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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
___X___ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
_______ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ..........to..............
Commission File No. 014612
WAYNE BANCORP, INC.
(Exact name of registrant as specified in its charter)
OHIO 34-1516142
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
112 West Liberty Street
PO Box 757
Wooster, Ohio 44691 44691
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 264-1222
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $1.00 Stated Value Per Share
(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 (or fur such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES__X___ NO______
Indicate by check mark if disclosures of delinquent filers in response to item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the Registrant's knowledge in definitive proxy or information state-
ments incorporated by reference in Part III of this form 10-K or any amend-
ments to this Form 10-K. YES__X___ NO______
The aggregate market value of voting stock held by non-affiliates of the regi-
strant based on the most recent trade prices of such stock on March 1, 2000:
Common Stock $1.00 stated value $82,990,915
The number of shares outstanding of the issuer's classes of common stock as of
March 1, 2000:
Common Stock $1.00 stated value 4,596,599
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1999 and portions of the Registrant's Proxy Statement for the Annual Share-
holders Meeting to be held April 20, 2000 are incorporated by reference into
Parts I, II and III.
TABLE OF CONTENTS
WAYNE BANCORP, INC.
FORM 10-K
PART I PAGE
Item 1 Business................................ 3
Item 2 Properties.............................. 16
Item 3 Legal Proceedings....................... 16
Item 4 Submission of matters to a vote of
security holders....................... 16
PART II
Item 5 Market for the Registrant's common stock
and related Shareholder matters........ 16
Item 6 Selected Financial Data................. 16
Item 7 Management discussion and analysis of
financial condition and results of
operations............................. 16
Item 7A. Quantitative and qualitative disclosures
about market........................... 16
Item 8 Financial statements and supplementary
data................................... 16
Item 9 Changes in and disagreements with accoun-
tants on accounting and financial dis-
closure................................ 17
PART III
Item 10 Directors and Executive Officers of the
Registrant............................ 17
Item 11 Executive Compensation................. 17
Item 12 Security ownership of certain beneficial
owners and management................. 17
Item 13 Certain relationships and related trans-
actions............................... 17
PART IV
Item 14 Exhibits, financial statement schedules and
reports on Form 8-K.................... 17
Exhibit Index........................... 18
Signatures.............................. 19
PART I
ITEM I. BUSINESS
General Development of Business:
Wayne Bancorp, Inc. is a multi-bank holding company. Its bank subsidiaries,
Wayne County National Bank (WCNB) and Chippewa Valley Bank (CVB), conduct
general commercial and retail banking business while the Company's non-
banking subsidiary MidOhio Data, Incorporated (MID) performs data processing
services for WCNB. These entities are collectively referred to as the Com-
pany. Wayne Bancorp, Inc. was organized in April, 1986.
The Company offers a wide range of commercial and personal banking services
primarily to its customers in Wayne, Holmes, Medina and Stark counties in
Ohio. These services include a broad range of loan, deposit and trust products,
retail investments and various miscellaneous services. Loan products include
commercial and commercial real estate loans, a variety of mortgage and
construction loan products, installment loans, home equity lines of credit,
lines for overdraft protection and lease financings. Deposit products include
interest and non-interest bearing checking accounts, various savings
accounts, certificates of deposit and IRA's. The Trust Department provides
services in the areas of employee benefits and personal trusts. In addition,
the Company provides retail investment services, including mutual funds and
annuities as well as discount brokerage services. Miscellaneous services
include safety deposit boxes, night depository, United States Savings Bonds,
traveler's checks, money orders, cashiers checks, bank-by-mail service, money
transfers, wire services, utility bill payments, collections and notary pub-
lic services. In addition, the Company has correspondent relationships with
major banks in Cleveland, Cincinnati and Chicago pursuant to which the Com-
pany received various financial services. The Subsidiaries account for sub-
stantially all of the Company's consolidated assets at December 31, 1999.
The Company's primary lending area comprises the Ohio counties of Wayne,
Holmes, Medina and Stark. Loans outside this area are considered for credit-
worthy applicants. Lending decisions are made in accordance with written
loan policies designed to maintain loan quality.
Retail lending products are comprised of overdraft lines, personal lines of
of credit and installment loans. Overdraft lines of credit are lines attached
to checking accounts to cover overdrafts and/or allow customers to write
themselves a loan. Credit limits are based on a percentage of gross income
and average deposits. Personal lines of credit include lines secured by
junior mortgages (home equity) and Private Banking lines which are generally
secured by junior mortgages but may be unsecured or secured by other col-
lateral. The lines have a 20 year draw period and may then be renewed or
amortized over ten years. Credit limits are determined by comparing three
criteria, appraised value, debt service and gross income. Installment loans
include both direct and indirect loans. The term can range from three to 180
months, depending upon the collateral which includes new and used automobiles,
boats and recreational vehicles as well as junior mortgages and unsecured
personal loans. Retail lending underwriting guidelines include evaluating the
entire credit using the "Five C's of Credit," character, capacity, capital,
condition and collateral. Credit scoring, analysis of credit bureau ratings
and debt to income ratios are the major tools used by the lenders in the
underwriting process.
The Company offers a wide range of mortgage loan programs, including a variety
of fixed and adjustable rate mortgages ranging from 120 to 360 months. The
underwriting guidelines include those similar to consumer loans and those
necessary to meet secondary market guidelines. Residential real estate
decisions focus on loan to value limits, debt to income and mortgage to income
ratios, credit history, and in some cases, whether private mortgage insurance
is obtained.
3
Business credit products include commercial loans and commercial real estate
loans and leases. Commercial loans include lines and letters of credit,
fixed and adjustable rate term loans, demand and time notes. Commercial real
estate loans include fixed and adjustable mortgages. Loans are generally to
owner occupied businesses. The portfolio also includes loans to churches,
rental property, shopping plazas and residential development loans. Loans to
businesses often entail greater risk because the primary source of repayment
is typically dependent upon adequate cash flow. Cash flow of a business can
be subject to adverse conditions in the economy or a specific industry.
Should cash flow fail, the lender looks to the assets of the business and/or
the ability of the co-makers to support the debt. Commercial lenders con-
sider the "Five C's of Credit," character, capacity, capital, condition and
collateral in making commercial credit decisions.
The Company provides both direct and indirect leasing on a limited basis. The
direct leases are for specific equipment and may be open- or closed-end
leases. Indirect leases are established by the same methods as an indirect
consumer auto finance. Each vehicle is amortized individually over a five
year period based on Internal Revenue Code guidelines.
In addition to the underwriting guidelines followed for specific loan types, the
Company has underwriting guidelines common to all loan types. With regard to
collateral, the Company follows supervisory limits set forth in Regulation H
for transactions secured by real estate. Loans in excess of these guidelines
are reported to the Board of Directors on a monthly basis. Loans not secured
by real estate are analyzed on a loan by loan basis, based on collateral type
guidelines as set forth in the loan policy. Appraisal policies follow and
comply with provisions outlined under Title XI of FIRREA. All appraisals
are done by outside independent appraisers. The Company, as a general rule,
obtains an appraisal on all real estate transactions even when not required
by Title XI. Approval procedures include authorities approved by the Board
of Directors for individual lenders and loan committees. Retail and residen-
tial loans are centrally underwritten by their respective departments.
Business credits can be approved by the individual commercial lender or taken
to the Loan Committee if it exceeds individual approval limits. The Board of
Directors approves aggregate loan committments in excess of $750 thousand up
to the respective banks legal lending limit. Loans to Directors and Executive
Officers are approved by the Board of Directors.
The Officers Loan Review Committee meets on a monthly basis. The Committee
reviews Bank lending trends, the Past Due Report, the Watch List and various
other reports in order to monitor and maintain credit quality. The Committee
also reviews on a relationship basis, customers on the Bank's Watch List and
credits with aggregate commitments in excess of $300 thousand.
Revenues from loans accounted for 68% of consolidated revenues in 1999 and 1998,
and 69% in 1997. Revenues from interest and dividends on investment securities,
federal funds sold and mortgage-backed securities accounted for 22% of con-
solidated revenues in 1999 and 23% of consolidated revenues in 1998 and 1997.
The business of the Registrant is not seasonal to any material degree, nor is it
dependent upon a single or small group of customers whose loss would result in a
material adverse effect on the Registrant or its subsidiaries.
Regulation and Supervision:
Wayne Bancorp, Inc. is a corporation organized under the laws of the State of
Ohio. The Company is required to file certain reports and periodic informa-
tion with the United States Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, as amended.
As a bank holding company incorporated and doing business within the State of
Ohio, the Company is subject to regulation and supervision under the Bank
Holding Company Act of 1956, as amended (the "Act"). The Company is required to
file with the Federal Reserve Board on a quarterly basis information pursuant to
the Act. The Federal Reserve Board may conduct examinations or inspections of
the Company and its subsidiaries.
4
The Company is required to obtain prior approval from the Federal Reserve Board
for the acquisition of more than five percent of the voting shares or substan-
tially all of the assets of any bank or bank holding company. In addition,
the Company is prohibited by the Act, except in certain situations from
acquiring direct or indirect ownership or control of more than five percent
of the voting shares of any company which is not a bank or bank holding com-
pany and from engaging directly or indirectly in activities other than those of
banking, managing or controlling banks or furnishing services to its subsid-
iaries. The Company may, however, subject to the prior approval of the
Federal Reserve Board, engage in, or acquire shares of companies engaged in
activities which are deemed by; the Federal Reserve Board by order or by reg-
ulation to be so closely related to banking or managing and controlling a
bank as to be a proper activity.
The Company is a legal entity separate and distinct from its subsidiaries. It
is anticipated that a significant portion of the Company's revenues, including
funds available for payment of dividends (if any) and for operating expenses,
will be provided by dividends paid by its Bank subsidiaries. There are sta-
tutory limitations on the amount of dividends which may be paid to the Com-
pany by its subsidiaries.
WCNB, a national bank, is subject to supervision, examination and regulation by
the Comptroller of the Currency. CVB, a state chartered bank, is subject to
supervision, examination and regulation by the Federal Reserve Board and the
Ohio Division of Financial Institutions. Both WCNB and CVB are members of
the Federal Reserve System and, as such, are subject to the applicable pro-
visions of the Federal Reserve Act and regulations issued thereunder. MID is
a non-banking subidiary subject to supervision, examination and regulation by
the Federal Reserve Board.
The Company's deposits are insured by the Federal Deposit Insurance Corporation,
and are subject to the provisions of the Federal Deposit Insurance Corporation
Improvement Act of 1991. This Act is designed to protect the deposit insurance
fund, to improve regulation and supervision of insured depository institutions
and to improve the reporting information related to financial institutions.
Management is not aware of any current recommendations by regulatory authorities
which, if they were to be implemented, would have a material effect on the
Company.
Regulatory Capital Requirements:
The Company is required by the various regulatory authorities to maintain cer-
tain capital levels. The required capital levels and the Company's capital
position at December 31, 1999 are summarized in the table included in Note 14
to the financial statements.
The Federal Deposit Insurance Corporation sets premiums for deposit insurance
based on the Company's capital levels. In the event the Company's levels
fall below the minimum requirement the premiums for deposit insurance could
rise.
Government Monetary Policy:
The earnings of the Company are affected primarily by general economic condi-
tions, and to a lesser extent by the fiscal and monetary policies of the
federal government and its agencies, particularly the Federal Reserve. Its
policies influence the amount of bank loans and deposits and interest rates
charged and paid thereon, and thus have an effect on the earnings of the
Company's subsidiary Banks.
Competition:
The banking and financial services industry in the Company's market is highly
competitive. The Company's market area encompasses Wayne, Holmes, Medina and
Stark Counties in Ohio. The Bank subsidiaries compete for loans and deposits
with other commercial banks, savings and loans, finance companies, mortgage
brokers and credit unions. The primary competitive factor is interest rates
charged on loans and paid for deposits as well as fees charged for various
other products and service.
Employees:
As of December 31, 1999, the Company had 214 full time employees and 40 part
time employees. The Company is not a party to any collective bargaining
agreement and management considers its relationship with their employees to
be good.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
WAYNE BANCORP, INC.
December 31, 1999
Average
Daily Yield/
Balance Interest Rate
(In thousands of dollars)
ASSETS -----------------------------------
Interest Earning Assets:
Loans (including fees) (1) $339,926 $28,650 8.43%
Securities: (2)
Taxable 122,776 7,135 5.84%
Tax-Exempt (3) 32,569 2,515 7.72%
Federal Funds Sold 7,197 385 5.35%
----------------------------------
TOTAL EARNING ASSETS 502,468 38,685 7.70%
Non-earning Assets:
Cash and due from banks 20,293
Premises and Equipment (net) 8,675
Other Assets 7,878
Less Allowance for Loan Losses (5,197)
----------
TOTAL ASSETS $534,117
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Transaction Accounts 117,418 3,432 2.92%
Savings 84,499 2,245 2.66%
Time Deposits 175,031 8,871 5.07%
Borrowed Funds 28,774 1,498 5.21%
--------------------------------
TOTAL INTEREST BEARING LIABILITIES 405,722 16,046 3.95%
Non-Interest Bearing Liabilities:
Demand Deposits 65,214
Other Liabilities 8,790
----------
TOTAL LIABILITIES 479,726
Shareholders' Equity 54,391
----------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $534,117
==========
NET INTEREST INCOME $22,639
==========
NET YIELD ON INTEREST EARNING ASSETS 4.51%
========
(1) Nonaccrual loans are included in the average loan balance.
(2) Average balance includes unrealized gains and losses while yield is
based on amortized cost.
(3) Interest income on tax exempt securities includes a taxable equivalent
adjustment using a 34% tax rate.
6
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
WAYNE BANCORP, INC.
December 31, 1998
Average
Daily Yield/
Balance Interest Rate
(In thousands of dollars)
ASSETS -----------------------------------
Interest Earning Assets:
Loans (including fees) (1) $316,743 $28,264 8.92%
Securities: (2)
Taxable 121,914 7,299 6.05%
Tax-Exempt (3) 28,886 2,292 8.10%
Federal Funds Sold 12,938 697 5.39%
-----------------------------------
TOTAL EARNING ASSETS 480,481 38,552 8.02%
Non-earning Assets:
Cash and due from banks 17,264
Premises and Equipment (net) 8,883
Other Assets 7,705
Less Allowance for Loan Losses (4,979)
----------
TOTAL ASSETS $509,354
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Transaction Accounts 97,991 2,799 2.86%
Savings 80,012 2,367 2.96%
Time Deposits 175,335 9,479 5.41%
Short Term Borrowings 37,348 1,686 4.51%
---------------------------------
TOTAL INTEREST BEARING LIABILITIES 390,686 16,331 4.18%
Non-Interest Bearing Liabilities:
Demand Deposits 56,342
Other Liabilities 4,293
----------
TOTAL LIABILITIES 451,321
Shareholders' Equity 58,033
----------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $509,354
==========
NET INTEREST INCOME $22,221
==========
NET YIELD ON INTEREST EARNING ASSETS 4.62%
=========
(1) Nonaccrual loans are included in the average loan balance.
(2) Average balance includes unrealized gains and losses while yield is
based on amortized cost.
(3) Interest income on tax exempt securities includes a taxable equivalent
adjustment using a 34% tax rate.
7
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
WAYNE BANCORP, INC.
December 31, 1997
Average
Daily Yield/
Balance Interest Rate
(In thousands of dollars)
ASSETS -----------------------------------
Interest Earning Assets:
Loans (including fees) (1) $306,193 $27,529 8.99%
Securities: (2)
Taxable 111,278 6,952 6.26%
Tax-Exempt (3) 28,134 2,298 8.21%
Federal Funds Sold 5,253 291 5.54%
-----------------------------------
TOTAL EARNING ASSETS 450,858 37,070 8.22%
Non-earning Assets:
Cash and due from banks 17,832
Premises and Equipment (net) 8,561
Other Assets 7,670
Less Allowance for Loan Losses (4,354)
----------
TOTAL ASSETS $480,567
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Transaction Accounts 78,810 2,128 2.70%
Savings 81,704 2,458 3.01%
Time Deposits 172,898 9,392 5.43%
Short Term Borrowings 32,476 1,545 4.76%
----------------------------------
TOTAL INTEREST BEARING LIABILITIES 365,888 15,523 4.24%
Non-Interest Bearing Liabilities:
Demand Deposits 56,920
Other Liabilities 4,247
----------
TOTAL LIABILITIES 427,055
Shareholders' Equity 53,512
----------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $480,567
==========
NET INTEREST INCOME $21,547
==========
NET YIELD ON INTEREST EARNING ASSETS 4.78%
========
(1) Nonaccrual loans are included in the average loan balance.
(2) Average balance includes unrealized gains and losses while yield is
based on amortized cost.
(3) Interest income on tax exempt securities includes a taxable equivalent
adjustment using a 34% tax rate.
8
SUMMARY OF NET INTEREST INCOME CHANGES
WAYNE BANCORP, INC.
The following table sets forth for the periods indicated a summary of the
changes in interest income and interest expense resulting from changes in
volume and changes in interest rates for the major components of interest
earning assets and interest bearing liabilities.
1999 vs 1998 1998 vs 1997
---------------------------------------------------
Increase(Decrease) (1) Increase(Decrease) (1)
(In thousands of dollars) Volume Rate Net Volume Rate Net
---------------------------------------------------
Interest Income:
Loans $2,068 ($1,682) $386 $948 ($213) $735
Securities:
Taxable 52 (216) (164) 437 (90) 347
Non-taxable (2) 298 (75) 223 62 (68) (6)
Federal Funds Sold (250) (62) (312) 426 (20) 406
----------------------------------------------------
Total Interest Income 2,168 (2,035) 133 1,873 (391) 1,482
Interest Expense:
Transaction Accounts 556 77 633 518 153 671
Savings 133 (255) (122) (51) (40) (91)
Time Deposits (16) (592) (608) 132 (45) 87
Short-term Borrowings (387) 199 (188) 232 (91) 141
---------------------------------------------------
Total Interest Expense 286 (571) (285) 831 (23) 808
----------------------------------------------------
Net Interest Income $1,882 ($1,464) $418 $1,042 ($368) $674
====================================================
(1) For purposes of the above table, changes in interest due to volume and
rate were determined as follows:
Volume variance - Change in volume multiplied by the prior year's rate.
Rate Variance - Change in rate multiplied by the prior year's balance.
Rate/Volume Variance - Change in volume multiplied by change in rate.
The rate/volume variance was allocated to the volume variance and rate variance
in proportion to the relationship of the absolute dollar amount of change in
each.
(2) Interest income on tax exempt securities includes the effects of taxable
equivalent adjustments using a 34% tax rate for each year.
9
INVESTMENT PORTFOLIO
WAYNE BANCORP, INC.
The following table sets forth the year-end carrying value of securities
available-for-sale for the last three years:
(In thousands of dollars) 1999 1998 1997
By type: -----------------------------------
U.S. Treasury and Other U.S.
Government Agency Obligations $67,836 $74,632 $53,929
Mortgage-backed Securities 12,962 21,352 27,709
States and Political Subdivisions 37,694 37,186 20,080
Other 31,526 41,837 20,709
-----------------------------------
Total $150,018 $175,007 $122,427
===================================
The following table sets forth the year-end carrying value of securities held-
to-maturity for the last three years:
(In thousands of dollars) 1999 1998 1997
By type: -----------------------------------
U.S. Treasury and Other U.S.
Government Agency Obligations $0 $0 $5,002
Mortgage-backed Securities 0 0 0
States and Political Subdivisions 0 0 6,823
Other 0 0 7,670
----------------------------------
Total $0 $0 $19,495
===================================
The following table sets forth the maturity distribution and yields on secur-
ities available-for-sale at December 31, 1999
(In thousands of dollars): One Year or Less One to Five Years
Carrying Carrying
Value Yield Value Yield
--------------------------------------------
U.S. Treasury and Other U.S.
Government Agency Obligations $20,290 5.82% $47,542 5.85%
Mortgage-backed Securities 2,707 6.45% 4,438 6.43%
States and Political Subdivisions 3,914 5.51% 23,557 4.79%
Other 7,719 5.88% 21,081 6.14%
-------------------------------------------
$34,630 5.85% $96,618 5.68%
=============================================
Five to Ten Years Over Ten Years
Carrying Carrying
Value Yield Value Yield
-------------------------------------------
U.S. Treasury and Other U.S.
