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Rule 424(b)(3)
Registration Statement No. 333-42289
WAYNE BANCORP, INC
112 West Liberty Street
Wooster, Ohio 44691
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON
February 23, 1998
TO SHAREHOLDERS OF WAYNE BANCORP, INC.:
Notice is hereby given that a special meeting of the shareholders of Wayne
Bancorp, Inc., an Ohio corporation and bank holding company located in Wooster,
Ohio ("Wayne"), will be held at the Wayne County National Bank Loan Department,
2nd Floor, 140 W. Liberty Street, Wooster, Ohio 44691, on February 23, 1998,
at 2:00 p.m., local time, to consider and take action upon:
1. A proposal to approve and adopt a Merger Agreement dated as of October 13,
1997 (the "Merger Agreement") by and between Wayne and Chippewa Valley
Bancshares, Inc., an Ohio corporation and bank holding company ("Chippewa"),
with such agreement providing for, among other things, the merger of Chippewa
with and into Wayne. Each outstanding share of Chippewa Common Stock will be
converted into Wayne Common Stock in accordance with the terms of the Merger
Agreement. As a result of the proposed merger, Chippewa will be merged into
Wayne.
2. SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING AND ANY
ADJOURNMENT THEREOF.
The record date for the meeting has been fixed at December 31, 1997. Only the
shareholders of record at the close of business on that date will be entitled
to notice of and to vote at the special meeting or any adjournment thereof.
A favorable vote of at least a majority of the outstanding shares of Wayne
Common Stock is required to approve the Merger Agreement. Accordingly, each
shareholder is urged to sign the enclosed proxy card and return it promptly to
Wayne.
By order of the Board of Directors
/s/ Jimmy D. Vaughn
Jimmy D. Vaughn
Secretary
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE DATE
AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
IF YOUR STOCK IS HELD IN MORE THAN ONE NAME, ALL PARTIES MUST SIGN THE PROXY
FORM.
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CHIPPEWA VALLEY BANCSHARES, INC.
20 South Main Street
Rittman, Ohio 44270
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON
February 23, 1998
TO SHAREHOLDERS OF CHIPPEWA VALLEY BANCSHARES, INC.:
Notice is hereby given that a special meeting of the shareholders of
Chippewa Valley Bancshares, Inc., an Ohio corporation and bank holding company
located in Rittman, Ohio ("Chippewa"), will be held at the Main Office of
Chippewa Valley Bank, 20 South Main Street, Rittman, Ohio 44270, on
February 23, 1998, at 4:30 p.m., local time, to consider and take action upon:
1. A proposal to approve and adopt a Merger Agreement dated as of October
13, 1997 (the "Merger Agreement") by and between Chippewa and Wayne
Bancorp, Inc., an Ohio corporation and bank holding company ("Wayne"),
with such agreement providing for, among other things, the merger of
Chippewa with and into Wayne. Each outstanding share of Chippewa
Common Stock will be converted into Wayne Common Stock in accordance
with the terms of the Merger Agreement. As a result of the proposed
merger, Chippewa will be merged into Wayne.
2. SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING
AND ANY ADJOURNMENT THEREOF.
The record date for the meeting has been fixed at December 31, 1997.
Only the shareholders of record at the close of business on that date will be
entitled to notice of and to vote at the special meeting or any adjournment
thereof.
A favorable vote of at least sixty-six and two-thirds percent (66
2/3%) of the outstanding shares of Chippewa Common Stock is required to approve
the Merger Agreement. Accordingly, each shareholder is urged to sign the
enclosed proxy card and return it promptly to Chippewa.
By order of the Board of Directors
/s/ Philip S. Swope
Philip S. Swope
President
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE MEETING,
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE. IF YOUR STOCK IS HELD IN MORE THAN ONE NAME, ALL PARTIES MUST SIGN
THE PROXY FORM.
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JOINT PROXY STATEMENT
FOR SPECIAL MEETINGS OF SHAREHOLDERS
CHIPPEWA VALLEY BANCSHARES, INC. WAYNE BANCORP, INC.
20 South Main Street 112 West Liberty Street
Rittman, Ohio 44270 Wooster, Ohio 44691
Special Meeting to be held Special Meeting to be held
on February 23, 1998 on February 23, 1998
_______________________
PROSPECTUS
WAYNE BANCORP, INC. COMMON STOCK
_________________________________________________
This Prospectus of Wayne Bancorp, Inc. ("Wayne") relates to the shares of
common stock, without par value, of Wayne issuable to the shareholders of
Chippewa Valley Bancshares, Inc. ("Chippewa") upon consummation of the proposed
merger of Chippewa with and into Wayne (the "Merger"), pursuant to the terms of
a Merger Agreement between Wayne and Chippewa dated as of October 13, 1997 (the
"Merger Agreement"). The Merger Agreement is attached as Exhibit A, and is
incorporated herein by reference.
THIS PROSPECTUS ALSO SERVES AS THE JOINT PROXY STATEMENT OF CHIPPEWA AND
WAYNE FOR THEIR RESPECTIVE SPECIAL MEETINGS OF SHAREHOLDERS (THE "SPECIAL
MEETINGS") TO BE HELD ON FEBRUARY 23, 1998. SEE "MEETING INFORMATION."
If the proposed Merger is consummated, the shareholders of Chippewa will
receive shares of Wayne Common Stock in exchange for their common shares of
Chippewa (the "Chippewa Common Stock") held by them on the effective date of
the Merger as set forth in the Agreement. Pursuant to the terms of the
Agreement, shareholders of Chippewa will exchange all of the shares of Chippewa
Common Stock held on the effective date of the Merger for, in the aggregate,
between 981,837 and 1,023,737 shares of Wayne. Assuming the issuance of
1,002,787 shares, the midpoint of the number of shares of Wayne that could be
issued in the transaction, each share of Chippewa Common Stock would be
converted into the right to receive 2.2384 shares of Wayne on the effective
date of the Merger. In the event the average of the bid and asked prices of
Wayne common stock reported on NASDAQ for the 10 day period ended the fifth day
before the Effective Date, is lower than $30.00 per share, Chippewa may
terminate the proposed merger transaction unless a designated index of regional
bank stocks also has significantly declined (as specified herein).
The Merger is not intended to be taxable to Chippewa shareholders for
federal income tax purposes, except with respect to cash received by Chippewa
shareholders in lieu of a fractional share of Wayne Common Stock or as a result
of the specific shareholder's exercise of statutory rights to dissent to the
Merger. See "PROPOSED MERGER - Certain Federal Income Tax Consequences" and
"PROPOSED MERGER - Rights of Dissenting Shareholders." For a more complete
description of the Merger Agreement and terms of the Merger, see "The PROPOSED
MERGER."
This Joint Proxy Statement-Prospectus and the forms of Proxy are first
being mailed to shareholders of Chippewa and Wayne on or about January 16,
1998.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
ANY SUCH COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS JOINT PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement-Prospectus is January 15, 1998.
1
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
AVAILABLE INFORMATION 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 6
COMPLIANCE WITH THE OHIO CONTROL SHARE ACQUISITION STATUTE 7
SUMMARY 8
The Companies 8
Proposed Merger 8
Special Meeting Information 9
Vote Required 9
Reasons for the Merger; Recommendations of the Boards of Directors 9
Opinion of Financial Advisors 10
Effect on Chippewa Shareholders 10
Dissenters' Rights 10
Certain Federal Income Tax Consequences 10
Accounting Treatment 10
Effective Time of the Merger 11
Conditions to the Merger; Regulatory Approval 11
Dividends 11
Termination, Amendment and Waiver 11
Interests of Certain Persons in the Merger 11
Resales of Wayne Common Stock by Affiliates 12
Markets and Market Prices 12
Selected Financial Data 14
Comparative Per Share Data 18
MEETING INFORMATION 19
General 19
Date, Place and Time 19
Record Dates 19
Votes Required 19
Voting and Revocation of Proxies 20
Solicitation of Proxies 20
PROPOSED MERGER 21
Background and Reasons for the Merger 21
Recommendation of the Chippewa Board of Directors 21
Recommendation of the Wayne Board of Directors 22
Opinion of Chippewa's Financial Advisor 22
Opinion of Wayne's Financial Advisor 25
Terms of the Merger 28
Effective Time of the Merger 29
Surrender of Chippewa Certificates 30
Conditions to the Merger 30
Regulatory Approval 31
Conduct of Business Pending the Merger 32
Dividends 32
Termination, Amendment and Waiver 32
Termination Fee 33
Management and Operations After the Merger 33
</TABLE>
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TABLE OF CONTENTS (CONTINUED)
<TABLE>
<S> <C>
Interests of Certain Persons in the Merger 33
Effect on Employee Benefit Plans 33
Certain Federal Income Tax Consequences 33
Accounting Treatment 34
Expenses 35
Resale of Wayne Common Stock 35
Dissenters' Rights 35
PRO FORMA FINANCIAL DATA 36
DESCRIPTION AND COMPARISON OF WAYNE COMMON STOCK
AND CHIPPEWA COMMON STOCK 44
General 44
Dividends 44
Preemptive Rights 44
Voting 44
Cumulative Voting 45
Liquidation 45
Liability of Directors; Indemnification 45
Antitakeover Provisions 45
INFORMATION ABOUT WAYNE 47
General 47
Competition 47
Certain Regulatory Considerations 48
Principal Holder of Wayne Common Stock 52
Legal Proceedings 52
INFORMATION ABOUT CHIPPEWA 52
General 52
Properties 53
Litigation 53
Voting, Principal Shareholders and Management Information 53
Certain Relationships and Related Transactions 54
Competition 55
Employees 55
Chippewa's Financial Statements and Management's Discussion
and Analysis of Financial Condition and Results of Operations 55
LEGAL OPINIONS 72
EXPERTS 72
</TABLE>
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TABLE OF CONTENTS (CONTINUED)
CHIPPEWA FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996, AND 1995
AND FOR EACH OF THE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Report of Independent Auditors F-1
Consolidated Financial Statements
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Changes in Shareholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
CHIPPEWA INTERIM FINANCIAL STATEMENTS AS OF AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Consolidated Financial Statements
Unaudited Consolidated Balance Sheets S-1
Unaudited Consolidated Statements of Income S-2
Unaudited Consolidated Statements of Changes in Shareholders' Equity S-3
Unaudited Consolidated Statements of Cash Flows S-4
Unaudited Notes to Consolidated Financial Statements S-5
</TABLE>
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TABLE OF CONTENTS (CONTINUED)
APPENDIX A A-1
Merger Agreement dated as of October 13, 1997
APPENDIX B B-1
Opinion of Chippewa's Financial Advisor
APPENDIX C C-1
Opinion of Wayne's Financial Advisor
APPENDIX D D-1
Ohio Law on Dissenters' Rights
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION TO OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS AND, IF GIVEN
OR MADE, THE INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE THE SECURITIES OFFERED
HEREBY, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTIONS OR TO OR FROM ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR
PROXY IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROXY
STATEMENT-PROSPECTUS RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CHIPPEWA OR WAYNE
SINCE THE DATE OF THIS PROXY STATEMENT-PROSPECTUS.
AVAILABLE INFORMATION
Wayne is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located
at Room 1400, 75 Park Place, New York, New York 10007, and at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can also be obtained from the public reference section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, Wayne is required to file electronic versions of
these documents with the Commission through the Commission's Electronic Data
Gathering, Analysis and Retrieval ("EDGAR") system. The Commission maintains a
World Wide Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission including Wayne.
Wayne has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Wayne Common Stock to be issued pursuant to the Merger described herein. This
Proxy Statement-Prospectus does not contain all the information set forth in
the Registration Statement and the exhibits thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. Such
additional information may be obtained from the Commission's principal office
in Washington, D.C. Statements contained in this Proxy Statement-Prospectus or
in any document incorporated herein by reference as to the contents of any
contract or other document referred to herein or therein are not necessarily
complete, and in each instance where reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
other document, each such statement is qualified in all respects by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO WAYNE,
EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED THEREIN, ARE AVAILABLE
WITHOUT CHARGE UPON REQUEST TO DAVID P. BOYLE, CHIEF FINANCIAL OFFICER, WAYNE
BANCORP, INC., 112 W. LIBERTY STREET, WOOSTER, OHIO 44691 (TELEPHONE (330)
264-1222). TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUESTS SHOULD BE
MADE PRIOR TO FEBRUARY 13, 1998.
The following documents previously filed with the Commission by Wayne
(Commission File No. 0-14612) are incorporated herein by reference:
(i) Wayne's Annual Report on Form 10-K for the year ended December
31, 1996;
(ii) Wayne's Quarterly Reports on Form 10-Q for the three month
periods ended March 31, 1997, June 30, and September 30, 1997.
In addition, all documents subsequently filed with the Commission by Wayne
pursuant to sections 13(a), 13(e), 14 or 15(d) of the Exchange Act prior to the
date the offering is terminated are incorporated herein by reference. Any
statement contained in a document incorporated or deemed to be modified or
superceeded for purposes of this Proxy Statement/Prospectus to the extent that
a statement contained herein (or in any subsequently filed document which also
is deemed to be incorporated by reference herein) modified or superceded shall
not be deemed, except as so modified or superceded, to constitute part of this
Proxy Statement-Prospectus.
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COMPLIANCE WITH THE OHIO CONTROL SHARE ACQUISITION STATUTE
Consummation of the proposed merger of Chippewa with and into Wayne in
accordance with the terms of the Merger Agreement requires compliance with the
Ohio Control Share Acquisition Act (the "Acquisition Act") The Acquisition Act
requires the advance approval of the shareholders of an Issuing Public
Corporation prior to the purchase of a controlling interest in such
corporation. Chippewa is an Issuing Public Corporation within the meaning of
the Acquisition Act and therefore the transactions contemplated by the Merger
Agreement must be approved under the Acquisition Act. A vote for the Merger
will also constitute an affirmative vote to approve the acquisition of 100% of
the outstanding shares of Chippewa Common Stock by Wayne as required by the
Acquisition Act. Presented below is Wayne's Acquiring Person Statement as
required by the Acquisition Act. Wayne submitted its Acquiring Person
Statement to Chippewa on the date this Proxy Statement was first mailed to
Chippewa shareholders. Approval under the Acquisition Act requires the
favorable vote of a majority of the shares present at the meeting in person or
by proxy and entitled to vote in the election of directors as well as a
majority vote of such shares excluding any shares held by interested
shareholders, which are defined to include Wayne, any corporate officer of
Chippewa and any employee of Chippewa who is also a director of Chippewa. In
addition "interested shares" are defined to include those acquired by any
person after the first date of public disclosure (October 13, 1997) of the
Merger and prior to the date of the Special Meeting, provided such person paid
over $250,000 for such purchased shares or such purchased shares represents
greater than 5% of the outstanding shares of the Issuing Public Corporation.
As of the Record Date, Wayne owned 1,000 shares of Chippewa constituting 0.22%
of the issued and outstanding shares of Chippewa. Officers and employees of
Chippewa who are interested shareholders within the meaning of the Acquisition
Act owned 4,073 shares of Chippewa. Neither Chippewa nor Wayne are aware of
any other shares of Chippewa Common Stock which could be considered as held by
an interested shareholder as defined by the Acquisition Act.
Wayne's Acquiring Person Statement under the Ohio Control Share
Acquisition Act.
1. The identity of the Acquiring Person is Wayne Bancorp, Inc.,
Wooster, Ohio.
2. This Statement is given pursuant to ORC Section 1701.831(B).
3. Wayne owns 1,000 shares of Chippewa Common Stock.
4. If the proposed Merger is consummated, Wayne will acquire
100% of the voting power of Chippewa Common Stock.
5. Wayne proposes to acquire Chippewa in a merger transaction
pursuant to and in accordance with the provisions of ORC Section 1701.78
and the Merger Agreement. The Merger Agreement is incorporated into
this Acquiring Person Statement as if fully restated herein.
6. The proposed control share acquisition, if consummated, will
not be contrary to law. The Proxy Statement-Prospectus in which this
Acquiring Person Statement appears sets forth the facts upon which the
forgoing statement is based and is incorporated by reference into this
Acquiring Person Statement as if fully restated herein.
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SUMMARY
The following summary is not intended to be a complete description of the
proposed Merger and is qualified in all respects by the more detailed
information contained in this Proxy Statement-Prospectus, the Exhibits hereto
and the documents incorporated by reference. As used in this Proxy
Statement-Prospectus, the terms Wayne and Chippewa refer to such corporations,
respectively, and where the context requires, such corporations and their
respective subsidiaries on a consolidated basis. All information concerning
Wayne included in this Proxy Statement-Prospectus has been provided by Wayne;
all information concerning Chippewa included in this Proxy Statement-Prospectus
has been provided by Chippewa.
THE COMPANIES
Wayne Bancorp, Inc. Wayne is an Ohio corporation organized under the Ohio
General Corporation Law in 1986 and is a registered bank holding company under
the Bank Holding Company Act of 1956, as amended. Wayne's common stock is
listed on the NASDAQ/Small Cap Market ("NASDAQ/SC"). The principal asset of
Wayne is its investment in its wholly-owned subsidiary,The Wayne County
National Bank, sometimes referred to herein as "Wayne Bank." Wayne's principal
offices are located at 112 W. Liberty Street, Wooster, Ohio 44691 (telephone
(330) 264-1222). For additional information concerning Wayne see "INFORMATION
ABOUT WAYNE." Additional information concerning Wayne is included in the Wayne
documents incorporated herein by reference. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
Based on financial information as of September 30, 1997, upon completion
of the Merger Wayne will have approximately $488 million in consolidated assets
and approximately $56 million in consolidated equity capital on a pro forma
basis. See the pro forma financial information for the combined company under
"Pro Forma Financial Data." See "INFORMATION ABOUT WAYNE."
Chippewa Valley Bancshares, Inc. Chippewa is a corporation organized
under the Ohio General Corporation Law and is a registered bank holding company
under the Bank Holding Company Act of 1956, as amended, which owns all of the
outstanding capital stock of The Chippewa Valley Bank ("Chippewa Bank").
Chippewa Bank is a banking corporation chartered under the laws of the State of
Ohio. Chippewa's main office is located at 20 South Main Street, Rittman, Ohio
44270 (telephone number (216) 925-1045).
Based upon financial information as of September 30, 1997, Chippewa had
total consolidated assets of approximately $137 million and total consolidated
equity of approximately $11 million.
PROPOSED MERGER
Chippewa and Wayne have entered into a Merger Agreement (the "Agreement"),
dated as of October 13, 1997, providing, among other things, for the merger of
Chippewa with and into Wayne (the "Merger"). See "THE PROPOSED MERGER." Upon
consummation of the Merger, all of the outstanding shares of Chippewa Common
Stock will be converted into between 981,837 and 1,023,737 shares of Wayne
Common Stock, in the aggregate, in accordance with the Exchange Ratio as
defined in the Agreement. The number of shares of Wayne issuable in the Merger
is dependent upon the book value of Chippewa as of December 31, 1997 adjusted
for certain items, and the weighted average high and low price for Wayne Common
Stock for the ten (10) business days immediately preceding the effective time
of the Merger. Assuming the issuance of 1,002,787 shares, the midpoint of the
shares of Wayne that could be issued in the transaction, each share of Chippewa
Common Stock would be converted into the right to receive 2.2384 shares of
Wayne on the effective date of the Merger.
No fractional shares of Wayne Common Stock will be issued in the Merger,
and Wayne will pay cash, without interest, for any fractional share interests
resulting from the respective exchange ratios in accordance with the terms of
the Agreement. See "PROPOSED MERGER--Terms of the Merger." Each outstanding
share of Wayne Common Stock will not change by reason of the Merger.
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SPECIAL MEETING INFORMATION
Wayne Special Meeting The Special Meeting of Wayne shareholders to
consider and vote on the Merger Agreement and the issuance of Wayne Common
Stock in the Merger (the "Wayne Special Meeting") will be held on Monday,
February 23, 1998 at 2:00 p.m., local time, at the Wayne County National Bank,
Loan Department, 2nd Floor, 140 W. Liberty Street, Wooster, Ohio 44691. Only
holders of record of Wayne Common Stock at the close of business on December
31, 1997 (the "Wayne Record Date"), will be entitled to vote at the Wayne
Special Meeting. At the Wayne Record Date, there were outstanding and entitled
to vote 3,930,092 shares of Wayne Common Stock.
For additional information relating to the Wayne Special Meeting, see
"SPECIAL MEETING INFORMATION."
Chippewa Special Meeting The Special Meeting of Chippewa's shareholders
to consider and vote on the Agreement (the "Special Meeting") will be held on
Monday, February 23, 1998, at 4:30 p.m., local time, at the main office of
Chippewa Bank, 20 South Main Street, Rittman, Ohio 44270. Only holders of
record of Chippewa Common Stock at the close of business on December 31, 1997
(the "Chippewa Record Date") will be entitled to vote at the Special Meeting.
At the Record Date, there were outstanding and entitled to vote 448,000 shares
of Chippewa Common Stock.
For additional information relating to the Chippewa Special Meeting, see
"SPECIAL MEETING INFORMATION."
VOTE REQUIRED
Chippewa. Approval of the Agreement by the Chippewa shareholders requires
the affirmative vote, in person or by proxy, of the holders of record of 66
2/3% of the outstanding shares of Chippewa Common Stock. As of the Record Date
there were 448,000 shares of Chippewa Common Stock outstanding and therefore a
vote of at least 298,667 shares is required to adopt the Agreement. In
addition, approval of the proposed acquisition of a controlling interest in
Chippewa by Wayne under the provisions of the Acquisition Act requires the
affirmative vote of shares representing a majority of the shares entitled to
vote in the election of directors present at the special meeting, in person or
by proxy, and a majority of the shares excluding interested shares, as defined
by the Acquisition Act. Each share of Chippewa Common Stock is entitled to one
vote. As of the Record Date, directors and executive officers of Chippewa and
their affiliates owned beneficially approximately 9.64% and Wayne owned 1,000
shares representing 0.22% of the shares of Chippewa Common Stock outstanding on
such date.
Wayne. Approval of the Merger Agreement and the issuance of Wayne Common
Stock in the Merger by the Wayne shareholders requires the affirmative vote, in
person or by proxy, of the holders of record of at least a majority of the
outstanding shares of Wayne Common Stock. Each share of Wayne Common Stock is
entitled to one vote. As of the Wayne Record Date, directors and executive
officers of Wayne and their affiliates owned beneficially approximately 3.0% of
the shares of Wayne Common Stock outstanding on such date. Directors and
executive officers of Wayne have indicated their intention to vote their shares
of Wayne Common Stock in favor of the Merger.
See "MEETING INFORMATION --Votes Required."
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The respective Boards of Directors of Chippewa and Wayne have each
unanimously approved the Agreement. The Board of Directors of Wayne has also
unanimously authorized the issuance of a sufficient number of shares of Wayne
Common Stock in the Merger. Each Board believes that the Merger is in the best
interests of the shareholders of its respective company. THE BOARD OF
DIRECTORS OF CHIPPEWA UNANIMOUSLY RECOMMENDS A VOTE FOR THE AGREEMENT. THE
BOARD OF DIRECTORS OF WAYNE UNANIMOUSLY RECOMMENDS A VOTE FOR THE AGREEMENT AND
THE PROPOSED ISSUANCE OF THE WAYNE COMMON STOCK PURSUANT TO THE MERGER. See
"PROPOSED MERGER--Reasons for the Merger; Recommendations of the Chippewa Board
of Directors and Recommendations of the Wayne Board of Directors," for a
discussion of the factors considered by the respective Boards in reaching their
decisions to approve the Merger Agreement and the transactions contemplated
thereby.
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OPINIONS OF FINANCIAL ADVISORS
Chippewa's financial advisor, Young & Associates ("Young"), has rendered
its opinion to the Board of Directors of Chippewa to the effect that the
consideration to be received by the shareholders of Chippewa upon consummation
of the Merger is fair, from a financial perspective, to the holders of
Chippewa Common Stock. The opinion of Young, which is attached as Appendix B
to this Proxy Statement-Prospectus, sets forth the assumptions made, the
information analyzed, and the limitations on the review undertaken in rendering
such opinion. See "PROPOSED MERGER--Opinion of Chippewa's Financial Advisor."
Wayne's financial advisor, Austin Associates, Inc. ("Austin Associates")
has rendered its opinion to the Board of Directors of Wayne to the effect that
the consideration in the form of common stock to be issued by Wayne to the
shareholders of Chippewa upon consummation of the Merger is fair, from a
financial perspective, to Wayne and its shareholders. The opinion of Austin
Associates, which is attached as Appendix C to this Proxy Statement-Prospectus,
sets forth the assumptions made, the information analyzed, and the limitations
on the review undertaken in rendering such opinion. See "PROPOSED
MERGER--Opinion of Wayne's Financial Advisor."
EFFECT ON CHIPPEWA SHAREHOLDERS
Each outstanding share of Chippewa Common Stock on the effective date of
the Merger will be converted in the Merger into shares of Wayne Common Stock as
provided for in the Agreement, see "PROPOSED MERGER -- Terms of the Merger."
Thereafter, the rights of Chippewa shareholders will be governed by Ohio law
and the Articles of Incorporation, as amended, and Code of Regulations, as
amended of Wayne. See "COMPARISON OF SHAREHOLDER RIGHTS."
DISSENTERS' RIGHTS
Pursuant to Ohio Law, shareholders of Chippewa and Wayne have appraisal
rights and can demand to be paid the fair cash value of their shares of
Chippewa or Wayne Common Stock, as applicable, if they comply with the
procedures of Section 1701.85 of the Ohio General Corporation Law ("OGCL").
The full text of Section 1701.85 of the OGCL is attached to this Proxy
Statement as Appendix C. See "PROPOSED MERGER--Dissenters' Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is expected to qualify for federal income tax purposes as a
tax-free or tax-deferred reorganization. It is a condition to consummation of
the Merger that Wayne and Chippewa each receive an opinion of counsel that the
Merger will qualify as a tax-free or tax-deferred reorganization. Werner &
Blank Co., L.P.A. special counsel to Wayne has issued such opinion for the
benefit of Wayne, Chippewa and their respective shareholders. Such opinion
will not be binding on the Internal Revenue Service.
In the event that the Merger qualifies as a tax-free reorganization,
shareholders of Chippewa will generally recognize no gain or loss for federal
income tax purposes on the exchange of their Chippewa Common Stock for Wayne
Common Stock except to the extent they receive cash as a result of the exercise
of their statutory rights to dissent to the Merger and cash received in
exchange for any fractional share interest resulting from the Exchange Ratio.
See "PROPOSED MERGER - Certain Federal Income Tax Consequences."
CHIPPEWA SHAREHOLDERS SHOULD READ CAREFULLY THE DISCUSSION SET FORTH UNDER
"PROPOSED MERGER - CERTAIN FEDERAL INCOME TAX CONSEQUENCES" AND ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE
MERGER UNDER FEDERAL, STATE, AND LOCAL AND ANY OTHER APPLICABLE TAX LAWS.
ACCOUNTING TREATMENT
Wayne anticipates that the Merger will be accounted for as a pooling of
interests. See "PROPOSED MERGER - Accounting Treatment."
10
<PAGE> 13
EFFECTIVE TIME OF THE MERGER
The Agreement provides that the Merger will take place not later than the
first business day of the first or second calendar month after receipt of the
following approvals relating to the Merger (depending upon when such approvals
are received and waiting periods expire): (i) by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") and the Ohio Division of
Financial Institutions ("ODFI") and the expiration of any required waiting
periods following regulatory approval; and (ii) by the shareholders of Chippewa
and Wayne, unless another time is agreed upon in writing by the parties,
provided, that in no event is the Merger to become effective prior to March 31,
1998. Although there can be no assurance, the Merger is expected to be
consummated during the first part of the second quarter of 1998.
CONDITIONS TO THE MERGER; REGULATORY APPROVAL
The Merger is conditioned upon approval by the shareholders of Chippewa
and Wayne, the receipt of all required regulatory approvals and upon
satisfaction of other terms and conditions, including receipt of assurance that
the Merger will constitute tax-free or tax-deferred reorganization and qualify
as a pooling of interests for accounting purposes. See "PROPOSED
MERGER-Conditions to the Merger."
Wayne prepared applications and submitted them for filing with the Federal
Reserve Board under the provisions of the Federal Bank Holding Company Act of
1956, as amended, on December 29, 1997. The Federal Reserve Board has not yet
approved the application but Wayne believes that such approval will be
received, subject to shareholder approval. Wayne also filed an application for
"change of bank control" with the Ohio Division of Financial Institutions on
December 29, 1997. While the ODFI has not yet approved the application, Wayne
believes that such approval will be received, subject to shareholder approval.
See "PROPOSED MERGER - Regulatory Approval."
DIVIDENDS
Under the Agreement, Chippewa is allowed to declare a semi-annual cash
dividend at the rate of $0.16 per share at any time prior to December 31, 1997.
Such dividend was paid on December 31, 1997. See "PROPOSED MERGER
- -Dividends."
TERMINATION, AMENDMENT AND WAIVER
The Merger may be terminated, among other reasons, (i) by mutual consent
of the Boards of Directors of Wayne and Chippewa at any time before the Merger
takes place; or (ii) by either Wayne or Chippewa if (a) the Merger has not
taken place by September 30, 1998, (b) Wayne does not receive all required
regulatory approvals relating to the Merger, (c) any suit, action or proceeding
is pending or overtly threatened seeking to prevent or inhibit the Merger, (d)
if any warranty or representation made by the other party is discovered to have
been untrue in any material respect, or (e) the other party commits one or more
material breaches of the Agreement; or (iii) by Chippewa in the event that the
average bid and asked price of Wayne Common Stock on NASDAQ/SC for the 10 day
period ending on the business day five days before closing is less than $30.00,
subject to a comparable change in the price of other financial institutions.
See "PROPOSED MERGER - Termination, Amendment and Waiver."
Wayne and Chippewa may amend, modify or waive certain terms and conditions
of the Agreement. See "PROPOSED MERGER - Termination, Amendment and Waiver."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In the Agreement, Wayne has agreed to cause Philip S. Swope, President,
Chief Executive Officer and a Director of Chippewa, to be appointed and/or
elected as the President and a Director of Wayne. Further, Wayne has agreed to
appoint two persons currently serving on the Chippewa Board of Directors to the
Wayne Board of Directors. Pursuant to the terms of the Agreement, the current
Directors of Chippewa Bank shall constitute the Board of Directors of Chippewa
Bank after consummation of the Merger subject to the right of Wayne to appoint
two additional persons to such Board.
11
<PAGE> 14
RESALES OF WAYNE COMMON STOCK BY AFFILIATES
No restrictions on the sale or transfer of the shares of Wayne Common
Stock issued pursuant to the Merger will be imposed solely as a result of the
Merger, other than restrictions on the transfer of such shares issued to any
Chippewa shareholder who may be deemed to be an "affiliate" of Chippewa for
purposes of Rule 145 under the Securities Act. Directors, executive officers
and 10% shareholders are generally deemed to be affiliates for purposes of Rule
145.
Resales of Wayne Common Stock issued to "affiliates" of Chippewa have not
been registered under applicable securities laws in connection with the Merger.
Such shares may only be sold (a) under a separate registration by the
affiliates for distribution (which Wayne has not agreed to provide), (b)
pursuant to Rule 145 under the Securities Act, or (c) pursuant to another
exemption from registration requirements under the Securities Act. For Wayne
to be able to account for the Merger as a pooling of interests, pursuant to
Securities and Exchange Commission requirements, certain additional
restrictions will be placed on affiliates of Chippewa with respect to
dispositions of Wayne Common Stock and Chippewa Common Stock during the period
beginning 30 days before the Merger and ending when the results for 30 days of
post-merger combined operations have been published.
MARKETS AND MARKET PRICES
Chippewa. There is no established public trading market for shares of
Chippewa Common Stock, and shares of Chippewa Common Stock are traded in very
limited quantities in private transactions. Since there are no market makers
for shares of Chippewa Common Stock and there is no recognized exchange on
which shares of Chippewa Common Stock are traded, there is no published source
of prices relating to transactions in Chippewa Common Stock. Most trades of
Chippewa Common Stock occur as a result of private and isolated transactions,
with the result that management of Chippewa is not directly informed of trades
or prices of shares of Chippewa Common Stock. Because of the very limited
market for shares of Chippewa Common Stock, the actual per share prices shown
below may not be indicative of the value of a share of Chippewa Common Stock.
The table below sets forth, for the periods indicated, the prices of
actual trades of Chippewa Common Stock known to management of Chippewa which
have been made from January 1, 1994 through December 31, 1997. The last trade
of Chippewa Common Stock of which management of Chippewa is aware occurred
during the fourth quarter of 1997 and involved the sale of 200 shares at a
price of $37.00 per share.
Chippewa's management has not verified the accuracy of the following
prices for trades of Chippewa Common Stock. Further, these prices may not be a
reliable indicator of the price at which more than a limited number of shares
would trade, and there may have been additional shares of Chippewa Common
Stock, traded at higher or lower prices of which Chippewa's management is
unaware.
12
<PAGE> 15
<TABLE>
<CAPTION>
Number of
Shares Traded Avg. Price
During Quarter Per Share(1)
-------------- --------------
1995
- ----
<S> <C> <C>
First Quarter 660 $19.50
Second Quarter N/A(2) N/A(2)
Third Quarter N/A(2) N/A(2)
Fourth Quarter 800 $21.00
1996
- ----
First Quarter 900 $21.50
Second Quarter 750 $21.50
Third Quarter 3,300 $24.44
Fourth Quarter 1,070 $29.375
1997
- ----
First Quarter 2,000 $30.415
Second Quarter N/A(2) N/A(2)
Third Quarter N/A(2) N/A(2)
Fourth Quarter 1,110 $37.00
</TABLE>
- --------------------------------------------------------------------------------
(1) Prices adjusted to reflect 2 for 1 stock split effective April 7, 1997.
(2) Management is not aware of any trades for the period indicated.
The above table includes transactions involving directors and officers of
Chippewa.
Chippewa has paid or will pay semiannual dividends of $0.1375, $0.15 and
$0.16 per share (figures adjusted for 2 for 1 stock split) on Chippewa Common
Stock in each of the years ended December 31, 1995, 1996, and 1997,
respectively. As of December 31, 1995, 1996 and 1997, there were 448,000
shares of Chippewa Common Stock outstanding.
Wayne Markets and Market Prices and Equivalent Per Share Data. Shares of
Wayne Common Stock are traded in the over-the-counter market and are listed in
NASDAQ/SC. The following table sets forth the last reported sale price per
share of Wayne Common Stock on the dates indicated.
The equivalent per share price of Chippewa Common Stock at each specified
date assumes the issuance of 1,002,787 shares, the midpoint of the number of
shares of Wayne that could be issued in the transaction, such that each share
of Chippewa Common Stock would be converted into the right to receive 2.2384
shares of Wayne on the effective date of the Merger. On September 30, 1997,
Wayne shares were traded at $41.00 per share. See "SUMMARY -- Selected
Comparative Per Share Data." The actual exchange ratio will be determined by
the book value of Chippewa as of December 31, 1997 adjusted by certain items
and the trading prices of Wayne Common Stock for the 10 business day period
ending 5 days prior to the effective time of the Merger and may be different
than the assumed exchange ratio.
13
<PAGE> 16
<TABLE>
<CAPTION>
EQUIVALENT PER SHARE INFORMATION
--------------------------------
WAYNE CHIPPEWA
MARKET VALUE PER SHARE AT: COMMON STOCK COMMON STOCK(1)
- -------------------------- ------------ --------------------------------
Per Share Equivalent
Per share
<S> <C> <C>
December 31, 1995 $19.42 $43.47
March 31, 1996 $21.08 $47.17
June 30, 1996 $23.50 $52.60
September 30, 1996 $24.70 $55.29
December 31, 1996 $28.34 $64.44
March 31, 1997 $38.00 $85.06
June 30, 1997 $38.00 $85.06
September 30, 1997 $41.00 $91.77
</TABLE>
(1) Assumes an exchange ratio of 2.2384 shares of Stock for each share of
Chippewa Common Stock which is the midpoint of the exchange ratio.
On October 10, 1997 the business date immediately preceding the public
announcement of the Merger, the reported last sales price of Wayne Common Stock
was $41.75 per share. There were no reported sales of Chippewa Common Stock on
that date. Shareholders are advised to obtain current market quotations for
Wayne Common Stock. No assurance can be given as to the market price of Wayne
Common Stock or Chippewa Common Stock at or, in the case of Wayne Common Stock,
after the effective time of the Merger.
On September 30, 1997, there were approximately 1,258 holders of record of
Wayne Common Stock and 215 holders of record of Chippewa Common Stock.
SELECTED FINANCIAL DATA
The following unaudited tables present selected historical financial
information and selected pro forma combined financial information for Wayne and
Chippewa. This information should be read in conjunction with the historical
and pro forma financial statements and notes thereto included elsewhere in or
incorporated by reference to this Prospectus-Proxy Statement. The pro forma
combined financial information gives effect to the Merger. The pro forma
combined financial information may not be indicative of the results that
actually would have occurred if the Merger had been in effect on the dates
indicated or which may be attained in the future. The pro forma combined
financial information has been prepared on the assumption that the Merger will
be accounted for under the pooling of interests method of accounting. Further,
the pro forma financial information assumes the issuance of 1,002,787 shares,
the midpoint of the shares of Wayne that could be issued in the transaction,
such that each share of Chippewa Common Stock would be converted into the right
to receive 2.2384 shares of Wayne on the effective date of the Merger. Such
1,002,787 amount includes the issuance of 2,238 shares to Wayne representing
the 1,000 shares of Chippewa Common Stock currently owned by Wayne multiplied
by the exchange ratio.
14
<PAGE> 17
SELECTED FINANCIAL DATA
HISTORICAL
WAYNE BANCORP, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 9 MONTHS ENDED
1996 1995 1994 1993 1992 9/30/97 9/30/96
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
WAYNE BANCORP, INC.
(Historical)
Income Statement Data:
Net Interest Income $14,984 $14,214 $13,165 $11,945 $11,561 $11,628 $11,183
Provision for Loan Losses 180 120 346 600 750 135 135
Noninterest Income 3,893 2,765 2,597 2,639 2,510 2,004 2,209
Invest Sec Gains 6 (12) 2 0 0 (6) (1)
Noninterest Expense 10,751 10,530 9,838 9,092 9,036 7,556 7,802
Provision for Income Tax 2,420 1,832 1,560 1,220 1,171 1,829 1,662
------- -------- -------- -------- -------- -------- --------
Net Income 5,532 4,485 4,020 3,672 3,114 4,106 3,792
Balance Sheet Data (period end):
Assets $352,393 $330,927 $315,685 $299,735 $291,282 $351,190 $334,692
Deposits 281,686 274,747 266,545 258,759 254,773 276,824 269,139
Loans, Net 215,072 208,406 193,479 178,107 171,666 234,845 215,229
Long-term Debt 0 0 0 0 0 0 0
Shareholders' Equity 41,489 37,937 33,640 30,750 27,855 44,657 40,005
Capital Ratios:
Equity to Assets Ratio 11.77% 11.46% 10.66% 10.26% 9.56% 12.72% 11.95%
Tier 1 Risk-based Capital Ratio 18.25% 17.12% 16.80% 16.05% 15.50% 19.74% 18.73%
Total Risk-based Capital Ratio 19.51% 18.38% 18.06% 17.31% 16.75% 20.72% 19.63%
Other Ratio:
Allowance for Loan Losses to
Underperforming Loans* 330.7% 1,699.5% 1,959.1% 3,304.3% 701.1% 2,511.2% 1,692.4%
</TABLE>
*Loans past due 90 days plus loans on nonaccrual
15
<PAGE> 18
SELECTED FINANCIAL DATA
HISTORICAL
CHIPPEWA VALLEY BANCSHARES, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 9 MONTHS ENDED
1996 1995 1994 1993 1992 9/30/97 9/30/96
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CHIPPEWA VALLEY BANCSHARES, INC.
(Historical)
Income Statement Data:
Net Interest Income $4,498 $3,799 $3,432 $3,400 $3,293 $3,779 $3,294
Provision for Loan Losses 120 110 48 96 101 95 90
Noninterest Income 566 488 418 405 378 496 419
Invest Sec Gains (2) 0 (18) 0 0 (2) (2)
Noninterest Expense 3,636 2,949 2,583 2,428 2,317 2,802 2,625
Provision for Income Taxes 328 315 293 323 348 382 261
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Income 978 913 908 958 905 994 735
Balance Sheet Data (period end):
Assets $131,598 $101,340 $89,354 $84,968 $80,404 $136,939 $129,479
Deposits 114,953 85,960 76,285 72,678 68,997 117,648 113,434
Loans, Net 69,578 58,305 49,076 44,784 43,924 78,220 65,945
Long-term Debt 213 427 640 0 0 0 213
Shareholders' Equity 10,103 9,259 8,263 8,260 7,411 11,055 9,758
Capital Ratios:
Equity to Assets Ratio 7.68% 9.14% 9.25% 9.72% 9.22% 8.07% 7.54%
Tier 1 Risk-based Capital Ratio 11.30% 15.60% 17.86% 17.39% 16.64% 11.57% 11.65%
Total Risk-based Capital Ratio 12.20% 16.50% 18.83% 18.32% 17.52% 12.42% 12.47%
Other Ratio:
Allowance for Loan Losses to
Nonperforming Loans* 106.6% 230.3% 3,260.0% 967.4% 812.5% 56.67% 643.01%
</TABLE>
* Loans past due 90 days plus loans on nonaccrual and troubled debt
restructurings.
16
<PAGE> 19
SELECTED FINANCIAL DATA
PRO FORMA COMBINED
WAYNE BANCORP, INC. AND CHIPPEWA BANCORP, INC
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 9 MONTHS ENDED
1996 1995 1994 1993 1992 9/30/97 9/30/96
---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
WAYNE BANCORP, INC.
