FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Under Section 13 or 15d
of the Securities Exchange Act of 1934
For the Quarter Ended: June 30, 1995 COMMISSION FILE NUMBER 0-14612
Wayne Bancorp, Inc.
Ohio 34-1516142
(State or other Jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
112 West Liberty Street, P.O. Box 757 Wooster, Ohio 44691
Registrant's telephone number, including area code (216) 264-1222
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes__X__ No_____
Number of shares of Common Stock, Stated Value $1.00 per Share, issued and
outstanding at July 31, 1995: 1,872,830
INDEX
WAYNE BANCORP, INC.
FORM 10-Q
For the Quarter Ended June 30, 1995
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheet.............. 1
Consolidated Statement of Income........ 2
Consolidated Statement of Cash Flows.... 3
Notes to Consolidated Financial Statemen 4,5
Item 2. Management's discussion and analysis of financial
condition and results of operations.............. 6 - 9
PART II. OTHER INFORMATION................................ 10
SIGNATURES.................................................. 11
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET (UNAUDITED) (In Thousands)
June 30 December 31,
1995 1994
------------------
ASSETS
Cash and Due From Banks................... $16,180 $17,091
Federal Funds Sold........................ 1,260 0
------------------
Total Cash and Cash Equivalents...... 17,440 17,091
Securities Available-for-Sale............. 28,676 28,085
Investment Securities Held-to-Maturity (Market Value
June 30, 1995 $52,840 and $64,095 at
December 31, 1994) (Note 2)........... 52,539 65,066
Loans (Note 3).......................... 207,466 197,580
Unearned Income....... (259) (653)
Allowance for Loan Los (3,654) (3,448)
------------------
Net Loans............................ 203,553 193,479
Premises and Equipment.................... 6,233 6,317
Investment in Affiliates.................. 152 123
Other Assets.............................. 5,507 5,523
------------------
TOTAL ASSETS..............................$314,100 $315,684
==================
LIABILITIES
Deposits
Interest Bearing.....................$220,380 $219,559
Non-Interest Bearing................. 46,101 46,986
------------------
Total Deposits....................... 266,481 266,545
Federal Funds Purchased................... 0 5,000
Securities Sold Under Agreements to Repurc 10,037 8,861
Other Liabilities......................... 1,786 1,639
------------------
Total Liabilities.................... 278,304 282,045
SHAREHOLDERS' EQUITY
Common Stock, Stated Value $1............. 1,874 1,871
Shares Authorized 5,400,000
Shares Issued - 1,874,230 in 1995 and 1,871,467 in 1994
Shares Outstanding - 1,872,830 in 1995 and 1,870,971 in 1994
Paid In Capital........................... 7,996 7,897
Retained Earnings......................... 25,813 24,230
Treasury Stock............................ (51) (16)
Unrealized Gain/(Loss) on Securities
Available-for-sale 164 (343)
------------------
Total Shareholders' Equity........... 35,796 33,639
------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$314,100 $315,684
==================
See Notes to Consolidated Financial Statements
-1-
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (In Thousands)
Three Months En Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---------------------------------------
INTEREST INCOME:
Interest and Fees on Loans....... $4,721 $4,035 $9,245 $7,917
Interest and Dividends on Securities:
Taxable..................... 882 791 1,775 1,536
Nontaxable.................. 314 347 642 659
Other Interest Income............ 65 27 77 45
------------------------------------
Total Interest Income............ 5,982 5,200 11,739 10,157
INTEREST EXPENSE:
Interest on Deposits............. 2,299 1,832 4,434 3,699
Interest on Repurchase Agreements 142 77 259 139
Interest on Other Borrowings..... 2 5 55 6
------------------------------------
Total Interest Expense........... 2,443 1,914 4,748 3,844
NET INTEREST INCOME.............. 3,539 3,286 6,991 6,313
Provision for Loan Losses........ 30 135 60 270
------------------------------------
NET INTEREST INCOME AFTER 3,509 3,151 6,931 6,043
PROVISION FOR LOAN LOSSES...
