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, 1996 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 (330) 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, 1996: 3,748,340
INDEX
WAYNE BANCORP, INC.
FORM 10-Q
For the Quarter Ended June 30, 1996
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 Statements....... 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,
1996 1995
------------------------
ASSETS
Cash and Due From Banks............................ $15,011 $16,015
Federal Funds Sold................................. 0 1,000
------------------------
Total Cash and Cash Equivalents........ 15,011 17,015
Securities Available-for-Sale (Note 2)............ 96,325 94,325
Loans Held For Sale................................ 5,023 8,539
Loans (Note 3)................................... 210,106 204,321
Unearned Income.......... (183) (749)
Allowance for Loan Losses (3,778) (3,705)
------------------------
Net Loans.............................. 206,145 199,867
Premises and Equipment............................. 6,163 6,126
Investment in Affiliates........................... 152 152
Other Assets....................................... 5,415 4,903
------------------------
TOTAL ASSETS....................................... $334,234 $330,927
========================
LIABILITIES
Deposits
Interest Bearing.............................. $231,848 $232,512
Non-Interest Bearing.......................... 39,345 42,235
------------------------
Total Deposits......................... 271,193 274,747
Federal Funds Purchased............................ 5,220 0
Securities Sold Under Agreements to Repurchase..... 16,693 15,662
Other Liabilities.................................. 2,248 2,581
------------------------
Total Liabilities...................... 295,354 292,990
SHAREHOLDERS' EQUITY
Common Stock, Stated Value $1...................... 3,749 1,874
Shares Authorized 5,400,000
Shares Issued - 3,748,340 in 1996 and 1,874,284 in 1995
Shares Outstanding - 3,745,307 in 1996 and 1,870,681 in 1995
Paid In Capital.................................... 8,023 7,999
Retained Earnings.................................. 27,281 27,368
Treasury Stock..................................... (83) (134)
Unrealized Gain/(Loss) on Securities Available-for- (90) 830
------------------------
Total Shareholders' Equity............. 38,880 37,937
------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $334,234 $330,927
========================
See Notes to Consolidated Financial Statements
-1-
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (In Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
-----------------------------------------
INTEREST INCOME:
Interest and Fees on Loans............. $4,827 $4,721 $9,698 $9,245
Interest and Dividends on Securities:
Taxable........................... 1,159 882 2,255 1,775
Nontaxable........................ 275 314 556 642
Other Interest Income.................. 18 65 57 77
-----------------------------------------
Total Interest Income.................. 6,279 5,982 12,566 11,739
INTEREST EXPENSE:
Interest on Deposits................... 2,427 2,299 4,794 4,434
Interest on Repurchase Agreements...... 196 142 375 259
Interest on Other Borrowings........... 19 2 27 55
-----------------------------------------
Total Interest Expense................. 2,642 2,443 5,196 4,748
NET INTEREST INCOME.................... 3,637 3,539 7,370 6,991
Provision for Loan Losses.............. 45 30 90 60
-----------------------------------------
NET INTEREST INCOME AFTER 3,592 3,509 7,280 6,931
PROVISION FOR LOAN LOSSES...
OTHER INCOME:
Service Charges and Fees............... 329 313 646 612
Income from Fiduciary Activities....... 225 203 450 408
Other Non-Interest Income.............. 172 129 347 283
Gain (Loss) on Sale of Securities...... (1) 0 (1) (12)
-----------------------------------------
Total Other Income..................... 725 645 1,442 1,291
OTHER EXPENSES:
Salaries and Employee Benefits......... 1,299 1,211 2,548 2,370
Occupancy and Equipment................ 260 270 548 548
Other Operating Expenses............... 1,024 1,094 2,035 2,191
-----------------------------------------
Total Other Expenses................... 2,583 2,575 5,131 5,109
INCOME BEFORE INCOME TAX EXPENSE....... 1,734 1,579 3,591 3,113
INCOME TAX EXPENSE..................... 526 459 1,092 894
-----------------------------------------
NET INCOME............................. $1,208 $1,120 $2,499 $2,219
NET INCOME PER SHARE (note 4) $0.32 $0.30 $0.67 $0.59
DIVIDENDS PER SHARE (note 4) $0.10 $0.09 $0.19 $0.17
See notes to consolidated financial statements.
