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: September 30, 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 re-
quirements for the past 90 days:
Yes__X__ No_____
Number of shares of Common Stock, Stated Value $1.00 per Share, shares out-
standing at October 31, 2000, the latest practicable date: 4,599,306
INDEX
WAYNE BANCORP, INC.
FORM 10-Q
For the Quarter Ended September 30, 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
Item II. Management's discussion and analysis of financial
condition and results of operations......... 6
Item III. Quantitative and Qualitative Disclosures about
Market Risk................................. 10
PART II. OTHER INFORMATION................................... 12
SIGNATURES..................................................... 13
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Unaudited) September 30, December 31,
(In thousands of dollars) 2000 1999
--------------------------
ASSETS
Cash and Due From Banks............................ $21,168 $23,660
Federal Funds Sold................................. 5,565 3,720
------------------------
Total Cash and Cash Equivalents... 26,733 27,380
Securities Available-for-Sale...................... 128,995 150,018
Loans.............................................. 389,165 356,503
Allowance for Loan Losses......... (5,312) (5,197)
------------------------
Net Loans......................... 383,853 351,306
Premises and Equipment............................. 9,799 9,260
Accrued interest receivable and other assets....... 9,074 7,924
------------------------
TOTAL ASSETS....................................... $558,454 $545,888
========================
LIABILITIES
Deposits
Interest Bearing.............................. $402,389 $395,087
Non-Interest Bearing.......................... 65,192 66,728
------------------------
Total Deposits.................... 467,581 461,815
Short-term borrowings.............................. 26,985 25,683
Federal Home Loan Bank Advances.................... 2,982 1,288
ESOP Loan.......................................... 200 400
Other Borrowings................................... 129 0
Other Liabilities.................................. 3,173 3,456
------------------------
Total Liabilities................. 501,050 492,642
SHAREHOLDERS' EQUITY
Common Stock, Stated Value $1...................... 4,917 4,917
Shares authorized - 12,000,000
Shares issued - 4,917,218
Shares outstanding - 4,606,806 in 2000 and
4,602,985 in 1999
Paid In Capital.................................... 13,169 13,256
Retained Earnings.................................. 50,659 47,049
Unearned ESOP shares - 1,136 shares in 2000 and
4,545 shares in 1999........ (50) (200)
Treasury Stock, at cost - 310,412 shares in 2000 and
314,233 shares in 1999... (10,897) (10,887)
Accumulated other comprehensive income............. (394) (889)
------------------------
Total Shareholders' Equity........ 57,404 53,246
------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $558,454 $545,888
========================
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited) Three Months Ended Nine Months Ended
(In thousands of dollars, September 30, September 30,
except per share data) 2000 1999 2000 1999
------------------------------------------
INTEREST INCOME:
Interest and Fees on Loans............ $8,541 $7,307 $24,208 $21,238
Interest and Dividends on Securities:
Taxable.......................... 1,532 1,700 4,876 5,496
Non-taxable...................... 460 410 1,384 1,251
Other Interest Income................. 79 47 145 158
-----------------------------------------
Total Interest Income........... 10,612 9,464 30,613 28,143
INTEREST EXPENSE:
Interest on Deposits.................. 4,446 3,641 12,614 10,680
Interest on Repurchase Agreements..... 351 249 1,010 882
Interest on Other Borrowed Funds...... 183 132 365 223
Interest on ESOP Loan................. 4 9 14 27
-----------------------------------------
Total Interest Expense.......... 4,984 4,031 14,003 11,812
NET INTEREST INCOME................... 5,628 5,433 16,610 16,331
Provision for Loan Losses............. 54 27 162 135
-----------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES..................... 5,574 5,406 16,448 16,196
OTHER INCOME:
Service Charges on Deposits........... 469 450 1,326 1,298
Income from Fiduciary Activities...... 345 345 1,035 1,035
Other Non-Interest Income............. 142 184 493 570
