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 number 014612
For the Quarter Ended March 31, 2000
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 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, shares out-
standing at April 30, 2000, the latest practicable date: 4,593,586
INDEX
WAYNE BANCORP, INC.
FORM 10-Q
For the Quarter Ended March 31, 2000
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, 6
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.......................... 9, 10
PART II. OTHER INFORMATION........................... 11
SIGNATURES.................................. 12
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Unaudited) March 31, December 31,
(In thousands of dollars) 2000 1999
----------------------------
ASSETS
Cash and Due From Banks............................ $19,732 $23,660
Federal Funds Sold................................. 3,165 3,720
------------------------
Total Cash and Cash Equivalents............. 22,897 27,380
Securities Available-for-Sale...................... 144,738 150,018
Loans.............................................. 366,645 356,503
Allowance for Loan Losses....... (5,220) (5,197)
------------------------
Net Loans....................... 361,425 351,306
Premises and Equipment............................. 10,018 9,260
Accrued interest receivable and other assets....... 8,918 7,924
------------------------
TOTAL ASSETS....................................... $547,996 $545,888
========================
LIABILITIES
Deposits
Interest Bearing.............................. $396,417 $395,087
Non-Interest Bearing.......................... 67,342 66,728
------------------------
Total Deposits.................. 463,759 461,815
Short-term borrowings.............................. 25,494 25,683
Federal Home Loan Bank Advances.................... 1,270 1,288
ESOP Loan.......................................... 200 400
Other Borrowings................................... 135 0
Other Liabilities.................................. 3,179 3,456
------------------------
Total Liabilities............... 494,037 492,642
SHAREHOLDERS' EQUITY
Common Stock, Stated Value $1...................... 4,917 4,917
Shares authorized - 12,000,000 in 2000 and 1999
Shares issued - 4,917,218 in 2000 and 1999
Shares outstanding - 4,602,086 in 2000 and
4,752,217 in 1999
Paid In Capital.................................... 13,230 13,256
Retained Earnings.................................. 48,114 47,049
Unearned ESOP shares............................... (150) (200)
Treasury Stock, at cost............................ (10,928) (10,887)
Accumulated other comprehensive income............. (1,224) (889)
------------------------
Total Shareholders' Equity...... 53,959 53,246
------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $547,996 $545,888
========================
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited) Three Months Ended
(In thousands of dollars, March 31,
except per share data) 2000 1999
------------------------
INTEREST INCOME:
Interest and Fees on Loans......................... $7,551 $6,878
Interest and Dividends on Securities:
Taxable....................................... 1,723 1,975
Non-taxable................................... 436 409
Other Interest Income.............................. 21 43
------------------------
Total Interest Income........................... 9,731 9,305
INTEREST EXPENSE:
Interest on Deposits............................... 4,001 3,492
Interest on Repurchase Agreements.................. 305 339
Interest on Other Borrowed Funds................... 36 39
Interest on ESOP Loan.............................. 6 10
------------------------
Total Interest Expense.......................... 4,348 3,880
NET INTEREST INCOME................................ 5,383 5,425
Provision for Loan Losses.......................... 54 54
------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES................. 5,329 5,371
OTHER INCOME:
Service Charges on Deposits........................ 414 409
Income from Fiduciary Activities................... 345 345
Other Non-Interest Income.......................... 170 192
------------------------
Total Other Income.............. 929 946
OTHER EXPENSES:
Salaries and Employee Benefits..................... 2,063 1,744
Occupancy and Equipment............................ 544 476
Other Non-Interest Expenses........................ 1,097 1,211
------------------------
Total Other Expenses............ 3,704 3,431
INCOME BEFORE INCOME TAX EXPENSE................... 2,554 2,886
INCOME TAX EXPENSE................................. 754 856
------------------------
NET INCOME......................................... 1,800 2,030
========================
Other Comprehensive Income, net of tax
Unrealized gains (losses) on available-for-sale
securities arising during the period........... (336) (567)
Reclassification adjustment for amounts realized
on securities included in net income.......... 1 0
------------------------
COMPREHENSIVE INCOME............................... $1,465 $1,463
========================
NET INCOME PER COMMON SHARE - BASIC $0.39 $0.43
NET INCOME PER COMMON SHARE - DILUTED $0.39 $0.43
