-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HL9whQLRhkEIcPLjkIK+6lrIyaV6Qe/mNV1eu3u/pEliAcaSXwfsjthcz7+DMQta 5PGoClA4hZikzQKIWfT4qg== 0000950110-97-000531.txt : 19970329 0000950110-97-000531.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950110-97-000531 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WAYNE BANCORP INC /DE/ CENTRAL INDEX KEY: 0001011032 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 223424621 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20691 FILM NUMBER: 97567912 BUSINESS ADDRESS: STREET 1: 1195 HAMBURG TURNPIKE CITY: WAYNE STATE: NJ ZIP: 07474 BUSINESS PHONE: 2013055500 MAIL ADDRESS: STREET 1: 1195 HAMBURG TNPK CITY: WAYNE STATE: NJ ZIP: 07474 10-K 1 FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 000-20691 WAYNE BANCORP, INC. (Exact name of registrant as specified in its charter) DELAWARE 22-3424621 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1195 HAMBURG TURNPIKE, WAYNE, NEW JERSEY 07474 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (201) 305-5500 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK PAR VALUE $0.01 PER SHARE (Title of class) ----------------- INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL THE REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO --- --- INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATIONS S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. X --- THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT, I.E., PERSONS OTHER THAN DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT IS $35,885,283 AND IS BASED ON THE LAST SALES PRICE AS LISTED ON THE NASDAQ STOCK MARKET FOR MARCH 11, 1997. THE REGISTRANT HAD 2,156,383 SHARES OUTSTANDING AS OF MARCH 11, 1997. ----------------- DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Stockholders for the year ended December 31, 1996 are incorporated by reference in Part II of this Form 10-K. Portions of the Proxy Statement for the 1997 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K. ================================================================================ INDEX PART I PAGE ---- Item 1. Description of Business ............................... 1 Additional Item: Executive Officers of the Registrant ........... 20 Item 2. Properties ............................................ 20 Item 3. Legal Proceedings ..................................... 20 Item 4. Submission of Matters to a Vote of Security Holders ... 21 PART II Item 5. Market for Registrant's Common Equity and Related Stockholders' Matters ............................... 21 Item 6. Selected Financial Data ............................... 21 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ................. 21 Item 8. Financial Statements and Supplementary Data ........... 21 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ................. 21 PART III Item 10. Directors and Executive Officers of the Registrant .... 21 Item 11. Executive Compensation ................................ 21 Item 12. Security Ownership of Certain Beneficial Owners and Management ...................................... 21 Item 13. Certain Relationships and Related Transactions ........ 21 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ................................. 22 SIGNATURES 1 WAYNE BANCORP, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 PART I ITEM 1. DESCRIPTION OF BUSINESS. GENERAL Wayne Bancorp, Inc. (also referred to as the "Company" or "Registrant") was incorporated under Delaware law at the direction of the Board of Directors of Wayne Savings Bank, F.S.B. (the "Bank") to acquire all of the capital stock the Bank issued in connection with its conversion from the mutual to stock form, which was consummated on June 27, 1996. The Registrant is a unitary savings and loan holding company and is subject to regulation by the Office of Thrift Supervision ("OTS"), the Federal Deposit Insurance Corporation ("FDIC") and the Securities and Exchange Commission ("SEC"). Currently, the Registrant does not transact any material business other than through its sole subsidiary, the Bank. The Bank was organized in 1921 as the Pequannock and Wayne Building and Loan Association, a New Jersey mutual building and loan association, and was the first financial institution located in the Township of Wayne, New Jersey. In 1946, the Bank changed its name to Wayne Savings and Loan Association, a New Jersey mutual savings and loan association and converted to a federally chartered mutual savings bank under its current name in 1994. The Bank's primary regulator is the OTS. The Bank's deposits are insured up to the maximum allowable amount by the Savings Association Insurance Fund ("SAIF") of the FDIC. MARKET AREA AND COMPETITION The Bank conducts its business through five banking offices, including its administrative office, all of which are located in Passaic County, New Jersey. The Bank's deposit base is drawn principally from Passaic County, primarily the township of Wayne, a stable, residential community of approximately 50,000 persons located 20 miles west of New York City. The Bank's primary market area is a highly competitive market for financial services and the Bank faces intense competition both in making loans and in attracting deposits. The Bank faces direct competition from a significant number of financial institutions operating in its market area, many with a state-wide or regional presence and in some cases a national presence. Many of these financial institutions are significantly larger and have greater financial resources than the Bank. The Bank's competition for loans comes principally from savings and loan associations, mortgage banking companies, commercial banks, credit unions and insurance companies. Its most direct competition for deposits has historically come from savings and loan associations and commercial banks. In addition, the Bank faces increasing competition for deposits and other financial products from non-bank institutions such as brokerage firms and insurance companies in such areas as short-term money market funds, mutual funds and annuities. Competition may also increase as a result of the lifting of restrictions on the interstate operations of financial institutions. LENDING ACTIVITIES Loan Portfolio Composition. The Bank's loan portfolio consists primarily of mortgage loans and home equity loans secured by one- to four-family residences. At December 31, 1996, the Bank had total gross loans outstanding of $147.3 million, of which $113.7 million or 77.2% consisted of one- to four-family residential mortgage loans, and $24.4 million, or 16.6% were home equity loans. The remainder of the portfolio consists of $185,000 of multi-family mortgage loans, or 0.1% of total gross loans, $7.1 million of commercial real estate loans, or 4.8% of total gross loans $644,000 of commercial business loans, or 0.4% of total gross loans, and $1.3 million of consumer loans or 0.9% of total gross loans. The Bank had no construction loans at December 31, 1996. At December 31, 1996, 38.6% of the Bank's mortgage loans had adjustable interest rates. All of the Bank's mortgage loan portfolio consists of conventional mortgage loans. 1 Loan Portfolio Composition. The following table sets forth the composition of the Bank's loan portfolio in dollar amounts and as a percentage of the portfolio at the dates indicated.
AT DECEMBER 31, -------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ----------------- ---------------- ---------------- ---------------- ------------------ PERCENT PERCENT PERCENT PERCENT PERCENT OF OF OF OF OF AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL ------ ------- ------ ------ ------ ------ ------ ----- ------ --------- (DOLLARS IN THOUSANDS) Real estate: One-to four-family ... $113,701 77.22% $87,579 77.10% $88,722 77.28% $89,602 83.27% $105,279 90.85% Home equity .......... 24,394 16.57 20,964 18.46 21,165 18.44 13,326 12.39 6,698 5.78 Multi-family ......... 185 0.13 195 0.17 541 0.47 495 0.46 283 0.24 Commercial ........... 7,069 4.80 3,636 3.20 3,076 2.68 2,831 2.63 2,650 2.29 Construction ......... -- -- -- -- 170 0.15 -- -- -- -- Commercial business .. 644 0.43 -- -- -- -- -- -- -- -- Consumer ............. 1,257 0.85 1,216 1.07 1,130 0.98 1,346 1.25 971 0.84 -------- ------- ------ ------- ------ ------- ------- ------ ------- ----- Total loans, gross . 147,250 100.00% 113,590 100.00% 114,804 100.00% 107,600 100.00% 115,881 100.00% ======= ======= ======= ======= ======= Less: Undisbursed loan funds -- -- 111 -- -- Deferred loan origination fees .... 36 13 59 30 49 Allowance for loan losses .............. 1,789 1,589 1,543 1,237 974 -------- -------- -------- -------- -------- Total loans, net ... $145,425 $111,988 $113,091 $106,333 $114,858 ======== ======== ======== ======== ========
Loan Maturity. The following table shows the contractual maturity of the Bank's gross loans at December 31, 1996. The table does not include principal repayments or prepayments.
AT DECEMBER 31, 1996 -------------------------------------------------------------------------- ONE-TO OMMERCIAL TOTAL FOUR- HOME MULTI- REAL COMMERCIAL LOANS FAMILY EQUITY FAMILY ESTATE BUSINESS CONSUMER RECEIVABLE ------ ------ ------ --------- ---------- -------- ----------- (DOLLARS IN THOUSANDS) Amounts due: One year or less ...................... $ 88 $ 20 $ -- $ -- $ -- $ 630 $ 738 -------- ------- ---- ------ ---- ----- -------- After one year: More than one year to three years .... 2,505 639 -- -- 244 195 3,583 More than three years to five years .. 7,611 2,136 -- -- 400 113 10,260 More than five years to 10 years...... 17,401 11,455 50 2,233 -- 136 31,275 More than 10 years to 20 years ....... 29,744 9,155 -- 4,836 -- 183 43,918 More than 20 years ................... 56,352 989 135 -- -- -- 57,476 -------- ------- ---- ------ ---- ------ -------- Total due after December 31, 1997 .... 113,613 24,374 185 7,069 644 627 146,512 -------- ------- ---- ------ ---- ------ -------- Total amount due ................... $113,701 $24,394 $185 $7,069 $644 $1,257 $147,250 ======== ======= ==== ====== ==== ====== ======== Less: Deferred loan origination fees: .... (36) Allowance for loan losses .......... (1,789) --------- Total loans, net...................... $145,425 =========
2 The following table sets forth at December 31, 1996, the dollar amount of total gross loans receivable contractually due after December 31, 1997, and whether such loans have fixed interest rates or adjustable interest rates. The one- to four-family loans reflected as having fixed rates include fixed-rate products and $22.2 million of balloon loans with contractual maturities of 5 to 7 years and amortization schedules of up to 30 years. All of those loans were originated prior to 1992.
DUE AFTER DECEMBER 31, 1997 ---------------------------------------- FIXED ADJUSTABLE TOTAL -------- ---------- -------- (DOLLARS IN THOUSANDS) Real estate loans: One-to four-family .......... $ 63,912 $49,701 $113,613 Home equity ................. 17,169 7,205 24,374 Multi-family ................ -- 185 185 Commercial .................. 3,474 3,595 7,069 Commercial business ........... 400 244 644 Consumer 627 -- 627 ------- ------- -------- Total .................... $85,582 $60,930 $146,512 ======= ======= ========
Loan Originations and Purchases. The Bank's mortgage lending activities are conducted primarily through the Bank's offices. All loans originated by the Bank are underwritten by the Bank pursuant to the Bank's policies and procedures. The Bank originates both adjustable-rate and fixed-rate mortgage loans. The Bank's ability to originate loans is dependent upon the relative customer demand for fixed-rate or adjustable-rate mortgage loans, which is affected by the current and expected future level of interest rates. Loan originations have increased from $16.1 million for the year ended December 31, 1995 to $57.7 million for the year ended December 31, 1996, reflecting the expansion of the Bank's lending area for first mortgages as well as the increase in loans originated through a loan origination program. In addition, the Bank has increased its marketing efforts to increase the volume of home equity loans. Finally, the Bank is attempting to expand the commercial lending function. It is the general policy of the Bank to retain all loans originated in its portfolio. The Bank has sought to maintain a more stable level of loan originations by its continuing participation in a loan origination program. For the year ended December 31, 1996, the Bank originated $26.8 million in loans through this program. All loans originated through the use of this program are one- to four-family loans and are secured by properties located in New Jersey. Through this program, borrowers are given information from participating lenders quoting their most favorable terms for each loan. The borrower determines which institution provides the best loan for the borrower's financing needs and upon choosing a lender, deals directly with that lender throughout the loan origination process. The Bank pays an annual marketing fee to the company that manages the loan origination program, which enables the loan company to advertise continuously, giving participating lenders consistent market exposure. If a loan is originated by the Bank to a borrower who used the loan program to find the Bank, the Bank pays a 25 basis point fee to the loan company at the time of the loan closing. 3 The following table sets forth the Bank's loan originations, purchases, and principal repayments for the periods indicated. During the periods indicated there were no loan sales and no originations of multi-family loans. FOR THE YEARS ENDED DECEMBER 31, ----------------------------------- 1996 1995 1994 --------- --------- ---------- (DOLLARS IN THOUSANDS) Net loans: Beginning balance ...................... $ 111,988 $ 113,091 $ 106,333 Loans originated: Real estate: One- to four-family ................. 41,999 10,633 15,044 Home equity ......................... 11,183 4,685 14,872 Commercial real estate .............. 3,070 -- 2,658 Construction and land ............... -- 100 170 Commercial business .................. 686 -- -- Consumer ............................. 738 699 843 --------- --------- --------- Total loans originated .............. 57,676 16,117 33,587 Loans purchased (1) ................... 60 140 1,396 --------- --------- --------- Total ............................... 169,724 129,348 141,316 Less: Principal repayments .................. (23,956) (16,483) (27,496) Transfer to REO ....................... (143) (831) (312) Undisbursed loan funds ................ -- -- (111) Net change in allowance for loan losses (200) (46) (306) --------- --------- --------- Ending balance loans receivable, net ... $ 145,425 $ 111,988 $ 113,091 ========= ========= ========= - ---------- (1) All loans purchased consisted of one- to four-family loans. One- to Four-Family Lending. The Bank currently offers both fixed-rate and adjustable-rate mortgage loans primarily secured by one- to four-family residences, with maturities up to 30 years, including loans with bi-weekly payment options, for retention in its portfolio. All such loans are secured by properties located in the Bank's primary market area, or in other parts of New Jersey if originated through the loan origination program. All one- to four-family loans are underwritten in accordance with FHLMC/FNMA standards. Loan originations are obtained from the Bank's branch offices, through the loan origination program, existing or past customers, through advertising and, to a lesser extent, from referrals from real estate brokers and attorneys. At December 31, 1996, residential mortgage loans secured by one- to four-family residences totalled $113.7 million or 77.2% of the Bank's total gross loan portfolio. Of the one- to four- family residential mortgage loans outstanding at that date, 43.7% were adjustable-rate loans. The Bank's one- to four-family adjustable-rate mortgage ("ARM") loans are primarily indexed to the U.S. Treasury Bill rates. The Bank currently offers one, three, five, seven and ten-year ARM loans, with interest rates based on a spread above the one, three, five, seven and ten-year U.S. Treasury Bill rates, respectively. The Bank's ARM loans are subject to limitations of 2% per adjustment on interest rate increases or decreases and lifetime caps of 5%. The Bank originates one- to four-family residential loans in amounts up to 90% of the appraised value of the property securing the loan, although the Bank may originate loans in amounts up to 95% of the appraised value for first-time home buyers. Private mortgage insurance is required for all loans with a loan to value ratio over 80%. The Bank's one- to four-family residential mortgage loans do not provide for negative amortization. Residential mortgage loans in the Bank's portfolio generally include due on sale clauses, which provide the Bank with the contractual right to demand the loan immediately due and payable in the event that the borrower transfers ownership of the property without the Bank's consent. The Bank generally enforces its rights under these clauses. In recent years, the Bank has sought to originate one- to four-family mortgage loans with terms of 15 years or less, although the Bank does originate fixed rate loans with terms up to 30 years. At December 31, 1996, one- to four-family loans with terms of 15 years or less, including ARM loans, totalled $44.2 million or 38.9% of total one- to four-family loans. 4 Upon receipt of a completed loan application from a prospective borrower for a loan secured by one- to four-family residential real estate, a credit report is ordered and income, financial and employment information is requested and verified. An appraisal of the real estate intended to secure the proposed loan is undertaken by an independent appraiser previously approved by the Bank. It is the Bank's policy to require title insurance on all mortgage loans. Borrowers also must obtain hazard insurance prior to closing. Potential borrowers are qualified for one-year ARM loans based on the fully indexed rate. Home Equity Loans. The Bank originates home equity loans, generally secured by one- to four-family, owner-occupied residential properties on which the Bank is the primary lender. The Bank's policy is to originate home equity loans in amounts up to 75% of the appraised value of the property, less existing liens. Home equity loans are originated with fixed or adjustable rates. Home equity loans originated with fixed-rates are for terms of 15 years or less and those originated with adjustable-rates may be made for terms up to 20 years. At December 31, 1996, $24.4 million, or 16.6% of total gross loans receivable were home equity loans. Payments of principal and interest are due monthly. The Bank employs similar underwriting standards in making home equity loans as those utilized for residential mortgage loans, except that borrowers applying for an adjustable-rate home equity loan are qualified at the initial interest rate plus 4% and there is a 15% interest rate cap for the life of the loan. The Bank holds both the first and second lien on a substantial amount of the properties securing the Bank's home equity loans. Commercial Real Estate and Multi-Family Loans. The Bank's policies provide that it may originate multi-family mortgage loans and commercial real estate loans generally secured by property located in its primary market area. The Bank expects to increase these types of lending in the future. In reaching its decision on whether to make a commercial real estate or multi-family loan, the Bank considers a number of factors, including: market conditions, the net operating income of the mortgaged premises before debt service and depreciation; the debt service ratio (the ratio of net operating income to debt service); and the ratio of loan amount to appraised value. Commercial real estate loans and multi-family loans may be made up to 75% of the appraised value of the property. Properties securing a loan are appraised by an independent appraiser. In most cases, borrowers must personally guarantee the loans. The Bank offers 5 or 7 year balloon loans with maximum terms of 20 years and three-year ARM loans that adjust every third year to the three-year U.S. Treasury Bill plus 3.25%. There are no adjustment caps. At December 31, 1996, $7.1 million, or 4.8% of total gross loans receivable were commercial real estate loans and $185,000, or 0.1% of total gross loans receivable were multi-family loans. The largest loan in this portfolio is a $2.2 million loan secured by a commercial office building in Wayne. This loan was a five-year balloon loan made in 1988 which became due in December 1993 and refinanced in 1994. The loan is currently a three adjustable with a twenty year amortization period. This loan is currently performing in accordance with its terms. When evaluating a multi-family or commercial real estate loan, the Bank also considers the financial resources and income level of the borrower, the borrower's experience in owning or managing similar properties, and the Bank's lending experience with the borrower. The Bank's underwriting policies require that the borrower be able to demonstrate strong management skills and the ability to maintain the property from current rental income. The borrower is required to present evidence of the ability to repay the mortgage and a history of making mortgage payments on a timely basis. In making its assessment of the creditworthiness of the borrower, the Bank generally reviews the financial statements, employment and credit history of the borrower, as well as other related documentation. Commercial real estate and multi-family loans are generally larger and present a greater degree of risk than loans secured by one- to four-family residences. Because payments on loans secured by commercial real estate and multi-family properties are often dependent on the successful operation or management of the properties, repayment of such loans may be subject to a greater extent to adverse conditions in the real estate market or in the economy. The Bank seeks to minimize these risks through its underwriting standards, which require the loans to be qualified on the basis of the property's income and debt service ratio. Construction Lending. The Bank has, on a case by case basis, originated loans for the development of property to existing customers in its primary market area. The Bank's construction loans primarily have been made to finance the construction of one- to four-family, owner-occupied residential properties. As part of its business plan, the Bank may increase the amount of its construction lending. The Bank's policies provide that construction loans may be made in amounts up to 75% of the appraised value of the property for construction. The Bank requires an independent appraisal of the property. The Bank generally requires personal guarantees and a permanent loan commitment if the Bank will not be making the permanent loan. 5 Construction financing is generally considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property's value at completion of construction or development compared to the estimated cost (including interest) of construction. If the estimate of value proves to be inaccurate, the Bank may be confronted with a project, when completed, having a value which is insufficient to ensure full repayment. Consumer Loans. The Bank's consumer loans generally consist of student education loans and loans secured by savings accounts. At December 31, 1996, the Bank's consumer loan portfolio consisted of $616,000 passbook loans, $460,000 of student education loans, $158,000 of automobile loans and $23,000 of personal loans. All of the student education loans are underwritten in accordance with, and are guaranteed by, the New Jersey Higher Education Assistance Authority. The Bank has recently authorized the origination of automobile loans up to $25,000, unsecured personal loans up to $5,000 and overdraft lines of credit up to $2,500 and intends to continue to pursue opportunities to expand these areas of lending. Consumer loans may entail greater credit risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or are secured by rapidly depreciable assets, such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. In addition, consumer loan collections are dependent on the borrower's continuing financial stability, and therefore are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. At December 31, 1996, there were $20,000 of consumer loans delinquent 90 days or more. There can be no assurance that delinquencies will not increase in the future, particularly in light of the Bank's decision to increase its efforts to originate a higher volume and greater variety of consumer loans. Commercial Business Loans. The Bank intends to pursue opportunities to offer commercial business loans, primarily to businesses located in the Bank's primary market area. At December 31, 1996, $644,000 or 0.4% of total gross loans receivable were commercial business loans. Federally chartered savings institutions, such as the Bank, are authorized to make secured or unsecured loans and letters of credit for commercial, corporate, business and agricultural purposes and to engage in commercial leasing activities, up to a maximum of 10% of total assets. The Bank's commercial business lending policy includes credit file documentation and analysis of the borrower's character, capacity to repay the loan, the adequacy of the borrower's capital and collateral, as well as an evaluation of conditions affecting the borrower. Analysis of the borrower's past, present and future cash flows will also be an important aspect of the Bank's current credit analysis. Unlike residential mortgage loans, which generally are made on the basis of the borrower's ability to make repayment from his or her employment and other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans are of higher risk and typically are made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and mayfluctuate in value based on the success of the business. Delinquencies and Classified Assets. Management and the Board of Directors perform a monthly review of all delinquent loans. The procedures taken by the Bank with respect to delinquencies vary depending on the nature of the loan and period of delinquency. The Bank generally requires that delinquent mortgage loans be reviewed and that a written late charge notice be mailed no later than the 16th day of delinquency. The Bank's policies provide that telephone contact will be attempted to ascertain the reasons for delinquency and the prospects of repayment. When contact is made with the borrower at any time prior to foreclosure, the Bank will attempt to obtain full payment or work out a repayment schedule with the borrower to avoid foreclosure. It is the Bank's policy to place all loans that are delinquent by three or more payments on nonaccrual status, resulting in the Bank no longer accruing interest on such loans and reversing any interest previously accrued but not collected. A non-accrual loan may be restored to accrual status when delinquent principal and interest payments are brought current and future monthly principal and interest payments are expected to be collected. Property acquired by the Bank as a result of foreclosure on a mortgage loan is classified as "real estate owned" and is recorded at the lower of the unpaid principal balance or fair value less costs to sell at the date of acquisition and thereafter. Upon foreclosure, the Bank generally requires an appraisal of the property and, thereafter, appraisals of the property on an annual basis and external inspections on at least a quarterly basis. 6 Federal regulations and the Bank's Classification of Assets Policy requires that the Bank utilize an internal asset classification system as a means of reporting problem and potential problem assets. The Bank currently classifies problem and potential problem assets as "Substandard," "Doubtful" or "Loss." An asset is considered Substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the "distinct possibility" that the insured institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as Doubtful have all of the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions and values, "highly questionable and improbable." Assets classified as Loss are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss allowance is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but posses weaknesses are required to be designated "Special Mention." A savings institution's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the OTS, which can order the establishment of additional general or specific loss allowances. The OTS, in conjunction with the other federal banking agencies, adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management has analyzed all significant factors that affect the collectibility of the portfolio in a reasonable manner; and that management has established acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. While the Bank believes that it has established an adequate allowance for loan losses, there can be no assurance that regulators, in reviewing the Bank's loan portfolio, will not request the Bank to materially increase its allowance for loan losses, thereby negatively affecting the Bank's financial condition and earnings. Although management believes that, based on information currently available to it at this time, its allowance for loan losses is adequate, actual losses are dependent upon future events and, as such, further additions to the level of allowances for loan losses may become necessary. When an insured institution classifies one or more assets, or portions thereof, as Substandard or Doubtful, it is required to establish a general valuation allowance for loan losses in an amount deemed prudent by management. General valuation allowances, which is a regulatory term, represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies one or more assets, or portions thereof, as loss, it is required either to establish a specific allowance for losses equal to 100% of the amount of the asset soclassified or to charge off such amount. The President and Chief Lending Officer reviews and classifies the Bank's loans on a quarterly basis and reports the results of the review to the Board of Directors. The Bank classifies loans in accordance with the management guidelines described above. At December 31, 1996, the Bank had $116,000 of REO. At December 31, 1996, the Bank had $2.5 million of assets classified as Special Mention, $2.4 million of assets classified as Substandard, nothing classified as Doubtful and $209,000 classified as Loss which amount is fully reserved for. 7 The following table sets forth delinquencies in the Bank's loan portfolio as of the dates indicated: There were no delinquencies in the multi-family and commercial real estate portfolios at the dates indicated.
AT DECEMBER 31, 1996 AT DECEMBER 31, 1995 --------------------------------------- ------------------------------------ 60-89 DAYS 90 DAYS OR MORE(1) 60-89 DAYS 90 DAYS OR MORE(1) ------------------- ------------------ ------------------------------------ PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS -------- -------- -------- --------- -------- -------- -------- --------- (DOLLARS IN THOUSANDS) One- to four-family ........... 3 $ 344 22 $1,872 9 $ 361 26 $2,278 Home equity ................... -- -- 5 184 -- -- 4 162 Consumer ...................... 1 7 4 20 -- -- 1 10 -- ------ -- ------ -- ------ -- ------- Total ...................... 4 $ 351 31 $2,076 9 $ 361 31 $2,450 == ====== == ====== == ====== == ====== Delinquent loans to total gross loans .................. .24% 1.41% .32% 2.16% ====== ====== ====== =====
AT DECEMBER 31, 1994 -------------------------------------- 60-89 DAYS 90 DAYS OR MORE(1) ------------------ ------------------ PRINCIPAL PRINCIPAL NUMBER BALANCE NUMBER BALANCE OF LOANS OF LOANS OF LOANS OF LOANS -------- --------- -------- -------- (DOLLARS IN THOUSANDS) One- to four-family ............. 5 $380 34 $3,395 Home equity ..................... 1 23 6 223 Consumer ........................ -- -- 3 27 -- ---- -- ------ Total ........................ 6 $400 43 $3,645 == ==== == ====== Delinquent loans to total gross loans .35% 3.17% ==== ======
____________________ (1) Loans 90 days or more past due are included in non-accrual loans. See "Lending Activities--Non-Accrual Loans." Non-Accrual Loans. The table below sets forth information regarding non-accrual loans (all loans 90 days or more delinquent) and REO held by the Bank at the dates indicated. There were no non-accrual loans in the multi-family, commercial or construction portfolios at the dates indicated.
AT DECEMBER 31, ------------------------------------------ 1996 1995 1994 1993 1992 ------- ------ ------ ------ ------ (DOLLARS IN THOUSANDS) Non-accrual loans: One- to four-family ......... $1,872 $2,278 $3,395 $3,269 $3,931 Home equity ................. 184 162 223 234 242 Consumer .................... 20 10 27 7 1 ------ ------ ------ ------ ------ Total ....................... 2,076 2,450 3,645 3,510 4,174 REO, net(1)(2) .............. 116 597 970 1,338 1,830 ------ ------ ------ ------ ------ Total non-performing assets $2,192 $3,047 $4,615 $4,848 $6,004 ====== ====== ====== ====== ======
____________________ (1) REO balances are shown net of related loss allowances. (2) REO, net at December 31, 1994, 1993 and 1992 included $0, $264,000 and $923,000, respectively, of in-substance foreclosed loans. Under Statement of Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan," adopted January 1, 1995 by the Bank, loans that previously would have been classified as in-substance foreclosures would be classified as impaired loans. There were no loans considered to be impaired as of December 31, 1996 and 1995. 8 Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses based on management's evaluation of the risks inherent in its loan portfolio and changes in the nature and volume of its loan activity. Such evaluation, which includes a review of all loans of which full collectibility may not be reasonably assured, considers among other matters, the estimated market value of the underlying collateral, economic conditions, historical loan loss experience and other factors that warrant recognition in providing for an adequate loan loss allowance. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to make additional provisions for losses on loans based upon information available at the time of the review. The following table sets forth activity in the Bank's allowance for loan losses for the periods set forth in the table.
AT DECEMBER 31, ----------------------------------------------------------- 1996 1995 1994 1993 1992 ------- ------ ------- ------ ----- (DOLLARS IN THOUSANDS) Real estate loans: Balance at beginning of year ......... $ 1,589 $ 1,543 $ 1,237 $ 974 $ 986 Provision for loan losses ............ 200 152 316 286 619 Charge-offs: One- to four-family ................. -- (106) (10) (23) (641) Recoveries ........................... -- -- -- -- 10 ------- ------- ------- ------- ----- Balance at end of year ............... $ 1,789 $ 1,589 $ 1,543 $ 1,237 $ 974 ======= ======= ======= ======= ===== Net charge-offs to average gross loans receivable .................... 0.00% 0.09% 0.01% 0.02% 0.54% Allowance for loan losses as a percent of gross loans receivable ........... 1.21 1.40 1.34 1.15 0.84 Allowance for loan losses as a percent of total non-performing loans ....... 86.18 64.86 42.33 35.24 23.33 Non-performing loans as a percent of gross loans receivable ........... 1.41 2.16 3.17 3.26 3.60 Non-performing assets as a percent of total assets ..................... 0.90 1.46 2.61 2.65 3.35
9 The following tables set forth the amount of the Bank's allowance for loan losses, the percent of allowance for loan losses to total allowance and the percent of gross loans to total gross loans in each of the categories listed at the dates indicated.
AT DECEMBER 31, ------------------------------------------------------------------------------------------------------- 1996 1995 1994 --------------------------------- ---------------------------------------- ------------------------- PERCENT OF PERCENT OF PERCENT OF GROSS LOANS GROSS LOANS GROSS LOANS PERCENT OF IN EACH PERCENT OF IN EACH PERCENT OF IN EACH ALLOWANCE CATEGORY ALLOWANCE CATEGORY ALLOWANCE CATEGORY TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL AMOUNT ALLOWANCE GROSS LOANS AMOUNT ALLOWANCE GROSS LOANS AMOUNT ALLOWANCE GROSS LOANS ------- --------- ----------- ------ --------- ----------- ------ --------- ----------- (DOLLARS IN THOUSANDS) One- to four-family $1,181 66.01% 77.22% $1,030 64.82% 77.10% $ 979 63.46% 77.28% Home equity ........ 242 13.53 16.57 210 13.22 18.46 209 13.54 18.44 Multi-family ....... -- -- .13 -- -- .17 1 .06 .47 Commercial ......... 355 19.84 4.80 342 21.52 3.20 347 22.49 2.68 Construction ....... -- -- -- -- -- -- -- -- .15 Commercial business 3 .17 .43 -- -- -- -- -- Consumer ........... 8 .45 .85 7 .44 1.07 7 .45 .98 ------ ------ ------ ----- ----- ----- ------ ------ ----- Total allowance for loan losses ...... $1,789 100.00% 100.00% $1,589 100.00% 100.00% $1,543 100.00% 100.00% ====== ====== ====== ====== ====== ====== ====== ====== ======
AT DECEMBER 31, ------------------------------------------------------------- 1993 1992 ----------------------------- ------------------------------- PERCENT OF PERCENT OF GROSS LOANS GROSS LOANS PERCENT OF IN EACH PERCENT OF IN EACH ALLOWANCE CATEGORY ALLOWANCE CATEGORY TO TOTAL TO TOTAL TO TOTAL TO TOTAL AMOUNT ALLOWANCE GROSS LOANS AMOUNT ALLOWANCE GROSS LOANS ------ ----------- ----------- ------ ----------- ------------ (DOLLARS IN THOUSANDS) One- to four-family .. $1,084 87.63% 83.28% $ 895 91.90% 90.85% Home equity .......... 131 10.59 12.38 65 6.67 5.78 Multi-family ......... 1 .08 .46 1 .10 .24 Commercial real estate 14 1.13 2.63 13 1.33 2.29 Consumer ............. 7 .57 1.25 -- -- .84 ------ ----- ----- --- ----- ---- Total allowance for loan losses ........ $1,237 100.00% 100.00% $ 974 100.00% 100.00% ====== ====== ====== ===== ====== ======
10 SECURITIES PORTFOLIO Federally chartered savings institutions have the authority to invest in various types of liquid assets, including United States Treasury obligations, securities of various federal agencies, certain certificates of deposit of insured banks and savings institutions, certain bankers' acceptances, repurchase agreements and federal funds. Subject to various restrictions, federally chartered savings institutions may also invest in commercial paper, corporate debt securities and mutual funds whose assets conform to the investments that a federally chartered savings institution is otherwise authorized to make directly. Additionally, the Bank must maintain minimum levels of investments that qualify as liquid assets under OTS regulations. As a member of the FHLB, the Bank also is required to maintain liquid assets at minimum levels which change from time to time. The Bank's liquid investments primarily include federal agency securities and federal funds. Management of the Bank, with the Board of Directors ratification, sets the investment policy of the Bank. This policy dictates that investments will be made based on the safety of the principal, the liquidity requirements of the Bank and the return on the investment and capital appreciation. All investment decisions are made by the Investment Committee, comprised of members of Management, and such investment decisions are ratified by the Board of Directors of the Bank. The Bank's investments include FHLB-NY stock, mortgage-backed securities insured or guaranteed by GNMA, FHLMC or FNMA and U.S. government agency securities. The following table sets forth certain information regarding the amortized cost and estimated market values of the Bank's mortgage-backed and investment securities at the dates indicated.
AT DECEMBER 31, -------------------------------------------------------------------- 1996 1995 1994 --------------------- --------------------- --------------------- ESTIMATED ESTIMATED ESTIMATED AMORTIZED MARKET AMORTIZED MARKET AMORTIZED MARKET COST VALUE COST VALUE COST VALUE ---------- --------- ----------- -------- --------- ---------- (DOLLARS IN THOUSANDS) Mortgage-backed and investment securities held to maturity: U.S. government and federal agency obligations ......... $ -- $ -- $ -- $ -- $ 2,979 $ 2,943 GNMA ......................... -- -- -- -- 964 906 FNMA ......................... 1,608 1,572 1,885 1,890 8,375 7,788 FHLMC ........................ 1,621 1,625 1,956 1,879 37,986 35,342 ------- ------- ------- ------- ------- ------- Total mortgage-backed and investment securities held to maturity ......... $ 3,229 $ 3,197 $ 3,841 $ 3,769 $50,304 $46,979 ======= ======= ======= ======= ======= ======= Mortgage-backed and investment securities available for sale: Collateralized mortgage obligations ................ $ 3,334 $ 3,204 $ 3,334 $ 3,156 $ 2,960 $ 3,360 U.S. government and federal agency obligations ......... 38,318 38,222 12,501 12,553 -- -- GNMA ........................ 14,391 14,105 15,261 15,244 -- -- FNMA ........................ 13,147 13,054 13,335 13,374 -- -- FHLMC ....................... 12,288 12,282 13,873 13,828 -- -- ------- ------- ------- ------- ------- ------- Total mortgage-backed and investment securities available for sale ........ $81,478 $80,867 $58,304 $58,155 $ 2,960 $ 3,360 ======= ======= ======= ======= ======= =======
11 SOURCES OF FUNDS GENERAL Deposits are the primary source of the Bank's funds for use in lending and for other general business purposes. In addition to deposits, the Bank obtains funds from advances from the FHLB-NY and other borrowings. DEPOSITS The Bank offers a variety of deposit accounts having a wide range of interest rates and terms. The Bank's deposits consist of regular savings, NOW, and money market and certificate accounts. See Note 9 to the Consolidated Financial Statements. The Bank's deposits are obtained primarily from its market area and it does not use brokers to obtain deposits. The Bank relies primarily on aggressive marketing campaigns, customer service and long-standing relationships with customers to attract and retain these deposits. The Bank pays competitive interest rates on deposits, but generally does not pay the highest interest rate among institutions in its area. The variety of deposit accounts offered by the Bank has allowed it to be competitive in its market area in obtaining funds and respond with flexibility to changes in customer demand. As certain customers have become more interest rate conscious, the Bank has become more susceptible to short-term fluctuations in deposit flows. The Bank has sought to offer various deposit and checking options offering favorable features not offered by the Bank's competitors and has marketed those products aggressively. Although the Bank's efforts to maintain and increase its volume of deposits enabled it to increase deposits in fiscal 1996, the ability of the Bank to attract and maintain those accounts will continue to be affected by market conditions. The following table presents the deposit activity of the Bank for the periods indicated:
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------ 1996 1995 1994 ------- ------- -------- (DOLLARS IN THOUSANDS) Net deposits (withdrawals) .................................. $(1,649) $ 8,002 $(13,063) Interest credited on deposit accounts ....................... 6,774 6,807 5,255 ------- ------- -------- Total increase (decrease) in deposit accounts ............... $ 5,125 $14,809 $ (7,808) ======= ======= ========
At December 31, 1996, the Bank had $7.8 million in certificate accounts in amounts of $100,000 or more maturing as follows: WEIGHTED MATURITY PERIOD AMOUNT AVERAGE RATE --------------- ------ ------------ (DOLLARS IN THOUSANDS) Three months or less ......................... $2,283 5.06% Over three through six months ................ 1,741 5.20 Over six through 12 months ................... 1,956 5.29 Over 12 months ............................... 1,838 5.67 ------ Total ........................................ $7,818 ====== 12 The following table presents, by various rate categories, the amount of certificate accounts outstanding at the dates indicated and the periods to maturity of the certificate accounts outstanding at December 31, 1996.
PERIOD TO MATURITY FROM DECEMBER 31, 1999 ----------------------------------------- MORE MORE MORE MORE LESS THAN THAN THAN THAN THAN ONE TO TWO TO THREE TO FOUR TO AT DECEMBER 31, ONE TWO THREE FOUR FIVE ----------------------- YEAR YEARS YEARS YEARS YEARS 1996 1995 1994 ------ ----- ----- ----- ----- ----- ----- ----- (DOLLARS IN THOUSANDS) Certificate accounts: 0 to 4.00% ........................ $ 331 $ -- $ -- $ -- $-- $ 331 $ 1,474 $23,578 4.01 to 5.00% ..................... 12,761 957 467 125 -- 14,310 18,028 24,832 5.01 to 6.00% ..................... 55,429 20,776 3,547 1,077 -- 80,829 44,122 20,117 6.01 to 7.00% ..................... 2,181 158 751 963 -- 4,053 31,525 3,729 7.01 to 8.00% ..................... -- -- -- -- -- -- 8 139 ------- ------- ------ ------ --- ------- ------- ------- Total ............................ $70,702 $21,891 $4,765 $2,165 $-- $99,523 $95,157 $72,395 ======= ======= ====== ====== === ======= ======= =======
BORROWINGS Although deposits are the Bank's primary source of funds, the Bank's policy has been to utilize borrowings when they are a less costly source of funds. In addition, the Bank may borrow to maintain regulatory liquidity. The Bank obtains advances from the FHLB-NY on the security of its capital stock of the FHLB-NY and certain of its mortgage loans and mortgage-backed securities. Such advances are made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. Regulations limit the amount of FHLB-NY advances to 30% of total assets without obtaining specific approval from the Board of Directors of the FHLB-NY. As of December 31, 1996, outstanding advances from the FHLB-NY amounted to $27.0 million. The following table sets forth certain information regarding the Bank's borrowed funds at or for the years ended December 31, 1996 and 1995. The Bank had no FHLB borrowings at December 31, 1994.
