<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 September 30, 1998.
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 2,957,398 shares of common stock, no par value, outstanding as
of September 30, 1998.
<PAGE> 2
Empire Banc Corporation - Consolidated Balance Sheet
<TABLE>
<CAPTION>
(In thousands, except share data) September 30 December 31
September 30
1998 1997
1997
<S> <C> <C>
<C>
Assets
Cash and due from banks $ 18,604 $ 25,433
$ 18,126
Federal funds sold 14,300 6,800
6,700
-------- --------
- --------
Cash and cash equivalents 32,904 32,233
24,826
Securities
Available for sale, at fair value 56,921 42,183
38,762
Held to maturity 39,590 32,979
31,544
(fair value: 9/30/98-$40,221,
12/31/97-$33,234,9/30/97-$31,783)
Mortgage-backed securities
Available for sale, at fair value 21,998 23,592
26,128
Loans 315,227 302,469
297,409
Less: allowance for loan losses (4,650) (4,125)
(3,800)
-------- --------
- --------
Net loans 310,577 298,344
293,609
Premises and equipment, net 5,643 4,985
4,484
Other real estate 187 177
- --
Accrued income and other assets 9,136 8,460
6,910
-------- --------
- --------
Total assets $476,956 $442,953
$426,263
======== ========
========
Liabilities
Deposits
Non-interest-bearing $ 62,329 $ 62,492
$ 56,488
Interest-bearing 349,255 324,178
315,268
-------- --------
- --------
Total deposits 411,584 386,670
371,756
Federal Home Loan Bank advances 17,000 12,000
12,000
Accrued expense and other liabilities 8,630 8,084
7,416
-------- --------
- --------
Total liabilities 437,214 406,754
391,172
Shareholders' equity
Preferred stock-$1 par value,
2,000,000 shares authorized, none outstanding
Common stock-no par value, 5,000,000 shares authorized,
shares outstanding: 9/30/98-2,957,398;
12/31/97-2,914,622; 9/30/97-2,900,014 30,258 29,525
21,396
Retained earnings 8,489 6,321
13,371
Net unrealized gain on securities, net of tax 995 353
324
-------- --------
- --------
Total shareholders' equity 39,742 36,199
35,091
-------- --------
- --------
Total liabilities and shareholders' equity $476,956 $442,953
$426,263 ========
======== ========
See accompanying notes.
</TABLE>
<PAGE> 3
Empire Banc Corporation - Consolidated Statement of Income
<TABLE>
<CAPTION>
(In thousands, except share data) Quarter Ending
Year to Date
September 30
September 30
1998 1997
1998 1997
<S> <C> <C> <C>
<C>
Interest income
Loans, including fees $ 7,343 $ 6,950 $
21,506 $ 19,887
Taxable securities 1,615 1,453
4,558 4,266
Tax-exempt securities 67 60
190 182
Federal funds sold 305 106
624 174
------- ------- ------
- - ------
Total interest income 9,330 8,569
26,878 24,509
Interest expense
Deposits 3,985 3,685
11,488 10,575
Federal funds purchased -- 1
8 37
Federal Home Loan Bank advances 259 176
737 543
------- ------- -------
- - -------
Total interest expense 4,244 3,862
12,233 11,155
------- ------- -------
- - -------
Net interest income 5,086 4,707
14,645 13,354
Provision for loan losses 552 188
917 981
------- ------- -------
- - -------
Net interest income after
provision for loan losses 4,534 4,519
13,728 12,373
Non-interest income
Mortgage sales and servicing 650 456
2,141 1.178
Service charges on deposit accounts 368 380
1,094 1,056
Trust income 684 672
2,181 1,964
Other service charges and fees 225 228
574 497
Other income 89 91
317 264
Security gains(losses) 138 --
138 (6)
------- ------- -------
- - ------
Total non-interest income 2,154 1,827
6,445 4,953
Non-interest expense
Salaries and employee benefits 2,593 2,805
8,854 7,199
Premises & equipment 585 508
1,673 1,457
Other 1,130 996
3,149 2,995
------- ------- ------
- - ------
Total non-interest expense 4,308 4,309
13,676 11,651
------- ------- ------
- - ------
Income before federal income taxes 2,380 2,037
6,497 5,675
Federal income taxes 797 676
2,160 1,881
------- ------- ------
- - ------
Net income $ 1,583 $ 1,361 $
4,337 $ 3,794
======= =======
======= =======
- ----------------------------------------------------------------------------
- ------------
Earnings per share $ .53 $ .47 $
1.47 $ 1.31
Diluted earnings per share .50 .44
1.37 1.22
Average share outstanding 2,967,391 2,906,220
2,957,770 2,898,175
Diluted average shares outstanding 3,168,733 3,128,096
3,163,202 3,120,711
- ----------------------------------------------------------------------------
- ------------
See accompanying notes.