Government Agency Obligations $0 0.00% $0 0.00%
Mortgage-backed Securities 5,084 6.28% 740 6.58%
States and Political Subdivisions 9,186 5.21% 1,022 5.76%
Other 0 0.00% 2,738 5.63%
------------------------------------------
$14,270 5.59% $4,500 5.82%
============================================
Note: Yield represents the weighted average yield to maturity. Yield on
states and political subdivisions are not calculated on a tax equiv-
alent basis. Mortgage-backed obligations are distributed based on
contractual maturity.
10
Excluding those holdings of the securities portfolio in U.S. Treasury securities
and other agencies and corporations of the U.S. Government, there were no secur-
ities of any one issuer which exceeded 10% of consolidated shareholders' equity
at December 31, 1999.
LOAN PORTFOLIO
WAYNE BANCORP, INC.
The Company's commercial loans are extended primarily to local businesses.
The Company also extends credit to customers through installment loans, vehicle
and equipment leases and revolving credit arrangements. The remaining portfolio
consists primarily of residential mortgage loans (1-4 family dwellings) and
mortgage loans on commercial property. The following tables set forth the
composition of the loan portfolio for the last five years.
(In thousands of dollars) 1999 1998 1997 1996 1995
---------------------------------------------------
Real Estate $159,302 $143,072 $135,824 $114,649 $106,997
Installment & Credit Card 48,411 48,684 52,940 54,441 56,406
Commercial & Industrial 146,504 129,504 131,998 117,016 104,703
Lease Financings 2,179 2,835 3,317 2,774 2,888
Other Loans 107 104 191 39 37
-------------------------------------------------
$356,503 $324,199 $324,270 $288,919 $271,031
=================================================
The maturity distribution of the loan portfolio is a key factor in evaluating
the risk characteristics of the loan portfolio and the future profitability
of the portfolio. The maturity distribution and interest rate sensitivity of
the loan portfolio and other balance sheet items at year end 1999 is included
on page 30 of the 1999 Annual Report to Shareholders, and is incorporated herein
by reference.
The maturity distribution and interest rate sensitivity of Commercial and Indus-
trial loans at December 31, 1999 are as follows:
(in thousands of dollars) Maturity (1)
--------------------------------------------
Within 1 to 5 After 5
1 Year Years Years Total
------------------------------------------
Commercial and Industrial..... $44,948 $61,014 $11,658 $117,620
Commercial real estate........ 3,540 6,953 8,585 19,078
Construction.................. 1,320 0 0 1,320
--------------------------------------------
Total............... $49,808 $67,967 $20,243 $138,018
============================================
Fixed rate loans.............. $15,161 $53,798 $2,032 $70,991
Variable rate loans........... 34,647 14,169 18,211 67,027
--------------------------------------------
Total............... $49,808 $67,967 $20,243 $138,018
============================================
(1) Based on scheduled principal repayments.
11
The following table summarizes past due, non-accrual and restructured loans:
(In thousands of dollars) 1999 1998 1997 1996 1995
-----------------------------------------------
Accruing loans past due 90
days or more as to
principle or interest $182 $288 $285 $188 $455
Non-accrual loans 0 0 205 1,497 15
Restructured loans 0 271 0 0 0
--------------------------------------------------
$182 $559 $490 $1,685 $470
==================================================
The effect of non-performing loans was as follows: December 31, 1999
--------------------
Interest income due on non-performing loans in
accordance with the original terms of the loan $0
Less: Interest income on non-performing loans
reflected in income 0
----------
Net reduction in interest income $0
==========
The policy for placing loans on non-accrual status is to stop the accrual of
interest when it is likely that the collection of interest is deemed doubt-
ful, or when loans are past due as to principle or interest 90 days or more.
In certain cases, interest accruals are continued on loans 90 days past due
if they are deemed to be adequately secured and in the process of collection.
The Company had no impaired loans at December 31, 1999 or 1998. During 1999 the
Company had no impaired loans, while the average balance for impaired loans was
$153 thousand during 1998. Income earned on the cash basis for the year ended
December 31, 1998 was $3 thousand.
Impaired loans are comprised of commercial and commercial real estate loans, and
are carried at the present value of expected future cash flows, discounted at
the loan's effective interest rate or at a fair value of collateral, if the
loan is collateral dependent. A portion of the allowance for loan and lease
losses is allocated to impaired loans, when such impaired loans are identified.
Smaller balance homogeneous loans are evaluated for impairment in total. Such
loans include residential first mortgage and construction loans secured by 1-4
family properties, consumer and home equity loans. Such loans are included
in non-accrual and past due disclosures above, but not in impaired loan
totals. Commercial loans and mortgage loans secured by other properties are
evaluated individually for impairment. In addition, loans held-for-sale, if
any, and leases are excluded from consideration of impairment. When analysis
of borrower operating results and financial condition indicates that the bor-
rower's underlying cash flows are not adequate to meet its debt service re-
quirements, the loan is evaluated for impairment. Impaired loans, or por-
tions thereof, are charged-off when deemed uncollectible.
As of December 31, 1999, there were no potential problem loans for which manage-
ment has doubt as to the borrower's ability to comply with the present repayment
terms, which are not disclosed as past due 90 days or more, non-accrual or
restructured. These loans and their potential loss exposure have been con-
sidered in the analysis of the adequacy of the allowance for loan and losses
prepared by management and included on page 14 of this filing.
12
In all years presented, there were no material amount of loans excluded from the
amounts disclosed as non-accrual, past due 90 days or more, restructured, or
potential problem loans, which may have been classified by the regulatory
examiners as loss, doubtful or substandard.
There were no foreign loans outstanding at December 31, 1999, 1998 or 1997.
As of December 31, 1999, there were no concentrations of credit greater than 10%
of total loans which are not otherwise disclosed as a category of loans pursuant
to Guide 3, Item III. A.
As of December 31,1999, there are no other interest bearing assets that would
require disclosure under Guide 3, Item III. C. 1. or C. 2., if such assets
were loans.
SUMMARY OF LOAN LOSS EXPERIENCE
WAYNE BANCORP, INC.
In the normal course of business, the Company assumes risk by extending credit.
The Company manages this risk through its lending policy, loan review proce-
dures and personal contact with the borrower.
In determining the adequacy of the allowance for loan and lease losses, manage-
ment evaluates past loan loss experience, present economic conditions and the
credit-worthiness of its borrowers. The allowance for loan and lease losses
is increased by provisions charged to operations and recoveries of loans pre-
viously charged off. The allowance is reduced by loans charged-off when they
are deemed uncollectible by the Bank's management. The following table con-
tains information relative to the allowance for loan and lease losses for the
last five years ending December 31:
(in thousands of dollars) 1999 1998 1997 1996 1995
-----------------------------------------------
Allowance for loan losses
at the beginning of the
year $4,916 $4,923 $4,274 $4,283 $3,937
Loans charged off:
Real Estate 0 23 236 0 0
Installment & Credit
Card 259 260 264 342 271
Lease Financings 0 4 10 0 1
Commercial & Industrial 2 196 41 173 15
-----------------------------------------------
Total Loans Charged Off 261 483 551 515 287
Recoveries on loans
charged off:
Real Estate 0 1 0 2 0
Installment & Credit
Card 144 205 187 153 151
Lease Financings 5 3 7 0 139
Commercial & Industrial 213 27 100 51 113
-----------------------------------------------
Total Recoveries 362 236 294 206 403
Net Loans Charged Off (101) 247 257 309 (116)
Provision for Loan Losses 180 240 906 300 230
--------------------------------------------------
Allowance for Loan Losses
at the End of the Year $5,197 $4,916 $4,923 $4,274 $4,283
=================================================
Ratio of net charge-offs
(recoveries to average
loans) -0.03% 0.08% 0.08% 0.11% -0.04%
Allowance for loan losses
to loans 1.46% 1.51% 1.52% 1.48% 1.58%
13
The following table shows a year-end breakdown of the allowance for loan losses
allocated by loan category. While management's periodic analysis of the ade-
quacy of the allowance for loan losses may allocate portions of the allowance
for specific identified problem loans, the entire allowance is available for
any loan charge-offs that occur.
(in thousands of dollars) 1999 1998 1997 1996 1995
----------------------------------------------
Real Estate $356 $253 $246 $554 $245
Installment & Lease 181 102 106 85 92
Commercial & Industrial 2,220 1,796 1,903 1,425 399
Credit Card Receivables 0 9 10 22 22
Other Loans 9 13 1 0 0
Unallocated 2,431 2,743 3,657 2,188 3,525
----------------------------------------------
$5,197 $4,916 $5,923 $4,274 $4,283
==============================================
Percent of loans in each category to total loans
1999 1998 1997 1996 1995
----------------------------------------------
Real Estate 45% 44% 42% 40% 39%
Installment & Credit Card 14% 15% 16% 19% 21%
Commercial & Industrial 41% 40% 41% 40% 39%
Lease Financings 1% 1% 1% 1% 1%
Other Loans 0% 0% 0% 0% 0%
-----------------------------------------------
100% 100% 100% 100% 100%
===============================================
Management's allocation of the allowance for loan and lease losses is based on
several factors. First, consideration is given to the current portfolio.
Management has an internal loan review function that is designed to identify
problem and impaired loans and the losses that may be expected if the bor-
rower is unable to continue servicing the debt. Management will use the
amount of loss that is expected on those loans. The second step is to review
the prior charge-off history of each category of loan. In this step, manage-
ment will review the prior three year average charge-offs and compare that to
the expected loss identifued in the first step and will adjust the allocation
accordingly. The third step is to review any loans that have been classified
by the regulatory examiners and allocate the specific loss portion that is
determined by the examiners.
At December 31, 1999 the ratio of the reserve for loan losses to total net loans
and leases was 1.46%, and the ratio of loans 30 days or more past due and still
accruing as a percentage of total net loans and leases was .34%. Based on these
ratios, management believes the current allowance for loan and lease losses
is adequate to absorb probable future losses.
DEPOSITS
WAYNE BANCORP, INC.
The following tables present the average deposit amounts and the rates paid on
those deposits for the last three years.
(in thousands of dollars) Year End December 31,
1999 1998 1997
Amount: ----------------------------
Non-interest bearing demand $65,214 $56,342 $56,920
NOW and money market accounts 117,418 97,991 78,810
Savings 84,499 80,012 81,704
Time deposits 175,031 175,335 172,898
-------------------------------
$442,162 $409,680 $390,332
===============================
Average rate for the year:
Non-interest bearing demand 0% 0% 0%
Interest bearing demand 2.92% 2.86% 2.70%
Savings 2.66% 2.96% 3.01%
Time deposits 5.07% 5.41% 5.43%
The maturity distribution of certificates of deposit of $100,000 or more at
December 31, 1999 are as follows:
(in thousands of dollars)
Three months or less $7,234
Over three months through six months 6,014
Over six months through twelve months 5,331
Over twelve months 13,409
----------
Total $31,988
==========
RETURN ON EQUITY AND ASSETS
WAYNE BANCORP, INC.
The following table sets for operating and capital ratios of the Company
calculated on average daily balances:
Year End December 31,
1999 1998 1997
-----------------------------
Return on Average Assets 1.47% 1.44% 1.19%
Return on Average Equity 14.44% 12.60% 10.69%
Dividend Payout Ratio 35.58% 31.95% 31.38%
Average Equity to Average Asset Ratio 10.18% 11.39% 11.13%
SHORT-TERM BORROWINGS
WAYNE BANCORP, INC.
The following table represents information on federal funds purchased and
securities sold under agreements to repurchase for the last three years:
(in thousands of dollars) Year End December 31,
1999 1998 1997
-----------------------------
Amount outstanding at year end $24,480 $36,945 $37,503
Weighted average interest rate 4.56% 4.00% 4.78%
Maximum outstanding at any month-end 40,202 39,013 37,665
Average outstanding during the year 29,120 35,835 31,465
Weighted average rate during the year 4.19% 4.40% 4.79%
The Company enters into sales of securities under agreements to repurchase for
periods up to 29 days, which are treated as financings and reflected in the
consolidated balance sheet as a liability. The Company has borrowing lines
of credit, "federal funds purchased," extended by correspondent banks. At
December 31, 1999 the Company had $40.7 million of available credit, of which
none was used.
The Company also obtains funding from the Federal Home Loan Bank (FHLB) of
Cincinnati. The FHLB borrowings consist of both fixed and variable rate
notes, and are secured by a blanket pledge of the Company's 1-4 family resi-
dential real estate loan portfolio and FHLB stock. Principal balances on
these borrowings were $1,288,000 and $2,558,000 at December 31, 1999 and
1998, and the weighted-average interest rate on these borrowings was 5.92%
and 6.58% respectively.
ITEM 2. PROPERTIES
The principal offices of the Company, WCNB and MID are located at 112 West
Liberty Street, Wooster, Ohio, while the principal office of CVB is located
at 20 South Main Street, Rittman, Ohio. At December 31, 1999, the Company
owned 18 of its 22 facilities and leased the remaining four, all of which are
located in the State of Ohio. The Company operates 15 offices in Wayne
County, four in Medina County, two in Stark County and one in Holmes, County.
ITEM 3. LEGAL PROCEEDINGS
There is no pending litigation of a material nature in which the Company is in-
volved and no such legal proceedings were terminated during the fourth quarter
of 1999. Furthermore, there are no material proceedings in which any direc-
tor, officer or affiliate of the Registrant, or any associate of such direc-
tor of officer, is a party, or has a material interest, adverse to the Com-
pany. As a part of its ordinary course of business, the Company may be a party
to lawsuits (such as garnishment proceedings) involving claims to the ownership
of funds in particular accounts and involving the collection of past due
accounts. All such litigation is incidental to the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended December 31, 1999, there were no
matters submitted to a vote of security holders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Reference is made to the section entitled "Dividend and Market Price Data" on
Page 2 of the 1999 Annual Report to Shareholders for information pertaining
to the principal market for the Registant's Common Stock, market prices,
number of shareholders and dividends, which is incorporated herein by refer-
ence. Reference is made to Note 14, "Regulatory Matters" on pages 20 and 21
of the 1999 Annual Report to Shareholders for information concerning dividend
restrictions, which is incorporated herin by reference.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the table entitled "Five Year Financial Summary" on page 1
of the 1999 Annual Report to Shareholders, which is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Reference is made to the section entitled "Management Discussion and Analysis"
on pages 23 through 31 of the 1999 Annual Report to Shareholders which is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to the section entitled "Asset and Liability Management" on
page 30 of the 1999 Annual Report to Shareholders which is incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and the Report of Independent Auditors
are included on pages 9 through 22 of the 1999 Annual Report to Shareholders,
which is incorporated herein by reference.
16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
No changes in or disagreements with the independent accountants regarding
accounting and financial disclosures have occurred.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held April 20, 2000 for information as to the directors and
nominees for directorships of the Registrant, including other directorships
held by such director, or persons nominated to become a director, of the
Registrant and executive officers of the Registrant which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held April 20, 2000 for information regarding compensation
paid in excess of $100,000 to executive officers of the Registrant and to the
Registrant's Proxy Statement with respect to Salaried Employees Profit Sharing
Plan, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Reference is made to the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held April 20, 2000 for information regarding beneficial
ownership of the Company's stock which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the Registrant's Proxy Statement which is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) and (2) Financial Statements and Schedules
The following financial statements and reports of Independent Auditors appear on
pages 9 through 22 of the Company's 1999 Annual Report to Shareholders which
financial statements are incorporated herein by reference and attached hereto:
Report of Crowe, Chizek and Company LLP, Independent Auditors
Consolidated Balance Sheets, December 31, 1999 and 1998
Consolidated Statements of Income and Comprehensive Income, Years
Ended December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows, Years Ended December 31,
1999, 1998, and 1997
Consolidated Statements of Shareholders' Equity, Years Ended
December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are inap-
plicable and, therefore, have been omitted.
17
(3) Listing of Exhibits
Exhibit
Number
---------------
3(a) Amended Articles of Incorporation of Wayne Bancorp, Inc., were
filed with the Company's Annual Report on Form 10-K for the
year ended December 31, 1994 and are incorporated herein by
reference.
3(b) Wayne Bancorp, Inc., Amended Code of Regulations (Bylaws) were
filed with the Company's Annual Report on Form 10-K for the
year ended December 31, 1992 and is incorporated herein by
reference.
9(a) Trust Division Policy - voting own Bank stock was filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1987 and is incorporated herein by reference.
9(b) Trust Division Policy - proxy voting policy was filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1987 and is incorporated herein by reference.
10 Wayne County National Bank Salaried Employee Profit Sharing
Trust was filed with the Company's Annual Report on Form
10-K for the year ended December 31, 1986 and is incorporated
herein by reference.
10(a) Salaried Employee Profit Sharing Plan Amended effective January
1, 1987 was filed with the Company's Annual Report on Form
10-K for the year ended December 31, 1987 and is incorporated
herein by reference.
10(b) Employee Stock Ownership Plan effective on January 1, 1987 was
filed with the Company's Annual Report on Form 10-K for the
year ended December 31, 1987 and is incorporated herein by
reference.
10(c) Change in Control Agreements were filed with the Company's Form
10-Q dated September 30, 1998 and are incorporated herein by
reference.
10(d) The 1999 Incentive Stock Option Plan as recommended by the Board
of Directors is filed with the Company's, 1998, Notice of
Annual Shareholders' Meeting and is incorporated herein by
reference.
13 Annual Report to Shareholders for the year ended December 31,
1999.
21 Subsidiaries of the Registrant
27 Financial Data Schedule
28 Notice of Annual Shareholders' Meeting
(b) Reports on Form 8-K
There were no Form 8-K's filed during the last quarter of the period covered by
this report.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934,the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Wayne Bancorp, Inc.
Date: March 27, 2000 By:_____________________________
Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
on Form 10-K has been signed below by the following persons on behalf of the
Registrant in the Capacities and on dates as indicated.
Signature Capacity with Registrant Date
___________________________ ____________________
David L. Christopher Director, Chairman of the Board,
and CEO
___________________________ ____________________
Philip S. Swope Chairman, President and CEO,
Chippewa Valley Bank
___________________________ ____________________
James O. Basford Director
___________________________ ____________________
David P. Boyle, CPA President and Chief Operating
Officer, Wayne County National Bank
___________________________ ____________________
Gwenn E. Bull Director
___________________________ ____________________
Dennis B. Donahue Director
___________________________ ____________________
B. Diane Gordon Director
___________________________ ____________________
John C. Johnston, III Director
___________________________ ____________________
Stephen L. Shapiro Director
___________________________ ____________________
Jeffrey E. Smith Director
___________________________ ____________________
David E. Taylor Director
___________________________ ____________________
Bala Venkataraman Director
19
EXHIBIT (21)
SUBSIDIARIES OF THE REGISTRANT
NAME STATE OF INCORPORATION
Wayne County National Bank Ohio
Chippewa Valley Bank Ohio
Wayne National Corporation Ohio
MidOhio Data, Incorporated Ohio
FIVE YEAR FINANCIAL SUMMARY (1)
(in thousands of dollars except
per share data) For the Years Ended December 31,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------
Statement of Income Summary:
Total Operating Income (2).... $41,862 $41,497 $39,866 $38,684 $34,283
Total Operating Expense....... 30,704 31,374 31,225 29,426 26,739
Total Interest Income......... 37,830 37,773 36,289 34,243 31,067
Total Interest Expense........ 16,046 16,331 15,523 14,765 13,050
Net Interest Income........... 21,784 21,442 20,766 19,478 18,017
Provision for Loan Losses..... 180 240 906 300 230
Income Before Income Tax
Expense...................... 11,158 10,123 8,641 9,258 7,544
Income Tax Expense............ 3,303 2,811 2,921 2,748 2,147
Net Income.................... 7,855 7,312 5,720 6,510 5,397
Per Share Data:
Net Income ................... $1.69 $1.50 $1.16 $1.32 $1.09
Cash Dividends................ 0.60 0.48 0.42 0.37 0.34
Book Value.................... 11.57 12.18 11.36 10.50 9.59
Balance Sheet Data:
Total Loans and Leases........ $356,503 $324,199 $324,833 $289,391 $271,578
Allowance for Loan Losses..... 5,197 4,916 4,923 4,274 4,283
Securities.................... 150,018 175,007 141,922 154,229 126,306
Total Deposits................ 461,815 435,143 409,891 396,639 360,707
Shareholders' Equity.......... 53,246 59,067 55,810 51,592 47,195
Total Assets.................. 545,888 538,677 508,378 484,032 432,300
Other Data:
Employees..................... 254 257 262 251 252
Shareholders.................. 1,439 1,452 1,484 1,434 1,391
Cash Dividends................ $2,795 $2,336 $1,795 $1,595 $1,470
Cash Dividends as a Percent
of Net Income................ 35.58% 31.95% 31.38% 24.50% 27.24%
Financial Ratios:
Return on Average Assets...... 1.47% 1.44% 1.19% 1.43% 1.32%
Return on Beginning Equity.... 13.30% 13.10% 11.09% 13.79% 12.69%
Equity to Assets.............. 9.75% 10.97% 10.98% 10.66% 10.92%
Loans to Deposits............. 77.20% 74.50% 79.25% 72.96% 75.29%
Loans to Total Assets......... 65.31% 60.18% 63.90% 59.79% 62.82%
Allowance for Loan Losses to
Total Loans and Leases....... 1.46% 1.52% 1.52% 1.48% 1.58%
1. This summary should be read in conjunction with the related Consolidated
Financial Statements and Notes to the Financial Statements. Per share
data has been retroactively adjusted for stock dividends, stock splits
and the acquisition of Chippewa Valley Bancshares, Inc.
