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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
___X___ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
_______ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ..........to..............
Commission File No. 014612
WAYNE BANCORP, INC.
(Exact name of registrant as specified in its charter)
OHIO 34-1516142
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
112 West Liberty Street
PO Box 757
Wooster, Ohio 44691 44691
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 264-1222
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $1.00 Stated Value Per Share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or fur such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES__X___ NO______
Indicate by check mark if disclosures of delinquent filers in response to item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the Registrant's knowledge in definitive proxy or information state-
ments incorporated by reference in Part III of this form 10-K or any amend-
ments to this Form 10-K. YES__X___ NO______
The aggregate market value of voting stock held by non-affiliates of the regi-
strant based on the most recent trade prices of such stock on March 1, 2000:
Common Stock $1.00 stated value $82,990,915
The number of shares outstanding of the issuer's classes of common stock as of
March 1, 2000:
Common Stock $1.00 stated value 4,596,599
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1999 and portions of the Registrant's Proxy Statement for the Annual Share-
holders Meeting to be held April 20, 2000 are incorporated by reference into
Parts I, II and III.
TABLE OF CONTENTS
WAYNE BANCORP, INC.
FORM 10-K
PART I PAGE
Item 1 Business................................ 3
Item 2 Properties.............................. 16
Item 3 Legal Proceedings....................... 16
Item 4 Submission of matters to a vote of
security holders....................... 16
PART II
Item 5 Market for the Registrant's common stock
and related Shareholder matters........ 16
Item 6 Selected Financial Data................. 16
Item 7 Management discussion and analysis of
financial condition and results of
operations............................. 16
Item 7A. Quantitative and qualitative disclosures
about market........................... 16
Item 8 Financial statements and supplementary
data................................... 16
Item 9 Changes in and disagreements with accoun-
tants on accounting and financial dis-
closure................................ 17
PART III
Item 10 Directors and Executive Officers of the
Registrant............................ 17
Item 11 Executive Compensation................. 17
Item 12 Security ownership of certain beneficial
owners and management................. 17
Item 13 Certain relationships and related trans-
actions............................... 17
PART IV
Item 14 Exhibits, financial statement schedules and
reports on Form 8-K.................... 17
Exhibit Index........................... 18
Signatures.............................. 19
PART I
ITEM I. BUSINESS
General Development of Business:
Wayne Bancorp, Inc. is a multi-bank holding company. Its bank subsidiaries,
Wayne County National Bank (WCNB) and Chippewa Valley Bank (CVB), conduct
general commercial and retail banking business while the Company's non-
banking subsidiary MidOhio Data, Incorporated (MID) performs data processing
services for WCNB. These entities are collectively referred to as the Com-
pany. Wayne Bancorp, Inc. was organized in April, 1986.
The Company offers a wide range of commercial and personal banking services
primarily to its customers in Wayne, Holmes, Medina and Stark counties in
Ohio. These services include a broad range of loan, deposit and trust products,
retail investments and various miscellaneous services. Loan products include
commercial and commercial real estate loans, a variety of mortgage and
construction loan products, installment loans, home equity lines of credit,
lines for overdraft protection and lease financings. Deposit products include
interest and non-interest bearing checking accounts, various savings
accounts, certificates of deposit and IRA's. The Trust Department provides
services in the areas of employee benefits and personal trusts. In addition,
the Company provides retail investment services, including mutual funds and
annuities as well as discount brokerage services. Miscellaneous services
include safety deposit boxes, night depository, United States Savings Bonds,
traveler's checks, money orders, cashiers checks, bank-by-mail service, money
transfers, wire services, utility bill payments, collections and notary pub-
lic services. In addition, the Company has correspondent relationships with
major banks in Cleveland, Cincinnati and Chicago pursuant to which the Com-
pany received various financial services. The Subsidiaries account for sub-
stantially all of the Company's consolidated assets at December 31, 1999.
The Company's primary lending area comprises the Ohio counties of Wayne,
Holmes, Medina and Stark. Loans outside this area are considered for credit-
worthy applicants. Lending decisions are made in accordance with written
loan policies designed to maintain loan quality.
Retail lending products are comprised of overdraft lines, personal lines of
of credit and installment loans. Overdraft lines of credit are lines attached
to checking accounts to cover overdrafts and/or allow customers to write
themselves a loan. Credit limits are based on a percentage of gross income
and average deposits. Personal lines of credit include lines secured by
junior mortgages (home equity) and Private Banking lines which are generally
secured by junior mortgages but may be unsecured or secured by other col-
lateral. The lines have a 20 year draw period and may then be renewed or
amortized over ten years. Credit limits are determined by comparing three
criteria, appraised value, debt service and gross income. Installment loans
include both direct and indirect loans. The term can range from three to 180
months, depending upon the collateral which includes new and used automobiles,
boats and recreational vehicles as well as junior mortgages and unsecured
personal loans. Retail lending underwriting guidelines include evaluating the
entire credit using the "Five C's of Credit," character, capacity, capital,
condition and collateral. Credit scoring, analysis of credit bureau ratings
and debt to income ratios are the major tools used by the lenders in the
underwriting process.
The Company offers a wide range of mortgage loan programs, including a variety
of fixed and adjustable rate mortgages ranging from 120 to 360 months. The
underwriting guidelines include those similar to consumer loans and those
necessary to meet secondary market guidelines. Residential real estate
decisions focus on loan to value limits, debt to income and mortgage to income
ratios, credit history, and in some cases, whether private mortgage insurance
is obtained.
3
Business credit products include commercial loans and commercial real estate
loans and leases. Commercial loans include lines and letters of credit,
fixed and adjustable rate term loans, demand and time notes. Commercial real
estate loans include fixed and adjustable mortgages. Loans are generally to
owner occupied businesses. The portfolio also includes loans to churches,
rental property, shopping plazas and residential development loans. Loans to
businesses often entail greater risk because the primary source of repayment
is typically dependent upon adequate cash flow. Cash flow of a business can
be subject to adverse conditions in the economy or a specific industry.
Should cash flow fail, the lender looks to the assets of the business and/or
the ability of the co-makers to support the debt. Commercial lenders con-
sider the "Five C's of Credit," character, capacity, capital, condition and
collateral in making commercial credit decisions.
The Company provides both direct and indirect leasing on a limited basis. The
direct leases are for specific equipment and may be open- or closed-end
leases. Indirect leases are established by the same methods as an indirect
consumer auto finance. Each vehicle is amortized individually over a five
year period based on Internal Revenue Code guidelines.
In addition to the underwriting guidelines followed for specific loan types, the
Company has underwriting guidelines common to all loan types. With regard to
collateral, the Company follows supervisory limits set forth in Regulation H
for transactions secured by real estate. Loans in excess of these guidelines
are reported to the Board of Directors on a monthly basis. Loans not secured
by real estate are analyzed on a loan by loan basis, based on collateral type
guidelines as set forth in the loan policy. Appraisal policies follow and
comply with provisions outlined under Title XI of FIRREA. All appraisals
are done by outside independent appraisers. The Company, as a general rule,
obtains an appraisal on all real estate transactions even when not required
by Title XI. Approval procedures include authorities approved by the Board
of Directors for individual lenders and loan committees. Retail and residen-
tial loans are centrally underwritten by their respective departments.
Business credits can be approved by the individual commercial lender or taken
to the Loan Committee if it exceeds individual approval limits. The Board of
Directors approves aggregate loan committments in excess of $750 thousand up
to the respective banks legal lending limit. Loans to Directors and Executive
Officers are approved by the Board of Directors.
The Officers Loan Review Committee meets on a monthly basis. The Committee
reviews Bank lending trends, the Past Due Report, the Watch List and various
other reports in order to monitor and maintain credit quality. The Committee
also reviews on a relationship basis, customers on the Bank's Watch List and
credits with aggregate commitments in excess of $300 thousand.
Revenues from loans accounted for 68% of consolidated revenues in 1999 and 1998,
and 69% in 1997. Revenues from interest and dividends on investment securities,
federal funds sold and mortgage-backed securities accounted for 22% of con-
solidated revenues in 1999 and 23% of consolidated revenues in 1998 and 1997.
The business of the Registrant is not seasonal to any material degree, nor is it
dependent upon a single or small group of customers whose loss would result in a
material adverse effect on the Registrant or its subsidiaries.
Regulation and Supervision:
Wayne Bancorp, Inc. is a corporation organized under the laws of the State of
Ohio. The Company is required to file certain reports and periodic informa-
tion with the United States Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, as amended.
As a bank holding company incorporated and doing business within the State of
Ohio, the Company is subject to regulation and supervision under the Bank
Holding Company Act of 1956, as amended (the "Act"). The Company is required to
file with the Federal Reserve Board on a quarterly basis information pursuant to
the Act. The Federal Reserve Board may conduct examinations or inspections of
the Company and its subsidiaries.
4
The Company is required to obtain prior approval from the Federal Reserve Board
for the acquisition of more than five percent of the voting shares or substan-
tially all of the assets of any bank or bank holding company. In addition,
the Company is prohibited by the Act, except in certain situations from
acquiring direct or indirect ownership or control of more than five percent
of the voting shares of any company which is not a bank or bank holding com-
pany and from engaging directly or indirectly in activities other than those of
banking, managing or controlling banks or furnishing services to its subsid-
iaries. The Company may, however, subject to the prior approval of the
Federal Reserve Board, engage in, or acquire shares of companies engaged in
activities which are deemed by; the Federal Reserve Board by order or by reg-
ulation to be so closely related to banking or managing and controlling a
bank as to be a proper activity.
The Company is a legal entity separate and distinct from its subsidiaries. It
is anticipated that a significant portion of the Company's revenues, including
funds available for payment of dividends (if any) and for operating expenses,
will be provided by dividends paid by its Bank subsidiaries. There are sta-
tutory limitations on the amount of dividends which may be paid to the Com-
pany by its subsidiaries.
