SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q SB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 1997
Commission File Number 0-19181
HURON NATIONAL BANCORP, INC.
(Exact name of small business issuer in its charter)
Michigan 38-2855012
(State or other jurisdiction of (IRS employer Identification No.)
incorporation or organization)
200 East Erie Street, Rogers City, Michigan 49779
(Address of principal executive offices) (Zip Code)
Telephone Number including area code: (517) 734-4734
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter periods if the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes[X] No[ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practical date.
$10.00 par value of common stock 62,500 shares as of November 3, 1997
(Class) (Outstanding)
<PAGE>
HURON NATIONAL BANCORP, INC.
CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1 Condensed Consolidated Balance Sheet
September 30, 1997 (unaudited) 2
Condensed Consolidated Statements of Income (Unaudited)
Nine month periods ended September 30, 1997 and 1996 3
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 1997 and 1996 4
Notes to the Condensed Consolidated Financial Statements
(Unaudited) 5
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II OTHER INFORMATION
Item 1 - Legal Proceedings 12
Item 2 - Changes in Securities 12
Item 3 - Defaults upon Senior Securities 12
Item 4 - Submission of Matters to a Vote of Securities Holders 12
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 12
Index to Exhibits 13
Signatures 14
Financial Data Schedule 15
<PAGE>
HURON NATIONAL BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
September 30,
ASSETS 1997
<S> <C>
Cash and due from banks ................................... $ 2,552,820
Federal funds sold ........................................ 900,000
Cash and cash equivalents ................................. 3,452,820
Securities: (Market value - $6,883,787)
Available for sale .................................... 1,977,758
Held to maturity ...................................... 4,875,581
Total investment securities ................... 6,853,339
Loans
Commercial ............................................ 2,704,421
Real Estate ........................................... 10,610,156
Installments .......................................... 6,579,444
Total Loans .................................... 19,894,021
Allowance for loan losses ............................. (187,204)
Net loans .......................................... 19,706,817
Bank premises and equipment - net ......................... 516,452
Accrued interest receivable ............................... 272,452
Other assets .............................................. 90,848
Total Assets .................................... $ 30,892,728
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non interest-bearing transaction accounts ............. $ 3,695,263
Interest-bearing transaction accounts ................. 3,446,256
Savings ............................................... 6,749,384
Time .................................................. 14,066,795
Total deposits .................................. 27,957,698
Accrued interest payable .................................. 62,441
Other liabilities ......................................... 178,096
Total liabilities ............................... 28,198,235
Shareholders' Equity
Common stock, $10 par value: 100,000 shares
authorized and 62,500 outstanding ....................... 625,000
Additional paid in capital ................................ 625,000
Retained earnings ......................................... 1,440,514
Net unrealized gain (loss) on securities
available for sale, net of income tax ................... 3,979
Total shareholders' equity ...................... 2,694,493
Total liabilities and shareholders' equity ... $ 30,892,728
</TABLE>
See notes to the interim consolidated financial statements
<PAGE>
HURON NATIONAL BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
Nine Months Ended
September 30, September 30,
Interest Income 1997 1996
<S> <C> <C>
Loans, including fees .................... $1,374,084 $1,280,426
Federal funds sold ....................... 58,513 54,814
Securities available for sale:
U.S. Treasury .......................... 71,207 44,563
U.S. Government agencies ............... 12,547 51,575
Corporate securities ................... 4,866
Securities held to maturity:
U.S. Government agencies ............... 48,514 109,551
Tax exempt bonds and notes ............. 67,169 30,489
Taxable bonds .......................... 23,315
Corporate notes ........................ 62,418 64,391
Federal reserve stock .................... 1,688 1,687
Total interest income ................ 1,724,321 1,637,496
Interest Expense
Deposits ................................. 845,090 796,024
Net Interest Income .......................... 879,231 841,472
Provision for Loan Losses .................... 27,000 27,000
Net Interest Income After
Provision for Loan Losses ................. 852,231 814,472
Non-Interest Income
Service charges .......................... 66,806 74,908
Other .................................... 36,940 32,722
Total non-interest income ............ 103,746 107,630
Non-Interest Expense
Salaries and benefits .................... 290,874 286,555
Premises and equipment ................... 94,113 85,042
Legal and accounting fees ................ 47,034 43,520
Other operating expense .................. 170,058 171,209
Total non-interest expense ........... 602,079 586,326
Income Before Income Tax ..................... 353,898 335,776
Provision for Income Tax ..................... 99,051 105,422
Net Income ................................... $ 254,847 $ 230,354
Net Income Per Share ......................... $ 4.08 $ 3.69
Dividends Per Share .......................... N/A N/A
</TABLE>
See notes to the interim consolidated financial statements.
