<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1999.
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
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(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 3,011,790 shares of no par common stock outstanding as of
September 30, 1999.
<PAGE> 2
Empire Banc Corporation - Consolidated Balance Sheet
<TABLE>
<CAPTION>
September 30 December 31 September 30
(in thousands, except share data) 1999 1998 1998
<S> <C> <C> <C>
Assets
Cash and due from banks $ 13,336 $ 15,740 $ 18,604
Federal funds sold 22,200 5,600 14,300
-------- -------- --------
Cash and cash equivalents 35,536 21,340 32,904
Securities
Available for sale, at fair value 109,794 120,399 78,919
Held to maturity 39,590
(fair value: 9/30/98-$40,221)
Loans 347,229 325,774 315,227
Less: Allowance for loan losses (5,250) (4,825) (4,650)
-------- -------- --------
Net loans 341,979 320,949 310,577
Premises and equipment, net 6,008 5,503 5,643
Accrued income and other assets 12,579 9,773 9,323
-------- -------- --------
Total assets $505,896 $477,964 $476,956
======== ======== ========
Liabilities
Deposits
Non-interest-bearing $ 63,013 $ 61,221 $ 62,329
Interest-bearing 372,472 348,918 349,255
-------- -------- --------
Total deposits 435,485 410,139 411,584
Federal Home Loan Bank advances 17,000 17,000 17,000
Accrued expense and other liabilities 10,540 10,069 8,630
-------- -------- --------
Total liabilities 463,025 437,208 437,214
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: 9/30/99-3,011,790;
12/31/98-2,957,398; 9/30/98-2,957,398 31,132 30,283 30,258
Retained earnings 12,111 9,509 8,489
Net unrealized gain(loss) on securities, net of tax (372) 964 995
-------- -------- --------
Total shareholders' equity 42,871 40,756 39,742
-------- -------- --------
Total liabilities and shareholders' equity $505,896 $477,964 $476,956
======== ======== ========
- -------------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
<PAGE> 3
Empire Banc Corporation - Consolidated Statement of Income
<TABLE>
<CAPTION>
Quarter Ending Year to date
September 30 September 30
(in thousands, except per share data) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $ 7,736 $ 7,343 $22,708 $21,506
Securities: taxable 1,603 1,615 4,811 4,558
tax-exempt 74 67 229 190
Federal funds sold 246 305 512 624
------- ------- ------- -------
Total interest income 9,659 9,330 28,260 26,878
Interest expense
Deposits 3,915 3,985 11,410 11,488
Federal Home Loan Bank advances
and other borrowings 260 259 771 745
------- ------- ------- -------
Total interest expense 4,175 4,244 12,181 12,233
------- ------- ------- -------
Net interest income 5,484 5,086 16,079 14,645
Provision for loan losses 104 552 490 917
------- ------- ------- -------
Net interest income after
provision for loan losses 5,380 4,534 15,589 13,728
Non-interest income
Mortgage sales 411 567 1,593 1,932
Deposit fees 415 368 1,218 1,094
Trust 788 684 2,366 2,181
Service charges 428 374 1,317 1,028
Other income 26 23 80 72
Security gains (losses) (53) 138 (53) 138
------- ------- ------- -------
Total non-interest income 2,015 2,154 6,521 6,445
Non-interest expense
Salaries and employee benefits 2,827 2,593 8,962 8,854
Premises and equipment 630 585 1,949 1,673
Other 1,169 1,130 3,449 3,149
------- ------- ------- -------
Total non-interest expense 4,626 4,308 14,360 13,676
------- ------- ------- -------
Income before federal income taxes 2,769 2,380 7,750 6,497
Federal income taxes 923 797 2,576 2,160
------- ------- ------- -------
Net income $ 1,846 $ 1,583 $ 5,174 $ 4,337
======= ======= ======= =======
- ----------------------------------------------------------------------------------------
Earnings per share $ .61 $ .53 $1.71 $1.47
Diluted earnings per share .58 .50 1.63 1.37
Average shares outstanding 3,025 2,967 3,024 2,958
Diluted average shares outstanding 3,164 3,169 3,165 3,163
- ----------------------------------------------------------------------------------------
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) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Net income $1,846 $1,583 $5,174 $4,337
Other comprehensive income