WCNB, a national bank, is subject to supervision, examination and regulation by
the Comptroller of the Currency. CVB, a state chartered bank, is subject to
supervision, examination and regulation by the Federal Reserve Board and the
Ohio Division of Financial Institutions. Both WCNB and CVB are members of
the Federal Reserve System and, as such, are subject to the applicable pro-
visions of the Federal Reserve Act and regulations issued thereunder. MID is
a non-banking subidiary subject to supervision, examination and regulation by
the Federal Reserve Board.
The Company's deposits are insured by the Federal Deposit Insurance Corporation,
and are subject to the provisions of the Federal Deposit Insurance Corporation
Improvement Act of 1991. This Act is designed to protect the deposit insurance
fund, to improve regulation and supervision of insured depository institutions
and to improve the reporting information related to financial institutions.
Management is not aware of any current recommendations by regulatory authorities
which, if they were to be implemented, would have a material effect on the
Company.
Regulatory Capital Requirements:
The Company is required by the various regulatory authorities to maintain cer-
tain capital levels. The required capital levels and the Company's capital
position at December 31, 1999 are summarized in the table included in Note 14
to the financial statements.
The Federal Deposit Insurance Corporation sets premiums for deposit insurance
based on the Company's capital levels. In the event the Company's levels
fall below the minimum requirement the premiums for deposit insurance could
rise.
Government Monetary Policy:
The earnings of the Company are affected primarily by general economic condi-
tions, and to a lesser extent by the fiscal and monetary policies of the
federal government and its agencies, particularly the Federal Reserve. Its
policies influence the amount of bank loans and deposits and interest rates
charged and paid thereon, and thus have an effect on the earnings of the
Company's subsidiary Banks.
Competition:
The banking and financial services industry in the Company's market is highly
competitive. The Company's market area encompasses Wayne, Holmes, Medina and
Stark Counties in Ohio. The Bank subsidiaries compete for loans and deposits
with other commercial banks, savings and loans, finance companies, mortgage
brokers and credit unions. The primary competitive factor is interest rates
charged on loans and paid for deposits as well as fees charged for various
other products and service.
Employees:
As of December 31, 1999, the Company had 214 full time employees and 40 part
time employees. The Company is not a party to any collective bargaining
agreement and management considers its relationship with their employees to
be good.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
WAYNE BANCORP, INC.
December 31, 1999
Average
Daily Yield/
Balance Interest Rate
(In thousands of dollars)
ASSETS -----------------------------------
Interest Earning Assets:
Loans (including fees) (1) $339,926 $28,650 8.43%
Securities: (2)
Taxable 122,776 7,135 5.84%
Tax-Exempt (3) 32,569 2,515 7.72%
Federal Funds Sold 7,197 385 5.35%
----------------------------------
TOTAL EARNING ASSETS 502,468 38,685 7.70%
Non-earning Assets:
Cash and due from banks 20,293
Premises and Equipment (net) 8,675
Other Assets 7,878
Less Allowance for Loan Losses (5,197)
----------
TOTAL ASSETS $534,117
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Transaction Accounts 117,418 3,432 2.92%
Savings 84,499 2,245 2.66%
Time Deposits 175,031 8,871 5.07%
Borrowed Funds 28,774 1,498 5.21%
--------------------------------
TOTAL INTEREST BEARING LIABILITIES 405,722 16,046 3.95%
Non-Interest Bearing Liabilities:
Demand Deposits 65,214
Other Liabilities 8,790
----------
TOTAL LIABILITIES 479,726
Shareholders' Equity 54,391
----------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $534,117
==========
NET INTEREST INCOME $22,639
==========
NET YIELD ON INTEREST EARNING ASSETS 4.51%
========
(1) Nonaccrual loans are included in the average loan balance.
(2) Average balance includes unrealized gains and losses while yield is
based on amortized cost.
(3) Interest income on tax exempt securities includes a taxable equivalent
adjustment using a 34% tax rate.
6
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
WAYNE BANCORP, INC.
December 31, 1998
Average
Daily Yield/
Balance Interest Rate
(In thousands of dollars)
ASSETS -----------------------------------
Interest Earning Assets:
Loans (including fees) (1) $316,743 $28,264 8.92%
Securities: (2)
Taxable 121,914 7,299 6.05%
Tax-Exempt (3) 28,886 2,292 8.10%
Federal Funds Sold 12,938 697 5.39%
-----------------------------------
TOTAL EARNING ASSETS 480,481 38,552 8.02%
Non-earning Assets:
Cash and due from banks 17,264
Premises and Equipment (net) 8,883
Other Assets 7,705
Less Allowance for Loan Losses (4,979)
----------
TOTAL ASSETS $509,354
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Transaction Accounts 97,991 2,799 2.86%
Savings 80,012 2,367 2.96%
Time Deposits 175,335 9,479 5.41%
Short Term Borrowings 37,348 1,686 4.51%
---------------------------------
TOTAL INTEREST BEARING LIABILITIES 390,686 16,331 4.18%
Non-Interest Bearing Liabilities:
Demand Deposits 56,342
Other Liabilities 4,293
----------
TOTAL LIABILITIES 451,321
Shareholders' Equity 58,033
----------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $509,354
==========
NET INTEREST INCOME $22,221
==========
NET YIELD ON INTEREST EARNING ASSETS 4.62%
=========
(1) Nonaccrual loans are included in the average loan balance.
(2) Average balance includes unrealized gains and losses while yield is
based on amortized cost.
(3) Interest income on tax exempt securities includes a taxable equivalent
adjustment using a 34% tax rate.
7
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
WAYNE BANCORP, INC.
December 31, 1997
Average
Daily Yield/
Balance Interest Rate
(In thousands of dollars)
ASSETS -----------------------------------
Interest Earning Assets:
Loans (including fees) (1) $306,193 $27,529 8.99%
Securities: (2)
Taxable 111,278 6,952 6.26%
Tax-Exempt (3) 28,134 2,298 8.21%
Federal Funds Sold 5,253 291 5.54%
-----------------------------------
TOTAL EARNING ASSETS 450,858 37,070 8.22%
Non-earning Assets:
Cash and due from banks 17,832
Premises and Equipment (net) 8,561
Other Assets 7,670
Less Allowance for Loan Losses (4,354)
----------
TOTAL ASSETS $480,567
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Transaction Accounts 78,810 2,128 2.70%
Savings 81,704 2,458 3.01%
Time Deposits 172,898 9,392 5.43%
Short Term Borrowings 32,476 1,545 4.76%
----------------------------------
TOTAL INTEREST BEARING LIABILITIES 365,888 15,523 4.24%
Non-Interest Bearing Liabilities:
Demand Deposits 56,920
Other Liabilities 4,247
----------
TOTAL LIABILITIES 427,055
Shareholders' Equity 53,512
----------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $480,567
==========
NET INTEREST INCOME $21,547
==========
NET YIELD ON INTEREST EARNING ASSETS 4.78%
========
(1) Nonaccrual loans are included in the average loan balance.
(2) Average balance includes unrealized gains and losses while yield is
based on amortized cost.
(3) Interest income on tax exempt securities includes a taxable equivalent
adjustment using a 34% tax rate.
8
SUMMARY OF NET INTEREST INCOME CHANGES
WAYNE BANCORP, INC.
The following table sets forth for the periods indicated a summary of the
changes in interest income and interest expense resulting from changes in
volume and changes in interest rates for the major components of interest
earning assets and interest bearing liabilities.
1999 vs 1998 1998 vs 1997
---------------------------------------------------
Increase(Decrease) (1) Increase(Decrease) (1)
(In thousands of dollars) Volume Rate Net Volume Rate Net
---------------------------------------------------
Interest Income:
Loans $2,068 ($1,682) $386 $948 ($213) $735
Securities:
Taxable 52 (216) (164) 437 (90) 347
Non-taxable (2) 298 (75) 223 62 (68) (6)
Federal Funds Sold (250) (62) (312) 426 (20) 406
----------------------------------------------------
Total Interest Income 2,168 (2,035) 133 1,873 (391) 1,482
Interest Expense:
Transaction Accounts 556 77 633 518 153 671
Savings 133 (255) (122) (51) (40) (91)
Time Deposits (16) (592) (608) 132 (45) 87
Short-term Borrowings (387) 199 (188) 232 (91) 141
---------------------------------------------------
Total Interest Expense 286 (571) (285) 831 (23) 808
----------------------------------------------------
Net Interest Income $1,882 ($1,464) $418 $1,042 ($368) $674
====================================================
(1) For purposes of the above table, changes in interest due to volume and
rate were determined as follows:
Volume variance - Change in volume multiplied by the prior year's rate.
Rate Variance - Change in rate multiplied by the prior year's balance.
Rate/Volume Variance - Change in volume multiplied by change in rate.
The rate/volume variance was allocated to the volume variance and rate variance
in proportion to the relationship of the absolute dollar amount of change in
each.
(2) Interest income on tax exempt securities includes the effects of taxable
equivalent adjustments using a 34% tax rate for each year.
9
INVESTMENT PORTFOLIO
WAYNE BANCORP, INC.
The following table sets forth the year-end carrying value of securities
available-for-sale for the last three years:
(In thousands of dollars) 1999 1998 1997
By type: -----------------------------------
U.S. Treasury and Other U.S.
Government Agency Obligations $67,836 $74,632 $53,929
Mortgage-backed Securities 12,962 21,352 27,709
States and Political Subdivisions 37,694 37,186 20,080
Other 31,526 41,837 20,709
-----------------------------------
Total $150,018 $175,007 $122,427
===================================
The following table sets forth the year-end carrying value of securities held-
to-maturity for the last three years:
(In thousands of dollars) 1999 1998 1997
By type: -----------------------------------
U.S. Treasury and Other U.S.
