UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15d
of the Securities Exchange Act of 1934
For the Quarter Ended: September 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 October 31, 1996: 3,745,906
INDEX
WAYNE BANCORP, INC.
FORM 10-Q
For the Quarter Ended September 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 Flow............. 3
Notes to Consolidated Financial Statements...... 4,5
Item 2. Management's discussion and analysis of financial
condition and results ................................... 6 - 9
PART II. OTHER INFORMATION........................................... 10
SIGNATURES.......................................................... 11
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET (UNAUDITED) (In Thousands)
September 30, December 31,
1996 1995
--------------------------
ASSETS
Cash and Due From Banks................... $13,274 $16,015
Federal Funds Sold........................ 0 1,000
--------------------------
Total Cash and Cash Equivalents...... 13,274 17,015
Investment Securities Available-for-Sale (Note 2) 94,026 94,325
Loans Held for Sale....................... 4,956 8,539
Loans (Note 3).......................... 214,238 204,321
Unearned Income.............. (174) (749)
Allowance for Loan Losses.... (3,791) (3,705)
--------------------------
Net Loans............................ 210,273 199,867
Premises and Equipment.................... 6,277 6,126
Investment in Affiliates.................. 152 152
Other Assets.............................. 5,734 4,903
--------------------------
TOTAL ASSETS.............................. $334,692 $330,927
==========================
LIABILITIES
Deposits
Interest Bearing..................... $228,055 $232,512
Non-Interest Bearing................. 41,084 42,235
--------------------------
Total Deposits....................... 269,139 274,747
Federal Funds Purchased................... 650 0
Securities Sold Under Agreements
to Repurchase.............. 22,183 15,662
Other Liabilities......................... 2,715 2,581
--------------------------
Total Liabilities.................... 294,687 292,990
SHAREHOLDERS' EQUITY
Common Stock, Stated Value $1............. 3,749 1,874
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........................... 8,031 7,999
Retained Earnings......................... 28,199 27,368
Treasury Stock............................ 0 (134)
Unrealized Gain/(Loss) on Securities
Available-for-sale.................... 26 830
--------------------------
Total Shareholders' Equity........... 40,005 37,937
--------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $334,692 $330,927
==========================
See Notes to Consolidated Financial Statements
-1-
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (In Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
-------------------------------------------
INTEREST INCOME:
Interest and Fees on Loans....... $4,963 $4,831 $14,661 $14,076
Interest and Dividends on Securities:
Taxable..................... 1,159 901 3,414 2,676
Nontaxable.................. 276 310 832 952
Other Interest Income............ 11 52 68 129
---------------------------------------------
Total Interest Income............ 6,409 6,094 18,975 17,833
INTEREST EXPENSE:
Interest on Deposits............. 2,321 2,400 7,115 6,834
Interest on Repurchase Agreements 246 139 621 398
Interest on Other Borrowings..... 29 2 56 57
---------------------------------------------
Total Interest Expense........... 2,596 2,541 7,792 7,289
NET INTEREST INCOME.............. 3,813 3,553 11,183 10,544
Provision for Loan Losses........ 45 30 135 90
---------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES....... 3,768 3,523 11,048 10,454
OTHER INCOME:
Service Charges and Fees......... 346 324 992 936
Income from Fiduciary Activities. 225 202 675 610
Other Non-Interest Income........ 195 143 542 426
Gain (Loss) on Sale of Securities 0 0 (1) (12)
-------------------------------------------
Total Other Income............... 766 669 2,208 1,960
OTHER EXPENSES:
Salaries and Employee Benefits... 1,298 1,183 3,846 3,553
Occupancy and Equipment.......... 260 264 808 812
Other Operating Expenses......... 1,113 1,134 3,148 3,325
-------------------------------------------
Total Other Expenses............. 2,671 2,581 7,802 7,690
INCOME BEFORE INCOME TAX EXPENSE. 1,863 1,611 5,454 4,724
INCOME TAX EXPENSE............... 570 471 1,662 1,365
-------------------------------------------
NET INCOME....................... $1,293 $1,140 $3,792 $3,359
NET INCOME PER SHARE (note 4) $0.34 $0.30 $1.01 $0.90
DIVIDENDS PER SHARE (note 4) $0.10 $0.09 $0.29 $0.27
See notes to consolidated financial statements.