</TABLE>
<PAGE> 4
Empire Banc Corporation - Consolidated Statement of Comprehensive Income
<TABLE>
<CAPTION>
Quarter Ending
Year to Date
September 30
September 30
(in thousands) 1998 1997
1998 1997
<S> <C> <C> <C>
<C>
- ----------------------------------------------------------------------------
- ------------
Net income $ 1,583 $ 1,361 $
4,337 $ 3,794
Other Comprehensive income, net of tax:
Unrealized gains/(losses) on available
for sale securities arising during period 725 192
733 146
Reclassification adjustment for amounts
realized on security sales included in
net income (91) --
(91) 4
------- ------- ------
- - -------
Comprehensive income $ 2,217 $ 1,553 $
4,979 $ 3,944
======= =======
======= =======
- ----------------------------------------------------------------------------
- ------------
See accompanying notes.
</TABLE>
<PAGE> 5
Empire Banc Corporation - Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year to
Date September 30
(in thousands) 1998
1997
<S> <C>
<C>
Operating activities
Net income $ 4,337
$ 3,794
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 683
527
Provision for loan losses 917
981
Mortgage loans originated for sale (98,643)
(40,647)
Sale of mortgage loans 98,789
37,842
Net realized (gain) loss on securities (138)
6
Net amortization/accretion on securities (21)
91
Change in:
Deferred taxes --
281
Interest receivable (358)
70
Interest payable 70
106
Other assets (328)
(342)
Other liabilities 615
1,014
-------
- -------
Total adjustments 1,586
(71)
-------
- ------- Net cash from operating activities
5,923 3,723
Investing activities
Securities available for sale
Proceeds from sales 144
992
Proceeds from maturities 19,098
11,220
Purchases (31,318)
(15,146)
Securities held to maturity
Proceeds from sales --
1,986
Proceeds from maturities 18,422
7,261
Purchases (24,970)
(4,039)
Loans granted net of repayments (13,296)
(26,128)
Premises and equipment expenditures (1,341)
(1,026)
-------
- -------
Net cash from investing activities (33,261)
(21,880)
Financing activities
Net increase in deposits 24,914
27,402
Net decrease in federal funds purchased --
(5,500)
Cash dividends paid (1,373)
(1,838)
Federal Home Loan Bank advances 5,000
- --
Issuance of common stock 205
316
-------
- -------
Net cash from financing activities 28,009
20,380
-------
- -------
Net change in cash and cash equivalents 671
2,223
Beginning cash and cash equivalents 32,233
22,603
-------
- -------
Ending cash and cash equivalents $32,904
24,826
=======
=======
- ----------------------------------------------------------------------------
- --------------
Interest paid $12,163
$11,049
Income taxes paid 2,154
1,997
- ----------------------------------------------------------------------------
- --------------
See accompany notes.