Gain on Security Sales................ 2 0 3 51
----------------------------------------
Total Other Income............. 958 979 2,857 2,954
OTHER EXPENSES:
Salaries and Employee Benefits........ 2,085 2,003 6,225 5,641
Occupancy and Equipment............... 488 447 1,527 1,383
Other Non-Interest Expenses........... 1,097 1,210 3,279 3,685
----------------------------------------
Total Other Expenses........... 3,670 3,660 11,031 10,709
INCOME BEFORE INCOME TAX EXPENSE...... 2,862 2,725 8,274 8,441
INCOME TAX EXPENSE.................... 850 779 2,458 2,464
-----------------------------------------
NET INCOME............................ 2,012 1,946 5,816 5,977
=========================================
Other Comprehensive Income, net of tax
Unrealized holding gains (losses)
on available-for-sale securities
arising during the period.......... 610 (147) 497 (1,772)
Reclassification adjustment for (gains)
losses realized during the period.. (1) 0 (2) (34)
------------------------------------------
COMPREHENSIVE INCOME.................. $2,621 $1,799 $6,311 $4,171
==========================================
NET INCOME PER COMMON SHARE - BASIC $0.44 $0.42 $1.27 $1.28
NET INCOME PER COMMON SHARE - DILUTED $0.44 $0.42 $1.27 $1.28
DIVIDENDS PER SHARE $0.16 $0.15 $0.48 $0.45
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
(Unaudited) September 30,
(In thousands of dollars) 2000 1999
------------------------
OPERATING ACTIVITIES
Net Income..................................... $5,816 $5,977
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses............... 162 135
Depreciation and amortization........... 1,078 987
Amortization of security premiums and
discounts.............................. 312 620
Compensation expense on ESOP shares..... 63 118
Change in interest receivable........... (983) (169)
Change in interest payable.............. (27) (41)
Other, (net)............................ (929) (318)
------------------------
Net cash provided by operating activities...... 5,492 7,309
INVESTING ACTIVITIES
Purchase of securities available-for-sale...... (7,424) (22,284)
Proceeds from matured securities available-for
sale......................................... 21,681 39,770
Proceeds from sales of securities available-
for-sale..................................... 7,204 9,754
Net increase in loans and leases............... (32,709) (25,319)
Purchase of premises and equipment, net........ (1,366) (1,366)
------------------------
Net cash (used) provided by investing a........ (12,614) 555
FINANCING ACTIVITIES
Net increase (decrease) in deposits............. 5,766 12,988
Net increase (decrease) in short term borrowings 1,302 (11,125)
Proceeds from Federal Home Loan Bank advances... 11,750 12,000
Repayment of Federal Home Loan Bank advances.... (10,056) (7,052)
Repayment of ESOP loan.......................... (200) (200)
Proceeds from other borrowed funds.............. 137 0
Repayment of other borrowed funds............... (8) 0
Cash dividends paid............................. (2,206) (2,105)
Proceeds from issuance of treasury stock........ 304 300
Purchases of treasury stock..................... (314) (8,977)
------------------------
Net cash provided (used) by financing activities 6,475 (4,171)
Increase (decrease) in cash and cash equivalents (647) 3,693
Cash and cash equivalents at beginning of period 27,380 27,810
------------------------
Cash and cash equivalents at end of period...... $26,733 $31,503
========================
Supplemental Disclosures of Cash Flow Information
Cash basis payments for federal income taxes.... $2,715 $2,325
Cash basis payments for interest expense........ $14,030 $11,853
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 re-
quired by generally accepted accounting standards for complete financial
statements. In the opinion of management, all adjustments considered neces-
sary for a fair presentation have been included and such adjustments are of
a normal recurring nature.
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.
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
accounting 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 finan-
cial instruments and status of contingencies are particularly subject to change.
Income tax expense is the total of the current-year income tax due or refund-
able 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 basis 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.