<PAGE>
HURON NATIONAL BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
Nine Months Ended
September 30, September 30,
CASH FLOWS FROM OPERATING ACTIVITIES
1997 1996
<S> <C> <C>
Net income ...................................................... $ 254,847 $ 230,354
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization ............................... 31,838 25,642
Net premium amortization and discount accretion on securities 106,228 31,211
Provision for loan losses ................................... 27,000 27,000
Increase/(decrease) in cash from change in assets
and liabilities:
Other assets and interest receivable .................... (58,262) 8,645
Other liabilities and interest payable .................. (18,120) 46,953
Net cash from operating activities .................. 343,531 369,805
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-sale securities:
Purchases .................................................... (988,751) (989,086)
Maturities ................................................... 750,000 500,000
Held-to-maturity securities:
Purchases .................................................... (965,383) (2,137,540)
Maturities ................................................... 1,394,000 1,433,000
Net increase in loans ........................................... (722,588) (1,406,317)
Purchase of property and equipment .............................. (59,692) (34,192)
Net cash from (used in) investing activities ........ (592,414) (2,634,135)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in deposit accounts ..................... 363,688 2,224,290
Net cash from financing activities .................. 363,688 2,224,290
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS .................................................. 114,805 (40,040)
CASH AND CASH EQUIVALENTS AT:
BEGINNING OF PERIOD ............................................... 3,338,015 3,847,727
END OF PERIOD ..................................................... $ 3,452,820 $ 3,807,687
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest ...................................................... $ 845,865 $ 786,970
Federal income tax ............................................ $ 133,013 $ 60,625
</TABLE>
See notes to the interim consolidated financial statements.
<PAGE>
HURON NATIONAL BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The condensed consolidated financial statements include the accounts of the
Registrant and its wholly-owned subsidiary, Huron National Bank after
elimination of significant inter-company transactions and accounts. The
accompanying unaudited condensed consolidated financial statements should
be read in conjunction with the notes to the consolidated financial
statements contained in the Annual Report for the year ended December 31,
1996.
2. In the opinion of management of the Registrant, the accompanying
consolidated financial statements contain all the adjustments (consisting
only of normal recurring accruals) necessary to present fairly the
consolidated financial position of the Registrant as of September 30, 1997
and the results of operations for the nine month periods ended September
30, 1997 and 1996. The results of operations for the nine months ended
September 30, 1997 are not necessarily indicative of the results to be
expected for the full year.
3. During the nine month period ended September 30, 1997, there were no sales
of available-for-sale securities. For this period, the change in net
unrealized holding gain or loss on available-for-sale securities was an
increase of $43. Available-for-sale securities include U.S. Treasury of
$1,254,063; U.S. Government Agencies of $251,172 and Corporate Securities
of $472,523. There were no sales or transfers of securities classified as
held to maturity. Held-to-maturity securities include U.S. Government
Agencies of $776,788; Obligations of States and Political Subdivisions of
$2,552,119 and Corporate Securities of $1,546,674. The aggregate estimated
fair value of securities held to maturity as of September 30, 1997 was
$4,906,000.
4. Loans past due ninety days or more, nonaccruals and restructured loans
increased by approximately $62,000 during the nine months ended September
30, 1997 to $99,094 and these loans have adequate levels of collateral
and/or are guaranteed such that the Bank does not expect significant loss.
As of September 30, 1997, the Bank had outstanding commitments to make
loans totaling $1,028,854 and outstanding letters of credit of $244,991. An
analysis of changes in the allowance for loan losses follows:
<TABLE>
Nine Months Ended Year Ended
September 30, December 31,
1997 1996 1996
<S> <C> <C> <C>
Balance at beginning of period ............. $ 174,955 $ 144,100 $ 144,100
Additions/(Deductions)
Provisions charged to operating expense 27,000 27,000 36,000
Recoveries credited to allowance ...... 3,750 1,155 1,381
Loans charged-off ..................... (18,501) (4,969) (6,526)
Balance at end of period ................... $ 187,204 $ 167,286 $ 174,955
</TABLE>
Continued
<PAGE>
HURON NATIONAL BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
5. The provision for income taxes represents federal income tax expense
calculated using annualized rates on taxable income generated during the
respective periods.
6. Earnings per share are computed using the weighted average number of shares
outstanding. The number of shares used in the computations of earnings per
share were 62,500 for 1997 and 1996.
<PAGE>
HURON NATIONAL BANCORP, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations provides additional information to assess the condensed consolidated
financial statements of the Registrant and its wholly-owned subsidiary. The
discussion should be read in conjunction with those statements.
Summary of Financial Position
Total assets at September 30, 1997 increased from December 31, 1996 by
1.98%, or $600,458. This increase primarily was the result of an increase in
deposits and loans of $364,000. Since deposits and loans increased, the loan to
deposit ratio increased from 69.53% at December 31, 1996 to 71.16% at September
30, 1997. The allowance for loan losses was increased by $12,249.