OTHER INCOME:
Service Charges and Fees......... 313 312 612 617
Income from Fiduciary Activities. 203 195 408 390
Other Non-Interest Income........ 129 136 283 269
Gain (Loss) on Sale of Securities 0 0 (12) 22
-------------------------------------
Total Other Income............... 645 643 1,291 1,298
OTHER EXPENSES:
Salaries and Employee Benefits... 1,211 1,095 2,370 2,151
Occupancy and Equipment.......... 270 237 548 479
Other Operating Expenses......... 1,094 1,098 2,191 2,155
-------------------------------------
Total Other Expenses............. 2,575 2,430 5,109 4,785
INCOME BEFORE INCOME TAX EXPENSE. 1,579 1,364 3,113 2,556
INCOME TAX EXPENSE............... 459 382 894 709
-------------------------------------
NET INCOME....................... $1,120 $982 $2,219 $1,847
NET INCOME PER SHARE (note 4) $0.60 $0.53 $1.18 $0.99
DIVIDENDS PER SHARE (note 4) $0.17 $0.15 $0.34 $0.29
See notes to consolidated financial statements.
-2-
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (In Thousands)
Six Months Ended
June 30,
1995 1994
------------------------------------------------------------
OPERATING ACTIVITIES
Net Income................................ $2,219 $1,847
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for Loan Losses.......... 60 270
Depreciation and Amortization...... 378 340
Amortization of Investment Security
premiums and discounts........... 305 611
Decrease in interest receivable.... 163 114
Increase (Decrease) in interest pay 229 (106)
Other, (net)....................... (635) (355)
------------------
Net Cash Provided by Operating Activities 2,719 2,721
INVESTING ACTIVITIES
Purchase of Securities Held-to-Maturity... (3,176) (10,053)
Proceeds from matured Investment Securities
Held-to-Maturity....................... 17,562 13,829
Purchase of Investment Securities Availabl (2,996) (4,084)
Proceeds from sale of Investment Securities
Available-for-Sale..................... 1,003 2,094
Net increase in loans and leases.......... (10,134) (7,882)
Purchase of premises and equipment........ (169) (584)
------------------
Net cash used by investing activities..... 2,090 (6,680)
FINANCING ACTIVITIES
Net decrease in deposits................. (62) (3,340)
Net increase in short term borrowings..... (3,823) 1,046
Cash dividends............................ (637) (533)
Cash dividends reinvested................. 95 80
Issuance of common stock.................. 3 197
Purchase of Treasury Stock................ (52) 0
Sale of Treasury Stock.................... 16 0
------------------
Net cash used by financing activities..... (4,460) (2,550)
Decrease in cash and cash equivalents..... 349 (6,509)
Cash and cash equivalents at beginning of 17,091 17,081
------------------
Cash and cash equivalents at end of period $17,440 $10,572
===================
Non-cash Transaction:
Transfer of loans held for sale to held to 7,696
See notes to consolidated financial statements.
-3-
WAYNE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnontes
required by generally accepted accounting standards for complete finan-
cial statements. In management's opinion, all adjustments considered
necessary for fair presentation have been included and such adjustments
are of a normal recurring nature. Certain prior year amounts have been
reclassified to conform with current financial statement presentation.
2. Investment Securities:
As of January 1, 1994, the Company changed its method of accounting for
debt and equity securities to adopt SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Accordingly, securities are
classified into held-to-maturity and available-for-sale categories. The
held-to-maturity securities are those which the Company has the positive
intent and ability to hold to maturity, and are reported at amortized
cost. Available-for-sale securities are those which may be sold if
needed for liquidity, asset-liability management, or other reasons.
Available-for-sale securities are reported at fair value, with unrealized
gains or losses included as a separate component of equity, net of tax.
The effect of adopting this new accounting guidance was to increase the
Company's equity at January 1, 1994 by approximately $140,000.