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 calcu-
lation unless unearned. Diluted earnings per common share includes the
additional potential common shares issuable under stock options. The weighted
average number of common shares outstanding for basic and diluted earnings
per common share computations were 4,597,319 and 4,658,766 for the nine
months ended September 30, 2000 and 1999, and for the three months ended
September 30, 2000 and 1999 the weighted average shares outstanding were
4,597,874 and 4,592,899 respectively. Stock options did not have a dilutive
effect on the weighted average shares outstanding for the three and nine
month periods ending September 30, 2000 and 1999, due to the exercise price
for the stock options exceeding the average stock price of the Company during
these periods.
Some items in prior financial statements have been reclassified to conform to
the current presentation.
2. Securities:
During the nine months ended September 30, 2000, gross proceeds from the sale
of securities were $7.2 million, with gross realized gains of $9 thousand and
gross realized losses of $6 thousand included in earnings. During the nine
months ended September 30, 1999, gross proceeds from the sale of securities
were $9.8 million, with gross realized gains of $54 thousand and gross real-
ized losses of $3 thousand included in earnings. During the three months
ended September 30, 2000, gross proceeds from the sale of securities were
$7.2 million, with gross realized gains of $8 thousand and gross realized losses
of $6 thousand included in earnings. There were no security sales during the
three month period ending September 30, 1999.
The amortized cost and fair values of securities available-for-sale were
as follows:
September 30, 2000
Gross Gross
Amortized Unrealized Unrealized Fair
(In thousands of dollars) Cost Gains Losses Value
-----------------------------------------------
U.S. Treasury............... $24,576 $23 ($106) $24,493
Federal Agency Obligations.. 30,899 72 (220) 30,751
Federal Agency Pools........ 8,655 15 (84) 8,586
Obligations of states and
political subdivisions.... 38,108 192 (242) 38,058
Corporate Obligations....... 24,516 36 (132) 24,420
Other securities............ 2,838 34 (185) 2,687
-----------------------------------------------
$129,592 $372 ($969) $128,995
===============================================
December 31, 1999
Gross Gross
Amortized Unrealized Unrealized Fair
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 stat.........
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:
September 30, December 31,
(In thousands of dollars) 2000 1999
----------------------------
Commercial loans....................... $168,752 $146,504
Real estate loans...................... 151,912 147,068
Installment loans...................... 52,965 48,411
Home equity loans...................... 13,311 12,234
Lease financing........................ 1,986 2,179
Other loans............................ 239 107
----------------------------
Total............... $389,165 $356,503
============================
Loans considered impaired within the scope of SFAS No. 114 were not significant
at September 30, 2000 and December 31, 1999, and during the three and nine
months ended September 30, 2000 and 1999.
ITEM II - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
The following discusses the financial condition as of September 30, 2000, as
compared to December 31, 1999 and the results of operations for the three and
nine months ended September 30, 2000 and the same periods in 1999. This
discussion should be read in conjunction with the interim financial state-
ments 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 1995.
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 statements 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 circum-
stances after the date of such statements or to reflect the occurrence of
anticipated 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 and
pay operating expenses. 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 liquidity. At September 30, 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 $130 million. The Company con-
tinues to keep a balance between short and long-term investments and secur-
ities 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 September 30,
2000, the Company's equity-to-asset ratio adjusted by the impact of accumu-
lated other comprehensive income was 10.3% 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 assess-
ment, the risk-based capital ratio is 16.8% at September 30, 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 September 30,
2000, and December 31, 1999, these ratios were 10.3% 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 and bank subsidiaries are considered "well capitalized"
and therefore are subject to the lowest deposit insurance premiums available.
Management is not aware of any matters subsequent to September 30, 2000, that
would cause the Company's capital category to change.
Financial Condition
The total assets of the Company increased by $12.6 million or 2.3% from
December 31, 1999 to September 30, 2000. This increase is due to growth in
the loan portfolio of $32.7 million, funded by an increase in deposits and
borrowed funds of $8.8 million and a $21.0 million reduction in investments.
