<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1996
-----------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from________________ to_________________
Commission file number 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 Identification Number)
incorporation or organization)
1195 Hamburg Turnpike, Wayne, New Jersey 07474
----------------------------------------------
(Address of principal executive offices) (Zip Code)
(201) 305-5500
-------------------------------
(Registrant's telephone number, including area code)
Not Applicable
------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
There were 2,231,383 shares of the Registrant's common stock outstanding as of
October 31, 1996.
<PAGE>
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page(s)
------
<S> <C> <C>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Consolidated Statements of Financial Condition as of
September 30, 1996 and December 31, 1995.................. 3
Consolidated Statements of Operations for the Three
Months and Nine Months ended September 30, 1996 and
1995...................................................... 4
Consolidated Statements of Cash Flows for the Nine
Months ended September 30, 1996 and 1995.................. 5
Notes to Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 7-15
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings......................................... 16
Item 2. Changes in Securities..................................... 16
Item 3. Defaults Upon Senior Securities........................... 16
Item 4. Submission of Matters to a Vote of Security Holders....... 16
Item 5. Other Information......................................... 16
Item 6. Exhibits and Reports on Form 8-K.......................... 16
Signature Page............................................ 17
</TABLE>
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
WAYNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 14,316 $ 26,262
Securities held to maturity, (estimated
market value $3,324 and $3,769 in 1996
and 1995, respectively) 3,394 3,841
Securities available for sale 78,119 58,155
Loans receivable, net 135,457 111,988
Premises and equipment, net 3,183 3,271
Real estate owned, net 269 597
Federal Home Loan Bank of New York stock, 1,568 1,568
at cost
Interest and dividends receivable 1,453 987
Other assets 1,852 1,328
-------- --------
Total assets $239,611 $207,997
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits $173,617 $173,822
Federal Home Loan Bank advances 27,000 2,000
Advance payments by borrowers for taxes and 1,030 769
insurance
Other liabilities 2,039 14,107
-------- --------
Total liabilities 203,686 190,698
-------- --------
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 September 30, 1996 22 -
Paid-in capital 21,004 -
Retained earnings, substantially restricted 17,425 17,394
Unrealized loss on securities available
for sale, net of tax (741) (95)
Unallocated common stock held by ESOP (1,785) -
-------- --------
Total stockholders' equity 35,925 17,299
-------- --------
Total liabilities and stockholders' equity $239,611 $207,997
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
WAYNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30
----------------- ----------------
1996 1995 1996 1995
------ -------- ------- ------
<S> <C> <C> <C> <C>
Interest income:
Loans $2,591 $2,298 $ 7,168 $6,957
Securities held to maturity 48 849 155 2,345
Securities available for sale 1,208 53 3,055 158
Short term and other investments 232 146 567 340
------ ------ ------- ------
Total interest income 4,079 3,346 10,945 9,800
------ ------ ------- ------
Interest expense:
Deposits 1,776 1,827 5,343 4,950
Federal Home Loan Bank advances 281 33 346 137
------ ------ ------- ------
Total interest expense 2,057 1,860 5,689 5,087
------ ------ ------- ------
Net interest income before provision for loan losses 2,022 1,486 5,256 4,713
Provision for loan losses 50 47 135 77
------ ------ ------- ------
Net interest income after provision for loan losses 1,972 1,439 5,121 4,636
Other income:
Loan fees and service charges 11 7 34 24
Loss on sale of securities available for sale - - - (1)
Other 160 151 408 387
------ ------ ------- ------
Total other income 171 158 442 410
Other expenses:
Compensation and employee benefits 1,319 540 2,373 1,705
Occupancy, net 87 84 279 273
Equipment 47 50 139 141
Data processing services 59 48 175 146
Advertising 45 84 136 239
Federal insurance premiums 99 90 295 273
SAIF Recapitalization assessment 1,031 - 1,031 -
Real estate owned expense, net 30 52 125 215
