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 June 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 August 1, 1997
(Class) (Outstanding)
<PAGE>
HURON NATIONAL BANCORP, INC.
CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1 Condensed Consolidated Balance Sheet
June 30, 1997 (unaudited) ....................................... 2
Condensed Consolidated Statements of Income (Unaudited)
Six month periods ended June 30, 1997 and 1996 .................. 3
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 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.......................................... 6
PART II OTHER INFORMATION
Item 1 - Legal Proceedings..............................................11
Item 2 - Changes in Securities..........................................11
Item 3 - Defaults upon Senior Securities................................11
Item 4 - Submission of Matters to a Vote of Securities Holders..........11
Item 5 - Other Information..............................................11
Item 6 - Exhibits and Reports on Form 8-K...............................11
Index to Exhibits.......................................................12
Signatures..............................................................13
Financial Data Schedule.................................................14
<PAGE>
<TABLE>
HURON NATIONAL BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
June 30,
ASSETS 1997
<S> <C>
Cash and due from banks ................................... $ 3,802,705
Federal funds sold ........................................ 1,600,000
Cash and cash equivalents ................................. 5,402,705
Securities:
Available for Sale:
U.S. Treasury ..................................... 1,750,313
U.S. Government agencies .......................... 251,473
Held to maturity:
U.S. Government agencies .......................... 800,512
Tax exempt bonds and notes ........................ 1,934,786
Taxable bonds ..................................... 640,131
Corporate notes ................................... 1,452,420
Total investment securities ................... 6,829,635
Loans
Commercial ............................................ 3,014,043
Real Estate ........................................... 10,175,859
Installments .......................................... 6,533,871
Total Loans .................................... 19,723,773
Allowance for loan losses ............................. (186,518)
Net loans .......................................... 19,537,255
Bank premises and equipment - net ......................... 520,565
Accrued interest receivable ............................... 273,347
Other assets .............................................. 70,038
Total Assets .................................... $ 32,633,545
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non interest-bearing transaction accounts.............. $ 3,879,032
Interest-bearing transaction accounts ................. 5,082,565
Savings ............................................... 6,698,055
Time .................................................. 14,143,374
Total deposits .................................. 29,803,026
Accrued interest payable .................................. 57,065
Other liabilities ......................................... 176,470
Total liabilities ............................... 30,036,560
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 ......................................... 1,344,621
Net unrealized gain (loss) on securities
available for sale, net of income tax .................. 2,364
Total shareholders' equity ...................... 2,596,985
Total liabilities and shareholders' equity
$ 32,633,545
</TABLE>
See notes to the interim consolidated financial statements.
<PAGE>
<TABLE>
HURON NATIONAL BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Six Months Ended
June 30, June 30,
Interest Income 1997 1996
<S> <C> <C>
Loans, including fees ................................. $ 909,575 $ 842,514
Federal funds sold .................................... 37,167 38,395
Securities available for sale:
U.S. Treasury ....................................... 49,938 26,178
U.S. Government agencies ............................ 8,785 38,890
Securities held to maturity:
U.S. Government agencies ............................ 40,084 78,238
Tax exempt bonds and notes .......................... 45,061 18,919
Taxable bonds ....................................... 12,901
Corporate notes ..................................... 39,537 40,615
Federal reserve stock ................................. 1,125 1,125
Total interest income ............................. 1,144,173 1,084,874
Interest Expense
Deposits .............................................. 569,023 522,970
Net Interest Income ....................................... 575,150 561,904
Provision for Loan Losses ................................. 18,000 18,000
Net Interest Income After
Provision for Loan Losses .............................. 557,150 543,904
Non-Interest Income
Service charges ....................................... 48,211 49,350
Other ................................................. 18,627 22,254
Total non-interest income ......................... 66,838 71,604
Non-Interest Expense
Salaries and benefits ................................. 187,794 188,610
Premises and equipment ................................ 63,366 58,754
Legal and accounting fees ............................. 30,909 27,633
Other operating expense ............................... 115,806 118,285
Total non-interest expense ........................ 397,875 393,282
Income Before Income Tax .................................. 226,113 222,226
Provision for Income Tax .................................. 62,846 72,175
Net Income ................................................ $ 163,267 $ 150,051
Net Income Per Share ...................................... $ 2.61 $ 2.40
Dividends Per Share ....................................... N/A N/A
See notes to the interim consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
HURON NATIONAL BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30, June 30,
CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996
<S> <C> <C>
Net income ...................................................... $ 163,267 $ 150,051
Adjustments to reconcile net income to net cash
from operating activities
Net premium amortization and discount accretion on securities 95,767 44,470
Provision for loan losses ................................... 18,000 18,000
Increase/(decrease) in cash from change in assets
and liabilities:
Other assets and interest receivable .................... (38,348) (3,345)
Other liabilities and interest payable .................. (28,518) 41,813
Net cash from operating activities .................. 210,168 250,989
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-sale securities:
Purchases .................................................... (513,306) (737,456)
Maturities ................................................... 250,000
Held-to-maturity securities:
Purchases .................................................... (692,522) (1,795,381)
Maturities ................................................... 1,199,000 913,000
Net increase in loans ........................................... (544,024) (704,114)
Purchase of property and equipment .............................. (53,642) (18,572)
Net cash from (used in) investing activities ........ (354,494) (2,342,523)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in deposit accounts ..................... 2,209,016 1,406,576
Net cash from financing activities .................. 2,209,016 1,406,576
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS .................................................. 2,064,690 (684,958)
CASH AND CASH EQUIVALENTS AT:
BEGINNING OF PERIOD ............................................... 3,338,015 3,847,727
END OF PERIOD ..................................................... $ 5,402,705 $ 3,162,769
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest ...................................................... $ 575,174 $ 520,992
Federal income tax ............................................ $ 96,613 $ 30,225
</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 June 30, 1997 and
December 31, 1996, and the results of operations for the six month periods
ended June 30, 1997 and 1996. The results of operations for the six months
ended June 30, 1997 are not necessarily indicative of the results to be
expected for the full year.
