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, 1998
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 3, 1998
(Class) (Outstanding)
<PAGE>
HURON NATIONAL BANCORP, INC.
CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1 Consolidated Balance Sheet (Unaudited)
June 30, 1998....................................................2
Consolidated Statements of Income (Unaudited)
Six months ended June 30, 1998 and 1997..........................3
Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 1998 and 1997..........................4
Notes to the 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...........................................10
Item 2 - Changes in Securities.......................................10
Item 3 - Defaults upon Senior Securities.............................10
Item 4 - Submission of Matters to a Vote of Security Holders.........10
Item 5 - Other Information...........................................10
Item 6 - Exhibits and Reports on Form 8-K............................10
Index to Exhibits....................................................11
Signatures...........................................................12
Financial Data Schedule..............................................13
<PAGE>
<TABLE>
HURON NATIONAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
Unaudited
June 30,
ASSETS 1998
<S> <C>
Cash and due from banks ................................... $ 2,872,784
Federal funds sold ........................................ 2,000,000
Cash and cash equivalents ................................. 4,872,784
Securities available for sale:
U.S. Treasury ..................................... 755,469
U.S. Agencies ..................................... 250,234
Corporate ......................................... 475,664
Securities held to maturity:
U.S. Agencies ..................................... 452,848
State and Municipals .............................. 3,208,325
Corporate ......................................... 917,495
Total investment securities ................... 6,060,035
Loans
Commercial ............................................ 3,406,534
Real Estate ........................................... 11,788,324
Installments .......................................... 6,503,695
Total Loans .................................... 21,698,553
Allowance for loan losses ............................. (196,273)
Net loans .......................................... 21,502,280
Bank premises and equipment - net ......................... 500,629
Accrued interest receivable ............................... 280,315
Other real estate owned ................................... 23,448
Other assets .............................................. 100,594
Total Assets .................................... $ 33,340,085
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non interest-bearing transaction accounts ............. $ 4,511,853
Interest-bearing transaction accounts ................. 3,823,345
Savings ............................................... 6,692,954
Time .................................................. 15,172,819
Total deposits .................................. 30,200,971
Accrued interest payable .................................. 63,553
Other liabilities ......................................... 218,704
Total liabilities ............................... 30,483,228
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 ......................................... 1,602,750
Net unrealized gain on securities
available for sale, net of income tax ................... 4,107
Total shareholders' equity ...................... 2,856,857
Total liabilities and shareholders' equity ... $ 33,340,085
</TABLE>
See notes to the interim consolidated financial statements.
<PAGE>
<TABLE>
HURON NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Six Months Ended
June 30, June 30,
Interest Income 1998 1997
<S> <C> <C>
Loans, including fees .................... $ 942,211 $ 909,575
Federal funds sold ....................... 59,690 37,167
Securities available for sale:
U.S. Treasury .......................... 37,205 49,938
U.S. Agencies .......................... 7,492 8,785
Corporate .............................. 14,674
Securities held to maturity:
U.S. Agencies .......................... 14,841 40,084
State and Municipals ................... 83,423 57,962
Corporate .............................. 31,187 39,537
Other .................................. 1,125 1,125
Total interest income ................ 1,191,848 1,144,173
Interest Expense
Deposits ................................. 563,017 569,023
Net Interest Income .......................... 628,831 575,150
Provision for Loan Losses .................... 15,000 18,000
Net Interest Income After
Provision for Loan Losses ................. 613,831 557,150
Non-Interest Income
Service charges .......................... 43,990 48,211
Other .................................... 18,032 18,627
Total non-interest income ............ 62,022 66,838
Non-Interest Expense
Salaries and benefits .................... 215,401 187,794
Premises and equipment ................... 65,821 63,366
Legal and accounting fees ................ 28,176 30,909
Other operating expense .................. 113,927 115,806
Total non-interest expense ........... 423,325 397,875
Income Before Income Tax ..................... 252,528 226,113
Provision for Income Tax ..................... 73,375 62,846
Net Income ................................... $ 179,153 $ 163,267
Comprehensive Income ......................... $ 179,007 $ 161,624
Basic Earnings Per Share ..................... $2.87 $2.61
Dividends Per Share........................... N/A N/A
</TABLE>
See notes to the interim consolidated financial statements.
