<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
FORM 10-KSB
(Mark One)
{X} Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 (fee required) for the fiscal year ended December 31, 1996 or
{ } Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (no fee required) for the transition period from _______ to ________
Commission File Number 0-19181
HURON NATIONAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN
(State or other jurisdiction of incorporation or organization)
38-2855012
(IRS Employer Identification No.)
200 East Erie Street, Rogers City, Michigan 49779
(Address of principal executive offices including zip code)
(517) 734-4734
(Registrant's telephone number, including area code)
Securities registered pursuant to 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $10.00 per share
(Title of Class)
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 such shorter period 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. Yes {X} No { }
The aggregate market value of the voting stock held by ""non-affiliates"" of the
Registrant (for this purpose only, the affiliates of the Registrant have been
assumed to be the executive officers and directors of the Registrant and their
associates) as of March 14, 1997, was approximately $1,358,400, based on market
price of $30.00 per share.
As of March 14, 1997, there were outstanding 62,500 shares of the registrant's
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held April 30, 1997, are incorporated by reference into Part
III of this Form 10-KSB Report.
<PAGE>
PART-I
ITEM 1 - BUSINESS
GENERAL
The Registrant, Huron National Bancorp, Inc. (hereinafter referred to as the
"Registrant"), is a one-bank holding company registered under the Bank Holding
Company Act of 1956, as amended. The Registrant was formed for the purpose of
enabling Huron National Bank (hereinafter referred to as the "Bank") to form a
one-bank holding company. The Bank became a wholly-owned subsidiary of the
Registrant on May 8, 1990. The Registrant's only subsidiary and significant
asset as of December 31, 1996 is the Bank. The Registrant and its subsidiary
operate in the Banking industry, which accounts for substantially all of their
assets, revenues and operating income.
The Bank was organized in 1980 under the laws of the United States. Its
deposits, to the extent allowed by law, are insured by the Federal Deposit
Insurance Corporation. The Bank's main office is located at 200 East Erie,
Rogers City, Michigan.
Further discussion of the Registrant's business is presented in the Business
section on page 9 in the 1996 Annual Report to Shareholders, incorporated herein
by reference.
REGULATION
The Registrant is subject to supervision by the Board of Governors of the
Federal Reserve System. The Board of Governors must grant prior approval for the
acquisition by a banking holding company of more than 5% of the voting stock or
substantially all the assets of any bank or bank holding company or non-bank
company.
In approving proposed acquisitions by the Registrant, the Board of Governors
considers a number of factors including expected benefits to the public such as
greater convenience, increased competition or gains in efficiency, weighed
against the risk of possible adverse effects such as undue concentration of
resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices. The Board of Governors is empowered to give these factors
different weight in the case of activities commenced de novo than it does in
considering the acquisition of a going concern.
The Bank is subject to regulation, supervision and regular examination by the
Officer of the Comptroller of the Currency. The regulations of this agency
affect most aspects of the Bank's business and prescribed permissible types of
loans and investments, requirements for branch offices, the permissible scope of
the Bank's activities and impose various other requirements.
A holding company, and any of its subsidiary banks, are also prohibited from
engaging in certain tie-in arrangements in connection with the extension of
credit or supplying of property or services. For example, the Bank generally
may not extend credit on the condition that the customer obtain some additional
service from the Bank or the Registrant or refrain from obtaining such service
from a competitor.
The Bank is subject to certain restrictions imposed by the Federal Reserve Act
on "covered transactions" with the Registrant or a subsidiary. The "covered
transactions" that an insured bank and its subsidiaries are permitted to engage
in with their nonbank affiliates are limited to the following amounts: (i) in
the case of any one such affiliate, the aggregate amount of "covered
transactions" of the insured bank and its subsidiaries cannot exceed 10% of the
capital stock and surplus of the insured bank; and (ii) in the case of all
affiliates, the aggregate amount of all "covered transactions" of the insured
bank and its subsidiaries cannot exceed 20% of the capital stock and surplus of
the insured bank. "Covered transactions" are defined by statute to include a
loan or extension of credit to the affiliate, a purchase of securities issued by
an affiliate, a purchase of assets from the affiliate (unless otherwise exempted
by the Federal Reserve), the acceptance of securities issued by the affiliate as
collateral for a loan, and the issuance of a guaranty, acceptance, or letter of
credit for the benefit of an affiliate. Covered transactions must also be
collateralized. The Federal Reserve Act further requires that (i) "covered
transactions" with affiliates; (ii) asset sales to affiliates; (iii) contractual
arrangements with affiliates; (iv) transactions in which an affiliate acts as an
agent or broker; and (v) any transaction in which an affiliate has a financial
interest or is a participant, must be made: (x) on terms and under
circumstances, including credit standards, that are substantially the same as
those prevailing at the time for comparable transactions with or involving other
nonaffiliated companies; or (y) in the absence of comparable transactions, on
terms and under circumstances, including credit standards, that in good faith
would be offered to, or would apply to, nonaffiliated companies. Certain
limitations and reporting requirements are also placed on extensions of credit
by the Bank to its directors and officers, to directors and officers of the
Registrant, to principal shareholders of the Registrant, and to "related
interests" of such directors, officers and principal shareholders. In addition,
such legislation and regulations may affect the terms upon which any person
becoming a director or officer of the Registrant or the Bank or a principal
shareholder of the Registrant may obtain credit from banks with which the Bank
maintains a correspondent relationship.
On July 10, 1995, the FDIC, the Office of Thrift Supervision, the Federal
Reserve and the Office of the Comptroller of the Currency published final
guidelines implementing the Federal Deposit Insurance Corporation Improvement
Act (FDICIA) requirement that the federal banking agencies establish operational
and managerial standards to promote the safety and soundness of federally
insured depository institutions. The guidelines, which took effect on August 9,
1995, establish standards for internal controls, information systems, internal
audit systems, loan documentation, credit underwriting, interest rate exposure,
asset growth, and compensation, fees and benefits. In general, the guidelines
prescribe the goals to be achieved in each area, and each institution is
responsible for establishing its own procedures to achieve those goals. If an
institution fails to comply with any of the standards set forth in the
guidelines, the institution's primary federal regulator may require the
institution to submit a plan for achieving and maintaining compliance. The
preamble to the guidelines states that the agencies expect to require a
compliance plan from an institution whose failure to meet one or more of the
standards is of such severity that it could threaten the safe and sound
operation of the institution. Failure to submit an acceptable compliance plan,
or failure to adhere to a compliance plan that has been accepted by the
appropriate regulator, would constitute grounds for further enforcement action.
The federal banking agencies have also published for comment proposed asset
quality and earnings standards which, if adopted, would be added to the safety
and soundness guidelines. This proposal, like the final guidelines, would make
each depository institution responsible for establishing its own procedures to
meet such goals.
The Registrant and the Bank are currently in compliance with the minimum capital
requirements applicable to such institutions. Prompted by the enactment of
FDICIA, the FDIC has established a system of risk-based deposit insurance
premiums. Based on the Bank's prevailing capital ratios, the Bank is paying the
minimum rate of FDIC insurance for the assessment period that began January 1,
1996.
1
<PAGE>
PART-I ITEM 1 - BUSINESS (continued)
LENDING ACTIVITIES
The Bank is actively engaged in originating within the Bank's market area real
estate mortgage loans, commercial loans and installment loans. The Bank's loan
portfolio totaled $19,186,184 at December 31, 1996. This represents 63.34% of
its total assets. At that date, 54.25% consisted of real estate mortgage loans,
33.23% consisted of installment loans" and 12.52% consisted of commercial loans.
Residential Mortgage Loans: The Bank offers residential mortgage loans with
fixed rates of interest and loans with provision for periodic adjustments to the
interest rate with three-year balloon provisions. The Bank policy is to invest
in residential mortgage loans in an original principal amount not to exceed 80%
of the market value of the mortgaged real estate (referred to as the
"loan-to-value ratio").
In the appraisal process, the Bank assesses both the borrower's ability to repay
the loan and the adequacy of the proposed security. In connection therewith, the
Bank obtains an appraisal of the secured property and information concerning the
income, financial condition, employment and credit history of the applicant. The
Bank requires title insurance insuring the priority of its lien and fire and
extended coverage casualty insurance in order to protect the property securing
its real estate loans.
Commercial Mortgage Loans: The Bank makes mortgage loans on commercial real
estate properties such as office buildings, vacant land and industrial
buildings, most of which are located in Presque Isle County.
In its underwriting of commercial property real estate loans, the Bank may lend
up to 80% of the securing property's appraised value, although the Bank's
loan-to-value ratio on income producing property real estate loans is generally
75% or less.
Commercial real estate lending is generally considered to involve a higher risk
than single family residential lending due to the financial sensitivity of real
estate projects and developers to general economic conditions. In originating
such real estate loans, the Bank endeavors to reduce the risk by considering the
credit of the borrower, the location of the real estate, and the quality of the
management, construction and administration of the property.
