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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
___X___ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
_______ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ......................to..........
Commission File No. 014612
WAYNE BANCORP, INC.
(Exact name of registrant as specified in its charter)
OHIO 34-1516142
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
112 West Liberty Street
PO Box 757
Wooster, Ohio 44691 44691
(Address of principal executive offic(Zip Code)
Registrant's telephone number, including area code: (330) 264-1222
Securities registered pursuant to section 12(b) of the AcNone
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $1.00 Stated Value Per Share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or fur such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days YES__X___ NO______
Indicate by check mark if disclosures of delinquent filers in response to item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendments to this Form 10-K. YES__X___ NO______
The aggregate market value of voting stock held by nonaffiliates of the
registrant based on the most recent trade prices of such stock on March 1, 1998:
Common Stock $1.00 stated value $164,690,820
The number of shares outstanding of the issuer's classes of common stock as of
March 1, 1998:
Common Stock $1.00 stated value 3,921,210
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1997 and portions of the Registrant's Proxy Statement for the Annual
Shareholders Meeting to be held
March 26, 1998 are incorporated by reference into Parts I, II and III.
TABLE OF CONTENTS
WAYNE BANCORP, INC.
FORM 10-K
PART I PAGE
Item 1 Business........................................ 3
Item 2 Properties...................................... 13
Item 3 Legal Proceedings............................... 13
Item 4 Submission of matters to a vote of security hold 14
PART II
Item 5 Market for the Registrant's common stock and related
Shareholder matters................... 14
Item 6 Selected Financial Data......................... 14
Item 7 Management discussion and analysis of financial 14
and results of operations............. 14
Item 7A. Quantitative and qualitative disclosures about m 14
Item 8 Financial statements and supplementary data..... 14
Item 9 Changes in and disagreements with accountants on
accounting and financial disclosures.. 14
PART III
Item 10 Directors and Executive Officers of the Registra 14
Item 11 Executive Compensation.......................... 15
Item 12 Security ownership of certain beneficial owners and
management............................ 15
Item 13 Certain relationships and related transactions.. 15
PART IV
Item 14 Exhibits, financial statement schedules and reports on
Form 8-K.............................. 15
Exhibit Index................................... 16
Signatures...................................... 17
PART I
ITEM I. BUSINESS
General Development of Business:
Wayne Bancorp, Inc and its subsidiary, the Wayne County National Bank,
(collectively the "Company"), conduct general commercial banking business.
Wayne Bancorp, Inc. is a one-bank holding company organized in April, 1986.
The Wayne County National Bank ("The Bank") is a full-service bank offering
a wide range of commercial and personal banking services primarily to customers
in Wayne, Holmes and Stark Counties of Ohio. These services include a broad
range of loan, deposit and trust products and various miscellaneous services.
Loan products include commercial and commercial real estate loans, a variety
of mortgage and construction loan products, installment loans, home equity
lines of credit, Visa and Master Card lines of credit and lease financings.
Deposit products include interest and non-interest bearing checking accounts,
various savings accounts, certificates of deposit, and IRAs. The Trust
Department provides services in the
areas of employee benefits, and personal trusts. Miscellaneous services include
safe deposit boxes, night depository, United States savings bonds, traveler's
checks, money orders and cashier checks, bank-by-mail service, money transfers,
wire services, utility bill payments and collections, notary public services,
discount brokerage services and alternative investments. In addition, the Bank
has correspondent relationships with major banks in Cleveland, Cincinnati
and Detroit pursuant to which the Bank received various financial services.
The Bank accounts for substantially all (99%) of Wayne Bancorp.'s consolidated
assets at December 31, 1997.
The Bank's primary lending area consists of Wayne County, Ohio, and its
contiguous counties. Loans outside the primary lending area are considered for
creditworthy applicants. Lending decisions are made in accordance with written
loan policies designed to maintain loan quality
Retail lending products are comprised of credit card loans, overdraft lines,
personal lines of credit and installment loans. Credit cards are unsecured
credit accounts, on which the credit limits are determined by analysis of two
criteria, the borrowers debt service and gross income. Overdraft lines of credit
are lines attached to checking accounts to cover overdrafts and/or
allow customers to write themselves a loan. Credit limits are based on a
percentage of gross income and average deposits. Personal lines of credit
include lines secured by junior mortgages (home equity) and Private Banking
lines which are generally secured by junior motgages but may be unsecured or
secured by other collateral. The lines have a twenty year draw period and may
then be renewed or amortized over ten years. Credit limits are determined
by comparing three criteria, appraised value, debt service and gross income.
Installment loans include both direct and indirect loans. The term can range
from three to 180 months, depending upon the collateral which includes new and
used automobiles, boats and recreational vehicles as well as junior mortgages
and unsecured personal loans. Retail lending underwriting
guidelines include evaluating the entire credit using the Five C's of Credit,
character, capacity, capital, condition and collateral. Credit scoring,
analysis of credit bureau ratings and debt to income ratios are the major
tools used by the lender in the underwriting process.
The Bank offers a variety of mortgage loan programs, including a variety of
fixed and adjustable rate mortgages ranging from 120 to 360 months. The
underwriting guidelines include those similar to consumer loans and those
necessary to meet secondary market guidelines. Residential real estate decisions
focus on loan to value limits, debt to income ratio, housing debt to income
ratio, credit history, and in some cases, whether private mortgage insurance
is obtained.
Business credit products include commercial loans and commercial real estate
loans and leases. Commercial loans include lines and letters of credit, fixed
and adjustable rate term loans, demand and time notes. Commercial real estate
loans include fixed and adjustable mortgages. Loans are generally to owner
occupied businesses. The portfolio also includes loans to churches, rental
property, shopping plazas and residential development loans. Loans to
businesses often entail greater risk because the primary source of repayment is
typically dependent upon adequate cash flow. Cash flow of a business can be
subject to adverse conditions in the economy or a specific industry. Should
cash flow fail, the lender looks to the assets of the business and the
ability of the comakers to support the debt. Commercial lenders consider the
Five C's of Credit; character, capacity, capital, condition and collateral in
making commercial credit decisions.
The Bank has provided both direct and indirect leasing on a limited basis. The
direct leases are for specific equipment and may be open-end or closed-end.
Indirect leases are established by the same methods as an indrect consumer
auto finance. Each vehicle has its own amortization.
In addition to the underwriting guidelines followed for specific loan types,
the Bank has underwriting guidelines common to all loan types. With regard to
collateral, the Bank follows supervisory limits set forth in Regulation H for
transactions secured by real estate. Loans in excess of these guidelines are
reported to the Board of Directors on a monthly basis. Loans not secured by
real estate are analyzed on a loan by loan basis, based on collateral type
guidelines set forth in the loan policy. Appraisal policies follow and comply
with provision outlined under Title XI of FIRREA. All appraisals are done by
outside independent appraiser. The Bank, as a general rule, gets an appraisal
on all real estate transactions even when not required by Title XI. Approval
procedures include loan authorities approved by the Board of Directors for
individual lenders and loan committees. Retail and residential loans are cent
underwritten by their respective departments. Business credits can be approved
by the individual commercial lender or taken to Loan Committee if it exceeds
individual approval limits. The Board of Directors approves aggregate loan
committments in excess of $700 thousand up to the Bank's legal lending limit.
Loans to Directors and Executive Officers are approved by the Board of
Directors.
The Loan Quality Review Committee meets on a monthly basis. The Committee
reviews Bank lending trends, the Past Due Report, the Watch List and various
other reports in order to monitor and maintain credit quality. The Committee
also reviews on a relationship basis, customers on the Bank's Watch List and
credits with aggregate commitments in excess of $300 thousand.
Revenues from loans accounted for 70%, 67%, and 71% of consolidated revenues in
1997, 1996 and 1995, respectively. Revenues from interest and dividends on
investment securities, federal funds sold and mortgage-backed securities
accounted for 19%, 19%, and 18% of consolidated revenues in 1997, 1996,
and 1995, respectively.
The business of the Registrant is not seasonal to any material degree, nor is it
dependent upon a single or small group of customers whose loss would result in
a material adverse effect on the Registrant or its subsidiaries.
Regulation and Supervision
Wayne Bancorp, Inc., is a corporation organized under the laws of the State of
Ohio. The Company is required to file certain reports and periodic information
with the United States Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.
As a bank holding company incorporated and doing business within the State of
Ohio, The Company is subject to regulation and supervision under the Bank
Holding Company Act of 1956, as amended (the "Act"). The Company is required
to file with the Federal Reserve Board on a quarterly basis information
pursuant to the Act. The Federal Reserve Board may conduct
examinations or inspections of the Company and its subsidiaries.
The Company is required to obtain prior approval from the Federal Reserve Board
for the acquisition of more than five percent of the voting shares or
substantially all of the assets bank or bank holding company. In addition,
the Company is prohibited by the Act, except in certain situations from
acquiring direct or indirect ownership or control of more than five percent
of the voting shares of any company which is not a bank or bank holding company
and from engaging directly or indirectly in activities other than those of
banking, managing or controlling banks or furnishing services to its
subsidiaries. The Company may, however, subject to the prior approval of the
Federal Reserve Board, engage in, or acquire shares of companies
engaged in activities which are deemed by; the Federal Reserve Board by order
or by regulation to be so closely related to banking or managing and
controlling a bank as to be a proper activity.
The Company is a legal entity separate and distinct from its subsidiary Bank.
It is anticipated that a significant portion of the Company's revenues,
including funds available for payment of dividends (if any) and for operating
expenses, will be provided by dividends paid by its Bank subsidiary. There
are statutory limitations on the amount of dividends which may be paid to
the Company by its Bank subsidiary.
