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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual report pursuant to section 13 or 15 (d) of the Securities Exchange
For the fiscal year ended December 31, 1996 Commission file #0-14612
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 offic(Zip Code)
Registrant's telephone number, including area code: (330) 264-1222
Securities registered pursuant to section 12(b) of the ANone
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), subject to such filing requirements for the
past 90 days
YES__X___ NO______
The aggregate market value of voting stock held by nonaffiliates of the
registrant most recent trade prices of such stock on March 1, 1997:
Common Stock $1.00 stated value $145,405,227
The number of shares outstanding of the issuer's classes of common stock as of
March 1, 1997:
Common Stock $1.00 stated value 3,929,871
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1996 portions of the Registrant's Proxy Statement for the Annual Shareholders
Meeting to be held March 27, 1997 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..................................... 13
Item 3 Legal Proceedings.............................. 13
Item 4 Submission of matters to a vote of security hol 14
PART II
Item 5 Market for the Registrant's common stock and related
Shareholder matters.................. 14
Item 6 Selected Financial Data........................ 14
Item 7 Management discussion and analysis of financial 14
and results of operations............ 14
Item 8 Financial statements and supplementary data.... 14
Item 9 Changes in and disagreements with accountants on
accounting and financial disclosures. 14
PART III
Item 10 Directors and Executive Officers of the Registr 14
Item 11 Executive Compensation......................... 15
Item 12 Security ownership of certain beneficial owners and
management........................... 15
Item 13 Certain relationships and related transactions. 15
PART IV
Item 14 Exhibits, financial statement schedules and reports on
Form 8-K............................. 15
Exhibit Index.................................. 16
Signatures..................................... 17
PART I
ITEM I. BUSINESS
General Development of Business:
Wayne Bancorp, Inc and its subsidiary, the Wayne County National Bank,
(collectively the "Company"), conduct general commercial banking business.
Wayne Bancorp, Inc. is a one-bank holding company organized in April, 1986.
The Wayne County National Bank ("The Bank") is a full-service bank offering a
wide range of commercial and personal banking services primarily to customers
in Wayne, Holmes and Stark Counties of Ohio. These services include a broad
range of loan, deposit and trust products 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, Visa and Master Card lines of credit and lease financings. Deposit
products include interest and non-interest bearing checking accounts, various
savings accounts, certificates of deposit, and IRAs. The Trust Department
provides service in the areas of employee benefits, and personal trusts.
Miscellaneous services include safe deposit boxes, night depository, United
States savings bonds, traveler's checks, money orders, cashier checks, bank-by-
mail service, money transfers, wire services, utility bill payments, and
collections, notary public services, discount brokerage services and alternative
investments. In addition, the Bank has correspondent relationships with major
banks in Cleveland, Cincinnati and Detroit pursuant to which the Bank received
various financial services. The Bank accounts for substantially all (99%) of
Wayne Bancorp.'s consolidated assets at December 31, 1996.
The Bank's primary lending area consists of Wayne County, Ohio, and its
contiguous counties. Loans outside the primary lending area are considered
for creditworthy applicants. Lending decisions are made in accordance with
written loan policies designed to maintain loan quality.
Retail lending products are comprised of credit card loans, overdraft lines,
personal credit and installment loans. Credit cards are unsecured credit
accounts, on which limits are determined by analysis of two criteria, the
borrowers debt service and gross income. 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 motgages but may be unsecured or secured by other collateral.
The lines have a twenty 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 lender in the underwriting
process.
The Bank offers a variety of mortgage loans programs, including a variety of
fixed and adjustable rate mortgages ranging from 120 to 360 months. The
underwriting guidelines include those for consumer loans and those necessary
to meet secondary market guidelines. Residential real estate decisions focus
on loan to value limits, debt to income ratios, housing to income ratio, credit
history, and in some cases whether private mortgage insurance us obtained.
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 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 churces, 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 economcy or specific industry. Should cash flow fail,
the lender looks to the assets of the business and or the ability of the
comakers to support the debt. Commercial lenders consider the Five C's of
Credit, character, capacity, capital, condition and collateral in making
commercial credit decisions. The Bank has provided both direct and indirect
leasing on a limited basis. The direct leases are for specific equipment and
may be open-end or closed-end. Indirect leases are established by the same
methods as an indrect cosumer auto finance. Each vehicle has its own
amortization.
In addition to the underwriting guidelines followed for specific loan types,
the Bank has underwriting guidelines common to all loan types. With regard to
collateral, the Bank 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 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 independentappraisers. The Bank, as a general rule, gets an
appraisal on all real estate transactions even when not required by Title XI.
Approval procedures include loan authorities approved by the Board of
Directors for individual lenders and loan committees. Retail and residential
loans are centrally underwritten by their respective departments. Business
credits can be approved by the individual commercial lender or taken to Loan
Committee if it exceeds individual approval limits. The Board of Directors
approves aggregate loan committments in excess of $500 thousand up to the Bank's
legal lending limit. Loans to Directors and Executive Officers are approved by
the Board of Directors.
The Loan Quality 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 67%, 71%, and 69% of consolidated revenues in
1996, 1995 and 1994, respectively. Revenues from interest and dividends on
investment securities, federal funds sold and mortgage-backed securities
accounted for 20%, 19% and 20% of consolidated revenues in 1996, 1995, and
1994, respectively.
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 information
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 Bank on a quarterly basis information pursuant
to the Act. The Federal Reserve Board may conduct examinations or inspections
of the Company and its subsidiaries.
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
substantially all of the assets of 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 company
and from engaging directly or indirectly in activities other than those of
banking, managing or controlling banks or furnishing services to its
subsidiaries. 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 regulation 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 subsidiary Bank.
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 subsidiary. There
are statutory limitations on the amount of dividends which may be paid to
the Company by its Bank subsidiary.
The Company's national banking subsidiary is subject to primary regulation,
supervision and examination by the Comptroller of the Currency. The Bank is
a member of the Federal Reserve System and, as such, is subject to the
applicable provisions of the Federal Reserve Act and regulations issued
thereunder. Further, the subsidiary Bank is also subject to the applicable
provisions of Ohio law insofar as they do not conflict with federal banking
laws.
The Bank's deposits are insured by the Federal Deposit Insurance Corporation.
Related to that, the Bank is subject to 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
certain capital levels. The required capital levels and the Company's capital
position at December 31, 1996 are reported in the table included in Note 14
to the financial statements discloses the Company's captial requirements and
the current capital position.
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
conditions, and to a lesser extent by the fiscal and monetary policies of the
federal government and its agencies, particularly the Federal Reserve Bank.
Its policies influence the amount of bank loans and deposits and interest rates
charged and paid thereon, and thus have an effect on the earings of
the subsidiary and the Company.
Competition
The banking and financial services industry in the Company's market is highly
competitive. The Company's market area encompasses Wayne, Holmes and Stark
Counties in Ohio. The Bank competes for loans and deposits with other
commercial banks, savings and loans, finance companies 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 services.
Employees
As of December 31, 1996, the Company had 143 full time employees and 32 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, 1996
Average
Daily Yield/
Balance Interest Rate
(In thousands of dollars)
ASSETS ----------------------------
Interest Earning Assets:
Loans (including fees) (1) $213,679 $19,546 9.15%
Investment Securities
Taxable 74,079 4,584 6.19%
Tax-Exempt (2) 20,351 1,691 8.31%
Federal Funds Sold 3,577 184 5.14%
-------------------
TOTAL EARNING ASSETS 311,686 26,005 8.34%
Non-earning Assets:
Cash and due from banks 12,030
Premises and Equipment (net) 6,171
Other Assets 5,001
Less Allowance for Loan Losses (3,769)
---------
TOTAL ASSETS $331,118
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Transaction Accounts 61,703 1,699 2.75%
Savings 49,818 1,422 2.85%
Time Deposits 120,945 6,331 5.23%
Short Term Borrowings 21,039 994 4.72%
-------------------
TOTAL INTEREST BEARING LIABILITIES 253,505 10,446 4.12%
Non-Interest Bearing Liabilities
Demand Deposits 35,590
Other Liabilities 2,660
---------
TOTAL LIABILITIES 291,755
Shareholders' Equity 39,364
---------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $331,119
=========
NET INTEREST INCOME $15,559
==========
NET YIELD ON INTEREST EARNING ASSETS 4.99%
=========
(1) Nonaccrual loans are included in the average loan balance.
(2) Interest income on tax exempt securities includes a taxable equivalent
adjustment using a 34% tax rate.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
WAYNE BANCORP, INC.
December 31, 1995
Average
Daily Yield/
Balance Interest Rate
(In thousands of dollars)
ASSETS ----------------------------
Interest Earning Assets:
Loans (including fees) (1) $205,518 $18,956 9.22%
Investment Securities
Taxable 61,125 3,675 6.01%
Tax-Exempt (2) 23,064 1,909 8.28%
Federal Funds Sold 4,064 239 5.88%
-------------------
TOTAL EARNING ASSETS 293,771 24,779 8.43%
Non-earning Assets:
Cash and due from banks 11,509
Premises and Equipment (net) 6,118
Other Assets 5,239
Less Allowance for Loan Losses (3,589)
---------
TOTAL ASSETS $313,048
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Transaction Accounts 57,802 2,019 3.49%
Savings 49,155 1,396 2.84%
Time Deposits 120,549 5,861 4.86%
Short Term Borrowings 12,717 640 5.03%
-------------------
TOTAL INTEREST BEARING LIABILITIES 240,223 9,916 4.13%
Non-Interest Bearing Liabilities
Demand Deposits 35,083
Other Liabilities 2,021
---------
TOTAL LIABILITIES 277,327
Shareholders' Equity 35,721
---------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $313,048
=========
NET INTEREST INCOME $14,863
==========
NET YIELD ON INTEREST EARNING ASSETS 5.06%
=========
(1) Nonaccrual loans are included in the average loan balance.
(2) Interest income on tax exempt securities includes a taxable equivalent
adjustment using a 34% tax rate.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
WAYNE BANCORP, INC.
December 31, 1994
Average
Daily Yield/
Balance Interest Rate
(In thousands of dollars)
ASSETS ----------------------------
Interest Earning Assets:
Loans (including fees) (1) $189,897 $16,465 8.67%
Investment Securities
Taxable 63,799 3,193 5.00%
Tax-Exempt (2) 26,508 2,015 7.60%
Federal Funds Sold 2,643 109 4.12%
-------------------
TOTAL EARNING ASSETS 282,847 21,782 7.70%
Non-earning Assets:
Cash and due from banks 11,583
Premises and Equipment (net) 5,817
Other Assets 5,768
Less Allowance for Loan Losses (3,292)
---------
TOTAL ASSETS $302,723
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Transaction Accounts 53,444 1,506 2.82%
Savings 63,359 1,825 2.88%
Time Deposits 100,995 4,210 4.17%
Short Term Borrowings 10,387 390 3.75%
-------------------
TOTAL INTEREST BEARING LIABILITIES 228,185 7,931 3.48%
Non-Interest Bearing Liabilities
Demand Deposits 40,820
Other Liabilities 1,403
---------
TOTAL LIABILITIES 270,408
Shareholders' Equity 32,315
---------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $302,723
=========
NET INTEREST INCOME $13,851
==========
NET YIELD ON INTEREST EARNING ASSETS 4.90%
=========
(1) Nonaccrual loans are included in the average loan balance.
(2) Interest income on tax exempt securities includes a taxable equivalent
adjustment using a 34% tax rate.
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.
1996 vs 1995 1995 vs 1994
-------------------------------------------------------
Increase (Decrease) (1) Increase (Decrease) (1)
Volume Rate Net Volume Rate Net
(In thousands of do-------------------------------------------------------
Interest Income:
Loans $753 ($163) $590 $1,417 $1,074 $2,491
Taxable Securities 779 130 909 (134) 616 482
Non-taxable
Securities (225) 7 (218) (262) 156 (106)
Federal Funds Sold (29) (26) (55) 60 70 130
-------------------------------------------------------
Total Interest Income 1,278 (52) 1,226 1,081 1,916 2,997
Interest Expense:
Transaction Accounts 136 (456) (320) 123 390 513
Savings 19 7 26 (409) (20) (429)
Time Deposits 19 451 470 846 805 1,651
Short-term Borrowings 419 (65) 354 87 163 250
-------------------------------------------------------
Total Interest Expense 593 (63) 530 647 1,338 1,985
-------------------------------------------------------
Net Interest Income $685 $11 $696 $434 $578 $1,012
=======================================================
(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 volume variance and rate variances 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.
INVESTMENT PORTFOLIO
WAYNE BANCORP, INC.
The following table represents the carrying value of available-for-sale
securities at the dates indicated: (in thousands of dollars)
1996 1995 1994
----------------------------
U.S. Treasury and Other U.S. Government
Agency Obligations $40,473 $43,121 $48,512
Mortgage-backed Securities 23,197 13,955 11,915
States and Political Subdivisions 21,378 21,126 24,510
Other 18,246 16,123 8,214
----------------------------
$103,294 $94,325 $93,151
============================
The following table sets forth the maturity distribution and yields on
investment securities available-for-sale at December 31, 1996
(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 $19,762 6.63% $23,359 6.09%
Mortgage-backed Securities 782 6.59% 9,491 6.22%
States and Political Subdivisions 4,268 5.73% 9,276 6.05%
Other 7,721 6.85% 6,114 7.97%
-------------------------------------
$32,533 6.56% $48,240 6.35%
=====================================
Five to Ten Years Over Ten Years
Carrying Carrying
Value Yield Value Yield
-------------------------------------
U.S. Treasury and Other U.S.
Government Agency Obligations
Mortgage-backed Securities 2,125 6.95% 1,557 8.01%
States and Political Subdivisions 7,121 5.68% 461 5.62%
Other 2,288 7.57%
-------------------------------------
$9,246 5.97% $4,306 7.52%
=====================================
Note: Yield represents the weighted average yield to maturity. Yield on
states and political subdivisions are not calculated on a tax
equivalent basis. Mortgage-backed obligations are distributed based
on contractual maturity.
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
securities of any one issuer which exceeded 10% of consolidated shareholders'
equity at December 31, 1996.
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. Loans by major category at the end of
the last five years were as follows: (In thousands of dollars)
1996 1995 1994 1993 1992
----------------------------------------------
Real Estate $86,276 $76,694 $78,930 $71,230 $66,539
Installment & Credit Card 39,183 42,426 39,914 34,408 34,391
Commercial & Collateral 90,638 81,740 75,983 74,011 72,081
Lease Financings 3,246 3,435 2,741 2,535 3,281
Other Loans 23 26 12 16 15
----------------------------------------------
$219,366 $204,321 $197,580 $182,200 $176,307
==============================================
The maturity distribution of the loan portfolio is a key factor in the
evaluation of 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 1996 is included on page 26 of the 1996 Annual Report to Shareholders,
and is incorporated herein by reference.
