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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended JUNE 30, 1997
----------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ________________ to _______________
Commission file number 000-20691
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WAYNE BANCORP, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 22-3009651
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1195 HAMBURG TURNPIKE, WAYNE, NEW JERSEY 07474
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(Address of principal executive offices) (Zip Code)
(973) 305-5500
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all the 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. X Yes No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
There were 2,119,814 shares of the Registrant's common stock outstanding as of
August 14, 1997.
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FORM 10-Q
INDEX
PART 1 -- FINANCIAL INFORMATION
Item 1. Financial Statements Page(s)
-------
Consolidated Statements of Financial Condition as of
June 30, 1997 and December 31, 1996........................... 3
Consolidated Statements of Income for the Three Months
and Six Months ended June 30, 1997 and 1996................... 4
Consolidated Statements of Cash Flows for the Six
Months ended June 30, 1997 and 1996........................... 5
Notes to Consolidated Financial Statements...................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 7-16
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings............................................... 17
Item 2. Changes in Securities........................................... 17
Item 3. Defaults Upon Senior Securities................................. 17
Item 4. Submission of Matters to a Vote of Security Holders............. 17
Item 5. Other Information............................................... 17
Item 6. Exhibits and Reports on Form 8-K................................ 17
Signature Page.................................................. 19
2
Item 1. Financial Statements
WAYNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
June 30, December 31,
1997 1996
---------- ------------
(Unaudited)
ASSETS:
Cash and due from banks $ 1,864 $ 1,170
Interest-bearing deposits in other banks 868 523
Federal funds sold -- 5,250
-------- --------
Total cash and cash equivalents 2,732 6,943
Securities held to maturity, (estimated market value $2,931
and $3,197 in 1997 and 1996, respectively) 2,969 3,229
Securities available for sale 77,032 80,867
Loans receivable, net 170,270 145,425
Premises and equipment, net 3,228 3,196
Real estate owned, net 4 116
Federal Home Loan Bank of New York stock, at cost 2,026 1,568
Interest and dividends receivable 2,032 1,901
Other assets 734 836
-------- --------
Total assets $261,027 $244,081
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits $184,960 $178,947
Federal Home Loan Bank advances 39,805 27,000
Advance payments by borrowers for taxes and insurance 983 866
Other liabilities 422 357
-------- --------
Total liabilities 226,170 207,170
-------- --------
Stockholders' Equity:
Preferred stock, $0.01 par value, 2,000,000 shares authorized,
none issued
Common stock, $0.01 par value, 8,000,000 shares -- --
authorized, 2,231,383 shares issued and 2,119,814
shares outstanding at June 30, 1997 and 2,231,383 issued and
outstanding at December 31, 1996 22 22
Paid-in capital 21,066 21,004
Retained earnings, substantially restricted 18,883 18,060
Treasury stock at cost, 111,569 shares (1,851) --
Unallocated common stock held by ESOP (1,695) (1,785)
Unallocated common stock held by MRP (1,361) --
Unrealized loss on securities available for sale, net of tax (207) (390)
-------- --------
Total stockholders' equity 34,857 36,911
-------- --------
Total liabilities and stockholders' equity $261,027 $244,081
======== ========
See accompanying notes to consolidated financial statements.
