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, 1995 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 under 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: April 30, 1995: 1,872,859
INDEX
WAYNE BANCORP, INC.
FORM 10-Q
For the Quarter Ended March 31, 1995
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)
March 31, December 31,
1995 1994
----------------------------
ASSETS
Cash and Due From Banks............................ $13,714,118 $17,090,682
Federal Funds Sold................................. 1,920,000 0
----------------------------
Total Cash and Cash Equivalents.. 15,634,118 17,090,682
Investment Securities Available-for-Sale (Note 2). 27,346,533 28,085,480
Investment Securities Held-to-Maturity (Market Value
March 31, 1995 $53,467,131 and $64,095,092 at
December 31, 1994) (Note 2).................... 53,669,421 65,066,283
Loans (Note 3)................................... 202,295,211 197,579,792
Unearned Income.................. (738,125) (653,218)
Allowance for Loan Losses........ (3,463,006) (3,447,539)
----------------------------
Net Loans........................ 198,094,080 193,479,035
Premises and Equipment............................. 6,292,677 6,316,873
Investment in Affiliate............................ 152,029 123,044
Other Assets....................................... 6,007,365 5,523,158
----------------------------
TOTAL ASSETS....................................... $307,196,223 $315,684,555
============================
LIABILITIES
Deposits
Interest Bearing.............................. $219,271,916 $219,559,130
Non-Interest Bearing.......................... 42,511,346 46,985,705
----------------------------
Total Deposits................... 261,783,262 266,544,835
Federal Funds Purchased............................ 0 5,000,000
Securities Sold Under Agreements to Repurchase..... 9,091,184 8,860,647
Other Liabilities.................................. 1,593,565 1,638,757
----------------------------
Total Liabilities................ 272,468,011 282,044,239
SHAREHOLDERS' EQUITY
Common Stock, Stated Value $1...................... 1,872,859 1,871,467
Shares Authorized 5,400,000
Shares issued - 1,872,859 in 1995 and 1,871,467 in 1994
Shares outstanding - 1,872,630 in 1995 and 1,870,971 in 1994
Paid In Capital.................................... 7,944,132 7,896,813
Retained Earnings.................................. 25,011,599 24,230,409
Treasury Stock..................................... (6,238) (15,500)
Unrealized loss on Securities Available-for-Sale... (94,140) (342,873)
----------------------------
Total Shareholders' Equity....... 34,728,212 33,640,316
----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $307,196,223 $315,684,555
============================
See Notes to Consolidated Financial Statements
-1-
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended
March 31,
1995 1994
----------------------------
INTEREST INCOME:
Interest and Fees on Loans......................... $4,524,427 $3,881,791
Interest and Dividends on Securities:
Taxable....................................... 892,722 745,244
Nontaxable.................................... 328,224 311,718
Other Interest Income.............................. 11,233 18,332
----------------------------
Total Interest Income............ 5,756,606 4,957,085
INTEREST EXPENSE:
Interest on Deposits............................... 2,133,530 1,866,549
Interest on Repurchase Agreements.................. 117,262 62,360
Interest on Other Borrowings....................... 53,936 846
----------------------------
Total Interest Expense........... 2,304,728 1,929,755
NET INTEREST INCOME................................ 3,451,878 3,027,330
Provision for Loan Losses.......................... 30,000 135,000
----------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES.................. 3,421,878 2,892,330
OTHER INCOME:
Service Charges on Deposits........................ 299,474 305,188
Income from Fiduciary Activities................... 205,000 195,000
Other Non-Interest Income.......................... 153,641 133,064
Gain (Loss) on Sale of Securities.................. (11,501) 21,891
----------------------------
Total Other Income............... 646,614 655,143
OTHER EXPENSES:
Salaries and Employee Benefits..................... 1,158,834 1,056,398
Occupancy and Equipment............................ 279,612 241,890
Other Non-Interest Expenses........................ 1,095,911 1,057,474
----------------------------
Total Other Expenses............. 2,534,357 2,355,762
INCOME BEFORE INCOME TAX EXPENSE................... 1,534,135 1,191,711
INCOME TAX EXPENSE................................. 434,835 326,927
----------------------------
NET INCOME......................................... $1,099,300 $864,784
============================
NET INCOME PER SHARE (note 4) $0.59 $0.46
DIVIDENDS PER SHARE (note 4) $0.17 $0.14
See notes to consolidated financial statements.