Realized gains or losses are determined based on the amortized cost of the
specific security sold.
During the six months ended June 30, 1995 and 1994, proceeds from sales of
available-for-sale securities were $1,002,531 and $2,094,141, with gross
losses of $742 in 1995 and gains of $21,891in 1994 included in earnings.
Proceeds from sales of held-to-maturity securities who's maturity date
was within 90 days of the sale date were $8,090,369 with realized losses
of $10,75 included in earnings. Proceeds from these sales are included as
maturities in the Consolidated Statement of Cash Flows. There were no
sales of held-to-maturity securities in 1994. For this period, the change
in net unrealized holding gain or loss on securities available-for-sale
was approximately $507,000. There were no transfers of securities
classified as held-to-maturity.
Summary of book and market values of securities:
Securities Available for Sale (In Thousands)
June 30, 1995 December 31, 1994
Book Market Book Market
-------------------------------------
U.S. Treasury................. $14,936 $15,024 $13,953 $13,567
Federal Agency Obligations....... 9,218 9,316 10,276 10,170
Federal Agency Pools.......... 3,350 3,413 3,509 3,482
Mortgage Backed Obligations... 167 167 192 191
Other securities.............. 756 756 675 675
-------------------------------------
$28,427 $28,676 $28,605 $28,085
=====================================
-4-
Securities Held to Maturity (In Thousands)
June 30, 1995 December 31, 1994
Book Market Book Market
-------------------------------------
U.S. Treasury................. $5,034 $5,069 $5,058 $4,963
Federal Agency Obligations....... 12,610 12,552 19,716 19,335
Federal Agency Pools.......... 7,698 7,661 8,067 7,737
Mortgage Backed Obligations... 55 55 176 175
Obligations of states and
political subdivisions...... 22,404 22,746 24,510 24,437
Other securities.............. 4,738 4,757 7,539 7,448
-------------------------------------
$52,539 $52,840 $65,066 $64,095
=====================================
3. Loans:
Loans, including loans held for sale are comprised of the following:
June 30, December 31,
1995 1994
------------------
Commercial loans.......................... $83,226 $75,983
Real Estate loans......................... 73,435 73,387
Installment loans......................... 37,072 34,218
Direct Lease Financing.................... 2,795 2,741
Credit Card Loans......................... 5,160 5,696
Home Equity loans......................... 5,778 5,543
Other loans............................... 0 12
------------------
Total.................$207,466 $197,580
==================
On January 1, 1995 the Company adopted Statement of Financial Accounting
Standard No. 114, "Accounting by Creditors for Impairment of a Loan".
Adoption of this standard has had no impact to the financial statements.
4. Per Share Data:
Per share data is calculated based on 1,871,646 average common shares
outstanding for 1995 and 1,865,560 for 1994. 1994 numbers have been
adjusted for a 5% stock dividend effective December 31, 1994.
-5-
WAYNE BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CONDITION
_________________________________________________________________
ITEM II - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------------------------------------
Liquidity_And_Interest_Rate_Sensitivity__
The main objectives of asset/liability management are to
provide adequate liquidity and to minimize interest rate risk.
Liquidity is the ability to meet cash flow needs, which in the
banking industry, refers to the Company's ability to fund
customer borrowing needs as well as deposit withdrawals. The
Company's primary source of liquidity is the daily Federal Funds
Sold and Investment Securities, in particular, the investments
with shorter maturities and those identified as available for
sale. At June 30, 1995, the amount of Fed Funds Sold and
Investments available for sale or maturing within the next three
months was $35.0 million. In addition, other assets such as
Cash and Due From Banks and maturing loans also provide
additional sources of liquidity. The Company continues to keep
a balance between short and long-term investments and securities
available for sale that will provide adequate liquidity and at
the same time maximize earnings. Based on the Company's capital
position, profitability and reputation, the available liquidity
sources are considered adequate to meet the current and
projected needs of the Company.
