UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
__X___ QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file num 014612
WAYNE BANCORP, INC
(Exact name of registrant as specified in its charter)
OHIO 34-1516142
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
112 West Liberty Street
P.O. Box 757
Wooster, Ohio 44691 44691
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (330) 264-1222
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceeding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days:
Yes__X__ No_____
Number of shares of Common Stock, Stated Value $1.00 per Share, issued and
outstanding at April 30, 1998, the latest practicable date: 4,917,219
INDEX
WAYNE BANCORP, INC.
FORM 10-Q
For the Quarter Ended March 31, 1998
PART I. FINANCIAL INFORMATION PAGE NO.
Item I. Financial Statements (Unaudited)
Consolidated Balance Sheets.................... 1
Consolidated Statements of Income
and Comprehensive Income.............. 2
Consolidated Statements of Cash Flows.......... 3
Notes to Consolidated Financial Statements..... 4,5
Item II. Management's discussion and analysis of financial
condition and results of operations....... 6,7,8,9
Item III. Quantitative and Qualitative Disclosures about
Market Risk................................. 10
PART II. OTHER INFORMATION................................ 11
SIGNATURES.................................................. 12
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands of dollars) March 31, December 31,
1998 1997
-----------------------------
ASSETS
Cash and Due From Banks....................... $19,461 $23,306
Federal Funds Sold............................ 18,655 7,785
-----------------------------
Total Cash and Cash Equivalents.. 38,116 31,091
Securities Available-for-Sale ............... 141,724 141,922
Loans ...................................... 318,717 324,442
Allowance for Loan Losses........ (4,998) (4,923)
-----------------------------
Net Loans........................ 313,719 319,519
Premises and Equipment........................ 8,987 8,923
Accrued interest receivable and other assets.. 8,097 6,926
-----------------------------
TOTAL ASSETS.................................. $510,643 $508,381
=============================
LIABILITIES
Deposits
Interest Bearing......................... $354,698 $347,898
Non-Interest Bearing..................... 57,514 61,967
-----------------------------
Total Deposits................... 412,212 409,865
Securities Sold Under Agreements.............. 36,459 37,503
Other Liabilities............................. 5,239 5,203
-----------------------------
Total Liabilities................ 453,910 452,571
SHAREHOLDERS' EQUITY
Common Stock, Stated Value $1................. 4,917 4,917
Shares Authorized 12,000,000 in 1998
5,400,000 in 1997
Shares outstanding - 4,917,203 in 1998
4,916,933 in 1997
Paid In Capital............................... 13,021 13,021
Retained Earnings............................. 38,632 37,347
Treasury Stock................................ (535) (173)
Unrealized gain on Securities Available-for-Sale 698 698
-----------------------------
Total Shareholders' Equity....... 56,733 55,810
-----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $510,643 $508,381
=============================
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
March 31,
1998 1997
-----------------------------
INTEREST INCOME:
Interest and Fees on Loans.................... $7,175 $6,393
Interest and Dividends on Securities:
Taxable.................................. 1,694 1,849
Nontaxable............................... 370 388
Other Interest Income......................... 155 81
-----------------------------
Total Interest Income............ 9,394 8,711
INTEREST EXPENSE:
Interest on Deposits.......................... 3,636 3,374
Interest on Repurchase Agreements............. 389 336
Interest on Other Borrowed Funds.............. 24 20
-----------------------------
Total Interest Expense........... 4,049 3,730
NET INTEREST INCOME........................... 5,345 4,981
Provision for Loan Losses..................... 60 227
-----------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES.................. 5,285 4,754
OTHER INCOME:
Service Charges on Deposits................... 413 413
Income from Fiduciary Activities.............. 300 270
Other Non-Interest Income..................... 97 148
Gain (Loss) on Security Sales................. (7)
-----------------------------
Total Other Income............... 810 824
OTHER EXPENSES:
Salaries and Employee Benefits................ 1,910 1,843
Occupancy and Equipment....................... 455 423
Other Non-Interest Expenses................... 1,262 1,337
-----------------------------
Total Other Expense.............. 3,627 3,603
