<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1999. Commission file Number 0-15839
EMPIRE BANC CORPORATION MICHIGAN
(Exact name of registrant as (State or other jurisdiction of
specified in its charter) incorporation or organization)
1227 E. FRONT STREET 49686
TRAVERSE CITY, MICHIGAN (Zip code)
(Address of principal executive offices)
38-2727982 (616) 922-2111
(IRS Employer Identification Number) (Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common stock, no par value
(title of class)
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. [ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 29, 2000, computed by reference to the average of the
closing bid and asked price for such stock on that date was $84,720,000. For
this purpose only, the affiliates of the registrant have been assumed to be the
executive officers, directors and 10% or more shareholders.
As of February 29, 2000, there were outstanding 3,166,234 shares of the
registrants' no par common stock.
The Exhibit Index is located on page number 68.
<PAGE> 2
PART I
Item 1 - Business.
Empire Banc Corporation (the "Corporation") is incorporated in Michigan and is a
bank holding company. The Empire National Bank of Traverse City (the "Bank"), is
a wholly-owned subsidiary of the Corporation.
The Bank was established in 1912 in Empire, Michigan and is a national banking
association. The Bank's deposits are insured by the Bank Insurance Fund (BIF),
administered by the Federal Deposit Insurance Corporation (FDIC), and the Bank
is regulated by the Office of the Comptroller of the Currency (OCC).
The Bank is engaged in the general commercial banking business, providing a full
range of consumer and business loan and deposit products. The Bank also operates
a trust department providing fiduciary, investment and other related trust
services. The Bank has contracted with a full-service securities brokerage firm
to make available a variety of investment products to the Bank's customers. This
program operates from two of the Bank's branch offices.
The principal source of revenue for the Corporation is dividends from the Bank.
The Bank's principal source of revenue is interest and fees on loans. The Bank's
revenue for the three most recent years is as follows.
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------
<S> <C> <C> <C>
Interest and fees on loans 66% 65% 67%
Other interest income 16% 16% 16%
Non-interest income 18% 19% 17%
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
The Bank's primary market area is the northwestern portion of the lower
peninsula of Michigan. The Bank is headquartered in Traverse City, Michigan,
County of Grand Traverse. The Bank maintains offices in Grand Traverse,
Leelanau, Kalkaska, and Crawford counties. The population of these counties
combined is approximately 100,000. The Bank operates ten full service offices,
provides drive-in convenience at seven locations and has automatic teller
machines operating at eleven locations. The Bank has no foreign operations.
The Corporation has no employees and the Bank employed 212 full-time and 23
part-time employees as of December 31, 1999.
Banking is a highly competitive business. The Bank competes primarily with other
financial institutions in its market areas for loans, deposits, and trust
accounts. In its primary market, which includes the Grand Traverse, Kalkaska and
Leelanau counties, the Bank maintains the second largest deposit base, or
approximately 25 percent of the deposit market share. The majority of banking
institutions with offices in this market area are members of holding companies
with substantially more assets than the Corporation.
<PAGE> 3
The Bank is the only independent community bank in the Crawford County market.
The Bank is the third largest in terms of deposits in the Crawford County market
and competes with three financial institutions that are members of holding
companies with substantially more assets than the Corporation.
In addition to these other banks, the Bank also competes for loans and deposits
with savings and loan associations, credit unions, investment firms and money
market funds. In order to successfully compete, management has developed a sales
and service culture, stresses and rewards excellent customer service and designs
products to meet the needs of the customer. The Bank also utilizes its ability
to sell loans in the secondary market.
The Bank makes mortgage, commercial and installment loans to customers primarily
in northwestern lower Michigan. Fees may be charged for these services.
Commitments to make loans and unused lines of credit outstanding are detailed in
the Notes to Consolidated Financial Statements.
Historically, the Bank has predominantly sold its secondary-market-conforming
residential mortgage loans. The mortgage loan portfolio serviced by the Bank for
others, primarily the Federal Home Loan Mortgage Corporation, at December 31,
1999 totaled over $329 million. Mortgage banking activity is detailed in the
Notes to Consolidated Financial Statements.
The Bank supports the growth of the service industry, with its year round resort
and related businesses, manufacturing, the medical community, and many other
activities important to growth in the greater Grand Traverse area. Designated as
a Preferred Lender by the Small Business Administration (SBA), the Bank
underwrites government guaranteed business loans, contributing to the economic
growth in northern Michigan. The Bank also arranges loan relationships with
national and regional participating banks, increasing the amount of funds
available for local businesses to grow.
The Bank is a member of the Federal Home Loan Bank of Indianapolis, which is an
additional source of liquidity and long-term funds. Membership in the Federal
Home Loan Bank also provides access to additional advantageous lending programs.
The Community Investment Program makes advances to be used for funding
community-oriented mortgage lending, and the Affordable Housing Program grants
advances to fund lending for long-term low- and moderate-income owner occupied
and affordable rental housing at subsidized interest rates. Using the Affordable
Housing Program, the Bank has sponsored the construction of two low-income homes
with Habitat for Humanity.
The economy of the market areas of the Bank is affected by summer and winter
tourism activities and, accordingly, the Bank experiences seasonal consumer and
commercial deposit growth, with substantial growth increases from May to
September. The Bank regularly assesses its ability to raise funds through the
issuance of certificates of deposit in denominations of $100,000 or more in the
local and regional market area and has established conservative guidelines for
the total funding to be provided by these deposits. The Bank also uses federal
funds purchased from correspondent banks and the Federal Reserve Bank to respond
to deposit fluctuations and temporary loan demands.
<PAGE> 4
As of December 31, 1999, the Bank had no risks attendant to foreign sources.
Compliance with federal, state and local statutes and/or ordinances relating to
the protection of the environment is not expected to have material effect upon
the Bank's capital expenditures, earnings or competitive position.
SUPERVISION AND REGULATION
Banking is a highly regulated industry, with numerous federal and state laws and
regulations governing the organization and operation of banks, bank holding
companies, and their affiliates. The following summary of certain laws and
regulations affecting the Corporation and the Bank is qualified in its entirety
by such laws and regulations, which are subject to change based on pending and
future legislation and action by regulatory agencies.
As a bank holding company under the Bank Holding Company Act of 1956, the
Corporation is regulated and examined by the Federal Reserve Board. This Act
requires that the Corporation obtain prior Federal Reserve Board approval for
bank and nonbank acquisitions and restricts the permissible activities of the
Corporation. Under the Reigle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Interstate Act"), the Federal Reserve Board generally is
authorized to approve bank acquisitions by out-of-state bank holding companies
whether or not such acquisition is prohibited by state law. The Interstate Act
also provides for the nationwide interstate branching of banks. Both national
and state-chartered banks are permitted to branch and merge across state lines.
The State of Michigan allows interstate branching authority, subject to the
existence of reciprocal legislation in the state of the bank wishing to acquire
or establish a branch in Michigan.
Federal law also regulates transactions between the Corporation and the Bank,
including the amount and nature of loans or other extensions of credit. The Bank
is also subject to regulation and examination by the Office of the Comptroller
of the Currency.
The Office of the Comptroller of the Currency has guidelines for appropriate
level of capital for the Bank. The Federal Reserve Board has similar guidelines
for the Corporation. Such guidelines can limit the amount of dividends which the
Bank can pay to the Corporation and thus the amount of dividends the Corporation
can pay to its shareholders.
The banking industry is also affected by the monetary and fiscal policies of the
federal government, including the Federal Reserve Board, which exerts
considerable influence over the cost and availability of funds obtained for
lending and investing.
The enactment of the Gramm-Leach-Bliley Act of 1999, also known as the Financial
Reform Act, represents a significant change in the regulatory framework
governing the banking industry. Effective March 11, 2000, new opportunities are
available for banks, other depository institutions, insurance companies and
securities firms to enter into combinations that permit a new type of holding
company, a financial holding company, to offer customers a more complete array
of financial products and services. The Financial Reform Act provides a new
regulatory framework for regulation through the financial holding company which
will have as its umbrella regulator the Federal Reserve Board. This Act requires
satisfactory or above Community Reinvestment Act compliance for insured
depository institutions
<PAGE> 5
and their financial holding companies necessary in order for them to engage in
new financial activities. This Act also provides for a federal right to privacy
of non-public personal information of individual customers.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), the FDIC has implemented risk based premiums for deposit insurance,
the premiums paid by a depository institution are based on the probability that
the applicable insurance fund will incur a loss in respect of such institution.
The effective assessment rate ranged from 0 basis points for well-capitalized
institutions displaying little risk, to 27 basis points for under capitalized
institutions displaying high risk. Both BIF insured banks and SAIF insured
thrifts are also required to pay interest on Financing Corporation (FICO) bonds
issued in connection with the federal government's bail out of the thrift
industry.
FDICIA also prescribes various supervisory or "prompt corrective" actions by
federal regulatory agencies based on an insured institution's level of capital.
These prescribed actions increase restrictions on and heighten regulatory
scrutiny of the institution as its capital declines. The Bank is rated in the
lowest risk category under regulatory guidelines, as detailed in the Notes to
Consolidated Financial Statements.
Proposals to change the laws and regulations governing the operations and
taxation of banks, and companies which control banks and other financial
institutions, are frequently raised in Congress. The likelihood of any major
changes and the impact such changes might have on the Corporation are, however,
impossible to predict.
Management is not aware of any existing trends, events, uncertainties or current
recommendations by regulatory authorities that are expected to have a material
impact on the Corporation's operating results or financial condition.
Information furnished in accordance with Exchange Act Guide 3: Statistical
Disclosure by Bank Holding Companies is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations, Item 7, and Financial
Statements and Supplementary Data, Item 8.
Item 2 - Properties.
The executive offices of the Corporation and the Bank are maintained at the main
office of the Bank, 1227 East Front St., Traverse City, Michigan. The Bank
leases its main office and seven additional branch and automated teller machine
locations. The leases expire at various times through the year 2011 and all
include renewal periods. Net aggregate annual rentals for banking facilities in
1999 were $499,000.
In addition, the Bank owns and operates six additional branch facilities, none
of which are encumbered. The Bank operates drive-thru facilities at most of its
office locations and has on location remote automated teller machines for
customer use in its market area.
Item 3 - Legal Proceedings.
The Bank is routinely engaged in litigation, both as plaintiff and defendant,
which is incident to its business. In certain proceedings, claims or
counter-claims have been asserted against it. Management, after consultation
with legal counsel, does not anticipate that the
<PAGE> 6
ultimate liability, if any, arising out of such litigation and threats of
litigation will have a material effect on the financial statements of the
Corporation.
Item 4 - Submission of Matters to a Vote of Security Holders. No matters were
submitted during the fourth quarter of fiscal 1999 to a vote of the
Corporation's security holders.
PART II
Item 5 - Market for Registrant's Common Equity and Related Stockholder
Matters.
The common stock of Empire Banc Corporation is traded on the OTC Bulletin Board,
symbol EMBM. The primary market is the state of Michigan. Principal market
makers of common stock transactions are Howe Barnes & Co., McDonald & Co.,
Robert W. Baird & Co., Stifel Nicolaus & Co, Monroe Securities, Inc. and Hill,
Thompson, Magid & Co., Inc. There were 535 holders of the Corporation's common
stock as of December 31, 1999.
Quarterly cash dividends were declared during 1999 and 1998 totaling $1.15 and
$0.98 per common share per year. Note 18 of the Consolidated Financial
Statements details regulatory guidelines regarding payment of dividends. The
following table sets forth, for the periods indicated, the high and low sale
prices per share of the Corporation's common stock. All of the prices are
adjusted for a three for two stock split declared in the second quarter of 1998.
<TABLE>
<CAPTION>
Price Range
Quarter High Low Dividends
- --------------------------------------------------------------
<S> <C> <C> <C>
1999
Fourth $31.50 $27.50 $.300
Third 34.75 31.50 .300
Second 37.00 34.75 .300
First 39.50 37.00 .250
1998
Fourth 39.50 39.13 .250
Third 45.00 37.25 .250
Second 45.00 35.50 .250
First 35.50 30.67 .233
Amounts retroactively adjusted for stock splits and dividends.
</TABLE>
<PAGE> 7
Item 6 - Selected Financial Data - Empire Banc Corporation
<TABLE>
<CAPTION>
(in thousands, except share data)
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Interest income $ 38,019 $ 36,559 $ 33,419 $ 30,599 $ 28,606
Interest expense 16,441 16,435 15,189 14,066 13,231
-------- -------- -------- -------- --------
Net interest income 21,578 20,124 18,230 16,533 15,375
Provision for loan losses 701 1,215 1,459 1,686 745
Non-interest income 8,334 8,759 6,809 5,850 5,017
Non-interest expense 18,364 18,539 15,737 13,861 13,494
-------- -------- -------- -------- --------
Income before taxes 10,847 9,129 7,843 6,836 6,153
Federal income taxes 3,582 3,032 2,598 2,259 2,007
-------- -------- -------- -------- --------
Net income $ 7,265 $ 6,097 $ 5,245 $ 4,577 $ 4,146
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------
Per Share (1):
Basic Earnings $ 2.39 $ 2.06 $ 1.81 $ 1.60 $ 1.46
Diluted earnings 2.29 1.93 1.68 1.48 1.36
Dividends 1.15 0.98 0.87 0.73 .59
Book value 14.49 13.78 12.42 11.34 10.50
- ----------------------------------------------------------------------------------
Ratios Based on Net Income:
Return on average
shareholders' equity 17.03% 15.85% 15.36% 14.72% 14.81%
Return on average assets 1.47 1.33 1.26 1.20 1.18
Dividend payout ratio 48.49 47.71 48.08 45.88 40.30
Average shareholders' equity
as a percent of average assets 8.64 8.37 8.23 8.14 7.96
- ----------------------------------------------------------------------------------
Balance Sheet:
Assets $505,700 $477,964 $442,953 $400,819 $372,426
Loans and loans held for sale 368,719 325,774 302,469 272,182 259,102
Securities 100,765 120,399 98,754 98,578 84,312
Deposits 418,423 410,139 386,670 344,354 319,540
Federal Home Loan Bank advances 30,000 17,000 12,000 --- ---
Shareholders' equity 45,886 40,756 36,199 32,673 30,005
- ----------------------------------------------------------------------------------
(1) Per share amounts have been adjusted for stock splits and dividends.
</TABLE>
<PAGE> 8
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Management's Discussion and Analysis is designed to provide readers with a
comprehensive review of the results of operations and financial position. This
discussion should be read in conjunction with the Consolidated Financial
Statements and related footnotes.
Summary of Earnings
In 1999, the Corporation achieved record earnings of $7,265,000, an increase of
$1,168,000, or 19.2 percent, over the $6,097,000 earned in 1998. In 1998, net
income increased $852,000, or 16.2 percent.
Earnings Per Share
Basic earnings per share were $2.39 for 1999, compared to $2.06 in 1998 and
$1.81 in 1997. Diluted earnings per share were $2.29, compared to $1.93 in 1998
and $1.68 in 1997.
Return on Average Shareholders' Equity
Return on average shareholders' equity measures how profitably the shareholders'
invested capital is employed. Return on average equity was 17.03 percent for
1999, compared to 15.85 percent and 15.36 percent in 1998 and 1997.
Return on Average Assets
Return on average assets, a measure of profitability, was 1.47 percent in 1999,
compared to 1.33 percent and 1.26 percent in 1998 and 1997.
Book Value Per Share
Book value per share of common stock increased 5 percent to $14.49 at December
31, 1999, compared to $13.78 and $12.42 at December 31, 1998 and 1997.
<PAGE> 9
Summary of Operating Results
The following is a summary of the major components of the consolidated operating
results:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $21,578 $20,124 $18,230
Add: Taxable equivalent (TE) adjustment 159 144 135
------- ------- -------
Net interest income - (TE) 21,737 20,268 18,365
Provision for loan losses 701 1,215 1,459
Non-interest income 8,334 8,759 6,809
Non-interest expense 18,364 18,539 15,737
------- ------- -------
Income before tax - (TE) 11,006 9,273 7,978
Income taxes,
including TE adjustment 3,741 3,176 2,733
------- ------- -------
Net income $ 7,265 $ 6,097 $ 5,245
======= ======= =======
- ----------------------------------------------------------------------
</TABLE>
Net Interest Income
Net interest income is the difference between interest and fees earned on
earning assets (loans and investments) and the interest paid on deposits and
other interest-bearing funds. It is the major component of earnings for a
financial institution. For analytical purposes, to evaluate the effective yields
earned on earning assets, interest earned is expressed on a taxable-equivalent
(TE) basis by increasing tax-exempt interest income to an amount comparable to
interest subject to income taxes. The taxable-equivalent adjustment is based on
a federal income tax rate of 34 percent.
Net interest income is influenced by changes in the balance and mix of earning
assets and interest-bearing liabilities, the proportion of earning assets funded
by demand deposits and equity capital and market interest rates.
Conditions beyond management's control may have a significant impact on changes
in net interest income from one period to another. Examples of such external
factors are Federal Reserve Board monetary policy, introduction of new deposit
products by bank and non-bank competitors and the fiscal and debt management
policies of the federal government.
The table on the following page details the key determinants of net interest
income: the average daily balance sheet for each year (including the components
of earning assets and supporting liabilities) and the related interest income on
a TE basis and interest expense, as well as the average rates earned and paid.
<PAGE> 10
Net Interest Income
Average Balance Sheet, Interest Income/Expense, Average Rates
<TABLE>
<CAPTION>
(dollars in thousands,
taxable equivalent) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans, including fees* $338,771 $30,718 9.07% $309,664 $29,269 9.45% $289,828 $27,081 9.34%
Taxable securities 104,806 6,283 5.99% 100,571 6,227 6.19% 89,331 5,728 6.41%
Tax-exempt securities* 7,166 456 6.36% 5,507 379 6.88% 5,213 369 7.08%
-------- ------- -------- ------- -------- -------
Securities 111,972 6,739 6.02% 106,078 6,606 6.23% 94,544 6,097 6.45%
Federal funds sold 14,506 721 4.97% 15,483 828 5.35% 6,882 376 5.46%
------- ------- -------- ------- -------- -------
Earning assets 465,249 38,178 8.21% 431,225 36,703 8.51% 391,254 33,554 8.58%
Cash and due from banks 15,703 17,465 14,950
Other assets 12,934 10,937 8,578
-------- -------- --------
Total assets $493,886 $459,627 $414,782
======== ======== ========
Liabilities and equity
CDs over $100,000 $ 12,209 576 4.72% $ 10,603 547 5.16% $ 10,690 566 5.29%
Savings and
interest checking 75,177 1,520 2.02% 71,155 1,564 2.20% 64,526 1,427 2.21%
Money market deposits 130,958 5,223 3.99% 113,435 4,953 4.37% 98,357 4,321 4.39%
Time deposits 143,293 8,075 5.64% 139,969 8,362 5.97% 134,480 8,119 6.04%
-------- ------- -------- ------- -------- -------
Interest-bearing
deposits 361,637 15,394 4.26% 335,162 15,426 4.60% 308,053 14,433 4.69%
FHLB advances
and other 17,344 1,047 6.04% 16,740 1,009 6.03% 12,870 756 5.87%
-------- ------- -------- ------- -------- -------
Interest-bearing
liabilities 378,981 16,441 4.34% 351,902 16,435 4.67% 320,923 15,189 4.73%
Demand deposits 62,398 60,589 52,794
Other liabilities 9,847 8,677 6,918
Shareholders' equity 42,660 38,459 34,147
-------- ------- -------- ------- -------- -------
Total liabilities
and equity $493,886 $459,627 $414,782
======== ======== ========
Net interest income (TE) $21,737 $20,268 $18,365
======= ======= =======
Net interest spread (TE) 3.87% 3.84% 3.85%
==== ==== ====
Net interest margin (TE) 4.67% 4.70% 4.69%
==== ==== ====
- --------------------------------------------------------------------------------------------------------
*Interest income on tax-exempt securities and certain tax-exempt loans have been
adjusted to a tax-equivalent basis.
</TABLE>
<PAGE> 11
An analysis of the changes in net interest income is presented in the following
table. This analysis highlights the relative effect of changes in the average
balances and interest rates.
Analysis of Changes in Net Interest Income
<TABLE>
<CAPTION>
(in thousands,
taxable equivalent) 1999 vs. 1998 1998 vs. 1997
- --------------------------------------------------------------------------------------
Average Average
Increase (decrease) --------------- ---------------
due to change in: Balance Rate Net Balance Rate Net
------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans, including fees $2,596 $(1,147) $1,449 $1,820 $ 368 $2,188
Taxable securities 261 (205) 56 701 (202) 499
Tax-exempt securities 107 (30) 77 20 (10) 10
------ ------- ------ ------ ------ ------
Securities 368 (235) 133 721 (212) 509
Federal funds sold (51) (56) (107) 460 (8) 452
------ ------- ------ ------ ------ ------
Changes in interest income 2,913 (1,438) 1,475 3,001 148 3,149
Interest expense
CDs over $100,000 79 (50) 29 (5) (14) (19)
Savings and interest checking 85 (129) (44) 143 (6) 137
Money market deposits 722 (452) 270 658 (26) 632
Time deposits 195 (482) (287) 329 (86) 243
------ ------- ------ ------ ------ ------
Interest-bearing deposits 1,081 (1,113) (32) 1,125 (132) 993
FHLB advances and other 37 1 38 236 17 253
------ ------- ------ ------ ------ ------
Changes in interest expense 1,118 (1,112) 6 1,361 (115) 1,246
------ ------- ------ ------ ------ ------
Changes in net interest income $1,795 $ (326) $1,469 $1,640 $ 263 $1,903
====== ======= ====== ====== ====== ======
- --------------------------------------------------------------------------------------
Any variance attributable jointly to volume and rate changes is allocated to
volume and rate in proportion to the relationship of the absolute dollar amount
of the changes in volume and rate.
</TABLE>
<PAGE> 12
The following table allocates net interest income on earning assets by the
interest spread earned on assets funded by interest-bearing liabilities and the
amount funded by non-interest-bearing liabilities and equity capital. The
interest spread on earning assets funded by interest-bearing liabilities is the
difference between the average rate earned on total earning assets and the
average cost of interest-bearing liabilities. The interest spread on earning
assets funded by non-interest-bearing liabilities and equity capital is the rate
earned on earning assets.
<TABLE>
<CAPTION>
(dollars in thousands,
taxable equivalent) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
Average Net Average Net Average Net
Earning Interest Interest Earning Interest Interest Earning Interest Interest
Assets Spread Income Assets Spread Income Assets Spread Income
------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Source of funding
Interest-bearing
liabilities $378,981 3.87% $14,654 $351,902 3.84% $13,518 $320,923 3.85% $12,331
Non-interest-bearing
liabilities and
equity capital 86,268 8.21% 7,083 79,323 8.51% 6,750 70,331 8.58% 6,034
-------- ------- -------- ------- -------- -------
$465,249 $21,737 $431,225 $20,268 $391,254 $18,365
======== ======= ======== ======= ======== =======
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Net interest income (TE) increased $1.5 million, or 7 percent, in 1999 as
average earning assets increased $34 million, or 8 percent, and the net interest
margin (net interest income as a percentage of average earning assets) declined
3 basis points to 4.67 percent. Earning assets funded with interest-bearing
liabilities increased $27 million, or 8 percent, adding $1.1 million in net
interest income. Earning assets funded with non-interest-bearing liabilities and
equity capital increased $7 million, or 9 percent, and the earning asset rate
decreased 30 basis points, resulting in an additional $333,000 contribution to
net interest income in 1999 over 1998.
The increase in average earning assets was principally due to growth in the loan
portfolio, which on average increased $29 million, or 9 percent, while the
average rate decreased 38 basis points during 1999. Average commercial loans
increased $27 million, or 20 percent, and average consumer loans increased $6
million, or 6 percent, in 1999. Average outstanding residential real estate
loans declined $4 million during 1999. Average investment securities increased
$6 million, or 6 percent, and the average rate earned on the security portfolio
decreased 21 basis points. Overnight federal funds sold decreased on average $1
million and the rate earned on these funds decreased 38 basis points from 1998
following the trend in the overall economy.
<PAGE> 13
The primary funding source is interest-bearing deposits. Average
interest-bearing deposits increased $26 million, or 8 percent, and the average
rate paid decreased 34 basis points from 1998. The increase in average
interest-bearing deposits was primarily in money market investment accounts,
which increased $18 million, or 15 percent. Average short-term time certificates
in denominations of $100,000 or more approximated 3 percent of average total
deposits in 1999, 1998 and 1997, significantly below the levels of banks of
comparable size. Federal Home Loan Bank advances averaged $17.3 million in 1999
comparable to 1998.
In 1998, tax equivalent net interest income increased $1.9 million, or 10
percent, as average earning assets increased $40 million, or 10 percent, and the
net interest margin remained stable at 4.70 percent. The increase in average
earning assets was principally due to average loan growth of $20 million, or 7
percent, average security growth of $12 million, or 12 percent, and outstanding
overnight funds sold which increased on average $9 million in 1998. The increase
in earning assets funded with interest-bearing liabilities, accounted for $1.2
million of the increase in net interest income. The increase in earning assets
funded with non-interest-bearing liabilities, at a decreased rate, added
$716,000 in net interest income.
Loan Portfolio Management and Non-Performing Assets
Portfolio Quality
Loan portfolio quality, diversification of the portfolio and the monitoring of
potential problem loans are the primary functions of loan portfolio management.
The Bank has established written loan policies and procedures. Management has
established a loan review process which provides for frequent review of the loan
portfolio in order to monitor loan portfolio quality and performance. In
addition, management conducts a review of loan concentrations which could have
an impact on the financial condition of the Bank. As of December 31, 1999, loans
to borrowers in the industries of "Offices of Physicians", $23.3 million,
"Lessors of Non-Residential Buildings", $23.9 million, and "Hotels/Motels",
$13.7 million, represented loan concentrations per regulatory guidelines. The
medical community in the Corporation's service area is led by a highly rated
regional provider of health services. The growth potential of the medical
community and the strong personal earnings and financial strength of medical
professionals is a source of future loan, deposit and trust asset management
growth for the Corporation.
Loans outstanding at year-end for the five years ended December 31, are shown in
the following table according to the type of loan:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $179,080 $153,115 $132,310 $122,322 $120,369
Mortgage 80,505 71,259 77,896 69,467 61,755
Consumer 71,956 64,069 61,850 59,031 63,328
Revolving Credit 34,960 31,158 27,668 19,483 11,596
-------- -------- -------- -------- --------
$366,501 $319,601 $299,724 $270,303 $257,048
======== ======== ======== ======== ========
Mortgage loans held
for sale $ 2,218 $ 6,173 $ 2,745 $ 1,879 $ 2,054
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------
</TABLE>
<PAGE> 14
Maturity and Rate Sensitivity of Selected Loans
The following table presents the remaining maturity of total loans outstanding
(excluding residential real estate mortgage and consumer loans) at December 31,
1999, according to scheduled repayments of principal:
<TABLE>
<CAPTION>
After One
Within But Within After
(in thousands) One Year Five Years Five Years Total
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total loans $49,253 $228,380 $88,868 $366,501
Less:
Residential mortgage
and consumer loans 12,434 109,274 65,713 187,421
------- -------- ------- --------
$36,819 $119,106 $23,155 $179,080
======= ======== ======= ========
Loans maturing with:
Fixed interest rates $19,496 $109,443 $16,815 $145,754
Variable interest rates 17,323 9,663 6,340 33,326
------- -------- ------- --------
$36,819 $119,106 $23,155 $179,080
======= ======== ======= ========
- ----------------------------------------------------------------------------
</TABLE>
Non-Performing Assets and Problem Loans
The following table is a summary of non-performing assets as of December 31:
<TABLE>
<CAPTION>
(dollars in thousands) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $1,950 $1,283 $ 893 $2,131 $ 867
Renegotiated loans 225 408 210 408 606
------ ------ ------ ------ ------
Total non-performing loans 2,175 1,691 1,103 2,539 1,473
Other real estate 307 221 177 -- 280
------ ------ ------ ------ ------
Total non-performing assets $2,482 $1,912 $1,280 $2,539 $1,753
====== ====== ====== ====== ======
Non-performing assets as
a percent of total loans .68% .60% .43% .94% .68%
Accruing loans 90 days or
more past due $ 6 $ 189 $ 367 $ 172 $ 72
- -------------------------------------------------------------------------
</TABLE>
<PAGE> 15
In 1999, total non-performing assets increased $570,000, or 30 percent.
