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, 2000
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 4, 2000
(Class) (Outstanding)
<PAGE>
HURON NATIONAL BANCORP, INC.
CONTENTS
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PART I FINANCIAL INFORMATION
ITEM 1 Consolidated Balance Sheet (Unaudited)
June 30, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Consolidated Statements of Income and Comprehensive Income (Unaudited)
Three and six months ended June 30, 2000 and 1999 . . . . . . . . .3
Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 2000 and 1999 . . . . . . . . . . . . . .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 SHEET (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
June 30,
ASSETS 2000
<S> <C>
Cash and due from banks $ 2,654,196
Federal funds sold 600,000
--------------
Cash and cash equivalents 3,254,196
Securities available for sale 4,420,660
Securities held to maturity 326,146
--------------
Total investment securities 4,746,806
Loans
Commercial 3,674,528
Real Estate 16,190,060
Installment 8,178,519
--------------
Total Loans 28,043,107
Allowance for loan losses (170,791)
--------------
Net loans 27,872,316
Bank premises and equipment - net 430,051
Accrued interest receivable 284,081
Other real estate owned 8,000
Other assets 148,408
--------------
Total Assets $36,743,858
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non interest-bearing transaction accounts $ 4,043,476
Interest-bearing transaction accounts 4,627,235
Savings 7,523,778
Time 16,880,581
--------------
Total deposits 33,075,070
--------------
Accrued interest payable 69,708
Other liabilities 187,549
--------------
Total liabilities 33,332,327
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 2,210,518
Net unrealized gain on securities
available for sale, net of income tax (48,987)
--------------
Total shareholders' equity 3,411,531
--------------
Total liabilities and shareholders' equity $36,743,858
==============
</TABLE>
2
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HURON NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
Interest Income 2000 1999 2000 1999
<S> <C> <C> <C> <C>
Loans, including fees $ 599,088 $ 531,574 $1,177,541 $1,058,006
Federal funds sold 6,477 17,722 27,284 42,579
Securities:
Taxable 66,500 76,055 133,833 149,826
Tax exempt 7,731 13,514 16,729 27,483
Other 562 562 1,125 1,125
---------- --------- ----------- ----------
Total interest income 680,358 639,427 1,356,512 1,279,019
Interest Expense
Deposits 305,099 295,998 612,522 588,224
---------- --------- ----------- ----------
Net Interest Income 375,259 343,429 743,990 690,795
Provision for Loan Losses 1,000 3,000 4,000 6,000
---------- --------- ----------- ----------
Net Interest Income After
Provision for Loan Losses 374,259 340,429 739,990 684,795
Non-Interest Income
Service charges 19,186 19,380 36,681 41,936
Other 8,894 9,628 21,961 18,324
---------- --------- ----------- ----------
Total non-interest income 28,080 29,008 58,642 60,260
---------- --------- ----------- ----------
Non-Interest Expense
Salaries and benefits 124,613 116,668 245,342 229,606
Premises and equipment 33,263 33,112 67,335 66,976
Legal and accounting fees 12,846 16,848 26,038 33,234
Other operating expense 64,328 57,817 127,300 117,630
---------- --------- ----------- ----------
Total non-interest expense 235,050 224,445 466,015 447,446
---------- --------- ----------- ----------
Income Before Income Tax 167,289 144,992 332,617 297,609
Provision for Income Tax 54,583 45,084 107,915 92,886
---------- --------- ----------- ----------
Net Income $ 112,706 $ 99,908 $ 224,702 $ 204,723
========== ========= =========== ==========
Comprehensive Income $ 116,303 $ 76,230 $ 223,737 $ 167,227
========== ========= =========== ==========
Basic Earnings Per Share $ 1.80 $ 1.60 $ 3.60 $ 3.28
========== ========= =========== ==========
</TABLE>
3
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HURON NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<TABLE>
Six Months Ended
June 30, June 30,
CASH FLOWS FROM OPERATING ACTIVITIES 2000 1999
<S> <C> <C>
Net income $ 224,702 $ 204,723
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 26,421 26,376
Net premium amortization and discount accretion on securities 68,276 134,445
Provision for loan losses 4,000 6,000
Increase/(decrease) in cash from change in assets and liabilities:
Other assets and interest receivable (62,086) (25,006)
Other liabilities and interest payable (14,096) (34,965)
-------------- ---------------
Net cash from operating activities 247,217 311,573
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-sale securities:
Purchases (1,696,959)
Maturities 325,000 300,000
Held-to-maturity securities:
Maturities 160,000 582,000
Net increase in loans (1,354,450) (778,796)
Purchase of property and equipment (14,146) (4,400)
-------------- ---------------
Net cash from (used in) investing activities (883,596) (1,598,155)
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in deposit accounts (372,374) 392,103
-------------- ---------------
Net cash from financing activities (372,374) 392,103
-------------- ---------------
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS (980,561) (894,479)
CASH AND CASH EQUIVALENTS AT:
BEGINNING OF PERIOD 4,234,757 4,920,603
-------------- ---------------
END OF PERIOD $ 3,254,196 $ 4,026,124
============== ===============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 612,850 $ 595,372
Federal income tax $ 97,744 $ 156,769
</TABLE>
4
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HURON NATIONAL BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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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, 1999.
