Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual report pursuant to section 13 or 15 (d) of the Securities Exchange
For the fiscal year ended December 31, 1996 Commission file #0-14612
WAYNE BANCORP, INC.
(Exact name of registrant as specified in its charter)
OHIO 34-1516142
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
112 West Liberty Street
PO Box 757
Wooster, Ohio 44691 44691
(Address of principal executive offic(Zip Code)
Registrant's telephone number, including area code: (330) 264-1222
Securities registered pursuant to section 12(b) of the ANone
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $1.00 Stated Value Per Share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or fur such shorter period that the registrant was
required to file such reports), subject to such filing requirements for the
past 90 days
YES__X___ NO______
The aggregate market value of voting stock held by nonaffiliates of the
registrant most recent trade prices of such stock on March 1, 1997:
Common Stock $1.00 stated value $145,405,227
The number of shares outstanding of the issuer's classes of common stock as of
March 1, 1997:
Common Stock $1.00 stated value 3,929,871
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1996 portions of the Registrant's Proxy Statement for the Annual Shareholders
Meeting to be held March 27, 1997 are incorporated by reference into Parts I, II
and III.
TABLE OF CONTENTS
WAYNE BANCORP, INC.
FORM 10-K
PART I PAGE
Item 1 Business....................................... 3
Item 2 Properties..................................... 13
Item 3 Legal Proceedings.............................. 13
Item 4 Submission of matters to a vote of security hol 14
PART II
Item 5 Market for the Registrant's common stock and related
Shareholder matters.................. 14
Item 6 Selected Financial Data........................ 14
Item 7 Management discussion and analysis of financial 14
and results of operations............ 14
Item 8 Financial statements and supplementary data.... 14
Item 9 Changes in and disagreements with accountants on
accounting and financial disclosures. 14
PART III
Item 10 Directors and Executive Officers of the Registr 14
Item 11 Executive Compensation......................... 15
Item 12 Security ownership of certain beneficial owners and
management........................... 15
Item 13 Certain relationships and related transactions. 15
PART IV
Item 14 Exhibits, financial statement schedules and reports on
Form 8-K............................. 15
Exhibit Index.................................. 16
Signatures..................................... 17
PART I
ITEM I. BUSINESS
General Development of Business:
Wayne Bancorp, Inc and its subsidiary, the Wayne County National Bank,
(collectively the "Company"), conduct general commercial banking business.
Wayne Bancorp, Inc. is a one-bank holding company organized in April, 1986.
The Wayne County National Bank ("The Bank") is a full-service bank offering a
wide range of commercial and personal banking services primarily to customers
in Wayne, Holmes and Stark Counties of Ohio. These services include a broad
range of loan, deposit and trust products and various miscellaneous services.
Loan products include commercial and commercial real estate loans, a variety
of mortgage and construction loan products, installment loans, home equity lines
of credit, Visa and Master Card lines of credit and lease financings. Deposit
products include interest and non-interest bearing checking accounts, various
savings accounts, certificates of deposit, and IRAs. The Trust Department
provides service in the areas of employee benefits, and personal trusts.
Miscellaneous services include safe deposit boxes, night depository, United
States savings bonds, traveler's checks, money orders, cashier checks, bank-by-
mail service, money transfers, wire services, utility bill payments, and
collections, notary public services, discount brokerage services and alternative
investments. In addition, the Bank has correspondent relationships with major
banks in Cleveland, Cincinnati and Detroit pursuant to which the Bank received
various financial services. The Bank accounts for substantially all (99%) of
Wayne Bancorp.'s consolidated assets at December 31, 1996.
The Bank's primary lending area consists of Wayne County, Ohio, and its
contiguous counties. Loans outside the primary lending area are considered
for creditworthy applicants. Lending decisions are made in accordance with
written loan policies designed to maintain loan quality.
Retail lending products are comprised of credit card loans, overdraft lines,
personal credit and installment loans. Credit cards are unsecured credit
accounts, on which limits are determined by analysis of two criteria, the
borrowers debt service and gross income. Overdraft lines of credit are lines
attached to checking accounts to cover overdrafts and or allow customers to
write themselves a loan. Credit limits are based on a percentage of gross
income and average deposits. Personal lines of credit include lines secured
by junior mortgages (home equity) and Private Banking lines which are generally
secured by junior motgages but may be unsecured or secured by other collateral.
The lines have a twenty year draw period and may then be renewed or amortized
over ten years. Credit limits are determined by comparing three criteria,
appraised value, debt service and gross income. Installment loans
include both direct and indirect loans. The term can range from three to 180
months, depending upon the collateral which includes new and used automobiles,
boats and recreational vehicles as well as junior mortgages and unsecured
personal loans. Retail lending underwriting guidelines include evaluating the
entire credit using the Five C's of Credit, character capacity, capital,
condition and collateral. Credit scoring, analysis of credit bureau ratings and
debt to income ratios are the major tools used by the lender in the underwriting
process.
The Bank offers a variety of mortgage loans programs, including a variety of
fixed and adjustable rate mortgages ranging from 120 to 360 months. The
underwriting guidelines include those for consumer loans and those necessary
to meet secondary market guidelines. Residential real estate decisions focus
on loan to value limits, debt to income ratios, housing to income ratio, credit
history, and in some cases whether private mortgage insurance us obtained.
Business credit products include commercial loans and commercial real estate
loans and leases. Commercial loans include lines and letters of credit, fixed
and adjustable rate term loans and time notes. Commercial real estate loans
include fixed and adjustable mortgages. Loans are generally to owner occupied
businesses. The portfolio also includes loans to churces, rental property,
shopping plazas and residential development loans. Loans to businesses often
entail greater risk because the primary source of repayment is typically
dependent upon adequate cash flow. Cash flow of a business can be subject to
adverse conditions in the economcy or specific industry. Should cash flow fail,
the lender looks to the assets of the business and or the ability of the
comakers to support the debt. Commercial lenders consider the Five C's of
Credit, character, capacity, capital, condition and collateral in making
commercial credit decisions. The Bank has provided both direct and indirect
leasing on a limited basis. The direct leases are for specific equipment and
may be open-end or closed-end. Indirect leases are established by the same
methods as an indrect cosumer auto finance. Each vehicle has its own
amortization.
In addition to the underwriting guidelines followed for specific loan types,
the Bank has underwriting guidelines common to all loan types. With regard to
collateral, the Bank follows supervisory limits set forth in Regulation H for
transactions secured by real estate. Loans in excess of these guidelines are
reported to the Board of Directors on a monthly basis. Loans not secured by
real estate are analyzed on a loan by loan basis, based on collateral type
guidelines set forth in the loan policy. Appraisal policies follow and
comply with provisions outlined under Title XI of FIRREA. All appraisals are
done by outside independentappraisers. The Bank, as a general rule, gets an
appraisal on all real estate transactions even when not required by Title XI.
Approval procedures include loan authorities approved by the Board of
Directors for individual lenders and loan committees. Retail and residential
loans are centrally underwritten by their respective departments. Business
credits can be approved by the individual commercial lender or taken to Loan
Committee if it exceeds individual approval limits. The Board of Directors
approves aggregate loan committments in excess of $500 thousand up to the Bank's
legal lending limit. Loans to Directors and Executive Officers are approved by
the Board of Directors.
The Loan Quality Review Committee meets on a monthly basis. The Committee
reviews Bank lending trends, the Past Due Report, the Watch List and various
other reports in order to monitor and maintain credit quality. The Committee
also reviews on a relationship basis, customers on the Bank's Watch List and
credits with aggregate commitments in excess of $300 thousand.
Revenues from loans accounted for 67%, 71%, and 69% of consolidated revenues in
1996, 1995 and 1994, respectively. Revenues from interest and dividends on
investment securities, federal funds sold and mortgage-backed securities
accounted for 20%, 19% and 20% of consolidated revenues in 1996, 1995, and
1994, respectively.
The business of the Registrant is not seasonal to any material degree, nor is it
dependent upon a single or small group of customers whose loss would result
in a material adverse effect on the Registrant or its subsidiaries.
Regulation and Supervision
Wayne Bancorp, Inc., is a corporation organized under the laws of the State of
Ohio. The Company is required to file certain reports and periodic information
with the United States Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.
As a bank holding company incorporated and doing business within the State of
Ohio. The Company is subject to regulation and supervision under the Bank
Holding Company Act of 1956 as amended (the "Act"). The Company is required
to file with the Federal Reserve Bank on a quarterly basis information pursuant
to the Act. The Federal Reserve Board may conduct examinations or inspections
of the Company and its subsidiaries.
The Company is required to obtain prior approval from the Federal Reserve Board
for the acquisition of more than five percent of the voting shares or
substantially all of the assets of bank or bank holding company. In addition,
the Company is prohibited by the Act, except in certain situations from
acquiring direct or indirect ownership or control of more than five percent
of the voting shares of any company which is not a bank or bank holding company
and from engaging directly or indirectly in activities other than those of
banking, managing or controlling banks or furnishing services to its
subsidiaries. The Company may, however, subject to the prior approval of the
Federal Reserve Board, engage in, or acquire shares of companies
engaged in activities which are deemed by; the Federal Reserve Board by order
or by regulation to be so closely related to banking or managing and controlling
a bank as to be a proper activity.
The Company is a legal entity separate and distinct from its subsidiary Bank.
It is anticipated that a significant portion of the Company's revenues,
including funds available for payment of dividends (if any) and for operating
expenses, will be provided by dividends paid by its Bank subsidiary. There
are statutory limitations on the amount of dividends which may be paid to
the Company by its Bank subsidiary.
