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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
___X___ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
_______ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ......................to..........
Commission File No. 014612
WAYNE BANCORP, INC.
(Exact name of registrant as specified in its charter)
OHIO 34-1516142
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
112 West Liberty Street
PO Box 757
Wooster, Ohio 44691 44691
(Address of principal executive offic(Zip Code)
Registrant's telephone number, including area code: (330) 264-1222
Securities registered pursuant to section 12(b) of the AcNone
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 section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or fur such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days YES__X___ NO______
Indicate by check mark if disclosures of delinquent filers in response to item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendments to this Form 10-K. YES__X___ NO______
The aggregate market value of voting stock held by nonaffiliates of the
registrant based on the most recent trade prices of such stock on March 1, 1998:
Common Stock $1.00 stated value $164,690,820
The number of shares outstanding of the issuer's classes of common stock as of
March 1, 1998:
Common Stock $1.00 stated value 3,921,210
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1997 and portions of the Registrant's Proxy Statement for the Annual
Shareholders Meeting to be held
March 26, 1998 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 hold 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 7A. Quantitative and qualitative disclosures about m 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 Registra 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 services 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 and 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, 1997.
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 lines of credit and installment loans. Credit cards are unsecured
credit accounts, on which the credit 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 loan programs, including a variety of
fixed and adjustable rate mortgages ranging from 120 to 360 months. The
underwriting guidelines include those similar to consumer loans and those
necessary to meet secondary market guidelines. Residential real estate decisions
focus on loan to value limits, debt to income ratio, housing debt to income
ratio, credit history, and in some cases, whether private mortgage insurance
is 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, demand and time notes. Commercial real estate
loans include fixed and adjustable mortgages. Loans are generally to owner
occupied businesses. The portfolio also includes loans to churches, rental
property, shopping plazas and residential development loans. Loans to
businesses often entail greater risk because the primary source of repayment is
typically dependent upon adequate cash flow. Cash flow of a business can be
subject to adverse conditions in the economy or a specific industry. Should
cash flow fail, the lender looks to the assets of the business and 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 consumer
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 provision outlined under Title XI of FIRREA. All appraisals are done by
outside independent appraiser. 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 cent
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 $700 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 70%, 67%, and 71% of consolidated revenues in
1997, 1996 and 1995, respectively. Revenues from interest and dividends on
investment securities, federal funds sold and mortgage-backed securities
accounted for 19%, 19%, and 18% of consolidated revenues in 1997, 1996,
and 1995, 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 Board on a quarterly basis information
pursuant to the Act. The Federal Reserve Board may conduct
examinations or inspections of the Company and its subsidiaries.
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 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, 1997 are in the table included in Note 14 to the
financial statements.
The Federal Deposit Insurance Corporation sets premiums for deposit insurance
based on the Company's capital levels. In the event the Company's levels
fall below the minimum requirements 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
earnings 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 service.
Employees
As of December 31, 1997, the Company had 150 full time employees and 27 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, 1997
Average
Daily Yield/
Balance Interest Rate
(In thousands of dollars)
ASSETS -----------------------------
Interest Earning Assets:
Loans (including fees) (1) $230,736 $20,726 8.98%
Securities Available-for-Sale (2)
Taxable 71,522 4,452 6.22%
Tax-Exempt (3) 20,650 1,689 8.18%
Federal Funds Sold 3,744 212 5.66%
--------------------
TOTAL EARNING ASSETS 326,652 27,079 8.29%
Non-earning Assets:
Cash and due from banks 12,948
Premises and Equipment (net) 6,215
Other Assets 4,522
Less Allowance for Loan Losses (3,665)
---------
TOTAL ASSETS $346,672
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Transaction Accounts 59,247 1,629 2.75%
Savings 48,732 1,387 2.85%
Time Deposits 121,054 6,499 5.37%
Borrowed Funds 26,630 1,288 4.84%
--------------------
TOTAL INTEREST BEARING LIABILITIES 255,663 10,803 4.23%
Non-Interest Bearing Liabilities:
Demand Deposits 44,915
Other Liabilities 2,644
---------
TOTAL LIABILITIES 303,222
Shareholders' Equity 43,450
---------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $346,672
=========
NET INTEREST INCOME $16,276
===========
NET YIELD ON INTEREST EARNING ASSETS 4.98%
=========
(1) Nonaccrual loans are included in the average loan balance.
(2) Average balance includes unrealized gains and losses while yield is based
on amortized cost.
(3) Interest income on tax exempt securities includes a taxable equivalent
adjustment using a 34% tax rate.
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%
Securities Available-for-Sale (2)
Taxable 74,079 4,584 6.19%
Tax-Exempt (3) 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 $331,119
=========
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) Average balance includes unrealized gains and losses while yield is based
on amortized cost.
(3) Interest income on tax exempt securities includes a taxable equivalent
adjustment using a 34% tax rate.
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%
Securities Available-for-Sale (2)
Taxable 61,125 3,675 6.01%
Tax-Exempt (3) 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) Average balance includes unrealized gains and losses while yield is based
on amortized cost.
(3) Interest income on tax exempt securities includes a taxable equivalent
adjustment using a 34% tax rate.
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.
1997 vs 1996 1996 vs 1995
--------------------------------------------------------
Increase (Decrease) (1) Increase (Decrease) (1)
Volume Rate Net Volume Rate Net
--------------------------------------------------------
(In thousands of dollars)
Interest Income:
Loans $1,560 ($380) $1,180 $753 ($163) $590
Taxable Investments (158) 26 (132) 779 130 909
Non-taxable
Investments 25 (27) (2) (225) 7 (218)
Federal Funds So 9 19 28 (29) (26) (55)
--------------------------------------------------------
Total Interest Income 1,436 (362) 1,074 1,278 (52) 1,226
Interest Expense:
Transaction Accounts (70) (70) 136 (456) (320)
Savings (35) (35) 19 7 26
Time Deposits 6 162 168 19 451 470
Short-term Borrowing 269 25 294 419 (65) 354
--------------------------------------------------------
Total Interest Expense 170 187 357 593 (63) 530
--------------------------------------------------------
Net Interest Income $1,266 ($549) $717 $685 $11 $696
========================================================
(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 adjustment using a 34% tax rate for each year.
INVESTMENT PORTFOLIO
WAYNE BANCORP, INC.
The following table represents the year end carrying value of available-for-sale
securities at the date indicated: (In thousands of dollars)
1997 1996 1995
-----------------------------
U.S. Treasury and Other U.S. Government
Agency Obligations $35,598 $40,473 $43,121
Mortgage-backed Securities 19,482 23,197 13,955
States and Political Subdivisions 19,761 21,378 21,126
Other 19,219 18,246 16,123
-----------------------------
$94,060 $103,294 $94,325
=============================
The following table sets forth the maturity distribution and yields on
investment securities for-sale at December 31, 1997 (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 $9,798 6.16% $25,285 6.07%
Mortgage-backed Securities 1,252 6.32% 7,203 6.46%
States and Political Subdivisions 3,349 5.41% 8,784 5.67%
Other 11,214 6.00% 6,254 6.08%
--------------------------------------
$25,613 6.00% $47,526 6.06%
======================================
Five to Ten Years Over Ten Years
Carrying Carrying
Value Yield Value Yield
--------------------------------------
U.S. Treasury and Other U.S. Government
Agency Obligations $515 5.80%
Mortgage-backed Securities 6,293 6.44% 4,734 7.77%
States and Political Subdivisions 4,986 5.18% 2,642 5.62%
Other 1,751 7.16%
--------------------------------------
$11,794 5.88% $9,127 7.03%
======================================
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, 1997.
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 loan (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)
1997 1996 1995 1994 1993
-----------------------------------------------
Real Estate $98,353 $86,276 $76,694 $78,930 $71,230
Installment & Credit card 37,166 39,183 42,426 39,914 34,408
Commercial & Collateral 106,452 90,638 81,740 75,983 74,011
Lease Financings 3,880 3,246 3,435 2,741 2,535
Other Loans 23 23 26 12 16
-----------------------------------------------
$245,874 $219,366 $204,321 $197,580 $182,200
===============================================
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 rate
sensitivity of the loan portfolio and other balance sheet items at year end
1997 is included page 26 of the 1997 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, 1997 are as follows (In thousands of dollars):
Within 1 to 5 After 5
1 Year Years Years Total
--------------------------------------
Commercial and Collateral $44,924 $56,270 $5,258 $106,452
Loans due after 1 year:
At predetermined interest rates $40,223
At floating interest rates $21,305
The following table summarizes past due, non-accrual and restructured loans:
(In thousands of dollars) 1997 1996 1995 1994 1993
-----------------------------------------------
Accruing loans past due 90 days
or more as to principle or $244 $173 $204 $149 $45
Non-accrual loans 37 934 15 22 46
Restructured loans 0 0 0 0 0
-----------------------------------------------
$281 $1,107 $219 $171 $91
===============================================
The effect of non-performing loans was as follows: December 31, 1997
------------------
Interest income due on non-performing loans in accordance
with the original terms of the loan $3
Less: Interest income on non-performing loans reflected 0
---------
Net reduction in interest income $3
=========
The policy for placing loans on non-accrual status is to stop the accrual on
interest when it is likely that collection of 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 collecion.
At December 31, 1997, the Company had no loans classified as impaired. 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 $549 thousand in 1997 and
$1.1 million in 1996. Income recognized during the year ended December 31,
1997 and 1996 amounted to $24 thousand and $74 thousand. Interest income
recognized on the cash basis for the year ended December 31, 1997 and 1996
totaled $5 thousand and $72 thousand. There were no impaired loans in 1995.
Impaired loans are comprised of commercial and commercial real estate loans,
and are carried at the present value of expected future cash flows, discounted
at the loan's effective interest rate or at a fair value of collateral, if the
loan is collateral dependent. A portion of the allowance for loan losses is
allocated to impaired loans.
Smaller balance homogeneous loans are evaluated for impairment in total. Such
loans include residential first mortgage and construction loans secured by 1-4
family properties, consumer, credit card and home equity loans. Such loans are
included in nonaccrual and past due disclosures above, but not in impaired
loan totals. Commercial loans and mortgage loans secured by other properties
are evaluated individually for impairment. In addition, loans held for sale
and leases are excluded from consideration of impairment. When analysis of
borrower operating results and financial condition indicates that the
borrower's underlying cash flows are not adequate to meet its debt service
requirements, the loan is evaluated for impairment. Impaired loans, or portions
thereof, are charged off when deemed uncollectible.
As of December 31, 1997, 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 and are past due 90 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, may have been classified by the regulatory
examiners as loss, doubtful or substandard.
There were no foreign loans outstanding at December 31, 1997, 1996 or 1995.
As of December 31, 1997, 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 31,1997, 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 charged off as they become
uncollectible by the Bank's management. The following table contains information
relative to the loan loss experience for five years ending December 31:
(In thousands of dollars) 1997 1996 1995 1994 1993
-----------------------------------------------
Allowance for loan losses at the
beginning of the year 3,657 3,705 $3,448 $3,040 $2,629
Loans charged off:
Real Estate 236 0 0 0 15
Installment & Credit Card 182 243 218 154 213
Lease Financings 10 0 1 0 5
Commercial & Collateral 38 169 11 29 173
-----------------------------------------------
Total Loans Charged Off 466 412 230 183 406
Recoveries on loans charged off:
Real Estate 0 2 0 0 0
Installment & Credit Card 153 131 115 136 132
Lease Financings 7 0 139 7 3
Commercial & Collateral 99 51 113 102 82
-----------------------------------------------
Total Recoveries 259 184 367 245 217
Net Loans Charged Off 207 228 (137) (62) 189
Provision for Loan Losses 180 180 120 346 600
-----------------------------------------------
Allowance for Loan Losses at
the End of the Year $3,630 $3,657 $3,705 $3,448 $3,040
===============================================
Ratio of net charge-offs during the
year to average outstanding loans
during the year 0.09% 0.11% -0.07% -0.03% 0.11%
The following tables show a year end breakdown of the allowance for loan losses
allocated by type of loan and related ratios. While management's periodic
analysis of the adequacy of the allowance for loan losses may allocate
portions of the allowance for specific problem-loan situations, the entire
allowance is available for any loan charge-offs that occur.
