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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 March 31, 1997
[ ] 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
incorporation or organization) Identification Number)
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 2,156,383 shares of the Registrant's common stock outstanding as of
May 9, 1997.
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<PAGE>
FORM 10-Q
Index
----------
PART 1 -- FINANCIAL INFORMATION
Page(s)
Item 1. Financial Statements. -------
Consolidated Statements of Financial Condition as of
March 31, 1997 and December 31, 1996 ......................... 3
Consolidated Statements of Income for the Three Months
ended March 31, 1997 and 1996 ................................ 4
Consolidated Statements of Cash Flows for the Three
Months ended March 31, 1997 and 1996 ......................... 5
Notes to Consolidated Financial Statements ..................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 7-13
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings .............................................. 14
Item 2. Changes in Securities .......................................... 14
Item 3. Defaults Upon Senior Securities ................................ 14
Item 4. Submission of Matters to a Vote of Security Holders ............ 14
Item 5. Other Information .............................................. 14
Item 6. Exhibits and Reports on Form 8-K ............................... 14-15
Signature Page ................................................. 16
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
WAYNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
(Unaudited)
<CAPTION>
March 31, December 31,
1997 1996
-------- --------
<S> <C> <C>
ASSETS:
Cash and due from banks ............................................................ $ 999 $ 1,170
Interest-bearing deposits in other banks ........................................... 1,897 523
Federal funds sold ................................................................. 250 5,250
-------- --------
Total cash and cash equivalents ............................................... 3,146 6,943
Securities held to maturity, (estimated market value $2,937
and $3,197 in 1997 and 1996, respectively) ....................................... 2,983 3,229
Securities available for sale ...................................................... 78,608 80,867
Loans receivable, net .............................................................. 153,026 145,425
Premises and equipment, net ........................................................ 3,252 3,196
Real estate owned, net ............................................................. 4 116
Federal Home Loan Bank of New York stock, at cost .................................. 1,803 1,568
Interest and dividends receivable .................................................. 1,601 1,901
Other assets ....................................................................... 1,012 836
-------- --------
TOTAL ASSETS .................................................................. $245,435 $244,081
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits ........................................................................... $180,902 $178,947
Federal Home Loan Bank advances .................................................... 27,000 27,000
Advance payments by borrowers for taxes and insurance .............................. 938 866
Other liabilities .................................................................. 863 357
-------- --------
Total liabilities ............................................................. 209,703 207,170
-------- --------
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 shares
issued and 2,156,383 shares outstanding at March 31, 1997 and 2,231,383
issued and outstanding at December 31, 1996 ................................. 22 22
Paid-in capital ............................................................... 21,075 21,004
Retained earnings, substantially restricted ................................... 18,456 18,060
Treasury stock at cost, 75,000 shares ......................................... (1,248) --
Unrealized loss on securities available for sale .............................. (793) (390)
Unallocated common stock held by ESOP ......................................... (1,780) (1,785)
-------- --------
Total stockholders' equity .................................................... 35,732 36,911
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................... $245,435 $244,081
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
WAYNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months
Ended
March 31,
---------------
1997 1996
------ ------
Interest income:
Loans ................................................. $2,894 $2,230
Securities available for sale ......................... 1,426 904
Securities held to maturity ........................... 44 50
Short term and other investments ...................... 69 225
------ ------
Total interest income ......................... 4,433 3,409
------ ------
Interest expense:
Deposits .............................................. 1,799 1,799
Federal Home Loan Bank advances ....................... 455 33
------ ------
Total interest expense ........................ 2,254 1,832
------ ------
Net interest income before provision for loan losses .. 2,179 1,577
Provision for loan losses .................................... 125 35
------ ------
Net interest income after provision for loan losses ... 2,054 1,542
Other income:
Loan fees and service charges ......................... 60 59
Gain on sale of real estate owned ..................... 50 --
Other ................................................. 73 71
------ ------
Total other income ............................ 183 130
Other expenses:
Compensation and employee benefits .................... 614 528
Occupancy ............................................. 96 99
Equipment ............................................. 40 45
Data processing services .............................. 70 59
Advertising ........................................... 37 22
Federal insurance premiums ............................ 6 95