2. Operating income for 1996 includes a gain on the sale of WCNB's credit card
portfolio of $824 thousand. The after tax effect on net income was $544
thousand, or $.11 per share.
SHAREHOLDER INFORMATION
Executive Offices Transfer Agent
112 West Liberty Street Registrar & Transfer Company
P.O. Box 757 10 Commerce Drive, Cranford NJ 07016
Wooster, Ohio 44691 Attn: Transfer Department
(330) 264-1222 800-368-5948 * Fax: 908-272-1006
All common shares of Wayne Bancorp, Inc. are voting shares and are traded on
NASDAQ, under the symbol "WNNB" as a Small Cap Issue. At December 31, 1999
there are 4,602,985 shares outstanding and 1,439 shareholders of record. The
range of market prices are compiled from data provided by the national market
system.
DIVIDEND AND MARKET PRICE DATA
Cash
Dividends
Quarter Ended High Low Paid
- -------------------------------------------------------------------------
1999 March 31 .................. $35.75 $34.00 $0.15
June 30.................... 35.75 33.63 0.15
September 30............... 33.94 25.50 0.15
December 31................ 30.00 23.50 0.15
1998 March 31................... $47.75 $38.50 $0.09
June 30.................... 40.25 34.38 0.11
September 30............... 37.00 28.50 0.13
December 31................ 35.75 29.00 0.15
FORM 10-K
A copy of the Company's 1999 Annual Report on Form 10-K filed with the
Securities and Exchange Commission is available to shareholders without
charge. To obtain a copy, direct your request to David P. Boyle, Treasurer,
P.O. Box 757, Wooster, OH 44691.
January 27, 2000
The management of Wayne Bancorp, Inc. has prepared and is responsible for the
financial statements and for the integrity and consistency of other related
information contained in the Annual Report. In the opinion of management,
the financial statements, which necessarily include amounts that are based on
management estimates and judgments, have been prepared in conformity with
generally accepted accounting principles appropriate to the circumstances.
The Company maintains a system of internal accounting controls that is designed
to provide reasonable assurance that assets are safeguarded, that transactions
are executed in accordance with Company authorizations and policies, and that
transactions are properly recorded so as to permit preparation of financial
statements that will fairly present the financial position and results of
operations in conformity with generally accepted accounting principles.
Internal controls are augmented by written policies covering standards of
personal and business conduct and an organizational structure providing for
division of responsibility and authority.
The effectiveness of and compliance with established control systems is
monitored through a continuous program of internal audit and credit examina-
tions. In recognition of cost-benefit relationships and inherent control
limitations, some features of the control system are designed to detect rather
than prevent errors, irregularities and departures from approved policies
and practices. Management believes that the system of controls is adequate
to prevent or detect errors or irregularities that would be material to the
financial statements and that timely corrective actions have been initiated
when appropriate.
The Company engaged Crowe, Chizek and Company LLP, independent certified
public accountants, to render an opinion on the financial statements. The
accountants have advised management that they were provided with access to
all information and records deemed necessary to render their opinion.
The Board of Directors exercises its responsibility for the financial state-
ments and related information through the Audit Committee, which is
comprised entirely of outside directors. The Audit Committee meets on a
regular basis with mangement, the Internal Auditor of the Company, and Crowe,
Chizek and Company LLP to assess the scope of the annual audit plan, to review
the status and results of audits, to review the Annual Report and Form 10-K,
including major changes in accounting policy and reporting practices, and to
approve non-audit related services rendered by the independent auditors.
Crowe, Chizek and Company LLP also meets with the Audit Committee, without
management being present, to afford them the opportunity to express their
opinion on the adequacy of management's compliance with the established
policies and procedures and the quality of the financial reporting.
David L. Christopher David P. Boyle, CPA
Chairman of the Board Treasurer
& Chief Executive Officer Wayne Bancorp, Inc.
Wayne Bancorp, Inc.
Report of Crowe, Chizek and Company LLP
Independent Auditors
Board of Directors and Shareholders
Wayne Bancorp, Inc. - Wooster, Ohio
We have audited the accompanying consolidated balance sheets of Wayne Bancorp,
Inc. as of December 31, 1999 and 1998 and the related consolidated statements
of income and comprehensive income, cash flows and changes in shareholders'
equity for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company'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 stan-
dards. Those standards require that we plan and perform our audits 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 esti-
mates made by management, as well as evaluating the overall financial state-
ment 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 Wayne Bancorp,
Inc. 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.
Columbus, Ohio
January 27, 2000 Crowe, Chizek and Company LLP
CONSOLIDATED BALANCE SHEETS
December 31,
(In thousands of dollars except share data) 1999 1998
- -------------------------------------------------------------------------------
ASSETS
Cash and due from banks......................... $23,660 $20,470
Federal funds sold.............................. 3,720 7,340
---------------------------
Total cash and cash equivalents........ 27,380 27,810
Securities, available-for-sale.................. 150,018 175,007
Loans and leases ............................... 356,503 324,199
Less:
Allowance for loan losses ................ 5,197 4,916
--------------------------
Net loans and leases...................... 351,306 319,283
Premises and equipment ......................... 9,260 8,591
Accrued income receivable and other assets ..... 7,924 7,986
--------------------------
TOTAL ASSETS................................... $545,888 $538,677
===========================
LIABILITIES
Deposits
Interest bearing .............................. $395,087 $369,328
Non-interest bearing........................... 66,728 65,815
-------------------------
Total deposits.................................. 461,815 435,143
Short-term borrowings........................... 25,683 36,989
Federal Home Loan Bank advances................. 1,288 2,558
ESOP loan....................................... 400 600
Other liabilities............................... 3,456 4,320
-------------------------
Total liabilities............................. 492,642 479,610
SHAREHOLDERS' EQUITY
Common stock, stated value $1.00................. 4,917 4,917
Shares authorized - 12,000,000 in 1999 and 1998
Shares issued - 4,917,218 in 1999 and 1998
Shares outstanding - 4,602,985 in 1999 and
4,849,974 in 1998
Paid in capital................................. 13,256 13,310
Retained earnings .............................. 47,049 41,989
Unearned ESOP shares - 4,545 shares in 1999 and
9,091 shares in 1998 (200) (400)
Treasury stock, at cost - 314,233 shares in 1999
and 67,244 shares in 1998 (10,887) (2,308)
Accumulated other comprehensive income.......... (889) 1,559
------------------------
Total shareholders' equity...................... 53,246 59,067
--------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $545,888 $538,677
==========================
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands of dollars except Years ended December 31,
per share data) 1999 1998 1997
- ----------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans....... $28,650 $28,264 $27,529
Interest on securities:
Taxable....................... 7,135 7,299 6,952
Nontaxable.................... 1,660 1,513 1,517
Other interest income............ 385 697 291
------------------------------------
Total interest income............ 37,830 37,773 36,289
INTEREST EXPENSE:
Interest on deposits ............ 14,548 14,645 13,978
Interest on repurchase agreements
and other borrowed funds........ 1,498 1,686 1,545
------------------------------------
Total interest expense........... 16,046 16,331 15,523
------------------------------------
NET INTEREST INCOME............... 21,784 21,442 20,766
Provision for loan losses ....... 180 240 906
------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES....... 21,604 21,202 19,860
OTHER INCOME:
Service charges and fees on
deposit accounts................ 1,737 1,724 1,695
Income from fiduciary activities. 1,506 1,414 1,343
Net gains (losses) on sale of
loans........................... 30 (32)
Net gains (losses) on sales of
securities...................... 51 8 (8)
Other noninterest income......... 708 610 547
------------------------------------
Total other income.............. 4,032 3,724 3,577
OTHER EXPENSES:
Salaries and employee benefits .. 7,654 7,520 7,486
Occupancy and equipment.......... 1,911 1,805 1,735
Other operating expenses ........ 4,913 5,478 5,575
------------------------------------
Total other expenses............. 14,478 14,803 14,796
INCOME BEFORE INCOME TAX EXPENSE.. 11,158 10,123 8,641
INCOME TAX EXPENSE................ 3,303 2,811 2,921
------------------------------------
NET INCOME....................... $7,855 $7,312 $5,720
Other comprehensive income, net of tax
Unrealized gain(loss) on available-for-
sale securities arising during the
period........................... (2,482) 867 373
Reclassification adjustment for
amounts realized on securities
included in net income........... 34 (5) 5
---------------------------------------
Total other comprehensive
income....................... (2,448) 862 378
---------------------------------------
COMPREHENSIVE INCOME............ $5,407 $8,174 $6,098
PER SHARE DATA:
NET INCOME PER SHARE - BASIC..... $1.69 $1.50 $1.16
NET INCOME PER SHARE - DILUTED... $1.69 $1.50 $1.16
========== ========== ==========
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
(In thousands of dollars) 1999 1998 1997
- -------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income....................... $7,855 $7,312 $5,720
Adjustments to reconcile net cash
provided by operating activities:
Provision for loan losses..... 180 240 906
Depreciation and amortization. 1,331 1,328 1,647
Federal Home Loan Bank stock
dividends.................... (123) (124) (94)
Amortization of investment
security premiums and accretion
of discounts, net............ 724 117 204
Compensation expense on ESOP
shares....................... 146 154
Deferred income taxes......... (5) (21) (582)
Change in interest receivable. 345 (710) (33)
Change in interest payable.... (48) (90) (34)
Other, net.................... (349) (412) 955
------------------------------------
Net cash provided by operating
activities.................... 10,056 7,794 8,689
INVESTING ACTIVITIES
Securities available-for-sale:
Purchases....................... (47,268) (82,255) (42,792)
Proceeds from maturities and
repayments.................... 57,773 46,503 44,844
Proceeds from sales............. 10,174 2,467 8,554
Securities held-to-maturity:
Purchases....................... (990) (1,900)
Proceeds from maturities and
repayments..................... 2,500 4,066
Net increase in loans and leases. (32,669) (12,090) (35,774)
Proceeds from sales of loans..... 466 11,914
Purchase of premises and equipment
(net)........................... (1,683) (679) (1,224)
------------------------------------
Net cash (used) by investing
activities...................... (13,207) (32,630) (24,226)
FINANCING ACTIVITIES
Net increase in deposits......... 26,672 25,252 13,252
Net increase (decrease) in short-
term borrowings................. (11,307) (960) 6,063
Proceeds from Federal Home Loan
Bank advances................... 12,000 1,800 838
Repayment of Federal Home Loan
Bank advances.................. (13,270) (66) (14)
Cash dividends paid.............. (2,398) (1,997) (1,505)
Treasury stock purchased, net.... (8,976) (2,474) (375)
------------------------------------
Net cash provided by financing
activities...................... 2,721 21,555 18,259
Increase (decrease) in cash and
cash equivalents................. (430) (3,281) 2,722
Cash and cash equivalents at
beginning of year................ 27,810 31,091 28,369
------------------------------------
Cash and cash equivalents at
end of year...................... $27,380 $27,810 $31,091
====================================
Significant non-cash transactions:
Transfer of held-to-maturity
securities to available-for-sale $17,681
Transfer of loans from portfolio
to held for sale................ $11,914
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Years Ended December 31, 1999
Accumulated
(In thousands of Unearned Other
dollars except Common Paid-In Retained Treasury ESOP Comprehensive
per share data) Stock Capital Earnings Stock Shares Income Total
- -------------------------------------------------------------------------------
Balance, January 1,
1997......... $4,917 $13,356 $33,088 ($88) $ $319 $51,592
Net income..... 5,720 5,720
Cash dividends
($.42 per share) (1,652) (1,652)
Cash dividends
of pooled affiliates
($.32 per share) (143) (143)
Purchase of treasury
stock (17,091 shares) (674) (674)
Dividends reinvested
(7,264 shares) 290 290
Sale of treasury
stock (8,325 shares) 299 299
Change in estimated
fair value of securities
available for sale 378 378
-------------------------------------------------------
Balance, December 31,
1997.......... 4,917 13,356 37,013 (173) 697 55,810
Net income...... 7,312 7,312
Cash dividends
($.48 per share) (2,336) (2,336)
Purchase of treasury
stock (80,556 shares) (2,907) (2,907)
Dividends reinvested
(9,495 shares) 339 339
Sale of treasury
stock (10,619 shares) 433 433
Common stock acquired
pursuant to ESOP (600) (600)
Shares issued under
ESOP (46) 200 154
Change in estimated
fair value of securities
available-for-sale 862 862
----------------------------------------------------------
Balance, December 31,
1998.......... 4,917 13,310 41,989 (2,308) (400) 1,559 59,067
Net income...... 7,855 7,855
Cash dividends
($.60 per share) (2,795) (2,795)
Purchase of treasury
stock (260,533 shares) (8,976) (8,976)
Dividends reinvested
(13,544 shares) 397 397
Shares earned under
ESOP............. (54) 200 146
Change in estimated
fair value of securities
available-for-sale (2,448) (2,448)
----------------------------------------------------------
Balance, December 31,
1999.......... $4,917 $13,256 $47,049 ($10,887)($200) ($889) $53,246
==========================================================
See Notes to Consolidated Financial Statements
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
(In thousands of dollars except per share data)
1. NATURE OF OPERATIONS
Wayne Bancorp, Inc., is a multi-bank holding company, its bank subsidiaries,
Wayne County National Bank (WCNB) and Chippewa Valley Bank (CVB), conduct
general commercial banking business, while its non-bank subsidiary, MidOhio
Data, Inc. (MID) performs data processing services for WCNB. Wayne National
Corporation, a wholly-owned subsidiary of WCNB, is a partner in a leasing
company which is no longer active.
The Company's bank affiliates operate in the single industry of commercial
banking, while these subsidiaries offer a wide variety of services and pro-
ducts, they are all deemed to be part of commercial banking. The Company's
non-bank affiliate conducts operations solely related to data processing and
currently serves WCNB.
The Company has 23 banking locations in Wayne, Holmes, Medina and Stark counties
in Ohio. Through this branch network, the Company provides a wide variety of
services to businesses, individuals, institutional and governmental custo-
mers. These services include commercial and personal checking accounts,
savings and time deposits, business and personal loans, real estate loans,
leases, safe deposit facilities and electronic banking. Substantially all
loans are secured by specific identified collateral including business
assets, consumer assets and real estate. Commercial loans are expected to be
repaid from cash flow from operations of businesses. Real estate loans are
secured by both residential and commercial real estate.
The Company operates a Trust Department which offers comprehensive trust admin-
istrative services, and agency, trust and investment services to individuals,
corporations, partnerships, institutions and municipalities. In addition,
the Company provides retail investment services, including mutual funds and
annuities as well as discount brokerage services which offer stock trading
services to customers.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Wayne Bancorp,
Inc. and its wholly owned subsidiaries, WCNB, CVB and MID, as well as WCNB's
wholly owned subsidiary Wayne National Corporation, collectively referred to
as the Company. All significant intercompany transactions have been
eliminated.
Use of Estimates in the Preparation of Financial Statements
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 amounts reported in the
financial statements and disclosures provided; future results could differ.
The collectibility of loans, fair value of financial instruments and the status
of contingencies are particularly subject to change.
Cash Flows
Cash and cash equivalents includes cash, deposits with other financial
institutions and federal funds sold. Net cash flows are reported for loan
and deposit transactions. For the years ended December 31, 1999, 1998 and
1997, income taxes paid totaled $3.10 million, $3.32 million, and $3.09 million
and interest paid totaled $16.09 million, $16.42 million and $15.56 million
respectively.
Securities
Securities can be classified as held-to-maturity, available-for-sale, or
trading. Securities are classified as held-to-maturity and carried at
amoritzed cost, when management has the positive intent and ability to hold
them to maturity. Securities are classified as available-for-sale when they may
be sold prior to maturity. Securities available-for-sale may be sold by the
Company if needed for liquidity, asset-liability management, or other rea-
sons. Securities available-for-sale are carried at fair value, with unreal-
ized holding gains and losses reported separately as part of accumulated
other comprehensive income in shareholders' equity, net of tax. Securities
are classified as trading when the security is purchased principally for sale
in the near term. These securites are carried at fair value, with unrealized
gains and losses included in earnings. Other securities, such as the Federal
Reserve Bank stock and Federal Home Loan Bank stock, are carried at cost.
Interest income includes amortization of purchase premiums and discounts.
Realized gains or losses are calculated based on the amortized cost of the
specific security sold. For the periods ending December 31, 1999 and 1998,
the Company's securities were classified exclusivley as available-for-sale.
Loans
Loans and leases are reported at principal balances outstanding, net of deferred
loan fees and costs. Loans held for sale are reported at the lower of cost or
market on an aggregate basis. Interest income on leases is recognized under
a method which provides for a level return on the net investment outstanding.
Interest income on loans is reported on the interest method and includes
amortization of net deferred loan fees and costs over the term of the loan.
Interest income is not recorded when management believes the collection of
interest is doubtful, typically when payments are past due over 90 days.
Payments received on such loans are reported as principal reductions.
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance established through a
provision for loan losses charged to expense. The allowance is the amount
which, in the opinion of management, is necessary to provide for probable
losses in the loan portfolio. Management's determination of the adequacy of
the allowance is based on evaluations of the collectibility of loans out-
standing, taking into consideration prior loan loss experience, loan quality,
current economic conditions and other pertinent factors. Loans which are
deemed uncollectible are charged-off and deducted from the allowance and
recoveries on loans previously charged-off are restored to the allowance.
Loan impairment is reported 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 and consumer loans, and on an
individual loan basis for other loans. In addition, loans held for sale and
leases are excluded from consideration of impairment. If a loan is impaired,
a portion of the allowance is allocated so that the loan is reported, net, at
the present value of future cash flows using the loan's existing rate or at the
fair value of collateral if repayment is expected exclusively from the col-
lateral. Loans are evaluated for impairment when payments are delayed,
typically 60 days or more, or when it is probable that all principal and
interest amounts will not be collected according to the original terms of the
loan.
Other Real Estate
Other real estate is recorded at the lower of cost or fair value, less estimated
costs to sell. Any reduction from the carrying value of the related loan to
fair value at the time the property is acquired is accounted for as a loan
charge-off. Any subsequent reductions in the fair value are reflected in a
valuation allowance through a charge to other real estate expense. Expenses
incurred to carry other real estate are charged to operations as incurred.
There was no other real estate held at December 31, 1999 and 1998.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. De-
preciation is computed on a straight-line method over the estimated useful
life of the asset. Assets are reviewed for impairment when events indicate
the carrying amount may not be recoverable. Maintenance and repairs are charged
to expense as incurred and major improvements are capitalized.
Intangibles
Purchases of intangibles, primarily Goodwill and Core Deposit Intangible, is the
excess of purchase price over identified tangible net assets in a business
acquisition. Intangibles are included in Other Assets and are recorded at
cost, less accumulated amortization, and amortized over their useful lives.
