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):  November 3, 2016

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 2.02RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

On November 3, 2016, Registrant issued a press release announcing its results of operations for the three and nine months ended September 30, 2016 and Statement of Financial Condition as of September 30, 2016.  The press release is attached as Exhibit No. 99 and incorporated herein by reference.

ITEM 9.01FINANCIAL STATEMENTS AND EXHIBITS.

(d)Exhibits

The following exhibits are furnished herewith:

EXHIBIT
NUMBER	EXHIBIT DESCRIPTION
99	Press Release of Mackinac Financial Corporation dated November 3, 2016

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: November 3, 2016
		By:	/s/ Jesse A. Deering
			Jesse A. Deering
			EVP/CFO

2

EXHIBIT INDEX

EXHIBIT
NUMBER	EXHIBIT DESCRIPTION
99	Press Release November 3, 2016

3

EX-99

Exhibit 99

PRESS RELEASE

For Release:	November 3, 2016
Nasdaq:	MFNC
Contact:	Paul D. Tobias, (248) 290-5901 / ptobias@bankmbank.com
	Jesse A. Deering, (248) 290-5906 /jdeering@bankmbank.com
Website:	www.bankmbank.com

MACKINAC FINANCIAL CORPORATION

REPORTS NINE MONTH AND THIRD QUARTER RESULTS FOLLOWING SECOND ACQUISITION OF 2016

Manistique, Michigan — Mackinac Financial Corporation (Nasdaq: MFNC) (the “Corporation”), the bank holding company for mBank, today announced third quarter 2016 net income of $1.778 million, or $.28 per share, compared to net income available to common shareholders of $1.018 million, or $.16 per share for the third quarter of 2015. In connection with the acquisitions of Niagara Bancorporation, Inc. (“Niagara”) and First National Bank of Eagle River (“Eagle River”), the Corporation had total GAAP pre-tax transaction related expenses for the third quarter of $.359 million that reduced net income by $.237 million or $.04 per share, on an after tax basis.  The adjusted net income for the third quarter of 2016 (exclusive of all transaction related expenses) is $2.015 million, or $.32 per share.

Operating results for the first nine months of 2016, including transaction related expenses from both Niagara and Eagle River, totaled $2.785 million or $.45 per share compared to $4.003 million or $.64 per share for the same period in 2015. Year-to-date transaction related expenses, largely associated with the early termination of the Eagle River data processing system, totaled $2.928 million with an after-tax impact of $1.932 million on earnings equating to $.31 per share. Adjusted net income for the first nine months of 2016 for the Corporation is $4.718 million, or $.76 per share.

Total assets of the Corporation at September 30, 2016 were $959.121 million, compared to $754.972 million at September 30, 2015. Shareholders’ equity at September 30, 2016 totaled $78.285 million, compared to $76.091 million on September 30, 2015. The book value per share equated to $12.50 on September 30, 2016 compared to $12.18 per share a year ago.  Quarter-end tangible book value was $11.23 per and share and market price was $11.49, or 102% of tangible book value.  Weighted average shares outstanding totaled 6,226,371 for the first nine months of 2016 compared to 6,247,416 for the same period in 2015.

mBank, the Corporation’s subsidiary bank, recorded nine-month adjusted net income of $5.611 million compared to $5.003 million in 2015.  Inclusive of $2.512 million of transaction related expenses at the bank ($1.658 million after tax), net income was $3.953 million for the first nine months of 2016.

Key highlights for the first nine months of 2016 results include:

·The 2016 acquisitions of Niagara and Eagle River added approximately $194 million in assets, $115 million in loan balances and $163 million in core deposits to the Corporation.  Since September 30, 2014 (which is inclusive of the Peninsula Financial Corporation acquisition in December 2014 and organic growth) the company has grown assets approximately $345 million from $613.943 million to the current $959.121 million, an increase of 56%.

·Healthy new loan production of $206.8 million through September 2016 compared to $175.4 million through September 2015.

·Total interest income of $27.398 million through September 2016 compared to $25.117 million for the same period in 2015.

