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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended: December 31, 1996
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 33-31093-A
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WAYNE BANCORP, INC.
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(Name of small business issuer as specified in its charter)
GEORGIA 58-1858246
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
818 South First Street
Jesup, Georgia 31545
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(Address of principal executive offices) (ZIP Code)
Issuer's telephone number, including area code: (912) 427-2265
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Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
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None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
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(Title of Class)
Check whether the small business issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the small business issuer was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the small business issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]
State the small business issuer's revenues for its most recent fiscal year:
$3,622,854.
The aggregate market value of the Common Stock held by non-affiliates of the
small business issuer on March 12, 1997, was $3,397,524. This calculation is
based upon an estimation of fair market value of the Common Stock by the small
business issuer's Board of Directors of $14.50 per share. There is not an active
trading market for the Common Stock and it is not possible to identify precisely
the market value of the Common Stock.
On March 12, 1997, 396,832 shares of the small business issuer's Common Stock
were issued and outstanding.
Transitional Small Business Disclosure Format: YES NO X
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DOCUMENTS INCORPORATED BY REFERENCE
The small business issuer's Annual Report to Shareholders for the year ended
December 31, 1996, is incorporated by reference in this Form 10-KSB in Part II
Item 5, Item 6 and Item 7. The small business issuer's Proxy Statement for the
Annual Meeting of Shareholders to be held on April 8, 1997, is incorporated by
reference in this Form 10-KSB in Part III Item 9, Item 10, Item 11 and Item 12.
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This Report contains statements which constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and the
Securities Exchange Act of 1934. These statements appear in a number of places
in this Report and include all statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things: (i) the Company's financing plans; (ii) trends affecting
the Company's financial condition or results of operations; (iii) the Company's
growth strategy and operating strategy; and (iv) the declaration and payment of
dividends. Investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in the
forward-looking statements as a result of various factors discussed herein and
those factors discussed in detail in the Company's filings with the Securities
and Exchange Commission.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Wayne Bancorp, Inc. (the "Company") was organized under the Georgia
Business Corporation Code on September 5, 1989, to become a one-bank holding
company by acquiring all the capital stock of Wayne National Bank (the "Bank")
upon its formation. On October 26, 1990, the Company completed the initial
public offering (the "Offering") of its Common Stock, par value $1.00 per share
(the "Common Stock"), in which it sold 370,230 shares of Common Stock at a price
of $10.00 per share. Out of the proceeds of this sale, the Company paid $3.3
million to the Bank in exchange for all of its outstanding capital stock and
retained approximately $475,000 to cover expenses of the Company and to provide
additional capital to the Bank if required. The Bank commenced business on
September 26, 1990, and the only activity of the Company since then has been the
ownership and operation of the Bank.
The Bank was organized as a banking association under the laws of the
United States. The Bank is engaged in a general commercial and retail banking
business from its main office in Jesup, Georgia.
The Company's holding company structure can assist the Bank in maintaining
its required capital ratios because the Company may, subject to compliance with
debt guidelines implemented by the Board of Governors of the Federal Reserve
System (the "Board of Governors" or the "Federal Reserve"), borrow money and
contribute the proceeds to the Bank as primary capital. The holding company
structure also permits greater flexibility in issuing stock for cash, property
or services and in reorganization transactions. Moreover, subject to certain
regulatory limitations, a holding company can purchase shares of its own stock,
which the Bank may not do. A holding company may also engage in certain
non-banking activities which the Board of Governors has deemed to be closely
related to banking and proper incidents to the business of a bank holding
company. These activities include making or servicing loans and certain types of
leases; performing certain data processing services; acting in certain
circumstances as a fiduciary or investment or financial adviser; performing
trust company or fiduciary activities; acting as a management consultant for
other depository institutions; providing courier, appraisal and consumer
financial counseling services; providing tax planning and preparation services;
providing check guaranty and collection agency services; operating a credit
bureau; engaging in limited real estate investment activities; underwriting,
brokering and selling credit life and disability insurance; engaging in certain
other limited insurance activities; providing discount brokerage services;
underwriting and dealing in certain government obligations and money market
instruments and providing portfolio investment advice; acting as a futures
commission merchant with respect to certain financial instrument transactions;
providing foreign exchange advisory and transactional services; making
investments in certain corporations or projects designed primarily to promote
community welfare; and owning and operating certain healthy savings and loan
associations. Although the Company has no present intention of engaging in any
of these activities, if circumstances should lead the Company's management to
believe that there is a need for these services in the Bank's marketing area and
that such activities could be profitably conducted, the management of the
Company would have the flexibility of commencing these activities upon filing
notice thereof with the Board of Governors.
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BANKING SERVICES
The Bank conducts a general commercial and retail banking business,
emphasizing in its marketing the Bank's local management and ownership. The
products offered include commercial and retail checking accounts, NOW accounts,
money market accounts and certificates of deposit. The Bank offers commercial
loans, agricultural loans, real estate loans and installment loans. It also acts
as an issuing agent for U.S. savings bonds, traveler's checks, money orders and
cashier's checks, and it offers collection teller services, including wire
transfer services. The Bank also offers a night depository facility, safe
deposit boxes and ATM service. All of the services which the Bank offers are
generally offered by other full service banks located in its market area.
FACILITIES
The Bank's main office is located at 818 South First Street, Jesup,
Georgia, on approximately 2.29 acres located at the intersection of South First
Street (U.S. Highway 84) and South Fourth Street, Jesup, Georgia. This site is
approximately three-quarters of a mile west of the intersection of U.S. Highways
84, 341 and 301, which is the center of downtown Jesup, Georgia and is
immediately across the street from Wayne Memorial Hospital. The Bank acquired
this site for $186,825 and spent approximately $910,000 for construction of the
building, landscaping and the purchase of security devices, including the main
vault, furniture and fixtures. The Bank moved into these facilities when they
were completed in July 1992. The Bank had previously occupied temporary
facilities at 967 South First Street in Jesup, Georgia.
THE BANK'S PRIMARY MARKET
Wayne County is the Bank's primary service area ("PSA"), which encompasses
the cities of Jesup, Screven and Odum. From its county seat location in Jesup,
the Bank is centrally located in Wayne County and convenient to other smaller
communities like Odum, Screven, Broadhurst and Gardi. Wayne County is located in
the southeastern section of Georgia; approximately 240 miles southeast of
Atlanta and 100 miles north of Jacksonville, Florida.
Over the last decade, Wayne County has experienced an economic
transformation as the area has shifted from agriculture into a non-agrarian
related employment structure. Wayne County has a diversified economy. Service
and manufacturing represent the first and second largest segments of the
economy, respectively. The largest employer in the area is Rayonier, Inc., a
pulp and paper plant. The next largest manufacturers in order of employment are
apparel, food and lumber. Agriculture is also significant.
The community is experiencing growth in commercial sectors offering
services to residents and visitors. Management expects the recent growth
experienced in Wayne County to continue, providing a favorable environment for
operating the Bank. However, there is no assurance that population growth and
ongoing economic development will continue, or that the Bank will be able to
exploit the growth and development profitably even if they continue.
The Bank competes in the Wayne County market with three commercial banks
and two credit unions. Barnett Bank of Southeast Georgia, N.A., Wachovia Bank of
Georgia, N.A., and Sun Trust Bank, Southeast Georgia, N.A. are branch banks of
major holding companies and constitute the major commercial bank competition in
the Bank's PSA. As of June 1996, the Bank, which is the only locally owned
commercial bank in the county, held 18.1% of all bank deposits in Wayne County.
Wachovia has announced the sale of its Jesup branch to The Heritage Bank
headquartered in Hinesville, Georgia, which sale is expected to close in the
second quarter of 1997. At this time, management is unable to predict the impact
that this proposed sale will have on competition in Bank's PSA.
The credit unions have gained a considerable share of the market in part
because of their close relationship with several significant employers. The two
major credit unions, Altamaha Federal and Interstate Unlimited, have a presence
in Jesup due to the existence of the paper plant and county government. These
institutions cater primarily to specific industry groups. They do not extend
commercial loans and are not a factor in the Bank's commercial business.
However, these institutions do compete for the retail deposit and consumer
loan business in the PSA.
Offices affiliated with out-of-state financial institutions have entered
Georgia in recent years to offer limited financial services, including lending
and deposit gathering activities. Also, the State of Georgia has adopted a
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reciprocal regional interstate banking law which took effect in June 1985,
permitting bank holding companies headquartered in certain states outside of
Georgia to acquire Georgia banks, provided Georgia banks may likewise make bank
acquisitions in the reciprocal state. See "Supervision and Regulation--The
Company."
Competition for deposit and loan opportunities in the Bank's PSA is intense
because of existing competitors, the accelerating pace of deregulation and the
geographic likelihood of expansion into the PSA by other institutions.
As of March 12, 1997, the Bank had twenty-two employees, fifteen of which
were full-time. The Company's operations are conducted through the Bank.
Consequently, the Company does not have any separate employees. None of the
employees of the Bank are represented by any collective bargaining unit. The
Bank considers its relations with its employees to be good.
SUPERVISION AND REGULATION
The Company and the Bank are subject to state and federal banking laws and
regulations which impose specific requirements or restrictions on, and provide
for general regulatory oversight with respect to, virtually all aspects of
operations. These laws and regulations are generally intended to protect
depositors, not shareholders. To the extent that the following summary describes
statutory or regulatory provisions, it is qualified in its entirety by reference
to the particular statutory and regulatory provisions. Any change in applicable
laws or regulations may have a material effect on the business and prospects of
the Company. Beginning with the enactment of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") and following with the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), numerous
additional regulatory requirements have been placed on the banking industry in
the past five years, and additional changes have been proposed. The banking
industry is also likely to change significantly as a result of the passage of
the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"). The operations of the Company and the Bank may be
affected by legislative changes and the policies of various regulatory
authorities. The Company is unable to predict the nature or the extent of the
effect on its business and earnings that fiscal or monetary policies, economic
control or new federal or state legislation may have in the future.
THE COMPANY
Because it owns the outstanding common stock of the Bank, the Company is a
bank holding company within the meaning of the federal Bank Holding Company Act
of 1956 (the "BHCA"). Under the BHCA, the Company is subject to periodic
examination by the Federal Reserve and is required to file periodic reports of
its operations and such additional information as the Federal Reserve may
require. The Company's and the Bank's activities are limited to banking,
managing or controlling banks, furnishing services to or performing services for
its subsidiaries or engaging in any other activity that the Federal Reserve
determines to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto.
Investments, Control and Activities. With certain limited exceptions, the
BHCA requires every bank holding company to obtain the prior approval of the
Federal Reserve before (i) acquiring substantially all the assets of any bank,
(ii) acquiring direct or indirect ownership or control of any voting shares of
any bank if after such acquisition it would own or control more than 5% of the
voting shares of such bank (unless it already owns or controls the majority of
such shares), or (iii) merging or consolidating with another bank holding
company.
In addition, and subject to certain exceptions, the BHCA and the Change in
Bank Control Act, together with regulations thereunder, require Federal Reserve
approval (or, depending on the circumstances, no notice of disapproval) prior to
any person or company acquiring "control" of a bank holding company, such as the
Company. Control is conclusively presumed to exist if an individual or company
acquires 25% or more of any class of voting securities of the bank holding
company. Because the Company's Common Stock is registered under the Securities
Exchange Act of 1934, under Federal Reserve regulations control will be
rebuttably presumed to exist if a person acquires at least 10% of the
outstanding shares of any class of voting securities of the Company. The
regulations provide a procedure for challenge of the rebuttable control
presumption.
Under the BHCA, the Company is generally prohibited from engaging in, or
acquiring direct or indirect control of more than 5% of the voting shares of any
company engaged in, nonbanking activities, unless the Federal
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Reserve, by order or regulation, has found those activities to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. Some of the activities that the Federal Reserve has determined by
regulation to be proper incidents to the business of banking include making or
servicing loans and certain types of leases, engaging in certain insurance and
discount brokerage activities, performing certain data processing services,
acting in certain circumstances as a fiduciary or investment or financial
advisor, owning savings associations and making investments in certain
corporations or projects designed primarily to promote community welfare.
Source of Strength; Cross-Guarantee. In accordance with Federal Reserve
policy, the Company is expected to act as a source of financial strength to the
Bank and to commit resources to support the Bank in circumstances in which the
Company might not otherwise do so. Under the BHCA, the Federal Reserve may
require a bank holding company to terminate any activity or relinquish control
of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the
Federal Reserve's determination that such activity or control constitutes a
serious risk to the financial soundness or stability of any subsidiary
depository institution of the bank holding company. Further, federal bank
regulatory authorities have additional discretion to require a bank holding
company to divest itself of any bank or nonbank subsidiary if the agency
determines that divestiture may aid the depository institution's financial
condition. The Bank may be required to indemnify, or cross-guarantee, the FDIC
against losses it incurs with respect to any other Bank controlled by the
Company, which in effect makes the Company's equity investments in healthy bank
subsidiaries available to the FDIC to assist any failing or failed bank
subsidiary of the Company.
THE BANK
General. The Bank operates as a national banking association incorporated
under the laws of the United States and is subject to examination by the Office
of the Comptroller of the Currency (the "OCC"). Deposits in the Bank are insured
by the Federal Deposit Insurance Corporation (the "FDIC") up to a maximum amount
(generally $100,000 per depositor, subject to aggregation rules). The OCC and
the FDIC regulate or monitor all areas of the Bank's operations, including
security devices and procedures, adequacy of capitalization and loss reserves,
loans, investments, borrowings, deposits, mergers, issuances of securities,
payment of dividends, interest rates payable on deposits, interest rates or fees
chargeable on loans, establishment of branches, corporate reorganizations,
maintenance of books and records and adequacy of staff training to carry on safe
lending and deposit gathering practices. The OCC requires the Bank to maintain
certain capital ratios and imposes limitations on the Bank's aggregate
investment in real estate, bank premises and furniture and fixtures. The Bank is
currently required by the OCC to prepare quarterly reports on the Bank's
financial condition and to conduct an annual audit of its financial affairs in
compliance with minimum standards and procedures prescribed by the OCC.
Under FDICIA, all insured institutions must undergo periodic on-site
examination by their appropriate banking agency. The cost of examinations of
insured depository institutions and any affiliates may be assessed by the
appropriate agency against each institution or affiliate as it deems necessary
or appropriate. Insured institutions are required to submit annual reports to
the FDIC and the appropriate agency (and state supervisor when applicable).
FDICIA also directs the FDIC to develop with other appropriate agencies a method
for insured depository institutions to provide supplemental disclosure of the
estimated fair market value of assets and liabilities, to the extent feasible
and practicable, in any balance sheet, financial statement, report of condition
or other report of any insured depository institution. FDICIA also requires the
federal banking regulatory agencies to prescribe, by regulation, standards for
all insured depository institutions and depository institution holding companies
relating, among other things, to: (i) internal controls, information systems and
audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest
rate risk exposure; and (v) asset quality.
