank Mortgage Company, LLC, an entity engaged in the business of mortgage lending and brokering; and mBank Employee Services, LLC, a company that leases employees to mBank. The Bank represents the principal asset of the Corporation. The Corporation and its subsidiary Bank are engaged in a single industry segment, commercial banking, broadly defined to include commercial and retail banking activities, along with other permitted activities closely related to banking.

HISTORY

The Corporation became a registered bank holding company under the Bank Holding Company Act of 1956, as amended, on April 1, 1976, when it acquired First Northern Bank and Trust (“First Northern”). On May 1, 1986, Manistique Lakes Bank merged with First Northern. The Corporation acquired all of the outstanding stock of the Bank of Stephenson on February 8, 1994, in exchange for cash and common stock. The Bank of Stephenson was operated as a separate banking subsidiary of the Corporation until September 30, 1995, when it was merged into First Northern. First Northern acquired Newberry State Bank on December 8, 1994, in exchange for cash. On September 15, 1995, First Northern acquired the fixed assets and assumed the deposits of the Rudyard branch of First of America Bank, in exchange for cash. The Corporation acquired all of the outstanding stock of South Range State Bank (“South Range”) on January 31, 1996, in exchange for cash and notes. On August 12, 1996, First Northern and South Range changed their names to North Country Bank and Trust and North Country Bank, respectively. On February 4, 1997, the Corporation acquired all of the outstanding stock of UP Financial Inc., the parent holding company of First National Bank of Ontonagon (“Ontonagon”). Ontonagon was merged into North Country Bank. North Country Bank was operated as a separate banking subsidiary of the Corporation until March 10, 1998, when it was merged into North Country Bank and Trust. On June 25, 1999, North Country Bank and Trust acquired the fixed assets and assumed the deposits of the Kaleva and Mancelona branches of Huntington National Bank in exchange for cash. On July 23, 1999, North Country Bank and Trust sold the fixed assets and deposits of the Rudyard and Cedarville branches to Central Savings Bank in exchange for cash.

On January 14, 2000, North Country Bank and Trust sold the fixed assets and deposits of the Garden branch to First Bank, Upper Michigan in exchange for cash. On June 16, 2000, North Country Bank and Trust acquired the fixed assets and assumed the deposits of the Glen Arbor and Alanson branches of Old Kent Bank, in exchange for cash. On July 13, 2001, North Country

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Bank and Trust sold the fixed assets and deposits of the St. Ignace and Mackinac Island branches to Central Savings Bank in exchange for cash. On November 9, 2001, North Country Bank and Trust sold the fixed assets and deposits of the Curtis and Naubinway branches to State Savings Bank in exchange for cash. On November 22, 2002, North Country Bank and Trust sold the fixed assets and deposits of the Menominee branch to Stephenson National Bank and Trust in exchange for cash. During 2003, the Bank closed branch locations at Glen Arbor, Ishpeming, L’Anse, and Petoskey.

In 2004, the Bank sold the fixed assets and deposits of the Mancelona and Alanson branches to First Federal of Northern Michigan in exchange for cash, the fixed assets and deposits of the Munising branch to People’s State Bank in exchange for cash, and the fixed assets and deposits of the Iron Mountain and Escanaba branches to the State Bank of Escanaba in exchange for cash. The Bank also closed the branch locations of Boyne City, Cadillac, Calumet, Sault Ste. Marie Cascade, and one of its branch locations in Traverse City.

RECAPITALIZATION — RECENT HISTORY

In December of 2004, the Corporation was recapitalized with the net proceeds, approximately $26.2 million, from the issuance of $30 million of common stock in a private placement. Commensurate with this recapitalization, the Corporation changed its name from North Country Financial Corporation to Mackinac Financial Corporation with the Bank adopting the “mBank” identity early in 2005.

In 2007, the Bank sold the fixed assets and deposits of the Ripley branch office located in Hancock, Michigan.

The Bank currently has 8 branch offices located in the Upper Peninsula of Michigan and 4 branch offices located in Michigan’s Lower Peninsula. The Bank maintains offices in Antrim, Chippewa, Emmet, Grand Traverse, Houghton, Luce, Manistee, Marquette, Menominee, Oakland, Ontonagon, Otsego, and Schoolcraft Counties. The Bank provides drive-in convenience at 10 branch locations and has 10 automated teller machines. The Bank has no foreign offices.

The Corporation is headquartered and located in Manistique, Michigan. The mailing address of the Corporation is 130 South Cedar Street, Manistique, Michigan 49854.

Operations

The principal business the Corporation is engaged in, through the Bank, is the general commercial banking business, providing a full range of loan and deposit products. These banking services include customary retail and commercial banking services, including checking and savings accounts, time deposits, interest bearing transaction accounts, safe deposit facilities, real estate mortgage lending, commercial lending, commercial and governmental lease financing, and direct and indirect consumer financing. Funds for the Bank’s operation are also provided by brokered deposits and through borrowings from the Federal Home Loan Bank (“FHLB”) system, proceeds from the sale of loans and mortgage-backed and other securities, funds from repayment of outstanding loans and earnings from operations. Earnings depend primarily upon the difference between (i) revenues from loans, investments, and other interest-bearing assets and (ii) expenses incurred in payment of interest on deposit accounts and borrowings, maintaining an adequate allowance for loan losses, and general operating expenses.

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Competition

Banking is a highly competitive business. The Bank competes for loans and deposits with other banks, savings and loan associations, credit unions, mortgage bankers, and investment firms in the scope and type of services offered, pricing of loans, interest rates paid on deposits, and number and location of branches, among other things. The Bank also faces competition for investors’ funds from mutual funds and corporate and government securities.

The Bank competes for loans principally through interest rates and loan fees, the range and quality of the services it provides and the locations of its branches. In addition, the Bank actively solicits deposit-related clients and competes for deposits by offering depositors a variety of savings accounts, checking accounts, and other services.

Employees

As of December 31, 2008, the Corporation and its subsidiaries employed, in the aggregate, 104 employees equating to 100 full-time equivalents. The Corporation provides its employees with comprehensive medical and dental benefit plans, a life insurance plan, and a 401(k) plan. None of the Corporation’s employees are covered by a collective bargaining agreement with the Corporation. Management believes its relationship with its employees to be good.

Business

The Bank makes mortgage, commercial, and installment loans to customers throughout Michigan. Fees may be charged for these services. The Bank’s most prominent concentration in the loan portfolio relates to commercial loans to entities within the real estate — operators of nonresidential buildings industry. This concentration represented $41.299 million or 13.95% of the commercial loan portfolio at December 31, 2008. The Bank also supports the service industry, with its hospitality and related businesses, as well as gaming, forestry, restaurants, farming, fishing, and many other activities important to growth in Michigan. The economy of the Bank’s market areas is affected by summer and winter tourism activities.

The Bank also offers various consumer loan products including installment, mortgages and home equity loans. In addition to making consumer portfolio loans, the Bank engages in the business of making residential mortgage loans for sale to the secondary market.

The Corporation may pursue new lease opportunities through unrelated entities, where the credit quality and rate of return on the transactions for its current business strategies. The Bank accounts for lease transactions as loans.

The Bank’s primary source for lending, investments, and other general business purposes is deposits. The Bank offers a wide range of interest bearing and non-interest bearing accounts, including commercial and retail checking accounts, negotiable order of withdrawal (“NOW”) accounts, money market accounts with limited transactions, individual retirement accounts, regular interest-bearing statement savings accounts, certificates of deposit with a range of maturity date options, and accessibility to a customer’s deposit relationship through online banking. The sources of deposits are residents, businesses and employees of businesses within the Bank’s market areas, obtained through the personal solicitation of the Bank’s officers and directors, direct mail solicitation and limited advertisements published in the local media. The

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Bank also utilizes the wholesale deposit market for any shortfalls in loan funding. No material portions of the Bank’s deposits have been received from a single person, industry, group, or geographical location.

The Bank is a member of the FHLB. The FHLB provides an additional source of liquidity and long-term funds. Membership in the FHLB has provided access to attractive rate advances, as well as advantageous lending programs. The Community Investment Program makes advances to be used for funding community-oriented mortgage lending, and the Affordable Housing Program grants advances to fund lending for long-term low and moderate income owner occupied and affordable rental housing at subsidized interest rates.

The Bank has secondary borrowing lines of credit available to respond to deposit fluctuations and temporary loan demands. The unsecured lines totaled $13.375 million at December 31, 2008, with an additional $10.185 million available if collateralized.

As of December 31, 2008, the Bank had no material risks relative to foreign sources. See the “Interest Rate Risk” and “Foreign Exchange Risk” sections in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Corporation’s 2008 Annual Report to Shareholders, which sections are incorporated herein by reference, for details on the Corporation’s foreign account activity.

Compliance with federal, state, and local statutes and/or ordinances relating to the protection of the environment is not expected to have a material effect upon the Bank’s capital expenditures, earnings, or competitive position.

Supervision and Regulation

As a registered bank holding company, the Corporation is subject to regulation and examination by the Board of Governors of the Federal Reserve System (Federal Reserve Board) under the Bank Holding Company Act, as amended (BHCA). The Bank is subject to regulation and examination by the Michigan Office of Financial and Insurance Services (OFIS) and the Federal Deposit Insurance Corporation (FDIC).

Under the BHCA, the Corporation is subject to periodic examination by the Federal Reserve Board, and is required to file with the Federal Reserve Board periodic reports of its operations and such additional information as the Federal Reserve Board may require. In accordance with Federal Reserve Board policy, the Corporation is expected to act as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances where the Corporation might not do so absent such policy. In addition, there are numerous federal and state laws and regulations which regulate the activities of the Corporation, the Bank and the non-bank subsidiaries, including requirements and limitations relating to capital and reserve requirements, permissible investments and lines of business, transactions with affiliates, loan limits, mergers and acquisitions, issuances of securities, dividend payments, inter-affiliate liabilities, extensions of credit and branch banking.

Federal banking regulatory agencies have established risk-based capital guidelines for banks and bank holding companies that are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies. The resulting capital ratios represent qualifying capital as a percentage of total risk-weighted assets and off-balance sheet items. The guidelines are minimums, and the federal regulators have noted that

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banks and bank holding companies contemplating expansion programs should not allow expansion to diminish their capital ratios and should maintain all ratios well in excess of the minimums. The current guidelines require all bank holding companies and federally-regulated banks to maintain a minimum risk-based total capital ratio equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1 capital includes common shareholders’ equity, qualifying perpetual preferred stock, and minority interests in equity accounts of consolidated subsidiaries, but excludes goodwill and most other intangibles and excludes the allowance for loan and lease losses. Tier 2 includes the excess of any preferred stock not included in Tier 1 capital, mandatory convertible securities, hybrid capital instruments, subordinated debt and intermediate term-preferred stock, and general reserves for loan and lease losses up to 1.25% of risk-weighted assets.

FDICIA contains “prompt corrective action” provisions pursuant to which banks are to be classified into one of five categories based upon capital adequacy, ranging from “well capitalized” to “critically undercapitalized” and which require (subject to certain exceptions) the appropriate federal banking agency to take prompt corrective action with respect to an institution which becomes “significantly undercapitalized” or “critically undercapitalized”.

In general, the regulations define the five capital categories as follows: (i) an institution is “well capitalized” if it has a total risk-based capital ratio of 10% or greater, has a Tier 1 risk-based capital ratio of 6% or greater, has a leverage ratio of 5% or greater and is not subject to any written capital order or directive to meet and maintain a specific capital level for any capital measures; (ii) an institutions is “adequately capitalized” if it has a total risk-based capital ratio of 8% or greater, has Tier 1 risk-based capital ratio of 4% or greater, and has a leverage ratio of 4% or greater; (iii) an institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8%, has a Tier 1 risk-based capital ratio that is less than 4% or has a leverage ratio that is less than 4%; (iv) an institution is “significantly undercapitalized” if it has a total risk-based capital ratio that is less than 6%, a Tier I risk-based capital ratio that is less than 3% or a leverage ratio that is less than 3%; (v) an institution is “critically undercapitalized” if its “tangible equity” is equal to or less than 2% of its total assets. The FDIC also, after an opportunity for a hearing, has authority to downgrade an institution from “well capitalized to “adequately capitalized” or to subject an “adequately capitalized” or “undercapitalized” institution to the supervisory actions applicable to the next lower category, for supervisory concerns.

Information pertaining to the Corporation’s capital is contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Capital and Regulatory” in the Corporation’s 2008 Annual Report to Shareholders, and is incorporated herein by reference.

Current federal law provides that adequately capitalized and managed bank holding companies from any state may acquire banks and bank holding companies located in any other state, subject to certain conditions.

In 1999, Congress enacted the Gramm-Leach-Bliley Act (“GLBA”), which eliminated certain barriers to and restrictions on affiliations between banks and securities firms, insurance companies and other financial service organizations. Among other things, GLBA repealed certain Glass-Steagall Act restrictions on affiliations between banks and securities firms, and amended the BHCA to permit bank holding companies that qualify as “financial holding companies” to engage in a broad list of “financial activities,” and any non-financial activity that the Federal Reserve Board, in consultation with the Secretary of the Treasury, determines is

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“complementary” to a financial activity and poses no substantial risk to the safety and soundness of depository institutions or the financial system. GLBA treats lending, insurance underwriting, insurance company portfolio investment, financial advisory, securities underwriting, dealing and market-making, and merchant banking activities as financial in nature for this purpose.

Under GLBA, a bank holding company may become certified as a financial holding company by filing a notice with the Federal Reserve Board, together with a certification that the bank holding company meets certain criteria, including capital, management, and Community Reinvestment Act requirements. The Corporation does not qualify as a financial holding company at this time.

Privacy Restrictions

GLBA, in addition to the previous described changes in permissible non-banking activities permitted to banks, bank holding companies and financial holding companies, also requires financial institutions in the U.S. to provide certain privacy disclosures to customers and consumers, to comply with certain restrictions on sharing and usage of personally identifiable information, and to implement and maintain commercially reasonable customer information safeguarding standards. The Corporation believes that it complies with all provisions of GLBA and all implementing regulations, and the Bank has developed appropriate policies and procedures to meet its responsibilities in connection with the privacy provisions of GLBA.

The USA PATRIOT Act

In 2001, Congress enacted the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”). The USA PATRIOT Act is designed to deny terrorists and criminals the ability to obtain access to the United States financial system, and has significant implications for depository institutions, brokers, dealers and other businesses involved in the transfer of money. The USA PATRIOT Act mandates financial services companies to implement additional policies and procedures with respect to, or additional measures designed to address, any or all of the following matters, among others: money laundering, terrorist financing, identifying and reporting suspicious activities and currency transactions, and currency crimes.

Sarbanes-Oxley Act

On July 30, 2002, President Bush signed into law The Sarbanes-Oxley Act of 2002. This legislation addresses accounting oversight and corporate governance matters, including:

§	The creation of a five-member oversight board that will set standards for accountants and have investigative and disciplinary powers;
§	The prohibition of accounting firms from providing various types of consulting services to public clients and requiring accounting firms to rotate partners among public client assignments every five years;
§	Increased penalties for financial crimes;
§	Expanded disclosure of corporate operations and internal controls and certification of financial statements;
§	Enhanced controls on, and reporting of, insider training; and
§	Prohibition on lending to officers and directors of public companies, although the Bank may continue to make these loans within the constraints of existing banking regulations.

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Among other provisions, Section 302(a) of the Sarbanes-Oxley Act requires that our Chief Executive Officer and Chief Financial Officer certify that our quarterly and annual reports do not contain any untrue statement or omission of a material fact. Specific requirements of the certifications include having these officers confirm that they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our disclosure controls and procedures; they have made certain disclosures to our auditors and Audit Committee about our internal controls; and they have included information in our quarterly and annual reports about their evaluation and whether there have been significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to their evaluation.

In addition, Section 404 of the Sarbanes-Oxley Act and the SEC’s rules and regulations thereunder require our management to evaluate, with the participation of our principal executive and principal financial officers, the effectiveness, as of the end of each fiscal year, of our internal control over financial reporting. Our management must then provide a report of management on our internal over financial reporting that contains, among other things, a statement of their responsibility for establishing and maintaining adequate internal control over financial reporting, and a statement identifying the framework they used to evaluate the effectiveness of our internal control over financial reporting.

Extraordinary Government Programs

Troubled Asset Relief Program. On October 3, 2008, the Emergency Economic Stabilization Act of 2008 (“EESA”) was enacted, which, among other things, provided the United States Department of the Treasury (“Treasury”) access to up to $700 billion to stabilize the U.S. banking system. On October 14, 2008, Treasury announced its intention to inject capital into nine large U.S. financial institutions under the Capital Purchase Program (the “CPP”) as part of the Troubled Asset Relief Program (“TARP”) implementing the EESA, and since has injected capital into many other financial institutions.

Mackinac Financial Corporation filed an application with the Federal Deposit Insurance Corporation (“FDIC”) on November 4, 2008, for participation in the Capital Purchase Program (“CPP”) under the Troubled Asset Relief Program (“TARP”). The FDIC responded and recommended approval for our participation and forwarded our application to the Department of the Treasury (“Treasury”). We received preliminary approval from the Treasury on January 30, 2009 for our maximum requested participation amount of $11,000,000.

Under the CPP, the Corporation will issue previously authorized preferred stock with a 5% annual dividend rate to the Treasury. The Corporation will also, as a required part of this transaction, issue 379,093 common stock warrants with an exercise price of $4.35 per share. The preferred stock and common stock warrants will be issued on the expected closing date in May, 2009.

The Corporation intends to utilize the proceeds, $11,000,000, to support future growth of the Corporation by generating new loan growth through its principal subsidiary, mBank. Additional information pertaining to Supervision and Regulation is contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Capital and Regulatory” in the Corporation’s 2008 Annual Report to Shareholders, and is incorporated herein by reference.

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Monetary Policy

The earnings and business of the Corporation and the Bank depends on interest rate differentials. In general, the difference between the interest rates paid by the Bank to obtain its deposits and other borrowings, and the interest rates received by the Bank on loans extended to its customers and on securities held in the Bank’s portfolio, comprises the major portion of the Bank’s earnings. These rates are highly sensitive to many factors that are beyond the control of the Bank, and accordingly, its earnings and growth will be subject to the influence of economic conditions, generally, both domestic and foreign, including inflation, recession, unemployment, and the monetary policies of the Federal Reserve Board. The Federal Reserve Board implements national monetary policies designed to curb inflation, combat recession, and promote growth through, among other means, its open-market dealings in US government securities, by adjusting the required level of reserves for financial institutions subject to reserve requirements, through adjustments to the discount rate applicable to borrowings by banks that are members of the Federal Reserve System, and by adjusting the Federal Funds Rate, the rate charged in the interbank market for purchase of excess reserve balances. In addition, legislative and economic factors can be expected to have an ongoing impact on the competitive environment within the financial services industry. The nature and timing of any future changes in such policies and their impact on the Bank cannot be predicted with certainty.

Selected Statistical Information

I. Distribution of Assets, Obligations, and Shareholders’ Equity; Interest Rates and Interest Differential

The key components of net interest income, the daily average balance sheet for each year — including the components of earning assets and supporting obligations — the related interest income on a fully tax equivalent basis and interest expense, as well as the average rates earned and paid on these assets and obligations is contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Corporation’s 2008 Annual Report to Shareholders, and is incorporated herein by reference.

An analysis of the changes in net interest income from period-to-period and the relative effect of the changes in interest income and expense due to changes in the average balances of earning assets and interest-bearing obligations and changes in interest rates is contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Corporation’s 2008 Annual Report to Shareholders, and is incorporated herein by reference.

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II. Investment Portfolio

     A. Investment Portfolio Composition

The following table presents the carrying value of investment securities available for sale as of December 31 (dollars in thousands):

	2008		2007		2006
U.S. Agencies — MBS	$	46,941	$	20,969	$	32,176
State and political subdivisions		549		628		593
TOTAL	$	47,490	$	21,597	$	32,769

     B. Relative Maturities and Weighted Average Interest Rates

The following table presents the maturity schedule of securities held and the weighted average yield of those securities, as of December 31, 2008 (fully taxable equivalent, dollars in thousands):

				After one,			After five,									Weighted
	In one year			but within			but within			Over						Average
	year or less			five years			ten years			10 years			TOTAL			Yield (1)
U.S. Agencies — MBS	$	—		$	—		$	—		$	46,942		$	46,942			3.69	%
State and political subdivisions		5			26			517			—			548			7.96	%
TOTAL	$	5		$	26		$	517		$	46,942		$	47,490
Weighted average yield (1)		7.00	%		7.00	%		8.40	%		3.69	%		3.74	%

⁽¹⁾ Weighted average yield includes the effect of tax-equivalent adjustments using a 34% tax rate.

III. Loan Portfolio

     A. Type of Loans

The following table sets forth the major categories of loans outstanding for each category at December 31 (dollars in thousands):

	2008		2007		2006		2005		2004
Commercial real estate	$	185,241	$	171,695	$	154,332	$	118,637	$	105,619
Commercial, financial and agricultural		79,734		78,192		71,385		56,686		47,446
One-to-four family residential real estate		65,595		57,613		58,014		44,660		45,292
Construction		35,965		44,042		36,009		17,503		3,096
Consumer		3,745		3,537		2,841		2,285		2,379
TOTAL	$	370,280	$	355,079	$	322,581	$	239,771	$	203,832

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     B. Maturities and Sensitivities of Loans to Changes in Interest Rates

The following table presents the remaining maturity of total loans outstanding for the categories shown at December 31, 2008, based on scheduled principal repayments (dollars in thousands):

			Commercial,		1-4 Family
	Commercial		Financial, and		Residential
	Real Estate		Agricultural		Real Estate		Consumer		Construction		Total
In one year or less:
Variable interest rates	$	38,445	$	35,609	$	6,726	$	688	$	18,104	$	99,572
Fixed interest rates		15,937		16,779		3,247		611		3,151		39,725
After one year but within five years:
Variable interest rates		66,833		9,455		4,115		173		7,214		87,790
Fixed interest rates		43,878		12,725		8,201		2,170		2,127		69,101
After five years:
Variable interest rates		17,049		2,258		37,535		—		4,993		61,835
Fixed interest rates		3,099		2,908		5,771		103		376		12,257
TOTAL	$	185,241	$	79,734	$	65,595	$	3,745	$	35,965	$	370,280

     C. Risk Elements

The following table presents a summary of nonperforming assets and problem loans as of December 31 (dollars in thousands):

	2008		2007		2006		2005		2004
Nonaccrual loans	$	4,887	$	3,298	$	2,899	$	15	$	4,307
Interest income that would have been recorded for nonaccrual loans under original terms		377		391		114		134		803
Interest income recorded during period for nonaccrual loans		60		129		7		78		1,053
Accruing loans past due 90 days or more		—		710		40		99		—
Restructured loans not included above		—		—		—		—		—

IV. Summary of Loan Loss Experience

     A. Analysis of the Allowance for Loan Losses

Changes in the allowance for loan losses arise from loans charged off, recoveries on loans previously charged off by loan category, and additions to the allowance for loan losses through provisions charged to expense. Factors which influence management’s judgment in determining the provision for loan losses include establishing specified loss allowances for selected loans (including large loans, nonaccrual loans, and problem and delinquent loans) and consideration of historical loss information and local economic conditions.

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The following table presents information relative to the allowance for loan losses for the years ended December 31 (dollars in thousands):

	2008			2007			2006			2005			2004
Balance of allowance for loan losses at beginning of period	$	4,146		$	5,006		$	6,108		$	6,966		$	22,005
Loans charged off:
Commercial, financial, and agricultural		2,062			1,148			199			448			10,187
Real estate — construction		—			—			—			—			—
Real estate — mortgage		157			89			88			493			3,118
Consumer		71			73			45			51			2,453
Total loans charged off		2,290			1,310			332			992			15,758
Recoveries of loans previously charged off:
Commerical, financial, and agricultural		114			15			53			102			312
Real estate — construction		—			—			—			—			—
Real estate — mortgage		—			—			13			23			148
Consumer		7			35			25			9			259
Total recoveries		121			50			91			134			719
Net loans charged off		2,169			1,260			241			858			15,039
Provisions charged to expense		2,300			400			(861	)		—			—
Balance at end of period	$	4,277		$	4,146		$	5,006		$	6,108		$	6,966
Average loans outstanding		361,324			333,415			278,953			207,928			244,730
Ratio of net charge-offs during period to average loans outstanding		.60	%		.38	%		.08	%		.41	%		6.15	%

12

     B. Allocation of Allowance for Loan Losses

The allocation of the allowance for loan losses for the years ended December 31, is shown on the following table. The percentages shown represent the percent of each loan category to total loans (dollars in thousands):

	2008					2007					2006					2005					2004
	Amount		%			Amount		%			Amount		%			Amount		%			Amount		%
Commercial, financial and agricultural	$	3,819		89.29	%	$	3,808		91.85	%	$	3,600		71.91	%	$	1,492		24.42	%	$	1,419		20.40	%
Real estate — construction		—					—		—			—		—			—		—			—		—
1-4 family residential real estate		27		.63			22		.53	%		23		.46	%		17		.28	%		97		1.40	%
Consumer		40		.94			20		.48	%		—		—			—		—			—		—
Specific reserve on loans sold subsequent to year end		—		—			—		—			—		—			—		—			—		—
Unallocated and general reserves		391		9.14	%		296		7.14	%		1,383		27.63	%		4,599		75.30	%		5,450		78.20	%
TOTAL	$	4,277		100.00	%	$	4,146		100.00	%	$	5,006		100.00	%	$	6,108		100.0	%	$	6,966		100.0	%

V. Deposits

Deposit information is contained in Note 8 to the Corporation’s Consolidated Financial Statements contained in the Corporation’s 2008 Annual Report to Shareholders, and is incorporated herein by reference.

VI. Return on Equity and Assets

Selected financial data of the Corporation is contained in the Corporation’s 2008 Annual Report to Shareholders under the caption “Selected Financial Data,” and is incorporated herein by reference.

See Item 6 of this Form 10-K, “Selected Financial Data”

VII. Financial Instruments with Off-Balance Sheet Risk

Information relative to commitments, contingencies, and credit risk are discussed in Note 18 to the Corporation’s Consolidated Financial Statements contained in the Corporation’s 2008 Annual Report to Shareholders and is incorporated herein by reference.

13

ITEM 2. PROPERTIES

The Corporation’s headquarters are located at 130 South Cedar Street, Manistique, Michigan 49854. The headquarters location is owned by the Corporation and not subject to any mortgage.

Information regarding specific branch locations is contained in the Corporation’s 2008 Annual Report to Shareholders, and is incorporated herein by reference.

All of the branch locations are designed for use and operation as a bank, are well maintained, and are suitable for current operations. Of the 13 branch locations, 11 are owned and 2 are leased.

ITEM 3. LEGAL PROCEEDINGS

Information regarding legal proceedings is contained in Note 18 of the Corporation’s 2008 Annual Report to Shareholders, and is incorporated herein by reference.

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Corporation are listed below. The executive officers serve at the pleasure of the Board of Directors and are appointed by the Board annually. There are no arrangements or understandings between any officer and any other person pursuant to which the officer was selected.

Name	Age		Position
Paul D. Tobias		58	Chairman and Chief Executive Officer
Kelly W. George		41	President
Ernie R. Krueger		59	Executive Vice President/Chief Financial Officer

Additional information for the executive officers of the registrant is included in the Corporation’s Proxy Statement to its 2009 Annual Meeting of Shareholders under the caption “Information about Directors and Executive Officers.”

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCK HOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY

Market information pertaining to the Corporation’s common stock is contained under the caption “Market Information” in the Corporation’s 2008 Annual Report to Shareholders, and is incorporated herein by reference.

The holders of the Corporation’s common stock are entitled to dividends when, and if declared by the Board of Directors of the Corporation out of funds legally available for that purpose. In determining dividends, the Board of Directors considers the earnings, capital requirements and financial condition of the Corporation and its subsidiary bank, along with other relevant factors. The Corporation’s principal source of funds for cash dividends is the dividends paid by the Bank.

14

The ability of the Corporation and the Bank to pay dividends is subject to regulatory restrictions and requirements. The Bank currently has a negative retained earnings position which precludes payment of dividends. The Bank, in order to pay dividends, would need to seek regulatory approval for the restatement of its equity to eliminate the negative retained earnings position. There were no dividends declared or paid in 2006, 2007 and 2008. There were no sales of unregistered securities in 2008, nor were there any repurchases of the Corporation’s common stock in the fourth quarter of 2008.

Additional information regarding the Corporation’s common stock is contained in the Corporation’s 2008 Annual Report under the Caption “Market Information.”

Information regarding securities authorized for issuance under equity compensation plans may be found under Item 12 of this report.

ITEM 6. SELECTED FINANCIAL DATA

Selected financial data of the Corporation is contained in the Corporation’s 2008 Annual Report to Shareholders, under the caption “Selected Financial Data,” and is incorporated herein by reference.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Incorporated by reference to the Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Corporation’s 2008 Annual Report to Shareholders

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Incorporated by reference to the Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Corporation’s 2008 Annual Report to Shareholders

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Incorporated by reference to the Corporation’s Consolidated Financial Statements for the years ended December 31, 2008, 2007, and 2006, in the Corporation’s 2008 Annual Report to Shareholders.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There has been no change in the Corporation’s independent public accountants since 2002. The change was reported on Form 8-Ks filed during 2002.

15

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this report, management of the company, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective, in ensuring the information relating to the Corporation (and its consolidated subsidiaries) required to be disclosed by the Corporation in the reports it files or submits under the Exchange Act was recorded, processed, summarized and reported to the Corporation’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in the Corporation’s internal control over financial reporting that occurred during the quarter ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

16

Report on Management’s Assessment of Internal Control Over Financial Reporting

Mackinac Financial Corporation is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements included in this annual report. The consolidated financial statements and notes included in this annual report have been prepared in conformity with generally accepted accounting principles in the United States and necessarily include some amounts that are based on management’s best estimates and judgments.

We, as management of Mackinac Financial Corporation, are responsible for establishing and maintaining effective internal control over financial reporting that is designed to produce reliable financial statements in conformity with generally accepted accounting principles in the United States. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

Management assessed the Corporation’s system of internal control over financial reporting as of December 31, 2008, in relation to criteria for the effective internal control over financial reporting as described in “Internal Control — Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concludes that, as of December 31, 2008, its system of internal control over financial reporting is effective and meets the criteria of the “Internal Control — Integrated Framework.”

This annual report does not include an attestation report of the Corporation’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Corporation’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Corporation to provide only management’s report in this annual report.

/s/ Paul D. Tobias	/s/ Ernie R. Krueger
Paul D. Tobias	Ernie R. Krueger
Chairman and Chief Executive Officer	Executive Vice President and
	Chief Financial Officer
Manistique, Michigan
March 31, 2009

17

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION

The information set forth under the captions “Information About Directors and Nominees” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Corporation’s definitive Proxy Statement for its May 27, 2009, Annual Meeting of Shareholders (the “Proxy Statement”), a copy of which will be filed with the SEC prior to the meeting date, is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Information relating to compensation of the Corporation’s executive officers and directors is contained under the captions “Remuneration of Directors” and “Executive Compensation,” in the Corporation’s Proxy Statement for its 2009 Annual Meeting of Shareholders and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information relating to security ownership of certain beneficial owners and management is contained under the caption “Beneficial Ownership of Common Stock” in the Corporation’s Proxy Statement for its 2009 Annual Meeting of Shareholders and is incorporated herein by reference.

The following table provides information as of December 31, 2008, with respect to compensation plans (including individual compensation arrangements) under which equity securities of the Corporation are authorized for issuance. All such compensation plans were previously approved by security holders.

					Number of securities
					remaining available
			Weighted average		for future issuance
	Number of securities to		exercise price of		under equity
	be issued upon exercise		outstanding		compensation plans
	of outstanding options,		options, warrants		(excluding securities
Plan Category	warrants and rights		and rights		reflected in column (a))
	( a )		( b )		( c )
Equity compensation plans approved by security holders		446,237	$	12.14		18,488
Equity compensation plans not approved by security holders		—		—		—
Total		446,237	$	12.14		18,488

18

ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Information relating to certain relationships and related transactions is contained under the caption “Indebtedness of and Transactions with Management” in the Corporation’s Proxy Statement and is incorporated herein by reference.

Additional information is contained under the caption, “Information about Directors and Executive Officers” within the Corporation’s Proxy Statement for its 2009 Annual Meeting of Shareholders.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information relating to principal accountant fees and services is contained under the caption “Principal Accountant Fees and Services” in the Corporation’s Proxy Statement for its 2009 Annual Meeting of Shareholders and is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(commission file number for all incorporated documents: 0-20167)

(a) The following documents are filed as a part of this report.

1. Consolidated Financial Statements (contained in the Annual Report attached hereto as Exhibit 13 and incorporated herein by reference)

(i)	Report on Independent Registered Public Accounting Firm
(ii)	Consolidated Balance Sheets as of December 31, 2008, and 2007
(iii)	Consolidated Statements of Operations for the years ended December 31, 2008, 2007, and 2006
(iv)	Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2008, 2007, and 2006
(v)	Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007, and 2006
(vi)	Notes to Consolidated Financial Statements

2. All of the schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are either not required under the related instruction, the required information is contained elsewhere in the Form 10-K, or the schedules are inapplicable, and therefore have been omitted.

