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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 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 Identification Number)
incorporation or organization)
1195 HAMBURG TURNPIKE, WAYNE, NEW JERSEY 07474
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(973) 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 2,013,823 shares of the Registrant's common stock outstanding as of
November 12, 1997.
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<PAGE>
FORM 10-Q
INDEX
PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS. Page(s)
-------
Consolidated Statements of Financial Condition as of
September 30, 1997 and December 31, 1996...................... 3
Consolidated Statements of Operations for the Three Months
and Nine Months ended September 30, 1997 and 1996............. 4
Consolidated Statements of Cash Flows for the Nine
Months ended September 30, 1997 and 1996...................... 5
Notes to Consolidated Financial Statements.................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 7-16
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings............................................. 17
Item 2. Changes in Securities......................................... 17
Item 3. Defaults Upon Senior Securities............................... 17
Item 4. Submission of Matters to a Vote of Security Holders........... 17
Item 5. Other Information............................................. 17
Item 6. Exhibits and Reports on Form 8-K.............................. 17
Signature Page................................................ 18
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
WAYNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 4,077 $ 6,943
Securities held to maturity, (estimated market value $3,324
and $3,769 in 1996 and 1995, respectively) 2,955 3,229
Securities available for sale 76,292 80,867
Loans receivable, net 176,291 145,425
Premises and equipment, net 3,342 3,196
Real estate owned, net -- 116
Federal Home Loan Bank of New York stock, at cost 2,150 1,568
Interest and dividends receivable 1,751 1,901
Other assets 427 836
-------- --------
Total assets $267,285 $244,081
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits $190,693 $178,947
Federal Home Loan Bank advances 41,725 27,000
Advance payments by borrowers for taxes and insurance 945 866
Other liabilities 709 357
-------- --------
Total liabilities 234,072 207,170
-------- --------
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, 2,013,823 issued
and outstanding as of September 30, 1997 and 2,231,383 shares issued and
outstanding as of December 31, 1996 22 22
Paid-in capital 21,108 21,004
Retained earnings, substantially restricted 19,257 18,060
Treasury at cost, 217,560 shares (4,417) --
Unallocated common stock held by ESOP (1,649) (1,785)
Unallocated common stock held by MRP (1,300) --
Unrealized loss on securities available for sale, net of tax 192 (390)
-------- --------
Total stockholders' equity 33,213 36,911
-------- --------
Total liabilities and stockholders' equity $267,285 $244,081
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
WAYNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1997 1996 1997 1996
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans $3,394 $ 2,592 $ 9,446 $ 7,169
Securities held to maturity 45 48 135 155
Securities available for sale 1,369 1,208 4,172 3,055
Short term and other investments 42 232 149 567
------ ------- ------- -------
Total interest income 4,850 4,080 13,902 10,946
------ ------- ------- -------
Interest expense:
Deposits 1,944 1,776 5,598 5,343
Federal Home Loan Bank advances 662 281 1,664 346
------ ------- ------- -------
Total interest expense 2,606 2,057 7,262 5,689
------ ------- ------- -------
Net interest income before provision for loan losses 2,244 2,023 6,640 5,257
Provision for loan losses 125 50 325 135
------ ------- ------- -------
Net interest income after provision for loan losses 2,119 1,973 6,315 5,122
Other income:
Loan fees and service charges 66 57 187 167
Gain on sale of real estate owned 50 -- 100 --
Other 79 114 236 275
------ ------- ------- -------
Total other income 195 171 523 442
Other expenses:
Compensation and employee benefits 694 1,319 1,954 2,373
Occupancy, net 111 87 330 279
Equipment 58 47 144 139
Data processing services 66 59 199 175
Advertising 96 46 184 137
Federal insurance premiums 28 99 63 295
SAIF Recapitalization assessment -- 1,031 -- 1,031
Real estate owned expense, net 1 30 6 125
Other 489 376 1,523 961
------ ------- ------- -------