(In thousands of dollars) 1997 1996 1995 1994 1993
-----------------------------------------------
Real Estate $171 $496 $201 $212 $207
Installment & Lease 62 50 65 103 338
Commercial & Collateral 521 332 319 412 719
Credit Card Receivable 0 15 14 17 69
Other Loans 0 0 0 0 0
Unallocated 2,876 2,764 3,106 2,704 1,707
-----------------------------------------------
$3,630 $3,657 $3,705 $3,448 $3,040
===============================================
Percent of Loans in Each Category to Total Loans
1997 1996 1995 1994 1993
-----------------------------------------------
Real Estate 40% 40% 38% 40% 39%
Installment & Lease 17% 19% 20% 18% 17%
Commercial & Collateral 43% 41% 40% 39% 41%
Credit Card Receivable 0% 0% 2% 3% 3%
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 to review the prior charge-off
history of each category of loan. 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, 1997 the ratio of reserve for loan losses to total net loans
and leases was 1.48%. Based on the ratio of allowance to total net loans
and leases and the December 31, 1997 ratio of loans past due 30 days or more
to total net loans and leases was .42%, 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 principal 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 1997 which is incorporated herein
by reference.
DEPOSITS
WAYNE BANCORP, INC.
The following table presents the average balance and the average rate paid on
each of the Bank's deposit categories for the period indicated.
(In thousands of dollars)
Year End December 31,
1997 1996 1995
Amount: -----------------------------
Non-interest bearing demand $48,207 $43,414 $35,083
Interest bearing demand 65,949 69,308 69,238
Savings 47,229 49,813 49,155
Time deposits 127,132 119,151 121,271
-----------------------------
$288,517 $281,686 $274,747
=============================
Average rate for the year:
Interest bearing demand 2.75% 2.75% 3.49%
Savings 2.85% 2.85% 2.84%
Time deposits 5.37% 5.23% 4.86%
The maturity distribution of certificates of deposit of $100,000 or more at
December 31, 1997 are as follows:
(In thousands of dollars)
Three months or less $6,089
Over three months through six months 3,212
Over six months through twelve months 4,819
Over twelve months 3,770
---------
$17,890
=========
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,
1997 1996 1995
-----------------------------
Return on Average Assets 1.63% 1.67% 1.43%
Return on Average Equity 13.04% 14.05% 12.56%
Dividend Payout Ratio 29.15% 26.41% 30.03%
Average Equity to Average Asset Ratio 12.53% 11.89% 11.46%
The following table represents information on federal funds purchased and
securities sold under agreements to repurchase: (In thousands of dollars)
Year End December 31,
1997 1996 1995
-----------------------------
Amount outstanding at year end $30,853 $26,142 $15,662
Weighted average interest rate 4.83% 4.46% 4.35%
Maximum outstanding at any month-end 31,724 29,854 15,872
Average outstanding during the year 25,898 21,039 12,717
Weighted average rate during the year 4.73% 4.72% 5.03%
The Company enters into sales of securities under agreements to repurchase for
periods up to 29 days, which are treated as financings and reflected in the
consolidated balance sheet as a liability. The Company has borrowing lines
of credit extended by correspondent banks. At December 31, 1997 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, 1997 the
Company owned ten of its branch facilities and leased two facilities. Ten
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 1997. Furthermore, there are no material proceedings in which any director,
officer or affiliate of the Registrant, or any associate of such director of
officer, is a party, or has a material interest, adverse to the Company. As a
part of its ordinary course of business, the Company may be a party to lawsuits
(such as garnishment proceedings) involving claims to the ownership of funds
in particular accounts and involving 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, 1997, there were no
matters submitte to a vote of security holders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Reference is made to the section titled "Dividend and Market Price Data" on
Page 4 of the 1997 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 1997Annual
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 1997 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 1997 Annual Report to Shareholders which is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to the section entitled "Asset and Liability Management" on
page 26 of the 1997 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 1997 Annual Report to Shareholders, which is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
No changes in or disagreements with the independent accountants or accounting
and financial disclosures have occurred.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the Registrant's Proxy Statement for the Annual Meeting of
Shareholders be held March 26, 1998 for information as to the directors and
nominees for directorships of 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 included
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the Registrant's Proxy Statement for the Annual Meeting
of Shareholders to be held March 26, 1998 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 Employees Profit Sharing Plan,
which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held March 26, 1998 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 - 20 of the Company's 1997 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, 1997 and 1996
Consolidated Statements of Income, Years Ended
December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows, Years Ended
December 31, 1997, 1996, and 1995
Consolidated Statements of Shareholders' Equity, Years Ended
December 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are required under the related instructions or are
inapplicable and, therefore, have been omitted.
(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 the 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 Annual 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, 1997
21 Subsidiaries of the Registrant
27 Financial Data Schedule
28 Notice of Annual Shareholders' Meeting
(b) Reports on Form 8-K
There were no Form 8-K's filed during the last quarter of the period covered
by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned,thereunto duly authorized.
Wayne Bancorp, Inc.
Date: March 30, 1998 By:_____________________________
Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
on Form 10-K been signed below by the following persons on behalf of the
Registrant in the Capacities and dates as indicated.
Signature Capacity with Registrant Date
____________________________ ____________________
David L. Christopher Director, Chairman of Board,
President and CEO
____________________________ ____________________
James O. Basford Director
____________________________ ____________________
David P. Boyle, CPA Executive Vice President and
Chief Financial Officer
____________________________ ____________________
Gwenn E. Bull Director
____________________________ ____________________
Dennis B. Donahue Director
____________________________ ____________________
B. Diane Gordon Director
____________________________ ____________________
John C. Johnston, III Director
____________________________ ____________________
Darcy B. Pajak Director
____________________________
Stephen L. Shapiro Director
____________________________ ____________________
Jeffrey E. Smith Director
____________________________ ____________________
David E. Taylor Director
____________________________ ____________________
Bala Venkataraman Director
EXHIBIT (21)
SUBSIDIARIES OF THE REGISTRANT
NAME STATE OF INCORPORATION
Wayne County National Bank Ohio
Wayne National Corporation Ohio
FIVE YEAR FINANCIAL SUMMARY 1
For the Years Ended December 31,
(In thousands of dollars except
per share amounts) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------
Statement of Income Summary:
Total Operating Income (3).... $29,456 $29,329 $26,883 $23,695 $22,871
Total Operating Expense....... 21,257 21,377 20,566 18,115 17,979
Total Interest Income......... 26,505 25,430 24,130 21,096 20,232
Total Interest Expense........ 10,803 10,446 9,916 7,931 8,287
Net Interest Income........... 15,702 14,984 14,214 13,165 11,945
Provision for Loan Losses..... 180 180 120 346 600
Income Before Income Tax Expense
and Accounting Change...... 8,199 7,952 6,317 5,580 4,892
Income Tax Expense............ 2,532 2,420 1,832 1,560 1,480
Income Before Accounting
Change.............. 5,667 5,532 4,485 4,020 3,412
Cumulative Effect of Accounting
Change.............. 260
Net Income.................... 5,667 5,532 4,485 4,020 3,672
Per Share Data: 2
Net Income.................... $1.44 $1.41 $1.14 $1.03 $0.94
Cash Dividends................ 0.42 0.37 0.34 0.29 0.27
Book Value.................... 11.62 10.55 9.65 8.58 7.89
Balance Sheet Data:
Total Loans and Leases........$245,874 $219,366 $212,860 $197,580 $182,200
Allowance for Loan Losses..... 3,630 3,657 3,705 3,448 3,040
Securities.................... 94,060 103,294 94,325 93,151 93,389
Total Deposits................ 288,517 281,686 274,747 266,545 258,759
Shareholders' Equity.......... 45,722 41,489 37,937 33,640 30,750
Total Assets.................. 368,845 352,393 330,927 315,685 299,735
Other Data:
Employees..................... 177 172 176 171 175
Shareholders.................. 1,266 1,226 1,182 1,163 1,158
Cash Dividends................ $1,652 $1,461 $1,347 $1,157 $1,043
Cash Dividends as a Percent
of Net Income........... 29.41% 26.41% 30.03% 28.77% 28.40%
Financial Ratios:
Return on Average Assets...... 1.63% 1.67% 1.43% 1.33% 1.27%
Return on Beginning Equity.... 13.66% 14.58% 13.33% 13.07% 13.18%
Equity to Assets.............. 12.40% 11.77% 11.46% 10.66% 10.26%
Loans to Deposits............. 85.22% 77.88% 77.47% 74.13% 70.41%
Loans to Total Assets......... 66.66% 62.25% 64.32% 62.59% 60.79%
Allowance for Loan Losses to
Total Net Loans........... 1.48% 1.67% 1.75% 1.75% 1.67%
1. This summary should be read in conjunction with the related Consolidated
Financial 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 National Bank Everen Securities
P.O. Box 757 112 West Liberty Street - Wooster, OH
Wooster, Ohio 44691 P.O. Box 757 The Ohio Company
(330) 264-1222 Wooster, Ohio 44691 - Wooster, OH
Sweeney Cartwright
- Columbus, OH
McDonald & Co.
- Cleveland, OH
All common shares of Wayne Bancorp, Inc. are voting shares and are traded on
Nasdaq, under the symbol "WNNB", as a Small Cap Issue by utilizing the Market
Makers above. At December 31, 1997 there are 3,930,606 shares outstanding
and 1,266 shareholders of record. The range of market prices are compiled
from data provided by the brokers based on the trading activity.
DIVIDEND AND MARKET PRICE DATA*
Cash
Dividends
Quarter Ended High Low Paid
- ---------------------------------------------------------------------------
1997 March 31............................. $38.50 $30.38 $0.100
June 30.............................. 40.25 36.50 0.100
September 30......................... 42.00 37.75 0.110
December 31.......................... 48.50 40.25 0.110
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
*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 1997 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, Executive
Vice President and Chief Financial Officer, P.O. Box 757, Wooster, OH 44691.
January 29, 1998
The management of Wayne Bancorp, Inc. has prepared and is responsible for
the financial statements and for the integrity and consistency of other related
information contained in the Annual Report. In the opinion of management,
the financial statements, which necessarily include amounts that are based on
management estimates and judgments, have been prepared in conformity with
generally accepted accounting principles appropriate to the circumstances.
The Company maintains a system of internal accounting controls that is
designed to provide reasonable assurance that assets are safeguarded, that
transactions are executed in accordance with Company authorizations and
policies, and that transactions are properly recorded to permit preparation
of financial statements that will fairly present the financial position and
results of operations in conformity with generally accepted accounting
principles. Internal controls are augmented by written policies covering
standards of personal and business conduct and an organizational structure
providing for division of responsibility and authority.
The effectiveness of and compliance with established control systems is
monitored through a continuous program of internal audit and credit
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 is adequate to prevent or detect errors or irregularities that would
be material to the financial statements and that timely corrective actions
have been initiated when appropriate.
The Company engaged Crowe, Chizek and Company LLP, independent certified
public accountants, to render an opinion on the financial statements. The
accountants have advised management that they were provided with access to
all information and records deemed necessary to render their opinion.