19

3. Exhibits

Exhibit
Number	Document
3.1*	Articles of Incorporation and all amendments (most recent amendment filed December 14, 2004)
3.2(a)*	Amended and Restated Bylaws as revised June 27, 2001
3.2(b)*	Amendment to the Amended and Restated Bylaws adopted August 9, 2004
3.2(c)*	Second Amendment to the Amended and Restated Bylaws adopted December 2007
4.1	Rights Agreement dated as of June 21, 2000 between the Corporation and Registrar and Transfer Company, as Rights Agent (incorporated by reference to Exhibit 4 to the Corporation’s Form 8-K filed July 31, 2000)
4.2	Amendment to Rights Agreement dated August 9, 2004 (incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-K filed August 13, 2004)
4.3	Amendment No. 2 to Rights Agreement dated December 2004 ( incorporated by reference to Exhibit 4.1 to the Corporation’s Form 8-K filed December 16, 2004)
10.1	Stock Option Agreement dated June 10, 2005, between Kelly W. George and Mackinac Financial Corporation (incorporated by reference to Exhibit 10.2 to the Corporation’s Form 10-K filed March 31, 2006**
10.2	Stock Option Agreement dated June 10, 2005, between Ernie R. Krueger and Mackinac Financial Corporation (incorporated by reference to Exhibit 10.3 to the Corporation’s Form 10-K filed March 31, 2006**
10.3	Stock Option Agreement dated September 20, 2005, between Walter J. Aspatore and Mackinac Financial Corporation (incorporated by reference to Exhibit 10.4 to the Corporation’s Form 10-K filed March 31, 2006**
10.4	Stock Option Agreement dated September 20, 2005, between Dennis B. Bittner and Mackinac Financial Corporation (incorporated by reference to Exhibit 10.5 to the Corporation’s Form 10-K filed March 31, 2006**

20

Exhibit
Number	Document
10.5	Stock Option Agreement dated September 20, 2005, between Randolph C. Paschke and Mackinac Financial Corporation (incorporated by reference to Exhibit 10.6 to the Corporation’s Form 10-K filed March 31, 2006**
10.6	Stock Option Agreement dated September 20, 2005, between Robert H. Orley and Mackinac Financial Corporation (incorporated by reference to Exhibit 10.7 to the Corporation’s Form 10-K filed March 31, 2006**
10.7	Form of Stock Option Agreement for Paul D. Tobias and the Corporation (incorporated by reference to Exhibit 10.2 to the Corporation’s Form 8-K filed December 16, 2004)**
10.8	Form of Indemnity Agreement for the Corporation’s Directors (incorporated by reference to Exhibit 10.3 to the Corporation’s Form 8-K filed December 16, 2004)
10.9	Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.4 to the Corporation’s Form 8-K filed December 16, 2004)
10.10	Deferred Compensation, Deferred Stock, and Current Stock Purchase Plan for the Corporation’s nonemployee directors (incorporated by reference to Exhibit 10.2 of the Corporation’s Annual Report on Form 10-K filed March 28, 2000)**
10.11	North Country Financial Corporation Stock Compensation Plan (incorporated by reference to Exhibit 10.3 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and filed March 28, 2000**
10.12	North Country Financial Corporation 2000 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Corporation’s Form 10-Q filed May 12, 2000)**
10.13	North Country Financial Corporation Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.6 of the Corporation’s Form 10-Q filed November 5, 1999 for the quarter ended September 30, 1999)**
10.14	Amended and Restated Employment Agreement dated December 21, 2006, between the Corporation and Kelly W. George (incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-K filed January 4, 2007)**
10.15	Amended and Restated Employment Agreement dated December 21, 2006, between the Corporation and Ernie R. Krueger (incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-K filed February 6, 2007)**

21

Exhibit
Number	Document
10.16	Stock Option Agreement dated December 15, 2006, between the Corporation and L. Brooks Patterson (incorporated by reference to Exhibit 10.30 of the Corporation’s Form 10-K filed March 30,2007)**
10.17	Stock Option Agreement dated December 15, 2006, between the Corporation and Kelly W. George (incorporated by reference to Exhibit 10.31 of the Corporation’s Form 10-K filed March 30, 2007)**
10.18	Stock Option Agreement dated December 15, 2006 between the Corporation and Ernie R. Krueger (incorporated by reference to Exhibit 10.32 of the Corporation’s Form 10-K filed March 30, 2007)**
10.19	Separation Agreement dated June 19, 2008, between the Corporation and Eliot Stark (incorporated by reference to Exhibit 5.1 to the Corporation’s Form 8-K filed July 3, 2008)**
11	(not applicable)
12	(not applicable)
13	2008 Annual Report to Shareholders. This exhibit, except for those portions expressly incorporated by reference in this filing, is furnished for the information of the Securities and Exchange Commission and is not deemed “filed” as part of this filing
14	(not applicable)
16	(not applicable)
18	(not applicable)
21	Subsidiaries of the Corporation
22	(not applicable)
23.1	Consent of Independent Public Accountants — Plante & Moran, PLLC
24	(not applicable)
31	Rule 13(a) — 14(a) Certifications
32.1	Section 1350 Chief Executive Officer Certification

22

Exhibit
Number	Document
32.2	Section 1350 Chief Financial Officer Certification
33	(not applicable)
34	(not applicable)
35	(not applicable)
99	(not applicable)
100	(not applicable)

*	filed herewith
**	management compensatory plan, contract, or arrangement

23

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, dated March 31, 2009.

MACKINAC FINANCIAL CORPORATION

/s/ Paul D. Tobias                                                            
Paul D. Tobias
Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 31, 2009, by the following persons on behalf of the Corporation and in the capacities indicated. Each director of the Corporation, whose signature appears below, hereby appoints Paul D. Tobias and Ernie R. Krueger, and each of them severally, as his attorney-in-fact, to sign in his name and on his behalf, as a director of the Corporation, and to file with the Commission any and all Amendments to this Report on Form 10-K.

Signature
/s/ Paul D. Tobias	/s/ Ernie R. Krueger
Paul D. Tobias — Chairman,	Executive Vice President/Chief Financial Officer
Chief Executive Officer & Director	(principal financial officer)
(principal executive officer)
/s/ Walter J. Aspatore	/s/ Joseph D. Garea
Walter J. Aspatore — Director	Joseph D. Garea — Director
/s/ Robert E. Mahaney	/s/ Robert H. Orley
Robert E. Mahaney — Director	Robert H. Orley — Director
	Officer
/s/ Dennis B. Bittner	/s/ L. Brooks Patterson
Dennis B. Bittner — Director	L. Brooks Patterson — Director
/s/ Kelly W. George	/s/ Randolph C. Paschke
Kelly W. George — President & Director	Randolph C. Paschke — Director

24

EX-3.1

Exhibit 3.1 —Articles of Incorporation and all amendments
C & S-101

(Profit Domestic Corporation)

ARTICLES OF INCORPORATION

     These Articles of Incorporation are signed by the incorporator(s) for the purpose of forming a profit corporation pursuant to the provisions of Act 284, Public Acts of 1972, as follows:

ARTICLE I

The name of the corporation is FIRST MANISTIQUE CORPORATION

ARTICLE II.

     The purpose or purposes for which the corporation is organized is to engage in any activity within the purposes for which corporations may be organized under the Business Corporation Act of Michigan, as amended from time to time, and including without limitation the power to act as a bank holding company as permitted by the Federal Bank Holding Company Act of 1956, as amended, or hereafter supplemented or amended.

ARTICLE III.

(Use the following if the shares are to consist of one class only.)

     The total authorized capital stock is:

     (1) Common shares 150,000 Par value $1.00 per share

No. of shares

OR  (2) Common shares                      without par value.

  No. of shares

     (3) A statement of all or any of the relative rights, preferences and limitations of the shares is as follows:

Shareholders shall have no preemptive right to subscribe for any additional shares of capital stock or other obligations convertible into shares to be issued by the corporation.

ARTICLE IV.

(Use the following only if the shares are to be divided into two or more classes.)
The total authorized capital stock is:

	{	Preferred shs.			Par value		$	}
(1)	{							}	per share
	{	Common shs.			Par value		$	}
			{	Preferred		}
and/or shs. of (2)			{			}	no par value.
			{	Common		}

(3) A statement of all or any of the relative rights, preferences and limitations of the shares of each class is as follows:

ARTICLE V.

     The address of the initial registered office is:

900 American Bank [ILLEGIBLE] Trust Bldg., Lansing		,	Michigan	48933
(No. and street)	(Town or City)			(Zip Code)

     The mailing address of the initial registered office is (need not be completed unless different from the above address):

		,	Michigan
(No. and street)	(Town or City)			(Zip Code)

     The name of the initial resident agent at the registered office is:

David W. McKeague

ARTICLE VI.

     The name(s) and address(es) of the incorporator(s) are as follows:

Name	Residence or Business Address
David W. McKeague	900 American Bank & Trust Bldg.
	Lansing, Michigan 48933

ARTICLE VII.

     OPTIONAL (Delete Article VII if not applicable.)

     When a compromise or arrangement or a plan of reorganization of this corporation is proposed between this corporation and its creditors or any class of them or between this corporation and its shareholders o. any class of them, a court of equity jurisdiction within the state, on application of this corporation or of a creditor or shareholder thereof, or on application of a receiver appointed for the corporation, may order a meeting of the creditors or class of creditors or of the shareholders or class of shareholders to be affected by the proposed compromise or arrangement or reorganization, to be summoned in such manner as the court directs. If a majority in number representing 3/4 in value of the creditors or class of creditors, or of the shareholders or class of shareholders to be affected by the proposed compromise or arrangement or a reorganization, agree to a compromise or arrangement or a reorganization of this corporation as a consequence of the compromise or arrangement, the compromise or arrangement and the reorganization, if sanctioned by the court to which the application has been made, shall be binding on all the creditors or class of creditors, or on all the shareholders or class of shareholders and also on this corporation.

ARTICLE VIII.

     (Here insert any desired additional provisions authorized by the Act)

I (We), the incorporator(s), sign my (our) name(s) this 29th day of November, 1974
/s/ David W. McKeague
David W. McKeague
	(See Instructions on Reverse Side)

(Please do not write in spaces below – for Department use)

MICHIGAN DEPARTMENT OF COMMERCE – CORPORATION AND SECURITIES BUREAU

Date Received
	FILED
DEC – 3 1974	Michigan Department of Commerce
	DEC – 6 1974
	DIRECTOR

C & S-101

INFORMATION AND INSTRUCTIONS

Articles of Incorporation — Profit Domestic Corporations

1.	Article I-The corporate name of a domestic profit corporation is required to contain one of the following words or abbreviations: “Corporation”, “Company”, “Incorporated”, “Limited”, “Corp.”, “Co.”, “Inc.” or “Ltd.”
2.	Article II may state, in general terms, the character of the particular [ILLEGIBLE] to be carried on. Under section 202(b) of the law. It is a sufficient compliance to state substantially, alone or with specifically enumerated purposes, that the corporation may engage in any activity within the purposes for which corporations may be organized under the Business Corporation Act. The law requires, however, that educational corporations must state their specific purposes.
3.	Articles III and IV — The law requires the incorporations of a domestic corporation having shares without par value to submit in writing the amount of consideration proposed to be received for each share which shall be allocated to stated capital.
4.	Article VI - The law requires one or more incorporators. The addresses should include a street number and name (or other designation). In addition to the name of the city and state.
5.	The [ILLEGIBLE] of the corporation should be stated in the Articles only if the duration is not perpetual.
6.	The Articles must be signed in [ILLEGIBLE] by each incorporator. The names of the incorporators as set out in Article VI should correspond with the signatures.
7.	One original copy of the Articles is required. A true copy will be prepared by the Corporation and Securities Bureau and returned to the person submitting the Articles for filing.
8.	An effective date, not later than 90 days subsequent to the date of filing, may be stated in the Articles of Incorporation.
9.	FEES:

Filing Fee	$	10.00
Franchise Fee — % will on each dollar of authorized capital stock, with a minimum franchise fee of	$	25.00
(Make fee payable to State of Michigan)

10. Mail Articles of Incorporation and fees to:

Michigan Department of Commerce
Corporation and Securities Bureau
Corporation Division
P.O. Drawer C
Lansing Michigan 48904

C&S - 113
(Rev. 1/74)

(For use by Domestic and Foreign Corporations)

CERTIFICATE OF CHANGE OF REGISTERED OFFICE
AND/OR CHANGE OF RESIDENT AGENT

     The undersigned corporation, in accordance with the provisions of Section 242 of Act 284, public Acts of 1972, as amended, does here certify as follows:

1. The name of the corporation is      FIRST MANISTIQUE CORPORATION                         

2. The address of its former registered office is: (See instructions on reverse side)

900 American Bank & Trust Bldg., Lansing	,	Michigan	48933
(No. and Street)      (Town or City)			(Zip Code)

The mailing address of its former registered office is: (Need not be completed unless different from the above address)

	,	Michigan
(No. and Street or P. O. Box)       (Town of City)			(Zip Code)

3.	(The following is to be completed if the address of the registered offices is changed.)
	The address of the registered office is changed to:

130 S. Cedar St.,                Manistique	,	Michigan	49854
(No. and Street)           (Town or City)			(Zip Code)

The mailing address of the registered office is changed to: (Need not be completed unless different from the above address)

P O Box 31                                 Manistique	,	Michigan	49854
(No. and Street or P.O. Box)            (Town or City)			(Zip Code)

4.	The name of the former resident agent is David M. Mckeague
5.	(The following is to be completed if the resident agent is changed.)
	The name of successor resident agent is Gerald G. Graphos

6.	The Corporation further states that the address of its registered office and the address of the business office of its resident agent, as changed, are identical.
7.	The changes designated above were authorized by resolution duly adopted by its board of directors.

Signed this 23rd day of May, 1975

FIRST MANISTIQUE CORPORATION
	(Name of Corporation)
By:	/s/ Fred H. Hahne (Signature of President, Vice-President, Chairman or Vice-Chairman)
	Fred H. Hahne, President (Type of Print Name and Title)

(See Instructions on Reverse Side)

C&S - 113

(Please do not write in spaces below — for Department use)

MICHIGAN DEPARTMENT OF COMMERCE – CORPORATION AND SECURITIES BUREAU

Date Received

               20 1975

FILED
Michigan Department of Commerce

Jun - 2 1975

DIRECTOR

     C & S-113
     (Rev. 1/74)

INFORMATION AND INSTRUCTIONS

Certificate of Change of Registered Office and/or Change of Resident Agent

1.	Insert the present address of the registered office in part 2 of the certificate. This address must agree with the address of the registered office as designated in the articles of incorporation or subsequent corporate certificate reflecting a change as filed with the Corporation and Securities Bureau.
2.	The mailing address of the registered office should be the same address as the registered office unless a post office box is designated as the mailing address.
3.	Insert the name of the present resident agent in part 4 of the certificate. This name must agree with the name of the resident agent as designated in the articles of incorporation or subsequent corporate certificate reflecting a change as filed with the Corporation and Securities Bureau.
4.	The Certificate is required to be signed in ink by the chairman or vice-chairman of the board, or the president or a vice-president of the corporation.
5.	One original copy is required. A true copy will be prepared by the Corporation and Securities Bureau and returned to the person submitting the Certificate for filing.
6.	Filing fee $5.00       (Make fee payable to State of Michigan)
7.	Mail form and fee to:

Michigan Department of Commerce
Corporation and Securities Bureau
Corporation Division
P. O. Drawer C
Lansing, Michigan 48904

(for Use by Domestic Corporations)

CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION

     The undersigned corporation executes the following Certificate of Amendment to its Articles of Incorporation pursuant to the provisions of Section 631, Act 284, Public Acts of 1972, as amended:

1.	The name of the corporation is FIRST MANISTIQUE CORPORATION
2.	The location of the registered office is

130 S. Cedar	Manistique	,	Michigan	49854
(No. and Street)	(Town or City)			(Zip Code)

3. The following amendment to the Articles of Incorporation wasadopted on the 20th day of August, l975: (Check one of the following)

þ [ILLEGIBLE]

o [ILLEGIBLE]

o [ILLEGIBLE]

     Resolved, than Article III of the Articles of Incorporation be amended to read as follows: (Any article being amended is required to be set forth in its entirety.)

The total authorized capital stock of the Corporation is:

Common shares, 50,000, par value $10 per share.

A statement of all or any of the relative rights, preferences and limitations of the shares is as follows:

Shareholders shall have no preemptive right to subscribe for any additional shares of capital stock or other obligations convertible into shares to be issued by the corporation.

FIRST MANISTIQUE CORPORATION
	(Corporate Name)
BY	/s/ Fred H. Hahne (Signature of President, Vice-President, Chairman or Vice-Chairman)
Fred H. Hahne, President
	(Type or Print Names and Title)

Signed this 20th day of August, 1975

C&S-111 (Rev. 2.74)

(See Instructions on Reverse Side)

(Please do not write in spaces below — for Department use)

MICHIGAN DEPARTMENT OF COMMERCE — CORPORATION AND SECURITIES BUREAU

Date Received

AUG 28 1975

FILED

Michigan Department of Commerce

SEP – 3 1975

DIRECTOR

C & S-111 (Rev. 2.74)

INFORMATION AND INSTRUCTIONS

Certificate of Amendment - Domestic Corporations

1.	This form may be used by both profit and non-profit corporations. In case of a non-profit corporation organized on a non-stock basis. “shareholders” shall be construed to be synonymous with “members”.
2.	An effective date, not later show 90 days subsequent to the date of filing may be stated in the Certificate of Amendment.
3.	The Certificate of Amendment is required to be signed in ink by the chairman or vice-chairman of the board of directors or the president or a vice-president of the corporation.
4.	One original copy is required. A true copy will be prepared by the Corporation and Securities Bureau and returned to the person submitting the Certificate of Amendment for filing.
5.	FEES: Filing Fee $10.00

Franchise Fee (payable only in case of increase in authorized capital stock) - ¹/₂ mill on each dollar of increase over highest previous authorized capital stock
(Make fee payable to State of Michigan)

6.	Mail form and fee to:
	Michigan Department of Commerce Corporation and Securities Bureau Corporation Division P. O. Drawer C Lansing, Michigan 48904

C&S-515 (Rev. 1-84)

MICHIGAN DEPARTMENT OF COMMERCE — CORPORATION AND SECURITIES BUREAU

(FOR BUREAU USE ONLY)		Date Received
	FILED	APR 29 1986
	APR 29 1986
	Administrator MICHIGAN DEPARTMENT OF COMMERCE Corporation & Securities Bureau

CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
For use by Domestic Corporations
(Please read instructions and Paperwork Reduction Act notice on last page)

     Pursuant to the provisions of Act 284, Public Acts of 1972, as amended (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate:

1.	The present name of the corporation is: First Manistique Corporation
2.	The corporation identification number (CID) assigned by the Bureau is: 063-316
3.	The location of its registered office is:

130 S. Cedar, P O BOX 31   (Street Address) Manistique   (City)   ,  Michigan 49854   (Zip Code)

4. Article III of the Articles of Incorporation is hereby amended to read as follows:

The total authorized capital stock of the Corporation is:

Common Shares 100,000                                         Par Value $5 per share

A statement of all or any of the relative rights, preferences, and limitations of the shares is as follows:

Shareholders shall have no preemptive right to subscribe for any additional shares of capital stock or other obligations convertible into shares to be issued by the Corporation.

5. COMPLETE SECTION (a) IF THE AMENDMENT WAS ADOPTED BY THE UNANIMOUS CONSENT OF THE INCORPORATOR(S) BEFORE THE FIRST MEETING OF THE BOARD OF DIRECTORS OR TRUSTEES; OTHERWISE, COMPLETE SECTION (b)

a. o	The foregoing amendment to the Articles of Incorporation was duly adopted on the                      day of                     , 19                    , in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the board of directors or trustees.
	Signed this                    day of                                     , 19
(Signatures of all incorporators; type or print name under each signature)
b. þ	The foregoing amendment to the Articles of Incorporation was duly adopted on the 15th day of April, 1986. The amendment: (check one of the following)

þ was duly adopted in accordance with Section 611(2) of the Act by the vote of the shareholders if a profit corporation, or by the vote of the shareholders or members if a nonprofit corporation, or by the vote of the directors if a nonprofit corporation organized on a nonstock directorship basis. The necessary votes were cast in favor of the amendment.

o was duly adopted by the written consent of all the directors pursuant to Section 525 of the Act and the corporation is a nonprofit corporation organized on a nonstock directorship basis.

o was duly adopted by the written consent of the shareholders or members having not less than the minimum number of votes required by statute in accordance with Section 407(1) and (2) of the Act. Written notice to shareholders or members who have not consented in writing has been given. (Note: Written consent by less than all of the shareholders or members is permitted only if such provision appears in the Articles of Incorporation.)

o was duly adopted by the written consent of all the shareholders or members entitled to vote in accordance with Section 407(3) of the Act.

Signed this 2lst day of April, 1986
By	/s/ Gerald G. Graphos Wilson T. Tyler  (Signature)
	Gerald G. Graphos, Secretary Wilson T. Tyler, President   (Type or Print Name and Title)

C&S-515 (Rev. 1-84)

DOCUMENT WILL BE RETURNED TO NAME AND MAILING ADDRESS INDICATED IN THE BOX BELOW. Include name, street and number	Name of person or organization remitting fees:
(or P.O. box), city, state and ZIP code.
First National Bank at Manistique	Preparer’s name and business telephone number:
P. O. Box 369,  Manistique, Mi 49854
Att: Gerald G. Graphos, Secretary	Gerald G. Graphos, Secretary (906) 341-2188

INFORMATION AND INSTRUCTIONS

1.	This form is issued under the authority of Act 284, P.A. of 1972, as amended, and Act 162, P.A. of 1982. The amendment cannot be filed until this form, or a comparable document, is submitted.
2.	Submit one original copy of this document. Upon filing, a microfilm copy will be prepared for the records of the Corporation and Securities Bureau. The original copy will be returned to the address appearing in the box above as evidence of filing.
	Since this document must be microfilmed, it is important that the filing be legible. Documents with poor black and white contrast, or otherwise illegible, will be rejected.
3.	This document is to be used pursuant to the provisions of section 631 of the Act for the purpose of amending the articles of incorporation of a domestic profit or nonprofit corporation. A nonprofit corporation is one incorporated to carry out any lawful purpose or purposes not involving pecuniary profit or gain for its directors, officers, shareholders, or members. A nonprofit corporation organized on a nonstock directorship basis, as authorized by Section 302 of the Act, may or may not have members, but if it has members, the members are not entitled to vote.
4.	Item 2 — Enter the identification number previously assigned by the Bureau. If this number is unknown, leave it blank.
5.	Item 4 — The entire article being amended must be set forth in its entirety. However, if the article being amended is divided into separately identifiable sections, only the sections being amended need be included.
6.	This document is effective on the date approved and filed by the Bureau. A later effective date, no more than 90 days after the date of delivery, may be stated.
7.	If the amendment is adopted before the first meeting of the board of directors, item 5(a) must be completed and signed in ink by all of the incorporators. If the amendment is otherwise adopted, item 5(b) must be completed and signed in ink by the president, vice-president, chairperson, or vice-chairperson of the corporation.
8.	FEES: Filing fee (Make remittance payable to State of Michigan)           $10.00

Franchise fee for profit corporations (payable only if authorized capital stock has increased) — ½ mill (.0005) on each dollar of increase over highest previous authorized capital stock.

9. Mail form and fee to:

Michigan Department of Commerce
Corporation and Securities Bureau
Corporation Division
P.O. Box 30054
Lansing, MI 48909
Telephone: (517) 373-0493

[ILLEGIBLE]

884E#4809      0602      ORG&FI       $    10.00
884E#4810      0602      ORG&FI       $1000.00

MICHIGAN DEPARTMENT OF COMMERCE — CORPORATION AND SECURITIES BUREAU

(FOR BUREAU USE ONLY)		Date Received
	FILED	MAY 16 1988
	JUN 1 1988	JUN 1 1988
	Administrator MICHIGAN DEPARTMENT OF COMMERCE Corporation & Securities Bureau

CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
For use by Domestic Corporations
(Please read instructions and Paperwork Reduction Act notice on last page)

     Pursuant to the provisions of Act 284. Public Acts of 1972, as amended (profit corporations), or Act 162. Public Acts of 1982, as amended (nonprofit corporations), the undersigned corporation executes the following Certificate:

1.	The present name of the corporation is: First Manistique Corporation
2.	The corporation identification number (CID) assigned by the Bureau is: 063 — 316
3.	The location of its registered office is:

130 S. Cedar St., P. O. Box 31,   (Street Address) Manistique   (City) , Michigan   49854   (ZIP Code)

4. Article III of the Articles of Incorporation is hereby amended to read as follows:

The total authorized capital stock of the Corporation is:

Common Shares: 500,000           Par Value per share: $5.00

A statement of all or any of the relative rights, preferences, and limitations of the shares is as follows:

Shareholders shall have no preemptive right to subscribe for any additional shares of capital stock or other obligations convertible into shares to be issued by the Corporation.

5.	COMPLETE SECTION (a) IF THE AMENDMENT WAS ADOPTED BY THE UNANIMOUS CONSENT OF THE INCORPORATOR(S) BEFORE THE FIRST MEETING OF THE BOARD OF DIRECTORS OR TRUSTEES; OTHERWISE, COMPLETE SECTION (b)
a.	o	The foregoing amendment to the Articles of Incorporation was duly adopted on the                      day of                                         , 19                     , in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the board of directors or trustees.
		Signed this                      day of                                                              , 19
		(Signatures of all incorporators; type or print name under each signature)

b. þ   The foregoing amendment to the Articles of Incorporation was duly adopted on the                      day of                     , 1988. The amendment: (check one of the following)

þ was duly adopted in accordance with Section 611(2) of the Act by the vote of the shareholders if a profit corporation, or by the vote of the shareholders or members if a nonprofit corporation, or by the vote of the directors if a nonprofit corporation organized on a nonstock directorship basis. The necessary votes were cast in favor of the amendment.

o was duly adopted by the written consent of all the directors pursuant to Section 525 of the Act and the corporation is a nonprofit corporation organized on a nonstock directorship basis.

o was duly adopted by the written consent of the shareholders or members having not less than the minimum number of votes required by statute in accordance with Section 407(1) and (2) of the Act. Written notice to shareholders or members who have not consented in writing has been given. (Note: Written consent by less than all of the shareholders or members is permitted only if such provision appears in the Articles of Incorporation.)

o was duly adopted by the written consent of all the shareholders or members entitled to vote in accordance with Section 407(3) of the Act.

Signed this 6th day of May, 1988
By	/s/ Ronald G. Ford
	(Signature)
	Ronald G. Ford (Type or Print Name)	President (Type or Print Title)

C&S-515

DOCUMENT WILL BE RETURNED TO NAME AND MAILING ADDRESS INDICATED IN THE BOX BELOW. Include name, street and number (or P.O. box), city, state and ZIP code. Name of person or organization
remitting tees:

	Preparer’s name and business telephone number:
Leslie A. Kelly
Foster, Swift, Collins & Coey, P. C.
313 S. Washington Square Lansing, MI 48933	(517) 372-8050

INFORMATION AND INSTRUCTIONS

1.	The amendment cannot be filed until this form, or a comparable document, is submitted.
2.	Submit one original copy of this document. Upon filing, a microfilm copy will be prepared for the records of the Corporation and Securities Bureau. The original copy will be returned to the address appearing in the box above as evidence of filing.
	Since this document must be microfilmed, it is important that the filing be legible. Documents with poor black and white contrast, or otherwise illegible, will be rejected.
3.	This document is to be used pursuant to the provisions of section 631 of the Act for the purpose of amending the articles of incorporation of a domestic profit or nonprofit corporation. Do not use this form for restated articles. A nonprofit corporation is one incorporated to carry out any lawful purpose or purposes not involving pecuniary profit or gain for its directors, officers, shareholders, or members. A nonprofit corporation organized on a nonstock directorship basis, as authorized by Section 302 of the Act, may or may not have members, but if it has members, the members are not entitled to vote.
4.	Item 2 — Enter the identification number previously assigned by the Bureau. If this number is unknown, leave it blank.
5.	Item 4 — The article being amended must be set forth in its entirety. However, if the article being amended is divided into separately identifiable sections, only the sections being amended need be included.
6.	This document is effective on the date approved and filed by the Bureau. A later effective date, no more than 90 days after the date of delivery, may be stated.
7.	If the amendment is adopted before the first meeting of the board of directors, item 5(a) must be completed and signed in ink by all of the incorporators listed in Article V of the Articles of Incorporation. If the amendment is otherwise adopted, item 5(b) must be completed and signed in ink by the president, vice-president, chairperson, or vice-chairperson of the corporation.
8.	FEES: Filing fee (Make remittance payable to State of Michigan)   $10.00

Franchise fee for profit corporations (payable only if authorized capital stock has increased) — 1/2 mill (.0005) on each dollar of increase over highest previous authorized capital stock.

9. Mail form and fee to:

Michigan Department of Commerce
Corporation and Securities Bureau
Corporation Division
P.O. Box 30054
6546 Mercantile Way
Lansing. MI 48909
Telephone: (517) 334-6302

C&S-515 [ILLEGIBLE]

894E#7759 0601 ORG&FI $10.00

MICHIGAN DEPARTMENT OF COMMERCE — CORPORATION AND SECURITIES BUREAU

 (FOR BUREAU USE ONLY) FILED
MAY 31 1989
[ILLEGIBLE] Date Received
MAY 31 1989

CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION

For use by Domestic Corporations
(Please read information and instructions on last page)

     Pursuant to the provisions of Act 284, Public Acts of 1972 (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate:

1.	The present name of the corporation is: First Manistique Corporation
2.	The corporation identification number (CID) assigned by the Bureau is: 063 — 316
3.	The location of its registered office is:

130 S. Cedar St., P.O. Box 31,	Manistique	,	Michigan		49854
(Street Address)	(City)			(ZIP Code)

4. Article III of the Articles of Incorporation is hereby amended to read as follows:

The total authorized capital stock of the Corporation is: Common Shares: 500,000. Par Value per share is: $2.50 A statement of all or any of the relative rights, preferences, and limitations of the shares is as follows:

Shareholders shall have no preemptive right to subscribe for any additional shares of capital stock or other obligations convertible into shares to be issued by the Corporation.

5.

COMPLETE SECTION (a) IF THE AMENDMENT WAS ADOPTED BY THE UNANIMOUS CONSENT OF THE INCORPORATOR(S) BEFORE THE FIRST MEETING OF THE BOARD OF DIRECTORS OR TRUSTEES; OTHERWISE, COMPLETE SECTION (b)

a.

o The foregoing amendment to the Articles of Incorporation was duly adopted on the                  day of                           , 19                 , in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the board of directors or trustees. Signed this                      day of                                                                                                                                   , 19

(Signatures of all incorporators; type or print name under each signature)

b. þ The foregoing amendment to the Articles of Incorporation was duly adopted on the 18th day of, April, 1989. The amendment: (check one of the following)

þ was duly adopted in accordance with Section 611(2) of the Act by the vote of the shareholders if a profit corporation, or by the vote of the shareholders or members if a nonprofit corporation, or by the vote of the directors if a nonprofit corporation organized on a nonstock directorship basis. The necessary votes were cast in favor of the amendment.

o was duly adopted by the written consent of all the directors pursuant to Section 525 of the Act and the corporation is a nonprofit corporation organized on a nonstock directorship basis.

o was duly adopted by the written consent of the shareholders or members having not less than the minimum number of votes required by statute in accordance with Section 407(1) and (2) of the Act. Written notice to shareholders or members who have not consented in writing has been given. (Note: Written consent by less than all of the shareholders or members is permitted only if such provision appears in the Articles of Incorporation.)

o was duly adopted by the written consent of all the shareholders or members entitled to vote in accordance with Section 407(3) of the Act.

Signed this [ILLEGIBLE]th day of MAY, 1989
By	/s/ Ronald G. Ford
	(Signature)
	Ronald G. Ford, President
(Type or Print Name)		(Type or Print Title)

DOCUMENT WILL BE RETURNED TO NAME AND MAILING ADDRESS INDICATED IN THE BOX BELOW. Include name, street and number	Name of person or organization remitting fees:
(or P.O. box). city, state and ZIP code.

Leslie A. Kelly
Foster, Swift, Collins & Smith, P.C.
313 South Washington Square
Lansing, MI 48933

Preparer’s name and business telephone number:

(517) 372-8050

INFORMATION AND INSTRUCTIONS

1.	The amendment cannot be filed until this form, or a comparable document, is submitted.
2.	Submit one original copy of this document. Upon filing, a microfilm copy will be prepared for the records of the Corporation and Securities Bureau. The original copy will be returned to the address appearing in the box above as evidence of filing.
	Since this document must be microfilmed, it is important that the filing be legible. Documents with poor black and white contrast, or otherwise illegible, will be rejected.
3.	This document is to be used pursuant to the provisions of section 631 of the Act for the purpose of amending the articles of incorporation of a domestic profit or nonprofit corporation. Do not use this form for restated articles. A nonprofit corporation is one incorporated to carry out any lawful purpose or purposes not involving pecuniary profit or gain for its directors, officers, shareholders, or members. A nonprofit corporation organized on a nonstock directorship basis, as authorized by Section 302 of the Act, may or may not have members, but if it has members, the members are not entitled to vote.
4.	Item 2 — Enter the identification number previously assigned by the Bureau. If this number is unknown, leave it blank.
5.	Item 4 — The article being amended must be set forth in its entirety. However, if the article being amended is divided into separately identifiable sections, only the sections being amended need be included.
6.	This document is effective on the date approved and filed by the Bureau. A later effective date, no more than 90 days after the date of delivery, may be stated.
7.	If the amendment is adopted before the first meeting of the board of directors, item 5(a) must be completed and signed in ink by all of the incorporators listed in Article V of the Articles of Incorporation. If the amendment is otherwise adopted, item 5(b) must be completed and signed in ink by the president, vice-president, chairperson, or vice-chairperson of the corporation.
8.	FEES: Filing fee (Make remittance payable to State of Michigan) $10.00

Franchise fee for profit corporations (payable only if authorized capital stock has increased) — ¹/₂ mill (.0005) on each dollar of increase over highest previous authorized capital stock.

9. Mail form and fee to:

Michigan Department of Commerce

Corporation and Securities Bureau

Corporation Division

P.O. Box 30054

6546 Mercantile Way

Lansing, MI 48909

Telephone: (517) 334-6302

944E#2999 0502 ORG&FI $2310.00

C&S 515 (Rev. 2.92)

944E#3000 0502 ORG&FI $12.50     

MICHIGAN DEPARTMENT OF COMMERCE — CORPORATION AND SECURITIES BUREAU

Date Received

APR 29 1994

Name	Matt G. Hrebec, Esq.
	Foster, Swift, Collins & Smith, P.C.
Address
	313 S. Washington Square
City		State	ZIP Code
	Lansing	Michigan	48933

(FOR BUREAU USE ONLY)

FILED

APR 29 1994

Administrator
MICHIGAN DEPARTMENT OF COMMERCE
Corporation & Securities Bureau

EFFECTIVE DATE:

DOCUMENT WILL BE RETURNED TO NAME AND ADDRESS INDICATED ABOVE

CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
For use by Domestic Corporations
(Please read information and instructions on last page)

     Pursuant to the provisions of Act 284, Public Acts of 1972 (profit corporations), or Act 162, Public Acts of 1982

(nonprofit corporations), the undersigned corporation executes the following Certificate:

1.	The present name of the corporation is: First Manistique Corporation
2.	The corporation identification number (CID) assigned by the Bureau is: 063—316
3.	The location of its registered office is:

130 S. Cedar Street, P.O. Box 369, Manistique		,	Michigan		49854
(Street Address)	(City)			(ZIP Code)

4. Articles III and VIII of the Articles of Incorporation is hereby amended to read as follows:

See attached Exhibit A

232J.50 CK 9821

5. COMPLETE SECTION (a) IF THE AMENDMENT WAS ADOPTED BY THE UNANIMOUS CONSENT OF THE INCORPORATOR(S) BEFORE THE FIRST MEETING OF THE BOARD OF DIRECTORS OR TRUSTEES; OTHERWISE, COMPLETE SECTION (b)

a. o The foregoing amendment to the Articles of Incorporation was duly adopted on the                    day of                                           , 19                     , in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the board of directors or trustees.

Signed this                      day of                                                              , 19                    .