Real estate owned operations .......................... 3 54
Other ................................................. 525 259
------ ------
Total other expenses .......................... 1,391 1,161
------ ------
Income before income tax expense ............................. 846 511
Income tax expense ........................... 342 186
------ ------
Net income ................................................... $ 504 $ 325
====== ======
Net income per share ......................................... $ 0.25 N/A
====== ======
Average common shares outstanding (in thousands) ............. 2,025 N/A
====== ======
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
WAYNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
------- --------
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................... $ 504 $ 325
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses on loans and real estate owned ............. 125 75
Depreciation and amortization ................................... 45 42
Net (accretion) of discounts and amortization of premiums ....... 26 37
(Increase) in deferred loan fees ................................ (84) (18)
Decrease (increase) in interest and dividends receivable ........ 300 (140)
(Increase) in other assets ...................................... (50) (318)
Increase (decrease)in other liabilities ......................... 506 (13,316)
Gain on sale of real estate owned ............................... 50 --
------- --------
Net cash provided by (used in) operating activities ........ 1,422 (13,313)
------- --------
Cash flows from investing activities:
Calls of securities available for sale .......................... -- 2,000
Purchases of securities available for sale ...................... (27) (4,181)
Principal repayments on securities held to maturity ............. 243 134
Principal repayments on securities available for sale ........... 1,629 1,411
Net increase in loans receivable ................................ (7,476) (561)
Additions to premises and equipment ............................. (101) (7)
Purchase of Federal Home Loan Bank stock ........................ (235) --
------- --------
Net cash used in investing activities ...................... (5,967) (1,204)
------- --------
Cash flows from financing activities:
Net (decrease) increase in deposits ............................. 1,955 879
Increase in advance payments by borrowers for taxes and insurance 72 20
Dividends paid .................................................. (107) --
ESOP shares allocated ........................................... 76 --
Purchase of treasury stock ...................................... (1,248) --
------- --------
Net cash provided by financing activities ................. 748 899
------- --------
Net increase (decrease) in cash and cash equivalents ...... (3,797) (13,618)
Cash and cash equivalents at beginning of period ...................... 6,943 26,262
------- --------
Cash and cash equivalents at end of period ............................ $ 3,146 $ 12,644
======= ========
Supplemental information:
Cash paid during the period for:
Interest ..................................................... $ 2,255 $ 1,832
======= ========
Transfer of loans receivable to real estate owned ............... $ -- $ 240
======= ========
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
WAYNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(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 March 31, 1997
and December 31, 1996 and for the three month periods ended March 31, 1997 and
1996, respectively. 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 three month
period ended March 31, 1997 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, 1996, 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
three months ended March 31, 1997 was $504,000 or $0.25 per share, and the net
income for the three months ended March 31, 1996 was $325,000. Earnings per
share information for the three months ended March 31, 1996 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 $1.4 million or 0.5% to $245.4 million at March 31, 1997
from $244.1 million at December 31, 1996 due primarily to an increase in loans
receivable, net of $7.6 million from $145.4 million at December 31, 1996 to
$153.0 million at March 31, 1997, which increase in assets was partially offset
by a decrease in cash and cash equivalents of $3.8 million or 55.0% to $3.1
million at March 31, 1997 from $6.9 million at December 31, 1996.
The company also experienced a decrease of $2.5 million in securities held to
maturity and securities available for sale, which was the result of principal
repayments and prepayments as well as an increase in the unrealized loss on
securities available for sale of $403,000 from $390,000 at December 31, 1996 to
$793,000 at March 31, 1997. There were no sales or calls from the available for
sale portfolio in the quarter ended March 31, 1997.
Loan originations during the quarter ended March 31, 1997 totalled $11.8 million
(comprised of $7.1 million of residential one-to four-family mortgage loans,
$2.1 million of home equity loans, $2.2 million of commercial real estate loans,
$275,000 commercial business loans and $161,000 of consumer loans.) During the
first quarter of 1997, principal repayments totalled $4.1 million. During the
same quarter of 1996, loan originations totalled $6.4 million and principal
repayments totalled $6.0 million.
REO, net declined $112,000 or 96.6% to $4,000 at March 31, 1997 from $116,000 at
December 31, 1996 due to sales.
LIABILITIES
Deposits increased by $2.0 million between December 31, 1996 and March 31, 1997
due to interest credited of $1.4 million, and an excess of deposits over
withdrawals of $608,000.
7
<PAGE>
STOCKHOLDERS' EQUITY
The Company's stockholders' equity decreased $1.2 million to $35.7 million at
March 31, 1997 from $36.9 million at December 31, 1996. The decrease was
primarily due to the purchase of 75,000 shares of treasury stock for $1.2
million, an increase in the net unrealized loss on securities available for sale
of $403,000 and was also reduced by the declaration of a cash dividend of $0.05
per share or $107,000. This net decrease was offset by the net income for the
quarter of $504,000.