AT OR FOR THE YEAR AT OR FOR THE YEAR ENDED DECEMBER 31, ENDED DECEMBER 31, ------------------ ------------------ 1996 1995 (DOLLARS IN THOUSANDS) FHLB advances: Average balance outstanding .......................................... $12,417 $2,646 Maximum amount outstanding at any month-end during the period ................................................... 27,000 6,000 Balance outstanding at end of period ................................. 27,000 2,000 Weighted average interest rate during the period ..................... 6.52% 6.53%
SUBSIDIARIES The Bank has three wholly-owned subsidiaries, Wayne Savings Financial Services Group, Inc., Wayne Savings Asset Management Corporation and 2300 Corp. Financial Services, which began operation in November 1989, markets, as a broker, financial products to the customers of the Bank and the general public. The products offered include annuities, life insurance, disability insurance, group life insurance, stock, bonds and mutual funds, financial planning, estate planning, asset management and allocation services. Richard Len, a director of the Bank and the Company, serves as Chairman of Financial Services and Asset Management. Neither Asset Management nor 2300 Corp. has conducted any activities to date. PERSONNEL As of December 31, 1996, the Bank, including Financial Services, had 46 full-time and 11 part-time employees. The employees are not represented by a collective bargaining unit, and the Bank considers its relationship with its employees to be good. REGULATION AND SUPERVISION GENERAL The activities of savings institutions, such as the Bank, are governed by the Home Owners' Loan Act, as amended ("HOLA") and the Federal Deposit Insurance Act ("FDI Act"). The Bank is subject to extensive 13 regulation, examination and supervision by the OTS, as its primary federal regulator, and the FDIC, as the deposit insurer. The Bank is a member of the Federal Home Loan Bank ("FHLB") System and its deposit accounts are insured up to applicable limits by the Savings Association Insurance Fund ("SAIF") managed by the FDIC. The Bank must file reports with the OTS concerning its activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other savings institutions. The OTS and/or the FDIC conduct periodic examinations to test the Bank's safety and soundness and compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulatory requirements and policies, whether by the OTS, the FDIC or the Congress, could have a material adverse impact on the Bank and its operations. Certain of the regulatory requirements applicable to the Bank are referred to below or elsewhere herein. The description of statutory provisions and regulations applicable to savings institutions set forth in this Form 10-K does not purport to be a complete description of such statutes and regulations and their effects on the Bank. FEDERAL SAVINGS INSTITUTION REGULATION Capital Requirements. The OTS capital regulations require savings institutions to meet three minimum capital standards: a 1.5% tangible capital ratio, a 3% leverage (core) capital ratio and an 8% risk-based capital ratio. In addition, the prompt corrective action standards discussed below also establish, in effect, a minimum 2% tangible capital standard, a 4% leverage (core) capital ratio (3% for institutions receiving the highest rating on the CAMEL financial institution rating system), and, together with the risk-based capital standard itself, a 4% Tier I risk-based capital standard. Core capital is defined as common stockholders' equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus, and minority interests in equity accounts of consolidated subsidiaries less intangibles other than certain purchased mortgage servicing rights and credit card relationships. The OTS regulations also require that, in meeting the tangible, leverage (core) and risk-based capital standards, institutions must generally deduct investments in and loans to subsidiaries engaged in activities not permissible for a national bank. The risk-based capital standard for savings institutions requires the maintenance of Tier I (core) and total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100%, as assigned by the OTS capital regulation based on the risks OTS believes are inherent in the type of asset. The components of Tier I (core) capital are equivalent to those discussed earlier. The components of supplementary capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock and the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital. The OTS regulatory capital requirements also incorporate an interest rate risk component. Savings institutions with "above normal" interest rate risk exposure are subject to a deduction from total capital for purposes of calculating their risk-based capital requirements. A savings institution's interest rate risk is measured by the decline in the net portfolio value of its assets (i.e., the difference between incoming and outgoing discounted cash flows from assets, liabilities and off-balance sheet contracts) that would result from a hypothetical 200 basis point increase or decrease in market interest rates divided by the estimated economic value of the institution's assets. In calculating its total capital under the risk-based capital rule, a savings institution whose measured interest rate risk exposure exceeds 2% must deduct an amount equal to one-half of the difference between the institution's measured interest rate risk and 2%, multiplied by the estimated economic value of the institution's assets. The Director of the OTS may waive or defer a savings institution's interest rate risk component on a case-by-case basis. A savings institution with assets of less than $300 million and risk-based capital ratios in excess of 12% is not subject to the interest rate risk component, unless the OTS determines otherwise. For the present time, the OTS has deferred implementation of the interest rate risk component. At December 31, 1996, the Bank met each of its capital requirements, in each case on a fully phased-in basis and it is anticipated that the Bank will not be subject to the interest rate risk component. 14 Prompt Corrective Regulatory Action. Under the OTS prompt corrective action regulations, the OTS is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution's degree of undercapitalization. Generally, a savings institution is considered "well capitalized" if its ratio of total capital to risk-weighted assets is at least 10%, its ratio of Tier I (core) capital to risk-weighted assets is at least 6%, its ratio of core capital to total assets is at least 5%, and it is not subject to any order or directive by the OTS to meet a specific capital level. A savings institution generally is considered "adequately capitalized" if its ratio of total capital to risk-weighted assets is at least 8%, its ratio of Tier I (core) capital to risk-weighted assets is at least 4%, and its ratio of core capital to total assets is at least 4% (3% if the institution receives the highest CAMEL rating). A savings institution that has a ratio of total capital to risk weighted assets of less than 8%, a ratio of Tier I (core) capital to risk-weighted assets of less than 4% or a ratio of core capital to total assets of less than 4% (3% or less for institutions with the highest examination rating) is considered to be "undercapitalized." A savings institution that has a total risk-based capital ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be "significantly undercapitalized" and a savings institution that has a tangible capital to assets ratio equal to or less than 2% is deemed to be "critically undercapitalized." Subject to a narrow exception, the banking regulator is required to appoint a receiver or conservator for an institution that is "critically undercapitalized." The regulation also provides that a capital restoration plan must be filed with the OTS within 45 days of the date a savings institution receives notice that it is "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." Compliance with the plan must be guaranteed by any parent holding company. In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. The OTS could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors. Insurance of Deposit Accounts. Deposits of the Bank are presently insured by the SAIF. Both the SAIF and the Bank Insurance Fund ("BIF"), (the deposit insurance fund that covers most commercial bank deposits), are statutorily required to be recapitalized to a 1.25% of insured reserve deposits ratio. Until recently, members of the SAIF and BIF were paying average deposit insurance premiums of between 24 and 25 basis points. The BIF met the required reserve in 1995, whereas the SAIF was not expected to meet or exceed the required level until 2002 at the earliest. This situation was primarily due to the statutory requirement that SAIF members make payments on bonds issued in the late 1980s by the Financing Corporation ("FICO") to recapitalize the predecessor to the SAIF. In view of the BIF's achieving the 1.25% ratio, the FDIC ultimately adopted a new assessment rate schedule of from 0 to 27 basis points under which 92% of BIF members paid an annual premium of only $2,000. With respect to SAIF member institutions, the FDIC adopted a final rule retaining the previously existing assessment rate schedule applicable to SAIF member institutions of 23 to 31 basis points. As long as the premium differential continued, it may have had adverse consequences for SAIF members, including reduced earnings and an impaired ability to raise funds in the capital markets. In addition, SAIF members, such as the Bank were placed at a substantial competitive disadvantage to BIF members with respect to pricing of loans and deposits and the ability to achieve lower operating costs. On September 30, 1996, the President signed into law the Deposit Insurance Funds Act of 1996 (the "Funds Act") which, among other things, imposed a special one-time assessment on SAIF member institutions, including the Bank, to recapitalize the SAIF. As required by the Funds Act, the FDIC imposed a special assessment of 65.7 basis points on SAIF assessable deposits held as of March 31, 1995, payable November 27, 1996 (the "SAIF Special Assessment"). The SAIF Special Assessment was recognized by the Bank as an expense in the quarter ended September 30, 1996 and is generally tax deductible. The SAIF Special Assessment recorded by the Bank amounted to $1.0 million on a pre-tax basis and $660,000 on an after-tax basis. The Funds Act also spreads the obligations for payment of the FICO bonds across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits will be assessed for FICO payment of 1.3 basis points, while SAIF deposits will pay 6.48 basis points. Full pro rata sharing of the FICO payments between BIF and SAIF members will occur on the earlier of January 1, 2000 or the date the BIF and SAIF are merged. The Funds Act specifies that the BIF and SAIF will be merged on January 1, 1999, provided no savings associations remain as of that time. As a result of the Funds Act, the FDIC recently voted to effectively lower SAIF assessments to 0 to 27 basis points as of January 1, 1997, a range comparable to that of BIF members. SAIF members will also continue to make the FICO payments described above. The FDIC also lowered the SAIF assessment schedule for the fourth quarter of 15 1996 to 18 to 27 basis points. Management cannot predict the level of FDIC insurance assessments on an on-going basis, whether the savings association charter will be eliminated or whether the BIF and SAIF will eventually be merged. The Bank's assessment rate for calendar year 1996 was 23 basis points and the premium paid for this period was $393,000. A significant increase in SAIF insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Bank. Under the FDI Act, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the OTS. The management of the Bank does not know of any practice, condition or violation that might lead to termination of deposit insurance. Thrift Rechartering Legislation. The Funds Act provides that the BIF and SAIF will merge on January 1, 1999 if there are no more savings associations as of that date. That legislation also requires that the Department of Treasury submit a report to Congress by March 31, 1997 that makes recommendations regarding a common financial institutions charter, including whether the separate charters for thrifts and banks should be abolished. Various proposals to eliminate the federal thrift charter, create a uniform financial institutions charter and abolish the OTS have been introduced in Congress. The bills would require federal savings institutions to convert to a national bank or some type of state charter by a specified date (January 1, 1998 in one bill, June 30, 1998 in the other) or they would automatically become national banks. Converted federal thrifts would generally be required to conform their activities to those permitted for the charter selected and divestiture of nonconforming assets would be required over a two year period, subject to two possible one year extensions. State chartered thrifts would become subject to the same federal regulation as applies to state commercial banks. Holding companies for savings institutions would become subject to the same regulation as holding companies that control commercial banks, with a limited grandfather provision for unitary savings and loan holding company activities. The Bank is unable to predict whether such legislation would be enacted, the extent to which the legislation would restrict or disrupt its operations or whether the BIF and SAIF funds will eventually merge. Loans to One Borrower. Under the HOLA, savings institutions are generally subject to the limits on loans to one borrower applicable to national banks. Generally, savings institutions may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if such loan is secured by readily-marketable collateral, which is defined to include certain financial instruments and bullion. At December 31, 1996, the Bank's limit on loans to one borrower was $4.2 million. At December 31, 1996, the Bank's largest aggregate outstanding balance of loans to one borrower was $2.2 million. QTL Test. The HOLA requires savings institutions to meet a QTL test. Under the QTL test, a savings and loan association is required to maintain at least 65% of its "portfolio assets" (total assets less: (i) specified liquid assets up to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the value of property used to conduct business) in certain "qualified thrift investments" (primarily residential mortgages and related investments, including certain mortgage-backed securities) in at least 9 months out of each 12 month period. A savings institution that fails the QTL test is subject to certain operating restrictions and may be required to convert to a bank charter. As of December 31, 1996, the Bank maintained 79.2% of its portfolio assets in qualified thrift investments and, therefore, met the QTL test. Limitation on Capital Distributions. OTS regulations impose limitations upon all capital distributions by savings institutions, such as cash dividends, payments to repurchase or otherwise acquire its shares, payments to shareholders of another institution in a cash-out merger and other distributions charged against capital. The rule establishes three tiers of institutions, which are based primarily on an institution's capital level. An institution that exceeds all fully phased-in capital requirements before and after a proposed capital distribution ("Tier 1 Bank") and has not been advised by the OTS that it is in need of more than normal supervision, could, after prior notice but without obtaining approval of the OTS, make capital distributions during a calendar year equal to the greater of (i) 100% of its net earnings to date during the calendar year plus the amount that would reduce by one-half its "surplus capital ratio" (the excess capital over its fully phased-in capital requirements) at the beginning of the calendar year or (ii) 75% of its net income for the previous four quarters. Any additional capital distributions would require prior regulatory approval. In the event the Bank's capital fell below its regulatory requirements or the OTS notified it that it was in 16 need of more than normal supervision, the Bank's ability to make capital distributions could be restricted. In addition, the OTS could prohibit a proposed capital distribution by any institution, which would otherwise be permitted by the regulation, if the OTS determines that such distribution would constitute an unsafe or unsound practice. In December 1994, the OTS proposed amendments to its capital distribution regulation that would generally authorize the payment of capital distributions without OTS approval provided that the payment does not cause the institution to be undercapitalized within the meaning of the prompt corrective action regulation. However, institutions in a holding company structure would still have a prior notice requirement. At December 31, 1996, the Bank was a Tier 1 Bank. Liquidity. The Bank is required to maintain an average daily balance of specified liquid assets equal to a monthly average of not less than a specified percentage of its net withdrawable deposit accounts plus short-term borrowings. This liquidity requirement is currently 5% but may be changed from time to time by the OTS to any amount within the range of 4% to 10% depending upon economic conditions and the savings flows of member institutions. OTS regulations also require each member savings institution to maintain an average daily balance of short-term liquid assets at a specified percentage (currently 1%) of the total of its net withdrawable deposit accounts and borrowings payable in one year or less. Monetary penalties may be imposed for failure to meet these liquidity requirements. The Bank's liquidity and short-term liquidity ratios for December 31, 1996 were 3.9% and 7.4% respectively, which exceeded the applicable requirements. The Bank has never been subject to monetary penalties for failure to meet its liquidity requirements. Assessments. Savings institutions are required to pay assessments to the OTS to fund the agency's operations. The general assessments, paid on a semi-annual basis, are computed upon the savings institution's total assets, including consolidated subsidiaries, as reported in the Bank's latest quarterly thrift financial report. The assessments paid by the Bank for the calendar year ended December 31, 1996 totalled $57,000. Branching. OTS regulations permit nationwide branching by federally chartered savings institutions to the extent allowed by federal statute. This permits federal savings institutions to establish interstate networks and to geographically diversify their loan portfolios and lines of business. The OTS authority preempts any state law purporting to regulate branching by federal savings institutions. Transactions with Related Parties. The Bank's authority to engage in transactions with related parties or "affiliates" (e.g., any company that controls or is under common control with an institution) is limited by Sections 23A and 23B of the Federal Reserve Act ("FRA"). Section 23A limits the aggregate amount of covered transactions with any individual affiliate to 10% of the capital and surplus of the savings institution. The aggregate amount of covered transactions with all affiliates is limited to 20% of the savings institution's capital and surplus. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type described in Section 23A and the purchase of low quality assets from affiliates is generally prohibited. Section 23B generally provides that certain transactions with affiliates, including loans and asset purchases, must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated companies. In addition, savings institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies and no savings institution may purchase the securities of any affiliate other than a subsidiary. The Bank's authority to extend credit to executive officers, directors and 10% shareholders ("insiders"), as well as entities such persons control, is governed by Sections 22(g) and 22(h) of the FRA and Regulation O thereunder. Among other things, such loans are required to be made on terms substantially the same as those offered to unaffiliated individuals and to not involve more than the normal risk of repayment. Recent legislation created an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. Regulation O also places individual and aggregate limits on the amount of loans the Bank may make to insiders based, in part, on the Bank's capital position and requires certain board approval procedures to be followed. Enforcement. Under the FDI Act, the OTS has primary enforcement responsibility over savings institutions and has the authority to bring actions against the institution and all institution-affiliated parties, including stockholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors to institution of receivership, conservatorship or termination of deposit insurance. Civil penalties cover a wide range of violations and 17 can amount to $25,000 per day, or even $1 million per day in especially egregious cases. Under the FDI Act, the FDIC has the authority to recommend to the Director of the OTS enforcement action to be taken with respect to a particular savings institution. If action is not taken by the Director, the FDIC has authority to take such action under certain circumstances. Federal law also establishes criminal penalties for certain violations. Standards for Safety and Soundness. The federal banking agencies have adopted Interagency Guidelines Prescribing Standards for Safety and Soundness ("Guidelines") and a final rule to implement safety and soundness standards required under the FDI Act. The Guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The standards set forth in the Guidelines address internal controls and information systems; internal audit system; credit underwriting; loan documentation; interest rate risk exposure; asset growth; and compensation, fees and benefits. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the Guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard, as required by the FDI Act. The final rule establishes deadlines for the submission and review of such safety and soundness compliance plans when such plans are required. FEDERAL RESERVE SYSTEM The Federal Reserve Board regulations require savings institutions to maintain non-interest earning reserves against their transaction accounts (primarily NOW and regular checking accounts). During fiscal 1996, the Federal Reserve Board regulations generally required that reserves be maintained against aggregate transaction accounts as follows: for accounts aggregating $52.0 million or less (subject to adjustment by the Federal Reserve Board) the reserve requirement is 3%; and for accounts aggregating greater than $52.0 million, the reserve requirement is $1.6 million plus 10% (subject to adjustment by the Federal Reserve Board between 8% and 14%) against that portion of total transaction accounts in excess of $52.0 million. The first $4.3 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) were exempted from the reserve requirements. The Bank is in compliance with the foregoing requirements. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy liquidity requirements imposed by the OTS. FEDERAL AND STATE TAXATION FEDERAL TAXATION General. The Bank reports its income on a consolidated basis and uses the accrual method of accounting, and is subject to federal income taxation in the same manner as other corporations with some exceptions, including particularly the Bank's reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Bank. Bad Debt Reserves. For years beginning prior to December 31, 1995, thrift institutions which qualified under certain definitional tests and other conditions of the Internal Revenue Code of 1986 (the "Code") were permitted to use certain favorable provisions to calculate their deductions from taxable income for annual additions to their bad debt reserve. A reserve could be established for bad debts on qualifying real property loans (generally secured by interests in real property improved or to be improved) under (i) the Percentage of Taxable Income Method (the "PTI Method") or (ii) the Experience Method. The reserve for nonqualifying loans was computed using the Experience Method. The Small Business Job Protection Act of 1996 (the "1996 Act"), which was enacted on August 20, 1996, requires savings institutions to recapture (i.e., take into taxable income) certain portions of their accumulated bad debt reserves. The 1996 Act repeals the reserve method of accounting for bad debts effective for tax years beginning after 1995. Thrift institutions that would be treated as small banks are allowed to utilize the Experience Method applicable to such institutions, while thrift institutions that are treated as large banks (those generally exceeding $500 million in assets) are required to use only the specific charge-off method. Thus, the PTI Method of accounting for bad debts is no longer available for any financial institution. A thrift institution required to change its method of computing reserves for bad debts will treat such change as a change in method of accounting, initiated by the taxpayer, and having been made with the consent of the IRS. Any Section 481(a) adjustment required to be taken into income with respect to such change generally will be taken into taxable income ratably over a six-taxable year period, beginning with the first taxable year beginning after 1995, subject to the residential loan requirement. 18 Under the residential loan requirement provision, the recapture required by the 1996 Act will be suspended for each of two successive taxable years, beginning with the Bank's current taxable year, in which the Bank originates a minimum of certain residential loans based upon the average of the principal amounts of such loans made by the Bank during its six taxable years preceding its current taxable year. Under the 1996 Act, for its current and future taxable years, the Bank is permitted to make additions to its tax bad debt reserves. In addition, the Bank is required to recapture (i.e., take into income) over a six year period the excess of the balance of its tax bad debt reserves as of December 31, 1995 other than its supplemental reserve for losses on loans, if any over the balance of such reserves as of December 31, 1987. As a result of such recapture, the Bank will pay a tax liability of approximately $317,000. Distributions. Under the 1996 Act, if the Bank makes "non-dividend distributions" to shareholders, such distributions will be considered to have been made from the Bank's unrecaptured tax bad debt reserves (including the balance of its reserves as of December 31, 1987) to the extent thereof, and then from the Bank's supplemental reserve for losses on loans, to the extent thereof, and an amount based on the amount distributed (but not in excess of the amount of such reserves) will be included in the Bank's income. Non-dividend distributions include distributions in excess of the Bank's current and accumulated earnings and profits, as calculated for federal income tax purposes, distributions in redemption of stock, and distributions in partial or complete liquidation. Dividends paid out of the Bank's current or accumulated earnings and profits will not be so included in the Bank's income. The amount of additional taxable income triggered by a non-dividend is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Thus, if the Bank makes a non-dividend distribution to shareholders, approximately one and one-half times the amount of such distribution (but not in excess of the amount of such reserves) would be includable in income for federal income tax purposes, assuming a 35% federal corporate income tax rate. The Bank does not intend to pay dividends that would result in a recapture of any portion of its bad debt reserves. SAIF Recapitalization Assessment. The Funds Act levied a 65.7-cent fee on every $100 of thrift deposits held on March 31, 1995. For financial statement purposes, this assessment was reported as an expense for the quarter ended September 30, 1996. The Funds Act includes a provision which states that the amount of any special assessment paid to capitalize SAIF under this legislation is deductible under Section 162 of the Code in the year of payment. STATE AND LOCAL TAXATION New Jersey Taxation. The Bank files New Jersey income tax returns. For New Jersey income tax purposes, savings institutions are presently taxed at a rate equal to 3% of taxable income. For this purpose, "taxable income" generally means federal taxable income, subject to certain adjustments (including addition of interest income on State and municipal obligations). Delaware Taxation. As a Delaware holding company not earning income in Delaware, the Company is exempted from Delaware corporate income tax but is required to file an annual report with and pay an annual franchise tax to the State of Delaware. 19 ADDITIONAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT. The following table sets forth certain information regarding the executive officers of the Company and Bank who are not directors.
NAME AGE(1) POSITION(S) HELD WITH THE BANK ---- ------ ------------------------------ Michael G. DeBenedette 46 Executive Vice President, Chief Operating Officer and Corporate Secretary since March 1988. Timothy P. Tierney 54 Vice President and Chief Financial Officer since September 1994. Prior to that he was Vice President and Controller of Crestmont Federal Savings and Loan Association. POSITION(S) HELD WITH WAYNE SAVINGS FINANCIAL SERVICES GROUP, INC. ------------------------------------------------------------------ Gary Len 36 President, Chief Operating Officer since October 1996. Prior to that he was Vice President since November 1989. - --------------------
(1) As of December 31, 1996. ITEM 2. PROPERTIES. The Bank conducts its business through four branch offices and one administrative office, all of which are located in Passaic County, New Jersey. The following table sets forth information relating to each of the Bank's offices and other properties as of December 31, 1996. The total net book value of the Bank's premises and equipment at December 31, 1996 was $3.2 million.
ORIGINAL NET BOOK VALUE YEAR OF PROPERTY OR LEASED LEASED DATE OF LEASEHOLD OR OR LEASE IMPROVEMENTS LOCATION OWNED ACQUIRED EXPIRATION DECEMBER 31, 1996 -------- ------- -------- ---------- ----------------- ADMINISTRATIVE OFFICE: 1195 Hamburg Turnpike Wayne, New Jersey ............................... Owned 1988 -- $2,755,372 BRANCH OFFICES: 1501 Hamburg Turnpike Wayne, New Jersey ............................... Leased 1992 2001 15,513 1504 Route 23 (Packanack Shopping Center) Wayne, New Jersey ............................... Leased 1959 2002 133,063 Valley Ridge Shopping Center Valley Road at Preakness Avenue Wayne, New Jersey ............................... Leased 1971 2000 120,712 5 Sicomac Avenue North Haledon, New Jersey ....................... Leased 1992 2024 22,110 OTHER PROPERTIES: 1255 Hamburg Turnpike Wayne, New Jersey ............................... Owned 1962(1) -- 149,434
- -------------------- (1) This property was acquired by the Bank to serve as the Bank's main office. The Bank began building on the property in 1962 and used that facility until 1992. The property is currently being leased to a third party. ITEM 3. LEGAL PROCEEDINGS. Neither the Company nor its subsidiary are involved in any pending legal proceedings, other than routine legal proceedings occurring in the ordinary course of business, which involve amounts which, in the aggregate, are believed by management to be immaterial to the financial condition or results of operations of the Company. 20 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On February 25, 1997 stockholders approved the adoption of the Wayne Bancorp, Inc. Incentive Stock Based Compensation Plan. Following is the results of the voting: For .............................. 1,404,314 Against .......................... 598,243 Abstained ........................ 11,975 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS' MATTERS. Information relating to the market for Registrant's common equity and related stockholder matter appears under "Stockholder Information" in the Registrant's 1996 Annual Report to Stockholders on page 37 and is incorporated herein by reference. On March 11, 1997, the Company had 554 registered stockholders. ITEM 6. SELECTED FINANCIAL DATA. The above captioned information appears under "Selected Financial Data" in the Registrant's 1996 Annual Report to Stockholders on page 2 and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The above captioned information appears under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrant's 1996 Annual Report to Stockholders on pages 3 through 11 and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Consolidated Financial Statements of Wayne Bancorp, Inc. and Subsidiary, together with the report thereon by KPMG Peat Marwick LLP appears in the Registrant's 1996 Annual Report to Stockholders on pages 12 through 36 and are incorporated herein by reference. ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information relating to Directors and Executive Officers of the Registrant is incorporated herein by reference to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on April 30, 1997 at pages 6 through 8. Information concerning Executive Officers who are not directors is contained in Part I of this report pursuant to paragraph (b) of Item 401 of Regulation S-K in reliance on Instruction G. ITEM 11. EXECUTIVE COMPENSATION. The information relating to Director and Executive Compensation is incorporated herein by reference to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on April 30, 1997 at pages 10 through 20, (excluding the Compensation Committee Report and the Stock Performance Graph). ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information relating to Security Ownership of Certain Beneficial Owners and Management of the Registrant is incorporated herein by reference to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on April 30, 1997 at pages 3 through 4. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information relating to Certain Relationships and Related Transactions of the Registrant is incorporated herein by reference to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on April 30, 1997 at page 20. 21 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) The following documents are filed as a part of this report: (1) Consolidated Financial Statements of the Company are incorporated by reference to the following indicated pages of the 1996 Annual Report to Stockholders:
PAGE ---- Independent Auditors' Report ............................................................................. 36 Consolidated Statements of Financial Condition as of December 31, 1996 and 1995 .......................... 12 Consolidated Statements of Income for the Years Ended December 31, 1996, 1995 and 1994 ................... 13 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994 ........................................................................................... 14 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 ............... 15 Notes to Consolidated Financial Statements ............................................................... 17
The remaining information appearing in the Annual Report to Stockholders is not deemed to be filed as part of this report, except as expressly provided herein. (2) All schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated financial statements or the notes thereto. (3) Exhibits (a) The following exhibits are filed as part of this report. 3.1 Restated Certificate of Incorporation of Wayne Bancorp, Inc. * 3.2 Bylaws of Wayne Bancorp, Inc. * 4.0 Stock Certificate of Wayne Bancorp, Inc. * 10.1 Employment Agreement between Wayne Bancorp, Inc. and Johanna O'Connell 10.2 Employment Agreement between Wayne Savings Bank, F.S.B. and Johanna O'Connell 10.3 Change in Control Agreement between Wayne Bancorp, Inc. and Michael G. DeBenedette 10.4 Change in Control Agreement between Wayne Savings Bank, F.S.B. and Michael G. DeBenedette 10.5 Change in Control Agreement between Wayne Bancorp, Inc. and Timothy P. Tierney 10.6 Change in Control Agreement between Wayne Savings Bank, F.S.B. and Timothy P. Tierney 10.7 Employment Agreement between Wayne Savings Financial Services Group, Inc. and Gary Len 10.8 Change in Control Agreement between Wayne Savings Financial Services Group, Inc. and Richard Len 10.9 Employee Severance Compensation Plan* 10.10 Employee Stock Ownership Plan* 10.11 Incentive Stock Plan** 11.0 Earnings Per Share Computation 13.0 1996 Annual Report 21.0 Subsidiaries--See "Part I--Subsidiaries," which information is incorporated by reference 27.0 Financial Data Schedule 29.0 Proxy Statement for 1997 Annual Meeting (b) Reports on Form 8-K A report on form 8-K was filed with the Securities and Exchange Commission on September 6, 1996 under commission file number 00-20691, stating in summary that Johanna O'Connell had assumed the responsibilities of President of the Company and Harold P. Cook, III assumed the responsibilities of CEO and also announced was the resignation of William Vanderberg. - ----------------- * Incorporated herein by reference to the Exhibits to Form S-1 Registration Statement, as amended, filed on March 18, 1996 Registration Number 333-2488 and declared effective May 13, 1996. ** Incorporated herein by reference to the Proxy Statement for the Special Meeting of Stockholders filed on December 9, 1996. 22 Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WAYNE BANCORP, INC. By /s/ HAROLD P. COOK, III ---------------------------------- Harold P. Cook, III Chairman of The Board and CEO Dated: March 11, 1997 Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ HAROLD P. COOK, III Chairman of the Board, CEO - ------------------------------------ and Director March 11, 1997 (Harold P. Cook, III) (Principal Executive Officer) /s/ JOHANNA O'CONNELL President and Director March 11, 1997 - ------------------------------------ (Johanna O'Connell) /s/ WILLIAM J. LLOYD Director March 11, 1997 - ------------------------------------ (William J. Lloyd) /s/ DAVID M. COLLINS Director March 11, 1997 - ------------------------------------ (David M. Collins) /s/ THOMAS D. COLLINS Director March 11, 1997 - ------------------------------------ (Thomas D. Collins) /s/ NICHOLAS S. GENTILE, JR. Director March 11,1997 - ------------------------------------ (Nicholas S. Gentile, Jr.) /s/ RONALD HIGGINS Director March 11, 1997 - ------------------------------------ (Ronald Higgins) /s/ RICHARD LEN Director March 11, 1997 - ------------------------------------ (Richard Len) /s/ CHARLES LOTA Director March 11, 1997 - ------------------------------------ (Charles Lota) /s/ TIMOTHY P. TIERNEY V.P. and Comptroller March 11, 1997 - ------------------------------------ (Principal Financial Officer) (Timothy P. Tierney) 23
EX-10.1 2 WAYNE BANCORP-EMPLOYMENT AGREEMENT WAYNE BANCORP, INC. EMPLOYMENT AGREEMENT This AGREEMENT ("Agreement") is made effective as of _________________, by and between Wayne Bancorp, Inc. (the "Holding Company"), a corporation organized under the laws of Delaware, with its principal administrative office at 1195 Hamburg Turnpike, Wayne, New Jersey and Johanna O'Connell (the "Executive"). Any reference to "Institution" herein shall mean Wayne Savings Bank, F.S.B. or any successor thereto. WHEREAS, the Holding Company wishes to assure itself of the services of Executive for the period provided in this Agreement; and WHEREAS, the Executive is willing to serve in the employ of the Holding Company on a full-time basis for said period. NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows: 1. POSITION AND RESPONSIBILITIES. During the period of Executive's employment hereunder, Executive agrees to serve as President of the Holding Company. The Executive shall render administrative and management services to the Holding Company such as are customarily performed by persons in a similar executive capacity and such duties as are from time to time assigned to her by the Board of Directors. During said period, Executive also agrees to serve, if elected, as an officer and director of any subsidiary of the Holding Company; provided that, Executive shall only serve as a director of the Holding Company and Institution so long as Executive continues to serve full-time as the President of the Holding Company and President and Chief Executive Officer of the Institution. 2. TERMS AND DUTIES. (a) The period of Executive's employment under this Agreement shall be deemed to have commenced as of the date first above written and shall continue for a period of thirty-six (36) full calendar months thereafter. Commencing on the date of the execution of this Agreement, the term of this Agreement shall be extended for one day each day until such time as the Board of Directors of the Holding Company (the "Board") or Executive elects not to extend the term of the Agreement by giving written notice to the other party in accordance with Section 8 of this Agreement, in which case the term of this Agreement shall be fixed and shall end on the third anniversary of the date of such written notice. (b) During the period of Executive's employment hereunder, except for periods of absence occasioned by illness, reasonable vacation periods, and reasonable leaves of absence, Executive shall devote substantially all her business time, attention, skill, and efforts to the faithful performance of her duties hereunder including activities and services related to the organization, operation and management of the Holding Company and its direct or indirect subsidiaries ("Subsidiaries"), including the Institution and Wayne Savings Financial Services Group, Inc. ("Financial Services"), and participation in community and civic organizations; provided, however, that, with the approval of the Board, as evidenced by a resolution of such Board, from time to time, Executive may serve, or continue to serve, on the boards of directors of, and hold any other offices or positions in, companies or organizations, which, in such Board's judgment, will not present any conflict of interest with the Holding Company or its Subsidiaries, or materially affect the performance of Executive's duties pursuant to this Agreement. (c) Notwithstanding anything herein contained to the contrary, Executive's employment with the Holding Company may be terminated by the Holding Company or Executive during the term of this Agreement, subject to the terms and conditions of this Agreement. However, Executive shall not perform, in any respect, directly or indirectly, during the pendency of her temporary or permanent suspension or termination from the Holding Company, duties or responsibilities formerly performed at the Holding Company, or the Institution as part of her duties and responsibilities as President. 3. COMPENSATION AND REIMBURSEMENT. (a) The Executive shall be entitled to a salary from the Holding Company or its Subsidiaries of not less than $125,000 per year ("Base Salary"). Base Salary shall include any amounts of compensation deferred by Executive under any qualified or unqualified plan maintained by the Holding Company and its Subsidiaries. Such Base Salary shall be payable bi-weekly. During the period of this Agreement, Executive's Base Salary shall be reviewed at least annually; the first such review will be made no later than one year from the date of this Agreement. Such review shall be conducted by the Board or by a Committee of the Board delegated such responsibility by the Board. The Board may by resolution increase Executive's Base Salary. Any increase in Base Salary shall become the "Base Salary" for purposes of this Agreement. In addition to the Base Salary provided in this Section 3(a), the Holding Company shall also provide Executive, at no premium cost to Executive, with all such other benefits as provided uniformly to permanent full-time employees of the Holding Company and its Subsidiaries. (b) The Executive shall be entitled to participate in any employee benefit plans, arrangements and perquisites substantially equivalent to those in which Executive was participating or otherwise deriving benefit from immediately prior to the beginning of the term of this Agreement, and the Holding Company and its Subsidiaries will not, without Executive's prior written consent, make any changes in such plans, arrangements or perquisites which would materially adversely affect Executive's rights or benefits thereunder, except to the extent that such changes are made applicable to all Holding Company employees eligible to participate in such plans, arrangements and perquisites on a non-discriminatory basis. Without limiting the generality of the foregoing provisions of this Subsection (b), Executive shall be entitled to participate in or receive benefits under any employee benefit plans including, but not limited to, retirement plans, supplemental retirement plans, pension plans, profit-sharing plans, health-and-accident plans, medical coverage or any other employee benefit plan or arrangement 2 made available by the Holding Company and its Subsidiaries in the future to its senior executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Executive shall be entitled to incentive compensation and bonuses as provided in any plan of the Holding Company and its Subsidiaries in which Executive is eligible to participate. Nothing paid to the Executive under any such plan or arrangement will be deemed to be in lieu of other compensation to which the Executive is entitled under this Agreement. (c) In addition to the Base Salary provided for by paragraph (a) of this Section 3 and other compensation provided for by paragraph (b) of this Section 3, the Holding Company shall pay or reimburse Executive for all reasonable travel and other reasonable expenses incurred in the performance of Executive's obligations under this Agreement and may provide such additional compensation in such form and such amounts as the Board may from time to time determine. 4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION. (a) Upon the occurrence of an Event of Termination (as herein defined) during the Executive's term of employment under this Agreement, the provisions of this Section shall apply. As used in this Agreement, an "Event of Termination" shall mean and include any one or more of the following: (i) the termination by the Holding Company of Executive's full-time employment hereunder for any reason other than termination governed by Section 5(a) hereof, or for Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the Holding Company's employ upon any (A) failure on the part of the Holding Company to appoint Executive as President, (B) a material change in Executive's function, duties, or responsibilities with the Holding Company or its Subsidiaries, which change would cause Executive's position to become one of lesser responsibility, importance, or scope from the position and attributes thereof described in Section 1, above, coupled with a material reduction in the benefits and perquisites being provided to Executive immediately preceding the change in Executive's functions, duties or responsibilities unless consented to by the Executive, (C) a relocation of Executive's principal place of employment by more than 15 miles from its location at the effective date of this Agreement, unless consented to by the Executive, (D) a material reduction in the benefits and perquisites to the Executive from those being provided as of the effective date of this Agreement, unless consented to by the Executive, (E) a liquidation or dissolution of the Holding Company or its Subsidiaries, or (F) breach of this Agreement by the Holding Company. Upon the occurrence of any event described in clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have the right to elect to terminate her employment under this Agreement by resignation upon not less than sixty (60) days prior written notice given within six full calendar months after the event giving rise to said right to elect. (b) Upon the occurrence of an Event of Termination, on the Date of Termination, as defined in Section 8, the Holding Company shall be obligated to pay Executive, or, in the event of her subsequent death, her beneficiary or beneficiaries, or her estate, as the case may be, a sum equal to the sum of: (i) the amount of the remaining payments that the Executive would have earned if she had continued her employment with the Holding Company during the remaining term of this Agreement at the Executive's Base Salary at the Date of Termination; and (ii) the 3 amount equal to the annual contributions that would have been made on Executive's behalf to any employee benefit plans of the Holding Company or its Subsidiaries during the remaining term of this Agreement based on contributions made (on an annualized basis) at the Date of Termination, provided, however that any payments pursuant to this subsection and subsection (c) below shall not, in the aggregate, exceed three times Executive's average annual compensation for the five most recent taxable years that Executive has been employed by the Holding Company or such lesser number of years in the event Executive has been employed by the Holding Company for less than five years. At the election of the Executive, which election is to be made prior to an Event of Termination, such payments shall be made in a lump sum. In the event that no election is made, payment to the Executive will be made on a monthly basis in approximately equal installments during the remaining term of the Agreement. Such payments shall not be reduced in the event the Executive obtains other employment following termination of employment. (c) Upon the occurrence of an Event of Termination, the Holding Company will cause to be continued life, medical, and disability coverage substantially equivalent to the coverage maintained by the Holding Company or its Subsidiaries for Executive prior to her termination at no premium cost to the Executive. Such coverage shall cease upon the expiration of the remaining term of this Agreement. 5. CHANGE IN CONTROL. (a) For purposes of this Agreement, a "Change in Control" of the Holding Company or its Subsidiaries shall mean an event of a nature that; (i) would be required to be reported in response to Item 1(a) of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in Control of the Holding Company or its Subsidiaries within the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act, and the Rules and Regulations promulgated by the Office of Thrift Supervision (or its predecessor agency), as in effect on the date hereof (provided, that in applying the definition of change in control as set forth under the rules and regulations of the OTS, the Board shall substitute its judgment for that of the OTS); or (iii) without limitation such a Change in Control shall be deemed to have occurred at such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of voting securities of the Institution or the Holding Company representing 20% or more of the Institution's or the Holding Company's outstanding voting securities or right to acquire such securities except for any voting securities of the Institution purchased by the Holding Company and any voting securities purchased by any employee benefit plan of the Holding Company or its Subsidiaries; or (B) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Holding Company's stockholders was approved by a Nominating Committee solely composed of members which are Incumbent Board members, shall be, for purposes of this clause (B), considered as though he 4 were a member of the Incumbent Board; or (C) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Holding Company or its Subsidiaries or similar transaction occurs or is effectuated in which the Holding Company or its Subsidiaries is not the resulting entity; provided, however, that such an event listed above will be deemed to have occurred or to have been effectuated upon the receipt of all required federal regulatory approvals not including the lapse of any statutory waiting periods; or (D) a proxy statement has been distributed soliciting proxies from stockholders of the Holding Company, by someone other than the current management of the Holding Company, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Holding Company or its Subsidiaries with one or more corporations as a result of which the outstanding shares of the class of securities then subject to such plan or transaction are exchanged for or converted into cash or property or securities not issued by the Holding Company or its Subsidiaries shall be distributed; or (E) a tender offer is made for 20% or more of the voting securities of the Holding Company or its Subsidiaries then outstanding. (b) If a Change in Control has occurred pursuant to Section 5(a) or the Board has determined that a Change in Control has occurred, Executive shall be entitled to the benefits provided in paragraphs (c) and (d), of this Section 5 upon her subsequent termination of employment at any time during the term of this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary resignation following any demotion, loss of title, office or significant authority or responsibility, coupled with a reduction in the compensation and benefits being received by Executive immediately preceding the change in Executive's functions, duties or responsibilities, or any reduction in the annual compensation or material reduction in benefits or relocation of her principal place of employment by more than 30 miles from its location immediately prior to the change in control, unless such termination is because of her death or termination for Cause. (c) Upon the Executive's entitlement to benefits pursuant to Section 5(b), the Holding Company shall pay Executive, or in the event of her subsequent death, her beneficiary or beneficiaries, or her estate, as the case may be, as severance pay or liquidated damages, or both, a sum equal to the greater of: (i) the payments due for the remaining term of the Agreement; or (ii) three (3) times Executive's average annual compensation for the five (5) preceding taxable years that Executive has been employed by the Holding Company or such lesser number of years in the event that Executive shall have been employed by the Holding Company for less than five years. Such annual compensation shall include Base Salary, commissions, bonuses, contributions on behalf of Executive to any pension and profit sharing plan, severance payments, directors or committee fees and fringe benefits paid or to be paid to the Executive during such years. At the election of the Executive, which election is to be made prior to a Change in Control, such payment may be made in a lump sum. In the event that no election is made, payment to the Executive will be made on a monthly basis in approximately equal installments during the remaining term of the Agreement. Such payments shall not be reduced in the event Executive obtains other employment following termination of employment. 5 (d) Upon the Executive's entitlement to benefits pursuant to Section 5(b), the Holding Company will cause to be continued life, medical and disability coverage substantially equivalent to the coverage maintained by the Holding Company or its Subsidiaries for Executive immediately prior to Executive's entitlement to benefits pursuant to Section 5(b) at no premium cost to Executive prior to her severance. Such coverage and payments shall cease upon the expiration of thirty-six (36) months following the Change in Control. 6. CHANGE OF CONTROL RELATED PROVISIONS. Notwithstanding the provisions of Section 5, in the event that: (i) the aggregate payments or benefits to be made or afforded to Executive, which are deemed to be parachute payments as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") or any successor thereof, (the "Termination Benefits") would be deemed to include an "excess parachute payment" under Section 280G of the Code; and (ii) if such Termination Benefits were reduced to an amount (the "Non-Triggering Amount"), the value of which is one dollar ($1.00) less than an amount equal to three (3) times Executive's "base amount," as determined in accordance with said Section 280G and the Non-Triggering Amount less the product of the marginal rate of any applicable state and federal income tax and the Non-Triggering Amount would be greater than the aggregate value of the Termination Benefits (without such reduction) minus (i) the amount of tax required to be paid by the Executive thereon by Section 4999 of the Code and further minus (ii) the product of the Termination Benefits and the marginal rate of any applicable state and federal income tax, then the Termination Benefits shall be reduced to the Non-Triggering Amount. The allocation of the reduction required hereby among the Termination Benefits shall be determined by the Executive. 7. TERMINATION FOR CAUSE. The term "Termination for Cause" shall include termination because of Executive's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, regulation (other than traffic violations or similar offenses) or final cease and desist order or material breach of any provision of this Agreement. For purposes of this Section, no act, or the failure to act, on Executive's part shall be "willful" unless done, or omitted to be done, not in good faith and without reasonable belief that the action or omission was in the best interest of the Holding Company or its Subsidiaries. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to her a Notice of Termination which shall include a copy of a resolution duly adopted by the affirmative vote of not less than three-fourths of the members of the Board at a meeting of the 6 Board called and held for that purpose (after reasonable notice to Executive and an opportunity for her, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of conduct justifying Termination for Cause and specifying the particulars thereof in detail. The Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause. During the period beginning on the date of the Notice of Termination for Cause pursuant to Section 8 hereof through the Date of Termination, stock options and related limited rights granted to Executive under any stock option plan shall not be exercisable nor shall any unvested awards granted to Executive under any stock benefit plan of the Holding Company or its Subsidiaries vest. At the Date of Termination, such stock options and related limited rights and such unvested awards shall become null and void and shall not be exercisable by or delivered to Executive at any time subsequent to such Termination for Cause. 8. NOTICE. (a) Any purported termination by the Holding Company or by Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. (b) "Date of Termination" shall mean the date specified in the Notice of Termination (which, in the case of a Termination for Cause, shall not be less than thirty (30) days from the date such Notice of Termination is given). (c) If, within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, except upon the occurrence of a Change in Control and voluntary termination by the Executive in which case the Date of Termination shall be the date specified in the Notice, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected) and provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Holding Company will continue to pay Executive her full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, Base Salary) and continue her as a participant in all compensation, benefit and insurance plans in which he was participating when the notice of dispute was given, until the dispute is finally resolved in accordance with this Agreement. Amounts paid under this Section are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 7 9. POST-TERMINATION OBLIGATIONS. All payments and benefits to Executive under this Agreement shall be subject to Executive's compliance with this Section 9 for one (1) full year after the earlier of the expiration of this Agreement or termination of Executive's employment with the Holding Company. Executive shall, upon reasonable notice, furnish such information and assistance to the Holding Company as may reasonably be required by the Holding Company in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party. 