The Company's national banking subsidiary is subject to primary regulation,
supervision and examination by the Comptroller of the Currency. The Bank is a
member of the Federal Reserve System and, as such, is subject to the
applicable provisions of the Federal Reserve Act and regulations issued
thereunder. Further, the subsidiary Bank is also subject to the applicable
provisions of Ohio law insofar as they do not conflict with federal banking
laws.
The Bank's deposits are insured by the Federal Deposit Insurance Corporation.
Related to that, the Bank is subject to provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991. This Act is designed to
protect the deposit insurance fund, to improve regulation and supervision of
insured depository institutions and to improve the reporting information
related to financial institutions.
Management is not aware of any; current recommendations by regulatory
authorities which, if they were to be implemented, would have a material
effect on the Company.
Regulatory Capital Requirements
The Company is required by the various regulatory authorities to maintain
certain capital levels. The required capital levels and the Company's capital
position at December 31, 1997 are in the table included in Note 14 to the
financial statements.
The Federal Deposit Insurance Corporation sets premiums for deposit insurance
based on the Company's capital levels. In the event the Company's levels
fall below the minimum requirements the premiums for deposit insurance
could rise.
Government Monetary Policy
The earnings of the Company are affected primarily by general economic
conditions, and to a lesser extent by the fiscal and monetary policies of
the federal government and its agencies, particularly the Federal Reserve
Bank. Its policies influence the amount of bank loans and deposits and
interest rates charged and paid thereon, and thus have an effect on the
earnings the subsidiary and the Company.
Competition
The banking and financial services industry in the Company's market is highly
competitive. The Company's market area encompasses Wayne, Holmes and Stark
Counties in Ohio. The Bank competes for loans and deposits with other
commercial banks, savings and loans, finance companies and credit unions.
The primary competitive factor is interest rates charged on loans and paid for
deposits as well as fees charged for various other products and service.
Employees
As of December 31, 1997, the Company had 150 full time employees and 27 part
time employees. The Company is not a party to any collective bargaining
agreement and management considers its relationship with their employees
to be good.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
WAYNE BANCORP, INC.
December 31, 1997
Average
Daily Yield/
Balance Interest Rate
(In thousands of dollars)
ASSETS -----------------------------
Interest Earning Assets:
Loans (including fees) (1) $230,736 $20,726 8.98%
Securities Available-for-Sale (2)
Taxable 71,522 4,452 6.22%
Tax-Exempt (3) 20,650 1,689 8.18%
Federal Funds Sold 3,744 212 5.66%
--------------------
TOTAL EARNING ASSETS 326,652 27,079 8.29%
Non-earning Assets:
Cash and due from banks 12,948
Premises and Equipment (net) 6,215
Other Assets 4,522
Less Allowance for Loan Losses (3,665)
---------
TOTAL ASSETS $346,672
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Transaction Accounts 59,247 1,629 2.75%
Savings 48,732 1,387 2.85%
Time Deposits 121,054 6,499 5.37%
Borrowed Funds 26,630 1,288 4.84%
--------------------
TOTAL INTEREST BEARING LIABILITIES 255,663 10,803 4.23%
Non-Interest Bearing Liabilities:
Demand Deposits 44,915
Other Liabilities 2,644
---------
TOTAL LIABILITIES 303,222
Shareholders' Equity 43,450
---------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $346,672
=========
NET INTEREST INCOME $16,276
===========
NET YIELD ON INTEREST EARNING ASSETS 4.98%
=========
(1) Nonaccrual loans are included in the average loan balance.
(2) Average balance includes unrealized gains and losses while yield is based
on amortized cost.
(3) Interest income on tax exempt securities includes a taxable equivalent
adjustment using a 34% tax rate.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
WAYNE BANCORP, INC.
December 31, 1996
Average
Daily Yield/
Balance Interest Rate
(In thousands of dollars)
ASSETS -----------------------------
Interest Earning Assets:
Loans (including fees) (1) $213,679 $19,546 9.15%
Securities Available-for-Sale (2)
Taxable 74,079 4,584 6.19%
Tax-Exempt (3) 20,351 1,691 8.31%
Federal Funds Sold 3,577 184 5.14%
--------------------
TOTAL EARNING ASSETS 311,686 26,005 8.34%
Non-earning Assets:
Cash and due from banks 12,030
Premises and Equipment (net) 6,171
Other Assets 5,001
Less Allowance for Loan Losses (3,769)
---------
TOTAL ASSETS $331,119
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Transaction Accounts 61,703 1,699 2.75%
Savings 49,818 1,422 2.85%
Time Deposits 120,945 6,331 5.23%
Short Term Borrowings 21,039 994 4.72%
--------------------
TOTAL INTEREST BEARING LIABILITIES 253,505 10,446 4.12%
Non-Interest Bearing Liabilities:
Demand Deposits 35,590
Other Liabilities 2,660
---------
TOTAL LIABILITIES 291,755
Shareholders' Equity 39,364
---------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $331,119
=========
NET INTEREST INCOME $15,559
===========
NET YIELD ON INTEREST EARNING ASSETS 4.99%
=========
(1) Nonaccrual loans are included in the average loan balance.
(2) Average balance includes unrealized gains and losses while yield is based
on amortized cost.
(3) Interest income on tax exempt securities includes a taxable equivalent
adjustment using a 34% tax rate.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
WAYNE BANCORP, INC.
December 31, 1995
Average
Daily Yield/
Balance Interest Rate
(In thousands of dollars)
ASSETS -----------------------------
Interest Earning Assets:
Loans (including fees) (1) $205,518 $18,956 9.22%
Securities Available-for-Sale (2)
Taxable 61,125 3,675 6.01%
Tax-Exempt (3) 23,064 1,909 8.28%
Federal Funds Sold 4,064 239 5.88%
--------------------
TOTAL EARNING ASSETS 293,771 24,779 8.43%
Non-earning Assets:
Cash and due from banks 11,509
Premises and Equipment (net) 6,118
Other Assets 5,239
Less Allowance for Loan Losses (3,589)
---------
TOTAL ASSETS $313,048
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Transaction Accounts 57,802 2,019 3.49%
Savings 49,155 1,396 2.84%
Time Deposits 120,549 5,861 4.86%
Short Term Borrowings 12,717 640 5.03%
--------------------
TOTAL INTEREST BEARING LIABILITIES 240,223 9,916 4.13%
Non-Interest Bearing Liabilities:
Demand Deposits 35,083
Other Liabilities 2,021
---------
TOTAL LIABILITIES 277,327
Shareholders' Equity 35,721
---------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $313,048
=========
NET INTEREST INCOME $14,863
===========
NET YIELD ON INTEREST EARNING ASSETS 5.06%
=========
(1) Nonaccrual loans are included in the average loan balance.
(2) Average balance includes unrealized gains and losses while yield is based
on amortized cost.
(3) Interest income on tax exempt securities includes a taxable equivalent
adjustment using a 34% tax rate.
SUMMARY OF NET INTEREST INCOME CHANGES
WAYNE BANCORP, INC.
The following table sets forth for the periods indicated a summary of the
changes in interest income and interest expense resulting from changes in
volume and changes in interest rates for the major components of interest
earning assets and interest bearing liabilities.
1997 vs 1996 1996 vs 1995
--------------------------------------------------------
Increase (Decrease) (1) Increase (Decrease) (1)
Volume Rate Net Volume Rate Net
--------------------------------------------------------
(In thousands of dollars)
Interest Income:
Loans $1,560 ($380) $1,180 $753 ($163) $590
Taxable Investments (158) 26 (132) 779 130 909
Non-taxable
Investments 25 (27) (2) (225) 7 (218)
Federal Funds So 9 19 28 (29) (26) (55)
--------------------------------------------------------
Total Interest Income 1,436 (362) 1,074 1,278 (52) 1,226
Interest Expense:
Transaction Accounts (70) (70) 136 (456) (320)
Savings (35) (35) 19 7 26
Time Deposits 6 162 168 19 451 470
Short-term Borrowing 269 25 294 419 (65) 354
--------------------------------------------------------
Total Interest Expense 170 187 357 593 (63) 530
--------------------------------------------------------
Net Interest Income $1,266 ($549) $717 $685 $11 $696
========================================================
(1) For purposes of the above table, changes in interest due to volume and
rate were determined as follows:
Volume variance - Change in volume multiplied by the prior year's rate.
Rate Variance - Change in rate multiplied by the prior year's balance.
Rate/Volume Variance - Change in volume multiplied by change in rate.
The rate/volume variance was allocated to volume variance and rate variances in
proportion to the relationship of the absolute dollar amount of change in each.
(2) Interest income on tax exempt securities includes the effects of taxable
equivalent adjustment using a 34% tax rate for each year.
INVESTMENT PORTFOLIO
WAYNE BANCORP, INC.
The following table represents the year end carrying value of available-for-sale
securities at the date indicated: (In thousands of dollars)
1997 1996 1995
-----------------------------
U.S. Treasury and Other U.S. Government
Agency Obligations $35,598 $40,473 $43,121
Mortgage-backed Securities 19,482 23,197 13,955
States and Political Subdivisions 19,761 21,378 21,126
Other 19,219 18,246 16,123
-----------------------------
$94,060 $103,294 $94,325
=============================
The following table sets forth the maturity distribution and yields on
investment securities for-sale at December 31, 1997 (In thousands of dollars):
One Year or Less One to Five Years
Carrying Carrying
Value Yield Value Yield
--------------------------------------
U.S. Treasury and Other U.S. Government
Agency Obligations $9,798 6.16% $25,285 6.07%
Mortgage-backed Securities 1,252 6.32% 7,203 6.46%
States and Political Subdivisions 3,349 5.41% 8,784 5.67%
Other 11,214 6.00% 6,254 6.08%
--------------------------------------
$25,613 6.00% $47,526 6.06%
======================================
Five to Ten Years Over Ten Years
Carrying Carrying
Value Yield Value Yield
--------------------------------------
U.S. Treasury and Other U.S. Government
Agency Obligations $515 5.80%
Mortgage-backed Securities 6,293 6.44% 4,734 7.77%
States and Political Subdivisions 4,986 5.18% 2,642 5.62%
Other 1,751 7.16%
--------------------------------------
$11,794 5.88% $9,127 7.03%
======================================
Note: Yield represents the weighted average yield to maturity. Yield on
states and political subdivisions are not calculated on a tax
equivalent basis. Mortgage-backed obligations are distributed
based on contractual maturity.
