As filed with the Securities and Exchange Commission on July 15, 1998
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
VALLEY NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
New Jersey
(State or other Jurisdiction of Incorporation of Organization)
6711
(Primary Standard Industrial Classification Code Number)
22-2477875
(I.R.S. Employer Identification No.)
1455 Valley Road
Wayne, New Jersey 07470
973-305-8800
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
Gerald H. Lipkin, Chairman, President and Chief Executive Officer
Valley National Bancorp
1455 Valley Road
Wayne, New Jersey 07470
973-305-8800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Please send copies of all communications to:
RONALD H. JANIS, ESQ. RICHARD FISCH, ESQ.
MICHAEL W. ZELENTY, ESQ. Malizia, Spidi, Sloane & Fisch, P.C.
Pitney, Hardin, Kipp & Szuch One Franklin Square
200 Campus Drive 1301 K Street, N.W., Suite 700E
Florham Park, New Jersey 07932 Washington, D.C. 20005
(973) 966-6300 (202) 434-4665
<PAGE>
Approximate date of commencement of proposed sale to the public: At the
Effective Date of the Merger, as defined in the Agreement and Plan of Merger
dated as of May 29, 1998 (the "Merger Agreement"), among Valley National Bancorp
("Valley"), Valley National Bank ("VNB"), Wayne Bancorp, Inc. ("Wayne") and
Wayne Savings Bank, F.S.B. ("Wayne Bank"), attached as Appendix A to the Proxy
Statement-Prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. |_| ___________
If this form is a post-effective amendment filed pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration number of the earlier effective registration statement for the
same offering. |_| __________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Title of each class of Proposed maximum Proposed Maximum
securities to be Amount to be offering price per aggregate offering Amount of
registered registered unit** price** registration fee
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Common Stock, No Par 2,254,445 Shares* $34.58125 $77,961,526 $22,999
Value
======================== ====================== ====================== ====================== ======================
</TABLE>
* The number of shares of Valley Common Stock issuable in the Merger in exchange
for shares of Wayne Common Stock, assuming the Exchange Ratio of 1.10 set forth
in the Merger Agreement, and assuming that all currently outstanding options to
acquire shares of Wayne Common Stock are exercised prior to the Effective Time
of the Merger. The Registrant also registers hereby such additional shares of
its common stock as may be issuable in the Merger pursuant to the anti-dilution
provisions of the Merger Agreement.
**Estimated solely for the purpose of calculating the registration fee for the
filing on Form S-4 pursuant to Rule 457(f)(1) under the Securities Act based on
the Exchange Ratio of 1.10 and on the average ($31.4375) of the high and low
prices reported on the Nasdaq Stock Market (National Market) for Wayne Common
Stock as of July 10, 1998, a date within five business days prior to the filing
of this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE>
[WAYNE LOGO]
____________, 1998
To the Stockholders of Wayne Bancorp, Inc.:
We cordially invite you to attend a special meeting of the stockholders
of Wayne Bancorp, Inc. The meeting is to be held at [Location] on [Date and
Time].
The meeting has been called to seek your approval of a Merger Agreement
which provides for Wayne to be merged with and into Valley National Bancorp.
Immediately following the merger, Wayne's subsidiary, Wayne Savings Bank,
F.S.B., will be merged into Valley's subsidiary, Valley National Bank.
Upon completion of the merger, each share of Wayne Common Stock will be
converted into 1.10 shares of Valley Common Stock. Cash will be paid in lieu of
fractional shares. The 1.10 exchange ratio is subject to standard anti-dilution
adjustments. The investment banking firm of Sandler O'Neill & Partners, L.P. has
advised your Board of Directors that, in its opinion, as of the date hereof, the
exchange ratio is fair from a financial point of view to the holders of Wayne
Common Stock. A copy of Sandler O'Neill's opinion is included as Appendix C to
the attached Proxy Statement-Prospectus.
Completion of the Merger is subject to certain conditions, including
approval of the Merger Agreement by the affirmative vote at the Meeting of a
majority of the outstanding shares of Wayne Common Stock, whether in person or
by proxy.
We urge you to read the attached Proxy Statement-Prospectus carefully.
The Proxy Statement-Prospectus describes the Merger Agreement in detail and
includes a copy of the Merger Agreement as Appendix A.
Your Board of Directors has unanimously approved the Merger Agreement
and unanimously recommends that you vote "FOR" approval of the Merger Agreement.
It is very important that your shares be represented at the Meeting.
Whether or not you plan to attend, please complete, date and sign the enclosed
proxy card and return it promptly in the postage paid envelope we have provided.
Failure to return a properly executed proxy card or to vote at the Meeting will
have the same effect as a vote against the Merger Agreement.
On behalf of your Board of Directors,
Harold P. Cook, III, Chairman
<PAGE>
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON ____________, 1998
To the Stockholders of Wayne Bancorp, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the
"Meeting") of Wayne Bancorp, Inc. ("Wayne") will be held on [Day of Week],
[Date], 1998, at [Time], at [Location], for the following purposes:
(1) To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of May 29, 1998 (the
"Merger Agreement"), by and among Valley National Bancorp
("Valley"), Valley National Bank, Wayne and Wayne Savings
Bank, F.S.B., which provides for Wayne to be merged with and
into Valley (the "Merger"). A copy of the Merger Agreement is
included as Appendix A to the accompanying Proxy
Statement-Prospectus. If the proposed Merger is consummated,
each share of Wayne Common Stock will be converted into 1.10
shares of Valley Common Stock, subject to adjustment as set
forth in the Merger Agreement and described in the Proxy
Statement-Prospectus, with cash paid in lieu of fractional
shares.
(2) To transact such other business as may properly come before
the Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on ____________,
1998 as the record date for the Meeting. Only stockholders of record at the
close of business on the record date will be entitled to notice of and to vote
at the Meeting or any adjournments or postponements thereof.
All stockholders are urged to attend the Meeting in person. It is
important that proxies be returned promptly. Therefore, whether or not you plan
to be present in person at the Meeting, please date, sign and complete the
enclosed proxy and return it in the enclosed envelope, which requires no postage
if mailed in the United States. If you decide to attend the Meeting, you may
revoke your proxy and vote your shares in person.
Wayne, New Jersey
____________, 1998
By Order of the Board of Directors
__________________________________
Secretary
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
<PAGE>
PROXY STATEMENT OF PROSPECTUS OF
WAYNE BANCORP, INC. VALLEY NATIONAL BANCORP
for its Special Meeting s for its Common Stock to be issued in
of Stockholders connection with the merger of
to be held on ___________, 1998 Wayne Bancorp, Inc. with and into
and all adjournments or Valley National Bancorp
postponements thereof
The Board of Directors of Wayne Bancorp, Inc. ("Wayne") has called a
Special Meeting of Wayne stockholders (the "Meeting") to be held on [Day of
Week], [Date], 1998. The Meeting has been called to seek Wayne stockholder
approval of a Merger Agreement which provides for Wayne to be merged with Valley
National Bancorp ("Valley"), with Valley as the surviving corporation. If the
Merger is completed, Wayne's subsidiary, Wayne Savings Bank, F.S.B., will be
merged into Valley National Bank.
Upon completion of the Merger, each share of Wayne Common Stock will be
converted into 1.10 shares of Valley Common Stock. Cash will be paid in lieu of
fractional shares. The 1.10 exchange ratio is subject to standard anti-dilution
adjustments.
Completion of the Merger is subject to certain conditions, including
approval of the Merger Agreement by the affirmative vote at the Meeting of a
majority of the outstanding shares of Wayne Common Stock, whether in person or
by proxy.
Valley has filed a Registration Statement with the Securities and
Exchange Commission (the "SEC") covering the shares of Valley Common Stock which
will be issued in connection with the Merger. This document serves two purposes.
It is the Proxy Statement being used by the Wayne Board of Directors to solicit
proxies to be used at the Meeting, and it is the Prospectus of Valley regarding
the Valley Common Stock to be issued if the Merger is completed.
This document does not serve as a prospectus to cover any resales of
Valley Common Stock to be issued in connection with the Merger. No person is
authorized to make use of this Proxy Statement-Prospectus in connection with
such resales, although such securities may be traded without the use of this
Proxy Statement-Prospectus by those persons not deemed to be "affiliates" of
Wayne under applicable securities laws. Persons who are considered "affiliates"
of Wayne will be subject to restrictions on their ability to resell the Valley
Common Stock received by them in the Merger.
This Proxy Statement-Prospectus is first being sent to Wayne
stockholders on or about ___________, 1998. It describes the Merger Agreement in
detail and includes a copy of the Merger Agreement as Appendix A. Wayne
stockholders are urged to read this document carefully.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC") NOR HAS THE
SEC OR THE FDIC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ALL INFORMATION REGARDING WAYNE CONTAINED IN THIS DOCUMENT WAS SUPPLIED
BY WAYNE. ALL INFORMATION REGARDING VALLEY CONTAINED OR INCORPORATED BY
REFERENCE IN THIS DOCUMENT WAS SUPPLIED BY VALLEY.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR
OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FDIC OR ANY OTHER GOVERNMENTAL AGENCY.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN WHAT IS INCLUDED IN THIS DOCUMENT. IF SUCH INFORMATION
OR REPRESENTATION IS GIVEN OR MADE, IT MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
The date of this Proxy Statement-Prospectus is ____________, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
AVAILABLE INFORMATION..............................................................
ACCOMPANYING DOCUMENTS.............................................................
INFORMATION INCORPORATED BY REFERENCE..............................................
SUMMARY............................................................................
The Meeting...............................................................
The Companies ............................................................
The Merger................................................................
SELECTED FINANCIAL DATA OF VALLEY..................................................
SELECTED FINANCIAL DATA OF WAYNE...................................................
COMPARATIVE PER SHARE DATA.........................................................
SUMMARY PRO FORMA FINANCIAL INFORMATION............................................
INTRODUCTION ......................................................................
CERTAIN INFORMATION REGARDING VALLEY ..............................................
General...................................................................
Valley National Bank......................................................
CERTAIN INFORMATION REGARDING WAYNE................................................
General...................................................................
Wayne Savings Bank, F.S.B.................................................
THE MEETING .......................................................................
Time and Place............................................................
Purpose of the Meeting....................................................
Record Date; Voting Rights; Proxies.......................................
Solicitation of Proxies...................................................
Quorum....................................................................
Required Vote.............................................................
THE PROPOSED MERGER................................................................
General Description of the Merger; Closing; Effective Time; Bank Merger...
Consideration; Cash in Lieu of Fractional Shares..........................
Conversion of Wayne Options...............................................
Background of and Reasons for the Merger..................................
Interests of Certain Persons in the Merger ...............................
Opinion of Wayne's Financial Advisor......................................
Resale Considerations with Respect to the Valley Common Stock.............
Conditions to the Merger..................................................
Conduct of Business Pending the Merger....................................
Customary Representations, Warranties and Covenants.......................
Regulatory Approvals......................................................
Management and Operations After the Merger................................
Exchange of Certificates..................................................
Amendments; Termination ..................................................
Accounting Treatment of the Merger........................................
Federal Income Tax Consequences ..........................................
No Dissenters' Rights.....................................................
PRO FORMA FINANCIAL INFORMATION....................................................
DESCRIPTION OF VALLEY COMMON STOCK.................................................
General ..................................................................
Dividend Rights...........................................................
Voting Rights.............................................................
Liquidation Rights........................................................
Assessment and Redemption.................................................
Other Matters.............................................................
COMPARISON OF THE RIGHTS OF STOCKHOLDERS OF VALLEY AND WAYNE.......................
Voting Requirements.......................................................
Cumulative Voting.........................................................
Classified Board of Directors ............................................
Shareholder Consent to Corporate Action...................................
Dividends ................................................................
By-laws...................................................................
Limitations of Liability of Directors or Officers.........................
STOCKHOLDER PROPOSALS..............................................................
OTHER MATTERS......................................................................
LEGAL OPINION......................................................................
EXPERTS............................................................................
APPENDIX A Agreement and Plan of Merger..................................A-1
APPENDIX B Stock Option Agreement........................................B-1
APPENDIX C Fairness Opinion of Sandler O'Neill & Partners, L.P...........C-1
APPENDIX D Form 10-K of Wayne (without exhibits).........................D-1
APPENDIX E Annual Report to Stockholders of Wayne........................E-1
APPENDIX F Form 10-Q of Wayne (without exhibits).........................F-1
</TABLE>
<PAGE>
AVAILABLE INFORMATION
Each of Valley National Bancorp ("Valley") and Wayne Bancorp, Inc.
("Wayne") is subject to the information requirements of the Securities Exchange
Act of 1934, as amended and the rules and regulations thereunder (the "Exchange
Act") and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission" or the
"SEC"). Such reports, proxy statements and other information can be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's Regional
Offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, and 7 World Trade Center, 13th Floor, New York,
New York 10048. Copies of such materials can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission (such as Valley). The
address of the Commission's web site is http://www.sec.gov. In addition, Valley
Common Stock is traded on the New York Stock Exchange (the "NYSE"), and reports,
proxy statements and other information relating to Valley may be inspected at
the offices of the NYSE, 20 Broad Street, New York, New York 10005. Wayne Common
Stock is listed on The Nasdaq Stock Market, and certain material as to Wayne can
be inspected at the offices of the National Association of Securities Dealers,
Inc. (the "NASD"), 1735 K Street, N.W., Washington, D.C. 20006.
Valley has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act (together with all amendments and supplements
thereto, the "Registration Statement"), with respect to the shares of Valley
Common Stock to be issued upon consummation of the Merger. This Proxy
Statement-Prospectus does not contain all of the information set forth in the
Registration Statement and exhibits thereto, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. Copies of
the Registration Statement are available for inspection and copying as set forth
above. Statements contained in this Proxy Statement-Prospectus or in any
document incorporated by reference in this Proxy Statement-Prospectus relating
to the contents of any contract or other document referred to herein or therein
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
ACCOMPANYING DOCUMENTS
This Proxy Statement-Prospectus includes copies of Wayne's Annual
Report on Form 10-K for the year ended December 31, 1997 (excluding exhibits),
Wayne's 1997 Annual Report to Stockholders and Wayne's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998. See Appendixes D, E and F,
respectively.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by Valley with the Commission are
incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1997.
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
3. Current Reports on Form 8-K filed with the Commission on January 23,
1998, April 15, 1998 and June 5, 1998.
4. Form 8-A filed by Valley to register its Common and Preferred Stock
pursuant to Section 12(g) of the Exchange Act.
All documents filed by Valley pursuant to Sections 13(a), 13(c), 14, or
15(d) of the Exchange Act subsequent to the date hereof and prior to the earlier
of (i) the date of the Special Meeting of stockholders of Wayne (the "Meeting")
to which this Proxy Statement-Prospectus relates, or (ii) the termination of the
Merger Agreement which is the subject of the Meeting, are hereby incorporated by
reference into this Proxy Statement and shall be deemed a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. A COPY OF SUCH
DOCUMENTS (OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS) IS AVAILABLE WITHOUT
CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A PROXY
STATEMENT-PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO: ALAN D.
ESKOW, CORPORATE SECRETARY, VALLEY NATIONAL BANCORP, 1455 VALLEY ROAD, WAYNE,
NEW JERSEY 07470; TELEPHONE NUMBER (973) 305-8800. IN ORDER TO ENSURE TIMELY
DELIVERY OF SUCH DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY ____________,
1998.
CONTAINED WITHIN AND INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT-PROSPECTUS ARE CERTAIN FORWARD LOOKING STATEMENTS WITH RESPECT TO THE
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF VALLEY AND WAYNE.
SUCH STATEMENTS ARE NOT HISTORICAL FACTS AND INCLUDE EXPRESSIONS ABOUT VALLEY'S
AND/OR WAYNE'S CONFIDENCE, STRATEGIES AND EXPRESSIONS ABOUT EARNINGS, NEW AND
EXISTING PROGRAMS AND PRODUCTS, RELATIONSHIPS, OPPORTUNITIES, TECHNOLOGY AND
MARKET CONDITIONS. THESE STATEMENTS MAY BE IDENTIFIED BY FORWARD-LOOKING
TERMINOLOGY, SUCH AS "EXPECT", "BELIEVE" OR "ANTICIPATE", OR EXPRESSIONS OF
CONFIDENCE LIKE "STRONG" OR "ON-GOING", OR SIMILAR STATEMENTS OR VARIATIONS OF
SUCH TERMS. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE
FOLLOWING POSSIBILITIES: (1) EXPECTED COST SAVINGS OR REVENUE ENHANCEMENTS FROM
THE MERGER CANNOT BE REALIZED AS ANTICIPATED; (2) DEPOSIT ATTRITION, CUSTOMER
LOSS OR REVENUE LOSS FOLLOWING THE MERGER IS GREATER THAN EXPECTED; (3)
COMPETITIVE PRESSURE IN THE BANKING AND FINANCIAL SERVICES INDUSTRY INCREASES
SIGNIFICANTLY; (4) CHANGES IN THE INTEREST RATE ENVIRONMENT; AND (5) GENERAL
ECONOMIC CONDITIONS, EITHER NATIONALLY OR IN THE STATE OF NEW JERSEY, ARE LESS
FAVORABLE THAN EXPECTED.
<PAGE>
SUMMARY
The following is a summary of certain information regarding
the matters to be considered at the Meeting. This summary is necessarily
incomplete and is qualified by the more detailed information contained elsewhere
in this Proxy Statement-Prospectus, including the Appendixes hereto and the
documents incorporated by reference herein. Wayne stockholders should carefully
read the entire Proxy Statement-Prospectus, including the Appendixes.
THE MEETING
Date, Time and Place of
Meeting..................... The special meeting of stockholders (the
"Meeting") of Wayne Bancorp, Inc. ("Wayne") will
be held on [Day of Week], [Date] [Time], at
[Location].
Record Date................. _____________, 1998 (the "Record Date").
Shares Entitled to Vote... ________ shares of common stock, $0.01 par value
per share, of Wayne ("Wayne Common Stock") were
outstanding on the Record Date and entitled to
vote at the Meeting.
Purpose of Meeting.......... To consider and vote upon an Agreement and Plan of
Merger dated as of May 29, 1998 (the "Merger
Agreement"), by and among Valley National Bancorp
("Valley"), Valley's national bank subsidiary,
Valley National Bank ("VNB"), Wayne, and Wayne's
federally-chartered savings bank subsidiary, Wayne
Savings Bank, F.S.B. ("WSB").
Vote Required............... The affirmative vote, in person or by proxy, of a
majority of the outstanding shares of Wayne Common
Stock is required to approve the Merger Agreement.
Recommendation of the Wayne
Board of Directors.......... The Wayne Board of Directors has unanimously
approved the Merger Agreement and unanimously
recommends that Wayne stockholders vote "FOR"
approval of the Merger Agreement.
THE COMPANIES
Valley.................... Valley is a bank holding company organized under
the laws of the State of New Jersey and registered
under the Bank Holding Company Act of 1956, as
amended (the "BHCA"). Valley has one banking
subsidiary, VNB, a national bank which operates 97
branches located in northern New Jersey. At March
31, 1998, Valley had consolidated assets of
approximately $5.1 billion. Valley's principal
executive offices are located at 1455 Valley Road,
Wayne, New Jersey 07474, and its telephone number
is (973) 305-8800.
Wayne....................... Wayne is a unitary savings and loan holding
company organized under the laws of the State of
Delaware and registered under the Home Owners Loan
Act of 1933, as amended (the "HOLA"). Wayne's
principal subsidiary is WSB, a federal savings
bank which operates six branches located in
northern New Jersey. At March 31, 1998, Wayne had
consolidated assets of approximately $272.0
million. Wayne's principal executive offices are
located at 1195 Hamburg Turnpike, Wayne, New
Jersey 07470, and its telephone number is (973)
305-5500.
THE MERGER
General Description of the
Merger; Closing; Effective
Time; Bank Merger......... The Merger Agreement provides for the merger of
Wayne with and into Valley (the "Merger"), with
Valley as the surviving entity. A closing under
the Merger Agreement (the "Closing") will occur on
the tenth business day after receipt of all
necessary approvals and satisfaction of all other
conditions to closing (other than the delivery of
documents to be delivered at the Closing), or on
such other date as Valley and Wayne agree upon.
However, the Closing will not occur prior to
October 2, 1998 without Valley's consent. The
Merger will become effective at the time (the
"Effective Time") specified in certificates of
merger which Valley will file with the New Jersey
and Delaware Secretaries of State following the
Closing. The parties anticipate that the Effective
Time will be the opening of business on the first
business day after the Closing Date. Immediately
following consummation of the Merger, WSB will be
merged with and into VNB (the "Bank Merger"), with
VNB as the surviving entity.
Consideration............... Upon consummation of the Merger, each share of
Wayne Common Stock issued and outstanding
immediately prior to the Effective Time will be
converted into 1.10 shares (the "Exchange Ratio")
of common stock of Valley, no par value ("Valley
Common Stock"). The Exchange Ratio is subject to
adjustment to take into account any stock split,
stock dividend, stock combination,
reclassification, or similar transaction by Valley
with respect to the Valley Common Stock.
Conversion of Stock Options. At the Effective Time, each outstanding option to
purchase Wayne Common Stock (a "Wayne Option")
granted under the stock option plans of Wayne will
be converted into an option to purchase Valley
Common Stock on the same terms and conditions
existing for the current Wayne Option, except that
the number of shares of Valley Common Stock
purchasable under the new option and the new
option exercise price will both be adjusted to
reflect the Exchange Ratio.
Cash in Lieu of Fractional
Shares; Average Pre-Closing
Price....................... In lieu of fractional shares of Valley Common
Stock, Wayne stockholders will receive, without
interest, a cash payment equal to the fractional
share interest to which they would otherwise be
entitled in the Merger multiplied by the Average
Pre-Closing Price of Valley Common Stock. The
"Average Pre-Closing Price" of Valley Common Stock
is defined as the average of the closing prices of
Valley Common Stock as reported on the New York
Stock Exchange (the "NYSE") and published in the
Wall Street Journal during the five consecutive
trading days ending with (and including) the date
the Office of the Comptroller of the Currency (the
"OCC") notifies Valley that it has granted its
approval required for consummation of the Merger.
The Average Pre-Closing Price is subject to
adjustment to take into account any stock split,
stock dividend, stock combination,
reclassification, or similar transaction by Valley
with respect to Valley Common Stock.
Opinion of Wayne's
Financial Advisor........... The Board of Directors of Wayne has retained
Sandler O'Neill & Partners, L.P. ("Sandler
O'Neill") as its financial advisor in connection
with the Merger. Sandler O'Neill has delivered
written opinions dated May 29, 1998 and the date
of this Proxy Statement-Prospectus to the Board of
Directors of Wayne with respect to the fairness,
from a financial point of view, of the Exchange
Ratio to the stockholders of Wayne in the Merger.
For information concerning the procedures
followed, assumptions made, matters considered and
qualifications on the review undertaken by Sandler
O'Neill in rendering its opinions, see "THE
PROPOSED MERGER -- Opinion of Wayne's Financial
Advisor" and Appendix C to this Proxy
Statement-Prospectus, which sets forth Sandler
O'Neill's updated fairness opinion in its
entirety.
Federal Income Tax
Consequences................ In connection with the Registration Statement of
which this Proxy Statement is a part, Pitney,
Hardin, Kipp & Szuch, counsel to Valley, has
delivered its opinion to the effect that the
Merger will qualify as a tax-free reorganization
as defined in Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code"). Assuming
the applicability of Section 368(a) of the Code,
the conversion of Wayne Common Stock into Valley
Common Stock will be a nontaxable event for
Valley, Wayne and the Wayne stockholders. No
taxable gain or loss will have to be recognized by
Wayne stockholders until they sell the Valley
Common Stock received by them in the Merger. The
basis of the Valley Common Stock received by each
Wayne stockholder will be the basis of the Wayne
Common Stock converted in connection with the
Merger and the holding period of the Valley Common
Stock will include the holding period of the Wayne
Common Stock converted.
Wayne stockholders are urged to read the more
complete description of the tax consequence of the
Merger contained under the caption "THE PROPOSED
MERGER -- Federal Income Tax Consequences," and to
consult their own tax advisors as to the specific
tax consequences to them of the Merger under
applicable tax laws.
Exchange of Certificates.... Promptly after the Effective Time, the Exchange
Agent for Valley will send Wayne stockholders
letters of transmittal and instructions for
exchanging their stock certificates for
certificates representing Valley Common Stock.
Holders of Wayne Common Stock should not send in
their stock certificates until they receive
instructions from the Exchange Agent.
No Dissenters Rights........ Consistent with the provisions of the Delaware
General Corporation Law, no stockholder of Wayne
will have the right to dissent from the Merger.
Conditions to the Merger.... Consummation of the Merger is contingent upon a
number of conditions, including the receipt of:
approval of the Merger by the required vote of the
holders of Wayne Common Stock; all necessary
regulatory approvals; an updated opinion of
counsel to Valley to the effect that the Merger
will result in a tax free reorganization; a letter
from Valley's independent public accountants to
the effect that the Merger will qualify for
pooling-of-interests accounting treatment; and the
opinion of Sandler O'Neill which is attached as
Appendix C to this Proxy Statement.
Regulatory Approvals........ Consummation of the Merger and the Bank Merger
requires the approval of the OCC. OCC approval
does not constitute an endorsement of the Merger
or a determination by the OCC that the terms of
the Merger are fair to the stockholders of Wayne.
An application for OCC approval was filed on
__________, 1998. Also on ___________, 1998,
Valley submitted a draft application to the
Federal Reserve Board seeking a waiver of the
requirement for approval of the Merger under
Regulation Y promulgated under the BHCA. While
Valley and Wayne anticipate receiving such
approval and waiver, there can be no assurance
that they will be granted, or that they will be
granted on a timely basis without conditions
unacceptable to Valley or Wayne.
Termination Rights.......... The Merger Agreement may be terminated by Wayne if
the Average Pre-Closing Price of Valley Common
Stock is less than $26.00. Valley has the right to
terminate the Merger Agreement if Wayne's net
operating income excluding security gains and
losses (after tax but excluding expenses related
to the Merger Agreement) for any full fiscal
quarter after March 31, 1998 is less than
$375,000. The Merger Agreement may be terminated
by either Wayne or Valley if the Effective Time
has not occurred by March 31, 1999. For a more
complete description of these and other
termination rights available to Wayne and Valley,
see "THE PROPOSED MERGER -- Termination of the
Merger Agreement."
Amendment of the Merger
Agreement................... The terms of the Merger Agreement may be amended,
modified or supplemented by the written consent of
Valley and Wayne at any time prior to the
Effective Time. However, following Wayne
stockholder approval of the Merger Agreement,
Wayne stockholders must approve any amendment
reducing or changing the amount or form of
consideration to be received by them in the
Merger.
Accounting Treatment of the
Merger...................... The Merger is expected to be accounted for as a
pooling of interests for financial reporting
purposes, and it is a condition to Valley's and
Wayne's obligations to close the Merger that
Valley receive a letter from its independent
auditor to the effect that the Merger will qualify
for pooling-of-interests accounting treatment.
Under the pooling-of-interests method of
accounting, Wayne's historical basis of assets,
liabilities and stockholders equity will be
retained by Valley as the surviving entity.
No Solicitation by Wayne of
Alternative Transactions.... Pursuant to the Merger Agreement, Wayne has agreed
that it will not, directly or indirectly,
encourage or solicit or hold discussions or
negotiations with, or provide any information to,
any person other than Valley concerning any merger
or similar acquisition transactions involving
Wayne or WSB (an "Acquisition Transaction").
However, Wayne may enter into discussions or
negotiations or provide information in connection
with an unsolicited possible Acquisition
Transaction if the Board of Directors of Wayne,
after consulting with counsel, determines in the
exercise of its fiduciary responsibilities that
such action should be so taken. This restriction,
along with the Stock Option Agreement described in
the following paragraph, may be considered a
deterrent to other potential acquisitions of
control of Wayne.
Stock Option to Valley for
Wayne Shares................ In connection with the negotiation of the Merger
Agreement, Valley and Wayne entered into a Stock
Option Agreement (the "Stock Option Agreement")
dated as of May 29, 1998. Pursuant to the Stock
Option Agreement, Wayne granted Valley an option
(the "Option"), exercisable only under certain
limited and specifically defined circumstances, to
purchase up to 400,000 authorized but unissued
shares of Wayne Common Stock, representing
approximately 19.9% of the shares of Wayne Common
Stock outstanding on the date the Option was
granted, for an exercise price of $24.50 per
share. Valley does not have any voting rights with
respect to the shares of Wayne Common Stock
subject to the Option prior to exercise of the
Option. A copy of the Stock Option Agreement is
attached as Appendix B to this Proxy
Statement-Prospectus.
If certain Triggering Events specifically
enumerated in the Stock Option Agreement occur and
the Merger is not consummated, Valley would
recognize a gain on the sale of the shares of
Wayne Common Stock received pursuant to the
exercise of the Option if those shares were sold
for more than $24.50 per share. The ability of
Valley to exercise the Option and to cause up to
an additional 400,000 shares of Wayne Common Stock
to be issued may be considered a deterrent to
other potential acquirors of control of Wayne, as
it is likely to increase the cost of an
acquisition of all of the shares of Wayne Common
Stock which would then be outstanding. The
exercise of the Option by Valley may also make
pooling-of-interests accounting treatment
unavailable to a subsequent acquiror.
Interests of Certain
Persons in the Merger....... The Merger Agreement provides that, as of the
Effective Time, each of Valley and VNB will
appoint Harold P. Cook, III, currently the
Chairman of the Board of Directors of Wayne, to
its Board of Directors. Current Wayne directors,
other than Mr. Cook, Johanna O'Connell and Dennis
Pollack, will be invited to serve as advisory
directors for VNB and receive aggregate fees of
approximately $31,000 each, equally distributed
over the period ended March 1, 2002.
The Merger Agreement further provides that for a
six-year period following the Effective Time
Valley will indemnify the directors and officers
of Wayne against certain liabilities to the extent
such persons were indemnified under Wayne's
Certificate of Incorporation and By-laws.
At the Record Date, directors and executive
officers of Wayne and their affiliates of Wayne
owned _____ shares or ____% of the Wayne Common
Stock.
For additional information see "THE PROPOSED
MERGER -- Interests of Certain Persons in the
Merger."
Resale Considerations with
Respect to Valley Common
Stock....................... The shares of Valley Common Stock to be issued in
the Merger will be registered under the Securities
Act of 1933, as amended (the "Securities Act"),
and will be freely transferable, except for shares
received by persons, including directors and
executive officers of Wayne, who may be deemed to
be "affiliates" of Wayne under Rule 145
promulgated under the Securities Act.
Differences in
Stock-holders' Rights....... At the Effective Time, each Wayne stockholder will
become a stockholder of Valley. The rights of
Wayne stockholders are currently governed by the
Delaware General Corporation Law and Wayne's
Certificate of Incorporation and By-laws. The
rights of Valley stockholders are governed by the
New Jersey Business Corporation Act and Valley's
Certificate of Incorporation and By-laws. The
rights of Wayne and Valley stockholders differ
with respect to voting requirements and various
other matters.
<PAGE>
SELECTED FINANCIAL DATA OF VALLEY
The following table sets forth certain selected historical consolidated
financial data for Valley. This data is derived from, and should be read in
conjunction with, the consolidated financial statements of Valley, including the
notes thereto. The data for the years ended December 31, 1997 through December
31, 1993 are derived from Valley's consolidated financial statements, which have
been audited. The consolidated financial statements as of December 31, 1997 and
1996, and for each of the years in the three-year period ended December 31,
1997, and the report thereon, are incorporated by reference herein. See
"INFORMATION INCORPORATED BY REFERENCE." Interim unaudited data for the three
months ended March 31, 1998 and 1997 reflect, in the opinion of the management
of Valley, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of such data. Results for the three months
ended March 31, 1998 are not necessarily indicative of results which may be
expected for any other interim period or for the year as a whole.
<PAGE>
<TABLE>
<CAPTION>
For Three Months
Ended For Years Ended December 31,
March 31,
--------------------- --------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------------------- --------------------------------------------------------
(Dollars in thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income $ 92,599 $ 91,284 $ 368,318 $ 353,168 $ 345,348 $ 318,083 $ 305,313
Interest expense 37,916 39,052 155,977 154,833 153,326 124,830 122,525
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income 54,683 52,232 212,341 198,335 192,022 193,253 182,788
Provision for possible loan losses 2,500 1,200 12,250 3,356 3,169 5,984 9,002
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after provision
for possible loan losses 52,183 51,032 200,091 194,979 188,853 187,269 173,786
Non-interest income 10,225 10,115 42,315 29,651 24,446 26,946 31,369
Non-interest expense 29,519 29,399 123,228 117,716 104,723 105,081 100,173
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes and
cumulative effect of accounting change 32,889 31,748 119,178 106,914 108,576 109,134 104,982
Income taxes 9,604 10,848 34,186 36,076 41,543 40,860 36,894
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before cumulative effect of
accounting change 23,285 20,900 84,992 70,838 67,033 68,274 68,088
Cumulative effect of accounting change,
net of tax (1) -- -- -- -- -- -- (251)
========== ========= ========= ========= ========= ========= ==========
Net income $ 23,285 $ 20,900 $ 84,992 $ 70,838 $ 67,033 $ 68,274 $ 67,837
========== ========== ========== ========== ========= ========== ==========
PER COMMON SHARE DATA: (2)
Earnings per share:
Basic $ 0.44 $ 0.40 $ 1.61 $ 1.33 $ 1.24 $ 1.27 $ 1.28
Diluted 0.44 0.39 1.60 1.33 1.24 1.26 1.26
Book Value 9.14 8.26 8.98 8.16 7.94 7.05 6.86
Dividends 0.22 0.19 0.85 0.76 0.72 0.69 0.54
RATIOS:
Return on average assets 1.85 % 1.64 % 1.67 % 1.42 % 1.38 % 1.44 % 1.51 %
Return on average equity 19.52 % 19.34 % 18.88 % 16.64 % 16.44 % 18.26 % 20.11 %
FINANCIAL CONDITION DATA:
Total assets $5,085,680 $ 5,117,119 $ 5,090.655 $5,115,547 $5,009,903 $4,820,316 $ 4,665,700
Investment securities held to maturity 154,531 204,254 161,552 255,277 325,290 918,167 1,291,501
Investment securities available for sale 942,371 1,064,579 1,107,225 989,698 1,185,385 747,676 541,561
Trading account securities 1,420 -- -- -- -- -- --
Loans (net of unearned income) 3,659,498 3,488,223 3,622,332 3,471,248 3,051,840 2,834,817 2,490,003
Allowance for possible loan losses 46,008 45,911 46,372 46,022 43,991 45,905 44,555
Deposits 4,391,473 4,550,887 4,402,954 4,567,065 4,472,133 4,250,237 4,147,531
Stockholders' equity 481,997 436,486 475,359 430,384 432,609 378,895 361,160
- --------------------
</TABLE>
(1) Represents cumulative effect of adopting SFAS 109, "Accounting for Income
Taxes."
(2) The per share data has been restated to give retroactive effect to stock
splits and dividends.
<PAGE>
SELECTED FINANCIAL DATA OF WAYNE
The following table sets forth certain selected historical consolidated
financial data for Wayne. This data is derived from, and should be read in
conjunction with, the consolidated financial statements of Wayne, including the
notes thereto, included elsewhere herein. The data for the years ended December
31, 1997 through December 31, 1993 are derived from Wayne's consolidated
financial statements, which have been audited. The consolidated financial
statements as of December 31, 1997 and 1996, and for each of the years in the
three-year period ended December 31, 1997, and the report thereon, are included
in this Proxy Statement-Prospectus. See "ACCOMPANYING DOCUMENTS." Interim
unaudited data for the three months ended March 31, 1998 and 1997 reflect, in
the opinion of the management of Wayne, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of such data. Results
for the three months ended March 31, 1998 are not necessarily indicative of
results which may be expected for any other interim period or for the year as a
whole.
<TABLE>
<CAPTION>
For Three Months Ended
March 31, For Years Ended December 31,
---------------------- --------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------------------- -------------------------------------------------------
(Dollars in thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income $ 4,827 $ 4,433 $ 18,766 $ 15,458 $ 13,136 $ 11,833 $ 12,633
Interest expense 2,583 2,254 9,908 7,958 6,950 5,172 5,753
--------- ----------- --------- --------- ----------- --------- -----------
Net interest income 2,244 2,179 8,858 7,500 6,186 6,661 6,880
Provision for possible loan losses 70 125 400 200 152 316 286
--------- ----------- --------- --------- ----------- --------- -----------
Net interest income after provision
for possible loan losses 2,174 2,054 8,458 7,300 6,034 6,345 6,594
Non-interest income 175 183 697 585 275 720 496
Non-interest expense 1,699 1,391 5,990 6,816 4,951 4,432 4,155
--------- ----------- --------- --------- ---------- --------- -----------
Income before income taxes 650 846 3,165 1,069 1,358 2,633 2,935
Income taxes 255 342 1,211 403 487 944 745
========= ========== ========= ========= ========= ========= ===========
Net income $ 395 $ 504 $ 1,954 $ 666 $ 871 $ 1,689 $ 2,190
========= ========== ========= ========= ========= ========= ===========
PER COMMON SHARE DATA: (1)
Earnings per share:
Basic $ 0.22 $ 0.25 $ 1.04 $ n/a $ n/a $ n/a $ n/a
Diluted 0.22 0.27 1.03 n/a n/a n/a n/a
Book Value 17.15 16.57 16.86 n/a n/a n/a n/a
Dividends 0.05 0.05 0.20 n/a n/a n/a n/a
RATIOS:
Return on average assets 0.59 % 0.83 % 0.76 % 0.31 % 0.46 % 0.93 % 1.21 %
Return on average equity 4.57 % 5.60 % 5.63 % 2.33 % 5.12 % 10.79 % 15.76 %
FINANCIAL CONDITION
DATA:
Total assets $ 272,007 $ 245,435 $ 270,043 $ 244,081 $ 207,997 $ 176,664 $ 183,228
Investment securities held to maturity 2,318 2,983 2,913 3,229 3,841 50,304 33,774
Investment securities available for sale 68,688 78,608 73,413 80,867 58,155 3,360 11,715
Loans (net of unearned income) 189,425 154,940 181,102 147,214 113,577 114,634 107,570
Allowance for possible loan losses 2,240 1,914 2,170 1,789 1,589 1,543 1,237
Deposits 203,532 180,902 198,479 178,947 173,822 159,013 166,821
Stockholders' equity 34,532 35,732 33,944 36,911 17,299 16,259 15,005
- --------------------
</TABLE>
(1) Because the conversion of WSB from mutual to stock form and the related
creation of Wayne as the holding company for WSB (the "WSB Conversion")
closed on June 27, 1996, earnings per share for Wayne prior to 1997 are not
presented.
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth the earnings per share, period-end book
value per share and cash dividends per share of Valley Common Stock and Wayne
Common Stock for the three months ended March 31, 1998 and for each of the years
in the three-year period ended December 31, 1997, on an historical and pro forma
basis, as well as pro forma equivalent per share data for Wayne. The historical
per share data have been derived from the financial statements of Valley and
Wayne which are contained herein or incorporated by reference herein. The pro
forma combined share data have been derived after giving effect to the Merger as
if it occurred at the beginning of the period presented using the
pooling-of-interest method of accounting.
The historical per share data for Valley has been restated to
retroactively reflect the effect of stock dividends and a stock split. See "Pro
Forma Combined Financial Information;" "Summary -- Selected Financial Data of
Valley" and "Summary -- Selected Financial Data of Wayne."
<PAGE>
<TABLE>
<CAPTION>
Pro Forma
Equivalent per
Historical Historical Pro Forma Wayne
Valley Wayne Combined Share (1)
------ ----- --------- ---------
<S> <C> <C> <C> <C>
Three Months Ended
March 31, 1998
Earnings Per Share
Basic........................... $ 0.44 $ 0.22 $ 0.43 $ 0.47
Diluted......................... 0.44 0.22 0.43 0.47
Book Value Per Share..................... 9.14 17.15 9.40 10.34
Cash Dividends Per Share (2)............. 0.22 0.05 0.22 0.24
Year Ended December 31, 1997
Earnings Per Share
Basic........................... $ 1.61 $ 1.04 $ 1.58 $ 1.74
Diluted......................... 1.60 1.03 1.57 1.73
Book Value Per Share..................... 8.98 16.86 9.23 10.15
Cash Dividends Per Share (2)............. 0.85 0.20 0.85 0.94
Year Ended December 31, 1996(3)
Earnings Per Share
Basic........................... $ 1.33 $n/a(3) $ 1.33 $n/a(3)
Diluted......................... 1.33 n/a(3) 1.33 n/a(3)
Book Value Per Share..................... 8.16 n/a(3) 8.16 n/a(3)
Cash Dividends Per Share (2)............. 0.76 n/a(3) 0.76 n/a(3)
Year Ended December 31, 1995(3)
Earnings Per Share
Basic........................... $ 1.24 $n/a(3) $ 1.24 $n/a(3)
Diluted......................... 1.24 n/a(3) 1.24 n/a(3)
Book Value Per Share..................... 7.94 n/a(3) 7.94 n/a(3)
Cash Dividends Per Share (2)............. 0.72 n/a(3) 0.72 n/a(3)
- -------------------------------
</TABLE>
(1) Wayne pro forma equivalent per share data is computed by multiplying the pro
forma combined per share data (giving effect to the Merger) by the Exchange
Ratio of 1.10.
(2) The amount of future dividends payable by Valley, if any, is subject to the
discretion of Valley's Board of Directors. The Directors normally consider
Valley's and VNB's cash needs, general business conditions, dividends from
subsidiaries and applicable governmental regulations and policies. Pro forma
amounts assume that Valley would have declared cash dividends per share on
Valley Common Stock equal to its historical cash dividends per share on
Valley Common Stock declared.
(3) Because the WSB Conversion occurred on June 27, 1996, Historical Wayne and
Pro Forma Equivalent Per Wayne Share data prior to 1997 are not presented,
and Wayne's per share data have been excluded from the Pro Forma Combined
presentation for years prior to 1997.
The first table below presents, for the periods indicated, the high and
low closing prices per share of Valley Common Stock and Wayne Common Stock. The
second table below presents information concerning the last sale price of Valley
Common Stock and of Wayne Common Stock on May 28, 1998 (the last business day
preceding the announcement of the Merger Agreement), and the last sale price of
Valley Common Stock and of Wayne Common Stock on _____________, 1998, a date
shortly prior to the date of this Proxy Statement-Prospectus. The tables also
present the equivalent value of Valley Common Stock per Wayne share which has
been calculated by multiplying the last sale price of Valley Common Stock on the
dates indicated by the Exchange Ratio of 1.10. Valley Common Stock is traded on
the NYSE and Wayne Common Stock traded on the Nasdaq National Market System.
Wayne stockholders are urged to obtain current market quotations for Valley
Common Stock and Wayne Common Stock. Because the Exchange Ratio is fixed, Wayne
stockholders are not assured of receiving any specific market value of Valley
Common Stock. The price of Valley Common Stock at the Effective Time may be
higher or lower than the sale price at the time of entering into the Merger
Agreement, the time of mailing this Proxy Statement-Prospectus or at the time of
the Meeting.
<PAGE>
<TABLE>
<CAPTION>
Equivalent
Closing Sale Closing Sale Value of Valley
Price Per Share Price Per Share Common Stock Per
of Valley of Wayne Share of Wayne
Common Stock(1) Common Stock Common Stock
High Low High Low High Low
-------- -------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
1996:
First Quarter.....................$ 20.10 $ 17.25 $ n/a(2) $ n/a(2) $ 22.11 $ 18.98
Second Quarter................... 22.55 19.45 n/a(2) n/a(2) 24.81 21.40
Third Quarter.................... 21.25 18.55 13.88 10.75 23.38 20.41
Fourth Quarter................... 20.75 18.85 15.25 13.69 22.83 20.74
1997:
First Quarter.................... $ 21.15 $ 19.35 $ 18.00 $ 14.88 $ 23.27 $ 21.29
Second Quarter................... 22.40 20.35 20.25 16.00 24.64 22.39
Third Quarter.................... 25.35 21.90 24.88 19.00 27.89 24.09
Fourth Quarter................... 32.20 25.05 27.50 21.00 35.42 27.56
1998:
First Quarter.................... $ 33.70 $ 28.20 $ 31.00 $ 23.00 $ 37.07 $ 31.02
Second Quarter................... 34.09 29.00 32.00 29.88 37.50 31.90
Third Quarter (through _________,
1998)............................
</TABLE>
<TABLE>
<CAPTION>
Equivalent
Closing Sale Closing Sale Value of Valley
Price Per Share Price Per Share Common Stock Per
of Valley of Wayne Share of Wayne
Common Stock Common Stock Common Stock
DATE
<S> <C> <C> <C>
May 28, 1998 $31.25 $30.75 $34.38
____________, 1998
</TABLE>
(1) The prices of Valley Common Stock have been restated to give retroactive
effect to stock dividends and splits.
(2) Prior to the WSB Conversion on June 27, 1996, there was no Wayne Common
Stock outstanding.
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following tables present certain unaudited combined condensed
financial information from the Pro Forma Unaudited Combined Condensed Statements
of Income for the three month period ended March 31, 1998 and for the years
ended December 31, 1997, 1996 and 1995, and the Pro Forma Unaudited Combined
Condensed Statement of Financial Condition at March 31, 1998. The Pro Forma
combined financial information gives effect to the proposed Merger accounted for
as a pooling of interests, as if such transaction had been consummated for
statement of income purposes on the first day of the applicable periods and for
statement of financial condition purposes on March 31, 1998. See "PRO FORMA
FINANCIAL INFORMATION." The Summary Pro Forma financial information is based on
the historical financial statements of Valley and Wayne included or incorporated
by reference herein. See Appendixes D, E and F and "INFORMATION INCORPORATED BY
REFERENCE". The Pro Forma financial information assumes an Exchange Ratio of
1.10 shares of Valley Common Stock for each share of Wayne Common Stock
outstanding.
The summary unaudited Pro Forma financial information should be read in
conjunction with the Pro Forma Financial Information and the related notes
thereto presented elsewhere in this Proxy Statement-Prospectus and the
consolidated financial statements and related notes included or incorporated by
reference in this Proxy Statement-Prospectus. The Pro Forma financial
information is not necessarily indicative of the results of operations which
would have been achieved had the Merger been consummated as of the beginning of
the periods for which such data are presented and should not be construed as
being representative of future periods.
<PAGE>
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31, For the Years Ended December 31,
----------------------------------------
1998 1997 1996 1995
---------------------------- ------------ ------------
(Dollars in thousands, except for per share amounts)
<S> <C> <C> <C> <C>
Income Statement Data:
Net interest income........................................... $ 56,927 $ 221,199 $ 205,835 $ 198,208
Provision for possible loan losses............................ 2,570 12,650 3,556 3,321
Net interest income after provision for possible loan losses.. 54,357 208,549 202,279 194,887
Income before income taxes.................................... 33,539 122,343 107,983 109,934
Net income.................................................... 23,680 86,946 71,504 67,904
Earnings per common share: (1)(2)
Basic................................................... 0.43 1.58 1.33 1.24
Diluted................................................. 0.43 1.57 1.33 1.24
As of March 31,
1998
------------------
Financial Condition Data:
Total assets.................................................. $5,357,687
Total deposits................................................ 4,595,005
Total stockholders' equity.................................... 516,529
Book value per common share................................... 9.40
- -------------------------
</TABLE>
(1) Because the WSB Conversion occurred on June 27, 1996, Wayne's per share data
have been excluded from the Pro Forma Combined presentation for years prior
to 1997.
(2) Valley's historical earnings per share have been restated to give
retroactive effect to stock dividends and splits.
<PAGE>
INTRODUCTION
This Proxy Statement-Prospectus solicits, on behalf of the Board of
Directors of Wayne Bancorp, Inc. ("Wayne"), approval by the holders of shares of
common stock of Wayne, $0.01 par value per share ("Wayne Common Stock"), of the
Agreement and Plan of Merger, dated as of May 29, 1998 (the "Merger Agreement"),
by and among Valley National Bancorp ("Valley"), Valley's national bank
subsidiary, Valley National Bank ("VNB"), Wayne and Wayne's federally-chartered
savings bank subsidiary, Wayne Savings Bank, F.S.B. ("WSB"). Pursuant to the
Merger Agreement, Wayne will be merged with and into Valley (the "Merger"), with
Valley as the surviving entity. Immediately following consummation of the
Merger, WSB will merge with and into VNB (the "Bank Merger"), with VNB as the
surviving entity, pursuant to a separate merger agreement between VNB and WSB
(the "Bank Merger Agreement"). If the Merger Agreement is approved and becomes
effective, each outstanding share of Wayne Common Stock, except for Excluded
Shares (as defined below), will be converted into 1.10 shares (the "Exchange
Ratio") of common stock of Valley, no par value ("Valley Common Stock"), subject
to adjustment provisions set forth in the Merger Agreement and more fully
described in this Proxy Statement, with cash paid in lieu of fractional shares.
In addition, each option to purchase a share of Wayne Common Stock
pursuant to Wayne's existing stock option plans and agreements (a "Wayne
Option") will be converted in the Merger into options to purchase Valley Common
Stock on the same terms and conditions existing for the current Wayne Option,
except that the number of shares of Valley Common Stock purchasable under the
new option and the new option exercise price will both be adjusted to reflect
the Exchange Ratio.
A copy of the Merger Agreement is attached as Appendix A to this Proxy
Statement-Prospectus and is incorporated herein by reference.
All information and statements contained herein with respect to Wayne
were supplied by Wayne and all information and statements contained or
incorporated by reference herein with respect to Valley were supplied by Valley.
CERTAIN INFORMATION REGARDING VALLEY
General
Valley is a New Jersey corporation registered as a bank holding company
under the Bank Holding Company Act of 1956, as amended (the "BHCA"). Valley was
organized under the laws of New Jersey in 1983 by VNB for the purpose of
creating a bank holding company for VNB. In addition to VNB, Valley indirectly
owns additional subsidiaries through VNB.
At March 31, 1998, Valley had consolidated assets of approximately $5.1
billion, deposits of $4.4 billion and stockholders' equity of $482.0 million.
Valley's principal executive offices are located at 1455 Valley Road,
Wayne, New Jersey 07474, and its telephone number is (973) 305-8800. See
"AVAILABLE INFORMATION" and "INFORMATION INCORPORATED BY REFERENCE."
Valley National Bank
VNB is a national banking association chartered in 1927 under the laws
of the United States. VNB provides a full range of commercial and retail banking
services. These services include acceptance of demand, savings and time
deposits,; extension of consumer, real estate, Small Business Administration and
other commercial credits; and full personal and corporate trust services, such
as pension and fiduciary services. VNB's maintains its main office in Passaic,
New Jersey and at March 31, 1998 operated [97] branches in northern New Jersey.
VNB has several wholly-owned subsidiaries which include a mortgage
servicing company, an investment company which holds, maintains and manages
investment assets for VNB, a subsidiary which owns and manages residential
mortgage loans, a subsidiary which owns and services auto loans and an Edge Act
Corporation which is the holding company for a wholly-owned finance company
located in Toronto, Canada. The mortgage servicing company services loans for
others as well as VNB.
CERTAIN INFORMATION REGARDING WAYNE
General
Wayne is a Delaware corporation registered as a unitary savings and
loan holding company under the Home Owners Loan Act of 1933, as amended
("HOLA"). Wayne was created at the direction of the board of directors of WSB to
acquire all of the capital stock Wayne issued in connection with WSB's
conversion from the mutual to stock form, which was consummated in June 1996
(the "WSB Conversion").
At March 31, 1998, Wayne had consolidated assets of approximately
$272.0 million, deposits of $203.5 million and stockholders' equity of $34.5
million.
Wayne's principal executive offices are located at 1195 Hamburg
Turnpike, Wayne, New Jersey 07470, and its telephone number is (973) 305-5500.
For additional information regarding Wayne and WSB, see "ACCOMPANYING
DOCUMENTS."
Wayne Savings Bank, F.S.B.
WSB was organized in 1921 as the Pequannock and Wayne Building and Loan
Association, a New Jersey mutual building and loan association. In 1946, WSB
changed its name to Wayne Savings and Loan Association, a New Jersey mutual
savings and loan association, and converted to a federally chartered mutual
savings bank under its current name in 1994. On June 27, 1996, WSB completed the
WSB Conversion. WSB operates through seven banking offices, including its
administrative office, all located in the northern New Jersey area and provides
a variety of financial services to the communities it serves. These services
include the acceptance of certificate, savings, NOW and money market deposit
accounts and the extension of one- to four-family residential credit
supplemented with the origination of commercial, construction and consumer
loans.
THE MEETING
Time and Place
This Proxy Statement-Prospectus solicits, on behalf of the Wayne Board
of Directors, proxies to be voted at a Special Meeting of Stockholders (the
"Meeting") of Wayne which is to be held on [Day of Week], [Date], 1998 at
[Time], at [Location], and at any adjournments or postponements thereof.
Purpose of the Meeting
At the Meeting, Wayne stockholders will consider and vote upon the
approval of the Merger Agreement and any other matters as may properly be
brought before the Meeting and at any adjournments or postponements thereof.
The Board of Directors of Wayne has unanimously approved the Merger
Agreement and recommends a vote "FOR" approval and adoption of the Merger
Agreement.
Record Date; Voting Rights; Proxies
The Wayne Board of Directors has fixed the close of business on
________, 1998 as the record date for the Meeting (the "Record Date"). Only
holders of record of Wayne Common Stock on the Record Date will be entitled to
receive notice of, and to vote at, the Meeting or at any adjournment or
postponement thereof. On the Record Date, there were ________ shares of Wayne
Common Stock issued and outstanding and entitled to vote at the Meeting.
All properly executed proxies will, unless such proxies have been
previously revoked, be voted in accordance with the instructions indicated on
such proxies. If no instructions are indicated thereon, such shares will be
voted "FOR" approval of the Merger Agreement. The Board of Directors of Wayne is
not aware of any matters other than as described in the Notice of Special
Meeting that are to come before the Meeting. If any other matter or matters are
properly presented for action before the Meeting, the persons named in the
enclosed form of proxy will have discretion to vote on such matters in
accordance with their best judgment, unless such authorization is withheld.
The presence of a stockholder at the Meeting will not automatically
revoke such stockholder's proxy. A stockholder may revoke any proxy that he or
she has given any time prior to its exercise. To do so, the stockholder must
file a written notice of revocation with, or deliver a duly executed proxy
bearing a later date to ______________________, ____________, _________________.
Votes cast by proxy or in person at the Meeting will be tabulated by
the election inspectors appointed for the Meeting, who will determine whether or
not a quorum is present. Where, as to any matter submitted to a vote of the
Wayne stockholders, proxies are marked as abstentions (or stockholders appear in
person but abstain from voting) or a broker indicates on a proxy that it does
not have discretionary authority with respect to certain shares, such
abstentions and "broker non-votes" will be treated as shares that are present
and entitled to vote for purposes of determining the presence of a quorum.
WAYNE STOCKHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS. IF THE MERGER IS CONSUMMATED, STOCK CERTIFICATES SHOULD BE
DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A LETTER OF TRANSMITTAL
WHICH WOULD BE SENT TO WAYNE STOCKHOLDERS BY THE EXCHANGE AGENT PROMPTLY AFTER
THE EFFECTIVE TIME.
Solicitation of Proxies
In addition to using the mails, the directors, officers and employees
of Wayne may solicit proxies for the Meeting from stockholders personally, by
telephone or by telegraph. These officers, directors and employees will not be
specifically compensated for their services. [Wayne has retained ___________, a
proxy soliciting firm ("_________"), to assist in the solicitation of proxies at
a fee of $___, plus reimbursement of certain out-of-pocket expenses estimated to
be approximately $___.] Wayne will also make arrangements with brokerage firms
and other custodians, nominees and fiduciaries to send proxy materials to their
principals and will reimburse such parties for their expenses in doing so. The
cost of soliciting proxies for the Meeting, [including the fees and expenses of
________,] will be borne by Wayne.
Quorum
The presence, in person or by proxy, of at least a majority of Wayne
Common Stock issued and outstanding and entitled to be voted at the Meeting is
necessary to constitute a quorum.
Required Vote
Each share of Wayne Common Stock will be entitled to one vote upon each
matter properly submitted at the Meeting or at any adjournment or postponement
thereof. The affirmative vote, in person or by proxy, of a majority of the
outstanding shares of Wayne Common Stock is required in order to approve and
adopt the Merger Agreement. The Merger cannot be consummated in the absence of
this required Wayne stockholder approval.
THE REQUIRED VOTE OF THE WAYNE STOCKHOLDERS ON THE MERGER AGREEMENT IS
BASED UPON THE TOTAL NUMBER OF OUTSTANDING SHARES OF WAYNE STOCK AND NOT UPON
THE NUMBER OF SHARES WHICH ARE ACTUALLY VOTED. ACCORDINGLY, THE FAILURE TO
SUBMIT A PROXY CARD, TO VOTE IN PERSON AT THE MEETING, ABSTENTION FROM VOTING BY
A STOCKHOLDER AND ANY BROKER NON-VOTE WILL HAVE THE SAME EFFECT AS A "NO" VOTE
WITH RESPECT TO THE MERGER AGREEMENT.
As of the Record Date, the directors and executive officers of Wayne
beneficially owned (excluding shares which could be acquired upon exercise of
options) an aggregate of _______ shares of Wayne Common Stock (____% of the
issued and outstanding shares). The Wayne directors and executive officers have
expressed their intention to vote the shares of Wayne Common Stock that they
beneficially own in favor of the Merger Agreement.
THE MATTERS TO BE CONSIDERED AT THE MEETING ARE OF GREAT IMPORTANCE TO
THE STOCKHOLDERS OF WAYNE. ACCORDINGLY, STOCKHOLDERS ARE URGED TO READ AND
CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT-PROSPECTUS,
AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE
ENCLOSED POSTAGE PAID ENVELOPE.
THE PROPOSED MERGER
A copy of the Merger Agreement is attached as Appendix A to this Proxy
Statement and is incorporated by reference herein. Descriptions of the Merger
and the Merger Agreement are qualified in their entirety by reference to the
Merger Agreement.
General Description of the Merger; Closing; Effective Time; Bank Merger
The Merger Agreement provides for the merger of Wayne with and into
Valley (the "Merger"), with Valley as the surviving entity. A closing under the
Merger Agreement (the "Closing") will occur on the tenth business day after
receipt of all necessary approvals and satisfaction of all other conditions to
closing (other than the delivery of documents to be delivered at the Closing),
or on such other date as Valley and Wayne agree upon. However, the Closing will
not occur prior to October 2, 1998 without Valley's consent. The parties
currently anticipate closing in October 1998. The Merger will become effective
at the time (the "Effective Time") specified in certificates of merger which
Valley will file with the New Jersey and Delaware Secretaries of State following
the Closing. The parties anticipate that the Effective Time will be the opening
of business on the first business day after the Closing Date. The exact Closing
Date and Effective Time are dependent upon satisfaction of all conditions
precedent, some of which are not under the control of Valley or Wayne.
Immediately following consummation of the Merger, WSB will be merged with and
into VNB (the "Bank Merger"), with VNB as the surviving entity.
Consideration; Cash in Lieu of Fractional Shares
At the Effective Time, each outstanding share of Wayne Common Stock
(except for Excluded Shares) will be converted into the right to receive 1.10
shares (the "Exchange Ratio") of Valley Common Stock. "Excluded Shares" are
those shares of Wayne Common Stock which (i) are held by Wayne as treasury
shares, or (ii) are held by Valley or any of its subsidiaries (other than shares
held as trustee or in a fiduciary capacity and shares held as collateral on or
in lieu of a debt previously contracted).