Non-accrual loans increased $667,000, renegotiated loans declined $183,000 and
other real estate increased $86,000 from year-end 1998. Accruing loans 90 days
or more past due declined $183,000 from year-end 1998 to total $6,000 at
December 31, 1999. The ratio of non-performing assets as a percent of total
loans was 0.68 percent of total loans at December 31, 1999. In addition to loans
classified as non-performing, or 90 days past due, there are other potential
problem loans totaling $1.2 million at December 31, 1999, on which management
closely monitors the borrowers' ability to comply with payment terms.
Management regularly reviews the loan portfolio to identify loans about which
there are concerns that the borrower will be unable to satisfy existing payment
terms. Management reports monthly to the board of directors information
regarding significant past-due and problem loans, non-accrual loans and other
real estate owned. Non-performing assets are carried at estimated realizable
values and the known losses of principal have been recognized. Management cannot
accurately predict which, if any, loans will eventually result in losses.
Interest accrual is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that
collection of interest is doubtful. The gross interest income that would have
been recorded in 1999 on the $1,950,000 of non-accrual loans amounted to
$115,000 if the loans would have been current in accordance with their original
terms. The amount of interest income included in net income on these loans
amounted to $87,000.
All loans classified for regulatory purposes as loss, doubtful, or substandard
have been included in the above disclosures. There were no other interest
bearing assets at December 31, 1999, other than $307,000 of other real estate,
that would be required to be disclosed as non-performing or potential problem
loans.
There were no foreign loans outstanding at December 31, 1999.
<PAGE> 16
Provision for Loan Losses
The following table summarizes the provision for loan losses, net loan losses
and the allowance for loan losses over the last five years:
<TABLE>
<CAPTION>
(dollars in thousands) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Provision for loan losses $ 701 $1,215 $1,459 $1,686 $ 745
Net loan losses 126 515 859 1,361 445
Year-end allowance for loan losses 5,400 4,825 4,125 3,525 3,200
Allowance as a percent of
year-end loans 1.47% 1.51% 1.38% 1.30% 1.24%
Net loan losses to average loans
outstanding .04% .17% .30% .52% .18%
- -------------------------------------------------------------------------------
</TABLE>
In 1999, the allowance for loan losses increased $575,000 and was 1.47 percent
of loans at December 31, 1999. Management believes this increase in the
allowance for loan losses is prudent with the continued growth in the loan
portfolio, $47 million in 1999, with $26 million of this growth in commercial
loans. The allowance was 218 percent of non-performing assets at year-end 1999,
compared to 252 percent and 322 percent at December 31, 1998 and 1997. Net loan
losses in 1999 declined to 0.04 percent of average loans outstanding due to a 30
percent decrease in loans charged-off and a 72 percent increase in recoveries.
<PAGE> 17
Summary of Loan Loss Experience
Additional information relative to the allowance for loan losses is presented in
the following table. Factors which influence management's judgement in
determining the provision for loan losses each period include establishing
specific loss allowances for selected loans (including large loans, non-accrual
loans, and problem and delinquent loans) and consideration of historical loss
information and local economic conditions.
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses,
beginning of period $4,825 $4,125 $3,525 $3,200 $2,900
- --------------------------------------------------------------------------
Loans charged off:
Commercial 61 284 556 1,005 17
Real estate mortgages 28 4 49 -- 7
Consumer 342 386 408 514 575
Revolving credit 84 67 98 49 51
- --------------------------------------------------------------------------
Total charge-offs 515 741 1,111 1,568 650
- --------------------------------------------------------------------------
Recoveries:
Commercial 163 18 73 11 55
Real estate mortgages 7 2 -- -- 2
Consumer 188 188 161 182 135
Revolving credit 31 18 18 14 13
- --------------------------------------------------------------------------
Total recoveries 389 226 252 207 205
- --------------------------------------------------------------------------
Net charge-offs 126 515 859 1,361 445
- --------------------------------------------------------------------------
Provision charged to expense 701 1,215 1,459 1,686 745
- --------------------------------------------------------------------------
Allowance for loan losses
end of period $5,400 $4,825 $4,125 $3,525 $3,200
==========================================================================
- --------------------------------------------------------------------------
</TABLE>
<PAGE> 18
Allocation of the Allowance for Loan Losses
The allocation of the allowance for loan losses for the years ended December 31
is:
<TABLE>
<CAPTION>
Real estate
(dollars in Consumer mortgage/
thousands) Commercial and other construction Unallocated Total
- ----------------------------------------------------------------------- -----
<S> <C> <C> <C> <C> <C>
1999 Allowance amount $2,100 $ 680 $ 320 $2,300 $5,400
% loans/total loans 48.8% 29.2% 22.0% -- 100%
1998 Allowance amount $1,947 $ 538 $ 224 $2,116 $4,825
% loans/total loans 47.9% 29.8% 22.3% -- 100%
1997 Allowance amount $1,892 $ 571 $ 128 $1,534 $4,125
% loans/total loans 44.1% 29.9% 26.0% -- 100%
1996 Allowance amount $1,826 $ 538 $ 75 $1,086 $3,525
% loans/total loans 45.3% 29.0% 25.7% -- 100%
1995 Allowance amount $1,378 $ 602 $ 75 $1,145 $3,200
% loans/total loans 46.9% 29.1% 24.0% -- 100%
- ----------------------------------------------------------------------------
</TABLE>
Non-Interest Income
Total non-interest income decreased $425,000, or 5 percent, from 1998. Trust
income increased $272,000, or 9 percent, in 1999 as funds under management
increased $35 million, or 7 percent. Income from the sales of mortgage loans
decreased $1.0 million or 35%, with decreased mortgage loan origination and
sales activity. Deposit fees increased $175,000, or 12 percent, and other
service charges and fees increased $231,000, or 21 percent during the year. Loan
service fees, net of amortization, increased $273,000, or 263%, from 1998 which
was effected by greater amortization of mortgage servicing rights in 1998 due to
refinancing activity. Security losses of $138,000 were recorded in 1999 compared
to gains of $143,000 in 1998.
In 1998, total non-interest income increased $1,950,000, or 29 percent from
1997. Trust fees increased $249,000, or 9 percent, due to a 44 percent increase
in assets under management. Income from the origination and sales of mortgage
loans increased $1.7 million, or 139 percent. Deposit fees increased $48,000, or
3 percent, and other service charges and fees increased $154,000, or 16 percent.
Net loan service fees declined $354,000, or 77%, in 1998 as strong loan
refinancing activity resulted in increased amortization of mortgage servicing
rights in 1998. Security gains of $143,000 were recorded in 1998 compared to
losses of $6,000 in 1997.
<PAGE> 19
Non-Interest Expense
In 1999, total non-interest expense decreased $175,000, or 1 percent, from 1998
results. Total personnel expense decreased $747,000, or 6 percent. Compensation
expense related to the Corporation's stock price declined $1.9 million, offset
by increased salary expense of $739,000. Other personnel costs increased
$441,000 from 1998, including a $193,000, or 19 percent, increase in the profit
sharing incentive award.
Occupancy costs increased $108,000, or 10 percent, impacted by costs associated
with enlarging the main office facility. Equipment expense for 1999 increased
$227,000, or 19 percent, due primarily to costs related to technology
enhancements which increased $236,000, or 28 percent.
Outside processing and other services expense remained stable during 1999. Legal
and professional fees increased $111,000 with normal activity. Business taxes,
which are largely based on the level of salaries and employee benefits,
decreased $152,000, primarily due to the effect of the $1.9 million reduction in
compensation expense related to the Corporation's stock price. Other operating
expense increased $254,000, or 9 percent, due to the general growth of activity
of the Corporation.
In 1998, total non-interest expense increased $2.8 million, or 18 percent.
Personnel expense increased $1.6 million, or 16 percent, as salaries and wages
increased $979,000, or 16 percent, fueled by commission expense related to the
increase in mortgage lending activity. Other personnel costs increased $650,000
from 1997. Occupancy expense remained stable in 1998 and equipment expense
increased $284,000, or 32 percent, due to enhancements to technology. Other
operating expense increased $851,000, or 22 percent from 1997, primarily due to
increased activity-based, marketing and business tax expense.
Federal Income Taxes
Federal income tax expense for 1999 was $3,582,000, compared to $3,032,000 in
1998 and $2,598,000 in 1997, due to the increased profitability of the
Corporation. The Corporation's effective tax rate has been substantially
unchanged from 1997 through 1999 due to the consistency of statutory tax rates
and the relative percentage of tax-exempt income.
Capital Resources and Cash Dividends
The foundation of a strong financial institution is a strong capital base. In
1999, shareholders' equity increased $5.1 million, or 13 percent, to $45.9
million at year-end. During 1998, total shareholders' equity increased $4.6
million, or 13 percent, over 1997. Shareholders' equity was 9.1 percent of total
assets at December 31, 1999, as compared to 8.5 percent at December 31, 1998.
The federal bank regulatory agencies have established capital standards for
financial institutions. The Corporation's capital ratios are all significantly
above the guidelines for well-capitalized institutions. Note 16 to the
Consolidated Financial Statements details the Corporation's regulatory capital
and the capital standards.
<PAGE> 20
Total cash dividends declared in 1999 were $3,523,000, or $1.15 per share,
compared to $2,909,000, or $.98 per share, in 1998, a 17 percent increase. The
dividend payout ratio was 48 percent in 1999, 1998 and 1997. A three-for-two
stock split was declared in the second quarter of 1998 and a 10 percent stock
dividend was paid in November of 1997. Cash dividends per share have increased
at an average annual rate of 18 percent since 1991. Future dividends, if any,
are declared at the discretion of the board of directors and may be determined
by the financial performance, future prospects and capital requirements of the
Corporation.
The Corporation's principal source of funds to pay cash dividends is the
earnings of its subsidiary, Empire National Bank. Consequently, cash dividends
depend upon the earnings, capital needs, regulatory restraints and other factors
affecting the Bank. See Note 18 to the Consolidated Financial Statements.
The Corporation maintains a five-year capital plan and utilizes a formal
strategic planning process. Management and the board of directors monitor
long-term goals, which include maintaining capital growth in relation to the
risk profile of the Corporation and the retention of earnings to fund asset
growth, while providing returns to shareholders.
Interest Rate Sensitivity and Liquidity
Asset and liability management involves developing and implementing strategies
to maximize net interest income, minimizing the vulnerability of earnings to
major changes in interest rates and allowing the Bank to profitably compete in
all phases of the business cycle. This process is carried out through monthly
meetings of senior officers representing lending, deposit-gathering, funds
management and marketing.
Interest rate risk arises when the maturity or repricing characteristics of
assets differ significantly from the maturity or the repricing characteristics
of liabilities. One of the goals of asset and liability management is to balance
the various factors that create interest rate risk, thereby maintaining the
interest rate risk of the Bank within acceptable levels.
While controlling interest rate risk is an important objective, accommodating
customer maturity and repricing preferences is an equally important objective.
It is the function of asset and liability management to develop strategies to
reconcile these objectives. Management has developed definitive policies and
procedures to mitigate interest rate risk. These include the sale of long-term
residential mortgages in the secondary market and long-term commercial loans
written with three- and five-year balloons.
The Bank measures the impact of changes in interest rates on net interest income
through a comprehensive analysis of the Bank's interest-rate-sensitive assets
and liabilities. This analysis takes into consideration projected changes in
market interest rates and alternative rate scenarios, changes in the rate of
individual interest-rate-sensitive assets and liabilities and the effect of
competition. Through this quarterly analysis, management estimates the projected
effect on net interest income. During the annual planning process, net interest
income is projected using alternative interest rate scenarios to determine the
<PAGE> 21
effect of changing interest rates on net interest income. The board of directors
has established policy limits for the fluctuation of net interest income due to
projected interest rate changes.
The years of 1995 through 1999 included periods of sustained interest rate
decreases and increases as well as changes in the shape of the yield curve. A
stable tax equivalent net interest margin and the steady increase in net
interest income demonstrate the effectiveness of these risk management
techniques.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest margin (TE) 4.67% 4.70% 4.69% 4.62% 4.66%
- ---------------------------------------------------------------------
</TABLE>
Liquidity management is closely related to asset and liability management.
Liquidity management maintains the resources to fund withdrawals and other
operating requirements. Monitoring maturities and future commitments and the use
of short-term investments are integral parts of liquidity management.
The primary objective of the Bank's investment portfolio is to invest in
securities of high quality that will provide a reasonable return and will allow
the Bank to maintain a sound liquidity position. Management of the portfolio is
an integral part of liquidity and interest rate risk management. The Bank does
not have complex or leveraged derivatives or structured notes in its portfolio.
The board of directors has established policies regarding the potential price
fluctuation of the available for sale portfolio. This portfolio had net
unrealized losses of $1,237,000 and gains of $1,460,000 at December 31, 1999 and
1998. The price fluctuations experienced during 1999 and 1998 were primarily due
to changes in market interest rates and were well within the policies
established by the board of directors. Realization of any unrealized gain or
loss will depend upon future portfolio management, interest rate risk management
and liquidity needs of the Bank. The regulatory agencies do not include the net
unrealized gain or loss on debt securities in the calculation of regulatory
capital.
<PAGE> 22
An analysis of securities for the five years ended December 31 were as follows:
<TABLE>
<CAPTION>
Available for sale
(in thousands) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. government
and agency $ 40,972 $ 55,524 $37,302 $32,119 $27,154
State and municipal 17,380 13,589 -- -- --
Mortgage-backed 21,467 24,366 23,592 27,202 18,250
Other 18,263 24,367 2,373 -- --
Equity 2,683 2,553 2,508 2,453 2,425
-------- -------- ------- ------- -------
Total $100,765 $120,399 $65,775 $61,774 $47,829
======== ======== ======= ======= =======
</TABLE>
Held to maturity
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. government
and agency $ -- $ -- $ 9,515 $17,489 $23,530
State and municipal -- -- 8,581 7,872 5,171
Other -- -- 14,883 11,443 7,782
------- ------- ------- ------- -------
Total $ -- $ -- $32,979 $36,804 $36,483
======= ======= ======= ======= =======
- -----------------------------------------------------------------------
</TABLE>
Other than securities guaranteed by the U.S. Government or its agencies, the
Bank held no investment securities from any one issuer that exceeded ten percent
of stockholders' equity at December 31, 1999.
During 1998, the Bank implemented a regulatory approved program for reducing the
amount of daily reserve balances required to be held with the Federal Reserve.
Required reserve balances at December 31, 1999 and 1998 were $731,000 and
$617,000.
Deposit growth through core deposits provides the primary funding for increases
in loans and investment securities. Core deposits include demand deposits,
savings and money market accounts and certificates of deposit of consumer and
corporate customers. For 1999 and 1998, core deposits have averaged
approximately 97 percent of total deposits.
Management regularly assesses the ability of the Bank to raise funds through
certificates of deposit in denominations of $100,000 or more in the local and
regional market area and has established conservative
<PAGE> 23
guidelines for the total funding to be provided by these deposits. These
deposits totaled $12.6 million at December 31, 1999.
Total certificates of deposit of $100,000 or more, including other personal and
IRA deposits, amounted to $28,390,000 at December 31, 1999, with scheduled
maturities as follows:
<TABLE>
<CAPTION>
(in thousands) December 31, 1999
- -----------------------------------------------
<S> <C>
Due in:
3 months or less $11,487
3 to 6 months 5,032
6 to 12 months 3,609
over 1 year 8,262
-------
$28,390
=======
</TABLE>
Management also believes that an integral part of liquidity management is the
development of other sources of funding. It is management's policy to actively
cultivate and maintain relationships with correspondent and other banks for
sales of loans for liquidity, credit and interest rate risk management.
Additionally, the Bank has federal funds lines with correspondent banks and may
borrow from the Federal Reserve Bank.
The Bank is a member of the Federal Home Loan Bank of Indianapolis, which
provides an additional source of liquidity and long-term funds to meet the
borrowing needs of customers. Advances from the Federal Home Loan Bank are
secured through the pledge of investment securities or mortgage loans. Federal
Home Loan Bank borrowings totaled $30 million at December 31, 1999 and $17
million at December 31, 1998. Management believes that with the combination of
federal funds lines, borrowings from the Federal Reserve Bank and the Federal
Home Loan Bank, the Bank has more than adequate resources available to meet
liquidity needs and to provide for growth.
Item 7A - Quantitative and Qualitative Disclosures about Market Risk
The Corporation's primary market risk exposure is interest rate risk and to a
lesser extent liquidity risk. See Interest Rate Sensitivity and Liquidity, on
page 20. Business is transacted in U.S. dollars with no foreign exchange rate
risk or any exposure to changes in commodity prices. There have been no
financial instruments obtained for trading purposes.
The following table provides information about the Corporation's financial
instruments that are sensitive to changes in interest rates as of December 31,
1999 and 1998. For loans, securities and liabilities with contractual
maturities, the table presents principal cash flows and related weighted-average
interest rates, adjusting the instrument's contractual maturity date for
estimated prepayments. Similarly, expected maturity date values and related
weighted-average interest rates for non-maturity core deposits were calculated
based upon estimates of the period over which the deposits would be outstanding.
Fair value for loans is presented on a gross basis, not net of allowance for
loan losses. The Corporation has no derivative financial instruments or trading
portfolio at December 31, 1999 or 1998.
<PAGE> 24
<TABLE>
<CAPTION>
Expected Maturity Date - Year Ended December 31
December 31,
1999 1998
------------- -------------
(dollars in There- Fair Fair
millions) 2000 2001 2002 2003 2004 after Total Value Total Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Fixed rate loans $85.8 $60.8 $45.8 $37.9 $ 1.0 $ 2.0 $233.3 $231.7 $196.8 $200.3
Avg interest rate 8.5% 8.6% 8.9% 8.7% 8.5% 8.3% 8.6% -- 8.7% --
Variable rate loans$49.4 $31.7 $19.3 $ 8.8 $ 5.7 $18.3 $133.2 $134.8 $122.8 $123.3
Avg interest rate 8.7% 9.2% 9.2% 9.2% 9.0% 9.2% 9.0% -- 8.7% --
Fixed rate
debt securities $29.0 $25.2 $19.3 $12.0 $ 3.1 $ 6.9 $ 95.5 $ 95.5 $115.0 $115.0
Avg interest rate 6.1% 5.9% 6.2% 6.1% 6.2% 6.9% 6.2% -- 5.9% --
Variable rate
debt securities $ .2 $ .2 $ .6 $ .1 $ .1 $ 1.4 $ 2.6 $ 2.6 $ 2.8 $ 2.8
Avg interest rate 6.2% 6.2% 6.6% 6.1% 6.1% 6.5% 6.4% -- 6.2% --
Equity securities -- -- -- -- -- $ 2.7 $ 2.7 $ 2.7 $ 2.6 $ 2.6
Liabilities
Non-interest-bearing
checking $30.7 $10.9 $10.8 $ 6.7 $ 6.7 $ 1.1 $ 66.9 $ 66.9 $ 61.2 $ 61.2
Avg interest rate -- -- -- -- -- -- 0.0% -- 0.0% --
Savings & interest-bearing
checking $57.5 $52.1 $52.0 $ 7.8 $ 7.8 $15.5 $192.7 $192.7 $192.5 $192.5
Avg interest rate 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% -- 3.2% --
Time deposits $85.8 $27.0 $22.8 $ 8.9 $11.9 $ 2.4 $158.8 $159.5 $156.4 $159.9
Avg interest rate 5.5% 5.6% 6.0% 5.5% 6.2% 6.1% 5.7% -- 5.7% --
Fixed rate
borrowings $ 9.0 $ 4.0 $ 4.0 $10.0 $ 3.0 -- $ 30.0 $ 29.5 $ 17.0 $ 17.4
Avg interest rate 5.7% 6.6% 6.7% 5.8% 6.0% -- 6.0% -- 6.0% --
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 25
The table below shows the rate sensitivity of earning assets and interest
bearing liabilities as of December 31, 1999. Loans and investments are
categorized using their scheduled payment dates, where applicable. Savings,
interest checking and money market deposit accounts are considered to be
immediately capable of repricing. All other liabilities are reported by their
scheduled maturities, and no adjustments for possible prepayments are included
in the table.
Interest Sensitivity Summary
<TABLE>
<CAPTION>
(dollars 0-90 91-365 1-5 Over 5
in millions) Days Days Years Years Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans $ 89.5 $ 55.1 $193.0 $ 28.9 $366.5
Securities and fed funds sold 9.5 17.6 54.6 22.4 104.1
------- ------- ------ ------ ------
Total earning assets 99.0 72.7 247.6 51.3 470.6
Savings and interest checking 77.7 -- -- -- 77.7
Money market deposits 115.0 -- -- -- 115.0
Time deposits 34.6 51.2 70.6 2.4 158.8
FHLB advances and fed funds
purchased 12.0 -- 21.0 -- 33.0
------- ------- ------ ------ ------
Total interest-bearing
liabilities 239.3 51.2 91.6 2.4 384.5
------- ------- ------ ------ ------
Net funding gap $(140.3) $ 21.5 $156.0 $ 48.9 $ 86.1
======= ======= ====== ====== ======
Cumulative gap $(140.3) $(118.8) $ 37.2 $ 86.1
Cumulative gap ratio .41 .59 1.10 1.22
Cumulative gap as a
percent of total assets -27.7% -23.5% 7.4% 17.0%
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE> 26
Other Matters
Year 2000
During 1999, the Corporation completed its comprehensive Year 2000 (Y2K) plan in
preparing for the Year 2000 date change. The plan involved identifying and
providing a remedy for date recognition problems that might pertain to any facet
of the Corporation's business. These included potential problems in computer
hardware and software, physical plant and other equipment, working with third
parties to address their Year 2000 issues, assessing major loan and deposit
customers for potential risk and developing contingency plans to address
potential risks in the event of Year 2000 failures. To date, the Corporation has
experienced no disruption in service of any type in the transition to 2000.
There was no material effect for the Corporation on financial performance in
preparing for the Year 2000 transition. Some minor hardware replacements were
needed and those expenditures were less than $50,000. The Corporation utilized
existing staff and resources for testing and implementation of its Year 2000
plan with no additional material financial impact.
Although considered unlikely, unanticipated problems in the Corporation's core
business process, including problems associated with non-compliant third parties
and disruptions to the economy in general, could still occur despite efforts to
date to remedy affected systems and develop contingency plans. All business
processes will continue to be monitored, including interaction with the
Corporation's customers, vendors and other third parties, throughout 2000 to
address any issues and ensure all processes continue to function properly.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time due to inflation. The primary impact of inflation is reflected in the
increased cost of the Corporation's operations. Unlike most industrial
companies, virtually all the assets and liabilities of the Corporation are
monetary in nature. As a result, interest rates generally have a more
significant impact on a financial institution's performance than do the effects
of general levels of inflation. Interest rates do not necessarily move in the
same direction, or to the same extent, as the prices of goods and services.
Forward-Looking Statements
Certain statements contained in this annual report to shareholders constitute
"forward looking statements" as prescribed by regulation. Uncertainties and
other factors may cause actual results to differ materially from those expressed
or implied by such forward looking statements. Forward-looking statements in
this annual report are based on current expectations and/or the assumptions made
in the 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> 27
Item 8 - Financial Statements and Supplementary Data
Consolidated Balance Sheets-Empire Banc Corporation
<TABLE>
<CAPTION>
December 31
(in thousands, except share data) 1999 1998
- --------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 19,174 $ 15,740
Federal funds sold 3,300 5,600
-------- --------
Cash and cash equivalents 22,474 21,340
Securities available for sale 100,765 120,399
Loans
Commercial 179,080 153,115
Residential real estate 80,505 71,259
Consumer 106,916 95,227
-------- -------
Total loans 366,501 319,601
Allowance for loan losses (5,400) (4,825)
-------- -------
Net loans 361,101 314,776
Mortgage loans held for sale 2,218 6,173
Premises and equipment 5,938 5,503
Accrued interest receivable 3,009 3,021
Other assets 10,195 6,752
-------- --------
Total assets $505,700 $477,964
======== ========
Liabilities
Deposits
Non-interest-bearing $ 66,896 $ 61,221
Interest-bearing 351,527 348,918
-------- --------
Total deposits 418,423 410,139
Federal funds purchased 3,000 ---
Federal Home Loan Bank advances 30,000 17,000
Accrued interest payable 1,116 1,118
Other liabilities 7,275 8,951
-------- --------
Total liabilities 459,814 437,208
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: 1999-3,166,234; 1998-2,957,398 33,452 30,283
Retained earnings 13,251 9,509
Accumulated other comprehensive income (loss) (817) 964
-------- --------
Total shareholders' equity 45,886 40,756
-------- --------
Total liabilities and shareholders' equity $505,700 $477,964
======== ========
- --------------------------------------------------------------------------
See accompanying notes.
</TABLE>
<PAGE> 28
Consolidated Statements of Income-Empire Banc Corporation
<TABLE>
<CAPTION>
Year Ended December 31
(in thousands, except share data) 1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income
Loans, including fees $30,698 $29,240 $27,059
Securities: taxable 6,283 6,227 5,728
tax-exempt 317 264 256
Federal funds sold 721 828 376
------- ------- -------
Total interest income 38,019 36,559 33,419
Interest expense
Deposits 15,394 15,426 14,433
Federal Home Loan Bank advances
and other borrowings 1,047 1,009 756
------- ------- -------
Total interest expense 16,441 16,435 15,189
------- ------- -------
Net interest income 21,578 20,124 18,230
Provision for loan losses 701 1,215 1,459
------- ------- -------
Net interest income after
provision for loan losses 20,877 18,909 16,771
Non-interest income
Trust 3,169 2,897 2,648
Net gains from sale of mortgage loans 1,915 2,938 1,227
Deposit fees 1,651 1,476 1,428
Service charges 1,346 1,115 961
Loan service fees, net 377 104 458
Other income 14 86 93
Security gains (losses) (138) 143 (6)
------- ------- -------
Total non-interest income 8,334 8,759 6,809
Non-interest expense
Salaries and employee benefits 10,862 11,609 9,980
Occupancy 1,205 1,097 1,059
Furniture and equipment 1,406 1,179 895
Outside processing and other services 881 857 618
Legal and professional 435 324 499
Business taxes 518 670 356
Other expense 3,057 2,803 2,330
------- ------- -------
Total non-interest expense 18,364 18,539 15,737
------- ------- -------
Income before federal income taxes 10,847 9,129 7,843
Federal income taxes 3,582 3,032 2,598
------- ------- -------
Net income $ 7,265 $ 6,097 $ 5,245
======= ======= =======
- --------------------------------------------------------------------------
</TABLE>
<PAGE> 29
Consolidated Statements of Income-Empire Banc Corporation
(continued)
<TABLE>
<CAPTION>
Year Ended December 31
(in thousands, except per-share data) 1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share $ 2.39 $ 2.06 $ 1.81
Diluted earnings per share $ 2.29 $ 1.93 $ 1.68
Basic average shares outstanding 3,038 2,960 2,902
Diluted average shares outstanding 3,167 3,164 3,128
- --------------------------------------------------------------------------
See accompanying notes.
