<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. ________________)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Wayne Bancorp, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
WAYNE BANCORP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 8, 1997
The Annual Meeting of Shareholders (the "Meeting") of Wayne Bancorp,
Inc. (the "Company") will be held in the lobby of Wayne National Bank at 818
South First Street, Jesup, Georgia 31545 on the 8TH day of APRIL, 1997, at
6:00 P.M. for the following purposes:
1. To elect five members to the Board of Directors; and
2. To consider such other matters as properly may come
before the Meeting or any adjournment of the Meeting.
Only holders of record of the Company's Common Stock at the close of
business on March 12, 1997, will be entitled to notice of and to vote at the
Meeting. The stock transfer books will remain open.
A Proxy Statement and a Proxy solicited by the Board of Directors are
enclosed. PLEASE COMPLETE, SIGN, DATE AND RETURN THE PROXY PROMPTLY TO THE
COMPANY IN THE ENCLOSED POSTAGE-PAID REPLY ENVELOPE. This will assist us in
preparing for the Meeting.
All shareholders are cordially invited to attend the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Douglas R. Harper
----------------------------------
Douglas R. Harper
Chief Executive Officer
March 28, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE,
DATE, AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE
IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES AT THE MEETING.
<PAGE> 3
WAYNE BANCORP, INC.
818 SOUTH FIRST STREET
JESUP, GEORGIA 31545
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 8, 1997
This Proxy Statement is furnished in connection with the solicitation
of proxies for use at the Annual Meeting of Shareholders (the "Meeting") of
Wayne Bancorp, Inc. (the "Company") to be held on April 8, 1997, at 6:00 p.m.,
and at any adjournment thereof, for the purposes set forth in this Proxy
Statement. THE ACCOMPANYING PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
THE COMPANY. The principal executive offices of the Company are located at 818
South First Street, Jesup, Georgia 31545. This Proxy Statement and the
accompanying Form of Proxy were first mailed to the shareholders on or about
March 28, 1997.
VOTING AND REVOCABILITY OF PROXY APPOINTMENTS
The Company has fixed March 12, 1997, as the record date (the "Record
Date") for determining the shareholders entitled to notice of and to vote at
the Meeting. The Company's only class of stock is its Common Stock, par value
$1.00 per share (the "Common Stock"). At the close of business on the Record
Date, there were 396,832 shares of Common Stock of the Company outstanding and
378,978 shares entitled to vote, with each of the 378,978 shares being entitled
to one vote. There are no cumulative voting rights. A majority of the
outstanding shares of Common Stock which are entitled to vote represented at
the Meeting, in person or by proxy, will constitute a quorum.
All proxies will be voted in accordance with the instructions
contained in the proxies. If no choice is specified, proxies will be voted
"FOR" the election to the Board of Directors of all the nominees listed below
under "ELECTION OF DIRECTORS" and, at the proxy holders' discretion, on any
other matter that may properly come before the Meeting. Any shareholder may
revoke a proxy given pursuant to this solicitation prior to the Meeting by
delivering an instrument revoking it or by delivering a duly executed proxy
bearing a later date to the Secretary of the Company. A shareholder may elect
to attend the Meeting and vote in person even if he or she has a proxy
outstanding.
Management of the Company is not aware of any other matter to be
presented for action at the Meeting other than those mentioned in the Notice of
Annual Meeting of Shareholders and referred to in this Proxy Statement. If any
other matters come before the Meeting, it is the intention of the persons named
in the enclosed Proxy to vote on such matters in accordance with their
judgment.
SOLICITATION
The costs of preparing, assembling and mailing the proxy materials and
of reimbursing brokers, nominees, and fiduciaries for the out-of-pocket and
clerical expenses of transmitting copies of the proxy materials to the
beneficial owners of shares held of record will be borne by the Company.
Certain officers and regular employees of the Company or its subsidiaries,
without additional compensation, may use their personal efforts, by telephone
or otherwise, to obtain proxies in addition to this solicitation by mail. The
Company expects to reimburse brokers, banks, custodians and other nominees for
their reasonable out-of-pocket expenses in handling proxy materials for
beneficial owners of the Common Stock.