Government Agency Obligations $0 $0 $5,002
Mortgage-backed Securities 0 0 0
States and Political Subdivisions 0 0 6,823
Other 0 0 7,670
----------------------------------
Total $0 $0 $19,495
===================================
The following table sets forth the maturity distribution and yields on secur-
ities available-for-sale at December 31, 1999
(In thousands of dollars): One Year or Less One to Five Years
Carrying Carrying
Value Yield Value Yield
--------------------------------------------
U.S. Treasury and Other U.S.
Government Agency Obligations $20,290 5.82% $47,542 5.85%
Mortgage-backed Securities 2,707 6.45% 4,438 6.43%
States and Political Subdivisions 3,914 5.51% 23,557 4.79%
Other 7,719 5.88% 21,081 6.14%
-------------------------------------------
$34,630 5.85% $96,618 5.68%
=============================================
Five to Ten Years Over Ten Years
Carrying Carrying
Value Yield Value Yield
-------------------------------------------
U.S. Treasury and Other U.S.
Government Agency Obligations $0 0.00% $0 0.00%
Mortgage-backed Securities 5,084 6.28% 740 6.58%
States and Political Subdivisions 9,186 5.21% 1,022 5.76%
Other 0 0.00% 2,738 5.63%
------------------------------------------
$14,270 5.59% $4,500 5.82%
============================================
Note: Yield represents the weighted average yield to maturity. Yield on
states and political subdivisions are not calculated on a tax equiv-
alent basis. Mortgage-backed obligations are distributed based on
contractual maturity.
10
Excluding those holdings of the securities portfolio in U.S. Treasury securities
and other agencies and corporations of the U.S. Government, there were no secur-
ities of any one issuer which exceeded 10% of consolidated shareholders' equity
at December 31, 1999.
LOAN PORTFOLIO
WAYNE BANCORP, INC.
The Company's commercial loans are extended primarily to local businesses.
The Company also extends credit to customers through installment loans, vehicle
and equipment leases and revolving credit arrangements. The remaining portfolio
consists primarily of residential mortgage loans (1-4 family dwellings) and
mortgage loans on commercial property. The following tables set forth the
composition of the loan portfolio for the last five years.
(In thousands of dollars) 1999 1998 1997 1996 1995
---------------------------------------------------
Real Estate $159,302 $143,072 $135,824 $114,649 $106,997
Installment & Credit Card 48,411 48,684 52,940 54,441 56,406
Commercial & Industrial 146,504 129,504 131,998 117,016 104,703
Lease Financings 2,179 2,835 3,317 2,774 2,888
Other Loans 107 104 191 39 37
-------------------------------------------------
$356,503 $324,199 $324,270 $288,919 $271,031
=================================================
The maturity distribution of the loan portfolio is a key factor in evaluating
the risk characteristics of the loan portfolio and the future profitability
of the portfolio. The maturity distribution and interest rate sensitivity of
the loan portfolio and other balance sheet items at year end 1999 is included
on page 30 of the 1999 Annual Report to Shareholders, and is incorporated herein
by reference.
The maturity distribution and interest rate sensitivity of Commercial and Indus-
trial loans at December 31, 1999 are as follows:
(in thousands of dollars) Maturity (1)
--------------------------------------------
Within 1 to 5 After 5
1 Year Years Years Total
------------------------------------------
Commercial and Industrial..... $44,948 $61,014 $11,658 $117,620
Commercial real estate........ 3,540 6,953 8,585 19,078
Construction.................. 1,320 0 0 1,320
--------------------------------------------
Total............... $49,808 $67,967 $20,243 $138,018
============================================
Fixed rate loans.............. $15,161 $53,798 $2,032 $70,991
Variable rate loans........... 34,647 14,169 18,211 67,027
--------------------------------------------
Total............... $49,808 $67,967 $20,243 $138,018
============================================
(1) Based on scheduled principal repayments.
11
The following table summarizes past due, non-accrual and restructured loans:
(In thousands of dollars) 1999 1998 1997 1996 1995
-----------------------------------------------
Accruing loans past due 90
days or more as to
principle or interest $182 $288 $285 $188 $455
Non-accrual loans 0 0 205 1,497 15
Restructured loans 0 271 0 0 0
--------------------------------------------------
$182 $559 $490 $1,685 $470
==================================================
The effect of non-performing loans was as follows: December 31, 1999
--------------------
Interest income due on non-performing loans in
accordance with the original terms of the loan $0
Less: Interest income on non-performing loans
reflected in income 0
----------
Net reduction in interest income $0
==========
The policy for placing loans on non-accrual status is to stop the accrual of
interest when it is likely that the collection of interest is deemed doubt-
ful, or when loans are past due as to principle or interest 90 days or more.
In certain cases, interest accruals are continued on loans 90 days past due
if they are deemed to be adequately secured and in the process of collection.
The Company had no impaired loans at December 31, 1999 or 1998. During 1999 the
Company had no impaired loans, while the average balance for impaired loans was
$153 thousand during 1998. Income earned on the cash basis for the year ended
December 31, 1998 was $3 thousand.
Impaired loans are comprised of commercial and commercial real estate loans, and
are carried at the present value of expected future cash flows, discounted at
the loan's effective interest rate or at a fair value of collateral, if the
loan is collateral dependent. A portion of the allowance for loan and lease
losses is allocated to impaired loans, when such impaired loans are identified.
Smaller balance homogeneous loans are evaluated for impairment in total. Such
loans include residential first mortgage and construction loans secured by 1-4
family properties, consumer and home equity loans. Such loans are included
in non-accrual and past due disclosures above, but not in impaired loan
totals. Commercial loans and mortgage loans secured by other properties are
evaluated individually for impairment. In addition, loans held-for-sale, if
any, and leases are excluded from consideration of impairment. When analysis
of borrower operating results and financial condition indicates that the bor-
rower's underlying cash flows are not adequate to meet its debt service re-
quirements, the loan is evaluated for impairment. Impaired loans, or por-
tions thereof, are charged-off when deemed uncollectible.
As of December 31, 1999, there were no potential problem loans for which manage-
ment has doubt as to the borrower's ability to comply with the present repayment
terms, which are not disclosed as past due 90 days or more, non-accrual or
restructured. These loans and their potential loss exposure have been con-
sidered in the analysis of the adequacy of the allowance for loan and losses
prepared by management and included on page 14 of this filing.
12
In all years presented, there were no material amount of loans excluded from the
amounts disclosed as non-accrual, past due 90 days or more, restructured, or
potential problem loans, which may have been classified by the regulatory
examiners as loss, doubtful or substandard.
There were no foreign loans outstanding at December 31, 1999, 1998 or 1997.
As of December 31, 1999, there were no concentrations of credit greater than 10%
of total loans which are not otherwise disclosed as a category of loans pursuant
to Guide 3, Item III. A.
As of December 31,1999, there are no other interest bearing assets that would
require disclosure under Guide 3, Item III. C. 1. or C. 2., if such assets
were loans.
SUMMARY OF LOAN LOSS EXPERIENCE
WAYNE BANCORP, INC.
In the normal course of business, the Company assumes risk by extending credit.
The Company manages this risk through its lending policy, loan review proce-
dures and personal contact with the borrower.
In determining the adequacy of the allowance for loan and lease losses, manage-
ment evaluates past loan loss experience, present economic conditions and the
credit-worthiness of its borrowers. The allowance for loan and lease losses
is increased by provisions charged to operations and recoveries of loans pre-
viously charged off. The allowance is reduced by loans charged-off when they
are deemed uncollectible by the Bank's management. The following table con-
tains information relative to the allowance for loan and lease losses for the
last five years ending December 31:
(in thousands of dollars) 1999 1998 1997 1996 1995
-----------------------------------------------
Allowance for loan losses
at the beginning of the
year $4,916 $4,923 $4,274 $4,283 $3,937
Loans charged off:
Real Estate 0 23 236 0 0
Installment & Credit
Card 259 260 264 342 271
Lease Financings 0 4 10 0 1
Commercial & Industrial 2 196 41 173 15
-----------------------------------------------
Total Loans Charged Off 261 483 551 515 287
Recoveries on loans
charged off:
Real Estate 0 1 0 2 0
Installment & Credit
Card 144 205 187 153 151
Lease Financings 5 3 7 0 139
Commercial & Industrial 213 27 100 51 113
-----------------------------------------------
Total Recoveries 362 236 294 206 403
Net Loans Charged Off (101) 247 257 309 (116)
Provision for Loan Losses 180 240 906 300 230
--------------------------------------------------
Allowance for Loan Losses
at the End of the Year $5,197 $4,916 $4,923 $4,274 $4,283
=================================================
Ratio of net charge-offs
(recoveries to average
loans) -0.03% 0.08% 0.08% 0.11% -0.04%
Allowance for loan losses
to loans 1.46% 1.51% 1.52% 1.48% 1.58%
13
The following table shows a year-end breakdown of the allowance for loan losses
allocated by loan category. While management's periodic analysis of the ade-
quacy of the allowance for loan losses may allocate portions of the allowance
for specific identified problem loans, the entire allowance is available for
any loan charge-offs that occur.
(in thousands of dollars) 1999 1998 1997 1996 1995
----------------------------------------------
Real Estate $356 $253 $246 $554 $245
Installment & Lease 181 102 106 85 92
Commercial & Industrial 2,220 1,796 1,903 1,425 399
Credit Card Receivables 0 9 10 22 22
Other Loans 9 13 1 0 0
Unallocated 2,431 2,743 3,657 2,188 3,525
----------------------------------------------
$5,197 $4,916 $5,923 $4,274 $4,283
==============================================
Percent of loans in each category to total loans
1999 1998 1997 1996 1995
----------------------------------------------
Real Estate 45% 44% 42% 40% 39%
Installment & Credit Card 14% 15% 16% 19% 21%
Commercial & Industrial 41% 40% 41% 40% 39%
Lease Financings 1% 1% 1% 1% 1%
Other Loans 0% 0% 0% 0% 0%
-----------------------------------------------
100% 100% 100% 100% 100%
===============================================
Management's allocation of the allowance for loan and lease losses is based on
several factors. First, consideration is given to the current portfolio.
