<PAGE>   1
                                     UNITED STATES
                           SECURITIES AND EXCHANGE COMMISSION
                                 WASHINGTON, D.C. 20549
                           ----------------------------------
                                        FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1999. Commission file Number 0-15839

 EMPIRE BANC CORPORATION                     MICHIGAN
(Exact name of registrant as                (State or other jurisdiction of
 specified in its charter)                   incorporation or organization)

 1227 E. FRONT STREET                        49686
 TRAVERSE CITY, MICHIGAN                    (Zip code)
(Address of principal executive offices)

 38-2727982                                  (616) 922-2111
(IRS Employer Identification Number)         (Registrant's telephone number,
                                              including area code)

Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
 Common stock, no par value
 (title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. [ X ] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [ X ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 29, 2000, computed by reference to the average of the
closing bid and asked price for such stock on that date was $84,720,000. For
this purpose only, the affiliates of the registrant have been assumed to be the
executive officers, directors and 10% or more shareholders.

As of February 29, 2000, there were outstanding 3,166,234 shares of the
registrants' no par common stock.

The Exhibit Index is located on page number 68.

<PAGE>   2


PART I
Item 1 - Business.

Empire Banc Corporation (the "Corporation") is incorporated in Michigan and is a
bank holding company. The Empire National Bank of Traverse City (the "Bank"), is
a wholly-owned subsidiary of the Corporation.

The Bank was established in 1912 in Empire, Michigan and is a national banking
association. The Bank's deposits are insured by the Bank Insurance Fund (BIF),
administered by the Federal Deposit Insurance Corporation (FDIC), and the Bank
is regulated by the Office of the Comptroller of the Currency (OCC).

The Bank is engaged in the general commercial banking business, providing a full
range of consumer and business loan and deposit products. The Bank also operates
a trust department providing fiduciary, investment and other related trust
services. The Bank has contracted with a full-service securities brokerage firm
to make available a variety of investment products to the Bank's customers. This
program operates from two of the Bank's branch offices.

The principal source of revenue for the Corporation is dividends from the Bank.
The Bank's principal source of revenue is interest and fees on loans. The Bank's
revenue for the three most recent years is as follows.

<TABLE>
<CAPTION>
                              1999       1998      1997
----------------------------------------------------------
<S>                           <C>        <C>        <C>
Interest and fees on loans     66%        65%        67%
Other interest income          16%        16%        16%
Non-interest income            18%        19%        17%
                              ----       ----       ----
                              100%       100%       100%
                              ====       ====       ====
</TABLE>

The Bank's primary market area is the northwestern portion of the lower
peninsula of Michigan. The Bank is headquartered in Traverse City, Michigan,
County of Grand Traverse. The Bank maintains offices in Grand Traverse,
Leelanau, Kalkaska, and Crawford counties. The population of these counties
combined is approximately 100,000. The Bank operates ten full service offices,
provides drive-in convenience at seven locations and has automatic teller
machines operating at eleven locations. The Bank has no foreign operations.

The Corporation has no employees and the Bank employed 212 full-time and 23
part-time employees as of December 31, 1999.

Banking is a highly competitive business. The Bank competes primarily with other
financial institutions in its market areas for loans, deposits, and trust
accounts. In its primary market, which includes the Grand Traverse, Kalkaska and
Leelanau counties, the Bank maintains the second largest deposit base, or
approximately 25 percent of the deposit market share. The majority of banking
institutions with offices in this market area are members of holding companies
with substantially more assets than the Corporation.

<PAGE>   3

The Bank is the only independent community bank in the Crawford County market.
The Bank is the third largest in terms of deposits in the Crawford County market
and competes with three financial institutions that are members of holding
companies with substantially more assets than the Corporation.

In addition to these other banks, the Bank also competes for loans and deposits
with savings and loan associations, credit unions, investment firms and money
market funds. In order to successfully compete, management has developed a sales
and service culture, stresses and rewards excellent customer service and designs
products to meet the needs of the customer. The Bank also utilizes its ability
to sell loans in the secondary market.

The Bank makes mortgage, commercial and installment loans to customers primarily
in northwestern lower Michigan. Fees may be charged for these services.
Commitments to make loans and unused lines of credit outstanding are detailed in
the Notes to Consolidated Financial Statements.

Historically, the Bank has predominantly sold its secondary-market-conforming
residential mortgage loans. The mortgage loan portfolio serviced by the Bank for
others, primarily the Federal Home Loan Mortgage Corporation, at December 31,
1999 totaled over $329 million. Mortgage banking activity is detailed in the
Notes to Consolidated Financial Statements.

The Bank supports the growth of the service industry, with its year round resort
and related businesses, manufacturing, the medical community, and many other
activities important to growth in the greater Grand Traverse area. Designated as
a Preferred Lender by the Small Business Administration (SBA), the Bank
underwrites government guaranteed business loans, contributing to the economic
growth in northern Michigan. The Bank also arranges loan relationships with
national and regional participating banks, increasing the amount of funds
available for local businesses to grow.

The Bank is a member of the Federal Home Loan Bank of Indianapolis, which is an
additional source of liquidity and long-term funds. Membership in the Federal
Home Loan Bank also provides access to additional advantageous lending programs.
The Community Investment Program makes advances to be used for funding
community-oriented mortgage lending, and the Affordable Housing Program grants
advances to fund lending for long-term low- and moderate-income owner occupied
and affordable rental housing at subsidized interest rates. Using the Affordable
Housing Program, the Bank has sponsored the construction of two low-income homes
with Habitat for Humanity.

The economy of the market areas of the Bank is affected by summer and winter
tourism activities and, accordingly, the Bank experiences seasonal consumer and
commercial deposit growth, with substantial growth increases from May to
September. The Bank regularly assesses its ability to raise funds through the
issuance of certificates of deposit in denominations of $100,000 or more in the
local and regional market area and has established conservative guidelines for
the total funding to be provided by these deposits. The Bank also uses federal
funds purchased from correspondent banks and the Federal Reserve Bank to respond
to deposit fluctuations and temporary loan demands.

<PAGE>   4

As of December 31, 1999, the Bank had no risks attendant to foreign sources.
Compliance with federal, state and local statutes and/or ordinances relating to
the protection of the environment is not expected to have material effect upon
the Bank's capital expenditures, earnings or competitive position.


SUPERVISION AND REGULATION
Banking is a highly regulated industry, with numerous federal and state laws and
regulations governing the organization and operation of banks, bank holding
companies, and their affiliates. The following summary of certain laws and
regulations affecting the Corporation and the Bank is qualified in its entirety
by such laws and regulations, which are subject to change based on pending and
future legislation and action by regulatory agencies.

As a bank holding company under the Bank Holding Company Act of 1956, the
Corporation is regulated and examined by the Federal Reserve Board. This Act
requires that the Corporation obtain prior Federal Reserve Board approval for
bank and nonbank acquisitions and restricts the permissible activities of the
Corporation. Under the Reigle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Interstate Act"), the Federal Reserve Board generally is
authorized to approve bank acquisitions by out-of-state bank holding companies
whether or not such acquisition is prohibited by state law. The Interstate Act
also provides for the nationwide interstate branching of banks. Both national
and state-chartered banks are permitted to branch and merge across state lines.
The State of Michigan allows interstate branching authority, subject to the
existence of reciprocal legislation in the state of the bank wishing to acquire
or establish a branch in Michigan.

Federal law also regulates transactions between the Corporation and the Bank,
including the amount and nature of loans or other extensions of credit. The Bank
is also subject to regulation and examination by the Office of the Comptroller
of the Currency.

The Office of the Comptroller of the Currency has guidelines for appropriate
level of capital for the Bank. The Federal Reserve Board has similar guidelines
for the Corporation. Such guidelines can limit the amount of dividends which the
Bank can pay to the Corporation and thus the amount of dividends the Corporation
can pay to its shareholders.

The banking industry is also affected by the monetary and fiscal policies of the
federal government, including the Federal Reserve Board, which exerts
considerable influence over the cost and availability of funds obtained for
lending and investing.

The enactment of the Gramm-Leach-Bliley Act of 1999, also known as the Financial
Reform Act, represents a significant change in the regulatory framework
governing the banking industry. Effective March 11, 2000, new opportunities are
available for banks, other depository institutions, insurance companies and
securities firms to enter into combinations that permit a new type of holding
company, a financial holding company, to offer customers a more complete array
of financial products and services. The Financial Reform Act provides a new
regulatory framework for regulation through the financial holding company which
will have as its umbrella regulator the Federal Reserve Board. This Act requires
satisfactory or above Community Reinvestment Act compliance for insured
depository institutions


<PAGE>   5


and their financial holding companies necessary in order for them to engage in
new financial activities. This Act also provides for a federal right to privacy
of non-public personal information of individual customers.

Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), the FDIC has implemented risk based premiums for deposit insurance,
the premiums paid by a depository institution are based on the probability that
the applicable insurance fund will incur a loss in respect of such institution.
The effective assessment rate ranged from 0 basis points for well-capitalized
institutions displaying little risk, to 27 basis points for under capitalized
institutions displaying high risk. Both BIF insured banks and SAIF insured
thrifts are also required to pay interest on Financing Corporation (FICO) bonds
issued in connection with the federal government's bail out of the thrift
industry.

FDICIA also prescribes various supervisory or "prompt corrective" actions by
federal regulatory agencies based on an insured institution's level of capital.
These prescribed actions increase restrictions on and heighten regulatory
scrutiny of the institution as its capital declines. The Bank is rated in the
lowest risk category under regulatory guidelines, as detailed in the Notes to
Consolidated Financial Statements.

Proposals to change the laws and regulations governing the operations and
taxation of banks, and companies which control banks and other financial
institutions, are frequently raised in Congress. The likelihood of any major
changes and the impact such changes might have on the Corporation are, however,
impossible to predict.

Management is not aware of any existing trends, events, uncertainties or current
recommendations by regulatory authorities that are expected to have a material
impact on the Corporation's operating results or financial condition.

Information furnished in accordance with Exchange Act Guide 3: Statistical
Disclosure by Bank Holding Companies is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations, Item 7, and Financial
Statements and Supplementary Data, Item 8.


Item 2 - Properties.
The executive offices of the Corporation and the Bank are maintained at the main
office of the Bank, 1227 East Front St., Traverse City, Michigan. The Bank
leases its main office and seven additional branch and automated teller machine
locations. The leases expire at various times through the year 2011 and all
include renewal periods. Net aggregate annual rentals for banking facilities in
1999 were $499,000.

In addition, the Bank owns and operates six additional branch facilities, none
of which are encumbered. The Bank operates drive-thru facilities at most of its
office locations and has on location remote automated teller machines for
customer use in its market area.

Item 3 - Legal Proceedings.
The Bank is routinely engaged in litigation, both as plaintiff and defendant,
which is incident to its business. In certain proceedings, claims or
counter-claims have been asserted against it. Management, after consultation
with legal counsel, does not anticipate that the


<PAGE>   6




ultimate liability, if any, arising out of such litigation and threats of
litigation will have a material effect on the financial statements of the
Corporation.

Item 4 - Submission of Matters to a Vote of Security Holders. No matters were
submitted during the fourth quarter of fiscal 1999 to a vote of the
Corporation's security holders.


PART II
Item 5 - Market for Registrant's Common Equity and Related Stockholder
         Matters.
The common stock of Empire Banc Corporation is traded on the OTC Bulletin Board,
symbol EMBM. The primary market is the state of Michigan. Principal market
makers of common stock transactions are Howe Barnes & Co., McDonald & Co.,
Robert W. Baird & Co., Stifel Nicolaus & Co, Monroe Securities, Inc. and Hill,
Thompson, Magid & Co., Inc. There were 535 holders of the Corporation's common
stock as of December 31, 1999.

Quarterly cash dividends were declared during 1999 and 1998 totaling $1.15 and
$0.98 per common share per year. Note 18 of the Consolidated Financial
Statements details regulatory guidelines regarding payment of dividends. The
following table sets forth, for the periods indicated, the high and low sale
prices per share of the Corporation's common stock. All of the prices are
adjusted for a three for two stock split declared in the second quarter of 1998.

<TABLE>
<CAPTION>
                                 Price Range
Quarter                       High         Low       Dividends
--------------------------------------------------------------
<S>                          <C>          <C>           <C>
1999
Fourth                       $31.50       $27.50        $.300
Third                         34.75        31.50         .300
Second                        37.00        34.75         .300
First                         39.50        37.00         .250

1998
Fourth                        39.50        39.13         .250
Third                         45.00        37.25         .250
Second                        45.00        35.50         .250
First                         35.50        30.67         .233

Amounts retroactively adjusted for stock splits and dividends.

</TABLE>






<PAGE>   7

Item 6 - Selected Financial Data - Empire Banc Corporation

<TABLE>
<CAPTION>
(in thousands, except share data)

                                      1999      1998      1997      1996      1995
----------------------------------------------------------------------------------
<S>                               <C>       <C>       <C>       <C>       <C>
Summary of Operations:
Interest income                   $ 38,019  $ 36,559  $ 33,419  $ 30,599  $ 28,606
Interest expense                    16,441    16,435    15,189    14,066    13,231
                                  --------  --------  --------  --------  --------
Net interest income                 21,578    20,124    18,230    16,533    15,375
Provision for loan losses              701     1,215     1,459     1,686       745
Non-interest income                  8,334     8,759     6,809     5,850     5,017
Non-interest expense                18,364    18,539    15,737    13,861    13,494
                                  --------  --------  --------  --------  --------
Income before taxes                 10,847     9,129     7,843     6,836     6,153
Federal income taxes                 3,582     3,032     2,598     2,259     2,007
                                  --------  --------  --------  --------  --------
Net income                        $  7,265  $  6,097  $  5,245  $  4,577  $  4,146
                                  ========  ========  ========  ========  ========
----------------------------------------------------------------------------------

Per Share (1):
Basic Earnings                    $   2.39  $   2.06  $   1.81  $   1.60  $   1.46
Diluted earnings                      2.29      1.93      1.68      1.48      1.36
Dividends                             1.15      0.98      0.87      0.73       .59
Book value                           14.49     13.78     12.42     11.34     10.50

----------------------------------------------------------------------------------

Ratios Based on Net Income:
Return on average
  shareholders' equity               17.03%    15.85%    15.36%    14.72%    14.81%
Return on average assets              1.47      1.33      1.26      1.20      1.18
Dividend payout ratio                48.49     47.71     48.08     45.88     40.30
Average shareholders' equity
  as a percent of average assets      8.64      8.37      8.23      8.14      7.96

----------------------------------------------------------------------------------

Balance Sheet:
Assets                            $505,700  $477,964  $442,953  $400,819  $372,426
Loans and loans held for sale      368,719   325,774   302,469   272,182   259,102
Securities                         100,765   120,399    98,754    98,578    84,312
Deposits                           418,423   410,139   386,670   344,354   319,540
Federal Home Loan Bank advances     30,000    17,000    12,000       ---       ---
Shareholders' equity                45,886    40,756    36,199    32,673    30,005

----------------------------------------------------------------------------------
(1) Per share amounts have been adjusted for stock splits and dividends.
</TABLE>




<PAGE>   8

Item 7 - Management's Discussion and Analysis of Financial Condition and
         Results of Operations.

Management's Discussion and Analysis is designed to provide readers with a
comprehensive review of the results of operations and financial position. This
discussion should be read in conjunction with the Consolidated Financial
Statements and related footnotes.

Summary of Earnings
In 1999, the Corporation achieved record earnings of $7,265,000, an increase of
$1,168,000, or 19.2 percent, over the $6,097,000 earned in 1998. In 1998, net
income increased $852,000, or 16.2 percent.

Earnings Per Share
Basic earnings per share were $2.39 for 1999, compared to $2.06 in 1998 and
$1.81 in 1997. Diluted earnings per share were $2.29, compared to $1.93 in 1998
and $1.68 in 1997.

Return on Average Shareholders' Equity
Return on average shareholders' equity measures how profitably the shareholders'
invested capital is employed. Return on average equity was 17.03 percent for
1999, compared to 15.85 percent and 15.36 percent in 1998 and 1997.

Return on Average Assets
Return on average assets, a measure of profitability, was 1.47 percent in 1999,
compared to 1.33 percent and 1.26 percent in 1998 and 1997.

Book Value Per Share
Book value per share of common stock increased 5 percent to $14.49 at December
31, 1999, compared to $13.78 and $12.42 at December 31, 1998 and 1997.



<PAGE>   9

Summary of Operating Results
The following is a summary of the major components of the consolidated operating
results:
<TABLE>
<CAPTION>
(in thousands)                              1999       1998       1997
----------------------------------------------------------------------
<S>                                      <C>        <C>        <C>
Net interest income                      $21,578    $20,124    $18,230
Add: Taxable equivalent (TE) adjustment      159        144        135
                                         -------    -------    -------
Net interest income - (TE)                21,737     20,268     18,365
Provision for loan losses                    701      1,215      1,459
Non-interest income                        8,334      8,759      6,809
Non-interest expense                      18,364     18,539     15,737
                                         -------    -------    -------
Income before tax - (TE)                  11,006      9,273      7,978
Income taxes,
  including TE adjustment                  3,741      3,176      2,733
                                         -------    -------    -------
Net income                               $ 7,265    $ 6,097    $ 5,245
                                         =======    =======    =======
----------------------------------------------------------------------
</TABLE>


Net Interest Income

Net interest income is the difference between interest and fees earned on
earning assets (loans and investments) and the interest paid on deposits and
other interest-bearing funds. It is the major component of earnings for a
financial institution. For analytical purposes, to evaluate the effective yields
earned on earning assets, interest earned is expressed on a taxable-equivalent
(TE) basis by increasing tax-exempt interest income to an amount comparable to
interest subject to income taxes. The taxable-equivalent adjustment is based on
a federal income tax rate of 34 percent.