Interest rate risk and rate sensitivity is measured by an
analysis of the Company's "GAP". GAP is the difference between
the volume of assets and liabilities that will mature or reprice
within a specific time frame. At June 30, 1995, the Company had
a GAP position of -4.81% of total assets for a one year period.
This negative GAP is a result of the lengthening of the Bank's
investment portfolio and growth in lending areas where interest
rates are fixed. The liability sensitive position will benefit
the Company in a falling or stable interest rate environment. A
positive GAP will benefit the Company in a rising rate
environment.
Capital__
The Company's capital adequacy is a primary concern in our
industry today and is measured by several key ratios. A long
standing measure of capital adequacy is the percentage of
shareholders' equity to total assets. At June 30, 1995 the
Company's equity-to-asset ratio adjusted by the impact of FAS
#115 was 11.4% compared to 10.7% at December 31, 1994.
Regulators of the banking industry focus primarily on two other
measurements of capital - the risk based capital ratio and the
leverage ratio. The risk based capital ratio consists of a
numerator of allowable capital components and a denominator of
an accumulation of risk weighted assets. With a significant
portion of the Company's investment securities portfolio in
government related low risk categories and a fair amount of the
loan portfolio in one to four family mortgage loans with a 50%
risk assessment, the risk based capital ratio is 18.1% at June
30, 1995 and 17.8% at December 31, 1994.
-6-
The regulators require a minimum leverage capital ratio above
3%. They will expect most banks to maintain leverage ratios in
the 4-5% range. The leverage ratio is calculated as equity
capital less some intangible assets divided by total assets less
the same intangible assets. At June 30, 1995 and December 31,
1994 the ratios were 11.0% and 10.4% respectively.
The regulatory requirement for the capital ratios is a minimum
8.0% for risk based capital and 3.0% for the leverage ratio.
The Company's deposit insurance premiums which are paid to the
Federal Deposit Insurance Corporation are based on these capital
ratios. The FDIC considers a bank "adequately capitalized" if
the capital ratios are: Total equity 8% Tier I risk based
capital of 4% and a leverage ratio of 4%. The FDIC considers a
bank "well capitalized" with comparable capital ratios of 10%,
6% and 5%. The Company is considered a "well capitalized" Bank,
and therefore is subject to the lowest deposit insurance
premiums available.
Financial_Condition__
The total assets of the Company decreased by $1.6 million or
.5% from December 31, 1994 to June 30, 1995. The decrease was
due to temporary funds deposited by retail customers at December
31, 1994 and withdrawn by June 30, 1995 and the sale of
investment securities, with the proceeds of those sales used to
pay back short term federal funds borrowed. Total loans
increased $9.9 million in the first six months with a continued
strong demand for commercial and consumer loans as interest
rates appeared to stabilize. Real estate lending showed a small
amount of growth in the first six months of 1995, after over
three years of steady large increases. This slow down in real
estate lending is attributed to a slower housing market and a
reduction in refinancing of existing real estate loans as rates
have risen from their low point in 1993. Leasing operations
began a rebound from what was several years of net decline in
outstanding lease financing. In the next six to nine months, it
is expected that the interest rate environment will experience a
slight decline, and the general economic conditions will
stabilize and which could increase the demand for loans.
Total investments declined by $11.9 million in the first six
months of 1995. This decline is due primarily to the sale of
investment securities for liquidity purposes. These sales
funded the growth in the loan portfolio, the repayment of short
term borrowings and the outflow of deposits. As detailed in
Note 2, in January of 1994, the Company adopted Statement of
Financial Accounting Standards No. 115, changing the method of
accounting for investments in certain debt and equity
securities. Adoption of this standard has not affect the
methods used in management of the portfolio, but should enhance
the ability to manage the asset-liability position of the
Company. The adoption of this statement can have an impact on
the Company's capital based on volume of securities classified
as available-for-sale, as well as the volatility in the interest
rate environment. Management does not feel that the impact on
the Company's capital will be material based on the relatively
short maturities of the available for sale securities.
