<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, 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 2,944,773 shares of common stock, no par value, outstanding as
of June 30, 1998.
<PAGE> 2
Empire Banc Corporation - Consolidated Balance Sheet
<TABLE>
<CAPTION>
(In thousands, except share data) June 30 December
31 June 30
1998
1997 1997
<S> <C> <C>
<C>
Assets
Cash and due from banks $ 22,233 $
25,433 $ 24,530
Federal funds sold 18,200
6,800 2,480
-------- -------
- - --------
Cash and cash equivalents 40,433
32,233 27,010
Securities
Available for sale, at fair value 46,323
42,183 34,489
Held to maturity 33,886
32,979 31,138
(fair value: 6/30/98-$34,097,
12/31/97-$33,234,6/30/97-$31,277)
Mortgage-backed securities
Available for sale, at fair value 23,898
23,592 24,592
Loans 307,606
302,469 290,774
Less: allowance for loan losses (4,350)
(4,125) (4,075)
-------- -------
- - --------
Net loans 303,256
298,344 286,699
Premises and equipment, net 5,126
4,985 4,506
Other real estate 282
177 --
Accrued income and other assets 9,122
8,460 7,262
-------- -------
- - --------
Total assets $462,326
$442,953 $415,696
========
======== ========
Liabilities
Deposits
Non-interest-bearing $ 67,746 $
62,492 $ 60,274
Interest-bearing 330,499
324,178 302,736
-------- -------
- - --------
Total deposits 398,245
386,670 363,010
Federal Home Loan Bank advances 17,000
12,000 12,000
Accrued expense and other liabilities 9,131
8,084 6,579
-------- -------
- - --------
Total liabilities 424,376
406,754 381,589
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: 6/30/98-2,944,773;
12/31/97-2,914,622; 6/30/97-2,897,414 29,943
29,525 21,350
Retained earnings 7,646
6,321 12,625
Net unrealized gain on securities, net of tax 361
353 132
-------- -------
- - --------
Total shareholders' equity 37,950
36,199 34,107
-------- -------
- - --------
Total liabilities and shareholders' equity $462,326
$442,953 $415,696
======== ======== ========
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
June 30
June 30
1998 1997
1998 1997
<S> <C> <C> <C>
<C>
Interest income
Loans, including fees $ 7,082 $ 6,682 $
14,163 $ 12,937
Taxable securities 1,529 1,391
2,943 2,813
Tax-exempt securities 52 50
123 122
Federal funds sold 177 40
319 68
------- ------- ------
- - ------
Total interest income 8,840 8,163
17,548 15,940
Interest expense
Deposits 3,754 3,493
7,503 6,890
Federal funds purchased -- 14
8 36
Federal Home Loan Bank advances 256 174
478 367
------- ------- -------
- - -------
Total interest expense 4,010 3,681
7,989 7,293
------- ------- -------
- - -------
Net interest income 4,830 4,482
9,559 8,647
Provision for loan losses 83 395
365 793
------- ------- -------
- - -------
Net interest income after
provision for loan losses 4,747 4,087
9,194 7,854
Non-interest income
Mortgage sales and servicing 771 398
1,491 722
Service charges on deposit accounts 368 346
726 676
Trust income 737 640
1,497 1,292
Other service charges and fees 203 139
349 269
Other income 118 88
228 173
Security gains(losses) -- -- -
- - (6)
------- ------- -------
- - ------
Total non-interest income 2,197 1,611
4,291 3,126
Non-interest expense
Salaries and employee benefits 3,325 2,286
6,261 4,394
Premises & equipment 575 466
1,088 949
Other 918 1,068
2,019 1,999
------- ------- ------
- - ------
Total non-interest expense 4,818 3,820
9,368 7,342
------- ------- ------
- - ------
Income before federal income taxes 2,126 1,878
4,117 3,638
Federal income taxes 709 626
1,363 1,205
------- ------- ------
- - ------
Net income $ 1,417 $ 1,252 $
2,754 $ 2,433
======= =======
======= =======
- ----------------------------------------------------------------------------
- ------------
Earnings per share $ .48 $ .43 $
.93 $ .84
Diluted earnings per share .45 .40
.87 .78
Average share outstanding 2,954,457 2,900,510
2,952,960 2,894,153
Diluted average shares outstanding 3,162,115 3,123,879
3,159,329 3,117,019
- ----------------------------------------------------------------------------
- ------------
See accompanying notes.