AND CHIPPEWA VALLEY BANCSHARES, INC.
(Pro Forma Combined)
Income Statement Data:
Net Interest Income $19,482 $18,013 $16,597 $15,345 $14,854 $15,407 $14,477
Provision for Loan Losses 300 230 394 696 851 230 225
Noninterest Income 4,459 3,253 3,016 3,044 2,888 2,499 2,628
Invest Sec Gains 4 (12) (16) 0 0 (8) (3)
Noninterest Expense 14,387 13,480 12,422 11,520 11,352 10,357 10,427
Provision for Income Tax 2,748 2,147 1,853 1,543 1,520 2,211 1,923
---------- -------- -------- -------- -------- -------- --------
Net Income 6,510 5,397 4,928 4,630 4,019 5,100 4,527
Balance Sheet Data (period end):
Assets $483,991 $432,267 $405,039 $384,703 $371,686 $488,129 $464,171
Deposits 396,639 360,707 342,830 331,437 323,770 394,472 382,573
Loans, Net 284,650 266,711 242,555 222,891 215,590 313,065 281,872
Long-term Debt 213 427 640 0 0 0 213
Shareholders' Equity 51,592 47,196 41,903 39,010 35,266 55,712 49,763
Capital Ratios:
Equity to Assets Ratio 10.66% 10.92% 10.35% 10.14% 9.49% 11.41% 10.72%
Tier 1 Risk-based Capital Ratio 16.45% 16.79% 17.01% 16.33% 15.74% 17.29% 16.64%
Total Risk-based Capital Ratio 17.61% 17.97% 18.21% 17.52% 16.91% 18.44% 17.78%
Other Ratio:
Allowance for Loan Losses to
Underperforming Loans 253.7% 913.2% 2,061.3% 2,525.4% 713.7% 876.9% 1,384.5%
</TABLE>
*Loans past due 90 days plus loans on nonaccrual
17
<PAGE> 20
COMPARATIVE PER SHARE DATA
The following unaudited table sets forth certain unaudited historical and
pro forma combined per common share information for Wayne and certain
historical and equivalent pro forma combined per common share information for
Chippewa. The data is derived from financial statements of Wayne and Chippewa
incorporated by reference or included elsewhere in this Proxy
Statement-Prospectus. The pro forma combined per share information for Wayne
and the equivalent pro forma combined per share information for Chippewa are
stated as if Chippewa had always been affiliated with Wayne, giving effect to
the proposed transaction under the pooling of interests method of accounting,
assuming the issuance of 1,002,787 shares, the midpoint of the shares of Wayne
that could be issued in the transaction, such that each share of Chippewa
Common Stock would be converted into the right to receive 2.2384 shares of
Wayne on the effective time of the Merger. The information presented below has
been restated to reflect stock dividends and stock splits.
SELECTED FINANCIAL DATA
PER SHARE DATA
HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 9 MONTHS ENDED
1996 1995 1994 1993 1992 9/30/97 9/30/96
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL PER SHARE DATA
Wayne Bancorp, Inc. (Wayne)
Net Income per Common Share $1.41 $1.14 $1.03 $0.94 $0.80 $1.04 $0.96
Cash Dividends Paid per Common Share $0.37 $0.34 $0.29 $0.27 $0.24 $0.31 $0.28
Book Value per Common Share (at period end) $10.55 $9.65 $8.58 $7.89 $7.14 $11.35 $10.16
*Chippewa Valley Bancshares, Inc. (Chippewa)
Net Income per Common Share $2.18 $2.04 $1.91 $2.00 $1.89 $2.22 $1.64
Cash Dividends Paid per Common Share $0.30 $0.28 $0.25 $0.23 $0.20 $0.16 $0.15
Book Value per Common Share (at period end) $22.55 $20.67 $18.44 $17.21 $15.44 $24.68 $21.78
</TABLE>
* Periods prior to 1997 have been adjusted to reflect a 2 for 1 stock split,
which was effective April 7, 1997.
SELECTED FINANCIAL DATA
PER SHARE DATA
PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 9 MONTHS ENDED
1996 1995 1994 1993 1992 9/30/97 9/30/96
----- ----- ----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Pro Forma Combined, Wayne and
Chippewa per Wayne Share
Net Income per Common Share $1.32 $1.09 $1.00 $0.94 $0.81 $1.03 $0.91
Cash Dividends Paid per Common Share 0.37 0.34 0.29 0.27 0.24 0.31 0.28
Book Value per Common Share (at period
end) 10.45 9.56 8.53 7.90 7.15 11.28 10.08
*Equivalent Pro Forma Combined, Wayne, and
Chippewa per Chippewa Share
Net Income per Common Share $2.95 $2.44 $2.22 $2.10 $1.81 $2.31 $2.04
Cash Dividends Paid per Common Share 0.83 0.76 0.65 0.60 0.54 0.69 0.62
Book Value per Common Share (at period
end) 23.39 21.40 19.09 17.68 16.00 25.25 22.56
</TABLE>
*All pro forma per share figures are based upon the issuance of 1,002,787 shares
in connection with the Merger, including 2,238 that would be issued to Wayne as
the current holder of 1,000 shares of Chippewa Common Stock.
18
<PAGE> 21
MEETING INFORMATION
GENERAL
This Joint Proxy Statement-Prospectus is being furnished to holders of
Wayne Common Stock in connection with the solicitation of proxies by the Board
of Directors of Wayne for use at the Wayne Special Meeting: (i) to consider
and vote upon the approval of the Merger Agreement and the issuance of Wayne
Common Stock upon consummation of the Merger in accordance with the Agreement;
and (ii) to transact such other business as may properly come before the Wayne
Special Meeting or any adjournments or postponements thereof. Each copy of
this Joint Proxy Statement-Prospectus mailed to the holders of Wayne Common
Stock is accompanied by a form of proxy for use at the Wayne Special Meeting.
This Proxy Statement-Prospectus is being furnished to holders of Chippewa
Common Stock in connection with the solicitation of proxies by the Board of
Directors of Chippewa for use at the Special Meeting to consider and vote upon
the adoption of the Agreement and to transact such other business as may
properly come before the Special Meeting or any adjournments or postponements
thereof. Each copy of this Proxy Statement-Prospectus mailed to the holders of
Chippewa Common Stock is accompanied by a form of proxy for use at the Special
Meeting.
This Proxy Statement-Prospectus is also furnished by Wayne to Chippewa
shareholders as a Prospectus in connection with the issuance by Wayne of shares
of Wayne Common Stock upon consummation of the Merger in accordance with the
Agreement. This Proxy Statement-Prospectus, the attached Notice, and the form
of proxy enclosed herewith are first being mailed to shareholders of Chippewa
and Wayne on or about January 16, 1998.
DATE, PLACE AND TIME
The Wayne Special Meeting: The Wayne Special Meeting will be held at
Wayne County National Bank, Loan Department, 2nd Floor, 140 Liberty Street,
Wooster, Ohio 44691, on Monday, February 23, 1998, at 2:00 p.m. local time.
The Chippewa Special Meeting: The Chippewa Special Meeting will be held
at the main office of Chippewa Bank, 20 South Main Street, Rittman, Ohio
44270, on Monday, February 23, 1998, at 4:30 p.m. local time.
RECORD DATES
Wayne. The Board of Directors of Wayne has fixed the close of business on
December 31, 1997 as the Wayne Record Date for the determination of the holders
of Wayne Common Stock entitled to receive notice of and to vote at the Wayne
Special Meeting.
Chippewa. The Board of Directors of Chippewa has fixed the close of
business on December 31, 1997 as the Chippewa Record Date for the determination
of the holders of Chippewa Common Stock entitled to receive notice of and to
vote at the Chippewa Special Meeting.
VOTES REQUIRED
Wayne. As of the Wayne Record Date, there were 3,930,092 shares of Wayne
Common Stock outstanding. Holders of Wayne Common Stock are entitled to one
vote per share. Under applicable provisions of Ohio law and the Articles of
Incorporation of Wayne, the affirmative vote of at least a majority of the
outstanding shares of Wayne Common Stock is required to approve the Merger
Agreements and the issuance of Wayne Common Stock upon consummation of the
Merger.
As of the Wayne Record Date, directors and executive officers of Wayne (16
persons) and their affiliates owned beneficially an aggregate of 106,545 shares
of Wayne Common Stock or approximately 2.71% of the shares
19
<PAGE> 22
of Wayne Common Stock outstanding on such date. Directors and executive
officers of Wayne have indicated their intention to vote their shares of Wayne
Common Stock in favor of the Merger. As of the Wayne Record Date, Wayne owned
1,000 shares (0.22%) of the Chippewa Common Stock and the directors and
executive officers of Wayne beneficially owned no shares of Chippewa Common
Stock.
Chippewa. As of the Record Date, there were 448,000 shares of Chippewa
Common Stock outstanding. Holders of Chippewa Common Stock are entitled to one
vote per share. Under applicable provisions of Ohio Law and the Amended and
Restated Articles of Incorporation of Chippewa, the affirmative vote of at
least 66 2/3% of the outstanding shares of Chippewa Common Stock is required to
approve the Agreement. In addition, approval of the proposed acquisition of a
controlling interest in Chippewa by Wayne under the provisions of the
Acquisition Act requires the affirmative vote of shares representing a majority
of the shares entitled to vote in the election of directors present at the
special meeting in person or by proxy and a majority of the shares excluding
interested shares, as defined by the Acquisition Act. Each share of Chippewa
Common Stock is entitled to one vote.
As of the Record Date, directors and executive officers of Chippewa (11
persons) and their affiliates owned beneficially an aggregate of 43,185 shares
of Chippewa Common Stock or approximately 9.64% of the shares of Chippewa
Common Stock outstanding on such date. As of the Record Date, directors and
executive officers of Chippewa beneficially owned no shares of Wayne Common
Stock.
VOTING AND REVOCATION OF PROXIES
Shares of Wayne Common Stock and Chippewa Common Stock represented by a
proxy properly signed and received on or prior to the appropriate Special
Meeting, unless subsequently revoked, will be voted in accordance with the
instructions thereon. IF A PROXY IS SIGNED AND RETURNED WITHOUT INDICATING ANY
VOTING INSTRUCTIONS, SHARES OF WAYNE COMMON STOCK REPRESENTED BY PROXY WILL BE
VOTED FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT AND ISSUANCE OF WAYNE
COMMON STOCK UPON CONSUMMATION OF THE MERGER AND SHARES OF CHIPPEWA COMMON
STOCK REPRESENTED BY PROXY WILL BE VOTED FOR THE MERGER AGREEMENT. Any proxy
given pursuant to this solicitation may be revoked by the person giving it at
any time before the proxy is voted by the filing of an instrument revoking it
or of a duly executed proxy bearing a later date with the Secretary of Wayne,
for Wayne shareholders, or with the Secretary of Chippewa, for Chippewa
shareholders, prior to or at the appropriate Special Meeting, or by voting in
person at the appropriate Special Meeting. Attendance at the Special Meetings
will not in and of itself constitute a revocation of a proxy.
The respective Boards of Directors of Wayne and Chippewa are not aware of
any business to be acted upon at their respective Special Meetings other than
as described herein. If, however, other matters properly come before any of
the Special Meetings, or any adjournments or postponements thereof, the
person(s) appointed as proxies will have discretion to vote or act thereon
according to their best judgment.
Ohio law affords dissenters' rights to holders of Chippewa and Wayne
Common Stock in connection with the Merger. For additional information
regarding dissenters' rights see "PROPOSED MERGER -Dissenters' Rights".
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
Wayne and Chippewa, who will not be specifically compensated for such services,
may solicit proxies from the shareholders of Wayne and Chippewa, respectively,
personally or by telephone or other forms of communication. Brokerage houses,
nominees, fiduciaries, and other custodians will be requested to forward
soliciting materials to beneficial owners and will be reimbursed for the
reasonable expenses incurred in doing so.
Neither Wayne nor Chippewa anticipates that anyone will be specially
engaged to solicit proxies or that special compensation will be paid for that
purpose, but Wayne and Chippewa each reserve the right to do so should it
conclude that such efforts are needed. Wayne and Chippewa will each bear its
own expenses in connection with the solicitation of proxies for its Special
Meeting. See "PROPOSED MERGERS -- Expenses."
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HOLDERS OF WAYNE COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO WAYNE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. HOLDERS OF CHIPPEWA COMMON STOCK ARE REQUESTED TO
COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO
CHIPPEWA IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
PROPOSED MERGER
This section of the Proxy Statement-Prospectus describes certain aspects
of the proposed Merger. The following description does not purport to be
complete and is qualified in its entirety by reference to the Agreement which
is attached as Exhibit A to this Proxy Statement-Prospectus and is incorporated
herein by reference.
BACKGROUND AND REASONS FOR THE MERGER
Chippewa. In mid September of 1997 the management of Chippewa met to
discuss an indication of interest received from Wayne with respect to a
possible merger transaction (the "Merger"). At that time the Board of
Directors authorized Chippewa's management to pursue preliminary discussions
with Wayne with a view to obtaining information regarding the merger.
Late in September of 1997 Chippewa's Board of Directors met to discuss
Wayne's offer of a merger as outlined in a "Letter of Intent". The Board of
Directors authorized the signing of the "Letter of Intent". The Board of
Directors also authorized management to conduct a due diligence investigation
of Wayne and to retain the firm of Dinsmore & Shohl as it's legal advisor to
assist in the negotiation and completion of the definitive merger agreement.
During the following weeks, Chippewa and Wayne and their respective financial
and legal advisors engaged in negotiations concerning the terms of the Merger
and each of Wayne and Chippewa performed due diligence reviews of the other.
On October 13, 1997, Chippewa's Board of Directors met to consider the
proposed terms of the Merger. This Meeting included an oral report of the due
diligence findings by Chippewa's management as well as a review of the proposed
definitive agreement, including the summary of it's legal advisor. The Board
of Directors authorized the engagement of Young & Associates, ("Young") as
their financial advisor to provide an opinion to Chippewa as to the fairness of
the transaction to the stockholders of Chippewa from a financial standpoint.
At the October 13, 1997 meeting, Chippewa's Board of Directors unanimously
approved the Merger based upon the following factors. (1) the overall
financial terms of the Merger; (2) Wayne's representations with respect to the
operation of Chippewa and Chippewa Bank after the Merger; (3) the short-term
and long-term prospects of Chippewa and Chippewa Bank; (4) current long-term
industry developments and trends; (5) competitive factors and (6)
considerations concerning the employees of Chippewa Bank and the communities in
which it operates.
RECOMMENDATION OF THE CHIPPEWA BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF CHIPPEWA UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF CHIPPEWA VOTE FOR APPROVAL OF THE AGREEMENT.
Wayne. In September of 1997 the Board of Directors of Wayne authorized
Wayne management to proceed to negotiate a letter of intent with Chippewa.
Subsequent to entering into a letter of intent with Chippewa regarding the
proposed Merger, Wayne conducted a due diligence investigation of Chippewa and
completed negotiations for the definitive merger agreement.
On October 13, 1997, Wayne's Board of Directors met to consider the
proposed terms of the Merger. This Meeting included a presentation by Austin
Associates and Wayne's legal advisor, which included summaries of financial and
valuation analyses, the terms of the proposed acquisition as set forth in the
Agreement, regulatory and accounting matters, the due diligence findings of
Wayne's management, and Austin Associates' written opinion
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relating to the fairness of the Merger to the shareholders of Wayne from a
financial perspective. At the conclusion of this meeting, the Board of
Directors of Wayne authorized Wayne's management to execute the Agreement with
Chippewa in the form which had been reviewed on that date by the Wayne Board of
Directors. The Merger Agreement was executed on October 13, 1997.
The Board of Directors of Wayne has concluded that the Merger would be in
the best interests of Wayne and its shareholders. Numerous factors were
considered by the Board of Directors of Wayne in approving and recommending the
terms of the Merger. These factors included information concerning the
financial condition, results of operations, and prospects of Wayne and
Chippewa; the capital adequacy of the resulting entity; the composition of the
businesses of the two organizations in the rapidly changing banking and
financial services industry; the historical and current market prices of each
company's stock and of certain other bank holding companies whose securities
are publicly traded; the relationship of the consideration to be paid in the
Merger to such market prices and to the book value and earnings per share of
Chippewa and the financial terms of certain other recent business combinations
in the banking industry. In addition the Board of Directors considered the
advice of its financial advisor, Austin Associates, Inc.
The Board of Directors of Wayne believes that combining with Chippewa
which has established banking operations in Rittman, Ohio is a natural and
desirable extension of Wayne's market area. The Board of Directors of Wayne
also believes that the consolidation of resources by reason of the Merger will
enable the resulting organization to provide a wider and improved array of
financial services to customers and to achieve added flexibility in dealing
with the changing competitive environment in the financial services industry.
RECOMMENDATION OF THE WAYNE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF WAYNE UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF WAYNE VOTE FOR APPROVAL OF THE AGREEMENT.
OPINION OF CHIPPEWA'S FINANCIAL ADVISOR
Chippewa retained Young & Associates, Inc., a financial institution
consulting firm located in Kent, Ohio, to issue a fairness opinion in
connection with the Merger. Young & Associates issued its written opinion to
the Board of Directors on November 13, 1997, stating that the terms of the
Merger Agreement were fair and equitable to Chippewa and its shareholders from
a financial point of view. Young & Associates updated its opinion to January
15, 1998 and reaffirmed that the terms of the Merger Agreement were fair and
equitable to Chippewa and its shareholders from a financial point of view. A
copy of the opinion of Young & Associates is set forth as Appendix B to this
Joint Proxy Statement-Prospectus and should be read in its entirety.
Young & Associates, Inc., regularly evaluates financial institutions and
their securities for a wide range of purposes, including, but not limited to,
mergers and acquisitions. Chippewa selected Young & Associates to issue a
fairness opinion on the basis of its experience, reputation, and
qualifications.
The participation of Young & Associates was limited solely to the issuing
of the fairness opinion. The firm was not involved in any other capacity and
did not participate in any of the negotiations between Chippewa and Wayne.
Young & Associates considered information from various public and
non-public sources in arriving at its opinion including, but not limited to,
the following: (1) financial data of Chippewa Valley from December 31, 1992,
through September 30, 1997, from published annual reports, internal bank
reports, interviews with bank management, and its Uniform Bank Performance
Report ("UBPR"), which provides a comparison of banks with other banks sharing
similar characteristics; (2) financial data of Wayne from Sheshunoff Data
Services, Inc., which compiles data derived from all bank regulatory reports
and provides certain peer group comparisons; (3) information from the financial
and banking press concerning mergers and acquisitions similar to that proposed
in the Merger Agreement; (4) this Joint Proxy Statement/Prospectus; (5) pro
forma financial projections of Chippewa;
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and (6) a table of relative price/book of the transaction constructed by Young
& Associates at various share prices of Wayne.
Young & Associates performed several analyses which are common within the
banking industry and made certain assumptions, which it believes to be
reasonable, about future performance. As with any projection of future
outcomes, actual performance may vary. The focus of the analysis was on the
value of Chippewa as an independent entity, and whether the Merger fairly
compensated the shareholders of Chippewa for that value; whether the Merger
provided adequately for declines in the price of Wayne shares both at the time
of the Merger and after; whether the price/book to Chippewa at various prices
of Wayne shares was relative to similar and recent Merger transactions; and how
the earnings performance of Wayne compared with banks sharing similar
characteristics.
Financial Analysis of Chippewa and Forecast.
Young & Associates analyzed the past and present earnings performance of
Chippewa and its subsidiary, Chippewa Bank, compared the bank with peers, and
projected earnings ten years into the future. Various assumptions were
developed through interviews with management and are believed to be reasonable
and attainable.
The earnings of Chippewa Bank measured by return on average assets ("ROA")
have tended to trail peer banks slightly from December 31, 1992, through June
30, 1997 (the last date for which comparative data were available). As of June
30, 1997, for example, Chippewa Bank's ROA was 1.03 percent compared with 1.31
percent for peers. The return on average equity ("ROE") for Chippewa Bank also
trailed peer banks very slightly during the same period, reflecting 12.86
percent as of June 30, 1997, versus average peer ratios of 13.93 percent.
Earnings, however, were characterized by better than average control of loan
losses, evidenced by lower provisions for loan losses, lower net losses to
average loans, and higher earnings coverage of loan losses. Earnings are also
aided by adequate control of overhead expenses, evidenced by non-interest
income to average assets at peer bank levels.
Net interest income as a percent of average assets has lagged behind peer
banks (3.98 percent versus 4.37 percent as of June 30, 1997) primarily because
of a loan mix heavily weighted toward residential mortgages and a lower
percentage of loans to average assets. Non-interest income to average assets
has also trailed peer banks slightly. The management of Chippewa Bank expects
to improve net interest income by increasing loans through both origination and
the purchase of participation loans and changing the mix of the loan portfolio
by increased emphasis on consumer and commercial lending. Non-interest income
will be improved primarily by fees from the bank's alternative investment
program and additional fees on ATM transactions.
With the improvements to both net interest income and non-interest income
anticipated above achieved gradually, Young & Associates believes it reasonable
to assume that ROA would reach the 1.31 percent peer level by year-end 1999 and
continue to improve. The probability that the improvements will be realized
should be aided by the merger, since Wayne has consistently achieved net
interest income levels above peer banks, has historically had better than
average control of loan losses, and has consistently managed non-interest
expense to a level below its peer banks.
The ten-year forecast of earnings was discounted to a present value to
develop a probable trading range of the shares of Chippewa as an independent
entity. Young & Associates believes that the shares of Chippewa should command
a price between 1.5 and 1.6 times book value or roughly 13.7 to 15 times
twelve-month trailing earnings before any consideration is given to the Merger.
Terms of Agreement - Exchange Ratio.
The Agreement provides that the 448,000 shares of Chippewa will be
exchanged for between 981,837 and l,023,737 shares of Wayne. The exchange was
estimated to be 350 percent of book value to the shareholders of Chippewa,
assuming that, as of December 31, 1997, the book value per share of Chippewa
would be $24.89 and the market price per share of Wayne would be $39.75 at the
minimum number of shares of Wayne (981,837). The agreement further provides
that "the average price of Wayne Common Stock shall not be less than $30.00..."
with
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the additional provision that Chippewa cannot terminate the Merger below the
$30.00 price if ... "the S & P Major Regional Bank Index declines 25 percent..."
Value of Exchange to Shareholders of Chippewa and Comparison.
Young & Associates constructed a computer model which showed the change in
the multiple of book value to the shareholders of Chippewa at various prices of
Wayne and compared those results with other mergers in the third quarter of
1997. The Agreement will produce 350 percent of book value to the shareholders
of Chippewa at all values of Wayne between approximately $38.25 and $39.75 per
share as assumed in the maximum and minimum number of shares stated in the
Exchange Ratio. Values of Wayne below $38.25 would reduce the multiple of book
value to Chippewa, and values above $39.75 would increase the multiple of book
value to Chippewa.
As of October 20, 1997, the shares of Wayne were $44.25 per share or 28.4
times twelve-month trailing earnings. That price, if sustained and all other
relative values remained equal, would result in a price/book to Chippewa
shareholders of approximately 394 percent. The price/book to Chippewa would be
approximately 270 percent if the share price of Wayne fell to the $30.00
minimum described above. $30.00 per share would be approximately 19 times
Wayne's twelve-month trailing earnings.
In the October 3, 1997, American Banker an article, "Time to Sell?..."
referring to a study by Sheshunoff Information Services, Inc., reported that
for the third quarter of 1997 the average price/book for merger/acquisitions
for banks under three billion dollars in assets was 2.02 times book value. From
the October 13, 1997, American Banker, "Market Monitor" - Midwestern Community
Banks, Young & Associates selected 24 banks and arrived at an average
price/earnings ratio ("PE") of 18.64 times earnings. The selection considered
all banks in the "Market Monitor" except those showing PEs obviously affected
by unusually low trailing earnings or accounting adjustments.
Comparing the terms of the Merger and applying the Exchange Ratio at
various share prices of Wayne, Young & Associates concludes that the exchange,
even at the $30.00 minimum share price of Wayne, will produce a multiple in
excess of that of the average of similar transactions. At $30.00 per share for
Wayne the P/E is very near the average of Midwestern Community Banks. It is
also important to note that, even if the price per share of Wayne declined to
approximately $22.00, shareholders of Chippewa would still receive the
equivalent of 202 percent of book value, the third quarter average referred to
above. The latter point would apply only in the event of a decline in the share
price of Wayne of over 50 percent from the October 20, 1997, level. Young &
Associates assets, therefore, that shareholders of Chippewa will receive fair
value for the exchange at the time of the Merger and beyond.
Financial Performance of Wayne Bank.
Through December 31, 1996, Wayne Bank achieved an ROA of 1.65 percent,
placing it in the top 29 percent of Ohio banks as ranked by Sheshunoff
Information Services, Inc. The ROE of Wayne Bank was 15.19 percent, somewhat
below that of peers at 17.77 percent. The latter comparison should be
understood in light of Wayne Bank's higher than peer equity/total assets ratio
of 8.69 percent versus 7.45 percent for peers. The strong capital position
would cause ROE to be somewhat lower. Another measure of capital adequacy is
risk-based capital to risk-weighted assets, which simply requires greater
levels of capital for greater levels of risk. Wayne Bank's risk-based capital
to risk-weighted assets ratio was 19.90 percent as of March 31, 1997,
considerably above the 12.25 percent for peer banks, which is another
indication of a stronger than average equity position. Wayne Bank's earnings
are characterized by slightly higher than average net interest income/average
assets, lower non-interest expense, and better than average control of loan
losses. It is important to note that the performance of Wayne Bank has been
consistently superior, remaining at or near the top 25 percent of banks from
December 31, 1994 through the present, achieving 1.33 percent ROA in 1994, 1.43
percent in 1995, and 1.67 ROA in 1996.
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Merger Analysis and Other Considerations.
Young & Associates produced a pro forma analysis for the Merger,
considering the forecast for the earnings contributed by Chippewa described
above, and certain assumptions regarding the future earnings of Wayne. Wayne
was assumed to grow assets at 2 percent from 1996 to 1997, and 5 percent in
each subsequent year. ROA was assumed to be 1.40 percent in 1997, 1.50 percent
in 1998, 1.60 percent in 1999, and 1.65 percent in 2000 and beyond. It was also
assumed that Wayne would pay out 33 percent annually in cash dividends. The
resulting ROE would thus be between 15.5 percent and 14 percent in each of the
five years following the Merger.
Chippewa shareholders would own between 19.97 percent and 20.64 percent of
Wayne. With the assumptions employed above, Chippewa would contribute
approximately 24 percent of the earnings of the merged bank in 1998.
The Agreement was examined for other issues which might affect the
shareholders of Chippewa from a financial point of view. It was noted that
charges of up to $1,200,000 may be made to write off goodwill by Chippewa at
the request of Wayne, and that an additional provision for loan losses of
$500,000 will also be charged against 1997 earnings. Both charges will be added
back in full to the book value of Chippewa for the purpose of the Exchange
Ratio calculation.
The analysis by Young & Associates was performed independently and without
limitations imposed by any of the parties involved in the Merger. In conducting
the analysis, use was made of information from publicly available financial
data resources, financial data from internal bank records of Chippewa, and
representations of the parties in the Merger Agreement and/or the Joint Proxy
Statement/Prospectus. That information was assumed to be reliable and no
attempt was made to verify the information independently. It was further
assumed that the Merger will be completed as planned and that no other
conditions will be imposed which might work to the detriment of the
shareholders of Chippewa.
Chippewa will pay Young & Associates, Inc., a fee of $7,500 for the
issuance of the fairness opinion plus reasonable out-of-pocket expenses, and
agrees to indemnify Young & Associates against certain liabilities, including
liabilities under the securities laws.
OPINION OF WAYNE'S FINANCIAL ADVISOR
Wayne retained the financial institution consulting and investment banking
firm of Austin Associates, Inc., Toledo, Ohio ("Austin Associates"), to issue a
fairness opinion in connection with the Merger. As of October 13, 1997, Austin
Associates issued a written opinion to the Board of Directors that the terms of
the Agreement were fair, from a financial point of view, to Wayne and its
shareholders. Austin Associates updated its opinion to January 15, 1998 that,
based on the matters set forth therein, the terms of the Agreement are fair,
from a financial point of view, to Wayne and its shareholders. A copy of
Austin Associates' opinion is set forth as Appendix C to this Joint Proxy
Statement/Prospectus and should be read in its entirety.
Austin Associates is a recognized investment banking firm regularly
engaged in the valuation of financial institutions and their securities in
connection with mergers and acquisitions and other purposes. Wayne selected
Austin Associates to issue a fairness opinion in connection with the Merger on
the basis of its reputation and qualifications.
The terms of the Agreement, including the exchange ratio, were negotiated
by Wayne and Chippewa, and their legal representatives, on an arm's-length
basis. Austin Associates did not participate in the negotiation of the terms
of the Agreement; however, did advise Wayne's legal counsel during the drafting
of the financial terms of the Agreement.
In arriving at its opinion, Austin Associates reviewed and analyzed
material bearing upon the financial and operating condition of Wayne and
Chippewa, including but not limited to the following: (1) this Joint Proxy
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Statement/Prospectus; (2) the financial statements of Wayne and Chippewa for
the period 1992 through September of 1997; (3) certain other publicly available
information on Wayne and Chippewa, consisting principally of data obtained from
each organization's Uniform Bank Performance Report ("UBPR") compiled by the
applicable federal banking regulatory agencies, which provides peer group
ratios and other financial data; (4) other internal financial and operating
information which was provided to Austin Associates by Wayne, consisting of pro
forma financial projections reflecting the Merger; (5) publicly available
information regarding the terms of certain transactions believed to be
comparable to the Merger, including the financial performance and condition of
those organizations involved in the comparable transactions; (6) the Merger
Agreement dated October 13, 1997 and related documents; and (7) Austin
Associates' experience with respect to bank merger transactions which provides
insight into the unique aspects of any one particular transaction, thus
influencing its conclusion as to whether a transaction is fair from a financial
point of view.
In connection with rendering its opinion, Austin Associates performed a
variety of financial analyses, which are summarized below. Austin Associates
believes its analyses must be considered as a whole and that selecting portions
of such analyses and the factors considered therein, without considering all
factors and analyses, could create an incomplete view of the analyses and the
process underlying Austin Associates' opinion. The preparation of a fairness
opinion is a complex process involving subjective judgments and is not
necessarily susceptible to partial analyses or summary description. In its
analyses, Austin Associates made numerous assumptions with respect to industry
performance, business and economic conditions, and other matters, many of which
are beyond the control of Wayne or Chippewa. Any estimates contained in
Austin Associates analyses are not necessarily indicative of future results or
values, which may be significantly more or less favorable than the estimates.
Financial Terms of Agreement.
The terms of the Agreement provide for all of the outstanding shares of
Chippewa common stock, subject to statutory dissenters' rights, to be converted
into the right to receive shares of Wayne common stock based on an Exchange
Ratio. The Agreement further provides for all of the outstanding common
shares of Wayne to remain outstanding. Based on 448,000 shares of Chippewa
stock issued and outstanding, a total of between 981,837 and 1,023,737 shares
of Wayne common stock shall be issued in the Merger. As of September 30,
1997, Wayne had 3,935,512 common shares outstanding. As a result, Chippewa
shareholders, in the aggregate, will own between 19.97 percent and 20.64
percent of Wayne on a pro forma basis.
Financial Performance Analysis.
Austin Associates completed a financial analysis of the performance and
condition of Wayne and Chippewa, including their affiliate banks. This
analysis included a detailed five year balance sheet and income statement
comparison, and a performance ratio analysis, including a comparison to
industry peer groups. Two key measures in the banking industry are the return
on average asset ratio ("ROA") and the return on average equity ratio ("ROE").
ROA is equal to net income as a percent of average assets and ROE is equal to
net income as a percent of average equity. Wayne's 1994 through September 30,
1997 average ROA was 1.47 percent and its average ROE was 12.91 percent.
Another key measure is the leverage ratio, which is equal to tangible equity as
percent of tangible assets. This measure is the principal indicator of
capital adequacy for banking companies. Wayne's leverage ratio at September
30, 1997 was 12.41 percent. The comparable measures for Chippewa include a
1994 to September 30, 1997 average ROA of 0.96 percent, an average ROE of 11.01
percent and a leverage ratio at September 30, 1997 of 7.09 percent. Impacting
Chippewa's performance measures and leverage ratio was a branch acquisition
completed during 1996.
Economic Value Contribution Analysis.
Austin Associates prepared an economic value contribution analysis of
Wayne and Chippewa. This analysis consisted of several steps. First, a
projection of the future performance for each company was developed. For
Wayne, future performance was projected based on a continuation of current
trends with respect to growth and profitability. An approximate 5 percent
asset growth rate and an ROA ratio in the 1.50 percent range was utilized.
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For Chippewa, two separate projections were used: (1) a continuation of current
profitability levels, including a 1.00 percent ROA; and (2) an increase in
performance to the 1.20 to 1.35 percent ROA range, reflecting Wayne's
management estimate of performance going forward as part of the Wayne
organization. We have analyzed Wayne's management projections for Chippewa,
and we believe that they are reasonable.
The next step involved calculating the present value of the projected
earnings streams using a discounted cash flow model specifically designed for
banking companies. This resulted in the determination of relative economic
values for each company. Austin Associates then added the relative economic
values, and computed the percentage contribution that each company would make
to the combined organization. Finally, the relative contributions were
compared to the ownership percentage that each company's shareholders, in the
aggregate, would have in the combined company. Using the 1.00 percent ROA
assumption for Chippewa, Chippewa would contribute approximately 17.6 percent
of the economic value of the pro forma combined company. Using the higher ROA
assumption, Chippewa would contribute approximately 23.0 percent of the
economic value of the combined organization. Using the midpoint of the range
of possible Exchange Ratios, Chippewa shareholders would own, in the aggregate,
20.3 percent of the combined company.
Balance Sheet and Income Statement Contribution Analysis.
Austin Associates compared the pro forma ownership interest in Wayne that
current Wayne shareholders would receive, in the aggregate, to the contribution
by Wayne to various balance sheet and income statement accounts, including
total assets, loans, equity and net income in the combined organization.
Assuming the mid-point of the Exchange Ratio range, Wayne shareholders would
own approximately 79.7 percent of the combined organization, while Wayne's
contribution of total assets would equal 71.9 percent, 75.1 percent of the
total loans, 80.2 percent of the total equity, and 80.5 percent of year-to-date
September 30, 1997 net income.
Prices Paid in Guideline Transactions.
Austin Associates identified 6 stock merger transactions in Ohio since
1994 involving a buying bank holding company having assets of less than $1
billion, and a selling organization with assets of less than $500 million and
an ROA of at least 0.50 percent. The median price to book value was 218
percent and average price to book value was 215 percent. The median and
average price to earnings multiples were 19.2 and 19.5, respectively. The
high price to book value ratio was 300 percent and the high price to earnings
multiple was 24.8 times. The estimated consideration in the Merger is 350
percent of book value and 32.0 times earnings.
The median selling bank, on average, recorded an ROA of 1.13 percent, an
ROE of 10.95 percent and a leverage ratio of 9.39 percent. These compare to
Chippewa's September 30, 1997 ROA of 0.99 percent, 12.53 percent ROE and 6.98
percent leverage ratio. Of the six guideline transactions, the selling
organization achieving the highest price to book value and price to earnings
ratios recorded an ROA of 1.15 percent and an ROE of 11.84 percent.
Contribution Analysis for Guideline Transactions
Austin Associates further evaluated the six guideline transactions to
compare the relative contribution measures to the contribution analysis
completed for the Merger involving Wayne and Chippewa. For the guideline
transactions, the median ownership percentage issued to the selling company was
10.7 percent. The median earnings contributed by the selling bank was 7.1
percent. The median ownership issued as a percent of earnings contributed was
129 percent. In the Merger, it is estimated that Chippewa shareholders will
receive 20.3 percent of Wayne, while contributing year to date 1997 earnings of
19.5 percent. The ownership issued as a percent of earnings contributed is
estimated at 104 percent. From a contribution perspective, based on
historical earnings, the Merger involves a much lower premium than the typical
guideline transaction.
The median equity contributed in the guideline transactions was 9.4
percent, comparing to the 10.7 percent ownership issued. The median ownership
issued as a percent of equity contributed was 100 percent. In the
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Merger, based on September 30 data, Chippewa would contribute 19.8 percent of
the pro forma equity of Wayne, compared to receiving 20.3 percent ownership,
thus resulting in a ratio of ownership issued to equity contributed of 103
percent.
The median assets contributed in the guideline transactions was 9.7
percent, comparing to the 10.7 percent ownership issued. The median ownership
issued as a percent of assets contributed was 95 percent. In the Merger,
based on September 30 data, Chippewa would contribute 28.1 percent of the pro
forma assets of Wayne, compared to receiving 20.3 percent ownership, thus
resulting in a ratio of ownership issued to assets contributed of 72 percent.
Pro Forma Merger Analysis.
Austin Associates reviewed the pro forma effect of the Merger to Wayne's
December 31, 1996 and September 30, 1997 earnings per share and book value per
share. Wayne recorded earnings per share in 1996 of $1.41 and a book value of
$10.55 per share as of year end 1996. Giving effect to the Merger, the
equivalent Wayne earnings per share would have equaled $1.32, a decrease of 6.4
percent from actual results. Book value per share would have decreased to
$10.45 per share, a decrease of 0.9 percent below actual book value.
Wayne recorded year to date earnings per share of $1.04 and a book value
of $11.35 per share as of September 30, 1997. Giving effect to the Merger,
the equivalent Wayne earnings per share would have equaled $1.03, a decrease of
1.0 percent from actual results. Book value per share would have decreased to
$11.28 per share, a decrease of 0.6 percent below actual book value.
In addition to reviewing the pro forma effect to historical earnings and
book value, Austin Associates completed a forward looking analysis based on the
performance projections used in the Economic Value Contribution Analysis.
Assuming a 1.00 percent future ROA for Chippewa, it is estimated that the
Merger would reduce Wayne's earnings per share by less than 1.0 percent
annually in the future. Using Wayne's management projections, which assume a
higher ROA level, pro forma earnings per share for Wayne would be increased by
$0.05 in 1998, which is more than 3.0 percent over the stand-alone forecast.
This earnings per share enhancement would continue, rising to an approximate
7.5 percent improvement over projected stand-alone earnings per share within
five years.
The summary set forth above does not purport to be a complete description
of the analyses performed by Austin Associates. Further, Austin Associates did
not conduct a physical inspection of any of the properties or assets of Wayne
or Chippewa. Austin Associates has assumed and relied upon the accuracy and
completeness of the financial and other information provided to it or publicly
available, has relied upon the representations and warranties of Wayne and
Chippewa made pursuant to the Agreement, and has not independently attempted to
verify any of such information. Austin Associates has also assumed that the
conditions to the Merger as set forth in the Agreement would be satisfied and
that the Merger would be consummated on a timely basis in the manner
contemplated by the Agreement. No limitations were imposed by Wayne or
Chippewa on Austin Associates regarding the scope of its investigation nor were
any specific instructions given to Austin Associates in connection with its
fairness opinion.
For Austin Associates' services as financial advisor in the proposed
transaction, Wayne will pay the firm a fee of $50,000, including $25,000
through the issuance of the fairness opinion and an additional $25,000 upon
completion of the Merger. In addition, Wayne has agreed to reimburse Austin
Associates for reasonable out-of-pocket expenses and indemnify Austin
Associates against certain liabilities, including liabilities under the
securities laws.
TERMS OF THE MERGER
At the Effective Time (as defined below), Chippewa will merge with Wayne
with the result that Chippewa Bank will become a wholly owned subsidiary bank
of Wayne. At the Effective Time, the directors and officers of Chippewa Bank
serving in such capacity immediately prior to the Effective Time shall continue
to be the directors and officers of Chippewa Bank, provided that Wayne has the
right to appoint two persons to the Board of Directors
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<PAGE> 31
of Chippewa. Wayne has decided to appoint David P. Boyle, the Chief Financial
Officer of Wayne and F. Bill Damron, the Senior Executive Vice President of
Wayne to the Chippewa Board. In addition, at the Effective Time, the Agreement
provides that two additional persons from Chippewa will become members of the
Board of Directors of Wayne. The Board of Directors of Wayne has determined
that Philip S. Swope, the President, Chief Executive Officer and a director of
Chippewa and Carl H. Bradford, Jr., currently a member of the Board of
Directors of Chippewa, will become the persons appointed to the Wayne Board.
In addition, Philip S. Swope shall become the President of Wayne after the
Effective Time.
At the Effective Time, all of the outstanding shares of Chippewa Common
Stock will be converted into the right to receive shares of Wayne Common Stock
in accordance with the terms of the Agreement and the Exchange Ratio as defined
by the Agreement. The Exchange Ratio provides that each outstanding share of
Chippewa Common Stock shall be exchanged for and converted into the right to
receive the number of shares of Wayne Common Stock determined by multiplying
the "adjusted book value" (as defined in the Agreement) of a share of Chippewa
Common Stock by 350% and dividing the resultant by the "market value" (as
defined in the Agreement) of Wayne Common Stock. The Agreement provides
further that Wayne will not issue more that 1,023,737 shares nor less than
981,837 shares of Wayne Common Stock in connection with the Merger. Assuming
the issuance of 1,002,787 shares, the midpoint of the shares of Wayne that
could be issued in the transaction, each share of Chippewa Common Stock would
be converted into the right to receive 2.2384 shares of Wayne on the effective
date of the Merger. The minimum exchange ratio will be 2.1916 shares of Wayne
for each share of Chippewa and the maximum exchange ratio will be 2.28512
shares of Wayne for each share of Chippewa The average bid and asked price of
a share of Wayne Common Stock on December 31, 1997 was $47.50, such that each
shareholder of Chippewa would have received $104.10 per share in Wayne Common
Stock had the Merger been consummated as of that date, assuming the issuance of
2.1916 shares of Wayne for each share of Chippewa.