-2-
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (In Thousands)
Nine Months Ended
September 30,
1996 1995
--------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income.................................... $3,792 $3,359
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for Loan Losses.............. 135 90
Depreciation and Amortization.......... 552 568
Amortization of Investment Security
premiums and discounts............... 260 305
(Increase) in interest receivable...... (10) (149)
Increase (Decrease) in interest payable (95) 293
Other, (net)........................... (379) (127)
--------------------------
Net Cash Provided by Operating Activities..... 4,255 4,339
INVESTING ACTIVITIES
Purchase of Securities Held-to-Maturity....... 0 (5,362)
Proceeds from matured Investment Securities
Held-to-Maturity........................... 0 23,201
Purchase of Investment Securities Available-
for-Sale................................... (26,347) (7,865)
Proceeds from sale of Investment Securities
Available-for-Sale......................... 1,992 1,003
Proceeds from matured Investment Securities
Available-for-Sale......................... 23,179 2,000
Proceeds from sale of Loans Held For Sale..... 8,539
Net increase in loans and leases.............. (15,496) (12,366)
Purchase of premises and equipment............ (526) (217)
--------------------------
Net cash used by investing activities......... (8,659) 394
FINANCING ACTIVITIES
Net decrease in deposits...................... (5,588) (1,814)
Net increase (decrease) in
short term borrowings..................... 7,171 (2,243)
Cash dividends................................ (1,087) (992)
Cash dividends reinvested..................... 183 97
Issuance of common stock...................... 1 3
Purchase of Treasury Stock.................... (211) (135)
Sale of Treasury Stock........................ 194 71
--------------------------
Net cash provided (used) by
financing activities......... 663 (5,013)
Decrease in cash and cash equivalents......... (3,741) (280)
Cash and cash equivalents at beginning of year 17,015 17,091
--------------------------
Cash and cash equivalents at end of period.... $13,274 $16,811
==========================
Non-cash Transaction:
Transfer of loans held to maturity to held 4,956
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 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 increased
approximately $431 thousand as a result of this transfer.
During the nine months ended September 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 nine months ended September 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
September 30, 1996
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------
U.S. Treasury................. $24,937 $92 ($106) $24,923
Federal Agency Obligations....... 18,399 65 (173) 18,291
Federal Agency Pools.......... 20,642 133 (243) 20,532
Obligations of states and
political subdivisions...... 20,590 354 (58) 20,886
Other securities.............. 9,418 21 (45) 9,394
----------------------------------------------
$93,986 $665 ($625) $94,026
==============================================
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:
September 30, December 31,
1996 1995
--------------------------
Commercial loans.......................... $89,616 $81,740
Real Estate loans......................... 76,679 70,760
Installment loans......................... 38,578 36,954
Lease Financing........................... 2,930 3,435
Credit Card Loans......................... 5,472
Home Equity loans......................... 6,435 5,934
Other loans............................... 26
--------------------------
Total................. $214,238 $204,321
==========================
4. Per Share Data:
Per share data is calculated based on 3,747,971 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 September 30, 1996, the amount of
Investments available for sale or maturing within the next three
months was $94 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 September 30, 1996, the Company
had an adjusted GAP position of - 3.07% 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 September 30, 1996 the
Company's equity-to-asset ratio adjusted by the impact of FAS
#115 was 11.9% 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 18.9% at
September 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 September 30, 1996 and December 31,
1995 the ratios were 11.7% 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 $3.8 million or
1.1% from December 31, 1995 to September 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 $6.3 million for the first nine 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 $14.8 million.
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 closed early in October of 1996. The Company realized a gain on this
sale of $824 thousand on a pre tax basis. This gain represented a premium
of 18% of the portfolio that was purchased. On a per share basis, after
the effect of income taxes, this gain represeted $.15 per share. The effect
of this sale will be disclosed with the fourth quarter results in December
of 1996.