</TABLE>
<PAGE> 4
Empire Banc Corporation - Consolidated Statement of Comprehensive Income
<TABLE>
<CAPTION>
Quarter Ending
Year to Date
June 30
June 30
(in thousands) 1998 1997
1998 1997
<S> <C> <C> <C>
<C>
- ----------------------------------------------------------------------------
- ------------
Net income $ 1,417 $ 1,252 $
2,754 $ 2,433
Other Comprehensive income, net of tax:
Unrealized gains/(losses) on available
for sale securities arising during period 6 239
8 (42)
Reclassification adjustment for amounts
realized on security sales included in
net income -- -- -
- - 4
------- ------- ------
- - -------
Comprehensive income $ 1,423 $ 1,491 $
2,762 $ 2,395
======= =======
======= =======
- ----------------------------------------------------------------------------
- ------------
See accompanying notes.
</TABLE>
<PAGE> 5
Empire Banc Corporation - Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year
to Date June 30
(in thousands) 1998
1997
<S> <C>
<C>
Operating activities
Net income $ 2,754
$ 2,433
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 444
346
Provision for loan losses 365
793
Mortgage loans originated for sale (68,577)
(24,854)
Sale of mortgage loans 70,420
23,020
Net realized loss on securities --
6
Net amortization/accretion on securities (31)
61
Change in:
Deferred taxes --
281
Interest receivable (199)
(197)
Accrued expense and other liabilities 1,272
283
Other assets (572)
(328)
-------
- -------
Total adjustments 3,122
(589)
-------
- ------- Net cash from operating activities
5,876 1,844
Investing activities
Securities available for sale
Proceeds from sales --
992
Proceeds from maturities 13,742
7,588
Purchases (18,198)
(5,984)
Securities held to maturity
Proceeds from sales --
1,986
Proceeds from maturities 12,782
4,245
Purchases (13,636)
(599)
Loans granted net of repayments (7,120)
(17,001)
Premises and equipment expenditures (585)
(867)
-------
- -------
Net cash from investing activities (13,015)
(9,640)
Financing activities
Net increase in deposits 11,575
18,656
Net decrease in federal funds purchased --
(5,500)
Cash dividends paid (1,373)
(1,223)
Federal Home Loan Bank advances 5,000
- --
Issuance of common stock 137
270
-------
- -------
Net cash from financing activities 15,339
12,203
-------
- -------
Net change in cash and cash equivalents 8,200
4,407
Beginning cash and cash equivalents 32,233
22,603
-------
- -------
Ending cash and cash equivalents $40,433
27,010
=======
=======
- ----------------------------------------------------------------------------
- --------------
Interest paid $ 7,982
$ 7,221
Income taxes paid 1,425
1,079
- ----------------------------------------------------------------------------
- --------------
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 2,754
2,433
Common stock issued 418
270
Dividends declared (1,429)
(1,227)
Net change in security valuation 8
(42)
-------
- -------
Balance June 30 $37,950
$34,107
=======
=======
- ----------------------------------------------------------------------------
- ---------------
</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 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.
Note-3 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-4 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
Empire Banc Corporation
Financial Review
Second Quarter 1998
Compared with
Second Quarter 1997
Summary
Empire Banc Corporation's 1998 second quarter earnings were $1,417,000,
a 13% increase over 1997 second quarter results. Diluted earnings per
share increased from $.40 per share in 1997 to $.45 in 1998. The return
on assets was 1.27% for the quarter versus 1.24% in 1997. The return on
equity was 15.02% compared to 14.93% in the prior year quarter.
The current year's results reflect the impact of an increase of 8% in net
interest income, attributable to an 10% growth in average earning assets.
Average loans for the quarter increased 6% to $301 million and deposits
8% to $325 million. Non-interest income increased 36% in the quarter-to
quarter comparison, with substantial growth in fees related to mortgage
lending and trust revenues. With these increased activity levels, non-
interest expense increased 26% over the second quarter of 1997.
The reserve for loan losses was 1.41% at June 30, 1998 comparable to the
prior year. Net loan losses of .09% and non-performing asset ratio of .62%
were recorded for the first six months of 1998.
Total shareholders' equity increased over 11% during the last twelve months
to $38.0 million, improving book value per share to $12.89 from the $11.77
at June 30, 1997. In the second quarter of 1998 a three for two stock split
was declared and paid to shareholders.