The Merger Agreement provides that if the Wayne Average Price Per Share
for the 10 business days preceding the effective date of the Merger is less
than $30.00 per share, the Board of Directors of Chippewa may terminate the
Merger unless the S & P Major Regional Bank Index shall have declined by 25% or
more from the date of the Agreement through the Effective Date, in which case
Chippewa shall not have a right to terminate the Agreement.
No fractional shares of Wayne Common Stock will be issued in the Merger.
Rather, each holder of Chippewa Common Stock who otherwise would have been
entitled to a fraction of a share of Wayne Common Stock shall receive in lieu
thereof cash, without interest, in an amount determined by multiplying the
fractional share interest to which such holder would otherwise be entitled by
the average of the bid and asked closing price on the Effective Date of the
Merger as reported by NASDAQ.
EFFECTIVE TIME OF THE MERGER
Subject to satisfaction or waiver of all other conditions contained in the
Agreement, the Merger, will become effective on the first business day of the
next calendar month after the later to occur of: (i) approval of the Agreement
by the Federal Reserve Board and ODFI; and (ii) approval of the Merger by the
shareholders of Chippewa and Wayne. The Merger will become effective on the
first day of the second calendar month following the events specified in (i)
and (ii) above if the last of such events occurs after the sixteenth of the
month, provided that the Effective Date shall not be before March 31, 1998.
Another time may be agreed upon in writing by the parties. Upon the filing of
an executed Certificate of Merger with the Ohio Secretary of State, the Merger
will become effective at such time as is specified in the Certificate of Merger
(the "Effective Time"). Subject to the conditions contained in the Agreement,
the Effective Time is currently expected to occur early in the second quarter
of 1998.
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<PAGE> 32
SURRENDER OF CHIPPEWA CERTIFICATES
As soon as practicable after the Effective Time of the Merger, Wayne is
required by the Agreement to mail to each holder of record of Chippewa Common
Stock a letter of transmittal and instructions for use in surrendering such
holder's Chippewa Common Stock certificates and receiving shares of Wayne
Common Stock to be issued in the Merger.
CHIPPEWA SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL
THEY RECEIVE A LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS FROM WAYNE.
Upon surrender to Wayne of one or more certificates of Chippewa Common
Stock together with a properly completed letter of transmittal, Wayne will
issue and deliver to the holder of record of Chippewa Common Stock, a
certificate representing the number of shares of Wayne Common Stock to which
the holder is entitled and, where applicable, a check for the amount
representing any fractional share interest.
All Wayne Common Stock issued pursuant to the Agreement will be issued as
of the Effective Time. No dividends or other distributions declared with
respect to Wayne Common Stock payable to former holders of Chippewa Common
Stock, pursuant to the Merger and payable to the holders thereof after the
Effective Time shall be paid until each holder surrenders such holder's
Chippewa Common Stock certificates. Subject to the effect of applicable laws,
after the surrender and exchange of such certificates, the holder of
certificates for shares of Wayne Common Stock into which the shares of Chippewa
Common Stock shall have been converted shall be entitled to receive any
dividends or other distributions, but without any interest, which previously
became payable by Wayne with respect to the shares of Chippewa Common Stock
represented by such certificate or certificates.
In the case of any lost, stolen or destroyed Chippewa Common Stock
certificate, Wayne will issue a new certificate representing shares of Wayne
Common Stock and a check for the cash into which a fractional share of Chippewa
Common Stock shall have been converted only if Wayne receives: (i) evidence to
the reasonable satisfaction of Wayne that such certificate has been lost,
wrongfully taken or destroyed, (ii) such indemnity agreement as reasonably may
be requested by Wayne to save it harmless, and (iii) evidence satisfactory to
it of ownership of Chippewa Common Stock for which the certificate has been
lost, wrongfully taken or destroyed.
After the Effective Time, there will be no further registration of
transfers on the stock transfer books of Wayne of shares of Chippewa Common
Stock. Shares of Chippewa Common Stock presented to Wayne for transfer after
the Effective Time will be canceled and exchanged for certificates representing
shares of Wayne Common Stock and cash in lieu of any fractional share interest
as provided in the Agreement.
CONDITIONS TO THE MERGER
The Merger will occur only if the Agreement is adopted by the requisite
vote of the shareholders of Chippewa and Wayne and the acquisition of a
controlling interest in Chippewa is approved by the shareholders of Chippewa as
required by the Acquisition Act. Consummation of the Merger is subject to the
satisfaction of certain other conditions, unless waived to the extent waiver is
permitted by applicable law. Such conditions include, but are not limited to,
the following: (i) the receipt of all necessary regulatory approvals,
including the approval of the Federal Reserve Board and the ODFI; (ii) the
effectiveness of the Registration Statement registering the shares of Wayne to
be issued in the Merger, and the absence of a stop order suspending such
effectiveness or proceedings seeking a stop order; (iii) the absence of a
temporary restraining order, injunction or other order of any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger; (iv) the continued accuracy of representations and
warranties by Chippewa and Wayne regarding, among other things, the
organization of the parties, financial statements, capitalization, pending and
threatened litigation, enforceability of the Agreement and compliance with law
and tax matters; (v) the performance by Chippewa and Wayne in all material
respects of each of the obligations required to be performed by them under the
Agreement; (vi) the receipt by Chippewa and Wayne and the continuing
effectiveness of opinion of counsel as to certain federal income tax
consequences of the respective Merger; (vii) the receipt of all consents or
approvals from third parties required under agreements for consummation of the
Merger other than those agreements for which failure to obtain such
30
<PAGE> 33
consents or approval would not have a material adverse effect on Chippewa;
(viii) that no event shall have occurred, which, in the reasonable opinion of
Wayne and its auditors, would prevent the Merger from being accounted for as a
pooling of interests; (ix) the absence of any material adverse change since
December 31, 1996, in the financial condition, results of operation or business
of Chippewa and Wayne in each case, together with their respective subsidiaries
taken as a whole; (x) the absence of any material action, suit or proceeding
commenced against Chippewa and Wayne with respect to the Merger seeking to
restrain, enjoin, prevent, change or rescind the transaction contemplated by
the Agreements or questioning the validity or legality of any such transaction;
(xi) the receipt by Chippewa and Wayne of opinions of counsel as provided in
the Agreement; (xii) the receipt by Chippewa and Wayne of opinions, from their
respective financial advisors, dated within two days of the Proxy
Statement-Prospectus, that the Merger is fair to the holders of Chippewa Common
Stock and Wayne Common Stock, respectively, from a financial point of view; and
(xiii) that not more than ten percent of the voting power of the issued and
outstanding shares of Chippewa Common Stock shall have taken steps, at the time
the Merger shall become effective, to perfect their rights as dissenting
shareholders under Ohio Law; (xiv) that the Wayne Average Price Per Share for
the 10 business days preceding the effective date of the Merger shall not be
less than $30.00 per share, unless the S & P Major Regional Bank Index shall
have declined by 25% or more from the date of the Agreement through the
Effective Date.
The consummation of the Merger is conditioned upon the determination that
the Merger will be accounted for under the pooling of interests method of
accounting. In the event the Merger did not qualify for pooling accounting
treatment, but the parties determined to consummate the Merger and to waive the
condition, the Merger would not be consummated without a resolicitation of the
vote of shareholders of Chippewa. In such an event, the revised pro forma
financial information would be materially different than those presented
elsewhere herein.
In addition, unless waived, each party's obligation to consummate the
Merger is subject to performance by the other party of its obligations under
the respective Agreement and the receipt of certain certificates from the other
party.
REGULATORY APPROVAL
The Merger is subject to prior approval by the Federal Reserve Board under
the Bank Holding Company Act of 1956, as amended ("BHC Act"), which requires
that the Federal Reserve Board take into consideration the financial and
managerial resources and future prospects of the respective institutions and
the convenience and needs of the communities to be served. The BHC Act
prohibits the Federal Reserve Board from approving the Merger if it would
result in a monopoly or be in furtherance of any combination or conspiracy to
monopolize or to attempt to monopolize the business of banking in any part of
the United States, or if its effect in any section of the country may be
substantially to lessen competition or tend to create a monopoly, or if it
would in any other manner be a restraint of trade, unless the Federal Reserve
Board finds that the anti-competitive effects of the Merger are clearly
outweighed in the public interest by the probable effect of the transaction in
meeting the convenience and needs of the communities to be served. The Federal
Reserve Board has the authority to deny an application if it concludes that the
combined organization would have an inadequate capital position.
Under the BHC Act, the Merger may not be consummated until the 15th day
following the date of Federal Reserve Board approval, during which time the
United States Department of Justice may challenge the Merger on antitrust
grounds. The commencement of an antitrust action would stay the effectiveness
of the Federal Reserve Board's approval unless a court specifically orders
otherwise. The BHC Act provides for the publication of notice and public
comment on the application and authorizes the regulatory agency to permit
interested parties to intervene in the proceedings.
Wayne filed an application with the Federal Reserve Bank of Cleveland (the
"Federal Reserve Bank") on December 29, 1997, seeking approval of the Merger.
The application has not yet been approved by the Federal Reserve Board but the
parties believe that the Federal Reserve Board will approve the application on
or before April 3, 1998, the anticipated closing date for the transaction.
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<PAGE> 34
The approval of the Federal Reserve Board is not to be interpreted as the
opinion of such regulatory authority that the Merger is fair to the
shareholders of Chippewa from a financial point of view or that such regulatory
authority has considered the adequacy of the terms of the Merger. An approval
by such regulatory authority in no way constitutes an endorsement or a
recommendation of the Merger by the Federal Reserve Board.
There can be no assurance that the Department of Justice will not
challenge the Merger or if such a challenge is made, as to the result thereof.
In addition to the approval of the Federal Reserve Board, the consummation
of the Merger is subject to approval of the transaction by the Ohio Division of
Financial Institutions. Such approval is required because the Merger will
result in a "change of control" of Chippewa Bank, the wholly-owned Ohio
chartered commercial banking subsidiary of Chippewa. The ODFI also will take
into consideration the financial and managerial resources and future prospects
of Wayne and the convenience and needs of the communities to be served. An
application was filed with the ODFI on December 29, 1997, seeking approval for
such "change of control." While approval of the change of control has not yet
been received, the parties believe that such approval will be received on or
before April 3, 1998, the anticipated closing date for the transaction.
Other than the regulatory approvals described herein and required
compliance with certain federal and state securities laws by Wayne in
connection with its issuance of shares of Wayne Common Stock in connection with
the Merger with which Wayne will comply, Wayne and Chippewa are not aware of
any other governmental approvals or actions that are required for consummation
of the Merger. Should any other approval or action be required, it is
presently contemplated that such approval or action would be sought. There can
be no assurance that any such approval or action, if needed, could be obtained
and, if such approvals or actions are obtained, there can be no assurance as to
the timing thereof.
CONDUCT OF BUSINESS PENDING THE MERGER
Under the Agreement Chippewa and Wayne are generally obligated to (and to
cause their respective subsidiaries to) operate their respective businesses
only in the usual and ordinary course consistent with past practices; use
reasonable efforts to keep in force current insurance coverage; refrain from
any change in their methods of accounting or certain other policies and refrain
from taking any action that would adversely affect or delay regulatory approval
of the Agreement; give the other party and its representatives access to
information concerning its affairs as may be reasonably requested; and with
respect to Chippewa refrain from paying cash dividends except as permitted
under the Agreement, see "Dividends."
DIVIDENDS
Under the Agreement, Chippewa may not pay cash dividends prior to the
Effective Time of the Merger except for a semi-annual cash dividend at the rate
of $0.16 per share payable before December 31, 1997.
TERMINATION, AMENDMENT AND WAIVER
The Agreement may be terminated at any time prior to the Effective Time
whether before or after approval of the matters presented by the shareholders
of Chippewa: (i) by mutual consent of the Boards of Directors of Chippewa and
Wayne; (ii) by either party to the Merger if all required regulatory approvals
are not received; (iii) by the Board of Directors of either party if there has
been a willful breach of any representation, warranty, covenant or agreement by
the other party which is not cured after 10 days' written notice; (iv) by
either party if the required vote of Chippewa shareholders is not received; or
(v) by the Board of Directors of either party if the Merger is not consummated
by December 31, 1998.
The Agreement may not be amended except in writing signed on behalf of
both parties, whether before or after approval of the matters presented in
connection with the Merger by the shareholders of Chippewa. At any time prior
to the Effective Time, either party to the Agreement may, to the extent legally
allowed, extend the time for
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performance of any of the obligations of the other party, waive any
inaccuracies in representations and warranties of the other and waive
compliance with any of the agreements or conditions of the Agreement.
TERMINATION FEE
If Chippewa shareholders fail to approve the Agreement and Chippewa or its
shareholders receive an offer from and negotiate with any party other than
Wayne at any time within one year of the date of the Agreement, then, subject
to certain other conditions set forth in the Agreement, Chippewa shall pay a
termination fee to Wayne of $1,500,000.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
As a result of the Merger, Chippewa Bank will become a wholly owned
subsidiary of Wayne. Wayne expects to continue to operate Chippewa Bank at its
present locations. Immediately after the Effective Time of Merger, the Board
of Directors of Chippewa Bank shall be comprised of all those persons serving
as a director of Chippewa Bank immediately prior to the Effective Time of the
Merger with the addition of David P. Boyle, currently the Chief Financial
Officer of Wayne and F. Bill Damron, currently the Senior Executive Vice
President of Wayne. The Board of Directors of Wayne after the Effective Time
of the Merger shall be comprised of all those persons serving as directors of
Wayne immediately prior to the Effective Time plus two additional persons to be
added to the Board of Directors from Chippewa. Wayne has determined that such
persons will be Philip S. Swope, President, Chief Executive Officer and a
Director of Chippewa and Carl H. Bradford, Jr., currently a director of
Chippewa. Further, the Agreement provides that Wayne will appoint Mr. Swope as
the President of Wayne after the Effective Time of the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the Record Date, Wayne owned 1,000 shares representing 0.22% of
Chippewa's outstanding Common Stock. As of the Record Date, executive officers
and directors of Chippewa owned none of the outstanding shares of Wayne Common
Stock and executive officers and directors of Wayne beneficially owned no
shares of Chippewa Common Stock. As discussed above, Mr. Philip S. Swope,
President, Chief Executive Officer and a Director of Chippewa, will become the
President of Wayne upon consummation of the Merger.
EFFECT ON EMPLOYEE BENEFIT PLANS
Chippewa. Subsequent to the Merger, and subject to applicable law and
regulations, Wayne intends to adopt employee benefit plans at Chippewa Bank
comparable to those currently in place at Wayne Bank. For purposes of
eligibility and vesting in such employee benefits, employees of Chippewa and
Chippewa Bank will be given credit for their years of service as employees of
Chippewa and Chippewa Bank.
Wayne. Employee benefits of Wayne will not be changed as a result of the
Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary description of the anticipated federal income
tax consequences of the Merger to holders of Wayne Common Stock and Chippewa
Common Stock and to Wayne and Chippewa. The summary is not a complete
description of the federal income tax consequences of the Merger. Each
shareholder's individual circumstances may affect the tax consequences of the
Merger to such shareholder.
Neither Wayne nor Chippewa has requested or will receive an advance ruling
from the Internal Revenue Service (the "Service") as to the tax consequences of
the Merger. With respect to the Merger, Wayne and Chippewa have received an
opinion from special counsel to Wayne, Werner & Blank Co., L.P.A. This tax
opinion is based upon certain representations made by Wayne and Chippewa and
upon the current law and the current judicial and administrative
interpretations thereof. This opinion will not be binding on the Service or
any court. Consequently, there can be no assurance that the tax consequences
set forth below will continue as described herein, nor can any
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assurance be given that the issues discussed below will not be challenged by
the Service, or, if so challenged, will be decided favorably to the parties to
the Merger or their shareholders.
Subject to the foregoing, the opinions of Werner & Blank Co., L.P.A., are
substantially as follows:
(i) Since the merger of Chippewa with and into Wayne qualifies as
a statutory merger under applicable federal law, the Merger will qualify
as a "reorganization" within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Code");
(ii) No gain or loss will be recognized by Chippewa or Wayne upon
merger of Chippewa with and into Wayne;
(iii) No gain or loss will be recognized by the Chippewa
shareholders who exchange, pursuant to the Merger, their shares of
Chippewa Common Stock solely for shares of Wayne Common Stock;
(iv) The federal income tax basis of the Wayne Common Stock to be
received by the Chippewa shareholders in Merger, including fractional
share interests, will be the same as the federal income tax basis of such
Chippewa Common Stock surrendered therefor;
(v) The holding period of the Wayne Common Stock to be received by
the Chippewa shareholders in the Merger will include the period during
which the Chippewa Common Stock surrendered was held as a capital asset
on the Effective Date of the Merger;
(vi) The payment of cash in lieu of fractional share interests of
Wayne Common Stock will be treated as if the fractional shares were
distributed as part of the Merger and then were redeemed by Wayne. These
cash payments will be treated as having been received as distributions in
full payment in exchange for the stock redeemed as provided in Section
302(a) of the Code; and
(vii) Where a Chippewa shareholder dissents to the Merger, and such
shareholder receives solely cash in exchange for his or her Chippewa
Common Stock, such cash will be treated as having been received by such
shareholder as a distribution in redemption of his or her shares subject
to the provisions and limitations of Section 302 of the Code.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE HAS NOT BEEN VERIFIED
WITH THE INTERNAL REVENUE SERVICE AND IS BASED UPON THE FEDERAL INTERNAL
REVENUE CODE AS IN EFFECT ON THE DATE OF THIS PROXY STATEMENT-PROSPECTUS
WITHOUT CONSIDERATION OF ANY STATE LAWS OR THE PARTICULAR FACTS OR
CIRCUMSTANCES OF ANY CHIPPEWA SHAREHOLDER.
BECAUSE OF THE COMPLEXITY OF THE FEDERAL, STATE AND LOCAL TAX LAWS, IT IS
RECOMMENDED THAT SHAREHOLDERS OF CHIPPEWA CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES RESULTING FROM THE MERGER.
ACCOUNTING TREATMENT
The Agreement provides that consummation of the Merger is conditioned upon
the receipt by Wayne of assurances, satisfactory to it, that the Merger
qualifies for accounting treatment as a pooling of interests if consummated in
accordance with the Agreement. Under the pooling of interests method of
accounting, the historical basis of the assets and liabilities of Wayne and
Chippewa will be combined at the Effective Time and carried forward at their
previously recorded amounts, and the shareholders' equity accounts of Chippewa
and Wayne's will be consolidated on Wayne's balance sheet. Income and other
financial statements of Wayne issued after consummation of the Merger will be
restated retroactively to reflect the consolidated operations of Wayne and
Chippewa as if the Merger had taken place prior to the periods covered by such
financial statements.
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<PAGE> 37
For the Merger to qualify as a pooling of interests for accounting
purposes, substantially all (90% or more) of the outstanding Chippewa Common
Stock must be exchanged for Wayne Common Stock. All parties have agreed not to
take any action which would disqualify the Merger from pooling of
interests treatment by Wayne.
EXPENSES
The Agreement provides that whether or not the Merger is consummated, all
costs and expenses incurred in connection with the Agreement and the
transactions contemplated therein shall be paid by the party incurring such
expense.
RESALE OF WAYNE COMMON STOCK
The shares of Wayne Common Stock to be issued in the Merger to holders of
Chippewa Common Stock have been registered under the Securities Act and may be
freely traded by holders of Chippewa Common Stock who, at the Effective Time,
are not "affiliates" of Chippewa (and who are not affiliates of Wayne at the
time of the proposed resale). Directors, executive officers, and 10%
shareholders of Chippewa are generally deemed to be affiliates under the
Securities Act. Pursuant to the Agreement, Wayne must have received from each
affiliate of Chippewa a written undertaking to the effect that: (a) he or she
will not sell or dispose of Wayne Common Stock acquired in the Merger other
than in accordance with the Securities Act, except under (i) a separate
registration statement for distribution (which Wayne has not agreed to
provide), or (ii) Rule 145 promulgated thereunder by the SEC, or (iii) some
other exemption from registration; and (b) he or she will not otherwise dispose
of the Wayne Common Stock or otherwise reduce his or her market risk relative
to the Wayne Common Stock within 30 days prior to the Effective Time of the
Merger or prior to the publication by Wayne of an earnings statement covering
at least 30 days of combined operations after the Effective Time.
DISSENTERS' RIGHTS
Under the provisions of Ohio Revised Code, Section 1701.85, any
shareholder of Chippewa or Wayne who does not vote in favor of the Agreement is
entitled to receive the fair cash value of his shares, upon perfecting his
right of appraisal. Not later than ten (10) days after the date upon which the
shareholders voted upon the Merger, any shareholder seeking to perfect his
appraisal right must make a written demand upon Chippewa or Wayne, as
applicable, for the fair cash value of those shares so held by him. A negative
vote alone is not sufficient to perfect rights as a dissenter. No notice of
the results of the meeting will be given to shareholders. If Chippewa or
Wayne, as applicable, and the shareholder have not come to an agreement within
three (3) months of the shareholder's written demand, the shareholder or
Chippewa or Wayne, as applicable, may file a petition in court for a formal
judicial appraisal. Failure to follow the procedures enumerated in the Ohio
Revised Code, Section 1701.85, Qualifications of and Procedures for Dissenting
Shareholders, which is Appendix C of this Proxy Statement (the Dissenters'
Statute), will waive the shareholder's right of appraisal.
THE FOREGOING SUMMARY OF DISSENTERS' STATUTE DOES NOT PURPORT TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO DISSENTERS' STATUTE
AND THE OTHER PROVISIONS OF THE OHIO LAW. THE FAILURE OF A SHAREHOLDER OF
CHIPPEWA OR WAYNE TO FOLLOW THE PROCEDURES SET FORTH IN DISSENTERS' STATUTE
WILL TERMINATE SUCH SHAREHOLDER'S APPRAISAL RIGHTS. AS A CONSEQUENCE, EACH
SHAREHOLDER OF CHIPPEWA OR WAYNE WHO DESIRES TO EXERCISE SUCH RIGHTS SHOULD
REVIEW DISSENTERS' STATUTE AND FOLLOW ITS PROVISIONS. THE COMPLETE TEXT OF THE
RELEVANT PROVISIONS OF DISSENTERS' STATUTE IS ANNEXED TO THIS PROXY STATEMENT
AS APPENDIX C.
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PRO FORMA FINANCIAL DATA
The following unaudited Pro Forma Combined Condensed Balance Sheets as of
December 31, 1996 and September 30, 1997, and the Pro Forma Combined Condensed
Statements of Income for each of the three-year periods ended December 31,
1996, and the nine months ended September 30, 1997 and 1996, gives effect to
the Merger based on the historical consolidated financial statements of Wayne
and Chippewa under the assumptions and adjustments set forth in the
accompanying notes to the pro forma financial statements.
The Pro Forma Condensed Balance Sheets assume the Merger was consummated
on the dates indicated, and the Pro Forma Condensed Statements of Income assume
that the Merger was consummated on January 1 of each period presented. The pro
forma statements may not be indicative of the results that actually would have
occurred if the Merger had been in effect on the dates indicated or which may
be obtained in the future. The pro forma financial statements should be read
in conjunction with Wayne's historical financial statements and the related
notes thereto incorporated by reference herein and Chippewa's historical
financial statements and the related notes thereto included elsewhere in this
Proxy Statement-Prospectus. The proforma information assumes the issuance of
1,002,787 shares, the midpoint of the shares of Wayne that could be issued in
the transaction, such that each share of Chippewa Common Stock would be
converted into the right to receive 2.2384 shares of Wayne on the effective
date of the Merger. Such 1,002,787 amount includes the issuance of 2,238
shares to Wayne representing the 1,000 shares of Chippewa Common Stock
currently owned by Wayne multiplied by the exchange ratio.
[Remainder of Page Intentionally Left Blank]
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PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
WAYNE AND CHIPPEWA
PRO FORMA PRO FORMA
WAYNE CHIPPEWA ADJUSTMENTS COMBINED
-------- -------- ----------- ------------------
ASSETS
<S> <C> <C> <C> <C>
Cash and due from banks $14,975 $5,841 $20,816
Federal funds sold 7,620 0 7,620
Interest bearing deposits in other banks 0 0 0
Investment securities 103,294 50,935 154,229
Assets held for sale 0 0 0
Loans 218,729 70,195 288,924
Less allowance for loan losses 3,657 617 4,274
-------- -------- --------
Net loans 215,072 69,578 284,650
Premises and equipment, net 6,215 2,342 8,557
Goodwill and Other Intangibles 962 1,624 2,586
Other assets 4,255 1,278 5,533
-------- -------- --------
Total assets $352,393 $131,598 $483,991
-------- -------- --------
LIABILITIES
Noninterest bearing deposits $43,414 $12,494 $55,908
Interest-bearing deposits 238,272 102,459 340,731
-------- -------- --------
Total deposits 281,686 114,953 396,639
Federal funds purchased and
securities sold under
agreements to repurchase 26,142 5,189 31,331
Notes payable 0 555 555
FHLB advances 0 0 0
Other liabilities 3,076 798 3,874
-------- -------- --------
Total liabilities $310,904 $121,495 $432,399
SHAREHOLDERS' EQUITY
Common stock $3,935 $600 $403 $4,938
Capital surplus 13,356 700 (1,056) 13,000
Retained earnings 24,038 9,385 33,423
Shares held in the treasury (88) (653) 653 (88)
Net unrealized (losses) gains on
securities
available for sale 248 71 319
Total shareholders' equity 41,489 10,103 51,592
-------- -------- --------
Total liabilities and shareholders' equity $352,393 $131,598 $483,991
-------- -------- --------
</TABLE>
37
<PAGE> 40
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WAYNE AND
CHIPPEWA
PRO FORMA PRO FORMA
WAYNE CHIPPEWA ADJUSTMENTS COMBINED
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $16,465 $3,958 $20,423
Interest on deposits 0 0 0
Interest on federal funds sold 109 86 195
Interest on investment securities 4,522 1,641 6,163
------- ------ -------
Total interest income $21,096 $5,685 0 $26,781
INTEREST EXPENSE:
Interest on deposits $7,541 $2,125 $9,666
Interest on borrowings 390 128 518
------- ------ -------
Total interest expense $7,931 $2,253 0 $10,184
------- ------ ----- -------
NET INTEREST INCOME $13,165 $3,432 0 $16,597
------- ------ ----- -------
Provision for loan losses $346 $48 $394
------- ------ -------
Net interest income after provision for
Loan losses 12,819 3,384 0 16,203
Noninterest income 2,598 418 3,016
Investment Securities Gains (and Losses) 2 (18) (16)
Noninterest expense 9,839 2,583 12,422
------- ------ -------
Income before income taxes 5,580 1,201 0 6,781
Income taxes 1,560 293 1,853
NET INCOME $4,020 $908 $0 $4,928
------- ------ ----- -------
Net income per common share $1.03 $1.91 $1.00
Pro forma net income per common share
AVERAGE SHARES OUTSTANDING 3,918,907 476,000 4,921,694
CONVERSION RATIO 2.2384
</TABLE>
38
<PAGE> 41
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WAYNE AND
CHIPPEWA
PRO FORMA PRO FORMA
WAYNE CHIPPEWA ADJUSTMENTS COMBINED
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $18,956 $5,106 $24,062
Interest on deposits 0 0 0
Interest on federal funds sold 239 131 370
Interest on investment securities 4,935 1,696 6,631
------- ------ -------
Total interest income $24,130 $6,933 0 $31,063
------- ------ ---- -------
INTEREST EXPENSE:
Interest on deposits $9,276 $2,863 $12,139
Interest on borrowings 640 271 911
------- ------ -------
Total interest expense $9,916 $3,134 0 $13,050
------- ------ ---- -------
NET INTEREST INCOME $14,214 $3,799 0 $18,013
------- ------ -------
Provision for loan losses $120 $110 $230
------- ------ -------
Net interest income after provision for
loan losses 14,094 3,689 0 17,783
Noninterest income 2,765 488 3,253
Investment Securities Gains (and Losses) (12) 0 (12)
Noninterest expense 10,530 2,950 13,480
------- ------ -------
Income before income taxes 6,317 1,227 0 7,544
Income taxes 1,832 315 2,147
------- ------ -------
NET INCOME $4,485 $912 $0 $5,397
------- ------ ---- -------
Net income per common share $1.14 $2.04 $1.09
Pro forma net income per common share
AVERAGE SHARES OUTSTANDING 3,931,595 448,000 4,934,382
CONVERSION RATIO 2.2384
</TABLE>
39
<PAGE> 42
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WAYNE AND
CHIPPEWA
PRO FORMA PRO FORMA
WAYNE CHIPPEWA ADJUSTMENTS COMBINED
----- -------- ----------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $19,546 $5,842 $25,388
Interest on deposits 0 0 0
Interest on federal funds sold 184 153 337
Interest on investment securities 5,700 2,821 8,521
------- ------ -------
Total interest income $25,430 $8,816 0 $34,246
INTEREST EXPENSE:
Interest on deposits $9,452 $4,067 $13,519
Interest on borrowings 994 251 1,245
------- ------ -------
Total interest expense 10,446 4,318 0 14,764
------- ------ -- -------
NET INTEREST INCOME $14,984 $4,498 0 $19,482
------- ------ -- -------
Provision for loan losses $180 $120 $300
------- ------ -------
Net interest income after provision for
loan losses 14,804 4,378 0 19,182
Noninterest income 3,893 566 4,459
Investment Securities Gains (and Losses) 6 (2) 4
Noninterest expense 10,751 3,636 14,387
------- ------ -------
Income before income taxes 7,952 1,306 0 9,258
Income taxes 2,420 328 2,748
------- ------ -------
NET INCOME $5,532 $978 $0 $6,510
------- ------ -- -------
Net Income per common share $1.41 $2.18 $1.32
Pro forma net income per common share
AVERAGE SHARES OUTSTANDING 3,932,527 448,000 4,935,314
CONVERSION RATIO FOR COMMON STOCK 2.2384
</TABLE>
40
<PAGE> 43
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
WAYNE AND
CHIPPEWA
PRO FORMA PRO FORMA
ASSETS WAYNE CHIPPEWA ADJUSTMENTS COMBINED
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Cash and due from banks $13,996 $5,751 $19,747
Federal funds sold 5,000 1,220 6,220
Interest bearing deposits in other banks 0 0 0
Investment securities 86,186 46,549 (33) 132,702
Assets held for sale 0 0 0
Loans 238,436 78,917 317,353
Less allowance for loan losses 3,591 697 4,288
-------- -------- ---- --------
Net loans 234,845 78,220 0 313,065
Premises and equipment, net 6,217 2,298 8,515
Goodwill and Other Intangibles 785 1,504 2,289
Other assets 4,161 1,397 5,558
-------- -------- ---- --------
Total assets $351,190 $136,939 ($33) $488,096
-------- -------- ---- --------
LIABILITIES
Noninterest bearing deposits $45,517 $11,960 $57,477
Interest-bearing deposits 231,307 105,688 336,995
-------- -------- --------
Total deposits 276,824 117,648 0 394,472
Federal funds purchased and
securities sold under
agreements to repurchase 26,480 6,942 33,422
Notes payable 0 470 470
FHLB advances 836 0 836
Other liabilities 2,393 824 3,217
-------- -------- --------
Total liabilities $306,533 $125,884 0 $432,417
SHAREHOLDERS' EQUITY
Common stock $3,935 $560 $443 $4,938
Capital surplus 13,356 87 (443) 13,000
Retained earnings 26,949 10,307 37,256
Shares held in the treasury (15) 0 (33) (48)
Net unrealized (losses) gains on securities
available for sale 432 101 533
-------- -------- --------
Total shareholders' equity 44,657 11,055 33 55,712
-------- -------- --------
Total liabilities and shareholders' equity $351,190 $136,939 $0 $488,096
-------- -------- ----- --------
</TABLE>
41
<PAGE> 44
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WAYNE AND
CHIPPEWA
PRO FORMA PRO FORMA
WAYNE CHIPPEWA ADJUSTMENTS COMBINED
----- -------- ----------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $14,661 $4,233 $18,894
Interest on deposits 0 0 0
Interest on federal funds sold 68 134 202
Interest on investment securities 4,246 2,089 6,335
------- ------ -------
Total interest income $18,975 $6,456 0 $25,431
INTEREST EXPENSE:
Interest on deposits $7,115 $2,978 $10,093
Interest on borrowings 677 184 861
------- ------ -------
Total interest expense 7,792 3,162 0 10,954
------- ------ -- -------
NET INTEREST INCOME $11,183 $3,294 0 $14,477
------- ------ -- -------
Provision for loan losses $135 $90 $225
------- ------ -------
Net interest income after provision for
loan losses 11,048 3,204 0 14,252
Noninterest income 2,209 419 2,628
Investment Securities Gains (and Losses) (1) (2) (3)
Noninterest expense 7,802 2,625 10,427
------- ------ -------
Income before income taxes 5,454 996 0 6,450
Income taxes 1,662 261 1,923
------- ------ -------
NET INCOME $3,792 $735 $0 $4,527
------- ------ -- -------
Net income per common share $0.96 $1.64 0.92
Pro forma net income per common share
AVERAGE SHARES OUTSTANDING 3,935,139 448,000 4,937,926
CONVERSION RATIO FOR COMMON STOCK 2.2384
</TABLE>
42
<PAGE> 45
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WAYNE AND
CHIPPEWA
PRO FORMA PRO FORMA
WAYNE CHIPPEWA ADJUSTMENTS COMBINED
----- -------- ----------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $15,249 $5,020 $20,269
Interest on deposits 0 0 0
Interest on federal funds sold 114 55 169
Interest on investment securities 4,233 2,179 6,412
------- ------ --------
Total interest income $19,596 $7,254 0 $26,850
INTEREST EXPENSE:
Interest on deposits $7,031 $3,290 $10,321
Interest on borrowings 937 185 1,122
------- --------
Total interest expense 7,968 3,475 0 11,443
------- ------ -- --------
NET INTEREST INCOME $11,628 $3,779 0 $157,407
------- ------ -- --------
Provision for loan losses $135 $95 $230
------- ------ -------
Net interest income after provision for
loan losses 11,493 3,684 0 15,177
Noninterest income 2,004 495 2,499
Investment Securities Gains (and Losses) (6) (2) (8)
Noninterest expense 7,556 2,801 10,357
------- --------
Income before income taxes 5,935 1,376 0 7,311
Income taxes 1,829 382 2211
------- ------ -------
NET INCOME $4,106 $994 $0 $5,100
------- ------ --------
Net income per common share $1.04 $2.22 $1.03
Pro forma net income per common share
AVERAGE SHARES OUTSTANDING 3,935,498 448,000 4,938,285
CONVERSION RATIO FOR COMMON STOCK 2.2384
</TABLE>
43
<PAGE> 46
DESCRIPTION AND COMPARISON OF WAYNE COMMON STOCK
AND CHIPPEWA COMMON STOCK
GENERAL
Wayne is an Ohio corporation governed by and subject to the Ohio General
Corporation Law ("OGCL") and is a registered bank holding company under the
Bank Holding Company Act. Chippewa is an Ohio corporation organized under and
governed by the provisions of the OGCL and is a registered bank holding company
under the Bank Holding Company Act. If the proposed Merger is consummated,
shareholders of Chippewa who receive Wayne Common Stock will become
shareholders of Wayne and, as such, their rights as shareholders will be
governed by the OGCL and by Wayne's Articles, Code of Regulations and other
corporate documents. The rights of holders of shares of Chippewa Common Stock
differ in certain respects from the rights of holders of Wayne Common Stock. A
summary of the material differences between the respective rights of Chippewa
from that of Wayne shareholders is set forth below.
As of the date of the Agreement, Wayne was authorized to issue 5,400,000
shares of no par value common stock ("Wayne Common Stock"). As of the date of
the Agreement, Wayne had 3,935,512 shares of Wayne Common Stock issued and
outstanding, which left 1,464,488 shares available for future issuance and 380
treasury shares. Pursuant to the terms of the Merger, Wayne will issue an
aggregate of between 981,837 and 1,023,737 shares of Wayne Common Stock to
shareholders of Chippewa.
The authorized Common Stock of Chippewa consists of 500,000 shares of
Common Stock without par value per share, 448,000 of which were issued and
outstanding as of the Record Date.
While there are a substantial number of similarities between the Wayne
Common Stock and the Chippewa Common Stock, the rights of shareholders of
Chippewa will be different after the Effective Time of the Merger.
Shareholders will be affected by differences in the Articles of Incorporation
and Code of Regulations of Wayne and Chippewa. Listed below are the more
important attributes of the Wayne Common Stock and the differences, if any,
from the Chippewa Common Stock.
DIVIDENDS
Holders of Wayne Common Stock are entitled to dividends out of funds
legally available therefor, as governed by the OGCL, and if declared by the
Board of Directors. The amount and timing of dividends on Wayne Common Stock
is subject to the earnings of its subsidiaries and the amounts available for
payment of dividends by such subsidiaries under federal banking laws and
regulations. Generally, dividends from Wayne's banking subsidiaries are
restricted to net profits of the current year plus the preceding two years less
dividends paid.
PREEMPTIVE RIGHTS
Shareholders of Wayne do not have preemptive rights pursuant to Wayne's
Articles of Incorporation and the OGCL. Shareholders of Chippewa do have the
preemptive right to subscribe to additional shares of common stock when issued
by Chippewa. Preemptive rights permit a shareholder to purchase their pro rata
share of any offering by the company, subject to certain exceptions and
limitations as provided by law.
VOTING
On all matters to properly come before shareholders, each share of stock
of Wayne and Chippewa entitles the holder thereof to one vote, except, with
respect to the right to vote cumulatively in the election of Directors which is
available for shareholders of Chippewa but not shareholders of Wayne. (See
"Cumulative Voting"). Further, each of Wayne and Chippewa have certain
"supermajority vote" requirements regarding business combinations contained in
their respective Articles of Incorporation. (See "Antitakeover Provisions").
The affirmative vote of the holders of a majority of the outstanding Wayne
Common Stock is required to amend the Articles of Incorporation or Code of
Regulations of Wayne, except the amendment of the provisions contained in its
44
<PAGE> 47
Articles of Incorporation requiring a supermajority vote in certain business
combination transactions, which amendment requires, in certain circumstances,
the affirmative vote of the holders of eighty percent (80%) of the Wayne Common
Stock. The amendment of the Articles of Incorporation or Code of Regulations
of Chippewa requires a vote of 66 2/3% of the outstanding shares as provided by
the OGCL.
CUMULATIVE VOTING
Shareholders of Chippewa have the right to vote cumulatively in the
election of Directors. Shareholders of Wayne do not have the right to vote
cumulatively in the election of directors which right is specifically excluded
in Wayne's Articles of Incorporation. In cumulative voting, a shareholder may
cumulate a number of votes equal to the number of directors to be elected times
the number of shares held by the shareholder and cast all of such votes for one
nominee for director, or allocate such votes among the nominees as the
shareholder sees fit. Cumulative voting rights afford shareholders controlling
a minority stock position the opportunity to have representation on the Board
of Directors.
LIQUIDATION
Holders of Wayne and Chippewa stock are entitled to a pro rata
distribution of the corporation's assets upon liquidation.
LIABILITY OF DIRECTORS; INDEMNIFICATION
Under their respective Articles of Incorporation Wayne and Chippewa may
indemnify present or past directors, officers, employees or agents to the full
extent permitted by law.
The Articles of Incorporation of Wayne provide that the company shall have
the power to indemnify its present and past directors, officers, employees and
agents, and such other persons as it shall have the power to indemnify to the
full extent permitted under, and subject to the limitations of, Title 17 of the
Ohio Revised Code. Additionally, and subject to the limitations set forth
below, Wayne's Articles of Incorporation require that Wayne indemnify its
present and past Directors for personal liability for monetary damages
resulting from breach of their fiduciary duty as Directors. Notwithstanding
the above, no indemnification for personal liability shall be provided for:
(i) any breach of the Directors' duty of loyalty to the Corporation or its
shareholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) the illegal
distribution of dividends; and (iv) any transaction from which the Director
derived an improper personal benefit.
The Code of Regulations of Chippewa provides that the company shall
indemnify its present, past and future directors and officers, and may
indemnify its employees and agents, and such other persons as it shall have
power to indemnify to the full extent permitted under, and subject to the
limitations of, Title 17 of the Ohio Revised Code.
ANTITAKEOVER PROVISIONS
Ohio Law Applicable to Wayne and Chippewa
Both Chippewa and Wayne are Ohio-chartered corporations and are "issuing
public corporations" under the laws of Ohio, and subject to the provisions of
the Ohio Control Share Acquisition Statute (ORC Section 1701.831) and the
Merger Moratorium Act (ORC Section 1704). Pursuant to the Ohio Control Share
Acquisition Statute, the purchase of certain levels of voting power of a
company (one-fifth or more, one-third or more, or a majority) can be made only
with the prior authorization of at least a majority of the total voting power
of such company and a separate prior authorization of the holders of at least a
majority of the voting power held by shareholders other than the proposed
purchaser, officers of the company and directors of the company who are also
employees. This law has the potential effect of deterring certain potential
acquisitions of the company which might be beneficial to shareholders. The
Merger Moratorium Act, enacted in 1990, prohibits certain Ohio corporations
from engaging in specified types of transactions with an "interested
shareholder" for a period of three years after the shareholder becomes an
45
<PAGE> 48
"interested shareholder" unless the shareholder receives the approval of the
corporation's board of directors prior to the acquisition of shares or the
consummation of the specified type of transaction. The anticipated effect of
the Merger Moratorium Act is to encourage a potential acquirer to negotiate
with a target corporation's board of directors prior to obtaining a 10 percent
or greater block of shares in the corporation.