10. NON-COMPETITION. (a) Upon any termination of Executive's employment hereunder pursuant to Section 4 hereof, Executive agrees not to compete with the Holding Company or its Subsidiaries for a period of one (1) year following such termination in any city, town or county in which the Executive's normal business office is located and the Holding Company or any of its Subsidiaries has an office or has filed an application for regulatory approval to establish an office, determined as of the effective date of such termination, except as agreed to pursuant to a resolution duly adopted by the Board. Executive agrees that during such period and within said cities, towns and counties, Executive shall not work for or advise, consult or otherwise serve with, directly or indirectly, any entity whose business materially competes with the depository, lending or other business activities of the Holding Company or its Subsidiaries. The parties hereto, recognizing that irreparable injury will result to the Holding Company or its Subsidiaries, its business and property in the event of Executive's breach of this Subsection 10(a) agree that in the event of any such breach by Executive, the Holding Company or its Subsidiaries, will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by Executive, Executive's partners, agents, servants, employees and all persons acting for or under the direction of Executive. Executive represents and admits that in the event of the termination of her employment pursuant to Section 7 hereof, Executive's experience and capabilities are such that Executive can obtain employment in a business engaged in other lines and/or of a different nature than the Holding Company or its Subsidiaries, and that the enforcement of a remedy by way of injunction will not prevent Executive from earning a livelihood. Nothing herein will be construed as prohibiting the Holding Company or its Subsidiaries from pursuing any other remedies available to the Holding Company or its Subsidiaries for such breach or threatened breach, including the recovery of damages from Executive. (b) Executive recognizes and acknowledges that the knowledge of the business activities and plans for business activities of the Holding Company and its Subsidiaries as it may exist from time to time, is a valuable, special and unique asset of the business of the Holding Company and its Subsidiaries. Executive will not, during or after the term of her employment, disclose any knowledge of the past, present, planned or considered business activities of the Holding Company and its Subsidiaries thereof to any person, firm, corporation, or other entity for any reason or purpose whatsoever unless expressly authorized by the Board of Directors or required by law. Notwithstanding the foregoing, Executive may disclose any knowledge of banking, financial and/or economic principles, concepts or ideas which are not solely and exclusively derived from the business plans and activities of the Holding Company and its 8 Subsidiaries. In the event of a breach or threatened breach by the Executive of the provisions of this Section, the Holding Company will be entitled to an injunction restraining Executive from disclosing, in whole or in part, the knowledge of the past, present, planned or considered business activities of the Holding Company or its Subsidiaries or from rendering any services to any person, firm, corporation, or other entity to whom such knowledge, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing herein will be construed as prohibiting the Holding Company from pursuing any other remedies available to the Holding Company for such breach or threatened breach, including the recovery of damages from Executive. 11. SOURCE OF PAYMENTS. (a) All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Holding Company subject to this Section 11(b). (b) Notwithstanding any provision herein to the contrary, to the extent that payments and benefits, as provided by this Agreement, are paid to or received by Executive under the Employment Agreement dated ____________, between Executive and the Institution, such compensation payments and benefits paid by the Institution will be subtracted from any amount due simultaneously to Executive under similar provisions of this Agreement. Payments pursuant to this Agreement and the Institution Agreement shall be allocated in proportion to the level of activity and the time expended on such activities by the Executive as determined by the Holding Company and the Institution on a quarterly basis. 12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS. This Agreement contains the entire understanding between the parties hereto and supersedes any prior employment agreement between the Holding Company or any predecessor of the Holding Company and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to the Executive of a kind elsewhere provided. No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to her without reference to this Agreement. 13. NO ATTACHMENT. (a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect. (b) This Agreement shall be binding upon, and inure to the benefit of, Executive and the Holding Company and their respective successors and assigns. 9 14. MODIFICATION AND WAIVER. (a) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. (b) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future as to any act other than that specifically waived. 15. SEVERABILITY. If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect. 16. HEADINGS FOR REFERENCE ONLY. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 17. GOVERNING LAW. This Agreement shall be governed by the laws of the State of New Jersey, unless otherwise specified herein. 18. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators sitting in a location selected by the Executive within fifty (50) miles from the location of the Holding Company, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of her right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. In the event any dispute or controversy arising under or in connection with Executive's termination is resolved in favor of the Executive, whether by judgment, arbitration or settlement, Executive shall be entitled to the payment of all back-pay, including salary, bonuses and any 10 other cash compensation, fringe benefits and any compensation and benefits due Executive under this Agreement. 19. PAYMENT OF LEGAL FEES. All reasonable legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Holding Company, if Executive is successful pursuant to a legal judgment, arbitration or settlement. 20. INDEMNIFICATION. The Holding Company shall provide Executive (including her heirs, executors and administrators) with coverage under a standard directors' and officers' liability insurance policy at its expense, or in lieu thereof, shall indemnify Executive (and her heirs, executors and administrators) to the fullest extent permitted under New Jersey law against all expenses and liabilities reasonably incurred by her in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of her having been an employee of the Holding Company (whether or not he continues to be an employee at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys' fees and the cost of reasonable settlements. 21. SUCCESSOR TO THE HOLDING COMPANY. The Holding Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Holding Company, expressly and unconditionally to assume and agree to perform the Holding Company's obligations under this Agreement, in the same manner and to the same extent that the Holding Company would be required to perform if no such succession or assignment had taken place. 11 SIGNATURES IN WITNESS WHEREOF, Wayne Bancorp, Inc. has caused this Agreement to be executed and its seal to be affixed hereunto by its duly authorized officer and its directors, and Executive has signed this Agreement, on the ____ day of _______________, 1997. ATTEST: WAYNE BANCORP, INC. ______________________ By: __________________________________ Secretary Chairman of the Board [SEAL] WITNESS: ______________________ By: __________________________________ Executive 12 EX-10.2 3 WAYNE SAVINGS-EMPLOYMENT AGREEMENT WAYNE SAVINGS BANK, F.S.B. EMPLOYMENT AGREEMENT This AGREEMENT is made effective as of ________________, by and among Wayne Savings Bank, F.S.B. (the "Institution"), a federally chartered savings bank, with its principal administrative office at 1195 Hamburg Turnpike, Wayne, New Jersey, Wayne Bancorp, Inc., a corporation organized under the laws of the State of Delaware, the holding company for the Institution (the "Holding Company"), and Johanna O'Connell ("Executive"). WHEREAS, the Institution wishes to assure itself of the services of Executive for the period provided in this Agreement; and WHEREAS, Executive is willing to serve in the employ of the Institution on a full-time basis for said period. NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows: 1. POSITION AND RESPONSIBILITIES. During the period of her employment hereunder, Executive agrees to serve as President and Chief Executive Officer of the Institution. Executive shall render administrative and management services to the Institution such as are customarily performed by persons situated in a similar executive capacity and such duties as are from time to time assigned to her by the Board of Directors. During said period, Executive also agrees to serve, if appointed, as an officer of the Holding Company or any subsidiary of the Institution and, if elected, shall serve as a director of the Institution and the Holding Company; provided that, Executive shall only serve as a director of the Institution and the Holding Company so long as the Executive continues to serve full-time as President and Chief Executive Officer of the Institution and President of the Holding Company. 2. TERMS AND DUTIES. (a) The period of Executive's employment under this Agreement shall be deemed to have commenced as of the date first above written and shall continue for a period of thirty-six (36) full calendar months thereafter. Commencing on the first anniversary date of this Agreement, and continuing on each anniversary thereafter, the disinterested members of the board of directors of the Institution ("Board") may extend the Agreement for an additional year such that the remaining term of the Agreement shall be three (3) years unless the Executive elects not to extend the term of this Agreement by giving written notice in accordance with Section 8 of this Agreement. The Board will review the Agreement and Executive's performance annually for purposes of determining whether to extend the Agreement and the rationale and results thereof shall be included in the minutes of the Board's meeting. The Board shall give notice to the Executive as soon as possible after such review as to whether the Agreement is to be extended. (b) During the period of Executive's employment hereunder, except for periods of absence occasioned by illness, reasonable vacation periods, and reasonable leaves of absence, Executive shall devote substantially all her business time, attention, skill, and efforts to the faithful performance of her duties hereunder including activities and services related to the organization, operation and management of the Institution and participation in community and civic organizations; provided, however, that, with the approval of the Board, as evidenced by a resolution of such Board, from time to time, Executive may serve, or continue to serve, on the boards of directors of, and hold any other offices or positions in, companies or organizations, which, in such Board's judgment, will not present any conflict of interest with the Institution, or materially affect the performance of Executive's duties pursuant to this Agreement. (c) Notwithstanding anything herein to the contrary, Executive's employment with the Institution may be terminated by the Institution or the Executive during the term of this Agreement, subject to the terms and conditions of this Agreement. 3. COMPENSATION AND REIMBURSEMENT. (a) The Institution shall pay Executive as compensation a salary of not less than $125,000 per year ("Base Salary"). Base Salary shall include any amounts of compensation deferred by Executive under any qualified or unqualified plan maintained by the Institution. Such Base Salary shall be payable bi-weekly. During the period of this Agreement, Executive's Base Salary shall be reviewed at least annually; the first such review will be made no later than one year from the date of this Agreement. Such review shall be conducted by the Board or by a Committee of the Board, delegated such responsibility by the Board. The Board may by resolution increase Executive's Base Salary. Any increase in Base Salary shall become the "Base Salary" for purposes of this Agreement. In addition to the Base Salary provided in this Section 3(a), the Institution shall also provide Executive, at no premium cost to Executive, with all such other benefits as are provided uniformly to permanent full-time employees of the Institution. (b) The Executive shall be entitled to participate in any employee benefit plans, arrangements and perquisites substantially equivalent to those in which Executive was participating or otherwise deriving benefit from immediately prior to the beginning of the term of this Agreement, and the Institution will not, without Executive's prior written consent, make any changes in such plans, arrangements or perquisites which would materially adversely affect Executive's rights or benefits thereunder; except to the extent such changes are made applicable to all Institution employees on a non-discriminatory basis. Without limiting the generality of the foregoing provisions of this Subsection (b), Executive shall be entitled to participate in or receive benefits under any employee benefit plans including but not limited to, retirement plans, supplemental retirement plans, pension plans, profit-sharing plans, health-and-accident plans, medical coverage or any other employee benefit plan or arrangement made available by the Institution in the future to its senior executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Executive shall be entitled to incentive compensation and bonuses as provided in any plan of the Institution in which Executive is eligible to participate. Nothing paid to the 2 Executive under any such plan or arrangement will be deemed to be in lieu of other compensation to which the Executive is entitled under this Agreement. (c) In addition to the Base Salary provided for by paragraph (a) of this Section 3 and other compensation provided for by paragraph (b) of this Section 3, the Institution shall pay or reimburse Executive for all reasonable travel and other reasonable expenses incurred in the performance of Executive's obligations under this Agreement and may provide such additional compensation in such form and such amounts as the Board may from time to time determine. 4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION. (a) Upon the occurrence of an Event of Termination (as herein defined) during the Executive's term of employment under this Agreement, the provisions of this Section shall apply. As used in this Agreement, an "Event of Termination" shall mean and include any one or more of the following: (i) the termination by the Institution or the Holding Company of Executive's full-time employment hereunder for any reason other than a termination governed by Section 5(a) hereof, or Termination for Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the Institution's employ upon any (A) failure to elect or reelect or to appoint or reappoint Executive as President and Chief Executive Officer, unless consented to by the Executive, (B) a material change in Executive's function, duties, or responsibilities, which change would cause Executive's position to become one of lesser responsibility, importance, or scope from the position and attributes thereof described in Section 1, above, coupled with a material reduction in the benefits and perquisites being provided to Executive immediately preceding the change in Executive's functions, duties or responsibilities, unless consented to by Executive, (C) a relocation of Executive's principal place of employment by more than 15 miles from its location at the effective date of this Agreement, unless consented to by the Executive, (D) a material reduction in the benefits and perquisites to the Executive from those being provided as of the effective date of this Agreement, unless consented to by the Executive, or (E) a liquidation or dissolution of the Institution or Holding Company, or (F) breach of this Agreement by the Institution or Holding Company. Upon the occurrence of any event described in clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have the right to elect to terminate her employment under this Agreement by resignation upon not less than sixty (60) days prior written notice given within six full months after the event giving rise to said right to elect. (b) Upon the occurrence of an Event of Termination, on the Date of Termination, as defined in Section 8, the Institution shall be obligated to pay Executive, or, in the event of her subsequent death, her beneficiary or beneficiaries, or her estate, as the case may be, an amount equal to the sum of: (i) the amount of the remaining payments that the Executive would have earned if she had continued her employment with the Institution during the remaining term of this Agreement at the Executive's Base Salary at the Date of Termination; and (ii) the amount equal to the annual contributions that would have been made on Executive's behalf to any employee benefit plans of the Institution or the Holding Company during the remaining term of this Agreement based on contributions made (on an annualized basis) at the Date of Termination; provided, however, that any payments pursuant to this subsection and subsection 4(c) below shall not, in the aggregate, exceed three times Executive's average annual compensation for the five 3 most recent taxable years that Executive has been employed by the Institution or such lesser number of years in the event that Executive shall have been employed by the Institution for less than five years. In the event the Institution is not in compliance with its minimum capital requirements or if such payments pursuant to this subsection (b) would cause the Institution's capital to be reduced below its minimum regulatory capital requirements, such payments shall be deferred until such time as the Institution or successor thereto is in capital compliance. At the election of the Executive, which election is to be made prior to an Event of Termination, such payments shall be made in a lump sum as of the Executive's Date of Termination. In the event that no election is made, payment to Executive will be made on a monthly basis in approximately equal installments during the remaining term of the Agreement. Such payments shall not be reduced in the event the Executive obtains other employment following termination of employment. (c) Upon the occurrence of an Event of Termination, the Institution will cause to be continued life, medical and disability coverage substantially identical to the coverage maintained by the Institution or the Holding Company for Executive prior to her termination at no premium cost to the Executive, except to the extent such coverage may be changed in its application to all Institution or Holding Company employees. Such coverage shall cease upon the expiration of the remaining term of this Agreement. 5. CHANGE IN CONTROL. (a) For purposes of this Agreement, a "Change in Control" of the Institution or Holding Company shall mean an event of a nature that: (i) would be required to be reported in response to Item 1 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a Change in Control of the Institution or the Holding Company within the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act and the Rules and Regulations promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the date hereof (provided, that in applying the definition of change in control as set forth under the rules and regulations of the OTS, the Board shall substitute its judgment for that of the OTS); or (iii) without limitation such a Change in Control shall be deemed to have occurred at such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of voting securities of the Institution or the Holding Company representing 25% or more of the Institution's or the Holding Company's outstanding voting securities or right to acquire such securities except for any voting securities of the Institution purchased by the Holding Company and any voting securities purchased by any employee benefit plan of the Institution or the Holding Company, or (B) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Holding Company's stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (B), considered as though he were 4 a member of the Incumbent Board, or (C) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Institution or the Holding Company or similar transaction occurs in which the Institution or Holding Company is not the resulting entity; provided, however, that such an event listed above will be deemed to have occurred or to have been effectuated upon the receipt of all required regulatory approvals not including the lapse of any statutory waiting periods. (b) If a Change in Control has occurred pursuant to Section 5(a) or the Board has determined that a Change in Control has occurred, Executive shall be entitled to the benefits provided in paragraphs (c), and (d) of this Section 5 upon her subsequent termination of employment at any time during the term of this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary resignation following any demotion, loss of title, office or significant authority or responsibility, coupled with a reduction in the compensation and benefits being received by Executive immediately preceding the change in Executive's functions, duties or responsibilities, or any material reduction in annual compensation or benefits or relocation of her principal place of employment by more than 15 miles from its location immediately prior to the Change in Control, unless such termination is because of her death, disability, retirement or termination for Cause. (c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the Institution shall pay Executive, or in the event of her subsequent death, her beneficiary or beneficiaries, or her estate, as the case may be, a sum equal to the greater of: (1) the payments due for the remaining term of the Agreement; or (2) three (3) times Executive's average annual compensation for the five (5) most recent taxable years that Executive has been employed by the Institution or such lesser number of years in the event that Executive shall have been employed by the Institution for less than five (5) years. Such average annual compensation shall include Base Salary, commissions, bonuses, contributions on Executive's behalf to any pension and/or profit sharing plan, severance payments, retirement payments, directors or committee fees, fringe benefits paid or to be paid to the Executive in any such year, and payment of any expense items without accountability or business purpose or that do not meet the Internal Revenue Service requirements for deductibility by the Institution; provided however, that any payment under this provision and subsection 5(d) below shall not exceed three (3) times the Executive's average annual compensation. In the event the Institution is not in compliance with its minimum capital requirements or if such payments would cause the Institution's capital to be reduced below its minimum regulatory capital requirements, such payments shall be deferred until such time as the Institution or successor thereto is in capital compliance. At the election of the Executive, which election is to be made prior to a Change in Control, such payment may be made in a lump sum as of the Executive's Date of Termination. In the event that no election is made, payment to the Executive will be made in approximately equal installments on a monthly basis over a period of thirty-six (36) months following the Executive's termination. Such payments shall not be reduced in the event Executive obtains other employment following termination of employment. (d) Upon the Executive's entitlement to benefits pursuant to Section 5(b), the Institution will cause to be continued life, medical and disability coverage substantially identical to the coverage maintained by the Institution for Executive prior to her severance at no premium 5 cost to the Executive, except to the extent that such coverage may be changed in its application for all Institution employees on a non-discriminatory basis. Such coverage and payments shall cease upon the expiration of thirty-six (36) months following the Date of Termination. 6. CHANGE OF CONTROL RELATED PROVISIONS Notwithstanding the provisions of Section 5, in no event shall the aggregate payments or benefits to be made or afforded to Executive under said paragraphs (the "Termination Benefits") constitute an "excess parachute payment" under Section 280G of the Code or any successor thereto, and in order to avoid such a result, Termination Benefits will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the value of which is one dollar ($1.00) less than an amount equal to three (3) times Executive's "base amount", as determined in accordance with said Section 280G. The allocation of the reduction required hereby among the Termination Benefits provided by Section 5 shall be determined by Executive. 7. TERMINATION FOR CAUSE. The term "Termination for Cause" shall include termination because of Executive's personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order or material breach of any provision of this Agreement. Notwithstanding the foregoing, Executive shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to her a Notice of Termination which shall include a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the members of the Board at a meeting of the Board called and held for that purpose (after reasonable notice to Executive and an opportunity for her, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of conduct justifying Termination for Cause and specifying the particulars thereof in detail. The Executive shall not have the right to receive compensation or other benefits for any period after Date of Termination for Cause. During the period beginning on the date of the Notice of Termination for Cause pursuant to Section 8 hereof through the Date of Termination for Cause, stock options and related limited rights granted to Executive under any stock option plan shall not be exercisable nor shall any unvested awards granted to Executive under any stock benefit plan of the Institution, the Holding Company or any subsidiary or affiliate thereof, vest. At the Date of Termination for Cause, such stock options and related limited rights and such unvested awards shall become null and void and shall not be exercisable by or delivered to Executive at any time subsequent to such Termination for Cause. 8. NOTICE. (a) Any purported termination by the Institution or by Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable 6 detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. (b) "Date of Termination" shall mean the date specified in the Notice of Termination (which, in the case of a Termination for Cause, shall not be less than thirty days from the date such Notice of Termination is given). (c) If, within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected) and provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, in the event the Executive is terminated for reasons other than Termination for Cause, the Institution will continue to pay Executive her Base Salary in effect when the notice giving rise to the dispute was given until the earlier of: (1) the resolution of the dispute in accordance with this Agreement or (2) the expiration of the remaining term of this Agreement as determined as of the Date of Termination. Amounts paid under this Section are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 9. POST-TERMINATION OBLIGATIONS. All payments and benefits to Executive under this Agreement shall be subject to Executive's compliance with this Section 9 for one (1) full year after the earlier of the expiration of this Agreement or termination of Executive's employment with the Institution. Executive shall, upon reasonable notice, furnish such information and assistance to the Institution as may reasonably be required by the Institution in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party. 10. NON-COMPETITION. (a) Upon any termination of Executive's employment hereunder pursuant to Section 4 hereof, Executive agrees not to compete with the Institution for a period of one (1) year following such termination in any city, town or county in which the Executive's normal business office is located and the Institution has an office or has filed an application for regulatory approval to establish an office, determined as of the effective date of such termination, except as agreed to pursuant to a resolution duly adopted by the Board. Executive agrees that during such period and within said cities, towns and counties, Executive shall not work for or advise, consult or otherwise serve with, directly or indirectly, any entity whose business materially competes with the depository, lending or other business activities of the Institution. The parties hereto, recognizing that irreparable injury will result to the Institution, its business and property in the event of Executive's breach of this Subsection 10(a) agree that in the event of any such 7 breach by Executive, the Institution will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by Executive, Executive's partners, agents, servants, employees and all persons acting for or under the direction of Executive. Nothing herein will be construed as prohibiting the Institution from pursuing any other remedies available to the Institution for such breach or threatened breach, including the recovery of damages from Executive. (b) Executive recognizes and acknowledges that the knowledge of the business activities and plans for business activities of the Institution and affiliates thereof, as it may exist from time to time, is a valuable, special and unique asset of the business of the Institution. Executive will not, during or after the term of her employment, disclose any knowledge of the past, present, planned or considered business activities of the Institution or affiliates thereof to any person, firm, corporation, or other entity for any reason or purpose whatsoever. Notwithstanding the foregoing, Executive may disclose any knowledge of banking, financial and/or economic principles, concepts or ideas which are not solely and exclusively derived from the business plans and activities of the Institution. Further, Executive may disclose information regarding the business activities of the Institution to the OTS and the Federal Deposit Insurance Corporation ("FDIC") pursuant to a formal regulatory request. In the event of a breach or threatened breach by Executive of the provisions of this Section, the Institution will be entitled to an injunction restraining Executive from disclosing, in whole or in part, the knowledge of the past, present, planned or considered business activities of the Institution or affiliates thereof, or from rendering any services to any person, firm, corporation, or other entity to whom such knowledge, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing herein will be construed as prohibiting the Institution from pursuing any other remedies available to the Institution for such breach or threatened breach, including the recovery of damages from Executive. 11. SOURCE OF PAYMENTS. (a) All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Institution. The Holding Company, however, unconditionally guarantees payment and provision of all amounts and benefits due hereunder to Executive and, if such amounts and benefits due from the Institution are not timely paid or provided by the Institution, such amounts and benefits shall be paid or provided by the Holding Company. (b) Notwithstanding any provision herein to the contrary, to the extent that payments and benefits, as provided by this Agreement, are paid to or received by Executive under the Employment Agreement dated __________, 1996, between Executive and the Holding Company, such compensation payments and benefits paid by the Holding Company will be subtracted from any amounts due simultaneously to Executive under similar provisions of this Agreement. Payments pursuant to this Agreement and the Holding Company Agreement shall be allocated in proportion to the services rendered and time expended on such activities by Executive as determined by the Holding Company and the Institution on a quarterly basis. 8 12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS. This Agreement contains the entire understanding between the parties hereto and supersedes any prior employment agreement between the Institution or any predecessor of the Institution and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to Executive of a kind elsewhere provided. No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to her without reference to this Agreement. 13. NO ATTACHMENT. (a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect. (b) This Agreement shall be binding upon, and inure to the benefit of, Executive and the Institution and their respective successors and assigns. 14. MODIFICATION AND WAIVER. (a) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. (b) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future as to any act other than that specifically waived. 15. REQUIRED PROVISIONS. (a) The Institution may terminate Executive's employment at any time, but any termination by the Institution, other than Termination for Cause, shall not prejudice Executive's right to compensation or other benefits under this Agreement. Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause as defined in Section 7 hereinabove. (b) If Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Institution's affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1818(e)(3) or (g)(1), the Institution's obligations under this contract shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Institution may in its 9 discretion: (i) pay Executive all or part of the compensation withheld while their contract obligations were suspended; and (ii) reinstate (in whole or in part) any of the obligations which were suspended. (c) If Executive is removed and/or permanently prohibited from participating in the conduct of the Institution's affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1818(e)(4) or (g)(1), all obligations of the Institution under this contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected. (d) If the Institution is in default as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1813(x)(1) all obligations of the Institution under this contract shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties. (e) All obligations of the Institution under this contract shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the institution: (i) by the Director of the OTS (or her designee), or the FDIC at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Institution under the authority contained in Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1823(c); or (ii) by the Director of the OTS (or her designee) at the time the Director (or her designee) approves a supervisory merger to resolve problems related to the operations of the Institution or when the Institution is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action. (f) Any payments made to Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon compliance with 12 U.S.C. ss.1828(k) and 12 C.F.R. ss.545.121 and any rules and regulations promulgated thereunder. 16. REINSTATEMENT OF BENEFITS UNDER SECTION 15(b). In the event Executive is suspended and/or temporarily prohibited from participating in the conduct of the Institution's affairs by a notice described in Section 15(b) hereof (the "Notice") during the term of this Agreement and a Change in Control, as defined herein, occurs, the Holding Company will assume its obligation to pay and Executive will be entitled to receive all of the termination benefits provided for under Section 5 of this Agreement upon the Holding Company's receipt of a dismissal of charges in the Notice. 17. SEVERABILITY. If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect. 10 18. HEADINGS FOR REFERENCE ONLY. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 19. GOVERNING LAW. The validity, interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of New Jersey, but only to the extent not superseded by federal law. 20. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators sitting in a location selected by Executive within fifty (50) miles from the location of the Institution, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of her right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. In the event any dispute or controversy arising under or in connection with Executive's termination is resolved in favor of Executive, whether by judgment, arbitration or settlement, Executive shall be entitled to the payment of all back-pay, including salary, bonuses and any other cash compensation, fringe benefits and any compensation and benefits due Executive under this Agreement. 21. PAYMENT OF COSTS AND LEGAL FEES. All reasonable costs and legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Institution if Executive is successful on the merits pursuant to a legal judgment, arbitration or settlement. 22. INDEMNIFICATION. (a) The Institution shall provide Executive (including her heirs, executors and administrators) with coverage under a standard directors' and officers' liability insurance policy at its expense, or in lieu thereof, shall indemnify Executive (and her heirs, executors and administrators) as permitted under federal law against all expenses and liabilities reasonably incurred by her in connection with or arising out of any action, suit or proceeding in which she may be involved by reason of her having been a director or officer of the Institution (whether or not she continues to be a director or officer at the time of incurring such expenses or liabilities), 11 such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys' fees and the cost of reasonable settlements. (b) Any payments made to Executive pursuant to this Section are subject to and conditioned upon compliance with 12 C.F.R. ss.545.121 and any rules or regulations promulgated thereunder. 23. SUCCESSOR TO THE INSTITUTION. The Institution shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Institution or the Holding Company, expressly and unconditionally to assume and agree to perform the Institution's obligations under this Agreement, in the same manner and to the same extent that the Institution would be required to perform if no such succession or assignment had taken place. 12 SIGNATURES IN WITNESS WHEREOF, Wayne Savings Bank, F.S.B. and Wayne Bancorp, Inc. have caused this Agreement to be executed and their seals to be affixed hereunto by their duly authorized officers and directors, and Executive has signed this Agreement, on the _____ day of _________________, 1997. ATTEST: WAYNE SAVINGS BANK, F.S.B. BY: - -------------------------- --------------------------------- Secretary Chief Executive Officer [SEAL] ATTEST: WAYNE BANCORP, INC. (Guarantor) BY: - -------------------------- --------------------------------- Secretary Chairman of the Board [SEAL] WITNESS: - -------------------------- --------------------------------- Executive 13 EX-10.3 4 CHANGE IN CONTROL AGREEMENT WAYNE SAVINGS BANK, F.S.B. CHANGE IN CONTROL AGREEMENT This AGREEMENT is made effective as of ______________, 1997 by and between Wayne Savings Bank, F.S.B. (the "Institution"), a federally chartered savings bank, with its principal administrative office at 1195 Hamburg Turnpike, Wayne, New Jersey, Michael G. DeBenedette ("Executive"), and Wayne Bancorp, Inc. (the "Holding Company"), a corporation organized under the laws of the State of Delaware which is the holding company of the Institution. WHEREAS, the Institution recognizes the substantial contribution Executive has made to the Institution and wishes to protect Executive's position therewith for the period provided in this Agreement; and WHEREAS, Executive has agreed to serve in the employ of the Institution. NOW, THEREFORE, in consideration of the contribution and responsibilities of Executive, and upon the other terms and conditions hereinafter provided, the parties hereto agree as follows: 1. TERM OF AGREEMENT. The term of the Wayne Savings Bank, F.S.B. Change in Control Agreement (the "Agreement") shall be deemed to have commenced as of the date first above written and shall continue for a period of twenty-four (24) full calendar months thereafter. Commencing on the first anniversary date of this Agreement and continuing at each anniversary date thereafter, the Board of Directors of the Institution ("Board") may extend the Agreement for an additional year such that the remaining term of the Agreement shall be two years unless the Executive elects not to extend the term of this Agreement by giving written notice in accordance with Section 4 of this Agreement. The Board will review the Agreement and Executive's performance annually for purposes of determining whether to extend the Agreement, and the rationale and results thereof shall be included in the minutes of the Board's meeting. The Board shall give notice to the Executive as soon as possible after such review as to whether the Agreement is to be extended. 2. CHANGE IN CONTROL. (a) For purposes of this Agreement, a "Change in Control" of the Institution or Holding Company shall mean an event of a nature that: (i) would be required to be reported in response to Item 1 of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a Change in Control of the Institution or the Holding Company within the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act and the Rules and Regulations promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the date hereof (provided, that in applying the definition of change in control as set forth under the rules and regulations of the OTS, the Board shall substitute its judgment for that of the OTS); or (iii) without limitation such a Change in Control shall be deemed to have occurred at such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Institution or the Holding Company representing 25% or more of the Institution's or the Holding Company's outstanding voting securities or right to acquire such securities except for any voting securities of the Institution purchased by the Holding Company and any voting securities purchased by any employee benefit plan of the Institution or the Holding Company, or (B) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Holding Company's stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (B), considered as though he were a member of the Incumbent Board, or (C) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Institution or the Holding Company or similar transaction occurs in which the Institution or Holding Company is not the resulting entity; provided, however, that such an event will be deemed to have occurred or to have been effectuated upon the receipt of all required regulatory approvals not including the lapse of any statutory waiting periods. (b) If a Change in Control of the Institution or the Holding Company has occurred pursuant to Section 2(a) or the Board has determined that a Change in Control has occurred, Executive shall be entitled to the benefits set forth in Section 3 herein upon his subsequent termination of employment at any time during the term of this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary resignation following any demotion, loss of title, office or significant authority, coupled with a reduction in the compensation and benefits being received by Executive immediately preceding the change in Executive's functions, duties or responsibilities, or any material reduction in annual compensation or benefits, or relocation of his principal place of employment by more than 15 miles from its location immediately prior to the Change in Control unless such termination is because of death or Termination for Cause as defined in paragraph (c). (c) Executive shall not have the right to receive termination benefits pursuant to Section 3 hereof upon Termination for Cause. The term "Termination for Cause" shall include termination because of Executive's personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease and desist order, or material breach of any provision of this Agreement. Notwithstanding the foregoing, Executive shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the Board of Directors of the Institution at a meeting of the Board called and held for that purpose (after reasonable notice to Executive and an opportunity for him, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of conduct justifying Termination for 2 Cause and specifying the particulars thereof in detail. The Executive shall not have the right to receive compensation or other benefits for any period after the Date of Termination for Cause. During the period beginning on the date of the Notice of Termination for Cause pursuant to Section 4 hereof through the Date of Termination for Cause, stock options and related limited rights granted to Executive under any stock option plan shall not be exercisable nor shall any unvested awards granted to Executive under any stock benefit plan of the Institution, the Company or any subsidiary or affiliate thereof vest. At the Date of Termination for Cause, such stock options and related limited rights shall become null and void and shall not be exercisable by or delivered to Executive at any time subsequent to such Termination for Cause. 3. TERMINATION BENEFITS. (a) Upon Executive's entitlement to benefits pursuant to Section 2(b), the Institution shall pay Executive, or in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to the greater of: (1) the payments due for the remaining term of the Agreement; or (2) two (2) times Executive's average annual compensation for the five (5) most recent taxable years that Executive has been employed by the Institution or such lesser number of years in the event that Executive shall have been employed by the Institution for less than five years. Such average annual compensation shall include salary, commissions, contributions on Executive's behalf to any pension and/or profit sharing plan, severance payments, retirement payments, directors or committee fees, fringe benefits paid or to be paid to the Executive in any such year, and payment of any expense items without accountability or business purpose or that do not meet the Internal Revenue Service ("IRS") requirements for deducibility by the Institution: provided, however, that any payment under this provision and subsection 3(b) below shall not exceed three (3) times the Executive's average annual compensation. In the event the Institution is not in compliance with its minimum capital requirements or if such payments would cause the Institution's capital to be reduced below its minimum regulatory capital requirements, such payments shall be deferred until such time as the Institution or successor thereto is in capital compliance. At the election of Executive such payment may be made in a lump sum as of the Executive's Date of Termination. In the event that no election is made, payment to Executive will be made on a monthly basis in approximately equal installments over a period of twenty-four (24) months following Executive's termination. (b) Upon the Executive's entitlement to benefits pursuant to Section 2(b), the Institution shall cause to be continued life, medical, dental, and disability coverage substantially identical to the coverage maintained by the Institution for Executive prior to his severance, except to the extent such coverage may be changed in its application to all Institution employees on a nondiscriminatory basis. Such coverage and payments shall cease upon the expiration of twenty-four (24) full calendar months from the Date of Termination. (c) Notwithstanding the preceding paragraphs of this Section 3, in no event shall the aggregate payments or benefits to be made or afforded to Executive under said paragraphs (the "Termination Benefits") constitute an "excess parachute payment" under Section 280G of the Code or any successor thereto, and in order to avoid such a result Termination Benefits will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the value of which is one 3 dollar ($1.00) less than an amount equal to three (3) times Executive's "base amount," as determined in accordance with said Section 280G. The allocation of the reduction required hereby among the Termination Benefits provided by the preceding paragraphs of this Section 3 shall be determined by Executive. 4. NOTICE OF TERMINATION. (a) Any purported termination by the Institution or by Executive in connection with a Change in Control shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. (b) "Date of Termination" shall mean the date specified in the Notice of Termination (which, in the instance of Termination for Cause, shall not be less than thirty (30) days from the date such Notice of Termination is given). (c) If, within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected) and provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, in the event the Executive is terminated for reasons other than Termination for Cause, the Institution will continue to pay Executive his full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to his annual salary) until the earlier of: (1) the resolution of the dispute in accordance with this Agreement or (2) the expiration of the remaining term of this Agreement as determined as of the Date of Termination. Amounts paid under this Section are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amount due under this Agreement. 5. SOURCE OF PAYMENTS. (a) All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Institution. The Holding Company, however, unconditionally guarantees payment and provision of all amounts and benefits due hereunder to Executive and, if such amounts and benefits due from the Institution are not timely paid or provided by the Institution, such amounts and benefits shall be paid or provided by the Holding Company. 4 (b) Notwithstanding any provision herein to the contrary, to the extent that payments and benefits, as provided by this Agreement, are paid to or received by Executive under the Employment Agreement dated October __, 1996, between Executive and the Holding Company, such compensation payments and benefits paid by the Holding Company will be subtracted from any amount due simultaneously to Executive under similar provisions of this Agreement. Payments pursuant to this Agreement and the Holding Company Agreement shall be allocated in proportion to the services rendered and time expended on such activities by Executive as determined by the Holding Company and the Institution on a quarterly basis. 6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS. This Agreement contains the entire understanding between the parties hereto and supersedes any prior agreement between the Institution and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to Executive of a kind elsewhere provided. No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to him without reference to this Agreement. Nothing in this Agreement shall confer upon Executive the right to continue in the employ of Institution or shall impose on the Institution any obligation to employ or retain Executive in its employ for any period. 7. NO ATTACHMENT. (a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect. (b) This Agreement shall be binding upon, and inure to the benefit of, Executive, the Institution and their respective successors and assigns. 8. MODIFICATION AND WAIVER. (a) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. (b) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 5 9. REQUIRED REGULATORY PROVISIONS. (a) The board of directors may terminate Executive's employment at any time, but any termination by the board of directors, other than Termination for Cause, shall not prejudice Executive's right to compensation or other benefits under this Agreement. Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause as defined in Section 2 hereinabove. (b) If Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Institution's affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1818(e)(3) or (g)(1), the Institution's obligations under this contract shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Institution may in its discretion (i) pay Executive all or part of the compensation withheld while their contract obligations were suspended and (ii) reinstate (in whole or in part) any of the obligations which were suspended. (c) If Executive is removed and/or permanently prohibited from participating in the conduct of the Institution's affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1818(c)(4) or (g)(1), all obligations of the Institution under this contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected. (d) If the Institution is in default as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1818(e)(4) or (g)(1), all obligations of the Institution under this contract shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties. (e) All obligations under this contract shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the institution: (i) by the Director of the Office of Thrift Supervision (or his or her designee) at the time the Federal Deposit Insurance Corporation or the Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of the Institution under the authority contained in Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1823(c); or (ii) by the Director of the Office of Thrift Supervision (or his or her designee) at the time the Director (or his or her designee) approves a supervisory merger to resolve problems related to operation of the Institution or when the Institution is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action. (f) Any payments made to Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon compliance with 12 U.S.C. ss.1828(k) and 12 C.F.R. ss.545.121 and any rules and regulations promulgated thereunder. 6 10. REINSTATEMENT OF BENEFITS UNDER SECTION 4. In the event Executive is suspended and/or temporarily prohibited from participating in the conduct of the Institution's affairs by a notice described in Section 4 hereof (the "Notice") during the term of this Agreement and a Change in Control, as defined herein, occurs, the Company will assume its obligation to pay and Executive will be entitled to receive all of the termination benefits provided for under Section 3 of this Agreement upon the Company's receipt of a dismissal of charges in the Notice. 11. SEVERABILITY. If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect. 12. HEADINGS FOR REFERENCE ONLY. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 13. GOVERNING LAW. The validity, interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of New Jersey but only to the extent not preempted by Federal law. 14. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators sitting in a location selected by Executive within fifty (50) miles from the location of the Institution, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. In the event any dispute or controversy arising under or in connection with Executive's termination is resolved in favor of Executive, whether by judgment, arbitration or settlement, Executive shall be entitled to the payment of all back-pay, including salary, bonuses and any other cash compensation, fringe benefits and any compensation and benefits due Executive under this Agreement. 7 15. PAYMENT OF COSTS AND LEGAL FEES. All reasonable costs and legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Institution (which payments are guaranteed by the Holding Company pursuant to Section 5 hereof) if Executive is successful on the merits pursuant to a legal judgment, arbitration or settlement. 16. INDEMNIFICATION. (a) The Institution shall provide Executive (including his heirs, executors and administrators) with coverage under a standard directors' and officers' liability insurance policy at its expense and shall indemnify Executive (and the Executive's heirs, executors and administrators) to the fullest extent permitted under federal law against all expenses and liabilities reasonably incurred by Executive in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Institution (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys' fees and the cost of reasonable settlements. (b) Any payments made to Executive pursuant to this Section are subject to and conditioned upon compliance with 12 C.F.R. ss. 545.121 and any rules or regulations promulgated thereunder. 17. SUCCESSOR TO THE INSTITUTION The Institution shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Institution or the Holding Company, expressly and unconditionally to assume and agree to perform the Institution's obligations under this Agreement, in the same manner and to the same extent that the Institution would be required to perform if no such succession or assignment had taken place. 8 18. SIGNATURES. IN WITNESS WHEREOF, Wayne Savings Bank, F.S.B. and Wayne Bancorp, Inc. have caused this Agreement to be executed by their duly authorized officers, and Executive has signed this Agreement, on the ____ day of ________________, 1997. ATTEST: WAYNE SAVINGS BANK, F.S.B. By: - ------------------------------- ------------------------------- Secretary Harold P. Cook Chairman of the Board SEAL ATTEST: WAYNE BANCORP, INC. By: - ------------------------------- ------------------------------- Secretary Harold P. Cook Chairman of the Board and Chief Executive Officer SEAL WITNESS: - ------------------------------- ------------------------------- Executive 9 EX-10.4 5 CHANGE IN CONTROL AGREEMENT WAYNE BANCORP, INC. CHANGE IN CONTROL AGREEMENT This AGREEMENT is made effective as of_______________, 1997, by and between Wayne Bancorp, Inc. (the "Holding Company"), a corporation organized under the laws of the State of Delaware, with its office at 1195 Hamburg Turnpike, Wayne, New Jersey, and Michael G. DeBenedette ("Executive"). The term "Institution" refers to Wayne Savings Bank, F.S.B., the wholly-owned subsidiary of the Holding Company or any successor thereto. WHEREAS, the Holding Company recognizes the substantial contribution Executive has made to the Holding Company and wishes to protect his position therewith for the period provided in this Agreement; and WHEREAS, Executive has agreed to serve in the employ of the Holding Company or an affiliate thereof. NOW, THEREFORE, in consideration of the contribution and responsibilities of Executive, and upon the other terms and conditions hereinafter provided, the parties hereto agree as follows: 1. TERM OF AGREEMENT. The term of this Agreement shall be deemed to have commenced as of the date first above written and shall continue for a period of twenty-four (24) full calendar months thereafter. Commencing on the date of execution of this Agreement the term of this Agreement shall be extended for one day each day until such time as the board of directors of the Holding Company (the "Board") or Executive elects not to extend the term of the Agreement by giving written notice to the other party in accordance with Section 4 of this Agreement, in which case the term of this Agreement shall be fixed and shall end on the second anniversary of the date of such written notice. 