Other 376 238 961 706
------ ------ ------- ------
Total other expenses 3,093 1,186 5,514 3,698
------ ------ ------- ------
Income (loss) before income tax expense (benefit) (950) 411 49 1,348
Income (loss) tax expense (benefit) (336) 149 18 488
------ ------ ------- ------
Net income $ (614) $ 262 $ 31 $ 860
====== ====== ======= ======
Net loss per share (0.30) N/A N/A N/A
====== ====== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
WAYNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1996 1995
-------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 31 $ 860
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses on loans and real estate
owned 225 225
Depreciation and amortization 125 123
Net (accretion) of discounts and amortization
of premiums 106 12
Decrease (increase) in deferred loan fees 71 (14)
(Increase) in interest and dividends receivable (466) (190)
Decrease (Increase) in other assets (160) (552)
Increase (decrease)in other liabilities (12,068) 140
Loss on sale of securities available for sale - 1
-------- --------
Net cash provided by (used in) operating (12,136) 605
activities -------- --------
Cash flows from investing activities:
Calls of securities available for sale 2,000 2,000
Maturity of securities held to maturity - 2,843
Proceeds on sale of available for sale securities - 343
Purchases of securities held to maturity - (13,995)
Purchases of securities available for sale (29,456) -
Principal repayments on securities held to
maturity 438 3,019
Principal repayments on securities available for
sale 6,368 85
Net increase in loans receivable (23,420) (307)
Additions to premises and equipment (37) (26)
Purchase of Federal Home Loan Bank stock - (201)
-------- --------
Net cash used in investing activities (44,107) (6,239)
-------- --------
Cash flows from financing activities:
Net (decrease) increase in deposits (205) 10,689
Federal Home Loan Bank advances acquired 25,000 2,000
Increase in advance payments by borrowers for 261 204
taxes and insurance
Proceeds from issuance of common stock, net 19,241 -
of ESOP loan --------
Net cash provided by financing activities 44,297 12,893
-------- --------
Net increase (decrease) in cash and cash (11,946) 7,259
equivalents -------- --------
Cash and cash equivalents at beginning of period 26,262 2,498
-------- --------
Cash and cash equivalents at end of period $ 14,316 $ 9,757
======== ========
Supplemental information:
Cash paid during the year for:
Interest $ 5,548 $ 5,080
======== ========
Income taxes $ 502 $ 393
======== ========
Transfer of loans receivable to real $ 143 $ 240
estate owned ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
WAYNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
Note 1 - Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements include the
accounts of Wayne Bancorp, Inc. ("Company") and its wholly-owned subsidiary,
Wayne Savings Bank, F.S.B. ("Bank") and its subsidiaries, as of September 30,
1996 and December 31, 1995 and for the three and nine month periods ended
September 30, 1996 and 1995, respectively. The consolidated financial
statements for periods prior to September 30, 1996 include only the accounts of
the Bank and its subsidiaries. Material intercompany accounts and transactions
have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management all necessary adjustments,
consisting only of normal recurring accruals necessary for a fair presentation
have been included. The results of operations for the nine month period ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the entire calendar year. These consolidated financial statements
should be read in conjunction with the consolidated financial statements for the
year ended December 31, 1995, and the notes thereto.
Note 2 - Organization of the Holding Company and conversion to stock form of
--------------------------------------------------------------------
ownership
- ---------
Wayne Bancorp, Inc. was organized for the purpose of acquiring all of the
capital stock of the Bank that was issued in the conversion from a federally
chartered mutual savings bank to a stock savings bank pursuant to a Plan of
Conversion (Conversion) via the issuance of common stock. On June 27, 1996, the
Company completed an initial public offering. The offering resulted in the sale
of 2,231,383 shares of common stock which, after giving effect to offering
expenses of $1.3 million and 178,511 shares issued to the Bank's tax qualified
Employee Stock Ownership Plan (ESOP), resulted in net proceeds of $21.0 million.