The Company's national banking subsidiary is subject to primary regulation,
supervision and examination by the Comptroller of the Currency. The Bank is
a member of the Federal Reserve System and, as such, is subject to the
applicable provisions of the Federal Reserve Act and regulations issued
thereunder. Further, the subsidiary Bank is also subject to the applicable
provisions of Ohio law insofar as they do not conflict with federal banking
laws.
The Bank's deposits are insured by the Federal Deposit Insurance Corporation.
Related to that, the Bank is subject to provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991. This Act is designed to protect
the deposit insurance fund, to improve regulation and supervision of insured
depository institutions and to improve the reporting information related to
financial institutions.
Management is not aware of any; current recommendations by regulatory
authorities which, if they were to be implemented, would have a material
effect on the Company.
Regulatory Capital Requirements
The Company is required by the various regulatory authorities to maintain
certain capital levels. The required capital levels and the Company's capital
position at December 31, 1996 are reported in the table included in Note 14
to the financial statements discloses the Company's captial requirements and
the current capital position.
The Federal Deposit Insurance Corporation sets premiums for deposit insurance
based on the Company's capital levels. In the event the Company's levels fall
below the minimum requirement, the premiums for deposit insurance could rise.
Government Monetary Policy
The earnings of the Company are affected primarily by general economic
conditions, and to a lesser extent by the fiscal and monetary policies of the
federal government and its agencies, particularly the Federal Reserve Bank.
Its policies influence the amount of bank loans and deposits and interest rates
charged and paid thereon, and thus have an effect on the earings of
the subsidiary and the Company.
Competition
The banking and financial services industry in the Company's market is highly
competitive. The Company's market area encompasses Wayne, Holmes and Stark
Counties in Ohio. The Bank competes for loans and deposits with other
commercial banks, savings and loans, finance companies and credit unions. The
primary competitive factor is interest rates charged on loans and paid for
deposits as well as fees charged for various other products and services.
Employees
As of December 31, 1996, the Company had 143 full time employees and 32 part
time employees. The Company is not a party to any collective bargaining
agreement and management considers its relationship with their employees to
be good.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
WAYNE BANCORP, INC.
December 31, 1996
Average
Daily Yield/
Balance Interest Rate
(In thousands of dollars)
ASSETS ----------------------------
Interest Earning Assets:
Loans (including fees) (1) $213,679 $19,546 9.15%
Investment Securities
Taxable 74,079 4,584 6.19%
Tax-Exempt (2) 20,351 1,691 8.31%
Federal Funds Sold 3,577 184 5.14%
-------------------
TOTAL EARNING ASSETS 311,686 26,005 8.34%
Non-earning Assets:
Cash and due from banks 12,030
Premises and Equipment (net) 6,171
Other Assets 5,001
Less Allowance for Loan Losses (3,769)
---------
TOTAL ASSETS $331,118
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Transaction Accounts 61,703 1,699 2.75%
Savings 49,818 1,422 2.85%
Time Deposits 120,945 6,331 5.23%
Short Term Borrowings 21,039 994 4.72%
-------------------
TOTAL INTEREST BEARING LIABILITIES 253,505 10,446 4.12%
Non-Interest Bearing Liabilities
Demand Deposits 35,590
Other Liabilities 2,660
---------
TOTAL LIABILITIES 291,755
Shareholders' Equity 39,364
---------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $331,119
=========
NET INTEREST INCOME $15,559
==========
NET YIELD ON INTEREST EARNING ASSETS 4.99%
=========
(1) Nonaccrual loans are included in the average loan balance.
(2) Interest income on tax exempt securities includes a taxable equivalent
adjustment using a 34% tax rate.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
WAYNE BANCORP, INC.
December 31, 1995
Average
Daily Yield/
Balance Interest Rate
(In thousands of dollars)
ASSETS ----------------------------
Interest Earning Assets:
Loans (including fees) (1) $205,518 $18,956 9.22%
Investment Securities
Taxable 61,125 3,675 6.01%
Tax-Exempt (2) 23,064 1,909 8.28%
Federal Funds Sold 4,064 239 5.88%
-------------------
TOTAL EARNING ASSETS 293,771 24,779 8.43%
Non-earning Assets:
Cash and due from banks 11,509
Premises and Equipment (net) 6,118
Other Assets 5,239
Less Allowance for Loan Losses (3,589)
---------
TOTAL ASSETS $313,048
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Transaction Accounts 57,802 2,019 3.49%
Savings 49,155 1,396 2.84%
Time Deposits 120,549 5,861 4.86%
Short Term Borrowings 12,717 640 5.03%
-------------------
TOTAL INTEREST BEARING LIABILITIES 240,223 9,916 4.13%
Non-Interest Bearing Liabilities
Demand Deposits 35,083
Other Liabilities 2,021
---------
TOTAL LIABILITIES 277,327
Shareholders' Equity 35,721
---------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $313,048
=========
NET INTEREST INCOME $14,863
==========
NET YIELD ON INTEREST EARNING ASSETS 5.06%
=========
(1) Nonaccrual loans are included in the average loan balance.
(2) Interest income on tax exempt securities includes a taxable equivalent
adjustment using a 34% tax rate.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
WAYNE BANCORP, INC.
December 31, 1994
Average
Daily Yield/
Balance Interest Rate
(In thousands of dollars)
ASSETS ----------------------------
Interest Earning Assets:
Loans (including fees) (1) $189,897 $16,465 8.67%
Investment Securities
Taxable 63,799 3,193 5.00%
Tax-Exempt (2) 26,508 2,015 7.60%
Federal Funds Sold 2,643 109 4.12%
-------------------
TOTAL EARNING ASSETS 282,847 21,782 7.70%
Non-earning Assets:
Cash and due from banks 11,583
Premises and Equipment (net) 5,817
Other Assets 5,768
Less Allowance for Loan Losses (3,292)
---------
TOTAL ASSETS $302,723
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Transaction Accounts 53,444 1,506 2.82%
Savings 63,359 1,825 2.88%
Time Deposits 100,995 4,210 4.17%
Short Term Borrowings 10,387 390 3.75%
-------------------
TOTAL INTEREST BEARING LIABILITIES 228,185 7,931 3.48%
Non-Interest Bearing Liabilities
Demand Deposits 40,820
Other Liabilities 1,403
---------
TOTAL LIABILITIES 270,408
Shareholders' Equity 32,315
---------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $302,723
=========
NET INTEREST INCOME $13,851
==========
NET YIELD ON INTEREST EARNING ASSETS 4.90%
=========
(1) Nonaccrual loans are included in the average loan balance.
(2) Interest income on tax exempt securities includes a taxable equivalent
adjustment using a 34% tax rate.
SUMMARY OF NET INTEREST INCOME CHANGES
WAYNE BANCORP, INC.
The following table sets forth for the periods indicated a summary of the
changes in interest income and interest expense resulting from changes in
volume and changes in interest rates for the major components of interest
earning assets and interest bearing liabilities.
1996 vs 1995 1995 vs 1994
-------------------------------------------------------
Increase (Decrease) (1) Increase (Decrease) (1)
Volume Rate Net Volume Rate Net
(In thousands of do-------------------------------------------------------
Interest Income:
Loans $753 ($163) $590 $1,417 $1,074 $2,491
Taxable Securities 779 130 909 (134) 616 482
Non-taxable
Securities (225) 7 (218) (262) 156 (106)
Federal Funds Sold (29) (26) (55) 60 70 130
-------------------------------------------------------
Total Interest Income 1,278 (52) 1,226 1,081 1,916 2,997
Interest Expense:
Transaction Accounts 136 (456) (320) 123 390 513
Savings 19 7 26 (409) (20) (429)
Time Deposits 19 451 470 846 805 1,651
Short-term Borrowings 419 (65) 354 87 163 250
-------------------------------------------------------
Total Interest Expense 593 (63) 530 647 1,338 1,985
-------------------------------------------------------
Net Interest Income $685 $11 $696 $434 $578 $1,012
=======================================================
(1) For purposes of the above table, changes in interest due to volume and
rate were determined as follows:
Volume variance - Change in volume multiplied by the prior year's rate.
Rate Variance - Change in rate multiplied by the prior year's balance.
Rate/Volume Variance - Change in volume multiplied by change in rate.
The rate/volume variance was allocated to volume variance and rate variances in
proportion to the relationship of the absolute dollar amount of change in each.
(2) Interest income on tax exempt securities includes the effects of taxable
equivalent adjustments using a 34% tax rate for each year.
INVESTMENT PORTFOLIO
WAYNE BANCORP, INC.
The following table represents the carrying value of available-for-sale
securities at the dates indicated: (in thousands of dollars)
1996 1995 1994
----------------------------
U.S. Treasury and Other U.S. Government
Agency Obligations $40,473 $43,121 $48,512
Mortgage-backed Securities 23,197 13,955 11,915
States and Political Subdivisions 21,378 21,126 24,510
Other 18,246 16,123 8,214
----------------------------
$103,294 $94,325 $93,151
============================
The following table sets forth the maturity distribution and yields on
investment securities available-for-sale at December 31, 1996
(In thousands of dollars):
One Year or Less One to Five Years
Carrying Carrying
Value Yield Value Yield
-------------------------------------
U.S. Treasury and Other U.S.
Government Agency Obligations $19,762 6.63% $23,359 6.09%
Mortgage-backed Securities 782 6.59% 9,491 6.22%
States and Political Subdivisions 4,268 5.73% 9,276 6.05%
Other 7,721 6.85% 6,114 7.97%
-------------------------------------
$32,533 6.56% $48,240 6.35%
=====================================
Five to Ten Years Over Ten Years
Carrying Carrying
Value Yield Value Yield
-------------------------------------
U.S. Treasury and Other U.S.