During the first nine months of 1997, the Bank has seen a migration of
balances from noninterest-bearing transaction accounts to savings and time
deposits. These deposits increased by $324,939. The increase in total deposits
of 1.30% or $363,688 from December 31, 1996 to September 30, 1997 was normal
deposit growth as depositors are committing funds for an extended period of time
impacted by changing deposit rate and service charge pricing by financial
institutions in Presque Isle County.
Results of Operations
Net income for the nine months ended September 30, 1997 totaled $254,847
compared to $230,354 for the nine months ended September 30, 1996, an increase
of $24,493. The increase is primarily the result of an increase in interest
income of $86,825 offset by an increase in noninterest expense of $15,753.
Continued
<PAGE>
HURON NATIONAL BANCORP, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
The provision for loan losses for the nine month periods ended September
30, 1997, and 1996 was $27,000. It is Management's intention to provide an
adequate allowance for loan losses based on an ongoing evaluation of the loan
portfolio. The consistent provision reflects Management's assessment that the
overall credit risk of the loan portfolio is generally unchanged.
Non-interest income for the nine months ended September 30, 1997 totaled
$103,746 compared to $107,630 in 1996. The decrease was primarily related to a
reduction in service charges on returned checks, early redemption penalties and
coin and currency fees. There was a decrease of $3,884 in Other income compared
to the nine month period ended September 30, 1996.
Non-interest expense for the nine months ended September 30, 1997 totaled
$602,079 compared to $586,326 at September 30, 1996. There were only slight
changes in the components of noninterest expense, including the areas of
Salaries and benefits and Premises and equipment due to a computer conversion
anticipated for October.
The effective Federal income tax rate, derived by dividing Federal income
tax expense by income before taxes, was approximately 28% and 31.4% for the nine
month periods ended September 30, 1997 and 1996, respectively.
This decrease between periods is primarily the result of an increase in
interest income which is exempt from Federal income tax.
Analysis of Net Interest Income
The difference between interest generated by the Bank's earning assets and
interest paid on liabilities is referred to as net interest income, the most
significant component of the Bank's earnings.
Continued
<PAGE>
HURON NATIONAL BANCORP, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The Bank has experienced an increase in net interest income for the nine months
ended September 30, 1997 over the comparable prior year period due to increases
in the volume of both interest earning assets and interest bearing liabilities.
However, the margin stayed the same as lower rates offset the benefits of the
increased volume. The rate paid on interest bearing liabilities decreased 4
basis points over the nine months ended September 30, 1996 because growth was
centered in time deposits, the most costly deposit category. Since loan volumes
increased slightly, the additional deposits were invested in securities, which
have lower yields than loans. This resulted in a slight decrease in the gross
yield on interest earning assets of 1 basis point. Consequently, the net yield
on interest earning assets decreased from 2.94% for the nine months ended
September 30, 1996 to 2.90% for the same period in 1997. The increased volume,
partically offset by the decrease in margin, increased the net interest income
by $24,493 on a fully tax equivalent basis.
Capital Management
Regulators have established risk-based capital guidelines for banks and
bank holding companies. Because of the Corporation's and Bank's size, regulatory
capital requirements apply only to the Bank.
Under the guidelines, minimum capital levels are established for risk based
and total assets. For the risk based computation, the ratio is based on the
perceived risk in asset categories and certain off-balance sheet items, such as
standby letters of credit. The guidelines define Tier 1 capital and Tier 2
capital. Tier 1 capital includes common shareholders' equity, while Tier 2
capital adds the allowance for loan losses. Tier 1 capital cannot exceed Tier 2
capital. Banks are required to have ratios of Tier 1 capital to risk weighted
assets of 4% and total capital (Tier 1 plus Tier 2) of 8%. At September 30, 1997
Huron National Bank had capital ratios well above the minimum regulatory
guidelines.
Continued
<PAGE>
HURON NATIONAL BANCORP, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
As of September 30, 1997, the Bank's consolidated actual capital levels and
minimum required levels are:
<TABLE>
Minimum Required To
Minimum Required Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets) 2,878 15.08% 1,527 8.00% 1,351 10.00%
Tier 1 capital (to risk weighted assets) 2,691 13.59% 764 4.00% 1,146 6.00%
Tier 1 capital (to average assets) 2,691 8.55% 1,259 4.00% 1,574 5.00%
</TABLE>
Liquidity and Interest Rate Sensitivity
The Bank's principal asset/liability management objectives include the
maintenance of adequate liquidity and appropriate interest rate sensitivity
while maximizing net interest income.
The Bank's primary sources of short term liquidity are short-term
investments and the ability to raise money through federal funds purchased.