Total other expenses 1,543 3,094 4,403 5,515
------ ------- ------- -------
Income (loss) before income tax expense (benefit) 771 (950) 2,435 49
Income (loss) tax expense (benefit) 288 (336) 923 18
------ ------- ------- -------
Net income (loss) $ 483 $ (614) $1,512 $31
====== ======= ====== =======
Net income (loss) per share $ 0.25 $ (0.30) $ 0.77 N/A
====== ======= ====== =======
Average common shares outstanding (in thousands) 1,920 2,231 1,971 N/A
====== ======= ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
WAYNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1997 1996
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,512 $ 31
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for losses on loans and real estate owned 325 225
Depreciation and amortization 150 125
Net (accretion) of discounts and amortization of premiums 45 106
(Increase) in deferred loan fees 16 71
Decrease (increase) in interest and dividends receivable 150 (466)
Decrease (Increase) in other assets 82 (160)
Increase (decrease)in other liabilities 352 (12,068)
(Loss) on sale of other real estate owned (100) --
-------- --------
Net cash provided by (used in) operating activities 2,532 (12,136)
-------- --------
Cash flows from investing activities:
Calls of securities available for sale 500 2,000
Purchases of securities available for sale (688) (29,456)
Principal repayments on securities held to maturity 271 438
Principal repayments on securities available for sale 5,594 6,368
Net increase in loans receivable (30,955) (23,420)
Additions to premises and equipment (296) (37)
Purchase of Federal Home Loan Bank stock (582) --
-------- --------
Net cash used in investing activities (26,156) (44,107)
-------- --------
Cash flows from financing activities:
Net (decrease) increase in deposits 11,746 (205)
Federal Home Loan Bank advances acquired 14,725 25,000
Increase in advance payments by borrowers for taxes and insurance 79 261
Dividends paid (315) --
Employee Stock Ownership Plan shares allocated 240 --
Management Recognition Plan shares purchased (1,300) --
Purchase of treasury stock (4,417) --
Proceeds from issuance of common stock, net of ESOP loan -- 19,241
-------- --------
Net cash provided by financing activities 20,758 44,297
-------- --------
Net (decrease) in cash and cash equivalents (2,866) (11,946)
-------- --------
Cash and cash equivalents at beginning of period 6,943 26,262
-------- --------
Cash and cash equivalents at end of period $ 4,077 $ 14,316
======== ========
Supplemental information:
Cash paid during the period for:
Interest $ 7,238 $ 5,548
======== =======
Income taxes $ 862 $ 502
======== =======
Transfer of loans receivable to real estate owned $ -- $ 143
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
WAYNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 September 30,
1997 and December 31, 1996 and for the three and nine month periods ended
September 30, 1997 and 1996, respectively. Material intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying unaudited consolid ated 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, 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 nine
months ended September 30, 1997 was $1.5 million or $0.77 per share compared
with $31,000 for the same period in 1996. Earnings per share information for the
nine month period ended September 30, 1996 is not meaningful since Wayne Savings
Bank's mutual to stock conversion was not consummated until June 27, 1996. Net
income for the quarter ended September 30, 1997 was $483,000 or $0.25 per share
compared with a net loss of ($614,000) or ($0.30) per share for the same period
in 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. In July 1997 the Bank opened a new branch
office in Fairfield, N. J. and deposits at September 30, 1997 were in excess of
$5.0 million. Management is optimistic of continued growth and, as planned,
continues to aggressively promote deposit growth through advertising and
customer contact however, there can be no assurance that continued growth will
occur or that it will occur at any particular date. In conjunction with our plan
of continued growth, the Bank received regulatory approval to open a branch
office in Bergen County at 356 Franklin Avenue, Wyckoff, N. J. It is anticipated
that the branch will open in 1998.
Assets
- ------
Total assets increased by $23.2 million or 9.5% to $267.3 million at September
30, 1997 from $244.1 million at December 31, 1996. Cash and due from banks
decreased $2.9 million or 41.3% to $4.1 million at September 30, 1997 from $6.9
million at December 31, 1996.
