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, 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 April 28, 2000
(Class) (Outstanding)
<PAGE>
HURON NATIONAL BANCORP, INC.
CONTENTS
- --------------------------------------------------------------------------------
PART I FINANCIAL INFORMATION (CONDENSED)
ITEM 1 Consolidated Balance Sheet (Unaudited)
March 31, 2000................................................... 2
Consolidated Statements of Income and Comprehensive Income
(Unaudited) Three months ended March 31, 2000 and 1999........... 3
Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 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......................................... 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>
March 31,
ASSETS 2000
----
<S> <C>
Cash and due from banks $ 2,467,921
Federal funds sold 1,300,000
--------------
Cash and cash equivalents 3,767,921
Securities available for sale 4,764,966
Securities held to maturity 396,798
--------------
Total investment securities 5,161,764
Loans
Commercial 3,216,486
Real Estate 15,757,825
Installment 7,945,023
--------------
Total Loans 26,919,334
Allowance for loan losses (181,993)
--------------
Net loans 26,737,341
Bank premises and equipment - net 431,580
Accrued interest receivable 283,283
Other assets 137,172
--------------
Total Assets $36,519,061
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non interest-bearing transaction accounts $ 3,400,158
Interest-bearing transaction accounts 5,078,814
Savings 7,468,518
Time 16,972,093
--------------
Total deposits 32,919,583
--------------
Accrued interest payable 75,514
Other liabilities 228,736
--------------
Total liabilities 33,223,833
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 2,097,812
Net unrealized gain on securities
available for sale, net of income tax (52,584)
--------------
Total shareholders' equity 3,295,228
--------------
Total liabilities and shareholders' equity $36,519,061
==============
</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
March 31, March 31,
Interest Income 2000 1999
---- ----
<S> <C> <C>
Loans, including fees $ 578,453 $ 526,432
Federal funds sold 20,807 24,857
Securities:
Taxable 67,333 73,658
Tax exempt 8,998 14,082
Other 563 563
----------- -----------
Total interest income 676,154 639,592
Interest Expense
Deposits 307,423 292,226
----------- -----------
Net Interest Income 368,731 347,366
Provision for Loan Losses 3,000 3,000
----------- -----------
Net Interest Income After
Provision for Loan Losses 365,731 344,366
Non-Interest Income
Service charges 17,495 22,556
Other 13,067 8,696
----------- -----------
Total non-interest income 30,562 31,252
----------- -----------
Non-Interest Expense
Salaries and benefits 120,729 112,938
Premises and equipment 34,072 33,864
Legal and accounting fees 13,192 16,386
Other operating expense 62,972 59,813
----------- -----------
Total non-interest expense 230,966 223,001
----------- -----------
Income Before Income Tax 165,328 152,617
Provision for Income Tax 53,332 47,802
----------- -----------
Net Income $ 111,996 $ 104,815
=========== ===========
Comprehensive Income $ 107,434 $ 90,997
=========== ===========
Basic Earnings Per Share $ 1.79 $ 1.68
=========== ===========
Dividends Per Share N/A N/A
=========== ===========
</TABLE>
See notes to interim consolidated financial statements 3
<PAGE>
HURON NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
Three Months Ended
March 31, March 31,
CASH FLOWS FROM OPERATING ACTIVITIES 2000 1999
---- ----
<S> <C> <C>
Net income $ 111,996 $ 104,815
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 14,844 13,047
Net premium amortization and discount accretion on securities 43,006 48,478
Provision for loan losses 3,000 3,000
Increase/(decrease) in cash from change in assets and liabilities:
Other assets and interest receivable (42,052) (13,187)
Other liabilities and interest payable 62,804 (17,777)
------------ -------------
Net cash from operating activities 193,598 138,376
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-sale securities:
Purchases (1,150,875)
Maturities
Held-to-maturity securities:
Purchases
Maturities 90,000 312,000
Net increase in loans (218,475) (15,082)
Purchase of property and equipment (4,098) (3,231)
------------ -------------
Net cash from (used in) investing activities (132,573) (857,188)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in deposit accounts (527,861) (110,406)
------------ -------------
Net cash from financing activities (527,861) (110,406)
------------ -------------
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS (466,836) (829,218)
CASH AND CASH EQUIVALENTS AT:
BEGINNING OF PERIOD 4,234,757 4,920,603
------------ -------------
END OF PERIOD $ 3,767,921 $ 4,091,385
============ =============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 301,945 $ 290,235
Federal income tax $ 52,744 $ 72,369
</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, 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 March 31, 2000, and
the results of operations for the three month periods ended March 31, 2000
and 1999.
3. During the three month period ended March 31, 2000, there were no sales of
available-for-sale securities. For this period, the net unrealized holding
gain or loss on available-for-sale securities was a decrease of $80,958.
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, 2000 was $398,184.
4. Loans past due ninety days or more, nonaccruals and restructured loans
increased by approximately $173,815 during the three months ended March 31,
2000 to $203,597. These loans have adequate levels of collateral and/or are
guaranteed such that the Bank does not expect significant loss. As of March
31, 2000, the Bank had outstanding commitments to make loans totaling
$1,243,399 and outstanding letters of credit of $240,481.