The Board of Directors exercises its responsibility for the financial
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 Executive 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, 1997 and 1996 and the related consolidated
statements of income, cash flows and changes in shareholders' equity for each
of the three years ended December 31, 1997, 1996 and 1995. 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, 1997 and 1996 and the results of operations
and cash flows for the three years ended December 31, 1997, 1996 and 1995 in
conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Columbus, Ohio
January 29, 1998
CONSOLIDATED BALANCE SHEETS
December 31,
(In thousands of dollars, except share data) 1997 1996
- ---------------------------------------------------------------------------
ASSETS
Cash and due from banks ................................. $17,159 $14,975
Federal funds sold....................................... 5,000 7,620
------------------
Total cash and cash equivalents................. 22,159 22,595
Securities available-for-sale............................ 94,060 103,294
Loans and leases ........................................ 245,874 219,366
Less:
Unearned income................................. 564 637
Allowance for loan losses ...................... 3,630 3,657
------------------
Net loans and leases............................ 241,680 215,072
Premises and equipment .................................. 6,434 6,215
Accrued income receivable and other assets .............. 4,512 5,217
------------------
TOTAL ASSETS.............................................$368,845 $352,393
==================
LIABILITIES
Deposits
Interest bearing ...................................$240,310 $238,272
Noninterest bearing................................. 48,207 43,414
------------------
Total deposits........................................... 288,517 281,686
Securities sold under agreements to repurchase........... 30,853 26,142
Federal Home Loan Bank Advances.......................... 824
Other liabilities........................................ 2,929 3,076
------------------
Total liabilities........................................ 323,123 310,904
SHAREHOLDERS' EQUITY
Common stock, stated value $1.00......................... 3,935 3,935
Shares authorized - 5,400,000 in 1997 and 1996
Shares issued - 3,935,384 in 1997 and 3,935,404 in 1996
Shares outstanding - 3,930,606 in 1997 and 3,932,129 in 1996
Paid in capital.......................................... 13,356 13,356
Retained earnings ....................................... 28,053 24,038
Treasury stock, at cost.................................. (173) (88)
Unrealized gain on securities available-for-sale,
net of tax...................................... 551 248
------------------
Total shareholders' equity............................... 45,722 41,489
------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...............$368,845 $352,393
==================
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
(In thousands of dollars, except per share data) 1997 1996 1995
- --------------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans............................ $20,726 $19,546 $18,956
Interest on securities
Taxable............................................ 4,452 4,584 3,675
Nontaxable......................................... 1,115 1,116 1,260
Other interest income................................. 212 184 239
---------------------------
Total interest income................................. 26,505 25,430 24,130
INTEREST EXPENSE:
Interest on deposits ................................. 9,515 9,452 9,276
Interest on repurchase agreements and other
borrowed funds................................... 1,288 994 640
---------------------------
Total interest expense............................... 10,803 10,446 9,916
---------------------------
NET INTEREST INCOME 15,702 14,984 14,214
Provision for loan losses ............................ 180 180 120
NET INTEREST INCOME AFTER PROVISION ---------------------------
FOR LOAN LOSSES.................................. 15,522 14,804 14,094
OTHER INCOME:
Service charges and fees.............................. 1,252 1,340 1,260
Income from fiduciary activi.......................... 1,343 1,075 942
Gain on Sale of Loans................................. 0 824 0
Securities gains (losses), net....................... (6) 6 (12)
Other noninterest income.............................. 362 654 563
---------------------------
Total other income.................................... 2,951 3,899 2,753
OTHER EXPENSES:
Salaries and employee benefits ....................... 5,362 5,208 5,167
Occupancy and equipment............................... 1,132 1,071 1,089
Other operating expenses ............................. 3,780 4,472 4,274
---------------------------
Total other expenses.................................. 10,274 10,751 10,530
INCOME BEFORE INCOME TAX EXPENSE 8,199 7,952 6,317
INCOME TAX EXPENSE .................... 2,532 2,420 1,832
---------------------------
NET INCOME............................................ $5,667 $5,532 $4,485
===========================
PER SHARE DATA:
---------------------------
NET INCOME............................................ $1.44 $1.41 $1.14
===========================
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
(In thousands of dollars) 1997 1996 1995
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income............................................ $5,667 $5,532 $4,485
Adjustments to reconcile net cash provided
by operating activities:
Provision for loan losses.................... 180 180 120
Depreciation and amortization................ 794 734 759
Federal Home Loan Bank stock dividends....... (77) (69) (23)
Amortization of investment security premiums and
accretion of discounts, ne................. 76 331 462
Deferred income taxes........................ (159) 154 21
Change in interest receivab................. 15 190 (154)
Change in interest payable................... (2) (123) 508
Other, net................................... 318 171 318
---------------------------
Net cash provided by operating activities............. 6,812 7,100 6,496
INVESTING ACTIVITIES
Purchase of securities available-for-sale............ (30,399) (46,976) (27,928)
Proceeds from maturities of securities
available-for-sale............................. 37,029 34,625 6,691
Proceeds from sales of securities available-for-sale. 3,058 2,242 999
Purchase of securities held-to-maturity.............. (8,521)
Proceeds from maturities of securities held-to-maturity 28,910
Net increase in loans and leases...................... (26,788) (19,962)(15,047)
Proceeds from sales of loans.......................... 13,116
Purchase of premises and equipment (net).............. (777) (587) (318)
---------------------------
Net cash used by investing activities................ (17,877) (17,542)(15,214)
FINANCING ACTIVITIES
Net increase in deposits.............................. 6,831 6,939 8,202
Net increase in short term borrowings................. 4,711 10,481 1,801
Proceeds from long term debt.......................... 838
Repayment of long term debt........................... (14)
Cash dividends paid................................... (1,362) (1,228) (1,133)
Treasury stock purchased , net........................ (375) (170) (228)
---------------------------
Net cash provided by financing activities............. 10,629 16,022 8,642
Increase (decrease) in cash and cash equivalents...... (436) 5,580 (76)
Cash and cash equivalents at beginning of year........ 22,595 17,015 17,091
---------------------------
Cash and cash equivalents at end of year.............. $22,159 $22,595 $17,015
===========================
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
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Years Ended December 31, 1997
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, 1995.. $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 ($.37 per share) (1,461) (1,461)
Purchase of treasury stock.. (365) (365)
Dividends reinvested......... 248 248
Sale of treasury stock..... 32 163 195
2 for 1 stock split..... 1,874 (1,874)
5% common stock dividend at
fair market value .... 187 5,325 (5,512)
Fractional shares of stock dividend
paid in cash ........................... (15) (15)
Change in unrealized gain (loss) on
securities available-for-sale,
net of tax............................................. (582) (582)
--------------------------------------------------------
Balance, December 31, 1996 3,935 13,356 24,038 (88) 248 41,489
Net income................................ 5,667 5,667
Cash dividends ($.42 per share)....... (1,652) (1,652)
Purchase of treasury stock................ (674) (674)
Dividends reinvested........................ 290 290
Sale of treasury stock......................... 299 299
Change in unrealized gain (loss) on
securities available-for-sale,
net of tax............................................. 303 303
--------------------------------------------------------
Balance, December 31, 1997$3,935 $13,356 $28,053 ($173) $551 $45,722
======================================================
See Notes to Consolidated Financial Statements
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
(In thousands of dollars except per share data)
1. NATURE OF OPERATIONS
Wayne Bancorp, Inc., 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 in and governmental customers. These services
include commercial and personal checking accounts savings and time deposits,
business and personal loans, real estate loans, leases, safe deposit facilities
and electronic banking.
The Bank operates a Trust Department which offers comprehensive 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 Bank's wholly owned subsidiary, Wayne National Corporation.
All significant intercompany transactions have been eliminated.
Use of Estimates in the Preparation of Financial Statements
To prepare financial statements in conformity with generally accepted
accounting principles management makes estimates and assumptions based on
available information. These estimates and assumptions affect amounts reported
in the financial statements and disclosures provided; future resultscould
differ. The collectibility of loans, fair value of financial instruments an
the status of contingencies are particularly subject to change.
Securities
Securities are classified as available-for sale. Securities available-for-
sale may be sold if needed for liquidity, asset-liability management, or other
reasons. Securities available-for-sale 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 income includes amortization of purchase
premiums and discounts.
Interest and Fees on Loans and Leases
Loans and leases are reported at principal balances outstanding, net of
deferred loan fees and costs. Interest income on leases is recognized under
a method which provides for a level return on the net investment outstanding.
Interest income on loans is reported on the interest method and includes
amortization of net deferred loan fees and costs over the term of the loan.
The net amount of fees and costs deferred is reported in the consolidated
balance sheet as a part of loans and leases.
Interest income is not recorded when management believes the collection of
interest is doubtful, typically when payments are past due over 90 days.
Payment received on such loans are report as principal reductions.
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance established through
a provision for loan losses charged to expense. The allowance is the amount
which, in the opinion of management, is necessary to provide for probable losses
in the loan portfolio. Management's determination of the adequacy of the
allowance is based on evaluations of the collectibility of loans outstanding,
taking into consideration 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.
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage and consumer loans and on an individual
basis for other loans. In addition, loans held for sale and leases are excluded
from consideration of impairment. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported net, at the present value
of future cash flows using the loan's existing rate or at the fair value of
collateral if repayment is expected soley from the collateral. Loans are
evaluated for impairment when payments are delayed, typically 60 days or more,
or when it is probable that all principle and interest amounts will not be
collected according to the original terms of the loan.
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. These assets are reviewed for impairment when events
indicate the carrying amount may not be recoverable. Maintenance and repairs
are charged to expense as incurred and major improvements are capitalized.
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 propety 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, 1997 and 1996.
Intangibles
Intangible assets arising from the Bank's acquisition of four branches of
the former First Savings Loan Company of Massillon, F.A., in July of 1991 are
included in Other Assets in the accompanying consolidated balance sheets and
are summarized as follows:
Goodwill.................... $559
Core Deposit Intangible..... 167
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 for 1997 and 1996 and
$250 thousand for 1995.
Fiduciary Fees
Fee income on fiduciary activities is accrued based on expected fees to be
collected from various fiduciary accounts. Fiduciary fees are primarily based
on, among other things, a fixed regular fee, a percentage of assets managed or
a percentage of earnings on trust assets.
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. A valuation allowance, if needed, reduces deferred
tax assets to the amount expected to be realized.
Dividend Reinvestment Plan
The Company maintains 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 dividend reinvested in
the Company's stock. During 1997, 7,264 shares of stock were allocated under
the plan in lieu of cash dividends of $290 thousand. It is generally the
Company's practice to acquire shares of the common stock in the open market
to fund its obligation under the dividend reinvestment
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,
1997, 1996 and 1995, income taxes paid totaled $2.53 million, $2.54 million, and
$1.83 million and interest paid totaled $10.80 million, $10.57 million, and
$9.40 million respectively.
Per Share Amounts
Net income per share is computed under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share", which was
adopted retroactively by the Company on December 31, 1997. Adoption of SFAS
No. 128 did not change net income per share amounts previously reported by
the Company.
Net income per share computations are based on the weighted average number
of shares of common stock outstanding during the year. In November of 1996 the
Company declared a 5% stock dividend to shareholders of record on November 29,
1996 and payable on December 31, 1996. This dividend was 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 dividend
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, 1997, 1996, and 1995
were 3,931,947 and 3,931,595, respectively.
Dividend Restrictions
Banking regulations require maintenance of certain capital levels which may
limit the amount of dividends which may be paid. See Note 14 for regulatory
capital requirements and dividend restrictions.
Fair Values of Financial Instruments
Fair values of financial instruments are estimated using relevant market
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.
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, 1997 was as follows:
Commercial................. 43%
Real Estate Loans.......... 36%
Consumer Loans............. 15%
Home Equity Loans.......... 4%
Direct Financing Leases.... 2%
Reclassifications
Certain reclassifications have been made to amounts previously reported
to conform with financial statement presentation.
3. INVESTMENT SECURITIES
The summary of amortized cost and fair values of securities are as follows
at December 31, 1997:
Gross Gross
Securities Amortized Unrealized Unrealized Fair
Available-for-Sale Cost Gains Losses Value
- ---------------------------- -------- -------- ---------- --------------
U.S. Treasury $20,325 $130 ($9) $20,446
Federal Agency
Obligations 15,126 57 (31) 15,152
Mortgage-backed Securities 19,386 135 (39) 19,482
Obligations of States and
Political Subdivisions 19,308 463 (10) 19,761
Corporate Obligations 17,202 23 (59) 17,166
Other Securities 1,877 178 (2) 2,053
-------- -------- ---------- --------------
$93,224 $986 ($150) $94,060
======== ======== ======== ========
The summary of amortized cost and fair values of securities are as follows
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
Mortgage-backed Securities 23,173 159 (135) 23,197
Obligations of States and
Political Subdivisions 21,009 397 (28) 21,378
Corporate Obligations 16,490 62 (62) 16,490
Other Securities 1,756 1 (1) 1,756
-------- -------- ---------- --------------
$102,917 $786 ($409)$103,294
======== ======== ======== ========
During the years ended December 31, 1997 and 1996, proceeds from the sales
of securities available-for-sale were $3.1 million and $2.2 million
respectively. Gross gains were $1 thousand in 1997 and $9 thousand in 1996 and
gross losses were $7 thousand in 1997 and $3 thousand in 1996. In 1995,
proceeds from the sale of securities available-for-sale was $1 million with
gross realized losses of $1 thousand included in earnings. 1995 proceeds from
the sale of held-to-maturity securities whose maturity date was within 90 days
of the sale date were $8 million with gross realized gains of $1 thousand
and losses of $12 thousand included in earnings.
The amortized cost and estimated fair value of the securities at December
31, 1997 by contractual maturity, are shown below. Expected maturities may
differ from the contractual maturities because borrowers may have the right to
call or prepay the obligations with or without call or prepayment penalties.
