SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q SB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 1999
Commission File Number 0-19181
HURON NATIONAL BANCORP, INC.
(Exact name of small business issuer in its charter)
Michigan 38-2855012
(State or other jurisdiction of (IRS employer Identification No.)
incorporation or organization)
200 East Erie Street, Rogers City, Michigan 49779
(Address of principal executive offices) (Zip Code)
Telephone Number including area code: (517) 734-4734
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter periods if the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes[X] No[ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practical date.
$10.00 par value of common stock 62,500 shares as of November 5, 1999
(Class) (Outstanding)
<PAGE>
HURON NATIONAL BANCORP, INC.
CONTENTS
================================================================================
PART I FINANCIAL INFORMATION
ITEM 1 Consolidated Balance Sheet (Unaudited)
September 30, 1999.................................................. 2
Consolidated Statements of Income and Comprehensive Income (Unaudited)
Nine months ended September 30,1999 and 1998........................ 3
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 1999 and 1998....................... 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............................................11
Item 2 - Changes in Securities........................................11
Item 3 - Defaults upon Senior Securities..............................11
Item 4 - Submission of Matters to a Vote of Security Holders..........11
Item 5 - Other Information............................................11
Item 6 - Exhibits and Reports on Form 8-K.............................11
Index to Exhibits.....................................................12
Signatures............................................................13
Financial Data Schedule...............................................14
<PAGE>
HURON NATIONAL BANCORP, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
================================================================================
<TABLE>
Sept 30,
ASSETS 1999
----
<S> <C>
Cash and due from banks $ 2,393,653
Federal funds sold 0
--------------
Cash and cash equivalents 2,393,653
Securities available for sale 5,355,909
Securities held to maturity 488,364
--------------
Total investment securities 5,844,273
Loans
Commercial 3,924,644
Real Estate 14,726,816
Installment 7,397,785
--------------
Total Loans 26,049,245
Allowance for loan losses (184,331)
--------------
Net loans 25,864,914
Bank premises and equipment - net 453,240
Accrued interest receivable 280,699
Other assets 86,889
--------------
Total Assets $ 34,923,668
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non interest-bearing transaction accounts $ 4,098,188
Interest-bearing transaction accounts 3,356,770
Savings 7,486,151
Time 16,491,513
--------------
Total deposits 31,432,622
--------------
Accrued interest payable 68,557
Other liabilities 205,708
--------------
Total liabilities 31,706,887
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 1,999,042
Net unrealized gain on securities
available for sale, net of income tax (32,261)
--------------
Total shareholders' equity 3,216,781
--------------
Total liabilities and shareholders' equity $ 34,923,668
==============
</TABLE>
See notes to the interim consolidated financial statements
2
<PAGE>
HURON NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
================================================================================
<TABLE>
Three Months Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
Interest Income 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Loans, including fees $ 560,097 $ 513,341 $1,618,103 $1,455,553
Federal funds sold 4,933 16,475 47,511 76,165
Securities:
Taxable 74,516 66,556 224,230 146,651
Tax exempt 12,417 20,158 40,012 128,885
Other 562 562 1,688 1,688
----------- ----------- ---------- ---------
Total interest income 652,525 617,092 1,931,544 1,808,942
Interest Expense
Deposits 299,744 290,141 887,967 853,158
----------- ----------- ---------- ---------
Net Interest Income 352,781 326,951 1,043,577 955,784
Provision for Loan Losses 3,000 3,000 9,000 18,000
----------- ----------- ---------- ---------
Net Interest Income After
Provision for Loan Losses 349,781 323,951 1,034,577 937,784
Non-Interest Income
Service charges 20,205 20,809 62,142 64,799