<PAGE> 4
ELECTION OF DIRECTORS
Section 3.3 of the Company's Bylaws provides that the Board of
Directors shall be divided into three classes with each class to be as nearly
equal in number as possible. Section 3.3 also provides that the three classes
of directors are to have staggered terms, so that the terms of only
approximately one-third of the Board members will expire at each annual meeting
of shareholders. At the organizational meeting of the Company in 1989, fifteen
directors were elected and were apportioned equally among Classes I, II, and
III. In early 1992, the size of the Board was reset at thirteen directors:
four in Class I, five in Class II, and four in Class III. Following the
resignation of a Class III director in June 1994, the size of the Board was
reset at twelve directors: four in Class I, five in Class II, and three in
Class III.
The current Class I directors are Tommie C. Fuller, Sr., Douglas R.
Harper, J. Lex Kenerly, III, M.D., and W. Donald Whitaker. The current Class
II directors are Patricia B. Armstrong, Leonard D. Brannen, James L. Lott,
Ferrell L. O'Quinn, and Bernon W. Sapp. The current Class III directors are C.
Revis Clary, J. Ashley Dukes, and Jerry D. McDaniel. The current terms of the
Class II directors will expire at the Meeting. Each of the five current Class
II directors has been nominated for reelection and will stand for election at
the Meeting for a three year term. The terms of the Class III directors will
expire at the 1998 Annual Shareholders' Meeting, and the terms of the Class I
directors will expire at the 1999 Annual Shareholders' Meeting.
It is the intention of the persons named as proxies in the
accompanying proxy to vote FOR the election of the nominees identified below to
serve for a three-year term, expiring at the 2000 Annual Meeting of
Shareholders. If any nominee is unable or fails to accept nomination or
election (which is not anticipated), the persons named in the proxy as proxies,
unless specifically instructed otherwise in the proxy, will vote for the
election in his stead of such other person as the Company's existing Board of
Directors may recommend.
The directors shall be elected by a plurality of the votes cast at the
Meeting. Abstentions and broker non-votes will not be considered to be either
affirmative or negative votes.
The table below sets forth certain information about the nominees,
including each nominee's age, position with the Company, and position with
Wayne National Bank (the "Bank"). All of the nominees are currently serving as
directors of the Company and are nominated as Class II directors.
<TABLE>
<CAPTION>
Position with Position with
Name Age The Company The Bank
- ---- --- ------------- ------------
<S> <C> <C> <C>
Patricia B. Armstrong 48 Director Director
Leonard D. Brannen 72 Director Director
James L. Lott 53 Director Director
Ferrell L. O'Quinn 50 Director Director
Bernon W. Sapp 63 Director Director
</TABLE>
PATRICIA B. ARMSTRONG was born on December 17, 1948, in Jesup,
Georgia. Ms. Armstrong has been a director of the Company and the Bank since
their formation in 1989. Ms. Armstrong graduated from Jesup High School and
received a B.S. degree in Home Economics Education from Georgia College in
1971. Since 1973, she has been self-employed with Armstrong's Photography as
business manager and since 1986 she has been the sole owner and operator of the
business. In 1986, she was elected to the Board of Directors for the Wayne
County Chamber of Commerce and has served the Chamber as President, Vice
President of Internal Affairs and Vice President of Community Involvement. She
is a member of the First Baptist Church of Jesup and has served on the Church's
Property Committee and has chaired the Entertainment Committee. She was one of
the first three women invited to join the Jesup Kiwanis Club.
2
<PAGE> 5
LEONARD D. BRANNEN was born on August 4, 1924, in Baxley, Georgia.
Mr. Brannen has been a director of the Company and the Bank since their
formation in 1989. He graduated from the Appling County school system in 1941
and has participated in various technical training programs in electronics.
Mr. Brannen is currently self-employed as a control systems consultant. Prior
to this, he was employed for nearly 30 years by ITT Rayonier, Inc. as an
instrument supervisor until his retirement in 1985. Mr. Brannen is a member of
the Jesup Shrine Club, past-Master and Treasurer of Jesup Lodge #112 F&AM, and
the First United Methodist Church, and serves as a volunteer for Wayne Memorial
Hospital.
JAMES L. LOTT was born in Jeff Davis County, Georgia on October 4,
1943. Mr. Lott has been a director of the Company and the Bank since their
formation in 1989. Mr. Lott graduated from the Appling County school system
and attended Brewton Parker College and Georgia Southern College. He is
self-employed. In 1966, Mr. Lott started Lott's Forestry, Inc., a logging
business, which he continues to operate. Mr. Lott also operates Appling
Tobacco Company, a tobacco brokerage business. He is actively involved in real
estate development and rental in Appling County. Mr. Lott is a member of the
Baxley/Appling County Chamber of Commerce, the First Baptist Church, the
Merchant's Association and Ducks Unlimited.