<PAGE> 8
<TABLE>
<CAPTION>
Net Interest Income
Quarter Ending Six Months
Ending
June 30 June
30
1998 1997 1998
1997
<S> <C> <C> <C>
<C>
- ----------------------------------------------------------------------------
- ------
Interest income $8,840 $8,163 $17,548
$15,940
Taxable equivalent adjustment 30 26 70
62
------ ------ ------- -
- ------
Interest income (TE) 8,870 8,189 17,618
16,002
Interest expense 4,010 3,681 7,989
7,293
------ ------ ------- -
- ------
Net interest income (TE) $4,860 $4,508 $ 9,629 $
8,709
====== ====== =======
=======
Increase (decrease) due to change in:
Volume $ 409 $ 467 $ 880 $
772
Rate (57) (49) 40
(211)
------ ------ ------- -
- ------
Total $ 352 $ 418 $ 920 $
561
====== ====== =======
=======
- ----------------------------------------------------------------------------
- ------
</TABLE>
Second quarter net interest income on a taxable equivalent ("TE") basis
was $4.9 million, an 8% increase from the $4.5 million earned in the year
ago quarter. Average earning assets increased 10% or $39 million
while the net interest margin decreased from 4.79% to 4.68% in the quarter
to quarter comparison.
Average loans increased $18 million or 6%, to $301 million for the
current quarter. The consumer loan portfolio, fueled primarily with home-
equity lending has increased 9 million or 11%. Average commercial loans
have increased $6 million or 5% and the mortgage portfolio averaged $2
million or 3% more. The average rate earned on the loan portfolio was
9.44% a 2-basis points ("bp") change from the second quarter of 1997.
The security portfolio grew $11 million or 13% in the quarter to quarter
comparison with a 2 bp change in the rate earned. Average overnight funds
sold increased $10 million or 331% and the rate earned decreased 15 bp
from the prior year's second quarter.
Incremental funding for the earning asset growth came mainly from the
$29 million or 9% growth in interest bearing funds. Money market accounts
increased $14 million or 15%, savings and interest checking grew on average
$8 million or 12% and time deposits grew $4 million or 3%. Federal Home
Loan Bank advances also increased $5.0 million over 1997. The average rate
paid on interest bearing funds was 4.71%, comparable to the second quarter
of 1997. Non-interest bearing funds supporting earning assets increased
16% or $10 million compared to last year's second quarter.
<PAGE> 9
Net Interest Income
Average Balances, Interest Income/Expense, Average Rates
<TABLE>
<CAPTION>
Quarter Ending June 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*,** $301,209 $ 7,089 9.44% $283,649 $
6,686 9.46%
Securities
Taxable 97,970 1,529 6.24 86,744
1,391 6.41
Tax-exempt* 4,167 75 7.21 3,986
71 7.18
-------- -------- -------- --
- -----
Total 102,137 1,604 6.28 90,730
1,462 6.45
Federal funds sold 12,933 177 5.41 3,000
41 5.39
-------- -------- -------- --
- -----
Total earning assets\
interest income 416,279 8,870 8.55% 377,379
8,189 8.70%
Cash and due from banks 17,654 14,214
Other assets 12,305 11,218
-------- --------
Total $446,238 $402,811
======== ========
Liabilities and Equity
CDs over $100,000 $ 10,522 139 5.22% $ 11,211
149 5.25%
Savings & interest checking 71,496 398 2.23 63,861
346 2.17
Money market deposits 104,394 1,155 4.44 90,436
980 4.35
Consumer CDs 138,333 2,062 5.98 134,427
2,018 6.02
-------- ------ -------- -
- -----
Total 324,745 3,754 4.64 299,935
3,493 4.67
Federal funds purchased -- -- -- 919
14 5.77
FHLB advances 17,000 256 6.04 12,000
174 5.83
-------- ------ -------- -
- -----
Total interest-bearing
funds/interest expense 341,745 4,010 4.71% 312,854
3,681 4.72%
-------- ------ -------- -
- -----
Demand deposits 58,346 49,996
Other liabilities 8,409 6,411
Shareholders' equity 37,738 33,550
-------- --------
Total $446,238 $402,811
======== ========
Net interest spread (TE) 3.84%
3.98%
====
====
Net interest income (TE) $4,860
$4,508
======
======
Net interest margin (TE) 4.68%
4.79%
====
====
- ----------------------------------------------------------------------------
- --------------
* 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
Net Interest Income
Average Balances, Interest Income/Expense, Average Rates
<TABLE>
<CAPTION>
Year to date June 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*,** $301,775 $ 14,179 9.48% $279,084 $
12,946 9.35%
Securities
Taxable 93,920 2,943 6.04 87,876