Government Agency Obligations
Mortgage-backed Securities 2,125 6.95% 1,557 8.01%
States and Political Subdivisions 7,121 5.68% 461 5.62%
Other 2,288 7.57%
-------------------------------------
$9,246 5.97% $4,306 7.52%
=====================================
Note: Yield represents the weighted average yield to maturity. Yield on
states and political subdivisions are not calculated on a tax
equivalent basis. Mortgage-backed obligations are distributed based
on contractual maturity.
Excluding those holdings of the securities portfolio in U.S. Treasury securities
and other agencies and corporations of the U.S. Government, there were no
securities of any one issuer which exceeded 10% of consolidated shareholders'
equity at December 31, 1996.
LOAN PORTFOLIO
WAYNE BANCORP, INC.
The Company's commercial loans are extended primarily to local businesses. The
Company also extends credit to customers through installment loans, vehicle and
equipment leases, and revolving credit arrangements. The remaining portfolio
consists primarily of residential mortgage loans (1-4 family dwellings) and
mortgage loans on commercial property. Loans by major category at the end of
the last five years were as follows: (In thousands of dollars)
1996 1995 1994 1993 1992
----------------------------------------------
Real Estate $86,276 $76,694 $78,930 $71,230 $66,539
Installment & Credit Card 39,183 42,426 39,914 34,408 34,391
Commercial & Collateral 90,638 81,740 75,983 74,011 72,081
Lease Financings 3,246 3,435 2,741 2,535 3,281
Other Loans 23 26 12 16 15
----------------------------------------------
$219,366 $204,321 $197,580 $182,200 $176,307
==============================================
The maturity distribution of the loan portfolio is a key factor in the
evaluation of risk characteristics of the loan portfolio and the future
profitability of the portfolio. The maturity distribution and interest
rate sensitivity of the loan portfolio and other balance sheet items at year
end 1996 is included on page 26 of the 1996 Annual Report to Shareholders,
and is incorporated herein by reference.
The maturity distribution and interest rate sensitivity of commercial and
collateral loans at December 31, 1996 are as follows (In thousands of dollars):
Within 1 to 5 After 5
1 Year Years Years Total
-------------------------------------
Commercial and Collateral $41,880 $42,308 $6,450 $90,638
Loans due after 1 year:
At predetermined interest rates $19,908
At floating interest rates $28,850
The following table summarizes past due, non-accrual and restructured loans:
(In thousands of dollars) 1996 1995 1994 1993 1992
----------------------------------------------
Accruing loans past due 90 days
or more as to principle or $173 $204 $149 $45 $713
Non-accrual loans 934 15 22 46 375
Restructured loans 0 0 0 0 0
----------------------------------------------
$1,107 $219 $171 $91 $1,088
==============================================
The effect of non-performing loans was as follows: December 31, 1996
------------------
Interest income due on non-performing loans in accordance
with the original terms of the loan $74
Less: Interest income on non-performing loans reflected in incom 72
---------
Net reduction in interest income $2
=========
The policy for placing loans on non-accrual status is to stop the accrual on
interest when it is likely that collection of all of the principle or interest
is deemed doubtful, or when loans are past due as to principle or interest
ninety days or more. In certain cases, interest accruals are continued on loans
ninety days past due if they are deemed to be adequately secured and in the
process of collection.
The Company adopted SFAS No. 114 and SFAS No. 118 effective January 1, 1995. At
December 31, 1995, the Comany had no loans classified as impaired, and
therefore, the adoption of SFAS No. 114 and SFAS No. 118 had no effect on the
comparability of non-performing asset at December 31, 1995 to prior periods.
The Bank had one impaired loan at December 31, 1996 with a balance of $924
thousand. The impaired loan had $215 thousand of the allowance for loan losses
allocated at December 31, 1996, although the entire allowance remains available
for charge-off of any loan. Impaired loans averaged $1.1 million in 1996.
Income recognized during the year ended December 31, 1996 amounted to $74
thousand. Interest income recognized on the cash basis for the year ended
December 31, 1996 totaled $72 thousand. There were no impaired loans in 1995.
As of December 31, 1996, there were no potential problem loans for which
management has doubt as to the borrower's ability to comply with the present
repayment terms, which are not disclosed as past due ninety days or more,
non-accrual or restructured. These loans and their potential loss exposure
has been considered in the analysis of the adequacy of the reserve for loan
losses, prepared by management and included on page 13 of this filing.
In all years presented, there were no material amount of loans excluded from the
amounts disclosed as non-accrual, past due 90 days or more restructured, or
potential problem loans, which may have been classified by the regulatory
examiners as loss, doubtful or substandard.
There were no foreign loans outstanding at December 31, 1996, 1995 or 1994.
As of December 31, 1996, there were no concentrations of credit greater than 10%
of total loans which are not otherwise disclosed as a category of loans pursuant
to Guide 3, Item III. A.
As of December 31,1 996, there are no other interest bearing assets that would
require disclosure under Guide 3, Item III. C. 1 or C.2., if such assets were
loans.
SUMMARY OF LOAN LOSS EXPERIENCE
WAYNE BANCORP, INC.
In the normal course of business, the Company assumes risk of extending credit.
The Company manages this risk through its lending policy, loan review procedures
and personal contact with the borrower.
In determining the adequacy of the allowance for loan losses, management
evaluates past loan loss experience, present and anticipated economic conditions
and credit-worthiness of its borrowers. The allowance for loan losses is
increased by provisions charged to operations and recovery of loans previously
charged off. The allowance is reduced by loans chargeed off as they become
uncollectible by the Bank's management. The following table contains infor-
mation relative to the loan loss experience for five years ending December 31:
(In thousands of dollars) 1996 1995 1994 1993 1992
----------------------------------------------
Allowance for loan losses at
the beginning of the year 3,705 $3,448 $3,040 $2,629 $2,059
Loans charged off:
Real Estate 0 0 0 15 53
Installment & Credit Card 243 218 154 213 294
Lease Financings 0 1 0 5 1
Commercial & Collateral 169 11 29 173 20
----------------------------------------------
Total Loans Charged Off 412 230 183 406 368
Recoveries on loans charged off:
Real Estate 2 0 0 0 0
Installment & Credit Card 131 115 136 132 126
Lease Financings 0 139 7 3 5
Commercial & Collateral 51 113 102 82 57
----------------------------------------------
Total Recoveries 184 367 245 217 188
Net Loans Charged Off 228 (137) (62) 189 180
Provision for Loan Losses 180 120 346 600 750
----------------------------------------------
Allowance for Loan Losses
at the End of the Year $3,657 $3,705 $3,448 $3,040 $2,629
==============================================
Ratio of net charge-offs during the
year to average outstanding loans
during the year 0.11% -0.07% -0.03% 0.10% 0.10%
The following table shows an allocation of the allowance for loan losses for the
current period and each of the last five years.
12-31-96 12-31-95 12-31-94 12-31-93 12-31-92
---------------------------------------------------
Real Estate $496 $201 $212 $207 $168
Installment & Lease 50 65 103 338 201
Commercial & Collateral 332 319 412 719 736
Credit Card Receivables 15 14 17 69 68
Other Loans 0 0 0 0 0
Unallocated 2,764 3,106 2,704 1,707 1,456
---------------------------------------------------
$3,657 $3,705 $3,448 $3,040 $2,629
===================================================
Percent of Loans in Each Category to Total Loans
12-31-96 12-31-95 12-31-94 12-31-93 12-31-92
----------------------------------------------------
Real Estate 40% 38% 40% 39% 37%
Installment & Lease 19% 20% 18% 17% 20%
Commercial & Collat 41% 40% 39% 41% 41%
Credit Card Receiva 0% 2% 3% 3% 2%
Other Loans
Unallocated
-----------------------------------------------------
100% 100% 100% 100% 100%
=====================================================
Management's allocation of the allowance for loan losses is based on several
factors. First, consideration is given to the current portfolio. Management
has an internal loan review function that is designed to identify problem and
impaired loans and the losses that may be expected if the borrower is unable
to continue servicing the debt. Management will use the amount of loss that is
expected on those loans. The second step is of review the prior charge-off
history of each loan category.In this step, management will review the prior
three year average charge-offs and compare that to the expected loss identified
in the first step and will adjust the allocation accordingly. The third step
is to review any loans that have been classified by the regulatory examiners and
allocate the specific loss portion that is determined by the examiners.
At December 31, 1996 the ratio of reserve for loan losses to total net loans and
leases was 1.67%. Based on the ratio of allowance to total net loans and
leases and the December 31, 1996 ratio of loans past due 30 days or more to
total net loans and leases was .83%, the above allocation is considered
reasonable by the Company's management.
The amounts included in the specific allocations are obtained by using the
principle balance of any loans classified on the problem loan list as loss or
doubtful, plus 10% of the total principle balances of loans considered
substandard and 5% of those which are considered watch credits.
At December 31, 1996, the Company had allocated $215 thousand of the allowance
for loan losses for impaired loan balances. See Footnote 5 to the consolidated
financial statements for 1996 which is incorporated herein by reference.
DEPOSITS
WAYNE BANCORP, INC.
The following table presents the average daily balance and the average rate
paidthe Bank's deposit categories for the period indicated.
(In thousands of dollars)
Year End December 31,
1996 1995 1994
Amount: ----------------------------
Non-interest bearing demand $43,416 $35,083 $40,820
Interest bearing demand 69,308 69,238 53,444
Savings 49,811 49,155 63,359
Time deposits 119,151 121,271 100,995
----------------------------
$281,686 $274,747 $258,618
============================
Average rate for the year:
Interest bearing demand 2.50% 3.49% 2.82%
Savings 2.85% 2.84% 2.88%
Time deposits 5.08% 4.83% 4.17%
The maturity distribution of certificates of deposit of $100,000 or more at
Decembeber 31, 1996 are as follows:
(In thousands of dollars)
Three months or less $6,522
Over three months through six months 2,116
Over six months through twelve months 4,938
Over twelve months 2,332
---------
$15,908
=========
14
RETURN ON EQUITY AND ASSETS
WAYNE BANCORP, INC.
