<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 June 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 June 30,
1999.
<PAGE> 2
Empire Banc Corporation - Consolidated Balance Sheet
<TABLE>
<CAPTION>
June 30 December 31 June 30
(in thousands, except share data) 1999 1998 1998
<S> <C> <C> <C>
Assets
Cash and due from banks $ 20,724 $ 15,740 $ 22,233
Federal funds sold 6,700 5,600 18,200
-------- -------- --------
Cash and cash equivalents 27,424 21,340 40,433
Securities
Available for sale, at fair value 113,929 120,399 70,221
Held to maturity 33,886
(fair value: 6/30/98-$34,097)
Loans 337,491 325,774 307,606
Less: Allowance for loan losses (5,150) (4,825) (4,350)
-------- -------- --------
Net loans 332,341 320,949 303,256
Premises and equipment, net 5,723 5,503 5,126
Accrued income and other assets 12,401 9,773 9,404
-------- -------- --------
Total assets $491,818 $477,964 $462,326
======== ======== ========
Liabilities
Deposits
Non-interest-bearing $ 64,988 $ 61,221 $ 67,746
Interest-bearing 358,318 348,918 330,499
-------- -------- --------
Total deposits 423,306 410,139 398,245
Federal Home Loan Bank advances 17,000 17,000 17,000
Accrued expense and other liabilities 9,509 10,069 9,131
-------- -------- --------
Total liabilities 449,815 437,208 424,376
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: 6/30/99-3,011,790;
12/31/98-2,957,398; 6/30/98-2,944,773 31,114 30,283 29,943
Retained earnings 11,168 9,509 7,646
Net unrealized gain(loss) on securities, net of tax (279) 964 361
-------- -------- --------
Total shareholders' equity 42,003 40,756 37,950
-------- -------- --------
Total liabilities and shareholders' equity $491,818 $477,964 $462,326
======== ======== ========
- -------------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
<PAGE> 3
Empire Banc Corporation - Consolidated Statement of Income
<TABLE>
<CAPTION>
Quarter Ending Year to date
June 30 June 30
(in thousands, except per share data) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $ 7,544 $ 7,082 $14,972 $14,163
Securities: taxable 1,609 1,529 3,208 2,943
tax-exempt 75 52 155 123
Federal funds sold 118 177 266 319
------- ------- ------- -------
Total interest income 9,346 8,840 18,601 17,548
Interest expense
Deposits 3,747 3,754 7,495 7,503
Federal Home Loan Bank advances
and other borrowings 257 256 511 486
------- ------- ------- -------
Total interest expense 4,004 4,010 8,006 7,989
------- ------- ------- -------
Net interest income 5,342 4,830 10,595 9,559
Provision for loan losses 130 83 386 365
------- ------- ------- -------
Net interest income after
provision for loan losses 5,212 4,747 10,209 9,194
Non-interest income
Mortgage sales 506 692 1,182 1,365
Service charges on deposit accounts 420 368 803 726
Trust income 746 737 1,578 1,497
Other service charges and fees 419 375 889 657
Other income 27 25 54 46
------- ------- ------- -------
Total non-interest income 2,118 2,197 4,506 4,291
Non-interest expense
Salaries and employee benefits 2,994 3,325 6,135 6,261
Premises and equipment 665 575 1,319 1,088
Other 1,097 918 2,280 2,019
------- ------- ------- -------
Total non-interest expense 4,756 4,818 9,734 9,368
------- ------- ------- -------
Income before federal income taxes 2,574 2,126 4,981 4,117
Federal income taxes 856 709 1,653 1,363
------- ------- ------- -------
Net income $ 1,718 $ 1,417 $ 3,328 $ 2,754
======= ======= ======= =======
- ----------------------------------------------------------------------------------------
Earnings per share $ .57 $ .48 $1.10 $ .93
Diluted earnings per share .54 .45 1.05 .87
Average shares outstanding 3,025 2,954 3,024 2,953
Diluted average shares outstanding 3,165 3,164 3,166 3,160
- ----------------------------------------------------------------------------------------
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) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Net income $1,718 $1,417 $3,328 $2,754
Other comprehensive income
Unrealized gains (losses) on securities, net (839) 6 (1,243) 8
------ ------ ------ ------
Comprehensive income $ 879 $1,423 $2,085 $2,762
====== ====== ====== ======
- -----------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
<PAGE> 5
Empire Banc Corporation - Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year to Date June 30
(in thousands) 1999 1998
<S> <C> <C>
Operating activities
Net income $ 3,328 $ 2,754
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 531 444
Provision for loan losses 386 365
Mortgage loans originated for sale (60,897) (68,577)