The maturity distribution and interest rate sensitivity of commercial and
collateral loans at December 31, 1996 are as follows (In thousands of dollars):
Within 1 to 5 After 5
1 Year Years Years Total
-------------------------------------
Commercial and Collateral $41,880 $42,308 $6,450 $90,638
Loans due after 1 year:
At predetermined interest rates $19,908
At floating interest rates $28,850
The following table summarizes past due, non-accrual and restructured loans:
(In thousands of dollars) 1996 1995 1994 1993 1992
----------------------------------------------
Accruing loans past due 90 days
or more as to principle or $173 $204 $149 $45 $713
Non-accrual loans 934 15 22 46 375
Restructured loans 0 0 0 0 0
----------------------------------------------
$1,107 $219 $171 $91 $1,088
==============================================
The effect of non-performing loans was as follows: December 31, 1996
------------------
Interest income due on non-performing loans in accordance
with the original terms of the loan $74
Less: Interest income on non-performing loans reflected in incom 72
---------
Net reduction in interest income $2
=========
The policy for placing loans on non-accrual status is to stop the accrual on
interest when it is likely that collection of all of the principle or interest
is deemed doubtful, or when loans are past due as to principle or interest
ninety days or more. In certain cases, interest accruals are continued on loans
ninety days past due if they are deemed to be adequately secured and in the
process of collection.
The Company adopted SFAS No. 114 and SFAS No. 118 effective January 1, 1995. At
December 31, 1995, the Comany had no loans classified as impaired, and
therefore, the adoption of SFAS No. 114 and SFAS No. 118 had no effect on the
comparability of non-performing asset at December 31, 1995 to prior periods.
The Bank had one impaired loan at December 31, 1996 with a balance of $924
thousand. The impaired loan had $215 thousand of the allowance for loan losses
allocated at December 31, 1996, although the entire allowance remains available
for charge-off of any loan. Impaired loans averaged $1.1 million in 1996.
Income recognized during the year ended December 31, 1996 amounted to $74
thousand. Interest income recognized on the cash basis for the year ended
December 31, 1996 totaled $72 thousand. There were no impaired loans in 1995.
As of December 31, 1996, there were no potential problem loans for which
management has doubt as to the borrower's ability to comply with the present
repayment terms, which are not disclosed as past due ninety days or more,
non-accrual or restructured. These loans and their potential loss exposure
has been considered in the analysis of the adequacy of the reserve for loan
losses, prepared by management and included on page 13 of this filing.
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, 1996, 1995 or 1994.
As of December 31, 1996, 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 31,1 996, 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 of extending credit.
The Company manages this risk through its lending policy, loan review procedures
and personal contact with the borrower.
In determining the adequacy of the allowance for loan losses, management
evaluates past loan loss experience, present and anticipated economic conditions
and credit-worthiness of its borrowers. The allowance for loan losses is
increased by provisions charged to operations and recovery of loans previously
charged off. The allowance is reduced by loans chargeed off as they become
uncollectible by the Bank's management. The following table contains infor-
mation relative to the loan loss experience for five years ending December 31:
(In thousands of dollars) 1996 1995 1994 1993 1992
----------------------------------------------
Allowance for loan losses at
the beginning of the year 3,705 $3,448 $3,040 $2,629 $2,059
Loans charged off:
Real Estate 0 0 0 15 53
Installment & Credit Card 243 218 154 213 294
Lease Financings 0 1 0 5 1
Commercial & Collateral 169 11 29 173 20
----------------------------------------------
Total Loans Charged Off 412 230 183 406 368
Recoveries on loans charged off:
Real Estate 2 0 0 0 0
Installment & Credit Card 131 115 136 132 126
Lease Financings 0 139 7 3 5
Commercial & Collateral 51 113 102 82 57
----------------------------------------------
Total Recoveries 184 367 245 217 188
Net Loans Charged Off 228 (137) (62) 189 180
Provision for Loan Losses 180 120 346 600 750
----------------------------------------------
Allowance for Loan Losses
at the End of the Year $3,657 $3,705 $3,448 $3,040 $2,629
==============================================
Ratio of net charge-offs during the
year to average outstanding loans
during the year 0.11% -0.07% -0.03% 0.10% 0.10%
The following table shows an allocation of the allowance for loan losses for the
current period and each of the last five years.
12-31-96 12-31-95 12-31-94 12-31-93 12-31-92
---------------------------------------------------
Real Estate $496 $201 $212 $207 $168
Installment & Lease 50 65 103 338 201
Commercial & Collateral 332 319 412 719 736
Credit Card Receivables 15 14 17 69 68
Other Loans 0 0 0 0 0
Unallocated 2,764 3,106 2,704 1,707 1,456
---------------------------------------------------
$3,657 $3,705 $3,448 $3,040 $2,629
===================================================
Percent of Loans in Each Category to Total Loans
12-31-96 12-31-95 12-31-94 12-31-93 12-31-92
----------------------------------------------------
Real Estate 40% 38% 40% 39% 37%
Installment & Lease 19% 20% 18% 17% 20%
Commercial & Collat 41% 40% 39% 41% 41%
Credit Card Receiva 0% 2% 3% 3% 2%
Other Loans
Unallocated
-----------------------------------------------------
100% 100% 100% 100% 100%
=====================================================
Management's allocation of the allowance for loan 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 borrower is unable
to continue servicing the debt. Management will use the amount of loss that is
expected on those loans. The second step is of review the prior charge-off
history of each loan category.In this step, management will review the prior
three year average charge-offs and compare that to the expected loss identified
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, 1996 the ratio of reserve for loan losses to total net loans and
leases was 1.67%. Based on the ratio of allowance to total net loans and
leases and the December 31, 1996 ratio of loans past due 30 days or more to
total net loans and leases was .83%, the above allocation is considered
reasonable by the Company's management.
The amounts included in the specific allocations are obtained by using the
principle balance of any loans classified on the problem loan list as loss or
doubtful, plus 10% of the total principle balances of loans considered
substandard and 5% of those which are considered watch credits.
At December 31, 1996, the Company had allocated $215 thousand of the allowance
for loan losses for impaired loan balances. See Footnote 5 to the consolidated
financial statements for 1996 which is incorporated herein by reference.
DEPOSITS
WAYNE BANCORP, INC.
The following table presents the average daily balance and the average rate
paidthe Bank's deposit categories for the period indicated.
(In thousands of dollars)
Year End December 31,
1996 1995 1994
Amount: ----------------------------
Non-interest bearing demand $43,416 $35,083 $40,820
Interest bearing demand 69,308 69,238 53,444
Savings 49,811 49,155 63,359
Time deposits 119,151 121,271 100,995
----------------------------
$281,686 $274,747 $258,618
============================
Average rate for the year:
Interest bearing demand 2.50% 3.49% 2.82%
Savings 2.85% 2.84% 2.88%
Time deposits 5.08% 4.83% 4.17%
The maturity distribution of certificates of deposit of $100,000 or more at
Decembeber 31, 1996 are as follows:
(In thousands of dollars)
Three months or less $6,522
Over three months through six months 2,116
Over six months through twelve months 4,938
Over twelve months 2,332
---------
$15,908
=========
14
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,
1996 1995 1994
----------------------------
Return on Average Assets 1.67% 1.43% 1.33%
Return on Average Equity 14.05% 12.56% 12.44%
Dividend Payout Ratio 26.41% 30.03% 28.77%
Average Equity to Average Asset Ratio 11.77% 11.46% 10.66%
The following table represents information on federal funds purchased and
securities sold under agreements to repurchase:
(In thousands of dollars)
Year End December 31,
1996 1995 1994
----------------------------
Amount outstanding at year end $26,142 $15,662 $13,861
Weighted average interest rate 4.46% 4.35% 5.02%
Maximum outstanding at any month end 29,854 15,872 16,057
Average outstanding during the year 20,282 10,947 10,387
Weighted average rate during the year 4.64% 5.03% 3.75%
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 aliability. The Company has borrowing lines of
credit extended by correspondent banks. At December 31, 1996 the Company has
$29 million of available credit, of which, none is used.
ITEM 2. PROPERTIES
The principal offices of the Company and the Wayne County National Bank are
located at 112 West Liberty Street, Wooster, Ohio. At December 31, 1996 the
Company owned nine of its branch facilities and leased two facilities. Nine
offices are located in Wayne County, Ohio and one located in each Holmes
and Stark Counties in Ohio.
ITEM 3. LEGAL PROCEEDINGS
There is no pending litigation of a material nature in which the Company is
involved and no such legal proceedings were terminated during the fourth
quarter of 1996. Furthermore, there are no material proceedings in which any
director, officer or affiliate of the Registrant,or any associate or such
director or officer, is a party, or has a material interest, adverse to the
Company. As 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, 1996, there were no
matters submitted to a vote of security holders.
15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Reference is made to the section titled "Dividend and Market Price Data" on
Page 4 of the 1996 Annual Report to Shareholders for the information about the
principal market for the Registrant's Common Stock, market prices, number of
shareholders and dividends, which is incorporated herein by reference.
Reference is made to Note 14, "Regulatory Matters" on page 19 of the Annual
Report to Shareholders for information concerning dividend restrictions,
which is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the table entitled "Five Year Financial Summary" on page
3 of the 1996 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 21 through 27 of the 1996 Annual Report to Shareholders which is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, Management's Responsibility for the
Financial Statements Letter, and Report of Independent Auditors are included
on pages 8 through 20 of the 1996 Annual Report to Shareholders, which is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
Reference is made to the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held March 27, 1997 for information regarding changes in
and disagreements with accountants on accounting and financial disclosures.
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 March 27, 1997 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
Shareholder to be held March 27, 1997 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.
16
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 March 27, 1997 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 appears
on pages 9 through 20 of the Company's 1996 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, 1996 and 1995
Consolidated Statements of Income, Years Ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows, Years Ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Shareholders' Equity, Years Ended
December 31, 1996, 1995, and 1994
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
inapplicable 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 herein incorporated by reference.
3(b) Wayne Bancorp, Inc., Amended Code of Regulations (Bylaws) were filed
with Company's Annual Report on Form 10-K for the year ended December
31, 1992 and is herein incorporated by reference.
9(a) Trust Division Policy - voting own Bank stock was filed with the
Company's Report on Form 10-K for the year ended December 31, 1987
and is herein incorporated 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 herein incorporated 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.
13 Annual Report to Shareholders for the year ended December 31, 1996
22 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 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, 1997 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 Capaccities and on dates as indicated.
Signature Capacity with Registrant Date
____________________________ ____________________
David L. Christopher Director, Chairman of Board, March 27, 1997
President and CEO
____________________________ ____________________
James O. Basford Director March 27, 1997
____________________________ ____________________
Joseph R. Benden Director March 27, 1997
____________________________ ____________________
David P. Boyle, CPA Senior Vice President and March 27, 1997
Chief Financial Officer
____________________________ ____________________
Gwenn E. Bull Director March 27, 1997
____________________________ ____________________
Dennis B. Donahue Director March 27, 1997
____________________________ ____________________
Harold Freedlander Director March 27, 1997
____________________________ ____________________
Frank M. Hays Director March 27, 1997
____________________________ --------------------
John C. Johnston, III Director March 27, 1997
____________________________ ____________________
Dietrich Kaesgen Director March 27, 1997
____________________________ ____________________
Jeffrey E. Smith Director March 27, 1997
____________________________ ____________________
David E. Taylor Director March 27, 1997
____________________________ ____________________
Bala Venkataraman Director March 27, 1997
19
EXHIBIT (22)
SUBSIDIARIES OF THE REGISTRANT
NAME STATE OF INCORPORATION
Wayne County National Bank Ohio
Wayne National Corporation Ohio
20
FIVE YEAR FINANCIAL SUMMARY 1
For the Years Ended December 31,
(In thousands of dollars except per
share data) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
Statement of Income Summary:
Total Operating Income............ $29,329 $26,883 $23,695 $22,871 $24,255
Total Operating Expense........... 21,377 20,566 18,115 17,979 19,970
Total Interest Income............. 25,430 24,130 21,096 20,232 21,745
Total Interest Expense............ 10,446 9,916 7,931 8,287 10,184
Net Interest Income............... 14,984 14,214 13,165 11,945 11,561
Provision for Loan Losses......... 180 120 346 600 750
Income Before Income Tax Expense
and Accounting Change.......... 7,952 6,317 5,580 4,892 4,285
Income Tax Expense................ 2,420 1,832 1,560 1,480 1,171
Income Before Accounting Change... 5,532 4,485 4,020 3,412 3,114
Cumulative Effect of Accounting Change..... 260
Net Income........................ 5,532 4,485 4,020 3,672 3,114
Per Share Data: 2
Net Income........................ $1.41 $1.14 $1.03 $0.94 $0.80
Cash Dividends.................... 0.37 0.34 0.29 0.27 0.24
Book Value........................ 10.55 9.65 8.58 7.89 7.14
Balance Sheet Data:
Total Loans and Leases............$219,366 $212,860 $197,580 $182,200 $176,307
Allowance for Loan Losses......... 3,657 3,705 3,448 3,040 2,629
Investment Securities............. 103,294 94,325 93,151 93,389 84,778
Total Deposits.................... 281,686 274,747 266,545 258,759 254,773
Shareholders' Equity.............. 41,489 37,937 33,640 30,750 27,855
Total Assets...................... 352,393 330,927 315,685 299,735 291,282
Other Data:
Employees......................... 172 176 171 175 178
Shareholders...................... 1,254 1,182 1,163 1,158 1,153
Cash Dividends.................... $1,461 $1,347 $1,157 $1,043 $959
Cash Dividends as a Percent of
Net Income...................... 26.41% 30.03% 28.77% 28.40% 30.78%
Financial Ratios:
Return on Average Assets.......... 1.67% 1.43% 1.33% 1.27% 1.12%
Return on Beginning Equity........ 14.58% 13.33% 13.07% 13.18% 12.12%
Equity to Assets.................. 11.77% 11.46% 10.66% 10.26% 9.56%
Loans to Deposits................. 77.88% 77.47% 74.13% 70.41% 69.20%
Loans to Total Assets............. 62.25% 64.32% 62.59% 60.79% 60.53%
Allowance for Loan Losses to Total 1.67% 1.75% 1.75% 1.67% 1.51%
1. This summary should be read in conjunction with the related consolidated
financal statements and notes to the financial statements.
2. Per share data has been adjusted for stock dividends and splits. See
Footnote #2 to the Financial Statements.
SHAREHOLDER INFORMATION
Executive Offices Transfer Agent Market Makers
112 West Liberty Street Wayne County Nat'l Bank Everen Securities-Wooster
P.O. Box 757 112 West Liberty Street The Ohio Company-Wooster,
Wooster, Ohio 44691 P.O. Box 757 Sweeney Cartwright
(216) 264-1222 Wooster, Ohio 44691 - Columbus, OH
McDonald & Company
- Canton, OH
All common shares of Wayne Bancorp, Inc are voting shares and are traded in the
local over the counter market, primarily with the brokers in the Company's local
service area. At December 31, 1996 there are 3,932,271 shares outstanding
and 1,226 shareholders of record. The range of market prices are compiled
from data provided by the brokers based on the trading activity.
Effective January 7, 1997 the Company's stock began trading on the NASDAQ Stock
Market on the Small Cap Market under the symbol "WNNB".
DIVIDEND AND MARKET PRICE DATA*
Cash
Dividends
Quarter Ended High Low Paid
- --------------------------------------------------------------------------
1996 March 31............................. $22.03 $20.13 $0.090
June 30.............................. 23.81 21.91 0.090
September 30......................... 24.88 23.09 0.095
December 31.......................... 30.00 26.67 0.095
1995 March 31............................. $17.57 $16.63 $0.081
June 30.............................. 18.29 17.34 0.081
September 30......................... 18.29 17.34 0.090
December 31.......................... 20.54 18.29 0.090
Per share data has been adjusted for stock dividends and splits. See Footnote
#2 to the financial statements.