(Signature)	(Signature)
(Type or Print Name)	(Type or Print Name)
(Signature)	(Signature)
(Type or Print Name)	(Type or Print Name)

b. þ The foregoing amendment to the Articles of Incorporation was duly adopted on the 19th day of April, 1994. The amendment: (check one of the following)

þ was duly adopted in accordance with Section 611(2) of the Act by the vote of the shareholders if a profit corporation, or by the vote of the shareholders or members if a nonprofit corporation, or by the vote of the directors if a nonprofit corporation organized on a nonstock directorship basis. The necessary votes were cast in favor of the amendment.

o was duly adopted by the written consent of all the directors pursuant to Section 525 of the Act and the corporation is a nonprofit corporation organized on a nonstock directorship basis.

o was duly adopted by the written consent of the shareholders or members having not less than the minimum number of votes required by statute in accordance with Section 407 (1) and (2) of the Act if a nonprofit corporation, and Section 407 (1) of the Act if a profit corporation. Written notice to shareholders or member who have not consented in writing has been given. (Note: Written consent by less than all of the shareholders or members is permitted only if such provision appears in the Articles of Incorporation.)

o was duly adopted by the written consent of all the shareholders or members entitled to vote in accordance with Section 407 (3) of the Act if a non-profit corporation, and Section 407 (2) of the Act if a profit corporation.

Signed this                      day of April, 1994
By	/s/ Ronald G. Ford
	(Only signature of: President, Vice-President, Chairperson and Vice-Chairperson)
	Ronald G. Ford, President
(Type or Print Name)		(Type or Print Title)

EXHIBIT A

Certificate of Amendment to the Articles of Incorporation
for
First Manistique Corporation

Amendment to Article III:

Article III

     The total authorized shares:

1.	Common Shares	2,000,000
	Preferred Shares	25,000

  2. A statement of all or any of the relative rights, preferences and limitations of the shares of each class is as follows:

The Board of Directors may cause the Corporation to issue Preferred Shares in one or more series, each series to bear a distinctive designation and to have such relative rights and preferences as shall be prescribed by resolution of the Board. Such resolutions, when filed, shall constitute amendments to these Articles of Incorporation.

Amendment to Article VIII:

Article VIII

A director of the Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for a breach of fiduciary duty as a director, except for liability: (a) for any breach of the director’s duty of loyalty to the Corporation or its shareholders; (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (c) resulting from a violation of §551(1) of the Michigan Business Corporation Act; or (d) for any transaction from which the director derived an improper personal benefit. In the event the Michigan Business Corporation Act is amended, after approval by the shareholders of this Article VIII, to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Michigan Business Corporation Act, as so amended. Any repeal, modification or adoption of any provision in these Articles of Incorporation inconsistent with this Article VIII shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal, modification or adoption.

096D#1093 0104 ORG&FI $10.00

FILED JAN 09 1996	[ILLEGIBLE]
Administrator MICHIGAN DEPARTMENT OF COMMERCE Corporation & Securities Bureau	JAN 1 - 1996 MICHIGAN DEPT. OF COMMERCE CORPORATION & SECURITIES BUREAU

RESTATED ARTICLES OF INCORPORATION

OF

FIRST MANISTIQUE CORPORATION

          The following Restated Articles of Incorporation are executed by the undersigned corporation pursuant to the provisions of Sections 641-651, Act 284, Public Acts of 1972, as amended.

     1. The present name of the corporation, and its only name since its incorporation is First Manistique Corporation.

     2. The corporation identification number (CID) assigned by the bureau is 063-316.

     3. All of the former names of the corporation are: None

     4. The date of filing the original Articles of Incorporation was December 6, 1974.

     5. The following Restated Articles of Incorporation supersede the original Articles of Incorporation, as heretofore amended, and shall be the Articles of Incorporation of the corporation.

ARTICLE I

     The name of the corporation is First Manistique Corporation.

ARTICLE II

     The purpose or purposes for which the corporation is organized is to engage in any activity within the purposes for which corporations may be organized under the Business Corporation Act of Michigan, as amended from time to time, and including without limitation the power to act as a bank holding company as permitted by the Federal Bank Holding Company Act of 1956, as amended, or hereafter supplemented or amended.

ARTICLE III

     The total authorized shares:

1.	Common Shares	2,000,000
	Preferred Shares	25,000

2. A statement of all or any of the relative rights, preferences and limitations of the shares of each class is as follows:

The Board of Directors may cause the Corporation to issue Preferred Shares in one or more series, each series to bear a distinctive designation and to have such relative rights and preferences as shall be prescribed by resolution of the Board. Such resolutions, when filed, shall constitute amendments to these Articles of Incorporation.

ARTICLE IV

     1. The address of the current registered office is: 130 South Cedar Street, P.O. Box 369, Manistique, Michigan 49854, which is also the mailing address of the current registered office.

     2. The name of the current resident agent is: Ronald G. Ford

ARTICLE V

     When a compromise or arrangement or a plan of reorganization of this corporation is proposed between this corporation and its creditors or any class of them or between this corporation and its shareholders or any class of them, a court of equity jurisdiction within the state, on application of this corporation or of a creditor or shareholder thereof, or on application of a receiver appointed for the corporation, may order a meeting of the creditors or class of creditors or of the shareholders or class of shareholders to be affected by the proposed compromise or arrangement or reorganization, to be summoned in such manner as the court directs. If a majority in number representing 3/4 in value of the creditors or class of creditors, or of the shareholders or class of shareholders to be affected by the proposed compromise or arrangement, agree to a compromise or arrangement, or a reorganization of this corporation as a consequence of the compromise or arrangement, the compromise or arrangement and the reorganization, if sanctioned by the court to which the application has been made, shall be binding on all the creditors or class of creditors, or on all the shareholders or class of shareholders and also on this corporation.

ARTICLE VI

     A director of the Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for a breach of fiduciary duty as a director, except for liability: (a) for any breach of the director’s duty of loyalty to the Corporation or its shareholders; (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (c) resulting from a violation §551(1) of the Michigan Business Corporation Act; or (d) for any transaction from which the director derived an improper personal benefit. In the event the Michigan Business Corporation Act is amended, after approval by the shareholders of this Article VI to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of

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a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Michigan Business Corporation Act, as so amended. Any repeal, modification or adoption of any provision in these Articles of Incorporation inconsistent with this Article VI shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal, modification or adoption.

     These Restated Articles of incorporation were duly adopted by the Board of Directors without a vote of the shareholders in accordance with the provisions of Section 642, Act 284, Public Acts of 1972, as amended. These Restated Articles of Incorporation only restate and integrate and do not further amend the provisions of the Articles of Incorporation as heretofore amended and there is no material discrepancy between those provisions and the provisions of these Restated Articles.

     Signed this 28th day of December, 1995.

FIRST MANISTIQUE CORPORATION
By:	/s/ [ILLEGIBLE]
	(Name)
	Its: President & CEO

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C & S 515

FILED

MAY 22 1996

096D#8260 0510 ORG&FI $5010.00

RECEIVED

MAY 10 1996

Administrator	MICHIGAN DEPT. OF COMMERCE
MI DEPT. OF CONSUMER & INDUSTRY SERVICES	CORPORATION & SECURITIES BUREAU
Corporation & Securities Bureau

CERTIFICATE OF AMENDMENT
TO THE ARTICLES OF INCORPORATION

     Pursuant to the provisions of Act 284, Public Acts of 1972, as amended, the undersigned corporation executes the following Certificate:

1.	The present name of the corporation is:
	First Manistique Corporation
2.	The identification number assigned by the Bureau is: 063 316
3.	The location of the registered office is:
	130 South Cedar P.O. Box 369 Manistique, MI 49854

     4. The following amendments to the Articles of Incorporation were duly adopted on the 23rd day of April, 1996. The amendments were duly adopted in accordance with Section 611(2) of the Act by the vote of the shareholders. The necessary votes were cast in favor of the amendments.

     Article III of the Corporation’s Articles of Incorporation is hereby amended to read as follows:

ARTICLE III

     The total number of shares of all classes of stock which the corporation shall have authority to issue is 6,500,000 shares, of which 6,000,000 shares shall be of a single class of common stock and 500,000 shares shall be series preferred stock.

     The authorized shares of common stock are all of one class with equal voting power, and each such share shall be equal to every other such share. The Board of Directors of the corporation may cause the corporation to issue preferred shares in one or more series, each series to bear a distinctive designation and to have such relative rights and preferences as shall be prescribed by resolution of the Board. Such resolutions, when filed, shall constitute amendments to these Articles of Incorporation.

     A new Article VII is added to the Corporation’s Articles of Incorporation and reads as follows:

ARTICLE VII

BOARD OF DIRECTORS

     Section 1. Authority and Size of Board. The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors. The number of directors of the corporation that shall constitute the Board of Directors shall be determined from time to time by resolution adopted by the affirmative vote of:

     A. At least eighty percent (80%) of the Board of Directors, and

     B. A majority of the Continuing Directors (as hereinafter defined).

     Section 2. Classification of Board and Filling of Vacancies. Subject to applicable law, the directors shall be divided into three (3) classes, each class to be as nearly equal in number as possible. At each annual meeting of shareholders, the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting and until their successors shall be duly elected and qualified or their resignation or removal. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the number of directors, may be filled only by the Board of Directors, acting by an affirmative vote of a majority of the Continuing Directors (as hereinafter defined) and an eighty percent (80%) majority of all of the directors then in office, although less than a quorum, and any director so chosen shall hold office until the next election of the class for which the director was chosen and until his successor shall be duly elected and qualified or his resignation or removal. No decrease in the number of directors shall shorten the term of any incumbent director.

     Section 3. Removal of Directors. Notwithstanding any other provisions of these Articles of Incorporation or the Bylaws of the corporation (and notwithstanding the fact that some lesser percentage may be specified by law or by these Articles of Incorporation or the Bylaws of the corporation), any one or more directors of the corporation may be removed at any time, with or without cause, but only by either (i) the affirmative vote of a majority of the

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Continuing Directors and at least eighty percent (80%) of the Board of Directors or (ii) the affirmative vote, at a meeting of the shareholders called for that purpose, of the holders of at least eighty percent (80%) of the voting power of the then outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors (the “Voting Stock”) voting together as a single class.

     Section 4. Certain Definitions. For the purposes of this Article VII:

     A. A “person” shall mean any individual, firm, corporation or other entity.

     B. “Interested Shareholder” shall mean any person, other than the corporation or any Subsidiary, who or which:

     (i) is the beneficial owner, directly or indirectly, of ten percent (10%) or more of the voting power of the outstanding Voting Stock; or

     (ii) is an Affiliate of the corporation and at any time within the two (2) year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of ten percent (10%) or more of the voting power of the then outstanding Voting Stock; or

     (iii) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two (2) year period immediately prior to the date in question beneficially owned by any Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933.

     C. A person shall be a “beneficial owner” of any Voting Stock:

     (i) which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly; or

     (ii) which such person or any of its Affiliates or Associates has (a) the right to acquire (whether such right is

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exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or

     (iii) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock.

     D. For the purposes of determining whether a person is an Interested Shareholder pursuant to paragraph B of this Section 4, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of paragraph C of this Section 4 but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.

     E. “Affiliate” or “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the date this Article of the Articles of Incorporation is filed with the Corporation Division of the Michigan Department of Commerce.

     F. “Subsidiary” means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the corporation; provided, however, that for the purposes of the definition of Interested Shareholder set forth in paragraph B of this Section 4, the term “Subsidiary” shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the corporation.

     G. “Continuing Director” means any member of the Board of Directors of the corporation (the “Board”) who is unaffiliated with the Interested Shareholder and was a member of the Board prior to the time that the Interested Shareholder became an Interested Shareholder, and any successor of a Continuing Director who is unaffiliated with the Interested Shareholder and is recommended to succeed a Continuing Director by a majority of Continuing Directors then on the Board.

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     Section 5. Powers of Continuing Directors. A majority of the Continuing Directors of the corporation shall have the power and duty to determine, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this Article VII, including without limitation (i) whether a person is an Interested Shareholder, (ii) the number of shares of Voting Stock beneficially owned by any person and (iii) whether a person is an Affiliate or Associate of another; and the good faith determination of a majority of the Continuing Directors on such matters shall be conclusive and binding for all the purposes of this Article VII.

     Section 6. Nominations for Board. Nominations for the election of directors may be made by the Board of Directors or by a shareholder entitled to vote in the election of directors. A shareholder entitled to vote in the election of directors, however, may make such a nomination only if written notice of such shareholder’s intent to do so has been given, either by personal delivery or by United States mail, postage prepaid, and received by the corporation (a) with respect to an election to be held at an annual meeting of shareholders, not later than sixty (60) nor more than ninety (90) days prior to the first anniversary of the preceding year’s annual meeting (or, if the date of the annual meeting is changed by more than twenty (20) days from such anniversary date, within ten (10) days after the date the corporation mails or otherwise gives notice of the date of such meeting), and (b) with respect to an election to be held at a special meeting of shareholders called for that purpose, not later than the close of business on the tenth (10th) day following the date on which notice of the special meeting was first mailed to the shareholders by the corporation.

     Each shareholder’s notice of intent to make a nomination shall set forth: (i) the name(s) and address(es) of the shareholder who intends to make the nomination and of the person or persons to be nominated; (ii) a representation that the shareholder (a) is a holder of record of stock of the corporation entitled to vote at such meeting, (b) will continue to hold such stock through the date on which the meeting is held, and (c) intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination is to be made by the shareholder; (iv) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to Regulation 14A promulgated under Section 14 of the Securities Exchange Act of 1934, as amended, as now in effect or hereafter modified; and (v) the consent of each nominee to serve as a director of the corporation if so

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elected. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the qualifications of such proposed nominee to serve as a director.

     No person shall be eligible for election as a director unless nominated (i) by a shareholder in accordance with the foregoing procedure or (ii) by the Board of Directors.

     A new Article VIII is added to the Corporation’s Articles of Incorporation and reads as follows:

ARTICLE VIII

NOTIFICATION OF SHAREHOLDER PROPOSALS

     The Board of Directors of the corporation shall submit for consideration and vote by the shareholders, at annual meetings of the shareholders, only those proposals that are first brought before the meeting by or at the direction of the Board of Directors, or by any shareholder entitled to vote at such meeting (a) who submits to the corporation a timely Notice of Proposal in accordance with the requirements of this Article VIII and the proposal is a proper subject for action by shareholders under Michigan law, or (b) whose proposal is included in the corporation’s proxy materials in compliance with all the requirements set forth in the applicable rules and regulations in the Securities and Exchange Commission.

     Each shareholder’s Notice of Proposal shall set forth:

     (a) The name and address of the shareholder submitting the proposal, as they appear on the corporation’s books and records;

     (b) A representation that the shareholder (i) is a holder of record of stock of the corporation entitled to vote at such meeting, (ii) will continue to hold such stock through the date on which the meeting is held, and (iii) intends to appear in person or by proxy at the meeting to submit the proposal for shareholder vote;

     (c) A brief description of the proposal desired to be submitted to the meeting for shareholder vote and the reasons for conducting such business at the meeting; and

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     (d) A description of any financial or other interest of such shareholder in the proposal.

     A Notice of Proposal must be given, either by personal delivery or by United States mail, postage prepaid, and received by the corporation not less than thirty (30) days prior to the date of the originally scheduled meeting, regardless of any adjournments thereof to a later date; provided that, if less than forty (40) days’ notice of the meeting of shareholders is given by the corporation, the Notice of Proposal must be received by the corporation not later than the close of business on the tenth (10th) day following the date on which the notice of the scheduled meeting was first mailed to the shareholders.

     The secretary of the corporation shall notify a shareholder in writing whether his or her Notice of Proposal has been made in accordance with all the requirements of this Article VIII. The chairman of the meeting may refuse to acknowledge the proposal of any shareholder not made in compliance with all such requirements.

     A new Article IX is added to the Corporation’s Articles of Incorporation and reads as follows:

ARTICLE IX

AMENDMENT OF ARTICLES VII, VIII OR IX

     Notwithstanding anything contained in these Articles of Incorporation to the contrary, the affirmative vote of at least 80% of the outstanding shares of voting stock of the corporation, voting as a single class, shall be required to amend or repeal Article VII, Article VIII or Article IX of these Articles of Incorporation or to adopt any provision inconsistent therewith, unless, such amendment or repeal or inconsistent provision has been recommended for approval by at least 80% of all directors then holding office and by a majority of the Continuing Directors. The term “Continuing Directors” is defined in Article VII.

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     A new Article X is added to the Corporation’s Articles of Incorporation and reads as follows:

ARTICLE X

BOARD EVALUATION OF CERTAIN OFFERS

     Section 1. Matters to be Evaluated. The Board of Directors of this corporation shall not approve, adopt or recommend any offer of any person or entity, other than the corporation, to make a tender or exchange offer for any capital stock of the corporation, to merge or consolidate the corporation with any other entity or to purchase or otherwise acquire all or substantially all of the assets or business of the corporation unless and until the Board of Directors shall have first evaluated the offer and determined that the offer would be in compliance with all applicable laws and that the offer is in the best interests of the corporation and its shareholders. In connection with its evaluation as to compliance with laws, the Board of Directors may seek and rely upon an opinion of legal counsel independent from the offeror and it may test such compliance with laws in any state or federal court or before any state or federal administrative agency which may have appropriate jurisdiction. In connection with its evaluation as to the best interests of the corporation and its shareholders, the Board of Directors shall consider all factors which it deems relevant, including without limitation: (i) the adequacy and fairness of the consideration to be received by the corporation and/or its shareholders under the offer considering historical trading prices of the corporation’s stock, the price that might be achieved in a negotiated sale of the corporation as a whole, premiums over trading prices which have been proposed or offered with respect to the securities of other companies in the past in connection with similar offers and the future prospects for this corporation and its business; (ii) the potential social and economic impact of the offer and its consummation on this corporation, and its subsidiaries and their respective employees, depositors and other customers and vendors; (iii) the potential social and economic impact of the offer and its consummation on the communities in which the corporation and any subsidiaries operate or are located; (iv) the business and financial condition and earnings prospects of the proposed acquiror or acquirors; and (v) the competence, experience and integrity of the proposed acquiror or acquirors and its or their management.

     Section 2. Amendment, Repeal, etc. Notwithstanding any other provision of these Articles of Incorporation or the Bylaws of the corporation to the contrary (and notwithstanding the fact that a lesser percentage may be specified by law, these Articles of Incorporation or the Bylaws of the

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corporation), the affirmative vote of the holders of eighty percent (80%) or more of the outstanding shares of capital stock entitled to vote for the election of directors, voting together as a single class, shall be required to amend, repeal or adopt any provision inconsistent with this Article X; provided, however, that this Section 2 of Article X shall be of no force or effect if the proposed amendment, repeal or other action has been recommended for approval by at least eighty percent (80%) of all directors then holding office.

Signed this 25th day of April, 1996.
By:	/s/ Ronald G. Ford
	Ronald G. Ford, President and
	Chief Executive Officer

Return to:
Donald L. Johnson
Varnum, Riddering, Schmidt & Howlett
P.O. Box 352
Grand Rapids, MI 49501-0352

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Michigan Department of Consumer and Industry Services

Filing Endorsement

This is to Certify that the CERTIFICATE OF AMENDMENT — CORPORATION

for

NORTH COUNTRY FINANCIAL CORPORATION

ID NUMBER: 063316

received by facsimile transmission on April 20, 1998 is hereby endorsed Filed on April 20, 1998 by the Administrator.

		In testimony whereof, I have hereunto set my
		hand and affixed the Seal of the Department,
		in the City of Lansing, this 20th day
		of April, 1998.
		, Director
	Corporation, Securities and Land Development Bureau

CERTIFICATE OF AMENDMENT
TO THE ARTICLES OF INCORPORATION

     Pursuant to the provisions of Act 284, Public Acts of 1972, as amended, the undersigned corporation executes the following Certificate:

     1. The present name of the corporation is:

First Manistique Corporation

     2. The identification number assigned by the Bureau is: 063 316

     3. The location of the registered office is:

130 South Cedar
Manistique, MI 49854

     4. The following amendments to the Articles of Incorporation were duly adopted on the 14th day of April, 1998. The amendment was duly adopted in accordance with Section 611(2) of the Act by the vote of the shareholders. The necessary votes were cast in favor of the amendment.

     Article I is hereby amended to read as follows:

ARTICLE I

     The name of the Corporation is North Country Financial Corporation.

Signed this 18th day of April, 1998.
By:	/s/ Ronald G. Ford
	Ronald G. Ford, President and
	Chief Executive Officer

Return to:
Donald L. Johnson
Varnum, Riddering, Schmidt & Howlett llp
P.O. Box 352
Grand Rapids, MI 49501-0352

C&S 615 (11/97)

[ILLEGIBLE]

	RECEIVED	MICHIGAN DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES CORPORATION, SECURITIES, AND LAND DEVELOPMENT BUREAU
[ILLEGIBLE]	AUG 18 1998	ADJUSTED PURSUANT TO TELEPHONE AUTHORIZATION	(FOR BUREAU USE ONLY)                     FILED
	[ILLEGIBLE]		AUG  18  1998
Name VARNUM, RIDDERING, SCHMIDT & HOWLETT LLP DONALD L. JOHNSON
Address P.O. BOX 352			Administrator MI DEPARTMENT OF CONSUMER & INDUSTRY SERVICES CORPORATION, SECURITIES & LAND DEVELOPMENT BUREAU EFFECTIVE DATE:
City	State	Zip Code
GRAND RAPIDS, MI 49501-0352

     Document will be returned to the name and address you enter above

CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
For use by Domestic Profit and Nonprofit Corporations
(Please read information and instructions on the last page)

     Pursuant to the provisions of Act 284, Public Acts of 1972 (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate:

1.	The present name of the corporation is:      NORTH COUNTRY FINANCIAL CORPORATION
2.	The identification number assigned by the Bureau is: 063-316
3.	The location of the registered office is:

130 SOUTH CEDAR P.O. BOX 369	MANISTIQUE	,	Michigan      49854
(Street Address)	(City)		(ZIP Code)

4. The first paragraph of Article III of the Articles of Incorporation is hereby amended to read as follows:

The total number of shares of all classes of stock which the corporation shall have authority to issue is 18,500,000 shares of which 18,000,000 shares shall be a single class of common stock and 500,000 shares shall be series preferred stock.

5.	(For amendments adopted by unanimous consent of incorporators before the first meeting of the board of directors or trustees.)
	The foregoing amendment to the Articles of Incorporation were duly adopted on the                     day of                     , 19______, in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the Board of Directors or Trustees.
		Signed this                                          day of                                          , 19

(Signature)	(Signature)
(Type or Print Name)	(Type or Print Name)
(Signature)	(Signature)
(Type or Print Name)

6.	(For profit corporations, and for nonprofit corporations whose articles state the corporation is organized on a stock or on a membership basis.)
	The foregoing amendment to the Articles of Incorporation was duly adopted on the 11th day of August, 1998 by the shareholders if a profit corporation, or by the shareholders or members is a nonprofit corporation (check one of the following)
	þ	at a meeting. The necessary votes were cast in favor of the amendment.
	o	by written consent of the shareholders or members having not less than the minimum number of votes required by statute in accordance with Section 407(1) and (2) of the Act if a nonprofit corporation, or Section 407(1) of the Act if a profit corporation. Written notice to shareholders or members who have not consented in writing has been given. (Note: Written consent by less than all of the shareholders or members is permitted only if such provision appears in the Articles of Incorporation.)
	o	by written consent of all the shareholders or members entitled to vote in accordance with section 407(3) of the Act if a nonprofit corporation, or section 407(2) of the Act if a profit corporation.
	o	by the board of a profit corporation pursuant to section 611 (2)

	Profit Corporation		Nonprofit Corporations
Signed this 11th day of August  , 1998		Signed this                      day of                     , 19
By	/s/ Ronald G. Ford	By
	(Signature of an authorized officer or agent)		(Signature of President, Vice-President, Chairperson or Vice-Chairperson)
Ronald G. Ford                                                  President and CEO
	(Type or Print Name)                    (Type or Print Title)		(Type or print Name)            (Type or Print Title)

C&S 515(Rev. 3/00)

	MICHIGAN DEPARTMENT OF CONSUMER & INDUSTRY SERVICES CORPORATION AND LAND DEVELOPMENT BUREAU					Tran Info: 1  3142412-1 07/18/2000
Date Received		(FOR BUREAU USE ONLY)				[ILLEGIBLE] 125345 ID: Amt $15.00 063316
		This document is effective on the date filed, unless a subsequent effective date within 90 days after received date is stated in the document.
Name	Larry D. Lieberman
Address:	Godfrey & Kahn, S.C. 780 North Water Street					FILED JUL 25 2000 Administrator MI DEPARTMENT OF CONSUMER & INDUSTRY SERVICES CORPORATION SECURITIES & LAND DEVELOPMENT BUREAU
City			State	Zip Code
	Milwaukee		WI	53202	EFFECTIVE DATE:

     Document will be returned to the name and address you enter above.

          if left blank document will be mailed to the registered office.

CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
For use by Domestic Profit and Nonprofit Corporations
(Please read information and instructions on the last page)

          Pursuant to the provisions of Act 284, Public Acts of 1972 (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate:

1.	The present name of the corporation is:      North Country Financial Corporation
2.	The identification number assigned by the Bureau is:	063316

3. Article III of the Articles of Incorporation is hereby amended to read as follows:-
by adding at the end of Article III the provisions set forth on Exhibit A attached hereto creating a series of Preferred Stock designated as “Series B Junior Participating Preferred Stock.”

Exhibit A

ATTACHMENT TO THE
CERTIFICATE OF AMENDMENT
OF
NORTH COUNTY FINANCIAL CORPORATION

          NOW, THEREFORE, BE IT RESOLVED, That pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of its Articles of Incorporation, a series of Preferred Stock of the Corporation be and it hereby is created, and that the designation and number of shares and relative rights, preferences and limitations thereof are as follows:

1. Designation and Amount.

          The shares of such series shall be designated as “Series B Junior Participating Preferred Stock” (the “Series B Preferred Stock”); the number of shares constituting such series shall be one hundred thousand (100,000). Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series B Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation into Series B Preferred Stock.

2. Dividends and Distributions.

          (a) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series B Preferred Stock with respect to dividends, the holders of shares of Series B Preferred Stock, in preference to the holders of Common Stock, without par value (the “Common Stock”), of the Corporation and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series B Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (i) $10 or (ii) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series B Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or

A-1

effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series B Preferred Stock were entitled immediately prior to such event under clause (ii) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

          (b) The Corporation shall declare a dividend or distribution on the Series B Preferred Stock as provided in paragraph (a) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $10 per share on the Series B Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

          (c) Dividends shall begin to accrue and be cumulative on outstanding shares of Series B Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series B Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series B Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series B Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof.

          3. Voting Rights. The holders of shares of Series B Preferred Stock shall have the following voting rights:

          (a) Subject to the provision for adjustment hereinafter set forth, each share of Series B Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the shareholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series B Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which

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is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

          (b) Except as otherwise provided herein, in any certificate of amendment or such other similar document creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series B Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all makers submitted to a vote of shareholders of the Corporation.

          (c) Except as set forth herein, or as otherwise provided by law, holders of Series B Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.

          4. Certain Restrictions.

          (a) Whenever quarterly dividends or other dividends or distributions payable on the Series B Preferred Stock as provided in Section 1, above, are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series B Preferred Stock outstanding shall have been paid in full, the Corporation shall not:

          (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preferred Stock;

          (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Preferred Stock, except dividends paid ratably on the Series B Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

          (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up), to the Series B Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series B Preferred Stock; or

          (iv) redeem or purchase or otherwise acquire for consideration any shares of Series B Preferred Stock, or any shares of stock ranking on a parity with the Series B Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and

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preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

          (b) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (a) of this Section 3, purchase or otherwise acquire such shares at such time and in such manner.

          5. Reacquired Shares. Any shares of Series B Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Articles of Incorporation, or in any certificate of amendment or such other similar document creating a series of Preferred Stock or any similar stock or as otherwise required by law.

          6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (a) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preferred Stock unless, prior thereto, the holders of shares of Series B Preferred Stock shall have received $1,000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series B Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (b) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Preferred Stock, except distributions made ratably on the Series B Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series B Preferred Stock were entitled immediately prior to such event under the proviso in clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

          7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series B Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth,

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equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series B Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

          8. No Redemption. The shares of Series B Preferred Stock shall not be redeemable.

          9. Rank. The Series B Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Corporation’s Preferred Stock.

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     COMPLETE ONLY ONE OF THE FOLLOWING:

4.	(For amendments adopted by unanimous consent of incorporators before the first meeting of the board of directors or trustees.)
	The foregoing amendment to the Articles of Incorporation was duly adopted on the                      day of
	,                     , in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the Board of Directors or Trustees.

Signed this                      day of                                         ,                     

(Signature)	(Signature)
(Type or Print Name)	(Type or Print Name)
(Signature)	(Signature)
(Type or Print Name)	(Type or Print Name)

5.	(For profit and nonprofit corporations whose Articles state the corporation is organized on a stock or on a membership basis.)
	The foregoing amendment to the Articles of Incorporation was duly adopted on the 21st day of June, 2000 by the shareholders if a profit corporation, or by the shareholders or members if a nonprofit corporation (check one of the following)

o  at a meeting the necessary votes were cast in favor of the amendment.

o  by written consent of the shareholders or members having not less than the minimum number of votes required by statute in accordance with Section 407(1) and (2) of the Act if a nonprofit corporation, or Section 407(1) of the Act if a profit corporation. Written notice to shareholders or members who have not consented in writing has been given. (Note: Written consent by less than all of the shareholders or members is permitted only if such provision appears in the Articles of Incorporation.)

o  by written consent of all the shareholders or members entitled to vote in accordance with section 407(3) of the Act if a nonprofit corporation, or Section 407(2) of the Act if a profit corporation.

þ  by the board of a profit corporation pursuant to section 450.1302

Profit Corporations		Nonprofit Corporations
Signed this 14th day of July, 2000		Signed this ________ day of ________, ________
By	/s/ Ronald G. Ford	By
	(Signature of an authorized officer or agent)		(Signature of President, Vice-President, Chairperson or Vice-Chairperson)
	Ronald G. Ford, Chairman and Chief
	Executive Officer
(Type or Print Name)		(Type or Print Name)          (Type or Print Title)

BCS/CD-615 (Rev. 12/03)

	MICHIGAN DEPARTMENT OF LABOR & ECONOMIC GROWTH
BUREAU OF COMMERCIAL SERVICES
	Date Received	(FOR BUREAU USE ONLY)
	DEC [ILLEGIBLE] 2004
		This document is effective on the date filed, unless a subsequent effective date within 90 days after received date is stated in the document.		FILED DEC 14 2004
	Name
	David D. Joswick			Administrator BUREAU OF COMMERCIAL SERVICES
	Address
	840 West Long Lake Road, Suite 200
	City		State                     Zip Code
	Troy		Michigan                48098	EFFECTIVE DATE: 12/15/04 5 pm
	Document will be returned to the name and address you enter above.
	If left blank document will be mailed to the registered office.

CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION

For use by Domestic Profit and Nonprofit Corporations

(Please read information and instructions on the last page)

     Pursuant to the provisions of Act 284, Public Acts of 1972 (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate:

1. The present name of the corporation is:    NORTH COUNTRY FINANCIAL CORPORATION

2. The identification number assigned by the Bureau is: 063316 

3.	Articles I and III of the Restated Articles of Incorporation are hereby amended as follows:
	Article I is amended to read in its entirety as set forth on Exhibit A attached hereto.
	Article III is amended by adding the provisions set forth on Exhibit B attached hereto.

4. The effective date of this Certificate of Amendment is. 5:00, p.m., on December 15, 2004.

5. (For profit and nonprofit corporations whose Articles state the corporation is organized on a stock or on a membership basis.)
The foregoing amendment to the Articles of Incorporation was duly adopted on the 18 day of November 2004, by the shareholders if a profit corporation, or by the shareholders or members if a nonprofit corporation (check one of the following):
þ	at a meeting the necessary votes were cast in favor of the amendment.
o	by written consent of the shareholders or members having not less than the minimum number of votes required by statute in accordance with Section 407(1) and (2) of the Act if a nonprofit corporation, or Section 407(1) of the Act if a profit corporation. Written notice to shareholders or members who have not consented in writing has been given. (Note: Written consent by less than all of the shareholders or members is permitted only if such provision appears in the Articles of Incorporation.)

o by written consent of all the shareholders or members entitled to vote in accordance with section 407(3) of the Act if a nonprofit corporation, or Section 407(2) of the Act if a profit corporation.

o by consents given by electronic transmission in accordance with Section 407(3) if a profit corporation.

o by the board of a profit corporation pursuant to section 611(2).

Profit Corporations and Professional Service Corporations.		Nonprofit Corporations
Signed this 13th day of December 2004.		Signed this                      day of                     .
By	/s/ C. James [ILLEGIBLE]	By:
	(Signature of an authorized officer or agent)		(Signature of President, Vice-President, Chairperson or Vice-Chairperson)
	C. James [ILLEGIBLE], President and Chief Executive Officer
(Type or Print Name)		(Type or Print Name)          (Type or Print Title)

RECEIVED                    

DEC 14 2004                    

MI DEPT. OF LABOR AND ECONOMIC GROWTH
BUREAU OF COMMERCIAL SERVICES        

EXHIBIT A

Article I

     The name of the corporation is Mackinac Financial Corporation.

EXHIBIT B

     Effective at the time this Certificate of Amendment to the Restated Articles of Incorporation shall become effective as provided in Section 4 of this Certificate of Amendment (the “Effective Time”), the filing of this Certificate of Amendment to the Restated Articles of Incorporation shall effect a reverse stock split on the basis of one (1) new common share for each twenty (20) issued and outstanding common shares, while maintaining the number of authorized common shares and preferred shares, as set forth in this Article III (the “Reverse Split”).

     Immediately as of the Effective Time, and without any action by the holders of outstanding common shares, but subject to the rounding of fractional shares described below, outstanding certificates representing the corporation’s common shares shall represent for all purposes, and each common share issued and outstanding immediately before the Effective Time shall automatically be converted into, new common shares in the ratio of twenty (20) old common shares for one (1) new common share, all by virtue of the Reverse Split and without any action on the part of the holder of such common shares.

     Notwithstanding any of the foregoing to the contrary, no fractional common shares shall be issued in connection with the Reverse Split. In lieu thereof, each holder of common shares as of the Effective Time who would otherwise have been entitled to receive a fractional new common share shall, upon surrender of such shareholder’s certificate representing pre-split common shares, have the post-split common shares to which they are entitled rounded up to the nearest whole share. As of the Effective Time such fractional shares shall no longer represent equity interests in the corporation, and shall not be entitled to any voting, dividend or other shareholder rights; rather, they shall represent only the right to receive the common shares, if any, described in this paragraph.

EX-3.2.A

Exhibit 3.2 ( a ) — Amended and Restated Bylaws

AMENDED AND RESTATED BYLAWS

OF

NORTH COUNTRY FINANCIAL CORPORATION
(Revised June 27, 2001)

ARTICLE I. OFFICES

     Section 1. Registered Office. The registered office of the Corporation shall be as specified in the Articles of Incorporation. The Corporation shall keep records containing the names and addresses of all shareholders, the number, class and series of shares held by each, and the dates when they respectively became holders of record thereof, at its registered office or at the office of its transfer agent.

