UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15d
of the Securities Exchange Act of 1934
For the Quarter Ended: September 30, 1COMMISSION 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 (216) 264-1222
Indicate by check mark whether the registrant (1) has filed all report
required to be filed by section 13 or 15(d) of the Securities Exchange Act
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 October 31, 1995: 1,872,124
INDEX
WAYNE BANCORP, INC.
FORM 10-Q
For the Quarter Ended September 30, 1995
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheet.................. 1
Consolidated Statement of Income............ 2
Consolidated Statement of Cash Fl........... 3
Notes to Consolidated Financial Statements.. 4,5
Item 2. Management's discussion and analysis of financial
condition and results ............................... 6 - 8
PART II. OTHER INFORMATION.................................... 9
SIGNATURES...................................................... 10
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET (UNAUDITED) (In Thousands)
September 31, December 31,
1995 1994
----------------------
ASSETS
Cash and Due From Banks................... $11,841 $17,091
Federal Funds Sold........................ 4,970 0
----------------------
Total Cash and Cash Equivalents...... 16,811 17,091
Investment Securities Available-for-Sale.. 32,263 28,085
Investment Securities Held-to-Maturity
(Market Value September 30, 1995 $48,861
and $64,095 at December 31, 1994)
(Note 2)........... 48,414 65,066
Loans (Note 3).......................... 209,645 197,580
Unearned Income.......... (213) (653)
Allowance for Loan Loss.. (3,677) (3,448)
----------------------
Net Loans............................ 205,755 193,479
Premises and Equipment.................... 6,153 6,317
Investment in Affiliates.................. 152 123
Other Assets.............................. 5,485 5,523
----------------------
TOTAL ASSETS.............................. $315,033 $315,684
======================
LIABILITIES
Deposits
Interest Bearing..................... $224,045 $219,559
Non-Interest Bearing................. 40,684 46,986
----------------------
Total Deposits....................... 264,729 266,545
Federal Funds Purchased................... 0 5,000
Securities Sold Under Agreements
to Repurchase........................... 11,618 8,861
Other Liabilities......................... 2,106 1,639
----------------------
Total Liabilities.................... 278,453 282,045
SHAREHOLDERS' EQUITY
Common Stock, Stated Value $1............. 1,874 1,871
Shares Authorized 5,400,000
Shares Issued - 1,874,230 in 1995 and 1,871,467 in 1994
Shares Outstanding - 1,872,830 in 1995 and 1,870,971 in 1994
Paid In Capital........................... 7,998 7,897
Retained Earnings......................... 26,598 24,230
Treasury Stock............................ (80) (16)
Unrealized Gain/(Loss) on Securities
Available-for-Sale...................... 190 (343)
----------------------
Total Shareholders' Equity........... 36,580 33,639
----------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $315,033 $315,684
======================
See Notes to Consolidated Financial Statements
-1-
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (In Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
-------------------------------------------
INTEREST INCOME:
Interest and Fees on Loans....... $4,831 $4,201 $14,076 $12,117
Interest and Dividends on Securities:
Taxable..................... 901 791 2,676 2,328
Nontaxable.................. 310 346 952 1,005
Other Interest Income............ 52 26 129 71
-------------------------------------------
Total Interest Income............ 6,094 5,364 17,833 15,521
INTEREST EXPENSE:
Interest on Deposits............. 2,400 1,870 6,834 5,569
Interest on Repurchase Agreements 139 102 398 243
Interest on Other Borrowings..... 2 6 57 10
-------------------------------------------
Total Interest Expense........... 2,541 1,978 7,289 5,822
NET INTEREST INCOME.............. 3,553 3,386 10,544 9,699
Provision for Loan Losses........ 30 60 90 330
-------------------------------------------
NET INTEREST INCOME AFTER 3,523 3,326 10,454 9,369
PROVISION FOR LOAN LOSSES...
OTHER INCOME:
Service Charges and Fees......... 324 315 936 932
Income from Fiduciary Activities. 202 195 610 585
Other Non-Interest Income........ 143 122 426 391
Gain (Loss) on Sale of Securities 0 (20) (12) 2
-------------------------------------------
Total Other Income............... 669 612 1,960 1,910
OTHER EXPENSES:
Salaries and Employee Benefits... 1,183 1,102 3,553 3,253
Occupancy and Equipment.......... 264 250 812 729
Other Operating Expenses......... 1,134 1,127 3,325 3,282
-------------------------------------------
Total Other Expenses............. 2,581 2,479 7,690 7,264
INCOME BEFORE INCOME TAX EXPENSE. 1,611 1,459 4,724 4,015
INCOME TAX EXPENSE............... 471 401 1,365 1,110
-------------------------------------------
NET INCOME....................... $1,140 $1,058 $3,359 $2,905
NET INCOME PER SHARE (note 4) $0.61 $0.57 $1.79 $1.55
DIVIDENDS PER SHARE (note 4) $0.19 $0.16 $0.53 $0.45
See notes to consolidated financial statements.
