1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------------- FORM 10-Q /X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1997. Commission file number 0-15839 EMPIRE BANC CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Michigan -------------------------------------------------------------- (State or other jurisdiction of incorporation or organization) 1227 E. Front Street Traverse City, Michigan ---------------------------------------- (Address of principal executive offices) 38-2727982 ------------------------------------ (IRS Employer Identification Number) 49686-2928 ---------- (Zip code) (616) 922-2111 ---------------------------------------------------- (Registrant's telephone number, including area code) Not applicable -------------------------------------------------------------------- (Former name, address and fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of each of the issuer's classes of common stock was 1,756,009 shares of common stock, par value $5, outstanding as of June 30, 1997. 2 Empire Banc Corporation - Consolidated Balance Sheet (In thousands, except share data) June 30 December 31 June 30 1997 1996 1996 Assets Cash and due from banks $ 24,530 $ 22,603 $ 14,392 Federal funds sold 2,480 -- 6,900 -------- -------- -------- Cash and cash equivalents 27,010 22,603 21,292 Securities Available for sale, at fair value 34,489 34,572 35,413 Held to maturity 31,138 36,804 31,552 (fair value: 6/30/97-$31,277, 12/31/96-$37,038,6/30/96-$31,630) Mortgage-backed securities Available for sale, at fair value 24,592 27,202 23,584 Loans 290,774 272,182 257,995 Less: allowance for loan losses (4,075) (3,525) (3,375) -------- -------- -------- Net loans 286,699 268,657 254,620 Premises and equipment, net 4,506 3,985 3,859 Other real estate -- -- 70 Accrued income and other assets 7,262 6,996 7,278 -------- -------- -------- Total assets $415,696 $400,819 $377,668 ======== ======== ======== Liabilities Deposits Non-interest-bearing $ 60,274 $ 54,556 $ 46,910 Interest-bearing 302,736 289,798 276,768 -------- -------- -------- Total deposits 363,010 344,354 323,678 Federal funds purchased -- 5,500 -- Federal Home Loan Bank advances 12,000 12,000 17,000 Accrued expense and other liabilities 6,579 6,292 6,205 -------- -------- -------- Total liabilities 381,589 368,146 346,883 Shareholders' equity Preferred stock-$1 par value, 2,000,000 shares authorized, none outstanding Common stock-$5 par value, 5,000,000 shares authorized, shares outstanding: 6/30/97-1,756,009; 12/31/96- 1,746,009; 6/30/96-1,738,057 8,780 8,730 8,276 Paid-in-capital 12,570 12,350 9,484 Retained earnings 12,625 11,419 13,205 Net unrealized gain (loss) on securities, net of tax 132 174 (180) -------- -------- -------- Total shareholders' equity 34,107 32,673 30,785 -------- -------- -------- Total liabilities and shareholders' equity $415,696 $400,819 $377,668 ======== ======== ======== See notes to consolidated financial statements. 3 Empire Banc Corporation - Consolidated Statement of Income (In thousands, except share data) Quarter Ending Year to Date June 30 June 30 1997 1996 1997 1996 Interest income Loans, including fees $ 6,682 $ 6,040 $ 12,937 $ 12,162 Taxable securities Available for sale 948 843 1,915 1,615 Held to maturity 443 426 898 884 Tax-exempt securities-held to maturity 50 51 122 111 Federal funds sold 40 124 68 190 ------- ------- ------- ------ Total interest income 8,163 7,484 15,940 14,962 Interest expense Deposits 3,493 3,172 6,890 6,361 Federal funds purchased 14 36 20 Federal Home Loan Bank advances 174 250 367 491 ------- ------- -------- ------- Total interest expense 3,681 3,422 7,293 6,872 ------- ------- -------- ------- Net interest income 4,482 4,062 8,647 8,090 Provision for loan losses 395 210 793 461 ------- ------- -------- ------- Net interest income after provision for loan losses 4,087 3,852 7,854 7,629 Non-interest income Mortgage sales and servicing 398 337 722 653 Service charges on deposit accounts 346 322 676 627 Trust income 640 518 1,292 1,040 Other service charges