-2-
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
1995 1994
- - -------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income......................................... $1,099,300 $864,784
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for Loan Losses................... 30,000 135,000
Depreciation and Amortization............... 187,301 181,714
Amortization of Investment Security
premiums and discounts.................... 169,871 323,645
Increase in interest receivable............. (77,597) (46,639)
(Increase) Decrease in interest payable..... 128,673 (117,789)
Other, (net)................................ (803,046) (391,052)
----------------------------
Net Cash Provided by Operating Activities.......... 734,502 949,663
INVESTING ACTIVITIES
Purchase of securities Held-to-Maturity............ (913,120) (3,650,064)
Proceeds from sale of securities Held-to-Maturity 8,090,369 0
Proceeds from matured securities Held-to-Maturity.. 4,155,034 4,765,402
Purchase of Available for Sale Securities.......... 8,147 (2,102,422)
Proceeds from sale of securities Available-for-Sale 1,002,531 2,094,141
Net increase in loans and leases................... (4,622,661) (5,407,297)
Purchase of premises and equipment................. (100,689) (191,123)
----------------------------
Net cash provided (used) by investing activities... 7,619,611 (4,491,363)
FINANCING ACTIVITIES
Net decrease in deposits........................... (4,781,076) (4,383,203)
Net increase (decrease) in short term borrowings... (4,769,465) 1,915,622
Cash dividends..................................... (318,110) (266,629)
Cash dividends reinvested.......................... 48,711 39,537
Issuance of common stock........................... 9,263 197,200
----------------------------
Net cash (used) by financing activities............ (9,810,677) (2,497,473)
Decrease in cash and cash equivalents.............. (1,456,564) (6,039,173)
Cash and cash equivalents at beginning of period... 17,090,682 17,081,404
----------------------------
Cash and cash equivalents at end of period......... $15,634,118 $11,042,231
============================
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:
As of January 1, 1994, the Company changed its method of accounting for
debt and equity securities to adopt SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Accordingly, securities are
classified into held-to-maturity and available-for-sale categories. The
held-to-maturity securities are those which the Company has the positive
intent and ability to hold to maturity, and are reported at amortized cost.
Available-for-sale securities are those which the Company may decide to
sell if needed for liquidity, asset-liability management, or other reasons.
Available-for-sale securities are reported at fair value, with unrealized
gains or losses included as a separate component of equity, net of tax.
The effect of adopting this new accounting guidance was to increase the
Company's equity at January 1, 1994 by approximately $140,000.
Realized gains or losses are determined based on the amortized cost of the
specific security sold.
During the three months ended March 31, 1995, and 1994 the proceeds from
sales of available-for-sale securities were $1,002,531 and $2,094,141 with
gross losses of $742 in 1995 and gains of $21,891 included in earnings.
Proceeds from sales of held-to-maturity securities who's maturity date
was within 90 days of maturity amounted to $8,090,369 with realized losses
of $ 10,759 included in earnings in 1995 with no sales of held-to-maturity
securities in 1994. For this period, the change in net unrealized holding
gain or loss on securities available-for-sale was $377,000.
There were no transfers of securities classified as Held-to-Maturity.