</TABLE>
Consolidated Statements of Comprehensive Income
Empire Banc Corporation
<TABLE>
<CAPTION>
Year Ended December 31
(in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 7,265 $6,097 $5,245
Other comprehensive income (loss)
Net unrealized gains (losses) on securities
available for sale, net of tax (1,872) 289 175
Reclassification adjustment for amounts
realized on sales of securities available
for sale, included in net income, net of tax 91 (94) 4
Net unrealized gains on securities
transferred from the held-to-maturity
to the available-for-sale category,
net of tax --- 416 --
------- ------ ------
Total other comprehensive income (loss) (1,781) 611 179
------- ------ ------
Comprehensive income $ 5,484 $6,708 $5,424
======= ====== ======
- ------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
<PAGE> 30
Consolidated Statements of Changes in Shareholders' Equity
Empire Banc Corporation
<TABLE>
<CAPTION>
Accumulated
Other
Compre- Total
hensive Share-
Common Retained Income holders'
(in thousands, except share data) Shares Stock Earnings (loss) Equity
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 1,746,009 $21,080 $11,419 $ 174 $32,673
Net income for 1997 -- -- 5,245 -- 5,245
Common stock issued, net of
redemptions and tax benefits 21,314 504 -- -- 504
10% stock dividend 175,758 7,821 (7,821) -- --
Directors' deferred compensation plan -- 120 -- -- 120
Change in net unrealized gain (loss)
on securities available for sale,
net of tax of $92 -- -- -- 179 179
Cash dividends - $.87 per share -- -- (2,522) -- (2,522)
--------- ------- ------- ------- ------
Balance at December 31, 1997 1,943,081 29,525 6,321 353 36,199
Net income for 1998 -- -- 6,097 -- 6,097
Common stock issued, net of
redemptions and tax benefits 32,726 648 -- -- 648
3 for 2 stock split 981,591 -- -- -- --
Directors deferred compensation plan -- 110 -- -- 110
Net unrealized holding gains on
securities transferred from the held-
to-maturity to the available-for-sale
category, net of tax of $215 -- -- -- 416 416
Change in net unrealized gain (loss)
on securities available for sale,
net of tax of $99 -- -- -- 195 195
Cash dividends - $.98 per share -- -- (2,909) -- (2,909)
--------- ------- ------- ------- ------
Balance at December 31, 1998 2,957,398 30,283 9,509 964 40,756
Net income for 1999 -- -- 7,265 -- 7,265
Common stock issued, net of
redemptions and tax benefits 208,836 3,032 -- -- 3,032
Directors deferred compensation plan -- 137 -- -- 137
Change in net unrealized gain (loss)
on securities available for sale,
net of tax of $(916) -- -- -- (1,781) (1,781)
Cash dividends - $1.15 per share -- -- (3,523) -- (3,523)
--------- ------- ------- ------- -------
Balance at December 31, 1999 3,166,234 $33,452 $13,251 $ (817) $45,886
========= ======= ======= ======= =======
- ------------------------------------------------------------------------------------------
See accompanying notes
</TABLE>
<PAGE> 31
Consolidated Statements of Cash Flows-Empire Banc Corporation
<TABLE>
<CAPTION>
Year Ended December 31
(in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 7,265 $ 6,097 $ 5,245
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization of premises
and equipment 1,095 926 727
Provision for loan losses 701 1,215 1,459
Mortgage loans originated for sale (95,919) (150,999) (60,650)
Sale of mortgage loans 101,789 152,557 62,743
Net gain on loans held for sale (1,915) (2,938) (1,227)
Net (gain)loss on securities available for sale 138 (143) 6
Net amortization/accretion on securities 519 58 146
Change in:
Accrued interest receivable 12 (347) (43)
Accrued interest payable (2) (10) 95
Other assets (2,201) (447) (1,527)
Other liabilities (16) 1,832 1,804
------- ------- -------
Total adjustments 4,201 1,704 3,533
------- ------- -------
Net cash from operating activities 11,466 7,801 8,778
Investing activities
Securities available for sale
Proceeds from sales 5,741 399 992
Proceeds from maturities, repayments and calls 57,970 31,948 16,876
Purchases (47,431) (46,434) (12,001)
Securities held to maturity
Proceeds from maturities, repayments and calls --- 18,422 15,749
Purchases --- (24,970) (21,673)
Loans granted, net of repayments (47,026) (22,440) (32,012)
Investment in real estate limited partnership (129) --- ---
Premises and equipment expenditures, net (1,530) (1,444) (1,727)
-------- -------- -------
Net cash from investing activities (32,405) (44,519) (33,796)
Financing activities
Net increase in deposits 8,284 23,469 42,316
Change in federal funds purchased 3,000 -- (5,500)
Cash dividends paid (3,312) (2,849) (2,453)
Federal Home Loan Bank advances 18,000 10,000 --
Federal Home Loan Bank repayments (5,000) (5,000) --
Issuance of common stock, net 1,101 205 285
------- ------- -------
Net cash from financing activities 22,073 25,825 34,648
------- ------- -------
Net change in cash and cash equivalents 1,134 (10,893) 9,630
Beginning cash and cash equivalents 21,340 32,233 22,603
------- ------- -------
Ending cash and cash equivalents $22,474 $21,340 $32,233
======= ======= =======
</TABLE>
<PAGE> 32
Consolidated Statements of Cash Flows-Empire Banc Corporation (continued)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in thousands)
Year Ended December 31
1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid $16,443 $16,445 $15,094
Income taxes paid 2,580 2,856 2,584
Transfer of securities held to maturity
to available for sale --- 39,590 --
- ------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
<PAGE> 33
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Nature of Operations and Principles of Consolidation - Empire Banc Corporation
(the Corporation), a one-bank holding company for Empire National Bank (the
Bank), is the largest independent bank holding company in northern lower
Michigan. The Bank is in the general commercial, retail and mortgage banking
business, providing a full range of loan and deposit products. It operates a
trust department providing fiduciary, investment and other related services. The
Bank has contracted with a full service brokerage firm to offer mutual funds,
annuities and other brokerage products.
The Bank is headquartered in Traverse City, Michigan, which is the retail,
medical and financial hub for Michigan's northern lower peninsula. The Bank's
primary market area is the northwestern portion of Michigan's lower peninsula.
The consolidated financial statements include Empire Banc Corporation and its
wholly owned subsidiary, Empire National Bank. Intercompany transactions are
eliminated.
Segments - Empire Banc Corporation, through the branch network of its
subsidiary, Empire National Bank, provides a broad range of financial services
to individuals and companies in Michigan's northern lower peninsula. These
services include demand, time and savings deposits, lending and trust services.
While the decision makers monitor the revenue streams of the various products
and services, operations are managed and financial performance is evaluated on a
corporate-wide basis. Accordingly, all of the Corporation's banking operations
are considered by management to be aggregated in one reportable operating
segment.
Use of Estimates - To prepare financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided, and future
results could differ. The allowance for loan losses and fair values of financial
instruments are particularly subject to change.
Cash Flows - Cash and cash equivalents include cash on hand, demand deposits in
other institutions and federal funds sold. Net cash flows are reported for loan
and deposit transactions and short-term borrowings with original maturities of
90 days or less.
Securities - Securities available for sale may be sold prior to maturity. They
are reported at fair value and the net unrealized gain or loss is reported, net
of related tax, as a separate component of shareholders' equity and other
comprehensive income or loss. Securities held to maturity are those securities
which management has the ability and positive intent to hold to maturity and are
stated at amortized cost. Premiums and discounts are recognized in interest
income using the interest method. Gains and losses on the sale of securities are
determined using the specific identification method based on amortized cost.
Loans - Loans are reported at the principal balance outstanding net of deferred
loan fees and costs and an allowance for loan losses. Loans held for sale are
reported at the lower of cost or market, on an aggregate basis. Interest income
is reported on the interest method and includes amortization of net deferred
loan fees and costs over the loan term.
<PAGE> 34
Loans are placed on non-accrual status at 90 days or more past due, and Interest
is considered a loss, unless the loan is well-secured and in the process of
collection. Loans delinquent 180 days or more are charged-off unless both
well-secured and in the process of collection.
Allowance for Loan Losses - The allowance for loan losses represents the amount
management estimates is adequate to provide for losses inherent in the loan
portfolio. Management determines the allowance for loan losses by reviewing
selected loans (including large loans, non-accrual loans and problem and
delinquent loans) and establishing specific loss allocations on these loans.
Historical loss information and local economic conditions are considered in
establishing allowances on the remaining loans. The allowance is increased by
provisions charged to expense and reduced by loan losses, net of recoveries.
A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller balance loans of similar nature,
such as residential mortgage, consumer and revolving credit card loans, and on
an individual loan basis for other loans. If a loan is impaired, a portion of
the allowance is allocated so that the loan is reported, net, at the present
value of estimated future cash flows using the loan's existing rate or at the
fair value of collateral if repayment is expected solely from the collateral.
Premises and Equipment - Premises and equipment are depreciated over their
estimated useful lives and are stated at cost less accumulated depreciation.
Depreciation is computed principally using the straight-line method.
Foreclosed Assets - Assets acquired through or in lieu of foreclosure are
initially recorded at fair value when acquired, establishing a new cost basis.
If fair value declines, a valuation allowance is recorded through expense.
Costs after acquisition are expensed.
Servicing Rights - The Bank originates mortgage loans for sale to the secondary
market and sells the loans with servicing rights retained. Servicing rights are
expensed in proportion to, and over the period of, estimated net servicing
revenues. Impairment is evaluated based on the fair value of the rights by
stratifying them based on predominant risk characteristics of the underlying
serviced loans. These risk characteristics include interest rate, loan type,
term and prepayment characteristics. Any impairment of a grouping is reported as
a valuation allowance.
Income Taxes - Income tax expense is based on the taxes due on the tax return
plus the change in deferred tax assets and liabilities. Deferred tax assets and
liabilities measure the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
Earnings Per Share - Basic 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 three-for-two stock split
in 1998 and the 10% stock dividend in 1997.
Long-lived Assets - These assets are reviewed for impairment when events
indicate that the carrying amount may not be recoverable. If impaired, the
assets are recorded at discounted amounts.
<PAGE> 35
Stock-Based Compensation - Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), establishes a
fair-value-based method of accounting for employee stock options, but as
allowed, the Corporation continues measuring compensation cost for such plans
using prior accounting guidelines. If applicable, disclosures of net income and
earnings per share are provided as if the fair value method of SFAS 123 were
used for stock-based compensation. No stock options were granted in 1999, 1998
or 1997 requiring pro forma disclosures of net income and earnings per share
under SFAS 123.
Comprehensive Income - Comprehensive income consists of net income and other
comprehensive income or loss. Other comprehensive income or loss includes net
unrealized gains and losses on securities available for sale, net of tax, which
are also recognized as separate components of shareholders' equity.
New Accounting Pronouncement - Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133),
requires all derivatives to be recorded at fair value. Unless designated as
hedges, changes in these fair values will be recorded in the income statement.
Fair value changes involving hedges will generally be recorded by offsetting
gains and losses on the hedge and on the hedged item, even if the fair value of
the hedged item is not otherwise recorded. As of October 1, 1998, the
Corporation adopted this statement and, in accordance with its provisions, chose
to reclassify certain securities from held-to- maturity to available-for-sale.
The amortized cost of those securities was $39,590,000. The Corporation does not
have derivative instruments in its portfolio to account for under provisions of
this statement.
Loss Contingencies - Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.
Fair Values of Financial Instruments - Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate note. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
Reclassifications - Certain prior-year amounts have been reclassified to conform
with the current year's presentation.
Note 2 - Cash Reserve Requirements
Federal regulations require the Bank to set aside specified amounts of cash as
reserves against transaction and time deposits. These reserves may be held as
vault cash or in a non-interest-bearing account with the Federal Reserve. The
Bank's required reserve balances at December 31, 1999 and 1998 were $731,000 and
$617,000.
<PAGE> 36
Note 3 - Securities Available for Sale
Securities available for sale and their fair values at December 31 were as
follows:
<TABLE>
<CAPTION>
Available for sale
Amortized Unrealized Fair
(in thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
U.S. government and agency $ 41,340 $ 16 $ (384) $ 40,972
State and municipal 17,692 2 (314) 17.380
Mortgage-backed 21,983 13 (529) 21,467
Other 18,491 -- (228) 18,263
Equity 2,496 187 -- 2,683
-------- ------ ------- --------
$102,002 $ 218 $(1,455) $100,765
======== ====== ======= ========
1998
U.S. government and agency $ 54,851 $ 679 $ (6) $ 55,524
State and municipal 13,317 275 (3) 13,589
Mortgage-backed 24,204 202 (40) 24,366
Other 24,243 139 (15) 24,367
Equity 2,324 229 -- 2,553
-------- ------ ------- --------
$118,939 $1,524 $ (64) $120,399
======== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Sales of securities available for sale:
(in thousands) 1999 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales $5,741 $399 $992
Realized gains -- 143 --
Realized losses 138 -- 6
- ---------------------------------------------------------------------
</TABLE>
<PAGE> 37
Scheduled maturities of securities available for sale at December 31, 1999 were
as follows:
<TABLE>
<CAPTION>
Amortized Fair
(in thousands) Cost Value Yield
- -----------------------------------------------------------
<S> <C> <C> <C>
Due in one year or less $ 22,297 $ 22,258 6.05%
Due from one to five years 48,301 47,582 6.10%
Due from five to ten years 6,925 6,775 6.90%
Mortgage-backed 21,983 21,467 6.18%
Equity 2,496 2,683 7.04%
-------- --------
$102,002 $100,765 6.18%
======== ========
- ------------------------------------------------------------
</TABLE>
Investment securities with a book value of $44,526,000 and $16,952,000 at
December 31, 1999 and 1998 were pledged to secure public deposits and Federal
Home Loan Bank advances and for other purposes.
<PAGE> 38
Note 4 - Allowance for loan losses
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Balance January 1 $4,825 $4,125 $3,525
Loans charged off (515) (741) (1,111)
Recoveries 389 226 252
------ ------ ------
Net loans charged off (126) (515) (859)
Provision for loan losses 701 1,215 1,459
------ ------ ------
Balance December 31 $5,400 $4,825 $4,125
====== ====== ======
- --------------------------------------------------------------------------
</TABLE>
Impaired loans
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Impaired loans with reserves $ 884 $ 360 $ 312
Impaired loans without reserves 1,352 879 562
------ ------ ------
Impaired loans outstanding at year-end $2,236 $1,239 $ 874
====== ====== ======
Amount of allowance allocated
for impaired loans $ 140 $ 188 $ 184
Average of impaired loans during the year 1,959 1,151 $ 1,810
Interest income recognized during impairment 115 33 24
Cash-basis interest income recognized 87 23 17
- ---------------------------------------------------------------------------
</TABLE>
Foreclosed assets were $307,000 and $221,000 at December 31, 1999 and 1998.
Non-accrual loans outstanding at December 31, 1999 and 1998 were $1,950,000 and
$1,283,000. Substantially all non-accrual loans are considered impaired. If the
non-accrual loans were accruing, additional income of $28,000, $97,000 and
$104,000 would have been recorded in 1999,1998 and 1997.
<PAGE> 39
Note 5 - Secondary Mortgage Market Activities
Loans serviced for others, which are not reported as assets, totaled $329
million and $293 million at December 31, 1999 and 1998.
Activity for capitalized mortgage servicing rights and the related valuation
allowance was as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Servicing Rights
Balance January 1 $1,452 $ 815 $ 537
Additions 740 1,187 434
Amortization (435) (550) (156)
------ ------ ------
Balance December 31 $1,757 $1,452 $ 815
====== ====== ======
Fair value $2,558 $1,703 $1,169
====== ====== ======
Valuation Allowance
Balance January 1 $ 52 $ -- $ --
Additions expensed -- 52 --
Reductions credited to expense -- -- --
------ ------ ------
Balance December 31 $ 52 $ 52 $ --
====== ====== ======
- ----------------------------------------------------------------------
</TABLE>
Note 6 - Premises and Equipment Premises and equipment at December 31:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- --------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 705 $ 694
Buildings and improvements 5,834 5,055
Equipment 9,175 8,804
------- -------
Total cost 15,714 14,553
Less: accumulated depreciation and amortization (9,776) (9,050)
------- -------
Net book value $ 5,938 $ 5,503
======= =======
- --------------------------------------------------------------------------
</TABLE>
Rental expense for 1999, 1998 and 1997 was $499,000, $460,000 and
$437,000. Depreciation and amortization for 1999, 1998 and 1997 was
$1,095,000, $926,000 and $727,000.
<PAGE> 40
Note 7- Time Deposits
The aggregate amount of certificates of deposit of $100,000 or more at December
31, 1999 and 1998 was $28,390,000 and $28,485,000.
Following are the scheduled maturities of certificates of deposit at December
31, 1999:
<TABLE>
<CAPTION>
(in thousands) 1999
- ---------------------------------------------
<S> <C>
2000 $ 85,827
2001 27,019
2002 22,815
2003 8,928
2004 11,859
After 2,336
--------
$158,784
========
- ---------------------------------------------
</TABLE>
Note 8 - Federal Home Loan Bank Advances
Advances from the Federal Home Loan Bank of Indianapolis at December 31 were as
follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- ---------------------------------------------------------------------
<S> <C> <C>
Fixed rate advances
6.09% due March 1999 $ -- $ 3,000
6.42% due March 2000 4,000 4,000
6.63% due April 2001 4,000 --
6.71% due April 2002 4,000 --
5.76% due January 2003 10,000 10,000
5.97% due March 2004 3,000 --
------- -------
25,000 17,000
Variable rate line of credit
5.13% due March 2000 5,000 --
------- -------
$30,000 $17,000
======= =======
- ---------------------------------------------------------------------
</TABLE>
Each advance is payable at its maturity date, with a prepayment penalty
determined by market rates at the time of prepayment. Loans of $21,132,000 and
$20,948,000 and securities of $26,056,000 and $5,216,000 were pledged at
December 31, 1999 and 1998 to collateralize these advances.
<PAGE> 41
Note 9 - Federal Income Taxes
Income tax expense (benefit) was as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- -------------------------------------------------------------------
<S> <C> <C> <C>
Current expense $2,716 $3,383 $3,043
Deferred expense (benefit) 866 (351) (445)
------ ------ ------
Total federal income tax $3,582 $3,032 $2,598
====== ====== ======
- -------------------------------------------------------------------
</TABLE>
Effective tax rates differ from federal statutory rates applied to financial
statement income due to the following:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- -------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate applied to income
before federal income tax $3,696 $3,104 $2,667
(Deduct) add:
Effect of tax-exempt interest (108) (95) (89)
Other (6) 23 20
------ ------ ------
Total Federal income tax $3,582 $3,032 $2,598
====== ====== ======
Effective tax rate 33.0% 33.2% 33.1%
====== ====== ======
- -------------------------------------------------------------------
</TABLE>
<PAGE> 42
Year-end deferred tax assets and liabilities were due to the following:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- ------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Allowance for loan losses $1,432 $1,236
Deferred compensation 875 1,866
Net unrealized depreciation on
securities available for sale 420 --
Other 152 122
------ ------
Total deferred tax assets 2,879 3,224
------ ------
Deferred tax liabilities
Security accretion (52) (55)
Cash value of life insurance (34) (34)
Mortgage servicing (580) (476)
Net unrealized appreciation on
securities available for sale -- (496)
------ ------
Total deferred tax liabilities (666) (1,061)
------ ------
Net deferred tax asset $2,213 $2,163
====== ======
- ------------------------------------------------------------------
</TABLE>
A valuation allowance for deferred tax assets is not considered necessary as it
is more likely than not that future taxable income will be sufficient to realize
the tax benefit of these assets.
Note 10 - Employee Benefit Plans
An integrated employee benefit plan structure provides basic retirement income
and the opportunity to build retirement savings through tax-deferred voluntary
contributions and participation in stock ownership of the Corporation. A
description of the individual plan components of this integrated structure
follows.
A defined benefit pension plan covers substantially all full-time employees. The
maximum amount that can be deducted for federal income tax purposes is
contributed annually and employees do not contribute. Plan assets consist of
equity and fixed-income securities. A summary of the plan follows:
<PAGE> 43
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- -----------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation
Beginning benefit obligation $2,435 $1,760
Service cost 194 138
Interest cost 169 139
Liability (gain) loss (498) 103
Change in assumptions -- 323
Benefits paid (42) (28)
------ ------
Ending benefit obligation 2,258 2,435
------ ------
Change in plan assets, at fair value
Beginning plan assets 1,653 1,342
Actual return 355 166
Employer contribution 98 173
Benefits paid (42) (28)
------ ------
Ending plan assets 2,064 1,653
------ ------
Funded status (194) (782)
Unrecognized net transition obligation 216 246
Unrecognized net (gain) loss (214) 513
Unrecognized prior service cost (12) (13)
------ ------
Prepaid (accrued) benefit cost $ (204) $ (36)
====== ======
- -----------------------------------------------------------------------
Discount rate on benefit obligation 7.50% 6.25%
Long-term rate of investment return 9.00% 9.00%
Rate of compensation increase 4.50% 4.50%
- ------------------------------------------------------------------------
</TABLE>
Pension expense
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 194 $ 138 $ 107
Interest cost 169 139 112
Expected return on plan assets (151) (125) (182)
Net amortization and deferral 55 31 116
------ ------ ------
Net pension expense $ 267 $ 183 $ 153
====== ====== ======
- ------------------------------------------------------------------------
</TABLE>
<PAGE> 44
A supplemental retirement program for certain executive officers provides
benefits which are integrated with the other benefit plans. A summary of the
plan follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- -----------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation
Beginning benefit obligation $ 1,245 $ 898
Service cost 89 75
Interest cost 106 71
Liability (gain) loss 79 35
Change in assumptions 79 166
------- -------
Ending benefit obligation 1,598 1,245
------- -------
Funded status (1,598) (1,245)
Unrecognized net transition obligation 101 113
Unrecognized net actuarial loss 326 293
Unrecognized prior service cost 91 22
------- -------
Prepaid (accrued) benefit cost $(1,080) $ (817)
======= =======
- -----------------------------------------------------------------------
Discount rate on benefit obligation 7.50% 6.25%
Rate of compensation increase 4.50% 5.00%
- -----------------------------------------------------------------------
</TABLE>
Supplemental retirement plan expense
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- ------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 89 $ 75 $ 60
Interest cost 106 71 54
Net amortization and deferral 68 18 14
---- ---- ----
Net supplemental retirement
plan expense $263 $164 $128
==== ==== ====
- ------------------------------------------------------------------
</TABLE>
<PAGE> 45
A 401 (k) profit sharing plan covers substantially all full-time employees.
Participants may defer up to 12.5% of their salaries and the Bank may match 50%
of the employee's deferrals to a maximum of 3%. Contributions and expense for
1999, 1998 and 1997 were $181,000, $163,000 and $141,000.
An Employee Stock Ownership Plan (ESOP) covers substantially all full-time
employees. At December 31, 1999 and 1998 the plan held 366,059 and 381,594
shares of stock with a fair market value of $10,250,000 and $15,073,000. All
shares are allocated to and voted by employees. ESOP participants are entitled
to receive distributions from their ESOP accounts only upon termination of
service. The annual contribution to the ESOP is determined by the board of
directors. Contributions and expense for 1999, 1998, and 1997 were $199,000,
$182,000 and $163,000.
Agreements granting death benefits funded with life insurance are provided to
certain officers while employed. The financial statement impact of these
arrangements is not material.
Note 11 - Long-Term Incentive Plan
A long-term incentive plan grants certain officers stock options and tandem
stock appreciation rights. All options and rights under the plan have been
granted and all outstanding options and rights at December 31, 1999, 1998 and
1997 were exercisable. During 1999 the majority of options and all the
outstanding rights were exercised. As of December 31, 1999 the outstanding
options are vested, have a weighted average exercise price of $9.97, a range of
exercise price of $9.34 - $10.60 and a weighted average remaining option life of
3.0 years. The expense for the stock appreciation rights for 1999, 1998 and 1997
was ($802,000), $1,124,000 and $1,129,000. A summary of the activity in the
plan, restated for all stock dividends and splits, is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Options Rights Price
- -----------------------------------------------------------------
<S> <C> <C> <C>
Outstanding - 12/31/96 312,056 144,119 $6.42
Exercised (28,462) (14,230) 4.61
------- -------
Outstanding - 12/31/97 283,594 129,889 6.60
Exercised (42,778) (21,388) 4.80
------- -------
Outstanding - 12/31/98 240,816 108,501 6.90
Exercised (216,996) (108,501) 6.56
------- -------
Outstanding - 12/31/99 23,820 0 9.97
======= =======
- -----------------------------------------------------------------
</TABLE>
<PAGE> 46
Note 12 - Related Party Transactions
Certain directors and executive officers of the Corporation and the Bank
(including family members, affiliates and companies in which they are principal
owners) had loans with the Bank in the ordinary course of business. The
aggregate amount of loan advances to such related parties at December 31, 1999
and 1998 amounted to $2,716,000 and $2,574,000. During 1999, new loan advances
to such related parties amounted to $2,893,000 and repayments amounted to
$2,751,000.
Note 13 - Off-Balance-Sheet Financial Instruments and Contingencies
The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to make loans and unused lines of
credit. The exposure to credit loss is the contractual amount of these
instruments, assuming the amounts are fully advanced and collateral or other
security is of no value. Collateral for loans and letters of credit is usually
in the form of cash, inventory, securities or other real and personal property.
The Bank's policy is to require suitable collateral prior to the disbursement of
funds. The following is a summary of commitments as of December 31:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Commitments to make loans $38,152 $49,223
Unused lines of credit 92,269 71,693
Standby letters of credit 761 1,448
- ------------------------------------------------------------------------
</TABLE>
At December 31, 1999 and 1998, commitments to make loans included $9.0 million
and $12.8 million of fixed and variable rate commercial loans. These commitments
generally have termination dates of 90 days or less and may require a fee.
Commitments to make loans also include commitments for primarily fixed rate
mortgage loans of $24 million and $34 million at December 31, 1999 and 1998,
which are intended for sale in the secondary market upon closing. Other
commitments include variable rate mortgage loans of $5.2 million and $2.4
million at December 31, 1999 and 1998. Fixed rate loan commitments have interest
rates ranging from 6.875% to 9.25% and terms ranging from 6 months to 30 years.
The Corporation has entered into employment agreements with certain officers.
Under the terms of these agreements, certain events leading to separation from
the Corporation could result in cash payments to these officers.
<PAGE> 47
Note 14 - Shareholder Rights Plan
The Shareholder Rights Plan is designed to protect shareholders against
unsolicited attempts to acquire control of the Corporation without offering a
fair price to all shareholders. Five hundred thousand shares of Series A Junior
Participating Preferred Stock are reserved for purchase rights issued to holders
of and in tandem with shares of common stock.
Generally, if a person or group acquires or announces a tender offer for 20
percent or more of the Corporation's common stock and the acquiror engages in
certain business transactions, each right, other than those held by the
acquiror, entitles the holder to acquire common stock or other securities with a
market value of twice the $50 per right exercise price.
The Corporation may redeem the rights at one cent per right until 20 days after
a 20% position has been acquired.
Note 15 - Fair Value Disclosure
Fair values of financial instruments are estimated as follows:
Short-term financial instruments: The carrying value is a reasonable estimate of
fair value for cash and cash equivalents, federal funds purchased and accrued
interest.
Securities available for sale: Fair values are based on quoted market prices.
Loans: Fair value for certain homogeneous categories of loans, such as some
residential mortgages, is estimated using quoted market prices for similar
loans, adjusted for differences in loan characteristics. The fair values of
other types of loans are estimated by discounting future cash flows, including
estimates of prepayments, using current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same maturities. The
allowance for loan losses is considered to be a reasonable estimate of discount
for credit quality concerns.
Deposits: The fair value of demand deposits, savings accounts and certain money
market deposits is the amount payable on demand. The fair value of
fixed-maturity certificates of deposit is estimated using rates currently
offered for deposits of similar maturities.
Federal Home Loan Bank advances: Fair values are estimated using discounted cash
flow based on current borrowing rates for similar arrangements.
Off-balance-sheet instruments: Fair values for off-balance-sheet lending
commitments are based on fees currently charged for similar agreements,
considering the terms of the agreements and credit standing.
<PAGE> 48
Estimated fair values of financial instruments at December 31 were:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
Carrying Fair Carrying Fair
(in thousands) Amount Value Amount Value
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 22,474 $ 22,474 $ 21,340 $ 21,340
Securities available for sale 100,765 100,765 120,399 120,399
Loans held for sale 2,218 2,235 6,173 6,229
Loans, net of allowance 361,101 361,097 314,776 318,761
Accrued interest receivable 3,009 3,009 3,021 3,021
Financial liabilities
Deposits 418,423 419,064 410,139 413,565
Federal funds purchased 3,000 3,000 -- --
Federal Home Loan Bank advances 30,000 29,530 17,000 17,388
Accrued interest payable 1,116 1,116 1,118 1,118
- -------------------------------------------------------------------------
</TABLE>
The fair value of off-balance-sheet instruments at December 31, 1999 and 1998 is
not material.
