<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 March 31, 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 1,749,509 shares of common stock, par value $5, outstanding as
of March 31, 1997.
<PAGE> 2
Empire Banc Corporation - Consolidated Balance Sheet
<TABLE>
<CAPTION>
(In thousands, except share data) March 31 December 31 March 31
1997 1996 1996
<S> <C> <C> <C>
Assets
Cash and due from banks $ 18,934 $ 22,603 $ 11,276
Federal funds sold 950 -- 9,100
-------- -------- --------
Cash and cash equivalents 19,884 22,603 20,376
Securities
Available for sale, at fair value 33,305 34,572 34,641
Held to maturity 33,165 36,804 33,496
(fair value: 1997-$33,145,
$37,038 and $33,685 in 1996)
Mortgage-backed securities
Available for sale, at fair value 25,244 27,202 18,223
Loans 281,743 272,182 256,176
Less: allowance for loan losses (3,800) (3,525) (3,300)
-------- -------- --------
Net loans 277,943 268,657 252,876
Premises and equipment, net 4,401 3,985 3,707
Other real estate -- -- 49
Accrued income and other assets 7,341 6,996 6,952
-------- -------- --------
Total assets $401,283 $400,819 $370,320
======== ======== ========
Liabilities
Deposits
Non-interest-bearing $ 50,312 $ 54,556 $ 40,902
Interest-bearing 299,275 289,798 275,667
-------- -------- --------
Total deposits 349,587 344,354 316,569
Federal funds purchased -- 5,500 --
Federal Home Loan Bank advances 12,000 12,000 17,000
Accrued expense and other liabilities 6,670 6,292 6,477
-------- -------- --------
Total liabilities 368,257 368,146 340,046
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: 3/31/97- 1,749,509; 12/31/96-
1,746,009; 3/31/96- 1,649,093 8,748 8,730 8,246
Paid-in-capital 12,397 12,350 9,381
Retained earnings 11,988 11,419 12,598
Net unrealized gain (loss) on securities, net of tax (107) 174 49
-------- -------- --------
Total shareholders' equity 33,026 32,673 30,274
-------- -------- --------
Total liabilities and shareholders' equity $401,283 $400,819 $370,320
======== ======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE> 3
Empire Banc Corporation - Consolidated Statement of Income
<TABLE>
<CAPTION>
(In thousands, except share data) Year to Date
March 31
1997 1996
<S> <C> <C>
Interest income
Loans, including fees $ 6,255 $ 6,122
Taxable securities
Available for sale 967 772
Held to maturity 455 458
Tax-exempt securities-held to maturity 72 60
Federal funds sold 28 66
------- -------
Total interest income 7,777 7,478
Interest expense
Deposits 3,397 3,189
Federal funds purchased 22 20
Federal Home Loan Bank advances 193 241
------- -------
Total interest expense 3,612 3,450
------- -------
Net interest income 4,165 4,028
Provision for loan losses 398 251
------- -------
Net interest income after
provision for loan losses 3,767 3,777
Non-interest income
Mortgage sales and servicing 324 316
Service charges on deposit accounts 330 305
Trust income 652 522
Other service charges and fees 130 114
Other income 85 102
Security gains(losses) (6) --
------- -------
Total non-interest income 1,515 1,359
Non-interest expense
Salaries and employee benefits 2,108 2,154
Occupancy 265 263
Furniture and equipment 218 220
Other 931 945
------- -------
Total non-interest expense 3,522 3,582
------- -------
Income before federal income taxes 1,760 1,554
Federal income taxes 579 511
------- -------
Net income $ 1,181 $ 1,043
======= =======
- ----------------------------------------------------------------
Earnings per share $ .63 $ .56
Average shares outstanding 1,884,803 1,868,652
- ----------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
<PAGE> 4
Empire Banc Corporation - Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
(In thousands) Quarter Ended March 31
1997 1996
<S> <C> <C>
Operating activities
Net income $ 1,181 $ 1,043
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 167 198
Provision for loan losses 398 251
Mortgage loans originated for sale (9,767) (16,122)
Sale of mortgage loans 8,827 15,310
Net realized loss on securities available for sale 6 --
Net amortization/accretion on securities 28 120
Increase (decrease) in deferred income taxes 281 (33)