Net interest income is influenced by changes in the balance and mix of earning
assets and interest-bearing liabilities, the proportion of earning assets funded
by demand deposits and equity capital and market interest rates.

Conditions beyond management's control may have a significant impact on changes
in net interest income from one period to another. Examples of such external
factors are Federal Reserve Board monetary policy, introduction of new deposit
products by bank and non-bank competitors and the fiscal and debt management
policies of the federal government.

The table on the following page details the key determinants of net interest
income: the average daily balance sheet for each year (including the components
of earning assets and supporting liabilities) and the related interest income on
a TE basis and interest expense, as well as the average rates earned and paid.




<PAGE>   10

Net Interest Income
Average Balance Sheet, Interest Income/Expense, Average Rates

<TABLE>
<CAPTION>
(dollars in thousands,
  taxable equivalent)              1999                    1998                        1997
--------------------------------------------------------------------------------------------------------
                          Average         Average    Average         Average    Average         Average
                          Balance Interest   Rate    Balance Interest   Rate    Balance Interest   Rate
<S>                      <C>       <C>       <C>    <C>       <C>       <C>    <C>       <C>       <C>
Assets
Loans, including fees*   $338,771  $30,718   9.07%  $309,664  $29,269   9.45%  $289,828  $27,081   9.34%

Taxable securities        104,806    6,283   5.99%   100,571    6,227   6.19%    89,331    5,728   6.41%
Tax-exempt securities*      7,166      456   6.36%     5,507      379   6.88%     5,213      369   7.08%
                         --------  -------          --------  -------          --------  -------
  Securities              111,972    6,739   6.02%   106,078    6,606   6.23%    94,544    6,097   6.45%
Federal funds sold         14,506      721   4.97%    15,483      828   5.35%     6,882      376   5.46%
                          -------  -------          --------  -------          --------  -------
  Earning assets          465,249   38,178   8.21%   431,225   36,703   8.51%   391,254   33,554   8.58%

Cash and due from banks    15,703                     17,465                     14,950
Other assets               12,934                     10,937                      8,578
                         --------                   --------                   --------
  Total assets           $493,886                   $459,627                   $414,782
                         ========                   ========                   ========
Liabilities and equity
CDs over $100,000        $ 12,209      576   4.72%  $ 10,603      547   5.16%  $ 10,690      566   5.29%
Savings and
  interest checking        75,177    1,520   2.02%    71,155    1,564   2.20%    64,526    1,427   2.21%
Money market deposits     130,958    5,223   3.99%   113,435    4,953   4.37%    98,357    4,321   4.39%
Time deposits             143,293    8,075   5.64%   139,969    8,362   5.97%   134,480    8,119   6.04%
                         --------  -------          --------  -------          --------  -------
  Interest-bearing
    deposits              361,637   15,394   4.26%   335,162   15,426   4.60%   308,053   14,433   4.69%
FHLB advances
  and other                17,344    1,047   6.04%    16,740    1,009   6.03%    12,870      756   5.87%
                         --------  -------          --------  -------          --------  -------
  Interest-bearing
    liabilities           378,981   16,441   4.34%   351,902   16,435   4.67%   320,923   15,189   4.73%
Demand deposits            62,398                     60,589                     52,794
Other liabilities           9,847                      8,677                      6,918
Shareholders' equity       42,660                     38,459                     34,147
                         --------  -------          --------  -------          --------  -------
  Total liabilities
    and equity           $493,886                   $459,627                   $414,782
                         ========                   ========                   ========
Net interest income (TE)           $21,737                    $20,268                     $18,365
                                   =======                    =======                     =======
Net interest spread (TE)                     3.87%                      3.84%                      3.85%
                                             ====                       ====                       ====
Net interest margin (TE)                     4.67%                      4.70%                      4.69%
                                             ====                       ====                       ====
--------------------------------------------------------------------------------------------------------
*Interest income on tax-exempt securities and certain tax-exempt loans have been
   adjusted to a tax-equivalent basis.
</TABLE>

<PAGE>   11

An analysis of the changes in net interest income is presented in the following
table. This analysis highlights the relative effect of changes in the average
balances and interest rates.

Analysis of Changes in Net Interest Income

<TABLE>
<CAPTION>

(in thousands,
  taxable equivalent)                1999 vs. 1998              1998 vs. 1997
--------------------------------------------------------------------------------------
                                     Average                     Average
Increase (decrease)            ---------------              ---------------
  due to change in:              Balance    Rate      Net     Balance    Rate      Net
                                 ------------------------     ------------------------
<S>                              <C>     <C>       <C>        <C>     <C>       <C>
Interest income
Loans, including fees            $2,596  $(1,147)  $1,449     $1,820  $  368    $2,188

Taxable securities                  261     (205)      56        701    (202)      499
Tax-exempt securities               107      (30)      77         20     (10)       10
                                 ------  -------   ------     ------  ------    ------
  Securities                        368     (235)     133        721    (212)      509

Federal funds sold                  (51)     (56)    (107)       460      (8)      452
                                 ------  -------   ------     ------  ------    ------
  Changes in interest income      2,913   (1,438)   1,475      3,001     148     3,149

Interest expense
CDs over $100,000                    79      (50)      29         (5)    (14)      (19)
Savings and interest checking        85     (129)     (44)       143      (6)      137
Money market deposits               722     (452)     270        658     (26)      632
Time deposits                       195     (482)    (287)       329     (86)      243
                                 ------  -------   ------     ------  ------    ------
  Interest-bearing deposits       1,081   (1,113)     (32)     1,125    (132)      993

FHLB advances and other              37        1       38        236      17       253
                                 ------  -------   ------     ------  ------    ------
  Changes in interest expense     1,118   (1,112)       6      1,361    (115)    1,246
                                 ------  -------   ------     ------  ------    ------
  Changes in net interest income $1,795  $  (326)  $1,469     $1,640  $  263    $1,903
                                 ======  =======   ======     ======  ======    ======
--------------------------------------------------------------------------------------
Any variance attributable jointly to volume and rate changes is allocated to
volume and rate in proportion to the relationship of the absolute dollar amount
of the changes in volume and rate.

</TABLE>











<PAGE>   12




The following table allocates net interest income on earning assets by the
interest spread earned on assets funded by interest-bearing liabilities and the
amount funded by non-interest-bearing liabilities and equity capital. The
interest spread on earning assets funded by interest-bearing liabilities is the
difference between the average rate earned on total earning assets and the
average cost of interest-bearing liabilities. The interest spread on earning
assets funded by non-interest-bearing liabilities and equity capital is the rate
earned on earning assets.

<TABLE>
<CAPTION>


(dollars in thousands,
  taxable equivalent)             1999                        1998                        1997
---------------------------------------------------------------------------------------------------------
                       Average               Net   Average               Net   Average               Net
                       Earning Interest Interest   Earning Interest Interest   Earning Interest Interest
                        Assets   Spread   Income    Assets   Spread   Income    Assets   Spread   Income
                       -------------------------   -------------------------   -------------------------
<S>                   <C>         <C>    <C>       <C>        <C>    <C>      <C>         <C>    <C>
Source of funding
Interest-bearing
  liabilities         $378,981    3.87%  $14,654  $351,902    3.84%  $13,518  $320,923    3.85%  $12,331

Non-interest-bearing
  liabilities and
  equity capital        86,268    8.21%    7,083    79,323    8.51%    6,750    70,331    8.58%    6,034
                      --------           -------  --------           -------  --------           -------
                      $465,249           $21,737  $431,225           $20,268  $391,254           $18,365
                      ========           =======  ========           =======  ========           =======
------------------------------------------------------------------------------------------------------------
</TABLE>

Net interest income (TE) increased $1.5 million, or 7 percent, in 1999 as
average earning assets increased $34 million, or 8 percent, and the net interest
margin (net interest income as a percentage of average earning assets) declined
3 basis points to 4.67 percent. Earning assets funded with interest-bearing
liabilities increased $27 million, or 8 percent, adding $1.1 million in net
interest income. Earning assets funded with non-interest-bearing liabilities and
equity capital increased $7 million, or 9 percent, and the earning asset rate
decreased 30 basis points, resulting in an additional $333,000 contribution to
net interest income in 1999 over 1998.

The increase in average earning assets was principally due to growth in the loan
portfolio, which on average increased $29 million, or 9 percent, while the
average rate decreased 38 basis points during 1999. Average commercial loans
increased $27 million, or 20 percent, and average consumer loans increased $6
million, or 6 percent, in 1999. Average outstanding residential real estate
loans declined $4 million during 1999. Average investment securities increased
$6 million, or 6 percent, and the average rate earned on the security portfolio
decreased 21 basis points. Overnight federal funds sold decreased on average $1
million and the rate earned on these funds decreased 38 basis points from 1998
following the trend in the overall economy.


<PAGE>   13



The primary funding source is interest-bearing deposits. Average
interest-bearing deposits increased $26 million, or 8 percent, and the average
rate paid decreased 34 basis points from 1998. The increase in average
interest-bearing deposits was primarily in money market investment accounts,
which increased $18 million, or 15 percent. Average short-term time certificates
in denominations of $100,000 or more approximated 3 percent of average total
deposits in 1999, 1998 and 1997, significantly below the levels of banks of
comparable size. Federal Home Loan Bank advances averaged $17.3 million in 1999
comparable to 1998.

In 1998, tax equivalent net interest income increased $1.9 million, or 10
percent, as average earning assets increased $40 million, or 10 percent, and the
net interest margin remained stable at 4.70 percent. The increase in average
earning assets was principally due to average loan growth of $20 million, or 7
percent, average security growth of $12 million, or 12 percent, and outstanding
overnight funds sold which increased on average $9 million in 1998. The increase
in earning assets funded with interest-bearing liabilities, accounted for $1.2
million of the increase in net interest income. The increase in earning assets
funded with non-interest-bearing liabilities, at a decreased rate, added
$716,000 in net interest income.


Loan Portfolio Management and Non-Performing Assets
Portfolio Quality
Loan portfolio quality, diversification of the portfolio and the monitoring of
potential problem loans are the primary functions of loan portfolio management.
The Bank has established written loan policies and procedures. Management has
established a loan review process which provides for frequent review of the loan
portfolio in order to monitor loan portfolio quality and performance. In
addition, management conducts a review of loan concentrations which could have
an impact on the financial condition of the Bank. As of December 31, 1999, loans
to borrowers in the industries of "Offices of Physicians", $23.3 million,
"Lessors of Non-Residential Buildings", $23.9 million, and "Hotels/Motels",
$13.7 million, represented loan concentrations per regulatory guidelines. The
medical community in the Corporation's service area is led by a highly rated
regional provider of health services. The growth potential of the medical
community and the strong personal earnings and financial strength of medical
professionals is a source of future loan, deposit and trust asset management
growth for the Corporation.

Loans outstanding at year-end for the five years ended December 31, are shown in
the following table according to the type of loan:
<TABLE>
<CAPTION>
(in thousands)             1999       1998       1997       1996       1995
---------------------------------------------------------------------------
<S>                    <C>        <C>        <C>        <C>        <C>
Commercial             $179,080   $153,115   $132,310   $122,322   $120,369
Mortgage                 80,505     71,259     77,896     69,467     61,755
Consumer                 71,956     64,069     61,850     59,031     63,328
Revolving Credit         34,960     31,158     27,668     19,483     11,596
                       --------   --------   --------   --------   --------
                       $366,501   $319,601   $299,724   $270,303   $257,048
                       ========   ========   ========   ========   ========
Mortgage loans held
 for sale              $  2,218   $  6,173   $  2,745   $  1,879   $  2,054
                       ========   ========   ========   ========   ========
---------------------------------------------------------------------------
</TABLE>


<PAGE>   14


Maturity and Rate Sensitivity of Selected Loans

The following table presents the remaining maturity of total loans outstanding
(excluding residential real estate mortgage and consumer loans) at December 31,
1999, according to scheduled repayments of principal:

<TABLE>
<CAPTION>
                                        After One
                             Within    But Within        After
(in thousands)             One Year    Five Years   Five Years         Total
----------------------------------------------------------------------------
<S>                         <C>          <C>           <C>          <C>
Total loans                 $49,253      $228,380      $88,868      $366,501
Less:
 Residential mortgage
  and consumer loans         12,434       109,274       65,713       187,421
                            -------      --------      -------      --------
                            $36,819      $119,106      $23,155      $179,080
                            =======      ========      =======      ========

Loans maturing with:
  Fixed interest rates      $19,496      $109,443      $16,815      $145,754
  Variable interest rates    17,323         9,663        6,340        33,326
                            -------      --------      -------      --------
                            $36,819      $119,106      $23,155      $179,080
                            =======      ========      =======      ========
----------------------------------------------------------------------------
</TABLE>


Non-Performing Assets and Problem Loans

The following table is a summary of non-performing assets as of December 31:

<TABLE>
<CAPTION>

(dollars in thousands)           1999     1998     1997     1996     1995
-------------------------------------------------------------------------
<S>                            <C>      <C>      <C>      <C>      <C>
Non-accrual loans              $1,950   $1,283   $  893   $2,131   $  867
Renegotiated loans                225      408      210      408      606
                               ------   ------   ------   ------   ------
 Total non-performing loans     2,175    1,691    1,103    2,539    1,473
Other real estate                 307      221      177       --      280
                               ------   ------   ------   ------   ------
 Total non-performing assets   $2,482   $1,912   $1,280   $2,539   $1,753
                               ======   ======   ======   ======   ======
Non-performing assets as
  a percent of total loans        .68%     .60%     .43%     .94%     .68%

Accruing loans 90 days or
  more past due                $    6   $  189   $  367   $  172   $   72
-------------------------------------------------------------------------
</TABLE>


<PAGE>   15




In 1999, total non-performing assets increased $570,000, or 30 percent.
Non-accrual loans increased $667,000, renegotiated loans declined $183,000 and
other real estate increased $86,000 from year-end 1998. Accruing loans 90 days
or more past due declined $183,000 from year-end 1998 to total $6,000 at
December 31, 1999. The ratio of non-performing assets as a percent of total
loans was 0.68 percent of total loans at December 31, 1999. In addition to loans
classified as non-performing, or 90 days past due, there are other potential
problem loans totaling $1.2 million at December 31, 1999, on which management
closely monitors the borrowers' ability to comply with payment terms.

Management regularly reviews the loan portfolio to identify loans about which
there are concerns that the borrower will be unable to satisfy existing payment
terms. Management reports monthly to the board of directors information
regarding significant past-due and problem loans, non-accrual loans and other
real estate owned. Non-performing assets are carried at estimated realizable
values and the known losses of principal have been recognized. Management cannot
accurately predict which, if any, loans will eventually result in losses.

Interest accrual is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that
collection of interest is doubtful. The gross interest income that would have
been recorded in 1999 on the $1,950,000 of non-accrual loans amounted to
$115,000 if the loans would have been current in accordance with their original
terms. The amount of interest income included in net income on these loans
amounted to $87,000.

All loans classified for regulatory purposes as loss, doubtful, or substandard
have been included in the above disclosures. There were no other interest
bearing assets at December 31, 1999, other than $307,000 of other real estate,
that would be required to be disclosed as non-performing or potential problem
loans.

There were no foreign loans outstanding at December 31, 1999.




<PAGE>   16

Provision for Loan Losses

The following table summarizes the provision for loan losses, net loan losses
and the allowance for loan losses over the last five years:

<TABLE>
<CAPTION>
(dollars in thousands)                 1999     1998     1997     1996     1995
-------------------------------------------------------------------------------
<S>                                 <C>      <C>      <C>      <C>      <C>
Provision for loan losses            $  701   $1,215   $1,459   $1,686   $  745
Net loan losses                         126      515      859    1,361      445
Year-end allowance for loan losses    5,400    4,825    4,125    3,525    3,200

Allowance as a percent of
  year-end loans                       1.47%    1.51%    1.38%    1.30%    1.24%

Net loan losses to average loans
  outstanding                           .04%     .17%     .30%     .52%     .18%
-------------------------------------------------------------------------------
</TABLE>

In 1999, the allowance for loan losses increased $575,000 and was 1.47 percent
of loans at December 31, 1999. Management believes this increase in the
allowance for loan losses is prudent with the continued growth in the loan
portfolio, $47 million in 1999, with $26 million of this growth in commercial
loans. The allowance was 218 percent of non-performing assets at year-end 1999,
compared to 252 percent and 322 percent at December 31, 1998 and 1997. Net loan
losses in 1999 declined to 0.04 percent of average loans outstanding due to a 30
percent decrease in loans charged-off and a 72 percent increase in recoveries.

<PAGE>   17




Summary of Loan Loss Experience

Additional information relative to the allowance for loan losses is presented in
the following table. Factors which influence management's judgement in
determining the provision for loan losses each period include establishing
specific loss allowances for selected loans (including large loans, non-accrual
loans, and problem and delinquent loans) and consideration of historical loss
information and local economic conditions.