Transactions With Affiliates and Insiders. The Bank is subject to Section
23A of the Federal Reserve Act, which places limits on the amount of loans or
extensions of credit to, or investments in, or certain other transactions with,
affiliates and on the amount of advances to third parties collateralized by the
securities or obligations of affiliates. In addition, most of these loans and
certain other transactions must be secured in prescribed amounts. The Bank is
also subject to Section 23B of the Federal Reserve Act which, among other
things, prohibits an institution from engaging in certain transactions with
certain affiliates unless the transactions are on terms substantially the same,
or at least as favorable to such institution or its subsidiaries, as those
prevailing at the time for comparable transactions with nonaffiliated companies.
The Bank is subject to certain restrictions on extensions of credit to executive
officers, directors, certain principal shareholders and their related interests.
Such extensions of credit (i) must be made on substantially the same terms,
including interest rates and collateral, as those prevailing
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at the time for comparable transactions with third parties and (ii) must not
involve more than the normal risk of repayment or present other unfavorable
features.
Community Reinvestment Act. The Community Reinvestment Act requires that
each insured depository institution shall be evaluated by its primary federal
regulator with respect to its record in meeting the credit needs of its local
community, including low and moderate income neighborhoods, consistent with the
safe and sound operation of those institutions. These factors are also
considered in evaluating mergers, acquisitions and applications to open a branch
or facility. The Bank received a satisfactory rating in its most recent
evaluation.
Other Regulations. Interest and certain other charges collected or
contracted for by the Bank are subject to state usury laws and certain federal
laws concerning interest rates. The Bank's loan operations are also subject to
certain federal laws applicable to credit transactions, such as the federal
Truth-In-Lending Act governing disclosures of credit terms to consumer
borrowers, the Home Mortgage Disclosure Act of 1975 requiring financial
institutions to provide information to enable the public and public officials to
determine whether a financial institution is fulfilling its obligation to help
meet the housing needs of the community it serves, the Equal Credit Opportunity
Act prohibiting discrimination on the basis of race, creed or other prohibited
factors in extending credit, the Fair Credit Reporting Act of 1978 governing the
use and provision of information to credit reporting agencies, the Fair Debt
Collection Act governing the manner in which consumer debts may be collected by
collection agencies, and the rules and regulations of the various federal
agencies charged with the responsibility of implementing such federal laws. The
deposit operations of the Bank also are subject to the Right to Financial
Privacy Act, which imposes a duty to maintain confidentiality of consumer
financial records and prescribes procedures for complying with administrative
subpoenas of financial records, and the Electronic Funds Transfer Act and
Regulation E issued by the Federal Reserve Board to implement that act, which
governs automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
DEPOSIT INSURANCE
The deposits of the Bank are currently insured to a maximum of $100,000 per
depositor, subject to certain aggregation rules. The FDIC establishes rates for
the payment of premiums by federally insured banks and thrifts for deposit
insurance. Separate insurance funds (BIF and SAIF) are maintained for commercial
banks and thrifts, with insurance premiums from the industry used to offset
losses from insurance payouts when banks and thrifts fail. Due to the high rate
of failures in recent years, the fees that commercial banks and thrifts pay to
BIF and SAIF have increased. Since 1993, insured depository institutions like
the Bank have paid for deposit insurance under a risk-based premium system.
Under this system, until mid-1995 depository institutions paid to BIF or SAIF
from $0.23 to $0.31 per $100 of insured deposits depending on its capital levels
and risk profile, as determined by its primary federal regulator on a
semi-annual basis. Once the BIF reached its legally mandated reserve ratio in
mid-1995, the FDIC lowered premiums for well capitalized banks to $0.04 per
$100. Subsequently, the FDIC revised the range of premiums from $.00 to $0.31
per $100.
The assessment rate per $100 of insured deposits is currently $0.00 for the
Bank for 1997. The Deposit Insurance Funds Act of 1996 eliminated the minimum
assessment required by statute. It also separates, effective January 1, 1997,
the Financial Corporation (FICO) assessment to service the interest on its bond
obligations. The amount assessed on individual institutions, including the Bank,
by FICO will be in addition to the amount paid for deposit insurance according
to the risk-related assessment rate schedule. FICO assessment rates for the
first semi-annual period of 1997 were set at 1.30 basis points annually for BIF
deposits. For the first semi-annual period of 1997, the FDIC Board of Directors
maintained the adjusted rate schedule and the Bank's insurance assessment will
remain at $0.00 per $100 in deposits through June 1997. Increases in deposit
insurance premiums or changes in risk classification will increase the Bank's
cost of funds, and there can be no assurance that such cost can be passed on the
Bank's customers.
DIVIDENDS
The principal source of the Company's cash revenues comes from dividends
and interest income on its investments. In addition, the Company may receive
cash revenues from dividends paid by the Bank. The amount of dividends that may
be paid by the Bank to the Company depends on the Bank's earnings and capital
position and
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is limited by federal and state law, regulations and policies. In addition, the
Board of Governors has stated that bank holding companies should refrain from or
limit dividend increases or reduce or eliminate dividends under circumstances in
which the bank holding company fails to meet minimum capital requirements or in
which its earnings are impaired.
As a national bank, the Bank may not pay dividends from its
paid-in-capital. All dividends must be paid out of undivided profits then on
hand, after deducting expenses, including reserves for losses and bad debts. In
addition, a national bank is prohibited from declaring a dividend on its shares
of common stock until its surplus equals its stated capital, unless there has
been transferred to surplus no less than one-tenth of the bank's net profits of
the preceding two consecutive half-year periods (in the case of an annual
dividend). The approval of the OCC is required if the total of all dividends
declared by a national bank in any calendar year exceeds the total of its net
profits for that year combined with its retained net profits for the preceding
two years, less any required transfers to surplus. Under FDICIA, the Bank may
not pay a dividend if, after paying the dividend, the Bank would be
undercapitalized. See "Capital Regulations" below.
In addition to the availability of funds from the Bank, the future dividend
policy of the Company is subject to the discretion of the Board of Directors and
will depend upon a number of factors, including future earnings, financial
condition, cash needs and general business conditions. If dividends should be
declared in the future, the amount of such dividends presently cannot be
estimated and it cannot be known whether such dividends would continue for
future periods.
CAPITAL REGULATIONS
The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, account for off-balance sheet exposure
and minimize disincentives for holding liquid assets. The resulting capital
ratios represent qualifying capital as a percentage of total risk-weighted
assets and offbalance sheet items. The guidelines are minimums, and the federal
regulators have noted that banks and bank holding companies contemplating
significant expansion programs should not allow expansion to diminish their
capital ratios and should maintain ratios well in excess of the minimums. The
current guidelines require all bank holding companies and federally-regulated
banks to maintain a minimum risk-based total capital ratio equal to 8%, of which
at least 4% must be Tier 1 capital. Tier 1 capital includes common shareholders'
equity, qualifying perpetual preferred stock and minority interests in equity
accounts of consolidated subsidiaries, but excludes goodwill and most other
intangibles and excludes the allowance for loan and lease losses. Tier 2 capital
includes the excess of any preferred stock not included in Tier 1 capital,
mandatory convertible securities, hybrid capital instruments, subordinated debt
and intermediate termpreferred stock and general reserves for loan and lease
losses up to 1.25% of risk-weighted assets.
Under the guidelines, banks' and bank holding companies' assets are given
risk-weights of 0%, 20%, 50% and 100%. In addition, certain off-balance sheet
items are given credit conversion factors to convert them to asset equivalent
amounts to which an appropriate risk-weight will apply. These computations
result in the total risk-weighted assets. Most loans are assigned to the 100%
risk category, except for first mortgage loans fully secured by residential
property and, under certain circumstances, residential construction loans, both
of which carry a 50% rating. Most investment securities are assigned to the 20%
category, except for municipal or state revenue bonds, which have a 50% rating,
and direct obligations of or obligations guaranteed by the United States
Treasury or United States Government agencies, which have a 0% rating.
The federal bank regulatory authorities have also implemented a leverage
ratio, which is Tier 1 capital as a percentage of average total assets less
intangibles, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity capital
base. The minimum required leverage ratio for top-rated institutions is 3%, but
most institutions are required to maintain an additional cushion of at least 100
to 200 basis points.
FDICIA established a new capital-based regulatory scheme designed to
promote early intervention for troubled banks and requires the FDIC to choose
the least expensive resolution of bank failures. The new capital-based
regulatory framework contains five categories of compliance with regulatory
capital requirements, including
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"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." To qualify as a "well
capitalized" institution, a bank must have a leverage ratio of no less than 5%,
a Tier 1 risk-based ratio of no less than 6%, and a total risk-based capital
ratio of no less than 10%, and the bank must not be under any order or directive
from the appropriate regulatory agency to meet and maintain a specific capital
level. As of December 31, 1996, the Company and the Bank were qualified as "well
capitalized." See "Management's Discussion and Analysis or Plan of
Operation -- Capital."
Under the FDICIA regulations, the applicable agency can treat an
institution as if it were in the next lower category if the agency determines
(after notice and an opportunity for hearing) that the institution is in an
unsafe or unsound condition or is engaging in an unsafe or unsound practice. The
degree of regulatory scrutiny of a financial institution will increase, and the
permissible activities of the institution will decrease, as it moves downward
through the capital categories. Institutions that fall into one of the three
undercapitalized categories may be required to (i) submit a capital restoration
plan; (ii) raise additional capital; (iii) restrict their growth, deposit
interest rates and other activities; (iv) improve their management; (v)
eliminate management fees; or (vi) divest themselves of all or part of their
operations. Bank holding companies controlling financial institutions can be
called upon to boost the institutions' capital and to partially guarantee the
institutions' performance under their capital restoration plans.
These capital guidelines can affect the Company in several ways. If the
Bank begins to grow at a rapid pace, a premature "squeeze" on capital could
occur making a capital infusion necessary. The requirements could impact the
Company's ability to pay dividends. The Company's present capital levels are
more than adequate; however, rapid growth, poor loan portfolio performance or
poor earnings performance or a combination of these factors could change the
Bank's capital position in a relatively short period of time.
Effective January 1, 1997, the OCC amended the risk-based capital standards
to incorporate a measure for market risk to cover all positions located in a
institution's trading account, and foreign exchange and commodity positions
wherever located. The effect of the rule is that it requires any bank or bank
holding company with significant exposure to market risk to measure the risk and
hold capital commensurate with that risk. Since the Bank does not currently
engage, nor has any plans to engage, in trading, foreign exchange or commodity
position activities, the rule does not have an effect on the required Bank
capital levels.
Both the Company and the Bank exceeded their respective regulatory capital
requirements at December 31, 1996. See "Management's Discussion and Analysis or
Plan of Operation -- Capital."
INTERSTATE BANKING AND BRANCHING RESTRICTIONS
On September 29, 1994, the federal government enacted the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Banking
Act"). This Act became effective on September 29, 1995, and permits eligible
bank holding companies in any state, with regulatory approval, to acquire
banking organizations in any other state. Effective June 1, 1997, the Interstate
Banking Act will allow banks with different home states to merge, unless a
particular state opts out of the statute. Consistent with the Interstate Banking
Act, Georgia adopted legislation in 1996 which will permit interstate bank
mergers beginning June 1, 1997.
In addition, beginning June 1, 1997, the Interstate Banking Act will permit
national and state banks to establish de novo branches in another state if there
is a law in that state which applies equally to all banks and expressly permits
all out-of-state banks to establish de novo branches. However, in 1996, Georgia
adopted legislation which opts out of this provision. The Georgia legislation
provides that, with the prior approval of the Department of Banking and Finance,
after July 1, 1996, a bank may establish three new or additional de novo branch
banks anywhere in Georgia and, beginning July 1, 1998, a bank may establish new
or additional branch banks anywhere in the state with prior regulatory approval.
RECENT LEGISLATIVE DEVELOPMENTS
From time to time, various bills are introduced in the United States
Congress and at the state legislative level with respect to the regulation of
financial institutions. Certain of these proposals, if adopted, could
significantly change the regulation of banks and the financial services
industry. The Company cannot predict whether any of these proposals will be
adopted or, if adopted, how these proposals would affect the Company.
7
<PAGE> 9
ITEM 2. DESCRIPTION OF PROPERTY
The Bank's main office is located at 818 South First Street, Jesup,
Georgia, on approximately 2.29 acres located at the intersection of South First
Street (U.S. Highway 84) and South Fourth Street, Jesup, Georgia. This site is
approximately three-quarters of a mile west of the intersection of U.S. Highways
84, 341 and 301, which is the center of downtown Jesup, Georgia and is
immediately across the street from Wayne Memorial Hospital. The Bank acquired
this site for $186,825 and spent approximately $910,000 for construction of the
building, landscaping and the purchase of security devices, including the main
vault, furniture and fixtures. The Bank moved into these facilities when they
were completed in July 1992. The Bank had previously occupied temporary
facilities at 967 South First Street in Jesup, Georgia.
The Bank owns both the land and the building for its main office. The
Bank's office has 7,000 square feet, 6,000 of which it is currently using. The
balance of the building is currently being used for storage and is available to
accommodate future expansion of the Bank. The Bank's offices contain
drive-through facilities, a night depository facility, safe deposit boxes and an
automated teller machine. The Company believes that its physical facilities are
adequate for its current operations.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to, nor is any of their
property the subject of, any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders of the Company
during the fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In response to this Item, the information included on pages 17 through 18
of the Company's Annual Report to Shareholders for the year ended December 31,
1996, is incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
In response to this Item, the information included on pages 3 through 17 of
the Company's Annual Report to Shareholders for the year ended December 31,
1996, is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
In response to this Item, the information included on pages 19 through 41
of the Company's Annual Report to Shareholders for the year ended December 31,
1996, is incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
8
<PAGE> 10
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT
In response to this Item, the information included on pages 2 through 7 of
the Company's Proxy Statement for the Annual Meeting of Shareholders to be held
on April 8, 1997, is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
In response to this Item, the information included on pages 6 through 7 of
the Company's Proxy Statement for the Annual Meeting of Shareholders to be held
on April 8, 1997, is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In response to this Item, the information included on pages 8 through 9 of
the Company's Proxy Statement for the Annual Meeting of Shareholders to be held
on April 8, 1997, is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In response to this Item, the information included on page 9 of the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
April 8, 1997, is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<S> <C>
3(a) Articles of Incorporation and Articles of Amendment of Company
(incorporated by reference to Exhibit 3(a) of Registration Statement on
Form S-18, File No. 33-31093-A).
