Mackinac Financial (MFNC) 8-K Regulation FD Disclosure

Exhibit 99

August 16, 2006

Dear Shareholders:

This letter will provide additional insight into the performance of Mackinac Financial Corporation for the second quarter of 2006. We continued our 2006 growth in loans and deposits and now have established the foundation of assets necessary for continued profitability.

For the remainder of 2006, we will continue to concentrate on well priced loan growth with funding emphasis on core deposits. This balance sheet growth will lead to increased profitability if we are successful in the execution of the remainder of our plan goals to further reduce noninterest expense and modestly increase noninterest income.

Second Quarter 2006 in-Review

The second quarter marked continued success in the following areas:

• Continued momentum in loan production at $32.1 million in the second quarter;

• Credit Quality:

Ø	Nonaccrual loans at .16% of total loans
Ø	Nonperforming assets at .14% of total assets

In the second quarter we were mildly disappointed with:

• Core deposit growth at $2.3 million, lower than first quarter growth of $8.9 million

• Noninterest expense slightly up from the first quarter

Loan Production

The second quarter provided continued loan growth in all markets. We remain optimistic for the remainder of 2006, yet recognize the effect of a slowing Michigan economy on future opportunities within some of our markets. Growing loans has been the first focal point of our strategy and we have concentrated primarily on commercial loans. In 2006 we have also experienced a resurgence of consumer loan growth. So far in 2006, the Bank has grown consumer loan outstandings by $4.6 million, or 9.8%. We believe that this is further evidence that our decision last year to re-brand the Bank was a good one and it will produce a good return on investment for shareholders. The table and chart below illustrate the success we have experienced in generating loans for the six quarters following recapitalization.

NEW LOAN PRODUCTION

	2005
	First		Second		YTD		Third		Fourth		2005
(dollars in thousands)	Quarter		Quarter		06/30/05		Quarter		Quarter		Total
REGION
Upper Peninsula	$	6,861	$	9,099	$	15,960	$	9,090	$	19,263	$	44,313
Northern Lower Peninsula		686		12,449		13,135		9,698		13,786		36,619
Oakland County		1,100		12,480		13,580		10,434		12,813		36,827
TOTAL	$	8,647	$	34,028	$	42,675	$	29,222	$	45,862	$	117,759

	2006
	First		Second		YTD
	Quarter		Quarter		06/30/06
REGION
Upper Peninsula	$	7,592	$	14,082	$	21,674
Northern Lower Peninsula		7,621		7,655		15,276
Oakland County		14,884		10,320		25,204
TOTAL	$	30,097	$	32,057	$	62,154

The chart below illustrates the portfolio mix of loans for each period end:

Credit Quality

We are pleased that the significant loan growth for 2005 and the first half of 2006 was accomplished without compromising credit quality. As of June 30, 2006, the Corporation’s nonaccrual loans and total nonperforming assets remained at levels considered below peer. The reserve for loan losses was reduced by $600,000 in the first quarter in recognition of the outstanding credit quality. The reserve at June 30, 2006 stood at $5.415 million, 1.91% of loans outstanding.

Core Deposit Growth

The growth of core deposits, which we define as demand deposits, interest bearing checking accounts, money market and savings accounts, and certificates of deposits that are generated by our branch system, continued during the second quarter of 2006, although at a slower pace. We were mildly disappointed with the growth; however, we believe this slowdown is seasonal in nature. We are pleased with the growth overall and continue to experience new account openings which we believe will lead to greater core balances in future periods.

The table and chart below show changes in dollars and number of accounts lost and added by quarter.

DEPOSIT ACCOUNT ACTIVITY

	2005
	First			Second		YTD			Third		Fourth
(dollars in thousands)	Quarter			Quarter		06/30/05			Quarter		Quarter
Core deposit balances	$	150,567		$	156,195				$	162,303	$	174,530
Deposit balance, change	$	(2,282	)	$	5,628	$	3,346		$	6,108	$	12,227
Accounts opened		272			880		1,152			956		1,428
Accounts closed		461			748		1,209			603		867
Net change		(189	)		132		(57	)		353		561
Total accounts		15,837			15,922					18,415		18,415
Average balance, per account (in whole dollars)	$	9,507		$	9,810				$	9,477	$	9,477

	2006
	First		Second		YTD
	Quarter		Quarter		06/30/06
Core deposit balances	$	183,438	$	185,784
Deposit balance, change	$	8,908	$	2,346	$	11,254
Accounts opened		1,236		1,597		2,833
Accounts closed		655		1,088		1,743
Net change		581		509		1,090
Total accounts		19,063		19,572
Average balance, per account (in whole dollars)	$	9,622	$	9,492

Growth in core deposits is important since this less expensive loan funding source will provide the benefits of higher levels of profitability. We are pleased with our progress in growing core deposits but recognize that maintaining future growth at our recent pace will be challenging. We have benefited from our new brand image and the reintroduction of mBank in our historical branch locations. The reintroduction, along with more competitive products and pricing, has allowed us to regain market share. Further growth in these markets is now dependent upon successful marketing supported by a still developing sales culture along with growth in business related accounts as we continue to introduce business banking products that will enhance existing relationships.