Goodwill consists of two components arising from separate acquisitions made by
the Company's subsidiaries. In July of 1991, WCNB acquired four branches of
the former First Savings and Loan Company of Massillon, Ohio, and in March of
1996, CVB purchased two branches from the First National Bank of Ohio. The
amortization period for Goodwill is ten years for WCNB and fifteen years for
CVB, and their balances at December 31, 1999 were $199,000 and $910,000.
Core Deposit Intangible which arose from WCNB's acquisition, is being amor-
tized over a ten year period and has a balance of $56,000 at December 31,
1999. Amortization of these intangibles totaled $317,000 for 1999 and 1998,
and $789,000 for 1997.
Trust Department Assets and Income
Assets held by the Company in a fiduciary or other capacity for its trust cus-
tomers are not included in the accompanying consolidated financial statements
since such items are not assets of the Company. Fee income on fiduciary
activities is accrued based on expected fees to be collected from various fi-
diciary accounts. These fees are primarily based on, among other things, a
fixed regular fee, a percentage of assets managed fee, and a percentage of
the earnings on trust assets.
Repurchase Agreements
Substantially all repurchase agreement liabilities represent amounts advanced by
various customers. Securities are pledged to cover these liabilities, which are
not covered by federal deposit insurance.
Stock Compensation
Employee compensation expense under stock option plans is reported if options
are granted below market price at grant date. Pro forma disclosures of net
income and earnings per share are shown using the fair value method of SFAS
No. 123 to measure expense.
Income Taxes
The Company records income tax expense based on the amount of taxes due on its
tax return plus the change in deferred taxes. Deferred tax assets and lia-
bilities are the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities, computed
by using enacted tax rates. A valuation allowance, if needed, reduces defer-
red tax assets to the amount expected to be realized.
Employee Stock Ownership Plans
The cost of shares issued to the ESOP, but not yet allocated to participants, is
shown as a reduction of shareholders' equity. Compensation expense is based on
the market price of the shares as they are committed to be released to par-
ticipant accounts. Dividends on allocated ESOP shares reduce retained
earnings; dividends on unearned ESOP shares reduce debt and accrued interest.
Per Share Amounts
Net income per share is computed by dividing net income by the weighted-average
number of shares outstanding during the period, as restated for shares issued
in business combinations accounted for as poolings-of-interest, stock splits
and stock dividends. Basic and dilutive weighted-average shares out-standing
for 1999, 1998 and 1997 were 4,658,781, 4,879,649 and 4,913,784. Unreleased
ESOP shares are not considered to be outstanding for the purpose of deter-
mining weighted-average shares. The effect of stock options granted were
non-dilutive as the exercise price exceeded the market value at year end.
Business Combination
Effective March 31, 1998, Chippewa Valley Bancshares, Inc., Rittman, Ohio,
merged into the Company. The transaction was affected through the exchange
of 2.1916 common shares of the Company's stock for each of Chippewa's out-
standing common shares, with cash paid in lieu of fractional shares. There were
981,837 shares issued in this transaction. Chippewa had assets of $140.2 mil-
lion and deposits of $121.3 million with branches in Wayne, Medina and Summit
counties, Ohio. Chippewa will operate as a wholly-owned subsidiary of the
Company.
The acquisition of Chippewa was accounted for as a pooling-of-interests. The
consolidated financial statements give retroactive effect to the trans-
actions. The following is a summary of the separate results of operations of
the Company and Chippewa for the three months ended March 31, 1998 and the year
ended December 31, 1997.
(dollars in thousands)
Three months
ended Year ended
March 31, December 31,
1998 1997
-----------------------------
Net interest income
Company.......... $4,026 $15,699
Chippewa......... 1,319 5,067
------------------------------
Combined....... $5,345 $20,766
===============================
Net income
Company.......... $1,349 $5,621
Chippewa......... 368 99
-------------------------------
Combined....... $1,717 $5,720
===============================
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income.
Other comprehensive income includes unrealized gains and losses on securities
available-for-sale which are also recognized as separate components of equity.
Dividend Reinvestment Plan
The Company maintains a dividend reinvestment plan whereby the Company's share-
holders are eligible to acquire new common shares of stock at 100% of the cur-
rent estimated fair market value in lieu of receiving cash dividends. Share-
holders can have all or part of their normal cash dividends reinvested in the
Company's stock. During 1999, 13,544 shares of stock were allocated under
the plan in lieu of cash dividends of $397 thousand. The Company can either
acquire these shares on the open market to fund its obligation, or use shares
held as treasury stock.
Dividend Restrictions
Banking regulations require maintenance of certain capital levels which may
limit the amount of dividends paid by the bank subsidiaries to the holding
company or the holding company to shareholders. See Note #14 for regulatory
capital requirements and dividend restrictions.
Fair Values of Financial Instruments
Fair values of financial instruments are estimated using relevant market infor-
mation and other assumptions, as more fully disclosed separately. Fair value
estimates involve uncertainties and matters of significant judgement regard-
ing 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 these estimates. The fair
value of estimates of existing on- and off-balance sheet financial instruments
does not include the value of anticipated future business or the values of
assets and liabilities not considered financial instruments.
New Accounting Pronouncement
Beginning January 1, 2001, a new accounting standard will require all deriv-
atives 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 item, even if the fair value of the hedged item is not
otherwise recorded. This is not expected to have a material effect but will
depend on derivative holdings when this standard applies.
Reclassifications
Certain reclassifications have been made to amounts previously reported to
conform with the current financial statement presentation.
3. SECURITIES
The summary of amortized cost and fair values of securities available-for-sale
are as follows at December 31, 1999
Gross Gross
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gains Losses Value
- ------------------------------ --------------------------------------------
U.S. Treasury................. $33,160 $17 ($261) $32,916
Federal Agency
Obligations................ 35,371 2 (453) 34,920
Mortgage-backed Securities.... 13,083 20 (141) 12,962
Obligations of States and
Political Subdivisions..... 37,931 183 (420) 37,694
Corporate Obligations......... 29,094 6 (305) 28,795
Other Securities.............. 2,726 63 (58) 2,731
-------------------------------------------
$151,365 $291 ($1,638) $150,018
===========================================
The summary of amortized cost and fair values of securities available-for-sale
are as follows at December 31, 1998:
Gross Gross
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gains Losses Value
- ------------------------------ -------------------------------------------
U.S. Treasury................. $24,132 $362 $ $24,494
Federal Agency
Obligations................. 49,597 546 (5) 50,138
Mortgage-backed Securities.... 21,104 251 (3) 21,352
Obligations of States and
Political Subdivisions...... 36,321 878 (13) 37,186
Corporate Obligations......... 38,884 213 (23) 39,074
Other Securities.............. 2,607 185 (29) 2,763
-------------------------------------------
$172,645 $2,435 ($73) $175,007
===========================================
During 1999, 1998 and 1997 proceeds from the sales of securities available-for-
sale were $10.2 million, $2.5 million and $8.6 million with gross gains of $54
thousand, $9 thousand and $2 thousand, and gross losses of $3 thousand, $1
thousand and $10 thousand included in earnings.
In connection with the merger by the Company in March 1998, CVB transferred all
of its securities classified as held-to-maturity to available-for-sale. The
securities were transferred in order to align the investment objectives of
CVB with those of WCNB. The carrying value of the securities transferred was
$17.7 million. The unrealized gain at the time the securities were trans-
ferred was $263 thousand. The after-tax effect of the transfer was an
increase in equity of approximately $174 thousand.
The amortized cost and estimated fair value of the securities at December 31,
1999 by contractual maturity, are shown below. Expected maturities may dif-
fer from the contractual maturities because borrowers may have the right to
call or prepay the obligations with or without call or prepayment penalties.
(dollars in thousands) Amortized Fair
Cost Value
---------------------
Due in one year or less... $32,563 $32,511
Due after one year
through five year........ 92,641 91,560
Due after five years
through ten years........ 9,285 9,186
Due after ten years....... 1,067 1,068
---------------------
135,556 134,325
Mortgage Backed
Securities............... 13,083 12,962
Equity Securities......... 2,726 2,731
---------------------
$151,365 $150,018
=====================
Securities were pledged to secure public and trust deposits, securities sold
under agreements to repurchase, and for other purposes required or permitted
by law. Such pledged securities at December 31, 1999 and 1998 had a carrying
amount of $70.9 million and $64.4 million, respectively.
4. LOANS AND LEASES
The composition of the loan portfolio at December 31 is as follows:
(dollars in thousands) 1999 1998
-------------------
Commercial ........... $146,504 $129,504
Real Estate........... 147,068 131,820
Consumer Installment.. 48,411 48,141
Home Equity........... 12,234 11,252
Direct Lease Financing 2,179 2,835
Credit Card.......... 0 543
Other Loans.......... 107 104
--------------------
$356,503 $324,199
====================
The Banks have granted loans to the officers and directors of the Company and
its subsidiaries and their related business interests. The aggregate dollar
amount of these loans was $6.8 million and $5.8 million at December 31, 1999
and 1998, respectively. During 1999, $3.3 million of new loans and advancements
were made and the repayments on loans to these parties totaled $2.3 million.
5. ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses is as follows:
(dollars in thousands) 1999 1998 1997
---------------------------
Balance at Beginning
of Year.................... $4,916 $4,923 $4,274
Loans Charged Off........... (261) (483) (551)
Loan Recoveries............. 362 236 294
Provision for Loan Losses... 180 240 906
----------------------------
Balance at End of Year...... $5,197 $4,916 $4,923
============================
The Company had no impaired loans at December 31, 1999 or 1998. During 1999,
the Company had no impaired loans while the average balance for impaired
loans was $153 thousand during 1998. Income earned on the cash basis for the
year ended December 31, 1998 was $3 thousand. Balances of loans past due 90
days or more and still accruing interest were immaterial at December 31, 1999
and 1998.
6. PREMISES AND EQUIPMENT
A summary of the premises and equipment balances at December 31 is as follows:
(dollars in thousands) 1999 1998
----------------
Land..................... $1,810 $1,530
Premises and Leasehold
Improvements............ 9,576 9,146
Furniture and Equipmement 7,841 6,901
-------------------
19,227 17,577
Less Accumulated
Depreciation.......... (9,967) (8,986)
-------------------
$9,260 $8,591
====================
Depreciation expense was $1.01 million in 1999, $1.01 million in 1998, and $858
thousand in 1997.
7. DEPOSITS
Time certificates of deposit with a balance of $100,000 or more were $32.0 mil-
lion and $25.3 million at December 31, 1999 and 1998 respectively. Interest
expense on these deposits was $1.37 million, $1.41 million and $1.28 million
for 1999, 1998, and 1997, respectively.
At year-end 1999, stated maturities on time certificates of deposit were as
follows:
(dollars in thousands)
2000........................ $115,789
2001........................ 43,995
2002........................ 10,303
2003........................ 9,614
2004........................ 6,833
Thereafter.................. 26
----------
$186,560
==========
8. BORROWINGS
Federal funds purchased, securities sold under agreements to repurchase and
treasury tax and loan deposits are financing arrangements. Physical control
is maintained for all securities sold under agreements to repurchase.
Securities sold under agreements to repurchase totaled $24.5 million and $37.0
million while treasury tax and loan deposits totaled $598 thousand and $44
thousand at December 31, 1999 and 1998, respectively. Information concerning
securities sold under agreements to to repurchase is as follows:
(dollars in thousands) 1999 1998
-----------------------
Average month-end balance during the year......... $28,636 $35,653
Average interest rate during the year............. 4.11% 4.40%
Maximum month-end balance during the year......... $35,436 $38,987
Securities underlying these agreements at year-end were as follows:
(dollars in thousands) 1999 1998
----------------------
Amortized cost of securities...................... $29,166 $42,024
Fair value of securities.......................... $28,943 $42,566
Federal Home Loan Bank advances include fixed and variable-rate notes from the
Federal Home Loan Bank (FHLB) of Cincinnati. Principal balances on these notes
at December 31, 1999, and 1998 were $1.3 million and $2.6 million, respec-
tively. Interest expense on these borrowings for the years ending December
31, 1999, and 1998 was $196 thousand and $58 thousand respectively. The
weighted average interest rate on these borrowings is 5.92%. These bor-
rowings are secured by a blanket pledge of the Company's one-to-four family
residential real estate loan portfolio and FHLB stock.
The principal repayments on these borrowings are as follows at December 31,
1999:
(dollars in thousands) 2000...................... $75
2001...................... 79
2002...................... 1,134
----------
$1,288
==========
Included in Short-term Borrowings are Line of Credit advances from Bank One.
These advances carry a variable interest rate. The principal balance at
Decmeber 31, 1999 was $605 thousand. The weighted average interest rate on th
Line of Credit is 7.15%, while total interest expense was $31 thousand.
There was no related balance or interest expense for the year ended December
31, 1998.
9. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value approximates carrying value for all financial in-
struments except those described below:
Securities
Fair values are based on a quoted market price, if available. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar instruments.
Loans and Leases
The fair value of fixed rate loans is estimated by discounting future cash flows
using current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. Leases are not
considered financial instruments under generally accepted accounting
principles and are, therefore, not included in the following schedules.
Deposits
Fair values for deposit liabilities with defined maturities are based on the
discounted value of future cash flows expected to be paid, using the current
rate offered for similar deposits with the same remaining maturities.
Long-term Debt
The fair value of long-term debt is estimated by discounting future cash flows
using currently available rates for similar financing.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of off-balance sheet loan commitments is considered nominal.
The estimated fair values of the Company's financial instruments are as
follows:
1999 1998
Carrying Fair Carrying Fair
(dollars in thousands) Value Value Value Value
-----------------------------------------
Financial Assets:
Cash and Short-term
Investments.................. $27,380 $27,380 $27,810 $27,810
Securities
Available-for-sale.......... 150,018 150,018 175,007 175,007
Net Loans, excluding Leases... 349,127 346,174 316,447 324,848
Accrued Interest Receivable... 4,274 4,274 4,619 4,619
Financial Liabilities:
Deposits...................... (461,815) (462,692) (435,143) (437,052)
Short-term borrowings......... (25,683) (25,683) (36,989) (36,989)
Other borrowings.............. (1,288) (1,217) (2,558) (2,576)
ESOP loan..................... (400) (400) (600) (600)
Accrued Interest Payable...... (1,604) (1,604) (1,652) (1,652)
10. EMPLOYEE BENEFIT PLANS
The Company sponsors a non-contributory Employee Stock Ownership Plan (ESOP),
and a 401(k) plan, in which all salaried employees with one year or more of
service participate. Annual contributions to the ESOP are made by the Com-
pany's subsidiaries in an amount equal to 6% of the aggregate compensation
paid in such year to all eligible participants. ESOP contributions for the
periods ending December 31, 1998 and 1997 were for WCNB only, and is prior to
the adoption of this plan by CVB. The PSRP as reflected in the table below
represents a prior benefit offered by the Company for employees of WCNB.
This plan, which was amended on May 31, 1999, called for contributions
equaling 6.37% of aggregate compensation to the profit sharing plan and
amounts equal to 2.25% of aggregate compensation being paid out in cash to
all eligible employees. The 401(k) is funded through a salary reduction
program, as well as a matching portion funded by the respective subsidiaries.
The plan policy allows the Company to match up to 50% of the employees contri-
bution, up to the first 6%. The ESOP has received a favorable determination
letter from the Internal Revenue Service on the qualified status of the ESOP
under applicable provisions of the Internal Revenue Code. Actual contribu-
tions paid to the plans, by the Company, for the three years ending December
31, are as follows:
(dollars in thousands) 1999 1998 1997
-------------------------
401(k)................... $131 $23 $23
ESOP..................... 329 244 229
PSRP..................... -- 331 310
-------------------------
$460 $598 $562
=========================
In April 1998, the ESOP borrowed funds from an unrelated financial institution
to acquire common shares of the Company. The loan is secured by the shares
purchased with the proceeds, and will be repaid by the ESOP with funds from
discretionary contributions to the ESOP and earnings on the ESOP assets. The
loan is also guaranteed by WCNB. The shares purchased with the loan proceeds
are held in a suspense account for allocation among participants as the loan
is repaid. As payments are made and shares are released from the suspense
account, such shares will be validly issued, fully paid and nonassessable.
At December 31, 1999 the loan balance was $400 thousand, while the balance on
this loan was $600 thousand at December 31, 1998.
Shares pledged as collateral are reported as unearned ESOP shares in the con-
solidated balance sheets. As shares are committed to be released for alloca-
tion, the Company reports compensation expense equal to the current market
price of the shares, and shares become outstanding for earnings per share
computations. Dividends on allocated shares are recorded as a reduction of
retained earnings; dividends on unallocated shares are recorded as a reduc-
tion of debt and accrued interest. ESOP compensation expense related to
leveraged shares was $146 thousand in 1999 and $154 thousand in 1998. The
ESOP shares as of December 31, 1999 and 1998 were as follows.
1999 1998
------------------
Allocated Shares............... 137,019 136,373
Shares committed to be released
for allocation................ 9,092 4,546
Unreleased shares.............. 4,545 9,091
----------------------
150,656 150,010
======================
The fair value of unreleased shares was $107 thousand at December 31, 1999.
CVB previously sponsored a non-contributory defined benefit pension plan
covering substantially all of its employees. On November 23, 1998, the
Board of Directors of CVB approved a resolution to cease the accrual of
benefits under the plan effective December 31, 1998 and to terminate the
pension plan effective February 28, 1999. The plan assets were frozen and the
nonvested accumulated benefit obligation as of December 31, 1998 became vested.
The vested benefit obligation was settled in 1999 by a lump-sum payment to
each covered employee. The pension expense recognized by CVB was $126
thousand and $18 thousand in 1998 and 1997. respectively.
The Company established an incentive stock option plan in 1999 that covers
directors and certain officers of the Company. Under this plan options to
purchase stock have been granted to these directors and officers. This plan
provides for the issue of up to 500,000 options. Exercise price is the market
price at the date of grant. The maximum option term is ten years, options
issued to directors are vested immediately, while options issued to certain
officers vest over a three year period. In the event, however, of a change
in control, options issued to these officers become fully vested and exer-
cisable immediately.
A summary of the activity in the plan is as follows.
1999
----------------------------
Weighted
Average
Exercise
Shares Price
----------------------------
Outstanding at beginning
of year................ 0 $ 0
Granted................. 52,100 31.58
Exercised............... 0 0
Forfeited............... 0 0
-----------------------------
Outstanding at end of
year.................. 52,100 $31.58
-----------------------------
Options excercisable
at year end........... 20,400
Remaining shares
available for grant... 447,900
Options outstanding at year-end 1999 were as follows:
Weighted
Average
Rang e of Remaining
Exercise Number Contractual Outstanding
Price Outstanding Life Exercisable
- --------------------------------------------------------------
$26.00 17,900 10 years 9,000
$34.50 34,200 9 years 11,400
-----------------------------------------------
Outstanding
at end of year 52,100 9.5 years 20,400
===============================================
Had compensation cost for stock options been measured using FASB Statement No.
123, net income and earnings per share would have been the pro forma amounts
indicated below. The net pro forma effect may increase in the future if more
options are granted.
1999
--------
Net Income as reported.................... $7,855
Pro forma net income...................... 7,731
Basic earnings per share as reported...... 1.69
Pro forma basic earnings per share........ 1.66
Diluted earnings per share as reported.... 1.69
Pro forma diluted earnings per share...... 1.66
The proforma effects are computed using option pricing models, using the fol-
lowing weighted-average assumptions as of the grant date.
1999
---------------
Risk-free interest rate........... 4.59 - 5.73%
Expected option life.............. 7.5 years
Expected stock price volatility... 23.89 - 25.21%
Dividend yield.................... 2.00 - 2.50%
11. OTHER OPERATING EXPENSES
Other operating expenses include the following major categories of expense:
(dollars in thousands) 1999 1998 1997
--------------------------
Data Processing.......... $1,093 $1,246 $1,089
Franchise Taxes.......... 641 710 600
Intangible Amortization. 317 317 789
Other Operating.......... 2,862 3,205 3,097
---------------------------
$4,913 $5,478 $5,575
============================
12. INCOME TAXES
Income tax expense and related balance sheet accounts are as follows:
(dollars in thousands) 1999 1998 1997
----------------------------
Federal Current................... $3,308 $2,832 $3,503
Federal Deferred (Benefit)........ (5) (21) (582)
----------------------------
$3,303 $2,811 $2,921
============================
The sources of gross deferred tax assets and gross deferred tax liabilities at
December 31, are as follows:
(dollars in thousands) 1999 1998 1997
----------------------------
Items giving rise to deferred tax assets:
Allowance for loan losses in excess of
tax reserves........................... $1,282 $1,263 $1,265
Employee benefits....................... 373 375 265
Intangible assets....................... 164 172 181
Unrealized loss on securities
available-for-sale..................... 458
Other................................... 2 69 32
Items giving rise to deferred tax liabilities:
Depreciation............................ (189) (191) (205)
Leases.................................. (394) (437) (358)
Unrealized gain on securities
available-for-sale..................... (803) (359)
Other................................... (194) (212) (162)
-----------------------------------
Net deferred tax assets.................. $1,502 $236 $659
===================================
The Company has sufficient taxes paid in prior years to support recording these
deferred tax assets without a valuation allowance.