INCOME BEFORE INCOME TAX EXPENSE.............. 2,468 1,975
INCOME TAX EXPENSE............................ 751 666
-----------------------------
NET INCOME.................................... 1,717 1,309
=============================
Other Comprehensive Income, net of tax
Unrealized gain/(loss) on available-for-sale
securities arising during the period...... (526)
Reclassification adjustment for amounts realized
on securities sales included in net income 7
-----------------------------
COMPREHENSIVE INCOME.......................... $1,717 $790
=============================
NET INCOME PER SHARE $0.35 $0.27
DIVIDENDS PER SHARE $0.09 $0.08
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
1998 1997
- ---------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income.................................... $1,717 $1,309
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses.............. 60 227
Depreciation and amortiza.............. 328 297
Amortization of security premiums
and discounts................... 20 8
Increase in interest receivable........ (448) (506)
Decrease in interest payable............ (148) (116)
Other, (net) ........................... (505) 40
-----------------------------
Net Cash Provided by Operating Activities..... 1,024 1,259
INVESTING ACTIVITIES
Purchase of securities available-for-sale.... (10,211) (9,827)
Proceeds from matured securities
available-for-sale .................. 10,388 18,686
Proceeds from sale of securities
available-for-sale................... 0 1,022
Net increase (decrease) in loans and leases... 5,554 (8,480)
Purchase of premises and equipment............ (313) (132)
-----------------------------
Net cash provided by investing activities..... 5,418 1,269
FINANCING ACTIVITIES
Net increase (decrease) in depos.............. 2,347 (13,179)
Net increase (decrease) in
repurchase agreements............... (1,044) 4,344
Cash dividends................................ (431) (393)
Cash dividends reinvested..................... 73 0
(Increase)decrease in treasury stock.......... (362) (29)
-----------------------------
Net cash (used) by financing activities....... 583 (9,257)
Decrease in cash and cash equivalents......... 7,025 (6,729)
Cash and cash equivalents at beginning of peri 31,091 28,369
-----------------------------
Cash and cash equivalents at end of period.... $38,116 $21,640
=============================
See notes to consolidated financial statements.
WAYNE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting standards for complete financial
statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included and such adjustments
are of a normal recurring nature. Certain prior year amounts have been
reclassified to conform with current financial statement presentation.
The consolidated financial statements include the accounts of
Wayne Bancorp, Inc. (the Company, and its wholly-owned
subsidiaries Wayne County National Bank (Wayne) and the Chippewa
Valley Bank (Chippewa). The financial statements of Wayne
include the accounts of its wholly-owned subsidiary, Wayne
National Company. All significant intercompany transactions
have been eliminated.
On March 31, 1998, the Company acquired all of the outstanding
shares of Chippewa Valley Bancshares, Inc., parent company of
The Chippewa Valley Bank. Shareholders of Chippewa received
2.1916 shares of the Company's common stock for each share of
Chippewa stock owned. The transaction was accounted for as a
pooling of interests, where the historical carrying values of
Chippewa's assets were carried forward to the consolidated
financial statements, without change. All prior financial
information has been restated to conform to the current
financial statement presentation.
Under a new accounting standard adopted on January 1, 1998,
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," comprehensive income is
reported for all periods. Comprehensive income includes both
net income and other comprehensive income. Other comprehensive
income includes the change in unrealized gains and losses on
securities available for sale.
2. Securities:
Securities are classified as available-for-sale. Available-for-sale
securities are those which may be sold by the Company if needed
for liquidity, asset-liability management, or other reasons.
Securities available-for-sale are reported at fair value, with unrealized
gains or losses included as a separate component of equity, net of tax.
Realized gains or losses are determined based on the amortized cost of the
specific security sold.
There were no security sales during the first quarter of 1998. During
the three months ended March 31, 1997, the proceeds from the sale of
securities available-for-sale were $1,021,781 with gross realized losses
of $7 thousand included in earnings.