·Margin remains solid, at 4.21% through disciplined pricing of loan and deposit products. Net interest income increased from $21.755 million in 2015 to $23.980 million in 2016, a 10% increase.

·Credit quality remains strong with a Texas Ratio of 10.55% compared to 13.41% one year ago, and nonperforming assets of $7.938 million, or .83% of total assets, compared with $10.324 million, or 1.37 % of total assets, for the same period in 2015.

·Increased contribution from secondary mortgage market activity. Income from this source in the 2016 nine-month period totaled $1.118 million compared to $.750 million in the 2015 nine-month period.

·Gains on sold SBA (Small Business Administration) loan premiums through September 2016 was $.717 million compared to $.440 million for the same period of 2015.

Loans and Nonperforming Assets

Total loans at September 30, 2016 were $756.804 million, a $136.898 million increase from $619.906 million at September 30, 2015. The Corporation is up $138.410 million, or 22.3%, from year-end 2015 total loans of $618.394 million. In addition to the aforementioned balance sheet totals, the company services $233.356 million of sold mortgage loans and $43.160 million of sold SBA and USDA loans. Total loans under management now total $1.033 billion.

New loan production totaled $206.777 million with the Upper Peninsula region contributing $127.880 million, the Northern Lower Peninsula $38.479 million, Southeast Michigan $34.099 million and the newly acquired Wisconsin markets $6.319 million. Commercial loan production accounted for $114.842 million of the nine month total, with consumer loans, primarily 1-4 family mortgages, of $91.935 million.  Commenting on new loan production and overall lending activities, Kelly W. George, President and CEO of mBank stated, “We are very pleased with the new loan opportunities and production in all our markets which is up over $31 million from the prior year. Our net loan balances did not quite increase commensurate with production as we experienced some loan portfolio runoff early in the year due, in part, to customers shopping rates that we would not match.  The strategic acquisitions of both Eagle River and Niagara have, however, provided loan balance growth and scale as expected.  We have a healthy loan pipeline for the remainder of the year for both commercial and mortgage business.  As noted in our totals, we are also excited about the momentum in our newly acquired markets in Wisconsin and the new loan generation potential they carry.”

Nonperforming loans totaled $4.669 million, .62% of total loans at September 30, 2016, down $3.359 million from September 30, 2015 balances of $8.028 million.  Total loan delinquencies greater than 30 days resided at a nominal .65%, or $4.975 million. Mr. George, commenting on credit quality, stated, “Our credit quality risk metrics and overall loan portfolio payment performance remains strong with no systemic issues within any segments of the portfolio. The pick-up in retail segment loans from our two acquisitions this year has also provided increased granularity and better overall diversity for the entire loan portfolio on a macro level. Our credit due diligence and purchase accounting marks on the acquired loan portfolios of Eagle River and Niagara have proven accurate as well, and they are providing accretion at anticipated levels post-closing.”

Margin Analysis

In the first nine months of 2016 net interest income and net interest margin were $23.980 million and 4.21%, from $21.755 million and 4.29%, in the first nine months of 2015.  The increase in net interest income was largely due to the Niagara and Eagle River acquisitions.  The Corporation also had increased net interest contribution due to the accretive attributes associated with the purchase accounting adjustments related to the three acquisitions completed in the past two years. Mr. George stated, “We have been successful in maintaining our strong net interest margin within this historically low interest rate cycle through the use of continued targeted funding strategies and disciplined loan pricing in efforts to mitigate longer term interest rate risk. We continue to look for any loan and investment opportunities that fit our balance sheet structure but will not take unnecessary risk or extend durations in order to enhance short term yields.  While we acquired some excess liquidity through the acquisitions and experienced summer seasonal increases in our deposit portfolio, we have been able to

normalize the cash position and put those dollars to work funding good loan opportunities.  Further, we remain predominantly asset sensitive within our balance sheet structure and expect that upward movements of short term interest rates will be beneficial for future earnings.”