The reasons for the differences between income tax expense and the amount
computed by applying the statutory federal income tax rate of 34% for the
three years presented are as follows:
(dollars in thousands) 1999 1998 1997
-------------------------
Tax at Federal Statutory
Rate.................... $3,794 $3,442 $2,938
Effect of Tax-Exempt
Income.................. (447) (416) (430)
Effect of Non-deductible
Goodwill Amortization.. 61 61 61
Other.................... (105) (276) 352
--------------------------
$3,303 $2,811 $2,921
===========================
Effective Tax Rate....... 29.60% 27.80% 33.80%
===========================
13. COMMITMENTS AND CONTINGENCIES
Various contingent liabilities are not reflected in the financial statements,
including claims and legal actions arising in the ordinary course of business.
In the opinion of management, after consultation with legal counsel, the
ultimate disposition of these matters is not expected to have a material effect
on financial conditions or results of operations.
Some financial instruments are used in the normal course of business to meet
financing needs of customers. These financial instruments include commit-
ments to extend credit, standby letters of credit and financial guarantees.
These involve, to varying degrees, credit risk more than the amount reported
in the financial statements.
As of December 31, 1999, the Company had outstanding standby letters of credit
of $2.0 million compared to $1.9 million at December 31, 1998. These letters
of credit are backed by notes signed by the customer. These notes are pri-
marily variable-rate. In addition to these letters of credit, the Company
had committments outstanding to extend credit and unfunded lines of credit to
customers totaling approximately $62.5 million and $47.2 million at December
31, 1999 and 1998. All of these unfunded commitments are variable rate and
mature within one year. These committments generally require the customer
to maintain certain credit standards. Management does not anticipate any
material losses as a result of these commitments.
At December 31, 1999, the Company was required to maintain $7.1 million either
in cash or in balances with the Federal Reserve Bank. These balances do not
earn interest.
The Company and WCNB have entered into employment agreements with certain
officers of the Bank. The term of the agreements are ten years. The employ-
ment agreements provide that in the event of a "change in control" of Wayne
Bancorp, Inc., or WCNB, the officers would be entitled to benefits under the
agreement. These benefits for some officers are 36 monthly cash payments,
each equal to 8% of the sum of their respective compensation, including bonuses,
paid to the officer in the last whole calender year preceding their termination
of employment, and for other officers these benefits are 24 monthly cash pay-
ments, each equal to 8% of the sum of their respective compensation, inclu-
ding bonuses, paid to them in the last whole calender year preceding their
termination of employment.
The President of the Company, who also serves as the President of CVB, is party
to an employment agreement with CVB which is substantially the same as those
described above. The agreement provides for three years of salary and bene-
fits in the event his employment is terminated. This agreement is valid for
36 months from the date of the change in control. This agreement will expire
on April 1, 2001.
14. REGULATORY MATTERS
Dividends are paid by the Company from its assets which are mainly provided by
dividends from its subsidiaries. However, certain restrictions exist in regard
to the ability to transfer funds to the Company in the form of dividends.
The approval of the Comptroller of the Currency, for WCNB, and the Federal
Reserve Board, for CVB, is required in order to pay dividends in excess of
earnings retained in the current year plus retained earnings from the prece-
ding two years. The amount of retained earnings available for dividends
without this approval is $2.4 million for WCNB and $600 thousand for CVB. On
January 6, 1999, WCNB received approval from the Comptroller of the Currency to
pay a special dividend to the Company in the amount of $7.0 million, this
approval expired on December 31, 1999. During the year ending December 31,
1999, WCNB exercised this approval and paid special dividends of $6.5 million
to the Company.
The Company and its subsidiaries are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and
prompt corrective action regulations involve quantitative measures of assets,
liabilities and certain off-balance sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject
to qualitative judgements by regulators about components risk weightings, and
other factors, and the regulators can lower classifications in certain cases.
Failure to meet various capital requirements can initiate regulatory action
that could have a direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications, including
well captialized, adequately capitalized, undercapitalized, significantly under-
capitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If undercap-
italized, capital distributions are limited, as is asset growth and expan-
sion, and plans for capital restoration is required. The minimum require-
ments are:
Capital to Risk- Tier 1 Capital to
Weighted Asset Average Assets
--------------------------------------
Total Tier 1
--------------------------------------
Well Capitalized................ 10% 6% 5%
Adequately Capitalized.......... 8% 4% 4%
Undercapitalized................ 6% 3% 3%
At year-end, consolidated and Bank only actual capital levels (in thousands) and
minimum required levels were as follows:
As of December 31, 1999 To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
-----------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------
Total Capital
(to Risk Weighted
Assets)
Consolidated.. $57,385 16.5% $27,829 8.0% $34,787 10.0%
WCNB.......... 45,307 16.8% 21,574 8.0% 26,967 10.0%
CVB........... 10,917 13.5% 6,484 8.0% 8,105 10.0%
Tier I Capital
(to Risk Weighted
Assets)
Consolidated.. $53,026 15.2% $13,915 4.0% $20,872 6.0%
WCNB.......... 31,930 11.8% 10,787 4.0% 16,180 6.0%
CVB........... 9,900 12.2% 3,242 4.0% 4,863 6.0%
Tier I Capital
(to Average Assets)
Consolidated.. $53,026 9.7% $21,808 4.0% $27,259 5.0%
WCNB.......... 31,930 7.9% 16,091 4.0% 20,114 5.0%
CVB........... 9,900 6.8% 5,869 4.0% 7,336 5.0%
As of December 31, 1998:
Total Capital
(to Risk Weighted
Assets)
Consolidated.. $60,308 17.6% $27,443 8.0% $34,304 10.0%
WCNB.......... 48,157 18.5% 20,858 8.0% 26,072 10.0%
CVB........... 11,386 14.2% 6,418 8.0% 8,023 10.0%
Tier I Capital
(to Risk Weighted
Assets)
Consolidated.. $56,028 16.3% $13,722 4.0% $20,583 6.0%
WCNB.......... 34,892 13.4% 10,429 4.0% 15,643 6.0%
CVB........... 10,381 12.9% 3,209 4.0% 4,814 6.0%
Tier I Capital
(to Average Assets)
Consolidated.. $56,028 10.7% $20,881 4.0% $26,101 5.0%
WCNB.......... 34,892 9.20% 15,220 4.0% 19,025 5.0%
CVB........... 10,381 7.4% 5,610 4.0% 7,013 5.0%
At year end 1999 and 1998, the Company and subsidiaries were categorized as well
captialized. Management is not aware of any conditions subsequent to year end
that would change the Company's or the Banks' capital category.
15. WAYNE BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
BALANCE SHEETS Years Ended
(dollars in thousands) December 31,
1999 1998
----------------
ASSETS
Cash............................... $33 $24
Securities Available-for-sale...... 820 1,182
Subordinated Note from Subsidiary.. 10,000 10,000
Investment in Subsidiaries......... 44,077 48,206
-------------------
TOTAL ASSETS........................ $54,930 $59,412
===================
LIABILITIES......................... $1,684 $345
SHAREHOLDERS' EQUITY................ 53,246 59,067
-------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY............. $54,930 $59,412
===================
STATEMENTS OF INCOME
(dollars in thousands) Years Ended December 31,
1999 1998 1997
-------------------------------
Dividends from Subsidiaries.................. $11,087 $3,679 $1,994
Other Income................................. 632 657 662
-------------------------------
11,719 4,336 2,656
Other Expenses............................... 286 445 407
--------------------------------
Income Before Income Taxes and Equity in
Undistributed Earnings of Subsidiaries...... 11,433 3,891 2,249
Federal Income Tax Benefit................... (94) (130) (109)
-----------------------------
11,527 4,021 2,358
Equity in Undistributed Earnings
(Distributions in Excess of Earnings)
of Subsidiaries............................ (3,672) 3,291 3,362
-----------------------------
Net Income................................... $7,855 $7,312 $5,720
=============================
STATEMENT OF CASH FLOWS
(dollars in thousands) Years Ended December 31,
1999 1998 1997
------------------------------
OPERATING ACTIVITIES
Net Income................................... $7,855 $7,312 $5,720
Adjustments to Reconcile Net
Income to Net Cash Provided
by Operating Activities:
(Equity in Undistributed Earnings)
Distributions in Excess of Earnings
of Bank Subsidiaries...................... 3,672 (3,291) (3,362)
Other, Net................................. (67) (26) 299
------------------------------
Net Cash Provided by
Operating Activities...................... 11,460 3,995 2,657
INVESTING ACTIVITIES
Purchase of Securities Available-for-sale.... (24) (460) (981)
Proceeds from Sales and Maturities
of Securities Available-for-Sale............ 200 914 456
Capitalization of MidOhio Data, Inc.......... (850)
-----------------------------
Net Cash Provided (Used) by
Investing Activities...................... (674) 454 (525)
FINANCING ACTIVITIES
Net Increase(Decrease) in short-term
borrowings.................................. 605
Repayment of long-term debt.................. (213)
Cash Dividends............................... (2,398) (1,997) (1,505)
Dividends on Unallocated ESOP shares......... (8) (6)
Treasury Stock Purchased, Net................ (8,976) (2,474) (375)
-----------------------------
Net Cash Used by Financing
Activities.................................. (10,777) (4,477) (2,093)
-----------------------------
Increase (Decrease) in Cash.................. 9 (28) 39
Cash at Beginning of Year.................... 24 52 13
-----------------------------
Cash at End of Year.......................... $33 $24 $52
==============================
16. QUARTERLY FINANCIAL DATA
(Unaudited)
March 31 June 30 September 30 December 31
1999 --------------------------------------------
Interest Income............... $9,305 $9,374 $9,464 $9,687
Net Interest Income........... 5,425 5,473 5,433 5,453
Provision for Loan Losses..... 54 54 27 45
Net Income.................... 2,030 2,001 1,946 1,878
Earnings Per Share............ 0.43 0.43 0.42 0.41
1998
Interest Income............... $9,393 $9,584 $9,311 $9,484
Net Interest Income........... 5,345 5,445 5,157 5,495
Provision for Loan Losses..... 60 60 60 60
Net Income.................... 1,717 1,923 1,810 1,862
Earnings Per Share............ 0.35 0.39 0.37 0.39
MANAGEMENT DISCUSSION AND ANALYSIS
Introduction
The following commentary represents managements discussion and analysis of
the Companys financial condition and results of operations. This review high-
lights the principle factors affecting earnings during 1999, 1998 and 1997
and significant changes in the consolidated balance sheets for the years
ending December 31, 1999 and 1998. Financial information for prior years is
presented when appropriate. The objective of this financial review is to
enhance the readers understanding of the accompanying financial statements
and related information of the Company. This review should be read in con-
junction with the audited consolidated financial statements, footnotes,
financial ratios and statistics and other information contained in this
report, and the Companys 10-K. Where applicable, managements insights of
known events and trends are discussed that have or may reasonably be
expected to have a material effect on the Companys operations and financial
condition.
Wayne Bancorp, Inc. is a locally managed and operated multi-bank holding
company whose bank subsidiaries include Wayne County National Bank (WCNB) and
Chippewa Valley Bank (CVB). The Company also operates a data processing
company, MidOhio Data, Inc. (MID), which performs data processing services
for WCNB. These entities are collectively referred to as the "Company."
The Company provides banking and financial related services to individual and
commercial customers in Wayne, Holmes, Medina and Stark counties. The
Companys deposits are insured by the Federal Deposit Insurance Corporation,
and both bank subsidiaries are members of the Federal Reserve System. WCNB
is subject to supervision, examination and regulation by the Comptroller of
the Currency, and CVB is subject to supervision, examination and regulation by
the Federal Reserve Board and the Ohio Division of Financial Institutions. MID
is subject to supervision, examination and regulation by the Federal Reserve
Board.
Bank Acquisition
On March 31, 1998, Wayne Bancorp, Inc., (Wayne) acquired 100% of the common
stock of Chippewa Valley Bancshares, Inc. (Chippewa). The acquisition was
accounted for as a pooling-of-interests. Under the pooling-of-interests
method of accounting, the historical basis of the assets and liabilities are
carried forward at their recorded amounts, and the shareholders equity is
consolidated on the balance sheet. In addition, a pooling-of-interests
requires all financial statements to be retroactively restated as if the ac-
quisition had taken place prior to the periods presented.
Pursuant to the merger, Wayne exchanged 2.1916 shares of the Companys Common
stock for each share of Chippewas outstanding common shares, which resulted in
981,837 shares being issued in the transaction. At the effective date of the
merger, Chippewa had total assets of $140.2 million and total shareholders
equity of $10.1 million.
The merger of Chippewa into Wayne has enhanced the overall ability of the
Company to grow and generate earnings. This merger has expanded the Companys
market area into Medina County through the addition of nine banking centers and
85 employees. As a result of this acquisition, the bank subsidiaries have had
the opportunity to share skills and resources as well as align product
offerings and standardize fees.
Forward-Looking Statements
When used in this document, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimated," "projected" or
similar expressions are intended to identify "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties, including changes
in economic conditions in the Companys market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Companys market area and competition that could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected. Factors listed above could affect the Companys financial performance
and could cause the Companys actual results for future periods to differ
materially from any statements expressed with respect to future periods.
The Company does not undertake, and specifically disclaims any obligation, to
publicly revise any forward-looking statements to reflect events or circum-
stances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
TABLE 1: Financial Ratios for Five Years
___________________________________1999______1998______1997______1996______1995
Rate of return on:
Average Assets................ 1.47% 1.44% 1.19% 1.43% 1.32%
Average Equity................ 14.44% 12.60% 10.69% 13.34% 12.11%
Beginning Equity.............. 13.30% 13.10% 11.09% 13.79% 12.69%
As a Percent of Average Assets:
Net Interest Income........... 4.07% 4.21% 4.32% 4.29% 4.42%
Non-Interest Income........... 0.75% 0.74% 0.75% 0.98% 0.79%
Provision for Loan and Lease
Losses...................... 0.03% 0.05% 0.19% 0.07% 0.06%
Non-Interest Expense.......... 2.71% 2.91% 3.08% 3.16% 3.30%
Dividends as a Percent of Net
Income....................... 35.58% 31.95% 31.38% 24.50 27.24%
Other
Average Loans & Leases to
Average Deposits.............. 76.88% 77.31% 78.71% 74.04% 75.94%
Net Loan & Lease Charge-offs
(Recoveries) to Average
Loans & Leases............... (0.03%) 0.08% 0.08% 0.11% (0.04%)
Allowance to Year End Net
Loans & Leases............... 1.46% 1.51% 1.52% 1.48% 1.58%
Average Shareholders' Equity to
Average Assets............... 10.16% 11.39% 11.13% 10.74% 10.92%
Changes in Average Balances:
Total Assets................... 5.08% 5.91% 5.81% 11.45% 5.24%
Shareholders' Equity........... (6.28%) 8.45% 9.66% 9.54% 10.03%
Loans and Leases............... 7.32% 3.30% 10.58% 6.32% 11.62%
Deposits....................... 7.92% 5.18% 4.01% 9.10% 4.02%
RESULTS OF OPERATIONS
The Companys Net income for 1999 was $7.86 million, which is an increase of
$543 thousand, or 7.4% over 1998 net income of $7.31 million, which increased
$1.59 million, or 27.8% from net income of $5.72 million in 1997. Net income
per share, basic and diluted, was $1.69 in 1999, compared to $1.50 in 1998
and $1.16 in 1997.
Return on average assets for 1999 was 1.47%, compared to 1.44% in 1998 and
1.19% in 1997, while return on average equity was 14.44% in 1999, compared to
12.60% in 1998 and 10.69% in 1997.
The allowance for loan and lease losses as a percentage of total net loans
and leases at December 31, 1999 was 1.46%, compared to 1.51% and 1.52% for
December 31, 1998 and 1997 respectively.
NET INTEREST INCOME
Net interest income, the primary source of earnings for the Company, is the
difference between interest and loan fee income generated on earning assets
and the interest expense on deposits and borrowed funds. Net interest income
is effected by changes in interest rates, the volume and composition of
earning assets and paying liabilities, as well as the balances in non-
interest bearing deposit accounts.
Total interest and fee income for 1999 was $37.8 million, which is an increase
of $57 thousand, or .15% over the $37.8 million earned in 1998, which increased
$1.5 million, or 4.1% over the $36.3 million earned in 1997. The most signi-
ficant impact on the Companys interest income for 1999 was the effect the
decrease in the prime lending rate had on earning assets. Despite the strong
loan growth of $32.3 million, the prime lending rate was down by as much as
75 basis points for at least the first six months of the year compared to
1998, which restricted the Companys ability to increase its yield on earning
assets. The prime lending rate did recover however during 1999, through three
rate increases, once in each of the second, third and fourth quarters. During
1998, the increase in net interest income was due to an increase of $32.6
million in earning assets, while in 1997 these assets increased $23.2 mil-
lion. During 1999, the Company did experience a slight increase in earning
assets of $3.7 million, which comprised an increase in loans of $32.3 million
offset by a decline in fed funds sold and securities of $28.6 million.
During 1998, the increase was concentrated in the securities portfolio, whereas
the growth in 1997 was primarily in the loan portfolio. These changes in the
composition of earning assets is largely effected by loan demand and market
conditions, which can be impacted by a variety of factors, including interest
rates, economic forecasts and the global economy. The tax equivalent yield
on average earning assets for 1999 was 7.68% compared to 7.80% in 1998 and
8.21% in 1997. The decrease in yield is primarily due to the Federal Reserve
lowering the benchmark federal funds rate in the fourth quarter of 1998 by
75 basis points.
Total interest expense for 1999 was $16.0 million, which decreased $285
thousand, or 1.7% over interest expense of $16.3 million in 1998, which in-
creased $808 thousand, or 5.2% over interest expense of $15.5 million in 1997.
The yield or cost of funds, on average interest bearing deposits and borrowed
funds, was 3.89% at December 31, 1999, compared to 4.12% at December 31, 1998
and 4.19% at December 31, 1997. Total interest bearing liabilities at Decem-
ber 31, 1999 were $422.5 million, which increased $13.0 million from $409.5
million in 1998, which increased $22.8 million from $386.7 million in 1997.
The decline in the cost of funds in 1999 is a result of the Company lowering
rates on deposits simultaneously as rates were adjusted downward on interest
earning assets during 1998. The decrease in rates paid on deposits is a factor
of the Companys management of interest rates in order to preserve the net
interest income of the Company.
The Companys Asset/Liability Committee monitors the maturity structure and
rates of all interest earning assets and interest bearing liabilities to
maintain stability in the net interest income. Throughout 1999, the Company
operated with a slightly negative one-year GAP position, where interest
bearing liabilities subject to repricing exceeded interest bearing assets
subject to repricing within the one-year period. This negative position is
favorable during a falling rate environment. Although the Company was in a
negative GAP position, the net interest spread, which is the difference
between rates earned on assets and the rates paid on deposits and borrowed
funds, increased from 3.68% in 1998, to 3.79% in 1999. This increase in the
net interest spread is primarily from the Company converting its lower
yielding investments into higher yielding loans.
Provision and Allowance for Loan and Lease Losses
The provision for loan and lease losses is an expense item charged to operations
of the Company. The provision is recorded to maintain the balance in the
related balance sheet account, allowance for loan and lease losses, at a
level which management considers adequate to absorb reasonably probable
credit losses within the loan portfolio. The adequacy of the allowance is
determined by management based on several factors. These factors include
estimates of probable losses within the current portfolio, prior historical
losses, the mix and size of the current portfolio, as well as current economic
conditions. In addition to these factors, the Company also monitors the
amount of unsecured credit that has been extended at the evaluation date that
remains unfunded. While the analysis identifies and allocates portions of
the allowance to specific problem loans, the entire amount is available for
any losses that may occur.