</TABLE>
<PAGE> 6
Empire Banc Corporation - Consolidated Statement of Changes in
Shareholders' Equity
<TABLE>
<CAPTION>
(In thousands) 1998
1997
<S> <C>
<C>
- ----------------------------------------------------------------------------
- ---------------
Balance January 1 $36,199
$32,673
Net income 4,337
3,793
Common stock issued 733
316
Dividends declared (2,169)
(1,842)
Net change in security valuation 642
150
-------
- -------
Balance September 30 $39,742
$35,091
=======
=======
- ----------------------------------------------------------------------------
- ---------------
</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, 1997.
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 Under a new accounting standard, comprehensive income is now
reported
for all periods. Comprehensive income includes both net income and other
comprehensive income. Other comprehensive income includes the change in
unrealized gains and losses on securities available for sale.
Note-3 As of December 31, 1997, the Corporation's common stock had a par
value of $5 and 5,000,000 share were authorized. In the second quarter of
1998 the par value of common stock was changed from $5 to no par by the
Corporation's Board of Directors.
<PAGE> 7
Note-4 Earnings per share is based on weighted-average common and
contingently issuable shares outstanding. Diluted earnings per share
further assumes the dilutive effect of additional common shares issuable
under stock options. All per share data is restated for the 3 for 2 stock
split in the second quarter of 1998. A reconciliation of earnings per
share and diluted earnings per share is presented below:
Nine Months Ending
September 30,
1998 1997
- ----------------------------------------------------------------
Net income (in thousands) $ 4,337 $ 3,794
======= =======
Earnings per share
Shares
Average common shares outstanding 2,948,548 2,892,583
Average contingently issuable shares 9,222 5,592
--------- ---------
2,957,770 2,898,175
========= =========
Earnings per share $ 1.47 $ 1.31
====== ======
Diluted earnings per share
Shares
Average shares outstanding,
per above 2,957,770 2,898,175
Effect of stock options 205,432 222,536
--------- ---------
3,163,202 3,120,711
========= =========
Diluted earnings per share $ 1.37 $ 1.22
====== ======
- ----------------------------------------------------------------
<PAGE> 8
Management's Discussion and Analysis
Summary
Empire Banc Corporation's 1998 third quarter earnings were $1,583,000,
a 16% increase over 1997 third quarter results. Diluted earnings per
share increased from $.44 per share in 1997 to $.50 in 1998. The return
on assets was 1.34% for the quarter versus 1.29% in 1997. The return on
equity was 16.39% compared to 15.75% in the third quarter 1997.
Net income for the nine months ended September 30, 1998 was $4,337,000 or
$1.37 per share compared to the $3,794,000 or $1.22 per share earned in the
first three quarters of 1997, a 14% increase in earnings. Return on average
assets for the first nine months was 1.28%, as compared to 1.24% in the
previous year. The return on average equity was 15.30%, in comparison to
the 15.03% earned in the first nine months of 1997.
The 1998 performance was achieved with significant growth in total revenues
of 15% over the first nine months of 1997. Net interest income grew 10% as
a result of the growth in average earning assets. The continuing favorable
interest rate environment in 1998 has led to record home lending resulting
in an 82% increase in revenues from the origination, sales and servicing of
mortgage loans. The increase in mortgage revenues, coupled with an 11%
increase in trust revenues, resulted in a 30% increase in non-interest
income. As a result of these increased activity levels, non-interest
expense increased 17% for the same period.
In measuring asset quality, net loan losses were .17% of average loans for
the first nine months of 1998 and non-performing assets were .51% of loans
at September 30, 1998. The allowance for loan losses increased $850,000
during the last twelve months and was 1.48% of loans at September 30, 1998.
Total assets have increased $51 million, or 12%, during the last twelve
months and total $477 million at September 30, 1998, Total deposits grew
11% to $412 million and total loans increased 6% to $315 million during the
same period.
Total shareholders' equity increased over 13% since September 1997 to total
$39.7 million at September 30, 1998, improving book value per share to
$13.44 from the $12.10 at September 30, 1997. In the second quarter of
1998 a three for two stock split was declared and paid to shareholders.