2. CHANGE IN CONTROL. (a) For purposes of this Agreement, a "Change in Control" of the Institution or Holding Company shall mean an event of a nature that: (i) would be required to be reported in response to Item 1(a) of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"); or (ii) results in a Change in Control of the Institution or the Holding Company within the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act, and the Rules and Regulations promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the date hereof (provided, that in applying the definition of change in control as set forth under the rules and regulations of the OTS, the Board shall substitute its judgment for that of the OTS); or (iii) without limitation such a Change in Control shall be deemed to have occurred at such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Institution or the Holding Company representing 20% or more of the Institution's or the Holding Company's outstanding voting securities or right to acquire such securities except for any voting securities of the Institution purchased by the Holding Company and any securities purchased by any employee benefit plan of the Institution, or (B) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Holding Company's stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (B), considered as though he were a member of the Incumbent Board, or (C) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Institution or the Holding Company or similar transaction occurs in which the Institution or Holding Company is not the resulting entity; provided, however, that such an event will be deemed to have occurred or to have been effectuated upon the receipt of all required regulatory approvals not including the lapse of any statutory waiting periods; or (D) a proxy statement is distributed soliciting proxies from stockholders of the Holding Company, by someone other than the current management of the Holding Company, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Holding Company or Institution with one or more corporations as a result of which the outstanding shares of the class of securities then subject to such plan or transaction are exchanged for or converted into cash or property or securities not issued by the Institution or the Holding Company shall be distributed, or (E) a tender offer is made for 20% or more of the voting securities of the Institution or Holding Company then outstanding. (b) If a Change in Control of the Holding Company has occurred pursuant to Section 2(a) or the Board has determined that a Change in Control has occurred, Executive shall be entitled to the benefits set forth in Section 3 herein upon his subsequent termination of employment at any time during the term of this Agreement due to (1) Executive's dismissal or (2) Executive's voluntary resignation following any demotion, loss of title, office or significant authority, coupled with a reduction in the compensation and benefits being received by Executive immediately preceding the change in Executive's functions, duties or responsibilities, or any material reduction in his annual compensation or benefits, or relocation of his principal place of employment by more than 15 miles from its location immediately prior to the Change in Control unless such termination is because of death or Termination for Cause as defined in paragraph (c). (c) Executive shall not have the right to receive termination benefits pursuant to Section 3 hereof upon Termination for Cause. The term "Termination for Cause" shall include termination because of Executive's personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, regulation (other than traffic violations or similar offenses) or final cease and desist order, or any material breach of this Agreement. For purposes of this Section, no act, or the failure to act, on Executive's part shall be "willful" unless done, or omitted to be done, not in good faith and without reasonable belief that the action or omission was in the best interest of the Holding Company or its affiliates. Notwithstanding the foregoing, Executive shall not be deemed to have been Terminated for Cause unless and until there shall have been 2 delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than three-fourths of the members of the Board at a meeting of the Board called and held for that purpose (after reasonable notice to Executive and an opportunity for him, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of conduct justifying Termination for Cause and specifying the particulars thereof in detail. Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause. During the period beginning on the date of the Notice of Termination for Cause pursuant to Section 4 hereof through the Date of Termination, stock options and related limited rights granted to Executive under any stock option plan shall not be exercisable nor shall any unvested awards granted to Executive under any stock benefit plan of the Institution, the Holding Company or any subsidiary or affiliate thereof, vest. At the Date of Termination, such stock options and related limited rights and such unvested awards shall become null and void and shall not be exercisable by or delivered to Executive at any time subsequent to such Date of Termination for Cause. 3. TERMINATION BENEFITS. (a) Upon Executive's entitlement to benefits pursuant to Section 2(b), the Holding Company shall pay Executive, or in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to the greater of (1) the payments due for the remaining term of the Agreement and (2) two (2) times Executive's average annual compensation for the two preceding taxable years that Executive has been employed by the Holding Company or such lesser number of years in the event that Executive shall have been employed by the Holding Company for less than two (2) years. Such annual compensation shall include salary, commissions, bonuses contributions on behalf of Executive to any pension and profit sharing plan, severance payments, directors or committee fees and fringe benefits paid or to be paid to the Executive during such year. At the election of Executive, which election is to be made prior to a Change in Control, such payment shall be made in a lump sum. In the event that no election is made, payment to Executive will be made on a monthly basis in approximately equal installments over a period of twenty-four (24) months following Executive's termination. (b) Upon Executive's entitlement to benefits pursuant to Section 2(b) the Holding Company shall cause to be continued life, medical, dental and disability coverage substantially identical to the coverage maintained by the Holding Company or the Institution for Executive prior to his severance, except to the extent such coverage may be changed in its application to all Institution employees. Such coverage and payments shall cease upon expiration of twenty-four (24) full calendar months following the Date of Termination. (c) Notwithstanding the paragraphs of Section 3, in the event that: (i) the aggregate payments or benefits to be made or afforded to Executive, which are deemed to be parachute payments as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") or any successor thereof, (the "Termination Benefits") would be deemed to include an "excess parachute payment" under Section 280G of the Code; and 3 (ii) if such Termination Benefits were reduced to an amount (the "Non-Triggering Amount"), the value of which is one dollar ($1.00) less than an amount equal to three (3) times Executive's "base amount," as determined in accordance with said Section 280G and the Non-Triggering Amount less the product of the marginal rate of any applicable state and federal income tax and the Non-Triggering Amount would be greater than the aggregate value of the Termination Benefits (excluding such reduction) minus (i) the amount of tax required to be paid by the Executive thereon by Section 4999 of the Code and further minus (ii) the product of the Termination Benefits and the marginal rate of any applicable state and federal income tax. then the Termination Benefits shall be reduced to the Non-Triggering Amount. The allocation of the reduction required hereby among the Termination Benefits shall be determined by the Executive. 4. NOTICE OF TERMINATION. (a) Any purported termination by the Holding Company, or by Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. (b) "Date of Termination" shall mean the date specified in the Notice of Termination (which, in the case of Termination for Cause, shall not be less than thirty (30) days from the date such Notice of Termination is given). (c) If, within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected) and provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Holding Company will continue to pay Executive his full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to his current annual salary) until the dispute is finally resolved in accordance with this Agreement. Amounts paid under this Section 4(c) are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4 5. SOURCE OF PAYMENTS. (a) All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Holding Company subject to this Section 5(b). (b) Notwithstanding any provision herein to the contrary, to the extent that payments and benefits, as provided by this Agreement, are paid to or received by Executive under the Employment Agreement dated ______________, between Executive and the Institution, such compensation payments and benefits paid by the Institution will be subtracted from any amount due simultaneously to Executive under similar provisions of this Agreement. Payments pursuant to this Agreement and the Institution Agreement shall be allocated in proportion to the level of activity and the time expended on such activities by the Executive as determined by the Holding Company and the Institution on a quarterly basis. 6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS. This Agreement contains the entire understanding between the parties hereto and supersedes any prior agreement between the Holding Company or any predecessor of the Holding Company and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to Executive of a kind elsewhere provided. No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to him without reference to this Agreement. 7. NO ATTACHMENT. (a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect. (b) This Agreement shall be binding upon, and inure to the benefit of, Executive, the Holding Company and their respective successors and assigns. 8. MODIFICATION AND WAIVER. (a) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. (b) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 5 9. SEVERABILITY. If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect. 10. HEADINGS FOR REFERENCE ONLY. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 11. GOVERNING LAW. The validity, interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of New Jersey. 12. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators sitting in a location selected by Executive within fifty (50) miles from the location of the Institution, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 13. PAYMENT OF LEGAL FEES. All reasonable legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Holding Company if Executive is successful pursuant to a legal judgment, arbitration or settlement. 14. INDEMNIFICATION. The Holding Company shall provide Executive (including his heirs, executors and administrators) with coverage under a standard directors' and officers' liability insurance policy at its expense, or in lieu thereof, shall indemnify Executive (and his heirs, executors and administrators) to the fullest extent permitted under Delaware law and as provided in the Holding Company's certificate of incorporation against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Holding Company (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities), 6 such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys' fees and the cost of reasonable settlements. 15. SUCCESSOR TO THE HOLDING COMPANY. The Holding Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Institution or the Holding Company, expressly and unconditionally to assume and agree to perform the Holding Company's obligations under this Agreement, in the same manner and to the same extent that the Holding Company would be required to perform if no such succession or assignment had taken place. 16. SIGNATURES. IN WITNESS WHEREOF, Wayne Bancorp, Inc. has caused this Agreement to be executed by its duly authorized officer, and Executive has signed this Agreement, on the ____ day of _________________, 1997. ATTEST: WAYNE BANCORP, INC. __________________________ By: _________________________________ Secretary Harold P. Cook Chairman of the Board and Chief Executive Officer WITNESS: - -------------------------- --------------------------------------- Executive SEAL 7 EX-10.5 6 CONTROL IN CONTROL AGREEMENT WAYNE BANCORP, INC. CHANGE IN CONTROL AGREEMENT This AGREEMENT is made effective as of_________________, 1997, by and between Wayne Bancorp, Inc. (the "Holding Company"), a corporation organized under the laws of the State of Delaware, with its office at 1195 Hamburg Turnpike, Wayne, New Jersey, and Timothy P. Tierney ("Executive"). The term "Institution" refers to Wayne Savings Bank, F.S.B., the wholly-owned subsidiary of the Holding Company or any successor thereto. WHEREAS, the Holding Company recognizes the substantial contribution Executive has made to the Holding Company and wishes to protect his position therewith for the period provided in this Agreement; and WHEREAS, Executive has agreed to serve in the employ of the Holding Company or an affiliate thereof. NOW, THEREFORE, in consideration of the contribution and responsibilities of Executive, and upon the other terms and conditions hereinafter provided, the parties hereto agree as follows: 1. TERM OF AGREEMENT. The term of this Agreement shall be deemed to have commenced as of the date first above written and shall continue for a period of twenty-four (24) full calendar months thereafter. Commencing on the date of execution of this Agreement the term of this Agreement shall be extended for one day each day until such time as the board of directors of the Holding Company (the "Board") or Executive elects not to extend the term of the Agreement by giving written notice to the other party in accordance with Section 4 of this Agreement, in which case the term of this Agreement shall be fixed and shall end on the second anniversary of the date of such written notice. 2. CHANGE IN CONTROL. (a) For purposes of this Agreement, a "Change in Control" of the Institution or Holding Company shall mean an event of a nature that: (i) would be required to be reported in response to Item 1(a) of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"); or (ii) results in a Change in Control of the Institution or the Holding Company within the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act, and the Rules and Regulations promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the date hereof (provided, that in applying the definition of change in control as set forth under the rules and regulations of the OTS, the Board shall substitute its judgment for that of the OTS); or (iii) without limitation such a Change in Control shall be deemed to have occurred at such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Institution or the Holding Company representing 20% or more of the Institution's or the Holding Company's outstanding voting securities or right to acquire such securities except for any voting securities of the Institution purchased by the Holding Company and any securities purchased by any employee benefit plan of the Institution, or (B) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Holding Company's stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (B), considered as though he were a member of the Incumbent Board, or (C) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Institution or the Holding Company or similar transaction occurs in which the Institution or Holding Company is not the resulting entity; provided, however, that such an event will be deemed to have occurred or to have been effectuated upon the receipt of all required regulatory approvals not including the lapse of any statutory waiting periods; or (D) a proxy statement is distributed soliciting proxies from stockholders of the Holding Company, by someone other than the current management of the Holding Company, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Holding Company or Institution with one or more corporations as a result of which the outstanding shares of the class of securities then subject to such plan or transaction are exchanged for or converted into cash or property or securities not issued by the Institution or the Holding Company shall be distributed, or (E) a tender offer is made for 20% or more of the voting securities of the Institution or Holding Company then outstanding. (b) If a Change in Control of the Holding Company has occurred pursuant to Section 2(a) or the Board has determined that a Change in Control has occurred, Executive shall be entitled to the benefits set forth in Section 3 herein upon his subsequent termination of employment at any time during the term of this Agreement due to (1) Executive's dismissal or (2) Executive's voluntary resignation following any demotion, loss of title, office or significant authority, coupled with a reduction in the compensation and benefits being received by Executive immediately preceding the change in Executive's functions, duties or responsibilities, or any material reduction in his annual compensation or benefits, or relocation of his principal place of employment by more than 15 miles from its location immediately prior to the Change in Control unless such termination is because of death or Termination for Cause as defined in paragraph (c). (c) Executive shall not have the right to receive termination benefits pursuant to Section 3 hereof upon Termination for Cause. The term "Termination for Cause" shall include termination because of Executive's personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful misconduct, willful violation of any law, rule, regulation (other than traffic violations or similar offenses) or final cease and desist order, or any material breach of this Agreement. For purposes of this Section, no act, or the failure to act, on Executive's part shall be "willful" unless done, or omitted to be done, not in good faith and without reasonable belief that the action or omission was in the best interest of the Holding Company or its affiliates. Notwithstanding the foregoing, Executive shall not be deemed to have been Terminated for Cause unless and until 2 there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than three-fourths of the members of the Board at a meeting of the Board called and held for that purpose (after reasonable notice to Executive and an opportunity for him, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of conduct justifying Termination for Cause and specifying the particulars thereof in detail. Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause. During the period beginning on the date of the Notice of Termination for Cause pursuant to Section 4 hereof through the Date of Termination, stock options and related limited rights granted to Executive under any stock option plan shall not be exercisable nor shall any unvested awards granted to Executive under any stock benefit plan of the Institution, the Holding Company or any subsidiary or affiliate thereof, vest. At the Date of Termination, such stock options and related limited rights and such unvested awards shall become null and void and shall not be exercisable by or delivered to Executive at any time subsequent to such Date of Termination for Cause. 3. TERMINATION BENEFITS. (a) Upon Executive's entitlement to benefits pursuant to Section 2(b), the Holding Company shall pay Executive, or in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to the greater of (1) the payments due for the remaining term of the Agreement and (2) two (2) times Executive's average annual compensation for the two preceding taxable years that Executive has been employed by the Holding Company or such lesser number of years in the event that Executive shall have been employed by the Holding Company for less than two (2) years. Such annual compensation shall include salary, commissions, bonuses contributions on behalf of Executive to any pension and profit sharing plan, severance payments, directors or committee fees and fringe benefits paid or to be paid to the Executive during such year. At the election of Executive, which election is to be made prior to a Change in Control, such payment shall be made in a lump sum. In the event that no election is made, payment to Executive will be made on a monthly basis in approximately equal installments over a period of twenty-four (24) months following Executive's termination. (b) Upon Executive's entitlement to benefits pursuant to Section 2(b) the Holding Company shall cause to be continued life, medical, dental and disability coverage substantially identical to the coverage maintained by the Holding Company or the Institution for Executive prior to his severance, except to the extent such coverage may be changed in its application to all Institution employees. Such coverage and payments shall cease upon expiration of twenty-four (24) full calendar months following the Date of Termination. (c) Notwithstanding the paragraphs of Section 3, in the event that: (i) the aggregate payments or benefits to be made or afforded to Executive, which are deemed to be parachute payments as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") or any successor thereof, (the "Termination Benefits") would be deemed to include an "excess parachute payment" under Section 280G of the Code; and 3 (ii) if such Termination Benefits were reduced to an amount (the "Non-Triggering Amount"), the value of which is one dollar ($1.00) less than an amount equal to three (3) times Executive's "base amount," as determined in accordance with said Section 280G and the Non-Triggering Amount less the product of the marginal rate of any applicable state and federal income tax and the Non-Triggering Amount would be greater than the aggregate value of the Termination Benefits (excluding such reduction) minus (i) the amount of tax required to be paid by the Executive thereon by Section 4999 of the Code and further minus (ii) the product of the Termination Benefits and the marginal rate of any applicable state and federal income tax. then the Termination Benefits shall be reduced to the Non-Triggering Amount. The allocation of the reduction required hereby among the Termination Benefits shall be determined by the Executive. 4. NOTICE OF TERMINATION. (a) Any purported termination by the Holding Company, or by Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. (b) "Date of Termination" shall mean the date specified in the Notice of Termination (which, in the case of Termination for Cause, shall not be less than thirty (30) days from the date such Notice of Termination is given). (c) If, within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected) and provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Holding Company will continue to pay Executive his full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to his current annual salary) until the dispute is finally resolved in accordance with this Agreement. Amounts paid under this Section 4(c) are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4 5. SOURCE OF PAYMENTS. (a) All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Holding Company subject to this Section 5(b). (b) Notwithstanding any provision herein to the contrary, to the extent that payments and benefits, as provided by this Agreement, are paid to or received by Executive under the Employment Agreement dated ______________, between Executive and the Institution, such compensation payments and benefits paid by the Institution will be subtracted from any amount due simultaneously to Executive under similar provisions of this Agreement. Payments pursuant to this Agreement and the Institution Agreement shall be allocated in proportion to the level of activity and the time expended on such activities by the Executive as determined by the Holding Company and the Institution on a quarterly basis. 6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS. This Agreement contains the entire understanding between the parties hereto and supersedes any prior agreement between the Holding Company or any predecessor of the Holding Company and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to Executive of a kind elsewhere provided. No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to him without reference to this Agreement. 7. NO ATTACHMENT. (a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect. (b) This Agreement shall be binding upon, and inure to the benefit of, Executive, the Holding Company and their respective successors and assigns. 8. MODIFICATION AND WAIVER. (a) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. (b) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 5 9. SEVERABILITY. If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect. 10. HEADINGS FOR REFERENCE ONLY. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 11. GOVERNING LAW. The validity, interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of New Jersey. 12. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators sitting in a location selected by Executive within fifty (50) miles from the location of the Institution, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 13. PAYMENT OF LEGAL FEES. All reasonable legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Holding Company if Executive is successful pursuant to a legal judgment, arbitration or settlement. 14. INDEMNIFICATION. The Holding Company shall provide Executive (including his heirs, executors and administrators) with coverage under a standard directors' and officers' liability insurance policy at its expense, or in lieu thereof, shall indemnify Executive (and his heirs, executors and administrators) to the fullest extent permitted under Delaware law and as provided in the Holding Company's certificate of incorporation against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Holding Company (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities), 6 such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys' fees and the cost of reasonable settlements. 15. SUCCESSOR TO THE HOLDING COMPANY. The Holding Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Institution or the Holding Company, expressly and unconditionally to assume and agree to perform the Holding Company's obligations under this Agreement, in the same manner and to the same extent that the Holding Company would be required to perform if no such succession or assignment had taken place. 16. SIGNATURES. IN WITNESS WHEREOF, Wayne Bancorp, Inc. has caused this Agreement to be executed by its duly authorized officer, and Executive has signed this Agreement, on the ____ day of ________________, 1997. ATTEST: WAYNE BANCORP, INC. __________________________ By: _________________________________ Secretary Harold P. Cook Chairman of the Board and Chief Executive Officer WITNESS: - -------------------------- --------------------------------------- Executive SEAL 7 EX-10.6 7 CHANGE IN CONTROL AGREEMENT WAYNE SAVINGS BANK, F.S.B. CHANGE IN CONTROL AGREEMENT This AGREEMENT is made effective as of _________________, 1997 by and between Wayne Savings Bank, F.S.B. (the "Institution"), a federally chartered savings bank, with its principal administrative office at 1195 Hamburg Turnpike, Wayne, New Jersey, Timothy P. Tierney ("Executive"), and Wayne Bancorp, Inc. (the "Holding Company"), a corporation organized under the laws of the State of Delaware which is the holding company of the Institution. WHEREAS, the Institution recognizes the substantial contribution Executive has made to the Institution and wishes to protect Executive's position therewith for the period provided in this Agreement; and WHEREAS, Executive has agreed to serve in the employ of the Institution. NOW, THEREFORE, in consideration of the contribution and responsibilities of Executive, and upon the other terms and conditions hereinafter provided, the parties hereto agree as follows: 1. TERM OF AGREEMENT. The term of the Wayne Savings Bank, F.S.B. Change in Control Agreement (the "Agreement") shall be deemed to have commenced as of the date first above written and shall continue for a period of twenty-four (24) full calendar months thereafter. Commencing on the first anniversary date of this Agreement and continuing at each anniversary date thereafter, the Board of Directors of the Institution ("Board") may extend the Agreement for an additional year such that the remaining term of the Agreement shall be two years unless the Executive elects not to extend the term of this Agreement by giving written notice in accordance with Section 4 of this Agreement. The Board will review the Agreement and Executive's performance annually for purposes of determining whether to extend the Agreement, and the rationale and results thereof shall be included in the minutes of the Board's meeting. The Board shall give notice to the Executive as soon as possible after such review as to whether the Agreement is to be extended. 2. CHANGE IN CONTROL. (a) For purposes of this Agreement, a "Change in Control" of the Institution or Holding Company shall mean an event of a nature that: (i) would be required to be reported in response to Item 1 of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a Change in Control of the Institution or the Holding Company within the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act and the Rules and Regulations promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the date hereof (provided, that in applying the definition of change in control as set forth under the rules and regulations of the OTS, the Board shall substitute its judgment for that of the OTS); or (iii) without limitation such a Change in Control shall be deemed to have occurred at such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Institution or the Holding Company representing 25% or more of the Institution's or the Holding Company's outstanding voting securities or right to acquire such securities except for any voting securities of the Institution purchased by the Holding Company and any voting securities purchased by any employee benefit plan of the Institution or the Holding Company, or (B) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Holding Company's stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (B), considered as though he were a member of the Incumbent Board, or (C) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Institution or the Holding Company or similar transaction occurs in which the Institution or Holding Company is not the resulting entity; provided, however, that such an event will be deemed to have occurred or to have been effectuated upon the receipt of all required regulatory approvals not including the lapse of any statutory waiting periods. (b) If a Change in Control of the Institution or the Holding Company has occurred pursuant to Section 2(a) or the Board has determined that a Change in Control has occurred, Executive shall be entitled to the benefits set forth in Section 3 herein upon his subsequent termination of employment at any time during the term of this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary resignation following any demotion, loss of title, office or significant authority, coupled with a reduction in the compensation and benefits being received by Executive immediately preceding the change in Executive's functions, duties or responsibilities, or any material reduction in annual compensation or benefits, or relocation of his principal place of employment by more than 15 miles from its location immediately prior to the Change in Control unless such termination is because of death or Termination for Cause as defined in paragraph (c). (c) Executive shall not have the right to receive termination benefits pursuant to Section 3 hereof upon Termination for Cause. The term "Termination for Cause" shall include termination because of Executive's personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. Notwithstanding the foregoing, Executive shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the Board of Directors of the Institution at a meeting of the Board called and held for that purpose (after reasonable notice to Executive and an opportunity for him, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of conduct justifying Termination for 2 Cause and specifying the particulars thereof in detail. The Executive shall not have the right to receive compensation or other benefits for any period after the Date of Termination for Cause. During the period beginning on the date of the Notice of Termination for Cause pursuant to Section 4 hereof through the Date of Termination for Cause, stock options and related limited rights granted to Executive under any stock option plan shall not be exercisable nor shall any unvested awards granted to Executive under any stock benefit plan of the Institution, the Company or any subsidiary or affiliate thereof vest. At the Date of Termination for Cause, such stock options and related limited rights shall become null and void and shall not be exercisable by or delivered to Executive at any time subsequent to such Termination for Cause. 3. TERMINATION BENEFITS. (a) Upon Executive's entitlement to benefits pursuant to Section 2(b), the Institution shall pay Executive, or in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to the greater of: (1) the payments due for the remaining term of the Agreement; or (2) two (2) times Executive's average annual compensation for the five (5) most recent taxable years that Executive has been employed by the Institution or such lesser number of years in the event that Executive shall have been employed by the Institution for less than five years. Such average annual compensation shall include salary, commissions, contributions on Executive's behalf to any pension and/or profit sharing plan, severance payments, retirement payments, directors or committee fees, fringe benefits paid or to be paid to the Executive in any such year, and payment of any expense items without accountability or business purpose or that do not meet the Internal Revenue Service ("IRS") requirements for deducibility by the Institution: provided, however, that any payment under this provision and subsection 3(b) below shall not exceed three (3) times the Executive's average annual compensation. In the event the Institution is not in compliance with its minimum capital requirements or if such payments would cause the Institution's capital to be reduced below its minimum regulatory capital requirements, such payments shall be deferred until such time as the Institution or successor thereto is in capital compliance. At the election of Executive such payment may be made in a lump sum as of the Executive's Date of Termination. In the event that no election is made, payment to Executive will be made on a monthly basis in approximately equal installments over a period of twenty-four (24) months following Executive's termination. (b) Upon the Executive's entitlement to benefits pursuant to Section 2(b), the Institution shall cause to be continued life, medical, dental, and disability coverage substantially identical to the coverage maintained by the Institution for Executive prior to his severance, except to the extent such coverage may be changed in its application to all Institution employees on a nondiscriminatory basis. Such coverage and payments shall cease upon the expiration of twenty-four (24) full calendar months from the Date of Termination. (c) Notwithstanding the preceding paragraphs of this Section 3, in no event shall the aggregate payments or benefits to be made or afforded to Executive under said paragraphs (the "Termination Benefits") constitute an "excess parachute payment" under Section 280G of the Code or any successor thereto, and in order to avoid such a result Termination Benefits will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the value of which is one 3 dollar ($1.00) less than an amount equal to three (3) times Executive's "base amount," as determined in accordance with said Section 280G. The allocation of the reduction required hereby among the Termination Benefits provided by the preceding paragraphs of this Section 3 shall be determined by Executive. 4. NOTICE OF TERMINATION. (a) Any purported termination by the Institution or by Executive in connection with a Change in Control shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. (b) "Date of Termination" shall mean the date specified in the Notice of Termination (which, in the instance of Termination for Cause, shall not be less than thirty (30) days from the date such Notice of Termination is given). (c) If, within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected) and provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, in the event the Executive is terminated for reasons other than Termination for Cause, the Institution will continue to pay Executive his full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to his annual salary) until the earlier of: (1) the resolution of the dispute in accordance with this Agreement or (2) the expiration of the remaining term of this Agreement as determined as of the Date of Termination. Amounts paid under this Section are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amount due under this Agreement. 5. SOURCE OF PAYMENTS. (a) All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Institution. The Holding Company, however, unconditionally guarantees payment and provision of all amounts and benefits due hereunder to Executive and, if such amounts and benefits due from the Institution are not timely paid or provided by the Institution, such amounts and benefits shall be paid or provided by the Holding Company. 4 (b) Notwithstanding any provision herein to the contrary, to the extent that payments and benefits, as provided by this Agreement, are paid to or received by Executive under the Employment Agreement dated December __, 1996, between Executive and the Holding Company, such compensation payments and benefits paid by the Holding Company will be subtracted from any amount due simultaneously to Executive under similar provisions of this Agreement. Payments pursuant to this Agreement and the Holding Company Agreement shall be allocated in proportion to the services rendered and time expended on such activities by Executive as determined by the Holding Company and the Institution on a quarterly basis. 6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS. This Agreement contains the entire understanding between the parties hereto and supersedes any prior agreement between the Institution and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to Executive of a kind elsewhere provided. No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to him without reference to this Agreement. Nothing in this Agreement shall confer upon Executive the right to continue in the employ of Institution or shall impose on the Institution any obligation to employ or retain Executive in its employ for any period. 7. NO ATTACHMENT. (a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect. (b) This Agreement shall be binding upon, and inure to the benefit of, Executive, the Institution and their respective successors and assigns. 8. MODIFICATION AND WAIVER. (a) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. (b) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 5 9. REQUIRED REGULATORY PROVISIONS. (a) The board of directors may terminate Executive's employment at any time, but any termination by the board of directors, other than Termination for Cause, shall not prejudice Executive's right to compensation or other benefits under this Agreement. Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause as defined in Section 2 hereinabove. (b) If Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Institution's affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1818(e)(3) or (g)(1), the Institution's obligations under this contract shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Institution may in its discretion (i) pay Executive all or part of the compensation withheld while their contract obligations were suspended and (ii) reinstate (in whole or in part) any of the obligations which were suspended. (c) If Executive is removed and/or permanently prohibited from participating in the conduct of the Institution's affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1818(c)(4) or (g)(1), all obligations of the Institution under this contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected. (d) If the Institution is in default as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1818(e)(4) or (g)(1), all obligations of the Institution under this contract shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties. (e) All obligations under this contract shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the institution: (i) by the Director of the Office of Thrift Supervision (or his or her designee) at the time the Federal Deposit Insurance Corporation or the Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of the Institution under the authority contained in Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1823(c); or (ii) by the Director of the Office of Thrift Supervision (or his or her designee) at the time the Director (or his or her designee) approves a supervisory merger to resolve problems related to operation of the Institution or when the Institution is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action. (f) Any payments made to Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon compliance with 12 U.S.C. ss.1828(k) and 12 C.F.R. ss.545.121 and any rules and regulations promulgated thereunder. 6 10. REINSTATEMENT OF BENEFITS UNDER SECTION 4. In the event Executive is suspended and/or temporarily prohibited from participating in the conduct of the Institution's affairs by a notice described in Section 4 hereof (the "Notice") during the term of this Agreement and a Change in Control, as defined herein, occurs, the Company will assume its obligation to pay and Executive will be entitled to receive all of the termination benefits provided for under Section 3 of this Agreement upon the Company's receipt of a dismissal of charges in the Notice. 11. SEVERABILITY. If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect. 12. HEADINGS FOR REFERENCE ONLY. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 13. GOVERNING LAW. The validity, interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of New Jersey but only to the extent not preempted by Federal law. 14. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators sitting in a location selected by Executive within fifty (50) miles from the location of the Institution, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 15. PAYMENT OF COSTS AND LEGAL FEES. All reasonable costs and legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Institution (which payments are guaranteed by the Holding Company pursuant to Section 5 7 hereof) if Executive is successful on the merits pursuant to a legal judgment, arbitration or settlement. 16. INDEMNIFICATION. (a) The Institution shall provide Executive (including his heirs, executors and administrators) with coverage under a standard directors' and officers' liability insurance policy at its expense and shall indemnify Executive (and the Executive's heirs, executors and administrators) to the fullest extent permitted under federal law against all expenses and liabilities reasonably incurred by Executive in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Institution (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys' fees and the cost of reasonable settlements. (b) Any payments made to Executive pursuant to this Section are subject to and conditioned upon compliance with 12 C.F.R. ss. 545.121 and any rules or regulations promulgated thereunder. 17. SUCCESSOR TO THE INSTITUTION The Institution shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Institution or the Holding Company, expressly and unconditionally to assume and agree to perform the Institution's obligations under this Agreement, in the same manner and to the same extent that the Institution would be required to perform if no such succession or assignment had taken place. 8 18. SIGNATURES. IN WITNESS WHEREOF, Wayne Savings Bank, F.S.B. and Wayne Bancorp, Inc. have caused this Agreement to be executed by their duly authorized officers, and Executive has signed this Agreement, on the ____ day of ________________, 1997. ATTEST: WAYNE SAVINGS BANK, F.S.B. _______________________ By: ___________________________ Secretary Harold P. Cook Chairman of the Board SEAL ATTEST: WAYNE BANCORP, INC. _______________________ By: ___________________________ Secretary Harold P. Cook Chairman of the Board and Chief Executive Officer SEAL WITNESS: - ------------------------ --------------------------------- Executive 9 EX-10.7 8 WAYNE SAVINGS FIN SERV EMPLOYMENT AGREEMENT WAYNE SAVINGS FINANCIAL SERVICES GROUP, INC. EMPLOYMENT AGREEMENT This AGREEMENT is made effective as of ____________________, by and among Wayne Savings Financial Services Group, Inc. ("Financial Services"), a New Jersey chartered corporation with its principal administrative office at 1195 Hamburg Turnpike, Wayne, New Jersey, Wayne Savings Bank, FSB, a federal savings bank, the parent company for Financial Services (the "Institution"), and Gary Len ("Executive"). Any references to Wayne Bancorp, Inc. (the "Parent Holding Company") refer to the holding company for the Institution. WHEREAS, Financial Services wishes to assure itself of the services of Executive for the period provided in this Agreement; and WHEREAS, Executive is willing to serve in the employ of Financial Services on a full-time basis for said period. NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows: 1. POSITION AND RESPONSIBILITIES. During the period of his employment hereunder, Executive agrees to serve as President of Financial Services. Executive shall render administrative and management services to Financial Services such as are customarily performed by persons situated in a similar executive capacity and such other duties as are from time to time assigned to her by the Board of Directors. During said period, Executive also agrees to serve, if elected, as an officer and director of any affiliate of Financial Services. 2. TERMS AND DUTIES. (a) The period of Executive's employment under this Agreement shall be deemed to have commenced as of the date first above written and shall continue for a period of thirty-six (36) full calendar months thereafter. Commencing on the first anniversary date of this Agreement, and continuing on each anniversary thereafter, the disinterested members of the board of directors of Financial Services ("Board") may extend the Agreement for an additional year such that the remaining term of the Agreement shall be three (3) years unless the Executive elects not to extend the term of this Agreement by giving written notice in accordance with Section 8 of this Agreement. The Board will review the Agreement and Executive's performance annually for purposes of determining whether to extend the Agreement and the rationale and results thereof shall be included in the minutes of the Board's meeting. The Board shall give notice to the Executive as soon as possible after such review as to whether the Agreement is to be extended. (b) During the period of Executive's employment hereunder, except for periods of absence occasioned by illness, reasonable vacation periods, and reasonable leaves of absence, Executive shall devote substantially all his business time, attention, skill, and efforts to the faithful performance of his duties hereunder including activities and services related to the organization, operation and management of Financial Services and participation in community and civic organizations; provided, however, that, with the approval of the Board, as evidenced by a resolution of such Board, from time to time, Executive may serve, or continue to serve, on the boards of directors of, and hold any other offices or positions in, companies or organizations, which, in such Board's judgment, will not present any conflict of interest with Financial Services, or materially affect the performance of Executive's duties pursuant to this Agreement. (c) Notwithstanding anything herein to the contrary, Executive's employment with Financial Services may be terminated by Financial Services or the Executive during the term of this Agreement, subject to the terms and conditions of this Agreement. 3. COMPENSATION AND REIMBURSEMENT. (a) Financial Services shall pay Executive as compensation a salary of not less than $__________ per year ("Base Salary"). Base Salary shall include any amounts of compensation deferred by Executive under any qualified or unqualified plan maintained by Financial Services. Such Base Salary shall be payable bi-weekly. During the period of this Agreement, Executive's Base Salary shall be reviewed at least annually; the first such review will be made no later than one year from the date of this Agreement. Such review shall be conducted by the Board or by a Committee of the Board, delegated such responsibility by the Board. The Board may by resolution increase Executive's Base Salary. Any increase in Base Salary shall become the "Base Salary" for purposes of this Agreement. In addition to the Base Salary provided in this Section 3(a), Financial Services shall also provide Executive, at no premium cost to Executive, with all such other benefits as are provided uniformly to permanent full-time employees of Financial Services. (b) The Executive shall be entitled to participate in any employee benefit plans, arrangements and perquisites substantially equivalent to those in which Executive was participating or otherwise deriving benefit from immediately prior to the beginning of the term of this Agreement, and Financial Services will not, without Executive's prior written consent, make any changes in such plans, arrangements or perquisites which would materially adversely affect Executive's rights or benefits thereunder; except to the extent such changes are made applicable to all Financial Services employees on a non-discriminatory basis. Without limiting the generality of the foregoing provisions of this Subsection (b), Executive shall be entitled to participate in or receive benefits under any employee benefit plans including but not limited to, retirement plans, supplemental retirement plans, pension plans, profit-sharing plans, health-and-accident plans, medical coverage or any other employee benefit plan or arrangement made available by the Institution or Financial Services in the future to Financial Services' senior executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Executive shall be entitled to incentive compensation and bonuses as provided in any plan of Financial Services or its affiliates in which Executive is eligible to participate. Nothing paid to the Executive under any such plan or arrangement will be deemed to be in lieu of other compensation to which the Executive is entitled under this Agreement. 2 (c) In addition to the Base Salary provided for by paragraph (a) of this Section 3 and other compensation provided for by paragraph (b) of this Section 3, Financial Services shall pay or reimburse Executive for all reasonable travel and other reasonable expenses incurred in the performance of Executive's obligations under this Agreement and may provide such additional compensation in such form and such amounts as the Board may from time to time determine. 4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION. (a) Upon the occurrence of an Event of Termination (as herein defined) during the Executive's term of employment under this Agreement, the provisions of this Section shall apply. As used in this Agreement, an "Event of Termination" shall mean and include any one or more of the following: (i) the termination by Financial Services of Executive's full-time employment hereunder for any reason other than a termination governed by Section 5(a) hereof, or Termination for Cause, as defined in Section 7 hereof; (ii) Executive's resignation from Financial Services' employ upon any (A) failure to elect or reelect or to appoint or reappoint Executive as President, unless consented to by the Executive, (B) a material change in Executive's function, duties, or responsibilities, which change would cause Executive's position to become one of lesser responsibility, importance, or scope from the position and attributes thereof described in Section 1, above, coupled with a material reduction in the benefits and perquisites being provided to Executive immediately preceding the change in Executive's functions, duties or responsibilities, unless consented to by Executive, (C) a relocation of Executive's principal place of employment by more than 15 miles from its location at the effective date of this Agreement, unless consented to by the Executive, (D) a material reduction in the benefits and perquisites to the Executive from those being provided as of the effective date of this Agreement, unless consented to by the Executive, or (E) a liquidation or dissolution of Financial Services, or (F) breach of this Agreement by Financial Services. Upon the occurrence of any event described in clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have the right to elect to terminate his employment under this Agreement by resignation upon not less than sixty (60) days prior written notice given within six full months after the event giving rise to said right to elect. (b) Upon the occurrence of an Event of Termination, on the Date of Termination, as defined in Section 8, Financial Services shall be obligated to pay Executive, or, in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be, an amount equal to the sum of: (i) the amount of the remaining payments that the Executive would have earned if he had continued his employment with Financial Services during the remaining term of this Agreement at the Executive's Base Salary at the Date of Termination; and (ii) the amount equal to the annual contributions that would have been made on Executive's behalf to any employee benefit plans of Financial Services or the Institution or Holding Company during the remaining term of this Agreement based on contributions made (on an annualized basis) at the Date of Termination; provided, however, that any payments pursuant to this subsection and subsection 4(c) below shall not, in the aggregate, exceed three times Executive's average annual compensation for the five most recent taxable years that Executive has been employed by Financial Services or such lesser number of years in the event that Executive shall have been employed by Financial Services for less than five years. In the event the Institution is not in compliance with its minimum capital requirements or if such payments pursuant to this subsection 3 (b) would cause the Institution's capital to be reduced below its minimum regulatory capital requirements, such payments shall be deferred until such time as the Institution or successor thereto is in capital compliance. At the election of the Executive, which election is to be made prior to an Event of Termination, such payments shall be made in a lump sum as of the Executive's Date of Termination. In the event that no election is made, payment to Executive will be made on a monthly basis in approximately equal installments during the remaining term of the Agreement. Such payments shall not be reduced in the event the Executive obtains other employment following termination of employment. (c) Upon the occurrence of an Event of Termination, Financial Services will cause to be continued life, medical and disability coverage substantially identical to the coverage maintained by Financial Services or the Institution for Executive prior to his termination at no premium cost to the Executive, except to the extent such coverage may be changed in its application to all Financial Services or Institution employees. Such coverage shall cease upon the expiration of the remaining term of this Agreement. 5. CHANGE IN CONTROL. (a) For purposes of this Agreement, a "Change in Control" shall mean an event of a nature that: (i) would be required to be reported in response to Item 1 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a Change in Control of Financial Services, the Institution or the Parent Holding Company within the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act and the Rules and Regulations promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the date hereof (provided, that in applying the definition of change in control as set forth under the rules and regulations of the OTS, the Board shall substitute its judgment for that of the OTS); or (iii) without limitation such a Change in Control shall be deemed to have occurred at such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of voting securities of Financial Services, the Institution or the Parent Holding Company representing 25% or more of Financial Services', the Institution's or the Parent Holding Company's outstanding voting securities or right to acquire such securities except for any voting securities of Financial Services purchased by the Institution or the Parent Holding Company and any voting securities purchased by any employee benefit plan of Financial Services or the Institution or the Parent Holding Company, or (B) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Parent Holding Company's stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (B), considered as though he were a member of the Incumbent Board, or (C) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of Financial Services or the Institution or the Parent Holding Company or similar transaction occurs in which Financial Services, the Institution or the Parent 4 Holding Company is not the resulting entity; provided, however, that such an event listed above will be deemed to have occurred or to have been effectuated upon the receipt of all required regulatory approvals not including the lapse of any statutory waiting periods. (b) If a Change in Control has occurred pursuant to Section 5(a) or the Board has determined that a Change in Control has occurred, Executive shall be entitled to the benefits provided in paragraphs (c), and (d) of this Section 5 upon his subsequent termination of employment at any time during the term of this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary resignation following any demotion, loss of title, office or significant authority or responsibility, coupled with a reduction in the compensation and benefits being received by Executive immediately preceding the change in Executive's functions, duties or responsibilities, or any material reduction in annual compensation or benefits or relocation of his principal place of employment by more than 15 miles from its location immediately prior to the Change in Control, unless such termination is because of his death, disability, retirement or termination for Cause. (c) Upon Executive's entitlement to benefits pursuant to Section 5(b), Financial Services shall pay Executive, or in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to the greater of: (1) the payments due for the remaining term of the Agreement; or (2) three (3) times Executive's average annual compensation for the five (5) most recent taxable years that Executive has been employed by Financial Services or such lesser number of years in the event that Executive shall have been employed by Financial Services for less than five (5) years. Such average annual compensation shall include Base Salary, commissions, bonuses, contributions on Executive's behalf to any pension and/or profit sharing plan, severance payments, retirement payments, directors or committee fees, fringe benefits paid or to be paid to the Executive in any such year, and payment of any expense items without accountability or business purpose or that do not meet the Internal Revenue Service requirements for deductibility by Financial Services; provided however, that any payment under this provision and subsection 5(d) below shall not exceed three (3) times the Executive's average annual compensation. In the event the Institution is not in compliance with its minimum capital requirements or if such payments would cause the Institution's capital to be reduced below its minimum regulatory capital requirements, such payments shall be deferred until such time as the Institution or successor thereto is in capital compliance. At the election of the Executive, which election is to be made prior to a Change in Control, such payment may be made in a lump sum as of the Executive's Date of Termination. In the event that no election is made, payment to the Executive will be made in approximately equal installments on a monthly basis over a period of thirty-six (36) months following the Executive's termination. Such payments shall not be reduced in the event Executive obtains other employment following termination of employment. (d) Upon the Executive's entitlement to benefits pursuant to Section 5(b), Financial Services will cause to be continued life, medical and disability coverage substantially identical to the coverage maintained by Financial Services for Executive prior to his severance at no premium cost to the Executive, except to the extent that such coverage may be changed in its application for all Institution employees on a non-discriminatory basis. Such coverage and 5 payments shall cease upon the expiration of thirty-six (36) months following the Date of Termination. 