and fees 139 124 269 238 Other income 88 91 173 193 Security gains(losses) -- -- (6) -- ------- ------- -------- ------ Total non-interest income 1,611 1,392 3,126 2,751 Non-interest expense Salaries and employee benefits 2,286 2,156 4,394 4,310 Occupancy 250 256 515 519 Furniture and equipment 216 204 434 424 Other 1,068 975 1,999 1,920 ------- ------- ------- ------ Total non-interest expense 3,820 3,591 7,342 7,173 ------- ------- ------- ------ Income before federal income taxes 1,878 1,653 3,638 3,207 Federal income taxes 626 549 1,205 1,060 ------- ------- ------- ------ Net income $ 1,252 $ 1,104 $ 2,433 $ 2,147 ======= ======= ======= ======= - ---------------------------------------------------------------------------------------- Earnings per share $ .66 $ .59 $ 1.29 $ 1.15 Average shares outstanding 1,893,260 1,875,909 1,892,269 1,872,280 - ---------------------------------------------------------------------------------------- See notes to consolidated financial statements. 4 Empire Banc Corporation - Consolidated Statement of Cash Flows (In thousands) Year to Date June 30 1997 1996 Operating activities Net income $ 2,433 $ 2,147 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 346 373 Provision for loan losses 793 461 Mortgage loans originated for sale (24,854) (34,924) Sale of mortgage loans 23,020 33,099 Net realized loss on securities 6 -- Net amortization/accretion on securities 61 224 Increase (decrease) in deferred income taxes 281 (33) Decrease in accrued interest receivable (197) (186) Increase in accrued expense and other liabilities 283 322 Decrease in other assets (328) (133) ------- ------- Total adjustments (589) (797) ------- ------- Net cash from operating activities 1,844 1,350 Investing activities Securities available for sale Proceeds from sales 992 -- Proceeds from maturities 7,588 13,579 Purchases (5,984) (25,665) Securities held to maturity Proceeds from sales 1,986 -- Proceeds from maturities 4,245 7,800 Purchases (599) (2,954) Loans granted net of repayments (17,001) 2,646 Premises and equipment expenditures (888) (609) Proceeds from disposal of assets 21 -- ------- ------- Net cash from investing activities (9,640) (5,203) Financing activities Net increase in deposits 18,656 4,138 Net decrease in federal funds purchased (5,500) -- Cash dividends paid (1,223) (989) Issuance of common stock 270 138 ------- ------- Net cash from financing activities 12,203 3,287 ------- ------- Net change in cash and cash equivalents 4,407 (566) Cash and cash equivalents at January 1 22,603 21,858 ------- ------- Cash and cash equivalents at June 30 $27,010 $21,292 ======= ======= - ------------------------------------------------------------------------------------------ Interest paid $ 7,221 $ 6,871 Income taxes paid 1,079 1,175 - ------------------------------------------------------------------------------------------ See notes to consolidated financial statements. 5 Empire Banc Corporation - Consolidated Statement of Changes in Shareholders' Equity (In thousands) 1997 1996 - ------------------------------------------------------------------------------------------- Balance January 1 $32,673 $30,005 Net income 2,433 2,147 Common stock issued 270 138 Dividends declared (1,227) (991) Net change in security valuation (42) (514) ------- ------- Balance June 30 $34,107 $30,785 ======= ======= Notes to Consolidated Financial Statements Note-1 The consolidated financial statements include the accounts of Empire Banc Corporation and its wholly-owned subsidiary, Empire National Bank, after elimination of significant inter-company transactions and accounts. The statements have been prepared by management without audit by independent certified public accountants. However, these statements reflect all adjustments (consisting of normal recurring accruals) and disclosures which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented and should be read in conjunction with the notes to financial statements included in the Empire Banc Corporation's Form 10-K for the year ended December 31, 1996. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Because the results of operations are so closely related to and responsive to changes in economic conditions, the results for any interim period are not necessarily indicative of the results that can be expected for the entire year. Note-2 Earnings per share of common stock is computed by dividing net income by the weighted average number of common stock and common stock equivalents outstanding during the period. Common stock equivalents consist of common stock issuable under the assumed exercise of stock options granted under the Corporation's stock option plan, using the treasury stock method. NOTE-3 During the six month period ended June 30, 1997, the proceeds from sales of available-for-sale securities were $992,000 with gross realized losses of $6,900. The proceeds from sales of held-to-maturity securities were $1,986,000 with gross realized gains of $1,400. The change in net unrealized holding gains or losses on available-for-sale securities for the current quarter is $239,000 and year-to-date is $(42,000). 6 Empire Banc Corporation Financial Review Second Quarter 1997 Compared with Second Quarter 1996 Summary Empire Banc Corporation's 1997 second quarter earnings were $1,252,000, a 13% increase over 1996 second quarter results. Earnings per share increased from $.59 per share in 1996 to $.66 in 1997. The return on assets was 1.24% for the quarter versus 1.19% in 1996. The return on equity was 14.93% compared to 14.38% in the prior year quarter. The current year's results reflect the impact of an increase of 10% in net interest income, attributable to an 8% growth in average earning assets. Total loans and deposits have increased over 12% to $291 million and $363 million during the last twelve months. Non-interest income increased 16% in the quarter-to-quarter comparison, with substantial growth in trust fees, loan fee income and deposit related fees. Non-interest expense increased 6%, primarily due to increased personnel costs and fees associated with non-earning loans. The provision for loan losses for the second quarter of 1997 increased due to the growth in the loan portfolio of over 13% in the quarter and to increase the overall level of the allowance for loan losses. Net charge- offs declined during the period from the prior year, particularly in the consumer loan portfolio, and were .17% of average loans compared to .22% in the second quarter of 1996. Total shareholders' equity increased over 10% during the last twelve months to $34.1 million, improving book value per share to $19.42 from the $17.71 at June 30, 1996. 7 Net Interest Income Quarter Ending Six Months Ending June 30 June 30 1997 1996 1997 1996 - ---------------------------------------------------------------------------------- Interest income $8,163 $7,484 $15,940 $14,962 Taxable equivalent adjustment 26 28 62 58 ------ ------ ------- ------- Interest income (TE) 8,189 7,512 16,002 15,020 Interest expense 3,681 3,422 7,293 6,872 ------ ------ ------- ------- Net interest income (TE) $4,508 $4,090 $ 8,709 $ 8,148 ====== ====== ======= ======= Increase (decrease) due to change in: Volume $ 467 $ 273 $ 772 $ 441 Rate (49) 84 (211) 343 ------ ------ ------- ------- Total $ 418 $ 357 $ 561 $ 784 ====== ====== ======= ======= - ---------------------------------------------------------------------------------- Second quarter net interest income on a taxable equivalent ("TE") basis was $4.5 million, a 10.2% increase from the $4.1 million earned in the year ago quarter. Average earning assets increased 7.6% or $26.7 million while net interest margin, the other principal determinant of net interest income, increased from 4.69% to 4.79% in the quarter to quarter comparison. Average loans increased $29.2 million or 11.5%, to $283.6 million for the current quarter. The mortgage portfolio grew 16.6% or $10.6 million, the commercial portfolio grew 8.0% or $9.4 million and average consumer loans increased 12.6% or $9.2 million. The average rate earned on the loan portfolio