2003 ANNUAL REPORT
__________________
TO STOCKHOLDERS
[PICTURE OF WAYNE SAVINGS COMMUNITY BUILDING APPEARS HERE]
WAYNE SAVINGS BANCSHARES, INC.
MEMBER FDIC
CORPORATE PROFILE
______________________________________________________________________________WS
Wayne Savings Bancshares, Inc. (hereinafter, the "Company") is the stock
holding company parent of Wayne Savings Community Bank (the "Bank" or "Wayne
Savings"), which was established in 1899. During the fiscal year ended March 31,
2003, the mutual holding company Wayne Savings Bankshares M.H.C. (the "M.H.C."),
which previously owned a majority of the Company's outstanding shares of common
stock, converted from the M.H.C. form of ownership to full stock form and merged
with and into the Bank. The Company, which owned 100% of the Bank, was succeeded
by a Delaware corporation of the same name. As part of the conversion, shares of
the Company's common stock representing the M.H.C.'s ownership interest were
sold in the offering. The existing publicly-held shares of the Company, which
represented the remaining ownership interest in the Company, were exchanged for
new shares of the Delaware corporation at a share exchange ratio of 1.5109 to
1.0.
The offering of the Company's common stock culminated in the receipt of
gross sale proceeds of $20.6 million which, after consideration of an employee
stock plan of $1.6 million and applicable offering expenses of $1.9 million,
resulted in net proceeds of $17.1 million.
As a result of the conversion, all financial information that is based on
or derived from the actual or outstanding shares of common stock during any
period prior to fiscal 2003 has been appropriately adjusted for the
aforementioned exchange ratio. The conversion was accounted for as a change in
corporate form with no change in the historical basis of assets, liabilities or
stockholders' equity. The Company's common stock is traded on the NASDAQ stock
market under the symbol "WAYN."
The Bank has been serving the financial needs of the residents of Wayne,
Holmes, Ashland and Medina counties in Ohio for 104 years. Headquartered in
downtown Wooster, Ohio, the Bank also operates 10 full-service banking locations
in Wooster, Millersburg, Ashland, Rittman and Lodi, including its Village
Savings Bank F.S.B. ("Village") subsidiary in North Canton. Throughout its long
history and many economic cycles, Wayne Savings has enjoyed a fine reputation
for stability, safety and soundness, and community service. The Bank has been
noted for its sound management, consistent profitability and quality personal
service to customers.
The mission of Wayne Savings is to excel in customer service as a sound,
independent, profitable, and progressive community bank dedicated to providing
an array of services responsive to the financial needs of people in our
communities, with an emphasis on home financing and household savings, and to
provide for the security and development of our employees.
________________________________________________________________________________
BOARD OF DIRECTORS
[PICTURE OF BOARD MEMBERS APPEARS HERE]
Seated: KENNETH G. RHODE, CHAIRMAN OF WAYNE SAVINGS COMMUNITY BANK; CHARLES F.
FINN, CHAIRMAN OF WAYNE SAVINGS BANCSHARES, INC.; RUSSELL L. HARPSTER. Standing:
KENNETH R. LEHMAN, JAMES C. MORGAN, TERRY A. GARDNER, DONALD E. MASSARO. Not
pictured: JOSEPH L. RETZLER
______________________________________ 3 _______________________________________
DIRECTORS AND OFFICERS
WS______________________________________________________________________________
IN RECOGNITION AND APPRECIATION ...
KENNETH G. RHODE
Following 45 years of loyal, dedicated service on the Board of Directors of
Wayne Savings Community Bank, Kenneth G. Rhode announced he would not seek
re-election as a director when his current term ends in July 2003. Mr. Rhode
will continue to serve the Company in the role of Director Emeritus.
A highly respected businessman and citizen, Mr. Rhode brought outstanding
credentials to his directorship when he joined the Board of Wayne Savings in
1958. Having served as a Naval Officer in the South Pacific in World War II, he
was President and Chief Executive Officer of Western Reserve and Lightning Rod
Mutual Insurance companies for 50 years. Mr. Rhode also held numerous leadership
posts in state and national insurance trade organizations, and he has been
actively involved in many community and civic organizations.
Mr. Rhode has served a Chairman of the Board of Wayne Savings Community
Bank since 1972. During his tenure, he made notable contributions to the
Company's progress and success. He has earned the deepest admiration and respect
from all those who have been associated with him.
[Picture of Kenneth G. Rhode appears to the right of this paragraph]
________________________________________________________________________________
WAYNE SAVINGS BANCSHARES, INC.
BOARD OF DIRECTORS EXECUTIVE OFFICERS
Charles Finn Charles F. Finn
CHAIRMAN PRESIDENT AND CHIEF EXECUTIVE OFFICER
Kenneth Rhode Wanda Christopher-Finn
Russell Harpster EXECUTIVE VICE
Joseph Retzler AND CHIEF ADMINISTRATIVE OFFICER
Donald Massaro
Terry Gardner Michael C. Anderson
James Morgan EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
Kenneth Lehman OFFICER CORPORATE SECRETARY AND TREASURER
________________________________________________________________________________
TABLE OF CONTENTS
Page
Stockholder Information 5
Chairman's Letter 6
Selected Consolidated Financial and Other Data 8
Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Consolidated Statements of Financial Condition 18
Consolidated Statements of Earnings 19
Consolidated Statements of Comprehensive Income 20
Consolidated Statements of Stockholders' Equity 21
Consolidated Statements of Cash Flows 22
Notes to Consolidated Financial Statements 24
Report of Independent Certified Public Accountants 40
______________________________________ 4 _______________________________________
STOCKHOLDER INFORMATION
______________________________________________________________________________WS
ANNUAL MEETING TRANSFER AGENT
The Annual Meeting of Stockholders Mellon Investor Services, LLC
will be held at 10:00 a.m. on July 24, P.O. Box 3315
2003, at The Greenbriar Conference Centre, South Hackensack, NJ 07606-1915
50 Riffel Road, www.melloninvestor.com
Wooster, Ohio 44691
ANNUAL REPORT ON FORM 10-K
SPECIAL COUNSEL
A copy of the Company's Form 10-K
Luse Gorman Pomerenk & Schick for the fiscal year ended March 31,
5335 Wisconsin Avenue NW 2003, will be furnished upon
Suite 400 request without charge to
Washington, D.C. 20015 stockholders.
INVESTOR INFORMATION
INDEPENDENT AUDITORS Executive Offices
Wayne Saving Bancshares, Inc.
Grant Thornton LLP 151 N. Market Street . P.O. Box 858
625 Eden Park Drive . Suite 900 Wooster, Ohio 44691
Cincinnati, Ohio 45202 (330) 264-5767
________________________________________________________________________________
WAYNE SAVINGS COMMUNITY BANK
BANK LOCATIONS
WOOSTER LOCATIONS ASHLAND LOCATIONS
NORTH MARKET STREET OFFICE CLAREMONT AVENUE OFFICE
151 N. Market Street o Wooster, Ohio 233 Claremont Avenue o Ashland, Ohio
CLEVELAND POINT FINANCIAL CENTER BUEHLERS-SUGARBUSH OFFICE
1908 Cleveland Road o Wooster, Ohio 1055 Sugarbush Drive o Ashland, Ohio
MADISON SOUTH OFFICE
2024 Millersburg Road o Wooster, Ohio RITTMAN OFFICE
237 North Main Street o Rittman, Ohio
NORTHSIDE OFFICE
543 Riffel Road o Wooster, Ohio LODI OFFICE
303 Highland Drive o Lodi, Ohio
MILLERSBURG OFFICE
90 N. Clay Street o Millersburg, Ohio
VILLAGE SAVINGS BANK, F.S.B.
1265 S. Main Street o North Canton, Ohio
______________________________________ 5 _______________________________________
CHAIRMAN'S LETTER
WS______________________________________________________________________________
TO OUR STOCKHOLDERS AND CUSTOMERS:
Bringing down the curtain on fiscal 2003, it is a great pleasure to report
that we enjoyed a most momentous year as well as marking the beginning of a new
era for your Company, Wayne Savings Bancshares, Inc.
The fiscal year ended March 31, 2003 was particularly momentous because
Wayne Savings Bancshares, Inc., the stock holding company parent of 104-year-old
Wayne Savings Community Bank, achieved record earnings. Net earnings amounted to
$2.8 million, or $.71 per diluted share, an increase of $949,000 or 52%, over
net earnings of $1.8 million, or $.47 per diluted share, reported in the prior
fiscal year. The increase in net earnings was due primarily to an increase in
net interest income of $1.9 million, or 21%, which was partially offset by a
$695,000 increase in general, administrative, and other expense and a $278,000
increase in federal income taxes. We are particularly pleased the Company
achieved record operating results through a solid increase in core earnings and
not through gains from the sale of loans or securities.
It is also most gratifying and humbling that the Company was able to
achieve record earnings in a less-than-favorable business climate. We can too
easily recall the past year was filled with uncertainty and bad news --
dominated by the global war on terrorism, a sluggish economy, a volatile stock
market and concerns over corporate governance. However, we are optimistic the
storm clouds are lifting and the business and economic climate will be improving
in the year ahead.