Unrealized gains (losses) on securities, net (128) 725 (1,371) 733
Reclassification adjustment for amounts
realized on security sales included in
net income 35 (91) 35 (91)
------ ------ ------ ------
Comprehensive income $1,753 $2,217 $3,838 $4,979
====== ====== ====== ======
- -----------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
<PAGE> 5
Empire Banc Corporation - Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year to Date September 30
(in thousands) 1999 1998
<S> <C> <C>
Operating activities
Net income $ 5,174 $ 4,337
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 813 683
Provision for loan losses 157 917
Mortgage loans originated for sale (80,978) (98,643)
Sale of mortgage loans 85,958 98,789
Net realized (gain) loss on securities 53 (138)
Net amortization/accretion on securities 414 (21)
Change in
Interest receivable (294) (358)
Other assets (2,512) (328)
Accrued expense and other liabilities 1,824 685
------- -------
Total adjustments 5,435 1,586
------- -------
Net cash from operating activities 10,609 5,923
Investing activities
Securities available for sale
Proceeds from sales 1,748 144
Proceeds from maturities 43,361 19,098
Purchases (36,995) (31,318)
Securities held to maturity
Proceeds from maturities -- 18,422
Purchases -- (24,970)
Loans granted net of repayments (26,167) (13,296)
Premises and equipment expenditures (1,318) (1,341)
------- -------
Net cash from investing activities (19,371) (33,261)
Financing activities
Net increase in deposits 25,346 24,914
Cash dividends paid (2,409) (2,110)
Federal Home Loan Bank advances 3,000 10,000
Federal Home Loan Bank repayments (3,000) (5,000)
Issuance of common stock 21 205
------- -------
Net cash from financing activities 22,958 28,009
------- -------
Net change in cash and cash equivalents 14,196 671
Beginning cash and cash equivalents 21,340 32,233
------- -------
Ending cash and cash equivalents $35,536 $32,904
======= =======
- ---------------------------------------------------------------------------------------
Interest paid $12,188 $12,163
Income taxes paid 1,905 2,154
- ---------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
<PAGE> 6
Empire Banc Corporation - Consolidated Statement of Changes in
Shareholders' Equity
<TABLE>
<CAPTION>
(in thousands) 1999 1998
<S> <C> <C>
- -------------------------------------------------------------------------------------------
Balance January 1 $40,756 $36,199
Net income 5,174 4,337
Common stock issued 849 733
Dividends declared (2,572) (2,169)
Net change in security valuation (1,336) 642
------- -------
Balance September 30 $42,871 $39,742
======= =======
- ------------------------------------------------------------------------------------------
See accompanying notes.
</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, 1998.
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.
Certain prior amounts have been reclassified to conform with current period
presentation.
<PAGE> 7
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. A reconciliation of earnings per share and diluted
earnings per share is presented below:
<TABLE>
<CAPTION>
Quarter Ending Year to date
September 30 September 30
(in thousands, except per share data) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
Net income $ 1,846 $ 1,583 $ 5,174 $ 4,337
======= ======= ======= =======
Earnings per share
Average common shares outstanding 3,012 2,957 3,012 2,949
Average contingently issuable shares 13 10 12 9
----- ----- ----- -----
3,025 2,967 3,024 2,958
===== ===== ===== =====
Earnings per share $ .61 $ .53 $1.71 $1.47
===== ===== ===== =====
Diluted earnings per share
Average shares outstanding, per above 3,025 2,967 3,024 2,958
Effect of stock options 139 202 141 205
----- ----- ----- -----
3,164 3,169 3,165 3,163
===== ===== ===== =====
Diluted earnings per share $ .58 $ .50 $1.63 $1.37
===== ===== ===== =====
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE> 8
Management's Discussion and Analysis
Summary
Empire Banc Corporation's 1999 third quarter earnings were $1,846,000,
a 17% increase over 1998 third quarter results. Diluted earnings per share
increased from $.50 per share in 1998 to $.58 in the third quarter of 1999.
