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.
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.
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.
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
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
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
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
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
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
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.
Item 6
Item 6 - Selected Financial Data - Empire Banc Corporation
Item 7
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.
Summary of Operating Results The following is a summary of the major components of the consolidated operating results:
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.
Net Interest Income Average Balance Sheet, Interest Income/Expense, Average Rates
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
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.
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.
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:
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:
Non-Performing Assets and Problem Loans
The following table is a summary of non-performing assets as of December 31:
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.
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:
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.
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.
Allocation of the Allowance for Loan Losses
The allocation of the allowance for loan losses for the years ended December 31 is:
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.
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.
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
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.
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.
An analysis of securities for the five years ended December 31 were as follows:
Held to maturity
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
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:
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
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.
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
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.
Item 8
Item 8 - Financial Statements and Supplementary Data Consolidated Balance Sheets-Empire Banc Corporation
Consolidated Statements of Income-Empire Banc Corporation
Consolidated Statements of Income-Empire Banc Corporation (continued)
Consolidated Statements of Comprehensive Income Empire Banc Corporation
Consolidated Statements of Changes in Shareholders' Equity Empire Banc Corporation
Consolidated Statements of Cash Flows-Empire Banc Corporation
Consolidated Statements of Cash Flows-Empire Banc Corporation (continued) - ------------------------------------------------------------------------------
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.
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.
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.
Note 3 - Securities Available for Sale Securities available for sale and their fair values at December 31 were as follows:
Scheduled maturities of securities available for sale at December 31, 1999 were as follows:
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.
Note 4 - Allowance for loan losses Activity in the allowance for loan losses was as follows:
Impaired loans
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.
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:
Note 6 - Premises and Equipment Premises and equipment at December 31:
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.
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:
Note 8 - Federal Home Loan Bank Advances Advances from the Federal Home Loan Bank of Indianapolis at December 31 were as follows:
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.
Note 9 - Federal Income Taxes Income tax expense (benefit) was as follows:
Effective tax rates differ from federal statutory rates applied to financial statement income due to the following:
Year-end deferred tax assets and liabilities were due to the following:
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:
Pension expense
A supplemental retirement program for certain executive officers provides benefits which are integrated with the other benefit plans. A summary of the plan follows:
Supplemental retirement plan expense
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:
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:
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.
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.
Estimated fair values of financial instruments at December 31 were:
The fair value of off-balance-sheet instruments at December 31, 1999 and 1998 is not material.
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:
Note 17 - Earnings Per Share
A calculation of basic earnings per share and diluted earnings per share is presented below:
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:
Condensed Statements of Income
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.
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.
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:
Per-share amounts have been adjusted for stock splits and dividends.
Item 9
Item 9 - Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.
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:
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.
Item 11.
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"):
(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").
(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:
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.
(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.
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.
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
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
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
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]
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.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(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.
(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.
Item 13.
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
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).
(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.
(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.
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