Pursuant to the Conversion, the Bank transferred all of its outstanding shares
to the Company. The Bank may not declare or pay cash dividends or repurchase
any of its shares of common stock if the effect of these would cause equity to
be reduced below applicable regulatory capital maintenance requirements or if
such declaration and payment would otherwise violate regulatory requirements.
Note 3 - Earnings per share
------------------
The initial public offering was completed June 27, 1996. Net income for the
nine months ended September 30, 1996 was $31,000 and the net loss for the
quarter ended September 30, 1996 was $614,000 or $(.30) per share. Earnings per
share information for the nine month period ended September 30, 1996 and 1995
and the quarter ended September 30, 1995 is not meaningful since Wayne Savings
Bank's mutual to stock conversion was not consummated until June 27, 1996.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial condition
- -------------------
General
- -------
Wayne Bancorp, Inc. is the holding company for Wayne Savings Bank, F.S.B. a
federally chartered stock savings bank. The Bank converted from a mutual to a
stock savings bank on June 27, 1996 in conjunction with the issuance of the
Bank's capital stock to the Company.
Assets
- ------
Total assets increased by $31.6 million or 15.2% to $239.6 million at September
30, 1996 from $208.0 million at December 31, 1995. Cash and due from banks
decreased $12.0 million or 45.5% to $14.3 million at September 30, 1996 from
$26.3 million at December 31, 1995. At December 31, 1995, the Bank was still
awaiting delivery of approximately $13.5 million in mortgage-backed securities,
which resulted in cash and due from banks being inflated by that amount until
the securities were delivered and paid for in January 1996.
The increase of $19.5 million in securities held to maturity and securities
available for sale is due to the purchase of $25.0 million of a Federal Home
Loan Mortgage Corp. fixed rate note and the simultaneous borrowing of an
advance from the FHLB of NY. The note is for a period of ten (10) years at a
rate of 7.783% and is callable after three years and continuously thereafter.
The FHLB of NY advance is for a three year period at a fixed rate of 6.86%,
which represents a pretax spread of 92 basis points on this transaction. This
increase was offset by principal repayments and prepayments and an increase in
the unrealized loss, net of taxes on securities available for sale of $646,000
from $95,000 at December 31, 1995 to $741,000 at September 30, 1996.
Loans receivable, net increased by $23.5 million or 21.0% to $135.5 million at
September 30, 1996 from $112.0 million at December 31, 1995. Loan originations
during the quarter ended September 30, 1996 totalled $13.6 million (comprised of
$10.5 million of residential one-to four-family mortgage loans, $2.6 million of
home equity loans, and $453,000 of other loans.) During the third quarter of
1996, principal repayments totalled $5.8 million. During the third quarter of
1995, loan originations totalled $2.4 million and principal repayments totalled
$4.5 million.
REO, net decreased by $328,000 or 54.9% to $269,000 at September 30, 1996 from
$597,000 at December 31, 1995.
Other assets increased by $524,000 to $1.8 million at September 30, 1996 from
$1.3 million at December 31, 1995 which was primarily the result of the deferred
tax benefit related to the net unrealized loss on securities available for sale
which increased to $417,000 as of September 30, 1996 from $53,000 as of
December 31, 1995.
Liabilities
- -----------
7
<PAGE>
Deposits decreased by $205,000 between December 31, 1995 and September 30, 1996
due to interest credited of $5.4 million, offset by an excess of withdrawals
over deposits of $5.6 million. This decrease is partially due to depositors
purchasing common stock in the initial public offering on June 27, 1996.
Federal Home Loan Advances
- --------------------------
Federal Home Loan Bank advances increased $25.0 million to $27.0 million at
September 30, 1996 from $2.0 million at December 31, 1995. This increase was
due to the arbitrage the Bank entered into in August of 1996.