Securities Available-for-Sale
Amortized Fair
Cost Value
-------- --------------
Due in one year or less $23,673 $24,158
Due after one year
through five years 39,956 40,323
Due after five years
through ten years 5,314 5,501
Due after ten years 3,117 2,642
-------- --------------
72,060 72,624
Mortgage-backed
Securities 19,386 19,482
Equity Securities 1,575 1,751
Other Securities 203 203
-------- --------------
$93,224 $94,060
======== ========
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, 1997 and 1996 had
a carrying value of $41.1 million and $43.3 million, respectively.
4. LOANS AND LEASES
The composition of the loan portfolio at December 31 is as follows:
1997 1996
Commercial $106,452 $90,638
Real Estate 89,356 79,859
Consumer Installment 37,166 39,183
Direct Lease Financings 3,880 3,246
Home Equity 8,997 6,417
Other Loans 23 23
-------- --------------
$245,874 $219,366
======== ==========
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:
1997 1996
Minimum Lease Payments
Receivable $3,855 $3,237
Residual Value of Leased
Property (Unguaranteed) 25 9
-------- --------------
3,880 3,246
Less: Unearned Income 563 472
-------- --------------
Net Investment In Direct
Financing Leases $3,317 $2,774
======== ========
The following schedule summarizes by year the minimum lease payments
receivable on direct leases at December 31, 1997.
Years Ended December 31
1998 .................. $1,676
1999 .................. 1,126
2000 .................. 637
2001 .................. 287
2002 .................. 129
--------------
$3,855
========
The Bank has granted loans to the officers and directors of the Company and
its subsidiaries and their related business interests. The aggregate dollar
amount of these loans was $4.0 million and $1.1 million at December 31, 1997
and 1996, respectively. During 1996, $1.5 million of new loans and advances
were made and the repayments on loans to these parties totaled $98 thousand.
Additions due to changes in director's status amounted to $1.5 million
5. ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses is as follows:
1997 1996 1995
Balance at Beginning
of Year $3,657 $3,705 $3,448
Loans Charged Off (466) (412) (230)
Loan Recoveries 259 184 367
Provision for Loan
Losses 180 180 120
-------- -------- --------------
Balance at End of Year $3,630 $3,657 $3,705
======== ======== ========
The Bank had no impaired loans at December 31, 1997. The Bank had one
impaired loan with a balance of $924 thousand at December 31, 1996. The
impaired loan had $215 thousand of the allowance for loan losses allocated at
December 31, 1996. Impaired loans averaged $549 thousand in 1997 and $1.1
million in 1996. Income recognized during the year ended December 31, 1997
and 1996 amounted to $24 thousand and $74 thousand respectfully. Interest
income recognized on the cash basis for the year ended December 31, 1997 and
1996 totaled $5 thousand and $72 thousand respectively. The Bank had no
impaired loans as of or during the year ended December 31, 1995.
6. PREMISES AND EQUIPMENT
A summary of the premises and equipment balances at December 31 is as follows:
1997 1996
Land $1,152 $1,152
Premises and Leasehold
Improvements 7,016 6,533
Furniture and Equipment 3,730 3,456
-------- --------------
11,898 11,141
Less Accumulated
Depreciation (5,464) (4,926)
-------- --------------
$6,434 $6,215
======== ========
Depreciation expense was $558 thousand, $439 thousand, and $509 thousand in
1997, 1996, and 1995.
7. DEPOSITS
Time certificates of deposit with a balance of $100 thousand or more, were
$17.9 million and $15.9 million at December 31, 1997 and 1996 respectively.
Interest expense on these deposits was $946 thousand, $1.03 million and $959
thousand for 1997, 1996, and 1995, respectively.
At year-end 1997, stated maturities of time certificates of deposit
were as follows:
1998 $83,247
1999 16,282
2000 18,474
2001 3,307
2002 5,822
-----------
$127,132
===========
8. BORROWINGS
Federal funds purchased, securities sold under agreements to repurchase and
treasury tax and loan deposits are financing arangements. Physical control
is maintained for all securities sold under agreements. Information concerning
securities sold under repurchase agreements is as follows:
1997 1996
--------------------
Average month-end balance during the year $26,630 $20,282
Average interest rate during the year 4.59% 4.64%
Maximum month-end balance during the year $29,961 $29,854
Securities underlying these agreements at year-end were as follows:
1997 1996
--------------------
Amortized cost of securities $34,379 $31,227
Fair value of securities $34,513 $31,288
Federal Home Loan Bank Advances include two fixed rate advances from the
Federal Home Loan Bank (FHLB) of Cincinnati with a December 31, 1997 principal
balance of $824 thousand. Interest expense on these borrowed funds for the
year ended December 31, 1997 was $18 thousand. The weighted average interest
rate on these borrowings is 6.58%. The borrowings are secured by a blanket
pledge of the Bank's one-to-four family residential real estate loan
portfolio and FHLB stock.
The principal repayments on these borrowings are as follows for December 31,
1998 $65
1999 70
2000 75
2001 80
2002 534
-----------
$824
===========
9. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value approximates carrying value for all financial
instruments except those described below:
Securities
Fair values are based on a quoted market price, if available. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar instruments.
Loans and Leases
The fair value of fixed rate loans is estimated by discounting future cash
flows using current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. Leases are
not considered financial instruments under genreally accepted accounting
principals and are, therefore, not included in the following schedules.
Deposits
Fair values for deposit liabilities with defined maturities are based on
the discounted future flows expected to be paid, using the current rate offered
for similar deposits with the same remaining maturities.
Long-term Debt
The fair value of long-term debt is estimated by discounting future cash
flows using currently available rates for similar financing.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of off-balance sheet loan commitments is considered nominal.
The estimated fair values of the Bank's financial instruments are as follows:
1997 1996
Carrying Fair Carrying Fair
Value Value Value Value
-------- -------- ---------- --------------
Financial Assets:
Cash and Short-term
Investments $22,159 $22,159 $22,595 $22,595
Securities 94,060 94,060 103,294 103,294
Net Loans, excluding Leases 238,363 240,479 212,298 215,587
Accrued Interest Receivable 2,864 2,864 2,879 2,879
Financial Liabilities:
Deposits (288,517)(288,865) (281,686)(281,711)
Securities Sold Under
Agreement to Repurchase (30,853) (30,853) (26,142) (26,142)
Federal Home Loan Bank
Advances (824) (850)
Accrued Interest Payable (1,333) (1,333) (1,335) (1,335)
10. EMPLOYEE BENEFIT PLANS
The Bank sponsors a noncontributory Profit Sharing Retirement Plan (PSRP)
and an 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:
1997 1996 1995
PSRP.............. $310 $293 $255
ESOP.............. 229 217 189
-------- ---------- --------------
$539 $510 $444
======== ======== ========
The ESOP held 132,492, 129,719 and 109,326 shares at December 31, 1997, 1996
and 1995 respectively. The fair value of such shares was $6.3 million, $3.8
million and $2.2 million at December 31, 1997, 1996 and 1995 respectively.
11. OTHER OPERATING EXPENSES
Other operating expenses include the following major categories of expense:
1997 1996 1995
Data Processing $1,044 $1,100 $1,116
FDIC Insurance 36 221 354
Franchise Taxes 444 527 484
Intangible
Amortization 236 236 250
Donations 49 349 70
Other Operating 1,971 2,039 2,000
-------- -------- --------------
$3,780 $4,472 $4,274
======== ======== ========
12. INCOME TAXES
Income tax expense and related balance sheet accounts are as follows:
1997 1996 1995
Federal Current $2,691 $2,266 $1,811
Federal Deferred (Benefit) (159) 154 21
-------- -------- --------------
$2,532 $2,420 $1,832
======== ======== ========
The sources of gross deferred tax assets and gross deferred tax liabilities at
December 31, are as follows:
1997 1996 1995
Items giving rise to deferred tax assets:
Allowance for loan losses in excess
of tax reserves $881 $843 $886
Deferred loan fees 82 93 165
Other 177 126 102
Items giving rise to deferred tax liabilities:
Depreciation (167) (180) (199)
Leases (374) (438) (436)
Unrealized gain on securities
available-for-sale (284) (128) (427)
Other (160) (164) (84)
-----------------------------
Net deferred tax assets $155 $152 $7
=============================
The Company has sufficient taxes paid in prior years to support recording
these deferred tax assets without a valuation allowance.
The reasons for the differences between income tax expense and the amount
computed by applying the statutory federal income tax rate of 34% for the
three years presented are as follows:
1997 1996 1995
Tax at Federal
Statutory Rate $2,788 $2,704 $2,141
Effect of Tax-Exempt
Income (291) (325) (371)
Effect of Non-deductible
Goodwill Amortization 61 61 61
Other (26) (20) 1
-------- -------- --------------
$2,532 $2,420 $1,832
=============================
Effective Tax Rate 30.90% 30.40% 29.00%
=============================
13. COMMITMENTS AND CONTINGENCIES
Various contingent liabilities are not reflected in the financial statements,
including claims and legal actions arising in the ordinary course of business.
In the opinion of management, after consultation with legal councel, the
ultimate disposition of these matters is not expected to have a material effect
on the financial conditions or results of operations.
Some financial instruments are used in the normal course of business to meet
financing needs of customers. These financial instruments include commitments
to extend credit, standby letters of credit and financial guarantees. These
involve, to varying degrees, credit risk more than the amount reported in the
financial statements.
As of December 31, 1997, the Bank had outstanding standby letters of credit
of $1.98 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 $39.9 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, 1997, the Bank was required to maintain $5.3 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 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
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 $835 thousand at December 31, 1997.
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 critically under capitalized, 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 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 and Bank only actual capital levels (in thousands)
and minimum required levels were as follows:
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
--------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------
As of December 31, 1997:
Total Capital (to Risk Weighted Assets
Consolidated $47,604 19.9% $19,102 8.0% $23,878 10.0%
Bank 46,271 19.1% 19,384 8.0% 24,230 10.0%
Tier I Capital (to Risk Weighted Assets)
Consolidated $44,611 18.7% $9,551 4.0% $14,327 6.0%
Bank 33,235 13.7% 9,692 4.0% 14,538 6.0%
Tier I Capital (to Average Assets)
Consolidated $44,611 12.9% $13,881 4.0% $17,351 5.0%
Bank 33,235 9.4% 13,867 4.0% 17,334 5.0%
As of December 31, 1996:
Total Capital (to Risk Weighted Assets)
Consolidated $43,287 19.5% $17,752 8.0% $22,190 10.0%
Bank 42,169 18.8% 17,684 8.0% 22,105 10.0%
Tier I Capital (to Risk Weighted Assets)
Consolidated $40,502 18.3% $8,876 4.0% $13,314 6.0%
Bank 29,354 13.1% 8,842 4.0% 13,263 6.0%
Tier I Capital (to Average Assets)
Consolidated $40,502 12.3% $13,211 4.0% $16,513 5.0%
Bank 29,354 8.58% 13,176 4.0% 16,470 5.0%
At year end 1997 and 1996, the Company and Bank were categorized as well
captialized. Management is not aware of any conditions subsequent to year
end that would change the Company's or the Bank's capital category.
15. PROPOSED MERGER (Unaudited)
On October 13, 1997 the Company entered into a definitive agreement to
acquire Chippewa Valley Bancshares ("Chippewa") of Rittman, Ohio. Chippewa
is a one bank holding company and the parent company of The Chippewa Valley
Bank. The consolidated assets of this company are approximately $138 million
at December 31, 1997. The agreement specifies that the Company will issue
in the aggregate between 981,837 and 1,023,737 shares of the Company's stock
in the transaction.
The merger is subject to the approval of both companies regulatory agencies
and the shareholders of both Chippewa and Wayne Bancorp, Inc. The transaction
is also subject to use of the pooling of interest method of accounting.
Pending various approvals, the merger is expected to close in the early part
of the second quarter of 1998.
The following unaudited pro forma condensed combined financial statements
have been prepared to reflect the transaction had it occurred in the earliest
period presented. They are not necessarily indicative of the financial
condition or results of operations that would have occurred had the transaction
actually been effective at the beginning of the periods indicated. No pro
forma adjustments were necessary in the preparation of these pro forma
combined financial statements.
Pro forma combined net income per share is based upon the issuance of the
midpoint of the range of shares to be issued, which is 1,002,787 shares.