Deposits

Total deposits of $807.180 million at September 30, 2016 increased by $184.846 million (including approximately $163 million from the Niagara and Eagle River acquisitions) from deposits of $622.334 million on September 30, 2015 and increased $196.857 million from year end deposits of $610.323 million.  Mr. George, commenting on core deposits and overall liquidity, stated. “We proactively review our short and long term funding needs and pricing levels within the different segments of our deposit products in order to best manage our net interest margin while still offering competitive products to our clientele. We will also utilize alternative funding sources such as internet CDs and smaller levels of wholesale deposits when deemed necessary to structure different liabilities to match asset growth durations, and cover any potential short term funding gaps that could arise to protect our balance sheet in various interest rate change scenarios.  Through the acquisitions, we have augmented our core deposit base to where our utilization of non-core sources has decreased as a percent of our total assets.”

Noninterest Income/Expense

Noninterest income, at $3.012 million in the first nine months of 2016, increased $.265 million from $2.747 million in the first nine months of 2015.  The primary reason for the improvement was increased year over year activity in the secondary mortgage market as well as SBA gains.  Income from sold secondary mortgages totaled $1.118 million compared to $.750 million in the 2015 nine-month period while SBA gains were $.717 million compared to $.440 million in 2015.  Noninterest expense, at $22.376 million in the first nine months of 2015, increased $4.806 million from the first nine months of 2015. The 2016 increase from the first nine months of 2015 was largely attributable to the acquisition costs including the aforementioned termination fee. There were also customary increases in salaries and benefits for new staff, along with increased occupancy expense due to the acquired branch offices. Consistent with management’s operating diligence projections prior to both acquisitions, the Corporation has reached the attained levels of overall efficiencies as management looks to grow market presence heading into 2017. Management remains diligent in monitoring and controlling the Corporation’s overall expense base, which continues to reside at or below peer levels.

Assets and Capital

Total assets of the Corporation at September 30, 2016 were $959.121 million, up $204.149 million from the $754.972 million reported at September 30, 2015, with approximately $194 million attributable to the acquisitions in 2016, and up from the $739.269 million of total assets at year-end 2015. The Corporation is “adequately” capitalized and the Bank is “well-capitalized” with Total Capital to Risk Weighted Assets at the Corporation of 8.81% and 11.61% at the Bank.

Paul D. Tobias, Chairman and Chief Executive Officer of the Corporation added, “Overall, we are pleased with the execution of our plan through the first three quarters of 2016.  Even with a very competitive market for good loans and the stagnant interest rate environment, we have continued to add accretive scale.  Our entry into the Wisconsin markets provides a larger platform for continued organic growth and adds complementary markets to our Upper Peninsula footprint.  We have maintained our key core operating metrics and have positioned the company in a way that will allow us to take advantage of any future strategic opportunities that present themselves.  We are looking forward to a solid finish to the year now that the integration of both Niagara and Eagle River is complete.”

Mackinac Financial Corporation is a registered bank holding company formed under the Bank Holding Company Act of 1956 with assets in excess of $950 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 23 branch locations; twelve in the Upper Peninsula, three in the Northern Lower Peninsula, in Oakland County, Michigan and seven in Northern Wisconsin.  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 and revenue enhancements from mergers and acquisitions, bank consolidations, 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.