The return on assets was 1.46% for the quarter versus 1.34% in 1998. The
return on equity was 17.3% compared to 16.4% in the prior year quarter.
Net income for the first nine months of 1999 was $5,174,000, or $1.63 per
diluted share, a 19 percent increase from the same period in 1998. The
return on equity of 16.3% and return on assets of 1.41%, exceed the 15.3%
and 1.28% recorded for the first nine months of 1998.
Our operating results were achieved with growth in total revenues of 7%
over the first nine months of 1998. Net interest income grew 10%, primarily
due to the growth in average earning assets and a stable net interest margin.
Non-interest income increased slightly over 1998 with growth in deposit fees,
trust fees and fees related to the sale of investment products, offset by
a reduction in income from mortgage sales. Non-interest expense increased 5%
over the same period in 1998, reflecting the increased activity level of the
Corporation.
The provision for loan losses decreased 47% from the first nine months of
1998 due to a decline in net charge-offs to .03% of average loans compared
to .17% Of average loans for the first nine months of 1998. The allowance
for loan Losses increased $425,000 for the first nine months of 1999 and was
1.51% of loans and 174% of non-performing assets at September 30, 1999.
Strong economic growth in the region, coupled with the Corporation's efforts
to attract and retain customer relationships led to total assets of $506
million at September 30, 1999, a 6% increase during the last twelve months.
Total deposits grew $24 million, or 6%, to $435 million and total loans
increased 10% to $347 million over the last year.
Total shareholders' equity increased 8% during the last twelve months to $43
million, improving book value per share to $14.23 from the $13.44 at
September 30, 1998.
Quantitative and Qualitative Disclosures about Market Risk.
There have been no material changes in the nine months ended September
30, 1999.
<PAGE> 9
Other Matters
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 facets of the Corporation's business from physical plant
and equipment issues through all computer hardware and software and major
customers.
The Corporation uses major external third-party vendors to the banking
industry for the mainframe and personal computer hardware and software.
These well-known, national third-party providers for mission critical systems
have provided written assurances that they are Year 2000 ready and their
systems have been fully tested internally or through proxy at customer sites.
The Corporation does not use any custom-programmed software. Another area
reviewed is systems which utilize embedded microchips, such as heating,
air conditioning, security and other related systems. Vendors for these
systems have been contacted to evaluate their Year 2000 compliance and no
Year 2000 issues are anticipated.
A new UNISYS mainframe Clearpath 4600 was installed in April, 1999 which
substantially increased the capacity and efficiency of operations. This
new system was thoroughly tested in the Corporation's data center for
Year 2000 compliance. This new system also allowed for the testing of
the Corporation's core processing system from Information Technology, Inc.
during the installation of the hardware, without any disruption of daily
processing or customer service. All testing is completed and the systems
are in production. No disruption in service due to a Year 2000 issue is
anticipated.
Management has 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 normal maintenance of those systems and management
does not expect any additional charges. Some minor hardware replacements have
been needed. Those expenditures are less than $50,000. The Corporation
has the necessary technology staffing and has allocated the resources within
its 1999 technology plan for testing and implementation of its Year 2000 plan.
The Corporation has prepared for any unforeseen Year 2000 issues by developing
a business resumption plan. This plan has been desk tested for reasonableness
and completeness.
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. Because of the
systematic approach used to prepare Empire Banc Corporation for the Year 2000
date change, management does not anticipate any material effect on financial
performance.
<PAGE> 10
Certain statements contained in this section "Other Matters" constitute
"forward looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Such forward looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to differ
materially from those expressed or implied by such forward looking statements.
Such factors may include, but are not limited to, the severity of issues
not uncovered during the testing of the Corporation's own system, the
the severity of Year 2000 problems encountered by third party service
providers and the Corporation's borrowers, additional initiatives by
regulators, and the costs of Year 2000 professionals generally in the event
problems are encountered.
Forward-looking statements in this Form 10-Q are based on current expectations
and/or the assumptions made in earnings simulation analyses, but numerous
factors could cause variances in these projections, and their underlying
assumptions, such as changes in interest rates, demand, the degree of
competition and changes in laws, regulations or policy.