NON PERFORMING LOANS AND ALLOWANCE FOR LOAN LOSSES
Non performing loans at March 31, 1997 and March 31, 1996 were as follows:
1997 1996
------ ------
(Dollars in thousands)
Loans delinquent 90 days or more and
other nonperforming loans ......................... $2,084 $2,534
Loans delinquent 90 days or more and
other nonperforming loans as a percentage
of total loans outstanding ........................ 1.34% 1.71%
Allowance for loan losses as a percent of
nonperforming loans ............................... 91.84% 70.60%
The following table sets forth the changes in the allowance for loan losses for
the three months ended March 31, 1997 and 1996:
1997 1996
------ ------
(Dollars in thousands)
Balance at beginning of period ...................... $1,789 $1,589
Provision for losses ................................ 125 35
Charge-offs ......................................... -- --
Recoveries .......................................... -- --
------ ------
Balance at end of period ............................ $1,914 $1,624
====== ======
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
8
<PAGE>
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 business, 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 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 March 31, 1997, total interest-earning assets maturing or repricing within
one year exceeded total interest-bearing liabilities maturing or repricing
within the same period by $24.7 million, representing a one year negative
cumulative gap of 10.1%.
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
ratios were 8.6% and 1.7% for March 31, 1997 compared with 7.4% and 3.9% for
December 31, 1996, 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 available for
9
<PAGE>
sale. 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 March 31, 1997 and December 31, 1996, cash and cash equivalents
totaled $3.1 million and $6.9 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 March 31, 1997, totalled $27.0 million. If needed, the Bank
may borrow an additional $46.6 million from the FHLB-NY.
As of March 31, 1997, 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 ....... $27,265 11.1% $27,265 11.1% $27,630 26.6%
Minimum regulatory requirement ........ 3,695 1.5% 7,390 3.0% 8,312 8.0%
------- ---- ------- ---- ------- ----
Excess ................................ $23,570 9.6% $19,875 8.1% $19,318 18.6%
======= ==== ======= ==== ======= ====
- ----------
(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.
</TABLE>
RECENT ACCOUNTING DEVELOPMENTS
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128") establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock. SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS and requires dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted and requires restatement of all prior-period EPS data
presented.
`10
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996
GENERAL. The Company reported net income of $504,000 for the three months ended
March 31, 1997 compared with net income of $325,000 for the three months ended
March 31, 1996. The increase in net income was primarily attributable to the
increase in interest income on loans receivable, net of $664,000. In addition,
the increase in the interest income on the available for sale portfolio of
$522,000, principally due to the purchase of a $25.0 million 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 entered into
in August of 1996. The note's term is for a period of ten years at a rate of
7.78% 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
7.78% and the cost of 6.86%.
INTEREST INCOME. Interest income increased $1.0 million, or 30.0% to $4.4
million for the three months ended March 31, 1997 from $3.4 million for the
three months ended March 31, 1996. The increase was primarily the result of
higher outstanding average balances on interest earning assets.
Interest income on loans receivable, net increased $664,000, or 29.8% to $2.9
million for the three months ended March 31, 1997, from $2.2 million for the
comparable three month period in 1996 primarily as a result of an increase in
average balance of loans of $38.8 million, partially offset by a decrease in the
average yield to 7.61% for the three months ended March 31, 1997 from 7.87% for
the comparable three month period in 1996. The increase in the average balance
of loans between the periods was due to the increase in loan originations which
were $11.8 million for the first quarter of 1997 versus $6.4 million for the
comparable 1996 quarter.
Interest income on securities available for sale increased $522,000 during the
first quarter of 1997 as a result of an increase in average outstanding balances
of $22.1 million in the available for sale portfolio. The average balance of the
available for sale portfolio for the three months ended March 31, 1997 was $80.8
million compared with $58.7 million for the comparable period in 1996. In
addition, the yield on the available for sale portfolio increased 90 basis
points to 7.06% for the quarter ended March 31, 1997 versus 6.16% in the prior
period. The increase is due to the purchase of $25.0 million of a FHLMC fixed
rate note and the simultaneous borrowing of an advance from the FHLB of NY as
explained above.
Interest on short-term and other investments decreased $156,000 or 69.3% to
$69,000 for the three months ended March 31, 1997 from $225,000 for the
comparable three month period in 1996 primarily as a result of a decrease in
average balances of $9.2 million, which was offset by a slight increase in
average yield of 3 basis points. The decrease in average balances is the result
of the funding of mortgage loans during the period.