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

SELECTED FINANCIAL HIGHLIGHTS

	As of and For the			As of and For the			As of and For the
	Period Ending			Year Ending			Period Ending
	September 30,			December 31,			September 30,
(Dollars in thousands, except per share data)	2016			2015			2015
	(Unaudited)						(Unaudited)
Selected Financial Condition Data (at end of period):
Assets	$	959,121		$	739,269		$	754,972
Loans	756,804			618,394			619,906
Investment securities	88,886			53,728			54,432
Deposits	807,180			610,323			622,334
Borrowings	67,730			45,754			49,593
Shareholders’ equity	78,285			76,602			76,091
Selected Statements of Income Data nine months and year ended):
Net interest income	$	23,980		$	29,120		$	21,755
Income before taxes	4,266			7,929			6,077
Net income	2,785			5,596			4,003
Income per common share - Basic	.45			.90			.64
Income per common share - Diluted	.45			.89			.64
Weighted average shares outstanding	6,226,900			6,247,416			6,247,416
Weighted average shares outstanding- Diluted	6,255,803			6,278,817			6,278,817
Three Months Ended:
Net interest income	$	8,696		$	7,365		$	7,235
Income before taxes	2,700			1,852			1,544
Net income	1,778			1,593			1,018
Income per common share - Basic	.29			.26			.16
Income per common share - Diluted	.28			.26			.16
Weighted average shares outstanding	6,238,756			6,225,614			6,238,963
Weighted average shares outstanding- Diluted	6,284,359			6,257,180			6,278,009
Selected Financial Ratios and Other Data:
Performance Ratios:
Net interest margin	4.21		%	4.30		%	4.29		%
Return on average assets	.45			.76			.72
Return on average equity	4.75			7.41			7.09
Average total assets	$	834,378		$	738,688		$	740,593
Average total shareholders’ equity	78,264			75,545			75,436
Average loans to average deposits ratio	98.84		%	100.52		%	100.08		%
Common Share Data at end of period:
Market price per common share	$	11.49		$	11.49		$	10.10
Book value per common share	12.50			12.32			12.18
Tangible book value per share	11.23			11.54			11.39
Dividends paid per share, annualized	.400			.400			.400
Common shares outstanding	6,263,371			6,217,620			6,249,595
Other Data at end of period:
Allowance for loan losses	$	4,862		$	5,004		$	5,779
Non-performing assets	$	7,938		$	4,863		$	10,324
Allowance for loan losses to total loans	.64		%	.81		%	.93		%
Non-performing assets to total assets	.83		%	.66		%	1.37		%
Texas ratio	10.55		%	6.34		%	13.41		%
Number of:
Branch locations	23			17			17
FTE Employees	218			173			173

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30			December 31,			September 30
	2016			2015			2015
	(Unaudited)						(Unaudited)
ASSETS
Cash and due from banks	$	46,200		$	25,005		$	28,581
Federal funds sold	2,415			3			10,000
Cash and cash equivalents	48,615			25,008			38,581
Interest-bearing deposits in other financial institutions	14,047			5,089			5,089
Securities available for sale	88,886			53,728			54,432
Federal Home Loan Bank stock	2,926			2,169			2,169
Loans:
Commercial	513,266			450,275			446,327
Mortgage	222,840			152,272			156,764
Consumer	20,698			15,847			16,815
Total Loans	756,804			618,394			619,906
Allowance for loan losses	(4,862		)	(5,004		)	(5,779		)
Net loans	751,942			613,390			614,127
Premises and equipment	16,028			12,524			12,670
Other real estate held for sale	3,269			2,324			2,296
Deferred tax asset	9,287			9,213			9,326
Deposit based intangibles	2,235			1,076			1,106
Goodwill	5,694			3,805			3,805
Other assets	16,192			10,943			11,371
TOTAL ASSETS	$	959,121		$	739,269		$	754,972
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Noninterest bearing deposits	$	163,278		$	122,775		$	114,769
NOW, money market, interest checking	287,097			202,784			213,737
Savings	60,322			30,882			31,742
CDs<$250,000	150,170			124,084			129,715
CDs>$250,000	9,015			8,532			27,272
Brokered	137,298			121,266			105,099
Total deposits	807,180			610,323			622,334
Borrowings	67,730			45,754			—
Fed funds purchased	—			—			49,593
Other liabilities	5,926			6,590			6,954
Total liabilities	880,836			662,667			678,881
SHAREHOLDERS’ EQUITY:
Preferred stock - No par value:
Authorized 500,000 shares, Issued and outstanding - none	—			—			—
Common stock and additional paid in capital - No par value
Authorized - 18,000,000 shares
Issued and outstanding - 6,226,246; 6,217,620; and 6,239,250 shares respectively	61,433			61,133			61,320
Retained earnings	16,115			15,221			14,229
Accumulated other comprehensive income
Unrealized gains on available for sale securities	786			297			591
Minimum pension liability	(49		)	(49		)	(49		)
Total shareholders’ equity	78,285			76,602			76,091
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	959,121		$	739,269		$	754,972