3
WAYNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- ---------
Interest income:
Loans $3,158 $2,347 $6,052 $4,577
Securities available for sale 1,377 943 2,803 1,847
Securities held to maturity 46 57 90 107
Short term and other investments 38 110 107 335
------ ------ ------ ------
Total interest income 4,619 3,457 9,052 6,866
----- ----- ----- -----
Interest expense:
Deposits 1,855 1,768 3,654 3,567
Federal Home Loan Bank advances 547 32 1,002 65
------ ------ ------ ------
Total interest expense 2,402 1,800 4,656 3,632
------ ------ ------ ------
Net interest income before provision for loan losses 2,217 1,657 4,396 3,234
Provision for loan losses 75 50 200 85
------ ------ ------ ------
Net interest income after provision for loan losses 2,142 1,607 4,196 3,149
Other income:
Loan fees and service charges 61 51 121 110
Gain on sale of real estate owned -- -- 50 --
Other 84 90 157 161
------ ------ ------ ------
Total other income 145 141 328 271
Other expenses:
Compensation and employee benefits 646 526 1,260 1,054
Occupancy 123 93 219 192
Equipment 46 47 86 92
Data processing services 63 57 133 116
Advertising 51 69 88 91
Federal insurance premiums 29 101 35 196
Real estate owned expense, net 2 41 5 95
Other 509 326 1,034 585
------ ------ ------ ------
Total other expenses 1,469 1,260 2,860 2,421
------ ------ ------ ------
Income before income tax expense 818 488 1,664 999
Income tax expense 293 168 635 354
------ ------ ------ ------
Net income $ 525 $ 320 $1,029 $ 645
====== ====== ====== ======
Net income per share $ 0.27 N/A $ 0.52 N/A
====== ====== ====== ======
Average common shares outstanding (in thousands) 1,969 N/A 1,997 N/A
====== ====== ====== ======
See accompanying notes to consolidated financial statements.
4
WAYNE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
----------------------
1997 1996
------- ------
(Dollars in thousands)
Cash flows from operating activities:
Net income $ 1,029 $ 645
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for losses on loans and real estate owned 200 150
Depreciation and amortization 93 83
Net (accretion) of discounts and amortization of premiums 24 77
Decrease in deferred loan fees 28 30
Gain on sale of real estate owned (50) --
(Increase) in interest and dividends receivable (131) (48)
Decrease (Increase) in other assets (1) 80
Increase (decrease)in other liabilities 65 (13,313)
------- --------
Net cash provided by (used in) operating activities 1,257 (12,296)
------- --------
Cash flows from investing activities:
Calls of securities available for sale 500 2,000
Purchases of securities available for sale (55) (4,500)
Principal repayments on securities held to maturity 257 218
Principal repayments on securities available for sale 3,637 4,308
Net increase in loans receivable (24,893) (15,829)
Additions to premises and equipment (125) (28)
Purchase of Federal Home Loan Bank stock (458) --
------- --------
Net cash (used in) investing activities (21,137) (13,831)
------- --------
Cash flows from financing activities:
Net (decrease) increase in deposits 6,013 (2,385)
Federal Home Loan Bank advances acquired, net 12,805 --
Increase in advance payments by borrowers for taxes and insurance 117 38
Dividends paid (206) --
ESOP shares allocated 152 --
MRP shares (1,361) --
Purchase of treasury stock (1,851) --
Proceeds from issuance of common stock, net of ESOP loan -- 19,241
------- --------
Net cash provided by financing activities 15,669 16,894
------ --------
Net (decrease) in cash and cash equivalents (4,211) (9,233)
------- --------
Cash and cash equivalents at beginning of period 6,943 26,262
------- --------
Cash and cash equivalents at end of period $ 2,732 $17,029
======= =======
Supplemental information:
Cash paid during the period for:
Interest $ 3,566 $ 3,566
======= ========
Income taxes $ 637 $ 400
======= ========
Transfer of loans receivable to real estate owned $ -- $ 143
======= ========
See accompanying notes to consolidated financial statements.
5
WAYNE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Wayne Bancorp, Inc. ("Company") and its wholly-owned subsidiary,
Wayne Savings Bank, F.S.B. ("Bank") and its subsidiaries, as of June 30, 1997
and December 31, 1996 and for the three and six month periods ended June 30,
1997 and 1996, respectively. Material intercompany accounts and transactions
have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management all necessary adjustments,
consisting only of normal recurring accruals necessary for a fair presentation
have been included. The results of operations for the three and six month
periods ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the entire calendar year. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements for the year ended December 31, 1996, and the notes thereto.