Management has an internal loan review function that is designed to identify
problem and impaired loans and the losses that may be expected if the bor-
rower is unable to continue servicing the debt. Management will use the
amount of loss that is expected on those loans. The second step is to review
the prior charge-off history of each category of loan. In this step, manage-
ment will review the prior three year average charge-offs and compare that to
the expected loss identifued in the first step and will adjust the allocation
accordingly. The third step is to review any loans that have been classified
by the regulatory examiners and allocate the specific loss portion that is
determined by the examiners.
At December 31, 1999 the ratio of the reserve for loan losses to total net loans
and leases was 1.46%, and the ratio of loans 30 days or more past due and still
accruing as a percentage of total net loans and leases was .34%. Based on these
ratios, management believes the current allowance for loan and lease losses
is adequate to absorb probable future losses.
DEPOSITS
WAYNE BANCORP, INC.
The following tables present the average deposit amounts and the rates paid on
those deposits for the last three years.
(in thousands of dollars) Year End December 31,
1999 1998 1997
Amount: ----------------------------
Non-interest bearing demand $65,214 $56,342 $56,920
NOW and money market accounts 117,418 97,991 78,810
Savings 84,499 80,012 81,704
Time deposits 175,031 175,335 172,898
-------------------------------
$442,162 $409,680 $390,332
===============================
Average rate for the year:
Non-interest bearing demand 0% 0% 0%
Interest bearing demand 2.92% 2.86% 2.70%
Savings 2.66% 2.96% 3.01%
Time deposits 5.07% 5.41% 5.43%
The maturity distribution of certificates of deposit of $100,000 or more at
December 31, 1999 are as follows:
(in thousands of dollars)
Three months or less $7,234
Over three months through six months 6,014
Over six months through twelve months 5,331
Over twelve months 13,409
----------
Total $31,988
==========
RETURN ON EQUITY AND ASSETS
WAYNE BANCORP, INC.
The following table sets for operating and capital ratios of the Company
calculated on average daily balances:
Year End December 31,
1999 1998 1997
-----------------------------
Return on Average Assets 1.47% 1.44% 1.19%
Return on Average Equity 14.44% 12.60% 10.69%
Dividend Payout Ratio 35.58% 31.95% 31.38%
Average Equity to Average Asset Ratio 10.18% 11.39% 11.13%
SHORT-TERM BORROWINGS
WAYNE BANCORP, INC.
The following table represents information on federal funds purchased and
securities sold under agreements to repurchase for the last three years:
(in thousands of dollars) Year End December 31,
1999 1998 1997
-----------------------------
Amount outstanding at year end $24,480 $36,945 $37,503
Weighted average interest rate 4.56% 4.00% 4.78%
Maximum outstanding at any month-end 40,202 39,013 37,665
Average outstanding during the year 29,120 35,835 31,465
Weighted average rate during the year 4.19% 4.40% 4.79%
The Company enters into sales of securities under agreements to repurchase for
periods up to 29 days, which are treated as financings and reflected in the
consolidated balance sheet as a liability. The Company has borrowing lines
of credit, "federal funds purchased," extended by correspondent banks. At
December 31, 1999 the Company had $40.7 million of available credit, of which
none was used.
The Company also obtains funding from the Federal Home Loan Bank (FHLB) of
Cincinnati. The FHLB borrowings consist of both fixed and variable rate
notes, and are secured by a blanket pledge of the Company's 1-4 family resi-
dential real estate loan portfolio and FHLB stock. Principal balances on
these borrowings were $1,288,000 and $2,558,000 at December 31, 1999 and
1998, and the weighted-average interest rate on these borrowings was 5.92%
and 6.58% respectively.
ITEM 2. PROPERTIES
The principal offices of the Company, WCNB and MID are located at 112 West
Liberty Street, Wooster, Ohio, while the principal office of CVB is located
at 20 South Main Street, Rittman, Ohio. At December 31, 1999, the Company
owned 18 of its 22 facilities and leased the remaining four, all of which are
located in the State of Ohio. The Company operates 15 offices in Wayne
County, four in Medina County, two in Stark County and one in Holmes, County.
ITEM 3. LEGAL PROCEEDINGS
There is no pending litigation of a material nature in which the Company is in-
volved and no such legal proceedings were terminated during the fourth quarter
of 1999. Furthermore, there are no material proceedings in which any direc-
tor, officer or affiliate of the Registrant, or any associate of such direc-
tor of officer, is a party, or has a material interest, adverse to the Com-
pany. As a part of its ordinary course of business, the Company may be a party
to lawsuits (such as garnishment proceedings) involving claims to the ownership
of funds in particular accounts and involving the collection of past due
accounts. All such litigation is incidental to the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended December 31, 1999, there were no
matters submitted to a vote of security holders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Reference is made to the section entitled "Dividend and Market Price Data" on
Page 2 of the 1999 Annual Report to Shareholders for information pertaining
to the principal market for the Registant's Common Stock, market prices,
number of shareholders and dividends, which is incorporated herein by refer-
ence. Reference is made to Note 14, "Regulatory Matters" on pages 20 and 21
of the 1999 Annual Report to Shareholders for information concerning dividend
restrictions, which is incorporated herin by reference.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the table entitled "Five Year Financial Summary" on page 1
of the 1999 Annual Report to Shareholders, which is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Reference is made to the section entitled "Management Discussion and Analysis"
on pages 23 through 31 of the 1999 Annual Report to Shareholders which is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to the section entitled "Asset and Liability Management" on
page 30 of the 1999 Annual Report to Shareholders which is incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and the Report of Independent Auditors
are included on pages 9 through 22 of the 1999 Annual Report to Shareholders,
which is incorporated herein by reference.
16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
No changes in or disagreements with the independent accountants regarding
accounting and financial disclosures have occurred.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held April 20, 2000 for information as to the directors and
nominees for directorships of the Registrant, including other directorships
held by such director, or persons nominated to become a director, of the
Registrant and executive officers of the Registrant which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held April 20, 2000 for information regarding compensation
paid in excess of $100,000 to executive officers of the Registrant and to the
Registrant's Proxy Statement with respect to Salaried Employees Profit Sharing
Plan, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Reference is made to the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held April 20, 2000 for information regarding beneficial
ownership of the Company's stock which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the Registrant's Proxy Statement which is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) and (2) Financial Statements and Schedules
The following financial statements and reports of Independent Auditors appear on
pages 9 through 22 of the Company's 1999 Annual Report to Shareholders which
financial statements are incorporated herein by reference and attached hereto:
Report of Crowe, Chizek and Company LLP, Independent Auditors
Consolidated Balance Sheets, December 31, 1999 and 1998
Consolidated Statements of Income and Comprehensive Income, Years
Ended December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows, Years Ended December 31,
1999, 1998, and 1997
Consolidated Statements of Shareholders' Equity, Years Ended
December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are inap-
plicable and, therefore, have been omitted.
17
(3) Listing of Exhibits
Exhibit
Number
---------------
3(a) Amended Articles of Incorporation of Wayne Bancorp, Inc., were
filed with the Company's Annual Report on Form 10-K for the
year ended December 31, 1994 and are incorporated herein by
reference.
3(b) Wayne Bancorp, Inc., Amended Code of Regulations (Bylaws) were
filed with the Company's Annual Report on Form 10-K for the
year ended December 31, 1992 and is incorporated herein by
reference.
9(a) Trust Division Policy - voting own Bank stock was filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1987 and is incorporated herein by reference.
9(b) Trust Division Policy - proxy voting policy was filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1987 and is incorporated herein by reference.
10 Wayne County National Bank Salaried Employee Profit Sharing
Trust was filed with the Company's Annual Report on Form
10-K for the year ended December 31, 1986 and is incorporated
herein by reference.
10(a) Salaried Employee Profit Sharing Plan Amended effective January
1, 1987 was filed with the Company's Annual Report on Form
10-K for the year ended December 31, 1987 and is incorporated
herein by reference.
10(b) Employee Stock Ownership Plan effective on January 1, 1987 was
filed with the Company's Annual Report on Form 10-K for the
year ended December 31, 1987 and is incorporated herein by
reference.
10(c) Change in Control Agreements were filed with the Company's Form
10-Q dated September 30, 1998 and are incorporated herein by
reference.
10(d) The 1999 Incentive Stock Option Plan as recommended by the Board
of Directors is filed with the Company's, 1998, Notice of
Annual Shareholders' Meeting and is incorporated herein by
reference.
13 Annual Report to Shareholders for the year ended December 31,
1999.
21 Subsidiaries of the Registrant
27 Financial Data Schedule
28 Notice of Annual Shareholders' Meeting
(b) Reports on Form 8-K
There were no Form 8-K's filed during the last quarter of the period covered by
this report.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934,the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Wayne Bancorp, Inc.
Date: March 27, 2000 By:_____________________________
Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
on Form 10-K has been signed below by the following persons on behalf of the
Registrant in the Capacities and on dates as indicated.
