<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-Q
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1997.
Commission file number 0-15839
EMPIRE BANC CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan
--------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
1227 E. Front Street
Traverse City, Michigan
----------------------------------------
(Address of principal executive offices)
38-2727982
------------------------------------
(IRS Employer Identification Number)
49686-2928
----------
(Zip code)
(616) 922-2111
----------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
--------------------------------------------------------------------
(Former name, address and fiscal year, if changed since last report)
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, and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of each of the issuer's classes of common
stock was 1,756,009 shares of common stock, par value $5, outstanding as
of June 30, 1997.
<PAGE> 2
Empire Banc Corporation - Consolidated Balance Sheet
<TABLE>
<CAPTION>
(In thousands, except share data) June 30 December 31 June 30
1997 1996 1996
<S> <C> <C> <C>
Assets
Cash and due from banks $ 24,530 $ 22,603 $ 14,392
Federal funds sold 2,480 -- 6,900
-------- -------- --------
Cash and cash equivalents 27,010 22,603 21,292
Securities
Available for sale, at fair value 34,489 34,572 35,413
Held to maturity 31,138 36,804 31,552
(fair value: 6/30/97-$31,277,
12/31/96-$37,038,6/30/96-$31,630)
Mortgage-backed securities
Available for sale, at fair value 24,592 27,202 23,584
Loans 290,774 272,182 257,995
Less: allowance for loan losses (4,075) (3,525) (3,375)
-------- -------- --------
Net loans 286,699 268,657 254,620
Premises and equipment, net 4,506 3,985 3,859
Other real estate -- -- 70
Accrued income and other assets 7,262 6,996 7,278
-------- -------- --------
Total assets $415,696 $400,819 $377,668
======== ======== ========
Liabilities
Deposits
Non-interest-bearing $ 60,274 $ 54,556 $ 46,910
Interest-bearing 302,736 289,798 276,768
-------- -------- --------
Total deposits 363,010 344,354 323,678
Federal funds purchased -- 5,500 --
Federal Home Loan Bank advances 12,000 12,000 17,000
Accrued expense and other liabilities 6,579 6,292 6,205
-------- -------- --------
Total liabilities 381,589 368,146 346,883
Shareholders' equity
Preferred stock-$1 par value,
2,000,000 shares authorized, none outstanding
Common stock-$5 par value, 5,000,000 shares authorized,
shares outstanding: 6/30/97-1,756,009; 12/31/96-
1,746,009; 6/30/96-1,738,057 8,780 8,730 8,276
Paid-in-capital 12,570 12,350 9,484
Retained earnings 12,625 11,419 13,205
Net unrealized gain (loss) on securities, net of tax 132 174 (180)
-------- -------- --------
Total shareholders' equity 34,107 32,673 30,785
-------- -------- --------
Total liabilities and shareholders' equity $415,696 $400,819 $377,668
======== ======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE> 3
Empire Banc Corporation - Consolidated Statement of Income
<TABLE>
<CAPTION>
(In thousands, except share data) Quarter Ending Year to Date
June 30 June 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $ 6,682 $ 6,040 $ 12,937 $ 12,162
Taxable securities
Available for sale 948 843 1,915 1,615
Held to maturity 443 426 898 884
Tax-exempt securities-held to maturity 50 51 122 111
Federal funds sold 40 124 68 190
------- ------- ------- ------
Total interest income 8,163 7,484 15,940 14,962
Interest expense
Deposits 3,493 3,172 6,890 6,361
Federal funds purchased 14 36 20
Federal Home Loan Bank advances 174 250 367 491
------- ------- -------- -------
Total interest expense 3,681 3,422 7,293 6,872
------- ------- -------- -------
Net interest income 4,482 4,062 8,647 8,090
Provision for loan losses 395 210 793 461
------- ------- -------- -------
Net interest income after
provision for loan losses 4,087 3,852 7,854 7,629
Non-interest income
Mortgage sales and servicing 398 337 722 653
Service charges on deposit accounts 346 322 676 627
Trust income 640 518 1,292 1,040
Other service charges and fees 139 124 269 238
Other income 88 91 173 193
Security gains(losses) -- -- (6) --
------- ------- -------- ------
Total non-interest income 1,611 1,392 3,126 2,751
Non-interest expense
Salaries and employee benefits 2,286 2,156 4,394 4,310
Occupancy 250 256 515 519
Furniture and equipment 216 204 434 424
Other 1,068 975 1,999 1,920
------- ------- ------- ------
Total non-interest expense 3,820 3,591 7,342 7,173
------- ------- ------- ------
Income before federal income taxes 1,878 1,653 3,638 3,207
Federal income taxes 626 549 1,205 1,060