<PAGE> 49
Note 16 - Regulatory Capital Requirements
The Corporation and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. The regulations
require meeting specific capital adequacy guidelines that involve quantitative
measures of assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by regulators. To be
considered adequately capitalized (as defined) under the regulatory framework
for prompt corrective action, minimum capital ratios must be maintained. Failure
to meet minimum capital requirements can initiate regulatory action that could
have a direct material effect on the financial statements. Capital ratios for
the Bank are consistent with the Corporation's capital ratios. The Bank's and
Corporation's capital ratios are significantly above the well-capitalized
standards. The following summarizes the consolidated Corporation's year-end
capital amounts and ratios:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- --------------------------------------------------------------------
<S> <C> <C>
Tier 1 capital
Shareholders' equity $ 45,886 $ 40,756
Less: Goodwill (277) (317)
Net unrealized (gains) losses 817 (964)
-------- --------
Total tier 1 capital 46,426 39,475
Tier 2 capital 5,137 4,449
-------- --------
Total qualifying capital $ 51,563 $ 43,924
======== ========
Risk-weighted assets $410,724 $355,566
Quarterly average assets 504,843 479,524
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Regulatory Capital Standards
---------------------------------
Well Capitalized
Under Prompt
Adequately Corrective Action
Capitalized Provisions Actual
------------- ----------------- -------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
1999
Tier 1 leverage $20,194 4.0% $25,242 5.0% $46,426 9.20%
Tier 1 risk-based 16,429 4.0% 24,643 6.0% 46,426 11.30%
Total risk-based 32,858 8.0% 41,072 10.0% 51,563 12.55%
1998
Tier 1 leverage $19,181 4.0% $23,976 5.0% $39,475 8.23%
Tier 1 risk-based 14,223 4.0% 21,334 6.0% 39,475 11.10%
Total risk-based 28,445 8.0% 35,557 10.0% 43,924 12.35%
</TABLE>
<PAGE> 50
Note 17 - Earnings Per Share
A calculation of basic earnings per share and diluted earnings per share is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (in thousands) $7,265 $6,097 $5,245
====== ====== ======
Basic earnings per share:
Average common shares outstanding 3,024,661 2,950,761 2,895,658
Average contingently issuable shares 12,950 9,569 6,133
--------- --------- ---------
3,037,611 2,960,330 2,901,791
========= ========= =========
Basic earnings per share $2.39 $2.06 $1.81
===== ===== =====
Diluted Earnings per share:
Average outstanding shares, per above 3,037,611 2,960,330 2,901,791
Effect of stock options 129,356 203,752 225,895
--------- --------- ---------
3,166,967 3,164,082 3,127,686
========= ========= =========
Diluted earnings per share $2.29 $1.93 $1.68
===== ===== =====
- ---------------------------------------------------------------------------
</TABLE>
<PAGE> 51
Note 18 - Empire Banc Corporation
(Parent Company Only)
Condensed Financial Statements
The Corporation's primary source of funds to pay dividends to shareholders is
the dividends it receives from the Bank. The Bank is subject to certain
restrictions on the amount of dividends that it may declare without prior
regulatory approval. At December 31, 1999, $7,251,000 of the Bank's retained
earnings were available for dividend declaration without prior regulatory
approval.
Following are condensed parent company financial statements:
<TABLE>
<CAPTION>
Condensed Balance Sheets
December 31
(in thousands) 1999 1998
- -----------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 3,633 $ 1,533
Investment in subsidiary 40,685 38,504
Other assets 2,289 1,289
------- -------
Total assets $46,607 $41,326
======= =======
Liabilities and shareholders' equity
Other liabilities $ 721 $ 570
Shareholders' equity 45,886 40,756
------- -------
Total liabilities and
shareholders' equity $46,607 $41,326
======= =======
</TABLE>
Condensed Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31
(in thousands) 1999 1998 1997
- ------------------------------------------------------------------
<S> <C> <C> <C>
Cash dividends from subsidiary $ 3,450 $2,905 $2,525
Net expense (223) (147) (91)
Federal income tax benefit 76 50 31
Equity in undistributed
subsidiary income 3,962 3,289 2,780
------- ------ ------
Net income 7,265 6,097 5,245
Change in net unrealized gains/
losses on securities held by
the Bank, net of tax (1,781) 611 179
------- ------ ------
Comprehensive income $ 5,484 $6,708 $5,424
======= ====== ======
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Year Ended December 31
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operating activities
Net income $ 7,265 $ 6,097 $ 5,245
Adjustments
Other 1,008 (25) (8)
Subsidiary net income (7,412) (6,194) (5,305)
------ ------ ------
Net cash from operating activities 861 (122) (68)
Cash flow from investing activities
Subsidiary cash dividends received 3,450 2,905 2,525
Cash flow from financing activities
Cash dividends paid (3,312) (2,849) (2,453)
Issuance of common stock 1,101 205 285
------- ------- -------
Net cash from financing activities (2,211) (2,644) (2,168)
Net change in cash and due from banks 2,100 139 289
Beginning cash and due from banks 1,533 1,394 1,105
------- ------- -------
Ending cash and due from banks $ 3,633 $ 1,533 $ 1,394
======= ======= =======
- --------------------------------------------------------------------------
</TABLE>
Note 19 - Subsequent Event - Merger Agreement
On February 7, 2000 Empire Banc Corporation and Huntington Bancshares
Incorporated (Huntington) jointly announced they have signed a definitive
agreement for Huntington to acquire the Corporation. The Corporation's
shareholders will receive 2.0355 Huntington shares for each share of Corporation
stock in a tax-free exchange. This is equivalent to approximately $43.25 per
share based on Huntington's closing stock price on February 4, The acquisition
will be accounted for as a purchase, is subject to normal regulatory and
shareholder approvals, and is expected to close early in the third quarter of
2000. Huntington plans to issue approximately 6.5 million shares in connection
with the transaction, which are to be purchased on the open market. Huntington
is a regional bank holding company headquartered in Columbus, Ohio with assets
of $29 billion.
<PAGE> 53
Report of Independent Auditors
CROWE CHIZEK
To the Shareholders and Board of Directors
Empire Banc Corporation, Traverse City, Michigan
We have audited the accompanying consolidated balance sheets of Empire Banc
Corporation as of December 31, 1999 and 1998 and the related consolidated
statements of income, comprehensive income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Empire Banc
Corporation as of December 31, 1999 and 1998, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999, in conformity with generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
January 20, 2000, except for
Note 19, as to which the date is
February 7, 2000.
<PAGE> 54
Quarterly Financial Data
Empire Banc Corporation
The following is a summary of selected quarterly results of operations for the
years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
(in thousands, Quarter Ended
except share data) December 31 September 30 June 30 March 31
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Total interest income $9,759 $9,659 $9,346 $9,255
Net interest income 5,499 5,484 5,342 5,253
Provision for loan losses 211 104 130 256
Non-interest income 1,813 2,015 2,118 2,388
Non-interest expense 4,004 4,626 4,756 4,978
Income before federal
income taxes 3,097 2,769 2,574 2,407
Net income 2,091 1,846 1,718 1,610
Basic earnings per share .68 .61 .57 .53
Diluted earnings per share .66 .58 .54 .51
- ---------------------------------------------------------------------------------
1998
Total interest income $9,681 $9,330 $8,840 $8,708
Net interest income 5,479 5,086 4,830 4,729
Provision for loan losses 298 552 83 282
Non-interest income 2,314 2,154 2,197 2,094
Non-interest expense 4,863 4,308 4,818 4,550
Income before federal
income taxes 2,632 2,380 2,126 1,991
Net income 1,760 1,583 1,417 1,337
Earnings per share .59 .53 .48 .46
Diluted earnings per share .56 .50 .45 .42
- ---------------------------------------------------------------------------------
</TABLE>
Per-share amounts have been adjusted for stock splits and dividends.
<PAGE> 55
Item 9 - Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The current directors of the Corporation, except Laurence P. Skendzel,
M.D., Ronald G. Reffitt, Sr., and Deborah J. Knudsen, have been directors of
the Corporation since its formation in 1987. Mr. Reffitt and Mrs. Knudsen
became directors in 1994. Dr. Skendzel became a director in 1989. The
directors of the Corporation are also directors of the Corporation's wholly
owned subsidiary, Empire National Bank (the "Bank"), and have been since the
year shown in the following table:
<TABLE>
<CAPTION>
Director Term
of Bank Expiring
Name Age Since In Principal Occupation
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John R. Anderson 72 1973 2000 Anderson, Gordon and Associates,
Advertising and Public Relations
Michael H. Dennos 79 1973 2001 Retired, Former Corporate Vice
President of Sara Lee Corporation
James E. Dutmers, Jr. 56 1976 2001 Chairman and Chief Executive
Officer, Empire Banc Corporation
and Empire National Bank
William T. Fitzgerald, Jr. 54 N/A N/A Division Vice President, Empire
National Bank; Vice President,
Secretary/Treasurer, Empire Banc
Corporation
Don A. Good, M.D. 61 1984 2000 Physician, Grand Traverse
Obstetrics and Gynecology, P.C.
Robert L. Israel 56 1976 2002 President and Chief Operating
Officer, Empire Banc Corporation
and Empire National Bank
Deborah J. Knudsen 49 1994 2000 President and Chief Executive
Officer, Traverse City Convention
and Visitors Bureau
Marilyn J. McCool 53 N/A N/A Division Vice President-Human
Resources, Empire National Bank;
Vice President, Empire Banc
Corporation
</TABLE>
<PAGE> 56
<TABLE>
<CAPTION>
Director Term
of Bank Expiring
Name Age Since In Principal Occupation
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas G. McIntyre 52 1981 2001 Chairman, Passageways/Carlson
Wagonlit Travel
James M. Merenda 55 N/A N/A Division Vice President-Trust,
Empire National Bank; Vice
President, Empire Banc Corporation
Bruce W. Reavely 51 N/A N/A Division Vice President-Sales and
Service, Empire National Bank; Vice
President, Empire Banc Corporation
Ronald G. Reffitt, Sr. 62 1994 2001 President, Peninsula Construction
and Supply, Inc.
John M. Rockwood, Jr. 56 1985 2002 President and Chief Executive
Officer, Munson HealthCare
Laurence P. Skendzel, M.D. 69 1989 2000 Retired in 1994, formerly
Physician, Grand Traverse
Pathology, P.C.
Louis A. Smith 60 1976 2002 Attorney, Smith & Johnson
Attorneys, P.C.
Daniel G. Stoudt 53 N/A N/A Division Vice President,
Sales and Service, Empire National
Bank; Vice President, Empire Banc
Corporation
</TABLE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's
directors and certain officers, and persons who own more than ten percent (10%)
of the Corporation's Common Stock to file with the SEC initial reports of
beneficial ownership and reports of changes of beneficial ownership of Common
Stock. These officers, directors and greater than ten- percent (10%)
shareholders are required by SEC regulation to furnish the Corporation with
copies of these reports.
Based solely on the Corporation's review of such reports the Corporation
believes that all it's executive officers, directors and persons owning more
than ten percent (10%) of the Corporations Common Stock complied with all filing
requirements applicable to them with respect to transactions during the fiscal
year ending December 31, 1999.
<PAGE> 57
Item 11. Executive Compensation
The information under the captions "Compensation Committee Report On Executive
Compensation" and "Performance Graph" is not incorporated herein.
The following table presents, for the fiscal years shown, the annual, long-term
and other compensation paid to or accrued for the Corporation's Chief Executive
Officer and the next five most highly compensated executive officers of the
Corporation, whose 1999 salary and bonus exceeded $100,000 (the "Named Executive
Officers"):
<TABLE>
<CAPTION>
Summary Compensation Table
- ----------------------------------------------------------------------------
Annual Compensation
------------------- All Other
Name and Principal Position Year Salary $(1) Bonus $ Compensation $(2)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James E. Dutmers, Jr. 1999 249,214 104,238 18,049
Chairman and Chief Executive. 1998 237,154 91,124 17,360
Officer 1997 229,196 83,489 16,964
Robert L. Israel 1999 221,265 92,178 15,656
President and Chief Operating 1998 210,059 80,581 15,047
Officer 1997 202,671 73,830 14,697
William T. Fitzgerald, Jr. 1999 125,000 40,415 8,891
Vice President and 1998 115,615 34,406 8,346
Secretary/Treasurer 1997 109,885 30,847 8,005
James M. Merenda 1999 125,000 40,415 8,978
Vice President 1998 115,615 34,406 8,434
1997 109,885 30,847 8,091
Bruce W. Reavely 1999 125,000 40,415 8,702
Vice President 1998 115,615 34,406 8,157
1997 109,885 30,847 7,815
Daniel G. Stoudt 1999 125,000 40,415 8,670
Vice President 1998 115,615 34,406 8,126
1997 105,808 29,703 7,783
</TABLE>
(1) Includes director fees for Mr. Dutmers of $7,650, $7,500 and $6,600 for
1999, 1998 and 1997, respectively, and for Mr. Israel $7,650, $6,975 and
$6,600 for 1999, 1998, and 1997, respectively, (see "Director
Compensation").
<PAGE> 58
(2) The amounts shown for 1999 include the following: (i) combined matching and
other employer contributions made for the account of the named person by
the Bank to its Savings and Investment Retirement Plan ("Savings Plan"), a
401(k) plan for all employees, and to the Bank's Supplemental Executive
Retirement Plan (the "Supplemental Plan"); (ii) combined contributions made
by the Bank to its Employee Stock Ownership Plan ("ESOP") for all employees
and to the Supplemental Plan for the account of the account of the named
person; and (iii) term life insurance premiums paid on behalf of the named
person, as follows:
<TABLE>
<CAPTION>
Name Savings Plan $ ESOP $ Term Life $
- --------------------------------------------------------------------
<S> <C> <C> <C>
James E. Dutmers, Jr. 7,234 7,234 3,581
Robert L. Israel 6,397 6,397 2,862
William T. Fitzgerald, Jr. 3,740 3,740 1,411
James M. Merenda 3,740 3,740 1,498
Bruce W. Reavely 3,740 3,740 1,222
Daniel G. Stoudt 3,740 3,740 1,190
</TABLE>
The following table presents information about stock options and stock
appreciation rights ("SARs") exercised during 1999 and held by the Named
Executive Officers at December 31, 1999.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
And FY-End Option/SAR Values
Number of
Securities
Underlying
Number of Unexercised
Shares Options/SARS at Value of
Underlying Fiscal Year End Unexercised
Options/SARs Value (#) Exercisable/ In-the-Money
Name Exercised(#) Realized(1) Unexercisable Options
- ---- ------------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
James E. Dutmers, Jr. 55,605 $1,341,781 0/0 0
Robert L. Israel 70,266 1,841,196 0/0 0
William T. Fitzgerald, Jr. .52,824 1,424,196 0/0 0
James M. Merenda 52,824 1,424,196 0/0 0
Bruce W. Reavely 52,824 1,424,196 0/0 0
Daniel G. Stoudt 41,162 1,066,325 0/0 0
</TABLE>
<PAGE> 59
(1) The value realized is based on the difference between the market bid price
of the shares underlying the options and SARs on the date of exercise and
the exercise and base price of the option and SARs, respectively.
The Bank has adopted the Empire National Bank Employees Pension Plan (the
"Pension Plan"). The Pension Plan is non-contributory and covers full-time
employees who are age 21 or over and have at least one year of service. The
Pension Plan provides a normal retirement benefit at age 65 dependent upon final
average compensation and years of service. The final average compensation is the
highest average of a participant's base salary for any five (5) years in the
participant" last ten (10) years of employment.
The Bank has also adopted an unfunded, non-qualified Supplemental Executive
Retirement Plan (the Supplemental Plan) under which supplemental pension
benefits are to be paid upon retirement to certain executive officers covered by
the Pension Plan, including the Named Executive Officers. Under the Supplemental
Plan, a target benefit is established as a percentage of a participant's total
compensation (salary plus bonus as shown in the Summary Compensation Table,
above), depending on retirement age and years of service. Among other things,
the Supplemental Plan provides a benefit otherwise denied because of certain
limitations under the Internal Revenue Code on benefits for executive officers
and on their deferrals under the Savings Plan.
<TABLE>
<CAPTION>
Pension Plan Table
- ---------------------------------------------------------------------------
Remuneration 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$100,000 $ 30,000 $ 40,000 $ 50,000 $ 55,000 $ 60,000
150,000 45,000 60,000 75,000 82,500 90,000
200,000 60,000 80,000 100,000 110,000 120,000
250,000 75,000 100,000 125,000 137,500 150,000
300,000 90,000 120,000 150,000 165,000 180,000
350,000 105,000 140,000 175,000 192,500 210,000
400,000 120,000 160,000 200,000 220,000 240,000
450,000 135,000 180,000 225,000 247,500 270,000
</TABLE>
The years of credited service for the individuals named in the Summary
Compensation Table above are as follows: Mr. Dutmers, 20; Mr. Israel, 24;
Mr. Fitzgerald, 23; Mr. Merenda, 16; Mr. Reavely, 16; and Mr. Stoudt, 23.
The benefits shown in the table above, based at age 65 and on years of credited
service, are combined benefits under the Pension Plan and the Supplemental Plan
on a straight life annuity basis before reduction for social security and the
actuarial equivalent of the participant's account balance, under a profit
sharing plan formerly maintained by the Bank. Actual benefits may be reduced
based on target retirement age benefit levels. Current compensation covered
under the two plans combined for the Named Executive Officers is shown in the
"Salary" and "Bonus" columns of the Summary Compensation Table.
<PAGE> 60
Management Continuity Agreements
The Corporation has entered into individual Management Continuity Agreements
with executive officers of the Corporation, including the Named Executive
Officers. Each Management Continuity Agreement provides that in the event of a
change in control of the Corporation, the employment of the officer who is a
party to the Agreement may not be terminated except for cause during the
five-year period following an agreement that will result in the change in
control. During the five-year period, the Corporation may not, without the
officer's agreement, reduce the officer's salary, bonus or benefits, change his
responsibilities, or materially change his principal place of employment. In the
event the officer's employment is terminated by the Corporation or the officer
resigns following one or more of the actions by the Corporation described in the
preceding sentence without his agreement, the officer is entitled to one hundred
thirty three percent (133%) of his regular salary payments and inclusion in
employee benefit plans for the greater of three year following the termination
of employment of the remainder of the five-year period. The Agreements provide
that payments to the officers based on a percentage of regular salary payments
will be reduced by an amount necessary to eliminate certain penalty taxes
otherwise payable by the officer, if such reduction results in greater after tax
payments to the officer. Such reduction will also increase the corresponding
deduction to which the Corporation is entitled. While the amount of any benefits
from the Management Continuity Agreements will be dependent on salary levels and
other factors and events occurring in the future, the current annual salary
levels for the Named Executive Officers covered by the Agreements are as
follows: Mr. Dutmers, $251,227; Mr. Israel, $222,160; Mr. Fitzgerald, $130,000;
Mr. Merenda, $130,000; Mr. Reavely, $130,000; and Mr. Stoudt, $130,000.
The Corporation's purpose for entering into these Agreements with the executive
officers selected is to provide financial security to those officers following a
change in control of the Corporation and to provide an additional current
inducement for them to remain employed by the Corporation. With continuation of
their employment being reasonably assured, these officers may be in a better
position to act, with respect to a possible change in control of the
Corporation, for the benefit of the Corporation and its shareholders without
concern about their own financial security.
In connection with the anticipated merger of the Corporation with and into
Huntington Bancshares Incorporated (the "Merger"), the Corporation, Huntington
Bancshares Incorporated ("Huntington") and each executive officer of the
Corporation have entered into a Lump Sum Payment, Release, and Waiver Agreement
(the "Lump Sum Agreement"). Each Lump Sum Agreement provides that as soon as
practicable following the Merger, the executive officer shall receive a single
payment instead of receiving benefits which would have become payable or the
payment of which would have been accelerated upon a change in control of the
Corporation. The benefits which will be paid pursuant to the Lump Sum Agreement
include, but are not limited to, payments pursuant to the Management Continuity
Agreements, the Corporation's Supplemental Executive Retirement Plan, the
Corporation's Executive Supplemental Income Agreements, the supplemental,
nonqualified portion of the Corporation's Employee Stock Ownership Plan and the
supplemental, nonqualified portion of the Corporation's Savings, Investment and
Retirement Plan. Except for the Lump Sum Agreement among the Corporation,
Huntington and Marilyn McCool, each Lump Sum Agreement provides that payments
under the Lump Sum Agreement will be reduced to the extent necessary to
eliminate certain penalty taxes payable by the executive officer, which will
also increase the amount of payments deductible by
<PAGE> 61
Huntington. The payments to Ms. McCool pursuant to the Lump Sum Agreement may
result in certain penalty taxes becoming payable by Ms. McCool and Huntington
may not be entitled to deductions for a portion of the payments to Ms. McCool.
The Lump Sum Agreements also provide that Huntington shall employ, and the
executive officers shall accept the employment by Huntington during an initial
transition period to commence as of the effective time of the Merger and end on
December 31, 2000 (the "Initial Transition Period"), and Huntington shall pay to
Executive Officers the salary currently enjoyed by the Executive Officer during
the Initial Transition Period. After the Initial Transition Period, the
executive officers shall become employees at will of Huntington on such terms
and conditions as are mutually agreeable between Huntington and the executive
officers. Under no circumstances will severance payments under Huntington's
Transition Pay Plan or any similar plan adopted by Huntington become payable to
the executive officers.
Compensation Committee Report on Executive Compensation
The Nominating and Compensation committee of the Board of Directors of the
Corporation (the "Committee") is comprised entirely of non-employee directors.
The Committee is responsible for setting and administering the policies which
govern annual compensation and incentive programs. In addition, it reviews all
executive compensation and benefit programs from time to time available to
executive officers of the Corporation and to all employees of the Bank. In this
respect, the Committee makes recommendations to the Board of Directors with
respect to the compensation of the Chief Executive Officer and the President, as
well as reviewing and approving the Chief Executive Officer's and the
President's recommendations for other executive officers of the Corporation.
The annual compensation programs of the Corporation are tied to the
Corporation's performance. The executive compensation program is comprised of
base salaries plus a performance leveraged, short-range and long-range incentive
system, which will pay executive officers more for better performance. In
evaluating its executive officers' performance and determining their
compensation, the Committee evaluates the performance of Empire Banc Corporation
and Empire National Bank, focusing on specific corporate financial performance
goals, as well as comparisons to industry peer groups.
In determining base salaries, including that of the Chief Executive Officer, the
Committee evaluates corporate and executive performance. The Committee reviews a
number of factors, both financial and qualitative. While no single factor by
itself is considered the key to overall corporate performance, ratings are
heavily dependent upon the previous year's achievement of the pre-established
financial objectives. The Committee also assesses the executive officer's
individual performance based on specific strategic objectives and qualitative
factors such as strategic planning, organizational and management development
progress, quality of regulatory examinations by the Office of the Comptroller of
the Currency and the Federal Reserve, and community and civic involvement.
Salaries are also based on a comparison to industry peer salaries.
The short-term incentive or Profit Sharing Incentive Award ("PSIA"), established
in 1984, is a cash bonus program based upon a performance formula approved by
the Board of Directors. All Bank employees and executive officers of the
Corporation, including the Chief Executive Officer, are eligible to
<PAGE> 62
participate in the PSIA program. In establishing the PSIA formula, the Board of
Directors chose performance criteria which should lead to long-term growth in
the stock price of the Corporation. The formula currently requires the
Corporation to exceed all pre-established targets for return on average assets,
return on average equity and an annual increase in profits before any bonus
payments are made. The pre-established minimum target for each performance
criteria was determined based upon peer performance, industry performance, and
desired Corporation performance levels. The Committee has concluded that the
specific targets for performance are confidential business information the
disclosure of which would adversely affect the Corporation. The total amount of
PSIA awards to be granted to all employees and executive officers of the
Corporation is determined by the amount net income exceeds the pre-established
target levels for return on assets, return on average equity and the annual
increase in profits.
The amounts of individual awards granted to all Bank employees and executive
officers of the Corporation, including the Chief Executive Officer, are also
based upon a pre-established formula for allocating the total amount of the PSIA
pool available for awards. This allocation formula is determined by the total
amount of awards to be granted as a percentage of eligible compensation and
relative responsibility and accountability of the employee or executive officer.
The long-term incentive utilized is the Empire Banc Corporation Stock Option
Plan. The Plan encompasses a series of stock options, and tandem stock
appreciation rights granted from 1988 through 1993. Participants include the
chief Executive Officer and all executive officers of the Corporation. The Plan
was approved by the shareholders of the Corporation in 1988 with a limited
amendment approved in 1993. Each option period is for ten (10) years and one (1)
day, and granted options only become vested over a five year period. (No options
or SARs were granted in 1999). The maximum number of shares authorized by the
Plan were previously granted. The number of shares covered by unexercised
options and SARs held by the Named Executive Officers are shown in the table
above titled "Aggregated Options/SAR Exercises in Last Fiscal Year and FY-End
Optional SAR Values." In the opinion of the Committee and the Board of
Directors, the Plan promotes the alignment of management and shareholder
interests and will result in executive officers of the Corporation being
sufficient shareholders to encourage long-term performance and Corporation
growth. The Committee meets without the Chief Executive Officer and President to
evaluate their performance and reports on that evaluation to the Board of
Directors of the Corporation.
With respect to Mr. Dutmers, the Corporation's Chairman and Chief Executive
Officer, the Committee determined his salary and annual cash bonus for 1999
based on the same factors and analyses as considered by the Committee in
determining the compensation of all other executive officers. These factors and
analyses are described above. The Chief Executive Officer's final performance
rating is a composite of all relevant factors. It also reflected the Committee's
positive assessment of Mr. Dutmers' leadership of the Corporation based on the
qualitative factors described above. Mr. Dutmers' cash bonus for 1999 was
determined by the PSIA formula described above and reflected the Corporation's
1999 financial performance, which exceeded the pre-established goals for return
on average assets, return on equity and the increase in annual profits.
Submitted by the Compensation Committee of the Board of Directors.
Louis A. Smith, Chairman Don A. Good, M.D John R. Anderson
<PAGE> 63
Performance Graph
The following line graph compares cumulative, five-year total shareholder return
of the Common Stock, assuming reinvestment of dividends, with the NASDAQ Market
Index (a broad equity market index) and the Media General Industry Group-Midwest
Banks index (a published industry index).
EMPIRE BANC CORPORATION
STOCK PERFORMANCE CHART
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NASDAQ COMPOSITE 104.99 136.18 169.23 207.00 291.96 490.46
REGIONAL MIDWEST BANKS 99.02 144.12 192.54 328.65 364.62 305.58
EBC 104.21 150.13 193.09 273.22 361.04 262.96
</TABLE>
<PAGE> 64
Director Compensation
Non-management directors of the Bank of the Bank are paid an annual retainer of
$8,000. All directors of the Bank and the non-management directors of the
Corporation are compensated at a rate of $650 per director per meeting attended.
Non-management directors are compensated at a rate of $400 per committee meeting
attended.
Currently, Empire Banc Corporation offers directors the opportunity to defer
receipt and income taxation of meeting fees and retainer fees through the Empire
Banc Corporation Directors' Deferred Compensation Plan (the "Director Plan").
Under the Director Plan, meeting fees may be deferred by crediting the amount
payable to an account (a "Cash Reserve Account") which receives earnings based
on the Corporation's average earning asset rate as reported in the annual report
to shareholders for the immediately preceding year. Also, under the Director
Plan, meeting fees and/or retainer fees may be deferred by crediting an account
(a "Stock Reserve Account") with a number of units equal to 110% of the amount
of retainer fees divided by the market price of the Common Stock on the day when
the fees are paid. Units are also credited to the Stock Reserve Account as
dividends are paid on Common Stock in an amount equal to the dividend rate per
share multiplied by the number of units in the Stock Reserve Account divided by
the market price of the common Stock on the date dividends are paid to
shareholders. Cash Reserve Account balances are paid in cash and Stock Reserve
Account balances are paid in shares of Common Stock equal to the number of units
credited to the Stock Reserve Account. In general, these payments will be made
upon the earliest of reaching age 65, retirement, total and permanent disability
or death. A director may, however, defer payment past reaching age 65 until the
earliest of retirement, total and permanent disability or death by an
appropriate election under the Director Plan.
<PAGE> 65
Item 12. Security Ownership of Certain Beneficial Owners and Management
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership of
Common Stock(1)
--------------------------------------------
Sole Voting Shared Voting
and/or and/or Percent of
Name Investment Investment Common
and Address Power Power (2) Total Stock
- ----------- ----------- ------------ ------- ----------
<S> <C> <C> <C> <C>
Empire National Bank 0 365,750 365,750 11.5
Employee Stock Ownership Plan (5)
1227 East Front Street
Traverse City, MI 49686
John R. Anderson 0 2,799 2,799 *
6511 Franklin Woods Drive
Traverse City, MI 49686
Michael H. Dennos 25,326 0 25,326 *
2042 Arrowhead Drive
Traverse City, MI 49686
James E. Dutmers, Jr. (3) 424,609 29,429 454,038 14.2
1227 East Front Street
Traverse City, MI 49686
William T. Fitzgerald, Jr. 51,334 18,099 69,433 2.2
1227 East Front Street
Traverse City, MI 49686
Don A. Good, M.D. 10,542 4,003 14,545 *
6789 Franklin Woods Drive
Traverse City, MI 49686
Robert L. Israel 71,434 32,907 104,341 3.3
1227 East Front Street
Traverse City, MI 49684
Deborah J. Knudsen(4) 0 432 432 *
6261 South Westwood Parkway
Suttons Bay, MI 49682
Thomas G. McIntyre (4) 11,381 6,091 17,472 *
6326 Mission Pointe
Traverse City, MI 49686.