The following table sets for operating and capital ratios of the Company
calculated on average daily balances:
Year End December 31,
1996 1995 1994
----------------------------
Return on Average Assets 1.67% 1.43% 1.33%
Return on Average Equity 14.05% 12.56% 12.44%
Dividend Payout Ratio 26.41% 30.03% 28.77%
Average Equity to Average Asset Ratio 11.77% 11.46% 10.66%
The following table represents information on federal funds purchased and
securities sold under agreements to repurchase:
(In thousands of dollars)
Year End December 31,
1996 1995 1994
----------------------------
Amount outstanding at year end $26,142 $15,662 $13,861
Weighted average interest rate 4.46% 4.35% 5.02%
Maximum outstanding at any month end 29,854 15,872 16,057
Average outstanding during the year 20,282 10,947 10,387
Weighted average rate during the year 4.64% 5.03% 3.75%
The Company enters into sales of securities under agreements to repurchase for
periods up to 29 days, which are treated as financings and reflected in the
consolidated balance sheet as aliability. The Company has borrowing lines of
credit extended by correspondent banks. At December 31, 1996 the Company has
$29 million of available credit, of which, none is used.
ITEM 2. PROPERTIES
The principal offices of the Company and the Wayne County National Bank are
located at 112 West Liberty Street, Wooster, Ohio. At December 31, 1996 the
Company owned nine of its branch facilities and leased two facilities. Nine
offices are located in Wayne County, Ohio and one located in each Holmes
and Stark Counties in Ohio.
ITEM 3. LEGAL PROCEEDINGS
There is no pending litigation of a material nature in which the Company is
involved and no such legal proceedings were terminated during the fourth
quarter of 1996. Furthermore, there are no material proceedings in which any
director, officer or affiliate of the Registrant,or any associate or such
director or officer, is a party, or has a material interest, adverse to the
Company. As part of its ordinary course of business, the Company may be a
party to lawsuits (such as garnishment proceedings) involving claims to the
ownership of funds in particular accounts and involving the collection of past
due accounts. All such litigation is incidental to the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended December 31, 1996, there were no
matters submitted to a vote of security holders.
15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Reference is made to the section titled "Dividend and Market Price Data" on
Page 4 of the 1996 Annual Report to Shareholders for the information about the
principal market for the Registrant's Common Stock, market prices, number of
shareholders and dividends, which is incorporated herein by reference.
Reference is made to Note 14, "Regulatory Matters" on page 19 of the Annual
Report to Shareholders for information concerning dividend restrictions,
which is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the table entitled "Five Year Financial Summary" on page
3 of the 1996 Annual Report to Shareholders, which is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Reference is made to the section entitled "Management Discussion and Analysis"
on pages 21 through 27 of the 1996 Annual Report to Shareholders which is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, Management's Responsibility for the
Financial Statements Letter, and Report of Independent Auditors are included
on pages 8 through 20 of the 1996 Annual Report to Shareholders, which is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
Reference is made to the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held March 27, 1997 for information regarding changes in
and disagreements with accountants on accounting and financial disclosures.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held March 27, 1997 for information as to the directors
and nominees for directorships of the Registrant, including other directorships
held by such director, or persons nominated to become a director, of the
Registrant and executive officers of the Registrant which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the Registrant's Proxy Statement for the Annual Meeting of
Shareholder to be held March 27, 1997 for information regarding compensation
paid in excess of $100,000 to executive officers of the Registrant and to the
Registrant's Proxy Statement with respect to Salaried Employees Profit Sharing
Plan, which is incorporated herein by reference.
16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held March 27, 1997 for information regarding beneficial
ownership of the Company's stock which information is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the Registrant's Proxy Statement which is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Schedules
The following financial statements and reports of Independent Auditors appears
on pages 9 through 20 of the Company's 1996 Annual Report to Shareholders
which financial statements are incorporated herein by reference and
attached hereto:
Report of Crowe Chizek and Company, LLP Independent Auditors
Consolidated Balance Sheets, December 31, 1996 and 1995
Consolidated Statements of Income, Years Ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows, Years Ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Shareholders' Equity, Years Ended
December 31, 1996, 1995, and 1994
Notes to Consolidated Financial Statements
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
17
(3) Listing of Exhibits
Exhibit
Number
- ---------
3(a) Amended Articles of Incorporation of Wayne Bancorp, Inc. were filed
with the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and are herein incorporated by reference.
3(b) Wayne Bancorp, Inc., Amended Code of Regulations (Bylaws) were filed
with Company's Annual Report on Form 10-K for the year ended December
31, 1992 and is herein incorporated by reference.
9(a) Trust Division Policy - voting own Bank stock was filed with the
Company's Report on Form 10-K for the year ended December 31, 1987
and is herein incorporated by reference.
9(b) Trust Division Policy - proxy voting policy was filed with the
Company's Annual Report on Form 10-K for the year ended December 31,
1987 and is herein incorporated by reference.
10 Wayne County National Bank Salaried Employee Profit Sharing Trust was
filed with the Company's Annual Report on Form 10-K for the year ended
December 31, 1986 and is incorporated herein by reference.
10(a) Salaried Employee Profit Sharing Plan Amended effective January 1, 1987
was filed with the Company's Annual Report on Form 10-K for the year
ended December 31, 1987 and is incorporated herein by reference.
10(b) Employee Stock Ownership Plan effective on January 1, 1987 was filed
with the Company's Annual Report on Form 10-K for the year ended
December 31, 1987 and is incorporated herein by reference.
13 Annual Report to Shareholders for the year ended December 31, 1996
22 Subsidiaries of the Registrant
27 Financial Data Schedule
28 Notice of Annual Shareholders' Meeting
(b) Reports on Form 8-K
There were no Form 8-K's filed during the last quarter of the period covered by
this report.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Wayne Bancorp, Inc.
Date: March 27, 1997 By:_____________________________
Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed below by the following persons on behalf
of the Registrant in the Capaccities and on dates as indicated.
Signature Capacity with Registrant Date
____________________________ ____________________
David L. Christopher Director, Chairman of Board, March 27, 1997
President and CEO
____________________________ ____________________
James O. Basford Director March 27, 1997
____________________________ ____________________
Joseph R. Benden Director March 27, 1997
____________________________ ____________________
David P. Boyle, CPA Senior Vice President and March 27, 1997
Chief Financial Officer
____________________________ ____________________
Gwenn E. Bull Director March 27, 1997
____________________________ ____________________
Dennis B. Donahue Director March 27, 1997
____________________________ ____________________
Harold Freedlander Director March 27, 1997
____________________________ ____________________
Frank M. Hays Director March 27, 1997
____________________________ --------------------
John C. Johnston, III Director March 27, 1997
____________________________ ____________________
Dietrich Kaesgen Director March 27, 1997
____________________________ ____________________
Jeffrey E. Smith Director March 27, 1997
____________________________ ____________________
David E. Taylor Director March 27, 1997
____________________________ ____________________
Bala Venkataraman Director March 27, 1997
19
EXHIBIT (22)
SUBSIDIARIES OF THE REGISTRANT
NAME STATE OF INCORPORATION
Wayne County National Bank Ohio
Wayne National Corporation Ohio
20
FIVE YEAR FINANCIAL SUMMARY 1
For the Years Ended December 31,
(In thousands of dollars except per
share data) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
Statement of Income Summary:
Total Operating Income............ $29,329 $26,883 $23,695 $22,871 $24,255
Total Operating Expense........... 21,377 20,566 18,115 17,979 19,970
Total Interest Income............. 25,430 24,130 21,096 20,232 21,745
Total Interest Expense............ 10,446 9,916 7,931 8,287 10,184
Net Interest Income............... 14,984 14,214 13,165 11,945 11,561
Provision for Loan Losses......... 180 120 346 600 750
Income Before Income Tax Expense
and Accounting Change.......... 7,952 6,317 5,580 4,892 4,285
Income Tax Expense................ 2,420 1,832 1,560 1,480 1,171
Income Before Accounting Change... 5,532 4,485 4,020 3,412 3,114
Cumulative Effect of Accounting Change..... 260
Net Income........................ 5,532 4,485 4,020 3,672 3,114
Per Share Data: 2
Net Income........................ $1.41 $1.14 $1.03 $0.94 $0.80
Cash Dividends.................... 0.37 0.34 0.29 0.27 0.24
Book Value........................ 10.55 9.65 8.58 7.89 7.14
Balance Sheet Data:
Total Loans and Leases............$219,366 $212,860 $197,580 $182,200 $176,307
Allowance for Loan Losses......... 3,657 3,705 3,448 3,040 2,629
Investment Securities............. 103,294 94,325 93,151 93,389 84,778
Total Deposits.................... 281,686 274,747 266,545 258,759 254,773
Shareholders' Equity.............. 41,489 37,937 33,640 30,750 27,855
Total Assets...................... 352,393 330,927 315,685 299,735 291,282
Other Data:
Employees......................... 172 176 171 175 178
Shareholders...................... 1,254 1,182 1,163 1,158 1,153
Cash Dividends.................... $1,461 $1,347 $1,157 $1,043 $959
Cash Dividends as a Percent of
Net Income...................... 26.41% 30.03% 28.77% 28.40% 30.78%
Financial Ratios:
Return on Average Assets.......... 1.67% 1.43% 1.33% 1.27% 1.12%
Return on Beginning Equity........ 14.58% 13.33% 13.07% 13.18% 12.12%
Equity to Assets.................. 11.77% 11.46% 10.66% 10.26% 9.56%
Loans to Deposits................. 77.88% 77.47% 74.13% 70.41% 69.20%
Loans to Total Assets............. 62.25% 64.32% 62.59% 60.79% 60.53%
Allowance for Loan Losses to Total 1.67% 1.75% 1.75% 1.67% 1.51%
1. This summary should be read in conjunction with the related consolidated
financal statements and notes to the financial statements.