<TABLE>
<CAPTION>

(in thousands)                    1999     1998     1997     1996     1995
--------------------------------------------------------------------------
<S>                           <C>      <C>      <C>      <C>      <C>
Allowance for loan losses,
  beginning of period           $4,825   $4,125   $3,525   $3,200   $2,900
--------------------------------------------------------------------------
Loans charged off:
Commercial                          61      284      556    1,005       17
Real estate mortgages               28        4       49       --        7
Consumer                           342      386      408      514      575
Revolving credit                    84       67       98       49       51
--------------------------------------------------------------------------
  Total charge-offs                515      741    1,111    1,568      650
--------------------------------------------------------------------------
Recoveries:
Commercial                         163       18       73       11       55
Real estate mortgages                7        2       --       --        2
Consumer                           188      188      161      182      135
Revolving credit                    31       18       18       14       13
--------------------------------------------------------------------------
  Total recoveries                 389      226      252      207      205
--------------------------------------------------------------------------
Net charge-offs                    126      515      859    1,361      445
--------------------------------------------------------------------------
Provision charged to expense       701    1,215    1,459    1,686      745
--------------------------------------------------------------------------
Allowance for loan losses
  end of period                 $5,400   $4,825   $4,125   $3,525   $3,200
==========================================================================
--------------------------------------------------------------------------
</TABLE>


<PAGE>   18




Allocation of the Allowance for Loan Losses

The allocation of the allowance for loan losses for the years ended December 31
is:

<TABLE>
<CAPTION>
                                Real estate
(dollars in                      Consumer     mortgage/
  thousands)       Commercial   and other   construction   Unallocated   Total
-----------------------------------------------------------------------  -----
<S>                    <C>        <C>          <C>        <C>         <C>
1999 Allowance amount  $2,100     $  680         $  320       $2,300   $5,400
  % loans/total loans    48.8%      29.2%          22.0%          --      100%

1998 Allowance amount  $1,947     $  538         $  224       $2,116   $4,825
  % loans/total loans    47.9%      29.8%          22.3%          --      100%

1997 Allowance amount  $1,892     $  571         $  128       $1,534   $4,125
  % loans/total loans    44.1%      29.9%          26.0%          --      100%

1996 Allowance amount  $1,826     $  538         $   75       $1,086   $3,525
  % loans/total loans    45.3%      29.0%          25.7%          --      100%

1995 Allowance amount  $1,378     $  602         $   75       $1,145   $3,200
  % loans/total loans    46.9%      29.1%          24.0%          --      100%

----------------------------------------------------------------------------
</TABLE>

Non-Interest Income
Total non-interest income decreased $425,000, or 5 percent, from 1998. Trust
income increased $272,000, or 9 percent, in 1999 as funds under management
increased $35 million, or 7 percent. Income from the sales of mortgage loans
decreased $1.0 million or 35%, with decreased mortgage loan origination and
sales activity. Deposit fees increased $175,000, or 12 percent, and other
service charges and fees increased $231,000, or 21 percent during the year. Loan
service fees, net of amortization, increased $273,000, or 263%, from 1998 which
was effected by greater amortization of mortgage servicing rights in 1998 due to
refinancing activity. Security losses of $138,000 were recorded in 1999 compared
to gains of $143,000 in 1998.

In 1998, total non-interest income increased $1,950,000, or 29 percent from
1997. Trust fees increased $249,000, or 9 percent, due to a 44 percent increase
in assets under management. Income from the origination and sales of mortgage
loans increased $1.7 million, or 139 percent. Deposit fees increased $48,000, or
3 percent, and other service charges and fees increased $154,000, or 16 percent.
Net loan service fees declined $354,000, or 77%, in 1998 as strong loan
refinancing activity resulted in increased amortization of mortgage servicing
rights in 1998. Security gains of $143,000 were recorded in 1998 compared to
losses of $6,000 in 1997.






<PAGE>   19




Non-Interest Expense
In 1999, total non-interest expense decreased $175,000, or 1 percent, from 1998
results. Total personnel expense decreased $747,000, or 6 percent. Compensation
expense related to the Corporation's stock price declined $1.9 million, offset
by increased salary expense of $739,000. Other personnel costs increased
$441,000 from 1998, including a $193,000, or 19 percent, increase in the profit
sharing incentive award.

Occupancy costs increased $108,000, or 10 percent, impacted by costs associated
with enlarging the main office facility. Equipment expense for 1999 increased
$227,000, or 19 percent, due primarily to costs related to technology
enhancements which increased $236,000, or 28 percent.

Outside processing and other services expense remained stable during 1999. Legal
and professional fees increased $111,000 with normal activity. Business taxes,
which are largely based on the level of salaries and employee benefits,
decreased $152,000, primarily due to the effect of the $1.9 million reduction in
compensation expense related to the Corporation's stock price. Other operating
expense increased $254,000, or 9 percent, due to the general growth of activity
of the Corporation.

In 1998, total non-interest expense increased $2.8 million, or 18 percent.
Personnel expense increased $1.6 million, or 16 percent, as salaries and wages
increased $979,000, or 16 percent, fueled by commission expense related to the
increase in mortgage lending activity. Other personnel costs increased $650,000
from 1997. Occupancy expense remained stable in 1998 and equipment expense
increased $284,000, or 32 percent, due to enhancements to technology. Other
operating expense increased $851,000, or 22 percent from 1997, primarily due to
increased activity-based, marketing and business tax expense.

Federal Income Taxes
Federal income tax expense for 1999 was $3,582,000, compared to $3,032,000 in
1998 and $2,598,000 in 1997, due to the increased profitability of the
Corporation. The Corporation's effective tax rate has been substantially
unchanged from 1997 through 1999 due to the consistency of statutory tax rates
and the relative percentage of tax-exempt income.


Capital Resources and Cash Dividends

The foundation of a strong financial institution is a strong capital base. In
1999, shareholders' equity increased $5.1 million, or 13 percent, to $45.9
million at year-end. During 1998, total shareholders' equity increased $4.6
million, or 13 percent, over 1997. Shareholders' equity was 9.1 percent of total
assets at December 31, 1999, as compared to 8.5 percent at December 31, 1998.

The federal bank regulatory agencies have established capital standards for
financial institutions. The Corporation's capital ratios are all significantly
above the guidelines for well-capitalized institutions. Note 16 to the
Consolidated Financial Statements details the Corporation's regulatory capital
and the capital standards.







<PAGE>   20




Total cash dividends declared in 1999 were $3,523,000, or $1.15 per share,
compared to $2,909,000, or $.98 per share, in 1998, a 17 percent increase. The
dividend payout ratio was 48 percent in 1999, 1998 and 1997. A three-for-two
stock split was declared in the second quarter of 1998 and a 10 percent stock
dividend was paid in November of 1997. Cash dividends per share have increased
at an average annual rate of 18 percent since 1991. Future dividends, if any,
are declared at the discretion of the board of directors and may be determined
by the financial performance, future prospects and capital requirements of the
Corporation.

The Corporation's principal source of funds to pay cash dividends is the
earnings of its subsidiary, Empire National Bank. Consequently, cash dividends
depend upon the earnings, capital needs, regulatory restraints and other factors
affecting the Bank. See Note 18 to the Consolidated Financial Statements.

The Corporation maintains a five-year capital plan and utilizes a formal
strategic planning process. Management and the board of directors monitor
long-term goals, which include maintaining capital growth in relation to the
risk profile of the Corporation and the retention of earnings to fund asset
growth, while providing returns to shareholders.


Interest Rate Sensitivity and Liquidity

Asset and liability management involves developing and implementing strategies
to maximize net interest income, minimizing the vulnerability of earnings to
major changes in interest rates and allowing the Bank to profitably compete in
all phases of the business cycle. This process is carried out through monthly
meetings of senior officers representing lending, deposit-gathering, funds
management and marketing.

Interest rate risk arises when the maturity or repricing characteristics of
assets differ significantly from the maturity or the repricing characteristics
of liabilities. One of the goals of asset and liability management is to balance
the various factors that create interest rate risk, thereby maintaining the
interest rate risk of the Bank within acceptable levels.

While controlling interest rate risk is an important objective, accommodating
customer maturity and repricing preferences is an equally important objective.
It is the function of asset and liability management to develop strategies to
reconcile these objectives. Management has developed definitive policies and
procedures to mitigate interest rate risk. These include the sale of long-term
residential mortgages in the secondary market and long-term commercial loans
written with three- and five-year balloons.

The Bank measures the impact of changes in interest rates on net interest income
through a comprehensive analysis of the Bank's interest-rate-sensitive assets
and liabilities. This analysis takes into consideration projected changes in
market interest rates and alternative rate scenarios, changes in the rate of
individual interest-rate-sensitive assets and liabilities and the effect of
competition. Through this quarterly analysis, management estimates the projected
effect on net interest income. During the annual planning process, net interest
income is projected using alternative interest rate scenarios to determine the


<PAGE>   21




effect of changing interest rates on net interest income. The board of directors
has established policy limits for the fluctuation of net interest income due to
projected interest rate changes.

The years of 1995 through 1999 included periods of sustained interest rate
decreases and increases as well as changes in the shape of the yield curve. A
stable tax equivalent net interest margin and the steady increase in net
interest income demonstrate the effectiveness of these risk management
techniques.

<TABLE>
<CAPTION>
                            1999     1998     1997     1996     1995
---------------------------------------------------------------------
<S>                         <C>      <C>      <C>      <C>      <C>
Net interest margin (TE)    4.67%    4.70%    4.69%    4.62%    4.66%
---------------------------------------------------------------------
</TABLE>

Liquidity management is closely related to asset and liability management.
Liquidity management maintains the resources to fund withdrawals and other
operating requirements. Monitoring maturities and future commitments and the use
of short-term investments are integral parts of liquidity management.

The primary objective of the Bank's investment portfolio is to invest in
securities of high quality that will provide a reasonable return and will allow
the Bank to maintain a sound liquidity position. Management of the portfolio is
an integral part of liquidity and interest rate risk management. The Bank does
not have complex or leveraged derivatives or structured notes in its portfolio.

The board of directors has established policies regarding the potential price
fluctuation of the available for sale portfolio. This portfolio had net
unrealized losses of $1,237,000 and gains of $1,460,000 at December 31, 1999 and
1998. The price fluctuations experienced during 1999 and 1998 were primarily due
to changes in market interest rates and were well within the policies
established by the board of directors. Realization of any unrealized gain or
loss will depend upon future portfolio management, interest rate risk management
and liquidity needs of the Bank. The regulatory agencies do not include the net
unrealized gain or loss on debt securities in the calculation of regulatory
capital.





<PAGE>   22

An analysis of securities for the five years ended December 31 were as follows:

<TABLE>
<CAPTION>
Available for sale

(in thousands)            1999      1998      1997      1996       1995
------------------------------------------------------------------------
<S>                    <C>        <C>       <C>       <C>        <C>
U.S. government
  and agency           $ 40,972  $ 55,524   $37,302   $32,119    $27,154
State and municipal      17,380    13,589        --        --         --
Mortgage-backed          21,467    24,366    23,592    27,202     18,250
Other                    18,263    24,367     2,373        --         --
Equity                    2,683     2,553     2,508     2,453      2,425
                       --------  --------   -------   -------    -------
  Total                $100,765  $120,399   $65,775   $61,774    $47,829
                       ========  ========   =======   =======    =======
</TABLE>


Held to maturity
<TABLE>
<CAPTION>

(in thousands)            1999      1998      1997      1996       1995
-----------------------------------------------------------------------
<S>                    <C>       <C>       <C>       <C>        <C>

U.S. government
 and agency            $    --   $    --   $ 9,515   $17,489    $23,530
State and municipal         --        --     8,581     7,872      5,171
Other                       --        --    14,883    11,443      7,782
                       -------   -------   -------   -------    -------
  Total                $    --   $    --   $32,979   $36,804    $36,483
                       =======   =======   =======   =======    =======
-----------------------------------------------------------------------
</TABLE>

Other than securities guaranteed by the U.S. Government or its agencies, the
Bank held no investment securities from any one issuer that exceeded ten percent
of stockholders' equity at December 31, 1999.

During 1998, the Bank implemented a regulatory approved program for reducing the
amount of daily reserve balances required to be held with the Federal Reserve.
Required reserve balances at December 31, 1999 and 1998 were $731,000 and
$617,000.

Deposit growth through core deposits provides the primary funding for increases
in loans and investment securities. Core deposits include demand deposits,
savings and money market accounts and certificates of deposit of consumer and
corporate customers. For 1999 and 1998, core deposits have averaged
approximately 97 percent of total deposits.

Management regularly assesses the ability of the Bank to raise funds through
certificates of deposit in denominations of $100,000 or more in the local and
regional market area and has established conservative


<PAGE>   23




guidelines for the total funding to be provided by these deposits. These
deposits totaled $12.6 million at December 31, 1999.

Total certificates of deposit of $100,000 or more, including other personal and
IRA deposits, amounted to $28,390,000 at December 31, 1999, with scheduled
maturities as follows:

<TABLE>
<CAPTION>
(in thousands)                December 31, 1999
-----------------------------------------------
<S>                                    <C>
Due in:
  3 months or less                      $11,487
  3 to 6 months                           5,032
  6 to 12 months                          3,609
  over 1 year                             8,262
                                        -------
                                        $28,390
                                        =======
</TABLE>

Management also believes that an integral part of liquidity management is the
development of other sources of funding. It is management's policy to actively
cultivate and maintain relationships with correspondent and other banks for
sales of loans for liquidity, credit and interest rate risk management.
Additionally, the Bank has federal funds lines with correspondent banks and may
borrow from the Federal Reserve Bank.

The Bank is a member of the Federal Home Loan Bank of Indianapolis, which
provides an additional source of liquidity and long-term funds to meet the
borrowing needs of customers. Advances from the Federal Home Loan Bank are
secured through the pledge of investment securities or mortgage loans. Federal
Home Loan Bank borrowings totaled $30 million at December 31, 1999 and $17
million at December 31, 1998. Management believes that with the combination of
federal funds lines, borrowings from the Federal Reserve Bank and the Federal
Home Loan Bank, the Bank has more than adequate resources available to meet
liquidity needs and to provide for growth.


Item 7A - Quantitative and Qualitative Disclosures about Market Risk

The Corporation's primary market risk exposure is interest rate risk and to a
lesser extent liquidity risk. See Interest Rate Sensitivity and Liquidity, on
page 20. Business is transacted in U.S. dollars with no foreign exchange rate
risk or any exposure to changes in commodity prices. There have been no
financial instruments obtained for trading purposes.

The following table provides information about the Corporation's financial
instruments that are sensitive to changes in interest rates as of December 31,
1999 and 1998. For loans, securities and liabilities with contractual
maturities, the table presents principal cash flows and related weighted-average
interest rates, adjusting the instrument's contractual maturity date for
estimated prepayments. Similarly, expected maturity date values and related
weighted-average interest rates for non-maturity core deposits were calculated
based upon estimates of the period over which the deposits would be outstanding.
Fair value for loans is presented on a gross basis, not net of allowance for
loan losses. The Corporation has no derivative financial instruments or trading
portfolio at December 31, 1999 or 1998.


<PAGE>   24



<TABLE>
<CAPTION>
             Expected Maturity Date - Year Ended December 31
                                                                     December 31,
                                                                 1999            1998
                                                              -------------   -------------
(dollars in                                          There-            Fair            Fair
   millions)        2000   2001   2002   2003   2004  after   Total   Value   Total   Value
-------------------------------------------------------------------------------------------
<S>                <C>    <C>    <C>    <C>    <C>    <C>    <C>     <C>     <C>     <C>
Assets
Fixed rate loans   $85.8  $60.8  $45.8  $37.9  $ 1.0  $ 2.0  $233.3  $231.7  $196.8  $200.3
 Avg interest rate   8.5%   8.6%   8.9%   8.7%   8.5%   8.3%    8.6%     --     8.7%     --

Variable rate loans$49.4  $31.7  $19.3  $ 8.8  $ 5.7  $18.3  $133.2  $134.8  $122.8  $123.3
 Avg interest rate   8.7%   9.2%   9.2%   9.2%   9.0%   9.2%    9.0%     --     8.7%     --
Fixed rate
 debt securities   $29.0  $25.2  $19.3  $12.0  $ 3.1  $ 6.9  $ 95.5  $ 95.5  $115.0  $115.0
  Avg interest rate  6.1%   5.9%   6.2%   6.1%   6.2%   6.9%    6.2%     --     5.9%     --

Variable rate
 debt securities   $  .2  $  .2  $  .6  $  .1  $  .1  $ 1.4  $  2.6  $  2.6  $  2.8  $  2.8
 Avg interest rate   6.2%   6.2%   6.6%   6.1%   6.1%   6.5%    6.4%     --     6.2%     --

Equity securities     --     --     --     --     --  $ 2.7  $  2.7  $  2.7  $  2.6  $  2.6


Liabilities
Non-interest-bearing
 checking          $30.7  $10.9  $10.8  $ 6.7  $ 6.7  $ 1.1  $ 66.9  $ 66.9  $ 61.2  $ 61.2
 Avg interest rate    --     --     --     --     --     --     0.0%     --     0.0%     --

Savings & interest-bearing
 checking          $57.5  $52.1  $52.0  $ 7.8  $ 7.8  $15.5  $192.7  $192.7  $192.5  $192.5
 Avg interest rate   3.4%   3.4%   3.4%   3.4%   3.4%   3.4%   3.4%      --     3.2%     --

Time deposits      $85.8  $27.0  $22.8  $ 8.9  $11.9  $ 2.4  $158.8  $159.5  $156.4  $159.9
 Avg interest rate   5.5%   5.6%   6.0%   5.5%   6.2%   6.1%    5.7%     --     5.7%     --

Fixed rate
 borrowings        $ 9.0  $ 4.0  $ 4.0  $10.0  $  3.0    --  $ 30.0  $ 29.5  $ 17.0  $ 17.4
 Avg interest rate   5.7%   6.6%   6.7%   5.8%    6.0%   --     6.0%     --     6.0%     --

-------------------------------------------------------------------------------------------
</TABLE>




<PAGE>   25




The table below shows the rate sensitivity of earning assets and interest
bearing liabilities as of December 31, 1999. Loans and investments are
categorized using their scheduled payment dates, where applicable. Savings,
interest checking and money market deposit accounts are considered to be
immediately capable of repricing. All other liabilities are reported by their
scheduled maturities, and no adjustments for possible prepayments are included
in the table.