decreased 10 basis points ("bp") to average 9.46% in the current quarter. The security portfolio grew $4.0 million or 4.6% in the quarter to quarter comparison while the rate earned increased 25 bp to average 6.45% for the quarter. Average overnight funds sold decreased $6.5 million or 68.5% and the rate earned increased 21 bp from the prior year's second quarter. Incremental funding for the earning asset growth came mainly from the $20.8 million or 7.1% growth in interest bearing funds. Certificates of deposits grew $5.6 million, money market accounts increased $17.4 million, while CDs over $100,000 were down $1.1 million and Federal Home Loan Bank advances decreased $5.0 million. The average rate paid on interest bearing funds was 4.72%, comparable to the second quarter of 1996. Non-interest bearing funds supporting earning assets increased 10.0% or $5.9 million compared to the last year's quarter. 8 Net Interest Income Average Balances, Interest Income/Expense, Average Rates Quarter Ending June 30, 1997 1996 - ------------------------------------------------------------------------------------------ Average Average (Taxable equivalent, Balance Interest Rate Balance Interest Rate in thousands) --------------------------- ----------------------------- Assets Loans, including fees*,** $283,649 $ 6,686 9.46% $254,408 $ 6,044 9.56% Securities Taxable 86,744 1,391 6.41 82,755 1,268 6.13 Tax-exempt* 3,986 71 7.18 4,000 75 7.52 -------- -------- -------- ------- Total 90,730 1,462 6.45 86,755 1,343 6.13 Federal funds sold 3,000 41 5.39 9,526 125 5.18 -------- -------- -------- ------- Total earning assets\ interest income 377,379 8,189 8.70% 350,689 7,512 8.62% Cash and due from banks 14,214 12,651 Other assets 11,218 9,055 -------- -------- Total $402,811 $372,395 ======== ======== Liabilities and Equity CDs over $100,000 $ 11,211 149 5.25% $ 12,315 161 5.19% Savings & interest checking 63,861 346 2.17 60,826 330 2.18 Money market deposits 90,436 980 4.35 73,009 742 4.09 Consumer CDs 134,427 2,018 6.02 128,876 1,939 6.05 -------- ------ -------- ------ Total 299,935 3,493 4.67 275,026 3,172 4.64 Federal funds purchased 919 14 5.77 FHLB advances 12,000 174 5.83 17,000 250 5.91 -------- ------ -------- ------ Total interest-bearing funds/interest expense 312,854 3,681 4.72% 292,026 3,422 4.71% -------- ------ -------- ------ Demand deposits 49,996 43,804 Other liabilities 6,411 5,859 Shareholders' equity 33,550 30,706 -------- -------- Total $402,811 $372,395 ======== ======== Net interest spread (TE) 3.98% 3.91% ==== ==== Net interest income (TE) $4,508 $4,090 ====== ====== Net interest margin (TE) 4.79% 4.69% ==== ==== - ------------------------------------------------------------------------------------------ * Interest income on tax-exempt securities and certain tax-exempt loans has been adjusted to a tax-equivalent basis. ** Non-accrual loans are excluded. 9 Net Interest Income Average Balances, Interest Income/Expense, Average Rates Year to date June 30, 1997 1996 - ------------------------------------------------------------------------------------------ Average Average (Taxable equivalent, Balance Interest Rate Balance Interest Rate in thousands) --------------------------- ----------------------------- Assets Loans, including fees*,** $279,084 $ 12,946 9.35% $254,931 $ 12,170 9.60% Securities Taxable 87,876 2,813 6.40 81,948 2,498 6.10 Tax-exempt* 4,899 175 7.15 4,324 162 7.47 -------- -------- -------- ------- Total 92,775 2,988 6.44 86,272 2,660 6.10 Federal funds sold 2,575 68 5.28 7,227 190 5.21 -------- -------- -------- ------- Total earning assets\ interest income 374,434 16,002 8.62% 348,430 15,020 8.67% Cash and due from banks 13,775 12,137 Other assets 11,085 9,266 -------- -------- Total $399,294 $369,833 ======== ======== Liabilities and Equity CDs over $100,000 $ 10,617 275 5.16% $ 11,812 325 5.45% Savings & interest checking 63,344 685 2.18 60,603 656 2.18 Money market deposits 89,708 1,909 4.29 74,079 1,526 4.14 Consumer CDs 134,481 4,021 6.03 127,685 3,854 6.07 -------- ------ -------- ------ Total 298,150 6,890 4.66 274,179 6,361 4.67 Federal funds purchased 1,277 36 5.64 696 20 5.77 FHLB advances 12,442 367 5.95 16,423 491 6.01 -------- ------ -------- ------ Total interest-bearing funds/interest expense 311,869 7,293 4.72% 291,298 6,872 4.74% -------- ------ -------- ------ Demand deposits 47,782 42,174 Other liabilities 6,457 5,830 Shareholders' equity 33,186 30,531 -------- -------- Total $399,294 $369,833 ======== ======== Net interest spread (TE) 3.90% 3.93% ==== ==== Net interest income (TE) $8,709 $8,148 ====== ====== Net interest margin (TE) 4.69% 4.70% ==== ==== - ------------------------------------------------------------------------------------------ * Interest income on tax-exempt securities and certain tax-exempt loans has been adjusted to a tax-equivalent basis. ** Non-accrual loans are excluded. 10 Non-Interest Income Quarter Ending Six Months Ending June 30 June 30 Increase (decrease) Increase (decrease) Amount % Amount % - ----------------------------------------------------------------------------- (In thousands) Mortgage sales and servicing $ 61 18% $ 69 11% Service charges on deposit accounts 24 7 49 8 Trust income 122 24 252 24 Other service charges and fees 15 12 31 13 Other income (3) (3) (20) (10) Securities (losses) gains -- -- (6) -- ------ ---- ------ ---- $ 219 16% $ 375 14% ====== ==== ====== ==== Non-interest income for the second quarter totaled $1.6 million, a $219,000 or 16% increase from the second quarter of 1996. Income from trust activities continued its steady growth pattern, with a 24% increase in fee income in the quarter to quarter comparison. In addition, fees collected from loan sales and servicing increased 18% from the prior year quarter. Non-Interest Expense Quarter Ending Six Months Ending June 30 June 30 Increase (decrease) Increase (decrease) Amount % Amount % - ----------------------------------------------------------------------------- (In thousands) Salaries and employee benefits $ 130 6% $ 84 2% Occupancy (6) (2) (4) (1) Furniture and equipment 12 6 10 2 Other 93 10 79 4 ------ ---- ------ ---- $ 229 6% $ 169 2% ====== ==== ====== ==== Non-interest expenses for the second quarter totaled $3.8 million, an increase of $229,000, or 6%, from the second quarter of 1996. Personnel related expense grew by $130,000 or 6%, while other expense included fees associated with non-earning loans which increased by $105,000 or 234%. 11 Asset Quality Non-Performing Assets 6/30/97 12/31/96 6/30/96 ------- -------- ------- (In thousands) Non-accrual loans $2,968 $2,131 $ 822 Renegotiated loans 285 408 600 ------ ------ ------ Total non-performing loans 3,253 2,539 1,422 Other real estate -- -- 70 ------ ------ ------ Total non-performing assets $3,253 $2,539 $1,492 ====== ====== ====== Non-performing assets as a percent of total loans 1.12% .93% .58% Accruing loans 90 days or more past due $ 55 $ 172 $ 518 Total non-performing assets at June 30, 1997 increased $1,761,000 or 118% from June of 1996, with an increase in non-accrual loans of $2,146,000. As previously reported in the December 31, 1996 Annual Report on Form 10-K, the increase in problem loans is due to one long term credit relationship. After an extensive examination of this loan relationship, in 1996 the credit was classified non-accrual, the carrying value was reduced and the established reserve was substantially increased. As of May 1, 1997, the borrower entered into an agreement to turn over the assets securing the credit. The assets, consisting primarily of real estate, are held in escrow until all state licenses and approvals are received and all conditions in the escrow agreement are met. The borrower's business continues to operate via a management company, satisfactory to the Bank, hired by the borrower. As of July 28, 1997 the Bank and borrower entered into a definitive agreement to sell the assets of the borrower held in escrow. The reserve established in 1996 is adequate under the terms of the definitive agreement. Loans identified as potential problem loans totaled $2,454,000 at June 30, 1997, $2,062,000 at December 31, 1996 and $3,401,000 at June 30, 1996. 