A new era of opportunities for Wayne Savings Bancshares, Inc. began with
the Company's conversion from partial to full public stock ownership, which
resulted from the completion of a second-step stock offering on January 8, 2003.
Since the initial stock offering in 1993, and prior to the second-step offering,
a mutual holding company held 52.5% ownership interest in the stock holding
company. In the recent second-step offering, the mutual holding company's
ownership interest was sold to the public, and the mutual holding company ceased
to exist. Now, Wayne Savings Bancshares, Inc., the new Delaware holding company
for Wayne Savings Community Bank, is 100% owned by public stockholders.
[PICTURE OF CHARLES FINN, CHAIRMAN AND CHIEF EXECUTIVE OFFICER APPEARS HERE]
CHARLES F. FINN
Chairman and Chief Executive Officer
______________________________________ 6 _______________________________________
______________________________________________________________________________WS
We are extremely gratified by the tremendous support of our customers and
the investment community. Their participation in the offering demonstrates
confidence in our organization. In the subscription and community offering, the
Company sold 2,040,816 shares, approximately the midpoint of the offering range,
at a purchase price of $10.00 per share. As part of the conversion, prior
stockholders received 1.5109 new shares in exchange for each of their existing
shares of stock. The Company's common stock now trades on the Nasdaq National
Market under the symbol "WAYN." We expect the additional capital raised in the
offering to facilitate new business and growth opportunities.
At this time, I want to take the opportunity to honor Kenneth G. Rhode, who
is stepping down after 45 years of service on the Board of Directors of Wayne
Savings Community Bank. In my 20 years as chief executive officer, I have
benefited greatly from Kenneth Rhode's wise counsel, solid business acumen,
sound judgment, and friendship. I still plan to seek his counsel as he serves
the Company as Director Emeritus.
Through the actions and accomplishments of the past year, we believe Wayne
Savings Bancshares, Inc. is well-positioned to expand its market share, to
provide outstanding service to customers, and to build the value of our
stockholders' investment. On behalf of the Officers, Directors, and Staff, we
thank you deeply for your continued confidence and support.
Sincerely,
/s/ CHARLES F. FINN
Charles F. Finn
Chairman and Chief Executive Officer
______________________________________ 7 _______________________________________
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
WS______________________________________________________________________________
The following table sets forth certain consolidated financial and other
data of Wayne Savings Bancshares, Inc., at the dates and for the years
indicated. The consolidated financial statements as of and for the years ended
March 31, 1999 through March 31, 2003, inclusive, are those of Wayne Savings
Bancshares, Inc. prior to the reorganization and change in corporate form
discussed in the Notes to the Consolidated Financial Statements and elsewhere
herein. For additional information about the Company, reference is made to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company.
At March 31,
___________________________________________________________________________
2003 2002 2001 2000 1999
___________________________________________________________________________
(In thousands)
SELECTED FINANCIAL CONDITION DATA
Total assets $378,991 $334,843 $311,640 $304,030 $270,954
Loans receivable, net(1) 228,373 251,172 247,480 237,418 215,636
Mortgage-backed securities(2) 76,002 17,326 8,574 10,459 7,230
Investment securities 35,841 22,286 13,641 23,199 11,830
Cash and cash equivalents(3) 17,496 27,883 20,902 14,296 16,245
Deposits 300,931 300,957 277,706 264,952 235,327
Stockholders' equity 44,663 26,047 25,255 24,962 24,900
<FN>
(1) Includes loans held for sale.
(2) Includes mortgage-backed securities available for sale.
(3) Includes cash and due from banks, interest-bearing deposits in other financial
institutions, and federal funds sold.
</FN>
Year Ended March 31,
___________________________________________________________________________
2003 2002 2001 2000 1999
___________________________________________________________________________
(In thousands, except share data)
SELECTED OPERATING DATA:
Interest income $20,023 $21,309 $21,506 $20,700 $19,234
Interest expense 9,169 12,348 13,100 12,014 11,187
________ ________ ________ ________ ________
Net interest income 10,854 8,961 8,406 8,686 8,047
Provision for losses on loans 91 134 96 106 78
________ ________ ________ ________ ________
Net interest income after provision
for losses on loans 10,763 8,827 8,310 8,580 7,969
Other income 1,643 1,657 1,045 748 985
General, administrative
and other expense 8,417 7,722 7,348 7,434 6,488
________ ________ ________ ________ ________
Earnings before income taxes 3,989 2,762 2,007 1,894 2,466
Federal income taxes 1,217 939 675 624 838
________ ________ ________ ________ ________
Net earnings before change in
accounting principle 2,772 1,823 1,332 1,270 1,628
======== ======== ======== ======== ========
Change in accounting principle related to
allocated organization costs -
net of tax of $63,000 -- -- -- (122) --
======== ======== ======== ======== ========
NET EARNINGS $ 2,772 $ 1,823 $ 1,332 $ 1,148 $ 1,628
======== ======== ======== ======== ========
Basic earnings per share(1) $ .71 $ .47 $ .34 $ .29 $ .41
======== ======== ======== ======== ========
Diluted earnings per share(1) $ .71 $ .47 $ .34 $ .29 $ .41
======== ======== ======== ======== ========
Cash dividends declared
per common share(2) $ .45 $ .45 $ .42 $ .42 $ .39
======== ======== ======== ======== ========
<FN>
(1)Basic and diluted earnings per share for the fiscal year ended March 31, 2000
reflects a $.03 per share reduction for the cumulative effect of change in
accounting principle. All per share amounts have been restated to give effect
to the 1.5109 to 1.00 share exchange ratio provided for in the Company's
conversion offering.
(2)During fiscal years ended March 31, 2003 and 1999, the M.H.C. waived its
right to receive all dividends. During fiscal 2001 and 2000, the M.H.C.
waived approximately $.44 and $.40 of the $.45 and $.42 per share dividends
paid on common stock in each respective year. During fiscal 2002, the M.H.C.
waived approximately $.43 of the $.45 per share dividend paid on common stock.
</FN>
______________________________________ 8 _______________________________________
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA (CON'T.)
______________________________________________________________________________WS
At or For the Year Ended March 31,
__________________________________________________________________
2003 2002 2001 2000 1999
__________________________________________________________________
KEY OPERATING RATIOS AND OTHER DATA:
Return on average assets (net earnings divided
by average total assets) .78% .56% .45% .39% .62%
Return on average equity (net earnings
divided by average equity) 8.80 7.12 5.28 4.57 6.85
Average equity to average assets 8.92 7.93 8.44 8.57 9.07
Equity to assets at period end 11.78 7.78 8.10 8.21 9.19
Interest rate spread (difference between average
yield on interest-earning assets and average
cost of interest-bearing liabilities) 3.09 2.77 2.57 2.88 2.93
Net interest margin (net interest income
as a percentage of average interest-
earning assets) 3.24 2.93 2.92 3.14 3.23
General, administrative and other expense
to average assets1 2.38 2.39 2.46 2.54 2.50
Non-performing and impaired loans
to loans receivable, net 1.09 1.52 .47 .48 .13
Non-performing and impaired assets
to total assets .65 1.14 .41 .40 .12
Average interest-earning assets to average
interest-bearing liabilities 105.40 103.98 107.62 106.05 106.99
Allowance for loan losses to
non-performing and impaired loans 27.17 19.16 56.47 69.56 247.14
Allowance for loan losses to
non-performing and impaired assets 27.17 19.07 51.01 64.47 215.58
Net interest income after provision for
losses on loans, to general, administrative and
other expense1 127.87 114.31 113.31 115.51 122.56
Number of full-service offices2 10 10 10 9 7
Dividend payout ratio 38.35 46.74 60.06 76.83 46.20
<FN>
(1) In calculating this ratio, general, administrative and other expense does not
include provisions for losses or gains on the sale of real estate acquired
through foreclosure.
(2) Consolidated with Village Savings Bank.
</FN>
______________________________________ 9 _______________________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS
WS______________________________________________________________________________
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The consolidated financial statements include Wayne Savings Bancshares,
Inc. (the "Company") and its wholly-owned subsidiaries. Wayne Savings Community
Bank ("Wayne Savings" or the "Bank") is the parent of a federal savings bank
subsidiary in North Canton, Ohio, named Village Savings Bank, F.S.B.
("Village"), together referred to as the "Banks." Intercompany transactions and
balances are eliminated in the consolidated financial statements.
The Company's net earnings are primarily dependent on its net interest
income, which is the difference between interest income earned on its loan,
mortgage-backed securities and investment portfolios, and its cost of funds
consisting of interest paid on deposits and borrowings. The Company's net
earnings also are affected by its provision for losses on loans, as well as the
amount of other income, including fees and service charges, and general,
administrative and other expense, such as salaries and employee benefits,
deposit insurance premiums, occupancy and equipment costs, and income taxes.
Earnings of the Company also are affected significantly by general economic and
competitive conditions, particularly changes in market interest rates,
government policies and actions of regulatory authorities.