Signature Capacity with Registrant Date
___________________________ ____________________
David L. Christopher Director, Chairman of the Board,
and CEO
___________________________ ____________________
Philip S. Swope Chairman, President and CEO,
Chippewa Valley Bank
___________________________ ____________________
James O. Basford Director
___________________________ ____________________
David P. Boyle, CPA President and Chief Operating
Officer, Wayne County National Bank
___________________________ ____________________
Gwenn E. Bull Director
___________________________ ____________________
Dennis B. Donahue Director
___________________________ ____________________
B. Diane Gordon Director
___________________________ ____________________
John C. Johnston, III Director
___________________________ ____________________
Stephen L. Shapiro Director
___________________________ ____________________
Jeffrey E. Smith Director
___________________________ ____________________
David E. Taylor Director
___________________________ ____________________
Bala Venkataraman Director
19
EXHIBIT (21)
SUBSIDIARIES OF THE REGISTRANT
NAME STATE OF INCORPORATION
Wayne County National Bank Ohio
Chippewa Valley Bank Ohio
Wayne National Corporation Ohio
MidOhio Data, Incorporated Ohio
FIVE YEAR FINANCIAL SUMMARY (1)
(in thousands of dollars except
per share data) For the Years Ended December 31,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------
Statement of Income Summary:
Total Operating Income (2).... $41,862 $41,497 $39,866 $38,684 $34,283
Total Operating Expense....... 30,704 31,374 31,225 29,426 26,739
Total Interest Income......... 37,830 37,773 36,289 34,243 31,067
Total Interest Expense........ 16,046 16,331 15,523 14,765 13,050
Net Interest Income........... 21,784 21,442 20,766 19,478 18,017
Provision for Loan Losses..... 180 240 906 300 230
Income Before Income Tax
Expense...................... 11,158 10,123 8,641 9,258 7,544
Income Tax Expense............ 3,303 2,811 2,921 2,748 2,147
Net Income.................... 7,855 7,312 5,720 6,510 5,397
Per Share Data:
Net Income ................... $1.69 $1.50 $1.16 $1.32 $1.09
Cash Dividends................ 0.60 0.48 0.42 0.37 0.34
Book Value.................... 11.57 12.18 11.36 10.50 9.59
Balance Sheet Data:
Total Loans and Leases........ $356,503 $324,199 $324,833 $289,391 $271,578
Allowance for Loan Losses..... 5,197 4,916 4,923 4,274 4,283
Securities.................... 150,018 175,007 141,922 154,229 126,306
Total Deposits................ 461,815 435,143 409,891 396,639 360,707
Shareholders' Equity.......... 53,246 59,067 55,810 51,592 47,195
Total Assets.................. 545,888 538,677 508,378 484,032 432,300
Other Data:
Employees..................... 254 257 262 251 252
Shareholders.................. 1,439 1,452 1,484 1,434 1,391
Cash Dividends................ $2,795 $2,336 $1,795 $1,595 $1,470
Cash Dividends as a Percent
of Net Income................ 35.58% 31.95% 31.38% 24.50% 27.24%
Financial Ratios:
Return on Average Assets...... 1.47% 1.44% 1.19% 1.43% 1.32%
Return on Beginning Equity.... 13.30% 13.10% 11.09% 13.79% 12.69%
Equity to Assets.............. 9.75% 10.97% 10.98% 10.66% 10.92%
Loans to Deposits............. 77.20% 74.50% 79.25% 72.96% 75.29%
Loans to Total Assets......... 65.31% 60.18% 63.90% 59.79% 62.82%
Allowance for Loan Losses to
Total Loans and Leases....... 1.46% 1.52% 1.52% 1.48% 1.58%
1. This summary should be read in conjunction with the related Consolidated
Financial Statements and Notes to the Financial Statements. Per share
data has been retroactively adjusted for stock dividends, stock splits
and the acquisition of Chippewa Valley Bancshares, Inc.
2. Operating income for 1996 includes a gain on the sale of WCNB's credit card
portfolio of $824 thousand. The after tax effect on net income was $544
thousand, or $.11 per share.
SHAREHOLDER INFORMATION
Executive Offices Transfer Agent
112 West Liberty Street Registrar & Transfer Company
P.O. Box 757 10 Commerce Drive, Cranford NJ 07016
Wooster, Ohio 44691 Attn: Transfer Department
(330) 264-1222 800-368-5948 * Fax: 908-272-1006
All common shares of Wayne Bancorp, Inc. are voting shares and are traded on
NASDAQ, under the symbol "WNNB" as a Small Cap Issue. At December 31, 1999
there are 4,602,985 shares outstanding and 1,439 shareholders of record. The
range of market prices are compiled from data provided by the national market
system.
DIVIDEND AND MARKET PRICE DATA
Cash
Dividends
Quarter Ended High Low Paid
- -------------------------------------------------------------------------
1999 March 31 .................. $35.75 $34.00 $0.15
June 30.................... 35.75 33.63 0.15
September 30............... 33.94 25.50 0.15
December 31................ 30.00 23.50 0.15
1998 March 31................... $47.75 $38.50 $0.09
June 30.................... 40.25 34.38 0.11
September 30............... 37.00 28.50 0.13
December 31................ 35.75 29.00 0.15
FORM 10-K
A copy of the Company's 1999 Annual Report on Form 10-K filed with the
Securities and Exchange Commission is available to shareholders without
charge. To obtain a copy, direct your request to David P. Boyle, Treasurer,
P.O. Box 757, Wooster, OH 44691.
January 27, 2000
The management of Wayne Bancorp, Inc. has prepared and is responsible for the
financial statements and for the integrity and consistency of other related
information contained in the Annual Report. In the opinion of management,
the financial statements, which necessarily include amounts that are based on
management estimates and judgments, have been prepared in conformity with
generally accepted accounting principles appropriate to the circumstances.
The Company maintains a system of internal accounting controls that is designed
to provide reasonable assurance that assets are safeguarded, that transactions
are executed in accordance with Company authorizations and policies, and that
transactions are properly recorded so as to permit preparation of financial
statements that will fairly present the financial position and results of
operations in conformity with generally accepted accounting principles.
Internal controls are augmented by written policies covering standards of
personal and business conduct and an organizational structure providing for
division of responsibility and authority.
The effectiveness of and compliance with established control systems is
monitored through a continuous program of internal audit and credit examina-
tions. In recognition of cost-benefit relationships and inherent control
limitations, some features of the control system are designed to detect rather
than prevent errors, irregularities and departures from approved policies
and practices. Management believes that the system of controls is adequate
to prevent or detect errors or irregularities that would be material to the
financial statements and that timely corrective actions have been initiated
when appropriate.
The Company engaged Crowe, Chizek and Company LLP, independent certified
public accountants, to render an opinion on the financial statements. The
accountants have advised management that they were provided with access to
all information and records deemed necessary to render their opinion.
The Board of Directors exercises its responsibility for the financial state-
ments and related information through the Audit Committee, which is
comprised entirely of outside directors. The Audit Committee meets on a
regular basis with mangement, the Internal Auditor of the Company, and Crowe,
Chizek and Company LLP to assess the scope of the annual audit plan, to review
the status and results of audits, to review the Annual Report and Form 10-K,
including major changes in accounting policy and reporting practices, and to
approve non-audit related services rendered by the independent auditors.
Crowe, Chizek and Company LLP also meets with the Audit Committee, without
management being present, to afford them the opportunity to express their
opinion on the adequacy of management's compliance with the established
policies and procedures and the quality of the financial reporting.
David L. Christopher David P. Boyle, CPA
Chairman of the Board Treasurer
& Chief Executive Officer Wayne Bancorp, Inc.
Wayne Bancorp, Inc.
Report of Crowe, Chizek and Company LLP
Independent Auditors
Board of Directors and Shareholders
Wayne Bancorp, Inc. - Wooster, Ohio
We have audited the accompanying consolidated balance sheets of Wayne Bancorp,
Inc. as of December 31, 1999 and 1998 and the related consolidated statements
of income and comprehensive income, cash flows and changes in shareholders'
equity for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform our audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant esti-
mates made by management, as well as evaluating the overall financial state-
ment presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wayne Bancorp,
Inc. as of December 31, 1999 and 1998 and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999 in conformity with generally accepted accounting principles.