2,813 6.40
Tax-exempt* 5,005 177 7.08 4,899
175 7.15
-------- -------- -------- --
- -----
Total 98,925 3,120 6.31 92,775
2,988 6.44
Federal funds sold 11,731 319 5.41 2,575
68 5.28
-------- -------- -------- --
- -----
Total earning assets\
interest income 412,431 17,618 8.61% 374,434
16,002 8.62%
Cash and due from banks 17,238 13,775
Other assets 12,007 11,085
-------- --------
Total $441,676 $399,294
======== ========
Liabilities and Equity
CDs over $100,000 $ 10,152 263 5.16% $ 10,617
275 5.16%
Savings & interest checking 70,620 786 2.24 63,344
685 2.18
Money market deposits 104,831 2,313 4.45 89,708
1,909 4.29
Consumer CDs 138,650 4,141 6.02 134,481
4,021 6.03
-------- ------ -------- -
- -----
Total 324,253 7,503 4.67 298,150
6,890 4.66
Federal funds purchased 267 8 5.85 1,277
36 5.64
FHLB advances 16,005 478 6.02 12,442
367 5.95
-------- ------ -------- -
- -----
Total interest-bearing
funds/interest expense 340,525 7,989 4.73% 311,869
7,293 4.72%
-------- ------ -------- -
- -----
Demand deposits 55,880 47,782
Other liabilities 7,918 6,457
Shareholders' equity 37,353 33,186
-------- --------
Total $441,676 $399,294
======== ========
Net interest spread (TE) 3.88%
3.90%
====
====
Net interest income (TE) $9,629
$8,709
======
======
Net interest margin (TE) 4.71%
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> 11
<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 $ 373 94% $ 769
107%
Service charges on deposit accounts 22 6 50 7
Trust income 97 15 205 16
Other service charges and fees 64 46 80 30
Other income 30 34 55 32
Securities (losses) gains -- -- 6 --
------ ---- ------ ----
$ 586 36% $1,165
37%
====== ==== ====== ====
</TABLE>
Non-interest income for the second quarter totaled $2.2 million, a $586,000
or 36% increase from the second quarter of 1997. The recent rate
environment has led to record mortgage loan activity in 1998, resulting
in a 94% increase in mortgage related fee income. Income from trust
activities continued its steady growth pattern, with a 15% increase in fee
income in the quarter to quarter comparison. Other service charges and
fees income, up 46% for the quarter, was influenced by gains in consumer
insurance fees and automated teller machine fees. The increase in other
income of 34% for the quarter was fueled by income related to the sale of
non deposit investment products.
<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 $1,039 45% $1,867
42%
Premises & equipment 109 23 139 15
Other (150) (14) 20 1
------ ---- ------ ----
$ 998 26% $2,026
28%
====== ==== ====== ====
</TABLE>
Non-interest expenses for the second quarter totaled $4.8 million, an
increase of $998,000, or 26%, from the second quarter of 1997. The
majority of increase is attributable to personnel related expenses,
influenced by activity based commissions, merit increases and benefit
costs related to the increase in the Corporation's stock price. Other
expense reduction was principally impacted by a reduction in non-earning
loan expenses.
<PAGE> 12
The Corporation continues its review and testing relating to the Year 2000
issue under a comprehensive plan to ensure compliance with Year 2000 date
requirements. A detailed plan has also been initiated to provide awareness
and review for customers in dealing with this issue. No material impact on
the future financial condition or results of operations is anticipated from
costs associated with addressing this issue.
Asset Quality
<TABLE>
<CAPTION>
Non-Performing Assets
6/30/98 12/31/97
6/30/97
------- --------
- -------
<S> <C> <C>
<C>
(In thousands)
Non-accrual loans $1,348 $ 893
$2,968
Renegotiated loans 277 210
285
------ ------
- ------
Total non-performing loans 1,625 1,103
3,253
Other real estate 282 177
- --
------ ------
- ------
Total non-performing assets $1,907 $1,280
$3,253
====== ======
======
Non-performing assets as a percent of total loans .62% .42%
1.12%
Accruing loans 90 days or more past due $ 315 $ 367
$ 55
</TABLE>
Total non-performing assets at June 30, 1998 decreased $1.3 million or
41% from June of 1997, primarily from the decrease in non-accrual loans.
The increase in problem loans as of June 1997 was due to one long term
credit relationship. This credit was resolved with a new borrower in the
third quarter of 1997. As a result, non-performing assets are .62% of
total loans at June 30, 1998 as compared to 1.12% in the prior year.