Installment Loans: The Bank makes various types of installment loans, including
automobile loans, marine loans, recreational vehicle loans, home equity loans,
loans to depositors secured by their deposit accounts, and secured and unsecured
personal loans. The maturity of installment loans varies depending on the type
of loan. Home equity, marine and recreational vehicle maturities can be up to 15
years. Most other types of installment loans have maturities of less than eight
years. The interest rate on the majority of installment loans is fixed.
Commercial Loans: The Bank makes commercial loans (other than commercial
mortgage loans) to manufacturers, retailers, and farmers for the purchase of
equipment, for working capital and for renovations. Commercial loans generally
have a higher degree of risk than do mortgage loans. While mortgage loans are
secured by real estate property the value of which tends to be readily
ascertainable, commercial loans typically are made on the basis of the
borrower's ability to make repayment from the cash flow of the business and are
either unsecured or secured by business assets, such as accounts receivable,
equipment and inventory. As a result, the availability of funds for the
repayment of commercial loans may be substantially dependent upon the success of
the business itself.
COMPETITION
The Bank's primary market area consists of Presque Isle County, Michigan where
its sole office is located. The Bank encounters strong competition both in the
attraction of deposits and the making of real estate and other loans. Huron
National Bank is the smaller of two banks located in Rogers City. The other was
purchased by a Bank Holding Company and converted into a branch office. The Bank
also competes for loans and deposits with a savings and loan institution and two
credit unions. In addition, a total of three other Banks operate branches in
Presque Isle County, and money market funds also compete for deposits in the
Bank's service area. The principal methods used by the Bank to attract deposit
accounts include the variety of services offered, the interest rate offered and
the convenience of office location. The Bank's competition for real estate and
other loans comes from these same financial institutions. The Bank competes for
loans through interest rates, loan maturities, loan fees and the quality of
service extended to borrowers.
2
<PAGE>
PART-I ITEM 1 - BUSINESS (continued)
COMPETITION (continued)
In addition to the financial institutions which have offices in Presque Isle
County, the Bank competes with several commercial banks and savings and loans
institutions in surrounding counties, many of which are larger than the Bank.
Further discussion of the Registrant's business is presented in the Business
section on page 9 in the 1996 Annual Report to Shareholders incorporated herein
by reference.
I. STATISTICAL DISCLOSURE
(A) Distribution of Assets, Liabilities and Shareholders' Equity;
(B) Interest Rates and Interest Differential
A table and discussion of the Distribution of Assets, Liabilities and
Shareholders' Equity and Interest Rates and Interest Differential is in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on" pages 3 through 5 under Analysis of Net Interest Income in the
1996 Annual Report to Shareholders. Such information is incorporated herein by
reference.
II. INVESTMENT PORTFOLIO
(A) A table of book values of the investment portfolio as of December
31, 1996 and 1995 is set forth in Note 3 on pages 18 and 19 of
the 1996 Annual Report to Shareholders. Such information is
incorporated herein by reference.
(B) The following table shows the relative maturities and weighted
yields of investments in debt securities at December 31, 1996:
<TABLE>
1 Year or Less 1 Year - 5 Years After 5 Years
Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
Government, Corporations
and Agencies $ 1,503,787 6.41% $ 1,579,122 5.86% $ 506,736 4.63%
Obligations of states and
political subdivisions(1) 90,382 4.29% 1,703,730 4.63% 437,680 5.09%
Corporate securities 483,449 7.23% 838,433 5.94%
___________ _____ ___________ _____ _________ _____
Totals $ 2,077,618 6.51% $ 4,121,285 5.44% $ 944,416 4.84%
=========== ===== =========== ===== ========= =====
</TABLE>
(1) Weighted average yield adjusted to a taxable equivalent basis using a
federal income tax rate of 34%.
III. LOAN PORTFOLIO
(A) A table and discussion of the loan portfolio as of December 31,
1996 and 1995 is in Management's Discussion and Analysis of
Financial Condition and Results of Operations on page 8 under
Loans and Loan Review Process and in Notes 1 and 4 on pages 17
and 19, respectively, in the 1996 Annual Report to Shareholders,
incorporated herein by reference.
(B) The following table sets forth the remaining maturity of
commercial loans at December 31, 1996 according to scheduled
repayments of principal.
<TABLE>
1 Year or Less 1 - 3 Years After 3 Years Total
<S> <C> <C> <C> <C>
Commercial loans(1) $1,983,254 $ 345,044 $ 74,084 $2,402,382
</TABLE>
(1) These loans are disclosed at their contractual maturity, however, a
significant number of loans are rolled over at maturity. These rollovers occur
because contractual maturity is short-term and provides management the ability
to frequently review the customers' credit worthiness.
3
<PAGE>
PART-I ITEM 1 - BUSINESS (continued)
III. LOAN PORTFOLIO (continued)
The following table sets forth commercial loans due after one year at
December 31, 1996. All of the loans were issued at fixed interest rates.
<TABLE>
<S> <C>
Due after one but within three years $345,044
Due after three years 74,084
--------
Total $419,128
========
</TABLE>
(C) (1) Nonaccrual, Past Due and Restructured Loans
The following table sets forth non-performing loans at December 31:
<TABLE>
1996 1995
<S> <C> <C>
Loans accounted for on a nonaccrual basis $36,952 $3,424
Aggregate amount of loans ninety days
or more past due (excludes loans on
nonaccrual status above)
Troubled debt restructuring where terms
have been renegotiated to provide a
reduction or deferral of interest
or principal because of a deterioration
in the financial position of the borrower
(excludes nonaccrual and loans
past due ninety days or more above) 9,531
Total non-performing loans $36,952 $12,955
</TABLE>
The accrual of interest is discontinued at the point in time at which
serious doubt exists as to the collectibility of loan principal or
interest. Each loan is evaluated on its own merits; therefore, loans are
not automatically classified as nonaccrual based upon standardized
criteria.
(2) There are no material loans that are current as to which
management has serious doubts as to the ability of the
borrower to comply with the loan repayment terms, or which
are expected to need adjustments in their repayment terms,
or which are believed to require additional provisions for
loan losses.
(3) There were no foreign loans outstanding as of December 31,
1996 and 1995.
(4) There are no concentrations of loans exceeding 10% of total
loans which are not already disclosed as a category at
December 31, 1996.
(D) As of December 31, 1996, there were no other interest-bearing
assets that would be required to be disclosed under Item III,
Parts (C)(1) or (C)(2) of the Loan Portfolio listing if such
assets were loans.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
(A) The following table sets forth balances and summarizes the
changes in the allowance for loan losses for each of the years
ended December 31:
<TABLE>
1996 1995
<S> <C> <C>
Balance of allowance for loan losses
at the beginning of year: $144,100 $147,729
Charge-offs: Commercial loans 0 16,472
Real estate loans 0 8,935
Installment loans 6,526 14,643
Total charge-offs 6,526 40,050
Recoveries: Commercial loans 0 0
Real estate loans 0 1,213
Installment loans 1,381 1,708
Total recoveries 1,381 2,921
</TABLE>
4
<PAGE>
PART-I ITEM 1 - BUSINESS (continued)
IV. SUMMARY OF LOAN LOSS EXPERIENCE (continued)
<TABLE>
1996 1995
<S> <C> <C>
Net loans charged-off 5,145 37,129
Additions to allowance charged
to operating expense 36,000 33,500
---------- ----------
Balance at end of year $ 174,955 $ 144,100
========== ==========
Average gross loans outstanding 18,386,000 17,442,000
Percent of net charge-offs during
the period to average
gross loans outstanding 0.03% 0.21%
</TABLE>
Further discussion of the provision and allowance for loan losses as well
as non-performing loans is presented in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on page 8 under
Loans and Loan Review Process and in Notes 1, 4 and 5 on pages 16, 19 and
20 in the 1996 Annual Report to Shareholders, incorporated herein by
reference.
(B) The following table presents an allocation of the allowance for
loan losses to the various loan categories for each year ended
December 31:
<TABLE>
1996 1995
Allowance % of Loans Allowance % of Loans
Amount to Total Amount to Total
Loans Loans
<S> <C> <C> <C> <C>
Commercial $ 16,727 12.52% $ 13,553 12.68%
Real estate 33,236 54.25% 30,576 54.68%
Installment 23,462 33.23% 21,649 32.64%
Unallocated 101,530 78,322
--------- ------- --------- -------
Total $ 174,955 100.00% $ 144,100 100.00%
========= ======= ========= =======
</TABLE>
V. DEPOSITS
(A) The following table sets forth average deposit balances and the
weighted average rate paid for the years ended December 31:
<TABLE>
1996 1995
Average Average
Balance Rate Balance Rate
<S> <C> <C> <C> <C>
Demand Deposits $ 3,260,130 0.00% $ 2,862,382 0.00%
Interest-bearing
demand deposits 3,929,544 2.99% 3,921,507 2.99%
Savings 6,368,156 2.75% 6,493,804 2.75%
Time deposits under $100,000 11,554,466 5.47% 9,087,933 5.31%
Time deposits over $100,000 1,917,968 5.87% 1,652,157 5.54%
------------ ----- ------------ -----
Total $ 27,030,264 3.84% $ 24,017,783 3.62%
============ ===== ============ =====
</TABLE>
(B) The following table summarizes time deposits in amount of
$100,000 or more by time remaining until maturity as of December
31, 1996:
<TABLE>
<S> <C>
Three months or less $ 1,732,000
Over three months through six months 211,000
-----------
Total $ 1,943,000
===========
</TABLE>
5
<PAGE>
PART-I ITEM 1 - BUSINESS (continued)
VI. RETURN ON EQUITY AND ASSETS
The following table presents the ratios indicated for the years ended
December 31:
<TABLE>
1996 1995
<S> <C> <C>
Net Income to average assets 1.03% 1.16%
Net Income to average shareholders' equity 12.99% 14.30%
Cash dividend payout ratio 30.54% 25.51%
Average shareholders' equity to average
total assets 7.97% 8.11%
</TABLE>
VII. SHORT TERM BORROWING
NONE
ITEM 2 - DESCRIPTION OF PROPERTY
The Bank owns the land and building on which the Bank's office is located,
200 East Erie Street, Rogers City. Michigan. There are no liens or
mortgages on the above property.