3. During the six month period ended June 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 a
decrease of $2,490. There were no sales or transfers of securities
classified as held to maturity. The aggregate estimated fair value of
securities held to maturity as of June 30, 1997 was $4,845,000.
4. Loans past due ninety days or more, nonaccruals and restructured loans
increased by approximately $51,000 during the six months ended June 30,
1997 to $131,295 and these loans have adequate levels of collateral and/or
are guaranteed such that the Bank does not expect significant loss. As of
June 30, 1997, the Bank had outstanding commitments to make loans totaling
$861,770 and outstanding letters of credit of $343,219.
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.
Continued
<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 June 30, 1997 increased from December 31, 1996 by 7.73%, or
$2,341,275. This increase primarily was the result of an increase in deposits of
$2,209,000. Since deposits increased and loans slightly increased, the loan to
deposit ratio decreased from 69.53% at December 31, 1996 to 66.18% at June 30,
1997. The allowance for loan losses was increased by $11,563.
During the first six months of 1997, the Bank has seen a migration of
balances from noninterest-bearing transaction accounts to interest-bearing
transaction accounts and time deposits. These deposits increased by $1,463,321
as a portion of this was Presque Isle County funds and was transferred out of
deposits after month end. The increase in total deposits of 8.00% or $2,209,000
from December 31, 1996 to June 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 six months ended June 30, 1997 totaled $163,267 compared
to $150,051 for the six months ended June 30, 1996, an increase of $13,216. The
increase is primarily the result of an increase in net interest income of
$13,246.
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 six month periods ended June 30,
1997, and 1996 was $18,000. 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 six months ended June 30, 1997 totaled $66,838
compared to $71,604 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 $3,627 in Other income compared to the
six month period ended June 30, 1996.
Non-interest expense for the six months ended June 30, 1997 totaled
$397,875 compared to $393,282 at June 30, 1996. There were only slight changes
in the components of noninterest expense, including the areas of Salaries and
benefits and Premises and equipment.
The effective Federal income tax rate, derived by dividing Federal income
tax expense by income before taxes, was approximately 28.2% and 31.4% for the
six month periods ended June 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
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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 six months
ended June 30, 1997 over the comparable prior year period due to increases in
the volume of both interest earning assets and interest bearing liabilities.
However, a decreased margin almost completely offset the benefits of the
increase in volume. The rate paid on interest bearing liabilities increased 6
basis points over the six months ended June 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 points. Consequently, the net yield on
interest earning assets decreased from 4.20% for the six months ended June 30,
1996 to 4.19% for the same period in 1997. The increased volume, partially
offset by the decrease in margin, increased the net interest income by $26,712
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 June 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 June 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) 2,782 14.57% 1,527 8.00% 1,909 10.00%
Tier 1 capital (to risk weighted assets) 2,595 13.59% 764 4.00% 1,146 6.00%
Tier 1 capital (to average assets) ..... 2,595 8.28% 1,254 4.00% 1,568 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 slightly from
($13,624,098) at December 31, 1996 to ($13,179,634) at June 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
In March 1997, the accounting requirements for calculating earnings per
share were revised. Basic earnings per share for 1997 and later 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.
<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 six months ended June 30, 1997.
ITEM 2 - CHANGES IN SECURITIES
No changes in securities relevant to the requirements of this section occurred
during the six months ended June 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 six months ended June 30, 1997.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of Huron National Bancorp, Inc. was held on
April 30, 1997. Elected as Directors for terms to expire in 2000 were Marvin
Beatty, Ervin Nowak and Eugene McLean. Continuing Directors include Leon
Delekta, Lynwood Lamb, Louis Dehring, Donald Hampton and Michael Cahoon. There
were no other matters submitted to vote.
ITEM 5 - OTHER INFORMATION
No other information to report during the six months ended June 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 six months
ended June 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: 8/6/97
By: /s/ Paulette D. Kierzek
Paulette D. Kierzek
Chief Financial Officer
Dated: 8/6/97
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-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>