Interest Sensitivity Summary

<TABLE>
<CAPTION>

(dollars                            0-90       91-365         1-5      Over 5
  in millions)                      Days         Days       Years       Years       Total
-----------------------------------------------------------------------------------------
<S>                              <C>          <C>          <C>         <C>         <C>
Loans                            $  89.5      $  55.1      $193.0      $ 28.9      $366.5
Securities and fed funds sold        9.5         17.6        54.6        22.4       104.1
                                 -------      -------      ------      ------      ------
   Total earning assets             99.0         72.7       247.6        51.3       470.6

Savings and interest checking       77.7          --          --          --         77.7
Money market deposits              115.0          --          --          --        115.0
Time deposits                       34.6         51.2        70.6         2.4       158.8
FHLB advances and fed funds
  purchased                         12.0          --         21.0         --         33.0
                                 -------      -------      ------      ------      ------
   Total interest-bearing
     liabilities                   239.3         51.2        91.6         2.4       384.5
                                 -------      -------      ------      ------      ------
Net funding gap                  $(140.3)     $  21.5      $156.0      $ 48.9      $ 86.1
                                 =======      =======      ======      ======      ======

Cumulative gap                   $(140.3)     $(118.8)     $ 37.2      $ 86.1
Cumulative gap ratio                 .41          .59        1.10        1.22
Cumulative gap as a
  percent of total assets          -27.7%       -23.5%        7.4%       17.0%
-----------------------------------------------------------------------------------------

</TABLE>


<PAGE>   26




Other Matters

Year 2000
During 1999, the Corporation completed its comprehensive Year 2000 (Y2K) plan in
preparing for the Year 2000 date change. The plan involved identifying and
providing a remedy for date recognition problems that might pertain to any facet
of the Corporation's business. These included potential problems in computer
hardware and software, physical plant and other equipment, working with third
parties to address their Year 2000 issues, assessing major loan and deposit
customers for potential risk and developing contingency plans to address
potential risks in the event of Year 2000 failures. To date, the Corporation has
experienced no disruption in service of any type in the transition to 2000.

There was no material effect for the Corporation on financial performance in
preparing for the Year 2000 transition. Some minor hardware replacements were
needed and those expenditures were less than $50,000. The Corporation utilized
existing staff and resources for testing and implementation of its Year 2000
plan with no additional material financial impact.

Although considered unlikely, unanticipated problems in the Corporation's core
business process, including problems associated with non-compliant third parties
and disruptions to the economy in general, could still occur despite efforts to
date to remedy affected systems and develop contingency plans. All business
processes will continue to be monitored, including interaction with the
Corporation's customers, vendors and other third parties, throughout 2000 to
address any issues and ensure all processes continue to function properly.

Impact of Inflation and Changing Prices
The Consolidated Financial Statements presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time due to inflation. The primary impact of inflation is reflected in the
increased cost of the Corporation's operations. Unlike most industrial
companies, virtually all the assets and liabilities of the Corporation are
monetary in nature. As a result, interest rates generally have a more
significant impact on a financial institution's performance than do the effects
of general levels of inflation. Interest rates do not necessarily move in the
same direction, or to the same extent, as the prices of goods and services.

Forward-Looking Statements
Certain statements contained in this annual report to shareholders constitute
"forward looking statements" as prescribed by regulation. Uncertainties and
other factors may cause actual results to differ materially from those expressed
or implied by such forward looking statements. Forward-looking statements in
this annual report are based on current expectations and/or the assumptions made
in the earnings simulation analyses, but numerous factors could cause variances
in these projections, and their underlying assumptions, such as changes in
interest rates, demand, the degree of competition and changes in laws,
regulations or policy.


<PAGE>   27



Item 8 - Financial Statements and Supplementary Data
Consolidated Balance Sheets-Empire Banc Corporation

<TABLE>
<CAPTION>
                                                             December 31
(in thousands, except share data)                          1999       1998
--------------------------------------------------------------------------
<S>                                                    <C>        <C>
Assets
Cash and due from banks                                $ 19,174   $ 15,740
Federal funds sold                                        3,300      5,600
                                                       --------   --------
  Cash and cash equivalents                              22,474     21,340
Securities available for sale                           100,765    120,399
Loans
  Commercial                                            179,080    153,115
  Residential real estate                                80,505     71,259
  Consumer                                              106,916     95,227
                                                       --------    -------
    Total loans                                         366,501    319,601
  Allowance for loan losses                              (5,400)    (4,825)
                                                       --------    -------
    Net loans                                           361,101    314,776
Mortgage loans held for sale                              2,218      6,173
Premises and equipment                                    5,938      5,503
Accrued interest receivable                               3,009      3,021
Other assets                                             10,195      6,752
                                                       --------   --------
    Total assets                                       $505,700   $477,964
                                                       ========   ========
Liabilities
Deposits
  Non-interest-bearing                                 $ 66,896   $ 61,221
  Interest-bearing                                      351,527    348,918
                                                       --------   --------
    Total deposits                                      418,423    410,139

Federal funds purchased                                   3,000        ---
Federal Home Loan Bank advances                          30,000     17,000
Accrued interest payable                                  1,116      1,118
Other liabilities                                         7,275      8,951
                                                       --------   --------
    Total liabilities                                   459,814    437,208

Shareholders' Equity
Preferred stock-$1 par value,
  2,000,000 shares authorized, none outstanding
Common stock-no par value,
5,000,000 shares authorized,
  shares outstanding: 1999-3,166,234; 1998-2,957,398     33,452     30,283
Retained earnings                                        13,251      9,509
Accumulated other comprehensive income (loss)              (817)       964
                                                       --------   --------
    Total shareholders' equity                           45,886     40,756
                                                       --------   --------
    Total liabilities and shareholders' equity         $505,700   $477,964
                                                       ========   ========
--------------------------------------------------------------------------
See accompanying notes.
</TABLE>


<PAGE>   28



Consolidated Statements of Income-Empire Banc Corporation

<TABLE>
<CAPTION>
                                                 Year Ended December 31
(in thousands, except share data)             1999        1998        1997
--------------------------------------------------------------------------
<S>                                       <C>         <C>         <C>
Interest income
  Loans, including fees                    $30,698     $29,240     $27,059
  Securities: taxable                        6,283       6,227       5,728
              tax-exempt                       317         264         256
  Federal funds sold                           721         828         376
                                           -------     -------     -------
    Total interest income                   38,019      36,559      33,419

Interest expense
  Deposits                                  15,394      15,426      14,433
  Federal Home Loan Bank advances
    and other borrowings                     1,047       1,009         756
                                           -------     -------     -------
    Total interest expense                  16,441      16,435      15,189
                                           -------     -------     -------
    Net interest income                     21,578      20,124      18,230
Provision for loan losses                      701       1,215       1,459
                                           -------     -------     -------
    Net interest income after
    provision for loan losses               20,877      18,909      16,771
Non-interest income
  Trust                                      3,169       2,897       2,648
  Net gains from sale of mortgage loans      1,915       2,938       1,227
  Deposit fees                               1,651       1,476       1,428
  Service charges                            1,346       1,115         961
  Loan service fees, net                       377         104         458
  Other income                                  14          86          93
  Security gains (losses)                     (138)        143          (6)
                                           -------     -------     -------
    Total non-interest income                8,334       8,759       6,809

Non-interest expense
  Salaries and employee benefits            10,862      11,609       9,980
  Occupancy                                  1,205       1,097       1,059
  Furniture and equipment                    1,406       1,179         895
  Outside processing and other services        881         857         618
  Legal and professional                       435         324         499
  Business taxes                               518         670         356
  Other expense                              3,057       2,803       2,330
                                           -------     -------     -------
    Total non-interest expense              18,364      18,539      15,737
                                           -------     -------     -------
    Income before federal income taxes      10,847       9,129       7,843
Federal income taxes                         3,582       3,032       2,598
                                           -------     -------     -------
    Net income                             $ 7,265     $ 6,097     $ 5,245
                                           =======     =======     =======
--------------------------------------------------------------------------
</TABLE>


<PAGE>   29




Consolidated Statements of Income-Empire Banc Corporation
(continued)

<TABLE>
<CAPTION>
Year Ended December 31
(in thousands, except per-share data)         1999        1998        1997
--------------------------------------------------------------------------
<S>                                       <C>         <C>         <C>
Basic earnings per share                   $  2.39     $  2.06     $  1.81
Diluted earnings per share                 $  2.29     $  1.93     $  1.68

Basic average shares outstanding             3,038       2,960       2,902
Diluted average shares outstanding           3,167       3,164       3,128
--------------------------------------------------------------------------
See accompanying notes.
</TABLE>


Consolidated Statements of Comprehensive Income
Empire Banc Corporation

<TABLE>
<CAPTION>

                                                     Year Ended December 31
(in thousands)                                    1999        1998        1997
------------------------------------------------------------------------------
<S>                                             <C>         <C>         <C>

Net income                                     $ 7,265      $6,097      $5,245

Other comprehensive income (loss)
  Net unrealized gains (losses) on securities
    available for sale, net of tax              (1,872)        289         175

  Reclassification adjustment for amounts
    realized on sales of securities available
    for sale, included in net income, net of tax    91         (94)          4

  Net unrealized gains on securities
    transferred from the held-to-maturity
    to the available-for-sale category,
    net of tax                                     ---         416          --
                                               -------      ------      ------
      Total other comprehensive income (loss)   (1,781)        611         179
                                               -------      ------      ------
Comprehensive income                           $ 5,484      $6,708      $5,424
                                               =======      ======      ======
------------------------------------------------------------------------------
See accompanying notes.

</TABLE>




<PAGE>   30




Consolidated Statements of Changes in Shareholders' Equity
Empire Banc Corporation

<TABLE>
<CAPTION>
                                                                     Accumulated
                                                                           Other
                                                                         Compre-     Total
                                                                         hensive    Share-
                                                    Common   Retained     Income   holders'
(in thousands, except share data)         Shares     Stock   Earnings      (loss)   Equity
------------------------------------------------------------------------------------------
<S>                                    <C>         <C>        <C>          <C>     <C>
Balance at January 1, 1997             1,746,009   $21,080    $11,419    $   174   $32,673
Net income for 1997                           --        --      5,245         --     5,245
Common stock issued, net of
  redemptions and tax benefits            21,314       504         --         --       504
10% stock dividend                       175,758     7,821     (7,821)        --        --
Directors' deferred compensation plan         --       120         --         --       120
Change in net unrealized gain (loss)
  on securities available for sale,
  net of tax of $92                           --        --         --        179       179
Cash dividends - $.87 per share               --        --     (2,522)        --    (2,522)
                                       ---------   -------    -------    -------    ------
 Balance at December 31, 1997          1,943,081    29,525      6,321        353    36,199

Net income for 1998                           --        --      6,097         --     6,097
Common stock issued, net of
 redemptions and tax benefits             32,726       648         --         --       648
3 for 2 stock split                      981,591        --         --         --        --
Directors deferred compensation plan          --       110         --         --       110
Net unrealized holding gains on
  securities transferred from the held-
  to-maturity to the available-for-sale
  category, net of tax of $215                --        --         --        416       416
Change in net unrealized gain (loss)
  on securities available for sale,
  net of tax of $99                           --        --         --        195       195
Cash dividends - $.98 per share               --        --     (2,909)        --    (2,909)
                                       ---------   -------    -------    -------    ------
  Balance at December 31, 1998         2,957,398    30,283      9,509        964    40,756

Net income for 1999                           --        --      7,265         --     7,265
Common stock issued, net of
  redemptions and tax benefits           208,836     3,032         --         --     3,032
Directors deferred compensation plan          --       137         --         --       137
Change in net unrealized gain (loss)
  on securities available for sale,
  net of tax of $(916)                        --        --        --      (1,781)   (1,781)
Cash dividends - $1.15 per share              --        --    (3,523)         --    (3,523)
                                       ---------   -------   -------     -------   -------
  Balance at December 31, 1999         3,166,234   $33,452   $13,251     $  (817)  $45,886
                                       =========   =======   =======     =======   =======
------------------------------------------------------------------------------------------
See accompanying notes

</TABLE>


<PAGE>   31



Consolidated Statements of Cash Flows-Empire Banc Corporation
<TABLE>
<CAPTION>
                                                         Year Ended December 31
(in thousands)                                         1999        1998       1997
----------------------------------------------------------------------------------
<S>                                                <C>         <C>        <C>
Operating activities
Net income                                         $  7,265     $ 6,097    $ 5,245
Adjustments to reconcile net income to net
  cash from operating activities:
  Depreciation and amortization of premises
    and equipment                                     1,095         926        727
  Provision for loan losses                             701       1,215      1,459
  Mortgage loans originated for sale                (95,919)   (150,999)   (60,650)
  Sale of mortgage loans                            101,789     152,557     62,743
  Net gain on loans held for sale                    (1,915)     (2,938)    (1,227)
  Net (gain)loss on securities available for sale       138        (143)         6
  Net amortization/accretion on securities              519          58        146
  Change in:
    Accrued interest receivable                          12        (347)       (43)
    Accrued interest payable                             (2)        (10)        95
    Other assets                                     (2,201)       (447)    (1,527)
    Other liabilities                                   (16)      1,832      1,804
                                                    -------     -------    -------
    Total adjustments                                 4,201       1,704      3,533
                                                    -------     -------    -------
      Net cash from operating activities             11,466       7,801      8,778

Investing activities
  Securities available for sale
    Proceeds from sales                               5,741         399        992
    Proceeds from maturities, repayments and calls   57,970      31,948     16,876
    Purchases                                       (47,431)    (46,434)   (12,001)
  Securities held to maturity
    Proceeds from maturities, repayments and calls      ---      18,422     15,749
    Purchases                                           ---     (24,970)   (21,673)
  Loans granted, net of repayments                  (47,026)    (22,440)   (32,012)
  Investment in real estate limited partnership        (129)        ---        ---
  Premises and equipment expenditures, net           (1,530)     (1,444)    (1,727)
                                                   --------    --------    -------
      Net cash from investing activities            (32,405)    (44,519)   (33,796)

Financing activities
  Net increase in deposits                            8,284      23,469     42,316
  Change in federal funds purchased                   3,000          --     (5,500)
  Cash dividends paid                                (3,312)     (2,849)    (2,453)
  Federal Home Loan Bank advances                    18,000      10,000         --
  Federal Home Loan Bank repayments                  (5,000)     (5,000)        --
  Issuance of common stock, net                       1,101         205        285
                                                    -------     -------    -------
      Net cash from financing activities             22,073      25,825     34,648
                                                    -------     -------    -------
      Net change in cash and cash equivalents         1,134     (10,893)     9,630

Beginning cash and cash equivalents                  21,340      32,233     22,603
                                                    -------     -------    -------
Ending cash and cash equivalents                    $22,474     $21,340    $32,233
                                                    =======     =======    =======

</TABLE>

<PAGE>   32




Consolidated Statements of Cash Flows-Empire Banc Corporation (continued)
------------------------------------------------------------------------------



<TABLE>
<CAPTION>
(in thousands)
                                                     Year Ended December 31
                                                   1999        1998       1997
------------------------------------------------------------------------------
<S>                                             <C>         <C>        <C>

Interest paid                                   $16,443     $16,445    $15,094
Income taxes paid                                 2,580       2,856      2,584
Transfer of securities held to maturity
 to available for sale                              ---      39,590         --
------------------------------------------------------------------------------
See accompanying notes.

</TABLE>



<PAGE>   33




Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies

Nature of Operations and Principles of Consolidation - Empire Banc Corporation
(the Corporation), a one-bank holding company for Empire National Bank (the
Bank), is the largest independent bank holding company in northern lower
Michigan. The Bank is in the general commercial, retail and mortgage banking
business, providing a full range of loan and deposit products. It operates a
trust department providing fiduciary, investment and other related services. The
Bank has contracted with a full service brokerage firm to offer mutual funds,
annuities and other brokerage products.

The Bank is headquartered in Traverse City, Michigan, which is the retail,
medical and financial hub for Michigan's northern lower peninsula. The Bank's
primary market area is the northwestern portion of Michigan's lower peninsula.

The consolidated financial statements include Empire Banc Corporation and its
wholly owned subsidiary, Empire National Bank. Intercompany transactions are
eliminated.

Segments - Empire Banc Corporation, through the branch network of its
subsidiary, Empire National Bank, provides a broad range of financial services
to individuals and companies in Michigan's northern lower peninsula. These
services include demand, time and savings deposits, lending and trust services.
While the decision makers monitor the revenue streams of the various products
and services, operations are managed and financial performance is evaluated on a
corporate-wide basis. Accordingly, all of the Corporation's banking operations
are considered by management to be aggregated in one reportable operating
segment.

Use of Estimates - To prepare financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided, and future
results could differ. The allowance for loan losses and fair values of financial
instruments are particularly subject to change.

Cash Flows - Cash and cash equivalents include cash on hand, demand deposits in
other institutions and federal funds sold. Net cash flows are reported for loan
and deposit transactions and short-term borrowings with original maturities of
90 days or less.

Securities - Securities available for sale may be sold prior to maturity. They
are reported at fair value and the net unrealized gain or loss is reported, net
of related tax, as a separate component of shareholders' equity and other
comprehensive income or loss. Securities held to maturity are those securities
which management has the ability and positive intent to hold to maturity and are
stated at amortized cost. Premiums and discounts are recognized in interest
income using the interest method. Gains and losses on the sale of securities are
determined using the specific identification method based on amortized cost.