     Section 2. Other Offices. The business of the Corporation may be transacted in such locations other than the registered office, within or outside the State of Michigan, as the Board of Directors may from time to time determine.

ARTICLE II. CAPITAL STOCK

     Section 1. Stock Certificates. Certificates representing shares of the Corporation shall be in such form as is approved by the Board of Directors. Certificates shall be signed by the Chairman of the Board of Directors, Vice Chairman of the Board of Directors, Chief Executive Officer, President or a Vice President, and by the Treasurer, Assistant Treasurer, Secretary or Assistant Secretary of the Corporation, and shall be sealed with the seal of the Corporation, or a facsimile thereof, if one be adopted. The signatures of the officers may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself, or its employees. In the event an officer who has signed, or whose facsimile signature has been placed upon, a certificate ceases to be such officer before the certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of issue.

     Section 2. Replacement of Lost or Destroyed Certificates. In the event of the loss or destruction of a stock certificate, no new certificate shall be issued in place thereof until the Corporation has received from the registered holder such assurances, representations, warranties and/or guarantees as the Board of Directors, in its sole discretion, shall deem advisable, and until the Corporation receives sufficient indemnification protecting it against any claim that may be made on account of such loss or destroyed certificate, or the issuance of any new certificate in place thereof, including an indemnity bond in such amount and with

sureties, if any, as the Board of Directors, in its sole discretion, deems advisable. Any new certificate issued in place of any such lost or destroyed certificate shall be plainly marked “duplicate” upon its face.

     Section 3. Registered Owner. The Corporation shall be entitled to recognize the exclusive rights of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares; the Corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provide by the laws of Michigan.

     Section_4. Transfer of Shares. Shares of stock of the Corporation shall be transferable only upon the books of the Corporation. The old certificates shall be surrendered to the Corporation by delivery thereof to the person in charge of the stock transfer books of the Corporation, or to such other person as the Board of Directors may designate, properly endorsed for transfer, and such certificates shall be cancelled before a new certificate is issued. The Corporation shall be entitled to treat the person in whose name any share, right or option is registered as the owner thereof for all purposes, and shall not be bound to recognize any equitable or other claim with respect thereto, regardless of any notice thereof, except as may be specifically required by the laws of the State of Michigan.

     Section 5. Rules Governing Stock Certificates. The Board of Directors shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration of certificates of stock, and may appoint a transfer agent and a registrar of transfer, and may require all such certificates to bear the signature of such transfer agent and/or such registrar of transfers.

     Section 6. Record Date for Stock Rights. The Board of Directors may fix, in advance, a date not exceeding sixty (60) days preceding the date of payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the shareholders entitled to receive payment of any such dividends, or any such allotment of rights, or to exercise the rights with respect to any such change, conversion, or exchange of capital stock; and in such case, only shareholders of record on the date so fixed shall be entitled to receive payment of such dividends, or allotment of rights, or exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date is fixed.

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     In the event the Board of Directors shall fail to fix a record date as provided in this Section 6 of Article II, the record date for the purposes specified herein shall be the close of business on the day on which the resolution of the Board of Directors relating thereto is adopted.

     Section 7. Dividends. The Board of Directors, in its discretion, may from time to time declare and direct payment of dividends or other distributions upon its outstanding shares out of funds legally available for such purposes, which dividends may be paid in cash, the Corporation’s bonds or the Corporation’s property, including the shares or bonds of other corporations. In the event a dividend is paid or any other distribution made, in any part, from sources other than earned surplus, payment or distribution thereof shall be accompanied by written notice to the shareholders (a) disclosing the amounts by which the dividend or distribution affects stated capital, capital surplus and earned surplus, or (b) if such amounts are not determinable at the time of the notice, disclosing the approximate effect of the dividend or distribution upon stated capital, capital surplus and earned surplus, and stating that the amounts are not yet determinable.

     In addition to the declaration of dividends and other distributions provided in the preceding paragraph of this Section 7 of Article II, the Board of Directors, in its discretion, from time to time may declare and direct the payment of a dividend in shares of this Corporation, upon its outstanding shares, in accordance with and subject to the provisions of the Michigan Business Corporation Act. A share dividend or other distribution of shares of the Corporation shall be accompanied by a written notice to shareholders (a) disclosing the amounts by which the distributions affects stated capital, capital surplus and earned surplus, or (b) if such amounts are not determinable at the time of the notice, disclosing the approximate effect of the distribution upon stated capital, capital surplus and earned surplus, and stating that the amounts are not yet determinable.

     Section 8. Acquisition of Shares. Subject to the limitations of the Michigan Business Corporation Act, the Board of Directors may authorize the Corporation to acquire its own shares, and shares so acquired shall constitute authorized but unissued shares.

     Section 9. Redemption of Control Shares. Control shares acquired in a control share acquisition, with respect to which no acquiring person statement has been filed with the Corporation, shall, at any time during the period ending 60 days after the last acquisition of control shares or the power to direct the exercise of voting power of control shares by the acquiring person, be subject to redemption by the Corporation. After an acquiring person

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statement has been filed with the Corporation and after the meeting at which the voting rights of the control shares acquired in a control share acquisition are submitted to the shareholders, the shares shall be subject to redemption by the Corporation unless the shares are accorded full voting rights by the shareholders as provided in Section 798 of the Michigan Business Corporation Act or any successor provision thereof. Redemptions of shares pursuant to this Section 9 of Article II of the Bylaws shall be at the fair value of the shares pursuant to procedures adopted by the Board of Directors of the Corporation.

     The terms “control shares,” “control share acquisition,” “acquiring person statement,” “acquiring person” and “fair value” as used in this Section 9 of Article II of the Bylaws, shall have the meanings ascribed to them, respectively, in Chapter 7B of the Michigan Business Corporation Act or any successor provision thereof.

ARTICLE III. SHAREHOLDERS

     Section 1. Place of Meetings. Meetings of shareholders shall be held at the registered office of the Corporation or at such other place, within or outside the State of Michigan, as may be determined from time to time by the Board of Directors; provided, however, if a meeting of shareholders is to be held at a place other than the registered office of the Corporation, the notice of the meeting shall designate such place.

     Section 2. Annual Meeting. Annual meetings of shareholders for election of directors and for such other business as may come before the meeting shall be held on the third Tuesday of April in each year but, if such day is a legal holiday, then the meeting shall be held on the first full business day following, at such hour as may be fixed in the notice. If the annual meeting is not held as specified, the Board of Directors shall cause a meeting to be held as soon thereafter as convenient.

     Section 3. Special Meetings. Special meetings of shareholders may be called by the Chairman of the Board, the President or the Secretary, and shall be called by either of them pursuant to resolution therefor by the Board of Directors.

     Section 4. Record Date for Notice and Vote. For the purpose of determining shareholders entitled to notice of and to vote at a meeting of shareholders or an adjournment of a meeting, the Board of Directors may fix a record date which shall not precede the date on which the resolution fixing the record date is adopted by the Board. The date shall be not more than sixty (60) nor less than ten (10) days before the date of the meeting. If a record date is not fixed, the record date for determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be the close of business on the day next preceding the day on which notice is given or, if no notice is given, the day next preceding the day

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on which the meeting is held. When a determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders has been made as provided in this Section 4, the determination applies to any adjournment of the meeting, unless the Board fixes a new record date under this section for the adjourned meeting.

     For the purpose of determining shareholders entitled to express consent to or to dissent from a proposal without a meeting, the Board of Directors may fix a record date which shall not precede the date on which the resolution fixing the record date is adopted by the Board and shall be not more than ten (10) days after the Board resolution. If a record date is not fixed and prior action by the Board is required with respect to the corporate action to be taken without a meeting, the record date shall be the close of business on the day on which the resolution of the Board is adopted. If a record date is not fixed and prior action by the Board is not required, the record date shall be the first date on which a signed written consent is delivered to the Corporation as provided in Section 407 of the Michigan Business Corporation Act.

     Section 5. Notice of Shareholder Meetings. Written notice of the time, place and purposes of any meeting of shareholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each shareholder of record entitled to vote at the meeting. Such notice may be given either by delivery in person to such shareholders or by mailing such notice to shareholders at their addresses as the same appear on the stock books of the Corporation.

     A shareholder’s attendance at a meeting, in person or by proxy, constitutes a waiver of his objection to lack of notice or defective notice of the meeting unless, at the beginning of the meeting, the shareholder objects to holding the meeting or transacting business at the meeting, and constitutes a waiver of his objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.

     Section 6. Voting Lists. The Corporation’s officer or agent having charge of its stock transfer books shall prepare and certify a complete list of the shareholders entitled to vote at a shareholders’ meeting or any adjournment thereof, which list shall be arranged alphabetically within each class and series, and shall show the address of, and the number of shares held by each shareholder. The list shall be produced at the time and place of the meeting of shareholders and be subject to inspection by any shareholder at any time during the meeting. If for any reason the requirements with respect to the shareholder list specified in this Section 6 of Article III have not been complied with, any shareholder, either in

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person or by proxy, who in good faith challenges the existence of sufficient votes to carry any action at the meeting, may demand that the meeting be adjourned and the same shall be adjourned until the requirements are complied with; provided, however, that failure to comply with such requirements does not affect the validity of any action taken at the meeting before such demand is made.

     Section 7. Voting. Except as may otherwise be provided in the Articles of Incorporation, each shareholder entitled to vote at a meeting of shareholders, or to express consent or dissent without a meeting, shall be entitled to one (1) vote, in person or by proxy, for each share of stock entitled to vote held by such shareholder, provided however, no proxy shall be voted after three (3) years from its date unless such proxy provides for a longer period. A vote may be cast either orally or in writing as announced or directed by the chairperson of the meeting prior to the taking of the vote. When an action other than the election of directors is to be taken by vote of the shareholders, it shall be authorized by a majority of the votes cast by the holders of shares entitled to vote thereon, unless a greater plurality is required by express requirement of the Michigan Business Corporation Act or of the Articles of Incorporation, in which case such express provision shall govern and control the decision of such question. Except as otherwise expressly required by the Articles of Incorporation, directors shall be elected by a plurality of the votes cast at an election.

     Section 8. Quorum. Shares equaling a majority of all of the voting shares of the capital stock of the Corporation issued and outstanding represented in person or by proxy, shall constitute a quorum at the meeting. Meetings at which less than a quorum is represented may be adjourned by a vote of a majority of the shares present to a further date without further notice other than the announcement at such meeting, and when the quorum shall be present upon such adjourned date, any business may be transacted which might have been transacted at the meeting as originally called. Shareholders present in person or by proxy at any meeting of shareholders may continue to do business until adjournment, notwithstanding the withdrawal of shareholders to leave less than a quorum.

     Section 9. Conduct of Meetings. The Chairman of the Board of Directors of the Corporation or his designee shall call meetings of the shareholders to order and shall act as chairman of such meetings unless otherwise determined by the affirmative vote of a majority of all the voting shares of the capital stock of the Corporation issued and outstanding. The Secretary of the Corporation shall act as secretary of all meetings of shareholders, but in the absence of the Secretary at any meeting of shareholders, or his inability or refusal to act as secretary, the presiding officer may appoint any person to act as secretary of the meeting.

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     Section 10. Inspector of Elections. The Board of Directors may, in advance of a meeting of shareholders, appoint one or more inspectors to act at the meeting or any adjournment thereof. In the event inspectors are not so appointed, or an appointed inspector fails to appear or act, the person presiding at the meeting of shareholders may, and on request of a shareholder entitled to vote shall, appoint one or more persons to fill such vacancy or vacancies, or to act as inspector. The inspector(s) shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine challenges and questions arising in connection with the right to vote, count and tabulate votes, ballots or consents, determine the results, and do such acts as are proper to conduct the election or vote with fairness to all shareholders.

     Section 11. Notification of Shareholder Proposals. The Board of Directors of the Corporation shall submit for consideration and vote by the shareholders, at any meetings of the shareholders, only those proposals that are first brought before the meeting by or at the direction of the Board of Directors, or by any shareholder entitled to vote at such meeting (a) who submits to the Corporation a timely Notice of Proposal in accordance with the requirements of this Section 11 and the proposal is a proper subject for action by shareholders under Michigan law, or (b) whose proposal is included in the Corporation’s proxy materials in compliance with all the requirements set forth in the applicable rules and regulations in the Securities and Exchange Commission.

     Each shareholder’s Notice of Proposal shall set forth:

     (a) The name and address of the shareholder submitting the proposal, as they appear on the Corporation’s books and records;

     (b) A representation that the shareholder (i) is a holder of record of stock of the Corporation entitled to vote at such meeting, (ii) will continue to hold such stock through the date on which the meeting is held, and (iii) intends to appear in person or by proxy at the meeting to submit the proposal for shareholder vote;

     (c) A brief description of the proposal desired to be submitted to the meeting for shareholder vote and the reasons for conducting such business at the meeting; and

     (d) A description of any financial or other interest of such shareholder in the proposal.

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     A Notice of Proposal must be given, either by personal delivery or by United States mail, postage prepaid, and received by the Corporation not less than thirty (30) days prior to the date of the originally scheduled meeting, regardless of any adjournments thereof to a later date; provided that, if less than forty (40) days’ notice of the meeting of shareholders is given by the Corporation, the Notice of Proposal must be received by the Corporation not later than the close of business on the tenth (10th) day following the date on which the notice of the scheduled meeting was first mailed to the shareholders.

     The secretary of the Corporation shall notify a shareholder in writing whether his or her Notice of Proposal has been made in accordance with all the requirements of this Section 11. The chairman of the meeting may refuse to acknowledge the proposal of any shareholder not made in compliance with all such requirements.

ARTICLE IV. DIRECTORS

     Section 1. Board of Directors. Except as may otherwise be provided in the Articles of Incorporation or these Bylaws, the general management of the business and affairs of the corporation shall be vested in a Board consisting of not less than five (5) directors and not more than sixteen (16) directors, as determined by the Board from time to time. Commencing with the annual meeting of the shareholders at which this by-law Section 1 is adopted, the directors shall be divided into three (3) classes, with the first class consisting of one-third (1/3) of the total number of directors, rounded up to the nearest whole number, the second class consisting of one-third (1/3) of the total number of directors, rounded up to the nearest whole number, and the third class consisting of one-third (1/3) of the total number of directors, rounded down to the nearest whole number. The term of office of directors in the first class shall expire at the first annual meeting of the shareholders after their election, the second class shall expire at the second annual meeting after their election, and the third class shall expire at the third annual meeting after their election. At each succeeding annual meeting, a number of directors equal to the number of the class whose term expires at the time of the meeting shall be elected to hold office until the third succeeding annual meeting. A director’s term of office may not be shortened by a Board action reducing the number of directors on the Board. If the Board authorizes an increase in the number of directors in between annual meetings of the shareholders, the new director positions so created shall be treated as vacancies, and the new director positions shall be distributed among the three classes of directors so that the classes will be as nearly equal in number as possible. Vacancies in the Board of Directors may be filled by the remaining members of the Board as provided in the Articles of Incorporation, and each person so chosen shall hold office until the next election of the class for which the director was chosen and until his successor shall be duly

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elected and qualified or his resignation or removal. No person shall be eligible for election as a director after he or she has attained age 65.

     Section 2. Nominations for Board. Nominations of candidates for election to the Board of Directors shall be made in the manner provided in the Articles of Incorporation.

     Section 3. Resignation. A director may resign by written notice to the Corporation. A director’s resignation is effective upon its receipt by the Corporation or a later time set forth in the notice of resignation.

     Section 4. Place of Meetings and Records. The directors shall hold their meetings, and maintain the minutes of the proceedings of meetings of shareholders, Board of Directors, and executive and other committees, if any, and keep the books and records of account for the Corporation, in such place or places, within or outside the State of Michigan, as the Board may from time to time determine.

     Section 5. Annual Meetings of Directors. The newly elected Directors shall hold their first meeting, without notice other than these Bylaws, at the same place and immediately after the annual meeting of the Shareholders at which they are elected, or the time and place of such meeting may be fixed by consent in writing of all the Directors.

     Section 6. Regular Meetings of the Board. Regular meetings of the Board of Directors may be held at such times and places and pursuant to such notice, if any, as may be established from time to time by resolution of the Board of Directors.

     Section 7. Special Meetings of the Board. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or the Secretary, and shall be called by one of them upon the written request of a majority of the Directors. Written notice of the time and place of special meetings of the Board shall be delivered personally or mailed to each director at least forty-eight (48) hours prior thereto. Attendance of a Director at a special meeting constitutes a waiver of notice of the meeting, except where a director attends the meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened.

     Section 8. Meeting Participation By Means Of Communication Equipment. Members of the Board of Directors or any committee designated by the Board of Directors may participate in the meeting of the Board of Directors or of such committee by means of a conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear

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each other, and participation in a meeting pursuant to this Section 8 shall constitute presence in person at such meeting.

     Section 9. Quorum and Vote. At all meetings of the Board or a committee thereof, a majority of the members of the Board of Directors then in office or members of such committee, but not less than two (2) (if there are at least two (2) members of the Board or such committee), shall constitute a quorum for the transaction of business. The act of a majority of the members present at any meeting at which there is a quorum shall be the act of the Board of Directors or the committee. If a quorum shall not be present at any meeting of the Board of Directors or a committee, a majority of the members present thereat may adjourn the meeting from time to time into another place without notice other than an announcement at the meeting until a quorum shall be present.

     Section 10. Action of the Board Without a Meeting. Any action required or permitted to be taken pursuant to authorization voted at a meeting of the Board of Directors, or any committee thereof, may be taken without a meeting if, before or after the action, all members of the Board of Directors then in office, or of such committee, consent thereto in writing. Such written consent shall be filed with the minutes of the proceedings of the Board of Directors and the consent shall have the same effect as a vote of the Board of Directors for all purposes.

     Section 11. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member of any committee. In the absence or in the event of the disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. A committee and each member thereof shall serve at the pleasure of the Board.

     Any committee, to the extent provided in the resolution of the Board or in these Bylaws, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation. No committee, however, shall have the power or authority to amend the Articles of Incorporation or Bylaws of the Corporation, adopt an agreement of merger or consolidation, recommend to the shareholders the sale, lease or exchange of all or substantially all of the Corporation’s property and assets, recommend to the shareholders a dissolution of the Corporation or a revocation of a dissolution, or fill vacancies in the Board of Directors. The committee shall not have the power or authority to declare

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a distribution, dividend or authorize the issuance of stock unless such power is granted to such committee by specific resolution of the Board of Directors. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. The committees shall keep regular minutes of their proceedings and report the same to the Board when required. If a committee is designated as an Executive Committee, its members shall consist of the Chairman of the Board, the President, and such other directors as shall be designated by the Board of Directors.

     Section 12. Compensation. By resolution of the Board of Directors, the directors may be paid their expenses, if any, of attendance at each meeting of the Board or of any committees of which they are a member, and may be paid a fixed sum for attendance at each meeting of the Board or such committee, or a stated fee for serving as a director or for serving on any such committee. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

ARTICLE V. OFFICERS

     Section 1. Designation of Officers. The officers of the Corporation shall consist of such officers as the Board of Directors shall determine from time to time, and may include a Chairman of the Board, a Chief Executive Officer, a President, a Secretary, a Treasurer, one or more Vice Presidents, and such other or different offices as may be established by the Board of Directors. The officers of the Corporation need not be directors or shareholders. Any two or more offices may be held by the same person, but an officer shall not execute, acknowledge or verify any instrument in more than one capacity if the instrument is required by law to be executed, acknowledged or verified by two or more officers. An officer has such authority and shall perform such duties in the management of the Corporation as provided in these Bylaws, or as may be determined by resolution of the Board of Directors not inconsistent with these Bylaws, and as generally pertain to their offices, subject to the control of the Board of Directors.

     Section 2. Election of Officers. The officers of the Corporation shall be elected at the first meeting of the Board of Directors, or by action taken pursuant to written consent, after the annual meeting of shareholders. Officers shall hold office for the term of their election and until their respective successors are elected and qualified, or until resignation or removal. The election or appointment of an officer does not, by itself, create contract rights.

     Section 3. Resignation and Removal. Each officer shall serve at the pleasure of the Board of Directors. An officer may resign by written notice to the

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Corporation, which resignation is effective upon its receipt by the Corporation or at a subsequent time specified in the notice of resignation. The Chairman and Chief Executive Officer may be removed at any time, with or without cause, but only on the affirmative vote of a majority of the full Board of Directors. The President and all vice presidents, the secretary and the treasurer may be removed at any time, with or without cause, by the Chief Executive Officer or by majority vote of the directors present at any meeting. Any assistant secretary or assistant treasurer, or subordinate officer or agent appointed pursuant to Section 2 of Article V of these Bylaws may be removed at any time, with or without cause, by a majority vote of directors present in a meeting, by the Chief Executive Officer, or any committee or other officer in power to do so by resolution of the Board. Any vacancy in any office of the Corporation shall be filled by the Board of Directors.

     Section 4. Compensation of Officers. The Board of Directors, by affirmative vote or a majority or Directors in office and irrespective of any personal interest of any of them, may establish reasonable compensation of officers for services to the Corporation.

     Section 5. Chairman of the Board. The Chairman of the Board of Directors, if one be elected, shall be elected by the directors from among the directors then serving. The Chairman of the Board shall preside at all meetings of the Board of Directors and meetings of the shareholders, and shall perform such other duties as from time to time may be determined by resolution of the Board of Directors not inconsistent with these Bylaws.

     Section 6. Chief Executive Officer. The Chief Executive Officer of the Corporation shall have such authority and shall perform such duties in the management of the Corporation as usually are vested in or incident to the office of a chief executive officer of a corporation. In the absence or nonelection of the Chairman of the Board of Directors, the Chief Executive Officer shall preside at all meetings of the Board of Directors and meetings of the shareholders.

     Section 7. President. The President of the Corporation shall have such authority and shall perform such duties as shall be assigned to him by the Board of Directors.

     Section 8. Vice Presidents. The Vice Presidents shall have such authority and shall perform such duties as shall be assigned to them by the Board of Directors and may be designated by such special titles as the Board of Directors shall approve.

     Section 9. Treasurer. The Treasurer, or other officer performing the duties of a Treasurer, shall have custody of the corporate funds and securities and

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shall keep full and accurate account of receipts and disbursements in books belonging to the Corporation. The Treasurer shall deposit all money and other valuables in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors or the Chief Executive Officer taking proper vouchers for such disbursements. The Treasurer shall render to the Chief Executive Officer and Board of Directors, or any member thereof, at such times as they may request within reason, an account of all his transactions as Treasurer and of the financial condition of the Corporation. In general the Treasurer shall perform all duties incident to the office of Treasurer and such other duties as may be assigned by the Board of Directors. The Treasurer may be required to give bond for the faithful performance of his duties in such sum and with such surety, at the expense of the Corporation, as the Board of Directors may from time to time require.

     Section 10. Secretary. The Secretary shall give or cause to be given notice or all meetings of shareholders and Directors and all other notices required by law or by these Bylaws, and in case of his absence or refusal or neglect to do so, any such notice may be given by the shareholders upon whose requisition the meeting is called, as provided in these Bylaws. The Secretary shall record all the proceedings of the meetings of the shareholders and of the Directors in one or more books provided for that purpose. The Secretary shall have custody of the seal of the Corporation, if one be provided, and shall affix the same to all instruments requiring it when authorized by the Directors or the Chief Executive Officer. The Secretary shall have such authority and perform such other duties as may be assigned by the Board of Directors. All records in the possession or custody of the Secretary shall be open to examination by the Chairman of the Board, Chief Executive Officer and Board of Directors, or any member thereof, during regular business hours.

      Section 11. Other Offices. Other officers elected by the Board of Directors shall have such authority and shall perform such duties in the management of the Corporation as may be determined by resolution of the Board of Directors not inconsistent with these Bylaws.

      Section 12. Bonds. If the Board of Directors shall so require, the treasurer, and the assistant treasurer and/or other officer or agent of the Corporation, shall give bond to the Corporation in such amount and with such surety as the Board of Directors may deem sufficient, conditioned upon the faithful performance of the respective duties and offices.

     Section 13. Absence. In the case of the absence or inability to act of any officer, or for any other reason that the Board of Directors may deem sufficient, the

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Board of Directors or the Chief Executive Officer may delegate for the time being the powers or duties of such officer to any other director or officer.

     ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS

     Section 1. Contracts. The Board of Directors may authorize any officer or officers, agent or agents to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances.

     Section 2. Loans. No loans shall be contracted on behalf of the Corporation, and no evidences of indebtedness shall be issued in its name, unless authorized by resolution of the Board of Directors. Such authorization may be general or confined to specific instances.

     Section 3. Checks. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from tune to time be determined by resolution of the Board of Directors. Any signature on any check, draft or other order may be signed by the facsimile signature of any person authorized to sign under this Section 3 of Article VI. If any officer who has signed or whose facsimile signature has been used shall cease to be such officer, such document may nevertheless be signed by means of such facsimile signature and delivered as though the person who signed such document or whose facsimile signature has been used thereon had not ceased to be such officer.

     Section 4. Deposits. All funds of the Corporation, not otherwise employed, shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may determine.

ARTICLE VII. INDEMNIFICATION

     Section 1. Indemnification for Actions Brought by Third Parties. Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was a director or officer of the Corporation or a subsidiary, or, while serving as such a director or officer, is or was serving at the request of the Corporation or a subsidiary as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, whether for profit or not, shall be indemnified by the Corporation against expenses (including attorneys’ fees),

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judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation or its shareholders, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation or its shareholders, or with respect to any criminal action or proceeding, that he or she had reasonable cause to believe that his or her conduct was unlawful. Persons who are not directors or officers of the Corporation or a subsidiary may be similarly indemnified in respect of such service to the extent authorized at any time by the Board of Directors, except as otherwise provided by statute or the Articles of Incorporation.

     Section 2. Indemnification in Actions Brought for the Benefit of the Corporation. Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director or officer of the Corporation or a subsidiary, or, while serving as such a director or officer, is or was serving at the request of the Corporation or a subsidiary as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise; whether for profit or not, shall be indemnified by the Corporation against expenses (including attorneys’ fees) and amounts paid in settlement actually and reasonably incurred by him or her in connection with the action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation or its shareholders. Indemnification shall not be made for any claim, issue or matter in which such person has been found liable to the Corporation except to the extent authorized in Section 7 of this Article VII. Persons who are not directors or officers of the Corporation or a subsidiary may be similarly indemnified in respect of such service to the extent authorized at any time by the Board of Directors, except as otherwise provided by statute or the Articles of Incorporation.

     Section 3. Limitation of Director Liability. Notwithstanding Sections 1 and 2 of this Article VII, and in accordance with Article VI of the Articles of Incorporation, the Corporation shall indemnify a director for expenses and liabilities without a determination that the director has met the standard of conduct set forth in Sections 1 and 2, except with respect to settlements of actions by or on behalf of the corporation; provided, however, that no indemnification may be made without court approval if the director received a financial benefit to which he or she

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was not entitled, intentionally inflicted harm on the Corporation or its shareholders, violated Section 551 of the Michigan Business Corporation Act, or intentionally committed a criminal act.

     Section 4. Expenses. To the extent that a director or officer, or other person whose indemnification is authorized by the Board of Directors, has been successful on the merits or otherwise, including the dismissal of an action without prejudice, in the defense of any action, suit or proceeding referred to in Section 1 or 2 of this Article VII, or in the defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection therewith and any action, suit or proceeding brought to enforce the mandatory indemnification provided in this Section VII.

     Section 5. Authorization of Indemnification. Except as otherwise provided in Section 3 of this Article VII, any indemnification under Section 1 or 2 of this Article VII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification is proper in the circumstances because the person has met the applicable standard of conduct set forth in this Article VII and upon an evaluation of the reasonableness of expenses and amounts paid in settlement. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors who are not parties or threatened to be made parties to such action, suit or proceeding, or if such a quorum cannot be obtained, by a majority vote of a committee duly designated by the Board consisting solely of two or more directors not at the time parties or threatened to be made parties to such action, suit or proceeding; (b) by independent legal counsel (who may be the regular counsel of the Corporation) in a written opinion, which counsel shall be selected as provided in (a) above, provided that if a committee cannot be designated as provided in (a) above, then the Board shall select such independent counsel; (c) by all Independent Directors (as that term is defined in the Michigan Business Corporation Act) who are not parties or threatened to be made parties to such action, suit or proceeding; or (d) by the shareholders, but shares held by directors, officers, employees or agents who are parties or threatened to be made parties to such action, suit or proceeding may not be voted. In designating a committee under (a) above, or in the selection of independent legal counsel in the event a committee cannot be designated pursuant to (b) above, all directors may participate. The Corporation may indemnify a person for a portion of expenses (including reasonable attorneys’ fees), judgments, penalties, fines and amounts paid in settlement for which the person is entitled to indemnification under Section 1 or 2 of this Article VII, even though the person is not entitled to indemnification for the total amount of such expenses, judgments, penalties, fines and amounts paid in settlement. An authorization of indemnification under this Section 5 of Article VII shall be made (a) by the Board of

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Directors in one of the following ways: (i) by a majority vote of the Board of Directors consisting of two or more directors not at the time parties or threatened to be made parties to such action, suit or proceeding, (ii) by a majority vote of a committee consisting solely of two or more directors not at the time parties or threatened to be made parties to such action, suit or proceeding, (iii) by a majority vote of one or more Independent Directors who are not parties or threatened to be made parties to such action, suit or proceeding, or (iv) if there are no Independent Directors and less than 2 directors who are not parties or threatened to be made parties to the action, suit or proceeding, by the full Board of Directors in accordance with Section 523 of the Michigan Business Corporation Act, or (b) by the shareholders, but shares held by directors, officers, employees or agents who are parties or threatened to be made parties to the action, suit or proceeding may not be voted on the authorization.

     Section 6. Advancing_of Expenses. Expenses incurred by any person who is or was serving as a director or officer of the Corporation or a subsidiary in defending a civil or criminal action, suit or proceeding described in Section 1 or 2 of this Article VII shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding if (a) the person furnishes the Corporation a written affirmation of his or her good faith belief that he or she has met the applicable standard of conduct set forth in Section 1 or 2 of this Article VII; (b) the person furnishes the Corporation a written undertaking, executed personally or on his or her behalf, to repay the advance if it is ultimately determined that he or she did not meet the applicable standard of conduct; and (c) a determination is made that the facts then known to those making the determination would not preclude indemnification under the Michigan Business Corporation Act. Persons who are or were not serving as a director or officer of the Corporation or a subsidiary may receive similar advances of expenses to the extent authorized at any time by the Board of Directors, except as otherwise provided by statute or the Articles of Incorporation. Determinations under this Section VII shall be made in the manner specified in Section 5 of this Article. Notwithstanding the foregoing, in no event shall any advance be made in instances where the Board or independent legal counsel reasonably determines that such person deliberately breached his or her duty to the Corporation or its shareholders.

     Section 7. Right to Indemnification upon Application; Procedure upon Application. A director, officer or other person who is a party or threatened to be made a party to an action, suit or proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. On receipt of an application, the court may order indemnification if it determines that the person is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not he or she met the applicable standard of conduct set forth in Section 1 or 2 of this Article VII or was adjudged liable as

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described in Section 2 of this Article VII, provided, however, that if he or she was adjudged liable, his or her indemnification shall be limited to reasonable expenses incurred.

     Section 8. Non-Exclusivity of Rights. The right to indemnification conferred in this article shall not be exclusive of any other right that any person may have or acquire under any statute, provision of the articles of incorporation, bylaws, agreement, vote of shareholders or disinterested directors, or otherwise.

     Section 9. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, or agent of the corporation or of another corporation, partnership, joint venture, trust, or other enterprise against any expense, liability, or loss, whether or not the corporation would have the power to indemnify the person against the expenses, liability, or loss under the MBCA.

     Section 10. Mergers. For the purposes of this Article VII, references to the “Corporation” include all constituent Corporations absorbed in a consolidation or merger, as well as the resulting or surviving Corporation, so that any person who is or was a director, officer, employee or agent of such constituent Corporation, or is or was serving at the request of such constituent Corporation as a director, officer, partner, trustee, employee or agent of another foreign or domestic Corporation, partnership, joint venture, trust or other enterprise, whether for profit or not, shall stand in the same position under the provisions of this Article VII with respect to the resulting or surviving Corporation if he or she had served the resulting or surviving Corporation in the same capacity.

     Section 11. Savings Clause. If this Article VII or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director, officer or other person whose indemnification is authorized by the Board of Directors as to expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including a grand jury proceeding and an action by the Corporation, to the full extent permitted by any applicable portion of this Article VII that shall not have been invalidated or by any other applicable law.

     Section 12. Amendment. If this Article VII is repealed, amended or modified, it shall not affect any right or protection existing at the time of such repeal, amendment or modification.

ARTICLE VIII. MISCELLANEOUS

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     Section 1. Fiscal Year. The fiscal year of this Corporation shall end on the last Saturday of December of each year.

     Section 2. Notices. Whenever any notice is required to be given under the provisions of any law, the Articles of Incorporation for this Corporation, or by these Bylaws, it shall not be construed or interpreted to mean personal notice, unless expressly so stated, and any notice so required shall be deemed to be sufficient if given in writing by mail, by depositing the same in a Post Office box, postage prepaid, addressed to the person entitled thereto at his last known Post Office address, and such notice shall be deemed to have been given on the day of such mailing. Shareholders not entitled to vote shall not be entitled to receive notice of any meetings, except as otherwise provided by law or these Bylaws.

     Section 3. Waiver of Notice. Whenever any notice is required to be given under the provisions of any law, or the Articles of Incorporation for this Corporation, or these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.

     Section 4. Voting of Securities. Securities of another corporation, foreign or domestic, standing in the name of this Corporation which are entitled to vote shall be voted, in person or by proxy, by the Chief Executive Officer of this Corporation or by such other or additional persons as may be designated by the Board of Directors.

ARTICLE IX. AMENDMENTS

     Except as may otherwise be provided in the Articles of Incorporation or these Bylaws, these Bylaws may be amended, repealed or new Bylaws adopted either by a majority vote of the Board of Directors at a regular or special meeting of the Board, or by vote of the holders of a majority of the outstanding voting stock of the Corporation at any annual or special meeting, if notice of the proposed amendment, repeal or adoption be contained in the notice of such meeting.

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EX-3.2.B

Exhibit 3.2 (b) — Amendment to the Amended and Restated Bylaws

AMENDMENT TO THE AMENDED AND RESTATED BYLAWS
OF
NORTH COUNTRY FINANCIAL CORPORATION

RESOLVED, Section 9, under Article II of the Amended and Restated Bylaws of North Country Financial Corporation, captioned “Redemption of Control Shares”, is hereby repealed in its entirety.

