STOCK OPTION AGREEMENT DATED JUNE 10, 2005, BET. ERNIE R. KRUEGER

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                                                                    EXHIBIT 10.3

                             STOCK OPTION AGREEMENT

     STOCK OPTION AGREEMENT dated June 10, 2005 between MACKINAC FINANCIAL
CORPORATION (the "Company") and ERNIE R. KRUEGER (the "Optionee").

                                    RECITALS:

     A. The Company and Optionee are parties to an Employment Agreement dated as
of December 15, 2004, as amended (the "Employment Agreement"), providing for the
employment of the Optionee by the Company.

     B. The Employment Agreement provides for the Optionee to be awarded options
to purchase from the Company Five Thousand (5,000) shares of the Company's
Common Stock (the "Option Shares") at a purchase price per share equal to 100%
of the Fair Market Value (as defined in the Plan) of such share (the "Exercise
Price"). Such options are to be issued under and in accordance with the terms
and conditions of the Company's 2000 Stock Incentive Plan (the "Plan"), the
Employment Agreement and this Agreement.

     C. The Directors of the Company have approved the Employment Agreement,
including awarding the Optionee options to purchase the Option Shares in
accordance with the Plan, the Employment Agreement and this Agreement.

     IT IS HEREBY AGREED AS FOLLOWS:

     1. Grant of Option: Effectiveness. Subject to the terms of the Plan and
this Agreement, the Company hereby grants and awards to Optionee the right and
option to purchase all or any of the Option Shares upon payment to the Company
of the Exercise Price per share as hereinafter provided.

     2. Vesting, (a) The right and option to purchase 20% of the Option Shares
shall vest and be exercisable beginning on the date hereof and continuing
through the balance of the Option Term (as hereinafter defined). The options for
the remaining 80% of the Option Shares shall vest and be exercisable in
increments of 20% of the Option Shares in each of the Measurement Periods (as
hereinafter defined) during the Option Term in which the Company meets or
exceeds the profitability goals ("Targets") set by the Board of Directors for
any such Measurement Period. In the event the Targets are not met for any
Measurement Period, the 20% increment which did not vest shall be carried
forward to subsequent Measurement Periods and shall vest if the Target's for any
such Measurement Period are met. As used herein, a "Measurement Period" shall
mean a fiscal year of the Company during which the first and each succeeding
anniversary of this Agreement shall occur.

          (b) Notwithstanding the foregoing vesting schedule, but subject to the
terms of Section 3, all unvested options for Option Shares shall vest and become
immediately exercisable upon: (i) termination of the Employment Agreement by the
Company for any reason other than Cause (as defined in the Employment
Agreement); (ii) Optionee's Retirement (as defined in the Plan), or early
retirement or resignation with the consent of the Company as contemplated by

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Section 10(a) and (b) of the Plan; (iii) the death or disability of the
Optionee; or (iv) a Change of Control (as defined in the Plan) of the Company.

     3. Option Period. Subject to the terms of this Agreement (including Section
2), the options may be exercised and Option Shares may be purchased at any time
and from time to time beginning on the first day after the date hereof and
ending on and prior to the tenth anniversary of the date hereof (the "Option
Term"), subject to the following;

          (a) If the Employment Agreement is terminated as a result of the death
or disability of the Optionee, the options then vested shall remain exercisable
until the earlier of (i) the last day of the 36th month after the month the
Employment Agreement is terminated, or (ii) the expiration of the Option Period;
and

          (b) Any vested and unexercised options shall expire at the time the
Employment Ag