Loans identified as potential problem loans totaled $2.4 million at June
30, 1998, $1.5 million at December 31, 1997 and $2.5 million at June 30,
1997.
<PAGE> 13
<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 $ 4,325 $ 3,800 $ 4,125 $
3,525
Charge-offs 130 163 249
346
Recoveries 72 43 109
103
------- ------- ------- ---
- ----
Net charge-offs 58 120 140
243
Provision charged to operations 83 395 365
793
------- ------- ------- ---
- ----
Balance June 30 $ 4,350 $ 4,075 $ 4,350 $
4,075
======= ======= =======
=======
- ----------------------------------------------------------------------------
- --------
6/30/98 12/31/97
6/30/97
------- --------
- -------
Net loan losses as a percent of average loans .09% .30%
.17%
Allowance for loan losses as a percent of end
of period loans 1.41% 1.36%
1.40%
- ----------------------------------------------------------------------------
- -----------
</TABLE>
For the current quarter, net charge-offs decreased $62,000 from the same
period in 1997. The allowance for loan losses increased $275,000
over the last twelve months and was 1.41% of total loans as of June 30,
1998 and 228% of non-performing assets as of June 30, 1998. The increase
in the allowance for loan losses is due to the growth in loans over the
last twelve months.
Under accounting guidance regarding impaired loans, at June 30, 1998
there were $1.15 million in impaired loans with $490,000 for which
an allowance for credit losses is allocated. Impaired loans totaled
$874,000 and $2.66 million at December 31, 1997 and June 30, 1997.
<PAGE> 14
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 $ 9,526 $ 68 $ -- $
9,594
Commercial paper 1,974 -- --
1,974
State and municipal 8,457 101 1
8,557
Corporate notes 13,929 52 9
13,972
------- ----- ----- ---
- ----
Total $33,886 $ 221 $ 10
$34,097
======= ===== =====
=======
</TABLE>
<TABLE>
<CAPTION>
Available-for-sale
Unrealized
Cost Gain Loss Fair
Value
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
- ----
U.S. government and agency $39,584 $ 243 $ 10
$39,817
Commercial paper 2,940 -- --
2,940
State and municipal 1,044 2 --
1,046
Equity 2,330 190 --
2,520
------- ---- ----- ---
- ----
Total $45,898 $ 435 $ 10
$46,323
======= ===== =====
=======
Mortgage-backed $23,776 $ 157 $ 35
$23,898
======= ===== =====
=======
</TABLE>
There were no sales of securities during the six months ended June 30, 1998.
Proceeds from the sale of available for sale securities during the six
months ended June 30, 1997 amounted to $992,000 with gross losses of $7,000.
<PAGE> 15
Shareholders' Equity and Capital Resources
Total equity at June 30, 1998 was $38.0 million, compared to $36.2
million and $34.1 million at December 31, 1997 and June 30, 1997.
The Corporation declared $736,000, or $.25 per share, in dividends
for the second quarter of 1998 as compared to $687,000, or $.20 per
share in the second quarter of 1997. All per share amounts reflect
the three for two stock split declared in the second quarter of 1998.
<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
----------------- ---------------------------
- -----
6/30/98 6/30/98 12/31/97
6/30/97
----------------- -------- -------- ---
- -----
<S> <C> <C> <C> <C>
Tier 1 leverage $ 22,277 $ 37,252 $ 35,489 $
33,598
Tier 1 risk-based 19,789 37,252 35,489
33,598
Total risk-based 32,982 41,377 39,460
37,267
Risk-weighted assets 329,815 317,559
293,121
Quarterly average assets 445,545 437,768
402,536
Risk-based ratios
Tier 1 leverage 5% 8.36% 8.11%
8.35%
Tier 1 risk-based 6% 11.29% 11.18%
11.46%
Total risk-based 10% 12.55% 12.43%
12.71%
</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> 16
- ---------------------------------------------------------------------------
Six months ended June 30, 1998 compared with 1997
- ---------------------------------------------------------------------------
Net income for the six months ended June 30, 1998 is $2,754,000 or $.87
per share compared to the $2,433,000 or $.78 per share earned in the same
period of 1997, a 13% increase. Return on average assets for the first
six months was 1.25%, as compared to 1.22% in the previous year. The
return on average equity was 14.75%, in comparison to the 14.66% earned in
the first six months of 1997.