FORM 10-K
A copy of the Company's 1996 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, Senior
Vice President and Chief Financial Officer, P.O. Box 757, Wooster, Oh 44691
January 28, 1997
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 designed and 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 accounting 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
examinations. 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 has prevented or detected on a timely basis any occurrences that
could be material to the financial statements and 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
statements 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, President Senior Vice President and
and Chief Executive Officer Chief Financial Officer
Wayne Bancorp, Inc. Wayne County National Bank
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, 1996 and 1995 and the related consolidated statements of
income, cash flows and and changes in shareholders' equity for the three years
ended December 31, 1996, 1995 and 1994. 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
standards. 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
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wayne Bancorp, Inc.
as of December 31, 1996 and 1995 and the results of operations and cash flows
for the three years ended December 31, 1996, 1995 and 1994 in conformity with
generally accepted accounting principles.
Crowe Chizek and Company LLP
Columbus, Ohio
January 28, 1997
CONSOLIDATED BALANCE SHEETS
December 31,
(In thousands of dollars except share data) 1996 1995
- --------------------------------------------------------------------------
ASSETS
Cash and due from banks (Note 13)....................... $14,975 $16,015
Federal funds sold...................................... 7,620 1,000
------------------
Total cash and cash equivalents................ 22,595 17,015
Securities available-for-sale (Note3)................... 103,294 94,325
Loans held for sale..................................... 0 8,539
Loans and leases (Note 4)............................... 219,366 204,321
Less:
Unearned income................................ 637 749
Allowance for loan losses (Note 5)............. 3,657 3,705
------------------
Net loans and leases........................... 215,072 199,867
Premises and equipment (Note 6)......................... 6,215 6,126
Accrued income receivable and other assets (Note 2)..... 5,217 5,055
------------------
TOTAL ASSETS............................................$352,393 $330,927
==================
LIABILITIES
Deposits
Interest bearing (Note 7)..........................$238,272 $232,512
Noninterest bearing................................ 43,414 42,235
------------------
Total deposits.......................................... 281,686 274,747
Securities sold under agreements to repurchase (Note 8). 26,142 15,662
Other liabilities....................................... 3,076 2,581
------------------
Total liabilities....................................... 310,904 292,990
SHAREHOLDERS' EQUITY
Common stock, stated value $1.00........................ 3,935 1,874
Shares authorized - 5,400,000 in 1996 and 1995
Shares issued - 3,935,404 in 1996 and 1,874,284 in 1995
Shares outstanding - 3,932,129 in 1996 and 1,870,681 in 1995
Paid in capital......................................... 13,356 7,999
Retained earnings (Note 14)............................. 24,038 27,368
Treasury stock at cost.................................. (88) (134)
Unrealized gain (loss) on securities
available-for-sale,net of tax (Note 3)............. 248 830
------------------
Total shareholders' equity.............................. 41,489 37,937
------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..............$352,393 $330,927
==================
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
(In thousands of dollars except per share data) 1996 1995 1994
- --------------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans........................... $19,546 $18,956 $16,465
Interest on securities
Taxable........................................... 4,584 3,675 3,193
Nontaxable........................................ 1,116 1,260 1,329
Other interest income................................ 184 239 109
---------------------------
Total interest income................................ 25,430 24,130 21,096
INTEREST EXPENSE:
Interest on deposits (Note 7)........................ 9,452 9,276 7,541
Interest on repurchase agreements and
other borrowed funds............................ 994 640 390
---------------------------
Total interest expense............................... 10,446 9,916 7,931
---------------------------
NET INTEREST INCOME 14,984 14,214 13,165
Provision for loan losses (Note 5)................... 180 120 346
NET INTEREST INCOME AFTER PROVISION ---------------------------
FOR LOAN LOSSES................................. 14,804 14,094 12,819
OTHER INCOME:
Service charges and fees............................. 1,340 1,260 1,261
Income from fiduciary activities..................... 1,075 942 833
Gain on Sale of Loans................................ 824 0 0
Securities gains (losses), net....................... 6 (12) 2
Other noninterest income............................. 654 563 503
---------------------------
Total other income................................... 3,899 2,753 2,599
OTHER EXPENSES:
Salaries and employee benefits (Note 10)............. 5,208 5,167 4,399
Occupancy and equipment.............................. 1,071 1,089 1,011
Other operating expenses (Note 11)................... 4,472 4,274 4,428
---------------------------
Total other expenses................................. 10,751 10,530 9,838
INCOME BEFORE INCOME TAX EXPENSE 7,952 6,317 5,580
INCOME TAX EXPENSE (Note 12)...................... 2,420 1,832 1,560
---------------------------
NET INCOME........................................... $5,532 $4,485 $4,020
===========================
PER SHARE DATA: (Note 2)
---------------------------
NET INCOME........................................... $1.41 $1.14 $1.03
===========================
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
(In thousands of dollars except for per share data) 1996 1995 1994
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income........................................... $5,532 $4,485 $4,020
Adjustments to reconcile net cash provided
by operating activities:
Provision for loan losses................... 180 120 346
Depreciation and amortization............... 734 759 728
Federal Home Loan Bank stock dividends...... (69) (23)
Amortization of investment security premiums and
accretion of discounts, net............... 331 462 976
Deferred income taxes....................... 154 21 (223)
Change in interest receivable............... 190 (154) (146)
Change in interest payable.................. (123) 508 (335)
Other, net.................................. 171 318 822
---------------------------
Net cash provided by operating activities............ 7,100 6,496 6,188
INVESTING ACTIVITIES
Purchase of securities available-for-sale............ (46,976) (27,928) (13,939)
Proceeds from maturities of securities
available-for-sale............................... 34,625 6,691 1,000
Proceeds from sales of securities
available-for-sale............................... 2,242 999 6,075
Purchase of securities held-to-maturity............. (8,521) (29,342)
Proceeds from maturities of securities
held-to-maturity................................. 28,910 34,948
Net increase in loans and leases..................... (19,962) (15,047) (15,718)
Proceeds from sales of loans......................... 13,116
Purchase of premises and equipment................... (587) (318) (1,287)
Partnership equity distribution...................... 105
------------------------
Net cash used by investing activities................ (17,542) (15,214) (18,158)
FINANCING ACTIVITIES
Net increase in deposits............................. 6,939 8,202 7,786
Net increase in short term borrowings................ 10,481 1,801 4,981
Cash dividends paid.................................. (1,228) (1,133) (984)
Issuance of common stock............................. 197
Treasury stock purchased , net....................... (170) (228)
---------------------------
Net cash provided by financing activities............ 16,022 8,642 11,980
Increase (decrease) in cash and cash equivalents..... 5,580 (76) 10
Cash and cash equivalents at beginning of year....... 17,015 17,091 17,081
---------------------------
Cash and cash equivalents at end of year............. $22,595 $17,015 $17,091
===========================
Significant non-cash transactions:
Transfer of held-to-maturity securities
to available-for-sale....................... $45,652
Transfer of loans from portfolio to held for sale.... $8,539
Transfer of loans held for sale to loan portfolio.... $7,696
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Years Ended December 31, 1996
Unrealized
gain(loss)
(In thousands of dollars except per share data) on securities
Common Paid-In Retained Treasury Available-
Stock Capital Earnings Stock for-sale Total
- --------------------------------------------------------------------------------
Balance, January 1, 1994.... $1,772 $4,302 $24,691 ($15) $140 $30,890
Net income.................. 4,020 4,020
Cash dividends
($.29 per share)........ (1,139) (1,139)
Dividends reinvested........ 5 168 173
Common stock issued......... 6 191 197
5% common stock dividend at
fair market value (Note2). 88 3,236 (3,324)
Fractional shares of stock dividend
paid in cash (Note 2).... (18) (18)
Change in unrealized gain/loss on
securities available for sale,
net of tax................ (483) (483)
-------------------------------------------------------
Balance, December 31, 1994.. 1,871 7,897 24,230 (15) (343) 33,640
Net income.................. 4,485 4,485
Cash dividends
($.34 per share)...... (1,347) (1,347)
Purchase of treasury stock.. (246) (246)
Dividends reinvested........ 3 99 109 211
Sale of treasury stock...... 3 18 21
Change in unrealized gain/loss on
securities available-for-sale
net of tax................... 1,173 1,173
-------------------------------------------------------
Balance, December 31, 1995.. 1,874 7,999 27,368 (134) 830 37,937
Net income.................... 5,532 5,532
Cash dividends
($.37 per share)........... (1,461) (1,461)
Purchase of treasury stock.... (365) (365)
Dividends reinvested.......... 248 248
Sale of treasury stock........ 32 163 195
2 for 1 stock split........... 1,874 (1,874)
5% common stock dividend at
fair market value (Note2)... 187 5,325 (5,512)
Fractional shares of stock dividend
paid in cash (Note 2)...... (15) (15)
Change in unrealized gain/loss on
securities available-for-sale,
net of tax................... (582) (582)
-------------------------------------------------------
Balance, December 31, 1996.. $3,935 $13,356 $24,038 ($88) $248 $41,489
=======================================================
See notes to consolidated financial statements
1. NATURE OF OPERATIONS
Wayne Bancorp, Inc., a one-bank holding company, and its subsidiary, The Wayne
County National Bank, conduct general commercial banking business. The
Bank's wholly-owned subsidiary, Wayne National Corporation, is a partner in a
leasing company which is no longer active. The Company operates in the single
industry of commercial banking. While the Company offers a wide range of
services, they are all deemed to be part of commercial banking.
The Wayne County National Bank has eleven banking locations in Wayne, Holmes
and Stark Counties in Ohio. A wide variety of services are provided to
businesses, individuals, and institutional and governmental customers. These
services include commercial and personal checking accounts, savings and time
deposits, business and personal loans, real estate loans, credit cards,
leases, safe deposit facilities and electronic banking.
The Bank operates a Trust Department which offers complete trust administrative
services, and agency, trust and investment services to individuals,
corporations, partnerships, institutions and municipalities. In addition, the
Trust Department has discount brokerage service which offers 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. (the Company), its subsidiary Wayne County
National Bank (the Bank), and the BankUs wholly owned
subsidiary, Wayne National Corporation. All significant
intercompany transactions have been eliminated.
Securities
Securities are classified into held-to-maturity and
available-forsale categories. The held-to-maturity securities
are those which management has the positive intent and the
Company has the ability to hold to maturity, and are reported at
cost, adjusted for amortization of premiums and accretion of
discounts. Available-for-sale securities are those which the
Company may decide to sell if needed for liquidity,
asset-liability management, or other reasons. Available-for-sale
securities are reported at fair value, with unrealized gains and
losses included as a separate component of equity, net of tax.
Realized gains or losses are determined based on the amortized
cost of the specific security sold.
Interest and Fees on Loans and Leases
Interest income on commercial, consumer and mortgage loans is
primarily calculated by using the simple interest method based
on the principal amounts outstanding. Lease income is recognized
under a method which provides for a level return on the net
investment outstanding. Loan origination fees and certain direct
origination costs are deferred and amortized over the
contractual life of the related loan using the level yield
method. The net amount of fees and costs deferred is reported in
the consolidated balance sheets as a part of loans and leases.
The accrual of interest on loans is suspended when, in
ManagementUs opinion, the collection of all or a portion of the
loan principal has become doubtful. When a loan is placed on
non-accrual status, accrued and unpaid interest at risk is
charged against income. Payments received on non-accrual loans
are applied against principal until recovery of the remaining
balance is reasonably assured. The carrying value of loans
classified as impaired is periodically adjusted to reflect cash
payments, revised estimates of future cash flows and increases
in the present value of expected cash flows due to passage of
time. Cash payments representing interest income are reported as
such and other cash payments are reported as reductions in
carrying values. Increases or decreases in carrying values due
to changes in estimates of future payments or the passage of
time are reported as reductions or increases in the provision
for loan losses.
Allowance for Loan Losses
The allowance for loan losses is a valuation reserve 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 potential losses in the loan portfolio.
Management's determination of the adequacy of the allowance is
based on evaluations of the collectibility of loans outstanding,
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 added to the allowance.
On January 1, 1995, the Company adopted SFAS 114, as amended by
SFAS 118. Under this standard, loans considered to be impaired,
as identified according to internal loan review standards, are
reduced to the present value of expected future cash flows or to
the fair value of collateral by allocating a portion of the
allowance for loan losses to such loans. If these allocations
cause the allowance for loan losses to require an increase, such
an increase will be reported as a provision for loan losses
charged to operations. The effect of adopting this standard did
not materially effect the allowance for loan losses at January 1,
1995 or at December 31, 1995.
Management analyzes commercial and certain other loans on an
individual basis and classifies a loan as impaired when an
analysis of the borrower's operating results and financial
condition indicates that underlying cash flows are not adequate
to meet its debt service requirements. Often this is associated
with a delay or shortfall in payments of 30 days or more.
Smaller balance homogeneous loans are evaluated for impairment
in total. Such loans include residential first mortgage loans
secured by one to four family residences, residential
construction loans, consumer automobile, home equity and credit
card loans with balances less than $300 thousand. In addition,
loans held for sale and leases are excluded from consideration
as impaired. Loans are generally moved to non-accrual status
when 90 days or more past due. These loans are often also
considered impaired. Impaired loans, or portions thereof, are
charged off when deemed uncollectible. The nature of the
disclosures for impaired loans is considered generally
comparable to prior nonaccrual loans and non-performing and past
due asset disclosures. The adoption of SFAS 114 had no impact on
the comparability of the December 31, 1996 or 1995, allowance
for loan losses to prior periods.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on a straight-line method
over the estimated useful life of the asset. Maintenance and
repairs are charged to expense as incurred and major
improvements are capitalized.
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, 1996 and 1995.
Investment in Affiliate
The Bank's 20% partnership interest in NB5 Financial Services is
reported using the equity method of accounting. NB5 Financial
Services is an Ohio general partnership engaged in equipment
leasing activities. Due to changes in the demand for leases, the
partners have determined that NB5 will not continue generating
new leases. As existing leases are paid, equity distributions
will be made to the partners. There were no capital
distributions in 1996 or 1995.
Intangibles
Intangible assets arising from the Bank's acquisition of four
branches of the former First Savings and Loan Company of
Massillon, F.A., in July of 1991 are included in Other Assets in
the accompanying Consolidated Balance Sheet and are summarized
as follows:
Goodwill $739
Core Deposit Intangible 223
Goodwill is being amortized using a method and life which
corresponds to the accretion of the loan discount. Core deposit
intangible is being amortized by deposit component, on a level
yield basis over a ten year period. Amortization of these
intangibles totaled $236 thousand, $250 thousand, and $290
thousand for 1996, 1995 and 1994 respectively.
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 liabilities 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.
Dividend Reinvestment Plan
The Company has established a dividend reinvestment plan whereby
the Company's shareholders are eligible to acquire new common
shares of stock at 100% of the current estimated fair market
value in lieu of receiving cash dividends. Shareholders can have
all or part of their normal cash dividends reinvested in the
CompanyUs stock. During 1996, 10,037 shares of stock were
allocated under the plan in lieu of cash dividends of $248
thousand. Of the shares allocated, all were obtained from a
reduction in the treasury stock.