------- ------- ------- ------
Net income $ 1,252 $ 1,104 $ 2,433 $ 2,147
======= ======= ======= =======
- ----------------------------------------------------------------------------------------
Earnings per share $ .66 $ .59 $ 1.29 $ 1.15
Average shares outstanding 1,893,260 1,875,909 1,892,269 1,872,280
- ----------------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
<PAGE> 4
Empire Banc Corporation - Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
(In thousands) Year to Date June 30
1997 1996
<S> <C> <C>
Operating activities
Net income $ 2,433 $ 2,147
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 346 373
Provision for loan losses 793 461
Mortgage loans originated for sale (24,854) (34,924)
Sale of mortgage loans 23,020 33,099
Net realized loss on securities 6 --
Net amortization/accretion on securities 61 224
Increase (decrease) in deferred income taxes 281 (33)
Decrease in accrued interest receivable (197) (186)
Increase in accrued expense and other liabilities 283 322
Decrease in other assets (328) (133)
------- -------
Total adjustments (589) (797)
------- -------
Net cash from operating activities 1,844 1,350
Investing activities
Securities available for sale
Proceeds from sales 992 --
Proceeds from maturities 7,588 13,579
Purchases (5,984) (25,665)
Securities held to maturity
Proceeds from sales 1,986 --
Proceeds from maturities 4,245 7,800
Purchases (599) (2,954)
Loans granted net of repayments (17,001) 2,646
Premises and equipment expenditures (888) (609)
Proceeds from disposal of assets 21 --
------- -------
Net cash from investing activities (9,640) (5,203)
Financing activities
Net increase in deposits 18,656 4,138
Net decrease in federal funds purchased (5,500) --
Cash dividends paid (1,223) (989)
Issuance of common stock 270 138
------- -------
Net cash from financing activities 12,203 3,287
------- -------
Net change in cash and cash equivalents 4,407 (566)
Cash and cash equivalents at January 1 22,603 21,858
------- -------
Cash and cash equivalents at June 30 $27,010 $21,292
======= =======
- ------------------------------------------------------------------------------------------
Interest paid $ 7,221 $ 6,871
Income taxes paid 1,079 1,175
- ------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
<PAGE> 5
Empire Banc Corporation - Consolidated Statement of Changes in
Shareholders' Equity
<TABLE>
<CAPTION>
(In thousands) 1997 1996
<S> <C> <C>
- -------------------------------------------------------------------------------------------
Balance January 1 $32,673 $30,005
Net income 2,433 2,147
Common stock issued 270 138
Dividends declared (1,227) (991)
Net change in security valuation (42) (514)
------- -------
Balance June 30 $34,107 $30,785
======= =======
</TABLE>
Notes to Consolidated Financial Statements
Note-1 The consolidated financial statements include the accounts of Empire
Banc Corporation and its wholly-owned subsidiary, Empire National Bank, after
elimination of significant inter-company transactions and accounts. The
statements have been prepared by management without audit by independent
certified public accountants. However, these statements reflect all
adjustments (consisting of normal recurring accruals) and disclosures which
are, in the opinion of management, necessary for a fair presentation of the
results for the interim periods presented and should be read in conjunction
with the notes to financial statements included in the Empire Banc
Corporation's Form 10-K for the year ended December 31, 1996.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission.
Because the results of operations are so closely related to and responsive
to changes in economic conditions, the results for any interim period are
not necessarily indicative of the results that can be expected for the
entire year.
Note-2 Earnings per share of common stock is computed by dividing net
income by the weighted average number of common stock and common stock
equivalents outstanding during the period. Common stock equivalents
consist of common stock issuable under the assumed exercise of stock
options granted under the Corporation's stock option plan, using the
treasury stock method.
NOTE-3 During the six month period ended June 30, 1997, the proceeds from
sales of available-for-sale securities were $992,000 with gross realized
losses of $6,900. The proceeds from sales of held-to-maturity securities
were $1,986,000 with gross realized gains of $1,400. The change in net
unrealized holding gains or losses on available-for-sale securities for
the current quarter is $239,000 and year-to-date is $(42,000).