Wayne's and Chippewa's Articles of Incorporation
Wayne's and Chippewa's Articles of Incorporation contain four provisions
which can be characterized as antitakeover in nature. These provisions are
summarized below:
Supermajority Vote and Fair Price Provision
Wayne has a provision in its Articles of Incorporation which provides that
in certain business combination transactions, which are not approved by the
incumbent board of directors, a supervote is required by shareholders in order
to approve such a business combination. The vote of shareholders required
under such circumstances is 80% In addition the Articles of Incorporation of
Wayne contain a "fair price" provision which requires an acquirer to pay the
same level of consideration for all shares of the company acquired by the
"interested shareholder." The supermajority and fair price provisions do not
apply to transactions which are approved by the incumbent board of directors of
the company nor to a transaction approved by a vote of at least 66 2/3% of the
shares excluding those owned by the acquirer.
Chippewa also has antitakeover provisions in its Articles of
Incorporation. Such provisions require, in certain business combination
transactions which are not approved by three-fourths (75%) of the members of
the incumbent board of directors, a supermajority vote of shareholders in order
to approve such a business combination. The vote of shareholders required
under such circumstances is a majority of the outstanding shares excluding
shares held by the proposed acquirer if the acquirer is the holder of 10% of
the outstanding shares. The Articles of Incorporation of Chippewa does not
contain a "fair price" provision similar to that of Wayne's described above.
Classified Board Provision
Wayne and Chippewa currently have in operation, a classified election
system for electing their Board of Directors. Directors are elected to a
designated class and shall serve until the expiration of the term for which
they are elected, and until their successors have been duly elected and
qualified. Each of Wayne and Chippewa have three (3) classes and each director
is elected to a three (3) year term such that one-third of the Board is elected
each year.
Authorized Shares
The availability of authorized and unissued shares for future issuance by
Wayne may be deemed to have an antitakeover effect. As of the date of the
Agreement, Wayne had 1,464,488 authorized shares available for future issuance.
The authorized and unissued shares are available for issuance and thereby
could be issued into "friendly hands" to dilute the ownership of an individual
or corporation that has acquired shares of Wayne and intends to conduct an
acquisition of Wayne that is deemed to be undesirable by the Board of Directors
of Wayne. Chippewa has 500,000 shares authorized and 448,000 outstanding as of
the Record Date. Such unauthorized Chippewa shares also could be issued into
friendly hands, subject to the preemptive rights of the existing Chippewa
shareholders.
46
<PAGE> 49
Supermajority for Removal of Directors
The Code of Regulations of Wayne contains a provision requiring a vote of
75% of the outstanding shares of Wayne to remove all or a portion of the
members of the Board of Directors. Such provision increases the requirements
of the OGCL which provide for removal of Directors upon a vote of the majority
of outstanding shares.
None of these provisions were adopted as a result of the knowledge of
management for either Wayne or Chippewa of any effort to obtain control of
Wayne or Chippewa by any means. Neither Wayne's nor Chippewa's respective
Articles of Incorporation and Codes of Regulations currently contain any other
provisions that were intended to be or could fairly be considered as
antitakeover in nature or effect. Further, the Board of Directors of Wayne has
no current intention to amend the Articles of Incorporation or Code of
Regulations to add any additional antitakeover provisions.
INFORMATION ABOUT WAYNE
GENERAL
Wayne, through its affiliate, The Wayne County National Bank, conducts the
business of a commercial banking organization. At September 30, 1997, Wayne
and its subsidiaries had consolidated total assets of approximately $351
million, consolidated total deposits of approximately $277 million and
consolidated total equity of approximately $45 million.
Wayne, through its banking affiliate, offers a broad range of banking
services to the commercial, industrial and consumer market segments which it
serves. Services include commercial, real estate and personal loans; checking,
savings and time deposits and other customer services such as safe deposit
facilities. Wayne does not have any foreign operations, assets or investments.
Wayne Bank is a national banking association. Wayne Bank is regulated by
the Office of the Comptroller of the Currency ("OCC") and its deposits are
insured by the Federal Deposit Insurance Corporation to the extent permitted by
law and, as a subsidiary of Wayne, is regulated by the Federal Reserve Board.
This Proxy Statement-Prospectus, as mailed to shareholders of Chippewa is
accompanied by Wayne's Annual Report to Shareholders for the year ended
December 31, 1996 (the "Wayne 1996 Annual Report"). Additional information
concerning Wayne is contained in documents incorporated in this Proxy Statement
by reference. These documents, including the Wayne 1996 Annual Report and
Wayne's first, second and third quarter reports on Form 10-Q, are available
without charge upon written request to David P. Boyle, Chief Financial Officer
of Wayne, 112 W. Liberty Street, Wooster, Ohio 44691. In order to assure
timely delivery of these documents, any request should be made by February 13,
1998.
COMPETITION
The commercial banking and trust business in the market areas served by
Wayne Bank is very competitive. Wayne and Wayne Bank are in competition with
commercial banks located in their own service areas. Some competitors of Wayne
and Wayne Bank are substantially larger than Wayne Bank. In addition to local
bank competition, Wayne Bank competes with larger commercial banks located in
metropolitan areas, savings banks, savings and loan associations, credit
unions, finance companies and other financial institutions for loans and
deposits.
47
<PAGE> 50
CERTAIN REGULATORY CONSIDERATIONS
The following is a summary of certain statutes and regulations affecting
Wayne and its subsidiaries. This summary is qualified in its entirety by such
statutes and regulations.
Wayne
Wayne is a registered bank holding company under the Bank Holding Company
Act of 1956, as amended, ("BHC Act") and as such is subject to regulation by
the Federal Reserve Board. A bank holding company is required to file with the
Federal Reserve Board quarterly reports and other information regarding its
business operations and those of its subsidiaries. A bank holding company and
its subsidiary banks are also subject to examination by the Federal Reserve
Board.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve Board before acquiring substantially all the
assets of any bank or bank holding company or ownership or control of any
voting shares of any bank or bank holding company, if, after such acquisition,
it would own or control, directly or indirectly, more than five percent (5%) of
the voting shares of such bank or bank holding company.
In approving acquisitions by bank holding companies of companies engaged
in banking-related activities, the Federal Reserve Board considers whether the
performance of any such activity by a subsidiary of the holding company
reasonably can be expected to produce benefits to the public, such as greater
convenience, increased competition, or gains in efficiency, which outweigh
possible adverse effects, such as over concentration of resources, decrease of
competition, conflicts of interest, or unsound banking practices.
Bank holding companies are restricted in, and subject to, limitations
regarding transactions with subsidiaries and other affiliates.
In addition, bank holding companies and their subsidiaries are prohibited
from engaging in certain "tie in" arrangements in connection with any
extensions of credit, leases, sales of property, or furnishing of services.
Wayne Subsidiaries
Wayne operates a single national bank, namely, The Wayne County National
Bank. As a national bank Wayne Bank is supervised and regulated by the OCC,
and subject to laws and regulations applicable to national banks.
Capital
The Federal Reserve Board, OCC, and FDIC require banks and holding
companies to maintain minimum capital ratios.
The Federal Reserve Board adopted final "risk-adjusted" capital guidelines
for bank holding companies. The guidelines became fully implemented as of
December 31, 1992. The OCC and FDIC have adopted substantially similar
risk-based capital guidelines. These ratios involve a mathematical process of
assigning various risk weights to different classes of assets, then evaluating
the sum of the risk-weighted balance sheet structure against Wayne's capital
base. The rules set the minimum guidelines for the ratio of capital to
risk-weighted assets (including certain off-balance sheet activities, such as
standby letters of credit) at 8%. At least half of the total capital is to be
composed of common equity, retained earnings, and a limited amount of perpetual
preferred stock less certain goodwill items ("Tier 1 Capital"). The remainder
may consist of a limited amount of subordinated debt, other preferred stock, or
a limited amount of loan loss reserves. At September 30, 1997 Wayne's
consolidated risk-adjusted Tier 1 Capital and total capital, as defined by the
regulatory agencies based on the fully phased in 1992 guidelines, were 19.47%
and 20.72% of risk-weighted assets, respectively, well above the 4% and 8%
minimum standards mandated by the regulatory agencies.
48
<PAGE> 51
In addition, the federal banking regulatory agencies have adopted leverage
capital guidelines for banks and bank holding companies. Under these
guidelines, banks and bank holding companies must maintain a minimum ratio of
three percent (3%) Tier 1 Capital (as defined for purposes of the year-end 1992
risk-based capital guidelines) to total assets. The Federal Reserve Board has
indicated, however, that banking organizations that are experiencing or
anticipating significant growth, are expected to maintain capital ratios well
in excess of the minimum levels. As of September 30, 1997, Wayne's core
leverage ratio was 12.70%, well above the regulatory minimum.
Regulatory authorities may increase such minimum requirements for all
banks and bank holding companies or for specified banks or bank holding
companies. Increases in the minimum required ratios could adversely affect
Wayne and Wayne Banks, including their ability to pay dividends.
Additional Regulation
Wayne Bank is also subject to federal regulation as to such matters as
required reserves, limitation as to the nature and amount of its loans and
investments, regulatory approval of any merger or consolidation, issuance or
retirement of their own securities, limitations upon the payment of dividends
and other aspects of banking operations. In addition, the activities and
operations of Wayne Bank are subject to a number of additional detailed,
complex and sometimes overlapping laws and regulations. These include state
usury and consumer credit laws, state laws relating to fiduciaries, the Federal
Truth-in-Lending Act and Regulation Z, the Federal Equal Credit Opportunity Act
and Regulation B, the Fair Credit Reporting Act, the Truth in Savings Act, the
Community Reinvestment Act, anti-redlining legislation and antitrust laws.
Dividend Regulation
The ability of Wayne to obtain funds for the payment of dividends and for
other cash requirements is largely dependent on the amount of dividends which
may be declared by Wayne Bank. Generally, Wayne Bank may not declare a
dividend, without the approval of the OCC, if the total of dividends declared
in a calendar year exceeds the total of its net profits for that year combined
with its retained profits of the preceding two years.
Government Policies and Legislation
The policies of regulatory authorities, including the OCC, Federal Reserve
Board, FDIC and the Depository Institutions Deregulation Committee, have had a
significant effect on the operating results of commercial banks in the past and
are expected to do so in the future. An important function of the Federal
Reserve System is to regulate aggregate national credit and money supply
through such means as open market dealings in securities, establishment of the
discount rate on member bank borrowings, and changes in reserve requirements
against member bank deposits. Policies of these agencies may be influenced by
many factors, including inflation, unemployment, short-term and long-term
changes in the international trade balance and fiscal policies of the United
States government.
The United States Congress has periodically considered and adopted
legislation which has resulted in further deregulation of both banks and other
financial institutions, including mutual funds, securities brokerage firms and
investment banking firms. No assurance can be given as to whether any
additional legislation will be adopted or as to the effect such legislation
would have on the business of Wayne or Wayne Bank.
In addition to the relaxation and elimination of certain geographic
restrictions on banks and bank holding companies, a number of regulatory and
legislative initiatives have the potential for eliminating many of the product
line barriers presently separating the services offered by commercial banks
from those offered by nonbanking institutions. For example, Congress recently
has considered legislation which would expand the scope of permissible business
activities for bank holding companies (and in some cases banks) to include
securities underwriting, insurance services and various real estate related
activities.
Deposit Insurance
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<PAGE> 52
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was enacted in 1991. Among other things, FDICIA, requires federal
bank regulatory authorities to take "prompt corrective action" with respect to
banks that do not meet minimum capital requirements. For these purposes,
FDICIA establishes five capital tiers: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized.
As an FDIC-insured institution, Wayne Bank is required to pay deposit
insurance premium assessments to the FDIC. The amount each institution pays
for FDIC deposit insurance coverage is determined in accordance with a
risk-based assessment system under which all insured depository institutions
are placed into one of nine categories and assessed insurance premiums based
upon their level of capital and supervisory evaluation. Institutions
classified as well-capitalized (as defined by the FDIC) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (as defined by the FDIC) and considered substantial supervisory
concerns pay the highest premium. Beginning in 1996, such deposit insurance
runs from a cost of zero percent to 0.27% of deposits. Because Wayne Bank is
"well-capitalized," it currently pays no deposit insurance premiums.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital. Management of Wayne is not aware of any activity or
condition that could result in termination of the deposit insurance of the
Wayne Bank.
Recent Legislation
On September 29, 1994, the Reigle/Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") was signed into law. The
Interstate Act effectively permits nationwide banking. The Interstate Act
provides that one year after enactment, adequately capitalized and adequately
managed bank holding companies may acquire banks in any state, even in those
jurisdictions that currently bar acquisitions by out-of-state institutions,
subject to deposit concentration limits. The deposit concentration limits
provide that regulatory approval by the Federal Reserve Board may not be
granted for a proposed interstate acquisition if after the acquisition, the
acquirer on a consolidated basis would control more than 10% of the total
deposits nationwide or would control more than 30% of deposits in the state
where the acquiring institution is located. The deposit concentration state
limit does not apply for initial acquisitions in a state and in every case, may
be waived by the state regulatory authority. Interstate acquisitions are
subject to compliance with the Community Reinvestment Act ("CRA"). States are
permitted to impose age requirements not to exceed five years on target banks
for interstate acquisitions. States are not allowed to opt-out of interstate
banking.
Branching between states may be accomplished either by merging separate
banks located in different states into one legal entity, or by establishing de
novo branches in another state. Consolidation of banks was not permitted until
June 1, 1997, provided that the state had not passed legislation "opting-out"
of interstate branching. If a state opted-out prior to June 1, 1997, then
banks located in that state may not participate in interstate branching. A
state could have opted-in to interstate branching by bank consolidation or by
de novo branching by passing appropriate legislation earlier than June 1, 1997.
Interstate branching is also subject to a 30% statewide deposit concentration
limit on a consolidated basis, and a 10% nationwide deposit concentration
limit. The laws of the host state regarding community reinvestment, fair
lending, consumer protection (including usury limits) and establishment of
branches shall apply to the interstate branches. The State of Ohio opted-in to
the legislation in May of 1997.
De novo branching by an out-of-state bank is not permitted unless the host
state expressly permits de novo branching by banks from out-of-state. The
establishment of an initial de novo branch in a state is subject to the same
conditions as apply to initial acquisition of a bank in the host state other
than the deposit concentration limits.
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<PAGE> 53
The FDIC, together with the Federal Reserve, the OCC and the Office of
Thrift Supervision (the "OTS"), have established rules implementing requirement
that the federal banking agencies establish operational and managerial
standards to promote the safety and soundness of federally insured depository
institutions. The guidelines establish standards for internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and
benefits. In general, the guidelines prescribe the goals to be achieved in
each area, and each institution is responsible for establishing its own
procedures to achieve those goals. If an institution fails to comply with any
of the standards set forth in the guidelines, the institution's primary federal
regulator may require the institution to submit to a plan for achieving and
maintaining compliance. Failure to submit an acceptable plan, or failure to
comply with a plan that has been accepted by the appropriate regulator, would
constitute grounds for further enforcement action.
The Federal Reserve, the OCC and the OTS have adopted new regulations
under the Community Reinvestment Act ("CRA"). Under the new regulations, an
institution's performance in meeting the credit needs of its entire community,
including low and moderate income areas, as required by the CRA, is generally
evaluated under three tests: the "lending test," which considers the extent to
which the institution makes loans in the low and moderate income areas of its
market; the "service test," which considers the extent to which the institution
makes branches accessible to low and moderate income areas of its market and
provides other services that promote credit availability; and the "investment
test," which considers the extent to which the institution invests in community
and economic development activities. Wayne Bank had a satisfactory CRA rating
as of its latest examination.
Proposed Legislation
In addition to the above, there have been proposed a number of legislative
and regulatory proposals designed to strengthen the federal deposit insurance
system and to improve the overall financial stability of the U.S. banking
system. It is impossible to predict whether or in what form these proposals
may be adopted in the future, and if adopted, what their effect would be on
Wayne.
[Remainder of Page Intentionally Left Blank.]
51
<PAGE> 54
PRINCIPAL HOLDERS OF WAYNE COMMON STOCK
The following table sets forth information concerning the number of shares
of Wayne Common Stock held as of September 30, 1997, by each shareholder who is
known to Wayne management to have been the beneficial owners of more than five
percent of the outstanding shares of Wayne Common Stock as of that date:
<TABLE>
<CAPTION>
Name and Address of Shares Beneficially Percent
Beneficial Owner Owned of Class
- ------------------- ------------------- --------
<S> <C> <C>
Raymond E. Dix 205,408 5.22%
P.O. Drawer D
Wooster, OH 44691
Wayco & Company(1) 602,851 15.32%
P.O. Box 757
Wooster, OH 44691
</TABLE>
- --------------------
(1) Wayco & Company is a partnership formed for the purpose of holding legal
title, as nominee, to securities designated by Wayne Bank with respect to the
business of its trust department.
LEGAL PROCEEDINGS
Wayne and its subsidiaries are from time to time subject to various
pending and threatened lawsuits in which claims for monetary damages are
asserted in the ordinary course of business. While any litigation involves an
element of uncertainty, management of Wayne does not anticipate that any
currently pending or threatened litigation has the potential to materially
affect the financial condition or results of operations of Wayne.
As of the date of this Proxy-Statement Prospectus management is aware of
no pending litigation against Wayne or any of its subsidiaries.
INFORMATION ABOUT CHIPPEWA
GENERAL
Chippewa is an Ohio general business corporation and a registered bank
holding company with its main office located in Rittman, Ohio. Chippewa Bank
is an Ohio state chartered bank and a wholly owned subsidiary of Chippewa.
Chippewa Bank operates its main office at 20 South Main Street, Rittman, Ohio
44270. Chippewa Bank operates 9 branches
The principal business of Chippewa Bank consists of attracting retail
deposits from the general public and investing those funds in one to four
family residential mortgage loans, consumer loans, commercial real estate,
construction and commercial business loans primarily in its market area.
Chippewa Bank also purchases mortgage-backed securities and loan
participation's, and invests in U.S. Government and agency obligations and
other permissible investments.
Chippewa Bank's revenues are derived primarily from interest on loans,
investments, income from service charges and loan originations, and loan
servicing fee income.
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<PAGE> 55
PROPERTIES
Chippewa owns no real or personal property of a material nature other than
its main office, branch locations, and the furniture, fixtures and equipment
used in its banking business. The main office of Chippewa is located at 20
South Main Street, Rittman, Ohio and its branch offices are located at the
following addresses:
Address Address
------- -------
RITTMAN MAIN OFFICE RITTMAN NORTH
20 South Main Street 205 North Main Street
Rittman, OH 44270 Rittman, OH 44270
CHIPPEWA LAKE CLINTON
5797 Chippewa Road 7871 Main Street
Chippewa Lake, OH 44215 Clinton, OH 44216
DOYLESTOWN STERLING
25 South Portage Street 13840 Kauffman Avenue
Doylestown, OH 44230 Sterling, OH 44276
WADSWORTH NORTH WADSWORTH SQUARE
1052 North High Street (LEASED)
Wadsworth, OH 44281 130 High Street
Wadsworth, OH 44281
WESTFIELD CENTER
6990 Greenwich Road
Westfield Center, OH 44251
Chippewa owns the land and buildings on which its main office and branch
offices are located (except 130 High Street, Wadsworth, Ohio which is leased),
free and clear of any major encumbrances.
LITIGATION
There is no pending litigation of a material nature in which Chippewa is a
party or to which any of its property is subject. Further, there is no
material legal proceeding in which any director, executive officer, principal
shareholder or affiliate of Chippewa, or any associate of any such director,
executive officer, principal shareholder or affiliate, is a party or has a
material interest adverse to Chippewa. None of the ordinary routine litigation
in which Chippewa is involved is expected to have a material adverse effect on
the financial condition, results of operations or business of Chippewa.
VOTING, PRINCIPAL SHAREHOLDERS AND MANAGEMENT INFORMATION
Holders of record of Chippewa Common Stock at the close of business on the
Record Date will be entitled to vote at the Special Meeting of shareholders.
On the Record Date there were 448,000 shares of Chippewa Common Stock issued
and outstanding. Each share of Chippewa Common Stock is entitled to one vote
on each matter presented for shareholder action.
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<PAGE> 56
The following table sets forth information concerning the number of shares
of Chippewa Common Stock held as of, September 30, 1997, by each shareholder
who is known to Chippewa management to have been the beneficial owner of more
than five percent of the outstanding shares of Chippewa Common Stock as of that
date:
<TABLE>
<CAPTION>
Shares Beneficially
owned at Percent
Beneficial Owners 9/30/97 of Class
----------------- ------- --------
<S> <C> <C>
Miriam C. Huff (1)
1488 Ramblewood Drive
Wooster, OH 44691 51,200 11.42%
Shirley S. Mason, Trustee(2)
1570 London
Columbus, OH 43221 46,080 10.29%
</TABLE>
(1) Includes 25,600 shares owned in "Streetname" and 25,600 shares owned as a
life estate under the will of G.H. Clippinger.
(2) Held as Trustee under the Hugh L. Strickland Trust.
The following table shows certain information concerning the number of
shares of Chippewa Common Stock held as of September 30, 1997, by each director
of Chippewa and by all of Chippewa's directors and executive officers as a
group:
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially owned at Percent
Name 9/30/97 of Class
---- ------- --------
<S> <C> <C>
Carl H. Bradford, Jr. 305 0.07%
Allan J. Broadhurst 6,560 1.46%
Richard K. Gillman 1,200 0.27%
Roger G. Hessidence 7,800 1.74%
Don G. Houglan 7,000 1.56%
R. Tim Hubiak 1,300 0.29%
Joseph L. Ramsier 14,760 3.29%
Gerald E. Ritzman 492 0.11%
Philip S. Swope 2,400(1) 0.54%
All executive officers and 43,185 9.64%
directors as a group (11 persons)
</TABLE>
- ---------------------------------------
(1) includes 400 shares owned by spouse.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors and executive officers of Chippewa and their associates are
customers of and have had transactions with Chippewa from time to time in the
ordinary course of business. Such transactions have been made on substantially
the same terms, including interest rates and collateral on loans, as those
prevailing at the time for comparable transactions with other persons and did
not and will not involve more than the normal risk of collectibility or present
other unfavorable features. Similar transactions may be expected to take place
in the ordinary course of business in the future.
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<PAGE> 57
COMPETITION
The principal markets in which Chippewa competes are Wayne, Medina, and
Summit Counties in Ohio. For deposits and loans Chippewa competes with other
banks, savings institutions, credit unions, finance companies, factoring
companies, insurance companies, governmental agencies and other financial
institutions.
EMPLOYEES
At September 30, 1997, Chippewa had 69 full-time equivalent employees.
Chippewa is not a party to any collective bargaining agreement and employee
relations are considered to be excellent by Chippewa management.
CHIPPEWA'S FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Financial Condition
General. Total assets increased $30.3 million or 29.9% from $101.3 million at
December 31, 1995 to $131.6 million at December 31, 1996. This growth was a
combined result of the acquisition of two branch offices, in March 1996,
amounting to net proceeds of $22.3 million and internal growth of $9.0 million.
The branch offices which were acquired during the period were strategically
located in markets which management believed would provide competitive
advantages. Chippewa also experienced strong growth internally, primarily as a
result of the promotion of maximum value passbook account. During this period
there were increases of $11.3 million in net loans and $19.0 million in
investment securities which were primarily funded by the overall increase in
deposits of $28.9 million resulting from the branch acquisitions and internal
promotions.
Total assets continued to increase by $5.3 million or 4.1% to $136.9 million
during the nine months ended September 30, 1997. During this period, loans
continued to increase by $8.6 million which were funded by a decline in
investment securities of $4.4 million and increases in deposits of $2.7 million
and securities sold under agreements to repurchase of $1.8 million.
Investment Portfolio. Total investment securities increased during the year by
approximately $19.0 million or 59.5% from $31.9 million at December 31, 1995 to
$50.9 million at December 31, 1996. This increase resulted from the funds
obtained in the branch acquisitions. The funds that were in excess of
anticipated short-term loan demand were invested in investment securities, as
opposed to federal funds sold, to maximize profitability. The securities
acquired with these funds typically have maturities within five years or are
mortgage-backed securities which will provide the liquidity needs of future
loan demand.
Investment securities declined during the nine months ended September 30, 1997
by approximately $4.4 million from December 31, 1996. This decline resulted
primarily from maturities and principal repayments. Historically, management
has not typically sold investment securities nor do they intend to in the
foreseeable future; however, management will use the available for sale portion
of the securities portfolio to help manage liquidity needs of the bank's
operations.
Historically, Chippewa has been a conservative investor, investing primarily in
U. S. Treasury securities and obligations of U. S. Government agencies and
corporations, and to a lesser extent local obligations of states and political
subdivisions and corporate obligations. During 1996 and continuing through
1997, management has restructured its investment securities portfolio to
include a greater investment in mortgage-backed securities. These
mortgage-backed securities are all with agencies of the U. S. Government and
provide for monthly repayment of interest and principal, thus providing for
greater liquidity. Management determined that with the current rate of loan
growth, greater liquidity in the investment portfolio was necessary.
The following table sets forth the carrying amount of securities at the dates
indicated:
55
<PAGE> 58
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996 1995 1994
----------------------------------
(In thousands)
Available for Sale
- ------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $8,060 $14,509 $9,609 $5,390
U.S. Government agency securities 9,122 6,954 1,514 2,482
Mortgage-backed securities 7,960 7,340 2,195 1,879
Marketable equity securities 462 369 60 -
----------------------------------
TOTAL $25,604 $29,172 $13,378 $9,751
==================================
Held to Maturity
- ----------------
U.S. Treasury securities $0 $0 $0 $5,008
U.S. Government agency securities 6,513 8,553 7,742 6,752
Mortgage-backed securities - 54 106 135
Obligations of states and political subdivisions 7,020 7,129 6,303 6,418
Corporate securities 7,411 6,026 4,450 3,501
Marketable equity securities 0 0 0 60
----------------------------------
TOTAL $20,944 $21,762 $18,601 $21,874
==================================
</TABLE>
At September 30, 1997, Chippewa had no securities of any issuer for which the
carrying value of such securities exceeded 10% of stockholders' equity.
[Remainder of Page Intentionally Left Blank.]
56
<PAGE> 59
The following table sets forth the maturities of securities at
September 30, 1997, and the weighted average yields of such securities
(calculated on the basis of the cost and effective yields weighted for
the scheduled maturity of each security). Tax-equivalent adjustments
(using a 34% federal income tax rate) have been made in calculating
yields on obligations of state and l subdivisions.
<TABLE>
<CAPTION>
Maturing
------------------------------------------------------------------------------------------
Within After One But After Five But After No Fixed
One Year Within Five Years Within Ten Years Ten Years Maturity
------------------ -------------------- ------------------ ------------------ --------
Amount Yield Amount Yield Amount Yield Amount Yield Amount
-------- -------- --------- --------- -------- -------- -------- -------- --------
(In thousands)
Available for Sale
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $3,502 6.92% $4,558 6.33% $- $-
U.S. Government agency
securities 503 6.16% 8,619 6.40% - -
Mortgage-backed securities - 3,953 6.40% 2,714 6.56% 1,293 6.47%
Marketable equity securities - - - - 462
------ ------- ------ ------ ----
$4,005 $17,130 $2,714 $1,293 $462
====== ======= ====== ====== ====
Held to Maturity
- ----------------
U.S. Government agency
securities $500 5.52% $4,515 5.90% $1,498 6.35% $- $-
Obligations of states and
political subdivisions 295 8.68% 3,220 8.70% 3,381 7.52% 124 7.42%
Corporate securities 501 6.07% 6,910 6.34% - -
------ ------- ------ ------ ----
$1,296 $14,645 $4,879 $124 $-
====== ======= ====== ====== ====
</TABLE>
Note: Mortgage-backed securities are distributed on a contractual maturity.
Loans. Total loans amounted to $70.2 million at December 31, 1996
compared to $58.9 million at December 31, 1995, an increase of $11.3
million or 19.2%. Total real estate loans, consumer installment,
commercial and agriculture and credit card loans amounted to $44.5
million, $16.1 million, $9.1 million and $565,000 which represents 63%,
22.9%, 12.9% and .8% of total loans at December 31, 1996, respectively.
Total loans amounted to $78.9 million at September 30, 1997, an
increase of $8.7 million or 12.4%. Total real estate loans, consumer,
and commercial and agriculture loans amounted to $52.8 million, $17.0
million, and $9.1 million which represents 66.9%, 21.6%, and 11.5%
of total loans, respectively.
At September 30, 1997, Chippewa continues to focus its primary lending
efforts in residential mortgages, which comprise 47.7% of the total
loan portfolio, and consumer installment loans, comprised primarily of
unsecured personal and automobile loans, which comprise 21.6% of total
loans. In recent years there has been a very strong loan demand in
residential real estate as well as somewhat less traditional commercial
real estate and construction real estate loans. The loan growth has
been spurred by new housing developments in the local market combined
with strong marketing efforts of Chippewa. Management believes that
the conservative lending practices employed by Chippewa reduce, to an
acceptable level, the impact of declining values of real estate should
a downturn in the local real estate market occur. The Bank has had a
strong historical performance regarding collection of loans, with no
real estate losses incurred over the last five years.
Growth in the loan portfolio was primarily due to significant increases
in consumer real estate loans, which grew from $23.2 million at
December 31, 1995 to $37.6 million at September 30, 1997, which
represents an increase of $14.9 million or 74.4% of the total loan
growth during this period. The remainder of the real estate mortgage
portfolio is comprised of loans secured by commercial and agricultural
properties. Such loans grew only $349,000 from December 31, 1995 to
September 30, 1997. Since 1992, the Bank has not incurred any losses
or has had to foreclose on any of its real estate mortgage loans. Real
estate construction loans grew from $1.9 million to $4.0 million during
this same period. The increase of $2.1 million or 10.1% of the total
loan portfolio growth is the
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<PAGE> 60
direct result of management's plan to be more actively involved with
local-market residential home builders and land developers. Additional
construction loan commitments, available and unfunded at September 30, 1997
amounted to $2.1 million. Commercial, industrial and agricultural loans grew
by $2.0 million from December 31, 1995 to September 30, 1997, which represents
10.0% of the total loan growth for this period. Such loan originations have
been concentrated primarily in agricultural working capital, crop and equipment
financing. Although the Bank has historically specialized in
commercial-agricultural-based lending, such loans represent only 11.5% of the
total loan portfolio at September 30, 1997. Consumer installment loans,
comprised primarily of personal unsecured and automobile loans have grown from
$16.3 million at December 31, 1995 to $17.0 million at September 30, 1997.
This represents 3.6% of the total loan growth for the period.
Management intends to continue to promote residential real estate lending in
its local market of Northern Wayne, Southern Medina, and Western Summit
counties. Management desires to maintain a diversified loan portfolio in its
local market area to support the communities it serves. Although the Bank has
a diversified loan portfolio, at September 30, 1997 and December 31, 1996 and
1995, loans outstanding to individuals dependent on the agricultural economic
sector approximate $8.1 million or 10.2%, $7.4 million or 10.5% and $7.0
million or 12.0% of the loan portfolio, respectively. These loans are
typically secured by residential and commercial farm real estate and farm
equipment.
The following table shows Chippewa's loan distribution at the end of each
reported period:
The bank's loan portfolio is comprised of commercial and agricultural loans
extended to businesses and farm operations and consumer loans consisting
primarily of residential mortgages, automobile loans, and personal credit card
lines.
<TABLE>
<CAPTION>
Sept. 30, December 31,
1997 1996 1995 1994 1993 1992
--------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, industrial
and agricultural $9,087 $9,087 $7,045 $6,816 $7,165 $6,361
Real estate-construction 3,958 2,972 1,942 3,152 1,601 1,693
Real estate-mortgage 48,850 41,505 33,598 28,381 25,950 25,133
Consumer 17,022 16,631 16,298 11,216 10,513 11,127
------- ------- ------- ------- ------- -------
Total loans $78,917 $70,195 $58,883 $49,565 $45,229 $44,314
======= ======= ======= ======= ======= =======
</TABLE>
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<PAGE> 61
The following table shows the maturity of loans (excluding real estate
mortgages and installment loans) outstanding as of September 30, 1997. Also
provided are the amounts due after one year classified according to the
sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
After One
Within But Within After
One Year Five Years Five Years Total
-------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Commercial, industrial
and agricultural $2,410 $4,102 $2,575 $9,087
Real estate - construction 1,832 2,126 - 3,958
------ ------ ------ -------
TOTAL $4,242 $6,228 $2,575 $13,045
====== ====== ====== =======
</TABLE>
Nonperforming Assets. Chippewa's nonperforming assets, which are comprised of
any nonaccrual loans, accruing loans past due 90 days or more and other real
estate owned, have been minimal in amount for the periods from December 31,
1992 through September 30, 1997. Nonperforming assets amounted to only .90% and
.44% of total assets at September 30, 1997 and December 31, 1996, respectively.
Non-performing loans amounted to only 1.56% and .82% of total loans for these
same periods.
The Bank's general collection policy is to provide a late notice to commercial
and consumer installment accounts after 10 days past due, and after 15 days
past due for residential mortgage accounts. Delinquent accounts are contacted
by telephone once the loan becomes delinquent in excess of 15 days, with
collection letters issued between the 30th and 60th days. Notice of intent to
foreclose is provided to consumer mortgage customers between 100 and 120 days
past due. At 120 days past due, foreclosure proceedings are initiated. In
general, personal property securing loans aresubject to repossession at 60 days
past due.
Management regularly reviews the loan portfolio in order to identify potential
problem loans, and classifies any potential problem loans as a special mention,
substandard, doubtful, or loss asset. An asset is considered substandard if it
is inadequately protected by the current equity and paying capacity of the
borrower or of the collateral pledged, if any. Substandard assets include
those characterized by the distinct possibility that the bank will sustain some
loss if the deficiencies are not corrected. Assets classified as doubtful have
all the weaknesses of those classified as substandard with the additional
characteristic that the weakness makes collection or liquidation in full highly
questionable and improbable. Assets classified as loss are considered not
collectible and of such little value that their continuance as assets without
the establishment of a specific reserve is not warranted. Assets that do not
currently expose the bank to a sufficient degree of risk to warrant
classification but do possess credit deficiencies or potential weaknesses
deserving management's close attention are designated special mention. Special
mention assets have a potential weakness or pose an unwarranted financial risk
that, if not corrected, could weaken the asset and increase risk in the future.
A loan is considered impaired when, based on current information, it is
probable the Chippewa Bank will be unable to collect all principal and interest
due in accordance with the contractual terms of the loan agreements. All
nonaccrual commercial and commercial real estate loans, including
agricultural-related business loans, if any, are considered to be impaired.
The accrual of interest on a loan is generally discontinued when management
believes, after considering economic and business conditions, the borrower's
financial condition is such that collection of interest is doubtful. Interest
payments received on nonaccrual loans are recorded as income or applied against
principal according to management's judgment as to the collectibility of such
principal. At September 30, 1997, the Bank had $334,000 in loans greater than
90 days past due and still accruing interest, and no loans on nonaccrual
status, or any other real estate owned. The loans greater than 90 days past
due are comprised of five individual loans, to two different customers. These
loans are secured by farm, residential properties and acreage. In all
instances, the overall credit
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<PAGE> 62
relationships are considered impaired. Management continues to work
closely with these customers in an effort to either restructure the loans
to permit the contractual repayment of amounts due, and further enhance
the Chippewa Bank's security position regarding collateral, or to assist
the customer in finding alternative financing.
During the course of 1997, the Chippewa Bank restructured various
delinquent credit arrangements that were outstanding to a particular farm
operation customer. The farm operations experienced ongoing declines in
profitability and a general downturn in economic conditions that had a
direct effect on the farm's revenue generated from its products. As a
result, in August, 1997 the various loans outstanding, which approximated
$600,000 were restructured into two separate obligations, and an
additional $300,000 working capital loan was also extended. All
borrowings were cross-collateralized with farmland, including residences,
livestock and equipment with estimated market values far exceeding the
outstanding loans extended. In addition, a guarantee from the Farmers
Home Administration in the amount of $630,000 was also obtained as part of
the restructuring. The loans are performing, as agreed, under the current
loan arrangements. There are no other restructured loan arrangements
outstanding at September 30, 1997.
The following table summarizes Chippewa Bank's nonaccrual, past due loans,
restructured loans and other real estate owned:
<TABLE>
<CAPTION>
September 30, December 31,
------------------------------------------------
1997 1996 1995 1994 1993 1992
-------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans past due 90 days or more and
still accruing $334 $15 $251 $15 $46 $48
Nonaccrual loans - 563 - - - -
Restructurings 896 - - - - -
Other real estate owned - - - - - -
-------------------------------------------------------------
Total nonperforming assets $1,230 $578 $251 $15 $46 $48
=============================================================
Nonperforming loans to total loans 1.56% 0.82% 0.43% 0.03% 0.10% 0.11%
Allowance for loan losses to
nonperforming loans 56.67% 106.75% 230.28% 3,260.00% 967.39% 812.50%
Nonperforming loans to total assets 0.90% 0.44% 0.25% 0.02% 0.05% 0.06%
</TABLE>
For the year ended December 31, 1996, interest income that would have been
recorded on loans accounted for on a nonaccrual basis under the original
terms of such loans was $73,000, of which $53,000 was recorded as interest
income. There were no nonaccrual loans as of September 30, 1997 or
December 31, 1995.
On the basis of management's review of its loan portfolio, at September 30,
1997, Chippewa has classified $1.9 million of its loans as substandard and
$130,000 as special mention. Chippewa has no loans classified as doubtful
or loss at September 30, 1997. Of the total substandard classification
amount, $795,000 represent loans in addition to those disclosed previously
as either restructured or delinquent in excess of 90 days. The loans
represent extensions of credit to a farm business, approximating $665,000
and to an auto dealership for approximately $131,000. The farm loans are
cross-collateralized with farm acreage, residences, operation facilities
and equipment and livestock with estimated fair values substantially in
excess of the outstanding loan amounts. However, due to ongoing marginal
profitability from operations, depressed economic conditions relating to
the product offered, and the customer's prior history of payment
delinquencies, these loan credits are considered substandard and impaired
in determining the ongoing adequacy of the allowance for loan
losses.
The loans outstanding to the auto dealership are comprised of two unsecured
working-capital term loans. Because of marginal profitability and
increases in cash flows, these loans were considered as a special mention
classification, but impaired. The loans continue to be current in payment,
and each has less than 40 monthly payments remaining.
60
<PAGE> 63
As a part of management's ongoing assessment of its loan portfolio, $314,000 of
the allowance for loan losses at September 30, 1997 has been allocated for
these substandard and special mention credits, and for those loans noted as
restructured and loans past due 90 days or more and still accruing interest.
Allowance for Loan Losses. The allowance for loan losses increased to $697,000
or .88% of total loans at September 30, 1997 from $617,000 or .88% of total
loans at December 31, 1996 as compared to $578,000 or .98% at December 31,
1995. The increase in the allowance for loan losses resulted primarily from
corresponding increases in the loan portfolio. The adequacy of the allowance
for loan losses is determined by management's periodic evaluation of individual
loans, the overall risk characteristics of the various portfolio segments, past
experience with losses, the impact of economic conditions on borrowers, and
other relevant factors.
This table summarizes Chippewa's loan loss experience for each of the periods
indicated:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
1997 1996 1996 1995 1994 1993 1992
------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, beginning of period $617 $578 $578 $489 $445 $390 $359
Charge-offs:
Commercial, industrial
and agricultural 3 2 4 4 2 3 1
Real estate-mortgage
Consumer 42 86 99 53 36 75 90
--------- --------- ------- ------- ------- ------- -------
45 88 103 57 38 78 91
--------- --------- ------- ------- ------- ------- -------
Recoveries:
Commercial, industrial
and agricultural 1 3
Real estate-mortgage
Consumer 29 18 22 36 34 34 21
--------- --------- ------- ------- ------- ------- -------
30 18 22 36 34 37 21
--------- --------- ------- ------- ------- ------- -------
Net charge-offs 15 70 81 21 4 41 70
Provision for loan losses 95 90 120 110 48 96 101
--------- --------- ------- ------- ------- ------- -------
Balance, end of period $697 $598 $617 $578 $489 $445 $390
========= ========= ======= ======= ======= ======= =======
Ratio of net charge-offs to
average loans outstanding 0.02% 0.11% 0.13% 0.04% 0.01% 0.09% 0.16%
Average loans outstanding $74,264 $61,638 $63,349 $55,485 $47,469 $44,772 $42,808
</TABLE>
Management uses the aforementioned review and analysis to determine the
adequacy of the allowance for loan losses on a quarterly basis. The
provision for loan losses represents an amount that is intended to be
sufficient to maintain the reserves at a level necessary to meet present
and potential risk characteristics of the loan portfolio. The
61
<PAGE> 64
Merger Agreement requires that Chippewa Bank increase its loan loss
reserve $500,000 to recognize loan growth and size of loans. Further,
the Chippewa Bank Board of Directors intends to adopt a policy to
maintain the loan loss reserve of Chippewa Bank at between 1.25% and
1.75% of total loans. With such revisions, management believes that
the allowance for loan losses is adequate to absorb probable loan
losses.