In lieu of fractional shares of Valley Common Stock, Wayne stockholders
will receive, without interest, a cash payment equal to the fractional share
interest to which they would otherwise be entitled in the Merger multiplied by
the Average Pre-Closing Price of Valley Common Stock. The "Average Pre-Closing
Price" of Valley Common Stock is defined as the average of the closing prices of
Valley Common Stock as reported on the New York Stock Exchange (the "NYSE") and
published in The Wall Street Journal during the five consecutive trading days
ending with (and including) the date the Office of the Comptroller of the
Currency (the "OCC") notifies Valley that it has granted its approval required
for consummation of the Merger. All shares of Valley Common Stock to be issued
to each holder of Wayne Common Stock will be aggregated to constitute as many
whole shares as possible before determining such person's fractional share
interest.
The Exchange Ratio and the Average Pre-Closing Price of Valley Common
Stock will be appropriately adjusted for any stock split, stock dividend, stock
combination, reclassification or similar transaction effected by Valley with
respect to Valley Common Stock between the date of the Merger Agreement and the
Effective Time.
The price of Valley Common Stock at the Effective Time may be higher or
lower than the market price at the time of entering into the Merger Agreement,
the time of mailing this Proxy Statement, the time of the Meeting or the time
certificates representing shares of Valley Common Stock are delivered in
exchange for shares of Wayne Common Stock following consummation of the Merger.
Wayne stockholders are urged to obtain current market quotations for the Valley
Common Stock and the Wayne Common Stock.
Conversion of Wayne Options
The Merger Agreement provides that each outstanding option to purchase
Wayne Common Stock (a "Wayne Option") granted under the Wayne stock option plan
will be converted at the Effective Time into an option to purchase Valley Common
Stock wherein (x) the right to purchase shares of Wayne Common Stock pursuant to
the Wayne Option will be converted into the right to purchase that same number
of shares of Valley Common Stock multiplied by the Exchange Ratio, (y) the
option exercise price per share of Valley Common Stock will be the previous
option exercise price per share of Wayne Common Stock divided by the Exchange
Ratio and (z) in all other material respects the option shall be subject to the
same terms and conditions as governed the Wayne Option on which it was based,
including the length of time within which the option may be exercised. Valley
has reserved for issuance the number of shares of Valley Common Stock necessary
to satisfy Valley's obligations under such converted options, and has agreed to
register such shares pursuant to the Securities Act. As of the Record Date,
there were Wayne Options outstanding for _____ shares of Wayne Common Stock.
Background of and Reasons for the Merger
Background of the Merger
On March 20, 1998, after considering Wayne's financial performance, the
strong financial institution merger and acquisition market in New Jersey,
concerns of its stockholders expressed in conjunction with Wayne's annual
meeting of stockholders, and the strong economy, Wayne issued a press release
stating its Board of Directors had determined that it was in the best interest
of its stockholders to seek a sale or merger of the company. The Board approved
the engagement of Sandler O'Neill to act as representative for Wayne to explore
the market and contact potential acquirors to determine the feasibility and
economics of a merger of Wayne with another financial institution or its holding
company and to assist in structuring and negotiating a possible business
combination transaction, and render its opinion regarding the fairness from a
financial point of view, of the consideration proposed to be received by the
stockholders of Wayne in such transaction.
In April 1998, Wayne's management, with assistance from Sandler
O'Neill, identified 18 companies believed to be the most likely to offer
favorable terms to acquire Wayne.
Sandler O'Neill then contacted these institutions on a no-name basis
for indications of interest. Based on discussions with Sandler O'Neill, 15
parties elected to receive additional confidential information about Wayne.
These prospective candidates were given a specific time frame to review the
information. In late April, five institutions submitted formal indications of
interest regarding a possible business combination with Wayne. Valley's
indication of interest was the highest at such time. Management of Wayne met
with Sandler O'Neill and legal counsel to review the indications of interest. On
April 28, 1998, the Wayne Board met to discuss the proposals. The Board
determined to seek further discussions regarding two of the proposals.
Both institutions met with Wayne management and revised proposals were
presented in early May, 1998. An analysis of the revised proposals was presented
by Sandler O'Neill to the Wayne Board on May 8, 1998. Valley's proposal remained
the highest in dollar value to Wayne stockholders. The Wayne Board engaged in a
comprehensive discussion and analysis of the following factors in determining
with which merger candidate to proceed: (a) the Board's obligation to provide a
favorable investment return to Wayne's stockholders; (b) the market risk and
opportunity associated with a stock-for-stock transaction; (c) the wherewithal
of the parties to complete the transaction; (d) the tax and accounting
consequences of the transaction to Wayne's stockholders; (e) the proposed terms
of a definitive agreement; and (f) the effect of the proposed transaction on
employees, customers and the community. After completing its analysis, the Board
authorized continuing negotiations with Valley and one other institution
regarding the terms of a merger agreement.
During the week of May 11, Valley completed a detailed on site due
diligence on Wayne. In addition, during the week of May 11, Wayne personnel,
Sandler O'Neill personnel and Wayne's legal representatives traveled to Valley
to perform due diligence on Valley.
After preliminary negotiations on the terms of a definitive agreement
with Valley, the Wayne Board met again on May 18 and 19, 1998 to review a draft
of the Merger Agreement and consider the transaction with Valley. The Board
directed management, its counsel and Sandler O'Neill to continue negotiations
with Valley. During the next week, counsel, Sandler O'Neill and Wayne management
continued to negotiate the proposed agreement with representatives of Valley. On
May 28, 1998, counsel, Sandler O'Neill and management reviewed with the Board
the terms of the proposed agreement and Sandler O'Neill discussed the fairness
of the proposed exchange ratio from a financial point of view. The Board
determined that the Valley offer would produce the maximum benefit to Wayne's
stockholders based primarily upon it being a stock transaction in which income
taxes could be deferred, it being the highest value in nominal terms, the good
prospects for long-term growth and relative liquidity in Valley's stock, and
Valley's history of completing acquisitions. Further, the Board felt that the
proposed transaction with Valley offered a greater likelihood of stability in
the operations of the Bank, thereby benefiting employees, customers and the
community. As a result, the Board authorized signing the Merger Agreement.
Recommendations of the Wayne Board of Directors and Reasons for the
Merger
The Wayne Board believes that the Merger is fair to, and in the best
interests of, Wayne and its stockholders. Accordingly, the Board unanimously
approved the Merger Agreement and Merger and recommends that Wayne stockholders
vote FOR the approval and adoption of the Merger Agreement and Merger.
In reaching its determination that the Merger is fair to, and in the
best interests of, Wayne and its stockholders, the Board considered a number of
factors including, but not limited to, the following:
(i) the current condition and growth prospects of Wayne and its
subsidiaries, its historical results of operations and its prospective results
of operations were Wayne to remain independent;
(ii) the recent communications among Wayne stockholders and Wayne
regarding the continued independence or sale of Wayne;
(iii) the economic, business and competitive climate for banking and
financial institutions in Northern New Jersey, with special consideration given
to recent transactions that have increased the competitive environment in the
financial services and banking industries;
(iv) the greater liquidity represented by the Valley Common Stock to be
received in the Merger;
(v) the greater financial and managerial resources and customer product
offerings of Valley which could increase the competitiveness of the combined
institution in Wayne's market area and its ability to serve the depositors,
customers and communities currently served by Wayne;
(vi) the commitment of Valley to the Wayne community and its employees;
(vii) the historical results of operations and financial condition of
Valley and the future prospects for Valley, including anticipated benefits of
the Merger;
(viii) the fact that the Merger will be a tax-free reorganization to
Wayne stockholders for federal income tax purposes; and
(ix) the presentation of Sandler O'Neill of its opinion that the
Exchange Ratio was fair to holders of Wayne Common Stock from a financial point
of view.
THE WAYNE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE MERGER
AGREEMENT AND THE MERGER BE APPROVED BY ALL STOCKHOLDERS OF WAYNE.
Valley's Reasons
Valley entered into the Merger Agreement with Wayne as part of Valley's
ongoing strategy of growth through acquisitions.
Interests of Certain Persons in the Merger
In considering the recommendation of the Wayne Board of Directors with
respect to the Merger, holders of Wayne Common Stock should be aware that
certain members of the Board of Directors and management of Wayne have certain
interests in the Merger in addition to their interests generally as stockholders
of Wayne. All of such additional interests are described below, to the extent
material, and except as described below such persons have, to the best knowledge
of Wayne, no material interest in the Merger apart from those of stockholders
generally. The Wayne Board of Directors was aware of these interests of its
directors and officers and considered them, among other matters, in approving
the Merger Agreement and the transactions contemplated thereby:
Board Membership. The Merger Agreement provides that, as of the
Effective Time, each of Valley and VNB will appoint Harold P. Cook, III,
currently the Chairman of the Board of Directors of Wayne, to its Board of
Directors.
Advisory Board; Consultants. Each director of Wayne as of the Effective
Time, other than Mr. Cook, Johanna O'Connell and Dennis Pollack, will be invited
by VNB to serve on VNB's Regional Advisory Boards and receive aggregate fees of
approximately $31,000 each, equally distributed over the period ended March 1,
2002. Ms. O'Connell and Mr. Pollack will serve as consultants to Valley until
March 1, 2002.
Stock Benefits. Option and stock awards to individual directors and
officers pursuant to the Wayne Incentive Stock Plan ("Incentive Plan") will
continue to vest in accordance with the terms of such awards as long as such
individual remains an advisory director, employee or consultant of Valley or
VNB.
Indemnification; Directors and Officers. Wayne has agreed to provide
the directors and officers of Wayne and WSB indemnification equivalent to that
provided by the Certificate of Incorporation or Charter, as the case may be, and
Bylaws of each of Wayne and WSB with respect to acts or omissions occurring
prior to the Effective Time for a period of six years from the Effective Time,
or in the case of matters occurring prior to the Effective Time which have not
been resolved prior to the sixth anniversary of the Effective Time, until such
matters are finally resolved. To the extent permissible, Valley or VNB (as
applicable) has agreed to advance expenses in connection with the foregoing
indemnification.
Severance Benefits. Valley has agreed to honor existing written
employment and severance contracts with officers and employees of Wayne and WSB.
Furthermore, following the Effective Time and for one year thereafter, VNB has
agreed, to the extent not duplicative of other severance benefits, to honor the
existing WSB severance policy to pay one week of severance for each year of
service completed while employed by Wayne and/or WSB, with a maximum benefit of
12 weeks.
Opinion of Wayne's Financial Advisor
Pursuant to an engagement letter dated as of August 27, 1996 (the
"Sandler Agreement"), Wayne retained Sandler O'Neill as an independent financial
advisor in connection with Wayne's general valuation analyses and its
consideration of possible business combinations with a second party. Sandler
O'Neill is a nationally recognized investment banking firm whose principal
business specialty is banks and savings institutions. In the ordinary course of
its investment banking business, Sandler O'Neill is regularly engaged in the
valuation of such businesses and their securities in connection with mergers and
acquisitions and other corporate transactions.
Pursuant to the terms of the Sandler Agreement, Sandler O'Neill acted
as financial advisor to Wayne in connection with the Merger. In connection
therewith, the Wayne Board requested Sandler O'Neill to render its opinion as to
the fairness, from a financial point of view, of the Exchange Ratio to the
holders of Wayne Common Stock. At the May 28, 1998 meeting at which Wayne's
Board approved and adopted the Merger Agreement, Sandler O'Neill delivered to
the Wayne Board its oral opinion, subsequently confirmed in writing as of May
29, 1998, that, as of such date, the Exchange Ratio was fair, from a financial
point of view, to the holders of shares of Wayne Common Stock. Sandler O'Neill
has also delivered to the Wayne Board a written opinion dated as of the date of
this Proxy Statement-Prospectus (the "Sandler O'Neill Fairness Opinion") which
is substantially identical to the May 29, 1998 opinion. The full text of the
Sandler O'Neill Fairness Opinion, which sets forth the procedures followed,
assumptions made, matters considered and qualifications and limitations on the
review undertaken in connection with such opinion, is attached as Appendix C to
this Proxy Statement-Prospectus and is incorporated herein by reference. The
description of the opinion set forth herein is qualified in its entirety by
reference to Appendix C. Holders of shares of Wayne Common Stock are urged to
read the Sandler O'Neill Fairness Opinion in its entirety in connection with
their consideration of the proposed Merger.
The Sandler O'Neill Fairness Opinion was provided to Wayne's Board of
Directors for its information and is directed only to the fairness, from a
financial point of view, of the Exchange Ratio to the holders of shares of Wayne
Common Stock. It does not address the underlying business decision of Wayne to
engage in the Merger or any other aspect of the Merger and does not constitute a
recommendation to any holder of shares of Wayne Common Stock as to how such
stockholder should vote at the Meeting with respect to the Merger Agreement or
any other matter related thereto.
In connection with rendering its May 29, 1998 opinion, Sandler O'Neill
performed a variety of financial analyses. The following is a summary of the
material analyses performed by Sandler O'Neill, but does not purport to be a
complete description of all the analyses underlying Sandler O'Neill's opinion.
The preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to a partial analysis or summary
description. Accordingly, Sandler O'Neill believes that its analyses must be
considered as a whole and that selecting portions of such analyses and the
factors considered by it, without considering all factors and analyses, could
create an incomplete view of the evaluation processes underlying its opinion. In
performing its analyses, Sandler O'Neill made numerous assumptions with respect
to industry performance, business and economic conditions and various other
matters, many of which cannot be predicted and are beyond the control of Wayne,
Valley and Sandler O'Neill. Any estimates contained in Sandler O'Neill's
analyses are not necessarily indicative of future results or values, which may
be significantly more or less favorable than such estimates. Estimates on the
values of companies do not purport to be appraisals or necessarily reflect the
prices at which companies or their securities may actually be sold. Because such
estimates are inherently subject to uncertainty, neither Wayne, Valley nor
Sandler O'Neill assumes responsibility for their accuracy.
Summary of Proposal. Sandler O'Neill reviewed the financial terms of
the proposed transaction. Based on the price of Valley Common Stock on May 28,
1998 of $31.31 and an Exchange Ratio of 1.10, Sandler calculated an implied
transaction value per share of Wayne of $34.44. Based upon such implied
transaction value and Wayne's March 31, 1998 financial information, Sandler
O'Neill calculated the price to tangible book value and price to last twelve
months' earnings. This analysis yielded a price to tangible book value multiple
of 2.00x and a price to last twelve months' earnings multiple of 35.1x.
Stock Trading History. Sandler O'Neill reviewed the history of the
reported trading prices and volume of the Wayne Common Stock and the Valley
Common Stock, and the relationship between the movements in the prices of the
Wayne Common Stock and the Valley Common Stock, respectively, to movements in
certain stock indices, including the Standard & Poor's 500 Index, the NASDAQ
Banking Index and composite groups of publicly traded savings institutions (in
the case of Wayne) and publicly traded commercial banks (in the case of Valley),
identified below. During the one-year period ended May 22, 1998, Wayne Common
Stock outperformed the Standard & Poor's 500 Index, the NASDAQ Banking Index and
the composite group. During the one-year period ended May 25, 1998, Valley
Common Stock outperformed the Standard & Poor's 500 Index and underperformed the
NASDAQ Banking Index and the composite group.
Comparable Company Analysis. Sandler O'Neill used publicly available
information to compare selected financial and market trading information,
including balance sheet composition, asset quality ratios, loan loss reserve
levels, profitability, capital adequacy, dividends and trading multiples, for
Wayne and two different groups of savings institutions. The first group
consisted of Wayne and the following 19 publicly traded regional savings
institutions (the "Regional Group"): Chester Valley Bancorp Inc., Yonkers
Financial Corp., Pittsburgh Home Financial Corp., Equitable Federal Savings
Bank, 1st Bergen Bancorp, Financial Bancorp Inc., Leeds Federal Bankshares
(MHC), WVS Financial Corp., Catskill Financial Corp., Alliance Bank (MHC),
Independence Federal Savings Bank, Washington Savings Bank, FSB, Skaneateles
Bancorp Inc., Savings Bank of the Finger Lakes (MHC), Harbor Federal Bancorp
Inc., Elmira Savings Bank, Peoples Home Savings Bank (MHC), Laurel Capital Group
and Crusader Holding Corp. Sandler O'Neill also compared Wayne to a group of 12
publicly traded savings institutions which had a return on average equity (based
on last twelve months' earnings) of greater than 12.5% and a price to tangible
book value of greater than 175% (the "Highly Valued Group"). The Highly Valued
Group included the following institutions: Warren Bancorp Inc., Harleysville
Savings Bank, Lawrence Savings Bank, First Citizens Corp., Winton Financial
Corp., Equitable Federal Savings Bank, Alliance Bancorp of New England, Ipswich
Savings Bank, Hingham Institute for Savings, Laurel Capital Group Inc., First
Georgia Holding Inc. and KSB Bancorp Inc. The analysis compared publicly
available financial information for Wayne and each of the groups as of and for
each of the years ended December 31, 1993 through December 31, 1997 and as of
and for the twelve months ended March 31, 1998.
Sandler O'Neill also used publicly available information to perform a
similar comparison of selected financial and market trading information for
Valley and two different groups of commercial banks. The first group consisted
of Valley and the following 12 publicly traded commercial banks (the "Peer
Group"): Mercantile Bankshares Corp., Keystone Financial Inc., Wilmington Trust
Corp., Riggs National Corp., Fulton Financial Corp., Commerce Bancorp Inc.,
Provident Bankshares Corp., U.S. Trust Corp., Susquehanna Bancshares Inc.,
FirstBank Puerto Rico, First Commonwealth Financial and HUBCO, Inc. Sandler
O'Neill also compared Valley to a group of 16 publicly traded commercial banks
which had a return on average equity (based on last twelve months' earnings) of
greater than 14.8% and a price to tangible book value of greater than 300% (the
"Commercial Highly Valued Group"). The Commercial Highly Valued Group included
Valley, Provident Financial Group Inc., Centura Banks Inc., CCB Financial Corp.,
Wilmington Trust Corp., City National Corp., Cullen/Frost Bankers Inc.,
FirstMerit Corp., Fulton Financial Corp., Community First Bankshares, National
Commerce Bancorp, CNB Bancshares, Inc., Commerce Bancorp Inc., U.S. Trust Corp.,
Westamerica Bancorp, FirstBank Puerto Rico and Hubco Inc. The analysis compared
publicly available financial information for Valley and each of the groups as of
and for each of the years ended December 31, 1993 through December 31, 1997 and
as of and for the twelve months ended March 31, 1998.
Analysis of Selected Merger Transactions. Sandler O'Neill reviewed 65
transactions announced from May 25, 1997 through May 18, 1998 involving public
savings institutions nationwide as acquired institutions with transaction values
greater than $15 million ("Nationwide Transactions") and 13 transactions
announced from May 25, 1997 through May 18, 1998 involving public savings
institutions in the Mid-Atlantic region (New Jersey, New York, Pennsylvania and
Connecticut) as acquired institutions with transaction values greater than $15
million ("Regional Transactions"). Sandler O'Neill reviewed the ratios of price
to last twelve months' earnings, price to book value, price to tangible book
value, price to deposits, price to assets and deposit premium paid in each such
transaction and computed high, low, mean, and median ratios and premiums for the
respective groups of transactions. These multiples were applied to Wayne's
financial information as of and for the twelve months ended March 31, 1998.
Based upon the median multiples for Nationwide Transactions, Sandler O'Neill
derived an imputed range of values per share of the Wayne Common Stock of $20.58
to $35.23. Based upon the median multiples for Regional Transactions, Sandler
O'Neill derived an imputed range of values per share of the Wayne Common Stock
of $21.14 to $35.32.
No company involved in the transactions included in the above analysis
is identical to Wayne and no transaction included in the above analysis is
identical to the Merger. Accordingly, an analysis of the results of the
foregoing analysis is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of Wayne and Valley and the companies to which they are being
compared.
Discounted Dividend Stream and Terminal Value Analysis. Sandler O'Neill
also performed an analysis which estimated the future stream of after-tax
dividend flows of Wayne through December 31, 2002 under various circumstances,
assuming Wayne performed in accordance with information regarding potential
future earnings provided by its management and certain variations thereof. To
approximate the terminal value of the Wayne Common Stock at the end of the
five-year period, Sandler O'Neill applied price to earnings multiples ranging
from 16x to 34x and applied multiples of tangible book value ranging from 100%
to 280%. The dividend income streams and terminal values were then discounted to
present values using different discount rates (ranging from 9% to 14%) chosen to
reflect different assumptions regarding required rates of return of holders or
prospective buyers of the Wayne Common Stock. This analysis, assuming the
budgeted dividend payout ratio, indicated an imputed range of values per share
of the Wayne Common Stock of between $14.58 and $36.72 when applying the price
to earnings multiples, and an imputed range of values per share of the Wayne
Common Stock of between $13.16 and $42.89 when applying multiples of tangible
book value. In connection with its analysis, Sandler O'Neill used sensitivity
analyses to illustrate the effects changes in the underlying assumptions
(including variations with respect to the levels of assets, net interest spread,
non-interest income, non-interest expense and dividend payout ratio) would have
on the resulting present value, and discussed these changes with the Wayne
Board. Sandler O'Neill noted that the discounted dividend stream and terminal
value analysis is a widely used valuation methodology, but the results of such
methodology are highly dependent upon the numerous assumptions that must be
made, and the results thereof are not necessarily indicative of actual values or
actual future results.
Pro Forma Merger Analysis. Sandler O'Neill analyzed certain potential
pro forma effects of the Merger on Valley, based upon an Exchange Ratio of 1.10,
Wayne's and Valley's current and projected income statements and balance sheets,
and assumptions regarding the economic environment, accounting and tax treatment
of the Merger, charges associated with the Merger, operating efficiencies and
other adjustments discussed with the senior managements of Wayne and Valley.
This analysis indicated that the Merger would be slightly accretive to Valley's
earnings per share commencing with the first period following consummation of
the Merger and in all subsequent periods analyzed, and accretive to tangible
book value per share of Valley's Common Stock for all periods analyzed. From the
perspective of a shareholder of Wayne, as compared to the projected stand-alone
performance of Wayne, the Merger would be accretive to earnings per share for
all periods analyzed and dilutive to tangible book value per share for all
periods analyzed. The actual results achieved by Valley may vary from projected
results and the variations may be material.
Contribution Analysis. Sandler O'Neill reviewed the relative
contributions to, among other things, total assets, total net loans, total
deposits, total borrowings, total equity, 1997 net income, last quarter
annualized ("LQA") net income and market capitalization to be made by Wayne and
Valley to the combined institution based on data at and for the twelve months
ended March 31, 1998. This analysis indicated that Wayne's implied contribution
was 5.1% of total assets, 4.9% of total net loans, 4.4% of total deposits, 16.6%
of total borrowings, 6.7% of total equity, 2.3% of 1997 net income, 1.7% of LQA
net income and 3.7% of market capitalization. On a fully diluted basis, based
upon an Exchange Ratio of 1.10, holders of the Wayne Common Stock would own
approximately 4.4% of the outstanding shares of the combined institution.
In connection with rendering its May 29, 1998 opinion, Sandler O'Neill
reviewed, among other things: (i) the Merger Agreement and exhibits thereto;
(ii) the Stock Option Agreement; (iii) certain publicly available financial
statements of Wayne and other historical financial information provided by Wayne
that it deemed relevant; (iv) certain publicly available financial statements of
Valley and other historical financial information provided by Valley that it
deemed relevant; (v) certain financial analyses and forecasts of Wayne prepared
by and reviewed with management of Wayne and the views of senior management of
Wayne regarding Wayne's past and current business operations, results thereof,
financial condition and future prospects; (vi) certain financial analyses and
forecasts of Valley prepared by and reviewed with management of Valley and the
views of senior management of Valley regarding Valley's past and current
business operations, results thereof, financial condition and future prospects;
(vii) the pro forma impact of the Merger; (viii) the publicly reported
historical price and trading activity for Wayne's and Valley's common stock,
including a comparison of certain financial and stock market information for
Wayne and Valley with similar publicly available information for certain other
companies the securities of which are publicly traded; (ix) the financial terms
of recent business combinations in the savings institution industry, to the
extent publicly available; (x) the current market environment generally and the
banking environment in particular; and (xi) such other information, financial
studies, analyses and investigations and financial, economic and market criteria
as Sandler O'Neill considered relevant.
In connection with rendering the Sandler O'Neill Fairness Opinion,
Sandler O'Neill confirmed the appropriateness of its reliance on the analyses
used to render the May 29, 1998 opinion by performing procedures to update
certain of such analyses and by reviewing the assumptions upon which such
analyses were based and the factors considered in connection therewith.
In performing its reviews and analyses and preparing its opinion,
Sandler O'Neill assumed and relied upon, without independent verification, the
accuracy and completeness of all the financial information, analyses and other
information that was publicly available or otherwise furnished to, reviewed by
or discussed with it, and Sandler O'Neill does not assume any responsibility or
liability therefor. Sandler O'Neill did not make an independent evaluation or
appraisal of the specific assets, the collateral securing assets or the
liabilities (contingent or otherwise) of Wayne or Valley or any of their
respective subsidiaries, or the collectibility of any such assets, nor was it
furnished with any such evaluations or appraisals. Sandler O'Neill is not an
expert in the evaluation of allowances for loan losses and it has not made an
independent evaluation of the adequacy of the allowance for loan losses of Wayne
or Valley, nor has it reviewed any individual credit files of Wayne or Valley.
With Wayne's consent, Sandler O'Neill has assumed that the respective aggregate
allowances for loan losses for both Wayne and Valley are adequate to cover such
losses and will be adequate on a pro forma basis for the combined entity. In
addition, Sandler O'Neill has not conducted any physical inspection of the
properties or facilities of Wayne or Valley. With respect to the information
regarding potential future financial performance provided by each company's
management, Sandler O'Neill assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
respective managements of the respective future financial performances of Wayne
and Valley and that such performances will be achieved. Sandler O'Neill
expressed no opinion as to such financial forecasts or the assumptions on which
they were based.
Sandler O'Neill's opinion was necessarily based upon market, economic
and other conditions as they existed on, and could be evaluated as of, the date
of such opinion. For purposes of rendering its opinion, Sandler O'Neill assumed,
in all respects material to its analysis, that all of the representations and
warranties contained the Merger Agreement and all related agreements are true
and correct, that each party to such agreements will perform all of the
covenants required to be performed by such party under such agreements and that
the conditions precedent in the Merger Agreement are not waived. Sandler O'Neill
also assumed that there has been no material change in Wayne's or Valley's
assets, financial condition, results of operations, business or prospects since
the dates of the last financial statements made available to them, that the
Merger will be accounted for as a pooling of interests, that Wayne and Valley
will remain as going concerns for all periods relevant to its analyses and that
the Merger will qualify as a tax-free reorganization for federal income tax
purposes.
Under the Sandler Agreement, Wayne has agreed to pay Sandler O'Neill a
transaction fee in connection with the Merger, a substantial portion of which is
contingent upon the consummation of the Merger. Under the terms of the Sandler
Agreement, Wayne has agreed to pay Sandler O'Neill a transaction fee equal to 2%
of the aggregate transaction value up to $5 million, 1.5% of additional
consideration up to $15 million and 1.0% of aggregate transaction value in
excess of $15 million, of which approximately 25% has been paid and the
remainder is payable upon closing of the transaction. Sandler O'Neill is to
receive a fee of $50,000 for rendering its fairness opinion. Wayne has also
agreed to reimburse Sandler O'Neill for its reasonable out-of-pocket expenses
incurred in connection with its engagement and to indemnify Sandler O'Neill and
its affiliates and their respective partners, directors, officers, employees,
agents, and controlling persons against certain expenses and liabilities,
including liabilities under securities laws.
Sandler O'Neill has in the past provided other investment banking
services to Wayne and has received compensation for such services. In the
ordinary course of its business, Sandler O'Neill may actively trade the equity
securities of Wayne and Valley and their respective affiliates for its own
account and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities.
Resale Considerations With Respect to the Valley Common Stock
The shares of Valley Common Stock that will be issued if the Merger is
consummated have been registered under the Securities Act of 1933, as amended
(the "Securities Act") and will be freely transferable, except for shares
received by persons, including directors and executive officers of Wayne, who
may be deemed to be "affiliates" of Wayne under Rule 145 promulgated under the
Securities Act. An "affiliate" of an issuer is defined generally as a person who
"controls" the issuer. Directors, executive officers and 10% stockholders may be
deemed to control the issuer. Affiliates may not sell their shares of Valley
Common Stock acquired pursuant to the Merger, except pursuant to an effective
registration statement under the Securities Act covering the Valley Common Stock
or in compliance with Rule 145 or another applicable exemption from the
registration requirements of the Securities Act.
Persons who may be deemed to be "affiliates" of Wayne have delivered
letters to Valley in which they have agreed to certain restrictions on their
ability to sell, transfer or otherwise dispose of ("transfer") any Wayne Common
Stock owned by them and any Valley Common Stock acquired by them in the Merger.
Pursuant to the accounting rules governing a pooling of interests, such persons
have agreed not to transfer the shares during the period beginning 30 days prior
to the Effective Time and ending on the date on which financial results covering
at least 30 days of post-merger combined operations of Valley and Wayne have
been published or filed by Valley. Also, in connection with the pooling of
interests rules, such persons have agreed not to transfer their Wayne Common
Stock in the period prior to 30 days before the Effective Time without giving
Valley advance notice and an opportunity to object if the transfer would
interfere with pooling of interests accounting for the Merger. Pursuant to Rule
145, such persons have also agreed to refrain from transferring Valley Common
Stock acquired by them in the Merger, except in compliance with certain
restrictions imposed by Rule 145. Certificates representing the shares of Valley
Common Stock acquired by each such person pursuant to the Merger will bear a
legend reflecting that the shares are restricted in accordance with the letter
signed by such person and may not be transferred except in compliance with such
restrictions.
Persons who may be deemed "affiliates" of Valley have also delivered
letters to Valley in which they have agreed not to transfer Valley Common Stock
beneficially owned by them in violation of the pooling of interests restrictions
set forth above with respect to Wayne.
Conditions to the Merger
The obligation of each party to consummate the Merger is subject to
satisfaction or waiver of certain conditions, including (i) approval of the
Merger Agreement and the transactions contemplated thereby by the requisite vote
of the holders of Wayne Common Stock; (ii) the receipt of all consents,
approvals and authorizations of all necessary federal and state government
authorities necessary for the consummation of the Merger (see "-- Regulatory
Approvals"); (iii) the effectiveness of the registration statement covering the
shares of Valley Common Stock to be issued to Wayne stockholders; (iv) the
absence of any litigation that would restrain or prohibit the consummation of
the Merger; (v) the receipt of a letter from Valley's independent accountants
that the Merger will qualify to be treated by Valley as a pooling of interests
for accounting purposes; and (vi) receipt by the parties of an opinion of
Pitney, Hardin, Kipp & Szuch to the effect that the exchange of Wayne Common
Stock for Valley Common Stock is a tax-free reorganization within the meaning of
Section 368 of the Code. See "-- Federal Income Tax Consequences".
The obligation of Valley to consummate the Merger is also conditioned
on, among other things, (i) the continued accuracy in all material respects of
the representations and warranties of Wayne contained in the Merger Agreement;
and (ii) the performance by Wayne, in all material respects, of all its
obligations under the Merger Agreement.
The obligation of Wayne to consummate the Merger is also conditioned
on, among other things, (i) the continued accuracy in all material respects of
the representations and warranties of Valley contained in the Merger Agreement;
(ii) the performance by Valley, in all material respects, of all its obligations
under the Merger Agreement; (iii) the receipt by Wayne of the opinion letter
from Sandler O'Neill which is included as Appendix C to this Proxy
Statement-Prospectus; and (iv) the appointment of Harold P. Cook, III to the
Boards of Directors of Valley and VNB.
Conduct of Business Pending the Merger
The Merger Agreement requires Wayne to conduct its business prior to
the Effective Time only in the ordinary course of business and consistent with
prudent banking practices, except as permitted under the Merger Agreement or
with the written consent of Valley. Under the Merger Agreement, Wayne has agreed
not to take certain actions without the prior written consent of Valley or
unless permitted by the Merger Agreement, including, among other things, the
following: (a) change any provision of its Certificate of Incorporation or
Charter, as the case may be, or Bylaws or any similar governing documents; (b)
change the number of shares of its authorized or issued capital stock other than
as disclosed to Valley or issue or grant any option, warrant, call, commitment,
subscription, right to purchase or agreement of any character relating to its
authorized or issued capital stock, or any securities convertible into shares of
such stock, or split, combine or reclassify any shares of its capital stock, or
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
except that Wayne may (and intends to) declare, set aside and pay regular
quarterly cash dividends on Wayne Common Stock of $0.05 per share; (c) grant any
severance or termination pay (other than pursuant to written policies of Wayne
in effect on the date of the Merger Agreement and disclosed to Valley) to, or
enter into or amend any employment agreement with, any of its directors,
officers or employees; (d) adopt any new employee benefit plan or arrangement of
any type, or award any increase in compensation or benefits to its directors,
officers or employees; (e) sell or dispose of any substantial amount of assets
or voluntarily incur any significant liabilities other than in the ordinary
course of business consistent with past practices and policies or in response to
substantial financial demands upon its business; (f) make any capital
expenditures in excess of $100,000 other than capital expenditures which are
either pursuant to binding commitments existing on the date of the Merger
Agreement or necessary to maintain existing assets in good repair and
expenditures described in business plans or budgets previously furnished to
Valley; (g) file any applications or make any contracts with respect to
branching or site location or relocation; (h) agree to acquire in any manner
whatsoever (other than to realize upon collateral for a defaulted loan) any
business or entity (i) make any material change in its accounting methods or
practices, other than changes required in accordance with generally accepted
accounting principles; (j) take any action that would result in any of Wayne's
representations or warranties in the Merger Agreement being untrue or incorrect
at the Effective Time in any material respect; or (k) agree to do any of the
foregoing.
Under the Merger Agreement, Wayne cannot, directly or indirectly,
encourage or solicit or hold discussions or negotiations with, or provide any
information to, any person, entity or group (other than Valley) concerning any
merger, sale of shares of capital stock or sale of substantial assets or
liabilities not in the ordinary course of business or similar transactions (an
"Acquisition Transaction"); provided, that Wayne may enter into discussions or
negotiations or provide any information in connection with an unsolicited
possible Acquisition Transaction if the Board of Directors of Wayne, after
consulting with counsel, determines in the exercise of its fiduciary
responsibilities that such discussions or negotiations should be commenced or
such information should be furnished. Wayne has agreed to promptly communicate
to Valley the terms of any proposal, whether written or oral, which it may
receive with respect to any such Acquisition Transaction, and the fact that it
is having discussions or negotiations with a third party about an Acquisition
Transaction.
Customary Representations, Warranties and Covenants
The Merger Agreement contains customary mutual representations and
warranties, as well as covenants, relating to, among other things, (a) corporate
organization and similar corporate matters; (b) the capital structures of each
of Valley and Wayne; (c) authorization, execution, delivery, performance and
enforceability of the Merger Agreement and related matters; (d) documents filed
by each of Valley and Wayne with the SEC, and the accuracy of information
contained therein; (e) the accuracy of information supplied by each of Valley
and Wayne in connection with the Registration Statement and this Proxy
Statement; (f) compliance with applicable laws; (g) the absence of material
litigation; (h) filing of tax returns and payment of taxes; (i) matters relating
to certain material contracts; (j) director and officer contracts and retirement
and other employee plans and matters relating to the Employee Retirement Income
Security Act of 1974, as amended; (k) insurance matters; (l) certain bank
regulatory matters; (m) absence of certain material changes or events from March
31, 1998; (n) the absence of actions that would prevent there being a tax-free
reorganization or the use of the "pooling of interests" method to account for
the Merger; (o) title to properties; (p) the adequacy of loan loss reserves; (q)
environmental compliance; (r) brokers' and finders' fees; (s) cooperation on
applications and filings; (t) the absence of an agreement with bank regulators
which restricts materially the conduct of Wayne's' or its subsidiaries' Wayne's
business; and (u) Valley's and Wayne's preparations to address the software,
accounting and record keeping issues raised in order for the data processing
systems used in their respective businesses to be Year 2000 compliant on or
before the end of 1999.
Regulatory Approvals
Consummation of the Merger is subject, among other things, to prior
receipt of all necessary regulatory approvals. Consummation of the Merger
requires approval of the Merger by the OCC and the approval of the Merger or
waiver of the need for such approval by the FRB. Approval by the OCC does not
constitute an endorsement of the Merger or a determination by any such regulator
that the terms of the Merger are fair to the stockholders of Wayne. Applications
for approval were filed on ___________, 1998 with ________ and on ___________,
1998 with ________. While Valley and Wayne anticipate receiving all such
approvals, there can be no assurance that they will be granted, or that they
will be granted on a timely basis or that they will be granted without
conditions unacceptable to Valley or Wayne.
Management and Operations After the Merger
At the Effective Time, as a result of the Merger, Wayne will be merged
with and into Valley, with Valley as the surviving entity. Immediately following
the Merger, WSB will be merged with and into VNB in the Bank Merger, with VNB as
the surviving entity. VNB will continue to operate as a wholly-owned subsidiary
of Valley.
At the Effective Time, Harold P. Cook, III, currently age __, will
become a director of both Valley and VNB. Mr. Cook is Chairman of the Board and
Chief Executive Officer of Wayne and Chairman of the Board of WSB. Mr. Cook has
been a director of Wayne and WSB since 1996 and 1991, respectively. Mr. Cook has
been a partner with the law firm Cook & DeLucia since 1982 which from
time-to-time provides legal services to Wayne. During fiscal year 1997, Mr.
Cook's firm was paid $32,375 for services rendered to WSB and its customers. At
the Record Date, Mr. Cook beneficially owned [19,443] shares of Wayne Common
Stock.
<PAGE>
Exchange of Certificates
At the Effective Time, holders of certificates formerly representing
shares of Wayne Common Stock will cease to have any rights as Wayne stockholders
and their certificates automatically will represent the shares of Valley Common
Stock into which their shares of Wayne Common Stock will have been converted by
the Merger. As soon as practicable after the Effective Time, Valley will send
written instructions and a letter of transmittal to each holder of Wayne Common
Stock, indicating the method for exchanging such holder's stock certificates for
the certificates representing those shares of Valley Common Stock into which
such holder's shares of Wayne Common Stock have been exchanged. Holders of Wayne
Common Stock should not send in their stock certificates until they receive
instructions from Valley.
Each share of Valley Common Stock for which shares of Wayne Common
Stock are exchanged will be deemed to have been issued at the Effective Time.
Accordingly, holders of Wayne Common Stock who receive Valley Common Stock in
the Merger will be entitled to receive any dividend or other distribution which
may be payable to holders of record of such Valley Common Stock as of dates on
or after the Effective Time. However, no dividend or other distribution will
actually be paid with respect to any shares of Valley Common Stock until the
certificate or certificates formerly representing shares of Wayne Common Stock
have been surrendered, at which time any accrued dividends and other
distributions on such shares of Valley Common Stock will be paid without
interest. See "-- Consideration".
Holders of outstanding certificates for Wayne Common Stock, upon proper
surrender of such certificates to Valley, will receive, promptly after the
Effective Time, a certificate representing the full number of shares of Valley
Common Stock into which the shares of Wayne Common Stock previously represented
by the surrendered certificates have been converted. At the time of issuance of
the new stock certificate, each stockholder so entitled will receive a check for
the amount of the fractional share interest, if any, to which the stockholder
may be entitled.
Amendments; Termination
The Merger Agreement may be amended, modified or supplemented with
respect to any of its terms by the mutual consent of Valley and Wayne at any
time prior to the Effective Time. However, after approval of the Merger
Agreement by the stockholders of Wayne, no amendment can be made which reduces
or changes the amount or form of the consideration to be delivered to the
stockholders of Wayne without the approval of such stockholders.
The Merger Agreement may be terminated by the mutual consent of Wayne
and Valley. The Merger Agreement may also be terminated by Wayne or Valley if,
among other things, (i) the Effective Time has not occurred on or before March
31, 1999 (the "Cutoff Date") unless the failure of such occurrence is due to the
failure of the party seeking to terminate to perform or observe its covenants in
the Merger Agreement; (ii) a vote of the stockholders of Wayne to approve the
Merger Agreement is taken and such stockholders fail to approve the Merger
Agreement at their meeting unless the failure of such occurrence is due to the
failure of the party seeking to terminate to perform or observe its covenants in
the Merger Agreement; or (iii) any regulatory approvals necessary to consummate
the transaction have been denied or withdrawn at the request of the regulatory
agency or such approval is given with conditions which materially impair the
value of Wayne, taken as a whole, to Valley (but then only by Valley).
Valley may terminate the Merger Agreement if (i) there has been a
material adverse change in the business, operations, assets or financial
condition of Wayne, taken as a whole, from that disclosed by Wayne to Valley on
the date of the Merger Agreement, or (ii) the net operating income excluding
security gains and losses (after tax but excluding expenses related to the
Merger Agreement) of Wayne for any full fiscal quarter after March 31, 1998, is
less than $375,000; or (iii) there was a material breach in any representation,
warranty, covenant, agreement or obligation of Wayne under the Merger Agreement.
Valley may also terminate the Merger Agreement if the conditions to Valley's
obligations to close are not satisfied and are not capable of being satisfied by
the Cutoff Date after giving Wayne a reasonable opportunity to cure any such
condition.
Wayne may terminate the Merger Agreement if (i) there has been a
material adverse change in the business, operations, assets or financial
condition of Valley or VNB from that disclosed by Valley on the date of the
Merger Agreement; (ii) there was a material breach in any representation,
warranty, covenant, agreement or obligation of Valley under the Merger
Agreement, or (iii) the Average Pre-Closing Price of Valley Common Stock is less
than $26.00. Wayne may also terminate the Merger Agreement if the conditions for
Wayne to close are not satisfied and are not capable of being satisfied by the
Cutoff Date after giving Valley a reasonable opportunity to cure any such
condition.
In the event of a termination, each party will retain all rights and
remedies it may have at law or equity under the Merger Agreement. Upon a
termination of the Merger Agreement, the transactions contemplated thereby will
be abandoned without further action by any party and each party will bear its
own expenses.
Accounting Treatment of the Merger
The Merger is expected to be accounted for by Valley under the pooling
of interests method of accounting in accordance with generally accepted
accounting principles. Valley's obligation to consummate the Merger is
conditioned upon Valley's receipt of assurances from its independent public
accountants that the Merger will be so treated. As required by generally
accepted accounting principles, under pooling of interests accounting, as of the
Effective Time the assets and liabilities of Wayne would be added to those of
Valley at their recorded book values and the stockholders' equity accounts of
Valley and Wayne would be combined on Valley's consolidated balance sheet. On a
pooling of interests accounting basis, income and other financial statements of
Valley issued after consummation of the Merger would be restated retroactively
to reflect the consolidated combined financial position and results of
operations of Valley and Wayne as if the Merger had taken place prior to the
periods covered by such financial statements. The pro forma financial
information contained in this Proxy Statement has been prepared using the
pooling of interests accounting basis to account for the Merger. See "PRO FORMA
FINANCIAL INFORMATION".
Federal Income Tax Consequences
The following is a discussion of certain federal income tax
consequences of the Merger but is not intended to be a complete description of
such consequences. The discussion is included for general information purposes
only and may not apply to special situations, such as Wayne stockholders, if
any, who received Valley Common Stock upon the exercise of employee stock
options of otherwise as compensation, that hold Wayne Common Stock as part of a
"straddle" or "conversion transaction", or that are insurance companies,
securities dealers, financial institutions or foreign persons, and does not
discuss any aspects of state, local or foreign taxation. This discussion is
based upon laws, regulations, rulings and decisions now in effect and on
proposed regulations, all of which are subject to change (possibly with
retroactive effect) by legislation, administrative action or judicial decision.
No ruling has been or will be requested from the Internal Revenue Service on any
tax matter relating to the tax consequences of the Merger.
As an exhibit to the Registration Statement of which this Proxy
Statement is a part, Pitney, Hardin, Kipp & Szuch, counsel to Valley, have
advised Valley and Wayne in an opinion dated the date of this Proxy Statement
that:
(i) No gain or loss will be recognized for federal income tax purposes
by Wayne stockholders upon the exchange in the Merger of shares of Wayne Common
Stock solely for Valley Common Stock (except with respect to cash received in
lieu of a fractional share interest in Valley Common Stock).
(ii) The basis of Valley Common Stock received in the Merger by Wayne
shareholders (including the basis of any fractional share interest in Valley
Common Stock) will be the same as the basis of the shares of Wayne Common Stock
surrendered in exchange therefore.
(iii) The holding period of Valley Common Stock (including the holding
period of any fractional share interest in Valley Common Stock) will include the
holding period during which the shares of Wayne Common Stock surrendered in
exchange therefore were held by the Wayne stockholder, provided such shares of
Wayne Common Stock were held as capital assets.
(iv) Cash received by a holder of Wayne Common Stock in lieu of a
fractional share interest in Valley Common Stock will be treated as received in
exchange for such fractional share interest and, provided the fractional share
would have constituted a capital asset in hands of such holder, the holder
should in general recognize capital gain or loss in an amount equal to the
difference between the amount of cash received and the portion of the adjusted
tax basis in Wayne Common Stock allocable to the fractional share interest.
Consummation of the Merger is conditioned, among other things, on
receipt by each of Valley and Wayne of an opinion of Pitney, Hardin, Kipp &
Szuch, dated the Closing Date, to the effect that, as of such date, the (i) the
Merger will be treated for federal income tax purposes as a reorganization
qualifying under the provisions of Section 368 of the Internal Revenue Code of
1986, as amended; (ii) no gain or loss will be recognized by Wayne; (iii) no
gain or loss will be recognized by the holders of Wayne Common Stock upon the
exchange of Wayne Common Stock solely for Valley Common Stock; (iv) the tax
basis of any Valley Common Stock received in exchange for Wayne Common Stock
shall equal the basis of the recipient's Wayne Common Stock surrendered on the
exchange; and (v) the holding period for any Valley Common Stock received in
exchange for Wayne Common Stock will include the period during which Wayne
Common Stock surrendered on the exchange was held, provided such stock was held
as a capital assets on the date of the exchange. Unlike a ruling from the
Internal Revenue Service, an opinion of counsel is not binding on the Internal
Revenue Service, and there can be no assurance that the Internal Revenue Service
will not take a position contrary to one or more of the positions reflected
herein or that the positions herein will be upheld by the courts if challenged
by the Internal Revenue Service. While Valley and Wayne have the contractual
right to waive this condition to closing, neither will do so, and the Merger
will not take place if the opinion is not obtained.
The opinions of Pitney, Hardin, Kipp & Szuch summarized above are or
will be based, among other things, on representations contained in certificates
of officers of Wayne and Valley.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON
THE PARTICULAR CIRCUMSTANCES OF EACH HOLDER OF WAYNE COMMON STOCK, AND OTHER
FACTORS, EACH SUCH HOLDER IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER
(INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER TAX
LAWS).
Consequences of Receipt of Cash in Lieu of Fractional Shares. Cash
received by a Wayne stockholder in lieu of any fractional share interest will be
treated as having been received as a payment in redemption of such fractional
share interest as if a fractional share of Valley Common Stock had been issued
in the Merger and then redeemed by Valley, and, provided the fractional share
would have constituted a capital asset in the hands of such shareholder, the
shareholder should in general recognize capital gain or loss in an amount equal
to the difference between the amount of cash received and the portion of the
adjusted basis in Wayne Common Stock allocable to the fractional share interest.
Basis of Valley Common Stock. The basis of Valley Common Stock received
by a Wayne stockholder who receives solely Valley Common Stock will be the same
as the basis of such stockholder's Wayne Common Stock surrendered in exchange
therefor.
Holding Period. The holding period of shares of Valley Common Stock
received in the Merger by holders of Wayne Common Stock will include the period
during which such shares of Wayne Common Stock surrendered in exchange therefor
were held by the holder thereof, provided such shares of Wayne Common Stock were
held as capital assets.
No Dissenters' Rights
Under the Delaware General Corporation Law, holders of Wayne Common
Stock do not have dissenters' rights of appraisal in connection with the Merger.
<PAGE>
PRO FORMA FINANCIAL INFORMATION
Pro Forma Unaudited Combined Statements of Financial Condition
of Valley and Wayne
The following pro forma unaudited combined condensed balance sheet
combines the historical consolidated balance sheets of Valley and Wayne giving
effect to the Merger which will be accounted for as a pooling of interests, as
if the Merger had been effective on March 31, 1998. The information set forth
below should be read in conjunction with the historical consolidated financial
statements of Valley and Wayne, including their respective notes thereto,
certain of which are included in or incorporated by reference in this Proxy
Statement (see Appendixes D, E and F and "INFORMATION INCORPORATED BY
REFERENCE"), and in conjunction with the condensed consolidated historical
financial information, including the notes thereto, appearing elsewhere in this
Proxy Statement. The pro forma financial data do not give effect to any
anticipated cost savings or merger-related expenses and restructuring charges in
connection with the Merger. The pro forma financial data are not necessarily
indicative of the actual financial position that would have occurred had the
Merger been consummated on March 31, 1998 or that may be expected in the future.
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Condensed Statements of Financial Condition
As of March 31, 1998
(Unaudited)
Valley and
Pro Forma Wayne
Valley Wayne Adjustment Combined
----------------- --------------- --------------- --------------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 144,433 $ 5,409 $ -- $ 149,842
Federal funds sold 64,000 -- -- 64,000
Investment securities held to maturity 154,531 2,318 -- 156,849
Investment securities available for sale 942,371 68,688 -- 1,011,059
Trading account securities 1,420 -- -- 1,420
Loans 3,659,498 189,425 -- 3,848,923
Allowance for possible loan losses (46,008) (2,24) -- (48,24)
Other assets 165,435 8,407 -- 173,842
============== ============== =============== ==============
Total assets $ 5,085,680 $ 272,007 $ -- $ 5,357,687
============== ============== =============== ==============
LIABILITIES
Deposits $ 4,391,473 $ 203,532 $ -- $ 4,595,005
Borrowings 161,302 32,876 -- 194,178
Other liabilities 50,908 1,067 -- 51,975
-------------- -------------- --------------- --------------
Total liabilities 4,603,683 237,475 -- 4,841,158
-------------- -------------- --------------- --------------
SHAREHOLDERS' EQUITY
Common stock 23,282 22 1,041 24,345
Surplus 291,617 21,460 (1,041) 312,036
Retained earnings, net 170,541 19,920 -- 190,461
Accumulated other comprehensive income 4,594 328 -- 4,922
Treasury stock (8,037) (4,43) -- (12,47)
Unallocated common stock held by the ESOP -- (1,56) -- (1,56)
Common stock held by the MRP -- (1,20) -- (1,20)
-------------- -------------- --------------- --------------
481,997 34,532 -- 516,529
-------------- -------------- --------------- --------------
Total liabilities and shareholders' equity $ 5,085,680 $ 272,007 $ -- $ 5,357,687
============== ============== =============== ==============
</TABLE>
The pro forma adjustment represents the difference between the stated value of
Valley and par value of Wayne Common Stock.
<PAGE>
PRO FORMA FINANCIAL INFORMATION
Pro Forma Unaudited Combined Statements of Income of
Valley and Wayne
The following pro forma unaudited combined condensed statements of
income combine the historical consolidated statements of income of Valley and
Wayne giving effect to the Merger which will be accounted for as a pooling of
interests, as if the Merger had occurred on the first day of the applicable
periods indicated herein, and the pro forma adjustments described in the notes
to the pro forma combined financial statements. The information set forth below
should be read in conjunction with the condensed consolidated historical and
other pro forma financial information, including the notes thereto, incorporated
by reference or appearing elsewhere in this Proxy Statement. The pro forma
financial data do not give effect to any anticipated cost savings or Merger -
related expenses and restructuring charges in connection with the Merger. The
pro forma financial data are not necessarily indicative of the results that
actually would have occurred had the Merger been consummated on the dates
indicated or that may be expected in the future.
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Condensed Statement of Income
For the Three Months Ended March 31, 1998
(Unaudited)
Valley and
Pro Forma Wayne
Valley Wayne Adjustment Combined
------------- -------------- -------------- -------------
(Dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $ 92,599 $ 4,827 $ -- $ 97,426
Interest expense 37,916 2,583 -- 40,499
------------ ------------ ------------ ------------
Net interest income 54,683 2,244 -- 56,927
Provision for possible loan losses 2,500 70 -- 2,570
------------ ------------ ------------ ------------
Net interest income after provision for
possible loan losses 52,183 2,174 -- 54,357
Non-interest income 10,225 175 -- 10,400
Non-interest expense 29,519 1,699 -- 31,218
------------ ------------ ------------ ------------
Income before income taxes 32,889 650 -- 33,539
Income taxes 9,604 255 -- 9,859
============ ============ ============ ============
Net Income $ 23,285 $ 395 $ -- $ 23,680
============ ============ ============ ============
Earnings per share (1):
Basic $ 0.44 $ 0.22 $ -- $ 0.43
Diluted 0.44 0.22 -- 0.43
============ ============ ============ ============
Weighted average number of shares outstanding:
Basic 52,849,419 1,803,725 -- 54,833,517
Diluted 53,325,153 1,824,034 -- 55,331,590
============ ============ ============ ============
</TABLE>
- --------------------------------
(1) The historical earnings per share of Valley have been restated to give
retroactive effect to stock dividends and splits.
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Condensed Statement of Income
For the Year Ended December 31, 1997
(Unaudited)
Valley and
Pro Forma Wayne
Valley Wayne Adjustment Combined
-------------- -------------- -------------- --------------
(Dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $ 368,318 $ 18,766 $ -- $ 387,084
Interest expense 155,977 9,908 -- 165,885
-------------- ------------- ------------ ---------------
Net interest income 212,341 8,858 -- 221,199
Provision for possible loan losses 12,250 400 -- 12,650
-------------- ------------- ------------ ---------------
Net interest income after provision for
possible loan losses 200,091 8,458 -- 208,549
Non-interest income 42,315 697 -- 43,012
Non-interest expense 123,228 5,990 -- 129,218
-------------- ------------- ------------ ---------------
Income before income taxes 119,178 3,165 -- 122,343
Income taxes 34,186 1,211 -- 35,397
============== ============= ============ ===============
Net Income $ 84,992 $ 1,954 $ -- $ 86,946
============== ============= ============ ===============
Earnings per share (1):
Basic $ 1.61 $ 1.04 $ -- $ 1.58
Diluted 1.60 1.03 -- 1.57
Weighted average number of shares outstanding:
Basic 52,845,488 1,873,333 -- 54,906,154
Diluted 53,210,586 1,894,286 -- 55,294,301
============== ============= ============ ===============
</TABLE>
- --------------------------------
(1) The historical earnings per share of Valley have been restated to give
retroactive effect to stock dividends and splits.
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Condensed Statement of Income
For the Year Ended December 31, 1996
(Unaudited)
Valley and
Pro Forma Wayne Combined
Valley Wayne Adjustment
---------------- -------------- ------------- ---------------
(Dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $ 353,168 $ 15,458 $ -- $ 368,626
Interest expense 154,833 7,958 -- 162,791
-------------- ------------ ------------ ---------------
Net interest income 198,335 7,500 -- 205,835
Provision for possible loan losses 3,356 200 -- 3,556
-------------- ------------ ------------ ---------------
Net interest income after provision for
possible loan losses 194,979 7,300 -- 202,279
Non-interest income 29,651 585 -- 30,236
Non-interest expense 117,716 6,816 -- 124,532
-------------- ------------ ------------ ---------------
Income before income taxes 106,914 1,069 -- 107,983
Income taxes 36,076 403 -- 36,479
============== ============ ============ ===============
Net income $ 70,838 $ 666 $ -- $ 71,504
============== ============ ============ ===============
Earnings per share (1) (2):
Basic $ 1.33 $ -- $ -- $ 1.33
Diluted 1.33 -- -- 1.33
Weighted average number of shares outstanding:
Basic 53,074,424 -- -- 53,074,424
Diluted 53,459,884 -- -- 53,459,884
============== ============ ============ ===============
</TABLE>
- --------------------------
(1) The historical earnings per share of Valley have been restated to give
retroactive effect to stock dividends and splits.
(2) Because the WSB Conversion occurred on June 27, 1996, Wayne's earnings per
share and shares outstanding have been excluded from the Wayne, and the
Valley and Wayne Combined, presentation of earnings per share and shares
outstanding.
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Condensed Statement of Income
For the Year Ended December 31, 1995
(Unaudited)
Valley and
Pro Forma Wayne
Valley Wayne Adjustment Combined
------------- -------------- -------------- -------------
(Dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $ 345,348 $ 13,136 $ -- $ 358,484
Interest expense 153,326 6,950 -- 160,276
------------ ------------ ------------ ------------
Net interest income 192,022 6,186 -- 198,208
Provision for possible loan losses 3,169 152 -- 3,321
------------ ------------ ------------ ------------
Net interest income after provision for
possible loan losses 188,853 6,034 -- 194,887
Non-interest income 24,446 275 -- 24,721
Non-interest expense 104,723 4,951 -- 109,674
------------ ------------ ------------ ------------
Income before income taxes 108,576 1,358 -- 109,934
Income taxes 41,543 487 -- 42,030
============ ============ ============ ============
Net income $ 67,033 $ 871 $ -- $ 67,904
============ ============ ============ ============
Earnings per share (1) (2):
Basic $ 1.24 $ -- $ -- $ 1.24
Diluted 1.24 -- -- 1.24
============ ============ ============ ============
Weighted average number of shares outstanding:
Basic 54,051,473 -- -- 54,051,473
Diluted 54,202,909 -- -- 54,202,909
============== ============== =========== ==============
</TABLE>
- -----------------------------
(1) The historical earnings per share of Valley have been restated to give
retroactive effect to stock dividends and splits.
(2) Because the WSB Conversion occurred on June 27, 1996, Wayne's earnings per
share and shares outstanding have been excluded from the Wayne, and the
Valley and Wayne Combined, presentation of earnings per share and shares
outstanding.
<PAGE>
DESCRIPTION OF VALLEY COMMON STOCK
The authorized capital stock of Valley consists of 98,437,500 shares of
common stock, of which 52,763,972 shares were issued and outstanding as of March
31, 1998.
General
Valley is a New Jersey general business corporation governed by the New
Jersey Business Corporation Act and a registered bank holding company under the
Bank Holding Company Act. The following description of Valley Common Stock sets
forth certain general terms of Valley Common Stock.
Dividend Rights
Holders of Valley Common Stock are entitled to dividends when, as and
if declared by the Board of Directors of Valley out of funds legally available
for the payment of dividends. The only statutory limitation is that such
dividends may not be paid when Valley is insolvent. Because funds for the
payment of dividends by Valley must come primarily from the earnings of Valley's
bank subsidiary, as a practical matter, any restrictions on the ability of VNB
to pay dividends will act as restrictions on the amount of funds available for
payment of dividends by Valley.
As a national banking association, VNB is subject to limitations on the
amount of dividends it may pay to Valley, VNB's only shareholder. Prior approval
by the OCC is required to the extent the total of all dividends to be declared
by VNB in any calendar year exceeds net profits, as defined, for that year
combined with VNB's retained net profits from the preceding two calendar years,
less any transfers to capital surplus. Under this limitation, VNB could declare
dividends in 1998 without prior approval of the OCC of up to $35.6 million plus
an amount equal to VNB's net profits for 1998 to the date of such dividend
declaration.
Valley is also subject to the certain Federal Reserve Board policies
which may, in certain circumstances, limit its ability to pay dividends. These
policies require, among other things, that a bank holding company maintain a
minimum capital base. The Federal Reserve Board would most likely seek to
prohibit any dividend payment which would reduce a holding company's capital
below these minimum amounts.
Voting Rights
At meetings of shareholders, holders of Valley Common Stock are
entitled to one vote per share. The quorum for shareholders' meeting is a
majority of the outstanding shares. Generally, actions and authorizations to be
taken or given by shareholders require the approval of a majority of the votes
cast by holders of Valley Common Stock at a meeting at which a quorum is
present.
Liquidation Rights
In the event of liquidation, dissolution or winding up of Valley,
holders of Valley Common Stock are entitled to share equally and ratably in
assets available for distribution after payment of debts and liabilities.