FERRELL L. O'QUINN was born on July 7, 1946, in Orlando, Florida. Mr.
O'Quinn has been a director of the Company and the Bank since their formation
in 1989. He is a graduate of the Appling County school system and holds a 1st
class radio operations license issued by the Federal Communications Commission.
Mr. O'Quinn is an independent investor. Prior to 1991, Mr. O'Quinn was
actively involved in broadcasting, cable T.V., paging, and general
communications business. Mr. O'Quinn served as secretary and general manager
of LOM, Inc., a paging company doing business in Rome, Columbus, Douglas,
Brunswick, and Valdosta, Georgia until December 1990. He was also secretary of
Metrolink, Inc., a paging company doing business in Macon, Georgia. From 1979
to 1988, Mr. O'Quinn was vice president of Microwave T.V., Inc. which was the
cable T.V. operator for Wayne County. Mr. O'Quinn was a Director of the
Georgia Association of Radio Utilities and was formerly active in the Rockwood,
Tennessee Jaycees and the Masonic Lodge in Kingston, Tennessee.
BERNON W. SAPP was born in Wayne County, Georgia on November 19, 1933.
Mr. Sapp has been a director of the Company and the Bank since their formation
in 1989. He moved to Appling County in 1944 and finished high school in
Baxley. He served four years in the United States Air Force. Mr. Sapp has
been the owner and operator of Sapp Ford Company in Baxley, Georgia for the
past twenty-eight years. He has served on various civic organizations and as
Chairman of Zone H Ford Dealer Counsel, President of the Exchange Club of
Appling County, Charter President, Chairman of Personnel and Financial Altamaha
Area Planning Committee and on the Board of the First Methodist Church. He
also has served on the Board of the Industrial Development Authority of Baxley,
as a Director of the Chamber of Commerce and as private Industry Council
Director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
FIVE NOMINEES NAMED ABOVE.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND THE BANK
The following table sets forth the name of each director and executive
officer of the Company and the Bank, his or her age, positions held, and a
brief description of his or her principal occupation and business experience
for at least the preceding five years. Except as otherwise indicated below,
each of the directors has been a director of the Company and the Bank since
their formation in 1989.
<TABLE>
<CAPTION>
NAME AND AGE POSITION PRINCIPAL OCCUPATION
- ------------ -------- --------------------
<S> <C> <C>
Patricia B. Armstrong Class II Director Ms. Armstrong has been self-employed
(48) with Armstrong's Photography as
business manager since 1973, and since
1986 she has been sole owner and
operator of the business.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
NAME AND AGE POSITION PRINCIPAL OCCUPATION
- ------------ -------- --------------------
<S> <C> <C>
Leonard D. Brannen Class II Director Mr. Brannen is currently self-employed
(72) as a control systems consultant. Prior
to this, he was employed for nearly
thirty years by ITT Rayonier, Inc. as
an instrument supervisor, until his
retirement in 1985.
C. Revis Clary Class III Director Mr. Clary joined General Gas
(52) Corporation as operations manager for
its fertilizer company in Odum, Georgia
in 1962, and in 1964 he purchased the
fertilizer business from General Gas
Corporation and has operated it since
that time. Mr. Clary has also operated
a farm since 1962.
J. Ashley Dukes Class III Director; Mr. Dukes is Chairman of the Board of
(55) Chairman of the Board of Directors of the Company and the Bank.
Directors of the Company He has been self-employed in the retail
and the Bank pharmaceutical business since 1973 and
is a licensed pharmacist in Georgia,
Florida and South Carolina. He is
President of three corporations which
provide retail drug and pharmaceutical
products from seven locations.
Tommie C. Fuller, Sr. Class I Director Mr. Fuller was employed by the Wayne
(61) County Board of Education as a
Principal from 1981 until his
retirement in 1995.
Douglas R. Harper Class I Director; President Mr. Harper was hired on July 22, 1991,
(43) and Chief Executive Officer to be the President and Chief Executive
of the Company and the Bank Officer of the Company and the Bank.