This table shows the allocation of the allowance for loan losses as of
the end of each reported period:
<TABLE>
<CAPTION>
September 30, December 31,
--------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Percent Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each in Each
Category Category Category Category Category Category
to Total to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
-----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, industrial
and agricultural 383 12% $331 13% $330 12% $340 14% $309 16% $252 14%
Real estate-mortgage 106 67% 89 63% 71 60% 63 63% 55 61% 54 61%
Consumer 208 21% 197 24% 177 28% 86 23% 81 23% 84 25%
-----------------------------------------------------------------------------------------------------------
$697 100% $617 100% $578 100% $489 100% $445 100% $390 100%
===========================================================================================================
</TABLE>
Deposits. Total deposits increased during the year by $29.0 million
from $86.0 million at December 31, 1995 to $115.0 million at December
31, 1996. Noninterest-bearing deposits increased by $2.5 million while
interest-bearing deposits increased by $26.5 million. Overall deposits
showed normal growth from December 31, 1996 to September 30, 1997,
however noninterest-bearing deposits decreased by $534,000 while
interest-bearing deposits increased by $3.2 million.
The deposit growth during this period, as mentioned above, is two-fold.
Substantial growth occurred in 1996 as a result of the purchase of two
branch offices compounded by strong internal growth in the maximum
value passbook accounts due to promotional activities. In recent
years, Chippewa has been and continues to be in a growth strategy to
maximize return to its shareholders and to meet the community banking
needs of the markets in which it operates. As a result of this
strategy, when the opportunity presented itself to acquire two branches
in neighboring communities, management actively pursued this endeavor
and was successful. At the same time, Chippewa Bank was actively
promoting a savings product which offered a preferred interest rate
which averaged 50 basis points (1% equals 100 basis points) higher than
market rates offered on regular savings and money market accounts. A
promotional advertising campaign was conducted during 1996 and is
responsible for the overall growth in savings of $10.4 million.
62
<PAGE> 65
The daily average amounts of deposits and rates paid on such deposits is
summarized for the periods indicated in the following table:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1995 1994
------------------------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $11,783 $11,176 $9,196 $8,941
Interest-bearing demand
deposits 13,709 2.50% 13,108 2.49% 9,856 2.52% 8,529 2.51%
Money market accounts 5,705 2.66% 6,845 2.67% 7,984 2.88% 8,569 2.74%
Savings deposits 33,214 3.22% 28,974 3.12% 21,642 2.71% 24,057 2.74%
Time deposits 51,018 5.53% 47,118 5.63% 31,282 5.75% 22,847 4.46%
-------- -------- ------- -------
$115,429 $107,221 $79,960 $72,943
======== ======== ======= =======
</TABLE>
Maturities of time certificates of deposit of $100,000 or more outstanding at
September 30, 1997, are summarized as follows:
<TABLE>
<S> <C>
3 Months or less $3,271
Over 3 through 6 months 1,329
Over 6 through 12 months 1,497
Over 12 months 171
------
$6,268
======
</TABLE>
Borrowings. Chippewa Bank's borrowings are primarily comprised of funds
received from the sale of securities under agreements to repurchase, which are
considered for reporting purposes, borrowings secured by the securities sold.
These agreements generally have maturities of 180 days or less.
The following table presents certain information regarding Chippewa's
securities sold under agreements to repurchase at the dates and for the periods
ended.
<TABLE>
<CAPTION>
December 31,
September 30, ------------------------------------------
1997 1996 1995 1994
---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Amount outstanding at period end $ 6,942 $ 5,189 $ 5,013 $ 3,440
Maximum outstanding at any month end 6,942 5,501 5,873 4,458
Average outstanding during the period 4,990 4,737 4,298 3,454
Weighted average interest rate at period end 4.30% 4.31% 4.51% 4.18%
Weighted average rate during the period 4.28 4.33 4.77 3.16
</TABLE>
Repurchase agreements represent overnight borrowing arrangements. The bank
pledges U.S. Treasury securities as collateral for these agreements.
63
<PAGE> 66
Impact of Inflation and Changing Prices. The financial statements of Chippewa
and the notes thereto, presented elsewhere herein, have been prepared in
accordance with generally accepted accounting standards, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of
money over time due to inflation. The impact of inflation is reflected in the
increased cost of Chippewa's operations. Unlike most companies, nearly all of
Chippewa's assets and liabilities are monetary. As a result, interest rates
have a greater impact on Chippewa's performance than do the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or the same extent as the price of goods and services.
Shareholders' Equity. Shareholders' equity was $10.1 million at December 31,
1996, an increase of $0.8 million from $9.3 million at December 31, 1995. The
increase was comprised of net profits of $1.0 million, offset by dividends paid
to shareholders of $134,000.
Shareholders' equity increased by $1.0 million to $11.1 million at September
30, 1997. The increase was made up of net profits of $1.0 million, net
unrealized gain on securities of $30,000, offset by dividends paid to
shareholders of $72.000.
Chippewa is subject to risk-based capital rules. These guidelines include a
common framework for defining elements of capital and a system for relating
capital to risk. The minimum risk-based capital requirement is 8%.
Additionally, the general regulatory guidelines establish a minimum ratio of
leverage capital to adjusted total assets of 4% for top rated financial
institutions, with less highly rated institutions or those with higher levels
of risk, required to maintain ratios of 100 to 200 basis points above the
minimum level. As of September 30, 1997, the most recent notification from the
Federal Deposit Insurance Corporation has categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. There
have been no conditions or events since that notification that management
believes have changed Chippewa's or the Chippewa Bank's category.
The following table reflects Chippewa's capital ratios for the periods
presented:
<TABLE>
<CAPTION>
December 31,
September 30, --------------------------
1997 1996 1995
-----------------------------------------
(In Thousands)
<S> <C> <C> <C>
CAPITAL COMPONENTS
Tier 1 $ 9,449 $ 8,407 $ 9,188
Total risk-based 10,146 9,024 9.766
ASSETS
Risk-weighted assets $ 81,673 $ 74,197 $59,069
Average tangible assets 133,231 129,226 99,940
CAPITAL RATIOS
Tier 1 risk-based capital 11.57% 11.30% 15.60%
Total risk-based capital 12.42% 12.20% 16.50%
Leverage 7.09% 6.50% 9.20%
MINIMUM REGULATORY GUIDELINES
Tier 1 risk - based capital 4.00% 4.00% 4.00%
Total risk - based capital 8.00% 8.00% 8.00%
Leverage 4.00% 4.00% 4.00%
</TABLE>
64
<PAGE> 67
Liquidity and Interest Rate Sensitivity. The liquidity of a banking institution
reflects its ability to provide funds to meet loan requests, to accommodate
possible outflows of deposits, and to take advantage of interest rate market
opportunities. Funding of loan requests, providing for liability outflows, and
management of interest rate fluctuations require continuous analysis in order
to match the maturities of specific categories of short-term loans and
investments with specific types of deposits. Chippewa Bank's liquidity is thus
normally considered in terms of the nature and mix of the institution's sources
and uses of funds.
Deposits are the primary source of Chippewa Bank's funds for lending and
investing activities. Secondary sources of funds are derived from loan
repayments, investment maturities, available borrowing lines of credit with the
Federal Home Loan Bank of Cincinnati, Ohio, and short-term borrowings in the
form of securities sold under agreement to repurchase and federal funds
purchased from independent third parties. Loan repayments can be considered a
relatively stable funding source, while deposit activity is greatly influenced
by interest rates and general market conditions. Chippewa also has access to
funds from the Federal Reserve Bank discount window.
Chippewa Bank offers a wide variety of retail deposit account products to both
consumer and commercial deposit customers. Time deposits, consisting primarily
of retail fixed-rate certificates of deposit comprise 45.6% of the total
deposit portfolio at September 30, 1997. Core deposits considered to be
noninterest bearing and interest-bearing demand deposit accounts, savings
deposits, and money market accounts comprised 54.4% of the deposit portfolio at
September 30, 1997. Chippewa intends to continue to emphasize retail deposits
as its primary source of funds. Deposit products are promoted in periodic
newspaper and radio advertisements, along with notices provided in customer
account statements. Chippewa does not broker certificates of deposits and held
no such deposits at September 30, 1997.
Chippewa pays interest rates on its interest-bearing deposit products that are
competitive with rates offered by other financial institutions in its market
area. Interest rates on deposits are reviewed weekly by management considering
a number of factors including (1) Chippewa's internal cost of funds; (2) rates
offered by competition; (3) investing and lending opportunities; and (4)
Chippewa's liquidity position.
Chippewa anticipates that it will have sufficient funds available to meet the
needs of its customers for deposit repayments and loan fundings. At September
30, 1997, loan and letter of credit commitments totaled $ 10.5 million. These
commitments are in the form of personal and commercial lines of credit,
undisbursed construction loans, and letters of credit. Certificates of deposit
scheduled to mature in one year or less totaled $ 34.2 million at September
30, 1997; however, historically these deposits have renewed with Chippewa, and
management anticipates that this trend will continue since Chippewa offers
competitive rates of interest and instrument terms with those offered by other
financial institutions in its market area.
Closely related to the concept of liquidity is the management of
interest-earning assets and interest-bearing liabilities. Chippewa manages its
rate sensitivity position to minimize fluctuation in the net interest margin
and to minimize the risk due to changes in interest rates, thereby attempting
to achieve consistent growth of net interest income.
The difference between a financial institution's interest rate sensitive assets
and interest rate sensitive liabilities is commonly referred to as its "gap" or
"interest rate sensitivity gap." An institution having more interest rate
sensitive assets than interest rate sensitive liabilities within a given time
period is said to have a "positive gap"; an institution having more interest
rate sensitive liabilities than interest rate sensitive assets within a given
time period is said to have a "negative gap."
65
<PAGE> 68
The table below is presented in conformity with industry practice and reflects
Chippewa's interest rate sensitivity position by selected periods:
Results of Operations
<TABLE>
<CAPTION>
ASSET & LIABILITY INTEREST RATE SENSITIVITY
(In thousands)
3 months to One to Over Five
0-3 Months One Year Five Years Years Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Earning Assets:
Federal funds sold $1,220 $ - $ - $ - $1,220
Investment securities 3,161 2,101 24,865 16,421 46,548
Loans 17,159 21,077 20,221 20,460 78,917
------- ------- ------- ------- --------
Total Interest Earning Assets $21,540 $23,178 $45,086 $36,881 $126,685
======= ======= ======= ======= ========
Interest-Bearing Liabilities:
Deposits $64,660 $21,948 $18,887 $193 $105,688
Securities sold under
Agreements to repurchase 6,942 6,942
Short-term borrowings 470 470
------- --------
Total Interest Bearing Liabilities $72,072 $21,948 $18,887 $193 $113,100
------- ------- ------- ------- --------
Period GAP ($50,532) $1,230 $26,199 $36,688 $13,585
Cumulative Gap ($50,532) ($49,302) ($23,103) $13,585
Cumulative GAP as a Percent of
Total Assets -36.90% -36.00% -16.87% 9.92%
</TABLE>
Note - Information was developed for the table using actual loan, investment,
and certificate of deposit maturity, repricing or payment amortization data as
generated internally by the Chippewa Bank's core application systems. Demand,
savings and money market deposit accounts were considered immediately
repricable, and were placed in the "0-3 month" category. There were no
prepayment or decay rates assumptions used in developing the table.
Net interest income represents the difference between the interest and fees
earned on interest-bearing assets and the interest paid on interest-bearing
liabilities. Net interest income is affected by changes in the volume of
interest-earning assets and interest-bearing liabilities and changes in
interest yields and rates. Interest on certain loans and obligations of state
and political subdivisions' investment securities are not subject to federal
income tax. As such, the stated (pre-tax) yield on these securities is lower
than the yields on taxable securities of similar risk and maturity. In order
to make the pre-tax yields comparable to taxable investment securities, the
yields on such loans and securities have been shown in a tax equivalent manner
in the following tables. This adjustment has been calculated using the U. S.
federal statutory income tax rate of 34% for the nine months ended September
30, 1997 and 1996, and the years ended December 31, 1996, 1995, and 1994.
The average balance sheet and net interest income analysis for the nine months
ended September 30, 1997 and 1996 and for the years ended December 31, 1996,
1995, and 1994, is as follows:
66
<PAGE> 69
<TABLE>
<CAPTION>
September 30
----------------------------------------------------------------------------------------
1997 (2) 1996 (2)
-----------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-----------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans(1) $74,264 $5,020 9.02% $61,638 $4,233 9.17%
Taxable investment securities 40,243 1,895 6.28% 39,966 1,807 6.03%
Tax-exempt investment securities 7,099 283 8.05% 6,992 282 8.14%
Federal funds sold 1,330 55 5.51% 3,290 134 5.43%
--------------------- -------------------------
Total interest-earning assets 122,936 7,253 7.87% 111,886 6,456 7.69%
Noninterest-earning assets
Cash and due from banks 4,799 4,385
Premises and equipment 2,313 2,260
Other assets 3,010 2,504
Less allowance for loan losses 649 602
-------- --------
$132,409 $120,433
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $13,709 $257 2.50% $12,766 $237 2.48%
Money market accounts 5,705 114 2.66% 6,863 136 2.64%
Savings deposits 33,214 803 3.22% 28,007 647 3.08%
Time deposits 51,018 2,116 5.53% 46,357 1,959 5.63%
Securities sold under agreement to
repurchase 4,990 160 4.28% 4,509 144 4.26%
Short-term borrowings 456 20 5.85% 332 16 6.43%
Long-term borrowings 71 5 9.39% 354 23 8.65%
--------------------- -------------------------
Total interest-bearing liabilities 109,163 3,475 4.24% 99,188 3,162 4.25%
Noninterest-bearing liabilities:
Demand deposits 11,783 10,926
Other 885 813
Shareholders' equity 10,578 9,506
-------- --------
$132,409 $120,433
========------------- ========----------------
Net interest income $3,778 $3,294
====== ======
Net yield on interest-earning assets(3) 4.10% 3.93%
Interest rate spread(4) 3.63% 3.44%
Ratio of average interest-earning 112.62% 112.80%
assets to average interest-bearing
liabilities
- -----------------------------------------------
(1) Average balances include non-accrual loans.
(2) Tax equivalent adjustments have been made to yields on loans and securities that are exempt from federal income tax.
(3) Net yield on interest - earning assets represents net interest income as a percentage of average interest - earning assets.
(4) Interest rate spread represents the difference between the average yield on interest - earning assets and the
cost of interest-bearing liabilities.
</TABLE>
67
<PAGE> 70
<TABLE>
<CAPTION>
December 31
------------------------------------
1996 (2)
------------------------------------
Average Yield/
Balance Interest Rate
------------------------------------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans(1) $63,349 $5,842 9.23%
Taxable investment securities 41,051 2,443 5.95%
Tax-exempt investment securities 7,039 378 8.13%
Federal funds sold 2,825 153 5.42%
-------------------
Total interest-earning assets 114,264 8,816 7.72%
Noninterest-earning assets
Cash and due from banks 4,454
Premises and equipment 2,287
Other assets 2,647
Less allowance for loan losses 602
--------
$123,050
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $13,108 $327 2.49%
Money market accounts 6,845 183 2.67%
Savings deposits 28,974 903 3.12%
Time deposits 47,118 2,654 5.63%
Securities sold under agreement
to repurchase 4,737 205 4.33%
Short-term borrowings 316 19 6.01%
Long-term borrowings 318 28 8.81%
-------------------
Total interest-bearing liabilities 101,416 4,319 4.26%
Noninterest-bearing liabilities:
Demand deposits 11,176
Other 831
Shareholders' equity 9,627
-------------------
$123,050
========
Net interest income $4,497
=======
Net yield on interest-earning assets(3) 3.94%
Interest rate spread(4) 3.46%
Ratio of average interest-earning
assets to average interest-bearing liabilities 112.67%
<CAPTION>
December 31
------------------------------------
1995 (2)
------------------------------------
Average Yield/
Balance Interest Rate
------------------------------------
(In thousands)
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans(1) $55,485 $5,105 9.53%
Taxable investment securities 24,229 1,347 5.56%
Tax-exempt investment securities 6,413 350 8.27%
Federal funds sold 2,289 131 5.72%
----------------------
Total interest-earning assets 88,416 6,933 7.84%
Noninterest-earning assets
Cash and due from banks 3,668
Premises and equipment 1,799
Other assets 1,062
Less allowance for loan losses 527
--------
$94,418
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $9,856 $248 2.52%
Money market accounts 7,984 230 2.88%
Savings deposits 21,642 586 2.71%
Time deposits 31,282 1,798 5.75%
Securities sold under agreement
to repurchase 4,298 205 4.77%
Short-term borrowings 298 17 5.70%
Long-term borrowings 531 50 9.42%
----------------------
Total interest-bearing liabilities 75,891 3,134 4.13%
Noninterest-bearing liabilities:
Demand deposits 9,196
Other 574
Shareholders' equity 8,757
----------------------
$94,418
=========
Net interest income $3,799
=======
Net yield on interest-earning assets(3) 4.30%
Interest rate spread(4) 3.71%
Ratio of average interest-earning
assets to average interest-bearing liabilities 116.50%
<CAPTION>
December 31
------------------------------------
1994 (2)
------------------------------------
Average Yield/
Balance Interest Rate
------------------------------------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans(1) $47,469 $3,958 8.37%
Taxable investment securities 24,804 1,294 5.22%
Tax-exempt investment securities 6,345 347 8.29%
Federal funds sold 2,029 86 4.24%
---------------------
Total interest-earning assets 80,647 5,685 7.05%
Noninterest-earning assets
Cash and due from banks 3,132
Premises and equipment 1,331
Other assets 963
Less allowance for loan losses 486
-------
$85,587
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $8,529 $214 2.51%
Money market accounts 8,569 235 2.74%
Savings deposits 24,057 658 2.74%
Time deposits 22,847 1,019 4.46%
Securities sold under agreement
to repurchase 3,454 109 3.16%
Short-term borrowings 248 11 4.44%
Long-term borrowings 93 7 7.53%
---------------------
Total interest-bearing liabilities 67,797 2,253 3.32%
Noninterest-bearing liabilities:
Demand deposits 8,941
Other 317
Shareholders' equity 8,532
---------------------
$85,587
=======
Net interest income $3,432
======
Net yield on interest-earning assets (3) 4.26%
Interest rate spread(4) 3.73%
Ratio of average interest-earning
assets to average interest-bearing liabilities 118.95%
</TABLE>
- -----------------------------
68
<PAGE> 71
<TABLE>
<S> <C>
(1) Average balances include non-accrual loans.
(2) Tax equivalent adjustments have been made to yields on loans and securities that are exempt from federal income tax.
(3) Net yield on interest-earning assets represents net interest income as a percentage of average interest - earning assets.
(4) Interest rate spread represents the difference between the average yield on interest-earning assets and the cost of
interest-bearing liabilities.
</TABLE>
69
<PAGE> 72
The following tables set forth for the periods indicated a summary of the
changes in interest earned and interest paid resulting from changes in volume
and changes in rate:
For each category of our interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume ( changes in volume multiplied by old rate), (ii) changes in rate
(changes in rate multiplied by old volume), and (iii) the change in interest
due to both volume and rate, which has been allocated to volume and rate
changes in proportion to the relationship of the absolute dollar amounts of the
change in each.
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31,
1997 vs 1996 1996 vs 1995
Increase (Decrease) Due to Increase (Decrease) Due to
--------------------------------- ----------------------------------
Volume Rate Net Volume Rate Net
--------------------------------- ----------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans $853 ($66) $787 $940 ($203) $737
Taxable investment securities 13 75 88 995 101 1,096
Tax-exempt investment securities 3 (2) 1 34 (6) 28
Federal funds sold (81) 2 (79) 28 (6) 22
---- ----- ---- ------ ----- ------
Total interest-earning assets $788 $9 $797 $1,997 ($114) $1,883
Interest paid on:
Demand deposits 18 2 20 81 (2) 79
Money market accounts (24) 2 (22) (31) (16) (47)
Savings deposits 125 31 156 220 97 317
Time deposits 192 (35) 157 891 (35) 856
Securities sold under agreement to
repurchase 15 1 16 19 (19) 0
Short-term borrowings 5 (1) 4 1 1 2
Long-term borrowings (20) 2 (18) (19) (3) (22)
---- ----- ---- ------ ----- ------
Total interest-bearing liabilities $311 $2 $313 $1,162 $23 $1,185
---- ------
Change in net interest income $484 $698
---- ------
</TABLE>
Comparison of the year ended December 31, 1996 and 1995
Net Income. Net income amounted to $1.0 million or $2.18 per share in 1996,
representing an increase of 7.2% from $913,000 or $2.04 per share in 1995. The
return on average assets was .79% for 1996 and .97% for 1995. The return on
average equity was 10.16% in 1996 compared to 10.43% in 1995.
Net Interest Income. Net interest income increased $698,000 or 18.4% in 1996
as compared to 1995. The net yield on interest-earning assets decreased by 36
basis points (1% equals 100 basis points) to 3.94%, while the average balance
of interest-earning assets increased by $25.8 million or 29.2%.
70
<PAGE> 73
Although the net yield on interest-earning assets declined, accounting for a
decline in net interest income of $138,000, the increase in average earning
assets resulted in an increase in net interest income of $836,000.
As discussed above, Chippewa acquired two branch offices and experienced strong
growth during the year. The funds obtained from these transactions are
primarily being used to fund current loan demand as evidenced by average loans
increasing by $7.9 million. Funds not used immediately to fund loan demand are
being invested in short-term investment, and mortgage-backed securities,
average investment securities increased by $17.4 million. These funds were
invested in short-term investment securities to provide liquidity for future
loan demand, while still obtaining an adequate rate of return.
Provision for Loan Losses. The provision for loan losses amounted to $120,000
for 1996 compared to $110,000 in 1995. The increase in the provision is
primarily the result of the loan growth in 1996. Historically, Chippewa has
experienced minimal net charge-offs relating to real estate loans, however
management recognizes that consumer lending inherently possesses a greater
degree of risk of loss. Net charge-offs were only $81,000 in 1996 and $21,000
in 1995.
Noninterest Income. Noninterest income increased $76,000 or 15.6% in 1996
compared to 1995. Noninterest income is primarily made up of service charges
on deposit accounts and other service charges and fees. Service charges on
deposit accounts increased by $50,000 as a result of an increased level of
demand deposit accounts due to the two branch offices acquired during the first
quarter of 1996. Management believes the level of service charges are
competitive with other local community financial institutions. Other service
charges which are primarily made up of credit card service fees and merchant
credit card processing fees, increased by $24,000, due to an increase in
merchant accounts being processed in 1996.
Noninterest Expense. Noninterest expense increased by $687,000 in 1996
compared to 1995. The increase was primarily the result of increases in
salaries and employee benefits of $267,000, occupancy of $56,000, furniture and
equipment of $49,000, intangible asset amortization of $204,000 and other
expenses of $183,000; offset by a decrease in federal deposit insurance
premiums of $85,000.
The increase in salary and employee benefits, occupancy, furniture and
equipment, and other expenses was primarily the direct result of the two branch
acquisitions, as well as normal annual increases. The intangible asset
amortization relating to the branch acquisitions is made up of two segments,
goodwill which is being amortized on a straight-line basis over 15 years and
core deposit which is being amortized on a straight-line basis over 6 years
which corresponds to the average deposit life expectancy. Additionally, the
intangible asset amortization includes a one-time charge of $85,000 which
represents a payment made by the Bank as part of the purchase arrangement for
the branch offices. The payment represents the selling institutions special
one-time Federal Deposit Insurance Corporation insurance assessment which was
paid in October, 1996.
The decline in the FDIC insurance premiums were due to reduced insurance rates
from 23 basis points to 4 basis points which resulted in a savings of $85,000
to the Bank. The FDIC insurance rate was reduced as a result of the Bank
Insurance Fund reaching its required level of capitalization.
Federal Income Taxes. Federal income tax expense increased $13,000 to $328,000
in 1996, as a result of a higher level of pre-tax income partially offset by
higher levels of tax-exempt income. The 1996 effective tax rate of 25.1% was
below the 34% statutory rate primarily as a result of tax-exempt interest.
Comparison of the Nine Months Ended September 30, 1997 and 1996
Net Income. Net income amounted to $1.0 million or $2.22 per share in 1997,
representing an increase of 35.2% from the $735,000 or $1.64 per share in 1996.
The annualized return on average assets was 1.00% for 1997 and .81% for 1996.
The annualized return on average equity was 12.53% in 1997 compared to 10.31%
in 1996.
71
<PAGE> 74
Net Interest Income. Net interest income increased $484,000 or 14.7% in 1997
as compared to 1996. The net yield on interest-earning assets increased by 17
basis points to 4.10%, while the average balance of interest-earning assets
increased by $11.1 million or 9.9%.
Total interest income increased $797,000 which is primarily the result of the
increased levels of interest-earning assets. As discussed above, Chippewa
acquired two branches at the end of the first quarter in 1996, as well as
experienced strong levels of internal growth during 1996, providing additional
investable funds.
Total interest expense increased by $313,000 primarily as a result of the
growth in deposits, as discussed above. The total growth in interest-bearing
liabilities amounted to $10.0 million, of which $9.7 million was in deposit
products.
Provision for Loan Losses. The provision for loan losses amounted to $94,500
for 1997 compared to $90,000 in 1996. The increase in the provision continues
to result primarily from the increases in the loan portfolio. The increases in
the loan portfolio continue to be comprised primarily of residential real
estate mortgages.
Noninterest Income. Noninterest income increased $77,000 or 18.4% in 1997
compared to 1996. The increase was attributable to increased levels of service
charges on deposit accounts of $12,000, other service charges and fees of
$37,000 and other income of $27,000.
The increase in service charges on deposit accounts is the result of additional
deposit accounts acquired. The primary increases in other service charges and
fees related to ATM surcharges and interchange fees on debit cards, which had
not previously been charged by the Bank of $16,000 and $11,000, respectively
and continued increased levels of merchant credit card charges of $7,000. The
increase in other income relates to increased rental income from Specialized
Investments Division, a wholly owned subsidiary of Financial Services
Corporation of Atlanta, Georgia of $30,000. Chippewa rents work space at
certain branch offices to representatives of Specialized Investments Division
to provide counseling on alternative investment opportunities to its customer
base.
Noninterest Expense. Noninterest expense increased by $177,000 in 1997
compared to 1996. The increase was primarily the result of increases in
salaries and employee benefits of $88,000, occupancy expenses of $32,000 and
intangible asset amortization of $40,000.
The increases in salaries and employee benefits and occupancy were a result of
increased levels of employees and branch offices resulting from the branches
acquired and normal operating expense increases.
The increase in intangible asset amortization was the result of the intangible
being amortized for a longer period in 1997. The two branches were acquired in
late March 1996, therefore nine months amortization occurred in 1997 and six
months amortization occurred in 1996.
Federal Income Taxes. Federal income tax expense increased $121,000 to
$382,000 in 1997, as a result of higher levels of pre-tax income. The 1997
effective tax rate of 27.7% was below the 34% statutory rate primarily as a
result of tax-exempt interest.
Comparison of the three months ended September 30, 1997 and 1996
Net Income. Net income amounted to $327,000 or $.73 per share in 1997,
representing an increase of 28.0% from the $256,000 or $.57 per share in 1996.
Net Interest Income. Net interest income increased $125,000 or 10.9% in 1997
as compared to 1996. As discussed above, Chippewa's deposits had strong growth
throughout 1996, resulting in additional investable funds earning at rates
above those paid on deposits used for funding purposes.
72
<PAGE> 75
Provision for Loan Losses. The provision for loan losses amounted to $31,500
for 1997 compared to $30,000 in 1996. As discussed above the level of the
provision for loan losses has primarily been effected by growth in the loan
portfolio, mitigated by the continued low levels of nonperforming loans.
Noninterest Income. Noninterest income increased $27,000 or 19.1% in 1997
compared to 1996. This increase was primarily made of increased levels of
interchange debit card fees and merchant credit card fees.
Noninterest Expense. Noninterest expense increased by $44,000 in 1997 compared
to 1996. Salaries and benefits increased by $39,000 or 8.5% as a part of
normal annual salary and benefit increases. All other noninterest expenses had
nominal fluctuations which were considered normal economic increases.
Federal Income Taxes. Federal income tax expense increased $34,000 to $125,000
in 1997, as a result of higher levels of pre-tax income. The 1997 effective
tax rate of 27.6% was below the 34% statutory rate primarily as a result of
tax-exempt interest.
LEGAL OPINIONS
Certain legal matters in connection with the Merger will be passed upon
for Wayne by Werner & Blank Co., L.P.A., Toledo, Ohio and for Chippewa by
Dinsmore & Shohl, LLP, Cincinnati, Ohio.
EXPERTS
The consolidated financial statements of Wayne as of December 31, 1996 and
1995 and for each of the three years in the period ended December 31, 1996
incorporated by reference into this Proxy Statement-Prospectus have been
audited by Crowe-Chizek and Company LLP, independent auditors, as stated in
their reports which are incorporated herein by reference, and have been so
incorporated in reliance upon reports of such firms given upon their authority
as experts in accounting and auditing.
The consolidated financial statements of Chippewa as of December 31, 1996
and 1995, and for each of the years in the period ended December 31, 1996,
included in this Proxy Statement-Prospectus have been audited by S. R.
Snodgrass, A.C., independent auditors, as stated in their report which is
contained herein in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
73
<PAGE> 76
CHIPPEWA VALLEY BANCSHARES, INC. AND SUBSIDIARY
INDEX TO THE CONSOLIDATED FIANANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors................................... F-1
Consolidated Balance Sheet as of December 31, 1996 and 1995...... F-2
Consolidated Statement of Income for the Years
Ended December 31, 1996 and 1995.............................. F-3
Consolidated Statement of Changes in Stockholders' Equity
for the Years Ended December 31, 1996 and 1995................ F-4
Consolidated Statement of Cash Flows for the
Years Ended December 31, 1996 and 1995........................ F-5
Notes to Consolidated Financial Statements....................... F-6
Unaudited Consolidated Balance Sheet as of
September 30, 1997 and December 31, 1996...................... S-1
Unaudited Consolidated Statement of Income for the Three and Nine
Months ended September 30, 1997 and 1996...................... S-2
Unaudited Consolidated Statement of Changes in Stockholders'
Equity for the Nine Months ended September 30, 1997........... S-3
Unaudited Consolidated Statement of Cash Flows for the
Nine Months ended September 30, 1997 and 1996................. S-4
Notes to Unaudited Consolidated Financial Statements............. S-5
</TABLE>
<PAGE> 77
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Chippewa Valley Bancshares, Inc.
We have audited the consolidated balance sheet of Chippewa Valley Bancshares,
Inc. and Subsidiary as of December 31, 1996 and 1995 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those tandards 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 Chippewa
Valley Bancshares, Inc. and Subsidiary as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles.
As explained in the notes to the consolidated financial statements, effective
January 1, 1995, the Company changed its method of accounting for impaired
loans and the related allowance for loan losses.
/s/ S.R. Snodgrass, A.C.
Wexford, PA
February 7, 1997
except for Note 17,
as to which the date is
October 13, 1997.
F-1
<PAGE> 78
CHIPPEWA VALLEY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,840,547 $ 4,344,307
Federal funds sold - 3,810,000
Investment securities:
Available for sale 29,171,332 13,378,215
Held to maturity (approximate market value of
$21,831,624 and $18,790,298) 21,763,420 18,601,263
Loans 70,195,083 58,882,912
Less allowance for loan losses 616,621 578,046
-------------- --------------
Net loans 69,578,462 58,304,866
Premises and equipment 2,341,802 1,943,271
Intangible assets 1,624,284 -
Accrued interest and other assets 1,278,088 957,643
-------------- --------------
TOTAL ASSETS $ 131,597,935 $ 101,339,565
============== ==============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 12,493,907 $ 9,947,258
Interest-bearing demand 14,748,319 10,776,868
Savings 31,968,696 21,579,852
Money market 6,671,868 7,394,879
Time 49,069,931 36,261,337
-------------- --------------
Total deposits 114,952,721 85,960,194
Securities sold under agreement to repurchase 5,188,863 5,012,840
Short-term borrowings 341,542 14,818
Long-term borrowings 213,333 426,667
Accrued interest and other liabilities 798,662 666,428
-------------- --------------
TOTAL LIABILITIES 121,495,121 92,080,947
-------------- --------------
STOCKHOLDERS' EQUITY
Common stock, $1.25 stated value; 500,000 shares
authorized; 480,000 shares issued 600,000 600,000
Surplus 700,000 700,000
Retained earnings 9,384,680 8,541,328
Net unrealized gain on securities 71,094 70,250
Treasury Stock, at cost (32,000 shares) (652,960) (652,960)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 10,102,814 9,258,618
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 131,597,935 $ 101,339,565
============== ==============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-2
<PAGE> 79
CHIPPEWA VALLEY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
------------ ------------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 5,841,737 $ 5,105,572
Federal funds sold 153,361 131,184
Investment securities:
Taxable 2,442,834 1,346,809
Exempt from federal income tax 378,437 349,513
------------ ------------
Total interest income 8,816,369 6,933,078
------------ ------------
INTEREST EXPENSE
Deposits 4,066,804 2,862,765
Securities sold under agreement to repurchase 204,870 204,899
Short-term borrowings 18,691 16,913
Long-term borrowings 28,100 49,680
------------ ------------
Total interest expense 4,318,465 3,134,257
------------ ------------
NET INTEREST INCOME 4,497,904 3,798,821
Provision for loan losses 120,000 110,000
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,377,904 3,688,821
------------ ------------
NONINTEREST INCOME
Service fees on deposit accounts 389,369 339,274
Other service charges and fees 139,583 115,570
Securities losses, net (1,957) (78)
Other 36,626 32,828
------------ ------------
Total noninterest income 563,621 487,594
------------ ------------
NONINTEREST EXPENSE
Salaries and employee benefits 1,784,001 1,516,522
Occupancy 244,242 188,161
Furniture and equipment 297,069 248,544
Federal deposit insurance premiums 2,000 87,149
State franchise tax 145,959 133,268
Intangible asset amortization 204,216 -
Other 958,343 775,099
------------ ------------
Total noninterest expense 3,635,830 2,948,743
------------ ------------
Income before income taxes 1,305,695 1,227,672
Income taxes 327,943 315,324
------------ ------------
NET INCOME $ 977,752 $ 912,348
============ ============
EARNINGS PER SHARE $ 2.18 $ 2.04
AVERAGE SHARES OUTSTANDING 448,000 448,000
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE> 80
CHIPPEWA VALLEY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized
Common Retained Gain (Loss) Treasury
Stock Surplus Earnings on Securities Stock Total
------ ------- -------- ------------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 600,000 $ 700,000 $ 7,752,180 $ (136,240) $ (652,960) $ 8,262,980
Net income 912,348 912,348
Cash dividends ($.28 per share) (123,200) (123,200)
Net unrealized gain on securities 206,490 206,490
---------- ---------- ------------ ------------ ----------- -----------
Balance, December 31, 1995 600,000 700,000 8,541,328 70,250 (652,960) 9,258,618
Net income 977,752 977,752
Cash dividends ($.30 per share) (134,400) (134,400)
Net unrealized gain on securities 844 844
---------- ---------- ------------ ------------ ----------- -----------
Balance, December 31, 1996 $ 600,000 $ 700,000 $ 9,384,680 $ 71,094 $ (652,960) $10,102,814
========== ========== ============ ============ =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 81
CHIPPEWA VALLEY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 977,752 $ 912,348
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 120,000 110,000
Depreciation and amortization 541,552 181,158
Deferred income taxes (1,440) (11,772)
Investment securities losses, net 1,957 78
Increase in accrued interest receivable (347,105) (121,200)
Increase in accrued interest payable 48,026 71,506
Other, net 111,873 128,582
-------------- --------------
Net cash provided by operating activities 1,452,615 1,270,700
-------------- --------------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from sales 497,773 499,922
Proceeds from maturities and repayments 5,832,311 3,767,412
Purchases (22,119,776) (958,972)
Investment securities held to maturity:
Proceeds from maturities and repayments 10,425,185 3,348,501
Purchases (13,676,166) (6,693,495)
Net loan originations (10,007,866) (9,325,670)
Purchase of premises and equipment (339,401) (609,708)
Branch office acquisitions:
Purchase of loans (1,383,885) 0
Purchase of premises and equipment (313,591) 0
Net deposit proceeds 22,947,060 0
-------------- --------------
Net cash used for investing activities (8,138,356) (9,972,010)
-------------- --------------
FINANCING ACTIVITIES
Net increase in deposits 4,216,967 9,674,744
Net increase in securities sold under agreement to repurchase 176,023 1,572,679
Net increase (decrease) in short-term borrowings 326,724 (259,650)
Repayment of long-term borrowings (213,333) (213,333)
Cash dividends paid (134,400) (123,200)
-------------- --------------
Net cash provided by financing activities 4,371,981 10,651,240
-------------- --------------
Increase (decrease) in cash and cash equivalents (2,313,760) 1,949,930
-------------- --------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,154,307 6,204,377
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,840,547 $ 8,154,307
============== ==============
See accompanying notes to the consolidated financial statements.
</TABLE>
F-5
<PAGE> 82
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Chippewa Valley Bancshares, Inc. (Company) is an Ohio corporation organized
as the holding company of Chippewa Valley Bank (Bank). The Company has no
other investments. The Bank is a state-chartered bank located in Rittman,
Ohio. The Bank's principal sources of revenues emanate from its portfolio
of residential real estate, commercial mortgage, commercial and consumer
loans, as well as a variety of deposit services to its customers through
nine locations. The Company is supervised by the Board of Governors of the
Federal Reserve System, while the Bank is also subject to regulation and
supervision by the Ohio Division of Banks.
BASIS OF PRESENTATION
The consolidated financial statements of the Company include its
wholly-owned subsidiary, the Bank. All intercompany items have been
eliminated in consolidation. The investment in subsidiary on the Company's
financial statements is carried at its equity position in the underlying net
assets of the Bank.
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the 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 balance
sheet and revenues and expenses for the period. Actual results could differ
significantly from those estimates.
A summary of the significant accounting and reporting policies applied in
the presentation of the accompanying financial statements follows:
INVESTMENT SECURITIES
The Bank has classified investment securities into two categories:
Held to Maturity and Available for Sale. Debt securities acquired with
the intent to hold to maturity are stated at cost adjusted for amortization
of premium and accretion of discount, which are computed using the interest
method and recognized as adjustments of interest income. Certain other debt
and equity securities have been classified as available for sale, to serve
principally for liquidity purposes. Unrealized holding gains and losses for
available for sale securities are reported as a separate component of
stockholders' equity, net of tax, until realized. Realized securities gains
and losses are computed using the specific identification method. Interest
and dividends on securities are recognized as income when earned.
Common stock of the Federal Reserve Bank, Federal Home Loan Bank, and
Independent State Bank of Ohio represents ownership in institutions which
are wholly-owned by other financial institutions. These equity securities
are accounted for at cost.
LOANS
Loans are reported at their principal amount, net of the allowance for loan
losses. Interest on all loans is recognized as income when earned on the
accrual method. The accrual of interest is discontinued on a loan when
management believes, after considering economic and business conditions,
that the borrowers' financial condition is such that collection of interest
is doubtful. Interest payments received on nonaccrual loans is recorded as
income or applied against principal according to management's judgment as
to the collectibility of such principal.
F-6
<PAGE> 83
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS (CONTINUED)
Loan origination fees and certain direct loan origination costs are being
deferred and the net amount amortized as an adjustment of the related loan
yield. The Bank is amortizing these amounts over the contractual lives of
the related loans.
ALLOWANCE OF LOAN LOSSES
Effective January 1, 1995, the Bank adopted statement of Financial
Accounting Standards Statement No. 114 "Accounting by Creditors for
Impairment of a Loan" as amended by Statement No. 118. Under this Standard,
the Bank estimates credit losses on impaired loans based on the present
value of expected cash flows or the fair value of the underlying collateral
if the loan repayment is expected to come from the sale or operation of such
collateral. The adoption of Statements No. 114 and No. 118 had no material
effect on the Bank's financial position or results of operations. For
purposes of this Standard, nonaccrual commercial and commercial real estate
loans are considered to be impaired.
The Bank uses the allowance method in providing for loan losses.
Accordingly, all loan losses are charged to the allowance and all recoveries
are credited to it. The allowance for loan losses is established through a
provision for loan losses charged to operations. The allowance is
maintained at a level believed by management to be sufficient to absorb
estimated potential credit losses. Management's determination of the
adequacy of the allowance is based on periodic evaluations of the credit
portfolio and other relevant factors. This evaluation is inherently
subjective as it requires material estimates, including the amounts and
timing of expected future cash flows on impaired loans, which may be
susceptible to significant change. The allowance for loan losses on
impaired loans is one component of the methodology for determining the
allowance for loan losses. The remaining components of the allowance for
loan losses provide for estimated losses on commercial loans, consumer
loans, real estate mortgages, and general amounts for historical loss
experience, uncertainties in estimating losses and inherent risks in the
various credit portfolio.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, net of accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated
useful lives of the assets. Expenditures for maintenance and repairs are
charged against income as incurred. Costs of major additions and
improvements are capitalized.
INTANGIBLE ASSETS
As of December 31, 1996, intangible assets are comprised of goodwill and
core deposit amortization periods of acquisition premiums. Prior to 1996,
there were no intangible assets. Goodwill is amortized intangible assets
are made to using the straight line method over a fifteen year period. Core
deposit acquisition premiums, determine possible carrying which were
developed by specific core deposit life studies, are amortized using the
straight-line value impairment, and method over six years. Annual
assessments of the carrying values and remaining appropriate adjustments,
as deemed necessary.
EMPLOYEE BENEFITS
Salaries and employee benefits include contributions, determined
actuarially, to a defined benefit plan covering all eligible employees of
the Bank.
F-7
<PAGE> 84
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company and the Bank file a consolidated federal income tax return.
Deferred tax assets and liabilities are reflected at current enacted income
tax rates applicable to the period in which the deferred tax asset or
liabilities are expected to be realized or settled. As changes in the tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
EARNINGS PER SHARE
Earnings per share are calculated using the weighted average number of
shares outstanding for the periods.