Stockholders' equity
- --------------------
The Company's stockholders' equity increased $18.6 million to $35.9 million at
September 30, 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 nine months ended September 30, 1996 totalling $31,000
offset by the increase in the net unrealized loss on securities, net of taxes,
of $646,000.
Non performing loans and allowance for loan losses
- --------------------------------------------------
Non performing loans at September 30, 1996 and December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
1996 1995
-----------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Loans delinquent 90 days or more and
other non-performing loans $2,538 $2,450
Loans delinquent 90 days or more and
other non-performing loans as a
percentage of total loans outstanding 1.85% 2.16%
</TABLE>
The following table sets forth the changes in the allowance for loan losses for
the nine months ended September 30, 1996 and the year ended December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
-----------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Balance at beginning of period $1,589 $1,543
Provision for losses 135 152
Charge-offs - 106
Recoveries - -
------ ------
Balance at end of period $1,724 $1,589
====== ======
</TABLE>
8
<PAGE>
Allowance for real estate owned
- -------------------------------
Activity in the allowance for REO for the nine months ended September 30, 1996
and the year ended December 31, 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Balance at beginning of period $ 169 $ 240
Provision charged to operations 90 148
Charge-offs 121 229
Recoveries 20 10
----- -----
Balance at end of period $ 158 $ 169
===== =====
</TABLE>
Asset/liability management
- --------------------------
Management's strategy has been to operate as a community oriented financial
institution by offering a variety of financial services to meet the needs of the
communities it serves while maintaining capital in excess of regulatory
requirements and monitoring the sensitivity of the Bank'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 Bank 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 in accordance with the Bank's underwriting
guidelines; (iv) purchasing short-to-intermediate term investment and mortgage-
backed securities to complement the Bank's lending activities; (v) emphasizing
shorter-term loans and investments and adjustable rate assets when market
conditions permit; and (vi) controlling growth.
As part of management's review of its assets and liabilities, the Bank considers
the interest sensitivity of its assets and liabilities and targets what it
believes to be an acceptable level of risk based on the Bank's business focus,
operating environment, capital and liquidity requirements, and performance
objectives. Management seeks to reduce the vulnerability of the Bank's
operating results to changes in interest rates and to manage the ratio of
interest rate sensitive assets to interest rate sensitive liabilities within
specified maturities or repricing periods. The Bank does not currently engage
in trading activities or use off-balance sheet derivative instruments to control
interest rate risk. Even though trading activities or use of off-balance sheet
derivative instruments may be permitted with the approval of the Board of
Directors, management does not intend to engage in such activities in the
immediate future.
In managing the Bank's assets and liabilities, the Bank has taken certain
actions to decrease the sensitivity of its assets and liabilities to
fluctuations in interest rates. A significant component of the Bank's operating
strategy has been to maintain its interest rate spread by maintaining a core
deposit base. The Bank has
9
<PAGE>
sought to maintain and attract new deposits by pricing its deposits
competitively, but generally not among the highest interest rates in its market
area, and relying on personalized customer service and advertising. The Bank
maintains a core deposit base while employing this strategy.
At September 30, 1996, total interest-earning assets maturing or repricing
within one year exceeded total interest-bearing liabilities maturing or
repricing within the same period by $9.5 million, representing a one year
positive cumulative gap of 3.96%.
Liquidity and capital
- ---------------------
The Bank is required to maintain minimum levels of liquid assets as defined by
the Office of Thrift Supervision ("OTS") regulations. This requirement, which
may be varied by the OTS depending on economic conditions and deposit flows, is
based on a percentage of withdrawable deposits and short-term borrowings. The
minimum required liquidity and short-term liquidity ratios are currently 5.0%
and 1.0%, respectively. The Bank's liquidity ratio and short-term liquidity
ratio were 7.4% and 7.8% for September 30, 1996 compared with 9.7% and 15.6% for
December 31, 1995, respectively.