Summary of Amortized Cost and Fair Values of Securities Available-for-sale:
March 31, 1998
Amortized Gross Unrealized Gross Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------
U.S. Treasury......... $28,542 $191 ($4) $28,729
Federal Agency Obligations.. 34,752 159 (46) 34,865
Federal Agency Pools.. 25,505 182 (33) 25,654
Obligations of states and
political subdivisio 29,229 445 (23) 29,651
Corporate Obligations. 20,421 22 (32) 20,411
Other securities...... 2,216 203 (5) 2,414
----------------------------------------------------
$140,665 $1,202 ($143) $141,724
====================================================
December 31, 1997
Amortized Gross Unrealized Gross Unrealized Fair
Cost Gains Losse Value
-----------------------------------------------------
U.S. Treasury......... $29,832 $205 ($9) $30,028
Federal Agency Obligations 28,657 173 (31) 28,799
Federal Agency Pools.. 27,533 176 (48) 27,661
Obligations of states and
political subdivisio 26,627 463 (10) 27,080
Corporate Obligations. 25,888 23 (59) 25,852
Other securities...... 2,326 178 (2) 2,502
-----------------------------------------------------
$140,863 $1,218 ($159) $141,922
=====================================================
3. Loans:
Loans are comprised of the following:
March 31, December 31,
1998 1997
----------------------------
Commercial loans................ $115,355 $124,913
Real Estate loans............... 137,412 132,445
Installment loans............... 51,271 52,332
Lease Financing................. 3,216 3,317
Home Equity loans............... 10,839 10,651
Credit Card..................... 522 593
Other loans..................... 102 191
----------------------------
Total.............. $318,717 $324,442
============================
The Company had approximately $3.7 million in one to four family
residential real estate mortgage loans included in real estate
loans above which are classified as held for sale at March 31,
1998. These loans are recorded at the lower of cost or market
in the aggregate. There were no loans classified as held for
sale at December 31, 1997.
4. Per Share Data:
Per share data is calculated based on 4,904,862 average common shares
outstanding for 1998 and 4,913,784 for 1997. All per share data has been
adjusted to reflect stock splits and dividends where applicable.
ITEM II - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
The main objectives of asset/liability management are to
provide adequate liquidity and to minimize interest rate risk.
Liquidity is the ability to meet cash flow needs, which in the
banking industry, refers to the Company's ability to fund customer
borrowing needs as well as deposit withdrawals. The Company's
primary source of liquidity is the daily Federal Funds Sold and
Securities available-for-sale. In addition, other assets such as
Cash and Due From Banks and maturing loans also provide
additional sources of liquidity. At March 31, 1998, the amount of
Cash and due from banks and securities and loans with scheduled
maturities within the next three months was $98 million. The Company
continues to keep a balance between short and long-term
investments and securities that will provide adequate liquidity
and simultaneously maximize earnings. Based on the Company's
capital position, profitability and reputation, the available
liquidity sources are considered adequate to meet the current
and projected needs of the Company.
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, 1998, the
Company's equity-to-asset ratio adjusted by the impact of FAS
#115 was 11.0% compared to 10.8% at December 31, 1997.
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 18.9% at March
31, 1998, and 18.6% at December 31, 1997.
The regulators require a minimum leverage capital ratio above
3%. They will expect most banks to maintain leverage ratios in
the 4-5% range. The leverage ratio is calculated as equity
capital less certain intangible assets divided by total assets less
the same intangible assets. At March 31, 1998, and December 31,
1997, the ratios were 10.9% and 10.6% respectively.
The Company's deposit insurance premiums which are paid to the
Federal Deposit Insurance Corporation are based on these capital
ratios. The FDIC considers a bank "adequately capitalized" if
the capital ratios are: Total equity 8% Tier 1 risk based
capital of 4% and a leverage ratio of 4%. The FDIC considers a
bank "well capitalized" with comparable capital ratios of 10%,
6% and 5%. The Company is considered "well capitalized",
and therefore is subject to the lowest deposit insurance
premiums available.
Financial_Condition__
The total assets of the Company increased by $2.3 million or .4%
from December 31, 1997 to March 31, 1998. This increase was primarily
due to temporary funds deposited by retail customers at December 31,
1997 and not withdrawn by March 31, 1998. Total loans have decreased
$5.7 million for the first three months on 1998 due to the payoff of two
large commercial loans in early February that amounted to over $11 million.
These payoffs were not within management's control, and management
does not feel that this is a trend in the commercial lending area.
The mortgage lending area has experienced growth of $5 million in the
first quarter of 1998 due to favorable interest rates on these types of
loans. Management feels that the mortgage portfolio is at a point where it
represents an increased amount of interest rate risk to the Company's
balance sheet. Because of this increased risk, and the thought that
interest rates will be rising throughout the year, management has taken
steps to sell a $3.7 million piece of the mortgage portfolio. It is expected
that this sale will be effective in mid May of 1998.
Management expects interest rates to be volitile and slightly rising for
the next six to nine months. Due to this, management may consider the
sale of additional mortgage loans if conditions warrant.