The Registrant operates its business at the same address as the Bank's
office. No other properties are owned by the Registrant.
ITEM 3 - PENDING LEGAL PROCEEDINGS
NONE
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1996.
ADDITIONAL ITEM - EXECUTIVE OFFICERS
Executive officers of the Registrant are appointed annually by the Board of
Directors at the meeting of Directors following the Annual Meeting of
Shareholders. There are no family relationships among these officers and/or
Directors of the Registrant nor any arrangement or understanding between
any officer and any other person pursuant to which the officer was elected.
The following sets forth certain information with respect to the
Registrant's executive officers as of December 31, 1996:
First Elected
Name (age) Position with Registrant Officer of the
Registrant
Ervin Nowak (65) Chairman 1990
Michael L. Cahoon (63) President and Chief Executive Officer 1990
Paulette D. Kierzek (47) Chief Financial Officer 1990
Mr. Nowak is a Director of the Registrant and Chairman of the Board of
Directors of Huron National Bank, a position he has held for more than
five years.
Mr. Cahoon is a Director of the Registrant, President and Chief
Executive Officer. He is also and has been a Director, President and
Chief Executive Officer of the Bank since 1984.
Mrs. Kierzek is the Chief Financial Officer of the Registrant and
Cashier and Secretary to the Board of Directors of Huron National
Bank, a position she has held for more than five years.
6
<PAGE>
PART-II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
TWO YEAR SUMMARY OF COMMON STOCK DATA BY QUARTER
There is no established trading market in the Company's common stock. Such sales
as there are generally occur in Presque Isle County, Michigan. The following
table summarizes sales the Company has knowledge of occuring during the last two
years. Where know, the average sales price is given. Because the shares are sold
infrequently and not on any exchange, the numbers shown cannot necessarily be
considered to be an accurate reflection of true market value.
<TABLE>
1996 1995
Average Average
Number Price Number Price
of Shares Per share of Shares Per Share
<S> <C> <C> <C> <C>
First Quarter 560 Price Unknown 315 Price Unknown
152 $30.00
Second Quarter 300 Price Unknown 100 Price Unknown
13 $30.00
150 $32.00
Third Quarter 170 $30.00 175 $26.00
10 $32.00
605 Price Unknown
Fourth Quarter 300 Price Unknown 500 Price Unknown
</TABLE>
As of December 31, 1996, the Company's shareholder list reflected approximately
640 shareholders of record and there were 62,500 shares of common stock issued
and outstanding.
Dividends declared were $1.50 per share, and $1.25 per share during 1996 and
1995, respectively.
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This section presents information relevant to understanding and assessing the
consolidated financial condition and results of operations of Huron National
Bancorp, Inc. and its wholly-owned subsidiary, Huron National Bank. This
discussion should be read in conjunction with the consolidated financial
statements and related footnotes contained elsewhere in this report.
SUMMARY
During 1996, the Company reported net income of $306,938 compared to net income
of $306,207 in 1995 and $271,544 in 1994. Net income per share was $4.91 in 1996
compared to $4.90 in 1995 and $4.34 in 1994. For 1996, return on average assets
and average equity equaled 1.03% and 12.99%, respectively. This compares to
1.16% and 14.30% in 1995 and 1.07% and 14.22% in 1994. The improvement in the
Company's performance was driven by several factors as discussed in the Results
of Operations section below.
As of year-end, total assets were $30,292,270 an increase of $2,540,651 or 9.16%
over December 31, 1995. This increase followed an increase of $2,202,189 in
1995's total assets over 1994's. Total loans increased $1,465,281 at December
31, 1996 when compared to December 31, 1995, while securities increased
$1,580,679 and cash and cash cash equivalents decreased $509,712 for the same
period. These increases were funded by strong growth in customer time deposits.
In total, the Bank's deposits increased from $25,277,065 in 1995 to $27,594,010
in 1996, with time deposit growth of $2,060,118 more than offsetting decreases
in some other deposit types. Customers are now committing funds for extended
periods of time due to a slight increase in interest rates. The deposit increase
was influenced by changing service charge structures of financial institutions
in the Company's market area also.
Shareholders' equity as a percent of assets stayed at 8.05% for December 31,
1996 and 1995. This is the result of the Company's earnings keeping pace with
asset growth.
RESULTS OF OPERATIONS
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. In 1996, net interest income, on a
fully tax equivalent basis, increased compared to 1995 following an increase of
$13,000 from 1994 to 1995. The level of earning assets and the corresponding
interest earned increased in 1996. However, an increase in the level of interest
bearing liabilities, primarily time deposits, and an increase in the interest
rates paid on those liabilities to a large extent offset the benefits derived
from the increase in earning assets.
<PAGE>
The following table summarizes the increases in net interest income.
<TABLE>
Net Interest Income
(In thousands; fully taxable equivalent basis)
1996 1995 1994
<S> <C> <C> <C>
Interest Income $ 2,222 $ 2,003 $ 1,833
Interest Expense 1,076 870 713
------- ------- -------
Net Interest Income $ 1,146 $ 1,133 $ 1,120
======= ======= =======
Increase in Net Interest Income $ 13 $ 13 $ 71
Percent Increase of Net Interest Income 1.15% 1.16% 6.77%
</TABLE>
The two variables that have the most significant effect on the change in the net
interest income are volume and rate. Below is a chart which illustrates the
impact of changes in these two important variables for 1996 and 1995.
<TABLE>
Change in Net 1996 Over 1995 1995 Over 1994
Interest Income Change Due to: Change Due to:
(In thousands; fully taxable
equivalent basis) Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Loans $ 89 $ 8 $ 97 $ 123 $ 13 $ 136
Taxable securities $ 72 (2) $ 70 $(100) $ 77 $ (23)
Tax-exempt securities 44 (5) 39 9 0 9
Federal funds sold 17 (5) 12 41 7 48
---- ---- ---- ----- ---- -----
Total Interest Income 222 (4) 218 73 97 170
---- ---- ---- ----- ---- -----
Interest Expense
Interest bearing DDA 0 0 0 (19) 0 (19)
Savings (3) 0 (3) (22) 0 (22)
Time deposits 156 53 209 102 98 200
Federal funds purchased (1) (1) (2)
---- ---- ---- ----- ---- -----
Total Interest Expense 153 53 206 60 97 157
---- ---- ---- ----- ---- -----
Net Interest Income $ 69 $ (57) $ 12 $ 13 $ - 13
==== ==== ==== ===== ==== =====
</TABLE>
(1) For purposes of these tables, changes in interest due to volume and
rate were determined as follows:
Volume Variance-change in volume multiplied by the previous year's
rate.
Rate Variance-change in rate multiplied by the previous year's volume.
Rate/Volume Variance-change in volume multiplied by the change in
rate. This variance was allocated to volume variance and rate variance
in proportion to the relationship of the absolute dollar amount of the
change in each.
Analysis of the Bank's net yield on earning assets is also used to evaluate
changes in net interest income. The net yield on earning assets employs an
effective cost of funds by recognizing interest-free liabilities and
shareholders' equity which fund earning assets, and is computed by dividing net
interest income by earning assets.
<PAGE>
The table below summarizes the Company's average balances, interest
income/expense, interest rates, net yield on earning assets, and interest rate
spread.