The loan portfolio has experienced growth of $32.7 million through the first
nine months of 2000. This growth is primarily concentrated in the commer-
cial, residential real estate and installment loan areas, which have grown
$22.2 million, $4.8 million and $4.6 million respectively. Despite the
increases in the prime lending rate the Company has experienced strong loan
growth and steady demand in the commercial loan area. Despite the general
rise in mortgage loan rates the company has been able to grow the balances in
this area by over 3%. And, as rates begin to fall the company feels growth in
this area will accelerate. The growth in the installment loan area has been
achieved by maintaining market competitive rates on these types of loans.
Management expects interest rates to stabilize in the short term, and then
decline slightly over the next twelve to fifteen months, based on economic
indicators and general economic conditions. Rate increases indicate an
inflationary economy, while rate decreases signal a weak or depressed
economy. These rate fluctuations have a similar impact on rates charged on
various loan types, primarily commercial and residential real estate loans.
As rates rise, loan rates increase, and as rates fall the rates are lowered
accordingly. Although the Company did not sell any loans during the first
nine months of 2000, 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
September 30, 2000 or December 31, 1999.
Total securities available-for-sale and fed funds sold decreased by $19.2
million through the third quarter of 2000. This decrease is primarily due to
the strong loan demand the Company has been experiencing, where cash flows from
investment maturities have been used to fund higher yielding loans. In
addition, the Company sold $7.2 million of securities for asset liability
purposes.
Total deposits increased by $5.8 million for the nine months ended September 30,
2000. This increase in deposits is viewed as a normal part of the business
cycle within the Company's market area, as the Company routinely experiences
an increase in deposits during the third and fourth quarters of the year, and
conversely experiences a decline in deposits during the first and second
quarters of the succeeding year. Although the Company has grown deposits
since year end, the ongoing growth and retention of deposits is becoming more
difficult. This is primarily due to the increased acceptance of mutual funds
and the stock market as investment vehicles. Despite this trend, the Company
has set an initiative to continue to grow core deposits in order to fund loan
demand and grow assets. In order to maintain deposit growth, 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.
Total other borrowings increased $2.9 million for the nine months ended Septem-
ber 30, 2000. This increase is primarily in funds advanced from the Federal
Home Loan Bank as well as an increase in repurchase agreements. The increase
in advances was used to fund loans as the growth in the loan portfolio out-
paced the growth in deposits.
Results of Operations
Net income was $5,816,000 for the first nine months of 2000, compared to
$5,977,000 for the same period in 1999. Earnings per common share for the
nine months ended September 30, 2000 and 1999 were $1.27 and $1.28 per share
respectively. Dividends were $.48 per share for the first nine months of
2000 and $.45 per share for the first nine months in 1999.
For the three months ended September 30, 2000, net income was $2,012,000, or
$.44 per share, with dividends paid of $.16 per share. This compares to net
income of $1,946,000, or $.42 per share, with dividends paid of $.15 per
share for the three months ended September 30, 1999.
Total interest income for the first nine months increased $2.5 million or 8.8%
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. For the three months ended September
30, 2000 total interest income increased $1.1 million over the comparable
quarter in 1999, which represents an increase of 12.1%. Similar to the year to
date increase, this increase is due to strong loan growth and rise in interest
rates.
Total earning assets were $523.7 million and $505.3 million at September 30,
2000 and September 30, 1999. The increase in earning assets is due to growth
in the loan portfolio of $39.5 million, offset by a reduction of $21.0 mil-
lion in securities and federal funds sold. The weighted average interest
earned on these assets has increased from 7.51% at September 30, 1999 to
7.86% at September 30, 2000.
Total interest bearing liabilities at September 30, 2000 and September 30, 1999
were $432.7 and $417.5 million respectively. The weighted interest rate paid
for these liabilities has increased from 3.86% at September 30, 1999 to 4.35%
at September 30, 2000.