Total securities available-for-sale and fed funds sold increased by $10.7
million in the first quarter of 1998. This increase is due mainly to $11.0
million of commercial loans which were paid off in February of this year.
Management is keeping these funds in a short position to fund future commercial
loan growth, and in the event that area slows, management will invest these
funds in the securities portfolio.
Total deposits increased by $2.3 million in the first three months of 1998.
The Company normally experiences a decline in deposits during the first
quarter as mainly corporate customers draw their funds out that were on deposit
at year end. This was not the case in the first quarter of 1998. The Company
has begun to see these deposits flow out during the first part of the second
quarter. Deposit growth is difficult in today's financial markets due to the
wide variety of higher yielding investment options available to our customers.
This low level of deposit growth is being experienced throughout the banking
industry. Management feels that as long as these higher yielding options exist,
such as the stock market, banks will have continued problems with deposit
growth. The Company does have other sources of funds that will provide adequate
funds to enable the continued growth of the Company.
Results_of_Operations__
Net income was $1,717,000 for the first three months of 1998 compared
to $1,309,000 for the same period in 1997. Earnings per share for the
three months ended March 31, 1998 and 1997 were $.35 and $.27 per
share respectively. Dividends were $.09 per share in the first quarter of
1998 and $.08 per share for the first quarter in 1997. All per share numbers
have been adjusted for the issuance of 981,837 shares related to the merger
of Chippewa Valley Bancshares.
Total interest and fee income for the first three months increased
$683 thousand or 7.8% compared to the prior year. This increase is primarliy
due to the increase in earning assets, primarily concentrated in the
loan portfolio.
Total earning assets were $479.1 and $444.1 million at March 31, 1998 and
March 31, 1997. The increase in earning assets is due primarilay to the growth
in the loan portfolio of $21.5 million and $13.6 million of growth in the
securities and federal funds sold areas. The weighted interest earned on those
assets were 7.84% and 7.85% respectively.
Total interest bearing liabilities at March 31, 1998 and March 31, 1997 were
$391.1 and $366.1 million respectively. The weighted interest rate paid for
these deposits has increased from 4.08% at March 31, 1997 to to 4.14% at
March 31, 1998.
The net effect of the changes in interest earning assets and interest paying
liabilities, combined with the repricing that has occurred since March 31, 1997
caused an increase in net interest income of $364 thousand or 7.3%.
The provision for loan losses for the first quarter of 1998 was $60 thousand
compared to $227 thousand for the same period in 1997. This decrease is due
to the reserve position at Chippewa Valley Bank being under where management
felt necessary in 1997. At the end of the first quarter of 1998, that reserve
is considered adequate and sufficient given the makeup of the loan portfolio
there.
Total other expenses increased by $24 thousand for the three month's ended
March 31, 1998 compared with the same period in 1997.
Salaries and employee benefits increased $67 thousand
or 3.6% to $1.910 million for the quarter ended March 31, 1998 compared to
$1.843 million for the same period in 1997. The Company operates in a highly
competitive market for lower cost labor, and necessarily maintains base wages
higher in order to retain the current staff.
The other non-interest expenses declined $75 thousand for the first quarter
of 1998 as compared to the same quarter in 1997. The primary reasons for
the decline is a reduction in computer related expenses and data processing.
Year 2000 Issue
Many computer programs that are in use today use only two digits
to indicate which year is represented. If such computer
applications are not changed to allow the data field to reflect
the change in the century, the application may fail or create
erroneous results at the Year 2000 due to the improper sequence
of the year changing from "99" to "00".
Management of the Company has conducted an evaluation of all
significant computer systems used in the business of the Company
to determine whether such systems will function at the change of
the century. Management determined that most programs are or
will be capable of identifying the turn of the century. In
order to prevent potential credit quality issues, management is
also assessing the Year 2000 compliance status of major loan
customers to determine whether or not such entities are taking
steps to ensure their systems will function properly in the Year
2000. Management closely monitors the issue and full compliance
is expected by the end of 1998. Management does not anticipate
any material costs to be incurred to update its systems to be
Year 2000 compliant.
ITEM III - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Asset and Liability Management and Market Risk
The Company's primary market risk exposure is interest rate risk
and, to a lesser extent, liquidity risk. The Company does not
maintain a trading account for any class of financial instrument
and the Company is not affected by foreign currency exchange
rate risk or commodity price risk. Because the Company does not
hold any equity securities other than stock in the FHLB of
Cincinnati and an insignificant investment in other equity
securities, the Company is not subject to equity price risk.