<PAGE> 6
Empire Banc Corporation
Financial Review
Second Quarter 1997
Compared with
Second Quarter 1996
Summary
Empire Banc Corporation's 1997 second quarter earnings were $1,252,000,
a 13% increase over 1996 second quarter results. Earnings per share
increased from $.59 per share in 1996 to $.66 in 1997. The return
on assets was 1.24% for the quarter versus 1.19% in 1996. The return on
equity was 14.93% compared to 14.38% in the prior year quarter.
The current year's results reflect the impact of an increase of 10% in net
interest income, attributable to an 8% growth in average earning assets.
Total loans and deposits have increased over 12% to $291 million and $363
million during the last twelve months. Non-interest income increased 16%
in the quarter-to-quarter comparison, with substantial growth in trust
fees, loan fee income and deposit related fees. Non-interest expense
increased 6%, primarily due to increased personnel costs and fees
associated with non-earning loans.
The provision for loan losses for the second quarter of 1997 increased due
to the growth in the loan portfolio of over 13% in the quarter and to
increase the overall level of the allowance for loan losses. Net charge-
offs declined during the period from the prior year, particularly in
the consumer loan portfolio, and were .17% of average loans compared to
.22% in the second quarter of 1996.
Total shareholders' equity increased over 10% during the last twelve
months to $34.1 million, improving book value per share to $19.42 from the
$17.71 at June 30, 1996.
<PAGE> 7
<TABLE>
<CAPTION>
Net Interest Income
Quarter Ending Six Months Ending
June 30 June 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
Interest income $8,163 $7,484 $15,940 $14,962
Taxable equivalent adjustment 26 28 62 58
------ ------ ------- -------
Interest income (TE) 8,189 7,512 16,002 15,020
Interest expense 3,681 3,422 7,293 6,872
------ ------ ------- -------
Net interest income (TE) $4,508 $4,090 $ 8,709 $ 8,148
====== ====== ======= =======
Increase (decrease) due to change in:
Volume $ 467 $ 273 $ 772 $ 441
Rate (49) 84 (211) 343
------ ------ ------- -------
Total $ 418 $ 357 $ 561 $ 784
====== ====== ======= =======
- ----------------------------------------------------------------------------------
</TABLE>
Second quarter net interest income on a taxable equivalent ("TE")
basis was $4.5 million, a 10.2% increase from the $4.1 million earned
in the year ago quarter. Average earning assets increased 7.6% or
$26.7 million while net interest margin, the other principal determinant
of net interest income, increased from 4.69% to 4.79% in the quarter to
quarter comparison.
Average loans increased $29.2 million or 11.5%, to $283.6 million for the
current quarter. The mortgage portfolio grew 16.6% or $10.6 million, the
commercial portfolio grew 8.0% or $9.4 million and average consumer loans
increased 12.6% or $9.2 million. The average rate earned on the loan
portfolio decreased 10 basis points ("bp") to average 9.46% in the current
quarter.
The security portfolio grew $4.0 million or 4.6% in the quarter to
quarter comparison while the rate earned increased 25 bp to average 6.45%
for the quarter. Average overnight funds sold decreased $6.5 million
or 68.5% and the rate earned increased 21 bp from the prior year's second
quarter.
Incremental funding for the earning asset growth came mainly from the
$20.8 million or 7.1% growth in interest bearing funds. Certificates of
deposits grew $5.6 million, money market accounts increased $17.4 million,
while CDs over $100,000 were down $1.1 million and Federal Home Loan Bank
advances decreased $5.0 million. The average rate paid on interest bearing
funds was 4.72%, comparable to the second quarter of 1996. Non-interest
bearing funds supporting earning assets increased 10.0% or $5.9 million
compared to the last year's quarter.
