Summary of MACKINAC FINANCIAL CORP /MI/

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD 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.

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MACKINAC FINANCIAL CORPORATION ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued) The following discussion will cover results of operations, asset quality, financial position, liquidity, interest rate sensitivity, and capital resources for the periods indicated. 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. This discussion should be read in conjunction with the consolidated financial statements and footnotes contained in the Corporation's Annual Report and Form 10-K for the year-ended December 31, 2007. Throughout this discussion, the term "Bank" refers to mBank, the principal banking subsidiary of the Corporation.
FINANCIAL OVERVIEW
Year-to-date consolidated net income was $1.908 million through June 30, 2008, compared to a net income of $1.581 million for the same period in 2007. Basic income per share was $.56 for the six months ended June 30, 2008, compared to an income per share of $.46 for the same period in 2007. The income for the three months ended June 30, 2008 amounted to $1.769 million, or $.52 per share, compared to an income of $.546 million, or $.16 per share for the same period in 2007. The results of operations for the first six months of 2008 include $3.475 million of proceeds from the settlement of a shareholder lawsuit, the negative effects of a severance agreement expense of $.425 million, and a $.750 million provision for loan loss. During the comparable six month period in 2007, the Corporation recorded income from proceeds of the settlement of a lawsuit against the Corporation's former accountants in the amount of $470,000. Total assets increased $28.447 million from December 31, 2007 to June 30, 2008. The loan portfolio increased $7.043 million in the first six months of 2008, from December 31, 2007 balances of $355.079 million. Deposits totaled $356.976 million at June 30, 2008, an increase of $36.149 million from the $320.827 million at December 31, 2007.
FINANCIAL CONDITION
Cash and Cash Equivalents
Cash and cash equivalents increased $20.027 million in 2008. See further discussion of the change in cash and cash equivalents in the Liquidity section. Investment Securities
Available-for-sale securities increased $1.633 million, or 7.56%, from December 31, 2007 to June 30, 2008, with the balance on June 30, 2008, totaling $23.230 million. Investment securities are utilized in an effort to manage interest rate risk and liquidity. As of June 30, 2008, investment securities with an estimated fair value of $21.260 million were pledged. Loans
Through the first half of 2008, loan balances increased by $7.043 million, or 1.98%, from December 31, 2007 balances of $355.079 million. During the first six months of 2008, the Bank had total loan production of $34.234 million. This loan production, however, was significantly offset by normal principal runoff and amortization, $15.26 million, and large paydowns and refinancing, which totaled $24.470 million. 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.

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                         MACKINAC FINANCIAL CORPORATION
 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                           OF OPERATIONS (Continued)
Following is a summary of the loan portfolio at June 30, 2008, December 31, 2007
and June 30, 2007 (dollars in thousands):

                              June 30,          Percent of          December 31,          Percent of         June 30,          Percent of
                                2008              Total                 2007                Total              2007              Total
Commercial real estate        $ 186,108               51.39 %      $      171,695               48.35 %      $ 161,823               47.75 %
Commercial, financial,
and agricultural                 77,473               21.39                78,192               22.02           76,390               22.54
One to four family
residential real estate          60,882               16.81                57,613               16.23           55,090               16.26
Consumer                          3,608                1.00                 3,537                1.00            3,538                1.04
Construction
Commercial                       29,064                8.03                38,952               10.97           36,570               10.79
Consumer                          4,987                1.38                 5,090                1.43            5,485                1.62

Total loans                   $ 362,122              100.00 %      $      355,079              100.00 %      $ 338,896              100.00 %

Following is a table showing the significant industry types in the commercial loan portfolio as of June 30, 2008, December 31, 2007 and June 30, 2007 (dollars in thousands):

                                                      June 30, 2008                                                 December 31, 2007                                                 June 30, 2007
                                                       Percent of           Percent of                                 Percent of           Percent of                                 Percent of           Percent of
                                  Outstanding          Commerical          Shareholders'          Outstanding          Commercial          Shareholders'          Outstanding          Commerical          Shareholders'
                                    Balance              Loans                Equity                Balance              Loans                Equity                Balance              Loans                Equity