Columbus, Ohio
January 27, 2000 Crowe, Chizek and Company LLP
CONSOLIDATED BALANCE SHEETS
December 31,
(In thousands of dollars except share data) 1999 1998
- -------------------------------------------------------------------------------
ASSETS
Cash and due from banks......................... $23,660 $20,470
Federal funds sold.............................. 3,720 7,340
---------------------------
Total cash and cash equivalents........ 27,380 27,810
Securities, available-for-sale.................. 150,018 175,007
Loans and leases ............................... 356,503 324,199
Less:
Allowance for loan losses ................ 5,197 4,916
--------------------------
Net loans and leases...................... 351,306 319,283
Premises and equipment ......................... 9,260 8,591
Accrued income receivable and other assets ..... 7,924 7,986
--------------------------
TOTAL ASSETS................................... $545,888 $538,677
===========================
LIABILITIES
Deposits
Interest bearing .............................. $395,087 $369,328
Non-interest bearing........................... 66,728 65,815
-------------------------
Total deposits.................................. 461,815 435,143
Short-term borrowings........................... 25,683 36,989
Federal Home Loan Bank advances................. 1,288 2,558
ESOP loan....................................... 400 600
Other liabilities............................... 3,456 4,320
-------------------------
Total liabilities............................. 492,642 479,610
SHAREHOLDERS' EQUITY
Common stock, stated value $1.00................. 4,917 4,917
Shares authorized - 12,000,000 in 1999 and 1998
Shares issued - 4,917,218 in 1999 and 1998
Shares outstanding - 4,602,985 in 1999 and
4,849,974 in 1998
Paid in capital................................. 13,256 13,310
Retained earnings .............................. 47,049 41,989
Unearned ESOP shares - 4,545 shares in 1999 and
9,091 shares in 1998 (200) (400)
Treasury stock, at cost - 314,233 shares in 1999
and 67,244 shares in 1998 (10,887) (2,308)
Accumulated other comprehensive income.......... (889) 1,559
------------------------
Total shareholders' equity...................... 53,246 59,067
--------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $545,888 $538,677
==========================
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands of dollars except Years ended December 31,
per share data) 1999 1998 1997
- ----------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans....... $28,650 $28,264 $27,529
Interest on securities:
Taxable....................... 7,135 7,299 6,952
Nontaxable.................... 1,660 1,513 1,517
Other interest income............ 385 697 291
------------------------------------
Total interest income............ 37,830 37,773 36,289
INTEREST EXPENSE:
Interest on deposits ............ 14,548 14,645 13,978
Interest on repurchase agreements
and other borrowed funds........ 1,498 1,686 1,545
------------------------------------
Total interest expense........... 16,046 16,331 15,523
------------------------------------
NET INTEREST INCOME............... 21,784 21,442 20,766
Provision for loan losses ....... 180 240 906
------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES....... 21,604 21,202 19,860
OTHER INCOME:
Service charges and fees on
deposit accounts................ 1,737 1,724 1,695
Income from fiduciary activities. 1,506 1,414 1,343
Net gains (losses) on sale of
loans........................... 30 (32)
Net gains (losses) on sales of
securities...................... 51 8 (8)
Other noninterest income......... 708 610 547
------------------------------------
Total other income.............. 4,032 3,724 3,577
OTHER EXPENSES:
Salaries and employee benefits .. 7,654 7,520 7,486
Occupancy and equipment.......... 1,911 1,805 1,735
Other operating expenses ........ 4,913 5,478 5,575
------------------------------------
Total other expenses............. 14,478 14,803 14,796
INCOME BEFORE INCOME TAX EXPENSE.. 11,158 10,123 8,641
INCOME TAX EXPENSE................ 3,303 2,811 2,921
------------------------------------
NET INCOME....................... $7,855 $7,312 $5,720
Other comprehensive income, net of tax
Unrealized gain(loss) on available-for-
sale securities arising during the
period........................... (2,482) 867 373
Reclassification adjustment for
amounts realized on securities
included in net income........... 34 (5) 5
---------------------------------------
Total other comprehensive
income....................... (2,448) 862 378
---------------------------------------
COMPREHENSIVE INCOME............ $5,407 $8,174 $6,098
PER SHARE DATA:
NET INCOME PER SHARE - BASIC..... $1.69 $1.50 $1.16
NET INCOME PER SHARE - DILUTED... $1.69 $1.50 $1.16
========== ========== ==========
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
(In thousands of dollars) 1999 1998 1997
- -------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income....................... $7,855 $7,312 $5,720
Adjustments to reconcile net cash
provided by operating activities:
Provision for loan losses..... 180 240 906
Depreciation and amortization. 1,331 1,328 1,647
Federal Home Loan Bank stock
dividends.................... (123) (124) (94)
Amortization of investment
security premiums and accretion
of discounts, net............ 724 117 204
Compensation expense on ESOP
shares....................... 146 154
Deferred income taxes......... (5) (21) (582)
Change in interest receivable. 345 (710) (33)
Change in interest payable.... (48) (90) (34)
Other, net.................... (349) (412) 955
------------------------------------
Net cash provided by operating
activities.................... 10,056 7,794 8,689
INVESTING ACTIVITIES
Securities available-for-sale:
Purchases....................... (47,268) (82,255) (42,792)
Proceeds from maturities and
repayments.................... 57,773 46,503 44,844
Proceeds from sales............. 10,174 2,467 8,554
Securities held-to-maturity:
Purchases....................... (990) (1,900)
Proceeds from maturities and
repayments..................... 2,500 4,066
Net increase in loans and leases. (32,669) (12,090) (35,774)
Proceeds from sales of loans..... 466 11,914
Purchase of premises and equipment
(net)........................... (1,683) (679) (1,224)
------------------------------------
Net cash (used) by investing
activities...................... (13,207) (32,630) (24,226)
FINANCING ACTIVITIES
Net increase in deposits......... 26,672 25,252 13,252
Net increase (decrease) in short-
term borrowings................. (11,307) (960) 6,063
Proceeds from Federal Home Loan
Bank advances................... 12,000 1,800 838
Repayment of Federal Home Loan
Bank advances.................. (13,270) (66) (14)
Cash dividends paid.............. (2,398) (1,997) (1,505)
Treasury stock purchased, net.... (8,976) (2,474) (375)
------------------------------------
Net cash provided by financing
activities...................... 2,721 21,555 18,259
Increase (decrease) in cash and
cash equivalents................. (430) (3,281) 2,722
Cash and cash equivalents at
beginning of year................ 27,810 31,091 28,369
------------------------------------
Cash and cash equivalents at
end of year...................... $27,380 $27,810 $31,091
====================================
Significant non-cash transactions:
Transfer of held-to-maturity
securities to available-for-sale $17,681
Transfer of loans from portfolio
to held for sale................ $11,914
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Years Ended December 31, 1999
Accumulated
(In thousands of Unearned Other
dollars except Common Paid-In Retained Treasury ESOP Comprehensive
per share data) Stock Capital Earnings Stock Shares Income Total
- -------------------------------------------------------------------------------
Balance, January 1,
1997......... $4,917 $13,356 $33,088 ($88) $ $319 $51,592
Net income..... 5,720 5,720
Cash dividends
($.42 per share) (1,652) (1,652)
Cash dividends
of pooled affiliates
($.32 per share) (143) (143)
Purchase of treasury
stock (17,091 shares) (674) (674)
Dividends reinvested
(7,264 shares) 290 290
Sale of treasury
stock (8,325 shares) 299 299
Change in estimated
fair value of securities
available for sale 378 378
-------------------------------------------------------
Balance, December 31,
1997.......... 4,917 13,356 37,013 (173) 697 55,810
Net income...... 7,312 7,312
Cash dividends
($.48 per share) (2,336) (2,336)
Purchase of treasury
stock (80,556 shares) (2,907) (2,907)
Dividends reinvested
(9,495 shares) 339 339
Sale of treasury
stock (10,619 shares) 433 433
Common stock acquired
pursuant to ESOP (600) (600)
Shares issued under
ESOP (46) 200 154
Change in estimated
fair value of securities
available-for-sale 862 862
----------------------------------------------------------
Balance, December 31,
1998.......... 4,917 13,310 41,989 (2,308) (400) 1,559 59,067
Net income...... 7,855 7,855
Cash dividends
($.60 per share) (2,795) (2,795)
Purchase of treasury
stock (260,533 shares) (8,976) (8,976)
Dividends reinvested
(13,544 shares) 397 397
Shares earned under
ESOP............. (54) 200 146
Change in estimated
fair value of securities
available-for-sale (2,448) (2,448)
----------------------------------------------------------
Balance, December 31,
1999.......... $4,917 $13,256 $47,049 ($10,887)($200) ($889) $53,246
==========================================================
See Notes to Consolidated Financial Statements
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
(In thousands of dollars except per share data)
1. NATURE OF OPERATIONS
Wayne Bancorp, Inc., is a multi-bank holding company, its bank subsidiaries,
Wayne County National Bank (WCNB) and Chippewa Valley Bank (CVB), conduct
general commercial banking business, while its non-bank subsidiary, MidOhio
Data, Inc. (MID) performs data processing services for WCNB. Wayne National
Corporation, a wholly-owned subsidiary of WCNB, is a partner in a leasing
company which is no longer active.
The Company's bank affiliates operate in the single industry of commercial
banking, while these subsidiaries offer a wide variety of services and pro-
ducts, they are all deemed to be part of commercial banking. The Company's
non-bank affiliate conducts operations solely related to data processing and
currently serves WCNB.
The Company has 23 banking locations in Wayne, Holmes, Medina and Stark counties
in Ohio. Through this branch network, the Company provides a wide variety of
services to businesses, individuals, institutional and governmental custo-
mers. These services include commercial and personal checking accounts,
savings and time deposits, business and personal loans, real estate loans,
leases, safe deposit facilities and electronic banking. Substantially all
loans are secured by specific identified collateral including business
assets, consumer assets and real estate. Commercial loans are expected to be
repaid from cash flow from operations of businesses. Real estate loans are
secured by both residential and commercial real estate.
The Company operates a Trust Department which offers comprehensive trust admin-
istrative services, and agency, trust and investment services to individuals,
corporations, partnerships, institutions and municipalities. In addition,
the Company provides retail investment services, including mutual funds and
annuities as well as discount brokerage services which offer stock trading
services to customers.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Wayne Bancorp,
Inc. and its wholly owned subsidiaries, WCNB, CVB and MID, as well as WCNB's
wholly owned subsidiary Wayne National Corporation, collectively referred to
as the Company. All significant intercompany transactions have been
eliminated.
Use of Estimates in the Preparation of Financial Statements
To prepare financial statements in conformity with generally accepted accounting
principles,management makes estimates and assumptions based on available
information. These estimates and assumptions affect amounts reported in the
financial statements and disclosures provided; future results could differ.
The collectibility of loans, fair value of financial instruments and the status
of contingencies are particularly subject to change.
Cash Flows
Cash and cash equivalents includes cash, deposits with other financial
institutions and federal funds sold. Net cash flows are reported for loan
and deposit transactions. For the years ended December 31, 1999, 1998 and
1997, income taxes paid totaled $3.10 million, $3.32 million, and $3.09 million
and interest paid totaled $16.09 million, $16.42 million and $15.56 million
respectively.