<TABLE>
Interest Rate Spread and Net 1996 1995 1994
Yield on Earning Assets
(In Thousands) Average Average Average
Assets Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans(1) ...................... $18,386 $ 1,725 9.38% $17,442 $ 1,628 9.33% $16,127 $ 1,492 9.25%
Taxable securities ............ 5,602 348 6.22% 4,439 278 6.27% 6,237 301 4.82%
Tax-exempt securities (fully
taxable equivalent basis) 1,101 75 6.85% 460 36 7.82% 352 27 7.80%
Federal funds sold ............ 1,342 72 5.27% 1,030 59 5.76% 277 11 3.91%
Other ......................... 38 2 5.92% 38 2 5.92% 38 2 6.00%
------ ------ ----- ------- ------ ----- ------ ----- -----
Total interest earning assets . 26,469 2,222 8.39% 23,409 2,003 8.56% 23,031 1,833 7.96%
------ ------ ------- ------ ------ -----
Cash and due from banks ....... 2,642 2,385 1,785
Other assets, net ............ 550 601 615
------ ------- -------
Total Assets .................. $29,661 $26,395 $ 25,431
====== ======= =======
Liabilities
Interest bearing DDA's ........ $ 3,930 118 2.99% $ 3,922 117 2.99% $4,540 136 2.99%
Savings ....................... 6,368 175 2.75% 6,494 179 2.75% 7,307 201 2.75%
Time deposits ................. 13,472 783 5.81% 10,740 574 5.34% 8,645 374 4.33%
Federal funds purchased ....... 0 0 0.00% 0 0 0.00% 55 2 4.70%
------ ----- ----- ------- ----- ----- ------ ----- -----
Total interest bearing
liabilities ................ 23,770 1,076 4.52% 21,156 870 4.11% 20,547 713 3.47%
------ ----- ----- ------- ----- ----- ------ ----- -----
DDA's ......................... 3,260 2,862 2,697
Other liabilities ............. 268 236 278
Shareholders' equity .......... 2,363 2,141 1,909
------ ------- ------
Total liabilities and equity .. $29,661 $26,395 $ 25,431
====== ======= ======
Net Interest Income (fully .... $ 1,146 $ 1,133 $ 1,120
taxable equivalent basis) ====== ====== ======
Net yield on interest
earning assets.............. 4.33% 4.84% 4.86%
===== ===== =====
Net interest spread............ 3.87% 4.45% 4.49%
===== ===== =====
Interest earning assets/
interest bearing liabilities... 1.11x 1.11x 1.12x
</TABLE>
(1) Average balances for loans include impaired loans in 1996 and 1995 and
nonaccrual and restructured loans in 1994. The inclusion of these
loans does not have a material effect on either the average balance or
the interest income. As indicated in Note 1 to the accompanying
consolidated financial statements of Huron National Bancorp, Inc., as
of January 1, 1995 the Company began following guidance provided by
SFAS No. 114 to recognize impaired loans. Prior years' information has
not been revised to consider SFAS No. 114 concepts, however, the
nature of impaired loans is considered generally comparable to prior
years' nonaccrual and restructured loan information.
<PAGE>
Non-Interest Income
During 1996, the Company recorded noninterest income of $147,347 a decrease of
$33,911 or (18.71%) from $181,258" "in 1995. This decrease was attributable
primarily to a premium on the sale of the student loan portfolio of $15,460 and
an increase in volume of charges for customer non-sufficient fund and other
returned checks in 1995.
Non-Interest Expense
During 1996, noninterest expense decreased $37,153 or (4.51%) from $823,719 in
1995 to $786,566 in 1996. The decreases included $20,521 in premises and
equipment due to older items becoming fully depreciated and $17,882 in other
operating expenses primarily due to a reduction in FDIC premiums.
Provision for Income Taxes
The provision for income taxes was $138,507 in 1996 compared to $138,618 in
1995, a decrease of $111 or (0.08%). The effective tax rate, derived by dividing
applicable income tax expense by income before taxes, was 31% in 1996, unchanged
from 1995.
FINANCIAL CONDITION
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.
Liquidity is generally defined as the ability to meet cash flow requirements.
For a bank, meeting cash flow requirements means having funds available to
satisfy customer credit needs as well as having funds available to meet
depositor withdrawal requests. For the parent company, liquidity means having
funds available to pay cash dividends and other operating expenses.
The Bank's primary sources of short-term liquidity are its securities available
for sale and ability to raise money through federal funds purchased. Its longer
term sources of liquidity are maturities of securities, loan repayments, 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 the Bank has adequate sources of liquidity to meet its
anticipated requirements.
As previously noted, interest income and interest expense are also dependent on
changing interest rates. The relative impact of changing interest rates on 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. Management believes that
the Bank's rate sensitive position is adequate in a normal interest rate
movement environment.
<PAGE>
GAP Analysis
The following table as of December 31, 1996 reflects how management has matched
assets to liabilities that mature or have the ability to reprice in the
following time frame:
<TABLE>
Assets 0-90 Days 91-180 Days 181-365 Days 1 - 3 Years 3 Years + Total
<S> <C> <C> <C> <C> <C> <C>
Loans ................. $ 1,392,443 $ 793,668 $ 785,158 $ 4,185,882 $ 11,992,081 $ 19,149,232
Investments ........... 878,932 70,382 1,142,304 3,669,564 1,382,137 7,143,319
Federal Funds ......... 900,000 0 0 0 0 900,000
------------ ------------ ------------ ----------- ------------ -----------
Total ................. 3,171,375 864,050 1,927,462 7,855,446 13,374,218 27,192,551
------------ ------------ ------------ ----------- ------------ -----------
Liabilities
Interest-bearing
transaction accounts .. 3,769,530 0 0 0 0 3,769,530
Savings ............... 6,498,161 0 0 0 0 6,498,161
Certificates of Deposit 5,494,678 2,882,003 942,613 2,354,365 2,303,545 13,977,204
------------- ------------ ------------ ----------- ----------- -----------
Total ................. 15,762,369 2,882,003 942,613 2,354,365 2,303,545 24,244,895
Asset/(Liabilities) GAP (12,590,994) (2,017,953) 984,849 5,501,081 11,070,673 2,947,656
============= =========== ============ =========== =========== ==========
Cumulative GAP ........ $(12,590,994) $(14,608,947) $(13,624,098) $ (8,123,017) $ 2,947,656
============= =========== ============ =========== ===========
</TABLE>
Not included in the above totals are nonaccrual loans of $36,952, and matured
certificates of deposit of $15,884.
Interest-bearing transaction and savings accounts are classified as repricing in
0-90 days as these instruments provide management with the discretion to adjust
their rates. Further, because this category has no maturity schedule or early
withdrawal penalty, depositors are free to move their funds based on rate alone.
Therefore, management recognizes that these categories, although generally lower
costing funds, are rate sensitive to the extent of interest rate movements.
The Bank's cumulative 1 year GAP position increased from ($12,191,032) at
December 31, 1995 to ($13,624,098) at December 31, 1996 principally as a result
of the shortening of liability maturities in the certificates of deposits area.
Management believes that the GAP overstates true interest sensitivity. Interest
exposure is not as significant as expressed in the above schedule as rates on
interest-bearing transaction and savings accounts may not reprice on an "instant
basis". Management believes liabilities do not need to be repriced as soon as
rates begin to move which gives them a "lag time" in the market and for the
assets to reprice. It is also their belief that they are in a sufficient
position to minimize any adverse effect to the Bank's financial position due to
interest rate changes.
Capital
Management attempts to maintain sufficient capital to take advantage of market
opportunities, yet provide a fair return to its shareholders.
The National Bank Act places limitations on the ability of the Bank to declare
and pay dividends. As a general matter, the Bank may not pay dividends greater
than the total of the Bank's net profits for that year combined with its
retained net profits of the two preceding years. Further, the Comptroller of the
Currency may prohibit the payment of cash dividends where it deems the payment
to be an unsafe and unsound banking practice. Under the most restrictive of the
dividend restrictions, in 1997 the Bank could pay additional dividends of
approximately $450,000 plus 1997 net income to the Holding Company.
<PAGE>
Management believes that a strong capital position is paramount to its continued
profitability and continued depositor and investor confidence. It also provides
Huron National Bank flexibility to take advantage of growth opportunities and to
accommodate larger Bank loan customers. Regulators have established "risk-based"
capital guidelines for banks and bank holding companies. Because of the
Company'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 December 31, 1996,
Huron National Bank had capital ratios well above the minimum regulatory
guidelines as noted within footnote 14 of the Consolidated Financial Statements.
Loans and Loan Review Process
Maintaining high asset quality is a key determinant of the Bank's success.
Therefore, management continually monitors impaired, non-performing and
delinquent loans and reports them monthly to the Board of Directors.
Non-accrual and loans past due 90 days or more approximated $36,952 or 0.19% of
total loans at December 31, 1996 compared to approximately $12,955 or 0.07% a
year earlier.
The provision for loan losses was $36,000 in 1996 compared to $33,500 in 1995
and $30,000 in 1994. For the same years, charge-offs, net of recoveries, were
$5,145, $37,129 and $1,521, respectively.
The allowance for loan losses is at $174,955, or 0.91% of total loans, at
December 31, 1996 compared to $144,100, or 0.81% of total loans, at year-end
1995. The allowance is consistent with management's recognition of problem loans
along with management's strategy to emphasize the quality of the loan portfolio.
The allowance is considered adequate by management. (see also Note 1 to the
Consolidated Financial Statements)
Effects of Inflation
Inflation can have a significant effect on the reported financial operating
results of all industries. This is especially true in industries with a high
proportion of fixed assets and inventory. Inflation has an impact on the growth
of total assets in the banking industry and the need to maintain a proper level
of equity capital.
