8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):  July 26, 2013

MACKINAC FINANCIAL CORPORATION

(previous filings under the name NORTH COUNTRY FINANCIAL CORPORATION)

(Exact name of registrant as specified in its charter)

MICHIGAN	0-20167	38-2062816
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02              Results of Operations and Financial Condition.

On July 26, 2013, Registrant issued a press release announcing its results of operations for the three and six months ended June 30, 2013 and Statement of Financial Condition as of June 30, 2013.  The press release is attached as Exhibit No. 99 and incorporated herein by reference.

ITEM 9.01.           FINANCIAL STATEMENTS AND EXHIBITS.

(d)      Exhibits

The following exhibits are furnished herewith:

EXHIBIT
NUMBER	EXHIBIT DESCRIPTION
99	Press Release of Mackinac Financial Corporation dated July 26, 2013

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	MACKINAC FINANCIAL CORPORATION
Date: July 26, 2013
		By:	/s/ Ernie R. Krueger
			Ernie R. Krueger
			EVP/CFO

2

EXHIBIT INDEX

EXHIBIT
NUMBER	EXHIBIT DESCRIPTION
99	Press Release July 26, 2013

3

EX-99

Exhibit 99

PRESS RELEASE

For Release:	July 26, 2013
Nasdaq:	MFNC
Contact:	Ernie R. Krueger, (906) 341-7158 /ekrueger@bankmbank.com
Website:	www.bankmbank.com

MACKINAC FINANCIAL CORPORATION

REPORTS STRONG SECOND QUARTER 2013 RESULTS

Manistique, Michigan — Mackinac Financial Corporation (Nasdaq: MFNC), the bank holding company for mBank (the “Bank”), today announced second quarter 2013 income of $1.197 million or $.22 per share compared to net income available to common shareholders of $4.142 million, or $.97 per share for the second quarter of 2012. The 2012 second quarter results included a $3 million valuation adjustment to deferred tax assets, which equated to $.70 per share.

Weighted average shares totaled 5,557,842 shares for the six month period in 2013 and 5,556,133 shares in the 2013 second quarter compared to 3,419,736 shares for both periods in 2012. The increase in outstanding shares for 2013 reflects the issuance of 2.138 million shares of common stock in August of 2012. Quarterly and six month per share earnings for 2012 have been adjusted for the common stock issuance.

Operating results for the first six months of 2013 totaled $1.873 million or $.34 per share compared to $1.639 million or $.39 per share, excluding the $3.0 million deferred tax valuation adjustment, for the same period in 2012.  The Corporation’s subsidiary, mBank, recorded net income of $2.539 million for the first six months of this year compared to $2.248 million, excluding the deferred tax valuation adjustment, for the same period in 2012.

Total assets of the Corporation at June 30, 2013 were $553.501 million, up 5.56 % from the $524.366 million reported at June 30, 2012 and up 1.38% from the $545.980 million of total assets at year-end 2012. The Corporation and the Bank are both “well-capitalized” with Tier 1 Capital at the Corporation of 11.01% and 10.15% at the Bank.

Key highlights for the first six months of 2013 results include:

·Improved credit quality with a Texas Ratio of 9.02% compared to 13.59% one year ago, with nonperforming loans of $3.983 million, a $1.392 million reduction from a year earlier.

·Reduced credit related charges in 2013 at $.410 million compared to $.403 million in the 2012 six month period.

·Relative stability in net interest margin at 4.17% compared to 4.23% for the first six months of 2012.

·Six month Secondary mortgage loan income of $.578 million, compared to $.524 million in the same period of 2012.

·We continued to have success in SBA/USDA lending with gains on the sale of these loans of $.663 million in the first half of 2013, compared to $.620 million in the first half of 2012.  mBank was awarded, for the second time in three years, the 2012 state wide Community Lender of the Year by the Small Business Administration’s Michigan office.

·Redemption, at par, of $7.0 million of the Corporation’s $11.0 million Series A preferred stock.

1

Loans and Nonperforming Assets

Total loans at June 30, 2013 were $455.555 million, an 8.61% increase from the $419.453 million at June 30, 2012 and up $6.378 million from year-end 2012 total loans of $449.177 million. In addition to the aforementioned balance sheet totals, the company services $120 million of sold mortgage loans, up from $66 million at June 30, 2012.  We also service another $50 million of sold SBA and USDA loans. Total loans under management now reside at $626 million.