The Company's primary sources of funds are deposits, principal and interest
payments on loans and securities and, to a lesser extent, borrowings and
proceeds from the sale of securities. While maturities and scheduled
amortization of loans and securities provide an indication of the timing of the
receipt of funds, other sources of funds such as loan prepayments and deposit
inflows are less predictable because they are greatly influenced by general
interest rates, economic conditions, competition and regulatory changes.
The 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 September 30, 1996 and December 31, 1995, cash and cash
equivalents totaled $14.3 million and $26.3 million, respectively.
The Company and the Bank have other sources of liquidity that include investment
securities maturing within one year, and securities available for sale. Other
sources of funds include Federal Home Loan Bank of New York ("FHLB-NY")
advances, which at September 30, 1996, totalled $27.0 million. If needed, the
Bank may borrow an additional $44.9 million from the FHLB-NY.
As of September 30, 1996, the Bank exceeded all regulatory capital requirements
as detailed in the following table:
<TABLE>
<CAPTION>
TANGIBLE CAPITAL CORE CAPITAL RISK-BASED CAPITAL
----------------------- ----------------------- -------------------------
AMOUNT PERCENT(1) AMOUNT PERCENT(1) AMOUNT PERCENT(1)
------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Capital for regulatory purposes $26,059 10.8% $26,059 10.8% $26,059 27.7%
Minimum regulatory requirement 3,605 1.5% 7,210 3.0% 7,607 8.0%
------- ---- ------- ---- ------- ----
Excess $22,454 9.3% $18,849 7.8% $18,748 19.7%
======= ==== ======= ==== ======= ====
</TABLE>
(1) Tangible and core capital are shown as a percentage of total adjusted
assets. Risk-based capital levels are shown as a percentage of risk-
weighted assets.
10
<PAGE>
Recent developments
- -------------------
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 Association, 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 Association
took 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, the FDIC recently proposed to lower SAIF
assessments 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.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995
General The Company reported a net loss of $614,000 for the three months ended
- -------
September 30, 1996 compared with net income of $262,000 for the three months
ended September 30, 1995. The net loss was primarily attributable to the $1.0
million in Savings Association Insurance Fund ("SAIF") recapitalization
assessment. In addition, there was a non-recurring charge for benefits owed to
the Bank's former President and CEO upon his retirement.
Interest income Interest income increased $733,000, or 21.9% to $4.1 million
- ---------------
for the three months ended September 30, 1996 from $3.3 million for the three
months ended September 30, 1995. The increase was primarily the result of
higher outstanding average balances partially offset by a decline in average
yields on earning assets.
Interest income on mortgage loans increased $293,000, or 12.8% to $2.6 million
for the three months ended September 30, 1996, from $2.3 million for the
comparable three month period in 1995 primarily as a result of an increase in
average balances of mortgage loans of $20.1 million partially offset by a
decrease in the average yield on mortgage loans of 32 basis points. The average
yield on mortgage loans decreased to 7.66% for the three months ended September
30, 1996 from 7.98% for the comparable three month period in 1995. The increase
in average balances of mortgage loans between the periods was due to the
increase in
11
<PAGE>
loan originations during the third quarter of 1996 of $13.6 million
versus $2.4 million in the comparable 1995 quarter.
Interest income on securities held to maturity decreased $801,000 or 94.4% to
$48,000 for the three months ended September 30, 1996 from $849,000 for the
comparable three month period in 1995. This change was primarily the result of
the Bank taking advantage of the window period permitted by a special report
issued by the Financial Accounting Standards Board ("FASB") addressing Statement
of Financial Accounting Standards ("SFAS") No. 115 and reclassifying $51.4
million of mortgage-backed securities from held to maturity to available for
sale. During the third quarter of 1996 principal repayments and prepayments on
securities available for sale and held to maturity amounted to $2.3 million.