2. Per share data has been adjusted for stock dividends and splits. See
Footnote #2 to the Financial Statements.
SHAREHOLDER INFORMATION
Executive Offices Transfer Agent Market Makers
112 West Liberty Street Wayne County Nat'l Bank Everen Securities-Wooster
P.O. Box 757 112 West Liberty Street The Ohio Company-Wooster,
Wooster, Ohio 44691 P.O. Box 757 Sweeney Cartwright
(216) 264-1222 Wooster, Ohio 44691 - Columbus, OH
McDonald & Company
- Canton, OH
All common shares of Wayne Bancorp, Inc are voting shares and are traded in the
local over the counter market, primarily with the brokers in the Company's local
service area. At December 31, 1996 there are 3,932,271 shares outstanding
and 1,226 shareholders of record. The range of market prices are compiled
from data provided by the brokers based on the trading activity.
Effective January 7, 1997 the Company's stock began trading on the NASDAQ Stock
Market on the Small Cap Market under the symbol "WNNB".
DIVIDEND AND MARKET PRICE DATA*
Cash
Dividends
Quarter Ended High Low Paid
- --------------------------------------------------------------------------
1996 March 31............................. $22.03 $20.13 $0.090
June 30.............................. 23.81 21.91 0.090
September 30......................... 24.88 23.09 0.095
December 31.......................... 30.00 26.67 0.095
1995 March 31............................. $17.57 $16.63 $0.081
June 30.............................. 18.29 17.34 0.081
September 30......................... 18.29 17.34 0.090
December 31.......................... 20.54 18.29 0.090
Per share data has been adjusted for stock dividends and splits. See Footnote
#2 to the financial statements.
FORM 10-K
A copy of the Company's 1996 Annual Report on Form 10-K filed with the
Securities and Exchange Commission is available to shareholders without
charge. To obtain a copy, direct your request to: David P. Boyle, Senior
Vice President and Chief Financial Officer, P.O. Box 757, Wooster, Oh 44691
January 28, 1997
The management of Wayne Bancorp, Inc. has prepared and is responsible for the
financial statements and for the integrity and consistency of other related
information contained in the Annual Report. In the opinion of management,
the financial statements, which necessarily include amounts that are based
on management estimates and judgments, have been prepared in conformity with
generally accepted accounting principles appropriate to the circumstances.
The Company designed and maintains a system of internal accounting controls
that is designed to provide reasonable assurance that assets are safeguarded,
that transactions are executed in accordance with Company authorizations and
policies, and that transactions are properly recorded so as to permit
preparation of financial statements that will fairly present the financial
position and results of operations in conformity with generally accepted
accounting principles. Internal accounting controls are augmented by written
policies covering standards of personal and business conduct and an
organizational structure providing for division of responsibility and
authority.
The effectiveness of and compliance with established control systems is
monitored through a continuous program of internal audit and credit
examinations. In recognition of cost-benefit relationships and inherent
control limitations, some features of the control system are designed to
detect rather than prevent errors, irregularities and departures from
approved policies and practices. Management believes that the system of
controls has prevented or detected on a timely basis any occurrences that
could be material to the financial statements and timely corrective actions
have been initiated when appropriate.
The Company engaged Crowe, Chizek and Company LLP, independent certified
public accountants, to render an opinion on the financial statements. The
accountants have advised management that they were provided with access to
all information and records deemed necessary to render their opinion.
The Board of Directors exercises its responsibility for the financial
statements and related information through the Audit Committee, which is
comprised entirely of outside directors. The Audit Committee meets on a
regular basis with mangement, the Internal Auditor of the Company
and Crowe, Chizek and Company LLP to assess the scope of the annual audit
plan, to review the status and results of audits, to review the Annual Report
and Form 10-K, including major changes in accounting policy and reporting
practices, and to approve non-audit related services rendered by the
independent auditors.
Crowe, Chizek and Company LLP also meets with the Audit Committee, without
management being present, to afford them the opportunity to express their
opinion on the adequacy of management's compliance with the established
policies and procedures and the quality of the financial reporting.
David L. Christopher David P. Boyle, CPA
Chairman of the Board, President Senior Vice President and
and Chief Executive Officer Chief Financial Officer
Wayne Bancorp, Inc. Wayne County National Bank
Report of Crowe, Chizek and Company LLP
Independent Auditors
Board of Directors and Shareholders
Wayne Bancorp, Inc.
Wooster, Ohio
We have audited the accompanying consolidated balance sheets of Wayne Bancorp,
Inc. as of December 31, 1996 and 1995 and the related consolidated statements of
income, cash flows and and changes in shareholders' equity for the three years
ended December 31, 1996, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wayne Bancorp, Inc.
as of December 31, 1996 and 1995 and the results of operations and cash flows
for the three years ended December 31, 1996, 1995 and 1994 in conformity with
generally accepted accounting principles.
Crowe Chizek and Company LLP
Columbus, Ohio
January 28, 1997
CONSOLIDATED BALANCE SHEETS
December 31,
(In thousands of dollars except share data) 1996 1995
- --------------------------------------------------------------------------
ASSETS
Cash and due from banks (Note 13)....................... $14,975 $16,015
Federal funds sold...................................... 7,620 1,000
------------------
Total cash and cash equivalents................ 22,595 17,015
Securities available-for-sale (Note3)................... 103,294 94,325
Loans held for sale..................................... 0 8,539
Loans and leases (Note 4)............................... 219,366 204,321
Less:
Unearned income................................ 637 749
Allowance for loan losses (Note 5)............. 3,657 3,705
------------------
Net loans and leases........................... 215,072 199,867
Premises and equipment (Note 6)......................... 6,215 6,126
Accrued income receivable and other assets (Note 2)..... 5,217 5,055
------------------
TOTAL ASSETS............................................$352,393 $330,927
==================
LIABILITIES
Deposits
Interest bearing (Note 7)..........................$238,272 $232,512
Noninterest bearing................................ 43,414 42,235
------------------
Total deposits.......................................... 281,686 274,747
Securities sold under agreements to repurchase (Note 8). 26,142 15,662
Other liabilities....................................... 3,076 2,581
------------------
Total liabilities....................................... 310,904 292,990
SHAREHOLDERS' EQUITY
Common stock, stated value $1.00........................ 3,935 1,874
Shares authorized - 5,400,000 in 1996 and 1995
Shares issued - 3,935,404 in 1996 and 1,874,284 in 1995
Shares outstanding - 3,932,129 in 1996 and 1,870,681 in 1995
Paid in capital......................................... 13,356 7,999
Retained earnings (Note 14)............................. 24,038 27,368
Treasury stock at cost.................................. (88) (134)
Unrealized gain (loss) on securities
available-for-sale,net of tax (Note 3)............. 248 830
------------------
Total shareholders' equity.............................. 41,489 37,937
------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..............$352,393 $330,927
==================
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
(In thousands of dollars except per share data) 1996 1995 1994
- --------------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans........................... $19,546 $18,956 $16,465
Interest on securities
Taxable........................................... 4,584 3,675 3,193
Nontaxable........................................ 1,116 1,260 1,329
Other interest income................................ 184 239 109
---------------------------
Total interest income................................ 25,430 24,130 21,096
INTEREST EXPENSE:
Interest on deposits (Note 7)........................ 9,452 9,276 7,541
Interest on repurchase agreements and
other borrowed funds............................ 994 640 390
---------------------------
Total interest expense............................... 10,446 9,916 7,931
---------------------------
NET INTEREST INCOME 14,984 14,214 13,165
Provision for loan losses (Note 5)................... 180 120 346
NET INTEREST INCOME AFTER PROVISION ---------------------------
FOR LOAN LOSSES................................. 14,804 14,094 12,819
OTHER INCOME:
Service charges and fees............................. 1,340 1,260 1,261
Income from fiduciary activities..................... 1,075 942 833
Gain on Sale of Loans................................ 824 0 0
Securities gains (losses), net....................... 6 (12) 2
Other noninterest income............................. 654 563 503
---------------------------
Total other income................................... 3,899 2,753 2,599
OTHER EXPENSES:
Salaries and employee benefits (Note 10)............. 5,208 5,167 4,399
Occupancy and equipment.............................. 1,071 1,089 1,011
Other operating expenses (Note 11)................... 4,472 4,274 4,428
---------------------------
Total other expenses................................. 10,751 10,530 9,838
INCOME BEFORE INCOME TAX EXPENSE 7,952 6,317 5,580
INCOME TAX EXPENSE (Note 12)...................... 2,420 1,832 1,560
---------------------------
NET INCOME........................................... $5,532 $4,485 $4,020
===========================
PER SHARE DATA: (Note 2)
---------------------------
NET INCOME........................................... $1.41 $1.14 $1.03
===========================
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
(In thousands of dollars except for per share data) 1996 1995 1994
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income........................................... $5,532 $4,485 $4,020
Adjustments to reconcile net cash provided
by operating activities:
Provision for loan losses................... 180 120 346
Depreciation and amortization............... 734 759 728
Federal Home Loan Bank stock dividends...... (69) (23)
Amortization of investment security premiums and
accretion of discounts, net............... 331 462 976
Deferred income taxes....................... 154 21 (223)
Change in interest receivable............... 190 (154) (146)
Change in interest payable.................. (123) 508 (335)
Other, net.................................. 171 318 822
---------------------------
Net cash provided by operating activities............ 7,100 6,496 6,188
INVESTING ACTIVITIES
Purchase of securities available-for-sale............ (46,976) (27,928) (13,939)