RESOLVED, that Article IX of the Amended and Restated Bylaws of North Country Financial Corporation is hereby amended in its entirety to read as follows:

“ARTICLE IX. CONTROL SHARE ACQUISITIONS

     Chapter 7B, Section 790 through 799 of the Michigan Business Corporation Act, known as the “Stacey, Bennett, and Randall Shareholder Equity Act”, does not apply to control share acquisitions of this Corporation.”

RESOLVED, the Amended and Restated Bylaws of North Country Financial Corporation are hereby amended by the addition of new Article X, which addition effectively constitutes the renumbering of current Article IX, captioned “Amendments”, to read in its entirety as follows:

“ARTICLE X. AMENDMENTS

     Except as may otherwise be provided in the Articles of Incorporation or these Bylaws, these Bylaws may be amended, repealed or new Bylaws adopted either by a majority vote of the Board of Directors at a regular or special meeting of the Board, or by vote of the holders of a majority of the outstanding voting stock of the Corporation at any annual or special meeting, if notice of the proposed amendment, repeal or adoption be contained in the notice of such meeting.”

CERTIFICATION

     The undersigned, Jennifer Lindroth, Secretary of North Country Financial Corporation (the “Corporation”), a corporation organized under the laws of the State of Michigan, hereby certifies that the foregoing amendments to the Amended and Restated Bylaws of the Corporation (the “Amendments”), were duly adopted by resolution of a majority of members of the Board of Directors of this Corporation on August 9, 2004.

     The undersigned further certifies that the resolution adopting such Amendments to the Amended and Restated Bylaws of the Corporation is still in full force and effect.

     IN WITNESS WHEREOF, the undersigned has executed this certificate this 6^th day of October, 2004.

/s/ Jennifer Lindroth  

Jennifer Lindroth, Secretary 

W/91138/Recapitalization/Corporate Actions/CG.Amendment to Bylaws

EX-3.2.C

Exhibit 3.2 ( c ) — Second Amendment to the Amended and Restated Bylaws

SECOND AMENDMENT TO
THE
AMENDED AND RESTATED BYLAWS
OF
MACKINAC FINANCIAL CORPORATION

(As adopted by the Board of Directors of Mackinac Financial Corporation on December  ,2007)

     This Second Amendment to the Amended and Restated Bylaws (the “Bylaws”) of Mackinac Financial Corporation, a Michigan corporation (the “Corporation”), hereby amends the Bylaws in the following respects:

ARTICLE II. CAPITAL STOCK

SECTION 1. CERTIFICATED AND UNCERTIFICATED SHARES. The shares of the Corporation shall be represented by certificates unless the Board of Directors shall by resolution provide that some or all of any class or series of shares shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until the certificate is surrendered to the Corporation.

SECTION 2. SHAREHOLDERS ENTITLED TO CERTIFICATES. Notwithstanding any resolution of the Board of Directors providing for uncertificated shares, every holder of shares represented by certificates and, upon the holder’s request, every holder of uncertificated shares shall be entitled to a certificate evidencing the shares of the capital stock of the Corporation owned by him, signed by the President or a Vice-President, and by the Secretary, the Treasurer, an Assistant Secretary, or an Assistant Treasurer, under the seal of the Corporation, certifying the number and class of shares, evidenced by such certificate, which certificate may, but need not be, also signed by the Chairman of the Board of Directors, shall be in such manner and form as shall have been approved by the Board of Directors, and shall set forth such terms and provisions as shall from time to time be required by the laws of the State of Michigan to be set forth in such certificate; provided, that where any such certificate is signed; (i) by a transfer agent or an assistant transfer agent or (ii) by a transfer clerk acting on behalf of this Corporation, and by a registrar, the signature of any such President, Vice-President, Secretary, Assistant Secretary, Treasurer, or Assistant Treasurer, or of the Chairman of the Board of Directors, and the seal of the Corporation, may be a facsimile.

SECTION 3. TRANSFERABLE ONLY ON BOOKS OF CORPORATION. Shares shall be transferable only on the books of the Corporation by the person named in the certificate (in case of certificated shares) or by the person named in the Corporation’s records as the holder thereof (in the case of uncertificated shares), or by attorney lawfully constituted in writing, and, in the case of certificated shares, upon surrender of the certificates therefore. A record shall be made of every such transfer and issue. Whenever any transfer is made for collateral security and not absolutely, the fact shall be so expressed in the entry of such transfer.

SECTION 4. REGISTERED SHAREHOLDERS. The Corporation shall have the right to treat the registered holder of any share as the absolute owner thereof and shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person, whether or not the Corporation shall have express or other notice thereof, save as may be otherwise provided by the statutes of Michigan.

SECTION 5. TRANSFER AGENT AND REGISTRAR. The Board of Directors may appoint a transfer agent and a registrar of transfers, and may require all certificates of shares to bear the signature of such transfer agent and of such registrar of transfers, or as the Board may otherwise direct.

SECTION 6. REGULATIONS. The Board of Directors shall have power and authority to make all such rules and regulations as the Board shall deem expedient regulating the issue, transfer, and registration of shares in the Corporation.

EX-13

EXHIBIT 13

Table of Contents

To Our Shareholders	1
Selected Financial Highlights	6
Five-Year Comparisons	7
Quarterly Financial Summary	9
Report of Independent Registered Public Accounting Firm	10
Consolidated Balance Sheets	11
Consolidated Statements of Operations	12
Consolidated Statements of Changes in Shareholders’ Equity	13
Consolidated Statements of Cash Flows	14
Notes to Consolidated Financial Statements	15
Selected Financial Data	39
Summary Quarterly Financial Information	40
Market Information	42
Shareholder Return Performance Graph	43
Forward-Looking Statements	44
Management’s Discussion and Analysis of Financial Condition and Results of Operations	45
Directors and Officers	65
Branch Locations	66
Corporate Information	67

BUSINESS OF THE CORPORATION

Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets in excess of $450 million and whose common stock is traded on the NASDAQ stock market as “MFNC.” The principal subsidiary of the Corporation is mBank. Headquartered in Manistique, Michigan, mBank has 13 branch locations; nine in the Upper Peninsula, three in the Northern Lower Peninsula and one in Oakland County, Michigan. The newest branch, located in Escanaba, opened on March 24, 2009. The Company’s banking services include commercial lending and treasury management products and services geared toward small to mid-sized businesses, as well as a full array of personal and business deposit products and consumer loans.

FORM 10-K

A copy of the Annual Report to the Securities and Exchange Commission on Form 10-K is available without charge by writing the Shareholders’ Relations Department, Mackinac Financial Corporation, 130 South Cedar Street, Manistique, Michigan, 49854.

MARKET SUMMARY

The Corporation’s common stock is traded on the Nasdaq Small Cap Market under the symbol MFNC. The Corporation had 1,345 shareholders of record as of March 30, 2008.

March 31, 2008

Dear Shareholders:

This letter will provide you with a review of the performance of Mackinac Financial Corporation through the end of 2008 and our thoughts about business strategy as we move through 2009. We continue to focus on areas impacting our business which we can control. We are concentrating on managing credit risk, growing our book value per share and on increasing our core deposits. As you will see from the information below, we are having success in those efforts.

The chart below is a recap of various balances and book value per share as of the end of the last three years (dollars in thousands, except per share data):

							2008/2007						2007/2006
	As of December 31,						Increase (Decrease)						Increase (Decrease)
	2008		2007		2006		Dollars			Percentage			Dollars		Percentage
Loans	$	370,280	$	355,079	$	322,581	$	15,201			4.28	%	$	32,498		10.07	%
Assets		451,431		408,880		382,791		42,551			10.41			26,089		6.82
Deposits		371,097		320,827		312,421		50,270			15.67			8,406		2.69
Borrowings		36,210		45,949		38,307		(9,739	)		(21.20	)		7,642		19.95
Shareholders’ equity		41,552		39,321		28,790		2,231			5.67			10,531		36.58
Book vaue per share		12.15		11.47		8.40		.68			5.93			3.07		36.55

2008 Year-in-Review

§	Loan growth of $15.201 million
§	Credit quality still relatively strong with nonperforming assets to total assets of 1.57%
§	Gain on sale of loans of $.120 million
§	Net interest margin at 3.23% for the year
§	Net income of $1.872 million, or $.55 per common share
§	Book value at 2008 year-end of $12.15 per share

2008 Earnings Recap

Mackinac Financial Corporation reported net income of $1.872 million, or $.55 per share, for the year ended December 31, 2008, compared to a net income of $10.163 million, or $2.96 per share, for 2007.

The 2008 results include the positive effect, $3.475 of a lawsuit settlement and the negative effect, $.425 million, of a severance agreement.

The results for 2007 include the recognition of a $7.500 million deferred tax benefit for NOL and tax credit carry-forwards and $.470 million of proceeds from the settlement of a lawsuit against the Corporation’s former accountants. Excluding these items in both years would have resulted in a net loss of $.141 million, or less than $.01 loss per share, in 2008 versus $2.353 million or $.69 per share in 2007.

1

Our operations have been impacted in the past two years by the significant and rapid decline in general interest rates which impacted interest earned on loans well ahead of interest paid on deposits and borrowings. This margin compression affected most banks and we acted to minimize the effects as quickly as possible. Additionally, in late summer 2008, we implemented a program of interest rate floors for new and renewing loans.

Credit Quality

Nonperforming assets at the end of 2008 totaled $7.076 million, or 1.57%, of assets compared to $5.234 million, or 1.28% of assets at 2007 year-end. Increases in 2008 were due to several large credits in Southeast Michigan. The increase in nonperforming assets, $2.269 million, in 2007 was due primarily to commercial credits that were originated prior to the recapitalization and existing management. An important aspect in the management of our loan portfolio is a program of continual credit monitoring which results in early detection of problem credits. We follow this detection process with a program that aggressively seeks an early resolution of problem loans to minimize principal loss and the expenses of problem credits.

Loan Growth/Production

Loan growth in 2008 occurred despite a challenging and tough Michigan economic climate. Each year we continue to evaluate and adjust underwriting standards to keep pace with the moving risk profile of the bank and corresponding Michigan economic climate. This focus has enabled the organization to maintain a low and manageable level of problem assets in relation to many peer and competing banks. These processes for managing our loan portfolio’s growth and overall risk have provided the foundation for loans growing $15.201 million in 2008, despite high levels of loan pay-downs and runoff totaling $51.224 million. A good portion of loan runoff in 2008 was due to our discipline in qualifying renewal loans relative to pricing and risk. New loans originated for the year were $61.597 million. The majority of the loan growth was centered in the real estate secured commercial, high net worth, and 1-4 family loan portfolios. We have purposely avoided the subprime lending opportunities in these sectors.

Loan production in our three geographical regions is shown below.

	For the Year Ending December 31,
(dollars in thousands)	2008		2007		2006
REGION
Upper Peninsula		37,040	$	40,876	$	37,115
Northern Lower Peninsula		14,183		22,448		25,929
Southeast Michigan		10,374		50,404		72,139
TOTAL	$	61,597	$	113,728	$	135,183

We have generated loan growth in all regions and we will continue to evaluate growth potential in markets where we can grow loans with good credit quality and acceptable loan pricing enhanced by fee income.

In 2008, mBank was awarded “Michigan Business Development Lender of the Year” by the United States Small Business Administration. SBA programs not only significantly augment noninterest income, but also positively impact the bank balance sheet by freeing up liquidity and capital requirements to be allocated to continue earning asset generation, in addition to transferring all or part of the risk off the bank’s balance sheet.

2

Deposit Growth

Core deposits, which we define as demand deposits, interest bearing checking accounts, money market savings accounts and certificates of deposit under $100,000 started to grow in mid 2005. We renamed the bank, changed all of our signs, altered every deposit product to bring about market place competitiveness and developed new collateral material and newspaper ads for our local markets.

Shown below is the mix of our deposits for the three most recent years.

	DEPOSIT MIX
	As of December 31,															Percent Change
	2008		Mix			2007		Mix			2006		Mix			2008/2007			2007/2006
CORE DEPOSITS
Transactional accounts:
Noninterest bearing	$	30,099		8.11	%	$	25,557		7.97	%	$	23,471		7.51	%		17.77	%		8.89	%
NOW, money market, checking		70,584		19.02			81,160		25.30			73,188		23.43			(13.03	)		10.89
Savings		20,730		5.59			12,485		3.89			13,365		4.28			66.04			(6.58	)
Total transactional accounts		121,413		32.72			119,202		37.15			110,024		35.22			1.85			8.34
Certificates of deposit <$100,000		73,752		19.87			80,607		25.12			89,585		28.67			(8.50	)		(10.02	)
Total core deposits		195,165		52.59			199,809		62.28			199,609		63.89			(2.32	)		0.10
NONCORE DEPOSITS
Certificates of deposit >$100,000		25,044		6.75			22,355		6.97			23,645		7.57			12.03			(5.46	)
Brokered CDs		150,888		40.66			98,663		30.75			89,167		28.54			52.93			10.65
Total noncore deposits		175,932		47.41			121,018		37.72			112,812		36.11			45.38			7.27
TOTAL DEPOSITS	$	371,097		100.00	%	$	320,827		100.00	%	$	312,421		100.00	%		15.67			2.69	%

In the past several years, the Bank has introduced several initiatives to provide customers with simple, flexible, and convenient banking services to assist them in meeting all their financial needs. We updated our electronic banking products for both consumers and businesses, rolled out and implemented a comprehensive treasury management program, and provided remote deposit capture machines or courier services to business customers in order to help garner transactional account deposits. Additionally, we began an extensive officer calling effort to focus our relationship officers on generating core deposit relationships with existing and new customers. While total deposits did not grow in 2008, due primarily to our unwillingness to match high rates on CDs in our local markets, we increased the proportion of transactional account balances, which are our lowest cost sources of funds.

Noninterest Expense

Controlling noninterest expense is a distinct challenge for a strategy based upon growth. We accept this challenge and recognize that certain operational costs will increase in future periods. During 2008, our operating costs were negatively impacted by costs associated with nonperforming assets and a $.425 million severance agreement. We have been successful in controlling most areas of noninterest expense and will continue to focus on becoming more efficient.

3

The chart below illustrates the breakdown of noninterest expense as a percent of average assets.

Noninterest Expense as Percent of Average Assets

The chart below illustrates the impact of controlling expenses and the net interest margin has on our efficiency ratio.

Efficiency Ratio*

4

Capital/Shareholders’ Equity

The Bank and Corporation were both well capitalized as of the end of 2008. On a consolidated basis, equity totaled $41.552 million at 2008 year end compared to $39.321 million at the end of 2007. Book value per share amounted to $12.15 compared to $11.47 a year earlier.

Looking Forward

In 2009, we are faced with the challenges of an economy in turmoil and low expectations for the economy to improve in the near term. We recognize the problems that arise during economic downturns and have taken the steps within our company in order to weather the storm. We will continue to price our loans at profitable levels, decrease costs where we can without compromising services, and are working diligently to limit losses from our problem assets. In times like these, a strong capital base is essential. We are currently well capitalized with Tier 1 capital at 8.01% and total risk based capital of 10.38%. This level of capital, however, does not allow for any significant asset growth, given another lean year for earnings growth with continued margin pressure and the possibility of additional loan issues as the economy continues to falter.

With the uncertainties noted above, the Corporation made the decision to apply for capital under the Capital Purchase Program, as part of the Troubled Asset Relief Program, commonly referred to as TARP. We have received preliminary approval from the United States Treasury Department.

The Corporation is, and will remain, dedicated to the primary strategic objective of enhancing franchise and shareholder value by building a strong banking franchise in our local markets. We invite you to contact one of our knowledgeable relationship officers to discuss how mBank’s broad array of products and services can fit your corporate and personal needs.

We thank you for your support during this difficult economic period and we welcome your comments and questions.

Sincerely,

Paul D. Tobias	Kelly W. George
Chairman and CEO	President and CEO
Mackinac Financial Corporation	mBank

5

Selected Financial Highlights

(Dollars in Thousands, Except Per Share Data)

	For The Years Ended December 31,
	2008			2007
	(Unaudited)			(Unaudited)
Selected Financial Condition Data (at end of period):
Assets	$	451,431		$	408,880
Loans		370,280			355,079
Investment securities		47,490			21,597
Deposits		371,097			320,827
Borrowings		36,210			45,949
Shareholders’ equity		41,552			39,321
Selected Statements of Income Data:
Net interest income	$	12,864		$	13,417
Income before taxes		2,659			2,923
Net income		1,872			10,163
Income per common share — Basic		.55			2.96
Income per common share — Diluted		.55			2.96
Weighted average shares outstanding		3,422,012			3,428,695
Selected Financial Ratios and Other Data:
Performance Ratios:
Net interest margin		3.23	%		3.60	%
Efficiency ratio		85.51			79.46
Return on average assets		.44			2.59
Return on average equity		4.61			31.05
Average total assets	$	425,343		$	392,313
Average total shareholders’ equity		40,630			32,731
Average loans to average deposits ratio		105.61	%		104.94	%
Common Share Data at end of period:
Market price per common share	$	4.40		$	8.98
Book value per common share	$	12.15		$	11.47
Common shares outstanding		3,419,736			3,428,695
Other Data at end of period:
Allowance for loan losses	$	4,277		$	4,146
Non-performing assets	$	7,076		$	5,234
Allowance for loan losses to total loans		1.16	%		1.17	%
Non-performing assets to total assets		1.57	%		1.28	%
Number of:
Branch locations		12			12
FTE Employees		100			100

The above summary should be read in connection with the related consolidated financial statements and notes included elsewhere in this report.

6

Five-Year Comparisons

ASSETS
(Dollars in Millions)

ASSETS

Total assets on a consolidated basis increased by 10.4% during 2008 to $451.4 million.

EARNING ASSETS
(Dollars in Millions)

EARNING ASSETS

Earning assets increased 10.4% during 2008 to $422.1 million.

LOANS
(Dollars in Millions)

LOANS

Total loans increased 4.3% during 2008 to $370.3 million

7

Five-Year Comparisons (Continued)

SOURCE OF FUNDS
(Dollars in Millions)

SOURCE OF FUNDS

Source of funds increased by 11.0% to $407.3 million.

SHAREHOLDERS’ EQUITY
(Dollars in Millions)

SHAREHOLDERS’ EQUITY

During 2008, shareholders’ equity increased by $2.2 million, or 5.7% to $41.6 million.

NET INCOME (LOSS)
(Dollars in Millions)

NET INCOME (LOSS)

Net income for 2008 was $1.9 million, as compared to net income of $10.2 million in 2007.

8

MACKINAC FINANCIAL CORPORATION

QUARTERLY FINANCIAL SUMMARY

							Average
	Average		Average		Average		Shareholders’		Return on Average						Net Interest			Efficiency			Net Income			Book Value
Quarter Ended	Assets		Loans		Deposits		Equity		Assets			Equity			Margin			Ratio			Per Share			Per Share
December 31, 2008	$	441,583	$	366,077	$	358,213	$	41,516		(.23)	%		(2.42)	%		3.20	%		80.30	%	$	(.07	)	$	12.15
September 30, 2008		423,702		358,844		341,377		41,097		.20			2.08			3.39			79.12			.06			12.11
June 30, 2008		418,246		362,574		332,725		40,399		1.70			17.62			3.19			88.45			.52			11.98
March 31, 2008		417,682		357,778		336,016		39,491		.13			1.42			3.13			95.34			.04			11.56
December 31, 2007		406,308		350,050		324,194		38,973		.51			5.36			3.55			78.02			.15			11.47
September 30, 2007		400,105		340,391		327,293		32,184		7.99			99.30			3.71			74.71			2.35			11.29
June 30, 2007		382,065		324,721		309,469		30,412		.57			7.20			3.60			83.18			.16			8.89
March 31, 2007		380,403		318,072		309,619		29,254		1.10			14.35			3.55			82.39			.30			8.73
December 31, 2006		366,566		301,508		294,755		28,646		.37			4.68			3.44			94.60			.10			8.40

LOAN PORTFOLIO BALANCES

TRANSACTIONAL ACCOUNT DEPOSITS

NET INTEREST MARGIN



Quarter Ended

9

Plante & Moran, PLLC
Suite 500
2601 Cambridge Court
Aubum Hills, MI 48326
Tel: 248.375.7100
Fax: 248.375.7101
plantemoran.com

Report of Independent Registered Public Accounting Firm

Board of Directors
Mackinac Financial Corporation, Inc.

We have audited the consolidated statement of financial condition of Mackinac Financial Corporation, Inc. as of December 31, 2008 and 2007 and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each year in the three-year period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mackinac Financial Corporation, Inc. as of December 31, 2008 and 2007 and the consolidated results of their operations and their cash flows for each year in the three-year period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

Auburn Hills, Michigan
March 20, 2009

10

Consolidated Balance Sheets

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 2008 and 2007
(Dollars in Thousands)

	2008			2007
ASSETS
Cash and due from banks	$	10,112		$	6,196
Federal funds sold		—			166
Cash and cash equivalents		10,112			6,362
Interest bearing deposits in other financial institutions		582			1,810
Securities available for sale		47,490			21,597
Federal Home Loan Bank stock		3,794			3,794
Loans:
Commercial		296,088			288,839
Mortgage		70,447			62,703
Installment		3,745			3,537
Total loans		370,280			355,079
Allowance for loan losses		(4,277	)		(4,146	)
Net loans		366,003			350,933
Premises and equipment		11,189			11,609
Other real estate held for sale		2,189			1,226
Other assets		10,072			11,549
TOTAL ASSETS	$	451,431		$	408,880
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Noninterest bearing deposits	$	30,099		$	25,557
NOW, money market, checking		70,584			81,160
Savings		20,730			12,485
CDs<$100,000		73,752			80,607
CDs>$100,000		25,044			22,355
Brokered		150,888			98,663
Total deposits		371,097			320,827
Borrowings:
Federal funds purchased		—			7,710
Short-term		—			1,959
Long-term		36,210			36,280
Total borrowings		36,210			45,949
Other liabilities		2,572			2,783
Total liabilities		409,879			369,559
SHAREHOLDERS’ EQUITY
Preferred stock — no par value:
Authorized 500,000 shares, no shares outstanding		—			—
Common stock and additional paid in capital — no par value
Authorized - 18,000,000 shares
Issued and outstanding — 3,419,736 and 3,428,695, respectively		42,815			42,843
Accumulated deficit		(1,708	)		(3,582	)
Accumulated other comprehensive income		445			60
Total shareholders’ equity		41,552			39,321
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	451,431		$	408,880

See accompanying notes to consolidated financial statements.

11

Consolidated Statements of Operations

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
Years Ended December 31, 2008, 2007, and 2006
(Dollars in Thousands, Except Per Share Data)

	For The Years Ended December 31,
	2008		2007			2006
INTEREST INCOME:
Interest and fees on loans:
Taxable	$	22,555	$	26,340		$	21,239
Tax-exempt		404		533			753
Interest on securities:
Taxable		1,293		1,100			1,186
Tax-exempt		5		—			87
Other interest income		305		722			787
Total interest income		24,562		28,695			24,052
INTEREST EXPENSE:
Deposits		10,115		13,224			10,575
Borrowings		1,583		2,054			1,884
Total interest expense		11,698		15,278			12,459
Net interest income		12,864		13,417			11,593
Provision for loan losses		2,300		400			(861	)
Net interest income after provision for loan losses		10,564		13,017			12,454
NONINTEREST INCOME:
Service fees		838		688			547
Net security gains		64		(1	)		(1	)
Net gains on sale of secondary market loans		120		498			197
Proceeds from settlement of lawsuit		3,475		470			—
Other		156		351			240
Total noninterest income		4,653		2,006			983
NONINTEREST EXPENSE:
Salaries and employee benefits		6,886		6,757			6,132
Occupancy		1,374		1,272			1,264
Furniture and equipment		771		678			631
Data processing		844		785			691
Professional service fees		508		532			1,425
Loan and deposit		569		285			392
Telephone		170		228			210
Advertising		305		370			346
Other		1,131		1,193			1,130
Total noninterest expense		12,558		12,100			12,221
Income before provision for income taxes		2,659		2,923			1,216
Provision for (benefit of) income taxes		787		(7,240	)		(500	)
NET INCOME	$	1,872	$	10,163		$	1,716
INCOME PER COMMON SHARE:
Basic	$	.55	$	2.96		$	.50
Diluted	$	.55	$	2.96		$	.50

See accompanying notes to consolidated financial statements.

12

Consolidated Statements of Changes in Shareholders’ Equity

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
Years Ended December 31, 2008, 2007, and 2006
(Dollars in Thousands)

										Accumulated
	Shares of			Common Stock						Other
	Common			and Additional			Accumulated			Comprehensive
	Stock			Paid in Capital			Deficit			Income (Loss)			Total
Balance, January 1, 2006		3,428,695		$	42,412		$	(15,461	)	$	(363	)	$	26,588
Net income		—			—			1,716			—			1,716
Other comprehensive income:
Net unrealized loss on securities available for sale		—			—			—			176			176
Total comprehensive income														1,892
Stock option compensation		—			310			—			—			310
Balance, December 31, 2006		3,428,695			42,722			(13,745	)		(187	)		28,790
Net income		—			—			10,163			—			10,163
Other comprehensive income:
Net unrealized income on securities available for sale		—			—			—			247			247
Total comprehensive income														10,410
Stock option compensation		—			121			—			—			121
Balance, December 31, 2007		3,428,695			42,843			(3,582	)		60			39,321
Purchase of oddlot shares		(8,959	)		(110	)		—			—			(110	)
Net income		—			—			1,872			—			1,872
Other comprehensive income:
Net unrealized income on securities available for sale		—			—			—			385			385
Other		—			—			2			—			2
Total comprehensive income														2,259
Stock option compensation		—			82			—			—			82
Balance, December 31, 2008		3,419,736		$	42,815		$	(1,708	)	$	445		$	41,552

See accompanying notes to consolidated financial statements.

13

Consolidated Statements of Cash Flows

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
Years Ended December 31, 2008, 2007, and 2006
(Dollars in Thousands)

	2008			2007			2006
Cash Flows from Operating Activities:
Net income	$	1,872		$	10,163		$	1,716
Adjustments to reconcile net income to net net cash provided by (used in) operating activities:
Depreciation and amortization		1,355			942			1,052
Provision for loan losses		2,300			400			(861	)
Provision for (benefit of) deferred income taxes		787			(7,240	)		(500	)
(Gain) loss on sales/calls of securities available for sale		(64	)		1			1
(Gain) on sale of premises, equipment, branch and other real estate		(77	)		(17	)		(60	)
Writedown of other real estate		964			40			—
Stock option compensation		82			121			310
Change in other assets		367			12			(143	)
Change in other liabilities		(210	)		(491	)		188
Net cash provided by operating activities		7,376			3,931			1,703
Cash Flows from Investing Activities:
Net (increase) in loans		(21,173	)		(35,043	)		(83,074	)
Net (increase) decrease in interest-bearing deposits in other financial institutions		1,228			(954	)		169
Purchase of securities available for sale		(50,813	)		(25,556	)		(5,000	)
Proceeds from maturities, sales, calls or paydowns of securities available for sale		25,373			37,215			6,579
FHLB repurchase of stock		—			—			1,061
Capital expenditures		(618	)		(1,516	)		(1,367	)
Proceeds from sale of premises, equipment, and other real estate		1,956			323			1,013
Net cash paid in connection with branch sales		—			(8,042	)		—
Net cash (used in) investing activities		(44,047	)		(33,573	)		(80,619	)
Cash Flows from Financing Activities:
Net increase in deposits		50,270			17,656			79,789
Net increase (decrease) in federal funds purchased		(7,710	)		7,710			—
Net increase (decrease) in lines of credit		(1,959	)		—			1,959
Repurchase of common stock-oddlot shares		(110	)		—			—
Principal payments on borrowings		(70	)		(68	)		(69	)
Net cash provided by financing activities		40,421			25,298			81,679
Net increase (decrease) in cash and cash equivalents		3,750			(4,344	)		2,763
Cash and cash equivalents at beginning of period		6,362			10,706			7,943
Cash and cash equivalents at end of period	$	10,112		$	6,362		$	10,706
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest	$	11,961		$	13,609		$	12,270
Income taxes		70			—			—
Noncash Investing and Financing Activities:
Transfers of Foreclosures from Loans to Other Real Estate Held for Sale		2,849			1,218			23
Assets and Liabilities Divested in Branch Sales:
Loans		—			27			—
Premises and equipment		—			1,181			—
Deposits		—			9,250			—

See accompanying notes to consolidated financial statements

14

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies of Mackinac Financial Corporation (the “Corporation”) and Subsidiaries conform to accounting principles generally accepted in the United States and prevailing practices within the banking industry. Significant accounting policies are summarized below.

Principles of Consolidation

The consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiaries, mBank (the “Bank”) and other minor subsidiaries, after elimination of intercompany transactions and accounts.

Nature of Operations

The Corporation’s and the Bank’s revenues and assets are derived primarily from banking activities. The Bank’s primary market area is the Upper Peninsula, the northern portion of the Lower Peninsula of Michigan, and Oakland County in Lower Michigan. The Bank provides to its customers commercial, real estate, agricultural, and consumer loans, as well as a variety of traditional deposit products. A portion, approximately 3.0%, of the Bank’s commercial loan portfolio consists of leases to commercial and governmental entities, which are secured by various types of equipment. These leases are dispersed geographically throughout the country. Approximately 1.0% of the Corporation’s business activity is with Canadian customers and denominated in Canadian dollars.

While the Corporation’s chief decision makers monitor the revenue streams of the various Corporation products and services, operations are managed and financial performance is evaluated on a Corporation-wide basis. Accordingly, all of the Corporation’s banking operations are considered by management to be aggregated in one reportable operating segment.

Use of Estimates in Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of investment securities, the valuation of foreclosed real estate, deferred tax assets, and impairment of intangible assets.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, noninterest-bearing deposits in correspondent banks, and federal funds sold. Generally, federal funds are purchased and sold for one-day periods.

Securities

The Corporation’s securities are classified and accounted for as securities available for sale. These securities are stated at fair value. Premiums and discounts are recognized in interest income using the interest method over the period to maturity. Unrealized holding gains and losses on securities available for sale are reported as accumulated other comprehensive income within shareholders’ equity until realized. When it is determined that securities or other investments are impaired and the impairment is other than temporary, an impairment loss is recognized in earnings and a new basis in the affected security is established. Gains and losses on the sale of securities are recorded on the trade date and determined using the specific-identification method.

15

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Federal Home Loan Bank Stock

As a member of the Federal Home Loan Bank (FHLB) system, the Bank is required to hold stock in the FHLB based on the anticipated level of borrowings to be advanced. This stock is recorded at cost, which approximates fair value. Transfer of the stock is substantially restricted.

Interest Income and Fees on Loans

Interest on loans is accrued and credited to income based on the principal amount outstanding. The accrual of interest on loans is discontinued when, in the opinion of management, it is probable that the borrower may be unable to meet payments as they become due. Upon such discontinuance, all unpaid accrued interest is reversed. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. Interest income on impaired and nonaccrual loans is recorded on a cash basis. Loan-origination fees and allocated costs of originating loans are deferred and recognized over the term of the loan as an adjustment to yield in accordance with FASB Statement No. 91.

Allowance for Loan Losses

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

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

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

Other Real Estate Held for Sale

Other real estate held for sale consists of assets acquired through, or in lieu of, foreclosure and other long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. Other real estate held for sale is initially recorded at the lower of cost or fair value, less costs to sell, establishing a new cost basis. Valuations are periodically performed by management, and the assets’ carrying values are adjusted to the lower of cost basis or fair value less costs to sell. Impairment losses are recognized for any initial or subsequent write-downs. Net revenue and expenses from operations of other real estate held for sale are included in other expense.

16

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Maintenance and repair costs are charged to expense as incurred. Gains or losses on disposition of premises and equipment are reflected in income. Depreciation is computed on the straight-line method over the estimated useful lives of the assets.

Intangible Assets

Intangible assets attributable to the value of core deposits are stated at cost less accumulated amortization. The core deposit premium is amortized on a straight-line basis over a period of ten years and is subject to an annual impairment test based on the change in deposit base.

The Corporation reviews intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The evaluation includes assessing the estimated fair value of the intangible asset based on market prices for similar assets, where available, and the present value of the estimated future cash flows associated with the intangible asset. Adjustments are recorded if it is determined that the benefit of the intangible asset has decreased.

Stock Option Plans

The Corporation sponsors three stock option plans. One plan was approved during 2000 and applies to officers, employees, and nonemployee directors. This plan was amended as a part of the December 2004 stock offering and recapitalization. The amendment, approved by shareholders, increased the shares available under this plan by 428,587 shares from the original 25,000 (adjusted for the 1:20 reverse stock split), to a total authorized share balance of 453,587. The other two plans, one for officers and employees and the other for nonemployee directors, were approved in 1997. A total of 30,000 (adjusted for the 1:20 split), were made available for grant under these plans. These two 1997 plans expired early in 2007. Options under all of the plans are granted at the discretion of a committee of the Corporation’s Board of Directors. Options to purchase shares of the Corporation’s stock are granted at a price equal to the market price of the stock at the date of grant. The committee determines the vesting of the options when they are granted as established under the plan.

The Corporation adopted SFAS No. 123 (Revised) “Share Based Payments” in the first quarter of 2006. This statement supersedes APB Opinion No. 25, “Accounting for Stock Issue to Employees” and its related implementation guidance. Under Opinion No. 25, issuing stock options to employees generally resulted in recognition of no compensation cost. This adoption resulted in the recognition of before tax compensation expense in the amount of $82,000 for 2008, $121,000 for 2007, and $310,000 in 2006. The expense recorded recognizes the current period vesting of options outstanding. The per share impact of this accounting change was $.02 for 2008. In 2007 and 2006, the per share impact was $.04 and $.08, respectively.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale, which are recognized as a separate component of equity and accumulated other comprehensive income (loss).

Earnings per Common Share

Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock option agreements

17

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Earnings per share are based upon the weighted average number of shares outstanding. The following shows the computation of basic and diluted income per share for the years ended December 31 (dollars in thousands, except per share data):

			Weighted
			Average		Income
	Net Income		Number of Shares		per Share
2008
Income per share — basic and diluted	$	1,872		3,422,012	$	.55
2007
Income per share — basic and diluted	$	10,163		3,428,695	$	2.96
2006
Income per share — basic and diluted	$	1,716		3,428,695	$	.50

In the above disclosure the dilutive effect of additional shares outstanding, as a result of stock options exercisable, was not taken into account since the additional shares issued as a result of vested options under the Company’s option plans would not have a dilutive effect on the earnings calculated per share.

Income Taxes

Deferred income taxes have been provided under the liability method. Deferred tax assets and liabilities are determined based upon the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences are expected to reverse. Deferred tax expense (credit) is the result of changes in the deferred tax asset and liability. A valuation allowance is provided against deferred tax assets when it is more likely than not that some or all of the deferred asset will not be realized. In 2008, the Corporation recorded a current tax provision of $.787 million. The Corporation recorded a $.260 million current tax provision in the fourth quarter of 2007. In the third quarter of 2007, the Corporation reversed a portion of the valuation allowance that pertained to the deferred tax benefit of NOL and tax credit carryforwards. This valuation adjustment, $7.500 million, was recorded as a current period income tax benefit. In 2006, the Corporation recorded a $.500 million tax benefit and utilized additional NOL carryforward benefits to offset current taxable income. The recognition of the deferred tax benefit in 2007 and 2006 was in accordance with generally accepted accounting principles, and considered, among other things, the probability of utilizing the NOL and credit carryforwards. Further discussion on the NOL carryforward and future benefits is presented in the “Management’s Discussion and Analysis” section of this report.