Excluding those holdings of the securities portfolio in U.S. Treasury securities
and other agencies and corporations of the U.S. Government, there were no
securities of any one issuer which exceeded 10% of consolidated shareholders'
equity at December 31, 1997.
LOAN PORTFOLIO
WAYNE BANCORP, INC.
The Company's commercial loans are extended primarily to local businesses.
The Company also extends credit to customers through installment loans, vehicle
and equipment leases, and revolving credit arrangements. The remaining portfolio
consists primarily of residential mortgage loan (1-4 family dwellings) and
mortgage loans on commercial property. Loans by major category at
the end of the last five years were as follows: (In thousands of dollars)
1997 1996 1995 1994 1993
-----------------------------------------------
Real Estate $98,353 $86,276 $76,694 $78,930 $71,230
Installment & Credit card 37,166 39,183 42,426 39,914 34,408
Commercial & Collateral 106,452 90,638 81,740 75,983 74,011
Lease Financings 3,880 3,246 3,435 2,741 2,535
Other Loans 23 23 26 12 16
-----------------------------------------------
$245,874 $219,366 $204,321 $197,580 $182,200
===============================================
The maturity distribution of the loan portfolio is a key factor in the
evaluation of risk characteristics of the loan portfolio and the future
profitability of the portfolio. The maturity distribution and rate
sensitivity of the loan portfolio and other balance sheet items at year end
1997 is included page 26 of the 1997 Annual Report to Shareholders, and is
incorporated herein by reference.
The maturity distribution and interest rate sensitivity of commercial and
collateral loans at December 31, 1997 are as follows (In thousands of dollars):
Within 1 to 5 After 5
1 Year Years Years Total
--------------------------------------
Commercial and Collateral $44,924 $56,270 $5,258 $106,452
Loans due after 1 year:
At predetermined interest rates $40,223
At floating interest rates $21,305
The following table summarizes past due, non-accrual and restructured loans:
(In thousands of dollars) 1997 1996 1995 1994 1993
-----------------------------------------------
Accruing loans past due 90 days
or more as to principle or $244 $173 $204 $149 $45
Non-accrual loans 37 934 15 22 46
Restructured loans 0 0 0 0 0
-----------------------------------------------
$281 $1,107 $219 $171 $91
===============================================
The effect of non-performing loans was as follows: December 31, 1997
------------------
Interest income due on non-performing loans in accordance
with the original terms of the loan $3
Less: Interest income on non-performing loans reflected 0
---------
Net reduction in interest income $3
=========
The policy for placing loans on non-accrual status is to stop the accrual on
interest when it is likely that collection of interest is deemed doubtful, or
when loans are past due as to principle or interest ninety days or more. In
certain cases, interest accruals are continued on loans ninety days past due
if they are deemed to be adequately secured and in the process of collecion.
At December 31, 1997, the Company had no loans classified as impaired. The Bank
had one impaired loan at December 31, 1996 with a balance of $924 thousand.
The impaired loan had $215 thousand of the allowance for loan losses allocated
at December 31, 1996, although the entire allowance remains available for
charge-off of any loan. Impaired loans averaged $549 thousand in 1997 and
$1.1 million in 1996. Income recognized during the year ended December 31,
1997 and 1996 amounted to $24 thousand and $74 thousand. Interest income
recognized on the cash basis for the year ended December 31, 1997 and 1996
totaled $5 thousand and $72 thousand. There were no impaired loans in 1995.
Impaired loans are comprised of commercial and commercial real estate loans,
and are carried at the present value of expected future cash flows, discounted
at the loan's effective interest rate or at a fair value of collateral, if the
loan is collateral dependent. A portion of the allowance for loan losses is
allocated to impaired loans.
Smaller balance homogeneous loans are evaluated for impairment in total. Such
loans include residential first mortgage and construction loans secured by 1-4
family properties, consumer, credit card and home equity loans. Such loans are
included in nonaccrual and past due disclosures above, but not in impaired
loan totals. Commercial loans and mortgage loans secured by other properties
are evaluated individually for impairment. In addition, loans held for sale
and leases are excluded from consideration of impairment. When analysis of
borrower operating results and financial condition indicates that the
borrower's underlying cash flows are not adequate to meet its debt service
requirements, the loan is evaluated for impairment. Impaired loans, or portions
thereof, are charged off when deemed uncollectible.
As of December 31, 1997, there were no potential problem loans for which
management has doubt as to the borrower's ability to comply with the present
repayment terms, which are not disclosed and are past due 90 days or more,
non-accrual or restructured. These loans and their potential loss
exposure has been considered in the analysis of the adequacy of the reserve for
loan losses, prepared by management and included on page 13 of this filing.
In all years presented, there were no material amount of loans excluded from
the amounts disclosed as non-accrual, past due 90 days or more restructured,
or potential problem loans, may have been classified by the regulatory
examiners as loss, doubtful or substandard.
There were no foreign loans outstanding at December 31, 1997, 1996 or 1995.
As of December 31, 1997, there were no concentrations of credit greater than
10% of total loans which are not otherwise disclosed as a category of loans
pursuant to Guide 3, Item III. A.
As of December 31,1997, there are no other interest bearing assets that would
require disclosure under Guide 3, Item III. C. 1. or C. 2., if such assets
were loans.
SUMMARY OF LOAN LOSS EXPERIENCE
WAYNE BANCORP, INC.
In the normal course of business, the Company assumes risk of extending credit.
The Company manages this risk through its lending policy, loan review procedures
and personal contact with the borrower.
In determining the adequacy of the allowance for loan losses, management
evaluates past loan loss experience, present and anticipated economic conditions
and credit-worthiness of its borrowers. The allowance for loan losses is
increased by provisions charged to operations and recovery of loans previously
charged off. The allowance is reduced by loans charged off as they become
uncollectible by the Bank's management. The following table contains information
relative to the loan loss experience for five years ending December 31:
(In thousands of dollars) 1997 1996 1995 1994 1993
-----------------------------------------------
Allowance for loan losses at the
beginning of the year 3,657 3,705 $3,448 $3,040 $2,629
Loans charged off:
Real Estate 236 0 0 0 15
Installment & Credit Card 182 243 218 154 213
Lease Financings 10 0 1 0 5
Commercial & Collateral 38 169 11 29 173
-----------------------------------------------
Total Loans Charged Off 466 412 230 183 406
Recoveries on loans charged off:
Real Estate 0 2 0 0 0
Installment & Credit Card 153 131 115 136 132
Lease Financings 7 0 139 7 3
Commercial & Collateral 99 51 113 102 82
-----------------------------------------------
Total Recoveries 259 184 367 245 217
Net Loans Charged Off 207 228 (137) (62) 189
Provision for Loan Losses 180 180 120 346 600
-----------------------------------------------
Allowance for Loan Losses at
the End of the Year $3,630 $3,657 $3,705 $3,448 $3,040
===============================================
Ratio of net charge-offs during the
year to average outstanding loans
during the year 0.09% 0.11% -0.07% -0.03% 0.11%
The following tables show a year end breakdown of the allowance for loan losses
allocated by type of loan and related ratios. While management's periodic
analysis of the adequacy of the allowance for loan losses may allocate
portions of the allowance for specific problem-loan situations, the entire
allowance is available for any loan charge-offs that occur.
(In thousands of dollars) 1997 1996 1995 1994 1993
-----------------------------------------------
Real Estate $171 $496 $201 $212 $207
Installment & Lease 62 50 65 103 338
Commercial & Collateral 521 332 319 412 719
Credit Card Receivable 0 15 14 17 69
Other Loans 0 0 0 0 0
Unallocated 2,876 2,764 3,106 2,704 1,707
-----------------------------------------------
$3,630 $3,657 $3,705 $3,448 $3,040
===============================================
Percent of Loans in Each Category to Total Loans
1997 1996 1995 1994 1993
-----------------------------------------------
Real Estate 40% 40% 38% 40% 39%
Installment & Lease 17% 19% 20% 18% 17%
Commercial & Collateral 43% 41% 40% 39% 41%
Credit Card Receivable 0% 0% 2% 3% 3%
Other Loans
Unallocated
-----------------------------------------------
100% 100% 100% 100% 100%
===============================================
Management's allocation of the allowance for loan losses is based on several
factors. First, consideration is given to the current portfolio. Management
has an internal loan review function that is designed to identify problem and
impaired loans and the losses that may be expected if the borrower is unable
to continue servicing the debt. Management will use the amount of loss that is
expected on those loans. The second step is to review the prior charge-off
history of each category of loan. In this step, management will review the
prior three year average charge-offs and compare that to the expected loss
identified in the first step and will adjust the allocation accordingly. The
third step is to review any loans that have been classified by the regulatory
examiners and allocate the specific loss portion that is determined by
the examiners.
At December 31, 1997 the ratio of reserve for loan losses to total net loans
and leases was 1.48%. Based on the ratio of allowance to total net loans
and leases and the December 31, 1997 ratio of loans past due 30 days or more
to total net loans and leases was .42%, the above allocation is considered
reasonable by the Company's management.
The amounts included in the specific allocations are obtained by using the
principle balance of any loans classified on the problem loan list as loss
or doubtful, plus 10% of the total principal balances of loans considered
substandard and 5% of those which are considered watch credits.