R/E - oper. of
nonresidential bldgs.            $      41,778               15.85 %               101.96 %      $      41,597               14.40 %               105.79 %      $      41,662               17.49 %               136.66 %
Hospitality and tourism                 35,053               13.30                  85.55               37,604               13.02                  95.63               37,286               15.65                 122.31
Real estate agents and
managers                                27,495               10.43                  67.10               29,571               10.24                  75.20               31,937               13.41                 104.76
Commercial construction                 10,716                4.07                  26.15               38,952               13.49                  99.06               10,270                4.31                  33.69
Other                                  148,539               56.35                 362.51              141,115               48.85                 358.88              117,058               49.14                 383.99


Total Commercial Loans           $     263,581              100.00 %                             $     288,839              100.00 %                             $     238,213              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 gaming to be problematic, and has no intention of further reducing loans to this industry segment. Management does not believe that its current portfolio composition has increased exposure related to any specific industry concentration as of June 30, 2008. The current concentration of real estate related loans represents a broad customer base composed of a high percentage of owner occupied developments.
Credit Quality
Management analyzes the allowance for loan losses in detail on a monthly basis to determine whether the losses inherent in the portfolio are properly reserved for. Net charge-offs for the first half of 2008 amounted to $1.311 million, or 0.36% of average loans outstanding, compared to $.086 million, .03% of average loans outstanding, for the first half of 2007. Current period charge-offs reflect the writedown of three commercial loans, totaling $.862 million, in the second quarter 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.

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                         MACKINAC FINANCIAL CORPORATION
 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                           OF OPERATIONS (Continued)
The table below shows period end balances of nonperforming assets (dollars in
thousands):

                                            June 30,       December 31,      June 30,
                                              2008             2007            2007
   Nonperforming Assets:
   Nonaccrual Loans                        $    4,613     $        3,298     $   4,758
   Loans past due 90 days or more                   -                710           291

   Total nonperforming loans                    4,613              4,008         5,049
   Other real estate owned                      3,395              1,226            77

   Total nonperforming assets              $    8,008     $        5,234     $   5,126

   Nonperforming loans as a % of loans           1.27 %             1.13 %        1.49 %

   Nonperforming assets as a % of assets         1.83 %             1.28 %        1.30 %

   Reserve for Loan Losses:
   At period end                           $    3,585     $        4,146     $   4,920

   As a % of loans                                .99 %             1.17 %        1.45 %

   As a % of nonperforming loans                77.72 %           103.44 %       97.45 %

   As a % of nonaccrual loans                   77.72 %           125.71 %      103.41 %

The following ratios assist management in the determination of the Corporation's credit quality:

                                                        June 30,          December 31,         June 30,
                                                          2008                2007               2007

Total loans, at period end                              $ 362,122        $      355,079        $ 338,896

Average loans for the year                                360,176               333,415          321,414

Allowance for loan losses                                   3,585                 4,146            4,920

Allowance to total loans at period end                        .99 %                1.17 %           1.45 %

Net charge-offs during the period                       $   1,311        $        1,260        $      86

Net charge-offs to average loans                              .36 %                 .38 %            .03 %

Net charge-offs to beginning allowance balance              31.62 %               25.17 %           1.72 %

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 independent review, early in 2008, provided findings similar to management on the overall adequacy of the reserve.

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                         MACKINAC FINANCIAL CORPORATION
 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                           OF OPERATIONS (Continued)
The following table will provide additional information with respect to our
nonperforming assets as of June 30, 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                              $  2,754        $      2,134        $          (620 )      $        620        $             -
Land Development / Condo                         1,042               1,080                     38                 300                    338
Cabins / Land                                      414                 414                      -                   -                      -
1-4 Family                                         203                 197                     (6 )                 6                      -
Non-Farm/Non-Residential                           117                  97                    (20 )                20                      -
Business Equipment                                  50                  50                      -                   -                      -
Land                                                34                  88                     54                   -                     54

Total nonaccrual loans                           4,614               4,060                   (554 )               946                    392


Other Real Estate
Conv 5+ Resdential                               1,746               1,225                   (521 )               521                      -
Land Development                                   511                 511                      -                   -                      -
Motel / Hotel                                      387                 387                      -                   -                      -
Cabins / Land                                      260                 260                      -                   -                      -
1-4 Family                                         217                 198                    (19 )                19                      -
Equipment Storage Building                         150                 150                      -                   -                      -
Downtown Store Frontage / 2 / 1-4 Family            77                  77                      -                   -                      -
Non-Farm/Non-Residential                            46                  46                      -                   -                      -