Other 10,324 15,130 28,648 33,162
----------- ----------- ---------- ---------
Total non-interest income 30,529 35,939 90,790 97,961
----------- ----------- ---------- ---------
Non-Interest Expense
Salaries and benefits 121,647 109,859 351,254 325,261
Premises and equipment 34,139 33,051 101,115 98,872
Legal and accounting fees 16,409 16,558 49,643 44,734
Other operating expense 58,818 58,394 176,450 172,321
----------- ----------- ---------- ---------
Total non-interest expense 231,013 217,862 678,462 641,188
----------- ----------- ---------- ---------
Income Before Income Tax 149,297 142,028 446,905 394,557
Provision for Income Tax 46,275 42,244 139,161 115,619
----------- ----------- ---------- ---------
Net Income $ 103,022 $ 99,785 $ 307,744 $ 278,938
=========== =========== ========== =========
Other Comprehensive Income $ (6,665) $ 10,054 $ (44,160) $ 9,907
=========== =========== ========== =========
Comprehensive Income $ 96,357 $ 109,839 $ 263,584 $ 288,845
=========== =========== ========== =========
Basic Earnings Per Share $ 1.65 $ 1.60 $ 4.92 $ 4.46
=========== =========== ========== =========
Dividends Per Share N/A N/A N/A N/A
=========== =========== ========== =========
</TABLE>
See notes to the interim consolidated financial statements.
3
<PAGE>
HURON NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
================================================================================
<TABLE>
Nine Months Ended
Sept 30, Sept 30,
CASH FLOWS FROM OPERATING ACTIVITIES 1999 1998
---- ----
<S> <C> <C>
Net income $ 307,744 $ 278,938
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 40,941 39,546
Net premium amortization and discount accretion on securities 181,628 96,397
Provision for loan losses 9,000 18,000
Increase/(decrease) in cash from change in assets and liabilities:
Other assets and interest receivable 27,570 29,922
Other liabilities and interest payable (23,753) 74,837
----------- -----------
Net cash from operating activities 543,130 537,640
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-sale securities:
Purchases (1,997,513) (555,579)
Maturities 800,000 1,000,000
Held-to-maturity securities:
Purchases (501,852)
Maturities 667,000 815,000
Net increase in loans (2,495,189) (3,134,124)
Purchase of property and equipment (22,286) (9,413)
----------- -----------
Net cash from (used in) investing activities (3,047,988) (2,385,968)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in deposit accounts 22,092 852,598
----------- -----------
Net cash from financing activities 22,092 852,598
----------- -----------
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS (2,526,950) (995,730)
CASH AND CASH EQUIVALENTS AT:
BEGINNING OF PERIOD 4,920,603 4,391,051
----------- -----------
END OF PERIOD $ 2,393,653 $ 3,395,321
=========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 893,139 $ 843,661
Federal income tax $ 198,969 $ 79,304
Non-cash transfer from loans to other real estate $ 23,448
Non-cash transfer from held-to-maturity securities to
available-for-sale securities $ 2,294,050
</TABLE>
See notes to the interim consolidated financial statements
4
<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, 1998.
2. In the opinion of Management of the Registrant, the accompanying
consolidated financial statements contain all the adjustments (consisting
only of normal recurring accruals) necessary to present fairly the
consolidated financial position of the Registrant as of September 30, 1999,
and the results of operations for the nine month periods ended September
30, 1999 and 1998.
3. During the nine month period ended September 30, 1999, 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 $44,160. Held to maturity securities in the amount of
$2,294,050 were transferred into the classification of available-for-sale
securities. There were no sales of held to maturity securities. The
aggreate estimated fair value of securities held to matuity as of September
30, 1999 was $493,156.
4. Loans past due ninety days or more, nonaccruals and restructured loans
decreased by approximately $22,549 during the nine months ended September
30, 1999 to $6,733. These loans have adequate levels of collateral and/or
are guaranteed such that the Bank does not expect significant loss. As of
September 30, 1999, the Bank had outstanding commitments to make loans
totaling $1,399,675 and outstanding letters of credit of $180,413.
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 1999 and 1998.