Loans - Loans are reported at the principal balance outstanding net of deferred
loan fees and costs and an allowance for loan losses. Loans held for sale are
reported at the lower of cost or market, on an aggregate basis. Interest income
is reported on the interest method and includes amortization of net deferred
loan fees and costs over the loan term.


<PAGE>   34




Loans are placed on non-accrual status at 90 days or more past due, and Interest
is considered a loss, unless the loan is well-secured and in the process of
collection. Loans delinquent 180 days or more are charged-off unless both
well-secured and in the process of collection.

Allowance for Loan Losses - The allowance for loan losses represents the amount
management estimates is adequate to provide for losses inherent in the loan
portfolio. Management determines the allowance for loan losses by reviewing
selected loans (including large loans, non-accrual loans and problem and
delinquent loans) and establishing specific loss allocations on these loans.
Historical loss information and local economic conditions are considered in
establishing allowances on the remaining loans. The allowance is increased by
provisions charged to expense and reduced by loan losses, net of recoveries.

A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller balance loans of similar nature,
such as residential mortgage, consumer and revolving credit card loans, and on
an individual loan basis for other loans. If a loan is impaired, a portion of
the allowance is allocated so that the loan is reported, net, at the present
value of estimated future cash flows using the loan's existing rate or at the
fair value of collateral if repayment is expected solely from the collateral.

Premises and Equipment - Premises and equipment are depreciated over their
estimated useful lives and are stated at cost less accumulated depreciation.
Depreciation is computed principally using the straight-line method.

Foreclosed Assets - Assets acquired through or in lieu of foreclosure are
initially recorded at fair value when acquired, establishing a new cost basis.
If fair value declines, a valuation allowance is recorded through expense.
Costs after acquisition are expensed.

Servicing Rights - The Bank originates mortgage loans for sale to the secondary
market and sells the loans with servicing rights retained. Servicing rights are
expensed in proportion to, and over the period of, estimated net servicing
revenues. Impairment is evaluated based on the fair value of the rights by
stratifying them based on predominant risk characteristics of the underlying
serviced loans. These risk characteristics include interest rate, loan type,
term and prepayment characteristics. Any impairment of a grouping is reported as
a valuation allowance.

Income Taxes - Income tax expense is based on the taxes due on the tax return
plus the change in deferred tax assets and liabilities. Deferred tax assets and
liabilities measure the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.

Earnings Per Share - Basic earnings per share is based on weighted-average
common and contingently issuable shares outstanding. Diluted earnings per share
further assumes the dilutive effect of additional common shares issuable under
stock options. All per-share data is restated for the three-for-two stock split
in 1998 and the 10% stock dividend in 1997.

Long-lived Assets - These assets are reviewed for impairment when events
indicate that the carrying amount may not be recoverable. If impaired, the
assets are recorded at discounted amounts.

<PAGE>   35

Stock-Based Compensation - Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), establishes a
fair-value-based method of accounting for employee stock options, but as
allowed, the Corporation continues measuring compensation cost for such plans
using prior accounting guidelines. If applicable, disclosures of net income and
earnings per share are provided as if the fair value method of SFAS 123 were
used for stock-based compensation. No stock options were granted in 1999, 1998
or 1997 requiring pro forma disclosures of net income and earnings per share
under SFAS 123.

Comprehensive Income - Comprehensive income consists of net income and other
comprehensive income or loss. Other comprehensive income or loss includes net
unrealized gains and losses on securities available for sale, net of tax, which
are also recognized as separate components of shareholders' equity.

New Accounting Pronouncement - Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133),
requires all derivatives to be recorded at fair value. Unless designated as
hedges, changes in these fair values will be recorded in the income statement.
Fair value changes involving hedges will generally be recorded by offsetting
gains and losses on the hedge and on the hedged item, even if the fair value of
the hedged item is not otherwise recorded. As of October 1, 1998, the
Corporation adopted this statement and, in accordance with its provisions, chose
to reclassify certain securities from held-to- maturity to available-for-sale.
The amortized cost of those securities was $39,590,000. The Corporation does not
have derivative instruments in its portfolio to account for under provisions of
this statement.

Loss Contingencies - Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.

Fair Values of Financial Instruments - Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate note. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.

Reclassifications - Certain prior-year amounts have been reclassified to conform
with the current year's presentation.


Note 2 - Cash Reserve Requirements
Federal regulations require the Bank to set aside specified amounts of cash as
reserves against transaction and time deposits. These reserves may be held as
vault cash or in a non-interest-bearing account with the Federal Reserve. The
Bank's required reserve balances at December 31, 1999 and 1998 were $731,000 and
$617,000.



<PAGE>   36
Note 3 - Securities Available for Sale
Securities available for sale and their fair values at December 31 were as
follows:

<TABLE>
<CAPTION>

Available for sale
                                    Amortized       Unrealized          Fair
(in thousands)                           Cost     Gains    Losses      Value
----------------------------------------------------------------------------
<S>                                <C>          <C>      <C>        <C>
1999
  U.S. government and agency         $ 41,340   $   16   $  (384)   $ 40,972
  State and municipal                  17,692        2      (314)     17.380
  Mortgage-backed                      21,983       13      (529)     21,467
  Other                                18,491       --      (228)     18,263
  Equity                                2,496      187        --       2,683
                                     --------   ------   -------    --------
                                     $102,002   $  218   $(1,455)   $100,765
                                     ========   ======   =======    ========

1998
  U.S. government and agency         $ 54,851   $  679   $    (6)   $ 55,524
  State and municipal                  13,317      275        (3)     13,589
  Mortgage-backed                      24,204      202       (40)     24,366
  Other                                24,243      139       (15)     24,367
  Equity                                2,324      229        --       2,553
                                     --------   ------   -------    --------
                                     $118,939   $1,524   $   (64)   $120,399
                                     ========   ======   =======    ========
</TABLE>

<TABLE>
<CAPTION>
Sales of securities available for sale:

(in thousands)                         1999         1998         1997
---------------------------------------------------------------------
<S>                                  <C>            <C>          <C>
Proceeds from sales                  $5,741         $399         $992
Realized gains                           --          143           --
Realized losses                         138           --            6
---------------------------------------------------------------------
</TABLE>

<PAGE>   37

Scheduled maturities of securities available for sale at December 31, 1999 were
as follows:

<TABLE>
<CAPTION>
                            Amortized         Fair
(in thousands)                   Cost        Value    Yield
-----------------------------------------------------------
<S>                         <C>           <C>         <C>
Due in one year or less      $ 22,297     $ 22,258     6.05%
Due from one to five years     48,301       47,582     6.10%
Due from five to ten years      6,925        6,775     6.90%
Mortgage-backed                21,983       21,467     6.18%
Equity                          2,496        2,683     7.04%
                             --------     --------
                             $102,002     $100,765     6.18%
                             ========     ========
------------------------------------------------------------
</TABLE>

Investment securities with a book value of $44,526,000 and $16,952,000 at
December 31, 1999 and 1998 were pledged to secure public deposits and Federal
Home Loan Bank advances and for other purposes.






<PAGE>   38

Note 4 - Allowance for loan losses
Activity in the allowance for loan losses was as follows:

<TABLE>
<CAPTION>

(in thousands)                                  1999       1998       1997
--------------------------------------------------------------------------
<S>                                           <C>        <C>        <C>
Balance January 1                             $4,825     $4,125     $3,525

Loans charged off                               (515)      (741)    (1,111)
Recoveries                                       389        226        252
                                              ------     ------     ------
  Net loans charged off                         (126)      (515)      (859)
Provision for loan losses                        701      1,215      1,459
                                              ------     ------     ------
Balance December 31                           $5,400     $4,825     $4,125
                                              ======     ======     ======
--------------------------------------------------------------------------
</TABLE>


Impaired loans

<TABLE>
<CAPTION>

(in thousands)                                   1999       1998       1997
---------------------------------------------------------------------------
<S>                                           <C>        <C>        <C>

Impaired loans with reserves                   $  884     $  360     $  312
Impaired loans without reserves                 1,352        879        562
                                               ------     ------     ------
  Impaired loans outstanding at year-end       $2,236     $1,239     $  874
                                               ======     ======     ======

Amount of allowance allocated
  for impaired loans                          $   140     $  188     $  184
Average of impaired loans during the year       1,959      1,151    $ 1,810
Interest income recognized during impairment      115         33         24
Cash-basis interest income recognized              87         23         17
---------------------------------------------------------------------------
</TABLE>

Foreclosed assets were $307,000 and $221,000 at December 31, 1999 and 1998.

Non-accrual loans outstanding at December 31, 1999 and 1998 were $1,950,000 and
$1,283,000. Substantially all non-accrual loans are considered impaired. If the
non-accrual loans were accruing, additional income of $28,000, $97,000 and
$104,000 would have been recorded in 1999,1998 and 1997.






<PAGE>   39

Note 5 - Secondary Mortgage Market Activities
Loans serviced for others, which are not reported as assets, totaled $329
million and $293 million at December 31, 1999 and 1998.

Activity for capitalized mortgage servicing rights and the related valuation
allowance was as follows:

<TABLE>
<CAPTION>

(in thousands)                              1999       1998       1997
----------------------------------------------------------------------
<S>                                       <C>        <C>        <C>
Servicing Rights
  Balance January 1                       $1,452     $  815     $  537
  Additions                                  740      1,187        434
  Amortization                              (435)      (550)      (156)
                                          ------     ------     ------
  Balance December 31                     $1,757     $1,452     $  815
                                          ======     ======     ======
  Fair value                              $2,558     $1,703     $1,169
                                          ======     ======     ======
Valuation Allowance
  Balance January 1                       $   52     $   --     $   --
  Additions expensed                          --         52         --
  Reductions credited to expense              --         --         --
                                          ------     ------     ------
  Balance December 31                     $   52     $   52     $   --
                                          ======     ======     ======
----------------------------------------------------------------------
</TABLE>

Note 6 - Premises and Equipment Premises and equipment at December 31:

<TABLE>
<CAPTION>
(in thousands)                                             1999       1998
--------------------------------------------------------------------------
<S>                                                     <C>        <C>
Land and improvements                                   $   705    $   694
Buildings and improvements                                5,834      5,055
Equipment                                                 9,175      8,804
                                                        -------    -------
  Total cost                                             15,714     14,553

Less: accumulated depreciation and amortization          (9,776)    (9,050)
                                                        -------    -------
  Net book value                                        $ 5,938    $ 5,503
                                                        =======    =======
--------------------------------------------------------------------------
</TABLE>
Rental expense for 1999, 1998 and 1997 was $499,000, $460,000 and
$437,000.  Depreciation and amortization for 1999, 1998 and 1997 was
$1,095,000, $926,000 and $727,000.


<PAGE>   40


Note 7- Time Deposits
The aggregate amount of certificates of deposit of $100,000 or more at December
31, 1999 and 1998 was $28,390,000 and $28,485,000.

Following are the scheduled maturities of certificates of deposit at December
31, 1999:

<TABLE>
<CAPTION>
(in thousands)                           1999
---------------------------------------------
<S>                                  <C>
2000                                 $ 85,827
2001                                   27,019
2002                                   22,815
2003                                    8,928
2004                                   11,859
After                                   2,336
                                     --------
                                     $158,784
                                     ========
---------------------------------------------
</TABLE>


Note 8 - Federal Home Loan Bank Advances
Advances from the Federal Home Loan Bank of Indianapolis at December 31 were as
follows:

<TABLE>
<CAPTION>
(in thousands)                                     1999          1998
---------------------------------------------------------------------
<S>                                             <C>           <C>
Fixed rate advances
  6.09% due March 1999                          $    --       $ 3,000
  6.42% due March 2000                            4,000         4,000
  6.63% due April 2001                            4,000            --
  6.71% due April 2002                            4,000            --
  5.76% due January 2003                         10,000        10,000
  5.97% due March 2004                            3,000            --
                                                -------       -------
                                                 25,000        17,000
Variable rate line of credit
  5.13% due March 2000                            5,000            --
                                                -------       -------
                                                $30,000       $17,000
                                                =======       =======
---------------------------------------------------------------------
</TABLE>

Each advance is payable at its maturity date, with a prepayment penalty
determined by market rates at the time of prepayment. Loans of $21,132,000 and
$20,948,000 and securities of $26,056,000 and $5,216,000 were pledged at
December 31, 1999 and 1998 to collateralize these advances.



<PAGE>   41


Note 9 - Federal Income Taxes
Income tax expense (benefit) was as follows:

<TABLE>
<CAPTION>
(in thousands)                       1999         1998         1997
-------------------------------------------------------------------
<S>                                <C>          <C>          <C>
Current expense                    $2,716       $3,383       $3,043
Deferred expense (benefit)            866         (351)        (445)
                                   ------       ------       ------
  Total federal income tax         $3,582       $3,032       $2,598
                                   ======       ======       ======
-------------------------------------------------------------------
</TABLE>

Effective tax rates differ from federal statutory rates applied to financial
statement income due to the following:

<TABLE>
<CAPTION>
(in thousands)                       1999         1998         1997
-------------------------------------------------------------------
<S>                                <C>          <C>          <C>
Statutory rate applied to income
before federal income tax          $3,696       $3,104       $2,667
(Deduct) add:
  Effect of tax-exempt interest      (108)         (95)         (89)
  Other                                (6)          23           20
                                   ------       ------       ------
    Total Federal income tax       $3,582       $3,032       $2,598
                                   ======       ======       ======
Effective tax rate                   33.0%        33.2%        33.1%
                                   ======       ======       ======
-------------------------------------------------------------------
</TABLE>


<PAGE>   42

Year-end deferred tax assets and liabilities were due to the following:

<TABLE>
<CAPTION>

(in thousands)                                    1999        1998
------------------------------------------------------------------
<S>                                             <C>         <C>
Deferred tax assets
  Allowance for loan losses                     $1,432      $1,236
  Deferred compensation                            875       1,866
  Net unrealized depreciation on
    securities available for sale                  420          --
  Other                                            152         122
                                                ------      ------
    Total deferred tax assets                    2,879       3,224
                                                ------      ------
Deferred tax liabilities
  Security accretion                               (52)        (55)
  Cash value of life insurance                     (34)        (34)
  Mortgage servicing                              (580)       (476)
  Net unrealized appreciation on
    securities available for sale                   --        (496)
                                                ------      ------
    Total deferred tax liabilities                (666)     (1,061)
                                                ------      ------
      Net deferred tax asset                    $2,213      $2,163
                                                ======      ======
------------------------------------------------------------------
</TABLE>

A valuation allowance for deferred tax assets is not considered necessary as it
is more likely than not that future taxable income will be sufficient to realize
the tax benefit of these assets.


Note 10 - Employee Benefit Plans

An integrated employee benefit plan structure provides basic retirement income
and the opportunity to build retirement savings through tax-deferred voluntary
contributions and participation in stock ownership of the Corporation. A
description of the individual plan components of this integrated structure
follows.

A defined benefit pension plan covers substantially all full-time employees. The
maximum amount that can be deducted for federal income tax purposes is
contributed annually and employees do not contribute. Plan assets consist of
equity and fixed-income securities. A summary of the plan follows:











<PAGE>   43


<TABLE>
<CAPTION>

(in thousands)                                         1999        1998
-----------------------------------------------------------------------
<S>                                                 <C>          <C>
Change in benefit obligation
  Beginning benefit obligation                      $2,435       $1,760
  Service cost                                         194          138
  Interest cost                                        169          139
  Liability (gain) loss                               (498)         103
  Change in assumptions                                 --          323
  Benefits paid                                        (42)         (28)
                                                    ------       ------
    Ending benefit obligation                        2,258        2,435
                                                    ------       ------
Change in plan assets, at fair value
  Beginning plan assets                              1,653        1,342
  Actual return                                        355          166
  Employer contribution                                 98          173
  Benefits paid                                        (42)         (28)
                                                    ------       ------
    Ending plan assets                               2,064        1,653
                                                    ------       ------

Funded status                                         (194)        (782)
Unrecognized net transition obligation                 216          246
Unrecognized net (gain) loss                          (214)         513
Unrecognized prior service cost                        (12)         (13)
                                                    ------       ------
    Prepaid (accrued) benefit cost                  $ (204)      $  (36)
                                                    ======       ======
-----------------------------------------------------------------------
Discount rate on benefit obligation                   7.50%        6.25%
Long-term rate of investment return                   9.00%        9.00%
Rate of compensation increase                         4.50%        4.50%
------------------------------------------------------------------------
</TABLE>

Pension expense

<TABLE>
<CAPTION>

(in thousands)                              1999         1998       1997
------------------------------------------------------------------------
<S>                                       <C>          <C>        <C>
Service cost                              $  194       $  138     $  107
Interest cost                                169          139        112
Expected return on plan assets              (151)        (125)      (182)
Net amortization and deferral                 55           31        116
                                          ------       ------     ------
  Net pension expense                     $  267       $  183     $  153
                                          ======       ======     ======
------------------------------------------------------------------------
</TABLE>



<PAGE>   44

A supplemental retirement program for certain executive officers provides
benefits which are integrated with the other benefit plans. A summary of the
plan follows:

<TABLE>
<CAPTION>

(in thousands)                                        1999         1998
-----------------------------------------------------------------------
<S>                                                  <C>          <C>
Change in benefit obligation
  Beginning benefit obligation                     $ 1,245      $   898
  Service cost                                          89           75
  Interest cost                                        106           71
  Liability (gain) loss                                 79           35
  Change in assumptions                                 79          166
                                                   -------      -------
    Ending benefit obligation                        1,598        1,245
                                                   -------      -------

Funded status                                       (1,598)      (1,245)
Unrecognized net transition obligation                 101          113
Unrecognized net actuarial loss                        326          293
Unrecognized prior service cost                         91           22
                                                   -------      -------
    Prepaid (accrued) benefit cost                 $(1,080)     $  (817)
                                                   =======      =======
-----------------------------------------------------------------------
Discount rate on benefit obligation                   7.50%        6.25%
Rate of compensation increase                         4.50%        5.00%
-----------------------------------------------------------------------
</TABLE>


Supplemental retirement plan expense

<TABLE>
<CAPTION>

(in thousands)                         1999        1998       1997
------------------------------------------------------------------
<S>                                    <C>         <C>        <C>
Service cost                           $ 89        $ 75       $ 60
Interest cost                           106          71         54
Net amortization and deferral            68          18         14
                                       ----        ----       ----
  Net supplemental retirement
    plan expense                       $263        $164       $128
                                       ====        ====       ====
------------------------------------------------------------------
</TABLE>








<PAGE>   45


A 401 (k) profit sharing plan covers substantially all full-time employees.
Participants may defer up to 12.5% of their salaries and the Bank may match 50%
of the employee's deferrals to a maximum of 3%. Contributions and expense for
1999, 1998 and 1997 were $181,000, $163,000 and $141,000.