Note 2 - Organization of the Holding Company and conversion to stock form
of ownership
Wayne Bancorp, Inc. was organized for the purpose of acquiring all of the
capital stock of the Bank that was issued in the conversion from a federally
chartered mutual savings bank to a stock savings bank pursuant to a Plan of
Conversion (Conversion) via the issuance of common stock. On June 27, 1996, the
Company completed an initial public offering. The offering resulted in the sale
of 2,231,383 shares of common stock which, after giving effect to offering
expenses of $1.3 million and 178,511 shares issued to the Bank's tax qualified
Employee Stock Ownership Plan (ESOP), resulted in net proceeds of $21.0 million.
Pursuant to the Conversion, the Bank transferred all of its outstanding shares
to the Company. The Bank may not declare or pay cash dividends or repurchase any
of its shares of common stock if the effect of these would cause equity to be
reduced below applicable regulatory capital maintenance requirements or if such
declaration and payment would otherwise violate regulatory requirements.
Note 3 - Earnings per share
The initial public offering was completed June 27, 1996. Net income for the six
months ended June 30, 1997 was $1.0 million or $0.52 per share, and the net
income for the six months ended June 30, 1996 was $645,000. Net income for the
three months ended June 30, 1997 was $525,000 or $0.27
6
per share, and net income for the three months ended June 30, 1996 was $320,000.
Earnings per share information for the six months and three months ended June
30, 1996 is not meaningful since Wayne Savings Bank's mutual to stock conversion
was not consummated until June 27, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial condition
General
Wayne Bancorp, Inc. is the holding company for Wayne Savings Bank, F.S.B. a
federally chartered stock savings bank. The Bank converted from a mutual to a
stock savings bank on June 27, 1996 in conjunction with the issuance of the
Bank's capital stock to the Company.
Assets
Total assets increased $16.9 million or 6.9% to $261.0 million at June 30, 1997
from $244.1 million at December 31, 1996 due primarily to an increase in loans
receivable, net of $24.8 million from $145.4 million at December 31, 1996 to
$170.3 million at June 30, 1997.
Loan originations during the quarter ended June 30, 1997 totalled $22.6 million
and purchased residential loans totalled $2.2 million (comprised of $16.3
million of residential one-to four-family mortgage loans, $3.7 million of home
equity loans, $1.1 million of commercial construction loans, $654,000 of
residential construction loans, $2.3 million of commercial real estate loans,
$754,000 commercial business loans and $9,000 of consumer loans.) During the
second quarter of 1997, principal repayments totalled $7.5 million. During the
same quarter of 1996, loan originations totalled $23.1 million and principal
repayments totalled $7.7 million.
The decline of $4.1 million in securities held to maturity and securities
available for sale is primarily due to principal repayments and prepayments
offset by a decrease in the unrealized loss on securities available for sale of
$183,000 from $390,000 at December 31, 1996 to $207,000 at June 30, 1997.
REO, net decreased $112,000 or 96.6% to $4,000 at June 30, 1997 from $116,000 at
December 31, 1996 due to the sale of properties.
Federal Home Loan Bank of New York ("FHLB-NY") stock, at cost increased $458,000
to $2.0 million at June 30, 1997 from $1.6 million at December 31, 1996 which
was primarily the result of the requirement that the Bank purchase stock in the
FHLB of NY due to the increased borrowings by the Bank from the FHLB-NY.
7
Liabilities
Deposits increased $6.0 million between December 31, 1996 and June 30, 1997 due
to an excess of deposits over withdrawals of $2.9 million as well as interest
credited of $3.1 million.
Federal Home Loan Bank advances increased $12.8 million from $27.0 million at
December 31, 1996 to $39.8 million at June 30, 1997 due to the funding required
for the loan originations described above.
Stockholders' equity
The Company's total stockholders' equity decreased $2.1 million to $34.9 million
at June 30, 1997 from $36.9 million at December 31, 1996. The decrease is
primarily due to the purchase of shares of common stock for the 1996 Stock-Based
Incentive Plan, ("Plan"), which were placed in the trust established for the
Plan in the amount of $1.4 million as well as the purchase of 111,569 shares of
Treasury Stock in the amount of $1.9 million. In addition, total stockholders'
equity was reduced by the declaration of two quarterly cash dividends of $0.05
per share each or $206,000. This decrease was also the result of a decrease in
the net unrealized loss on securities, available for sale of $183,000, offset by
the net income for the six months ended June 30, 1997 of $1.0 million.