Increase in accrued interest receivable (183) (292)
Increase in accrued expense and other liabilities 377 596
(Increase) decrease in other assets (298) 201
------- -------
Total adjustments (164) 229
------- -------
Net cash from operating activities 1,017 1,272
Investing activities
Securities available for sale
Proceeds from sales 992 --
Proceeds from maturities 3,762 5,265
Purchases (1,976) (10,803)
Securities held to maturity
Proceeds from maturities 3,626 3,500
Purchases -- (561)
Loans granted net of repayments (8,744) 3,587
Premises and equipment expenditures (594) (282)
Proceeds from disposal of assets 11 --
------- -------
Net cash from investing activities (2,923) 706
Financing activities
Net increase (decrease) in deposits 5,233 (2,971)
Net decrease in federal funds purchased (5,500) --
Cash dividends paid (611) (495)
Issuance of common stock 65 6
------- -------
Net cash from financing activities (813) (3,460)
------- -------
Net change in cash and cash equivalents (2,719) (1,482)
Cash and cash equivalents at January 1 22,603 21,858
------- -------
Cash and cash equivalents at March 31 $19,884 $20,376
======= =======
- ------------------------------------------------------------------------------------------
Interest paid $ 3,540 $ 3,370
Income taxes paid -- --
- ------------------------------------------------------------------------------------------
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 1,181 1,043
Common stock issued 65 6
Dividends declared (612) (495)
Net change in security valuation (281) (285)
------- -------
Balance March 31 $33,026 $30,274
======= =======
</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.
<PAGE> 6
Empire Banc Corporation
Financial Review
First Quarter 1997
Compared with
First Quarter 1996
Summary
Empire Banc Corporation's 1997 first quarter earnings were $1,181,000,
a 13% increase over 1996 first quarter results. Earnings per share
increased from $.56 per share in 1996 to $.63 in 1997. The return
on assets was 1.19% for the quarter versus 1.14% in 1996. The return on
equity was 14.40% compared to 13.75% in the prior year quarter.
The current year's results reflect the impact of an increase of 3% in net
interest income, attributable to an 7% growth in average earning assets.
Total loans and deposits have increased over 10% to $282 million and $350
million during the last twelve months. Non-interest income increased 11%
in the quarter-to-quarter comparison, with substantial growth in trust
fees, while non-interest expense declined 2%.
The provision for loan losses for the first quarter of 1997 increased due
to the growth in the loan portfolio of over 7% 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 .18% of average loans compared to
.23% in the first quarter of 1996. The allowance for possible loan
losses increased $500,000 during the last twelve months and was 1.35%
of loans at March 31, 1997 compared to 1.29% at March 31, 1996.
Total shareholders' equity increased over 9% during the last twelve
months to $33.0 million, improving book value per share to $18.88 from the
$17.48 at March 31, 1996. Per share cash dividends increased 22% to $.35
per share from a year ago.
<PAGE> 7
<TABLE>
<CAPTION>
Net Interest Income
Quarter Ending
March 31
1997 1996
<S> <C> <C>
- -----------------------------------------------------------------
Interest income $7,777 $7,478
Taxable equivalent adjustment 36 30
------ ------
Interest income (TE) 7,813 7,508
Interest expense 3,612 3,450
------ ------
Net interest income (TE) $4,201 $4,058
====== ======
Increase (decrease) due to change in:
Volume $ 256 $ 247
Rate (113) 180
------ ------
Total $ 143 $ 427
====== ======
- -----------------------------------------------------------------
</TABLE>
First quarter net interest income on a taxable equivalent ("TE")
basis was $4.2 million, a 3.5% increase from the $4.1 million earned
in the year ago quarter. Average earning assets increased 7.3% or
$25.1 million while net interest margin, the other principal determinant
of net interest income, decreased from 4.71% to 4.59% in the current
quarter.
