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, 1997 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
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 preceeding 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 April 30, 1997: 3,931,744
INDEX
WAYNE BANCORP, INC.
FORM 10-Q
For the Quarter Ended March 31, 1997
PART I. FINANCIAL INFORMATION PAGE NO.
Item I. Financial Statements
Consolidated Balance Sheets.................... 1
Consolidated Statements of Income.............. 2
Consolidated Statements 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 SHEETS (UNAUDITED)
(In thousands of dollars) March 31, December 31,
1997 1996
----------------------------
ASSETS
Cash and Due From Banks............................ $13,887 $14,975
Federal Funds Sold................................. 3,400 7,620
----------------------------
Total Cash and Cash Equivalents.. 17,287 22,595
Securities Available-for-Sale (Note 2)............ 94,631 103,294
Loans (Note 3)................................... 224,883 219,366
Unearned Income.................. (656) (637)
Allowance for Loan Losses........ (3,692) (3,657)
----------------------------
Net Loans........................ 220,535 215,072
Premises and Equipment............................. 6,187 6,215
Accrued interest receivable and other assets....... 5,113 5,217
----------------------------
TOTAL ASSETS....................................... $343,753 $352,393
============================
LIABILITIES
Deposits
Interest Bearing.............................. $231,131 $238,272
Non-Interest Bearing.......................... 38,661 43,414
----------------------------
Total Deposits................... 269,792 281,686
Securities Sold Under Agreements to Repurchase..... 29,961 26,142
Other Liabilities.................................. 2,146 3,076
----------------------------
Total Liabilities................ 301,899 310,904
SHAREHOLDERS' EQUITY
Common Stock, Stated Value $1...................... 3,935 3,935
Shares Authorized 5,400,000
Shares outstanding - 3,931,744 in 1997
and 3,932,129 in 1996
Paid In Capital.................................... 13,356 13,356
Retained Earnings.................................. 24,951 24,038
Treasury Stock..................................... (117) (88)
Unrealized gain/(loss) on Securities
Available-for-Sale............................ (271) 248
----------------------------
Total Shareholders' Equity....... 41,854 41,489
----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $343,753 $352,393
============================
See Notes to Consolidated Financial Statements
-1-
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March 31, March 31,
1997 1996
----------------------------
INTEREST INCOME:
Interest and Fees on Loans......................... $4,823 $4,871
Interest and Dividends on Securities:
Taxable....................................... 1,194 1,096
Nontaxable.................................... 293 281
Other Interest Income.............................. 76 39
----------------------------
Total Interest Income............ 6,386 6,287
INTEREST EXPENSE:
Interest on Deposits............................... 2,323 2,367
Interest on Repurchase Agreements.................. 281 179
Interest on Other Borrowings....................... 8 8
----------------------------
Total Interest Expense........... 2,612 2,554
NET INTEREST INCOME................................ 3,774 3,733
Provision for Loan Losses.......................... 45 45
----------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES.................. 3,729 3,688
OTHER INCOME:
Service Charges on Deposits........................ 317 317
Income from Fiduciary Activities................... 270 225
Other Non-Interest Income.......................... 95 164
Gain on Sale of Loans.............................. 0 11
Loss on Sale of Securities......................... (7) 0
----------------------------
Total Other Income............... 675 717
OTHER EXPENSES:
Salaries and Employee Benefits..................... 1,335 1,249
Occupancy and Equipment............................ 280 288
Other Non-Interest Expenses........................ 914 1,011
----------------------------
Total Other Expenses............. 2,529 2,548
INCOME BEFORE INCOME TAX EXPENSE................... 1,875 1,857
INCOME TAX EXPENSE................................. 569 566
----------------------------
NET INCOME......................................... $1,306 $1,291
============================
NET INCOME PER SHARE (Note 4) $0.33 $0.32
DIVIDENDS PER SHARE (Note 4) $0.10 $0.09
See notes to consolidated financial statements.
-2-
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
1997 1996
- -------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income......................................... $1,306 $1,291
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for Loan Losses................... 45 45
Depreciation and Amortization............... 188 186
Amortization of Investment Security
premiums and discounts.................... 8 90
Increase in interest receivable............. (391) (349)
(Decrease) Increase in interest payable..... (75) (115)
Other, (net)................................ (152) 785
----------------------------
Net Cash Provided by Operating Activities.......... 929 1,933
INVESTING ACTIVITIES
Purchase of Securities Available-for-Sale......... (7,592) (16,516)
Proceeds from matured Securities Available-for-Sale 14,438 15,446
Proceeds from sale of Securities Available-for-Sale 1,022
Net increase in loans and leases................... (5,507) (5,680)
Proceeds from sale of loans........................ 8,539
Purchase of premises and equipment................. (101) (96)
----------------------------
Net cash provided by investing activities.......... 2,260 1,693
FINANCING ACTIVITIES
Net decrease in deposits........................... (11,894) (9,280)
Net increase in securities sold under
agreements to repurchase.................... 3,819 4,499
Cash dividends..................................... (393) (356)
Cash dividends reinvested.......................... 0 59
(Increase)decrease in treasury stock............... (29) 195
----------------------------
Net cash (used) by financing activities............ (8,497) (4,883)
Decrease in cash and cash equivalents.............. (5,308) (1,257)
Cash and cash equivalents at beginning of period... 22,595 17,015
----------------------------
Cash and cash equivalents at end of period......... $17,287 $15,758
============================
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 footnotes
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. Securities:
Securities are classified as available-for-sale. Available-for-sale
securities are those which may be sold by the Company if needed
for liquidity, asset-liability management, or other reasons.
