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, 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
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, 1997: 3,933,572
INDEX
WAYNE BANCORP, INC.
FORM 10-Q
For the Quarter Ended June 30, 1997
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 of dollars)
June 30, December 31,
1997 1996
----------------------
ASSETS
Cash and Due From Banks............................ $15,848 $14,975
Federal Funds Sold................................. 0 7,620
----------------------
Total Cash and Cash Equivalents........ 15,848 22,595
Securities Available-for-Sale (Note 2)............ 90,435 103,294
Loans (Note 3)................................... 233,615 219,366
Unearned Income.......... (639) (637)
Allowance for Loan Losses (3,788) (3,657)
----------------------
Net Loans.............................. 229,188 215,072
Premises and Equipment............................. 6,084 6,215
Accrued interest receivable and other assets....... 4,882 5,217
----------------------
TOTAL ASSETS....................................... $346,437 $352,393
======================
LIABILITIES
Deposits
Interest Bearing.............................. $226,771 $238,272
Non-Interest Bearing.......................... 47,273 43,414
----------------------
Total Deposits......................... 274,044 281,686
Federal Funds Purchased............................ 2,000
Securities Sold Under Agreements to Repurchase..... 24,727 26,142
Other Liabilities.................................. 2,352 3,076
----------------------
Total Liabilities...................... 303,123 310,904
SHAREHOLDERS' EQUITY
Common Stock, Stated Value $1...................... 3,935 3,935
Shares Authorized 5,400,000
Shares Outstanding - 3,933,572 in 1997
and 3,935,139 in 1996
Paid In Capital.................................... 13,356 13,356
Retained Earnings.................................. 25,942 24,038
Treasury Stock..................................... (47) (88)
Unrealized gain/(loss) on Securities Available-
for-sale.................................... 128 248
----------------------
Total Shareholders' Equity............. 43,314 41,489
----------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $346,437 $352,393
======================
See Notes to Consolidated Financial Statements
-1-
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (In Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
-----------------------------------------
INTEREST INCOME:
Interest and Fees on Loans............. $5,093 $4,827 $9,916 $9,698
Interest and Dividends on Securities:
Taxable........................... 1,120 1,159 2,314 2,255
Nontaxable........................ 299 275 592 556
Other Interest Income.................. 26 18 102 57
-----------------------------------------
Total Interest Income.................. 6,538 6,279 12,924 12,566
INTEREST EXPENSE:
Interest on Deposits................... 2,341 2,427 4,664 4,794
Interest on Repurchase Agreements...... 320 196 601 375
Interest on Other Borrowings........... 15 19 23 27
-----------------------------------------
Total Interest Expense................. 2,676 2,642 5,288 5,196
NET INTEREST INCOME.................... 3,862 3,637 7,636 7,370
Provision for Loan Losses.............. 45 45 90 90
-----------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES... 3,817 3,592 7,546 7,280
OTHER INCOME:
Service Charges and Fees............... 324 329 641 646
Income from Fiduciary Activities....... 270 225 540 450
Other Non-Interest Income.............. 89 172 184 336
Gain on Sale of Loans 0 0 0 11
Gain (Loss) on Sale of Securities...... 0 (1) (7) (1)
-----------------------------------------
Total Other Income..................... 683 725 1,358 1,442
OTHER EXPENSES:
Salaries and Employee Benefits......... 1,304 1,299 2,639 2,548
Occupancy and Equipment................ 283 260 563 548
Other Operating Expenses............... 911 1,024 1,825 2,035
-----------------------------------------
Total Other Expenses................... 2,498 2,583 5,027 5,131
INCOME BEFORE INCOME TAX EXPENSE....... 2,002 1,734 3,877 3,591
INCOME TAX EXPENSE..................... 618 526 1,187 1,092
-----------------------------------------
NET INCOME............................. $1,384 $1,208 $2,690 $2,499
NET INCOME PER SHARE (note 4) $0.35 $0.31 $0.68 $0.64
DIVIDENDS PER SHARE (note 4) $0.10 $0.10 $0.20 $0.19
See notes to consolidated financial statements.