Securities
Securities can be classified as held-to-maturity, available-for-sale, or
trading. Securities are classified as held-to-maturity and carried at
amoritzed cost, when management has the positive intent and ability to hold
them to maturity. Securities are classified as available-for-sale when they may
be sold prior to maturity. Securities available-for-sale may be sold by the
Company if needed for liquidity, asset-liability management, or other rea-
sons. Securities available-for-sale are carried at fair value, with unreal-
ized holding gains and losses reported separately as part of accumulated
other comprehensive income in shareholders' equity, net of tax. Securities
are classified as trading when the security is purchased principally for sale
in the near term. These securites are carried at fair value, with unrealized
gains and losses included in earnings. Other securities, such as the Federal
Reserve Bank stock and Federal Home Loan Bank stock, are carried at cost.
Interest income includes amortization of purchase premiums and discounts.
Realized gains or losses are calculated based on the amortized cost of the
specific security sold. For the periods ending December 31, 1999 and 1998,
the Company's securities were classified exclusivley as available-for-sale.
Loans
Loans and leases are reported at principal balances outstanding, net of deferred
loan fees and costs. Loans held for sale are reported at the lower of cost or
market on an aggregate basis. Interest income on leases is recognized under
a method which provides for a level return on the net investment outstanding.
Interest income on loans is reported on the interest method and includes
amortization of net deferred loan fees and costs over the term of the loan.
Interest income is not recorded when management believes the collection of
interest is doubtful, typically when payments are past due over 90 days.
Payments received on such loans are reported as principal reductions.
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance established through a
provision for loan losses charged to expense. The allowance is the amount
which, in the opinion of management, is necessary to provide for probable
losses in the loan portfolio. Management's determination of the adequacy of
the allowance is based on evaluations of the collectibility of loans out-
standing, taking into consideration prior loan loss experience, loan quality,
current economic conditions and other pertinent factors. Loans which are
deemed uncollectible are charged-off and deducted from the allowance and
recoveries on loans previously charged-off are restored to the allowance.
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller balance loans of
similar nature, such as residential mortgage and consumer loans, and on an
individual loan basis for other loans. In addition, loans held for sale and
leases are excluded from consideration of impairment. If a loan is impaired,
a portion of the allowance is allocated so that the loan is reported, net, at
the present value of future cash flows using the loan's existing rate or at the
fair value of collateral if repayment is expected exclusively from the col-
lateral. Loans are evaluated for impairment when payments are delayed,
typically 60 days or more, or when it is probable that all principal and
interest amounts will not be collected according to the original terms of the
loan.
Other Real Estate
Other real estate is recorded at the lower of cost or fair value, less estimated
costs to sell. Any reduction from the carrying value of the related loan to
fair value at the time the property is acquired is accounted for as a loan
charge-off. Any subsequent reductions in the fair value are reflected in a
valuation allowance through a charge to other real estate expense. Expenses
incurred to carry other real estate are charged to operations as incurred.
There was no other real estate held at December 31, 1999 and 1998.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. De-
preciation is computed on a straight-line method over the estimated useful
life of the asset. Assets are reviewed for impairment when events indicate
the carrying amount may not be recoverable. Maintenance and repairs are charged
to expense as incurred and major improvements are capitalized.
Intangibles
Purchases of intangibles, primarily Goodwill and Core Deposit Intangible, is the
excess of purchase price over identified tangible net assets in a business
acquisition. Intangibles are included in Other Assets and are recorded at
cost, less accumulated amortization, and amortized over their useful lives.
Goodwill consists of two components arising from separate acquisitions made by
the Company's subsidiaries. In July of 1991, WCNB acquired four branches of
the former First Savings and Loan Company of Massillon, Ohio, and in March of
1996, CVB purchased two branches from the First National Bank of Ohio. The
amortization period for Goodwill is ten years for WCNB and fifteen years for
CVB, and their balances at December 31, 1999 were $199,000 and $910,000.
Core Deposit Intangible which arose from WCNB's acquisition, is being amor-
tized over a ten year period and has a balance of $56,000 at December 31,
1999. Amortization of these intangibles totaled $317,000 for 1999 and 1998,
and $789,000 for 1997.
Trust Department Assets and Income
Assets held by the Company in a fiduciary or other capacity for its trust cus-
tomers are not included in the accompanying consolidated financial statements
since such items are not assets of the Company. Fee income on fiduciary
activities is accrued based on expected fees to be collected from various fi-
diciary accounts. These fees are primarily based on, among other things, a
fixed regular fee, a percentage of assets managed fee, and a percentage of
the earnings on trust assets.
Repurchase Agreements
Substantially all repurchase agreement liabilities represent amounts advanced by
various customers. Securities are pledged to cover these liabilities, which are
not covered by federal deposit insurance.
Stock Compensation
Employee compensation expense under stock option plans is reported if options
are granted below market price at grant date. Pro forma disclosures of net
income and earnings per share are shown using the fair value method of SFAS
No. 123 to measure expense.
Income Taxes
The Company records income tax expense based on the amount of taxes due on its
tax return plus the change in deferred taxes. Deferred tax assets and lia-
bilities are the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities, computed
by using enacted tax rates. A valuation allowance, if needed, reduces defer-
red tax assets to the amount expected to be realized.
Employee Stock Ownership Plans
The cost of shares issued to the ESOP, but not yet allocated to participants, is
shown as a reduction of shareholders' equity. Compensation expense is based on
the market price of the shares as they are committed to be released to par-
ticipant accounts. Dividends on allocated ESOP shares reduce retained
earnings; dividends on unearned ESOP shares reduce debt and accrued interest.
Per Share Amounts
Net income per share is computed by dividing net income by the weighted-average
number of shares outstanding during the period, as restated for shares issued
in business combinations accounted for as poolings-of-interest, stock splits
and stock dividends. Basic and dilutive weighted-average shares out-standing
for 1999, 1998 and 1997 were 4,658,781, 4,879,649 and 4,913,784. Unreleased
ESOP shares are not considered to be outstanding for the purpose of deter-
mining weighted-average shares. The effect of stock options granted were
non-dilutive as the exercise price exceeded the market value at year end.
Business Combination
Effective March 31, 1998, Chippewa Valley Bancshares, Inc., Rittman, Ohio,
merged into the Company. The transaction was affected through the exchange
of 2.1916 common shares of the Company's stock for each of Chippewa's out-
standing common shares, with cash paid in lieu of fractional shares. There were
981,837 shares issued in this transaction. Chippewa had assets of $140.2 mil-
lion and deposits of $121.3 million with branches in Wayne, Medina and Summit
counties, Ohio. Chippewa will operate as a wholly-owned subsidiary of the
Company.
The acquisition of Chippewa was accounted for as a pooling-of-interests. The
consolidated financial statements give retroactive effect to the trans-
actions. The following is a summary of the separate results of operations of
the Company and Chippewa for the three months ended March 31, 1998 and the year
ended December 31, 1997.
(dollars in thousands)
Three months
ended Year ended
March 31, December 31,
1998 1997
-----------------------------
Net interest income
Company.......... $4,026 $15,699
Chippewa......... 1,319 5,067
------------------------------
Combined....... $5,345 $20,766
===============================
Net income
Company.......... $1,349 $5,621
Chippewa......... 368 99
-------------------------------
Combined....... $1,717 $5,720
===============================
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income.
Other comprehensive income includes unrealized gains and losses on securities
available-for-sale which are also recognized as separate components of equity.
Dividend Reinvestment Plan
The Company maintains a dividend reinvestment plan whereby the Company's share-
holders are eligible to acquire new common shares of stock at 100% of the cur-
rent estimated fair market value in lieu of receiving cash dividends. Share-
holders can have all or part of their normal cash dividends reinvested in the
Company's stock. During 1999, 13,544 shares of stock were allocated under
the plan in lieu of cash dividends of $397 thousand. The Company can either
acquire these shares on the open market to fund its obligation, or use shares
held as treasury stock.
Dividend Restrictions
Banking regulations require maintenance of certain capital levels which may
limit the amount of dividends paid by the bank subsidiaries to the holding
company or the holding company to shareholders. See Note #14 for regulatory
capital requirements and dividend restrictions.
Fair Values of Financial Instruments
Fair values of financial instruments are estimated using relevant market infor-
mation and other assumptions, as more fully disclosed separately. Fair value
estimates involve uncertainties and matters of significant judgement regard-
ing interest rates, credit risk, prepayments, and other factors, especially
in the absence of broad markets for particular items. Changes in assumptions
or in market conditions could significantly affect these estimates. The fair
value of estimates of existing on- and off-balance sheet financial instruments
does not include the value of anticipated future business or the values of
assets and liabilities not considered financial instruments.
New Accounting Pronouncement
Beginning January 1, 2001, a new accounting standard will require all deriv-
atives to be recorded at fair value. Unless designated as hedges, changes in
these fair values will be recorded in the income statement. Fair value
changes involving hedges will generally be recorded by offsetting gains and
losses on the hedge item, even if the fair value of the hedged item is not
otherwise recorded. This is not expected to have a material effect but will
depend on derivative holdings when this standard applies.
Reclassifications
Certain reclassifications have been made to amounts previously reported to
conform with the current financial statement presentation.
3. SECURITIES
The summary of amortized cost and fair values of securities available-for-sale
are as follows at December 31, 1999
Gross Gross
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gains Losses Value
- ------------------------------ --------------------------------------------
U.S. Treasury................. $33,160 $17 ($261) $32,916
Federal Agency
Obligations................ 35,371 2 (453) 34,920
Mortgage-backed Securities.... 13,083 20 (141) 12,962
Obligations of States and
Political Subdivisions..... 37,931 183 (420) 37,694
Corporate Obligations......... 29,094 6 (305) 28,795
Other Securities.............. 2,726 63 (58) 2,731
-------------------------------------------
$151,365 $291 ($1,638) $150,018
===========================================
The summary of amortized cost and fair values of securities available-for-sale
are as follows at December 31, 1998:
Gross Gross
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gains Losses Value
- ------------------------------ -------------------------------------------
U.S. Treasury................. $24,132 $362 $ $24,494
Federal Agency
Obligations................. 49,597 546 (5) 50,138
Mortgage-backed Securities.... 21,104 251 (3) 21,352
Obligations of States and
Political Subdivisions...... 36,321 878 (13) 37,186
Corporate Obligations......... 38,884 213 (23) 39,074
Other Securities.............. 2,607 185 (29) 2,763
-------------------------------------------
$172,645 $2,435 ($73) $175,007
===========================================
During 1999, 1998 and 1997 proceeds from the sales of securities available-for-
sale were $10.2 million, $2.5 million and $8.6 million with gross gains of $54
thousand, $9 thousand and $2 thousand, and gross losses of $3 thousand, $1
thousand and $10 thousand included in earnings.