Securities available-for-sale 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.
During the three months ended March 31, 1997, the proceeds from sales of
securities available-for-sale were $1,021,781 with gross realized losses of
$7 thousand included in earnings. During the three months ended
March 31, 1996 there were no sales of securities.
-4-
Summary of Amortized Cost and Fair Values of Securities Available-for-sale:
March 31, 1997
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------
U.S. Treasury............. $24,265 $40 ($164) $24,141
Federal Agency Obligations 16,425 23 (210) 16,238
Federal Agency Pools...... 22,257 111 (283) 22,085
Obligations of states and
political subdivisions.. 22,490 254 (153) 22,591
Other securities.......... 9,605 30 (59) 9,576
-----------------------------------------------------
$95,042 $458 ($869) $94,631
=====================================================
December 31, 1996
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------
U.S. Treasury............. $23,043 $84 ($65) $23,062
Federal Agency Obligations 17,446 83 (118) 17,411
Federal Agency Pools...... 23,173 159 (135) 23,197
Obligations of states and
political subdivisions.. 21,009 397 (28) 21,378
Other securities.......... 18,246 63 (63) 18,246
-----------------------------------------------------
$102,917 $786 ($409) $103,294
=====================================================
3. Loans:
Loans are comprised of the following:
March 31, December 31,
1997 1996
---------------------------
Commercial loans...................... $94,531 $90,638
Real Estate loans..................... 81,774 79,859
Installment loans..................... 38,592 39,183
Lease Financing....................... 3,406 3,246
Home Equity loans..................... 6,580 6,417
Other loans........................... 23
---------------------------
Total............... $224,883 $219,366
===========================
4. Per Share Data:
Per share data is calculated based on 3,932,890 average common shares
outstanding for 1997 and 3,932,527 for 1996. 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
Securities available-for-sale. In addition, other assets such as
Cash and Due From Banks and maturing loans also provide
additional sources of liquidity. At March 31, 1997, the amount of
Cash and due from banks and securities and loans with scheduled
maturities within the next three months was $83 million. The Company
continues to keep a balance between short and long-term
investments and securities that will provide adequate liquidity
and simultaneously 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 are 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, 1997, the Company
had a GAP position of - 8.32% 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 and negatively impact 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, 1997, the
Company's equity-to-asset ratio adjusted by the impact of FAS
#115 was 12.2% compared to 11.8% at December 31, 1996.
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 19.22% at March
31, 1997, and 18.25% at December 31, 1996.
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, 1997, and December 31,
1996, the ratios were 12.11% and 11.86% 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 1 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 $8.6 million or 2.5%
from December 31, 1996 to March 31, 1997. This decrease was primarily
due to temporary funds deposited by retail customers at December 31,
1996 and withdrawn by March 31, 1997. Despite the recent increase
in the prime lending rate from 8.25% to 8.50% total loans have increased
$5.5 million for the first quarter. This increase indicates continued strong
demand for loans. It is expected that the interest rate environment will
experience a slight increase over the next six to nine months, which may
negatively effect the demand for loans.
Total securities available-for-sale and fed funds sold declined by $12.9
million in the first quarter of 1997. This decline is due primarily to $8.0
million of short-term Commercial Paper which matured in the first three months
of this year. These securities were funded primarily by the inflows of seasonal
deposits at year end with the short maturities planned to offset the normal
decrease in deposits during the first quarter. The remaining decline, mainly in
Fed Funds Sold, has been used to fund the continued strong loan growth.
Total deposits declined by $11.9 million, including a $4.8 million decline
in non-interest bearing deposits. The Company annually experiences a
decline in deposits during the first quarter as mainly corporate customers draw
their funds out that were on deposit at year end. The majority of the remaining
decrease is in the NOW and Money Market accounts. The certificates of
deposit, which in prior years experienced steady declines have since
stablized. With the interest rate environment anticipating another rate
increase during the year the Company expects to see an increase in Certificates
of Deposit.
Results_of_Operations__
Net income was $1,306,000 for the first three months of 1997 compared
to $1,291,000 for the same period in 1996. Earnings per share for the
three months ended March 31, 1997 and 1996 were $.33 and $.32 per
share respectively. Dividends were $.10 per share in the first quarter of
1997 and $.09 per share for the first quarter in 1996. All per share numbers
have been adjusted for a 2-for-1 stock split effective June 30,1996.