Off-Balance-Sheet Financial Instruments

In the ordinary course of business, the Corporation has entered into off-balance-sheet financial instruments consisting of commitments to extend credit, commitments under credit card arrangements, commercial letters of credit, and standby letters of credit. For letters of credit, the Corporation recognizes a liability for the fair market value of the obligations it assumes under that guarantee.

Reclassifications

Certain amounts in the 2007 and 2006 consolidated financial statements have been reclassified to conform to the 2008 presentation.

18

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 2 — RESTRICTIONS ON CASH AND CASH EQUIVALENTS

Cash and cash equivalents in the amount of $1.400 million were restricted on December 31, 2008 to meet the reserve requirements of the Federal Reserve System.

In the normal course of business, the Corporation maintains cash and due from bank balances with correspondent banks. Balances in these accounts may exceed the Federal Deposit Insurance Corporation’s insured limit of $250,000, which was increased from $100,000 under certain provisions of the Troubled Asset Relief Program (“TARP”) and will revert back to $100,000 at 2009 year end.

Management believes that these financial institutions have strong credit ratings and the credit risk related to these deposits is minimal.

NOTE 3 — SECURITIES AVAILABLE FOR SALE

The carrying value and estimated fair value of securities available for sale are as follows (dollars in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
December 31, 2008
US Agencies — MBS	$	46,316	$	632	$	(7	)	$	46,941
Obligations of states and political subdivisions		498		51		—			549
Total securities available for sale	$	46,814	$	683	$	(7	)	$	47,490
December 31, 2007
US Agencies	$	20,982	$	25	$	(38	)	$	20,969
Obligations of states and political subdivisions		556		72		—			628
Total securities available for sale	$	21,538	$	97	$	(38	)	$	21,597

Following is information pertaining to securities with gross unrealized losses at December 31, 2008 and 2007 aggregated by investment category and length of time these individual securities have been in a loss position (dollars in thousands):

	Less Than Twelve Months					Over Twelve Months
	Gross					Gross
	Unrealized			Fair		Unrealized			Fair
	Losses			Value		Losses			Value
December 31, 2008
US Agencies — MBS	$	(7	)	$	5,106	$	—		$	—
Total securities available for sale	$	(7	)	$	5,106	$	—		$	—
December 31, 2007
US Agencies	$	(7	)	$	6,978	$	(31	)	$	8,969
Total securities available for sale	$	(7	)	$	6,978	$	(31	)	$	8,969

19

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 3 — SECURITIES AVAILABLE FOR SALE (CONTINUED)

The gross unrealized losses in the current portfolio are considered temporary in nature and related to interest rate fluctuations. The Corporation has both the ability and intent to hold the investment securities until their respective maturities and therefore does not anticipate the realization of the temporary losses.

Following is a summary of the proceeds from sales and calls of securities available for sale, as well as gross gains and losses for the years ended December 31 (dollars in thousands):

	2008			2007			2006
Proceeds from sales and calls	$	12,047		$	6,579		$	3,010
Gross gains on sales		65			—			—
Gross (losses) on sales and calls		(1	)		(1	)		(1	)

The carrying value and estimated fair value of securities available for sale at December 31, 2008, by contractual maturity, are shown below (dollars in thousands):

	Amortized		Estimated
	Cost		Fair Value
Due in one year or less	$	5	$	5
Due after one year through five years		26		26
Due after five years through ten years		467		517
Due after ten years		46,316		46,942
Total	$	46,814	$	47,490

Contractual maturities may differ from expected maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. See Note 10 for information on securities pledged to secure borrowings from the Federal Home Loan Bank.

20

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 4 — LOANS

The composition of loans at December 31 is as follows (dollars in thousands):

	2008		2007
Commercial real estate	$	185,241	$	171,695
Commercial, financial, and agricultural		79,734		78,192
One to four family residential real estate		65,595		57,613
Construction:
Consumer		4,852		5,090
Commerical		31,113		38,952
Consumer		3,745		3,537
Total loans	$	370,280	$	355,079

An analysis of the allowance for loan losses for the years ended December 31 is as follows (dollars in thousands):

	2008			2007			2006
Balance, January 1	$	4,146		$	5,006		$	6,108
Recoveries on loans previously charged off		121			50			91
Loans charged off		(2,290	)		(1,310	)		(332	)
Provision		2,300			400			(861	)
Balance, December 31	$	4,277		$	4,146		$	5,006

In 2008, net charge off activity was $2.169 million, or .60% of average loans outstanding compared to net charge-offs of $1.260 million, or .38% of average loans, in the same period in 2007 and $.241 million, or .08% of average loans, in 2006. During 2008, a provision of $2.300 million was made to increase the reserve. This provision was made in accordance with the Corporation’s allowance for loan loss reserve policy, which calls for a measurement of the adequacy of the reserve at each quarter end. This process includes an analysis of the loan portfolio to take into account increases in loans outstanding and portfolio composition, historical loss rates, and specific reserve requirements of nonperforming loans. During the third quarter of 2007, a provision of $.400 million was made to increase the reserve. In the first quarter of 2006, the Corporation reduced the allowance for loan losses by recording a negative provision amounting to $.600 million In the fourth quarter of 2006, a reduction of $.261 million was made to the reserve due to the resolution of a problem loan with an excess specific reserve. These reductions in the reserve were made in recognition of the improved credit quality existent in the loan portfolio and are discussed in more detail under “Management’s Discussion and Analysis.”

Impaired Loans

Nonperforming loans are those which are contractually past due 90 days or more as to interest or principal payments, on nonaccrual status, or loans, the terms of which have been renegotiated to provide a reduction or deferral on interest or principal. The interest income recorded, and that which would have been recorded had nonaccrual and renegotiated loans been current or not troubled, was not material to the consolidated financial statements for the years ended December 31, 2008 and 2007.

A loan is considered impaired, based on current information and events, if it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due, according to the contractual terms of the loan agreement.

21

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 4 — LOANS (CONTINUED)

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

	Impaired Loans						Valuation Reserve
	December 31,						December 31,
	2008		2007		2006		2008		2007		2006
Balances, at period end
Impaired loans with valuation reserve	$	3,730	$	3,639	$	1,804	$	994	$	1,320	$	493
Impaired loans with no valuation reserve		1,157		369		1,136		—		—		—
Total impaired loans	$	4,887	$	4,008	$	2,940	$	994	$	1,320	$	493
Impaired loans on nonaccrual basis (1)	$	4,887	$	3,298	$	2,900	$	994	$	1,219	$	493
Impaired loans on accrual basis		—		710		40		—		101		—
Total impaired loans	$	4,887	$	4,008	$	2,940	$	994	$	1,320	$	493
Average investment in impaired loans	$	4,834	$	4,135	$	1,192
Interest income recognized during impairment		60		129		7
Interest income that would have been recognized on an accrual basis		377		391		114
Cash-basis interest income recognized		60		84		5

⁽¹⁾ In addition to the valuation reserves on impaired loans as of December 31, 2007, the Bank had an SBA loan guarantee of $.435 million, which relates to a hotel/motel loan included with nonaccrual loans.

Insider Loans

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

	2008			2007
Loans outstanding, January 1	$	1,720		$	1,621
New loans		372			—
Net activity on revolving lines of credit		2,378			556
Change in related party interest		2,733			—
Repayment		(687	)		(457	)
Loans outstanding, December 31	$	6,516		$	1,720

There were no loans to related-parties classified substandard as of December 31, 2008 and 2007. In addition to the outstanding balances above, there were unused commitments of $.924 million to related parties at December 31, 2008.

22

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 5 — PREMISES AND EQUIPMENT

Details of premises and equipment at December 31 are as follows (dollars in thousands):

	2008		2007
Land	$	2,042	$	2,042
Buildings and improvements		12,545		12,258
Furniture, fixtures, and equipment		4,261		3,783
Construction in progress		70		224
Total cost basis		18,918		18,307
Less — accumulated depreciation		7,729		6,698
Net book value	$	11,189	$	11,609

The construction in progress at the end of 2008 pertains to ATM installation at a branch location, improvements to an existing branch location, and costs associated with the establishment of a new branch location.

In October 2007, the Bank sold its Ripley branch office, with deposits of approximately $9.3 million, premises and equipment with a net book value of $1.2 million, and loans totaling $27,000.

Depreciation of premises and equipment charged to operating expenses amounted to $1.035 million in 2008, $.891 million in 2007, and $.890 million in 2006.

NOTE 6 — OTHER REAL ESTATE HELD FOR SALE

An analysis of other real estate held for sale for the years ended December 31 is as follows (dollars in thousands):

	2008			2007
Balance, January 1	$	1,226		$	26
Other real estate transferred from loans due to foreclosure		2,849			1,218
Other real estate sold / written down		(1,886	)		(18	)
Balance, December 31	$	2,189		$	1,226

NOTE 7 — INTANGIBLE ASSET

Included in other assets are core deposit premiums acquired through acquisitions. These core deposit premiums are considered an intangible asset. As of December 31, 2008, the remaining balance of core deposit intangibles was $45,000. Core deposit premium expense amounted to $78,000 in 2008, $82,000 in 2007, $125,000 in 2006. The remaining balance of $45,000 will be amortized in 2009.

23

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 8 — DEPOSITS

The distribution of deposits at December 31 is as follows (dollars in thousands):

	2008		2007
Noninterest bearing	$	30,099	$	25,557
NOW, money market, checking		70,584		81,160
Savings		20,730		12,485
CDs <$100,000		73,752		80,607
CDs >$100,000		25,044		22,355
Brokered		150,888		98,663
Total deposits	$	371,097	$	320,827

Maturities of non-brokered time deposits outstanding at December 31, 2008, are as follows (dollars in thousands):

2009	$	85,296
2010		8,239
2011		2,976
2012		1,223
2013		291
Thereafter		771
Total	$	98,796

Brokered deposits of $150.888 million mature in 2009.

NOTE 9 — SHORT-TERM BORROWINGS

Short-term borrowings consist of the following at December 31 (dollars in thousands):

	2008		2007
Fed funds purchased with a weighted average rate of 4.18%	$	—	$	7,710
Advance outstanding on line of credit with a correspondent bank, interest payable at the prime rate, 7.25% as of December 31, 2007, matured November 30, 2008		—		1,959
	$	—	$	9,669

In the second quarter of 2006, the Corporation established a $6 million line of credit with a correspondent bank. This line of credit, which is priced at the prime rate, was utilized by the Corporation to infuse capital into the Bank in order to support the regulatory required 8% Tier 1 Capital and provide cash for holding company operations. This line of credit was secured by all of the shares of the Bank, matured November 30, 2008 and was subsequently closed.

24

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 10 — LONG-TERM BORROWINGS

Long-term borrowings consist of the following at December 31 (dollars in thousands):

	2008		2007
Federal Home Loan Bank fixed rate advances at rates ranging from 4.98% to 5.16% maturing in 2010	$	15,000	$	15,000
Federal Home Loan Bank variable rate advances at rates ranging from 2.88% to 4.54% maturing in 2011		20,000		20,000
Farmers Home Administration, fixed-rate note payable, maturing August 24, 2024 interest payable at 1%		1,210		1,280
	$	36,210	$	36,280

The Federal Home Loan Bank borrowings are collateralized at December 31, 2008 by the following: a collateral agreement on the Corporation’s one to four family residential real estate loans with a book value of approximately $26.972 million; mortgage related and municipal securities with an amortized cost and estimated fair value of $19.107 million and $18.870 million, respectively; and Federal Home Loan Bank stock owned by the Bank totaling $3.794 million. Prepayment of the remaining advances is subject to the provisions and conditions of the credit policy of the Federal Home Loan Bank of Indianapolis in effect as of December 31, 2008.

The $35.000 million FHLB borrowings are comprised of both fixed and variable rate borrowings as shown in the above table. The FHLB has the option to convert the $15.000 million of fixed rate advances to adjustable rate advances, repricing quarterly at three month LIBOR flat, on the original call date and thereafter.

The U.S.D.A. Rural Development borrowing is collateralized by loans totaling $.334 million originated and held by the Corporation’s wholly owned subsidiary, First Rural Relending and an assignment of a demand deposit account in the amount of $.981 million, and guaranteed by the Corporation.

Maturities of long-term borrowings outstanding at December 31, 2008 are as follows (dollars in thousands):

2009	$	70
2010		15,071
2011		20,072
2012		72
2013		73
Thereafter		852
Total	$	36,210

25

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 11 — INCOME TAXES

The components of the federal income tax provision (credit) for the years ended December 31 are as follows (dollars in thousands):

	2008		2007			2006
Current tax expense (credit)	$	—	$	15		$	—
Change in valuation allowance		—		(7,255	)		(500	)
Deferred tax expense		787		—			—
Total provision (credit) for income taxes	$	787	$	(7,240	)	$	(500	)

A summary of the source of differences between income taxes at the federal statutory rate and the provision (credit) for income taxes for the years ended December 31 is as follows (dollars in thousands):

	2008			2007			2006
Tax expense (benefit) at statutory rate	$	904		$	993		$	413
Increase (decrease) in taxes resulting from:
Tax-exempt interest		(137	)		(181	)		(252	)
Change in valuation allowance		—			(8,136	)		(288	)
Other		20			84			(373	)
Provision for (benefit of) income taxes	$	787		$	(7,240	)	$	(500	)

26

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 11 — INCOME TAXES (CONTINUED)

Deferred income taxes are provided for the temporary differences between the financial reporting and tax bases of the Corporation’s assets and liabilities. The major components of net deferred tax assets at December 31 are as follows (dollars in thousands):

	2008			2007
Deferred tax assets:
Allowance for loan losses	$	1,454		$	1,410
Deferred compensation		310			350
Intangible assets		129			289
Alternative Minimum Tax Credit		1,463			1,463
NOL carryforward		10,924			11,623
Depreciation		131			65
Tax credit carryovers		672			672
Other		215			405
Total deferred tax assets		15,298			16,277
Valuation allowance	$	(8,146	)	$	(8,146	)
Deferred tax liabilities:
Total deferred tax liabilities		(418	)		(376	)
Net deferred tax asset (liabilty)	$	6,734		$	7,755

A valuation allowance is provided against deferred tax assets when it is more likely than not that some or all of the deferred tax asset will not be realized. At December 31, 2008 and 2007, the Corporation evaluated the valuation allowance against the net deferred tax asset which would require future taxable income in order to be utilized. The Corporation, as of December 31, 2008 had a net operating loss and tax credit carryforwards for tax purposes of approximately $32.128 million, and $2.136 million, respectively.

The Corporation utilized NOL carryforwards to offset taxable income for the first nine months of 2007. In the third quarter of 2007, the Corporation reversed a portion of the valuation allowance, $7.500 million that pertained to the deferred tax benefit of NOL and tax credit carryforwards. This valuation adjustment was recorded as a current period income tax benefit. In 2006, the Corporation recorded a $.500 million tax benefit and utilized additional NOL carryforwards to offset current taxable income. The recognition of the deferred tax benefit in 2007 and 2006 was in accordance with generally accepted accounting principles, and considered among other things, the probability of utilizing the NOL and credit carryforwards.

The Corporation recorded the future benefits from these carryforwards at such time as it became “more likely than not” that they would be utilized prior to expiration. Please refer to further discussion on income taxes contained in “Management’s Discussion and Analysis.” The net operating loss carryforwards expire twenty years from the date they originated. These carryforwards, if not utilized, will begin to expire in the year 2023. A portion of the NOL, approximately $22 million, and all of the credit carryforwards are subject to the limitations for utilization as set forth in Section 382 of the Internal Revenue Code. The annual limitation is $1.400 million for the NOL and the equivalent value of tax credits, which is approximately $.477 million. These limitations for use were established in conjunction with the recapitalization of the Corporation in December 2004.

27

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 12 — OPERATING LEASES

The Corporation currently maintains two operating leases for branch office locations. The first operating lease, for our location in Birmingham, was originated in September 2005 and had an original term of 66 months with an option to renew for an additional five year period.

The second operating lease, for our new location in Escanaba, was executed in December 2008, the terms of which are scheduled to begin in April 2009. The original term of this lease is three years and will automatically renew and extend for four additional consecutive terms of two years each.

Future minimum payments, by year and in the aggregate, under the initial terms of the operating lease agreements, consist of the following (dollars in thousands):

2009	$	199
2010		206
2011		91
2012		10
Total	$	506

Rent expense for all operating leases amounted to $195,000 in 2008, $141,000 in 2007, and $182,000 in 2006.

NOTE 13 — RETIREMENT PLAN

The Corporation has established a 401(k) profit sharing plan. Employees who have completed three months of service and attained the age of 18 are eligible to participate in the plan. Eligible employees can elect to have a portion, not to exceed 80%, of their annual compensation paid into the plan. In addition, the Corporation may make discretionary contributions into the plan. Retirement plan contributions charged to operations totaled $90,000, $112,000, and $70,000 in 2008, 2007, and 2006, respectively.

NOTE 14 — DEFERRED COMPENSATION PLAN

As an incentive to retain key members of management and directors, the Corporation established a deferred compensation plan, with benefits based on the number of years the individuals have served the Corporation. This plan was discontinued and no longer applies to current officers and directors. A liability was recorded on a present value basis and discounted using the rates in effect at the time the deferred compensation agreement was entered into. The liability may change depending upon changes in long-term interest rates. The liability at December 31, 2008 and 2007, for vested benefits under this plan, was $.912 million and $1.028 million respectively. These benefits were originally contracted to be paid over a ten to fifteen-year period. The final payment is scheduled to occur in 2023. The deferred compensation plan is unfunded; however, the Bank maintains life insurance policies on the majority of the plan participants. The cash surrender value of the policies was $1.384 million and $1.332 million at December 31, 2008 and 2007, respectively. Deferred compensation expense for the plan was $84,000, $90,000, and $85,000 for 2008, 2007, and 2006 respectively.

NOTE 15 — REGULATORY MATTERS

The Corporation is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and possibly additional discretionary—actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation’s assets, liabilities, and certain off-balance-

28

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 15 — REGULATORY MATTERS (CONTINUED)

sheet items as calculated under regulatory accounting practices. The Corporation’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Management has determined that, as of December 31, 2008, the Corporation is well capitalized.

To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. In addition, federal banking regulators have established capital classifications beyond the minimum requirements in order to risk-rate deposit insurance premiums and to provide trigger points for prompt corrective action.

The Corporation’s and the Bank’s actual and required capital amounts and ratios as of December 31 are as follows (dollars in thousands):

											To Be Well
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
2008
Total capital (to risk- weighted assets):
Consolidated	$	39,138		10.4	%		> $30,158		> 8.0	%		N/A
mBank	$	39,428		10.4	%		> $30,202		> 8.0	%		>		> 10.0	%
Tier 1 capital (to risk- weighted assets):
Consolidated	$	34,861		9.3	%		> $15,079		> 4.0	%		N/A
mBank	$	35,192		9.3	%		> $15,101		> 4.0	%		>		> 6.0	%
Tier 1 capital (to average assets):
Consolidated	$	34,861		8.0	%		> $17,407		> 4.0	%		N/A
mBank	$	35,192		8.1	%		> $17,393		> 4.0	%		>		> 5.0	%
2007
Total capital (to risk- weighted assets):
Consolidated	$	36,293		10.1	%		> $28,673		> 8.0	%		N/A
mBank	$	38,048		10.6	%		> $28,629		> 8.0	%		> $35,786		> 10.0	%
Tier 1 capital (to risk- weighted assets):
Consolidated	$	32,147		9.0	%		> $14,336		> 4.0	%		N/A
mBank	$	33,950		9.5	%		> $14,315		> 4.0	%		> $21,472		> 6.0	%
Tier 1 capital (to average assets):
Consolidated	$	32,147		8.1	%		> $15,967		> 4.0	%		N/A
mBank	$	33,950		8.5	%		> $15,951		> 4.0	%		> $19,938		> 5.0	%

At December 31, 2008, the Bank was not authorized to pay dividends to the Corporation without prior regulatory approval because of a negative retained earnings balance due to cumulative losses.

29

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 16 — STOCK OPTION PLANS

The Corporation sponsors three stock option plans. All historical information presented below has been adjusted to reflect the 1 for 20 reverse stock split which occurred on December 16, 2004. One plan was approved during 2000 and applies to officers, employees, and non-employee directors. A total of 25,000 shares were made available for grant under this plan. This plan was amended as a part of the recapitalization to provide for additional authorized shares equal to 12.50% of all outstanding shares subsequent to the recapitalization, which amounted to 428,587 shares. The other two plans, one for officers and employees and the other for non-employee directors, were approved in 1997. A total of 30,000 shares were made available for grant under these plans. Options under all of the plans are granted at the discretion of a committee of the Corporation’s Board of Directors. Options to purchase shares of the Corporation’s stock are granted at a price equal to the market price of the stock at the date of grant. The committee determines the vesting of the options when they are granted as established under the plan.

A summary of stock option transactions for the years ended December 31 is as follows:

	2008			2007
Outstanding shares at beginning of year		446,417			446,417
Granted during the year		—			—
Expired / forfeited during the year		(180	)		—
Outstanding shares at end of year		446,237			446,417
Exercisable shares at end of year		164,446			164,626
Weighted average exercise price per share at end of year	$	12.14		$	12.29
Shares available for grant at end of year		18,488			18,488

There were no options granted in 2008 and in 2007.

Following is a summary of the options outstanding and exercisable at December 31, 2008:

					Weighted
					Average		Weighted
					Remaining		Average
Exercise	Number of Shares				Contractual		Exercise
Price Range	Outstanding		Exercisable		Life-Years		Price
$9.16		12,500		5,000		7.0	$	9.16
$9.75		257,152		120,861		6.0		9.75
$10.65		72,500		14,500		8.0		10.65
$11.50		40,000		8,000		6.8		11.50
$12.00		60,000		12,000		6.5		12.00
$156.00 - $240.00		3,545		3,545		2.3		186.75
$300.00 - $400.00		540		540		1.0		180.00
		446,237		164,446		6.4	$	12.14

30

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 16 — STOCK OPTION PLANS (CONTINUED)

Options issued since the Corporation’s recapitalization in December of 2004 call for 20% immediate vesting upon issue and subsequent vesting to occur over a two to five year period, based upon the market value appreciation of the underlying Corporation’s stock. Compensation related to these options is expensed based upon the vesting period without consideration given to market value appreciation. Future compensation for all outstanding options is projected to total $61,000 in 2009, $29,000 in 2010, and none thereafter.

NOTE 17 — OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) components and related taxes for the years ended December 31 are as follows (dollars in thousands):

	2008		2007			2006
Unrealized holding gains on available for sale securities	$	551	$	248		$	177
Less reclassification adjustments for gains (losses) later recognized in income		64		(1	)		(1	)
Net unrealized gains		615		247			176
Tax effect		230		—			—
Other comprehensive income	$	385	$	247		$	176

NOTE 18 — COMMITMENTS, CONTINGENCIES, AND CREDIT RISK

Financial Instruments with Off-Balance-Sheet Risk

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

The Corporation’s exposure to credit loss, in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit, is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. These commitments at December 31 are as follows (dollars in thousands):

	2008		2007
Commitments to extend credit:
Variable rate	$	40,036	$	43,903
Fixed rate		4,487		8,055
Standby letters of credit — Variable rate		1,838		5,930
Credit card commitments — Fixed rate		2,438		2,414
	$	48,799	$	60,302

31

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 18 — COMMITMENTS, CONTINGENCIES, AND CREDIT RISK (CONTINUED)

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

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

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

Contingencies

In the normal course of business the Corporation is involved in various legal proceedings.

Concentration of Credit Risk

The Bank grants commercial, residential, agricultural, and consumer loans throughout Michigan. The Bank’s most prominent concentration in the loan portfolio relates to commercial real estate loans to operators of nonresidential buildings. This concentration at December 31, 2008 represents $41.299 million, or 13.95%, compared to $41.597 million, or 14.40%, of the commercial loan portfolio on December 31, 2007. The remainder of the commercial loan portfolio is diversified in such categories as hospitality and tourism, real estate agents and managers, new car dealers, gaming, petroleum, forestry, agriculture, and construction. Due to the diversity of the Bank’s locations, the ability of debtors of residential and consumer loans to honor their obligations is not tied to any particular economic sector.

NOTE 19 — FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

Securities — Fair values are based on quoted market prices where available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

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

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

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

32

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 19 — FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

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

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

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

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

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

The following table presents information for financial instruments at December 31 (dollars in thousands):

	2008				2007
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	10,112	$	10,112	$	6,362	$	6,362
Interest-bearing deposits		582		582		1,810		1,810
Securities available for sale		47,490		47,490		21,597		21,597
Federal Home Loan Bank stock		3,794		3,794		3,794		3,794
Net loans		366,003		372,080		350,933		350,512
Cash surrender value — life insurance		1,397		1,397		1,332		1,332
Accrued interest receivable		1,457		1,457		1,806		1,806
Total financial assets	$	430,835	$	436,912	$	387,634	$	387,213
Financial liabilities:
Deposits	$	371,097	$	371,434	$	320,827	$	319,213
Borrowings		36,210		36,846		45,949		46,111
Directors deferred compensation		912		912		1,028		1,028
Accrued interest payable		488		488		751		751
Total financial liabilities	$	408,707	$	409,680	$	368,555	$	367,103

Limitations — Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Corporation’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Corporation’s financial instruments, fair value estimates are based on judgments regarding

33

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 19 — FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

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

The following tables present information about the Corporation’s assets and liabilities measured at fair value on a recurring basis at December 31, 2008, and the valuation techniques used by the Corporation to determine those fair values.

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

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

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

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

Disclosures concerning assets and liabilities measured at fair value are as follows (dollars in thousands):

Assets and Liabilities Measured at Fair Value on a Recurring Basis at December 31, 2008

	Quoted Prices in Active		Significant Other		Significant
	Markets for Identical		Observable Inputs		Unobservable Inputs		Balance at
	Assets (Level 1)		(Level 2)		(Level 3)		December 31, 2008
Assets
Investment securities — available for sale	$	47,422	$	68	$	—	$	47,490
Liabilities
None

The Corporation had no Level 3 assets or liabilities on a recurring basis as of December 31, 2008.

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

34

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 19 — FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2008

	Quoted Prices		Significant		Significant
	in Active Markets		Other Observable		Unobservable		Total Losses for
	for Identical Assets		Inputs		Inputs		Year Ended
(dollars in thousands)	(Level 1)		(Level 2)		(Level 3)		December 31, 2008
Assets
Impaired loans accounted for under FAS 114	$	—	$	—	$	1,030	$	862
							$	862

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

Impaired loans accounted for under FAS 114 categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Corporation estimates the fair value of the loans based on the present value of expected future cash flows using management’s best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals).

Other assets, including bank owned life insurance, goodwill, intangible assets and other assets acquired in business combinations, are also subject to periodic impairment assessments under other accounting principles generally accepted in the United States of America. These assets are not considered financial instruments. Effective February 12, 2008, the FASB issued a staff position, FSP FAS 157-2, which delayed the applicability of FAS 157 to nonfinancial instruments. Accordingly, these assets have been omitted from the above disclosures.

In October 2008, the FASB issued FSP 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active. FSP 157-3 provides clarification of the application of FASB 157 in an inactive market. FSP 157-3 is effective for the Corporation’s interim financial statements as of December 31, 2008. This change had no impact on the Corporation’s disclosure on fair value measurements.

35

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 20 — PARENT COMPANY ONLY FINANCIAL STATEMENTS

BALANCE SHEETS
December 31, 2008 and 2007
(Dollars in Thousands)

	2008		2007
ASSETS
Cash and cash equivalents	$	413	$	119
Investment in subsidiaries		41,990		41,198
Other assets		29		78
TOTAL ASSETS	$	42,432	$	41,395
LIABILITIES AND SHAREHOLDERS’ EQUITY
Borrowings	$	—	$	1,959
Other liabilities		880		115
Shareholders’ equity		41,552		39,321
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	42,432	$	41,395

36

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 20 — PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CASH FLOWS
Years Ended December 31, 2008, 2007, and 2006

	2008			2007			2006
Cash Flows from Operating Activities:
Net income	$	1,872		$	10,163		$	1,716
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net (income) loss of subsidiaries		95			(10,314	)		(3,099	)
Increase in capital from stock option compensation		82			121			310
Change in other assets		49			(15	)		(11	)
Change in other liabilities		765			(59	)		125
Net cash (used in) operating activities		2,863			(104	)		(959	)
Cash Flows from Financing Activities:
Net increase (decrease) in lines of credit		(1,959	)		—			1,959
Purchase of common stock — oddlot shares		(110	)		—			—
Investments in subsidiaries		(500	)		—			(1,950	)
Net cash (used) provided by financing activities		(2,569	)		—			9
Net increase (decrease) in cash and cash equivalents		294			(104	)		(950	)
Cash and cash equivalents at beginning of period		119			223			1,173
Cash and cash equivalents at end of period	$	413		$	119		$	223

NOTE 21 — SUBSEQUENT EVENTS

Mackinac Financial Corporation filed an application with the Federal Deposit Insurance Corporation (“FDIC”) on November 4, 2008, for participation in the Capital Purchase Program (“CPP”) under the Troubled Asset Relief Program (“TARP”). The FDIC responded and recommended approval for our participation and forwarded our application to the Department of the Treasury (“Treasury”). We received preliminary approval from the Treasury on January 30, 2009 for our maximum requested participation amount of $11.000 million.

Under the CPP, the Corporation will issue previously authorized preferred stock with a 5.00% annual dividend rate to the Treasury. The Corporation will also, as a required part of this transaction, issue 379,093 common stock warrants with an exercise price of $4.35 per share. The preferred stock and common stock warrants will be issued on the expected closing date in May 2009.

The Corporation intends to utilize the proceeds, $11.000 million, to support future growth of the Corporation by generating new loan growth through its principal subsidiary, mBank.

37

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

NOTE 20 — PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CASH FLOWS
Years Ended December 31, 2008, 2007, and 2006

	2008			2007			2006
Cash Flows from Operating Activities:
Net income	$	1,872		$	10,163		$	1,716
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net (income) loss of subsidiaries		95			(10,314	)		(3,099	)
Increase in capital from stock option compensation		82			121			310
Change in other assets		49			(15	)		(11	)
Change in other liabilities		765			(59	)		125
Net cash (used in) operating activities		2,863			(104	)		(959	)
Cash Flows from Financing Activities:
Net increase (decrease) in lines of credit		(1,959	)		—			1,959
Purchase of common stock — oddlot shares		(110	)		—			—
Investments in subsidiaries		(500	)		—			(1,950	)
Net cash (used) provided by financing activities		(2,569	)		—			9
Net increase (decrease) in cash and cash equivalents		294			(104	)		(950	)
Cash and cash equivalents at beginning of period		119			223			1,173
Cash and cash equivalents at end of period	$	413		$	119		$	223

NOTE 21 – SUBSEQUENT EVENTS

Mackinac Financial Corporation filed an application with the Federal Deposit Insurance Corporation (“FDIC”) on November 4, 2008, for participation in the Capital Purchase Program (“CPP”) under the Troubled Asset Relief Program (“TARP”). The FDIC responded and recommended approval for our participation and forwarded our application to the Department of the Treasury (“Treasury”). We received preliminary approval from the Treasury on January 30, 2009 for our maximum requested participation amount of $11.000 million.

Under the CPP, the Corporation will issue previously authorized preferred stock with a 5.00% annual dividend rate to the Treasury. The Corporation will also, as a required part of this transaction, issue 379,093 common stock warrants with an exercise price of $4.35 per share. The preferred stock and common stock warrants will be issued on the expected closing date in May 2009.

The Corporation intends to utilize the proceeds, $11.000 million, to support future growth of the Corporation by generating new loan growth through its principal subsidiary, mBank.