From 1984 until May 1991, Mr. Harper
served as a director and as the
Executive Vice President and Chief
Financial Officer of the Coastal Bank
in Hinesville, Georgia. Mr. Harper
graduated from Murray State University
in Murray, Kentucky in 1976 with a B.S.
degree in Business and Finance. Mr.
Harper also is a 1982 graduate of the
Bank Administration Institute School
for Bank Administration at the
University of Wisconsin.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
NAME AND AGE POSITION PRINCIPAL OCCUPATION
- ------------ -------- --------------------
<S> <C> <C>
J. Lex Kenerly, III, M.D. Class I Director; Secretary Dr. Kenerly performed his residency in
(41) of the Company and the Bank orthopedic surgery at the Greenville
Hospital System, Greenville, South
Carolina from 1983 to June 1988. Since
1988, Dr. Kenerly has been a self-
employed orthopedic surgeon in Jesup,
Georgia. Dr. Kenerly is a licensed
physician in the States of Georgia and
South Carolina.
James L. Lott Class II Director Mr. Lott is self-employed. In 1966, he
(53) started Lott's Forestry, Inc., a
logging business, which he continues to
operate. Mr. Lott also operates
Appling Tobacco Company, a tobacco
brokerage business. He is actively
involved in real estate development and
rental in Appling County.
Jerry D. McDaniel Class III Director Mr. McDaniel is self-employed and the
(58) owner/operator of McDaniel Vending, a
vending and food service business which
he established in 1972. The company
operates in twelve south Georgia
counties. Mr. McDaniel served as Mayor
for the City of Jesup from 1984 through
1987 and from 1992 through 1995. Mr.
McDaniel was also a two-term city
commissioner.
Ferrell L. O'Quinn Class II Director Mr. O'Quinn is an independent investor.
(50) Prior to 1991, Mr. O'Quinn was actively
involved in the broadcasting, cable
television, paging, and general
communications business. Mr. O'Quinn
served as secretary and general manager
of LOM, Inc., a paging company doing
business in Rome, Columbus, Douglas,
Brunswick, and Valdosta, Georgia until
December 1990; he was also secretary of
Metrolink, Inc., a paging company doing
business in Macon, Georgia. From 1979
to 1988, Mr. O'Quinn was vice president
of Microwave T.V., Inc. which was the
cable television operator for Wayne
County. Mr. O'Quinn was a Director of
the Georgia Association of Radio
Utilities. Mr. O'Quinn holds a 1st
class radio operations license issued
by the Federal Communications
Commission.
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
NAME AND AGE POSITION PRINCIPAL OCCUPATION
- ------------ -------- --------------------
<S> <C> <C>
Bernon W. Sapp Class II Director Mr. Sapp has been the owner and
(63) operator of Sapp Ford Company in
Baxley, Georgia for the past twenty-
eight years.
W. Donald Whitaker Class I Director Mr. Whitaker worked as a licensed
(49) pharmacist for several chain and
independent drug stores until 1983 when
he purchased the Screven Drug Company
in Wayne County. Mr. Whitaker changed
the drug store's name to Whitaker
Pharmacy, Inc. and serves as its
president.
Linton F. Lewis Executive Vice President Mr. Lewis' principal responsibilities
(60) of the Bank at the Bank include commercial lending
and personnel. Mr. Lewis joined the
Bank in May 1990. Prior to that time
he was employed for 22 years with
American National Bank (now Barnett
Bank) in Jesup, Georgia. His most
recent position with that bank was vice
president with lending
responsibilities.
</TABLE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth for the fiscal years ended December 31,
1994, 1995, and 1996, the cash compensation paid or accrued by the Company and
the Bank, as well as certain other compensation paid or accrued for those
years, for services in all capacities to the chief executive officer of the
Company and the Bank. No executive officer of the Company or the Bank earned
total compensation, including salary and bonus, for the fiscal year ended
December 31, 1996, in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
Name and -------------------
Principal Position Year Salary ($)(1) Bonus ($)
-------------------- ---- ------------- ---------
<S> <C> <C> <C>
Douglas R. Harper - 1996 $78,600 $14,934
President and Chief Executive
Officer 1995 $75,000 $ 9,000
1994 $75,000 $18,416
</TABLE>
- ------------------------------
(1) No directors' fees were paid to Mr. Harper during the fiscal
years ended December 31, 1994, 1995, or 1996.
