FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended: March 31, 1 COMMISSION FILE NUMBER 0-14612
WAYNE BANCORP, INC.
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
Indicate by check mark whether the registrant (1) has filed all reports re
section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceedin
(or for such shorter period that the registrant was required to file such repor
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 outs
April 30, 1996: 1,874,283
ITEM 6: Exhibits...................Exhibit 27 - Financial Data Schedul
INDEX
WAYNE BANCORP, INC.
FORM 10-Q
For the Quarter Ended March 31, 1996
PART I. FINANCIAL INFORMATION PAGE NO.
Item I. 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 II. Management's discussion and analysis of financial
condition and results of operations................... 6,7,8,9
PART II. OTHER INFORMATION..................................... 10
SIGNATURES....................................................... 11
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(In thousands of dollars) March December 3
19 19
----------------------------
ASSETS
Cash and Due From Banks............................ $15,758 $16,015
Federal Funds Sold................................. 0 1,000
----------------------------
Total Cash and Cash Equivalents.. 15,758 17,015
Investment Securities Available-for-Sale (Note 2). 94,374 94,325
Loans held for sale................................ 4,989 8,539
Loans (Note 3)................................... 203,914 204,321
Unearned Income.................. (731) (749)
Allowance for Loan Losses........ (3,734) (3,705)
----------------------------
Net Loans........................ 199,449 199,867
Premises and Equipment............................. 6,096 6,126
Investment in Affiliate............................ 152 152
Other Assets....................................... 5,806 4,903
----------------------------
TOTAL ASSETS....................................... $326,624 $330,927
============================
LIABILITIES
Deposits
Interest Bearing.............................. $229,032 $232,512
Non-Interest Bearing.......................... 37,083 42,235
----------------------------
Total Deposits................... 266,115 274,747
Federal Funds Purchased............................ 3,100 0
Securities Sold Under Agreements to Re............. 16,412 15,662
Other Liabilities.................................. 2,588 2,581
----------------------------
Total Liabilities................ 288,215 292,990
SHAREHOLDERS' EQUITY
Common Stock, Stated Value $1...................... 1,874 1,874
Shares Authorized 5,400,000
Shares outstanding - 1,874,284 in 1996 and 1,874,284 in 1995
Paid In Capital.................................... 8,023 7,999
Retained Earnings.................................. 28,303 27,368
Treasury Stock..................................... (5) (134)
Unrealized gain on Securities Availabl............. 214 830
----------------------------
Total Shareholders' Equity....... 38,409 37,937
----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $326,624 $330,927
============================
See Notes to Consolidated Financial Statements
-1-
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months E
Ma
----------------------------
INTEREST INCOME:
Interest and Fees on Loans......................... $4,871 $4,525
Interest and Dividends on Securities:
Taxable....................................... 1,096 893
Nontaxable.................................... 281 328
Other Interest Income.............................. 39 11
----------------------------
Total Interest Incom............. 6,287 5,757
INTEREST EXPENSE:
Interest on Deposits............................... 2,367 2,134
Interest on Repurchase Agreements.................. 179 117
Interest on Other Borrowings....................... 8 54
----------------------------
Total Interest Expen............. 2,554 2,305
NET INTEREST INCOME................................ 3,733 3,452
Provision for Loan Losses.......................... 45 30
----------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES.................. 3,688 3,422
OTHER INCOME:
Service Charges on Deposits........................ 317 300
Income from Fiduciary Activities................... 225 205
Other Non-Interest Income.......................... 164 154
Gain on Sale of Loans.............................. 11 0
Gain (Loss) on Sale of Securities.................. 0 (12)
----------------------------
Total Other Income............... 717 647
OTHER EXPENSES:
Salaries and Employee Benefits..................... 1,249 1,159
Occupancy and Equipment............................ 288 280
Other Non-Interest Expenses........................ 1,011 1,095
----------------------------
Total Other Expenses............. 2,548 2,534
INCOME BEFORE INCOME TAX EXPENSE................... 1,857 1,535
INCOME TAX EXPENSE................................. 566 436
----------------------------
NET INCOME......................................... $1,291 $1,099
============================
NET INCOME PER SHARE (note 4) $0.69 $0.59
DIVIDENDS PER SHARE (note 4) $0.19 $0.17
See notes to consolidated financial statements.