3(b) Bylaws of Company (incorporated by reference to Exhibit 3(b) of
Registration Statement on Form S-18, File No. 33-31093-A).
10(a) Form of Stock Warrant Agreement (incorporated by reference to Exhibit
10(c) of Registration Statement on Form S-18, File No. 33-31093-A).
10(b) 1990 Stock Option Plan (incorporated by reference to Exhibit 10(d) of
the Annual Report on Form 10-K filed by the Company for the fiscal year
ended December 31, 1990).
10(c) Form of Employment Agreement for Executive Officers (incorporated by
reference to Exhibit 10(f) of the Annual Report on Form 10-KSB filed by
the Company for the fiscal year ended December 31, 1992).
13 Annual Report to Shareholders for the year ended December 31, 1996.
21 Subsidiaries of the Company.
27 Financial Data Schedule (for SEC use only).
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of the year
ended December 31, 1996.
9
<PAGE> 11
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
WAYNE BANCORP, INC.
--------------------------------------
(Registrant)
BY: /s/ Douglas R. Harper
-----------------------------------
Douglas R. Harper
President and Principal Executive
Officer
Date: March 28, 1997
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Patricia B. Armstrong Director March 28, 1997
- ------------------------------ --------------
Patricia B. Armstrong
/s/ Leonard D. Brannen Director March 28, 1997
- ------------------------------ --------------
Leonard D. Brannen
/s/ C. Revis Clary Director March 28, 1997
- ------------------------------ --------------
C. Revis Clary
/s/ J. Ashley Dukes Director March 28, 1997
- ------------------------------ --------------
J. Ashley Dukes
/s/ Tommie C. Fuller, Sr. Director March 28, 1997
- ------------------------------ --------------
Tommie C. Fuller, Sr.
/s/ Douglas R. Harper Director, President, Principal March 28, 1997
- ------------------------------ Executive Officer, Principal --------------
Douglas R. Harper Financial Officer
/s/ J. Lex Kenerly, III, M.D. Director March 28, 1997
- ------------------------------ --------------
J. Lex Kenerly, III, M.D.
/s/ James L. Lott Director March 28, 1997
- ------------------------------ --------------
James L. Lott
/s/ Jerry D. McDaniel Director March 28, 1997
- ------------------------------ --------------
Jerry D. McDaniel
/s/ Ferrell L. O'Quinn Director March 28, 1997
- ------------------------------ --------------
Ferrell L. O'Quinn
/s/ Bernon W. Sapp Director March 28, 1997
- ------------------------------ --------------
Bernon W. Sapp
/s/ W. Donald Whitaker Director March 28, 1997
- ------------------------------ --------------
W. Donald Whitaker
</TABLE>
10
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------- ------------------------------------------------------------ -----------
<S> <C> <C>
3(a) Articles of Incorporation and Articles of Amendment of
Company (incorporated by reference to Exhibit 3(a) of
Registration Statement on Form S-18, File No. 33-31093-A).
3(b) Bylaws of Company (incorporated by reference to Exhibit 3(b)
of Registration Statement on Form S-18, File No.
33-31093-A).
10(a) Form of Stock Warrant Agreement (incorporated by reference
to Exhibit 10(c) of Registration Statement on Form S-18,
File No. 33-31093-A).
10(b) 1990 Stock Option Plan (incorporated by reference to Exhibit
10(d) of the Annual Report on Form 10-K filed by the Company
for the fiscal year ended December 31, 1990).
10(c) Form of Employment Agreement for Executive Officers
(incorporated by reference to Exhibit 10(f) of the Annual
Report on Form 10-KSB filed by the Company for the fiscal
year ended December 31, 1992).
13 Annual Report to Shareholders for the year ended December
31, 1996.
21 Subsidiaries of the Company.
27 Financial Data Schedule (for SEC use only).
</TABLE>
<PAGE> 1
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 1996
<PAGE> 2
WAYNE BANCORP, INC.
1996 ANNUAL REPORT
WAYNE NATIONAL BANK
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Selected Consolidated Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Business of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-17
Market for Company's Common Equity and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-18
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20-41
Directors and Officers and Shareholder Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
<PAGE> 4
LETTER TO SHAREHOLDERS
I am pleased to report the completion of another outstanding year for
Wayne Bancorp, Inc. (the "Company") and its subsidiary, Wayne National Bank
(the "Bank"). The improvement in earnings which the Bank experienced in 1996
has placed it in the top 5% of its peer group nationwide.
The Company had net income of $828,148 in 1996, compared to $497,809
in 1995, a 66% increase. Earnings per share, on a fully diluted basis, were
$1.78 in 1996, compared to $1.10 in 1995. The Company's earnings in 1996
resulted in a return on average assets and return on average equity of 2.41%
and 19.65%, respectively, compared to 1.67% and 14.34%, respectively, in 1995.
The improvement in earnings during 1996 can be attributed primarily to
a significant increase in net interest income which grew 39% to $2.0 million in
1996 on net interest margin of 6.45%, up from 5.34% in 1995. The improvement
experienced in net interest income can be attributed primarily to a 37%, or
$5.6 million, increase in average loans outstanding.
Noninterest income grew 12% to $568,901 in 1996, primarily as a result
of higher fee income on deposits. Noninterest expense grew 5% in 1996, as the
result of a 12.6% increase in salaries and employee benefits, which was
partially offset by a 3.0% decline in occupancy expense.
The Company had no nonperforming assets at year end 1996, compared to
$30,000 at year end 1995. Net charge-offs amounted to .35% of average loans
in 1996, down significantly from .94% in 1995. During 1996, $90,000 was added
to the Bank's loan loss reserve, the first such provision in over two years.
The allowance for loan losses totaled $213,969 at year end 1996, which
represents .92% of net year end loans.
At year end 1996, shareholders' equity totaled $4.6 million, up 21%
from 1995, bringing book value to $12.25 per share, compared to $10.15 per
share at the end of 1995. The Company's leverage position stood at 12.33% at
year end 1996, compared to 11.80% at year end 1995.
Please refer to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements included
within this report which disclose the results of the year in greater detail. I
would like to take this opportunity to thank you for your support and I look
forward to seeing each of you at our annual shareholders meeting.
Sincerely,
/s/ Douglas R. Harper
Douglas R. Harper
President & CEO
<PAGE> 5
WAYNE BANCORP, INC.
SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 % CHANGE
-------- -------- --------
<S> <C> <C> <C>
Earnings:
Net interest income $ 1,988 $ 1,430 39%
Provision for possible loan losses 90 0 ---
Noninterest income 569 508 12%
Noninterest expense 1,273 1,214 5%
Profit from operations 1,195 723 65%
Income taxes 367 226 62%
Net income 828 498 66%
Per Share Data:
Net income (on a fully diluted basis) $ 1.78 $ 1.10 62%
Book value 12.25 10.15 21%
Selected Average Balances:
Total assets $ 34,396 $29,762 16%
Loans (net of unearned income) 20,768 15,179 37%
Deposits 29,767 26,074 14%
Shareholders' equity 4,214 3,472 21%
Selected Year-End Balances:
Total assets $ 43,235 $37,651 15%
Loans (net of unearned income) 23,382 16,476 42%
Deposits 38,017 33,486 14%
Shareholders' equity 4,628 3,835 21%
Selected Ratios:
Net interest margin 6.45% 5.34%
Return on average assets 2.41% 1.67%
Return on average equity 19.65% 14.34%
Net charge-offs to average loans (net of unearned income) 0.35% 0.94%
Average equity to average assets 12.25% 11.67%
Risk-based capital:
Tier 1 capital to risk-adjusted assets 18.70% 19.86%
Total capital to risk-adjusted assets 19.57% 20.89%
Leverage 12.33% 11.80%
</TABLE>
2
<PAGE> 6
BUSINESS OF THE COMPANY
Wayne Bancorp, Inc. (the "Company") was organized under the Georgia
Business Corporation Code on September 5, 1989, to become a one-bank holding
company by acquiring all the capital stock of Wayne National Bank (the "Bank")
upon its formation. The Bank commenced business on September 26, 1990, and the
only activity of the Company since then has been the ownership and operation of
the Bank. The Bank was organized as a banking association under the laws of
the United States. The Bank is engaged in a general commercial and retail
banking business, emphasizing in its marketing the Bank's local management and
ownership, from its main office in Jesup, Georgia. The products offered
include commercial and retail checking accounts, NOW accounts, money market
accounts and certificates of deposit. The Bank offers commercial loans,
agricultural loans, real estate loans and installment loans. It also acts as
an issuing agent for U.S. savings bonds, traveler's checks, money orders and
cashier's checks, and it offers collection teller services, including wire
transfer services. The Bank also offers a night depository facility, safe
deposit boxes, and ATM service.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and
results of operation should be read in conjunction with the Company's
Consolidated Financial Statements and related notes and the statistical
information included elsewhere herein.
OVERVIEW
During 1996, management's attention continued to be focused on
earnings. A relatively stable interest rate environment, together with steady
loan growth throughout the year, combined to bring about a significant increase
in earnings for 1996.
RESULTS OF OPERATIONS
The Company had net income of $828,148 in 1996, compared to $497,809
in 1995, an increase of 66%. Earnings per share, on a fully diluted basis,
were $1.78 in 1996, compared to $1.10 in 1995. The Company's earnings in 1996
resulted in a return on average assets and return on average equity of 2.41%
and 19.65%, respectively, compared to 1.67% and 14.34%, respectively, in 1995.
The improvements in earnings in 1996 can be attributed primarily to
higher net interest income, which grew 39% to $2.0 million in 1996 on net
interest margin of 6.45% and an interest spread of 5.28%. This improvement in
net interest income can be attributed primarily to a 16% increase in average
earning assets brought about by the 14% increase in average deposits. Deposits
grew $4.5 million, or 14%, between December 31, 1995, and December 31, 1996.
The Company had no nonperforming assets at year end 1996, compared to
$30,000 at year end 1995. Net charge-offs amounted to .35% of average loans in
1996, down significantly from .94% in 1995. During 1996, the Bank provided
$90,000 to the allowance for loan losses, the first such provision since 1993.
The allowance for loan losses totaled $213,969 at year end 1996, which
represents .92% of net year end loans.
Noninterest income grew $60,853, or 12%, to $568,901 in 1996, from
$508,048 in 1995. This increase resulted primarily from a $54,380, or 16%,
increase in service charges on deposits. Other operating income grew $12,510,
or 9%, while securities gains declined $6,037, or 28%.
3
<PAGE> 7
Noninterest expense grew $58,200, or 5%, to $1.3 million in 1996. A
$67,712 increase in salaries and employee benefits was partially offset by a
$5,904 reduction in occupancy expenses and a $3,608 reduction in other
operating expenses. The Company's efficiency ratio, which is noninterest
expense as a percentage of net interest income after the provision for loan
losses plus noninterest income, net of gains and losses on the sale of assets,
improved to 51.9% in 1996, compared to 63.4% in 1995.
NET INTEREST INCOME/MARGINS
The primary source of revenue for the Company is net interest income,
which is the difference between income on interest-earning assets, such as
investment securities and loans, and interest incurred on interest-bearing
sources of funds, such as deposits and borrowings. The level of net interest
income is determined primarily by the average balances ("volume") of
interest-earning assets and the various rate spreads between the
interest-earning assets and the Company's funding sources. The table "Average
Balances, Income and Expenses, and Rates" below indicates the Company's average
volume of interest-earning assets and interest-bearing liabilities for 1996 and
1995 and average yields and rates. Changes in net interest income from period
to period result from increases or decreases in the volume of interest-earning
assets and interest-bearing liabilities, increases or decreases in the average
rates earned and paid on such assets and liabilities, the ability to manage the
earning asset portfolio (which includes loans), and the availability of
particular sources of funds, such as noninterest bearing deposits. The table
"Analysis of Changes in Net Interest Income" below indicates the changes in the
Company's net interest income as a result of changes in volume and rate from
1995 to 1996 and from 1994 to 1995.
Net interest income was $2.0 million for 1996, a 39% increase from
1995. Net interest income increased primarily as a result of an increase in
average earning assets, as earning assets averaged $31.8 million in 1996, up
16% from $27.3 million in 1995. The Bank increased the amount of loans
outstanding during 1996, as well as the yield earned on loans. Loans averaged
$20.8 million in 1996, up 37% from $15.2 million in 1995, and the average yield
increased to 11.72% in 1996, from 11.56% in 1995. The combination of this
increase in both loans and loan yield served to increase loan interest income
39% to $2.4 million in 1996, from $1.8 million in 1995. The Company's net
interest spread, the difference between the taxable equivalent yield on earning
assets and the cost of interest-bearing liabilities, grew significantly in 1996
to 5.28%, from 4.23% in 1995, primarily as a result of the increased lending
activity and the decline in the bank's cost of funds.
The key performance measure for net interest income is the "net
interest margin," or net interest income divided by average interest-earning
assets. Unlike net interest spread, net interest margin is affected by the
level of interest-free funding used to support earning assets. The Company's
net interest margin on a taxable equivalent basis rose significantly to 6.45%
for 1996, from 5.34% for 1995. Net interest margin is expected to remain
fairly stable during 1997, varying only slightly from 1996. Although such
expectations are based on management's judgment, actual results will depend on
a number of factors that cannot be predicted with certainty, and fulfillment of
management's expectations cannot be assured.
4
<PAGE> 8
The following table depicts interest income on earning assets and
related average yields as well as interest expense on interest-bearing
liabilities and related average rates paid for the periods indicated.
AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995
--------------------------- ----------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans(1) . . . . . . . . . . . . . . . $20,768 $2,433 11.72% $15,179 $1,754 11.56%
Securities:
Taxable . . . . . . . . . . . . . . 5,978 355 5.94% 7,446 445 5.98%
Tax exempt(2) . . . . . . . . . . . 2,189 180 8.22% 1,158 88 7.60%
Interest-bearing deposits . . . . . . . 60 3 5.00% 262 15 5.73%
Funds sold . . . . . . . . . . . . . . 2,326 124 5.33% 2,906 169 5.82%
Other earning assets(2) . . . . . . . . 440 20 4.55% 391 16 4.09%
------- ------ ---- ------- ------ -----
Total earning assets . . . . . . . 31,761 3,115 9.81% 27,342 2,487 9.10%
------ ---- ------ -----
Cash and due from banks . . . . . . . . . 1,401 1,128
Premises and equipment . . . . . . . . . 1,019 1,037
Other assets . . . . . . . . . . . . . . 422 489
Allowance for loan losses . . . . . . . . (207) (234)
------- -----
Total assets . . . . . . . . . . . . $34,396 $29,762
======= =======
LIABILITIES
Interest-Bearing Liabilities
Interest-bearing transaction
accounts(1) . . . . . . . . . . . . . $ 4,446 109 2.45% $ 3,572 $ 110 3.08%
Savings deposits (1) . . . . . . . . . 3,851 97 2.52% 3,688 116 3.15%
Time deposits (1) . . . . . . . . . . . 15,227 859 5.64% 13,868 802 5.78%
Other short-term borrowings . . . . . . 18 1 5.50% 0 0 0.00%
Long-term debt . . . . . . . . . . . . 0 0 0.00% 0 0 0.00%
------- ------ ---- ------- ----- -----
Total interest-bearing liabilities . 23,542 1,066 4.53% 21,128 1,028 4.87%
------ ---- ----- -----
Demand deposits (1) . . . . . . . . . . . 6,241 4,946
Accrued interest and other liabilities . 399 216
Shareholders' equity . . . . . . . . . . 4,214 3,472
------- -------
Total liabilities and shareholders'
equity . . . . . . . . . . . . . . $34,396 $29,762
======= =======
Net interest spread . . . . . . . . . . . 5.28% 4.23%
==== ====
Net interest income/margin on a taxable
equivalent basis . . . . . . . . . . . $2,049 $1,459
====== ======
Net interest income/margin . . . . . . . 6.45% 5.34%
==== ====
</TABLE>
- ----------------------
(1) Average loans include nonaccrual loans. All loans and deposits are
domestic.
(2) Tax exempt income converted to taxable equivalent.
5
<PAGE> 9
Analysis of Changes in Net Interest Income. The following tables set
forth, on a taxable equivalent basis, the effect which the varying levels of
earning assets and interest-bearing liabilities and the applicable rates have
had on changes in net interest income from 1994 to 1995 and 1995 to 1996.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 COMPARED WITH 1995 1995 COMPARED WITH 1994
VARIANCE DUE TO VARIANCE DUE TO
--------------------------------- --------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans . . . . . . . . . . . . . . . . . $646 $33 $679 $263 $132 $395
Securities:
Taxable . . . . . . . . . . . . . . . (87) (3) (90) 37 85 122
Tax exempt . . . . . . . . . . . . . . 78 14 92 88 0 88
Funds sold . . . . . . . . . . . . . . . (33) (12) (45) (11) 50 39
Interest-bearing deposits with banks . (11) (1) (12) (21) 4 (17)
Other earning assets . . . . . . . . . . 2 2 4 16 0 16
---- --- ---- ---- ---- ----
Total interest income . . . . . . . 595 33 628 372 271 643
---- --- ---- ---- ---- ----
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest-bearing transaction accounts 26 (27) (1) 9 9 18
Savings and market rate investments . 5 (24) (19) 9 10 19
Certificates and other time deposits . 78 (21) 57 111 187 298
---- ---- ---- ---- ---- ----
Total interest-bearing deposits . . 109 (72) 37 129 206 335
Other short-term borrowings . . . . . . 1 0 1 0 0 0
Long-term debt . . . . . . . . . . . . . 0 0 0 0 0 0
---- ---- ---- ---- ---- ----
Total interest expense . . . . . . . 110 (72) 38 129 206 335
---- ---- ---- ---- ---- ----
Net interest income on a taxable
equivalent basis . . . . . . . . 485 105 590 243 65 308
Less taxable equivalent adjustment . 32 0 32 29 0 29
---- ---- ---- ---- ---- ----
Net interest income . . . . . . . . $453 $105 $558 $214 $ 65 $279
==== ==== ==== ==== ==== ====
</TABLE>
Interest Sensitivity. The Company monitors and manages the pricing
and maturity of its assets and liabilities in order to diminish the potential
adverse impact that changes in interest rates could have on its net interest
income. The principal monitoring technique employed by the Company is the
measurement of the Company's interest sensitivity "gap," which is the positive
or negative dollar difference between assets and liabilities that are subject
to interest rate repricing within a given period of time. Interest rate
sensitivity can be managed by repricing assets or liabilities, selling
securities available-for-sale, replacing an asset or liability at maturity or
by adjusting the interest rate during the life of an asset or liability.
Managing the amount of assets and liabilities repricing in this same time
interval helps to hedge the risk and minimize the impact on net interest income
of rising or falling interest rates.
The Company evaluates interest sensitivity risk and then formulates
guidelines regarding asset generation and repricing, funding sources and
pricing, and off-balance sheet commitments in order to decrease interest
sensitivity risk.
6
<PAGE> 10
The following table illustrates the Company's interest rate
sensitivity at December 31, 1996.
INTEREST SENSITIVITY ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------------------------------------
AFTER ONE AFTER THREE GREATER THAN
WITHIN THROUGH THROUGH WITHIN ONE YEAR OR
ONE MONTH THREE MONTHS TWELVE MONTHS ONE YEAR NONSENSITIVE TOTAL
--------- ------------ ------------- ----------- --------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets (1)
Loans . . . . . . . . . . . $ 6,358 $ 2,134 $5,064 $13,556 $ 9,826 $23,382
Securities (2) . . . . . . . 498 135 1,504 2,137 6,249 8,386
Interest-bearing deposits with
banks . . . . . . . . . . 155 0 100 255 0 255
Funds sold . . . . . . . . . 8,280 0 0 8,280 0 8,280
------- -------- ------ ------- ------- -------
Total earning assets . . . $15,291 $ 2,269 $6,668 $24,228 $16,075 $40,303
======= ======== ====== ======= ======= =======
LIABILITIES
Interest-bearing liabilities
Interest-bearing deposits
Demand deposits . . . . . $ 4,508 $ 0 $ 0 $ 4,508 $ 0 $ 4,508
Savings deposits . . . . . 3,841 0 0 3,841 0 3,841
Time deposits (3) . . . . 1,505 4,249 7,253 13,007 3,690 16,697
------- ------- ------ ------- ------- -------
Total interest-bearing
deposits . . . . . . . . . 9,854 4,249 7,253 21,356 3,690 25,046
Other short-term borrowings 0 0 0 0 0 0
Long-term debt . . . . . . . 0 0 0 0 0 0
------- ------- ------ ------- ------- -------
Total interest-bearing
liabilities . . . . . . . $ 9,854 $ 4,249 $7,253 $21,356 $ 3,690 $25,046
======= ======== ====== ======= ======= =======
Period gap . . . . . . . . . . $ 5,437 $ (1,980) $ (585) $ 2,872 $12,385 $15,257
Cumulative gap . . . . . . . . $ 5,437 $ 3,457 $2,872 $ 2,872 $15,257 $15,257
Ratio of cumulative gap to total
earning assets . . . . . . . 13.5% 8.6% 7.1% 7.1% 37.9% 37.9%
</TABLE>
- ----------------------
(1) Excludes nonaccrual loans and securities.
(2) Excludes investment equity securities of $339,271.
(3) Excludes matured certificates which have not been redeemed by the customer
and on which no interest is accruing.
The Company generally would benefit from increasing market rates of
interest when it has an asset-sensitive gap and generally would benefit from
decreasing market rates of interest when it is liability sensitive. The
Company is asset sensitive over the one month and one year time frames and
liability sensitive over the one through three months and three through twelve
months time frames. However, the Company's gap analysis is not a precise
indicator of its interest sensitivity position. The analysis presents only a
static view of the timing of maturities and repricing opportunities, without
taking into consideration that changes in interest rates do not affect all
assets and liabilities equally. For example, rates paid on a substantial
portion of core deposits may change contractually within a relatively short
time frame, but those rates are viewed by management as significantly less
interest-sensitive than market-based rates such as those paid on non-core
deposits. Accordingly, management believes a liability-sensitive gap position
is not as indicative of the Company's true interest sensitivity as it would be
for an organization which depends to a greater extent on purchased funds to
support earning assets. Net interest income may be impacted by other
significant factors in a given interest rate environment, including changes in
the volume and mix of earning assets and interest-bearing liabilities.
7
<PAGE> 11
PROVISION AND ALLOWANCE FOR LOAN LOSSES
General. The Bank has developed policies and procedures for
evaluating the overall quality of its credit portfolio and for the timely
identification of potential problem credits. On a quarterly basis, management
of the Bank recommends, and the Board of Directors of the Bank approves, the
appropriate level for the allowance for loan losses based on the results of the
internal monitoring and reporting system, analysis of economic conditions in
its market, and a review of historical statistical data for both the Bank and
other financial institutions. Management's judgment as to the adequacy of the
allowance is based upon a number of assumptions about future events which it
believes to be reasonable, but which may or may not be valid. Thus, there can
be no assurance that charge-offs in future periods will not exceed the
allowance for loan losses or that additional increases in the loan loss
allowance will not be required. The adequacy of the allowance for loan losses
and the effectiveness of the Bank's monitoring and analysis system are also
reviewed periodically by the banking regulators and the Bank's independent
auditors and independent loan review firm.
Additions to the allowance for loan losses, which are expensed as the
provision for loan losses on the Company's income statement, are made
periodically to maintain the allowance at an appropriate level based on
management's analysis of the potential risk in the loan portfolio. Loan losses
and recoveries are charged or credited directly to the allowance. The amount
of the provision is a function of the level of loans outstanding, the level of
nonperforming loans, historical loan loss experience, the amount of loan losses
actually charged against the reserve during a given period, and current and
anticipated economic conditions.
The table below summarizes certain information with respect to the
Bank's allowance for loan losses and the composition of charge-offs and
recoveries for each of the last two years.
ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
Total loans outstanding at end of
period, net of unearned income . . . $23,382 $16,476
Average amount of loans
outstanding, net of unearned
income . . . . . . . . . . . . . . . $20,768 $15,179
Balance of allowance for loan
losses at beginning of period . . . $197 $ 340
Loan losses:
Commercial, financial and
agricultural . . . . . . . . . . . 0 133
Real estate - mortgage . . . . . . . 7 10
Consumer . . . . . . . . . . . . . . 81 19
------- -------
Total loan losses . . . . . . . . 88 162
------- -------
</TABLE>
8
<PAGE> 12
<TABLE>
<S> <C> <C>
Recoveries of previous loan
losses:
Commercial, financial and
agricultural . . . . . . . . . 0 0
Real estate - mortgage . . . . . 3 16
Consumer . . . . . . . . . . . . 12 3
---- ----
Total recoveries . . . . . . . 15 19
---- ----
Net loan losses . . . . . . . . . . 73 143
Provision for loan losses . . . . . 90 0
---- ----
Balance of allowance for loan
losses at end of period . . . . $214 $197
==== ====
Allowance for loan losses to
period end loans . . . . . . . . .92% 1.19%
Net charge-offs to average loans . .35% .94%
</TABLE>
The provision for loan losses charged to earnings for the year ended
December 31, 1996, amounted to $90,000. This marks the first year since 1993
that a provision for loan losses was charged to earnings. Net charge-offs
amounted to .35% of average loans in 1996, down significantly from .94% in
1995. The provision set aside for loan losses during 1996 was primarily the
result of management's assessment that, even though asset quality remains at a
desirable level, the allowance for loan losses should be increased to reflect
the growth experienced in the loan portfolio. Management feels the allowance
is adequate at this time; however, there can be no assurance that charge-offs
in future periods will not exceed the allowance for loan losses or that
additional increases in the loan loss allowance will not be required.
Allocation of Allowance. The table below sets forth the amount of the
allowance for loan losses allocated by the Company by loan categories.
Declines in commercial loans combined with increases in the amount of real
estate loans and consumer loans are reflected in the change in the amount of
the allowance for loan losses allocated to the specific loan categories.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1996 1995
---- ----
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 23 10.7% $ 18 9.1%
Real estate 67 31.3% 35 17.8%
Consumer 41 19.2% 30 15.2%
Unallocated 83 38.8% 114 57.9%
---- ----- ---- -----
TOTAL $214 100.0% $197 100.0%
==== ===== ==== =====
</TABLE>
9
<PAGE> 13
Nonperforming Assets. The following table presents the Company's
nonperforming assets for the dates indicated.
NONPERFORMING ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
Nonaccrual loans . . . . . . . . . . . $ 0 $ 0
Restructured loans . . . . . . . . . . 0 0
---- -------
Total nonperforming loans . . . . 0 0
Nonaccruing securities . . . . . . . . 0 0
Other real estate owned . . . . . . . . 0 30
---- -------
Total nonperforming assets . . . . $ 0 $ 30
==== =======
Loans past due 90 days or more . . . . $ 0 $ 0
Allowance for loan losses to period
end loans . . . . . . . . . . . . . .92% 1.19%
Allowance for loan losses to period
end nonperforming loans . . . . . . N/A N/A
Allowance for loan losses to period
end nonperforming assets . . . . . . N/A 656.67%
Net charge-offs to average loans . . . .35% .94%
Nonperforming assets to period end
loans and foreclosed property . . . N/A .18%
</TABLE>
Accrual of interest is discontinued on a loan when management
believes, after considering economic and business conditions and collection
efforts, that the borrower's financial condition is such that the collection of
interest is doubtful. A delinquent loan is generally placed in nonaccrual
status when it becomes 90 days or more past due. When a loan is placed in
nonaccrual status, all interest which has been accrued on the loan but remains
unpaid is reversed and deducted from earnings as a reduction of reported
interest income. No additional interest is accrued on the loan balance until
the collection of both principal and interest becomes reasonably certain. When
a problem loan is finally resolved, there may ultimately be an actual writedown
or charge-off of the principal balance of the loan which would necessitate
additional charges to earnings. There were no nonperforming assets as of
December 31, 1996.
Potential Problem Loans. A potential problem loan is one in which
management has serious doubts about the borrower's future performance under the
terms of the loan contract. These loans are current as to principal and
interest and, accordingly, they are not included in the nonperforming assets
categories. Management monitors these loans closely in order to ensure that
the Company's interests are protected. At December 31, 1996, the Company held
twelve loans considered by management to be potential problem loans totaling
approximately $410,000. The level of potential problem loans is factored into
the determination of the adequacy of the allowance for loan losses.
NONINTEREST INCOME AND EXPENSE
Noninterest income. The largest component of noninterest income is
service charges on deposit accounts, which totaled $396,895 in 1996, a 16%
increase over the 1995 level of $342,515. Also contributing to the improvement
in noninterest income was other operating income which totaled $156,827 in
1996, a 9% increase compared to the 1995 total of $144,317.