Consolidated Statement of Cash Flows
Cash and cash equivalents include cash, noninterest bearing
deposits with banks and federal funds sold. As permitted, the
Company reports cash flows from certain transactions on a net
basis. For the years ended December 31, 1996, 1995 and 1994,
income taxes paid totaled $2.54 million, $1.83 million, and
$1.75 million and interest paid totaled $10.57 million, $9.40
million, and $8.32 million respectively.
Per Share Amounts
Net income per share computations are based on the weighted
average number of shares of common stock outstanding during the
year. In November of 1994, and 1996 the Company declared a 5%
stock dividend. These dividends were recorded by the transfer of
the market value of the new shares from Retained Earnings to
Common Stock and Paid in Capital. Fractional shares resulting
from the stock dividends were paid in cash. In June of 1996, the
Board of Directors voted to split the stock on a 2 for 1 basis.
The split was effective June 15, 1996 and payable to
shareholders on June 30, 1996. All per share data has been
retroactively adjusted for the stock split and stock dividends.
Weighted average shares outstanding for December 31, 1996, 1995,
and 1994 were 3,932,527, 3,931,595 and 3,918,907, respectively.
Fair Values of Financial Instruments
Fair values of financial instruments are estimated using
relevant market information and other assumptions, as more fully
disclosed separately. Fair value estimates involve uncertainties
and matters of significant judgement regarding interest rates,
credit risk, prepayments, and other factors, especially in the
absence of broad markets for particular items. Changes in
assumptions or in market conditions could significantly affect
the estimates. 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.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.
Areas involving the use of management's estimates and
assumptions include the allowance for loan losses, the
realization of deferred tax assets, fair value of certain
securities, the determination and carrying value of impaired
loans, the determination of other-than-temporary reductions in
the fair value of securities, depreciation of premises and
equipment, the carrying value and amortization of intangibles
and the fair value of financial instruments. Estimates that are
more susceptible to change in the near term include the
allowance for loan losses and the fair value of certain
securities.
Concentration of Credit Risk
The Wayne County National Bank grants residential, consumer and
commercial loans and also leases assets to customers located in
Wayne, Holmes and Stark Counties. The makeup of the loan
portfolio at December 31, 1996, was as follows:
Commercial 41%
Real Estate Loans 37%
Consumer Loans 18%
Home Equity Loans 3%
Direct Financing Leases 1%
Reclassifications
Certain reclassifications have been made to amounts previously
reported to conform with the current financial statement
presentation.
3. INVESTMENT SECURITIES
The summary of amortized cost and fair values of securities available-for-sale
at December 31, 1996:
Gross Gross
Securities Amortized Unrealized Unrealized Fair
Available-for-Sale Cost Gains Losses Value
- ---------------------------- -------- -------- --------- ------------
U.S. Treasury $23,043 $84 ($65) $23,062
Federal Agency
Obligations 17,446 83 (118) 17,411
Federal Agency Pools 23,173 159 (135) 23,197
Obligations of States and
Political Subdivisions 21,009 397 (28) 21,378
Other Securities 18,246 63 (63) 18,246
-------- -------- --------- -----------
$102,917 $786 ($409) $103,294
======== ======== ======== =========
The summary of amortized cost and fair values of securities available-for-sale
at December 31, 1995:
Gross Gross
Securities Amortized Unrealized Unrealized Fair
Available-for-Sale Cost Gains Losses Value
- ---------------------------- -------- -------- --------- -----------
U.S. Treasury $21,848 $339 ($10) $22,177
Federal Agency
Obligations 20,738 229 (23) 20,944
Federal Agency Pools 13,816 181 (42) 13,955
Obligations of States and
Political Subdivisions 20,612 536 (22) 21,126
Other Securities 16,056 91 (24) 16,123
-------- -------- --------- ---------
$93,070 $1,376 ($121) $94,325
======== ======== ======== ==========
During the years ended December 31, 1996 and 1995, proceeds from the sales of
available-for-sale were $2.2 million and $1 million respectively. Gross gains
of $9 thousand in 1996 and gross losses of $3 thousand and $1 thousand in 1996
and 1995 respectively are included in earnings. In 1995, proceeds from the
sale of held-to-maturity securities who's maturity date was within 90 days of
the sale were $8 million with gross realized gains of $1 thousand and losses of
$12 thousand included in earnings.
On December 1, 1995, the Company transferred securities with an amortized cost
of $45.65 million previously classified as held-to-maturity to available-for-
sale. The unrealized gain on the securities transferred totaled $653 thousand.
This was done in accordance with a Financial Accounting Standards Board ruling
allowing a one time reclassification of securities. On December 1, 1995, the
Company's equity increased approximately $431 thousand as a result of this
transfer.
The amortized cost and estimated market value of the available-for-sale
securities at December 31, 1996, by contractual maturity, are shown below.
Expected maturities may differ from the contractual maturity as borrowers may
have the right to call or prepay the obligations with or without call or
prepayment penalties.
Amortized Fair
Cost Value
-------- -----------
Due in one year or less $26,399 $26,527
Due after one year
through five years 41,659 41,800
Due after five years
through ten years 8,054 8,121
Due after ten years 2,085 2,101
-------- -----------
$78,197 $78,549
Federal Agency Pools
and Mortgage Backed
Securities 23,173 23,197
Equity Securities 1,425 1,425
Other Securities 122 123
-------- ----------
$102,917 $103,294
======== ========
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, 1996 and 1995 had a carrying
value of $43.3 million and $39.1 millon respectively.
4. LOANS AND LEASES
The composition of the loan portfolio at December 31 is as follows:
1996 1995
------ ------
Commercial $90,638 $81,740
Real Estate 79,859 70,760
Consumer Installment 39,183 36,954
Direct Lease Financings 3,246 3,435
Credit Card 5,472
Home Equity 6,417 5,934
Other Loans 23 26
-------- ---------
$219,366 $204,321
======== ==========
The Bank leases various types of equipment and automobiles to its customers,
which are classified as direct financing leases. All leases have terms ranging
from two to five years. The composition of the net investment in direct
financing leases included in loans at December 31 is as follows:
1996 1995
------- -------
Minimum Lease Payments
Receivable $3,237 $3,423
Residual Value of Leased
Property (Unguaranteed) 9 12
-------- --------
3,246 3,435
Less: Unearned Income 472 547
-------- --------
Net Investment In Direct
Financing Leases $2,774 $2,888
======== ========
The following schedule summarizes by year the minimum lease payments receivable
on direct financing leases at December 31, 1996.
Years Ended December 31
1997 .................. $1,508
1998 .................. 924
1999 .................. 518
2000 .................. 234
2001 .................. 53
--------
$3,237
========
The Bank has granted loans to the officers and directors of the Company and its
subsidiaries and related business interests. The aggregate dollar amount of
these loans was $1.1 million and $954 thousand at December 31, 1996 and 1995,
respectively. During 1996, $496 thousand of new loans and advancements were
made and the repayments on loans to these parties totaled $363 thousand.
5. ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses is as follows:
1996 1995 1994
------ ------ -------
Balance at Beginning
of Year $3,705 $3,448 $3,040
Loans Charged Off (412) (230) (183)
Loan Recoveries 184 367 245
Provision for Loan
Losses 180 120 346
-------- -------- ---------
Balance at End of Year $3,657 $3,705 $3,448
======== ======== =========
The Bank had one impaired loan at December 31, 1996 with a balance of $924
thosand. The impaired loan had $215 thousand of the allowance for loan losses
allocated at December 31, 1996, although the entire allowance remains available
for charge-off of any loan. Impaired loans averaged $1.1 million in 1996.
Income recognized during the year ended December 31, 1996 amounted to $74
thousand. Interest income recognized on the cash basis for the year ended
December 31, 1996 totaled $72 thousand. There were no impaired loans in 1995.
6. PREMISES AND EQUIPMENT
A summary of the premises and equipment balances at December 31 is as follows:
1996 1995
------- -------
Land $1,152 $1,213
Premises and Leasehold
Improvements 6,533 6,489
Furniture and Equipment 3,456 2,911
-------- -------
11,141 10,613
Less Accumulated
Depreciation (4,926) (4,487)
-------- --------
$6,215 $6,126
======== ========
Depreciation expense was $439 thousand, $509 thousand, and $438 thousand in
1996, 1995 and 1994.
7. DEPOSITS
Time certificates of deposit with a balance of $100 thousand or more, were $15.9
million and $17.8 million at December 31, 1996 and 1995 respectively. Interest
expense on these deposits was $1.03 million $959 thousand and $440 thousand
for 1996, 1995, and 1994, respectively.
At year end 1996, stated maturities of time deposits with a remaining maturity
greater than one year were as follows:
1997 $81,232
1998 23,288
1999 6,970
2000 4,877
2001 2,784
----------
$119,151
==========
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 repurchase agreements. Information
concerning securities sold under repurchase agreements is as follows:
1996 1995
-------------------
Average month-end balance during the year $20,282 $10,947
Average interest rate during the year 4.64% 5.32%
Highest month-end balance during the year $29,854 $15,872
Securities underlying these agreements at year-end were as follows:
1996 1995
-------------------
Amortized cost of securities $31,227 $16,000
Fair Value $31,288 $16,239
9. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value.
Cash, Short Term Investments and accrued interest
For these short-term instruments, the carrying amount is a reasonable estimate
of the fair value.
Investment 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
For certain homogeneous categories of loans, such as some residential mortgages,
credit card receivables, and other consumer loans, fair value is estimated
using quoted market prices for securities backed by similar loans, adjusted
for differences in loan characteristics. The fair value of other types of
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. For variable rate loans, the
carrying amount approximates fair value.
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. For
deposit liabilities with no defined maturities, the fair value is the amount
payable on demand. For time deposits with variable rates, the carrying value
approximates market value.
Securities Sold Under Agreements to Repurchase
For these short term deposit instruments, the carrying value is a reasonable
estimate of the fair value.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments is estimated using the fees currently charged to
enter similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counter-parties. For fixed
rate loan commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. The fair value of letters of
credit isbased on fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligations
with the counterparties at the reporting date.
The estimated fair values of the Bank's financial instruments are as follows:
1996
Carrying Fair
Value Value
-------------- --------------
Financial Assets:
Cash and Short-term
Investments $22,595 $22,595
Investment Securities 103,294 103,294
Loans and Leases 218,729 222,043
Less: Allowance for
Loan Losses (3,657) (3,657)
Accrued Interest 2,879 2,879
Financial Liabilities:
Deposits (281,686) (281,711)
Securities Sold Under
Agreement to
Repurchase (26,142) (26,142)
Accrued Interest (1,335) (1,335)
Off Balance Sheet Financial Instruments:
Commitments to
Extend Credit 36,380 36,380
Standby Letters
of Credit 1,951 1,963
1995
Carrying Fair
Value Value
-------------- --------------
Financial Assets:
Cash and Short-term
Investments $17,015 $17,015
Investment Securities 94,325 94,325
Loans Held for sale 8,539 8,560
Loans and Leases 203,572 206,176
Less: Allowance for
Loan Losses (3,705) (3,705)
Accrued Interest 3,069 3,069
Financial Liabilities:
Deposits (274,747) (275,253)
Securities Sold Under
Agreement to
Repurchase (15,662) (15,662)
Accrued Interest (1,458) (1,458)
Off Balance Sheet Financial Instruments:
Commitments to
Extend Credit 25,278 25,278
Standby Letters
of Credit 1,774 1,786
10. EMPLOYEE BENEFIT PLANS
The Bank sponsors a noncontributory Profit Sharing Retirement Plan (PSRP) and
Employee Stock Ownership Plan (ESOP) in which all salaried employees with one
year or more of service participate. Annual contributions are made by the Bank
to both plans in an amount which is the lesser of 8.5% of the Bank's current
profits or 6.375% of the aggregate compensation paid in such year to all
eligible participants. Actual contributions paid to the plans for the three
years ending December 31 were:
1996 1995 1994
PSRP.............. $293 $255 $244
ESOP.............. 217 189 181
-------- --------- --------
$510 $444 $425
======== ======== ========
The ESOP held 129,719 shares at December 31, 1996, 119,375 shares at
December 31, 1995, 109,326 shares at December 31, 1994.
11. OTHER OPERATING EXPENSES
Other operating expenses include the following major categories of expense:
1996 1995 1994
Data Processing $1,100 $1,116 $1,089
FDIC Insurance 221 354 570
Franchise Taxes 527 484 437
Intangible
Amortization 236 250 290
Donations 349 70 40
Other Operating 2,039 2,000 2,002
-------- -------- --------
$4,472 $4,274 $4,428
======== ======== ========
12. INCOME TAXES
Income tax expense and related balance sheet accounts are as follows:
1996 1995 1994
Federal Current $2,266 $1,811 $1,783
Federal Deferred (Benefit) 154 21 (223)
-------- --------- --------
$2,420 $1,832 $1,560
======== ======== ========
The sources of gross deferred tax assets and gross deferred tax liabilities at
December 31, are as follows:
1996 1995 1994
Items giving rise to deferred tax assets:
Allowance for loan losses in excess
of tax reserves $843 $886 $798
Deferred loan fees 93 165 202
Unrealized loss on securities available-for-sale 177
Other 126 102 61
Items giving rise to deferred tax liabilities:
Depreciation (180) (199) (227)
Leases (438) (436) (347)
Unrealized gain on securities available-for-sale (128) (427)
Other (164) (84) (32)
----------------------------
Net deferred tax assets $152 $7 $632
============================
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:
1996 1995 1994
Tax at Federal
Statutory Rate $2,704 $2,141 $1,897
Effect of Tax-Exempt
Income (325) (371) (400)
Effect of Non-deductible
Goodwill Amortization 61 61 61
Other (20) 1 2
-------- -------- --------
$2,420 $1,832 $1,560
======== ======== ========
13. COMMITMENTS AND CONTINGENCIES
As of December 31, 1996, the Bank had outstanding standby letters of credit of
$1.95 million. These letters of credit are backed by notes signed by the
customer. These notes are variable rate. Also at that date, the Bank had
commitments outstanding to extend credit and unfunded lines of credit for
customers totaling approximately $36.4 million. All of these unfunded
commitments are variable rate and mature within one year. These commitments
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, 1996, the Bank was required to maintain $5.2 million either in
cash or in balances with the Federal Reserve Bank. These balances do not earn
interest.
14. REGUATORY MATTERS
Dividends are paid by the Company from its assets which are mainly provided by
the dividends from the Bank. However, certain restrictions exist in regard to
the ability of the Bank to transfer funds to the Company in the form of
dividends. The approval of the Comptroller of the Currency is required to pay
dividends in excess of the Bank's earnings retained in the current year plus
retain retained profits from the preceding two years. The amount of retained
earnings available for dividends without approval from the Comptroller of the
Currency is approximately $64 thousand at December 31, 1996.
The Company and Bank 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 capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and crititically undercapitalized, although
these terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration is required.