<PAGE> 8
Net Interest Income
Average Balances, Interest Income/Expense, Average Rates
<TABLE>
<CAPTION>
Quarter Ending June 30, 1997 1996
- ------------------------------------------------------------------------------------------
Average Average
(Taxable equivalent, Balance Interest Rate Balance Interest Rate
in thousands) --------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans, including fees*,** $283,649 $ 6,686 9.46% $254,408 $ 6,044 9.56%
Securities
Taxable 86,744 1,391 6.41 82,755 1,268 6.13
Tax-exempt* 3,986 71 7.18 4,000 75 7.52
-------- -------- -------- -------
Total 90,730 1,462 6.45 86,755 1,343 6.13
Federal funds sold 3,000 41 5.39 9,526 125 5.18
-------- -------- -------- -------
Total earning assets\
interest income 377,379 8,189 8.70% 350,689 7,512 8.62%
Cash and due from banks 14,214 12,651
Other assets 11,218 9,055
-------- --------
Total $402,811 $372,395
======== ========
Liabilities and Equity
CDs over $100,000 $ 11,211 149 5.25% $ 12,315 161 5.19%
Savings & interest checking 63,861 346 2.17 60,826 330 2.18
Money market deposits 90,436 980 4.35 73,009 742 4.09
Consumer CDs 134,427 2,018 6.02 128,876 1,939 6.05
-------- ------ -------- ------
Total 299,935 3,493 4.67 275,026 3,172 4.64
Federal funds purchased 919 14 5.77
FHLB advances 12,000 174 5.83 17,000 250 5.91
-------- ------ -------- ------
Total interest-bearing
funds/interest expense 312,854 3,681 4.72% 292,026 3,422 4.71%
-------- ------ -------- ------
Demand deposits 49,996 43,804
Other liabilities 6,411 5,859
Shareholders' equity 33,550 30,706
-------- --------
Total $402,811 $372,395
======== ========
Net interest spread (TE) 3.98% 3.91%
==== ====
Net interest income (TE) $4,508 $4,090
====== ======
Net interest margin (TE) 4.79% 4.69%
==== ====
- ------------------------------------------------------------------------------------------
* Interest income on tax-exempt securities and certain tax-exempt
loans has been adjusted to a tax-equivalent basis.
** Non-accrual loans are excluded.
</TABLE>
<PAGE> 9
Net Interest Income
Average Balances, Interest Income/Expense, Average Rates
<TABLE>
<CAPTION>
Year to date June 30, 1997 1996
- ------------------------------------------------------------------------------------------
Average Average
(Taxable equivalent, Balance Interest Rate Balance Interest Rate
in thousands) --------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans, including fees*,** $279,084 $ 12,946 9.35% $254,931 $ 12,170 9.60%
Securities
Taxable 87,876 2,813 6.40 81,948 2,498 6.10
Tax-exempt* 4,899 175 7.15 4,324 162 7.47
-------- -------- -------- -------
Total 92,775 2,988 6.44 86,272 2,660 6.10
Federal funds sold 2,575 68 5.28 7,227 190 5.21
-------- -------- -------- -------
Total earning assets\
interest income 374,434 16,002 8.62% 348,430 15,020 8.67%
Cash and due from banks 13,775 12,137
Other assets 11,085 9,266
-------- --------
Total $399,294 $369,833
======== ========
Liabilities and Equity
CDs over $100,000 $ 10,617 275 5.16% $ 11,812 325 5.45%
Savings & interest checking 63,344 685 2.18 60,603 656 2.18
Money market deposits 89,708 1,909 4.29 74,079 1,526 4.14
Consumer CDs 134,481 4,021 6.03 127,685 3,854 6.07
-------- ------ -------- ------
Total 298,150 6,890 4.66 274,179 6,361 4.67
Federal funds purchased 1,277 36 5.64 696 20 5.77
FHLB advances 12,442 367 5.95 16,423 491 6.01
-------- ------ -------- ------
Total interest-bearing
funds/interest expense 311,869 7,293 4.72% 291,298 6,872 4.74%
-------- ------ -------- ------
Demand deposits 47,782 42,174
Other liabilities 6,457 5,830
Shareholders' equity 33,186 30,531
-------- --------
Total $399,294 $369,833
======== ========
Net interest spread (TE) 3.90% 3.93%
==== ====
Net interest income (TE) $8,709 $8,148
====== ======
Net interest margin (TE) 4.69% 4.70%
==== ====
- ------------------------------------------------------------------------------------------
* Interest income on tax-exempt securities and certain tax-exempt
loans has been adjusted to a tax-equivalent basis.