Longer term sources of liquidity are through longer term investment security
maturities and loan repayments, as well as through normal deposit growth and
negotiable certificates of deposit. The primary source of funds for the parent
company is the upstream of dividends from the Bank.
Management believes that the sources of liquidity are sufficient for the
Bank and parent company to continue with their current business plans.
As previously noted, interest income and interest expense are also
dependent on changing interest rates. The relative impact of changing interest
rates on the net interest income depends on the rate sensitivity to such
changes. Rate sensitivity generally depends on maturity structures, call
provisions, repayment penalties etc. of the respective financial instruments.
The Bank's exposure or sensitivity to changing interest rates is measured by the
ratio of rate-sensitive assets to rate-sensitive liabilities. The Bank feels
that its rate sensitive position is adequate in a normal interest rate movement
environment.
Continued
<PAGE>
HURON NATIONAL BANCORP, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The Bank's cumulative 1 year GAP position has decreased from ($13,624,098)
at December 31, 1996 to ($12,057,630) at September 30, 1997 primarily due to the
increase in loans maturing within one year and the decrease in certificates of
deposits maturing within one year.
Issued But Not Yet Adopted Accounting Principles
The FASB has issued new accounting requirements pursuant to Statement of
Financial Accounting Standards No. 128, Earnings Per Share for calculating
earnings per share which will be effective for the Company in the fourth quarter
of 1997. Early adoption of SFAS No. 128 is not permitted. Under the standard,
basic earnings per share will be calculated solely on average common shares
outstanding. Diluted earnings per share will reflect the potential dilution of
stock options and other common stock equivalents. All prior calculations will be
restated to be comparable to the new methods. As the Company has not had
significant dilution from stock options, the new calculation methods will not
significantly affect future basic earnings per share and diluted earnings per
share or previously reported earning per share amounts.
<PAGE>
HURON NATIONAL BANCORP, INC.
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No changes in legal proceedings relevant to the requirements of this section
occurred during the nine months ended September 30, 1997.
ITEM 2 - CHANGES IN SECURITIES
No changes in securities relevant to the requirements of this section occurred
during the nine months ended September 30, 1997.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
There have been no defaults upon senior securities relevant to the requirements
of this section during the nine months ended September 30, 1997.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no matters submitted to a vote of the Registrant's security
holders during the quarter ended September 30, 1997.
ITEM 5 - OTHER INFORMATION
No other information to report during the nine months ended September 30, 1997.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits required by Item 601 of Regulation S-K. See Index to Exhibits on
page 16.
2. Reports on Form 8-K. No reports on Form 8-K were filed for the nine months
ended September 30, 1997.
<PAGE>
HURON NATIONAL BANCORP, INC.
INDEX TO EXHIBITS
The following exhibits are filed or incorporated by reference as part of this
report:
27 Financial data schedule.
<PAGE>
HURON NATIONAL BANCORP, INC.
SIGNATURES
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 thereunto duly authorized.
HURON NATIONAL BANCORP, INC.
By: /s/ Michael L. Cahoon
Michael L. Cahoon
President and Chief Executive Officer
Dated: 11/7/97
By: /s/ Paulette D. Kierzek
Paulette D. Kierzek
Chief Financial Officer
Dated: 11/7/97
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,802,705
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,600,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,001,786
<INVESTMENTS-CARRYING> 4,827,850
<INVESTMENTS-MARKET> 4,845,000
<LOANS> 19,723,772
<ALLOWANCE> 186,518
<TOTAL-ASSETS> 32,633,545
<DEPOSITS> 29,803,026
<SHORT-TERM> 0
<LIABILITIES-OTHER> 233,536
<LONG-TERM> 0
0
0
<COMMON> 625,000
<OTHER-SE> 1,969,621
<TOTAL-LIABILITIES-AND-EQUITY> 32,633,545
<INTEREST-LOAN> 909,575
<INTEREST-INVEST> 196,306
<INTEREST-OTHER> 38,292
<INTEREST-TOTAL> 1,144,173
<INTEREST-DEPOSIT> 569,023
<INTEREST-EXPENSE> 569,023
<INTEREST-INCOME-NET> 575,150
<LOAN-LOSSES> 18,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 397,875
<INCOME-PRETAX> 226,113
<INCOME-PRE-EXTRAORDINARY> 226,113
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 163,267
<EPS-PRIMARY> 3
<EPS-DILUTED> 3
<YIELD-ACTUAL> 4.19
<LOANS-NON> 112,669
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 174,955
<CHARGE-OFFS> 9,501
<RECOVERIES> 3,064
<ALLOWANCE-CLOSE> 186,518
<ALLOWANCE-DOMESTIC> 186,518
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 109,186
</TABLE>