<PAGE> 11
<TABLE>
<CAPTION>
Net Interest Income
Quarter Ending Year to date
September 30 September 30
(in thousands) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
Interest income $9,659 $9,330 $28,260 $26,878
Taxable equivalent adjustment 38 36 117 106
------ ------ ------- -------
Interest income (TE) 9,697 9,366 28,377 26,984
Interest expense 4,175 4,244 12,181 12,233
------ ------ ------- -------
Net interest income (TE) $5,522 $5,122 $16,196 $14,751
====== ====== ======= =======
Increase (decrease) due to change in:
Volume $ 434 $ 459 $ 1,313 $ 1,337
Rate (34) (78) 132 (36)
------ ------ ------- -------
Total $ 400 $ 381 $ 1,445 $ 1,301
====== ====== ======= =======
- ------------------------------------------------------------------------------
</TABLE>
Third quarter net interest income on a taxable equivalent ("TE")
basis was $5.5 million, an 8% increase from the $5.1 million earned
in the year ago quarter. Average earning assets increased 7% or
$31.6 million while the net interest margin, the other principal determinant
of net interest income, increased from 4.58% to 4.61% in the quarter to
quarter comparison.
Average loans increased $30.2 million or 10%, from the third quarter of 1998,
to $341.8 million for the current quarter with the commercial portfolio
growing 19%, or $27.1 million.
Incremental funding for the earning asset growth came mainly from the $27.1
million, or 8%, growth in interest bearing deposits. The average rate paid on
interest bearing funds was 4.30%, compared to the 4.71% average paid in the
third quarter of 1998.
Net interest income (TE) has increased $1.4 million, or 10%, to $16.2 million
for the first nine months of 1999 as average earning assets have increased
$37.5 million, or 9% from 1998. The year-to-date net interest margin is
4.69% compared to the 4.65% earned in the first nine months of 1998.
Average outstanding loans have increased $27.0 million and securities $11.5
million from the first nine months of 1998. Total deposits have increased on
average $31.7 million from 1998 and average $421.3 million for the first nine
months of 1999. Average money market deposits have grown by $20.8 million, or
19%, from 1998. Average non-interest bearing funds supporting earning assets
increased $6.5 million, or 8%, from the first nine months of 1998.
<PAGE> 12
Net Interest Income
Average Balances, Interest Income/Expense, Average Rates
<TABLE>
<CAPTION>
Quarter ending September 30, 1999 1998
- -------------------------------------------------------------------------------------------
Average Average Average Average
(in thousands, Balance Interest Rate Balance Interest Rate
taxable equivalent) ------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans, including fees* $341,828 $7,741 8.98% $311,638 $7,349 9.36%
Taxable securities 107,516 1,603 5.96% 104,548 1,615 6.18%
Tax-exempt securities* 6,742 107 6.33% 5,665 97 6.85%
-------- ------ -------- ------
Securities 114,258 1,710 5.99% 110,213 1,712 6.21%
Federal funds sold 19,334 246 4.98% 22,006 305 5.42%
-------- ------ -------- ------
Earning assets 475,420 9,697 8.09% 443,857 9,366 8.37%
Cash and due from banks 17,174 18,998
Other assets 12,813 10,743
-------- --------
Total assets $505,407 $473,598
======== ========
Liabilities and equity
CDs over $100,000 $ 11,639 136 4.57% $ 11,744 154 5.13%
Savings & interest checking 78,040 398 2.02% 71,649 400 2.22%
Money market deposits 135,061 1,360 4.00% 118,061 1,333 4.48%
Time deposits 143,189 2,021 5.60% 139,383 2,098 5.97%
-------- ------ -------- ------
Interest-bearing deposits 367,929 3,915 4.22% 340,837 3,985 4.64%
FHLB advances and other 17,087 260 6.04% 17,009 259 6.04%
-------- ------ -------- ------
Interest-bearing
liabilities 385,016 4,175 4.30% 357,846 4,244 4.71%
-------- ------ -------- ------
Demand deposits 67,548 70,020
Other liabilities 10,201 7,088
Shareholders' equity 42,642 38,644
-------- --------
Total liabilities
and equity $505,407 $473,598
======== ========
Net interest spread (TE) 3.79% 3.66%
==== ====
Net interest income (TE) $5,522 $5,122
====== ======
Net interest margin (TE) 4.61% 4.58%
==== ====
- -------------------------------------------------------------------------------------------
* Interest income on tax-exempt securities and certain tax-exempt
loans have been adjusted to a tax-equivalent basis.