Interest rates are significantly affected by inflation, but it is difficult to
assess the impact since neither the timing nor the magnitude of the changes in
the consumer price index coincide with changes in interest rates. There is, of
course, an impact on longer-term earning assets; however, this effect continues
to diminish as investment maturities are shortened and interest-earning assets
and interest-bearing liabilities shift from fixed-rate long-term to
rate-sensitive short-term.
ISSUED BUT NOT YET ADOPTED ACCOUNTING STANDARDS
Information for this item appears in Note 1 of the Consolidated Financial
Statements.
<PAGE>
BUSINESS
Huron National Bancorp, Inc., along with its wholly-owned subsidiary, Huron
National Bank, provides its customers with a full line of commercial banking
services with its only office located in Rogers City, Michigan. The Bank's
customer base consists of individuals, agricultural concerns, resort and related
businesses and small to medium-sized manufacturing companies. The Bank's service
area consists primarily of Presque Isle County in the northeastern portion of
Michigan's lower peninsula.
Huron National Bank is the smaller of two banks located in Rogers City. The
other was purchased by a bank holding company and converted into a branch
office. The Bank also competes for loans and deposits with a savings and loan
institution, and two credit unions. In addition, a total of three other Banks
operate branches in Presque Isle County, and money market funds also compete for
deposits in the Bank's service area.
The Bank regularly makes commitments for secured term loans and commitments for
lines of credit. These lines of credit are reviewed on an annual basis by the
Bank's Board of Directors. However, these commitments are firm only to the
extent that the respective borrower maintains a satisfactory credit history and
does not represent any unusual "credit risk. The Bank had $1,422,000 and
$1,348,819 as of December 31, 1996 and 1995 in outstanding lines of credit and
commitment to make loans of which $588,022 and $620,582 were still available to
the respective borrower. Further, the Bank had issued letters of credit totaling
$247,179 as of December 31, 1996.
A portion of the Bank's deposits are obtained from and loans made to
agricultural concerns and resort and related businesses. There are no other
material concentrations of credit to, nor have other material portions of the
deposits been received from, a single person, persons, industry or group.
The economy of the market area served by the Bank is significantly influenced by
the seasonal effects of the tourist and agricultural industries. The business of
the Bank has been only mildly affected by the seasonal aspects of these
components of the local economy.
As of December 31, 1996, the Bank did not have any foreign sources or
applications of funds.
Compliance with federal, state, and local statutes and/or ordinances relating to
the protection of the environment is not expected to have any material effect
upon the Bank's capital expenditures, earnings, or competitive position.
The Bank employed 14 full-time employees and 4 part-time employees at December
31, 1996.
The Bank does not offer commercial, consumer, international, trust, or municipal
trading services.
<PAGE>
ITEM 7 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CROWE CHIZEK
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Huron National Bancorp, Inc.
Rogers City, Michigan
We have audited the accompanying consolidated balance sheets of Huron National
Bancorp, Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Huron National
Bancorp, Inc. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with the generally accepted accounting
principles.
/s/Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
January 23, 1997
<PAGE>
<TABLE>
HURON NATIONAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS 1996 1995
<S> <C> <C>
Cash and due from banks (Note 2) ...... $ 2,438,015 $ 2,847,727
Federal Funds Sold .................... 900,000 1,000,000
Cash and cash equivalents ............. 3,338,015 3,847,727
Securities available for sale (Note 3) 1,746,701 1,773,025
Securities held to maturity (Note 3)
(Fair value - $5,450,000 in 1996
and $3,856,000 in 1995) .............. 5,402,689 3,795,686
Loans (Note 4) ........................ 19,186,184 17,720,903
Allowance for loan losses (Note 5) .... (174,955) (144,100)
Net loans ............................. 19,011,229 17,576,803
Bank premises and equipment
- net (Note 6) ..................... 488,598 421,508
Accrued interest receivable ........... 234,632 227,277
Other assets .......................... 70,406 109,593
Total Assets .......................... $ 30,292,270 $ 27,751,619
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits (Note 7)
Non interest-bearing
transaction accounts ................ $ 3,333,231 $ 3,045,265
Interest-bearing transaction
accounts ............................ 3,769,530 3,786,097
Savings ............................... 6,498,161 6,512,733
Time .................................. 13,993,088 11,932,970
Total deposits ........................ 27,594,010 25,277,065
Accrued interest payable .............. 63,216 55,568
Other liabilities (Note 8) ............ 195,371 184,064
Total liabilities ..................... 27,852,597 25,516,697
Commitments (Note 10)
Shareholders' Equity
Common stock, $10 par value:
100,000 shares authorized
and 62,500 outstanding ............... 625,000 625,000
Additional paid in capital ............ 625,000 625,000
Retained earnings (Note 11) ........... 1,185,666 972,478
Net unrealized gain on securities
available for sale, net of tax of
($2,064) in 1996 and ($6,411) in 1995 4,007 12,444
Total shareholders' equity ............ 2,439,673 2,234,922
Total liabilities and
shareholders' equity ................. $ 30,292,270 $ 27,751,619
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
HURON NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C>
Interest Income
Loans, including fees ........... $1,724,683 $1,627,379 $1,492,365
Federal funds sold .............. 70,650 59,274 10,812
Securities available for sale:
U.S. Treasury ................... 63,100 27,218 103,233
U.S. Government Agencies ........ 61,977 63,301
Securities held to maturity:
U.S. Government agencies ........ 137,273 115,865 149,959
Municipal bonds and notes ....... 49,827 23,748 18,130
Corporate notes ................. 86,130 71,803 47,226
Other ........................... 2,250 2,250 2,250
Total interest income ........... 2,195,890 1,990,838 1,823,975
Interest Expense
Deposits (Note 7) ............... 1,075,226 870,052 710,817
Federal Funds Purchased ......... 2,581
Total interest expense .......... 1,075,226 870,052 713,398
Net Interest Income ............. 1,120,664 1,120,786 1,110,577
Provision for Loan
Losses (Note 5) ............... 36,000 33,500 30,000
Net Interest Income After
Provision for Loan Losses ....... 1,084,664 1,087,286 1,080,577
Non-Interest Income
Service charges ................. 101,577 111,810 83,312
Gain on sales of student loans .. 15,460
Other ........................... 45,770 53,988 36,557
Total non-interest income ....... 147,347 181,258 119,869
Non-Interest Expense
Salaries and benefits (Note 12) . 387,299 382,305 356,666
Premises and equipment .......... 118,462 138,983 135,687
Legal and accounting fees ....... 49,752 53,496 44,484
Other operating expense (Note 9) 231,053 248,935 256,690
Total non-interest expense ...... 786,566 823,719 793,527
Income Before Income Tax ........ 445,445 444,825 406,919
Provision for Income Tax (Note 8) 138,507 138,618 135,375
Net Income ...................... $ 306,938 $ 306,207 $ 271,544
Net Income Per Share (Note 1).... $ 4.91 $ 4.90 $ 4.34
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
HURON NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 1996, 1995, and 1994
<TABLE>
Net Unrealized
Gain (Loss)
Additional On Securities Total
Common Paid In Retained Available Shareholders'
Stock Capital Earnings For Sale Equity
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 ......... $ 625,000 $ 625,000 $ 535,352 $ 18,299 $1,803,651
Net income for the year ............ 271,544 271,544
Cash dividends ($1.00 per share) ... (62,500) (62,500)
Unrealized gain (loss) on securities
available for sale, net of tax ... (24,500) (24,500)
BALANCE AT DECEMBER 31, 1994 ....... 625,000 625,000 744,396 (6,201) 1,988,195
Net income for the year ............ 306,207 306,207
Cash dividends ($1.25 per share) ... (78,125) (78,125)
Unrealized gain (loss) on securities
available for sale, net of tax .... 18,645 18,645
BALANCE AT DECEMBER 31, 1995 ....... 625,000 625,000 972,478 12,444 2,234,922
Net income for the year ............ 306,938 306,938
Cash dividends ($1.50 per share) ... (93,750) (93,750)
Unrealized gain (loss) on securities
available for sale, net of tax (8,437) (8,437)
BALANCE AT DECEMBER 31, 1996 ....... $ 625,000 $ 625,000 $1,185,666 $ 4,007 $2,439,673
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
HURON NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
CASH FLOWS FROM OPERATING ACTIVITIES
1996 1995 1994
<S> <C> <C> <C>
Net income ............................ $ 306,938 $ 306,207 $ 271,544
Adjustments to reconcile
net income to net cash
from operating activities
Depreciation and amortization ......... 40,233 61,545 62,174
Net premium amortization and
discount accretion on securities ..... 50,399 48,732 186,153
Provision for loan losses ............. 36,000 33,500 30,000
Gain on sales of student loans ........ (15,460)
Gain on sale of security held
to maturity .......................... (2,664)
Increase/(decrease) in cash from
change in assets
and liabilities:
Interest receivable ................... (7,355) (39,157) 44,988
Other assets and other real estate .... 39,187 (17,864) 27,627
Interest payable ...................... 7,648 17,164 3,341
Other liabilities ..................... 15,654 (67,920) 14,082
Net cash from operating activities .... 488,704 324,083 639,909
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-sale securities:
Purchases ............................. (989,086) (1,765,823)
Maturities ............................ 1,000,000 850,000 2,000,000
Held-to-maturity securities:
Purchases ............................. (3,437,776) (2,475,906) (1,809,211)
Sales ................................. 295,125
Maturities ............................ 1,783,000 2,358,000 2,255,000
Net increase in loans ................. (1,470,426) (1,436,707) (1,350,626)
Proceeds from sales of student loans .. 623,074
Proceeds from sale of other real estate 102,000
Purchase of property and equipment .... (107,323) (28,062) (56,129)
Net cash used in investing activities . (3,221,611) (1,478,299) 1,039,034
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in
deposit accounts ..................... 2,316,945 1,996,613 (73,903)
Dividends paid ........................ (93,750) (78,125) (62,500)
Net cash from financing activities .... 2,223,195 1,918,488 (136,403)
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS ...................... (509,712) 764,272 1,542,540
CASH AND CASH EQUIVALENTS AT:
BEGINNING OF PERIOD ................... 3,847,727 3,083,455 1,540,915
END OF PERIOD ......................... $ 3,338,015 $ 3,847,727 $ 3,083,455
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest .............................. $ 1,067,578 $ 852,888 $ 711,938
Federal income tax .................... 91,025 236,709 101,000
</TABLE>
Non cash investing activities
Loans in the amount of $102,000 were transferred to other real estate in 1995.