Sale of mortgage loans 65,247 70,420
Net amortization/accretion on securities 260 (31)
Change in
Interest receivable (276) (199)
Other assets (2,352) (572)
Accrued expense and other liabilities 727 1,272
------- -------
Total adjustments 3,626 3,122
------- -------
Net cash from operating activities 6,954 5,876
Investing activities
Securities available for sale
Proceeds from maturities 33,617 13,742
Purchases (29,290) (18,198)
Securities held to maturity
Proceeds from maturities -- 12,782
Purchases -- (13,636)
Loans granted net of repayments (16,128) (7,120)
Premises and equipment expenditures (751) (585)
------- -------
Net cash from investing activities (12,552) (13,015)
Financing activities
Net increase in deposits 13,167 11,575
Cash dividends paid (1,506) (1,373)
Federal Home Loan Bank advances 3,000 10,000
Federal Home Loan Bank repayments (3,000) (5,000)
Issuance of common stock 21 137
------- -------
Net cash from financing activities 11,682 15,339
------- -------
Net change in cash and cash equivalents 6,084 8,200
Beginning cash and cash equivalents 21,340 32,233
------- -------
Ending cash and cash equivalents $27,424 $40,433
======= =======
- ---------------------------------------------------------------------------------------
Interest paid $ 8,021 $ 7,982
Income taxes paid 1,330 1,425
- ---------------------------------------------------------------------------------------
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 3,328 2,754
Common stock issued 832 418
Dividends declared (1,670) (1,429)
Net change in security valuation (1,243) 8
------- -------
Balance June 30 $42,003 $37,950
======= =======
- ------------------------------------------------------------------------------------------
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
June 30 June 30
(in thousands, except per share data) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
Net income $ 1,718 $ 1,417 $ 3,328 $ 2,754
======= ======= ======= =======
Earnings per share
Average common shares outstanding 3,012 2,944 3,012 2,944
Average contingently issuable shares 13 10 12 9
----- ----- ----- -----
3,025 2,954 3,024 2,953
===== ===== ===== =====
Earnings per share $ .57 $ .48 $1.10 $ .93
===== ===== ===== =====
Diluted earnings per share
Average shares outstanding, per above 3,025 2,954 3,024 2,953
Effect of stock options 140 210 142 207
----- ----- ----- -----
3,165 3,164 3,166 3,160
===== ===== ===== =====
Diluted earnings per share $ .54 $ .45 $1.05 $ .87
===== ===== ===== =====
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE> 8
Management's Discussion and Analysis
Summary
Empire Banc Corporation's 1999 second quarter earnings were $1,718,000,
a 21% increase over 1998 second quarter results. Diluted earnings per share
increased from $.45 per share in 1998 to $.54 in the second quarter of 1999.
The return on assets was 1.41% for the quarter versus 1.27% in 1998. The
return on equity was 16.16% compared to 15.02% in the prior year quarter.
Net income for the first six months of 1999 was $3,328,000, or $1.05 per share,
a 21 percent increase from the same period in 1998. The return on equity of
15.9% and return on assets of 1.38%, exceed the 14.9% and 1.25% recorded for
the first six months of 1998.
Our operating results were achieved with growth in total revenues of 9%
over the first six months of 1998. Net interest income grew 11%, primarily
due to the growth in average earning assets. Non-interest income increased
5% with the growth in deposit fees, trust fees and fees related to the sale
of investment products. Non-interest expense increased 4% over the same
period in 1998.
In measuring asset quality, net charge-offs were .04% of average loans
for the first six months of 1999, substantially below industry norms, and
non-performing assets were .88% of loans at June 30, 1999. With the
continued growth in the loan portfolio, the allowance for loan losses was
increased $100,000 during the second quarter of 1999 and is 1.53% of loans and
173% of non-performing assets at June 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 $492
million at June 30, 1999, a 6% increase during the last twelve months. Total
deposits grew $25 million, or 6%, to $423 million and total loans increased 10%
to $337 million over the last year.
Total shareholders' equity increased 11% during the last twelve months
to $42 million, improving book value per share to $13.95 from the $12.89
at June 30, 1998.
Quantitative and Qualitative Disclosures about Market Risk.