Assessment and Redemption
All outstanding shares of Valley Common Stock are fully paid and
nonassessable. The Valley Common Stock is not redeemable at the option of the
issuer or the holders thereof.
Other Matters
The transfer agent and registrar for Valley Common Stock is presently
American Stock Transfer and Trust Company. Valley Common Stock is traded on the
New York Stock Exchange, and is registered with the Commission under Section
12(b) of the Exchange Act.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF VALLEY AND WAYNE
Valley is a business corporation incorporated in New Jersey under the
New Jersey Business Corporation Act (the "NJBCA") and Wayne is a business
corporation incorporated in Delaware under the Delaware General Corporation Law
(the "DGCL"). The rights of Wayne stockholders are currently governed by
Delaware corporate law. At the Effective Time, each Wayne stockholder will
become a stockholder of Valley and the rights of stockholders of Valley are
governed by New Jersey corporate law. The following is a comparison of certain
provisions of New Jersey corporate law and Delaware corporate law and the
respective certificates of incorporation and by-laws of each of Wayne and
Valley. This summary does not purport to be complete and is qualified in its
entirety by reference to the DGCL and the NJBCA, which statutes may change from
time to time, and the respective certificates of incorporation and by-laws of
Valley and Wayne, which also may be changed.
Voting Requirements
Under the NJBCA, unless a greater vote is specified in the certificate
of incorporation, any amendment to a New Jersey corporation's certificate of
incorporation, the voluntary dissolution of the corporation, the sale or other
disposition of all or substantially all of a corporation's assets otherwise than
in the ordinary course of business or the merger or consolidation of the
corporation with another corporation, requires in each case the affirmative vote
of a majority of the votes cast by shareholders of the corporation entitled to
vote thereon. Valley's Certificate of Incorporation does not presently contain
provisions specifying a greater vote in certain circumstances. All shareholder
voting rights of Valley are vested in the holders of Valley Common Stock.
The New Jersey Stockholders Protection Act (the "NJSPA") limits certain
transactions involving an "interested shareholder" and a "resident domestic
corporation." An "interested shareholder" is one that is directly or indirectly
a beneficial owner of 10% or more of the voting power of the outstanding voting
stock of a resident domestic corporation. The NJSPA prohibits certain business
combinations between an interested shareholder and a resident domestic
corporation for a period of five years after the date the interested shareholder
acquired its stock, unless the business combination was approved by the resident
domestic corporation's board of directors prior to the interested shareholder's
stock acquisition date. After the five-year period expires, the prohibition on
certain business combinations continues unless the combination is approved by
the affirmative vote of two-thirds of the voting stock not beneficially owned by
the interested shareholder, the combination is approved by the board prior to
the interested shareholder's stock acquisition date or certain fair price
provisions are satisfied.
Set forth below is a summary of provisions in Wayne's Certificate of
Incorporation and the DGCL that, under certain circumstances require greater
than a majority of the votes eligible to be cast or limit certain voting rights.
Stockholder Vote Required to Approve Business Combinations with
Principal Stockholders. The Certificate of Incorporation requires the approval
of the holders of 80% of Wayne's outstanding shares of voting stock to approve
certain "Business Combinations," as defined therein, and related transactions.
Under the DGCL, absent this provision, Business Combinations, including mergers,
consolidations and sales of all or substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of only a majority of assets of the outstanding shares of Wayne Common
Stock and any other affected class of stock. Under the Certificate of
Incorporation, 80% approval of shareholders is required in connection with any
transaction involving an Interested Stockholder (as defined in the Certificate
of Incorporation) except (i) in cases where the proposed transaction has been
approved in advance by a majority of those members of Wayne's Board of Directors
who are unaffiliated with the Interested Stockholder or (ii) if the proposed
transaction meets certain conditions set forth therein which are designed to
afford the shareholders a fair price in consideration for their shares in which
case, if a shareholder's vote is required, approval of only a majority of the
outstanding shares of voting stock would be sufficient. This provision does not
apply to the Merger.
Amendment of Certificate of Incorporation and Bylaws. Amendments to
Wayne's Certificate of Incorporation must be approved by a majority vote of its
Board of Directors and also by a majority of the outstanding shares of its
voting stock; provided, however, that an affirmative vote of at least 80% of the
outstanding voting stock entitled to vote (after giving effect to the provision
limiting voting rights) is required to amend or repeal certain provisions of the
Certificate of Incorporation, including the provision limiting voting rights,
the provisions relating to approval of certain Business Combinations, calling
special meetings, the number and classification of directors, director and
officer indemnification by Wayne and amendment of Wayne's Bylaws and Certificate
of Incorporation. Wayne's Bylaws may be amended by its Board of Directors, or by
a vote of 80% of the total votes eligible to be voted at a duly constituted
meeting of shareholders.
Limitation on Voting Rights. The Certificate of Incorporation of Wayne
provides that in no event shall any record owner of any outstanding Wayne Common
Stock which is beneficially owned, directly or indirectly, by a person who
beneficially owns in excess of 10% of the then outstanding shares of Wayne
Common Stock (the "Limit") be entitled or permitted to any vote in respect of
the shares held in excess of the Limit. Beneficial ownership is determined
pursuant to Rule 13d-3 of the General Rules and Regulations promulgated pursuant
to the Exchange Act, and includes shares beneficially owned by such person or
any of his affiliates (as defined in the Certificate of Incorporation), shares
which such person and his affiliates have or share investment or voting power,
but shall not include shares beneficially owned by the ESOP or directors,
officers and employees of WSB or Wayne or shares that are subject to a revocable
proxy and that are not otherwise beneficially owned, or deemed by Wayne to be
beneficially owned, by such person and his affiliates. The Certificate of
Incorporation of Wayne further provides that this provision limiting voting
rights may only be amended upon the vote of 80% of the outstanding shares of
voting stock (after giving effect o the limitation on voting rights).
Regulatory Restrictions. For three years following the WSB Conversion,
Office of Thrift Supervision ("OTS") regulations prohibit any person from
acquiring or making an offer to acquire more than 10% of the stock of any
converted savings institution, except for: (i) offers that, if consummated,
would not result in the acquisition by such person during the preceding 12-month
period of more than 1% of such stock; (ii) offers for up to 25% in the aggregate
by the ESOP or other tax qualified plans of WSB or Wayne; or (iii) offers which
are not opposed by the Board of Directors of WSB and which receive the prior
approval of the OTS. Such prohibition is also applicable to the acquisition of
the stock of Wayne. Such acquisition may be disapproved by the OTS if it is
found, among other things, that the proposed acquisition (a) would frustrate the
purposes of the provisions of the regulations regarding conversions; (b) would
be manipulative or deceptive; (c) would subvert the fairness of the conversion;
(d) would be likely to result in injury to the savings institution; (e) would
not be consistent with economical home financing; (f) would otherwise violate
law or regulation; or (g) would not contribute to the prudent deployment of the
savings institution's conversion proceeds. In the event any person, directly or
indirectly, violates this regulation, the securities beneficially owned by such
person in excess of 10% shall not be counted as shares entitled to vote and
shall not be voted by any person or counted as voting shares in connection with
any matter submitted to a vote of shareholders. The definition of beneficial
ownership for this regulation extends to persons holding revocable or
irrevocable proxies for Wayne Common Stock under circumstances that give rise to
a conclusive or rebuttable determination of control under the OTS regulations.
WSB Charter. WSB's Charter contains a provision whereby the acquisition
of or offer to acquire beneficial ownership of more than 10% of the issued and
outstanding shares of any class of equity securities of WSB by any person (i.e.,
any individual, corporation, group acting in concert, trust, partnership, joint
stock company or similar organization), either directly or through an affiliate
thereof, is prohibited for a period of five years following the date of
completion of the WSB Conversion. Any stock in excess of 10% acquired in
violation of the such provision will not be counted as outstanding for voting
purposes. This limitation shall not apply to any transaction in which WSB forms
a holding company without a change in the respective beneficial ownership
interests of its shareholders other than pursuant to the exercise of any
dissenter or appraisal rights. Wayne, as sole shareholder of WSB, will amend
this provision at or prior to the Effective Time to allow the Merger to be
consummated.
Cumulative Voting
Under the NJBCA, shareholders of a New Jersey corporation do not have
cumulative voting rights in the election of directors unless the certificate of
incorporation so provides. Valley's Certificate of Incorporation does not
presently provide for cumulative voting.
Under the DGCL, shareholders of a Delaware corporation do not have
cumulative voting rights in the election of directors unless the certificate of
incorporation so provides. Wayne's Certificate of Incorporation does not
presently provide for cumulative voting.
Classified Board of Directors
The NJBCA permits a New Jersey corporation to provide for a classified
board in its certificate of incorporation. The Certificate of Incorporation of
Valley does not provide for a classified Board of Directors. Valley's entire
Board of Directors is elected each year.
The DGCL permits a Delaware corporation to provide for a classified
board in its certificate of incorporation or bylaws. Wayne's Certificate of
Incorporation provides that the board is divided into three classes, each of
which contains approximately one-third of the whole number of members of the
board. Each class serves a staggered term, with approximately one-third of the
total number of directors being elected each year.
Shareholder Consent to Corporate Action
Except as otherwise provided by the certificate of incorporation (and
Valley's Certificate of Incorporation does not provide otherwise) the NJBCA
permits any action required or permitted to be taken at any meeting of a
corporation's shareholders, other than the annual election of directors, to be
taken without a meeting upon the written consent of shareholders who would have
been entitled to cast the minimum number of votes necessary to authorize such
action at a meeting of shareholders at which all shareholders entitled to vote
were present and voting. The annual election of directors, if not conducted at a
shareholders' meeting, may only be effected by unanimous written consent. Under
the NJBCA, a shareholder vote on a plan of merger or consolidation, if not
conducted at a shareholders' meeting, may only be effected by either: (i)
unanimous written consent of all shareholders entitled to vote on the issue with
advance notice to any other shareholders, or (ii) written consent of
shareholders who would have been entitled to cast the minimum number of votes
necessary to authorize such action at a meeting, together with advance notice to
all other shareholders.
The Certificate of Incorporation of Wayne provides that action required
or permitted to be taken by the shareholders of Wayne may be taken only at an
annual or special meeting and prohibits shareholder action by written consent in
lieu of a meeting. Special meetings of shareholders of Wayne may be called only
by the Board of Directors of Wayne.
Dividends
Unless there are other restrictions contained in its certificate of
incorporation (and Valley's Certificate of Incorporation does not presently
contain any such restriction), the NJBCA generally provides that a New Jersey
corporation may declare and pay dividends on its outstanding stock so long as
the corporation is not insolvent and would not become insolvent as a consequence
of the dividend payment. Because funds for the payment of dividends by Valley
must come primarily from the earnings of Valley's bank subsidiary, as a
practical matter, any restrictions on the ability of VNB to pay dividends act as
restrictions on the amount of funds available for the payment of dividends by
Valley. For a description of the regulatory restrictions on dividend payments by
VNB, see "Description of Valley Capital Stock -- Dividend Rights."
The DGCL generally limits dividends by Wayne to an amount equal to the
excess of the net assets of Wayne (the amount by which total assets exceed total
liabilities) over its statutory capital, or if there is no such excess, to its
net profits for the current and/or immediately preceding fiscal year. Because
Wayne does not conduct any material activities at the holding company level, its
ability to pay dividends depends on capital distributions from its subsidiaries.
For a discussion of the regulatory restrictions on dividend payments by WSB, see
"Regulation and Supervision - Federal Savings Institution Regulation -
Limitations on Capital Distributions" in Wayne's Form 10-K for the Year Ended
December 31, 1997, attached as Appendix D hereto.
By-laws
Under the NJBCA, the board of directors of a New Jersey corporation has
the power to adopt, amend, or repeal the corporation's by-laws, unless such
powers are reserved in the certificate of incorporation to the shareholders.
Valley's Certificate of Incorporation does not presently reserve such powers to
shareholders.
Under the DGCL, the shareholders of a Delaware corporation have the
power to adopt, amend, or repeal the corporation's by-laws, unless such powers
also are reserved in the certificate of incorporation to the board of directors.
Wayne's Bylaws may be amended by its Board of Directors, or by a vote of 80% of
the total votes eligible to be voted at a duly constituted meeting of
shareholders.
Limitations of Liability of Directors and Officers
Under the NJBCA, a New Jersey corporation may include in its
certificate of incorporation a provision which would, subject to the limitations
described below, eliminate or limit directors' or officers' liability to the
corporation or bank, as the case may be, or to its shareholders, for monetary
damage for breaches of their fiduciary duty of care. A director or officer
cannot be relieved from liability or otherwise indemnified for any breach of
duty based upon an act or omission (i) in breach of such person's duty of
loyalty to the entity or its shareholders, (ii) not in good faith or involving a
knowing violation of law, or (iii) resulting in receipt by such person of an
improper personal benefit. Valley's Certificate of Incorporation contains
provisions which limit a director's or officer's liability to the full extent
permitted by New Jersey law.
Under the DGCL, a Delaware corporation may include in its certificate
of incorporation a provision which would, subject to the limitations described
below, eliminate or limit directors' or officers' liability to the corporation
or its shareholders, for monetary damage for breaches of their fiduciary duty of
care. A director cannot be relieved from liability or otherwise indemnified (i)
for breach of the director's duty of loyalty, (ii) for acts or omissions not in
good faith or involving intentional misconduct or knowing violation of law,
(iii) for willful or negligent conduct in paying dividends or repurchasing stock
out of other than lawfully available funds, or (iv) for any transaction from
which the director derives an improper personal benefit. Wayne's Certificate of
Incorporation contains provisions which limit a director's or officer's
liability to the full extent permitted by Delaware law.
STOCKHOLDER PROPOSALS
Any proposal which a Wayne stockholder wishes to have included in the
proxy materials of Wayne if Wayne has a 1998 Annual Meeting of Stockholders must
be presented to Wayne no later than October 23, 1998.
OTHER MATTERS
As of the date of this Proxy Statement, the Wayne Board of Directors
knows of no other matters to be presented for action by the stockholders at the
Meeting. If any other matters are properly presented, however, it is the
intention of the persons named in the enclosed proxy to vote in accordance with
their best judgment on such matters.
LEGAL OPINION
Certain legal matters relating to the issuance of the shares of Valley
Common Stock offered hereby and certain tax consequences of the Merger will be
passed upon by Pitney, Hardin, Kipp & Szuch, counsel to Valley. Attorneys in the
law firm of Pitney, Hardin, Kipp & Szuch beneficially owned ____ shares of
Valley Common Stock as of ____________, 1998.
EXPERTS
The consolidated financial statement of Wayne as of December 31, 1997
and 1996 and for each of the years in the three-year period ended December 31,
1997 have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, included herein, and upon the authority of said firm as experts in
accounting and auditing.
Representatives of KPMG Peat Marwick LLP will be present at the
Meeting. They will be given an opportunity to make a statement if they desire to
do so and will be available to respond to appropriate questions from
shareholders present at the Meeting.
The consolidated financial statements of Valley as of December 31, 1997
and 1996 and for each of the years in the three-year period ended December 31,
1997 have been incorporated by reference herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of May 29, 1998
("Agreement"), is among Valley National Bancorp, a New Jersey corporation and
registered bank holding company ("Valley"), Valley National Bank, a national
banking association ("VNB"), Wayne Bancorp, Inc., a Delaware corporation and
registered unitary savings and loan holding company ("Wayne") and Wayne Savings
Bank, F.S.B., a federally-chartered savings bank (the "Bank").
RECITALS
Valley desires to acquire Wayne and Wayne's Board of Directors
has determined, based upon the terms and conditions hereinafter set forth, that
the acquisition is in the best interests of Wayne and its stockholders. The
acquisition will be accomplished by merging Wayne into Valley with Valley as the
surviving corporation and, at the same time, merging the Bank into VNB with VNB
as the surviving bank, and Wayne stockholders receiving the consideration
hereinafter set forth. The Boards of Directors of Wayne, Valley, the Bank and
VNB have duly adopted and approved this Agreement and the Board of Directors of
Wayne has directed that it be submitted to its stockholders for approval.
As a condition precedent to entering into this Agreement,
Valley has required that Wayne grant it an option to purchase authorized but
unissued shares of Wayne common stock and, as a consequence, Valley and Wayne
have entered into a Stock Option Agreement, dated the date hereof (the "Valley
Stock Option").
NOW, THEREFORE, intending to be legally bound, the parties
hereto agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as hereafter defined), Wayne shall be merged
with and into Valley (the "Merger") in accordance with the New Jersey Business
Corporation Act ("NJBCA") and the Delaware General Corporation Law ("DGCL") and
Valley shall be the surviving corporation (the "Surviving Corporation").
Immediately following the Effective Time, the Bank shall be merged with and into
VNB as provided in Section 1.7 hereof.
1.2. Effect of the Merger. At the Effective Time (as hereafter
defined), the Surviving Corporation shall be considered the same business and
corporate entity as each of Wayne and Valley and thereafter all the property,
rights, powers and franchises of each of Wayne and Valley shall vest in the
Surviving Corporation and the Surviving Corporation shall be subject to and be
deemed to have assumed all of the debts, liabilities, obligations and duties of
each of Wayne and Valley and shall have succeeded to all of each of their
relationships, fiduciary or otherwise, as fully and to the same extent as if
such property, rights, privileges, powers, franchises, debts, obligations,
duties and relationships had been originally acquired, incurred or entered into
by the Surviving Corporation.
1.3. Certificate of Incorporation. The certificate of
incorporation of Valley as it exists immediately prior to the Effective Time
shall not be amended by the Merger, but shall continue as the certificate of
incorporation of the Surviving Corporation until otherwise amended as provided
by law.
1.4. Bylaws. The bylaws of Valley as they exist immediately
prior to the Effective Date shall continue as the by-laws of the Surviving
Corporation until otherwise amended as provided by law.
1.5. Directors and Officers. The directors and officers of
Valley as of the Effective Time shall continue as the directors and officers of
the Surviving Corporation, with the addition provided for in Section 5.15
hereof.
1.6 Closing Date, Closing and Effective Time. Unless a
different date, time and/or place are agreed to by the parties hereto, the
closing of the Merger (the "Closing") shall take place at 10:00 a.m., at the
offices of Valley, 1445 Valley Road, Wayne, New Jersey, on a date (the "Closing
Date") which shall be the tenth business day following the receipt of all
necessary regulatory and governmental approvals and consents and the expiration
of all statutory waiting periods in respect thereof and the satisfaction or
waiver of all of the conditions to the consummation of the Merger specified in
Article VI hereof (other than the delivery of certificates, opinions and other
instruments and documents to be delivered at the Closing). Notwithstanding the
foregoing, the Closing shall not occur prior to October 2, 1998 unless Valley
consents in writing. The Merger shall become effective (and be consummated) upon
the effective time specified by Valley and Wayne in the certificates of merger
(the "Certificates of Merger"), which shall be prepared by Valley, shall be in
form and substance satisfactory to Valley and Wayne, and shall be filed with the
Secretary of State of the State of New Jersey and with the Secretary of State of
the State of Delaware. The parties currently anticipate that the Certificates of
Merger shall specify as the effective time the opening of business on the first
business day following the Closing Date. If no effective time is specified in
the Certificates of Merger, the Merger shall become effective (and be
consummated) upon the later to be filed of the two Certificates of Merger.
1.7. The Bank Merger. Immediately following the Effective
Time, the Bank shall be merged with and into VNB (the "Bank Merger") in
accordance with the provisions of the National Bank Act, the Home Owners' Loan
Act of 1933 ("HOLA") and/or the regulations of the office of Thrift Supervision
("OTS"), and VNB shall be the surviving bank (the "Surviving Bank"). Upon the
consummation of the Bank Merger, the separate existence of the Bank shall cease
and the Surviving Bank shall be considered the same business and corporate
entity as each of the Bank and VNB and all of the property, rights, powers and
franchises of each of the Bank and VNB shall vest in the Surviving Bank and the
Surviving Bank shall be deemed to have assumed all of the debts, liabilities,
obligations and duties of each of the Bank and VNB and shall have succeeded to
all of each of their relationships, fiduciary or otherwise, as fully and to the
same extent as if such property, rights, privileges, powers, franchises, debts,
obligations, duties and relationships had been originally acquired, incurred or
entered into by the Surviving Bank. Upon the consummation of the Bank Merger,
the articles of association and bylaws of VNB shall become the articles of
association and bylaws of the Surviving Bank, the officers and employees of VNB
and the officers and employees of the Bank shall be the officers and employees
of the Surviving Bank with such additions as the Board of Directors of VNB shall
determine, and the directors of VNB shall be the directors of the Surviving Bank
with one addition from the directors of Wayne as specified herein. In connection
with the execution of this Agreement, the Bank and VNB shall execute and deliver
a separate merger agreement (the "Bank Merger Agreement") in substantially the
form of Exhibit A, annexed hereto, for delivery to the Office of the Comptroller
of the Currency ("OCC") and the OTS for approval of the Bank Merger.
1.8. Liquidation Account. The liquidation account established
by the Bank pursuant to the plan of conversion adopted in connection with its
conversion from mutual to stock form shall, to the extent required by applicable
law, continue to be maintained by VNB after the Bank Merger for the benefit of
those persons and entities who were savings account holders of the Bank on the
eligibility and supplemental eligibility record dates for such conversion and
who continue from time to time to have rights therein. If required by the rules
and regulations of the OTS, VNB shall amend its articles to specifically provide
for the continuation of the liquidation account previously established by the
Bank.
ARTICLE II
CONVERSION OF WAYNE COMMON STOCK AND OPTIONS
Each share of common stock, $0.01 par value, of Wayne ("Wayne
Common Stock"), issued and outstanding immediately prior to the Effective Time,
and each option to purchase shares of Wayne Common Stock validly issued pursuant
to the Wayne Bancorp, Inc. 1996 Stock-Based Incentive Plan (the "Wayne Option
Plan") and outstanding immediately prior to the Effective Time (each a "Wayne
Option") shall, by virtue of the Merger and without any action on the part of
the holder thereof, be converted or cancelled at the Effective Time in
accordance with this Article II.
2.1 Conversion of Wayne Common Stock; Exchange Ratio; Cash in
Lieu of Fractional Shares. Each share of Wayne Common Stock issued and
outstanding immediately prior to the Effective Time, other than shares to be
cancelled pursuant to Section 2.4 hereof, shall be converted into the right to
receive 1.10 (the "Exchange Ratio") shares of Common Stock, no par value, of
Valley ("Valley Common Stock"), subject to adjustment as set forth in Section
2.6 below. No fractional shares of Valley Common Stock will be issued, and in
lieu thereof, each holder of Wayne Common Stock who would otherwise be entitled
to a fractional interest will receive an amount in cash determined by
multiplying such fractional interest by the Average Pre-Closing Price of Valley
Common Stock. "Average Pre-Closing Price of Valley Common Stock" means the
average of the Closing Prices of Valley Common Stock for the five consecutive
full trading days in which such shares are quoted on the New York Stock Exchange
(the "NYSE") ending with (and including) the Determination Date. "Closing Price"
of Valley Common Stock means the daily closing sales price of such stock as
reported on the NYSE (as reported in The Wall Street Journal or, if not reported
thereby, another authoritative source as chosen by Valley). "Determination Date"
means the date of the correspondence by which the OCC notifies Valley that the
OCC has granted its approval required for consummation of the Merger.
2.2. Exchange of Shares.
(a) Wayne and Valley hereby appoint Valley National Bank,
Trust Department as the exchange agent (the "Exchange Agent") for purposes of
effecting the conversion of Wayne Common Stock and Wayne Options. As soon as
practicable after the Effective Time, the Exchange Agent shall mail to each
holder of record (a "Record Holder") of a Certificates or Certificates which,
immediately prior to the Effective Time represented outstanding shares of Wayne
Common Stock (the "Certificates"), a mutually agreed upon letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent), and instructions for use in effecting the surrender of the
Certificates in exchange for Valley Common Stock (and cash in lieu of fractional
shares) as provided in Section 2.1 hereof.
(b) Upon surrender of Certificates for exchange and
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed, the Record Holder shall be entitled to promptly receive in
exchange for such Certificates the consideration as provided in Section 2.1
hereof and the Certificates so surrendered shall be canceled. The Exchange Agent
shall not be obligated to deliver or cause to be delivered to any Record Holder
the consideration to which such Record Holder would otherwise be entitled until
such Record Holder surrenders the Certificates for exchange or, in default
thereof, an appropriate Affidavit of Loss and Indemnity Agreement and/or a bond
as may be reasonably required in each case by Valley. Notwithstanding the time
of surrender of the Certificates, Record Holders shall be deemed stockholders of
Valley for all purposes from the Effective Time, except that Valley shall
withhold the payment of dividends from any Record Holder until such Record
Holder effects the exchange of Certificates for Valley Common Stock. (Such
Record Holder shall receive such withheld dividends, without interest, upon
effecting the share exchange.)
(c) After the Effective Time, there shall be no transfers on
the stock transfer books of Wayne of the shares of Wayne Common Stock which were
outstanding immediately prior to the Effective Time and, if any Certificates
representing such shares are presented for transfer, they shall be canceled and
exchanged for the consideration as provided in Section 2.1 hereof.
(d) If payment of the consideration pursuant to Section 2.1
hereof is to be made in a name other than that in which the Certificates
surrendered in exchange therefor is registered, it shall be a condition of such
payment that the Certificates so surrendered shall be properly endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise in proper
form for transfer, and that the person requesting such payment shall pay to the
Exchange Agent in advance any transfer or other taxes required by reason of the
payment to a person other than that of the registered holder of the Certificates
surrendered, or required for any other reason, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(e) With respect to each outstanding Wayne Option the Exchange
Agent shall, after the Effective Time, distribute to the Optionee an amendment
to the option grant evidencing the conversion of the grant to an option to
purchase Valley Common Stock in accordance with Section 2.7 hereof.
2.3. No Dissenters' Rights. Consistent with the provisions of
the DGCL, no stockholder of Wayne shall have appraisal rights with respect to
the Merger.
2.4. Cancelled Shares. Each share of Wayne Common Stock (i)
which is held by Wayne as treasury stock or (ii) which is held by Bank or any
other direct or indirect subsidiary of Bank (except as trustee or in a fiduciary
capacity) or (iii) which is held by Valley, shall be canceled and retired at the
Effective Time.
2.5. Valley Shares. The shares of Valley Common Stock
outstanding at the Effective Time shall not be affected by the Merger, but along
with the additional shares of Valley Common Stock to be issued as provided in
Section 2.1 hereof, shall become the outstanding common stock of the Surviving
Corporation.
2.6 Anti-Dilution Adjustments. The Exchange Ratio and the
Average Pre-Closing Price of Valley Common Stock shall be appropriately adjusted
for any stock split, stock dividend, stock combination, reclassification or
similar transaction ("Capital Change") effected by Valley with respect to Valley
Common Stock between the date hereof and the Effective Time.
2.7. Wayne Stock Options. At the Effective Time, each
outstanding Wayne Option granted to an eligible individual (an "Optionee") under
the Wayne Option Plan shall be converted into a option to purchase Valley Common
Stock (a "Stock Option"), wherein (x) the right to purchase shares of Wayne
Common Stock pursuant to the Wayne Option shall be converted into the right to
purchase that same number of shares of Valley Common Stock multiplied by the
Exchange Ratio, (y) the option exercise price per share of Valley Common Stock
shall be the previous option exercise price per share of Wayne Common Stock
divided by the Exchange Ratio and (z) in all other material respects the option
shall be subject to the same terms and conditions as governed the Wayne Option
on which it was based, including the length of time within which the option may
be exercised and for any options which are "incentive stock options" (as defined
in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
the adjustments shall be and are intended to be effected in a manner which is
consistent with Section 424(a) of the Code. Shares of Valley Common Stock
issuable upon exercise of Stock Options shall be covered by an effective
registration statement on Form S-8, and Valley shall file a registration
statement on Form S-8 covering such shares as soon as practicable after the
Effective Time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF WAYNE
References herein to "Wayne Disclosure Schedule" shall mean
all of the disclosure schedules required by this Article III, dated as of the
date hereof and referenced to the specific sections and subsections of Article
III of this Agreement, which have been delivered on the date hereof by Wayne to
Valley. Wayne hereby represents and warrants to Valley as follows:
3.1. Corporate Organization.
(a) Wayne is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Wayne has the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted and is duly licensed
or qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
material adverse effect on the business, operations, assets or financial
condition of Wayne on a consolidated basis. Wayne is registered as a unitary
savings and loan holding company under HOLA.
(b) Each of the Subsidiaries of Wayne are listed in the Wayne
Disclosure Schedule. The term "Subsidiary", when used in this Agreement with
respect to Wayne, means any corporation, joint venture, association,
partnership, trust or other entity in which Wayne has, directly or indirectly at
least a 50% interest or acts as a general partner. Each Subsidiary of Wayne is
duly organized, validly existing and in good standing under the laws of its
state of incorporation. The Bank is a federally-chartered savings bank whose
deposits are insured by the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation ("FDIC") to the fullest extent permitted
by law. Each Subsidiary of Wayne has the corporate power and authority to own or
lease all of its properties and assets and to carry on its business as it is now
being conducted and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified would not have a material adverse effect on the business,
operations, assets or financial condition of Wayne and its Subsidiaries on a
consolidated basis. The Wayne Disclosure Schedule sets forth true and complete
copies of the Certificates of Incorporation or Charter, as the case may be, and
Bylaws of Wayne and each Wayne Subsidiary as in effect on the date hereof.
Except as set forth in the Wayne Disclosure Schedule, Wayne does not own or
control, directly or indirectly, any equity interest in any corporation,
company, association, partnership, joint venture or other entity and owns no
real estate, except (i) residential real estate acquired through foreclosure or
deed in lieu of foreclosure in each individual instance with a fair market value
less than $500,000 and (ii) real estate used for its banking premises.
3.2. Capitalization.
The authorized capital stock of Wayne consists of 8,000,000
shares of Wayne Common Stock and 2,000,000 shares of preferred stock ("Wayne
Preferred Stock"). As of the date hereof, there were 2,013,124 shares of Wayne
Common Stock issued and outstanding, and 218,259 shares issued and held in the
treasury, and no shares of Wayne Preferred Stock outstanding. As of the date
hereof, there were 281.310 shares of Wayne Common Stock issuable upon exercise
of outstanding Wayne Options (the "Option Shares") granted to, directors and
officers of Wayne or the Bank pursuant to the Wayne Option Plan. The Wayne
Disclosure Schedule sets forth (i) all options which may be exercised for
issuance of Wayne Common Stock and the terms upon which the options may be
exercised, and (ii) true and complete copies of each of the Wayne Option Plan
and a specimen of each form of agreement pursuant to which any outstanding stock
option was granted, including a list of each outstanding stock option issued
pursuant thereto. All issued and outstanding shares of Wayne Common Stock, and
all issued and outstanding shares of capital stock of each Wayne Subsidiary,
have been duly authorized and validly issued, are fully paid, and nonassessable.
The authorized capital stock of the Bank consists of 8,000,000 shares of common
stock, $1.00 par value and 2,000,000 shares of preferred stock, $1.00 par value.
All of the outstanding shares of capital stock of each Wayne Subsidiary are
owned by Wayne and are free and clear of any liens, encumbrances, charges,
restrictions or rights of third parties. Except for the Wayne Options and the
Valley Stock Option, neither Wayne nor any Wayne Subsidiary has or is bound by
any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the transfer, purchase or issuance of
any shares of capital stock of Wayne or any Wayne Subsidiary or any securities
representing the right to purchase or otherwise receive any shares of such
capital stock or any securities convertible into or representing the right to
purchase or subscribe for any such shares, and there are no agreements or
understandings with respect to voting of any such shares. There is no
acceleration of vesting of options or restricted stock in connection with the
Merger under the Wayne Bancorp Inc. 1996 Stock-Based Incentive Plan.
3.3. Authority; No Violation.
(a) Subject to the approval of this Agreement and the
transactions contemplated hereby by the stockholders of Wayne, and subject to
the parties obtaining all necessary regulatory approvals, Wayne and the Bank
have full corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby in accordance with the
terms hereof. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly approved by
the Board of Directors of each of Wayne and the Bank. The execution and delivery
of the Bank Merger Agreement has been duly and validly approved by the Board of
Directors of the Bank. Except for the approvals described in paragraph (b)
below, no other corporate proceedings on the part of Wayne or the Bank are
necessary to consummate the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by Wayne and the Bank, and
constitutes valid and binding obligations of Wayne and the Bank, enforceable
against Wayne and the Bank in accordance with its terms.
(b) Neither the execution and delivery of this Agreement by
Wayne and the Bank, nor the consummation by Wayne and the Bank of the
transactions contemplated hereby in accordance with the terms hereof, or
compliance by Wayne and the Bank with any of the terms or provisions hereof,
will (i) violate any provision of Wayne's or the Bank's Certificates of
Incorporation or Charter, as the case may be, or Bylaws, (ii) assuming that the
consents and approvals set forth below are duly obtained, violate any statute,
code, ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to Wayne or the Bank or any of their respective properties or assets,
or (iii) except as set forth in the Wayne Disclosure Schedule, violate, conflict
with, result in a breach of any provisions of, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default) under,
result in the termination of, accelerate the performance required by, or result
in the creation of any lien, security interest, charge or other encumbrance upon
any of the respective properties or assets of Wayne or the Bank under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation to which
Wayne or the Bank is a party, or by which either or both of them or any of their
respective properties or assets may be bound or affected except, with respect to
(ii) and (iii) above, such as individually and in the aggregate will not have a
material adverse effect on the business, operations, assets or financial
condition of Wayne and its Subsidiaries on a consolidated basis, and which will
not prevent or delay the consummation of the transactions contemplated hereby.
Except for consents and approvals of or filings or registrations with or notices
to the OCC, the OTS, the Board of Governors of the Federal Reserve System
("FRB"), the Securities and Exchange Commission ("SEC"), applicable state
securities bureaus or commissions, the New Jersey Secretary of State, the
Delaware Secretary of State, and the stockholders of Wayne, no consents or
approvals of or filings or registrations with or notices to any third party or
any public body or authority are necessary on behalf of Wayne or the Bank in
connection with (x) the execution and delivery by Wayne and the Bank of this
Agreement and (y) the consummation by Wayne and the Bank of the transactions
contemplated hereby and (z) the execution and delivery by the Bank of the Bank
Merger Agreement and the consummation by the Bank of the transactions
contemplated thereby.
3.4. Financial Statements.
(a) The Wayne Disclosure Schedule sets forth copies of the
consolidated statements of condition of Wayne as of December 31, 1995, 1996 and
1997, and the related consolidated statements of income, stockholders' equity
and cash flows for the periods ended December 31 in each of the three years 1995
through 1997, in each case accompanied by the audit report of KPMG Peat Marwick,
LLP, independent public accountants with respect to Wayne, and the unaudited
consolidated statements of condition of Wayne as of March 31, 1998 and related
unaudited consolidated statements of income, changes in stockholders' equity and
cash flows for the three months then ended as reported in Wayne's Quarterly
Report on Form 10-Q, filed with the SEC under the Securities and Exchange Act of
1934, as amended (the "1934 Act") (collectively, the "Wayne Financial
Statements"). The Wayne Financial Statements (including the related notes) have
been prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied during the periods involved, and fairly present
the consolidated financial condition of Wayne as of the respective dates set
forth therein, and the related consolidated statements of income, stockholders'
equity and cash flows fairly present the results of the consolidated operations,
stockholders' equity and cash flows of Wayne for the respective periods set
forth therein.
(b) The books and records of Wayne and its Subsidiaries have
been and are being maintained in material compliance with applicable legal and
accounting requirements, and reflect only actual transactions.
(c) Except as and to the extent reflected, disclosed or
reserved against in the Wayne Financial Statements (including the notes
thereto), as of March 31, 1998 neither Wayne nor any of its Subsidiaries had any
material liabilities, whether absolute, accrued, contingent or otherwise
material to the business, operations, assets or financial condition of Wayne or
any of its Subsidiaries. Since March 31, 1998 and to the date hereof, neither
Wayne nor any of its Subsidiaries have incurred any material liabilities except
in the ordinary course of business and consistent with prudent banking practice,
except as specifically contemplated by this Agreement.
3.5. Brokerage Fees; Financial Advisor. Other than Sandler
O'Neill & Partners, L.P. ("Sandler O'Neill"), neither Wayne nor any of its
Subsidiaries nor any of their respective directors or officers has employed any
broker or finder or incurred any liability for any broker's or finder's fees or
commissions in connection with any of the transactions contemplated by this
Agreement. Copies of Wayne's agreements with Sandler O'Neill are set forth in
the Wayne Disclosure Schedule. Sandler O'Neill has delivered to Wayne its
written opinion with respect to the fairness, from a financial point of view, of
the Exchange Ratio to the shareholders of Wayne in the Merger. There are no fees
(other than time charges billed at usual and customary rates) payable to any
consultants, including lawyers and accountants, in connection with this
transaction or which would be triggered by consummation of this transaction or
the termination of the services of such consultants by Wayne or any of its
Subsidiaries other than fees which will be payable by Wayne to Sandler O'Neill.
3.6. Absence of Certain Changes or Events.
(a) There has not been any material adverse change in the
business, operations, assets or financial condition of Wayne and its
Subsidiaries on a consolidated basis since March 31, 1998 and, except for the
direct or indirect costs of the Merger, to Wayne's knowledge, no facts or
conditions exist which Wayne believes will cause or is likely to cause such a
material adverse change in the future.
(b) Except as set forth in the Wayne Disclosure Schedule,
neither Wayne nor any of its Subsidiaries has taken or permitted any of the
actions set forth in Section 5.2 hereof between March 31, 1998 and the date
hereof and Wayne and the Wayne Subsidiaries have conducted their business only
in the ordinary course, consistent with past practice.
3.7. Legal Proceedings. Except as disclosed in the Wayne
Disclosure Schedule, neither Wayne nor any of its Subsidiaries is a party to
any, and there are no pending or, to Wayne's knowledge, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental
investigations of any nature against Wayne or any of its Subsidiaries. Except as
disclosed in the Wayne Disclosure Schedule, neither Wayne nor any of its
Subsidiaries is a party to any order, judgment or decree entered against Wayne
or any Wayne Subsidiary in any lawsuit or proceeding.
3.8. Taxes and Tax Returns.
(a) To the knowledge of Wayne, Wayne and each Wayne Subsidiary
have duly filed (and until the Effective Time will so file) all returns,
declarations, reports, information returns and statements ("Returns") required
to be filed by them in respect of any federal, state and local taxes (including
withholding taxes, penalties or other payments required) and each has duly paid
(and until the Effective Time will so pay) all such taxes due and payable, other
than taxes or other charges which are being contested in good faith (and
disclosed to Valley in writing). Wayne and each Wayne Subsidiary have
established (and until the Effective Time will establish) on their books and
records reserves for the payment of all federal, state and local taxes not yet
due and payable, but incurred in respect of Wayne or any Wayne Subsidiary
through such date, which reserves are, to the knowledge of Wayne, adequate for
such purposes. Except as set forth in the Wayne Disclosure Schedule, the federal
income tax returns of Wayne and its Subsidiaries have been examined by the
Internal Revenue Service (the "IRS") (or are closed to examination due to the
expiration of the applicable statute of limitations) and no deficiencies were
asserted as a result of such examinations which have not been resolved and paid
in full. Except as set forth in the Wayne Disclosure Schedule, the applicable
state income tax returns of Wayne and its Subsidiaries have been examined by the
applicable authorities (or are closed to examination due to the expiration of
the statute of limitations) and no deficiencies were asserted as a result of
such examinations which have not been resolved and paid in full. To the
knowledge of Wayne, there are no audits or other administrative or court
proceedings presently pending nor any other disputes pending, or claims asserted
for, taxes or assessments upon Wayne or any of its Subsidiaries, nor has Wayne
or any of its Subsidiaries given any currently outstanding waivers or comparable
consents regarding the application of the statute of limitations with respect to
any taxes or Returns.
(b) Except as set forth in the Wayne Disclosure Schedule,
neither Wayne nor any of its Subsidiaries (i) has requested any extension of
time within which to file any tax Return which Return has not since been filed,
(ii) is a party to any agreement providing for the allocation or sharing of
taxes, (iii) is required to include in income any adjustment pursuant to Section
481(a) of the Code, by reason of a voluntary change in accounting method
initiated by Wayne or any Wayne Subsidiary (nor does Wayne have any knowledge
that the IRS has proposed any such adjustment or change of accounting method) or
(iv) has filed a consent pursuant to Section 341(f) of the Code or agreed to
have Section 341(f)(2) of the Code apply.
3.9. Employee Benefit Plans.
(a) Except as disclosed in the Wayne Disclosure Schedule,
neither Wayne nor any of its Subsidiaries maintains or contributes to any
"employee pension benefit plan", within the meaning of Section 3(2)(A) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") (the
"Wayne Pension Plans"), "employee welfare benefit plan", within the meaning of
Section 3(1) of ERISA (the "Wayne Welfare Plans"), stock option plan, stock
purchase plan, deferred compensation plan, severance plan, bonus plan,
employment agreement or other similar plan, program or arrangement. Neither
Wayne nor any of its Subsidiaries has, since September 2, 1974, contributed to
any "Multiemployer Plan", within the meaning of Sections 3(37) and 4001(a)(3) of
ERISA.
(b) Wayne has delivered to Valley in the Wayne Disclosure
Schedule a complete and accurate copy of each of the following with respect to
each of the Wayne Pension Plans and Wayne Welfare Plans: (i) plan document,
summary plan description, and summary of material modifications (if not
available, a detailed description of the foregoing); (ii) trust agreement or
insurance contract, if any; (iii) most recent IRS determination letter, if any;
(iv) most recent actuarial report, if any; and (v) most recent annual report on
Form 5500.
(c) The present value of all accrued benefits both vested and
non-vested under each of the Wayne Pension Plans subject to Title IV of ERISA,
based upon the actuarial assumptions used for purposes of the most recent
actuarial valuation prepared by such Wayne Pension Plan's actuary, did not
exceed the then current value of the assets of such plans allocable to such
accrued benefits. To the best of Wayne's knowledge, the actuarial assumptions
then utilized for such plans were reasonable and appropriate as of the last
valuation date and reflect then current market conditions.
(d) During the last six years, the Pension Benefit Guaranty
Corporation (the "PBGC") has not asserted any claim for liability against Wayne
or any of its Subsidiaries which has not been paid in full.
(e) All premiums (and interest charges and penalties for late
payment, if applicable) due to the PBGC with respect to each Wayne Pension Plan
have been paid. All contributions required to be made to each Wayne Pension Plan
under the terms thereof, ERISA or other applicable law have been timely made,
and all amounts properly accrued to date as liabilities of Wayne and its
Subsidiaries which have not been paid have been properly recorded on the books
of Wayne and its Subsidiaries.
(f) Except as disclosed on the Wayne Disclosure Schedule, each
of the Wayne Pension Plans, the Wayne Welfare Plans and each other plan and
arrangement identified on the Wayne Disclosure Schedule has been operated in
compliance in all material respects with the provisions of ERISA, the Code, all
regulations, rulings and announcements promulgated or issued thereunder, and all
other applicable governmental laws and regulations. Furthermore, the IRS has
issued a favorable determination letter, which takes into account the Tax Reform
Act of 1986 and subsequent legislation, with respect to each of the Wayne
Pension Plans and Wayne is not aware of any fact or circumstance which would
disqualify any such plan, that could not be retroactively corrected (in
accordance with the procedures of the IRS).
(g) To the knowledge of Wayne, within the past two plan years
no non-exempt prohibited transaction, within the meaning of Section 4975 of the
Code or Section 406 of ERISA, has occurred with respect to any of the Wayne
Welfare Plans or Wayne Pension Plans.
(h) No Wayne Pension Plan or any trust created thereunder has
been terminated, nor have there been any "reportable events", within the meaning
of Section 4034(b) of ERISA, with respect to any of the Wayne Pension Plans.
(i) To the knowledge of Wayne, no "accumulated funding
deficiency", within the meaning of Section 412 of the Code, has been incurred
with respect to any of the Wayne Pension Plans.
(j) There are no pending, or, to the knowledge of Wayne,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the Wayne Pension Plans or the Wayne Welfare Plans,
any trusts related thereto or any other plan or arrangement identified in the
Wayne Disclosure Schedule.
(k) No Wayne Pension or Welfare Plan provides medical or death
benefits (whether or not insured) beyond an employee's retirement or other
termination of service, other than (i) coverage mandated by law, or (ii) death
benefits under any Wayne Pension Plan.
(l) Except with respect to customary health, life and
disability benefits or as disclosed in the Wayne Disclosure Schedule, there are
no unfunded benefits obligations which are not accounted for by reserves shown
on the Wayne Financial Statements and established under GAAP, or otherwise noted
on such financial statements.
(m) With respect to each Wayne Pension and Welfare Plan that
is funded wholly or partially through an insurance policy, there will be no
liability of Wayne or any Wayne Subsidiary as of the Effective Time under any
such insurance policy or ancillary agreement with respect to such insurance
policy in the nature of a retroactive rate adjustment, loss sharing arrangement
or other actual or contingent liability arising wholly or partially out of
events occurring prior to the Effective Time.
(n) Except as hereafter agreed to by Valley in writing or as
disclosed on the Wayne Disclosure Schedule, the consummation of the transactions
contemplated by this Agreement will not (i) entitle any current or former
employee of Wayne or any Wayne Subsidiary to severance pay, unemployment
compensation or any similar payment, or (ii) accelerate the time of payment,
accelerate the vesting, or increase the amount, of any compensation or benefits
due to any current employee or former employee under any Wayne Pension Plan or
Wayne Welfare Plan.
3.10. Reports.
(a) The Wayne Disclosure Schedule lists, and as to item (i)
below Wayne has previously delivered or made available to Valley a complete copy
of, each (i) final registration statement, prospectus, annual, quarterly or
special report and definitive proxy statement filed by Wayne since January 1,
1995 pursuant to the Securities Act of 1933, as amended ("1933 Act"), or the
1934 Act and (ii) communication (other than general advertising materials, press
releases and dividend checks) mailed by Wayne to its shareholders as a class
since January 1, 1995.
(b) Since June 1, 1996, (i) Wayne has filed all reports that
it was required to file with the SEC under the 1934 Act, and (ii) Wayne and the
Bank each has duly filed all material forms, reports and documents which they
were required to file with each agency charged with regulating any aspect of
their business, in each case in form which was correct in all material respects,
and, subject to permission from such regulatory authorities, Wayne promptly will
deliver or make available to Valley accurate and complete copies of such
reports. As of their respective dates, each such form, report, or document
referred to in either of clauses (i) or (ii) above, and each final registration
statement, prospectus, annual, quarterly or special report, definitive proxy
statement or communication referred to in either of clauses (i) or (ii) of
paragraph (b) above, complied in all material respects with all applicable
statutes, rules and regulations and did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading; provided that
information contained in any such document as of a later date shall be deemed to
modify information as of an earlier date. The Wayne Disclosure Schedule lists
the dates of all examinations of Wayne or the Bank conducted by either the OTS
or the FDIC since January 1, 1995 and the dates of any responses thereto
submitted by Wayne or the Bank.
3.11. Wayne and Bank Information. The information relating to
Wayne and the Bank to be contained in the Proxy Statement/Prospectus (as defined
in Section 5.6(a) hereof) to be delivered to stockholders of Wayne in connection
with the solicitation of their approval of this Agreement and the transactions
contemplated hereby, as of the date the Proxy Statement/Prospectus is mailed to
stockholders of Wayne, and up to and including the date of the meeting of
stockholders to which such Proxy Statement/Prospectus relates, will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
3.12. Compliance with Applicable Law.
(a) General. Except as set forth in the Wayne Disclosure
Schedule, each of Wayne and the Wayne Subsidiaries holds all licenses,
franchises, permits and authorizations necessary for the lawful conduct of its
business under and pursuant to each, and has complied with and is not in default
in any respect under any, applicable law, statute, order, rule, regulation,
policy and/or guideline of any federal, state or local governmental authority
relating to Wayne or any of its Subsidiaries (other than where such defaults or
non-compliances will not, alone or in the aggregate, result in a material
adverse effect on the business, operations, assets or financial condition of
Wayne and its Subsidiaries on a consolidated basis) and Wayne has not received
notice of violation of, and does not know of any violations of, any of the
above.
(b) CRA. Without limiting the foregoing, to its knowledge the
Bank has complied in all material respects with the Community Reinvestment Act
("CRA") and Wayne has no reason to believe that any person or group would object
to the consummation of this Merger due to the CRA performance of or rating of
the Bank. Except as listed on the Wayne Disclosure Schedule to the knowledge of
the Bank, no person or group has adversely commented upon the Bank's CRA
performance.
<PAGE>
3.13. Certain Contracts.
(a) Except as disclosed in the Wayne Disclosure Schedule under
this Section or Section 3.5, (i) neither Wayne nor any Wayne Subsidiary is a
party to or bound by any contract or understanding (whether written or oral)
with respect to the employment or termination of any present or former officers,
employees, directors or consultants and (ii) the consummation of the
transactions contemplated by this Agreement will not (either alone or upon the
occurrence of any additional acts or events) result in any payment (whether of
severance pay or otherwise) becoming due from Wayne or any Wayne Subsidiary to
any officer, employee, director or consultant thereof. The Wayne Disclosure
Schedule sets forth true and correct copies of all employment agreements or
termination agreements with officers, employees, directors, or consultants to
which Wayne or any Wayne Subsidiary is a party.
(b) Except as disclosed in the Wayne Disclosure Schedule, (i)
as of the date of this Agreement, neither Wayne nor any Wayne Subsidiary is a
party to or bound by any commitment, agreement or other instrument which
contemplates the payment by Wayne or any Wayne Subsidiary of amounts in excess
of $100,000, or which has a term extending beyond November 1, 1998 and cannot be
terminated by Wayne or its subsidiary without consent of the other party
thereto, (ii) no commitment, agreement or other instrument to which Wayne or any
Wayne Subsidiary is a party or by which any of them is bound limits the freedom
of Wayne or any Wayne Subsidiary to compete in any line of business or with any
person, and (iii) neither Wayne nor any Wayne Subsidiary is a party to any
collective bargaining agreement.
(c) Except as disclosed in the Wayne Disclosure Schedule,
neither Wayne nor any Wayne Subsidiary nor, to the knowledge of Wayne, any other
party thereto, is in default in any material respect under any material lease,
contract, mortgage, promissory note, deed of trust, loan or other commitment or
arrangement.
3.14. Properties and Insurance.
(a) Wayne and its Subsidiaries have good, and as to owned real
property marketable, title to all material assets and properties, whether real
or personal, tangible or intangible, reflected in Wayne's consolidated balance
sheet as of March 31, 1998, or owned and acquired subsequent thereto (except to
the extent that such assets and properties have been disposed of for fair value
in the ordinary course of business since March 31, 1998), subject to no
encumbrances, liens, mortgages, security interests or pledges, except (i) those
items that secure liabilities that are reflected in such balance sheet or the
notes thereto or incurred in the ordinary course of business after the date of
such balance sheet, (ii) statutory liens for amounts not yet delinquent or which
are being contested in good faith, (iii) such encumbrances, liens, mortgages,
security interests, pledges and title imperfections that are not in the
aggregate material to the business, operations, assets, and financial condition
of Wayne and its Subsidiaries taken as a whole and (iv) with respect to owned
real property, title imperfections noted in title reports delivered to Valley
prior to the date hereof. Wayne and its Subsidiaries as lessees have the right
under valid and subsisting leases to occupy, use, possess and control all
property leased by them in all material respects as presently occupied, used,
possessed and controlled by them.
(b) The Wayne Disclosure Schedule lists all policies of
insurance covering business operations and all insurable properties and assets
of Wayne and its Subsidiaries showing all risks insured against, in each case
under valid, binding and enforceable policies or bonds, with such amounts and
such deductibles as are specified. As of the date hereof, neither Wayne nor any
of its Subsidiaries has received any notice of cancellation or notice of a
material amendment of any such insurance policy or bond or is in default under
such policy or bond, no coverage thereunder is being disputed and all material
claims thereunder have been filed in a timely fashion.
3.15. Minute Books. The minute books of Wayne and its
Subsidiaries contain records that are accurate in all material respects of all
meetings and other corporate action held of their respective stockholders and
Boards of Directors (including committees of their respective Boards of
Directors).
3.16. Environmental Matters. Except as set forth in the Wayne
Disclosure Schedule:
(a) Neither Wayne nor any Wayne Subsidiary has received any
written notice, citation, claim, assessment, proposed assessment or demand for
abatement alleging that Wayne or such Wayne Subsidiary (either directly or as a
trustee or fiduciary, or as a successor-in-interest in connection with the
enforcement of remedies to realize the value of properties serving as collateral
for outstanding loans) is responsible for the correction or cleanup of any
condition resulting from the violation of any law, ordinance or other
governmental regulation regarding environmental matters, which correction or
cleanup would be material to the business, operations, assets or financial
condition of Wayne and the Wayne Subsidiaries taken as a whole. Wayne has no
knowledge that any toxic or hazardous substances or materials have been emitted,
generated, disposed of or stored on any real property owned or leased by Wayne
or any Wayne Subsidiary, as OREO or otherwise, or owned or controlled by Wayne
or any Wayne Subsidiary as a trustee or fiduciary (collectively, "Properties"),
in any manner that violates or, after the lapse of time may violate, any
presently existing federal, state or local law or regulation governing or
pertaining to such substances and materials.
(b) Wayne has no knowledge that any of the Properties has been
operated in any manner in the three years prior to the date of this Agreement
that violated any applicable federal, state or local law or regulation governing
or pertaining to toxic or hazardous substances and materials, the violation of
which would have a material adverse effect on the business, operations, assets
or financial condition of Wayne and the Wayne Subsidiaries taken as a whole.
(c) To the knowledge of Wayne, there are no underground
storage tanks on, in or under any of the Properties and no underground storage
tanks have been closed or removed from any of the Properties while the property
was owned, operated or controlled by Wayne or any Wayne Subsidiary.
3.17. Reserves. As of the date hereof, the reserve for loan
and lease losses in the Wayne Financial Statements is adequate based upon past
loan loss experiences and potential losses in the current portfolio to cover all
known or anticipated loan losses.
3.18. No Excess Parachute Payments. Except as disclosed in the
Wayne Disclosure Schedule, no officer, director, employee or agent (or former
officer, director, employee or agent) of Wayne or any Wayne Subsidiary is
entitled now, or will or may be entitled to as a consequence of this Agreement,
the Merger or the Bank Merger, to any payment or benefit from Wayne, a Wayne
Subsidiary, Valley or VNB which if paid or provided would constitute an "excess
parachute payment", as defined in Section 280G of the Code or regulations
promulgated thereunder.
3.19. Year 2000 Compliance. Wayne and the Wayne Subsidiaries
have taken all reasonable steps necessary to address the software, accounting
and record keeping issues raised in order for the data processing systems used
in the business conducted by Wayne and the Wayne Subsidiaries to be
substantially Year 2000 compliant on or before the end of 1999 and, except as
set forth in the Wayne Disclosure Schedule, Wayne does not expect the future
cost of addressing such issues to be material. Neither Wayne nor any Wayne
Subsidiary has received a rating of less than satisfactory from any bank
regulatory agency with respect to Year 2000 compliance.
3.20. Agreements with Bank Regulators. Except as disclosed in
the Wayne Disclosure Schedule, neither Wayne nor any Wayne Subsidiary is a party
to any agreement or memorandum of understanding with, or a party to any
commitment letter, board resolution submitted to a regulatory authority or
similar undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, any court, governmental
authority or other regulatory or administrative agency or commission, domestic
or foreign ("Governmental Entity") which restricts materially the conduct of its
business, or in any manner relates to its capital adequacy, its credit or
reserve policies or its management, except for those the existence of which has
been disclosed in writing to Valley by Wayne prior to the date of this
Agreement, nor has Wayne been advised by any Governmental Entity that it is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter or similar
submission, except as disclosed in writing to Valley by Wayne prior to the date
of this Agreement. Neither Wayne nor any Wayne Subsidiary is required by Section
32 of the Federal Deposit Insurance Act to give prior notice to a Federal
banking agency of the proposed addition of an individual to its board of
directors or the employment of an individual as a senior executive officer,
except as disclosed in writing to Valley by Wayne prior to the date of this
Agreement.
3.21. Disclosure. No representation or warranty contained in
Article III of this Agreement contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements herein not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VALLEY
References herein to the "Valley Disclosure Schedule" shall
mean all of the disclosure schedules required by this Article IV, dated as of
the date hereof and referenced to the specific sections and subsections of
Article IV of this Agreement, which have been delivered on the date hereof by
Valley to Wayne. Valley hereby represents and warrants to Wayne as follows:
4.1. Corporate Organization.
(a) Valley is a corporation duly organized and validly
existing and in good standing under the laws of the State of New Jersey. Valley
has the corporate power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted, and is duly
licensed or qualified to do business in each jurisdiction in which the nature of
the business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
material adverse effect on the business, operations, assets or financial
condition of Valley or its Subsidiaries (defined below). Valley is registered as
a bank holding company under the Bank Holding Company Act of 1956, as amended
("BHCA").
(b) Each of the Subsidiaries of Valley are listed in the
Valley Disclosure Schedule. The term "Subsidiary" when used in this Agreement
with reference to Valley, means any corporation, joint venture, association,
partnership, trust or other entity in which Valley has, directly or indirectly,
at least a 50% interest or acts as a general partner. Each Subsidiary of Valley
is duly organized and validly existing and in good standing under the laws of
the jurisdiction of its incorporation. VNB is a national bank whose deposits are
insured by the Bank Insurance Fund of the FDIC to the fullest extent permitted
by law. Each Subsidiary of Valley has the corporate power and authority to own
or lease all of its properties and assets and to carry on its business as it is
now being conducted and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified would not have a material adverse effect on the business,
operations, assets or financial condition of Valley and its Subsidiaries.
4.2. Capitalization. The authorized capital stock of Valley
consists solely of 98,437,500 shares of Valley Common Stock. As of March 31,
1998, there were 52,763,972 shares of Valley Common Stock issued and outstanding
net of treasury stock, and 295,913 treasury shares. Since March 31, 1998, to and
including the date of this Agreement, no additional shares of Valley Common
Stock have been issued except in connection with exercises of options granted
under the Long-Term Stock Incentive Plan of Valley (the "Valley Option Plan") or
grants of restricted stock under the Valley Option Plan. As of March 31, 1998,
except for: (a) 1,188,547 shares of Valley Common Stock issuable upon exercise
of outstanding stock options and stock appreciation rights granted pursuant to
the Valley Option Plan, and (b) 14,924 shares of Valley Common Stock issuable
upon exercise of outstanding stock options granted to a consultant for Valley,
there were no shares of Valley Common Stock issuable upon the exercise of
outstanding stock options or otherwise. All issued and outstanding shares of
Valley Common Stock, and all issued and outstanding shares of capital stock of
Valley's Subsidiaries, have been duly authorized and validly issued, are fully
paid, nonassessable and free of preemptive rights, and are free and clear of all
liens, encumbrances, charges, restrictions or rights of third parties. All of
the outstanding shares of capital stock of Valley's Subsidiaries are owned by
Valley free and clear of any liens, encumbrances, charges, restrictions or
rights of third parties. Except for the options and stock appreciation rights
referred to above under the Valley Option Plan, neither Valley nor any of
Valley's Subsidiaries has or is bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
transfer, purchase or issuance of any shares of capital stock of Valley or
Valley's Subsidiaries or any securities representing the right to otherwise
receive any shares of such capital stock or any securities convertible into or
representing the right to purchase or subscribe for any such shares, and there
are no agreements or understandings with respect to voting of any such shares.