CASH FLOW INFORMATION
The Company has defined cash equivalents as those amounts due from
depository institutions and federal funds sold.
Cash payments for interest in 1996 and 1995 were $4,270,439 and $3,062,751,
respectively. Net cash payments for income taxes in 1996 and 1995 amounted
to $274,763 and $272,047, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("the FASB") issued
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities," which provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of
liabilities. This statement applies prospectively in fiscal years beginning
after December 31, 1996, and establishes new standards that focus on control
whereas, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. The adoption of Statement
125 did not have a material impact on the Company's results of operations or
financial position at or for the nine months ended September 30, 1997.
On March 3, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings Per Share." Statement
No. 128 will become effective for the Company beginning in December 1997.
This statement re-defines the standards for computing earnings per share
("EPS") previously found in Accounting Principles Board Opinion No. 15,
Earnings Per Share. Statement No. 128 establishes new standards for
computing and presenting EPS and requires dual presentation of "basic" and
"diluted" EPS on the face of the income statement for all entities with
complex capital structures. Under Statement No. 128, basic EPS is to be
computed based upon income availability to common shareholders and the
weighted average number of common shares outstanding for the period. Diluted
EPS is to reflect the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then shared in
the earnings of the Company. Statement No. 128 also requires the
restatement of all prior-period EPS data presented. The Company will adopt
Statement No. 128 as of December 31, 1997 and does not believe the effect of
adoption will have an impact on the Company's financial position, results of
operations or disclosures thereon.
F-8
<PAGE> 85
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In July 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
Statement No. 130 is effective for fiscal years beginning after December 15,
1997. This statement establishes standards for reporting and the
presentation of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general purpose financial statements. It
requires that all items that are required to be recognized under accounting
standards as
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
Components of comprehensive income be reported in a financial statement that
is presented with the same prominence as other financial statements.
Statement No. 130 requires that companies (i) classify items of other
comprehensive income by their nature in a financial statement and (ii)
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section
of the statement of financial condition. Reclassification of financial
statements for earlier periods provided for comprehensive purposes is
required.
2. BRANCH ACQUISITION
On March 23, 1996, the Bank, pursuant to a purchase and assumption agreement
entered into with First National Bank of Ohio (Seller), assumed deposit
liabilities and acquired the branch banking properties,facilities, all cash
funds on hand and selected commercial and consumer loans of the Doylestown
and Clinton, Ohio operations. As part of the purchase arrangement, the Bank
paid in addition to a core deposit acquisition premium, an amount equal to
the Seller's liability for the special one-time Federal Deposit Insurance
Corporation insurance assessment, which was paid in October, 1996. The
assessment was calculated based upon certain deposits assumed at the
Doylestown branch office, and amounted to $84,620. The assessment was
expensed in 1996, and recorded as a component of the intangible asset
amortization classification in the consolidated statement of income.
F-9
<PAGE> 86
3. INVESTMENT SECURITIES
In December, 1995, in accordance with the Financial Accounting Standards
Board Special Report "A Guide to Implementation of Statement No. 115 on
Accounting for Certain Investments in Debt and Equity Securities," the Bank
reclassified investment securities from the held to maturity classification
to the available for sale classification with an amortized cost of
$6,564,720 and an estimated market value of $6,604,281.
The amortized cost and estimated market values of investment securities
available for sale are as follows:
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 14,423,694 $ 85,681 $ - $ 14,509,375
Obligations of U. S. Government
agencies and corporations 6,902,130 51,738 (330) 6,953,538
Mortgage-backed securities 7,369,240 17,611 (46,982) 7,339,869
------------- ------------- ------------- -------------
Total debt securities 28,695,064 155,030 (47,312) 28,802,782
Equity Securities 368,550 - - 368,550
------------- ------------- ------------- -------------
Total $ 29,063,614 $ 155,030 $ (47,312) $ 29,171,332
============= ============= ============= =============
<CAPTION>
1995
----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 9,496,438 $ 123,618 $ (11,148) $ 9,608,908
Obligations of U. S. Government
agencies and corporations 1,500,000 16,125 (1,851) 1,514,274
Mortgage-backed securities 2,215,587 16 (20,320) 2,195,283
------------- ------------- ------------- -------------
Total debt securities 13,212,025 139,759 (33,319) 13,318,465
Equity Securities 59,750 - - 59,750
------------- ------------- ------------- -------------
Total $ 13,271,775 $ 139,759 $ (33,319) $ 13,378,215
============= ============= ============= =============
</TABLE>
F-10
<PAGE> 87
3. INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated market values of investment securities held to
maturity are as follows:
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Obligations of U. S. Government
agencies and corporations $ 8,554,643 $ - $ (70,849) $ 8,483,794
Obligations of states and political
subdivisions 7,128,716 189,878 (41,748) 7,276,846
Corporate securities 6,025,629 26,916 (36,033) 6,016,512
Mortgage-backed securities 54,432 40 - 54,472
------------- ------------- ------------- -------------
Total $ 21,763,420 $ 216,834 $ (148,630) $ 21,831,624
============= ============= ============= =============
<CAPTION>
1995
----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Obligations of U. S. Government
agencies and corporations $ 7,741,896 $ 16,067 $ (35,262) $ 7,722,701
Obligations of states and political
subdivisions 6,303,030 231,384 (29,475) 6,504,939
Corporate securities 4,450,166 25,419 (19,311) 4,456,274
Mortgage-backed securities 106,171 213 - 106,384
------------- ------------- ------------- -------------
Total $ 18,601,263 $ 273,083 $ (84,048) $ 18,790,298
============= ============= ============= =============
</TABLE>
F-11
<PAGE> 88
3. INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated market values of debt securities at
December 31, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties. Mortgage-backed securities provide for periodic,
generally monthly, payments of principal and interest and have average
contractural maturities ranging from four to fifteen years.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
--------------------------------- ---------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Due in one year or less $ 7,494,744 $ 7,544,768 $ 2,233,897 $ 2,227,895
Due after one year through
five years 13,831,080 13,918,145 13,651,633 13,749,230
Due after five years through
ten years - - 5,597,739 5,583,797
Due after ten years - - 225,719 216,230
------------- ------------- ------------- -------------
21,325,824 21,462,913 21,708,988 21,777,152
Mortgage-backed securities 7,369,240 7,339,869 54,432 54,472
------------- ------------- ------------- -------------
Total $ 28,695,064 $ 28,802,782 $ 21,763,420 $ 21,831,624
============= ============= ============= =============
</TABLE>
Proceeds from the sale of debt securities available for sale and gross realized
gains and losses on those sales are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Total proceeds received $ 497,773 $ 499,922
Gross realized gains - -
Gross realized losses 1,957 78
</TABLE>
Investment securities with a carrying value of $12,506,268 and $11,526,947
at December 31, 1996 and 1995, respectively, were pledged to secure public
deposits, repurchase agreements and other purposes as required by law.
4. LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Real estate mortgages $ 44,477,401 $ 35,540,206
Consumer installment 16,065,986 15,693,050
Commercial and agriculture 9,086,436 7,044,419
Credit cards 565,260 605,237
------------- -------------
70,195,083 58,882,912
Less allowance for loan losses 616,621 578,046
------------- -------------
Net loans $ 69,578,462 $ 58,304,866
============= =============
</TABLE>
F-12
<PAGE> 89
4. LOANS (CONTINUED)
As of December 31, 1996, aggregate loans of $60,000 or more extended to
directors, executive officers and their affiliates were $437,236. In
management's opinion, all of these loans are on substantially the same terms
and conditions as loans to other individuals and businesses of comparable
creditworthiness. A summary of loan activity during the year is as follows:
<TABLE>
<CAPTION>
Balance Amounts Balance
December 31, 1995 Additions Collected December 31, 1996
- ----------------- --------- --------- -----------------
<S> <C> <C> <C>
$269,152 $238,477 $70,393 $437,236
</TABLE>
The Bank's primary business activity is with customers located within its local
trade area of Wayne and Medina Counties. Commercial, residential, personal, and
agricultural loans are granted. The Bank also selectively funds commercial and
residential loans originated outside of its immediate trade area provided such
loans meet the Bank's credit policy guidelines. Although the Bank has a
diversified loan portfolio, at December 31, 1996 and 1995, loans outstanding to
individuals dependent upon the agricultural economic sector approximated
$7,381,000 or 10.5% and $7,042,000 or 12.0% of the loan portfolio, respectively.
These loans are typically secured by residential and commercial farm real estate
and equipment. In outstanding to individuals and businesses are dependent upon
the local economic conditions in the general, loans immediate trade area.
At December 31, 1996, the recorded investment in loans which are considered to
be impaired in accordance with SFAS 114 was $2,115,000 including $563,000
considered to be nonaccrual. Included in this amount is $1,505,000 of impaired
loans for which the related allowance for loan losses is $320,000, and $610,000
of impaired loans for which no allowance for loan losses has been allocated due
to the loans being collateral dependent and the fair value of the collateral
exceeding the recorded investment in the related loans. There were no loans
considered impaired at or for the year ending December 31, 1995.
The average recorded investment in impaired loans during the year ended
December 31, 1996, was approximately $2,087,000. For the year ended December
31, 1996, interest income totaling $210,000 was recognized on impaired loans
of which $189,000 was recognized using the cash basis method of income
recognition.
5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31 are
as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Balance, January 1 $ 578,046 $ 488,656
Add:
Provision charged to operations 120,000 110,000
Recoveries 22,007 36,602
Less loans charged off 103,432 57,212
---------- ----------
Balance, December 31 $ 616,621 $ 578,046
========== ==========
</TABLE>
For federal income tax purposes the reserve for loan losses is maintained at
the maximum allowable under the Internal Revenue Code, and approximated
$163,000 at December 31, 1996 and 1995, respectively.
F-13
<PAGE> 90
6. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Land and improvements $ 377,536 $ 297,536
Buildings and improvements 1,976,535 1,699,560
Furniture, fixtures, and equipment 2,106,896 1,828,966
------------ ------------
4,460,967 3,826,062
Less accumulated depreciation 2,119,165 1,882,791
------------ ------------
Total $ 2,341,802 $ 1,943,271
============ ============
</TABLE>
Depreciation and amortization charged to operations was $254,461 in 1996
and $199,985 in 1995.
7. DEPOSITS
Time deposits include certificates of deposit in denominations of $100,000
or more. Such deposits aggregated $4,903,000 and $5,076,000 at December 31,
1996 and 1995, respectively.
8. SHORT-TERM BORROWINGS
The components of the Bank's short-term borrowings consists of federal funds
purchased and U. S. Treasury demand notes are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Balance at year end $ 341,542 $ 14,818
Maximum amount outstanding at any month end 1,285,575 5,873,050
Average balance outstanding during the year 315,931 298,528
Weighted average interest rate:
As of year end 6.16% 5.15%
Paid during the year 5.92 5.67
</TABLE>
The Bank has pledged U. S. Treasury securities with carrying values and
approximate market values of $499,910 and $501,562, respectively at December
31, 1996 and $499,702 and $505,312, respectively at December 31, 1995, as
collateral for these borrowings.
The Bank initiated a new credit arrangement with a borrowing limit at
December 31, 1996, of approximately $2,700,000 with the Federal Home Loan
Bank of Cincinnati. This credit line is subject to annual renewal, incurs
no service charges, and is secured by a blanket security agreement on
outstanding residential mortgage loans. There were no outstanding borrowings
on this line of credit during 1996.
F-14
<PAGE> 91
9. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The outstanding balances and related information for securities sold under
agreements to repurchase are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Balance at year end $ 5,188,863 $ 5,012,840
Average balance outstanding during the year 4,737,068 4,297,987
Maximum amount outstanding at any month end 5,501,361 5,873,050
Weighted average interest rate at year end 4.31% 4.51%
Weighted average interest rate during the year 4.32 4.77
</TABLE>
The repurchase agreements typically represent overnight borrowing
arrangements. The Bank has pledged U. S. Treasury securities with
carrying values and approximate market values of $6,011,000 and $6,031,000,
respectively at December 31, 1996 and $6,505,000 and $6,558,000,
respectively at December 31, 1995, as collateral for these agreements.
10. LONG-TERM BORROWINGS
On November 8, 1994, the Company initiated a commercial installment loan
with a correspondent bank for $640,000. The loan is secured by 140 shares
of Bank stock, with interest at prime plus .4%. The loan is payable in
semi-annual principal installments of $106,666, and quarterly interest
payments through October 1, 1997. The loan agreement contains covenants
requiring a minimum leverage capital ratio and earnings performance as well
as maximum levels of long-term borrowings on a consolidated basis.
Scheduled maturities for 1997 are $213,333.
11. COMMITMENTS
In the normal course of business, there are various outstanding commitments
which are not reflected in the accompanying consolidated financial
statements. Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established in
the contract. Standby letters of credit are conditional commitments issued
by the Bank to guarantee the performance of a customer to a third party.
These commitments were comprised of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Commitments to extend credit $ 9,551,389 $ 10,040,521
Standby letters of credit 137,185 119,000
------------ -------------
Total $ 9,688,574 $ 10,159,521
============ =============
</TABLE>
The instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance sheet.
Management minimizes its exposure to credit loss under these commitments by
subjecting them to credit approval, review procedures, and collateral
requirements, as deemed necessary.
F-15
<PAGE> 92
11. COMMITMENTS (CONTINUED)
Commitments to extend credit are comprised primarily of available
commercial and personal lines of credit, and unfunded loans granted. The
terms of the credit lines are typically for a one year period, with an
annual renewal option subject to prior approval by management.
Substantially all of the Bank's commitments to extend credit are
contingent upon customers maintaining specific credit standards at the
time of the loan funding in compliance with lending policy guidelines.
Management assesses the credit risk associated with certain commitments to
extend credit in determining the level of the allowance for loan losses.
Since many of the credit line commitments are expected to expire without
being drawn upon, the total contractual amounts do not necessarily
represent future funding requirements.
12. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Currently payable $ 329,383 $ 327,096
Deferred (1,440) (11,772)
---------- -----------
Total $ 327,943 $ 315,324
========== ===========
</TABLE>
The tax effects of deductible and taxable temporary differences that give
rise to significant portions of the deferred tax assets and deferred tax
liabilities, respectively, at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 154,086 $ 140,971
Intangible asset amortization 11,017 -
Employee Benefits 67,916 60,205
Other - 5,566
---------- -----------
Gross deferred tax assets 233,019 206,742
---------- -----------
Deferred tax liabilities:
Net unrealized gain on securities 36,624 36,189
Depreciation 36,627 31,029
Deferred origination fees and costs 39,291 21,684
Other 1,632 -
---------- -----------
Gross deferred tax liabilities 114,174 88,902
---------- -----------
Net deferred tax assets $ 118,845 $ 117,840
========== ===========
</TABLE>
No valuation allowance was established at December 31, 1996 and 1995 in
view of the Company's ability to carryback to taxes paid in previous
years, coupled with anticipated future taxable income as evidenced by
the Company's earnings potential and the deferred tax liability amounts at
each year end.
F-16
<PAGE> 93
12. INCOME TAXES (INCOME TAXES)
The following is a reconciliation between the actual expense for income
taxes and the amount of income taxes which would have been provided at the
federal statutory rate.
<TABLE>
<CAPTION>
1996 1995
--------------------- ----------------------
% of % of
Pretax Pretax
Amount Income Amount Income
---------- -------- ---------- ------
<S> <C> <C> <C> <C>
Provision at statutory rate $ 443,936 34.0% $ 417,360 34.0%
Effect of tax exempt income (138,239) (10.6) (115,373) (9.4)
Other 22,246 1.7 13,337 1.1
---------- -------- ---------- -----
Actual tax expense and
effective rate $ 327,943 25.1% $ 315,324 25.7%
========== ======== ========== =====
</TABLE>
13. EMPLOYEE BENEFITS
DEFINED BENEFIT PLAN
The Bank sponsors a noncontributory defined benefit pension plan covering
substantially all of its employees. The plan calls for the benefits to be
paid to eligible employees at retirement based primarily upon years of
service with the Bank and compensation rates near retirement.
The pension expense includes the following components:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Service cost of the current period $ 42,432 $ 29,437
Interest cost on projected benefit obligation 55,031 52,291
Return on plan assets (53,164) (48,445)
Net amortization and deferral (3,277) (3,277)
--------- ---------
Net periodic pension cost $ 41,022 $ 30,006
========= =========
</TABLE>
The actuarial present value of accumulated benefit obligations at December
31, 1996 and 1995 was $385,239 and $362,283, including vested benefit
obligations of $379,452 and $353,273. The following table sets forth the
funded status and amounts recognized in the balance sheet at December 31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Plan assets at fair value $ 760,347 $ 668,899
Projected benefit obligation (838,229) (758,368)
---------- ----------
Funded status (77,882) (89,469)
Unrecognized net (gain) loss from past
experience different from that assumed (51,756) 4,130
Unrecognized prior service cost (35,297) (38,493)
Unrecognized net transition asset (568) (649)
---------- ----------
Accrued pension cost $(165,503) $(124,481)
========== ==========
</TABLE>
The plan assets are invested in equity, bond, and money market mutual
funds.
F-17
<PAGE> 94
13. EMPLOYEE BENEFITS (CONTINUED)
The weighted discount rate used to measure the projected benefit
obligation is 7%, the long-term rate of return on assets is 8% and the
rate of increase in future compensation levels is 6% for both 1996 and
1995.
SAVINGS PLAN
Effective January 1, 1996, the Bank established a Section 401(k) employee
savings plan for substantially all employees and officers of the Bank.
The Bank may make matching contributions as approved at the discretion of
the Board of Directors. All employees who work over 1,000 hours per year
are eligible to participate in the plan. Employee contributions are
vested at all times; and Bank contributions are fully vested after five
years. The Bank made contributions of $19,054 for the year ended
December 31, 1996.
14. REGULATORY MATTERS
CASH AND DUE FROM BANKS
The district Federal Reserve Bank requires the Bank to maintain certain
average balances. As of December 31, 1996 and 1995, the Bank had required
reserves of $769,000 and $576,000. The required reserves are computed by
applying prescribed ratios to the classes of average deposit balances.
These are held in the form of vault cash and a depository balance
maintained directly with the Federal Reserve Bank.
LOANS
Federal law prevents the Company from borrowing from the Bank unless the
loans are secured by specified obligations. Further, such secured
loans are limited in amount to 10% of the Bank's capital and surplus.
There were no such loans in 1996 or 1995.
DIVIDENDS
The Bank is subject to a dividend restriction which generally limits the
amount of dividends that can be paid by a state chartered member of the
Federal Reserve Bank System. Prior approval of the Federal Reserve Board
is required if the total of all dividends declared by the Bank in any
calendar year exceeds net profits, as defined the year, combined with its
retained net profits for the two preceding calendar years less any
required transfers to surplus. Using this formula, the amount available for
payment of dividends by the Bank in 1997, without approval of the Federal
Reserve Board, will be limited to $1,209,000 plus net profits retained up
to the date of the dividend declaration.
F-18
<PAGE> 95
14. REGULATORY MATTERS (CONTINUED)
CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
capital requirements can initiate certain mandatory, and possibly
additional discretionary actions by the regulators that, if undertaken,
could have a direct material effect on the Company's and Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Company and the Bank must meet specific
capital guidelines that involve quantitative measures of the Company's and
Bank's assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The Company and the
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of
Total and Tier I (as defined in the regulations) to risk-weighted assets
(as defined), and of Tier I capital to average assets (as defined).
Management believes, as of December 31, 1996 and 1995, that the Company and
the Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 1996, the most recent notification from the Federal
Deposit Insurance Corporation has categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Company and the Bank must maintain
minimum Total risk-based, Tier I risk-based and Tier I leverage ratios
at least 100 to 200 basis points above those ratios set forth in the
table. There have been no conditions or events since that notification that
management believes have changed the Company's or the Bank's category.
<TABLE>
<CAPTION>
1996
----------------------------------------------------
For Minimum Capital
Actual Adequacy Purposes
----------------------- --------------------------
Amount Ratio Amount Ratio
------------ -------- ----------- -----------
<S> <C> <C> <C> <C>
Total Capital
(To Risk Weighted Assets)
Consolidated $ 9,024,055 12.2% $ 5,935,760 8.0%
Bank 9,216,525 12.4 5,935,760 8.0
Tier I Capital
(To Risk Weighted Assets)
Consolidated $ 8,407,434 11.3% $ 2,967,880 4.0%
Bank 8,599,904 11.6 2,967,880 4.0
Tier I Capital
(To Average Assets)
Consolidated $ 8,407,434 6.5% $ 5,169,029 4.0%
Bank 8,599,904 6.7 5,169,029 4.0
</TABLE>
F-19
<PAGE> 96
14. REGULATORY MATTERS (CONTINUED)
<TABLE>
<CAPTION>
1995
-------------------------------------------------
For Minimum Capital
Actual Adequacy Purposes
------------------------ ------------------------
Amount Ratio Amount Ratio
------------- ------- ------------ --------
<S> <C> <C> <C> <C>
Total Capital
(To Risk Weighted Assets)
Consolidated $ 9,766,414 16.5% $ 4,725,520 8.0%
Bank 10,158,545 17.2 4,725,520 8.0
Tier I Capital
(To Risk Weighted Assets)
Consolidated $ 9,188,368 15.6% $ 2,362,760 4.0%
Bank 9,580,499 16.2 2,362,760 4.0
Tier I Capital
(To Average Assets)
Consolidated $ 9,188,368 9.2% $ 3,997,600 4.0%
Bank 9,580,499 9.6 3,997,600 4.0
</TABLE>
15. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The estimated fair values at December 31 of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------------- ---------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks
and federal funds sold $ 5,840,547 $ 5,840,547 $ 8,154,307 $ 8,154,307
Investment securities 50,934,752 51,002,956 31,979,478 32,168,513
Net loans 69,578,462 69,677,000 58,304,866 59,206,000
Accrued interest receivable 996,548 996,548 649,443 649,443
-------------- -------------- ------------- --------------
$ 127,350,309 $ 127,517,051 $ 99,088,094 $ 100,178,263
============== ============== ============= ==============
Financial liabilities:
Deposits $ 114,952,721 $ 115,217,000 $ 85,960,194 $ 86,351,000
Securities sold under
agreements to repurchase 5,188,863 5,188,863 5,012,840 5,012,840
Short-term borrowings 341,542 341,542 14,818 14,818
Long-term borrowings 213,333 214,101 426,667 430,000
Accrued interest payable 440,928 440,928 392,902 392,902
-------------- -------------- ------------- --------------
$ 121,137,387 $ 121,402,434 $ 91,807,421 $ 92,201,560
============== ============== ============= ==============
</TABLE>
F-20
<PAGE> 97
15. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS (Continued)
Financial instruments are defined as cash, evidence of an ownership
interest in an entity, or a contract which creates an obligation or right
to receive or deliver cash or another financial instrument from/to a
second entity on potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could
be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. If a quoted market price is available
for a financial instrument, the estimated fair value would be calculated
based upon the market price per trading unit of the instrument.
If no readily available market exists, the fair value estimates for
financial instruments are based upon management's judgment regarding
current economic conditions, interest rate risk, expected cash flows,
future estimated losses and other factors, as determined through various
option pricing formulas or simulation modeling. Since many of these
assumptions result from judgments made by management based upon estimates
which are inherently uncertain, the resulting estimated fair values may
not be indicative of the amount realizable in the sale of a particular
financial instrument. In addition, changes in the assumptions on which
the estimated fair values are based may have a significant impact on the
resulting estimated fair values.
As certain assets and liabilities such as intangible assets, deferred tax
assets and premises and equipment are not considered financial
instruments, the estimated fair value of financial instruments would not
represent the full value of the Company.
The Company employed simulation modeling in determining the estimated fair
value of financial instruments for which quoted market prices were not
available, based upon the following assumptions:
CASH AND DUE FROM BANKS, FEDERAL FUNDS SOLD, ACCRUED INTEREST RECEIVABLE,
SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE, SHORT-TERM BORROWINGS AND
ACCRUED INTEREST PAYABLE
The fair value is equal to the current carrying value.
INVESTMENT SECURITIES
The fair value of securities held to maturity is equal to the available
quoted market price. If no quoted market price is available, fair value
is estimated using the quoted market price for similar securities.
The fair value of securities available for sale is equal to the current
carrying value.
LOANS, DEPOSITS AND LONG-TERM BORROWINGS
The fair value of loans is estimated by discounting the future cash flows
using a simulation model which estimates future cash flows and constructs
discount rates that consider reinvestment opportunities, operating
expenses, non-interest income, credit quality, and prepayment risk.
Demand, savings, and money market deposit accounts are valued at the
amount payable on demand as of year end. Fair value for time deposits and
long-term borrowings are estimated using a discounted cash flow
calculation that applies contractual costs currently being offered in the
existing portfolio to current market rates being offered for deposits and
notes with similar remaining maturities.
F-21
<PAGE> 98
15. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS (CONTINUED)
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
These financial instruments are generally, not subject to sale and
estimated fair values are not readily available. The carrying value,
represented by the net deferred fee arising from the unrecognized
commitment or letter of credit, and the fair value determined by
discounting the remaining contractual fee over the term of the commitment
using fees currently charged to enter into similar agreements with similar
credit risk, are not considered material for disclosure. The contractual
amounts of unfunded commitments and letters of credit are presented in
Note 11.
16. PARENT COMPANY
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1996 1995
------------- --------------
<S> <C> <C>
ASSETS
Cash on deposit in subsidiary bank $ 10,645 $ 17,121
Investment in subsidiary 10,295,285 9,650,749
Other assets 10,217 17,415
------------- ------------
Total assets $ 10,316,147 $ 9,685,285
============= ============
LIABILITIES
Long-term borrowings $ 213,333 $ 426,667
STOCKHOLDERS' EQUITY 10,102,814 9,258,618
------------- ------------
Total liabilities and stockholders' equity $ 10,316,147 $ 9,685,285
============= ============
</TABLE>
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
------------- --------------
<S> <C> <C>
INCOME
Dividends from subsidiary bank $ 348,160 $ 386,214
------------- ------------
EXPENSES
Interest expense on long-term borrowings 28,100 49,680
Other 1,950 1,400
------------- ------------
Total expenses 30,050 51,080
------------- ------------
Income before income taxes 318,110 335,134
Income tax benefit (10,170) (17,415)
------------- ------------
Income before equity in undistributed
net earnings of subsidiary 328,280 352,549
Equity in undistributed net earnings of subsidiary 649,472 559,799
------------- ------------
NET INCOME $ 977,752 $ 912,348
============= ============
</TABLE>
F-22
<PAGE> 99
16. PARENT COMPANY (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
------------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 977,752 $ 912,348
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed net earnings of subsidiary (649,472) (559,799)
Other, net 12,978 (13,911)
----------------- ------------
Net cash provided by operating activities 341,258 338,638
----------------- ------------
FINANCING ACTIVITIES
Repayments of long-term borrowings (213,334) (213,333)
Cash dividends paid (134,400) (123,200)
----------------- ------------
Net cash used for financing activities (347,734) (336,533)
----------------- ------------
Increase (decrease) in cash (6,476) 2,105
CASH AT BEGINNING OF YEAR 17,121 15,016
----------------- ------------
CASH AT END OF YEAR $ 10,645 $ 17,121
================= ============
</TABLE>
17. SUBSEQUENT EVENTS
STOCK SPLIT
The Board of Directors approved, effective April 7, 1997, a two for one
stock split of the Company's common stock and the reduction of the stated
value per share from $2.50 to $1.25 per share. All references in the
accompanying financial statements to the number of common shares and the
per share amounts have been restated to reflect the stock split.
MERGER AGREEMENT
On October 13, 1997, the Board of Directors entered into a Merger
Agreement whereby the Company shall be merged into Wayne Bancorp, Inc.
(Wayne), an Ohio corporation headquartered in Wooster, Ohio. Under the
terms of the Agreement, all outstanding shares of the Company shall be
converted by operation of law without any action by the holder thereof and
shall be exchanged for such number of shares of Wayne common stock equal
to three hundred fifty percent of the "Adjusted Book Value," as defined in
the Agreement, of a share of the Company's common stock divided by the
"Market Value," as also defined in the Agreement of Wayne common stock,
subject to the terms, conditions, and limitations set forth in the
Agreement.
Completion of the merger is subject to approval by various regulatory
agencies and the stockholders of the Company and Wayne.
F-23
<PAGE> 100
CHIPPEWA VALLEY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------------- ----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,750,579 $ 5,840,547
Federal funds sold 1,220,000 -
Investment securities:
Available for sale 25,604,211 29,171,332
Held to maturity (approximate market value of
$21,174,376 and $21,831,624) 20,944,262 21,763,420
Loans 78,917,167 70,195,083
Allowance for loan losses 696,695 616,621
---------------- ----------------
Net loans 78,220,472 69,578,462
Premises and equipment 2,298,331 2,341,802
Intangible assets 1,504,656 1,624,284
Accrued interest and other assets 1,396,926 1,278,088
---------------- ----------------
TOTAL ASSETS $ 136,939,437 $ 131,597,935
================ ===============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 11,960,310 $ 12,493,907
Interest-bearing demand 14,188,928 14,748,319
Savings 32,888,042 31,968,696
Money market 4,945,737 6,671,868
Time 53,665,163 49,069,931
---------------- ----------------
Total deposits 117,648,180 114,952,721
Securities sold under agreements to repurchase 6,942,255 5,188,863
Short-term borrowings 470,097 341,542
Long-term borrowings - 213,333
Accrued interest and other liabilities 823,710 798,662
---------------- ----------------
TOTAL LIABILITIES 125,884,242 121,495,121
---------------- ----------------
STOCKHOLDERS' EQUITY
Common stock, stated value $1.25; 500,000 shares
authorized, 448,000 and 480,000 issued 560,000 600,000
Surplus 87,040 700,000
Retained earnings 10,306,837 9,384,680
Net unrealized gain on securities 101,318 71,094
Treasury Stock, at cost (32,000 shares) - (652,960)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 11,055,195 10,102,814
---------------- ----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 136,939,437 $ 131,597,935
================ ===============
</TABLE>
See accompanying notes to the consolidated financial statements.
S-1
<PAGE> 101
CHIPPEWA VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 1,737,596 $ 1,475,439 $ 5,020,156 $ 4,232,528
Federal funds sold 39,808 9,054 54,900 133,897
Investment securities:
Taxable 615,763 708,291 1,895,136 1,807,065
Exempt from federal income tax 94,025 97,763 283,405 282,271
------------ ------------ ------------ ------------
Total interest income 2,487,192 2,290,547 7,253,597 6,455,761
------------ ------------ ------------ ------------
INTEREST EXPENSE
Deposits 1,151,039 1,072,961 3,290,385 2,978,366
Securities sold under agreements to
repurchase 45,536 49,921 160,018 144,831
Short-term borrowings 15,221 10,179 19,749 15,347
Long-term borrowings - 7,053 4,609 23,424
------------ ------------ ------------ ------------
Total interest expense 1,211,796 1,140,114 3,474,761 3,161,968
------------ ------------ ------------ ------------
NET INTEREST INCOME 1,275,396 1,150,433 3,778,836 3,293,793
Provision for loan losses 31,500 30,000 94,500 90,000
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,243,896 1,120,433 3,684,336 3,203,793
------------ ------------ ------------ ------------
NONINTEREST INCOME
Service charges on deposit accounts 103,326 102,471 300,621 288,271
Other service charges and fees 42,131 33,793 138,896 101,954
Securities losses, net - (1,957) (1,699) (1,957)
Other 21,750 6,147 55,774 28,502
------------ ------------ ------------ ------------
Total noninterest income 167,207 140,454 493,592 416,770
------------ ------------ ------------ ------------
NONINTEREST EXPENSE
Salaries and employee benefits 495,355 456,556 1,422,788 1,334,426
Occupancy 65,364 65,177 206,892 174,467
Furniture and equipment 76,505 80,654 231,205 219,442
Federal deposit insurance premiums 3,500 500 10,237 1,500
State franchise tax 38,607 35,531 116,607 110,423
Intangible asset amortization 39,876 124,496 119,628 164,340
Other 239,668 151,473 694,734 620,019
------------ ------------ ------------ ------------
Total noninterest expense 958,875 914,387 2,802,091 2,624,617
------------ ------------ ------------ ------------
Income before income taxes 452,228 346,500 1,375,837 995,946
Income taxes 124,738 90,680 382,000 260,749
------------ ------------ ------------ ------------
NET INCOME $ 327,490 $ 255,820 $ 993,837 $ 735,197
============ ============ ============ ============
EARNINGS PER SHARE $ 0.73 $ 0.57 $ 2.22 $ 1.64
AVERAGE SHARES OUTSTANDING 448,000 448,000 448,000 448,000
</TABLE>
See accompanying notes to the consolidated financial statements.
S-2
<PAGE> 102
CHIPPEWA VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Net
Unrealized Total
Common Retained Gain (Loss) Treasury Stockholders'
Stock Surplus Earnings on Securities Stock Equity
---------- ------------ ------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 600,000 $ 700,000 $ 7,752,180 $ (136,240) $ (652,960) $ 8,262,980
Net income 912,348 912,348
Dividends ($.28 per share) (123,200) (123,200)
Net unrealized gain on
securities 206,490 206,490
---------- ------------ ------------- ------------ ------------ -------------
Balance, December 31, 1995 600,000 700,000 8,541,328 70,250 (652,960) 9,258,618
Net income 977,752 977,752
Dividends ($.30 per share) (134,400) (134,400)
Net unrealized gain on
securities 844 844
---------- ------------ ------------- ------------ ------------ -------------
Balance, December 31, 1996 600,000 700,000 9,384,680 71,094 (652,960) 10,102,814
Net income 993,837 993,837
Dividends ($.16 per share) (71,680) (71,680)
Retirement of treasury
shares (40,000) (612,960) 652,960 -
Net unrealized gain on
securities 30,224 30,224
---------- ------------ ------------- ------------ ------------ -------------
Balance, September 30,
1997 $ 560,000 $ 87,040 $ 10,306,837 $ 101,318 $ - $ 11,055,195
========== ============ ============= ============ ============ =============
</TABLE>
See accompanying notes to the consolidated financial statements.
S-3
<PAGE> 103
CHIPPEWA VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
--------------------- --------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 993,837 $ 735,197
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 94,500 90,000
Depreciation, amortization, and accretion, net 443,101 417,453
Securities losses, net 1,699 1,957
Increase in accrued interest receivable (140,648) (533,875)
Increase (decrease) in accrued interest payable (103,002) 129,022
Other, net 134,290 10,802
---------------- ------------
Net cash provided by operating activities 1,423,777 850,556
---------------- ------------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from the sale of securities 985,489 495,817
Proceeds from maturities and repayments 9,536,141 3,858,481
of securities
Purchases of securities (6,924,634) (21,578,536)
Investment securities held to maturity:
Proceeds from maturities and repayments of 2,861,713 8,789,600
securities
Purchases of securities (2,125,715) (12,339,907)
Net increase in loans (8,751,832) (7,044,785)
Purchases of premises and equipment (167,300) (296,855)
Branch office acquisitions:
Purchase of loans - (1,383,885)
Purchase of premises and equipment - (313,591)
Net deposit proceeds - 22,947,060
---------------- ------------
Net cash used for investing activities (4,586,138) (6,866,601)
---------------- ------------
FINANCING ACTIVITIES
Net decrease in deposits 2,695,459 2,698,456
Net increase (decrease) in securities sold under agreements to repurchase 1,753,392 (191,755)
Net increase in short-term borrowings 128,555 421,054
Repayment of long-term borrowings (213,333) (213,334)
Cash dividends (71,680) (64,960)
---------------- ------------
Net cash provided by financing activities 4,292,393 2,649,461
---------------- ------------
Increase (decrease) in cash and cash equivalents 1,130,032 (3,366,584)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,840,547 8,154,307
---------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,970,579 $ 4,787,723
================ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
S-4
<PAGE> 104
CHIPPEWA VALLEY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The accounting and financial reporting policies of Chippewa Valley
Bancshares, Inc. and its wholly-owned subsidiary, Chippewa Valley Bank
("Bank"), conform to generally accepted accounting principles and to general
practice within the banking industry. In the opinion of management, the
accompanying unaudited consolidated financial statements of Chippewa Valley
Bancshares, Inc. ("Company") contain all adjustments, consisting of only
normal and recurring adjustments, necessary for the fair presentation of the
Company's financial position, results of operations and cash flows for the
periods presented. The results of operations for the interim periods are
not necessarily indicative of the results to be expected for the full year.
2. SUBSEQUENT EVENT
MERGER AGREEMENT
On October 13, 1997, the Board of Directors entered into a Merger Agreement
whereby the Company shall be merged into Wayne Bancorp, Inc. (Wayne), an
Ohio corporation headquartered in Wooster, Ohio. Under the terms of the
Agreement, all outstanding shares of the Company shall be converted by
operation of law without any action by the holder thereof and shall be
exchanged for such number of shares of Wayne common stock equal to three
hundred fifty percent of the "Adjusted Book Value," as defined in the
Agreement, of a share of the Company's stock divided by the "Market Value,"
as also defined in the Agreement of Wayne common stock, subject to the
terms, conditions, and limitations set forth in the Agreement.
Completion of the merger is subject to approval by various regulatory
agencies and the stockholders of the Company and Wayne.
S-5
<PAGE> 105
APPENDIX A
MERGER AGREEMENT
A-1
<PAGE> 106
MERGER AGREEMENT
This Merger Agreement ("Agreement") is entered into as of this 13th day of
October, 1997, by and between Wayne Bancorp, Inc. (hereinafter called "Wayne")
and Chippewa Valley Bancshares, Inc. (hereinafter called "CVB").
RECITALS
A. Wayne is a corporation duly organized under the laws of the State of
Ohio. Its principal office is located at 112 W. Liberty Street, Wooster, Ohio
44691. As of the date hereof, Wayne had authorized capital stock consisting of
5,400,000 shares of common stock without par value ("Wayne Common Stock") of
which a total of 3,935,512 shares were issued and outstanding and 380 shares
were held as treasury shares. Wayne owns all of the outstanding capital stock
of The Wayne County National Bank ("Wayne Bank"), a national banking
association organized under the laws of the United States of America.
B. CVB is a corporation duly organized under the laws of the State of
Ohio. Its principal office is located at 20 South Main Street, Rittman, Ohio
44270. As of the date hereof, CVB had authorized capital stock consisting of
500,000 shares of common stock without par value ("CVB Common Stock"), of which
448,000 shares were issued and outstanding and no shares were held as treasury
shares. CVB owns all of the outstanding capital stock of The Chippewa Valley
Bank (hereinafter referred to as the "Chippewa Bank"), a banking corporation
organized under the laws of the State of Ohio.
C. At least a majority of the entire Board of Directors of Wayne and at
least a majority of the entire Board of Directors of CVB, respectively, have
approved the entering into of this Merger Agreement and have authorized the
execution and delivery of this Merger Agreement. From and after the time the
merger of CVB into Wayne shall become effective, the "Merger" as defined in
Section 1 of this Merger Agreement, and as and when required by this Merger
Agreement, Wayne will issue shares of Wayne Common Stock in exchange for all of
the issued and outstanding shares of CVB Common Stock in accordance with the
provisions hereinafter set forth. It is understood by each of the parties
hereto that Wayne seeks to acquire CVB and all of the operating assets of CVB
including the Chippewa Bank and the entities and assets which CVB and the
Chippewa Bank may acquire prior to the time the Merger shall become effective,
through the Merger of CVB with and into Wayne under the charter of Wayne and
Chippewa Bank will, immediately after the effective date of the Merger, remain
an independent operating subsidiary of Wayne. The parties will exert their
best efforts to obtain such regulatory approvals and to complete such other
actions as are necessary or appropriate to effect the Merger.
AGREEMENT
In consideration of mutual covenants and premises herein contained, Wayne and
CVB hereby make this Merger Agreement and prescribe the terms and conditions of
the Merger and the mode of carrying the Merger into effect as follows:
1. Merger. Subject to the terms and conditions hereinafter set forth, CVB
shall be merged with and into Wayne under the Articles of Incorporation of
Wayne pursuant to and in accordance with the applicable provisions of the
laws of the State of Ohio ("Merger").
2. Name. The name of the surviving corporation (hereinafter called the
"Surviving Corporation" whenever reference is made to it as of the time
the Merger shall become effective, as hereinafter provided, or thereafter)
shall be "Wayne Bancorp, Inc."
3. Business. The business of Wayne as the Surviving Corporation shall be
that of a bank holding company. The Surviving Corporation shall exist by
virtue of, and be governed by the laws of the State of Ohio and shall have
its principal office in Ohio at 112 W. Liberty Street, Wooster, Ohio
44691.
A-2
<PAGE> 107
4. Effective Time of Merger: Articles of Merger. The Merger shall become
effective upon the date of the filing of the appropriate Certificate of
Merger with the Ohio Secretary of State (the "time the Merger shall become
effective") in accordance with applicable provisions of the laws of the
State of Ohio.
The Articles of Incorporation of Wayne in effect immediately prior to the
time the Merger shall become effective, shall be the Articles of
Incorporation of the Surviving Corporation, and the Code of Regulations of
Wayne in effect immediately prior to the time the Merger shall become
effective, shall be the Code of Regulations of the Surviving Corporation.
5. Effect of Merger. At the time the Merger shall become effective, the
separate corporate existence of CVB shall, in accordance with applicable
provisions of the laws of the State of Ohio, be merged into and continued
in Wayne as the Surviving Corporation, with the effect as provided by
Section 1701.82 of the Ohio Revised Code.
6. Liabilities upon Merger. The Surviving Corporation shall be responsible
for all of the liabilities and obligations of each of the corporations so
merged in the same manner and to the same extent as if such single
corporation had itself incurred the same or contracted therefor, all in
the manner and as provided for by Sections 1701.82(A)(1),(2),(3),(4), and
(5) of the Ohio Revised Code.