</TABLE>
<PAGE> 13
Net Interest Income
Average Balances, Interest Income/Expense, Average Rates
<TABLE>
<CAPTION>
Year to date September 30, 1999 1998
- -------------------------------------------------------------------------------------------
Average Average Average Average
(in thousands, Balance Interest Rate Balance Interest Rate
taxable equivalent) ------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans, including fees* $333,123 $22,725 9.12% $306,074 $21,528 9.40%
Taxable securities 107,265 4,811 5.98% 97,502 4,558 6.23%
Tax-exempt securities* 6,952 329 6.31% 5,227 274 6.99%
-------- ------ -------- ------
Securities 114,217 5,140 6.00% 102,729 4,832 6.27%
Federal funds sold 14,107 512 4.79% 15,194 624 5.42%
-------- ------ -------- ------
Earning assets 461,447 28,377 8.22% 423,997 26,984 8.51%
Cash and due from banks 15,850 17,831
Other assets 13,023 10,606
-------- --------
Total assets $490,320 $452,434
======== ========
Liabilities and equity
CDs over $100,000 $ 12,691 441 4.58% $ 10,689 417 5.15%
Savings & interest checking 74,899 1,130 2.02% 70,966 1,186 2.23%
Money market deposits 130,053 3,809 3.92% 109,290 3,647 4.46%
Time deposits 142,606 6,030 5.65% 138,897 6,238 6.01%
-------- ------ -------- ------
Interest-bearing deposits 360,249 11,410 4.24% 329,842 11,488 4.66%
FHLB advances and other 17,084 771 6.04% 16,520 745 6.03%
-------- ------ -------- ------
Interest-bearing
liabilities 377,333 12,181 4.32% 346,362 12,233 4.72%
-------- ------ -------- ------
Demand deposits 61,081 59,788
Other liabilities 9,595 8,498
Shareholders' equity 42,311 37,786
-------- --------
Total liabilities
and equity $490,320 $452,434
======== ========
Net interest spread (TE) 3.90% 3.79%
==== ====
Net interest income (TE) $16,196 $14,751
====== ======
Net interest margin (TE) 4.69% 4.65%
==== ====
- -------------------------------------------------------------------------------------------
* Interest income on tax-exempt securities and certain tax-exempt
loans have been adjusted to a tax-equivalent basis.
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
Non-Interest Income
Quarter Ending Year to date
September30 September 30
Increase (decrease) Increase (decrease)
------------------ ------------------
(in thousands) Amount Percent Amount Percent
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
Mortgage sales $ (156) (28%) $ (339) (18%)
Deposit fees 47 13% 124 11%
Trust 104 15% 185 8%
Service charges 54 14% 289 28%
Other income 3 13% 8 11%
Security gains (losses) (191) (138%) (191) (138%)
------ --- ------ ---
$ (139) (6%) $ 76 1%
====== === ====== ===
</TABLE>
Non-interest income for the third quarter totaled $2.0 million, a $139,000,
or 6%, decrease from the third quarter of 1998 primarily due to the
reduction in gain on mortgage loan sales and security losses incurred.
Deposit, trust and service charges all recorded substantial percentage
increases for the quarter.
Non-interest income has grown $76,000, or 1%, for the first nine months of
1999 over last year. Decreased income from mortgage sales and security
losses incurred have been offset by increased deposit, trust and service
charge income. Service charge income has been fueled by fees from sales of
investment products increasing $301,000 for the year. Investment product
sales have been influenced by the 50% increase in gross commissions and the
change from a managed program to a dual employee program beginning in 1999.