Total deposits remained stable from December 31, 1994 to June
1995. The Company has experienced a decline in deposits in the
first quarter where mostly corporate customers draw their funds
out that were on deposit at year end, and a growth back to year
end levels by the end of the second quarter. The certificates
of deposits, which had been declining steadily for the
-7-
past two years due to the decline in interest rates have since
began to grow at an approximate 4% pace. This growth is coming
at the expense of the short term more liquid demand type deposit
accounts. The experience in the first six months is that these
deposits are being rolled over into higher paying certificates
of deposit from interest bearing demand and savings type
accounts, as the Bank's customers have become more comfortable
with the current interest rate environment. Management feels
that this trend will continue throughout 1995.
Results_of_Operations__
Net income was $2.2 million for the first six months of 1995
compared to $1.8 million for the same period in 1994. Earnings
per share for the six months ended June 30, 1995 and 1994 were
$1.18 and $.99 per share respectively. Dividends were $.34 per
share in the first six months of 1995 and $.29 per share for the
first six months of 1994. The 1994 per share numbers reflect
retroactive adjustment for the 5% stock dividend declared in
December of 1994.
Total interest income for the first six months increased $1.6
million or 15.6% compared to the previous year. The increase is
due primarily to the increase in interest rates as the Federal
Open Market Committee adjusted interest rates seven times from
February 1994 to February 1995. Variable rate commercial loans
and matured or called investment securities are adjusted and
replaced at interest rates which are significantly higher than
what was is in the portfolio at June 30, 1994. Total earning
assets were $289 and $280 million at June 30, 1995 and 1994.
The weighted interest rate earned on those assets were 8.12% and
7.26% respectively. This increase in the weighted rate on
earning assets is due to the sharp increase in the interest rate
environment and the repricing of assets. The rising rate
environment has been a benefit to the Company because over $150
million of assets were repriced upward by as much as 300 basis
points, and only approximately $75 million of liabilities were
repriced upward by approximately 100 basis points.
Total interest paying liabilities at June 30, 1995 and 1994
were $230.4 and $228.4 million respectively. The weighted
interest rate paid for these deposit accounts has risen from
3.38% at June 30, 1994 to 4.12% at June 30, 1995.
The net effect of the changes in interest earning assets and
interest paying liabilities, combined with the repricing that
has occurred since December 31, 1994 is an increase in net
interest income of $678 thousand or 10.7%.
Total other income decreased $7 thousand for the six months
ended June 30, 1995 compared to 1994. The primary reason for
this is the gain on the sale of investments in 1994 versus
losses in 1995 which is partially offset by an increase in
income from the Trust and Investment service function.
The provision for loan losses has declined $210 thousand or
77.8% in the first six months of 1995 versus 1994. At June 30,
1995 the Company had approximately $127 thousand of loans and
leases past due 90 days or more. In addition, the Bank is
currently in a net recovery position on loan chargeoffs for the first
six months of approximately $146 thousand. In late May, 1995, a
previously charged off loan in the amount of approximately $137,000 was
recovered. With this type of superior loan quality, the net
recovery position and a reserve to total loans ratio of 1.76%,
management has reduced the provision.
Total other expenses have increased $324 thousand for the six
months ended June 30, 1995 compared with the same period in
1994. The largest part of this increase is in the salaries and
employee benefits area. The Company is in a highly competitive
market for lower cost labor, and felt it necessary to raise the
base wages higher in order to retain the current staff. The
increases in Occupancy and Equipment and other non-interest
expenses is due to the addition of a branch office in Berlin.
This office opened in the fourth quarter of 1994 and therefore
no expenses were recognized for that location in the first half
of 1994. The other non-interest expenses include FDIC insurance
premiums. The FDIC has been discussing the fact that the Bank
Insurance Fund (BIF) will be recapitalized in the second quarter
of 1995, and banks can expect a reduction in deposit insurance
premiums. This reduction could be as much as 83% or $470,000
per year. It is management's opinion that this issue has not
been resolved, as there is discussion in the Congress of merging
the BIF with the Savings Association Insurance Fund (SAIF),
which is under funded . If the BIF and SAIF were to merge,
banks could see a delay in the reduction of deposit insurance
premiums.