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<PAGE> 9
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to Mr. Harper
concerning the exercise of options during the last fiscal year and unexercised
options held as of the end of the fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options at Options at
Fiscal Year End Fiscal Year End(1)
(#) ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
------------ ------------------ ------------------ --------------- ---------------------
<S> <C> <C> <C> <C>
Douglas R. Harper -0- $-0- 9,554/-0- $28,662/$-0-
</TABLE>
- ------------------------
(1) There is no active trading market for the Company's Common
Stock; therefore, the fair market value of the Common Stock as of December 31,
1996, is not readily discernible. Based on the sale of the Common Stock
nearest December 31, 1996, of which the Company is aware, which sale was at
$13.00 per share on December 31, 1996, the Company believes that the fair
market value of the Common Stock was approximately $13.00 per share on December
31, 1996. The exercise price for the options is $10.00 per share and thus
based on a fair market value of $13.00 per share, all of the options are
in-the-money as of December 31, 1996.
COMPENSATION OF DIRECTORS
In 1996, each director of the Bank, except Douglas R. Harper, received
$300 for each Bank board meeting attended. The Board of Directors of the Bank
held thirteen meetings during 1996. In addition, each director who was a
member of a committee of the Board of Directors of the Bank, except for Douglas
R. Harper, received $50 for each committee meeting attended. No payments were
made to any directors for attendance at Company board meetings or Company
committee meetings in 1996.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
In May 1991, the Company and the Bank entered into an informal
employment agreement with Mr. Harper pursuant to which he agreed to accept
employment with the Company and the Bank as President and Chief Executive
Officer of both the Company and the Bank. Mr. Harper's agreement provided that
he would receive grants of stock options in 1991, 1992, and 1993. This
informal employment agreement is still in effect.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires (i) the
Company's directors and executive officers and (ii) persons who own more than
10% of a registered class of the Company's equity securities to file with the
Securities and Exchange Commission (the "SEC"), within certain specified time
periods, reports of ownership and changes in ownership. Such officers,
directors, and shareholders are required by SEC regulations to furnish the
Company with copies of all such reports that they file.
To the Company's knowledge, based solely upon a review of copies of
such reports furnished to the Company and representations that no other reports
were required with respect to the year ended December 31, 1996, all persons
subject to the reporting requirements of Section 16(a) filed the required
reports on a timely basis with respect to 1996.
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<PAGE> 10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of
outstanding shares of Common Stock beneficially owned at the Record Date by (a)
each executive officer of the Company, (b) each director of the Company, (c)
all executive officers and directors of the Company as a group, and (d) each
person or entity known to the Company to own more than 5% of the outstanding
Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER(1) OWNERSHIP(2) COMMON STOCK(3)
--------------------------- ------------ ---------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Patricia B. Armstrong 20,120 (4) 4.95%
Leonard D. Brannen 19,395 (5) 4.77%
C. Revis Clary 37,855 (6) 9.07%
J. Ashley Dukes 69,537 (7) 17.01%
Tommie C. Fuller, Sr. 10,100 (8) 2.51%
Douglas R. Harper 10,844 (9) 2.67%
J. Lex Kenerly, III, M.D. 15,100 (10) 3.74%
James L. Lott 16,550 (11) 4.09%
Jerry D. McDaniel 18,296 (12) 4.44%
Ferrell L. O'Quinn 31,480 (13) 7.74%
Bernon W. Sapp 21,250 (14) 5.22%
W. Donald Whitaker 10,350 (15) 2.58%
Linton F. Lewis 10,306 (16) 2.55%
Executive officers and directors
as a group (13 persons)(17) 291,183 (18) 55.35%
OTHER SHAREHOLDERS OWNING MORE THAN 5%:
I. Farnell O'Quinn(19) 21,615 (20) 5.19%
</TABLE>
- --------------------------
(1) The address for all persons listed is 818 South First Street, Jesup,
Georgia 31545, unless otherwise indicated.
(2) Information relating to beneficial ownership of Common Stock is based
upon "beneficial ownership" concepts set forth in rules of the SEC
under Section 13(d) of the Securities Exchange Act of 1934. Under
these rules a person is deemed to be a "beneficial owner" of a
security if that person has or shares "voting power," which includes
the power to vote or direct the voting of such security, or
"investment power," which includes the power to dispose or to direct
the disposition of such security. A person is also deemed to be a
beneficial owner of any security of which that person has the right to
acquire beneficial ownership within sixty days. Under the rules, more
than one person may be deemed to be a beneficial owner of the same
securities, and a person may be deemed to be a beneficial owner of
securities as to which he has no beneficial interest. For instance,
beneficial ownership includes spouses, minor children and other
relatives residing in the same household, and trusts, partnerships,
corporations or deferred compensation plans which are affiliated with
the principal.