DIVIDENDS PER SHARE $0.16 $0.15
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
(Unaudited) March 31,
(In thousands of dollars) 2000 1999
- ---------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income......................................... $1,800 $2,030
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses................... 54 54
Depreciation and amortization............... 361 330
Amortization of security premiums and
discounts.................................. 124 169
Compensation expense on ESOP shares......... 24 41
Change in interest receivable............... (754) (155)
Change in interest payable.................. (201) (157)
Other, (net)................................ (226) (218)
------------------------
Net cash provided by operating activities.......... 1,182 2,094
INVESTING ACTIVITIES
Purchase of securities available-for-sale.......... (4,360) (8,582)
Proceeds from matured securities available-for-
sale.............................................. 9,005 17,732
Proceeds from sales of securities available-for-
sale.............................................. 3 0
Net increase in loans and leases................... (10,173) (6,684)
Purchase of premises and equipment, net............ (1,035) (50)
------------------------
Net cash (used) provided by investing activities... (6,560) 2,416
FINANCING ACTIVITIES
Net increase (decrease) in deposits................ 1,944 (2,399)
Net increase (decrease) in short-term borrowings... (189) (4,027)
Repayment of Federal Home Loan Bank advances....... (18) (17)
Repayment of ESOP loan............................. (200) (200)
Proceeds from other borrowed funds................. 135 0
Cash dividends paid................................ (633) (617)
Treasury stock purchased, net...................... (144) (3,370)
------------------------
Net cash provided (used) by financing activities... 895 (10,630)
Increase (decrease) in cash and cash equivalents... (4,483) (6,120)
Cash and cash equivalents at beginning of period... 27,380 27,810
------------------------
Cash and cash equivalents at end of period......... $22,897 $21,690
========================
Supplemental Disclosures of Cash Flow Information
Cash basis payments for federal income taxes....... $0 $0
Cash basis payments for interest expense........... $4,549 $4,037
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 pre-
pared 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 pre-
sentation 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), Chippewa Valley Bank (Chippewa), and MidOhio Data, Inc. (MID).
The financial statements of Wayne include the accounts of its wholly-owned
subsidiary, Wayne National Corporation. All significant intercompany trans-
actions have been eliminated.
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 comp-
rehensive income includes the change in unrealized gains and losses on secur-
ities available-for-sale, as adjusted for realized gains or losses on secur-
ities, available-for-sale, when applicable.
Beginning January 1, 2001, a new accounting standard will require all
derivatives to be recorded at fair values. Unless designated as hedges,
changes in these fair values will be recorded in the income statement. Fair
value changes involving hedges will generally be recorded by offsetting gains
and losses on the hedge item, even if the fair value of the hedged item is
not otherwise recorded. This is not expected to have a material effect, but
will depend on derivative holdings when this standard applies.
To prepare financial statements in conformity with generally accepted account-
ing principles, management makes estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported in
the financial statements and the disclosures provided, and future results
could differ. The allowance for loan losses, fair values of financial
instruments and status of contingencies are particularly subject to change.
Income tax expense is the total of the current-year income tax due or
refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are expected future tax amounts for the temporary
differences between carrying amounts and tax bases of assets and liabilities,
computed using enacted tax rates. A valuation allowance, if needed, reduces
deferred tax assets to the amount expected to be realized.
Some items in prior financial statements have been reclassified to conform to
the current presentation.
Basic earnings per common share is net income divided by the weighted average
number of common shares outstanding during the period. Employee Stock Option
Plan ("ESOP") shares are considered outstanding for this calculation unless
unearned. Diluted earnings per common share includes the additional poten-
tial common shares issuable under stock options. The weighted average number
of common shares outstanding for basic and diluted earnings per common share
computations were 4,597,590 and 4,754,794 for March 31, 2000 and 1999. Stock
options did not have a dilutive effect on the weighted average shares out-
standing for the three months ended March 31, 2000, due to the exercise price
for the stock options exceeding the average stock price of the Company for
the three months ended March 31, 2000.