BUSINESS STRATEGY
The Company's current business strategy is to operate a well-capitalized,
profitable and independent community-oriented savings association dedicated to
financing home ownership and providing quality service to its customers. The
Company has sought to implement this strategy in recent years by: (1) closely
monitoring the needs of customers and providing personal, quality customer
service; (2) emphasizing the origination of one-to-four family residential
mortgage loans and consumer loans in the Company's market area; (3) managing
interest rate risk exposure by better matching asset and liability maturities
and rates; (4) increasing fee income; (5) managing asset quality; (6)
maintaining a strong retail deposit base; and (7) maintaining capital in excess
of regulatory requirements.
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM MARCH 31, 2002 TO MARCH 31, 2003
In addition to the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances, the Company's operations, and actual
results could differ significantly from those discussed in forward-looking
statements. Some of the factors that could cause or contribute to such
differences are discussed herein but also include changes in the economy and
interest rates in the nation and the Company's general market area. The forward-
looking statements contained herein include, but are not limited to, those with
respect to the following matters: (1) management's determination of the amount
and adequacy of the allowance for loan losses; (2) the effect of changes in
interest rates; (3) management's opinion as to the effects of recent accounting
pronouncements on the Company's consolidated financial statements; and (4)
management's opinion as to the Banks' ability to maintain regulatory capital at
current levels.
At March 31, 2003, the Company had total assets of $379.0 million, an
increase of $44.2 million, or 13.2%, over total assets of $334.8 million at
March 31, 2002. Cash and cash equivalents and investment securities totaled
$53.3 million, an increase of approximately $3.2 million, or 6.3%, from March
31, 2002 levels. During the fiscal year ended March 31, 2003, investment
securities totaling $26.0 million matured or were called while $39.6 million of
investment securities were purchased. Cash and cash equivalents decreased by
$10.4 million, or 37.3%, to a total of $17.5 million at March 31, 2003.
Mortgage-backed securities totaled $76.0 million at March 31, 2003, an
increase of $58.7 million, or 338.7%, from the total at March 31, 2002. The
Company has experienced high levels of mortgage prepayments as a result of
borrowers refinancing at the near record low level of mortgage interest rates
that existed throughout the year. The Company has elected to reinvest these
funds into interest rate sensitive mortgage-backed securities with an estimated
average life of five years or less. The Company purchased $77.4 million of these
securities which were partially offset by principal repayments and sales of
$18.5 million for fiscal 2003.
Loans receivable totaled $228.4 million at March 31, 2003, a decrease of
$22.8 million, or 9.1%, from the March 31, 2002 balance. This decrease resulted
mainly from principal repayments of $80.4 million as borrowers took the
opportunity to refinance during a period of low mortgage interest rates. In
addition, the Company chose to sell $4.0 million of loans in the secondary
market. New loan originations amounted to $61.2 million for the year ended March
31, 2003. The majority of loan disbursements consisted of loans
[PICTURE OF CHARLES FINN, WANDA CHRISTOPHER-FINN, MICHAEL C. ANDERSON
APPEARS HERE]
CHARLES F. FINN WANDA CHRISTOPHER-FINN MICHAEL C. ANDERSON
Chairman Executive Vice President Executive Vice President
Chief Executive Officer Chief Administrative Officer Chief Financial Officer
______________________________________10 _______________________________________
______________________________________________________________________________WS
secured by one-to-four-family residential real estate loans. The Company has
enhanced its commercial lending program by hiring an experienced commercial
lending officer. The Company plans to increase its commercial lending portfolio
by focusing on high quality, smaller balance commercial loans.
At March 31, 2003, the allowance for loan losses totaled $678,000, or .30%
of loans, compared to $730,000 or .29% of loans at March 31, 2002. In
determining the amount of loan loss allowance at any point in time, management
and the Board apply a systematic process focusing on the risk of loss in the
portfolio. First delinquent nonresidential, multi-family and commercial loans
are evaluated for potential impairments in carrying value. At March 31, 2003 the
delinquent nonresidential multi-family and commercial loans were viewed as
well-secured , with no loss anticipated.
The second step in determining the allowance for loan loss entails the
application of historic loss experience to the individual loan types in the
portfolio. In addition to the historic loss percentage, management employs an
additional risk percentage tailored to the perception of the overall risk in the
economy. This segment of the loss analysis accounts for nearly the entire
balance of the allowance at March 31, 2003. The analysis of the allowance for
loan losses is a critical accounting estimate which requires an element of
judgment and is subject to the possibility that the allowance may need to be
increased, with a corresponding reduction in earnings. To the best of
management's knowledge all known losses as of March 31, 2003, have been
recorded.
Nonperforming loans totaled $2.5 million at March 31, 2003, compared to
$3.1 million at March 31, 2002. Nonperforming loans consisted of $430,000 of
nonresidential real estate loans, $1.4 million of commercial loans and
approximately $663,000 in one-to four-family residential mortgage loans. The
allowance for loan losses totaled 27.4% and 19.4% of nonperforming and impaired
loans at March 31, 2003 and 2002, respectively.
Included in nonperforming loans is a loan concentration of approximately
$1.8 million. The Company has entered into a workout and liquidation agreement
with the borrower which calls for the sale and disposal of the underlying
security of these loans within a specified time frame. Management anticipates
that the asset disposal will commence in the first quarter of fiscal 2004 and
should be completed by the third quarter of the fiscal year.
Although management believes that its allowance for loan losses is adequate
based upon the available facts and circumstances, there can be no assurance that
additions to the allowance will not be necessary in future periods, which would
adversely affect the Company's results of operations.
The Company purchased $5.0 million in Bank owned life insurance (BOLI)
during fiscal 2003 to help offset the rising costs of employee benefit programs.
Under this program the Company is the owner of single premium life insurance
policies on key executives and officers.
Deposits decreased by approximately $26,000 to a total of $300.9 million at
March 31, 2003. The decline in deposits during 2003 generally reflects
management's conservative pricing strategy in the current low-rate environment.
Advances from Federal Home Loan Bank increased by $25.0 million due to an
arbitrage with corporate bonds and mortgage -backed securities. This will
enhance earnings and future cash flows due to the low cost of the advances.
Stockholders' equity totaled $44.7 million at March 31, 2003, an increase
of $18.6 million, or 71.5%, over March 31, 2002. The increase was primarily due
to the reorganization and related stock offering totaling $17.1 million and
earnings of $2.8 million, which were partially offset by dividends declared of
$1.1 million.
The Banks are subject to capital standards, which generally require the
maintenance of regulatory capital sufficient to meet each of the three tests;
i.e., the tangible capital requirement, the core capital requirement and the
risk-based capital requirement. At March 31, 2003, the Banks met all regulatory
capital requirements to which they were subject.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 2003 AND MARCH 31,
2002
GENERAL. Net earnings totaled $2.8 million for the fiscal year ended March
31, 2003, an increase of $949,000, or 52.1% over the net earnings of $1.8
million for the fiscal year ended March 31, 2002. The increase in net earnings
was due primarily to an increase in net interest income of $1.9 million, or
21.1%, partially offset by an increase of $695,000, or 9.0%, in general,
administrative and other expense and with a $278,000, or 29.6%, increase in
federal income taxes.
INTEREST INCOME. Interest income on loans totaled $16.9 million for the
fiscal year ended March 31, 2003, a decrease of $2.2 million, or 11.6%, from the
$19.1 million recorded for fiscal 2002. The decrease in interest income on loans
was primarily due to an average yield reduction of 57 basis points to 6.96%
coupled with a decrease in the average loan balances of $10.9 million, or 4.3%,
for the fiscal year ended March 31, 2003.
Interest income on mortgage-backed securities totaled $1.5 million for the
fiscal year ended March 31, 2003, an increase of $935,000, or 163.7%, from
$571,000 for fiscal 2002. The increase was primarily attributed to an increase
in average outstanding balance of $29.3 million, or 283.5%, partially offset by
a decrease in average yield of 172 basis points to 3.80% for fiscal 2003.
Interest income on investments and interest-bearing deposits decreased
$8,000, or .5%, primarily due to a decrease in average yield of 77 basis points
to 3.16%, offset by an increase in average balances of $10.2 million, or 23.9%,
to $52.9 million for the fiscal year ended March 31, 2003.
_____________________________________ 11________________________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS (CON'T.)
WS______________________________________________________________________________
INTEREST EXPENSE. Interest expense on deposits totaled $8.4 million for the
fiscal year ended March 31, 2003, a decrease of $3.6 million , or 30.1%, from
the fiscal 2002 expense. The decrease in interest expense on deposits was
primarily attributable to a decrease in the average cost of deposits of 136
basis points to 2.81% for fiscal 2003, which was partially offset by an increase
in the average outstanding balance of $11.4 million, or 4.0%, to $300.3 million
in fiscal 2003.
Interest expense on borrowings totaled $737,000 for the fiscal year ended
March 31, 2003, an increase of $444,000, or 151.6%, from the $293,000 for fiscal
2002. The increase was attributable to an increase in the average outstanding
balance of $11.7 million, or 212.5%, partially offset by a decrease in the
average yield of 104 basis points to 4.28% for the fiscal year ended March 31,
2003, from 5.32% for the fiscal year ended March 31, 2002.