At December 31, 1996, the Company had allocated $215 thousand of the allowance
for loan losses for impaired loan balances. See Footnote 5 to the
consolidated financial statements for 1997 which is incorporated herein
by reference.
DEPOSITS
WAYNE BANCORP, INC.
The following table presents the average balance and the average rate paid on
each of the Bank's deposit categories for the period indicated.
(In thousands of dollars)
Year End December 31,
1997 1996 1995
Amount: -----------------------------
Non-interest bearing demand $48,207 $43,414 $35,083
Interest bearing demand 65,949 69,308 69,238
Savings 47,229 49,813 49,155
Time deposits 127,132 119,151 121,271
-----------------------------
$288,517 $281,686 $274,747
=============================
Average rate for the year:
Interest bearing demand 2.75% 2.75% 3.49%
Savings 2.85% 2.85% 2.84%
Time deposits 5.37% 5.23% 4.86%
The maturity distribution of certificates of deposit of $100,000 or more at
December 31, 1997 are as follows:
(In thousands of dollars)
Three months or less $6,089
Over three months through six months 3,212
Over six months through twelve months 4,819
Over twelve months 3,770
---------
$17,890
=========
RETURN ON EQUITY AND ASSETS
WAYNE BANCORP, INC.
The following table sets for operating and capital ratios of the Company
calculated on average daily balances:
Year End December 31,
1997 1996 1995
-----------------------------
Return on Average Assets 1.63% 1.67% 1.43%
Return on Average Equity 13.04% 14.05% 12.56%
Dividend Payout Ratio 29.15% 26.41% 30.03%
Average Equity to Average Asset Ratio 12.53% 11.89% 11.46%
The following table represents information on federal funds purchased and
securities sold under agreements to repurchase: (In thousands of dollars)
Year End December 31,
1997 1996 1995
-----------------------------
Amount outstanding at year end $30,853 $26,142 $15,662
Weighted average interest rate 4.83% 4.46% 4.35%
Maximum outstanding at any month-end 31,724 29,854 15,872
Average outstanding during the year 25,898 21,039 12,717
Weighted average rate during the year 4.73% 4.72% 5.03%
The Company enters into sales of securities under agreements to repurchase for
periods up to 29 days, which are treated as financings and reflected in the
consolidated balance sheet as a liability. The Company has borrowing lines
of credit extended by correspondent banks. At December 31, 1997 the Company
has $29 million of available credit, of which, none is used.
ITEM 2. PROPERTIES
The principal offices of the Company and the Wayne County National Bank are
located at 112 West Liberty Street, Wooster, Ohio. At December 31, 1997 the
Company owned ten of its branch facilities and leased two facilities. Ten
offices are located in Wayne County, Ohio and one located in each Holmes
and Stark Counties in Ohio.
ITEM 3. LEGAL PROCEEDINGS
There is no pending litigation of a material nature in which the Company is
involved and no such legal proceedings were terminated during the fourth quarter
of 1997. Furthermore, there are no material proceedings in which any director,
officer or affiliate of the Registrant, or any associate of such director of
officer, is a party, or has a material interest, adverse to the Company. As a
part of its ordinary course of business, the Company may be a party to lawsuits
(such as garnishment proceedings) involving claims to the ownership of funds
in particular accounts and involving collection of past due accounts. All
such litigation is incidental to the Company's business
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended December 31, 1997, there were no
matters submitte to a vote of security holders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Reference is made to the section titled "Dividend and Market Price Data" on
Page 4 of the 1997 Annual Report to Shareholders for the information about the
principal market for the Registrant's Common Stock, market prices, number of
shareholders and dividends, which is incorporated herein by reference.
Reference is made to Note 14, "Regulatory Matters" on page 19 of the 1997Annual
Report to Shareholders for information concerning dividend restrictions which
is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the table entitled "Five Year Financial Summary" on
page 3 of the 1997 Annual Report to Shareholders, which is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Reference is made to the section entitled "Management Discussion and Analysis"
on pages 21 through 27 of the 1997 Annual Report to Shareholders which is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to the section entitled "Asset and Liability Management" on
page 26 of the 1997 Annual Report to Shareholders which is incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, Management's Responsibility for the
Financial Statements Letter, and Report of Independent Auditors are included
on pages 8 through 20 of the 1997 Annual Report to Shareholders, which is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
No changes in or disagreements with the independent accountants or accounting
and financial disclosures have occurred.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the Registrant's Proxy Statement for the Annual Meeting of
Shareholders be held March 26, 1998 for information as to the directors and
nominees for directorships of Registrant, including other directorships held
by such director, or persons nominated to become a director, of the Registrant
and executive officers of the Registrant which information is included
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the Registrant's Proxy Statement for the Annual Meeting
of Shareholders to be held March 26, 1998 for information regarding compensation
paid in excess of $100,000 to executive officers of the Registrant and to the
Registrant's Proxy Statement with respect to Employees Profit Sharing Plan,
which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held March 26, 1998 for information regarding beneficial
ownership of the Company's stock,which information is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the Registrant's Proxy Statement which is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Schedules
The following financial statements and reports of Independent Auditors appears
on pages 9 - 20 of the Company's 1997 Annual Report to Shareholders which
financial statements are incorporated herein by reference and attached hereto:
Report of Crowe Chizek and Company, LLP, Independent Auditors
Consolidated Balance Sheets, December 31, 1997 and 1996
Consolidated Statements of Income, Years Ended
December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows, Years Ended
December 31, 1997, 1996, and 1995
Consolidated Statements of Shareholders' Equity, Years Ended
December 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are required under the related instructions or are
inapplicable and, therefore, have been omitted.
(3) Listing of Exhibits
Exhibit
Number
- ---------
3(a) Amended Articles of Incorporation of Wayne Bancorp, Inc. were filed
with the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and are herein incorporated by reference.
3(b) Wayne Bancorp, Inc., Amended Code of Regulations (Bylaws) were filed
with the Company's Annual Report on Form 10-K for the year ended
December 31, 1992 and is herein incorporated by reference.
9(a) Trust Division Policy - voting own Bank stock was filed with the
Company's Annual Report on Form 10-K for the year ended December 31,
1987 and is herein incorporated by reference.
9(b) Trust Division Policy - proxy voting policy was filed with the
Company's Annual Report on Form 10-K for the year ended December 31,
1987 and is herein incorporated by reference.
10 Wayne County National Bank Salaried Employee Profit Sharing Trust was
filed with the Company's Annual Report on Form 10-K for the year ended
December 31, 1986 and is incorporated herein by reference.
10(a) Salaried Employee Profit Sharing Plan Amended effective January 1,1987
was filed with the Company's Annual Report on Form 10-K for the year
ended December 31, 1987 and is incorporated herein by reference.
10(b) Employee Stock Ownership Plan effective on January 1, 1987 was filed
with the Company's Annual Report on Form 10-K for the year ended
December 31, 1987 and is incorporated herein by reference.
13 Annual Report to Shareholders for the year ended December 31, 1997
21 Subsidiaries of the Registrant
27 Financial Data Schedule
28 Notice of Annual Shareholders' Meeting
(b) Reports on Form 8-K
There were no Form 8-K's filed during the last quarter of the period covered
by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned,thereunto duly authorized.
Wayne Bancorp, Inc.
Date: March 30, 1998 By:_____________________________
Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
on Form 10-K been signed below by the following persons on behalf of the
Registrant in the Capacities and dates as indicated.
Signature Capacity with Registrant Date
____________________________ ____________________
David L. Christopher Director, Chairman of Board,
President and CEO
____________________________ ____________________
James O. Basford Director
____________________________ ____________________
David P. Boyle, CPA Executive Vice President and
Chief Financial Officer
____________________________ ____________________
Gwenn E. Bull Director
____________________________ ____________________
Dennis B. Donahue Director
____________________________ ____________________
B. Diane Gordon Director
____________________________ ____________________
John C. Johnston, III Director
____________________________ ____________________
Darcy B. Pajak Director
____________________________
Stephen L. Shapiro Director
____________________________ ____________________
Jeffrey E. Smith Director
____________________________ ____________________
David E. Taylor Director
____________________________ ____________________
Bala Venkataraman Director
EXHIBIT (21)
SUBSIDIARIES OF THE REGISTRANT
NAME STATE OF INCORPORATION
Wayne County National Bank Ohio
Wayne National Corporation Ohio
FIVE YEAR FINANCIAL SUMMARY 1
For the Years Ended December 31,
(In thousands of dollars except
per share amounts) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------
Statement of Income Summary:
Total Operating Income (3).... $29,456 $29,329 $26,883 $23,695 $22,871
Total Operating Expense....... 21,257 21,377 20,566 18,115 17,979
Total Interest Income......... 26,505 25,430 24,130 21,096 20,232
Total Interest Expense........ 10,803 10,446 9,916 7,931 8,287
Net Interest Income........... 15,702 14,984 14,214 13,165 11,945
Provision for Loan Losses..... 180 180 120 346 600
Income Before Income Tax Expense
and Accounting Change...... 8,199 7,952 6,317 5,580 4,892
Income Tax Expense............ 2,532 2,420 1,832 1,560 1,480
Income Before Accounting
Change.............. 5,667 5,532 4,485 4,020 3,412
Cumulative Effect of Accounting
Change.............. 260
Net Income.................... 5,667 5,532 4,485 4,020 3,672
Per Share Data: 2
Net Income.................... $1.44 $1.41 $1.14 $1.03 $0.94
Cash Dividends................ 0.42 0.37 0.34 0.29 0.27
Book Value.................... 11.62 10.55 9.65 8.58 7.89
Balance Sheet Data:
Total Loans and Leases........$245,874 $219,366 $212,860 $197,580 $182,200
Allowance for Loan Losses..... 3,630 3,657 3,705 3,448 3,040
Securities.................... 94,060 103,294 94,325 93,151 93,389
Total Deposits................ 288,517 281,686 274,747 266,545 258,759
Shareholders' Equity.......... 45,722 41,489 37,937 33,640 30,750
Total Assets.................. 368,845 352,393 330,927 315,685 299,735
Other Data:
Employees..................... 177 172 176 171 175
Shareholders.................. 1,266 1,226 1,182 1,163 1,158
Cash Dividends................ $1,652 $1,461 $1,347 $1,157 $1,043
Cash Dividends as a Percent
of Net Income........... 29.41% 26.41% 30.03% 28.77% 28.40%
Financial Ratios:
Return on Average Assets...... 1.63% 1.67% 1.43% 1.33% 1.27%
Return on Beginning Equity.... 13.66% 14.58% 13.33% 13.07% 13.18%
Equity to Assets.............. 12.40% 11.77% 11.46% 10.66% 10.26%
Loans to Deposits............. 85.22% 77.88% 77.47% 74.13% 70.41%
Loans to Total Assets......... 66.66% 62.25% 64.32% 62.59% 60.79%
Allowance for Loan Losses to
Total Net Loans........... 1.48% 1.67% 1.75% 1.75% 1.67%
1. This summary should be read in conjunction with the related Consolidated
Financial Statements and Notes to the Financial Statements.