The Corporation had total new loan production of $80 million in the first six months of this year.  Comprising the total production were $30 million in commercial loans, and $50 million in retail, $46 million of which were mortgages.  The Upper Peninsula continues to drive a large majority of the new originations, totaling $55 million, with Southeast Michigan production of $6 million, and the Northern Lower Peninsula with $19 million.

Commenting on new loan production, Kelly W. George, President and Chief Executive Officer of mBank stated, “We are seeing good loan opportunities in all of our markets but both the Northern Lower Peninsula and Southeast Michigan from a commercial lending growth standpoint have been stunted somewhat due to increased competition for loans and many more lenders have turned to offense with rates and terms we were not comfortable entertaining.  We also remain cautious, but encouraged that our mortgage lending activity continues to perform well through the volatility of rates lately with a good mix of home purchases and refinances as this is an area we are keeping a close management eye on as we move throughout the rest of the year. Our commercial pipeline remains good throughout all our regions heading into the second half of the year for both traditional and SBA/USDA guaranteed loans as well. As a community bank operating in many different markets within the state, we understand that these types of government guaranteed loans allow small companies to compete and procure the capital needed to expand, leading to increased opportunities for new jobs. Our company believes strongly in reinvesting in the communities that we live and work in and we are honored to be recognized for our commitment and for the second time in three years, be awarded the SBA Community Lender of the Year Award for the state of Michigan.”

Nonperforming loans totaled $3.983 million, .87% of total loans at June 30, 2013 compared to $5.375 million, or 1.28% of total loans at June 30, 2012 and down $.704 million from December 31, 2012.  Nonperforming assets were reduced by $2.429 million from a year ago and stood at 1.17% of total assets.  Total loan delinquencies resided at .45% or $2.038 million, almost solely made up of non-accrual commercial loans.  George, commenting on overall credit quality, “We remain pleased with the overall credit  performance metrics  of our loan portfolio from both a micro perspective as noted above, as well as from a macro perspective with all industry segments performing satisfactory with a good diversification of loan types being originated. Our performance metrics have continued to improve for the last several years and our current level of nonperforming assets are manageable with associated costs much more in line with a normal business climate as Michigan continues to recover. We will remain diligent in our timely monitoring on any problem loans that arise and will stay true to our core underwriting principles and will not stretch credit quality even with more banks’ lending and competition fierce for new loans to augment balance sheet growth”.

Margin Analysis

Net interest income in the first six months of 2013 increased to $10.425 million, or 4.17%, compared to $9.782 million, or 4.23%, in the same period in 2012.  The increase in net interest income is due primarily to increased levels of earning assets.  George, commenting on margin items stated, “We expect some margin pressure in future periods as borrowers continue to seek longer term fixed rate alternatives and the overall competition for new loans in all markets increasing with very few other good investment alternatives available given the prolonged low interest rate cycle. We have used some extended term wholesale funding sources given the inability to get market clients to move into these longer terms liabilities to match fund as best we can to help mitigate longer term interest rate risk should rates move forward more quickly than market indicators could foresee. We also continue to offer very competitive variable rate loans with interest rate floors to protect the margin in the near term, and balance the overall duration of interest rate risk in the portfolio.”

Deposits

Total deposits of $447.907 million at June 30, 2013 increased 5.30% from deposits of $425.381 million on June 30, 2012.  Total deposits on June 30, 2013 were up $13.350 million from year-end 2012 deposits of $434.557 million.  The overall increase in deposits for the six months of 2013 is comprised of an increase in noncore deposits of $27.911 million and a decrease in core deposits of $14.561 million. George, commenting on core deposits, stated, “In 2013 we have experienced some declines in core deposits which is primarily due to our reduced rates on transactional accounts and certificates to

2

maximize our net interest margin where we have seen a small exit from primarily rate only driven clients which we remain cognizant of as we move into the second half of the year. We have also experienced some withdrawals by several of our larger commercial accounts as they have utilized their liquidity for business expansion opportunities and general debt pay downs given their limited investment options. We have supplemented our deposit growth with very manageable levels of noncore deposits to manage interest rate risk in this prolonged low interest rate cycle, along with the need to align our funding costs with rates and maturities on loans as noted previously.”