Salaries and employee benefits expenses increased $219
thousand or 10.2% for the first six months in 1995 compared to
1994. This increase is due to increases in compensation of non-
officer employees, and increases in the contributions made to
the profit sharing and employee stock ownership plans. The
Company has experienced an increase in the health insurance area
due primarily to increased claims. The Company is partially
self insured, and as a result can have fluctuations in the cost
of this program. Management expects the insurance costs to be
in line with the prior year.
Occupancy and Equipment expense increased $69 thousand or 14.4%
over the first half of 1995. The increase is due primarily to
the new office opened in Berlin, Ohio, depreciation related to
the replacement of five of the automated teller machines through
the last five months of 1994 and the renovation four offices
during that same time period.
On August 8, 1995 the Federal Deposit Insurance Corporation (FDIC)
adopted a rule, to take effect later this year, to reduce bank deposit
insurance premiums by as much as 80%. Currently the Bank pays 23 cents
per $100 of insured deposits. This new rule would reduce that to
approximately 4 cents per $100 of insured deposits. The Company could
an annualized realize pre-tax a cost savings of $460 thousand.
The Company may also be affected by a plan recently proposed to
capitalize the Savings Association Insurance Fund (SAIF) of the FDIC.
The proposal includes a one time assessment of 85 to 90 cents per $100
of SAIF insured deposits. In July of 1991, the Company acquired SAIF
insured deposits in the acquisition of four savings and loan branches.
These deposits at June 30, 1995 are approximately $32.4 million. In
this proposal is enacted, it would increase the deposit insurance costs
by as much as $290 thousand.
The effect of the increases in total income, and a $215
thousand reduction in the provision for loan losses, offset by
the increase in other expenses is an increase in the profit
before taxes of $557 thousand or 21.7%. Based on this increase
in profit before taxes, the expense for Federal Income Taxes
increased $185 thousand or 26.1%. Net income for the first
quarter of 1995 was $2.2 million, representing an increase of
$372 thousand or 20.1% over the same period in 1994.
-9-
WAYNE BANCORP, INC.
PART II - OTHER INFORMATION
_____________________________________________________________
ITEM 1 - Legal Proceedings:
NONE
ITEM 2 - Changes in securities:
NONE
ITEM 3 - Defaults upon senior securities:
NONE
ITEM 4 - Submission of matters to a vote of securities holders:
(a) Annual Meeting of Shareholders March 23, 1995.
(b) The following directors were elected:
Gwenn E. Bull 1,548,301 FOR 15,426 ABSTAIN
David L. Christopher 1,547,852 FOR 15,875 ABSTAIN
Dennis B. Donahue 1,540,504 FOR 23,224 ABSTAIN
Jeffrey E. Smith 1,534,787 FOR 28,940 ABSTAIN
The following are the directors who were not up for
election and whose term continued after the Annual Meeting:
Harold Freedlander James O. Basford
Dietrich Kaesgen Joseph R. Benden
Frank M. Hays David E. Taylor
Joseph E. Seringer
(c) Amend the Articles of Incorporation to increase the
number of authorized common voting shares to 5,400,000:
1,553,315 FOR 1,623 AGAINST 8,789 ABSTAIN
(d) None
ITEM 5 - Other information:
NONE
ITEM 6 - Exhibits and reports on Form 8-K:
NONE
-10-
______________________SIGNATURES______________________________
Pursuant to the requirements of the Securities and 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 ____August_10,_1995____ ____________________________
David L. Christopher,
Chairman, President & CEO
Date ____August_10,_1995____ ____________________________
David P. Boyle, CPA
Vice President
Chief Financial Officer
Wayne County National Bank
-11-
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