<PAGE> 15
<TABLE>
<CAPTION>
Non-Interest Expense
Quarter Ending Year to date
September 30 September 30
Increase (decrease) Increase (decrease)
------------------ ------------------
(in thousands) Amount Percent Amount Percent
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
Salaries and employee benefits $ 234 9% $ 108 1%
Premises and equipment 45 8% 276 16%
Other 39 3% 300 10%
------ --- ------ ---
$ 318 7% $ 684 5%
====== === ====== ===
</TABLE>
Non-interest expenses for the third quarter totaled $4.6 million, which
is a $318,000, or 7%, increase over the third quarter of 1998. Year to date
non-interest expense totals $14.4 million, $684,000, 5% more than 1998.
Normal expected increases in salaries and employee benefits have been offset
by reduced benefit costs related to the decrease in the Corporation's stock
price. Premises and equipment expense was impacted by costs associated with
technology improvements and costs of enlarging the main office facility.
Increasing lending and deposit volumes fueled increases in activity based
expenses substantially accounting for the increase in other expense.
Asset Quality
<TABLE>
<CAPTION>
Non-Performing Assets
(in thousands) 9/30/99 12/31/98 9/30/98
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Non-accrual loans $2,226 $1,283 $1,055
Renegotiated loans 232 408 369
------ ------ ------
Total non-performing loans 2,458 1,691 1,424
Other real estate 554 221 187
------ ------ ------
Total non-performing assets $3,012 $1,912 $1,611
====== ====== ======
Non-performing assets as a percent of total loans .87% .59% .51%
Accruing loans 90 days or more past due $ 81 $ 189 $ 167
</TABLE>
Total non-performing assets at September 30, 1999 increased $1.4 million, or
87% from September of 1998, with the increase in non-accrual loans of
$1,171,000. Non-performing assets are .87% of total loans at September 30,
1999 as compared to .51% in the prior year. Loans identified as potential
problem loans totaled $1.1 million at September 30, 1999, $2.4 million
at December 31, 1998 and $2.6 million at September 30, 1998.
<PAGE> 16
The following table summarizes the provision for loan losses, net loan
losses and the allowance for loan losses.
<TABLE>
<CAPTION>
Three Three Nine Twelve Nine
Months Months Months Months Months
Ended Ended Ended Ended Ended
(in thousands) 9/30/99 9/30/98 9/30/99 12/31/98 9/30/98
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
Provision for loan losses $ 104 $ 552 $ 490 $1,215 $ 917
Net loan losses 4 252 65 515 392
Period-end allowance for
loan losses 5,250 4,825 4,650
Allowance as a percent of
period-end loans 1.51% 1.48% 1.48%
Net loan losses to average
loans outstanding .03% .17% .17%
- -------------------------------------------------------------------------------
</TABLE>
Year-to-date net charge-offs decreased $327,000 from the same period in 1998,
from $392,000 in 1998 to $65,000 for the first nine months of 1999. The
allowance for loan losses increased $600,000 over the last twelve months and
was 1.51% of total loans as of September 30, 1999. Management believes the
increase in the allowance for loan losses is prudent with the continued growth
in outstanding loans and a shift in mix of outstanding loan type, with an
increased significance in commercial loans. The total loan portfolio has grown
$32.0 million since September, 1998. The commercial loan portfolio has
increased $27.4 million since September of last year, to total $168.5 million,
comprising 48.5% of the total loan portfolio as of September 30, 1999, versus
44.8%, one year ago. Outstanding mortgage loans at September 30, 1999 were
$76.0 million, or 21.9% of the total loan portfolio, down from 24.9% at
September 30, 1998. Outstanding consumer loans have increased $7.0 million
in the past year and at $102.7 million comprise 29.6% of the loan portfolio
as of September 30, 1999, versus 30.3% at September 30, 1998.
Under accounting guidance regarding impaired loans, at September 30, 1999
there were $2,454,000 in impaired loans with $992,000 for which an allowance
for loan losses is allocated. Impaired loans totaled $1,239,000 and
$1,200,000 at December 31, 1998 and September 30, 1998.