12 Allowance for Loan Losses Quarter Ending Six Months Ending June 30 June 30 1997 1996 1997 1996 - -------------------------------------------------------------------------------- (In thousands) Balance beginning of period $ 3,800 $ 3,300 $ 3,525 $ 3,200 Charge-offs 163 189 346 376 Recoveries 43 54 103 90 ------- ------- ------- ------- Net charge-offs 120 135 243 286 Provision charged to operations 395 210 793 461 ------- ------- ------- ------- Balance June 30 $ 4,075 $ 3,375 $ 4,075 $ 3,375 ======= ======= ======= ======= - ------------------------------------------------------------------------------------ 6/30/97 12/31/96 6/30/96 ------- -------- ------- Net loan losses as a percent of average loans .17% .52% .22% Allowance for loan losses as a percent of end of period loans 1.40% 1.30% 1.31% - --------------------------------------------------------------------------------------- For the current quarter, net charge-offs decreased $15,000 from the same period in 1996. The allowance for loan losses has increased $700,000 over the last twelve months and was 1.40% of total loans as of June 30, 1997 compared to 1.31% one year ago. The increase in the allowance for loan losses is due to the growth in loans over the last twelve months, and the allowance established in 1996 for the credit discussed under Non-Performing Assets on Page 11. The established allowance for this credit is adequate under the terms of the definitive agreement, dated July 28, 1997, for the sale of the assets of the borrower. Under accounting guidance regarding impaired loans, at June 30, 1997 there were $2.66 million in impaired loans with $2.11 million for which an allowance for credit losses is allocated. Impaired loans totaled $2.42 million and $1.41 million at December 31, 1996 and June 30, 1996. 13 Investment Securities The following is a summary of investment securities, held-to-maturity and available-for-sale, at June 30, 1997. Held-to-maturity Unrealized Cost Gain Loss Fair Value - -------------------------------------------------------------------------------- U.S. government and agency $14,513 $ 68 $ -- $14,581 State and municipal 5,697 65 16 5,746 Corporate notes 10,928 31 8 10,951 ------- ----- ----- ------- Total $31,138 $ 164 $ 24 $31,278 ======= ===== ===== ======= Available-for-sale Unrealized Cost Gain Loss Fair Value - -------------------------------------------------------------------------------- U.S. government and agency $31,995 $ 116 $ 87 $32,024 Equity 2,329 136 -- 2,465 ------- ---- ----- ------- Total $34,324 $ 252 $ 87 $34,489 ======= ===== ===== ======= Mortgage-backed $24,556 $ 113 $ 77 $24,592 ======= ===== ===== ======= Sales of available for sale securities Six months ending June 30 1997 1996 <in thousands> - -------------------------------------------------------------------------- Proceeds $ 992 $ -- Gross gains -- -- Gross losses 7 -- 14 Shareholders' Equity and Capital Resources Total equity at June 30, 1997 was $34.1 million, compared to $32.7 million and $30.8 million at December 31, 1996 and June 30, 1996. The Corporation declared $615,000, or $.35 per share, in dividends for the second quarter of 1997 as compared to $497,000, or $.30 per share in the second quarter of 1996. The following is a summary of risk-based capital amounts and ratios: Risk-based capital amounts (In thousands) Regulatory Capital Standards Well Capitalized Actual ----------------- -------------------------------- 6/30/97 6/30/97 12/31/96 6/30/96 ----------------- -------- -------- -------- Tier 1 leverage $ 20,127 $ 33,598 $ 32,102 $ 30,548 Tier 1 risk-based 17,587 33,598 32,102 30,548 Total risk-based 29,312 37,267 35,611 33,784 Risk-weighted assets 293,121 280,705 258,751 Quarterly average assets 402,536 396,033 371,978 Risk-based ratios Tier 1 leverage 5% 8.35% 8.11% 8.21% Tier 1 risk-based 6% 11.46% 11.44% 11.81% Total risk-based 10% 12.71% 12.69% 13.06% Risk-based capital ratios for the Corporation continue to be well above the guidelines established for well-capitalized institutions, which is the highest capital standard. 