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2016			2015		2016			2015
	(Unaudited)					(Unaudited)
INTEREST INCOME:
Interest and fees on loans:
Taxable	$	9,441		$	8,019	$	26,085		$	23,986
Tax-exempt	19			3		34			9
Interest on securities:
Taxable	387			282		953			845
Tax-exempt	57			35		114			129
Other interest income	91			46		212			148
Total interest income	9,995			8,385		27,398			25,117
INTEREST EXPENSE:
Deposits	870			843		2,410			2,467
Borrowings	429			307		1,008			895
Total interest expense	1,299			1,150		3,418			3,362
Net interest income	8,696			7,235		23,980			21,755
Provision for loan losses	200			350		350			855
Net interest income after provision for loan losses	8,496			6,885		23,630			20,900
OTHER INCOME:
Deposit service fees	259			196		723			624
Income from loans sold on the secondary market	512			301		1,118			750
SBA/USDA loan sale gains	551			40		717			440
Mortgage servicing income	(12		)	9		(74		)	239
Net security gains	40			133		149			402
Other	139			94		379			292
Total other income	1,489			773		3,012			2,747
OTHER EXPENSE:
Salaries and employee benefits	3,687			3,139		10,592			9,102
Occupancy	680			602		1,960			1,804
Furniture and equipment	440			370		1,248			1,159
Data processing	440			327		1,118			1,041
Advertising	157			153		494			399
Professional service fees	309			348		807			928
Loan and deposit	152			136		434			399
Writedowns and losses on other real estate held for sale	60			104		62			141
FDIC insurance assessment	131			135		356			383
Telephone	140			108		374			346
Transaction related expenses	359			—		2,928			—
Other	730			692		2,003			1,868
Total other expenses	7,285			6,114		22,376			17,570
Income before provision for income taxes	2,700			1,544		4,266			6,077
Provision for income taxes	922			526		1,481			2,074
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	1,778			1,018		2,785			4,003
INCOME PER COMMON SHARE:
Basic	$	.29		$	.16	$	.45		$	.64
Diluted	$	.28		$	.16	$	.45		$	.64

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES

LOAN PORTFOLIO AND CREDIT QUALITY

(Dollars in thousands)

Loan Portfolio Balances (at end of period):

	September 30,		December 31,		September 30,
	2016		2015		2015
	(Unaudited)		(Unaudited)		(Unaudited)
Commercial Loans:
Real estate - operators of nonresidential buildings	$	110,252	$	102,620	$	102,897
Hospitality and tourism	53,182		41,300		41,156
Lessors of residential buildings	23,939		25,930		25,911
Gasoline stations and convenience stores	20,286		21,647		17,077
Commercial construction	14,343		15,330		15,498
Real estate agents and managers	9,962		11,225		9,785
Other	281,302		232,223		234,003
Total Commercial Loans	513,266		450,275		446,327
1-4 family residential real estate	211,072		140,502		144,807
Consumer	20,698		15,847		16,815
Consumer construction	11,768		11,770		11,957
Total Loans	$	756,804	$	618,394	$	619,906

Credit Quality (at end of period):

	September 30			December 31,			September 30
	2016			2015			2015
	(Unaudited)			(Unaudited)			(Unaudited)
Nonperforming Assets :
Nonaccrual loans	$	4,498		$	2,353		$	7,226
Loans past due 90 days or more	32			32			—
Restructured loans	139			154			802
Total nonperforming loans	4,669			2,539			8,028
Other real estate owned	3,269			2,324			2,296
Total nonperforming assets	$	7,938		$	4,863		$	10,324
Nonperforming loans as a % of loans	.62		%	.41		%	1.30		%
Nonperforming assets as a % of assets	.83		%	.66		%	1.37		%
Reserve for Loan Losses:
At period end	$	4,862		$	5,004		$	5,779
As a % of average loans	.71		%	.83		%	.95		%
As a % of nonperforming loans	104.13		%	197.09		%	71.99		%
As a % of nonaccrual loans	108.09		%	212.66		%	79.98		%
Texas Ratio	10.55		%	6.34		%	13.41		%
Charge-off Information (year to date):
Average loans	$	680,027		$	602,904		$	607,284
Net charge-offs (recoveries)	$	492		$	1,340		$	216
Charge-offs as a % of average loans, annualized	.10		%	.22		%	.05		%