38

Notes to Consolidated Financial Statements

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

SELECTED FINANCIAL DATA
(Unaudited)
(Dollars in Thousands, Except Per Share Data)

	Years Ended December 31
	2008			2007			2006			2005			2004
SELECTED FINANCIAL CONDITION DATA:
Total assets	$	451,431		$	408,880		$	382,791		$	298,722		$	339,497
Loans		370,280			355,079			322,581			239,771			203,832
Securities		47,490			21,597			32,769			34,210			57,075
Deposits		371,097			320,827			312,421			232,632			215,650
Borrowings		36,210			45,949			38,307			36,417			85,039
Total equity		41,552			39,321			28,790			26,588			34,730
SELECTED OPERATIONS DATA:
Interest income	$	24,562		$	28,695		$	24,052		$	16,976		$	18,853
Interest expense		11,698			(15,278	)		(12,459	)		(7,196	)		(10,615	)
Net interest income		12,864			13,417			11,593			9,780			8,238
Provision for loan losses		2,300			400			(861	)		—			—
Net security gains (losses)		64			(1	)		(1	)		95			—
Other income		4,589			2,007			984			1,016			8,542
Other expenses		(12,558	)		(12,100	)		(12,221	)		(18,255	)		(18,228	)
Income (loss) before income taxes		2,659			2,923			1,216			(7,364	)		(1,448	)
Provision (credit) for income taxes		787			(7,240	)		(500	)		—			147
Net income (loss)	$	1,872		$	10,163		$	1,716		$	(7,364	)	$	(1,595	)
PER SHARE DATA:
Earnings (loss) — Basic	$	.55		$	2.96		$	.50		$	(2.15	)	$	(3.23	)
Earnings (loss) — Diluted		.55			2.96			.50			(2.15	)		(3.23	)
Cash dividends declared		—			—			—			—			—
Book value		12.15			11.47			8.40			7.75			10.13
Market value — closing price at year end		4.40			8.98			11.50			9.10			17.97
FINANCIAL RATIOS:
Return on average equity		4.61	%		31.05	%		6.19	%		(25.63)	%		(18.64)	%
Return on average assets		.44			2.59			.49			(2.58	)		(.44	)
Dividend payout ratio		N/A			N/A			N/A			N/A			N/A
Average equity to average assets		9.55			8.34			7.97			10.05			2.34
Efficiency ratio		85.51			79.46			93.95			160.43			103.05
Net interest margin		3.23			3.60			3.51			3.64			2.57

39

Summary Quarterly Financial Information

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

SUMMARY QUARTERLY FINANCIAL INFORMATION
(Unaudited)
(Dollars in Thousands, Except per Share Data)

	FOR THE QUARTER ENDED												FOR THE QUARTER ENDED
	2008												2007
	12/31			9/30			6/30			3/31			12/31			9/30			6/30			3/31
BALANCE SHEET
Total loans	$	370,280		$	361,521		$	362,122		$	360,056		$	355,079		$	344,149		$	338,896		$	318,421
Allowance for loan losses		(4,277	)		(3,385	)		(3,585	)		(3,924	)		(4,146	)		(5,022	)		(4,920	)		(4,975	)
Total loans, net		366,003			358,136			358,537			356,132			350,933			339,127			333,976			313,446
Intangible assets		46			65			85			104			124			143			163			182
Total assets		451,431			440,953			437,327			417,175			408,880			401,213			393,319			375,644
Core deposits		195,165			208,940			200,293			203,445			199,809			218,638			211,773			201,529
Noncore deposits (1)		175,932			151,754			156,683			122,602			121,018			102,733			109,473			102,883
Total deposits		371,097			360,694			356,976			326,047			320,827			321,371			321,246			304,412
Total borrowings		36,210			36,210			36,280			48,849			45,949			38,239			38,307			38,307
Total shareholders’ equity		41,552			41,427			40,975			39,633			39,321			38,697			30,485			29,932
Total shares outstanding		3,419,736			3,419,736			3,419,736			3,428,695			3,428,695			3,428,695			3,428,695			3,428,695
AVERAGE BALANCE SHEET
Total loans	$	366,077		$	358,844		$	362,574		$	357,778		$	350,050		$	340,391		$	324,721		$	318,072
Allowance for loan losses		(3,530	)		(3,500	)		(3,886	)		(4,079	)		(4,719	)		(4,839	)		(4,972	)		(4,999	)
Total loans, net		362,547			355,344			358,688			353,699			345,331			335,552			319,749			313,073
Intangible assets		55			75			94			113			133			152			172			194
Total assets		441,583			423,702			418,246			417,682			406,308			400,105			382,065			380,403
Core deposits		201,159			208,460			201,765			202,841			208,043			217,500			205,818			200,965
Noncore deposits (1)		157,054			132,917			130,960			133,175			116,151			109,793			103,651			108,654
Total deposits		358,213			341,377			332,725			336,016			324,194			327,293			309,469			309,619
Total borrowings		37,969			37,245			42,430			39,382			39,876			38,325			39,209			38,376
Total shareholders’ equity		41,516			41,097			40,399			39,491			38,973			32,184			30,412			29,254
ASSET QUALITY RATIOS
Nonperforming loans/total loans		1.32	%		1.29	%		1.27	%		.94	%		1.13	%		.92	%		1.49	%		1.53	%
Nonperforming assets/total assets		1.57			1.45			1.83			1.08			1.28			.90			1.30			1.33
Allowance for loan losses/total loans		1.16			.94			.99			1.09			1.17			1.46			1.45			1.56
Allowance for loan losses/nonperforming loans		87.52			72.81			77.22			116.06			103.42			158.32			97.45			102.32
Net charge-offs/average loans		.01			.18			.30			.06			.25			.09			.02			.01
CAPITAL ADEQUACY RATIOS
Tier 1 leverage ratio		8.01	%		8.31	%		8.56	%		7.85	%		8.05	%		8.03	%		7.97	%		7.85	%
Tier 1 capital to risk weighted assets		9.25			9.40			9.48			8.84			8.97			9.03			8.85			9.16
Total capital to risk weighted assets		10.38			10.31			10.45			9.92			10.13			10.28			10.10			10.41
Average equity/average assets		9.40			9.70			9.66			9.45			9.59			8.04			7.96			7.69
Tangible equity/tangible assets		9.20			9.38			9.35			9.48			9.59			9.61			7.71			7.92

⁽¹⁾ Noncore deposits include brokered deposits and CDs greater than $100,000

40

Summary Quarterly Financial Information

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

SUMMARY QUARTERLY FINANCIAL INFORMATION
(Unaudited)
(Dollars in Thousands, Except per Share Data)

	FOR THE QUARTER ENDED 2008												FOR THE QUARTER ENDED 2007
	12/31			9/30			6/30			3/31			12/31			9/30			6/30			3/31
INCOME STATEMENT
Net interest income	$	3,330		$	3,371		$	3,118		$	3,045		$	3,410		$	3,560		$	3,269		$	3,178
Provision for loan losses		1,100			450			750			—			—			400			—			—
Net interest income after provision		2,230			2,921			2,368			3,045			3,410			3,160			3,269			3,178
Total noninterest income		308			288			3,747			310			355			396			342			913
Total noninterest expense		2,961			2,935			3,471			3,191			2,978			3,001			3,065			3,056
Income before taxes		(423	)		274			2,644			164			787			555			546			1,035
Provision for income taxes		(171	)		58			875			25			260			(7,500	)		—			—
Net income	$	(252	)	$	216		$	1,769		$	139		$	527		$	8,055		$	546		$	1,035
PER SHARE DATA
Earnings per share — basic	$	(.07	)	$	.06		$	.52		$	.04		$	.15		$	2.35		$	.16		$	.30
Earnings per share — diluted		(.07	)		.06			.52			.04			.15			2.35			.16			.30
Book value per share		12.15			12.11			11.98			11.56			11.47			11.29			8.89			8.73
Market value per share		4.40			5.26			7.00			8.50			8.98			8.75			9.45			9.26
PROFITABILITY RATIOS
Return on average assets		(.23)	%		.20	%		1.70	%		.13	%		.51	%		7.99	%		.57	%		1.10	%
Return on average equity		(2.42	)		2.08			17.62			1.42			5.36			99.30			7.20			14.35
Net interest margin		3.20			3.39			3.19			3.13			3.55			3.71			3.60			3.55
Efficiency ratio		80.30			79.12			88.45			95.34			78.02			74.71			83.18			82.39
Average loans/average deposits		102.20			105.12			108.97			106.48			107.98			104.00			104.93			102.73

41

Market Information

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

MARKET INFORMATION
(Unaudited)

During 2001, the Corporation’s stock began trading on the NASDAQ Small Cap Market; effective on August 31, 2001, the Corporation changed its trading symbol from “NCUF” to “NCFC.” As part of the recapitalization, the Corporation changed its name from North Country Financial Corporation to Mackinac Financial Corporation and changed its trading symbol from “NCFC” to “MFNC”.

The following table sets forth the range of high and low bid prices of the Corporation’s common stock from January 1, 2007 through December 31, 2008, as reported by NASDAQ. Quotations for the NASDAQ Small Cap Market reflect inter-dealer prices, without retail mark-up, markdown, or commission, and may not reflect actual transactions.

	For the Quarter Ended
	March 31		June 30		September 30		December 31
2008
High	$	9.24	$	8.50	$	8.00	$	5.95
Low		7.55		7.00		3.00		3.75
Close		8.50		7.00		5.26		4.40
Book value, at quarter end		11.56		11.98		12.11		12.15
2007
High	$	11.50	$	10.02	$	9.70	$	9.70
Low		9.25		9.00		7.75		7.65
Close		9.26		9.45		8.75		8.98
Book value, at quarter end		8.73		8.89		11.29		11.47

The Corporation had 1,345 shareholders of record as of March 30, 2009.

42

Shareholder Return Performance Graph

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

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, 2008. The following information is based on an investment of $100, on December 31, 2003 in the Corporation’s common stock, the NASDAQ Bank Stocks Index, and the NASDAQ Market Index, with dividends reinvested. From August 31, 2001 to December 15, 2004, the Corporation’s common stock traded on the NASDAQ Small Cap 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”.

This graph and other information furnished in the section titled “Performance Graph” under this Part II, Item 5 of this Form 10-K shall not be deemed to be “soliciting” materials or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended.

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG MACKINAC FINANCIAL CORP.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX

ASSUMES $100 INVESTED ON DEC. 31, 2003
ASSUMES DIVIDEND PAYMENTS REINVESTED
FISCAL YEARS ENDING DEC. 31, 2008

43

Forword-Looking Statements

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

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

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

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

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

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

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

• The ability of borrowers to repay loans;

• The effects on liquidity of unusual decreases in deposits;

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

• Technological changes;

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

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

• The Corporation’s ability to increase market share and control expenses;

• The effect of compliance with legislation or regulatory changes;

• The effect of changes in accounting policies and practices;

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

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

44

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

The following discussion will cover results of operations for 2006 through 2008 and asset quality, financial position, liquidity, interest rate sensitivity, and capital resources for the years 2007 and 2008. The information included in this discussion is intended to assist readers in their analysis of, and should be read in conjunction with, the consolidated financial statements and related notes and other supplemental information presented elsewhere in this report. Throughout this discussion, the term “Bank” refers to mBank, the principal banking subsidiary of the Corporation.

EXECUTIVE OVERVIEW

The purpose of this section is to provide a brief overview of the 2008 results of operations. Additional detail of the balance sheet and Statement of Operations follows this summary.

The Corporation reported net income of $1.872 million, or $.55 per share for the year ended December 31, 2008, compared to net income of $10.163 million, or $2.96 per share for 2007. Weighted average shares outstanding amounted to 3,422,012 in 2008 and 3,428,695 in 2007.

The 2008 results include the positive effect, $3.475 million of a lawsuit settlement and the negative effect from a $.425 million severance agreement. The results for 2007 include the recognition of a $7.500 million deferred tax benefit for NOL and tax credit carryforwards and $.470 million of proceeds from the settlement of a lawsuit against the Corporation’s former accountants.

Excluding these items in both years would have resulted in net loss of $.141 million, or less than $.01 per share, in 2008 versus $2.353 million, or $.69 per share, in 2007.

Total assets of the Corporation at December 31, 2008, were $451.431 million, an increase of $42.551 million, or 10.41% from total assets of $408.880 million reported at December 31, 2007.

At December 31, 2008, the Corporation’s loans stood at $370.280 million, an increase of $15.201 million, or 4.28%, from 2007 year-end balances of $355.079 million. Total loan originations in 2008 amounted to $61.597 million, while we experienced significant reductions from loan amortization and principal payoffs of $51.224 million. A good portion of these payoffs pertained to loan relationships that no longer met our pricing or credit standards.

Asset quality remains relatively strong. Nonperforming loans totaled $4.887 million, or 1.32% of total loans at December 31, 2008. Nonperforming assets at December 31, 2008, were $7.076 million, 1.57% of total assets, compared to $5.234 million or 1.28% of total assets at December 31, 2007.

Total deposits grew from $320.827 million at December 31, 2007, to $371.097 million at December 31, 2008, an increase of 15.67%.

Shareholders’ equity totaled $41.552 million at December 31, 2008, compared to $39.321 million at the end of 2007, an increase of $2.231 million. This increase reflects consolidated net income of $1.872 million, the capital contribution impact of stock options and also the increase in equity due to the increase in the market value of available-for-sale investments, which amounted to $.385 million. The book value per share at December 31, 2008, amounted to $12.15 compared to $11.47 at the end of 2007.

45

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

FINANCIAL POSITION

Loans

In 2008, the Corporation increased loan balances by $15.201 million, or 4.28%, from 2007 year-end loan balances of $355.079 million. The loan growth in 2008 compares to loan growth in 2007 of $32.498 million, or 10.07% from 2006 year-end loan balances of $322.581 million. The loan growth in 2008 and 2007 was accomplished despite high loan payoffs of existing portfolio loans of $51.2 million in 2008 and $37.8 million in 2007.

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

Loans represented 82.0% of total assets at the end of 2008 compared to 86.8% at the end of 2007. The loan to deposit ratio, at 99.8%, is higher than a peer average of approximately 89.4% due in part to the Bank’s utilization of Federal Home Loan Bank long-term borrowings as a funding source.

Following is a summary of the Corporation’s loan balances at December 31 (dollars in thousands):

							Percent Change
	2008		2007		2006		2008-2007			2007-2006
Commercial real estate	$	185,241	$	171,695	$	154,332		7.89	%		11.25	%
Commercial, financial, and agricultural		79,734		78,192		71,385		1.97			9.54
One-to-four family residential real estate		65,595		57,613		58,014		13.85			(.69	)
Construction		35,965		44,042		36,009		(18.34	)		22.31
Consumer		3,745		3,537		2,841		5.88			24.50
Total	$	370,280	$	355,079	$	322,581		4.28	%		10.07	%

The above table more clearly illustrates the growth of the loan portfolio from 2006 through 2008 year end. The Corporation continues to feel that a properly positioned loan portfolio is the most attractive earning asset available. The Corporation is highly competitive in structuring loans to meet borrowing needs and meet strong underwriting requirements.

Looking forward, based upon the current economic outlook for the Michigan economy, management believes there will be limited opportunity for loan growth in the near term. The Corporation will continue to use a demanding pricing model for all new credit opportunities and existing loan renewals.

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

	2008								2007								2006
			% of			% of					% of			% of					% of			% of
	Balance		Loans			Capital			Balance		Loans			Capital			Balance		Loans			Capital
Real estate — operators of nonres bldgs	$	41,299		13.95	%		99.39	%	$	41,597		14.40	%		105.79	%	$	44,308		19.63	%		153.90	%
Hospitality and tourism		35,086		11.85			84.44			37,604		13.02			95.63			30,826		13.66			107.07
Real estate agents and managers		29,292		9.89			70.50			29,571		10.24			75.20			25,071		11.11			87.08
Other		190,411		64.31			458.25			180,067		62.34			457.94			125,512		55.60			435.96
Total	$	296,088		100.00	%				$	288,839		100.00	%				$	225,717		100.00	%

Management recognizes the additional risk presented by the concentration in certain segments of the portfolio. On a historical basis, the Corporation’s highest concentration of credit risk was the hospitality and tourism industry. Management does not consider the current loan concentrations in hospitality and tourism to be problematic, and has no intention of further reducing loans to this industry segment. Management does not believe that its current portfolio

46

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

composition has increased exposure related to any specific industry concentration as of 2008 year-end. The current concentration of real estate related loans represents a broad customer base composed of a high percentage of owner-occupied developments.

The Corporation has also extended credit to governmental units, including Native American organizations. Tax-exempt loans and leases decreased from $6.622 million at the end of 2007 to $5.589 million at 2008 year-end. The Corporation has elected to reduce its tax-exempt portfolio, since it provides no current tax benefit, due to tax net operating loss carryforwards.

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

Credit Quality

The table below shows balances of nonperforming assets for the three years ended December 31 (dollars in thousands):

	2008			2007			2006
Nonperforming Assets:
Nonaccrual loans	$	4,887		$	3,298		$	2,899
Accruing loans past due 90 days or more		—			710			40
Total nonperforming loans	$	4,887			4,008			2,939
Other real estate owned		2,189			1,226			26
Total nonperforming assets	$	7,076		$	5,234		$	2,965
Nonperforming loans as a % of loans		1.32	%		1.13	%		.91	%
Nonperforming assets as a % of assets		1.57	%		1.28	%		.77	%
Reserve for Loan Losses:
At period end	$	4,277		$	4,146		$	5,006
As a % of loans		1.16	%		1.17	%		1.55	%
As a % of nonperforming loans		87.52	%		103.44	%		170.33	%
As a % of nonaccrual loans		87.52	%		125.71	%		172.68	%

Management continues to address market issues impacting its loan customer base. In conjunction with the Corporation’s senior lending staff and the bank regulatory examinations, management reviews the Corporation’s loans, related collateral evaluations, and the overall lending process. The Corporation also utilizes a loan review consultant to perform a review of the loan portfolio. The opinion of this consultant upon completion of the 2008 independent review provided findings similar to management on the overall adequacy of the reserve. The Corporation will utilize this same consultant for loan review in 2009.

The following table details the impact of nonperforming loans on interest income for the three years ended December 31 (dollars in thousands):

	2008		2007		2006
Interest income that would have been recorded at original rate	$	377	$	391	$	114
Interest income that was actually recorded		60		129		7
Net interest lost	$	317	$	262	$	107

47

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

The following table will provide additional information with respect to our nonperforming assets as of December 31, 2008 (dollars in thousands):

			Estimated							Estimated
			Liquidation		(Deficiency)/			Reserve		Net Surplus/
Collateral Type	Balance		Value		Surplus			Allocation		(Exposure)
	(a)		(b)		( c) = (b) - (a)			(d)		(e) = ( c) + (d)
Nonaccrual Loans
Land development	$	2,755	$	2,134	$	(621	)	$	620	$	(1	)
Non-farm / non-residential		1,210		1,094		(116	)		150		34
Cabins / land		422		422		—			—		—
Conv 5+ residential properties		296		72		(224	)		220		(4	)
Land		105		182		77			—		77
1-4 family		85		81		(4	)		4		—
Business equipment		14		—		(14	)		—		(14	)
Total nonaccrual loans		4,887		3,985		(902	)		994		92
Other Real Estate
Land development / condo		1,061		750		(311	)		350		39
Land development		510		511		1			—		1
1-4 family		378		370		(8	)		20		12
Non-farm / non-residential		163		121		(42	)		40		(2	)
Downtown store frontage / 2 / 1-4 family		77		77		—			—		—
Total other real estate owned		2,189		1,829		(360	)		410		50
TOTAL NONPERFORMING ASSETS	$	7,076	$	5,814	$	(1,262	)	$	1,404	$	142

The schedule above shows the detail of nonperforming assets categorized by type of loan/collateral. In determining estimated liquidation value, management considered existing appraisals, the date of the appraisals, and current market conditions, along with related selling costs. Personal guarantees are also in place for various nonperforming assets, which will also help mitigate losses.

Allowance for Loan Losses

Management analyzes the allowance for loan losses on a quarterly basis to determine whether the losses inherent in the portfolio are properly reserved for. Net charge-offs in 2008 amounted to $2.169 million, or .60% of average loans outstanding, compared to $1.260 million, or .38% of loans outstanding in 2007. The 2008 charge-offs reflect the writedown of four commercial loans, totaling $.994 million, which were reserved for in prior periods. The current reserve balance is representative of the relevant risk inherent within the Corporation’s loan portfolio. Additions or reductions to the reserve in future periods will be dependent upon a combination of future loan growth, nonperforming loan balances and charge-off activity.

48

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

A three year history of the Corporation’s credit quality is demonstrated in the following table (dollars in thousands):

	2008			2007			2006
Allowance for Loan Losses
Balance at beginning of period	$	4,146		$	5,006		$	6,108
Loans charged off:
Commercial, financial & agricultural		2,062			1,148			199
One-to-four family residential real estate		157			89			88
Consumer		71			73			45
Total loans charged off		2,290			1,310			332
Recoveries of loans previously charged off:
Commercial, financial & agicultural		114			15			53
One-to-four family residential real estate		—			—			13
Consumer		7			35			25
Total recoveries of loans previously charged off		121			50			91
Net loans charged off		2,169			1,260			241
Provision for loan losses		2,300			400			(861	)
Balance at end of period	$	4,277		$	4,146		$	5,006
Total loans, period end		370,280		$	355,079		$	322,581
Average loans for the year		361,324			333,415			278,953
Allowance to total loans at end of year		1.16	%		1.17	%		1.55	%
Net charge-offs to average loans		.60			.38			.08
Net charge-offs to beginning allowance balance		52.32			25.17			3.95

The computation of the required allowance for loan losses as of any point in time is one of the critical accounting estimates made by management in the financial statements. As such, factors used to establish the allowance could change significantly from the assumptions made and impact future earnings positively or negatively. The future of the national and local economies and the resulting impact on borrowers’ ability to repay their loans and the value of collateral are examples of areas where assumptions must be made for individual loans, as well as the overall portfolio.

The Corporation’s computation of the allowance for loan losses follows the Interagency Policy Statement on Allowance for Loan and Lease Losses Methodologies and Documentation for Banks and Savings Associations issued by the Federal Financial Institutions Examination Council (FFIEC) in July 2001. The computation of the allowance for loan losses considers prevailing local and national economic conditions as well as past and present underwriting practices.

As part of the management of the loan portfolio, risk ratings are assigned to all commercial loans. Through the loan review process, ratings are modified as believed to be appropriate to reflect changes in the credit. Using a historical average loss by loan type as a base, each loan graded as higher risk is assigned a specific percentage. Within the commercial loan portfolio, the historical loss rates are used for specific industries such as hospitality, gaming, petroleum, and forestry. The residential real estate and consumer loan portfolios are assigned a loss percentage as a homogenous group. If, however, on an individual loan the projected loss based on collateral value and payment histories are in excess of the computed allowance, the allocation is increased for the higher anticipated loss. These computations provide the basis for the allowance for loan losses as recorded by the Corporation.

49

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Following is a table showing the specific loan allocation of the allowance for loan losses at December 31, 2008 (dollars in thousands):

Commercial, financial and agricultural loans	$	3,819
One-to-four family residential real estate loans		27
Consumer loans		40
Unallocated and general reserves		391
Total	$	4,277

At the end of 2008, the allowance for loan losses represented 1.16% of total loans. In management’s opinion, the allowance for loan losses is adequate to cover probable losses related to specifically identified loans, as well as probable losses inherent in the balance of the loan portfolio.

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

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

Balance at January 1, 2007	$	26
Other real estate transferred from loans due to foreclosure		1,218
Other real estate transferred to premises and equipment		—
Other real estate sold / written down		(18	)
Balance at December 31, 2007		1,226
Other real estate transferred from loans due to foreclosure		2,849
Other real estate transferred to premises and equipment		—
Other real estate sold / written down		(1,886	)
Balance at December 31, 2008	$	2,189

During 2008, the Corporation received real estate in lieu of loan payments of $2.849 million. Other real estate is initially valued at the lower of cost or the fair value less selling costs. After the initial receipt, management periodically re-evaluates the recorded balance and any additional reductions in the fair value result in a write-down of other real estate.

Securities

The securities portfolio is an important component of the Corporation’s asset composition to provide diversity in its asset base and provide liquidity. Securities increased $25.893 million in 2008, from $21.597 million at December 31, 2007 to $47.490 million at December 31, 2008.

The carrying value of the Corporation’s securities is as follows at December 31 (dollars in thousands):

	2008		2007
US Agencies - MBS	$	46,941	$	—
US Agencies		—		20,969
Obligations of states and political subdivisions		549		628
Total securities	$	47,490	$	21,597

50

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

The Corporation’s policy is to purchase securities of high credit quality, consistent with its asset/liability management strategies. A net gain of $64,000 on the sale of securities was recognized in 2008. The Corporation recorded $1,000 of net losses related to securities transactions in 2007 and 2006.

In the second half of 2008, investment securities were increased in order to address overall market liquidity concerns. This increase provided the Bank with significant short-term liquidity. All of the bank’s current investments are highly marketable investments guaranteed by the U.S. government. The Corporation classifies all securities as available for sale, in order to maintain adequate liquidity and to maximize its ability to react to changing market conditions. At December 31, 2008, investment securities with an estimated fair market value of $20.182 million were pledged.

Deposits

Total deposits at December 31, 2008 were $370.197 million, an increase of $50.270 million, or 15.67% from December 31, 2007 deposits of $320.827 million. The table below shows the deposit mix for the periods indicated (dollars in thousands):

	2008		Mix			2007		Mix			2006		Mix
Non-interest-bearing	$	30,099		8.11	%	$	25,557		7.97	%	$	23,471		7.51	%
NOW, money market, checking		70,584		19.02			81,160		25.30			73,188		23.43
Savings		20,730		5.59			12,485		3.89			13,365		4.28
Certificates of Deposit <$100,000		73,752		19.87			80,607		25.12			89,585		28.67
Total core deposits		195,165		52.59			199,809		62.28			199,609		63.89
Certificates of Deposit >$100,000		25,044		6.75			22,355		6.97			23,645		7.57
Brokered CDs		150,888		40.66			98,663		30.75			89,167		28.54
Total non-core deposits		175,932		47.41			121,018		37.72			112,812		36.11
Total deposits	$	371,097		100.00	%	$	320,827		100.00	%	$	312,421		100.00	%

The increase in deposits, as illustrated above, is composed of an increase in wholesale brokered deposits of $52.225 million and a decrease in bank deposits of $1.955 million. The additional wholesale brokered deposits were in part utilized to enhance balance sheet liquidity, as rates on these deposits were priced lower than in-market deposits.

Although the Corporation has been successful in growing core deposits, the high level of funding required by loan growth has resulted in increased reliance upon brokered deposits. As of December 31, 2008, non-core deposits amounted to 47.41% of total deposits, an increase from 37.72% at 2007 year-end. A portion, approximately $25.000 million, of the increase in brokered deposits was used to augment liquidity through the purchase of investment securities. The Bank had $150.888 million in brokered deposits at December 31, 2008, 40.66% of total deposits. Non-core funding has a negative effect on the Corporation’s net interest margin, as non-core out-of-market deposits carry higher interest costs.

In 2007, the Corporation increased its reliance on non-core funding due in part to the sale of a branch office in the northwest part of the Upper Peninsula of Michigan with $9.3 million of deposits. The sale of this branch office was in accordance with the overall strategy of the Corporation to focus on markets with higher growth potential.

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

Borrowings

The Corporation historically used alternative funding sources to provide long-term, stable sources of funds. Current borrowings total $35.000 million with stated maturities ranging through 2011. Borrowings at year end include $20.000 million with adjustable rates that reprice quarterly based upon the three month LIBOR. The FHLB has the option to convert the remaining $15.000 million fixed-rate advances to adjustable rate advances on the original call date and quarterly thereafter.

51

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Shareholders’ Equity

Changes in shareholders’ equity are discussed in detail in the “Capital and Regulatory” section of this report.

RESULTS OF OPERATIONS

Summary

The Corporation reported income of $1.872 million in 2008, compared to net income of $10.163 million in 2007 and a net income of $1.716 million in 2006. As previously mentioned, the 2008 operating results include the positive effect, $3.475 million of a lawsuit settlement, and the negative effect, $.425 million of a severance agreement. The 2007 results of operations include the $7.500 million recognition of a deferred tax benefit pertaining to NOL and tax credit carryforwards. Also included in the 2007 results is $.470 million from the settlement of the lawsuit against the Corporation’s former accountants. The 2006 operations include a $.600 million negative provision recorded in the first quarter, in recognition of improved credit quality, a $.261 million negative provision recorded in the fourth quarter to recognize a specific reserve reduction on a loan payoff, and a $.500 million deferred tax benefit recorded in the third quarter. The deferred tax benefit was recorded in accordance with generally accepted accounting principles for recognition of a portion of the benefits to be derived from NOL carry-forwards. The 2006 results also include $.310 million of stock option expense required under accounting rules for stock compensation plans, which were effective beginning in 2006, as well as $.550 million of expenses incurred to pursue legal action against the Corporation’s former accountants.

The following table details changes in earnings and earnings per share for the three years ended December 31 (dollars in thousands, except for per share data):

	Income/Expense								Change
	2008		2007			2006			2008-2007						2007-2006
	Dollars		Dollars			Dollars			Dollars			Per Share			Dollars			Per Share
Interest Income	$	24,562	$	28,695		$	24,052		$	(4,133	)		(1.21	)	$	4,643		$	1.35
Interest Expense		11,698		15,278			12,459			(3,580	)		(1.05	)		2,819			.82
Net Interest Income		12,864		13,417			11,593			(553	)		(.16	)		1,824			.53
Provision for loan losses		2,300		400			(861	)		1,900			.56			1,261			.37
Net interest income after provision		10,564		13,017			12,454			(2,453	)		(.72	)		563			.16
Noninterest Income:
Service fees		838		688			547			150			.04			141			.04
Net gains on sale of secondary market loans		120		498			197			(378	)		(.11	)		301			.09
Proceeds from settlement of lawsuit		3,475		470			—			3,005			.88			470			.14
Other		220		350			239			(130	)		(.04	)		111			.03
Total noninterest income		4,653		2,006			983			2,647			.77			1,023			.30
Noninterest Expense:
Salaries and employee benefits		6,886		6,757			6,132			129			.04			625			.18
Occupancy		1,374		1,272			1,264			102			.03			8			—
Furniture and equipment		771		678			631			93			.03			47			.01
Data processing		844		785			691			59			.02			94			.03
Professional services:
Accounting		254		308			273			(54	)		(.02	)		35			.01
Legal		41		42			927			(1	)		—			(885	)		(.26	)
Consulting and other		213		182			225			31			.01			(43	)		(.01	)
Loan and deposit		569		285			392			284			.08			(107	)		(.03	)
Telephone		170		228			210			(58	)		(.02	)		18			.01
Advertising		305		370			346			(65	)		(.02	)		24			.01
Other		1,131		1,193			1,130			(62	)		(.02	)		63			.02
Total noninterest expense		12,558		12,100			12,221			458			.13			(121	)		(.03	)
Income (loss) before provision for income taxes		2,659		2,923			1,216			(264	)		(.08	)		1,707			.49
Provision (credit) for income taxes		787		(7,240	)		(500	)		8,027			2.34			(6,740	)		(1.97	)
Net Change		1,872		10,163			1,716			(8,291	)		(2.42	)		8,447			2.46
Net Income (loss), current period	$	1,872	$	10,163		$	1,716		$	(8,291	)	$	(2.42	)	$	8,447		$	2.46

52

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Net Interest Income

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

Net interest income decreased $.553 million to $12.864 million, in 2008. The decrease in net interest income for 2008 was primarily the result of prime rate reductions that have translated into lower yields on the Corporation’s earning assets, specifically variable rate commercial loans and short-term investments which reprice immediately. Offering rates on brokered certificates of deposit are influenced by other factors, such as overall market liquidity. During most of 2008, rates on brokered deposits were high due to overall liquidity issues prevalent in the financial markets. In recent months, rates on brokered deposits have decreased significantly. Throughout 2008, as interest rates continued to decline and economic conditions deteriorated, management evaluated new and existing credit relationships to ensure proper pricing. Floors were established on the majority of new loans and renewals to mitigate interest rate risk going forward.

In 2007, net interest income increased $1.824 million, from $11.593 million in 2006. The increase in net interest income for 2007 was primarily the result of the successful expansion of the Corporation’s loan portfolio. The Corporation also benefited from increasing interest rates during this same period since a large portion of the Bank’s loan portfolio repriced immediately with each increase in the prime rate while the liability repricing lagged.

The Corporation’s net interest margin, on a fully taxable equivalent basis, was 3.28% in 2008 compared to 3.68% in 2007. During 2008, the prime rate decreased from 7.25% to 3.25%, which created significant margin pressure since a majority of the commercial loan portfolio repriced downward with each prime rate change, and the majority of the bank’s funding sources had significant lag time in repricing. We experienced additional margin pressure due to our brokered deposits, which did not reprice in line with prime rate reduction, due to the overall market liquidity crisis. Management remains diligent in its efforts to reduce margin pressure in this decreasing rate environment.

The following table details sources of net interest income for the three years ended December 31, 2008 (dollars in thousands):

	2008			Mix			2007			Mix			2006			Mix
Interest Income
Loans	$	22,959			93.47	%	$	26,873			93.65	%	$	21,992			91.44	%
Funds sold		96			.39			391			1.36			554			2.30
Taxable securities		1,293			5.27			1,100			3.83			1,186			4.93
Nontaxable securities		5			.02			—			—			87			.36
Other interest-earning assets		209			.85			331			1.16			233			.97
Total earning assets		24,562			100.00	%		28,695			100.00	%		24,052			100.00	%
Interest Expense
NOW, money markets, checking		1,284			10.98	%		2,668			17.46	%		2,263			18.16	%
Savings		193			1.66			199			1.30			210			1.69
CDs <$100,000		3,181			27.19			4,490			29.39			3,595			28.85
CDs >$100,000		1,037			8.86			1,183			7.74			846			6.79
Brokered deposits		4,420			37.78			4,684			30.66			3,661			29.39
Borrowings		1,583			13.53			2,054			13.45			1,884			15.12
Total interest-bearing funds		11,698			100.00	%		15,278			100.00	%		12,459			100.00	%
Net interest income	$	12,864					$	13,417					$	11,593
Average Rates
Earning assets		6.16	%					7.71	%					7.28	%
Interest-bearing funds		3.32						4.62						4.21
Interest rate spread		2.84						3.09						3.07

53

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

While a majority of the Corporation’s loan portfolio, approximately 65%, is repriced with each prime rate change due to floating rate loans, interest paid on similar rate changes does not impact the pricing of interest-bearing liabilities to nearly the same degree. The mix of time deposits reflects the Corporation’s need to utilize the brokered certificate of deposit markets for loan funding when core deposits did not provide adequate sources. The Corporation’s historical reliance on out-of-market non-core funding from brokered deposits along with the FHLB borrowings, have had a negative effect on net interest margin due to the relative high costs of this funding. The Corporation has placed a high priority on gathering in-market core deposits in order to reduce funding costs and reduce the risk associated with non-core funding.

Recent prime rate reductions have translated into lower yields on the Corporation’s earning assets, specifically variable rate commercial loans and short-term investments which reprice immediately. Offering rates on brokered certificates of deposit are influenced by other factors, such as overall market liquidity. Reliance upon wholesale funding and further rate reductions in the near term will unfavorably impact the net interest margin of the Corporation.

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

	Years ended December 31,
	2008								2007								2006
	Average					Average			Average					Average			Average					Average
(dollars in thousands)	Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate
ASSETS:
Loans (1,2,3)	$	361,324		$	23,166		6.41	%	$	333,415		$	27,146		8.14	%	$	278,953		$	22,380		8.02	%
Taxable securities		28,766			1,293		4.49			25,061			1,100		4.39			32,795			1,186		3.62
Nontaxable securities (2)		69			8		11.59			5			—		—			1,658			132		7.96
Federal Funds sold		4,101			96		2.34			7,515			391		5.20			11,123			554		4.98
Other interest-earning assets		4,318			209		4.84			6,358			332		5.22			5,885			233		3.96
Total earning assets		398,578			24,772		6.22			372,354			28,969		7.78			330,414			24,485		7.41
Reserve for loan losses		(3,747	)							(4,881	)							(5,495	)
Cash and due from banks		6,901								6,266								5,775
Fixed assets		11,453								12,276								12,375
Other assets		12,158								6,298								4,858
		26,765								19,959								17,513
TOTAL ASSETS	$	425,343							$	392,313							$	347,927
LIABILITIES AND SHAREHOLDERS’ EQUITY:
NOW and Money Markets	$	77,997		$	1,245		1.60	%	$	77,942		$	2,669		3.42	%	$	70,417		$	2,263		3.21	%
Interest checking		1,501			39		2.60			—			—		—			—			—		—
Savings deposits		15,963			193		1.21			13,013			199		1.53			14,412			210		1.46
CDs <$100,000		78,755			3,181		4.04			91,313			4,490		4.92			82,445			3,595		4.36
CDs >$100,000		27,079			1,037		3.83			23,879			1,183		4.96			18,128			846		4.67
Brokered deposits		111,482			4,420		3.90			85,703			4,683		5.46			72,768			3,661		5.03
Borrowings		39,248			1,583		4.03			38,949			2,054		5.27			37,422			1,884		5.03
Total interest-bearing liabilities		352,025			11,698		3.32	%		330,799			15,278		4.62			295,592			12,459		4.21
Demand deposits		29,348								25,860								21,414
Other liabilities		3,340								2,923								3,177
Shareholders’ equity		40,630								32,731								27,744
		73,318								61,514								52,335
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	425,343							$	392,313							$	347,927
Rate spread															3.16	%							3.20	%
Net interest margin/revenue, tax equivalent basis				$	13,074		3.28	%				$	13,691		3.68	%				$	12,026		3.64	%

(1)	For purposes of these computations, non-accruing loans are included in the daily average loan amounts outstanding.
(2)	The amount of interest income on nontaxable securities and loans has been adjusted to a tax equivalent basis, using a 34% tax rate.
(3)	Interest income on loans includes loan fees.