Pro forma condensed balance sheet (unaudited)
December 31, 1997
(Dollars in thousands)
Pro Forma
Assets Combined
---------
Cash and due from banks $23,306
Federal Funds Sold 7,785
Securities available-for-sale 121,959
Securities held-to-maturity 19,963
Net loans 319,519
Premises and equipment 8,923
Other assets 6,926
---------
Total assets $508,381
=========
Liabilities and Shareholders' Equity
Deposits $409,865
Securities sold under repurchase
agreements and federal funds purchased 37,503
Federal Home Loan Bank advances 824
Other liabilities 4,379
Shareholders's equity 55,810
---------
Total liabilities and
shareholders' equity $508,381
=========
Pro forma condensed statement of income (unaudited)
(Dollars in thousands except per share data) December 31,
1997 1996 1995
Interest income -----------------------------
Loans, including fees $27,529 $25,388 $24,062
Securities, federal funds sold and other 8,760 8,858 7,001
-----------------------------
Total interest income 36,289 34,246 31,063
Interest expense
Deposits 13,974 13,519 12,139
Repurchase agreements and other
borrowed funds 1,550 1,245 911
-----------------------------
Total interest expense 15,524 14,764 13,050
Net interest income 20,765 19,482 18,013
Provision for loan losses 906 300 230
-----------------------------
Net interest income after provision
for loan losses 19,859 19,182 17,783
Other income 3,644 4,463 3,241
Other expenses 14,862 14,387 13,480
-----------------------------
Income before income taxes 8,641 9,258 7,544
Income taxes 2,921 2,748 2,147
-----------------------------
Net income $5,720 $6,510 $5,397
=============================
Net income per share (Diluted) $1.16 $1.32 $1.09
=============================
16. WAYNE BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
BALANCE SHEETS December 31,
ASSETS 1997 1996
Cash $52 $2
Short-Term Investments 1,655 951
Subordinated Note from Subsidiary 10,000 10,000
Investment in Bank Subsidiary 34,395 30,565
-------- -------------------
TOTAL ASSETS $46,102 $41,518
======== ==========
LIABILITIES $380 $29
SHAREHOLDERS' EQUITY 45,722 41,489
-------- -------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $46,102 $41,518
======== ==========
STATEMENTS OF INCOME
Years Ended December 31,
1997 1996 1995
Dividends from Subsidiary $1,612 $11,461 $1,348
Other Income 662 33 37
-------- ---------- --------------
2,274 11,494 1,385
Other Expenses 361 31 16
-------- ---------- --------------
Income Before Income Taxes and Equity in
Undistributed Net Income of Bank
Subsidiary 1,913 11,463 1,369
Federal Income Tax Expense (Benefit) (109) (2) 7
-------- ---------- --------------
2,022 11,465 1,362
Equity in Undistributed Net Income of
Bank Subsidiary 3,645 (5,933) 3,123
-------- ---------- --------------
Net Income $5,667 $5,532 $4,485
======== ======== ========
STATEMENT OF CASH FLOWS
Years Ended December 31,
1997 1996 1995
OPERATING ACTIVITIES
Net Income $5,667 $5,532 $4,485
Adjustments to Reconcile Net
Income to Net Cash Provided
by Operating Activities:
Depreciation 4 9
(Undistributed Equity Earnings)/Distributions
in Excess of Earnings (3,645) 5,933 (3,123)
Other, Net 290 (3) 6
-------- ---------- --------------
Net Cash Provided by
Operating Activities 2,312 11,466 1,377
INVESTING ACTIVITIES
Purchase of Securities Available-for-sale(981) (852) (102)
Purchase Subordinated Note from Subsidiary (10,000)
Proceeds from Sales and Maturities
of Securities Available-for-Sale 456 445 143
Proceeds from the Sale of Premises 283
-------- ---------- --------------
Net Cash Provided (Used) by
Investing Activities (525) (10,124) 41
FINANCING ACTIVITIES
Cash Dividends (1,362) (1,228) (1,133)
Treasury Stock Purchased, Net (375) (170) (228)
-------- ---------- --------------
Net Cash Used by Financing
Activities (1,737) (1,398) (1,361)
-------- ---------- --------------
Increase (Decrease) in Cash 50 (56) 57
Cash at Beginning of Year 2 58 1
-------- ---------- --------------
Cash at End of Year $52 $2 $58
======== ======== ========
17. QUARTERLY FINANCIAL DATA (Unaudited)
March 31 June 30 September 30 December 31
1997 -----------------------------------------------
Interest Income $6,386 $6,538 $6,672 $6,909
Net Interest Income 3,774 3,863 3,991 4,074
Provision for Loan Losses 45 45 45 45
Net Income 1,306 1,384 1,416 1,561
Earnings Per Share 0.33 0.35 0.36 0.40
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
MANAGEMENT DISCUSSION AND ANALYSIS
INTRODUCTION
The following commentary represents management's discussion and
analysis of the Company's financial condition and results of
operations. This review highlights the significant factors
affecting earnings during 1997, 1996 and 1995 and changes in the
consolidated balance sheet for the years 1997, and 1996.
Financial information for prior years is presented when
appropriate. This review is presented to aid in the
understanding of the consolidated financial statements and
related information of the Company. Where applicable,
management's insights of known events and trends are discussed
that have or may reasonably be expected to have a material
effect on the Company's operations and financial condition.
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 audited consolidated financial statements,
footnotes, included ratios and statistics and other discussion
contained in this report and on the Company's Form 10-K.
TABLE I: Financial Ratios for Five Years
________________________________1997_____1996_____1995_______1994_____1993___
Rate of return on:
Average Assets........ 1.63% 1.67% 1.43% 1.33% 1.27%
Average Equity........ 13.04 14.05 12.56 12.44 12.43
Beginning Equity...... 13.66 14.58 13.33 13.07 13.18
As a Percent of Average Assets:
Net Interest Income... 4.53% 4.53% 4.54% 4.37% 4.13%
Non-Interest Income... 0.85 1.18 0.88 0.86 0.92
Provision of Loan and Lease
Losses.......... 0.05 0.05 0.04 0.11 0.21
Non-Interest Expense.. 2.96 3.25 3.34 3.26 3.15
Cash Dividends Per Share.... $0.42 $0.37 $0.34 $0.29 $0.27
Dividends as a percent of Net
Income................ 29.41% 26.41% 30.03% 28.77% 28.40%
Other
Average Loans & Leases to
Average Deposits...... 84.23% 79.92% 78.11% 73.67% 69.20%
Net Loan & Lease Charge-offs
(Recoveries) to Average
Loans & Leases........ 0.09% 0.11% (0.07%) (0.03%) 0.11%
Allowance to Year End Net
Loans & Leases........ 1.48% 1.67% 1.75% 1.75% 1.67%
Average Shareholders' Equity to
Average Assets........ 12.53% 11.89% 11.41% 10.72% 10.25%
Changes in Average Balances:
Total Assets.......... 4.70% 5.76% 3.80% 4.57% 3.34%
Shareholders' Equity.. 10.38% 10.20% 10.54% 9.37% 9.61%
Loans and Leases...... 7.98% 3.86% 10.72% 9.55% 4.11%
Deposits.............. 2.20% 1.51% 2.43% 2.90% 2.57%
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.
RESULTS OF OPERATIONS
Net income for 1997 was 5.67 million or $1.44 per share,
compared to $5.53 million or $1.41 per share for 1996. 1996 net
income of $5.53 million or $1.41 per share increased compared to
$4.49 million or $1.14 per share in 1995. 1997 net income
surpassed 1996 net income by $135 thousand or 2.4%. 1996 net
income surpassed 1995 net income by $1.05 million or 23.3%.
Included in the 1996 net income figures is a one-time gain on
the sale of the Bank's credit card business of $544 thousand,
net of tax or $0.14 per share. The core earnings (net income
less the gain on credit card sale) comparison of 1997 to 1996
shows 1997 earnings increased by $679 thousand or 13.6%. 1996
core earnings were $503 thousand or 11.2% greater than the 1995
core earnings.
Return on average assets for 1997 was 1.63% compared to 1.67%
in 1996 and 1.43% in 1995. The return on average assets
exclusive of the credit card gain was 1.51% for 1996. Return on
average equity for these same periods was 13.04%, 14.05% and
12.56% respectively. The 1996 return on average equity
exclusive of the credit card gain was 12.67%.
The allowance for loan and lease losses to total net loans and
leases ratio at December 31, 1997 was 1.48% compared to 1.67% in
1996 and 1.75% in 1995.
As discussed in greater detail below, the increase in the net
income for 1997 was a result of growth in net interest income of
$718 thousand or 4.8% over 1996 and a $477 thousand or 4.4%
reduction in total other expenses. These items which increased
the Company's earnings for 1997 were partially offset by a
reduction in total other income of $948 thousand of which, $824
thousand was the one time gain on the sale of the credit card
business in 1996. This remaining reduction in other income is
attributed to a reduction of fees generated by the merchant part
of the credit card business, partially offset by an increase in
fiduciary fees.
Net Interest Income
Net interest income, the difference between interest and loan
fee income on earning assets and the interest paid on deposits
and borrowed funds, is the primary source of earnings for the
Company. Net interest income is impacted by changes in interest
rates, volume and composition of both earning assets and paying
liabilities as well as the level of non-interest bearing demand
deposit accounts.
Total interest income for 1997 of $26.5 million increased
$1.08 million or 4.2% over the $25.4 million earned in 1996,
which had increased $1.3 million or 5.4% over 1995. The primary
factor contributing to the increase in total interest income in
1997 was growth in earning assets. This growth was concentrated
in the Bank's loan portfolio. The yield on average earning
assets for 1997 was 8.11% versus 8.15% in 1996 and 8.19% in
1995. This stability in the yield on earning assets during a
declining interest rate environment is due mainly to the growth
in the lending areas, funded by declines in the investment
portfolio. Total interest expense increased $357 thousand or
3.4% from 1996 to 1997. The yield on average deposit
liabilities and borrowed funds (cost of funds) was 3.59% in 1997
versus 3.61% in 1996 and 3.59% in 1995. The slight decline in
the cost of funds yield is due to an overall decline in the cost
of borrowed funds, mainly repurchase agreements.
The Bank's Asset/Liability committee monitors the maturity
structure of all interest bearing assets and liabilities on a
monthly basis in order to maintain stability in the net interest
income during volatile interest rate periods. During 1997 the
Company was primarily in a neutral to slightly negative GAP
position. With a slightly declining and relatively stable
interest rate environment as was the case in 1997, 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 1998, with a possible slight increase in long term
interest rates, resulting in a more positively sloped yield
curve. Management has been attempting to move the GAP position
of the Company toward a more neutral or slightly positive
position. The more positive GAP position should allow the net
interest margin to widen as interest rates move upward and
additional loans are funded.
Provision and Allowance for Loan and Lease Losses
The provision for loan and lease losses is an expense item
charged to operations of the Company. The provision is recorded
to maintain the balance in the related balance sheet allowance
for loan and lease losses at a level which management considers
adequate to absorb reasonably probable credit losses in the loan
portfolio. The allowance is determined by management based on
estimates of probable 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 1997, the Company maintained the ratio of
allowance coverage of total net loans and leases at 1.48% of
total net loans and leases, compared to 1.67% in 1996 and 1.75%
in 1995. The coverage ratio declined for 1997 due to the
charge-off of one specific loan of approximately $250 thousand
and the significant growth in the loan portfolio. For the
twelve months ended December 31, 1997, and 1996 the Bank was in
a "net charge-off position" versus 1995 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.
Past due and non-performing loans are one of the primary
factors that management uses to determine the adequacy of the
allowance for loan and lease losses. At December 31, 1997 the
Company had loans that were past due over 90 days or on
non-accrual status of approximately $281 thousand compared to
$1.1 million at December 31, 1996. Of such totals, loans on
non-accrual status were approximately $37 thousand at December
31, 1997 and $924 thousand at December 31, 1996. In addition,
the Company's loan portfolio showed loans past due 30 days or
more as approximately $1.1 million or .42% of total loans at
December 31, 1997. These same numbers in 1996 were $1.8 million
representing .83% of total loans. With this type of current
quality, management believes that the Company had adequate
reserves set aside to cover reasonably probable loan problems.
The provision for loan and lease losses charged to operations
was $180 thousand in 1997 and 1996 compared to $120 thousand in
1995. 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 1998 will be comparable to the 1997 level.