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
HURON NATIONAL BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
NATURE OF OPERATIONS ~ The consolidated financial statements include the
accounts of Huron National
Bancorp, Inc. (the "Company") and its wholly-owned subsidiary, Huron
National Bank (the "Bank"). All material intercompany balances and transactions
are eliminated in consolidation.
The Company is engaged in the business of commercial and retail banking,
with operations conducted through its office located in Rogers City, Michigan.
The surrounding communities are the source of substantially all of the Company's
deposit and loan activities. The majority of the Company's income is derived
from commercial and retail lending activities. Primarily all installment and
residential loans are secured by real and personal property. Approximately 90%
of commercial loans are secured by real estate.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS ~ The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period, as
well as affecting the disclosures provided. Actual results could differ from
those estimates. Areas involving the use of management's estimates and
assumptions include the allowance for loan losses, the realization of deferred
tax assets, fair values of financial instruments, the determination and carrying
value of impaired loans, and depreciation of premises and equipment. Estimates
that are more susceptible to change in the near term include the allowance for
loan losses and the fair values of financial instruments.
SECURITIES ~ Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported separately in shareholders'
equity, net of tax. Securities are classified as trading when held for short
term periods in anticipation of market gains, and are carried at fair value.
Securities are written down to fair value when a decline in fair value is not
temporary.
Gains and losses on sales are determined using the amortized cost of the
specific security sold. Interest income includes amortization of purchase
premiums and discounts.
ALLOWANCE FOR LOAN LOSSES ~ Because some loans may not be repaid in full,
an allowance for loan losses is recorded. Increases to the allowance are
recorded by a provision for loan losses charged to expense. Estimating the risk
of loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the allowance is maintained by management at a level considered
adequate to cover losses that are currently anticipated based on past loss
experience, general economic conditions, information about specific borrower
situations including their financial position and collateral values, and other
factors and estimates which are subject to change over time. While management
may periodically allocate portions of the allowance for specific problem loan
situations, the whole allowance is available for any charge-offs that occur. A
loan is charged-off against the allowance by management as a loss when deemed
uncollectible, although collection efforts may continue and future recoveries
may occur.
Statements of Financial Accounting Standards (SFAS) Nos. 114 and 118 were
effective January 1, 1995 and require recognition and disclosures of loan
impairment. Loans are considered impaired if full principal or interest payments
are not anticipated. Impaired loans are carried at the present value of expected
cash flows discounted at the loan's effective interest rate or at the fair value
of the collateral if the loan is collateral dependent. A portion of the
allowance for loan losses is allocated to impaired loans. The effect of adopting
these standards is included in the 1995 provision for loan losses, and was not
material.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Smaller-balance homogeneous loans are evaluated for impairment in total. Such
loans include residential first mortgage loans secured by one-to-four family
residences, residential construction loans, and automobile, home equity and
second mortgage loans. Commercial loans and mortgage loans secured by other
properties are evaluated individually for impairment. When analysis of borrower
operating results and financial condition indicates that underlying cash flows
of the borrower's business are not adequate to meet its debt service
requirements, the loan is evaluated for impairment. Often this is associated
with a delay or shortfall in payments of 30 days or more. Loans are generally
moved to nonaccrual status when 90 days or more past due. These loans are often
also considered impaired. Impaired loans, or portions thereof, are charged off
when deemed uncollectible. This typically occurs when the loan is 120 or more
days past due.
LOANS ~ Loans are reported at the principal balance outstanding, net of
deferred loan fees and costs, the allowance for loan losses, and charge-offs.
Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the loan term.
Interest income is not reported when full loan repayment is in doubt, typically
when payments are past due over 120 days. Payments received on such loans are
reported as principal reductions.
BANK PREMISES AND EQUIPMENT ~ Bank premises and equipment are stated at
cost less accumulated depreciation. Depreciation is computed using both
straight-line and accelerated methods over their estimated useful lives.
Maintenance, repairs and minor alterations are charged to current operations as
expenditures occur, and major improvements are capitalized. These assets are
reviewed for impairment when events indicate the carrying amount may not be
recoverable.
OTHER REAL ESTATE ~ Real estate acquired in settlement of loans is
initially reported at estimated fair value at acquisition. After acquisition, a
valuation allowance reduces the reported amount to the lower of the initial
amount or fair value less costs to sell. Expenses, gains and losses on
disposition, and changes in the valuation allowance are reported in net loss on
other real estate.
INCOME TAXES ~ Income tax expense is the sum of the current year income tax
due or refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax consequences of
temporary differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
STATEMENT OF CASH FLOWS ~ Cash and cash equivalents is defined to include
cash on hand, demand deposits in other institutions and federal funds sold.
Federal funds are generally sold for one days periods. The Company reports
customer loan transactions and deposit transactions on a net cash flow basis.
NET INCOME PER SHARE ~ Net income per share is computed using the weighted
average number of shares outstanding. The number of shares used in the
computation of net income per share was 62,500 for all years presented.
ISSUED BUT NOT YET ADOPTED ACCOUNTING STANDARDS ~ SFAS No.125, Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities, was issued by the Financial Accounting Standards Board in 1996. It
revises the accounting for transfers of financial assets, such as loans and
securities, and the criteria for distinguishing between sales and secured
borrowings. It is effective for some transactions in 1997 and for others in
1998. The effect on the financial statements has not yet been determined.
RECLASSIFICATIONS ~ Some items in prior financial statements have been
reclassified to conform with the current presentation.
<PAGE>
NOTE 2 - CASH AND DUE FROM BANKS
As of December 31, 1996, the Bank was required to maintain cash balances
with the Federal Reserve Bank in the amount of $27,000.
NOTE 3 - SECURITIES
Securities have been classified in the Consolidated Balance Sheet according
to management's intent. The amortized cost of securities and their estimated
fair values at December 31 were as follows:
<TABLE>
Gross Gross
Amortized Unrealized Unrealized
1996 Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury Securities ... $1,239,342 $ 4,408 $ -- $1,243,750
U.S. Agency Securities ..... 501,288 1,663 -- 502,951
$1,740,630 $ 6,071 $ -- $1,746,701
Securities Held to Maturity:
U.S. Agency Securities ..... $1,849,015 $ 1,305 $ -- $1,850,320
Obligations of States and
political subdivisions .... 2,231,791 40,486 -- 2,272,277
Corporate Securities ....... 1,321,883 5,461 -- 1,327,344
$5,402,689 $ 47,252 $ -- $5,449,941
</TABLE>
<TABLE>
Gross Gross
Amortized Unrealized Unrealized
1995 Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury Securities ... $ 498,831 $ 4,919 $ -- $ 503,750
U.S. Agency Securities ..... 1,255,339 13,936 -- 1,269,275
$1,754,170 $ 18,855 $ -- $1,773,025
Securities Held To Maturity:
U.S. Agency Securities ..... $1,983,926 $ 19,292 $ -- $2,003,218
Obligations of States and
political subdivisions ..... 675,746 28,931 -- 704,677
Corporate Securities ....... 1,136,014 12,077 -- 1,148,091
$3,795,686 $ 60,300 $ -- $3,855,986
</TABLE>
There were no sales of securities classified as available for sale during 1996,
1995 or 1994. There were no transfers of securities classified as held to
maturity during 1996, 1995 or 1994. During 1995, Management sold a held to
maturity security as permitted by the safe harbor rules of SFAS No. 115.