<PAGE> 17
Investment Securities
Securities and their fair values at September 30, 1999 were as follows:
<TABLE>
<CAPTION>
Available for sale
Amortized Unrealized Fair
(in thousands) Cost Gain Loss Value
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
U.S. government and agency $ 46,626 $ 65 $ 233 $ 46,458
State and municipal 17,705 39 133 17,611
Mortgage-backed 23,618 49 428 23,239
Corporate notes 20,062 11 123 19,950
Equity 2,346 190 -- 2,536
-------- ----- ----- --------
$110,357 $ 354 $ 917 $109,794
======== ===== ===== ========
</TABLE>
Proceeds from sales of securities during the nine months ended September 30,
1999 amounted to $1,748,000 with gross losses of $53,000 recorded. Proceeds
from sales of securities in 1998 amounted to $144,000 with gross gains of
$138,000 recorded.
<PAGE> 18
Shareholders' Equity and Capital Resources
Total equity at September 30, 1999 was $42.9 million, compared to $40.8
million and $39.7 million at December 31, 1998 and September 30, 1998.
The Corporation's board of directors declared a quarterly dividend of $.30
per share in the third quarter of 1999. Cash dividends for 1999 have
totaled $2,572,000, or $.85 per share, compared to the $2,169,000, or $.73
per share, for the first nine months of 1998, a 16% increase.
Recorded in stockholders' equity during the third quarter of 1999 were
unrealized losses of $93. Unrealized gains of $634 were recorded in the
third quarter of 1998. At September 30, 1999, the net unrealized losses
totaled $372,000. At September 30, 1998, the net unrealized gains totaled
$995,000.
<TABLE>
<CAPTION>
The following summarizes the consolidated Corporation's capital amounts and
ratios.
Regulatory
Capital Standards
Well Capitalized Actual
----------------- --------------------------------
(in thousands) 9/30/99 9/30/99 12/31/98 9/30/98
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
Risk-based capital amounts
Tier 1 leverage $ 25,256 $ 42,956 $ 39,475 $ 38,420
Tier 1 risk-based 23,145 42,956 39,475 38,420
Total risk-based 38,575 47,783 43,924 42,752
Risk-weighted assets 385,752 355,566 346,260
Quarterly average assets 505,120 479,524 472,903
Risk-based ratios
Tier 1 leverage 5% 8.50% 8.23% 8.12%
Tier 1 risk-based 6% 11.14% 11.10% 11.10%
Total risk-based 10% 12.39% 12.35% 12.35%
</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> 19
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
<PAGE> 20
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 11, 1999
/s/ James E. Dutmers, Jr.
---------------------------------------
James E. Dutmers, Jr.
Chairman and Chief Executive Officer
Date: November 11, 1999
/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-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 13,014
<INT-BEARING-DEPOSITS> 322
<FED-FUNDS-SOLD> 22,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 109,794
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 347,229
<ALLOWANCE> 5,250
<TOTAL-ASSETS> 505,896
<DEPOSITS> 435,485
<SHORT-TERM> 4,000
<LIABILITIES-OTHER> 10,540
<LONG-TERM> 13,000
0
0
<COMMON> 31,132
<OTHER-SE> 11,739
<TOTAL-LIABILITIES-AND-EQUITY> 505,896
<INTEREST-LOAN> 22,708
<INTEREST-INVEST> 5,040
<INTEREST-OTHER> 512
<INTEREST-TOTAL> 28,260
<INTEREST-DEPOSIT> 11,410
<INTEREST-EXPENSE> 12,181
<INTEREST-INCOME-NET> 16,079
<LOAN-LOSSES> 490
<SECURITIES-GAINS> (53)
<EXPENSE-OTHER> 14,360
<INCOME-PRETAX> 7,750
<INCOME-PRE-EXTRAORDINARY> 7,750
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,174
<EPS-BASIC> 1.71
<EPS-DILUTED> 1.63
<YIELD-ACTUAL> 4.69
<LOANS-NON> 2,226
<LOANS-PAST> 81
<LOANS-TROUBLED> 232
<LOANS-PROBLEM> 1,064
<ALLOWANCE-OPEN> 4,825
<CHARGE-OFFS> 397
<RECOVERIES> 332
<ALLOWANCE-CLOSE> 5,250
<ALLOWANCE-DOMESTIC> 2,842
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,408
</TABLE>