There have been no material changes in the six months ended June 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
June 30 June 30
(in thousands) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
Interest income $9,346 $8,840 $18,601 $17,548
Taxable equivalent adjustment 38 30 79 70
------ ------ ------- -------
Interest income (TE) 9,384 8,870 18,680 17,618
Interest expense 4,004 4,010 8,006 7,989
------ ------ ------- -------
Net interest income (TE) $5,380 $4,860 $10,674 $ 9,629
====== ====== ======= =======
Increase (decrease) due to change in:
Volume $ 473 $ 409 $ 882 $ 880
Rate 47 (57) 163 40
------ ------ ------- -------
Total $ 520 $ 352 $ 1,045 $ 920
====== ====== ======= =======
- ------------------------------------------------------------------------------
</TABLE>
Second quarter net interest income on a taxable equivalent ("TE")
basis was $5.4 million, an 11% increase from the $4.9 million earned
in the year ago quarter. Average earning assets increased 9% or
$39 million while the net interest margin, the other principal determinant
of net interest income, increased from 4.66% to 4.72% in the quarter to
quarter comparison. The prime rate declined 75 basis points ("bp") from
8.5% in the second quarter of 1998 to average 7.75% in 1999.
Average loans increased $30 million or 10%, from the second quarter of 1998,
to $332.6 million for the current quarter with the commercial portfolio
growing 24%, or $32.3 million.
Incremental funding for the earning asset growth came mainly from the $31
million, or 10%, 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
second quarter of 1998.
Net interest income (TE) has increased $1.0 million, or 11%, to $10.7 million
for the first six months of 1999 as average earning assets have increased $40
million from 1998. The year-to-date net interest margin is 4.74% compared to
the 4.69% earned in the first six months of 1998.
Average outstanding loans have increased $25 million and securities $13
million from the first six months of 1998. Total deposits have increased on
average $34 million from 1998 and average $414 million for the first six
months of 1999. Average money market deposits have grown by $23 million, or
22%, from 1998. Average non-interest bearing funds supporting earning assets
increased $7 million, or 10%, from the first six months of 1998.
<PAGE> 12
Net Interest Income
Average Balances, Interest Income/Expense, Average Rates
<TABLE>
<CAPTION>
Quarter ending June 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* $332,563 $7,549 9.11% $302,804 $7,089 9.39%
Taxable securities 107,709 1,609 5.98% 97,970 1,529 6.24%
Tax-exempt securities* 6,779 107 6.29% 4,167 75 7.21%
-------- ------ -------- ------
Securities 114,488 1,716 6.00% 102,137 1,604 6.28%
Federal funds sold 10,178 119 4.63% 12,933 177 5.41%
-------- ------ -------- ------
Earning assets 457,229 9,384 8.23% 417,874 8,870 8.51%
Cash and due from banks 15,933 17,654
Other assets 13,172 10,710
-------- --------
Total assets $486,334 $446,238
======== ========
Liabilities and equity
CDs over $100,000 $ 12,599 145 4.56% $ 10,522 139 5.22%
Savings & interest checking 73,849 370 2.01% 71,496 398 2.23%
Money market deposits 127,270 1,231 3.88% 104,394 1,155 4.44%
Time deposits 142,369 2,001 5.64% 138,333 2,062 5.98%
-------- ------ -------- ------
Interest-bearing deposits 356,087 3,747 4.22% 324,745 3,754 4.64%
FHLB advances and other 17,103 257 6.04% 17,000 256 6.04%
-------- ------ -------- ------
Interest-bearing
liabilities 373,190 4,004 4.30% 341,745 4,010 4.71%
-------- ------ -------- ------
Demand deposits 60,339 58,346
Other liabilities 10,282 8,409
Shareholders' equity 42,523 37,738
-------- --------
Total liabilities
and equity $486,334 $446,238
======== ========
Net interest spread (TE) 3.93% 3.80%
==== ====
Net interest income (TE) $5,380 $4,860
====== ======
Net interest margin (TE) 4.72% 4.66%
==== ====
- -------------------------------------------------------------------------------------------
* 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 June 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* $328,699 $14,984 9.19% $303,246 $14,179 9.43%
Taxable securities 107,137 3,208 5.99% 93,920 2,943 6.27%
Tax-exempt securities* 7,059 222 6.29% 5,005 177 7.08%
-------- ------ -------- ------
Securities 114,196 3,430 6.01% 98,925 3,120 6.31%
Federal funds sold 11,450 266 4.63% 11,731 319 5.41%
-------- ------ -------- ------
Earning assets 454,345 18,680 8.29% 413,902 17,618 8.58%
Cash and due from banks 15,177 17,238
Other assets 13,130 10,536
-------- --------
Total assets $482,652 $441,676
======== ========
Liabilities and equity
CDs over $100,000 $ 13,226 305 4.59% $ 10,152 263 5.16%
Savings & interest checking 73,302 732 2.01% 70,620 786 2.24%