In connection with the merger by the Company in March 1998, CVB transferred all
of its securities classified as held-to-maturity to available-for-sale. The
securities were transferred in order to align the investment objectives of
CVB with those of WCNB. The carrying value of the securities transferred was
$17.7 million. The unrealized gain at the time the securities were trans-
ferred was $263 thousand. The after-tax effect of the transfer was an
increase in equity of approximately $174 thousand.
The amortized cost and estimated fair value of the securities at December 31,
1999 by contractual maturity, are shown below. Expected maturities may dif-
fer from the contractual maturities because borrowers may have the right to
call or prepay the obligations with or without call or prepayment penalties.
(dollars in thousands) Amortized Fair
Cost Value
---------------------
Due in one year or less... $32,563 $32,511
Due after one year
through five year........ 92,641 91,560
Due after five years
through ten years........ 9,285 9,186
Due after ten years....... 1,067 1,068
---------------------
135,556 134,325
Mortgage Backed
Securities............... 13,083 12,962
Equity Securities......... 2,726 2,731
---------------------
$151,365 $150,018
=====================
Securities were pledged to secure public and trust deposits, securities sold
under agreements to repurchase, and for other purposes required or permitted
by law. Such pledged securities at December 31, 1999 and 1998 had a carrying
amount of $70.9 million and $64.4 million, respectively.
4. LOANS AND LEASES
The composition of the loan portfolio at December 31 is as follows:
(dollars in thousands) 1999 1998
-------------------
Commercial ........... $146,504 $129,504
Real Estate........... 147,068 131,820
Consumer Installment.. 48,411 48,141
Home Equity........... 12,234 11,252
Direct Lease Financing 2,179 2,835
Credit Card.......... 0 543
Other Loans.......... 107 104
--------------------
$356,503 $324,199
====================
The Banks have granted loans to the officers and directors of the Company and
its subsidiaries and their related business interests. The aggregate dollar
amount of these loans was $6.8 million and $5.8 million at December 31, 1999
and 1998, respectively. During 1999, $3.3 million of new loans and advancements
were made and the repayments on loans to these parties totaled $2.3 million.
5. ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses is as follows:
(dollars in thousands) 1999 1998 1997
---------------------------
Balance at Beginning
of Year.................... $4,916 $4,923 $4,274
Loans Charged Off........... (261) (483) (551)
Loan Recoveries............. 362 236 294
Provision for Loan Losses... 180 240 906
----------------------------
Balance at End of Year...... $5,197 $4,916 $4,923
============================
The Company had no impaired loans at December 31, 1999 or 1998. During 1999,
the Company had no impaired loans while the average balance for impaired
loans was $153 thousand during 1998. Income earned on the cash basis for the
year ended December 31, 1998 was $3 thousand. Balances of loans past due 90
days or more and still accruing interest were immaterial at December 31, 1999
and 1998.
6. PREMISES AND EQUIPMENT
A summary of the premises and equipment balances at December 31 is as follows:
(dollars in thousands) 1999 1998
----------------
Land..................... $1,810 $1,530
Premises and Leasehold
Improvements............ 9,576 9,146
Furniture and Equipmement 7,841 6,901
-------------------
19,227 17,577
Less Accumulated
Depreciation.......... (9,967) (8,986)
-------------------
$9,260 $8,591
====================
Depreciation expense was $1.01 million in 1999, $1.01 million in 1998, and $858
thousand in 1997.
7. DEPOSITS
Time certificates of deposit with a balance of $100,000 or more were $32.0 mil-
lion and $25.3 million at December 31, 1999 and 1998 respectively. Interest
expense on these deposits was $1.37 million, $1.41 million and $1.28 million
for 1999, 1998, and 1997, respectively.
At year-end 1999, stated maturities on time certificates of deposit were as
follows:
(dollars in thousands)
2000........................ $115,789
2001........................ 43,995
2002........................ 10,303
2003........................ 9,614
2004........................ 6,833
Thereafter.................. 26
----------
$186,560
==========
8. BORROWINGS
Federal funds purchased, securities sold under agreements to repurchase and
treasury tax and loan deposits are financing arrangements. Physical control
is maintained for all securities sold under agreements to repurchase.
Securities sold under agreements to repurchase totaled $24.5 million and $37.0
million while treasury tax and loan deposits totaled $598 thousand and $44
thousand at December 31, 1999 and 1998, respectively. Information concerning
securities sold under agreements to to repurchase is as follows:
(dollars in thousands) 1999 1998
-----------------------
Average month-end balance during the year......... $28,636 $35,653
Average interest rate during the year............. 4.11% 4.40%
Maximum month-end balance during the year......... $35,436 $38,987
Securities underlying these agreements at year-end were as follows:
(dollars in thousands) 1999 1998
----------------------
Amortized cost of securities...................... $29,166 $42,024
Fair value of securities.......................... $28,943 $42,566
Federal Home Loan Bank advances include fixed and variable-rate notes from the
Federal Home Loan Bank (FHLB) of Cincinnati. Principal balances on these notes
at December 31, 1999, and 1998 were $1.3 million and $2.6 million, respec-
tively. Interest expense on these borrowings for the years ending December
31, 1999, and 1998 was $196 thousand and $58 thousand respectively. The
weighted average interest rate on these borrowings is 5.92%. These bor-
rowings are secured by a blanket pledge of the Company's one-to-four family
residential real estate loan portfolio and FHLB stock.
The principal repayments on these borrowings are as follows at December 31,
1999:
(dollars in thousands) 2000...................... $75
2001...................... 79
2002...................... 1,134
----------
$1,288
==========
Included in Short-term Borrowings are Line of Credit advances from Bank One.
These advances carry a variable interest rate. The principal balance at
Decmeber 31, 1999 was $605 thousand. The weighted average interest rate on th
Line of Credit is 7.15%, while total interest expense was $31 thousand.
There was no related balance or interest expense for the year ended December
31, 1998.
9. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value approximates carrying value for all financial in-
struments except those described below:
Securities
Fair values are based on a quoted market price, if available. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar instruments.
Loans and Leases
The fair value of fixed rate loans is estimated by discounting future cash flows
using current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. Leases are not
considered financial instruments under generally accepted accounting
principles and are, therefore, not included in the following schedules.
Deposits
Fair values for deposit liabilities with defined maturities are based on the
discounted value of future cash flows expected to be paid, using the current
rate offered for similar deposits with the same remaining maturities.
Long-term Debt
The fair value of long-term debt is estimated by discounting future cash flows
using currently available rates for similar financing.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of off-balance sheet loan commitments is considered nominal.
The estimated fair values of the Company's financial instruments are as
follows:
1999 1998
Carrying Fair Carrying Fair
(dollars in thousands) Value Value Value Value
-----------------------------------------
Financial Assets:
Cash and Short-term
Investments.................. $27,380 $27,380 $27,810 $27,810
Securities
Available-for-sale.......... 150,018 150,018 175,007 175,007
Net Loans, excluding Leases... 349,127 346,174 316,447 324,848
Accrued Interest Receivable... 4,274 4,274 4,619 4,619
Financial Liabilities:
Deposits...................... (461,815) (462,692) (435,143) (437,052)
Short-term borrowings......... (25,683) (25,683) (36,989) (36,989)
Other borrowings.............. (1,288) (1,217) (2,558) (2,576)
ESOP loan..................... (400) (400) (600) (600)
Accrued Interest Payable...... (1,604) (1,604) (1,652) (1,652)
10. EMPLOYEE BENEFIT PLANS
The Company sponsors a non-contributory Employee Stock Ownership Plan (ESOP),
and a 401(k) plan, in which all salaried employees with one year or more of
service participate. Annual contributions to the ESOP are made by the Com-
pany's subsidiaries in an amount equal to 6% of the aggregate compensation
paid in such year to all eligible participants. ESOP contributions for the
periods ending December 31, 1998 and 1997 were for WCNB only, and is prior to
the adoption of this plan by CVB. The PSRP as reflected in the table below
represents a prior benefit offered by the Company for employees of WCNB.
This plan, which was amended on May 31, 1999, called for contributions
equaling 6.37% of aggregate compensation to the profit sharing plan and
amounts equal to 2.25% of aggregate compensation being paid out in cash to
all eligible employees. The 401(k) is funded through a salary reduction
program, as well as a matching portion funded by the respective subsidiaries.
The plan policy allows the Company to match up to 50% of the employees contri-
bution, up to the first 6%. The ESOP has received a favorable determination
letter from the Internal Revenue Service on the qualified status of the ESOP
under applicable provisions of the Internal Revenue Code. Actual contribu-
tions paid to the plans, by the Company, for the three years ending December
31, are as follows:
(dollars in thousands) 1999 1998 1997
-------------------------
401(k)................... $131 $23 $23
ESOP..................... 329 244 229
PSRP..................... -- 331 310
-------------------------
$460 $598 $562
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In April 1998, the ESOP borrowed funds from an unrelated financial institution
to acquire common shares of the Company. The loan is secured by the shares
purchased with the proceeds, and will be repaid by the ESOP with funds from
discretionary contributions to the ESOP and earnings on the