Continued
5
<PAGE>
HURON NATIONAL BANCORP, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following discussion and analysis of financial condition and results of
operations provides additional information to assess the condensed
consolidated financial statements of the Registrant and its wholly- owned
subsidiary. The discussion should be read in conjunction with those
statements.
Summary of Financial Position
Total assets at September 30, 1999 increased from December 31, 1998 by
0.56%, or $194,989. This increase primarily was the result of an increase in
loans of $2,486,189 offset by a decrease in cash and due from banks and Federal
Funds Sold of $2,526,950 from December 31, 1998. Since loans increased the net
loan to deposit ratio increased from 74.33% at December 31, 1998 to 82.29% at
September 30, 1999. The allowance for loan losses was increased by $5,084.
During the first nine months of 1999, the Bank has seen a decrease in total
deposits of 0.07% or $22,092, primarily in interest bearing transaction
accounts. This decrease was offset by an increase in savings and time deposits
as depositors are committing funds for an extended period of time impacted by
changing deposit rate and service charge pricing by financial insitutions in
Presque Isle County.
Results of Operations
Net income for the nine months ended September 30, 1999 totaled $307,744
compared to $278,938 for the nine months ended September 30, 1998, an increase
of $28,806. The increase is primarily the result of an increase in interest
income of $122,602.
The Bank is required 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 September 30,
1999 and 1998, total comprehensive income was $263,584 and $288,845,
respectively.
The provision for loan losses for the nine month periods ended September
30, 1999, and 1998 was $9,000 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 of the loan portfolio is generally
unchanged.
Continued
6
<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 nine months ended September 30, 1999 totaled
$90,790 compared to $97,961 in 1998. The decrease was primarily related to lower
fee income from service charges on returned checks, early redemption penalties
and coin and currency fees.
Non-interest expense for the nine months ended September 30, 1999 totaled
$678,462 compared to $641,188 at September 30, 1998. There was an increase of
$25,993 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 31.2% and 29.3% for the
nine month periods ended June 30, 1999 and 1998, respectively. This increase
between periods is primarily the result of higher net income and a decrease in
the proportion 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 $87,793 for
the nine months ended September 30, 1999 over the comparable prior year period
mainly due to increased volume in interest earning assets and interest bearing
liabilities. The rate earned on interest earning assets and the rate paid on
interest bearing liabilities decreased 19 basis points and 15 basis points over
the nine months ended September 30, 1999. Asset rates have declined overall, and
liability growth was centered in lower yielding, short-term certificates of
deposits and rates on transaction, savings and time accounts have also
increased. Loan volume continues to increase, accounting for the most
significant portion of growth to interest income. The net yield on interest
earning assets declined only slightly from 4.50% to 4.48% for the nine month
periods. The increased overall volume offset by a decline in non-taxable
securities increased the net interest income by $106,287 on a fully tax
equivalent basis.
Continued
7
<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 September 30, 1999
Huron National Bank had capital ratios well above the minimum regulatory
guidelines.
As of Septmber 30, 1999, the Bank's 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) $3,429 14.52% $1,889 8.00% $2,362 10.00%
Tier 1 capital (to risk weighted assets) 3,245 13.74% 945 4.00% 1,417 6.00%
Tier 1 capital (to average assets) 3,245 9.11% 1,424 4.00% 1,780 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
8
<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 (rate sensitive assets less rate
sensitive liabilities) has increased from ($12,756,000) at December 31, 1998 to
($15,161,734) at September 30, 1999 primarily due to the increase in longer
terms loans and a decrease in investments maturing within one year. Also, an
increase in certificates of deposits maturing within one year has increased the
cumulative GAP position.
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.
Year 2000 Issue
The Bank has identified theYear 2000 issue as a priority item. The Bank has
dedicated significant resources, mainly manpower, to the resolution of this
issue. During 1998 and the first nine months of 1999, the Bank has formulated a
plan and is taking action with the goal that all impacted systems will be
compliant.