Money market deposits 127,508 2,449 3.87% 104,831 2,313 4.45%
Time deposits 142,309 4,009 5.68% 138,650 4,141 6.02%
-------- ------ -------- ------
Interest-bearing deposits 356,345 7,495 4.24% 324,253 7,503 4.67%
FHLB advances and other 17,083 511 6.04% 16,272 486 6.02%
-------- ------ -------- ------
Interest-bearing
liabilities 373,428 8,006 4.32% 340,525 7,989 4.73%
-------- ------ -------- ------
Demand deposits 57,796 55,880
Other liabilities 9,282 7,918
Shareholders' equity 42,146 37,353
-------- --------
Total liabilities
and equity $482,652 $441,676
======== ========
Net interest spread (TE) 3.97% 3.85%
==== ====
Net interest income (TE) $10,674 $9,629
====== ======
Net interest margin (TE) 4.74% 4.69%
==== ====
- -------------------------------------------------------------------------------------------
* 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
June 30 June 30
Increase (decrease) Increase (decrease)
------------------ ------------------
(in thousands) Amount Percent Amount Percent
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
Mortgage sales $ (186) (27%) $ (183) (13%)
Deposit fees 52 14% 77 11%
Trust 9 1% 81 5%
Service charges 44 12% 232 35%
Other income 2 7% 8 16%
------ --- ------ ---
$ (79) (4%) $ 215 5%
====== === ====== ===
</TABLE>
Non-interest income for the second quarter totaled $2.1 million, a $79,000,
or 4%, decrease from the second quarter of 1998 primarily due to the
reduction in mortgage gains. The increase in service charges during the
quarter includes an $83,000 increase in investment product fees over second
quarter 1998.
Non-interest income has grown $215,000, or 5%, for the first six months of
1999 over last year. Decreased income from mortgage sales has been offset
by increased service charge income fueled by fees from sales of investment
products increasing $238,000 for the year and solid gains in trust and deposit
fee revenue. Investment product sales were 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
June 30 June 30
Increase (decrease) Increase (decrease)
------------------ ------------------
(in thousands) Amount Percent Amount Percent
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
Salaries and employee benefits $ (331) (10%) $ (126) (2%)
Premises and equipment 90 16% 231 21%
Other 179 19% 261 13%
------ --- ------ ---
$ (62) (1%) $ 366 4%
====== === ====== ===
</TABLE>
Non-interest expenses for the second quarter totaled $4.8 million and
year-to-date $9.7 million, which is a $66,000, or 4%, increase over the first
six months of 1998. Normal expected increases in salaries and employee benefits
were 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) 6/30/99 12/31/98 6/30/98
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Non-accrual loans $2,039 $1,283 $1,348
Renegotiated loans 616 408 277
------ ------ ------
Total non-performing loans 2,655 1,691 1,625
Other real estate 330 221 282
------ ------ ------
Total non-performing assets $2,985 $1,912 $1,907
====== ====== ======
Non-performing assets as a percent of total loans .88% .59% .62%
Accruing loans 90 days or more past due $ 4 $ 189 $ 315
</TABLE>
Total non-performing assets at June 30, 1999 increased $1,078,000, or 56% from
June of 1998, with the increase in non-accrual loans of $691,000 and $339,000
in renegotiated loans. Non-performing assets are 88% of total loans at
June 30, 1999 as compared to .62% in the prior year. Loans identified
as potential problem loans totaled $1.6 million at June 30, 1999, $2.4 million
at December 31, 1998 and $2.4 million at June 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 Six Twelve Six
Months Months Months Months Months
Ended Ended Ended Ended Ended
(in thousands) 6/30/99 6/30/98 6/30/99 12/31/98 6/30/98
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
Provision for loan losses $ 130 $ 83 $ 386 $1,215 $ 365
Net loan losses 30 58 61 515 140
Period-end allowance for
loan losses 5,150 4,825 4,350
Allowance as a percent of
period-end loans 1.53% 1.48% 1.41%
Net loan losses to average
loans outstanding .04% .17% .09%
- -------------------------------------------------------------------------------
</TABLE>
Year-to-date net charge-offs decreased $79,000 from the same period in 1998.
The allowance for loan losses increased $800,000 over the last twelve months
and was 1.53% of total loans as of June 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. The total
loan portfolio has grown $30 million since June, 1998. The commercial loan
portfolio has increased $31 million since June of last year comprising 50% of
the total loan portfolio as of June 30, 1999, up from 44% one year ago.
Outstanding mortgage loans have declined to 21% of the loan portfolio as of
June 30, 1999, compared to 25% of the portfolio as of June, 1998.