2. Securities:
During the three months ended March 31, 2000 proceeds from the sale of secur-
ities were $3 thousand, with gross gains of $1 thousand included in earnings.
During the period ended March 31, 1999, there were no sales of securities.
The amortized cost and fair values of securities available-for-sale were as
follows:
March 31, 2000
Gross Gross
Amortized Unrealized Unrealized Fair
(In thousands of dollars) Cost Gains Losses Value
-----------------------------------------------
U.S. Treasury............... $29,628 $1 ($331) $29,298
Federal Agency Obligations.. 34,222 1 (554) 33,669
Federal Agency Pools........ 11,770 14 (200) 11,584
Obligations of states and...
political subdivisions.... 40,071 134 (476) 39,729
Corporate Obligations....... 28,889 49 (493) 28,445
Other securities............ 2,013 0 0 2,013
-----------------------------------------------
$146,593 $199 ($2,054) $144,738
===============================================
December 31, 1999
Gross Gross
Amortized Unrealized Unrealized Fair
(In thousands of dollars) Cost Gains Losses Value
-----------------------------------------------
U.S. Treasury............... $33,160 $17 ($261) $32,916
Federal Agency Obligations.. 35,371 2 (453) 34,920
Federal Agency Pools........ 13,083 20 (141) 12,962
Obligations of states and...
political subdivisions.... 37,931 183 (420) 37,694
Corporate Obligations....... 29,094 6 (305) 28,795
Other securities............ 2,726 63 (58) 2,731
-----------------------------------------------
$151,365 $291 ($1,638) $150,018
===============================================
3. Loans:
Loans are comprised of the following:
March 31, December 31,
(In thousands of dollars) 2000 1999
----------------------------
Commercial and Agricultural ........... $154,954 $146,504
Real Estate loans...................... 147,607 147,068
Installment loans...................... 49,740 48,411
Home Equity loans...................... 12,284 12,234
Lease Financing........................ 2,005 2,179
Other loans............................ 55 107
-----------------------------
Total............... $366,645 $356,503
=============================
4. Incentive Stock Options
On April 22, 1999, the shareholders of the Company voted to approve the
"1999 Incentive Stock Option Plan." This plan covers directors and certain
officers of the Company. Under this plan, options to purchase stock have
been granted to these directors and officers. This plan provides for the
issue of up to 500,000 options. Exercise price is the market price at the
date of grant. The maximum option term is ten years. Options issued to
directors are vested immediately, while options issued to certain officers
vest over a three year period. In the event, however of a change in control,
options issued to these officers become fully vested and excercisable
immediately.
5. Per Share Data:
Per share data is calculated based on 4,597,590 average common shares for
the three months ended March 31, 2000 and 4,754,794 average common shares for
the same period ending in 1999.
ITEM II - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
The following discusses the financial condition as of March 31, 2000 as
compared to December 31, 1999 and the results of operations for the three
months ended March 31, 2000 and the same period in 1999. This discussion
should be read in conjunction with the interim financial statements and
footnotes included herein.
Forward-Looking Statements
When used in this document, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimated," "projected"
or similar expressions are intended to identify "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1955.
Such statements are subject to certain risks and uncertainties, including
changes in economic conditions in the Company's market area, changes in
policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the Company's market area and competition that could cause actual
results to differ materially from the historical earnings and those presently
anticipated or projected. Factors listed above could affect the Company's
financial performance and could cause the Company's actual results to differ
materially from any statments expressed with respect to future periods.
The Company does not undertake, and specifically disclaims any obligation,
to publicly revise any forward-looking statements to reflect events or cir-
cumstances aftet the date of such statements or to reflect the occurrence of
anticiapted or unanticipated events.
Liquidity
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 from overnight 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 liquid-
ity. At March 31, 2000, the amount of Cash and due from banks and securities
and loans with scheduled maturities and or repricing within the next three
months was $114 million. The Company continues to keep a balance between
short and long-term investments and securities that will provide adequate
liquidity and 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, 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,
2000, the Company's equity-to-asset ratio adjusted by the impact of FAS#115
was 10.1% compared to 9.9% at December 31, 1999. 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
16.4% at March 31, 2000, and 16.5% at December 31, 1999.