Noninterest Income/Expense

Noninterest income, at $2.009 million in the first six months of 2013, increased $.098 million from the same period in 2012 of $1.911 million with the largest drivers of this income coming from the secondary market mortgage activities and gains from SBA/USDA loan sales. Income from secondary mortgage activities totaled $.578 million in 2013 compared to $.524 million in 2012.  SBA/USDA loan sale gains were behind 2013 with year to date gains of $.663 million compared to 2012 gains of $.620 million. Noninterest expense, at $8.834 million in the first six months of 2013, increased $.793 million, or 9.86% from the same period in 2012 given the growth of the company’s operating platform and the need to keep pace both from a personnel, and infrastructure standpoint, with the changing internal risk profile of the company and external banking regulatory environment. Our overall non-interest expense base remains at, or below peer levels.

Capital

Total shareholders’ equity at June 30, 2013 was $66.520 million, compared to $60.352 million on June 30, 2012, an increase of $6.168 million, or 10.22%.  Common shareholders’ equity was $62.520 million, or $11.26 per share at June 30, 2013 compared to $49.352 million, or $14.43 per share at June 30, 2012 and $61.448 million, or $11.05 per share on December 31, 2012.

Paul D. Tobias, Chairman and Chief Executive Officer, concluded, “We are pleased with our overall financial performance thus far in 2013. The Michigan economy is much improved but it has yet to translate into robust loan demand in all of our markets.  The improving health of the banking community has led to aggressive pricing and loan structures.  We have a very good team of bankers who are finding opportunities for us in these competitive markets.  We are working hard to find the right relationships but have the discipline to pass on commercial loans when either pricing or credit structure fail to meet our standards.

Looking forward, we believe that as the economy continues to improve opportunities for franchise expansion will present themselves. With our strong capital base and improving core earnings generation, coupled with our stable and experienced management team, we stand ready to create shareholder value through either organic growth or acquisition.  We retired $7 million of our preferred stock with capital from our recent offering but remain well capitalized and are aggressively looking for opportunities to deploy our capital for growth in earnings and shareholder value.”

Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets in excess of $550 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 11 branch locations; seven in the Upper Peninsula, three in the Northern Lower Peninsula and one in Oakland County, Michigan.  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.

Forward-Looking Statements

This release contains certain forward-looking statements.  Words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “should,” “will,” and variations of such words and similar expressions are intended to identify forward-looking statements: as defined by the Private Securities Litigation Reform Act of 1995.  These statements reflect management’s current beliefs as to expected outcomes of future events and are not guarantees of future performance.  These statements involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence.  Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements.  Factors that could cause a difference include among others: changes in the national and local economies or market conditions; changes in interest rates and banking regulations; the impact of competition from traditional or new sources; and the possibility that anticipated cost savings

3

and revenue enhancements from mergers and acquisitions, bank consolidations, branch closings and other sources may not be fully realized at all or within specified time frames as well as other risks and uncertainties including but not limited to those detailed from time to time in filings of the Company with the Securities and Exchange Commission.  These and other factors may cause decisions and actual results to differ materially from current expectations.  Mackinac Financial Corporation undertakes no obligation to revise, update, or clarify forward-looking statements to reflect events or conditions after the date of this release.