Non performing loans and allowance for loan losses
Non performing loans at June 30, 1997 and December 31, 1996 were as follows:
1997 1996
--------- -------
(Dollars in thousands)
Loans delinquent 90 days or more and other non-performing
loans $2,378 $2,076
Loans delinquent 90 days or more and other non-performing
loans as a percentage of total loans outstanding 1.38% 1.41%
The following table sets forth the changes in the allowance for loan losses for
the six months ended June 30, 1997 and the year ended December 31, 1996:
1997 1996
--------- -------
(Dollars in thousands)
Balance at beginning of period $1,789 $1,589
Provision for losses 200 200
------ ------
Balance at end of period $1,989 $1,789
====== ======
8
Asset/liability management
Management's strategy has been to operate the Bank as a community oriented
financial institution by offering a variety of financial services to meet the
needs of the communities it serves while maintaining capital in excess of
regulatory requirements and monitoring the sensitivity of the Bank's assets and
liabilities to interest rate fluctuations. The Board of Directors has sought to
accomplish these goals by: (i) attracting and maintaining low-cost savings and
transaction accounts, as well as money market accounts, which management
believes provide the Bank with a stable source of funds; (ii) focusing its
lending on the origination of one-to four-family, owner-occupied residential
mortgage loans, including home equity loans; (iii) supplementing its one- to
four-family residential lending activities with commercial business, commercial
real estate, multi-family, construction and consumer loans in accordance with
the Bank's underwriting guidelines; (iv) purchasing short-to-intermediate term
investment and mortgage-backed securities to complement the Bank's lending
activities; (v) emphasizing shorter-term loans and investments and adjustable
rate assets when market conditions permit; and (vi) controlling growth.
As part of management's review of its assets and liabilities, the Bank considers
the interest sensitivity of its assets and liabilities and targets what it
believes to be an acceptable level of risk based on the Bank's business focus,
operating environment, capital and liquidity requirements, and performance
objectives. Management seeks to reduce the vulnerability of the Bank's operating
results to changes in interest rates and to manage the ratio of interest rate
sensitive assets to interest rate sensitive liabilities within specified
maturities or repricing periods. The Bank does not currently engage in trading
activities or use off-balance sheet derivative instruments to control interest
rate risk. Even though trading activities or use of off-balance sheet derivative
instruments may be permitted with the approval of the Board of Directors,
management does not intend to engage in such activities in the immediate future.
In managing the Bank's assets and liabilities, the Bank has taken certain
actions to decrease the sensitivity of its assets and liabilities to
fluctuations in interest rates. A significant component of the Bank's operating
strategy has been to maintain its interest rate spread by maintaining a core
deposit base. The Bank has sought to maintain and attract new deposits by
pricing its deposits competitively, but generally not among the highest interest
rates in its market area, and relying on personalized customer service and
advertising. The Bank maintains a core deposit base while employing this
strategy.
At June 30, 1997, total interest-bearing liabilities maturing or repricing
within one year exceeded total interest-earning assets maturing or repricing
within the same period by $37.7 million, representing a one year negative
cumulative gap of 14.4%.
Liquidity and capital
The Bank is required to maintain minimum levels of liquid assets as defined by
the Office of Thrift Supervision ("OTS") regulations. This requirement, which
may be varied by the OTS depending
9
on economic conditions and deposit flows, is based on a percentage of
withdrawable deposits and short-term borrowings. The minimum required liquidity
and short-term liquidity ratios are currently 5.0% and 1.0%, respectively. The
Bank's liquidity ratio and short-term liquidity ratio were 11.7% and 1.6% for
June 30, 1997 compared with 7.4% and 3.9% for December 31, 1996, respectively.
The Company's primary sources of funds are deposits, principal and interest
payments on loans and securities and, to a lesser extent, borrowings and
proceeds from the sale of securities available for sale. While maturities and
scheduled amortization of loans and securities provide an indication of the
timing of the receipt of funds, other sources of funds such as loan prepayments
and deposit inflows are less predictable because they are greatly influenced by
general interest rates, economic conditions, competition and regulatory changes.