Non-Interest Income
Total non-interest income for 1997 was $2.95 million compared
to $3.90 million in 1996, and $2.75 million in 1995. 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 $1.25 million in 1997, $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.
The Trust and Investment Services Department has had another
record earnings year. Trust income grew to $1.34 million from
$1.08 million in 1996 and $942 thousand in 1995. The trend in
the Trust Department over the past ten years has been steady
growth in both earnings and assets under management.
The Trust and Investment Services Department at the Wayne
County National Bank provides a comprehensive 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.
Other non-interest income consists primarily of charges for
other banking related services, such as, merchant credit card
fees, fees for safe deposit box rental, check cashing fees,
brokerage fees, fees for servicing mortgages sold into the
secondary market and gains or losses on the sale of loans and
securities. In 1997, income from these activities as well as
other miscellaneous income was $356 thousand versus $1.48
million in 1996 and $551 thousand in 1995. This represents a
decrease of $1.13 million from 1996 to 1997. The primary reason
for this decrease is that the Bank sold the entire credit card
portfolio in the fourth quarter of 1996. 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. In addition, the Company sold its merchant
credit card business at a gain of approximately $50 thousand at
the same time of the credit card sale. In 1996, the merchant
income amounted to $238 thousand for which there was no income
in 1997. Securities gains and losses were not significant for
any period presented.
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 $10.27 million, a decrease of $477 thousand or
4.44% from the $10.75 million of expense in 1996. The 1996
figure represented an increase of $221 thousand or 2.1% over 1995.
Total employee compensation (including wages and benefits) was
$5.36 million for 1997 compared to $5.21 million in 1996 and
$5.17 million in 1995. The expense for 1997 was an increase of
$154 thousand or 3.0% over 1996, which was $41 thousand or .8%
higher than 1995. The main fluctuation was in the area of
salaries and retirement benefits. The salary expense of the
Company increased from $4.08 million in 1996 to $4.27 million in
1997. 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. Management expects this trend to
continue in the market as the Company has had to increase the
salary dollars to attract the caliber of staff needed for daily
operations.
Occupancy and equipment expenses increased $61 thousand or 5.7%
in 1997. This increase is due to depreciation of some 170 new
PC based work stations. In addition, the Company has added or
upgraded two Automated Teller Machines (ATMs) in 1997 and
renovated or remodeled offices where it was needed. Included in
these renovations are upgraded Automated Teller Machines (ATMs),
new signs, and general improvements. In November of 1997 the
Bank opened its new North Towne Banking Center. This office is
currently a drive thru and ATM facility only. This additional
office will add depreciation and staffing costs in 1998.
Occupancy and equipment expenses reflected no significant change
from 1995 to 1996.
Other operating expenses decreased from 1996 to 1997 by $692
thousand or 15.5%. The decrease is due mainly to a $300
thousand donation in 1996 to establish the Wayne County National
Charitable Foundation. This foundation was created to enable
the Board of Directors to provide larger donations where they
deem appropriate. In addition, the Company has seen declines of
$83 thousand in franchise taxes, $185 thousand in Federal
Deposit Insurance Corporation insurance, $56 thousand in data
processing and $191 thousand in credit card processing costs.
Other operating expenses for 1996 increased by approximately
4.6% over 1995 representing primarily inflationary increases.
Income Taxes
Federal Income taxes increased from $1.83 million in 1995 to
$2.42 million in 1996 to $2.53 million in 1997. 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 29.0% in 1995, 30.4% in 1996 and 30.9% in 1997. 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 securities and loans to tax-exempt customers.
Year 2000 Issue
Many computer programs which are in use today use only two
digits to show what year is represented. If these computer
applications are not changed to show the change in the century,
may computer applications could fail or create erroneous results
at the year 2000 due to the improper sequence of the year
changing from "99" to "00".
Management of the Company has conducted an evaluation of all
significant computer systems used in the business of the Company
to evaluate this year 2000 issue. It was found that most
programs are or will be capable of identifying the turn of the
century. This issue is being closely monitored by management on
a monthly basis, and full compliance with this issue is expected
by the end of 1998. Management does not anticipate any material
costs to be incurred to update to year 2000 capability.
FINANCIAL CONDITION
Total assets at December 31, 1997 were $368.8 million compared
to $352.4 million on December 31, 1996. This increase of $16.4
million represented a total asset growth rate of 4.7% for 1997.
The the increase in the assets is concentrated in the loan
portfolio, with the majority of the increase to the loan
portfolio being in the commercial and real estate lending area.
The loan portfolio increased to 66.7% of the total assets of
the Company at December 31, 1997 compared with 62.3% in 1996.
The investment portfolio represented 25.5% of the total assets
at December 31, 1997 versus 29.3% in 1996. 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 maturities and sales of securities and increased deposits
and short-term borrowings.
The Company's earning assets increased $15 million or 4.5% to
$345 million in 1997 from $330 million in 1996. At year end
1997, the earning assets of the Company represented 93.5% of the
total assets. This compares with 93.6% in 1996.
Securities
The primary function of the securities portfolio is to absorb
deposits that are not loaned to borrowers, to serve as a source
of funds for the lending function when deposits are not readily
available and provide a source of liquidity for unexpected
deposit outflows. The investment 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" 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
investment 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 gives management the
flexibility to react to changes in the interest rate environment
in a manner which is consistent with the asset/liability
policies of the Company. At this time the Company does not
have any securities classified as held-to-maturity, which would
be those securities which management has both the intent and
ability to hold until maturity. This does not preclude the use
of this classification in the future.
The securities portfolio at December 31, 1997 was
approximately $9.2 million or 8.9% smaller than the previous
year, with declines in all but one investment category. This
decrease in the portfolio is due to using the proceeds from the
maturities and sales of investment securities to fund the growth
in the loan portfolio. The securities portfolio has a fair
value of $94.1 million at December 31, 1997, which was $836
thousand more than the amortized cost. This net unrealized gain
represented .9% of the amortized cost.
Loans and Leases
The Wayne County National 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 1996 to 1997 is
due to the favorable local market conditions and efforts of the
lending staff to find new quality credit customers.
Total loans and leases at December 31, 1997, amounted to $245.9
million compared to $219.4 million at December 31, 1996. This
increase of $26.5 million represented 12.1% growth in the loans
outstanding. The most substantial areas of growth were found in
the commercial and real estate lending area where total loans,
grew by $15.8 million or 17.4% and $9.5 million or 11.9%
respectively.
Loans and leases accounted for 66.7% of the Company's average
assets in 1997. This compares with 64.7% in 1996 and 70.0% in
1995. This increase is due primarily to the new originations
throughout the year. The three major loan categories include
commercial, real estate and consumer loans. These three
categories represented 43%, 36% and 15% respectively of total
loans and leases at December 31, 1997. The loan portfolio mix
has remained relatively unchanged from 1996 to 1997. The Bank
experienced increases in real estate lending in 1997 due
partially to customers refinancing other types of debt into real
estate debt for tax purposes, and a more favorable interest rate
environment for real estate lending. For the first time in four
years, the Bank has experienced a decline in the consumer
lending portfolio. In 1997 this portfolio declined by $2.0
million or 5.1%. This compares to growth of $2.2 million or
6.0% in 1996. The decline is attributed to the competitive
nature of this piece of the Bank's business. Until early 1998,
the Bank has not offered more than a 2% incentive to auto
dealers for their efforts in seeing that the loans are placed at
this Bank. The incentives to dealers have been adjusted to
reflect what is customary in the market and management expects
growth of 4-6 percent in 1998 in the consumer lending area.
While providing higher yields, on average, consumer lending
generally represents more risk to the Bank. At December 31,
1997, the consumer loans past due over 30 days were
approximately 1.0% of the total portfolio, which is far below
the Bank's peer group average and the national average. With
consumer debt in this country 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 single family housing in 1997
was approximately $21.1 million, representing a slight decline
of $700 thousand over 1996 production. The increase in
outstandings during 1996 and 1997 in the mortgage area is due to
this production, net of the sale of mortgages in February of
1996. Mortgage interest rates have been on a steady decline
during the last six months of 1997. These rates tend to move in
a parallel fashion with the treasury market. At December 31,
1997, the interest rates were at yearly lows, and production and
refinancing has increased. If the interest rate market
stabilizes or continues to decline, management expects that
mortgage production will increase, primarily in the area of
refinancing. If the production in this area continues at the
current pace, management may consider the sale of a package of
real estate loans some time in 1998. The amount and timing of
any sale has not been determined. The Company does not
currently engage in mortgage banking activities and any loan
sales are done primarily as a realignment of the loan portfolio
and to provide liquidity to meet increased demand.
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 full range of
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 to slightly rising interest
rate environment for consumer deposit products in 1997, 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 $288.5 million. This represents growth of $6.8
million or 2.4% over the December 31, 1996 figure of $281.7
million. In addition to the customer deposits at December 31,
1997, the Bank has securities sold under agreements to
repurchase (repos). The repo items serve as an additional
source of funds for the Bank. The repos totaled $30.9 million
in 1997 versus $26.1 million for 1996. 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, 1997, the deposit mix had not changed
significantly from the prior year. The relative stability in
the interest rate environment has encouraged customers to move
their deposits into the mid range maturity type accounts (1 to 3
years). During most of 1997 the Bank saw the amount of funds in
the higher rate certificates area continue to growth at the
expense of a decline in the lower rate short term deposit
accounts. This caused upward pressure on the Bank's cost of
funds, leading to higher interest expense.
Management's strategy for 1998 is to attempt to match the
funding of the expected loan growth and real estate refinancing
with growth in core type deposits and advances from the Federal
Home Loan Bank ("FHLB"). 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 $15
million of funds available, which have not been used. In order
to grow core deposits, management will be pricing the desired
deposit products aggressively, or looking at the funding options
available from the FHLB. It is expected that this will cause
upward pressure on the overall cost of the Bank's funds,
depending upon the funding mix. This increase in cost of funds
will be offset by the pricing of the loan products. In
addition, some of the maturing securities portfolio will be used
to fund this loan growth.
Capital Resources
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 top
of its peer group.
There are several key ratios used to monitor capital adequacy.
These ratios are not impacted by the unrealized gains or
losses, net of tax, on securities classified as
available-for-sale. At December 31, 1997 this valuation
allowance was $551 thousand, net of tax 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,
1997, Wayne Bancorp, Inc., has a capital to asset ratio of 12.3%
versus 11.7% in 1996.
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 tier 1 capital plus a portion of
the reserve for loan losses.
At December 31, 1997, Wayne Bancorp, Inc. had total risk-based
capital of 19.9% with a Tier 1 capital ratio of 18.7%. Both of
these ratios are well above the minimum requirements. At
December 31, 1996, the Company had a total risk-based capital of
19.5% with a Tier 1 capital ratio of 18.3%.
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 average 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
12.9% and 12.3% in 1997 and 1996.
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 1997 were $1.65 million or $.42 per share. This compares
with $1.46 million or $.37 per share in 1996 and $1.35 million
or $.34 per share in 1995. Of the cash dividends paid in 1997,
$290 thousand were reinvested by shareholders under the
Company's dividend reinvestment plan.
Asset and Liability Management
The Company's primary market risk exposure is interest rate risk, and to a
lesser extent, liquidity risk. Interest-rate risk is the risk that the
Company's financial condition will be adversely affected due to movements in
interest rates. The income of Financial institutions is primarily derived
from the excess interest earned on investments over the interest paid on
liabilities. This fundamental premise places extreme importance on monitoring
and controlling interest rate risk.
There are several methods employed by the Company to monitor and control
interest rate risk. One such method is through the use of a "GAP" analysis. The
GAP is defined as the difference between the repricing of assets and liabilities
within certain time periods. The repricing can occur due to changes in rates on
variable rate products as well as maturities of assets and liabilities. A
positive GAP, more assets repricing than liabilities, would benefit the Company
in a rising rate environment whereas a negative GAP, more liabilities repricing
than assets, would benefit the Company in a falling rate environment. The
Company's Asset and Liability Management policy is to maintain a fairly neutral
GAP position of -10% or +10% in both the short and long term periods. Another
strategy used by the Company is to originate variable rate commercial loans
that reprice with the prime rate. Currently over 50% of the commercial loan
portfolio is in these types of loans. Further, the Company invests excess funds
in highly liquid federal funds that mature and reprice on a daily basis. In
addition to these federal funds the Company also maintains all of its securities
in the available-for-sale portfolio to take advantage of interest rate swings
and to maintain liquidity for loan funding and deposit withdrawals. Finally,
the Company used the Federal Home Loan Bank during 1997 as an alternative
funding source to deposits. The advances from the Federal Home Loan Bank are
fixed rate notes used to fund fixed rate commercial loans. This approach fixes
the spread on the assets and liabilities as well as matches repayment streams
for liquidity.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates as of December 31,
1997, based on the information and assumptions set forth in the notes. The
Company believes that the assumptions utilized are reasonable. For loans,
securities, and liabilities with contractual maturities the table represents
principal cash flows and the weighted average interest rate. For variable
rate loans the contractual maturity and weighted interest rate was used with
an explanatory footnote as to repricing periods. The liabilities without
contractual maturities such as savings, nows, and money market accounts a
decay rate was utilized to match their most likely withdrawal behavior.