The decrease of $4.8 million in securities held to maturity and securities
available for sale is due to the principal repayments and prepayments that are
being used to fund the increase in the loan portfolio. This decrease was offset
by an increase in the gross unrealized gain, net of taxes on securities
available for sale of $300,000 at September 30, 1997 from a gross unrealized
loss, net of taxes of $610,000 at December 31, 1996.
Loans receivable, net increased $30.9 million or 21.2% to $176.3 million at
September 30, 1997 from $145.4 million at December 31, 1996. Loan originations
during the quarter ended September 30, 1997 totalled $12.4 million (comprised of
$4.8 million of residential one-to four-family mortgage loans, $2.5 million of
home equity loans, $607,000 of commercial construction loans, $638,000 of
residential construction loans, $1.9 million of commercial real estate loans,
$1.9 million of commercial business loans and $133,000 of other loans.). During
the third quarter of 1997, loan principal repayments and prepayments totalled
$6.5 million. During the third quarter of 1996, loan originations totalled $13.6
million and principal repayments and prepayments totalled $5.8 million.
REO, net decreased by $116,000 and there are no real estate owned properties as
of September 30, 1997.
Other assets decreased by $409,000 to $427,000 at September 30, 1997 from
$836,000 at December 31, 1996 which was primarily the result of the deferred tax
benefit of $219,000 related to the net unrealized loss on securities available
for sale at December 31, 1996 and the deferred tax liability of $108,000 related
to the net unrealized gain on securities available for sale at September 30,
1997.
7
<PAGE>
Liabilities
- -----------
Deposits increased $11.7 million to $190.7 million as of September 30, 1997 from
$178.9 million as of December 31, 1996 due to an excess of deposits over
withdrawals of $6.7 million and interest credited of $5.0 million.
Federal Home Loan Advances
- --------------------------
Federal Home Loan Bank advances increased $14.7 million to $41.7 million at
September 30, 1997 from $27.0 million at December 31, 1996. This increase was
due to the funding of the loan originations described above.
Stockholders' equity
- --------------------
The Company's stockholders' equity decreased $3.7 million to $33.2 million at
September 30, 1997 from $36.9 million at December 31, 1996. The decrease was
primarily due to the stock purchase programs completed through September 30,
1997 totalling $4.4 million, together with the shares of common stock purchased
for the management recognition program totalling $1.3 million. These decreases
were offset by the net income for the nine months ended September 30, 1997
totalling $1.5 million and the increase in the net unrealized gain on
securities, net of taxes, of $192,000 at September 30, 1997 versus a net
unrealized loss on securities, net of taxes, of $390,000 at December 31, 1996.
Non performing loans and allowance for loan losses
- --------------------------------------------------
Non performing loans at September 30, 1997 and December 31, 1996 were as
follows:
1997 1996
----------------------
(DOLLARS IN THOUSANDS)
Loans delinquent 90 days or more and other
non-performing loans $2,391 $2,076
Loans delinquent 90 days or more and other
non-performing loans as a percentage of total
loans outstanding 1.34% 1.41%
The following table sets forth the changes in the allowance for loan losses for
the nine months ended September 30, 1997 and the year ended December 31, 1996:
1997 1996
----------------------
(DOLLARS IN THOUSANDS)
Balance at beginning of period $1,789 $1,589
Provision for losses 325 200
------ ------
Balance at end of period $2,114 $1,789
====== ======
8
<PAGE>
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 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, 1997, total interest-bearing liabilities maturing or repricing
within one year exceeded total interest-earning assets maturing or repricing
within the same period by $32.4 million, representing a one year negative
cumulative gap of 12.1%.
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
ratio were 10.6% and 2.5% for September 30, 1997 compared with 7.4% and 3.9% for
December 31, 1996, respectively.
9
<PAGE>
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, 1997 and December 31, 1996, cash and cash
equivalents totaled $4.1 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 September 30, 1997, totalled $41.7 million. If needed, the
Bank may borrow an additional $38.5 million from the FHLB-NY.