<PAGE> 9
Quantitative and qualitative disclosures about market risk
There have been no material changes in the nine months ended September 30,
1998.
Year 2000 issue
The Corporation has a comprehensive written Year 2000 plan approved by the
Board of Directors and a Year 2000 management committee overseeing the
efforts. The plan includes all the facets of our business from the physical
plant and equipment issues through all of our computer hardware and
software,
and major customers.
The Corporation uses major external third party vendors to the banking
industry for the mainframe and all personal computer hardware and software.
These well known, national third party providers for the mission critical
systems have provided written assurances that they are Year 2000 ready and
their systems have been fully tested. The Corporation does not use any
custom programmed software. Another area under review are systems which
utilize embedded microchips, such as in heating, air conditioning, security
and other related systems. Vendors for these systems have been contacted
to evaluate their Year 2000 compliance and assess any potential risk.
While the Corporation's current UNISYS mainframe hardware and software is
Year 2000 compliant, a new system is scheduled to be installed during the
first quarter of 1999, substantially increasing the capacity and efficiency
of operations. This new system will allow the testing of this banking
software from Information Technology, Inc. during the installation of the
hardware, without any disruption to daily processing and customer service.
All testing will be completed by June 30, 1999 within the FFIEC published
guidelines and no disruption in service due to a Year 2000 issue is
anticipated.
We have addressed the financial implications of preparing for the Year 2000.
The readiness of the software used for mission critical systems is included
in the cost of our normal maintenance of those systems and we do not expect
any additional charges. Some minor hardware replacements will be needed.
Those expenditures will be less than $50,000. The staffing needed to
complete the testing and implementation plan has been identified and is
available. Other new software installations over the next 15 months will
be restricted to assure that we can complete our Year 2000 plan.
Since mission critical systems are Year 2000 compliant, system failure that
would require a new provider and a conversion to a new system is not
expected. During the second quarter of 1999, business resumption plans
will be developed as testing is completed. The detail and depth of those
plans will depend on results of the final tests and our resulting risk
assessment.
Major loan and deposit customers have been surveyed to evaluate the level
of Year 2000 planning and readiness and to assess any potential risk.
The Board of Directors, executive management team and the Office of the
Comptroller of the Currency are updated on a quarterly basis. We do not
anticipate any material affect on our financial performance because of
the systematic approach we have used to prepare Empire Banc Corporation
for the Year 2000 date change.
<PAGE> 10
<TABLE>
<CAPTION>
Net Interest Income
Quarter Ending Nine Months
Ending
September 30
September 30
1998 1997 1998
1997
<S> <C> <C> <C>
<C>
- ----------------------------------------------------------------------------
- ------
Interest income $9,330 $8,569 $26,878
$24,509
Taxable equivalent adjustment 36 34 106
96
------ ------ ------- -
- ------
Interest income (TE) 9,366 8,603 26,984
24,605
Interest expense 4,244 3,862 12,233
11,155
------ ------ ------- -
- ------
Net interest income (TE) $5,122 $4,741 $14,751
$13,450
====== ====== =======
=======
Increase (decrease) due to change in:
Volume $ 459 $ 481 $ 1,337 $
1,260
Rate (78) 22 (36)
(196)
------ ------ ------- -
- ------
Total $ 381 $ 503 $ 1,301 $
1,064
====== ====== =======
=======
- ----------------------------------------------------------------------------
- ------
</TABLE>
Third quarter net interest income on a taxable equivalent ("TE") basis
was $5.1 million, an 8% increase from the $4.7 million earned in the year
ago quarter. Average earning assets increased 12% or $48 million
while the net interest margin decreased from 4.77% to 4.60% in the quarter
to quarter comparison. Incremental funding for the earning asset growth
came mainly from the $30 million or 10% growth in interest bearing deposits.