** Non-accrual loans are excluded.
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
Non-Interest Income
Quarter Ending Six Months Ending
June 30 June 30
Increase (decrease) Increase (decrease)
Amount % Amount %
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
(In thousands)
Mortgage sales and servicing $ 61 18% $ 69 11%
Service charges on deposit accounts 24 7 49 8
Trust income 122 24 252 24
Other service charges and fees 15 12 31 13
Other income (3) (3) (20) (10)
Securities (losses) gains -- -- (6) --
------ ---- ------ ----
$ 219 16% $ 375 14%
====== ==== ====== ====
</TABLE>
Non-interest income for the second quarter totaled $1.6 million, a $219,000
or 16% increase from the second quarter of 1996. Income from trust
activities continued its steady growth pattern, with a 24% increase in fee
income in the quarter to quarter comparison. In addition, fees collected
from loan sales and servicing increased 18% from the prior year quarter.
<TABLE>
<CAPTION>
Non-Interest Expense
Quarter Ending Six Months Ending
June 30 June 30
Increase (decrease) Increase (decrease)
Amount % Amount %
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
(In thousands)
Salaries and employee benefits $ 130 6% $ 84 2%
Occupancy (6) (2) (4) (1)
Furniture and equipment 12 6 10 2
Other 93 10 79 4
------ ---- ------ ----
$ 229 6% $ 169 2%
====== ==== ====== ====
</TABLE>
Non-interest expenses for the second quarter totaled $3.8 million, an
increase of $229,000, or 6%, from the second quarter of 1996. Personnel
related expense grew by $130,000 or 6%, while other expense included fees
associated with non-earning loans which increased by $105,000 or 234%.
<PAGE> 11
Asset Quality
<TABLE>
<CAPTION>
Non-Performing Assets
6/30/97 12/31/96 6/30/96
------- -------- -------
<S> <C> <C> <C>
(In thousands)
Non-accrual loans $2,968 $2,131 $ 822
Renegotiated loans 285 408 600
------ ------ ------
Total non-performing loans 3,253 2,539 1,422
Other real estate -- -- 70
------ ------ ------
Total non-performing assets $3,253 $2,539 $1,492
====== ====== ======
Non-performing assets as a percent of total loans 1.12% .93% .58%
Accruing loans 90 days or more past due $ 55 $ 172 $ 518
</TABLE>
Total non-performing assets at June 30, 1997 increased $1,761,000 or
118% from June of 1996, with an increase in non-accrual loans of
$2,146,000. As previously reported in the December 31, 1996 Annual
Report on Form 10-K, the increase in problem loans is due to one long
term credit relationship. After an extensive examination of this loan
relationship, in 1996 the credit was classified non-accrual, the carrying
value was reduced and the established reserve was substantially increased.
As of May 1, 1997, the borrower entered into an agreement to turn over
the assets securing the credit. The assets, consisting primarily of real
estate, are held in escrow until all state licenses and approvals are
received and all conditions in the escrow agreement are met. The borrower's
business continues to operate via a management company, satisfactory to the
Bank, hired by the borrower.
As of July 28, 1997 the Bank and borrower entered into a definitive
agreement to sell the assets of the borrower held in escrow. The reserve
established in 1996 is adequate under the terms of the definitive
agreement.
Loans identified as potential problem loans totaled $2,454,000 at June
30, 1997, $2,062,000 at December 31, 1996 and $3,401,000 at June 30, 1996.
<PAGE> 12
<TABLE>
<CAPTION>
Allowance for Loan Losses
Quarter Ending Six Months Ending
June 30 June 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
(In thousands)
Balance beginning of period $ 3,800 $ 3,300 $ 3,525 $ 3,200
Charge-offs 163 189 346 376
Recoveries 43 54 103 90
------- ------- ------- -------
Net charge-offs 120 135 243 286
Provision charged to operations 395 210 793 461
------- ------- ------- -------
Balance June 30 $ 4,075 $ 3,375 $ 4,075 $ 3,375
======= ======= ======= =======
- ------------------------------------------------------------------------------------
6/30/97 12/31/96 6/30/96
------- -------- -------
Net loan losses as a percent of average loans .17% .52% .22%
Allowance for loan losses as a percent of end
of period loans 1.40% 1.30% 1.31%
- ---------------------------------------------------------------------------------------
</TABLE>
For the current quarter, net charge-offs decreased $15,000 from the same
period in 1996. The allowance for loan losses has increased $700,000
over the last twelve months and was 1.40% of total loans as of June 30,
1997 compared to 1.31% one year ago. The increase in the allowance for
loan losses is due to the growth in loans over the last twelve months,
and the allowance established in 1996 for the credit discussed under
Non-Performing Assets on Page 11.