James M. Merenda 34,131 14,454 48,585 1.5
1227 East Front Street
Traverse City, MI 49686
</TABLE>
<PAGE> 66
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership of
Common Stock(1)
--------------------------------------------
Sole Voting Shared Voting
and/or and/or Percent of
Name Investment Investment Common
and Address Power Power (2) Total Stock
- ----------- ----------- ------------ ------- ---------
<S> <C> <C> <C> <C>
Bruce W. Reavely 36,867 17,481 54,348 1.7
1227 East Front Street
Traverse City, MI 49686
Ronald G. Reffitt, Sr. (4) 11,400 0 11,400 *
5179 West Torch Lake Drive
Kewadin, MI 49648
John M. Rockwood, Jr. (4) 1,152 0 1,152 *
8582 South Dunns Farm Road
Maple City, MI 49664
Laurence P. Skendzel, M.D. (4) 0 1,027 1,027 *
10338 South Western Hills
Traverse City, MI 49684
Louis A. Smith (4) 22,179 43,473 65,652 2.1
14 Peninsula Hills Drive
Traverse City, MI 49686
Daniel G. Stoudt 25,666 36,012 61,678 1.9
1227 East Front Street
Traverse City, MI 496866
</TABLE>
(1) The numbers of shares presented include shares owned of record by each
person and shares which, under applicable regulations of the SEC, are
deemed tobe beneficially owned by each person. Under these
regulations, a beneficial owner of a security includes any person,
who, directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise has or shares voting power
or investment power with respect to the security. Voting power
includes the power to vote or to direct the voting of the security.
Investment power includes the power to dispose or to direct the
disposition of the security.
(2) The numbers of shares presented include shares as to which the indicated
person is legally entitled to share voting and/or investment power by
reason of joint ownership, trust, or other contract or property right,
and, in some instances, shares held by spouses and minor children over
whom the indicated person may have substantial influence by reason of
relationship.
<PAGE> 67
(3) Mr. Dutmers is Chairman and Chief Executive Officer of the Corporation. He
has sole voting power with respect to 451,229 shares and shared voting
power with respect to 2,809 shares. He has sole investment power with
respect to 65,082 shares and shared investment power with respect to
88,532 shares. Of the shares beneficially owned by Mr. Dutmers,
367,776 (or 11.5% of the outstanding shares of Common Stock) are
subject to a Voting Trust Agreement, dated November 10, 1997, under
which Mr. Dutmers is the sole trustee. As trustee of the voting trust,
Mr. Dutmers has the sole power to vote the shares subject to the
voting trust on all matters, including the election of directors of
the Corporation. Power to dispose of the shares of Common Stock
subject to the voting trust is vested in the shareholders who are
parties to the Voting Trust Agreement, subject to first being offered
to the other parties to the Voting Trust Agreement at fair market
value. The Voting Trust Agreement will terminate by its terms on May
30, 2004.
(4) The named director's account under the Directors' Deferred Compensation
and Stock Investment Plan (the "Director Plan") see "Director
Compensation," is credited with units subsequently payable in an equal
number of shares of Common Stock as follows: Mrs. Deborah J. Knudsen,
3,601 units; Mr. Ronald G. Reffitt, Sr., 2,614 units; Mr. John M.
Rockwood Jr., 3,399 units; Dr. Laurence P. Skendzel, M.D., 1,410
units; Mr. Thomas G. McIntyre, 752 units; and Mr. Louis A. Smith 2,729
units.
(5) Shares are held for the benefit of participants in the plan. Each plan
participant is entitled to direct the plan's board of trustees as to
the exercise of voting rights attributable to shares allocated to his
or her account. As of February 29, 2000, 365,750 shares were
allocated to participants' accounts. The remaining shares, if any,
are voted by the plan's board of trustees comprised of James E.
Dutmers, Jr., Robert L. Israel, James M. Merenda, and William
T. Fitzgerald, Jr. Messrs. Dutmers and Israel are directors of the
Corporation. All of the aforementioned persons are officers of the
Corporation.
* Less than one percent (1%)
As of February 29, 2000 all directors and executive officers of the Corporation
as a group (consisting of 16 persons) owned 968,404 shares of Common Stock or
30.4 percent of the outstanding Common Stock.
Changes in Control of Registrant
The Corporation and Huntington Bancshares Incorporated ("Huntington") entered
into an Agreement and Plan of Merger dated as of February 7, 2000 (the "Merger
Agreement"). A press release related to the merger and a copy of the Merger
Agreement are contained in the Corporation's Form 8-K dated February 9, 2000
which is incorporated herein by reference.
<PAGE> 68
Item 13. Certain Relationships and Related Transactions
The information appearing in Note 12 of the Notes to Consolidated Financial
Statements on page 46 of this Form 10-K, is also incorporated herein by
reference in response to this Item.
The Bank had during 1999, and expects to have in the future, banking
transactions in the ordinary course of its business with the Corporation's
directors and officers, and members of their families and organizations with
which they are associated, on substantially the same terms, including interest
rates and collateral on loans, as those prevailing at the same time for
comparable transactions with others. These transactions did not involve more
than the normal risk of collectability or present other unfavorable features.
During 1999, the Bank paid $137,657 to the firm of Smith & Johnson Attorneys,
P.C., of which Director Louis A. Smith is a shareholder.
PART IV
ITEM 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. The following financial statements of the Corporation and related items
are included in this report on the pages indicated:
Page(s)
-------
Consolidated Balance Sheets as of December 31, 1999 and 1998 27
For each of the years in the three-year period ended
December 31, 1999:
Consolidated Statements of Income 28-29
Consolidated Statements of Comprehensive Income 29
Consolidated Statements of Changes in Shareholders' Equity 30
Consolidated Statements of Cash Flows 31-32
Notes to Consolidated Financial Statements 33-52
Report of Independent Auditors 53
2. All financial statement schedules for which provision is made in the
applicable accounting regulations of the Commission are not required
under the related instructions or are inapplicable, and therefore have
been omitted.
3. The following exhibits are required for this Report by Item 601 of
Regulation S-K.
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession.
(2a) Agreement and Plan of Merger (including the Supplemental
Agreement thereto) date February 4, 2000 between Huntington
Bancshares Incorporated and Empire Banc Corporation
(previously filed as exhibits to the Corporation's Form 8-K
dated February 9, 2000 and incorporated herein by reference).
<PAGE> 69
(3a) Articles of Incorporation with amendments (previously filed as
exhibits to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1998 and incorporated herein by reference).
(3b) Bylaws as amended and restated February 4, 2000.
(4) Instruments defining the rights of security holders, including
indentures.
(4a) Articles of Incorporation (see Exhibit (3a)).
(4b) Bylaws (see Exhibit (3b))
(4c) Rights Agreement dated December 19, 1990 between the
Corporation and the Bank as Rights Agent (previously filed as
an exhibit to Corporation's Form 8-K dated December 19, 1990
and incorporated herein by reference).
(4d) Amendment to Rights Agreement dated February 5, 2000 between
the Corporation and the Bank (previously filed as Exhibit 4 to
the Corporation's Form 8-K dated February 9, 2000 and
incorporated herein by reference).
(9) Voting Trust Agreement as amended dated November 10, 1997 with
respect to the Corporation's Common Stock.
(10) Material Contracts. * Denotes executive compensation plans and
arrangements in which the Corporation's executive officers
participate.
(10a) * Form of Management Continuity Agreement (with amendment)
entered into and between the Corporation and each of seven
executive officers dated December 1, 1999.
(10b) * Empire Banc Corporation Stock Option Plan, as amended to
date (previously filed as Exhibit (10b) to the Corporation's
Annual Report on Form 10-K for the year ended December 31,
1993 and incorporated herein by reference).
(10c) * Empire National Bank Supplemental Executive Retirement Plan
as amended December 31, 1999.
(10d) * Empire Bank Corporation Directors' Deferred Compensation
Plan (incorporated herein by reference to the Corporation's
Registration Statement dated August 25, 1997, filed under
Registration No. 333-36747).
(10e) * Amendment to the Empire Bank Corporation Directors'
Deferred Compensation Plan dated November 1, 1999.
(10f) * Form of Lump Sum Payment, Release and Waiver Agreement
dated February 4, 2000.
(10g) * Form of Lump Sum Payment, Release and Waiver Agreement
dated February 4, 2000.
<PAGE> 70
(11) Statement re computation of per share earnings as set forth in
"Item 8. Financial Statements and Supplementary Data - Notes 1 and
17 to Consolidated Financial Statements" and incorporated herein by
reference.
(12) Statements re computation of ratios. Not applicable.
(18) Letter re change in accounting principles. Not applicable.
(21) Subsidiaries of Corporation. The Bank is the only subsidiary of the
Corporation.
(22) Published report regarding matters submitted to vote of security
holders. Not applicable.
(23) Consent of Crowe, Chizek and Company LLP.
(24) Power of attorney. Not applicable.
(27) Financial Data Schedule
(99) Additional exhibits. Not applicable.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1999.
<PAGE> 71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Corporation has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on February 17,
2000.
EMPIRE BANC CORPORATION
-----------------------
(Registrant)
/s/ James E. Dutmers, Jr.
-------------------------
James E. Dutmers, Jr.
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed by the following persons on behalf of the
Corporation and in the capacities indicated on February 17, 2000.
/s/ James E. Dutmers, Jr. /s/ Robert L. Israel
----------------------------- -----------------------------
James E. Dutmers, Jr. Robert L. Israel
Director and Chief Executive Director
Officer (principal executive
officer)
/s/ William T. Fitzgerald, Jr.
------------------------------ -----------------------------
William T. Fitzgerald, Jr. John R. Anderson
Chief Financial Officer Director
(principal financial and
accounting officer)
/s/ Don A. Good, M.D.
----------------------------- -----------------------------
Michael H. Dennos Don A. Good, M.D.
Director Director
/s/ Deborah J. Knudsen /s/ Louis A. Smith
----------------------------- -----------------------------
Deborah J. Knudsen Louis A. Smith
Director Director
/s/ Ronald G. Reffitt, Sr.
----------------------------- -----------------------------
Thomas G. McIntyre Ronald G. Reffitt, Sr.
Director Director
/s/ John M. Rockwood, Jr. /s/ Laurence P. Skendzel, M.D.
----------------------------- ------------------------------
John M. Rockwood, Jr. Laurence P. Skendzel, M.D.
Director Director
<PAGE> 1
EXHIBIT 3b
AMENDED AND RESTATED
BYLAWS
OF
EMPIRE BANC CORPORATION
A MICHIGAN CORPORATION
ARTICLE I
SHAREHOLDERS MEETING
1.1 Annual Meeting. The Annual Meeting of the shareholders shall be held
each year after the date of expiration of the fiscal year of the
Corporation at such time and place as shall be determined by the Board
of Directors, for the purpose of electing Directors and of transacting
such other business as may properly be brought before the meeting.
1.2 Special Meetings. Special meetings of shareholders may be called (i) by
a majority of the Board of Directors; (ii) by the Chairman; or (iii) by
any shareholder or shareholders holding not less than 66-2/3% of the
voting power of all of the outstanding shares of stock of this
Corporation entitled to vote at such meeting, voting together as a
single class. The Chairman may designate any place, either within or
without the State of Michigan, as the place of meeting for any special
meeting. If no designation is made, the place of meeting shall be the
principal office of the Corporation in the State of Michigan.
1.3 Notice of Meeting. Except as otherwise provided by law, written notice
stating the time, date, place and purpose or purposes of Annual
Meetings of shareholders of this Corporation shall be given either
personally or by mail not less than ten (10) nor more than sixty (60)
days before said meeting to each shareholder of record of the
Corporation entitled to vote at such meeting. Except as otherwise
provided by law, written notice stating the time, date, place and
purpose or purposes of all special meetings of shareholders shall be
given, if such special meeting was called pursuant to clause (i) or
clause (ii) of Section 1.2 of this Article 1, by mailing a written
notice at least ten (10) days, but not more than sixty (60) days, prior
to the date of such meeting to each shareholder of record of the
Corporation entitled to vote at such meeting, or, if such special
meeting was called pursuant to clause (iii) of Section 1.2 of this
Article 1, by mailing a written notice at least thirty (30) days, but
not more than sixty (60) days, prior to the date of such meeting to
each shareholder of record of the Corporation entitled to vote at such
meeting. A notice that is mailed shall be deemed to be given when
deposited in the United States Mail, with postage fully prepaid,
addressed to the shareholder as his or her address appears on the
records of the Corporation. Only such business shall be conducted at a
special meeting of shareholders as shall have been brought before the
meeting pursuant to the notice of meeting.
1
<PAGE> 2
1.4 Adjournments. Any meeting of shareholders, annual or special, may be
adjourned from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if
the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the Corporation may
transact any business which might have been transacted at the original
meeting. If after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record entitled to vote at the meeting.
1.5 Waiver of Notice. Notice of the time, place and purpose of any meeting
of the shareholders of the Corporation may be waived by telegram,
radiogram, cablegram, telecopier, or other writing either before or
after such meeting has been held.
1.6 Quorum. At every meeting of the shareholders, the holders of record of
a majority of the outstanding shares of stock of the Corporation
entitled to vote at such meeting, whether present in person or
represented by proxy, shall constitute a quorum. If less than a quorum
shall be present at any meeting of shareholders, those holders of
record of outstanding shares of stock of the Corporation entitled to
vote at such meeting, present in person or represented by proxy, may
adjourn the meeting from time to time without further notice other than
by announcement at the meeting, until a quorum shall have been obtained
at which time any business may be transacted which might have been
transacted at the meeting as first convened had there been a quorum.
The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum. When the holders of a
class or series of shares are entitled to vote separately on an item of
business, this Section applies in determining the presence of a quorum
of such class or series for transaction of the item of business.
1.7 Organization. The Chairman of the Corporation, or in the absence of the
Chairman, such person as the Board of Directors may have designated, or
in absence of such person the highest ranking officer of the
Corporation who is present, shall call to order any meeting of the
shareholders and act as Chairman of the meeting. In the absence of the
Secretary of the Corporation, the Secretary of the meeting shall be
such person as the Chairman appoints.
1.8 Conduct of Business. The Chairman of any meeting of shareholders shall
determine the order of business and the procedure at the meeting,
including such regulation of the manner of voting and the conduct of
business.
1.9 Inspection of List of Shareholders. The officer or agent having charge
of the stock transfer books for shares of the Corporation shall make
and certify a complete list of the shareholders entitled to vote at a
shareholders meeting or any adjournment thereof. The list shall:
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(A) Be arranged alphabetically within each class and series, with the
address of and the number of shares held by each shareholder.
(B) Be produced at the time and place of the meeting.
(C) Be subject to inspection by any shareholder during the whole time
of the meeting.
(D) Be prima facie evidence as to who are the shareholders entitled to
examine the list or to vote at the meeting.
1.10 Voting Rights. Except as otherwise provided by statute or in the
Articles of Incorporation, each outstanding share of stock is entitled
to one (1) vote on each matter submitted to a vote. A vote may be cast
either in person or by proxy authorized by an instrument in writing,
filed in accordance with the procedure established for the meeting.
Except as otherwise required by the Articles of Incorporation, these
Bylaws, or the laws of the State of Michigan, if any action other than
the election of Directors is to be taken by vote of the shareholders,
it shall be authorized by a majority of the votes cast by the holders
of shares entitled to vote on the action. Directors shall be elected by
a plurality of the votes cast at an election.
1.11 Notice of Shareholder Business at Annual Meeting. At an Annual Meeting
of shareholders, only such business shall be conducted as shall have
been brought before the meeting: (i) pursuant to the Corporation's
notice of meeting; (ii) by or at the direction of the Board of
Directors or; (iii) by any shareholder of the Corporation who complies
with the notice procedures set forth in this Section 1.11. For business
to be properly brought before an Annual Meeting by a shareholder, the
shareholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice must
be delivered personally or otherwise received by the Secretary of the
Corporation at least thirty (30) days, but no more than ninety (90)
days, prior to the anniversary date of the record date for
determination of shareholders entitled to vote in the immediately
preceding Annual Meeting of shareholders. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes to
bring before the Annual Meeting: (a) a brief description of the
business desired to be brought before the Annual Meeting and the
reasons for conducting such business at the Annual Meeting and any
material interest in such business of such shareholder and the
beneficial owner, if any, on whose behalf the business is made; and (b)
as to the shareholder giving the notice and the beneficial owner, if
any, on whose behalf the business is being brought, the name and
address, as they appear on the Corporation's books, of such shareholder
and of such beneficial owner, and the class and number of shares of the
Corporation which are owned beneficially and of record by such
shareholder and such beneficial owner. Notwithstanding anything in
these Bylaws to the contrary, no business shall be conducted at an
Annual Meeting except in accordance with
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the procedures set forth in this Section 1.11. The Chairman shall, if
the facts warrant, determine and declare to the meeting that business
was not properly brought before the meeting and in accordance with the
provisions of this Section 1.11, and, if the Chairman should so
determine, the Chairman shall so declare to the meeting and any such
business not properly brought before the meeting shall not be
transacted.
ARTICLE 2
BOARD OF DIRECTORS
2.1 Number and Terms of Office. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors.
The Board of Directors shall consist of not less than five (5) nor more
than twenty-five (25) members, the number thereof to be determined from
time to time by a resolution adopted by a vote of eighty (80%) percent
of the whole Board of Directors.
2.2 Nomination of Directors. Nominations for the election of directors may
be made by the Board of Directors or by any shareholder entitled to
vote in the election of directors at the particular meeting at which
the nomination is to occur. Shareholder nominations of any one or more
persons for nomination for election as director may be made by any
shareholder entitled to vote in the election of directors at the
particular meeting at which the nomination is to occur only in person
or by proxy at such meeting and only if written notice of such
shareholder's intent to make such nomination or nominations has been
delivered personally to or otherwise received by the Secretary of this
Corporation at least thirty (30) days, but no more than ninety (90)
days, prior to the anniversary date of the record date for
determination of shareholders entitled to vote in the immediately
preceding Annual Meeting of shareholders. Each such notice shall
contain a representation that: (i) the shareholder is, and will be on
the record date, a beneficial owner or a holder of record of stock of
the Corporation entitled to vote at such meeting; (ii) the shareholder
has, and will have on the record date, full voting power with respect
to such shares; and (iii) the shareholder intends to appear in person
or by proxy at the meeting to nominate the person or persons specified
in the notice. Additionally, each such notice shall include: (a) the
name and address of the shareholder who intends to make the nomination
and of the person or persons to be nominated; (b) a description of all
arrangements or understandings between the shareholder and each
proposed nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be made
by the shareholder; (c) the number and kinds of securities of the
Corporation held beneficially or of record by each proposed nominee;
(d) such other information regarding each proposed nominee as would be
required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission for the initial
election of such proposed nominee for director; and (e) the consent of
each proposed nominee to serve as a director if so elected. Any such
notice of shareholder's intent, and any nomination based thereon, which
is not fully in compliance with the requirements of this Section 2.2,
or which contains any information which is false or misleading, shall
be void and of no effect.
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2.3 Election and Term of Directors. The Board of Directors shall be divided
into three classes, as nearly equal in number as the then total number
of directors constituting the whole Board permits, with the term of
office of one class expiring each year. At each Annual Meeting of
shareholders, the class of directors whose term of office shall expire
at such time shall hold office for terms expiring at the third
succeeding Annual Meeting of shareholders following their election. A
director shall hold office for the term for which he or she is elected
and until his or her successor is elected and qualified, or until his
or her resignation or removal. No decrease in the number of directors
shall shorten the term of any incumbent director.
2.4 Removal or Resignation. Except as otherwise provided in the Articles of
Incorporation, any director or the entire Board of Directors may be
removed only for cause and only by the affirmative vote of the holders
of a majority of the shares then entitled to vote at an election of
directors. Any director may resign at any time by giving written notice
to the Board of Directors, the Chairman of the Board, if any, or the
President or Secretary of the Corporation. Unless a later date is
specified in such written notice, a resignation shall take effect upon
delivery thereof to the Board of Directors or the designated officer.
It shall not be necessary for a resignation to be accepted before it
becomes effective.
2.5 Vacancies. Subject to the rights of the holders of any particular class
or series of stock of the Corporation, (i) newly created directorships
resulting from any increase in the total number of authorized directors
may be filled by the affirmative vote of not less than 80% of the
directors then in office at any regular or special meeting of the Board
of Directors, or by a plurality vote of the shareholders at any Annual
Meeting or at any special meeting of the shareholders called for that
purpose, and (ii) any vacancies on the Board of Directors resulting
from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by the affirmative vote of not
less than 80% of the directors then in office at any regular meeting or
special meeting of the Board of Directors, or by a plurality vote of
the shareholders at any Annual Meeting or at any special meeting of
shareholders called for that purpose. Any increase or decrease in the
number of directors shall be apportioned as nearly as possible among
each class so as to maintain the number of directors in each class as
nearly equal as possible, and any additional director of any class
elected to fill any vacancy resulting from any increase in such class
shall hold office for a term which shall coincide with the remaining
term of that class. Except as otherwise provided in the Articles of
Incorporation if the holders of any class or classes of stock or series
are entitled to elect one (1) or more directors to the exclusion of
other shareholders, vacancies of that class or classes or series may be
filled by the holders of shares of that class or classes of shares, or
series. A vacancy that will occur at a specific date, by reason of a
resignation effective at a later date, may be filled before the vacancy
occurs but the newly elected or appointed director may not take office
until the vacancy occurs.
2.6 Organizational Meeting. Not later than thirty (30) days after the
Annual Meeting of shareholders, the Board of Directors as constituted
upon final adjournment of such Annual
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Meeting shall convene at such time and place as may be designated by
the Chairman or by a majority of the members of the Board of Directors
for the purpose of electing officers and transacting any other business
properly brought before it.
2.7 Regular Meetings. Regular Meetings of the Board of Directors shall be
held at such time and place as the Board of Directors shall from time
to time determine by resolution of the Board of Directors or by waiver
of notice and consent. No notice of Regular Meetings of the Board shall
be required.
2.8 Special Meetings. Special Meetings of the Board of Directors may be
called by the Chairman or by the President of this Corporation or a
majority of the Directors in office at the time of the call, whenever
in his or her or their judgment it may be necessary, by giving
reasonable notice, either personally or by mail, telegram, or
telecopier, of the time and place of such meeting. A notice that is
mailed shall be deemed to be given when deposited in the United States
mail with postage fully prepaid, addressed to such director as his or
her address appears on the records of the Corporation. Any action taken
at any such meeting shall not be invalidated for want of notice if such
notice shall be waived as herein provided. A telecopied notice shall be
deemed to be given when it is transmitted by telecopier to the
director's home or place of business.
2.9 Electronic Participation. A member of the Board or a committee
designated by the Board may participate in a meeting by means of a
conference telephone or similar communications equipment through which
all persons participating in the meeting can communicate with each
other. Participation in a meeting pursuant to this Section 2.9
constitutes presence in person at the meeting.
2.10 Quorum. A majority of the directors in office or of the members of a
committee of the Board shall constitute a quorum for the transaction of
business, unless the Board resolution establishing the committee
provides for a larger or smaller number. If there shall be less than a
quorum present at any meeting of the Board of Directors, a majority of
the directors present may adjourn the meeting from time to time without
notice other than announcement at the meeting until a quorum shall be
present, at which time any business may be transacted which might have
been transacted at the meeting as first convened had there been a
quorum present. The acts of a majority of the directors or committee
members present at any meeting at which a quorum is present shall be
the acts of the Board or of the committee, unless the vote of a larger
number is required by the Board resolution establishing the committee.
ARTICLE 3
COMMITTEES
3.1 Appointment of Committees. The Board, by majority vote of the whole
Board, may designate one (1) or more committees, each committee to
consist of one (1) or more of the
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directors of the Corporation. The Board may designate one (1) or more
directors as alternate members of a committee, who may replace an
absent or disqualified member at a meeting of the committee. A
committee, and each member thereof, shall serve at the pleasure of the
Board.
ARTICLE 4
OFFICERS
4.1 Chairman. The Chairman, if any, shall be selected by and from the
membership of the Board of Directors. The Chairman, if such office is
filled, shall be the chief executive officer of the Corporation and
shall preside at all meetings of the shareholders and the Board of
Directors at which he or she is present. He or she shall see that all
orders and resolutions of the Board are carried into effect, and he or
she shall have the general powers of supervision and management usually
vested in the chief executive officer of a corporation.
4.2 Vice Chairman. There may be one or more Vice Chairmen, selected by and
from the membership of the Board of Directors. Any such Vice Chairman
shall perform such duties as may be assigned by the Chairman. In the
absence, disability or death of the Chairman, pending return of the
Chairman or the election of a successor, the Vice Chairman so
designated by the Board shall perform all the duties and exercise all
the power and authority of the Chairman of the Board.
4.3 President. The President shall be selected by the Board of Directors.
If the office of Chairman is filled, the President shall be the chief
operating officer of the Corporation and shall have the general powers
of supervising and managing the day-to-day operations of the
Corporation. In the absence or disability of the Chairman and Vice
Chairman, or if those offices have not been filled, he or she also
shall perform the duties and execute the powers of the Chairman.
4.4 Vice Presidents. The Board of Directors may select one or more
Executive Vice Presidents, Senior Vice Presidents or other Vice
Presidents who shall have such powers and duties as may be assigned to
each of them by the Board of Directors.
4.5 Secretary. The Secretary shall be selected by the Board of Directors.
He or she shall attend all meetings of shareholders and of the Board of
Directors, and shall preserve in books of the Corporation true minutes
of the proceedings of all such meetings. He or she shall have such
additional powers and duties as may be assigned to him or her by the
Board of Directors.
4.6 Treasurer. The Treasurer shall be selected by the Board of Directors.
He or she shall have custody of all corporate funds and securities, and
shall keep in books belonging to the Corporation full and accurate
accounts of all receipts and disbursements. He or she shall
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deposit all moneys, securities and other valuable effects in the name
of the Corporation in such depositories as may be designated for that
purpose by the Board of Directors. He or she shall disburse the funds
of the Corporation as may be ordered by the Board, making proper
vouchers for such disbursements, and shall render to the Chairman of
the Board and the directors at regular meetings of the Board and
whenever requested by them and to the President, an account of all his
transactions as Treasurer. He or she shall in general perform all
duties incident to the office of Treasurer, and shall have such
additional powers and duties as may be assigned to him or her by the
Board of Directors.
4.7 Other Officers. The Board of Directors may appoint one or more
Assistant Vice Presidents, one or more Assistant Secretaries, and one
or more Managers and Assistant Managers and such other officers and
attorneys in fact as from time to time may appear to the Board to be
required or desirable to transact the business of the Corporation. Such
officers shall respectively exercise such powers and perform all such
duties as pertain to their several offices, or as may be conferred
upon, or assigned to by the Board of Directors, the Chairman, the Vice
Chairman, or the President.
4.8 Tenure of Office. The Chairman, any Vice Chairman, the President, and
all other officers shall hold office for the current year for which the
Board was elected, unless they shall resign, become disqualified, or be
removed; any vacancy occurring in the office of the President shall be
filled promptly by the Board of Directors.
ARTICLE 5
INDEMNIFICATION OF OFFICERS AND DIRECTORS
5.1 Indemnification. The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to a threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative and whether formal or informal, other
than an action by or in the right of the Corporation, by reason of the
fact that he or she is or was a director or officer of the Corporation,
or is or was serving at the request of the Corporation as a director,
officer, partner, or trustee of another foreign or domestic
corporation, partnership, joint venture, trust, or other enterprise,
whether for profit or not, against expenses, including attorneys' fees,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with the action, suit,
or proceeding, if the person acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests
of the Corporation or its shareholders, and the person submits a
written claim for indemnification as hereinafter provided, and with
respect to a criminal action or proceeding, if the person had no
reasonable cause to believe his or her conduct was unlawful, and the
person submits a written claim for indemnification as hereinafter
provided. The termination of an action, suit, or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, does not, of itself, create a presumption
that the person did not act in good faith and in a manner which he or
she reasonably believed to be in or not opposed to the best interests
of the
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Corporation or its shareholders, and, with respect to a criminal action
or proceeding, had reasonable cause to believe that his or her conduct
was unlawful.
5.2 Derivative Shareholder Liability. The Corporation shall indemnify any
person who was or is a party to or is threatened to be made a party to
a threatened, pending, or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the
fact that he or she is or was a director or officer of the Corporation,
or is or was serving at the request of the Corporation as a director,
officer, partner, or trustee of another foreign or domestic
corporation, partnership, joint venture, trust, or other enterprise,
whether for profit or not, against expenses, including attorneys' fees,
and amounts paid in settlement actually and reasonably incurred by the
person in connection with the action or suit, if the person acted in
good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the Corporation or its
shareholders, and the person submits a written claim of indemnification
as hereinafter provided. However, indemnification shall not be made for
a particular claim, issue, or matter in which the person has been found
liable to the Corporation unless and only to the extent that the court
in which the action or suit was brought (or another court of competent
jurisdiction) has determined upon application that, despite the
adjudication of liability but in view of all the relevant
circumstances, the person is fairly and reasonably entitled to
indemnification for the reasonable expenses he or she incurred.