-2-
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (In Thousands)
Six Months Ended
June 30,
1997 1996
- -------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income......................................... $2,690 $2,499
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for Loan Losses.............. 90 90
Depreciation and Amortization......... 266 370
Amortization of Investment Security
premiums and discounts.................... 56 187
Decrease in interest receivable............. 102 101
(Decrease) in interest payable...... (64) (10)
Other, (net).............................. (364) (842)
----------------------
Net Cash Provided by Operating Activities 2,776 2,395
INVESTING ACTIVITIES
Purchase of Investment Securities
Available-for-Sale.................. (9,822) (25,061)
Proceeds from matured Investment Securities
Available-for-Sale.............................. 21,420 19,491
Proceeds from sale of Investment Securities
Available-for-Sale.............................. 1,022 1,992
Proceeds from sales of loans....................... 0 8,539
Net increase in loans and leases................. (14,206) (11,346)
Purchase of premises and equipment................. (135) (289)
----------------------
Net cash used by investing activities..... (1,721) (6,674)
FINANCING ACTIVITIES
Net decrease in deposits................. (7,642) (3,554)
Net increase in short term borrowings.............. 585 6,251
Cash dividends................................. (786) (593)
Cash dividends reinvested.......................... 0 119
Issuance of common stock....................... 0 1
Purchase of Treasury Stock......................... (397) (203)
Sale of Treasury Stock............................. 438 254
----------------------
Net cash provided (used) by financing activities... (7,802) 2,275
Decrease in cash and cash equivalents.............. (6,747) (2,004)
Cash and cash equivalents at beginning of period... 22,595 17,015
----------------------
Cash and cash equivalents at end of period......... $15,848 $15,011
======================
Cash paid for interest $5,390 $5,297
Cash paid for income taxes $1,250 $1,200
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 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. 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.
During the six months ended June 30, 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 six months ended June 30,
1996, the proceeds from the sale of securities available-for-sale were
$1,992,187 with gross realized losses of $4 thousand and gross realized
gains of $3 thousand included in earnings.
-4-
Summary of Amortized Cost and Fair Values of Securities Available-for-Sale:
June 30, 1997
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------
U.S. Treasury................. $23,260 $71 ($50) $23,281
Federal Agency Obligations.... 17,425 40 (120) 17,345
Federal Agency Pools.......... 20,906 132 (136) 20,902
Obligations of states and
political subdivisions...... 20,460 315 (63) 20,712
Other securities.............. 8,190 34 (29) 8,195
-------------------------------------------
$90,241 $592 ($398) $90,435
===========================================
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:
June 30, December 31,
1997 1996
----------------------
Commercial loans................................... $100,467 $90,638
Real Estate loans.................................. 83,834 79,859
Installment loans.................................. 38,278 39,183
Lease Financing.................................... 3,427 3,246
Home Equity loans.................................. 7,609 6,417
Other loans........................................ 23
----------------------
Total.................... $233,615 $219,366
======================
4. Per Share Data:
Per share data is calculated based on 3,935,397 average common shares
outstanding for 1997 and 3,935,139 for 1996. 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, 1997, the amount of investments
available-for-sale or maturing within the next three
months was $90 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, 1997, the Company
had an adjusted GAP position of - 6.15% 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, 1997 the
Company's equity-to-asset ratio adjusted by the impact of FAS
#115 was 12.5% compared to 11.7% 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 19.8% at June
30, 1997 and 18.8% at December 31, 1996, 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, 1997 and December 31,
1996 the ratios were 12.4% and 11.5% 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 decreased by $6.0 million or
from December 31, 1996 to June 30, 1997. The decrease was
due to temporary decreases in customer deposits. This is the historical
experience of the Company. Net loans increased $14.1 million for the
first six months of 1997. This increase is concentrated in the commercial and
residential real estate portions of the portfolio. The Company continues to
experience strong growth in these areas due primarily to the economic
conditions of the Company's market area. The investment portfolio of
the Company has declined $12.9 million from December 31, 1996 to
June 30, 1997. The bulk of this decline was in the Other Securities part
of the investment portfolio. These maturities were the primary source
of funding for the growth in the loan portfolio. Management expects the
pace of growth to slow somewhat during the second half of the year.