2. Per share data has been adjusted for stock dividends and splits. See
Footnote #2 to the Financial Statements.
SHAREHOLDER INFORMATION
Executive Offices Transfer Agent Market Makers
112 West Liberty Street Wayne County National Bank Everen Securities
P.O. Box 757 112 West Liberty Street - Wooster, OH
Wooster, Ohio 44691 P.O. Box 757 The Ohio Company
(330) 264-1222 Wooster, Ohio 44691 - Wooster, OH
Sweeney Cartwright
- Columbus, OH
McDonald & Co.
- Cleveland, OH
All common shares of Wayne Bancorp, Inc. are voting shares and are traded on
Nasdaq, under the symbol "WNNB", as a Small Cap Issue by utilizing the Market
Makers above. At December 31, 1997 there are 3,930,606 shares outstanding
and 1,266 shareholders of record. The range of market prices are compiled
from data provided by the brokers based on the trading activity.
DIVIDEND AND MARKET PRICE DATA*
Cash
Dividends
Quarter Ended High Low Paid
- ---------------------------------------------------------------------------
1997 March 31............................. $38.50 $30.38 $0.100
June 30.............................. 40.25 36.50 0.100
September 30......................... 42.00 37.75 0.110
December 31.......................... 48.50 40.25 0.110
1996 March 31............................. $22.03 $20.13 $0.090
June 30.............................. 23.81 21.91 0.090
September 30......................... 24.88 23.09 0.095
December 31.......................... 30.00 26.67 0.095
*Per share data has been adjusted for stock dividends and splits. See Footnote
#2 to the Financial Statements.
FORM 10-K
A copy of the Company's 1997 Annual Report on Form 10-K filed with the
Securities and Exchange Commission is available to shareholders without
charge. To obtain a copy, direct your request to David P. Boyle, Executive
Vice President and Chief Financial Officer, P.O. Box 757, Wooster, OH 44691.
January 29, 1998
The management of Wayne Bancorp, Inc. has prepared and is responsible for
the financial statements and for the integrity and consistency of other related
information contained in the Annual Report. In the opinion of management,
the financial statements, which necessarily include amounts that are based on
management estimates and judgments, have been prepared in conformity with
generally accepted accounting principles appropriate to the circumstances.
The Company maintains a system of internal accounting controls that is
designed to provide reasonable assurance that assets are safeguarded, that
transactions are executed in accordance with Company authorizations and
policies, and that transactions are properly recorded to permit preparation
of financial statements that will fairly present the financial position and
results of operations in conformity with generally accepted accounting
principles. Internal controls are augmented by written policies covering
standards of personal and business conduct and an organizational structure
providing for division of responsibility and authority.
The effectiveness of and compliance with established control systems is
monitored through a continuous program of internal audit and credit
examinations. In recognition of cost-benefit relationships and inherent
control limitations, some features of the control system are designed
to detect rather than prevent errors, irregularities and departures
from approved policies and practices. Management believes that the system of
controls is adequate to prevent or detect errors or irregularities that would
be material to the financial statements and that timely corrective actions
have been initiated when appropriate.
The Company engaged Crowe, Chizek and Company LLP, independent certified
public accountants, to render an opinion on the financial statements. The
accountants have advised management that they were provided with access to
all information and records deemed necessary to render their opinion.
The Board of Directors exercises its responsibility for the financial
statements and related information through the Audit Committee, which is
comprised entirely of outside directors. The Audit Committee meets on a regular
basis with mangement, the Internal Auditor of the Company and Crowe, Chizek
and Company LLP to assess the scope of the annual audit plan, to review the
status and results of audits, to review the Annual Report and Form 10-K,
including major changes in accounting policy and reporting practices, and to
approve non-audit related services rendered by the independent auditors.
Crowe, Chizek and Company LLP also meets with the Audit Committee, without
management being present, to afford them the opportunity to express their
opinion on the adequacy of management's compliance with the established
policies and procedures and the quality of the financial reporting.
David L. Christopher David P. Boyle, CPA
Chairman of the Board, President Executive Vice President and
and Chief Executive Officer Chief Financial Officer
Wayne Bancorp, Inc. Wayne County National Bank
Report of
Crowe, Chizek and Company LLP
Independent Auditors
Board of Directors and Shareholders
Wayne Bancorp, Inc. - Wooster, Ohio
We have audited the accompanying consolidated balance sheets of Wayne
Bancorp, Inc. as of December 31, 1997 and 1996 and the related consolidated
statements of income, cash flows and changes in shareholders' equity for each
of the three years ended December 31, 1997, 1996 and 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Wayne
Bancorp, Inc. as of December 31, 1997 and 1996 and the results of operations
and cash flows for the three years ended December 31, 1997, 1996 and 1995 in
conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Columbus, Ohio
January 29, 1998
CONSOLIDATED BALANCE SHEETS
December 31,
(In thousands of dollars, except share data) 1997 1996
- ---------------------------------------------------------------------------
ASSETS
Cash and due from banks ................................. $17,159 $14,975
Federal funds sold....................................... 5,000 7,620
------------------
Total cash and cash equivalents................. 22,159 22,595
Securities available-for-sale............................ 94,060 103,294
Loans and leases ........................................ 245,874 219,366
Less:
Unearned income................................. 564 637
Allowance for loan losses ...................... 3,630 3,657
------------------
Net loans and leases............................ 241,680 215,072
Premises and equipment .................................. 6,434 6,215
Accrued income receivable and other assets .............. 4,512 5,217
------------------
TOTAL ASSETS.............................................$368,845 $352,393
==================
LIABILITIES
Deposits
Interest bearing ...................................$240,310 $238,272
Noninterest bearing................................. 48,207 43,414
------------------
Total deposits........................................... 288,517 281,686
Securities sold under agreements to repurchase........... 30,853 26,142
Federal Home Loan Bank Advances.......................... 824
Other liabilities........................................ 2,929 3,076
------------------
Total liabilities........................................ 323,123 310,904
SHAREHOLDERS' EQUITY
Common stock, stated value $1.00......................... 3,935 3,935
Shares authorized - 5,400,000 in 1997 and 1996
Shares issued - 3,935,384 in 1997 and 3,935,404 in 1996
Shares outstanding - 3,930,606 in 1997 and 3,932,129 in 1996
Paid in capital.......................................... 13,356 13,356
Retained earnings ....................................... 28,053 24,038
Treasury stock, at cost.................................. (173) (88)
Unrealized gain on securities available-for-sale,
net of tax...................................... 551 248
------------------
Total shareholders' equity............................... 45,722 41,489
------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...............$368,845 $352,393
==================
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
(In thousands of dollars, except per share data) 1997 1996 1995
- --------------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans............................ $20,726 $19,546 $18,956
Interest on securities
Taxable............................................ 4,452 4,584 3,675
Nontaxable......................................... 1,115 1,116 1,260
Other interest income................................. 212 184 239
---------------------------
Total interest income................................. 26,505 25,430 24,130
INTEREST EXPENSE:
Interest on deposits ................................. 9,515 9,452 9,276
Interest on repurchase agreements and other
borrowed funds................................... 1,288 994 640
---------------------------
Total interest expense............................... 10,803 10,446 9,916
---------------------------
NET INTEREST INCOME 15,702 14,984 14,214
Provision for loan losses ............................ 180 180 120
NET INTEREST INCOME AFTER PROVISION ---------------------------
FOR LOAN LOSSES.................................. 15,522 14,804 14,094
OTHER INCOME:
Service charges and fees.............................. 1,252 1,340 1,260
Income from fiduciary activi.......................... 1,343 1,075 942
Gain on Sale of Loans................................. 0 824 0
Securities gains (losses), net....................... (6) 6 (12)
Other noninterest income.............................. 362 654 563
---------------------------
Total other income.................................... 2,951 3,899 2,753
OTHER EXPENSES:
Salaries and employee benefits ....................... 5,362 5,208 5,167
Occupancy and equipment............................... 1,132 1,071 1,089
Other operating expenses ............................. 3,780 4,472 4,274
---------------------------
Total other expenses.................................. 10,274 10,751 10,530
INCOME BEFORE INCOME TAX EXPENSE 8,199 7,952 6,317
INCOME TAX EXPENSE .................... 2,532 2,420 1,832
---------------------------
NET INCOME............................................ $5,667 $5,532 $4,485
===========================
PER SHARE DATA:
---------------------------
NET INCOME............................................ $1.44 $1.41 $1.14
===========================
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
(In thousands of dollars) 1997 1996 1995
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income............................................ $5,667 $5,532 $4,485
Adjustments to reconcile net cash provided
by operating activities:
Provision for loan losses.................... 180 180 120
Depreciation and amortization................ 794 734 759
Federal Home Loan Bank stock dividends....... (77) (69) (23)
Amortization of investment security premiums and
accretion of discounts, ne................. 76 331 462
Deferred income taxes........................ (159) 154 21
Change in interest receivab................. 15 190 (154)
Change in interest payable................... (2) (123) 508