7. Conversion of Shares.
(a) At the time the Merger shall become effective;
(i) All of the outstanding shares of CVB Common Stock shall be
converted by operation of law without any action by the
holder thereof and shall be exchanged for such number of
shares of Wayne Common Stock equal to three hundred fifty
percent (350%) of the "Adjusted Book Value" (as defined
below) of a share of CVB Common Stock divided by the "Market
Value" (as defined below) of Wayne Common Stock which amount
shall be herein referred to as the "Exchange Ratio."
"Adjusted Book Value" shall mean the book value of a share of
CVB Common Stock as of December 31, 1997, calculated in
accordance with Generally Accepted Accounting Principles, as
adjusted for: (1) the impact of FASB 115; and (2) increased
by the net write-off of goodwill during the fourth quarter of
1997; and (3) increased by the net effect of increasing CVB's
loan loss reserve in the amount of $500,000 during the fourth
quarter of 1997. The "Market Value" shall represent the per
share market value of the Wayne Bancorp Common Stock at the
Effective Date and shall be determined by calculating the
average of the closing bid and asked prices of the Common
Stock of Wayne as reported by the NASDAQ on each of the ten
(10) consecutive trading days ending on the trading day five
calendar days preceding the Effective Date. Regardless of
the Market Value, however, the maximum number of shares of
Wayne Bancorp Common Stock to be issued in the Merger shall
be 1,023,737 shares, and the minimum number of shares of
Wayne Bancorp Common Stock to be issued in the Merger shall
be 981,837, all of which calculations assume 448,000 shares
of CVB Common Stock outstanding.
(ii) The shares of Wayne Common Stock issued and outstanding
immediately prior to the time the Merger shall become
effective shall continue to be issued and outstanding shares
of the Surviving Corporation.
(iii) If prior to the Merger, shares of Wayne Common Stock shall be
changed into a different number of shares or a different
class of shares by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares
or readjustment, or there occurs a distribution of warrants
or rights with respect to the Wayne Common Stock or a stock
dividend, stock split or other general distribution of Wayne
Common Stock is
A-3
<PAGE> 108
declared with a record date prior to the
effective time of the Merger, then in any event the Exchange
Ratio shall be appropriately adjusted.
(b) No fractional shares of Wayne Common Stock will be issued by
Wayne in connection with the Merger, but in lieu thereof, holders of
CVB Common Stock shall, upon surrender of the certificate or
certificates formerly representing such CVB Common Stock be paid
cash without interest by Wayne for such fractional share(s). The
cash paid for each fractional share shall be the same fraction of
the average bid and asked closing price per share of Wayne Common
Stock on the Closing Date.
(c) As soon as practicable, but not later than ten (10) days
after the time the Merger shall become effective, and subject to the
provisions set forth above relating to the fractional shares, Wayne,
or an Exchange Agent designated thereby and approved by CVB, will
distribute to the former holders of CVB Common Stock in exchange for
and upon surrender for cancellation by such holders of a certificate
or certificates formerly representing shares of CVB Common Stock the
certificate(s) for shares of Wayne Common Stock in accordance with
the Exchange Ratio and any cash payment in lieu of fractional
shares. Each certificate formerly representing CVB Common Stock
(other than certificates representing shares of CVB Common Stock
subject to the rights of dissenting shareholders) shall be deemed
for all purposes to evidence the ownership of the number of whole
shares of Wayne Common Stock and cash for fractional share interests
in Wayne Common Stock into which such shares have been converted
pursuant to the Exchange Ratio. Until surrender of the certificate
or certificates formerly representing shares of CVB Common Stock,
the holder thereof shall not be entitled to receive any dividend or
other payment or distribution payable to holders of Wayne Common
Stock. Upon such surrender (or in lieu of surrender other
provisions reasonably satisfactory to Wayne as are made as set forth
in the next following paragraph), there shall be paid to the person
entitled thereto the aggregate amount of dividends or other payments
or distributions (in each case without interest) which became
payable after the time the Merger shall become effective on the
whole shares of Wayne Common Stock represented by the certificates
issued upon such surrender and exchange or in accordance with such
other provisions, as the case may be. After the time the Merger
shall become effective, the holders of certificates formerly
representing shares of CVB Common Stock shall cease to have rights
with respect to such shares (except such rights, if any, as a holder
of certificates formerly representing shares of CVB Common Stock may
have as dissenting shareholders pursuant to the Ohio General
Corporation Law) and except as aforesaid, their sole rights shall be
to exchange said certificates for certificates for shares of Wayne
Common Stock in accordance with this Merger Agreement.
Certificates formerly representing shares of CVB Common Stock
surrendered for cancellation by each shareholder entitled to
exchange shares of CVB Common Stock for shares of Wayne Common
Stock by reason of the Merger shall be accompanied by such
appropriate instruments of transfer as Wayne may reasonably
require, provided, however, that if there be delivered to Wayne by
any person who is unable to produce any such certificate formerly
representing shares of CVB Common Stock for transfer (i) evidence
to the reasonable satisfaction of Wayne that any such certificate
has been lost, wrongfully taken or destroyed, and (ii) such
indemnity agreement and, at the discretion of Wayne, an indemnity
bond, as reasonably may be requested by Wayne to save it harmless,
and (iii) evidence to the reasonable satisfaction of Wayne that
such person is the owner of the shares theretofore represented by
each certificate claimed by him to be lost, wrongfully taken or
destroyed and that he is the person who would be entitled to
present each such certificate and to receive shares of Wayne Common
Stock pursuant to this Merger Agreement, then Wayne, in the absence
of actual notice to it that any shares theretofore represented by
any such certificate have been acquired by a bona fide purchaser,
shall deliver to such person the certificate(s) representing shares
of Wayne Common Stock which such person would have been entitled to
receive upon surrender of each such lost, wrongfully taken or
destroyed certificate representing shares of CVB Common Stock.
A-4
<PAGE> 109
8. Board of Directors. The Board of Directors of Wayne as constituted at the
time the Merger shall become effective shall serve as the Board of
Directors of Wayne as the Surviving Corporation plus two additional
members from CVB's board of directors to be named by Wayne.
9. Discussions with Others. On and after the date hereof, except with the
written consent of Wayne, CVB shall not directly or indirectly solicit or
encourage (nor shall CVB permit any of its officers, directors, employees
or agents directly or indirectly to solicit or encourage), including by
way of furnishing information, any inquiries or proposals for a merger,
consolidation, share exchange or similar transaction involving CVB or
Chippewa Bank or for the acquisition of the stock or all or substantially
all of the assets or business of CVB or Chippewa Bank, or discuss with or
enter into conversations with any person, other than CVB shareholders or
employees, concerning any such merger, consolidation, share exchange,
acquisition or other transaction, other than the proposed transaction with
Wayne, provided, however, that CVB may communicate information about any
such proposals or inquiries to its shareholders if and to the extent that
it is required to do so in order to reasonably comply with its legal
obligations. CVB will promptly notify Wayne orally (to be confirmed in
writing as soon as practicable thereafter) of all of the relevant details
relating to any inquiries or proposals that it may receive relating to any
such matters, including actions it intends to take with respect to such
matters. In order to induce Wayne to enter into this Agreement and incur
the substantial expenses involved in effectuating the transactions
contemplated herein, CVB agrees and does hereby promise to pay to Wayne
the sum of One Million Five Hundred Thousand Dollars ($1,500,000), upon
Wayne's demand therefor, in the event that the CVB shareholders fail to
approve the proposed transaction with Wayne and CVB or its shareholders
receive an offer from and negotiate with any party other than Wayne at
any time within one (1) year of the date hereof concerning a merger,
consolidation, purchase of substantially all of the CVB Common Stock, or
similar transaction involving either CVB or Chippewa Bank or the sale of
all or substantially all of the assets of CVB and/or Chippewa Bank.
10. Undertakings of the Parties. Wayne and CVB further agree as follows:
(a) This Merger Agreement shall be submitted to the shareholders
of CVB and Wayne for approval and adoption at separate meetings to
be called and held in accordance with law and the Articles of
Incorporation and Code of Regulations of CVB and Wayne.
(b) Wayne and CVB will cooperate in the preparation by Wayne of
the application to the Board of Governors of the Federal Reserve
System (the "Board") under the appropriate provisions of Section 3
of the Bank Holding Company Act of 1956, as amended, and to any
other state or federal regulatory agency which may be required to
facilitate the Merger. Wayne will file such applications within
seventy-five (75) days after the date of this Merger Agreement and
shall forward a copy of such applications to CVB and its counsel
upon filing. Wayne and CVB will cooperate in the preparation of
proxy and registration statements under federal and state securities
laws so as to facilitate the exchange of shares as contemplated by
this Merger Agreement.
(c) Each party will assume and pay all of its fees and expenses
incurred by it incident to the negotiation, preparation and
execution of this Agreement, obtaining of the requisite regulatory
and shareholder consents and approvals and all other acts incidental
to, contemplated by or in pursuance of this Agreement. Wayne shall
promptly prepare and file at no expense to CVB: (i) any and all
required regulatory applications necessary in connection with the
transactions contemplated by this Agreement; and (ii) an S-4
Registration Statement to be filed with the Securities and Exchange
Commission to register the shares of Wayne Common Stock to be issued
in connection with the transactions contemplated by this Agreement.
Such registration statement will not cover resales by any persons
who may be considered "underwriters" under Rule 145(c) of the
Securities Act of 1933, as amended (the "1933 Act"). Wayne will
also take any action required to be taken under any applicable state
securities or "Blue Sky" laws in connection with
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the Merger. Wayne will provide CVB and it counsel with a copy of
the S-4 Registration Statement for review and comment prior to
filing with the Securities and Exchange Commission.
(d) All information furnished by one party to another party in
connection with this Merger Agreement and the transactions
contemplated hereby will be kept confidential by such other party
and will be used only in connection with this Merger Agreement and
the transactions contemplated hereby, except to the extent that such
information: (i) is already known to such other party when received;
(ii) thereafter becomes lawfully obtainable from other sources; or
(iii) is required to be disclosed in any document filed with the
Securities and Exchange Commission, the Board, or any other
governmental agency or authority (except under a claim of
confidentiality). In the event the Merger Agreement is terminated,
all such information shall be promptly returned by each party to the
other party or be destroyed.
(e) After: (i) receipt of the Federal Reserve Board's prior
approval of Wayne's acquisition of CVB; (ii) the approval of the
shareholders of CVB and Wayne as provided in Section 10(a) has
occurred; and (iii) all other regulatory approvals have been
obtained and the regulatory waiting period(s) have expired, Wayne
shall designate the date as of which Wayne desires the Merger to
become effective and shall file the appropriate Certificate of
Merger with the Ohio Secretary of State in accordance herewith and
the time the Merger shall become effective shall occur at the time
and on the date so designated, consistent with the terms of Section
4 hereof. However, any date so specified shall not be later than
either (a) the first day of the month immediately following the
month in which the last of the events described above (i-iii) occurs
if said event occurs before the sixteenth day of such month or (b)
the first day of the second month immediately following such month
if the last of the events described above occurs after the sixteenth
day of such month. Notwithstanding the foregoing, in no event shall
the Merger become effective before March 31, 1998.
(f) Subject to the terms and conditions of this Merger Agreement,
Wayne and CVB each agree that, subject to applicable laws and to the
fiduciary duties of its Directors, each will promptly take or cause
to be taken all action, and promptly do or cause to be done all
things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the Merger and other
transactions contemplated by this Merger Agreement.
(g) Wayne undertakes to cause, immediately after the effective
date of the Merger, the election as Directors of Chippewa Bank, all
those persons serving as Directors immediately prior to the
effective time of the Merger together with two additional persons to
be selected by Wayne.
(h) Wayne and its Board of Directors undertake to appoint, immediately
after the effective date of the Merger, Philip S. Swope, currently
the President of Chippewa, as the President of Wayne. David L.
Christopher, currently the Chairman, President and CEO of Wayne
shall continue as Chairman and CEO of Wayne after the Merger and the
appointment of Mr. Swope as President of Wayne. Mr. Swope also
shall continue to be President of Chippewa Bank after the effective
date of the Merger. Notwithstanding the foregoing, Mr. Swope shall
continue to be an employee "at will" and his appointment to the
offices set forth above will not effect the ability of the Board of
Directors of Wayne to terminate Mr. Swope or otherwise appoint him
to another position within Wayne or Chippewa Bank at some point in
time after the effective date of the Closing.
(i) Wayne, CVB, and their respective Directors and Executive Officers
shall not cause any trades, transfers or other transactions in Wayne
Common Stock during the 20 business days immediately preceding the
effective date of the Merger.
11. Dissenting Shareholders. Holders of CVB Common Stock shall have the
rights accorded to dissenting shareholders under Section 1701.85 of the
Ohio Code, as amended.
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12. Representations and Warranties of Wayne. Wayne represents and warrants
to CVB as follows:
(a) Wayne is a corporation duly organized and validly existing under the
laws of the State of Ohio, is a registered bank holding company
under the Bank Holding Company Act of 1956, as amended, and is
qualified to do business and is in good standing in the State of
Ohio, together with all other jurisdictions where it is both
required to so qualify and the failure to so qualify would have
material and adverse consequences to Wayne. Wayne has full power
and authority (including all licenses, franchises, permits and other
governmental authorizations which are legally required) to engage in
the businesses and activities now conducted by it. As of the date
of this Agreement, the authorized capital stock of Wayne consisted
of 5,400,000 shares of common stock without par value of which a
total of 3,935,512 shares were issued and outstanding and 380 shares
were held as treasury shares. All of said shares of capital stock
are fully paid and nonassessable and are not issued in violation of
the preemptive rights of any shareholder. Wayne owns all of the
outstanding capital stock of Wayne Bank. There are no outstanding
options, warrants or commitments of any kind relating to the issue
or sale of Wayne's capital stock.
The corporate minute books of Wayne which will be made available to
CVB contain, in all material respects, records of all meetings and
other corporate actions of Wayne's shareholders, directors and
committees of directors. Wayne will deliver to CVB copies of the
Articles of Incorporation and Code of Regulations of Wayne,
including all amendments thereto. Wayne Bank is a national banking
association duly organized and validly existing under the laws of
the United States and has the full power and authority, corporate or
otherwise, to own its property and to carry on its business
activities as such activities are presently conducted.
(b) Wayne has furnished to CVB and its counsel copies of the following
financial statements relating to Wayne and its consolidated
subsidiaries: (i) the audited Consolidated Balance Sheet of Wayne
as of December 31, 1996 and 1995 and the Consolidated Statements of
Income, Shareholders' Equity and Statements of Cash Flows for the
years then ended, together with the notes and report of Crowe,
Chizek & Company LLP thereto. Each of the aforementioned financial
statements is true and correct in all material respects and together
present fairly the consolidated financial position and results of
operations of Wayne as of the dates and for the periods therein set
forth in conformity with generally accepted accounting principles
("GAAP"). Such financial statements do not, as of the dates
thereof, include any material asset or omit any material liability,
absolute or contingent, or other fact, the inclusion or omission of
which renders such financial statements, in light of the
circumstances under which they were made, misleading in any material
respect. Since December 31, 1996, there has not been any material
adverse change in the financial condition, results of operations,
business or prospects of Wayne and its subsidiaries on a
consolidated basis.
(c) The Board of Directors of Wayne has authorized execution of this
Merger Agreement and approved the merger of CVB and Wayne as
contemplated by said Merger Agreement. Wayne, subject to approval
of its shareholders, has all requisite power and authority to enter
into this Merger Agreement and Wayne has the authority to consummate
the transactions contemplated hereby. This Merger Agreement
constitutes the valid and legally binding obligation of Wayne and
this Merger Agreement and the consummation hereof has been duly
authorized and approved on behalf of Wayne by all requisite
corporate action. Provided the required approvals are obtained from
the Federal Reserve Board and any other necessary regulatory
agencies, and the shareholders of Wayne, neither the execution and
delivery of this Merger Agreement nor the consummation of the Merger
will conflict with, result in the breach of, constitute a default
under or accelerate the performance provided by the terms of any
law, or any rule or regulation of any governmental agency or
authority or any judgment, order or decree of any court or other
governmental agency to which Wayne may be subject, any contract,
agreement or instrument to which Wayne is a party or by which Wayne
is bound or committed, or the Articles of Incorporation or Code of
Regulations of Wayne or the Articles of Association or Bylaws of
Wayne Bank, or constitute an event which, including with the lapse
of time or action by a third party, could, to the best of Wayne's
knowledge, result in the default under any of the foregoing or
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result in the creation of any lien, charge or encumbrance upon any
of the assets or properties of Wayne or any of its subsidiaries or
upon any of the stock of Wayne or any of its subsidiaries, except,
however, in the case of contracts, agreements or instruments, such
defaults, conflicts or breaches which either (i) will be cured or
waived prior to the time the Merger becomes effective, or (ii) if
not so cured or waived would not, in the aggregate, have any
material adverse effect on the financial condition, results of
operations or business of Wayne on a consolidated basis.
(d) There is no litigation, action, suit, investigation or proceeding
pending or, to the best of the knowledge after due inquiry of Wayne
and its executive officers, threatened, against Wayne or its
subsidiaries or involving any of their respective properties or
assets, at law or in equity, before any federal, state, municipal,
local or other governmental authority, involving a material amount
which, if resolved adversely to the interest of Wayne or its
subsidiaries, would materially affect the financial condition or
operations of Wayne or its subsidiaries on a consolidated basis
and/or Wayne's ability to perform under this Merger Agreement, and
to the best of the knowledge and belief after due inquiry of Wayne
and its executive officers, no one has asserted and no one has
reasonable or valid grounds on which it reasonably can be expected
that anyone will assert any such claims against Wayne or its
subsidiaries based upon the wrongful action or inaction of Wayne or
its subsidiaries or any of their respective officers, directors or
employees.
(e) At the time the Merger shall become effective and on such subsequent
date when the former shareholders of CVB surrender their CVB share
certificates for cancellation, the shares of Wayne Common Stock to
be received therefore will have been duly authorized and validly
issued by Wayne and will be fully paid and nonassessable and be
issued free of preemptive rights.
(f) Wayne has timely filed all reports and registration statements
(collectively, "SEC Documents") required to be filed by it pursuant
to the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, and such SEC Documents complied in
all material respects with the Securities Act of 1933 and the
Securities Exchange Act of 1934 and all applicable rules and
regulations promulgated thereunder (the "SEC Laws"). Wayne has
delivered to CVB copies of the Annual Report on Form 10-K filed with
the Securities and Exchange Commission by Wayne for its fiscal year
ended December 31, 1996, including exhibits and all documents
incorporated by reference therein, and the proxy materials
disseminated by Wayne to its shareholders in connection with the
1997 Annual Meeting of Shareholders of Wayne. Promptly upon the
execution of this Agreement, Wayne will deliver to representatives
of CVB its Quarterly Reports on Form 10-Q filed with the Securities
and Exchange Commission for the quarters ended March 31, June 30,
and September 30, 1997. Such Annual and Quarterly Reports and proxy
materials and the SEC Documents do not misstate a material fact or
omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under
which they are made, not misleading.
(g) Since December 31, 1996: (i) each of Wayne and its subsidiaries has
conducted business in the ordinary course, and has preserved its
corporate existence, business and goodwill intact; (ii) there has
been no material adverse change in the assets, liabilities, business
or operations of Wayne or its subsidiaries; and (iii) there has been
no damage, destruction, loss, or which in the aggregate has had or
might reasonably be expected to have a material adverse effect on
the business or operations of Wayne or any of its subsidiaries.
(h) To the best of the knowledge after due inquiry of Wayne and its
executive officers, Wayne and Wayne Bank have complied with all
laws, regulations and orders applicable to Wayne and Wayne Bank and
to the conduct of their businesses, including without limitation,
all statutes, rules and regulations pertaining to the conduct of
banking activities except for possible technical violations which
together with any penalty which results therefrom do not or will not
have a material adverse effect on the financial condition, results
of operations or business of Wayne and Wayne Bank on a consolidated
basis. Neither Wayne nor Wayne Bank are in default under, and no
event has
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occurred which, with the lapse of time or action by a third party,
could, to the best of Wayne's knowledge after due inquiry, result in
the default under the terms of any judgment, decree, order, writ,
rule or regulation of any governmental authority or court, whether
federal, state or local and whether at law or in equity, where the
default(s) could reasonably be expected to have a material adverse
effect on the financial conditions, results of operations or
business of Wayne and Wayne Bank on a consolidated basis.
(i) Wayne has duly and timely filed all federal, state, county
and local income, excise, real and personal property and other tax
returns and reports (including, but not limited to, social security,
withholding, unemployment insurance, and sales and use taxes)
required to have been filed by Wayne up to the date hereof. To the
best of the knowledge and belief of Wayne all such returns are true
and correct in all material respects, and Wayne has paid or, prior
to the time the Merger shall become effective, will pay all taxes,
interest and penalties shown on such return or reports or claimed
(other than those claims being contested in good faith) to be due to
any federal, state, county, local or other taxing authority, and
there is, and at the time the Merger shall become effective will be,
no basis for any additional claim or assessment which might
materially and adversely affect Wayne or Wayne Bank, and for which
an adequate reserve has not been established. To the best of its
knowledge and belief, Wayne has paid or made adequate provision in
its financial statements or its books and records for all taxes
payable in respect of all periods ending as of the date thereof. To
the best of its knowledge and belief Wayne has, or at the time the
Merger shall become effective will have, no material liability for
any taxes, interest or penalties of any nature whatsoever, except
for those taxes which may have arisen up to the time the Merger
shall become effective in the ordinary course of business and are
properly accrued on the books of Wayne as of the time the Merger
shall become effective.
(j) The deposits of Wayne Bank are insured by the Federal Deposit
Insurance Corporation and Wayne Bank has paid all premiums and
assessments with respect to such deposit insurance.
(k) Wayne has no knowledge of any hazardous substances, hazardous
waste, pollutant or contaminant, including, but not limited to,
asbestos (except as previously disclosed to CVB in a letter of even
date herewith), PCB's or urea formaldehyde, having been generated,
released into, stored or deposited over, upon or below (in storage
tanks or otherwise) the premises of Wayne or Wayne Bank or any other
real property owned or leased by Wayne or Wayne Bank, or into any
water systems on or below the surface of Wayne or Wayne Bank
premises or any other real property owned or leased by Wayne or
Wayne Bank in violation of any law, regulation or requirement or in
any manner which could result in a material adverse impact on the
value of the premises or property or present a threat to human
health or the environment. As used in this Merger Agreement, the
terms "hazardous substance," "hazardous waste, "pollutant" and
"contaminant" mean any substance, waste, pollutant or contaminant
included within such terms under any applicable Federal, state or
local statute or regulation.
(l) Wayne and Wayne Bank have in effect insurance coverage with
reputable insurers, which in respect of amounts, premiums, types and
risks insured, constitutes reasonably adequate coverage against all
risks customarily insured against by companies comparable in size
and operation to Wayne or Wayne Bank.
13. Representations and Warranties of CVB. CVB represents and warrants to
Wayne as follows:
(a) CVB is a corporation duly organized and validly existing
under the laws of the State of Ohio, and is a registered bank
holding company under the Bank Holding Company Act of 1956, as
amended. CVB has full power and authority (including all licenses,
franchises, permits and other governmental authorizations which are
legally required which, if not obtained or possessed, would have a
materially adverse effect on the business and operations of CVB) to
engage in the businesses and activities now conducted by it. As of
the date of this Merger Agreement, the authorized capital stock of
CVB consists of 500,000 shares of common stock without par value, of
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which a total of 448,000 shares are issued and outstanding and no
shares are held as treasury shares. All of said shares of capital
stock are fully paid and nonassessable and were not issued in
violation of the preemptive rights of any shareholder. There are no
outstanding options, warrants or commitments of any kind relating to
CVB's authorized but unissued capital stock except as disclosed in
the letter to Wayne of even date herewith.
(b) CVB has furnished to Wayne copies of the following financial
statements relating to CVB and its consolidated subsidiaries: (i)
the audited Consolidated Balance Sheets of CVB as of December 31,
1996 and 1995 and the Consolidated Statements of Income, Changes in
Shareholders' Equity and Statements of Cash Flows for the years then
ended, together with the notes and report of S. R. Snodgrass, A.C.
thereto, (ii) copies of all reports of CVB and Chippewa Bank as
filed with the appropriate regulatory agencies, as of and for the
years ended December 31, 1996 and 1995 and through the date hereof.
Each of the aforementioned financial statements is true and correct
in all material respects and together present fairly in all
material respects the consolidated financial position and results of
operations of CVB as of the dates and for the periods therein set
forth in conformity with GAAP. Such financial statements do not, as
of the dates thereof, include any material asset or omit any
material liability, absolute or contingent, or other fact, required
to be included or omitted as the case may be, by GAAP. Since
December 31, 1996, there has not been any material adverse change in
the financial condition, results of operations, or business of CVB
and Chippewa Bank on a consolidated basis.
(c)
The Board of Directors of CVB has authorized execution of this
Merger Agreement. Subject to the approval by the shareholders of
CVB, CVB has all requisite power and authority to enter into this
Merger Agreement. CVB owns all of the shares of Chippewa Bank and
CVB has the authority to consummate the transactions contemplated
hereby so that, provided all required corporate and regulatory
approvals are obtained and all conditions to CVB's obligations as
set forth in this Merger Agreement are satisfied, neither the
execution and delivery of this Merger Agreement nor the consummation
of the Merger will conflict with, result in the breach of,
constitute a default under or accelerate the performance provided by
the terms of any law, or any rule or regulation of any governmental
agency or authority or any judgment, order or decree of any court or
other governmental agency to which CVB may be subject, any contract,
agreement or instrument to which CVB is a party or by which CVB is
bound or committed, or the Articles of Incorporation or Code of
Regulations of CVB or Chippewa Bank, or constitute an event which
with the lapse of time or action by a third party, could, to the
best of CVB's knowledge, result in the default under any of the
foregoing or result in the creation of any lien, charge, encumbrance
upon any of the assets, property or capital stock of CVB, except,
however, in the case of contracts, agreements or instruments, such
defaults, conflicts or breaches which either (i) will be cured or
waived prior to the time the Merger becomes effective, or (ii) if
not so cured or waived would not, in the aggregate, have any
material adverse effect on the financial condition, results of
operations or business of CVB and Chippewa Bank on a consolidated
basis.
(d) There is no litigation, action, suit, investigation or proceeding
pending or, to the best of their knowledge after due inquiry of CVB
and its executive officers, overtly threatened, against CVB or
Chippewa Bank or involving any of their respective properties or
assets, at law or in equity, before any federal, state, municipal,
local or other governmental authority, involving a material amount
which, if resolved adversely to the interest of CVB or Chippewa Bank
would materially affect the financial condition or operations of CVB
and Chippewa Bank on a consolidated basis and/or CVB's ability to
perform under this Merger Agreement. To the best knowledge after
due inquiry of CVB and its executive officers, no one has asserted
and no one has reasonable or valid ground on which it reasonably can
be expected that anyone will assert any such claims against CVB or
Chippewa Bank or be based upon the wrongful action or inaction of
CVB or Chippewa Bank or any of their respective officers, directors
or employees
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(e) CVB and Chippewa Bank have good and marketable title to all assets
and properties, whether real or personal, tangible or intangible,
including without limitation the capital stock of Chippewa Bank,
reflected in CVB's Balance Sheet of December 31, 1996 or 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 December 31, 1996) subject to no liens,
mortgages, security interests, encumbrances, pledges or charges of
any kind, except: (i) those items that secure liabilities that are
reflected in said Balance Sheet; (ii) statutory liens for taxes not
yet delinquent; (iii) minor defects and irregularities in title and
encumbrances which do not materially impair the use thereof for the
purposes for which they are held; (iv) pledges or liens required to
be granted in connection with the acceptance of government deposits
or granted in connection with repurchase agreements; and (v)
easements, encumbrances, liens, mortgages and security interests of
record which do not impair the use thereof for the purposes intended
and such liens, mortgages, security interests, encumbrances and
charges are not in the aggregate, material to the assets and
properties of CVB. CVB or Chippewa Bank have as lessee the
contractual right under valid leases to occupy, use, possess and
control all material property leased by CVB or Chippewa Bank.
(f) To the best of the knowledge after due inquiry of CVB and its
executive officers, CVB and Chippewa Bank have complied with all
laws, regulations and orders applicable to CVB and Chippewa Bank and
to the conduct of their businesses, including without limitation,
all statutes, rules and regulations pertaining to the conduct of
banking activities except for possible technical violations which
together with any penalty which results therefrom do not or will not
have a material adverse effect on the financial condition, results
of operations or business of CVB and Chippewa Bank on a consolidated
basis. Neither CVB nor Chippewa Bank are in default under, and no
event has occurred which, with the lapse of time or action by a
third party, could, to the best of CVB's knowledge after due
inquiry, result in the default under the terms of any judgment,
decree, order, writ, rule or regulation of any governmental
authority or court, whether federal, state or local and whether at
law or in equity, where the default(s) could reasonably be expected
to have a material adverse effect on the financial conditions,
results of operations or business of CVB and Chippewa Bank on a
consolidated basis.
(g) Except as disclosed in CVB's letter to Wayne of even date
herewith, CVB and Chippewa Bank have not, since December 31, 1996 to
the date hereof: (i) issued or sold any of its capital stock or any
issued any corporate debt securities other than in the ordinary
course of its banking business; (ii) granted any option for the
purchase of capital stock; (iii) declared or set aside or paid any
dividend or other distribution in respect of its capital stock
except as permitted pursuant to Section 14(a) hereof or, directly or
indirectly, purchased, redeemed or otherwise acquired any shares of
such stock; (iv) incurred any obligation or liability (absolute or
contingent), except for obligations reflected in this Merger
Agreement, and except for obligations or liabilities incurred in the
ordinary course of business, or mortgaged, pledged or subjected to
lien or encumbrance (other than statutory liens for taxes not yet
delinquent or other than in the ordinary course of business) any of
its assets or properties; (v) discharged or satisfied any lien or
encumbrance or paid any obligation or liability (absolute or
contingent), other than the current portion of any long term
liabilities which become due after December 31, 1996, business,
liabilities incurred in carrying out the transactions contemplated
by this Merger Agreement and obligations and liabilities paid in the
ordinary course of business; (vi) sold, exchanged or otherwise
disposed of any of its material capital assets outside the ordinary
course of business; (vii) made any extraordinary officers' salary
increase or wage increase, entered into any employment contract with
any officer or salaried employee or, instituted any employee
welfare, bonus, stock option, profit-sharing, retirement or similar
plan or arrangement; (viii) suffered any damage, destruction or
loss, whether or not covered by insurance, materially and adversely
affecting its business, property or assets or waived (except for
fair consideration) any rights of value which are material in the
aggregate, considering CVB's business taken as a whole; or (ix)
entered or agreed to enter into any agreement or arrangement
granting any preferential right to purchase any of its assets,
properties or rights or
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requiring the consent of any party to the transfer and assignment
of any such assets, properties or rights.
(h) Except as set forth in CVB's letter to Wayne of even date
herewith, neither CVB nor Chippewa Bank is a party to or bound by
any written or, to the best of its knowledge after due inquiry,
oral: (i) employment or consulting contract which is not terminable
by CVB or Chippewa Bank on 60 days or less notice, (ii) employee
bonus, deferred compensation, pension, stock bonus or purchase,
profit-sharing, retirement or stock option plan, (iii) other
employee benefit or welfare plan, or (iv) other executory material
agreements which in any case obligate CVB or Chippewa Bank to make
any payment(s) which in the aggregate exceed $25,000 per year
except for contracts terminable on 60 days' notice. All such
pension, stock bonus or purchase, profit-sharing, defined benefit
and retirement plans set forth under the caption "Qualified Plans"
in the CVB letter (hereinafter referred to collectively as the
"plans") are qualified plans under Section 401(a) of the Internal
Revenue Code and in compliance in all material respects with ERISA.
All material notices, reports and other filings required under
applicable law to be given or made to or with any governmental
agency with respect to the plans have been timely filed or
delivered where failure to file could result in a penalty of
$25,000 and/or result in disqualification of the plan. CVB has no
knowledge either of any circumstances which would adversely affect
the qualification of the plans or their compliance with ERISA, or
of any unreported "reportable event" (as such term is defined in
Section 4043(b) of ERISA) or, except as indicated in the CVB letter
to Wayne of even date herewith, any "prohibited transaction" (as
such term is defined in Section 406 of ERISA and Section 4975(c) of
the Internal Revenue Code) which has occurred since the date on
which said sections became applicable to the plans. No such plan
is subject to the minimum funding standards set forth in the Code
and ERISA.
(i) CVB has duly filed all federal, state, county and local income,
excise, real and personal property and other tax returns and
reports (including, but not limited to, social security,
withholding, unemployment insurance, and sales and use taxes)
required to have been filed by CVB up to the date hereof. Except
as set forth in CVB's letter to Wayne of even date herewith, to the
best of the knowledge and belief of CVB all such returns are true
and correct in all material respects, and CVB has paid or, prior to
the time the Merger shall become effective, will pay all taxes,
interest and penalties shown on such return or reports or claimed
(other than those claims being contested in good faith and which
have been disclosed to Wayne) to be due to any federal, state,
county, local or other taxing authority, and there is, and at the
time the Merger shall become effective will be, no basis for any
additional claim or assessment which might materially and adversely
affect CVB or Chippewa Bank and for which an adequate reserve has
not been established. To the best of its knowledge and belief, CVB
has paid or made adequate provision in its financial statements or
its books and records for all taxes payable in respect of all
periods ending as of the date thereof. To the best of its
knowledge and belief, CVB has, or at the time the Merger shall
become effective will have, no material liability for any taxes,
interest or penalties of any nature whatsoever, except for those
taxes which may have arisen up to the time the Merger shall become
effective in the ordinary course of business and are properly
accrued on the books of CVB as of the time the Merger shall become
effective.
(j) CVB has no knowledge of any hazardous substances, hazardous waste,
pollutant or contaminant, including, but not limited to, asbestos
except as disclosed to Wayne in the CVB letter of even date
herewith, PCB's or urea formaldehyde, having been generated,
released into, stored or deposited over, upon or below (in storage
tanks or otherwise) the Chippewa Bank premises or any other real
property owned or leased by CVB or Chippewa Bank, or into any water
systems on or below the surface of the Chippewa Bank premises or
any other real property owned or leased by CVB or the Chippewa Bank
in violation of any law, regulation or requirement or in any manner
which could result in a material adverse impact on the value of the
premises or property or present a threat to human health or the
environment. As used in this Merger Agreement, the terms
"hazardous substance," "hazardous waste, "pollutant" and
"contaminant" mean any substance, waste, pollutant
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or contaminant included within such terms under any applicable
Federal, state or local statute or regulation.
(k) CVB or Chippewa Bank has in effect insurance coverage with
reputable insurers, which in respect of amounts, premiums, types and
risks insured, constitutes reasonably adequate coverage against
all risks customarily insured against by companies comparable in
size and operation to CVB or Chippewa Bank.
(l) Other than as previously disclosed to Wayne, in writing, with
respect to the fairness opinion relating to the Merger and other
than professional fees and disbursements of its accountants and
attorneys, CVB has not incurred and will not incur any liability for
brokerage, finders', agents', or investment bankers' fees or
commissions in connection with this Merger Agreement or the
transactions contemplated hereby.
14. Action by CVB Pending Effective Time. CVB agrees that from the date of
this Merger Agreement until the time the Merger shall become effective, or
until this Merger Agreement is terminated as provided for herein, except
with prior written permission of Wayne:
(a) Beginning with the date hereof and until such time as the
Merger shall become effective, CVB will not declare or pay any
dividends (cash or stock) or make any distributions other than its
ordinary and normal cash dividend at the rate of $0.32 per share per
year for the year ended December 31, 1997. CVB already has paid
$0.16 per share as a dividend in 1997 and will pay only an
additional $0.16 per share, which amount will paid on or before
December 31, 1997.
(b) CVB will not issue, sell, grant any option for, or acquire for
value any shares of its capital stock or otherwise effect any
change in connection with its capitalization.
(c) Except as set forth in or contemplated by this Merger Agreement,
CVB and Chippewa Bank will carry on their respective businesses in
substantially the same manner as on the date hereof, keep in full
force and effect insurance comparable in amount and scope of
coverage to that now maintained by it and use its best efforts to
maintain and preserve its business organization intact.
(d) Except as specifically set forth in CVB's letter to Wayne of
even date herewith, CVB and Chippewa Bank will not: (i) enter into
any transaction other than in the ordinary course of business or
incur or agree to incur any obligation or liability except
liabilities incurred and obligations entered into in the ordinary
course of business; (ii) change Chippewa Bank's lending, investment,
liability management and other material banking policies in any
material respect; (iii) except as committed for adjustment as of the
date hereof and consistent with prior practice, grant any general or
uniform increase in the rates of pay of employees; (iv) incur or
commit to any capital expenditures other than in the ordinary course
of business (which in no event shall include the establishment of
new branches and such other facilities) or any capital expenditures
for any purpose which exceed $50,000 in the aggregate, or (v) except
as provided in Section 9 hereof, merge into, consolidate with or
sell its assets to any other corporation or person, or permit any
other corporation to be merged or consolidated with it or acquire
all of the assets of any other corporation or person.
(e) CVB will not change its or Chippewa Bank's methods of accounting in
effect at December 31, 1996 except as required by changes in
generally accepted accounting principles and concurred in by CVB's
independent auditors, and except for the adjustments required as of
December 31, 1997 pursuant to paragraph 7(a) hereof, or change any
of its methods of reporting income and deductions for Federal
income tax purposes from those employed in the preparation of CVB's
Federal income tax returns for the taxable year ending December
31, 1996, except for changes required by law.
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(f) CVB will afford Wayne, its officers and other authorized
representatives, subject to the confidentiality requirements of
Section 10(d) hereof, such access to all books, records, tax
returns, leases, contracts and documents of CVB or Chippewa Bank and
will furnish to Wayne such information with respect to the assets
and business of CVB and Chippewa Bank as Wayne may from time to time
reasonably request in connection with this Merger Agreement and the
transactions contemplated hereby.
(g) CVB will promptly furnish Wayne with copies of all interim
financial statements of CVB as they become available, and keep Wayne
fully informed concerning all developments which in the opinion of
CVB may have a material effect upon the business, properties or
condition (either financial or otherwise) of CVB.
15. Action by Wayne Pending Effective Time. Wayne agrees that from the date
of this Agreement until the time the Merger shall become effective or
until this Merger Agreement is terminated as provided for herein:
(a) Wayne will carry on its business in substantially the same
manner as heretofore except as otherwise set forth in or
contemplated by this Merger Agreement, and Wayne will keep in full
force and effect insurance comparable in amount and scope of
coverage to that now maintained by it and use its best efforts to
maintain and preserve its business organization intact. CVB
acknowledges that, in the ordinary course of its business as a bank
holding company, Wayne from time-to-time, enters into an
agreement(s) to acquire by merger, stock purchase or like means,
another financial institution or its holding company.
(b) Wayne will not change its methods of accounting in effect at
December 31, 1996, except as required by changes in generally
accepted accounting principles as concurred in by Wayne's
independent auditors, or change any of its methods of reporting
income and deductions for Federal income tax purposes from those
employed in the preparation of the Federal income tax returns of
Wayne Bank for the taxable year ending December 31, 1996, except for
changes required by law or take any action which could jeopardize
the tax free nature of the Merger or the pooling of interests
accounting treatment for the Merger.
(c) Wayne will promptly furnish CVB with copies of press
releases, interim financial statements of Wayne and all reports,
schedules and statements filed by or delivered to Wayne pursuant to
the Securities and Exchange Act of 1934 and the rules and
regulations promulgated thereunder, as they become available.
(d) Wayne will afford CVB, its officers and other authorized
representatives, subject to the confidentiality requirements of
Section 10(d) hereof, such access to all books, records, tax
returns, leases, contracts and documents of Wayne and will furnish
to CVB such information with respect to the assets and business of
Wayne as CVB may from time to time reasonably request in connection
with this Merger Agreement and the transactions contemplated hereby.
16. Conditions to Obligations of Wayne. The obligations of Wayne under this
Merger Agreement are subject, unless waived by Wayne, to the satisfaction
of the following conditions on or prior to the time the Merger shall
become effective:
(a) Prior to the time the Merger shall become effective, Wayne
shall not have been deprived of adequate opportunity to conduct such
review and examination of the business, properties, and condition
(financial or otherwise) of CVB and Chippewa Bank as Wayne shall
have deemed prudent, and such review and examination shall not have
disclosed matters which are inconsistent in any material respect
with any of the representations and warranties of CVB contained in
this Merger Agreement.
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(b) There shall not have been any material adverse change or
discovery of a condition or the occurrence of an event which has or
is likely to result in such a material adverse change, in the
financial condition, aggregate net assets, shareholders' equity,
business or operating results of CVB on a consolidated basis from
December 31, 1996 to the time the Merger shall become effective.
(c) All representations by CVB contained in this Merger Agreement
shall be true in all material respects immediately prior to the time
the Merger shall become effective as though such representations
were made at and as of said date, except for changes contemplated by
the Merger Agreement and except also for representations as of a
specified time other than the time the Merger shall become
effective, which shall be true in all material respects at such
specified time.
(d) Wayne shall have received the opinion of legal counsel for
CVB, dated the time the Merger shall become effective, substantially
to the effect set forth in Exhibit A hereto.
(e) CVB shall have performed or satisfied in all material
respects all agreements and conditions required by this Merger
Agreement to be performed or satisfied by it at or prior to the time
the Merger shall become effective.