The regulators require a minimum leverage capital ratio of 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, 2000,
and December 31, 1999, the ratios were 10.0% and 9.7% respectively.
The Company's deposit insurance premiums which are paid to the Federal
Deposit Insurance Corporation are based, in part, on these capital ratios.
The FDIC considers a bank "adequately capitalized" if the capital ratios are:
Total equity 8%, Tier 1 risk-based 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.
Management is not aware of any matters subsequent to March 31, 2000 that
would cause the Company's capital category to change.
Financial Condition
The total assets of the Company increased by $2.1 million or .4% from Decem-
ber 31, 1999 to March 31, 2000. This increase is due to growth in the loan
portfolio of $10.1 million, that was funded by deposit growth of $1.9 million
and reductions in cash and investments of $9.8 million.
The lending area has experienced growth of $10.1 million through the first
three months of 2000. This growth is primarily concentrated in the Commercial
and Installment loan areas with increases of $8.5 million and $1.3 million
respectively. Despite the increase in the prime lending rate of 125 basis
points from the prior year, the Company continues to experience strong loan
growth and increased demand in the Commercial loan area. Installment loans
have also increased from year end primarily due to the Company raising rates
on these types of loans at a slower pace than has been experienced in the
prime rate.
Management expects interest rates to continue rising over the next twelve to
twenty-four months, based on economic indicators, the direction of the Fed-
eral Reserve and general economic conditions. Rate increases, which signal
signs of an inflationary economy, impact rates charged on various loan types,
primarily Commercial and Residential Real Estate loans. Although the Company
did not sell any loans during the first thee months of 2000 or during the
twelve month period in 1999, management may consider the sale of loans into
the secondary market as market conditions warrant, to align the portfolio and
provide liquidity for future loan demand. There were no loans held for sale
at March 31, 2000 or December 31, 1999.
Total securities available-for-sale and fed funds sold decreased by $5.8 million
through the first quarter of 2000. This decrease is primarily due to the the
strong loan demand that the Company has been experiencing, where cash flows from
investment maturities were used to fund higher yielding loans.
Total deposits and borrowings increased by $3.0 million for the first quarter
of 2000. This increase is primarily within the Company's money market
accounts, most notably the Platinum account which has increased slightly over
$6.0 million since December 31, 1999. This is a popular account and features
a competitive interest rate as well as special account features. In order to
grow and retain deposits for asset growth and funding loans, the Company has,
as an ongoing objective, the growth of core deposits. To do this, Management
analyzes rates paid on deposits within its market area on a weekly basis to
ensure the Company's rates on similar products are competitive. In addition
to core deposits, the Company also has alternative funding sources through
overnight federal funds and advances from the Federal Home Loan Bank.
Results of Operations
Net income was $1,800,000 for the first three months of 2000 compared to
$2,030,000 for the same period in 1999. Earnings per common share for the
three months ended March 31, 2000 and 1999 were $.39 and $.43 per share
respectively. Dividends were $.16 per share for the first three months of
2000 and $.15 per share for the first three months in 1999.
Total interest income for the first three months increased $426,000 or 4.6%
compared to the prior year. This increase is primarily related to the strong
loan growth that has been achieved since last year as well as the overall
rise in the interest rate environment.
Total earning assets were $514.5 million and $499.4 million at March 31, 2000
and March 31, 1999. The increase in earning assets is due to growth in the loan
portfolio of $35.8 million, offset by a reduction of $20.7 million in secur-
ities and federal funds sold. The weighted average interest earned on those
assets has increased from 7.52% at March 31, 1999 to 7.65% at March 31, 2000.
Total interest bearing liabilities at March 31, 2000 and March 31, 1999 were
$423.5 and $406.1 million respectively. The weighted interest rate paid for
these liabilities has increased from 3.84% at March 31, 1999 to 4.17% at
March 31, 2000.
The net effect of the changes in interest earning assets and interest bearing
liabilities, combined with the repricing that has occurred since March 31, 1999,
caused a decrease in net interest income of $42,000, or .8%, for the three
months ended March 31, 2000.
