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, 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 November 3, 2000
(Class) (Outstanding)
<PAGE>
HURON NATIONAL BANCORP, INC.
CONTENTS
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PART I FINANCIAL INFORMATION
ITEM 1 Consolidated Balance Sheet
(Unaudited) September 30, 2000......................................2
Consolidated Statements of Income and Comprehensive
Income (Unaudited)
Three and nine months ended September 30, 2000 and 1999............3
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 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)
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<TABLE>
Sept 30,
ASSETS 2000
----
<S> <C>
Cash and due from banks $ 3,341,207
Federal funds sold 800,000
---------------
Cash and cash equivalents 4,141,207
Securities available for sale 3,681,682
Securities held to maturity 512,558
---------------
Total investment securities 4,194,240
Loans
Commercial 3,560,616
Real Estate 16,875,809
Installment 8,248,652
---------------
Total Loans 28,685,077
Allowance for loan losses (166,400)
---------------
Net loans 28,518,677
Bank premises and equipment - net 423,018
Accrued interest receivable 276,366
Other assets 149,133
---------------
Total Assets $37,702,641
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non interest-bearing transaction accounts $ 5,068,785
Interest-bearing transaction accounts 3,547,176
Savings 7,478,622
Time 17,748,860
---------------
Total deposits 33,843,443
---------------
Accrued interest payable 85,437
Other liabilities 218,537
---------------
Total liabilities 34,147,417
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 2,333,370
Net unrealized gain on securities
available for sale, net of income tax (28,146)
---------------
Total shareholders' equity 3,555,224
---------------
Total liabilities and shareholders' equity $37,702,641
===============
</TABLE>
See notes to the interim consolidated financial statements
2
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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 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Loans, including fees $ 620,506 $ 560,097 $1,798,047 $1,618,103
Federal funds sold 10,677 4,933 37,961 47,511
Securities:
Taxable 58,483 74,516 192,316 224,230
Tax exempt 8,339 12,417 25,069 40,012
Other 563 562 1,688 1,688
---------- ---------- ---------- ----------
Total interest income 698,568 652,525 2,055,081 1,931,544
Interest Expense
Deposits 303,007 299,744 915,529 887,967
---------- ---------- ---------- ----------
Net Interest Income 395,561 352,781 1,139,551 1,043,577
Provision for Loan Losses 0 3,000 4,000 9,000
---------- ---------- ---------- ----------
Net Interest Income After
Provision for Loan Losses 395,561 349,781 1,135,551 1,034,577
Non-Interest Income
Service charges 17,835 20,205 54,517 62,142
Other 18,403 10,324 40,364 28,648
---------- ---------- ---------- ----------
Total non-interest income 36,238 30,529 94,881 90,790
---------- ---------- ---------- ----------
Non-Interest Expense
Salaries and benefits 145,622 121,647 390,964 351,254
Premises and equipment 39,681 34,139 107,017 101,115
Legal and accounting fees 16,172 16,409 42,211 49,643
Other operating expense 51,006 58,818 178,305 176,450
---------- ---------- ---------- ----------
Total non-interest expense 252,481 231,013 718,496 678,462
---------- ---------- ---------- ----------
Income Before Income Tax 179,318 149,297 511,935 446,905
Provision for Income Tax 56,466 46,275 164,381 139,161
---------- ---------- ---------- ----------
Net Income $ 122,852 $ 103,022 $ 347,555 $ 307,744
========== ========== ========== ==========
Comprehensive Income $ 143,693 $ 96,357 $ 367,430 $ 263,584
========== ========== ========== ==========
Basic Earnings Per Share $ 1.97 $ 1.65 $ 5.56 $ 4.92
========== ========== ========== ==========
Dividends Per Share N/A N/A N/A N/A
========== ========== ========== ==========
</TABLE>
See notes to the interim consolidated financial statements
3
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HURON NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<TABLE>
Nine Months Ended
Sept 30, Sept 30,
CASH FLOWS FROM OPERATING ACTIVITIES 2000 1999
---- ----
<S> <C> <C>
Net income $ 347,555 $ 307,744
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 42,014 40,941
Net premium amortization and discount accretion on securities 259,279 181,628
Provision for loan losses 4,000 9,000
Increase/(decrease) in cash from change in assets
and liabilities:
Other assets and interest receivable (47,096) 27,570
Other liabilities and interest payable 70,417 (23,753)
--------------- ---------------
Net cash from operating activities 676,169 543,130
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-sale securities:
Purchases (1,997,513)
Maturities 850,000 800,000
Held-to-maturity securities:
Purchases (160,201)
Maturities 168,000 667,000
Net increase in loans (2,000,811) (2,495,189)
Purchase of property and equipment (22,706) (22,286)
--------------- ---------------
Net cash from (used in) investing activities (1,165,718) (3,047,988)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in deposit accounts 395,999 22,092
--------------- ---------------
Net cash from financing activities 395,999 22,092
--------------- ---------------
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS (93,550) (2,526,950)
CASH AND CASH EQUIVALENTS AT:
BEGINNING OF PERIOD 4,234,757 4,920,603
--------------- ---------------
END OF PERIOD $ 4,141,207 $ 2,393,653
=============== ===============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 900,128 $ 893,139
Federal income tax $ 142,744 $ 198,969
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)
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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 September 30, 2000,
and the results of operations for the three and nine month periods ended
September 30, 2000 and 1999.