At December 31, 1999, the allowance for loan losses was $5.20 million, or
1.46% of total net loans and leases compared to $4.92 million, or 1.51% at
December 31, 1998. The decrease in this ratio from 1998 to 1999 is due to
the 10% increase in outstanding loan balances, without an increase in non-
performing loans. During 1999, the Company experienced net recoveries of
$101 thousand while in 1998 the Company had net charge-offs of $246 thousand.
Past due and non-performing loans are one of the primary factors that manage-
ment uses to determine the adequacy of the allowance for loan and lease losses.
At December 31, 1999, the Company had loans that were past due 90 days or more
and still accruing interest of $181 thousand, or .05% of total loans and
leases compared to $288 thousand or .09% at December 31, 1998. At December
31, 1999 and 1998, the Company had no loans on a non-accrual status. Based
on this activity and the quality of the current portfolio, management feels
the current allowance for loan and lease losses is adequate to cover probable
losses.
The provision for loan and lease losses charged to operations was $180 thousand
in 1999 compared to $240 thousand in 1998, and $906 thousand in 1997. The
decrease in 1999 was due to a decline in the volume of non-performing loans
and a recovery received by CVB during the year which alleviated their need to
record a current provision. The increase in 1997 is due to an additional
provision of $600 thousand made by CVB in order to bring their allowance for
loan and lease losses in line with that of WCNB. Management anticipates that
the provision charged to operations in 2000 will not change significantly
from the 1999 provision.
Other Income
Other income of the Company consists of fees generated for providing banking
related services to our customers. This income is derived from several
components, including service charges and fees on deposits, income for Trust
and Investment Services, and other non-interest income, which includes fees
for safety deposit box rental, check cashing, brokerage services and servic-
ing of mortgage loans that have been sold into the secondary market, other
miscellaneous income, and gains or losses on the sale of loans and securi-
ties. In 1999, total other income was $4.03 million compared to $3.72 million
in 1998, and $3.58 million in 1997.
Service charges and fees on deposits in 1999 were $1.74 million compared to
$1.72 million in 1998, and $1.70 million in 1997. The Companys management
monitors our market area to ensure that the fees charged on these deposit
accounts are competitive within our market. In addition, management also
reviews the costs associated with offering these accounts when determining
the fee to charge the customer.
Trust and Investment Services income for 1999 was $1.51 million, which is an
increase of $92 thousand, or 6.5% over 1998 income of $1.41 million, which
increased $71 thousand, or 5.3% over income of $1.34 million in 1997. The
increase in Trust income is primarily based on the steady increase in assets
under management, as this income is based on a fixed regular fee as well as a
percentage of assets managed fee and a percentage of earnings fee. As a
portion of the Trust earnings are based on capital appreciation and earnings,
the Trust division earnings can fluctuate based on capital markets conditions
that are outside of managements control. The fair-market value of Trust
assets at December 31, 1999 was $321 million compared to $314 million and $285
million for December 31, 1998 and 1997 respectively.
Other non-interest income was $789 thousand in 1999, which increased $203
thousand, or 34.6% from the $586 thousand earned in 1998, which increased
$47 thousand or 8.7% from the $539 thousand earned in 1997. The increase in
1999 over 1998 is due to increases in substantially all areas of non-interest
income. Some of these increases are due to the Company aligning the fee
structure among the subsidiary banks on various services as well as increas-
ing fees where appropriate. Further, in 1999 the Company realized a net gain
on sales of securities of $51 thousand, compared to $8 thousand in 1998. The
increase in 1998 over 1997 was due to similar increases as seen in 1999.
Non-Interest Expenses
Non-interest expenses are comprised of expenses relating to salaries and
employee benefits, occupancy and equipment, and other operating expenses.
Total non-interest expenses were $14.48 million in 1999, which decreased $325
thousand, or 2.2% from $14.80 million in 1998, which increased $7 thousand,
or 0.05% from $14.79 million in 1997.
Total salaries and employee benefits were $7.65 million in 1999, which in-
creased $134 thousand, or 1.8% over $7.52 million in 1998, which increased $34
thousand, or 0.45% from $7.49 million in 1997. The primary factor contribu-
ting to the increase in 1999 was an increase in salaries and related payroll
taxes as a result of the annual salary adjustments. The Company reviews
compensation on an annual basis and makes adjustments as needed to set com-
pensation at a level that is competitive within our market area. These
increases are offset by a reduction of $273 thousand in expenses related to
retirement benefits due to the Company restructuring its benefit plans early in
the year. During 1998, the slight increase is primarily due to the same factors
as in 1999, which is an increase in compensation offset by reductions in ex-
penses related to retirement benefits and group insurance. During 1998,
salaries and related benefits increased due to the annual adjustments, as
well as a special adjustment made in the second half of the year in order to
retain trained staff and make starting salaries more attractive. This
increase in compensation was offset by a decrease in expenses related to re-
tirement benefits. Further, in 1998, group insurance costs decreased by $169
thousand compared to 1997.
Occupancy and equipment expense was $1.91 million in 1999, which increased
$106 thousand, or 5.9% from $1.81 million in 1998, which increased $70
thousand, or 4.0% from $1.74 million in 1997. The primary reason for the
ongoing increase from year to year is related to depreciation on new equip-
ment purchased to maintain operating efficiency as well as the related annual
maintenance costs. Beyond this, 1999 was a year of growth and expansion,
with the addition of the new mortgage lending center, the relocation of CVBs
Clinton Banking Center to Canal Fulton in Stark County, formation of a new
data processing company, MidOhio, Data Inc., and other miscellaneous improve-
ments at several branch locations. This growth in the Companys infrastructure
represents managements commitment to provide convenient access to all of its
customers. In addition to this expansion, the increase in expense during
1999 can also be attributed to "Y2K" related expenses, due to equipment
upgrades and modifications to enable the Company to operate in emergency
conditions. The Company also incurs ongoing expenses to maintain the condi-
tion and appearance of its facilities and renovate as needed for staffing
requirements and other reasons.
Other operating expenses were $4.91 million in 1999, which decreased $565
thousand, or 10.3% from $5.48 million in 1998, which decreased $97 thousand,
or 1.7% from $5.58 million in 1997. The decrease in 1999 from 1998 is pri-
marily attributable to the Companys on-going commitment to control costs
where possible. The Company experienced significant declines in several
areas during 1999, including franchise taxes, donations, legal and profes-
sional fees, data processing and computer expense and Visa processing costs.
These decreases were offset by increases in the following areas, stationary
and supplies, advertising, and expenses related to the Companys operation of
ATMs. The decrease in 1998 from 1997 is due to a reduction in directors fees,
amortization expense and advertising expense. These decreases were offset by
increases in franchise taxes, donations, data processing and computer related
expenses mainly for "Y2K" compliance and testing, legal and professional fees
and ATM related expenses.
Income Taxes
Federal income taxes were $3.30 million, which increased $492 thousand or
17.5% from $2.81 million in 1998, which decreased $110 thousand or 3.8% from
$2.92 million in 1997. The change in federal income taxes is due to the
changes in pre-tax earnings of the Company as well as adjustments of deferred
tax assets and liabilities as a result of the acquisition of CVB during 1998.
The income tax expense represents an effective tax rate of 29.6% for 1999,
27.8% for 1998, and 33.8% for 1997. The effective tax rate paid by the Com-
pany is impacted by the amount of tax-free income that is generated through
tax-exempt securities and loans to tax-exempt customers.
FINANCIAL CONDITION
Total assets at December 31, 1999 were $545.9 million, which is an increase of
$7.2 million, or 1.34% over total assets of $538.7 million at December 31,
1998. The Companys earning assets increased $3.7 million from $506.5 million in
1998 to $510.2 million in 1999. At December 31, 1999 earning assets as a per-
centage of total assets were 93.5% compared to 94.0% at December 31, 1998.
The growth in the Company's balance sheet was primarily in the loan port-
folio, which represented 65.3% of the total assets at December 31, 1999 com-
pared to 60.2% at December 31, 1998. The securities portfolio experienced a
decline from 32.5% of total assets at December 31, 1998 to 27.5% at December
31, 1999. The growth in earning assets was primarily funded through growth
in deposits and borrowed funds of $14.8 million, which grew from $472.1 mil-
lion at December 31, 1998 to $486.9 million at December 31, 1999.
Securities
The securities portfolio serves a primary role in the overall context of asset
and liability management by providing liquidity, earnings, and diversification.
The securities portfolio is used to fund loans and deposit outflows, enhance
Company earnings through purchases of high quality investments, and manage
the credit and interest rate risk inherent in the balance sheet.
To maintain sufficient liquidity, the Company invests primarily in shorter-
term securities of less than five years remaining maturity. These include
U.S. Treasury and Agency securities, which are direct obligations of the U.S.
government and agencies of the U.S. government. These types of investments
are considered risk-free from a credit standpoint and offer a lower yield
than other securities. To increase the overall yield of the securities port-
folio, the Company also purchases shorter-term government guaranteed mortgage
backed securities and high quality corporate bonds. To reduce overall tax-
liability, the Company invests in obligations of state and political subdi-
visions, which are generally exempt from federal income tax.
The Companys investment portfolio is classified entirely as available-for-sale.
Securities classified as available-for-sale, are carried at fair value on the
balance sheet with unrealized holding gains or losses reported as a separate
component of equity, net of tax. Available-for-sale securities are those
which may be sold prior to maturity for liquidity, asset liability management
or other reasons. Although the Company currently does not have any securi-
ties classified as held-to-maturity, the Company may use this classification
in the future if conditions warrant for those securities which management has
the ability and intent to hold to maturity. During 1998, as a result of the
acquisition, the Company transferred securities held by CVB with an amortized
cost of $17.7 million from held-to-maturity to available-for-sale; to conform
to the classification method historically followed by the Company.
The securities portfolio was $150.0 million at December 31, 1999, compared to
$175.0 million at December 31, 1998. This decrease is due to shifting these
funds into higher yielding commercial and residential loans during 1999 as
well as planning investment maturities to allow the Company to be well posi-
tioned in the event there were significant "Y2K" related withdrawals. Also,
during 1999 the bond market experienced an increase in yields, which pushed
market prices downward, as bond prices move in the opposite direction of
yields. This increase in yields has created net unrealized losses in the
securities portfolio of $1,347 thousand at December 31, 1999, compared to net
unrealized gains of $2,362 thousand at December 31, 1998. Although these
securities are held as available-for-sale, and can be sold as needed for
liquidity or risk management purposes, the Company does not anticipate real-
izing any material losses during 2000.
Loans and Leases
The Companys loan portfolio consists of a variety of loans including:
commercial, agricultural, residential and commercial real estate, consumer and
direct lease financing. The Companys market area includes Wayne, Holmes,
Medina and Stark counties.
Total loans and leases at December 31, 1999 were $356.5 million compared to
$324.2 at December 31, 1998. This represents an increase of $32.3 million,
or 9.96% from 1998 to 1999. While total loans grew considerably during the
year, the composition remained substantially the same indicating that growth
was fairly proportionate between the major loan categories. The three major
loan categories are commercial, real estate and consumer which represented
41%, 41% and 14% of total loans and leases at December 31, 1999, compared to
40%, 41% and 15% respectively at December 31, 1998.
Commercial loans at December 31, 1999 were $146.5 million, which increased
$17.0 million, or 13.1% from $129.5 million at December 31, 1998. Despite
the prime lending rate increasing 75 basis points and returning to 1998 levels,
the Company experienced strong loan growth and increased demand in the Com-
mercial loan area.
Real estate loans at December 31, 1999 were $147.1 million compared to $131.8
million at December 31, 1998. This represents an increase of $15.2 million, or
11.6%. This increase is a continuation of the growth experienced during 1998,
as a result of low interest rates, a strong economy and low unemployment.
The Company is expecting growth in 2000 to slow somewhat compared to 1999 and
1998 as a result of the higher interest rate environment. Despite recent
rate increases, the Company will continue to pursue growth in this area. In
addition to the Companys real estate loans recorded on the balance sheet, the
Company also services approximately $20.1 million of loans that have been
sold into the secondary market. The Company did not sell any loans during
1999, however management may consider the sale of additional loans into the
secondary market as market conditions warrant, to align the portfolio and
provide liquidity for future loan demand. There were no loans held for sale
as of December 31, 1999.
Consumer loans at December 31, 1999, were $48.4 million, which increased $270
thousand, or .56% from $48.1 million at December 31, 1998. This slight increase
is due to favorable employment conditions as well as an increased level of
consumer spending and confidence as a result of the strong economy. As con-
sumer loans carry the greatest risk proportionately within the loan port-
folio, the Company will continue to grant credit in a conservative manner as
management believes this will maintain the quality of the portfolio and
potentially minimize future losses in economic down cycles.
Sources of Funds
The Company has a commitment to provide a full range of banking products and
services to its customers. The deposit products offered by the Company
provide a means for customers to safely invest their money while earning a
competitive rate of return on their funds.
The Companys primary sources of funds are core deposits originated from
within its market area. The Company considers its core deposits to be tra-
ditional checking, savings and certificate of deposit accounts. At December
31, 1999, total deposits were $461.8 million, which increased $26.7 million,
or 6.1% over total deposits of $435.1 million at December 31, 1998. The primary
reason for this increase in core deposits is due to the Company implementing
two certificate of deposit specials and growth in the Platinum Money Market
account. In addition to these deposits, the Company holds securities sold
under agreements to repurchase (repurchase agreements). Although the Company
experienced a decline in these balances during 2000, repurchase agreements
continue to provide the Company with a stable source of funds while offering
attractive yields for corporate customers. Repurchase agreements at December
31, 1999 were $24.5 million, which is a decrease of $12.4 million, or 33.6%
from $36.9 million at December 31, 1998.
During 1999, the Company experienced a slight shift in the deposit mix com-
pared to 1998. From a percentage standpoint, commercial deposits, which
includes checking accounts as well as money market savings and checking
accounts, remained relatively unchanged, while savings deposits declined
slightly as a result of growth in certificates of deposit. As in 1998,
customers have continued to primarily invest in shorter-term certificates of
deposit, which allows them more flexibility and liquidity in the event rates
rise during the term of their certificate.
In addition to core deposits and repurchase agreements, the Company has
alternative funding sources for loan demand, primarily from overnight fed-
eral funds borrowings and advances from the Federal Home Loan Bank. The
Company currently has approximately $40.69 million available in overnight
federal funds that may be drawn from correspondent banks, none of which had
been used as of December 31, 1999. In addition, the subsidiaries are members
of the Federal Home Loan Bank system, which provides funding based on a per-
centage of balances in one-to-four family residential loans. At December 31,
1999, the Company had outstanding advances from the Federal Home Loan Bank of
$1.3 million, and a balance on the line of credit of $605 thousand. Although
these alternative funding sources generally cost more than core deposits,
they allow the Company to customize the borrowing terms to match the repay-
ment schedule on loans. The Company may utilize these alternative funding
sources more aggressively in the future based upon deposit growth and loan
demand.
Core deposit growth is an ongoing objective of Management to facilitate fund-
ing for loan demand and asset growth. However, as consumers become more
"mobile" through direct deposit, on-line banking and other means, growing
these core deposits with traditional accounts and services is becoming more
difficult. In addition, the direction of interest rates as well as compe-
titive pressure will continue to play a key role in deposit growth during
2000. In late 1998, WCNB added a Debit Card to its portfolio of products.
The Debit Card is very popular and convenient as it allows customers to make
purchases at a variety of locations, withdraw cash from the ATM, transfer
funds between accounts and perform account inquiries. In addition to this new
product, WCNB added an ATM at its Fredericksburg banking center, while CVB
installed an ATM at its new Canal Fulton banking center. These product and
system enhancements allow the Banks to offer our customers competitive pro-
ducts and convenient access.
Capital Management
The Company is committed to managing capital for maximum shareholder benefit
and maintaining strong protection for depositors and creditors. Capital con-
sists primarily of four components including common stock, surplus, or
additional paid in capital, undivided profits and net unrealized gains or
losses on available-for-sale securities. Bank regulators monitor capital
adequacy closely and consider it a very important factor in ensuring the
safety of depositors accounts. As a result, bank regulators established risk
based capital standards, which measure the amount of a banks required capital
in relation to the degree of risk contained in the balance sheet, as well as
off the balance sheet. When calculating ratios for capital adequacy, net
unrealized gains or losses on available-for-sale securities are excluded from
the capital base.
There are several key ratios used to monitor capital adequacy. One such
ratio is the percent of stockholders equity to total assets. At December 31,
1999 this ratio was 9.75% compared to 10.97% at December 31, 1998. The primary
reason for this decline is due to the Companys share buy back program that was
announced in January of 1999. Under this program, the Board of Directors
authorized the repurchase of up to 5% of the Companys outstanding stock, over a
two-year period, based upon availability, price and other considerations.
During 1999, the Company did purchased the full amount of the authorized
shares by purchasing over 260,000 shares on the open market.
Another key ratio is return on equity, which is a measure of efficiency that
reflects the Companys ability to generate net income as a percentage of its
capital base. For the year ended December 31, 1999 return on average equity
was 14.4%, compared to 12.6% at December 31, 1998.
Other key ratios used in determining capital adequacy include the risk based
capital ratio and the leverage capital ratio. The risk based capital ratio
is based on the risk-adjusted assets of the Company as a percentage of the
Companys adjusted capital. The Companys assets are assigned risk weightings
based upon the risk inherent in those assets, and then these risk-weighted
assets are compared to the Companys adjusted capital, which includes the
Companys capital accounts less intangibles, plus a portion of the allowance
for loan and lease losses. Regulatory agencies require a minimum ratio of
8%, with at least half of that being in core capital. Core capital, or Tier
1 capital, consists of shareholders equity less general intangibles and Tier
2 capital includes Tier 1 capital plus a portion of the allowance for loan
and lease losses. The leverage ratio compares Tier 1 capital to the Companys
average assets, adjusted for general intangibles.
The Companys total risk based capital ratio at December 31, 1999 and 1998 was
16.5% and 17.6% respectively. The Company's Tier 1 capital to risk-weighted
assets ratio was 15.2% at December 31, 1999 and 16.3% at December 31, 1998,
while the Companys leverage ratio was 9.7% at December 31, 1999 compared to
10.7% at December 31, 1998.
The Company has set minimum internal capital adequacy ratios to comply with
banking regulations as well as maintain capital at levels that will provide
long-term strength and performance to the Company. These levels as set by
the Companys Board of Directors and management are: primary capital of 8.5%,
risk based capital of 10.0%, and the leverage ratio at 7.0%.
The Companys source of capital primarily comes from subsidiary earnings as
well as sales of treasury stock. During 1999, the earnings from these sub-
sidiaries were $7.42 million, compared to $6.97 million at December 31, 1998.
Due to the share buy back program, the Company did not sell any treasury stock
during 1999, however proceeds from the sale of treasury stock were $433 thousand
during 1998. The outflows of capital include cash dividends paid to share-
holders as well as purchases of treasury stock. For the year ended December
31, 1999, the Company paid dividends of $2.79 million, or $.60 per share,
compared to $2.34 million, or $.48 per share in 1998. During 1999, the Com-
pany purchased $8.98 million in Treasury stock compared to $2.91 million
during 1998. Of the cash dividends paid, $397 thousand and $339 thousand was
reinvested by shareholders under the Companys dividend reinvestment plan for
the years ending December 31, 1999 and 1998 respectively.
Asset and Liability Management
The Companys primary market risk exposure is interest rate risk, and to
lesser extents liquidity and prepayment risk. Interest rate risk is the risk
that the Companys financial condition could be adversely affected by move-
ments in interest rates, which is inherent in banking as a result of repri-
cing that may occur in interest earning assets and interest bearing liabil-
ities. The income of financial institutions is primarily derived from the
excess interest earned on assets over the interest paid on liabilities. This
fundamental premise places extreme importance on monitoring and controlling
interest rate risk.
There are several methods employed by the Company to monitor and control
interest rate risk. One such method is through the use of a "GAP" analysis.