Proceeds from maturities of securities
available-for-sale............................... 34,625 6,691 1,000
Proceeds from sales of securities
available-for-sale............................... 2,242 999 6,075
Purchase of securities held-to-maturity............. (8,521) (29,342)
Proceeds from maturities of securities
held-to-maturity................................. 28,910 34,948
Net increase in loans and leases..................... (19,962) (15,047) (15,718)
Proceeds from sales of loans......................... 13,116
Purchase of premises and equipment................... (587) (318) (1,287)
Partnership equity distribution...................... 105
------------------------
Net cash used by investing activities................ (17,542) (15,214) (18,158)
FINANCING ACTIVITIES
Net increase in deposits............................. 6,939 8,202 7,786
Net increase in short term borrowings................ 10,481 1,801 4,981
Cash dividends paid.................................. (1,228) (1,133) (984)
Issuance of common stock............................. 197
Treasury stock purchased , net....................... (170) (228)
---------------------------
Net cash provided by financing activities............ 16,022 8,642 11,980
Increase (decrease) in cash and cash equivalents..... 5,580 (76) 10
Cash and cash equivalents at beginning of year....... 17,015 17,091 17,081
---------------------------
Cash and cash equivalents at end of year............. $22,595 $17,015 $17,091
===========================
Significant non-cash transactions:
Transfer of held-to-maturity securities
to available-for-sale....................... $45,652
Transfer of loans from portfolio to held for sale.... $8,539
Transfer of loans held for sale to loan portfolio.... $7,696
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Years Ended December 31, 1996
Unrealized
gain(loss)
(In thousands of dollars except per share data) on securities
Common Paid-In Retained Treasury Available-
Stock Capital Earnings Stock for-sale Total
- --------------------------------------------------------------------------------
Balance, January 1, 1994.... $1,772 $4,302 $24,691 ($15) $140 $30,890
Net income.................. 4,020 4,020
Cash dividends
($.29 per share)........ (1,139) (1,139)
Dividends reinvested........ 5 168 173
Common stock issued......... 6 191 197
5% common stock dividend at
fair market value (Note2). 88 3,236 (3,324)
Fractional shares of stock dividend
paid in cash (Note 2).... (18) (18)
Change in unrealized gain/loss on
securities available for sale,
net of tax................ (483) (483)
-------------------------------------------------------
Balance, December 31, 1994.. 1,871 7,897 24,230 (15) (343) 33,640
Net income.................. 4,485 4,485
Cash dividends
($.34 per share)...... (1,347) (1,347)
Purchase of treasury stock.. (246) (246)
Dividends reinvested........ 3 99 109 211
Sale of treasury stock...... 3 18 21
Change in unrealized gain/loss on
securities available-for-sale
net of tax................... 1,173 1,173
-------------------------------------------------------
Balance, December 31, 1995.. 1,874 7,999 27,368 (134) 830 37,937
Net income.................... 5,532 5,532
Cash dividends
($.37 per share)........... (1,461) (1,461)
Purchase of treasury stock.... (365) (365)
Dividends reinvested.......... 248 248
Sale of treasury stock........ 32 163 195
2 for 1 stock split........... 1,874 (1,874)
5% common stock dividend at
fair market value (Note2)... 187 5,325 (5,512)
Fractional shares of stock dividend
paid in cash (Note 2)...... (15) (15)
Change in unrealized gain/loss on
securities available-for-sale,
net of tax................... (582) (582)
-------------------------------------------------------
Balance, December 31, 1996.. $3,935 $13,356 $24,038 ($88) $248 $41,489
=======================================================
See notes to consolidated financial statements
1. NATURE OF OPERATIONS
Wayne Bancorp, Inc., a one-bank holding company, and its subsidiary, The Wayne
County National Bank, conduct general commercial banking business. The
Bank's wholly-owned subsidiary, Wayne National Corporation, is a partner in a
leasing company which is no longer active. The Company operates in the single
industry of commercial banking. While the Company offers a wide range of
services, they are all deemed to be part of commercial banking.
The Wayne County National Bank has eleven banking locations in Wayne, Holmes
and Stark Counties in Ohio. A wide variety of services are provided to
businesses, individuals, and institutional and governmental customers. These
services include commercial and personal checking accounts, savings and time
deposits, business and personal loans, real estate loans, credit cards,
leases, safe deposit facilities and electronic banking.
The Bank operates a Trust Department which offers complete trust administrative
services, and agency, trust and investment services to individuals,
corporations, partnerships, institutions and municipalities. In addition, the
Trust Department has discount brokerage service which offers stock trading
services to customers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of
Wayne Bancorp, Inc. (the Company), its subsidiary Wayne County
National Bank (the Bank), and the BankUs wholly owned
subsidiary, Wayne National Corporation. All significant
intercompany transactions have been eliminated.
Securities
Securities are classified into held-to-maturity and
available-forsale categories. The held-to-maturity securities
are those which management has the positive intent and the
Company has the ability to hold to maturity, and are reported at
cost, adjusted for amortization of premiums and accretion of
discounts. Available-for-sale securities are those which the
Company may decide to sell if needed for liquidity,
asset-liability management, or other reasons. Available-for-sale
securities are reported at fair value, with unrealized gains and
losses included as a separate component of equity, net of tax.
Realized gains or losses are determined based on the amortized
cost of the specific security sold.
Interest and Fees on Loans and Leases
Interest income on commercial, consumer and mortgage loans is
primarily calculated by using the simple interest method based
on the principal amounts outstanding. Lease income is recognized
under a method which provides for a level return on the net
investment outstanding. Loan origination fees and certain direct
origination costs are deferred and amortized over the
contractual life of the related loan using the level yield
method. The net amount of fees and costs deferred is reported in
the consolidated balance sheets as a part of loans and leases.
The accrual of interest on loans is suspended when, in
ManagementUs opinion, the collection of all or a portion of the
loan principal has become doubtful. When a loan is placed on
non-accrual status, accrued and unpaid interest at risk is
charged against income. Payments received on non-accrual loans
are applied against principal until recovery of the remaining
balance is reasonably assured. The carrying value of loans
classified as impaired is periodically adjusted to reflect cash
payments, revised estimates of future cash flows and increases
in the present value of expected cash flows due to passage of
time. Cash payments representing interest income are reported as
such and other cash payments are reported as reductions in
carrying values. Increases or decreases in carrying values due
to changes in estimates of future payments or the passage of
time are reported as reductions or increases in the provision
for loan losses.
Allowance for Loan Losses
The allowance for loan losses is a valuation reserve established
through a provision for loan losses charged to expense. The
allowance is the amount which, in the opinion of management, is
necessary to provide for potential losses in the loan portfolio.
Management's determination of the adequacy of the allowance is
based on evaluations of the collectibility of loans outstanding,
taking into consideration prior loan loss experience, loan
quality, current economic conditions and other pertinent
factors. Loans which are deemed uncollectible are charged off
and deducted from the allowance and recoveries on loans
previously charged off are added to the allowance.
On January 1, 1995, the Company adopted SFAS 114, as amended by
SFAS 118. Under this standard, loans considered to be impaired,
as identified according to internal loan review standards, are
reduced to the present value of expected future cash flows or to
the fair value of collateral by allocating a portion of the
allowance for loan losses to such loans. If these allocations
cause the allowance for loan losses to require an increase, such
an increase will be reported as a provision for loan losses
charged to operations. The effect of adopting this standard did
not materially effect the allowance for loan losses at January 1,
1995 or at December 31, 1995.
Management analyzes commercial and certain other loans on an
individual basis and classifies a loan as impaired when an
analysis of the borrower's operating results and financial
condition indicates that underlying cash flows are not adequate
to meet its debt service requirements. Often this is associated
with a delay or shortfall in payments of 30 days or more.
Smaller balance homogeneous loans are evaluated for impairment
in total. Such loans include residential first mortgage loans
secured by one to four family residences, residential
construction loans, consumer automobile, home equity and credit
card loans with balances less than $300 thousand. In addition,
loans held for sale and leases are excluded from consideration
as impaired. Loans are generally moved to non-accrual status
when 90 days or more past due. These loans are often also
considered impaired. Impaired loans, or portions thereof, are
charged off when deemed uncollectible. The nature of the
disclosures for impaired loans is considered generally
comparable to prior nonaccrual loans and non-performing and past
due asset disclosures. The adoption of SFAS 114 had no impact on
the comparability of the December 31, 1996 or 1995, allowance
for loan losses to prior periods.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on a straight-line method
over the estimated useful life of the asset. Maintenance and
repairs are charged to expense as incurred and major
improvements are capitalized.
Other Real Estate
Other real estate is recorded at the lower of cost or fair
value, less estimated costs to sell. Any reduction from the
carrying value of the related loan to fair value at the time the
property is acquired is accounted for as a loan charge-off. Any
subsequent reductions in the fair value are reflected in a
valuation allowance through a charge to other real estate
expense. Expenses incurred to carry other real estate are
charged to operations as incurred. There was no other real
estate held at December 31, 1996 and 1995.
Investment in Affiliate
The Bank's 20% partnership interest in NB5 Financial Services is
reported using the equity method of accounting. NB5 Financial
Services is an Ohio general partnership engaged in equipment
leasing activities. Due to changes in the demand for leases, the
partners have determined that NB5 will not continue generating
new leases. As existing leases are paid, equity distributions
will be made to the partners. There were no capital
distributions in 1996 or 1995.