4.3. Authority; No Violation.
(a) Valley and VNB have full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby in accordance with the terms hereof. Valley has a sufficient
number of authorized but unissued shares of Valley Common Stock to pay the
consideration for the Merger set forth in Article II of this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of each of Valley and VNB. The execution and delivery of the
Bank Merger Agreement has been duly and validly approved by the Board of
Directors of VNB. No other corporate proceedings on the part of Valley and VNB
are necessary to consummate the transactions contemplated hereby (except for the
approval by Valley of the Bank Merger Agreement). This Agreement has been duly
and validly executed and delivered by Valley and VNB and constitutes a valid and
binding obligation of Valley and VNB, enforceable against Valley and VNB in
accordance with its terms.
(b) Neither the execution or delivery of this Agreement nor
the consummation by Valley and VNB of the transactions contemplated hereby in
accordance with the terms hereof, will (i) violate any provision of the
Certificate of Incorporation or Bylaws of Valley or the Articles of Association
or Bylaws of VNB, (ii) assuming that the consents and approvals set forth below
are duly obtained, violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Valley or VNB or any
of their respective properties or assets, or (iii) violate, conflict with,
result in a breach of any provision of, constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default) under, result
in the termination of, accelerate the performance required by, or result in the
creation of any lien, security interest, charge or other encumbrance upon any of
the properties or assets of Valley or VNB under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Valley or VNB is a
party, or by which Valley or VNB or any of their properties or assets may be
bound or affected, except, with respect to (ii) and (iii) above, such as in the
aggregate will not have a material adverse effect on the business, operations,
assets or financial condition of Valley and Valley's Subsidiaries on a
consolidated basis, or the ability of Valley and VNB to consummate the
transactions contemplated hereby. Except for consents and approvals of or
filings or registrations with or notices to the OCC, the OTS, the FRB, the New
Jersey Secretary of State, the Delaware Secretary of State, the SEC, or
applicable state securities bureaus or commissions, no consents or approvals of
or filings or registrations with or notices to any third party or any public
body or authority are necessary on behalf of Valley or VNB in connection with
(a) the execution and delivery by Valley or VNB of this Agreement, (b) the
consummation by Valley of the Merger and the other transactions contemplated
hereby and (c) the execution and delivery by VNB of the Bank Merger Agreement
and the consummation by VNB of the Bank Merger and other transactions
contemplated thereby. To Valley's knowledge, no fact or condition exists which
Valley has reason to believe will prevent it or VNB from obtaining the
aforementioned consents and approvals.
4.4. Financial Statements.
(a) Valley has previously delivered to Wayne copies of the
consolidated statements of financial condition of Valley as of December 31,
1995, 1996 and 1997, the related consolidated statements of income, changes in
stockholders' equity and of cash flows for the periods ended December 31 in each
of the three fiscal years 1995 through 1997, in each case accompanied by the
audit report of KPMG Peat Marwick LLP, independent public accountants with
respect to Valley, and the unaudited consolidated statements of condition of
Valley as of March 31, 1998 and the related unaudited consolidated statements of
income, changes in stockholders' equity and cash flows for the three months then
ended as reported in Valley's Quarterly Report on Form 10-Q, filed with the SEC
under the 1934 Act (collectively, the "Valley Financial Statements"). The Valley
Financial Statements (including the related notes), have been prepared in
accordance with GAAP consistently applied during the periods involved, and
fairly present the consolidated financial position of Valley as of the
respective dates set forth therein, and the related consolidated statements of
income, changes in stockholders' equity and of cash flows (including the related
notes, where applicable) fairly present the results of the consolidated
operations and changes in stockholders' equity and of cash flows of Valley for
the respective fiscal periods set forth therein.
(b) The books and records of Valley and its subsidiaries have
been and are being maintained in material compliance with applicable legal and
accounting requirements, and reflect only actual transactions.
(c) Except as and to the extent reflected, disclosed or
reserved against in the Valley Financial Statements (including the notes
thereto), as of March 31, 1998 neither Valley nor any of its Subsidiaries had or
has, as the case may be, any material obligation or liability, whether absolute,
accrued, contingent or otherwise, material to the business, operations, assets
or financial condition of Valley or any of its Subsidiaries. Since March 31,
1998, neither Valley nor any of its Subsidiaries have incurred any material
liabilities, except in the ordinary course of business and consistent with
prudent banking practice.
4.5. Brokerage Fees. Except for fees to be paid to MG
Advisors, Inc., neither Valley nor VNB nor any of their respective directors or
officers has employed any broker or finder or incurred any liability for any
broker's or finder's fees or commissions in connection with any of the
transactions contemplated by this Agreement.
4.6. Absence of Certain Changes or Events. There has not been
any material adverse change in the business, operations, assets or financial
condition of Valley and Valley's Subsidiaries on a consolidated basis since
March 31, 1998 and to Valley's knowledge, no fact or condition exists which
Valley believes will cause or is likely to cause such a material adverse change
in the future.
4.7. Valley Information. The information relating to Valley
and its subsidiaries, this Agreement and the transactions contemplated hereby in
the Registration Statement and Proxy Statement/Prospectus (as defined in Section
5.6(a) hereof), as of the date of the mailing of the Proxy Statement/Prospectus,
and up to and including the date of the meeting of stockholders of Wayne to
which such Proxy Statement/Prospectus relates, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
4.8. Capital Adequacy. As of the date of this Agreement Valley
has, and at the Effective Time, after taking into effect the Merger and the
transactions contemplated hereunder, Valley will have, sufficient capital to
satisfy all applicable regulatory capital requirements.
4.9. Valley Common Stock. At the Effective Time, the Valley
Common Stock to be issued pursuant to the terms of Section 2.1, when so issued,
shall be duly authorized, validly issued, fully paid, and non-assessable, free
of preemptive rights and free and clear of all liens, encumbrances or
restrictions created by or through Valley, with no personal liability attaching
to the ownership thereof.
4.10. Legal Proceedings. Except as disclosed in the Valley
Disclosure Schedule, neither Valley nor its Subsidiaries is a party to any, and
there are no pending or, to Valley's knowledge, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental
investigations of any nature against Valley or any of its Subsidiaries which, if
decided adversely to Valley, or any of its Subsidiaries, would have a material
adverse effect on the business, operations, assets or financial condition of
Valley and its Subsidiaries on a consolidated basis. Except as disclosed in the
Valley Disclosure Schedule, neither Valley nor any of Valley's Subsidiaries is a
party to any order, judgment or decree entered against Valley or any such
Subsidiary in any lawsuit or proceeding which would have a material adverse
effect on the business, operations, assets or financial condition of Valley and
its Subsidiaries on a consolidated basis.
4.11. Taxes and Tax Returns. To the knowledge of Valley,
Valley and its Subsidiaries have duly filed (and until the Effective Time will
so file) all Returns required to be filed by them in respect of any federal,
state and local taxes (including withholding taxes, penalties or other payments
required) and have duly paid (and until the Effective Time will so pay) all such
taxes due and payable, other than taxes or other charges which are being
contested in good faith. Valley and its Subsidiaries have established (and until
the Effective Time will establish) on their books and records reserves for the
payment of all federal, state and local taxes not yet due and payable, but
incurred in respect of Valley and its Subsidiaries through such date, which
reserves are, to the knowledge of Valley, adequate for such purposes. No
deficiencies exist or have been asserted based upon the federal income tax
returns of Valley and VNB.
4.12. Employee Benefit Plans.
(a) Valley and its Subsidiaries maintain or contribute to
certain "employee pension benefit plans" (the "Valley Pension Plans"), as such
term is defined in Section 3 of ERISA, and "employee welfare benefit plans" (the
"Valley Welfare Plans"), as such term is defined in Section 3 of ERISA. Since
September 2, 1974, neither Valley nor its Subsidiaries have contributed to any
"Multiemployer Plan", as such term is defined in Section 3(37) of ERISA.
(b) Except as set forth in Valley Disclosure Schedule, to the
knowledge of Valley, each of the Valley Pension Plans and each of the Valley
Welfare Plans has been operated in compliance in all material respects with the
provisions of ERISA, the Code, all regulations, rulings and announcements
promulgated or issued thereunder, and all other applicable governmental laws and
regulations.
(c) To the knowledge of Valley, no "accumulated funding
deficiency" within the meaning of Section 412 of the Code has been incurred with
respect to any of the Valley Pension Plans.
(d) Except with respect to customary health, life and
disability benefits or as disclosed on the Valley Disclosure Schedule, there are
no unfunded benefit obligations which are not accounted for by reserves shown on
the financial statements of Valley and established under GAAP or otherwise noted
on such financial statements.
4.13. Reports.
(a) Each communication mailed by Valley to its stockholders
since January 1, 1995, and each annual, quarterly or special report, proxy
statement or communication, as of its date, complied in all material respects
with all applicable statutes, rules and regulations enforced or promulgated by
the applicable regulatory agency and did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading; provided that
disclosures as of a later date shall be deemed to modify disclosures as of an
earlier date.
(b) Valley and VNB have, since January 1, 1995, duly filed
with the OCC and the FRB in correct form in all material respects the monthly,
quarterly and annual reports required to be filed under applicable laws and
regulations, and Valley, upon written request from Wayne, promptly will deliver
or make available to Wayne accurate and complete copies of such reports. The
Valley Disclosure Schedule lists the dates of all examinations of Valley or VNB
conducted by either the OCC, the FRB or the FDIC since January 1, 1995.
4.14. Compliance with Applicable Law. Valley and its
Subsidiaries hold all material licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses under and
pursuant to each, and has complied with and is not in default in any respect
under any, applicable law, statute, order, rule, regulation, policy and/or
guideline of any federal, state or local governmental authority relating to
Valley and its Subsidiaries (other than where such default or non-compliance
will not result in a material adverse effect on the business, operations, assets
or financial condition of Valley and its Subsidiaries on a consolidated basis)
and Valley has not received notice of violations of, and does not know of any
violations of, any of the above. Without limiting the foregoing, to its
knowledge VNB has complied in all material respects with the CRA and Valley has
no reason to believe that any person or group would object to the consummation
of the Merger due to the CRA performance or rating of VNB. To the knowledge of
Valley, except as listed on the Valley Disclosure Schedule, no person or group
has adversely commented upon VNB's CRA performance.
4.15. Properties and Insurance.
(a) Valley and its Subsidiaries have good and, as to owned
real property, marketable title to all material assets and properties, whether
real or personal, tangible or intangible, reflected in Valley's consolidated
balance sheet as of March 31, 1998, or owned and acquired subsequent thereto
(except to the extent that such assets and properties have been disposed of for
fair value in the ordinary course of business since March 31, 1998), subject to
no encumbrances, liens, mortgages, security interests or pledges, except (i)
those items that secure liabilities that are reflected in such balance sheet or
the notes thereto or incurred in the ordinary course of business after the date
of such balance sheet, (ii) statutory liens for amounts not yet delinquent or
which are being contested in good faith, (iii) such encumbrances, liens,
mortgages, security interests, pledges and title imperfections that are not in
the aggregate material to the business, operations, assets, and financial
condition of Valley and its subsidiaries taken as a whole and (iv) with respect
to owned real property, title imperfections noted in title reports delivered to
Wayne prior to the date hereof. Valley and its Subsidiaries as lessees have the
right under valid and subsisting leases to occupy, use, possess and control all
property leased by them in all material respects as presently occupied, used,
possessed and controlled by them.
(b) The business operations and all insurable properties and
assets of Valley and its Subsidiaries are insured for their benefit against all
risks which, in the reasonable judgment of the management of Valley should be
insured against, in each case under valid, binding and enforceable policies or
bonds, with such deductibles and against such risks and losses as are in the
opinion of the management of Valley adequate for the business engaged in by
Valley and its Subsidiaries. As of the date hereof, neither Valley nor any of
its Subsidiaries has received any notice of cancellation or notice of a material
amendment of any such insurance policy or bond or is in default under such
policy or bond, no coverage thereunder is being disputed and all material claims
thereunder have been filed in a timely fashion.
4.16. Minute Books. The minute books of Valley and its
Subsidiaries contain records that are accurate in all material respects of all
meetings and other corporate action held of their respective stockholders and
Boards of Directors (including committees of their respective Boards of
Directors).
4.17. Environmental Matters. Except as disclosed in the Valley
Disclosure Schedule, neither Valley nor any of its Subsidiaries has received any
written notice, citation, claim, assessment, proposed assessment or demand for
abatement alleging that Valley or any of its Subsidiaries (either directly or as
a successor-in-interest in connection with the enforcement of remedies to
realize the value of properties serving as collateral for outstanding loans) is
responsible for the correction or clean-up of any condition material to the
business, operations, assets or financial condition of Valley or its
Subsidiaries. Except as disclosed in the Valley Disclosure Schedule, Valley has
no knowledge that any toxic or hazardous substances or materials have been
emitted, generated, disposed of or stored on any property owned or leased by
Valley or any of its Subsidiaries in any manner that violates or, after the
lapse of time may violate, any presently existing federal, state or local law or
regulation governing or pertaining to such substances and materials, the
violation of which would have a material adverse effect on the business,
operations, assets or financial condition of Valley and its Subsidiaries on a
consolidated basis.
4.18. Reserves. As of the date hereof, the reserve for loan
and lease losses in the Valley Financial Statements is, to Valley's knowledge,
adequate based upon past loan loss experiences and potential losses in the
current portfolio to cover all known or anticipated loan losses.
4.19. Year 2000 Compliance. Valley and the Valley Subsidiaries
have taken all reasonable steps necessary to address the software, accounting
and record keeping issues raised in order for the data processing systems used
in the business conducted by Valley and the Valley Subsidiaries to be
substantially Year 2000 compliant on or before the end of 1999 and Valley does
not expect the future cost of addressing such issues to be material. Neither
Valley nor any Valley Subsidiary has received a rating of less than satisfactory
from any bank regulatory agency with respect to Year 2000 compliance.
4.20. Disclosures. No representation or warranty contained in
Article IV of this Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements herein not
misleading.
ARTICLE V
COVENANTS OF THE PARTIES
5.1. Conduct of the Business of Wayne. During the period from
the date of this Agreement to the Effective Time, Wayne shall, and shall cause
each of its Subsidiaries to, conduct its respective business and engage in
transactions permitted hereunder only in the ordinary course and consistent with
prudent banking practice, except with the prior written consent of Valley, which
consent will not be unreasonably withheld. Wayne also shall use its best efforts
to (i) preserve its business organization and that of each Wayne Subsidiary
intact, (ii) keep available to itself the present services of its employees and
those of its Subsidiaries, provided that neither Wayne nor any of its
Subsidiaries shall be required to take any unreasonable or extraordinary act or
any action which would conflict with any other term of this Agreement, and (iii)
preserve for itself and Valley the goodwill of its customers and those of its
Subsidiaries and others with whom business relationships exist.
5.2. Negative Covenants and Dividend Covenants.
(a) Wayne agrees that from the date hereof to the Effective
Time, except as set forth in Section 5.2 of the Valley Disclosure Schedule or as
otherwise approved by Valley in writing or as permitted or required by this
Agreement, it will not, nor will it permit any of its Subsidiaries to:
(i) change any provision of its Certificate of Incorporation
or Charter, as the case may be, or Bylaws or any similar governing documents;
(ii) except for the issuance of Wayne Common Stock pursuant to
the present terms of the outstanding Wayne Options and the Valley Stock Option
and as disclosed in the Wayne Disclosure Schedule, change the number of shares
of its authorized or issued common or preferred stock or issue or grant any
option, warrant, call, commitment, subscription, right to purchase or agreement
of any character relating to the authorized or issued capital stock of Wayne or
any Wayne Subsidiary or any securities convertible into shares of such stock, or
split, combine or reclassify any shares of its capital stock, or redeem or
otherwise acquire any shares of such capital stock, or declare, set aside or pay
any dividend, or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock;
(iii) grant any severance or termination pay (other than
pursuant to policies of Wayne in effect on the date hereof and disclosed in the
Wayne Disclosure Schedule or as agreed to by Valley in writing) to, or enter
into or amend any employment agreement with, any of its directors, officers or
employees, adopt any new employee benefit plan or arrangement of any type or
amend any such existing benefit plan or arrangement; or award any increase in
compensation or benefits to its directors, officers or employees;
(iv) sell or dispose of any substantial amount of assets or
incur any significant liabilities other than in the ordinary course of business
consistent with past practices and policies;
(v) make any capital expenditures in excess of $100,000 other
than pursuant to binding commitments existing on the date hereof and
expenditures necessary to maintain existing assets in good repair and
expenditures described in business plans or budgets previously furnished to
Valley;
(vi) file any applications or make any contract with respect
to branching or site location or relocation.
(vii) agree to acquire in any manner whatsoever (other than to
foreclose on collateral for a defaulted loan) any business or entity;
(viii) make any material change in its accounting methods or
practices, other than changes required in accordance with GAAP;
(ix) take any action that would result in any of the
representations and warranties contained in Article III of this Agreement not
being true and correct in any material respect at the Effective Time; or
(x) agree to do any of the foregoing.
(b) Valley agrees that from the date hereof to the Effective
Time, except as otherwise approved by Wayne in writing or as permitted or
required by this Agreement, it will not, nor will it permit any of its
Subsidiaries to:
(i) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue in any material respect, or that may
result in any condition, agreement or covenant set forth in this Agreement not
being satisfied;
(ii) take or cause to be taken any action which would
disqualify the Merger as a tax free reorganization under Section 368 of the Code
or as a pooling of interests for accounting purposes;
(iii) consolidate with or merge with any other person or
entity in which Valley is not the surviving entity, or convey, transfer or lease
its properties and assets substantially as an entirety to any person or entity
unless such person or entity shall expressly assume the obligations of Valley
under this Agreement; or
(iv) authorize or enter into any agreement or commitment to do
any of the foregoing.
5.3. No Solicitation. So long as this Agreement remains in
effect, Wayne and the Bank shall not, directly or indirectly, encourage or
solicit or hold discussions or negotiations with, or provide any information to,
any person, entity or group (other than Valley) concerning any merger or sale of
shares of capital stock or sale of substantial assets or liabilities not in the
ordinary course of business, or similar transactions involving Wayne or the Bank
(an "Acquisition Transaction"). Notwithstanding the foregoing, Wayne may enter
into discussions or negotiations or provide information in connection with an
unsolicited possible Acquisition Transaction if the Board of Directors of Wayne,
after consulting with counsel, determines in the exercise of its fiduciary
responsibilities that such discussions or negotiations should be commenced or
such information should be furnished. Wayne shall promptly communicate to Valley
the terms of any proposal, whether written or oral, which it may receive in
respect of any such Acquisition Transaction and the fact that it is having
discussions or negotiations with a third party about an Acquisition Transaction.
5.4. Current Information. During the period from the date of
this Agreement to the Effective Time, Wayne will cause one or more of its
designated representatives to confer on a monthly or more frequent basis with
representatives of Valley regarding Wayne's business, operations, properties,
assets and financial condition and matters relating to the completion of the
transactions contemplated herein. Without limiting the foregoing, Wayne will
send to Valley a monthly list of each new loan or extension of credit, and each
renewal of an existing loan or extension of credit, in excess of $100,000, made
during such month, and provide Valley with a copy of the loan offering for any
such loan, extension of credit, or renewal upon request. As soon as reasonably
available, but in no event more than 45 days after the end of each fiscal
quarter (other than the last fiscal quarter of each fiscal year) ending after
the date of this Agreement, Wayne will deliver to Valley the Bank's call reports
filed with the OTS and FDIC and Wayne's quarterly reports on Form 10-Q as filed
with the SEC under the 1934 Act, and Valley will deliver to Wayne Valley's
quarterly reports on Form 10-Q, as filed with the SEC under the 1934 Act, and
VNB's call reports filed with the OCC and the FDIC. As soon as reasonably
available, but in no event more than 80 days after the end of each fiscal year,
Wayne will deliver to Valley and Valley will deliver to Wayne their respective
audited Annual Reports, in each case as filed on Form 10-K with the SEC under
the 1934 Act.
5.5. Access to Properties and Records; Confidentiality.
(a) Wayne and the Bank shall permit Valley and its
representatives, and Valley and VNB shall permit Wayne and its representatives,
accompanied by an officer of the respective party, reasonable access to their
respective properties, and shall disclose and make available to Valley and its
representatives or Wayne and its representatives as the case may be, all books,
papers and records relating to their respective assets, stock ownership,
properties, operations, obligations and liabilities, including, but not limited
to, all books of account (including the general ledger), tax records, minute
books of directors' and stockholders' meetings, organizational documents,
bylaws, material contracts and agreements, filings with any regulatory
authority, independent auditors' work papers (subject to the receipt by such
auditors of a standard access representation letter), litigation files, plans
affecting employees, and any other business activities or prospects in which
Valley and its representatives or Wayne and its representatives may have a
reasonable interest. Neither party shall be required to provide access to or to
disclose information where such access or disclosure would violate or prejudice
the rights of any customer or would contravene any law, rule, regulation, order
or judgment. The parties will use their best efforts to obtain waivers of any
such restriction and in any event make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply. Wayne acknowledges that Valley may be involved in discussions
concerning other potential acquisitions and Valley shall not be obligated to
disclose such information to Wayne except as such information is publicly
disclosed by Valley.
(b) All information furnished by the parties hereto previously
in connection with transactions contemplated by this Agreement or pursuant
hereto shall be used solely for the purpose of evaluating the Merger
contemplated hereby and shall be treated as the sole property of the party
delivering the information until consummation of the Merger contemplated hereby
and, if such Merger shall not occur, each party and each party's advisors shall
return to the other party all documents or other materials containing,
reflecting or referring to such information, will not retain any copies of such
information, shall use its best efforts to keep confidential all such
information, and shall not directly or indirectly use such information for any
competitive or other commercial purposes. In the event that the Merger
contemplated hereby is abandoned, all documents, notes and other writings
prepared by a party hereto or its advisors based on information furnished by the
other party shall be promptly destroyed. The obligation to keep such information
confidential shall continue for five years from the date the proposed Merger is
abandoned but shall not apply to (i) any information which (A) the party
receiving the information can establish by convincing evidence was already in
its possession prior to the disclosure thereof to it by the other party; (B) was
then generally known to the public; (C) became known to the public through no
fault of the party receiving such information; or (D) was disclosed to the party
receiving such information by a third party not bound by an obligation of
confidentiality; or (ii) disclosures pursuant to a legal requirement or in
accordance with an order of a court of competent jurisdiction.
(c) Without limiting the rights provided under Section 5.5(a),
each of Valley and Wayne shall have the right to conduct a full and complete
acquisition audit and to perform such due diligence as it deems appropriate,
using its own officers and employees or third parties, for purposes of
determining whether there is a material breach of any representation or warranty
hereunder or a material adverse change in the business or financial condition of
the other party. Such acquisition audit or due diligence shall not be limited or
restricted by virtue of any audit or due diligence performed before the date
hereof or for any other reason, but shall not unduly interfere with the business
of the other party.
5.6. Regulatory Matters.
(a) For the purposes of holding the meeting of Wayne
stockholders referred to in Section 5.7 hereof and registering or otherwise
qualifying under applicable federal and state securities laws Valley Common
Stock to be issued to Record Holders and Optionees in connection with the
Merger, the parties hereto shall cooperate in the preparation and filing by
Valley of a Registration Statement with the SEC which shall include an
appropriate proxy statement and prospectus satisfying all applicable
requirements of applicable state and federal laws, including the Securities Act
of 1933, as amended (the "1933 Act"), the 1934 Act and applicable state
securities laws and the rules and regulations thereunder. (Such proxy statement
and prospectus in the form mailed by Wayne to the Wayne stockholders and
Optionees together with any and all amendments or supplements thereto, is herein
referred to as the "Proxy Statement/Prospectus" and the various documents to be
filed by Valley under the 1933 Act with the SEC to register for sale the Valley
Common Stock to be issued to Record Holders and Optionees, including the Proxy
Statement/Prospectus, are referred to herein as the "Registration Statement").
(b) Valley shall furnish information concerning Valley as is
necessary in order to cause the Proxy Statement/Prospectus, insofar as it
relates to Valley, to comply with Section 5.6(a) hereof. Valley agrees promptly
to advise Wayne if at any time prior to the Wayne stockholder meeting referred
to in Section 5.7 hereof, any information provided by Valley in the Proxy
Statement/Prospectus becomes incorrect or incomplete in any material respect and
to provide Wayne with the information needed to correct such inaccuracy or
omission. Valley shall furnish Wayne with such supplemental information as may
be necessary in order to cause the Proxy Statement/Prospectus, insofar as it
relates to Valley, to comply with Section 5.6(a) after the mailing thereof to
Wayne stockholders.
(c) Wayne shall furnish Valley with such information
concerning Wayne and the Bank as is necessary in order to cause the Proxy
Statement/Prospectus, insofar as it relates to such corporations, to comply with
Section 5.6(a) hereof. Wayne agrees promptly to advise Valley if, at any time
prior to the Wayne stockholder's meeting referred to in Section 5.6(a) hereof,
information provided by Wayne in the Proxy Statement/Prospectus becomes
incorrect or incomplete in any material respect and to provide Valley with the
information needed to correct such inaccuracy or omission. Wayne shall furnish
Valley with such supplemental information as may be necessary in order to cause
the Proxy Statement/Prospectus, insofar as it relates to Wayne and the Bank, to
comply with Section 5.6(a) after the mailing thereof to Wayne stockholders.
(d) Valley shall as promptly as practicable, at its sole
expense, make such filings as are necessary in connection with the offering of
the Valley Common Stock with applicable state securities agencies and shall use
all reasonable efforts to qualify the offering of the Valley Common Stock under
applicable state securities laws at the earliest practicable date. Wayne shall
promptly furnish Valley with such information regarding the Wayne stockholders
as Valley requires to enable it to determine what filings are required
hereunder. Wayne authorizes Valley to utilize in such filings the information
concerning Wayne and the Bank provided to Valley in connection with, or
contained in, the Proxy Statement/Prospectus. Valley shall furnish Wayne with
copies of all such filings and keep Wayne advised of the status thereof. Valley
and Wayne shall as promptly as practicable file the Registration Statement
containing the Proxy Statement/Prospectus with the SEC, and each of Valley and
Wayne shall promptly notify the other of all communications, oral or written,
with the SEC concerning the Registration Statement and the Proxy
Statement/Prospectus.
(e) Valley shall cause the Valley Common Stock to be issued in
connection with the Merger to be listed on the New York Stock Exchange.
(f) The parties hereto will cooperate with each other and use
their best efforts to prepare all necessary documentation, to effect all
necessary filings and to obtain all necessary permits, consents, waivers,
approvals and authorizations of all third parties and governmental bodies
necessary to consummate the transactions contemplated by this Agreement as soon
as possible, including, without limitation, those required by the OCC, the OTS,
the FDIC and the FRB. The parties shall each have the right to review in advance
(and shall do so promptly) all information relating to the other, as the case
may be, and any of their respective subsidiaries, which appears in any filing
made with, or written material submitted to, any third party or governmental
body in connection with the transactions contemplated by this Agreement. The
parties hereto shall use reasonable business efforts to file for approval or
waiver by the appropriate bank regulatory agencies within 60 days of the date
hereof.
(g) Each of the parties will promptly furnish each other with
copies of written communications received by them or any of their respective
subsidiaries from, or delivered by any of the foregoing to, any governmental
body in respect of the transactions contemplated hereby.
(h) Wayne acknowledges that Valley is in or may be in the
process of acquiring other banks and financial institutions and that in
connection with such acquisitions, information concerning Wayne may be required
to be included in the registration statements, if any, for the sale of
securities of Valley or in SEC reports in connection with such acquisitions.
Wayne agrees to provide Valley with any information, certificates, documents or
other materials about Wayne as are reasonably necessary to be included in such
other SEC reports or registration statements, including registration statements
which may be filed by Valley prior to the Effective Time. Wayne shall use its
reasonable efforts to cause its attorneys and accountants to provide Valley and
any underwriters for Valley with any consents, comfort letters, opinion letters,
reports or information which are necessary to complete the registration
statements and applications for any such acquisition or issuance of securities.
Valley shall reimburse Wayne for reasonable expenses thus incurred by Wayne
should this transaction be terminated for any reason. Valley shall not file with
the SEC any registration statement or amendment thereto or supplement thereof
containing information regarding Wayne unless Wayne shall have consented in
writing to such filing, which consent shall not be unreasonably delayed or
withheld.
(i) Between the date of this Agreement and the Effective Time,
Wayne shall cooperate with Valley to reasonably conform Wayne's policies and
procedures regarding applicable regulatory matters, to those of Valley as Valley
may reasonably identify to Wayne from time to time.
5.7. Approval of Stockholders. Wayne will (a) take all steps
necessary duly to call, give notice of, convene and hold a meeting of the
stockholders of Wayne as soon as reasonably practicable for the purpose of
securing the approval by such stockholders of this Agreement, (b) recommend to
the stockholders of Wayne the approval of this Agreement and the transactions
contemplated hereby and use its best efforts to obtain, as promptly as
practicable, such approvals, and (c) cooperate and consult with Valley with
respect to each of the foregoing matters. In connection therewith, Wayne will
use reasonable efforts to cause each director of Wayne to agree, (i) to vote in
favor of the Merger, and (ii) take such action as is necessary or is reasonably
required by Valley to consummate the Merger.
5.8. Further Assurances. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
satisfy the conditions to Closing and to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
using reasonable efforts to lift or rescind any injunction or restraining order
or other order adversely affecting the ability of the parties to consummate the
transactions contemplated by this Agreement and using its best efforts to
prevent the breach of any representation, warranty, covenant or agreement of
such party contained or referred to in this Agreement and to promptly remedy the
same. Valley will take the necessary actions to cure appropriate tainted
treasury shares so that the Merger meets the treasury stock condition for
pooling-of-interests accounting. Nothing in this section shall be construed to
require any party to participate in any threatened or actual legal,
administrative or other proceedings (other than proceedings, actions or
investigations to which it is otherwise a party or subject or threatened to be
made a party or subject) in connection with consummation of the transactions
contemplated by this Agreement unless such party shall consent in advance and in
writing to such participation and the other party agrees to reimburse and
indemnify such party for and against any and all costs and damages related
thereto.
5.9. Public Announcements. The parties hereto shall cooperate
with each other in the development and distribution of all news releases and
other public disclosures with respect to this Agreement or any of the
transactions contemplated hereby, except as may be otherwise required by law or
regulation or as to which the party releasing such information has used its best
efforts to discuss with the other party in advance.
5.10. Failure to Fulfill Conditions. In the event that Valley
or Wayne determines that a material condition to its obligation to consummate
the transactions contemplated hereby cannot be fulfilled on or prior to March
31, 1999 (the "Cutoff Date") and that it will not waive that condition, it will
promptly notify the other party. Except for any acquisition or merger
discussions Valley may enter into with other parties, Wayne and Valley will
promptly inform the other of any facts applicable to Wayne or Valley,
respectively, or their respective directors or officers, that would be likely to
prevent or materially delay approval of the Merger by any governmental authority
or which would otherwise prevent or materially delay completion of the Merger.
5.11. Disclosure Supplements. From time to time prior to the
Effective Time, each party hereto will promptly supplement or amend (by written
notice to the other) its respective Disclosure Schedules delivered pursuant
hereto with respect to any matter hereafter arising which, if existing,
occurring or known at the date of this Agreement, would have been required to be
set forth or described in such Schedules or which is necessary to correct any
information in such Schedules which has been rendered materially inaccurate
thereby. For the purpose of determining satisfaction of the conditions set forth
in Article VI, no supplement or amendment to such Schedules shall correct or
cure any warranty which was untrue when made, but supplements or amendments may
be used to disclose subsequent facts or events to maintain the truthfulness of
any warranty.
5.12 Transaction Expenses of Wayne.
(a) For planning purposes, Wayne shall, within 30 days from
the date hereof, provide Valley with its estimated budget of transaction-related
expenses reasonably anticipated to be payable by Wayne in connection with this
transaction based on facts and circumstances currently known, including the fees
and expenses of counsel, accountants, investment bankers and other
professionals. Wayne shall promptly notify Valley if or when it determines that
it will expect to exceed its budget. Wayne has previously disclosed to Valley
the method by which the fees of its investment bankers and counsel in connection
with this transaction are to be determined, and has disclosed to Valley the fees
of its counsel in connection with this transaction through a recent date.
(b) Promptly, but in any event within 30 days, after the
execution of this Agreement, Wayne shall ask all of its attorneys and other
professionals to render current and correct invoices for all unbilled time and
disbursements. Wayne shall accrue and/or pay all of such amounts as soon as
possible.
(c) Wayne shall cause its professionals to render monthly
invoices within 30 days after the end of each month. Wayne shall notify Valley
monthly of all out-of-pocket expenses which Wayne has incurred in connection
with this transaction.
(d) Valley, in reasonable consultation with Wayne, shall make
all arrangements with respect to the printing and mailing of the Proxy
Statement/Prospectus.
5.13. Closing. The parties hereto shall cooperate and use
reasonable efforts to try to cause the Effective Time to occur on or about
October 30, 1998.
5.14. Indemnification. After the Effective Time, to the extent
permitted by applicable law, and the Certificate of Incorporation or Articles of
Association, Valley agrees that it will, or will cause VNB to, provide to the
directors and officers of Wayne and the Bank indemnification equivalent to that
provided by the Certificate of Incorporation or Charter, as the case may be, and
Bylaws of each of Wayne and the Bank with respect to acts or omissions occurring
prior to the Effective Time, including without limitation, the authorization of
this Agreement and the transactions contemplated hereby, for a period of six
years from the Effective Time, or in the case of matters occurring prior to the
Effective Time which have not been resolved prior to the sixth anniversary of
the Effective Time, until such matters are finally resolved. To the extent
permitted by applicable law, and the Certificate of Incorporation or Articles of
Association, Valley or VNB (as applicable) shall advance expenses in connection
with the foregoing indemnification.
5.15. New Valley Director. As of the Effective Time, Valley
shall cause its Board of Directors and the VNB Board of Directors to take action
to appoint Harold P. Cook, III to the Boards of Directors of Valley and VNB,
respectively, at the Effective Time.
5.16. Employment Matters.
(a) Following consummation of the Merger, Valley will honor
the existing written employment and severance contracts with officers and
employees of Wayne and the Bank that are included in the Wayne Disclosure
Schedule.
(b) Following the consummation of the Merger and for one year
thereafter, VNB shall, to the extent not duplicative of other severance
benefits, honor the Bank's severance policy as specified in Section 5.16(b) of
the Wayne Disclosure Schedule to pay one week of severance for each year of
service completed while employed by Wayne and/or the Bank, with a maximum
benefit of 12 weeks. Following the expiration of the foregoing severance policy,
any years of service recognized for purposes of this Section 5.16(b) will be
taken into account under the terms of any applicable severance policy of VNB.
(c) Valley intends, to the extent practical, to continue the
employment of all officers and employees of the Bank, at or near the same
location, with the same or equivalent salary and benefits. Valley intends, to
the extent practical, to have all Wayne employees participate in the benefits
and opportunities available to all Valley employees.
5.17. Pooling and Tax-Free Reorganization Treatment. Neither
Valley nor Wayne shall intentionally take, fail to take or cause to be taken or
not be taken, any action within its control, whether before or after the
Effective Time, which would disqualify the Merger as a "pooling of interests"
for accounting purposes or as a "reorganization" within the meaning of Section
368(a) of the Code.
5.18. Wayne Option Plan. From and after the Effective Time,
each Wayne Option which is converted to an option to purchase Valley Common
Stock under Section 2.1(b) shall be administered, operated and interpreted by a
committee comprised of members of the Board of Directors of Valley appointed by
the Board of Directors of Valley. Valley shall reserve for issuance the number
of shares of Valley Common Stock necessary to satisfy Valley's obligations.
Valley shall also register, if not previously registered pursuant to the 1933
Act, the shares authorized for issuance under the Wayne Options so converted.
5.19. Affiliates.
(a) Promptly, but in any event within 30 days, after the
execution and delivery of this Agreement, (i) Wayne shall deliver to Valley (x)
a letter identifying all persons who, to the knowledge of Wayne, may be deemed
to be affiliates of Wayne under Rule 145 of the 1933 Act, including without
limitation all directors and executive officers of Wayne and (y) a letter
identifying all persons who, to the knowledge of Wayne, may be deemed to be
affiliates of Wayne as that term (affiliate) is used for purposes of qualifying
for pooling-of-interests accounting treatment; and (ii) Valley shall identify to
Wayne all persons who, to the knowledge of Valley, may be deemed affiliates of
Valley as that term (affiliates) is used for purposes of qualifying for
pooling-of-interests accounting treatment.
(b) Wayne shall cause each director of Wayne to, and Wayne
shall use its best efforts to cause each executive officer of Wayne and each
other person who may be deemed an affiliate of Wayne (under either Rule 145 of
the 1933 Act or the accounting treatment rules) to, execute and deliver to
Valley within 30 days after the execution and delivery of this Agreement, a
letter substantially in the form of Exhibit 5.19 hereto agreeing to be bound by
the restrictions of Rule 145 and agreeing to be bound by the rules which permit
the Merger to be treated as a pooling of interests for accounting purposes. In
addition, Valley shall cause each director and executive officer of Valley to,
and Valley shall use its best efforts to cause each other person who may be
deemed an affiliate of Valley (as that term is used for purposes of qualifying
for pooling of interests) to, execute and deliver to Valley within 30 days after
the execution and delivery of this Agreement, a letter substantially in the form
of Exhibit 5.19.1 hereto in which such persons agree to be bound by the rules
which permit the Merger to be treated as a pooling of interests for accounting
treatment.
5.20. Compliance with the Industrial Site Recovery Act. Wayne,
at its sole cost and expense, shall use its best efforts to obtain prior to the
Effective Time, with respect to each facility located in New Jersey owned or
operated by Wayne or any Wayne Subsidiary (each, a "Facility"), either: (a) a
Letter of Non-Applicability ("LNA") from the New Jersey Department of
Environmental Protection ("NJDEP") stating that the Facility is not an
"industrial establishment," as such term is defined under the Industrial Site
Recovery Act ("ISRA"); (b) a Remediation Agreement issued by the NJDEP pursuant
to ISRA authorizing the consummation of the transactions contemplated by this
Agreement; (c) a Negative Declaration approval, Remedial Action Workplan
approval, No Further Action letter or other document or documents issued by the
NJDEP advising that the requirements of ISRA have been satisfied with respect to
the Facility; or (d) an opinion addressed to Valley from New Jersey legal
counsel reasonably acceptable to Valley to the effect that ISRA has been
complied with, or is inapplicable, with respect to the Facility. In the event
Wayne obtains a Remediation Agreement, Wayne will post or have posted an
appropriate Remediation Funding Source or will have obtained the NJDEP's
approval to self-guaranty any Remediation Funding Source required under any such
Remediation Agreement.
5.21. Title Agency Subsidiary. If requested by Valley, Wayne,
at its sole cost and expense, shall immediately begin the process of
transferring ownership of Wayne Title, Inc. (the "Title Subsidiary") from Wayne
to the Bank, and obtaining all regulatory and other approvals and consents
necessary or desirable in order to permit the business of the Title Subsidiary
to be operated without interruption or diminution resulting from such change.
ARTICLE VI
CLOSING CONDITIONS
6.1. Conditions of Each Party's Obligations Under this
Agreement. The respective obligations of each party under this Agreement to
consummate the Merger shall be subject to the satisfaction, or, where
permissible under applicable law, waiver at or prior to the Effective Time of
the following conditions:
(a) Approval of Wayne Stockholders; SEC Registration. This
Agreement and the transactions contemplated hereby shall have been approved by
the requisite vote of the stockholders of Wayne. The Registration Statement
shall have been declared effective by the SEC and shall not be subject to a stop
order or any threatened stop order, and the issuance of the Valley Common Stock
shall have been qualified in every state where such qualification is required
under the applicable state securities laws. The Valley Common Stock to be issued
in connection with the Merger, including Valley Common Stock to be issued for
the Wayne Options, shall have been approved for listing on the New York Stock
Exchange.
(b) Regulatory Filings. All necessary regulatory or
governmental approvals and consents (including without limitation any required
approval of the OCC and any approval or waiver required by the FRB) required to
consummate the transactions contemplated hereby shall have been obtained without
any term or condition which would materially impair the value of Wayne and the
Bank, taken as a whole, to Valley. All conditions required to be satisfied prior
to the Effective Time by the terms of such approvals and consents shall have
been satisfied; and all statutory waiting periods in respect thereof shall have
expired.
(c) Suits and Proceedings. No order, judgment or decree shall
be outstanding against a party hereto or a third party that would have the
effect of preventing completion of the Merger; no suit, action or other
proceeding shall be pending or threatened by any governmental body in which it
is sought to restrain or prohibit the Merger or the Bank Merger; and no suit,
action or other proceeding shall be pending before any court or governmental
agency in which it is sought to restrain or prohibit the Merger or the Bank
Merger or obtain other substantial monetary or other relief against one or more
parties hereto in connection with this Agreement and which Valley or Wayne
determines in good faith, based upon the advice of their respective counsel,
makes it inadvisable to proceed with the Merger because any such suit, action or
proceeding has a significant potential to be resolved in such a way as to
deprive the party electing not to proceed of any of the material benefits to it
of the Merger or the Bank Merger.
(d) Tax Free Exchange. Valley and Wayne shall have received an
opinion, satisfactory to Valley and Wayne, of Pitney, Hardin, Kipp & Szuch,
counsel for Valley, to the effect that the transactions contemplated hereby will
result in a reorganization (as defined in Section 368(a) of the Code), and
accordingly no gain or loss will be recognized for federal income tax purposes
to Valley, Wayne, VNB or the Bank or to the stockholders of Wayne who exchange
their shares of Wayne for Valley Common Stock (except to the extent that cash is
received in lieu of fractional shares of Valley Common Stock).
(e) Pooling of Interests. The Merger shall be qualified to be
treated by Valley as a pooling-of-interests for accounting purposes and Valley
shall have received a letter from KPMG Peat Marwick LLP to the effect that the
Merger will qualify for pooling-of-interests accounting treatment if closed and
consummated in accordance with the Agreement.
6.2. Conditions to the Obligations of Valley Under this
Agreement. The obligations of Valley under this Agreement shall be further
subject to the satisfaction or waiver, at or prior to the Effective Time, of the
following conditions:
(a) Representations and Warranties; Performance of Obligations
of Wayne and Bank. The representations and warranties of Wayne contained in this
Agreement shall be true and correct in all material respects on the Closing Date
as though made on and as of the Closing Date. Wayne shall have performed in all
material respects the agreements, covenants and obligations necessary to be
performed by it prior to the Closing Date. With respect to any representation or
warranty which as of the Closing Date has required a supplement or amendment to
the Wayne Disclosure Schedule to render such representation or warranty true and
correct as of the Closing Date, the representation and warranty shall be deemed
true and correct as of the Closing Date only if (i) the information contained in
the supplement or amendment to the Disclosure Schedule related to events
occurring following the execution of this Agreement and (ii) the facts disclosed
in such supplement or amendment would not either alone, or together with any
other supplements or amendments to the Wayne Disclosure Schedule, materially
adversely effect the representation as to which the supplement or amendment
relates.
(b) Consents. Valley shall have received the written consents
of any person whose consent to the transactions contemplated hereby is required
under the applicable instrument.
(c) Opinion of Counsel. Valley shall have received an opinion
of counsel to Wayne, dated the date of the Closing, in form and substance
reasonably satisfactory to Valley, covering the matters set forth on Schedule
6.2 hereto and any other matters reasonably requested by Valley.
(d) Bank Action. The Bank shall have taken all necessary
corporate action to effectuate the Bank Merger immediately following the
Effective Time.
(e) Certificates. Wayne shall have furnished Valley with such
certificates of its officers or other documents to evidence fulfillment of the
conditions set forth in this Section 6.2 as Valley may reasonably request.
(f) Environmental Law Compliance. Wayne shall have obtained,
with respect to each Facility, an LNA, a Remediation Agreement, a Negative
Declaration approval, a Remedial Action Workplan approval (in which event Wayne
will post or have posted an appropriate Remediation Funding Source or will have
obtained the NJDEP's approval to self-guaranty any Remediation Funding Source
required under any such Remediation Agreement), a No Further Action letter or
other document or documents issued by the NJDEP advising that the requirements
of ISRA have been satisfied with respect to the Facility or an opinion of the
type referred to in Section 5.20(d) hereof.
(g) Title Agency Subsidiary. Wayne shall have completed the
process of transferring ownership of the Title Subsidiary from Wayne to the
Bank, and shall have obtained all regulatory and other approvals and consents
necessary or desirable in order to permit the business of the Title Subsidiary
to be operated without interruption or diminution resulting from such change.
6.3. Conditions to the Obligations of Wayne Under this
Agreement. The obligations of Wayne under this Agreement shall be further
subject to the satisfaction or waiver, at or prior to the Effective Time, of the
following conditions:
(a) Representations and Warranties; Performance of Obligations
of Valley. The representations and warranties of Valley contained in this
Agreement shall be true and correct in all material respects on the Closing Date
as though made on and as of the Closing Date. Valley shall have performed in all
material respects, the agreements, covenants and obligations to be performed by
it prior to the Closing Date. With respect to any representation or warranty
which as of the Closing Date has required a supplement or amendment to the
Valley Disclosure Schedule to render such representation or warranty true and
correct as of the Closing Date, the representation and warranty shall be deemed
true and correct as of the Closing Date only if (i) the information contained in
the supplement or amendment to the Disclosure Schedule related to events
occurring following the execution of this Agreement and (ii) the facts disclosed
in such supplement or amendment would not either alone, or together with any
other supplements or amendments to the Valley Disclosure Schedule, materially
adversely effect the representation as to which the supplement or amendment
relates.
(b) Opinion of Counsel to Valley. Wayne shall have received an
opinion of counsel to Valley, dated the date of the Closing, in form and
substance reasonably satisfactory to Wayne, covering the matters set forth on
Schedule 6.3 hereto and any other matter reasonably requested by Wayne.
(c) Fairness Opinion. Wayne shall have received an opinion
from Sandler O'Neill as of the date of this Agreement and the date the Proxy
Statement/Prospectus is mailed to Wayne's stockholders, with respect to the
fairness, from a financial point of view, of the Exchange Ratio to the
shareholders of Wayne in the Merger.
(d) Wayne Director. Each of Valley and VNB shall have taken
all action necessary to appoint Harold P. Cook, III to its Board of Directors as
specified in Section 5.15.
(e) Certificates. Valley shall have furnished Wayne with such
certificates of its officers or others and such other documents to evidence
fulfillment of the conditions set forth in this Section 6.3 as Wayne may
reasonably request.
(f) VNB Action. VNB shall have taken all necessary corporate
action to effectuate the Bank Merger immediately following the Effective Time.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1. Termination. This Agreement may be terminated prior to
the Effective Time, whether before or after approval of this Agreement by the
stockholders of Wayne:
(a) By mutual written consent of the parties hereto.
(b) By Valley or Wayne (i) if the Effective Time shall not
have occurred on or prior to the Cutoff Date or (ii) if a vote of the
stockholders of Wayne is taken and such stockholders fail to approve this
Agreement at the meeting (or any adjournment thereof) held for such purpose,
unless in each case the failure of such occurrence shall be due to the failure
of the party seeking to terminate this Agreement to perform or observe its
agreements set forth herein to be performed or observed by such party (or, in
the case of Wayne, to be performed or observed by the directors of Wayne) at or
before the Effective Time.
(c) By Valley or Wayne upon written notice to the other if any
application for regulatory or governmental approval necessary to consummate the
Merger and the other transactions contemplated hereby shall have been denied or
withdrawn at the request or recommendation of the applicable regulatory agency
or governmental authority or by Valley upon written notice to Wayne if any such
application is approved with conditions which materially impair the value of
Wayne and the Bank, taken as a whole, to Valley.
(d) By Valley if (i) there shall have occurred a material
adverse change in the business, operations, assets, or financial condition of
Wayne or the Bank, taken as a whole, from that disclosed by Wayne on the date of
this Agreement; or (ii) if the net operating income excluding security gains and
losses (after tax but excluding expenses related to this Agreement) of Wayne for
any full fiscal quarter after March 31, 1998, is less than $375,000; or (iii)
there was a material breach in any representation, warranty, covenant, agreement
or obligation of Wayne hereunder.
(e) By Wayne, if (i) there shall have occurred a material
adverse change in the business, operations, assets or financial condition of
Valley or VNB from that disclosed by Valley on the date of this Agreement; or
(ii) there was a material breach in any representation, warranty, covenant,
agreement or obligation of Valley hereunder.
(f) By Valley or Wayne if any condition to Closing specified
under Article VI hereof applicable to such party cannot reasonably be met on or
before the Cutoff Date after giving the other party a reasonable opportunity to
cure any such condition.
(g) By Wayne if the Average Pre-Closing Price of Valley Common
Stock is less than $26.00.
7.2. Effect of Termination. In the event of the termination
and abandonment of this Agreement by either Valley or Wayne pursuant to Section
7.1, this Agreement shall forthwith become void and have no effect, without any
liability on the part of any party or its officers, directors or stockholders,
except that Sections 5.5(b) and 8.1 hereof shall have continuing effect as set
forth therein. Nothing contained herein, however, shall relieve any party from
any liability for any breach of this Agreement.
7.3. Amendment. This Agreement may be amended by mutual action
taken by the parties hereto at any time before or after adoption of this
Agreement by the stockholders of Wayne but, after any such adoption, no
amendment shall be made which reduces or changes the amount or form of the
consideration to be delivered to the stockholders of Wayne without the approval
of such stockholders. This Agreement may not be amended except by an instrument
in writing signed on behalf of Valley and Wayne.
7.4. Extension; Waiver. The parties may, at any time prior to
the Effective Time of the Merger, (i) extend the time for the performance of any
of the obligations or other acts of the other parties hereto; (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant thereto; or (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party against which the waiver is
sought to be enforced.
ARTICLE VIII
MISCELLANEOUS
8.1. Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby (including legal,
accounting and investment banking fees and expenses) shall be borne by the party
incurring such costs and expenses, except that the cost of printing and mailing
the Proxy Statement/Prospectus shall be borne equally by the parties hereto if
the transaction is terminated.
8.2. Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by telecopier with confirming copy sent the same day by
registered or certified mail, postage prepaid, as follows:
(a) If to Valley, to:
Valley National Bancorp
1455 Valley Road
Wayne, New Jersey 07474-0558
Attn.: Gerald H. Lipkin
Chairman and Chief Executive Officer
Telecopier No. (973) 305-0024
Copy to:
Pitney, Hardin, Kipp & Szuch
Attn.: Ronald H. Janis, Esq.
Delivery:
200 Campus Drive
Florham Park, New Jersey 07932
Mail:
P.O. Box 1945
Morristown, New Jersey 07962-1945
Telecopier No. (973) 966-1550
(b) If to Wayne, to:
Wayne Bancorp, Inc.
1195 Hamburg Turnpike
Wayne, New Jersey 07474
Attn.: Johanna O'Connell, President
Telecopier No. (973) 305-1293
Copy to:
Malizia, Spidi, Sloane & Fisch, P.C.
One Franklin Square
1301 K Street, N.W., Suite 700E
Washington, D.C. 20005
Attn.: Richard Fisch, Esq.
Telecopier No. (202) 434-4661
or such other addresses as shall be furnished in writing by
any party, and any such notice or communications shall be deemed to have been
given as of the date so delivered or telecopied and mailed.
8.3. Parties in Interest. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement is intended to
confer, expressly or by implication, upon any other person any rights or
remedies under or by reason of this Agreement, except for the indemnitees
covered by Section 5.14 hereof. No assignment of this Agreement may be made
except upon the written consent of the other parties hereto.
8.4. Entire Agreement. This Agreement, the Disclosure
Schedules hereto and the other documents, agreements and instruments executed
and delivered pursuant to or in connection with this Agreement, contains the
entire agreement between the parties hereto with respect to the transactions
contemplated by this Agreement and supersedes all prior negotiations,
arrangements or understandings, written or oral, with respect thereto. If any
provision of this Agreement is found invalid, it shall be considered deleted and
shall not invalidate the remaining provisions.
8.5. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and each of which shall be deemed an original.
8.6. Governing Law. This Agreement shall be governed by the
laws of the State of New Jersey, without giving effect to the principles of
conflicts of laws thereof.
8.7. Descriptive Headings. The descriptive headings of this
Agreement are for convenience only and shall not control or affect the meaning
or construction of any provision of this Agreement.
8.8. Survival. All representations, warranties and, except to
the extent specifically provided otherwise herein, agreements and covenants,
other than those agreements and covenants set forth in Sections 5.14 and 5.15
which shall survive the Merger, shall terminate as of the Effective Time.
8.9. Knowledge. Representations made herein which are
qualified by the phrase to the best of Wayne's knowledge or similar phrases
refer as of the date hereof to the best knowledge of the Chief Executive Officer
and the Chief Lending Officer of Wayne and thereafter refer to the best
knowledge of any senior officer of Wayne or any Wayne subsidiary.
Representations made herein which are qualified by the phrase to the best of
Valley's knowledge or similar phrases refer as of the date hereof to the best
knowledge of the President and Chief Executive Officer, the Executive Vice
President/Legal and the Chief Financial Officer of Valley and thereafter refer
to the best knowledge of any senior officer of Valley or any Valley subsidiary.
IN WITNESS WHEREOF, Valley, VNB, the Bank and Wayne have
caused this Agreement to be executed by their duly authorized officers as of the
day and year first above written.
ATTEST: VALLEY NATIONAL BANCORP
PETER SOUTHWAY GERALD H. LIPKIN
- ----------------------------- By:------------------------------------
Peter Southway, Vice Chairman Gerald H. Lipkin, Chairman, President
and Chief Executive Officer
ATTEST: WAYNE BANCORP, INC.
THOMAS D. COLLINS HAROLD P. COOK, III
- ----------------------------- By:------------------------------------
Thomas D. Collins, Secretary Harold P. Cook, III, Chairman and
Chief Executive Officer
ATTEST: VALLEY NATIONAL BANK
PETER SOUTHWAY GERALD H. LIPKIN
- ----------------------------- By:------------------------------------
Peter Southway, Vice Chairman Gerald H. Lipkin, Chairman, President
and Chief Executive Officer
ATTEST: WAYNE SAVINGS BANK, F.S.B.
THOMAS D. COLLINS JOHANNA O'CONNELL
- ----------------------------- By:------------------------------------
Thomas D. Collins , Secretary Johanna O'Connell, President
and Chief Executive Officer
<PAGE>
CERTIFICATE OF THE DIRECTORS OF
WAYNE BANCORP, INC. AND
WAYNE SAVINGS BANK, F.S.B.
Reference is made to the Agreement and Plan of Merger, dated
as of May 29, 1998 (the "Agreement"), among Valley National Bancorp, Valley
National Bank, Wayne Bancorp Inc., and Wayne Savings Bank, F.S.B. Capitalized
terms used herein have the meanings given to them in the Agreement.
Each of the following persons, being all of the directors of
Wayne and the Bank, express their intention, subject to their fiduciary duties,
to vote or cause to be voted all shares of Wayne Common Stock which are held by
such person, or over which such person exercises full voting control (other than
shares with respect to which such person exercises control in a fiduciary
capacity, as to which no agreement is made hereby), in favor of the Merger.
HAROLD P. COOK, III
- ------------------------
HAROLD P. COOK, III
JOHANNA O'CONNELL
- ------------------------
JOHANNA O'CONNELL
WILLIAM J. LLOYD
- ------------------------
WILLIAM J. LLOYD
DAVID M. COLLINS
- ------------------------
DAVID M. COLLINS
THOMAS D. COLLINS
- ------------------------
THOMAS D. COLLINS
NICHOLAS S. GENTILE, JR.
- ------------------------
NICHOLAS S. GENTILE, JR.
RONALD HIGGINS
- ------------------------
RONALD HIGGINS
RICHARD LEN
- ------------------------
RICHARD LEN
CHARLES LOTA
- ------------------------
CHARLES LOTA
DENNIS POLLACK
- ------------------------
DENNIS POLLACK
<PAGE>
EXHIBIT A
AGREEMENT TO MERGE BETWEEN
VALLEY NATIONAL BANK
AND
WAYNE SAVINGS BANK, F.S.B.
UNDER THE CHARTER OF VALLEY NATIONAL BANK,
UNDER THE TITLE OF VALLEY NATIONAL BANK
THIS AGREEMENT made between Valley National Bank (hereinafter
referred to as "VNB"), a national banking association organized under the laws
of the United States, being located at 615 Main Avenue, Passaic, New Jersey,
with a capital of $____________ divided into ____________ shares of common
stock, each of $5.00 par value, $____________ of surplus, and undivided profits
of $____________, as of March 31, 1998, and Wayne Savings Bank, F.S.B.
(hereinafter referred to as "Wayne"), a federally-chartered savings bank
organized under the laws of the United States, being located at 1195 Hamburg
Turnpike, County of Bergen, in the State of New Jersey, with a capital of
$____________, divided into ________ shares of common stock, each of $______ par
value, surplus of $___________, and undivided profits of $_________, as of March
31, 1998, each acting pursuant to a resolution of its board of directors,
adopted by the vote of a majority of its directors, pursuant to the authority
given by and in accordance with the provisions of the Act of November 7, 1918,
as amended (12 U.S.C. Section 215(a)), and the Home Owners' Loan Act of 1933, as
amended, witnesseth as follows:
Section 1. Wayne shall be merged into VNB under the charter of
VNB.
Section 2. The name of the receiving association (hereinafter
referred to as the "Association") shall be Valley National Bank.
Section 3. The business of the Association shall be that of a
national banking Association. This business shall be conducted by the
Association at its main office which shall be located at 615 Main Avenue,
Passaic, New Jersey, and at its legally established branches.
Section 4. The amount of capital stock of the Association
shall be $______________, divided into ____________ shares of common stock, each
of $5.00 par value, and at the time the merger shall become effective, the
Association shall have a surplus of $____________, and undivided profits,
including capital reserves, which when combined with the capital and surplus
will be equal to the combined capital structures of the merging banks as stated
in the preamble of this Agreement, adjusted however, for normal earnings and
expenses between March 31, 1998, and the effective time of the merger.
Section 5. All assets of each of the merging banks, as they
exist at the effective time of the merger, shall pass to and vest in the
Association without any conveyance or other transfer. The Association shall be
responsible for all of the liabilities of every kind and description, including
liabilities arising from the operation of their respective trust departments, of
each of the merging banks existing as of the effective time of the merger. After
the effective time of the merger, VNB will continue to maintain the Wayne
liquidation account established by Wayne upon its conversion to the stock form
of organization for the benefit of eligible account holders on the same basis as
immediately prior to the effective time of the merger, and Wayne's liquidation
account for the benefit of eligible account holders shall automatically be
deemed assumed by VNB, as of the effective time of the merger, on the same basis
as it existed immediately prior to the effective time of the merger.
Section 6. Wayne shall contribute to the Association its
capital set forth in the preamble, adjusted, however, for normal earnings,
expenses and dividends between March 31, 1998, and the effective time of the
merger.
VNB shall have on hand at the effective time of the merger its
capital as set forth in the preamble, adjusted, however, for normal earnings,
expenses and dividends between March 31, 1998 and the effective date of the
merger.
Section 7. The stockholders of VNB shall retain their rights
in the capital stock presently outstanding, which shall immediately and
automatically become ____________ shares of common stock of the Association,
each with $5.00 par value, and the stockholders of Wayne in exchange for the
excess acceptable assets contributed by their bank to the Association shall be
entitled to receive ___________ shares of common stock of the Association, each
with $5.00 par value.
Section 8. Neither of the banks shall declare nor pay any
dividend to its stockholders between the date of this Agreement and the time at
which the merger shall become effective, nor dispose of any of its assets in any
other manner except in the ordinary course of business consistent with prudent
banking practice. Provided, however, that VNB shall be entitled to pay dividends
to its parent without restriction and Bank may pay dividends to Wayne consistent
with past practice, so long as the payment of such dividends shall thereby not
cause a breach of any representation, covenant, agreement or condition to which
the Bank is subject under the Agreement and Plan of Merger, dated as of May 29,
1998 among Valley National Bancorp, Wayne Bancorp Inc., VNB and Wayne (the
"Merger Agreement").
Section 9. The present board of directors of VNB (with the
addition of Harold P. Cook, III) shall serve as the board of directors of the
Association until the next annual meeting or until such time as their successors
have been elected and have qualified.