An Employee Stock Ownership Plan (ESOP) covers substantially all full-time
employees. At December 31, 1999 and 1998 the plan held 366,059 and 381,594
shares of stock with a fair market value of $10,250,000 and $15,073,000. All
shares are allocated to and voted by employees. ESOP participants are entitled
to receive distributions from their ESOP accounts only upon termination of
service. The annual contribution to the ESOP is determined by the board of
directors. Contributions and expense for 1999, 1998, and 1997 were $199,000,
$182,000 and $163,000.

Agreements granting death benefits funded with life insurance are provided to
certain officers while employed. The financial statement impact of these
arrangements is not material.



Note 11 - Long-Term Incentive Plan

A long-term incentive plan grants certain officers stock options and tandem
stock appreciation rights. All options and rights under the plan have been
granted and all outstanding options and rights at December 31, 1999, 1998 and
1997 were exercisable. During 1999 the majority of options and all the
outstanding rights were exercised. As of December 31, 1999 the outstanding
options are vested, have a weighted average exercise price of $9.97, a range of
exercise price of $9.34 - $10.60 and a weighted average remaining option life of
3.0 years. The expense for the stock appreciation rights for 1999, 1998 and 1997
was ($802,000), $1,124,000 and $1,129,000. A summary of the activity in the
plan, restated for all stock dividends and splits, is as follows:

<TABLE>
<CAPTION>
                                                         Weighted
                                                          Average
                                                         Exercise
                              Options        Rights         Price
-----------------------------------------------------------------
<S>                           <C>           <C>          <C>
Outstanding - 12/31/96        312,056       144,119         $6.42
Exercised                     (28,462)      (14,230)         4.61
                              -------       -------
Outstanding - 12/31/97        283,594       129,889          6.60
Exercised                     (42,778)      (21,388)         4.80
                              -------       -------
Outstanding - 12/31/98        240,816       108,501          6.90
Exercised                    (216,996)     (108,501)         6.56
                              -------       -------
Outstanding - 12/31/99         23,820             0          9.97
                              =======       =======
-----------------------------------------------------------------
</TABLE>


<PAGE>   46


Note 12 - Related Party Transactions

Certain directors and executive officers of the Corporation and the Bank
(including family members, affiliates and companies in which they are principal
owners) had loans with the Bank in the ordinary course of business. The
aggregate amount of loan advances to such related parties at December 31, 1999
and 1998 amounted to $2,716,000 and $2,574,000. During 1999, new loan advances
to such related parties amounted to $2,893,000 and repayments amounted to
$2,751,000.


Note 13 - Off-Balance-Sheet Financial Instruments and Contingencies

The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to make loans and unused lines of
credit. The exposure to credit loss is the contractual amount of these
instruments, assuming the amounts are fully advanced and collateral or other
security is of no value. Collateral for loans and letters of credit is usually
in the form of cash, inventory, securities or other real and personal property.
The Bank's policy is to require suitable collateral prior to the disbursement of
funds. The following is a summary of commitments as of December 31:

<TABLE>
<CAPTION>
(in thousands)                                             1999     1998
------------------------------------------------------------------------
<S>                                                     <C>      <C>
Commitments to make loans                               $38,152  $49,223
Unused lines of credit                                   92,269   71,693
Standby letters of credit                                   761    1,448
------------------------------------------------------------------------
</TABLE>

At December 31, 1999 and 1998, commitments to make loans included $9.0 million
and $12.8 million of fixed and variable rate commercial loans. These commitments
generally have termination dates of 90 days or less and may require a fee.
Commitments to make loans also include commitments for primarily fixed rate
mortgage loans of $24 million and $34 million at December 31, 1999 and 1998,
which are intended for sale in the secondary market upon closing. Other
commitments include variable rate mortgage loans of $5.2 million and $2.4
million at December 31, 1999 and 1998. Fixed rate loan commitments have interest
rates ranging from 6.875% to 9.25% and terms ranging from 6 months to 30 years.

The Corporation has entered into employment agreements with certain officers.
Under the terms of these agreements, certain events leading to separation from
the Corporation could result in cash payments to these officers.








<PAGE>   47

Note 14 - Shareholder Rights Plan

The Shareholder Rights Plan is designed to protect shareholders against
unsolicited attempts to acquire control of the Corporation without offering a
fair price to all shareholders. Five hundred thousand shares of Series A Junior
Participating Preferred Stock are reserved for purchase rights issued to holders
of and in tandem with shares of common stock.

Generally, if a person or group acquires or announces a tender offer for 20
percent or more of the Corporation's common stock and the acquiror engages in
certain business transactions, each right, other than those held by the
acquiror, entitles the holder to acquire common stock or other securities with a
market value of twice the $50 per right exercise price.

The Corporation may redeem the rights at one cent per right until 20 days after
a 20% position has been acquired.



Note 15 - Fair Value Disclosure

Fair values of financial instruments are estimated as follows:

Short-term financial instruments: The carrying value is a reasonable estimate of
fair value for cash and cash equivalents, federal funds purchased and accrued
interest.

Securities available for sale: Fair values are based on quoted market prices.

Loans: Fair value for certain homogeneous categories of loans, such as some
residential mortgages, is estimated using quoted market prices for similar
loans, adjusted for differences in loan characteristics. The fair values of
other types of loans are estimated by discounting future cash flows, including
estimates of prepayments, using current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same maturities. The
allowance for loan losses is considered to be a reasonable estimate of discount
for credit quality concerns.

Deposits: The fair value of demand deposits, savings accounts and certain money
market deposits is the amount payable on demand. The fair value of
fixed-maturity certificates of deposit is estimated using rates currently
offered for deposits of similar maturities.

Federal Home Loan Bank advances: Fair values are estimated using discounted cash
flow based on current borrowing rates for similar arrangements.

Off-balance-sheet instruments: Fair values for off-balance-sheet lending
commitments are based on fees currently charged for similar agreements,
considering the terms of the agreements and credit standing.







<PAGE>   48



Estimated fair values of financial instruments at December 31 were:
<TABLE>
<CAPTION>
                                         1999                  1998
                                  ------------------   ------------------
                                  Carrying      Fair   Carrying      Fair
(in thousands)                      Amount     Value     Amount     Value
-------------------------------------------------------------------------
<S>                               <C>       <C>        <C>       <C>
Financial assets
  Cash and cash equivalents       $ 22,474  $ 22,474   $ 21,340  $ 21,340
  Securities available for sale    100,765   100,765    120,399   120,399
  Loans held for sale                2,218     2,235      6,173     6,229
  Loans, net of allowance          361,101   361,097    314,776   318,761
  Accrued interest receivable        3,009     3,009      3,021     3,021

Financial liabilities
  Deposits                         418,423   419,064    410,139   413,565
  Federal funds purchased            3,000     3,000         --        --
  Federal Home Loan Bank advances   30,000    29,530     17,000    17,388
  Accrued interest payable           1,116     1,116      1,118     1,118
-------------------------------------------------------------------------
</TABLE>
The fair value of off-balance-sheet instruments at December 31, 1999 and 1998 is
not material.

































<PAGE>   49


Note 16 - Regulatory Capital Requirements
The Corporation and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. The regulations
require meeting specific capital adequacy guidelines that involve quantitative
measures of assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by regulators. To be
considered adequately capitalized (as defined) under the regulatory framework
for prompt corrective action, minimum capital ratios must be maintained. Failure
to meet minimum capital requirements can initiate regulatory action that could
have a direct material effect on the financial statements. Capital ratios for
the Bank are consistent with the Corporation's capital ratios. The Bank's and
Corporation's capital ratios are significantly above the well-capitalized
standards. The following summarizes the consolidated Corporation's year-end
capital amounts and ratios:

<TABLE>
<CAPTION>
(in thousands)                                     1999         1998
--------------------------------------------------------------------
<S>                                            <C>          <C>
Tier 1 capital
  Shareholders' equity                         $ 45,886     $ 40,756
  Less: Goodwill                                   (277)        (317)
  Net unrealized (gains) losses                     817         (964)
                                               --------     --------
    Total tier 1 capital                         46,426       39,475
Tier 2 capital                                    5,137        4,449
                                               --------     --------
    Total qualifying capital                   $ 51,563     $ 43,924
                                               ========     ========

Risk-weighted assets                           $410,724     $355,566
Quarterly average assets                        504,843      479,524
--------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                            Regulatory Capital Standards
                         ---------------------------------
                                          Well Capitalized
                                              Under Prompt
                           Adequately    Corrective Action
                          Capitalized           Provisions             Actual
                        -------------    -----------------      -------------
                        Amount  Ratio        Amount  Ratio      Amount  Ratio
                        ------  -----        ------  -----      ------  -----
<S>                    <C>      <C>         <C>      <C>        <C>     <C>
1999
  Tier 1 leverage      $20,194    4.0%      $25,242    5.0%    $46,426   9.20%
  Tier 1 risk-based     16,429    4.0%       24,643    6.0%     46,426  11.30%
  Total risk-based      32,858    8.0%       41,072   10.0%     51,563  12.55%

1998
  Tier 1 leverage      $19,181    4.0%      $23,976    5.0%    $39,475   8.23%
  Tier 1 risk-based     14,223    4.0%       21,334    6.0%     39,475  11.10%
  Total risk-based      28,445    8.0%       35,557   10.0%     43,924  12.35%
</TABLE>


<PAGE>   50

Note 17 - Earnings Per Share

A calculation of basic earnings per share and diluted earnings per share is
presented below:

<TABLE>
<CAPTION>
                                               1999        1998        1997
---------------------------------------------------------------------------
<S>                                       <C>         <C>         <C>
Net income (in thousands)                    $7,265      $6,097      $5,245
                                             ======      ======      ======

Basic earnings per share:
  Average common shares outstanding       3,024,661   2,950,761   2,895,658
  Average contingently issuable shares       12,950       9,569       6,133
                                          ---------   ---------   ---------
                                          3,037,611   2,960,330   2,901,791
                                          =========   =========   =========
  Basic earnings per share                    $2.39       $2.06       $1.81
                                              =====       =====       =====

Diluted Earnings per share:
  Average outstanding shares, per above   3,037,611   2,960,330   2,901,791
  Effect of stock options                   129,356     203,752     225,895
                                          ---------   ---------   ---------
                                          3,166,967   3,164,082   3,127,686
                                          =========   =========   =========
  Diluted earnings per share                  $2.29       $1.93       $1.68
                                              =====       =====       =====
---------------------------------------------------------------------------
</TABLE>



<PAGE>   51

Note 18 - Empire Banc Corporation
(Parent Company Only)
Condensed Financial Statements

The Corporation's primary source of funds to pay dividends to shareholders is
the dividends it receives from the Bank. The Bank is subject to certain
restrictions on the amount of dividends that it may declare without prior
regulatory approval. At December 31, 1999, $7,251,000 of the Bank's retained
earnings were available for dividend declaration without prior regulatory
approval.

Following are condensed parent company financial statements:

<TABLE>
<CAPTION>

Condensed Balance Sheets
                                                    December 31
(in thousands)                                    1999       1998
-----------------------------------------------------------------
<S>                                            <C>        <C>
Assets
  Cash and due from banks                      $ 3,633    $ 1,533
  Investment in subsidiary                      40,685     38,504
  Other assets                                   2,289      1,289
                                               -------    -------
    Total assets                               $46,607    $41,326
                                               =======    =======
Liabilities and shareholders' equity
  Other liabilities                            $   721    $   570
  Shareholders' equity                          45,886     40,756
                                               -------    -------
    Total liabilities and
      shareholders' equity                     $46,607    $41,326
                                               =======    =======
</TABLE>

Condensed Statements of Income
<TABLE>
<CAPTION>
                                        Year Ended December 31
(in thousands)                        1999        1998       1997
------------------------------------------------------------------
<S>                                 <C>         <C>        <C>
Cash dividends from subsidiary      $ 3,450      $2,905     $2,525
Net expense                            (223)       (147)       (91)
Federal income tax benefit               76          50         31
Equity in undistributed
  subsidiary income                   3,962       3,289      2,780
                                    -------      ------     ------
    Net income                        7,265       6,097      5,245
Change in net unrealized gains/
  losses on securities held by
  the Bank, net of tax               (1,781)        611        179
                                    -------      ------     ------
    Comprehensive income            $ 5,484      $6,708     $5,424
                                    =======      ======     ======
</TABLE>

<PAGE>   52

<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
                                                 Year Ended December 31
(in thousands)                                1999        1998        1997
--------------------------------------------------------------------------
<S>                                        <C>         <C>         <C>
Cash flow from operating activities
Net income                                 $ 7,265     $ 6,097     $ 5,245
Adjustments
  Other                                      1,008         (25)         (8)
  Subsidiary net income                     (7,412)     (6,194)     (5,305)
                                            ------      ------      ------
    Net cash from operating activities         861        (122)        (68)

Cash flow from investing activities
  Subsidiary cash dividends received         3,450       2,905       2,525

Cash flow from financing activities
  Cash dividends paid                       (3,312)     (2,849)     (2,453)
  Issuance of common stock                   1,101         205         285
                                           -------     -------     -------
    Net cash from financing activities      (2,211)     (2,644)     (2,168)

    Net change in cash and due from banks    2,100         139         289

Beginning cash and due from banks            1,533       1,394       1,105
                                           -------     -------     -------
Ending cash and due from banks             $ 3,633     $ 1,533     $ 1,394
                                           =======     =======     =======
--------------------------------------------------------------------------
</TABLE>


Note 19 - Subsequent Event - Merger Agreement

On February 7, 2000 Empire Banc Corporation and Huntington Bancshares
Incorporated (Huntington) jointly announced they have signed a definitive
agreement for Huntington to acquire the Corporation. The Corporation's
shareholders will receive 2.0355 Huntington shares for each share of Corporation
stock in a tax-free exchange. This is equivalent to approximately $43.25 per
share based on Huntington's closing stock price on February 4, The acquisition
will be accounted for as a purchase, is subject to normal regulatory and
shareholder approvals, and is expected to close early in the third quarter of
2000. Huntington plans to issue approximately 6.5 million shares in connection
with the transaction, which are to be purchased on the open market. Huntington
is a regional bank holding company headquartered in Columbus, Ohio with assets
of $29 billion.



<PAGE>   53

Report of Independent Auditors


CROWE CHIZEK



To the Shareholders and Board of Directors
Empire Banc Corporation, Traverse City, Michigan


We have audited the accompanying consolidated balance sheets of Empire Banc
Corporation as of December 31, 1999 and 1998 and the related consolidated
statements of income, comprehensive income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Empire Banc
Corporation as of December 31, 1999 and 1998, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999, in conformity with generally accepted accounting principles.






/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP

Grand Rapids, Michigan
January 20, 2000, except for
Note 19, as to which the date is
February 7, 2000.









<PAGE>   54

Quarterly Financial Data
Empire Banc Corporation

The following is a summary of selected quarterly results of operations for the
years ended December 31, 1999 and 1998:

<TABLE>
<CAPTION>

(in thousands,                                    Quarter Ended
 except share data)           December 31  September 30      June 30     March 31
---------------------------------------------------------------------------------
<S>                           <C>          <C>               <C>         <C>

1999
Total interest income              $9,759        $9,659       $9,346       $9,255
Net interest income                 5,499         5,484        5,342        5,253
Provision for loan losses             211           104          130          256
Non-interest income                 1,813         2,015        2,118        2,388
Non-interest expense                4,004         4,626        4,756        4,978
Income before federal
  income taxes                      3,097         2,769        2,574        2,407
Net income                          2,091         1,846        1,718        1,610

Basic earnings per share              .68           .61          .57          .53
Diluted earnings per share            .66           .58          .54          .51
---------------------------------------------------------------------------------

1998
Total interest income              $9,681        $9,330       $8,840       $8,708
Net interest income                 5,479         5,086        4,830        4,729
Provision for loan losses             298           552           83          282
Non-interest income                 2,314         2,154        2,197        2,094
Non-interest expense                4,863         4,308        4,818        4,550
Income before federal
    income taxes                    2,632         2,380        2,126        1,991
Net income                          1,760         1,583        1,417        1,337

Earnings per share                    .59           .53          .48          .46
Diluted earnings per share            .56           .50          .45          .42
---------------------------------------------------------------------------------
</TABLE>
Per-share amounts have been adjusted for stock splits and dividends.
<PAGE>   55

Item 9 - Changes in and Disagreements With Accountants on Accounting and
         Financial Disclosure.

         None.