For the same period in 1995 the principal repayments and prepayments on
securities available for sale and held to maturity totalled $2.6 million.
Interest income on securities available for sale increased $1.2 million from
$53,000 for the three months ended September 30, 1995 to $1.2 million for the
three months ended September 30, 1996. The increase is due to the purchase of
$25.0 million of a Federal Home Loan Mortgage Corp. fixed rate note and the
simultaneous borrowing of an advance from the FHLB of NY. The note is for a
period of ten (10) years at a rate of 7.783% and is callable after three years
and continuously thereafter. The FHLB of NY advance is for a three year period
at a fixed rate of 6.86%, which represents a pretax spread of 92 basis points
on this transaction.
Interest on short-term and other investments increased $86,000 or 58.9% to
$232,000 for the three months ended September 30, 1996 from $146,000 for the
comparable three month period in 1995 primarily as a result of an increase in
average balances of $6.6 million which was offset by a decrease in average yield
of 38 basis points. The increase in average balances is the result of the
investment of the conversion proceeds in short-term and other investments during
the period subsequent to the initial public offering.
Interest expense Interest expense increased $197,000, or 10.6% to $2.1 million
- ----------------
for the three months ended September 30, 1996 from $1.9 million for the three
months ended September 30, 1995. Interest on deposits decreased $51,000, or
2.8% to $1.8 million for the three months ended September 30, 1996 from $1.8
million for the comparable three month period in 1995. The decrease in interest
expense on deposits was primarily due to a decrease of 25 basis points in the
average cost of deposits.
Interest on FHLB-NY advances increased $248,000, or 751.5% to $281,000 for the
three months ended September 30, 1996 from $33,000 for the comparable three
month period in 1995. The increase in interest expense on advances was due
primarily to a increase in average balances which was the result of the
financing transaction entered into in August 1996, as described above.
Net interest income Net interest income before provision for loan losses
- -------------------
increased by $536,000 to $2.0 million for the three months ended September 30,
1996 from $1.5 million for the three months ended September 30, 1995. The
increase reflects an increase in the average balances of loans receivable, net
of $20.1 million for the three months ended September 30, 1996 over the
comparable prior year period, as well as an increase in the average balances of
securities available for sale and held to maturity of $15.5 million for the
three month period.
Provision 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.
The Bank provided $50,000 for loan losses for the three months ended September
30, 1996 compared with $47,000
12
<PAGE>
for the comparable three month period in 1995 which was due to management's
continuing reassessment of losses inherent in the loan portfolio. Management
believes that the allowance for loan losses is adequate. While management uses
available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions in the 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.
Other income Total other income for the three months ended September 30, 1996
- ------------
was $171,000 compared with $158,000 for the comparable three month period in
1995. The increase is primarily due to fee income on checking accounts and fee
income from Wayne Savings Financial Service Group, Inc., a wholly owned
subsidiary of the Bank.
Other expenses Other expenses increased $1.9 million or 160.8% for the three
- --------------
months ended September 30, 1996 to $3.1 million from $1.2 million for the
comparable three month period in 1995. The increase is primarily due to an
increase of $779,000 in compensation and employee benefits expense, an increase
of $1.0 million in SAIF recapitalization expense and an increase of $138,000 in
other expenses. These increases were offset by a decrease in advertising of
$39,000 or 46.4% and a decrease of $22,000 or 42.3% in REO operations, net.
The increase in compensation and employee benefits expense reflects the non-
recurring charge for benefits owed to the Bank's former President and CEO upon
his retirement and to a lesser extent expansion in loan originations and the
resulting deferral of salary costs. The increase in SAIF recapitalization
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 expects
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 improve earnings in future years, more than offsetting the special
assessment. Finally, the increase in the other category was primarily due to
nondeferrable costs associated with the loan originations, and increased
professional fees in connection with the Bank's change from a June 30 to
December 31 year end. and operation as a public company. The decrease of
$39,000 in advertising is due to management's intentional delay in advertising
for deposit accounts during the quarter ended September 30, 1996. Management
has now begun an aggressive campaign to increase deposits and expects to attract
customers, particularly for the Bank's low cost or no cost deposit accounts.