-2-
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
1996 1995
- -------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income......................................... $1,291 $1,099
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for Loan Losses................... 45 30
Depreciation and Amortization............... 186 187
Amortization of Investment Security
premiums and discounts.................... 90 170
Increase in interest receivable............. (349) (78)
(Decrease) Increase in interest............. (115) 129
Other, (net)................................ 785 (803)
----------------------------
Net Cash Provided (Used) by Operating............. 1,933 734
INVESTING ACTIVITIES
Purchase of securities Held-to-Maturity.......................... (913)
Proceeds from sale of securities Held-to-Maturity (Note 2)...... 8,090
Proceeds from matured securities Held-to-Maturity................ 4,155
Purchase of Available for Sale Securities.......... (16,516) 8
Proceeds from matured securities Available-for-Sale 15,446
Proceeds from sale of securities Available-for-Sale.............. 1,003
Net increase in loans and leases................... (5,680) (4,623)
Proceeds from sale of loans........................ 8,539
Purchase of premises and equipment................. (96) (101)
----------------------------
Net cash provided (used) by investing activities... 1,693 7,619
FINANCING ACTIVITIES
Net decrease in deposits........................... (9,280) (4,781)
Net increase (decrease) in short term borrowings... 4,499 (4,769)
Cash dividends..................................... (356) (318)
Cash dividends reinvested.......................... 59 49
Issuance of common stock........................... 195 9
----------------------------
Net cash (used) by financing activities............ (4,883) (9,810)
Decrease in cash and cash equivalents.............. (1,257) (1,457)
Cash and cash equivalents at beginning of period... 17,015 17,091
----------------------------
Cash and cash equivalents at end of period......... $15,758 $15,634
============================
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 cat
The held-to-maturity securities are those which the Company has the positi
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 c
$45.65 million previously classified as held-to-maturity to available for
unrealized gain on the securities transfered totaled $653 thousand. This
accordance with the Financial Accounting Standards Board ruling allowing a
reclassification of securities. On December 1, 1995 the Company's equity
approximately $431 thousand as a result of this transfer.
During the three months ended March 31, 1995, the proceeds from sales of
available-for-sale securities were $1,002,531 with gross realized losses o
included in earnings. Proceeds from the sale of held-to-maturity securiti
maturity date was within 90 days of the sale date amounted to $8.1 million
realized gains of $1 thousand and losses of $ 12 thousand included in ea
No securities were sold during the three months ended March 31, 1996.
-4-
Summary of Amortized Cost and Fair Values of Securities:
Securities Available for Sale
March 31, 1996
Amortized Gross UnrealiGross UnrealizFair
Cost Gains Losses Value
-----------------------------------------------------
U.S. Treasury............. $23,886 $169 ($87) $23,968
Federal Agency Obligations 20,177 105 (156) 20,126
Federal Agency Pools...... 18,446 130 (157) 18,419
Obligations of states and
political subdivisions.. 20,475 404 (75) 20,804
Other securities.......... 11,065 36 (44) 11,057
-----------------------------------------------------
$94,049 $844 ($519) $94,374
=====================================================
Securities Available for Sale December 31, 1995
Amortized Gross UnrealiGross UnrealizFair
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:
March 31, December 31,
1996 1995
---------------------------
Commercial loans...................... $85,266 $81,740
Real Estate loans..................... 70,830 70,760
Installment loans..................... 38,417 36,954
Lease Financing....................... 3,455 3,435
Credit Card Loans..................... 5,472
Home Equity loans..................... 5,946 5,934
Other loans........................... 26
---------------------------
Total............... $203,914 $204,321
===========================
4. Per Share Data:
Per share data is calculated based on 1,874,022 average common shares
outstanding for 1996 and 1,871,349 for 1995. All per share data has been
adjusted to reflect stock splits and dividends where applicable.