5.3 Determination of Indemnification. An indemnification under Section 5.1
or 5.2, unless ordered by a court, shall be made by the Corporation as
authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the
circumstances because he or she has met the applicable standard of
conduct set forth in Section 5.1 or 5.2 and upon an evaluation of the
reasonableness of expenses and amounts paid in settlement. This
determination and evaluation shall occur within 30 days after a written
claim for indemnification has been received by the Corporation, and
shall be made in any of the following ways:
(A) By a majority vote of a quorum of the Board consisting of directors
who are not parties or threatened to be made parties to the action,
suit or proceeding;
(B) If the quorum described in subparagraph (A) is not obtainable, then
by a majority of a committee duly designated by the Board and
consisting solely of two or more directors not at the time parties
or threatened to be made parties to the action, suit, or
proceeding;
(C) By independent legal counsel in a written opinion, which counsel
shall be selected in one of the following ways:
(1) By the Board or its committee in the manner prescribed in
subparagraphs (A) and (B),
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(2) If a quorum of the Board cannot be obtained under subparagraph
(A) and a committee cannot be designated under subparagraph
(B), by the Board;
(D) By all independent directors who are not parties or threatened to
be made parties to the action, suit, or proceeding; and
(E) By the shareholders, but shares held by directors, officers,
employees, or agents who are parties or threatened to be made
parties to the action, suit, or proceeding may not be voted.
In the designation of a committee under subparagraph (B) or in the
selection of independent legal counsel under subparagraph (C)(2), all
directors may participate.
If a person is entitled to indemnification under paragraph 5.1 or 5.2
for a portion of expenses, including reasonable attorneys' fees,
judgments, penalties, fines, and amounts paid in settlement, but not
for the total amount thereof, the Corporation shall indemnify the
person for the portion of the expenses, judgments, penalties, fines, or
amounts paid in settlement for which the person is entitled to be
indemnified.
5.4 Payment of Defense Expenses in Advance. The Corporation shall pay or
reimburse the reasonable expenses incurred by a director or officer who
is a party or threatened to be made a party to an action, suit, or
proceeding in advance of final disposition of the proceeding if all of
the following apply:
(1) The person furnishes the Corporation a written affirmation of his
or her good faith belief that he or she has met the applicable
standard of conduct set forth in Section 5.1 and 5.2.
(2) The person furnishes the Corporation a written undertaking,
executed personally or on his or her behalf to repay the advance if
it is ultimately determined that he or she did not meet the
standard of conduct.
(3) A determination is made that the facts then known to those making
the determination would not preclude indemnification under this
Section or the Michigan Business Corporation Act.
The undertaking shall be by unlimited general obligation of the person
on whose behalf advances are made but need not be secured.
Determination of payments under Section 5.4 shall be made in the manner
described in Section 5.3 (A)-(E). In the designation of a committee
under Section 5.3(B) or in the selection of independent legal counsel
under Section 5.3(C)(2), all directors may participate.
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5.5 Other Indemnification. The indemnification or advancement of expenses
provided under Sections 5.1 through 5.4 is not exclusive to other
rights to which a person seeking indemnification or advancement of
expenses may be entitled under the Michigan Business Corporation Act,
the Corporation's Articles of Incorporation, Bylaws, or a contractual
agreement. However, the total amount of expenses advanced or
indemnified from all sources combined shall not exceed the amount of
actual expenses incurred by the person seeking indemnification or
advancement of expenses. The indemnification provided for in Sections
5.1 through 5.4 continues as to a person who ceases to be a director,
officer, partner, or trustee and shall inure to the benefit of the
heirs, executors, and administrations of the person.
5.6 Liability Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, partner, trustee,
employee, or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity or arising out of
his or her status as such, whether or not the Corporation would have
power to indemnify him or her against liability under the Michigan
Business Corporation Act or this Section.
ARTICLE 6
CAPITAL STOCK
6.1 Certificates. Every shareholder of this Corporation shall be entitled
to a certificate for his or her shares signed by the Chairman, any Vice
Chairman or the President certifying the number and class of shares,
and designation of the series, if any, represented by such certificate;
provided that where such certificate is signed by a transfer agent
acting on behalf of the Corporation, and by a registrar, the signature
of any such officer may be facsimile.
6.2 Transfer. Except as otherwise provided by a written agreement between
the Corporation and a shareholder, shares shall be transferable only on
the books of the Corporation by the person named in the certificate, or
by attorney lawfully constituted in writing, and upon surrender of the
certificates therefor. A record shall be made of every such transfer
and issue. Whenever any transfer is made for collateral security and
not absolutely, the fact shall be so expressed in the entry of such
transfer.
6.3 Lost, Destroyed, or Stolen Certificates. Where the owner claims that
his or her certificate for shares has been lost, destroyed, or
wrongfully taken, a new certificate shall be issued in place thereof if
the owner (a) so requests before the Corporation has notice that such
shares have been acquired by a bona fide purchaser, and (b) files with
the Corporation a sufficient indemnity bond, and (c) satisfies such
other reasonable requirements as the Board of Directors may prescribe.
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6.4 Registered Shareholder. The Corporation shall be entitled to treat the
person in whose name any share of stock is registered as the owner of
it for purposes of dividends and other distributions or for any
recapitalization, merger, reorganization, sale of assets, or
liquidation and for the purpose of votes, approvals, and consents by
shareholders, and for the purpose of notices to shareholders and for
all other purposes whatever, and shall not be bound to recognize any
equitable or other claim to or interest in the shares by any other
person, whether or not the Corporation shall have notice of it, except
as expressly required by the laws of the State of Michigan.
6.5 Record Date. The Board of Directors may fix a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date
of any meeting of shareholders, at which time there shall be determined
the shareholders who are entitled: to notice of or to vote at any
meeting of shareholders or any adjournment thereof; to receive payment
of any dividend or other distribution or allotment of any rights; or to
exercise any rights with respect to any change, conversion, or exchange
of stock or with respect to any other lawful action.
6.6 Regulations. The Board of Directors shall have power and authority to
make such rules and regulations as the Board shall deem expedient
regulating the issue, transfer and registration of certificates for
shares of the capital stock of the Corporation.
ARTICLE 7
EXECUTION OF INSTRUMENTS
7.1 Instruments. The Board of Directors shall have power to designate the
officers and agents who shall have authority to execute any contract,
conveyance, or other instrument or document on behalf of the
Corporation. When the execution of any contract, conveyance or other
instrument or document has been authorized without specification of the
executing officers, the Chairman or the President may execute the same
in the name and on behalf of the Corporation, or any Vice President,
Treasurer, Assistant Treasurer, Secretary, or Assistant Secretary may
execute the same in the name and on behalf of the Corporation.
ARTICLE 8
CORPORATE SEAL
8.1 Seal. The Board of Directors may adopt a corporate seal.
ARTICLE 9
FISCAL YEAR
9.1 Fiscal Year. The fiscal year of the Corporation shall be the calendar
year.
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ARTICLE 10
REDEMPTION OF CONTROL SHARES
10.1 Control Share Acquisitions. Pursuant to Section 794 of the Michigan
Business Corporation Act, Chapter 7B of the Michigan Business Corporation Act
does not apply to any "control share acquisition" (as such term is defined in
Section 791 of the Michigan Business Corporation Act) of shares of this
Corporation.
ARTICLE 11
AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the affirmative vote of not less than a majority of the members of
the Board of Directors then in office, at any regular or special meeting of the
Board of Directors, or by the shareholders representing a majority of the
outstanding shares of capital stock entitled to vote generally in the election
of directors, voting together as a single class, at any regular or special
meeting of shareholders; provided, however, that Article 1, Section 1.2, Section
1.3 and Section 1.11 and Article 2, Section 2.1, Section 2.2, Section 2.3,
Section 2.4, Section 2.5 and Section 2.8 and Article 10 and this Article 11, may
not be altered, amended or repealed, nor may any Bylaw inconsistent with Article
1, Section 1.2, Section 1.3 and Section 1.11 and Article 2, Section 2.1, Section
2.2, Section 2.3, Section 2.4, Section 2.5 and Section 2.8 and Article 10 and
this Article 11, be adopted unless, if by action of the Board of Directors, such
action is approved by the affirmative vote of not less than 80% of the full
Board, or, if by the shareholders, if such action is approved by the affirmative
vote of the holders of not less than 66-2/3% of the outstanding shares of
capital stock entitled to vote generally in the election of directors, voting
together as a single class.
ADOPTED this 5th day of February, 2000.
/s/ William T. Fitzgerald, Jr.
----------------------------------
William T. Fitzgerald, Jr.
Secretary
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EXHIBIT 9
VOTING TRUST AGREEMENT
THIS AGREEMENT, by and between , a
stockholder holding voting shares of common stock of EMPIRE BANC CORPORATION, a
Delaware corporation, having its principal offices at 1227 East Front Street,
Traverse City, Michigan (hereinafter referred to as "Corporation"), and any
other stockholders holding voting shares of common stock of said Corporation who
may hereafter become parties hereto through delivery of their stock to the
Voting Trustee and execution of this Agreement (all of whom herein are
collectively referred to as "Stockholder"), and JAMES E. DUTMERS, JR.
(hereinafter referred to as "Voting Trustee"):
WHEREAS, the undersigned did enter into a Voting Trust Agreement dated
June 1, 1990, which Voting Trust Agreement provided that said Trust should
continue in force until the 30th day of May, 1998, unless terminated earlier by
mutual agreement; and
WHEREAS, the undersigned deem it to be in their mutual best interests
to terminate said Trust Agreement as between them only by mutual agreement and
to enter into a separate and independent Voting Trust Agreement; and
WHEREAS, Stockholders are owners of common stock of Corporation and are
desirous of parting with their voting rights and privileges over said
Corporation shares to the maximum extent permitted by Michigan law as being in
the best interests of Stockholders; and
<PAGE> 2
WHEREAS, the Voting Trustee is willing to act as Voting Trustee in this
stock of Corporation in a manner which will advance the best interests of the
Stockholders and Corporation.
NOW, THEREFORE, the parties mutually agree as follows:
1. REVOCATION: The Voting Trust Agreement dated June 1, 1990, shall
be and is hereby revoked as to the signatories hereof only.
2. DEPOSIT: Simultaneously with the execution of this Agreement, the
Stockholders have deposited with the Voting Trustee certificates for
shares of Corporation stock properly assigned to the Voting
Trustee. Any additional Stockholders who become parties to this Agreement
through deposit of their stock and execution of this Agreement shall be bound by
all terms hereof.
3. VOTING TRUST CERTIFICATES: The Voting Trustee shall forthwith issue
to Stockholders a Voting Trust Certificate in substantially the form attached as
Exhibit "A" reflecting the relative rights of the parties, particularly of
Stockholders.
4. TRANSFERABILITY OF VOTING TRUST CERTIFICATE: Voting Trust
Certificates shall be transferable only as therein and herein provided and any
transfer so made shall vest in the transferee all the rights and interests of
the transferor under the Voting Trust Certificate transferred under this
Agreement and upon such transfer, the Voting Trustee will deliver or cause to be
delivered to the transferee a Voting Trust Certificate for the same number of
common shares of the Corporation as represented by
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<PAGE> 3
the certificates so transferred. Until such transfer, the Voting Trustee and
Corporation may treat Stockholders as the owner thereof for all purposes.
5. TITLE: Title to all common shares of Corporation stock deposited
hereunder shall be vested in the Voting Trustee and shall give the Voting
Trustee in respect of such shares all rights of common Stockholders of any kind
and character including the right to vote for the Directors and also including
the right to vote such shares and to take part in or consent in writing or
otherwise to any corporate or Stockholders' action whether ordinary or
extraordinary including any amendment of the Articles of Incorporation and/or
the Bylaws of Corporation deemed by the Voting Trustee to be desirable, all upon
such terms and conditions and under such circumstances as it, in the Voting
Trustee's unrestricted discretion, may from time to time determine and to do or
perform any other act or thing which the common stockholders of Corporation are
now or may hereafter be entitled to do or perform including the receipt of
dividends on said shares; and it is expressly understood and agreed that the
holder of a Voting Trust Certificate shall not have any right either under said
Voting Stock Certificate or under this Agreement or under any agreement
expressed or implied or otherwise with respect to any shares held by the Voting
Trustee hereunder, to vote such shares or to take part in or consent to any
corporate or stockholder action, or to do or perform any other act or thing
which common stockholders of Corporation are now or may hereafter become
entitled to do or perform.
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<PAGE> 4
6. RESTRICTIONS ON ENCUMBRANCE: The Voting Trustee shall not sell,
pledge, hypothecate, mortgage or place any lien or charge upon the shares of
Corporation subject hereto.
7. DIVIDENDS: The holder of a Voting Trust Certificate shall be
entitled, until termination of this Trust, to receive from time to time payments
equal to dividends, if any, received by the Voting Trustee upon the number of
shares represented by such Voting Trust Certificate; or the Voting Trustee may
in his discretion, instead of receiving and distributing any dividend declared
on the shares subject hereto, authorize Corporation to make payment thereof
directly to the holders of the outstanding Voting Trust Certificates.
8. STOCK CERTIFICATES: In case the Voting Trustee shall receive any
additional share certificates of Corporation from parties to this Agreement or
certificates issued by way of dividends upon shares held by him under this
Agreement or otherwise, the Voting Trustee shall hold such shares likewise
subject to the terms of this Agreement and shall issue a Voting Trust
Certificate or certificates representing such share certificate to the parties
entitled thereto.
9. DURATION: This Voting Trust shall continue in force until the 30th
day of May, 2004, unless sooner terminated by mutual agreement. On transfer of
all or any part of the stock at
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<PAGE> 5
the option of Stockholders, this Agreement may be terminated. On the foregoing
date or upon earlier termination of this Voting Trust, the shares of Corporation
held by the Voting Trustee hereunder shall be distributed to the holder of the
Voting Trust Certificate upon presentation and surrender thereof.
10. RULES OF PROCEDURE AND VOTING BY VOTING TRUSTEE: The Voting Trustee
may adopt his own rules and procedures.
In voting the shares deposited hereunder or in doing any act with
respect to the control or management of Corporation or its affairs or otherwise
acting hereunder, the Voting Trustee shall exercise his best judgment in the
interests of Stockholders, but the Voting Trustee assumes no responsibility in
respect thereto or of any action taken by him or taken in pursuance of his
consent thereto, or in pursuance of his vote so cast. The Voting Trustee may,
from time to time, and the Successor Voting Co-Trustees shall, in the event they
cannot agree, consult with PATRICIA JOHNSON DUTMERS and CORNELIUS A. JOHNSON
prior to voting the shares deposited hereunder. The Voting Trustee shall have
the full and unqualified right and power to vote and to execute consents with
respect to all shares of stock deposited or held hereunder, in person or by
proxy at any and all meetings of the shareholders of Corporation, for whatever
purpose called or held, and in any and all proceedings, whether at meetings of
shareholders or otherwise, wherein the vote or written consent of shareholders
may be required or authorized by law. This power of
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<PAGE> 6
acting in person or by proxy, however, shall not be construed to enable the
Voting Trustee or his proxy to act otherwise as in this Agreement provided.
11. EXONERATION, COMPENSATION AND EXPENSES: The Voting Trustee, whether
as Stockholder, Trustee or otherwise, shall not be liable for any error of
judgment or mistake of law or other mistake or for any act or admission of any
agent or attorney, or for any misconstruction of this Agreement or for anything
save only his own malfeasance. The compensation and expenses of the Voting
Trustee shall be paid by Stockholders.
12. RESIGNATION OF TRUSTEE AND SUCCESSOR TRUSTEE: The Voting Trustee
may resign at any time by written notice to the Stockholders. In the event the
Voting Trustee should die, resign or otherwise refuse or fail to act as Trustee,
prior to the termination of this Voting Trust Agreement, GEORGE THOMAS DUTMERS
and CHARLES E. OFENLOCH shall take his place as Successor Voting Co-Trustees
hereunder with all of the title, rights, powers, duties and discretion herein
vested in the original Voting Trustee.
13. RESTRICTION ON STOCKHOLDERS' SALE OF STOCK: It is mutually agreed
by all of the Stockholders a part to this Voting Trust Agreement that during the
terms of this Voting Trust Agreement, they shall not sell any of their stock of
Corporation that has been deposited with the Voting Trustee without first
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<PAGE> 7
offering it to the other Stockholders who are parties to this Voting Trust
Agreement at the then fair market value. The other Stockholders shall have,
individually or as a group, the right to purchase this stock from the selling
Stockholder. They shall have thirty (30) days within which to determine whether
they wish to buy said stock or not. Said thirty (30) days to run from the time
they are notified in writing by certified mail of the offer to sell. If no
Stockholders or Stockholder desires to purchase said stock, then the Selling
Stockholder shall have the right to sell the stock to anyone or to any person
that he so desires. This restriction on the sale of stock shall not affect the
right of the Stockholder to make gifts of this stock to members of his immediate
family or to children, grandchildren or great-grandchildren, but the same
restriction on sale shall pass with the gift to the person receiving the gift
and they shall be required to place their stock in the Voting Trust Agreement
and sign the Agreement along with the other Stockholders.
It is also mutually agreed by the Stockholders as parties to this
Voting Trust Agreement that during the term of this Voting Trust Agreement they
shall not pledge for any loan purposes any of the stock deposited with the
Voting Trustee.
14. MISCELLANEOUS: This Agreement shall be construed and governed by
the laws of the State of Michigan.
This Agreement may be executed simultaneously in two or more
counterparts; each of which shall be deemed an original, but all
of which together shall constitute one and the same Agreement.
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<PAGE> 8
This Agreement shall be effective upon execution of all parties hereto,
which date shall be indicated by the Voting Trustee next to his signature on
this Agreement.
IN WITNESS WHEREOF, the Voting Trustee and Stockholders have signed
this Agreement the day and year first above written.
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<PAGE> 9
Signed in the Presence of: STOCKHOLDERS:
/s/ Susan E. Richardson /s/ John Wayne Collins
- ------------------------------ --------------------------------
SUSAN E. RICHARDSON JOHN WAYNE COLLINS
/s/ Susan E. Richardson /s/ Katherine J. Collins
- ------------------------------ --------------------------------
SUSAN E. RICHARDSON KATHERINE JANE COLLINS
/s/ Susan E. Richardson /s/ Katherine J. Collins
- ------------------------------ --------------------------------
SUSAN E. RICHARDSON KATHERINE J. COLLINS, As
Custodian For Matthew James
Collins
/s/ Susan E. Richardson /s/ Katherine J. Collins
- ------------------------------ --------------------------------
SUSAN E. RICHARDSON KATHERINE J. COLLINS, As
Custodian For John Scott
Collins
/s/ Patricia M. Dutmers /s/ Chad Thomas Dutmers
- ------------------------------ --------------------------------
PATRICIA M. DUTMERS CHAD THOMAS DUTMERS
/s/ Shelly M. Stanton /s/ Macaire M. Dutmers
- ------------------------------ --------------------------------
SHELLY M. STANTON MACAIRE M. DUTMERS
/s/ Shelly M. Staton /s/ James E. Dutmers, Jr.
- ------------------------------ --------------------------------
SHELLY M. STATON JAMES E. DUTMERS, JR.
/s/ Eilen N. Knol /s/ George Thomas Dutmers
- ------------------------------ --------------------------------
EILEN N. KNOL GEORGE THOMAS DUTMERS
/s/ Eileen N. Krol /s/ Monica Dutmers
- ------------------------------ --------------------------------
EILEEN N. KROL MONICA DUTMERS, As
Custodian For Molly Kathleen Dutmers
/s/ Shelly M. Staton /s/ Patricia M. Dutmers
- ------------------------------ --------------------------------
SHELLY M. STATON PATRICIA M. DUTMERS
/s/ Shelly M. Staton /s/ James E. Dutmers
- ------------------------------ --------------------------------
SHELLY M. STATON JAMES E. DUTMERS, JR., As
Custodian For Chad Thomas
Dutmers
/s/ Shelly M. Staton /s/ James E. Dutmers
- ------------------------------ --------------------------------
SHELLY M. STATON JAMES E. DUTMERS, JR., As
Custodian For Timothy James
Dutmers
/s/ Shelly M. Stanton /s/ Timothy J. Dutmers
- ------------------------------ --------------------------------
SHELLY M. STANTON TIMOTHY J. DUTMERS
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<PAGE> 10
Signed in the Presence of: STOCKHOLDERS:
/s/ Shelly M. Stanton /s/ Susan E. Dutmers
- ------------------------------ --------------------------------
SHELLY M. STANTON SUSAN E. DUTMERS, a/k/a
Susan Elizabeth Dutmers
/s/ Robert J. Boisjoli /s/ Cornelia Johnson Boisjoli
- ------------------------------ ------------------------------
ROBERT J. BOISJOLI CORNELIA JOHNSON BOISJOLI
/s/ Christopher E. Hasbrook /s/ Nina Johnson Hanselmann
- ------------------------------ ---------------------------------
CHRISTOPHER E. HASBROOK NINA JOHNSON HANSELMANN
/s/ Christopher E. Hasbrook /s/ Frederick C. Hanselmann
- ------------------------------ ---------------------------------
CHRISTOPHER E. HASBROOK FREDERICK C. HANSELMANN
/s/ Christopher E. Hasbrook /s/ Cornelius A. Johnson
- ------------------------------ ---------------------------------
CHRISTOPHER E. HASBROOK CORNELIUS A. JOHNSON
/s/ Susan E. Richardson /s/ Gail C. Johnson
- ------------------------------ ---------------------------------
SUSAN E. RICHARDSON GAIL C. JOHNSON
/s/ Susan E. Richardson /s/ George A. Johnson
- ------------------------------ ---------------------------------
SUSAN E. RICHARDSON GEORGE A. JOHNSON
/s/ Susan E. Richardson /s/ George Johnson
- ------------------------------ ---------------------------------
SUSAN E. RICHARDSON GEORGE JOHNSON, As
Custodian For Andrew
Johnson
/s/ Susan E. Richardson /s/ George A. Johnson
- ------------------------------ ---------------------------------
SUSAN E. RICHARDSON GEORGE A. JOHNSON, As
Custodian For Brett Culver
Johnson
/s/ Susan E. Richardson /s/ George A. Johnson
- ------------------------------ ---------------------------------
SUSAN E. RICHARDSON GEORGE A. JOHNSON, As
Custodian For Kimberly
Johnson
/s/ Susan E. Richardson /s/ George A. Johnson
- ------------------------------ ---------------------------------
SUSAN E. RICHARDSON GEORGE A. JOHNSON, As
Trustee of Patricia J. McTigue
And John P. McTigue Childress
Educational Trust
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<PAGE> 11
Signed in the Presence of: STOCKHOLDERS:
/s/ Christopher E. Hasbrook /s/ Sara Johnson Ofenloch
- ------------------------------ --------------------------------
CHRISTOPHER E. HASBROOK SARA JOHNSON OFENLOCH, As
Custodian For David
Ofenloch
/s/ Christopher E. Hasbrook /s/ Sara Johnson Ofenloch
- ------------------------------ --------------------------------
CHRISTOPHER E. HASBROOK SARA JOHNSON OFENLOCH
/s/ Christopher E. Hasbrook /s/ Margaret Johnson Leahy
- ------------------------------ --------------------------------
CHRISTOPHER E. HASBROOK MARGARET JOHNSON LEAHY
/s/ Christopher E. Hasbrook /s/ Timothy J. Leahy
- ------------------------------ --------------------------------
CHRISTOPHER E. HASBROOK TIMOTHY J. LEAHY
/s/ Christopher E. Hasbrook /s/ Charles E. Ofenloch
- ------------------------------ --------------------------------
CHRISTOPHER E. HASBROOK CHARLES E. OFENLOCH, As
Custodian For David Patrick
Ofenloch
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<PAGE> 12
Signed in the Presence of: STOCKHOLDERS:
/s/ Christopher E. Hasbrook /s/ Margaret Johnson Leahy
- ------------------------------ --------------------------------
CHRISTOPHER E. HASBROOK MARGARET JOHNSON LEAHY, As
Custodian For Katherine
Leahy
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<PAGE> 13
Signed in the Presence of: STOCKHOLDERS:
/s/ Christopher E. Hasbrook /s/ Margaret Johnson Leahy
- ------------------------------ --------------------------------
CHRISTOPHER E. HASBROOK MARGARET JOHNSON LEAHY, As
Custodian for Michael Leahy
/s/ Christopher E. Hasbrook /s/ Margaret Johnson Leahy
- ------------------------------ --------------------------------
CHRISTOPHER E. HASBROOK MARGARET JOHNSON LEAHY, As
Custodian for Timothy Leahy, Jr
/s/ Christopher E. Hasbrook /s/ Margaret Johnson Leahy
- ------------------------------ --------------------------------
CHRISTOPHER E. HASBROOK MARGARET JOHNSON LEAHY, As
Custodian for Heather Ann Leahy
/s/ Christopher E. Hasbrook /s/ Charles E. Ofenloch
- ------------------------------ --------------------------------
CHRISTOPHER E. HASBROOK CHARLES E. OFENLOCH
/s/ George Thomas Dutmers /s/ Patricia Johnson Mctigue
- ------------------------------ --------------------------------
GEORGE THOMAS DUTMERS PATRICIA JOHNSON McTIGUE
/s/ George Thomas Dutmers /s/ Patricia Johnson Mctigue
- ------------------------------ --------------------------------
GEORGE THOMAS DUTMERS PATRICIA JOHNSON McTIGUE, As
Custodian for Brian McTigue
/s/ George Thomas Dutmers /s/ Patricia Johnson Mctigue
- ------------------------------ --------------------------------
GEORGE THOMAS DUTMERS PATRICIA JOHNSON McTIGUE, As
Custodian for Mary Ann McTigue
/s/ Susan M. Otting /s/ Sarah E. Johnson Malchow
- ------------------------------ --------------------------------
SUSAN M. OTTING SARAH E. JOHNSON MALCHOW
/s/ Shelly M. Stanton /s/ Elizabeth A. Ofenloch
- ------------------------------ --------------------------------
SHELLY M. STANTON ELIZABETH A. OFENLOCH
/s/ Shelly M. Stanton /s/ John Charles Ofenloch
- ------------------------------ --------------------------------
SHELLY M. STANTON JOHN CHARLES OFENLOCH
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<PAGE> 14
Signed in the Presence of: STOCKHOLDERS:
VOTING TRUSTEE:
/s/ Susan E. Richardson /s/ James E. Dutmers, Jr.
- ------------------------------ --------------------------------
SUSAN E. RICHARDSON JAMES E. DUTMERS, JR.
Dated: Nov. 10, 1997
SUCCESSOR CO-VOTING TRUSTEES:
/s/ Helen C. Stiles /S/ George Thomas Dutmers
- ------------------------------ --------------------------------
HELEN C. STILES GEORGE THOMAS DUTMERS
/s/ Christopher E. Hasbrook /s/ Charles E. Ofenloch
- ------------------------------ --------------------------------
CHRISTOPHER E. HASBROOK CHARLES E. OFENLOCH
-14-
<PAGE> 1
EXHIBIT 10a
MANAGEMENT CONTINUITY AGREEMENT
This Agreement effective as of December 1, 1999, between Empire Banc
Corporation, a Michigan Corporation (the "Company") and
(the "Officer"), an individual residing in the State of Michigan,
W I T N E S S E T H
WHEREAS, the Officer is employed by the Company as an officer of the
Company; and
WHEREAS, the Company and the Officer are parties to a Management
Continuity Agreement dated December 1, 1989, as amended and restated January 31,
1991, and further amended and restated July 1, 1995. Both the Company and the
Officer desire to amend and restate the Management Continuity Agreement to (i)
specify the timing of payments to be made to the Officer; (ii) coordinate the
nonqualified retirement plan benefits to be paid pursuant to this Agreement with
the nonqualified retirement plan benefits payable pursuant to the terms and
conditions of the Empire Banc Corporation Supplemental Executive Retirement Plan
(the "SERP"); (iii) specify the compensation and benefit plans maintained by the
Company which are subject to the provisions of this Agreement; and (iv) specify
the assumptions to be used to calculate payments to made to the Officer in the
event of the Officer's termination of employment following a change in control
of the Company.
WHEREAS, the Company continues to be willing, in order to provide the
Officer a measure of security with respect to the Officer's employment in the
event of a change in control of the Company and to induce the Officer to remain
in employment with the Company, to agree that employment of the Officer shall be
terminable only for cause for a limited period after a change in control of the
Company;
NOW THEREFORE, the Company and the Officer agree as follows:
<PAGE> 2
1. TERM OF EMPLOYMENT. The Company shall employ the Officer and the
Officer shall remain in employment with the Company for a period of five years
from the effective date of this Agreement (herein called the Initial Term),
unless the Agreement is terminated pursuant to Sections 6, 7, 8 or 9. Annually,
effective on the anniversary of the effective date of this Agreement, the
Initial Term of this Agreement shall be extended for one additional year,
provided that the Board of Directors of the Company approves such extension.