Section 10. Effective as of the time this merger shall become
effective as specified in the merger approval to be issued by the Office of the
Comptroller of the Currency (the "OCC"), the articles of association of the
resulting bank shall read in their entirety as set forth in Schedule 1 annexed
hereto.
Section 11. This Agreement shall be terminated automatically
if the Merger Agreement is terminated as provided in the Merger Agreement.
Section 12. This Agreement shall be ratified and confirmed by
the affirmative vote of the stockholders of each of the merging banks owning at
least two-thirds of its capital stock outstanding, at a meeting to be held on
the call of the directors; and the merger shall become effective at the time
specified in the merger approval to be issued by the OCC.
Section 13. Each of the representations, warranties and
covenants of the parties hereto shall terminate as of the effective time of the
merger, other than Section 5 hereof which shall survive the effective time of
the merger.
Section 14. This Agreement may be executed in any number of
counterparts, and each counterpart shall constitute an original instrument, but
all such separate counterparts shall constitute only one and the same
instrument.
Section 15. Except as governed by federal law, the validity,
construction and enforceability of this Agreement shall be governed in all
respects by the laws of the State of New Jersey without regard to its conflicts
of laws or rules.
WITNESS, the signatures and seals of the merging banks this
_____ day of ____, 1998, each set by its president or a vice president and
attested to by its cashier or secretary, pursuant to a resolution of its board
of directors, acting by a majority.
ATTEST: VALLEY NATIONAL BANK
_______________________ By:------------------------------------
, Cashier Gerald H. Lipkin, Chairman, President
and Chief Executive Officer
ATTEST: WAYNE SAVINGS BANK, F.S.B.
________________________ By:------------------------------------
, Secretary Johanna O'Connell, President
and Chief Executive Officer
<PAGE>
STATE OF NEW JERSEY)
: ss.
COUNTY OF ___________)
On this _____ day of _____________, 1998, before me, a Notary
Public for this state and county, personally came Gerald H. Lipkin, as Chairman
and Chief Executive Officer, and ___________ _________________________, as
Cashier of VALLEY NATIONAL BANK, and each of his/her capacity acknowledged this
instrument to the act and deed of the association and the seal affixed to it to
be its seal.
WITNESS my official seal and signature this day and year.
----------------------------
(Seal of Notary)
STATE OF NEW JERSEY)
:ss.
COUNTY OF ___________)
On this _____ day of ____________, 1998, before me, a Notary
Public for this state and county, personally came Johanna O'Connell, as
President and Chief Executive Officer, and ___________
_________________________, as Secretary of WAYNE SAVINGS BANK, F.S.B., and each
of his/her capacity acknowledged this instrument to the act and deed of the
association and the seal affixed to it to be its seal.
WITNESS my official seal and signature this day and year.
----------------------------
(Seal of Notary)
<PAGE>
Schedule 1
ARTICLES OF ASSOCIATION
OF
VALLEY NATIONAL BANK1
NAME
FIRST. The title of the Association shall be "Valley National
Bank".
MAIN OFFICE
SECOND. The main office of the Association shall be in the
City of Passaic, County of Passaic, State of New Jersey. The general business of
the Association shall be conducted at its main office and its branches.
DIRECTORS
THIRD. The Board of Directors of this Association shall
consist of not less than five nor more than twenty-five directors the exact
number to be fixed and determined from time to time by resolution of a majority
of the full Board of Directors or by resolution of the shareholders at any
annual or special meeting thereof. Each director shall own $1,000 equity
interest in this Association or in a company which as control of the
Association. The amount of the equity interest shall meet this requirement if it
conforms to the requirements of 12 U.S.C. 72, as amended on March 31, 1980, or
as amended from time to time thereafter. Any vacancy in the Board of Directors
may be filled by action of the Board of Directors.
ANNUAL MEETING OF STOCKHOLDERS
FOURTH. There shall be an annual meeting of the stockholders,
the purpose of which shall be the election of Directors and the transaction of
whatever other business may be brought before the meeting. The meeting shall be
held at the main office of the Association or any other convenient place as the
Board of Directors may designate, on the date of each year specified therefor in
the By-laws, but if no election is held on that day, it may be held on any
subsequent day according to such lawful rules as may be prescribed by the Board
of Directors.
Nominations for election to the Board of Directors may be made
by the Board of Directors or by any stockholder of any outstanding class of
capital stock of the Association entitled to vote for election of directors.
Nominations other than those made by or on behalf of the existing management of
the Association, shall be made in writing and shall be delivered or mailed to
the President of the Association and to the Comptroller of the Currency,
Washington, D.C., not less than 14 days nor more than 50 days prior to any
meeting of stockholders called for the election of directors; provided, however,
that if less than 21 days' notice of the meeting is given to shareholders, such
nominations shall be mailed or delivered to the President of the Association and
to the Comptroller of the Currency not later than the close of business on the
seventh day following the day on which the notice of meeting was mailed. Such
notification shall contain the following information to the extent known to the
notifying shareholder: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of
shares of capital stock of the Association that will be voted for each proposed
nominee; (d) the name and residence address of the notifying shareholder; and
(e) the number of shares of capital stock of the Association owned by the
notifying shareholder. Nominations not made in accordance herewith may be
disregarded by the Chairman of the meeting, in his discretion, and upon his
instructions the vote tellers may disregard all votes cast for each such
nominee.
CAPITAL
FIFTH. The authorized amount of capital stock of this
Association shall be 3,191,862 shares of common stock of the par value of five
dollars ($5.00) each; but said capital stock may be increased or decreased from
time to time, in accordance with the provisions of the laws of the United
States.
No holder of shares of the capital stock of any class of the
Association shall have any pre-emptive or preferential right of subscription to
(i) any shares of any class of stock of the Association, whether now or
hereafter authorized, or (ii) to any obligations convertible into stock of the
Association, or (iii) to any right of subscription to any of the foregoing;
except any of the foregoing rights which the Board of Directors, in its sole
discretion may from time to time determine and at such price as the Board of
Directors may from time to time fix.
The Association, at any time and from time to time, may
authorize and issue debt obligations, whether or not subordinated, without the
approval of the stockholders.
OFFICERS
SIXTH. The Board of Directors shall appoint one of its members
President of this Association, who shall be Chairman of the Board, unless the
Board appoints another director to be the Chairman. The Board of Directors shall
have the power to appoint one or more Vice Presidents; and to appoint a Cashier
and such other officers and employees as may be required to transact the
business of this Association.
The Board of Directors shall have the power to define the
duties of the officers and employees of the Association; to fix the salaries to
be paid to them; to dismiss them; to require bonds from them and to fix the
penalty thereof; to regulate the manner in which any increase of the capital of
the Association shall be made; to manage and administer the business and affairs
of the Association; to make all By-Laws that it may be lawful for them to make;
and generally to do and perform all acts that it may be legal for a Board of
Directors to do and perform.
CHANGE OF MAIN OFFICE; BRANCHES
SEVENTH. The Board of Directors shall have the power, without
shareholder approval, to change the location of the main office to any other
authorized branch location within the limits of the City of Passaic and to
establish or change the location of any branch or branches of the Association.
Any change in the location of the main office to another authorized branch
location within the City of Passaic shall be effected upon written notice to the
Comptroller of the Currency. Any change in the location of the Main Office,
except to an authorized branch location within the City of Passaic, shall
require both the approval of the Comptroller of the Currency and the approval of
stockholders owning two-thirds of the stock of the Association and any such
change shall be to a place not more than 30 miles from the city limits of the
City of Passaic.
EXISTENCE
EIGHTH. The corporate existence of this Association shall
continue until terminated in accordance with the laws of the United States.
SPECIAL MEETINGS OF SHAREHOLDERS; NOTICE OF MEETINGS
NINTH. The Board of Directors of this Association, or any one
or more shareholders owning, in the aggregate, not less than ten percent of the
stock of this Association, may call a special meeting of shareholders at any
time. Unless otherwise provided by the laws of the United States, a notice of
the time, place, and purpose of every annual and special meeting of the
shareholders shall be given by first-class mail, postage prepaid, mailed at
least ten days prior to the date of such meeting to each shareholder of record
at his address as shown upon the books of this Association.
INDEMNIFICATION
TENTH. Any person, his heirs, executors or administrators, may
be indemnified or reimbursed by the Association for liability and reasonable
expenses, including amounts paid in settlement or in satisfaction of judgments
or as fines and/or penalties, actually incurred in connection with any action,
suit or proceeding, civil or criminal, to which he or they shall be involved or
threatened to be involved, as a party, or otherwise, by reason of his being or
having been a director, officer, or employee of the Association or of any firm,
corporation or organization which he served in any such capacity at the request
of the Association. Provided, however, that no person shall be so indemnified or
reimbursed in relation to any matter in such action, suit or proceeding as to
which he shall finally be adjudged to have been guilty of or liable for gross
negligence, willful misconduct or criminal acts in the performance of his duties
to the Association; and, provided further, that no person shall be so
indemnified or reimbursed in relation to any matter in such action, suit, or
proceeding which has been made the subject of a compromise settlement except
with: (i) the approval of a court of competent jurisdiction or; (ii) the holders
of record of a majority of the outstanding voting shares of the Association; or
(iii) the Board of Directors acting by vote of directors not parties to the same
or substantially the same action, suit, or proceeding, constituting a majority
of the whole number of directors. The foregoing right of indemnification or
reimbursement shall not be exclusive of other rights to which such persons, his
heirs, executors or administrators, may be entitled as a matter of law.
The Association may, upon the affirmative vote of a majority
of its Board of Directors, purchase insurance for the purpose of indemnifying
its directors, officers and other employees to the extent that such
indemnifications are allowed in the preceding paragraph. Such insurance may, but
need not, be for the benefit of all directors, officers or employees.
<PAGE>
AMENDMENTS
ELEVENTH. These Articles of Association may be amended at any
regular or special meeting of the shareholders by the affirmative vote of the
holders of a majority of the stock of this Association, unless the vote of the
holders of a greater amount of stock is required by law, and in that case by the
vote of the holders of such greater amount.
<PAGE>
APPENDIX B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Agreement") dated May 29, 1998,
is by and between Valley National Bancorp, a New Jersey corporation and
registered bank holding company ("Valley"), and Wayne Bancorp, Inc. a Delaware
corporation ("Wayne") and registered unitary savings and loan holding company
for Wayne Savings Bank, F.S.B. (the "Bank").
BACKGROUND
1. Valley, Wayne, the Bank and Valley National Bank ("Valley
Bank"), a wholly-owned subsidiary of Valley, as of the date hereof, are prepared
to execute an Agreement and Plan of Merger (the "Merger Agreement") pursuant to
which Valley will acquire Wayne through a merger of Wayne with and into Valley
(the "Merger").
2. As an inducement to Valley to enter into the Merger
Agreement and in consideration for such entry and negotiation, Wayne has agreed
to grant to Valley the Option.
AGREEMENT
In consideration of the foregoing and the mutual covenants and
agreements set forth herein and in the Merger Agreement, Valley and Wayne,
intending to be legally bound hereby, agree:
1. Grant of Option. Wayne hereby grants to Valley the option
to purchase up to 400,000 shares (the "Option Shares") of Wayne's common stock,
$0.01 par value ("Common Stock") at an exercise price of $24.50 per share (the
"Option Price"), on the terms and conditions set forth herein (the "Option").
2. Exercise of Option. This Option shall not be exercisable
until the occurrence of a Triggering Event (as such term is hereinafter
defined). Upon or after the occurrence of a Triggering Event (as such term is
hereinafter defined), Valley may exercise the Option, in whole or in part, at
any time or from time to time subject to the terms and conditions set forth
herein and the termination provisions of Section 19 of this Agreement. This
Option may not be exercised if (i) Valley shall have willfully and materially
breached a material covenant or agreement contained in the Merger Agreement such
that Wayne shall have the right unilaterally to terminate the Merger Agreement
pursuant to the terms thereof, (ii) prior to the occurrence of any Triggering
Event, Wayne shall have given Valley written notice of such breach, specifically
referencing this Section 2, and (iii) Valley shall not have cured such breach
prior to exercising the Option.
The term "Triggering Event" means the occurrence of
any of the following events:
A person or group (as such terms are defined in the
Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations thereunder) other
than Valley or an affiliate of Valley:
a. acquires beneficial ownership (as such
term is defined in Rule 13d-3 as promulgated under the Exchange Act) of at least
15% of the then outstanding shares of Common Stock; provided, however, that the
continuing ownership by a person or group which as of the date hereof owns more
than 15% of the outstanding Common Stock shall not constitute a Triggering
Event;
b. enters into a letter of intent or an
agreement, whether oral or written, with Wayne pursuant to which such person or
any affiliate of such person would (i) merge or consolidate, or enter into any
similar transaction with Wayne or the Bank, (ii) acquire all or a significant
portion of the assets or liabilities of Wayne or the Bank, or (iii) acquire
beneficial ownership of securities representing, or the right to acquire
beneficial ownership or to vote securities representing 15% or more of the then
outstanding shares of Common Stock;
c. makes a filing with any bank or thrift
regulatory authorities or publicly announces a bona fide proposal (a "Proposal")
for (i) any merger, consolidation or acquisition of all or a significant portion
of all the assets or liabilities of Wayne or any other business combination
involving Wayne or the Bank, or (ii) a transaction involving the transfer of
beneficial ownership of securities representing, or the right to acquire
beneficial ownership or to vote securities representing, 15% or more of the
outstanding shares of Common Stock, and thereafter, if such Proposal has not
been Publicly Withdrawn (as such term is hereinafter defined) at least 15 days
prior to the meeting of stockholders of Wayne called to vote on the Merger and
Wayne stockholders fail to approve the Merger by the vote required by applicable
law at the meeting of stockholders called for such purpose; or
d. makes a bona fide Proposal and
thereafter, but before such Proposal has been Publicly Withdrawn, Wayne (i)
willfully takes any action in any manner which would materially interfere with
its ability to consummate the Merger or (ii) willfully takes any action in any
manner (other than actions taken in the ordinary course of business) which would
materially reduce the value of the Merger to Valley .
The term "Triggering Event" also means the taking of any
direct or indirect action by Wayne or any of its directors, executive officers,
investment bankers or other persons with actual or apparent authority to speak
for the Wayne Board of Directors, inviting, encouraging or soliciting any
proposal which has as its purpose a tender offer for the shares of Common Stock,
a merger, consolidation, plan of exchange, plan of acquisition or reorganization
of Wayne or the Bank, or a sale of shares of Common Stock or stock of the Bank,
or any significant portion of the assets or liabilities of Wayne or the Bank.
The term "significant portion" means 15% of the assets or
liabilities of Wayne.
"Publicly Withdrawn", for purposes of clauses (c) and (d)
above, shall mean an unconditional bona fide withdrawal of the Proposal coupled
with a public announcement of no further interest in pursuing such Proposal or
in acquiring any controlling influence over Wayne or in soliciting or inducing
any other person (other than Valley or any affiliate of Valley) to do so.
Notwithstanding the foregoing, the Option may not be exercised
at any time (i) in the absence of any required governmental or regulatory
approval or consent necessary for Wayne to issue the Option Shares or Valley to
exercise the Option or prior to the expiration or termination of any waiting
period required by law, or (ii) so long as any injunction or other order, decree
or ruling issued by any federal or state court of competent jurisdiction is in
effect which prohibits the sale or delivery of the Option Shares.
Wayne shall notify Valley promptly in writing of the
occurrence of any Triggering Event known to it, it being understood that the
giving of such notice by Wayne shall not be a condition to the right of Valley
to exercise the Option. Wayne will not take any action which would have the
effect of preventing or disabling Wayne from delivering the Option Shares to
Valley upon exercise of the Option or otherwise performing its obligations under
this Agreement.
In the event Valley wishes to exercise the Option, Valley
shall send a written notice to Wayne (the date of which is hereinafter referred
to as the "Notice Date") specifying the total number of Option Shares it wishes
to purchase and a place and date for the closing of such a purchase (a
"Closing"); provided, however, that a Closing shall not occur prior to two
business days nor later than 20 business days after the later of receipt of any
necessary regulatory approvals and the expiration of any legally required notice
or waiting period, if any.
3. Payment and Delivery of Certificates. At any Closing
hereunder (a) Valley will make payment to Wayne of the aggregate price for the
Option Shares so purchased by wire transfer of immediately available funds to an
account designated by Wayne, (b) Wayne will deliver to Valley a stock
certificate or certificates representing the number of Option Shares so
purchased, free and clear of all liens, claims, charges and encumbrances of any
kind or nature whatsoever created by or through Wayne, registered in the name of
Valley or its designee, in such denominations as were specified by Valley in its
notice of exercise and bearing a legend as set forth below and (c) Valley shall
pay any transfer or other taxes required by reason of the issuance of the Option
Shares so purchased.
Unless a registration statement is filed and declared
effective under Section 4 hereof, a legend will be placed on each stock
certificate evidencing Option Shares issued pursuant to this Agreement, which
legend will read substantially as follows:
"The transfer of shares represented by this certificate
is subject to certain provisions of an agreement, dated as of May 29,
1998, between the registered holder hereof and Wayne and to resale
restrictions arising under the Securities Act of 1933, as amended. A
copy of such agreement is on file at the principal office of Wayne and
will be provided to the holder hereof without charge upon receipt by
Wayne of a written request therefore."
It is understood and agreed that: (i) the reference to the
resale restrictions of the Securities Act of 1933, as amended (the "1933 Act")
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if Valley shall have delivered to Wayne a copy of a
letter from the staff of the SEC, or an opinion of counsel, in form and
substance reasonably satisfactory to Wayne, to the effect that such legend is
not required for purposes of the 1933 Act; (ii) the reference to the provisions
of this Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference in the opinion
of counsel to Wayne; and (iii) the legend shall be removed in its entirety if
the conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
4. Registration Rights. Upon or after the occurrence of a
Triggering Event and upon receipt of a written request from Valley, Wayne shall
prepare and file a registration statement with the Securities and Exchange
Commission and any state securities bureau, covering the Option and such number
of Option Shares as Valley shall specify in its request, and Wayne shall use its
best efforts to cause such registration statement to be declared effective in
order to permit the sale or other disposition of the Option and the Option
Shares (it being understood and agreed that Valley will use reasonable efforts
to effect any such sale or other disposition on a widely distributed basis),
provided that Valley shall in no event have the right to have more than one such
registration statement become effective and further provided that Wayne shall
have the right to delay for up to six months such registration if the Option
Shares can and will be registered in connection with the filing of a
Registration Statement on Form S-4 (or a successor form) by any person acquiring
Wayne.
In connection with such filing, Wayne shall use its
best efforts to cause to be delivered to Valley such certificates, opinions,
accountant's letters and other documents as Valley shall reasonably request and
as are customarily provided in connection with registrations of securities under
the Securities Act of 1933, as amended. All expenses incurred by Wayne in
complying with the provisions of this Section 4, including without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for Wayne and blue sky fees and expenses shall be paid by Wayne.
Underwriting discounts and commissions to brokers and dealers relating to the
Option Shares, fees and disbursements of counsel to Valley and any other
expenses incurred by Valley in connection with such registration shall be borne
by Valley. In connection with such filing, Wayne shall indemnify and hold
harmless Valley against any losses, claims, damages or liabilities, joint or
several, to which Valley may become subject, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement with respect to Wayne or alleged untrue statement with
respect to Wayne of any material fact with respect to Wayne contained in any
preliminary or final registration statement or any amendment or supplement
thereto, or arise out of a material fact with respect to Wayne required to be
stated therein or necessary to make the statements therein with respect to Wayne
not misleading; and Wayne will reimburse Valley for any legal or other expense
reasonably incurred by Valley in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that Wayne
will not be liable in any case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such preliminary or
final registration statement or such amendment or supplement thereto in reliance
upon and in conformity with written information furnished by or on behalf of
Valley specifically for use in the preparation thereof concerning Valley or its
plans or intentions. Valley will indemnify and hold harmless Wayne to the same
extent as set forth in the immediately preceding sentence but only with
reference to written information specifically furnished by or on behalf of
Valley concerning Valley or its plans or intentions for use in the preparation
of such preliminary or final registration statement or such amendment or
supplement thereto; and Valley will reimburse Wayne for any legal or other
expense reasonably incurred by Wayne in connection with investigating or
defending any such loss, claim, damage, liability or action. Notwithstanding
anything to the contrary herein, no indemnifying party shall be liable for any
settlement effected without its prior written consent.
5. Adjustment Upon Changes in Capitalization. In the event of
any change in the Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, conversions, exchanges of shares or the like,
then the number and kind of Option Shares and the Option Price shall be
appropriately adjusted.
In the event any capital reorganization or
reclassification of the Common Stock, or any consolidation, merger or similar
transaction of Wayne with another entity, or in the event any sale of all or
substantially all of the assets of Wayne shall be effected in such a way that
the holders of Common Stock shall be entitled to receive stock, securities or
assets with respect to or in exchange for Common Stock, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provisions (in form reasonably satisfactory to the holder hereof) shall
be made whereby the holder hereof shall thereafter have the right to purchase
and receive upon the basis and upon the terms and conditions specified herein
and in lieu of the Common Stock immediately theretofore purchasable and
receivable upon exercise of the rights represented by this Option, such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
purchasable and receivable upon exercise of the rights represented by this
Option had such reorganization, reclassification, consolidation, merger or sale
not taken place; provided, however, that if such transaction results in the
holders of Common Stock receiving only cash, the holder hereof shall be paid the
difference between the Option Price and such cash consideration without the need
to exercise the Option.
6. Filings and Consents. Each of Valley and Wayne will use its
best efforts to make all filings with, and to obtain consents of, all third
parties and governmental authorities necessary to the consummation of the
transactions contemplated by this Agreement.
Exercise of the Option herein provided shall be
subject to compliance with all applicable laws including, in the event Valley is
the holder hereof, approval of the Board of Governors of the Federal Reserve
System and Wayne agrees to cooperate with and furnish to the holder hereof such
information and documents as may be reasonably required to secure such
approvals.
7. Representations and Warranties of the Parties.
a. Wayne. Wayne hereby represents and warrants to Valley as
follows:
i. Due Authorization. Wayne has full corporate power
and authority to execute, deliver and perform this Agreement and all corporate
action necessary for execution, delivery and performance of this Agreement has
been duly taken by Wayne.
ii. Authorized Shares. Wayne has taken and, as long as
the Option is outstanding, will take all necessary corporate action to authorize
and reserve for issuance all shares of Common Stock that may be issued pursuant
to any exercise of the Option.
iii. No Conflicts. Neither the execution and delivery
of this Agreement nor consummation of the transactions contemplated hereby
(assuming all appropriate regulatory approvals) will violate or result in any
violation or default of or be in conflict with or constitute a default under any
term of the certificate of incorporation or by-laws of Wayne or, to its
knowledge, any agreement, instrument, judgment, decree, statute, rule or order
applicable to Wayne.
b. Valley. Valley hereby represents and warrants to Wayne as
follows:
i. Due Authorization. Valley has full corporate power
and authority to execute and deliver this Agreement and, subject to any
approvals or consents referred to herein, to consummate the transactions
contemplated hereby.
ii. Requisite Corporate Action. The execution and
delivery of this Agreement have been authorized by all requisite corporate
action by Valley, and no other corporate proceedings are necessary therefor.
iii. Binding Obligation. This Agreement has been duly
and validly executed and delivered by Valley and represents a valid and legally
binding obligation of Valley, enforceable against Valley in accordance with its
terms.
iv. No Distribution. Any Wayne Common Stock or other
securities acquired by Valley upon exercise of the Option will not be taken with
a view to the public distribution thereof and will not be transferred or
otherwise disposed of except in compliance with the 1933 Act.
8. Specific Performance. The parties hereto acknowledge that
damages would be an inadequate remedy for a breach of this Agreement and that
the obligations of the parties hereto shall be specifically enforceable.
Notwithstanding the foregoing, Valley shall have the right to seek money damages
against Wayne for a breach of this Agreement.
9. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
among the parties or any of them with respect to the subject matter hereof.
10. Assignment or Transfer. Valley may not sell, assign or
otherwise transfer its rights and obligations hereunder, in whole or in part, to
any person or group of persons other than to an affiliate of Valley. Valley
represents that it is acquiring the Option for Valley's own account and not with
a view to or for sale in connection with any distribution of the Option. Valley
is aware that presently neither the Option nor the Option Shares are being
offered by a registration statement filed with, and declared effective by, the
Securities and Exchange Commission, but instead are being offered in reliance
upon the exemption from the registration requirements pursuant to Section 4(2)
of the Securities Act of 1933, as amended.
11. Amendment of Agreement. By mutual consent of the parties
hereto, this Agreement may be amended in writing at any time, for the purpose of
facilitating performance hereunder or to comply with any applicable regulation
of any governmental authority or any applicable order of any court or for any
other purpose.
12. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
13. Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered personally, by express service,
cable, telegram or telex, or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties as follows:
If to Valley, to:
Valley National Bancorp
1455 Valley Road
Wayne, New Jersey 07474
Attn.: Gerald H. Lipkin
Chairman and Chief Executive Officer
Telecopier No. (973) 305-0024
Copy to:
Pitney, Hardin, Kipp & Szuch
Attn.: Ronald H. Janis, Esq.
Delivery:
200 Campus Drive
Florham Park, New Jersey 07932
Mail:
P.O. Box 1945
Morristown, New Jersey 07962-1945
Telecopier No. (973) 966-1550
If to Wayne, to:
Wayne Bancorp, Inc.
1195 Hamburg Turnpike
Wayne, New Jersey
Attn.: Johanna O'Connell, President
Telecopier No. (973) 305-1293
Copy to:
Malizia, Spidi, Sloane & Fisch, P.C.
One Franklin Square
1301 K Street, N.W., Suite 700E
Washington, D.C. 20005
Attn.: Richard Fisch, Esq.
Telecopier No. (202) 434-4661
or to such other address as the person to whom notice is to be given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey.
15. Captions. The captions in the Agreement are inserted for
convenience and reference purposes, and shall not limit or otherwise affect any
of the terms or provisions hereof.
16. Waivers and Extensions. The parties hereto may, by mutual
consent, extend the time for performance of any of the obligations or acts of
either party hereto. Each party may waive (i) compliance with any of the
covenants of the other party contained in this Agreement and/or (ii) the other
party's performance of any of its obligations set forth in this Agreement.
17. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement, except as provided in Section 10 permitting Valley to assign its
rights and obligations hereunder only to an affiliate of Valley.
18. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
<PAGE>
19. Termination. The Option granted hereby, to the extent not
previously exercised, shall terminate upon either the termination of the Merger
Agreement as provided therein or the consummation of the transactions
contemplated by the Merger Agreement; provided, however, that if termination of
the Merger Agreement occurs after the occurrence of a Triggering Event, this
Agreement and the Option granted hereby shall not terminate until 15 months
following the date of the termination of the Merger Agreement.
IN WITNESS WHEREOF, each of the parties hereto, pursuant to
resolutions adopted by its Board of Directors, has caused this Agreement to be
executed by its duly authorized officer, all as of the day and year first above
written.
WAYNE BANCORP, INC.
HAROLD P. COOK, III
By: ___________________________________
Harold P. Cook, III, Chairman and
Chief Executive Officer
VALLEY NATIONAL BANCORP
GERALD H. LIPKIN
By: _____________________________________
Gerald H. Lipkin, Chairman, President
and Chief Executive Officer
<PAGE>
APPENDIX C
FORM OF FAIRNESS OPINION OF
SANDLER O'NEILL & PARTNERS, L.P.
[date], 1998
______________, 1998
Board of Directors
Wayne Bancorp, Inc.
1195 Hamburg Turnpike
Wayne, NJ 07470
Ladies and Gentlemen:
Wayne Bancorp, Inc. ("Wayne") and its wholly-owned subsidiary, Wayne
Savings Bank, F.S.B., and Valley National Bancorp ("Valley") and its
wholly-owned subsidiary, Valley National Bank, have entered into an Agreement
and Plan of Merger, dated as of May 29, 1998 (the "Agreement"), pursuant to
which Wayne will be merged with and into Valley (the "Merger"). Upon
consummation of the Merger, each share of Wayne common stock, par value $.01 per
share, issued and outstanding immediately prior to the Merger (the "Wayne
Shares"), other than certain shares specified in the Agreement, will be
converted into the right to receive 1.10 shares (the "Exchange Ratio") of Valley
common stock, no par value. The terms and conditions of the Merger are more
fully set forth in the Agreement. You have requested our opinion as to the
fairness, from a financial point of view, of the Exchange Ratio to the holders
of Wayne Shares.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed, among other
things: (i) the Agreement and exhibits thereto; (ii) the Stock Option Agreement,
dated May 29, 1998, by and between Wayne and Valley; (iii) certain publicly
available financial statements of Wayne and other historical financial
information provided by Wayne that we deemed relevant; (iv) certain publicly
available financial statements of Valley and other historical financial
information provided by Valley that we deemed relevant; (v) certain financial
analyses and forecasts of Wayne prepared by and reviewed with management of
Wayne and the views of senior management of Wayne regarding Wayne's past and
current business operations, results thereof, financial condition and future
prospects; (vi) certain financial analyses and forecasts of Valley prepared by
and reviewed with management of Valley and the views of senior management of
Valley regarding Valley's past and current business operations, results thereof,
financial condition and future prospects; (vii) the pro forma impact of the
Merger; (viii) the publicly reported historical price and trading activity for
Wayne's and Valley's common stock, including a comparison of certain financial
and stock market information for Wayne and Valley with similar publicly
available information for certain other companies the securities of which are
publicly traded; (ix) the financial terms of recent business combinations in the
savings institution industry, to the extent publicly available; (x) the current
market environment generally and the banking environment in particular; and (xi)
such other information, financial studies, analyses and investigations and
financial, economic and market criteria as we considered relevant.
In performing our review, we have assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial
information, analyses and other information that was publicly available or
otherwise furnished to, reviewed by or discussed with us, and we do not assume
any responsibility or liability for the accuracy or completeness thereof. We did
not make an independent evaluation or appraisal of the specific assets, the
collateral securing assets or the liabilities (contingent or otherwise) of Wayne
or Valley or any of their subsidiaries, or the collectibility of any such
assets, nor have we been furnished with any such evaluations or appraisals. With
respect to the financial projections reviewed with management, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements of the
respective future financial performances of Wayne and Valley and that such
performances will be achieved, and we express no opinion as to such financial
projections or the assumptions on which they are based. We have also assumed
that there has been no material change in Wayne's or Valley's assets, financial
condition, results of operations, business or prospects since the date of the
most recent financial statements made available to us. We have assumed in all
respects material to our analysis that Wayne and Valley will remain as going
concerns for all periods relevant to our analyses, that all of the
representations and warranties contained in the Agreement and all related
agreements are true and correct, that each party to such agreements will perform
all of the covenants required to be performed by such party under such
agreements, that the conditions precedent in the Agreement are not waived and
that the Merger will be accounted for as a pooling of interests.
Our opinion is necessarily based on financial, economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof. Events occurring after the date hereof could materially
affect this opinion. We have not undertaken to update, revise or reaffirm this
opinion or otherwise comment upon events occurring after the date hereof. We are
expressing no opinion herein as to what the value of Valley common stock will be
when issued to Wayne's shareholders pursuant to the Agreement or the prices at
which Wayne's or Valley's common stock will trade at any time.
We have acted as Wayne's financial advisor in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon consummation of the Merger. We have also received a fee for
rendering this opinion. In the past, we have also provided certain other
investment banking services for Wayne and have received compensation for such
services.
In the ordinary course of our business, we may actively trade the
equity securities of Wayne and Valley for our own account and for the accounts
of our customers and, accordingly, may at any time hold a long or short position
in such securities.
Our opinion is directed to the Board of Directors of Wayne in
connection with its consideration of the Merger and does not constitute a
recommendation to any stockholder of Wayne as to how such stockholder should
vote at any meeting of stockholders called to consider and vote upon the Merger.
Our opinion is not to be quoted or referred to, in whole or in part, in a
registration statement, prospectus, proxy statement or in any other document,
nor shall this opinion be used for any other purposes, without Sandler O'Neill's
prior written consent; provided, however, that we hereby consent to the
inclusion of this opinon as an appendix to Wayne's and Valley's Proxy
Statement-Prospectus dated the date hereof and to the references to this opinion
therein.
Based upon and subject to the foregoing, it is our opinion, as of the
date hereof, that the Exchange Ratio is fair, from a financial point of view, to
the holders of Wayne Shares.
Very truly yours,
<PAGE>
APPENDIX D
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER 20691
WAYNE BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3424621
--------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1195 HAMBURG TURNPIKE, WAYNE, NEW JERSEY 07474
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 305-5500
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK PAR VALUE $0.01 PER SHARE
(Title of class)
----------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL THE
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR 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 DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATIONS 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
AMENDMENT TO THIS FORM 10-K. [X]
THE REGISTRANT'S VOTING STOCK TRADES ON THE NASDAQ NATIONAL MARKET
UNDER THE SYMBOL "WYNE." THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT, WAS $47,731,817 AND IS BASED ON THE LAST SALES
PRICE AS LISTED ON THE NASDAQ STOCK MARKET FOR MARCH 16, 1998 ($24.875 PER SHARE
BASED ON 1,918,867 SHARES OF COMMON STOCK.
THE REGISTRANT HAD 2,013,124 SHARES OUTSTANDING AS OF MARCH 16, 1998.
----------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended
December 31, 1997 are incorporated by reference in Part II of this Form 10-K.
Portions of the Proxy Statement for the 1998 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K.
================================================================================
<PAGE>
INDEX
PART I Page
------ ----
Item 1. Description of Business ................................... 1
Additional Item: Executive Officers of the Registrant ................ 18
Item 2. Properties ................................................ 18
Item 3. Legal Proceedings ......................................... 19
Item 4. Submission of Matters to a Vote of Security Holders ....... 19
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholders' Matters ..................................... 19
Item 6. Selected Financial Data ................................... 19
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............. 19
Item 7a. Quantitative and Qualitative Disclosure Account
Market Risk ............................................... 19
Item 8. Financial Statements and Supplementary Data ............... 19
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ....................... 19
PART III
Item 10. Directors and Executive Officers of the Registrant ........ 19
Item 11. Executive Compensation .................................... 19
Item 12. Security Ownership of Certain Beneficial Owners
and Management ............................................ 19
Item 13. Certain Relationships and Related Transactions ............. 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K ................................................ 20
SIGNATURES
<PAGE>
WAYNE BANCORP, INC.
ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1997
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Wayne Bancorp, Inc. (also referred to as the "Company" or "Registrant")
was incorporated under Delaware law at the direction of the Board of Directors
of Wayne Savings Bank, F.S.B. (the "Bank") to acquire all of the capital stock
the Company issued in connection with its conversion from the mutual to stock
form, which was consummated on June 27, 1996. The Registrant is a unitary
savings and loan holding company and is subject to regulation by the Office of
Thrift Supervision ("OTS"), the Federal Deposit Insurance Corporation ("FDIC")
and the Securities and Exchange Commission ("SEC"). At December 31, 1997, the
Registrant does not transact any material business other than through its sole
subsidiary, the Bank.
The Bank was organized in 1921 as the Pequannock and Wayne Building and
Loan Association, a New Jersey mutual building and loan association, and was the
first financial institution located in the Township of Wayne, New Jersey. In
1946, the Bank changed its name to Wayne Savings and Loan Association, a New
Jersey mutual savings and loan association and converted to a federally
chartered mutual savings bank under its current name in 1994. The Bank's primary
regulator is the OTS. The Bank's deposits are insured up to the maximum
allowable amount by the Savings Association Insurance Fund ("SAIF") of the FDIC.
MARKET AREA AND COMPETITION
The Company conducts its business through six banking offices,
including its administrative office, all of which are located in northern New
Jersey. The Company's deposit base is drawn principally from Passaic County,
primarily the township of Wayne, a stable, residential community of
approximately 50,000 persons located 20 miles west of New York City. The
Company's primary market area is a highly competitive market for financial
services and the Company faces intense competition both in making loans and in
attracting deposits. The Company faces direct competition from a significant
number of financial institutions operating in its market area, many with a
state-wide or regional presence and in some cases a national presence. Many of
these financial institutions are significantly larger and have greater financial
resources than the Company. The Company's competition for loans comes
principally from savings institutions, mortgage banking companies, commercial
banks, credit unions and insurance companies. Its most direct competition for
deposits has historically come from savings and loan associations and commercial
banks. In addition, the Company faces increasing competition for deposits and
other financial products from non-bank institutions such as brokerage firms and
insurance companies in such areas as short-term money market funds, mutual funds
and annuities. Competition may also increase as a result of the lifting of
restrictions on the interstate operations of financial institutions.
1
<PAGE>
LENDING ACTIVITIES
Loan Portfolio Composition. The following table sets forth the
composition of the Company's loan portfolio in dollar amounts and as a
percentage of the portfolio at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ------------------ ---------------- ------------------ ------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
(DOLLARS IN THOUSANDS)
Real estate:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family .... $130,865 71.70% $113,701 77.22% $ 87,579 77.10% $ 88,722 77.28% $ 89,602 83.27%
Home equity ............ 27,889 15.28 24,394 16.57 20,964 18.46 21,165 18.44 13,326 12.39
Multi-family ........... 2,072 1.14 185 0.13 195 0.17 541 0.47 495 0.46
Commercial ............. 14,042 7.69 7,069 4.80 3,636 3.20 3,076 2.68 2,831 2.63
Construction ........... 3,929 2.15 -- -- -- -- 170 0.15 -- --
Commercial business .... 2,558 1.40 644 0.43 -- -- -- -- -- --
Consumer ............... 1,156 0.64 1,257 0.85 1,216 1.07 1,130 0.98 1,346 1.25
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans, gross .... 182,511 100.00% 147,250 100.00% 113,590 100.00% 114,804 100.00% 107,600 100.00%
====== ====== ====== ====== ======
Less:
Undisbursed loan funds . 1,353 -- -- 111 --
Deferred loan
origination fees ..... 56 36 13 59 30
Allowance for loan
losses ................ 2,170 1,789 1,589 1,543 1,237
-------- -------- -------- -------- --------
Total loans, net ..... $178,932 $145,425 $111,988 $113,091 $106,333
======== ======== ======== ======== ========
</TABLE>
Loan Maturity. The following table shows the contractual maturity of
the Company's gross loans at December 31, 1997. The table does not include
principal repayments or prepayments.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
---------------------------------------------------------------------------------------
ONE- TO COMMERCIAL TOTAL
FOUR- HOME MULTI- REAL COMMERCIAL LOANS
FAMILY EQUITY FAMILY CONSTRUCTION ESTATE BUSINESS CONSUMER RECEIVABLE
------ ------ ------ ------------ ---------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts due:
One year or less ...................... $ 80 $ 64 $ -- $3,929 $ -- $1,609 $ 671 $ 6,359
-------- ------- ------ ------ ------- ------ ------ --------
After one year:
More than one year to three years .... 594 477 -- -- -- 131 132 1,325
More than three years to five years .. 2,423 1,675 43 -- 591 718 74 5,524
More than five years to 10 years ..... 7,926 11,272 -- -- 4,007 100 187 23,492
More than 10 years to 20 years ....... 34,358 13,331 132 -- 6,085 -- 101 54,007
More than 20 years ................... 85,478 1,070 1,897 -- 3,359 -- -- 91,804
-------- ------- ------ ------ ------- ------ ------ --------
Total due after December 31, 1998 .... 130,779 27,825 2,072 -- 14,042 949 485 176,152
-------- ------- ------ ------ ------- ------ ------ --------
Total amount due ................... $130,865 $27,889 $2,072 $3,929 $14,042 $2,558 $1,156 $182,511
======== ======= ====== ====== ======= ====== ====== ========
Less:
Undisbursed loan funds ................ 1,353
Deferred loan origination fees ........ 56
Allowance for loan losses ............. 2,170
--------
Total loans, net ....................... $178,932
========
</TABLE>
2
<PAGE>
The following table sets forth at December 31, 1997, the dollar amount
of total gross loans receivable contractually due after December 31, 1998, and
whether such loans have fixed interest rates or adjustable interest rates. The
one- to four-family loans reflected as having fixed rates include fixed-rate
products and $19.7 million of balloon loans with contractual maturities of 5 to
7 years and amortization schedules of up to 30 years. All of those loans were
originated prior to 1992.
<TABLE>
<CAPTION>
DUE AFTER DECEMBER 31, 1998
------------------------------------------
FIXED ADJUSTABLE TOTAL
------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Real estate loans:
One-to four-family .................................. $62,145 $68,634 $130,779
Home equity ......................................... 17,224 10,601 27,825
Multi-family ........................................ -- 2,072 2,072
Commercial .......................................... 2,746 11,296 14,042
Commercial business .................................. 132 817 949
Consumer ............................................. 485 -- 485
------- ------- --------
Total .............................................. $82,732 $93,420 $176,152
======= ======= ========
</TABLE>
Loan Originations and Purchases. All loans originated by the Company
are underwritten by the Company pursuant to the Company's policies and
procedures. The Company originates both adjustable-rate and fixed-rate mortgage
loans. The Company's ability to originate loans is dependent upon the relative
customer demand for fixed-rate or adjustable-rate mortgage loans, which is
affected by the current and expected future level of interest rates. Loan
originations have increased from $57.7 million for the year ended December 31,
1996 to $59.2 million for the year ended December 31, 1997, reflecting the
expansion of the Company's lending area for first mortgages as well as the
increase in loans originated through a loan origination program. In addition,
the Company has increased its marketing efforts to increase the volume of home
equity loans. Finally, the Company continues to expand the commercial lending
function. It is the general policy of the Company to retain all loans originated
in its portfolio.
The Company has sought to maintain a more stable level of loan
originations by its continuing participation in a loan origination program. For
the year ended December 31, 1997, the Company originated $18.4 million in loans
through this program. All loans originated through the use of this program are
one- to four-family loans and are secured by properties located in New Jersey.
Through this program, borrowers are given information from participating lenders
quoting their most favorable terms for each loan. The borrower determines which
institution provides the best loan for the borrower's financing needs and upon
choosing a lender, deals directly with that lender throughout the loan
origination process. The Company pays a 37.5 basis point fee to the loan company
at the time of the loan closing; if a loan is originated by the Company to a
borrower who used the loan program to find the Company. This fee enables the
loan company to advertise continuously, giving participating lenders consistent
market exposure.
3
<PAGE>
The following table sets forth the Company's loan originations,
purchases, and principal repayments for the periods indicated. During the
periods indicated there were no loan sales.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net loans:
Beginning balance .................................... $145,425 $111,988 $113,091
Real estate:
One-to four-family ................................. 28,019 41,999 10,633
Home equity ........................................ 11,898 11,183 4,685
Commercial real estate ............................. 8,763 3,070 --
Multi-family ....................................... 1,899 -- --
Construction and land .............................. 4,435 -- 100
Commercial business ................................. 3,867 686 --
Consumer ............................................ 299 738 699
-------- -------- --------
Total loans originated ............................ 59,180 57,676 16,117
Loans purchased (1) .................................. 3,247 60 140
-------- -------- --------
Total ............................................. 207,852 169,724 129,348
Less:
Principal repayments ................................ (27,086) (23,956) (16,483)
Transfer to REO ..................................... (80) (143) (831)
Undisbursed loan funds .............................. (1,353) -- --
Net change in deferred fees ......................... (20) -- --
Net change in allowance for loan losses ............. (381) (200) (46)
-------- -------- --------
Ending balance loans receivable, net ................ $178,932 $145,425 $111,988
======== ======== ========
</TABLE>
- ----------
(1) All loans purchased consisted of one- to four-family loans.
One- to Four-Family Lending. The Company currently offers both
fixed-rate and adjustable-rate mortgage loans primarily secured by one- to
four-family residences, with maturities up to 30 years, including loans with
bi-weekly payment options, for retention in its portfolio. All such loans are
secured by properties located in the Company's primary market area, or in other
parts of New Jersey if originated through the loan origination program. Loans
purchased through brokers are secured by properties located in other states;
during 1997, $3.2 million of such loans were purchased. All one- to four-family
loans are underwritten in accordance with FHLMC/FNMA standards. Loan
originations are obtained from the Company's branch offices, through the loan
origination program, existing or past customers, through advertising and, to a
lesser extent, from referrals from real estate brokers and attorneys.
Of the one-to four- family residential mortgage loans outstanding at
that date, 52.4% were adjustable-rate loans. The Company's one-to four-family
adjustable-rate mortgage ("ARM") loans are primarily indexed to the U.S.Treasury
Bill rates. The Company currently offers one, three, five, seven and ten-year
ARM loans, with interest rates based on a spread above the one, three, five,
seven and ten-year U.S. Treasury Bill rates, respectively. The Company's ARM
loans are subject to limitations of 2% per adjustment on interest rate increases
or decreases and life time caps of 5%.
The Company originates one- to four-family residential loans in amounts
up to 90% of the appraised value of the property securing the loan, although the
Company may originate loans in amounts up to 95% of the appraised value for
first-time home buyers. Private mortgage insurance is required for all loans
with a loan to value ratio over 80%. Residential mortgage loans in the Company's
portfolio generally include due on sale clauses, which provide the Company with
the contractual right to demand the loan immediately due and payable in the
event that the borrower transfers ownership of the property without the
Company's consent. The Company generally enforces its rights under these
clauses. In recent years, the Company has sought to originate one- to
four-family mortgage loans with terms of 15 years or less, although the Company
does originate fixed rate loans with terms up to 30 years.
Upon receipt of a completed loan application from a prospective
borrower for a loan secured by one- to four-family residential real estate, a
credit report is ordered and income, financial and employment information is
4
<PAGE>
requested and verified. An appraisal of the real estate intended to secure the
proposed loan is undertaken by an independent appraiser previously approved by
the Company. It is the Company's policy to require title insurance on all
mortgage loans. Borrowers also must obtain hazard insurance prior to closing.
Potential borrowers are qualified for one-year ARM loans based on the fully
indexed rate.
Home Equity Loans. The Company originates home equity loans, generally
secured by one- to four-family, owner-occupied residential properties on which
the Company is the primary lender. The Company's policy is to originate home
equity loans in amounts up to 80% of the appraised value of the property, less
existing liens. Home equity loans are originated with fixed or adjustable rates.
Home equity loans originated with fixed-rates are for terms of 20 years or less
and those originated with adjustable-rates may be made for terms up to 20 years.
Payments of principal and interest are due monthly. The Company employs similar
underwriting standards in making home equity loans as those utilized for
residential mortgage loans, except that borrowers applying for an
adjustable-rate home equity loan are qualified at the initial interest rate plus
4% and there is a 15% interest rate cap for the life of the loan.
Commercial Real Estate and Multi-Family Loans. The Company's policies
provide that it may originate multi-family mortgage loans and commercial real
estate loans generally secured by property located in its primary market area.
The Company expects to continue to increase these types of lending in the
future. In reaching its decision on whether to make a commercial real estate or
multi-family loan, the Company considers a number of factors, including: market
conditions, the net operating income of the mortgaged premises before debt
service and depreciation; the debt service ratio (the ratio of net operating
income to debt service); and the ratio of loan amount to appraised value.
Commercial real estate loans and multi-family loans may be made up to 75% of the
appraised value of the property. Properties securing a loan are appraised by an
independent appraiser. In most cases, borrowers must personally guarantee the
loans. The Company offers 5 or 7 year balloon loans with maximum terms of up to
25 years and three-year and five-year ARM loans that adjust every third or fifth
year to the three-year or five-year U.S. Treasury Bill plus a rate up to 3.25%.
There are no adjustment caps. The largest loan in this portfolio is a $2.1
million loan secured by a commercial office building in Wayne. This loan was a
five-year balloon loan made in 1988 which became due in December 1993 and
refinanced in 1994. The loan is currently a three-year adjustable with a twenty
year amortization period. This loan is currently performing in accordance with
its terms.
When evaluating a multi-family or commercial real estate loan, the
Company also considers the financial resources and income level of the borrower,
the borrower's experience in owning or managing similar properties, and the
Company's lending experience with the borrower. The Company's underwriting
policies require that the borrower be able to demonstrate strong management
skills and the ability to maintain the property from current rental income. The
borrower is required to present evidence of the ability to repay the mortgage
and a history of making mortgage payments on a timely basis. In making its
assessment of the creditworthiness of the borrower, the Company generally
reviews the financial statements, employment and credit history of the borrower,
as well as other related documentation.
Commercial real estate and multi-family loans are generally larger and
present a greater degree of risk than loans secured by one- to four-family
residences. Because payments on loans secured by commercial real estate and
multi-family properties are often dependent on the successful operation or
management of the properties, repayment of such loans may be subject to a
greater extent to adverse conditions in the real estate market or in the
economy. The Company seeks to minimize these risks through its underwriting
standards, which require the loans to be qualified on the basis of the
property's income and debt service ratio. At December 31, 1997, there were no
commercial loans or multi-family loans delinquent 90 days or more. There can be
no assurance that delinquencies will not increase in the future, particularly in
light of the Company's decision to increase its efforts to originate a higher
volume and greater variety of commercial real estate and multi-family loans.
Construction Lending. The Company has, on a case by case basis,
originated loans for the development of property to existing customers and
prospects in its primary market area. At December 31, 1997, $3.9 million, or
2.2% of total gross loans receivable were construction loans. The undisbursed
portion of construction loans was $1.4 million as of December 31, 1997. The
Company's construction loans primarily have been made to finance the
construction of one- to four-family, owner-occupied residential properties as
well as commercial offices and retail properties. As part of its business plan,
the Company may increase the amount of its construction lending. The Company's
policies provide that construction loans may be made in amounts up to 75% of the
appraised value of the property for construction. The Company requires an
independent appraisal of the property. The Company generally requires personal
guarantees and a permanent loan commitment if the Company will not be making the
permanent loan.
5
<PAGE>
Construction financing is generally considered to involve a higher
degree of credit risk than long-term financing on improved, owner-occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development compared to the estimated cost (including interest)
of construction. If the estimate of value proves to be inaccurate, the Company
may be confronted with a project, when completed, having a value which is
insufficient to ensure full repayment. At December 31, 1997, there were no
construction loans delinquent 90 days or more. There can be no assurance that
delinquencies will not increase in the future, particularly in light of the
Company's decision to increase its efforts to originate a higher volume and
greater variety of construction loans.
Joint Venture. On February 27, 1998, the Company announced that it
entered into a joint venture agreement with a local developer for construction
and marketing of 14 single family residential homes in the Township of Wayne,
New Jersey with an approximate selling price of $479,900 per home.
Consumer Loans. The Company's consumer loans generally consist of
student education loans and loans secured by savings accounts. At December 31,
1997, the Company's consumer loan portfolio consisted of $591,000 of passbook
loans, $415,000 of student education loans, $125,000 of automobile loans and
$25,000 of personal loans. All of the student education loans are underwritten
in accordance with, and are guaranteed by, the New Jersey Higher Education
Assistance Authority. The Company has recently authorized the origination of
automobile loans up to $25,000, unsecured personal loans up to $5,000 and
overdraft lines of credit up to $2,500 and intends to continue to pursue
opportunities to expand these areas of lending.
Consumer loans may entail greater credit risk than do residential
mortgage loans, particularly in the case of consumer loans that are unsecured or
are secured by rapidly depreciable assets, such as automobiles. In such cases,
any repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of the
greater likelihood of damage, loss or depreciation. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
therefore are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. At December 31, 1997, there were no consumer loans delinquent 90
days or more. There can be no assurance that delinquencies will not increase in
the future, particularly in light of the Company's decision to increase its
efforts to originate a higher volume and greater variety of consumer loans.
Commercial Business Loans. The Company intends to pursue opportunities
to offer commercial business loans, primarily to businesses located in the
Company's primary market area. Federally chartered savings institutions, such as
the Company, are authorized to make secured or unsecured loans and letters of
credit for commercial, corporate, business and agricultural purposes and to
engage in commercial leasing activities, up to a maximum of 20% of total assets,
with amounts in excess of 10% of such total assets may be only for small
business loans, as defined by the OTS. The Company's commercial business lending
policy includes credit file documentation and analysis of the borrower's
character, capacity to repay the loan, the adequacy of the borrower's capital
and collateral, as well as an evaluation of conditions affecting the borrower.
Analysis of the borrower's past, present and future cash flows will also be an
important aspect of the Company's current credit analysis.
Unlike residential mortgage loans, which generally are made on the
basis of the borrower's ability to make repayment from his or her employment and
other income, and which are secured by real property whose value tends to be
more easily ascertainable, commercial business loans are of higher risk and
typically are made on the basis of the borrower's ability to make repayment from
the cash flow of the borrower's business. As a result, the availability of funds
for the repayment of commercial business loans may be substantially dependent on
the success of the business itself. Further, the collateral securing the loans
may depreciate over time, may be difficult to appraise and may fluctuate in
value based on the success of the business. At December 31, 1997, there were no
commercial business loans delinquent 90 days or more. There can be no assurance
that delinquencies will not increase in the future, particularly in light of the
Company's decision to increase its efforts to originate a higher volume and
greater variety of commercial business loans.
Delinquencies and Classified Assets. Management and the Board of
Directors perform a monthly review of all delinquent loans. The procedures taken
by the Company with respect to delinquencies vary depending on the nature of the
loan and period of delinquency. The Company generally requires that delinquent
mortgage loans be reviewed
6
<PAGE>
and that a written late charge notice be mailed no later than the 17th day of
delinquency. The Company's policies provide that telephone contact will be
attempted to ascertain the reasons for delinquency and the prospects of
repayment. When contact is made with the borrower at any time prior to
foreclosure, the Company will attempt to obtain full payment or work out a
repayment schedule with the borrower to avoid foreclosure. It is the Company's
policy to place all loans that are delinquent by three or more payments on
nonaccrual status, resulting in the Company no longer accruing interest on such
loans and reversing any interest previously accrued but not collected. A
non-accrual loan may be restored to accrual status when delinquent principal and
interest payments are brought current and future monthly principal and interest
payments are expected to be collected. Property acquired by the Company as a
result of foreclosure on a mortgage loan is classified as "real estate owned"
("REO") and is recorded at the lower of the unpaid principal balance or fair
value less costs to sell at the date of acquisition and thereafter. Upon
foreclosure, the Company generally requires an appraisal of the property and,
thereafter, appraisals of the property on an annual basis and external
inspections on at least a quarterly basis.
Federal regulations and the Company's Classification of Assets Policy
require that the Company utilize an internal asset classification system as a
means of reporting problem and potential problem assets. The Company currently
classifies problem and potential problem assets as "Substandard," "Doubtful" or
"Loss." An asset is considered Substandard if it is inadequately protected by
the current net worth and paying capacity of the obligor or of the collateral
pledged, if any. Substandard assets include those characterized by the "distinct
possibility" that the insured institution will sustain "some loss" if the
deficiencies are not corrected. Assets classified as Doubtful have all of the
weaknesses inherent in those classified Substandard with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions and values, "highly
questionable and improbable." Assets classified as Loss are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss allowance is not warranted. Assets
which do not currently expose the insured institution to sufficient risk to
warrant classification in one of the aforementioned categories but posses
weaknesses are required to be designated "Special Mention."
A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS, which can order the establishment of additional general or specific loss
allowances. The OTS, in conjunction with the other federal banking agencies,
adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the policy
statement recommends that institutions have effective systems and controls to
identify, monitor and address asset quality problems; that management has
analyzed all significant factors that affect the collectibility of the portfolio
in a reasonable manner; and that management has established acceptable allowance
evaluation processes that meet the objectives set forth in the policy statement.
While the Company believes that it has established an adequate allowance for
loan losses, there can be no assurance that regulators, in reviewing the
Company's loan portfolio, will not request the Company to materially increase
its allowance for loan losses, thereby negatively affecting the Company's
financial condition and earnings. Although management believes that, based on
information currently available to it at this time, its allowance for loan
losses is adequate, actual losses are dependent upon future events and, as such,
further additions to the level of allowances for loan losses may become
necessary.
When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
General valuation allowances, which is a regulatory term, represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
one or more assets, or portions thereof, as loss, it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
asset soclassified or to charge off such amount.
The Chief Lending Officer reviews and classifies the Company's loans on
a quarterly basis and reports the results of the review to the Board of
Directors. The Company classifies loans in accordance with the management
guidelines described above. At December 31, 1997, the Company had $80,000 of
REO. At December 31, 1997, the Company had $2.1 million of assets classified as
Special Mention, $2.6 million of assets classified as Substandard, nothing
classified as Doubtful and nothing classified as Loss.
7
The following table sets forth delinquencies in the Company's loan
portfolio as of the dates indicated. There were no delinquencies in the
multi-family, commercial real estate, construction or commercial business
portfolios at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997 AT DECEMBER 31, 1996
---------------------------------------- -----------------------------------------
60-89 DAYS 90 DAYS OR MORE(1) 60-89 DAYS 90 DAYS OR MORE(1)
------------------- ------------------- -------------------- -------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
-------- --------- -------- --------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family ............. 1 $14 24 $2,146 3 $344 22 $1,872
Home equity ..................... -- -- 5 182 -- -- 5 184
Consumer ........................ -- -- -- -- 1 7 4 20
-- --- -- ------ -- ---- -- ------
Total ........................ 1 $14 29 $2,328 4 $351 31 $2,076
== === == ====== == ==== == ======
Delinquent loans to total
gross loans .................... .01% 1.30% .24% 1.41%
=== ==== === ====
</TABLE>
AT DECEMBER 31, 1995
--------------------------------------------
60-89 DAYS 90 DAYS OR MORE(1)
-------------------- --------------------
PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS
-------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
One- to four-family ............ 9 $361 26 $2,278
Home equity .................... -- -- 4 162
Consumer ....................... -- -- 1 10
-- ---- -- ------
Total ....................... 9 $361 31 $2,450
== ==== == ======
Delinquent loans to total
gross loans ................... .32% 2.16%
=== ====
- ----------
(1) Loans 90 days or more past due are included in non-accrual loans. See
"Lending Activities--Non-Accrual Loans."
Non-Accrual Loans. The table below sets forth information regarding
non-accrual loans (all loans 90 days or more delinquent) and REO held by the
Company at the dates indicated. There were no non-accrual loans in the
multi-family, commercial real estate, construction, or commercial business
portfolios at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
One- to four-family ....................... $2,146 $1,872 $2,278 $3,395 $3,269
Home equity ............................... 182 184 162 223 234
Consumer .................................. -- 20 10 27 7
------ ------ ------ ------ ------
Total ..................................... 2,328 2,076 2,450 3,645 3,510
REO, net(1)(2) ............................. 80 116 597 970 1,338
------ ------ ------ ------ ------
Total non-performing assets .............. $2,408 $2,192 $3,047 $4,615 $4,848
====== ====== ====== ====== ======
</TABLE>
- ----------
(1) REO balances are shown net of related loss allowances.
(2) REO, net at December 31, 1994 and 1993 included $0 and $264,000,
respectively, of in-substance foreclosed loans. Under Statement of
Financial Accounting Standards No. 114 "Accounting by Creditors for
Impairment of a Loan", adopted January 1, 1995 by the Company, loans that
previously would have been classified as in-substance foreclosures would be
classified as impaired loans. There were no loans considered to be impaired
as of December 31, 1997, 1996 and 1995.
8
<PAGE>
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in its loan portfolio and changes in the nature and volume of its
loan activity. Such evaluation, which includes a review of all loans of which
full collectibility may not be reasonably assured, considers among other
matters, the estimated market value of the underlying collateral, economic
conditions, historical loan loss experience and other factors that warrant
recognition in providing for an adequate loan loss allowance. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. Such agencies may
require the Company to make additional provisions for losses on loans based upon
information available at the time of the review.