The regulatory minimum requirements are:
Capital to Risk-
Weighted Assets Tier 1 Capital to
Total Tier 1 Average Assets
------------------ ---------
Well Capitalized 10% 6% 5%
Adequately Capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
At year-end, consolidated actual capital levels (in millions) and minimum
required levels were:
To Be well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) $43,287 19.5% $17,752 > 8.0% $22,190 > 10.0%
Tier I Capital
(to Risk Weighted Assets) $40,502 18.3% $8,876 > 4.0% $13,314 > 6.0%
Tier I Capital
(to Average Assets) $40,502 12.3% $13,211 > 4.0% $16,513 > 5.0%
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets) $38,842 18.4% $16,905 > 8.0% $21,132 > 10.0%
Tier I Capital
(to Risk Weighted Assets) $36,187 17.1% $8,453 > 4.0% $12,679 > 6.0%
Tier I Capital
(to Average Assets) $36,187 11.6% $12,478 > 4.0% $15,598 > 5.0%
The Company and Bank at year-end 1996 were categorized as well capitalized.
15. WAYNE BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
BALANCE SHEET December 31,
ASSETS 1996 1995
Cash $2 $58
Short Term Investments 951 544
Subordinated Note from Sub 10,000
Investment in Bank Subsidiary 30,565 37,079
Premises 0 287
-------- ---------
TOTAL ASSETS $41,518 $37,968
======== =========
LIABILITIES $29 $31
SHAREHOLDERS' EQUITY 41,489 37,937
-------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $41,518 $37,968
======== =========
STATEMENT OF INCOME
Years Ended December 31,
1996 1995 1994
Dividends from Subsidiary $11,461 $1,348 $1,157
Other Income 33 37 14
-------- --------- ---------
11,494 1,385 1,171
Other Expenses 31 16 29
-------- --------- ---------
Income Before Income Taxes and Equity in
Undistributed Net Income of Bank
Subsidiary 11,463 1,369 1,142
Federal Income Tax Expense (Benefit) (2) 7 (4)
-------- --------- ---------
11,465 1,362 1,146
Equity in Undistributed Net Income of
Bank Subsidiary (5,933) 3,123 2,874
-------- --------- ---------
Net Income $5,532 $4,485 $4,020
======== ========= ========
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1996 1995 1994
OPERATING ACTIVITIES
Net Income $5,532 $4,485 $4,020
Adjustments to Reconcile Net
Income to Net Cash Provided
by Operating Activities:
Depreciation 4 9 9
Undistributed Equity Earnings 5,933 (3,123) (2,874)
Other, Net (3) 6 (4)
--------- -------- --------------
Net Cash Provided by
Operating Activities 11,466 1,377 1,151
INVESTING ACTIVITIES
Purchase of Securities Available-for-sale (852) (102) (414)
Purchase Subordinated Note from Sub (10,000)
Proceeds from Sales and Maturities
of Securities Available-for-Sale 445 143
Proceeds from the Sale of Premises 283
--------- -------- --------------
Net Cash Provided (Used) by
Investing Activities (10,124) 41 (414)
FINANCING ACTIVITIES
Issuance of Common Stock 195 16 197
Cash Dividends (1,228) (1,133) (984)
Common Stock Repurchased (365) (244)
--------- -------- --------------
Net Cash Used by Financing
Activities (1,398) (1,361) (787)
--------- -------- --------------
Increase (Decrease) in Cash (56) 57 (50)
Cash at Beginning of Year 58 1 51
--------- -------- --------------
Cash at End of Year $2 $58 $1
======== ======== ========
16. QUARTERLY FINANCIAL DATA (Unaudited)
March 31 June 30 September 30 December 31
1996 ----------------------------------------------
Interest Income $6,287 $6,279 $6,409 $6,455
Net Interest Income 3,733 3,637 3,813 3,801
Provision for Loan Losses 45 45 45 45
Net Income 1,291 1,208 1,293 1,740
Earnings Per Share 0.32 0.31 0.32 0.46
1995
Interest Income $5,757 $5,982 $6,094 $6,297
Net Interest Income 3,452 3,539 3,553 3,670
Provision for Loan Losses 30 30 30 30
Net Income 1,099 1,120 1,140 1,126
Earnings Per Share 0.28 0.29 0.29 0.29
MANAGEMENT DISCUSSION AND ANALYSIS
INTRODUCTION
The following is management's discussion and analysis of the
financial condition and results of operations of Wayne Bancorp,
Inc., (the Company). It is presented to aid in understanding the
consolidated financial statements and related information of the
Company. Wayne Bancorp, Inc. is a locally owned and operated
one-bank holding company whose principal subsidiary is the Wayne
County National Bank (the Bank). The Bank provides banking and
financial related services to individual and commercial
customers in Wayne, Holmes, and Stark counties. The Bank's
deposits are insured by the Federal Deposit Insurance
Corporation. The Bank is a member of the Federal Reserve System
and is subject to supervision, examination and regulation by the
Comptroller of the Currency. This review should be read in
conjunction with the audited consolidated financial statements,
footnotes, included ratios and statistics and other discussion
contained in this report and on the Company's Form 10-K.
In addition to the historical information contained herein, the
following discussion contains forward-looking statements that
involve risks and uncertainties. Economic circumstances, the
Company's operations and the Company's actual results could
differ significantly from those discussed in the forward-looking
statements. Some of the factors that could cause or contribute
to such differences are discussed herein but also include
changes in the economy and interest rates in the nation and the
Company's general market area.
TABLE I: Financial Ratios for Five Years
Profitability
________________________________1996_____1995_____1994______1993_____1992___
Rate of return on:
Average Assets........ 1.67% 1.43% 1.33% 1.27% 1.12%
Average Equity........ 14.05 12.56 12.44 12.43 11.55
Beginning Equity...... 14.58 13.33 13.07 13.18 12.12
As a Percent of Average Assets:
Net Interest Income... 4.53% 4.54% 4.37% 4.13% 4.14%
Non-Interest Income... 1.18 0.88 0.86 0.92 0.90
Provision of Loan and Lease
Losses.......... 0.05 0.04 0.11 0.21 0.27
Non-Interest Expense.. 3.25 3.34 3.26 3.15 3.24
Cash Dividends Per Share.... $0.37 $0.34 $0.29 $0.27 $0.24
Dividends as a percent of Net
Income................ 26.41% 30.03% 28.77% 28.40% 30.78%
Other
Average Loans & Leases to
Average Deposits...... 79.92% 78.11% 73.67% 69.20% 66.41%
Net Loan & Lease Charge-offs
(Recoveries) to Average
Loans & Leases........ 0.11% (0.07%) (0.03%) 0.11% 0.11%
Allowance to Year End Net
Loans & Leases........ 1.67% 1.75% 1.75% 1.67% 1.51%
Average Shareholders' Equity to
Average Assets........ 11.89% 11.41% 10.72% 10.25% 9.66%
Changes in Average Balances:
Total Assets.......... 5.76% 3.80% 4.57% 3.34% 7.70%
Shareholders' Equity.. 10.20% 10.54% 9.37% 9.61% 7.93%
Loans and Leases...... 3.86% 10.72% 9.55% 4.11% 12.41%
Deposits.............. 1.51% 2.43% 2.90% 2.57% 8.89%
RESULTS OF OPERATIONS
Net income for 1996 was $5.53 million or $1.41 per share
compared to $4.49 million or $1.14 per share for 1995. 1995 net
income of $4.49 million or $1.14 per share increased compared to
$4.02 million or $1.03 per share for 1994. 1996 net income
surpassed 1995 net income by $1.05 million or 23.3%. 1995 net
income surpassed 1994 net income by $465 thousand or 11.6%.
Return on average assets for 1996 was 1.67% compared to 1.43% in
1995 and 1.33% in 1994. Return on average equity for these same
periods was 14.05%, 12.56%, and 12.44% respectively.
The allowance for loan and lease losses to total net loans and
leases ratio at December 31, 1996 was 1.67% compared to 1.75% in
1995 and 1994.
As discussed in more detail below, the increase in net income
for 1996 resulted primarily from a $770 thousand or 5.4% higher
net interest margin and a one time $824 thousand gain on the
sale of the credit card business. These items which increased
the Company's earnings for 1996 were partially offset by an
increase in total other operating expenses of $221 thousand.
Non-interest income exclusive of the gain on the sale of the
credit cards, increased $322 thousand or 11.7% from 1995 to
1996. This increase is primarily attributed to increased revenue
from the Trust and Investment Services Department. Net Interest
Income
Net interest income represents the primary source of earnings
for Wayne Bancorp, Inc. Net interest income represents the
difference between interest income generated by earning assets
offset by interest expense generated by interest bearing
liabilities. Net interest income is impacted by changes in
interest rates, volume and composition of both earning assets
and interest bearing liabilities as well as the level of
non-interest bearing demand deposit accounts. During 1996, the
Company saw a relatively stable interest rate environment in the
lending function and a slightly declining rate environment in
the deposit and investment areas. As a result of this rate
environment and the Company's balance sheet position, the
Company was able to increase the net interest income from $14.2
million in 1995 to $15.0 million in 1996, representing a 5.4%
increase.
Total interest income increased $1.3 million or 5.4% in 1996
over 1995. There are two primary factors contributing to this
increase. First, the total loan portfolio of the Bank grew by
$6.5 million over 1995. The majority of these new loans are
fixed rate residential real estate loans or commercial loans
that have their interest rate tied to the national prime rate.
During 1996, the national prime rate used by the Bank decreased
in February to 8.25% and has been flat through December. With
the bulk of these loans being originated in the first six months
of the year when the rates were higher, the Company was able to
book the fixed rate mortgages at higher rates during the first
half of the year. Interest rates on real estate loans have
declined slightly through the end of the year. The second
primary factor that contributed to this increase was that the
investment portfolio was repricing bonds purchased in 1993 and
early 1994 which had yields as low as 4.0% with bonds yielding
as much as 6.75%. The activity in the investment portfolio
accounted for $765 thousand or 58.9% of the growth in the total
interest income. Finally, in the early part of 1996, the
investment portfolio sales and maturities were used to fund the
loan growth. The investment portfolio by design has a short
average life which means generally lower yielding assets than
the loan portfolio. During the year, securities either matured
or were sold with yields in the 5.75% range and were replaced
with loans which were at the time in the 8% to 10% range. 1 to 4
family real estate loans were sold in the first quarter with
yields averaging under 7.0%. These loans were replaced with new
real estate loans with yields slightly over 8% on average.
The average yield on earning assets for 1996 was 8.15%, which
was consistent with the 8.19% yield in 1995 and an increase over
the 7.45% in 1994. The increase in the loan volume resulted in
an increase in average earning assets of over $17.8 million.
This was offset by an increase in the yield cost on the deposit
and short-term borrowing liabilities of the Bank from 3.59% in
1995 and 2.95% in 1994 to 3.61% in 1996. Based on the Company's
projections for the coming year, including a declining interest
rate environment for at least the first half of 1997, management
anticipates an approximate 4% increase in net interest income in 1997.
Interest expense on repurchase agreements and other borrowed
funds increased $354 thousand or 55.3% in 1996. The largest
portion of this increase is attributed to the increased level of
repurchase agreements. The average outstanding balance for
repurchase agreements during 1996 was $20.3 million compared to
$10.9 million in 1995. In addition to the increase in the
repurchase agreements, the interest cost of these accounts has
fluctuated from 3.90% in 1994 to 5.32% in 1995 to 4.64% in 1996.
This decrease in rate is due to the nature of these accounts in
that their interest rate is tied to a 90 day treasury index.
During 1996, this index has been somewhat declining. Management
expects this expense to fall in 1997 as short term rates are
expected to fall into the 4.25% range by year end 1997.
The Bank's Asset/Liability committee monitors the maturity
structure of all assets and liabilities on a monthly basis in
order to maintain stability in the net interest income during
volatile interest rate periods. During 1996 the Company was
primarily in a negative GAP position. In theory this meant that
during a falling rate environment, the net interest margin
should increase. With a relatively stable interest rate
environment as was the case in 1996, the Company was able to
increase the net interest margin as earning assets grew more
than the paying liabilities and the liabilities repriced
downward faster than the assets.
Management anticipates short term interest rates to continue to
decline in 1997, with a possible slight increase in long-term
interest rates, resulting in a more positively sloped yield
curve. Management's intentions would be to maintain the current
negative GAP position. This will allow the net interest margin
to widen as interest rates move downward. 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 sheet related allowance for loan and
lease losses at a level which will shield the Bank's earnings
and capital from decline due to credit losses. The allowance is
determined by Bank management based on estimates of possible
losses in the current loan and lease portfolio. Management also
considers the past historical loss experience, the mix and size
of the loan portfolio as well as current and expected future
economic conditions in their assessment of the adequacy of the
allowance for loan and lease losses. Consideration is also given
to the information known about specific borrowers or industry
groups which are subject to change over time.
In addition to the analysis management prepares to determine the
adequacy of the allowance for loan losses, management monitors
the level of the allowance to total net loans and leases. This
ratio will change from time to time, based on the growth in the
various types of loans in the portfolio and the relative
increase or decrease in the quality of the loan portfolio.
During 1996, the Company maintained the ratio of allowance
coverage of total net loans and leases at 1.67% of total net
loans and leases, compared to 1.75% in 1995 and 1994. The
coverage ratio declined for 1996 due to the charge off of
approximately $200 thousand in December and growth in the loan
portfolio. For the twelve months ended December 31, 1996, the
Bank was in a net chargeoff position versus 1995 and 1994, where
the Bank was in a Net recoveries position, where recoveries of
loans previously charged off were greater than the amount of
loans currently charged off. Despite the decrease in the
allowance as a percentage of loans, the ratio is still above
peer averages.
Past due and non-performing loans are one of the primary factors
that management considers to determine the adequacy of the
allowance for loan and lease losses. At December 31, 1996 the
Company had loans that were past due over 90 days or on
non-accrual status of approximately $1.1 million compared to
$203 thousand at December 31, 1995. Loans on non-accrual status
were approximately $924 thousand and $15 thousand respectively.
In addition, the Company's loan portfolio showed loans past due
30 days or more as approximately $1.8 million or .83% of total
loans at December 31, 1996. These same numbers in 1995 were $452
thousand representing .21% of total loans. While the loan
portfolio has shown a slight increase in delinquencies, past due
and non-performing loans are still below peer. With this type of
current quality, management feels that the Company had adequate
reserves set aside to cover potential loan problems.
The provision for loan and lease losses charged to operations
was $180 thousand in 1996 compared to $120 thousand in 1995 and
$346 thousand in 1994. The increase was based on management's
evaluation of the quality of the loan portfolio and the growth
in the portfolio. The net recovery position in 1995 is due
mostly to the collection of a previously charged off leverage
lease in the amount of $137 thousand. Management feels that
based on the current loan portfolio quality and the adequacy of
the allowance for loan and lease losses, that the provision
charged to operations for 1997 will be comparable to the 1996
level. Non-Interest Income
Total non-interest income for 1996 was $3.90 million compared to
$2.75 million in 1995, an increase of $1.15 million or 41.6%.
The major components of non-interest income are service charges
on deposit accounts, income from the Trust and Investment
Services and fees for other services. Service charges and fees
on deposit accounts amounted to $1.34 million in 1996 and $1.26
million in 1995. The Company's management monitors the market to
ensure that the fees charged on these types of accounts are
competitive in the marketplace. In addition, management reviews
the costs associated with offering these accounts when
considering the price of the service to the customer. Base
service charges per account have not increased since mid-year
1992. These charges will be reviewed in the second quarter of
1997, and if necessary, will be adjusted.