Upon the approval of the Board of Directors of such annual extension, no written
amendment or other action shall be necessary to effectuate the one-year
extension of the Initial Term. The Initial Term may be otherwise extended by
written amendment to this Agreement, which amendment specifically refers to this
Agreement, signed by the Company and the Officer. The Initial Term shall be
automatically renewed, without written amendment to this Agreement, for a period
of five years from the date of the execution by the Company of an agreement to:
(i) sell at least twenty percent (20%) of the Company's outstanding stock to an
Acquiring Person as defined in Section 9; (ii) merge or reorganize the Company
in such a way that the Company is not the surviving entity; or (iii) sell all or
substantially all of the Company's assets.
2. DUTIES. As an officer of the Company, the Officer shall perform such
duties and functions as are assigned to the Officer by the by-laws of the
Company, by the Board of Directors of the Company, by committees of the Board of
Directors, or by other officers of the Company of higher corporate rank. The
Officer agrees that, if elected or appointed, the Officer shall serve in such
other positions or offices as the Board of Directors, in its exclusive
discretion, or stockholders of the Company may direct, whether at the Company or
any of its subsidiaries or affiliates.
2
<PAGE> 3
3. COMPENSATION. The Officer shall receive an annual salary of
$ , which may be increased annually by an amount to be determined by
the Board of Directors of the Company. The Officer shall participate in the
employee benefit plans, whether qualified or non-qualified, customarily and
generally available to all executive employees of the Company and its
subsidiaries. The Officer shall also be eligible to participate in such
incentive, stock bonus and other compensation plans that the Company shall
provide to him.
4. FULL-TIME EMPLOYMENT WITH THE COMPANY. The Officer shall devote the
Officer's full-time and business efforts to the Officer's duties and
responsibilities under this Agreement, provided that (a) the Officer may also
devote reasonable amounts of time in charitable, civic and other similar
activities, (b) the Officer may serve as a director of a business corporation
not competing with the Company with the consent of the Board of Directors or
Chief Executive Officer of the Company, and (c) the Officer may not make
investments in business activities that materially interfere with the
performance of the Officer's duties and responsibilities under this Agreement.
The Officer shall maintain the confidentiality of the Company's confidential
information and shall only disclose information as of which disclosure has been
properly authorized.
5. TERMINATION OF AGREEMENT. Unless terminated in accordance with
Sections 6, 7, 8 or 9, or extended pursuant to Section 1, this Agreement shall
terminate at the expiration of the Initial Term, and all obligations under this
Agreement shall terminate at that time. The Officer may, with the consent of the
Company, continue in the employ of the Company after the expiration of the
Initial Term on such terms and conditions as are agreed upon by the Officer and
the Company.
3
<PAGE> 4
6. TERMINATION BY THE OFFICER. The Officer may voluntarily terminate
this Agreement by giving 30 days notice to the Company, in which case the
Officer and the Company shall have no further obligations after the date of such
termination.
In the event the Officer's employment by the Company terminates due to
the Officer's death, the Company shall have no further obligation to the
Officer, the Officer's heirs or legatees under this Agreement except that for
one year after the date of the Officer's death, the Company shall pay to the
Officer's surviving spouse, if any, the salary payments described in Section 3,
and the Officer's heirs and legatees shall have no further obligation to the
Company under this Agreement.
In the event the Officer's employment by the Company is terminated due
to the Officer's Permanent Disability, the Company shall have no further
obligation to the Officer under this Agreement from the date of such termination
except to continue salary payments and employee benefit plan coverage described
in Section 3 (as further described in Schedule A to this Agreement) for a period
of two years from the date of the Officer's permanent disability. For purposes
of this Agreement, the term "permanent disability" means a physical or mental
condition of the Officer which (a) has continued uninterrupted for six months,
(b) is expected to continue indefinitely and (c) is determined by the Company to
render the Officer incapable of adequately performing the Officer's duties under
Section 2 of this Agreement.
7. TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate
this Agreement without cause prior to a Change in Control as defined in Section
9 by providing 30 days notice to the Officer. In such event, the Company shall
have no further obligation to the Officer under this Agreement except the
obligation to continue salary payments pursuant to
4
<PAGE> 5
Section 3 for the Initial Term and the Officer shall have no further obligation
to the Company under this Agreement.
8. TERMINATION BY THE COMPANY WITH CAUSE. The Company, by resolution of
its Board of Directors, may terminate this Agreement by providing the Officer
with notice, which may be provided as late as the effective date of such
termination, if the Officer is indicted for commission of a felony or commits
fraud, gross malfeasance or improper conduct resulting in substantial injury to
the interests of the Company, or if the Officer willfully and materially
breaches this Agreement. In such event, the Company will have no further
obligation to the Officer under this Agreement from the date of such
termination, and salary shall be paid to the Officer only for services actually
rendered through the date of termination.
9. TERMINATION FOLLOWING CHANGE IN CONTROL. In the event there is a
"Change in Control" of the Company as defined below, and either:
(a) the Officer's employment hereunder is terminated by the Company for
reasons other than cause under Section 8 or upon expiration of the
Initial Term; or
(b) the Officer resigns from the Officer's employment with the Company
upon 30 days written notice to the Company given within 30 days
following a material change in the nature or scope of the Officer's
authorities or duties as described in Section 2 above, a reduction in
the salary, bonus or benefits payable to the Officer from those payable
under this Agreement or under any employee benefit plan or compensation
plan described in Section 3 (other than a reduction due solely to the
operation of any incentive compensation formula in effect before a
Change in Control or due to termination or amendment of a benefit plan
which termination or amendment is generally applicable to
5
<PAGE> 6
officers of the Company), or a change of the Officer's principal place
of employment without the Officer's consent to a location that is more
than 35 miles from the principal place of the Officer's employment
immediately prior to such change,
then the Officer shall be entitled to the payments described in the remainder of
this Section 9 in recognition of the Officer's longevity of employment with the
Company and the Officer's contributions to the Company.
For the greater of (i) three years following the Officer's termination
of employment or (ii) the remainder of the Initial Term (including any renewed
or extended Initial Term), the Officer shall (A) continue to receive salary
payments equal to the greater of 133% of the salary in effect at the time of the
Officer's termination of employment or 133% of the salary in effect immediately
preceding any Change in Control plus an annual increase in such salary of at
least the percentage equal to the Consumer Price Index plus four percentage
points per year, and (B) continue to participate in such employee benefit plans
and compensation plans described in Section 3 as the Officer participated in at
the time of such termination of employment, other than any incentive
compensation plans, as though the Officer continued in the employment of the
Company. The employee benefit plans and compensation plans which are currently
sponsored by the Company and are subject to continuation pursuant to this
Section 9 are set forth in Schedule B to this Agreement. Schedule C to this
Agreement sets forth certain assumptions that shall be made in determining
benefits and compensation payable to the Officer pursuant to this Section 9.
Any benefit to be provided by an employee benefit plan or compensation
plan under subclause (B) above may be provided by the Company through cash or
equivalent value (if any)
6
<PAGE> 7
or through a non-qualified arrangement if, in the judgment of the Company,
permitting the Officer to participate in such plan after Officer's termination
of employment would adversely affect the tax status of such plan, and provided
further that any medical insurance coverage to be provided by the Company shall
be secondary to any medical benefits provided to the Officer under any other
plan of employee medical coverage for which the Officer becomes eligible by
reason of any subsequent employment.
Retirement benefits that become payable to the Officer pursuant to this
Section 9 shall be determined and paid pursuant to the Empire Banc Corporation
Supplemental Executive Retirement Plan (the "SERP"). Schedule B specifies the
retirement plan benefits that shall be payable pursuant to the SERP.
A Change in Control of the Company shall be deemed to have occurred if
any one of the following events takes place:
(i) at least 20% of the Company's outstanding stock is acquired by
an Acquiring Person;
(ii) Continuing Directors cease to comprise a majority of the
Company's Board of Directors;
(iii) all or substantially all of the Company's assets are sold;
(iv) the Board of Directors of the Company approves an agreement to
merge or consolidate the Company in a transaction pursuant to
which neither the Company nor any of its wholly owned
subsidiaries will be the surviving corporation; or
(v) the Company is involved in negotiating a merger or
reorganization such that the Company will not be the surviving
entity and the Board of Directors adopts a
7
<PAGE> 8
resolution to the effect that a Change in Control has
occurred.
The term "Acquiring Person" means any individual, corporation,
partnership or other entity, and any entity related to or acting for the benefit
of or in concert with such entity, which is the beneficial owner of 20% or more
of the shares of the common stock of the Company then outstanding; provided,
however, that "Acquiring Person" does not include the Company, any subsidiary or
any employee benefit plan of the Company or of any subsidiary of the Company.
The term "Continuing Director" means (i) any member of the Board of
Directors of the Company who is not an Acquiring Person or a representative of
an Acquiring Person and who was a member of the Board of Directors of the
Company prior to the date of this Agreement, and (ii) any person who
subsequently becomes a member of the Board of Directors of the Company and who
is not an Acquiring Person or a representative of an Acquiring Person, if (A)
such person's nomination for election or election to the Board of Directors of
the Company is recommended or approved by resolution of a majority of the
Continuing Directors, or (B) such person is included as a nominee in a proxy
statement of the Company distributed when a majority of the Board of Directors
of the Company consists of Continuing Directors.
If a Change in Control, as defined solely by subparagraphs (iv) and (v)
above, occurs, and within 9 months following such Change in Control, a Change in
Control, as defined by subparagraphs (i) through (iii), has not occurred, or the
agreement contemplated in subparagraph (iv) has not been consummated, a Change
in Control shall no longer be deemed to have occurred, and the provisions of
this Agreement that become operative upon a Change in Control shall not become
operative until the subsequent occurrence of a Change in Control, as defined in
subparagraphs (i) through (v).
8
<PAGE> 9
10. INCENTIVE COMPENSATION. In the event a Change in Control occurs
while the Officer is employed by the Company during the Initial Term, all awards
to the Officer under incentive plans in which the Officer is a participant shall
become immediately vested, non-forfeitable and non-cancelable to the extent any
such award would have been payable at the time of the Change in Control if the
plan had provided for an award for any current period ending at the time of the
Change in Control based on performance, salary, compensation and other pertinent
factors for the current period ending with the date of the Change in Control and
otherwise in accordance with all provisions of the plan.
11. TIMING OF PAYMENTS PURSUANT TO SECTION 9. Any payments to be made
to the Officer pursuant to Section 9 of this Agreement, but not including
payments that shall be made pursuant to the SERP, shall be made at such times as
the payments would have been otherwise been earned by the Officer, unless the
Officer has provided to the Company a written election to receive a lump sum
payment of such amounts. Such election shall be valid only if it is made by the
earlier of (a) the last day of the calendar year prior to the date of the Change
in Control, and (b) 60 days prior to the date of the Change in Control. Solely
for this purpose, a Change in Control will only be considered to have occurred
if one of the events described in described in subsections (i) through (iii) of
the definition of "Change in Control" in Section 9 of this Agreement has
occurred. The determination of the amount of such lump sum shall be the present
value of the amount payable to the Officer, determined by using the rate
reported on the date of the Change in Control by the Wall Street Journal for
United States Treasury Notes with a three year maturity.
9
<PAGE> 10
Officer, including but not limited to attorney fees, incurred in enforcing
payments by the Company pursuant to this Agreement.
13. REDUCTION OF SALARY PAYMENTS. If payments or benefits under this
Agreement, after taking into account all other payments or benefits to which the
Officer is entitled from the Company, are expected to result in an excise tax on
the Officer or the loss of certain tax deductions by the Company by reason of
Sections 280G and 4999 of the Internal Revenue Code of 1986 or any successor
provisions to those Sections, salary payments under Section 9 shall be reduced
by the least amount required to avoid such excise tax and loss of deductions
unless the failure to reduce such salary payments would be financially
beneficial to the Officer. The failure to reduce such salary payments will be
financially beneficial to the Officer if it results in an after-tax value to the
Officer of all payments and benefits referenced in the preceding sentence,
despite the application of the excise tax and income tax, which value is greater
than the after-tax value the Officer would realize if salary payments were
reduced to avoid the application of the excise tax. If the Officer and the
Company shall disagree as to whether a payment under this Agreement could result
in the loss of a deduction, the matter shall be resolved by an opinion of Howard
and Howard Attorneys, or if Howard & Howard Attorneys is unable to provide such
an opinion, counsel selected by the Company, and agreed to by the Officer.
Counsel's opinion need not be unqualified. Counsel's opinion shall be based on
determinations of the base amount and excess parachute payments, as such terms
are defined by Section 280G of the Code or its successor, by Buck Consultants,
Inc., or if Buck Consultants, Inc. is unable to make such determinations, a
consulting firm chosen by the Company and agreed to by the Officer. The Company
shall pay the fees and expenses of such counsel and consulting firm, and shall
make
10
<PAGE> 11
available such information as may be reasonably requested by such counsel and
consulting firm to prepare the opinion. If the maximum amount payable to the
Officer pursuant to this Section 13 cannot be determined prior to the due date
for such payment, the Company shall pay on the due date the minimum amount which
it in good faith determines to be payable, and shall pay the remaining amount as
soon as practicable after such remaining amount is determined.
14. FUNDING. Nothing contained in this Agreement, and no action taken
pursuant to the provisions of this Agreement shall create or be construed to
create a trust of any kind or a fiduciary relationship between Company and the
Officer or any other person. To the extent that the Officer or any other person
acquires a right to receive payments under the terms of this Agreement, such
rights shall be no greater than the rights of an unsecured general creditor of
the Company. All payments made under the terms of this Agreement shall be made
from the general assets of Company, and no other segregation of assets shall be
made for the payment of any benefits under the terms of this Agreement to the
Officer or the Officer's beneficiary. Notwithstanding the above provisions, the
Company may, at its sole discretion, establish a grantor trust to provide
additional security to the Officer that amounts under this Agreement will be
properly paid, provided that the status of the Officer with respect to assets of
the grantor trust remains that of general unsecured creditor.
15. AGREEMENT NON-ASSIGNABLE. The Officer may not assign, pledge or
otherwise transfer any of the benefits of this Agreement either before or after
termination of employment, and any purported assignment, pledge or transfer of
any payment to be made by the Company hereunder shall be void and of no effect.
No payment to be made to the Officer hereunder shall be subject to the claims of
creditors of the Officer.
11
<PAGE> 12
16. AGREEMENT BINDING. This Agreement shall be binding on the Company
and the Officer and their respective successors and assigns.
17. NOTICES. Any notice required or desired to be given under this
Agreement shall be deemed given if in writing and sent by first class mail to
the Officer or the Company at the Officer's or its address as set forth below or
to such other address of which either the Officer or the Company shall notify
the other in writing:
ADDRESS OF COMPANY:
1227 E. Front Street
P.O. Box 1944
Traverse City, Michigan 49865-1944
ADDRESS OF OFFICER:
---------------------
---------------------
18. ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties. It may be modified or amended only by an agreement in writing
signed by the parties.
19. WAIVER OF BREACH. The waiver of either party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach by either the Company or the Officer.
20. SEVERABILITY OF PROVISIONS. If for any reason any provision of this
Agreement is held to be invalid or unenforceable, all other valid provisions
herein shall remain in full force and effect and all provisions of this
Agreement shall be deemed to be severable in nature.
21. GOVERNING LAW. This Agreement is made in, and shall be governed by,
the laws of the State of Michigan.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first set forth above.
-------------------------
Officer
[SEAL] EMPIRE BANC CORPORATION
Attest:
By:
----------------------
Secretary Its:
---------------------
13
<PAGE> 1
EXHIBIT 10c
EMPIRE NATIONAL BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WHEREAS, Empire National Bank ("ENB"), a national banking association,
maintains the Empire National Bank Supplemental Executive Retirement Plan (the
"Plan"), a non-qualified, deferred compensation plan; and
WHEREAS, ENB desires to amend the Plan to (i) provide additional
payment alternatives to Plan Participants, (ii) coordinate the benefits provided
under the Plan with any provision for benefit plan continuation under any
Management Continuity Agreements between Empire Banc Corporation (the "Company")
and certain Plan Participants, (iii) to specify additional assumptions to be
used to calculate benefits in the event of a change in control of the Company,
and (iv) to amend the benefit formula of the Plan to reflect the retirement
benefits approved by the Company's Board of Directors upon the original adoption
of the Plan, but which was heretofore inadvertently stated inaccurately in the
Plan document;
NOW, THEREFORE, effective , 1999, the Plan is amended as follows:
1. MEANING OF TERMS. For purposes of this Plan, and unless
otherwise noted to the contrary, the terms defined by the Empire National Bank
Employees Pension Plan (the "Pension Plan"), as now in effect, or as may be
amended, shall be applicable to this Plan.
2. ELIGIBILITY TO PARTICIPATE IN PLAN. The ENB Board of Directors
shall determine annually who shall participate in the Plan. The Board of
Directors shall not designate a senior management employee of ENB as eligible to
participate in the Plan, unless such employee is a member of a select group of
management or a highly compensated employee as such terms are defined by Section
201(2) of the Employee Retirement Income Security Act of 1974, as amended
<PAGE> 2
12. OFFICER'S COSTS OF ENFORCEMENT. The Company shall pay all expenses
of the ("ERISA") and the regulations promulgated thereunder. In addition,
participation in the Plan is contingent upon the eligible employee providing any
information requested by ENB and is further contingent upon the execution of any
amendments to the Executive Supplemental Insurance ("ESI") agreements deemed
necessary by ENB to coordinate the benefits of the ESI agreements with this
Plan.
3. FUNDING. Nothing contained in this Plan, and no action taken
pursuant to the provisions of this Plan shall create or be construed to create a
trust of any kind or a fiduciary relationship between ENB and Participants or
any other person. To the extent that a Participant or any other person acquires
a right to receive payments under the terms of this Plan, such rights shall be
no greater than the rights of an unsecured general creditor of ENB. All payments
made under the terms of this Plan shall be made from the general assets of ENB,
and no other segregation of assets shall be made for the payment of any benefits
under the terms of this Plan to any Participant or beneficiary. Notwithstanding
the above provisions, ENB may, at its sole discretion, establish a grantor trust
to provide additional security to Participants that amounts under this Plan will
be properly paid, provided that the status of Participants with respect to
assets of the grantor trust remains that of general unsecured creditors. In
addition, ENB may, at its sole and exclusive option, elect to provide for
benefit payments under this Plan by purchasing an insurance policy covering the
life of any participant of this Plan and the ESI, wherein ENB is the sole
beneficiary.
4. DETERMINATION OF RETIREMENT BENEFITS. For purposes of
determining benefits payable to Participants under this Plan, a target
retirement benefit will be established for each Participant (the "Target
Benefit"). The Target Benefit shall be stated as a percentage of a Participant's
Final Average Compensation and shall be determined in accordance with the
following schedule:
2
<PAGE> 3
<TABLE>
<CAPTION>
PARTICIPANT'S RETIREMENT AGE TARGET BENEFIT PERCENTAGE
<S> <C>
62 or older 50%
61 47.5%
60 45%
59 44%
58 43%
57 42%
56 41%
55 40%
</TABLE>
After determining a Participant's Target Benefit, the Participant's
benefit under this Plan, before reduction for coordination with other benefits
provided by ENB (the "Unreduced Plan Benefit") shall be determined. The
Unreduced Plan Benefit shall be equal to:
TB x FAC x Years of Vesting Service (not to exceed 25)
-------------------------------------------
25
Plus
1% x FAC x Years of Vesting Service (in excess of 25, but not
exceeding 10) Where TB = Target Benefit and FAC = Final Average Compensation, as
such terms are defined in this Plan.
For purposes of this Plan, the term "Final Average Compensation" shall
mean the Participant's average base salary determined by dividing the sum of the
Participant's highest five years of base salary out of the Participant's final
10 years of employment with ENB by 5, plus the Participant's average incentive
bonus award determined by dividing the sum of the Participant's highest five
incentive bonus awards out of the last 10 years of employment with ENB by 5. In
the event a Participant is employed by ENB for less than five years, a
Participant's average base salary and average incentive bonus award shall be
determined by dividing all years of such Participant's
3
<PAGE> 4
base salary and annual bonus award by the total years of service, with such
years of service being rounded to the nearest 1/12.
After determining a Participant's Unreduced Plan Benefit, the Plan Benefit
payable to the Participant shall be determined as follows:
Unreduced Plan Benefit
less Primary Social Security Amount
less ENB Pension Plan Benefit
less ENB Profit Sharing Plan Equivalent
----------------------------------------
= Plan Benefit payable to Participant
For purposes of this Plan, the term "Primary Social Security Amount"
shall mean the estimated old age retirement benefit available to the Participant
at age 65 based on the law in effect at the Participant's retirement, assuming
that the Participant will have no future earnings and also assuming no
post-retirement cost of living adjustments. Earnings necessary for the
calculation of the Primary Social Security Amount which occur prior to the
Participant's employment with ENB shall be estimated based on the national
average wage index in effect for the years to be estimated. The Primary Social
Security Amount shall not be adjusted for any reason after its initial
determination by ENB.
The term "ENB Pension Plan Benefit" shall mean the unreduced accrued
normal retirement benefit, as determined pursuant to the ENB Pension Plan and
any supplemental early retirement benefit as determined pursuant to Section 3.04
of the Pension Plan.
4
<PAGE> 5
The term "ENB Profit Sharing Plan Equivalent" shall mean the immediate
life annuity Actuarial Equivalent to the fair market value of the Participant's
account balance, determined as of the Participant's actual retirement date, in
the Empire National Bank Savings Investment and Retirement Plan (the "401(k)
Plan"), which is attributable to profit sharing contributions by ENB prior to
1981.
A Participant's Primary Social Security Amount shall not be used to
reduce the amount payable under this Plan until the month that includes the
Participant's Normal Retirement Date. The ENB Pension Plan Benefit shall not be
used to reduce benefits payable under this Plan until the month that includes
the Participant's Normal Retirement Date, except that the portion of the
Participant's ENB Pension Plan Benefit representing the supplemental early
retirement benefits payable pursuant to Section 3.04 of the Pension Plan shall
reduce the benefits payable under this Plan for all months that such
supplemental benefit is actually paid to the Participant.
Except in the case of the Participant's death or in the case of the
Participant's termination of employment following a Change in Control of the
Company, a Participant who terminates employment prior to age 55 shall forfeit
all benefits described in this Section 4.
5. EARLY RETIREMENT BENEFITS. Except for benefits described in Section
10, benefits under this Plan shall not normally be payable prior to age 60. As
determined in Section 7 of this Plan, if benefits become payable pursuant to
this Plan prior to age 60, the benefit determined pursuant to Section 4 of this
Plan, shall be reduced by 5/12 of one percent for each full month that the
benefit commencement date precedes the first day of the month coincident with,
or immediately following, the Participant's 60th birthday.
5
<PAGE> 6
By way of example, the following schedule indicates the percentage of
the benefit determined pursuant to Section 4 of the Plan, which is payable to a
Participant who on his birthday becomes entitled to early retirement benefits in
accordance with Section 7 of the Plan:
<TABLE>
<CAPTION>
PARTICIPANT'S AGE AT WHOLE MONTHS BENEFIT
RETIREMENT PRECEDING AGE 60 REDUCTION PERCENTAGE
<S> <C> <C>
59 12 5%
58 24 10%
57 36 15%
56 48 20%
55 60 25%
</TABLE>
6. SURVIVOR BENEFITS. In the event that a Participant in the Plan dies
prior to the Participant's actual retirement, the Surviving Spouse of the
Participant shall be entitled to receive a benefit under this Plan calculated as
follows:
2% x FAC x Years of Vesting Service (up to 25 years)
less Surviving Spouse's Social Security Benefit
less ENB Pension Plan Survivor's Benefit
------------------------------------------
= Survivor Benefit
Where FAC = Final Average Compensation as above defined.
The Survivor Benefit under this Plan shall not be paid to a Surviving
Spouse until the cessation of ESI Benefit Payments.
6
<PAGE> 7
The term "ESI Benefit Payments" shall mean the amounts payable under
Section 9 of this Plan.
The term "Surviving Spouse's Social Security Benefit" shall mean the
estimated amount that the Surviving Spouse shall be entitled to at age 62, based
upon the law in effect at the time of the Participant's death and based upon the
deceased Participant's estimated wage history, as determined for purposes of
calculating the Participant's Primary Social Security Benefit.
The term "ENB Pension Plan Survivor's Benefit" shall mean the Surviving
Spouse's benefits payable pursuant to the pre-retirement survivor annuity
provisions of the Pension Plan as of the Participant's Normal Retirement Date,
regardless of whether the Surviving Spouse receives reduced payments prior to
such date.
The Surviving Spouse's Social Security Benefit shall not reduce the
Survivor Benefit payable to a Surviving Spouse until the month that contains the
Surviving Spouse's 62nd birthday. Likewise, the ENB Pension Plan Survivor's
Benefit shall not reduce the Survivor Benefit payable to a Surviving Spouse
until the month that contains the Participant's Normal Retirement Date.
The Survivor Benefits under this Plan shall not affect in any way the
determination of other survivor benefits payable to the Surviving Spouse by ENB.
The amount by which such other survivor benefits exceed the Survivor Benefit
payable pursuant to this Plan shall not reduce or otherwise affect future
determinations of the amount of the Survivor's Benefit under this Plan.
7. BENEFITS UPON TERMINATION OF EMPLOYMENT PRIOR TO AGE 60. A
Participant who terminates employment prior to age 60 shall not generally be
entitled to commence receiving benefits if he terminates employment prior to the
attainment of age 60. However, in the event of a Participant's termination of
employment for personal hardship or such other reason, as determined
7
<PAGE> 8
by ENB's Board of Directors, prior to age 60, but after the attainment of age
55, the Participant may be entitled to benefits under this Plan commencing on
the first day of the month coincident with, or following, such termination.
Personal hardship, by way of example and not limitation, includes a finding by
ENB's Board of Directors that the Participant is unable to devote full time and
attention to ENB due to serious illness of the Participant's spouse.
8. CHANGE IN CONTROL BENEFIT. In the event there is a Change in Control
of the Company and the Participant becomes entitled to benefit and compensation
payments pursuant to Section 9 of the Management Continuity Agreement between
the Company and the Participant (the "Management Continuity Agreement"), then
the Participant shall be entitled to the following additional benefits under
this Plan:
(A) The Participant shall be credited with additional Years of Vesting
Service for purposes of determining Participant's benefit under this Plan. The
number of Years of Vesting Service to be credited shall equal the number of
years (rounded to the nearest twelfth) for which benefits and compensation are
payable pursuant to Section 9 of the Management Continuity Agreement (the
"Salary Continuation Period").
(B) A Participant's Final Average Compensation shall not be determined
as set forth in Section 4 of this Plan, but instead shall mean Participant's
average base salary determined by dividing the sum of the Participant's highest
60 months of base salary out of the Participant's final 120 months of salary
payments by ENB or its successor to the Participant (which shall include the
undiscounted amount of salary payable for the Salary Continuation Period,
regardless of when such salary payments are actually made) by 5, plus the
Participant's average incentive bonus award. The Participant's average incentive
bonus award shall be the fraction (i) the numerator of which is the
8
<PAGE> 9
sum of the highest bonuses awarded to the Participant during the last 10 years
of employment with ENB or its successor for the number of years equal to 5 minus
the Salary Continuation Period (the "Incentive Bonus Period"); (ii) the
denominator of which is 5. In the event the Incentive Bonus Period is not a
whole number, the numerator used to determine the Participant's average
incentive bonus shall include the pro rata portion of the next bonus that would
be included in the average incentive bonus award if the Incentive Bonus Period
were rounded to the next highest whole number.
(C) In addition to the other forms of benefits payable to the
Participant under this Plan, the Participant shall be entitled to elect to
receive a lump sum distribution. The Participant shall make such election in
accordance with Section 11 of this Plan.
(D) In the event the Participant has not yet attained age 60 as of the
date of the Participant's termination of employment, benefits under this Plan
(including the additional benefits resulting from Sections 8(a) and 8(b) of this
Plan, but excluding benefits described in Section 8(e) and Section 10 of this
Plan), shall be determined pursuant to Section 4 of the Plan as if the
Participant was age 60 and assuming that benefit payments commence in the month
containing the Participant's 60th birthday. If the Participant elects to receive
payment of Plan benefits in the form of a lump sum following a Change in Control
of the Company and the lump sum is payable prior to the Participant's attainment
of age 60, the amount of the lump sum shall be the Actuarial Equivalent of the
Participant's Plan benefit calculated as if the Participant had attained age 60
and there shall be no discount in the lump sum payable to the Participant to
reflect that the Participant has not attained age 60. The Primary Social
Security Amount, the ENB Pension Plan Benefit and the ENB Profit Sharing Plan
Equivalent offsets to the Unreduced Plan Benefit under Section 4 of this
Agreement
9
<PAGE> 10
shall all be determined in the manner described in Section 4 of this Plan in
such amount in effect as of the Participant's termination of employment.