-4-
Summary of book and market values of securities:
Securities Available for Sale
March 31, 1995 December 31, 1994
Book Market Book Market
-----------------------------------------------------
U.S. Treasury.............$12,954,641 $12,814,995 $13,952,890 $13,567,496
Government Agencies....... 10,240,065 10,241,490 10,275,942 10,169,744
Federal Agency Pools...... 3,442,486 3,437,856 3,508,792 3,482,053
Mortgage Backed Obligation 171,467 171,681 191,998 190,825
Other securities.......... 680,511 680,511 675,362 675,362
-----------------------------------------------------
$27,489,170 $27,346,533 $28,604,984 $28,085,480
=====================================================
Securities Held to Maturity
March 31, 1995 December 31, 1994
Book Market Book Market
-----------------------------------------------------
U.S. Treasury............. $5,046,202 $5,024,998 $5,058,452 $4,962,811
Government Agencies....... 13,671,766 13,497,898 19,715,817 19,334,516
Federal Agency Pools...... 7,870,319 7,675,483 8,066,926 7,737,125
Mortgage Backed Obligation 116,090 116,161 175,596 175,101
Obligations of states and
political subdivisions.. 24,009,795 24,213,248 24,510,321 24,437,068
Other securities.......... 2,955,249 2,939,343 7,539,171 7,448,471
-----------------------------------------------------
$53,669,421 $53,467,131 $65,066,283 $64,095,092
=====================================================
3. Loans:
Loans comprised of the following:
March 31, December 31,
1995 1994
---------------------------
Commercial loans...................... $79,776,236 $75,983,070
Real Estate loans..................... 73,071,572 73,386,888
Installment loans..................... 35,580,131 34,218,367
Lease Financing....................... 3,138,473 2,741,426
Credit Card Loans..................... 5,099,077 5,695,494
Home Equity loans..................... 5,607,611 5,542,568
Other loans........................... 22,111 11,979
---------------------------
Total...............$202,295,211 $197,579,792
===========================
4. Per Share Data:
Per share data is calculated based on 1,871,349 average common shares
outstanding for 1995 and 1,868,139 for 1994. 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, 1995, the amount of Fed Funds Sold and
Investments available for sale or maturing within the next three
months was $41.9 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, 1995, the Company
had a GAP position of .03% of total assets for a one year
period. This positive GAP is a result of customers moving
matured certificates of deposit funds to short term demand type
accounts. 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 March 31, 1995 the
Company's equity-to-asset ratio adjusted by the impact of FAS
#115 was 11.3% compared to 10.7% at December 31, 1994.
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 17.9% at March
31, 1995 and 17.8% at December 31, 1994.
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 some intangible assets divided by total assets less
the same intangible assets. At March 31, 1995 and December 31,
1994 the ratios were 10.8% and 10.4% 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 $8.5 million or
2.7% from December 31, 1994 to March 31, 1995. The decrease was
due to temporary funds deposited by retail customers at December
31, 1994 and withdrawn by March 31, 1995 and the sale of
investment securities, with the proceeds of those sales used to
pay back short term federal funds borrowed. Total loans
increased $4.7 million in the first quarter with a continued
strong demand for commercial and consumer loans as interest
rates appeared to stabilize. Real estate lending showed a small
decline in the first quarter of 1995, after over three years of
steady increases. This decline is attributed to a slower
housing market and a reduction in refinancing of existing real
estate 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 will become weaker, which could slow
the demand for loans.
Total investments declined by $12.1 million in the first
quarter of 1995. This decline is due primarily to the sale of
investment securities for liquidity purposes. These sales
funded the growth in the loan portfolio, the repayment of short
term borrowings and the outflow of deposits. As detailed in
Note 2, in January of 1994, the Company adopted Statement of
Financial Accounting Standards No. 115, changing the method of
accounting for investments in certain debt and equity
securities. Adoption of this standard will not affect the
methods used in management of the portfolio, but should enhance
the ability to manage the asset-liability position of the
Company. The adoption of this statement can have an impact on
the Company's capital based on volume of securities classified
as available-for-sale, as well as the volatility in the interest
rate environment. Management does not feel that the impact on
the Company's capital will be material based on the relatively
short maturities of the available for sale securities.
Total deposits declined by $4.8 million, concentrated in the
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 1995.
Results_of_Operations__
Net income was $1,099,300 for the first three months of 1995
compared to $864,784 for the same period in 1994. Earnings per
share for the three months ended March 31, 1995 and 1994 were
$.59 and $.46 per share respectively. Dividends were $.17 per
share in the first quarter 1995 and $.14 per share for the first
quarter 1994. The 1994 per share numbers reflect retroactive
adjustment for the 5% stock dividend declared in December of
1994.
Total interest income for the first three months increased
$799,521 or 16.1% compared to the previous year. The increase
is due primarily to the increase in interest rates as the
Federal Open Market Committee adjusted interest rates seven
times from February 1994 to February 1995. Variable rate
commercial loans and matured or called investment securities
are adjusted and replaced at interest rates which are
significantly higher than what was is in the portfolio at March
31, 1994. The prime rate charged by commercial banks rose from
its low of 6% in the first quarter of 1994 to 9% in the first
quarter of 1995. Total earning assets were $285 and $279
million at March 31, 1995 and 1994. The weighted interest rate
earned on those assets were 8.20% and 7.11% respectively. This
increase in the weighted rate on earning assets is due to the
sharp increase in the interest rate environment and the
repricing of assets. The rising rate environment has been a
benefit to the Company because over $150 million of assets were
repriced upward by as much as 300 basis points, and only
approximately $75 million of liabilities were repriced upward by
approximately 100 basis points.