Under accounting guidance regarding impaired loans, at June 30, 1999
there were $2,217,000 in impaired loans with $458,000 for which an allowance
for loan losses is allocated. Impaired loans totaled $1,239,000 and
$1,150,000 at December 31, 1998 and June 30, 1998.
<PAGE> 17
Investment Securities
Securities and their fair values at June 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 $ 53,245 $ 113 $ 217 $ 53,141
State and municipal 16,022 94 161 15,955
Mortgage-backed 24,697 48 383 24,362
Corporate notes 18,064 5 121 17,948
Equity 2,324 199 -- 2,523
-------- ----- ----- --------
$114,352 $ 459 $ 882 $113,929
======== ===== ===== ========
</TABLE>
There were no sales of securities during the six months ended June 30, 1999.
<PAGE> 18
Shareholders' Equity and Capital Resources
Total equity at June 30, 1999 was $42.0 million, compared to $40.8 million
and $37.9 million at December 31, 1998 and June 30, 1998. The Corporation's
board of directors raised the quarterly dividend 20% to $.30 per share in the
second quarter of 1999. Cash dividends for 1999 have totaled $1,670,000,
or $.55 per share, compared to the $1,429,000, or $.48 per share, for the
first six months of 1998, a 15% increase.
Recorded in stockholders' equity during the second quarter of 1999 were
unrealized losses of $838. Unrealized gains of $6 were recorded in the second
quarter of 1998. At June 30, 1999, the net unrealized losses totaled
$279,000. At June 30, 1998, the net unrealized gains totaled $361,000.
<TABLE>
<CAPTION>
The following summarizes the consolidated Corporation's capital amounts and
ratios.
Regulatory
Capital Standards
Well Capitalized Actual
----------------- --------------------------------
(in thousands) 6/30/99 6/30/99 12/31/98 6/30/98
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
Risk-based capital amounts
Tier 1 leverage $ 24,274 $ 41,985 $ 39,475 $ 37,252
Tier 1 risk-based 22,345 41,985 39,475 37,252
Total risk-based 37,242 46,646 43,924 41,377
Risk-weighted assets 372,422 355,566 329,815
Quarterly average assets 485,487 479,524 445,545
Risk-based ratios
Tier 1 leverage 5% 8.65% 8.23% 8.36%
Tier 1 risk-based 6% 11.27% 11.10% 11.29%
Total risk-based 10% 12.53% 12.35% 12.55%
</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
(a) Annual meeting of shareholders of Empire Banc Corporation
held May 13, 1999.
(c) Election of three (3) directors to serve until the annual
meeting of shareholders in 2002.
Withhold
For Authority Non-vote
Robert L. Israel 2,748,764 375 262,651
President & Chief
Operating Officer
Empire Banc Corporation
and Empire National Bank
John M. Rockwood, Jr. 2,707,921 41,218 262,651
President & Chief
Executive Officer
Munson Healthcare
Louis A. Smith 2,742,806 6,333 262,651
Smith & Johnson
Attorneys, P.C.
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: August 13, 1999
/s/ James E. Dutmers, Jr.
---------------------------------------
James E. Dutmers, Jr.
Chairman and Chief Executive Officer
Date: August 13, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 20,467
<INT-BEARING-DEPOSITS> 257
<FED-FUNDS-SOLD> 6,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 113,929
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 337,491
<ALLOWANCE> 5,150
<TOTAL-ASSETS> 491,818
<DEPOSITS> 423,306
<SHORT-TERM> 4,000
<LIABILITIES-OTHER> 9,509
<LONG-TERM> 13,000
0
0
<COMMON> 31,114
<OTHER-SE> 10,889
<TOTAL-LIABILITIES-AND-EQUITY> 491,818
<INTEREST-LOAN> 14,972
<INTEREST-INVEST> 3,363
<INTEREST-OTHER> 266
<INTEREST-TOTAL> 18,601
<INTEREST-DEPOSIT> 7,495
<INTEREST-EXPENSE> 8,006
<INTEREST-INCOME-NET> 10,595
<LOAN-LOSSES> 386
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,734
<INCOME-PRETAX> 4,981
<INCOME-PRE-EXTRAORDINARY> 4,981
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,328
<EPS-BASIC> 1.10
<EPS-DILUTED> 1.05
<YIELD-ACTUAL> 4.74
<LOANS-NON> 2,039
<LOANS-PAST> 4
<LOANS-TROUBLED> 616
<LOANS-PROBLEM> 1,563
<ALLOWANCE-OPEN> 4,825
<CHARGE-OFFS> 210
<RECOVERIES> 149
<ALLOWANCE-CLOSE> 5,150
<ALLOWANCE-DOMESTIC> 2,736
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,414
</TABLE>