The Bank's most liquid assets are cash and cash equivalents, which include
interest-bearing deposits and short-term highly liquid investments (such as
federal funds) with original maturities of less than three months that are
readily convertible to known amounts of cash. The level of these assets is
dependent on the Bank's operating, financing and investing activities during any
given period. At June 30, 1997 and December 31, 1996, cash and cash equivalents
totaled $2.7 million and $6.9 million, respectively.
The Company and the Bank have other sources of liquidity that include investment
securities maturing within one year, and securities available for sale. Other
sources of funds include Federal Home Loan Bank of New York ("FHLB-NY")
advances, which at June 30, 1997, totalled $39.8 million. If needed, the Bank
may borrow an additional $38.5 million from the FHLB-NY.
As of June 30, 1997, the Bank exceeded all regulatory capital requirements as
detailed in the following table:
Tangible Capital Core Capital Risk-Based Capital
------------------------ ----------------------- --------------------------
Amount Percent(1) Amount Percent(1) Amount Percent(1)
-------- ---------- --------- --------- ---------- ----------
Capital for regulatory
purposes $26,500 10.1% $26,500 10.1% $27,894 23.3%
Minimum regulatory
requirement 3,923 1.5% 7,846 3.0% 9,575 8.0%
------- ----- ------- ----- ------- ----
Excess $22,577 8.6% $18,654 7.1% $18,319 15.3%
======= ===== ======= ===== ======= =====
- -----------
(1) Tangible and core capital are shown as a percentage of total adjusted
assets. Risk-based capital levels are shown as a percentage of
risk-weighted assets.
Recent accounting pronouncements
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128") establishes standards for computing and presenting earnings per share
(EPS) and applies to entities
10
with publicly held common stock or potential common stock. SFAS 128 replaces the
presentation of primary EPS with a presentation of basic EPS and requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. SFAS 128 is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods; earlier application is not permitted and requires restatement of all
prior-period EPS data presented. Management does not expect the adoption of SFAS
128 to have a significant effect on the company's earnings per share
calculation.
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income (SFAS 130) establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. SFAS 130 requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS 130 does
not require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement. SFAS 130 requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earrings and additional paid-in capital in the equity
section of a statement of financial position. SFAS 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
Statement of Financial Accounting Standards No. 131, "Disclosure About Segments
of an Enterprise and Related Information" ("SFAS 131") requires that public
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information in
their quarterly reports issued to shareholders. SFAS 131 requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues, and its major
customers. SFAS 131 supersedes FASB Statement 14, "Financial Reporting for
Segments of a Business Enterprise." SFAS 131 is effective for fiscal years
beginning after December 15, 1997.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1997
AND 1996
General The Company reported net income of $525,000, or $0.27 per share, for the
three months ended June 30, 1997 compared with net income of $320,000 for the
three months ended June 30, 1996. The $205,000 increase was primarily
attributable to an increase of $1.2 million in total interest income offset by
an increase in total interest expense of $602,000. Also offsetting this increase
in total interest income was an increase of $25,000 in the provision for loan
losses and an increase in total other expenses of $209,000.
11
Interest income Interest income increased $1.2 million or 33.6% to $4.6 million
for the three months ended June 30, 1997 from $3.5 million for the three months
ended June 30, 1996. This increase was primarily the result of higher
outstanding average balances as well as higher average yields on earning assets.
Interest income on loans increased $811,000, or 34.6% to $3.2 million for the
three months ended June 30, 1997, from $2.3 million for the comparable three
month period in 1996 primarily as a result of an increase in average balances of
loans of $42.7 million, partially offset by a slight decrease in the average
yield on loans of 2 basis points. The average yield on loans decreased to 7.63%
for the three months ended June 30, 1997 from 7.65% for the comparable three
month period in 1996. The increase in average balances of loans between the
periods was due to the high volume of loan originations during the second
quarter of 1997.