The GAP is defined as the difference between the repricing of assets and
liabilities within certain time periods. Therefore, the objective of GAP
management is to match maturities and repricing of loans and deposits to
reduce interest rate risk and maintain liquidity. The repricing can occur
due to changes in rates on variable rate products, maturities, and acceler-
ated payments. A positive GAP, where there are more assets repricing than
liabilities, is beneficial in a rising rate environment and a negative GAP,
where there are more liabilities repricing than assets is favorable in a
falling rate environment. It is the Companys policy to maintain a fairly
neutral GAP position of -10% or +10% in the one year period. During 1999, the
Company maintained an average GAP of -7.71%, and at December 31, 1999, the
GAP was -7.83%. A second strategy used by the bank to reduce exposure to
interest rate risk is to originate variable rate loans that reprice with
prime and other indices. Currently, the Company has $92.3 million, or 25.9%,
of total loans and leases written as variable rate loans. A third strategy
is to invest excess funds in highly liquid federal funds that mature and
reprice on a daily basis. At December 31, 1999, the Company had $3.7 million
in federal funds sold. In addition, the Company classifies its investment
portfolio as available-for-sale, which allows the Company to sell these
investments if needed to manage risk, provide liquidity and take advantage of
interest rate swings. Finally, the Company has the ability to obtain funding
from the Federal Home Loan Bank, where advances are tailored to match loan
rates and terms. Also, to enhance the Companys asset liability management, a
modeling program is employed which will allow the Company to "shock" the
balance sheet with different interest rate scenarios. This program will
provide additional information on an ad-hoc basis and assist with pricing of
loans and deposits under certain conditions.
The following table provides information about the Companys financial instru-
ments that are sensitive to changes in interest rates as of December 31, 1999.
Based upon the information and assumptions set forth in the tables and notes.
For loans, securities and deposit liabilities with contractual maturities,
the table represents principal cash flows and the weighted interest rate.
For variable rate loans, the contractual maturity and weighted interest rate
was used with an explanatory footnote as to repricing periods. For liabil-
ities without contractual maturities, such as savings, and Money Market
accounts, a decay rate was used to match their most likely withdrawal behavior.
(dollars in thousands)
Principal/Notional Amount Maturing in: Fair
There- Value
2000 2001 2002 2003 2004 after Total 12/31/99
- ------------------------------------------------------------------------------
RATE-SENSITIVE
ASSETS:
Fixed interest
rate loans(1) 19,524 27,912 26,261 22,245 30,212 138,017 264,171 261,218
Average interest
rate......... 8.76% 8.55% 8.90% 8.79% 8.45% 7.33% 7.98%
Variable interest
rate
loans(1)(2).. 38,391 7,198 6,880 4,173 5,434 30,256 92,332 92,332
Average interest
rate......... 8.90% 7.84% 8.02% 7.99% 8.56% 8.96% 8.89%
Fixed interest
rate securi-
ties(1)(7).. 35,317 43,352 26,455 22,016 5,289 18,936 151,365 150,018
Average interest
rate........ 5.82% 5.68% 5.83% 5.97% 5.19% 5.64% 5.76%
Other interest-
earning
assets(3)... 3,720 --- --- --- --- --- 3,720 3,720
Average interest
rate........ 5.23% --- --- --- --- --- 5.23%
RATE-SENSITIVE
LIABILITIES:
Non-interest
bearing
checking(4).. 16,682 13,346 10,009 8,341 8,341 10,009 66,728 66,728
Savings & interest-
bearing
checking(5).. 41,705 41,705 31,279 31,279 20,853 41,705 208,527 208,527
Average interest
rate......... 2.96% 2.96% 2.91% 2.91% 2.91% 2.91% 2.91%
Certificates of
deposit(1).. 115,789 43,995 10,303 9,614 6,833 26 186,560 187,437
Average interest
rate........ 4.92% 5.69% 5.69% 5.67% 5.10% 4.79% 5.19%
Fixed interest
rate bor-
rowings(1).. 275 27 1,134 --- --- --- 1,688 1,617
Average interest
rate........ 7.03% 7.03% 5.92% --- --- --- 6.53%
Variable interest
rate borrow-
ings(1)(6)... 19,563 1,224 1,224 1,224 1,224 1,224 25,683 25,683
Average interest
rate......... 4.63% 4.56% 4.56% 4.56% 4.56% 4.56% 4.61%
(1) Assumes amortization based on contractual maturity and repayment.
(2) The Company's adjustable rate commercial loans and home equity loans are
based on the prime rate of interest as stated in The Wall Street Journal
and are subject to repricing when the prime rate is adjusted. The ad-
justable rate mortgage loans are based on the one-year constant maturity
treasury index and are subject to annual repricing.
(3) The federal funds rate is subject to daily repricing and is that which
is currently offered by the correspondent bank buying these short term
overnight funds.
(4) Non interest bearing checking accounts assume a decay rate of 25%, 20%,
and 15%, for the first three years respectively, 12.5% for each of years
four and five with the remaining 15% being more than five years.
(5) Savings, NOW, and Money Market accounts assume a decay rate of 20% for
years one and two, 15% for years three and four, 10% for year five with
the remaining 20% being more than five years.
(6) Repurchase agreements are subject to monthly repricing and are based on the
prior month's average discount rate for the 3-month treasury bill. Decay
is assumed to be 75% in year one with 5% for the remaining years and there-
after.
(7) Reported at amortized cost. Includes a nominal amount of variable rate
securities.
Liquidity
Liquidity management is the ability of the Company to meet the credit needs
and cash demands of its borrowers and depositors. Through the Companys
Asset/Liability Committee, management analyzes and manages liquidity. The
Companys primary source of liquidity is cash, federal funds sold and cash flows
provided by maturities and amortization in the loan and investment portfolios.
At December 31, 1999, cash and cash equivalents were $27.4 million, or 5.0%
of total assets. The change in cash and cash equivalents is shown in the
Consolidated Statement of Cash Flows and summarizes activity for the three
years ending December 31, 1999. During 1999, the Company generated net cash
flows from operating activities of $10.05 million, including net income of
$7.86 million. During 1999, the Company had a net use of cash in investing
activities of $13.21 million. The use of this cash was primarily to fund
the growth in the loan portfolio, which represented a net cash outflow of
$32.67 million. During 1999, the Company generated net cash flows of $2.72
million in financing activities. The primary source of cash was from the net
growth in the Companys deposits of $26.67 million, which was offset by divi-
dends paid of $2.39 million, $8.98 million paid to purchase Treasury stock
and reductions in short-term borrowings of $11.9 million.
The liquidity needs of the Company, primarily cash dividends, are met through
dividends from the subsidiaries. Management is not aware of any trend or
event which would result in the Company not being able to meet its current
and expected future cash needs.
Year 2000 Issue
The Company is pleased to announce that it did not experience any Y2K related
problems at the turn of the century, nor does it anticipate any problems
developing during the year 2000. During 1998, the Company began preparing for
Y2K by performing thorough inventories of all of its computer equipment, related
software and technology, as well as preparing a contingency plan for Y2K. As a
result of this internal inventory, the Company was able to identify potential
problem areas as well as prepare a timeline for correcting and or updating
equipment as needed. During 1999, the Company continued its preparation by
proxy testing software and processing systems, as well as making the neces-
sary modifications as needed to install generators at key locations in the
event of a Y2K related power failure. The Company estimates that a total of
approximately $500 thousand was spent preparing for Y2K preparation during
the years ended December 31, 1999 and 1998 As a result of this extensive pre-
paration and planning, the Company was well prepared for any Y2K related
problems and did not experience any losses.
Effects of Inflation
The financial statements and related data included in this report has been
prepared in accordance with generally accepted accounting principles (GAAP)
which measures financial position and results of operations in historical
dollars, except for securities classified as available-for-sale which are
recorded at fair market value. Changes in the relative value of money during
periods of inflation or recession are generally not recognized under GAAP.
In managements opinion, changes in interest rates affect the financial
condition and results of operations to a far greater degree than changes in the
inflation rate. While interest rates are greatly influenced by changes in the
inflation rate, they do not change at the same rate or magnitude as the infla-
tion rate. Rather, changes in interest rates are based on monetary policies.
The Company protects earnings from interest rate volatility through offering
variable rate loan and deposit products and asset/liability management.
New Accounting Pronouncement
Beginning January 1, 2001, a new accounting standard will require all deriv-
atives 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. This is not expected to have a material effect on
financial position and results of operations, since the Company has not
historically engaged in these activities, however the effect will depend on
derivative holdings when this standard applies.
NOTICE OF ANNUAL STOCKHOLDERS' MEETING
TO BE HELD APRIL 20, 2000
TO THE HOLDERS OF COMMON SHARES:
Notice is hereby given that pursuant to the call of its Directors, the annual
meeting of Wayne Bancorp, Inc. will be held at Memories Party & Conference
Center, 2437-B Back Orrville Road, Wooster, Ohio on April 20, 2000 at 2:00
p.m., for the purpose of considering and voting upon the following matters as
more fully described in the attached Proxy Statement dated March 20, 2000:
1. Election of Directors: To elect the three (3) directors named in the
attached Proxy Statement.
2. To Ratify the engagement of Crowe, Chizek & Company LLP as the indepen-
dent auditors of the company.
3. Taking action on any other matter which may be brought before said
meeting or any adjournment thereof.
Stockholders of record at the close of business on February 29, 2000 will be
entitled to vote the number of shares held of record in their names on that
date. The transfer books will not be closed. The date of this notice is
March 20, 2000.
By Order of the Board of
Directors
Jimmy D. Vaughn, Secretary
IMPORTANT
All Stockholders are cordially invited to attend the meeting. Whether or not
you plan to attend in person, you are urged to sign the enclosed Proxy and
return it promptly in the envelope provided. This will assure your represen-
tation and a quorum for the transaction of business at the meeting. If you
do attend the meeting in person, the Proxy will not be used if so requested
by you.
PROXY STATEMENT
March 20, 2000
GENERAL
This statement is furnished in connection with the solicitation of proxies to
be used at the Annual Stockholders' Meeting of Wayne Bancorp, Inc., an Ohio
Corporation (the "Company"), to be held on April 20, 2000 at 2:00 p.m. at
Memories Party and Conference Center, 2437-B, Back Orrville Road, Wooster,
Ohio, or any adjournment thereof. A stockholder, without affecting any vote
previously taken, may revoke his/her Proxy by giving notice to the Secretary
of the Company (Jimmy D. Vaughn) in writing prior to 1:00 p.m., on April 20,
2000; by a subsequently dated proxy; or by request for the return of the
Proxy in person at the Annual Meeting. The presence at the meeting of the
person appointing a Proxy, does not in and of itself revoke the appointment.
The solicitation of proxies in the enclosed form is made on behalf of the
Board of Directors of the Company.
The cost of preparing, assembling and mailing the Proxy materials and of
reimbursing brokers, nominees, and fiduciaries for the out-of-pocket and
clerical expenses of transmitting copies of the Proxy materials to the
beneficial owners of shares held of record by such persons will be borne by
the Company. The Company does not intend to solicit proxies otherwise than
by use of mail, but certain officers and regular employees of the Company or
its subsidiaries, without additional compensation, may use their personal
efforts by telephone or otherwise to obtain proxies. The Proxy material is
first being mailed to stockholders on or about March 20, 2000.
VOTING SECURITIES
As of February 29, 2000, the number of shares of common stock (there being no
other class of stock) outstanding and entitled to vote at the Annual Stock-
holders' Meeting is 4,596,599 including 45,059 shares held by the Wayne County
National Bank Trust Department as sole trustee which will be voted in the
election of Directors. Only those stockholders of record at the close of
business on February 29, 2000 shall be entitled to vote. At that date there
were 1,464 stockholders of record including individuals and corporations.
There were 7,082,782 shares authorized but unissued and 320,619 shares held
as treasury stock at that date. Each share of stock outstanding is entitled
to one vote on each matter being considered at the meeting.
In regard to voting for Proposal 1, Election of Directors, stockholders may
vote in favor of all nominees or withhold their votes as to all nominees or
withhold their votes as to specific nominees. With respect to the other
proposals to be voted upon, stockholders may vote in favor of a proposal,
against a proposal, or may abstain from voting. Stockholders should specify
their choices on the enclosed form of proxy. If no specific instructions are
given with respect to the matters to be acted upon, the shares represented by
a signed proxy will be voted for the election of the nominees and for each of
the proposals presented. The three Directors receiving the greatest number
of votes will be elected. The ratification of independent auditors will
require the majority vote of the shares of Common Stock represented at the
meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
The Code of Regulations of Wayne Bancorp, Inc. provides that the number of
Directors of the Company shall be twelve (12) (divided into three classes)
unless changed by a two-thirds majority vote of the "Continuing Directors"
(as defined in the Company's Code of Regulations), however, in no event shall
the number of Directors elected be increased by greater than two positions
in any one year. The Board of Directors has set the number of Directors to
be elected at this Annual Meeting at three (3), with these three Directors
serving until the 2003 Annual Meeting of Stockholders. A former director of
the Company resigned in late December of 1999. To date, a replacement has not
been found. The Board of Directors anticipates filling this vacancy before
the next annual meeting of stockholders with an acceptable candidate.
The following persons named have been nominated for election to serve as
indicated or until their successors have been elected and have qualified.
It is the intention of the persons named in the Proxy to vote for the election
of the following three nominees to the Class of Directors serving until the
2003 Annual Meeting of Stockholders.
Principal Occupation for Year First
Name of director the Past Five Years Became Director Age
- -----------------------------------------------------------------------------
Bala Venkataraman President and CEO, Magni- 1995 55
Power Company, Since 1990;
metal fabrication and
manufacturing.
B. Diane Gordon Executive Director, Greater 1996 51
Wayne County Foundation,
Charitable Foundation; Vice
President of Finance, Buckeye
Corrugated, Inc., 1990 to 1998;
corrugated container manufacturing.
Stephen L. Shapiro Chairman of the Board, Wooster 1996 53
Iron & Metal Co. Since 1995;
metal recycling company.
President and CEO, Metalics
Recycling Co. since 1990.
The Board of Directors recommends a vote "FOR" all of the nominees.
DIRECTORS CONTINUING IN OFFICE
The persons named below are now serving as Directors of the Company for
terms expiring at the Annual Meeting of Stockholders in 2001 and 2002.
Principal Occupation for Year First
Name of Director the Past Five Years Became Director Age
- ------------------------------------------------------------------------------
Terms Expiring at the Annual Meeting in 2001
--------------------------------------------
Gwenn E. Bull Chief Financial Officer, Legend 1995 51
Micro, Inc., since 1999; Controller,
Legend Inc., 1997-1999, builders of
custom computers. Certified Public
Accountant, General Manager, Croskey
Hostetler & Mapes, CPA Firm 1985-1997.
David L. Christopher Chairmam of the Board and CEO, Wayne 1987 59
Bancorp, Inc., Chairman of the Board,
and CEO Wayne County National Bank
since 1990. President, Wayne National
Corporation since 1987.
Dennis B. Donahue Chairman and CEO,Will-Burt Company, 1993 60
Inc., effective January 1, 2000,
President and CEO, The Will-Burt
Company, Inc. Since 1995, President,
The Will-Burt Company, Inc., since 1991,
machine fabrication and assembly.
Jeffrey E. Smith President, Jeff Smith Aircraft, 1993 49
Ltd.,since 1997, buy sell and broker
used aircraft. Partner, JMJ Investments,
since 1995, a partnership that invests
in oil and gas related properties.
President, COFSCO Manufacturing
1977-1995; oil and gas supplier.
Terms Expiring at the Annual Meeting in 2002
--------------------------------------------
James O. Basford Chairman, Paha-Que Industries, Inc., 1990 68
since 1996, manufacturer of outdoor
tents, San Diego California. Retired
CEO and Chairman, Buckeye Corrugated,
Inc, CEO and Chairman, 1978-1995.
John C.
Johnston, III Partner, with the law firm of 1996 50
Critchfield, Critchfield, and
Johnston, since 1987.
Philip S. Swope President of Wayne Bancorp, Inc. 1998 57
since 1998, Chairman of Chippewa
Valley Bank since 1997; President
and CEO of Chippewa Valley Bank
since 1987
David E. Taylor President, Taylor Agency Inc., 1992 48
since 1987; Independent
Insurance Agency.
The business experience of each of the above listed nominees and Directors
continuing in office during the past five years was that typical of a person
engaged in the principal occupation listed. Unless otherwise indicated, each
of the nominees has had the same position or another executive position with
the same employer during the past five years.
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The audit committee of the Board of Directors of Wayne Bancorp, Inc. engaged
Crowe, Chizek and Company LLP to serve as the independent auditors for the
Company and its' subsidiaries for 1999.
It is the intention of the Audit Committee and Board of Directors of Wayne
Bancorp, Inc. to engage Crowe, Chizek and Company LLP as the independent
auditors to audit the financial statements of the Company for 2000 (subject
to ratification by the stockholders of Wayne Bancorp, Inc.).
The Audit Committee and the Board of Directors recommend that the Stock-
holders vote "FOR" ratification of the employment of the independent auditors.
Representatives of Crowe, Chizek and Company LLP are expected to be present
at the Annual Stockholders' Meeting and will have an opportunity to make a
statement if they so desire and will be available to respond to appropriate
questions.
THE FOLLOWING IS A SUMMARY OF
COMMON STOCK OWNERSHIP OF SENIOR MANAGEMENT
AND THE BOARD OF DIRECTORS
Amount and Nature of Percent of Common
Name of Beneficial Owner Beneficial Ownership Stock Ownership(1)
- -----------------------------------------------------------------------------
James O. Basford 1,442 shares 0.03%
Gwenn E. Bull 755 shares 0.02%
David L. Christopher 22,583 shares (2) 0.49%
Dennis B. Donahue * 1,899 shares (3) 0.04%
B. Diane Gordon * 14,085 shares (4) 0.31%
John C. Johnston, III 6,992 shares (5) 0.15%
Stephen L. Shapiro 2,006 shares (6) 0.04%
Jeffrey E. Smith * 8,729 shares (7) 0.19%
Philip S. Swope 5,987 shares (8) 0.13%
David E. Taylor * 3,048 shares 0.07%
Bala Venkataraman * 7,733 shares (9) 0.17%
David P. Boyle 3,129 shares (10) 0.07%
F. Bill Damron * 5,383 shares (11) 0.12%
Richard L. Holcombe 60 shares (12) 0.00%
Stephen E. Kitchen 10,300 shares (13) 0.22%
Jimmy D. Vaughn 9,806 shares (14) 0.21%
Directors and Executive Officers
as a Group (16 persons) 106,386 shares (15) 2.31%
____________________________________________________________________________
(1) The calculation of percent of common stock ownership is based on total
outstanding shares of 4,602,201 and calculated as of January 31, 2000.
(2) 15,527 shares are held in trust for Mr. Christopher and 7,056 shares
are owned by his spouse.
(3) 402 shares are owned by Mr. Donahue's spouse.
(4) 13,200 shares are held in trust for Mrs. Gordon in "street name."
(5) 3,692 shares are held in trust for Mr. Johnston in "street name."
(6) 2,000 shares are held for Mr. Shapiro in "street name."
(7) 3,800 shares are held in "street name" and 914 shares are owned for
Mr. Smith's minor children.
(8) 896 shares are owned by Mr. Swope's spouse.
(9) 7,067 shares are held in trust for Mr. Venkataraman in "street name."
(10) 2,379 shares are held in trust for Mr. Boyle, Treasurer of the Company
and President of the Wayne County National Bank.
(11) 5,171 shares are held in trust for Mr. Damron, Vice President of the
Company and Executive Vice President and Chief Loan Officer of the
Wayne County National Bank.
(12) 43 shares are owned by Mr. Holcombe's spouse.
(13) 4,804 shares are held in trust for Mr. Kitchen, Executive Vice
President and Senior Trust Officer of the Wayne County National Bank.
(14) 7,141 shares are held in trust for Mr. Vaughn, Secretary of the Company
and Executive Vice President of the Wayne County National Bank and 315
shares are held by Mr. Vaughn's minor children.
(15) Includes shares held in the Company ESOP plan not allocated to partic-
ipants.
* Denotes participation in the Wayne Bancorp, Inc. Deferred Compensation
Plan as described herein.