Total deposits declined by $5.6 million,or 2.0%. This decline is a
result of two factors; First, the Bank competes for short term deposits of
local municipalities. In the third quarter of 1996, the Bank allowed $4
million of short term deposits to run off. Second, the Bank's corporate
customers are continuing to shift their traditional checking accounts into
the Bank's cash management accounts. These cash management accounts are
treated as repurchase agreements. These types of deposits have grown
$6.5 million. This growth would have historically been included in the
deposit area of the Bank. Management feels that approximately 75% of these
repurchase agreements are stable deposits, and there is only a remote
chance that the customers would withdrawl these funds.
Results_of_Operations__
Net income was $3,792,000 for the first nine months of 1996
compared to $3,359,000 for the same period in 1995. Net income increased
$153 thousand to $1,293 for the three months ended September 30, 1996
compared to the same period in 1995.
Earnings per share for the nine months ended September 30, 1996 and 1995
were $1.01 and $.90 per share respectively. Earnings per share for the three
months ended September 30, 1996 and 1995 were $.34 and $.30 respectively.
Dividends were $.29 per share for the first nine months of 1996 and $.27 per
share for the first nine 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 nine months increased $1,142,000
or 6.4% compared to the previous year. Total interest income increased
$315 thousand or 5.2% during the three months ended September 30, 1996
compared to the similar period in 1995. The increase is due primarily
to the increase in 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 $313 and $295 million at September 30, 1996
and 1995. The increase in earning assets is due to the growth in the
loan portfolio of $14.8 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 $322 million at September 30, 1996.
The weighted interest earned on those assets were 8.08% for 1996 and 8.06%
for 1995. This level weighted rate on earnings assets is due to the
relatively flat interest rate environment and the repricing of assets,
particularly in the investment portfolio.
Total interest paying liabilities at September 30, 1996 and 1995 were
$251 million and $236 million respectively. The weighted interest rate paid
for these deposits has remained stable at 4.14% at September 30, 1996
versus 4.12% at September 30, 1995.
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 $639 thousand or 6.1%
for the nine months ended September 30, 1996.
Total other income increased $97 thousand for the three months ended
September 30, 1996 compared to 1995 and $248 thousand for the nine months
ended September 30, 1996 compared to 1995. The primary reason for this is
an increase in service charges, income from the Trust and Investment
Services Department and other miscellaneous income.
Total other expenses have increased $90 thousand for the
three month period and $112 thousand for the nine months ended
September 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. Management has made adjustments to
the health benefits for the staff which will improve the quality of the
benefits and reduce the overall cost exposure of the Company through 1997.
The other non-interest expenses declined $21 thousand for the three
months ended September 30, 1996 compared to 1995 and $177 thousand for the
nine months ended September 30, 1996. In the third quarter, President
Clinton signed the omnibus budget bill which included the long awaited plan
to recaptialize the SAIF insurance fund. This legislation imposed a special
assessment on SAIF insured deposits and resulted in a one time charge of
$175 thousand. Even with this charge, the Company has realized over $230
thousand reduction in the FDIC insurance premiums. This reduction is a
because the Bank's deposit base is made up of 87% of BIF insured deposits,
which had no insurance assessment for the nine months ended September 30,
1996. The FDIC has indicated that for banks will begin paying deposit
insurance premiums again. These premiums are expected to be comparable with
the total FDIC insurance costs for 1996.
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 $730 thousand or 15.4% for the nine months ended September
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 $297 thousand or 22%. Net income for the nine months
ended September 30, 1996 was $3.8 million representing an increase of $433
thousand or 12.9% 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. Basfor 1,474,181 FOR 1,678 ABSTAIN
Joseph R. Bende 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 wh
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 ____November_1,_1996____ ____________________________
David L. Christopher
Chairman, President & CEO
Date ____November_1,_1996____ ____________________________
David P. Boyle, CPA
Senior Vice President & CFO
Wayne County National Bank
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