Continued
9
<PAGE>
HURON NATIONAL BANCORP, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
- --------------------------------------------------------------------------------
The Year 2000 Issue (continued)
The Bank has outsourced a portion of its data processing. Management has
contacted all related vendors and requested written confirmation that their
respective products are Year 2000 compliant. Management evaluated and tested the
internal data processing systems to ensure compliance. Testing of these systems
has been completed with the results of these testings and monthly updates
presented to the Board.
The Bank has contacted significant commercial customers regarding their
status on the Year 2000 issue in an attempt to avoid any negative impact on the
quality of the loan portfolio.
Addressing the Year 2000 issue is not expected to materially impact the
Bank's results of operations and capital resources. Nevertheless, the inability
of the Bank to address Year 2000 issures could result in interruption in the
Bank's business and have a material adverse impact on the Bank's results of
operations.
10
<PAGE>
HURON NATIONAL BANCORP, INC.
PART II
OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1 - LEGAL PROCEEDINGS
No changes in legal proceedings relevant to the requirements of this
section occurred during the nine months ended September 30, 1999.
ITEM 2 - CHANGES IN SECURITIES
No changes in securities relevant to the requirements of this section occurred
during the nine months ended September 30, 1999.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
There have been no defaults upon senior securities relevant to the requirements
of this section during the nine months ended September 30, 1999.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of Huron National Bancorp, Inc. was held on
April 28, 1999. Elected as Directors for terms to expire in 2001 were Leon
Delekta, Lynwood Lamb and Louis Dehring. Continuing Directors include Ervin
Nowak, Marvin Beatty, Eugene McLean, Michael Cahoon, Donald Hampton and John
Tierney. There were no other matters submitted to vote.
ITEM 5 - OTHER INFORMATION
No other information to report during the nine months ended September 30, 1999.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits required by Item 601 of Regulation S-K. See Index to Exhibits on
page 16.
2. Reports on Form 8-K. No reports on Form 8-K were filed for the nine months
ended September 30, 1999.
11
<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.
12
<PAGE>
HURON NATIONAL BANCORP, INC.
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HURON NATIONAL BANCORP, INC.
By: /s/ Michael L. Cahoon
Michael L. Cahoon
President and Chief Executive Officer
Dated: 11/09/99
By: /s/ Paulette D. Kierzek
Paulette D. Kierzek
Chief Financial Officer
Dated: 11/09/99
13
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,393,653
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,355,909
<INVESTMENTS-CARRYING> 488,364
<INVESTMENTS-MARKET> 493,156
<LOANS> 26,049,245
<ALLOWANCE> 184,331
<TOTAL-ASSETS> 34,923,668
<DEPOSITS> 31,432,622
<SHORT-TERM> 0
<LIABILITIES-OTHER> 274,265
<LONG-TERM> 0
0
0
<COMMON> 625,000
<OTHER-SE> 2,591,781
<TOTAL-LIABILITIES-AND-EQUITY> 34,923,668
<INTEREST-LOAN> 1,618,103
<INTEREST-INVEST> 264,242
<INTEREST-OTHER> 49,199
<INTEREST-TOTAL> 1,931,544
<INTEREST-DEPOSIT> 887,967
<INTEREST-EXPENSE> 887,967
<INTEREST-INCOME-NET> 1,043,577
<LOAN-LOSSES> 9,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 678,462
<INCOME-PRETAX> 446,905
<INCOME-PRE-EXTRAORDINARY> 446,905
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 307,744
<EPS-BASIC> 4.92
<EPS-DILUTED> 4.92
<YIELD-ACTUAL> 4.48
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 179,247
<CHARGE-OFFS> 6,890
<RECOVERIES> 2,975
<ALLOWANCE-CLOSE> 184,331
<ALLOWANCE-DOMESTIC> 184,331
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 139,486
</TABLE>