-2-
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (In Thousands)
Nine Months Ended
September 30,
1995 1994
----------------------------------------------------------------
OPERATING ACTIVITIES
Net Income................................ $3,359 $2,905
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for Loan Losses.......... 90 330
Depreciation and Amortization...... 568 541
Amortization of Investment Security
premiums and discounts........... 305 854
(Increase) in interest receivable.. (149) (161)
Increase (Decrease) in interest pay 293 (593)
Other, (net)....................... (127) (710)
----------------------
Net Cash Provided by Operating Activities. 4,339 3,166
INVESTING ACTIVITIES
Purchase of Securities Held-to-Maturity... (5,362) (13,312)
Proceeds from matured Investment Securities
Held-to-Maturity....................... 23,201 21,699
Purchase of Investment Securities Availabl (7,865) (8,962)
Proceeds from sale of Investment Securities
Available-for-Sale..................... 1,003 6,075
Proceeds from matured Investment Securities
Available-for-Sale..................... 2,000 0
Net increase in loans and leases.......... (12,366) (12,122)
Purchase of premises and equipment........ (217) (768)
----------------------
Net cash used by investing activities..... 394 (7,390)
FINANCING ACTIVITIES
Net decrease in deposits................. (1,814) (4,050)
Net increase (decrease) in short term bor (2,243) 5,185
Cash dividends............................ (992) (836)
Cash dividends reinvested................. 97 123
Issuance of common stock.................. 3 197
Purchase of Treasury Stock................ (135) 0
Sale of Treasury Stock.................... 71 0
----------------------
Net cash used by financing activities..... (5,013) 619
Decrease in cash and cash equivalents..... (280) (3,605)
Cash and cash equivalents at beginning
of the period........................... 17,091 17,081
----------------------
Cash and cash equivalents at end of period $16,811 $13,476
======================
Non-cash Transaction:
Transfer of loans held for sale to held to 7,696
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
specific security sold.
During the nine months ended September 30, 1995 and 1994, the proceeds
from the sale of available-for-sale securities were $1,002,531 and
$6,074,841, with realized losses of $742 in 1995 and $20,660 in 1994
and gains of $21,891 in 1994 included in earnings. Proceeds from sales
of held-to-maturity securities who's maturity date was within
90 days of the sale date amounted to $8,090,369 with realized losses
of $10,751 included in earnings. Proceeds from these sales are included
as maturities in the Consolidated Statement of Cash Flows. There were
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 approximately $807,000. There were no transfers of
securities classified as held-to-maturity.
Summary of book and market values of securities:
Securities Available for Sale (In Thousands)
September 30, December 31, 1994
Book Market Book Market
------------------------------------------
U.S. Treasury................. $17,866 $17,969 $13,953 $13,567
Federal Agency Obligations....... 9,145 9,249 10,276 10,170
Federal Agency Pools.......... 3,204 3,284 3,509 3,482
Mortgage Backed Obligations... 160 161 192 191
Other securities.............. 1,600 1,600 675 675
------------------------------------------
$31,975 $32,263 $28,605 $28,085
==========================================
-4-
Securities Held to Maturity (In Thousands)
September 30, 1995 December 31, 1994
Book Market Book Market
------------------------------------------
U.S. Treasury................. $4,021 $4,061 $5,058 $4,963
Federal Agency Obligations....... 9,575 9,541 19,716 19,335
Federal Agency Pools.......... 7,459 7,425 8,067 7,737
Mortgage Backed Obligations... 0 0 176 175
Obligations of states and
political subdivisions...... 22,857 23,297 24,510 24,437
Other securities.............. 4,502 4,537 7,539 7,448
------------------------------------------
$48,414 $48,861 $65,066 $64,095
==========================================
3. Loans:
Loans, including loans held for sale are comprised of the following:
September 30, December 31,
1995 1994
----------------------
Commercial loans.......................... $81,406 $75,983
Real Estate loans......................... 76,903 73,387
Installment loans......................... 37,303 34,218
Direct Lease Financi...................... 2,934 2,741
Credit Card Loans......................... 5,193 5,696
Home Equity loans......................... 5,906 5,543
Other loans............................... 0 12
----------------------
Total................. $209,645 $197,580
======================
On January 1, 1995 the Company adopted Statement of Financial Accounting
Standard No.114, "Accounting by Creditors for Impairment of a Loan".
Adoption of this standard has had no impact to the financial statements.
4. Per Share Data:
Per share data is calculated based on 1,872,377 average common shares
outstanding for 1995 and 1,865,560 for 1994. 1994 numbers have been
adjusted for a 5% stock dividend effective December 31, 1994.
-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 September 30, 1995, the amount of Fed Funds Sold and
Investments available for sale or maturing within the next three
months was $38.0 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 September 30, 1995, the Company
had a GAP position of -4.31% of total assets for a one year period.