SECURITY OWNERSHIP OF COMMON STOCK IN EXCESS OF
FIVE PERCENT OF OUTSTANDING SHARES
Listed in the following table are the beneficial owners as of January 31,
2000 of more than five percent of the Company's outstanding common stock
who are known to the Company.
Name & Address of Amount and nature of Percent of Common
Title of Class Beneficial Owner Beneficial Ownership Stock Ownership (1)
- ------------------------------------------------------------------------------
Common Wayco & Company (2) 563,740 12.26%
(1) The calculation of percent of common stock ownership is based on total
outstanding shares of 4,596,599 and calculated as of February 29, 2000.
(2) Wayco & Company is a partnership formed for the purpose of holding legal
title, as nominee, to securities designated by the Wayne County National
Bank with respect to the business of its Trust Department. It holds
45,059 shares (.98 percent of the total number of shares outstanding) as
sole trustee and 369,820 shares (8.05 percent of the total number of
shares outstanding) as trustee subject to revocable trusts and agency
agreements.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE
BOARD AND DIRECTOR COMPENSATION
During the last fiscal year, the Board of Directors held twelve regularly
scheduled meetings. All of the incumbent directors and each nominee standing
for re-election attended 75% or more of those meetings, and the meetings held
during the fiscal year by all board committees on which they served.
Each director received $925 per month as a fee for serving on the Board of
Directors of the Company. Each Director of the Company, with the exception
of Mr. Swope, also served on the Board of Directors of the Wayne County
National Bank. This Board meets quarterly and there are no additional fees
paid to them for those meetings. Mr. Swope serves on the Board of Directors
of the Chippewa Valley Bank and he receives no fees for that Board position.
In addition to cash compensation for 1999, each Director of the Company was
granted options to purchase 1,000 shares of the common stock of the Company
for $26.00 per share. The options vested on December 31, 1999 and expire on
December 31, 2009.
The Audit Committee makes recommendations to the Board of Directors concern-
ing the selection and engagement of the Company's independent auditors and
reviews with them the scope and status of the audit, the fees for services
performed by them, and the results of the completed audit. The Committee also
reviews and discusses with the internal audit department, management and the
Board of Directors, such matters as audit procedures, scope of the audits and
results of the examinations by regulatory authorities. The Audit Committee
was composed of Mesdames Bull and Gordon and Messrs. Shapiro, Smith and
Taylor. The Audit Committee met 11 times in 1999.
The Nominating Committee is comprised of members of the Board of Directors
who are not being considered for re-election. This Committee met twice in
1999 to nominate stockholders to serve on the Board of Directors until the
Annual Meeting in 2003. The Committee will consider nominees recommended by
stockholders. Any stockholder desiring to submit any such recommendation
should send the name, age, biographical information, and additional infor-
mation required pursuant to the Code of Regulations of the Company (a copy of
which may be obtained from the Secretary of the Company) concerning a pro-
posed nominee to the Chairman of the Board of the Company at 112 West Liberty
Street, P.O. Box 757, Wooster, Ohio 44691.
The Compensation/Employee Benefits Committee was composed of Mrs. Gordon and
Messrs. Donahue, Johnston, Shapiro, Taylor and Venkataraman. This Committee
met three times in 1999. The function of this Committee is to review and
recommend personnel policies, general wage policies and fringe benefits.
Please see the portion of this Proxy Statement entitled "EXECUTIVE COMPENSA-
TION AND OTHER INFORMATION" for a discussion of the Committee's report on
compensation issues.
THE FOLLOWING PERSONS ARE EXECUTIVE OFFICERS OF THE
CORPORATION OR ITS AFFILIATES
Name Age
- -----------------------------------------------------------------------------
David L. Christopher 59 Chairman of the Board and Chief
Executive Officer, Wayne Bancorp,
Inc., and Chairman of the Board
and Chief Executive Officer of
Wayne County National Bank since
1990; President Wayne National
Corporation since 1987
Philip S. Swope 57 President, Wayne Bancorp, Inc.,
since 1998. Chairman, Chippewa
Valley Bank since 1997; President
and Chief Executive Officer,
Chippewa Valley Bank since 1987.
F. Bill Damron 61 Vice President, Wayne Bancorp,
Inc., since 1995, Senior Executive
Vice President and Chief Loan
Officer, Wayne County National
Bank since 1987.
Jimmy D. Vaughn 58 Secretary, Wayne Bancorp, Inc.,
since 1990. Executive Vice Pres-
ident, Operations and Data Proces-
sing, Wayne County National Bank
since 1987.
David P. Boyle 36 Treasurer, Wayne Bancorp,Inc.,
since 1998, President and Chief
Operating Officer, Wayne County
National Bank, since 1999 Executive
Vice President and Chief Financial
Officer Wayne County National Bank
since 1997; Senior Vice President
and Chief Financial Officer 1996-
1997; Vice President and Chief
Financial Officer 1993-1996. Vice
President and Treasurer, Wayne
National Corporation since 1991.
Richard L. Holcombe 51 Executive Vice President, Opera-
tions, Chippewa Valley Bank, since
1999, Senior Vice President,
Operations Chippewa Valley Bank
since 1997, Vice President,
Operations, Chippewa Valley Bank
since 1983.
Stephen E. Kitchen 48 Executive Vice President and
Senior Trust Officer, Wayne County
National Bank since 1988.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Compensation
The following table provides certain summary information concerning compen-
sation paid or accrued by the Company and its subsidiaries to or on behalf of
the Company's Chief Executive Officer and the other four most highly compen-
sated Executive Officers whose compensation exceeded $100,000 in 1999, for
the fiscal years ended December 31, 1999, 1998 and 1997, or such shorter
period for which such executives have been affiliated with the Company.
SUMMARY COMPENSATION TABLE
Long-term
Annual Compensation Compensation
---------------------------- -------------
Other Option# All Other
Name and Principal Annual Com- Awards Compen-
Position Year Salary Bonus(1) pensation(2) (shares) sation(3)(4)
- ------------------------------------------------------------------------------
David L.
Christopher 1999 $217,177 $94,834 $3,543 8,400 $27,608
Chairman and Chief
Executive Officer 1998 200,391 81,519 4,775 20,225
Wayne Bancorp, Inc.
Chairman President 1997 190,215 95,545 4,522 18,823
and CEO Wayne County
National Bank
Philip S.
Swope(5) 1999 $123,251 $29,945 2,503 12,200 $11,318
President,Wayne
Bancorp Inc., 1998 113,667 20,000 0 2,619
Chairmand, President
and Executive Officer,
Chippewa Valley Bank
F. Bill
Damron 1999 $117,404 $54,145 $0 3,000 $25,979
Vice President, Wayne
Bancorp, Inc., 1998 109,781 47,195 559 19,381
Senior Executive
Vice President 1997 104,663 56,580 335 17,064
Officer Wayne County
National Bank
David P.
Boyle 1999 $112,719 $51,837 $3,413 12,200 $11,691
Treasurer, Wayne
Bancorp,Inc. 1998 96,354 41,618 3,563 14,800
President and Chief
Operating Officer, 1997 80,667 43,841 1,976 11,389
Wayne County
National Bank
Jimmy D.
Vaughn 1999 $89,603 $41,649 $1,390 3,000 $20,714
Secretary, Wayne
Bancorp, Inc., 1998 84,838 36,469 3,975 15,634
Executive Vice
President, Wayne 1997 81,092 43,917 3,313 13,724
County National
Bank
______________________________________________________________________________
(1) Includes cash portion of Profit Sharing bonus paid and incentive compen-
sation as explained herein.
(2) Comprised of reimbursement of 20 percent of the cost to purchase up to
500 shares of Company stock and incentives under the Trust Referral Program.
(3) Represents equal annual contributions to the Profit Sharing and ESOP
Plans of the Company for the years 1998 and 1997.
(4) Represents contributions to the ESOP and 401(k) plans for 1999.
(5) Mr. Swope's salary for 1998 includes his salary as the President of the
Chippewa Valley Bank and President of the Company since April of 1998.
1999 Stock Option Grants Table
The following table sets forth stock options granted to the Company's Chair-
man and Chief Executive Officer and the Company's four other most highly
compensated Executive Officers during 1999 under the Company's 1999 Incentive
Stock Option Plan. Under Securities and Exchange Commission (SEC) regula-
tions, companies are required to project an estimate of appreciation of the
underlying shares of stock during the option term. The Company has chosen
the "five percent/ten percent" formula approved by the SEC. However, the
ultimate value will depend on the market value of the Company's stock at a
future date, which may not correspond to the projections below.
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
- ------------------------------------------------------------------------------
% of Total
Options Granted Exercise
Options to Employees Price (2) Expiration
Name Granted(1) in 1999 Per Share Date 5% 10%
- -------------------------------------------------------------------------------
David L.
Christopher 8,400 19.5% $34.50 January 6, 2009 $182,254 $461,867
Philip S.
Swope 8,400 19.5% $34.50 January 6, 2009 182,254 461,867
3,800 8.8% $26.00 December 8, 2009 62,135 157,462
David P.
Boyle 8,400 19.5% $34.50 January 6, 2009 182,254 461,867
3,800 8.8% $26.00 December 8, 2009 62,135 157,462
F. Bill
Damron 3,000 7.0% $34.50 January 6, 2009 65,091 164,952
Jimmy D.
Vaughn 3,000 7.0% $34.50 January 6, 2009 65,091 164,952
________________________________________________________________________________
(1) Options granted in 1999 are incentive stock options. The options granted
on January 6, 1999 at $34.50 per share vest at the rate of 2,800 per year
beginning on December 15, 1999 for Messrs. Christopher, Swope and Boyle
and at the rate of 1,000 per year beginning December 15, 1999 for Messrs.
Damron and Vaughn. The additional options granted to Messrs. Swope and
Boyle on December 8, 1999 at $26.00 per share are exercisable after
December 15, 2002, with full vesting occurring on that date. These
options were granted for a term of 10 years, subject to earlier termina-
tion in certain events related to termination of employment. (All of
these options become immediately exercisable in the event of a change in
control of the Company.)
(2) Exercise price was the fair market value on the date of grant.
1999 Stock Option Exercises and Year-End Value Table
The following table sets forth the number and value of all unexercised stock
options held by Executive Officers at year-end. The value of "in-the-money"
options refers to options having an exercise price which is less than the
market price of the Company's stock on December 31, 1999. On that date, the
Company's named Executive Officers held no exercisable options which were
"in-the-money" as discussed in the following table. In addition, the table
sets forth the number of options exercised by each of the named Executive
Officers during 1999 and indicates the amount of value realized upon such
exercise. There were no exercises of options in 1999.
Number(#) of Value($) of
Unexercised Unexercised
Options- Options-
12/31/99 12/31/99(2)
------------ ------------
Shares Acquired Net Value($) Exercisable/ Exercisable/
Name on Exercise Realized(1) Unexercisable Unexercisable
- ------------------------------------------------------------------------------
David L.
Christopher 0 $0 8,400
2,800/5,600 $0/0
Philip S.
Swope 0 0 12,200
2,800/9,400 $0/0
David P.
Boyle 0 0 12,200
2,800/9,400 $0/0
F. Bill
Damron 0 0 3,000
1,000/2,000 $0/0
Jimmy D.
Vaughn 0 0 3,000
1,000/2,000 $0/0
_______________________________________________________________________________
(1) Represents estimated market value of the Company's common stock at
exercise date, less the exercise price.
(2) Represents estimated market value of the Company's common stock at
December 31, 1999, less the exercise price. Because the value of the
Company's stock was less than the exercise price of the outstanding
options as of December 31, 1999, the options had no current value as of
that date.
REPORT OF THE COMPENSATION COMMITTEE
Under rules established by the Securities and Exchange Commission
(the "SEC"), the Company is required to provide certain data and information
in regard to the compensation and benefits provided to the Company's Chairman
and Chief Executive Officer, and if applicable, the four other most highly
compensated executive officers, whose aggregate compensation exceeded
$100,000 during the Company's fiscal year. The disclosure requirements, as
applied to the Company, include the Company's Chairman and CEO, the Presi-
dent, Vice President, Secretary and Treasurer and include the use of tables
and a report explaining the rationale and considerations that led to funda-
mental executive compensation decisions affecting these individuals. The
Company is a holding company and owns two significant operating subsidiaries,
the Wayne County National Bank and the Chippewa Valley Bank. The Company has
no direct employees. All disclosures contained in this Proxy Statement
regarding executive compensation relate to the compensation paid by the sub-
sidiary banks. The Compensation/Employee Benefits Committee of the Company has
the responsibility of determining the compensation policy and practices and
making recommendations to the full Board with respect to specific compensa-
tion of the Chief Executive Officer and other executive officers. At the
direction of the Board of Directors, the Committee has prepared this report
for inclusion in this Proxy Statement.
Compensation Philosophy
This report reflects the Company's compensation philosophy as endorsed by the
Board of Directors and the Committee and resulting actions taken by the Com-
pany for the reporting periods shown in the various compensation tables sup-
porting this report. The Committee approves and recommends to the Board of
Directors payment amounts and award levels for executive officers of the Com-
pany and its subsidiaries.
The executive compensation program of the Company has been designed to:
- Support a pay-for-performance policy that awards executive
officers for Company performance.
- Motivate key senior officers to achieve strategic business
initiatives and reward them for their achievement, and
- Provide compensation opportunities which are comparable
to those offered by other financial institutions, thus
allowing the Company to compete for and retain talented
executives who are critical to the Company's long term
success.
At present, the executive compensation program is comprised of base salary
and annual cash and stock incentive opportunities.
Other than base salary and participation in the Company's Senior Officer
Incentive Compensation Plan and 1999 Incentive Stock Option Plan for Messrs.
Christopher, Swope, Damron, Boyle, Vaughn, Kitchen and Holcombe discussed
below, additional benefits available to this group of officers are equivalent
to that for all other employees and are determined at the discretion of the
Board of Directors.
Base Salaries
On January 6, 1999 the Committee met to review and approve amendments to the
compensation for all employees. David L. Christopher, Chairman, President
and CEO of the Company was present at the meeting to present his views in re-
gard to management and other salaried and hourly employees, but was not
present at the point in time that his compensation was discussed by the
Committee. Compensation decisions are made after a review is performed of the
performance of executive officers in relation to the goals of the Company.
At this meeting, the Committee proposed a base salary commencing on January
1, 1999 for Mr. Christopher of $210,000, for Mr. Swope of $113,000, for Mr.
Damron of $116,600, for Mr. Boyle of $112,000 and for Mr. Vaughn of $89,000.
These salaries were subsequently approved by the Board of Directors. Their
salaries were a result of a review of specific surveys, based on asset size,
regarding peers of the Company, the Wayne County National Bank and the
Chippewa Valley Bank including the following:
1. Ohio Bankers Association surveys reviewing Ohio banks.
2. Studies prepared by Crowe, Chizek & Company LLP the Company's
external auditors.
3. Bank Administration Institute surveys reviewing all Ohio banks in
Region 5, the region of Wayne County National Bank and Chippewa Valley
Bank.
The Committee reviewed all these surveys and blended the results to deter-
mine the average compensation for various positions including that of the
Chief Executive Officer, President, Vice President, Secretary and Treasurer.
The committee then set a range between 75 percent and 125 percent of the
average in order to determine the base salary for Messrs. Christopher, Swope,
Damron, Vaughn and Boyle. In each case, the base compensation falls within
this range. The Compensation committee believes that the salaries paid to
these executive officers is justified based on the performance of the Company
and the Banks relative to their peers.
The five named executive officers of the Company and thirteen additional
officers participated in the "Senior Officer Incentive Compensation Plan."
Under this plan, which was adopted in 1994, payments are made to such
officers only if the net operating profit of the Bank's exceed 14% of total
operating income. In determining the bonus to be paid, a sliding scale is
used to determine the total bonus pool available and individual bonuses are
calculated based upon the participant's salary relative to the total salaries
of those participating in the plan. The aggregate amount paid under this
plan in 1999 was approximately $452,000. The amounts received under the plan
by the listed executive officers are included in the compensation table set
forth above.
The Company has entered into Change in Control Agreements with four of the
named executive officers. The agreements provide for payment (in lieu of
salary) to Messrs. Christopher, Damron, Vaughn and Boyle an amount equal to
96% of the sum of the individual's compensation, including bonus, paid in the
last whole calendar year prior to termination of employment due to a change
in control. Messrs. Christopher, Damron and Boyle's agreements call for these
payments for 3 years and Mr. Vaughn's agreement calls for these payments for
2 years.
If the employment of Messrs. Christopher, Damron and Boyle had been termi-
nated as of December 31, 1999 under circumstances entitling them to severance
pay as described above, they would have received 36 payments of approximately
$25,700 for Mr. Christopher, $15,900 for Mr. Damron and $12,700 for Mr.
Boyle. Mr. Vaughn would have been entitled to 24 payments of $11,900.
Mr. Swope has a Change in Control Agreement with the Chippewa Valley Bank.
This agreement states that if Mr. Swope's employment is terminated within 36
months of a change in control, he would be entitled to the equivalent of
three years salary and bonus. Had Mr. Swope's employment been terminated at
December 31, 1999, he would have been entitled to a benefit of approximately
$426,000.
Submitted by the Compensation Committee
Dennis B. Donahue B. Diane Gordon John C. Johnston, III
Stephen L. Shapiro David E. Taylor Bala Venkataraman
The following represents a comparison of the return on an investment in the
Company, Standard & Poors 500 index and a peer group composed of major
regional banks and bank holding companies.
To view the graph and comparison please call the Company and request a copy
of the Proxy.
Assumes $100 invested on January 1, 1995 in Wayne Bancorp, Inc. Common Stock,
S&P 500 Index and S&P Major Regional Bank Index.
* Total return assumes reinvestment of dividends.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's securities, to file reports of ownership
and changes in ownership with the Securities and Exchange Commission.
Officers and directors and greater than ten percent shareholders are required
by SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on a review of the copies of Forms 3, 4 and 5, and amendments
thereto, furnished to the Company, or representations that no Form 5's were
required, the Company believes that during 1999 all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten
percent shareholders were complied with.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following affiliations exist between the Company and Executive Officers,
Nominees or Directors;
Mr. Christopher is one of several partners in Wayco and Company, a partner-
ship formed for the purpose of holding legal title, as a nominee,
to securities designated by the Wayne County National Bank with respect to
the business of its Trust Department.
Mr. Christopher is President and Mr. Boyle is Vice President and Treasurer
of Wayne National Corporation. Wayne National Corporation is a wholly owned
subsidiary of the Wayne County National Bank. Wayne National Corporation is
a 20 percent general partner in NB5 Financial Services. NB5 Financial Ser-
vices is engaged in leverage lease financing, direct leasing and other
financial products. As of December 31, 1999, NB5 Financial Services is no
longer actively engaged in any leasing activities.
Mr. Johnston is a partner with the law firm of Critchfield, Critchfield and
Johnston. The Company believes the terms of all payments were as favorable
as could have been obtained from unaffiliated parties.
Some of the Directors, Officers and greater than 5% shareholders of Wayne
Bancorp, Inc., their immediate families and companies with which they are
associated were customers of and had banking relationships with either the
Wayne County National Bank or the Chippewa Valley Bank in the ordinary course
of those Banks' businesses from the beginning of 1999 to present. All loans
and commitments to loans were made in the ordinary course of business, were
made on substantially the same terms, including interest rates and col-
lateral, as those prevailing at the time for comparable transactions with
other persons, and in the opinion of management of the Banks do not involve
more than a normal risk of collectibility or present other unfavorable
features.
OTHER BUSINESS
If any other business is brought before the meeting, your vote will be made
by your Proxy or may be revoked by you prior to its exercise. Management at
present knows of no other business to be presented.
PROPOSALS FOR 2001 MEETING
A stockholder who desires to have a proposal printed in the 2001 Proxy State-
ment must submit that proposal no later than November 15, 2000. The proposal
should be mailed to the Chairman of the Board, Wayne Bancorp, Inc., P.O. Box
757, Wooster, Ohio 44691. To include an item of business at the Company's
Annual Meeting in 2001, even if such item is not to be included in the
Company's Proxy Statement, a shareholder must send notice of such proposal
item of business to the Company's Chairman at the address set forth above
including a description of such proposal, the reason for its inclusion, and
materials in support of such proposal. Such items must be received no later
than January 26, 2001.
By Order of the Board of Directors
Dated March 20, 2000 Jimmy D. Vaughn, Secretary