6. CHANGE OF CONTROL RELATED PROVISIONS Notwithstanding the provisions of Section 5, in no event shall the aggregate payments or benefits to be made or afforded to Executive under said paragraphs (the "Termination Benefits") constitute an "excess parachute payment" under Section 280G of the Code or any successor thereto, and in order to avoid such a result, Termination Benefits will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the value of which is one dollar ($1.00) less than an amount equal to three (3) times Executive's "base amount", as determined in accordance with said Section 280G. The allocation of the reduction required hereby among the Termination Benefits provided by Section 5 shall be determined by Executive. 7. TERMINATION FOR CAUSE. The term "Termination for Cause" shall include termination because of Executive's personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease and desist order or material breach of any provision of this Agreement. Notwithstanding the foregoing, Executive shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to him a Notice of Termination which shall include a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the members of the Board at a meeting of the Board called and held for that purpose (after reasonable notice to Executive and an opportunity for him, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of conduct justifying Termination for Cause and specifying the particulars thereof in detail. The Executive shall not have the right to receive compensation or other benefits for any period after Date of Termination for Cause. During the period beginning on the date of the Notice of Termination for Cause pursuant to Section 8 hereof through the Date of Termination for Cause, stock options and related limited rights granted to Executive under any stock option plan shall not be exercisable nor shall any unvested awards granted to Executive under any stock benefit plan of Financial Services, the Institution or the Parent Holding Company or any subsidiary or affiliate thereof, vest. At the Date of Termination for Cause, such stock options and related limited rights and such unvested awards shall become null and void and shall not be exercisable by or delivered to Executive at any time subsequent to such Termination for Cause. 8. NOTICE. (a) Any purported termination by Financial Services or by Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable 6 detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. (b) "Date of Termination" shall mean the date specified in the Notice of Termination (which, in the case of a Termination for Cause, shall not be less than thirty days from the date such Notice of Termination is given). (c) If, within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected) and provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, in the event the Executive is terminated for reasons other than Termination for Cause, Financial Services will continue to pay Executive his Base Salary in effect when the notice giving rise to the dispute was given until the earlier of: (1) the resolution of the dispute in accordance with this Agreement or (2) the expiration of the remaining term of this Agreement as determined as of the Date of Termination. Amounts paid under this Section are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 9. POST-TERMINATION OBLIGATIONS. All payments and benefits to Executive under this Agreement shall be subject to Executive's compliance with this Section 9 for one (1) full year after the earlier of the expiration of this Agreement or termination of Executive's employment with Financial Services. Executive shall, upon reasonable notice, furnish such information and assistance to Financial Services as may reasonably be required by Financial Services in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party. 10. NON-COMPETITION. (a) Upon any termination of Executive's employment hereunder pursuant to Section 4 hereof, Executive agrees not to compete with Financial Services for a period of one (1) year following such termination in any city, town or county in which the Executive's normal business office is located and Financial Services has an office or has filed an application for regulatory approval to establish an office, determined as of the effective date of such termination, except as agreed to pursuant to a resolution duly adopted by the Board. Executive agrees that during such period and within said cities, towns and counties, Executive shall not work for or advise, consult or otherwise serve with, directly or indirectly, any entity whose business materially competes with the depository, lending or other business activities of Financial Services. The parties hereto, recognizing that irreparable injury will result to Financial Services, its business and property in the event of Executive's breach of this Subsection 10(a) agree that in the event of any 7 such breach by Executive, Financial Services will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by Executive, Executive's partners, agents, servants, employees and all persons acting for or under the direction of Executive. Nothing herein will be construed as prohibiting Financial Services from pursuing any other remedies available to Financial Services for such breach or threatened breach, including the recovery of damages from Executive. (b) Executive recognizes and acknowledges that the knowledge of the business activities and plans for business activities of Financial Services and affiliates thereof, as it may exist from time to time, is a valuable, special and unique asset of the business of Financial Services. Executive will not, during or after the term of his employment, disclose any knowledge of the past, present, planned or considered business activities of Financial Services or affiliates thereof to any person, firm, corporation, or other entity for any reason or purpose whatsoever. Notwithstanding the foregoing, Executive may disclose any knowledge of banking, financial and/or economic principles, concepts or ideas which are not solely and exclusively derived from the business plans and activities of Financial Services. Further, Executive may disclose information regarding the business activities of the Bank to the OTS and the Federal Deposit Insurance Corporation ("FDIC") pursuant to a formal regulatory request. In the event of a breach or threatened breach by Executive of the provisions of this Section, Financial Services will be entitled to an injunction restraining Executive from disclosing, in whole or in part, the knowledge of the past, present, planned or considered business activities of Financial Services or affiliates thereof, or from rendering any services to any person, firm, corporation, or other entity to whom such knowledge, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing herein will be construed as prohibiting Financial Services from pursuing any other remedies available to Financial Services for such breach or threatened breach, including the recovery of damages from Executive. 11. SOURCE OF PAYMENTS. (a) All payments provided in this Agreement shall be timely paid in cash or check from the general funds of Financial Services. The Institution, however, guarantees payment and provision of all amounts and benefits due hereunder to Executive and, if such amounts and benefits due from Financial Services are not timely paid or provided by Financial Services, such amounts and benefits shall be paid or provided by the Institution to the extent permissible under applicable rules and regulations. (b) Notwithstanding any provision herein to the contrary, to the extent that payments and benefits, as provided by this Agreement, are paid to or received by Executive under the Employment Agreement dated ________________, 1996, between Executive and the Institution, such compensation payments and benefits paid by Financial Services will be subtracted from any amounts due simultaneously to Executive under similar provisions of this Agreement. Payments pursuant to this Agreement and Financial Services Agreement shall be allocated in proportion to the services rendered and time expended on such activities by Executive as determined by Financial Services and the Institution on a quarterly basis. 8 12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS. This Agreement contains the entire understanding between the parties hereto and supersedes any prior employment agreement between Financial Services or any predecessor of Financial Services and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to Executive of a kind elsewhere provided. No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to him without reference to this Agreement. 13. NO ATTACHMENT. (a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect. (b) This Agreement shall be binding upon, and inure to the benefit of, Executive and Financial Services and their respective successors and assigns. 14. MODIFICATION AND WAIVER. (a) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. (b) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future as to any act other than that specifically waived. 15. REQUIRED PROVISIONS. (a) Financial Services may terminate Executive's employment at any time, but any termination by Financial Services, other than Termination for Cause, shall not prejudice Executive's right to compensation or other benefits under this Agreement. Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause as defined in Section 7 hereinabove. (b) If Executive is suspended from office and/or temporarily prohibited from participating in the conduct of Financial Services' affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1818(e)(3) or (g)(1), Financial Services' obligations under this contract shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, Financial Services 9 may in its discretion: (i) pay Executive all or part of the compensation withheld while their contract obligations were suspended; and (ii) reinstate (in whole or in part) any of the obligations which were suspended. (c) If Executive is removed and/or permanently prohibited from participating in the conduct of Financial Services' affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1818(e)(4) or (g)(1), all obligations of Financial Services under this contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected. (d) If Financial Services is in default as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1813(x)(1) all obligations of Financial Services under this contract shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties. (e) All obligations of Financial Services under this contract shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the institution: (i) by the Director of the OTS (or his designee), or the FDIC at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Institution under the authority contained in Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1823(c); or (ii) by the Director of the OTS (or his designee) at the time the Director (or his designee) approves a supervisory merger to resolve problems related to the operations of the Institution or Financial Services or when the Institution or Financial Services is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action. (f) Any payments made to Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon compliance with 12 U.S.C. ss.1828(k) and 12 C.F.R. ss.545.121 and any rules and regulations promulgated thereunder. 16. REINSTATEMENT OF BENEFITS UNDER SECTION 15(b). In the event Executive is suspended and/or temporarily prohibited from participating in the conduct of Financial Services' affairs by a notice described in Section 15(b) hereof (the "Notice") during the term of this Agreement and a Change in Control, as defined herein, occurs, the Institution will assume its obligation to pay and Executive will be entitled to receive all of the termination benefits provided for under Section 5 of this Agreement upon the Institution's receipt of a dismissal of charges in the Notice. 17. SEVERABILITY. If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect. 10 18. HEADINGS FOR REFERENCE ONLY. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 19. GOVERNING LAW. The validity, interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of New Jersey, but only to the extent not superseded by federal law. 20. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators sitting in a location selected by Executive within fifty (50) miles from the location of Financial Services, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. In the event any dispute or controversy arising under or in connection with Executive's termination is resolved in favor of Executive, whether by judgment, arbitration or settlement, Executive shall be entitled to the payment of all back-pay, including salary, bonuses and any other cash compensation, fringe benefits and any compensation and benefits due Executive under this Agreement. 21. PAYMENT OF COSTS AND LEGAL FEES. All reasonable costs and legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by Financial Services if Executive is successful on the merits pursuant to a legal judgment, arbitration or settlement. 22. INDEMNIFICATION. (a) Financial Services shall provide Executive (including his heirs, executors and administrators) with coverage under a standard directors' and officers' liability insurance policy at its expense, or in lieu thereof, shall indemnify Executive (and his heirs, executors and administrators) as permitted under federal law against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of Financial Services (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities), 11 such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys' fees and the cost of reasonable settlements. (b) Any payments made to Executive pursuant to this Section are subject to and conditioned upon compliance with 12 C.F.R. ss. 545.121 and any rules or regulations promulgated thereunder. 23. SUCCESSOR TO FINANCIAL SERVICES. Financial Services shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of Financial Services, the Institution or Parent Holding Company, expressly and unconditionally to assume and agree to perform Financial Services' obligations under this Agreement, in the same manner and to the same extent that Financial Services would be required to perform if no such succession or assignment had taken place. 12 SIGNATURES IN WITNESS WHEREOF, Wayne Savings Financial Services Group, Inc. and Wayne Savings Bank, FSB have caused this Agreement to be executed and their seals to be affixed hereunto by their duly authorized officers and directors, and Executive has signed this Agreement, on the _____ day of ________________, 1997. ATTEST: Wayne Savings Financial Services Group, Inc. BY: - ---------------------------------- -------------------------------------- Secretary Chairman of the Board [SEAL] ATTEST: WAYNE SAVINGS BANK, FSB (Guarantor) BY: - ---------------------------------- -------------------------------------- Secretary Chairman of the Board [SEAL] WITNESS: - ---------------------------------- -------------------------------------- Executive 13 EX-10.8 9 CHANGE IN CONTROL AGREEMENT WAYNE SAVINGS FINANCIAL SERVICES GROUP, INC. CHANGE IN CONTROL AGREEMENT This AGREEMENT is made effective as of _______________, 1997, by and between Wayne Savings Financial Services Group, Inc. (the "Company"), a corporation organized under the laws of the State of New Jersey, with its office at 1195 Hamburg Turnpike, Wayne, New Jersey, and Richard Len ("Executive"). The term "Institution" refers to Wayne Savings Bank, F.S.B., the wholly-owned subsidiary of Wayne Bancorp, Inc. ("Parent Holding Company") or any successor thereto (collectively, the Institution and Parent Holding Company are referred to herein as "Affiliates"). WHEREAS, the Company recognizes the substantial contribution Executive has made to the Company and wishes to protect his position therewith for the period provided in this Agreement; and WHEREAS, Executive has agreed to serve in the employ of the Company or an Affiliate thereof. NOW, THEREFORE, in consideration of the contribution and responsibilities of Executive, and upon the other terms and conditions hereinafter provided, the parties hereto agree as follows: 1. TERM OF AGREEMENT. The term of this Agreement shall be deemed to have commenced as of the date first above written and shall continue for a period of twenty-four (24) full calendar months thereafter. Commencing on the first day of this Agreement and continuing on each day thereafter, this Agreement shall be extended for an additional day each day until such time as the board of directors of the Company (the "Board") or Executive elects not to extend the term of the Agreement by giving written notice to the other party in accordance with Section 4 of this Agreement. 2. CHANGE IN CONTROL. (a) For purposes of this Agreement, a "Change in Control" of the Company or its Affiliates shall mean an event of a nature that: (i) would be required to be reported in response to Item 1(a) of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a Change in Control of the Company or its Affiliates within the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act, and the Rules and Regulations promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the date hereof (provided, that in applying the definition of change in control as set forth under the rules and regulations of the OTS, the Board shall substitute its judgment for that of the OTS); or (iii) without limitation such a Change in Control shall be deemed to have occurred at such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company or its Affiliates representing 20% or more of the Company's or its Affiliates' outstanding voting securities or right to acquire such securities except for any voting securities of the Company purchased by the Company or its Affiliates and any securities purchased by any employee benefit plan of the Company or its Affiliates, or (B) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company's stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (B), considered as though he were a member of the Incumbent Board, or (C) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Company or its Affiliates or similar transaction occurs in which the Company or its Affiliates is not the resulting entity; provided, however, that such an event will be deemed to have occurred or to have been effectuated upon the receipt of all required regulatory approvals not including the lapse of any statutory waiting periods. (b) If a Change in Control of the Company has occurred pursuant to Section 2(a) or the Board has determined that a Change in Control has occurred, Executive shall be entitled to the benefits set forth in Section 3 herein upon his subsequent termination of employment at any time during the term of this Agreement due to (1) Executive's dismissal or (2) Executive's voluntary resignation following any demotion, loss of title, office or significant authority, coupled with a reduction in the compensation and benefits being received by Executive immediately preceding the change in Executive's functions, duties or responsibilities, or any material reduction in his annual compensation or benefits, or relocation of his principal place of employment by more than 15 miles from its location immediately prior to the Change in Control unless such termination is because of death or Termination for Cause as defined in paragraph (c). (c) Executive shall not have the right to receive termination benefits pursuant to Section 3 hereof upon Termination for Cause. The term "Termination for Cause" shall include termination because of Executive's personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, regulation (other than traffic violations or similar offenses) or final cease and desist order, any material breach of this Agreement. Notwithstanding the foregoing, Executive shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than three-fourths of the members of the Board at a meeting of the Board called and held for that purpose (after reasonable notice to Executive and an opportunity for him, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of conduct justifying Termination for Cause and specifying the particulars thereof in detail. The Executive shall not have the right to receive compensation or other benefits for any period after Date of Termination for Cause. During the period beginning on the date of the Notice of Termination for Cause pursuant to Section 4 hereof, stock options and related limited rights granted to Executive under any stock option plan shall not be executed nor shall 2 any unvested awards granted to Executive under any stock benefit plan of the Company or its Affiliates vest. At the Date of Termination for Cause, such stock options and related limited rights and such unvested awards shall become null and void and shall not be exercisable by or delivered to Executive at any time subsequent to such Termination for Cause. 3. TERMINATION BENEFITS. (a) Upon Executive's entitlement to benefits pursuant to Section 2(b), the Company shall pay Executive, or in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to the greater of (A) the payments due for the remaining term of the Agreement and (B) two (2) times Executive's average annual compensation for the two preceding taxable years that Executive has been employed by the Company or such lesser number of years in the event that Executive shall have been employed by the Company for less than two (2) years. Such annual compensation shall include salary, commissions, bonuses, contributions on behalf of Executive to any pension and profit sharing plan, severance payments, directors or committee fees and fringe benefits paid or to be paid to the Executive during such year. At the election of Executive, which election is to be made prior to a Change in Control, such payment shall be made in a lump sum as of the Executive's Date of Termination. In the event that no election is made, payment to Executive will be made on a monthly basis in approximately equal installments over a period of twenty-four (24) months following Executive's termination. (b) Upon Executive's entitlement to benefits pursuant to Section 2(b), the Company shall cause to be continued life, medical and disability coverage substantially identical to the coverage maintained by the Company or its Affiliates for Executive prior to his severance, except to the extent such coverage may be changed in its application to all Company employees. Such coverage and payments shall cease upon expiration of twenty-four (24) full calendar months following the Date of Termination. (c) Notwithstanding the paragraphs of Section 3, in the event that: (i) the aggregate payments or benefits to be made or afforded to Executive, which are deemed to be parachute payments as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") or any successor thereof, (the "Termination Benefits") would be deemed to include an "excess parachute payment" under Section 280G of the Code; and (ii) if such Termination Benefits were reduced to an amount (the "Non-Triggering Amount"), the value of which is one dollar ($1.00) less than an amount equal to three (3) times Executive's "base amount," as determined in accordance with said Section 280G and the Non-Triggering Amount less the product of the marginal rate of any applicable state and federal income tax and the Non-Triggering Amount would be greater than the aggregate value of the Termination Benefits (excluding such reduction) minus (i) the amount of tax required to be paid by the Executive thereon 3 by Section 4999 of the Code and further minus (ii) the product of the Termination Benefits and the marginal rate of any applicable state and federal income tax. then the Termination Benefits shall be reduced to the Non-Triggering Amount. The allocation of the reduction required hereby among the Termination Benefits shall be determined by the Executive. 4. NOTICE OF TERMINATION. (a) Any purported termination by the Company, or by Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. (b) "Date of Termination" shall mean the date specified in the Notice of Termination (which, in the case of Termination for Cause, shall not be less than thirty (30) days from the date such Notice of Termination is given). (c) If, within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected) and provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, in the event the Executive is terminated for reasons other than Termination for Cause, the Company will continue to pay Executive his full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to his current annual salary) until the dispute is finally resolved in accordance with this Agreement. Amounts paid under this Section 4(c) are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 5. SOURCE OF PAYMENTS. All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Company. 4 6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS. This Agreement contains the entire understanding between the parties hereto and supersedes any prior agreement between the Company or any predecessor of the Company and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to Executive of a kind elsewhere provided. No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to him without reference to this Agreement. 7. NO ATTACHMENT. (a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect. (b) This Agreement shall be binding upon, and inure to the benefit of, Executive, the Company and their respective successors and assigns. 8. MODIFICATION AND WAIVER. (a) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. (b) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 9. REQUIRED PROVISIONS. (a) The Company may terminate Executive's employment at any time, but any termination by the Company, other than Termination for Cause, shall not prejudice Executive's right to compensation or other benefits under this Agreement. Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause as defined in Section 7 hereinabove. (b) If Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Company's affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1818(e)(3) or (g)(1), the Company's obligations under this contract shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Company may in its 5 discretion: (i) pay Executive all or part of the compensation withheld while their contract obligations were suspended; and (ii) reinstate (in whole or in part) any of the obligations which were suspended. (c) If Executive is removed and/or permanently prohibited from participating in the conduct of the Company's affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1818(e)(4) or (g)(1), all obligations of the Company under this contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected. (d) If the Company is in default as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1813(x)(1) all obligations of the Company under this contract shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties. (e) All obligations of the Company under this contract shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the institution: (i) by the Director of the OTS (or his designee), or the FDIC at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Company under the authority contained in Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. ss.1823(c); or (ii) by the Director of the OTS (or his designee) at the time the Director (or his designee) approves a supervisory merger to resolve problems related to the operations of the Company or when the Company is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action. (f) Any payments made to Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon compliance with 12 U.S.C. ss.1828(k) and 12 C.F.R. ss.545.121 and any rules and regulations promulgated thereunder. 10. REINSTATEMENT OF BENEFITS UNDER SECTION 3. In the event Executive is suspended and/or temporarily prohibited from participating in the conduct of the Company's affairs by a notice described in Section 3 hereof (the "Notice") during the term of this Agreement and a Change in Control, as defined herein, occurs, the Parent Holding Company will assume its obligation to pay and Executive will be entitled to receive all of the termination benefits provided for under Section 4 of this Agreement upon the Parent Holding Company's receipt of a dismissal of charges in the Notice. 11. SEVERABILITY. If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect. 6 12. HEADINGS FOR REFERENCE ONLY. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 13. GOVERNING LAW. The validity, interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of New Jersey, but only to the extent not superseded by federal law. 14. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators sitting in a location selected by Executive within fifty (50) miles from the location of the Company, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 15. PAYMENT OF LEGAL FEES. All reasonable legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Company if Executive is successful pursuant to a legal judgment, arbitration or settlement. 16. INDEMNIFICATION. The Company shall provide Executive (including his heirs, executors and administrators) with coverage under a standard directors' and officers' liability insurance policy at its expense, or in lieu thereof, shall indemnify Executive (and his heirs, executors and administrators) as permitted under New Jersey law and as provided in the Company's certificate of incorporation against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Company (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys' fees and the cost of reasonable settlements. 7 17. SUCCESSOR TO THE COMPANY. The Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Company or its Affiliates, expressly and unconditionally to assume and agree to perform the Company's obligations under this Agreement, in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. 18. SIGNATURES. IN WITNESS WHEREOF, Wayne Savings Financial Services Group, Inc. has caused this Agreement to be executed by its duly authorized officer, and Executive has signed this Agreement, on the ____ day of ________________, 1997. ATTEST: Wayne Savings Financial Services Group, Inc. __________________________ By: __________________________________ Secretary WITNESS: - -------------------------- --------------------------------- Executive SEAL 8 EX-11 10 COMPUTATION OF EARNINGS PER SHARE WAYNE BANCORP, INC. COMPUTATION OF EARNINGS PER SHARE (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Quarter Twelve Months Ended Ended December 31, 1996 December 31, 1996 ----------------- ----------------- Net income applicable to common stock $ 635 $ 666 ========== ========== Primary Earnings Per Share Average number of common shares outstanding 2,052,872 2,052,872 ========= ========= Primary Earnings Per Share $0.31 $0.01 ===== ===== Note: Primary earnings per share was calculated by dividing net income by the average number of common share outstanding. The Company completed its initial public offering on June 27, 1996, and accordingly, per share data is not presented for any periods prior to the year ended December 31, 1996. EX-13 11 ANNUAL REPORT 1996 WAYNE BANCORP, INC. ANNUAL REPORT 1996 TABLE OF CONTENTS PAGE ---- Letter to Stockholders ................................................ 1 Selected Financial Data ............................................... 2 Management's Discussion and Analysis .................................. 3 Consolidated Financial Statements ..................................... 12 Notes to Consolidated Financial Statements ............................ 17 Independent Auditors' Report .......................................... 36 Stockholder Information ............................................... 37 Directors and Officers ................................................ 38 Banking Locations ..................................................... 38 Dear Fellow Shareholders: In 1996, Wayne Bancorp, Inc. (the "Company") and its subsidiary, Wayne Savings Bank, FSB (the "Bank") celebrated two milestones: First, the Bank converted from mutual to stock form and in connection with such conversion reorganized into a holding company structure. As a result, the Company became the parent of the Bank and raised approximately $21 million of new capital, net of expenses, through the sale of 2,231, 383 shares of its common stock in a public offering. Second, the Bank celebrated its 75th anniversary. We have also been recognized as the Corporate Citizen of the year by the Wayne Industrial and Economic Development Commission. This award reinforces our total commitment of service to the community. The Company began in 1997 as a public company with $244.1 million of total assets and equity capital of $36.9 million, representing 15.1% of total assets, and approximately 550 stockholders. For 1996, the Company had net income of $666,000 and would have had net income of $1.3 million except that it had to recognize a one time charge of $1.0 million during the third quarter for the special assessment imposed by Congress as part of the resolution of the differences between the Savings Association Insurance Fund and the Bank Insurance Fund. Such resolution should result in a substantial savings in deposit insurance premiums in future quarters. The Company also has a relatively new strategic business plan, which was developed prior to the Bank's conversion. Pursuant to the plan, the direction of the Bank is to evolve from a traditional savings bank to a community bank, serving the commercial real estate and non-real estate borrowing needs of the community for moderate to small size loans, as well as the traditional personal, residential real estate and consumer borrowing and investment needs for the members of the community. We are pleased with the success achieved to date in implementing the plan. During 1996, the Bank originated approximately $3.1 million in commercial real estate loans and $686,000 in other commercial loans. In addition, during 1996 the Bank originated $42.0 million of one- to four-family residential mortgage loans. The Bank also was able to reduce its non-performing assets in 1996 by $855,000. We believe the Bank's ability to expand loan originations and serve its local communities will be enhanced by the opening of a new branch office in Fairfield, New Jersey. The Bank has applied for regulatory approval to open the new banking office and believes the branch will be able to open by July, 1997. We believe the steps taken in 1996 position the Bank to successfully continue the process of becoming a complete community bank, and continue to enhance shareholder value. In this regard, we have received regulatory approval and have commenced a program to repurchase up to 5% of our outstanding common stock. In addition, the Board has declared a $0.5 per share dividend to be paid on April 25, 1997 to all stockholders of record on April 15, 1997. Finally, I would like to thank stockholders for the support they gave to the approval of the Company's 1996 Stock-Based Incentive Plan. This plan gives the Board a valuable tool to provide incentive and direction to achieve results which promote shareholder interest. We recognize that all of you expressed your confidence and trust in us when you became a stockholder of the Company and I promise we will work relentlessly to reward your trust. We look forward to continued growth and profitability and are committed to our shareholders. On behalf of the Board of Directors, officers and staff, we thank you for your continued support, investment and commitment. Sincerely, /s/ HAROLD P. COOK, III -------------------------------- Harold P. Cook, III Chairman of the Board and Chief Executive Officer SELECTED FINANCIAL DATA
AT DECEMBER 31, ------------------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- IN THOUSANDS SELECTED BALANCE SHEET DATA: Total assets ...................................................... $244,081 $207,997 $176,664 $183,228 $179,214 Securities available for sale ..................................... 80,867 58,155 3,360 11,715 -- Securities held to maturity ....................................... 3,229 3,841 50,304 33,774 46,276 Loans receivable, net ............................................. 145,425 111,988 113,091 106,333 114,858 Deposits .......................................................... 178,947 173,822 159,013 166,821 164,321 Total stockholders' equity ........................................ 36,911 17,299 16,259 15,005 12,644 FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- IN THOUSANDS SELECTED OPERATING DATA: Interest income ................................................... $ 15,458 $ 13,136 $ 11,833 $ 12,633 $ 13,870 Interest expense .................................................. 7,958 6,950 5,172 5,753 7,921 -------- -------- -------- -------- -------- Net interest income before provision for loan losses .............. 7,500 6,186 6,661 6,880 5,949 Provision for loan losses ......................................... 200 152 316 286 619 -------- -------- -------- -------- -------- Net interest income after provision for loan losses ............... 7,300 6,034 6,345 6,594 5,330 Other Income: Net gain (loss) from sale of securities available for sale ...... -- (363) 270 (3) -- Other ........................................................... 585 638 450 499 917 -------- -------- -------- -------- -------- Total other income .............................................. 585 275 720 496 917 Other expenses .................................................... 6,816 4,951 4,432 4,155 3,922 -------- -------- -------- -------- -------- Income before income tax expense .................................. 1,069 1,358 2,633 2,935 2,325 Income tax expense ................................................ 403 487 944 745 902 -------- -------- -------- -------- -------- Net income ........................................................ $ 666 $ 871 $ 1,689 $ 2,190 $ 1,423 ======== ======== ======== ======== ======== AT OR FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- SELECTED FINANCIAL RATIOS AND OTHER DATA: PERFORMANCE RATIOS: Return on average assets ........................................ 0.31% 0.46% 0.93% 1.21% 0.81% Return on average equity ........................................ 2.33 5.12 10.79 15.76 12.07 Average equity to average assets ................................ 13.21 9.03 8.63 7.68 6.72 Equity to total assets at end of period ......................... 15.12 8.32 9.20 8.10 7.06 Average interest rate spread .................................... 3.01 3.13 3.63 3.83 3.35 Net interest margin ............................................. 3.54 3.42 3.82 3.99 3.54 Average interest-earning assets to average interest-bearing liabilities .................................... 113.99 107.63 106.36 104.59 104.00 Efficiency Ratio (1) .............................................. 61.86 72.07 62.33 56.31 57.12 General and administrative expense to average assets .............. 3.07 2.45 2.44 2.30 2.23 Non-performing loans as a percent of gross loans .................. 1.41 2.16 3.17 3.26 3.60 Non-performing assets as a percent of total assets ................ 0.90 1.46 2.61 2.65 3.35 Allowance for loan losses as a percent of gross loans receivable ....................................... 1.21 1.40 1.34 1.15 0.84 Allowance for loan losses as a percent of non-performing loans ......................................... 86.18 64.86 42.33 35.24 23.33 Number of full-service customer facilities ........................ 4 4 4 4 4 - ------------- (1) Total noninterest expense divided by the sum of net interest income before provision for loan losses and noninterest income which excludes the effect in 1996 of a one time FDIC special SAIF assessment and a non-recurring charge for benefits paid to the Bank's former President and CEO. 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company's results of operations are primarily dependent on net interest income which is the difference between interest income on loans, investments and other interest-earning assets and interest expense on deposits and borrowings. Interest income on loans, investments and other interest-earning assets is a function of the average balances outstanding during the period and the average rates earned. Interest expense is a function of the average amount of deposits and borrowings outstanding during the period and average rates paid on such deposits and borrowings. The Company's net income is further affected by the level of its other expenses, such as salaries and employee benefits, occupancy and equipment costs, federal deposit insurance premiums and income taxes. OPERATING STRATEGY Management's strategy has been to operate as a community oriented financial institution by offering a variety of financial services to meet the needs of the communities it serves while maintaining capital in excess of regulatory requirements and monitoring the sensitivity of the Company's assets and liabilities to interest rate fluctuations. The Board of Directors has sought to accomplish these goals by: (i) attracting and maintaining low-cost savings and transaction accounts, as well as money market accounts, which management believes provide the Company with a stable source of funds; (ii) focusing its lending on the origination of one- to four-family, owner-occupied residential mortgage loans, including home equity loans; (iii) supplementing its one- to four-family residential lending activities with commercial real estate, multi-family, construction and consumer loans originated in the Company's primary market area in accordance with the Company's underwriting guidelines; (iv) purchasing short-to-intermediate term investment and mortgage-backed securities to complement the Company's lending activities; (v) emphasizing shorter-term loans and investments and adjustable rate assets when market conditions permit; and (vi) controlling growth. COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1996 AND DECEMBER 31, 1995. Total assets increased $36.1 million or 17.4% to $244.1 million at December 31, 1996 from $208.0 million at December 31, 1995. Total cash and cash equivalents decreased $19.4 million to $6.9 million in 1995 from $26.3 million in 1996. Cash and cash equivalents decreased due to a decrease in other liabilities which represents the January 1996 delivery of approximately $13.5 million in mortgage-backed securities, which resulted in cash and cash equivalents at December 31, 1995, being inflated by that amount until the securities were delivered and paid for in January 1996. The remainder of the decrease in cash and cash equivalents is due to the origination of loans and the purchase of securities. Securities available for sale increased $22.7 million or 39.0% to $80.9 million at December 31, 1996 from $58.2 million at December 31, 1995. The increase is the result of the $25.0 million purchase of a Federal Home Loan Mortgage Corp. ("FHLMC"), fixed rate note ("note") and the simultaneous borrowing of an advance from the Federal Home Loan Bank of New York ("FHLB") entered into in August of 1996. The note's term is for a period of ten years at a rate of 7.783% and is callable after three years and continuously thereafter. The FHLB advance is for a three year period at a fixed rate of 6.86%, which represents a pretax spread of 92 basis points or the difference between the rate earned of 7.783% and the cost of 6.86%. This increase in securities available for sale was offset by principal repayments and prepayments. Loans receivable, net increased $33.4 million or 29.8% to $145.4 million at December 31, 1996 from $112.0 million at December 31, 1995. The increase in loans receivable, net is primarily the result of an increase in conventional one-to-four family loans of $26.1 million or 29.8%, an increase in commercial real estate of $3.5 million or 94.4% and an increase in home equity loans of $3.4 million or 16.4%. Loan originations have increased from $16.1 million for the year ended December 31, 1995 to $57.7 million for the year ended December 31, 1996, reflecting the expansion of the Bank's lending area for first mortgages as well as the increase in loans originated through a loan origination program. In addition, the Bank has increased its marketing efforts to increase the volume of home equity loans. Finally, the Bank is attempting to expand the commercial lending function. Deposits increased $5.1 million or 2.9% to $178.9 million at December 31, 1996 from $173.8 million at December 31, 1995. The increase in deposits for the year 1996 is primarily the result of interest credited to deposit accounts of $6.8 million, partially offset by the decline caused by the purchase of the Company's common stock in the initial 3 public offering by depositors that was completed on June 27, 1996. In addition, there was limited advertising for new deposit products for the year ended December 31, 1996. Federal Home Loan Bank advances increased $25.0 million to $27.0 million at December 31, 1996 from $2.0 million at December 31, 1995. This increase was due to the purchase of a FHLMC note and a simultaneous borrowing as described above. Stockholders' equity increased $19.6 million to $36.9 million at December 31, 1996 from $17.3 million at December 31, 1995. The increase was primarily due to net proceeds of the initial public offering that was completed on June 27, 1996 totalling $21.0 million, offset by unallocated shares of common stock held by the Bank's employee stock ownership plan of $1.8 million. In addition to the net proceeds, the increase in stockholders' equity was also due to net income for the twelve months ended December 31, 1996 totalling $666,000 offset by an increase in the net unrealized loss on securities, net of taxes, of $295,000. COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995 AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994. GENERAL Net income for the year ended December 31, 1996 decreased $205,000 or 23.5% to $666,000 from $871,000 for the year ended December 31, 1995 and decreased $818,000 or 48.4% from $1.7 million for the year ended December 31, 1994. The decrease of $205,000 for the year ended December 31, 1996 was primarily attributable to the $1.0 million Savings Association Insurance Fund ("SAIF") recapitalization assessment. In addition, there was a $503,000, net of tax, non-recurring charge for the benefits paid to the Bank's former President and CEO upon his resignation from the Bank. In 1995, the decrease in net income from 1994 was primarily due to a $363,000 loss on the sale of mortgage-backed securities sold in December 1995 in connection with the Bank's decision to restructure its mortgage-backed securities portfolio. INTEREST INCOME Interest income for the year ended December 31, 1996 increased $2.3 million to $15.5 million, from $13.1 million for the year ended December 31, 1995. The increase in interest income reflects an increase in average interest earning assets of $30.8 million from $181.1 million for the year ended December 31, 1995 to $211.9 million for the year ended December 31, 1996, coupled with a slight increase in the average yield on interest earning assets to 7.29% in 1996 from 7.26% in 1995. Interest income on loans increased by $850,000 to $10.1 million for 1996 from $9.2 million for 1995, primarily due to a $14.8 million increase in the average balance of loans receivable from $114.4 million for the year ended December 31, 1995 to $129.2 million for the year ended December 31, 1996 offset by a 27 basis point decrease in the average yield to 7.78% for the year ended December 31, 1996 from 8.05% for the year ended December 31, 1995. Interest income on investments increased $1.5 million to $5.4 million in 1996 from $3.9 million in 1995, reflecting a $16.1 million increase in the average balance of investments from $66.6 million for the year ended December 31, 1995 to $82.7 million for the year ended December 31, 1996 and a 65 basis point increase in the average yield to 6.53%. Interest income for the year ended December 31, 1995 increased $1.3 million to $13.1 million at December 31, 1995, from $11.8 million at December 31, 1994. The increase in interest income reflects an increase in average interest earning assets of $6.9 million from $174.2 million for the year ended December 31, 1994 to $181.0 million for the year ended December 31, 1995, coupled with an increase in the average yield on interest earning assets to 7.26% in 1995 from 6.79% in 1994. Interest income on loans increased by $882,000 to $9.2 million for 1995 from $8.3 million for 1994, primarily due to a $7.4 million increase in the average balance of loans receivable from $107.1 million for the year ended December 31, 1994 to $114.4 million for the year ended December 31, 1995 and a 27 basis point increase in the average yield to 8.05%. Interest income on investments increased $421,000 to $3.9 million in 1995 from $3.5 million in 1994, reflecting a $485,000 decrease in the average balance of investments from $67.1 million for the year ended December 31, 1994 to $66.6 million for the year ended December 31, 1995 and a 66 basis point increase in the average yield to 5.88%. INTEREST EXPENSE Interest expense on deposits increased $368,000 or 5.4% to $7.1 million for the year ended December 31, 1996 from $6.8 million for the year ended December 31, 1995. This increase reflects both an increase in the average balance 4 of interest bearing deposits of $7.9 million in 1996 compared with 1995, and a 3 basis point increase in the average rate paid on deposit liabilities during the same period. The increase in deposits and the rate paid was primarily attributable to the Bank's certificate accounts, the average balance of which increased by $7.7 million to $95.8 million in 1996 from an average balance of $88.1 million in 1995 on which the average yield which increased 7 basis points from 5.43% in 1995 to 5.50% in 1996. The increase in the rate paid on certificate accounts was in response to market conditions and was intended to maintain existing accounts rather than attracting new accounts. Interest expense on borrowings increased $640,000 in 1996 compared with 1995 due to management's decision to use borrowings to fund a portion of the Bank's asset growth. Interest expense on deposits increased $1.6 million or 31.09% to $6.8 million for the year ended December 31, 1995 from $5.2 million for the year ended December 31, 1994. This increase reflects both an increase in the average balance of interest earning deposits of $1.8 million in 1995 compared to 1994, and a 93 basis point increase in the average rate paid on deposit liabilities over the same period. The increase in deposits and the rate paid thereon was primarily attributable to the Bank's certificate accounts, the average balance of which increased by $17.4 million to $88.1 million in 1995 from an average balance of $70.7 million in 1994 and the average yield increased 135 basis points from 4.08% in 1994 to 5.43% in 1995. The increase in the rate paid on certificate accounts was in response to market conditions and was intended to maintain existing accounts rather than attracting new accounts to the Bank. At December 31, 1995, the Bank's certificate accounts had increased to $95.2 million while the yield on certificate accounts was 4.62%. Interest expense on borrowings increased $170,000 in 1995 compared with 1994 due to management's decision to use borrowings to fund a portion of the Bank's asset growth. NET INTEREST INCOME Net interest income before provision for loan losses increased $1.3 million or 21.2% to $7.5 million for the year ended December 31, 1996 from $6.2 million for the year ended December 31, 1995. The increase is the result of higher outstanding average interest earning assets offset by higher outstanding average interest bearing liabilities. Average interest earning assets increased $30.9 million to $211.9 million for the year 1996 from $181.1 for the year 1995. Average interest bearing liabilities increased $17.7 million to $185.9 million for the year 1996 from $168.2 for the year 1995. The yield earned on average interest earning assets increased slightly by 3 basis points to 7.29% while the rate paid on interest bearing liabilities increased 15 basis points to 4.28%. The Bank's interest rate spread decreased 12 basis points to 3.01% for the year ended December 31, 1996 from 3.13% for the year ended 1995. The net interest margin increased from 3.42% for the year ended December 31, 1995 to 3.54% for the year ended December 31, 1996. The percentage of average interest earning assets to average interest bearing liabilities for the year ended December 31, 1996 was 113.99% compared with 107.63% for the same period in 1995. Net interest income before provision for loan losses decreased $475,000 or 7.1% to $6.2 million for the year ended December 31, 1995 from $6.7 million for the year ended December 31, 1994. The positive effect of an increase in average net interest earning assets and the average rate earned thereon was offset by an increase in average interest-bearing liabilities and an increase in the average rate paid on interest-bearing liabilities from 3.16% for the year ended December 31, 1994 to 4.13% for the year ended December 31, 1995. The Bank's interest rate spread decreased 50 basis points to 3.13% for the year ended December 31, 1995 from 3.63% for the year ended 1994. The net interest margin decreased from 3.82% for the year ended December 31, 1994 to 3.42% for the year ended December 31, 1995. The percentage of average interest earning assets to average interest-bearing liabilities for the year ended December 31, 1995 was 107.63% as compared to 106.36% for the same period in 1994. PROVISION FOR LOAN LOSSES The provision for loan losses is a result of management's periodic analysis of the adequacy of the allowance for loan losses. The provision for loan losses increased $48,000 or 31.6% for the year ended December 31, 1996, compared with the year ended December 31, 1995. The Bank's provision for loan losses was $200,000 for the year ended December 31, 1996, compared with $152,000 for the year ended December 31, 1995. The provision for loan losses decreased $164,000 or 51.9% for the year ended December 31, 1995, compared with the year ended December 31, 1994. The Bank's provision for loan losses was $152,000 for the year ended December 31, 1995, compared with $316,000 for the year ended December 31, 1994. The increases in the allowance for loan losses in 1996 are due to 5 management's continuing reassessment of losses inherent in the loan portfolio and such increases are primarily to respond to loan growth. At December 31, 1996 and 1995, the Bank's allowance for loan losses totaled $1.8 million and $1.6 million or 1.2% and 1.4% of gross loans receivable and 86.2% and 64.9% of total non-performing loans, respectively. Management believes that the current allowance for loan losses is adequate to address the risks inherent in the Bank's loan portfolio. The Bank establishes an allowance for loan losses based on an analysis of risk factors in the loan portfolio. This analysis includes evaluation of concentrations of credit, past loss experience, current economic conditions, amount and composition of the loan portfolio (including loans being specifically monitored by management), estimated fair value of underlying collateral, loan commitments outstanding, delinquencies and other factors, including the loss experience of similar portfolios in comparable lending markets. The Bank will continue to monitor its allowance for loan losses and make future additions to the allowance through the provision for loan losses as economic conditions dictate. Although the Bank maintains its allowance for loan losses at a level which it considers to be adequate to provide for losses, there can be no assurance that future losses will not exceed estimated amounts or that additional provisions for loan losses will not be required in future periods. In addition, the Bank's determination as to the amount of its allowance for loan losses is subject to review by the Office of Thrift Supervision ("OTS") and the Federal Deposit Insurance Corporation ("FDIC"), as part of their examination process, which may result in the establishment of an additional allowance based upon their judgment of the information available to them at the time of their examination. OTHER INCOME Other income increased $310,000 or 112.7% to $585,000 for the year ended December 31, 1996 from $275,000 for the year ended December 31, 1995. This increase was primarily attributable to a $363,000 loss on the sale of mortgage-backed securities incurred in December 31, 1995 in connection with the Bank's restructuring of the mortgage-backed securities portfolio. Offsetting this loss was a gain on sale of real estate owned of $118,000 in the year ended December 31, 1995. Other income decreased $445,000 or 61.8% to $275,000 for the year ended December 31, 1995 from $720,000 for the year ended December 31, 1994. This decrease was primarily attributable to the above mentioned $363,000 loss on the sale of mortgage-backed securities in 1995. OTHER EXPENSE Other expense increased $1.9 million or 37.7% to $6.8 million for the year ended December 31, 1996 compared with $5.0 million for the year ended December 31, 1995. Other expense increased $519,000 or 11.7% to $5.0 million for the year ended December 31, 1995 compared with $4.4 million for the year ended December 31, 1994. Compensation and employee benefits increased $619,000 or 27.4% to $2.9 million for the year ended December 31, 1996 from $2.3 million for the year ended December 31, 1995. The increase in compensation and employee benefits expense reflects the non-recurring charge for benefits paid to the Bank's former President and CEO upon his resignation. Compensation and employee benefits increased $146,000 or 6.9% to $2.3 million for the year ended December 31, 1995 from $2.1 million for the year ended December 31, 1994. This increase in compensation and benefits was the result of normal cost of living increases and merit raises. For the year ended December 31, 1996 data processing services increased $40,000 or 19.8% and represents the increase in volume of transactions processed, primarily as a result of the increase in the number of loan and deposit accounts as well as the introduction of banking by telephone. In 1995, data processing fees increased $14,000 or 7.5% due to the increase in deposit and loan accounts. In 1995, advertising expenses increased $180,000 or 174.8% as a result of an increased emphasis on loan promotion and a successful checking account campaign through the first six months of the year compared with a decrease of $91,000 in 1996. The decrease in 1996 is due to the postponement of advertising expenditures for deposits, pending the acquisition or expansion of branch facilities. The increase in Savings Association Insurance Fund ("SAIF") recapitalization assessment expense is the result of the one time assessment of $1.0 million which represented the Bank's share of the special assessment required by legislation signed into law on September 30, 1996, requiring all institutions insured by the SAIF to make a one time payment to recapitalize the SAIF. Wayne Bancorp, Inc. has determined that the decline in insurance premiums (required by legislation) from 23 basis points to 6.4 basis points (per $100 of deposits) effective January 1, 1997, will have a positive impact on earnings in future years, more 6 than offsetting the special assessment over time. The decline of $147,000 in REO operations, net is the result of the balance of foreclosed properties declining from $597,000 at December 31, 1995 to $116,000 at December 31, 1996. Finally, the increase in the other category of $387,000 or 39.6% for the year ended December 31, 1996 to $1.4 million from $977,000 for the year ended December 31, 1995 was primarily due to increased accounting, legal and other professional fees incurred as a result of the Company being a public company. INCOME TAX EXPENSE Income tax expense decreased by $84,000 to $403,000 for the year ended December 31, 1996 from $487,000 for the year ended December 31, 1995 primarily due to a $289,000 decline in pre-tax income. Income tax expense decreased by $457,000 to $487,000 for the year ended December 31, 1995 from $944,000 for the year ended December 31, 1994 due to a $1.3 million decline in pre-tax income. The effective tax rate for the year ended December 31, 1996 was 37.7% compared with 36.0% for 1995 and 36.0% for 1994. 7 AVERAGE BALANCE SHEET The following table sets forth certain information relating to the Bank for the years ended December 31, 1996, 1995 and 1994. The yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown. Average balances are derived from average month-end balances. Management does not believe that the use of average monthly balances instead of average daily balances has caused any material differences in the information presented. The yields and costs include fees which are considered adjustments to yields.