3. During the nine month period ended September 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 $30,114. 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 September 30, 2000 was $512,558.
4. Loans past due ninety days or more, nonaccruals and restructured loans
decreased by approximately $135,158 during the nine months ended September
30, 2000 to $214,158. These loans have adequate levels of collateral and/or
are guaranteed such that the Bank does not expect significant loss. As of
September 30, 2000, the Bank had outstanding commitments to make loans
totaling $1,606,319 and outstanding letters of credit of $159,000.
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
<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, 2000 increased from December 31, 1999 by
2.23%, or $823,607. This increase primarily was the result of an increase in net
loans of $1,996,811 from December 31,1999. Since loans increased the loan to
deposit ratio increased from 79.29% at December 31, 1999 to 84.27% at September
30, 2000. The allowance for loan losses was decreased by $15,551.
During the first nine months of 2000, the Bank has seen an increase in
total deposits of 1.18% or $396,000, primarily in non interest bearing
transaction accounts. This increase was offset by a decrease in interest bearing
and savings accounts 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, 2000 totaled $347,555
compared to $307,744 for the nine months ended September 30, 1999, an increase
of $39,811. The increase is primarily the result of an increase in interest
income of $123,536.
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,
2000 and 1999, total comprehensive income was $367,430 and $263,584,
respectively.
The provision for loan losses for the nine month periods ended September
30, 2000, and 1999 was $4,000 and $9,000, respectively. It is Management's
intention to provide an adequate allowance for loan losses based on an ongoing
evaluation of the loan portfolio.
Continued
6
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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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Results of Operations (continued)
Non-interest income for the nine months ended September 30, 2000 totaled
$94,881 compared to $90,790 in 1999. The increase was primarily related to ATM
and safe deposit box rental fees.
Non-interest expense for the nine months ended September 30, 2000 totaled
$718,496 compared to $678,462 at September 30, 1999. There was an increase of
$39,710 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 32.1% and 31.1% for the
nine month periods ended September 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 $95,974 for
the nine months ended September 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 and the rate paid on
interest bearing liabilities decreased 4 basis points and 1 basis point over the
nine months ended September 30, 2000. Asset rates have declined overall, and
liability growth was centered in savings and time deposits offset by a decrase
in interest bearing transaction accounts which results in lower interest costs.
Loan volume continues to increase, accounting for the most significant portion
of growth to interest income. The net yield on interest earning assets increased
slightly from 3.96% to 4.03% for the nine month periods. The increased overall
volume offset by a decline in non-taxable securities increased the net interest
income by $95,974 on a fully tax equivalent basis.
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 September 30, 2000
Huron National Bank had capital ratios well above the minimum regulatory
guidelines.
As of Septmber 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) $3,745 14.23% $2,105 8.00% $2,632 10.00%
Tier 1 capital (to risk weighted assets) 3,579 13.60% 1,053 4.00% 1,579 6.00%
Tier 1 capital (to average assets) 3,579 9.73% 1,472 4.00% 1,840 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
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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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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
($15,827,911) at September 30, 2000 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.
Statement of Financial Accounting Standards (SFAS) No. 133
Accounting for Derivative Instruments and Hedging Activities, as amended by
SFAS No. 138, requires derivative instruments be carried at fair value on the
balance sheet. The statement continues to allow derivative instruments to be
used to hedge various risks and sets forth specific criteria to be used to
determine when hedge accounting can be used. The statement also provides for
offsetting changes in fair value or cash flows of both the derivative and the
hedged asset or liability to be recognized in earnings in the same period;
however, any changes in fair value of cash flow that represent the ineffective
portion of a hedge are required to be recognized in earnings and cannot be
deferred. For derivative instruments not accounted for as hedges, changes in
fair value are required to be recognized in earnings. The adoption of this
statement on January 1, 2001, is not expected to have a material effect on the
consolidated financial statements.
Continued
9
<PAGE>
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 nine months ended September 30, 2000.
ITEM 2 - CHANGES IN SECURITIES
No changes in securities relevant to the requirements of this section occurred
during the nine months ended September 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 nine months ended September 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 nine months ended September 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 nine months
ended September 30, 2000.
10
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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.
11
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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: 11/9/00
By: /s/ Paulette D. Kierzek
Paulette D. Kierzek
Chief Financial Officer
Dated: 11/9/00
12