The Trust and Investment Services Department at the Wayne County
National Bank provides a complete line of trust and investment
services. The Department provides individually managed
portfolios in order to provide the investment flexibility
required to meet the needs of each and every Trust customer.
During 1994, the Trust Department added additional non-deposit
type investment products, including mutual funds. In the coming
months and years, the Department anticipates offering a full
line of investment products for the traditional investor. The
Department is active in management of individual stock and bond
portfolios as well as company sponsored benefit plans. It is
management's belief that this Department will continue to grow
and to increase its contribution to the earnings of the Company.
The Trust and Investment Services Department has had another
record earnings year. Trust income grew to $1.08 million from
$942 thousand in 1995 and $833 thousand in 1994. The trend in
the Trust Department over the past ten years has been steady
growth in both earnings and assets under management.
Other non-interest income consists primarily of charges for
other banking related services, such as, fees for safe deposit
box rental, check cashing fees, brokerage fees, fees for
servicing mortgages sold into the secondary market and gains on
the sale of loans. In 1996, income from these activities as well
as other miscellaneous income was $1.49 million. This represents
an increase of $915 thousand or 162.5% from 1995. The primary
reason for this increase is that the Bank sold the entire credit
card portfolio in the fourth quarter. The sale was approved by
the Company's board of directors based on the fact that
increased competition made it difficult to grow the portfolio,
yet the costs associated with managing the portfolio continued
to increase. The gain on this sale amounted to $824 thousand on
a pre-tax basis. Non-interest Expenses
Non-interest expenses are comprised of the expenses of the
Company related to salaries and employee benefits, occupancy and
equipment and other operating expenses. In total, non-interest
expenses were $10.75 million, an increase of $221 thousand or
2.1% over 1995. The 1995 figure represented an increase of $692
thousand or 7.0% over 1994.
Total employee compensation (including wages and benefits)
remained fairly constant at $5.2 million for 1995 and 1996.
There were fluctuations within this grouping, mainly in the area
of salaries and retirement benefits. First, the salary expense
of the Company increased from $3.78 million in 1995 to $4.08
million in 1996. This increase is due to increased compensation
for the entire staff. The Company's employment market is highly
competitive. Unemployment in the market area is very low, and as
a result, management raised the starting and mid level salary
ranges for the staff. The increase brought the wages at those
levels up approximately 7% to 10%. The benefit area showed a
decline of $251 thousand in 1996 versus 1995 due to Company
accruing an additional $380 thousand for its retirement plans in 1995.
Occupancy and equipment expenses decreased $18 thousand or 1.7%
in 1996. This decrease is due to the 1995 completion of plans by
the Company to upgrade and renovate offices where the appearance
has deteriorated over the past several years. Included in these
renovations are upgraded Automated Teller Machines (ATMs), new
signs, and general improvements. With this project being
completed in late 1995, the facilities required less maintenance
and repair in 1996.
Other operating expenses increased from 1995 to 1996 by $198
thousand or 4.6% due mainly to a $300 thousand donation to start
the Wayne County National Charitable Foundation. This foundation
was created to enable the Board of Directors to provide larger
donations where they deem appropriate. This increase was
partially offset by a $133 thousand reduction in FDIC insurance premiums.
Other operating expenses decreased $154 thousand or 3.5% in 1995
from 1994. This decrease is due to two primary factors. First,
the FDIC insurance fund was determined to be at the required
funding level in April of 1995. As a result, the Company
received a refund of a portion of the first six month's
premiums, and a reduction in the second six months. As a result
of these items, the expense for FDIC insurance was reduced $216
thousand. Second, management made efforts to continue to reduce
other operating costs. These areas include service charges,
advertising, legal and accounting, and miscellaneous expenses.
Income Taxes
Federal Income taxes increased from $1.56 million in 1994 to
$1.83 million in 1995 to $2.42 million in 1996. These increases
are due primarily to the increases in income for the Company.
The expense for income tax represented an effective income tax
rate of 28.0% in 1994, 29.0% in 1995 and 30.4% in 1996. The
effective tax rate paid by the Company is impacted by the amount
of tax free income that can be generated during the year. The
Company can reduce the amount of taxes by increasing primarily
the investment in tax-exempt investment securities and loans to
tax-exempt customers.
FINANCIAL CONDITION
Total assets at December 31, 1996 were $352.4 million compared
to $330.9 million on December 31, 1995. This increase of $21.5
million represented a total asset growth rate of 6.5% for 1996.
The increase in the assets can be found in both the investment
portfolio and the loan portfolio, with the majority of the
increase to the loan portfolio being in the real estate and
commercial lending areas. The loan portfolio increased to 62.3%
of the total assets of the Company at December 31, 1996 compared
with 61.5% in 1995. The investment portfolio represented 29.3%
of the total assets at December 31, 1996 versus 28.5% in 1995.
The increase in the lending areas are a result of a healthy
local market for primarily commercial and residential lending.
The Company's market area has been growing at a steady pace
since the early 1990's. This growth in the loan portfolio was
funded primarily from investment maturities and sales during the
first half of the year, and increased deposits and short term
borrowings in the second half of the year.
The Company's earning assets increased $23 million or 7.5% to
$330 million in 1996 from $307 million in 1995. At year end
1996, the earning assets of the Company represented 93.8% of the
total assets. This compares with 92.9% in 1995. This increase in
earning assets as a percent of total assets is due to a decrease
in the cash and due from banks due to the timing of clearing
items with the Bank's primary correspondent bank.
Securities
The primary function of the securities portfolio is to absorb
deposits that are not loaned to borrowers, and to serve as a
source of funds for the lending function when deposits are not
readily available. The securities portfolio supplements interest
revenues and provides funds with which to meet the cash flow
needs of our customers. The funds management function is also
given the responsibility of meeting cash flow needs of the
lending function and depositors through other means, primarily
short term borrowings by the Bank, when the sale of securities
is not warranted.
In order to maintain what management feels is sufficient
liquidity, the Bank continues to invest in primarily shorter
term (under 3 years) securities with lower risk. These include
US. Treasury and Agency Securities. These securities are
purchased and generally held as available-for-sale securities.
Securities that are classified as available-for-sale under SFAS
115 are investments which may be sold at some point prior to
maturity for a variety of reasons. In order to increase yields
in the securities portfolio, investments are also made again in
shorter term government guaranteed mortgage-backed securities
and high quality corporate bonds. Investments in obligations of
states and political subdivisions are made due to the nature of
their tax exempt status.
On December 1, 1995, the Company transferred all of the
securities to the available-for-sale category. The reason for
this was to allow management the ability to change the makeup of
the portfolio in correlation with other changes in the Company's
balance sheet. It will also allow management to react to changes
in the interest rate environment in a manner which is consistent
with the asset/liability policies of the Company. Under SFAS
115, held-to-maturity securities are those which management has
both the intent and ability to hold until maturity. At this time
the Company does not have any securities classified as
held-to-maturity. This does not preclude the use of this
classification in the future.
The securities portfolio at December 31, 1996, grew by
approximately $9 million or 9.5% over the previous year, with
the bulk of the growth being concentrated in the Federal Agency
Pool area. This increase is due to the fact that the Bank sold
$8.5 million in fixed rate mortgage loans in February. The goal
of the increase in the Pools area was to offset the loan sale by
purchasing shorter pieces of mortgage backed obligations. The
investment portfolio has a fair value of $103.3 million at
December 31, 1996, which was $377 thousand more than the
amortized cost. This net unrealized gain represented .4% of the
amortized cost.
Management expects 1997 to be similar to 1996 from an interest
rate standpoint. It is the belief of management that the yield
on short bonds may rise briefly in the first part of 1997 then
fall and stabilize through the rest of the year. These
expectations will prompt the investment of the excess funds into
medium term investments. With the expected decline in rates and
the repricing expectations within the portfolio, the investment
portfolio is expected to show moderate growth in earnings for 1997.
Loans and Leases
The Bank is committed to lending to customers for a variety of
purposes. The lending market area includes Wayne, Holmes and
Stark Counties. The Bank's lending staff is conscious of making
loans to credit worthy businesses and individuals. The Bank's
management and lending staff have no intention of sacrificing
loan quality for the purpose of loan growth. The growth in the
loan portfolio from 1995 to 1996 is due to the good market
conditions and efforts of the lending staff to find new quality
credit customers.
Total loans and leases at December 31, 1996, amounted to $219.4
million compared to $212.9 million at December 31, 1995,
including loans held for sale. This increase of $6.5 million
represented 3.1% growth in the loans outstanding. During the
year, the Bank sold approximately $8.5 million of real estate
loans and $4.6 million of credit card receivables. Had these
sales not occurred, the portfolio would have grown by
approximately $19.6 million or 9.2%. The most substantial areas
of growth were found in the mortgage lending area where total
loans, excluding those held for sale grew by $9.1 million or
12.9% and commercial loans which grew $8.9 million or 10.9%.
Loans and leases accounted for 64.7% of the Company's average
assets in 1996. This compares with 70.0% in 1995 and 67.1% in
1994. This decline is due primarily to the sale of the $8.5
million in real estate loans in February. The three major loan
categories include commercial, real estate and consumer loans.
These three categories represented 41%, 37% and 18% respectively
of total loans and leases at December 31, 1996. The loan
portfolio mix has remained relatively unchanged from 1995 to
1996. The Bank experienced increases in real estate lending in
1996 due partially to customers refinancing other types of debt
into real estate debt for tax purposes. For the third year in a
row, the Bank has experienced growth in the consumer lending
portfolio. In 1996 this portfolio grew by $2.2 million or 6%.
This compares to growth of $2.7 million or 8% in 1995. This
growth is attributed to improved consumer confidence, stable
general economic conditions and the Bank's attempt to grow this
portfolio with quality loans at slightly lower yields. Growth of
this type in consumer lending often leads to growth in past due
and charged off loans. However, at December 31, 1996, the
consumer loans past due over 30 days were approximately 1.5% of
the total portfolio, which is far below the Bank's peer group
average. Consumer debt in this country is at an all time high.
If the economy should begin to slow or enter a period of
recession, losses in this area could increase.
Real estate loan production for 1996 approximated $21.8 million,
representing an increase of $7.2 million or 48.7% over 1995
production. The increase in outstandings in the mortgage area is
due to this increased production, net of the sale of mortgages
in February of 1996. Mortgage interest rates fell briefly in
late January, and have increased slightly throughout the
remainder of the first half of the year and have remained fairly
stable through the last six months of the year. At December 31,
1995, the Company had reclassified $8.5 million of real estate
loans to held for sale. The loans were carried at the lower of
aggregate book value or fair value. The market value of these
loans at December 31, 1995, was approximately $21 thousand above
the book value. In February of 1996, management sold these loans
and recorded the gain. The reclassification of and subsequent
sale of these real estate loans was done to reduce the
concentration of real estate loans and to decrease the Company's
loan to deposit ratio. The Company does not currently engage in
mortgage banking activities and these loan sales were a one time
realignment of the loan portfolio.
Sources of Funds
The Company's subsidiary, The Wayne County National Bank is
Wayne County's largest locally owned commercial bank. Management
has made a commitment to provide complete banking services for
its customers. The deposit products offered by the Bank provide
a means by which customers can safely invest their money and get
a competitive return on their investment. With a fairly stable
interest rate environment for consumer deposit products in 1996,
the Bank's deposit base grew at a modest rate.
The Bank's primary source of funds are deposits collected from
the local market area. At December 31, 1996, total deposits
amounted to $281.7 million. This represents growth of $6.9
million or 2.5% over the December 31, 1995 figure of $274.7
million. In addition to the customer deposits at December 31,
1996, the Bank has securities sold under agreements to
repurchase (Repos). The repo items serve as a source of funds
for the Bank. The repos totaled $26.1 million in 1996 versus
$15.7 million for 1995. The Bank is seeing a trend of corporate
customers moving what were formerly non-interest bearing
deposits into these repurchase agreements. This causes a decline
in the reported deposits of the Bank and an increase in the
repos. Management feels that even though these repos are an
overnight depository agreement, approximately 75% of the funds
on deposit in the repo area are longer term or '"Core" type
deposits, which reduces the concern for liquidity at the Bank.
At December 31, 1995, the deposit mix had not changed
significantly from the prior year. With the relative stability
in the interest rate environment, customers began to move their
deposits into the mid range maturity type accounts (1 to 3
years). During most of 1996 the Bank saw the amount of funds in
the certificates area continue to grow at the expense of a
decline in the short term deposit accounts. This caused upward
pressure on the Bank's interest expense.
Management's strategy for 1997 will be much the same as 1996,
that is to increase the Bank's core deposit base. With a loan to
deposit ratio of 78%, and expected continued strong loan growth
through the first half of the year, funding these new loans will
take growth in the core deposit base. In order to grow these
core deposits, management will be pricing the desired deposit
products aggressively and in some cases at a premium over the
market. It is expected that this will cause upward pressure on
the overall cost of the Bank's funds, depending upon the deposit
mix. This increase in cost of funds will be offset by the
pricing of the loan products. In addition, some of the maturing
investment portfolio bonds will be used to fund this loan growth.
In addition to the core type deposits, the Bank is a member of
the Federal Home Loan Bank system. This membership provides the
Bank with a source of funds. Currently, the Bank has
approximately $12 million of funds available, which have not
been used. This source of funds is becoming more attractive due
to the difficult nature of attracting local deposits, and due to
the new FDIC insurance premiums where banks now have to pay
insurance premiums on all deposits. Management will consider the
use of these funds as the loan demand dictates.
Capital Resources
Capital adequacy has been one of the major concerns in the
banking industry for the past several years. Items such as
deposit insurance rates and regulatory examinations are tied
directly to a bank's capital. In recent years, the banking
industry has seen tremendous growth in the capital base of the
industry. This capital growth has reduced the risk that was so
prevalent during the savings and loan crisis in the late 1980's.
Capital adequacy is monitored closely by Company management,
regulatory authorities and investors. Capital adequacy is a
function of several items, including; asset quality, bank
earnings performance, liquidity, dividends paid, and economic
conditions. For the past five years, all of these items have
improved for the Company, and as a result of that, the Company's
capital places it among the best in the industry.
There are several key ratios used to monitor capital adequacy.
These ratios have not been impacted by the adoption of SFAS 115,
"Accounting for Certain Investment in Debt and Equity
Securities". The statement requires a valuation allowance netted
against the Company's capital account for the tax adjusted
unrealized gain or loss on securities classified as
"available-for-sale". At December 31, 1996, this valuation
allowance was $248 thousand, and is not considered part of the
Company's capital for these calculations. The long standing
measure for capital adequacy is the percent of shareholders'
equity to total Company assets. At December 31, 1996, Wayne
Bancorp, Inc., has a capital to asset ratio of 11.7% versus
11.2% in 1995.
The other key ratios used in determining capital adequacy are
used primarily by the bank regulators. These ratios are the
risk-based capital ratio and the leverage capital ratio. Both of
these calculations have minimum standards set by banking
regulation. The risk-based capital ratio is based on risk
adjusted Company assets. All of the Company's assets are
assessed for risk and assigned a factor based on the risk
inherent in the assets. All of these assets are then compared
with the Company's adjusted capital. Capital accounts are
adjusted for intangible assets and a portion of the reserve for
loan losses. The minimum requirement under the risk-based
capital standard is 8% with at least half of that being in core
capital. Core capital or Tier 1 capital for Wayne Bancorp, Inc.
consists of shareholders' equity less general intangibles and
Tier 2 capital represents a portion of the reserve for loan losses.