The average rate paid on interest bearing funds was 4.71%, 4 bp less than
the third quarter of 1997. Non-interest bearing funds supporting earning
assets increased 17% or $12 million compared to last year's third quarter.
Net interest income (FTE) has increased $1.3 million, or 10% to $14.8
million for the first nine months of 1998 as average earning assets
increased $41 million from 1997. The year to date net interest margin
is 4.67% for 1998, compared to the 4.72% recorded in the first nine months
of 1997. The year to date average rate earned on assets at 8.54% is 9 bp
less than last year and the average rate paid on interest-bearing funds of
4.72% is 1 bp less than the prior year.
Average outstanding loans have increased $21 million, securities $9 million
and overnight funds sold $11 million from 1997. Total deposits have
increased
on average $36 million from 1997 and average $390 million for the first nine
months of 1998. Average Money market deposits have grown by $16 million,
consumer CDs $5 million and savings and interest-checking accounts by $7
million from 1997. Funding from Federal Home Loan Bank advances has
increased on average $4 million.
<PAGE> 11
Net Interest Income
Average Balances, Interest Income/Expense, Average Rates
<TABLE>
<CAPTION>
Quarter Ending September 30, 1998
1997
- ----------------------------------------------------------------------------
- --------------
Average Average
(Taxable equivalent, Balance Interest Rate Balance
Interest Rate
in thousands) --------------------------- ---------------
- --------------
<S> <C> <C> <C> <C> <C>
<C>
Assets
Loans, including fees*,** $309,889 $7,349 9.41% $291,543
$6,956 9.47%
Securities
Taxable 104,548 1,615 6.18 90,238
1,453 6.44
Tax-exempt* 5,556 97 6.85 4,986
88 7.07
-------- ------ -------- -
- -----
Total 110,213 1,712 6.21 95,224
1,541 6.47
Federal funds sold 22,006 305 5.42 7,622
106 5.43
-------- ------ -------- -
- -----
Total earning assets\
interest income 442,108 9,366 8.41% 394,389
8,603 8.65%
Cash and due from banks 18,998 16,038
Other assets 12,492 11,483
-------- --------
Total $473,598 $421,910
======== ========
Liabilities and Equity
CDs over $100,000 $ 11,744 154 5.13% $ 11,191
153 5.34%
Savings & interest checking 71,649 400 2.22 64,535
368 2.26
Money market deposits 118,061 1,333 4.48 100,774
1,128 4.44
Consumer CDs 139,383 2,098 5.97 133,882
2,036 6.03
-------- ------ -------- -
- -----
Total 340,837 3,985 4.64 310,382
3,685 4.71
Federal funds purchased 9 -- 5.75 70
1 5.87
FHLB advances 17,000 259 6.04 12,000
176 5.83
-------- ------ -------- -
- -----
Total interest-bearing
funds/interest expense 357,846 4,244 4.71% 322,452
3,862 4.75%
-------- ------ -------- -
- -----
Demand deposits 70,020 57,936
Other liabilities 7,088 6,949
Shareholders' equity 38,644 34,573
-------- --------
Total $473,598 $421,910
======== ========
Net interest spread (TE) 3.70%
3.90%
====
====
Net interest income (TE) $5,122
$4,741
======
======
Net interest margin (TE) 4.60%
4.77%
====
====
- ----------------------------------------------------------------------------
- --------------
* 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> 12
Net Interest Income
Average Balances, Interest Income/Expense, Average Rates
<TABLE>
<CAPTION>
Year to date September 30, 1998
1997
- ----------------------------------------------------------------------------
- --------------
Average Average
(Taxable equivalent, Balance Interest Rate Balance
Interest Rate
in thousands) --------------------------- ---------------
- --------------
<S> <C> <C> <C> <C> <C>
<C>
Assets
Loans, including fees*,** $304,509 $21,528 9.45% $283,283
$19,902 9.39%
Securities
Taxable 97,502 4,558 6.23 88,672
4,266 6.41
Tax-exempt* 5,227 274 6.99 4,928
263 7.13
-------- ------- -------- --
- -----
Total 102,729 4,832 6.27 93,600