-2-
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (In Thousands)
Six Months Ended
June 30,
1996 1995
- ---------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income......................................... $2,499 $2,219
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for Loan Losses.............. 90 60
Depreciation and Amortization......... 370 378
Amortization of Investment Security
premiums and discounts.................... 187 305
Decrease in interest receivable............. 101 163
Increase (Decrease) in interest payable..... (10) 229
Other, (net).............................. (842) (635)
------------------------
Net Cash Provided by Operating Activities 2,395 2,719
INVESTING ACTIVITIES
Purchase of Securities Held-to-Maturity............ 0 (3,176)
Proceeds from matured Investment Securities
Held-to-Maturity................................ 0 17,562
Purchase of Investment Securities Available-for-Sal (25,061) (2,996)
Proceeds from matured Investment Securities
Available-for-Sale.............................. 19,491
Proceeds from sale of Investment Securities
Available-for-Sale.............................. 1,992 1,003
Proceeds from sales of loans....................... 8,539
Net increase in loans and leases................. (11,346) (10,134)
Purchase of premises and equipment................. (289) (169)
------------------------
Net cash used by investing activities..... (6,674) 2,090
FINANCING ACTIVITIES
Net decrease in deposits................. (3,554) (62)
Net increase in short term borrowings.............. 6,251 (3,823)
Cash dividends................................. (593) (637)
Cash dividends reinvested.......................... 119 95
Issuance of common stock....................... 1 3
Purchase of Treasury Stock......................... (203) (52)
Sale of Treasury Stock............................. 254 16
------------------------
Net cash used by financing activities.............. 2,275 (4,460)
Decrease in cash and cash equivalents.............. (2,004) 349
Cash and cash equivalents at beginning of period... 17,015 17,091
------------------------
Cash and cash equivalents at end of period......... $15,011 $17,440
========================
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 financial
statements. In the opinion of management, all adjustments considered
necessary for a 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:
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 the
Company may decide to sell 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.
Realized gains or losses are determined based on the amortized cost of the
specific security sold.
On December 1, 1995, the Company transfered securities with an amortized
cost of $45.65 million previously classified as held-to-maturity to
available for sale. The unrealized gain on the securities transfered
totaled $653 thousand. This was done in accordance with the Financial
Accounting Standards Board ruling allowing a one time reclassification
of securities. On December 1, 1995 the Company's equity increase of
approximately $431 thousand as a result of this transfer.
During the six months ended June 30, 1996, the proceeds from sales of
available-for-sale securities were $1,992,187 with gross realized losses
of $4 thousand and gross realized gains of $3 thousand included in
earnings. During the six months ended June 30, 1995 proceeds from the sale
of available-for-sale securities were $1,002,531, with gross realized
losses of $1 thousand. Proceeds from the sale of held-to-maturity
securities who's maturity date was within 90 days of the sale date amounted
to $8.1 million with realized gains of $1 thousand and losses of $12
thousand included in earnings.
-4-
Summary of Amortized Cost and Fair Values of Securities:
Securities Available for Sale
June 30, 1996
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------
U.S. Treasury................. $24,931 $102 ($142) $24,891
Federal Agency Obligations.... 19,937 63 (222) 19,778
Federal Agency Pools.......... 20,483 106 (265) 20,324
Obligations of states and
political subdivisions........ 20,790 351 (96) 21,045
Other securities.............. 10,320 23 (56) 10,287
--------------------------------------------
$96,461 $645 ($781) $96,325
============================================
Securities Available for Sale December 31, 1995
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------
U.S. Treasury................. $21,848 $339 ($10) $22,177
Federal Agency Obligations.... 20,738 229 (23) 20,944
Federal Agency Pools.......... 13,816 181 (42) 13,955
Obligations of states and
political subdivisions...... 20,612 536 (22) 21,126
Other securities.............. 16,056 91 (24) 16,123
--------------------------------------------
$93,070 $1,376 ($121) $94,325
============================================
3. Loans:
Loans are comprised of the following:
June 30, December 31,
1996 1995
------------------------
Commercial loans................................... $87,755 $81,740
Real Estate loans.................................. 74,435 70,760
Installment loans.................................. 38,737 36,954
Lease Financing.................................... 2,958 3,435
Credit Card Loans.................................. 5,472
Home Equity loans.................................. 6,221 5,934
Other loans........................................ 26
------------------------
Total.................... $210,106 $204,321
========================
4. Per Share Data:
Per share data is calculated based on 3,747,751 average common shares
outstanding for 1996 and 3,742,698 for 1995. All per share data has been
adjusted to reflect stock splits and dividends where applicable.
