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 March 31, 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 April 30, 1998
(Class) (Outstanding)
<PAGE>
HURON NATIONAL BANCORP, INC.
CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1 Consolidated Balance Sheet (Unaudited)
March 31, 1998. . . . . . . . . . . . . . . . . . . . . . . . . .2
Consolidated Statements of Income (Unaudited)
Three months ended March 31, 1998 and 1997. . . . . . . . . . . .3
Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 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>
HURON NATIONAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
Unaudited
March 31,
ASSETS 1998
<S> <C>
Cash and due from banks $3,970,757
Federal funds sold 1,000,000
Cash and cash equivalents 4,970,757
Securities available for sale:
U.S. Treasury 1,256,172
U.S. Agencies 250,468
Corporate 475,648
Securities held to maturity:
U.S. Agencies 478,552
State and Municipals 3,280,861
Corporate 1,119,698
Total investment securities 6,861,399
Loans
Commercial 3,168,936
Real Estate 10,689,852
Installments 6,201,083
Total Loans 20,059,871
Allowance for loan losses (190,663)
Net loans 19,869,208
Bank premises and equipment - net 507,971
Accrued interest receivable 267,980
Other real estate owned 23,448
Other assets 112,580
Total Assets $32,613,343
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non interest-bearing transaction accounts
$3,714,881
Interest-bearing transaction accounts 4,580,065
Savings 6,629,057
Time 14,651,424
Total deposits 29,575,427
Accrued interest payable 66,954
Other liabilities 201,783
Total liabilities 29,844,164
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 1,513,626
Net unrealized gain on securities
available for sale, net of income tax 5,553
Total shareholders' equity 2,769,179
Total liabilities and shareholders' equity $32,613,343
</TABLE>
See notes to the interim consolidated financial statements.
<PAGE>
HURON NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
Three Months Ended
March 31, March 31,
Interest Income 1998 1997
<S> <C> <C>
Loans, including fees ...................... $460,576 $449,860
Federal funds sold ......................... 35,343 15,742
Securities available for sale:
U.S. Treasury ............................ 18,463 23,617
U.S. Agencies ............................ 3,723 5,015
Corporate ................................ 7,309
Securities held to maturity:
U.S. Agencies ............................ 7,603 20,059
State and Municipals ..................... 40,432 28,049
Corporate ................................ 16,896 19,309
Other .................................... 563 563
Total interest income .................. 590,908 562,214
Interest Expense
Deposits ................................... 278,624 286,663
Net Interest Income ............................ 312,284 275,551
Provision for Loan Losses ...................... 9,000 9,000
Net Interest Income After
Provision for Loan Losses ................... 303,284 266,551
Non-Interest Income
Service charges ............................ 19,444 24,862
Other ...................................... 9,962 5,785
Total non-interest income .............. 29,406 30,647
Non-Interest Expense
Salaries and benefits ...................... 105,284 87,303
Premises and equipment ..................... 32,249 34,289
Legal and accounting fees .................. 11,018 15,307
Other operating expense .................... 57,644 59,282
Total non-interest expense ............. 206,195 196,181
Income Before Income Tax ....................... 126,495 101,017
Provision for Income Tax ....................... 36,467 28,472
Net Income ..................................... $ 90,028 $ 72,545
Comprehensive Income ........................... $ 91,329 $ 67,765
Basic Earnings Per Share ....................... $1.44 $1.16
Dividends Per Share............................. N/A N/A
</TABLE>
See notes to the interim consolidated financial statements.
<PAGE>
HURON NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
Three Months Ended
March 31, March 31,
CASH FLOWS FROM OPERATING ACTIVITIES
1998 1997
<S> <C> <C>
Net income ...................................................... $ 90,028 $ 72,545
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization ............................... 13,182 11,512
Net premium amortization and discount accretion on securities 35,184 26,716
Provision for loan losses ................................... 9,000 9,000
Increase/(decrease) in cash from change in assets
and liabilities:
Interest receivable ..................................... (37,467)
Other assets and interest receivable .................... 20,924 (776)
Other liabilities and interest payable .................. 42,828 (2,590)
Net cash from operating activities .................. 211,146 78,940
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-sale securities:
Purchases .................................................... (513,306)
Maturities ................................................... 250,000
Held-to-maturity securities:
Purchases .................................................... (501,852) (193,982)
Maturities ................................................... 240,000 629,000
Net increase in loans ........................................... (228,586) (207,323)
Purchase of property and equipment .............................. (4,380) (39,498)
Net cash from (used in) investing activities ........ (494,818) (75,109)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in deposit accounts ..................... 863,378 883,490
Net cash from financing activities .................. 863,378 883,490
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS .................................................. 579,706 887,321
CASH AND CASH EQUIVALENTS AT:
BEGINNING OF PERIOD ............................................... 4,391,051 3,338,015
END OF PERIOD ..................................................... $ 4,970,757 $ 4,225,336
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest ...................................................... $ 273,959 $ 282,492
Federal income tax ............................................ $ 15,044 $ 60,213
Non-cash transfer from loans to Other Real Estate ............... $ 23,448
</TABLE>
See notes to the interim consolidated financial statements.
<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 March 31, 1998 and December 31, 1997, and the
results of operations for the three month periods ended March 31, 1998 and 1997.
3. During the three month period ended March 31, 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 an increase of $1,301.
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 March
31, 1998 was $4,920,000.