NET INTEREST INCOME. Net interest income totaled $10.9 million for the fiscal
year ended March 31, 2003, an increase of $1.9 million, or 21.1%, over the $9.0
million recorded in fiscal 2002. The increase in net interest income was
primarily attributed to a 136 basis point decrease in average cost of deposits
to 2.81%, coupled with an increase in average interest-earning assets of $28.6
million, or 9.3%, for fiscal 2003. The aforementioned increase in net interest
income was partially offset by a decrease in the average yield on
interest-earning assets of 98 basis points to 5.98% for fiscal 2003, from 6.96%
for fiscal 2002 and an increase of $ 11.7 million, or 212.5%, in average
borrowings to $17.2 million for fiscal 2003. The interest rate spread increased
32 basis points to 3.09% in fiscal 2003, from 2.77% in fiscal 2002. The net
interest margin increased to 3.24% for the fiscal year ended March 31, 2003,
from 2.93% in fiscal 2002.
PROVISION FOR LOSSES ON LOANS. The Company's provision for losses on loans
totaled $91,000 and $134,000 for the fiscal years ended March 31, 2003 and 2002,
respectively. To the best of management's knowledge, all known losses as of
March 31, 2003 and 2002, have been recorded.
OTHER INCOME. Other income, consisting primarily of gain on sale of loans,
gain on sale of mortgage backed securities, increase in the cash surrender value
of life insurance, and service fees and service charges on deposit accounts,
decreased by $14,000, or .9%, to $1.6 million for the fiscal year ended March
31, 2003. The decrease was a result of a reduction in gain on sale of loans of
$433,000, or 84.2%, to $81,000 for fiscal 2003 from $514,000 for fiscal 2002,
which was partially offset by an increase in service fees, charges and other
operating income of $272,000, or 23.8%, and an increase of $121,000 in the cash
surrender value of life insurance. The decline in gains on sale of loans
generally reflects management's decision to conservatively price originations in
the current low-yield environment. This decision reduced the volume of fixed
rate loans available for sale.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other expense consisting primarily of employee compensation and benefits,
occupancy and equipment expense, federal deposit and insurance premiums, and
other operating expenses, totaled $8.4 million for the year ended March 31,
2003, an increase of $695,000, or 9.0%, compared to fiscal 2002. The increase
was primarily due to an increase of $443,000, or 10.3%, in employee compensation
and benefits, an increase in other operating expense, including operating
expenses previously paid for or allocated to the M.H.C., of $124,000, or 7.3%,
and an increase in occupancy and equipment of $89,000, or 6.4%. The increase in
employee compensation and benefits was primarily due to normal merit increases,
an increase in employee benefit costs, and the hiring of additional executive
staff needed for operating a fully converted, publicly traded stock company.
Other operating expense increased mainly due to a reduction in deferred loan
origination costs. As stated previously, the Company was strategically
positioned to be less aggressive in loan pricing which slowed loan originations
from $96.5 million in fiscal 2002 to $61.2 million in fiscal 2003. The increase
in occupancy and equipment was mainly due to the several offices which were
opened for a part year only in fiscal 2002 and in 2003 have been actively
serving customers for the entire year
FEDERAL INCOME TAXES. The provision for federal income taxes was $1.2
million for the fiscal year ended March 31, 2003, an increase of $278,000, or
29.6%, compared to fiscal 2002. The increase resulted primarily from a $1.2
million increase in pretax earnings. The effective tax rate for the fiscal year
ended March 31, 2003, was 30.5%, as compared to 34.0% in 2002, mainly due to
tax-free income arising from various interest-earning assets.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 2002 AND MARCH 31,
2001
GENERAL. Net earnings totaled $1.8 million for the fiscal year ended March
31, 2002, an increase of $491,000, or 36.9%, over the net earnings of $1.3
million for the fiscal year ended March 31, 2001. The increase in net earnings
was due primarily to a $555,000, or 6.6%, increase in net interest income and a
$612,000, or 58.6%, increase in other income, which were partially offset by an
increase of $374,000, or 5.1%, in general, administrative and other expense, a
$264,000, or 39.1%, increase in federal income taxes, and a $38,000, or 39.6%,
increase in the provision for losses on loans.
_____________________________________ 12________________________________________
______________________________________________________________________________WS
INTEREST INCOME. Interest income on loans totaled $19.1 million for the
fiscal year ended March 31, 2002, an increase of $358,000, or 1.9%, over the
$18.7 million recorded for fiscal 2001. The increase in interest income on loans
was due primarily to a $7.4 million, or 3.0%, increase in the average
outstanding balance to $253.1 million, which was partially offset by a decrease
in the average yield of 8 basis points to 7.53% for the fiscal year ended March
31, 2002.
Interest income on mortgage-backed securities totaled $571,000 for the
fiscal year ended March 31, 2002, a decrease of $12,000, or 2.1%, from $583,000
for fiscal 2001. The decrease was primarily attributable to a decrease in the
average yield of 46 basis points to 5.52%, which was partially offset by an
increase in the average outstanding balance of $586,000, or 6.0%, year to year.
Interest income on investments and interest-bearing deposits amounted to
$1.7 million for the fiscal year ended March 31, 2002, a decrease of $543,000,
or 24.4%, from the $2.2 million for fiscal 2001. The decrease was primarily
attributable to a decrease in the average yield of 284 basis points to 3.93%,
which was partially offset by an increase in the average outstanding balance of
$9.9 million, or 30.1%, to $42.7 million for the fiscal year ended March 31,
2002.
INTEREST EXPENSE. Interest expense on deposits totaled $12.1 million for
the fiscal year ended March 31, 2002, a decrease of $597,000, or 4.7%, from the
$12.7 million for fiscal 2001. The decrease in interest expense on deposits was
primarily attributable to a decrease in the average cost of deposits of 70 basis
points to 4.17% for the fiscal year ended March 31, 2002, which was partially
offset by an increase in the average outstanding balance of $29.0 million, or
11.1%, to $288.9 million in fiscal 2002.
Interest expense on borrowings totaled $293,000 for the fiscal year ended
March 31, 2002, a decrease of $155,000, or 34.6%, from the $448,000 for fiscal
2001. The decrease in interest expense on borrowings was attributable to a
decrease in the average cost of borrowings of 37 basis points, to 5.32% for the
fiscal year ended March 31, 2002, from 5.69% for the fiscal year ended March 31,
2001, coupled with a decrease in the average outstanding balance of $2.4
million, or 30.1%, year to year.
NET INTEREST INCOME. Net interest income totaled $9.0 million for the
fiscal year ended March 31, 2002, an increase of $555,000, or 6.6%, over the
$8.4 million recorded in fiscal 2001. The increase in net interest income was
primarily attributable to an increase in average interest-earning assets
totaling $17.9 million, or 6.2%, to $306.1 million for the fiscal year ended
March 31, 2002, partially offset by a decrease in the average yield of 50 basis
points to 6.96% from 7.46%. The interest rate spread increased by 20 basis
points to 2.77% in fiscal 2002 from 2.57% in fiscal 2001. The net interest
margin increased to 2.93% for the fiscal year ended March 31, 2002, from 2.92%
for fiscal 2001.
PROVISION FOR LOSSES ON LOANS. The Company's provision for losses on loans
totaled $134,000 and $96,000 for the fiscal years ended March 31, 2002 and 2001,
respectively.
OTHER INCOME. Other income, consisting primarily of gain on sale of loans,
service fees and charges on deposit accounts, increased by $612,000, or 58.6%,
to $1.7 million for the fiscal year ended March 31, 2002, compared to fiscal
2001. The increase in other income was primarily attributable to an increase of
$360,000, or 233.8%, in gain on sale of loans. Service fees, charges and other
operating income increased by $252,000, or 28.3%, to $1.1 million for the fiscal
year ended March 31, 2002, due primarily to an enhanced service fee structure
implemented on deposit accounts in July 2000.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other expense totaled $7.7 million for the fiscal year ended March 31, 2002, an
increase of $374,000, or 5.1%, over the $7.3 million for fiscal 2001. The
increase in general, administrative and other expense was primarily attributable
to a $355,000, or 9.0%, increase in employee compensation and benefits, a
$53,000, or 4.0%, increase in occupancy and equipment expense, and a $44,000, or
19.1%, increase in franchise taxes, which were partially offset by a $104,000
reduction in legal costs previously paid by Wayne Savings Bankshares, M.H.C.
The increase in employee compensation and benefits was primarily
attributable to normal merit increases, an increase in employee benefit plan
costs and additional staff needed for operating a new full service branch and a
new drive-through facility. The increase in occupancy and equipment expense was
primarily attributable to costs incurred in the new operating facilities. The
increase in franchise taxes was due to refunds received in fiscal 2001 that were
not applicable to fiscal 2002.
FEDERAL INCOME TAXES. The provision for federal income taxes was $939,000
for the fiscal year ended March 31, 2002, an increase of $264,000, or 39.1%,
compared to fiscal 2001. The increase resulted primarily from a $755,000, or
37.6%, increase in pretax earnings. The effective tax rate for the fiscal year
ended March 31, 2002, was 34.0%, as compared to 33.6% for fiscal 2001.
_____________________________________ 13________________________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS (CON'T.)
WS______________________________________________________________________________
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to the
Company's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods presented.