-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, 1996, the amount of Fed Funds Sold and
Investments available for sale or maturing within the next three
months was $96 million. In addition, other assets such as
Cash and Due From Banks and maturing loans and loans held for
sale 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, 1996, the Company
had an adjusted GAP position of - 3.66% of total assets for a one year
period. This negative GAP is a result of the Company extending
maturities on investment securities and fixing rates on certain
commercial loans for up to three years. 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, 1996 the
Company's equity-to-asset ratio adjusted by the impact of FAS
#115 was 11.7% compared to 11.2% at December 31, 1995.
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 18.2% at June
30, 1996 and 18.1% at December 31, 1995, well above the regulatory
minimum of 8.0%.
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 certain intangible assets divided by total assets less
the same intangible assets. At June 30, 1996 and December 31,
1995 the ratios were 11.4% and 11.1% respectively.
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 increased by $3.3 million or
1.0% from December 31, 1995 to June 30, 1996. The increase was
due to temporary increases in short term borrowed funds used for
funding growth in the loan portfolio. Net loans, including loans held for sale
increased $2.8 million for the first six months of 1996. This increase includes
the net effect of the sale of $8.5 million of 1-4 family real estate loans.
Had these loans not been sold, the loan portfolio would show an increase of
$11.3 million. 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
increase, and the general economic conditions could weaken, which could slow
the demand for loans.
On April 17, 1996 the Company's Board of Directors approved the sale
of the Bank's credit card portfolio. Management stated numerous reasons
for the request, including profitability, credit risk and competition. The sale
is expected to close near the end of the third quarter or early in the fourth
quarter of 1996. The preliminary agreement shows a premium level between
18-20 percent of the portfolio, giving a range of $900 thousand to $1 million
pre-tax gain on this sale. On a per share, after tax basis, this gain would be
between $.16 and $.18 per share. The Bank will continue to issue a "proprietary"
credit card with the Bank's name and logo. The receivables will be carried by
the purchasing company.
Total deposits declined by $3.6 million, including a $2.9 million
decline in non-interest bearing deposits. The Company has this
experience each year in the first six months where mostly corporate
customers draw their funds out that were on deposit at year end. The
certificates of deposits, which had been declining steadily for the past
two years due to the decline in interest rates have since began to grow
at an approximate 3% pace. This growth is coming at the expense of
the short term more liquid demand type deposit accounts. The
experience in the first half of the year 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 1996.
Fed funds purchased and securities sold under agreements to repurchase
increased a total of $6.2 million from December 31, 1995. This increase is due
to the Bank needing funds for loan growth and deposit outflows. This is a short
term situation, and since the end of the second quarter, the Bank has repaid
these overnight borrowed funds and has been selling excess funds.
Results_of_Operations__
Net income was $2,499,000 for the first six months of 1996
compared to $2,219,000 for the same period in 1995. Net income increased
$88 thousand to $1,208 for the three months ended June 30, 1996 compared
to the same period in 1995.
Earnings per share for the six months ended June 30, 1996 and 1995
were $.67 and $.59 per share respectively. Earnings per share for the three
months ended June 30, 1996 and 1995 were $.32 and $.30 respectively.
Dividends were $.19 per share for the first six months of 1996 and $.17 per
share for the first six months of 1995. All per share numbers have been
adjusted for a 2-for-1 stock split effective June 30, 1996.