Other, net................................... 318 171 318
---------------------------
Net cash provided by operating activities............. 6,812 7,100 6,496
INVESTING ACTIVITIES
Purchase of securities available-for-sale............ (30,399) (46,976) (27,928)
Proceeds from maturities of securities
available-for-sale............................. 37,029 34,625 6,691
Proceeds from sales of securities available-for-sale. 3,058 2,242 999
Purchase of securities held-to-maturity.............. (8,521)
Proceeds from maturities of securities held-to-maturity 28,910
Net increase in loans and leases...................... (26,788) (19,962)(15,047)
Proceeds from sales of loans.......................... 13,116
Purchase of premises and equipment (net).............. (777) (587) (318)
---------------------------
Net cash used by investing activities................ (17,877) (17,542)(15,214)
FINANCING ACTIVITIES
Net increase in deposits.............................. 6,831 6,939 8,202
Net increase in short term borrowings................. 4,711 10,481 1,801
Proceeds from long term debt.......................... 838
Repayment of long term debt........................... (14)
Cash dividends paid................................... (1,362) (1,228) (1,133)
Treasury stock purchased , net........................ (375) (170) (228)
---------------------------
Net cash provided by financing activities............. 10,629 16,022 8,642
Increase (decrease) in cash and cash equivalents...... (436) 5,580 (76)
Cash and cash equivalents at beginning of year........ 22,595 17,015 17,091
---------------------------
Cash and cash equivalents at end of year.............. $22,159 $22,595 $17,015
===========================
Significant non-cash transactions:
Transfer of held-to-maturity securities to
available-for-sale ............. $45,652
Transfer of loans from portfolio to held for sale..... 8,539
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Years Ended December 31, 1997
Unrealized
Gain(loss)
(In thousands of dollars except per share data) on Securities
Common Paid-In Retained Treasury Available-
Stock Capital Earnings Stock for-sale Total
- --------------------------------------------------------------------------------
Balance, January 1, 1995.. $1,871 $7,897 $24,230 ($15) ($343) $33,640
Net income.................. 4,485 4,485
Cash dividends ($.34 per share) (1,347) (1,347)
Purchase of treasury stock....... (246) (246)
Dividends reinvested..... 3 99 109 211
Sale of treasury stock........ 3 18 21
Change in unrealized gain (loss) on
securities available for sale,
net of tax................ 1,173 1,173
--------------------------------------------------------
Balance, December 31, 1995 1,874 7,999 27,368 (134) 830 37,937
Net income.................. 5,532 5,532
Cash dividends ($.37 per share) (1,461) (1,461)
Purchase of treasury stock.. (365) (365)
Dividends reinvested......... 248 248
Sale of treasury stock..... 32 163 195
2 for 1 stock split..... 1,874 (1,874)
5% common stock dividend at
fair market value .... 187 5,325 (5,512)
Fractional shares of stock dividend
paid in cash ........................... (15) (15)
Change in unrealized gain (loss) on
securities available-for-sale,
net of tax............................................. (582) (582)
--------------------------------------------------------
Balance, December 31, 1996 3,935 13,356 24,038 (88) 248 41,489
Net income................................ 5,667 5,667
Cash dividends ($.42 per share)....... (1,652) (1,652)
Purchase of treasury stock................ (674) (674)
Dividends reinvested........................ 290 290
Sale of treasury stock......................... 299 299
Change in unrealized gain (loss) on
securities available-for-sale,
net of tax............................................. 303 303
--------------------------------------------------------
Balance, December 31, 1997$3,935 $13,356 $28,053 ($173) $551 $45,722
======================================================
See Notes to Consolidated Financial Statements
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
(In thousands of dollars except per share data)
1. NATURE OF OPERATIONS
Wayne Bancorp, Inc., a one-bank holding company, and its subsidiary, The Wayne
County National Bank, conduct general commercial banking business. The Bank's
wholly-owned subsidiary, Wayne National Corporation, is a partner in a leasing
company which is no longer active.
The Company operates in the single industry of commercial banking. While the
Company offers a wide range of services, they are all deemed to be part of
commercial banking.
The Wayne County National Bank has eleven banking locations in Wayne, Holmes
and Stark Counties in Ohio. A wide variety of services are provided to
businesses, individuals, and in and governmental customers. These services
include commercial and personal checking accounts savings and time deposits,
business and personal loans, real estate loans, leases, safe deposit facilities
and electronic banking.
The Bank operates a Trust Department which offers comprehensive trust
administrative services and agency, trust and investment services to
individuals, corporations, partnerships, institutions and municipalities.
In addition, the Trust Department has discount brokerage service
which offers stock trading services to customers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Wayne
Bancorp, Inc. (the Company), its subsidiary Wayne County National Bank (the
Bank), and the Bank's wholly owned subsidiary, Wayne National Corporation.
All significant intercompany transactions have been eliminated.
Use of Estimates in the Preparation of Financial Statements
To prepare financial statements in conformity with generally accepted
accounting principles management makes estimates and assumptions based on
available information. These estimates and assumptions affect amounts reported
in the financial statements and disclosures provided; future resultscould
differ. The collectibility of loans, fair value of financial instruments an
the status of contingencies are particularly subject to change.
Securities
Securities are classified as available-for sale. Securities available-for-
sale may be sold if needed for liquidity, asset-liability management, or other
reasons. Securities available-for-sale are reported at fair value, with
unrealized gains and losses included as a separate component of equity,
net of tax.
Realized gains or losses are determined based on the amortized cost of the
specific security sold. Interest income includes amortization of purchase
premiums and discounts.
Interest and Fees on Loans and Leases
Loans and leases are reported at principal balances outstanding, net of
deferred loan fees and costs. Interest income on leases is recognized under
a method which provides for a level return on the net investment outstanding.
Interest income on loans is reported on the interest method and includes
amortization of net deferred loan fees and costs over the term of the loan.
The net amount of fees and costs deferred is reported in the consolidated
balance sheet as a part of loans and leases.
Interest income is not recorded when management believes the collection of
interest is doubtful, typically when payments are past due over 90 days.
Payment received on such loans are report as principal reductions.
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance established through
a provision for loan losses charged to expense. The allowance is the amount
which, in the opinion of management, is necessary to provide for probable losses
in the loan portfolio. Management's determination of the adequacy of the
allowance is based on evaluations of the collectibility of loans outstanding,
taking into consideration loan loss experience, loan quality, current economic
conditions and other pertinent factors. Loans which are deemed uncollectible
are charged-off and deducted from the allowance and recoveries on loans
previously charged-off are added to the allowance.
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage and consumer loans and on an individual
basis for other loans. In addition, loans held for sale and leases are excluded
from consideration of impairment. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported net, at the present value
of future cash flows using the loan's existing rate or at the fair value of
collateral if repayment is expected soley from the collateral. Loans are
evaluated for impairment when payments are delayed, typically 60 days or more,
or when it is probable that all principle and interest amounts will not be
collected according to the original terms of the loan.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on a straight-line method over the estimated useful
life of the asset. These assets are reviewed for impairment when events
indicate the carrying amount may not be recoverable. Maintenance and repairs
are charged to expense as incurred and major improvements are capitalized.
Other Real Estate
Other real estate is recorded at the lower of cost or fair value, less
estimated costs to sell. Any reduction from the carrying value of the related
loan to fair value at the time the propety is acquired is accounted for as a
loan charge-off. Any subsequent reductions in the fair value are reflected in a
valuation allowance through a charge to other real estate expense. Expenses
incurred to carry other real estate are charged to operations as incurred.
There was no other real estate held at December 31, 1997 and 1996.
Intangibles
Intangible assets arising from the Bank's acquisition of four branches of
the former First Savings Loan Company of Massillon, F.A., in July of 1991 are
included in Other Assets in the accompanying consolidated balance sheets and
are summarized as follows:
Goodwill.................... $559
Core Deposit Intangible..... 167
Goodwill is being amortized using a method and life which corresponds to
the accretion of the loan discount. Core deposit intangible is being amortized
by deposit component, on a level yield basis over a ten year period.
Amortization of these intangibles totaled $236 thousand for 1997 and 1996 and
$250 thousand for 1995.
Fiduciary Fees
Fee income on fiduciary activities is accrued based on expected fees to be
collected from various fiduciary accounts. Fiduciary fees are primarily based
on, among other things, a fixed regular fee, a percentage of assets managed or
a percentage of earnings on trust assets.
Income Taxes
The Company records income tax expense based on the amount of taxes due on
its tax return plus the change in deferred taxes. Deferred tax assets and
liabilities are the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities, computed
by using enacted tax rates. A valuation allowance, if needed, reduces deferred
tax assets to the amount expected to be realized.
Dividend Reinvestment Plan
The Company maintains a dividend reinvestment plan whereby the Company's
shareholders are eligible to acquire new common shares of stock at 100% of the
current estimated fair market value in lieu of receiving cash dividends.