The following table sets forth activity in the Company's allowance for
loan losses for the periods set forth in the table.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Real estate loans:
Balance at beginning of year ............ $1,789 $1,589 $1,543 $1,237 $ 974
Provision for loan losses ............... 400 200 152 316 286
Charge-offs:
One- to four-family ..................... -- -- (106) (10) (23)
Consumer ................................. (19) -- -- -- --
------ ------ ------ ------ ------
Balance at end of year ................... $2,170 $1,789 $1,589 $1,543 $1,237
====== ====== ====== ====== ======
Net charge-offs to average gross
loans receivable ........................ 0.01% -- 0.09% 0.01% 0.02%
Allowance for loan losses as a percent
of gross loans receivable ............... 1.19 1.21 1.40 1.34 1.15
Allowance for loan losses as a percent
of total non-performing loans ........... 93.21 86.18 64.86 42.33 35.24
Non-performing loans as a percent
of gross loans receivable ............... 1.29 1.41 2.16 3.17 3.26
Non-performing assets as a percent
of total assets ......................... 0.89 0.90 1.46 2.61 2.65
</TABLE>
9
<PAGE>
The following tables set forth the amount of the Company's allowance
for loan losses, the percent of allowance for loan losses to total allowance and
the percent of gross loans to total gross loans in each of the categories listed
at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------------------------------------------------
1997 1996 1995
--------------------------------- -------------------------------- ---------------------------------
PERCENT OF PERCENT OF PERCENT OF
GROSS LOANS GROSS LOANS GROSS LOANS
PERCENT OF IN EACH PERCENT OF IN EACH PERCENT OF IN EACH
ALLOWANCE CATEGORY ALLOWANCE CATEGORY ALLOWANCE CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT ALLOWANCE GROSS LOANS AMOUNT ALLOWANCE GROSS LOANS AMOUNT ALLOWANCE GROSS LOANS
------ --------- ----------- ------ ---------- ----------- ------ ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family ....... $1,626 74.95% 71.71% $1,181 66.01% 77.22% $1,030 64.82% 77.10%
Home equity ............... 106 4.89 15.28 242 13.53 16.57 210 13.22 18.46
Commercial Real Estate .... 379 17.45 7.69 355 19.84 4.80 342 21.52 3.20
Multi-family .............. 34 1.56 1.14 -- -- .13 -- -- .17
Construction .............. 11 0.53 2.15 -- -- -- -- -- --
Commercial business ....... 13 0.59 1.40 3 .17 .43 -- -- --
Consumer .................. 1 0.03 0.63 8 .45 .85 7 .44 1.07
------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance for
loan losses ............ $2,170 100.00% 100.00% $1,789 100.00% 100.00% $1,589 100.00% 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------------
1994 1993
---------------------------------- ------------------------------------
PERCENT OF PERCENT OF
GROSS LOANS GROSS LOANS
PERCENT OF IN EACH PERCENT OF IN EACH
ALLOWANCE CATEGORY ALLOWANCE CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT ALLOWANCE GROSS LOANS AMOUNT ALLOWANCE GROSS LOANS
------- ----------- ------------ ------ --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family $ 979 63.46% 77.28% $1,084 87.63% 83.28%
Home equity 209 13.54 18.44 131 10.59 12.38
Commercial Real Estate 347 22.49 2.68 14 1.13 2.63
Multi-family 1 .06 .47 1 .08 .46
Construction -- -- .15 -- -- --
Consumer 7 .45 .98 7 .57 1.25
------ ------ ------ ------ ------ ------
Total allowance for
loan losses $1,543 100.00% 100.00% $1,237 100.00% 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
10
<PAGE>
SECURITIES PORTFOLIO
Federally chartered savings institutions have the authority to invest
in various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest in commercial paper, corporate
debt securities and mutual funds whose assets conform to the investments that a
federally chartered savings institution is otherwise authorized to make
directly. Additionally, the Company must maintain minimum levels of investments
that qualify as liquid assets under OTS regulations. As a member of the FHLB,
the Bank also is required to maintain liquid assets at minimum levels which
change from time to time. The Company's liquid investments primarily include
federal agency securities and federal funds.
Management of the Company, with the Board of Directors' ratification,
sets the investment policy of the Company. This policy dictates that investments
will be made based on the safety of the principal, the liquidity requirements of
the Company and the return on the investment and capital appreciation. All
investment decisions are made by the Investment Committee, comprised of members
of Management, and such investment decisions are ratified by the Board of
Directors of the Company.
The Company's investments include FHLB-NY stock, mortgage-backed
securities insured or guaranteed by FHLMC, FNMA, GNMA, equity securities, and
U.S. government agency securities.
The following table sets forth certain information regarding the
amortized cost and estimated market values of the Company's mortgage-backed and
investment securities at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------
1997 1996 1995
--------------------- -------------------- --------------------
ESTIMATED ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE COST VALUE
--------- --------- --------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed and investment
securities held to maturity:
FHLMC ................................ $ 1,532 $ 1,502 $ 1,608 $ 1,572 $ 1,956 $ 1,879
FNMA ................................. 1,381 1,380 1,621 1,625 1,885 1,890
------- ------- ------- ------- ------- -------
Total mortgage-backed and
investment securities
held to maturity .................. $ 2,913 $ 2,882 $ 3,229 $ 3,197 $ 3,841 $ 3,769
======= ======= ======= ======= ======= =======
Mortgage-backed and investment
securities available for sale:
Collateralized mortgage
obligations ......................... $ 3,311 $ 3,209 $ 3,334 $ 3,204 $ 3,334 $ 3,156
U.S. government and federal
agency obligations .................. 37,324 37,890 38,318 38,222 12,501 12,553
Equity securities .................... 753 812 -- -- -- --
FHLMC ................................ 7,165 7,191 12,288 12,282 13,873 13,828
FNMA ................................. 12,752 12,679 13,147 13,054 13,335 13,374
GNMA ................................. 11,607 11,632 14,391 14,105 15,261 15,244
------- ------- ------- ------- ------- -------
Total mortgage-backed and
investment securities
available for sale ................ $72,912 $73,413 $81,478 $80,867 $58,304 $58,155
======= ======= ======= ======= ======= =======
</TABLE>
11
<PAGE>
SOURCES OF FUNDS
General
Deposits are the primary source of the Company's funds for use in
lending and for other general business purposes. In addition to deposits, the
Company obtains funds from advances from the FHLB-NY and other borrowings.
Deposits
The Company offers a variety of deposit accounts having a wide range of
interest rates and terms. The Company's deposits consist of regular savings,
checking, and money market and certificate accounts. The Company's deposits are
obtained primarily from its market area and it does not currently use brokers to
obtain deposits. The Company relies primarily on aggressive marketing campaigns,
customer service and long-standing relationships with customers to attract and
retain these deposits. The Company pays competitive interest rates on deposits,
but generally does not pay the highest interest rate among institutions in its
area.
The variety of deposit accounts offered by the Company has allowed it
to be competitive in its market area in obtaining funds and respond with
flexibility to changes in customer demand. As certain customers have become more
interest rate conscious, the Company has become more susceptible to short-term
fluctuations in deposit flows. The Company has sought to offer various deposit
and checking options offering favorable features not offered by the Company's
competitors and has marketed those products aggressively. Although the Company's
efforts to maintain and increase its volume of deposits enabled it to increase
deposits in fiscal 1997, the ability of the Company to attract and maintain
those accounts will continue to be affected by market conditions.
The following table presents the deposit activity of the Company for the
periods indicated:
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
------- ------- ------
(DOLLARS IN THOUSANDS)
Net deposits (withdrawals) ................ $12,407 $(1,649) $ 8,002
Interest credited on deposit accounts ..... 7,125 6,774 6,807
------- ------- -------
Total increase in deposit accounts ........ $19,532 $ 5,125 $14,809
======= ======= =======
At December 31, 1997, the Company had $11.7 million in certificate accounts
in amounts of $100,000 or more maturing as follows:
WEIGHTED
MATURITY PERIOD AMOUNT AVERAGE RATE
---------------- ------- -------------
(DOLLARS IN THOUSANDS)
Three months or less ........................... $ 5,378 5.39%
Over three through six months .................. 2,673 5.54
Over six through 12 months ..................... 2,620 5.55
Over 12 months ................................. 1,051 5.67
-------
Total .......................................... $11,722
=======
12
<PAGE>
The following table presents, by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at December 31, 1997.
<TABLE>
<CAPTION>
PERIOD TO MATURITY FROM DECEMBER 31, 1997
---------------------------------------------
MORE MORE MORE MORE
LESS THAN THAN THAN THAN
THAN ONE TO TWO TO THREE TO FOUR TO AT DECEMBER 31,
ONE TWO THREE FOUR FIVE ----------------------------
YEAR YEARS YEARS YEARS YEARS 1997 1996 1995
-------- ------ ------ -------- ------ ------ ------ ------
Certificate accounts:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 to 4.00% ....................... $ 1 $ -- $ -- $ -- $ -- $ 1 $ 331 $ 1,474
4.01 to 5.00% .................... 2,581 163 -- -- -- 2,744 14,310 18,028
5.01 to 6.00% .................... 90,204 11,907 2,673 615 292 105,691 80,829 44,122
6.01 to 7.00% .................... 22 783 1,049 -- -- 1,854 4,053 31,525
7.01 to 8.00% .................... -- -- -- -- -- -- -- 8
------- ------- ------ ---- ---- -------- ------- -------
Total ........................... $92,808 $12,853 $3,722 $615 $292 $110,290 $99,523 $95,157
======= ======= ====== ==== ==== ======== ======= =======
</TABLE>
BORROWINGS
Although deposits are the Company's primary source of funds, the
Company's policy has been to utilize borrowings when they are a less costly
source of funds. In addition, the Company may borrow to maintain regulatory
liquidity.
The Company obtains advances from the FHLB-NY on the security of its
capital stock of the FHLB-NY and certain of its mortgage loans and
mortgage-backed securities. Such advances are made pursuant to several different
credit programs, each of which has its own interest rate and range of
maturities. Regulations limit the amount of FHLB-NY advances to 30% of total
assets without obtaining specific approval from the Board of Directors of the
FHLB-NY. As of December 31, 1997, outstanding advances from the FHLB-NY amounted
to $32.0 million.
The following table sets forth certain information regarding the
Company's borrowed funds at or for the years ended December 31, 1997, 1996 and
1995.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR
ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FHLB advances:
Average balance outstanding .................................... $34,776 $12,417 $ 2,646
Maximum amount outstanding at any month-end
during the period ............................................. 41,725 27,000 6,000
Balance outstanding at end of period ........................... 32,000 27,000 2,000
Weighted average interest rate during the period ............... 6.56% 6.52% 6.53%
</TABLE>
<PAGE>
SUBSIDIARIES
The Bank has two wholly-owned subsidiaries, Wayne Savings Financial
Services Group, Inc. and Wayne Savings Asset Management Corporation. Financial
Services began operation in November 1989 and markets, as a broker, financial
products to the customers of the Company and the general public. The products
offered include annuities, life insurance, disability insurance, group life
insurance, stocks, bonds and mutual funds, financial planning, estate planning,
asset management and allocation services. Asset Management has not conducted any
activities to date.
PERSONNEL
As of December 31, 1997, the Company, including Financial Services, had
55 full-time and 8 part-time employees. The employees are not represented by a
collective bargaining unit, and the Company considers its relationship with its
employees to be good.
13
<PAGE>
REGULATION AND SUPERVISION
GENERAL
The activities of savings institutions, such as the Bank, are governed
by the Home Owners' Loan Act, as amended ("HOLA") and the Federal Deposit
Insurance Act ("FDI Act"). The Bank is subject to extensive regulation,
examination and supervision by the OTS, as its primary federal regulator, and
the FDIC, as the deposit insurer. The Bank is a member of the Federal Home Loan
Bank ("FHLB") System and its deposit accounts are insured up to applicable
limits by the SAIF managed by the FDIC. The Bank must file reports with the OTS
concerning its activities and financial condition in addition to obtaining
regulatory approvals prior to entering into certain transactions such as mergers
with, or acquisitions of, other savings institutions. The OTS and/or the FDIC
conduct periodic examinations to test the Bank's safety and soundness and
compliance with various regulatory requirements. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the insurance fund and
depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such regulatory requirements and
policies, whether by the OTS, the FDIC or the Congress, could have a material
adverse impact on the Company and its operations. Certain of the regulatory
requirements applicable to the Company are referred to below or elsewhere
herein. The description of statutory provisions and regulations applicable to
savings institutions set forth in this Form 10-K does not purport to be a
complete description of such statutes and regulations and their effects on the
Company.
FEDERAL SAVINGS INSTITUTION REGULATION
Capital Requirements. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 3% leverage (core) capital ratio and an 8% risk-based capital ratio. In
addition, the prompt corrective action standards discussed below also establish,
in effect, a minimum 2% tangible capital standard, a 4% leverage (core) capital
ratio (3% for institutions receiving the highest rating on the CAMEL financial
institution rating system), and, together with the risk-based capital standard
itself, a 4% Tier I risk-based capital standard. Core capital is defined as
common stockholders' equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus, and minority interests in equity
accounts of consolidated subsidiaries less intangibles other than certain
purchased mortgage servicing rights and credit card relationships. The OTS
regulations also require that, in meeting the tangible, leverage (core) and
risk-based capital standards, institutions must generally deduct investments in
and loans to subsidiaries engaged in activities not permissible for a national
bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier I (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of 4% and 8%, respectively.
In determining the amount of risk-weighted assets, all assets, including certain
off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100%,
as assigned by the OTS capital regulation based on the risks OTS believes are
inherent in the type of asset. The components of Tier I (core) capital are
equivalent to those discussed earlier. The components of supplementary capital
currently include cumulative preferred stock, long-term perpetual preferred
stock, mandatory convertible securities, subordinated debt and intermediate
preferred stock and the allowance for loan and lease losses limited to a maximum
of 1.25% of risk-weighted assets. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.
The OTS regulatory capital requirements also incorporate an interest
rate risk component. Savings institutions with "above normal" interest rate risk
exposure are subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. A savings institution's
interest rate risk is measured by the decline in the net portfolio value of its
assets (i.e., the difference between incoming and outgoing discounted cash flows
from assets, liabilities and off-balance sheet contracts) that would result from
a hypothetical 200 basis point increase or decrease in market interest rates
divided by the estimated economic value of the institution's assets. In
calculating its total capital under the risk-based capital rule, a savings
institution whose measured interest rate risk exposure exceeds 2% must deduct an
amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
institution's assets. The Director of the OTS may waive or defer a savings
institution's interest rate risk component on a case-by-case basis. A savings
institution with assets of
14
<PAGE>
less than $300 million and risk-based capital ratios in excess of 12% is not
subject to the interest rate risk component, unless the OTS determines
otherwise. For the present time, the OTS has deferred implementation of the
interest rate risk component. At December 31, 1997, the Bank met each of its
capital requirements, in each case on a fully phased-in basis and it is
anticipated that the Bank will not be subject to the interest rate risk
component.
Prompt Corrective Regulatory Action. Under the OTS prompt corrective
action regulations, the OTS is required to take certain supervisory actions
against undercapitalized institutions, the severity of which depends upon the
institution's degree of undercapitalization. Generally, a savings institution is
considered "well capitalized" if its ratio of total capital to risk-weighted
assets is at least 10%, its ratio of Tier I (core) capital to risk-weighted
assets is at least 6%, its ratio of core capital to total assets is at least 5%,
and it is not subject to any order or directive by the OTS to meet a specific
capital level. A savings institution generally is considered "adequately
capitalized" if its ratio of total capital to risk-weighted assets is at least
8%, its ratio of Tier I (core) capital to risk-weighted assets is at least 4%,
and its ratio of core capital to total assets is at least 4% (3% if the
institution receives the highest CAMEL rating). A savings institution that has a
ratio of total capital to risk weighted assets of less than 8%, a ratio of Tier
I (core) capital to risk-weighted assets of less than 4% or a ratio of core
capital to total assets of less than 4% (3% or less for institutions with the
highest examination rating) is considered to be "undercapitalized." A savings
institution that has a total risk-based capital ratio less than 6%, a Tier 1
capital ratio of less than 3% or a leverage ratio that is less than 3% is
considered to be "significantly undercapitalized" and a savings institution that
has a tangible capital to assets ratio equal to or less than 2% is deemed to be
"critically undercapitalized." Subject to a narrow exception, the banking
regulator is required to appoint a receiver or conservator for an institution
that is "critically undercapitalized." The regulation also provides that a
capital restoration plan must be filed with the OTS within 45 days of the date a
savings institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Compliance
with the plan must be guaranteed by any parent holding company. In addition,
numerous mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.
Insurance of Deposit Accounts. The Bank's deposit accounts are insured
by the SAIF to a maximum of $100,000 for each insured member (as defined by law
and regulation). The FDIC has the authority, should it initiate proceeding to
terminate an institution's deposit insurance, to suspend the insurance of any
such institution without tangible capital. However, if a savings institution has
positive capital when it includes qualifying intangible assets, the FDIC cannot
suspend deposit insurance unless capital declines materially, the institution
fails to enter into and remain in compliance with an approved capital plan or
the institution is operating in an unsafe manner.
Regardless of an institution's capital level, insurance of deposits may
be terminated by the FDIC upon finding that the institution has engaged in
unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the institution's primary regulator.
The FDIC charges an annual assessment for the insurance of deposits
based on the risk a particular institution poses to its deposit insurance fund.
Under this system, SAIF insured institutions pay within a range of six cents to
31 cents per $100 of domestic deposits, depending upon the institution's risk
classification. This amount includes an annual assessment of six basis points to
be paid to the Financing Corp. (FICO Bonds). This risk classification is based
on an institution's capital group and supervisory subgroup assignment. In
addition, the FDIC is authorized to increase such deposit insurance rates, on a
semi-annual basis, if it determines that such action is necessary by the FDIC.
The Bank's federal deposit insurance premium expense for the year ended December
31, 1997, amounted to approximately $92,000.
Thrift Rechartering Legislation. Various proposals to eliminate the
federal thrift charter, create a uniform financial institutions charter and
abolish the OTS have been introduced in Congress. The bills would require
federal savings institutions to convert to a national bank or some type of state
charter by a specified date or they would automatically become national banks.
Converted federal thrifts would generally be required to conform their
activities to those permitted for the charter selected and divestiture of
nonconforming assets would be required over a two year period, subject to two
possible one year extensions. State chartered thrifts would become subject to
the same federal regulation as applies to state commercial banks. Holding
companies for savings institutions would become subject to the same regulation
as holding companies that control commercial banks, with a limited grandfather
15
<PAGE>
provision for unitary savings and loan holding company activities. The Company
is unable to predict whether such legislation would be enacted, the extent to
which the legislation would restrict or disrupt its operations or whether the
BIF and SAIF funds will eventually merge.
Loans to One Borrower. Under the HOLA, savings institutions are
generally subject to the limits on loans to one borrower applicable to national
banks. Generally, savings institutions may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of its unimpaired capital
and surplus. An additional amount may be lent, equal to 10% of unimpaired
capital and surplus, if such loan is secured by readily-marketable collateral,
which is defined to include certain financial instruments and bullion. At
December 31, 1997, the Company's limit on loans to one borrower was $4.5
million. At December 31, 1997, the Company's largest aggregate outstanding
balance of loans to one borrower was $2.1 million.
Qualified Thrift Lender Test ("QTL Test"). The HOLA requires savings
institutions to meet a QTL test. Under the QTL test, a savings and loan
association is required to maintain at least 65% of its "portfolio assets"
(total assets less: (i) specified liquid assets up to 20% of total assets; (ii)
intangibles, including goodwill; and (iii) the value of property used to conduct
business) in certain "qualified thrift investments" (primarily residential
mortgages and related investments, including certain mortgage-backed securities)
in at least 9 months out of each 12 month period.
A savings institution that fails the QTL test is subject to certain
operating restrictions and may be required to convert to a bank charter. As of
December 31, 1997, the Bank maintained 77.2% of its portfolio assets in
qualified thrift investments and, therefore, met the QTL test.
Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level. An institution that exceeds
all fully phased-in capital requirements before and after a proposed capital
distribution ("Tier 1 Bank") and has not been advised by the OTS that it is in
need of more than normal supervision, could, after prior notice but without
obtaining approval of the OTS, make capital distributions during a calendar year
equal to the greater of (i) 100% of its net earnings to date during the calendar
year plus the amount that would reduce by one-half its "surplus capital ratio"
(the excess capital over its fully phased-in capital requirements) at the
beginning of the calendar year or (ii) 75% of its net income for the previous
four quarters. Any additional capital distributions would require prior
regulatory approval. In the event the Bank's capital fell below its regulatory
requirements or the OTS notified it that it was in need of more than normal
supervision, the Bank's ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
OTS determines that such distribution would constitute an unsafe or unsound
practice. In December 1994, the OTS proposed amendments to its capital
distribution regulation that would generally authorize the payment of capital
distributions without OTS approval provided that the payment does not cause the
institution to be undercapitalized within the meaning of the prompt corrective
action regulation. However, institutions in a holding company structure would
still have a prior notice requirement. At December 31, 1997, the Bank was a Tier
1 Bank.
Liquidity. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a quarterly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement is currently 4% but may be changed from
time to time by the OTS to any amount within the range of 4% to 10% depending
upon economic conditions and the savings flows of member institutions. OTS
regulations also require each member savings institution to maintain an average
daily balance of short-term liquid assets at a specified percentage of the total
of its net withdrawable deposit accounts and borrowings payable in one year or
less. Monetary penalties may be imposed for failure to meet these liquidity
requirements. The Bank's liquidity ratio for December 31, 1997 was 40.2%, which
exceeded the applicable requirements.
Assessments. Savings institutions are required to pay assessments to
the OTS to fund the agency's operations. The general assessments, paid on a
semi-annual basis, are computed upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the Bank's latest quarterly
thrift financial report. The assessments paid by the Company for the calendar
year ended December 31, 1997 totalled $68,000.
Branching. OTS regulations permit nationwide branching by federally
chartered savings institutions to the extent allowed by federal statute. This
permits federal savings institutions to establish interstate networks and to
16
<PAGE>
geographically diversify their loan portfolios and lines of business. The OTS
authority preempts any state law purporting to regulate branching by federal
savings institutions.
Transactions with Related Parties. The Company's authority to engage in
transactions with related parties or "affiliates" (e.g., any company that
controls or is under common control with an institution) is limited by Sections
23A and 23B of the Federal Reserve Act ("FRA"). Section 23A limits the aggregate
amount of covered transactions with any individual affiliate to 10% of the
capital and surplus of the savings institution. The aggregate amount of covered
transactions with all affiliates is limited to 20% of the savings institution's
capital and surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in Section 23A and
the purchase of low quality assets from affiliates is generally prohibited.
Section 23B generally provides that certain transactions with affiliates,
including loans and asset purchases, must be on terms and under circumstances,
including credit standards, that are substantially the same or at least as
favorable to the institution as those prevailing at the time for comparable
transactions with non-affiliated companies. In addition, savings institutions
are prohibited from lending to any affiliate that is engaged in activities that
are not permissible for bank holding companies and no savings institution may
purchase the securities of any affiliate other than a subsidiary.
The Bank's authority to extend credit to executive officers, directors
and 10% shareholders ("insiders"), as well as entities such persons control, is
governed by Sections 22(g) and 22(h) of the FRA and Regulation O thereunder.
Among other things, such loans are required to be made on terms substantially
the same as those offered to unaffiliated individuals and to not involve more
than the normal risk of repayment. Recent legislation created an exception for
loans made pursuant to a benefit or compensation program that is widely
available to all employees of the institution and does not give preference to
insiders over other employees. Regulation O also places individual and aggregate
limits on the amount of loans the Company may make to insiders based, in part,
on the Company's capital position and requires certain board approval procedures
to be followed.
Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all institution-affiliated parties, including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership, conservatorship or termination of
deposit insurance. Civil penalties cover a wide range of violations and can
amount to $25,000 per day, or even $1 million per day in especially egregious
cases. Under the FDI Act, the FDIC has the authority to recommend to the
Director of the OTS enforcement action to be taken with respect to a particular
savings institution. If action is not taken by the Director, the FDIC has
authority to take such action under certain circumstances. Federal law also
establishes criminal penalties for certain violations.
Standards for Safety and Soundness. The federal banking agencies have
adopted Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") and a final rule to implement safety and soundness standards
required under the FDI Act. The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes impaired. The
standards set forth in the Guidelines address internal controls and information
systems; internal audit system; credit underwriting; loan documentation;
interest rate risk exposure; asset growth; and compensation, fees and benefits.
If the appropriate federal banking agency determines that an institution fails
to meet any standard prescribed by the Guidelines, the agency may require the
institution to submit to the agency an acceptable plan to achieve compliance
with the standard, as required by the FDI Act. The final rule establishes
deadlines for the submission and review of such safety and soundness compliance
plans when such plans are required.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve Board may be used
to satisfy the liquidity requirements that are imposed by the OTS. At December
31, 1997, the Bank's total transaction accounts were in compliance with the
Federal Reserve Board requirements.
Savings associations have authority to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve policy generally requires savings
associations to exhaust all OTS sources before borrowing from the Federal
Reserve System. The Bank had no such borrowings as of December 31, 1997.
17
<PAGE>
ADDITIONAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information regarding the
executive officers of the Company and Bank who are not directors.
<TABLE>
<CAPTION>
NAME AGE(1) POSITION(S) HELD WITH THE BANK
------ -------- -------------------------------
<S> <C> <C>
Michael G. DeBenedette 47 Executive Vice President, Chief Operating Officer and Corporate
Secretary since March 1988.
Robert L. Frega 43 Senior Vice President, Chief Lending Officer since February 1998 and
Senior Commercial Loan Officer since March 1997. Prior to that he was
Vice President and Commercial Loan Officer with Fleet Bank, NA.
Timothy P. Tierney 55 Vice President and Chief Financial Officer since September 1994.
Prior to that he was Vice President and Controller of Crestmont
Federal Savings and Loan Association.
Position(s) Held With Wayne Savings Financial Services Group, Inc.
------------------------------------------------------------------
Gary Len 37 President, Chief Operating Officer since October 1996. Prior to
that he was Vice President since November 1989.
</TABLE>
- ------------------
(1) As of December 31, 1997.
ITEM 2. PROPERTIES.
The Company conducts its business through five branch offices and one
administrative office, four of which are located in Passaic County, New Jersey
and one in Essex County, New Jersey. The following table sets forth information
relating to each of the Company's offices and other properties as of December
31, 1997. The total net book value of the Company's premises and equipment at
December 31, 1997 was $3.3 million.
<TABLE>
<CAPTION>
ORIGINAL NET BOOK VALUE
YEAR OF PROPERTY OR
LEASED LEASED DATE OF LEASEHOLD
OR OR LEASE IMPROVEMENTS
LOCATION OWNED ACQUIRED EXPIRATION DECEMBER 31, 1997
-------- ------- -------- ---------- -----------------
<S> <C> <C> <C> <C>
ADMINISTRATIVE OFFICE:
1195 Hamburg Turnpike
Wayne, New Jersey ............................ Owned 1988 -- $2,716,598
BRANCH OFFICES:
1501 Hamburg Turnpike
Wayne, New Jersey ............................ Leased 1992 2001 60,585
1504 Route 23
(Packanack Shopping Center)
Wayne, New Jersey ............................ Leased 1959 2002 101,044
Valley Ridge Shopping Center
Valley Road at Preakness Avenue
Wayne, New Jersey ............................ Leased 1971 2000 98,389
5 Sicomac Avenue
North Haledon, New Jersey .................... Leased 1992 2024 32,512
363 Route 46
Fairfield, New Jersey ........................ Leased 1997 2001 137,927
OTHER PROPERTIES:
1255 Hamburg Turnpike
Wayne, New Jersey ............................ Owned 1962(1) -- 159,692
</TABLE>
- ------------------
(1) This property was acquired by the Bank to serve as the Bank's main office.
The Bank began building on the property in 1962 and used that facility
until 1992. The property is currently being leased to third parties.
18
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
Neither the Company nor its Subsidiary are involved in any pending
legal proceedings, other than routine legal proceedings occurring in the
ordinary course of business, which involve amounts which, in the aggregate, are
believed by Management to be immaterial to the financial condition or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS' MATTERS.
Information relating to the market for Registrant's common equity and
related stockholder matters appear under "Stockholder Information" in the
Registrant's 1997 Annual Report to Stockholders on page 40 and is incorporated
herein by reference. On February 11, 1998, the Company had 492 registered
stockholders.
ITEM 6. SELECTED FINANCIAL DATA.
The above captioned information appears under "Selected Financial Data"
in the Registrant's 1997 Annual Report to Stockholders on page 3 and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The above captioned information appears under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the
Registrant's 1997 Annual Report to Stockholders on pages 4 through 8 and is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The above captioned information appears under "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Market Risk" in
the Registrant's 1997 Annual Report to Stockholders and is incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements of Wayne Bancorp, Inc. and
Subsidiary, together with the report thereon by KPMG Peat Marwick LLP appears in
the Registrant's 1997 Annual Report to Stockholders on pages 13 through 39 and
are incorporated herein by reference
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information relating to Directors and Executive Officers of the
Registrant is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on March 24, 1998 at
pages 4 through 6. Information concerning Executive Officers who are not
directors is contained in Part I of this report pursuant to paragraph (b) of
Item 401 of Regulation S-K in reliance on Instruction G.
ITEM 11. EXECUTIVE COMPENSATION.
The information relating to Director and Executive Compensation is
incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on March 24, 1998 at pages 9 through
16, (excluding the Compensation Committee Report and the Stock Performance
Graph).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information relating to Security Ownership of Certain Beneficial
Owners and Management of the Registrant is incorporated herein by reference to
the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be
held on March 24, 1998 at page 3.
19
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information relating to Certain Relationships and Related
Transactions of the Registrant is incorporated herein by reference to the
Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held
on March 24, 1998 at page 16.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
(1) Consolidated Financial Statements of the Company are incorporated by
reference to the following indicated pages of the 1997 Annual Report to
Stockholders:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report .......................................................................... 39
Consolidated Statements of Financial Condition as of December 31, 1997 and 1996 ....................... 13
Consolidated Statements of Income for the Years Ended December 31, 1997, 1996 and 1995 ................ 14
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1997,
1996 and 1995 ........................................................................................ 15
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 ............ 16-17
Notes to Consolidated Financial Statements ............................................................ 18-38
</TABLE>
The remaining information appearing in the Annual Report to
Stockholders is not deemed to be filed as part of this report, except as
expressly provided herein.
(2) All schedules are omitted because they are not required or applicable,
or the required information is shown in the consolidated financial
statements or the notes thereto.
(3) Exhibits
(a) The following exhibits are filed as part of this report.
3.1 Restated Certificate of Incorporation of Wayne Bancorp, Inc.*
3.2 Bylaws of Wayne Bancorp, Inc.*
4.0 Stock Certificate of Wayne Bancorp, Inc. *
10.1 Employment Agreement between Wayne Bancorp, Inc. and Johanna
O'Connell ***
10.2 Employment Agreement between Wayne Savings Bank,
F.S.B. and Johanna O'Connell ***
10.3 Form of Change in Control Agreement
between Wayne Bancorp, Inc. and Certain Executive Officers
10.4 Employment Agreement between Wayne Savings Financial Services Group, Inc.
and Gary Len ***
10.5 Employee Severance Compensation Plan *
10.6 Employee Stock Ownership Plan *
10.7 Incentive Stock Plan**
11.0 Earnings Per Share Computation
13.0 1997 Annual Report
21.0 Subsidiaries-See "Part I--Subsidiaries," which information is incorporated
by reference
27.0 Financial Data Schedule
(b) Reports on From 8-K
None
- ---------------
* Incorporated herein by reference to the Exhibits to Form S-1 Registration
Statement, as amended, filed on March 18, 1996 Registration Number
333-2488 and declared effective May 13, 1996.
** Incorporated herein by reference to the Proxy Statement for the Special
Meeting of Stockholders filed on December 9, 1996.
*** Incorporated herein by reference to the Exhibits to the Registrant's
Annual Report on Form 10-K (File No. 20691) filed on March 11, 1997.
20
<PAGE>
Pursuant to the requirements of Section 13 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.
By /s/ HAROLD P. COOK, III
----------------------------
Harold P. Cook, III
Chairman of the Board And CEO
Dated: March 24, 1998
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- -----
<S> <C> <C>
/s/ HAROLD P. COOK, III Chairman of the Board, CEO March 24, 1998
- -------------------------------- and Director
(Harold P. Cook, III) (Principal Executive Officer)
/s/ JOHANNA O'CONNELL President and Director March 24, 1998
- --------------------------------
(Johanna O'Connell)
/s/ WILLIAM J. LLOYD Director March 24, 1998
- --------------------------------
(William J. Lloyd)
/s/ DAVID M. COLLINS Director March 24, 1998
- --------------------------------
(David M. Collins)
/s/ THOMAS D. COLLINS Director March 24, 1998
- --------------------------------
(Thomas D. Collins)
/s/ NICHOLAS S. GENTILE, JR. Director March 24, 1998
- --------------------------------
(Nicholas S. Gentile, JR.)
/s/ RONALD HIGGINS Director March 24, 1998
- --------------------------------
(Ronald Higgins)
/s/ RICHARD LEN Director March 24, 1998
- --------------------------------
(Richard Len)
/s/ CHARLES LOTA Director March 24, 1998
- --------------------------------
(Charles Lota)
/s/ DENNIS POLLACK Director March 24, 1998
- --------------------------------
(Dennis Pollack)
/s/ TIMOTHY P. TIERNEY V. P. and Comptroller March 24, 1998
- -------------------------------- (Principal Financial Officer)
(Timothy P. Tierney)
</TABLE>
21
<PAGE>
APPENDIX E
WAYNE BANCORP, INC.
[LOGO]
ANNUAL REPORT
1997
Table of Contents
Page
-----
Letter to Stockholders ............................................. 1
Selected Financial Data ............................................ 3
Management's Discussion and Analysis ............................... 4
Consolidated Financial Statements .................................. 13
Notes to Consolidated Financial Statements ......................... 18
Independent Auditors' Report ....................................... 39
Stockholder Information ............................................ 40
Directors and Officers ............................................. 41
Banking Locations .................................................. 41
<PAGE>
Dear Fellow Shareholders:
Nineteen Hundred and Ninety Seven marked Wayne Bancorp's first full
year as a public Company. It was an exciting, challenging and successful year. I
am pleased to report that your Company achieved and, in many cases, exceeded the
goals of its business plan.
For the period ended December 31, 1997, the Company's gross loans
increased $35.3 million to $182.5 million. In addition, deposits increased $19.5
million to $198.5 million. Of particular significance is the increase of $3.9
million, to $10.4 million, in noninterest bearing deposits.
Of all of your Company's accomplishments during 1997, the most
significant and visible has been the increase in the value of your investment in
Wayne Bancorp. For the year, the price of Wayne Bancorp's common stock increased
from $15.25 to $26.75, a 43% gain, not including dividends paid to our
shareholders.
We remain confident that our ongoing efforts to implement our strategic
business plan will continue your Company's transformation into a profitable,
multifaceted community bank, serving and prospering in our unique local market.
And, we remain committed to enhancing the value of your investment in Wayne
Bancorp. We have successfully closed over $17.4 million in commercial, multi
family, commercial real estate and construction loans. And, through our ongoing
team efforts the Bank reported a 60% increase in noninterest bearing deposit
accounts.
An important part of Wayne Bancorp's strategic business plan includes
the expansion of our commercial lending activities. At the close of the first
quarter, we took a big step in expanding Wayne Bancorp's commercial lending
operations by successfully recruiting Robert L. Frega to join our management
team as Senior Vice President responsible for Commercial Lending. Formerly with
Fleet Bank, Bob brings to us over twenty years of commercial lending expertise
and his efforts are already apparent, by leveraging his existing business
relationships and building on referrals from our board of directors and existing
management team. This operation will further enhance our ability to increase our
cross selling efforts and products per customer while attracting lower cost
demand deposits, once the exclusive domain of commercial banks.
Another significant part of our business strategy involved branch
office expansion to extend your Bank's market area. In July, we opened a retail
branch on Route 46, in Fairfield. The branch is unique in that it was a turnkey
leasehold that was acquired at a very attractive rental which is expected to
assist the branch in its profitability expectations. Significantly, the
Fairfield area also provides a multitude of opportunities to grow our commercial
customer base and cross-sell various products and services.
In August, we successfully obtained municipal and regulatory approvals
to open a branch on Franklin Avenue in Wyckoff, New Jersey, a Bergen County
municipality with a strong local business community. Wyckoff offers
opportunities for above average deposit growth in addition to providing a source
of financial service opportunities. We anticipate opening our temporary branch
in February with the permanent branch opening in the third quarter of 1998. Both
Fairfield and Wyckoff are natural extensions of our market area and should
enhance our franchise value.
We have successfully developed and continue to market our Home Equity
variable rate program. With these loans being tied to our "prime rate" our
interest rate risk is significantly reduced. Additionally, our Home Equity fixed
rate first lien program affords us an average loan to value ratio of less than
30%.
As an added service to our stockholders the Company has instituted a
dividend reinvestment plan. Information pertaining to the plan was mailed to all
stockholders of record as of January 15, 1998 including an explanation of the
plan and an enrollment card. The dividend reinvestment plan allows participating
stockholders to reinvest dividends and voluntary contributions for the purchase
of additional shares of the Company's common stock without brokerage commissions
or service charges.
Your management team continues to expand our product line and services
to better serve our customers and communities. Some of our expanded products
include medical savings accounts, overdraft checking, merchant accounts,
telephonic banking and our premier direct mail money market accounts.
Additionally, we are very supportive of local charitable and civic organizations
that serve our communities. It's simply a matter of good business.
<PAGE>
During 1997, we successfully implemented and completed two separate
five percent stock repurchases as part of our overall strategic plan to manage
capital and most significantly, maximize shareholder value. We intend to pursue
necessary regulatory approvals during the current year so that we can continue
to utilize open market stock repurchases to enhance shareholder value.
Our first year as a public Company can be characterized as a successful
year of achievement. We are proud to have met or surpassed our goals,
particularly when compared to the performance of our peers, other recently
converted thrifts. Our board of directors and management look forward to
continuing to improve performance by constantly modifying and fine-tuning our
strategic plan to adapt to changes in the economy and our market place and to
take advantage of long and short term business opportunities that arise. As with
any investment, these benefits are not necessarily immediate, but often take
time.
We begin 1998 with great anticipation and excitement. Our plans include
executing and implementing certain business opportunities on the holding Company
level which will compliment our traditional community banking activities and
have a synergistic effect on the Company's performance. As indicated above, we
are committed to managing our capital on all levels with a view to enhancing
shareholder value. We believe that our Company is poised to develop its
franchise and to benefit from a vibrant local economy, a strong real estate
market and business opportunities brought about by the dedication and hard work
of our officers, directors and staff.
We remain committed to maximizing the value of your investment in Wayne
Bancorp and benefiting the communities we serve. Thank you for your confidence
and continued support.
Sincerely,
Harold P. Cook, III
Chairman of the Board
and Chief Executive Officer
2
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- -------- ------ --------
IN THOUSANDS
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets .................................. $270,043 $244,081 $207,997 $176,664 $183,228
Securities available for sale ................. 73,413 80,867 58,155 3,360 11,715
Securities held to maturity ................... 2,913 3,229 3,841 50,304 33,774
Loans receivable, net ......................... 178,932 145,425 111,988 113,091 106,333
Deposits ...................................... 198,479 178,947 173,822 159,013 166,821
Total stockholders' equity .................... 33,944 36,911 17,299 16,259 15,005
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ -------
IN THOUSANDS
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income ..................................................... $ 18,766 $ 15,458 $ 13,136 $ 11,833 $ 12,633
Interest expense .................................................... 9,908 7,958 6,950 5,172 5,753
-------- -------- -------- -------- --------
Net interest income before provision for loan losses ................ 8,858 7,500 6,186 6,661 6,880
Provision for loan losses ........................................... 400 200 152 316 286
-------- -------- -------- -------- --------
Net interest income after provision for loan losses ................. 8,458 7,300 6,034 6,345 6,594
Other Income:
Net gain (loss) from sale of securities available for sale ......... (2) -- (363) 270 (3)
Other .............................................................. 699 585 638 450 499
-------- -------- -------- -------- --------
Total other income ................................................. 697 585 275 720 496
Other expenses ...................................................... 5,990 6,816 4,951 4,432 4,155
-------- -------- -------- -------- --------
Income before income tax expense .................................... 3,165 1,069 1,358 2,633 2,935
Income tax expense .................................................. 1,211 403 487 944 745
-------- -------- -------- -------- --------
Net income .......................................................... $ 1,954 $ 666 $ 871 $ 1,689 $ 2,190
======== ======== ======== ======== ========
AT OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Return on average assets .................................... 0.76% 0.31% 0.46% 0.93% 1.21%
Return on average equity .................................... 5.63 2.33 5.12 10.79 15.76
Average equity to average assets ............................ 13.45 13.21 9.03 8.63 7.68
Equity to total assets at end of period ..................... 12.57 15.12 8.32 9.20 8.10
Average interest rate spread ................................ 2.93 3.01 3.13 3.63 3.83
Net interest margin ......................................... 3.50 3.54 3.42 3.82 3.99
Average interest-earning assets to average
interest-bearing liabilities ................................ 114.64 113.99 107.63 106.36 104.59
Efficiency Ratio (1) ......................................... 62.69 61.86 72.07 62.33 56.31
General and administrative expense to average assets ......... 2.32 3.07 2.45 2.44 2.30
Non-performing loans as a percent of gross loans ............. 1.29 1.41 2.16 3.17 3.26
Non-performing assets as a percent of total assets ........... 0.89 0.90 1.46 2.61 2.65
Allowance for loan losses as a percent
of gross loans receivable ................................... 1.19 1.21 1.40 1.34 1.15
Allowance for loan losses as a percent
of non-performing loans ..................................... 93.21 86.18 64.86 42.33 35.24
Dividends declared per common share .......................... $ 0.20 $ -- $ -- $ -- $ --
Number of full-service customer facilities ................... 5 4 4 4 4
</TABLE>
- --------------
(1) Total noninterest expense divided by the sum of net interest income before
provision for loan losses and noninterest income which excludes the effect
in 1996 of a one time FDIC special SAIF assessment and a non-recurring
charge for benefits paid to the Company's former President and CEO.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's results of operations are primarily dependent on net
interest income which is the difference between interest income on loans,
investments and other interest-earning assets and interest expense on deposits
and borrowings. Interest income on loans, investments and other interest-earning
assets is a function of the average balances outstanding during the period and
the average rates earned. Interest expense is a function of the average amount
of deposits and borrowings outstanding during the period and average rates paid
on such deposits and borrowings. The Company's net income is further affected by
the level of its other expenses, such as salaries and employee benefits,
occupancy and equipment costs, federal deposit insurance premiums and income
taxes.
This Annual Report includes statements that may constitute forward
looking statements, usually containing the words "believe," "estimate",
"project", "expect," "intend," or similar expressions. These statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward looking statements inherently involve risks and
uncertainties that could cause actual results to differ materially from those
reflected in the forward looking statements. Factors that could cause future
results to vary from current expectations include, but are not limited to, the
following: changes in economic conditions (both generally and more specific in
the markets in which the Company operates); changes in interest rates, deposit
flows, loan demand, real estate values and competition; changes in accounting
principles, policies or guidelines and in government legislation and regulation
(which change from time to time and over which the Company has no control),
technological changes, changes in consumer spending and saving habits, and
success of the Company at managing the risk involved in the foregoing; and other
risks detailed in this Annual Report and in the Company's other Securities and
Exchange Commission ("SEC") filings. Readers are cautioned not to place undue
reliance on these forward looking statements, which reflect management's
analysis only as of the date hereof. The Company undertakes no obligation to
publicly revise these forward looking statements to reflect events or
circumstances that arise after the date hereof.
OPERATING STRATEGY
Management's strategy has been to operate as a community oriented
financial institution by offering a variety of financial services to meet the
needs of the communities it serves while maintaining capital in excess of
regulatory requirements and monitoring the sensitivity of the Company's assets
and liabilities to interest rate fluctuations. The Board of Directors has sought
to accomplish these goals by: (i) attracting and maintaining low-cost savings
and transaction accounts, as well as money market accounts, which management
believes provide the Company with a stable source of funds; (ii) focusing its
lending on the origination of one- to four-family, owner occupied residential
mortgage loans, including home equity loans; (iii) supplementing its one- to
four-family residential lending activities with commercial real estate,
commercial business, multi-family, construction and consumer loans originated in
the Company's primary market area in accordance with the Company's underwriting
guidelines; (iv) purchasing short to intermediate term investment and
mortgage-backed securities to complement the Company's lending activities;(v)
emphasizing shorter-term loans and investments and adjustable rate assets when
market conditions permit; and (vi) controlling growth.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND DECEMBER 31, 1996
Total assets increased $25.9 million or 10.6% to $270.0 million at
December 31, 1997 from $244.1 million at December 31, 1996. Securities available
for sale decreased $7.5 million or 9.2% to $73.4 million at December 31, 1997
from $80.9 million at December 31, 1996. Cash flows from the securities
available for sale and held to maturity as well as increases in deposits and
borrowings were used to fund loan growth. Loans receivable, net increased $33.5
million or 23.0% to $178.9 million at December 31, 1997 from $145.4 million at
December 31, 1996. The increase in loans receivable, net is primarily the result
of an increase in conventional one-to-four family loans of $17.2 million or
15.1%, an increase in commercial real estate loans of $7.0 million or 98.6%, an
increase in commercial business loans of $1.9 million or 297.2% and an increase
in home equity loans of $3.5 million or 14.3%. Also included in the loans
receivable, net increase were increases of $1.9 million in multi-family loans,
an increase of $1.1 million in residential construction lending and an increase
of $1.5 million in commercial construction lending. Loan originations increased
from $57.7 million for 1996 to $60.6 million (including $6.6 million of
residential one-to-four family purchased
4
<PAGE>
loans) for 1997, reflecting the expansion of the Company's lending area for
first mortgages as well as the Company's loan origination efforts. In addition,
the Company has increased its marketing of home equity loans. Finally, the
Company is continuing to expand its commercial lending. The major components of
the originations for 1997 were $24.6 million of residential loans, $12.0 million
of home equity loans, $8.9 million of commercial real estate loans, $2.6 million
of construction loans, $2.0 million of multi-family loans, and $3.9 million of
commercial business loans. Deposits increased $19.6 million or 10.9% to $198.5
million at December 31, 1997 from $178.9 million at December 31, 1996. The
increase in deposits for the year 1997 is in part the result of interest
credited to deposit accounts of $6.1 million. Demand deposits increased to $10.5
million at December 31, 1997 from $6.9 million at December 31, 1996 or 52.2%.
Federal Home Loan Bank advances increased $5.0 million to $32.0 million at
December 31, 1997 from $27.0 million at December 31, 1996. This increase was due
to the additional funding to support the origination and purchase of loans
during the year. Other liabilities increased $4.3 million to $4.7 million at
December 31, 1997 from $357,000 at December 31, 1996. The increase represents
the liability recorded to reflect the purchase of a $4.0 million Federal Farm
Credit Banks Note at 6.1%, that will be paid for in January 1998. Stockholders'
equity decreased $3.0 million to $33.9 million at December 31, 1997 from $36.9
million at December 31, 1996. The decrease was primarily due to the purchase of
217,560 shares of the Company's common stock related to the Company's stock
repurchase programs previously announced, and the purchase of 89,254 shares of
common stock for the Company's Stock-Based Incentive Plan.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND
DECEMBER 31, 1996 AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND
DECEMBER 31, 1995
GENERAL
Net income for 1997 was $2.0 million, an increase of $1.3 million or
193.4% from $666,000 for 1996. Net income decreased $205,000 or 23.5% in 1996
from $871,000 for 1995. The increase of $1.3 million for 1997 was primarily
attributable to a $1.2 million increase in net interest income after provision
for loan losses, together with a decrease in total other expenses of $826,000
due to several non-recurring charges in 1996. In 1996, there was a $660,000, net
of tax, Savings Association Insurance Fund ("SAIF") recapitalization assessment.
In addition, there was a $503,000, net of tax, non-recurring charge for the
benefits paid to the Company's former President and CEO upon his resignation
from the Company. These were also the major items contributing to the decrease
in net income from 1995 to 1996.
INTEREST INCOME
Interest income for 1997 increased $3.3 million to $18.8 million, from
$15.5 million for 1996. The increase in interest income reflected an increase in
average interest earning assets of $41.0 million from $211.9 million for 1996,
to $252.9 million for 1997, coupled with a increase in the average yield on
interest earning assets to 7.42% in 1997 from 7.29% in 1996. Interest income on
loans increased by $2.8 million to $12.9 million for 1997 from $10.1 million for
1996, primarily due to a $39.6 million increase in the average balance of loans
receivable from $129.2 million for 1996 to $168.8 million for 1997 offset by a
12 basis point decrease in the average yield to 7.66% for 1997 from 7.78% for
1996. Interest income on securities available for sale increased $955,000 to
$5.5 million in 1997 from $4.5 million in 1996, reflecting a $9.6 million
increase in the average balance of securities available for sale from $67.6
million for 1996 to $77.2 million for 1997 and a 42 basis point increase in the
average yield to 7.07%. Interest income on interest earning deposits and
short-term investments decreased $503,000 to $199,000 in 1997 from $702,000 in
1996, reflecting a $7.6 million decrease in the average balance of interest
earning deposits and short-term investments from $11.5 million for 1996 to $3.9
million for 1997 and a 104 basis point decrease in the average yield to 5.05% as
short term rates dropped.
Interest income for 1996 increased $2.3 million to $15.1 million during
1995, from $13.1 million during 1995. The increase in interest income reflected
an increase in average interest earning assets of $30.8 million from $181.1
million for 1995, to $211.9 million for 1996, coupled with an increase in the
average yield on interest earning assets to 7.29% in 1996 from 7.26% in 1995.
Interest income on loans increased by $850,000 to $10.1 million for 1996 from
$9.2 million for 1995, primarily due to a $14.8 million increase in the average
balance of loans receivable from $114.4 million for 1995 to $129.2 million for
1996 offset somewhat by a 27 basis point decrease in the average yield to 7.78%
for the year ended December 31, 1996. Interest income on investments increased
$1.5 million to $5.4 million in 1996 from $3.9 million in 1995, reflecting a
$16.1 million increase in the average balance of investments from $66.6 million
for 1995 to $82.7 million for 1996 and a 65 basis point increase in the average
yield to 6.53%.
5
<PAGE>
INTEREST EXPENSE
Interest expense on deposits increased $479,000 or 7.0% to $7.6 million
for 1997 from $7.1 million for 1996. This increase reflects an increase in the
average balance of interest bearing deposits of $9.2 million in 1997 compared
with 1996, and a decrease of 1 basis point in the average rate paid on deposit
liabilities during the same period to 4.11% for 1997. The increase in deposits
was primarily attributable to the Company's certificate accounts, the average
balance of which increased by $7.8 million to $103.6 million in 1997 from an
average balance of $95.8 million in 1996 on which the average yield increased
three basis points from 5.50% in 1996 to 5.53% in 1997. The increase in deposit
balances was also the result of increases in average non-interest bearing demand
deposits of $3.1 million to $7.9 million and an increase in average NOW accounts
of $2.6 million to $21.0 million for 1997 offset by small decreases in the
average balance of money market and savings accounts. Interest expense on FHLB
advances increased $1.5 million in 1997 compared with 1996 due to management's
decision to use FHLB advances to fund a portion of the Company's asset growth.
The increase in interest expense on advances is also the result of higher
average outstanding balances of $34.8 million for 1997 compared with $12.4
million for 1996. The rate paid on the advances increased 4 basis points to
6.56% for 1997.
Interest expense on deposits increased $368,000 or 5.4% to $7.1 million
for 1996 from $6.8 million for 1995. This increase reflects both an increase in
the average balance of interest bearing deposits of $7.9 million in 1996
compared to 1995, and a 3 basis point increase in the average rate paid on
deposit liabilities over the same period. The increase in deposits and the rate
paid thereon was primarily attributable to the Company's certificate accounts,
the average balance of which increased by $7.7 million to $95.8 million in 1996
from an average balance of $88.1 million in 1995 and the average yield increased
7 basis points from 5.43% in 1995 to 5.50% in 1996. The increase in the rate
paid on certificate accounts was in response to market conditions and was
intended to maintain existing accounts rather than attracting new accounts to
the Company. Interest expense on borrowings increased $640,000 in 1996 compared
with 1995 due to management's decision to use borrowings to fund a portion of
the Company'sasset growth.
NET INTEREST INCOME
Net interest income before provision for loan losses increased $1.4
million or 18.7% to $8.9 million for 1997 from $7.5 million for 1996. The
increase is the result of higher outstanding average interest earning assets
offset somewhat by higher outstanding average interest bearing liabilities.
Average interest earning assets increased $41.0 million to $252.9 million for
the year 1997 from $211.9 million for the year 1996. Average interest bearing
liabilities increased $34.7 million to $220.6 million for the year 1997 from
$185.9 million for the year 1996. The yield earned on average interest earning
assets increased by 13 basis points to 7.42% while the rate paid on interest
bearing liabilities increased 21 basis points to 4.49% due to increased emphasis
on higher costing certificates of deposits and borrowings. The Company's
interest rate spread decreased eight basis points to 2.93% for 1997 from 3.01%
for 1996. The net interest margin decreased from 3.54% for 1996 to 3.50% for
1997. The percentage of average interest earning assets to average interest
bearing liabilities for 1997 was 114.64% compared with 113.99% for the same
period in 1996.
Net interest income before provision for loan losses increased $1.3
million or 21.2% to $7.5 million for 1996 from $6.2 million for 1995. The
increase is the result of higher outstanding average interest earning assets
offset by higher outstanding average interest bearing liabilities. Average
interest earning assets increased $30.9 million to $211.9 million for the year
1996 from $181.1 million for the year 1995. Average interest bearing liabilities
increased $17.7 million to $185.9 million for the year 1996 from $168.2 million
for the year 1995. The yield earned on average interest earning assets increased
slightly by three basis points to 7.29% while the rate paid on interest bearing
liabilities increased 15 basis points to 4.28%.
The Company's interest rate spread decreased 12 basis points to 3.01%
for 1996 from 3.13% for the year ended 1995. The net interest margin increased
from 3.42% for 1995 to 3.54% for 1996. The percentage of average interest
earning assets to average interest bearing liabilities for 1996 was 113.99%
compared with 107.63% for the same period in 1995.
In August 1996 the Company entered into an arbitrage transaction,
whereby the Company purchased a $25.0 million Federal Home Loan Mortgage
Corporation ("FHLMC"), fixed rate note and simultaneously borrowed $25.0 million
from the FHLB. The FHLMC note's term is for a period of ten years, at a rate of
7.783%, and is callable after
6
<PAGE>
three years, and continuously thereafter. The FHLB advance is for a three year
period, at a fixed rate of 6.86%, which represents a pretax spread of 92 basis
points or the difference between the rate earned of 7.783% and the cost of
6.86%. This transaction generates pretax income of $230,750, and on an after tax
basis, using an effective tax rate of 36%, results in an increase in net income
of $147,689 per year. Had the effects of this transaction been excluded from the
calculation of interest rate spread and margin the spread would have been 3.19%
or an increase of 26 basis points (3.19% versus 2.93%) and the margin would have
been 3.79% or an increase of 29 basis points (3.79% versus 3.50%). In addition,
the ratio of interest bearing assets to interest bearing liabilities would have
increased by 188 basis points to 116.25% from 114.64%.
PROVISION FOR LOAN LOSSES
The provision for loan losses is a result of management's periodic
analysis of the adequacy of the allowance for loan losses. The provision for
loan losses increased $200,000 or 100.0% for 1997, compared with 1996. The
Company's provision for loan losses was $400,000 for 1997, compared with
$200,000 for 1996. The provision for loan losses increased $48,000 or 31.6% for
1996, compared with 1995. The Company's provision for loan losses was $200,000
for 1996, compared with $152,000 for 1995. The increase in the allowance for
loan losses in 1997 is due to management's continuing reassessment of losses
inherent in the loan portfolio, primarily in response to loan growth. At
December 31, 1997 and 1996, the Company's allowance for loan losses totalled
$2.2 million and $1.8 million or 1.2% and 1.2% of gross loans receivable and
93.2% and 86.2% of total non-performing loans, respectively. Management believes
that the current allowance for loan losses is adequate to address the risks
inherent in the Company's loan portfolio.
The Company establishes an allowance for loan losses based on an
analysis of risk factors in the loan portfolio. This analysis includes
evaluation of concentrations of credit, past loss experience, current economic
conditions, amount and composition of the loan portfolio (including loans being
specifically monitored by management), estimated fair value of underlying
collateral, loan commitments outstanding, delinquencies and other factors,
including the loss experience of similar portfolios in comparable lending
markets.
The Company will continue to monitor its allowance for loan losses and
make future additions to the allowance through the provision for loan losses as
economic conditions dictate. Although the Company maintains its allowance for
loan losses at a level which it considers to be adequate to provide for losses,
there can be no assurance that future losses will not exceed estimated amounts
or that additional provisions for loan losses will not be required in future
periods. In addition, the Company's determination as to the amount of its
allowance for loan losses is subject to review by the Office of Thrift
Supervision ("OTS") and the Federal Deposit Insurance Corporation ("FDIC"), as
part of their examination process, which may result in the establishment of an
additional allowance based upon their judgment of the information available to
them at the time of their examination.
OTHER INCOME
Other income increased $112,000 or 19.1% to $697,000 for 1997 from
$585,000 for 1996. This increase was primarily attributable to the gain on sale
of Real Estate Owned of $100,000. Other income increased $310,000 or 112.7% to
$585,000 for 1996 from $275,000 for 1995. This increase was primarily
attributable to a $363,000 loss on the sale of mortgage-backed securities
incurred in December 1995 in connection with the Company's restructuring of the
mortgage-backed securities portfolio. Offsetting this loss was a gain on sale of
real estate owned of $118,000 for 1995.
OTHER EXPENSE
Other expense decreased $826,000 or 11.8% to $6.0 million for 1997
compared with $6.8 million for 1996. Other expense increased $1.9 million or
37.7% for 1996 compared with $5.0 million for 1995. Compensation and employee
benefits decreased $212,000 or 7.4% to $2.7 million for 1997 from $2.9 million
for 1996, due primarily to the non-recurring charge paid in 1996 for benefits
paid to the Company's former President and CEO. Excluding this non-recurring
charge, compensation and employee benefits expense actually increased $573,000
or 27.4% to $2.7 million. This increase in compensation and employee benefits
expense is due to the Company hiring a commercial loan officer and the personnel
costs associated with the new branch office that opened in July 1997 and the
cost of stock benefit plans adopted in connection with the bank's mutual to
stock conversion. Compensation and employee benefits increased $619,000 or 27.4%
to $2.9 million for 1996 from $2.3 million in 1995. The increase in
7
<PAGE>
compensation and employee benefits expense reflects the non-recurring charge for
benefits paid to the Company's former President and CEO upon his resignation.
The decrease in Federal insurance premiums of $301,000 to $92,000 for 1997 from
$393,000 for 1996 is due to the decline in insurance premiums (required by
legislation) from 23 basis points to 6.4 basis points (per $100 of deposits)
effective January 1, 1997. The decrease in SAIF assessment expense is the result
of the one time assessment of $1.0 million which represented the Company's share
of the special assessment required by legislation signed into law on September
30, 1996, requiring all SAIF insured institutions to make a one time payment to
recapitalize the SAIF. The increase in the other category of $624,000 or 45.8%
to $2.0 million for the year ended December 31, 1997 from $1.4 million for 1996
is the result of expenses incurred for the proxy contest in early 1997 and
legal, professional and printing expenses associated with being a public
company. The Company expects similar costs in the first quarter of 1998 in
connection with the anticipated proxy contest. In 1996, data processing fees
increased $40,000 or 19.8% due to the increase in volume of transactions
processed, primarily as a result of the increase in the number of loan and
deposit accounts as well as the introduction of banking by telephone. In 1996,
advertising expenses decreased $91,000 due to the postponement of advertising
expenditures for deposits, pending the acquisition or expansion of branch
facilities. The increase in SAIF recapitalization assessment expense is the
result of the one time assessment of $1.0 million described above. The increase
in the other category of $387,000 or 39.6% for 1996 to $1.4 million from
$977,000 for 1995 was due to increased accounting, legal and other professional
fees incurred as a result of the Company being a public company during the
second half of 1996.