Total other real estate owned                    3,394               2,854                   (540 )               540                      -


Total Nonperforming Assets                    $  8,008        $      6,914        $        (1,094 )      $      1,486        $           392

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. Following is the allocation for loan losses as of June 30, 2008, December 31, 2007, and June 30, 2007 (dollars in thousands):

                                                         June 30,         December 31,          June 30,
                                                           2008               2007                2007

Commercial, financial and agricultural loans            $    3,276        $       3,808        $    4,261
One to four family residential real estate loans                27                   22                60
Consumer loans                                                  15                   20                 -
Unallocated and general reserves                               267                  296               599


Totals                                                  $    3,585        $       4,146        $    4,920

As of June 30, 2008, the allowance for loan losses represented 0.99% 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.

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                         MACKINAC FINANCIAL CORPORATION
 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                           OF OPERATIONS (Continued)
As part of the process of resolving problem credits, the Corporation may acquire
ownership of 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 for the periods
indicated (dollars in thousands):

                                                        Three Months Ended             Year Ended              Three Months Ended
                                                           June 30, 2008            December 31, 2007            June 30, 2007

Balance at beginning of period                          $             1,226        $                26        $                 26
Other real estate transferred from loans due to
foreclosure                                                           2,439                      1,218                          69
Other real estate sold/written down                                    (270 )                      (18 )                       (18 )


Balance at end of period                                $             3,395        $             1,226        $                 77

During the first six months of 2008, the Corporation received real estate in lieu of loan payments of $2.439 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. Any additional reduction in the fair value results in a write-down of other real estate.
Deposits
The Corporation had an increase in deposits in the first six months of 2008. Total deposits increased by $36.149 million, or 11.27%, in the first six months of 2008. Core deposits increased from $199.809 million at 2007 year end to $200.293 million, an increase of $.484 million. Noncore deposits increased by $35.665 million during the first six months of 2008, largely due to increased liquidity needs. Approximately $20 million of the increase in brokered deposits was due to a "pre-funding" of two issues of brokered CD's which matured early in the month of July. Management continues to monitor existing deposit products in order to stay competitive, as to both terms and pricing. It is the intent of management to be aggressive in our markets to grow core deposits, with an emphasis placed on transactional accounts.
The following table represents detail of deposits at the end of the periods indicated (dollars in thousands):

                                June 30,                              December 31,                             June 30,
                                  2008            % of Total              2007              % of Total           2007            % of Total

Non-interest-bearing            $  27,741                7.77 %      $       25,557                7.97 %      $  28,811                8.97 %
NOW, money market,
checking                           78,703               22.05                81,160               25.30           73,994               23.03
Savings                            15,171                4.25                12,485                3.89           12,422                3.87
Certificates of Deposit
<$100,000                          78,678               22.04                80,607               25.12           96,546               30.05

Total core deposits               200,293               56.11               199,809               62.28          211,773               65.92

Certificates of Deposit
>$100,000                          28,252                7.91                22,355                6.97           24,879                7.75
Brokered CDs                      128,431               35.98                98,663               30.75           84,594               26.33

Total non-core deposits           156,683               43.89               121,018               37.72          109,473               34.08


Total deposits                  $ 356,976              100.00 %      $      320,827              100.00 %      $ 321,246              100.00 %

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MACKINAC FINANCIAL CORPORATION ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued) 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 quarter 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.
Shareholders' Equity
Total shareholders' equity increased $1.654 million from December 31, 2007 to June 30, 2008. The increase is comprised of net income, contributed capital of $42,000 in recognition of stock option expense, a decrease in the market value of securities of $.186 million and the cost of a one-time oddlot share buyback in the amount of $.110 million.
RESULTS OF OPERATIONS
Summary
The Corporation reported income of $1.908 million for the first half of 2008, $.56 per share, compared to net income of $1.581 million, $.46 per share, in the first half of 2007. In the second quarter of 2008, net income was $1.769 million, $.52 per share, compared to $.546 million, $.16 per share, in the second quarter of 2007.
The Corporation is experiencing net interest margin pressure due to an asset sensitive position, since 65% of its commercial loan portfolio, approximately $245 million, reprices with interest rate changes. The Corporation is also reliant on brokered deposits, and rates have not declined in line with asset repricing.
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 . . .