Interest income on securities available for sale increased $434,000 during the
second quarter of 1997 as a result of an increase in average outstanding
balances of $21.6 million in the available for sale portfolio. The average
balance of the available for sale portfolio for the three months ended June 30,
1997 was $78.1 million compared with $56.5 million for the comparable period in
1996. In addition, the yield on the available for sale portfolio increased 38
basis points to 7.05% for the quarter ended June 30, 1997 from 6.67% for the
comparable period in 1996. The increase in the average balance is principally
due to the purchase of a $25.0 million Federal Home Loan Mortgage Corp.
("FHLMC") fixed rate note ("note") funded by an advance from the Federal Home
Loan Bank of New York entered into in August of 1996. The note's term is for a
period of ten years at a rate of 7.78% and is callable after three years and
continuously thereafter. The FHLB advance is for a three year period at a fixed
rate of 6.86%.
Interest on short-term and other investments decreased $72,000 or 65.5% to
$38,000 for the three months ended June 30, 1997 from $110,000 for the
comparable three month period in 1996 primarily as a result of a decrease in
average balances of $6.8 million, which was offset by an increase in average
yield of 57 basis points. The decrease in average balances is the result of the
funding of mortgage loans during the period.
Interest expense Interest expense increased $602,000, or 33.4% to $2.4 million
for the three months ended June 30, 1997 from $1.8 million for the three months
ended June 30, 1996. Interest on deposits increased by $87,000, or 4.9% to $1.9
million for the three months ended June 30, 1997 from $1.8 million for the
comparable three month period in 1996. The increase in interest expense on
deposits was primarily due to an increase of $9.9 million in average deposits.
Interest on FHLB-NY advances increased $515,000, to $547,000 for the three
months ended June 30, 1997 from $32,000 for the comparable three month period in
1996. The increase in interest expense on advances was due primarily to an
increase in average balances of $33.2 million from December 31, 1996 to June 30,
1997 offset by a decline in the average rate paid of 9 basis points. The average
rate paid on the advances declined to 6.31% for the three months ended June 30,
1977 from 6.40% for the three months ended June 30, 1996.
12
Net interest income Net interest income before provision for loan losses
increased $560,000 to $2.2 million for the three months ended June 30, 1997 from
$1.7 million for the three months ended June 30, 1996. The increase reflects an
increase in the average balances of loans receivable, net of $42.7 million for
the three months ended June 30, 1997 over the comparable prior year period, as
well as an increase in the average balances of securities available for sale of
$21.6 million over the comparable prior year period.
Provision for loan losses The adequacy of the allowance for loan losses is based
on the Bank's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay,
estimated value of any underlying collateral and current economic conditions.
The Bank provided $75,000 for loan losses for the three months ended June 30,
1997 compared with $50,000 for the comparable three month period in 1996 which
was due to management's continuing reassessment of losses inherent in the loan
portfolio. Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions in the Bank's market area. In addition, various regulatory agencies,
as an integral part of their routine examination process, periodically review
the Bank's allowance for loan losses. Such agencies may require the Bank to
recognize additions to the allowance based on their judgments about information
available to them at the time of their examination.
Other income Total other income for the three months ended June 30, 1997 was
$145,000 compared with $141,000 for the comparable three month period in 1996.
The increase is primarily due to fee income on checking accounts.
Other expenses Other expenses increased $209,000 or 16.6% for the three months
ended June 30, 1997 to $1.5 million from $1.3 million for the comparable three
month period in 1996. The increase is primarily due to a increase of $120,000 in
compensation and employee benefits expense, a decrease of $72,000 in Federal
insurance premiums, a decrease of $39,000 in REO operations, net and an increase
of $183,000 in other expenses.