(Dollars in Millions) Principal/Notional Amount Maturing in:
1998 1999 2000 2001 2002
Fixed-rate loans (1) 14,787 20,531 20,794 17,853 15,406
Average interest rate 8.46% 9.06% 9.55% 9.20% 9.22%
Variable-rate loans (1)(2) 42,404 3,254 8,702 2,367 5,328
Average interest rate 9.23% 9.22% 8.71% 9.07% 8.99%
Fixed-rate securities (1) 25,159 15,490 18,357 11,125 2,217
Average interest rate 6.12% 6.21% 6.29% 6.55% 6.81%
Other interest bearing assets(3) 5,000 0 0 0 0
Average interest rate 6.69% 0.00% 0.00% 0.00% 0.00%
Fair
Value
Thereafter Total 12/31/97
Fixed-rate loans (1) 75,719 165,090
Average interest rate 7.74% 8.49%
Variable rate loans (1)(2) 18,166 80,221
Average interest rate 8.66% 9.00%
Fixed-rate securities (1) 20,877 93,225 94,060
Average interest rate 7.00% 6.43%
Other interest bearing assets (3) 5,000 5,000
Average Interest rate
Principal/Notional Amount Maturing In:
1998 1999 2000 2001 2002
Rate-sensitive liabilities:
Non-interest bearing checking(4) 12,253 9,802 7,352 6,126 6,126
Average interest rate 0.00% 0.00% 0.00% 0.00% 0.00%
Savings & interest bearing checking 22,442 22,442 16,832 16,832 11,221
Average interest rate 2.73% 2.73% 2.73% 2.73% 2.73%
Time Deposits (1) 83,411 16,283 18,474 3,307 5,822
Average interest rate 5.23% 5.57% 6.14% 5.67% 5.98%
Fixed-rate borrowings(1) 65 70 75 80 534
Average interest rate 6.58% 6.58% 6.58% 6.58% 6.58%
Variable-rate borrowings (6) 23,139 1,543 1,543 1,543 1,543
Average interest rate 4.78% 4.78% 4.78% 4.78% 4.78%
Fair
Value
Thereafter Total 12/31/97
Rate-sensitive liabilities:
Non-interest bearing checking (4) 7,352 49,010
Average interest rate 0.00% 0.00%
Savings & interest bearing checking 22,442 112,210
Average interest rate 2.73 2.73
Time deposits (1) 0 127,297
Average interest rate 0.00% 5.45%
Fixed-rate borrowings (1) 0 824
Average interest rate 0.00% 6.58%
Variable-rate borrowings (6) 1,543 30,853
Average interest rate 4.78% 4.78%
(1) Assumes normal amortization based on contractual maturity and repayment.
(2) The Company's adjustable rate commercial loans and home equity loans are
based on the prime rate of interest as stated in the Wall Street Journal and
are subject to repricing when the prime rate is adjusted. The adjustable rate
mortgage loans are based on the one-year constant maturity treasury index and
are subject to annual repricing.
(3) The federal funds rate is subject to daily repricing and is that which is
currently offed by the correspondent bank buying these short term overnight
funds.
(4) Non interest bearing checking accounts assume a decay rate of 25%, 20%, and
15%, for the first three years respectively, 12.5% for each of years four and
five with the remaining 15% being more than five years.
(5) Savings, NOW, and Money Market accounts assume a decay rate of 20% for years
one and two, 15% for three and four, 10% for year five with the remaining
20% being more than five years.
(6) Repurchase agreements are subject to monthly repricing and are based on the
prior months average discount rate for the 3-month treasury bill. Decay is
assumed to be 75% in year one with 5% for the remain years and thereafter.
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, 1997, the Company had sold $5.0 million as excess daily
federal funds. These funds are sold on a daily basis to one of
the Bank's correspondent banks. At year end, the Company had
securities with a total amortized cost of $23.7 million
scheduled to mature within one year, and the entire portfolio is
classified as available-for-sale.
The adjustments to reconcile net income to net cash from
operating activities are made up primarily of $ 794 thousand of
depreciation and amortization and $180 thousand in provision for
loan losses. These items represent expenses 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 investments. During 1997, the primary sources of
cash through investing activities were sales and maturities of
securities totaling $40.1 million. The uses of cash were $26.8
million of net new loans and $30.4 million of security purchases.
Net cash from financing activities amounted to $10.6 million.
The primary sources of cash from financing activities were
increased deposits of $6.8 million, an increase in short-term
borrowings of $4.7 million and Federal Home Loan Bank Advances,
net of repayments, of $824 thousand . Payment of dividends and
treasury stock purchases totaling $1.7 million were the primary
uses from financing activities.
The net result of these cash flows was a minimal decrease in
cash and cash equivalents of $436 thousand from year end 1996 to
1997. Management is not aware of any trend or event that would
cause the Company to have trouble meeting it current and
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. 128, "Earnings Per Share," was adopted in 1997 and
requires dual presentation of basic earnings per share (EPS) and
diluted EPS for entities with complex capital structures. Basic
EPS is computed by dividing income available to common
shareholders by the weighted average common shares outstanding
for the period. Diluted EPS reflects the potential dilution of
securities that could share earnings such as stock options,
warrants or other common stock equivalents. Adoption of SFAS
128 did not alter EPS data previously reported by the Company.
SFAS No. 129, "Disclosure of Information about Capital
Structure," became effective for the Company in 1997. SFAS 129
consolidated existing guidance relating to disclosure about a
company's capital structure. SFAS 129 did not affect the
Company's disclosures.
Two additional pronouncements become effective for the Company
in 1998. SFAS 130, "Reporting Comprehensive Income," and SFAS
131, "Disclosures about Segments of an Enterprise and Related
Information," each require selected additional disclosures in
the Company's 1998 financial statements.
Pending Acquisition
On October 13, 1997, the Company signed a Definitive Agreement
("the Agreement") calling for Chippewa Valley Bancshares,
("Chippewa") Rittman, Ohio to affiliate with the Company. Under
the terms of the Agreement, the Company will issue between
981,837 and 1,023,737 shares of common stock for all of the
outstanding shares of Chippewa. The transaction is believed to
be a tax free exchange for Chippewa's shareholders. Chippewa
has assets of $140.5 million and deposits of $121.3 million at
December 31, 1997. Chippewa operates branches in northern Wayne
County, southern Medina County and western Summit County.
Chippewa Valley Bank will become a wholly owned subsidiary of
the Company and will operate as an autonomous financial services
company. The Company's subsidiary, The Wayne County National
Bank and The Chippewa Valley Bank do not operate in the same
markets, and therefore the Company does not anticipate closing
any of Chippewa's offices. The transaction is subject to
regulatory and shareholder approval from both companies and is
expected to close early in April of 1998.
RETURN IN ENCLOSED ENVELOPE
WAYNE BANCORP, INC.
Proxy for Annual Meeting
PROXY
Know all men by these presents that I, the undersigned
Shareholder of Wayne Bancorp, Inc.,
Wooster, Ohio, do hereby nominate, constitute and appoint
Lucille S. Houser, Doyle W.
McClaran and Wayne A. Zacour or any one of them (with full power
to act alone), as my true and lawful attorney(s) with full power
of substitution, for me and in my name, place and stead to vote
all the Common Stock of said Corporation, standing in my name on
its books on January 31, 1997 at the annual meeting of its
Shareholders to be held at The Best Western Wooster Plaza at 243
East Liberty Street, Wooster, Ohio, on March 26, 1998 at 2:00
p.m., or any adjournments thereof with all the powers the
undersigned would possess if, personally present, as follows:
1. Election of Directors
WITHHOLD AUTHORITY
FOR THE NOMINEE TO VOTE FOR NOMINEE
Gwenn E. Bull
David L. Christopher
Dennis B. Donahue
Jeffrey E. Smith
2. To ratify the engagement of Crowe, Chizek & Company as the
Independent Auditor.
FOR AGAINST ABSTAIN
3. To amend the Articles of Incorporation of Wayne Bancorp,
Inc. to increase the authorized shares to 12,000,000.
FOR AGAINST ABSTAIN
4. Whatever other business may be brought before the meeting or
any adjournment thereof. The
Board of Directors at present knows of no other business to
be presented by or on behalf of the
Corporation or its Board of Directors at the meeting.
This Proxy confers authority to vote "FOR" each nominee and each
proposition listed above unless "WITHHOLD," "AGAINST" or
"ABSTAIN" is indicated. If any other business is
presented at said meeting, this Proxy shall be voted in
accordance with the recommendation of the Board of Directors.
The Board of Directors recommends a vote "FOR" each of the
listed propositions. THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
Number of shares owned: Dated __________________________, 1998
_____________________________________
_____________________________________
Signature of Shareholder(s)
When signing as attorney, executor, administrator, trustee or
guardian, please give full title.
If more than one trustee, all should sign. ALL joint owners must sign.
NOTICE OF ANNUAL STOCKHOLDERS' MEETING
TO BE HELD MARCH 26, 1998
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 Best Western Wooster Plaza 243
East Liberty Street, Wooster, Ohio on March 26, 1998 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 26, 1998:
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. To amend the Articles of Incorporation of Wayne Bancorp,
Inc. to increase the authorized shares to 12,000,000.
4. 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, 1998 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 26, 1997.
By Order of the Board of Directors
Jimmy D. Vaughn, Secretary
PROXY STATEMENT
February 26, 1998
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
2:00 p.m. at the Best Western Wooster Plaza 243 East 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 26, 1998; 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 26, 1998.
VOTING SECURITIES
As of January 31, 1998, 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 3,932,271 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, 1998 shall be entitled to vote. At that date, there were
1,223 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 3, Amendment to the Articles of Incorporation will
require the approval of stockholders owning a majority of all
outstanding shares, whether or not such shares are voted in
support of the particular proposal.
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 2001 Annual
Meeting of Stockholders.
The following persons 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 2001 Annual Meeting of Stockholders.
Name of Director Principal Occupation for Year First
the Past Five Years Became Director Age
Gwenn E. Bull Controller, Legend Micro, I 1995 49
1997; builders of custom computers
for the mail order business. Certified
Public Accountand, General Manager,
Croskey, Hostetler & Mapes, CPA
firm, 1985-1997.
David L. ChristopheChairman of the Board, Pres 1987 57
Chief Executive Officer, Wayne Bancorp,
Inc., Chairman of the Board, President &
CEO, Wayne County National Bank since
1990. President Wayne National Corp.
since 1987.
Dennis B. Donahue President and Chief Executi 1993 58
The Will-Burt Company, Inc. since 1995,
President, The Will-Burt Company
since 1991; machine fabrication and
assembly of multiline components and
equipment for various industries.
Jeffrey E. Smith President, COFSCO Manufactu 1993 47
1997-1995; oil and gas equipment
supplier. President, Smith Management
Inc., a personal holding company since 1995.
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 1999 and 2000.
Name of Director Principal Occupation for Year First
the Past Five Years Became Director Age
Terms Expiring at the Annual Meeting in 1999
James O. Basford Retired Chairman, Buckeye 1990 66
Corrugated, Inc. since 1958;
corrugated container manufacturer.
Director United Telephone of Ohio
and Indiana.
John C. Johnston IIPartner with the law firm o 1996 48
Critchfield, Critchfield & Johnston
since 1978.
David E. Taylor President, Taylor Agency In 1992 46
since 1987; independent insurance
Terms Expiring at the Annual Meeting in 2000
Bala Venkataraman President and Chief Executi 1995 53
Officer, Magni-Power Company,
since 1990; metal fabrication and
parts manufacturer
B. Diane Gordon Vice President of Finance, 1996 49
Corrugated, Inc., since 1990;
corrugated container manufacturer.