INCOME TAX EXPENSE
Income tax expense increased $808,000 to $1.2 million for 1997 from
$403,000 for 1996 primarily due to a $2.1 million increase in pre-tax income.
Income tax expense decreased by $84,000 to $403,000 for 1996 from $487,000 for
1995 due to a $289,000 decline in pre-tax income. The effective tax rate for
1997 was 38.3% compared with 37.7% for 1996 and 36.0% for 1995.
YEAR 2000
A great deal of information has been disseminated about the global
computer year 2000. Many computer programs that can only distinguish the final
two digits of the year entered (a common programming practice in earlier years)
are expected to read entries for the year 2000 as the year 1900 and compute
payment, interest or delinquency. Rapid and accurate data processing is
essential to the operation of the Company. Data processing is also essential to
most other financial institutions and many other companies. The Company
contracts with a service bureau to provide the majority of its data processing
and is dependent upon purchased application software. In house applications are
limited to word-processing and spreadsheet functions. The Company is in the
process of ensuring that external vendors and the servicer are adequately
addressing the system and software issues related to the year 2000 by obtaining
written system certifications that the systems are fully year 2000 compliant or
that the service bureau has a plan to become fully compliant in the very near
future. Beginning in the fourth quarter of 1998, the Company will coordinate
with the primary servicer end-to-end tests which allow the Company to simulate
daily processing on sensitive century dates. In the evaluation, the Company will
ensure that critical operations will continue if the servicer or vendors are
unable to achieve the year 2000 requirements. Upon the completion of the system
inventory and vendor verification, the Company will identify critical
applications and develop detailed plans for hardware/system upgrades and system
replacements where necessary. Any delays, mistakes or failures could have a
significant adverse impact on the financial condition and results of operation
of the Company.
8
<PAGE>
<TABLE>
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to the Company for the years ended December 31, 1997, 1996 and
1995. The yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively,
for the periods shown. Average balances are derived from average month-end balances. Management does not believe that the use of
average monthly balances instead of average daily balances has caused any material differences in the information presented. The
yields and costs include fees which are considered adjustments to yields.
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- ----------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
-------- -------- -------- -------- -------- -------- -------- -------- --------
IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest earning assets:
Interest earning deposits and
short-term investments .............. $ 3,944 $ 199 5.05% $ 11,536 $ 702 6.09% $ 10,020 $ 539 5.38%
Loans receivable, net ................ 168,786 12,936 7.66 129,233 10,059 7.78 114,403 9,209 8.05
Securities held to maturity .......... 2,971 179 6.02 3,523 200 5.68 53,033 3,172 5.98
Securities available for sale (1) .... 77,152 5,452 7.07 67,636 4,497 6.65 3,593 216 6.01
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest earning assets ...... 252,853 18,766 7.42 211,928 15,458 7.29 181,049 13,136 7.26
------- ---- ------- ---- -------- ------- ----
Noninterest earning assets ........... 4,990 4,763 7,325
-------- -------- --------
Total assets ....................... $257,843 $216,691 $188,374
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest bearing liabilities:
Money market deposit accounts ........ $ 21,164 636 3.01 $ 21,829 647 2.96 $20,615 710 3.44
Savings accounts ..................... 32,118 788 2.45 32,695 811 2.48 35,738 887 2.48
NOW accounts ......................... 20,977 480 2.29 18,382 424 2.31 16,963 401 2.25
Non-interest bearing checking
accounts ............................ 7,941 -- -- 4,837 -- -- 4,157 -- --
Certificate accounts ................. 103,580 5,723 5.53 95,755 5,266 5.50 88,096 4,782 5.43
-------- ----- ---- -------- ------- ---- -------- ----- ----
Total .............................. 185,780 7,627 4.11 173,498 7,148 4.12 165,569 6,780 4.09
FHLB advances ......................... 34,776 2,281 6.56 12,417 810 6.52 2,646 170 6.42
-------- ----- ---- -------- ------- ---- -------- ----- ----
Total interest bearing liabilities . 220,556 9,908 4.49 185,915 7,958 4.28 168,215 6,950 4.13
----- ---- ------- ---- ----- ----
Noninterest bearing liabilities ....... 2,598 2,159 3,152
Stockholders' equity .................. 34,689 28,617 17,007
-------- -------- --------
Total liabilities and
stockholders' equity .............. $257,843 $216,691 $188,374
======== ======== ========
Net interest income before
provision for loan losses ............ $ 8,858 $ 7,500 $ 6,186
======= ======= =======
Net interest rate spread(2) ........... 2.93% 3.01% 3.13%
Net interest margin(3) ................ 3.50% 3.54% 3.42%
Ratio of interest earning assets to
interest bearing liabilities ......... 114.64% 113.99% 107.63%
======= ======= =======
- ----------
(1) Average balances are based on amortized or historical cost.
(2) Interest rate spread is the difference between the average yield on interest earning assets and the average rate paid
on interest bearing liabilities.
(3) Net interest margin is equal to net interest income before provision for loan losses divided by total interest
earning assets.
</TABLE>
9
<PAGE>
RATE/VOLUME ANALYSIS
The following table presents the extent to which changes in interest
rates and changes in the volume of interest earning assets and interest bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume); and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1996
COMPARED WITH COMPARED WITH
YEAR ENDED DECEMBER 31, 1996 YEAR ENDED DECEMBER 31, 1995
---------------------------- ----------------------------
INCREASE INCREASE
(DECREASE) (DECREASE)
DUE TO DUE TO
---------------- ----------------
VOLUME RATE NET VOLUME RATE NET
------ ----- ------ ------ ----- ------
IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest earning deposits and short-term
investments ................................ $ (420) $ (83) $ (503) $ 87 $ 76 $ 163
Loans receivable, net ....................... 3,015 (138) 2,877 1,141 (291) 850
Securities held to maturity ................. (33) 12 (21) (2,821) (151) (2,972)
Securities available for sale ............... 672 283 955 4,240 41 4,281
------ ----- ------ ------ ----- ------
Total interest earning assets ............. 3,234 74 3,308 2,647 (325) 2,322
------ ----- ------ ------ ----- ------
INTEREST BEARING LIABILITIES:
Money market deposit accounts ............... (20) 9 (11) 46 (109) (63)
Savings accounts ............................ (14) (9) (23) (75) (1) (76)
NOW accounts ................................ 59 (3) 56 32 (9) 23
Certificate accounts ........................ 432 25 457 420 64 484
------ ----- ------ ------ ----- ------
Total ..................................... 457 22 479 423 (55) 368
FHLB advances ............................... 1,467 4 1,471 637 3 640
------ ----- ------ ------ ----- ------
Total interest bearing liabilities ........ 1,924 26 1,950 1,060 (52) 1,008
------ ----- ------ ------ ----- ------
Net change in net interest income ............ $1,310 $ 48 $1,358 $1,587 $(273) $1,314
====== ===== ====== ====== ===== ======
</TABLE>
MARKET RISK
Market risk is the potential loss from adverse changes in market prices
and rates. The Company's market risk arises primarily from interest rate risk
inherent in its lending and deposit taking activities. To that end, management
actively monitors and manages its inherent interest rate risk exposure.
The Company's profitability is affected by fluctuations in interest
rates. A sudden and substantial increase in interest rates may adversely impact
the Company's earnings to the extent that the interest rates borne by assets and
liabilities do not change at the same speed, the same extent, or on the same
basis. The Company monitors the impact of changes in interest rates on its net
interest income using several tools. OTS regulated institutions are required to
measure their exposure to changes in interest rates. These tests measure the
impact on net interest income and on net portfolio value ("NPV") of an immediate
change in interest rates in 100 basis point increments. Net portfolio value is
defined as the net present value of assets, liabilities, and off-balance sheet
contracts. Following are the estimated impacts of immediate changes in interest
rates at the specified levels at December 31, 1997, calculated in compliance
with OTS requirements:
10
<PAGE>
CHANGE IN NET PORTFOLIO VALUE
INTEREST RATES --------------------------------
IN BASIS POINTS CHANGE(1) CHANGE
(RATE SHOCK) AMOUNT $ % NPV RATIO(2) CHANGES(3)
- --------------- ------- --------- ------ ------------ ----------
IN THOUSANDS
300 $29,286 $(11,481) (28.16)% 11.60% (340)bp
200 33,276 (7,491) (18.38) 12.84 (216)
100 37,103 (3,664) (8.99) 13.97 (103)
-- 40,766 -- -- 15.00 --
(100) 44,267 3,501 8.59 15.93 93
(200) 47,605 6,839 16.78 16.78 178
(300) 50,780 10,014 24.56 17.55 256
- ----------
(1) Represents the increase (decrease) of the estimated NPV at the indicated
change in interest rates compared to the NPV assuming no change in interest
rates.
(2) Calculated as the estimated NPV divided by the portfolio value of total
assets ("PV"). The Company's PV is the estimated present value of total
assets. The PV of the Company as of December 31, 1997, assuming no changes
in interest rates, was $271.8 million.
(3) Calculated as the increase (decrease) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming no
change in interest rates.
Under OTS regulations, an institution's "normal" level of interest rate
risk (in the event of an assumed change in interest rates) is a decrease in the
institution's NPV in an amount not exceeding 2% of the present value of its
assets. Thrift institutions with greater that "normal" interest rate exposure
must make a deduction for total capital available to meet risk-based capital
requirements. The amount of that deduction is one-half of the difference between
(i) the institution's actual calculated exposure to a 200 basis point interest
rate increase or decrease (whichever results in the greater pro forma decrease
in NPV) and (ii) its "normal" level of exposure which is 2% of the present value
of its assets. The rule will not become effective until the OTS evaluates the
process by which savings associations may appeal an interest rate reduction
determination. It is uncertain as to when this evaluation may be completed.
Savings institutions, however, with less that $300 million in assets and total
risk based capital ratio in excess if 12%, such as the Company, are generally
not subject to this requirement. If the Company had been subject to this
requirement as December 31, 1997, its interest rate risk would have been
considered "normal" and no adjustment to its risk-based capital would have been
required.
Certain assumptions utilized by the OTS in assessing the interest rate
of thrift institutions were employed in preparing the preceding table. These
assumptions relate to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under the various interest rate
scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates although there can be no assurance that the
Company's assets and liabilities would perform as set forth above. In addition,
a change in U.S. Treasury rates in the designated amounts accompanied by a
change in the shape of the Treasury yield curve would cause significantly
different changes to the NPV than indicated above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, principal and
interest payments and prepayments on loans and securities and, to a lesser
extent, borrowings and proceeds from the sale of securities. While maturities
and scheduled amortization of loans and securities provide an indication of the
timing of the receipt of funds, other sources of funds such as loan prepayments
and deposit inflows are less predictable due to the effects of changes in
interest rates, economic conditions and competition.
The primary investing activities of the Company are the origination of
real estate and other loans and the purchase of mortgage-backed and other
securities which are included in securities held to maturity or securities
available for sale. During the years ended December 31, 1997, 1996 and 1995, the
Company's disbursements for loan originations and purchases totalled $60.6
million, $57.7 million, and $16.1 million, respectively. For the years ended
11
<PAGE>
December 31, 1997, 1996 and 1995, purchases of mortgage-backed securities
totalled $4.0 million, $36.4 million and $46.6 million, respectively. These
activities were funded primarily by net deposit inflows, borrowings and
principal repayments and prepayments on loans and securities.
For the years ended December 31, 1997 and 1996, the Company experienced
net increases in deposits (including the effect of interest credited) of $19.5
million and $5.1 million respectively. Proceeds from FHLB advances were $5.0
million in 1997 and $25.0 million in 1996.
The Bank may borrow funds from the FHLB subject to certain limitations.
Based on the level of qualifying collateral available to secure advances at
December 31, 1997, the Bank's borrowing limit from the FHLB was approximately
$81.0 million, with unused borrowing capacity of $49.0 million at that date.
Other sources of liquidity include borrowings under repurchase agreements and
proceeds from sales of securities available for sale.
The Bank is required by Section 6 of the Home Owner's Loan Act ("HOLA")
to hold a prescribed amount of statutorily defined liquid assets. The Director
of the OTS may, by regulation, vary the amount of the liquidity requirement, but
only within pre-established statutory limits. The requirement must be no less
that four percent and no greater than ten percent of the Bank's net withdrawable
accounts and borrowings payable on demand or with unexpired maturities of one
year or less. On and effective November 24, 1997, the OTS issued a final rule
that updated, simplified, and streamlined its liquidity requirements.
Specifically, the OTS reduced the liquidity requirement from 5% of net
withdrawable accounts and short term borrowings to 4%. The final rule also
removed the one percent short-term liquidity requirement, set forth an explicit
requirement that thrifts maintain a safe and sound level of liquidity,
streamlined the calculations used to measure compliance with the liquidity
requirement, expanded the categories of liquid assets that may count toward
satisfying the liquidity requirement, and reduced the liquidity base by
excluding withdrawable accounts payable in more than one year from the
definition of the term "net withdrawable accounts." The OTS also removed its
maturity requirement for obligations of the United States and certain agencies
of the United States. In order to qualify under prior regulations, such
obligations had to be maturing in 5 years or less. The removal of this
requirement had the greatest impact on the Bank's liquid assets. The Bank's
average liquidity ratio was 40.2% and 7.4% at December 31, 1997 and 1996,
respectively. The drastic change between these ratios represents the effect of
the final liquidity rule.
The Company's most liquid assets are cash and cash equivalents, which
include interest-bearing deposits and short-term highly liquid investments (such
as federal funds) with original maturities of less than three months that are
readily convertible to known amounts of cash. The level of these assets is
dependent on the Company's operating, financing and investing activities during
any given period. At December 31, 1997 and 1996, cash and cash equivalents
totalled $6.8 million and $6.9 million, respectively.
At December 31, 1997, the Company had outstanding loan origination
commitments of $11.1 million, $1.4 million undisbursed construction loans in
process, unfunded commercial business lines of $2.0 million, and unadvanced
lines of credit of $16.2 million. The Company anticipates that it will have
sufficient funds available to meet its current loan origination and other
commitments. Certificates of deposit scheduled to mature in one year or less
from December 31, 1997 totalled $92.8 million. Based on the Company's most
recent experience and pricing strategy, management believes that a significant
portion of such deposits will remain with the Company.
12
<PAGE>
<TABLE>
WAYNE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
ASSETS
<CAPTION>
1997 1996
-------- --------
IN THOUSANDS
(EXCEPT SHARES AND
PER SHARE AMOUNTS)
<S> <C> <C>
Cash and due from banks .................................................. $ 1,577 $ 1,170
Interest-bearing deposits in other banks ................................. 1,868 523
Federal funds sold ....................................................... 3,400 5,250
-------- --------
Total cash and cash equivalents ....................................... 6,845 6,943
Securities held to maturity, estimated market value of $2,882 in 1997
and $3,197 in 1996 (note 3) ............................................. 2,913 3,229
Securities available for sale (note 4) ................................... 73,413 80,867
Loans receivable, net (note 5) ........................................... 178,932 145,425
Premises and equipment, net (note 7) ..................................... 3,318 3,196
Real estate owned, net (note 8) .......................................... 80 116
Federal Home Loan Bank of New York stock, at cost ........................ 2,150 1,568
Interest and dividends receivable (note 6) ............................... 1,897 1,901
Other assets (note 11) ................................................... 495 836
-------- --------
Total assets .......................................................... $270,043 $244,081
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (note 9) ........................................................ $198,479 $178,947
Federal Home Loan Bank advances (note 10) ................................ 32,000 27,000
Advance payments by borrowers for taxes and insurance .................... 914 866
Other liabilities (note 11) .............................................. 4,706 357
-------- --------
Total liabilities ..................................................... 236,099 207,170
Stockholders' Equity:
Preferred stock, $0.01 par value, 2,000,000 shares
authorized, none issued ................................................ -- --
Common stock, $0.01 par value, 8,000,000 shares authorized,
2,231,383 shares issued and 2,013,823 shares outstanding at
December 31, 1997 and 2,231,383 shares issued and outstanding
at December 31, 1996 .................................................. 22 22
Paid-in capital ......................................................... 21,264 21,004
Retained earnings, substantially restricted (notes 11 and 13) ........... 19,623 18,060
Treasury stock at cost, 217,560 shares at December 31, 1997
and none at December 31, 1996 ......................................... (4,417) --
Unallocated common stock held by the ESOP (note 12) ..................... (1,604) (1,785)
Common stock held by MRP (note 12) ...................................... (1,262) --
Net unrealized gain (loss) on securities available for sale (note 4) .... 318 (390)
-------- --------
Total stockholders' equity ............................................ 33,944 36,911
-------- --------
Commitments and contingencies (note 14)
Total liabilities and stockholders' equity ............................ $270,043 $244,081
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
<TABLE>
WAYNE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
------- ------- -------
IN THOUSANDS
(EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Interest income:
Loans ......................................................... $12,936 $10,059 $ 9,209
Securities held to maturity ................................... 179 200 3,172
Securities available for sale ................................. 5,452 4,497 216
Short-term and other investments .............................. 199 702 539
------- ------- -------
Total interest income ....................................... 18,766 15,458 13,136
------- ------- -------
Interest expense:
Deposits (note 9) ............................................. 7,627 7,148 6,780
Federal Home Loan Bank advances ............................... 2,281 810 170
------- ------- -------
Total interest expense ...................................... 9,908 7,958 6,950
------- ------- -------
Net interest income before provision for loan losses ........... 8,858 7,500 6,186
Provision for loan losses (note 5) ............................. 400 200 152
------- ------- -------
Net interest income after provision for loan losses ............ 8,458 7,300 6,034
------- ------- -------
Other income (expense):
Loan fees and service charges ................................. 277 227 183
Net loss on sale of securities available for sale ............. (2) -- (363)
Gain on sale of real estate owned ............................. 100 -- 118
Other ......................................................... 322 358 337
------- ------- -------
Total other income .......................................... 697 585 275
------- ------- -------
Other expenses:
Compensation and employee benefits (note 12) .................. 2,667 2,879 2,260
Occupancy (note 14) ........................................... 433 376 370
Equipment ..................................................... 198 182 187
Data processing services ...................................... 279 242 202
Advertising ................................................... 327 192 283
Federal insurance premiums (note 17) .......................... 92 393 368
SAIF recapitalization assessment (note 17) .................... -- 1,031 --
Real estate owned operations (note 8) ......................... 6 157 304
Other ......................................................... 1,988 1,364 977
------- ------- -------
Total other expenses ........................................ 5,990 6,816 4,951
------- ------- -------
Income before income tax expense ............................... 3,165 1,069 1,358
Income tax expense (note 11) ................................... 1,211 403 487
------- ------- -------
Net income .................................................. $ 1,954 $ 666 $ 871
======= ======= =======
Basic earnings per share ....................................... $ 1.04 -- --
Basic weighted average shares .................................. 1,873 -- --
Diluted earnings per share ..................................... $ 1.03 -- --
Diluted weighted average shares ................................ 1,895 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
In Thousands
<TABLE>
<CAPTION>
Net
Unrealized
Unallocated Gain
Common Common (Loss) on
Stock Stock Securities Total
Preferred Common Paid-in Retained Treasury Held by Held by Available Stockholders'
Stock Stock Capital Earnings Stock ESOP MRP for Sale Equity
--------- ------ ------- -------- -------- --------- ------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994...... $ -- $ -- $ -- $16,523 $ -- $ -- $ -- $ (264) $16,259
Net income........................ -- -- -- 871 -- -- -- -- 871
Unrealized gain on securities
transferred from held to
maturity to available for sale,
net of taxes................... -- -- -- -- -- -- -- 13 13
Change in net unrealized gain
(loss) on securities available
for sale, net of taxes........ -- -- -- -- -- -- -- 156 156
--------- ------- ------- ------- ------- -------- ------ ------ -------
Balance at December 31, 1995.... -- -- -- 17,394 -- -- -- (95) 17,299
Net proceeds from stock offering,
net of expenses of $1,272..... -- 22 21,004 -- -- -- -- -- 21,026
Unallocated common stock
acquired by ESOP.............. -- -- -- -- -- (1,785) -- -- (1,785)
Net income...................... -- -- -- 666 -- -- -- -- 666
Change in net unrealized gain
(loss) on securities available
for sale, net of taxes........ -- -- -- -- -- -- -- (295) (295)
--------- ------- ------- ------- ------- -------- ------ ------- -------
Balance at December 31, 1996.... -- 22 21,004 18,060 -- (1,785) -- (390) 36,911
Allocation of ESOP stock........ -- -- 177 -- -- 181 -- -- 358
Net income...................... -- -- -- 1,954 -- -- -- -- 1,954
Dividends declared ($0.20 per share) -- -- -- (391) -- -- -- -- (391)
Purchase of treasury stock...... -- -- -- -- (4,417) -- -- -- (4,417)
Unallocated common stock
acquired by MRP............... -- -- -- -- -- -- (1,450) -- (1,450)
Amortization of MRP shares...... -- -- -- -- -- -- 188 -- 188
Deferred taxes - MRP............ -- -- 83 -- -- -- -- -- 83
Change in net unrealized gain
(loss) on securities available
for sale, net of taxes........ -- -- -- -- -- -- -- 708 708
--------- ------- ------- -------- ------- -------- ------- ------ -------
Balance at December 31, 1997.... $ -- $ 22 $21,264 $19,623 $(4,417) $(1,604) $(1,262) $ 318 $33,944
========= ======= ======= ======== ======= ======== ======= ====== ========
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
<TABLE>
WAYNE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
-------- -------- --------
IN THOUSANDS
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .................................................... $ 1,954 $ 666 $ 871
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for losses on loans and real estate owned .... 400 300 300
Depreciation ........................................... 208 167 167
Net accretion of discounts and amortization
of premiums ........................................... 55 125 29
Allocation of ESOP shares .............................. 181 -- --
Amortization of MRP .................................... 188 -- --
(Increase) decrease in deferred loan fees .............. (14) 22 46
Decrease (increase) in interest and dividends
receivable ............................................ 4 (914) (160)
Increase (decrease) in other assets .................... 23 658 (572)
Increase (decrease) in other liabilities ............... 4,349 (13,750) 13,606
Net (gain) loss on sale of real estate owned ........... (100) -- 118
Net loss on sale of securities available for sale ...... 2 -- 363
-------- -------- --------
Net cash (used in) provided by operating activities ........... 7,250 (12,726) 14,768
-------- -------- --------
Cash flows from investing activities:
Purchase of securities held to maturity ...................... -- -- (16,273)
Maturity of securities held to maturity ...................... -- -- 6,000
Purchase of securities available for sale .................... (4,753) (36,438) (30,288)
Proceeds from sales of securities available for sale ......... 4,153 -- 25,100
Proceeds from calls of securities available for sale ......... 5,000 5,500 --
Principal repayments on securities held to maturity .......... 312 599 6,908
Principal repayments on securities available for sale ........ 4,044 7,630 82
Net (increase) in loans receivable ........................... (27,360) (33,719) --
Purchase of loans ............................................ (6,571) (60) (140)
Purchase of premises and equipment ........................... (330) (92) (30)
Purchase of Federal Home Loan Bank stock ..................... (582) -- (201)
Proceeds from sale of real estate owned ...................... 236 524 1,151
-------- -------- --------
Net cash used in investing activities ......................... (25,851) (56,056) (7,691)
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
<TABLE>
WAYNE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
-------- -------- --------
IN THOUSANDS
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits ..................................... $ 19,532 $ 5,125 $ 14,809
Federal Home Loan Bank advances acquired ..................... 5,000 25,000 2,000
Increase (decrease) in advance payments by
borrowers for taxes and insurance ........................... 48 97 (122)
Net proceeds from issuance of common stock ................... -- 21,026 --
Purchase of shares by ESOP ................................... -- (1,785) --
Dividends paid ............................................... (391) -- --
Payment of ESOP loan ......................................... 181 -- --
Purchase of treasury stock ................................... (4,417) -- --
Purchase of MRP shares ....................................... (1,450) -- --
-------- -------- --------
Net cash provided by financing activities ..................... 18,503 49,463 16,687
-------- -------- --------
Net increase (decrease) in cash and cash equivalents .......... (98) (19,319) 23,764
Cash and cash equivalents at beginning of year ................ 6,943 26,262 2,498
-------- -------- --------
Cash and cash equivalents at end of year ...................... $ 6,845 $ 6,943 $ 26,262
======== ======== ========
Supplemental disclosures of cash flow
information-cash paid during the year for:
Federal and state income taxes .............................. $ 1,097 $ 616 $ 345
======== ======== ========
Interest .................................................... $ 9,873 $ 7,813 $ 6,956
======== ======== ========
Supplemental information of noncash investing
activities -- Transfer of loans receivable to
real estate owned ............................................ $ 80 $ 143 $ 831
======== ======== ========
Transfer of securities held to maturity to
securities available for sale ................................ $ -- $ -- $ 51,380
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Wayne
Bancorp, Inc. (the Company) and its wholly-owned subsidiary, Wayne Savings Bank,
F.S.B. (the Bank) and the Bank's wholly-owned subsidiary, Wayne Savings
Financial Services Group, Inc. (the Subsidiary). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Business
The Company conducts business primarily through the Bank, which is a
federally chartered savings bank, that provides a full range of banking services
to individual and corporate customers through its branches in northern New
Jersey. The Bank is subject to competition from other financial institutions; it
is also subject to the regulations of certain regulatory agencies and undergoes
periodic examinations by those regulatory authorities. The Subsidiary provides
financial and investment planning services and market securities, life and
health insurance products.
Basis of Financial Statement Presentation
As more fully described in Note 2, the Bank converted from a mutual to
stock form of ownership on June 27, 1996 and 100% of its outstanding common
stock was acquired by the Company. As a stock institution and as a result of the
public offering of the stock of the holding company upon completion of its stock
offering, the holding company is subject to the reporting requirements of the
Securities Exchange Act of 1934.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
consolidated statements of financial condition for the periods then ended.
Actual results could differ significantly from those estimates and assumptions.
Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance for loan
losses and the valuation of real estate acquired in connection with foreclosures
or in settlement of loans. In connection with the determination of the
allowances for loan losses and real estate owned (REO), management generally
obtains independent appraisals for significant properties.
Cash and Cash Equivalents
Cash and cash equivalents, for purposes of the consolidated statements
of cash flows, consist of cash and due from banks, interest-bearing deposits in
other banks and Federal funds sold.
Federal Home Loan Bank of New York Stock
The Bank, as a member of the Federal Home Loan Bank of New York (FHLB), is
required to hold shares of capital stock of the FHLB based on a specified
formula.
Securities Held to Maturity
Securities held to maturity are carried at the outstanding principal
balance, adjusted for amortization of premiums and accretion of discounts.
Premiums and discounts are recognized using the level yield method over the
estimated lives of the securities. Securities held to maturity are carried at
outstanding principal balance because it is management's intention, and the
Company has the ability, to hold them to maturity.
Securities Available for Sale
Securities that are held for indefinite periods of time but not
intended to be held to maturity are classified as available for sale. Securities
held for indefinite periods of time include securities that management intends
to use as
18
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
part of its asset/liability management strategy, including liquidity management
strategy, and may be sold in response to changes in interest rates, liquidity
needs, and other factors. Securities available for sale are carried at fair
value and unrealized gains and losses, net of related tax effect, on such
securities are excluded from earnings, but are included in equity. Upon
realization, such gains or losses are included in earnings using the specific
identification method.
In November 1995, the Financial Accounting Standards Board issued
"Special Report-A--Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities" within which there was
offered transition guidance permitting an enterprise to reassess the
appropriateness of all of its securities before December 31, 1995. The Company
reassessed its classifications and in December of 1995, it transferred
securities previously classified as held to maturity, with an amortized cost of
$51.4 million to the available for sale classification. The related unrealized
gain on the securities transferred, net of related tax effect was approximately
$19,000 which has been recognized and reported as a separate component of
equity.
Loans Receivable
Loans receivable are stated at unpaid principal balance less
undisbursed loan funds, net deferred loan origination and commitment fees and
the allowance for loan losses.
The accrual of interest income on loans is discontinued when certain
factors indicate reasonable doubt as to the timely collectibility of such income
(generally when loans are greater than ninety days delinquent). Interest income
previously accrued on these loans, but not yet received, is reversed in the
current period. Any interest subsequently collected is credited to income in the
period of recovery. Loans are returned to accrual status when collectibility is
no longer considered doubtful.
Loan Origination and Commitment Fees and Related Costs
Loan fees and certain direct loan origination costs are deferred and
the net fee or cost is recognized in interest income using the level yield
method over the contractual lives of the specifically identified loans adjusted
for prepayments.
Allowance for Loan Losses
The adequacy of the allowance for loan losses is based on the Company's
past loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, estimated value of
any underlying collateral and current economic conditions. Additions to the
allowance arise from charges to operations through the provision for loan losses
or from the recovery of amounts previously charged off. The allowance is reduced
by loan charge-offs. Loans are charged off when management believes there has
been permanent impairment of their carrying values.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions in the Company's market area. In addition, various regulatory
agencies, as an integral part of their routine examination process, periodically
review the Company's allowance for loan losses. Such agencies may require the
Company to recognize additions to the allowance based on their judgments about
information available to them at the time of their examination.
The Company has defined the population of impaired loans to be all
nonaccrual commercial real estate and multi-family loans. Impaired loans are
individually assessed to determine that the loan's carrying value is not in
excess of the fair value of the collateral or the present value of the loan's
expected future cash flows. Smaller balance homogeneous loans that are
collectively evaluated for impairment, such as residential mortgage loans and
consumer loans, are specifically excluded from the impaired loan portfolio.
There were no loans classified as impaired by the Company at December 31, 1997
and 1996.
Real Estate Owned
Real estate owned (REO) acquired through foreclosure on loans secured
by real estate is reported at the lower of cost or fair value, as established by
a current appraisal, less estimated cost to sell. An allowance for REO has been
19
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
established to record subsequent declines in estimated net realizable value.
Carrying costs are generally expensed as incurred. Additions to the allowance
for REO losses, and carrying costs are included in real estate owned operations,
net in the consolidated statements of income.
Premises and Equipment
Premises and equipment, including leasehold improvements, are stated at
cost less accumulated depreciation and amortization. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the assets or leases. Repair and maintenance items are expensed
and improvements are capitalized.
Income Taxes
The Company files a consolidated Federal income tax return. State
income tax returns are filed on a separate basis. Income taxes are accounted for
under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect of deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Earnings Per Share
Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" ("SFAS 128") issued in 1996, establishes standards for computing and
presenting earnings per share (EPS) and applies to entities with publicly held
common stock or potential common stock. SFAS 128 replaces the presentation of
primary EPS with a presentation of basic EPS and requires dual presentation of
basic EPS and diluted EPS on the face of the income statement for all entities
with complex capital structures. For purposes of calculating basic earnings per
share, the weighted average number of common shares, for the year ended December
31, 1997, was 1,873,333. For purposes of calculating diluted earnings per share,
the weighted average number of common shares, for the year ended December 31,
1997, was 1,894,826. The Company adopted SFAS 128 as of December 31, 1997. The
Company completed its initial public offering on June 27, 1996, and accordingly,
per share data is not presented for any periods prior to the year ended December
31, 1996.
Stock-Based Compensation
In October 1996, the FASB issued Statement 123 "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 encourages recording in current
period earnings compensation expense related to the fair value of certain
stock-based compensation. Companies may choose to follow the provision of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), where compensation expense is not recorded for certain
stock-based compensation plans. However, companies are required to disclose pro
forma net income and earnings per share as if they adopted the fair value based
method of accounting. The Company has elected to continue to account for
stock-based compensation under APB 25 and the pro forma disclosures required by
SFAS 123 have been included in Note 12 to the consolidated financial statements.
Reclassifications
Certain amounts relating to the 1996 and 1995 consolidated financial
statements have been reclassified to conform to the 1997 presentation.
(2) STOCK CONVERSION
On June 27, 1996 the Company completed an initial public offering. The
offering resulted in the sale of 2,231,383 shares of common stock including the
sale of 178,511 shares to the Company's tax qualified Employee
20
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock Benefit Plan and Trust (the "ESOP"). Proceeds of the offering, net of
expenses, were approximately $21.0 million of which $1.8 million was loaned to
the ESOP by the Company to fund the purchase of the shares.
At the time of the offering the Company was required to establish a
liquidation account in an amount equal to its total equity as of the date of the
latest statement of financial condition appearing in the final prospectus used
in connection with the conversion. The liquidation account is maintained for the
benefit of eligible account holders or supplemental eligible account holders who
continue to maintain their accounts at the Company after the conversion. The
liquidation account is reduced annually to the extent that eligible account
holders or supplemental eligible account holders have reduced their qualifying
deposits as of each anniversary date. Subsequent increases will not restore an
eligible account holder's or supplemental eligible account holder's interest in
the liquidation account. In the unlikely event of a liquidation of the Company
(a circumstance not envisioned or expected by management), each eligible account
holder or supplemental eligible account holder would be entitled to receive a
distribution from the liquidation account in an amount proportionate to the
current adjusted qualifying balances of accounts of all eligible account holders
or supplemental eligible account holders then holding qualifying deposits in the
Company. The balance of the liquidation account at December 31, 1997 was
approximately $12.2 million.
(3) SECURITIES HELD TO MATURITY
A summary of securities held to maturity at December 31, 1997 and 1996
is as follows: 1997
1997
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
IN THOUSANDS
Mortgage-backed securities:
FHLMC ...................... $1,532 $-- $30 $1,502
FNMA ....................... 1,381 4 5 1,380
------ --- --- ------
$2,913 $ 4 $35 $2,882
====== === === ======
1996
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
IN THOUSANDS
Mortgage-backed securities:
FHLMC ...................... $1,608 $-- $36 $1,572
FNMA ....................... 1,621 4 -- 1,625
------ --- --- ------
$3,229 $ 4 $36 $3,197
====== === === ======
The contractual maturities of mortgage-backed securities generally
exceed ten years; however, the effective lives are expected to be shorter due to
anticipated prepayments.
21
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) SECURITIES AVAILABLE FOR SALE
A summary of securities available for sale at December 31, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
1997
-------------------------------------------------
ESTIMATED GROSS GROSS
MARKET UNREALIZED UNREALIZED AMORTIZED
VALUE GAINS LOSSES COST
--------- ---------- ---------- ---------
IN THOUSANDS
<S> <C> <C> <C> <C>
Mortgage-backed securities:
FHLMC ............................... $ 7,191 $ 64 $ 38 $ 7,165
FNMA ................................ 12,679 21 94 12,752
GNMA ................................ 11,632 25 -- 11,607
Collateralized mortgage obligations ... 3,209 -- 102 3,311
U.S. Government agencies .............. 37,890 566 -- 37,324
Equity Securities ..................... 812 59 -- 753
------- ---- ---- -------
$73,413 $735 $234 $72,912
======= ==== ==== =======
<CAPTION>
1996
-------------------------------------------------
ESTIMATED GROSS GROSS
MARKET UNREALIZED UNREALIZED AMORTIZED
VALUE GAINS LOSSES COST
--------- ---------- ---------- ---------
IN THOUSANDS
<S> <C> <C> <C> <C>
Mortgage-backed securities:
Mortgage-backed securities:
FHLMC ............................... $12,282 $ 53 $ 59 $12,288
FNMA ................................ 13,054 40 133 13,147
GNMA ................................ 14,105 8 294 14,391
Collateralized mortgage obligations ... 3,204 -- 130 3,334
U.S. Government agencies .............. 38,222 66 162 38,318
------- ---- ---- -------
$80,867 $167 $778 $81,478
======= ==== ==== =======
</TABLE>
Proceeds from sales of securities available for sale were $4.2 million
in 1997 with gross gains of $14,000 and gross losses of $16,000. There were no
sales of securities available for sale for 1996. Proceeds from sales of
securities available for sale were $25.1 million for 1995 with gross realized
gains of $90,000 and gross realized losses of $453,000.
The amortized cost and estimated fair value of debt securities
available for sale at December 31, 1997 by contractual maturity, are shown
below:
AMORTIZED ESTIMATED FAIR
COST VALUE
--------- --------------
IN THOUSANDS
Due in one year through five years ............. $12,324 $12,328
Due in five through ten years .................. 28,311 28,772
------- -------
$40,635 $41,100
======= =======
Mortgage-backed securities totalled $31.5 million at December 31, 1997.
The contractual maturities of mortgage-backed securities generally exceed ten
years; however, the effective lives are expected to be shorter due to
anticipated prepayments.
22
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) LOANS RECEIVABLE, NET
A summary of loans receivable at December 31, 1997 and 1996 is as
follows:
1997 1996
-------- --------
IN THOUSANDS
Real estate mortgage:
Conventional one-to-four family .................. $130,865 $113,701
Multi-family ..................................... 2,072 185
Commercial ....................................... 14,042 7,069
Construction ....................................... 3,929 --
Home equity loans .................................. 27,889 24,394
Commercial business loans .......................... 2,558 644
Student loans ...................................... 415 460
Passbook loans ..................................... 591 616
Auto loans ......................................... 125 158
Personal loans ..................................... 25 23
-------- --------
Total loans .................................... 182,511 147,250
======== ========
Less:
Undisbursed loan funds ........................... 1,353 --
Deferred loan fees ............................... 56 36
Allowance for loan losses ........................ 2,170 1,789
-------- --------
$178,932 $145,425
======== ========
At December 31, 1997 and 1996, loans in the amount of $2.3 million and
$2.1 million, respectively, were on a nonaccrual status. If nonaccrual loans had
continued to realize interest in accordance with their contractual terms,
approximately $243,000, $184,000 and $253,000 of interest income would have been
realized for the years ended December 31, 1997, 1996 and 1995, respectively.
Interest income realized on nonaccrual loans was $84,000, $61,000 and $160,000,
respectively for the years ended December 31, 1997, 1996 and 1995.
A summary of loans to directors and officers for the years ended
December 31, 1997, 1996 and 1995 is as follows:
1997 1996 1995
---- ---- ----
IN THOUSANDS
Balance at beginning of year ...................... $820 $910 $901
Additions ......................................... 85 130 105
Payments .......................................... 165 220 96
---- ---- ----
Balance at end of year ............................ $740 $820 $910
==== ==== ====
The terms and conditions of loans to directors and officers are no less
favorable to the Company than they would have been for similar transactions with
other borrowers.
An analysis of the allowance for loan losses for the years ended
December 31, 1997, 1996 and 1995 is as follows:
1997 1996 1995
------ ------ ------
IN THOUSANDS
Balance at beginning of year ................ $1,789 $1,589 $1,543
Provision charged to operations ............. 400 200 152
Loans charged off ........................... (19) -- (106)
------ ------ ------
Balance at end of year ...................... $2,170 $1,789 $1,589
====== ====== ======
23
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) INTEREST AND DIVIDENDS RECEIVABLE
A summary of interest and dividends receivable at December 31, 1997 and
1996 is as follows:
1997 1996
------ ------
IN THOUSANDS
Loans, net of reserve for uncollected interest
of $595 in 1997 and $456 in 1996 ....................... $ 800 $ 704
Securities held to maturity and securities
available for sale ..................................... 1,097 1,197
------ ------
$1,897 $1,901
====== ======
(7) PREMISES AND EQUIPMENT, NET
Premises and equipment, net at December 31, 1997 and 1996 are
summarized as follows:
1997 1996
------ ------
IN THOUSANDS
Land ..................................................... $ 497 $ 497
Buildings and improvements ............................... 2,620 2,796
Leasehold improvements ................................... 582 325
Furnishings and equipment ................................ 937 962
Total ................................................ 4,636 4,580
Accumulated depreciation and amortization ................ 1,318 1,384
------ ------
$3,318 $3,196
====== ======
Depreciation of premises and equipment charged to occupancy expense for
the years ended December 31, 1997, 1996 and 1995 amounted to $208,000, $167,000
and $167,000, respectively.
(8) REAL ESTATE OWNED, NET
A summary of REO net, at December 31, 1997 and 1996 is as follows:
1997 1996
---- ----
IN THOUSANDS
Total real estate owned .................................. $80 $ 290
Allowance for losses ..................................... -- (174)
--- -----
$80 $ 116
=== =====
24
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
An analysis of the allowance for REO losses for the years ended
December 31, 1997, 1996 and 1995 is as follows:
1997 1996 1995
----- ----- -----
IN THOUSANDS
Balance, beginning of year ................... $ 174 $ 169 $ 240
Provision charged to income .................. -- 100 148
Charge-offs .................................. (174) (121) (229)
Recoveries ................................... -- 26 10
----- ----- -----
Balance, end of period ....................... $ -- $ 174 $ 169
===== ===== =====
(9) DEPOSITS
Deposit account balances at December 31, 1997 and 1996 are summarized
as follows:
<TABLE>
<CAPTION>
CURRENT STATED CURRENT STATED
RATE RATE
AT AT
DECEMBER 31, DECEMBER 31,
1997 1997 1996 1996
-------------- -------- --------------- --------
IN THOUSANDS
<S> <C> <C> <C> <C>
Noninterest bearing demand accounts ........... -- $ 10,438 -- $ 6,549
NOW accounts .................................. 2.25% 22,729 2.25% 20,063
Money market deposit accounts ................. 2.50 22,830 2.50-3.05 20,633
Savings accounts .............................. 2.50 31,963 2.50 31,955
Club accounts ................................. 2.50 203 2.50 205
-------- --------
88,163 79,405
-------- --------
Certificates of deposit ....................... 3.01-4.00 1 3.01-4.00 331
4.01-5.00 2,744 4.01-5.00 14,310
5.01-6.00 105,691 5.01-6.00 80,829
6.01-7.00 1,854 6.01-7.00 4,053
-------- --------
Total certificates of deposit ................. 110,290 99,523
Accrued interest payable ...................... 26 19
-------- --------
$198,479 $178,947
======== ========
</TABLE>
The overall weighted average interest rate on deposits at December 31,
1997 and 1996 was 4.02% and 4.12%, respectively.
The aggregate amount of certificates of deposit in denominations of
$100,000 or more totalled $11.7 million and $7.8 million at December 31, 1997
and 1996, respectively. Deposits over $100,000 are not insured by the Federal
Deposit Insurance Corporation.
At December 31, 1997 certificates of deposit have scheduled maturities
as follows:
IN THOUSANDS
------------
One year or less ............................................. $ 92,808
One year to three years ...................................... 16,575
Three years or more .......................................... 907
--------
$110,290
========
25
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest expense on deposits for the years ended December 31, 1997,
1996 and 1995 is summarized as follows:
1997 1996 1995
------ ------ ------
IN THOUSANDS
NOW and money market deposit accounts ............. $1,114 $1,071 $1,111
Savings accounts and certificates of deposit ...... 6,513 6,077 5,669
------ ------ ------
$7,627 $7,148 $6,780
====== ====== ======
At December 31, 1997, the Bank had pledged approximately $585,000 of
mortgage-backed securities as collateral for municipal deposits.
(10) FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank advances at December 31, 1997 and 1996 are
summarized as follows:
1997 1996
------- -------
IN THOUSANDS
Maturity:
Due in one year or less ............................. $ 2,000 $ 1,000
Due in one year through five years .................. 30,000 2,000
------- -------
$32,000 $27,000
======= =======
The interest rates on the above borrowings are fixed and range from
6.33% to 6.86%. The Bank may borrow funds from the FHLB subject to certain
limitations. Based on the level of qualifying collateral available to secure
advances at December 31, 1997, the Bank's borrowing limit from the FHLB was
approximately $81.0 million, with unused borrowing capacity of $49.0 million at
that date.
The Bank, under an agreement with the FHLB, may receive advances for
various terms at prevailing interest rates at the time of the advance. Such
advances are collateralized by FHLB stock and securities held in safekeeping at
the FHLB.
(11) INCOME TAXES
Income tax expense for the years ended December 31, 1997, 1996 and 1995
consists of the following:
1997 1996 1995
------ ----- ----
IN THOUSANDS
Current:
Federal ........................................ $1,275 $ 421 $422
State .......................................... 113 38 36
------ ----- ----
1,388 459 458
Deferred ......................................... (177) (56) 29
------ ----- ----
$1,211 $ 403 $487
====== ===== ====
Total income tax expense for the years ended December 31, 1997, 1996
and 1995 was allocated as follows:
1997 1996 1995
------ ----- ----
IN THOUSANDS
Income from operations ........................... $1,211 $ 403 $487
Stockholders' equity:
Net unrealized (depreciation)
appreciation on securities available
for sale, net of taxes ....................... 401 (166) 90
------ ----- ----
$1,612 $ 237 $577
====== ===== ====
26
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table presents a reconciliation between the effective
income tax expense and the computed "expected" Federal income tax expense which
is computed by applying the normal Federal income tax rate of 34% to income
before income tax expense for the years ended December 31, 1997, 1996 and 1995,
respectively.
1997 1996 1995
------ ---- ----
IN THOUSANDS
Computed "expected" Federal income tax expense .... $1,076 $363 $462
Increase (decrease) in taxes resulting from:
New Jersey savings institution tax, net of
Federal income tax effect ......................... 67 30 24
Other items, net .................................... 68 10 1
------ ---- ----
Income tax expense .................................. $1,211 $403 $487
====== ==== ====
Effective tax rate .................................. 38.3% 37.7% 36.0%
Retained earnings at December 31, 1997 includes approximately
$4,517,000 of income that has not been subject to tax because of deductions for
bad debts allowed for income tax purposes. Deferred income taxes have not been
provided on such bad debt deductions since the Company does not intend to use
the accumulated bad debt deductions for purposes other than to absorb loan
losses. If this portion of retained earnings is used for any purpose other than
to absorb bad debt losses, taxes would be imposed on such amounts. If triggered,
the tax liability related to the appropriated earnings would have been
$1,626,000 at December 31, 1997.
Legislation was enacted in 1996, which repealed, for tax purposes, the
percentage of taxable income bad debt reserve method. The Company is required to
recapture the post 1987 build up to its tax bad debt reserves. This deferred tax
liability has been accrued for under SFAS 109.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1996 are as follows:
1997 1996
---- ----
IN THOUSANDS
Deferred tax assets:
Allowance for loan losses--book ............................. $728 $620
Nonaccrual loan interest .................................... 27 78
Accrued expenses ............................................ 31 --
Unrealized loss on securities available for sale ............ -- 219
Restricted stock ............................................ 67 --
Other ....................................................... 34 3
---- ----
Total gross deferred tax assets ........................... 887 920
---- ----
Deferred tax liabilities:
Allowance for loan losses--tax .............................. 300 317
Bank premises, furniture and equipment, principally
due to differences in depreciation ........................ 116 123
ESOP ........................................................ 64 --
Other ....................................................... -- 31
Unrealized gains on securities available for sale ........... 182 --
---- ----
Total gross deferred tax liabilities ...................... 662 471
---- ----
Net deferred tax asset .................................... $225 $449
==== ====
Management believes it is more likely than not that the Company will
realize the benefit of net deductible temporary differences and that such net
deductible temporary differences will reverse during periods in which the
Company generates net taxable income. Management has projected that the Company
will generate sufficient taxable income to utilize the net deferred tax asset
and no valuation allowance is considered necessary.
27
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(12) BENEFIT PLANS
Defined Benefit Pension Plan
Prior to December 1997, the Company maintained a defined benefit
pension plan, which covered substantially all employees of the Company who met
certain age and length of service requirements. The Company terminated the
defined benefit plan as of December 1997. Settlement of the Plan liabilities
occurred in December 1997.
The following table sets forth the Plan's funded status and amounts
recognized in the Company's consolidated financial statements at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- -----
IN THOUSANDS
<S> <C> <C>
Actuarial present value of benefit obligations at December 31:
Accumulated benefit obligation including vested benefits of
$398 at December 31 ...................................................... $ -- $ 417
==== =====
Projected benefit obligation for service rendered to date .................. -- (611)
Plan assets at fair value, primarily certificates of deposit held at
other banks at December 31 ............................................... -- 595
---- -----
Plan assets less than projected benefit obligation ........................... -- (16)
Unrecognized net obligation .................................................. -- 17
Unrecognized net loss subsequent to transition ............................... -- 7
---- -----
Prepaid asset (included in other assets) ................................... $ -- $ 8
==== =====
</TABLE>
Net periodic pension cost includes the following components for the
years ended December 31, 1997, 1996 and 1995, respectively:
1997 1996 1995
---- ---- ----
IN THOUSANDS
Service cost ..................................... $ 13 $ 78 $ 82
Interest cost .................................... 46 49 59
Return on plan assets ............................ (23) (31) (56)
Amortization of net obligation ................... 3 3 4
Deferred asset loss .............................. (19) (23) --
Settlement charge ................................ 5 12 --
---- ---- ----
Net periodic pension cost ...................... $ 25 $ 88 $ 89
==== ==== ====
The discount rate and rate of increase in future compensation levels
used in computing the actuarial present value of the projected benefit
obligation were 7.5% and 5.5% in 1996 and 7.0% and 5.0% in 1995, respectively.
The expected long-term rate of return on assets was 7% in both 1996 and 1995.
Employee Savings Plan
The Company has an employee savings plan (the Savings Plan), pursuant
to Section 401(k) of the Internal Revenue Code, for all eligible employees. The
Company matches 50% of employee contributions up to the first 6% of an
employee's salary. The Company's contribution during the years ended December
31, 1997, 1996 and 1995 amounted to $34,000, $32,000 and $33,000, respectively.
Consultation and Retirement Plan for Non-Employee Directors
Effective June 27, 1996, Wayne Savings Bank adopted the Wayne Savings
Bank, F.S.B. Consultation and Retirement Plan for Non-Employee Directors ("the
Plan"). The Plan is intended to promote the interest of Wayne Savings Bank,
F.S.B., and its affiliates by providing for the continuing advice of retiring
eligible members of its Board
28
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of Directors and the Board of Directors of Wayne Bancorp, Inc., the holding
company of Wayne Savings Bank, F.S.B., and to provide such eligible members with
retirement income.
The following table sets forth the Plan's funded status and amounts
recognized in the Company's consolidated financial statement at December 31,
1997 and 1996:
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
IN THOUSANDS
Vested benefit obligations .......................... $(126) $ (89)
Accumulated benefit obligations ..................... (140) (106)
Projected benefit obligations ....................... $(140) $(106)
Fair value of plan assets ........................... -- --
----- -----
Funded status ....................................... (140) (106)
Unrecognized prior service costs .................... 80 86
Unrecognized net (gain) loss ........................ 11 (2)
----- -----
(Accrued) prepaid pension cost ...................... $ (49) $ (22)
===== =====
Net periodic pension cost, utilizing a 7.25% discount rate for 1997 and
1996, includes the following components for 1997 and 1996:
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
IN THOUSANDS
Service cost ........................................ $13 $16
Interest cost ....................................... 10 3
Amortization of unrecognized prior service costs .... 6 3
--- ---
Net periodic pension costs .......................... $29 $22
=== ===
EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")
The Company used a portion of the net proceeds for a loan directly to
the Company for the ESOP to enable the ESOP to purchase 8% of the common stock
in the conversion. Based upon the issuance of 2,231,383 shares, the amount of
the loan to the ESOP was $1.8 million to be repaid over a ten year period at an
interest rate of 8.25%. In 1997, 18,057 shares were allocated. Contributions for
1997 were $357,000.
MANAGEMENT RECOGNITION PROGRAM ("MRP")
The Company established the Company Management Recognition Program on
February 25, 1997 as a method of providing officers and directors of the Company
with a proprietary interest in the Company. The MRP is designed to encourage the
participants to remain with the Company. The MRP purchased a total of 4% or
89,254 common shares of the Company in the open market at cost of $1.5 million.
Awards to plan participants vest at a rate of 20% per year commencing one year
from the date of the award. As awards vest, the Company recognizes an employee
benefit expense in an amount equal to the cost basis of the stock. The expense
recognized for vested benefits amounted to $188,000 for the period from March 1,
1997 to December 31, 1997.
STOCK OPTION PLAN
The Company's Incentive Stock Option Plan was adopted on February 25,
1997 and provides for the granting of options to directors and officers of the
Company. Under the terms of the plan, options may be granted at not less than
fair market value on the date of the grant.
The Plan authorizes the grant of stock options with respect to 223,138
shares of common stock of the Company, equal to 10% of the shares of common
stock issued in the Conversion. Options granted under the Plan are exercisable
on a cumulative basis in equal installments at a rate of 20% per year commencing
one year from date of grant, except that in the event of termination of
employment other than as result of death, disability, retirement or a change in
29
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
control of the Company or the Bank, options not previously exercisable will
automatically expire. Changes in the number of shares outstanding under the Plan
and the weighted average exercise price of those shares for the year ended
December 31, 1997 are as follows:
1997
--------------------------
WEIGHTED
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
--------- --------------
Outstanding at beginning of period ................ -- --
Granted ........................................... 191,892 $17.26
Exercised ......................................... -- --
------- ------
Outstanding at end of period ...................... 191,892 $17.26
======= ======
For options granted in 1997, the exercise price of the options equaled
the market value of the stock at grant date.
The following table summarizes information about the stock options
outstanding at December 31, 1997:
OPTIONS OUTSTANDING AND EXERCISABLE
WEIGHTED AVERAGE
--------------------------------------------------------
NUMBER OF REMAINING WEIGHTED
SHARES CONTRACTUAL AVERAGE
EXERCISE PRICE OUTSTANDING LIFE IN YEARS EXERCISE PRICE
- -------------- ----------- ------------- --------------
$17.00 174,041 10 $17.00
19.75 17,851 10 19.75
------- -- ------
191,892 10 $17.26
======= == ======
The Company applies APB 25 in accounting for the Plan. Consistent with
SFAS 123, if compensation cost for the Plan was included as compensation
expense, the Company's net income and earnings per share, for the year ended
December 31, 1997, would have been reduced to the pro forma amounts indicated
below:
1997
------
Net income
As reported ....................................................... $1,954
Pro forma ......................................................... 1,806
Basic earnings per share
As reported ....................................................... $ 1.04
Pro forma ......................................................... 0.96
Diluted earnings per share
As reported ....................................................... $ 1.03
Pro forma ......................................................... 0.95
The fair value of stock options granted by the Company was estimated
through the use of the Black-Scholes option-pricing model that takes into
account the following factors as of the grant date: the exercise price and the
expected life of the option, the market price of the underlying stock at the
grant date and its expected volatility, and the risk-free interest rate for the
expected term of the option. In deriving the fair value of the stock options,
the stock price at the grant date is reduced by the value of the dividends to be
paid during the life of the option. The following assumptions were used for
grants in 1997: dividend yield of 3.0%, expected volatility of 20.0% and the
risk free interest rate of 5.84%. The effects of applying SFAS 123 on the pro
forma net income may not be representative of the effect on pro forma net income
for future years or any other period.
(13) REGULATORY CAPITAL REQUIREMENTS
OTS regulations require savings institutions to maintain minimum levels
of regulatory capital. Under the regulations in effect at December 31, 1997, the
Bank was required to maintain a minimum ratio of tangible capital to total
adjusted assets of 1.5%; a minimum ratio of Tier 1 (core) capital to total
adjusted assets of 3.0%; and a minimum ratio of total (core and supplementary)
capital to risk-weighted assets of 8.0%.
30
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under its prompt corrective action regulations, the OTS is required to
take certain supervisory actions (and may take additional discretionary actions)
with respect to an undercapitalized institution. Such actions could have a
direct material effect on the Bank's financial statements. The regulations
establish a framework for the classification of savings institutions into five
categories: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. Generally, a
bank is considered well capitalized if it has a Tier 1 (core) capital ratio of a
least 5.0%; a Tier 1 risk-based capital ratio of a least 6.0%; and a total
risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the OTS about
capital components, risk weightings and other factors.
Management believes that, as of December 31, 1997, the Bank meets all
capital adequacy requirements to which it is subject. Further, the most recent
OTS notification categorized the Bank as a well capitalized institution under
the prompt corrective action regulations. There have been no conditions or
events since that notification that management believes have changed the Bank's
capital classification.
OTS regulations impose limitations on all capital distributions, such
as cash dividends, payments to repurchase or otherwise acquire shares, payments
to stockholders of another institution in a cash-out merger and other
distributions charged against capital.
The following is a summary of the Bank's actual capital amounts and
ratios as of December 31, 1997 and 1996, compared with the OTS minimum capital
adequacy requirements and the OTS requirements for classification as a well
capitalized institution.
<TABLE>
<CAPTION>
OTS REQUIREMENTS
------------------------------------------
MINIMUM CAPITAL FOR CLASSIFICATION
BANK ACTUAL ADEQUACY AS WELL CAPITALIZED
------------------ ----------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------ ----- ------- ------
IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
Tangible capital ................ $27,807 10.33% $4,038 1.50% $ 8,076 3.00%
Tier 1 (core) capital ........... 27,807 10.33 8,076 3.00 13,461 5.00
Risk-based:
Tier 1 ........................ 27,807 22.65 4,911 4.00 7,367 6.00
Total ......................... 29,242 23.82 9,823 8.00 12,278 10.00
December 31, 1996
Tangible capital ................ $26,647 10.89% $3,671 1.50% $ 7,342 3.00%
Tier 1 (core) capital ........... 26,647 10.89 7,342 3.00 12,236 5.00
Risk-based:
Tier 1 ........................ 26,647 26.75 3,985 4.00 5,977 6.00
Total ......................... 26,951 27.05 7,970 8.00 9,962 10.00
</TABLE>
(14) COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK
Commitments
The Company is party to financial instruments and commitments with
off-balance-sheet credit risk in the normal course of business. These financial
instruments and commitments include unused home equity lines of credit,
commitments to extend credit, and commitments to purchase securities. These
commitments and instruments involve, to varying degrees, elements of risk in
excess of the amounts recognized in the consolidated financial statements.
The Company's maximum exposure to credit losses in the event of
nonperformance by the other party to these financial instruments and commitments
is represented by the contractual amount. The Company uses the same credit
31
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
policies in granting commitments and conditional obligations as it does for
financial instruments recorded in the consolidated statements of financial
condition.
At December 31, 1997 and 1996 financial instruments and commitments
whose contractual amounts represent off-balance-sheet credit risk are as
follows:
1997 1996
------- ------
IN THOUSANDS
Unused home equity lines of credit
(primarily floating rate) ............................ $16,208 $9,541
Commitments to extend credit:
To originate mortgage loans
Fixed rate ......................................... 448 2,629
Variable rate ...................................... 10,687 6,333
To purchase mortgage loans:
Variable rate ...................................... 706 --
Interest rates on commitments to originate fixed rate mortgage loans
ranged from 7.25% to 7.75% and 6.75% to 8.50% at December 31, 1997 and 1996,
respectively. Such commitments are generally for a sixty day term.
The Company leases certain branch offices under operating leases. At
December 31, 1997, the minimum rental commitments for noncancellable leases with
initial or remaining terms of more than one year and expiring through 2024 are
as follows:
IN THOUSANDS
------------
Year ended December 31,
1998 ......................................................... $ 239
1999 ......................................................... 268
2000 ......................................................... 274
2001 ......................................................... 208
2002 ......................................................... 101
Thereafter ................................................... 1,124
------
$2,214
======
Rental expense under operating leases, included in occupancy expense in
the consolidated statements of income was $290,000, $253,000 and $249,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.
Contingencies
In the normal course of business, there are various outstanding legal
proceedings, claims, commitments and contingent liabilities such as commitments
to extend credit which are not included in the accompanying consolidated
financial statements. In the opinion of management, the financial condition,
results of operations and liquidity of the Company and its subsidiary will not
be materially affected by the outcome of such legal proceedings and claims or by
such commitments and contingent liabilities.
Concentrations of Credit Risk
A substantial portion of the Company's loans are one- to four-family
residential first mortgage loans secured by real estate located primarily in New
Jersey. Accordingly, the collectibility of a substantial portion of the
Company's loan portfolio and the recovery of a substantial portion of the
carrying amount of REO are susceptible to changes in real estate market
conditions.