This negative GAP is a result of the lengthening of the Bank's
investment portfolio and growth in lending areas where interest
rates are fixed. 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 September 30, 1995 the
Company's equity-to-asset ratio adjusted by the impact of FAS
#115 was 11.6% 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 18.2% at September
30, 1995 and 17.8% at December 31, 1994.
-5-
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 September 30, 1995 and December 31,
1994 the ratios were 11.3% 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 $651 thousand or
or .5% from December 31, 1994 to September 30, 1995. The decrease
was due to temporary funds deposited by retail customers at
December 31, 1994 and withdrawn, as well as the sale of
investment securities, with the proceeds of those sales used to
pay back short term federal funds borrowed. Total loans
increased $12.1 million in the first nine months with a continued
strong demand for commercial and consumer loans as interest
rates appeared to stabilize. Real estate lending showed a 4.8%
growth in the first nine months of 1995, after over years of
steadily larger increases. This growth slow down in real
estate lending is attributed to a slower housing market and a
reduction in refinancing of existing real estate loans as rates
have risen from their low point in 1993. 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 decline, and the general economic conditions will
stabilize which could increase the demand for loans.
Total investments declined by $12.5 million in the first
nine months 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, of the Consolidated Financial Statements ,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 has not affected 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.
-6-
Total deposits remained relatively stable from December 31, 1994
to September 1995. The Company has experienced a decline in deposits
in the first quarter where mostly corporate customers draw funds out
that were on deposit at year end, and a growth back to year end
levels by the end of the third quarter. The certificates of deposit,
which had been declining steadily for the past two years due to the
decline in interest rates have since began to grow at a 4% pace.
This growth is coming at the expense of short term demand deposit
accounts. The experience in the first nine months 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 and 1996.
Results_of_Operations__
Net income was $3.4 million for the first nine months of 1995
compared to $2.9 million for the same period in 1994. Earnings
per share for the nine months ended September 30, 1995 and 1994
were $1.79 and $1.55 per share respectively. Dividends were $.53 per
share in the first nine months of 1995 and $.45 per share for the
first nine months of 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 nine months increased
$2.3 million or 14.9% 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 September 30, 1994. Total earning
assets were $290 and $282 million at September 30, 1995 and 1994.
The weighted interest rate earned on those assets were 8.20% and
7.34% 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.
Total interest paying liabilities at September 30, 1995
and 1994 were $235.7 and $229.9 million respectively. The weighted
interest rate paid for these deposit accounts has risen from 3.38%
at September 30, 1994 to 4.12% at September 30, 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 $845 thousand or 8.7%.
Total other income increased $50 thousand for the nine months
ended September 30, 1995 compared to 1994. The primary reason
for this is a $35 thousand increase in other non-interest income and
a $25 thousand increase in the income from Trust and Investment
services. These two increases are offset by a $14 thousand difference
in the gain/loss on sale of investment securities.
-7-
The provision for loan losses has declined $240 thousand or
72.3% in the first nine months of 1995 versus 1994. At September 30,
1995 the Company had approximately $143 thousand of loans and
leases past due 90 days or more. In addition, the Bank is currently
in a net recovery position on loan chargeoffs for the first nine months
of approximately $138 thousand. In late May, 1995, a previously
charged off loan in the amount of approximately $137,000 was
recovered. With this type of superior loan quality, the net
recovery position and a reserve to total loans ratio of 1.76%,
management has reduced the provision.
Total other expenses have increased $426 thousand for the
nine months ended September 30, 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 expenses is due to the
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 half of 1994.
On August 8, 1995 the Federal Deposit Insurance Corporation (FDIC)
adopted a rule to reduce bank deposit insurance premiums by as much as
80%. For the first six months of 1995, the Bank paid 23 cents per $100
of insured deposits. This new rule reduced that to approximately 4 cents
per $100 of insured deposits. The new rule will provide for a reduction
in the FDIC insurance premiums in amount of approximately $500 thousand
on a pre-tax basis.
The Company may also be affected by a plan recently proposed to
capitalize the Savings Association Insurance Fund (SAIF) of the FDIC.
The proposal includes a one time assessment of 85 to 90 cents per $100
of SAIF insured deposits. In July of 1991, the Company acquired SAIF
insured deposits in the acquisition of four savings and loan branches.
These deposits at September 30, 1995 are approximately $32.4 million.
If this proposal is enacted, it would increase the deposit insurance
premiums as much as $290 thousand.
The effect of the increases in total income, and a $240
thousand reduction in the provision for loan losses, offset by
the increase in other expenses is an increase in the profit
before taxes of $709 thousand or 17.7%. Based on this increase
in profit before taxes, the expense for Federal Income Taxes
increased $255 thousand. Net income for the first nine months
of 1995 was $3.4 million, representing an increase of
$454 thousand or 15.6% over the same period in 1994.
-8-
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
-9-
______________________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 ____October_01,_1995____ ____________________________
David L. Christopher,
Chairman, President & CEO
Date ____October_01,_1995____ ____________________________
David P. Boyle, CPA
Vice President / Chief Financial Of
Wayne County National Bank
-10-
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