The decline of $22,000 in REO operations, net is the result of the balance of
foreclosed properties declining from $597,000 at December 31, 1995 to $269,000
at September 30, 1996.
Income tax expense Income tax benefit was $336,000 which represents an
- ------------------
effective tax rate of 35.4% for the three months ended September 30, 1996
compared with income tax expense of $149,000 which represents an effective tax
rate of 36.3% for the three months ended September 30, 1995.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
1995
General The Company reported net income of $31,000 for the nine months ended
- -------
September 30, 1996 compared with net income of $860,000 for the nine months
ended September 30, 1995. The $829,000
13
<PAGE>
decrease was primarily attributable to an increase in interest income of $1.1
million offset by an increase in interest expense of $602,000 and an increase in
other income of $31,000, an increase in compensation and employee benefits of
$668,000 the SAIF recapitalization expense of $1.0 million for the nine months
ended September 30, 1996 compared with the same period in the prior year.
Interest income Interest income increased $1.1 million or 11.7% to $10.9
- ---------------
million for the nine months ended September 30, 1996 from $9.8 million for the
nine months ended September 30, 1995. The increase was primarily the result of
an increase in interest income on securities available for sale and held to
maturity.
Interest income on mortgage loans increased $211,000, or 3.0% to $7.2 million
for the nine months ended September 30, 1996, from $7.0 million for the
comparable nine month period in 1995 primarily as a result of a $7.8 million
increase in the average outstanding balances offset by a decrease of 27 basis
points in the average rate earned. The increase in average balances of mortgage
loans between the periods was due to loan originations of $34.8 million during
the nine months ended September 30, 1996.
Interest income on securities available for sale and held to maturity increased
$707,000, to $3.2 million for the nine months ended September 30, 1996 from $2.5
million for the comparable nine month period in 1995 primarily due to an
increase in average balances of $10.9 million partially offset by a decline in
the average yield of 117 basis points.
Interest income on short-term and other investments increased by $227,000 to
$567,000 for the nine months ended September 30, 1996 from $340,000 for the
comparable nine month period in 1995 primarily as a result of an increase in
average outstanding balances of $5.6 million. The increase in the average
balance was due primarily to the investment of the conversion proceeds in short-
term and other investments during the period subsequent to its public offering.
Interest expense Interest expense increased $602,000, or 11.8% to $5.7 million
- ----------------
for the nine months ended September 30, 1996 from $5.1 million for the nine
months ended September 30, 1995. Interest on deposits increased by $393,000, or
7.9% to $5.3 million for the nine months ended September 30, 1996 from $5.0
million for the comparable nine month period in 1995. The increase in interest
on deposits was primarily due to the increase of 9 basis points in the average
cost of deposits and an increase of $9.1 million in average balances.
Interest on FHLB of NY advances increased $209,000, or 152.6% to $346,000 for
the nine months ended September 30, 1996 from $137,000 for the comparable nine
month period in 1995. FHLB-NY advances on an average basis increased by $4.7
million between the periods partially offset by a decrease in the average cost
of the advances of 28 basis points. The increase in interest expense represents
the interest on the $27.0 million FHLB of NY advance entered into in August 1996
as described in the comparison of the three month period.
Net interest income Net interest income before provision for loan losses
- -------------------
increased $543,000 to $5.3 million for the nine months ended September 30, 1996
from $4.7 million for the nine months ended September 30, 1995.