The amortized cost and estimated fair value of securities at December 31, 1996,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<PAGE>
NOTE 3 - SECURITIES (continued)
<TABLE>
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in one year or less .............. $ 749,900 $ 752,266 $1,327,718 $1,334,826
Due after one year through five years 990,730 994,435 3,130,555 3,163,349
Due after five years through ten years 944,416 951,766
Totals ............................... $1,740,630 $1,746,701 $5,402,689 $5,449,941
</TABLE>
Securities available for sale with a carrying value of $499,539 at December 31,
1996 were pledged to secure public deposits and for other purposes required or
permitted by law.
At year end, the Company had the following concentrations of securities:
<TABLE>
Amortized
Geographic: Cost Fair Value
<S> <C> <C>
Rogers City, Michigan ................ 320,638 321,059
Issuers:
Greater Rockford, IL Airport Authority 262,969 273,388
Branch County of Michigan ............ 338,737 339,307
</TABLE>
NOTE 4 - LOANS
Loans consist of the following at December 31:
<TABLE>
1996 1995
<S> <C> <C>
Commercial loans $ 2,402,382 $ 2,246,982
Real estate loans 10,407,482 9,690,077
Installment loans 6,376,320 5,783,844
Total loans ..... $19,186,184 $17,720,903
</TABLE>
Certain directors and executive officers of the Company, including associates of
such persons, were also loan customers. The following is a summary of the
balance and activity of loans to such parties.
<TABLE>
1996 1995
<S> <C> <C>
Balance - January 1 . $ 157,451 $ 147,501
New loans ........... 68,915 113,515
Repayments .......... (118,846) (103,565)
Balance - December 31 $ 107,520 $ 157,451
</TABLE>
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
An analysis of changes in the allowance for loan losses follows:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year.......... $ 144,100 $ 147,729 $ 119,250
Additions (Deductions)
Provision for loan losses ............ 36,000 33,500 30,000
Recoveries credited to allowance ..... 1,381 2,921 1,648
Loans charged-off .................... (6,526) (40,050) (3,169)
Balance at end of year ............... $ 174,955 $ 144,100 $ 147,729
</TABLE>
<PAGE>
NOTE 5 - ALLOWANCE FOR LOAN LOSSES (continued)
During the year 1996, there were no loans that were considered to be impaired.
During the year 1995, the balance of impaired loans was considered to be
immaterial.
NOTE 6 - BANK PREMISES AND EQUIPMENT - NET
Bank premises and equipment consist of the following at December 31:
<TABLE>
Accumulated Carrying
1996 Cost Depreciation Value
<S> <C> <C> <C>
Land ......................... $ 60,000 $ 60,000
Bank building and improvements 481,509 $(185,803) 295,706
Furniture and equipment ...... 428,427 (295,535) 132,892
Total ........................ $ 969,936 $(481,338) $ 488,598
1995
Land ......................... $ 60,000 $ 60,000
Bank building and improvements 466,505 $(172,821) 293,684
Furniture and equipment ...... 361,792 (293,968) 67,824
Total ........................ $ 888,297 $(466,789) $ 421,508
</TABLE>
Provisions for depreciation of $40,233, $57,510, and $52,501, were included in
non-interest expense in 1996, 1995 and 1994, respectively.
NOTE 7 - DEPOSITS
The Bank had an aggregate of approximately $1,943,000 and $1,600,000 in time
deposits issued in denominations of $100,000 or more as of December 31, 1996 and
1995, respectively. Interest expense on time deposits issued in denominations of
$100,000 or more was approximately $105,000, $92,000, and $37,000 in 1996, 1995
and 1994, respectively.
At year-end 1996, stated maturities of time deposits were:
<TABLE>
<S> <C>
1997 $9,140,521
1998 1,423,542
1999 981,382
2000 1,576,953
2001 796,900
thereafter 73,790
$13,993,088
</TABLE>
Related party deposits totalled $344,592 and $207,663 at year-end 1996 and 1995.
<PAGE>
NOTE 8 - INCOME TAX
The provision for federal income tax for the years ended December 31 consists of
the following:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Current expense .......... $ 171,073 $ 116,529 $ 147,226
Deferred expense (benefit) (32,566) 22,089 (11,851)
Provision for income tax . $ 138,507 $ 138,618 $ 135,375
</TABLE>
Included in other liabilities are deferred tax balances arising from the
following items:
<TABLE>
December 31,
Deferred tax liabilities: 1996 1995
<S> <C> <C>
Effects of preparing tax return
on a cash basis .............. $ (49,313) $ (59,825)
Property and equipment ........ (99,249) (99,328)
Unrealized gain on securities
available for sale ........... (2,064) (6,411)
Other ......................... (16,587) (31,674)
(167,213) (197,238)
Deferred tax assets:
Allowance for loan losses ..... 37,587 27,096
Loan fees ..................... 7,595 11,198
45,182 38,294
Net deferred tax liability .... $(122,031) $(158,944)
</TABLE>
The difference between the financial statement tax expense and amounts computed
by applying the statutory federal tax rate of 34% to pretax income is reconciled
as follows:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Statutory rate applied to
income before taxes ..... $ 151,451 $ 151,240 $ 145,101
Add (deduct)
Tax-exempt interest income (12,988) (7,090) (7,728)
Surtax exemption and other 44 (5,532) (1,998)
Provision for income tax . $ 138,507 $ 138,618 $ 135,375
</TABLE>
NOTE 9 - OTHER OPERATING EXPENSE
Other operating expenses for the years ended December 31 consist of the
following:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Office supplies .............. $ 28,369 $ 30,836 $ 21,554
Directors fees ............... 48,000 44,000 36,000
General insurance ............ 18,374 17,247 20,853
FDIC insurance ............... 2,000 26,610 52,227
Other expense ................ 134,310 130,242 126,056
Total other operating expenses $231,053 $248,935 $256,690
</TABLE>
<PAGE>
NOTE 10 - COMMITMENTS AND CONCENTRATIONS OF CREDIT RISK
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet financing needs of its customers. These
financial instruments include letters of credit and unused lines of credit. The
Bank's exposure to credit loss in the event of nonperformance by the other
parties to the financial instruments is presented by the contractual amount of
those instruments. The Bank follows the same credit policy to make such
financial instruments as is followed for those loans recorded in the financial
statements.
As of December 31, the Bank had outstanding letters of credit, commitments to
make loans and unused lines of credit as follows:
<TABLE>
1996 1995
<S> <C> <C>
Outstanding letters of credit $247,179 $210,098
Commitments to make loans
and Unused lines of credit . $588,022 $620,582
</TABLE>
All commitments above are at fixed rates and carry rates of interest from 8.5%
to 11% and generally expire within 1 year.
Since certain commitments to make loans and fund lines of credit expire without
being used, the amount does not necessarily represent future cash commitments.
From time to time claims are made against the Company in the normal course of
business. There were no material outstanding claims at December 31, 1996.
The Company's loan and deposit relationships are not concentrated in any
particular industry, nor is there significant dependence on any one employer.
Noninterest-bearing deposits and federal funds sold and held by NBD Bank,"
amounted to $2,500,792 and $3,129,903 at December 31, 1996 and 1995,
respectively.
NOTE 11 - DIVIDENDS
Guidelines with respect to maintenance of capital adopted by federal banking law
limits the amount of cash dividends the Bank can pay to the Holding Company to
the extent of net retained profits (as defined by the regulatory agencies) for
the current and two preceding years, and is further limited by the requirement
that the Bank maintain positive retained earnings. Under the most restrictive of
the above regulations, in 1997 the Bank is limited to paying additional
dividends of approximately $450,000 plus 1997 net income.
NOTE 12 - PENSION PLAN
The Bank has a Simplified Employee Pension (SEP) Plan that became effective
January 31, 1995. It is a defined contribution plan. Employees become eligible
to participate in the SEP Plan after two years of service in the immediately
preceding five plan years and after attaining the age of 21. In each plan year
the Bank may contribute to the Plan the lesser of $30,000 or a percentage of
each participant's compensation as reported on Form W-2. The contribution is
determined annually by the Bank's Board of Directors. Also, participants may
make contributions to the Plan subject to certain requirements and limitations.
In all cases, Bank and participant contributions may not exceed limitations
established by the Internal Revenue Service. Expense recognized by the Bank in
relation to the SEP Plan for the year ended December 31, 1996 and 1995 was
$7,314 and $7,008, respectively.
<PAGE>
NOTE 13 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.
Carrying amount is a reasonable estimate of fair value for cash equivalents,
interest-bearing deposits in financial institutions, Federal Reserve stock,
accrued interest receivable and payable, the allowance for loan losses, demand"
deposits, savings accounts and money market deposits.
Fair value of other financial instruments is estimated as follows:
Fair values for securities are based on quoted market prices or dealer quotes.
If a quoted market price is not available, fair value is estimated using quoted
market prices for similar instruments.
Fair value of fixed and variable rate loans is principally estimated by
discounting future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.
The fair value of fixed-maturity certificates of deposit is estimated by
discounting cash flows using the rates currently offered for deposits of similar
remaining maturities.