Average loans increased $18.8 million or 7.37%, to $274.5 million for the
current quarter. The mortgage portfolio grew 12.1% or $7.9 million, the
commercial portfolio grew 4.3% or $5.0 million and average consumer loans
increased 8% or $5.9 million. The average rate earned on the loan
portfolio decreased 39 basis points ("bp") to average 9.25% in the current
quarter.
The security portfolio grew $9.1 million or 10.6% in the quarter to
quarter comparison while the rate earned increased 37 bp to average 6.44%
for the quarter. Average overnight funds sold decreased $2.8 million
or 56.4% and the rate earned declined 12 bp from the prior year's first
quarter.
Incremental funding for the earning asset growth came mainly from the
$20.3 million or 7% growth in interest bearing funds. Certificates of
deposits grew $8.0 million, money market accounts were up $13.8 million
while Federal Home Loan Bank advances decreased $3.0 million. The average
rate paid on interest bearing funds decreased 7 bp to 4.71% for the
first quarter of 1997. Non-interest bearing funds supporting earning
assets increased 8.6% or $4.8 million compared to the first quarter of
1996.
<PAGE> 8
Net Interest Income
Average Balances, Interest Income/Expense, Average Rates
<TABLE>
<CAPTION>
Quarter Ending March 31, 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*,** $274,469 $ 6,260 9.25% $255,638 $ 6,126 9.64%
Securities
Taxable 89,020 1,422 6.39 81,142 1,230 6.07
Tax-exempt* 5,822 104 7.12 4,647 86 7.44
-------- -------- -------- -------
Total 94,842 1,526 6.44 85,789 1,316 6.07
Federal funds sold 2,146 27 5.13 4,927 66 5.25
-------- -------- -------- -------
Total earning assets\
interest income 371,457 7,813 8.53% 346,354 7,508 8.72%
Cash and due from banks 13,331 11,623
Other assets 10,950 9,294
-------- --------
Total $395,738 $367,271
======== ========
Liabilities and Equity
CDs over $100,000 $ 10,016 126 5.04% $ 11,308 164 5.73%
Savings & interest checking 62,821 339 2.19 60,380 326 2.17
Money market deposits 88,973 929 4.23 75,150 785 4.20
Consumer CDs 134,537 2,003 6.04 126,494 1,914 6.09
-------- ------ -------- ------
Total 296,347 3,397 4.65 273,332 3,189 4.69
Federal funds purchased 1,639 22 5.57 1,392 20 5.77
FHLB advances 12,889 193 6.06 15,846 241 6.11
-------- ------ -------- ------
Total interest-bearing
funds/interest expense 310,875 3,612 4.71% 290,570 3,450 4.78%
-------- ------ -------- ------
Demand deposits 45,541 40,712
Other liabilities 6,503 5,633
Shareholders' equity 32,819 30,356
-------- --------
Total $395,738 $367,271
======== ========
Net interest spread (TE) 3.82% 3.94%
==== ====
Net interest income (TE) $4,201 $4,058
====== ======
Net interest margin (TE) 4.59% 4.71%
==== ====
- ------------------------------------------------------------------------------------------
* 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
<TABLE>
<CAPTION>
Non-Interest Income
Quarter Ending
March 31
Increase (decrease)
Amount %
<S> <C> <C>
- -----------------------------------------------------------------
(In thousands)
Mortgage sales and servicing $ 8 3%
Service charges on deposit accounts 25 8
Trust income 130 25
Other service charges and fees 16 14
Other income (17) (17)
Security (losses) gains (6) --
------ ----
$ 156 11%
====== ====
</TABLE>
Non-interest income for the first quarter totaled $1.5 million, a $156,000
or 11% increase from the first quarter of 1996. Income from trust
activities continued its steady growth pattern, with a 25% increase in fee
income in the quarter to quarter comparison. Fees collected from service
charges on deposit accounts increased 8% from the prior year quarter.