Net interest income (FTE) has increased $912,000, or 11% to $9.6 million
for the first six months of 1998 as average earning assets increased $38
million from 1997. The year to date net interest margin is 4.71% for 1998,
comparable to the first six months of 1997. The average rate earned on
assets at 8.61% and the average rate paid on interest-bearing funds of
4.73% are comparable to the prior year.
Average outstanding loans have increased $23 million and securities $6
million from 1997. Total deposits have increased $34 million from 1997
and average $380 million for the first six months of 1998. Average Money
market deposits have grown by $15 million, consumer CDs $4 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.
The provision for loan losses was $365,000 and net loan charge-offs were
$140,000 for the first six months of 1998 compared to a provision of
$793,000 and net charge-offs of $243,000 in 1997. The allowance for loan
losses at 1.41% of total loans is comparable to the prior year's 1.40%.
Non-interest income has grown $1.2 million, or 37%, for the first six
months of 1998. This growth was due mainly to the record mortgage
lending activity which more than doubled its fee related income,
increasing by $769,000. Trust fee's increased $205,000 as a result of it's
continued strong asset growth. Consumer insurance, automated teller
machine fees and revenue from non deposit investment products also showed
favorable increases from the prior year.
Non-interest expense increased $2 million or 28% from the comparable prior
period, essentially due to higher costs associated with personnel related
commission expense and benefit costs related to the increase in the
Corporation's stock price.
Total cash dividends for the first six months of 1998 were $.48 per share
compared to $.42 per share in 1997. Shareholders' equity increased 11%
from June of 1997 and at $38 million for June of 1998, represents 8.2% of
assets. Total risk-based capital in June of 1998 was 12.55% compared to
the 12.71% in June of 1997.
Recorded in stockholders' equity were unrealized gains of $8,000 during
1998 and unrealized losses of $42,000 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.
Quantitative and qualitative disclosures about market risk
There have been no material changes in the six months ended June 30, 1998.
<PAGE> 17
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 5, 1998.
(c) Election of four (4) directors to serve until the annual
meeting of shareholders in 2001.
Withhold
For Authority Non-vote
--- --------- --------
James E. Dutmers, Jr.
Chairman and Chief Executive Officer,
Empire Banc Corporation and
Empire National Bank 1,881,140 381 81,661
Michael H. Dennos
Retired, Business Executive 1,848,378 33,143 81,661
Thomas G. McIntyre
Chairman, Passageways Travel 1,881,140 381 81,661
Ronald G. Reffitt, Sr.
President, Peninsula
Construction and Supply, Inc. 1,881,140 381 81,661
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits - none
(b) Reports on Form 8-K - none
<PAGE> 18
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 13, 1998
/s/ James E. Dutmers, Jr.
---------------------------------------
James E. Dutmers, Jr.
Chairman and Chief Executive Officer
Date: August 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 22,021
<INT-BEARING-DEPOSITS> 212
<FED-FUNDS-SOLD> 18,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 70,221
<INVESTMENTS-CARRYING> 33,886
<INVESTMENTS-MARKET> 34,097
<LOANS> 307,606
<ALLOWANCE> 4,350
<TOTAL-ASSETS> 462,326
<DEPOSITS> 398,245
<SHORT-TERM> 3,000
<LIABILITIES-OTHER> 9,131
<LONG-TERM> 14,000
0
0
<COMMON> 29,943
<OTHER-SE> 8,007
<TOTAL-LIABILITIES-AND-EQUITY> 462,326
<INTEREST-LOAN> 14,163
<INTEREST-INVEST> 3,066
<INTEREST-OTHER> 319
<INTEREST-TOTAL> 17,548
<INTEREST-DEPOSIT> 7,503
<INTEREST-EXPENSE> 7,989
<INTEREST-INCOME-NET> 9,559
<LOAN-LOSSES> 365
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,368
<INCOME-PRETAX> 4,117
<INCOME-PRE-EXTRAORDINARY> 4,117
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,754
<EPS-PRIMARY> .93
<EPS-DILUTED> .87
<YIELD-ACTUAL> 4.71
<LOANS-NON> 1,348
<LOANS-PAST> 315
<LOANS-TROUBLED> 277
<LOANS-PROBLEM> 2,399
<ALLOWANCE-OPEN> 4,125
<CHARGE-OFFS> 249
<RECOVERIES> 109
<ALLOWANCE-CLOSE> 4,350
<ALLOWANCE-DOMESTIC> 2,461
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,889
</TABLE>