The increase in compensation and employee benefits expense primarily reflects
the adoption of the Wayne Bancorp, Inc. 1996 Stock-Based Incentive Plan which
was approved by stockholders at the special meeting held February 25, 1997. The
increase in other expense is the result of the legal and professional fees
incurred in converting to a public company as well as the expenses related to
the proxy fight with a dissident stockholder group. The decrease of $72,000 in
Federal insurance premiums is the result of the reduction in insurance premiums
(required by legislation) from 23 basis points to 6.4 basis points (per $100 of
deposits) effective January 1, 1997. This decrease will improve earnings in
future years, over time more than offsetting the special assessment of $1.0
million that was paid September 30, 1996 which represented the Bank's share of
the special assessment required by legislation. Finally, the decrease in the REO
operations was due to the decrease of REO properties from $116,000 at December
31, 1996 to $4,000 at June 30, 1997.
13
Income tax expense Income tax expense was $293,000 which represents an effective
tax rate of 35.8% for the three months ended June 30, 1997 compared with income
tax expense of $168,000 which represents an effective tax rate of 34.4% for the
three months ended June 30, 1996.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
General The Company reported net income of $1.0 million, or $0.52 per share, for
the six months ended June 30, 1997 compared with net income of $645,000 for the
six months ended June 30, 1996. The $384,000 increase was primarily attributable
to an increase of $2.2 million of total interest income offset by a an increase
in total interest expense of $1.0 million. Also offsetting this increase in
total interest income was an increase of $115,000 in the provision for loan
losses as well as an increase in total other expenses of $439,000.
Interest income Interest income increased $2.2 million or 31.8% to $9.1 million
for the six months ended June 30, 1997 from $6.9 million for the six months
ended June 30, 1996. The increase was primarily the result of an increase in
interest income on loans and securities available for sale.
Interest income on loans increased $1.5 million, or 32.2% to $6.1 million for
the six months ended June 30, 1997, from $4.6 million for the comparable six
month period in 1996 primarily as a result of an increase in the average balance
outstanding of $41.5 million offset by a decline of 19 basis points in the
average rate earned on loans.
Interest income on securities available for sale increased $1.0 million to $2.8
million for the six months ended June 30, 1997 from $1.8 million for the
comparable six month period in 1996 primarily due to an increase in average
balances of $21.9 million together with an increase in the average yield of 63
basis points.
Interest income on short-term and other investments decreased $228,000 to
$107,000 for the six months ended June 30, 1997 from $335,000 for the comparable
six month period in 1996 primarily as a result of a decrease in average
outstanding balances of $8.0 million. The decrease in the average balance was
due primarily to the funding of the Bank's loan portfolio.
Interest expense Interest expense increased $1.0 million, or 28.2% to $4.7
million for the six months ended June 30, 1997 from $3.6 million for the six
months ended June 30, 1996. Interest on deposits increased $87,000, or 2.4% to
$3.7 million for the six months ended June 30, 1997 from $3.6 million for the
comparable six month period in 1996. The increase in interest on deposits was
primarily due to the increase of $7.9 million in average balances offset by a
slight decline of 5 basis points in the average cost of deposits.
Interest on FHLB-NY advances increased $937,000, to $1.0 million for the six
months ended June 30, 1997 from $65,000 for the comparable six month period in
1996. FHLB-NY advances on an average basis increased $28.3 million between the
periods and the average rate paid increased 17
14
basis points to 6.67% for the six months ended June 30, 1997 from 6.50% for the
six months ended June 30, 1996.
Net interest income Net interest income before provision for loan losses
increased $1.2 million to $4.4 million for the six months ended June 30, 1997
from $3.2 million for the six months ended June 30, 1996.
Provision for loan losses The adequacy of the allowance for loan losses is based
on the Bank's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay,
estimated value of any underlying collateral and current economic conditions.
The Bank provided $200,000 for loan losses for the six months ended June 30,
1997 compared with $85,000 for the comparable six month period in 1996 which was
due to management's continuing reassessment of losses inherent in the loan
portfolio. Management believes that the allowance for losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions in the Bank's market area. In addition, various regulatory agencies,
as an integral part of their routine examination process, periodically review
the Bank's allowance for loan losses. Such agencies may require the Bank to
recognize additions to the allowance based on their judgments about information
available to them at the time of their examination.