At December 31, 1996, the Company had total risk-based capital
of 19.5% with a Tier 1 capital ratio of 18.3%. Both of these
ratios are well above the minimum requirements. At December 31,
1995, the Company had a total risk-based capital of 18.4% with a
Tier 1 capital ratio of 17.1%. In addition to the risk-based
capital ratio, the second primary measurement of the Company's
capital adequacy is the leverage ratio. This ratio is defined as
Tier 1 capital in the numerator with total company assets less
general intangibles in the denominator. The banking regulators
require that institutions maintain a minimum leverage ratio of
3%. However, bank regulators will expect most banks to maintain
leverage ratios in the 4-5% range. The Company's leverage ratios
were 12.3% and 11.6% in 1996 and 1995.
The Company has set internal capital adequacy levels. These
levels are higher than those required by the regulatory
authorities. For 1997, the minimum capital levels set by the
Board of Directors and Company management are; primary capital -
8.5%, risk based capital - 10.0% and leverage capital - 7.0%.
Management feels that operating with these minimum levels of
capital will assure the best long term strength and performance
of the Company.
Cash dividends paid to shareholders of Wayne Bancorp, Inc.
during 1996 were $1.46 million or $.37 per share. This compares
with $1.35 million or $.34 per share in 1995 and $1.14 million
or $.29 per share in 1994. Of the cash dividends paid in 1996,
$248 thousand were reinvested by shareholders under the
Company's dividend reinvestment plan.
Asset and Liability Management
The banking environment, including interest rates, has become
more volatile over the past several years. This volatility has
made the process of asset and liability management a necessity.
With the regulatory burdens, volatility in net interest margins
and increasing costs of operation, the asset/liability process
has become a valuable tool used to manage a financial
institution. The management of the Bank has established policies
in the areas of lending, investments, deposits and borrowed
funds which are based on the asset/liability strategy. This
strategy is designed to maximize earnings and manage the Bank's
interest rate risk exposure.
The primary tool used by the Company to measure interest rate
risk exposure is the "GAP" analysis. GAP is defined as the
difference between the volume of assets and liabilities that are
subject to repricing within certain time periods. The repricing
can result from changes in interest rates on variable rate
products or maturity of asset and liability products. A
liability sensitive position benefits the Bank in a falling rate
environment, whereas an asset sensitive position will be a
benefit in a rising rate environment. The presentation of
contractual maturities does not appropriately reflect the stable
source of funding provided by our core deposit base.
The Company's one year GAP was (7.38%). The Bank's Asset and
Liability Management Policy has established a goal of +10% to
- -10% for the one year adjusted GAP. During 1996, the Bank was in
a negative GAP position a majority of the time. With interest
rates being stable to slightly falling, it would be expected
that the Bank's net interest income would rise, which it did.
The key reason for this was the growth in the earning assets of
the Bank was found in the higher yielding loan portfolio. The
growth was funded from the lower yielding investment portfolio,
creating an increase in the yield on those earning assets.
In 1997 it is expected that interest rates will peak in the
first part of the year and then fall for the remainder of the
year. With this in mind, a negative one year GAP should benefit
the Company as the interest rates fall. The Asset/Liability plan
for 1997 will be much the same as the current plan, with the
only significant change being in the investment portfolio. As
interest rates peak in the first quarter, the plan would be to
lengthen the maturity and duration of purchases by 6-12 months
over the current portfolio average life. This will enable the
Company to take advantage of the expected falling interest rate
environment by having slightly longer term, higher yielding
investments on the books as the downward repricing of deposit
products begins.
Liquidity
Liquidity is the ability of the Bank to fund customer's needs
for borrowings and deposit withdrawals. The purpose of liquidity
management is to assure that there is sufficient cash flow to
meet all of the financial commitments and to capitalize on
opportunities for business expansion. This ability depends on
the institution's financial strength, asset quality, and types
of deposit and investment instruments offered by the Bank to its
customers. The Company's primary source of liquidity is the
daily federal funds sold and maturing investment securities.
Other sources of liquidity include cash and due from banks,
securities available-for-sale and maturing loans. At December
31, 1996, the Company had sold $7.6 million as excess daily
funds. These funds are sold on a daily basis to one of the
Bank's correspondent banks. At year end, the Company had $26.5
million of securities scheduled to mature within one year, and
the entire portfolio is available-for-sale.
The adjustments to reconcile net income to net cash from
operating activities are made up primarily of $734 thousand of
depreciation and amortization, $331 thousand of accretion of
discounts and amortization of premiums in the investment
portfolio and $180 thousand in provision for loan losses. These
items represent income and expense included in net income which
did not represent a receipt or expenditure of cash.
Cash flows from investing activities related mainly to changes
in loans and securities. During 1996, the primary sources of
cash through investing activities were loan sales of $13.1
million and sales and maturities of investments of $36.9
million. The uses of cash were $20.0 million of net new loans
and $47.0 million of securities purchases.
Net cash from financing activities amounted to $16.0 million.
The primary sources of cash from financing activities were
increased deposits of $6.9 million and an increase in short term
borrowings of $10.5 million. Payment of dividends and treasury
stock purchases totaling $1.4 million were the only uses from
financing activities.
The net result of these cash flows was an increase in cash and
cash equivalents of $5.6 million from year end 1995 to 1996.
Management is not aware of any trend or event that would cause
the Company to have trouble meeting its current projected cash needs.
Effects of Inflation
Substantially all of the Company's assets and liabilities relate
to banking activities and are monetary in nature. The
consolidated financial statements and related financial data are
presented in accordance with Generally Accepted Accounting
Principles (GAAP). GAAP currently requires the Company to
measure the financial position and results of operations in
terms of historical dollars, with the exception of securities
available-for-sale. Changes in the value of money due to rising
inflation can cause purchasing power loss.
Management's opinion is that movements in interest rates affects
the financial condition and results of operations to a greater
degree than changes in the rate of inflation. It should be noted
that interest rates and inflation do effect each other, but do
not always move in correlation with each other.
Recent Accounting Developments
"SFAS No. 125, " Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," is
effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31,
1996, and is to be applied prospectively. Transactions covered
by SFAS No. 125 include asset securitizations, repurchase
agreements, wash sales, loan participations, transfers of loans
with recourse and servicing of loans. The Standard is based on a
consistent application of a financial-components approach that
focuses on control and provides consistent standards for
distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. The Statement also
requires measuring instruments that have a substantial
prepayment risk at fair value, much like debt instruments
classified as available for sale or trading. While SFAS No. 125
supersedes SFAS No. 122, Accounting for Mortgage Servicing
Rights, it only marginally modifies the accounting and
disclosure requirements described by SFAS 122.
NOTICE OF ANNUAL STOCKHOLDERS MEETING TO BE HELD MARCH 27, 1997
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 the Wayne County National Bank, Loan Department Office,
Second Floor, 140 West Liberty Street, Wooster, Ohio on March
27, 1997 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 February 28, 1997:
1. Election of Directors: To elect the four (4) directors listed
in the attached Proxy Statement.
2. To ratify the engagement of Crowe, Chizek & Company as the
independent 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 January 31, 1997 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 February 28, 1997.
By Order of the Board of Directors,
Jimmy D. Vaughn, Secretary
PROXY STATEMENT February 28, 1997
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
Corporation) to be held on March 27, 1997 at 2:00 p.m. at the
Wayne County National Bank (the Bank), Loan Department Office,
Second Floor, 140 West Liberty Street, 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 Corporation (Jimmy D. Vaughn) in writing
prior to 1:00 p.m., March 27, 1997; 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. This solicitation of proxies in the enclosed form
is made on behalf of the Board of Directors of the Corporation.
The cost of preparing, assembling and mailing the Proxy material
and of reimbursing brokers, nominees, and fiduciaries for the
out-of-pocket and clerical expenses of transmitting copies of
the Proxy material to the beneficial owners of shares held of
record by such persons will be borne by the Corporation. The
Corporation does not intend to solicit proxies otherwise than by
use of mail, but certain officers and regular employees of the
Corporation or its subsidiary, without additional compensation,
may use their personal efforts by telephone or otherwise to
obtain proxies. The Proxy material is being first mailed to
stockholders on approximately February 28, 1997.
VOTING SECURITIES As of January 31, 1997, the number of shares
of common stock (there being no other class of stock)
outstanding and entitled to vote at the Annual Stockholders
Meeting is 3,933,819 including 80,540 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 January 31, 1997 shall be
entitled to vote. At that date, there were 1,226 stockholders of
record including individuals and corporations. There were
1,467,729 shares authorized but unissued and 3,119 shares held
in Treasury at that date.
Each share of stock is entitled to one vote on all matters to be
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 four 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 Corporation shall be twelve (12)
(divided into three classes) unless changed by a two-thirds
majority vote of the Continuing Directors (as defined in the
Corporation'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
four, with the four Directors serving until the 2000 Annual
Meeting of Stockholders. 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 four nominees to the Class of
Directors serving until the 2000 Annual Meeting of Stockholders.
Principal Occupation Year First
Name of Director for the Past Five Years Became Director Age
Bala Venkataraman President and Chief Executive 1995 52
Officer, Magni-Power Company,
since 1990, Metal fabricating
and parts manufacturer.
B. Diane Gordon, Vice President of Finance New Nominee 48
Buckeye Corrugated, Inc.,
since 1990, Corrugated
Container Manufacturing.
Darcy B. Pajak President, F.J. Design New Nominee 45
Vice President of Marketing,
F.J. Design 1993-1995. Specialty
manufacturer of gift items. Manager,
Sears retail store, Wooster, Ohio
1988-1993.
Stephen L. Shapiro Chairman of the Board New Nominee 51
Wooster Iron & Metal Company
since 1995. Metal recycling
company. President and CEO,
Metallics Recycling Co.
since 1990.
The business experience of each of the above-listed nominees
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. Each of the nominees own or will acquire a sufficient
number of shares in the Company as required by national banking law.
DIRECTORS CONTINUING IN OFFICE
The persons named below are now serving as Directors of the
Corporation for terms expiring at the Annual Meetings of
Stockholders in 1998 and 1999.
Principal Occupation Year First (1)
Name of Director for the Past Five Years Became Director Age
Terms Expiring at the Annual Meeting in 1998
Gwenn E. Bull Certified Public Accountant, 1995 48
General Manager Croskey, Hostetler
& Mapes, CPA Firm, since 1985.
David L. Christopher Chairman of the Board, President 1987 56
and Chief Executive Officer, Wayne
Bancorp, Inc.; Chairman of the Board,
President, and Chief Executive Officer,
Wayne County National Bank since 1990.
President, Wayne National Corporation
since 1987.
Dennis B. Donahue, President and Chief Executive Officer 1993 57
The Will-Burt Company, Inc., since 1995,
President The Will-BurtCompany, Inc., since
1991, Machine fabrication and assembly
of multiline components and equipment
for various industries.
Jeffrey E. Smith President, Smith Management, Inc., 1993 46
Real Estate Management and oil and gas
investments; President, COFSCO
Manufacturing 1977-1995.Oil and Gas
Equipment Supplier.
Terms Expiring at the Annual Meeting in 1999
James O. Basford Chairman, Buckeye Corrugated, Inc., 1990 65
since 1958 Corrugated Container
Manufacturing; Director United
Telephone of Ohio and Indiana.
Joseph R. Benden President, Benden Enterprises, since 1990 60
1974, Owner and Operator DBA:
McDonalds Restaurants until May 1994.
President, Benden Enterprises, a Personal
Investment Company.
John C. Johnston III Partner, with the law firm of 1996 (2) 48
Critchfield, and Johnston, since 1978.
David E. Taylor President, Taylor Agency, Inc. 1992 46
Since 1987 Independent Insurance Agency.
1 Year first became a Director indicates the year that such
individual began serving as a Director of Wayne Bancorp, Inc.,
or if prior to the formation of Wayne Bancorp, Inc., Wayne
County National Bank.
2 Appointed to the Board of Directors on September 18, 1996 upon
vote of the Board of Directors as provided in the Code of
Regulations of the Corporation.
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee and Board of Directors of Wayne Bancorp,
Inc. and Wayne County National Bank engaged Crowe, Chizek &
Company to serve as the independent auditors for the Corporation
and the Bank during 1996. It is the intention of the Audit
Committee and Board of Directors of Wayne Bancorp, Inc. and
Wayne County National Bank to engage Crowe, Chizek & Company as
the independent auditors to audit the financial statements of
the Corporation and the Bank for 1997 (subject to ratification
by the stockholders of Wayne Bancorp, Inc.)
The Audit Committee and the Board of Directors recommend that
the stockholders vote
FOR ratification of the employment of the independent auditors.
Representatives of Crowe, Chizek & Company are expected to be
present at the Annual 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 TABLE IS A SUMMARY OF COMMON STOCK OWNERSHIP OF
SENIOR MANAGEMENT AND THE BOARD OF DIRECTORS
Name of Amount and Nature of Percent of Common
Beneficial Owner Beneficial Ownership Stock Ownership (1)
James O. Basford 1,379 shares .04%
Joseph R. Benden 11,199 shares (2) .28%
Gwenn E. Bull 630 shares .02%
David L. Christopher 60,339 shares (3) 1.53%
Dennis B. Donahue 937 shares .02%
Harold Freedlander 7,285 shares (4) .19%
Frank M. Hays 10,380 shares .26%
John C. Johnston III 1,047 shares (5) .03%
Dietrich Kaesgen 12,224 shares (6) .31%
Jeffrey E. Smith 3,630 shares .09%
David E. Taylor 2,284 shares .06%
Bala Venkataraman 637 shares .02%
David P. Boyle 991 shares (7) .03%
F. Bill Damron 8,100 shares (8) .21%
Stephen E. Kitchen 9,995 shares (9) .25%
Jimmy D. Vaughn 7,365 shares (10) .19%
Directors and Executive
Officers of the Corporation/
Bank as a Group 140,107 shares (11) 3.56%
1 The calculation of percent of common stock ownership is based
on total outstanding shares of 3,933,819 shares and
calculated as of January 31, 1997.
2 11,199 shares are held in trust for Mr. Benden.
3 48,649 shares are held in trust for Mr. Christopher and 7,056
shares are owned by spouse
4 7,285 shares are held in trust for Mr. Freedlander.
5 462 shares are held for Mr. Johnston in street name.
6 4,281 shares are held for Mr. Kaesgen in street name, and 840
shares are owned by spouse
7 991 shares are held in trust for Mr. Boyle, Sr. Vice
President and Chief Financial Officer,
Wayne County National Bank.
8 4,925 shares are held in trust for Mr. Damron, Sr. Executive
Vice President and Chief
Loan Officer, Wayne County National Bank, Vice President of
Wayne Bancorp, Inc.
9 3,954 shares are held in trust for Mr. Kitchen, Executive
Vice President and Senior Trust
Officer, Wayne County National Bank.
10 4,934 shares are held in trust for Mr. Vaughn, Executive
Vice President Operations and
Data Processing of Wayne County National Bank and Secretary of
the Corporation.
11 Additional shares are held by Park National Bank and Trust
(for the Wayne County
National Bank Salaried Employees ESOP) which have not been
allocated among the
salaried officers and employees.