4

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

SELECTED FINANCIAL HIGHLIGHTS

	June 30,			December 31,			June 30,
(Dollars in thousands, except per share data)	2013			2012			2012
	(Unaudited)						(Unaudited)
Selected Financial Condition Data (at end of period):
Assets	$	553,501		$	545,980		$	524,366
Loans	455,555			449,177			419,453
Investment securities	47,307			43,799			39,054
Deposits	447,907			434,557			425,381
Borrowings	35,925			35,925			35,997
Common Shareholders’ Equity	62,520			61,448			49,352
Shareholders’ equity	66,520			72,448			60,352
Selected Statements of Income Data (six months and year ended):
Net interest income	$	10,425		$	19,824		$	9,782
Income before taxes and preferred dividend	3,125			6,165			3,007
Net income	1,873			6,458			4,639
Income per common share - Basic*	.34			1.51			1.09
Income per common share - Diluted*	.34			1.51			1.05
Weighted average shares outstanding	5,557,842			4,285,043			3,419,736
Weighted average shares outstanding- Diluted	5,557,842			4,285,043			3,532,640
Three Months Ended:
Net interest income	$	5,269		$	5,112		$	5,019
Income before taxes and preferred dividend	1,897			1,596			1,967
Net income	1,197			922			4,141
Income per common share - Basic	.22			.21			.97
Income per common share - Diluted*	.22			.21			.94
Weighted average shares outstanding*	5,556,133			5,559,859			3,419,736
Weighted average shares outstanding- Diluted	5,556,133			5,559,859			3,539,908
Selected Financial Ratios and Other Data:
Performance Ratios:
Net interest margin	4.17		%	4.17		%	4.23		%
Efficiency ratio	70.22			67.95			66.98
Return on average assets	.69			1.23			1.84
Return on average common equity	6.13			12.43			20.87
Return on average equity	5.41			10.26			16.76
Average total assets	$	544,887		$	526,740		$	507,546
Average common shareholders’ equity	61,590			51,978			44,706
Average total shareholders’ equity	69,847			62,939			55,666
Average loans to average deposits ratio	104.26		%	99.45		%	100.12		%
Common Share Data at end of period:
Market price per common share	$	8.88		$	7.09		$	5.99
Book value per common share	$	11.26		$	11.05		$	14.43
Common shares outstanding	5,554,459			5,559,859			3,419,736
Other Data at end of period:
Allowance for loan losses	$	5,177		$	5,218		$	5,083
Non-performing assets	$	6,464		$	7,899		$	8,893
Allowance for loan losses to total loans	1.14		%	1.16		%	1.21		%
Non-performing assets to total assets	1.17		%	1.45		%	1.70		%
Texas ratio	9.02		%	10.17		%	13.59		%
Number of:
Branch locations	11			11			11
FTE Employees	128			121			120

*Earnings per share data for 2012 restated for common stock issuance

5

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,			June 30,
	2013			2012			2012
	(Unaudited)						(Unaudited)
ASSETS
Cash and due from banks	$	26,216		$	26,958		$	33,248
Federal funds sold	3			3			—
Cash and cash equivalents	26,219			26,961			33,248
Interest-bearing deposits in other financial institutions	10			10			10
Securities available for sale	47,307			43,799			39,054
Federal Home Loan Bank stock	3,060			3,060			3,060
Loans:
Commercial	343,561			342,841			319,398
Mortgage	98,559			95,413			90,260
Consumer	13,435			10,923			9,795
Total Loans	455,555			449,177			419,453
Allowance for loan losses	(5,177		)	(5,218		)	(5,083		)
Net loans	450,378			443,959			414,370
Premises and equipment	10,536			10,633			10,134
Other real estate held for sale	2,481			3,212			3,518
Deferred Tax Asset	8,367			9,131			10,271
Other assets	5,143			5,215			10,701
TOTAL ASSETS	$	553,501		$	545,980		$	524,366
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Noninterest bearing deposits	$	64,736		$	67,652		$	59,872
NOW, money market, interest checking	146,203			155,465			143,795
Savings	12,229			13,829			14,248
CDs<$100,000	134,767			135,550			140,018
CDs>$100,000	25,091			24,355			25,975
Brokered	64,881			37,706			41,473
Total deposits	447,907			434,557			425,381
Borrowings	35,925			35,925			35,997
Other liabilities	3,149			3,050			2,636
Total liabilities	486,981			473,532			464,014
SHAREHOLDERS’ EQUITY:
Preferred stock - No par value:
Authorized - 500,000 shares	4,000			11,000			11,000
Issued and outstanding - 4,000, 11,000 and 11,000 respectively
Common stock and additional paid in capital - No par value
Authorized - 18,000,000 shares
Issued and outstanding - 5,554,459, 5,559,859 and 3,419,736 respectively	53,934			53,797			43,525
Retained earnings	8,156			6,727			5,131
Accumulated other comprehensive income	430			924			696
Total shareholders’ equity	66,520			72,448			60,352
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	553,501		$	545,980		$	524,366