FOR THE YEAR ENDED DECEMBER 31, --------------------------------------------------------------------------------------------- 1996 1995 1994 ----------------------------- ---------------------------- ---------------------------- AVERAGE AVERAGE AVERAGE AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST -------- -------- ------- -------- -------- ----- ------- -------- ------ IN THOUSANDS ASSETS: Interest earning assets: Interest earning deposits and short-term investments ........... $ 11,536 $ 702 6.09% $ 10,020 $ 539 5.38% $ 15,296 $ 680 4.45% Loans receivable, net .............. 129,233 10,059 7.78 114,403 9,209 8.05 107,051 8,327 7.78 Securities held to maturity ........ 3,523 200 5.68 53,033 3,172 5.98 48,088 2,628 5.46 Securities available-for-sale (1)... 67,636 4,497 6.65 3,593 216 6.01 3,747 198 5.28 -------- -------- ---- -------- ------- ---- -------- -------- ---- Total interest earning assets .... 211,928 15,458 7.29 181,049 13,136 7.26 174,182 11,833 6.79 -------- ---- ------- ---- -------- ---- Noninterest earning assets .......... 4,763 7,325 7,175 -------- -------- -------- Total assets ..................... $216,691 $188,374 $181,357 ======== ======== ======== LIABILITIES AND EQUITY: Interest bearing liabilities: Money market deposit accounts ....... $ 21,829 647 2.96 $ 20,615 710 3.44 $ 20,471 595 2.91 Savings accounts .................... 32,695 811 2.48 35,738 887 2.48 50,794 1,268 2.50 NOW accounts ........................ 18,382 424 2.31 16,963 401 2.25 18,335 425 2.25 Non-interest bearing checking accounts .......................... 4,837 -- -- 4,157 -- -- 3,462 -- -- Certificate accounts ................ 95,755 5,266 5.50 88,096 4,782 5.43 70,703 2,884 4.08 -------- -------- ---- -------- ------- ---- -------- -------- ---- Total ............................. 173,498 7,148 4.12 165,569 6,780 4.09 163,765 5,172 3.16 FHLB advances ........................ 12,417 810 6.52 2,646 170 6.42 -- -- -- -------- -------- ---- -------- ------- ---- -------- -------- ---- Total interest bearing liabilities . 185,915 7,958 4.28 168,215 6,950 4.13 163,765 5,172 3.16 -------- ---- ------- ---- -------- ---- Noninterest bearing liabilities ...... 2,159 3,152 1,938 Stockholders' equity ................. 28,617 17,007 15,654 -------- -------- -------- Total liabilities and stockholders' equity ........................... $216,691 $188,374 $181,357 ======== ======== ======== Net interest income before provision for loan losses .......... $ 7,500 $ 6,186 $ 6,661 ======== ======= ======= Net interest rate spread ............. 3.01% 3.13% 3.63% Net interest margin .................. 3.54% 3.42% 3.82% Ratio of interest earning assets to interest bearing liabilities ....... 113.99% 107.63% 106.36% ======== ======== ========
- ------------ (1) Average balances are based on amortized or historical cost. 8 RATE/VOLUME ANALYSIS The following table presents the extent to which changes in interest rates and changes in the volume of interest earning assets and interest bearing liabilities have affected the Bank's interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
YEAR ENDED DECEMBER 31, 1996 YEAR ENDED DECEMBER 31, 1995 COMPARED WITH COMPARED WITH YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994 ---------------------------- ---------------------------- INCREASE (DECREASE) INCREASE (DECREASE) DUE TO DUE TO -------------------- -------------------- VOLUME RATE NET VOLUME RATE NET ------ ---- --- -------- ------ ----- IN THOUSANDS INTEREST EARNING ASSETS: Interest-earning deposits and short-term investments ................................ $ 87 $ 76 $ 163 $(359) $ 218 $ (141) Loans receivable, net ....................... 1,141 (291) 850 584 298 882 Securities held-to-maturity ................. (2,821) (151) (2,972) 283 261 544 Securities available-for-sale ............... 4,240 41 4,281 (9) 27 18 ------ ----- ------ ----- ------ ------ Total interest-earning assets ............. 2,647 (325) 2,322 499 804 1,303 ------ ----- ------ ----- ------ ------ INTEREST BEARING LIABILITIES: Money market deposit accounts ............... 46 (109) (63) 3 112 115 Savings accounts ............................ (75) (1) (76) (374) (7) (381) NOW accounts ................................ 32 (9) 23 (13) (11) (24) Certificate accounts ........................ 420 64 484 809 1,089 1,898 ------ ----- ------ ----- ------ ------ Total ..................................... 423 (55) 368 425 1,183 1,608 FHLB advances ............................... 637 3 640 -- 170 170 ------ ----- ------ ----- ------ ------ Total interest bearing liabilities ........ 1,060 (52) 1,008 425 1,353 1,778 ------ ----- ------ ----- ------ ------ Net change in net interest income ............ $1,587 $(273) $1,314 $ 74 $ (549) $ (475) ====== ===== ====== ===== ====== ======
An Interest Rate Sensitivity Analysis approach used by management to quantify interest rate risk is the net portfolio value ("NPV") analysis. In essence, this approach calculates the difference between the present value of liabilities and the present value of expected cash flows from assets and off-balance sheet contracts. Under OTS regulations, an institution's "normal" level of interest rate risk (in the event of an assumed change in interest rates) is a decrease in the institution's NPV in an amount not exceeding 2% of the present value of its assets. Thrift institutions with greater than "normal" interest rate exposure must make a deduction for total capital available to meet risk-based capital requirements. The amount of that deduction is one-half of the difference between (i) the institutions actual calculated exposure to a 200 basis point interest rate increase or decrease (whichever results in the greater pro forma decrease in NPV) and (ii) its "normal" level of exposure which is 2% of the present value of its assets. The rule will not become effective until the OTS evaluates the process by which savings associations may appeal an interest rate risk reduction determination. It is uncertain as to when this evaluation may be completed. Savings institutions, however, with less than $300 million in assets and a total risk-based capital ratio in excess of 12%, such as the Bank, are generally not subject to this requirement. If the Bank had been subject to this requirement at December 31, 1996, its interest rate risk would have been considered "normal" and no adjustment to its risk-based capital would have been required. 9 The following table sets forth, at December 31, 1996, an analysis of the Bank's interest rate risk as measured by the estimated changes in the NPV resulting from instantaneous and sustained parallel shifts in the yield curve (plus or minus) 400 basis points, measured in 100 basis point increments). NET PORTFOLIO VALUE CHANGE IN INTEREST RATES ---------------------------------------------------- IN BASIS POINTS CHANGE CHANGE (RATE SHOCK) AMOUNT $ % ------------------------ -------- ------- ------- IN THOUSANDS 400 $16,218 $(17,394) (52.0)% 300 20,616 (12,907) (39.0) 200 25,128 (8,395) (25.0) 100 29,519 (4,004) (12.0) -- 33,523 -- -- (100) 36,740 3,216 10.0 (200) 38,880 5,357 16.0 (300) 41,551 8,028 24.0 (400) 45,169 11,645 35.0 Certain assumptions utilized by the OTS in assessing the interest rate of thrift institutions were employed in preparing the preceding table. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates, and the market values of certain assets under the various interest rate scenarios. It was also assumed that delinquency rates will not change as a result of changes in interest rates although there can be no assurance that the Bank's assets and liabilities would perform as set forth above. In addition, a change in U.S. Treasury rates in the designated amounts accompanied by a change in the shape of the Treasury yield curve would cause significantly different changes to the NPV than indicated above. LIQUIDITY AND CAPITAL RESOURCES The Bank's primary sources of funds are deposits, principal and interest payments on loans and securities and, to a lesser extent, borrowings and proceeds from the sale of securities. While maturities and scheduled amortization of loans and securities provide an indication of the timing of the receipt of funds, other sources of funds such as loan prepayments and deposit inflows are less predictable due to the effects of changes in interest rates, economic conditions and competition. The primary investing activities of the Bank are the origination of real estate and other loans and the purchase of mortgage-backed and other securities which are included in securities held to maturity and securities available for sale. During the years ended December 31, 1996, 1995 and 1994, the Bank's disbursements for loan originations totaled $57.7 million, $16.1 million and $33.6 million, respectively. For the years ended December 31, 1996, 1995 and 1994, purchases of mortgage-backed securities totaled $36.4 million, $46.6 million and $22.5 million, respectively. These activities were funded primarily by net deposit inflows, borrowings and principal repayments and prepayments on loans and securities. For the years ended December 31, 1996 and 1995, the Bank experienced net increases in deposits (including the effect of interest credited) of $5.1 million and $14.8 million, respectively. For the year ended December 31, 1994, the Bank had a net decrease in deposits of $7.8 million. The increase in fiscal 1996 and 1995 reflects the general increase in market interest rates which made deposit products (particularly shorter term certificates of deposit) a more attractive investment alternative of the Bank's customers and the increased marketing efforts by the Bank. Proceeds from FHLB advances were $25.0 million in 1996, $2.0 million in 1995 and none in 1994. The Bank may borrow funds from the FHLB subject to certain limitations. Based on the level of qualifying collateral available to secure advances at December 31, 1996, the Bank's borrowing limit from the FHLB was approximately $73.2 million, with unused borrowing capacity of $46.2 million at that date. Other sources of liquidity include borrowings under repurchase agreements and proceeds from sales of available for sale securities. 10 The Bank is required to maintain an average daily balance of liquid assets and short-term liquid assets as a percentage of net withdrawable deposit accounts plus short-term borrowings as defined by OTS regulations. The minimum required liquidity and short-term liquidity ratios are currently 5.0% and 1.0%, respectively. At December 31, 1996, the Bank's liquidity ratio was 7.4% and its short-term liquidity ratio was 3.9%. The Bank's most liquid assets are cash and cash equivalents, which include interest-bearing deposits and short-term highly liquid investments (such as federal funds) with original maturities of less than three months that are readily convertible to known amounts of cash. The level of these assets is dependent on the Bank's operating, financing and investing activities during any given period. At December 31, 1996 and 1995, cash and cash equivalents totaled $6.9 million and $26.3 million, respectively. At December 31, 1996, the Bank had outstanding loan origination commitments of $9.0 million, no undisbursed construction loans in process, and unadvanced lines of credit of $9.5 million. The Bank anticipates that it will have sufficient funds available to meet its current loan origination and other commitments. Certificates of deposit scheduled to mature in one year or less from December 31, 1996 totaled $70.7 million. Based on the Bank's most recent experience and pricing strategy, management believes that a significant portion of such deposits will remain with the Bank. 11
WAYNE BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 1996 AND 1995 ASSETS 1996 1995 ------- -------- IN THOUSANDS Cash and due from banks ........................................................ $ 1,170 $ 899 Interest-bearing deposits in other banks ....................................... 523 20,563 Federal funds sold ............................................................. 5,250 4,800 -------- -------- Total cash and cash equivalents ............................................. 6,943 26,262 Securities held to maturity, estimated market value of $3,197 in 1996 and $3,769 in 1995 (note 3) ................................................... 3,229 3,841 Securities available for sale (note 4) ......................................... 80,867 58,155 Loans receivable, net (note 5) ................................................. 145,425 111,988 Premises and equipment, net (note 7) ........................................... 3,196 3,271 Real estate owned, net (note 8) ................................................ 116 597 Federal Home Loan Bank of New York stock, at cost .............................. 1,568 1,568 Interest and dividends receivable (note 6) ..................................... 1,901 987 Other assets (note 11) ......................................................... 836 1,328 -------- -------- Total assets ................................................................ $244,081 $207,997 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits (note 9) .............................................................. $178,947 $173,822 Federal Home Loan Bank advances (note 10) ...................................... 27,000 2,000 Advance payments by borrowers for taxes and insurance .......................... 866 769 Other liabilities (note 11) .................................................... 357 14,107 -------- -------- Total liabilities ........................................................... 207,170 190,698 Stockholders' Equity: Preferred stock, $0.01 par value, 2,000,000 shares authorized, none issued .... -- -- Common stock, $0.01 par value, 8,000,000 shares authorized, 2,231,383 issued and outstanding at December 31, 1996 .................................. 22 -- Paid-in capital ............................................................... 21,004 -- Retained earnings, substantially restricted (notes 11 and 13) ................. 18,060 17,394 Unallocated common stock held by the ESOP ..................................... (1,785) -- Net unrealized loss on securities available for sale (note 4) ................. (390) (95) -------- -------- Total stockholders' equity .................................................. 36,911 17,299 -------- -------- Commitments and contingencies (note 14) ........................................ -- -- Total liabilities and stockholders' equity .................................. $244,081 $207,997 ======== ========
See accompanying notes to consolidated financial statements. 12
WAYNE BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 1996 1995 1994 ------- ------- -------- IN THOUSANDS Interest income: Loans ................................................................. $10,059 $ 9,209 $ 8,327 Securities held to maturity ........................................... 200 3,172 2,628 Securities available for sale ......................................... 4,497 216 198 Short-term and other investments ...................................... 702 539 680 ------- ------- ------- Total interest income ............................................... 15,458 13,136 11,833 Interest expense: Deposits (note 9) ..................................................... 7,148 6,780 5,172 Federal Home Loan Bank advances ....................................... 810 170 -- ------- ------- ------- Total interest expense .............................................. 7,958 6,950 5,172 ------- ------- ------- Net interest income before provision for loan losses ................... 7,500 6,186 6,661 Provision for loan losses (note 5) ..................................... 200 152 316 ------- ------- ------- Net interest income after provision for loan losses .................... 7,300 6,034 6,345 Other income (expense): Loan fees and service charges ......................................... 227 183 156 Net gain (loss) on sale of securities available for sale .............. -- (363) 270 Gain on sale of real estate owned ..................................... -- 118 -- Other ................................................................. 358 337 294 ------- ------- ------- Total other income .................................................. 585 275 720 Other expenses: Compensation and employee benefits (note 12) .......................... 2,879 2,260 2,114 Occupancy (note 14) ................................................... 376 370 376 Equipment ............................................................. 182 187 174 Data processing services .............................................. 242 202 188 Advertising ........................................................... 192 283 103 Federal insurance premiums ............................................ 393 368 378 SAIF recapitalization assessment (note 17) ............................ 1,031 -- -- Real estate owned operations (note 8) ................................. 157 304 174 Other ................................................................. 1,364 977 925 ------- ------- ------- Total other expenses ................................................ 6,816 4,951 4,432 ------- ------- ------- Income before income tax expense ....................................... 1,069 1,358 2,633 Income tax expense (note 11) ........................................... 403 487 944 ------- ------- ------- Net income .......................................................... $ 666 $ 871 $ 1,689 ======= ======= =======
See accompanying notes to consolidated financial statements. 13 WAYNE BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 IN THOUSANDS
NET UNREALIZED COMMON (lOSS) ON STOCK SECURITIES TOTAL PREFERRED COMMON PAID-IN RETAINED HELD BY AVAILABLE STOCKHOLDERS' STOCK STOCK CAPITAL EARNINGS ESOP FOR SALE EQUITY --------- ------- ------- -------- ------- ----------- -------------- Balance at December 31, 1993 ............... $ -- $ -- $ -- $14,834 $ -- $ 171 $15,005 Net income ................................ -- -- -- 1,689 -- -- 1,689 Change in net unrealized gain (loss) on securities available for sale, net of taxes ................... -- -- -- -- -- (435) (435) ------- ------ ------- ------- ------ ----- ------- Balance at December 31, 1994 ............... -- -- -- 16,523 -- (264) 16,259 Net income ................................ -- -- -- 871 -- -- 871 Unrealized gain on securities transferred from held to maturity to available for sale, net of taxes ............................. -- -- -- -- -- 13 13 Change in net unrealized gain (loss) on securities available for sale, net of taxes .................... -- -- -- -- -- 156 156 ------- ------ ------- ------- ------ ----- ------- Balance at December 31, 1995 ............... -- -- -- 17,394 -- (95) 17,299 Net proceeds from stock offering, net of expenses of $1,272 ................ -- 22 21,004 -- -- -- 21,026 Unallocated common stock acquired by ESOP ......................... -- -- -- -- (1,785) -- (1,785) Net income ................................ -- -- -- 666 -- -- 666 Change in net unrealized gain (loss) on securities available for sale, net of taxes ................... -- -- -- -- -- (295) (295) ------- ------ ------- ------- ------ ----- ------- Balance at December 31, 1996 ............... $ -- $ 22 $21,004 $18,060 $(1,785) $(390) $36,911 ======= ====== ======= ======= ======= ===== =======
See accompanying notes to consolidated financial statements. 14 WAYNE BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 -------- --------- --------- IN THOUSANDS Cash flows from operating activities: Net income ..................................................... $ 666 $ 871 $ 1,689 Adjustments to reconcile net income to net cash provided by operating activities: Provision for losses on loans and real estate owned .... 300 300 425 Depreciation ........................................... 167 167 160 Net accretion of discounts and amortization of premiums ........................................... 125 29 (99) Decrease in deferred loan fees ......................... 22 46 29 (Increase) in interest and dividends receivable ........ (914) (160) (111) Increase (decrease) in other assets .................... 658 (572) (188) Increase (decrease) in other liabilities ............... (13,750) 13,606 91 Net loss on sale of real estate owned .................. -- 118 -- (Gain) loss on sale of securities available for sale ... -- 363 (270) -------- -------- -------- Net cash (used in) provided by operating activities ............ (12,726) 14,768 1,726 Cash flows from investing activities: Purchase of securities held to maturity ....................... -- (16,273) (22,460) Maturity of securities held to maturity ....................... -- 6,000 -- Purchase of securities available for sale ..................... (36,438) (30,288) -- Proceeds from sales of securities available for sale .......... -- 25,100 6,179 Proceeds from calls of securities available for sale .......... 5,500 -- -- Principal repayments on securities held to maturity ........... 599 6,908 6,034 Principal repayments on securities available for sale ......... 7,630 82 1,781 Net (increase) decrease in loans receivable ................... (33,719) -- (6,011) Loans purchased ............................................... (60) (140) (1,396) Additions to premises and equipment ........................... (92) (30) (154) Proceeds from sale of real estate owned ....................... 524 1,151 563 Sale (purchase) of Federal Home Loan Bank stock ............... -- (201) 217 -------- -------- -------- Net cash used in investing activities .......................... $(56,056) $ (7,691) $(15,247) ======== ======== ========
See accompanying notes to consolidated financial statements. 15 WAYNE BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 -------- -------- -------- IN THOUSANDS Cash flows from financing activities: Net increase (decrease) in deposits ........................... $ 5,125 $14,809 $ (7,808) Federal Home Loan Bank advances acquired ...................... 25,000 2,000 -- Increase (decrease) in advance payments by borrowers for taxes and insurance ...................................... 97 (122) (101) Net proceeds from issuance of common stock .................... 21,026 -- -- Purchase of shares by ESOP .................................... (1,785) -- -- -------- ------- -------- Net cash provided (used ) by financing activities .............. 49,463 16,687 (7,909) -------- ------- -------- Net increase (decrease) in cash and cash equivalents ........... (19,319) 23,764 (21,430) Cash and cash equivalents at beginning of year ................. 26,262 2,498 23,928 -------- ------- -------- Cash and cash equivalents at end of year ....................... $ 6,943 $26,262 $ 2,498 ======== ======= ======= Supplemental disclosures of cash flow information-- cash paid during the year for: Federal and state income taxes ............................... $ 616 $ 345 $ 933 ======== ======= ======= Interest ..................................................... $ 7,813 $ 6,956 $ 5,174 ======== ======= ======= Supplemental information of noncash investing activities--transfer of loans receivable to real estate owned ............................................. $ 143 $ 831 $ 312 ======== ======= ======= Transfer of securities held to maturity to securities available for sale ................................. $ -- $51,380 -- ======== ======= =======
See accompanying notes to consolidated financial statements. 16 WAYNE BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of Wayne Bancorp, Inc. (the Company) and its wholly-owned subsidiary, Wayne Savings Bank, F.S.B. (the Bank) and the Bank's wholly-owned subsidiary, Wayne Savings Financial Services Group, Inc. (the Subsidiary). All significant intercompany accounts and transactions have been eliminated in consolidation. Business The Company conducts business primarily through the Bank, which is a federally chartered savings bank, that provides a full range of banking services to individual and corporate customers through its branches in northern New Jersey. The Bank is subject to competition from other financial institutions; it is also subject to the regulations of certain regulatory agencies and undergoes periodic examinations by those regulatory authorities. The Subsidiary provides financial and investment planning services and market securities, life and health insurance products. Basis of Financial Statement Presentation As more fully described in Note 2, the Bank converted from a mutual to stock form of ownership on June 27, 1996 and 100% of its outstanding common stock was acquired by the Company. As a stock institution and as a result of the public offering of the stock of the holding company upon completion of its stock offering, the holding company is subject to the reporting requirements of the Securities Exchange Act of 1934. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition for the periods then ended. Actual results could differ significantly from those estimates and assumptions. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in settlement of loans. In connection with the determination of the allowances for loan losses and real estate owned (REO), management generally obtains independent appraisals for significant properties. Cash and Cash Equivalents Cash and cash equivalents, for purposes of the consolidated statements of cash flows, consist of cash and due from banks, interest-bearing deposits in other banks and Federal funds sold. Federal Home Loan Bank of New York Stock The Bank, as a member of the Federal Home Loan Bank of New York (FHLB), is required to hold shares of capital stock of the FHLB based on a specified formula. Securities Held to Maturity Securities held to maturity are carried at the outstanding principal balance, adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are recognized using the level yield method over the estimated lives of the securities. Securities held to maturity are carried at outstanding principal balance because it is management's intention, and the Bank has the ability, to hold them to maturity. Securities Available for Sale Securities that are held for indefinite periods of time but not intended to be held to maturity are classified as available for sale. Securities held for indefinite periods of time include securities that management intends to use as 17 WAYNE BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) part of its asset/liability management strategy, including liquidity management strategy, and may be sold in response to changes in interest rates, liquidity needs, and other factors. Securities available for sale are carried at fair value and unrealized gains and losses, net of related tax effect, on such securities are excluded from earnings, but are included in equity. Upon realization, such gains or losses are included in earnings using the specific identification method. In November 1995, the Financial Accounting Standards Board issued "Special Report--A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities" within which there was offered transition guidance permitting an enterprise to reassess the appropriateness of all of its securities before December 31, 1995. The Bank reassessed its classifications and on December 13, 1995, it transferred securities previously classified as held to maturity, with an amortized cost of $51,380,000, to the available for sale classification. The related unrealized gain on the securities transferred, net of related tax effect was approximately $19,000 which has been recognized and reported as a separate component of equity. Loans Receivable Loans receivable are stated at unpaid principal balance less net deferred loan origination and commitment fees and the allowance for loan losses. The accrual of interest income on loans is discontinued when certain factors indicate reasonable doubt as to the timely collectibility of such income (generally when loans are greater than ninety days delinquent). Interest income previously accrued on these loans, but not yet received, is reversed in the current period. Any interest subsequently collected is credited to income in the period of recovery. Loans are returned to accrual status when collectibility is no longer considered doubtful. Loan Origination and Commitment Fees and Related Costs Loan fees and certain direct loan origination costs are deferred and the net fee or cost is recognized in interest income using the level-yield method over the contractual lives of the specifically identified loans adjusted for prepayments. Allowance for Loan Losses The adequacy of the allowance for loan losses is based on the Bank's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and current economic conditions. Additions to the allowance arise from charges to operations through the provision for loan losses or from the recovery of amounts previously charged off. The allowance is reduced by loan charge-offs. Loans are charged off when management believes there has been permanent impairment of their carrying values. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions in the Bank's market area. In addition, various regulatory agencies, as an integral part of their routine 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 judgments about information available to them at the time of their examination. Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (SFAS 114) and Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan--Income Recognition and Disclosures" (SFAS 118) were adopted prospectively by the Bank on January 1, 1995. These statements address the accounting for impaired loans and specify how allowances for loan losses related to these impaired loans should be determined. The adoption of the statements did not affect the level of the overall allowance for loan losses or the operating results of the Bank. Income recognition and charge-off policies were not changed as a result of the adoption of SFAS No. 114 and SFAS No. 118. The Bank has defined the population of impaired loans to be all nonaccrual commercial real estate and multi-family loans. Impaired loans are to be individually assessed to determine that the loan's carrying value is not in 18 WAYNE BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) excess of the fair value of the collateral or the present value of the loan's expected future cash flows. Smaller balance homogeneous loans that are collectively evaluated for impairment, such as residential mortgage loans and consumer loans, are specifically excluded from the impaired loan portfolio. There were no loans classified as impaired by the Bank at December 31, 1996 and 1995. Real Estate Owned Real estate owned (REO) acquired through foreclosure on loans secured by real estate is reported at the lower of cost or fair value, as established by a current appraisal, less estimated cost to sell. An allowance for REO has been established to record subsequent declines in estimated net realizable value. Carrying costs are generally expensed as incurred. Additions to the allowance for REO losses, and carrying costs are included in real estate owned operations, net in the consolidated statements of income. Premises and Equipment Premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets or leases. Repair and maintenance items are expensed and improvements are capitalized. Income Taxes The Company, and the Bank and its subsidiary file a consolidated Federal income tax return. State income tax returns are filed on a separate basis. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Pension Plan Pension plan costs based on the actuarial computation of current and future benefits for employees are charged to expense and funded based on the maximum amount that can be deducted for Federal income tax purposes. Earnings Per Share The Company completed its initial public offering on June 27, 1996, and accordingly, per share data is not presented for any periods prior to the year ended December 31, 1996. Earnings per share for the period June 27, 1996 to December 31, 1996 was $0.01 and was calculated by dividing net income subsequent to the date of the public offering by the average shares outstanding from such date. The average shares outstanding for the purpose of this calculation is 2,052,872. Stock Based Compensation On January 1, 1996, the Bank adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS 123 had been applied. The Bank has elected to apply the provisions of the Accounting Principles Board ("APB") Opinion No. 25 and provide the pro forma disclosure provisions of SFAS 123 stock based compensation as applicable. The Company has made no stock-based awards to employees or Directors during the years ended December 31, 1996 and 1995. 19 WAYNE BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Reclassifications Certain amounts relating to the 1995 and 1994 consolidated financial statements have been reclassified to conform to the 1996 presentation. (2) STOCK CONVERSION On June 27, 1996 the Company completed an initial public offering. The offering resulted in the sale of 2,231,383 shares of common stock including the sale of 178,511 shares to the Company's tax qualified Employee Stock Benefit Plan and Trust (the "ESOP"). Proceeds of the offering, net of expenses, were approximately $21.0 million of which $1,785,000 was loaned to the ESOP by the Company to fund the purchase of the shares. At the time of the Offering the Company was required to establish a liquidation account in an amount equal to its total equity as of the date of the latest statement of financial condition appearing in the final prospectus used in connection with the conversion. The liquidation account will be maintained for the benefit of eligible account holders or supplemental eligible account holders who continue to maintain their accounts at the Bank after the conversion. The liquidation account will be reduced annually to the extent that eligible account holders or supplemental eligible account holders have reduced their qualifying deposits as of each anniversary date. Subsequent increases will not restore an eligible account holder's or supplemental eligible account holder's interest in the liquidation account. In the unlikely event of a liquidation of the Bank (a circumstance not envisioned or expected by management), each eligible account holder or supplemental eligible account holder would be entitled to receive a distribution from the liquidation account in an amount proportionate to the current adjusted qualifying balances of accounts of all eligible account holders or supplemental eligible account holders then holding qualifying deposits in the Bank. The balance of the liquidation account at December 31, 1996 was approximately $12.4 million. (3) SECURITIES HELD TO MATURITY A summary of securities held to maturity at December 31, 1996 and 1995 is as follows:
1996 ---------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE -------- -------- -------- -------- IN THOUSANDS Mortgage-backed securities: FHLMC ................................................ $1,608 $ -- $ 36 $1,572 FNMA ................................................. 1,621 4 -- 1,625 ------ ---- ---- ------ $3,229 $ 4 $ 36 $3,197 ====== ==== ==== ====== 1995 ---------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE -------- -------- -------- -------- IN THOUSANDS Mortgage-backed securities: FHLMC ................................................ $1,956 $ -- $ 77 $1,879 FNMA ................................................. 1,885 5 -- 1,890 ------ ---- ---- ------ $3,841 $ 5 $ 77 $3,769 ====== ==== ==== ====== The contractual maturities of mortgage-backed securities generally exceed ten years; however, the effective lives are expected to be shorter due to anticipated prepayments.