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods and assumptions are set forth below for
the Company's financial instruments for which it is practical to estimate those
values.
32
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents
For cash and due from banks, interest-bearing deposits in other banks
and Federal funds sold, the carrying amount approximates fair value.
Securities Held to Maturity and Securities Available for Sale
The fair value of securities held to maturity and securities available
for sale was based on quoted market prices or dealer quotes, if available. If a
quoted market price or dealer quote was not available, fair value was estimated
using quoted market prices of similar securities.
Federal Home Loan Bank of New York Stock
The fair value for FHLB stock is its carrying value, since this is the
amount for which it could be redeemed. There is no active market for this stock
and the Bank is required to maintain a minimum balance based on the unpaid
principal of home mortgage loans.
Loans
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans were segregated by type. Each loan category was
further segmented into fixed and adjustable rate interest terms. Fair value of
adjustable rate mortgage loans was determined to approximate their carrying
value.
The fair value of fixed rate loans was determined by discounting the
scheduled cash flows through the contractual maturity, adjusted for estimated
prepayments, using estimated market discount rates that reflect the risk
inherent in the loan type, taking into account the credit grade and maturity.
The fair value of nonperforming loans was determined by discounting the
estimated future cash flows after adjusting for collection costs and risk of
nonpayment.
Deposit Liabilities
The fair value of deposits with no stated maturity, such as savings,
noninterest bearing demand, NOW and money market deposit accounts, is equal to
the amount payable on demand. The fair value of certificates of deposit is based
on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits of similar remaining
maturities.
Federal Home Loan Bank Advances
The fair value of Federal Home Loan Bank advances approximates the
carrying value.
The estimated fair values of the Company's financial instruments as of
December 31, 1997 and 1996 are presented in the following table. Since the fair
value of off-balance-sheet commitments are not material, these disclosures are
not included.
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- ---------- -------------- ----------
IN THOUSANDS
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents ....................... $ 6,845 $ 6,845 $ 6,943 $ 6,943
Securities held to maturity ..................... 2,913 2,882 3,229 3,197
Securities available for sale ................... 73,413 73,413 80,867 80,867
Federal Home Loan Bank of New York stock ........ 2,150 2,150 1,568 1,568
Loans receivable ................................ 178,932 181,627 145,425 148,240
Financial liabilities :
Deposits ........................................ 198,479 198,292 178,947 179,695
Federal Home Loan Bank advances ................. 32,000 32,376 27,000 27,332
</TABLE>
33
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Company's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-balance-sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. The tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in the estimates.
(16) PARENT COMPANY FINANCIAL INFORMATION
Wayne Bancorp, Inc. (the parent company) was incorporated for the
purpose of acquiring the Bank in connection with the Bank's conversion from a
mutual form of ownership to a stock form of ownership. The following information
on the parent only financial statements as of December 31, 1997 and 1996 and for
the year ended December 31, 1997 and for the period June 27, 1996 to December
31, 1996, should be read in conjunction with the notes to the consolidated
financial statements.
34
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED STATEMENTS OF FINANCIAL CONDITION (PARENT COMPANY ONLY)
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
------- -------
IN THOUSANDS
Cash and due from banks ................................ $ 321 $ 265
Investment in Wayne Savings Bank, F.S.B ................ 28,090 26,257
Securities available for sale .......................... 812 --
Advance to subsidiary .................................. 3,409 8,615
Loan to subsidiary bank ESOP ........................... 1,428 1,606
Other assets ........................................... 56 264
------- -------
Total Assets ........................................... $34,116 $37,007
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividends payable ...................................... $ 101 $ --
Other liabilities ...................................... 72 96
------- -------
Total Liabilities ...................................... 173 96
Stockholders' equity:
Common stock ........................................... 22 22
Paid-in capital ........................................ 21,264 21,004
Retained Earnings--substantially restricted ............ 19,906 17,670
Treasury shares (at cost) .............................. (4,417) --
Unallocated MRP shares ................................. (1,262) --
Unallocated ESOP shares ................................ (1,604) (1,785)
Net unrealized gain on securities available for sale ... 34 --
------- -------
Total stockholders' equity ............................. 33,943 36,911
------- -------
Total liabilities and stockholders' equity ............. $34,116 $37,007
======= =======
CONDENSED STATEMENTS OF INCOME (PARENT COMPANY ONLY)
FOR THE PERIOD
FOR YEAR JUNE 27,
ENDED 1996 TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
IN THOUSANDS
Income:
Interest .......................................... $ 476 $ 337
------ -----
Total income .................................... 476 337
------ -----
Expenses:
Legal and professional fees ....................... 231 84
Other expenses .................................... 290 19
------ -----
Total expenses .................................. 521 103
------ -----
Income (loss) before income taxes and equity
in undistributed earnings (loss) of subsidiary .. (45) 234
Income tax expense (benefit) ...................... (17) 94
------ -----
Income before equity in undistributed earnings
(loss) of subsidiary ............................ (28) 140
Undistributed earnings (loss) of subsidiary ....... 1,982 (119)
------ -----
Net Income ........................................ $1,954 $ 21
====== =====
35
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY)
FOR THE PERIOD
FOR YEAR JUNE 27,
ENDED 1996 TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
IN THOUSANDS
Cash flows from operating activities:
Net income ......................................... $ 1,954 $ 21
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings of subsidiary ................... (1,982) 119
Decrease (increase) in other assets ................ 208 (10,485)
(Decrease) increase in other liabilities ........... (48) 96
Increase in dividends payable ...................... 101 --
------- -------
Net cash provided by (used in) operating activities .. 233 (10,249)
------- -------
Cash flows from investing activities:
Increase in investment in subsidiary ............... (393) (8,727)
Decrease in advance to subsidiary .................... 5,597 --
Payment of ESOP loan ............................... 181 --
ESOP loan to subsidiary ............................ -- (1,785)
Purchase of securities available for sale .......... (754) --
------- -------
Net cash provided by (used in) investing activities. 4,631 (10,512)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock ............. -- 21,026
Dividends Paid ....................................... (391) --
Purchase of treasury stock ........................... (4,417) --
------- -------
Net cash provided by (used in) financing activities .. (4,808) 21,026
------- -------
Net change in cash and cash equivalents .............. 56 265
Cash and cash equivalents at beginning of year ....... 265 --
------- -------
Cash and cash equivalents at end of year ............. $ 321 $ 265
======= =======
(17) SAVINGS ASSOCIATION INSURANCE FUND (SAIF) RECAPITALIZATION ASSESSMENT
On September 30, 1996, the President signed into law the Deposit
Insurance Funds Act of 1996 (the "Funds Act") which, among other things, imposes
a special one-time assessment on SAIF member institutions, including the
Company, to recapitalize the SAIF. As required by the Funds Act, the FDIC
imposed a special assessment of 65.7 basis points on SAIF assessable deposits
held as of March 31, 1995, payable November 27, 1996. The special assessment was
recognized as an expense in the third quarter of 1996 and was tax deductible.
The Company incurred a pre tax charge of $1.0 million as a result of the FDIC
special assessment.
The Funds Act also spreads the obligations for payment of the Financing
Corporation ("FICO") bonds across all SAIF and BIF members. Beginning January 1,
1997, BIF deposits will be assessed for FICO payments at a rate of 20% of the
rate assessed on SAIF deposits. BIF deposits are currently assessed a FICO
payment of 1.3 basis points, while SAIF deposits pay an estimated 6.5 basis
points on the FICO bonds. Full pro rata sharing of the FICO payments between BIF
and SAIF members will occur on the earlier of January 1, 2000 or the date the
BIF and SAIF are merged. The Funds Act specifies that the BIF and SAIF will be
merged on January 1, 1999 provided no savings associations remain as of that
time.
As a result of the Funds Act, and recently passed legislation, SAIF
assessments were lowered to 0 to 27 basis points effective January 1, 1997, a
range comparable to that of BIF members. However, SAIF members will continue to
make the higher FICO payments described above. Management cannot predict the
level of FDIC insurance assessments on an on-going basis, whether the savings
association charter will be eliminated, or whether the BIF and SAIF will
eventually be merged. The Company paid $92,000, $393,000 and $368,000 in Federal
deposit insurance premiums for the years ended December 31, 1997, 1996 and 1995,
respectively.
36
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(18) SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The results of operations on a quarterly basis are presented in the
following tables:
1997
-------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS
Interest income ....................... $4,864 $4,850 $4,619 $4,433
Interest expense ...................... 2,646 2,606 2,402 2,254
------ ------ ------ ------
Net interest income ................... 2,218 2,244 2,217 2,179
Provision for loan losses ............. 75 125 75 125
Noninterest income .................... 174 195 145 183
Noninterest expense ................... 1,587 1,543 1,469 1,391
Income tax expense .................... 288 288 293 342
------ ------ ------ ------
Net income ............................ $ 442 $ 483 $ 525 $ 504
====== ====== ====== ======
Basic earnings per share .............. $ 0.25 $ 0.26 $ 0.28 $ 0.25
====== ====== ====== ======
Basic weighted average shares ......... 1,778 1,840 1,884 1,995
====== ====== ====== ======
Diluted earnings per share ............ $ 0.23 $ 0.25 $ 0.28 $ 0.27
====== ====== ====== ======
Diluted weighted average shares ....... 1,899 1,899 1,899 1,882
====== ====== ====== ======
1996
-------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS
Interest income ....................... $4,513 $4,079 $3,457 $3,409
Interest expense ...................... 2,269 2,057 1,800 1,832
------ ------ ------ ------
Net interest income ................... 2,244 2,022 1,657 1,577
Provision for loan losses ............. 65 50 50 35
Noninterest income .................... 144 171 140 130
Noninterest expense ................... 1,303 3,093 1,259 1,161
Income tax expense (benefit) .......... 385 (336) 168 186
------ ------ ------ ------
Net income (loss) ..................... $ 635 $ (614) $ 320 $ 325
====== ====== ====== ======
Basic earnings (loss) per share ....... $ 0.31 $(0.30) $ -- $ --
====== ====== ====== ======
Basic weighted average shares ......... 2,053 2,053 -- --
====== ====== ====== ======
Diluted earnings (loss) per share ..... $ 0.31 $(0.30) $ -- $ --
====== ====== ====== ======
Diluted weighted average shares ....... 2,053 2,053 -- --
====== ====== ====== ======
(19) RECENT ACCOUNTING PRONOUNCEMENTS
In June, 1996 the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS No.
125). SFAS 125 amends portions of SFAS 115, amends and extends to all servicing
assets and liabilities the accounting standards for mortgage servicing rights
now in SFAS 65, and supersedes SFAS 122. The statement provides consistent
standards for distinguishing transfers of financial assets which are sales
37
<PAGE>
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
from transfers that are secured borrowings. Those standards are based upon
consistent application of a financial components approach that focuses on
control. The statement also defines accounting treatment for servicing assets
and other retained interest in the assets that are transferred. As issued, SFAS
125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and is to be
applied prospectively. In December 1996, the FASB issued SFAS No. 127, "Deferral
of the Effective Date of Certain Provision of FASB Statement No. 125; an
amendment of FASB Statement No. 125" which defers for one year the effective
date (a) of paragraph 15 of SFAS No. 125 and (b) for repurchase agreement,
dollar-roll, securities lending and similar transactions, of paragraphs 9-12 and
237(b) of SFAS No. 125. The adoption of SFAS 125 did not have a material effect
on the Company's financial condition or results of operations.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. SFAS 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS 130 does not require a specific format for that financial
statement but requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. SFAS
130 is effective for years beginning after December 15, 1997 and is not expected
to have a material impact on the Company's consolidated financial statements.
38
<PAGE>
[LOGO KPMG Peat Marwick LLP]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Wayne Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial
condition of Wayne Bancorp, Inc. and Subsidiary as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 the audit 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. and Subsidiary as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Short Hills, New Jersey
January 21, 1998
39
<PAGE>
STOCKHOLDER INFORMATION
STOCK PRICE INFORMATION
Shares of the common stock of Wayne Bancorp, Inc. have been traded
under the symbol WYNE on the NASDAQ National Market System since June 27, 1996.
The following table sets forth the range of high and low closings sale price
quotations per share for Wayne Bancorp, Inc. common stock as depicted by NASDAQ.
The market price information does not include retail markups, markdowns or
commissions, but is based on actual transactions.
1997 HIGH LOW
---- ------- -------
First quarter ....................................... $18 $14-7/8
Second quarter ...................................... 20-1/4 16
Third quarter ....................................... 24-7/8 19
Fourth quarter ...................................... 27-1/2 21
1996
----
Third quarter ....................................... 13-7/8 10-3/4
Fourth quarter ...................................... 15-1/4 13-11/16
As of February 11, 1998, there were 2,013,823 shares of common stock
outstanding and 492 stockholders of record, not including the number of persons
or entities whose stock is held in nominee or "street" name through various
brokerage firms or banks.
The Company's ability to pay dividends to stockholders is dependent
upon the earnings from investments and dividends it receives from the Bank.
Accordingly, restrictions on the Bank's ability to pay cash dividends directly
affect the payment of cash dividends by the Company. The Bank may not declare or
pay a dividend if the effect would cause the Bank's regulatory capital to be
reduced below the amount required for the liquidation account established in
connection with the Bank's conversion from mutual to stock form or the
regulatory capital requirements imposed by the OTS. The Company paid quarterly
dividends of $0.05 per share for the last three quarters of 1997.
ANNUAL REPORT ON FORM 10-K AND INVESTOR INFORMATION
A copy of Wayne Bancorp, Inc.'s annual report on Form 10-K, for year
ended December 31, 1997 (excluding exhibits) to be filed with the Securities and
Exchange Commission, is available without charge by writing:
Timothy P. Tierney
Vice President and Chief Financial Officer
Wayne Bancorp, Inc.
1195 Hamburg Turnpike
Wayne, N. J. 07470
Exhibits can be obtained at cost by writing to the Company at the above
address.
STOCK TRANSFER AGENT AND REGISTRAR
Inquiries regarding stock transfer, registration, lost certificates or
changes in name and address should be directed to the stock transfer and
registrar by writing:
Registrar and Transfer Company
Attn: Investor Relations
10 Commerce Drive
Cranford, N. J. 07016
40
<PAGE>
<TABLE>
WAYNE BANCORP, INC.
<CAPTION>
<S> <C>
WAYNE BANCORP, INC. WAYNE SAVINGS BANK, F.S.B.
BOARD OF DIRECTORS OFFICERS
Harold P. Cook, III Johanna O'Connell, President and
Chairman and Chief Executive Officer Chief Executive Officer
Johanna O'Connell Michael DeBenedette, Executive Vice President
President and Chief Operating Officer
William J. Lloyd Robert L. Frega, Senior Vice President
David M. Collins Timothy P. Tierney, Vice President
Thomas D. Collins and Chief Financial Officer
Nicholas S. Gentile, Jr. Donna Finck, Vice President
Ronald Higgins Thomas A. Maselli, Vice President
Richard Len Carolyn May, Vice President
Charles Lota Hazel D. Myers, Vice President
Dennis Pollack William Poole, Vice President
Joseph J. DeLuccia, Director Emeritus David K. Ver Hage, Assistant Vice President
Cathy Infantino, Assistant Secretary Treasurer
BANKING OFFICES
ADMINISTRATIVE OFFICE
1501 Hamburg Turnpike
Wayne, N. J. 07470 1195 Hamburg Turnpike
973-694-2300 Wayne, N. J. 07470
973-305-5500
1504 Route 23
Wayne, N. J. 07470
973-694-0029 WEB SITE
Valley Road at Preakness Avenue http://members.aol.com/waynesav/wsb.html
Wayne, N. J. 07470
973-696-6500
5 Sicomac Road
North Haledon, N. J. 07508
973-427-9888
363 Route 46 West
Fairfield, N. J. 07004
973-276-0252
</TABLE>
41
<PAGE>
APPENDIX F
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended March 31, 1998
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
--------------- -----------------
Commission file number 20691
-----
WAYNE BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3424621
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1195 Hamburg Turnpike, Wayne, New Jersey 07474
----------------------------------------------
(Address of principal executive offices) (Zip Code)
(973) 305-5500
---------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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. X Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
There were 2,013,124 shares of the Registrant's common stock outstanding as of
May 12, 1998.
<PAGE>
FORM 10-Q
Index
PART 1 -- FINANCIAL INFORMATION
Item 1. Financial Statements. Page(s)
Consolidated Statements of Financial Condition as of
March 31, 1998 and December 31, 1997........................ 3
Consolidated Statements of Income for the Three Months
ended March 31, 1998 and 1997............................... 4
Consolidated Statements of Cash Flows for the Three
Months ended March 31, 1998 and 1997........................ 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7-12
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings........................................... 13
Item 2. Changes in Securities....................................... 13
Item 3. Defaults Upon Senior Securities............................. 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
Item 5. Other Information........................................... 13
Item 6. Exhibits and Reports on Form 8-K............................ 14
Signature Page.............................................. 15
2
<PAGE>
Item 1. Financial Statements.
WAYNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
<S> <C> <C>
Assets:
Cash and due from banks $ 1,466 $ 1,577
Interest-bearing deposits in other banks 3,943 1,868
Federal funds sold -- 3,400
---------- ---------
Total cash and cash equivalents 5,409 6,845
Securities available for sale 68,688 73,413
Securities held to maturity, (estimated market value $2,302
and $2,882 in 1998 and 1997, respectively) 2,318 2,913
Loans receivable, net 187,185 178,932
Premises and equipment, net 3,331 3,318
Real estate owned, net 223 80
Federal Home Loan Bank of New York stock, at cost 2,150 2,150
Interest and dividends receivable 1,659 1,897
Other assets 1,044 495
---------- ---------
Total assets $ 272,007 $ 270,043
========= =========
Liabilities and Stockholders'Equity:
Deposits $ 203,532 $198,479
Federal Home Loan Bank advances 32,000 32,000
Advance payments by borrowers for taxes and insurance 876 914
Other liabilities 1,067 4,706
---------- ---------
Total liabilities 237,475 236,099
---------- ---------
Stockholders' Equity:
Preferred stock, $0.01 par value, 2,000,000 shares authorized, none issued -- --
Conunon stock, $0.01 par value, 8,000,000 shares authorized, 2,231,383 shares
issued and 2,013,124 shares outstanding at March 31, 1998 and 2,231,383
issued and 2,013,823 outstanding at December 31, 1997 22 22
Paid-in capital 21,460 21,264
Retained earnings, substantially restricted 19,920 19,623
Treasury stock at cost, 218,259 shares at March 31, 1998 and 217,560
shares at December 31 , 1997 (4,433) (4,417)
Unallocated common stock held by the ESOP (1,560) (1,604)
Common stock held by the MRP (1,205) (1,262)
Accumulated other comprehensive income-
Net unrealized gain on securities available for sale 328 318
---------- ---------
Total stockholders' equity 34,532 33,944
---------- ---------
Total liabilities and stockholders' equity $ 272,007 $ 270,043
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
WAYNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
----------------------
1998 1997
-------- ---------
<S> <C> <C>
Interest income:
Loans $3,516 $2,894
Securities available for sale 1,223 1,426
Securities held to maturity 27 44
Short tenti and other investments 61 69
------ ------
Total interest income 4,827 4,433
------ ------
Interest expense:
Deposits 2,043 1,799
Federal Home Loan Bank advances 540 455
------ ------
Total interest expense 2,583 2,254
------ ------
Net interest income before provision for loan losses 2,244 2,179
Provision for loan losses 70 125
------ ------
Net interest income after provision for loan losses 2,174 2,054
------ ------
Other income:
Loan fees and service charges 77 60
Gain on sale of real estate owned - 50
Other 98 73
------ ------
Total other income 175 183
Other expenses:
Compensation and employee benefits 848 614
Occupancy 113 96
Equipment 55 40
Data processing services 80 70
Advertising 26 37
Federal insurance premiums 30 6
Real estate owned operations 15 3
Other 532 525
------ ------
Total other expenses 1,699 1,391
------ ------
Income before income tax expense 650 846
Income tax expense 255 342
------ ------
Net income $ 395 $ 504
====== ======
Basic earnings per share $ .22 $ 0.25
====== ======
Basic weighted average shares 1,804 1,995
====== ======
Diluted earnings per share $ 0.22 $ 0.27
====== =======
Diluted weighted average shares 1,824 1,882
====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
WAYNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1998 1997
----------- -------------
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 395 $ 504
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses and real estate owned 75 125
Depreciation and amortization 58 45
Net (accretion) of discounts and amortization of premiums 30 26
Decrease (increase) in deferred loan fees 9 (84)
Decrease in interest and dividends receivable 238 300
(Increase) in other assets (430) (50)
(Decrease) increase in other liabilities (3,636) 506
Gain on sale of real estate owned - 50
--------- -------
Net cash (used in) provided by operating activities (3,261) 1,422
--------- -------
Cash flows from investing activities:
Calls of securities available for sale 2,500 -
Purchases of securities available for sale (300) (27)
Principal repayments on securities held to maturity 584 243
Principal repayments on securities available for sale 2,509 1,629
Net increase in loans receivable (7,974) (7,476)
Purchase of loans (488) -
Additions to premises and equipment (71) (101)
Purchase of Federal Home Loan Bank stock - (235)
--------- -------
Net cash used in investing activities (3,240) (5,967)
--------- -------
Cash flows from financing activities:
Net increase in deposits 5,053 1,955
(Decrease) increase in advance payments by borrowers for taxes and insurance (38) 72
Dividends paid (101) (107)
ESOP shares allocated 110 76
Amortization of MRP 57 -
Purchase of treasury stock (16) (1,248)
--------- -------
Net cash provided by financing activities 5,065 748
--------- -------
Net decrease in cash and cash equivalents (1,436) (3,797)
Cash and cash equivalents at beginning of period 6,845 6,943
--------- -------
Cash and cash equivalents at end of period $ 5,409 $ 3,146
========= =======
Supplemental information:
Cash paid during the period for:
Interest $ 2,043 $ 2,255
========= =======
Taxes $ 261 $ -
========= =======
Transfer of loans receivable to real estate owned $ 147 $ -
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Wayne Bancorp, Inc.
Notes to Consolidated Financial Statements
March 31, 1998
(Unaudited)
Note 1 - Basis of presentation
---------------------
The accompanying unaudited consolidated financial statements include the
accounts of Wayne Bancorp, Inc. ("Company") and its wholly-owned subsidiaries,
Wayne Savings Bank, F.S.B. ("Bank") and its subsidiaries as of March 31, 1998
and December 31, 1997 and for the three month periods ended March 31, 1998 and
1997, respectively, and the Company's newly formed subsidiary, Wayne Ventures,
Inc. as of March 31, 1998 and for the three month period ended March 31, 1998.
Material intercompany accounts and transactions have been eliminated in
consolidation. The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management all necessary adjustments,
consisting only of normal recurring accruals necessary for a fair presentation
have been included. The results of operations for the three-month period ended
March 31, 1998 are not necessarily indicative of the results that may be
expected for the entire calendar year or any other period. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements for the year ended December 31, 1997, and the notes
thereto.
Note 2 - Organization of the Holding Company and conversion to stock form of
ownership
----------------------------------------------------------------------
Wayne Bancorp, Inc. was organized for the purpose of acquiring all of the
capital stock of the Bank that was issued in the conversion from a federally
chartered mutual savings bank to a stock savings bank pursuant to a Plan of
Conversion (Conversion) via the issuance of common stock. On June 27, 1996, the
Company completed an initial public offering. The offering resulted in the sale
of 2,231,383 shares of common stock which, after giving effect to offering
expenses of $1.3 million and 178,511 shares issued to the Bank's tax qualified
Employee Stock Ownership Plan (ESOP), resulted in net proceeds of $21.0 million.
Pursuant to the Conversion, the Bank transferred all of its outstanding shares
to the Company. The Bank may not declare or pay cash dividends or repurchase any
of its shares of common stock if the effect of these would cause equity to be
reduced below applicable regulatory capital maintenance requirements or if such
declaration and payment would otherwise violate regulatory requirements.
Note 3 - Earnings per share
------------------
For purposes of calculating basic earnings per share, the weighted average
number of common shares, for the quarter ended March 31, 1998 and 1997 was
1,803,725 and 1,994,865, respectively. Diluted weighted average shares included
common stock equivalents of 20,309 and 112,710 at March 31, 1998 and 1997,
respectively. The diluted weighted average number of common shares, for the
quarter ended March 31, 1998 and 1997 was 1,824,034 and 1,882,164, respectively.
6
<PAGE>
Note 4 - Comprehensive income
--------------------
During the first quarter of 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. This Statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. This Statement requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. In accordance with the provisions of SFAS 130
for interim period reporting, the Company's total comprehensive income for the
three months ended March 31, 1998 and 1997 was $405,000 and $101,000. The
difference between the Company's net income and total comprehensive income for
these periods relates to the change in the net unrealized gains on securities
available for sale during the applicable period of time.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial condition
- -------------------
General
- -------
Wayne Bancorp, Inc. is the holding company for Wayne Savings Bank, F.S.B. a
federally chartered stock savings bank. The Bank converted from a mutual to a
stock savings bank on June 27, 1996 in conjunction with the issuance of the
Bank's capital stock to the Company. The Company also owns all of the capital
stock of Wayne Ventures, Inc.
Assets
- ------
Total assets increased $2.0 million or 0.7% to $272.0 million at March 31, 1998
from $270.0 million at December 31, 1997 due primarily to an $8.3 million
increase in loans receivable, net from $178.9 million at December 31, 1997 to
$187.2 million at March 31, 1998. Such increase was partially offset by a
decrease in cash and cash equivalents of $1.4 million or 21.0% to $5.4 million
at March 31, 1998 from $6.8 million at December 31, 1997. The Company also
experienced a decrease of $5.3 million in securities held to maturity and
securities available for sale, which was the result of principal repayments and
prepayments. Also contributing to this decrease was the call of a $2.5 million
available for sale security in the quarter ended March 31, 1998.
Loan originations during the quarter ended March 31, 1998 totalled $22.7 million
(comprised of $6.0 million of residential one-to four-family mortgage loans,
$5.6 million of home equity loans, $5.9 million of commercial real estate loans,
$1.1 million of multi-family loans, $1.5 million of investment in a joint
venture, $935,000 of construction loans, $1.6 million of commercial business
7
<PAGE>
loans and $73,000 of consumer loans.) The Company's newly formed subsidiary,
Wayne Ventures, Inc., entered into a joint venture to construct and market 14
single family homes in the Township of Wayne, New Jersey. During the first
quarter of 1998, principal repayments and prepayments on loans totalled $14.9
million. During the same quarter of 1997, loan originations totalled $12.4
million and principal repayments and prepayments totalled $4.7 million.
Liabilities
- -----------
Deposits increased by $5.1 million between December 31, 1997 and March 31, 1998
due to interest credited of $2.1 million, and an excess of deposits over
withdrawals of $3.0 million.
Other liabilities decreased $3.6 million and is primarily the result of the
payment, in January 1998, for the purchase of a $4.0 million Federal Farm Credit
Banks note, at a rate of 6.1%, that was recorded in December 1997.
Non performing loans and allowance for loan losses
- --------------------------------------------------
Non performing loans at March 31, 1998 and March 31, 1997 were as follows:
1998 1997
------------------
(Dollars in thousands)
Loans delinquent 90 days or more and other non-
performing loans $2,213 $2,084
Loans delinquent 90 days or more and other non-
performing loans as a percentage of total loans
outstanding 1.17% 1.34%
Allowance for loan losses as a percent of
nonperforming loans 101.22% 91.84%
The following table sets forth the changes in the allowance for loan losses for
the three months ended March 31, 1998 and 1997:
1998 1997
------------------
(Dollars in thousands)
Balance at beginning of period $2,170 $1,789
8
<PAGE>
Provision for losses 70 125
------ ------
Balance at end of period $2,240 $1,914
====== ======
Asset/liability management
- --------------------------
Management's strategy has been to operate as a community oriented financial
institution by offering a variety of financial services to meet the needs of the
communities it serves while maintaining capital in excess of regulatory
requirements and monitoring the sensitivity of the Company's assets and
liabilities to interest rate fluctuations. The Board of Directors has sought to
accomplish these goals by: (i) attracting and maintaining low-cost savings and
transaction accounts, as well as money market accounts, which management
believes provide the Company with a stable source of funds; (ii) focusing its
lending on the origination of one- to four-family, owner-occupied residential
mortgage loans, including home equity loans; (iii) supplementing its one- to
four-family residential lending activities with commercial business, commercial
real estate, multi-family, construction and consumer loans and most recently
entering into a single joint venture, in accordance with the Company's
underwriting guidelines; (iv) purchasing short-to-intermediate term investment
and mortgage-backed securities to complement the Company's lending activities;
(v) emphasizing shorter-term loans and investments and adjustable rate assets
when market conditions permit; and (vi) controlling growth.
As part of management's review of its assets and liabilities, the Company
considers the interest sensitivity of its assets and liabilities and targets
what it believes to be an acceptable level of risk based on the Company's
business focus, operating environment, capital and liquidity requirements, and
performance objectives. Management seeks to reduce the vulnerability of the
Company's operating results to changes in interest rates and to manage the ratio
of interest rate sensitive assets to interest rate sensitive liabilities within
specified maturities or repricing periods. The Company does not currently engage
in trading activities or use off-balance sheet derivative instruments to control
interest rate risk. Even though trading activities or use of off-balance sheet
derivative instruments may be permitted with the approval of the Board of
Directors, management does not intend to engage in such activities in the
immediate future.
In managing the Company's assets and liabilities, the Company has taken certain
actions to decrease the sensitivity of its assets and liabilities to
fluctuations in interest rates. A significant component of the Company's
operating strategy has been to maintain its interest rate spread by maintaining
a core deposit base. The Company has sought to maintain and attract new deposits
by pricing its deposits competitively, but generally not among the highest
interest rates in its market area, and relying on personalized customer service
and advertising. The Company maintains a core deposit base while employing this
strategy.
At March 31, 1998, total interest- bearing liabilities maturing or repricing
within one year exceeded total interest- earning assets maturing or repricing
within the same period by $30.6 million, representing a one-year negative
cumulative gap of 10.3%.
Liquidity and capital
- ---------------------
9
<PAGE>
The Bank is required to maintain minimum levels of liquid assets as defined by
the Office of Thrift Supervision ("OTS") regulations. This requirement, which
may be varied by the OTS depending on economic conditions and deposit flows, is
based on a percentage of withdrawable deposits and short-term borrowings. The
minimum required liquidity ratio is currently 4.0%. The Bank's liquidity ratio
was 37.9% at March 31, 1998 compared with 40.2% at December 31, 1997.
The Company's primary sources of funds are deposits, principal and interest
payments on loans and securities and, to a lesser extent, borrowings and
proceeds from the sale of securities available for sale. While maturities and
scheduled amortization of loans and securities provide an indication of the
timing of the receipt of funds, other sources of funds such as loan prepayments
and deposit inflows are less predictable because they are greatly influenced by
general interest rates, economic conditions, competition and regulatory changes.
The Company's most liquid assets are cash and cash equivalents, which include
interest-bearing deposits and short-term highly liquid investments (such as
federal funds) with original maturities of less than three months that are
readily convertible to known amounts of cash. The level of these assets is
dependent on the Company's operating, financing and investing activities during
any given period. At March 31, 1998 and December 31, 1997, cash and cash
equivalents totaled $5.4 million and $6.8 million, respectively.
The Company and the Bank have other sources of liquidity that include investment
securities maturing within one year, and securities available for sale. Other
sources of funds include Federal Home Loan Bank of New York ("FHLB-NY")
advances, which at March 31, 1998, totalled $32.0 million. If needed, the Bank
may borrow an additional $49.6 million from the FHLB-NY.
At March 31, 1998, the Company had outstanding commitments to fund loan
originations of $8.5 million. There were no commitments to purchase securities
or mortgage-backed securities at March 31, 1998.
As of March 31, 1998, the Bank exceeded all regulatory capital requirements as
detailed in the following table:
<TABLE>
<CAPTION>
Tangible Capital Core Capital Risk-Based Capital
---------------- ------------------- ------------------
Amount Percent Amount Percent(1) Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Capital for regulatory purposes $28,550 10.6% $28,550 10.6% $30,128 22.4%
Minimum regulatory requirement 4,040 1.5% 8,080 3.0% 10,748 8.0%
------ ---- ------ ---- ------ ----
Excess $24,510 9.1% $20,470 7.6%% $19,380 14.4%
======= === ======= === ======= ====
</TABLE>
(1) Tangible and core capital is shown as a percentage of total adjusted
assets. Risk-based capital levels are shown as a percentage of
risk-weighted assets.
10
<PAGE>
Comparison of Operating Results for the Three Months Ended March 31, 1998 and
1997
General The Company reported net income of $395,000 for the three months ended
March 31, 1998 compared with net income of $504,000 for the three months ended
March 31, 1997. The decrease in net income was primarily attributable to the
increase in compensation and employee benefits of $234,000 offset by a $112,000
increase in net interest income after provision for loan losses.
Interest income Interest income increased $394,000, or 8.9% to $4.8 million for
the three months ended March 31, 1998 from $4.4 million for the three months
ended March 31, 1997. The increase was primarily the result of higher
outstanding average balances on interest earning assets.
Interest income on loans receivable, net increased $622,000, or 21.5% to $3.5
million for the three months ended March 31, 1998, from $2.9 million for the
comparable three month period in 1997 primarily as a result of an increase in
average balance of loans of $33.7 million, partially offset by a slight decrease
in the average yield to 7.59% for the three months ended March 31, 1998 from
7.61% for the comparable three month period in 1997. The increase in the average
balance of loans between the periods was due to the increase in loan
originations of $22.7 million for the first quarter of 1998 versus $12.4 million
for the comparable 1997 quarter.
Interest income on securities available for sale decreased $203,000 during the
first quarter of 1998 as a result of a decrease in average outstanding balance
of $9.2 million in the available for sale portfolio. The average balance of the
available for sale portfolio for the three months ended March 31, 1998 was $71.6
million compared with $80.8 million for the comparable period in 1997. The
decline in the available for sale portfolio is the result of management's
decision to use cash flows from the investment portfolio to fund loan growth. In
addition, the yield on the available for sale portfolio decreased 23 basis
points to 6.83% for the quarter ended March 31, 1998 from 7.06% in the prior
period.
Interest expense Interest expense increased $329,000, or 14.6% to $2.6 million
for the three months ended March 31, 1998 from $2.3 million for the three months
ended March 31, 1997.
Interest on deposits increased $244,000, to $2.0 million for the three months
ended March 31, 1998 from $1.8 million for the comparable three months ended
March 31, 1997. The increase in interest expense on deposits was due to an
increase in the average balance of $21.2 million as well as an increase of 11
basis points in the cost of deposits to 4.13% for the three months ended March
31, 1998 from 4.02% for the three months ended March 31, 1997.
Net interest income Net interest income before provision for loan losses
increased $65,000 to $2.2 million for the three months ended March 31, 1998. The
increase reflects an increase in the average balances of loans receivable, net
of $33.7 million for the three months ended March 31, 1998 over the comparable
prior year period, offset by a $9.2 million decrease in the average balances of
securities available for sale for the three months ended March 31, 1998 over the
comparable period in 1997. Offsetting this net increase in assets was an
increase in the average balance of deposits of
11
<PAGE>
$21.2 million and an increase in the average balance of advances of $5.4 million
for the three months ended March 31, 1998 compared with the same period in 1997.
Provision for loan losses The adequacy of the allowance for loan losses is based
on the Company's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay,
estimated value of any underlying collateral and current economic conditions.
The Company provided $70,000 for loan losses for the three months ended March
31, 1998 compared with $125,000 for the comparable three month period in 1997,
which was due to management's continuing reassessment of losses inherent in the
loan portfolio. Management believes that the allowance for loan losses is
adequate. While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on changes in
economic conditions in the Company's market area. In addition, various
regulatory agencies, as an integral part of their routine examination process,
periodically review the Company's allowance for loan losses. Such agencies may
require the Company to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.
Other income Total other income for the three months ended March 31, 1998 was
$175,000 compared with $183,000 for the comparable three month period in 1997.
The decrease is due to the $50,000 gain on sales of real estate owned recognized
during the quarter ended March 31, 1997 offset by increases in loan fees and
service charges and in other income for the three months ended March 31, 1998.
Other expenses Other expenses increased $308,000 or 22.1% for the three months
ended March 31, 1998 to $1.7 million from $1.4 million for the comparable
three-month period in 1997. The increase is primarily the result an increase of
$234,000 in compensation and employee benefits expense, and an increase in
Federal insurance premiums of $24,000.
The increase in compensation and employee benefits expense is the result of
opening a branch office in Fairfield, N. J., in the second quarter of 1997,
normal annual merit increases and costs related to loan production. Also
contributing to the increase was the final payment of $67,000 related to the
onetime non-recurring cost to purchase the rights under a contract entered into
in 1989 which established Wayne Savings Financial Services Group, Inc. The
increase in Federal insurance premiums is the result of the credit received in
the first quarter of 1997 that represents the overpayment, recorded in the third
quarter of 1996, to recapitalize the Savings Association Insurance Fund. The
high level of other expenses in both quarters is the result of the legal and
professional fees incurred in the proxy fight with a dissident stockholder
group.
Income tax expense Income tax expense was $255,000 which represents an effective
tax rate of 39.2% for the three months ended March 31, 1998 compared with income
tax expense of $342,000 which represents an effective tax rate of 40.4% for the
three months ended March 31, 1997.
12
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
-----------------
From time to time, the Company is a party to routine legal proceedings in the
ordinary course of business, such as claims to enforce liens, condemnation
proceedings on properties in which the Company holds security interests, claims
involving the making of real property loans and other issues incident to the
business of the Company.There were no law suits pending or known to be
contemplated against the Company at March 31, 1998 that would have a material
effect on the operations of income of the Company or the Bank, taken as a whole.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On March 31, 1998 stockholders approved the election of three directors
for terms of three years each or until their successors are elected. Following
is the result of the voting:
For Withheld
Thomas D. Collins 835,487 32,254
Johanna O'Connell 1,607,570 31,654
Nicholas S. Gentile, Jr. 1,604,470 34,754
On March 24, 1998 stockholders approved the ratification of the
appointment of KPMG Peat Marwick LLP as independent auditors for the calendar
year ending December 31, 1998. Following is the result of the voting:
For 1,607,027
Against 11,000
Abstained 21,197
Item 5. Other Information
-----------------
Not applicable
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
<TABLE>
<CAPTION>
<S> <C>
A. Exhibits
3.1 Certificate of incorporation of Wayne Bancorp, Inc.*
3.2 Bylaws of Wayne Bancorp, Inc.*
4.0 Stock Certificate of Wayne Bancorp, Inc.*
10.1 Employment Agreement between Wayne Bancorp, Inc. and Johanna
O'Connell**
10.2 Employment Agreement between Wayne Savings Bank, F.S.B. and
Johanna O'Connell**
10.3 Form of Change in Control Agreement between Wayne Bancorp, Inc.
and Certain Executive Officers**
10.4 Employment Agreement between Wayne Savings Financial Services
Group, Inc. and Gary Len**
10.5 Employee Severance Compensation Plan
10.6 Employee Stock Ownership Plan
10.7 Incentive Stock Plan
27.0 Financial Data Schedule (in electronic filing only)
B. Reports on Form 8-K
On March 23, 1998, the Registrant filed a Current Report on Fomr8-K
regarding a press release dated March 20, 1998 in which the Registrant
announced that the Board of Directors has determined that it is in the
best interest of its stockholders to seek a sale or merger of the
Company and that it engaged Sandler O'Neil & Partners, L.P. to assist
the Registrant in seeking a partner (Items 5, 7).
</TABLE>
- --------------------
* Incorporated herein by reference from the Exhibits to Form S-1
Registrations Statement and all amendments thereto, filed March 18, 1996,
Registration Number 333-2488 and declared effective May 13, 1996.
** Incorporated herein by reference to the Exhibits to the Registrant's Annual
Report on Form 10-K, (File No. 20691) filed on March 11, 1997.
*** Incorporated herein by reference to the Proxy Statement for the Special
Meeting of Stockholders filed on December 9, 1996.
14
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
-----------------------------------------------
Registrant
Date: May 12, 1998 By: /s/ Johanna O'Connell
---------------------
Johanna O'Connell,
President
Date: May 12, 1998 By: /s/ Timothy P. Tierney
----------------------
Timothy P. Tierney,
Vice President & Controller
15
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Indemnification. Article VI of the certificate of
incorporation of Valley National Bancorp provides that the corporation shall
indemnify its present and former officers, directors, employees, and agents and
persons serving at its request against expenses, including attorney's fees,
judgments, fines or amounts paid in settlement, incurred in connection with any
pending or threatened civil or criminal proceeding to the full extent permitted
by the New Jersey Business Corporation Act. The Article also provides that such
indemnification shall not exclude any other rights to indemnification to which a
person may otherwise be entitled, and authorizes the corporation to purchase
insurance on behalf of any of the persons enumerated against any liability
whether or not the corporation would have the power to indemnify him under the
provisions of Article VI.
The New Jersey Business Corporation Act empowers a corporation
to indemnify a corporate agent against his expenses and liabilities incurred in
connection with any proceeding (other than a derivative lawsuit) involving the
corporate agent by reason of his being or having been a corporate agent if (a)
the agent acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and (b) with respect to
any criminal proceeding, the corporate agent had no reasonable cause to believe
his conduct was unlawful. For purposes of the Act, the term "corporate agent"
includes any present or former director, officer, employee or agent of the
corporation, and a person serving as a "corporate agent" at the request of the
corporation for any other enterprise.
With respect to any derivative action, the corporation is
empowered to indemnify a corporate agent against his expenses (but not his
liabilities) incurred in connection with any proceeding involving the corporate
agent by reason of his being or having been a corporate agent if the agent acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation. However, only the court in which the
proceeding was brought can empower a corporation to indemnify a corporate agent
against expenses with respect to any claim, issue or matter as to which the
agent was adjudged liable for negligence or misconduct.
The corporation may indemnify a corporate agent in a specific
case if a determination is made by any of the following that the applicable
standard of conduct was met: (i) the Board of Directors, or a committee thereof,
acting by a majority vote of a quorum consisting of disinterested directors;
(ii) by independent legal counsel, if there is not a quorum of disinterested
directors or if the disinterested quorum empowers counsel to make the
determination; or (iii) by the shareholders.
A corporate agent is entitled to mandatory indemnification to
the extent that the agent is successful on the merits or otherwise in any
proceeding, or in defense of any claim, issue or matter in the proceeding. If a
corporation fails or refuses to indemnify a corporate agent, whether the
indemnification is permissive or mandatory, the agent may apply to a court to
grant him the requested indemnification. In advance of the final disposition of
a proceeding, the corporation may pay an agent's expenses if the agent agrees to
repay the expenses unless it is ultimately determined he is entitled to
indemnification.
Exculpation. Article VIII of the certificate of incorporation
of Valley National Bancorp provides:
A director or officer of the Corporation shall not be
personally liable to the Corporation or its shareholders for
damages for breach of any duty owed to the Corporation or its
shareholders, except that this provision shall not relieve a
director or officer from liability for any breach of duty
based upon an act or omission (i) in breach of such person's
duty of loyalty to the Corporation or its shareholders, (ii)
not in good faith or involving a knowing violation of law, or
(iii) resulting in receipt by such person of an improper
personal benefit. If the New Jersey Business Corporation Act
is amended after approval by the shareholders of this
provision to authorize corporate action further eliminating or
limiting the personal liability of directors or officers, then
the liability of a director and/or officer of the Corporation
shall be eliminated or limited to the fullest extent permitted
by the New Jersey Business Corporation Act as so amended.
Any repeal or modification of the foregoing paragraph
by the shareholders of the Corporation or otherwise shall not
adversely affect any right or protection of a director or
officer of the Corporation existing at the time of such repeal
or modification.
The New Jersey Business Corporation Act, as it affects exculpation, has not been
changed since the adoption of this provision by Valley National Bancorp in 1987.
<PAGE>
Item 21.
A. Exhibits
Exhibit No. Description
2(a)* Agreement and Plan of Merger dated as of May 29, 1998, among
Valley National Bancorp ("Valley"), Valley National Bank,
Wayne Bancorp, Inc. ("Wayne") and Wayne Savings Bank, F.S.B.,
included as Appendix A to the Proxy Statement-Prospectus.
2(b)* Stock Option Agreement, dated as of May 29, 1998, by and
between Valley and Wayne, included as Appendix B to the Proxy
Statement-Prospectus.
5 Opinion of Pitney, Hardin, Kipp & Szuch as to the legality of
the securities to be registered.
8 Opinion of Pitney, Hardin, Kipp & Szuch as to the tax
consequences of the Merger.
23(a) Consent of KPMG Peat Marwick LLP with respect to Valley.
23(b) Consent of KPMG Peat Marwick LLP with respect to Wayne.
23(c)* Consent of Pitney, Hardin, Kipp & Szuch (included in Exhibits
5 and 8 hereto).
23(d)** Consent of Sandler O'Neill & Partners, L.P.
24 Power of Attorney of Directors and Officers of Valley.
99 Form of Proxy Card to be utilized by the Board of Directors of
Wayne.
- ----------------------
* Included elsewhere in this registration statement.
** To be filed by amendment.
B. Financial Schedules
All financial statement schedules have been omitted because they are
not applicable or the required information is included in the financial
statements or notes thereto or incorporated by reference therein.
C. Report, Opinion or Appraisals
Form of Fairness Opinion of Sandler O'Neill & Partners, L.P. is
included as Appendix C to the Proxy Statement-Prospectus.
<PAGE>
Item 22. Undertakings
1. The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(b) That for purposes of determining any liability under the Securities
Act of 1933 , each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
2. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
3. The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
4. The registrant undertakes that every prospectus (i) that is filed pursuant to
paragraph 2 immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a) (3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
5. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
6. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
7. Subject to appropriate interpretation, the undersigned registrant hereby
undertakes to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it
becomes effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Wayne,
State of New Jersey, on the 14th day of July, 1998.
VALLEY NATIONAL BANCORP
By: GERALD H. LIPKIN
-----------------------------
Gerald H. Lipkin,
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
GERALD H. LIPKIN Chairman, President and Chief Executive July 14, 1998
- ---------------------------- Officer and Director
Gerald H. Lipkin
PETER SOUTHWAY Vice Chairman (Principal Financial July 14, 1998
- ---------------------------- Officer) and Director
Peter Southway
ALAN D. ESKOW Corporate Secretary and Senior Vice July 14, 1998
- ---------------------------- President (Principal Accounting Officer)
Alan D. Eskow
- ---------------------------- Director July 14, 1998
Andrew B. Abramson
PAMELA BRONANDER Director July 14, 1998
- ----------------------------
Pamela Bronander
JOSEPH COCCIA, JR. Director July 14, 1998
- ----------------------------
Joseph Coccia, Jr.
AUSTIN C. DRUKKER Director July 14, 1998
- ----------------------------
Austin C. Drukker
WILLARD L. HEDDEN Director July 14, 1998
- ----------------------------
Willard L. Hedden
- ----------------------------- Director July 14, 1998
Graham O. Jones
WALTER H. JONES, III Director July 14, 1998
- -----------------------------
Walter H. Jones, III
GERALD KORDE Director July 14, 1998
- ----------------------------
Gerald Korde
JOLEEN J. MARTIN Director July 14, 1998
- ----------------------------
Joleen J. Martin
ROBERT E. McENTEE Director July 14, 1998
- ----------------------------
Robert E. McEntee
WILLIAM H. McNEAR Director July 14, 1998
- ----------------------------
William H. McNear
SAM P. PINYUH Director July 14, 1998
- ----------------------------
Sam P. Pinyuh
ROBERT RACHESKY Director July 14, 1998
- ----------------------------
Robert Rachesky
BARNETT RUKIN Director July 14, 1998
- ----------------------------
Barnett Rukin
- ----------------------------- Director July 14, 1998
Richard F. Tice
LEONARD J. VORCHEIMER Director July 14, 1998
- ----------------------------
Leonard J. Vorcheimer
JOSEPH L. VOZZA Director July 14, 1998
- ----------------------------
Joseph L. Vozza
</TABLE>
<PAGE>
INDEX TO EXHIBITS
A. Exhibits
Exhibit No. Description
2(a)* Agreement and Plan of Merger dated as of May 29, 1998, among
Valley National Bancorp ("Valley"), Valley National Bank,
Wayne Bancorp, Inc. ("Wayne") and Wayne Savings Bank, F.S.B.,
included as Appendix A to the Proxy Statement-Prospectus.
2(b)* Stock Option Agreement, dated as of May 29, 1998, by and
between Valley and Wayne, included as Appendix B to the Proxy
Statement-Prospectus.
5 Opinion of Pitney, Hardin, Kipp & Szuch as to the legality of
the securities to be registered.
8 Opinion of Pitney, Hardin, Kipp & Szuch as to the tax
consequences of the Merger.
23(a) Consent of KPMG Peat Marwick LLP with respect to Valley.
23(b) Consent of KPMG Peat Marwick LLP with respect to Wayne.
23(c)* Consent of Pitney, Hardin, Kipp & Szuch (included in Exhibits
5 and 8 hereto).
23(d)** Consent of Sandler O'Neill & Partners, L.P.
24 Power of Attorney of Directors and Officers of Valley.
99 Form of Proxy Card to be utilized by the Board of Directors of
Wayne.
- ----------------------
* Included elsewhere in this registration statement.
** To be filed by amendment.
Exhibit 5
OPINION OF PITNEY, HARDIN, KIPP & SZUCH
AS TO THE LEGALITY OF THE SECURITIES TO BE REGISTERED
July 15, 1998
Valley National Bancorp
1455 Valley Road
Wayne, New Jersey 07474
Attn.: Gerald H. Lipkin, Chairman, President
and Chief Executive Officer
Re: Merger of Valley National Bancorp and Wayne Bancorp, Inc.
We have acted as counsel to Valley National Bancorp ("Valley")
in connection with its proposed issuance of common stock, no par value (the
"Common Stock"), pursuant to the Agreement and Plan of Merger dated as of May
29, 1998, among Valley, Valley National Bank, Wayne Bancorp, Inc. ("Wayne") and
Wayne Savings Bank, F.S.B. The Common Stock is being registered pursuant to a
Registration Statement on Form S-4 (the "Registration Statement") being filed
with the Securities and Exchange Commission on the date hereof.
We have examined originals, or copies certified or otherwise
identified to our satisfaction, of the Certificate of Incorporation and By-laws
of Valley as currently in effect, relevant resolutions of the Board of Directors
of Valley, and such other documents as we have deemed necessary or appropriate
in order to express the opinion set forth in this letter.
Based on the foregoing and assuming that the Registration
Statement has been declared effective under the Securities Act of 1933, as
amended, we are of the opinion that when issued as described in the Registration
Statement, including the Prospectus relating to the Common Stock (the
"Prospectus"), the Common Stock will be legally issued, fully paid and
non-assessable.
We hereby consent to the use of this opinion as an Exhibit to
the Registration Statement and to the reference to this firm under the heading
"Legal Opinion" in the Prospectus.
Very truly yours,
PITNEY, HARDIN, KIPP & SZUCH
Exhibit 8
OPINION OF PITNEY, HARDIN, KIPP & SZUCH
AS TO FEDERAL INCOME TAX CONSEQUENCES
July 15, 1998
Valley National Bancorp
1455 Valley Road
Wayne, NJ 07474-0558
Wayne Bancorp, Inc.
1195 Hamburg Turnpike
Wayne, NJ 07474
Dear Ladies and Gentlemen:
We have acted as counsel for Valley National Bancorp
("Valley"), a New Jersey corporation and registered bank holding company, in
connection with the planned merger (the "Merger") of Wayne Bancorp, Inc.
("Wayne"), a Delaware corporation and registered unitary savings and loan
holding company, with and into Valley, pursuant to that certain Agreement and
Plan of Merger (the "Agreement"), dated as of May 29, 1998, by and among Valley,
Valley National Bank, a national banking association ("VNB"), Wayne, and Wayne
Savings Bank, F.S.B., a federally-chartered savings bank and wholly-owned
subsidiary of Wayne (the "Bank").
Capitalized terms used but not defined herein shall have the
meanings specified in the Proxy Statement-Prospectus pertaining to the Merger.
We have assumed with your consent that:
(a) the Merger will be effected in accordance with the
Agreement, and
(b) the representations contained in the letters of
representation from Valley and Wayne to us dated July 14, 1998 will be true at
the Effective Time.
On the basis of the foregoing, and our consideration of such
other matters of fact and law as we have deemed necessary or appropriate, it is
our opinion, under presently applicable federal income tax law, that the Merger
will constitute a reorganization under Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and that:
(i) no gain or loss will be recognized for federal income tax
purposes by Valley or Wayne in connection with the Merger;
(ii) no gain or loss will be recognized for federal income tax
purposes by Wayne stockholders upon the exchange in the Merger of shares of
Wayne Common Stock solely for Valley Common Stock (except with respect to cash
received in lieu of a fractional share interest in Valley Common Stock);
(iii) the basis of Valley Common Stock received in the Merger
by Wayne stockholders (including the basis of any fractional share interest in
stock) will be the same as the basis of the shares of Wayne Common Stock
surrendered in exchange therefor;
(iv) the holding period of Valley Common Stock received in the
Merger by Wayne stockholders (including the holding period of any fractional
share interest in stock) will include the holding period during which the shares
of Wayne Common Stock surrendered in exchange therefor were held by the Wayne
stockholder, provided such shares of Wayne Common Stock were held as capital
assets; and
(v) cash received by a holder of Wayne Common Stock in lieu of
a fractional share interest in Valley Common Stock will be treated as received
in exchange for such fractional share interest and, provided the fractional
share would have constituted a capital asset in the hands of such holder, the
holder should in general recognize capital gain or loss in an amount equal to
the difference between the amount of cash received and the portion of the
adjusted tax basis in the Wayne Common Stock allocable to the fractional share
interest.
The tax consequences described above may not be applicable to Wayne
stockholders that acquired the stock of Wayne pursuant to the exercise of an
employee stock option or right or otherwise as compensation, that hold Wayne
Common Stock as part of a "straddle" or "conversion transaction," or that are
insurance companies, securities dealers, financial institutions or foreign
persons.
We hereby consent to the reference to us under the heading
"THE PROPOSED MERGER -- Federal Income Tax Consequences" in the Proxy
Statement-Prospectus pertaining to the Merger and to the filing of this opinion
as an exhibit to the related Registration Statement on Form S-4 filed with the
Securities and Exchange Commission. In giving this consent, we do not hereby
admit that we are within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
PITNEY, HARDIN, KIPP & SZUCH
Exhibit 23(a)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Valley National Bancorp:
We consent to the use of our report dated January 21, 1998 relating to the
consolidated statements of financial condition of Valley National Bancorp and
subsidiaries as of December 31, 1997 and 1996 and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1997, which report
appears in the December 31, 1997 Annual Report on Form 10-K of Valley National
Bancorp, incorporated by reference in the Registration Statement on Form S-4 of
Valley National Bancorp. We also consent to the reference to our Firm under the
caption "Experts."
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
July 13, 1998
Exhibit 23(b)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Wayne Bancorp, Inc.:
We consent to the use of our report dated January 21, 1998 relating to the
consolidated statements of financial condition of Wayne Bancorp, Inc. and
subsidiary as of December 31, 1997 and 1996 and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1997, which report
appears in the December 31, 1997 Annual Report on Form 10-K of Wayne Bancorp,
Inc. included as an exhibit to the Registration Statement on Form S-4 of Valley
National Bancorp. We also consent to the reference to our Firm under the caption
"Experts."
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
July 13, 1998
Exhibit 24
VALLEY NATIONAL BANCORP
POWER OF ATTORNEY
FORM S-4
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Gerald H. Lipkin, his attorney-in-fact,
with power of substitution, for him in any and all capacities, to sign any and
all amendments (whether pre- or post-effective), to this Registration Statement
on Form S-4 of Valley National Bancorp (SEC File No. 333-_____) and to file the
same with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue thereof.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
GERALD H. LIPKIN Chairman, President and Chief Executive July 14, 1998
- ---------------------------- Officer and Director
Gerald H. Lipkin
PETER SOUTHWAY Vice Chairman (Principal Financial July 14, 1998
- ---------------------------- Officer) and Director
Peter Southway
ALAN D. ESKOW Corporate Secretary and Senior Vice July 14, 1998
- ---------------------------- President (Principal Accounting Officer)
Alan D. Eskow
- ---------------------------- Director July 14, 1998
Andrew B. Abramson
PAMELA BRONANDER Director July 14, 1998
- ----------------------------
Pamela Bronander
JOSEPH COCCIA, JR. Director July 14, 1998
- ----------------------------
Joseph Coccia, Jr.
AUSTIN C. DRUKKER Director July 14, 1998
- ----------------------------
Austin C. Drukker
WILLARD L. HEDDEN Director July 14, 1998
- ----------------------------
Willard L. Hedden
- ----------------------------- Director July 14, 1998
Graham O. Jones
WALTER H. JONES, III Director July 14, 1998
- -----------------------------
Walter H. Jones, III
GERALD KORDE Director July 14, 1998
- ----------------------------
Gerald Korde
JOLEEN J. MARTIN Director July 14, 1998
- ----------------------------
Joleen J. Martin
ROBERT E. McENTEE Director July 14, 1998
- ----------------------------
Robert E. McEntee
WILLIAM H. McNEAR Director July 14, 1998
- ----------------------------
William H. McNear
SAM P. PINYUH Director July 14, 1998
- ----------------------------
Sam P. Pinyuh
ROBERT RACHESKY Director July 14, 1998
- ----------------------------
Robert Rachesky
BARNETT RUKIN Director July 14, 1998
- ----------------------------
Barnett Rukin
- ----------------------------- Director July 14, 1998
Richard F. Tice
LEONARD J. VORCHEIMER Director July 14, 1998
- ----------------------------
Leonard J. Vorcheimer
JOSEPH L. VOZZA Director July 14, 1998
- ----------------------------
Joseph L. Vozza
</TABLE>
Exhibit 99
WAYNE BANCORP, INC.
Wayne, New Jersey
THIS PROXY IS SOLICITED BY AND ON BEHALF OF THE BOARD OF DIRECTORS OF
WAYNE BANCORP, INC.
Please return promptly in the enclosed envelope, which requires no
postage if mailed in the USA.
The undersigned, a holder of common stock of Wayne Bancorp, Inc., a
Delaware corporation (the "Company"), acknowledges receipt of the Notice of
Special Meeting of Shareholders and the accompanying Proxy Statement-Prospectus
dated ____________, 1998, and, revoking any proxy heretofore given, hereby
appoints the board of directors of the Company, and each of them, with full
power to each of substitution and revocation, as proxies to vote all shares of
common stock of the Company held by them of record on _______________, 1998, at
the Special Meeting of Shareholders of the Company to be held at
______________________________________, on ______________, 1998, at ____ p.m.
and at any adjournments or postponements thereof, upon the matters set forth on
the reverse side.
(1) To approve the Agreement and Plan of Merger (the "Merger
Agreement") between Valley National Bancorp, Valley National
Bank, the Company and Wayne Savings Bank, F.S.B., dated as of
May 29, 1998, as more fully described in the Proxy Statement.
FOR ----- AGAINST ------ ABSTAIN ------
(2) In their discretion, to vote upon such other business as may
properly come before the meeting.
Management has indicated its intention to vote in favor of the Merger
Agreement and recommends that the Company's shareholders vote in favor of the
Merger Agreement. THE PROXY, WHEN PROPERLY EXECUTED BY THE UNDERSIGNED
SHAREHOLDER, WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO CHOICE IS
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSAL TO APPROVE THE MERGER
AGREEMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER
BUSINESS TO BE PRESENTED AT THE MEETING.
(Please sign exactly as name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please affix corporate seal. If a partnership, please sign in
partnership name by authorized person.)
Dated: ------------------------, 1998
------------------------------------------
Signature
------------------------------------------
Signature (if held jointly)
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY BY USING THE ENCLOSED
ENVELOPE.