6

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2013		2012			2013		2012
	(Unaudited)					(Unaudited)
INTEREST INCOME:
Interest and fees on loans:
Taxable	$	6,014	$	5,873		$	11,903	$	11,453
Tax-exempt	28		30			55		62
Interest on securities:
Taxable	241		238			481		502
Tax-exempt	6		7			13		14
Other interest income	32		30			63		55
Total interest income	6,321		6,178			12,515		12,086
INTEREST EXPENSE:
Deposits	886		992			1,763		1,975
Borrowings	166		167			327		329
Total interest expense	1,052		1,159			2,090		2,304
Net interest income	5,269		5,019			10,425		9,782
Provision for loan losses	100		150			475		645
Net interest income after provision for loan losses	5,169		4,869			9,950		9,137
OTHER INCOME:
Deposit service fees	175		189			337		383
Income from secondary market loans sold	279		226			578		524
SBA/USDA loan sale gains	554		620			663		620
Mortgage servicing income	182		115			285		200
Other	61		155			146		184
Total other income	1,251		1,305			2,009		1,911
OTHER EXPENSE:
Salaries and employee benefits	2,375		2,003			4,681		3,978
Occupancy	363		335			745		680
Furniture and equipment	255		219			525		447
Data processing	268		258			533		486
Professional service fees	320		310			545		490
Loan and deposit	45		338			118		479
Writedowns and losses on other real estate held for sale	87		174			89		185
FDIC insurance assessment	95		159			200		318
Telephone	63		57			145		112
Advertising	111		98			215		196
Other	541		256			1,038		670
Total other expenses	4,523		4,207			8,834		8,041
Income before provision for income taxes	1,897		1,967			3,125		3,007
Provision for (benefit of) income taxes	637		(2,335		)	1,052		(1,986		)
NET INCOME	1,260		4,302			2,073		4,993
Preferred dividend and accretion of discount	63		161			200		354
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	1,197	$	4,141		$	1,873	$	4,639
INCOME PER COMMON SHARE*:
Basic	$	.22	$	.97		$	.34	$	1.09
Diluted	$	.22	$	.94		$	.34	$	1.05

*Earnings per share data for 2012 restated for common stock issuance

7

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

LOAN PORTFOLIO AND CREDIT QUALITY

(Dollars in thousands)

Loan Portfolio Balances (at end of period):

	June 30,		December 31,		June 30,
	2013		2012		2012
	(Unaudited)		(Unaudited)		(Unaudited)
Commercial Loans:
Real estate - operators of nonresidential buildings	$	95,510	$	95,151	$	83,539
Hospitality and tourism	42,833		40,787		36,557
Lessors of residential buildings	13,377		12,672		13,358
Insurance agencies and brokerages	10,205		12,128		10,490
Gasoline stations and convenience stores	11,038		11,393		11,783
Other	154,545		153,481		140,878
Total Commercial Loans	327,508		325,612		296,605
1-4 family residential real estate	94,254		87,948		84,665
Consumer	13,435		10,923		9,795
Construction
Commercial	16,053		17,229		22,793
Consumer	4,305		7,465		5,595
Total Loans	$	455,555	$	449,177	$	419,453

Credit Quality (at end of period):

	June 30,			December 31,			June 30,
	2013			2012			2012
	(Unaudited)			(Unaudited)			(Unaudited)
Nonperforming Assets :
Nonaccrual loans	$	3,983		$	4,687		$	5,375
Loans past due 90 days or more	—			—			—
Restructured loans	—			—			—
Total nonperforming loans	3,983			4,687			5,375
Other real estate owned	2,481			3,212			3,518
Total nonperforming assets	$	6,464		$	7,899		$	8,893
Nonperforming loans as a % of loans	.87		%	1.04		%	1.28		%
Nonperforming assets as a % of assets	1.17		%	1.45		%	1.70		%
Reserve for Loan Losses:
At period end	$	5,177		$	5,218		$	5,083
As a % of average loans	1.14		%	1.24		%	1.23		%
As a % of nonperforming loans	129.98		%	111.33		%	94.57		%
As a % of nonaccrual loans	129.98		%	111.33		%	94.57		%
Texas Ratio	9.02		%	10.17		%	13.59		%
Charge-off Information (year to date):
Average loans	$	453,023		$	422,440		$	413,467
Net charge-offs	$	516		$	978		$	813
Charge-offs as a % of average loans	.23		%	.23		%	.40		%