(E) The Participant shall be credited with an additional benefit under
Section 10 of this Plan equal to (i) the matching contributions that would have
been made on behalf of the Participant pursuant to the 401(k) Plan, (ii) the
employer contributions that would have been made on behalf of the Participant
pursuant to the Empire National Bank Employee Stock Ownership Plan (the "ESOP"),
and (iii) the additional benefits the Participant would have accrued pursuant to
Section 10 of this Agreement during the Salary Continuation Period following the
Participant's termination of employment. The Participant's compensation used to
determination such benefits shall include the Salary Continuation Amount.
Matching contributions under subsection (i) shall be determined by assuming that
the Participant elected to defer the percentage of the Salary Continuation
Amount equal to the percentage of the Participant's compensation that the
Participant had elected to defer immediately prior to the Change in Control.
9. ESI BENEFITS. Any benefit payable pursuant to the ESI Plan to a
Participant in this Plan shall be governed by the terms and conditions of the
ESI Plan as amended and attached as Exhibit A to this Plan and shall reduce the
benefits payable under this Plan in the manner described in Section 6.
10. OTHER BENEFITS. In addition to the benefits described above, a
Participant shall be credited with a contribution to a separate account if the
Participant's annual additions to the 401(k) Plan or the ESOP are reduced due to
the limitations on annual additions set forth in Section 415 of the Internal
Revenue Code. In the event such a Participant's annual additions to such plans
are limited, the amount by which the Participant's annual additions are limited
shall be credited to an
10
<PAGE> 11
individual account in this Plan. Such account shall be credited and debited with
earnings and losses as if it had been invested in the same manner as 401(k) Plan
assets that are being invested at the direction of ENB. Effective January 1,
1998, such account shall be credited or debited with earnings and losses as if
it had been invested in the Federated Managed Series Growth Fund, or such other
fund designated by the 401(k) Plan trustees with comparable risk and return
characteristics to the Federated Managed Series Growth Fund.
In addition, in the event a Participant's elective deferrals that are
otherwise allowed under the 401(k) Plan are limited pursuant to the average
deferral percentage test of Section 401(k)(3) of the Code, the dollar limitation
of Section 402(g) of the Code, or the compensation limitation of Section
401(a)(17) of the Code, and if elected by the Participant prior to the
commencement of the applicable 401(k) Plan Year, the amount by which such
elective deferrals are limited shall be credited to a separate account in this
Plan. Such account shall be credited and debited with earnings and losses as if
it had been invested in the same manner that 401(k) Plan assets that are being
invested at the direction of ENB. Effective January 1, 1998, such account shall
be credited or debited with earnings and losses as if it had been invested in
the Federated Managed Series Growth Fund, or such other fund designated by the
401(k) Plan trustees with comparable risk and return characteristics to the
Federated Managed Series Growth Fund.
To the extent that ENB's contributions to the 401(k) Plan or the ESOP
are limited by the Code Section 401(a)(17) limitation on compensation that can
be considered to calculate ENB's contributions, the amount by which such
contributions are limited shall be credited to a separate account in this Plan.
To the extent that ENB's contributions to the 401(k) Plan are limited by
application of the tests described in Code Sections 401(k)(3) or 401(m), the
amount by which such
11
<PAGE> 12
contributions are limited shall be credited to a separate account in this Plan.
Such accounts shall be credited and debited with earnings and losses as if it
had been invested in the same manner as 401(k) Plan assets that are being
invested at the direction of ENB. Effective January 1, 1998, such account shall
be credited or debited with earnings and losses as if it had been invested in
the Federated Managed Series Growth Fund, or such other fund designated by the
401(k) Plan trustees with comparable risk and return characteristics to the
Federated Managed Series Growth Fund.
Unless the Participant terminates employment after attaining Early or
Normal Retirement age, as defined in the Pension Plan, the amounts represented
by the separate accounts that are established pursuant to this Section shall be
distributed to the Participant in a single lump sum payment within 90 days
following the Participants termination of employment. If a Participant elects to
retire from employment with ENB after attaining Early or Normal Retirement Age,
the Participant may elect to receive a distribution of the participants separate
accounts in any form allowed under the 401(k) Plan, provided that the
Participant elects such form of benefit by the earlier of (i) the last day of
the calendar year preceding the last day of employment with ENB; or (ii) 3
months preceding the Participants last day of employment with ENB.
With respect to the accounts established pursuant to this Section, the
Participant shall designate a beneficiary by filing a written designation with
ENB. The Participant may revoke or modify the designation at any time by filing
a new designation. However, designations will only be effective if signed by the
Participant and accepted by ENB during the Participant's lifetime. The
Participant's beneficiary designation shall be deemed automatically revoked if
the beneficiary predeceases the Participant, or if the Participant names a
spouse as beneficiary and the marriage is subsequently dissolved. If the
Participant dies without a valid beneficiary designation, all payments
12
<PAGE> 13
shall be made to the Participant's surviving spouse, if any, and if none, to the
Participant's surviving children and the descendants of any deceased child by
right of representation, and if no children or descendants survive, to the
Participant's estate.
If a benefit under this Section is payable to a minor, to a person
declared incompetent, or to a person incapable of handling the disposition of
his or her property, ENB may pay such benefit to the guardian, legal
representative or person having the care or custody of such minor, incompetent
person or incapable person. ENB may require such proof of incompetency, minority
status or guardianship as it may deem appropriate prior to the distribution of
the benefit. Such distribution shall completely discharge ENB from all liability
with respect to such benefit.
Amounts that are credited to an account pursuant to this Section shall
not be taken into consideration in determining a Participant's compensation used
to calculate benefits or ENB contributions under the 401(k) Plan, the ESOP or
the Pension Plan.
11. TIMING AND FORM OF BENEFIT PAYMENTS. Other than the benefits
payable pursuant to Section 10, the benefits payable to a Participant shall be
paid in the same form that benefits of the Pension Plan are payable to the
Participant. In the event that a benefit payable to a Participant is not payable
in the form of a life annuity, the benefit payable to the Participant shall be
the Actuarial Equivalent to a life annuity, which in the case of any lump sum
payment shall be the Actuarial Equivalent for purposes of determining lump sum
payments of Pension Plan benefits with a present value less than $5,000.
13
<PAGE> 14
In the event of a Change in Control of the Company, the Participant may
make a separate election to receive a lump sum payment of Plan benefits,
including the benefits payable pursuant to Section 10. Such election shall
supersede any other election under this Plan. The lump sum payment shall be made
within 30 days following termination of Employment. A Participant must make an
election under this Section 11 by the earlier of (i) the last day of the
calendar year preceding the date of the Change in Control, or (ii) 60 days prior
to the date of the Change in Control. Solely for this purpose, a Change in
Control will only be considered to have occurred if one of the events described
in subsections (i) through (iii) of the definition of "Change in Control" in
Section 13 of this Plan has occurred.
12. TERMINATION BY THE COMPANY WITH CAUSE. ENB, by resolution of its
Board of Directors, may deny benefits to a Participant by providing the
Participant with notice, which may be provided as late as the effective date of
such denial of benefits, if the Participant is indicted for commission of a
felony or commits fraud, gross malfeasance or improper conduct resulting in
substantial injury to the interests of the Company. In such event, ENB will have
no further obligation to the Participant under this Plan from the date of such
notice.
13. DEFINITION OF CHANGE IN CONTROL.
A Change in Control of the Company shall be deemed to have occurred if
any one of the following events takes place:
(i) at least 20% of the Company's outstanding stock is acquired by
an Acquiring Person;
(ii) Continuing Directors cease to comprise a majority of the
Company's Board of Directors;
14
<PAGE> 15
(iii) all or substantially all of the Company's assets are sold;
(iv) the Board of Directors of the Company approves an agreement to
merge or consolidate the Company in a transaction pursuant to
which neither the Company nor any of its wholly owned
subsidiaries will be the surviving corporation; or
(v) the Company is involved in negotiating a merger or
reorganization such that the Company will not be the surviving
entity and the Board of Directors adopts a resolution to the
effect that a Change in Control has occurred.
The term "Acquiring Person" means any individual, corporation,
partnership or other entity, and any entity related to or acting for the benefit
of or in concert with such entity, which is the beneficial owner of 20% or more
of the shares of the common stock of the Company then outstanding; provided,
however, that "Acquiring Person" does not include the Company, any subsidiary or
any employee benefit plan of the Company or of any subsidiary of the Company.
The term "Continuing Director" means (i) any member of the Board of
Directors of the Company who is not an Acquiring Person or a representative of
an Acquiring Person and who was a member of the Board of Directors of the
Company prior to the date of this Agreement, and (ii) any person who
subsequently becomes a member of the Board of Directors of the Company and who
is not an Acquiring Person or a representative of an Acquiring Person, if (A)
such person's nomination for election or election to the Board of Directors of
the Company is recommended or approved by resolution of a majority of the
Continuing Directors, or (B) such person is included as a nominee in a proxy
statement of the Company distributed when a majority of the Board of Directors
of the Company consists of Continuing Directors.
15
<PAGE> 16
If a Change in Control, as defined solely by subparagraphs (iv) and (v)
above, occurs, and within 9 months following such Change in Control, a Change in
Control, as defined by subparagraphs (i) through (iii), has not occurred, or the
agreement contemplated in subparagraph (iv) has not been consummated, a Change
in Control shall no longer be deemed to have occurred, and the provisions of
this Agreement that become operative upon a Change in Control shall not become
operative until the subsequent occurrence of a Change in Control, as defined in
subparagraphs (i) through (v).
14. OFFICER'S COSTS OF ENFORCEMENT. The Company shall pay all expenses
of the Officer, including but not limited to attorneys' fees, incurred in
enforcing payments by the Company pursuant to this Plan.
15. AMENDMENTS TO PLAN. ENB, acting through its Board of Directors,
reserves the right at any time to terminate, modify or amend any of the
provisions of this Plan without the consent of any Participant or beneficiary.
No such amendment shall adversely affect the rights of retired Participants or
their beneficiaries with respect to benefits in pay status prior to such
amendment. In addition, any amendment, modification, suspension or termination
of any provision of the Plan may only be made effective prospectively, and shall
not reduce the benefits accrued under this Plan to the date of such amendment,
modification, suspension or termination.
16. NO RIGHT TO EMPLOYMENT. Nothing contained in this Plan shall give
any employee the right to be retained in the employment of ENB or affect the
right of ENB to dismiss any employee. The adoption of the Plan shall not
constitute a contract of employment between ENB and any of its employees.
16
<PAGE> 17
17. ADMINISTRATION. The Plan shall be administered by a committee (the
Committee) appointed by the Board of Directors. The Committee shall have full
power and authority to construe, interpret and administer the Plan. All
decisions, actions or interpretations of the Committee shall be final,
conclusive and binding upon all parties.
No member of the Committee shall be personally liable by reason of
any contract or other instrument executed by him or on his behalf in his
capacity as a member of the Committee, nor for any mistake of judgment made in
good faith, and ENB shall indemnify and hold harmless each member of the
Committee and each other officer, employee or director of ENB to whom any duty
or power relating to the administration or interpretation of the Plan has been
delegated, against any cost or expense (including attorneys' fees) or liability
(including any sum paid in settlement of a claim with approval of the Committee)
arising out of any act or omission to act in connection with the Plan, unless
arising out of such person's own fraud or bad faith.
18. FEDERAL INCOME TAX WITHHOLDING. ENB may withhold from any benefits
payable under this Plan any and all taxes required pursuant to any law or
governmental regulation or ruling.
19. APPLICABLE LAW. This Plan shall be construed and enforced according
to the laws of the state of Michigan to the extent not preempted by federal law.
20. BINDING NATURE OF PLAN. This Plan shall be binding upon the
successors and assigns of ENB and the heirs and successors of the Participants.
IN WITNESS WHEREOF, the foregoing Plan has been executed by Empire
National Bank, by a duly authorized officer this 1st day of December, 1999.
EMPIRE NATIONAL BANK
BY: /s/ William T. Fitzgerald, Jr.
-------------------------------
ITS: Division Vice President
----------------------------
17
<PAGE> 1
EXHIBIT 10e
AMENDMENT TO THE EMPIRE NATIONAL BANK
DIRECTORS' DEFERRED COMPENSATION PLAN
WHEREAS, Empire National Bank (the "Company") maintains for its
eligible directors the Empire National Bank
Directors Deferred Compensation Plan (the "Plan"); and
WHEREAS, the Company wishes to amend the Plan to allow participants to
elect to receive the payment of benefits under the Plan in a lump sum payment
following a change in control of the Company.
NOW THEREFORE, the Plan is amended as follows:
Effective November 1, 1999, the Section 8(e) is added to the Plan to
provide as follows:
(E) In lieu of the payments that would otherwise be made under this
Plan, the Director may elect to receive, in the event of a Change in Control of
the Company a lump sum payment of the Director's Stock Reserve Account in a
single lump sum payment to be made within 30 days following the date of the
Change in Control of the Company. The lump sum payment attributable to the
Director's Cash Reserve Account shall be made in cash and the lump sum payment
attributable to the Director's Stock Reserve Account shall be made in Stock. Any
election under this Section 8(e) shall supersede any other payment election or
Payment Date under the Plan.
The Participant may make the election to receive a lump sum payment
following a Change in Control of the Company by the earlier of (i) the last day
of the calendar year preceding the date of the Change in Control, or (ii) 60
days prior to the date of the Change in Control.
A Change in Control of the Company shall be deemed to have occurred if
any one of the following events takes place:
(i) at least 20% of the Company's outstanding stock is acquired by
an Acquiring Person;
(ii) Continuing Directors cease to comprise a majority of the
Company's Board of Directors; or
(iii) all or substantially all of the Company's assets are sold.
The term "Acquiring Person" means any individual, corporation,
partnership or other entity, and any entity related to or acting for the benefit
of or in concert with such entity, which is the beneficial owner of 20% or more
of the shares of the common stock of the Company then outstanding; provided,
however, that "Acquiring Person" does not include the Company, any subsidiary or
any employee benefit plan of the Company or of any subsidiary of the Company.
The term "Continuing Director" means (i) any member of the Board of
Directors of the
<PAGE> 2
Company who is not an Acquiring Person or a representative of an Acquiring
Person and who was a member of the Board of Directors of the Company prior to
the date of this Agreement, and (ii) any person who subsequently becomes a
member of the Board of Directors of the Company and who is not an Acquiring
Person or a representative of an Acquiring Person, if (A) such person's
nomination for election or election to the Board of Directors of the Company is
recommended or approved by resolution of a majority of the Continuing Directors,
or (B) such person is included as a nominee in a proxy statement of the Company
distributed when a majority of the Board of Directors of the Company consists of
Continuing Directors.
Executed this 1st day of December , 1999
---- --------------------- --
EMPIRE NATIONAL BANK
By: William T. Fitzgerald, Jr.
----------------------------------
Its: Division Vice President
----------------------------
-------------------------------------
DIRECTOR
2
<PAGE> 1
EXHIBIT 10f
LUMP SUM PAYMENT, RELEASE, AND WAIVER AGREEMENT
This Lump Sum Payment, Release, and Waiver Agreement (this "Agreement") is
made and entered into as of February 4, 2000, among Empire Banc Corporation
("Empire"), Huntington Bancshares Incorporated ("Huntington"), and
, an officer of Empire ("Executive").
RECITALS
A. Concurrently with the execution and delivery of this Agreement, Empire
and Huntington, among other things, are entering into (1) an Agreement and Plan
of Merger, which provides for the merger of Empire into Huntington (the
"Merger"), and (2) a Supplemental Agreement, which sets forth certain
representations, warranties, and covenants made by Huntington and Empire in
connection with the Merger (collectively, the "Merger Documents").
B. Executive is a party to, or a beneficiary of, certain agreements and
plans of Empire or its subsidiaries (the "Executive Agreements and Plans") which
provide for benefits or the acceleration of benefits upon a "change of control"
of Empire, including but not limited to a Management Continuity Agreement, the
Empire National Bank Supplemental Executive Retirement Plan ("SERP"), the
Executive Supplemental Income Agreements (also known as the Executive
Supplemental Income Plan, the Supplemental Income Plan, and the Supplemental
Income Agreement, the "SIP"), supplemental nonqualified portion of the Empire
National Bank Employee Stock Ownership Plan ("ESOP") and supplemental
nonqualified portion of the Empire National Bank Savings, Investment and
Retirement Plan ("401(k) Plan"), as well as an Executive Management Trust
("Rabbi Trust") established for the funding and payment of benefits under one or
more of these plans.
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants set forth in this
Agreement, the parties agree as follows:
1. In satisfaction of any payment or benefit payable or to become payable
under any of the Executive Agreements and Plans, the Executive agrees to accept
a lump sum payment of $ plus the amounts payable to the Executive
pursuant to Section 10 of the SERP(1) assuming that the Effective Date is the
date of termination of Executive for purposes of calculating the amount payable
pursuant to Section 10 of the SERP (collectively, the "Lump Sum Payment"),
payable as soon as administratively practicable after the Effective Time (as
defined in the Merger Documents), but no later than 10 days following the
Effective Date.
2. Upon receipt of the Lump Sum Payment, Executive releases and waives all
rights to any benefits or payments payable or to become payable under the
Executive Agreements and Plans.
- --------------------------
(1) The amount payable pursuant to Section 10 of the SERP was represented to
Huntington to be $ as of January 31, 2000.
<PAGE> 2
3. Executive acknowledges that federal, state, city, and excise, if any,
and/or other taxes may be withheld, as required by law.
4. Empire agrees to take all action necessary to terminate the Management
Continuity Agreement, SERP, the SIP, and the Rabbi Trust effective as of the
Effective Time and all parties agree that the payments under this Agreement will
be paid in full satisfaction of all amounts payable or to become payable under
any of the Executive Agreements and Plans.
5. At the request of Huntington, Empire shall expense the Lump Sum Payment
prior to the Effective Time and will cooperate with Huntington with regard to
treating the Lump Sum Payment as pre-Merger expenses for book and accounting
purposes to the extent such expense recognition does not reduce Empire's or
Empire's affiliates' capital ratios below the well capitalized standard as
defined by the Office of the Comptroller of the Currency.
6. After the Effective Time, Huntington shall employ, and Executives shall
accept the employment by Huntington during an initial transition period to
commence as of the Effective Time and end on December 31, 2000 (the "Initial
Transition Period"), and Huntington shall pay to Executive the salary currently
enjoyed by Executive during the Initial Transition Period. Except to the extent
Huntington chooses to continue beyond the Effective Time Empire Benefit Plans
(as defined in the Merger Documents) for employees of Empire Companies,
Huntington shall also provide to Executive during the Initial Transition Period
employee benefits under Huntington Benefit Plans (as defined in the Merger
Documents) which are substantially similar to those provided by Huntington and
its affiliates to their similarly situated officers and employees. Other than
the Lump Sum Payment, Executive shall not be entitled to any benefits under any
Executive Agreements and Plans after the Effective Time.
7. After the Initial Transition Period, Executive shall become an employee
at will of Huntington on such terms and conditions as are mutually agreeable
between Executive and Huntington.
8. Under no circumstances shall Executive be entitled to any benefits now
or in the future under the Huntington's Transition Pay Plan or any similar plan
adopted by Huntington in the future.
9. This Agreement will terminate if the employment of Executive with Empire
terminates prior to the Merger and will terminate upon termination of the Merger
Documents for any reason prior to consummation of the Merger. Upon such
termination, no party will have any obligation hereunder.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
HUNTINGTON BANCSHARES INCORPORATED
By:
------------------------------------------
Richard A. Cheap
General Counsel and Secretary
EMPIRE BANC CORPORATION
By:
------------------------------------------
James E. Dutmers, Jr.
Chairman and Chief Executive Officer
EXECUTIVE:
------------------------------------------
3
<PAGE> 1
EXHIBIT 10g
LUMP SUM PAYMENT, RELEASE, AND WAIVER AGREEMENT
This Lump Sum Payment, Release, and Waiver Agreement (this "Agreement") is
made and entered into as of February 4, 2000, among Empire Banc Corporation
("Empire"), Huntington Incorporated ("Huntington"), and
, an officer of Empire ("Executive").
RECITALS
A. Concurrently with the execution and delivery of this Agreement, Empire
and Huntington, among other things, are entering into (1) an Agreement and Plan
of Merger, which provides for the merger of Empire into Huntington (the
"Merger"), and (2) a Supplemental Agreement, which sets forth certain
representations, warranties, and covenants made by Huntington and Empire in
connection with the Merger (collectively, the "Merger Documents").
B. Executive is a party to, or a beneficiary of, certain agreements and
plans of Empire or its subsidiaries (the "Executive Agreements and Plans") which
provide for benefits or the acceleration of benefits upon a "change of control"
of Empire, including but not limited to a Management Continuity Agreement, the
Empire National Bank Supplemental Executive Retirement Plan ("SERP"), the
Executive Supplemental Income Agreements (also known as the Executive
Supplemental Income Plan, the Supplemental Income Plan, and the Supplemental
Income Agreement, the "SIP"), supplemental nonqualified portion of the Empire
National Bank Employee Stock Ownership Plan ("ESOP") and supplemental
nonqualified portion of the Empire National Bank Savings, Investment and
Retirement Plan ("401(k) Plan"), as well as an Executive Management Trust
("Rabbi Trust") established for the funding and payment of benefits under one or
more of these plans.
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants set forth in this
Agreement, the parties agree as follows:
1. In satisfaction of any payment or benefit payable or to become payable
under any of the Executive Agreements and Plans, the Executive agrees to accept
a lump sum payment of $ plus the amounts payable to the Executive
pursuant to Section 10 of the SERP(1) assuming that the Effective Date is the
date of termination of Executive for purposes of calculating the amount payable
pursuant to Section 10 of the SERP (collectively, the "Lump Sum Payment"),
payable as soon as administratively practicable after the Effective Time (as
defined in the Merger Documents), but no later than 10 days following the
Effective Date.
2. Upon receipt of the Lump Sum Payment, Executive releases and waives all
rights to any benefits or payments payable or to become payable under the
Executive Agreements and Plans.
- -----------------------
(1) The amount payable pursuant to Section 10 of the SERP was represented to
Huntington to be $ as of January 31, 2000.
<PAGE> 2
3. (a) Notwithstanding anything in this Agreement to the contrary, any
payment, benefit, or amount payable or to be provided to the Executive by Empire
or Huntington, whether pursuant to this Agreement or otherwise, which is a
"Parachute Payment" as defined in Section 280G(b)(2) of the Internal Revenue
Service Code of 1986, as amended (the "Code"), shall be modified or reduced in
the manner provided in paragraph 3(b) below to the extent necessary so that the
benefits payable or to be provided to Executive under this Agreement that are
treated as Parachute Payments as well as any payments or benefits provided
outside of this Agreement that are so treated shall not cause Empire or
Huntington to have paid an "Excess Parachute Payment" as defined in Section
280G(b)(1) of the Code. In computing such amount, the parties shall take into
account all provisions of Code Section 280(G), including making appropriate
adjustments to such calculations for amounts established to be "Reasonable
Compensation" as defined in Section 280G(b)(4) of the Code. The determination of
whether an amount is a "Parachute Payment" or "Excess Parachute Payment" will be
made by Huntington's independent auditors, after consultation with Empire's
counsel.
(b) In the event that the amount of any "Parachute Payments" that would be
payable to or for the benefit of Executive under this Agreement must be modified
or reduced to comply with this Section 3, Executive shall direct which
"Parachute Payments" are to be modified or reduced.
(c) This Section shall be interpreted so as to avoid the imposition of
excise taxes on the Executive under Section 4999 of the Code or the disallowance
of a deduction to Huntington or Empire pursuant to Section 280G(a) of the Code
with respect to amounts payable under this Agreement or otherwise.
(d) In addition to the limits otherwise provided in this Section 3, to the
extent permitted by law, Executive may in Executive's sole discretion elect to
reduce any payments Executive may be eligible to receive under this Agreement to
prevent the imposition of excise taxes on Executive under Section 4999 of the
Code.
4. Executive acknowledges that federal, state, city, and excise, if any,
and/or other taxes may be withheld, as required by law.
5. Empire agrees to take all action necessary to terminate the Management
Continuity Agreement, SERP, the SIP, and the Rabbi Trust effective as of the
Effective Time and all parties agree that the payments under this Agreement will
be paid in full satisfaction of all amounts payable or to become payable under
any of the Executive Agreements and Plans.
6. At the request of Huntington, Empire shall expense the Lump Sum Payment
prior to the Effective Time and will cooperate with Huntington with regard to
treating the Lump Sum Payment as pre-Merger expenses for book and accounting
purposes to the extent such expense recognition does not reduce Empire's or
Empire's affiliates' capital ratios below the well capitalized standard as
defined by the Office of the Comptroller of the Currency.
7. After the Effective Time, Huntington shall employ, and Executives shall
accept the employment by Huntington during an initial transition period to
commence as of the
2
<PAGE> 3
Effective Time and end on December 31, 2000 (the "Initial Transition Period"),
and Huntington shall pay to Executive the salary currently enjoyed by Executive
during the Initial Transition Period. Except to the extent Huntington chooses to
continue beyond the Effective Time Empire Benefit Plans (as defined in the
Merger Documents) for employees of Empire Companies, Huntington shall also
provide to Executive during the Initial Transition Period employee benefits
under Huntington Benefit Plans (as defined in the Merger Documents) which are
substantially similar to those provided by Huntington and its affiliates to
their similarly situated officers and employees. Other than the Lump Sum
Payment, Executive shall not be entitled to any benefits under any Executive
Agreements and Plans after the Effective Time.
8. After the Initial Transition Period, Executive shall become an employee
at will of Huntington on such terms and conditions as are mutually agreeable
between Executive and Huntington.
9. Under no circumstances shall Executive be entitled to any benefits now
or in the future under the Huntington's Transition Pay Plan or any similar plan
adopted by Huntington in the future.
10. This Agreement will terminate if the employment of Executive with
Empire terminates prior to the Merger and will terminate upon termination of the
Merger Documents for any reason prior to consummation of the Merger. Upon such
termination, no party will have any obligation hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
HUNTINGTON BANCSHARES INCORPORATED
By:
--------------------------------------
Richard A. Cheap
General Counsel and Secretary
EMPIRE BANC CORPORATION
By:
--------------------------------------
James E. Dutmers, Jr.
Chairman and Chief Executive Officer
EXECUTIVE:
-------------------------------------
3
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Empire Banc Corporation on Form S-8 (Registration Statement Nos. 33-58578,
333-36747, 333-63759), of our report dated January 20, 2000, except for Note 19,
as to which the date is February 7, 2000, on the consolidated financial
statements of Empire Banc Corporation, as of December 31, 1999 and 1998 and for
each of the three years in the period ended December 31, 1999, which report is
included in the 1999 Annual Report on Form 10-K of Empire Banc Corporation.
/s/ Crowe, Chizek and Company LLP
----------------------------------
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 19,174
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 100,765
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 366,501
<ALLOWANCE> 5,400
<TOTAL-ASSETS> 505,700
<DEPOSITS> 418,423
<SHORT-TERM> 7,000
<LIABILITIES-OTHER> 8,391
<LONG-TERM> 26,000
0
0
<COMMON> 33,452
<OTHER-SE> 12,434
<TOTAL-LIABILITIES-AND-EQUITY> 505,700
<INTEREST-LOAN> 30,698
<INTEREST-INVEST> 6,600
<INTEREST-OTHER> 721
<INTEREST-TOTAL> 38,019
<INTEREST-DEPOSIT> 15,394
<INTEREST-EXPENSE> 16,441
<INTEREST-INCOME-NET> 21,578
<LOAN-LOSSES> 701
<SECURITIES-GAINS> (138)
<EXPENSE-OTHER> 18,364
<INCOME-PRETAX> 10,847
<INCOME-PRE-EXTRAORDINARY> 7,265
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,265
<EPS-BASIC> 2.39
<EPS-DILUTED> 2.29
<YIELD-ACTUAL> 4.67
<LOANS-NON> 1,950
<LOANS-PAST> 6
<LOANS-TROUBLED> 225
<LOANS-PROBLEM> 1,156
<ALLOWANCE-OPEN> 4,825
<CHARGE-OFFS> 515
<RECOVERIES> 389
<ALLOWANCE-CLOSE> 5,400
<ALLOWANCE-DOMESTIC> 3,100
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,300
</TABLE>