Interest rate risk is the risk that the Company's financial
condition will be adversely affected due to movements in
interest rates. The Company, like other financial institutions,
is subject to interest rate risk to the extent that its
interest-earning assets reprice differently than its
interest-bearing liabilities. The income of financial
institutions is primarily derived from the excess of interest
earned on interest-earning assets over the interest paid on
interest-bearing liabilities. One of the Company's principal
financial objectives is to achieve long-term profitability while
reducing its exposure to fluctuations in interest rates.
Accordingly, the Company places great importance on monitoring
and controlling interest rate risk.
There are several methods employed by the Company to monitor and
control interest rate risk. One such method is using a gap
analysis. The gap is defined as the repricing variance between
rate sensitive assets and rate sensitive liabilities within
certain periods. The repricing can occur due to changes in
rates on variable rate products as well as maturities of
interest-earning assets and interest-bearing liabilities. A
high ratio of interest sensitive liabilities, generally referred
to as a negative gap, tends to benefit net interest income
during periods of falling interest rates as the average rate
paid on interest-bearing liabilities declines faster than the
average rate earned on interest-earning assets. The opposite
holds true during periods of rising interest rates. The Company
attempts to minimize the interest rate risk through management
of the gap in order to achieve consistent shareholder return.
The Company's Asset and Liability Management Policy is to
maintain a fairly neutral gap position of -10% to +10% in both
the short- and long-term periods. At March 31, 1998, the
Company had a gap position of -3.32% of total assets for a one
year period. Another strategy used by the Company is to
originate variable rate loans tied to market indices. Such
loans reprice on an annual, quarterly, monthly or daily basis as
the underlying market index change. Currently, approximately
32%, of the Company's loan portfolio reprices on at least
an annual basis. The Company also invests excess funds in
liquid federal funds that mature and reprice on a daily basis.
The Company also maintains all of its securities in the
available for sale portfolio to take advantage of interest rate
swings and to maintain liquidity for loan funding and deposit
withdrawals.
The Company's 1997 annual report details a table which provides
information about the Company's financial instruments that are
sensitive to changes in interest rates as of December 31, 1997.
The table is based on information and assumptions set forth in
the notes. The Company believes the assumptions utilized are
reasonable. For loans, securities and liabilities with
contractual maturities, the table represents principal cash
flows and the weighted average interest rate. For variable rate
loans the contractual maturity and weighted-average interest
rate was used with an explanatory footnote as to repricing
periods. For liabilities without contractual maturities such as
demand and savings deposit accounts, a decay rate was utilized
to match their most likely withdrawal behavior. Management
believes that no events have occurred since December 31, 1997
which would significantly change the ratio of rate sensitive
assets to rate sensitive liabilities for the given time horizons.
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:
(a1) Special Shareholder's Meeting
Date: February 23, 1998
(c) Description Vote on merger of Chippewa Valley Bancshares into
Wayne Bancorp, Inc.
Vote: FOR 3,038,101
AGAIN 20,613
ABSTAIN 16,591
(a2) Annual Shareholders' Meeting
Date: March 26, 1998
Description: Election of directors
Gwenn E. Bull FOR 3,174,001 ABSTAIN: 39,858
David L. Christopher FOR 3,193,667 ABSTAIN: 20,191
Dennis B. Donahue FOR 3,193,953 ABSTAIN: 19,906
Jeffrey E. Smith FOR 3,191,573 ABSTAIN: 22,286
The following are the directors who were not up for election and whose
term continued after the Annual Meeting:
James O. Basford B. Diane Gordon
David E. Taylor Darcy B. Pajak
John C. Johnston III Stephen L. Shapiro
Bala Venkataraman
Descripti Amend the articles of incorporation of the Company to
Increase the authorized shares to 12,000,000.
Vote: FOR 3,059,748
AGAIN 106,608
ABSTAIN 47,503
(d) None
ITEM 5 - Other information:
NONE
ITEM 6 - Exhibits and reports on Form 8-K:
NONE
______________________SIGNATURES______________________________
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized:
___Wayne_Bancorp,_Inc.__
(Registrant)
Date ____May_13,_1998____ ____________________________
David L. Christopher,
Chairman, President & CEO
Date ____May_13,_1998____ ____________________________
David P. Boyle, CPA
Treasurer
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