Total interest paying liabilities at March 31, 1995 and 1994
were $228.4 and $232.8 million respectively. The weighted
interest rate paid for these deposit accounts has risen from
3.32% at March 31, 1994 to 4.14% at March 31, 1995.
The net effect of the changes in interest earning assets and
interest paying liabilities, combined with the repricing that
has occurred since December 31, 1994 is an increase in net
interest income of $424,548 or 14%.
Total other income decreased $8,529 for the three months ended
March 31, 1995 compared to 1994. The primary reason for this is
the gain on the sale of investments in 1994 versus losses in
1995 which is partially offset by an increase in income from
the the Trust and Investment service function.
The provision for loan losses has declined $105,000 or 81% in
the first three months of 1995 versus 1994. At March 31, 1995
the Company had approximately $161 thousand of loans and leases
past due 90 days or more. In addition, net chargeoffs at the
end of the first quarter of 1995 were approximately $16 thousand
and at April 30, 1995, the Company was in a net recovery
position of approximately $8 thousand. Finally, management is
aware of a recovery of a previously charged off loan in the
amount of approximately $137,000 that will be received in May.
With this type of superior loan quality, the net recovery
position and a reserve to total loans ratio of 1.71%, management
has reduced the provision.
Total other expenses have increased $178,595 for the three
months ended March 31, 1995 compared with the same period in
1994. 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 raise the
base wages higher in order to retain the current staff. The
increases in Occupancy and Equipment and other non-interest
expenses is due to the addition of a branch office in Berlin.
This office opened in the fourth quarter of 1994 and therefore
no expenses were recognized for that location in the first
quarter of 1994. The other non-
interest expenses include FDIC insurance premiums. The FDIC has
been discussing the fact that the Bank Insurance Fund (BIF) will
be recapitalized in the second quarter of 1995, and banks can
expect a reduction in deposit insurance premiums. This
reduction could be as much as 83% or $470,000 per year. It is
management's opinion that this issue has not been resolved, as
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 a delay in
the reduction of deposit insurance premiums.
Salaries and employee benefits expenses increased $102,436 or
9.7% for the first three months in 1995 compared to 1994. This
increase is due to increases in compensation of non- officer
employees, and increases in the contributions made to the profit
sharing and employee stock ownership plans. The Company has
experienced an increase in the health insurance area due
primarily to increased claims. The Company is partially self
insured, and as a result can have fluctuations in the cost of
this program. Management expects the insurance costs to be in
line with the prior year.
Occupancy and Equipment expense increased $37,722 or 15.6% over
the first quarter of 1995. The increase is due primarily to the
new office opened in Berlin, Ohio, depreciation related to the
replacement of five of the automated teller machines through the
last five months of 1994 and the renovation four offices during
that same time period.
The effect of the increases in total income, and a $105,000
reduction in the provision for loan losses, offset by the
increase in other expenses is an increase in the profit before
taxes of $342,424 or 28.7%. Based on this increase in profit
before taxes, the expense for Federal Income Taxes increased
$107,908 or 33.0%. Net income for the first quarter of 1995
was $1,099,300, representing an increase of $234,516 or 27.1%
over the same period in 1994.
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 23, 1995.
(b) The following directors were elected:
Gwenn E. Bull 1,548,301 FOR 15,426 ABSTAIN
David L. Christopher 1,547,852 FOR 15,875 ABSTAIN
Dennis B. Donahue 1,540,504 FOR 23,224 ABSTAIN
Jeffrey E. Smith 1,534,787 FOR 28,940 ABSTAIN
The following are the directors who were not up for
election and whose term continued after the Annual
Meeting:
Harold Freedlander James O. Basford
Dietrich Kaesgen Joseph R. Benden
Frank M. Hays David E. Taylor
Joseph E. Seringer
(c) Amend the Articles of Incorporation to increase the
number of authorized
common voting shares to 5,400,000:
1,553,315 FOR 1,623 AGAINST 8,789 ABSTAIN
(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,_1995____ ____________________________
David L. Christopher,
Chairman, President & CEO
Date ____May_10,_1995____ ____________________________
David P. Boyle, CPA
Vice President
and Chief Financial Officer
Wayne County National Bank