INTEREST EXPENSE. Interest expense increased $422,000, or 23.0% to $2.3 million
for the three months ended March 31, 1997 from $1.8 million for the three months
ended March 31, 1996.
11
<PAGE>
Interest on FHLB advances accounted for the entire increase in interest expense
increasing $422,000, to $455,000 for the three months ended March 31, 1997 from
$33,000 for the comparable three month period in 1996. The increase in interest
expense on advances was due to an increase in the average balance of $25.0
million as well as an increase of 24 basis points in the cost of advances to
6.84% for the three months ended March 31, 1997 from 6.60% for the three months
ended March 31, 1996. Both the increase in the average balance and the increase
in the cost of funds were the result of the transaction entered into in August
1996, as described above.
NET INTEREST INCOME. Net interest income before provision for loan losses
increased $602,000 to $2.2 million for the three months ended March 31, 1997
from $1.6 million for the three months ended March 31, 1996. The increase
reflects an increase in the average balances of loans receivable, net of $38.8
million for the three months ended March 31, 1997 over the comparable prior year
period, as well as a $22.1 million increase in the average balances of
securities available for sale for the three months ended March 31, 1997 over the
comparable period in 1996. Offsetting these increases was a decrease in the
average balance of short-term investments of $9.2 million at March 31, 1997
versus the same period in 1996.
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 $125,000 for loan losses for the three months ended March 31,
1997 compared with $35,000 for the comparable three month period in 1996, 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 March 31, 1997 was
$183,000 compared with $130,000 for the comparable three month period in 1996.
The increase is due to the gain recognized on sales of real estate owned during
the quarter ended March 31, 1997.
OTHER EXPENSES. Other expenses increased $230,000 or 19.8% for the three months
ended March 31, 1997 to $1.4 million from $1.2 million for the comparable three
month period in 1996. The increase is primarily due to an increase of $86,000 in
compensation and employee benefits expense, and an increase in other of
$266,000. These increases were offset by a decrease in Federal insurance
premiums of $91,000 and a decrease in REO operations of $51,000.
12
<PAGE>
The increase in compensation and employee benefits expense primarily reflects
the adoption of the Wayne Bancorp, Inc. 1996 Stock-Based Incentive Plan which
was approved by stockholders at the special meeting held February 25, 1997. The
increase in other expense is the result of the legal and professional fees
incurred in the proxy fight with a dissident stockholder group. The decrease of
$91,000 in Federal insurance premiums is the result of the reduction in
insurance premiums (required by legislation) from 23 basis points to 6.4 basis
points (per $100 of deposits) effective January 1, 1997. This decrease will
improve earnings in future years, over time more than offsetting the special
assessment of $1.0 million that was paid September 30, 1996 which represented
the Bank's share of the special assessment required by legislation. Finally, the
decrease in the REO operations was due to the decrease of REO properties from
$116,000 at December 31, 1996 to $4,000 at March 31, 1997.
INCOME TAX EXPENSE. Income tax expense was $342,000 which represents an
effective tax rate of 40.4% for the three months ended March 31, 1997 compared
with income tax expense of $187,000 which represents an effective tax rate of
36.6% for the three months ended March 31, 1996. The increase in the effective
tax rate for the three months ended March 31, 1997 is due to the nondeductible
portion of the Employee Stock Ownership Plan (ESOP) expense in excess of the
cost of the ESOP shares previously purchased.
13
<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
On April 30, 1997 stockholders approved the election of four directors
for terms of three years each or until their successors are elected. Following
is the result of the voting:
For Withheld
--------- --------
Harold P. Cook, III ............ 1,995,414 11,332
William J. Lloyd ............... 1,994,414 12,332
Ronald Higgins ................. 1,995,614 11,132
Dennis Pollack ................. 1,944,689 62,057
On April 30, 1997 stockholders approved the ratification of the
appointment of KPMG Peat Marwick LLP as independent auditors for the calendar
year ending December 31, 1997. Following is the result of the voting:
For ............................ 1,999,796
Against ........................ 3,050
Abstained ...................... 3,900
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
14
<PAGE>
(27) Financial Data Schedule (filed herewith)
B. Reports on Form 8-K
None
- ----------
* 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.
15
<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: May 13, 1997 By: /s/ JOHANNA O'CONNELL
----------------------------------
Johanna O'Connell,
President
Date: May 13, 1997 By: /s/ TIMOTHY P. TIERNEY
----------------------------------
Timothy P. Tierney,
Vice President & Controller
16
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