5. The provision for income taxes represents federal income tax expense
calculated using full year rate computation 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.
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 March 31, 2000 decreased from December 31, 1999 by 0.98%,
or $359,973. This decrease primarily was the result of an decrease in deposits
of $527,861 and cash and due from banks of $466,836 offset by an increase in
loans of $215,475 from December 31, 1999. Since loans increased the net loan to
deposit ratio increased from 74.63% at December 31, 1999 to 81.22% at March 31,
2000. The allowance for loan losses was increased by $42.
During the first three months of 2000, the Bank has seen an decrease in
total deposits of 1.58% or $527,861, primarily in non interest-bearing
transaction accounts. This decrease was offset by increases in savings and time
accounts 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, 2000 totaled $111,996
compared to $104,815 for the three months ended March 31, 1999, an increase of
$7,181. The increase is primarily the result of an increase in net interest
income of $21,365 offset by an increase in noninterest expense of $7,965.
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 March 31, 2000
and 1999, total comprehensive income was $107,434 and $90,997, respectively.
The provision for loan losses for the three month periods ended March 31,
2000, and 1999 was $3,000, 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 three months ended March 31, 2000 totaled
$30,562 compared to $31,252 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 three months ended March 31, 2000 totaled
$230,966 compared to $223,001 at March 31, 1999. There was an increase of $7,791
in salaries and benefits due to normal pay increases.
The effective Federal income tax rate, derived by dividing Federal income
tax expense by income before taxes, was approximately 32.3% and 31.3% for the
three month periods ended March 31, 2000 and 1999, respectively. This increase
between periods is primarily the result of higher net income and a decrease in
the proporation 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 $21,365 for
the three months ended March 31, 2000 over the comparable prior year period
mainly due to increased volume in interest earning assets and interest bearing
liabilities. The rate paid on interest bearing liabilities remained stable over
the three months ended March 31, 2000 as compared with the same period in 1999.
Loan rates have declined, however, loan volume continues to increase, accounting
for the most significant portion of growth to interest income. The rate and
volume fluctuations have resulted in a slight increase in the gross yield on
interest earning assets of 4 basis points. The net yield on interest earning
assets increased from 3.92% for the three months ended March 31, 1999 and 3.96%
for the same period in 2000. The increased volume combined with the increase in
margin increased the net interest income by $18,749 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 March 31, 2000
Huron National Bank had capital ratios well above the minimum regulatory
guidelines.
As of March 31, 2000, 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) $3,520 14.45% $1,949 8.00% $2,436 10.00%
Tier 1 capital (to risk weighted assets 3,338 13.70% 974 4.00% 1,462 6.00%
Tier 1 capital (to average assets) 3,338 9.08% 1,470 4.00% 1,838 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 has increased from ($14,495,000)
at December 31, 1999 to ($17,333,000) at March 31, 2000 primarily due to the
increase in longer investments and federal funds maturing within one year. Also,
an increase in certificates of deposits maturing within one year has 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
<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, 2000.
ITEM 2 - CHANGES IN SECURITIES
No changes in securities relevant to the requirements of this section occurred
during the three months ended March 31, 2000.
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, 2000.
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, 2000.
ITEM 5 - OTHER INFORMATION
No other information to report during the three months ended March 31, 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 three months
ended March 31, 2000.
<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: 5/9/00
By: /s/ Paulette D. Kierzek
Paulette D. Kierzek
Chief Financial Officer
Dated: 5/9/00
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,467,921
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,300,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,763,680
<INVESTMENTS-CARRYING> 396,798
<INVESTMENTS-MARKET> 398,184
<LOANS> 26,919,334
<ALLOWANCE> 181,993
<TOTAL-ASSETS> 36,519,061
<DEPOSITS> 32,919,583
<SHORT-TERM> 0
<LIABILITIES-OTHER> 304,250
<LONG-TERM> 0
0
0
<COMMON> 625,000
<OTHER-SE> 2,670,228
<TOTAL-LIABILITIES-AND-EQUITY> 36,519,061
<INTEREST-LOAN> 578,453
<INTEREST-INVEST> 76,331
<INTEREST-OTHER> 21,370
<INTEREST-TOTAL> 676,154
<INTEREST-DEPOSIT> 307,423
<INTEREST-EXPENSE> 307,423
<INTEREST-INCOME-NET> 368,731
<LOAN-LOSSES> 3,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 230,966
<INCOME-PRETAX> 165,328
<INCOME-PRE-EXTRAORDINARY> 165,328
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,996
<EPS-BASIC> 1.79
<EPS-DILUTED> 1.79
<YIELD-ACTUAL> 3.96
<LOANS-NON> 203,597
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 181,951
<CHARGE-OFFS> 5,513
<RECOVERIES> 2,555
<ALLOWANCE-CLOSE> 181,993
<ALLOWANCE-DOMESTIC> 181,993
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 123,327
</TABLE>