The net effect of the changes in interest earning assets and interest bearing
liabilities, combined with the repricing that has occurred since September
30, 1999, caused an increase in net interest income of $279,000, or 1.7%, for
the nine months ended September 30, 2000.
The provision for loan losses was $162,000 for the nine month period ending
September 30, 2000, compared to $135,000 for the same period in 1999,
which represents an increase of $27,000 or 20.0%. This increase is due to
Chippewa not recording a provision in the prior year due to significant
recoveries that allowed their provision to keep pace with loan growth. The
allowance for loan losses to total loans was 1.36% at September 30, 2000,
compared to 1.46% for the prior period. This decline in the ratio is due to
an 11.3% increase in loan balances, without an increase in non-performing
loans. Given the make-up of the loan portfolio, including past due loans,
charge-off and recovery history as well as general economic conditions, man-
agement considers the allowance for loan losses to be adequate and sufficient
to cover probable incurred credit losses. The provision for loan losses was
$54,000 for the three month period ending September 30, 2000, compared to
$27,000 for the same period in 1999, which represents an increase of $27,000,
or 50.0%. This increase as noted earlier is due to Chippewa not recording a
provision during the same period last year.
Total other expenses increased by $322,000, or 3.0%, for the nine months ended
September 30, 2000 compared to the same period in 1999. Salaries and employee
benefits increased by $584,000, or 10.4%, from $5,641,000 at September 30, 1999
to $6,225,000 at September 30, 2000. This increase is due, in part, to the
annual salary adjustments that are made each year in order to maintain com-
pensation at a level that will attract and retain employees, as well as the
addition of new employees to staff the data processing subsidiary, which pro-
vides services to Wayne. Occupancy and equipment expense increased $144,000,
or 10.4%, from $1,383,000 at September 30, 1999 to $1,527,000 at September
30, 2000. This increase is primarily related to the addition of a mortgage
loan center, a full service branch as well as the relocation of an existing
branch and the facilities occupied by the new data processing subsidiary.
The increased expenses in this area primarily result from additional rent,
depreciation, maintenance and utilities. Other non-interest expenses have
decreased $406,000, or 11.0%, from $3,685,000 at September 30, 1999 to
$3,279,000 at September 30, 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, advertising
and computer expense. These decreases were offset by increases in expenses
related to trust, telephone, donations and FDIC insurance.
Total other expenses for the three months ended September 30, 2000, increased
$10,000, or .3%, from $3,660,000 at September 30, 1999 to $3,670,000 at Sep-
tember 30, 2000. Salaries and employee benefits increased by $82,000, or
4.1%, from $2,003,000 at September 30, 1999 to $2,085,000 at September 30,
2000. This increase is due, in part, to the annual salary adjustments as
well as the addition of new employees to staff the data processing company.
Occupancy and equipment expense increased $41,000, or 9.2% from $447,000 at
September 30, 1999 to $488,000 at September 30, 2000. This increase is
primarily related to the addition of new facilities. Other non-interest
expenses have decreased $113,000, or 9.3%, from $1,210,000 at September 30,
1999 to $1,097,000 at September 30, 2000. This decrease is due to the Com-
pany's ongoing ability to control and contain costs. Several reductions were
noted in this area which include franchise tax, service charges, advertising
and computer expense. To offset these decreases, the Company had increases
in expenses related to directors fees, office supplies, telephone, and
donations.
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 af-
fected 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 -15% in a one
year period. At September 30, 2000, the Company had a negative GAP position
of -11.3% 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 changes. Currently, approximately 29% of the Com-
pany'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 provides a table which details 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
maturities such as demand and savings deposit accounts, a decay rate was
utilized to match their most likely withdrawal behavior. Management monitors
interest rate risk on a monthly basis and the composition of the portfolio
has not significantly changed since December 31, 1999, in a manner that would
materially 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) None
(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: Nov. 13, 2000 ____________________________
David L. Christopher,
Chairman
Date: Nov. 13, 2000 ____________________________
David P. Boyle, CPA,
President/Treasurer