Shareholders can have all or part of their normal cash dividend reinvested in
the Company's stock. During 1997, 7,264 shares of stock were allocated under
the plan in lieu of cash dividends of $290 thousand. It is generally the
Company's practice to acquire shares of the common stock in the open market
to fund its obligation under the dividend reinvestment
Consolidated Statement of Cash Flows
Cash and cash equivalents include cash, noninterest bearing deposits with
banks and federal funds sold. As permitted, the Company reports cash flows
from certain transactions on a net basis. For the years ended December 31,
1997, 1996 and 1995, income taxes paid totaled $2.53 million, $2.54 million, and
$1.83 million and interest paid totaled $10.80 million, $10.57 million, and
$9.40 million respectively.
Per Share Amounts
Net income per share is computed under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share", which was
adopted retroactively by the Company on December 31, 1997. Adoption of SFAS
No. 128 did not change net income per share amounts previously reported by
the Company.
Net income per share computations are based on the weighted average number
of shares of common stock outstanding during the year. In November of 1996 the
Company declared a 5% stock dividend to shareholders of record on November 29,
1996 and payable on December 31, 1996. This dividend was recorded by the
transfer of the market value of the new shares from Retained Earnings to Common
Stock and Paid in Capital. Fractional shares resulting from the stock dividend
were paid in cash. In June of 1996, the Board of Directors voted to split the
stock on a 2 for 1 basis. The split was effective June 15, 1996 and payable
to shareholders on June 30, 1996. All per share data has been retroactively
adjusted for the stock split and stock dividends.
Weighted average shares outstanding for December 31, 1997, 1996, and 1995
were 3,931,947 and 3,931,595, respectively.
Dividend Restrictions
Banking regulations require maintenance of certain capital levels which may
limit the amount of dividends which may be paid. See Note 14 for regulatory
capital requirements and dividend restrictions.
Fair Values of Financial Instruments
Fair values of financial instruments are estimated using relevant market
information and other assumptions as more fully disclosed separately. Fair
value estimates involve uncertainties and matters of significant judgement
regarding interest rates, credit risk, prepayments, and other factors,
especially in the absence of broad markets for particular items. Changes in
assumptions or in market conditions could significantly affect the estimates.
The fair value of estimates of existing on-and-off-balance sheet financial
instruments does not include the value of anticipated future business or the
values of assets and liabilities not considered financial instruments.
Concentration of Credit Risk
The Wayne County National Bank grants residential, consumer and commercial
loans and also leases assets to customers located in Wayne, Holmes and Stark
Counties. The makeup of the loan portfolio at December 31, 1997 was as follows:
Commercial................. 43%
Real Estate Loans.......... 36%
Consumer Loans............. 15%
Home Equity Loans.......... 4%
Direct Financing Leases.... 2%
Reclassifications
Certain reclassifications have been made to amounts previously reported
to conform with financial statement presentation.
3. INVESTMENT SECURITIES
The summary of amortized cost and fair values of securities are as follows
at December 31, 1997:
Gross Gross
Securities Amortized Unrealized Unrealized Fair
Available-for-Sale Cost Gains Losses Value
- ---------------------------- -------- -------- ---------- --------------
U.S. Treasury $20,325 $130 ($9) $20,446
Federal Agency
Obligations 15,126 57 (31) 15,152
Mortgage-backed Securities 19,386 135 (39) 19,482
Obligations of States and
Political Subdivisions 19,308 463 (10) 19,761
Corporate Obligations 17,202 23 (59) 17,166
Other Securities 1,877 178 (2) 2,053
-------- -------- ---------- --------------
$93,224 $986 ($150) $94,060
======== ======== ======== ========
The summary of amortized cost and fair values of securities are as follows
at December 31, 1996:
Gross Gross
Securities Amortized Unrealized Unrealized Fair
Available-for-Sale Cost Gains Losses Value
- ---------------------------- -------- -------- ---------- --------------
U.S. Treasury $23,043 $84 ($65) $23,062
Federal Agency
Obligations 17,446 83 (118) 17,411
Mortgage-backed Securities 23,173 159 (135) 23,197
Obligations of States and
Political Subdivisions 21,009 397 (28) 21,378
Corporate Obligations 16,490 62 (62) 16,490
Other Securities 1,756 1 (1) 1,756
-------- -------- ---------- --------------
$102,917 $786 ($409)$103,294
======== ======== ======== ========
During the years ended December 31, 1997 and 1996, proceeds from the sales
of securities available-for-sale were $3.1 million and $2.2 million
respectively. Gross gains were $1 thousand in 1997 and $9 thousand in 1996 and
gross losses were $7 thousand in 1997 and $3 thousand in 1996. In 1995,
proceeds from the sale of securities available-for-sale was $1 million with
gross realized losses of $1 thousand included in earnings. 1995 proceeds from
the sale of held-to-maturity securities whose maturity date was within 90 days
of the sale date were $8 million with gross realized gains of $1 thousand
and losses of $12 thousand included in earnings.
The amortized cost and estimated fair value of the securities at December
31, 1997 by contractual maturity, are shown below. Expected maturities may
differ from the contractual maturities because borrowers may have the right to
call or prepay the obligations with or without call or prepayment penalties.
Securities Available-for-Sale
Amortized Fair
Cost Value
-------- --------------
Due in one year or less $23,673 $24,158
Due after one year
through five years 39,956 40,323
Due after five years
through ten years 5,314 5,501
Due after ten years 3,117 2,642
-------- --------------
72,060 72,624
Mortgage-backed
Securities 19,386 19,482
Equity Securities 1,575 1,751
Other Securities 203 203
-------- --------------
$93,224 $94,060
======== ========
Securities were pledged to secure public and trust deposits, securities
sold under agreements to repurchase, and for other purposes required or
permitted by law. Such pledged securities at December 31, 1997 and 1996 had
a carrying value of $41.1 million and $43.3 million, respectively.
4. LOANS AND LEASES
The composition of the loan portfolio at December 31 is as follows:
1997 1996
Commercial $106,452 $90,638
Real Estate 89,356 79,859
Consumer Installment 37,166 39,183
Direct Lease Financings 3,880 3,246
Home Equity 8,997 6,417
Other Loans 23 23
-------- --------------
$245,874 $219,366
======== ==========
The Bank leases various types of equipment and automobiles to its customers,
which are classified as direct financing leases. All leases have terms
ranging from two to five years. The composition of the net investment in
direct financing leases included in loans at December 31 is as follows:
1997 1996
Minimum Lease Payments
Receivable $3,855 $3,237
Residual Value of Leased
Property (Unguaranteed) 25 9
-------- --------------
3,880 3,246
Less: Unearned Income 563 472
-------- --------------
Net Investment In Direct
Financing Leases $3,317 $2,774
======== ========
The following schedule summarizes by year the minimum lease payments
receivable on direct leases at December 31, 1997.
Years Ended December 31
1998 .................. $1,676
1999 .................. 1,126
2000 .................. 637
2001 .................. 287
2002 .................. 129
--------------
$3,855
========
The Bank has granted loans to the officers and directors of the Company and
its subsidiaries and their related business interests. The aggregate dollar
amount of these loans was $4.0 million and $1.1 million at December 31, 1997
and 1996, respectively. During 1996, $1.5 million of new loans and advances
were made and the repayments on loans to these parties totaled $98 thousand.
Additions due to changes in director's status amounted to $1.5 million
5. ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses is as follows:
1997 1996 1995
Balance at Beginning
of Year $3,657 $3,705 $3,448
Loans Charged Off (466) (412) (230)
Loan Recoveries 259 184 367
Provision for Loan
Losses 180 180 120
-------- -------- --------------
Balance at End of Year $3,630 $3,657 $3,705
======== ======== ========
The Bank had no impaired loans at December 31, 1997. The Bank had one
impaired loan with a balance of $924 thousand at December 31, 1996. The
impaired loan had $215 thousand of the allowance for loan losses allocated at
December 31, 1996. Impaired loans averaged $549 thousand in 1997 and $1.1
million in 1996. Income recognized during the year ended December 31, 1997
and 1996 amounted to $24 thousand and $74 thousand respectfully. Interest
income recognized on the cash basis for the year ended December 31, 1997 and
1996 totaled $5 thousand and $72 thousand respectively. The Bank had no
impaired loans as of or during the year ended December 31, 1995.
6. PREMISES AND EQUIPMENT
A summary of the premises and equipment balances at December 31 is as follows:
1997 1996
Land $1,152 $1,152
Premises and Leasehold
Improvements 7,016 6,533
Furniture and Equipment 3,730 3,456
-------- --------------
11,898 11,141
Less Accumulated
Depreciation (5,464) (4,926)
-------- --------------
$6,434 $6,215
======== ========
Depreciation expense was $558 thousand, $439 thousand, and $509 thousand in
1997, 1996, and 1995.
7. DEPOSITS
Time certificates of deposit with a balance of $100 thousand or more, were
$17.9 million and $15.9 million at December 31, 1997 and 1996 respectively.
Interest expense on these deposits was $946 thousand, $1.03 million and $959
thousand for 1997, 1996, and 1995, respectively.
At year-end 1997, stated maturities of time certificates of deposit
were as follows:
1998 $83,247
1999 16,282
2000 18,474
2001 3,307
2002 5,822
-----------
$127,132
===========
8. BORROWINGS
Federal funds purchased, securities sold under agreements to repurchase and
treasury tax and loan deposits are financing arangements. Physical control
is maintained for all securities sold under agreements. Information concerning
securities sold under repurchase agreements is as follows:
1997 1996
--------------------
Average month-end balance during the year $26,630 $20,282
Average interest rate during the year 4.59% 4.64%
Maximum month-end balance during the year $29,961 $29,854
Securities underlying these agreements at year-end were as follows:
1997 1996
--------------------
Amortized cost of securities $34,379 $31,227
Fair value of securities $34,513 $31,288
Federal Home Loan Bank Advances include two fixed rate advances from the
Federal Home Loan Bank (FHLB) of Cincinnati with a December 31, 1997 principal
balance of $824 thousand. Interest expense on these borrowed funds for the
year ended December 31, 1997 was $18 thousand. The weighted average interest
rate on these borrowings is 6.58%. The borrowings are secured by a blanket
pledge of the Bank's one-to-four family residential real estate loan
portfolio and FHLB stock.