4,529 6.45
Federal funds sold 15,194 624 5.42 4,276
174 5.37
-------- ------- -------- --
- -----
Total earning assets\
interest income 422,432 26,984 8.54% 381,159
24,605 8.63%
Cash and due from banks 17,831 14,537
Other assets 12,171 11,219
-------- --------
Total $452,434 $406,915
======== ========
Liabilities and Equity
CDs over $100,000 $ 10,689 417 5.15% $ 10,810
428 5.22%
Savings & interest checking 70,966 1,186 2.23 63,745
1,053 2.21
Money market deposits 109,290 3,647 4.46 93,438
3,037 4.35
Consumer CDs 138,897 6,238 6.01 134,279
6,057 6.03
-------- ------- -------- --
- -----
Total 329,842 11,488 4.66 302,272
10,575 4.67
Federal funds purchased 179 8 5.85 870
37 5.65
FHLB advances 16,341 737 6.03 12,293
543 5.91
-------- ------- -------- --
- -----
Total interest-bearing
funds/interest expense 346,362 12,233 4.72% 315,435
11,155 4.73%
-------- ------- -------- --
- -----
Demand deposits 59,788 51,203
Other liabilities 8,498 6,525
Shareholders' equity 37,786 33,652
-------- --------
Total $452,434 $406,915
======== ========
Net interest spread (TE) 3.82%
3.90%
====
====
Net interest income (TE) $14,751
$13,450
=======
=======
Net interest margin (TE) 4.67%
4.72%
====
====
- ----------------------------------------------------------------------------
- --------------
* 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> 13
<TABLE>
<CAPTION>
Non-Interest Income
Quarter Ending Nine Months Ending
September 30 September 30
Increase (decrease) Increase
(decrease)
Amount % Amount
%
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
- -
(In thousands)
Mortgage sales and servicing $ 194 43% $ 963
82%
Service charges on deposit accounts (12) (3) 38 4
Trust income 12 2 217 11
Other service charges and fees (3) (1) 77 15
Other income (2) (2) 53 20
Securities (losses) gains 138 -- 144 --
----- --- ------ ---
$ 327 18% $1,492
30%
===== === ====== ===
- ----------------------------------------------------------------------------
- -
</TABLE>
Non-interest income for the third quarter totaled $2.2 million, a $327,000
or 18% increase from the third quarter of 1997. The recent rate
environment has led to record mortgage loan activity in 1998, resulting
in a 43% increase in mortgage related fee income for the quarter. A security
gain of $138,000 was recorded for the quarter.
Non-interest income has grown $1.5 million, or 30%, for the first nine
months of 1998 over last year. This growth was due mainly to the $963,000,
or 82% increase in mortgage related fee income. In addition trust income
has grown $217,000, or 11% from the prior year. Consumer credit insurance,
automated teller machine fees and revenue from non deposit investment
products also showed favorable increases from the prior year.
<PAGE> 14
<TABLE>
<CAPTION>
Non-Interest Expense
Quarter Ending Nine Months Ending
September 30 September 30
Increase (decrease) Increase
(decrease)
Amount % Amount %
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
- -
(In thousands)
Salaries and employee benefits $ (212) (8)% $1,655
23%
Premises & equipment 77 15 216 15
Other 134 13 154 5
------ ---- ------ ----
$ (1) --% $2,025
17%
====== ==== ====== ====
- ----------------------------------------------------------------------------
- -
</TABLE>
Non-interest expenses for the third quarter totaled $4.3 million,
unchanged from the third quarter of 1997. A reduction in expense of
$212,000 in personnel expense was attributable to benefit costs related
to the decrease in the Corporation's stock price, offset by increased
other personnel related expense influenced by merit increases and activity
based commissions. Increased premises and equipment expense for the quarter
was related to costs associated with technology improvements. Other expense
increases for the quarter were driven by activity based expenses.