Total interest income for the first six months increased $827
thousand or 7.0% compared to the previous year. Total interest income
increased $297 thousand or 5.0% during the three months ended June 30,
1996 compared to the similar period in 1995. The increase is due
due primarily to the increase earning assets, and the increased
yield in the investment portfolio. The increase in the investment portfolio
yield is a result of maturities in the portfolio of bonds that were purchased
during the low point in the interest rate cycle in 1993. These bonds have
yields in the 4% range and are being replaced with bonds yielding nearly 6%.
Total earning assets were $311 and $290 million at June 30, 1996
and 1995. The increase in earning assets is due to the growth in the
loan portfolio of $16.2 million offset by by the sale of $8.5 million of
fixed rate 1-4 family real estate loans. Had these loans not been sold,
the earning assets would be approximately $320 million at June 30, 1996.
The weighted interest earned on those assets were 8.10% for both
periods. This level weighted rate on earnings assets is due to the slightly
falling interest rate environment and the repricing of assets, particularly
the investment portfolio.
Total interest paying liabilities at June 30, 1996 and 1995 were $254
million and $230 million respectively. The weighted interest rate paid for these
deposit has fallen from 4.13% at June 30, 1995 to to 4.09% at June 30, 1996.
The net effect of the changes in interest earning assets and
interest paying liabilities, combined with the repricing that
has occurred since June 30, 1995 is an increase in net
interest income of $379 thousand or 5.4%.
Total other income increased $80 thousand for the three months ended
June 30, 1996 compared to 1995 and $151 thousand for the six months ended
June 30, 1996 compared to 1995. The primary reason for this is increases
in service charges, income from the Trust and Investment Services Department
and other miscellaneous income.
Total other expenses have increased $8 thousand for the
three month period and $22 thousand for the six months ended
June 30, 1996 compared with the same period in 1995.
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 maintain the
base wages higher in order to retain the current staff. In addition to the
cost of labor, over half of the increase in this area is due to increased cost
of health benefits for the staff. This is an item that is expected to continue
through 1996. Management will be evaluating the current plan and
reviewing alternatives to that plan beginning in the third quarter.
The other non-interest expenses declined $70 thousand for the three
months ended June 30, 1996 compared to 1995 and $156 thousand for the
six monts ended June 30, 1996. The primary reason for the decline is a
reduction in the FDIC insurance premiums. The FDIC has reduced the insurance
premiums of highly capitalized, good performing banks to zero. This has resulted
in a savings of $270 thousand for the six months of 1996. The Company
does pay deposit insurance premiums on the SAIF portion of the deposits
which were acquired in 1991 from the RTC. This cost is expected to be
approximately $20 thousand per quarter.
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 an increase in the
deposit insurance premiums, and based on current proposals being
considered by congress,the Bank could have to pay a one time
assessment on the SAIF deposits of as much as $250 thousand.
The effect of the increases in total income, offset by an increase in
the provision for loan losses and by the increase in interest expense and
increase in the total other expeses is an increase increase in the profit prior
to taxes of $478 thousand or 15.4% for the six months ended June 30, 1996
compared to 1995. Based on this increase in profit before taxes and a decrease
in the non-taxable investment income the expense for Federal Income Taxes
increased $198 thousand or 22%. Net income for the six months ended June 30,
1996 was $2.5 million representing an increase of $280 thousand or 12.6% over
the same period in 1995.
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 28, 1996.
(b) The following directors were elected:
James O. Basford 1,474,181 FOR 1,678 ABSTAIN
Joseph R. Benden 1,466,728 FOR 9,131 ABSTAIN
David E. Taylor 1,471,638 FOR 4,221 ABSTAIN
The following are the directors who were not up for election and
whose term continued after the Annual Meeting:
Harold Freedlander Gwenn E. Bull
Frank M. Hays David L. Christopher
Dietrich Kaesgen Dennis B. Donahue
Bala Venkataraman Jeffrey E. Smith
(d) None
ITEM 5 - Other information:
NONE
ITEM 6 - Exhibits and reports on Form 8-K:
NONE
______________________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_6,_1996____ ____________________________
David L. Christopher,
Chairman, President & CEO
Date ____August_6,_1996____ ____________________________
David P. Boyle, CPA
Senior Vice President and
Chief Financial Officer
Wayne County National Bank
- -11-
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