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, 1999, and
the results of operations for the three and six month periods ended June
30, 2000 and 1999.
3. During the six month period ended June 30, 2000, 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 $74,360. 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, 2000 was $327,610.
4. Loans past due ninety days or more, nonaccruals and restructured loans
increased by approximately $216,876 during the six months ended June 30,
2000 to $295,876. These loans have adequate levels of collateral and/or are
guaranteed such that the Bank does not expect significant loss. As of June
30, 2000, the Bank had outstanding commitments to make loans totaling
$1,709,998 and outstanding letters of credit of $196,398.
5. The provision for income taxes represents federal income tax expense
calculated using annualized rates on taxable income generated during the
respective periods.
6. 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 2000 and 1999.
Continued
5
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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 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, 2000 decreased from December 31, 1999 by 0.37%, or
$135,176. This decrease primarily was the result of a decrease in and cash and
due from banks of $980,561 and securities of $554,876 offset by an increase in
net loans of $1,350,450 from December 31, 1999. Since loans increased the net
loan to deposit ratio increased from 79.29% at December 31, 1999 to 84.27% at
June 30, 2000. The allowance for loan losses was decreased by $11,160.
During the first six months of 2000, the Bank has seen a decrease in total
deposits of 1.11% or $372,374, primarily in interest-bearing transaction and
time accounts. This decrease has offset an increase in non-interest bearing and
savings accounts as depositors are committing impacted by changing deposit rate
and service charge pricing by financial insitutions in Presque Isle County.
Results of Operations
Net income for the six months ended June 30, 2000 totaled $224,702 compared
to $204,723 for the six months ended June 30, 1999, an increase of $19,979. The
increase is primarily the result of an increase in interest income of $53,195
offset by an increase in noninterest expense of $18,569. Net income for the
three months totaled $112,706 and $99,908 as of June 30, 2000 and 1999,
respectively. This increase of $12,798 was the result of an increase of $40,931
in interest income, offset by a increase in non-interest expense of $10,605 and
income tax of $9,499.
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, 2000 and 1999, total comprehensive income
was $223,737 and $167,227, respectively.
The provision for loan losses for the six month periods ended June 30,
2000, and 1999 was $6,000 and $6,000, 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)
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Results of Operations (continued)
Non-interest income for the six months ended June 30, 2000 totaled $58,642
compared to $60,260 in 1999. The decrease was primarily related to service
charges on returned checks, early redemption penalties and coin and currency
fees.
Non-interest expense for the six months ended June 30, 2000 totaled
$466,015 compared to $447,447 at June 30, 1999. There was an increase of $18,568
in salaries and benefits due to the hiring of an additional employee.
The effective Federal income tax rate, derived by dividing Federal income
tax expense by income before taxes, was approximately 32.4% and 31.2% for the
six month periods ended June 30, 2000 and 1999, 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 $53,195 for
the six months ended June 30, 2000 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 decreased 1 basis point
and the rate paid on interest bearing liabilities both decreased 3 basis points
over the six months ended June 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 continued to
decline. However, loan volume continues to increase, accounting for the most
significant portion of growth to interest income. The net yield on interest
earning assets increased only slightly from 3.96% to 3.98% for the six month
periods. The increased overall volume offset by a decline in non-taxable
securities increased the net interest income by $53,195.
Continued
7
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HURON NATIONAL BANCORP, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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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, 2000
Huron National Bank had capital ratios well above the minimum regulatory
guidelines.
As of June 30, 2000, 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) $3,627 14.51% $2,000 8.00% $2,500 10.00%
Tier 1 capital (to risk weighted assets 3,456 13.82% 1,000 4.00% 1,500 6.00%
Tier 1 capital (to average assets) 3,456 9.56% 1,446 4.00% 1,807 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, 1999 to
($16,392,216) at June 30, 2000 primarily due to the increase in longer terms
loans and a decrease in investments and federal funds maturing with 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.
Continued
9
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HURON NATIONAL BANCORP, INC.
PART II
OTHER INFORMATION
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ITEM 1 - LEGAL PROCEEDINGS
No changes in legal proceedings relevant to the requirements of this
section occurred during the six months ended June 30, 2000.
ITEM 2 - CHANGES IN SECURITIES
No changes in securities relevant to the requirements of this section occurred
during the six months ended June 30, 2000.
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, 2000.
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 26, 2000. Elected as Directors for terms to expire in 2003 were Ervin
Nowak, Marvin Beatty and Eugene McLean. Continuing Directors include Leon
Delekta, Lynwood Lamb, Louis Dehring, 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 six months ended June 30, 2000.
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, 2000.
10
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HURON NATIONAL BANCORP, INC.
INDEX TO EXHIBITS
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The following exhibits are filed or incorporated by reference as part of this
report:
27 Financial data schedule.
11
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HURON NATIONAL BANCORP, INC.
SIGNATURES
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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: 8/11/00
By: /s/ Paulette D. Kierzek
Paulette D. Kierzek
Chief Financial Officer
Dated: 8/11/00