<TABLE>
<CAPTION>
Non-Interest Expense
Quarter Ending
March 31
Increase (decrease)
Amount %
<S> <C> <C>
- ---------------------------------------------------------------
(In thousands)
Salaries and employee benefits $ (46) (2)%
Occupancy 2 1
Furniture and equipment (2) (1)
Other (14) (1)
------ ----
$ (60) (2)%
====== ====
</TABLE>
Non-interest expenses for the first quarter totaled $3.5 million, a
decrease of $60,000, or 2%, from the first quarter of 1996. The majority
of the decrease is reflected in the $46,000 or 2% reduction in Personnel
related expense.
<PAGE> 10
Asset Quality
<TABLE>
<CAPTION>
Non-Performing Assets
3/31/97 12/31/96 3/31/96
------- -------- -------
<S> <C> <C> <C>
(In thousands)
Non-accrual loans $2,710 $2,131 $ 862
Renegotiated loans 406 408 604
------ ------ ------
Total non-performing loans 3,116 2,539 1,466
Other real estate -- -- 49
------ ------ ------
Total non-performing assets $3,116 $2,539 $1,515
====== ====== ======
Non-performing assets as a percent of total loans 1.11% .93% .59%
Accruing loans 90 days or more past due $ 8 $ 172 $ 110
</TABLE>
Total non-performing assets at March 31, 1997 increased $1,601,000 or
106% from March of 1996, with an increase in non-accrual loans of
$1,848,000. 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.
Loans identified as potential problem loans totaled $2,289,000 at March
31, 1997, $2,062,000 at December 31, 1996 and $3,406,000 at March 31, 1996.
<PAGE> 11
<TABLE>
<CAPTION>
Allowance for Loan Losses
Quarter Ending
March 31
1997 1996
<S> <C> <C>
- -----------------------------------------------------------------------------
(In thousands)
Balance beginning of period $ 3,525 $ 3,200
Charge-offs 183 187
Recoveries 60 36
------- -------
Net charge-offs 123 151
Provision charged to operations 398 251
------- -------
Balance March 31 $ 3,800 $ 3,300
======= =======
- -------------------------------------------------------------------------------------------
3/31/97 12/31/96 3/31/96
------- -------- -------
Net loan losses as a percent of average loans .18% .52% .23%
Allowance for loan losses as a percent of end
of period loans 1.35% 1.30% 1.29%
- -------------------------------------------------------------------------------------------
</TABLE>
For the current quarter, net charge-offs decreased $28,000 from the same
period in 1996. The allowance for loan losses has increased $500,000
over the last twelve months and was 1.35% of total loans as of March 31,
1997 compared to 1.29% 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 10.
Under accounting guidance regarding impaired loans, at March 31, 1997
there were $2.70 million in impaired loans with $2.26 million for which
an allowance for credit losses is allocated. Impaired loans totaled
$2.42 million and $1.53 million at December 31, 1996 and March 31, 1996.
<PAGE> 12
Investment Securities
The following is a summary of investment securities, held-to-maturity and
available-for-sale, at March 31, 1997.