As of September 30, 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 $27,121 10.2% $27,121 10.2% $28,556 23.2%
Minimum regulatory requirement 3,998 1.5% 7,995 3.0% 9,842 8.0%
------- ---- ------- ---- ------- ----
Excess $23,123 8.7% $19,126 7.2% $18,714 15.2%
======= ==== ======= ==== ======= ====
<FN>
(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.
</FN>
</TABLE>
Recent accounting pronouncements
- --------------------------------
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. Management expects that basic EPS will be greater than the current
EPS and that diluted EPS will be less than the current EPS.
10
<PAGE>
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income (SFAS 130) establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. SFAS 130 requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS 130 does
not require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement. SFAS 130 requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. SFAS 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
Statement of Financial Accounting Standards No. 131, "Disclosure About Segments
of an Enterprise and Related Information" ("SFAS 131") requires that public
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information in
their quarterly reports issued to shareholders. SFAS 131 requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues, and its major
customers. SFAS 131 supersedes FASB Statement 14, "Financial Reporting for
Segments of a Business Enterprise." SFAS 131 is effective for fiscal years
beginning after December 15, 1997.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996
General The Company reported net income of $483,000 for the three months ended
September 30, 1997 compared with a net loss of $614,000 for the three months
ended September 30, 1996. The net loss in 1996 was primarily attributable to the
$1.0 million Savings Association Insurance Fund ("SAIF") recapitalization
assessment. In addition, there was a non-recurring charge for benefits paid to
the Bank's former President and CEO upon his resignation in 1996.
Interest income Interest income increased $770,000, or 18.9% to $4.9 million for
the three months ended September 30, 1997 from $4.1 million for the three months
ended September 30, 1996. The increase was primarily the result of higher
outstanding average balances together with slightly higher average yields on
earning assets.
Interest income on mortgage loans increased $802,000, or 30.9% to $3.4 million
for the three months ended September 30, 1997, from $2.6 million for the
comparable three month period in 1996 primarily as a result of an increase in
average balances of mortgage loans of $41.5 million together with a slight
increase in the average yield on mortgage loans of 1 basis point. The average
yield on mortgage loans increased to 7.68% for the three months ended September
30, 1997 from 7.67% for the comparable three month period in 1996.
11
<PAGE>
Interest income on securities held to maturity decreased $3,000 or 6.3% to
$45,000 for the three months ended September 30, 1997 from $48,000 for the
comparable three month period in 1996. During the third quarter of 1997
principal repayments and prepayments on securities available for sale and held
to maturity amounted to $5.9 million. For the same period in 1996 the principal
repayments and prepayments on securities available for sale and held to maturity
totalled $2.3 million. Interest income on securities available for sale
increased $161,000 from $1.2 million for the three months ended September 30,
1996 to $1.4 million for the three months ended September 30, 1997. 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 decreased $190,000 or 81.9% to
$42,000 for the three months ended September 30, 1997 from $232,000 for the
comparable three month period in 1996 primarily as a result of a decrease in
average balances of $12.3 million together with a decrease in average yield of
135 basis points. The decrease in average balances of short-term and other
investments reflects the concentration of investments in higher yielding loans.
Interest expense Interest expense increased $549,000, or 26.7% to $2.6 million
for the three months ended September 30, 1997 from $2.1 million for the three
months ended September 30, 1996.
Interest on deposits increased $168,000, or 9.5% to $1.9 million for the three
months ended September 30, 1997 from $1.8 million for the comparable three month
period in 1996. The increase in interest expense on deposits was primarily due
to an increase of $17.7 million in average deposits offset by a slight decline
of 7 basis points in the average cost of deposits.
Interest on FHLB-NY advances increased $381,000, or 135.6% to $662,000 for the
three months ended September 30, 1997 from $281,000 for the comparable three
month period in 1996. The increase in interest expense on advances was due
primarily to an increase in average balances of $22.5 million which was the
result of the financing transaction entered into in August 1996, as described
above, as well as the increase in the average interest rate of 36 basis points.