The principal repayments on these borrowings are as follows for December 31,
1998 $65
1999 70
2000 75
2001 80
2002 534
-----------
$824
===========
9. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value approximates carrying value for all financial
instruments except those described below:
Securities
Fair values are based on a quoted market price, if available. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar instruments.
Loans and Leases
The fair value of fixed rate loans is estimated by discounting future cash
flows using current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. Leases are
not considered financial instruments under genreally accepted accounting
principals and are, therefore, not included in the following schedules.
Deposits
Fair values for deposit liabilities with defined maturities are based on
the discounted future flows expected to be paid, using the current rate offered
for similar deposits with the same remaining maturities.
Long-term Debt
The fair value of long-term debt is estimated by discounting future cash
flows using currently available rates for similar financing.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of off-balance sheet loan commitments is considered nominal.
The estimated fair values of the Bank's financial instruments are as follows:
1997 1996
Carrying Fair Carrying Fair
Value Value Value Value
-------- -------- ---------- --------------
Financial Assets:
Cash and Short-term
Investments $22,159 $22,159 $22,595 $22,595
Securities 94,060 94,060 103,294 103,294
Net Loans, excluding Leases 238,363 240,479 212,298 215,587
Accrued Interest Receivable 2,864 2,864 2,879 2,879
Financial Liabilities:
Deposits (288,517)(288,865) (281,686)(281,711)
Securities Sold Under
Agreement to Repurchase (30,853) (30,853) (26,142) (26,142)
Federal Home Loan Bank
Advances (824) (850)
Accrued Interest Payable (1,333) (1,333) (1,335) (1,335)
10. EMPLOYEE BENEFIT PLANS
The Bank sponsors a noncontributory Profit Sharing Retirement Plan (PSRP)
and an Employee Stock Ownership Plan (ESOP) in which all salaried employees
with one year or more of service participate. Annual contributions are made
by the Bank to both plans in an amount which is the lesser of 8.5% of the
Bank's current profits or 6.375% of the aggregate compensation paid in such
year to all eligible participants. Actual contributions paid to the plans
for the three years ending December 31 were:
1997 1996 1995
PSRP.............. $310 $293 $255
ESOP.............. 229 217 189
-------- ---------- --------------
$539 $510 $444
======== ======== ========
The ESOP held 132,492, 129,719 and 109,326 shares at December 31, 1997, 1996
and 1995 respectively. The fair value of such shares was $6.3 million, $3.8
million and $2.2 million at December 31, 1997, 1996 and 1995 respectively.
11. OTHER OPERATING EXPENSES
Other operating expenses include the following major categories of expense:
1997 1996 1995
Data Processing $1,044 $1,100 $1,116
FDIC Insurance 36 221 354
Franchise Taxes 444 527 484
Intangible
Amortization 236 236 250
Donations 49 349 70
Other Operating 1,971 2,039 2,000
-------- -------- --------------
$3,780 $4,472 $4,274
======== ======== ========
12. INCOME TAXES
Income tax expense and related balance sheet accounts are as follows:
1997 1996 1995
Federal Current $2,691 $2,266 $1,811
Federal Deferred (Benefit) (159) 154 21
-------- -------- --------------
$2,532 $2,420 $1,832
======== ======== ========
The sources of gross deferred tax assets and gross deferred tax liabilities at
December 31, are as follows:
1997 1996 1995
Items giving rise to deferred tax assets:
Allowance for loan losses in excess
of tax reserves $881 $843 $886
Deferred loan fees 82 93 165
Other 177 126 102
Items giving rise to deferred tax liabilities:
Depreciation (167) (180) (199)
Leases (374) (438) (436)
Unrealized gain on securities
available-for-sale (284) (128) (427)
Other (160) (164) (84)
-----------------------------
Net deferred tax assets $155 $152 $7
=============================
The Company has sufficient taxes paid in prior years to support recording
these deferred tax assets without a valuation allowance.
The reasons for the differences between income tax expense and the amount
computed by applying the statutory federal income tax rate of 34% for the
three years presented are as follows:
1997 1996 1995
Tax at Federal
Statutory Rate $2,788 $2,704 $2,141
Effect of Tax-Exempt
Income (291) (325) (371)
Effect of Non-deductible
Goodwill Amortization 61 61 61
Other (26) (20) 1
-------- -------- --------------
$2,532 $2,420 $1,832
=============================
Effective Tax Rate 30.90% 30.40% 29.00%
=============================
13. COMMITMENTS AND CONTINGENCIES
Various contingent liabilities are not reflected in the financial statements,
including claims and legal actions arising in the ordinary course of business.
In the opinion of management, after consultation with legal councel, the
ultimate disposition of these matters is not expected to have a material effect
on the financial conditions or results of operations.
Some financial instruments are used in the normal course of business to meet
financing needs of customers. These financial instruments include commitments
to extend credit, standby letters of credit and financial guarantees. These
involve, to varying degrees, credit risk more than the amount reported in the
financial statements.
As of December 31, 1997, the Bank had outstanding standby letters of credit
of $1.98 million. These letters of credit are backed by notes signed by the
customer. These notes are variable rate. Also at that date, the Bank had
commitments outstanding to extend credit and unfunded lines of credit for
customers totaling approximately $39.9 million. All of these unfunded
commitments are variable rate and mature within one year. These commitments
generally require the customer to maintain certain credit standards.
Management does not anticipate any material losses as a result of these
commitments.
At December 31, 1997, the Bank was required to maintain $5.3 million
either in cash or in balances with the Federal Reserve Bank. These balances
do not earn interest.
14. REGUATORY MATTERS
Dividends are paid by the Company from its assets which are mainly provided
by dividends from the Bank. However, certain restrictions exist in regard to
the ability of the Bank to transfer funds to the Company in the form of
dividends. The approval of the Comptroller of the Currency is required to pay
dividends in excess of the Bank's earnings retained in the current year plus
retained profits from the preceding two years. The amount of retained earnings
available for dividends without approval from the Comptroller of the Currency
is approximately $835 thousand at December 31, 1997.
The Company and Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and
prompt corrective action regulations involve quantitative measures of assets,
liabilities and certain off-balance sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject
to qualitative judgements by regulators about components risk weightings, and
other factors, and the regulators can lower classifications in certain cases.
Failure to meet various capital requirements can initiate regulatory action
that could have a direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically under capitalized, although
these terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration is required. The minimum
requirements are:
Capital to Risk-
Weighted Assets Tier 1 Capital to
Total Tier 1 Average Assets
------------------ ---------
Well Capitalized 10% 6% 5%
Adequately Capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
At year-end, consolidated and Bank only actual capital levels (in thousands)
and minimum required levels were as follows:
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
--------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------
As of December 31, 1997:
Total Capital (to Risk Weighted Assets
Consolidated $47,604 19.9% $19,102 8.0% $23,878 10.0%
Bank 46,271 19.1% 19,384 8.0% 24,230 10.0%
Tier I Capital (to Risk Weighted Assets)
Consolidated $44,611 18.7% $9,551 4.0% $14,327 6.0%
Bank 33,235 13.7% 9,692 4.0% 14,538 6.0%
Tier I Capital (to Average Assets)
Consolidated $44,611 12.9% $13,881 4.0% $17,351 5.0%
Bank 33,235 9.4% 13,867 4.0% 17,334 5.0%
As of December 31, 1996:
Total Capital (to Risk Weighted Assets)
Consolidated $43,287 19.5% $17,752 8.0% $22,190 10.0%
Bank 42,169 18.8% 17,684 8.0% 22,105 10.0%
Tier I Capital (to Risk Weighted Assets)
Consolidated $40,502 18.3% $8,876 4.0% $13,314 6.0%
Bank 29,354 13.1% 8,842 4.0% 13,263 6.0%
Tier I Capital (to Average Assets)
Consolidated $40,502 12.3% $13,211 4.0% $16,513 5.0%
Bank 29,354 8.58% 13,176 4.0% 16,470 5.0%
At year end 1997 and 1996, the Company and Bank were categorized as well
captialized. Management is not aware of any conditions subsequent to year
end that would change the Company's or the Bank's capital category.
15. PROPOSED MERGER (Unaudited)
On October 13, 1997 the Company entered into a definitive agreement to
acquire Chippewa Valley Bancshares ("Chippewa") of Rittman, Ohio. Chippewa
is a one bank holding company and the parent company of The Chippewa Valley
Bank. The consolidated assets of this company are approximately $138 million
at December 31, 1997. The agreement specifies that the Company will issue
in the aggregate between 981,837 and 1,023,737 shares of the Company's stock
in the transaction.
The merger is subject to the approval of both companies regulatory agencies
and the shareholders of both Chippewa and Wayne Bancorp, Inc. The transaction
is also subject to use of the pooling of interest method of accounting.
Pending various approvals, the merger is expected to close in the early part
of the second quarter of 1998.
The following unaudited pro forma condensed combined financial statements
have been prepared to reflect the transaction had it occurred in the earliest
period presented. They are not necessarily indicative of the financial
condition or results of operations that would have occurred had the transaction
actually been effective at the beginning of the periods indicated. No pro
forma adjustments were necessary in the preparation of these pro forma
combined financial statements.
Pro forma combined net income per share is based upon the issuance of the
midpoint of the range of shares to be issued, which is 1,002,787 shares.
Pro forma condensed balance sheet (unaudited)
December 31, 1997
(Dollars in thousands)
Pro Forma
Assets Combined
---------
Cash and due from banks