10
<PAGE> 14
The following table sets forth, for the periods indicated, the
principal components of noninterest income:
NONINTEREST INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995
-------- --------
<S> <C> <C>
Service charges on deposit
accounts . . . . . . . . . . . . $397 $343
Securities gains . . . . . . . . . 15 21
Other . . . . . . . . . . . . . . . 157 144
---- -----
Total noninterest income . . . $569 $508
==== ====
</TABLE>
Noninterest Expense. The following table sets forth, for the periods
indicated, the primary components of noninterest expense:
NONINTEREST EXPENSE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995
-------- --------
<S> <C> <C>
Salaries and employee benefits . . . . . . $604 $536
Net occupancy expense . . . . . . . . . . . 73 70
Furniture and equipment expense . . . . . . 116 125
Director and committee fees . . . . . . . . 42 24
Amortization of intangibles . . . . . . . . 0 21
Data processing . . . . . . . . . . . . . . 21 18
Insurance . . . . . . . . . . . . . . . . . 16 18
Advertising . . . . . . . . . . . . . . . . 22 25
Banking assessments . . . . . . . . . . . . 21 49
Professional fees . . . . . . . . . . . . . 51 48
Postage and freight and couriers . . . . . 50 44
Supplies . . . . . . . . . . . . . . . . . 74 55
Travel, meetings, seminars, entertainment . 20 16
Other . . . . . . . . . . . . . . . . . . . 163 165
------ ------
Total noninterest expense . . . . $1,273 $1,214
====== ======
Efficiency ratio . . . . . . . . . . . . . 51.9% 63.4%
</TABLE>
Salaries and employee benefits increased $67,712, or 13%, to $604,095
in 1996, from $536,383 in 1995, due primarily to a $31,483, or 7%, increase in
salaries and a $29,714, or 96% increase in incentive compensation. Director
and committee fees increased $17,900, or 75%, to $41,900 in 1996, from $24,000
in 1995, due to an increase in the fees paid to directors for each meeting of
the board of directors of the Bank attended, as well as for beginning to pay a
fee for attending meetings of the committees of the Bank's board of directors.
In addition, office supplies increased $19,002, or 34%, to $74,195 in 1996,
from $55,193 in 1995. These increases in noninterest expenses were offset in
part by reductions in several noninterest expenses. First, furniture and
equipment expense declined $9,046, or 7%, which can be attributed primarily to
a $14,731, or 17%, reduction in depreciation expense. In addition, banking
assessments decreased $27,440, or 56%, due to a reduction in the premium rate
charged by the Federal Deposit Insurance Corporation for deposit insurance.
Amortization of intangibles also declined by $20,704, as the Company and the
Bank completed the write-off in 1995 of certain organizational costs incurred
in 1989 and 1990.
11
<PAGE> 15
EARNING ASSETS
Loans. Loans are the largest category of earning assets and typically
provide higher yields than the other types of earning assets. Associated with
the higher loan yields are the inherent credit and liquidity risks which
management attempts to control and counterbalance. Loans averaged $20.8
million in 1996, compared to $15.2 million in 1995, an increase of $5.6
million, or 37%. At December 31, 1996, total loans were $23.4 million,
compared to $16.5 million at the end of 1995.
In 1996, growth in the Company's loan portfolio accelerated as the
local economy remained strong. The following table shows the composition of
the loan portfolio by category at the dates indicated.
COMPOSITION OF LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1995
--------------------------- -------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ --------
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural . . . . . $ 3,361 14.4% $ 2,338 14.2%
Real estate
Construction . . . . . 2,066 8.8% 1,198 7.3%
Mortgage - residential 6,044 25.8% 3,983 24.1%
Mortgage - commercial 3,341 14.3% 3,345 20.3%
Consumer . . . . . . . . 8,261 35.3% 5,512 33.4%
Other . . . . . . . . . . 337 1.4% 125 .7%
------- ----- ------- -----
Total gross loans . . 23,410 100.0% 16,501 100.0%
===== =====
Unearned income . . . . . 28 24
------- -------
Total loans net of
unearned income . . 23,382 16,477
Allowance for loan losses 214 197
------- -------
Total net loans . . . $23,168 $16,280
======= =======
</TABLE>
The principal component of the Company's loan portfolio is consumer
loans. At year end 1996, this category totaled $8.3 million and represented
35% of the total loan portfolio, compared to $5.5 million, or 33%, at the end
of 1995. Consumer loans increased $2.7 million, or 50%, at December 31, 1996,
compared to December 31, 1995. The growth in 1996 was primarily a result of
the strong local economy and the addition of a consumer lender in mid-1995.
Residential mortgage loans increased $2.1 million, or 52%, to $6.0
million at December 31, 1996, from $4.0 million at year end 1995. This
increase is the result of management's decision to allocate more funds to
residential mortgage loans, primarily to low and moderate income borrowers.
Nonresidential mortgage loans, which include commercial loans and other loans
secured by multi-family properties and farmland, was essentially unchanged,
while construction loans rose $868,017, or 72%, due to favorable mortgage
interest rates and an increase in new home building.
Commercial, financial and agriculture loans grew by $1.0 million, or
44%, to $3.4 million at December 31, 1996, from $2.3 million at December 31,
1995. This increase is due primarily to management's efforts to increase the
Bank's commercial customer base and to increase lending to farmers.
12
<PAGE> 16
The repayment of loans in the loan portfolio as they mature is also a
source of liquidity for the Company. The following table sets forth the
Company's loans maturing within specified intervals at December 31, 1996.
LOAN MATURITY SCHEDULE AND SENSITIVITY TO CHANGES IN INTEREST RATES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------
OVER ONE YEAR
ONE YEAR THROUGH OVER FIVE
OR LESS FIVE YEARS YEARS TOTAL
------- ---------- ----- -----
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural . . . . . . . . . . $ 2,122 $1,041 $ 198 $ 3,361
Real estate . . . . . . . . . . . 5,748 1,991 3,712 11,451
Consumer . . . . . . . . . . . . . 2,012 5,343 906 8,261
Other . . . . . . . . . . . . . . . 208 97 32 337
------- ------ ------ -------
Total . . . . . . . . . . . . $10,090 $8,472 $4,848 $23,410
======= ====== ====== =======
Fixed interest rate . . . . . . . $4,839 $8,472 $4,848 $18,159
Variable interest rate . . . . . . 5,251 0 0 5,251
------- ------ ------ -------
Total . . . . . . . . . . . . $10,090 $8,472 $4,848 $23,410
======= ====== ====== =======
</TABLE>
The information presented in the above table is based on the
contractual maturities of the individual loans, including loans which may be
subject to renewal at their contractual maturity. Renewal of such loans is
subject to review and credit approval, as well as modification of terms upon
their maturity. Consequently, management believes this treatment presents
fairly the maturity and repricing structure of the loan portfolio shown on the
above table.
Investment Securities. The investment securities portfolio is a
significant component of the Company's total earning assets. Total investment
securities averaged $8.2 million in 1996, compared to $8.6 million in 1995. At
December 31, 1996, the total securities portfolio was $8.7 million, compared to
$8.0 million at December 31, 1995. The increase in the portfolio during 1996
was primarily due to management's decision to expand the investment in
tax-exempt municipal bonds.
The following table sets forth the book value of the securities held
by the Company at the dates indicated.
BOOK VALUE OF SECURITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
---- ----
<S> <C> <C>
U.S. Treasury . . . . . . . . . . . . . . . $4,273 $3,734
U.S. government agencies . . . . . . . . . 500 1,750
State, county and municipal securities . . 3,623 2,171
Other . . . . . . . . . . . . . . . . . . . 331 275
------ ------
Total securities . . . . . . . . . $8,727 $7,930
====== ======
</TABLE>
13
<PAGE> 17
The following table shows the scheduled maturities and average yields
of securities held at December 31, 1996.
INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
------------------ ------------------- ------------------- -------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury . . . . . . . . . . . $1,505 6.35% $2,760 5.59% $ 0 0.00% $ 0 0.00%
U.S. government agencies . . . . . 498 4.20% 0 0.00% 0 0.00% 0 0.00%
State and political
subdivisions(1) . . . . . 135 5.25% 229 6.05% 0 0.00% 3,258 8.21%
------ ---- ------ ---- --- ---- ------ ----
Total (2) . . . . $2,138 5.78% $2,989 5.63% $ 0 0.00% $3,258 8.21%
====== ==== ====== ==== === ==== ====== ====
</TABLE>
----------------------
(1) Yields based on taxable equivalent.
(2) Excludes $339,271 in investment equity securities.
In accordance with the Financial Accounting Standards Board (the
"FASB") Statement of Financial Accounting Standards ("SFAS") 115, the Company
classifies its investment securities into the following three categories:
trading, available-for-sale and held-to-maturity. Debt securities that the
Company has the intent and ability to hold until maturity are classified as
held-to-maturity and reported at amortized cost. Trading securities and
available-for-sale securities are reported at market value with unrealized
gains and losses on trading securities reported in income and unrealized gains
and losses on available-for-sale securities reported as a net amount in a
separate component of shareholders' equity until realized. At December 31,
1996, the Company held $5.1 million in securities classified available-for-sale
and $3.6 million in securities classified held-to-maturity and reflected an
unrealized loss after tax of $1,284 as a separate component in shareholders'
equity. There can be no assurance that as interest rates change in the future
the amount of unrealized loss will not increase, but if these securities are
held until they mature and are repaid in accordance with their terms, these
losses will not be realized. Other attributes of the securities portfolio,
including yields and maturities, are discussed elsewhere in "-- Net Interest
Income/Margins -- Interest Sensitivity."
Short-Term Investments. Short-term investments, which consist
primarily of federal funds sold, equities, and interest-bearing deposits with
other banks, averaged $2.8 million in 1996, compared to $3.6 million in 1995.
At December 31, 1996, short-term investments totaled $8.9 million. These funds
are a primary source of the Bank's liquidity and are generally invested in an
earning capacity on an overnight basis.
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Average interest-bearing deposits increased $2.4 million, or 11%, to
$23.5 million in 1996, from $21.1 million in 1995. This increase resulted from
increases in all categories of interest-bearing deposits, primarily as a result
of normal deposit growth similar to growth experienced in prior years. The
Company rarely utilizes interest-bearing liabilities other than deposits.
Deposits. Average total deposits increased $3.7 million, or 14%, to
$29.8 million during 1996, from $26.1 million during 1995. At December 31,
1996, total deposits were $38.0 million, compared to $33.5 million a year
earlier, an increase of 14%. Seasonal local government deposits amounted to
$7.4 million at December 31, 1996, compared to $5.5 million at December 31,
1995. In both years these seasonal deposits are reflected as noninterest
bearing deposits, and were temporarily invested in federal funds sold until
withdrawn in mid-January of the following year.
14
<PAGE> 18
The following table sets forth the deposits of the Company by category at the
dates indicated.
DEPOSITS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------
1996 1995
-------------------------------------- --------------------------------------
Percent of Percent of
Amount Deposits Amount Deposits
------ -------- ------ --------
<S> <C> <C> <C> <C>
Demand deposit accounts . . . $12,971 34.1% $10,271 30.7%
NOW accounts . . . . . . . . 4,508 11.9% 4,297 12.8%
Money market accounts . . . . 1,613 4.2% 1,769 5.3%
Savings accounts . . . . . . 2,228 5.9% 2,159 6.4%
Time deposits less than
$100,000 . . . . . . . . . . 12,263 32.3% 10,905 32.6%
Time deposits of $100,000 or
over . . . . . . . . . . . . 4,434 11.6% 4,085 12.2%
------- ----- ------- -----
Total deposits . . . $38,017 100.0% $33,486 100.0%
======= ===== ======= =====
</TABLE>
Core deposits, which exclude certificates of deposit of $100,000 or
more and seasonal government deposits, provide a relatively stable funding
source for the Company's loan portfolio and other earning assets. The
Company's core deposits increased $2.3 million in 1996, primarily as a result
of normally recurring deposit growth.
Deposits, and particularly core deposits, have historically been the
Company's primary source of funding and have enabled the Company to meet
successfully both its short-term and long-term liquidity needs. Management
anticipates that such deposits will continue to be the Company's primary source
of funding in the future. The Company's loan-to-deposit ratio was 61% at
December 31, 1996, and 49% at the end of 1995, and the ratio averaged 70%
during 1996. The Company's loan-to-core deposits ratio was 79% at December 31,
1996, and 69% at December 31, 1995, and the ratio averaged 77% during 1996.
The maturity distribution of the Company's time deposits of $100,000 or more at
December 31, 1996, is shown in the following table.
MATURITIES OF CERTIFICATES OF DEPOSIT
AND OTHER TIME DEPOSITS OF $100,000 OR MORE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------------------
AFTER THREE AFTER SIX
WITHIN THREE THROUGH THROUGH TWELVE AFTER TWELVE
MONTHS SIX MONTHS MONTHS MONTHS TOTAL
------ ---------- ------ ------ -----
<S> <C> <C> <C> <C> <C>
Certificates of deposit of $100,000 or more $2,024 $400 $1,393 $617 $4,434
Other time deposits of $100,000 or more . . 0 0 0 0 0
------ ---- ------ ---- ------
Total . . . . . . . . . . . . . . . . $2,024 $400 $1,393 $617 $4,434
====== ==== ====== ==== ======
</TABLE>
Almost half, 46%, of the Company's time deposits of $100,000 or more
had scheduled maturities within three months. Large certificate of deposit
customers tend to be extremely sensitive to interest rate levels, making these
deposits less reliable sources of funding for liquidity planning purposes than
core deposits. Some financial
15
<PAGE> 19
institutions partially fund their balance sheets using large certificates of
deposit obtained through brokers. These brokered deposits are generally
expensive and are unreliable as long-term funding sources. Accordingly, the
Company does not actively solicit brokered deposits.
Borrowed funds. Borrowed funds consist primarily of short-term
borrowings in the form of federal funds purchased from correspondent banks.
The Company strives to fund its loan growth and other investments from
deposits. Accordingly, the Company has relied only occasionally upon borrowed
funds to fund its operations. Borrowed funds, in the form of federal funds
purchased, averaged $15,765 during 1996.
CAPITAL
Under the capital guidelines of the Federal Reserve Board and the
Office of the Comptroller of the Currency (the "OCC"), the Company and the Bank
are currently required to maintain a minimum risk-based total capital ratio of
8%, with at least 4% being Tier 1 capital. Tier 1 capital consists of common
shareholders' equity, qualifying perpetual preferred stock, and minority
interests in equity accounts of consolidated subsidiaries, less goodwill. In
addition, the Company and the Bank must maintain a minimum Tier 1 leverage
ratio (Tier 1 capital to total assets) of at least 3%, but this minimum ratio
is increased by 100 to 200 basis points for other than the highest-rated
institutions.
At December 31, 1996, the Company and the Bank exceeded their
regulatory capital ratios, as set forth in the following table.