The average rate increased from 6.02% for the three months ended September 30,
1996 to 6.38% for the three months ended September 30, 1997.
Net interest income Net interest income before provision for loan losses
increased by $221,000 to $2.2 million for the three months ended September 30,
1997 from $2.0 million for the three months ended September 30, 1996. The
increase reflects an increase in the average balances of loans receivable, net
of $41.5 million for the three months ended September 30, 1997 over the
comparable prior year period.
12
<PAGE>
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 September
30, 1997 compared with $50,000 for the comparable three month period in 1996
which was due to loan growth, the continuing change in loan mix and management's
ongoing assessment of risks 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, 1997
was $195,000 compared with $171,000 for the comparable three month period in
1996. The increase is primarily due to the gain on sale of real estate owned of
$50,000, the nontaxable income of $20,000 for the cash surrender value of
directors' life insurance and increased deposit fees of $14,000. Offsetting
these increases were reduced fee income of $57,000 from Wayne Savings Financial
Service Group, Inc., a wholly owned subsidiary of the Bank.
Other expenses Other expenses decreased $1.6 million or 50.1% for the three
months ended September 30, 1997 to $1.5 million from $3.1 million for the
comparable three month period in 1996. The decrease is primarily due to the
decrease of $625,000 in compensation and employee benefits expense, and a
decrease of $1.0 million in SAIF recapitalization expense. These decreases were
offset by increases in occupancy of $24,000, advertising of $50,000 and other of
$113,000.
The decrease in compensation and employee benefits expense reflects the
non-recurring charge for benefits paid to the Bank's former President and CEO
upon his retirement for the three months ended September 30, 1996. 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. The increase in occupancy of $24,000 is directly related to the new branch
office that was opened in July 1997. The increase of $50,000 in advertising is
due to management's increased emphasis on advertising to increase loan
production and deposit gathering. 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. Finally, the increase of
$113,000 is the result of expenses incurred in becoming a publicly traded
company. These expenses include directors' benefit plans, franchise taxes and
legal and professional fees.
Income tax expense (benefit) Income tax expense was $288,000 which represents an
effective tax rate of 37.4% for the three months ended September 30, 1997
compared with income tax benefit of
13
<PAGE>
($336,000) which represents an effective tax rate of 35.4% for the three months
ended September 30, 1996.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996
General The Company reported net income of $1.5 million for the nine months
ended September 30, 1997 compared with net income of $31,000 for the nine months
ended September 30, 1996. The $1.5 million increase was primarily attributable
to an increase in interest income of $3.0 million, an increase in other income
of $81,000, a decrease in compensation and employee benefits of $419,000, and
the SAIF recapitalization expense of $1.0 million. Offsetting these increases
was an increase in interest expense of $1.6 million and an increase of other
expense of $562,000.
Interest income Interest income increased $3.0 million or 27.0% to $13.9 million
for the nine months ended September 30, 1997 from $10.9 million for the nine
months ended September 30, 1996. The increase was primarily the result of an
increase in interest income on loans and securities available for sale.
Interest income on mortgage loans increased $2.3 million or 31.8% to $9.4
million for the nine months ended September 30, 1997, from $7.2 million for the
comparable nine month period in 1996 primarily as a result of a $40.5 million
increase in the average outstanding balances offset by a slight decrease of 4
basis points in the average rate earned. The increase in average balances of
mortgage loans between the periods was due to loan originations of $48.6 million
during the nine months ended September 30, 1997.
Interest income on securities available for sale increased $1.1 million to $4.2
million for the nine months ended September 30, 1997 from $3.1 million for the
comparable nine month period in 1996 primarily due to an increase in average
balances of $14.8 million and an increase in the average yield of 68 basis
points.
Interest income on short-term and other investments decreased by $418,000 to
$149,000 for the nine months ended September 30, 1997 from $567,000 for the
comparable nine month period in 1996 primarily as a result of a decrease in
average outstanding balances of $9.4 million. The decrease in the average
balance was due primarily to the investment of the cash balances into various
types of higher yielding loans.
