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mBank: A Community Bank Success Story

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July, 2016 • Volume 1 • Number 5

Page 4 Great Lakes Banker • July 2016

mBank’s Success Story: People Powered. Community Focused. Client Driven.By Charles M. Cooper

Generous. Committed. Ahead of the curve. Well capitalized. Vibrant. Family-oriented. Customer-focused: These are just a few of the words used to describe mBank, the principal subsidiary of Mackinac Financial Corporation [Nasdaq: MFNC]; but, just over a decade ago, the now thriving, client-focused and community-driven financial pillar of Northern Michigan was in a very different place. With an uncertain future, dipping asset size and an

unknown, industry-wide financial crisis looming, it was time to get creative.

Determined to succeed, that’s precisely the approach the management team chose. A real success story, the community banking institution, formerly known as First National Bank in Manistique, then North Country Bank and Trust, was able to recapitalize successfully in 2004 and start anew as mBank. Since then, mBank has seen an impressive continued increase in asset size through organic growth and strategic acquisitions. By the end of the current calendar year, the bank’s asset size is estimated to increase by more than 200% since the recapitalization; and with its third acquisition pending, mBank’s footprint is also due to expand yet again.

GrowthMackinac Financial Corporation Chairman and CEO,

and mBank Chairman, Paul D. Tobias, summed up the organization’s success at the most recent annual meeting: “2015 has been our best year, both financially and developmentally, since the 2004 recapitalization

of the holding company and has maintained increasing trends in many value metrics.”

Since its rebirth, and after two successful acquisitions, mBank has twenty branch locations: seventeen in Michigan and three in Northern Wisconsin. The acquisitions that have played a role in the organization’s growth include:

• Peninsula Bank (Ishpeming, Michigan), acquired in December 2014, included 6 branch locations, roughly $126 million in Assets, approximately $100 million in Deposits, and around $67 million in Loans.

• First National Bank of Eagle River (Eagle River, Wisconsin), acquired in April 2016, included 3 branch locations, roughly $125 million in Assets, approximately $100 million in Deposits, and around $80 million in Loans.

mBank has been patient in evaluating and executing its external growth strategy while continuing to improve operational efficiencies. When allocating capital for growth, the company has three minimum requirements for potential mates: access the best return with manageable risk; add locations that complement its current footprint; and employ similar business philosophies and company culture.

Today, a third acquisition of a like-minded institution is in the works. On May 24, 2016, the Directors of Mackinac Financial Corporation and the Directors of Niagara Bancorporation, the holding company for First National Bank of Niagara, announced the execution of a definitive agreement for the acquisition of Niagara in an all cash transaction for a fixed $7.325 million purchase price. Pending regulatory approval, the transaction is expected to close mid-third quarter of this year.

The First National Bank of Niagara transaction will increase mBank’s asset position as the largest bank headquartered in the Upper Peninsula of Michigan with post-transaction assets estimated at approximately $930 million and gross balance sheet loans of roughly $735 million. Total loans under management, including service-retained portfolios, equates to approximately $1 billion. Combined core deposits are expected to total approximately $650 million. The transaction will be Mackinac Financial Corporation’s second in 2016 and will increase the number of branch locations in Wisconsin from three to seven and total branches from twenty to twenty-four.

It is also anticipated that mBank will rank as the 12th largest financial institution headquartered in Michigan,

Paul D. Tobias Mackinac Financial

Corporation Chairman and CEO, and mBank Chairman

Marquette regional office and branch office On the Cover: The Mansitique, Michigan, headquarters of mBank

Great Lakes Banker • July 2016 Page 5

out of 106 banks (ranked by total assets of such institutions as of March 31, 2016 after giving effect to the acquisition).

mBank is also seeking to foster growth in its asset based lending business, Mackinac Commercial Credit (MCC), located in Southeast Michigan, which was transferred from a holding company subsidiary and folded into the bank during the fourth quarter of 2015. Management believes that bringing the division under the bank will strategically position it for more success given lower funding costs, more referral sources, and brand leverage of being directly associated with a well-capitalized and good performing financial institution.