The fair value of commitments is estimated using the fees currently charged to
enter similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
letters of credit is based on fees currently charged for similar agreements or
on the estimated cost to terminate them or otherwise settle the obligations with
the counterparties at the reporting date. The fair value of commitments to
extend credit and standby letters of credit were immaterial at the reporting
date presented.
The carrying values and fair values of the Company's financial instruments (in
thousands) are as follows as of year-end.
<TABLE>
1996 1995
Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 3,338 3,338 $ 3,848 $ 3,848
Securities .............. 7,149 7,197 5,569 5,629
Loans, net .............. 19,011 19,165 17,577 17,327
Federal Reserve Stock ... 38 38 38 38
Interest receivable ..... 235 235 227 227
Financial liabilities
Deposits ................ 27,594 27,657 25,277 25,325
Interest payable ........ 63 63 56 56
</TABLE>
NOTE 14 - REGULATORY MATTERS
The Company and Bank are subject to regulatory capital requirements administered
by federal banking agencies. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative
judgments by regulators about components, risk weighting, and other factors, and
the regulators can lower classifications in certain cases. Failure to meet
various capital requirements can initiate regulatory action that could have a
direct material effect on the financial statements.
<PAGE>
NOTE 14 - REGULATORY MATTERS (continued)
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
<TABLE>
Capital to risk-
weighted assets Tier 1 capital
Total Tier 1 to average assets
<S> <C> <C> <C>
Well capitalized ..... 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized ..... 6% 3% 3%
</TABLE>
At year-end, the Bank's consolidated actual capital levels (in millions) and
minimum required levels were:
<TABLE>
Minimum
Required To
Minimum Required Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
1996 Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk
weighted assets) ..... $ 2.6 14.4% $ 1.5 8.0% $ 1.8 10.0%
Tier 1 capital (to risk
weighted assets) ..... $ 2.4 13.3% $ 0.7 4.0% $ 1.1 6.0%
Tier 1 capital (to
average assets) ...... $ 2.4 7.9% $ 1.2 4.0% $ 1.5 5.0%
1995
Total capital (to risk
weighted assets) ..... $ 2.3 13.5% $ 1.4 8.0% $ 1.7 10.0%
Tier 1 capital (to risk
weighted assets) ..... $ 2.2 12.9% $ 0.7 4.0% $ 1.0 6.0%
Tier 1 capital (to
average assets) ...... $ 2.2 7.9% $ 1.1 4.0% $ 1.4 5.0%
</TABLE>
NOTE 15 - HURON NATIONAL BANCORP, INC. (PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION
Presented below are condensed financial statements for the parent company:
<TABLE>
CONDENSED BALANCE SHEETS
December 31,
ASSETS 1996 1995
<S> <C> <C>
Cash and cash equivalents ....... $ 11,939 $ 4,624
Investment in Huron National Bank 2,427,734 2,217,393
Other assets .................... 28,442
Total Assets .................... $2,439,673 $2,250,459
LIABILITIES
Due to Huron National Bank ...... $ 15,537
SHAREHOLDERS' EQUITY ............ 2,439,673 $2,234,922
Total liabilities and
shareholders' equity ........... $2,439,673 $2,250,459
</TABLE>
<PAGE>
NOTE 15 - HURON NATIONAL BANCORP, INC. (PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION (continued)
<TABLE>
CONDENSED STATEMENTS OF INCOME
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATING INCOME
Dividends from Huron . $103,750 $ 83,125 $ 62,500
National Bank
OPERATING EXPENSES
Other expenses ....... $ 15,590 5,204 13,118
Income before equity in
undistributed net income
of subsidiary ............ 88,160 77,921 49,382
Equity in undistributed net
income of subsidiary ... 218,778 228,286 222,162
NET INCOME ................ $306,938 $306,207 $271,544
</TABLE>
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income .............................. $ 306,938 $ 306,207 $ 271,544
Adjustments to reconcile
net income to cash from
operating activities:
Net amortization ........................ 4,035 9,673
Equity in undistributed net
income of subsidiary ................... (218,778) (228,286) (222,162)
Change in other assets .................. 28,442 (28,444) 17,145
Change in other liabilities ............. (15,537) 15,537
Net Cash From Operating Activities ...... 101,065 69,049 76,200
Cash Flows from Financing Activities
Dividends Paid .......................... (93,750) (78,125) (62,500)
Net Cash from Financing Activities ...... (93,750) (78,125) (62,500)
Net Change in Cash and Cash Equivalents . 7,315 (9,076) 13,700
Cash and Cash Equivalents
Beginning of the Period ................. 4,624 13,700 0
End of the Period ....................... $ 11,939 $ 4,624 $ 13,700
</TABLE>
<PAGE>
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
PART-III
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information for this item appears under the headings "Election of
Directors"; "List of Directors and Nominees for Election as Directors"; and
"Committees of the Board of Directors" in the Registrant's 1997 Proxy
Statement as filed with the Commission, incorporated herein by reference.
In addition, reference is made to "Additional Item" under Part I of this
Form 10-KSB Report on page 6.
ITEM 10 - EXECUTIVE COMPENSATION
Information for this item appears under the heading of "Summary
Compensation Table" in the Registrant's 1997 Proxy Statement as filed with
the Commission, incorporated herein by reference.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information for this item appears under the headings of "Principal Holders
of Securities"; and "Voting Securities and Beneficial Ownership of
Directors and Officers" in the Registrant's 1997 Proxy Statement as filed
with the Commission, incorporated herein by reference.
<PAGE>
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information for this item appears under the heading of "Other Transactions"
in the Registrant's 1997" "Proxy Statement as filed with the Commission,
incorporated herein by reference. In addition, reference is made to Note 4
of the Companys' Financial Statements filed under Item 7 of this Report.
PART-IV
ITEM 13 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Reference is made to the Index at the end of this Report.
2. Financial Statement Schedules
None
3. Exhibits
Reference is made to the Exhibit Index on page 10 of
this report.
(b) Report on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
year covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 24, 1997.
HURON NATIONAL BANCORP, INC.
/s/ Michael L. Cahoon /s/ Paulette D. Kierzek
Michael L. Cahoon Paulette D. Kierzek
President and Chief Executive Officer Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed by the following persons in the capacities indicated on
March 24, 1997.
/s/ Ervin Nowak
Ervin Nowak Lynwood Lamb
Chairman of the Board Director
/s/ Leon Delekta
Marvin Beatty Leon Delekta
Vice Chairman of the Board Director
/s/ Eugene McLean /s/ Michael L. Cahoon
Eugene McLean Michael L. Cahoon
Director Director, President and CEO
/s/ Donald Hampton
Donald Hampton Louis Dehring
Director Director
/s/ Dale L. Bauer /s/ Paulette D. Kierzek
Dale L. Bauer Paulette D. Kierzek
Vice President Cashier
<PAGE>
INDEX TO EXHIBITS
The following exhibits are filed or incorporated by reference as part of this
report:
3(i) Articles of Incorporation of the Registrant as currently in
effect and any amendments thereto (incorporated herein by
reference to exhibit 3(A) of the Registrant's Form S-4
Registration Statement dated March 13, 1990, No. 33-33874).
3(ii) Bylaws of the Registrant as currently in effect and any
amendments thereto (incorporated herein by reference to exhibit
3(B) of the Registrant's Form S-4 Registration Statement dated
March 13, 1990, No. 33-33874).
21 List of Subsidiary on page 11.
27 Financial Data Schedule on page 12.
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARY
NAME INCORPORATED
1. Huron National Bank Michigan
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,438,015
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 900,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,746,701
<INVESTMENTS-CARRYING> 5,402,689
<INVESTMENTS-MARKET> 5,402,689
<LOANS> 19,186,184
<ALLOWANCE> 174,955
<TOTAL-ASSETS> 30,292,270
<DEPOSITS> 27,594,010
<SHORT-TERM> 0
<LIABILITIES-OTHER> 258,587
<LONG-TERM> 0
0
0
<COMMON> 625,000
<OTHER-SE> 1,189,673
<TOTAL-LIABILITIES-AND-EQUITY> 2,439,673
<INTEREST-LOAN> 1,724,683
<INTEREST-INVEST> 398,307
<INTEREST-OTHER> 72,900
<INTEREST-TOTAL> 2,195,890
<INTEREST-DEPOSIT> 1,075,226
<INTEREST-EXPENSE> 1,075,226
<INTEREST-INCOME-NET> 1,120,664
<LOAN-LOSSES> 36,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 786,566
<INCOME-PRETAX> 445,445
<INCOME-PRE-EXTRAORDINARY> 445,445
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 306,938
<EPS-PRIMARY> 4.91
<EPS-DILUTED> 4.91
<YIELD-ACTUAL> 4.33
<LOANS-NON> 36,952
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 144,100
<CHARGE-OFFS> 6,526
<RECOVERIES> 1,381
<ALLOWANCE-CLOSE> 174,955
<ALLOWANCE-DOMESTIC> 73,425
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 101,530
</TABLE>