ANALYSIS OF CAPITAL
<TABLE>
<CAPTION>
Required
Company Bank Minimums
------- ---- --------
<S> <C> <C> <C>
Tier 1 risk-based capital ratio . . . . . 18.7% 16.8% 4.0%
Total risk-based capital ratio . . . . . 19.6% 17.7% 8.0%
Tier 1 leverage ratio . . . . . . . . . . 12.3% 11.7% 3.0%
</TABLE>
LIQUIDITY MANAGEMENT AND CAPITAL RESOURCES
Liquidity management involves monitoring the Company's sources and
uses of funds in order to meet its day-to-day cash flow requirements while
maximizing profits. Liquidity represents the ability of a company to convert
assets into cash or cash equivalents without significant loss and to raise
additional funds by increasing liabilities. Without proper liquidity
management, the Company will not be able to perform the primary function of a
financial intermediary and would, therefore, not be able to meet the needs of
the communities it serves.
Increased liquidity in typical interest rate environments often
involves decreasing profits by investing in earning assets with shorter
maturities. Liquidity management is made more complex because different
balance sheet components are subject to varying degrees of management control.
For example, the timing of maturities of the investment portfolio is very
predictable and subject to a high degree of control at the time investment
decisions are made. However, net deposit inflows and outflows are far less
predictable and are not subject to nearly the same degree of control.
The Company's funds sold position, its primary source of liquidity,
averaged $2.3 million during the year ended December 31, 1996, and was $8.3
million at December 31, 1996, and averaged $2.9 million during the year ended
December 31, 1995, and was $9.9 million at December 31, 1995. Reflected in the
unusually large funds sold position at December 31, 1996, and December 31,
1995, was approximately $7.4 million and $5.5 million, respectively, of
seasonal government deposits. Within days of each respective year end, the
funds sold position
16
<PAGE> 20
returned to a more normal level. Liquidity can also be managed using the
overnight and short-term borrowed fund markets. The Company maintains
overnight borrowing lines with several financial institutions, and utilizes
these lines on rare occasions.
The Company, as a stand alone corporation, has more limited access to
liquidity sources than the Bank and depends on dividends from the Bank as its
primary source of liquidity. The ability of the Bank to pay dividends is
subject to general regulatory restrictions which may, but are not expected to,
have a material negative impact on the liquidity available to the Company. If
circumstances warrant, the Company's liquidity needs can also be met by
borrowings from third parties, subject to the availability of loan funds on
appropriate terms and the Company's ability to service the debt.
ACCOUNTING RULE CHANGES
Accounting for Stock-Based Compensation. The FASB has issued SFAS
123, "Accounting for Stock-Based Compensation," which encourages, but does not
require, the use of fair value based accounting for stock compensation awards.
Under SFAS 123, compensation cost is measured and shown as an expense on the
income statement based on the fair value of the awards at the grant dates. The
Company adopted SFAS 123 as of January 1, 1996. The adoption of SFAS 123 will
apply only to options, warrants and other stock-based compensation granted by
the Company after December 15, 1994. Management does not expect the adoption
of SFAS 123 to have a material adverse impact on the Company's financial
position or results of operations.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of
financial institutions such as the Company and the Bank are primarily monetary
in nature. Therefore, interest rates have a more significant effect on the
Company's performance than do the effects of changes in the general rate of
inflation and change in prices. In addition, interest rates do not necessarily
move in the same direction or in the same magnitude as the prices of goods and
services. As discussed previously, management seeks to manage the
relationships between interest sensitive assets and liabilities in order to
protect against wide interest rate fluctuations, including those resulting from
inflation. See "-- Net Interest Income/Margins -- Interest Sensitivity."
INDUSTRY DEVELOPMENTS
Certain recently enacted and proposed legislation could have an effect
on both the costs of doing business and the competitive factors facing the
financial institutions industry. The Company is unable at this time to assess
the impact of this legislation on its financial condition or results of
operations.
MARKET FOR COMPANY'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
As of March 12, 1997, there were approximately 960 holders of record
of the Common Stock and 396,832 shares of Common Stock issued and outstanding.
In addition, there are 161,816 shares of Common Stock subject to currently
outstanding warrants and stock options. There is no established public trading
market in the stock, and there is no likelihood that a trading market will
develop in the near future. The development of a trading market may be
inhibited because a large portion of the Company's shares is held by insiders.
Transactions in the Common Stock are infrequent and are negotiated privately
between the persons involved in those transactions.
All outstanding shares of Common Stock of the Company are entitled to
share equally in dividends from funds legally available, when, as, and if
declared by the Board of Directors. No dividends have been paid to date on the
Common Stock, and it is anticipated that earnings will be retained for the
foreseeable future in order to
17
<PAGE> 21
expand the Bank's capital base to support deposit growth. Payment of dividends
by national banks is regulated by the OCC, which in turn could limit the
Company's ability to pay dividends. At the request of the OCC, the Bank
adopted a capital policy which provides that the Bank will not pay dividends to
the Company until the Bank is cumulatively profitable. The Company currently
has no source of income other than dividends and other payments received from
the Bank. It is unlikely that any cash dividends will be paid in the near
future.
18
<PAGE> 22
<TABLE>
<S> <C>
MCNAIR, MCLEMORE, MIDDLEBROOKS & CO., LLP
CERTIFIED PUBLIC ACCOUNTANTS
A PARTNERSHIP INCLUDING A PROFESSIONAL CORPORATION
RALPH S. McLEMORE, SR., C.P.A. (1963-1977) 389 MULBERRY STREET
SIDNEY B. McNAIR, C.P.A. (1954-1992) POST OFFICE BOX ONE
MACON, GEORGIA 31202
SIDNEY E. MIDDLEBROOKS, C.P.A., P.C. (912) 746-6277
RAY C. PEARSON, C.P.A. FAX (912) 741-8353
J. RANDOLPH NICHOLS, C.P.A.
WILLIAM H. EPPS, JR., C.P.A. 1117 MORNINGSIDE DRIVE
RAYMOND A. PIPPIN, JR., C.P.A. POST OFFICE BOX 1287
JERRY A. WOLFE, C.P.A. PERRY, GA 31069
W. E. BARFIELD, JR., C.P.A. (912) 987-0947
HOWARD S. HOLLEMAN, C.P.A. FAX (912) 987-0526
F. GAY McMICHAEL, C.P.A.
RICHARD A. WHITTEN, JR., C.P.A.
ELIZABETH WARE HARDIN, C.P.A.
CAROLINE E. GRIFFIN, C.P.A.
RONNIE K. GILBERT, C.P.A.
</TABLE>
January 10, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Wayne Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Wayne Bancorp,
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 each of the years in the three-year period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 consolidated financial position of Wayne
Bancorp, Inc. and Subsidiary as of December 31, 1996 and 1995 and the
consolidated results of operations and cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLP
McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLP
- 19 -
<PAGE> 23
WAYNE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH AND DUE FROM BANKS $ 1,385,896 $ 1,865,429
----------- -----------
FEDERAL FUNDS SOLD 8,280,000 9,940,000
----------- -----------
INTEREST-BEARING DEPOSITS WITH BANKS 255,152 113,285
----------- -----------
INVESTMENT SECURITIES
Available for Sale 5,102,326 5,810,537
Held to Maturity 3,622,528 2,171,226
----------- -----------
8,724,854 7,981,763
----------- -----------
LOANS 23,410,171 16,501,333
Allowance for Loan Losses (213,969) (196,669)
Unearned Loan Fees (27,967) (25,000)
----------- -----------
23,168,235 16,279,664
----------- -----------
BANK PREMISES AND EQUIPMENT 997,013 1,005,692
----------- -----------
OTHER REAL ESTATE - 29,906
----------- -----------
OTHER ASSETS 423,600 435,029
----------- -----------
TOTAL ASSETS $43,234,750 $37,650,768
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
- 20 -
<PAGE> 24
WAYNE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
DEPOSITS
Noninterest-Bearing $12,970,694 $10,271,578
Interest-Bearing 25,045,809 23,214,792
----------- -----------
38,016,503 33,486,370
OTHER LIABILITIES 590,480 329,158
----------- -----------
TOTAL LIABILITIES 38,606,983 33,815,528
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock, Par Value $1 Per Share; 10,000,000 Shares
Authorized, 377,786 Shares Issued and Outstanding 377,786 377,786
Surplus 3,354,102 3,354,102
Retained Earnings 897,163 69,015
Net Unrealized Gain (Loss) on Securities Available for Sale,
Net of Tax (Benefit) of $(661) in 1996 and $17,688 in 1995 (1,284) 34,337
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 4,627,767 3,835,240
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $43,234,750 $37,650,768
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
- 21 -
<PAGE> 25
WAYNE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $2,433,258 $1,753,619 $1,359,289
Interest on Federal Funds Sold 124,062 169,365 129,965
Interest on Investment Securities
U.S. Treasury 287,587 276,425 162,328
U.S. Government Agencies 48,884 153,802 143,233
Municipals 142,297 80,982 11,123
Interest on Deposits in Other Banks 3,077 14,721 31,501
Dividends on Other Investments 14,788 9,239 6,144
---------- ---------- ----------
3,053,953 2,458,153 1,843,583
INTEREST EXPENSE
Interest on Deposits 1,065,545 1,028,414 692,489
---------- ---------- ----------
NET INTEREST INCOME 1,988,408 1,429,739 1,151,094
Provision for Loan Losses 90,000 - -
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 1,898,408 1,429,739 1,151,094
---------- ---------- ----------
OTHER INCOME
Service Charges on Deposit 396,895 342,515 304,681
Other Operating Income 156,827 144,317 142,924
Gain on Sale of Securities 15,179 21,216 2,547
---------- ---------- ----------
568,901 508,048 450,152
---------- ---------- ----------
Other Expenses
Salaries and Employee Benefits 604,095 536,383 559,176
Occupancy and Equipment 189,189 195,093 205,382
Other Operating Expenses 479,226 482,834 445,099
---------- ---------- ----------
1,272,510 1,214,310 1,209,657
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,194,799 723,477 391,589
INCOME TAXES 366,651 225,668 134,448
---------- ---------- ----------
NET INCOME $ 828,148 $ 497,809 $ 257,141
========== ========== ==========
INCOME PER COMMON AND COMMON EQUIVALENT
SHARE AND ON FULLY DILUTED BASIS $ 1.78 $ 1.10 $ .64
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
- 22 -
<PAGE> 26
WAYNE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION> Net
Unrealized
Gain (Loss)
on
Retained Securities
Common Earnings Available Treasury
Stock Surplus (Deficit) For Sale Stock Total
-------- ---------- ----------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $377,750 $3,367,039 $ (685,935) $ (4,555) $(75,200) $2,979,099
Net Income 257,141 257,141
Net Unrealized Loss on
Securities Available for
Sale (90,479) (90,479)
Retirement of 7,520 Shares
of Treasury Stock (7,520) (67,680) 75,200 -
-------- ---------- ----------- --------- -------- ----------
BALANCE, DECEMBER 31, 1994 370,230 3,299,359 (428,794) (95,034) - 3,145,761
Net Income 497,809 497,809
Net Unrealized Gain on
Securities Available for
Sale 129,371 129,371
Issuance of 7,556 Shares
of Stock 7,556 54,743 62,299
-------- ---------- ----------- --------- -------- ----------
BALANCE, DECEMBER 31, 1995 377,786 3,354,102 69,015 34,337 - 3,835,240
Net Income 828,148 828,148
Net Unrealized Loss on
Securities Available for
Sale (35,621) (35,621)
-------- ---------- ----------- --------- -------- ----------
BALANCE, DECEMBER 31, 1996 $377,786 $3,354,102 $897,163 $ (1,284) $ - $4,627,767
======== ========== =========== ========= ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
- 23 -
<PAGE> 27
WAYNE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 828,148 $ 497,809 $ 257,141
Adjustments to Reconcile Net Income to Net
Cash Flows from Operating Activities
Depreciation, Amortization and Accretion 111,372 117,804 133,285
Provision for Loan Losses 90,000 - -
Gain on Sale of Securities (15,179) (21,216) (2,547)
Loss on Sale of Assets - - 66
Deferred Taxes (4,003) 184,897 134,448
CHANGE IN
Interest Receivable 767 (67,950) (77,150)
Interest Payable (20,217) 88,961 19,927
Other 314,553 23,879 25,877
------------ ----------- -----------
1,305,441 824,184 491,047
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Interest-Bearing Deposits
in Other Banks - - (600,620)
Purchases of Investment Securities
Available for Sale (2,697,802) (3,491,633) (5,471,165)
Purchases of Investment Securities
Held to Maturity (1,579,546) (2,761,536) (1,498,799)
Proceeds from Maturities of Interest-
Bearing Deposits in Other Banks - 600,000 500,000
Proceeds from Maturities of Securities
Held to Maturity 130,000 250,000 875,000
Proceeds from Maturities of Securities
Available for Sale 2,000,000 3,065,000 510,000
Proceeds from Sales of Securities
Available for Sale 1,356,155 3,525,446 3,100,117
Proceeds from Sales of Securities
Held to Maturity - 609,824 -
Proceeds from Sales of Assets - - 1,602
Proceeds from Sales of OREO 33,200 - -
Loans, Net (6,981,865) (2,982,332) (1,470,654)
Bank Premises and Equipment (93,382) (41,381) (12,941)
Interest-Bearing Deposits (141,867) (113,285) -
------------ ----------- -----------
(7,975,107) (1,339,897) (4,067,460)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Demand, Interest-Bearing Demand and
Savings Accounts 2,823,545 1,357,684 7,519,200
Time Deposits 1,706,588 1,975,316 2,682,150
Issuance of Stock - 62,299 -
------------ ----------- -----------
4,530,133 3,395,299 10,201,350
------------ ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,139,533) 2,879,586 6,624,937
CASH AND CASH EQUIVALENTS, BEGINNING 11,805,429 8,925,843 2,300,906
------------ ----------- -----------
CASH AND CASH EQUIVALENTS, ENDING $ 9,665,896 $11,805,429 $ 8,925,843
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
- 24 -
<PAGE> 28
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Wayne Bancorp,
Inc. and its wholly-owned subsidiary, Wayne National Bank (the Bank) located in
Jesup, Georgia. All significant intercompany accounts have been eliminated.
The accounting and reporting policies of Wayne Bancorp, Inc. are presented on
the basis of generally accepted accounting principles and practices utilized in
the commercial banking industry. The following is a description of the more
significant of those policies.
BASIS OF PRESENTATION
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 balance sheet date and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for loan losses, the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans and the valuation of deferred tax assets.
INVESTMENT SECURITIES
Investment securities are recorded under the provisions of Statement of
Financial Accounting Standards No. 115 whereby the Bank must classify its
securities as trading, available for sale or held to maturity. Trading
securities are purchased and held for sale in the near term. Securities held
to maturity are those which the Bank has the ability and intent to hold until
maturity. All other securities not classified as trading or held to maturity
are considered available for sale. As of December 31, 1996 and 1995, all
investment securities held by the Bank are classified as available for sale and
held to maturity.