The Secret IngredientBeyond the well-thought

out strategic acquisitions and internal decisions, mBank continues to be most proud of having built a highly talented and dedicated work force. A work force that is fully committed to the communities in which the organization operates. “Our people always have, and always will be, the cornerstone of our strength as a community bank,” said Kelly W. George, Mackinac Financial Corporation President, and mBank President and CEO.

mBank has a pretty expansive footprint, larger than most banks under $1B. According to George, even operating at that level doesn’t impact the personalized feel that mBank’s customers experience. mBank works to provide a positive atmosphere in which to work. That positivity makes for happy employees, which in turn translates to happy customers.

In mBank’s management team’s eyes, the commitment and operating level of the entire staff is the primary ingredient to achieving overall performance and risk management objectives. The bank ensures its employees have the necessary training, skills, and knowledge to be successful in their various positions. Because management believes in promoting from within, those talented staff understand that with hard work they can access a clear path for their own advancement. As mBank’s footprint grows, its talent pool is also going to increase. Once the Niagara deal is closed, mBank will have nearly 250 employees.

Community TiesmBank’s commitment to cultivating a strong company

culture also translates to serving the communities in which it operates. mBank makes investments of time and money in areas that meet community needs, including

but not limited to: education, literacy, human services, animal welfare and health care organizations. “There are numerous highly valuable organizations throughout our markets that have a positive impact on the local residents,” said George. “If our involvement can magnify that impact, we believe it is our responsibility to help in those efforts and we are happy to do so along with the many volunteer hours from our dedicated local staff.”

Whether it’s making a donation to Eagle River Revitalization Program (Wisconsin); supporting the Upper Peninsula Honor Flight program that takes WWII and Korean veterans to see the Memorials that stand in their honor; or stuffing backpacks with school supplies for Gaylord Community Schools (Michigan); the bank as a whole, as well as its employees, is dedicated to making an impact. Over the past five years, mBank has supported various community causes by investing more than $420,000.

Kelly W. GeorgeMackinac Financial

Corporation President, and mBank President and CEO

Page 6 Great Lakes Banker • July 2016

mBank Means BusinessWhen mBank staff isn’t acquiring new skills or

volunteering for a local cause, they can be found empowering individuals and small- to medium-sized businesses with smart financing and depository solutions. Helping hardworking people meet their financial goals in Southeast Michigan, Northern Michigan, the Upper Peninsula, and most recently Northern Wisconsin is one of mBank’s primary goals.

The company’s banking services include commercial lending and treasury management products and services, as well as a full array of personal and business deposit products and consumer loans. Each service comes complete with personalized support and the security of knowing that mBank believes protecting customer data is essential. The convenience of online and mobile banking make mBank’s offering extremely competitive with those of larger, less personalized banks.

On the business end, mBank helps Michigan and Wisconsin businesses grow smart. Even as the needs of individual business owners change, mBank staff recognizes that their common goal of success does not, taking appropriate steps to support them every step of the way.

As the largest bank by asset size located in the Upper Peninsula, headquartered in Mansitique, Michigan, the bank often ranks in the Top 10 Small Business Administration (SBA) lenders in Michigan in the number of transactions and dollar amount; and has been named Michigan SBA Community Lender of the Year; as well as Development Lender of the Year. “Funding small business is an ongoing focus for mBank,” said George. “It’s part of our reinvestment mindset. We invest in our staff. We invest in our local community organizations. We invest in the businesses that support the livelihood of our communities. It really does come full circle.”

mBank plans to continue to be a state leader in various government lending programs partnering with the Small Business Administration (SBA), United States Department of Agriculture (USDA) and Michigan Economic Development Corporation (MEDC) to provide needed capital to local small businesses for expansion and operating needs.

Moving ForwardWith the next addition around the corner for mBank,

the increased footprint will allow the organization to offer an even more convenient and comprehensive banking experience to both Western Upper Peninsula and Northern Wisconsin markets. In turn, the bank plans to expand and deepen valued client relationships and develop new customers in the region where the business ecologies are quite similar. According to George, beyond the Niagara transaction, mBank will continue with solid organic growth and to seek out additional strategic and accretive acquisitions that fit with mBank’s mission statement. “With a calculated focus on our business trifecta: quality, dedicated staff; community support; and solution-oriented products and services we’re sure that’s a recipe for even more success.”