Non-interest expense increased $2 million or 17% from the comparable prior
period, essentially due to higher costs associated with personnel related
commission expense, activity based expenses and benefit costs related to
the increase in the Corporation's stock price.
Asset Quality
<TABLE>
<CAPTION>
Non-Performing Assets
9/30/98 12/31/97 9/30/97
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
Non-accrual loans $1,055 $ 893 $1,136
Renegotiated loans 369 210 112
------ ------ ------
Total non-performing loans 1,424 1,103 1,248
Other real estate 187 177 --
------ ------ ------
$1,611 $1,280 $1,248
====== ====== ======
Non-performing assets
as a percent of total loans .51% .42% .42%
Accruing loans 90 days or more past due $ 167 $ 367 $ 478
- ---------------------------------------------------------------------------
</TABLE>
Total non-performing assets at September 30, 1998 increased $363,000 or
29% from September of 1997. Loans identified as potential problem loans
totaled $2.6 million at September 30, 1998, $1.5 million at December 31,
1997 and $2.4 million at September 30, 1997.
<PAGE> 15
<TABLE>
<CAPTION>
Allowance for Loan Losses
Quarter Ending Nine Months Ending
September 30 September 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------
(In thousands)
Balance beginning of period $ 4,350 $ 4,075 $ 4,125 $ 3,525
Charge-offs 314 542 563 888
Recoveries 62 79 171 182
------- ------- ------- -------
Net charge-offs 252 463 392 706
Provision charged to operations 552 188 917 981
------- ------- ------- -------
Balance September 30 $ 4,650 $ 3,800 $ 4,650 $ 3,800
======= ======= ======= =======
- ---------------------------------------------------------------------------
9/30/98 12/31/97 9/30/97
------- -------- -------
Net loan losses
as a percent of average loans .17% .30% .33%
Allowance for loan losses as a
percent of end of period loans 1.48% 1.36% 1.28%
- ---------------------------------------------------------------------------
</TABLE>
For the current quarter, net charge-offs decreased $211,000 from the same
period in 1997. The allowance for loan losses has increased $850,000
over the last twelve months and was 1.48% of total loans and 288% of
non-performing assets as of September 30, 1998. The increase in the
allowance for loan losses is due to the growth in consumer and commercial
loans.
The provision for loan losses was $917,000 and net loan charge-offs
were $392,000 for the first nine months of 1998 compared to a provision of
$981,000 and net charge-offs of $706,000 in 1997. Net loan losses were
.17% of average loans for 1998 versus .33% for the first nine months of
1997.
Under accounting guidance regarding impaired loans, at September 30, 1998
there were $1.2 million in impaired loans with $350,000 for which
an allowance for credit losses is allocated. Impaired loans totaled
$874,000 and $1.0 million at December 31, 1997 and September 30, 1997.
<PAGE> 16
Investment Securities
<TABLE>
<CAPTION>
Held-to-maturity
Unrealized
Cost Gain Loss Fair Value
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------
U.S. government and agency $ 5,529 $ 104 $ -- $ 5,633
Commercial paper 4,934 -- -- 4,934
State and municipal 11,070 296 -- 11,366
Corporate notes 18,057 231 -- 18,288
------- ------ ----- -------
Total $39,590 $ 631 $ -- $40,221
======= ====== ===== =======
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Available-for-sale
Unrealized
Cost Gain Loss Fair Value
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------
U.S. government and agency $50,392 $ 944 $ -- $51,336
Commercial paper 1,980 -- -- 1,980
State and municipal 1,042 39 -- 1,081
Equity 2,324 200 -- 2,524
------- ----- ----- -------
Total $45,738 $1,183 $ -- $56,921
======= ====== ===== =======
Mortgage-backed $21,674 $ 327 $ 3 $21,998
======= ===== ===== =======
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Security Sales
Nine Months Ended
9/30/98 9/30/97
<S> <C> <C>
- ----------------------------------------------------------------
Available for Sale
Proceeds $ 144,000 $ 992,000
Gains 138,000 --
Losses -- 7,000
Held to Maturity
Proceeds -- 1,986,000
Gains -- 1,000
Losses -- --
- ----------------------------------------------------------------
</TABLE>
<PAGE> 17
Shareholders' Equity and Capital Resources
Total equity at September 30, 1998 was $39.7 million, compared to $36.2
million and $35.1 million at December 31, 1997 and September 30, 1997.