SECURITY OWNERSHIP OF COMMON STOCK IN EXCESS OF FIVE PERCENT OF
OUTSTANDING SHARES
Listed in the following tables are the beneficial owners as of
January 31, 1997 of more than five percent of the Corporations
outstanding common stock who are known to the Corporation.
Title of Name & Address Amount and Nature of Percent of Common
Class of Beneficial Owner Beneficial Ownership (1) Stock Ownership (1)
Common Raymond E. Dix 205,376 5.22%
P.O. Drawer D
Wooster, OH 44691
Common Wayco & Co. 653,964 16.63%
P.O. Box 757
Wooster, OH 44691
1 The calculation of percent of ownership is based on the total
outstanding shares at
January 31, 1997 of 3,933,819 shares.
2 Includes 133,023 shares held by the Dix Family Trust of which
Mr. Dix has sole voting
power. Mr. Dix disclaims beneficial ownership in 88,682 of
these shares.
3 Includes 72,353 shares held by the Raymond E. Dix Trust which
is for the sole benefit of
Mr. Dix; and 7,173 shares held by the spouse of Mr. Dix.
4 Wayco & Co. 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 80,540 shares (2.05 percent
of the total number of
shares outstanding) as sole trustee and 363,325 shares (9.24
percent of the total number
of shares outstanding) as trustee subject to revocable trusts.
THE BOARD OF DIRECTORS AND DIRECTORS COMPENSATION
The membership of the Board of Directors of Wayne Bancorp, Inc.
and Wayne County National Bank are identical. The Board of
Directors of Wayne Bancorp, Inc. held 13 meetings in 1996 and
the Board of Directors of Wayne County National Bank held 12
meetings in 1996. All Directors except Basford and Kaesgen,
attended at least 75 percent of the meetings held by the Board
of Directors of Wayne Bancorp, Inc.; the Board of Directors of
Wayne County National Bank; and Wayne Bancorp, Inc. and Wayne
County National Bank Board of Directors committees. All
Directors are entitled to receive $875 per month as a fee for
serving on the Board of Directors of both Wayne County National
Bank and Wayne Bancorp, Inc., whether or not they attend the
meeting of the Board of Directors for that particular month.
Pursuant to the Wayne County National Bank Deferred Compensation
Plan adopted July 1, 1993, the Directors are entitled to defer
all or a portion of Directors fees earned by them in a calendar
year. Such fees are converted into units at the then fair market
value of a share of Wayne Bancorp, Inc. common stock. Such units
are treated as phantom stock and entitle the holder to receive
cash dividends on the units equivalent to that for shares of
stock. Units are converted into cash and paid to a participant
upon termination of the services of the Director to the entity.
BOARD OF DIRECTORS COMMITTEES
The membership on the Board of Directors Committees for Wayne
Bancorp, Inc. and Wayne County National Bank are identical.
Audit Committee: The Audit Committee was composed of Mrs. Gwenn
Bull, and Messrs. Benden, Donahue, Freedlander, and Smith. The
Audit Committee met 9 times in 1996. The function of the Audit
committee is to:
1. Recommend the engagement of the independent auditors, review
the fee arrangement and the scope of the audit;
2. Review reports by the internal auditor, the independent
auditors, and the regulatory agencies;
3. Take any action necessary to implement recommendations by
the internal auditor, the
independent auditor or the Comptroller of the Currency;
4. Conduct pre- and post-audit conferences with the independent
auditor, Crowe, Chizek & Company; and
5. Recommend any changes in audit procedures
Nominating Committee: The Directors continuing in office serve
as a committee to nominate stockholders to serve on the Board of
Directors. This committee met three times in 1996 to nominate a
stockholder to serve on the Board of Directors until the 1999
Annual Meeting and to nominate Mrs. Gordon, Mr. Pajak and Mr.
Shapiro to serve as directors until the 2000 annual meeting.
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 information required pursuant to the
Code of Regulations of Wayne Bancorp, Inc. (A copy of which may
be obtained from the President) concerning a proposed nominee to
the President of the Corporation at Southwest Public Square,
P.O. Box 757, Wooster, Ohio 44691.
Compensation/Employee Benefit Committee: The
Compensation/Employee Benefit Committee was composed of Messrs.
Basford, Donahue, Kaesgen, Venkataraman, and Mrs. Gwenn Bull.
This committee met once on November 20, 1996. The committee as a
whole then met once on December 5, 1996. 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 COMPENSATION AND OTHER
INFORMATION for a discussion of the Committees report on
compensation issues.
THE FOLLOWING PERSONS ARE THE EXECUTIVE OFFICERS OF THE
CORPORATION
Name Age
David L. Christopher 56 Chairman of the Board, President and
Chief Executive Officer, Wayne Bancorp,
Inc. and Chairman of the Board,
President and Chief Executive Officer,
Wayne County National Bank since 1990;
President, Wayne National
Corporation since 1987.
David P. Boyle 33 Senior Vice President & Chief Financial
Officer, Wayne County National Bank
since 1996. Vice President and
Controller, Wayne County National Bank
1991-1995; Vice President and Treasurer,
Wayne National Corporation since 1991.
F. Bill Damron 58 Senior Executive Vice President & Chief
Loan Officer, Wayne County National Bank
since 1987.
Stephen E. Kitchen 45 Executive Vice President & Senior Trust
Officer, Wayne County National Bank
since 1988.
Jimmy D. Vaughn 55 Executive Vice President, Operations &
Data Processing, Wayne County National
Bank since 1987; Secretary and Treasurer
of Wayne Bancorp, Inc. since 1992.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation The following
table provides certain summary information concerning
compensation paid or accrued by the Corporation and its
subsidiaries to or on behalf of the Corporations Chief Executive
Officer and other Executive Officers whose compensation exceeded
$100,000 in 1996, for the fiscal years ended December 31, 1994,
1995, and 1996:
SUMMARY COMPENSATION TABLE
($) All
Name and Principal ($) ($) Other Annual Other
Position Year Salary Bonus Compensation(2) Compensation
David L. Christopher 1996 $180,750 $82,129 $4,522 $18,823
Chairman of the Board,
President and Chief 1995 166,185 56,858 3,608 18,752
Executive Officer,
Wayne Bancorp, Inc . 1994 157,052 53,985 3,441 18,019
and Wayne County
National Bank
David P. Boyle 1996 $70,375 $34,429 $9,026
Senior Vice President
and Chief Financial 1995 55,339 19,990 6,296
Officer, Wayne County
National Bank, Vice 1994 50,061 18,337 5,986
President and Treasurer
Wayne National Corp.
F. Bill Damron 1996 $100,475 $49,058 $15,930
Vice President, Wayne
Bancorp, Inc., Seni 1995 95,866 34,590 11,222
Executive Vice President
and Chief Loan Officer 1994 89,582 32,816 1,204 11,164
Wayne County National
Bank
Stephen E. Kitchen 1996 $78,000 $38,038 $12,557
Executive Vice President
and Senior Trust Of 1995 75,002 27,336 9,022
Wayne County National
Bank 1994 71,119 26,132 8,862
Jimmy D. Vaughn 1996 $78,000 $38,114 $2,276 $12,986
Secretary and Treasurer,
Wayne Bancorp, Inc. 1995 75,175 27,382 1,904 9,278
Executive Vice President
Operations & Data 1994 70,593 25,878 932 8,862
Processing, Wayne
County National Bank
1 Profit Sharing bonus paid in cash and incentive compensation
as explained herein.
2 Comprised of reimbursement of 20 percent of the cost to
purchase up to 500 shares of
Wayne Bancorp, Inc. stock and incentive under the trust
referral program.
3 Represents equal annual contributions to Profit Sharing and
ESOP Plans of the Wayne County National Bank.
Report of the Compensation Committee Under rules established by
the Securities and Exchange Commission (the SEC), the
Corporation is required to provide certain data and information
in regard to the compensation and benefits provided to the
Corporations Chairman and Chief Executive Officer and, if
applicable, the four other most highly compensated executive
officers, whose aggregate compensation exceeded $100,000 during
the Corporations fiscal year. The disclosure requirements, as
applied to the Corporation, included the Corporations President
and Chief Executive Officer (the CEO), the Sr. Vice President
and Chief Financial Officer, the Sr. Executive Vice President
and Chief Loan Officer, Executive Vice President and Senior
Trust Officer, and Executive Vice President of Operations and
Data Processing and include the use of tables and a report
explaining the rationale and considerations that led to
fundamental executive compensation decisions affecting these
individuals. The Corporation is a holding company and owns one
significant operating subsidiary, Wayne County National Bank.
The Corporation has no direct employees. All disclosures
contained in this Proxy Statement regarding executive
compensation relate to the compensation paid by Wayne County
National Bank. The Compensation Committee of the Corporation and
Wayne County National Bank (which are identical) (the Committee)
has the responsibility of determining the compensation policy
and practices and making recommendations to the full Board with
respect to specific compensation of the CEO 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
Corporations compensation philosophy as endorsed by the Board of
Directors and the Committee and resulting actions taken by the
Corporation for the reporting periods shown in the various
compensation tables supporting this report. The Committee
approves and recommends to the Board of Directors payment
amounts and awards levels for executive officers of the
Corporation and its subsidiaries. Essentially, the executive
compensation program of the Corporation has been designed to:
Support a pay-for-performance policy that awards executive
officers for corporate 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
Corporation to compete for and retain talented executives who are
critical to the Corporation's long-term success. At present, the
executive compensation program is comprised of base salary and
annual cash and stock incentive opportunities. Other than the base
salary and participation in the Senior Officer Incentive Compensation
Plan for Messrs. Christopher, Boyle, Damron, Kitchen, and Vaughn
discussed below, the additional benefits to which Messrs. Christopher,
Boyle, Damron, Kitchen, and Vaughn have been entitled are equivalent
to that for all other employees and are determined in the discretion of
the Board of Directors. Base
Salaries. On December 27, 1995, the Committee met to review and
approve amendments to the compensation for all management. David L.
Christopher, President and Chief Executive Officer of the Corporation
was present at the meeting to present his views in regard 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 review of performance
of executive officers in relation to the goals of the Company. At the
meeting on December 27, 1995, the Committee proposed a base salary
commencing February 1, 1996 for Mr. Christopher of $171,600, for Mr.
Boyle of $71,500, for Mr. Damron of $100,700, for Mr. Kitchen
of $78,000, and for Mr. Vaughn of $78,000 which were approved by the
Board of Directors. The salaries were a result of a review of the
four specific surveys regarding peers of the Corporation
and Wayne County National Bank including the following:
1. Ohio Bankers Association survey reviewing all Ohio banks
between $200 and $500 million in assets;
2. Bank Administration Institute survey regarding all Ohio
banks in Region 5 (the region of Wayne County National Bank);
3. Bank Administration Institution survey regarding all Ohio
banks; and
4. A study prepared by Crowe, Chizek & Company (the
Corporations external auditors)
reviewing all banks between $200 and $500 million in asset size.
The Committee reviewed all four of these studies and blended
the results to determine average compensation for various
positions including that of President and Chief Executive
Officer, Chief Financial Officer, Chief Loan Officer, Senior
Trust Officer, and Head of Operations. The Committee then set a
range of between 75 percent and 125 percent of the average in
order to determine the salary for Mr. Christopher, Mr. Boyle,
Mr. Damron, Mr. Kitchen, and Mr. Vaughn. The base salaries
determined for Mr. Christopher, Mr. Boyle, Mr. Damron, Mr.
Kitchen, and Mr. Vaughn represented 111, 88, 114, 103 and 96
percent respectively of the average of the above-referenced
surveys. The Compensation Committee believes such salaries are
justified based upon the performance of the Company and the Bank
relative to its peers. The survey results mentioned above are
also utilized to set salaries for the other management, salaried
and hourly employees of Wayne County National Bank. In addition
to the base salaries described above, the executive officers of
the Company participate in the Profit Sharing and ESOP Plans
with all other salaried employees. The five named executive
officers and three additional senior management persons of the
Company and the Bank participate 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 exceeds 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 persons salary relative to the
total of those participating in the plan. The aggregate amount
paid under the plan in 1996 was approximately $293,000. The
amounts received under the plan by the listed executive officers
are included in the compensation table set forth above.
Submitted by the Compensation Committee
James O. Basford Gwenn Bull Dennis B. Donahue
Dietrich Kaesgen Bala Venkataraman
The following represents a comparison of return on an investment
in the Corporation, Standard and Poors 500 and a peer group
composed of major regional banks and bank holding companies.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG WAYNE
BANCORP, INC., S&P 500 INDEX AND S&P MAJOR REGIONAL BANK INDEX
FOR FISCAL YEAR ENDING DECEMBER 31
1991 1992 1993 1994 1995 1996
Wayne Bancorp, Inc. 100 135.2 204.0 230.8 282.4 410.6
S&P 500 Index 100 107.6 118.5 120.0 165.1 203.0
S&P Major Regional Bank Index 100 127.3 135.0 127.8 201.1 274.9
Assumes $100 invested on January 1, 1992 in Wayne Bancorp, Inc.
Common Stock, S&P 500 Index and S&P Major Regional Bank Index.
Total Return Assumes Reinvestment of Dividends.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF
1934 Section 16(a) of the Securities Exchange Act of 1934
requires the Corporation's officers and directors, and persons
who own more than ten percent of a registered class of the
Corporations equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than ten percent
stockholders are required by SEC regulation to furnish the
Corporation 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 Corporation, or
representations that no Form 5s were required, the Corporation
believes that during 1996 all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten
percent beneficial owners were complied with.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following affiliations exist between the Corporation and
nominees or Directors; David L. Christopher is one of several
partners in Wayco and Co., a partnership 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 Services is engaged in leveraged lease
financing, direct leasing, and other financial products. Mr.
Frank M. Hays is a retired partner from, but still of Counsel to
the law firm of Taggart, Cox, Hays, Zacour, and Lanham until
December 31, 1996. The firm was paid $40,848 by Wayne County
National Bank in 1996 for legal services. Taggart, Cox, Hays,
Zacour, and Lanham have served as the Banks legal counsel for
many years and will be retained in that capacity during 1997.
The Corporation believes the terms of all such transactions were
as favorable as could have been obtained from unaffiliated
parties. Mr. John C. Johnston III is a partner with, the law
firm of Critchfield, Critchfield and Johnston. The firm was paid
$5,820 by Wayne County National Bank in 1996 for legal services.
The Corporation believes the terms of all such transactions were
as favorable as could have been obtained from unaffiliated parties.
Some of the Directors, Officers, and greater than 5%
stockholders of Wayne Bancorp, Inc., their immediate families
and companies with which they are associated were customers of,
and had banking transactions with, the Wayne County National
Bank in the ordinary course of the Banks business from the
beginning of fiscal year 1996 to present. All loans and
commitments to loans included in such transactions were made in
the ordinary course of business on substantially the same terms,
including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons, and in
the opinion of the management of the Bank 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 1998 MEETING
A stockholder who desires to have a proposal printed in the 1998
Proxy Statement must submit that proposal no later than October
31, 1997. The proposal should be mailed to the Chairman of Wayne
Bancorp, Inc., P.O. Box 757, Wooster, Ohio 44691.
By Order of the Board of Directors
Dated: February 28, 1997 Jimmy D. Vaughn, Secretary