-5-
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 March 31, 1996, the amount of Fed Funds Sold and
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 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 March 31, 1996, the Company
had a GAP position of - 5.45% 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 Company the 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 March 31, 1996 the
Company's equity-to-asset ratio adjusted by the impact of FAS
#115 was 11.4% 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 18.5% at March
31, 1996 and 18.1% at December 31, 1995.
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 March 31, 1996 and December 31,
1995 the ratios were 11.4% and 11.1% 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 $4.3 million or
1.3% from December 31, 1995 to March 31, 1996. The decrease was
due to temporary funds deposited by retail customers at December 31,
1995 and withdrawn by March 31, 1996. Total loans decreased $4.0
million for the first quarter. This decrease includes the sale of $8.5 million
of 1-4 family real estate loans. Without the sale of these loans, the loan
portfolio would have increased approximately $4.6 million with continued
strong demand for commercial and consumer loans.
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 sal
is expected to close near the end of the second quarter or early in the third
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 p
tax gain on this sale. On a per share, after tax basis, this gain would be bet
$.32 and $.35 per share. The Bank will continue to issue a "proprietary" credi
with the Bank's name and logo. The receivables will be carried by the
purchasing company.
Total investments and fed funds solddeclined by $1 million in
the first quarter of 1996. This decline is due primarily to the rise in the
interest rate environment which caused an overall decline in the
market value of the portfolio. Since the Company has 100% of the
investment portfolio classified as available-for-sale, fluctuations of
this nature are to be expected and are not considered material.
Total deposits declined by $8.6 million, including a $5.2 million
decline in non-interest bearing deposits. The Company has this
experience each year in the first quarter 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 quarter 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.
Results_of_Operations__
Net income was $1,291,000 for the first three months of 1996
compared to $1,099,300 for the same period in 1995. Earnings per
share for the three months ended March 31, 1996 and 1995 were
$.69 and $.59 per share respectively. Dividends were $.19 per
share in the first quarter 1996 and $.17 per share for the first
quarter 1995.
Total interest income for the first three months increased
$530 thousand or 9.2% compared to the previous year. The increase
is 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 $303 and $285 million at March 31, 1996
and 1995. The increase in earning assets is due to the growth in the
loan portfolio of $15.1 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 $312 million at March 31, 1996.
The weighted interest earned on those assets were 8.30% and 7.47%
respectively. This increase in the weighted rate on earnings assets is due
to the increasing interest rate environment and the repricing of assets,
particularly the investment portfolio.
Total interest paying liabilities at March 31, 1996 and 1995 were $248.
and $228.4 million respectively. The weighted interest rate paid for these
deposit has risen from 3.71% at March 31, 1995 to to 4.11% at March 31, 1996.
The net effect of the changes in interest earning assets and
interest paying liabilities, combined with the repricing that
has occurred since march 31, 1995 is an increase in net
interest income of $281 thousand or 8.1%.
Total other income increased $70 thousand for the three months ended
March 31, 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. In addition, 1995 showed $12 thousand of
securities losses versus no gains or losses in 1996.
Total other expenses have increased $14 thousand for the three
months ended March 31, 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 the third quarter of 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 $84 thousand for this three
month period. 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 $146 thousand for the first quarter 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 a $15 thousand
increase in the provision for loan losses and by the increase in
interest expense and increase in the total other expeses is an increase
in the profit prior to taxes of $322 thousand or 21%. Based on this increase
in profit before taxes and a decrease in the non-taxable investment income,
the expense for Federal Income Taxes increased $130 thousand or 30%.
Net income for the first quarter of 1996 was $1.3 million representing an
increase of $192 thousand or 17.5% 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. Basf********FOR 1,678 ABSTAIN
Joseph R. Ben********FOR 9,131 ABSTAIN
David E. Tayl********FOR 4,221 ABSTAIN
The following are the directors who were not up for election and wh
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 ____May_10,_1996____ ____________________________
David L. Christopher,
Chairman, President & CEO
Date ____May_10,_1996____ ____________________________
David P. Boyle, CPA
Senior Vice President and Chief Financ
Wayne County National Bank
- -11-
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