Other income Total other income for the six months ended June 30, 1997 was
$328,000 compared with $271,000 for the comparable six month period in 1996. The
increase of $57,000 in the six months ended June 30, 1997 was primarily
attributable to the gain on sale of REO of $50,000 that was recognized during
the period.
Other expenses Other expenses increased $439,000 or 18.1% for the six months
ended June 30, 1997 to $2.9 million from $2.4 million for the comparable six
month period in 1996. The increase was primarily due to an increase of $206,000
in compensation and employee benefits expense, a decrease of $161,000 in Federal
insurance premiums, a decrease of $90,000 in REO operations, and an increase of
$449,000 in other expenses.
The increase in compensation and employee benefits expense primarily reflects
the adoption of the Wayne Bancorp, Inc. 1996 Stock-Based Incentive Plan which
was approved by stockholders at the special meeting held February 25, 1997. The
increase in other expense is the result of the legal and professional fees
incurred in the proxy fight with a dissident stockholder group. The decrease of
$161,000 in Federal insurance premiums is the result of the reduction in
insurance premiums as explained above in the comparison of operating results for
the Three Months Ended June 30, 1997 and 1996. Finally, the decrease in the REO
operations, net was due to the decrease of REO properties from $116,000 at
December 31, 1996 to $4,000 at June 30, 1997.
15
Income tax expense Income tax expense was $635,000 which represents an effective
tax rate of 38.2% for the six months ended June 30, 1997 compared with income
tax expense of $354,000 which represents an effective tax rate of 35.4% for the
six months ended June 30, 1996.
Legislative initiatives
Thrift Rechartering Legislation. The Deposit Insurance Funds Act of 1996
provides that the Bank Insurance Fund ("BIF") and Savings Association Insurance
Fund ("SAIF") will merge on January 1, 1999 if there are no more saving
associations as of that date. Various proposals to eliminate the federal thrift
charter, create a uniform financial institutions charter and abolish the Office
of Thrift Supervision ("OTS") have been introduced in Congress. The House
Banking Committee reported a bill in July 1997 that would require federal
savings institutions to convert to a national or state bank charter within two
years of enactment. The bill would allow banks resulting from the conversion of
a savings association to continue to engage in activities (and hold assets) in
which it was lawfully engaged on the day before enactment. State chartered
thrifts would become subject to the same federal regulation as applies to state
commercial banks. Holding companies for savings institutions would become
subject to the same regulation as holding companies that control commercial
banks, with a limited grandfather provision for unitary savings and loan holding
company activities. The OTS would be merged with the Office of the Controller of
the Currency, the agency that regulates national banks. The Bank in unable to
predict whether such legislation would be enacted, the extent to which the
legislation would restrict or disrupt its operations or whether the BIF and SAIF
funds will eventually merge.
16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
On April 30, 1997 stockholders approved the election of four directors for
terms of three years each or until their successors are elected. Following is
the result of the voting:
For Withheld
--- --------
Harold P. Cook, III 1,995,414 11,332
William J. Lloyd 1,994,414 12,332
Ronald Higgins 1,995,614 11,132
Dennis Pollack 1,944,689 62,057
On April 30, 1997 stockholders approved the ratification of the appointment
of KPMG Peat Marwick LLP as independent auditors for the calendar year ending
December 31, 1997. Following is the result of the voting:
For 1,999,796
Against 3,050
Abstained 3,900
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
(3)(I) Certificate of incorporation *
17
(ii) Bylaws *
(4) Stock certificates
(27) Financial Data Schedule (filed herewith)
B. Reports on Form 8-K
None
--------------------
* Incorporated herein by reference from the Exhibits to Form S-1
Registrations Statement and all amendments thereto, filed March 18, 1996,
Registration Number 333-2488 and declared effective May 13, 1996.
18
SIGNATURES
Pursuant to the requirements of The Securities 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 14, 1997 By: /s/ JOHANNA O'CONNELL
---------------------------
Johanna O'Connell,
President
Date: August 14, 1997 By: /s/ TIMOTHY P. TIERNEY
----------------------------
Timothy P. Tierney,
Vice President & Controller
19