Intangibles
Intangible assets arising from the Bank's acquisition of four
branches of the former First Savings and Loan Company of
Massillon, F.A., in July of 1991 are included in Other Assets in
the accompanying Consolidated Balance Sheet and are summarized
as follows:
Goodwill $739
Core Deposit Intangible 223
Goodwill is being amortized using a method and life which
corresponds to the accretion of the loan discount. Core deposit
intangible is being amortized by deposit component, on a level
yield basis over a ten year period. Amortization of these
intangibles totaled $236 thousand, $250 thousand, and $290
thousand for 1996, 1995 and 1994 respectively.
Income Taxes
The Company records income tax expense based on the amount of
taxes due on its tax return plus the change in deferred taxes.
Deferred tax assets and liabilities are the expected future tax
consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities, computed by
using enacted tax rates.
Dividend Reinvestment Plan
The Company has established a dividend reinvestment plan whereby
the Company's shareholders are eligible to acquire new common
shares of stock at 100% of the current estimated fair market
value in lieu of receiving cash dividends. Shareholders can have
all or part of their normal cash dividends reinvested in the
CompanyUs stock. During 1996, 10,037 shares of stock were
allocated under the plan in lieu of cash dividends of $248
thousand. Of the shares allocated, all were obtained from a
reduction in the treasury stock.
Consolidated Statement of Cash Flows
Cash and cash equivalents include cash, noninterest bearing
deposits with banks and federal funds sold. As permitted, the
Company reports cash flows from certain transactions on a net
basis. For the years ended December 31, 1996, 1995 and 1994,
income taxes paid totaled $2.54 million, $1.83 million, and
$1.75 million and interest paid totaled $10.57 million, $9.40
million, and $8.32 million respectively.
Per Share Amounts
Net income per share computations are based on the weighted
average number of shares of common stock outstanding during the
year. In November of 1994, and 1996 the Company declared a 5%
stock dividend. These dividends were recorded by the transfer of
the market value of the new shares from Retained Earnings to
Common Stock and Paid in Capital. Fractional shares resulting
from the stock dividends were paid in cash. In June of 1996, the
Board of Directors voted to split the stock on a 2 for 1 basis.
The split was effective June 15, 1996 and payable to
shareholders on June 30, 1996. All per share data has been
retroactively adjusted for the stock split and stock dividends.
Weighted average shares outstanding for December 31, 1996, 1995,
and 1994 were 3,932,527, 3,931,595 and 3,918,907, respectively.
Fair Values of Financial Instruments
Fair values of financial instruments are estimated using
relevant market information and other assumptions, as more fully
disclosed separately. Fair value estimates involve uncertainties
and matters of significant judgement regarding interest rates,
credit risk, prepayments, and other factors, especially in the
absence of broad markets for particular items. Changes in
assumptions or in market conditions could significantly affect
the estimates. The fair value of estimates of existing
on-and-off-balance sheet financial instruments does not include
the value of anticipated future business or the values of assets
and liabilities not considered financial instruments.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.
Areas involving the use of management's estimates and
assumptions include the allowance for loan losses, the
realization of deferred tax assets, fair value of certain
securities, the determination and carrying value of impaired
loans, the determination of other-than-temporary reductions in
the fair value of securities, depreciation of premises and
equipment, the carrying value and amortization of intangibles
and the fair value of financial instruments. Estimates that are
more susceptible to change in the near term include the
allowance for loan losses and the fair value of certain
securities.
Concentration of Credit Risk
The Wayne County National Bank grants residential, consumer and
commercial loans and also leases assets to customers located in
Wayne, Holmes and Stark Counties. The makeup of the loan
portfolio at December 31, 1996, was as follows:
Commercial 41%
Real Estate Loans 37%
Consumer Loans 18%
Home Equity Loans 3%
Direct Financing Leases 1%
Reclassifications
Certain reclassifications have been made to amounts previously
reported to conform with the current financial statement
presentation.
3. INVESTMENT SECURITIES
The summary of amortized cost and fair values of securities available-for-sale
at December 31, 1996:
Gross Gross
Securities Amortized Unrealized Unrealized Fair
Available-for-Sale Cost Gains Losses Value
- ---------------------------- -------- -------- --------- ------------
U.S. Treasury $23,043 $84 ($65) $23,062
Federal Agency
Obligations 17,446 83 (118) 17,411
Federal Agency Pools 23,173 159 (135) 23,197
Obligations of States and
Political Subdivisions 21,009 397 (28) 21,378
Other Securities 18,246 63 (63) 18,246
-------- -------- --------- -----------
$102,917 $786 ($409) $103,294
======== ======== ======== =========
The summary of amortized cost and fair values of securities available-for-sale
at December 31, 1995:
Gross Gross
Securities Amortized Unrealized Unrealized Fair
Available-for-Sale Cost Gains Losses Value
- ---------------------------- -------- -------- --------- -----------
U.S. Treasury $21,848 $339 ($10) $22,177
Federal Agency
Obligations 20,738 229 (23) 20,944
Federal Agency Pools 13,816 181 (42) 13,955
Obligations of States and
Political Subdivisions 20,612 536 (22) 21,126
Other Securities 16,056 91 (24) 16,123
-------- -------- --------- ---------
$93,070 $1,376 ($121) $94,325
======== ======== ======== ==========
During the years ended December 31, 1996 and 1995, proceeds from the sales of
available-for-sale were $2.2 million and $1 million respectively. Gross gains
of $9 thousand in 1996 and gross losses of $3 thousand and $1 thousand in 1996
and 1995 respectively are included in earnings. In 1995, proceeds from the
sale of held-to-maturity securities who's maturity date was within 90 days of
the sale were $8 million with gross realized gains of $1 thousand and losses of
$12 thousand included in earnings.
On December 1, 1995, the Company transferred securities with an amortized cost
of $45.65 million previously classified as held-to-maturity to available-for-
sale. The unrealized gain on the securities transferred totaled $653 thousand.
This was done in accordance with a Financial Accounting Standards Board ruling
allowing a one time reclassification of securities. On December 1, 1995, the
Company's equity increased approximately $431 thousand as a result of this
transfer.
The amortized cost and estimated market value of the available-for-sale
securities at December 31, 1996, by contractual maturity, are shown below.
Expected maturities may differ from the contractual maturity as borrowers may
have the right to call or prepay the obligations with or without call or
prepayment penalties.
Amortized Fair
Cost Value
-------- -----------
Due in one year or less $26,399 $26,527
Due after one year
through five years 41,659 41,800
Due after five years
through ten years 8,054 8,121
Due after ten years 2,085 2,101
-------- -----------
$78,197 $78,549
Federal Agency Pools
and Mortgage Backed
Securities 23,173 23,197
Equity Securities 1,425 1,425
Other Securities 122 123
-------- ----------
$102,917 $103,294
======== ========
Securities were pledged to secure public and trust deposits, securities sold
under agreements to repurchase, and for other purposes required or permitted by
law. Such pledged securities at December 31, 1996 and 1995 had a carrying
value of $43.3 million and $39.1 millon respectively.
4. LOANS AND LEASES
The composition of the loan portfolio at December 31 is as follows:
1996 1995
------ ------
Commercial $90,638 $81,740
Real Estate 79,859 70,760
Consumer Installment 39,183 36,954
Direct Lease Financings 3,246 3,435
Credit Card 5,472
Home Equity 6,417 5,934
Other Loans 23 26
-------- ---------
$219,366 $204,321
======== ==========
The Bank leases various types of equipment and automobiles to its customers,
which are classified as direct financing leases. All leases have terms ranging
from two to five years. The composition of the net investment in direct
financing leases included in loans at December 31 is as follows:
1996 1995
------- -------
Minimum Lease Payments
Receivable $3,237 $3,423
Residual Value of Leased
Property (Unguaranteed) 9 12
-------- --------
3,246 3,435
Less: Unearned Income 472 547
-------- --------
Net Investment In Direct
Financing Leases $2,774 $2,888
======== ========
The following schedule summarizes by year the minimum lease payments receivable
on direct financing leases at December 31, 1996.
Years Ended December 31
1997 .................. $1,508
1998 .................. 924
1999 .................. 518
2000 .................. 234
2001 .................. 53
--------
$3,237
========
The Bank has granted loans to the officers and directors of the Company and its
subsidiaries and related business interests. The aggregate dollar amount of
these loans was $1.1 million and $954 thousand at December 31, 1996 and 1995,
respectively. During 1996, $496 thousand of new loans and advancements were
made and the repayments on loans to these parties totaled $363 thousand.
5. ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses is as follows:
1996 1995 1994
------ ------ -------
Balance at Beginning
of Year $3,705 $3,448 $3,040
Loans Charged Off (412) (230) (183)
Loan Recoveries 184 367 245
Provision for Loan
Losses 180 120 346
-------- -------- ---------
Balance at End of Year $3,657 $3,705 $3,448
======== ======== =========
The Bank had one impaired loan at December 31, 1996 with a balance of $924
thosand. The impaired loan had $215 thousand of the allowance for loan losses
allocated at December 31, 1996, although the entire allowance remains available
for charge-off of any loan. Impaired loans averaged $1.1 million in 1996.
Income recognized during the year ended December 31, 1996 amounted to $74
thousand. Interest income recognized on the cash basis for the year ended
December 31, 1996 totaled $72 thousand. There were no impaired loans in 1995.