<PAGE>
<TABLE>
HURON NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)
Six Months Ended
June 30, June 30,
CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997
<S> <C> <C>
Net income ........................................................... $ 179,153 $ 163,267
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization .................................... 26,364
Net premium amortization and discount accretion on securities .... 64,356 95,767
Provision for loan losses ........................................ 15,000 18,000
Increase/(decrease) in cash from change in assets and liabilities:
Other assets and interest receivable ......................... 20,575 (38,348)
Other liabilities and interest payable ....................... 57,093 (28,518)
Net cash from operating activities ....................... 362,541 210,168
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-sale securities:
Purchases ......................................................... (513,306)
Maturities ........................................................ 500,000 250,000
Held-to-maturity securities:
Purchases ......................................................... (501,852) (692,522)
Maturities ........................................................ 510,000 1,199,000
Net increase in loans ................................................ (1,867,658) (544,024)
Purchase of property and equipment ................................... (10,220) (53,642)
Net cash from (used in) investing activities ............. (1,369,730) (354,494)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in deposit accounts .......................... 1,488,922 2,209,016
Net cash from financing activities ....................... 1,488,922 2,209,016
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS ....................................................... 481,733 2,064,690
CASH AND CASH EQUIVALENTS AT:
BEGINNING OF PERIOD .................................................... 4,391,051 3,338,015
END OF PERIOD .......................................................... $ 4,872,784 $ 5,402,705
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest ........................................................... $ 561,753 $ 575,174
Federal income tax ................................................. $ 47,174 $ 96,613
Non-cash transfer from loans to other real estate .................... $ 23,448
See notes to the interim consolidated financial statements.
</TABLE>
<PAGE>
HURON NATIONAL BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The 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 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, 1997.
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, 1998, and
the results of operations for the six month periods ended June 30, 1998 and
1997.
3. During the six month period ended June 30, 1998, 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 $221. 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, 1998 was $4,615,000.
4. Loans past due ninety days or more, nonaccruals and restructured loans
increased by approximately $143,184 during the six months ended June 30,
1998 to $155,837. These loans have adequate levels of collateral and/or are
guaranteed such that the Bank does not expect significant loss. As of June
30, 1998, the Bank had outstanding commitments to make loans totaling
$1,162,975 and outstanding letters of credit of $190,343.
5. The provision for income taxes represents federal income tax expense
calculated using annualized rates on taxable income generated during the
respective periods.
6. Under a new accounting standard, comprehensive income is now reported for
all periods. Comprehensive income includes net income and all other changes
in equity, except investments by owners and distributions to owners.
Comprehensive income as reported in the consolidated statements of income
includes net income and the change during the period in unrealized gains
and losses on securities available for sale, net of tax.
7. Basic earnings per share is computed using the weighted average number of
shares outstanding. The number of shares used in the computations of basic
earnings per share was 62,500 for 1998 and 1997.
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, 1998 increased from December 31, 1997 by 5.46%, or
$1,724,947. This increase primarily was the result of an increase in deposits of
$1,488,922 and net loans of $1,829,210 from December 31, 1997. Since deposits
and loans increased significantly the loan to deposit ratio increased from
68.52% at December 31,1997 to 71.20% at June 30, 1998. The allowance for loan
losses was increased by $15,642.
During the first six months of 1998, the Bank has seen an increase in total
deposits of 5.19% or $1,488,922, primarily in noninterest-bearing and time
accounts. This increase 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, 1998 totaled $179,153 compared
to $163,267 for the six months ended June 30, 1997, an increase of $15,886. The
increase is primarily the result of an increase in interest income of $47,675
offset by an increase in noninterest expense of $25,450.
The Bank is required under a new accounting standard, to disclose
comprehensive income which is net income plus or minus the change in unrealized
gain or loss on available for sale securities, net of tax, included in
shareholders' equity. As of June 30, 1998 and 1997, total comprehensive income
was $179,007 and $161,624, respectively.
The provision for loan losses for the six month periods ended June 30,
1998, and 1997 was $15,000 and $18,000, respectively. 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 overall credit risk of the loan
portfolio is generally unchanged.
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)
Non-interest income for the six months ended June 30, 1998 totaled $62,022
compared to $66,838 in 1997. The decrease was primarily related to a reduction
in service charges on returned checks, early redemption penalties and coin and
currency fees.
Non-interest expense for the six months ended June 30, 1998 totaled
$423,325 compared to $397,875 at June 30, 1997. There was an increase of $27,607
in salaries and benefits due to the hiring of additional employees.