4. Loans past due ninety days or more, nonaccruals and restructured loans
increased by approximately $122,819 during the three months ended March 31, 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 March 31,
1998, the Bank had outstanding commitments to make loans totaling $1,010,728 and
outstanding letters of credit of $181,595.
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 incomes includes net income
and the change during the period in unrealized gains and losses on securities
available for sale.
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 were 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 March 31, 1998 increased from December 31, 1997 by 3.16%,
or $998,205. This increase primarily was the result of an increase in deposits
and loans of $1,069,548. Since deposits and loans increased, the loan to deposit
ratio decreased from 68.52% at December 31, 1997 to 67.83% at March 31, 1998.
The allowance for loan losses was increased by $10,032.
During the first three months of 1998, the Bank has seen a migration of
balances from noninterest-bearing transaction accounts to interest-bearing and
time deposits. These deposits increased by $1,044,328. The increase in total
deposits of 3.01% or $863,378 from December 31, 1997 to March 31, 1998 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 three months ended March 31, 1998 totaled $90,028
compared to $72,545 for the three months ended March 31, 1997, an increase of
$17,483. The increase is primarily the result of an increase in interest income
of $28,694 offset by an increase in noninterest expense of $10,014.
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 included in shareholders equity.
As of March 31, 1998 and 1997, total comprehensive income was $91,329 and
$67,765, respectively.
The provision for loan losses for the three month periods ended March 31,
1998, and 1997 was $9,000. It is Management's intention to provide an adequate
allowance for loan losses based on an ongoing evaluation of the loan portfolio.
The consistent provision reflects Management's assessment that the overall
credit risk of the loan portfolio is generally unchanged.
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 three months ended March 31, 1998 totaled
$29,406 compared to $30,647 in 1997. The decrease was primarily related to a
reduction in service charges on returned checks, early redemption penalties and
coin and currency fees. At March 31, 1998, there was an increase of $4,177 in
Other income compared to the three month period ended March 31, 1997.
Non-interest expense for the three months ended March 31, 1998 totaled
$206,195 compared to $196,181 at March 31, 1997. There was an increase of
$17,981 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 28.8% and 28.2% for the
three month periods ended March 31, 1998 and 1997, respectively. This increase
between periods is primarily the result of an increase in taxable interest
income.
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 for the three
months ended March 31, 1998 over the comparable prior year period due to
increases in the volume of both interest earning assets and interest bearing
liabilities. The rate paid on interest bearing liabilities decreased 27 basis
points over the three months ended March 31, 1997 because growth was centered in
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 6 basis points. Consequently, the net yield on interest earning assets
decreased from 4.22% for the three months ended March 31, 1997 to 3.99% for the
same period in 1998. The increased volume, partially offset by the decrease in
margin, increased the net income by $36,262 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 March 31, 1998
Huron National Bank had capital ratios well above the minimum regulatory
guidelines.
As of March 31, 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
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets) 2,960 15.09% 1,567 8.00% 1,959 10.00%
Tier 1 capital (to risk weighted assets) 2,769 14.11% 783 4.00% 1,175 6.00%
Tier 1 capital (to average assets) 2,769 8.47% 1,300 4.00% 1,625 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 increased from ($11,137,000)
at December 31, 1997 to ($12,069,023) at March 31, 1998 primarily due to the
decrease in investments maturing within one year and the increase in
certificates of deposits maturing within one year.
<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 three months ended March 31, 1998.
ITEM 2 - CHANGES IN SECURITIES
No changes in securities relevant to the requirements of this section occurred
during the three months ended March 31, 1998.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
There have been no defaults upon senior securities relevant to the requirements
of this section during the three months ended March 31, 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 three months ended March 31, 1998.
ITEM 5 - OTHER INFORMATION
No other information to report during the three months ended March 31, 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 three months
ended March 31, 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/ M.L. Cahoon
Michael L. Cahoon
President and Chief Executive Officer
Dated: 5-5-98
By: /s/ Paulette D. Kierzek
Paulette D. Kierzek
Chief Financial Officer
Dated: 5-5-98
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,970,757
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,982,288
<INVESTMENTS-CARRYING> 4,879,111
<INVESTMENTS-MARKET> 4,920,018
<LOANS> 20,059,871
<ALLOWANCE> 190,663
<TOTAL-ASSETS> 32,613,343
<DEPOSITS> 29,575,427
<SHORT-TERM> 0
<LIABILITIES-OTHER> 268,737
<LONG-TERM> 0
0
0
<COMMON> 625,000
<OTHER-SE> 2,138,626
<TOTAL-LIABILITIES-AND-EQUITY> 32,613,343
<INTEREST-LOAN> 460,576
<INTEREST-INVEST> 94,989
<INTEREST-OTHER> 35,343
<INTEREST-TOTAL> 590,908
<INTEREST-DEPOSIT> 278,624
<INTEREST-EXPENSE> 278,624
<INTEREST-INCOME-NET> 312,284
<LOAN-LOSSES> 9,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 206,195
<INCOME-PRETAX> 126,495
<INCOME-PRE-EXTRAORDINARY> 126,495
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 90,028
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.44
<YIELD-ACTUAL> 3.99
<LOANS-NON> 18,333
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 190,663
<CHARGE-OFFS> 0
<RECOVERIES> 1,032
<ALLOWANCE-CLOSE> 190,663
<ALLOWANCE-DOMESTIC> 190,663
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 131,637
</TABLE>