MACKINAC FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL HIGHLIGHTS

	QUARTER ENDED
	(Unaudited)
	September 30			June 30,				March 31,			December 31,			September 30,
	2016			2016				2016			2015			2015
BALANCE SHEET (Dollars in thousands)
Total loans	$	756,804		$	725,635			$	618,625		$	618,394		$	619,906
Allowance for loan losses	(4,862		)	(4,733			)	(4,824		)	(5,004		)	(5,779		)
Total loans, net	751,942			720,902				613,801			613,390			614,127
Total assets	959,121			892,328				732,932			739,269			754,972
Core deposits	660,867			579,606				473,761			480,525			509,466
Noncore deposits	146,313			158,757				119,217			129,798			112,868
Total deposits	807,180			738,363				592,978			610,323			622,334
Total borrowings	67,730			70,604				56,454			45,754			49,593
Total shareholders’ equity	78,285			77,081				77,395			76,602			76,091
Total tangible equity	70,356			69,916				72,544			71,721			71,180
Total shares outstanding	6,263,371			6,226,246				6,231,246			6,217,620			6,249,595
Weighted average shares outstanding	6,238,756			6,227,730				6,214,083			6,225,614			6,247,416
AVERAGE BALANCES (Dollars in thousands)
Assets	$	930,353		$	834,674			$	737,088		$	733,035		$	751,153
Loans	734,702			689,462				615,684			613,846			614,315
Deposits	780,265			679,183				604,363			602,857			624,528
Equity	78,027			79,481				77,284			75,871			76,362
INCOME STATEMENT (Dollars in thousands)
Net interest income	$	8,696		$	7,996			$	7,288		$	7,365		$	7,235
Provision for loan losses	200			150				—			349			350
Net interest income after provision	8,496			7,846				7,288			7,016			6,885
Total noninterest income	1,489			896				627			1,142			773
Total noninterest expense	7,285			8,893				6,198			6,306			6,114
Income before taxes	2,700			(151		)		1,717			1,852			1,544
Provision for income taxes	922			(26		)		585			259			526
Net income available to common shareholders	$	1,778		$	(125	)		$	1,132		$	1,593		$	1,018
Income pre-tax, pre-provision	$	2,900		$	(1	)		$	1,717		$	2,201		$	1,894
PER SHARE DATA
Earnings	$	.29		$	(.02	)		$	.18		$	.26		$	.16
Book value per common share	12.50			12.38				12.42			12.32			12.18
Tangible book value per share	11.23			11.23				11.64			11.54			11.39
Market value, closing price	11.49			11.01				10.25			11.49			10.10
Dividends per share	.100			.100				.100			.100			.100
ASSET QUALITY RATIOS
Nonperforming loans/total loans	.62		%	.46		%		.28		%	.50		%	1.30		%
Nonperforming assets/total assets	.83			.76				.60			.73			1.37
Allowance for loan losses/total loans	.64			.65				.78			.81			.93
Allowance for loan losses/nonperforming loans	104.13			142.52				280.96			197.09			71.99
Texas ratio (1)	10.55			9.13				5.61			6.34			13.41
PROFITABILITY RATIOS
Return on average assets	.76		%	(.06		)%		.62		%	.86		%	.54		%
Return on average equity	9.06			(.63		)		5.89			8.33			5.28
Net interest margin	4.18			4.19				4.33			4.34			4.18
Average loans/average deposits	94.16			101.51				101.87			101.82			98.36
CAPITAL ADEQUACY RATIOS
Tier 1 leverage ratio	7.29		%	7.68		%		9.55		%	9.81		%	9.02		%
Tier 1 capital to risk weighted assets	8.22			8.76				10.82			10.23			10.28
Total capital to risk weighted assets	8.81			9.39				11.57			11.94			11.17
Average equity/average assets (for the quarter)	8.39			9.52				10.49			11.19			10.19
Tangible equity/tangible assets (at quarter end)	7.40			7.90				9.96			9.77			9.49