20 WAYNE BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (4) SECURITIES AVAILABLE FOR SALE A summary of securities available for sale at December 31, 1996 and 1995 is as follows:
1996 ---------- ESTIMATED GROSS GROSS MARKET UNREALIZED UNREALIZED AMORTIZED VALUE GAINS LOSSES COST -------- -------- -------- -------- IN THOUSANDS Mortgage-backed securities: FHLMC ............................................... $12,282 $ 53 $ 59 $12,288 FNMA ................................................ 13,054 40 133 13,147 GNMA ................................................ 14,105 8 294 14,391 Collateralized mortgage obligations .................. 3,204 -- 130 3,334 U.S. Government agenies .............................. 38,222 66 162 38,318 ------- ---- ---- ------- $80,867 $167 $778 $81,478 ======= ==== ==== ======= 1995 ---------- ESTIMATED GROSS GROSS MARKET UNREALIZED UNREALIZED AMORTIZED VALUE GAINS LOSSES COST -------- -------- -------- -------- IN THOUSANDS Mortgage-backed securities: FHLMC ............................................... $13,828 $100 $145 $13,873 FNMA ................................................ 13,374 62 23 13,335 GNMA ................................................ 15,244 -- 17 15,261 Collateralized mortgage obligations .................. 3,156 -- 178 3,334 U.S. Government agenies .............................. 12,553 52 -- 12,501 ------- ---- ---- ------- $58,155 $214 $363 $58,304 ======= ==== ==== =======
There were no sales of securities available for sale for the year ended December 31, 1996. Proceeds from sales of securities available for sale were $25,100,000 for the year ended December 31, 1995 with gross realized gains of $90,000 and gross realized losses of $453,000. Proceeds from sales of securities available for sale were $6,179,000 during the year ended December 31, 1994 with gross realized gains of $270,000. The amortized cost and estimated fair value of debt securities available for sale at December 31, 1996 by contractual maturity, are shown below: AMORTIZED ESTIMATED FAIR COST VALUE --------- -------------- IN THOUSANDS Due in one year through five years ........... $36,993 $36,941 Due after ten years .......................... 4,659 4,485 ------- ------- $41,652 $41,426 ======= ======= Mortgage-backed securities totalled $40,000,000 at December 31, 1996. The contractual maturities of mortgage-backed securities generally exceed ten years; however, the effective lives are expected to be shorter due to anticipated prepayments. 21 WAYNE BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (5) LOANS RECEIVABLE, NET A summary of loans receivable at December 31, 1996 and 1995 is as follows: 1996 1995 ------ ----- IN THOUSANDS Real estate mortgage: Conventional one-to-four family ................. $113,701 $ 87,579 Multi-family .................................... 185 195 Commercial ...................................... 7,069 3,636 Home equity loans ................................ 24,394 20,964 Commercial business loans ........................ 644 -- Student loans .................................... 460 462 Passbook loans ................................... 616 754 Auto loans ....................................... 158 -- Personal loans ................................... 23 -- -------- -------- Total loans .................................. 147,250 113,590 Less: Deferred loan fees .............................. 36 13 Allowance for loan losses ....................... 1,789 1,589 -------- -------- ................................................. $145,425 $111,988 ======== ======== At December 31, 1996, 1995 and 1994 loans in the amount of $2,076,000, $2,450,000 and $3,645,000, respectively, were on a nonaccrual status. If these loans had continued to realize interest in accordance with their contractual terms, approximately $184,000, $253,000 and $310,000 of interest income would have been realized for the years ended December 31, 1996, 1995 and 1994, respectively. Interest income realized on nonaccrual loans was $61,000, $160,000 and $105,000, respectively for the years ended December 31, 1996, 1995 and 1994. A summary of loans to directors and officers for the years ended December 31, 1996, 1995 and 1994 is as follows: 1996 1995 1994 ---- ---- ---- IN THOUSANDS Balance at beginning of year ............ $910 $901 $577 Additions ............................... 130 105 357 Payments ................................ 220 96 33 ---- ---- ---- Balance at end of year .................. $820 $910 $901 ==== ==== ==== The terms and conditions of loans to directors and officers are no less favorable to the Bank than they would have been for similar transactions with other borrowers. An analysis of the allowance for loan losses for the years ended December 31, 1996, 1995, and 1994 is as follows: 1996 1995 1994 ---- ---- ---- IN THOUSANDS Balance at beginning of year $1,589 $1,543 $1,237 Provision charged to operations 200 152 316 Loans charged off -- (106) (10) ------ ------ ------ Balance at end of year $1,789 $1,589 $1,543 ====== ====== ====== 22 WAYNE BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Financial Accounting Standards Board has issued SFAS Nos. 114 and 118. The new statements, which are effective for financial statements issued for fiscal years beginning after December 15, 1994, require impaired loans to be measured at the present value of expected future cash flows by discounting those cash flows generally at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The new statements also require troubled debt restructurings involving a modification of terms to be remeasured on a discounted basis. The Bank adopted these statements on January 1, 1995. The adoption of these statements did not have a material impact on results of operations or financial position, since the Bank had no loans classified as impaired at December 31, 1996 and 1995. (6) INTEREST AND DIVIDENDS RECEIVABLE A summary of interest and dividends receivable at December 31, 1996 and 1995 is as follows:
1996 1995 ------ ------ IN THOUSANDS Loans, net of reserve for uncollected interest of $456 in 1996 and $345 in 1995 ...................................... $ 704 $569 Securities held to maturity and securities available for sale ...................................................... 1,197 393 Other interest earning assets .................................. -- 25 ------ ---- $1,901 $987 ====== ==== (7) PREMISES AND EQUIPMENT, NET Premises and equipment, net at December 31, 1996 and 1995 are summarized as follows: 1996 1995 ------ ------ IN THOUSANDS Land ........................................................... $ 497 $ 497 Buildings and improvements ..................................... 2,796 2,776 Leasehold improvements ......................................... 325 281 Furnishings and equipment ...................................... 962 934 ------ ------ Total ...................................................... 4,580 4,488 Accumulated depreciation and amortization ...................... 1,384 1,217 ------ ------ $3,196 $3,271 ====== ====== Depreciation of premises and equipment charged to occupancy expense for the years ended December 31, 1996, 1995, and 1994 amounted to $167,000, $167,000 and $160,000, respectively. (8) REAL ESTATE OWNED, NET A summary of REO net, at December 31, 1996 and 1995 is as follows: 1996 1995 ------ ------ IN THOUSANDS Total real estate owned ......................................... $ 290 $ 766 Allowance for losses ............................................ (174) (169) ----- ----- $ 116 $ 597 ===== =====
23 WAYNE BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) An analysis of the allowance for REO losses for the years ended December 31, 1996, 1995 and 1994 is as follows: 1996 1995 1994 ------- ------ ------ IN THOUSANDS Balance, beginning of year .............. $ 169 $ 240 $ 221 Provision charged to income ............. 100 148 109 Charge-offs ............................. (121) (229) (90) Recoveries .............................. 26 10 -- ----- ----- ----- Balance, end of period .................. $ 174 $ 169 $ 240 ===== ===== ===== (9) DEPOSITS Deposit account balances at December 31, 1996 and 1995 are summarized as follows: CURRENT STATED RATE AT DECEMBER 31, 1996 1996 1995 ----------------- ------ ------ IN THOUSANDS Noninterest bearing demand accounts .......................... -- $ 6,549 $ 4,699 NOW accounts ........................ 2.25% 20,063 17,958 Money market deposit accounts ....... 2.50-3.05 20,633 23,120 Savings accounts .................... 2.50 31,955 32,661 Club accounts ....................... 2.50 205 208 -------- -------- 79,405 78,646 -------- -------- Certificates of deposit ............. 3.01-4.00 331 1,474 4.01-5.00 14,310 18,028 5.01-6.00 80,829 44,122 6.00-7.00 4,053 31,525 7.01-over -- 8 -------- -------- Total certificates of deposit ....... 99,523 95,157 Accrued interest payable ............ 19 19 -------- -------- $178,947 $173,822 ======== ======== The overall weighted average interest rate on deposits at December 31, 1996, 1995 and 1994 was 4.12%, 3.66% and 3.10%, respectively. The aggregate amount of certificates of deposit in denominations of $100,000 or more totaled $7,818,000 and $5,952,000 at December 31, 1996, and 1995, respectively. Deposits over $100,000 are not insured by the Federal Deposit Insurance Corporation. At December 31, 1996 certificates of deposit have scheduled maturities as follows: IN THOUSANDS One year or less ...................................... $70,702 One year to three years ............................... 26,656 Three years or more ................................... 2,165 ------- $99,523 ======= 24 WAYNE BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Interest expense on deposits for the years ended December 31, 1996, 1995 and 1994 is summarized as follows: 1996 1995 1994 ------ ------ ------ IN THOUSANDS NOW and money market demand accounts ... $1,071 $1,111 $1,020 Savings accounts and certificates of deposit ........................... 6,077 5,669 4,152 ------ ------ ------ $7,148 $6,780 $5,172 ====== ====== ====== At December 31, 1996, the Bank had pledged approximately $671,000 of mortgage-backed securities as collateral for municipal deposits. (10) BORROWED FUNDS Borrowed funds at December 31, 1996 and 1995 are summarized as follows: 1996 1995 ------ ------ IN THOUSANDS Maturity: Due in one year or less $ 1,000 $ -- Due in one year through five years 26,000 2,000 ------- ------- $27,000 $ 2,000 ======= ======= The interest rates on the above borrowings are fixed and range from 6.48% to 6.86% The Bank may borrow funds from the FHLB subject to certain limitations. Based on the level of qualifying collateral available to secure advances at December 31, 1996, the Bank's borrowing limit from the FHLB was approximately $73.2 million, with unused borrowing capacity of $46.2 million at that date. The Bank, under an agreement with the FHLB, may receive advances for various terms at prevailing interest rates at the time of the advance. Such advances are collateralized by FHLB stock and securities held in safekeeping at the FHLB. (11) INCOME TAXES Income tax expense for the years ended December 31, 1996, 1995 and 1994 consists of the following: 1996 1995 1994 ------ ------ ------ IN THOUSANDS Current: Federal ............................. $421 $422 $ 942 State ............................... 38 36 85 ---- ---- ------ 459 458 1,027 Deferred ............................. (56) 29 (83) ---- ---- ------ $403 $487 $ 944 ==== ==== ====== 25 WAYNE BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table presents a reconciliation between the effective income tax expense and the computed "expected" Federal income tax expense which is computed by applying the normal Federal income tax rate of 34% to income before income tax expense for the years ended December 31, 1996, 1995 and 1994, respectively.
1996 1995 1994 ---- ---- ---- IN THOUSANDS Computed "expected" Federal income tax expense ................... $363 $462 $895 Increase (decrease) in taxes resulting from: New Jersey savings institution tax, net of Federal income tax effect ............................................... 30 24 56 Other items, net ................................................. 10 1 (7) ---- ---- ---- Income tax expense ............................................... $403 $487 $944 ==== ==== ==== Effective tax rate ............................................... 37.7% 36.0% 36.0%
Retained earnings at December 31, 1996 includes approximately $4,517,000 of income that has not been subject to tax because of deductions for bad debts allowed for income tax purposes. Deferred income taxes have not been provided on such bad debt deductions since the Company does not intend to use the accumulated bad debt deductions for purposes other than to absorb loan losses. If this portion of retained earnings is used for any purpose other than to absorb bad debt losses, taxes would be imposed on such amounts. If triggered, the tax liability related to the appropriated earnings would have been $1,626,000 at December 31, 1996. Legislation was enacted in 1996, which repealed, for tax purposes, the percentage of taxable income bad debt reserve method. The Bank is required to recapture the post 1987 build up to its tax bad debt reserves. This deferred tax liability has been accrued for under SFAS 109. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996 and 1995 are as follows: 1996 1995
1996 1995 ---- ---- IN THOUSANDS Deferred tax assets: Allowance for loan losses--book ........................................... $620 $541 Nonaccrual loan interest .................................................. 78 87 Unrealized loss on securities available for sale .......................... 219 53 Other ..................................................................... 3 10 ---- ---- Total gross deferred tax assets ........................................ 920 691 ---- ---- Deferred tax liabilities: Allowance for loan losses--tax ............................................ 317 263 Bank premises, furniture and equipment, principally due to differences in depreciation .............................................. 123 135 Other ..................................................................... 31 66 ---- ---- Total gross deferred tax liabilities ................................... 471 464 ---- ---- Net deferred tax asset ................................................. $449 $227 ==== ====
Management believes it is more likely than not that the Company will realize the benefit of net deductible temporary differences and that such net deductible temporary differences will reverse during periods in which the Company generates net taxable income. Management has projected that the Company will generate sufficient taxable income to utilize the net deferred tax asset and no valuation allowance is considered necessary. 26 WAYNE BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (12) BENEFIT PLANS Defined Benefit Pension Plan The Bank has a qualified, noncontributory defined benefit pension plan (the Plan) covering all eligible employees. Retirement benefits are based on a formula utilizing years of service and average monthly compensation. It is the Bank's policy to fund the Plan for the maximum amount that can be deducted for Federal income tax purposes, subject to the minimum funding requirements of the Employee Retirement Income Security Act of 1974. The following table sets forth the Plan's funded status and amounts recognized in the Bank's consolidated financial statements at December 31, 1996 and 1995:
1996 1995 ------ ------ IN THOUSANDS Actuarial present value of benefit obligations at December 31: Accumulated benefit obligation including vested benefits of $398 and $698 at December 31, 1996 and 1995, respectively .............................................................. $ 417 $ 724 ==== ==== Projected benefit obligation for service rendered to date .................. (611) (840) Plan assets at fair value, primarily certificates of deposit held at other banks at December 31 ................................................ 595 937 ---- ---- Plan assets (less than) in excess of projected benefit obligation ........... (16) 97 Unrecognized net (gain) obligation .......................................... 17 (78) Unrecognized net loss subsequent to transition .............................. 7 10 ---- ---- Prepaid asset (included in other assets) ................................... $ 8 $ 29 ==== ==== Net periodic pension cost includes the following components for the years ended December 31, 1996, 1995, and 1994, respectively: 1996 1995 1994 ------ ------ ------ IN THOUSANDS Service cost ................................................. $ 78 $ 82 $ 78 Interest cost ................................................ 49 59 56 Return on plan assets ........................................ (31) (56) (52) Amortization of net obligation ............................... 3 4 6 Deferred asset loss .......................................... (23) -- -- Settlement charge ............................................ 12 -- -- ---- ---- ---- Net periodic pension cost ................................... $ 88 $ 89 $ 88 ==== ==== ====
The discount rate and rate of increase in future compensation levels used in computing the actuarial present value of the projected benefit obligation were 7.5% and 5.5% in 1996 and 7.0% and 5.0% in 1995 and 1994, respectively. The expected long-term rate of return on assets was 7% for all years. Employee Savings Plan The Bank has an employee savings plan (the Savings Plan), pursuant to Section 401(k) of the Internal Revenue Code, for all eligible employees. The Bank matches 50% of employee contributions up to the first 6% of an employee's salary. The Bank's contribution during the years ended December 31, 1996, 1995, and 1994 amounted to $32,000, $33,000, and $30,000, respectively. Consultation and Retirement Plan for Non-Employee Directors Effective June 27, 1996, Wayne Savings Bank adopted the Wayne Savings Bank, F.S.B. Consultation and Retirement Plan for Non-Employee Directors ("the Plan"). The Plan is intended to promote the interest of Wayne 27 WAYNE BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Savings Bank, F.S.B., and its affiliates by providing for the continuing advice of retiring eligible members of its Board of Directors and the Board of Directors of Wayne Bancorp, Inc., the holding company of Wayne Savings Bank, F.S.B., and to provide such eligible members with retirement income. The following table sets forth the Plan's funded status and amounts recognized in the Bank's consolidated financial statement at December 31, 1996. DECEMBER 31, 1996 ----------------- IN THOUSANDS Vested benefit obligations .............................. $ (89) Accumulated benefit obligations ......................... (106) Projected benefit obligations ........................... $(106) Fair value of plan assets ............................... -- ----- Funded status ........................................... (106) Unrecognized prior service costs ........................ 86 Unrecognized net (gain) loss ............................ (2) ----- (Accrued) prepaid pension cost .......................... $ (22) ===== Net periodic pension cost, utilizing a 7.25% discount rate, includes the following components for the year ended December 31, 1996: JUNE 27, 1996 TO DECEMBER 31, 1996 ----------------- IN THOUSANDS Service cost ........................................... $16 Interest cost .......................................... 3 Amortization of unrecognized prior service costs ....... 3 --- Net periodic pension costs ............................. $22 === EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP") The Company used a portion of the net proceeds for a loan directly to the Bank for the ESOP to enable the ESOP to purchase 8% of the Common Stock in the Conversion. Based upon the issuance of 2,231,383 shares, the amount of the loan to the ESOP is $1,785,000, to be repaid over a ten year period at an interest rate of 8.25%. No shares were allocated in 1996. (13) REGULATORY CAPITAL REQUIREMENTS OTS regulations require savings institutions to maintain minimum levels of regulatory capital. Under the regulations in effect at December 31, 1996, the Bank was required to maintain a minimum ratio of tangible capital to total adjusted assets of 1.5%; a minimum ratio of Tier 1 (core) capital to total adjusted assets of 3.0%; and a minimum ratio of total (core and supplementary) capital to risk-weighted assets of 8.0%. Under its prompt corrective action regulations, the OTS is required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution. Such actions could have a direct material effect on the Bank's financial statements. The regulations establish a framework for the classification of savings institutions into five categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Generally, a bank is considered well capitalized if it has a Tier 1 (core) capital ratio of a least 5.0%; a Tier 1 risk-based capital ratio of a least 6.0%; and a total risk-based capital ratio of at least 10.0%. The foregoing capital ratios are based in part on specific quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the OTS about capital components, risk weightings and other factors. 28 WAYNE BANCORP INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Management believes that, as of December 31, 1996, the Bank meets all capital adequacy requirements to which it is subject. Further, the most recent OTS notification categorized the Bank as a well-capitalized institution under the prompt corrective action regulations. There have been no conditions or events since that notification that management believes have changed the Bank's capital classification. OTS regulations impose limitations on all capital distributions, such as cash dividends, payments to repurchase or otherwise acquire shares, payments to stockholders of another institution in a cash-out merger and other distributions charged against capital. The following is a summary of the Bank's actual capital amounts and ratios as of December 31, 1996 and 1995, compared with the OTS minimum capital adequacy requirements and the OTS requirements for classification as a well-capitalized institution.
OTS REQUIREMENTS ------------------------------------------- MINIMUM CAPITAL FOR CLASSIFICATION BANK ACTUAL ADEQUACY AS WELL CAPITALIZED ----------------------- ------------------ --------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ------- -------- ------- ------ ------- ----- IN THOUSANDS December 31, 1996 Tangible capital ................ $26,647 10.89% $3,671 1.50% $ 7,342 3.00% Tier 1 (core) capital ........... 26,647 10.89 7,342 3.00 12,236 5.00 Risk-based: Tier 1 ......................... 26,647 26.75 3,985 4.00 5,977 6.00 Total .......................... 26,951 27.05 7,970 8.00 9,962 10.00 December 31, 1995 Tangible capital ................ $17,394 8.34% $3,128 1.50% $ 6,255 3.00% Tier 1 (core) capital ........... 17,394 8.34 6,256 3.00 10,426 5.00 Risk-based: Tier 1 ......................... 17,394 22.13 3,144 4.00 4,715 6.00 Total .......................... 18,383 23.38 6,287 8.00 7,859 10.00
(14) COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK Commitments The Bank is party to financial instruments and commitments with off-balance-sheet credit risk in the normal course of business. These financial instruments and commitments include unused home equity lines of credit, commitments to extend credit, and commitments to purchase securities. These commitments and instruments involve, to varying degrees, elements of risk in excess of the amounts recognized in the consolidated financial statements. The Bank's maximum exposure to credit losses in the event of nonperformance by the other party to these financial instruments and commitments is represented by the contractual amount. The Bank uses the same credit policies in granting commitments and conditional obligations as it does for financial instruments recorded in the consolidated statements of financial condition. 29 WAYNE BANCORP INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) At December 31, 1996 and 1995 financial instruments and commitments whose contractual amounts represent off-balance-sheet credit risk are as follows: 1996 1995 ------ ------ IN THOUSANDS Unused home equity lines of credit (primarily floating rate) ........................... $9,541 $7,868 Commitments to extend credit: To originate mortgage loans Fixed rate ......................................... 2,629 829 Variable rate ...................................... 6,333 447 To purchase mortgage loans: Fixed rate ......................................... -- 1,400 Interest rates on commitments to originate fixed rate mortgage loans ranged from 6.75% to 8.50% and 7.63% to 7.75% at December 31, 1996 and 1995, respectively. Such commitments are generally for a sixty day term. The Bank leases certain branch offices under operating leases. At December 31, 1996, the minimum rental commitments for noncancellable leases with initial or remaining terms of more than one year and expiring through 2011 are as follows: IN THOUSANDS Year ended December 31, 1997 .................................................... $ 133 1998 .................................................... 137 1999 .................................................... 142 2000 .................................................... 146 2001 .................................................... 87 Thereafter .............................................. 359 ------ $1,004 ====== Rental expense under operating leases, included in occupancy expense in the consolidated statements of income was $253,000, $249,000 and $239,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Contingencies In the normal course of business, there are various outstanding legal proceedings, claims, commitments and contingent liabilities such as commitments to extend credit which are not included in the accompanying consolidated financial statements. In the opinion of management, the financial condition, results of operations and liquidity of the Company and its subsidiary will not be materially affected by the outcome of such legal proceedings and claims or by such commitments and contingent liabilities. Concentrations of Credit Risk A substantial portion of the Bank's loans are one- to four-family residential first mortgage loans secured by real estate located in New Jersey. Accordingly, the collectibility of a substantial portion of the Bank's loan portfolio and the recovery of a substantial portion of the carrying amount of REO are susceptible to changes in real estate market conditions. (15) FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value estimates, methods and assumptions are set forth below for the Company's financial instruments for which it is practical to estimate those values. Cash and Cash Equivalents For cash and due from Banks, interest-bearing deposits in other banks and Federal funds sold, the carrying amount approximates fair value. 30 WAYNE BANCORP INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Securities Held to Maturity and Securities Available for Sale The fair value of securities held to maturity and securities available for sale was based on quoted market prices or dealer quotes, if available. If a quoted market price or dealer quote was not available, fair value was estimated using quoted market prices of similar securities. Federal Home Loan Bank of New York Stock The fair value for FHLB stock is its carrying value, since this is the amount for which it could be redeemed. There is no active market for this stock and the Bank is required to maintain a minimum balance based on the unpaid principal of home mortgage loans. Loans Fair values are estimated for portfolios of loans with similar financial characteristics. Loans were segregated by type. Each loan category was further segmented into fixed and adjustable rate interest terms. Fair value of adjustable rate mortgage loans was determined to approximate their carrying value. The fair value of fixed rate loans was determined by discounting the scheduled cash flows through the contractual maturity, adjusted for estimated prepayments, using estimated market discount rates that reflect the risk inherent in the loan type, taking into account the credit grade and maturity. The fair value of nonperforming loans was determined by discounting the estimated future cash flows after adjusting for collection costs and risk of nonpayment. Deposit Liabilities The fair value of deposits with no stated maturity, such as savings, noninterest bearing demand, NOW and money market deposit accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. 31 WAYNE BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Federal Home Loan Bank Advances The fair value of Federal Home Loan Bank advances approximates the carrying value. The estimated fair values of the Company's financial instruments as of December 31, 1996 and 1995 are presented in the following table. Since the fair value of off-balance-sheet commitments are not material, these disclosures are not included.
1996 1995 --------------------------- -------------------------- CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE -------------- ---------- -------------- ---------- IN THOUSANDS Financial assets: Cash and cash equivalents ........................ $ 6,943 $ 6,943 $ 26,262 $ 26,262 Securities held to maturity ...................... 3,229 3,197 3,841 3,769 Securities available for sale .................... 80,867 80,867 58,155 58,155 Federal Home Loan Bank of New York stock ......... 1,568 1,568 1,568 1,568 Loans receivable ................................. 145,425 148,240 111,988 113,963 Financial liabilities: Deposits ......................................... 178,947 179,695 173,822 174,278 Federal Home Loan Bank advances ................... 27,000 27,332 2,000 2,000
Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. The tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. (16) PARENT COMPANY FINANCIAL INFORMATION Wayne Bancorp, Inc. (the parent company) was incorporated for the purpose of acquiring the Bank in connection with the Bank's conversion from a mutual form of ownership to a stock form of ownership. The following information on the parent only financial statements as of December 31, 1996 and for the period June 27, 1996 to December 31, 1996, should be read in conjunction with the notes to the consolidated financial statements. 32 WAYNE BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED STATEMENTS OF FINANCIAL CONDITION (PARENT COMPANY ONLY) ASSETS 1996 ---- IN THOUSANDS Cash and due from banks ........................................... $ 265 Investment in Wayne Savings Bank, F.S.B ........................... 26,257 Other assets ...................................................... 10,485 ------- Total Assets ...................................................... $37,007 ======= LIABILITIES AND STOCKHOLDERS' EQUITY Other liabilities ................................................. $ 96 ------- Stockholders' equity: Common stock ...................................................... 22 Paid-in capital ................................................... 21,004 Unallocated ESOP shares ........................................... (1,785) Retained earnings ................................................. 17,670 ------- Total stockholders' equity ........................................ 36,911 ------- Total liabilities and stockholders' equity ........................ $37,007 ======= CONDENSED STATEMENTS OF INCOME (PARENT COMPANY ONLY) FOR THE PERIOD JUNE 27, 1996 TO DECEMBER 31, 1996 ----------------- IN THOUSANDS Income: Equity in earnings (loss) of subsidiary ................... $(119) Interest Income ........................................... 337 ----- Total income ............................................ 218 ----- Expenses: Legal and professional fees ............................... 84 Other expenses ............................................ 19 ----- Total expenses .......................................... 103 ----- Income before income tax expense .......................... 115 Income tax expense ........................................ 94 ----- Net Income ................................................ $ 21 ===== 33 WAYNE BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) STATEMENT OF CASH FLOWS (PARENT COMPANY ONLY) FOR THE PERIOD JUNE 27, 1996 TO DECEMBER 31, 1996 ----------------- IN THOUSANDS Cash flows from operating activities: Net income .............................................. $ 21 Adjustments to reconcile net income to net cash provided by operating activities: Equity in earnings of subsidiary ....................... 119 Increase in other assets ............................... (10,485) Increase in other liabilities .......................... 96 -------- Net cash used in operating activities .................... (10,249) -------- Cash flows from investing activities: Investment in subsidiary ................................ (8,727) ESOP loan to subsidiary ................................. (1,785) -------- Net cash used in investing activities .................... (10,512) -------- Cash flows from financing activities: Proceeds from issuance of common stock .................. 21,026 -------- Net change in cash and cash equivalents .................. 265 Cash and cash equivalents at beginning of year ........... -- -------- Cash and cash equivalents at end of year ................. $ 265 ======== (17) SAVINGS ASSOCIATION INSURANCE FUND (SAIF) RECAPITALIZATION ASSESSMENT On September 30, 1996, the President signed into law the Deposit Insurance Funds Act of 1996 (the "Funds Act") which, among other things, imposes a special one-time assessment on SAIF member institutions, including the Bank, to recapitalize the SAIF. As required by the Funds Act, the FDIC imposed a special assessment of 65.7 basis points on SAIF assessable deposits held as of March 31, 1995, payable November 27, 1996. The special assessment was recognized as an expense in the third quarter of 1996 and is tax deductible. The Bank incurred a pre tax charge of $1.0 million as a result of the FDIC special assessment. The Funds Act also spreads the obligations for payment of the Financing Corporation ("FICO") bonds across all SAIF and BIF members. Beginning January 1, 1997, BIF deposits will be assessed for FICO payments at a rate of 20% of the rate assessed on SAIF deposits. Based on current estimates by the FDIC, BIF deposits will be assessed a FICO payment of 1.3 basis points, while SAIF deposits will pay an estimated 6.5 basis points on the FICO bonds. Full pro rata sharing of the FICO payments between BIF and SAIF members will occur on the earlier of January 1, 2000 or the date the BIF and SAIF are merged. The Funds Act specifies that the BIF and SAIF will be merged on January 1, 1999 provided no savings associations remain as of that time. As a result of the Funds Act, and recently passed legislation, SAIF assessments will be lowered to 0 to 27 basis points effective January 1, 1997, a range comparable to that of BIF members. However, SAIF members will continue to make the higher FICO payments described above. Management cannot predict the level of FDIC insurance assessments on an on-going basis, whether the savings association charter will be eliminated, or whether the BIF and SAIF will eventually be merged. The Bank paid $393,000, $368,000 and $378,000 in Federal deposit insurance premiums for the fiscal years ended December 31, 1996, 1995 and 1994, respectively. 34 WAYNE BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (18) SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The results of operations on a quarterly basis are presented in the following tables:
1996 --------------------------------------------------- FOURTH THIRD SECOND FIRST QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- IN THOUSANDS, EXCEPT PER SHARE AMOUNTS Interest income ........................... $4,513 $ 4,079 $3,457 $3,409 Interest expense .......................... 2,269 2,057 1,800 1,832 ------ ------- ------ ------ Net interest income ....................... 2,244 2,022 1,657 1,577 Provision for loan losses ................. 65 50 50 35 Noninterest income ........................ 144 171 140 130 Noninterest expense ....................... 1,303 3,093 1,259 1,161 Income tax expense (benefit) .............. 385 (336) 168 186 ------ ------- ------ ------ Net income (loss) ......................... $ 635 $ (614) $ 320 $ 325 ====== ======= ====== ====== Net income (loss) per share ............... $ 0.31 $ (0.30) $ -- $ -- ====== ======= ====== ====== 1995 -------------------------------------------------- FOURTH THIRD SECOND FIRST QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- IN THOUSANDS, EXCEPT PER SHARE AMOUNTS Interest income ........................... $3,337 $3,346 $3,284 $3,169 Interest expense .......................... 1,863 1,860 1,781 1,446 ------ ------- ------ ------ Net interest income ....................... 1,474 1,486 1,503 1,723 Provision for loan losses ................. 75 -- 2 75 Noninterest income (loss) ................. (254) 182 212 135 Noninterest expense ....................... 1,134 1,262 1,318 1,237 Income tax expense (benefit) .............. (1) 148 141 199 ------ ------- ------ ------ Net income ................................ $ 12 $ 258 $ 254 $ 347 ====== ======= ====== ======
(19) RECENT ACCOUNTING PRONOUNCEMENTS In June, 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS No. 125). SFAS 125 amends portions of SFAS 115, amends and extends to all servicing assets and liabilities the accounting standards for mortgage servicing rights now in SFAS 65, and supersedes SFAS 122. The statement provides consistent standards for distinguishing transfers of financial assets which are sales from transfers that are secured borrowings. Those standards are based upon consistent application of a financial components approach that focuses on control. The statement also defines accounting treatment for servicing assets and other retained interest in the assets that are transferred. As issued, SFAS 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996 and is to be applied prospectively. In December, 1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date of Certain Provision of FASB Statement No. 125"; an amendment of FASB Statement No. 125" which defers for one year the effective date (a) of Paragraph 15 of SFAS No. 125 and (b) for repurchase agreement, dollar-roll, securities lending and similar transactions, of Paragraphs 9-12 and 237(b) of SFAS No. 125. The adoption of these statements is not expected to have a material effect on the Banks financial condition or results of operations. 35 [LOGO TO COME] INDEPENDENT AUDITORS' REPORT The Board of Directors Wayne Bancorp, Inc.: We have audited the accompanying consolidated statements of financial condition of Wayne Bancorp, Inc. and Subsidiary as of December 31, 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 consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wayne Bancorp, Inc. and Subsidiary as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP ------------------------------------- Short Hills, New Jersey January 15, 1997 36 STOCKHOLDER INFORMATION STOCK PRICE INFORMATION Shares of the common stock of Wayne Bancorp, Inc. have been traded under the symbol WYNE on the NASDAQ National Market System since June 27, 1996. The following table sets forth the range of high and low closings sale price quotations per share for Wayne Bancorp, Inc. common stock as depicted by NASDAQ. The market price information does not include retail markups, markdowns or commissions, but is based on actual transactions. High Low ---- --- 1996 Third quarter ...................... $13 7/8 $10 3/4 1996 Fourth quarter ..................... $15 1/4 $13 11/16 As of March 11, 1997, there were 2,156,383 shares of common stock outstanding and 554 stockholders of record, not including the number of persons or entities whose stock is held in nominee or "street" name through various brokerage firms or banks. ANNUAL MEETING OF STOCKHOLDERS The annual of stockholders will be held on April 30, 1997 at the Paris Inn, 1292 Alps Road, Wayne, N.J. 07470. ANNUAL REPORT ON FORM 10-K AND INVESTOR INFORMATION A copy of Wayne Bancorp, Inc.'s annual report on Form 10-K, to be filed with the Securities and Exchange Commission, is available without charge by writing: Timothy P. Tierney Vice President and Chief Financial Officer Wayne Bancorp, Inc. 1195 Hamburg Turnpike Wayne, N.J. 07470 STOCK TRANSFER AGENT AND REGISTRAR Inquiries regarding stock transfer, registration, lost certificates or changes in name and address should be directed to the stock transfer and registrar by writing: Registrar and Transfer Company Attn: Investor Relations 10 Commerce Drive Cranford, N.J. 07016 37 WAYNE BANCORP, INC. WAYNE BANCORP, INC. BOARD OF DIRECTORS Harold P. Cook, III Chairman and Chief Executive Officer Johanna O'Connell President William J. Lloyd David M. Collins Thomas D. Collins Nicholas S. Gentile, Jr. Ronald Higgins Richard Len Charles Lota Joseph J. DeLuccia, Director Emeritus BANKING OFFICES 1501 Hamburg Turnpike Wayne, N.J. 07470 201-694-2300 1504 Route 23 Wayne, N.J. 07470 201-694-0029 Valley Road at Preakness Avenue Wayne, N.J. 07470 201-696-6500 5 Sicomac Road North Haledon, N.J. 07508 201-427-9888 Wayne Savings Bank, F.S.B. Officers Johanna O'Connell, President and Chief Executive Officer Michael G. DeBendette, Executive Vice President and Chief Operating Officer Timothy P. Tierney, Vice President and Chief Financial Officer Donna Finck, Vice President Thomas A. Maselli, Vice President Carolyn May, Vice President Hazel D. Myers, Vice President Shirley Meyer, Vice President William Poole, Vice President David K. Ver Hage, Assistant Vice President Cathy Abita, Assistant Secretary Treasurer ADMINISTRATIVE 1195 Hamburg Turnpike Wayne, N.J. 07470 201-305-5500 38 [LOGO TO COME] 1195 HAMBURT TURNPIKE WAYNE, NEW JERSEY 07470 (201) 305-5500 EX-27 12 ARTICLE 9 FDS FOR 1
9 YEAR DEC-31-1996 DEC-31-1996 1,170 523 5,250 0 80,867 3,229 3,197 147,214 1,789 244,081 178,947 2,000 1,223 25,000 0 0 22 36,889 244,081 10,059 4,697 702 15,458 7,148 7,958 7,500 200 0 6,816 1,069 1,069 0 0 666 .01 .01 7.29 2,076 0 0 2,400 1,589 0 0 1,789 1,789 0 0
EX-99.29 13 NOTICE OF SPECIAL MEETING SCHEDULE 14-A 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 ss.240.14a-l1(c) or ss.240.14a-12 WAYNE BANCORP, INC. ----------------------------------------------- (Name of Registrant as Specified In Its Charter) -------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than 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: ------------------------------------------------------------------------- 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: ---------------------- 2) Form, Schedule or Registration Statement No.: ---------------------- 3) Filing Party: ---------------------- 4) Date Filed: ---------------------- WAYNE BANCORP, INC. 1195 HAMBURG TURNPIKE WAYNE, NEW JERSEY 07470 (201) 305-5500 March 25, 1997 Fellow Shareholders: You are cordially invited to attend the first annual meeting of shareholders (the "Annual Meeting") of Wayne Bancorp, Inc. (the "Company"), the holding company for Wayne Savings Bank, F.S.B. (the "Bank"), which will be held on April 30, 1997, at 2:00 p.m., Eastern Time, at the Paris Inn, 1292 Alps Road, Wayne, New Jersey. The attached Notice of the Annual Meeting and the Proxy Statement describe the formal business to be transacted at the Annual Meeting. Directors and officers of the Company, as well as a representative of KPMG Peat Marwick LLP, the Company's independent auditors, will be present at the Annual Meeting to respond to any questions that our shareholders may have regarding the business to be transacted. The Board of Directors of the Company has determined that the matters to be considered at the Annual Meeting are in the best interests of the Company and its shareholders. FOR THE REASONS SET FORTH IN THE PROXY STATEMENT, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" EACH MATTER TO BE CONSIDERED. PLEASE SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY. YOUR COOPERATION IS APPRECIATED SINCE A MAJORITY OF THE COMMON STOCK MUST BE REPRESENTED, EITHER IN PERSON OR BY PROXY, TO CONSTITUTE A QUORUM FOR THE CONDUCT OF BUSINESS. On behalf of the Board of Directors and all of the employees of the Company and the Bank, we thank you for your continued interest and support. Sincerely yours, /s/ HAROLD P. COOK, III ------------------------------------------ Harold P. Cook, III Chairman of the Board and Chief Executive Officer WAYNE BANCORP, INC. 1195 HAMBURG TURNPIKE WAYNE, NEW JERSEY 07470 (201) 305-5500 ---------------------------------- NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 30, 1997 ---------------------------------- NOTICE IS HEREBY GIVEN that the annual meeting of shareholders (the "Annual Meeting") of Wayne Bancorp, Inc. (the "Company"), the holding company for Wayne Savings Bank, F.S.B. will be held on April 30, 1997, at 2:00 p.m., Eastern Time, at the Paris Inn, 1292 Alps Road, Wayne, New Jersey. The purpose of the Annual Meeting is to consider and vote upon the following matters: 1. The election of four directors for terms of three years each or until their successors are elected and qualified; 2. The ratification of the appointment of KPMG Peat Marwick LLP as independent auditors of the Company for the fiscal year ending December 31, 1997; and 3. Such other matters as may properly come before the meeting and at any adjournments thereof, including whether or not to adjourn the meeting. The Board of Directors has established March 21, 1997, as the record date for the determination of stockholders entitled to receive notice of and to vote at the Annual Meeting and at any adjournments thereof. Only recordholders of the Common Stock of the Company as of the close of business on such record date will be entitled to vote at the Annual Meeting or any adjournments thereof. In the event there are not sufficient votes for a quorum or to approve or ratify any of the foregoing proposals at the time of the Annual Meeting, the Annual Meeting may be adjourned in order to permit further solicitation of proxies by the Company. A list of shareholders entitled to vote at the Annual Meeting will be available at the administrative offices of the Company, 1195 Hamburg Turnpike, Wayne, New Jersey 07470, for a period of ten days prior to the Annual Meeting and will also be available at the Annual Meeting itself. By Order of the Board of Directors /s/ MICHAEL G. DEBENEDETTE ------------------------------------------- Michael G. DeBenedette Secretary Wayne, New Jersey March 25, 1997 WAYNE BANCORP, INC. ----------------------- PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS APRIL 30, 1997 ----------------------- SOLICITATION AND VOTING OF PROXIES This Proxy Statement is being furnished to shareholders of Wayne Bancorp, Inc. (the "Company") in connection with the solicitation by the Board of Directors ("Board of Directors" or "Board") of proxies to be used at the first annual meeting of shareholders (the "Annual Meeting"), to be held on April 30, 1997 at 2:00 p.m., at the Paris Inn, 1292 Alps Road, Wayne, New Jersey and at any adjournments thereof. The 1996 Annual Report to Shareholders, including consolidated financial statements for the fiscal year ended December 31, 1996, accompanies this Proxy Statement, which is first being mailed to recordholders on or about March 25, 1997. Regardless of the number of shares of Common Stock owned, it is important that recordholders of a majority of the shares be represented by proxy or be present in person at the Annual Meeting. Shareholders are requested to vote by completing the enclosed proxy card and returning it signed and dated in the enclosed postage-paid envelope. Shareholders are urged to indicate their vote in the spaces provided on the proxy card. PROXIES SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY WILL BE VOTED IN ACCORDANCE WITH THE DIRECTIONS GIVEN THEREIN. WHERE NO INSTRUCTIONS ARE INDICATED, SIGNED PROXY CARDS WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR NAMED IN THIS PROXY STATEMENT AND FOR THE APPROVAL AND RATIFICATION OF EACH OF THE SPECIFIC PROPOSALS PRESENTED IN THIS PROXY STATEMENT. Other than the matters set forth on the attached Notice of Annual Meeting of Shareholders, the Board of Directors knows of no additional matters that will be presented for consideration at the Annual Meeting. EXECUTION OF A PROXY, HOWEVER, CONFERS ON THE DESIGNATED PROXY HOLDERS DISCRETIONARY AUTHORITY TO VOTE THE SHARES IN ACCORDANCE WITH THEIR BEST JUDGMENT ON SUCH OTHER BUSINESS, IF ANY, THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING AND AT ANY ADJOURNMENTS THEREOF, INCLUDING WHETHER OR NOT TO ADJOURN THE ANNUAL MEETING. A proxy may be revoked at any time prior to its exercise by filing a written notice of revocation with the Secretary of the Company, by delivering to the Company a duly executed proxy bearing a later date, or by attending the Annual Meeting and voting in person. However, if you are a shareholder whose shares are not registered in your own name, you will need appropriate documentation from your recordholder to vote personally at the Annual Meeting. 1 The cost of solicitation of proxies on behalf of management will be borne by the Company. In addition to the solicitation of proxies by mail, Regan & Associates, Inc., a proxy solicitation firm, will assist the Company in soliciting proxies for the Annual Meeting and will be paid a fee of $3,500, plus out-of-pocket expenses. Proxies may also be solicited personally or by telephone by directors, officers and other employees of the Company and its subsidiary, Wayne Savings Bank, F.S.B. (the "Bank"), without additional compensation therefor. The Company will also request persons, firms and corporations holding shares in their names, or in the name of their nominees, which are beneficially owned by others, to send proxy material to and obtain proxies from such beneficial owners, and will reimburse such holders for their reasonable expenses in doing so. VOTING SECURITIES The securities which may be voted at the Annual Meeting consist of shares of common stock of the Company ("Common Stock"), with each share entitling its owner to one vote on all matters to be voted on at the Annual Meeting, except as described below. There is no cumulative voting for the election of directors. The close of business on March 21, 1997 has been fixed by the Board of Directors as the record date (the "Record Date") for the determination of shareholders of record entitled to notice of and to vote at the Annual Meeting and at any adjournments thereof. The total number of shares of Common Stock outstanding on the Record Date was 2,156,383 shares. As provided in the Company's Certificate of Incorporation, recordholders of Common Stock who beneficially own in excess of 10% of the outstanding shares of Common Stock (the "Limit") are not entitled to any vote in respect of the shares held in excess of the Limit. A person or entity is deemed to beneficially own shares owned by an affiliate of, as well as, by persons acting in concert with, such person or entity. The Company's Certificate of Incorporation authorizes the Board of Directors (i) to make all determinations necessary to implement and apply the Limit, including determining whether persons or entities are acting in concert, and (ii) to demand that any person who is reasonably believed to beneficially own stock in excess of the Limit supply information to the Company to enable the Board of Directors to implement and apply the Limit. The presence, in person or by proxy, of the holders of at least a majority of the total number of shares of Common Stock entitled to vote (after subtracting any shares in excess of the Limit pursuant to the Company's Certificate of Incorporation) is necessary to constitute a quorum at the Annual Meeting. In the event there are not sufficient votes for a quorum or to approve or ratify any proposal at the time of the Annual Meeting, the Annual Meeting may be adjourned in order to permit the further solicitation of proxies. As to the election of directors set forth in Proposal 1, the proxy card being provided by the Board of Directors enables a stockholder to vote "FOR" the election of the nominees proposed by the Board of Directors, or to "WITHHOLD" authority to vote for one or more of the nominees 2 being proposed. Under Delaware law and the Company's bylaws, directors are elected by a plurality of votes cast, without regard to either (i) broker non-votes, or (ii) votes withheld on proxies as to which authority to vote for one or more of the nominees being proposed is withheld. As to the ratification of KPMG Peat Marwick, LLP as independent auditors of the Company set forth in Proposal 2, by checking the appropriate box, you may: (i) vote "FOR" the item; (ii) vote "AGAINST" the item; or (iii) "ABSTAIN" with respect to the item. Under the Company's bylaws, unless otherwise required by law, all such matters shall be determined by a majority of the votes cast, without regard to either (a) broker non-votes, or (b) proxies marked "ABSTAIN" as to that matter. Proxies solicited hereby will be returned to the Company's transfer agent, the Registrar & Transfer Company, and will be tabulated by inspectors of election designated by the Board of Directors, who will not be employed by, or be a director of, the Company or any of its affiliates. After the final adjournment of the Annual Meeting, the proxies will be returned to the Company for safekeeping. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth information as to those persons believed by management to be beneficial owners of more than 5% of the Company's outstanding shares of Common Stock on the Record Date or as disclosed in certain reports regarding such ownership filed by such persons with the Company and with the Securities and Exchange Commission ("SEC"), in accordance with Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, as amended ("Exchange Act"). Other than those persons listed below, the Company is not aware of any person, as such term is defined in the Exchange Act, that owns more than 5% of the Company's Common Stock as of the Record Date. 3
AMOUNT AND NATURE OF BENEFICIAL PERCENT TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS - -------------------- ------------------------------------------------------------ --------------- ------------ Common Stock Wayne Savings Bank, F.S.B. Employee Stock 178,511(1) 8.3% Ownership Plan ("ESOP") 1195 Hamburg Turnpike Wayne, New Jersey 07470 Common Stock Seidman and Associates, L.L.C., 206,500(2) 9.6 Seidman and Associates II, L.L.C., Seidman Investment Partnership, L.P., Lawrence B. Seidman, Benchmark Partners L.P., The Benchmark Company, Inc., S/B International Fund, Ltd., Richard Whitman, Lorraine DiPaola, Dennis Pollack 750 Lexington Avenue New York, New York 10022 Common Stock Wellington Management Company, LLP ("WMC") 204,430(3) 9.5 75 State Street Boston, Massachusetts 021109 Common Stock Bay Pond Partners, L.P. 129,700(4) 6.0 75 State Street Boston, Massachusetts 02109
- ----------------- (1) Shares of Common Stock were acquired by the ESOP in the Bank's conversion from the mutual to the stock form (the "Conversion"). The ESOP Committee of the Board of Directors administers the ESOP. First Bankers Trust, N.A. has been appointed as the corporate trustee for the ESOP ("ESOP Trustee"). The ESOP Trustee, subject to its fiduciary duty, must vote all allocated shares held in the ESOP in accordance with the instructions of the participants. At March 21, 1997, 18,057 shares have been allocated under the ESOP and 160,454 shares remain unallocated. Under the ESOP, the ESOP Trustee will vote the unallocated shares in a manner calculated to most accurately reflect the instructions received from participants so long as the Trustee determines such vote is in accordance with the provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). (2) Based on information disclosed by the group of reporting persons set forth herein in a Schedule 13D filed with the SEC and most recently amended on February 27, 1997. (3) Based on information disclosed by the group in a Schedule 13G filed with the SEC on January 24, 1997. This total includes 129,700 shares beneficially owned by Bay Pond Partners, L.P. and held by WMC in its capacity as investment advisor. (4) Based on information disclosed by the group in a Schedule 13D filed with the SEC and most recently amended on September 9, 1996. The 129,700 shares of Common Stock reported by Bay Pond Partners, L.P. are also included in the total number of shares beneficially owned by WMC. 4 PROPOSALS TO BE VOTED ON AT THE MEETING PROPOSAL 1. ELECTION OF DIRECTORS The Board of Directors of the Company currently consists of ten (10) directors and is divided into three classes. Each of the ten members of the Board of Directors of the Company also presently serves as a director of the Bank. Directors are elected for staggered terms of three years each, with the term of office of only one of the three classes of directors expiring each year. Directors serve until their successors are elected and qualified. As a result of negotiations in connection with the solicitation of proxies by the Committee to Preserve Shareholder Value (the "Committee") in opposition to the Wayne Bancorp, Inc. 1996 Stock-Based Incentive Plan ("Incentive Plan"), the Company and the Committee entered into an agreement (the "Agreement") on February 10, 1997, which became binding upon the approval of the Incentive Plan. Such Agreement obligates the Company to, among other things: (i) increase by one the size of the Boards of Directors of the Company and the Bank and appoint Dennis Pollack as a Director for a term expiring at the Company's 1997 Annual Meeting of Stockholders; (ii) nominate Mr. Pollack for re-election to the Board of Directors at its 1997 Annual Meeting of Stockholders; (iii) upon termination of William J. Lloyd's next term as a Director or his earlier resignation, reduce the number of Directors back to nine; and (iv) revise its fee arrangement for Directors so the increase in the size of the Board will not increase the total fees owed to Directors. The Agreement obligates the Committee and each of its members to, among other things: (i) vote all of the common stock of the Company owned of record or beneficially by the members of the Committee (the "Committee Stock") at the Special Meeting to approve the Incentive Plan; and (ii) vote the Committee Stock in favor of the election of the persons nominated by the Board of Directors of the Company to be elected Directors at the 1997 Annual Meeting of Stockholders. In addition, the Agreement places certain restrictions on the Committee's ability to solicit proxies in opposition to the Company prior to the 1999 Annual Meeting, and prohibits members of the Committee from acquiring additional shares of the Company's common stock such that their aggregate ownership exceeds 10% of the outstanding common stock. The four nominees proposed for election at this Annual Meeting are Harold P. Cook, III, William J. Lloyd, Ronald Higgins and Dennis Pollack. In the event that any such nominee is unable to serve or declines to serve for any reason, it is intended that the proxies will be voted for the election of such other person as may be designated by the present Board of Directors. The Board of Directors has no reason to believe that any of the persons named will be unable or unwilling to serve. UNLESS AUTHORITY TO VOTE FOR THE NOMINEE IS WITHHELD, IT IS INTENDED THAT THE SHARES REPRESENTED BY THE ENCLOSED PROXY CARD, IF EXECUTED AND RETURNED, WILL BE VOTED FOR THE ELECTION OF THE NOMINEES PROPOSED BY THE BOARD OF DIRECTORS. 5 THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF THE NOMINEES NAMED IN THIS PROXY STATEMENT. INFORMATION WITH RESPECT TO THE NOMINEES AND CONTINUING DIRECTORS The following table sets forth, as of the Record Date, the names of the nominees, continuing directors and Named Executive Officers (as defined herein) as well as their ages, a brief description of their recent business experience, including present occupations and employment, certain directorships held by each, the year in which each director became a director of the Bank, and the year in which their terms (or in the case of the nominees, their proposed terms) as director of the Company expire. The table also sets forth the amount of Common Stock and the percent thereof beneficially owned by each director and Named Executive Officer and all directors and executive officers as a group as of the Record Date.