Securities available for sale are measured at fair value with unrealized gains
and losses reported net of deferred taxes as a separate component of
stockholders' equity. Fair value represents an approximation of realizable
value as of December 31, 1996 and 1995. Realized and unrealized gains and
losses are determined using the specific identification method. Premiums and
discounts are recognized in interest income using the straight-line method over
the period to maturity.
LOANS
Loans are generally reported at principal amount less unearned interest and
fees. On January 1, 1995, the Bank adopted Statement of Financial Accounting
Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan and
SFAS No. 118, Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures. Impaired loans are loans for which principal and
interest are unlikely to be collected in accordance with the original loan
terms and, generally, represent loans delinquent in excess of 90 days which
have been placed on nonaccrual status and for which collateral values are less
than outstanding principal and interest. Small balance, homogeneous loans are
excluded from impaired loans. Generally, interest payments received on
impaired loans are applied to principal. Upon receipt of all loan principal,
additional interest payments are recognized as interest income on the cash
basis. As of December 31, 1996, the Bank had no loans classified as impaired
loans.
- 25 -
<PAGE> 29
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS (CONTINUED)
Other nonaccrual loans are loans for which payments of principal and interest
are considered doubtful of collection under original terms but collateral
values equal or exceed outstanding principal and interest.
Wayne National Bank's loans consist of commercial, financial and agricultural
loans, real estate mortgage loans and consumer loans primarily to individuals
and entities located throughout coastal and southeast Georgia. Accordingly,
the ultimate collectibility of the loans is largely dependent upon economic
conditions in those Georgia areas.
ALLOWANCE FOR LOAN LOSSES
The allowance method is used in providing for losses on loans. Accordingly,
all loan losses are charged to the allowance and all recoveries are credited to
it. The provision for loan losses is based on factors which, in management's
judgment, deserve current recognition in estimating possible loan losses. Such
factors considered by management include growth and composition of the loan
portfolio, economic conditions and the relationship of the allowance for loan
losses to outstanding loans.
When impaired loans exist, an allowance for impaired loan losses is maintained.
Provisions are made for impaired loans upon changes in expected future cash
flows or estimated net realizable value of collateral. When determination is
made that impaired loans are wholly or partially uncollectible, the
uncollectible portion is charged off.
Management believes the allowance for possible loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgment about information a of their examination.
BANK PREMISES AND EQUIPMENT
Premises and equipment are recorded at acquisition cost net of accumulated
depreciation.
Depreciation is charged to operations over the estimated useful lives of the
assets. The estimated useful lives and methods of depreciation are as follows:
<TABLE>
<CAPTION>
DESCRIPTION LIFE IN YEARS METHOD
----------------------------- ------------- -------------
<S> <C> <C>
Banking Premises 25 Straight-Line
Furniture and Equipment 5-20 Straight-Line
</TABLE>
Expenditures for major renewals and betterments are capitalized. Maintenance
and repairs are charged to operations as incurred. When property and equipment
are retired or sold, the cost and accumulated depreciation are removed from the
respective accounts and any gain or loss is reflected in other income or
expense.
- 26 -
<PAGE> 30
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes. The differences
relate primarily to depreciable assets (use of different depreciation methods
for financial statement and income tax purposes) and allowance for loan losses
(use of the allowance method for financial statement purposes and the direct
write-off method for tax purposes). The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered
or settled.
Wayne Bancorp and its subsidiary file consolidated federal and state income tax
returns. Consolidated current and deferred tax expense (benefit) is allocated
to each of the entities based on the separate return method.
OTHER REAL ESTATE
Other real estate owned includes property acquired through foreclosure. These
properties are carried at the lower of cost or current appraisal values.
Losses from the acquisition of property in full or partial satisfaction of debt
are recorded as loan losses. Subsequent declines in value, routine holding
costs and gains or losses upon disposition are included in other expense.
CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and amounts due from banks and federal funds sold.
Cash payments made during 1996, 1995 and 1994 for interest totaled $1,087,710,
$942,201 and $671,874, respectively.
Cash payments for income taxes were $62,481 and $19,000 for the years ended
December 31, 1996 and 1995, respectively. Due to net operating loss
carryforwards, no cash payments for income taxes were made in 1994.
Noncash financing and investing activities for the year ended December 31, 1996
included a real estate sale resulting from a loan foreclosure totaling $3,294
in recoveries and net unrealized gains (losses) on securities available for
sale, net of tax, totaling $(1,945), $52,026 and $(90,479) for the years ended
December 31, 1996, 1995 and 1994, respectively.
- 27 -
<PAGE> 31
(2) STOCK WARRANTS AND OPTIONS
Organizers purchasing shares of the Company's common stock during the initial
public offering were granted one warrant for each of the original shares
purchased. Each warrant grants the holder the right to acquire one share of
common stock at any time through September 26, 2000 at $10 per share. Except
as specified in the Warrant Agreement, warrants are nontransferable and
nonassignable. As of December 31, 1996 and 1995, warrants outstanding totaled
156,196. No warrants have been exercised.
Stock options have been granted at various times to the Bank's president and
certain vice-presidents pursuant to the "Wayne Bancorp, Inc. 1990 Stock Option
Plan."
The maximum number of shares of stock which may be issued or sold shall not
exceed 36,000.
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock Based Compensation, requires new disclosures about employee stock options
in financial statements for fiscal years beginning after December 15, 1995.
The disclosures are required for the proforma effects of options and other
awards granted in fiscal years beginning after December 15, 1994 based upon
their fair value at the date of grant. SFAS 123 is inapplicable to Wayne
Bancorp, Inc. for years presented herein.
As of December 31, 1996, the status of stock options is as follows:
<TABLE>
<CAPTION>
SHARES
YEAR OPTIONS SUBJECT EXERCISE
GRANTED GRANTED TO OPTION PRICE EXPIRATION DATE
------- ------- --------- -------- ------------------
<S> <C> <C> <C> <C>
1990 7,556 7,556 $10.00 September 26, 1997
1991 3,778 3,778 $10.00 September 26, 2000
1992 3,702 3,702 $10.00 September 26, 2000
7,556 7,556 $ 7.25 December 31, 1999
1993 2,074 2,074 $10.00 September 26, 2000
------ ------
24,666 24,666
====== ======
</TABLE>
- 28 -
<PAGE> 32
(3) INVESTMENT SECURITIES
The carrying amount of investment securities and their approximate fair values
as of December 31 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ------- -------- ----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1996
Equity Securities $ 232,525 $11,873 $ (4,127) $ 240,271
U.S. Treasury and U.S.
Government Agencies 4,772,744 9,905 (19,594) 4,763,055
Other 99,000 99,000
---------- ------- -------- ----------
$5,104,269 $21,778 $(23,721) $5,102,326
========== ======= ======== ==========
DECEMBER 31, 1995
Equity Securities $ 175,430 $ 7,153 $ (3,642) $ 178,941
U.S. Treasury and U.S.
Government Agencies 5,484,081 62,270 (13,755) 5,532,596
Other 99,000 99,000
---------- ------- -------- ----------
$5,758,511 $69,423 $(17,397) $5,810,537
========== ======= ======== ==========
SECURITIES HELD TO MATURITY
DECEMBER 31, 1996
Municipals $3,622,528 $84,150 $(11,326) $3,695,352
========== ======= ======== ==========
DECEMBER 31, 1995
Municipals $2,171,226 $65,607 $ (2,414) $2,234,419
========== ======= ======== ==========
</TABLE>
Gross realized gains and gross realized losses on sales of securities available
for sale were:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
GROSS REALIZED GAINS
Equity Securities $24,778 $24,393 $ -
U.S. Treasury and U.S. Government Agencies 2,774 20,935 17,487
------- ------- -------
$27,552 $45,328 $17,487
======= ======= =======
GROSS REALIZED LOSSES
Equity Securities $ 9,682 $ 2,912 $ -
U.S. Treasury and U.S. Government Agencies 2,691 21,200 14,940
------- ------- -------
$12,373 $24,112 $14,940
======= ======= =======
</TABLE>
- 29 -
<PAGE> 33
(3) INVESTMENT SECURITIES (CONTINUED)
The scheduled maturities of securities held to maturity and securities
available for sale as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
SECURITIES
-------------------------------------------------------------------
AVAILABLE FOR SALE HELD TO MATURITY
---------------------------- ------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Due in One Year or Less $2,230,869 $2,243,482 $ 135,000 $ 135,073
Due After One Year Through Five Years 2,774,400 2,759,844 229,176 227,931
Due After Five Years Through Ten Years - - - -
Due After Ten Years - - 3,258,352 3,332,348
---------- ---------- ----------- ----------
5,005,269 5,003,326 3,622,528 3,695,352
Federal Reserve Stock 99,000 99,000 - -
---------- ---------- ----------- ----------
$5,104,269 $5,102,326 $3,622,528 $3,695,352
========== ========== =========== ==========
</TABLE>
Proceeds from sales of investments in debt securities during 1996, 1995 and
1994 were $1,356,155, $4,135,270 and $3,100,117, respectively.
Investment securities having a carrying value and market value of $2,101,639
and $2,101,035 as of December 31, 1996 and 1995, respectively, were pledged to
secure public and trust deposits and for other purposes required or permitted
by law.
Interest income on taxable investment securities during 1996, 1995 and 1994 was
$353,320, $444,500 and $316,684, respectively. In 1996 and 1995, nontaxable
interest income was $125,448 and $66,709, respectively. For 1994, there were
no nontaxable investment securities and corresponding interest income.
(4) LOANS
Loans by type as of December 31 are:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Commercial, Financial and Agricultural $3,361,241 $ 2,337,704
Real Estate-Construction 2,065,694 1,197,677
Real Estate-Other 9,384,490 7,328,155
Consumer 8,261,451 5,512,490
Other 337,295 125,307
----------- -----------
$23,410,171 $16,501,333
=========== ===========
</TABLE>
As of December 31, 1996, 1995 and 1994, there were no nonaccrual loans and,
accordingly, for the years then ended, no resulting reduction in interest
income.
- 30 -
<PAGE> 34
(5) ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses for the years ended December 31
are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance, January 1 $ 196,669 $ 339,719 $ 356,756
Provision Charged to Operating Expenses 90,000 - -
Loan Losses (88,223) (162,192) (25,762)
Recoveries 15,523 19,142 8,725
--------- --------- ---------
Balance, December 31 $ 213,969 $ 196,669 $ 339,719
========= ========= =========
</TABLE>
(6) BANK PREMISES AND EQUIPMENT
The detail of bank premises and equipment as of December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Land $ 186,825 $ 186,825
Bank Buildings and Improvements 677,919 649,865
Furniture, Fixtures and Equipment 695,598 665,023
---------- ----------
1,560,342 1,501,713
Accumulated Depreciation (563,329) (496,021)
---------- ----------
$ 997,013 $1,005,692
========== ==========
</TABLE>
Depreciation charged to operations totaled $102,061, $112,874 and $120,957 in
1996, 1995 and 1994, respectively.
(7) INCOME TAXES
The Bank reports income taxes under Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes, which requires an asset and liability
approach to financial accounting and reporting for income taxes. Deferred income
tax assets and liabilities are computed annually for differences between the
financial statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
- 31 -
<PAGE> 35
(7) INCOME TAXES (CONTINUED)
The components of income tax expense for the years ended December 31 are:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current $ 370,654 $ 40,771 $ -
Deferred (4,003) 184,897 134,448
--------- --------- ---------
TOTAL $ 366,651 $ 225,668 $ 134,448
========= ========= =========
</TABLE>
The sources of temporary differences and the resulting net deferred income tax
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Utilization of Net Operating Loss Carryforward $ - $ 139,493 $ 111,480
Provision for Loan Losses (5,882) 48,637 5,793
Depreciation (3,221) (454) 6,749
Discount Accretion on Investment Securities 4,309 (5,345) 7,433
Tax in Excess of Book Loss on Sale of Equipment 791 - 118
Alternative Minimum Tax - 7,861 -
Other - (5,295) 2,875
--------- --------- ---------
NET DEFERRED TAX $ (4,003) $ 184,897 $ 134,448
========= ========= =========
</TABLE>
Income tax expense amounted to $366,651, $225,668 and $134,448 in 1996, 1995 and
1994, respectively, which is more than the tax expense computed by applying the
federal statutory tax rate of 34 percent to income before income taxes.
The reasons for the differences are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Federal Statutory Taxes $ 406,231 $ 245,982 $ 133,140
Increase (Reductions) Resulting from
Tax-Free Interest on Municipals (42,060) (22,348) -
Tefra Interest Disallowance 4,672 2,758 -
Officers' Life Insurance 298 261 261
Meals and Entertainment 492 484 443
Other (2,982) (1,469) 604
--------- --------- ---------
ACTUAL FEDERAL TAXES $ 366,651 $ 225,668 $ 134,448
========= ========= =========
</TABLE>
- 32 -
<PAGE> 36
(7) INCOME TAXES (CONTINUED)
The components of the net deferred tax assets included in other assets in the
accompanying consolidated balance sheets as of December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS
Net Unrealized Loss on Securities Available for Sale $ 661 $ --
Reserve for Loan Losses 72,749 66,867
-------- --------
73,410 66,867
-------- --------
Net Unrealized Gain on Securities Available for Sale - (17,688)
Depreciation and Disposal of Premises and Equipment (29,575) (32,005)
Investment Securities Accretion (6,993) (2,685)
Other (4,333) (4,332)
-------- --------
(40,901) (56,710)
-------- --------
NET DEFERRED TAX ASSETS $ 32,509 $ 10,157
======== ========
</TABLE>
(8) DEPOSITS
Components of interest-bearing deposits as of December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Interest-Bearing Demand $ 6,120,488 $ 6,065,626
Savings 2,228,421 2,158,853
Time $100,000 and Over 4,434,446 4,084,950
Other Time 12,262,454 10,905,363
----------- -----------
$25,045,809 $23,214,792
=========== ===========
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
In the normal course of business, certain commitments and contingencies are
incurred which are not reflected in the financial statements. As of December 31,
1996 and 1995, the Company had unfunded loan commitments and commitments under
standby letters of credit totaling $2,134,376 and $2,970,765, respectively.
These commitments were made under normal terms and rates No losses are
anticipated as a result of these commitments.
- 33 -
<PAGE> 37
(10) RELATED PARTY TRANSACTIONS
The aggregate balance of direct and indirect loans to directors, executive
officers or principal holders of equity securities of the Bank was $373,953 and
$60,070 as of December 31, 1996 and 1995, respectively. All such loans were made
on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons. A
summary of activity of related party loans is shown below:
<TABLE>
<S> <C>
BALANCE, DECEMBER 31, 1995 $ 60,070
New Loans 365,410
Repayments (51,527)
---------
BALANCE, DECEMBER 31, 1996 $ 373,953
=========
</TABLE>
(11) DEPOSITS
The aggregate amount of short-term jumbo CDs, each with a minimum denomination
of $100,000, was approximately $3,816,956 and $3,221,251 in 1996 and 1995,
respectively.