Noninterest Income

Noninterest income amounted to $251,000 during the second quarter, well below our planned level of $356,000. Looking forward, noninterest income presents challenges since the Corporation currently has a limited platform for growth. The secondary mortgage market has not developed as we had hoped, and the expected housing slowdown will result in plan variances for the remainder of 2006. We will be initiating a deposit overdraft program late in the third quarter which we believe will increase noninterest revenue.

Noninterest Expense

In the second quarter of 2006, we had a modest increase in noninterest expense. This increase was due to the legal costs we incurred to pursue legal action against the former accountants of the Corporation. We have in fact continued our plan for reduction of noninterest expense in most other categories as illustrated in the table below.

NONINTEREST EXPENSE

	2005
	First		Second		YTD		Third		Fourth		2005
(dollars in thousands)	Quarter		Quarter		06/30/05		Quarter		Quarter		Total
Salaries and employee benefits	$	1,504	$	1,606	$	3,110	$	1,555	$	1,425	$	6,090
Occupancy		226		247		473		275		305		1,053
Furniture and equipment		159		138		297		133		130		560
Data processing		246		246		492		234		994		1,720
Accounting, legal and consulting fees		318		228		546		204		136		886
Loan and deposit		293		250		543		153		156		852
Telephone		60		77		137		66		68		271
Advertising		139		243		382		314		118		814
Other		4,685		300		4,985		345		679		6,009
Total noninterest expense		7,630		3,335		10,965		3,279		4,011		18,255
Less:
Penalty — prepayment of FHLB borrowings		4,320		—		4,320		—		—		8,640
Data processing conversion costs		—		—		—		—		815		815
Noninterest expense, as adjusted	$	3,310	$	3,335	$	6,645	$	3,279	$	3,196	$	8,800

	2006
	First		Second		YTD
	Quarter		Quarter		06/30/06
Salaries and employee benefits	$	1,594	$	1,496	$	3,090
Occupancy		317		293		610
Furniture and equipment		156		155		311
Data processing		154		182		336
Accounting, legal and consulting fees		200		414		614
Loan and deposit		129		98		227
Telephone		49		51		100
Advertising		70		107		177
Other		328		225		553
Total noninterest expense	$	2,997	$	3,021	$	6,018

The table below illustrates the progress we have made in controlling noninterest expense. Excluding the one-time extraordinary costs referred to above, noninterest expenses have declined in each successive quarter. The slight increase of $24,000 from the first quarter of 2006 to the second quarter of 2006, due to legal expense, is not indicative of an expansion of expense. We have reduced total noninterest expense more than 10% in the last year. Increases in noninterest expense have occurred in occupancy and furniture and equipment expense, due mainly to the lease costs associated with our Birmingham branch, which was established in June 2005 and approved as a full service branch in January 2006. These increased costs were anticipated as a part of our initial strategic plan for the

Birmingham location. We initiated, during the first quarter of 2006, a cost reduction program, which we expect to provide annualized cost reductions amounting to $450,000 for 2006 and $600,000 in 2007. We are diligent in our efforts to control expenses in order to achieve desired levels of profitability.

The chart below illustrates the progress we have made in controlling operating expenses along with the benefits of an increasing net interest margin.

EFFICIENCY RATIO*

COMPONENTS OF THE EFFICIENCY RATIO*

	Quarter ended,
(dollars in thousands)	03/31/05			06/30/05			09/30/05			12/31/05			03/31/06			06/30/06
Net interest income (FTE basis)	$	2,351		$	2,528		$	2,643		$	2,822		$	2,800		$	3,055
Noninterest income, excluding securities gain/loss		185			272			254			303			216			250
Total operating income (FTE basis)		2,536			2,800			2,897			3,125			3,016			3,305
Noninterest expense	$	3,310		$	3,335		$	3,279		$	3,246		$	2,997		$	3,021
Efficiency ratio		130.51	%		119.10	%		113.19	%		103.85	%		99.37	%		91.41	%

* The efficiency ratio calculation excludes the FHLB prepayment penalty and the data processing conversion costs.