Total interest and fee income for the first three months increased
$99 thousand or 1.6% compared to the prior year. The prior year
includes $75 thousand in non-recurring fees on mortgages sold and also
$152 thousand in credit card income, the credit card portfolio was sold in
the fourth quarter of 1996. The credit card income from the prior year has
been replaced during the current year by growth in lower yielding loans.
Factoring out these two items total interest income increased $326 thousand
or 5.4% over the same period last year. This 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 $322.9 and $302.5 million at March 31, 1997 and
March 31, 1996. The increase in earning assets is due primarilay to the growth
in the loan portfolio of $16.1 million offset by by the sale of $4.9 million of
credit card loans in the fourth quarter of 1996. Had these loans not been sold,
the earning assets would be approximately $327.8 million at March 31, 1997.
The weighted interest earned on those assets were 7.94% and 8.30%
respectively. This decrease in the weighted interest rate on earning assets
is due primarily to the sale of the higher yielding credit card portfolio which
has been replaced with lower yielding loans.
Total interest bearing liabilities at March 31, 1997 and March 31, 1996 were
$261.1 and $248.5 million respectively. The weighted interest rate paid for
these deposits has dropped from 4.11% at March 31, 1996 to to 4.04% at
March 31, 1997.
The net effect of the changes in interest earning assets and interest
paying liabilities, combined with the repricing that has occurred since
March 31, 1996 caused an increase in net interest income of $41 thousand
or 1.1%
Total other income decreased $42 thousand for the three months ended
March 31, 1997 compared to the same period in 1996. The prior year income
includes $18 thousand in non-recurring gains on mortgages sold and $58 thousand
in miscellaneous income not included in the current year income and the current
year has a loss of $7 thousand on securities sold. The $58 thousand decrease
in other non-interest income is primarily due to the loss of income from the
merchant credit card business which was sold during the fourth quarter of
1996.
Total other expenses decreased by $19 thousand for the three month's ended
March 31, 1997 compared with the same period in 1996. While total other
expenses declined, salaries and employee benefits increased $86 thousand
or 6.9% to $1,335 million for the quarter ended March 31, 1997 compared to
$1,249 million for the same period in 1996. The Company operates in a highly
competitive market for lower cost labor, and necessarily maintains base wages
higher in order to retain the current staff.
The other non-interest expenses declined $97 thousand for the first quarter
of 1997 as compared to the same quarter in 1996. The primary reasons for
the decline is a reduction in the Franchise tax due to tax planning strategies,
and a sharp reduction in credit card processing fees due to the sale of our
credit card and merchant businesses.
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 27, 1997.
(b) The following directors were elected:
Bala Venkataraman 3,103,997 FOR 62,005 ABSTAIN
B. Diane Gordon 3,015,518 FOR 150,460 ABSTAIN
Darcy B. Pajak 3,028,125 FOR 137,854 ABSTAIN
Stephen L. Shapiro 2,998,813 FOR 167,166 ABSTAIN
The following are the directors who were not up for election and whose
term continued after the Annual Meeting:
Gwenn E. Bull James O. Basford
David L. Christopher Joseph R. Benden
Dennis B. Donahue David E. Taylor
Jeffrey E. Smith John C. Johnston III
(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_13,_1997____ ____________________________
David L. Christopher,
Chairman, President & CEO
Date ____May_13,_1997____ ____________________________
David P. Boyle, CPA
Executive Vice President and CFO
Wayne County National Bank
- -11-
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000788134
<NAME> WAYNE BANCORP, INC. - OHIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 13887
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 94631
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 224226
<ALLOWANCE> 3692
<TOTAL-ASSETS> 343753
<DEPOSITS> 269792
<SHORT-TERM> 29961
<LIABILITIES-OTHER> 2146
<LONG-TERM> 0
0
0
<COMMON> 3935
<OTHER-SE> 37919
<TOTAL-LIABILITIES-AND-EQUITY> 343753
<INTEREST-LOAN> 4823
<INTEREST-INVEST> 1487
<INTEREST-OTHER> 76
<INTEREST-TOTAL> 6386
<INTEREST-DEPOSIT> 2323
<INTEREST-EXPENSE> 2611
<INTEREST-INCOME-NET> 3775
<LOAN-LOSSES> 45
<SECURITIES-GAINS> (7)
<EXPENSE-OTHER> 1848
<INCOME-PRETAX> 1875
<INCOME-PRE-EXTRAORDINARY> 1306
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1306
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
<YIELD-ACTUAL> 3.57
<LOANS-NON> 928
<LOANS-PAST> 706
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2540
<ALLOWANCE-OPEN> 3657
<CHARGE-OFFS> 73
<RECOVERIES> 63
<ALLOWANCE-CLOSE> 3692
<ALLOWANCE-DOMESTIC> 838
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2854
</TABLE>