The effective Federal income tax rate, derived by dividing Federal income
tax expense by income before taxes, was approximately 29.1% and 27.8% for the
six month periods ended June 30, 1998 and 1997, respectively. This increase
between periods is primarily the result of a decrease in the porportion of net
income derived from tax exempt securities.
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.
The Bank has experienced an increase in net interest income of $53,681 for
the six months ended June 30, 1998 over the comparable prior year period due to
changes in the relative mix of both interest earning assets and interest bearing
liabilities. The rate paid on interest bearing liabilities decreased 8 basis
points over the six months ended June 30, 1997 because growth was centered in
both savings deposits which were less costly and lower yielding, short-term
certificates of deposits. Since loan volumes increased slightly, the additional
deposits were invested in Federal Funds Sold, which have lower yields than
loans. This resulted in a slight decrease in the gross yield on interest earning
assets of 3 basis points. Consequently, the net yield on interest earning assets
increased from 2.15% for the six months ended June 30, 1997 to 2.23% for the
same period in 1998. The increased volume combined with the increase in margin
increased the net income by $52,610 on a fully tax equivalent basis.
Continued
<PAGE>
HURON NATIONAL BANCORP, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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
on 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, 1998
Huron National Bank had capital ratios well above the minimum regulatory
guidelines.
As of June 30, 1998, 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
(In Thousands) Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets) $3,053 14.53% $1,681 8.00% $2,101 10.00%
Tier 1 capital (to risk weighted assets) 2,857 13.60% 841 4.00% 1,261 6.00%
Tier 1 capital (to average assets) 2,857 8.78% 1,302 4.00% 1,628 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.
Continued
<PAGE>
HURON NATIONAL BANCORP, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Interest Rate Sensitivity (continued)
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.
The Bank's cumulative 1 year GAP position has decreased from ($11,137,000)
at December 31, 1997 to ($10,969,000) at June 30, 1998 primarily due to the
increase in loans and investments maturing within one year and the increase in
certificates of deposits maturing within one year.
The Bank has recently invested funds in short-term securities to offset the
interest rate risk associated with customers investing their funds in short-term
certificates of deposit with the Bank. The increase in loans due within one year
is primarily the result of fixed rate loans transitioning from the greater than
one year category to the less than one year category. Real estate loan trends
continue to focus on long-term fixed rate loans that are continuously maturing
or being refinanced.
<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, 1998.
ITEM 2 - CHANGES IN SECURITIES
No changes in securities relevant to the requirements of this section
occurred during the six months ended June 30, 1998.
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, 1998.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no matters submitted to a vote of the Registrant's security
holders during the six months ended June 30, 1998.
ITEM 5 - OTHER INFORMATION
No other information to report during the six months ended June 30, 1998.
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, 1998.
<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:
By: /s/ Paulette D. Kierzek
Chief Financial Officer
Dated:
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,872,784
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,481,367
<INVESTMENTS-CARRYING> 4,578,668
<INVESTMENTS-MARKET> 4,615,000
<LOANS> 21,698,553
<ALLOWANCE> 196,273
<TOTAL-ASSETS> 33,340,085
<DEPOSITS> 30,200,971
<SHORT-TERM> 0
<LIABILITIES-OTHER> 282,257
<LONG-TERM> 0
0
0
<COMMON> 625,000
<OTHER-SE> 2,227,750
<TOTAL-LIABILITIES-AND-EQUITY> 33,340,085
<INTEREST-LOAN> 942,211
<INTEREST-INVEST> 189,947
<INTEREST-OTHER> 59,690
<INTEREST-TOTAL> 1,191,848
<INTEREST-DEPOSIT> 563,017
<INTEREST-EXPENSE> 563,017
<INTEREST-INCOME-NET> 628,831
<LOAN-LOSSES> 15,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 423,325
<INCOME-PRETAX> 252,528
<INCOME-PRE-EXTRAORDINARY> 252,528
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 179,153
<EPS-PRIMARY> 2.87
<EPS-DILUTED> 2.87
<YIELD-ACTUAL> 2.23
<LOANS-NON> 39,288
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 180,631
<CHARGE-OFFS> 540
<RECOVERIES> 1,182
<ALLOWANCE-CLOSE> 196,273
<ALLOWANCE-DOMESTIC> 196,273
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 136,707
</TABLE>