(f) At the time the Merger shall become effective, no suit,
action or proceeding shall be pending or overtly threatened before
any court or other governmental agency of the federal or state
government in which it is sought to restrain or prohibit the
consummation of the Merger, and no other suit, action or proceeding
shall be pending or overtly threatened and no liability or claim
shall have been asserted against CVB or Chippewa Bank which Wayne
shall in good faith determine, with advice of counsel: (i) has a
reasonable likelihood of being successfully prosecuted and (ii) if
successfully prosecuted, would materially and adversely affect the
financial condition, results of operations or shareholders' equity
of CVB on a consolidated basis.
(g) The number of shares as to which shareholders of CVB have
exercised their dissenters' rights of appraisal pursuant to the
provisions of Section 1701.85 of the Ohio Revised Code does not
exceed 10 percent (10%) of the outstanding shares of CVB Common
Stock.
(h) CVB shall have furnished Wayne certificates, signed on its
behalf by the Chairman or President and the Secretary or an
Assistant Secretary of CVB and dated the time the Merger shall
become effective, to the effect that to the best of their knowledge,
after due inquiry, the conditions described in Paragraphs (b), (c),
(e) and (f) of this Section 16 have been fully satisfied.
(i) Austin Associates, Inc. ("AAI") shall have issued its written
fairness opinion stating that the terms of the Merger are fair and
equitable to the shareholders of Wayne from a financial perspective.
Such written fairness opinion shall be: (a) in form and substance
reasonably satisfactory to Wayne; (b) dated as of a date not later
than the mailing date of the Proxy Statement/Prospectus relating to
the Merger to be mailed to Wayne shareholders; (c) included in the
Proxy Statement/Prospectus; and (d) confirmed by AAI as of the time
the Merger shall become effective that the terms of the Merger
continue to be fair and equitable to the shareholders of CVB from a
financial perspective.
(j) Wayne shall have received assurances, satisfactory to it,
that the Merger will be accounted for as a pooling of interests
transaction.
(k) CVB shall have taken action necessary to cause the
adjustments described in paragraph 7(a) hereof related to FASB 115,
the write-off of intangibles and the increase in the loan loss
reserve effective as of December 31, 1997.
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(l) Wayne shall have been afforded the opportunity to conduct a
phase I environmental audit of any real property owned by CVB or its
subsidiaries. In the event a matter is discovered which if known by
CVB as of the date of this Agreement would have violated the
representation contained in paragraph 13(j) hereof, involves an
amount in excess of $50,000, and CVB shall fail to remedy such
matter to the reasonable satisfaction of Wayne, then Wayne may
terminate this Agreement and neither party shall thereafter have any
liability resulting from this Agreement or the transactions
contemplated thereby. Wayne shall complete any phase I examination
within 90 days of this Agreement.
(m) The members of the Board of Directors of CVB shall have executed
this Agreement stating that they shall vote their shares of CVB in
favor of the Merger and shall recommend approval of the Merger to
the CVB shareholders.
17. Conditions to Obligations of CVB. The obligations of CVB under this
Merger Agreement are subject, unless waived by CVB, to the satisfaction on
or prior to the time the Merger shall become effective of the following
conditions:
(a) There shall not have been any material adverse change or
discovery of a condition or the occurrence of an event which has or
is likely to result in such a material adverse change, in the
financial condition, aggregate net assets, shareholders' equity,
business, or operating results of Wayne on a consolidated basis
from December 31, 1996 to the time the Merger shall become
effective.
(b) All representations and warranties by Wayne contained in this
Merger Agreement shall be true in all material respects immediately
prior to the time the Merger shall become effective as though such
representations and warranties were made at and as of said date,
except for changes contemplated by this Merger Agreement, and except
also for representations as of a specified time other than the time
the Merger shall become effective, which shall be true in all
material respects at such specified time.
(c) CVB shall have received the opinion of Counsel for Wayne dated the
time the Merger shall become effective substantially to the effect
set forth in Exhibit B hereto.
(d) Wayne shall have performed or satisfied in all material respects
all agreements and conditions required by this Merger Agreement to
be performed or satisfied by it at or prior to the time the Merger
shall become effective.
(e) At the time the Merger shall become effective, no suit, action or
proceeding shall be pending or overtly threatened before any court
or other governmental agency of the federal or state government in
which it is sought to restrain, prohibit or set aside consummation
of the Merger and no other suit, action or proceeding shall be
pending or overtly threatened and no liability or claim shall have
been asserted against Wayne or Wayne Bank which CVB shall in good
faith determine, with advice of counsel: (i) has a reasonable
likelihood of being successfully prosecuted and (ii) if
successfully prosecuted, would materially and adversely affect the
financial condition, results of operations or shareholders' equity
of Wayne, on a consolidated basis.
(f) Wayne shall have furnished CVB a certificate, signed by the
Chairman or President and by the Secretary or Assistant Secretary of
Wayne and dated the time the Merger shall become effective to the
effect that to the best of their knowledge after due inquiry the
conditions described in Paragraphs (a), (b), (d) and (e) of this
Section 17 have been fully satisfied.
(g) Prior to the time the Merger shall become effective, CVB
shall not have been deprived of adequate opportunity to conduct such
review and examination of the business, properties and condition
(financial or otherwise) of Wayne and its subsidiaries as CVB shall
have deemed
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prudent, and such review and examination shall not have disclosed
matters which are inconsistent in any material respect with any of
the representations and warranties of Wayne contained in this
Merger Agreement.
(h) Gary Young and Associates ("Young") or such other financial
advisor acceptable to CVB shall have issued its written fairness
opinion stating that the terms of the Merger are fair and equitable
to the shareholders of CVB from a financial perspective. Such
written fairness opinion shall be: (a) in form and substance
reasonably satisfactory to CVB; (b) dated as of a date not later
than the mailing date of the Proxy Statement/Prospectus relating to
the Merger to be mailed to CVB shareholders; (c) included in the
Proxy Statement/Prospectus; and (d) confirmed by Young as of the
time the Merger shall become effective that the terms of the Merger
continue to be fair and equitable to the shareholders of CVB from a
financial perspective.
(i) The average of the bid and asked price of a share of Wayne
Common Stock as of the end of the business day five (5) days before
the effective date of the Merger shall not be less than $30.00,
provided, however, that Chippewa shall not be entitled to terminate
the Merger based upon such condition if the price per share of the
financial institutions comprising the S & P Major Regional Bank
Index shall have declined by 25% or more from the date hereof until
the date five (5) days before the effective date of the Merger.
18. Conditions to Obligations of All Parties. In addition to the provisions
of Sections 16 and 17 hereof, the obligations of Wayne and CVB to cause
the transactions contemplated herein to be consummated shall be subject to
the satisfaction of the following conditions on or prior to the time the
Merger shall become effective:
(a) The parties hereto shall have received all necessary approvals of
governmental agencies and authorities of the transactions
contemplated by this Merger Agreement and each of such approvals
shall remain in full force and effect at the time the Merger shall
become effective and such approvals and the transactions
contemplated thereby shall not have been contested by any federal
or state governmental authority by formal proceeding, or contested
by any other third party by formal proceeding which the Board of
Directors of the party asserting a failure of a condition under
this Section 18(a) shall in good faith determine, with the advice
of counsel: (i) has a reasonable likelihood of being successfully
prosecuted and (ii) if successfully prosecuted, would materially
and adversely affect the benefits hereunder intended for such
party. It is understood that, if any contest as aforesaid is
brought by formal proceedings, Wayne may, but shall not be
obligated to, answer and defend such contest. Wayne shall notify
CVB promptly upon receipt of all necessary governmental approvals.
(b) The registration statement required to be filed by Wayne pursuant
to Section 10(c) of this Merger Agreement shall have become
effective by an order of the Securities and Exchange Commission,
the shares of Wayne Common Stock to be exchanged in the Merger
shall have been qualified or exempted under all applicable state
securities laws, and there shall have been no stop order issued or
threatened by the Securities and Exchange Commission that suspends
or would suspend the effectiveness of the registration statement,
and no proceeding shall have been commenced, pending or overtly
threatened for such purpose.
(c) This Merger Agreement shall have been duly adopted, ratified
and confirmed by the requisite affirmative votes of the shareholders
of CVB and Wayne.
(d) Wayne and CVB shall have received the opinion and there shall
exist as of, at or immediately prior to the time the Merger shall
become effective no facts or circumstances which would render such
opinion inapplicable in any respect to the transactions to be
consummated hereunder of Werner & Blank Co., L.P.A. substantially to
the effect that:
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(i) The statutory merger of CVB with and into Wayne will
constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code;
(ii) No gain or loss will be recognized by CVB or Wayne as a
consequence of the transactions herein contemplated;
(iii) No gain or loss will be recognized by the shareholders of CVB
on the exchange of their shares of CVB Common Stock for
shares of Wayne Common Stock (disregarding for this purpose
any cash received for fractional share interests to which
they may be entitled);
(iv) The federal income tax basis of the Wayne Common Stock
received by the shareholders of CVB Common Stock for
their shares of CVB Common Stock will be the same as the
federal income tax basis of the CVB Common Stock surrendered
in exchange therefor; and
(v) The holding period of the Wayne Common Stock received by a
shareholder of CVB for his shares of CVB Common Stock will
include the period for which the CVB Common Stock exchanged
therefor was held, provided the exchanged CVB Common Stock
was held as a capital asset by such shareholder on the
date of the exchange.
19. Nonsurvival of Representations and Warranties. The respective
representations and warranties of Wayne and CVB set forth in Sections 12
and 13 shall not survive the time the Merger shall become effective.
20. Governing Law. This Merger Agreement shall be construed and interpreted
according to the applicable laws of the State of Ohio.
21. Assignment. This Merger Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Merger
Agreement nor any of the rights, interests, or obligations hereunder shall
be assigned by either of the parties hereto without the prior written
consent of the other party.
22. Satisfaction of Conditions; Termination.
(a) Wayne agrees to use its best effort to obtain satisfaction of
the conditions insofar as they relate to Wayne, and CVB agrees to
use its best efforts to obtain the satisfaction of the conditions
insofar as they relate to CVB. If any condition to the obligations
of Wayne set forth in Section 16 or 18 is not substantially
satisfied at the time or times contemplated thereby and such
condition is not waived by Wayne, or if any condition to the
obligations of CVB set forth in Section 17 or 18 is not
substantially satisfied at the time or times contemplated thereby
and such condition is not waived by CVB, or if at any time prior to
the time the Merger shall become effective, it shall become
reasonably certain that such condition will not be substantially
satisfied and such condition is not waived by Wayne or CVB, as the
case may be, either Wayne or CVB may terminate this Merger Agreement
by written notice to the other party after the expiration of fifteen
(15) days written notice to the other party during which time such
other party shall have an opportunity to cure such defect in said
condition. This Merger Agreement may be terminated and abandoned
(either before or after the meetings of shareholders contemplated
hereby) by mutual written consent of Wayne and CVB authorized by
their respective Boards of Directors. In the event of such
termination caused otherwise than by breach of this Merger Agreement
by any of the parties hereto, this Merger Agreement shall cease and
terminate, the acquisition of CVB as provided herein shall not be
consummated, and neither Wayne nor CVB shall have any further
liability under this Merger Agreement of any nature whatever,
including any liability for damages. In the event this Merger
Agreement is terminated, the duties of both parties with respect to
confidential information set forth in Sections 10(d) shall survive
any such termination. In addition to the other grounds for
termination of this Merger Agreement set forth herein, this Merger
Agreement can be terminated by written notice by either party to the
other, in each case authorized by its Board of Directors, if the
Merger shall not have been consummated by September 30, 1998 or the
date of such notice, whichever is later.
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(b) If termination of this Merger Agreement shall be judicially
determined to have been caused by breach of this Merger Agreement,
then, in addition to other remedies at law or equity for breach of
this Merger Agreement, the party so found to have breached this
Merger Agreement shall indemnify the other parties for their
respective costs, fees and expenses of its counsel, accountants and
other experts and advisors as well as fees and expenses incident to
negotiation, preparation and execution of this Merger Agreement and
related actions and its shareholders' meetings and actions.
23. Waivers Amendments. Any of the provisions of this Merger Agreement may
be waived at any time by the party which is, or the shareholders of which
are, entitled to the benefit thereof, by such party. This Merger
Agreement may be amended or modified in whole or in part by an agreement
in writing executed in the same manner (but not necessarily by the same
person) as this Merger Agreement and which makes reference to this Merger
Agreement, pursuant to a resolution, adopted by the Boards of Directors of
the respective parties, provided, however, such amendment or modification
may be made in this manner by the respective Boards of Directors of Wayne
and CVB at any time prior to a favorable vote of such party's
shareholders, but may be made after a favorable vote by the shareholders
of such party, only if, in the opinion of its Board of Directors, such
amendment or modification will not have any material adverse effect on the
benefits intended under this Merger Agreement for the shareholders of such
party and will not require resolicitation of any proxies from such
shareholders or further shareholder approval is obtained.
24. Entire Agreement. This Agreement supersedes any other agreement, whether
written or oral, that may have been made or entered into by Wayne and CVB
or by any officer or officers of such parties relating to the acquisition
of the business or the capital stock of CVB by Wayne. Except for the
letters specified in this Merger Agreement and of even date herewith, this
Agreement and the Exhibits thereto constitute the entire agreement by the
parties, and there are no agreements or commitments except as set forth
herein and therein.
25. Captions; Counterparts. The captions in this Merger Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Merger Agreement.
This Merger Agreement may be executed in several counterparts, each of
which shall constitute one and the same instrument.
26. Notices. All notices and other communications hereunder shall be deemed
to have been duly given if forwarded by a nationally recognized overnight
courier service. All notices and other communications hereunder given to
any party shall be communicated to the remaining party to this Merger
Agreement by mail in the same manner as herein provided.
(a) If to Wayne, to:
Mr. David L. Christopher
Chairman, President and CEO
Wayne Bancorp, Inc.
112 W. Liberty Street
Wooster, Ohio 44691
With copies to:
Thomas C. Blank, Esq.
Werner & Blank Co., L.P.A.
7205 W. Central Avenue
Toledo, Ohio 43617
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(b) If to CVB, to:
Philip S. Swope
President and CEO
Chippewa Valley Bancshares, Inc.
20 South Main Street
Rittman, Ohio 44270
With copies to:
Clifford A. Roe, Jr., Esq.
Dinsmore & Shohl, P.L.L.
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202-3172
27. Undertakings of Affiliates. Wayne shall have received undertakings in
writing from each of such persons, if any, as counsel for Wayne believes
might reasonably be considered "affiliates" of CVB within the meaning of
Rule 145 of the Securities and Exchange Commission pursuant to the
Securities Act of 1933, in each case in form and substance satisfactory to
counsel for Wayne, to the effect that so long as Wayne continues to file
all "current public information" concerning Wayne, any disposition made by
such person of any share of Wayne Common Stock received by such person
pursuant to this Merger Agreement shall be made within the limits and in
accordance with the applicable provisions of said Rule 145, as such Rule
may be amended from time to time, and (ii) such person will not sell,
assign or transfer any of such Wayne Common Stock until Wayne shall have
published financial results including the combined operations of Wayne and
CVB for a period of at least 30 days following the time the Merger shall
become effective.
28. Publicity. Wayne and CVB agree to consult with and obtain the consent of
the other, prior to any media release or other public disclosures as to
the matters covered by this Agreement, except as may be required by law.
{SIGNATURES ON FOLLOWING PAGE}
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IN WITNESS WHEREOF, this Merger Agreement has been executed the day and
year first above written.
ATTEST: Wayne Bancorp, Inc.
By: /s/ David P. Boyle By: /s/ David L. Christopher
---------------------------- ---------------------------------
David P. Boyle, David L. Christopher, Chairman,
Vice President & CFO President, and CEO
ATTEST: Chippewa Valley Bancshares, Inc.
By: /s/ Donna Henthorn By: /s/ Philip S. Swope
---------------------------- ---------------------------------
Donna Henthorn Philip S. Swope
Assistant Secretary President
DIRECTORS UNDERTAKING
Pursuant to the provisions of Sections 16(m) and 27 hereof, each of the
undersigned, being a Director of CVB, hereby agrees to vote shares of CVB owned
by them or over which they exercise voting control in favor of the Merger, to
support the Merger and to the undertakings set forth in Section 27.
/s/ Carl H. Bradford, Jr. /s/ Allan J. Broadhurst
- -------------------------- --------------------------------
/s/ Richard K. Gillman /s/ Roger G. Hessidence
- -------------------------- --------------------------------
/s/ Don G. Houglan /s/ R. Tim Hubiak
- -------------------------- --------------------------------
/s/ Joseph L. Ramsier /s/ Gerald E. Ritzman
- -------------------------- --------------------------------
/s/ Philip S. Swope
- --------------------------
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EXHIBIT A
__________, 1998
Wayne Bancorp, Inc.
112 W. Liberty Street
Wooster, Ohio 44691
Ladies and Gentlemen:
We have acted as special counsel to Chippewa Valley Bancshares, Inc.
("CVB"), an Ohio corporation and bank holding company, solely in connection
with certain transactions contemplated by the Agreement of Merger (the
"Agreement of Merger"), dated _______, 1997, by and between CVB and Wayne
Bancorp, Inc. ("Wayne"), an Ohio corporation and bank holding company.
This opinion is furnished to you pursuant to Section 16(e) of the Merger
Agreement.
You have requested our opinion regarding certain matters in connection with the
Agreement. In our capacity as special counsel for CVB and Chippewa Bank, we
have examined the originals or copies of such certificates, documents and
corporate records upon which we have relied regarding our opinion expressed
below. We have assumed the genuineness of all signatures, the authenticity of
all items submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies. We have further assumed the due
authorization of such documents by all parties other than CVB and Chippewa Bank
and the taking of all requisite action respecting such documents, the due
execution and delivery of such documents by each party and have additionally
assumed that all agreements are the valid and binding agreement of all parties
to such agreements, other than CVB and Chippewa Bank.
Wherever a statement herein is qualified by "to the best of our knowledge," or
a similar phrase, it is intended to indicate that, during the course of our
representation of CVB and Chippewa Bank, no information has been provided to
those partners in this firm who have had substantive involvement in rendering
legal services in connection with the representation described in the
introductory paragraph of this opinion letter that would give us knowledge of
the inaccuracy of such statement.
This Opinion Letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business
Law (1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this Opinion Letter should be
read in conjunction therewith. The law addressed by this opinion is limited to
the law of the State of Ohio and the federal law of the United States of
America.
The opinions hereinafter expressed are subject to the following qualifications,
notwithstanding anything herein to the contrary:
(a) Our opinions in paragraphs (1) and (4) below as to the valid existence
CVB and Chippewa Bank are based solely upon certificates from public officials
as to valid existence, copies of which certificates are attached hereto.
(b) Our opinions below are limited to the matters expressly set forth in
this opinion letter, and no opinion is to be implied or may be inferred beyond
the matters expressly so stated. Without limiting the foregoing, we express no
opinion as to the antifraud provisions of federal and state securities laws.
(c) We disclaim any obligation to update this opinion letter for events
occurring after the date of this opinion letter.
(d) Our opinions below are limited to the effect of the laws of Ohio and
the federal laws of the United States of America. We express no opinion with
respect to the effect of the laws of any other jurisdiction on the transactions
contemplated by the Agreement.
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(e) In rendering this opinion, we have relied as to all matters of fact on
certificates or responsible officers of CVB and Chippewa Bank and of public
officials, copies of which are attached hereto.
Based upon and subject to the foregoing and in reliance thereon, and
subject to the assumptions, exceptions and qualifications set forth herein, it
is our opinion that:
1. CVB is a corporation validly existing and in good standing under the laws
of the State of Ohio and has the requisite corporate power and authority
to own its properties and to carry on the business in which it is now
engaged. CVB owns all of the capital stock of Chippewa Bank free and
clear of all liens and security interests.
2. All necessary corporate proceedings of CVB have been duly taken to
authorize the execution, delivery and performance of the Agreement by CVB
and the consummation of the transactions contemplated by the Agreement,
subject in all events to any conditions stated in said Agreement. The
Agreement constitutes the legal, valid and binding obligation of CVB,
enforceable in accordance with its terms, except:
a. as such enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting
creditors' rights; and
b. that the remedy of specific performance and injunctive and other
forms of equitable relief are subject to certain equitable defenses
and to the discretion of the court before which any proceedings may be
brought.
3. The execution, delivery and performance of the Agreement by CVB will not
violate or result in a breach of any term of CVB's Articles of
Incorporation or Code of Regulations, or violate, result in a breach of,
or constitute a default under any term of any material agreement known to
us to which CVB is a party.
4. Chippewa Bank is a banking corporation validly existing under the laws of
the State of Ohio, is a member of the Federal Reserve System and has the
requisite corporate power and authority to own its properties and carry on
the business in which it is now engaged.
5. The authorized capital stock of CVB consists of _________, shares of
common stock without par value 448,000 of which are outstanding To our
knowledge, there are no outstanding options, warrants, or other rights to
acquire, or securities convertible into any capital stock of CVB. The
outstanding shares of common stock of CVB validly authorized and issued,
and non-assessable, and not, to the best of our knowledge, issued in
violation of the pre-emptive rights of any person.
6. To our knowledge, except as disclosed herein, there is no litigation,
action, suit, investigation or proceeding pending or, to the best of our
knowledge after due inquiry of CVB and its executive officers, overtly
threatened against or affecting CVB or involving any of its respective
properties or assets, at law or in equity, before any federal, state,
municipal, local or other governmental authority.
7. All consents or approvals of any regulatory authority having jurisdiction
over CVB or its subsidiaries that are required to be obtained in
connection with the Merger and the transactions contemplated by the
Agreement have been obtained.
This opinion is solely for the benefit of the addressee hereof and may not be
relied upon by any other person or party or in any other context without our
prior written consent. This opinion is delivered as of the date hereof, and we
expressly disclaim any undertaking to update it.
Very truly yours,
Dinsmore & Shohl
____________________
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EXHIBIT B
____________, 1998
Chippewa Valley Bancshares, Inc.
20 South Main Street
Rittman, Ohio 44270
Re: Wayne Bancorp, Inc.
Gentlemen:
We have acted as special counsel to Wayne Bancorp, Inc. ("Wayne") an Ohio
corporation, in connection with the contemplated Merger Agreement dated ______,
1998 (the "Agreement") between Chippewa Valley Bancshares, Inc. ("CVB") and
Wayne. This Opinion Letter is rendered to you pursuant to Section 17(c) of the
Agreement. Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Agreement.
You have requested our opinion regarding certain matters in connection with the
Agreement. In our capacity as special counsel for Wayne and Wayne Bank, we
have examined the originals or copies of such certificates, documents and
corporate records upon which we have relied regarding our opinion expressed
below. We have assumed the genuineness of all signatures, the authenticity of
all items submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies. We have further assumed the due
authorization of such documents by all parties other than Wayne and Wayne Bank
and the taking of all requisite action respecting such documents, the due
execution and delivery of such documents by each party and have additionally
assumed that all agreements are the valid and binding agreement of all parties
to such agreements, other than Wayne and Wayne Bank.
Wherever a statement herein is qualified by "to the best of our knowledge," or
a similar phrase, it is intended to indicate that, during the course of our
representation of Wayne and Wayne Bank, no information has been provided to
those partners in this firm who have had substantive involvement in rendering
legal services in connection with the representation described in the
introductory paragraph of this opinion letter that would give us knowledge of
the inaccuracy of such statement.
This Opinion Letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business
Law (1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this Opinion Letter should be
read in conjunction therewith. The law addressed by this opinion is limited to
the law of the State of Ohio and the federal law of the United States of
America.
The opinions hereinafter expressed are subject to the following qualifications,
notwithstanding anything herein to the contrary:
(a) Our opinions in paragraphs (1) and (4) below as to the valid existence
of Wayne and Wayne Bank are based solely upon certificates from public
officials as to valid existence, copies of which certificates are attached
hereto.
(b) Our opinions below are limited to the matters expressly set forth in
this opinion letter, and no opinion is to be implied or may be inferred beyond
the matters expressly so stated. Without limiting the foregoing, we express no
opinion as to the antifraud provisions of federal and state securities laws.
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(c) We disclaim any obligation to update this opinion letter for events
occurring after the date of this opinion letter.
(d) Our opinions below are limited to the effect of the laws of Ohio, the
federal laws of the United States of America, and the state securities "blue
sky" laws of jurisdictions where shareholders of CVB reside. We express no
opinion with respect to the effect of the laws of any other jurisdiction on the
transactions contemplated by the Agreement.
(e) In rendering this opinion, we have relied as to all matters of fact on
certificates or responsible officers of Wayne and Wayne Bank and of public
officials, copies of which are attached hereto.
Based upon and subject to the foregoing and in reliance thereon, and
subject to the assumptions, exceptions and qualifications set forth herein, it
is our opinion that:
1. Wayne is a corporation validly existing and in good standing under the
laws of the State of Ohio and has the requisite corporate power and
authority to own its properties and to carry on the business in which it
is now engaged. Wayne owns all of the capital stock of Wayne Bank free
and clear of all liens and security interests.
2. All necessary corporate proceedings of Wayne have been duly taken to
authorize the execution, delivery and performance of the Agreement by
Wayne and the consummation of the transactions contemplated by the
Agreement, subject in all events to any conditions stated in said
Agreement. The Agreement constitutes the legal, valid and binding
obligation of Wayne, enforceable in accordance with its terms, except:
a. as such enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting
creditors' rights; and
b. that the remedy of specific performance and injunctive and other
forms of equitable relief are subject to certain equitable defenses
and to the discretion of the court before which any proceedings may be
brought.
3. The execution, delivery and performance of the Agreement by Wayne will
not violate or result in a breach of any term of Wayne's Articles of
Incorporation or Code of Regulations, or violate, result in a breach of,
or constitute a default under any term of any material agreement known to
us to which Wayne is a party.
4. Wayne Bank is a national banking association validly existing under the
laws of the United States of America and has the requisite corporate power
and authority to own its properties and carry on the business in which it
is now engaged.
5. The authorized capital stock of Wayne consists of 5,400,000, shares of
common stock without par value ___________ of which are outstanding To
our knowledge, there are no outstanding options, warrants, or other rights
to acquire, or securities convertible into any capital stock of Wayne.
The outstanding shares of common stock of Wayne are, and the shares to be
issued in accordance with the Agreement will be, validly authorized and
issued, and non-assessable, and not, to the best of our knowledge, issued
in violation of the pre-emptive rights of any person.
6. To our knowledge, except as disclosed herein, there is no litigation,
action, suit, investigation or proceeding pending or, to the best of our
knowledge after due inquiry of Wayne and its executive officers, overtly
threatened against or affecting Wayne or involving any of its respective
properties or assets, at law or in equity, before any federal, state,
municipal, local or other governmental authority.
7. All consents or approvals of any regulatory authority having jurisdiction
over Wayne or its subsidiaries that are required to be obtained in
connection with the Merger and the transactions contemplated by the
Agreement have been obtained.
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8. The Registration Statement on Form S-4 filed by Wayne pursuant to the
Agreement has become effective and no stop order revoking such
effectiveness has been issued or has been threatened. Wayne has complied,
in all material respects, with the state securities "blue sky" laws of the
jurisdictions where CVB shareholders reside in connection with the issuance
of the Wayne Common Stock in connection with the Merger.
This opinion is solely for the benefit of the addressee hereof and may not be
relied upon by any other person or party or in any other context without our
prior written consent. This opinion is delivered as of the date hereof, and we
expressly disclaim any undertaking to update it.
Very truly yours,
Werner & Blank Co. L.P.A.
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<PAGE> 131
APPENDIX B
FAIRNESS OPINION - YOUNG & ASSOCIATES, INC.
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January 15, 1998
Board of Directors
Chippewa Valley Bancshares, Inc.
P. O. Box 68
Rittman, Ohio 44270-0068
Attention: Philip S. Swope, President
Members of the Board:
You have requested our opinion as to the fairness to Chippewa Valley
Bancshares, Inc. ("Chippewa Valley") and its shareholders, from a financial
point of view, of the terms of the Merger Agreement ("Merger") dated October
13, 1997 between Wayne Bancorp, Inc. ("Wayne") and Chippewa Valley Bancshares,
Inc. The Merger will be completed through a merger of Chippewa Valley with and
into Wayne Bancorp. Chippewa Valley will become, as a result, a wholly-owned
subsidiary of Wayne Bancorp.
Subject to dissenters' rights, all of the outstanding shares of Chippewa Valley
will be converted into the right to receive shares of Wayne Bancorp as set
forth in the Exchange Ratio provision of the Merger. Based on the Exchange
Ratio, shareholders of Chippewa Valley will receive between 981,837 and
1,023,737 shares of Wayne Bancorp, or between 19.97 percent and 20.64 percent
of Wayne Bancorp.
We analyzed various public and non-public sources of information in developing
our opinion, included but not limited to, (i) financial data of Chippewa Valley
from December 31, l992 through September 30, 1997 from published annual
reports, internal bank reports, and interviews with bank management; (ii)
financial data regarding Wayne Bancorp from publicly available regulatory
reports; (iii) comparative financial data of peers for each institution from
public sources (iv) published reports from various sources regarding
transactions similar in nature to that proposed in the Merger; and (v) the
Merger Agreement itself.
Our analysis forecasted the potential future flow of income likely to be
generated by Chippewa Valley over a ten year horizon. This step required both a
study of historical trends of Chippewa Valley from national peer group data and
interviews with management to develop a consensus on assumptions used to
forecast potential fixture results. The assumptions were considered to be
reasonable and attainable should Chippewa Valley have continued to operate
without the merger. We then calculated the present va1ue of that ten-year flow
of income to arrive at both a multiple of book value and a price-to-earnings
ratio to suggest a probable trading range for the shares of Chippewa Valley.
We also analyzed the financial performance of Wayne Bancorp compared with banks
with similar characteristics using nationally available peer group data.
We then tested various conversion scenarios, based on different share prices of
Wayne Bancorp and the resulting number of shares to the shareholders of
Chippewa Valley specified in the Merger, and compared the results obtained with
similar merger transactions in the third quarter of 1997. The comparison
disclosed that the transaction would be fair and equitable to the shareholders
of Chippewa Valley at all price ranges of Wayne Bancorp provided for in the
Merger.
In conducting our analysis, we assumed the information provided to us or
publicly available was both accurate and complete. We assumed further that the
transaction was a tax-free reorganization without adverse tax implications to
the shareholders of either Chippewa Valley or Wayne Bancorp shareholders, and
that the transaction will be completed as planned without other conditions
which would work to the detriment of the shareholders of Chippewa Valley.
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<PAGE> 133
Based on our analysis as described and qualified above, we believe that the
terms of the Merger, from a financial viewpoint, are fair and equitable to the
shareholders of Chippewa Valley Bancshares, Inc.
Chippewa will pay Young & Associates, Inc. a fee for the issuance of the
fairness opinion plus reasonable out-of-pocket expenses, and to indemnify Young
& Associates against certain liabilities, including liabilities under the
securities laws.
/s/ Young & Associates, Inc. by Tom P. Smith
Young & Associates, Inc.
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APPENDIX C
FAIRNESS OPINION - AUSTIN ASSOCIATES, INC.
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January 15, 1998
Board of Directors
Wayne Bancorp, Inc.
112 West Liberty Street
Wooster, Ohio 44691
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Wayne Bancorp, Inc. ("Wayne Bancorp") and its shareholders of the
terms of the Merger Agreement dated as of October 13, 1997 ("Agreement")
between Wayne Bancorp and Chippewa Valley Bancshares, Inc., Rittman, Ohio
("Chippewa Valley"). The terms of the Agreement provide for the acquisition
of Chippewa Valley by Wayne Bancorp (the "Merger"). The Merger will be
completed through a merger of Chippewa Valley with and into Wayne Bancorp. As
a result of the Merger, Chippewa Valley Bank will become a wholly-owned
subsidiary bank of Wayne Bancorp.
The terms of the Agreement provide for all of the outstanding shares of
Chippewa Valley common stock, subject to statutory dissenters' rights, to be
converted into the right to receive shares of Wayne Bancorp common stock based
on an Exchange Ratio. The Agreement further provides for all of the
outstanding common shares of Wayne Bancorp to remain outstanding. Based on
448,000 shares of Chippewa Valley stock issued and outstanding, a total of
between 981,837 and 1,023,737 shares of Wayne Bancorp common stock shall be
issued in the Merger. As of the date of this letter, Wayne Bancorp had
3,935,512 common shares outstanding. As a result, Chippewa Valley
shareholders, in the aggregate, will own between 19.97 percent and 20.64
percent of Wayne Bancorp on a pro forma basis.
In carrying out our engagement, we have reviewed and analyzed material bearing
upon the financial and operating condition of Wayne Bancorp and Chippewa
Valley, including but not limited to the following: (i) the Merger Agreement;
(ii) the financial statements of Wayne Bancorp and Chippewa Valley for the
period 1992 through September 30, 1997; (iii) certain other publicly available
information regarding Wayne Bancorp and Chippewa Valley; (iv) publicly
available information regarding the performance of certain other companies
whose business activities were believed by Austin Associates to be generally
comparable to those of Wayne Bancorp and Chippewa Valley; (v) the financial
terms, to the extent publicly available, of certain comparable transactions;
and (vi) such other analysis and information as we deemed relevant.
In our review and analysis, we relied upon and assumed the accuracy and
completeness of the financial and other information provided to us or publicly
available, and have not attempted to verify the same. We have made no
independent verification as to the status of individual loans made by Wayne
Bancorp or Chippewa Valley, and have instead relied upon representations and
information concerning loans of Wayne Bancorp and Chippewa Valley in the
aggregate. In rendering our opinion, we have assumed that the transaction
will be a tax-free reorganization with no material adverse tax consequences to
Wayne Bancorp or Chippewa Valley. In addition, we have assumed in the course
of obtaining the necessary regulatory approvals for the transaction, no
condition will be imposed that will have a material adverse effect on the
contemplated benefits of the transaction to Wayne Bancorp and its shareholders.
Based upon our analysis and subject to the qualifications described herein, we
believe that as of the date of this letter, the terms of the Agreement are
fair, from a financial point of view, to Wayne Bancorp and its shareholders.
For our services in rendering this opinion, Wayne Bancorp will pay us a fee and
indemnify us against certain liabilities.
/s/ Austin Associates, Inc.
Austin Associates, Inc.
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APPENDIX D
Ohio Revised Code Section 1701.85
Qualifications of and Procedures for Dissenting Shareholders
Section 1701.85 - Qualifications of and Procedures for Dissenting Shareholders.
(A) (1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals in Sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in
compliance with this section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record
holder of the shares of the corporation as to which he seeks relief
as of the date fixed for the determination of shareholders entitled
to notice of a meeting of the shareholders at which the proposal is
to be submitted, and such shares shall not have been voted in favor
of the proposal. Not later than 10 days after the date on which the
vote on such proposal was taken at the meeting of the shareholders,
the shareholder shall deliver to the corporation a written demand
for payment to him of the fair cash value of the shares as to which
he seeks relief, stating his address, the number and class of such
shares, and the amount claimed by him as the fair cash value of the
shares.
(3) The dissenting shareholder entitled to relief under division
(C) of Section 1701.84 of the Revised Code in the case of a merger
pursuant to Section 1701.80 of the Revised Code and a dissenting
shareholder entitled to relief under division (E) of Section
1701.801 of the Revised Code in the case of a merger pursuant to
Section 1701.801 of the Revised Code shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date
on which the agreement of merger was adopted by the directors of
that corporation. Within 20 days after he has been sent the notice
provided in Section 1701.80 or 1701.801 of the Revised Code, the
shareholder shall deliver to the corporation a written demand for
payment with the same information as that provided for in division
(A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on
the constituent corporation involved constitutes service on the
surviving or the new corporation, whether served before, on, or
after the effective date of the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at
the address specified in his demand, a request for the certificates
representing the shares as to which he seeks relief, he, within 15
days from the date of the sending of such request, shall deliver to
the corporation the certificates requested, in order that the
corporation may forthwith endorse on them a legend to the effect
that demand for the fair cash value of such shares has been made.
The corporation promptly shall return such endorsed certificates to
the shareholder. Failure on the part of the shareholder to deliver
such certificates terminates his rights as a dissenting shareholder,
at the option of the corporation, exercised by written notice sent
to him within 20 days after the lapse of the 15 day period, unless a
court for good cause shown otherwise directs. If shares represented
by a certificate on which such a legend has been endorsed are
transferred, each new certificate issued for them shall bear a
similar legend, together with the name of the original dissenting
holder of such shares. Upon receiving a demand for payment from a
dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of
the demand for payment in its shareholder records. If
uncertificated shares for which payment has been demanded are to be
transferred, any new certificate issued for the shares shall bear
the legend required for certificate securities as provided in this
paragraph. A transferee of the shares so endorsed, or of
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uncertificated securities where such notation has been made,
acquires only such rights in the corporation as the original
dissenting holder of such shares had immediately after the service
of a demand for payment of the fair cash value of the shares.
Such request by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this
section.
(B) Unless the corporation and the dissenting shareholder shall have come to
an agreement on the fair cash value per share of the shares as to which he
seeks relief, the shareholder or the corporation, which in case of a
merger or consolidation may be the surviving or the new corporation,
within three months after the service of the demand by the shareholder,
may file a complaint in the court of common pleas of the county in which
the principal office of the corporation which issued such shares is
located, or was located at the time when the proposal was adopted by the
shareholders of the corporation, or, if the proposal was not required to
be submitted to the shareholders, was approved by the directors. Other
dissenting shareholders, within the period of three months, may join as
plaintiffs, or may be joined as defendants in any such proceeding, and any
two or more such proceedings may be consolidated. The complaint shall
contain a brief statement of the facts, including the vote and the facts
entitling the dissenting shareholder to the relief demanded. No answer
to such complaint is required. Upon the filing of the complaint, the
court, on motion of the petitioner, shall enter an order fixing a date for
a hearing on the complaint, and requiring that a copy of the complaint and
a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which the summons is required to
be served or substituted service is required to be made in other cases.
On the day fixed for the hearing on the complaint or any adjournment of
it, the court shall determine from the complaint and from such evidence as
is submitted by either party whether the shareholder is entitled to be
paid the fair cash value of any shares and, if so, the number and class of
such shares. If the court finds that the shareholder is so entitled, the
court may appoint one or more persons as appraisers to receive evidence
and to recommend a decision on the amount of the fair cash value. The
appraisers have such power and authority as is specified in the order of
their appointment. The court thereupon shall make a finding as to the
fair cash value of a share, and shall render judgment against the
corporation for the payment of it, with interest at such rate and from
such date as the court considers equitable. The costs of the proceeding,
including reasonable compensation to the appraisers to be fixed by the
court, shall be assessed or apportioned as the court considers equitable.
The proceeding is a special proceeding, and final orders in it may be
vacated, modified, or reversed on appeal pursuant to the Rules of
Appellate Procedure and, to the extent not in conflict with those rules,
Chapter 2505 of the Revised Code. If, during the pendency of any
proceeding instituted under this section, a suit or proceeding is or has
been instituted to enjoin or otherwise to prevent the carrying out of the
action as to which the shareholder has dissented, the proceeding
instituted under this section shall be stayed until the final
determination of the other suit or proceeding. Unless any provision in
Division (D) of this section is applicable, the fair cash value of the
shares as agreed upon by the parties or as fixed under this section shall
be paid within thirty days after the date of final determination of such
value under this division, the effective date of the amendment to the
articles, or the consummation of the other action involved, whichever
occurs last. Upon the occurrence of the last such event, payment shall
be made immediately to a holder of uncertificated securities entitled to
such payment. In the case of holders of shares represented by
certificates, payment shall be made only upon and simultaneously with the
surrender to the corporation of the certificates representing the shares
for which such payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined
as of the day prior to that on which the vote by the shareholders was
taken and, in the case of a merger pursuant to Section 1701.80 or 1701.801
of the Revised Code, fair cash value as to shareholders of a constituent
subsidiary corporation shall be determined as of the day before the
adoption of the agreement of merger by the directors of the particular
subsidiary corporation. The fair cash value of a share for the purposes
of this section is the amount that a willing seller, under no compulsion
to sell, would be willing to accept, and that
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a willing buyer, under no compulsion to purchase, would be willing to
pay, but in no event shall the fair cash value of it exceed the amount
specified in the demand of the particular shareholder. In computing such
fair cash value, any appreciation or depreciation in market value
resulting from the proposal submitted to the directors or to the
shareholders shall be excluded.
(D) The right and obligation of a dissenting shareholder to receive such fair
cash value and to sell such shares as to which he seeks relief, and the
right and obligation of the corporation to purchase such shares and to pay
the fair cash value of them terminates if:
(1) Such shareholder has not complied with this section, unless the
corporation by its directors waives such failure;
(2) The corporation abandons, or is finally enjoined or prevented
from carrying out, or the shareholders rescind their adoption, of
the action involved;
(3) The shareholder withdraws his demand, with the consent of the
corporation by its directors;
(4) The corporation and the dissenting shareholder shall not have
come to an agreement as to the fair cash value per share, and
neither the shareholder nor the corporation shall have filed or
joined in a complaint under Division (B) of this section within the
period provided.
(E) From the time of giving the demand, until either the termination of the
rights and obligations arising from it or the purchase of the shares by
the corporation, all other rights accruing from such shares, including
voting and dividend or distribution rights, are suspended. If during the
suspension, any dividend or distribution is paid in money upon shares of
such class, or any dividend, distribution, or interest is paid in money
upon any securities issued in extinguishment of or in substitution for
such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares
or securities, shall be paid to the holder of record as a credit upon the
fair cash value of the shares. If the right to receive fair cash value is
terminated otherwise than by the purchase of the shares by the
corporation, all rights of the holder shall be restored and all
distributions which, except for the suspension, would have been made shall
be made to the holder of record of the shares at the time of termination.
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