Year Ended March 31,
________________________________________________________________________________________________
2003 2002 2001
______________________________ ______________________________ ______________________________
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
_________ ________ _______ _________ ________ _______ _________ ________ _______
(Dollars in thousands)
INTEREST-EARNING ASSETS:
Loans receivable, net1 $ 242,120 $ 16,846 6.96% $ 253,058 $ 19,059 7.53% $ 245,624 $ 18,701 7.61%
Mortgage-backed securities 2 39,652 1,506 3.80 10,340 571 5.52 9,754 583 5.98
Investment securities 24,114 1,159 4.81 15,628 871 5.57 19,342 1,423 7.36
Interest-bearing deposits 3 28,804 512 1.78 27,083 808 2.98 13,481 799 5.93
_________ ________ _______ _________ ________ _______ _________ ________ _______
Total interest-earning assets 334,690 20,023 5.98 306,109 21,309 6.96 288,201 21,506 7.46
Non-interest-earning assets 18,481 17,057 10,727
_________ _________ _________
Total assets $ 353,171 $ 323,166 $ 298,928
========= ========= =========
INTEREST-BEARING LIABILITIES:
Deposits $ 300,326 8,432 2.81 $ 288,882 12,055 4.17 $ 259,914 12,652 4.87
Borrowings 17,204 737 4.28 5,505 293 5.32 7,877 448 5.69
_________ ________ _______ _________ ________ _______ _________ ________ _______
Total interest-bearing
liabilities 317,530 9,169 2.89 294,387 12,348 4.19 267,791 13,100 4.89
Non-interest-bearing liabilities 4,153 3,159 5,893
_________ _________ _________
Total liabilities 321,683 297,546 273,684
Stockholders' equity 31,488 25,620 25,244
_________ _________ _________
Total liabilities and
stockholders' equity $ 353,171 $ 323,166 $ 298,928
========= ________ ========= ________ ========= ________
Net interest income $ 10,854 $ 8,961 $ 8,406
======== _______ ======== _______ ======== _______
Interest rate spread 4 3.09% 2.77% 2.57%
======= ======= =======
Net yield on interest-earning
assets5 3.24% 2.93% 2.92%
======= ======= =======
Ratio of average interest-earning
assets to average interest-
bearing liabilities 105.40% 103.98% 107.62%
======= ======= =======
<FN>
(1) Includes non-accrual loan balances.
(2) Includes mortgage-backed securities designated as available for sale.
(3) Includes federal funds sold and interest-bearing deposits in other financial institutions.
(4) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing liabilities.
(5) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
</FN>
_____________________________________ 14________________________________________
______________________________________________________________________________WS
RATE/VOLUME ANALYSIS
The table below sets forth certain information regarding changes in
interest income and interest expense of the Company for the periods indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in average volume
(changes in average volume multiplied by old rate); and (ii) changes in rate
(change in rate multiplied by old average volume). Changes in rate-volume
(changes in rate multiplied by the change in average volume) have been allocated
proportionately between changes in rate and changes in volume and the net
change.
Year Ended March 31,
_________________________________________________________________________
2003 vs. 2002 2002 vs. 2001
__________________________________ __________________________________
Increase (Decrease) Increase (Decrease)
Due to Total Due to Total
___________________ Increase ___________________ Increase
Volume Rate (Decrease) Volume Rate (Decrease)
______ _______ __________ ______ _______ __________
(In thousands)
Interest income attributable to:
Loans receivable $ (801) $(1,412) $(2,213) $ 534 $ (176) $ 358
Mortgage-backed securities 1,163 (228) 935 34 (46) (12)
Other interest-earning assets 358 (366) (8) 552 (1,095) (543)
______ _______ _______ ______ _______ _______
Total interest-earning assets 720 (2,006) (1,286) 1,120 (1,317) (197)
Interest expense attributable to:
Deposits 461 (4,084) (3,623) 1,328 (1,925) (597)
Borrowings 623 (179) 444 (128) (27) (155)
______ _______ _______ ______ _______ _______
Total interest-bearing liabilities 1,084 (4,263) (3,179) 1,200 (1,952) (752)
______ _______ _______ ______ _______ _______
Increase (decrease) in
net interest income $ (364) $ 2,257 $ 1,893 $ (80) $ 635 $ 555
====== ======= ======= ====== ======= =======
________________________________________________________________________________
ASSET AND LIABILITY MANAGEMENT-INTEREST RATE SENSITIVITY ANALYSIS
The Banks, like other financial institutions, are subject to interest rate
risk to the extent that their interest-earning assets reprice at a different
time than their interest-bearing liabilities. As part of their effort to monitor
and manage interest rate risk, the Banks use the "net portfolio value" ("NPV")
methodology adopted by the OTS as part of its interest rate sensitivity
regulations. The application of NPV methodology illustrates certain aspects of
the Banks' interest rate risk.
Generally, NPV is the discounted present value of the difference between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing and other liabilities. The application of the methodology
attempts to quantify interest rate risk as the change in the NPV, which would
result from a theoretical 200 basis point (1 basis point equals .01%) change in
market interest rates. Both a 200 basis point increase in market interest rates
and a 200 basis point decrease in market interest rates are considered.
Presented below, as of March 31, 2003 and 2002, is an analysis of the
Banks' interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts of 100-300 basis points in market interest rates.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Further, in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-backed securities and
early withdrawal levels from certificates of deposit would likely deviate
significantly from those assumed in making the risk calculations.
The Company's policy in recent years has been to reduce its exposure to
interest rate risk generally by better matching the maturities of its interest
rate sensitive assets and
______________________________________ 15 ______________________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS (CON'T.)
WS______________________________________________________________________________
liabilities and by originating adjustable rate mortgage ("ARM") loans and other
adjustable rate or short-term loans, as well as by purchasing short-term
investments and mortgage-backed securities. However, particularly in the lower
long-term interest rate environment which currently exists, borrowers typically
prefer fixed rate loans to ARM loans. Accordingly, ARM loan originations were
very limited during the fiscal year ended March 31, 2003. The Company has sought
to lengthen the maturities of its deposits by promoting longer-term
certificates; however, the Company was not successful in lengthening the
maturities of its deposits in the declining interest rate environment that
existed throughout fiscal 2003. The Company also negotiates interest rates on
certificates of deposit of $100,000 or more.
The Company has an Asset-Liability Management Committee, which is
responsible for reviewing the Company's asset-liability policies. The Committee
meets weekly and reports monthly to the Board of Directors on interest rate
risks and trends, as well as liquidity and capital ratios and requirements. The
Banks have operated within the framework of their prescribed asset/liability
risk ranges for each of the last three years.
As of March 31, 2003
Change in Interest Net Portfolio Value NPV as % of PV of Assets
Rates (Basis points) $Amount $ Change % Change NPV Ratio Change
____________________ _______ ________ ________ _________ ______
(In thousands)
+300 bp $46,905 $ (9,213) (16)% 12.55% (171 bp)
+200 bp 52,575 (3,543) (6) 13.73 (53 bp)
+100 bp 56,002 (116) (.2) 14.37 11 bp
0 bp 56,118 -- -- 14.26 --
-100 bp 53,051 (3,067) (6) 13.45 (81 bp)
As of March 31, 2002
Change in Interest Net Portfolio Value NPV as % of PV of Assets
Rates (Basis points) $Amount $ Change % Change NPV Ratio Change
____________________ _______ ________ ________ _________ ______
(In thousands)
+300 bp $25,393 $(19,439) (43)% 7.68% (499 bp)
+200 bp 32,181 (12,651) (28) 9.50 (317 bp)
+100 bp 39,069 (5,763) (13) 11.26 (141 bp)
0 bp 44,832 -- -- 12.67 --
-100 bp 48,566 3,734 8 13.53 86 bp
-200 bp 48,786 3,954 9 13.53 86 bp
-300 bp 48,263 3,431 8 13.37 70 bp
________________________________________________________________________________
LIQUIDITY AND CAPITAL RESOURCES
The Banks' primary sources of funds are deposits, amortization of loan principal
and prepayment of loans and mortgage-backed securities, maturities of investment
securities and other short-term investments, and earnings and funds provided
from operations. While scheduled principal repayments on loans and
mortgage-backed securities are a relatively predictable source of funds, deposit
flows and loan prepayments are greatly influenced by general interest rates,
economic conditions and competition. The Banks manage the pricing of deposits to
maintain a desired level of deposits and cost of funds. In addition, the Banks
invest excess funds in federal funds and other short-term interest-earning and
other assets, which provide liquidity to meet lending requirements. Federal
funds sold and other liquid assets outstanding at March 31, 2003, 2002 and 2001,
amounted to $129.3 million, $67.5 million and $42.5 million, respectively. For
additional information about cash flows from the Company's operating, financing
and investing activities, see the Statements of Cash Flows included in the
Consolidated Financial Statements.