Interest expense Interest expense increased $1.6 million or 27.7% to $7.3
million for the nine months ended September 30, 1997 from $5.7 million for the
nine months ended September 30, 1996. Interest on deposits increased by
$255,000, or 4.8% to $5.6 million for the nine months ended September 30, 1997
from $5.3 million for the comparable nine month period in 1996. The increase in
interest expense on deposits was primarily due to the increase in average
balances of $12.8 million offset by a decline of 10 basis points in the average
cost of deposits.
14
<PAGE>
Interest on FHLB of NY advances increased $1.3 million or 380.9% to $1.7 million
for the nine months ended September 30, 1997 from $346,000 for the comparable
nine month period in 1996. FHLB-NY advances on an average basis increased $26.9
million between the periods and the average yield on advances increased 36 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 $1.4 million to $6.6 million for the nine months ended September 30,
1997 from $5.3 million for the nine months ended September 30, 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 $325,000 for loan losses for the nine months ended September
30, 1997 compared with $135,000 for the comparable nine month period in 1996
which was due to loan growth, the continuing change in loan mix and management's
ongoing assessment of risks 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, 1997 was
$523,000 compared with $442,000 for the comparable nine month period in 1996.
The increase of $81,000 in the nine months ended September 30, 1997 was
primarily attributable to the gain on sale of real estate owned and increased
deposit fees earned on the higher volume of checking accounts offset by reduced
fee income from Wayne Savings Financial Services Group, Inc.
Other expenses Other expenses decreased $1.1 million or 20.2% for the nine
months ended September 30, 1997 to $4.4 million from $5.5 million for the
comparable nine month period in 1996. The decrease was primarily due to a
decrease of $419,000 in compensation and employee benefits, a decrease of $1.0
million in SAIF recapitalization assessment and a decrease of $562,000 in other
expenses. These decreases were offset by increases of $51,000 or 18.3% in
occupancy, an increase of $47,000 or 34.3% in advertising and an increase of
$562,000 or 58.5% in other. The decrease in compensation and employee benefits
expense reflects the non-recurring expense as explained in the three month
period. The decreases in SAIF recapitalization assessment and other expenses is
also as explained in the three month period. The increases in occupancy
advertising and other are also the same as explained in the three month period
ended September 30, 1997.
15
<PAGE>
Income tax expense Income tax expense was $923,000 which represents an effective
tax rate of 37.9% for the nine months ended September 30, 1997 compared with
income tax expense of $18,000 which represents an effective tax rate of 36.7%
for the nine months ended September 30, 1996.
16
<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
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.
17
<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 13, 1997 By: /s/ JOHANNA O'CONNELL
-------------------------------
Johanna O'Connell,
President
Date: November 13, 1997 By: /s/ TIMOTHY P. TIERNEY
--------------------------------
Timothy P. Tierney,
Vice President & Controller
18
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,077
<INT-BEARING-DEPOSITS> 182,701
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 76,292
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<ALLOWANCE> 2,114
<TOTAL-ASSETS> 267,285
<DEPOSITS> 190,693
<SHORT-TERM> 11,725
<LIABILITIES-OTHER> 1,654
<LONG-TERM> 30,000
0
0
<COMMON> 22
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<TOTAL-LIABILITIES-AND-EQUITY> 267,285
<INTEREST-LOAN> 9,446
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<INTEREST-TOTAL> 13,902
<INTEREST-DEPOSIT> 5,598
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<INTEREST-INCOME-NET> 6,640
<LOAN-LOSSES> 325
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<EXPENSE-OTHER> 4,403
<INCOME-PRETAX> 2,435
<INCOME-PRE-EXTRAORDINARY> 2,435
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,512
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.77
<YIELD-ACTUAL> 0
<LOANS-NON> 2,391
<LOANS-PAST> 0
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<ALLOWANCE-OPEN> 1,789
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