8

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES QUARTERLY FINANCIAL HIGHLIGHTS

	QUARTER ENDED
	(Unaudited)
	June 30,			March 31,			December 31,			September 30,			June 30,
	2013			2013			2012			2012			2012
BALANCE SHEET (Dollars in thousands)
Total loans	$	455,555		$	454,051		$	449,177		$	433,958		$	419,453
Allowance for loan losses	(5,177		)	(5,037		)	(5,218		)	(5,186		)	(5,083		)
Total loans, net	450,378			449,014			443,959			428,772			414,370
Total assets	553,501			541,896			545,980			551,117			524,366
Core deposits	357,935			362,911			372,496			372,500			357,933
Noncore deposits (1)	89,972			62,325			62,061			66,863			67,448
Total deposits	447,907			425,236			434,557			439,363			425,381
Total borrowings	35,925			40,925			35,925			35,925			35,997
Common shareholders’ equity	62,520			62,039			61,448			61,945			49,352
Total shareholders’ equity	66,520			73,039			72,448			72,945			60,352
Total shares outstanding	5,554,459			5,557,859			5,559,859			5,559,859			3,419,736
Weighted average shares outstanding	5,556,133			5,559,859			5,559,859			4,722,029			3,419,736
AVERAGE BALANCES (Dollars in thousands)
Assets	$	548,455		$	541,279		$	545,661		$	545,788		$	511,681
Loans	456,937			449,065			438,168			424,461			422,887
Deposits	439,780			429,174			433,573			439,327			416,657
Common Equity	62,483			61,238			61,936			56,327			44,927
Equity	67,483			72,238			72,936			67,327			55,915
INCOME STATEMENT (Dollars in thousands)
Net interest income	$	5,269		$	5,156		$	5,112		$	4,930		$	5,019
Provision for loan losses	100			375			150			150			150
Net interest income after provision	5,169			4,781			4,962			4,780			4,869
Total noninterest income	1,251			758			983			1,149			1,305
Total noninterest expense	4,523			4,311			4,349			4,367			4,207
Income before taxes	1,897			1,228			1,596			1,562			1,967
Provision for income taxes	637			415			536			528			(2,335		)
Net income	1,260			813			1,060			1,034			4,302
Preferred dividend expense	63			137			138			137			161
Net income available to common shareholders	$	1,197		$	676		$	922		$	897		$	4,141
PER SHARE DATA
Earnings	$	.22		$	.12		$	.21		$	.21		$	.97
Book value per common share	11.26			11.16			11.05			11.14			14.43
Market value, closing price	8.88			9.21			7.09			7.60			5.99
ASSET QUALITY RATIOS
Nonperforming loans/total loans	.87		%	.84		%	1.07		%	1.23		%	1.28		%
Nonperforming assets/total assets	1.17			1.41			1.47			1.61			1.70
Allowance for loan losses/total loans	1.14			1.11			1.16			1.20			1.21
Allowance for loan losses/nonperforming loans	129.98			131.41			111.33			96.99			94.57
Texas ratio (2)	9.02			9.81			10.17			11.26			13.59
PROFITABILITY RATIOS
Return on average assets	.88		%	.51		%	.67		%	.65		%	3.21		%
Return on average common equity	7.69			4.47			5.93			6.33			36.57
Return on average equity	7.12			3.79			5.03			5.29			29.39
Net interest margin	4.16			4.18			4.11			4.10			4.30
Efficiency ratio	68.02			72.65			70.52			67.29			63.61
Average loans/average deposits	103.90			104.63			99.45			96.62			101.50
CAPITAL ADEQUACY RATIOS
Tier 1 leverage ratio	11.01		%	12.23		%	11.98		%	10.16		%	9.95		%
Tier 1 capital to risk weighted assets	12.74			13.98			13.81			12.87			11.55
Total capital to risk weighted assets	13.85			15.06			14.93			14.12			12.80
Average equity/average assets	12.30			13.16			13.37			10.93			11.01
Tangible equity/tangible assets	12.02			13.48			13.27			13.24			11.51

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

(2) Texas ratio equals nonperforming assets divided by shareholders’ equity plus allowance for loan losses

9