A major portion of the Banks' liquidity consists of cash and cash
equivalents, which are a product of their operating, investing and financing
activities. The primary sources of cash are net earnings, principal repayments
on loans and mortgage-backed securities, proceeds from advances from the
______________________________________ 16 ______________________________________
______________________________________________________________________________WS
Federal Home Loan Bank, and sales of mortgage-backed securities. Liquidity
management is both a daily and long-term function of business management. If the
Banks require funds beyond their ability to generate them internally, borrowing
agreements exist with the Federal Home Loan Bank ("FHLB"), which provide an
additional source of funds. At March 31, 2003, the Company had $30.0 million in
outstanding advances from the FHLB.
At March 31, 2003, the Company had outstanding loan commitments of $32.3
million, including the unfunded portion of loans in process and commitments
under unused lines of credit. Certificates of deposit scheduled to mature in
less than one year at March 31, 2003, totaled $95.6 million. Based on prior
experience, management believes that a significant portion of such deposits will
remain with the Company.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with U.S. GAAP,
which requires the measurement of financial position and operating results in
terms of historical dollars without considering the change in the relative
purchasing power of money over time and due to inflation. The impact of
inflation is reflected in the increased cost of the Company's operations. Unlike
most industrial companies, nearly all the assets and liabilities of the Company
are monetary. As a result, interest rates have a greater impact on the Company's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.
COMMON STOCK AND RELATED MATTERS
The Company's common stock trades on the Nasdaq National Market using the
symbol "WAYN." The following table sets forth the high and low trading prices of
the Company's common stock during the three most recent fiscal years, together
with the cash dividends declared. As stated previously, all per share amounts
have been restated for the 1.5109 share exchange ratio provided for in the
Company's conversion offering.
Fiscal Year Ended Cash Dividends
March 31, 2003 High Low Declared
_________________ ______ ______ ______________
First quarter $14.23 $13.24 $.113
Second quarter 13.51 11.75 .113
Third quarter 15.22 10.25 .113
Fourth quarter 11.55 10.67 .113
Fiscal Year Ended Cash Dividends
March 31, 2002 High Low Declared
_________________ ______ ______ ______________
First quarter $11.87 $ 7.48 $.113
Second quarter 13.60 9.10 .113
Third quarter 11.79 9.17 .113
Fourth quarter 14.56 10.76 .113
Fiscal Year Ended Cash Dividends
March 31, 2001 High Low Declared
_________________ ______ ______ ______________
First quarter $10.92 $10.18 $.106
Second quarter 10.42 9.27 .106
Third quarter 10.59 8.94 .106
Fourth quarter 11.91 8.60 .106
As of April 30, 2003, the Company had 1,610 stockholders of record and
3,888,795 shares of common stock outstanding. This does not reflect the number
of persons whose stock is in nominee or "street name" accounts through brokers.
Payment of dividends on the common stock is subject to determination and
declaration by the Board of Directors and will depend upon a number of factors,
including capital requirements, regulatory limitations on the payment of
dividends, the Company's results of operations and financial condition, tax
considerations, and general economic conditions. No assurance can be given that
dividends will be declared or, if declared, what the amount of dividends will
be, or whether such dividends, once declared, will continue.
The Company's primary source of funds with which to pay dividends is cash
and cash equivalents held at the holding company level and dividends from the
Bank. The Bank's ability to pay dividends to the Company is limited by OTS
regulations, and the Bank is required to obtain OTS nonobjection to the payment
of dividends to the Company. In determining whether to object to such dividends,
the OTS considers whether (i) the Bank would be undercapitalized following the
dividend, (ii) the dividend raises safety and soundness concerns, or (iii) the
dividend violates any regulatory prohibition or policy.
In addition to the foregoing, earnings of the Company appropriated to bad
debt reserves and deducted for federal income tax purposes are not available for
payment of cash dividends or other distributions to stockholders without payment
of taxes at the then-current tax rate by the Company on the amount of earnings
removed from the reserves for such distributions. The Company intends to make
full use of this favorable tax treatment and does not contemplate any
distribution that would create federal tax liability.
______________________________________ 17 ______________________________________
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
WS______________________________________________________________________________
As of March 31,
(Dollars in thousands, except share data)
2003 2002
________ ________
ASSETS
Cash and due from banks $ 2,967 $ 2,250
Federal funds sold 8,000 15,000
Interest-bearing deposits in other financial institutions 6,529 10,633
________ ________
Cash and cash equivalents 17,496 27,883
Investment securities available for sale - at market 17,036 --
Investment securities held to maturity - at amortized cost, approximate
market value of $19,211 and $22,098 as of March 31, 2003 and 2002, respectively 18,805 22,286
Mortgage-backed securities available for sale - at market 66,151 3,449
Mortgage-backed securities held to maturity - at amortized cost, approximate
market value of $9,927 and $13,835 as of March 31, 2003 and 2002, respectively 9,851 13,877
Loans receivable - net 228,373 251,172
Office premises and equipment - net 8,818 9,208
Real estate acquired through foreclosure -- 19
Federal Home Loan Bank stock - at cost 4,041 3,767
Cash surrender value of life insurance 5,121 --
Accrued interest receivable on loans 948 1,153
Accrued interest receivable on mortgage-backed securities 380 83
Accrued interest receivable on investments and interest bearing deposits 313 250
Prepaid expenses and other assets 1,532 1,688
Prepaid federal income taxes 126 8
________ ________
Total assets $378,991 $334,843
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $300,931 $300,957
Advances from the Federal Home Loan Bank 30,000 5,000
Advances by borrowers for taxes and insurance 712 880
Accrued interest payable 235 223
Accounts payable on mortgage loans serviced for others 130 116
Other liabilities 1,638 853
Deferred federal income taxes 682 767
________ ________
Total liabilities 334,328 308,796
Commitments -- --
Stockholders' equity
Common stock (20,000,000 shares of $.10 par value authorized; 3,888,795 shares
issued and outstanding at March 31, 2003; 20,000,000 shares of $1.00 par value
authorized with 2,640,835 shares issued at March 31, 2002) 389 2,641
Additional paid-in capital 34,208 14,444
Retained earnings - substantially restricted 11,830 10,121
Less required contributions for shares acquired by Employee Stock Ownership Plan (1,612) --
Less 70,014 shares of treasury stock at March 31, 2002 - at cost -- (1,181)
Accumulated other comprehensive income (loss) (152) 22
________ ________
Total stockholders' equity 44,663 26,047
________ ________
Total liabilities and stockholders' equity $378,991 $334,843
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
______________________________________ 18 ______________________________________
CONSOLIDATED STATEMENTS OF EARNINGS
______________________________________________________________________________WS
For the year ended March 31,
(Dollars in thousands, except share data)
2003 2002 2001
________ ________ ________
Interest income:
Loans $ 16,846 $ 19,059 $ 18,701
Mortgage-backed securities 1,506 571 583
Investment securities 1,159 871 1,423
Interest-bearing deposits and other 512 808 799
________ ________ ________
Total interest income 20,023 21,309 21,506
Interest expense:
Deposits 8,432 12,055 12,652
Borrowings 737 293 448
________ ________ ________
Total interest expense 9,169 12,348 13,100
________ ________ ________
Net interest income 10,854 8,961 8,406
Provision for losses on loans 91 134 96
________ ________ ________
Net interest income after provision for losses on loans 10,763 8,827 8,310
Other income:
Gain on sale of mortgage-backed securities 26 -- --
Gain on sale of loans 81 514 154
Increase in cash surrender value of life insurance 121 -- --
Service fees, charges and other operating 1,415 1,143 891
________ ________ ________
Total other income 1,643 1,657 1,045
General, administrative and other expense:
Employee compensation and benefits 4,755 4,312 3,957
Occupancy and equipment 1,477 1,388 1,335
Federal deposit insurance premiums 51 46 86
Franchise taxes 308 274 230
Other operating 1,826 1,667 1,590
Operating expenses previously paid by or allocated to M.H.C. -- 35 150
________ ________ ________
Total general, administrative and other expense 8,417 7,722 7,348
________ ________ ________
Earnings before incomes taxes 3,989 2,762 2,007
Federal incomes taxes:
Current 1,210 620 640
Deferred 7 319 35
________ ________ ________
Total federal income taxes 1,217 939 675
________ ________ ________
NET EARNINGS $ 2,772 $ 1,823 $ 1,332
======== ======== ========
Basic earnings per share $ .71 $ .47 $ .34
======== ======== ========
Diluted earnings per share $ .71 $ .47 $ .34
======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
______________________________________ 19 ______________________________________
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
WS______________________________________________________________________________
For the year ended March 31,
(In thousands)
2003 2002 2001
_______ _______ _______
Net earnings $ 2,772 $ 1,823 $ 1,332
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on securities
during the year, net of taxes (benefits) of $59, $(6), and $36 118 (11) 69
Reclassification adjustment for realized gains included in earnings, net of taxes
of $9 for the year ended March 31, 2003 (17) -- --
Minimum pension liability adjustment, net of taxes of $142 (275) -- --