Darcy B. Pajak President, F.J. Design sinc 1996 46
Vice President of Marketing, F.J.
Design 1993-1995; specialty
manufacturer of Wooster gift items.
Manager, Sears retail store, Wooster
Ohio 1988-1993.
Stephen L. Shapiro Chairman of the Board, Woos 1996 52
& Metal Company since 1996; metal
recycling company. President and
CEO, Metalics Recycling Co. Since 1990.
The business experience of each of the above-listed nominees
and directors continuing in
office during the past five years was that typical of a person
engaged in the principal occupation
listed. Unless otherwise indicated, each of the nominees has had
the same position or another
executive position with the same employer during the past five years.
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.,
in 1986, 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 1997.
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 1998 (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.
PROPOSAL 3
PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES TO 12,000,000
The Board of Directors has voted to recommend an amendment
to the Articles of
Incorporation to increase the number of authorized shares from
5,400,000 to 12,000,000. The
form of the amendment 3 attached hereto as Exhibit A. As of
January 31, 1998, the Corporation
had outstanding 3,935,000 shares of the 5,400,000 and plans to
issue as many as 1,002,000 in
connection with the acquisition of Chippewa Valley Bancshares
("Chippewa"). The Board
believes that the increase in authorized shares will grant it
flexibility in utilizing authorized but
unissued shares for general corporate purposes. These purposes
could include certain
shareholder enhancements such as the five percent stock dividend
which was implemented in the
fourth quarter of 1992, 1994 and 1996 or the stock split which
was effective June 30, 1996. Such
an amendment would also grant the Board authority for the
issuance of shares in connection with
the raising of additional capital or acquisition of an existing
bank, bank holding company or
other financial institution. While the Corporation has no
specific plans in regard to the issuance
of additional shares concerning any sale of stock or acquisition
except for the Chippewa transaction, having available authorized
but unissued shares would allow the Board of Directors
to act expeditiously in accomplishing any such goals should the
Board deem it appropriate. The
increase in the authorized shares will grant to the Board the
ability to issue additional shares
without further shareholder approval and would have the result
of diluting the ownership
percentage of current stockholders as the Corporation's Articles
of Incorporation do not provide
for preemptive rights.
Holders of common shares are entitled to dividends when, as
and if declared by the Company's Board of Directors out of funds
legally available therefore. Exclusive voting rights are vested
in holders of the common shares, each share being entitled to
one vote. Holders of common shares do not have cumulative
voting rights in electing directors.
The Company is an Ohio chartered corporation and as an
"issuing public corporation" under the laws of Ohio, is subject
to the provisions of the Ohio Control Share Acquisition Statute.
Pursuant to this statute, the purchase of certain levels of
voting power of the Company can be made only with the
authorization of at least a majority of the total voting power
of the Company and a separate prior authorization of the holders
of at least a majority of the voting power held by shareholders
other than interested persons. This law has the effect of
deterring certain potential acquisitions of the Company which
might be beneficial to shareholders. Further, federal law
requires approval of the Board of Governors of the Federal
Reserve System before any person or company acquires control of
a bank holding company such as the Company.
In addition, the Company's Amended and Restated Articles of
Incorporation ("Articles") provide certain procedures which must
be followed before the Company may enter into a "Business
Combination" with an "Interested Shareholder." Such
transactions require the approval of 80% of the outstanding
shares unless first approved by the majority of the Board of
Directors not affiliated with the Interested Shareholder. The
Articles also require the approval of 66 2/3 percent of the
outstanding shares or the payment of a "fair price" (as defined
in the Articles) for any shares unless approved by the
unaffiliated Directors.
The availability of the authorized and unissued common
shares of the Company to be issued into friendly hands with the
purpose of diluting a potential acquirer's ownership of the
Company may also be determined to have and antitakeover effect.
The Company also has a classified Board of Directors which
divides the Board into three classes with each Director elected
for a three year term every three years, and a supermajority
removal provision for Directors. The Company's Articles and
Code of Regulations currently contain no other provisions that
were intended to be or could fairly be considered as
antitakeover in nature or effect. The Board of Directors has no
present intention to amend the Articles to add any antitakeover
provisions, nor are the above described provisions the result of
Management's knowledge of any effort to obtain control of the
Company by any means.
The affirmative vote of the holders of at least a majority
of the outstanding stock of the Corporation is required to adopt
Proposal 3. THE BOARD OF DIRECTORS UNANIMOUSLY APPROVES AND
RECOMMENDS TO SHAREHOLDERS THE ADOPTION OF PROPOSAL 3 PROVIDING
FOR THE INCREASE OF THE AUTHORIZED SHARES TO 12,000,000.
THE FOLLOWING TABLE IS A SUMMARY OF
COMMON STOCK OWNERSHIP OF SENIOR MANAGEMENT
AND THE BOARD OF DIRECTORS
Percent of
Amount and Nature of Common Stock
Name of Beneficial Owner Beneficial Ownership Ownership (1)
James O. Basford 1,393 shares 0.04%
Gwenn E. Bull 630 shares 0.02%
David L. Christopher 61,332 shares (2) 1.56%
Dennis B. Donahue 947 shares 0.02%
B. Diane Gordon 705 shares (3) 0.02%
John C. Johnston III 1,071 shares (4) 0.03%
Darcy B. Pajak 328 shares 0.01%
Stephen L. Shapiro 2,005 shares (5) 0.05%
Jeffrey E. Smith 4,168 shares (6) 0.11%
David E. Taylor 2,308 shares 0.06%
Bala Venkataraman 2,710 shares (7) 0.07%
David P. Boyle 1,466 shares (8) 0.04%
F. Bill Damron 7,710 shares (9) 0.20%
Stephen E. Kitchen 10,318 shares (10) 0.26%
Jimmy D. Vaughn 8,281 shares (11) 0.21%
Directors and Executive Officers of
the Corporation/Bank as 106,545 shares (12) 2.71%
The calculation of percent of common stock ownership is
based on total outstanding shares of 3,921,210 shares and
calculated as of January 31, 1998.
49,652 shares are held in trust for Mr. Christopher and
7,056 shares are owned by spouse.
705 shares are held for Mrs.Gordon in "street name".
971 shares are held for Mr. Johnston in "street name".
2,000 shares are held for Mr. Shapiro in "street name".
900 shares owned by Mr. Smith's minor children.
7,067 shares are held for Mr. Venkataraman in
"street name".
1,466 shares are held in trust for Mr. Boyle,
Executive Vice President and Chief
Financial Officer.
4,520 shares are held in trust for Mr. Damron, Sr.
Executive Vice President and Chief
Loan Officer.
4,277 shares are held in trust for Mr. Kitchen,
Executive Vice President and Senior Trust Officer.
5,663 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.
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.
* Denotes participation in the Wayne County National Bank
Deferred Compensation
Plan as described herein.
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, 1998 of more
than five percent of the Corporation's outstanding common stock
who are known to the Corporation.
Title of Name & Address of Amount & Nature ofPercent of Common
Class Beneficial Owner Beneficial OwnershStock Ownership (1)
Common Raymond E. Dix 205,409 (2)(3) 5.23%
P.O. Drawer D
Wooster, OH 44691
Common Wayco & Co 585,797 (4) 14.91%
P.O. Box 757
Wooster, OH 44691
(1) The calculation of percent of ownership is based on the
total outstanding shares at January 31, 1998 of 3,921,210 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 72,386 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 46,436 shares (1.19 percent of
the total number of shares
outstanding) as sole trustee and 303,950 shares (7.75 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 17 meetings in 1997 and the Board of
Directors of Wayne County National Bank held 16 meetings in
1997. All Directors except Mr. Shapiro 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 $900 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
Director's 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.
Basford, Gordon, Smith, and Taylor. The Audit Committee met 10
times in 1997. 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: Members of he Board of Directors who are
not being considered for re-election serve as a committee to
nominate stockholders to serve on the Board of Directors. This
committee met once in 1997 to nominate shareholders to serve on
the Board of Directors until the 2001 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 112 West Liberty Street,
P.O. Box 757, Wooster, Ohio 44691.
Compensation/Employee Benefit Committee: The
Compensation/Employee Benefit Committee
was composed of Messrs. Donahue, Johnston, Shapiro, Smith,
Taylor and Venkataraman. This committee met five times in 1997.
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 Committee's report on compensation issues.
THE FOLLOWING PERSONS ARE THE EXECUTIVE OFFICERS OF THE
CORPORATION
Name Age
David L. Christopher 57 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 34 Executive Vice President and Chief Financial
Officer, Wayne County National Bank since 1997;
Senior Vice President and 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 59 Senior Executive Vice President and Chief Loan
Officer, Wayne County National Bank since 1987.
Stephen E. Kitchen 46 Executive Vice President and Senior Trust Officer,
Wayne County National Bank since 1988.
Jimmy D. Vaughn 56 Executive Vice President, Operations and Data
Processing, Wayne County National Bank since
1987; Secretary and Treasurer, 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 Corporation's Chief
Executive Officer and other Executive Officers whose
compensation exceeded $100,000 in 1997,
for the fiscal years ended December 31, 1995, 1996, and 1997:
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Principal Other Annual All Other
Position Year Salary ($Bonus($) Compensation ($)(2) Compensation
David L. Christopher 1997 $190,215 $95,545 $3,150 $18,974
Chairman of the Board,
President and Chief 1996 180,750 82,129 4,522 18,823
Executive Officer,
Wayne Bancorp, Inc. 1995 166,185 56,858 3,608 18,752
and Wayne County
National Bank
David P. Boyle 1997 $80,667 $43,841 $1,976 $11,389
Executive Vice President
and Chief Financial 1996 70,375 34,429 9,026
Officer, Wayne County
National Bank, Vice 1995 55,339 19,990 6,296
President and Treasurer
Wayne National Corporation
F. Bill Damron 1997 $104,663 $56,580 $335 $17,064
Vice President, Wayne
Bancorp, Inc., Seni 1996 100,475 49,058 15,930
Executive Vice President
and Chief Loan Offi 1995 95,866 34,590 11,222
Wayne County National Bank
Stephen E. Kitchen 1997 $81,110 $43,840 $13,332
Executive Vice
President and 1996 78,000 38,038 12,557
Senior Trust Officer,
Wayne County 1995 75,002 24,336 9,022
National Bank
Jimmy D. Vaughn 1997 $81,092 $43,917 $3,313 $13,724
Secretary and
Treasurer, Wayne 1996 78,000 38,114 2,276 12,986
Bancorp, Inc.,
Executive Vice 1995 75,175 27,382 1,904 9,278
President, Operations
Data 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 Corporation's Chairman and Chief
Executive Officer and, if applicable,
the four other most highly compensated executive officers, whose
aggregate compensation
exceeded $100,000 during the Corporation's fiscal year. The
disclosure requirements, as applied
to the Corporation, included the Corporation's President and
Chief Executive Officer (the "CEO"), the Executive 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 and
Operations 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 Corporation's 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 January 18, 1997 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
January 18, 1997, the Committee proposed a base salary
commencing February 1, 1997 for Mr. Christopher of $180,180, for
Mr. Boyle of $81,500, for Mr. Damron of $104,750, for Mr.
Kitchen of $81,120, and for Mr. Vaughn of $81,100 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
Corporation's 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 113, 99, 117, 105 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
person's salary relative to the total of those participating in
the plan. The aggregate amount paid under the plan in 1997 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
Dennis B. Donahue John C. Johnston, III Stephen L. Shapiro
Jeffrey E. Smith David E. Taylor 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
1992 1993 1994 1995 1996 1997
Wayne Bancorp, Inc. $100.00 $150.90 $170.72 $208.89 $303.71 $491.51
S&P 500 Index $100.00 $110.08 $111.53 $153.45 $188.68 $251.63
S&P Major Regional
Bank Index $100.00 $106.02 $100.35 $157.99 $215.89 $324.62
Assumes $100 invested on January 1, 1993 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 Corporation's
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 5's were
required, the Corporation believes that during 1997 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. John C. Johnston III is a partner with, the law firm of
Critchfield, Critchfield and Johnston. The firm was paid
$15,077 by Wayne County National Bank in 1997 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
Bank's business from the beginning of fiscal year 1997 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 29, 1998. 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 26, 1998 Jimmy D. Vaughn, Secretary