PART III

Item 10.  Directors and Executive Officers of the Registrant

The current directors of the Corporation, except Laurence P. Skendzel,
M.D., Ronald G. Reffitt, Sr., and Deborah J. Knudsen, have been directors of
the Corporation since its formation in 1987.  Mr. Reffitt and Mrs. Knudsen
became directors in 1994.  Dr. Skendzel became a director in 1989.  The
directors of the Corporation are also directors of the Corporation's wholly
owned subsidiary, Empire National Bank (the "Bank"), and have been since the
year shown in the following table:
<TABLE>
<CAPTION>
                                Director      Term
                                 of Bank  Expiring
Name                        Age    Since        In  Principal Occupation
----------------------------------------------------------------------------
<S>                         <C> <C>       <C>       <C>
John R. Anderson             72     1973      2000  Anderson, Gordon and Associates,
                                                    Advertising and Public Relations

Michael H. Dennos            79     1973      2001  Retired, Former Corporate Vice
                                                    President of Sara Lee Corporation

James E. Dutmers, Jr.        56     1976      2001  Chairman and Chief Executive
                                                    Officer, Empire Banc Corporation
                                                    and Empire National Bank

William T. Fitzgerald, Jr.   54     N/A       N/A   Division Vice President, Empire
                                                    National Bank; Vice President,
                                                    Secretary/Treasurer, Empire Banc
                                                    Corporation

Don A. Good, M.D.            61     1984      2000  Physician, Grand Traverse
                                                    Obstetrics and Gynecology, P.C.

Robert L. Israel             56     1976      2002  President and Chief Operating
                                                    Officer, Empire Banc Corporation
                                                    and Empire National Bank

Deborah J. Knudsen           49     1994      2000  President and Chief Executive
                                                    Officer, Traverse City Convention
                                                    and Visitors Bureau

Marilyn J. McCool            53     N/A       N/A   Division Vice President-Human
                                                    Resources, Empire National Bank;
                                                    Vice President, Empire Banc
                                                    Corporation
</TABLE>


<PAGE>   56


<TABLE>
<CAPTION>
                                Director      Term
                                 of Bank  Expiring
Name                        Age    Since        In  Principal Occupation
----------------------------------------------------------------------------
<S>                         <C> <C>       <C>       <C>
Thomas G. McIntyre           52     1981      2001  Chairman, Passageways/Carlson
                                                    Wagonlit Travel

James M. Merenda             55     N/A       N/A   Division Vice President-Trust,
                                                    Empire National Bank; Vice
                                                    President, Empire Banc Corporation

Bruce W. Reavely             51     N/A       N/A   Division Vice President-Sales and
                                                    Service, Empire National Bank; Vice
                                                    President, Empire Banc Corporation

Ronald G. Reffitt, Sr.       62     1994      2001  President, Peninsula Construction
                                                    and Supply, Inc.

John M. Rockwood, Jr.        56     1985      2002  President and Chief Executive
                                                    Officer, Munson HealthCare

Laurence P. Skendzel, M.D.   69     1989      2000  Retired in 1994, formerly
                                                    Physician, Grand Traverse
                                                    Pathology, P.C.

Louis A. Smith               60     1976      2002  Attorney, Smith & Johnson
                                                    Attorneys, P.C.

Daniel G. Stoudt             53     N/A       N/A   Division Vice President,
                                                    Sales and Service, Empire National
                                                    Bank; Vice President, Empire Banc
                                                    Corporation
</TABLE>


Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's
directors and certain officers, and persons who own more than ten percent (10%)
of the Corporation's Common Stock to file with the SEC initial reports of
beneficial ownership and reports of changes of beneficial ownership of Common
Stock. These officers, directors and greater than ten- percent (10%)
shareholders are required by SEC regulation to furnish the Corporation with
copies of these reports.

Based solely on the Corporation's review of such reports the Corporation
believes that all it's executive officers, directors and persons owning more
than ten percent (10%) of the Corporations Common Stock complied with all filing
requirements applicable to them with respect to transactions during the fiscal
year ending December 31, 1999.



<PAGE>   57


Item 11.  Executive Compensation

The information under the captions "Compensation Committee Report On Executive
Compensation" and "Performance Graph" is not incorporated herein.

The following table presents, for the fiscal years shown, the annual, long-term
and other compensation paid to or accrued for the Corporation's Chief Executive
Officer and the next five most highly compensated executive officers of the
Corporation, whose 1999 salary and bonus exceeded $100,000 (the "Named Executive
Officers"):

<TABLE>
<CAPTION>

                            Summary Compensation Table
----------------------------------------------------------------------------
                                     Annual Compensation
                                     -------------------     All Other
Name and Principal Position   Year   Salary $(1)  Bonus $  Compensation $(2)
----------------------------------------------------------------------------
<S>                           <C>    <C>          <C>      <C>
James E. Dutmers, Jr.         1999    249,214     104,238         18,049
Chairman and Chief Executive. 1998    237,154      91,124         17,360
Officer                       1997    229,196      83,489         16,964

Robert L. Israel              1999    221,265      92,178         15,656
President and Chief Operating 1998    210,059      80,581         15,047
Officer                       1997    202,671      73,830         14,697

William T. Fitzgerald, Jr.    1999    125,000      40,415          8,891
Vice President and            1998    115,615      34,406          8,346
Secretary/Treasurer           1997    109,885      30,847          8,005


James M. Merenda              1999    125,000      40,415          8,978
Vice President                1998    115,615      34,406          8,434
                              1997    109,885      30,847          8,091

Bruce W. Reavely              1999    125,000      40,415          8,702
Vice President                1998    115,615      34,406          8,157
                              1997    109,885      30,847          7,815

Daniel G. Stoudt              1999    125,000      40,415          8,670
Vice President                1998    115,615      34,406          8,126
                              1997    105,808      29,703          7,783
</TABLE>

(1)  Includes director fees for Mr. Dutmers of $7,650, $7,500 and $6,600 for
     1999, 1998 and 1997, respectively, and for Mr. Israel $7,650, $6,975 and
     $6,600 for 1999, 1998, and 1997, respectively, (see "Director
     Compensation").


<PAGE>   58


(2)  The amounts shown for 1999 include the following: (i) combined matching and
     other employer contributions made for the account of the named person by
     the Bank to its Savings and Investment Retirement Plan ("Savings Plan"), a
     401(k) plan for all employees, and to the Bank's Supplemental Executive
     Retirement Plan (the "Supplemental Plan"); (ii) combined contributions made
     by the Bank to its Employee Stock Ownership Plan ("ESOP") for all employees
     and to the Supplemental Plan for the account of the account of the named
     person; and (iii) term life insurance premiums paid on behalf of the named
     person, as follows:

<TABLE>
<CAPTION>

Name                      Savings Plan $      ESOP $     Term Life $
--------------------------------------------------------------------
<S>                       <C>                 <C>        <C>
James E. Dutmers, Jr.              7,234       7,234           3,581
Robert L. Israel                   6,397       6,397           2,862
William T. Fitzgerald, Jr.         3,740       3,740           1,411
James M. Merenda                   3,740       3,740           1,498
Bruce W. Reavely                   3,740       3,740           1,222
Daniel G. Stoudt                   3,740       3,740           1,190
</TABLE>

The following table presents information about stock options and stock
appreciation rights ("SARs") exercised during 1999 and held by the Named
Executive Officers at December 31, 1999.

<TABLE>
<CAPTION>
                 Aggregated Option/SAR Exercises in Last Fiscal Year
                        And FY-End Option/SAR Values

                                                    Number of
                                                    Securities
                                                    Underlying
                           Number of                Unexercised
                            Shares                 Options/SARS at   Value of
                          Underlying               Fiscal Year End  Unexercised
                        Options/SARs     Value    (#) Exercisable/  In-the-Money
Name                     Exercised(#)  Realized(1)  Unexercisable     Options
----                    -------------  ----------  --------------    -----------
<S>                     <C>            <C>         <C>              <C>
James E. Dutmers, Jr.        55,605    $1,341,781         0/0              0

Robert L. Israel             70,266     1,841,196         0/0              0

William T. Fitzgerald, Jr.  .52,824     1,424,196         0/0              0

James M. Merenda             52,824     1,424,196         0/0              0

Bruce W. Reavely             52,824     1,424,196         0/0              0

Daniel G. Stoudt             41,162     1,066,325         0/0              0

</TABLE>


<PAGE>   59


(1)  The value realized is based on the difference between the market bid price
     of the shares underlying the options and SARs on the date of exercise and
     the exercise and base price of the option and SARs, respectively.

The Bank has adopted the Empire National Bank Employees Pension Plan (the
"Pension Plan"). The Pension Plan is non-contributory and covers full-time
employees who are age 21 or over and have at least one year of service. The
Pension Plan provides a normal retirement benefit at age 65 dependent upon final
average compensation and years of service. The final average compensation is the
highest average of a participant's base salary for any five (5) years in the
participant" last ten (10) years of employment.

The Bank has also adopted an unfunded, non-qualified Supplemental Executive
Retirement Plan (the Supplemental Plan) under which supplemental pension
benefits are to be paid upon retirement to certain executive officers covered by
the Pension Plan, including the Named Executive Officers. Under the Supplemental
Plan, a target benefit is established as a percentage of a participant's total
compensation (salary plus bonus as shown in the Summary Compensation Table,
above), depending on retirement age and years of service. Among other things,
the Supplemental Plan provides a benefit otherwise denied because of certain
limitations under the Internal Revenue Code on benefits for executive officers
and on their deferrals under the Savings Plan.

<TABLE>
<CAPTION>
                               Pension Plan Table
---------------------------------------------------------------------------
Remuneration      15           20            25          30           35
------------   --------     --------     --------     --------     --------
<S>            <C>          <C>          <C>          <C>          <C>

$100,000       $ 30,000     $ 40,000     $ 50,000     $ 55,000     $ 60,000
 150,000         45,000       60,000       75,000       82,500       90,000
 200,000         60,000       80,000      100,000      110,000      120,000
 250,000         75,000      100,000      125,000      137,500      150,000
 300,000         90,000      120,000      150,000      165,000      180,000
 350,000        105,000      140,000      175,000      192,500      210,000
 400,000        120,000      160,000      200,000      220,000      240,000
 450,000        135,000      180,000      225,000      247,500      270,000
</TABLE>

The years of credited service for the individuals named in the Summary
Compensation Table above are as follows: Mr. Dutmers, 20; Mr. Israel, 24;
Mr. Fitzgerald, 23; Mr. Merenda, 16; Mr. Reavely, 16; and Mr. Stoudt, 23.

The benefits shown in the table above, based at age 65 and on years of credited
service, are combined benefits under the Pension Plan and the Supplemental Plan
on a straight life annuity basis before reduction for social security and the
actuarial equivalent of the participant's account balance, under a profit
sharing plan formerly maintained by the Bank. Actual benefits may be reduced
based on target retirement age benefit levels. Current compensation covered
under the two plans combined for the Named Executive Officers is shown in the
"Salary" and "Bonus" columns of the Summary Compensation Table.



<PAGE>   60

                     Management Continuity Agreements

The Corporation has entered into individual Management Continuity Agreements
with executive officers of the Corporation, including the Named Executive
Officers. Each Management Continuity Agreement provides that in the event of a
change in control of the Corporation, the employment of the officer who is a
party to the Agreement may not be terminated except for cause during the
five-year period following an agreement that will result in the change in
control. During the five-year period, the Corporation may not, without the
officer's agreement, reduce the officer's salary, bonus or benefits, change his
responsibilities, or materially change his principal place of employment. In the
event the officer's employment is terminated by the Corporation or the officer
resigns following one or more of the actions by the Corporation described in the
preceding sentence without his agreement, the officer is entitled to one hundred
thirty three percent (133%) of his regular salary payments and inclusion in
employee benefit plans for the greater of three year following the termination
of employment of the remainder of the five-year period. The Agreements provide
that payments to the officers based on a percentage of regular salary payments
will be reduced by an amount necessary to eliminate certain penalty taxes
otherwise payable by the officer, if such reduction results in greater after tax
payments to the officer. Such reduction will also increase the corresponding
deduction to which the Corporation is entitled. While the amount of any benefits
from the Management Continuity Agreements will be dependent on salary levels and
other factors and events occurring in the future, the current annual salary
levels for the Named Executive Officers covered by the Agreements are as
follows: Mr. Dutmers, $251,227; Mr. Israel, $222,160; Mr. Fitzgerald, $130,000;
Mr. Merenda, $130,000; Mr. Reavely, $130,000; and Mr. Stoudt, $130,000.

The Corporation's purpose for entering into these Agreements with the executive
officers selected is to provide financial security to those officers following a
change in control of the Corporation and to provide an additional current
inducement for them to remain employed by the Corporation. With continuation of
their employment being reasonably assured, these officers may be in a better
position to act, with respect to a possible change in control of the
Corporation, for the benefit of the Corporation and its shareholders without
concern about their own financial security.

In connection with the anticipated merger of the Corporation with and into
Huntington Bancshares Incorporated (the "Merger"), the Corporation, Huntington
Bancshares Incorporated ("Huntington") and each executive officer of the
Corporation have entered into a Lump Sum Payment, Release, and Waiver Agreement
(the "Lump Sum Agreement"). Each Lump Sum Agreement provides that as soon as
practicable following the Merger, the executive officer shall receive a single
payment instead of receiving benefits which would have become payable or the
payment of which would have been accelerated upon a change in control of the
Corporation. The benefits which will be paid pursuant to the Lump Sum Agreement
include, but are not limited to, payments pursuant to the Management Continuity
Agreements, the Corporation's Supplemental Executive Retirement Plan, the
Corporation's Executive Supplemental Income Agreements, the supplemental,
nonqualified portion of the Corporation's Employee Stock Ownership Plan and the
supplemental, nonqualified portion of the Corporation's Savings, Investment and
Retirement Plan. Except for the Lump Sum Agreement among the Corporation,
Huntington and Marilyn McCool, each Lump Sum Agreement provides that payments
under the Lump Sum Agreement will be reduced to the extent necessary to
eliminate certain penalty taxes payable by the executive officer, which will
also increase the amount of payments deductible by

<PAGE>   61

Huntington. The payments to Ms. McCool pursuant to the Lump Sum Agreement may
result in certain penalty taxes becoming payable by Ms. McCool and Huntington
may not be entitled to deductions for a portion of the payments to Ms. McCool.

The Lump Sum Agreements also provide that Huntington shall employ, and the
executive officers shall accept the employment by Huntington during an initial
transition period to commence as of the effective time of the Merger and end on
December 31, 2000 (the "Initial Transition Period"), and Huntington shall pay to
Executive Officers the salary currently enjoyed by the Executive Officer during
the Initial Transition Period. After the Initial Transition Period, the
executive officers shall become employees at will of Huntington on such terms
and conditions as are mutually agreeable between Huntington and the executive
officers. Under no circumstances will severance payments under Huntington's
Transition Pay Plan or any similar plan adopted by Huntington become payable to
the executive officers.


          Compensation Committee Report on Executive Compensation

The Nominating and Compensation committee of the Board of Directors of the
Corporation (the "Committee") is comprised entirely of non-employee directors.
The Committee is responsible for setting and administering the policies which
govern annual compensation and incentive programs. In addition, it reviews all
executive compensation and benefit programs from time to time available to
executive officers of the Corporation and to all employees of the Bank. In this
respect, the Committee makes recommendations to the Board of Directors with
respect to the compensation of the Chief Executive Officer and the President, as
well as reviewing and approving the Chief Executive Officer's and the
President's recommendations for other executive officers of the Corporation.

The annual compensation programs of the Corporation are tied to the
Corporation's performance. The executive compensation program is comprised of
base salaries plus a performance leveraged, short-range and long-range incentive
system, which will pay executive officers more for better performance. In
evaluating its executive officers' performance and determining their
compensation, the Committee evaluates the performance of Empire Banc Corporation
and Empire National Bank, focusing on specific corporate financial performance
goals, as well as comparisons to industry peer groups.

In determining base salaries, including that of the Chief Executive Officer, the
Committee evaluates corporate and executive performance. The Committee reviews a
number of factors, both financial and qualitative. While no single factor by
itself is considered the key to overall corporate performance, ratings are
heavily dependent upon the previous year's achievement of the pre-established
financial objectives. The Committee also assesses the executive officer's
individual performance based on specific strategic objectives and qualitative
factors such as strategic planning, organizational and management development
progress, quality of regulatory examinations by the Office of the Comptroller of
the Currency and the Federal Reserve, and community and civic involvement.
Salaries are also based on a comparison to industry peer salaries.

The short-term incentive or Profit Sharing Incentive Award ("PSIA"), established
in 1984, is a cash bonus program based upon a performance formula approved by
the Board of Directors. All Bank employees and executive officers of the
Corporation, including the Chief Executive Officer, are eligible to
<PAGE>   62


participate in the PSIA program. In establishing the PSIA formula, the Board of
Directors chose performance criteria which should lead to long-term growth in
the stock price of the Corporation. The formula currently requires the
Corporation to exceed all pre-established targets for return on average assets,
return on average equity and an annual increase in profits before any bonus
payments are made. The pre-established minimum target for each performance
criteria was determined based upon peer performance, industry performance, and
desired Corporation performance levels. The Committee has concluded that the
specific targets for performance are confidential business information the
disclosure of which would adversely affect the Corporation. The total amount of
PSIA awards to be granted to all employees and executive officers of the
Corporation is determined by the amount net income exceeds the pre-established
target levels for return on assets, return on average equity and the annual
increase in profits.

The amounts of individual awards granted to all Bank employees and executive
officers of the Corporation, including the Chief Executive Officer, are also
based upon a pre-established formula for allocating the total amount of the PSIA
pool available for awards. This allocation formula is determined by the total
amount of awards to be granted as a percentage of eligible compensation and
relative responsibility and accountability of the employee or executive officer.