The Corporation declared $739,000, or $.25 per share, in dividends
for the third quarter of 1998 as compared to $615,000, or $.21 per
share in the third quarter of 1997. All per share amounts reflect
the three for two stock split declared in the second quarter of 1998.
Cash dividends for the first nine months of 1998 were $.73 per share,
a 14 percent increase over the first three quarters of 1997.
Recorded in stockholders' equity were unrealized gains of $642,000 during
1998 and unrealized losses of $150,000 in 1997. The unrealized gains and
losses of the investment portfolio are not expected to cause a material
change in future income or investment yields.
<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
----------------- -----------------------------
- ---
9/30/98 9/30/98 12/31/97
9/30/97
-------- -------- -------- -----
- ---
<S> <C> <C> <C> <C>
Tier 1 leverage $ 23,645 $ 38,420 $ 35,489 $
34,400
Tier 1 risk-based 20,776 38,420 35,489
34,400
Total risk-based 34,626 42,752 39,460
38,175
Risk-based calculated assets
Risk-weighted assets 346,260 317,559
302,011
Quarterly average assets 472,903 437,768
421,408
Risk-based ratios
Tier 1 leverage 5% 8.12% 8.11%
8.16%
Tier 1 risk-based 6% 11.10% 11.18%
11.39%
Total risk-based 10% 12.35% 12.43%
12.64%
</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> 18
Empire Banc Corporation
Part II - Other Information
Item 4. Submission of matters to a vote of security holders
(a) 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: November 13, 1998
/s/ James E. Dutmers, Jr.
---------------------------------------
James E. Dutmers, Jr.
Chairman and Chief Executive Officer
Date: November 13, 1998
/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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 18,455
<INT-BEARING-DEPOSITS> 149
<FED-FUNDS-SOLD> 14,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 78,919
<INVESTMENTS-CARRYING> 39,590
<INVESTMENTS-MARKET> 40,221
<LOANS> 315,227
<ALLOWANCE> 4,650
<TOTAL-ASSETS> 476,956
<DEPOSITS> 411,584
<SHORT-TERM> 3,000
<LIABILITIES-OTHER> 8,630
<LONG-TERM> 14,000
0
0
<COMMON> 30,258
<OTHER-SE> 9,484
<TOTAL-LIABILITIES-AND-EQUITY> 476,956
<INTEREST-LOAN> 21,506
<INTEREST-INVEST> 4,748
<INTEREST-OTHER> 624
<INTEREST-TOTAL> 26,878
<INTEREST-DEPOSIT> 11,488
<INTEREST-EXPENSE> 12,233
<INTEREST-INCOME-NET> 14,645
<LOAN-LOSSES> 917
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 13,676
<INCOME-PRETAX> 6,497
<INCOME-PRE-EXTRAORDINARY> 6,497
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,337
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.37
<YIELD-ACTUAL> 4.67
<LOANS-NON> 1,055
<LOANS-PAST> 167
<LOANS-TROUBLED> 367
<LOANS-PROBLEM> 2,601
<ALLOWANCE-OPEN> 4,125
<CHARGE-OFFS> 563
<RECOVERIES> 171
<ALLOWANCE-CLOSE> 4,650
<ALLOWANCE-DOMESTIC> 4,650
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,417
</TABLE>