Capital

As of June 30, 2006, your Corporation was well capitalized. The strong growth of the Corporation has presented us with challenges to maintain the regulatory capital ratios of the bank. In the second quarter the Corporation established a $6 million line of credit at a correspondent bank to provide the necessary funding for additional capital infusions into the Bank. High growth requires capital and the Corporation will be exploring different short-term and long-term capital solutions to sustain our growth and profitability objectives.

Looking Forward

We continued our progress to core profitability in the second quarter. The foundation has been built with strong loan growth and supported by increased core deposit balances. We are very conscious of the importance for mBank and MFNC to increase this core profitability and demonstrate the ability to achieve a strong ROA and ROE performance in 2007 and beyond.

Sincerely,

Paul D. Tobias

Chairman and CEO

Mackinac Financial Corporation Selected Financial Highlights

	June 30,			December 31,			June 30,
	2006			2005			2005
	(Unaudited)						(Unaudited)
Selected Financial Condition Data (at end of period):
Total assets	$	352,497		$	298,722		$	276,111
Total loans		283,110			239,771			204,503
Total deposits		284,165			232,632			207,814
Borrowings and subordinated debentures		37,617			36,417			36,484
Total shareholders’ equity		27,179			26,588			28,517
Selected Statements of Income Data(six months and year ended):
Net interest income	$	5,614		$	9,780		$	4,593
Income (loss) before taxes		663			(7,364	)		(5,818	)
Net income (loss)		688			(7,364	)		(5,818	)
Income (loss) per common share — Basic		.20			(2.15	)		(1.70	)
Income (loss) per common share — Diluted		.20			(2.15	)		(1.70	)
Three Months Ended
Net interest income	$	2,935		$	2,680		$	2,388
Income (loss) before taxes		165			(1,028	)		(577	)
Net income (loss)		190			(1,028	)		(577	)
Income (loss) per common share — Basic		.05			(.30	)		(.17	)
Income (loss) per common share — Diluted		.05			(.30	)		(.17	)
Selected Financial Ratios and Other Data (six months and year ended):
Performance Ratios:
Net interest margin		3.63	%		3.64	%		3.63	%
Efficiency ratio		95.21			160.43			205.52
Return on average assets		.42			(2.58	)		(4.06	)
Return on average equity		5.11			(25.63	)		(39.18	)
Average total assets	$	330,980		$	285,896		$	287,252
Average total shareholders’ equity	$	27,135		$	28,732		$	29,781
Average loans to average deposits ratio		99.64	%		98.17	%		95.51	%
Common Share Data (at end of period):
Market price per common share	$	10.27		$	9.10		$	15.23
Book value per common share	$	7.93		$	7.76		$	8.32
Common shares outstanding		3,428,695			3,428,695			3,428,695
Other Data (at end of period):
Allowance for loan losses	$	5,415		$	6,108		$	6,636
Non-performing assets	$	498		$	1,059		$	3,273
Allowance for loan losses to total loans		1.91	%		2.55	%		3.24	%
Non-performing assets to total assets		.14	%		.35	%		1.19	%
Number of:
Employees		100			106			103
Branch locations		13			12			12

QUARTERLY FINANCIAL SUMMARY

*(Dollars in thousands, except per share data)							Average
	Average		Average		Average		Shareholders’		Return on Average						Net Interest			Efficiency			Net Income			Book Value
Quarter Ended	Assets		Loans		Deposits		Equity		Assets			Equity			Margin			Ratio			Per Share			Per Share
June 30, 2006	$	342,821	$	273,686	$	274,591	$	27,213		0.22	%		2.82	%		3.64	%		91.41	%	$	.05		$	7.93
March 31, 2006		319,007		250,735		254,720		27,055		0.63			7.47			3.62			99.37			.15			7.93
December 31, 2005		288,619		224,386		219,967		27,288		(1.41	)		(14.95	)		3.96			128.37			(.30	)		7.76
September 30, 2005		280,506		209,795		211,197		28,112		(0.73	)		(7.39	)		3.79			113.19			(.15	)		8.14
June 30, 2005		277,754		197,545		206,875		28,879		(0.83	)		(8.01	)		3.67			119.10			(.17	)		8.32
March 31, 2005		296,856		199,703		209,035		30,692		(7.16	)		(69.25	)		3.21			300.96			(1.53	)		8.42
December 31, 2004		327,543		218,962		211,685		8,455		2.95			114.17			2.48			71.83			8.25			10.13
September 30, 2004		346,078		226,951		236,418		6,096		(0.87	)		(49.53	)		2.25			120.66			(2.17	)		18.44
June 30, 2004		372,246		244,515		260,031		7,628		(1.72	)		(84.13	)		2.28			146.88			(4.56	)		16.77

* Historical per share data has been adjusted for the 20:1 reverse stock split distributed in December 2004.