8
<PAGE> 11
<TABLE>
<S> <C>
(3) Percentage is determined on the basis of 396,832 shares of Common Stock
issued and outstanding plus shares subject to options or warrants held
by the named individual for whom the percentage is calculated which are
exercisable within the next sixty days as if outstanding, but treating
shares subject to warrants or options held by others as not
outstanding.
(4) Includes directors' warrants to purchase 10,000 shares.
(5) Includes directors' warrants to purchase 10,000 shares.
(6) Includes directors' warrants to purchase 20,500 shares.
(7) Includes directors' warrants to purchase 12,000 shares. Pursuant to
Article 8 of the Company's Articles of Incorporation, Mr. Dukes is not
entitled to vote those shares beneficially owned by him which are in
excess of 10% of the total outstanding shares of Common Stock of the
Company. As of the Record Date, based on 396,832 shares of Common
Stock then outstanding, Mr. Dukes beneficially owned 17,854 shares of
Common Stock which he was not entitled to vote.
(8) Includes directors' warrants to purchase 5,000 shares.
(9) Includes contractual options to purchase 9,554 shares.
(10) Includes directors' warrants to purchase 7,000 shares.
(11) Includes directors' warrants to purchase 7,650 shares.
(12) Includes directors' warrants to purchase 15,000 shares.
(13) Includes directors' warrants to purchase 10,000 shares.
(14) Includes directors' warrants to purchase 10,000 shares.
(15) Includes directors' warrants to purchase 5,000 shares.
(16) Includes contractual options to purchase 7,556 shares.
(17) Includes the twelve directors and one executive officer who is not a
director listed above.
(18) Includes contractual options to purchase 17,110 shares plus directors'
warrants to purchase 112,150 shares.
(19) Mr. O'Quinn's address is 285 South Wayne Street, Jesup, Georgia 31545.
(20) Includes organizers' warrants to purchase 20,000 shares.
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and the Bank have banking and other transactions in the
ordinary course of business with the directors and officers of the Company and
the Bank and their affiliates, including members of their families or
corporations, partnerships or other organizations in which such officers or
directors have a controlling interest, on substantially the same terms
(including price or interest rates, and collateral) as those prevailing at the
time for comparable transactions with unrelated parties. Such transactions do
not involve more than the normal risk of collectibility or present other
unfavorable features to the Company and the Bank. Loans to individual
directors and officers must comply with the Bank's lending policies and
statutory lending limits, and directors with a personal interest in any loan
application are excluded from the consideration of such loan application.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Among other Board committees, the Company has an audit committee, a
compensation committee, and a nominating committee. The Company's audit
committee is composed of Patricia B. Armstrong, Leonard D. Brannen, Tommie C.
Fuller, Sr., and Ferrell L. O'Quinn, and met four times in 1996. The audit
committee has the responsibility of reviewing the Company's financial
statements, evaluating internal accounting controls, reviewing reports of
regulatory authorities, and determining that all audits and examinations
required by law are performed. The committee recommends to the Board the
appointment of the independent auditors for the next fiscal year, reviews and
approves the auditor's audit plans, and reviews with the independent auditors
the results of the audit and management's response thereto. The audit
committee is responsible for overseeing the entire audit function and
appraising the effectiveness of internal and external audit efforts. The audit
committee reports its findings to the Board of Directors.
The Company's compensation committee is responsible for establishing
the compensation plans for the Company. Its duties include the development
with management of all benefit plans for employees of the Company,
9
<PAGE> 12
the formulation of bonus plans, incentive compensation packages, and medical
and other benefit plans. This committee met one time during the year ended
December 31, 1996. The compensation committee is composed of Tommie C. Fuller,
Sr., Douglas R. Harper, James L. Lott, and W. Donald Whitaker.
The Company's nominating committee is responsible for nominating
individuals for election to the Company's Board of Directors. Membership on
the nominating committee changes annually. In 1996, the nominating committee
met one time and consisted of C. Revis Clary, Jerry D. McDaniel, and Bernon W.