15 - --------------------------------------------------------------------------- Six months ended June 30, 1997 compared with 1996 - --------------------------------------------------------------------------- Net income for the six months ended June 30, 1997 is $2,433,000 or $1.29 per share compared to the $2,147,000 or $1.15 per share earned in the same period of 1996, a 13.3% increase. Return on average assets for the first six months was 1.22%, as compared to 1.16% in the previous year. The return on average equity was 14.66%, in comparison to the 14.06% earned in the first six months of 1996. Net interest income (FTE) has increased $561,000, or 6.9% to $8.7 million for the first six months of 1997 as average earning assets increased $26 million from 1996. The year to date net interest margin is 4.69% for 1997, comparable to the first six months of 1996. The average rate earned on assets has decreased 5 basis points (bp) to 8.62% and the average rate paid on interest-bearing funds has decreased 2 bp to average 4.72% in 1997. Average outstanding loans have increased $24.2 million and securities $6.5 million from 1996. Total deposits have increased $29.6 million from 1996 and average $345.9 million for the first six months of 1997. Money market deposits have grown by $15.6 million, consumer CDs $6.8 million, and funding from Federal Home Loan Bank advances has decreased on average $4.0 million. The provision for loan losses was $793,000 and net loan charge-offs were $243,000 for the first six months of 1997 compared to a provision of $461,000 and net charge-offs of $286,000 in 1996. The allowance for loan losses has been increased by $700,000 over the last twelve months and was 1.40% of total loans at June 30, 1997. Non-interest income has grown $375,000, or 14%, for the first six months of 1997, mainly due to the $252,000 or 24% increase in trust fee income, $69,000 or 11% increase in fees earned from the origination and sale of mortgage loans, and $50,000 or 8% additional income generated from deposit related fees. Non-interest expense increased $169,000 or 2% from the comparable prior period, essentially due to higher costs associated with non-earning loans and greater personnel costs. Total cash dividends for the first six months of 1997 were $.70 per share compared to $.57 per share in 1996, a 23% increase. Shareholders' equity increased 10.8% from June of 1996 and at $34.1 million for June of 1997, represents 8.2% of assets. Total risk-based capital in June of 1997 was 12.7% compared to the 13.1% in June of 1996. Recorded in stockholders' equity were unrealized losses of $42,000 during 1997 and $514,000 in 1996. The unrealized gains and losses of the investment portfolio are not expected to cause a material change in future income or investment yields. 16 Empire Banc Corporation Part II - Other Information Item 4. Submission of matters to a vote of security holders (a) Annual meeting of shareholders of Empire Banc Corporation held May 13, 1997. (c) Election of four (4) directors to serve until the annual meeting of shareholders in 2000. Withhold For Authority Non-vote --- --------- -------- John R. Anderson Anderson, Gordon & Associates 1,596,165 1,995 151,349 Don A. Good, M.D. Grand Traverse Obstetrics & Gynecology, P.C. 1,596,165 1,995 151,349 Laurence P. Skendzel, M.D. Retired Physician 1,595,873 2,287 151,349 Deborah J. Knudsen President & Chief Executive Officer Traverse City Convention & Visitors Bureau 1,588,589 9,572 151,349 Item 6. Exhibits and reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Empire Banc Corporation ----------------------- (Registrant) Date: August 12, 1997 /s/ James E. Dutmers, Jr. --------------------------------------- James E. Dutmers, Jr. Chairman and Chief Executive Officer Date: August 12, 1997 /s/ William T. Fitzgerald, Jr. --------------------------------------- William T. Fitzgerald, Jr. Secretary, Treasurer & Chief Financial Officer