The long-term incentive utilized is the Empire Banc Corporation Stock Option
Plan. The Plan encompasses a series of stock options, and tandem stock
appreciation rights granted from 1988 through 1993. Participants include the
chief Executive Officer and all executive officers of the Corporation. The Plan
was approved by the shareholders of the Corporation in 1988 with a limited
amendment approved in 1993. Each option period is for ten (10) years and one (1)
day, and granted options only become vested over a five year period. (No options
or SARs were granted in 1999). The maximum number of shares authorized by the
Plan were previously granted. The number of shares covered by unexercised
options and SARs held by the Named Executive Officers are shown in the table
above titled "Aggregated Options/SAR Exercises in Last Fiscal Year and FY-End
Optional SAR Values." In the opinion of the Committee and the Board of
Directors, the Plan promotes the alignment of management and shareholder
interests and will result in executive officers of the Corporation being
sufficient shareholders to encourage long-term performance and Corporation
growth. The Committee meets without the Chief Executive Officer and President to
evaluate their performance and reports on that evaluation to the Board of
Directors of the Corporation.

With respect to Mr. Dutmers, the Corporation's Chairman and Chief Executive
Officer, the Committee determined his salary and annual cash bonus for 1999
based on the same factors and analyses as considered by the Committee in
determining the compensation of all other executive officers. These factors and
analyses are described above. The Chief Executive Officer's final performance
rating is a composite of all relevant factors. It also reflected the Committee's
positive assessment of Mr. Dutmers' leadership of the Corporation based on the
qualitative factors described above. Mr. Dutmers' cash bonus for 1999 was
determined by the PSIA formula described above and reflected the Corporation's
1999 financial performance, which exceeded the pre-established goals for return
on average assets, return on equity and the increase in annual profits.

       Submitted by the Compensation Committee of the Board of Directors.

Louis A. Smith, Chairman           Don A. Good, M.D        John R. Anderson


<PAGE>   63


                                    Performance Graph

The following line graph compares cumulative, five-year total shareholder return
of the Common Stock, assuming reinvestment of dividends, with the NASDAQ Market
Index (a broad equity market index) and the Media General Industry Group-Midwest
Banks index (a published industry index).

                                EMPIRE BANC CORPORATION
                                STOCK PERFORMANCE CHART


                              [PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
                                  1994    1995    1996    1997    1998    1999
                                ------  ------  ------  ------  ------  ------
<S>                             <C>     <C>     <C>     <C>     <C>     <C>
NASDAQ COMPOSITE                104.99  136.18  169.23  207.00  291.96  490.46
REGIONAL MIDWEST BANKS           99.02  144.12  192.54  328.65  364.62  305.58
EBC                             104.21  150.13  193.09  273.22  361.04  262.96
</TABLE>



<PAGE>   64


                              Director Compensation

Non-management directors of the Bank of the Bank are paid an annual retainer of
$8,000. All directors of the Bank and the non-management directors of the
Corporation are compensated at a rate of $650 per director per meeting attended.
Non-management directors are compensated at a rate of $400 per committee meeting
attended.

Currently, Empire Banc Corporation offers directors the opportunity to defer
receipt and income taxation of meeting fees and retainer fees through the Empire
Banc Corporation Directors' Deferred Compensation Plan (the "Director Plan").

Under the Director Plan, meeting fees may be deferred by crediting the amount
payable to an account (a "Cash Reserve Account") which receives earnings based
on the Corporation's average earning asset rate as reported in the annual report
to shareholders for the immediately preceding year. Also, under the Director
Plan, meeting fees and/or retainer fees may be deferred by crediting an account
(a "Stock Reserve Account") with a number of units equal to 110% of the amount
of retainer fees divided by the market price of the Common Stock on the day when
the fees are paid. Units are also credited to the Stock Reserve Account as
dividends are paid on Common Stock in an amount equal to the dividend rate per
share multiplied by the number of units in the Stock Reserve Account divided by
the market price of the common Stock on the date dividends are paid to
shareholders. Cash Reserve Account balances are paid in cash and Stock Reserve
Account balances are paid in shares of Common Stock equal to the number of units
credited to the Stock Reserve Account. In general, these payments will be made
upon the earliest of reaching age 65, retirement, total and permanent disability
or death. A director may, however, defer payment past reaching age 65 until the
earliest of retirement, total and permanent disability or death by an
appropriate election under the Director Plan.




<PAGE>   65

Item 12.  Security Ownership of Certain Beneficial Owners and Management

<TABLE>
<CAPTION>

                                Amount and Nature of Beneficial Ownership of
                                               Common Stock(1)
                                --------------------------------------------
                                Sole Voting   Shared Voting
                                  and/or        and/or              Percent of
Name                             Investment    Investment             Common
and Address                        Power         Power (2)   Total     Stock
-----------                     -----------   ------------  ------- ----------
<S>                             <C>           <C>           <C>     <C>

Empire National Bank                  0         365,750     365,750     11.5
Employee Stock Ownership Plan (5)
1227 East Front Street
Traverse City, MI 49686

John R. Anderson                      0           2,799       2,799        *
6511 Franklin Woods Drive
Traverse City, MI 49686

Michael H. Dennos                25,326               0      25,326        *
2042 Arrowhead Drive
Traverse City, MI 49686

James E. Dutmers, Jr. (3)       424,609          29,429     454,038     14.2
1227 East Front Street
Traverse City, MI 49686

William T. Fitzgerald, Jr.       51,334          18,099      69,433      2.2
1227 East Front Street
Traverse City, MI 49686

Don A. Good, M.D.                10,542           4,003      14,545        *
6789 Franklin Woods Drive
Traverse City, MI 49686

Robert L. Israel                 71,434          32,907     104,341      3.3
1227 East Front Street
Traverse City, MI 49684

Deborah J. Knudsen(4)                 0             432         432        *
6261 South Westwood Parkway
Suttons Bay, MI 49682

Thomas G. McIntyre (4)           11,381           6,091      17,472        *
6326 Mission Pointe
Traverse City, MI 49686.

James M. Merenda                 34,131          14,454      48,585      1.5
1227 East Front Street
Traverse City, MI 49686
</TABLE>


<PAGE>   66


<TABLE>
<CAPTION>

                            Amount and Nature of Beneficial Ownership of
                                           Common Stock(1)
                            --------------------------------------------
                               Sole Voting   Shared Voting
                                 and/or        and/or               Percent of
Name                            Investment    Investment              Common
and Address                       Power         Power (2)     Total    Stock
-----------                    -----------   ------------   -------  ---------
<S>                              <C>           <C>          <C>         <C>

Bruce W. Reavely                  36,867         17,481      54,348       1.7
1227 East Front Street
Traverse City, MI 49686

Ronald G. Reffitt, Sr. (4)        11,400              0      11,400         *
5179 West Torch Lake Drive
Kewadin, MI 49648

John M. Rockwood, Jr. (4)          1,152              0       1,152         *
8582 South Dunns Farm Road
Maple City, MI 49664

Laurence P. Skendzel, M.D. (4)         0          1,027       1,027         *
10338 South Western Hills
Traverse City, MI 49684

Louis A. Smith (4)                22,179         43,473      65,652       2.1
14 Peninsula Hills Drive
Traverse City, MI 49686

Daniel G. Stoudt                  25,666         36,012      61,678       1.9
1227 East Front Street
Traverse City, MI 496866

</TABLE>

(1)  The numbers of shares presented include shares owned of record by each
          person and shares which, under applicable regulations of the SEC, are
          deemed tobe beneficially owned by each person. Under these
          regulations, a beneficial owner of a security includes any person,
          who, directly or indirectly, through any contract, arrangement,
          understanding, relationship, or otherwise has or shares voting power
          or investment power with respect to the security. Voting power
          includes the power to vote or to direct the voting of the security.
          Investment power includes the power to dispose or to direct the
          disposition of the security.

(2)  The numbers of shares presented include shares as to which the indicated
          person is legally entitled to share voting and/or investment power by
          reason of joint ownership, trust, or other contract or property right,
          and, in some instances, shares held by spouses and minor children over
          whom the indicated person may have substantial influence by reason of
          relationship.


<PAGE>   67

(3)  Mr. Dutmers is Chairman and Chief Executive Officer of the Corporation. He
          has sole voting power with respect to 451,229 shares and shared voting
          power with respect to 2,809 shares. He has sole investment power with
          respect to 65,082 shares and shared investment power with respect to
          88,532 shares. Of the shares beneficially owned by Mr. Dutmers,
          367,776 (or 11.5% of the outstanding shares of Common Stock) are
          subject to a Voting Trust Agreement, dated November 10, 1997, under
          which Mr. Dutmers is the sole trustee. As trustee of the voting trust,
          Mr. Dutmers has the sole power to vote the shares subject to the
          voting trust on all matters, including the election of directors of
          the Corporation. Power to dispose of the shares of Common Stock
          subject to the voting trust is vested in the shareholders who are
          parties to the Voting Trust Agreement, subject to first being offered
          to the other parties to the Voting Trust Agreement at fair market
          value. The Voting Trust Agreement will terminate by its terms on May
          30, 2004.

(4)  The named director's account under the Directors' Deferred Compensation
          and Stock Investment Plan (the "Director Plan") see "Director
          Compensation," is credited with units subsequently payable in an equal
          number of shares of Common Stock as follows: Mrs. Deborah J. Knudsen,
          3,601 units; Mr. Ronald G. Reffitt, Sr., 2,614 units; Mr. John M.
          Rockwood Jr., 3,399 units; Dr. Laurence P. Skendzel, M.D., 1,410
          units; Mr. Thomas G. McIntyre, 752 units; and Mr. Louis A. Smith 2,729
          units.

(5)  Shares are held for the benefit of participants in the plan.  Each plan
          participant is entitled to direct the plan's board of trustees as to
          the exercise of voting rights attributable to shares allocated to his
          or her account.  As of February 29, 2000, 365,750 shares were
          allocated to participants' accounts.  The remaining shares, if any,
          are voted by the plan's board of trustees comprised of James E.
          Dutmers, Jr.,  Robert L. Israel, James M. Merenda, and William
          T. Fitzgerald, Jr. Messrs. Dutmers and Israel are directors of the
          Corporation.  All of the aforementioned persons are officers of the
          Corporation.

*    Less than one percent (1%)

As of February 29, 2000 all directors and executive officers of the Corporation
as a group (consisting of 16 persons) owned 968,404 shares of Common Stock or
30.4 percent of the outstanding Common Stock.


Changes in Control of Registrant

The Corporation and Huntington Bancshares Incorporated ("Huntington") entered
into an Agreement and Plan of Merger dated as of February 7, 2000 (the "Merger
Agreement"). A press release related to the merger and a copy of the Merger
Agreement are contained in the Corporation's Form 8-K dated February 9, 2000
which is incorporated herein by reference.



<PAGE>   68

Item 13.  Certain Relationships and Related Transactions

The information appearing in Note 12 of the Notes to Consolidated Financial
Statements on page 46 of this Form 10-K, is also incorporated herein by
reference in response to this Item.

The Bank had during 1999, and expects to have in the future, banking
transactions in the ordinary course of its business with the Corporation's
directors and officers, and members of their families and organizations with
which they are associated, on substantially the same terms, including interest
rates and collateral on loans, as those prevailing at the same time for
comparable transactions with others. These transactions did not involve more
than the normal risk of collectability or present other unfavorable features.
During 1999, the Bank paid $137,657 to the firm of Smith & Johnson Attorneys,
P.C., of which Director Louis A. Smith is a shareholder.


PART IV
ITEM 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) The following documents are filed as part of this report:

    1.  The following financial statements of the Corporation and related items
        are included in this report on the pages indicated:
                                                                        Page(s)
                                                                        -------
        Consolidated Balance Sheets as of December 31, 1999 and 1998       27

        For each of the years in the three-year period ended
        December 31, 1999:

          Consolidated Statements of Income                             28-29
          Consolidated Statements of Comprehensive Income                  29
          Consolidated Statements of Changes in Shareholders' Equity       30
          Consolidated Statements of Cash Flows                         31-32

        Notes to Consolidated Financial Statements                      33-52
        Report of Independent Auditors                                     53

    2.  All financial statement schedules for which provision is made in the
        applicable accounting regulations of the Commission are not required
        under the related instructions or are inapplicable, and therefore have
        been omitted.

    3.  The following exhibits are required for this Report by Item 601 of
        Regulation S-K.

        (2)  Plan of acquisition, reorganization, arrangement, liquidation or
             succession.

             (2a)  Agreement and Plan of Merger (including the Supplemental
                   Agreement thereto) date February 4, 2000 between Huntington
                   Bancshares Incorporated and Empire Banc Corporation
                   (previously filed as exhibits to the Corporation's Form 8-K
                   dated February 9, 2000 and incorporated herein by reference).


<PAGE>   69

        (3a) Articles of Incorporation with amendments (previously filed as
             exhibits to the Corporation's Annual Report on Form 10-K for the
             year ended December 31, 1998 and incorporated herein by reference).

        (3b) Bylaws as amended and restated February 4, 2000.

        (4)  Instruments defining the rights of security holders, including
             indentures.

             (4a) Articles of Incorporation (see Exhibit (3a)).

             (4b) Bylaws (see Exhibit (3b))

             (4c) Rights Agreement dated December 19, 1990 between the
                  Corporation and the Bank as Rights Agent (previously filed as
                  an exhibit to Corporation's Form 8-K dated December 19, 1990
                  and incorporated herein by reference).

             (4d) Amendment to Rights Agreement dated February 5, 2000 between
                  the Corporation and the Bank (previously filed as Exhibit 4 to
                  the Corporation's Form 8-K dated February 9, 2000 and
                  incorporated herein by reference).

        (9)  Voting Trust Agreement as amended dated November 10, 1997 with
             respect to the Corporation's Common Stock.

        (10) Material Contracts.  * Denotes executive compensation plans and
             arrangements in which the Corporation's executive officers
             participate.

             (10a) * Form of Management Continuity Agreement (with amendment)
                   entered into and between the Corporation and each of seven
                   executive officers dated December 1, 1999.

             (10b) * Empire Banc Corporation Stock Option Plan, as amended to
                   date (previously filed as Exhibit (10b) to the Corporation's
                   Annual Report on Form 10-K for the year ended December 31,
                   1993 and incorporated herein by reference).

             (10c) * Empire National Bank Supplemental Executive Retirement Plan
                   as amended December 31, 1999.

             (10d) * Empire Bank Corporation Directors' Deferred Compensation
                   Plan (incorporated herein by reference to the Corporation's
                   Registration Statement dated August 25, 1997, filed under
                   Registration No. 333-36747).

             (10e) * Amendment to the Empire Bank Corporation Directors'
                   Deferred Compensation Plan dated November 1, 1999.

             (10f) * Form of Lump Sum Payment, Release and Waiver Agreement
                   dated February 4, 2000.

             (10g) * Form of Lump Sum Payment, Release and Waiver Agreement
                   dated February 4, 2000.


<PAGE>   70

        (11) Statement re computation of per share earnings as set forth in
             "Item 8. Financial Statements and Supplementary Data - Notes 1 and
             17 to Consolidated Financial Statements" and incorporated herein by
             reference.

        (12) Statements re computation of ratios. Not applicable.

        (18) Letter re change in accounting principles. Not applicable.

        (21) Subsidiaries of Corporation. The Bank is the only subsidiary of the
             Corporation.

        (22) Published report regarding matters submitted to vote of security
             holders. Not applicable.

        (23) Consent of Crowe, Chizek and Company LLP.

        (24) Power of attorney. Not applicable.

        (27) Financial Data Schedule

        (99) Additional exhibits.  Not applicable.


(b)  Reports on Form 8-K

     No reports on Form 8-K were filed during the quarter ended December 31,
     1999.




<PAGE>   71

      SIGNATURES
      Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
      of 1934, the Corporation has duly caused this report to be signed on its
      behalf by the undersigned, thereunto duly authorized, on February 17,
      2000.


                                                      EMPIRE BANC CORPORATION
                                                      -----------------------
                                                           (Registrant)

                                                      /s/ James E. Dutmers, Jr.
                                                      -------------------------
                                                      James E. Dutmers, Jr.
                                                      Chairman and Chief
                                                      Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
     report has been duly signed by the following persons on behalf of the
     Corporation and in the capacities indicated on February 17, 2000.

      /s/ James E. Dutmers, Jr.            /s/ Robert L. Israel
      -----------------------------        -----------------------------
      James E. Dutmers, Jr.                Robert L. Israel
      Director and Chief Executive         Director
      Officer (principal executive
      officer)

      /s/ William T. Fitzgerald, Jr.
      ------------------------------       -----------------------------
      William T. Fitzgerald, Jr.           John R. Anderson
      Chief Financial Officer              Director
      (principal financial and
       accounting officer)

                                           /s/ Don A. Good, M.D.
      -----------------------------        -----------------------------
      Michael H. Dennos                    Don A. Good, M.D.
      Director                             Director

      /s/ Deborah J. Knudsen               /s/ Louis A. Smith
      -----------------------------        -----------------------------
      Deborah J. Knudsen                   Louis A. Smith
      Director                             Director

                                           /s/ Ronald G. Reffitt, Sr.
      -----------------------------        -----------------------------
      Thomas G. McIntyre                   Ronald G. Reffitt, Sr.
      Director                             Director

      /s/ John M. Rockwood, Jr.            /s/ Laurence P. Skendzel, M.D.
      -----------------------------        ------------------------------
      John M. Rockwood, Jr.                Laurence P. Skendzel, M.D.
      Director                             Director