SHARES OF NAME AND PRINCIPAL EXPIRATION COMMON STOCK OCCUPATION AT PRESENT DIRECTOR OF TERM AS BENEFICIALLY PERCENT OF AND FOR PAST FIVE YEARS AGE SINCE(1) DIRECTOR OWNED (2) CLASS(3) - ----------------------- --- ----- -------- --------- -------- NOMINEES Harold P. Cook, III........................ 42 1991 2000 18,347(4)(5) * Chairman of the Board and Chief Executive Officer of the Company and Vice Chairman of the Board of the Bank. Mr. Cook has been a partner with the law firm Cook & DeLuccia since 1982. William J. Lloyd........................... 73 1961 2000 5,848(4)(5) * Mr. Lloyd is a director of the Company and is Chairman of the Board of Directors of the Bank, and has been retired since 1986. Ronald Higgins............................. 61 1988 2000 4,848(4)(5) * Mr. Higgins has been a real estate broker for Century 21 since 1995 and a principal owner and insurance agent for RLM Insurance Agency since 1967 and is a real estate entrepreneur.
6
SHARES OF NAME AND PRINCIPAL EXPIRATION COMMON STOCK OCCUPATION AT PRESENT DIRECTOR OF TERM AS BENEFICIALLY PERCENT OF AND FOR PAST FIVE YEARS AGE SINCE(1) DIRECTOR OWNED (2) CLASS(3) - ----------------------- --- ----- -------- --------- -------- Dennis Pollack............................. 46 1997(6) 2000 206,500(7) 9.6% Mr. Pollack has served as President and Chief Executive Officer of CBC Bancorp, Inc. and Connecticut Bank of Commerce, Stamford, Connecticut since February 1996. He was Regional President of First Fidelity Bank, N.A., Hawthorne, New York in 1994. Previous to that he served as President and Chief Executive Officer of the Savings Bank of Rockland County, Spring Valley, New York from 1987- 1994. CONTINUING DIRECTORS Thomas D. Collins.......................... 62 1981 1998 13,348(4) * Mr. Collins is the Assistant Secretary of the Company and the Board Secretary of the Bank. Since 1960 he has been the owner-manager of Town & Country Hardware Inc., Wayne, New Jersey, Johanna O'Connell.......................... 45 1996 1998 21,683(4)(5)(8) 1.0% Ms. O'Connell has served as President of the Company and President and Chief Executive Officer of the Bank since September 6, 1996. Previously, Ms. O'Connell served as Vice President of the Company and Senior Vice President and Chief Lending Officer of the Bank. Nicholas S. Gentile, Jr.................... 66 1965 1998 3,448(4)(5) * Mr. Gentile is Secretary to the Board of the Company and is President and Chief Executive Officer of Pompton Lakes Building Supply Co. David M. Collins........................... 57 1981 1999 7,848(4)(5) * Mr. Collins has been an educator in Wayne Township since 1967 and has also been involved in real estate acquisitions and management.
7
SHARES OF NAME AND PRINCIPAL EXPIRATION COMMON STOCK OCCUPATION AT PRESENT DIRECTOR OF TERM AS BENEFICIALLY PERCENT OF AND FOR PAST FIVE YEARS AGE SINCE(1) DIRECTOR OWNED (2) CLASS(3) - ----------------------- --- ----- -------- --------- -------- Richard Len................................ 62 1988 1999 30,117(4)(5)(8) 1.3% Mr. Len is President of Wayne Savings Financial Services Group, Inc., a subsidiary of the Bank. Charles A. Lota............................ 39 1993 1999 8,348(4)(5) * Mr. Lota is a Certified Public Accountant and currently owns his own accounting firm located in Wyckoff, New Jersey. Stock Ownership of all Directors -- -- -- 340,340(9) 15.8% and Executive Officers as a Group (12 persons)
- --------------- * Does not exceed 1.0% of the Company's voting securities. (1) Includes years of service as a director of the Bank. (2) Each person effectively exercises sole (or shares with spouse or other immediate family member) voting or dispositive power as to shares reported herein (except as noted). (3) As of the Record Date, there were 2,156,383 shares of Common Stock outstanding. (4) Includes 3,347, 3,347, 3,347, 3,347, 17,851, 3,347, 3,347, 13,388 and 3,347 shares awarded to Messrs. Cook, Lloyd, Higgins and Thomas D. Collins, Ms. O'Connell, Messrs. Gentile, David M. Collins, Len and Lota under the Incentive Plan. Awards to directors under the Incentive Plan vest in five equal annual installments commencing February 25, 1998. Base grants to officers under the Incentive Plan vest in five equal annual installments commencing February 25, 1998; however, performance grants, which constitute 25%, 50% and 75% of the amount of the grant that will vest in years 2000, 2001 and 2002, respectively, will only vest if the performance criteria for the year established by the Compensation Committee is met. (5) Does not include 8,367, 8,367, 8,367, 8,367, 44,627, 8,367, 8,367, 33,470 and 8,367 shares subject to options granted to Messrs. Cook, Lloyd, Higgins and Thomas D. Collins, Ms. O'Connell, Messrs. Gentile, David M. Collins, Len and Lota, under the Incentive Plan. Options will be exercisable on a cumulative basis in five equal annual installments commencing February 25, 1998. (6) In accordance with an Agreement the Company entered into with the Committee, which includes a number of members, including Lawrence B. Seidman, the Company named Mr. Pollack to the Board of Directors of the Company and the Bank on February 25, 1997. (7) Mr. Pollack is a member of the Committee, which is a group of reporting persons under Section 13(d) of the Exchange Act, and therefore, beneficial ownership of all of the shares held by members of the Committee is attributable to Mr. Pollack. Mr. Pollack individually owns 5,500 shares. See "Security Ownership of Certain Beneficial Owners." (8) Includes 1,730 and 1,637 shares allocated to Ms. O'Connell and Mr. Len, respectively under the Bank's ESOP. (9) Includes 68,948 shares allocated to executive officers and directors under the Incentive Plan, and 4,300 shares allocated to executive officers under the ESOP. Excludes 172,368 shares subject to options granted to executive officers and directors which commence vesting on February 25, 1998 at a rate of 20% of the original amount awarded per year. 8 SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the Company's officers (as defined in regulations promulgated by the SEC thereunder) and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on a review of copies of such reports of ownership furnished to the Company, or written representations that no forms were necessary, the Company believes that during the past fiscal year all filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with. MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS OF THE COMPANY The Board of Directors of the Company conducts its business through meetings of the Board of Directors and through activities of its committees. The Board of Directors of the Company meets monthly and may have additional meetings as needed. During the year ended December 31, 1996, the Board of Directors of the Company held 12 meetings. All of the directors of the Company attended at least 75% of the total number of the Company's Board meetings held and committee meetings on which such directors served during 1996. The Board of Directors of the Company maintains committees, the nature and composition of which are described below: AUDIT COMMITTEE. The Audit Committee of the Company and the Bank consists of Messrs. Charles A. Lota (Chairman), Thomas D. Collins and Ronald Higgins and is responsible for establishing audit policy. The Committee also reviews and reports to the Board on the Bank's financial condition and reviews the audit reports of the Bank prepared by the independent auditors. The Audit Committee of the Bank and Company met 4 times in 1996. NOMINATING COMMITTEE. The Company's Nominating Committee for the 1997 Annual Meeting consists of the full Board of Directors. The committee considers and recommends the nominees for director to stand for election at the Company's annual meeting of shareholders. The Company's Certificate of Incorporation and Bylaws provide for stockholder nominations of directors. These provisions require such nominations to be made pursuant to timely notice in writing to the Secretary of the Company. The stockholder's notice of nomination must contain all information relating to the nominee which is required to be disclosed by the Company's Bylaws and by the Exchange Act. The Nominating Committee met on February 11, 1997. COMPENSATION COMMITTEE. The Compensation Committee of the Company consists of the full Board of Directors. The committee meets to establish compensation and benefits for the executive officers and to review the incentive compensation programs when necessary. The committee is also responsible for all matters regarding compensation and benefits, hiring, 9 termination and affirmative action issues for other officers and employees of the Company and the Bank. The Compensation Committee met one time in 1996. DIRECTORS' COMPENSATION DIRECTORS' FEES. All members of the Board of Directors of the Company and the Bank, except Johanna O'Connell, currently receive an annual retainer fee of $11,111 and the Chairman of the Board and the Secretary to the Board of the Company each receives a fee of $200 for each Board meeting attended. No committee fees are paid by the Company. The Chairman of the Board of the Bank receives a fee of $1,404 per month, the Secretary of the Board receives a fee of $835 per month and all directors except Johanna O'Connell receive a fee of $356 per month, regardless of the number of meetings held by the Board. The Chairman of each committee of the Board of Directors of the Bank is paid $50 per meeting if the Chairman prepares minutes for the committee meeting. The Bank maintains one Director Emeritus position that is currently filled by Joseph J. DeLuccia, who served on the Board of Directors of the Bank from 1965 to 1990. Mr. DeLuccia is paid a fee for consulting services. INCENTIVE PLAN. Under the Incentive Plan, each outside director was granted non-statutory stock options to purchase 8,367 shares of Common Stock at an exercise price of $17.00 per share, which was the fair market value of the shares on the date of grant (February 25, 1997). Options become exercisable in five (5) equal annual installments of 20% commencing one year from the date of grant. Under the Incentive Plan, each outside director was granted an award of 3,347 shares of Common Stock. Awards to directors vest in five (5) equal annual installments at a rate of 20% commencing one year from the date of grant (February 25, 1997). EXECUTIVE COMPENSATION The report of the Compensation Committee and the stock performance graph shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended (the "Securities Act") or the Exchange Act, except as to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION. Under rules established by the Securities and Exchange Commission ("SEC"), the Company is required to provide certain data and information in regard to the compensation and benefits provided to the Company's Chief Executive Officer and other executive officers of the Company or the Bank. The disclosure requirements for the Chief Executive Officer and other executive officers include the use of tables and a report explaining the rationale and considerations that led to fundamental 10 compensation decisions affecting those individuals. In fulfillment of this requirement, the Compensation Committee of the Board of Directors of the Bank, at the direction of the Board of Directors, has prepared the following report for inclusion in this Proxy Statement. GENERAL. The Company is the parent company of the Bank and does not pay any cash compensation to the executive officers of the Company. Also, the Boards of Directors of the Company and the Bank have the same members. Therefore, the Company does not maintain a compensation committee. The Compensation Committee of the Board of Directors of the Bank is responsible for establishing the compensation levels and benefits for executive officers of the Bank, who also serve as executive officers of the Company and for reviewing recommendations of management for compensation and benefits for other officers and employees of the Bank. The Compensation Committee consists of all non-employee directors of the Bank. COMPENSATION POLICIES. The Compensation Committee has the following goals for compensation programs impacting the executive officers of the Company and the Bank: o to provide motivation for the executive officers to enhance stockholder value by linking their compensation to the value of the Company's stock; o to retain the executive officers who have led the Company to high performance levels and allow the Bank to attract high quality executive officers in the future by providing total compensation opportunities which are consistent with competitive norms of the industry and the Company's level of performance; and o to maintain reasonable "fixed" compensation costs by targeting base salaries at a competitive average. The executive compensation package available to executive officers for 1996 did not permit stock-based compensation arrangements. As a result of the Bank's conversion from mutual to stock form and receipt of stockholder approval at the February 25, 1997 Special Meeting of the Company's 1996 Stock-Based Incentive Plan, the Company now can seek to align the interests and performance of its executive officers with the long term interests of its stockholders. BASE SALARY. For fiscal 1996, the Compensation Committee terminated its incentive bonus program, recognizing that various forms of stock compensation would likely be available following the Bank's conversion. Executives earn salaries that the Compensation Committee deems reasonable and within the average range as those earned by other executives performing similar duties at institutions that are similarly sized and located as the Bank. In the future, the Compensation Committee intends to consider the entire compensation package, including the equity compensation provided under the Company's stock plans. The Compensation Committee will meet in the fourth quarter of each year to determine the level of any salary increase to take effect as of the beginning of that fiscal year and will adjust salaries after reviewing the 11 qualifications and experience of the executive officers of the Bank, the compensation paid to persons having similar duties and responsibilities in other institutions and the size of the Bank and the complexity of its operations. The Compensation Committee will consult surveys of compensation paid to executive officers performing similar duties for depository institutions and their holding companies, with particular focus on the level of compensation paid by comparable institutions including some, but not all, of the companies included in the peer group used for the Stock Performance Graph. The Compensation Committee believes that current salary levels are consistent with competitive practices of other comparable institutions and each executive's level of responsibility and intends for that to be the case in future years. Although the Compensation Committee's policy in regard to base salary is subjective and no specific formula is used for decision making, the Compensation Committee considered the overall performance of the Bank in establishing compensation levels. Compensation for the President and Chief Executive Officer. After taking into consideration the factors discussed above, the Compensation Committee gave Ms. O'Connell a salary increase of $26,000 to $125,000 when she was promoted to the positions of President of the Company and President and Chief Executive Officer of the Bank. This amount was equal to what the former President had been earning as base compensation prior to the Bank's conversion to stock form. The salary of $125,000 is within the average range for similarly sized thrift institutions with similar operating results in the New York/New Jersey area. Ms. O'Connell has employment agreements which specify her base salary and require periodic review of such salary. In addition, she, as do other executive officers, participates in other benefit plans available to all employees including the Employee Stock Ownership Plan and the 401(k) Plan. COMPENSATION COMMITTEE Harold P. Cook, III Nicholas S. Gentile, Jr William J. Lloyd David M. Collins Ronald Higgins Richard Len Thomas D. Collins Charles A. Lota Dennis Pollack 12 STOCK PERFORMANCE GRAPH. The following graph shows a comparison of cumulative total stockholder return on the Company's Common Stock based on the market price of the Common Stock with the cumulative total return of companies in the Nasdaq Stock Market and the Nasdaq Stock Market Bank Stock Index for the period beginning on June 27, 1996 the day the Company's Common Stock began trading, through December 31, 1996. The graph was derived from a very limited period of time, and reflects the market's reaction to the initial public offering of the Common Stock and, as a result, may not be indicative of possible future performance of the Company's Common Stock. COMPARISON OF CUMULATIVE TOTAL RETURNS WAYNE BANCORP, INC. JUNE 27, 1996 TO DECEMBER 31, 1996 GRAPH GOES HERE
Summary 6/27/96 7/31/96 8/30/96 9/30/96 10/31/96 11/29/96 12/31/96 ------- ------- ------- ------- -------- -------- -------- Wayne Bancorp, Inc 100.000 104.494 119.101 123.596 131.461 132.929 144.921 Nasdaq Stock Market 100.000 92.605 97.793 105.278 104.117 110.565 110.449 Nasdaq Bank Stocks 100.000 99.120 106.086 111.198 116.048 124.734 125.500
A. The lines represent monthly index levels derived from compounded daily returns that include all dividends. B. The indexes are reweighted daily, using the market capitalization on the previous trading day. c. If the monthly interval, based on the fiscal year-end is not a trading day, the preceding trading day is used. D. The index level for all series was set to 100.000 on 6/27/96. 13 SUMMARY COMPENSATION TABLE. The following table shows, for the years ended December 31, 1996 and 1995, the cash compensation paid, as well as certain other compensation paid or accrued for those years, to the Chief Executive Officers of the Company and the Bank and the other executive officers of the Company and the Bank who earned and/or received salary and bonus in excess of $100,000 in fiscal year 1996 ("Named Executive Officers"). No other executive officer of the Company or the Bank earned and/or received salary and bonus in excess of $100,000 in fiscal year 1996.
- ------------------------------------------------------------------------------------------------------------------------------------ Long Term Compensation ----------------------------------------- Annual Compensation(1) Awards Payouts ------------------------------------ ---------------------------------------- Other Restricted Securities All Annual Stock Underlying LTIP Other Name and Principal Position Salary Bonus Compensation Awards Options/SARs Payouts Compensation Year ($) ($) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6) - ---------------------------------------------------------------------------------------------------------------------------------- Harold P. Cook, III 1996 $21,300 $ -- -- -- -- -- $ -- Chairman of the Board and 1995 17,800 -- -- -- -- -- -- Chief Executive Officer of the Company and Director of the Bank(7) Johanna O'Connell, 1996 $106,845 $ -- -- -- -- -- $ 4,359 President of the Company and 1995 84,450 31,957 -- -- -- -- 3,386 President and Chief Executive Officer of the Bank(7) Richard Len, 1996 $73,500 $52,517 -- -- -- -- $ 6,672 Chairman of Wayne Savings 1995 71,300 66,759 -- -- -- -- 5,829 Financial Services Group, Inc. William E. Vanderberg, 1996 $109,600 $ -- -- -- -- -- $797,075(8) Former President and Chief 1995 124,200 86,481 -- -- -- -- 9,676 Executive Officer of the Company and the Bank(7)
- ------------ (1) Under Annual Compensation, the column titled "Salary" includes amounts deferred by the named executive officer pursuant to the Bank's 401(k) Plan as hereinafter defined pursuant to which employees may defer up to 15% of their compensation and executive officers may defer up to the maximum limits under the Internal Revenue Code of 1986, as amended ("Code") not to exceed 15%, and includes board fees of $21,300 for 1996 and $17,800 for 1995 paid to Mr. Cook and $19,500 paid in each year to Mr. Len. The column titled "Bonus" includes cash bonuses paid to Mr. Vanderberg and Ms. O'Connell as well as commissions paid to Mr. Len from Financial Services. "Bonus" for 1995 includes $8,149 and $13,704 paid to Ms. O'Connell and Mr. Vanderberg, respectively, earned by the executives in 1995, but paid in January 1996. The Board discontinued the practice of paying cash bonuses to executives in 1996. (2) For 1996 and 1995, there were no (a) perquisites over the lesser of $50,000 or 10% of the individual's total salary and bonus for the year; (b) payments of above-market preferential earnings on deferred compensation; (c) payments of earnings with respect to long-term incentive plans prior to settlement or maturation; (d) tax payment reimbursements; nor (e) preferential discounts on stock. For 1996 and 1995, the Company and the Bank had no restricted stock or stock related plans in existence. (3) No stock awards were granted or earned in 1996 or 1995. (4) No stock options or SARs were earned or granted in 1996 or 1995. (5) For 1996 and 1995, there were no payouts or awards under any long-term incentive plan. (6) Includes amounts contributed by the Bank under the Bank's 401(k) Plan and reimbursement for insurance expenses. (7) Mr. Vanderberg resigned as President, Chief Executive Officer and Director of the Company and the Bank. Mr. Cook assumed the responsibilities of Chief Executive Officer of the Company and Ms. O'Connell assumed the positions of President of the Company and President and Chief Executive Officer of the Bank effective September 6, 1996. Previously, Ms. O'Connell served as Vice President of the Company and Senior Vice President and Chief Lending Officer of the Bank. (8) In connection with the resignation of Mr. Vanderberg the Company paid Mr. Vanderberg $785,000 in 1996 in satisfaction of contractual retirement and severance benefits to which Mr. Vanderberg was entitled. Also includes amounts contributed by the Bank under the Bank's 401(k) Plan and reimbursement for insurance expenses. 14 EMPLOYMENT AGREEMENTS The Bank and the Company have entered into employment agreements with Ms. O'Connell ("Executive") as described below. These employment agreements are intended to ensure that the Bank and the Company will be able to maintain a stable and competent management base. The continued success of the Bank and the Company depends to a significant degree on the skills and competence of Ms. O'Connell. The employment agreements provide for a three-year term. The Bank employment agreement provides that, commencing on the first anniversary date and continuing each anniversary date thereafter, the Board of the Bank may extend the agreement for an additional year so that the remaining term shall be three years, unless written notice of non-renewal is given by the Board of the Bank after conducting a performance evaluation of the Executive. The term of the Company employment agreement will be extended on a daily basis unless written notice of non-renewal is given by the Board of the Company. The agreements provide that the Executive's base salary will be reviewed annually. The current base salary of Ms. O'Connell is $125,000. In addition to the base salary, the agreements provide for, among other things, participation in stock benefits plans and other fringe benefits applicable to executive personnel. The agreements provide for termination of the Executive's employment by the Bank or the Company for cause as defined in the agreements at any time. Under the agreements, in the event the Bank or the Company chooses to terminate the Executive's employment for reasons other than for cause, or in the event of the Executive's voluntary resignation from the Bank, or the Company upon: (i) failure to re-elect or reappoint the Executive to her current offices, unless consented to by Executive; (ii) a material change in the Executive's functions, duties or responsibilities which change would cause Executive's position to become one of lesser responsibility, importance or scope from the position and attributes thereof described in the agreement, provided that no breach shall be deemed to have occurred in the event Executive continues to receive the same compensation and benefits as those being received by the Executive immediately preceding the change in Executive's functions, duties or responsibilities, unless consented to by Executive; (iii) a relocation of the Executive's principal place of employment by more than 15 miles, unless consented to by Executive; (iv) a material reduction in the benefits and perquisites to the Executive, unless consented to by Executive; (v) liquidation or dissolution of the Bank or the Company; or (vi) a breach of the agreement by the Bank or the Company, the Executive or, in the event of Executive's subsequent death, her beneficiary, beneficiaries or estate, as the case may be, would be entitled to receive an amount equal to the remaining base salary payments due to the Executive and the contributions that would have been made on the Executive's behalf to any employee benefit plans of the Bank or the Company during the remaining term of the agreement. The Bank and the Company would also continue and pay for the Executive's life, health and disability coverage for the remaining term of the agreements. 15 Under the agreements, if involuntary termination or voluntary resignation under the conditions set forth above and as set forth in the agreements, follows a change in control of the Bank or the Company (as defined in the agreements), the Executive or, in the event of the Executive's death, her beneficiary, beneficiaries or estate, as the case may be, would be entitled to a severance payment equal to the greater of: (i) the payments due for the remaining term of the agreements; or (ii) three times the average annual compensation for the five preceding taxable years, as described in the agreements. The Bank and the Company would also continue the Executive's life, health, and disability coverage. Notwithstanding that both agreements provide for a severance payment in the event of a change in control, the Executive would only be entitled to receive a severance payment under one agreement. Based solely on the compensation reported in the summary compensation table for 1996, excluding any benefits under any employee plan which may be payable, following a change in control and termination of employment, Ms. O'Connell would receive severance payments in the amount of approximately $345,000. Payments under the employment agreements and the change in control agreements, described below, in the event of a change in control may constitute some portion of an excess parachute payment under Section 280G of the Internal Revenue Code (the "Code") for executive officers, resulting in the imposition of an excise tax on the recipient and denial of the deduction for such excess amounts to the Company and the Bank. Payments to the Executive under the Bank's agreement will be guaranteed by the Company in the event that payments or benefits are not paid by the Bank. Payment under the Company's agreement would be made by the Company. All reasonable costs and legal fees paid or incurred by the Executive pursuant to any dispute or question of interpretation relating to the Agreements would be paid by the Bank or Company, respectively, if the Executive is successful on the merits pursuant to a legal judgment, arbitration or settlement. The employment agreements also provide that the Bank and Company shall indemnify the Executive to the fullest extent allowable under federal and Delaware law, respectively. CHANGE IN CONTROL AGREEMENTS For similar reasons as with the employment agreements, the Bank and the Company have entered into change in control agreements with two of its officers and Wayne Savings Financial Services Group, Inc. ("Financial Services") has entered into a change in control agreement with Richard Len ("Executive"). Each change in control agreement provides for a two year term. The Bank's change in control agreements provide that, commencing on the first anniversary date and continuing on each anniversary thereafter, the Bank's change in control agreements may be renewed by the Board of Directors for an additional year. The Company's change in control agreements provide that, commencing on the date of the execution of the Company's change in control agreement, the term will be extended for one day each day until such time as the Board of Directors of the Company or the Executive elects by written notice not to extend the term, at which time the change in control agreement will end on the second anniversary of the date of notice. The Company's change in control agreements provide that at any time following a change in control of the Bank or the Company (as defined in the agreement), if the Company 16 terminates the Executive's employment for any reason other than cause, or if the Executive voluntary resigns following any demotion, loss of title, office or significant authority, coupled with a reduction in compensation and benefits from those being received by the Executive immediately preceding the change in Executive's functions, duties or responsibilities, and reduction in annual compensation or material reduction in benefits, or relocation of the principal place of employment by more than 15 miles, the Executive, or in the event of Executive's subsequent death, Executive's beneficiary or beneficiaries or estate, as the case may be, would be entitled to a sum equal to the greater of the payments due for the remaining term of the agreement or two (2) times the Executive's average annual compensation, as described in the agreement, for the preceding two taxable years. The Company would also continue the Executive's life, medical and disability coverage for the remaining term of the Agreement. The Bank's and Financial Services' change in control agreements are similar to that of the Company; however, any payments to the Executive under the Bank's change in control agreement would be subtracted from any amount due simultaneously under the Company's change in control agreement and in the case of Financial Services' change in control agreement, amounts due under that agreement would be subtracted from amounts due under the Bank agreement guaranteeing the Financial Services agreement. Payments to the Executive under the Bank's change in control agreement will be guaranteed by the Company in the event that payments or benefits are not paid by the Bank. Payments under Financial Services' agreement would be guaranteed by the Bank in the event payments or benefits are not paid by Financial Services. Based solely on the compensation reported in the summary compensation table for 1996 for the Named Executive Officer and similar compensation data for the two senior officers of the Company and the Bank and excluding any benefits under any employee plan which may be payable, following a change in control and termination of employment, the three officers to be covered by the change in control agreements would receive severance payments in the aggregate amount of approximately $642,000. INCENTIVE PLAN. The Company maintains the Incentive Plan, which was approved by the shareholders of the Company February 25, 1997. The purpose of the Incentive Plan is to attract and retain qualified personnel in key positions, provide officers, employees and non-employee directors, including directors emeritus and advisory directors, with a proprietary interest in the Company as an incentive to contribute to the success of the Company, promote the attention of management to other shareholders' concerns and reward employees for outstanding performance. No awards were made under the Incentive Plan during the year ended 1996. The Incentive Plan authorizes the granting of options to purchase Common Stock, option-related awards and awards of Common Stock (collectively, "Awards"). Subject to certain adjustments to prevent dilution of Awards to participants, the maximum number of shares reserved for Awards under the Incentive Plan is 312,393 shares. The maximum number of shares 17 reserved for purchase pursuant to the exercise of options and option-related Awards which may be granted under the Incentive Plan is 223,138 shares. The maximum number of the shares reserved for the award of shares of Common Stock ("Stock Awards") is 89,255 shares. All officers, other employees and non-employee directors, including advisory directors and directors emeritus, of the Company and its affiliates are eligible to receive Awards under the Incentive Plan. The Incentive Plan will be administered by a committee (the "Committee"). Authorized but unissued shares or shares previously issued and reacquired by the Company may be used to satisfy Awards under the Incentive Plan. The grant of Stock Awards and the exercise of options granted under the Incentive Plan will result in an increase in the number of shares outstanding, and may have a dilutive effect on the holdings of existing shareholders. PENSION PLAN. The Bank currently maintains the Wayne Savings Bank, F.S.B. Pension Plan ("Pension Plan"), which is a defined benefit pension plan, for the benefit of salaried employees employed by the Bank prior to attaining age 60. The Pension Plan is administered by the Bank. The Bank annually contributes an amount necessary to fully fund the actuarially determined minimum funding requirements established by the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Under the plan's funding method, the actuarial present value of projected benefits of each individual is allocated on a level basis over the expected future earnings period through the assumed retirement date. The Bank makes a contribution to the plan for all eligible employees in accordance with the plan's guidelines. Employees of the Bank who have attained the age of 21, have completed six months of service, and were hired prior to age 60 are eligible to participate in the Pension Plan. Employee benefits under the Pension Plan begin vesting at 20% after the second year of service and increase by 20% each year for the following four years thereafter until full vesting occurs after six years. Payments made by the Bank pursuant to and for the purpose of funding its obligation under the Pension Plan totalled $66,843 for the 1996 plan year. The Board has voted to discontinue the Pension Plan. 18 The table below sets forth annual benefits under the Retirement Plan assuming retirement during 1996 at various levels of compensation and years of credited service. ESTIMATED ANNUAL RETIREMENT BENEFIT PAYABLE AT AGE 65 STRAIGHT LIFE ANNUITY BASIS TO AN EMPLOYEE RETIRING IN 1996(1)(2)
YEARS OF CREDITED SERVICE FINAL AVERAGE --------------------------------------------------------------------------------------------- EARNINGS 15 20 25 30 35 - ---------------- --------------------------------------------------------------------------------------------- $50,000 $ 9,225 $11,700 $13,500 $16,500 $17,500 75,000 14,850 19,200 21,750 25,200 28,665 100,000 20,475 25,800 31,125 36,450 41,790 125,000 26,100 33,300 40,500 47,700 54,915 150,000 31,725 40,800 49,895 58,950 68,040 200,000 37,350 55,800 60,625 81,450 94,290 250,000 42,975 72,300 87,375 103,950 120,540 300,000 48,600 87,300 106,125 126,450 146,790
- ------------ (1) The compensation utilized for formula purposes includes the salary and bonuses in the "Summary Compensation Table." (2) The benefit amounts shown in the preceding table are not subject to any deductions for social security benefits or other offset amounts. As of March 21, 1997, Ms. O'Connell had 7 years, 8 months of credited service and Richard Len had 7 years, 3 months of credited service. 401(K) PLAN. The Bank has a 401(k) salary deferral plan (the "401(k) Plan") for the benefit of its employees. The 401(k) Plan provides for participation by all employees of the Bank. The Bank matches 50% of the employee's contributions up to the first 6% of the employee's salary. Under the 401(k) Plan, the Bank may make a special employer contribution in addition to its matching contributions. To date, the Bank has not made a special contribution. The determination of whether to make a special contribution and the amount of the special contribution is established by the Bank's Board of Directors. All participants in the 401(k) Plan are fully vested in their 401(k) Plan account balance upon entry into the Plan. Upon the employee's retirement, disability or death, the entire balance of an employee's account may be paid in a lump sum amount or in monthly installments over a period of up to 10 years. The 401(k) Plan has a number of investment options for participants, including the ability to invest in the common stock of the Company. 19 EMPLOYEE SEVERANCE COMPENSATION PLAN The Bank's Board of Directors has established the Wayne Savings Bank, F.S.B. Employee Severance and Retention Compensation Plan ("Severance Plan"), which provides employees designated by the Board with severance pay benefits in the event of a change in control of the Bank or the Company. Management personnel with employment or CIC Agreements are not eligible to participate in the Severance Plan. The Severance Plan will vest upon a change in control in each participant a contractual right to the benefits such participant is entitled to thereunder. Under the Severance Plan, in the event of a change in control of the Bank or the Company, eligible employees who are terminated from or terminate their employment within one year (for reasons specified under the Severance Plan), would be entitled to receive a severance payment. A participant whose employment has terminated would be entitled to a cash severance payment equal to total compensation received by the participant over the six month period immediately prior to the change in control. The Severance Plan entitles participants to receive 50% of the total benefit the participant is eligible to receive under the plan if the Board of Directors has entered into any corporate action, the consummation of which would result in a change in control, provided the participant is continually employed by his employer from a date six months prior to the date of consummation up to the date of consummation. Any benefit paid under this provision shall reduce, in equal amount, any benefit otherwise or subsequently paid to the employee under the Severance Plan. Such payments may tend to discourage takeover attempts by increasing costs to be incurred by the Bank in the event of a takeover. Eight employees have been designated for participation under this plan. TRANSACTIONS WITH CERTAIN RELATED PERSONS The Bank's current policy provides that all loans made by the Bank to its directors and executive officers be made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and may not involve more than the normal risk of collectibility or present other unfavorable features. Any loan made to an executive officer or director must be approved by the Board of Directors prior to its being committed. 20 PROPOSAL 2. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS The Company's independent auditors for the fiscal year ended December 31, 1996 were KPMG Peat Marwick LLP. The Company's Board of Directors has reappointed KPMG Peat Marwick LLP to continue as independent auditors for the Bank and the Company for the year ending December 31, 1997, subject to ratification of such appointment by the shareholders. Representatives of KPMG Peat Marwick LLP will be present at the Annual Meeting. They will be given an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions from shareholders present at the Annual Meeting. UNLESS MARKED TO THE CONTRARY, THE SHARES REPRESENTED BY THE ENCLOSED PROXY CARD WILL BE VOTED FOR RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY. ADDITIONAL INFORMATION SHAREHOLDER PROPOSALS To be considered for inclusion in the Company's proxy statement and form of proxy relating to the 1998 Annual Meeting of Shareholders, a shareholder proposal must be received by the Secretary of the Company at the address set forth on the Notice of Annual Meeting of Shareholders not later than November 24, 1997. If such annual meeting is held on a date more than 30 calendar days from April 30, 1998, a shareholder proposal must be received by a reasonable time before the proxy solicitation for such annual meeting is made. Any such proposal will be subject to 17 C.F.R. ss. 240.14a-8 of the Rules and Regulations under the Exchange Act. OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING The Board of Directors knows of no business which will be presented for consideration at the Meeting other than as stated in the Notice of Annual Meeting of Shareholders. If, however, other matters are properly brought before the Annual Meeting, it is the intention of the persons named in the accompanying proxy to vote the shares represented thereby on such matters in accordance with their best judgment. 21 Whether or not you intend to be present at the Annual Meeting, you are urged to return your proxy card promptly. If you are then present at the Annual Meeting and wish to vote your shares in person, your original proxy may be revoked by voting at the Annual Meeting. However, if you are a shareholder whose shares are not registered in your own name, you will need appropriate documentation from your recordholder to vote personally at the Annual Meeting. By Order of the Board of Directors /s/ MICHAEL G. DEBENEDETTE ------------------------------------------- Michael G. DeBenedette Corporate Secretary Wayne, New Jersey March 25, 1997 YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. 22
REVOCABLE PROXY [X] PLEASE MARK VOTES AS IN THIS EXAMPLE Vote WAYNE BANCORP, INC. 1. The election as directors of all For Withheld nominees listed (except as marked [ ] [ ] ANNUAL MEETING OF SHAREHOLDERS to the contrary below). APRIL 30, 1997 2:00 p.m. Eastern Time Harold P. Cook, III, William J. Lloyd, Ronald Higgins and Dennis Pollack THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS INSTRUCTION: To withhold your vote for any individual The undersigned hereby appoints the official proxy nominee, write that nominee's name on the line provided committee of the Board of Directors of Wayne Bancorp, Inc. below: (the "Company"), each with full power of substitution, to act as proxies for the undersigned, and to vote all shares ____________________________________________________________ of Common Stock of the Company which the undersigned is entitled to vote only at the Annual Meeting of 2. The ratification of the For Against Abstain Stockholders, to be held on April 30, 1997, at 2:00 p.m. appointment of KPMG Peat Marwick [ ] [ ] [ ] Eastern Time, at the Paris Inn, 1292 Alps Road, Wayne, New LLP, as independent auditors of Jersey, and at any and all adjournments thereof, as follows: Wayne Bancorp, Inc. for the fiscal year ending December 31, 1997. THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED, THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE EACH OF THE LISTED PROPOSALS. VOTED FOR THE PROPOSALS LISTED. IF ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL MEETING, INCLUDING WHETHER OR NOT The undersigned acknowledges receipt from the Company TO ADJOURN THE MEETING, THIS PROXY WILL BE VOTED BY THOSE prior to the execution of this proxy of a Notice of Annual NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT Meeting of Shareholders and of a Proxy Statement dated TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO March 25, 1997 and of the Annual Report to Shareholders. BE PRESENTED AT THE ANNUAL MEETING. ________________________ Please be sure to sign and date | Date | this Proxy in the box below. | | ___________________________________________|________________________| | | | | | | | | |____Shareholder sign above________Co-holder (if any) sign above____| - ---------------------------------------------------------------------------------------------------------------------------------- DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED. _________________________________________________________________________________________________________________________________ | | | WAYNE BANCORP, INC. | | | | NOTE: Please sign exactly as your name appears on this card. When signing as attorney, executor, administrator, trustee or | | guardian, please give your full title. If shares are held jointly, each holder may sign but only one signature is required. | | | | IMPORTANT: IF YOU RECEIVE MORE THAN ONE CARD, PLEASE SIGN AND RETURN ALL CARDS IN THE ACCOMPANYING ENVELOPE. | | | | PLEASE ACT PROMPTLY | | SIGN, DATE & MAIL YOUR PROXY CARD TODAY | |________________________________________________________________________________________________________________________________|
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