<TABLE>
<CAPTION>
Held-to-maturity
Unrealized
Cost Gain Loss Fair Value
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
U.S. government and agency $14,514 $ 35 $ 24 $14,525
State and municipal 7,716 50 45 7,721
Corporate notes 10,935 15 51 10,899
------- ----- ----- -------
Total $33,165 $ 100 $ 120 $33,145
======= ===== ===== =======
</TABLE>
<TABLE>
<CAPTION>
Available-for-sale
Unrealized
Cost Gain Loss Fair Value
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
U.S. government and agency $31,016 $ 46 $ 201 $30,861
Equity 2,330 114 -- 2,444
------- ---- ----- -------
Total $33,346 $ 160 $ 201 $33,305
======= ===== ===== =======
Mortgage-backed $25,365 $ 44 $ 165 $25,244
======= ===== ===== =======
</TABLE>
<TABLE>
<CAPTION>
Sales of available for sale securities
Quarter ending March 31
1997 1996
<S> <C> <C>
<in thousands>
- --------------------------------------------------------------------------
Proceeds $ 992 $ --
Gross gains -- --
Gross losses 7 --
</TABLE>
<PAGE> 13
Shareholders' Equity and Capital Resources
Total equity at March 31, 1997 was $33.0 million, compared to $32.7
million and $30.3 million at December 31, 1996 and March 31, 1996.
The Corporation declared $612,000, or $.35 per share, in dividends
for the first quarter of 1997 as compared to $495,000, or $.29 per
share in the first quarter of 1996.
<TABLE>
<CAPTION>
The following is a summary of risk-based capital amounts and ratios:
3/31/97 12/31/96 3/31/96
-------- -------- --------
<S> <C> <C> <C>
Tier 1 capital $ 32,746 $ 32,102 $ 29,798
Tier 2 capital 3,583 3,509 3,188
-------- -------- --------
Total qualifying capital $ 36,329 $ 35,611 $ 32,986
======== ======== ========
Risk-weighted assets $286,410 $280,705 $255,041
======== ======== ========
Quarterly average assets $395,179 $396,033 $367,271
======== ======== ========
Tier 1 leverage ratio 8.29% 8.11% 8.12%
Tier 1 risk-based capital 11.43% 11.44% 11.68%
Total risk-based capital 12.68% 12.69% 12.93%
</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. Total risk-based capital reached 12.7% at
March 31, 1997 compared to the 12.9% at March 31, 1996.
(PAGE> 14
Empire Banc Corporation
Part II - Other Information
Item 4. Submission of matters to a vote of security holders
None.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits - none
(b) Reports on Form 8-K - none
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: May 12, 1997
/s/ James E. Dutmers, Jr.
---------------------------------------
James E. Dutmers, Jr.
Chairman and Chief Executive Officer
Date: May 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 18,786
<INT-BEARING-DEPOSITS> 148
<FED-FUNDS-SOLD> 950
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 58,549
<INVESTMENTS-CARRYING> 33,165
<INVESTMENTS-MARKET> 33,145
<LOANS> 281,743
<ALLOWANCE> 3,800
<TOTAL-ASSETS> 401,283
<DEPOSITS> 349,587
<SHORT-TERM> 5,000
<LIABILITIES-OTHER> 6,670
<LONG-TERM> 7,000
0
0
<COMMON> 8,748
<OTHER-SE> 24,278
<TOTAL-LIABILITIES-AND-EQUITY> 401,283
<INTEREST-LOAN> 6,255
<INTEREST-INVEST> 1,494
<INTEREST-OTHER> 28
<INTEREST-TOTAL> 7,777
<INTEREST-DEPOSIT> 3,397
<INTEREST-EXPENSE> 3,612
<INTEREST-INCOME-NET> 4,165
<LOAN-LOSSES> 398
<SECURITIES-GAINS> (6)
<EXPENSE-OTHER> 3,522
<INCOME-PRETAX> 1,760
<INCOME-PRE-EXTRAORDINARY> 1,760
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,181
<EPS-PRIMARY> .63
<EPS-DILUTED> .63
<YIELD-ACTUAL> 4.59
<LOANS-NON> 2,710
<LOANS-PAST> 8
<LOANS-TROUBLED> 406
<LOANS-PROBLEM> 2,289
<ALLOWANCE-OPEN> 3,525
<CHARGE-OFFS> 183
<RECOVERIES> 60
<ALLOWANCE-CLOSE> 3,800
<ALLOWANCE-DOMESTIC> 2,612
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,188
</TABLE>