54

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

The following table presents the dollar amount, in thousands, of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing obligations. It distinguishes between changes related to higher or lower outstanding balances and changes due to the levels and fluctuations in interest rates. For each category of interest-earning assets and interest-bearing obligations, information is provided for changes attributable to (i) changes in volume (i.e. changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume are shown as a separate variance.

	Years ended December 31,
	2008						vs.			2007				2007						vs.			2006
	Increase (Decrease)													Increase (Decrease)
	Due to										Total			Due to										Total
								Volume			Increase										Volume			Increase
	Volume			Rate				and Rate			(Decrease)			Volume			Rate				and Rate			(Decrease)
Interest earning assets:
Loans	$	2,271		$	(5,768	)		$	(483	)	$	(3,980	)	$	4,369		$	332			$	65		$	4,766
Taxable securities		163			26				4			193			(279	)		253				(60	)		(86	)
Nontaxable securities		—			1				7			8			(132	)		(132	)			132			(132	)
Federal funds sold		(178	)		(215	)			98			(295	)		(180	)		25				(8	)		(163	)
Other interest earning assets		(107	)		(24	)			8			(123	)		19			74				6			99
Total interest earning assets	$	2,149		$	(5,980	)		$	(366	)	$	(4,197	)	$	3,797		$	552			$	135		$	4,484
Interest bearing obligations
NOW and money market deposits	$	2		$	(1,425	)		$	(1	)	$	(1,424	)	$	242		$	148			$	16		$	406
Interest checking		—			—				39			39			—			—				—			—
Savings deposits		45			(42	)			(9	)		(6	)		(20	)		10				(1	)		(11	)
CDs <$100,000		(617	)		(802	)			110			(1,309	)		387			459				49			895
CDs >$100,000		159			(269	)			(36	)		(146	)		268			52				17			337
Brokered deposits		1,409			(1,285	)			(387	)		(263	)		650			316				56			1,022
Borrowings		16			(483	)			(4	)		(471	)		77			89				4			170
Total interest bearing obligations	$	1,014		$	(4,306	)		$	(288	)	$	(3,580	)	$	1,604		$	1,074			$	141		$	2,819
Net Interest Income											$	(617	)											$	1,665

Provision for Loan Losses

The Corporation records a provision for loan losses when it believes it is necessary to adjust the allowance for loan losses to maintain an adequate level after considering factors such as loan charge-offs and recoveries, changes in identified levels of risk in the loan portfolio, changes in the mix of loans in the portfolio, loan growth, and other economic factors. During 2008, the Corporation recorded a provision for loan loss of $2.300 million. In the third quarter of 2007, the Corporation recorded a $.400 million provision in order to provide for the potential loss related to a commercial loan. In 2006, a negative loan loss provision of $.860 million was recorded. This negative provision was recorded due in part to recognize the overall reduction in loan portfolio risk and also as a direct result of a specific reserve reduction from a payoff of a problem loan.

Noninterest Income

Noninterest income was $4.653 million, $2.006 million, and $.983 million in 2008, 2007, and 2006, respectively. The principal recurring sources of noninterest income are fees for services related to deposit and loan accounts. In 2008, the Corporation recorded the benefit of proceeds received, $3.475 million, from the settlement of a lawsuit. In 2007, the Corporation recognized $.470 million of income from the settlement of a lawsuit against its former accountants. Service fees were $.838 million in 2008, while other noninterest income was $.156 million.

Revenue due to loans produced and sold in the secondary market amounted to $.120 million compared to $.498 million a year ago. Poor overall market conditions, caused by a declining economy and a housing slump, limited any ability to expand our revenues from secondary mortgage loan activity during 2008. We do anticipate increased fee income in future periods as the housing market improves and home buyers look to more traditional lenders for their borrowing needs. We did realize increased income from service fees related to our deposit products. Management initiated several changes in fees associated with various deposit products, to better align services and costs.

55

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

The following table details noninterest income for the three years ended December 31 (dollars in thousands):

									% Increase (Decrease)
	2008		2007			2006			2008-2007			2007-2006
Service fees	$	838	$	688		$	547			21.80	%		25.78	%
Net gains on loan sales		120		498			197			(75.90	)		152.79
Proceeds from settlement of lawsuit		3,475		470			—			639.36			N/A
Other		156		351			240			(55.56	)		46.25
Subtotal		4,589		2,007			984			128.65			103.96
Net security gains		64		(1	)		(1	)		N/A			—
Total noninterest income	$	4,653	$	2,006		$	983			131.95	%		104.07	%

Noninterest Expense

Noninterest expense was $12.558 million in 2008, compared to $12.100 million and $12.221 million in 2007 and 2006, respectively. Salaries and employee benefits increased in 2008 by $.129 million to $6.886 million, compared to 2007 expense of $6.757 million. During 2008, the Corporation recorded a $.425 million expense related to a severance payment. Excluding this item, the Corporation had a reduction in salaries and employee benefits of $.296 million from 2007.

Data processing expense increased from $.785 million in 2007 to $.844 million in 2008, largely as a result of increased services and volume. Professional fees decreased from $.532 million in 2007 to $.508 million in 2008. This decrease is a result of the settlement of a longstanding derivative shareholder lawsuit which resulted in $3.475 million in settlement fees recorded to income, as well as the dismissal of unpaid legal fees totaling $95,000 related to the defense of prior directors of the Corporation. This dismissal resulted in the reversal of the accrual for these fees.

Telephone expenses of $.170 million are lower than the 2007 level of $.228 million, as a result of the installation of a new phone system which reduced long distance service costs. Advertising costs also decreased in 2008, as the Corporation initiated cost controls in this area.

The Corporation saw an increase in loan and deposit expense of $.284 million to $.569 million in 2008 from $.285 million in 2007. This increase is a result of legal and carrying costs incurred in connection with increased levels of nonperforming assets. Looking forward, management expects to experience increased loan and deposit costs due to increased FDIC insurance premiums, as assessment rates are increased, in order to replenish the deposit insurance fund.

Management continuously reviews all areas of noninterest expense in order to evaluate where opportunities may exist which could reduce expenses without compromising service to customers.

56

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

The following table details noninterest expense for the three years ended December 31 (dollars in thousands):

									% Increase (Decrease)
	2008		2007			2006			2008-2007			2007-2006
Salaries and employee benefits	$	6,886	$	6,757		$	6,132			1.91	%		10.19	%
Occupancy		1,374		1,272			1,264			8.02			.63
Furniture and equipment		771		678			631			13.72			7.45
Data processing		844		785			691			7.52			13.60
Professional service fees:
Accounting		254		308			273			(17.53	)		12.82
Legal		41		42			927			(2.38	)		(95.47	)
Consulting and other		213		182			225			17.03			(19.11	)
Total professional service fees		508		532			1,425			(4.51	)		(62.67	)
Loan and deposit		569		285			392			99.65			(27.30	)
Telephone		170		228			210			(25.44	)		8.57
ORE writedowns/impairment		—		40			—			N/A			N/A
(Gain) loss on sale of premises, equipment branch and other real estate		77		(17	)		(60	)		(552.94	)		(71.67	)
Advertising		305		370			281			(17.57	)		31.67
Amortization of intangibles		78		82			125			(4.88	)		(34.40	)
Other operating expenses		976		1,088			1,130			(10.29	)		(3.72	)
Total noninterest expense	$	12,558	$	12,100		$	12,221			3.79	%		(.99)	%

Federal Income Taxes

Current Federal Tax Provision

The Corporation recorded a current period federal tax provision of $.787 million in 2008, compared to a $7.240 million negative provision in the same period a year earlier, in recognition of a federal deferred tax benefit, which is discussed further below.

Deferred Tax Benefit

The Corporation recognized a federal deferred tax benefit of $7.500 million in the third quarter of 2007. The recognition of this deferred tax benefit relates to the generally accepted accounting principles applicable to the probability of utilizing the NOL and tax credit carryforwards of the Corporation. The Corporation, based upon current profitability trends largely supported by expansion of the net interest margin and controlled expenses, determined that the utilization of the NOL carryforward was probable. This tax benefit was recorded by reducing the valuation allowance that was recorded against the deferred tax assets of the Corporation. In 2006, The Corporation recognized a portion of this benefit, $.500 million, based upon the then current probabilities. The $7.500 million recognition is based upon assumptions of a sustained level of taxable income within the NOL carryforward period and takes into account Section 382, establishing annual limitations. A valuation allowance is provided against deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2008, the Corporation had an NOL carryforward of approximately $32.128 million along with various credit carryforwards of $2.136 million. This NOL and credit carryforward benefit is dependent upon the future profitability of the Corporation. A portion of the NOL, approximately $22.000 million, and all of the tax credit carryforwards are also subject to the limitations of Section 382 of the Internal Revenue Code since they originated prior to the December 2004 recapitalization of the Corporation. The Corporation intends to further evaluate the

57

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

utilization of the NOL and credit carryforwards in subsequent periods to determine if any further adjustment to the valuation allowance is necessary. The determination criteria for recognition of deferred tax benefits will include the assumption of future period taxable income based upon the projected profitability of the Corporation.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

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

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

Loans are the most significant earning asset. Management offers commercial and real estate loans priced at interest rates which fluctuate with various indices, such as the prime rate or rates paid on various government issued securities. When loans are made with longer-term fixed rates, the Corporation attempts to match these balances with sources of funding with similar maturities in order to mitigate interest rate risk. In addition, the Corporation prices loans so it has an opportunity to reprice the loan within 12 to 36 months.

The Bank has $47.490 million of securities, with a weighted average maturity of 16 months. The investment portfolio is intended to provide a source of liquidity to the Corporation with limited interest rate risk. The Corporation may also elect to sell monies as investments in federal funds sold to correspondent banks, and has other interest bearing deposits with correspondent banks. These funds are generally repriced on a daily basis.

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

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

Exposure to interest rate risk is reviewed on a regular basis. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect of interest rate changes on net interest income and to structure the composition of the balance sheet to minimize interest rate risk and, at the same time, maximize income.

Management realizes certain risks are inherent and that the goal is to identify and minimize the risks. Tools used by management include maturity and repricing analysis and interest rate sensitivity analysis. The Bank has monthly asset/ liability meetings with an outside consultant to review its current position and strategize about future opportunities on risks relative to pricing and positioning of assets and liabilities.

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

58

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

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

The following is the Corporation’s repricing opportunities at December 31, 2008 (dollars in thousands):

	1-90		91-365			>1-5			Over 5
	Days		Days			Years			Years		Total
Interest-earning assets:
Loans	$	257,789	$	11,061		$	26,943		$	74,487	$	370,280
Securities		—		30,358			16,615			517		47,490
Other (1)		582		—			—			3,794		4,376
Total interest-earning assets		258,371		41,419			43,558			78,798		422,146
Interest-bearing obligations:
NOW, money market, savings and interest checking		91,314		—			—			—		91,314
Time deposits		35,759		49,537			12,729			771		98,796
Brokered CDs		102,745		48,143			—			—		150,888
Borrowings		20,000		—			15,000			1,210		36,210
Total interest-bearing obligations		249,818		97,680			27,729			1,981		377,208
Gap	$	8,553	$	(56,261	)	$	15,829		$	76,817	$	44,938
Cumulative gap	$	8,553	$	(47,708	)	$	(31,879	)	$	44,938

⁽¹⁾ includes Federal Home Loan Bank stock

The above analysis indicates that at December 31, 2008, the Corporation had a cumulative liability sensitivity GAP position of $47.708 million within the one-year timeframe. The Corporation’s cumulative liability sensitive GAP suggests that if market interest rates were to increase in the next twelve months, the Corporation has the potential to earn less net interest income. Conversely, if market interest rates decrease in the next twelve months, the above GAP position suggests the Corporation’s net interest income would increase. A limitation of the traditional GAP analysis is that it does not consider the timing or magnitude of non-contractual repricing or unexpected prepayments. In addition, the GAP analysis treats savings, NOW and money market accounts as repricing within 90 days, while experience suggests that these categories of deposits are actually comparatively resistant to rate sensitivity

At December 31, 2007, the Corporation had a cumulative liability sensitivity gap position of $43.774 million within the one-year time frame.

The borrowings in the gap analysis include $15 million of FHLB advances as fixed-rate advances. These advances actually give the FHLB the option to convert from a fixed-rate advance to an adjustable rate advance with quarterly repricing at three month LIBOR Flat. The exercise of this conversion feature by the FHLB would impact the repricing dates currently assumed in the analysis.

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

59

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Evaluating the exposure to changes in interest rates includes assessing both the adequacy of the process used to control interest rate risk and the quantitative level of exposure. The Corporation’s interest rate risk management process seeks to ensure that appropriate policies, procedures, management information systems, and internal controls are in place to maintain interest rate risk at prudent levels with consistency and continuity. In evaluating the quantitative level of interest rate risk, the Corporation assesses the existing and potential future effects of changes in interest rates on its financial condition, including capital adequacy, earnings, liquidity, and asset quality. In addition to changes in interest rates, the level of future net interest income is also dependent on a number of variables, including: the growth, composition and levels of loans, deposits, and other earning assets and interest-bearing obligations, and economic and competitive conditions; potential changes in lending, investing, and deposit strategies; customer preferences; and other factors.

The table below measures current maturity levels of interest-earning assets and interest-bearing obligations, along with average stated rates and estimated fair values at December 31, 2008 (dollars in thousands). Nonaccrual loans of $4.887 million are included in the table at an average interest rate of 0.00% and a maturity greater than five years.

Principal/Notional Amount Maturing/Repricing In:
																						Fair Value
	2009			2010			2011			2012			2013			Thereafter			Total			12/31/2008
Rate Sensitive Assets
Fixed interest rate securities	$	30,357		$	5,112		$	3,779		$	7,717			7		$	518		$	47,490		$	47,490
Average interest rate		3.08	%		3.94	%		5.09	%		5.24	%		7.00	%		8.02	%		3.74	%
Fixed interest rate loans		39,647			22,912			22,315			16,641			6,501			13,067			121,083			119,095
Average interest rate		6.88			7.70			7.65			7.53			6.88			6.52			7.23
Variable interest rate loans		245,193			—			—			—			—			4,004			249,197			257,262
Average interest rate		4.68			—			—			—			—			—			4.61
Other assets		582			—			—			—			—			3,794			4,376			4,376
Average interest rate		1.25			—			—			—			—			4.75			4.29
Total rate sensitive assets	$	315,779		$	28,024		$	26,094		$	24,358		$	6,508		$	21,383		$	422,146		$	428,223
Average interest rate		4.80	%		7.01	%		7.28	%		6.80	%		6.88	%		5.02	%		5.00	%
Rate Sensitive Liabilities
Interest-bearing savings, NOW, MMAs, interest checking		91,314			—			—			—			—			—			91,314			91,314
Average interest rate		1.07	%		—			—	%		—	%		—	%		—	%		1.07	%
Time deposits		236,184			8,239			2,976			1,223			291			771			249,684			250,021
Average interest rate		2.91			3.82			4.05			3.99			10.72			5.97			2.98
Fixed interest rate borrowings		—			15,000			—			—			—			1,210			16,210			16,808
Average interest rate		—			5.10			—			—			—			1.00			4.79
Variable interest rate borrowings		20,000			—			—			—			—			—			20,000			20,038
Average interest rate		3.71			—			—			—			—			—			3.71
Total rate sensitive liabilities	$	347,498		$	23,239		$	2,976		$	1,223		$	291		$	1,981		$	377,208		$	378,181
Average interest rate		2.47	%		4.65	%		4.05	%		3.99	%		10.72	%		2.94	%		2.62	%

Foreign Exchange Risk

In addition to managing interest rate risk, management also actively manages risk associated with foreign exchange. The Corporation provides foreign exchange services, makes loans to, and accepts deposits from, Canadian customers primarily at its banking office in Sault Ste. Marie. To protect against foreign exchange risk, the Corporation monitors the volume of Canadian deposits it takes in and then invests these Canadian funds in Canadian commercial loans and securities. As of December 31, 2008, the Corporation had excess Canadian liabilities of $22,000 (or $26,000 in U.S. dollars). Management believes the exposure to short-term foreign exchange risk is minimal and at an acceptable level for the Corporation.

60

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Management intends to limit the Corporation’s foreign exchange risk by acquiring deposit liabilities approximately equal to its Canadian assets.

Off-Balance-Sheet Risk

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

Commitments to extend credit and standby letters of credit are not recorded as an asset or liability by the Corporation until the instrument is exercised. See Note 18 to the consolidated financial statements for additional information.

LIQUIDITY

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

During 2008, the Corporation increased cash and cash equivalents by $3.750 million. As shown on the Corporation’s consolidated statement of cash flows, liquidity was primarily impacted by cash provided by investing activities, a net increase in loans of $21.173 million and a “net” increase in securities available for sale of $25.440 million. The net increases in assets were offset by a similar increase in deposit liabilities of $50.270 million. This increase in deposits was composed of an increase in non-core deposits of $54.914 million combined with a decrease in bank deposits of $4.644 million. The management of bank liquidity for funding of loans and deposit maturities and withdrawals includes monitoring projected loan fundings and scheduled prepayments and deposit maturities within a 30 day period, a 30 to 90 day period and from 90 days until the end of the year. This funding forecast model is completed weekly.

During 2008, management increased the Bank’s investment portfolio by approximately $25.000 million. The Bank’s investment portfolio, most of which are guaranteed by the U.S. government, provide added liquidity during periods of market turmoil and overall liquidity concerns in the financial markets. As of December 31, 2008, $27.308 million of the Bank’s investment portfolio was unpledged, which makes them readily available for sale to address any short term liquidity needs.

It is anticipated that during 2009, the Corporation will fund anticipated loan production with a combination of core-deposit growth and noncore funding, primarily brokered CDs.

The Corporation’s primary source of liquidity on a stand-alone basis is dividends from the Bank. The Bank is currently prohibited from paying dividends because of a deficit in retained earnings. The Bank, in order to pay dividends in future periods, will need to restate its capital accounts, which requires the approval of the Office of Financial and Insurance Services of the State of Michigan. The Corporation is currently exploring alternative opportunities for longer term sources of liquidity and permanent equity to support projected asset growth.

Liquidity is managed by the Corporation through its Asset and Liability Committee (“ALCO”). The ALCO Committee meets monthly to discuss asset and liability management in order to address liquidity and funding needs to provide a process to seek the best alternatives for investments of assets, funding costs, and risk management. The liquidity position of the Bank is managed daily, thus enabling the Bank to adapt its position according to market fluctuations. Core deposits are important in maintaining a strong liquidity position as they represent a stable and relatively low cost source of funds. The Bank’s liquidity is best illustrated by the mix in the Bank’s core and non-core funding dependence ratio, which explains the degree of reliance on non-core liabilities to fund long-term assets. Core deposits are herein defined as demand deposits, NOW (negotiable order withdrawals), money markets, savings and certificates of deposit under $100,000. Non-core funding consists of certificates of deposit greater than $100,000, brokered deposits, and FHLB and other borrowings. At December 31, 2008, the Bank’s core deposits in relation to total funding was 47.92% compared to 55.95% in 2007. These ratios indicated at December 31, 2008, that the Bank has decreased its reliance on non-core deposits and borrowings

61

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

to fund the Bank’s long-term assets, namely loans and investments. The Bank believes that by maintaining adequate volumes of short-term investments and implementing competitive pricing strategies on deposits, it can ensure adequate liquidity to support future growth. The Bank also has correspondent lines of credit available to meet unanticipated short-term liquidity needs. As of December 31, 2008, the Bank had $13.375 million of unsecured lines available and another $10.185 million available if secured. Management believes that its liquidity position remains strong to meet both present and future financial obligations and commitments, events or uncertainties that have resulted or are reasonably likely to result in material changes with respect to the Bank’s liquidity.

From a long-term perspective, the Corporation’s liquidity plan for 2009 includes strategies to increase core deposits in the Corporation’s local markets and will continue to augment local deposit growth efforts with wholesale CD funding, to the extent necessary.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

As disclosed in the Notes to the Consolidated Financial Statements, the Corporation has certain obligations and commitments to make future payments under contracts. At December 31, 2008, the aggregate contractual obligations and commitments are:

	Payments Due by Period
	Less than 1		1 to 3		4 to 5		After 5
Contractual Obligations	Year		Years		Years		Years		Total
Total deposits	$	357,597	$	11,215	$	1,514	$	771	$	371,097
Short-term borrowings		—		—		—		—		—
Long-term borrowings		—		35,000		—		1,210		36,210
Directors’ deferred compensation		170		254		246		549		1,219
Annual rental / purchase commitments under noncancelable leases / contracts		199		297		10		—		506
TOTAL	$	357,966	$	46,766	$	1,770	$	2,530	$	409,032
Other Commitments
Letters of credit	$	1,838	$	—	$	—	$	—	$	1,838
Commitments to extend credit		44,523		—		—		—		44,523
Credit card commitments		2,438		—		—		—		2,438
TOTAL	$	48,799	$	—	$	—	$	—	$	48,799

CAPITAL AND REGULATORY

As a bank holding company, the Corporation is required to maintain certain levels of capital under government regulation. There are several measurements of regulatory capital, and the Corporation is required to meet minimum requirements under each measurement. The federal banking regulators have also established capital classifications beyond the minimum requirements in order to risk-rate deposit insurance premiums and to provide trigger points for prompt corrective action in the event an institution becomes financially troubled. As of December 31, 2008, the Corporation and the Bank were well capitalized. The Corporation is currently exploring its alternatives for the possible issuance of equity or debt in order to provide a broader base to support future asset growth. During 2008, total capitalization increased by $2.231 million primarily from an increase in retained earnings from net income earned in the period. During 2008, risk based capital increased by $2.845 million, while Tier 1 Capital increased by $2.714 million.

On October 3, 2008, congress passed the Emergency Economic Stabilization Act of 2008 (“EESA”), which provides the U.S. Secretary of the Treasury with broad authority to implement certain actions to help restore stability and liquidity to U.S. markets. One of the provisions resulting from the EESA is the Treasury Capital Purchase Program (“CPP”), which provides direct equity investment of perpetual preferred stock by the Treasury in qualified financial institutions. The program is voluntary and requires an institution to comply with a number of restrictions and provisions including limits on executive compensation, stock redemptions and declaration of dividends. Applications must be submitted by November 14, 2008, and are subject to approval by the Treasury. The CPP provides for a minimum of 1% of risk weighted assets,

62

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

with a maximum investment equal to the lesser of 3% of total risk weighted assets or $25 billion. The perpetual preferred stock investment will have a dividend rate of 5% per year, until the fifth anniversary of the Treasury investments, and a dividend of 9% thereafter. The CPP also requires the Treasury to receive warrants for common stock equal to 15% of the capital invested by the Treasury.

The Corporation has applied for $11.000 million in capital under this program, and has received preliminary approval by the U.S. Department of Treasury.

The following table details sources of capital for the three years ended December 31 (dollars in thousands):

	2008			2007			2006
Capital Structure
Shareholders’ equity	$	41,552		$	39,321		$	28,790
Total capitalization	$	41,552		$	39,321		$	28,790
Tangible capital	$	41,507		$	39,197		$	28,585
Intangible Assets
Subsidiaries:
Core deposit premium	$	46		$	124		$	205
Other identifiable intangibles		—			—			—
Total intangibles	$	46		$	124		$	205
Risk-Based Capital
Tier 1 capital:
Shareholders’ equity	$	41,552		$	39,321		$	28,790
Net unrealized (gains) losses on available for sale securities		(445	)		(60	)		187
Less: disallowed deferred tax asset		(6,200	)		(6,990	)		—
Less: intangibles		(46	)		(124	)		(205	)
Total Tier 1 capital	$	34,861		$	32,147		$	28,772
Tier 2 Capital:
Allowable reserve for loan losses	$	4,277		$	4,146		$	4,113
Qualifying long-term debt		—			—			—
Total Tier 2 capital		4,277			4,146			4,113
Total risk-based capital	$	39,138		$	36,293		$	32,885
Risk-weighted assets	$	376,986		$	358,410		$	328,133
Capital Ratios:
Tier 1 Capital to average assets		8.01	%		8.05	%		7.85	%
Tier 1 Capital to risk-weighted assets		9.25	%		8.97	%		8.77	%
Total Capital to risk-weighted assets		10.38	%		10.13	%		10.02	%

Regulatory capital is not the same as shareholders’ equity reported in the accompanying condensed consolidated financial statements. Certain assets cannot be considered assets for regulatory purposes. The Corporation’s acquisition intangibles and a portion of the deferred tax asset are examples of such assets.

63

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Presented below is a summary of the Corporation’s and Bank’s capital position in comparison to generally applicable regulatory requirements:

				Tangible			Tier 1			Tier 1			Total
	Equity to			Equity to			Capital to			Capital to			Capital to
	Year-end			Year-end			Average			Risk Weighted			Risk Weighted
	Assets			Assets			Assets			Assets			Assets
Regulatory minimum for capital adequacy purposes		N/A			N/A			4.00	%		4.00	%		8.00	%
Regulatory defined well capitalized guideline		N/A			N/A			5.00	%		6.00	%		10.00	%
The Corporation:
December 31, 2008		9.21	%		9.20	%		8.01	%		9.25	%		10.38	%
December 31, 2007		9.62	%		9.59	%		8.05	%		8.97	%		10.13	%
The Bank:
December 31, 2008		9.25	%		9.24	%		8.09	%		9.32	%		10.44	%
December 31, 2007		10.04	%		10.01	%		8.51	%		9.49	%		10.63	%

The Corporation intends to maintain the Bank’s total capital to risk-weighted assets at a minimum of 10.00% in order to qualify for reduced FDIC deposit based insurance.

TROUBLED ASSET RELIEF PROGRAM

The Corporation will be participating in the Capital Purchase Program (“CPP”) under the Troubled Asset Relief Program (“TARP”). The Corporation will issue $11.000 million in perpetual preferred stock and 379,092 common stock warrants, effective with the anticipated close date in May, 2009. Mackinac Financial Corporation believes that participation in the CPP will provide a stronger base of capital for future growth. Shown below are “Proforma” capital ratios for the Corporation which shows the effect of the issuance of the $11.000 million preferred stock.

	Historical			Proforma
	December 31, 2008			December 31, 2008
Total capital to risk weighted assets		10.38	%		13.11	%
Tier 1 leverage		8.01	%		10.28	%
Tier 1 capital to risk weighted assets		9.25	%		11.99	%

IMPACT OF INFLATION AND CHANGING PRICES

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

64

Directors and Officers

DIRECTORS

Mackinac Financial Corporation and mBank

Walter J. Aspatore Investment Banker Amherst Partners Director Since: 2004	Robert H. Orley Vice President and Secretary Real Estate Interests Group, Inc. Director Since: 2004
Dennis B. Bittner Owner and President Bittner Engineering, Inc. Director Since: 2001	L. Brooks Patterson County Executive Oakland County Director Since: 2006
Joseph D. Garea Managing Partner Hancock Securities Director Since: 2007	Randolph C. Paschke Chairman, Department of Accounting Wayne State University, School of Business Administration Director Since: 2004
Kelly W. George President, Mackinac Financial Corporation President and CEO, mBank Director Since: 2006	Paul D. Tobias Chairman and CEO, Mackinac Financial Corporation Chairman, mBank Director Since: 2004
Robert E. Mahaney Sole Proprietor Veridea Group, LLC Director Since: 2008

OFFICERS

Mackinac Financial Corporation	mBank
Paul D. Tobias	Paul D. Tobias
Chairman and Chief Executive Officer	Chairman
Kelly W. George	Kelly W. George
President	President and Chief Executive Officer
Ernie R. Krueger	Jack C. Frost
Executive Vice President/Chief Financial Officer	Regional President, Upper Peninsula
	Andrew P. Sabatine
	Regional President, Northern Lower Peninsula
	Ernie R. Krueger
	Executive Vice President and Chief Financial Officer
	Kevin D. Evans
	Senior Vice President/Branch Management/Retail Banking/Deposits
	Jake D. Martin
	Senior Vice President — Information Technology
	Tamara R. McDowell
	Senior Vice President/Senior Credit/Operations Officer
	Ann M. Stepp
	Senior Vice President/Branch Administration Officer

65

Branch Locations

UPPER PENINSULA

Regional President — Jack C. Frost

ESCANABA (opened March 2009) 3300 Ludington Street Escanaba, MI 49829 (906) 233-9443 Manager: Scott A. Ravet	MARQUETTE PRESQUE ISLE 1400 Presque Isle Marquette, MI 49855 (906) 228-3640 Bus. Dev. Officer: Shelby J. Bischoff	SAULT STE. MARIE 138 Ridge Street Sault Ste. Marie, MI 49783 (906) 635-3992 Manager: David R. Thomas
MANISTIQUE 130 South Cedar Street Manistique, MI 49854 (906) 341-8401 Manager: Gregory D. Schuetter	NEWBERRY 414 Newberry Avenue Newberry, MI 49868 (906) 293-5165 Manager: Michael A. Slaght	SOUTH RANGE 47 Trimountain Avenue South Range, MI 49963 (906) 482-1170 Manager: Sandra L. Pesola
MARQUETTE MAIN 300 North McClellan Marquette, MI 49855 (906) 226-5000 Manager: Teresa M. Same	ONTONAGON 601 River Street Ontonagon, MI 49953 (906) 884-4115 Manager: Sue A. Preiss	STEPHENSON S216 Menominee Street Stephenson, MI 49887 (906) 753-2225 Manager: Barbara A. Parrett

NORTHERN LOWER PENINSULA

Regional President — Andrew P. Sabatine

GAYLORD
1955 South Otsego Avenue
Gaylord, MI 49735
(989) 732-3750
Manager: Rosalba Boone KALEVA
14429 Wuoksi Avenue
Kaleva, MI 49645
(231) 362-3223
Manager: Barb J. Miller TRAVERSE CITY
3530 North Country Drive
Traverse City, MI 49684
(231) 929-5600
Manager: Andrea M. Pease

SOUTHEAST MICHIGAN

First Vice President — Jesse A. Deering

BIRMINGHAM

260 East Brown Street, Suite 300

Birmingham, MI 48009

(248) 290-5900

Manager: Elena C. Dritsas

66

Corporate Information

CORPORATE HEADQUARTERS Mackinac Financial Corporation 130 South Cedar Street Manistique, Michigan 49854 (888) 343-8147	TRANSFER AGENT Registrar and Transfer Company 10 Commerce Drive Cranford, NJ 07016 (800) 368-5948
INVESTOR RELATIONS (888) 343-8147	WEBSITE www.bankmbank.com

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	STOCK LISTING AND SYMBOL
Plante and Moran, PLLC	NASDAQ Small Cap Market
Auburn Hills, Michigan	Symbol: MFNC

SHAREHOLDER INFORMATION

Copies of the Corporation’s 10-K and 10-Q reports as filed with the Securities and Exchange Commission are available upon request from the Corporation.

ANNUAL SHAREHOLDERS’ MEETING

The 2009 Annual Meeting of the Shareholders of Mackinac Financial Corporation will be held on Wednesday May 27, 2009.

Visit our website, www.bankmbank.com, for updated news releases, financial reports, SEC filings, corporate governance and other investor information.

67

EX-21

Exhibit 21 — Subsidiaries of Mackinac Financial Corporation

First Manistique Agency, Inc. — 100% owned
(incorporated as a Michigan corporation)

First Rural Relending Company — 100% owned
(incorporated as a Michigan corporation)

North Country Capital Trust — 100% owned
(organized as a Delaware business trust)

mBank — 100% owned
(incorporated as a Michigan banking corporation)

Subsidiaries of mBank

NCB Real Estate Company — 100% owned
(incorporated as a Michigan corporation)

American Financial Mortgage Corporation — 100% owned
(incorporated as a Michigan corporation)

mBank Mortgage Company LLC — 100% owned
(incorporated as a Michigan corporation)

mBank Employee Services, LLC — 100% owned
(incorporated as a Michigan corporation)

Mackinac Financial Corporation directly owns the first four subsidiaries listed above. mBank owns the remaining four subsidiaries.

EX-23.1

Exhibit 23.1 — Consent of Independent Public Accountants

Independent Auditor’s Consent

We hereby consent to the incorporation by reference of our report dated March 20, 2009 on the financial statements of Mackinac Financial Corporation and Subsidiaries for the year ended December 31, 2008, appearing in the Mackinac Financial Corporation 2008 Annual Report to Shareholders, which is incorporated by reference into this Form 10-K.

/s/ Plante & Moran, PLLC Plante & Moran, PLLC

Auburn Hills, Michigan
March 31, 2009

EX-31

EXHIBIT 31

RULE 13(a) — 14 (a) CERTIFICATIONS

I, Paul D. Tobias, Chairman and Chief Executive Officer of Mackinac Financial Corporation certify that:

1.	I have reviewed this report on Form 10-K of Mackinac Financial Corporation (the “registrant”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements and other financial information included in this report fairly present, in all material respects, the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 31, 2009	/s/ Paul D. Tobias
	Paul D. Tobias
	Chairman and Chief Executive Officer (principal executive officer)

I, Ernie R. Krueger, Executive Vice President/Chief Financial Officer of Mackinac Financial Corporation, certify that:

1.	I have reviewed this report on Form 10-K of Mackinac Financial Corporation (the “registrant”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 31, 2009	/s/ Ernie R. Krueger
	Ernie R. Krueger
	Executive Vice President/ Chief Financial Officer (principal financial officer)

EX-32.1

EXHIBIT 32.1

MACKINAC FINANCIAL CORPORATION
CERTIFICATION PERSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C § 1350, and accompanies the annual report on Form 10-K for the year ended December 31, 2008, (the “Form 10-K”) of Mackinac Financial Corporation (the “Issuer”).

     I, Paul D. Tobias, Chairman and Chief Executive Office of the Issuer, certify that to the best of my knowledge:

(1)	The Form 10-K fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
(2)	The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operation of the Issuer.

Date: March 31, 2009	/s/ Paul D. Tobias
	Paul D. Tobias
	Chairman and Chief Executive Officer (chief executive officer)

EX-32.2

EXHIBIT 32.2

MACKINAC FINANCIAL CORPORATION
CERTIFICATION PERSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C § 1350, and accompanies the annual report on Form 10-K for the year ended December 31, 2008, (the “Form 10-K”) of Mackinac Financial Corporation (the “Issuer”).

     I, Ernie R. Krueger, Executive Vice President/Chief Financial Officer of the Issuer, certify that to the best of my knowledge:

(1)	The Form 10-K fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
(2)	The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operation of the Issuer.

Date: March 31, 2009	/s/ Ernie R. Krueger
	Ernie R. Krueger
	Executive Vice President/ Chief Financial Officer (chief financial officer)