The established allowance for this credit is adequate under the terms
of the definitive agreement, dated July 28, 1997, for the sale of the
assets of the borrower.
Under accounting guidance regarding impaired loans, at June 30, 1997
there were $2.66 million in impaired loans with $2.11 million for which
an allowance for credit losses is allocated. Impaired loans totaled
$2.42 million and $1.41 million at December 31, 1996 and June 30, 1996.
<PAGE> 13
Investment Securities
The following is a summary of investment securities, held-to-maturity and
available-for-sale, at June 30, 1997.
<TABLE>
<CAPTION>
Held-to-maturity
Unrealized
Cost Gain Loss Fair Value
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
U.S. government and agency $14,513 $ 68 $ -- $14,581
State and municipal 5,697 65 16 5,746
Corporate notes 10,928 31 8 10,951
------- ----- ----- -------
Total $31,138 $ 164 $ 24 $31,278
======= ===== ===== =======
</TABLE>
<TABLE>
<CAPTION>
Available-for-sale
Unrealized
Cost Gain Loss Fair Value
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
U.S. government and agency $31,995 $ 116 $ 87 $32,024
Equity 2,329 136 -- 2,465
------- ---- ----- -------
Total $34,324 $ 252 $ 87 $34,489
======= ===== ===== =======
Mortgage-backed $24,556 $ 113 $ 77 $24,592
======= ===== ===== =======
</TABLE>
<TABLE>
<CAPTION>
Sales of available for sale securities
Six months ending June 30
1997 1996
<S> <C> <C>
<in thousands>
- --------------------------------------------------------------------------
Proceeds $ 992 $ --
Gross gains -- --
Gross losses 7 --
</TABLE>
<PAGE> 14
Shareholders' Equity and Capital Resources
Total equity at June 30, 1997 was $34.1 million, compared to $32.7
million and $30.8 million at December 31, 1996 and June 30, 1996.
The Corporation declared $615,000, or $.35 per share, in dividends
for the second quarter of 1997 as compared to $497,000, or $.30 per
share in the second quarter of 1996.
<TABLE>
<CAPTION>
The following is a summary of risk-based capital amounts and ratios:
Risk-based capital amounts
(In thousands)
Regulatory
Capital Standards
Well Capitalized Actual
----------------- --------------------------------
6/30/97 6/30/97 12/31/96 6/30/96
----------------- -------- -------- --------
<S> <C> <C> <C> <C>
Tier 1 leverage $ 20,127 $ 33,598 $ 32,102 $ 30,548
Tier 1 risk-based 17,587 33,598 32,102 30,548
Total risk-based 29,312 37,267 35,611 33,784
Risk-weighted assets 293,121 280,705 258,751
Quarterly average assets 402,536 396,033 371,978
Risk-based ratios
Tier 1 leverage 5% 8.35% 8.11% 8.21%
Tier 1 risk-based 6% 11.46% 11.44% 11.81%
Total risk-based 10% 12.71% 12.69% 13.06%
</TABLE>
Risk-based capital ratios for the Corporation continue to be well above
the guidelines established for well-capitalized institutions, which is
the highest capital standard.
<PAGE> 15
- ---------------------------------------------------------------------------
Six months ended June 30, 1997 compared with 1996
- ---------------------------------------------------------------------------
Net income for the six months ended June 30, 1997 is $2,433,000 or $1.29
per share compared to the $2,147,000 or $1.15 per share earned in the same
period of 1996, a 13.3% increase. Return on average assets for the first
six months was 1.22%, as compared to 1.16% in the previous year. The
return on average equity was 14.66%, in comparison to the 14.06% earned in
the first six months of 1996.
Net interest income (FTE) has increased $561,000, or 6.9% to $8.7 million
for the first six months of 1997 as average earning assets increased $26
million from 1996. The year to date net interest margin is 4.69% for 1997,
comparable to the first six months of 1996. The average rate earned on
assets has decreased 5 basis points (bp) to 8.62% and the average rate paid
on interest-bearing funds has decreased 2 bp to average 4.72% in 1997.
Average outstanding loans have increased $24.2 million and securities $6.5
million from 1996. Total deposits have increased $29.6 million from 1996
and average $345.9 million for the first six months of 1997. Money market
deposits have grown by $15.6 million, consumer CDs $6.8 million, and
funding from Federal Home Loan Bank advances has decreased on average $4.0
million.