Sapp. The nominating committee welcomes recommendations made by shareholders
of the Company. Any recommendations for the 1998 Annual Shareholders' Meeting
should be made in writing addressed to the nominating committee of the
Company's Board of Directors, 818 South First Street, Jesup, Georgia 31545,
and must be received by the Company no later than November 28, 1997.
The Board of Directors of the Company held thirteen meetings, and the
Board of Directors of the Bank held thirteen meetings, during the year ended
December 31, 1996. All of the directors of the Company and the Bank attended
at least 75% of the aggregate of such board meetings and the meetings of each
committee on which they served.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected the accounting firm of McNair,
McLemore, Middlebrooks & Co. as the Company's independent auditor for the 1997
fiscal year. McNair, McLemore, Middlebrooks & Co. served as the independent
auditors for the Company for the fiscal years ended December 31, 1994, 1995,
and 1996. The Company does not expect a representative from McNair, McLemore,
Middlebrooks & Co. to be present at the Meeting.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING OF SHAREHOLDERS
Shareholders' proposals intended to be presented at the 1998 Annual
Meeting of Shareholders must be received by the Company no later than November
28, 1997, to be presented at the 1998 Annual Meeting of Shareholders or
considered for inclusion in the Company's Proxy Statement and form of Proxy for
that meeting.
ANNUAL REPORTS
COPIES OF THE COMPANY'S 1996 ANNUAL REPORT ARE BEING MAILED TO ALL
SHAREHOLDERS TOGETHER WITH THIS PROXY STATEMENT. THE COMPANY WILL PROVIDE,
WITHOUT CHARGE, TO ANY SHAREHOLDER OF RECORD AS OF MARCH 12, 1997, WHO SO
REQUESTS IN WRITING, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR
THE YEAR ENDED DECEMBER 31, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. ANY SUCH REQUESTS SHOULD BE DIRECTED TO DOUGLAS R. HARPER, WAYNE
BANCORP, INC., 818 SOUTH FIRST STREET, JESUP, GEORGIA 31545.
10
<PAGE> 13
OTHER MATTERS
The Board of Directors knows of no business other than that set forth
above to be transacted at the Meeting, but if other matters requiring a vote of
the shareholders arise, the persons designated as proxies will vote the shares
of Common Stock represented by the proxy cards in accordance with their
judgment on such matters.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Douglas R. Harper
----------------------------------
Douglas R. Harper
Chief Executive Officer
Jesup, Georgia
March 28, 1997
11
<PAGE> 14
APPENDIX A
WAYNE BANCORP, THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
INC. PROXY DIRECTORS.
The undersigned hereby appoints C. Revis Clary and
Douglas R. Harper as Proxies, each with the power to
appoint his substitute, and hereby authorizes them to
represent and to vote as designated below all the
shares of common stock of Wayne Bancorp, Inc. held of
record by the undersigned on March 12, 1997, at the
Annual Meeting of Shareholders to be held on April 8,
1997, or any adjournment thereof.
818 South First Street
Jesup, Georgia 31545
1. Election of Directors:
<TABLE>
<S> <C>
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
</TABLE>
Patricia B. Armstrong, Leonard D. Brannen, James L. Lott, Ferrell L. O'Quinn,
Bernon W. Sapp.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
______________________________________________________
2. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF ALL LISTED NOMINEES AND, AT THE DISCRETION OF THE
PROXIES, ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
DATED:__________________, 1997
________________________________________
Signature
________________________________________
Signature if held jointly
________________________________________
Please print name(s)
----------------------------
PLEASE MARK, SIGN, DATE AND
RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.
----------------------------
<PAGE> 15
APPENDIX B
WAYNE BANCORP, INC.
1996 ANNUAL REPORT
WAYNE NATIONAL BANK
<PAGE> 16
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> 17
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> 18
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> 19
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> 20
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> 21
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> 22
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> 23
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> 24
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> 25
<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> 26
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> 27
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> 28
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> 29
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> 30
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> 31
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> 32
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> 33
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> 34
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> 35
<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> 36
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> 37
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> 38
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> 39
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> 40
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> 41
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> 42
(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> 43
(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> 44
(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> 45
(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> 46
(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> 47
(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> 48
(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> 49
(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> 50
(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> 51
(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> 52
(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> 53
(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> 54
(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> 55
(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> 56
(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> 57
(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> 58
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