The provision for loan losses was $54,000 for the three month period ending
March 31, 2000 and 1999, while the ratio of the allowance for loan losses to
total loans was 1.42% and 1.50% respectively. This decline in the ratio is
due to an 11% increase in loan balances, without an increase in non-perform-
ing loans. Given the make-up of the loan portfolio, which considers past due
loans, charge-off and recovery history as well as general economic condi-
tions, Management considers this ratio to be adequate and sufficient to cover
probable losses.
Total other expenses increased by $273,000 for the three months ended March
31, 2000 compared to the same period in 1999. Salaries and employee benefits
increased by $319 thousand or 18.3%, from $1,744,000 at March 31, 1999 to
$2,063,000 at March 31, 2000. This increase is due, in part, to the annual
salary adjustments that are made each year in order to maintain compensation
at a level that will attract and retain employees, as well as the addition of
new employees to staff the data processing company. Occupancy and equipment
expense increased $68 thousand, or 14.3%, from $476,000 at March 31, 1999 to
$544,000 at March 31, 2000. This increase is primarily related to the addi-
tion of new facilities. These facilities, which include a Mortgage loan
center, a full service branch as well as the relocation of an existing branch
and the creation of a new data processing company have increased expenses in
this area primarily due to increases in rent, depreciation, maintenance and
utilities. Other non-interest expenses have decreased $114,000, or 9.4%,
from $1,211,000 at March 31, 1999 to $1,097,000 at March 31, 2000. This
decline is due to the Company's efforts to control and contain costs where
possible. Several reductions were noted in this area, including directors
fees, franchise taxes, computer expense, credit card processing costs and
charge-offs. These decreases were offset by increases in FDIC insurance,
donations, stationary and supplies and phone expense.
Year 2000 Issue (Y2K)
The Company is pleased to announce that it did not experience any "Y2K"
related problems at the turn of the century, nor does it anticipate any problems
developing during the year 2000. During 1998, the Company began preparing for
"Y2K" by performing thorough inventories of all of its computer equipment,
related software and technology, as well as preparing a contingency plan for
"Y2K." As a result of this internal inventory, the Company was able to
identify potential problem areas as well as prepare a timeline for correcting
and or updating equipment as needed. During 1999, the Company continued its
preparation by proxy testing software and processing systems, as well as
making the necessary modifications as needed to install generators at key
locations in the event of a "Y2K" related power failure. The Company esti-
mates that a total of approximately $500 thousand has been spent for "Y2K"
preparations. As a result of this extensive preparation and planning, the
Company was well prepared for any "Y2K" related problems and did not
experience any losses.
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 instruments 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, 2000, the Company had a
negative GAP position of -14.1% of total assets for a one year period.
Although the GAP position is outside the goal, the Company feels that it can
reduce this negative position during the second and third quarters of the
year, as WCNB has approximately $11.5 million of certificates maturing during
the second quarter that had a special term of 33 months, but are now in the one
year window with respect to maturity. As these certificates mature a portion
of them will be "put back" in the GAP window at terms and maturities exceed-
ing one year. Another strategy used by the Company is to originate variable
rate loans tied to market indices. Such loans reprice on an annual, quar-
terly, monthly or daily basis as the underlying market index changes.
Currently, approximately 25% of the Company's loan portfolio is written as
variable rate. 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 fluctuations and to maintain liquidity for loan funding and
deposit withdrawals.
The Company's 1999 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, 1999. 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 con-
tractual 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 matur-
ities 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, 1999 that 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:
(a) Annual Shareholders' Meeting
Date: April 20, 2000
Description: Election of Directors
B. Diane Gordon FOR: 3,228,906 WITHHELD: 77,720
Stephen L. Shapiro FOR: 3,234,874 WITHHELD: 71,752
Bala Venkataraman FOR: 3,237,257 WITHHELD: 69,369
Description: Ratify the engagemend of Crowe, Chizek & Company LLP
as the independed auditor.
FOR: 3,238,024 AGAINST: 53,384 ABSTAIN: 15,218
(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 5, 2000 ____________________________
David L. Christopher,
Chairman
Date: May 5, 2000 ____________________________
David P. Boyle, CPA
Treasurer
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