The provision for loan losses was $793,000 and net loan charge-offs were
$243,000 for the first six months of 1997 compared to a provision of
$461,000 and net charge-offs of $286,000 in 1996. The allowance for loan
losses has been increased by $700,000 over the last twelve months and was
1.40% of total loans at June 30, 1997.
Non-interest income has grown $375,000, or 14%, for the first six months
of 1997, mainly due to the $252,000 or 24% increase in trust fee income,
$69,000 or 11% increase in fees earned from the origination and sale of
mortgage loans, and $50,000 or 8% additional income generated from deposit
related fees.
Non-interest expense increased $169,000 or 2% from the comparable prior
period, essentially due to higher costs associated with non-earning loans
and greater personnel costs.
Total cash dividends for the first six months of 1997 were $.70 per share
compared to $.57 per share in 1996, a 23% increase. Shareholders' equity
increased 10.8% from June of 1996 and at $34.1 million for June of 1997,
represents 8.2% of assets. Total risk-based capital in June of 1997 was
12.7% compared to the 13.1% in June of 1996.
Recorded in stockholders' equity were unrealized losses of $42,000 during
1997 and $514,000 in 1996. The unrealized gains and losses of the
investment portfolio are not expected to cause a material change in
future income or investment yields.
<PAGE> 16
Empire Banc Corporation
Part II - Other Information
Item 4. Submission of matters to a vote of security holders
(a) Annual meeting of shareholders of Empire Banc Corporation
held May 13, 1997.
(c) Election of four (4) directors to serve until the annual
meeting of shareholders in 2000.
Withhold
For Authority Non-vote
--- --------- --------
John R. Anderson
Anderson, Gordon
& Associates 1,596,165 1,995 151,349
Don A. Good, M.D.
Grand Traverse Obstetrics
& Gynecology, P.C. 1,596,165 1,995 151,349
Laurence P. Skendzel, M.D.
Retired Physician 1,595,873 2,287 151,349
Deborah J. Knudsen
President & Chief
Executive Officer
Traverse City Convention
& Visitors Bureau 1,588,589 9,572 151,349
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits - none
(b) Reports on Form 8-K - none
<PAGE> 17
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.
Empire Banc Corporation
-----------------------
(Registrant)
<TABLE>
<S> <C>
Date: August 12, 1997
/s/ James E. Dutmers, Jr.
---------------------------------------
James E. Dutmers, Jr.
Chairman and Chief Executive Officer
Date: August 12, 1997
/s/ William T. Fitzgerald, Jr.
---------------------------------------
William T. Fitzgerald, Jr.
Secretary, Treasurer & Chief Financial
Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 24,190
<INT-BEARING-DEPOSITS> 340
<FED-FUNDS-SOLD> 950
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 59,081
<INVESTMENTS-CARRYING> 31,138
<INVESTMENTS-MARKET> 31,277
<LOANS> 290,774
<ALLOWANCE> 4,075
<TOTAL-ASSETS> 415,696
<DEPOSITS> 363,010
<SHORT-TERM> 5,000
<LIABILITIES-OTHER> 6,579
<LONG-TERM> 7,000
0
0
<COMMON> 8,780
<OTHER-SE> 25,327
<TOTAL-LIABILITIES-AND-EQUITY> 415,696
<INTEREST-LOAN> 12,937
<INTEREST-INVEST> 2,935
<INTEREST-OTHER> 68
<INTEREST-TOTAL> 15,940
<INTEREST-DEPOSIT> 6,890
<INTEREST-EXPENSE> 7,293
<INTEREST-INCOME-NET> 8,647
<LOAN-LOSSES> 793
<SECURITIES-GAINS> (6)
<EXPENSE-OTHER> 7,342
<INCOME-PRETAX> 3,638
<INCOME-PRE-EXTRAORDINARY> 3,638
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,433
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 1.29
<YIELD-ACTUAL> 4.69
<LOANS-NON> 2,968
<LOANS-PAST> 55
<LOANS-TROUBLED> 285
<LOANS-PROBLEM> 2,454
<ALLOWANCE-OPEN> 3,525
<CHARGE-OFFS> 346
<RECOVERIES> 103
<ALLOWANCE-CLOSE> 4,075
<ALLOWANCE-DOMESTIC> 2,930
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,145
</TABLE>