Total deposits declined by $7.6 million, from December 31, 1996
to June 30, 1997. The Company has this experience each year in the
first six months where mostly corporate deposit customers draw
their funds out that were on deposit at year end. In addition, increased
competition from both bank and non-bank competitors has, and is
expected to continue to limit the Company's ability to grow the deposit
base at a pace equal to or better than the total asset growth. This will
create the need for the Bank to seek alternative funding sources such as
the Federal Home Loan Bank. These alternative sources can provide
the needed funds, however, the cost of these is higher than the cost of
the Bank's traditional deposit base. This will cause presure on the
Bank's net interest margin in the future.
Results_of_Operations__
Net income was $2,690,000 for the first six months of 1997
compared to $2,499,000 for the same period in 1996. Net income increased
$176 thousand to $1,384 for the three months ended June 30, 1997 compared
to the same period in 1996.
Earnings per share for the six months ended June 30, 1997 and 1995
were $.68 and $.64 per share respectively. Earnings per share for the three
months ended June 30, 1997 and 1996 were $.35 and $.31 respectively.
Dividends were $.20 per share for the first six months of 1997 and $.19 per
share for the first six months of 1996.
Total interest income for the first six months increased $358
thousand or 2.9% compared to the previous year. Total interest income
increased $259 thousand or 4.1% during the three months ended June 30,
1997 compared to the similar period in 1996. The increase is due
primarily to the increase in the loan portfolio, funded through maturities
in the investment portfolio.
Total earning assets were $324 and $311 million at June 30, 1997
and 1996. The increase in earning assets is due to the growth in the
loan portfolio. The weighted interest earned on those assets were 8.10%
for both periods. This level weighted rate on earnings assets is due to the
falling interest rate environment in the investment portfolio, offset by the
change in the mix of earning assets from investments to loans.
Total interest paying liabilities at June 30, 1997 and 1996 were $253
and $254 million respectively. The weighted interest rate paid for these
deposit has risen from 4.09% at June 30, 1996 to to 4.18% at June 30, 1997.
The net effect of the changes in interest earning assets and
interest paying liabilities, combined with the repricing that
has occurred since June 30, 1996 is an increase in net
interest income of $266 thousand or 3.7% for the six months ended
June 30, 1997 compared to the same period in 1996.
The provision for loan losses for the first six months of 1997 was $90
thousand. This is the same amount provided for the first six months of 1996.
Management feels that given the current excellent quality of the loan portfolio,
combined with the strong reserve to total loans position, the current expense
for the provision for loan losses is adequate. In the event there is a material
deterioration in loan quality, the provision would be adjusted accordingly.
Total other income decreased $42 thousand for the three months ended
June 30, 1997 compared to 1996 and $84 thousand for the six months ended
June 30, 1997 compared to 1996. The primary reason for this decrease is the
decline in the merchant income recognized from the credit card portfolio, which
was sold in the fourth quarter of 1996. Mercant income for the first half of
1996 was approximately $165 thousand versus zero in 1997. In addition, the fees
generated through the Trust Department have increased $90 thousand for
the first six months of 1997 versus 1996. The main reason for the increase in
Trust earnings is a fee increase and increased values of securities which
the trust fees are based on.
Total other expenses have decreased $85 thousand for the
three month period and $104 thousand for the six months ended
June 30, 1997 compared with the same period in 1996.
The largest part of this decrease is in the other operating expense area.
The Company sold the credit card portfolio in 1996 as well as the merchant
service portion of that business. The sale reduced the Banks processing
costs by $120 thousand for the first six months of 1997. Salary and employee
benefit costs have risen $91 thousand or 3.6% for the first six months of 1997.
This is in line with management expectations, as the average compensation
adjustment for 1997 was 3.5%.
The net effect of all of the changes in the income statement mentioned
above is an increase in income prior to income tax expense of $286 thousand
or 8% for the six months ended June 30, 1997 compared to June 30, 1996.
Based on this increase in profit before taxes, the expense for Federal Income
Taxes increased $95 thousand or 8.7%. Net income for the six months
ended June 30, 1997 was $2.7 million representing an increase of
$191 thousand or 7.6% over the same period in 1996.
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 3,103,973 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 ____August_11,_1997____ ____________________________
David L. Christopher,
Chairman, President & CEO
Date ____August_11,_1997____ ____________________________
David P. Boyle, CPA
Executive Vice President & CFO
Wayne County National Bank
- -11-
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