As of December 31, 1996, the scheduled maturities of CDs are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
-----------
<S> <C>
1997 $15,503,549
1998 1,085,624
1999 619
2000 207,106
2001 and thereafter -
-----------
$16,796,898
===========
</TABLE>
(12) OTHER INCOME
Significant components of other operating income are:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Commissions on Credit Life Insurance $43,403 $37,648 $27,340
Mortgage Origination Fees 63,967 49,697 64,162
</TABLE>
- 34 -
<PAGE> 38
(13) OTHER EXPENSES
Significant components of other operating expenses are:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Office Supplies $74,195 $55,193 $47,092
Postage and Freight 42,857 37,400 31,688
Audit, Tax, Accounting and Consulting 40,858 30,120 27,300
ATM Fees and Expense 36,455 38,122 34,224
Amortization and Organizational Cost - 20,704 27,613
Advertising and Public Relations 21,817 24,520 19,181
FDIC Assessment 2,000 30,280 47,074
Clearing House and Federal Reserve Processing Fees 26,188 29,651 26,249
Directors' Fees 41,900 24,000 24,400
</TABLE>
(14) INCOME PER SHARE INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
INCOME PER SHARE
ON COMMON AND COMMON EQUIVALENT SHARES $1.78 $1.10 $ .64
===== ===== =====
ON A FULLY DILUTED BASIS $1.78 $1.10 $ .64
===== ===== =====
</TABLE>
Income per common share and common equivalent share was computed by dividing
adjusted net income by the weighed average number of shares of common stock and
common stock equivalents outstanding during the year. The number of common
shares (377,786) was increased by the number of shares issuable on the exercise
of warrants and stock options (180,862) when the market price of the common
stock ($13.00) exceeded the exercise price of the warrants or options ($10.00).
This increase in the number of common shares was reduced by the number of common
shares (75,557) that are assumed to have been purchased with the proceeds from
the exercise of the warrants or options; those purchases were assumed to have
been made at the average price ($13.00) of common stock during the year.
Earnings per share assuming full dilution is determined in the same manner as
earnings per common share and common equivalent shares except that the
period-end stock price was used. In this instance, due to limited trading
activity, the average and period-end stock price are identical resulting in no
difference in income per share on a fully diluted basis.
- 35 -
<PAGE> 39
(15) FINANCIAL INFORMATION OF WAYNE BANCORP, INC. (PARENT ONLY)
Wayne Bancorp, Inc.'s (parent only) balance sheets as of December 31, 1996 and
1995 and the related statements of income and cash flows for each of the years
in the three-year period ended December 31, 1996 are as follows:
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash $ 37,239 $ 51
Interest-Bearing Deposits in Bank 181,612 215,295
Investment Securities Available for Sale 240,271 178,941
Investment in Wayne National Bank 4,173,036 3,391,061
Deferred Taxes (4,346) 49,892
---------- ----------
$4,627,812 $3,835,240
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued Income Taxes $ 45 $ -
Common Stock 377,786 377,786
Surplus 3,354,102 3,354,102
Retained Earnings 897,163 69,015
Net Unrealized Gain (Loss) on Securities Available for Sale,
Net of Tax (Benefit) of $(661) in 1996 and $17,689 in 1995 (1,284) 34,337
---------- ----------
$4,627,812 $3,835,240
========== ==========
</TABLE>
- 36 -
<PAGE> 40
(15) FINANCIAL INFORMATION OF WAYNE BANCORP, INC. (PARENT ONLY) (CONTINUED)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Interest Income $ 4,468 $ 11,184 $ 9,822
Dividends 8,847 3,316 204
Gain on Sale of Securities 15,096 21,481 -
--------- --------- ---------
28,411 35,981 10,026
--------- --------- ---------
Expenses
Amortization - 9,835 13,113
Printing and Supplies 5,346 4,655 4,536
Postage 1,730 1,861 1,500
Legal and Professional 10,367 18,401 12,980
Taxes 250 278 283
Miscellaneous 2,961 1,388 390
--------- --------- ---------
20,654 36,418 32,802
--------- --------- ---------
Income (Loss) before Income Tax Benefit and
Equity in Undistributed Earnings of Subsidiary 7,757 (437) (22,776)
Income Tax Benefit - 938 7,744
--------- --------- ---------
Income (Loss) before Equity in Undistributed
Earnings of Subsidiary 7,757 501 (15,032)
Equity in Undistributed Earnings of Subsidiary 820,391 497,308 272,173
--------- --------- ---------
NET INCOME $ 828,148 $ 497,809 $ 257,141
========= ========= =========
</TABLE>
- 37 -
<PAGE> 41
(15) FINANCIAL INFORMATION OF WAYNE BANCORP, INC. (PARENT ONLY) (CONTINUED)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 828,148 $ 497,809 $ 257,141
Adjustments to Reconcile Net Income to Net
Cash Flows from Operating Activities
Amortization and Accretion - 9,835 10,762
Equity in Undistributed Earnings
of Subsidiary (820,391) (497,308) (272,173)
Gain on Sale of Securities (15,096) (21,481) -
Deferred Taxes 52,798 (939) (7,744)
CHANGE IN
Other 45 - 692
--------- --------- ---------
45,504 (12,084) (11,322)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Interest-Bearing Deposits in Bank 33,683 (131,204) 119,347
Purchases of Investment Securities
Available for Sale (397,763) (520,510) (426,018)
Proceeds from Maturities of Securities
Available for Sale - 300,000 200,000
Proceeds from Maturities of Interest-
Bearing Deposit in Bank - - 100,000
Proceeds from Sales of Securities
Available for Sale 355,764 294,930 -
--------- --------- ---------
(8,316) (56,784) (6,671)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Stock - 62,299 -
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 37,188 (6,569) (17,993)
CASH AND CASH EQUIVALENTS, BEGINNING 51 6,620 24,613
--------- --------- ---------
CASH AND CASH EQUIVALENTS, ENDING $ 37,239 $ 51 $ 6,620
========= ========= =========
</TABLE>
- 38 -
<PAGE> 42
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires
disclosure of fair value information about financial instruments, whether or not
recognized on the face of the balance sheet, for which it is practicable to
estimate that value. The assumptions used in the estimation of the fair value of
Wayne National Bank's financial instruments are detailed below. Where quoted
prices are not available, fair values are based on estimates using discounted
cash flows and other valuation techniques. The use of discounted cash flows can
be significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. The following disclosures should not be
considered a surrogate of the liquidation value of the Bank, but rather a
good-faith estimate of the increase or decrease in value of financial
instruments held by the Bank since purchase, origination or issuance.
CASH AND SHORT-TERM INVESTMENTS - For cash, due from banks, federal
funds sold and interest-bearing deposits with other banks, the carrying
amount is a reasonable estimate of fair value.
INVESTMENT SECURITIES - Fair values for investment securities are based
on quoted market prices.
LOANS - The fair value of fixed rate loans is estimated by discounting
the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings. For variable
rate loans, the carrying amount is a reasonable estimate of fair value.
DEPOSIT LIABILITIES - The fair value of demand deposits, savings
accounts and certain money market deposits is the amount payable on
demand at the reporting date. The fair value of fixed maturity
certificates of deposit is estimated by discounting the future cash
flows using the rates currently offered for deposits of similar
remaining maturities.
STANDBY LETTERS OF CREDIT - Because standby letters of credit are made
using variable rates, the contract value is a reasonable estimate of
fair value.
The carrying amount and estimated fair values of the Bank's financial
instruments as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and Short-Term Investments $ 9,921 $ 9,921
Investment Securities Available for Sale 5,102 5,102
Investment Securities Held to Maturity 3,623 3,696
Loans 23,168 23,358
LIABILITIES
Deposits 38,017 38,020
UNRECOGNIZED FINANCIAL INSTRUMENTS
Unfunded Loan Commitments and Standby Letters of Credit 2,134 2,134
</TABLE>
- 39 -
<PAGE> 43
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Bank's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Bank's
financial instruments, fair value estimates are based on many judgments. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial instruments include the deferred income taxes and premises
and equipment. In addition, the tax ramifications related to the realization of
the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in the estimates.
(17) DIVIDEND RESTRICTIONS
The amount of dividends payable is limited by various banking regulatory
agencies. The amount of cash dividends available for payment in 1997, without
prior approval from the banking regulatory agencies, approximates $415,000. Upon
approval by regulatory authorities, banks may pay cash dividends to the parent
company in excess of regulatory limitations.
(18) REGULATORY CAPITAL MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and, possibly, additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. 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 Bank to maintain minimum amounts and ratios of total and Tier I
capital to risk-weighted assets, and of Tier I capital to average assets. The
amounts and ratios as defined in banking regulations are presented hereafter.
Management believes, as of December 31, 1996, the Bank meets all capital
adequacy requirements to which it is subject and is classified as well
capitalized under the regulatory framework for prompt corrective action.
The amount of dividends available to the holding company from the subsidiary
bank is limited by various banking regulatory agencies. No dividends have been
paid by Wayne Bancorp, Inc. since its inception.
- 40 -
<PAGE> 44
(18) REGULATORY CAPITAL MATTERS (CONTINUED)
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------------- --------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996
Total Capital
(to Risk-Weighted Assets) $4,843,020 19.57% $1,979,879 8.00% $2,474,849 10.00%
Tier I Capital
(to Risk-Weighted Assets) 4,629,051 18.70 989,940 4.00 1,484,910 6.00
Tier I Capital
(to Average Assets) 4,629,051 12.33 1,502,094 4.00 1,877,617 5.00
AS OF DECEMBER 31, 1995
Total Capital
(to Risk-Weighted Assets) 3,997,572 20.89 1,530,904 8.00 1,913,629 10.00
Tier I Capital
(to Risk-Weighted Assets) 3,800,903 19.86 765,451 4.00 1,148,178 6.00
Tier I Capital
(to Average Assets) 3,800,903 11.80 1,288,442 4.00 1,610,552 5.00
</TABLE>
(19) EMPLOYEE BENEFIT PLANS
The Bank established a 401(k) retirement plan during 1996 for which all
employees twenty-one years of age with one year of service are eligible. The
plan is funded with employee and employer contributions. Employees may
contribute up to 15 percent of their annual salaries. The employer's amount of
matching may vary from year to year, but will initially match 25 percent of the
employee's first 6 percent of salary. Pension expense for the year ended
December 31, 1996 total $5,885.
(20) RECLASSIFICATIONS
Certain reclassifications have been made within the 1995 and 1994 financial
statements to conform to the 1996 presentation.
- 41 -
<PAGE> 45
WAYNE BANCORP, INC. & WAYNE NATIONAL BANK
BOARD OF DIRECTORS
<TABLE>
<S> <C>
J. Ashley Dukes J. Lex Kenerly, III, M.D.
Chairman of Wayne Bancorp, Inc. Secretary of Wayne Bancorp, Inc.
and Wayne National Bank and Wayne National Bank
President/Wayne Drug Co., Inc. Orthopedic Surgeon
Patricia B. Armstrong James L. Lott
Owner/Armstrong's Photography Owner/Lott Tobacco Company
Leonard D. Brannen Jerry D. McDaniel
Retired Owner/McDaniel Vending & Food Service
C. Revis Clary Ferrell L. O'Quinn
Owner/Clary Fertilizer Co. Entrepreneur
Tommie C. Fuller, Sr. Bernon W. Sapp
Retired Educator Owner/Sapp Ford Company
Douglas R. Harper W. Donald Whitaker
President and CEO President/Whitaker's Pharmacy, Inc.
Wayne Bancorp, Inc.
and Wayne National Bank
WAYNE BANCORP, INC. & WAYNE NATIONAL BANK
OFFICERS
Douglas R. Harper J. Lex Kenerly, III, M.D.
President and CEO Secretary
Wayne Bancorp, Inc. Wayne Bancorp, Inc.
and Wayne National Bank and Wayne National Bank
Linton F. Lewis J. Randall Teston
Executive Vice President and Vice President and Compliance Officer
Senior Lending Officer Wayne National Bank
Wayne National Bank
Patti D. Hayes H. Andrew Thornton, Jr.
Cashier Vice President
Wayne National Bank Wayne National Bank
</TABLE>
REGISTRAR AND TRANSFER AGENT
Wayne Bancorp, Inc.
ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Wayne Bancorp, Inc. will be held
Tuesday, April 8, 1997, at 6:00 p.m. in the lobby of Wayne National Bank, 818
South First Street, Jesup, Georgia.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, WILL BE FURNISHED AT NO CHARGE TO SHAREHOLDERS AS OF THE RECORD
DATE UPON WRITTEN REQUEST TO: DOUGLAS R. HARPER, WAYNE BANCORP, INC., 818 SOUTH
FIRST STREET, JESUP, GEORGIA 31545.
42
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
WAYNE NATIONAL BANK, a banking association organized under the laws of the
United States.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED AS PART OF EXHIBIT 13 TO THIS FORM 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,385,896
<INT-BEARING-DEPOSITS> 255,152
<FED-FUNDS-SOLD> 8,280,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,102,326
<INVESTMENTS-CARRYING> 3,622,528
<INVESTMENTS-MARKET> 3,695,352
<LOANS> 23,382,204
<ALLOWANCE> 213,969
<TOTAL-ASSETS> 43,234,750
<DEPOSITS> 38,016,503
<SHORT-TERM> 0
<LIABILITIES-OTHER> 590,480
<LONG-TERM> 0
0
0
<COMMON> 377,786
<OTHER-SE> 4,249,981
<TOTAL-LIABILITIES-AND-EQUITY> 43,234,750
<INTEREST-LOAN> 2,433,258
<INTEREST-INVEST> 493,556
<INTEREST-OTHER> 127,139
<INTEREST-TOTAL> 3,053,953
<INTEREST-DEPOSIT> 1,065,545
<INTEREST-EXPENSE> 1,065,545
<INTEREST-INCOME-NET> 1,988,408
<LOAN-LOSSES> 90,000
<SECURITIES-GAINS> 15,179
<EXPENSE-OTHER> 1,272,510
<INCOME-PRETAX> 1,194,799
<INCOME-PRE-EXTRAORDINARY> 1,194,799
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 828,148
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 1.78
<YIELD-ACTUAL> 6.45
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 410,000
<ALLOWANCE-OPEN> 196,669
<CHARGE-OFFS> 88,223
<RECOVERIES> 15,523
<ALLOWANCE-CLOSE> 213,969
<ALLOWANCE-DOMESTIC> 130,969
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 83,000
</TABLE>