6. PREMISES AND EQUIPMENT
A summary of the premises and equipment balances at December 31 is as follows:
1996 1995
------- -------
Land $1,152 $1,213
Premises and Leasehold
Improvements 6,533 6,489
Furniture and Equipment 3,456 2,911
-------- -------
11,141 10,613
Less Accumulated
Depreciation (4,926) (4,487)
-------- --------
$6,215 $6,126
======== ========
Depreciation expense was $439 thousand, $509 thousand, and $438 thousand in
1996, 1995 and 1994.
7. DEPOSITS
Time certificates of deposit with a balance of $100 thousand or more, were $15.9
million and $17.8 million at December 31, 1996 and 1995 respectively. Interest
expense on these deposits was $1.03 million $959 thousand and $440 thousand
for 1996, 1995, and 1994, respectively.
At year end 1996, stated maturities of time deposits with a remaining maturity
greater than one year were as follows:
1997 $81,232
1998 23,288
1999 6,970
2000 4,877
2001 2,784
----------
$119,151
==========
8. BORROWINGS
Federal funds purchased, securities sold under agreements to repurchase and
treasury tax and loan deposits are financing arrangements. Physical control
is maintained for all securities sold under repurchase agreements. Information
concerning securities sold under repurchase agreements is as follows:
1996 1995
-------------------
Average month-end balance during the year $20,282 $10,947
Average interest rate during the year 4.64% 5.32%
Highest month-end balance during the year $29,854 $15,872
Securities underlying these agreements at year-end were as follows:
1996 1995
-------------------
Amortized cost of securities $31,227 $16,000
Fair Value $31,288 $16,239
9. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value.
Cash, Short Term Investments and accrued interest
For these short-term instruments, the carrying amount is a reasonable estimate
of the fair value.
Investment Securities
Fair values are based on a quoted market price, if available. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar instruments.
Loans and Leases
For certain homogeneous categories of loans, such as some residential mortgages,
credit card receivables, and other consumer loans, fair value is estimated
using quoted market prices for securities backed by similar loans, adjusted
for differences in loan characteristics. The fair value of other types of
loans is estimated by discounting future cash flows using current rates at
which similar loans would be made to borrowers with similar credit ratings
and for the same remaining maturities. For variable rate loans, the
carrying amount approximates fair value.
Deposits
Fair values for deposit liabilities with defined maturities are based on the
discounted value of future cash flows expected to be paid, using the current
rate offered for similar deposits with the same remaining maturities. For
deposit liabilities with no defined maturities, the fair value is the amount
payable on demand. For time deposits with variable rates, the carrying value
approximates market value.
Securities Sold Under Agreements to Repurchase
For these short term deposit instruments, the carrying value is a reasonable
estimate of the fair value.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments is estimated using the fees currently charged to
enter similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counter-parties. For fixed
rate loan commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. The fair value of letters of
credit isbased on fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligations
with the counterparties at the reporting date.
The estimated fair values of the Bank's financial instruments are as follows:
1996
Carrying Fair
Value Value
-------------- --------------
Financial Assets:
Cash and Short-term
Investments $22,595 $22,595
Investment Securities 103,294 103,294
Loans and Leases 218,729 222,043
Less: Allowance for
Loan Losses (3,657) (3,657)
Accrued Interest 2,879 2,879
Financial Liabilities:
Deposits (281,686) (281,711)
Securities Sold Under
Agreement to
Repurchase (26,142) (26,142)
Accrued Interest (1,335) (1,335)
Off Balance Sheet Financial Instruments:
Commitments to
Extend Credit 36,380 36,380
Standby Letters
of Credit 1,951 1,963
1995
Carrying Fair
Value Value
-------------- --------------
Financial Assets:
Cash and Short-term
Investments $17,015 $17,015
Investment Securities 94,325 94,325
Loans Held for sale 8,539 8,560
Loans and Leases 203,572 206,176
Less: Allowance for
Loan Losses (3,705) (3,705)
Accrued Interest 3,069 3,069
Financial Liabilities:
Deposits (274,747) (275,253)
Securities Sold Under
Agreement to
Repurchase (15,662) (15,662)
Accrued Interest (1,458) (1,458)
Off Balance Sheet Financial Instruments:
Commitments to
Extend Credit 25,278 25,278
Standby Letters
of Credit 1,774 1,786
10. EMPLOYEE BENEFIT PLANS
The Bank sponsors a noncontributory Profit Sharing Retirement Plan (PSRP) and
Employee Stock Ownership Plan (ESOP) in which all salaried employees with one
year or more of service participate. Annual contributions are made by the Bank
to both plans in an amount which is the lesser of 8.5% of the Bank's current
profits or 6.375% of the aggregate compensation paid in such year to all
eligible participants. Actual contributions paid to the plans for the three
years ending December 31 were:
1996 1995 1994
PSRP.............. $293 $255 $244
ESOP.............. 217 189 181
-------- --------- --------
$510 $444 $425
======== ======== ========
The ESOP held 129,719 shares at December 31, 1996, 119,375 shares at
December 31, 1995, 109,326 shares at December 31, 1994.
11. OTHER OPERATING EXPENSES
Other operating expenses include the following major categories of expense:
1996 1995 1994
Data Processing $1,100 $1,116 $1,089
FDIC Insurance 221 354 570
Franchise Taxes 527 484 437
Intangible
Amortization 236 250 290
Donations 349 70 40
Other Operating 2,039 2,000 2,002
-------- -------- --------
$4,472 $4,274 $4,428
======== ======== ========
12. INCOME TAXES
Income tax expense and related balance sheet accounts are as follows:
1996 1995 1994
Federal Current $2,266 $1,811 $1,783
Federal Deferred (Benefit) 154 21 (223)
-------- --------- --------
$2,420 $1,832 $1,560
======== ======== ========
The sources of gross deferred tax assets and gross deferred tax liabilities at
December 31, are as follows:
1996 1995 1994
Items giving rise to deferred tax assets:
Allowance for loan losses in excess
of tax reserves $843 $886 $798
Deferred loan fees 93 165 202
Unrealized loss on securities available-for-sale 177
Other 126 102 61
Items giving rise to deferred tax liabilities:
Depreciation (180) (199) (227)
Leases (438) (436) (347)
Unrealized gain on securities available-for-sale (128) (427)
Other (164) (84) (32)
----------------------------
Net deferred tax assets $152 $7 $632
============================
The reasons for the differences between income tax expense and the amount
computed by applying the statutory federal income tax rate of 34% for the
three years presented are as follows:
1996 1995 1994
Tax at Federal
Statutory Rate $2,704 $2,141 $1,897
Effect of Tax-Exempt
Income (325) (371) (400)
Effect of Non-deductible
Goodwill Amortization 61 61 61
Other (20) 1 2
-------- -------- --------
$2,420 $1,832 $1,560
======== ======== ========
13. COMMITMENTS AND CONTINGENCIES
As of December 31, 1996, the Bank had outstanding standby letters of credit of
$1.95 million. These letters of credit are backed by notes signed by the
customer. These notes are variable rate. Also at that date, the Bank had
commitments outstanding to extend credit and unfunded lines of credit for
customers totaling approximately $36.4 million. All of these unfunded
commitments are variable rate and mature within one year. These commitments
generally require the customer to maintain certain credit standards. Management
does not anticipate any material losses as a result of these commitments.
At December 31, 1996, the Bank was required to maintain $5.2 million either in
cash or in balances with the Federal Reserve Bank. These balances do not earn
interest.
14. REGUATORY MATTERS
Dividends are paid by the Company from its assets which are mainly provided by
the dividends from the Bank. However, certain restrictions exist in regard to
the ability of the Bank to transfer funds to the Company in the form of
dividends. The approval of the Comptroller of the Currency is required to pay
dividends in excess of the Bank's earnings retained in the current year plus
retain retained profits from the preceding two years. The amount of retained
earnings available for dividends without approval from the Comptroller of the
Currency is approximately $64 thousand at December 31, 1996.
The Company and Bank are subject to regulatory capital requirements administered
by federal banking agencies. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities and
certain off-balance sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative
judgements by regulators about components risk weightings, and other factors,
and the regulators can lower classifications in certain cases. Failure to
meet various capital requirements can initiate regulatory action that could
have a direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and crititically undercapitalized, although
these terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration is required.
The regulatory minimum requirements are:
Capital to Risk-
Weighted Assets Tier 1 Capital to
Total Tier 1 Average Assets
------------------ ---------
Well Capitalized 10% 6% 5%
Adequately Capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
At year-end, consolidated actual capital levels (in millions) and minimum
required levels were:
To Be well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) $43,287 19.5% $17,752 > 8.0% $22,190 > 10.0%
Tier I Capital
(to Risk Weighted Assets) $40,502 18.3% $8,876 > 4.0% $13,314 > 6.0%
Tier I Capital
(to Average Assets) $40,502 12.3% $13,211 > 4.0% $16,513 > 5.0%
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets) $38,842 18.4% $16,905 > 8.0% $21,132 > 10.0%
Tier I Capital
(to Risk Weighted Assets) $36,187 17.1% $8,453 > 4.0% $12,679 > 6.0%
Tier I Capital
(to Average Assets) $36,187 11.6% $12,478 > 4.0% $15,598 > 5.0%
The Company and Bank at year-end 1996 were categorized as well capitalized.
15. WAYNE BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
BALANCE SHEET December 31,
ASSETS 1996 1995
Cash $2 $58
Short Term Investments 951 544
Subordinated Note from Sub 10,000
Investment in Bank Subsidiary 30,565 37,079
Premises 0 287
-------- ---------
TOTAL ASSETS $41,518 $37,968
======== =========
LIABILITIES $29 $31
SHAREHOLDERS' EQUITY 41,489 37,937
-------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $41,518 $37,968
==