Provision 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
14
<PAGE>
ability to repay, estimated value of any underlying collateral and current
economic conditions. The Bank provided $135,000 for loan losses for the nine
months ended September 30, 1996 compared with $77,000 for the comparable nine
month period in 1995 which was due to management's continuing reassessment of
losses inherent in the loan portfolio. Management believes that the allowance
for loan losses is adequate. While management uses available information to
recognize losses on loans, future additions to the allowance may be necessary
based on changes in economic conditions in the 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.
Other income Total other income for the nine months ended September 30, 1996
- ------------
was $442,000 compared with $410,000 for the comparable nine month period in
1995. The increase of $31,000 in the nine months ended September 30, 1996 was
primarily attributable to the fees earned on the higher volume of checking
accounts and increased fees earned by Wayne Savings Financial Services Group,
Inc.
Other expenses Other expenses increased $1.8 million or 49.1% for the nine
- --------------
months ended September 30, 1996 to $5.5 million from $3.7 million for the
comparable nine month period in 1995. The increase was primarily due to an
increase of $668,000 in compensation and employee benefits, an increase of $1.0
million in SAIF recapitalization assessment and an increase of $255,000 in other
expenses. These increases were offset by decreases of $103,000 or 43.1% in
advertising and $90,000 or 41.9% in REO operations, net expense. The increase
in compensation and employee benefits expense reflects the non-recurring expense
as explained in the three month period. The increases in SAIF recapitalization
assessment and other expenses is also as explained in the three month period.
The decreases in advertising and REO expense, net are also the same as explained
in the three month period ended September 30, 1996. The reduction in
advertising for the nine months ended September 30, 1996 is primarily due to
timing of advertising for low cost or no cost deposits accounts that is
currently taking place. Finally, the increase in other expenses is primarily
due to nondeferrable costs associated with the increased loan production.
Income tax expense Income tax expense was $18,000 which represents an effective
- ------------------
tax rate of 36.7% for the nine months ended September 30, 1996 compared with
income tax expense of $488,000 which represents an effective tax rate of 36.2%
for the nine months ended September 30, 1995.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
----------------------------------------------------
None
Item 5. Other Information
-----------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A. Exhibits
(3)(I) Certificate of incorporation*
(ii) Bylaws*
(4) Stock certificates
(27) Financial Data Schedule (filed herewith)
B. Reports on From 8-K
A report on form 8-K was filed with the Securities and Exchange
Commission on September 6, 1996 under commission file number 000-20691, stating
in summary that as of August 29, 1996 Johanna O'Connell 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 from the Exhibits to Form S-1
Registrations Statement and all amendments thereto, filed March 18, 1996,
Registration Number 333-2488 and declared effective May 13, 1996.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of The Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WAYNE BANCORP, INC.
----------------------------------------
Registrant
Date: November 12, 1996 By: /s/ Johanna O'Connell
---------------------
President
Date: November 12, 1996 By: /s/ Timothy P. Tierney
----------------------
Timothy P. Tierney,
Vice President & Controller
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 14,316
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 78,119
<INVESTMENTS-CARRYING> 3,394
<INVESTMENTS-MARKET> 3,324
<LOANS> 135,457
<ALLOWANCE> 1,724
<TOTAL-ASSETS> 239,611
<DEPOSITS> 173,617
<SHORT-TERM> 27,000
<LIABILITIES-OTHER> 2,039
<LONG-TERM> 0
0
0
<COMMON> 22
<OTHER-SE> 35,903
<TOTAL-LIABILITIES-AND-EQUITY> 239,611
<INTEREST-LOAN> 7,168
<INTEREST-INVEST> 3,777
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 10,945
<INTEREST-DEPOSIT> 5,343
<INTEREST-EXPENSE> 5,689
<INTEREST-INCOME-NET> 5,256
<LOAN-LOSSES> 135
<SECURITIES-GAINS> (1)
<EXPENSE-OTHER> 5,514
<INCOME-PRETAX> 49
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,589
<ALLOWANCE-OPEN> 1,589
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,724
<ALLOWANCE-DOMESTIC> 1,724
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