_______ _______ _______
Comprehensive income $ 2,598 $ 1,812 $ 1,401
======= ======= =======
Accumulated comprehensive income (loss) $ (152) $ 22 $ 33
======= ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
______________________________________ 20 ______________________________________
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
______________________________________________________________________________WS
For the years ended March 31, 2003, 2002, and 2001
(Dollars in thousands, except share data)
Other
compre- Total
Additional Shares Treasury hensive stock-
Common paid-in Retained acquired stock - income holders'
stock capital earnings by ESOP at cost (loss) equity
______ __________ ________ ________ ________ _______ ________
Balance at April 1, 2000 $2,632 $14,393 $ 8,618 $ -- $ (645) $ (36) $ 24,962
Stock options exercised 7 43 -- -- -- -- 50
Net earnings for the year ended
March 31, 2001 -- -- 1,332 -- -- -- 1,332
Cash dividends of $.42 per share -- -- (800) -- -- -- (800)
Purchase of treasury shares - at cost -- -- -- -- (358) -- (358)
Unrealized gains on securities
designated as available for sale,
net of related tax effects -- -- -- -- -- 69 69
______ __________ ________ ________ ________ _______ ________
Balance at March 31, 2001 2,639 14,436 9,150 -- (1,003) 33 25,255
Stock options exercised 2 8 -- -- -- -- 10
Net earnings for the year ended
March 31, 2002 -- -- 1,823 -- -- -- 1,823
Cash dividends of $.45 per share -- -- (852) -- -- -- (852)
Purchase of treasury shares - at cost -- -- -- -- (178) -- (178)
Unrealized losses on securities
designated as available for sale,
net of related tax effects -- -- -- -- -- (11) (11)
______ __________ ________ ________ ________ _______ ________
Balance at March 31, 2002 2,641 14,444 10,121 -- (1,181) 22 26,047
Stock options exercised 3 13 -- -- -- -- 16
Reorganization and related common
stock offering - net (2,255) 19,751 -- (1,612) 1,181 -- 17,065
Net earnings for the year
ended March 31, 2003 -- -- 2,772 -- -- -- 2,772
Dividends declared of $.45 per share -- -- (1,063) -- -- -- (1,063)
Minimum pension liability adjustment,
net of related tax effects -- -- -- -- -- (275) (275)
Unrealized gains on securities
designated as available for sale,
net of related tax effects -- -- -- -- -- 101 101
______ __________ ________ ________ ________ _______ ________
Balance at March 31, 2003 $ 389 $34,208 $ 11,830 $ (1,612) $ -- $ (152) $ 44,663
====== ========== ======== ======== ======== ====== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
______________________________________ 21 ______________________________________
CONSOLIDATED STATEMENTS OF CASH FLOWS
WS______________________________________________________________________________
For the year ended March 31,
(In thousands)
2003 2002 2001
________ ________ _________
Cash flows provided by (used in) operating activities:
Net earnings for the year $ 2,772 $ 1,823 $ 1,332
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of discounts and premiums on loans,
investments and mortgage-backed securities-- net 480 (3) (16)
Amortization of deferred loan origination fees (460) (432) (161)
Depreciation and amortization 555 590 555
Gain on sale of loans (57) (241) (62)
Gain on sale of mortgage-backed securities available for sale (26) -- --
Proceeds from sale of loans in the secondary market 4,055 27,371 9,247
Loans originated for sale in the secondary market (2,615) (26,269) (9,729)
Provision for losses on loans 91 134 96
Federal Home Loan Bank stock dividends (177) (219) (247)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 205 175 (73)
Accrued interest receivable on mortgage-backed securities (297) (41) 18
Accrued interest receivable on investments
and interest-bearing deposits (63) (39) 143
Prepaid expenses and other assets 167 (403) (272)
Accrued interest payable 12 (22) 17
Accounts payable on mortgage loans serviced for others 14 (118) 134
Other liabilities 136 (65) 282
Federal income taxes
Current (120) 55 217
Deferred 7 319 35
________ ________ _________
Net cash provided by operating activities 4,679 2,615 1,516
Cash flows provided by (used in) investing activities:
Purchase of investment securities held to maturity (13,953) (16,250) (2,477)
Purchase of investment securities designated as available for sale (25,649) -- --
Proceeds from maturity of investment securities held to maturity 17,420 7,617 12,069
Proceeds from maturity of investments securities designated
as available for sale 8,573 -- --
Purchase of mortgage-backed securities held to maturity (3,545) (12,108) (2,025)
Purchase of mortgage-backed securities designated available for sale (73,897) (2,047) --
Principal repayments on mortgage-backed securities held to maturity 7,368 3,894 3,344
Principal repayments on mortgage-backed securities
designated as available for sale 6,596 1,482 653
Proceeds from sale of mortgage-backed securities 4,594 -- --
Loan principal repayments 80,362 66,077 56,485
Loan disbursements (58,616) (70,239) (65,986)
Purchase of office premises and equipment (165) (1,018) (1,115)
Purchase of bank-owned life insurance (5,000) -- --
Increase in cash surrender value of life insurance (121) -- --
Proceeds from sale of land and other real estate 8 12 249
(Increase) decrease in certificates of deposit in other
financial institutions -- 5,700 (1,700)
Purchase of Federal Home Loan Bank stock (97) (38) (103)
________ ________ _________
Net cash used in investing activities (56,122) (16,918) (606)
________ ________ _________
Net cash provided by (used in) operating and investing activities
(balance carried forward) (51,443) (14,303) 910
________ ________ _________
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
______________________________________ 22 ______________________________________
______________________________________________________________________________WS
For the year ended March 31,
(In thousands)
2003 2002 2001
________ ________ _________
Net cash provided by (used in) operating and investing activities
(balance brought forward) $(51,443) $(14,303) $ 910
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts (26) 23,251 12,754
Proceeds from Federal Home Loan Bank advances 25,000 5,000 11,000
Repayments of Federal Home Loan Bank advances -- (6,000) (17,000)
Advances by borrowers for taxes and insurance (168) 53 50
Reorganization and cash proceeds from related
common stock offering - net 17,065 -- --
Dividends paid on common stock (831) (852) (800)
Proceeds from exercise of stock options 16 10 50
Purchase of treasury shares - at cost -- (178) (358)
________ ________ _________
Net cash provided by financing activities 41,056 21,284 5,696
________ ________ _________
Net increase (decrease) in cash and cash equivalents (10,387) 6,981 6,606
Cash and cash equivalents at beginning of year 27,883 20,902 14,296
________ ________ _________
Cash and cash equivalents at end of year $ 17,496 $ 27,883 $ 20,902
======== ======== =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 1,083 $ 637 $ 490
Interest on deposits and borrowings $ 9,157 $ 12,370 $ 13,083
Supplemental disclosure of noncash investing and financing activities:
Transfers from loans to real estate acquired through foreclosure -- $ -- $ 98
Issuance of mortgage loan upon sale of impaired loan $ 450 $ 93 $ 50
Unrealized gains (losses) on securities designated as available for
sale, net of related tax effects $ 101 $ (11) $ 69
Minimum pension liability adjustment,
net of related tax effects $ 275 $ -- $ --
Recognition of mortgage servicing rights
in accordance with SFAS No. 140 $ 24 $ 273 $ 92
Dividends payable $ 232 $ 208 $ 200
======== ======== =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
______________________________________ 23 ______________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WS______________________________________________________________________________
March 31, 2003, 2002, and 2001
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include Wayne Savings Bancshares,
Inc. (the "Company") and its wholly-owned subsidiary Wayne Savings Community
Bank ("Wayne Savings" or the "Bank"). Prior to the fiscal year ended March 31,
2003, a majority (52.5%) of the Company's shares were owned by Wayne Savings
Bankshares M.H.C. ("Bankshares," "parent" or "M.H.C."), a mutual holding
company, as defined under Office of Thrift Supervision ("OTS") regulations. On
January 8, 2003, the Company completed a reorganization and related common stock
offering which culminated with the M.H.C. merging with and into the Bank in a
manner similar to a pooling-of-interests. In fiscal 1999, Bankshares and Wayne
Savings formed a new federal savings bank subsidiary of Wayne Savings in North
Canton, Ohio, Village Savings Bank, F. S. B. ("Village"), hereinafter
collectively referred to as "the Banks." Intercompany transactions and balances
are eliminated in the consolidated financial statements.
The Banks conduct a general banking business in north central Ohio, which
consists of attracting deposits from the general public and applying those funds
to the origination of loans for residential, consumer and nonresidential
purposes. The Banks' profitability is significantly dependent on their net
interest income, which is the difference between interest income generated from
interest-earning assets (i.e. loans and investments) and the interest expense
paid on interest-bearing liabilities (i.e. customer deposits and borrowed
funds). Net interest income is affected by the relative amount of
interest-earning assets and interest-bearing liabilities and the interest
received or paid on these balances. The level of interest rates paid or received
by the Banks can be significantly influenced by a number of environmental
factors, such as governmental monetary policy, that are outside of management's
control.
The financial information presented herein has been prepared in accordance
with accounting principles generally accepted in the United States of America
("U.S. GAAP") and general accounting practices within the financial services
industry. In preparing financial statements in accordance with U.S. GAAP,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from such
estimates.
The following is a summary of the Company's significant accounting
policies, which have been consistently applied in the preparation of the
accompanying financial statements.
1. INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
The Company accounts for investment and mortgage-backed securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115
requires that investments be categorized as held-to-maturity, trading, or
available for sale. Securities classified as held-to-maturity are carried at
cost only if the Company has the positive intent and ability to hold these
securities to maturity. Trading securities and securities designated as
available for sale are carried at fair value with resulting unrealized gains or
losses recorded to operations or stockholders' equity, respectively. Realized
gains or losses on sales of securities are recognized using the specific
identification method.
2. LOANS RECEIVABLE
Loans held in portfolio are stated at the principal amount outstanding,
adjusted for deferred loan origination fees, the allowance for loan losses, and
premiums and discounts on loans purchased and sold. Premiums and discounts on
loans purchased and sold are amortized and accreted to operations using the
interest method over the average life of the underlying loans.
Interest is accrued as earned unless the collectibility of the loan is in
doubt. Uncollectible interest on loans that are contractually past due is
charged off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income equal to
all interest previously accrued, and income is subsequently recognized only to
the extent that cash payments are received until, in management's judgment, the
borrower's ability to make periodic interest and principal payments has returned
to normal, in which case the loan is returned to accrual status.
The Banks recognize rights to service mortgage loans for others pursuant to
SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." In accordance with SFAS No. 140, an institution
that acquires mortgage servicing rights through either the purchase or
origination of mortgage loans and sells those loans with servicing rights
retained must allocate some of the cost of the loans to the mortgage servicing
rights.
The Banks recognized $24,000, $273,000 and $92,000 of pre-tax gains on
sales of loans related to capitalized mortgage servicing rights during the
fiscal years ended March 31, 2003, 2002 and 2001, respectively.
SFAS No. 140 requires that capitalized mortgage servicing rights be
assessed for impairment. Impairment is measured based on fair value. The
mortgage servicing rights recorded by the Banks, calculated in accordance with
the provisions of SFAS No. 140, were segregated into pools for valuation
purposes, using as pooling criteria the loan term and coupon rate. Once pooled,
each grouping of loans was evaluated on a discounted earnings basis to determine
the present value of future earnings that a purchaser could expect to realize
from each portfolio. Earnings were projected from a variety of sources including
loan servicing fees, interest earned on float,
______________________________________ 24 ______________________________________
net interest earned on escrows, miscellaneous income and costs to service the
loans. The present value of future earnings is the "economic" value for the
pool, i.e., the net realizable present value to an acquirer of the acquired
servicing.
The Banks recorded amortization related to mortgage servicing rights
totaling approximately $164,000, $109,000 and $52,000 for the years ended March
31, 2003, 2002 and 2001, respectively. At March 31, 2003 and 2002, the carrying
value of the Banks' mortgage servicing rights, which approximated fair value,
totaled $381,000 and $521,000, respectively.
Loans held for sale are carried at the lower of cost or market, determined
in the aggregate. In computing cost, deferred loan origination fees are deducted
from the principal balances of the related loans. There were no loans identified
as held for sale at either March 31, 2003, or March 31, 2002.
3. LOAN ORIGINATION FEES
The Banks account for loan origination fees in accordance with SFAS No. 91
"Accounting for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases." Pursuant to the provisions
of SFAS No. 91, origination fees received from loans, net of certain direct
origination costs, are deferred and amortized to interest income using the
level-yield method, giving effect to actual loan prepayments. Additionally, SFAS
No. 91 generally limits deferred loan origination costs to the direct costs
attributable to the origination of a loan, i.e. principally actual personnel
costs. Fees received for loan commitments that are expected to be drawn upon,
based on the Banks' experience with similar commitments, are deferred and
amortized over the life of the loan using the level-yield method. Fees for other
loan commitments are deferred and amortized over the loan commitment period on a
straight-line basis.
4. ALLOWANCE FOR LOAN LOSSES
It is the Banks' policy to provide valuation allowances for losses inherent
within the loan portfolio that are both probable and can be reasonably
estimated. When the collection of a loan becomes doubtful, or otherwise
troubled, the Banks record a charge-off equal to the difference between the fair
value of the property securing the loan and the loan's carrying value. In
providing valuation allowances, costs of holding real estate, including the cost
of capital, are considered. Major loans (including development projects) and
major lending areas are reviewed periodically to determine potential problems at
an early date. The allowance for loan losses is increased by charges to earnings
and decreased by charge-offs (net of recoveries).
The Banks account for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." This Statement requires that
impaired loans be measured based upon the present value of expected future cash
flows discounted at the loan's effective interest rate or, as an alternative, at
the loan's observable market price or fair value of the collateral.
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the contractual terms of the loan agreement. In
applying the provisions of SFAS No. 114, the Banks consider investment in
one-to-four family residential loans and consumer installment loans to be
homogeneous and therefore excluded from separate identification for evaluation
of impairment. With respect to the Banks' investment in multi-family, commercial
and nonresidential loans, and the evaluation of impairment thereof, such loans
are collateral dependent and, as a result, are carried as a practical expedient
at the lower of cost or fair value.
It is the Banks' policy to charge off unsecured credits that are more than
ninety days delinquent. Similarly, collateral dependent loans are evaluated for
impairment at the time it becomes possible that the Banks will not collect all
contractual amounts due. Generally, this analysis is performed before a loan
becomes ninety days delinquent.
Information with respect to loans defined as impaired under SFAS No. 114 is
summarized below:
2003 2002 2001
______ ______ ____
(In thousands)
Investment in impaired loans $1,811 $3,012 $645
Impaired loans with no measurement of loss 1,811 2,493 645
Impaired loans with measurement of loss -- 519 --
Allocated allowance for loan losses -- 105 --
Average impaired loans 2,412 1,829 793
Charge-off of principal related to impaired loans 84 -- 172
During the time a loan is deemed impaired, the Company records interest
income using the cash method of accounting. Interest income on impaired loans
totaled approximately $24,000, $233,000 and $71,000 for the fiscal years ended
March 31, 2003, 2002 and 2001.
5. OFFICE PREMISES AND EQUIPMENT
Office premises and equipment are carried at cost and include expenditures
which extend the useful lives of existing assets. Maintenance, repairs and minor
renewals are expensed as incurred. For financial reporting, depreciation and
amortization are provided on the straight-line method over the remaining useful
lives of the assets, estimated to be
______________________________________ 25 ______________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON'T.)
WS______________________________________________________________________________
March 31, 2003, 2002, and 2001
twenty to fifty-five years for buildings and improvements, five to ten years for
furniture and equipment, ten to twenty years for leasehold improvements, and
forty years for safe deposit boxes. An accelerated method is used for tax
reporting purposes.
6. REAL ESTATE ACQUIRED THROUGH FORECLOSURE
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost) or fair value less estimated selling
expenses at the date of acquisition. Real estate loss provisions are recorded if
the properties' fair value subsequently declines below the value determined at
the recording date. In determining the lower of cost or fair value at
acquisition, costs relating to development and improvement of property are
capitalized. Costs relating to holding real estate acquired through foreclosure,
net of rental income, are charged against earnings as incurred.
7. FEDERAL INCOME TAXES
The Company accounts for federal income taxes pursuant to SFAS No. 109
"Accounting for Income Taxes." In accordance with SFAS No. 109, a deferred tax
liability or deferred tax asset is computed by applying the current statutory
tax rates to net taxable or deductible temporary differences between the tax
basis of an asset or liability and its reported amount in the financial
statements that will result in net taxable or deductible amounts in future
periods. Deferred tax assets are recorded only to the extent that the amount of
net deductible temporary differences or carryforward attributes may be utilized
against current period earnings, carried back against prior years' earnings,
offset against taxable temporary differences reversing in future periods, or
utilized to the extent of management's estimate of future taxable income. A
valuation allowance is provided for deferred tax assets to the extent that the
value of net deductible temporary differences and carryforward attributes
exceeds management's estimates of taxes payable on future taxable income.
Deferred tax liabilities are provided on the total amount of net temporary
differences taxable in the future.
The Company's principal temporary differences between pretax financial
income and taxable income result primarily from the different methods of
accounting for deferred loan origination fees, Federal Home Loan Bank stock
dividends, certain components of retirement expense, general loan loss
allowances, percentage of earnings bad debt deductions and mortgage servicing
rights. A temporary difference is also recognized for depreciation expense
computed using accelerated methods for federal income tax purposes.
8. EARNINGS PER SHARE
Basic earnings per common share is computed based upon the weighted-average
number of common shares outstanding during the year, restated for the effects of
the Company's reorganization and related stock offering. Diluted earnings per
common share include the dilutive effect of additional potential common shares
issuable under the Company's stock option plan. For each of the years presented,
there were no shares excluded from the diluted earnings per share calculation
because the related options were anti-dilutive. The computations are as follows:
2003 2002 2001
_________ _________ _________
Weighted-average common shares
outstanding (basic) 3,887,881 3,884,253 3,923,436
Dilutive effect of assumed
exercise of stock options 14,196 16,372 17,756
_________ _________ _________
Weighted-average common shares
outstanding (diluted) 3,902,077 3,900,625 3,941,192
========= ========= =========
9. STOCK OPTION PLANS
The Company has an incentive Stock Option Plan that provided for the
issuance of 196,390 adjusted shares of authorized, but unissued shares of common
stock. The Company also has a non-incentive Stock Option Plan that provided for
the issuance of 82,223 shares of authorized, but unissued shares of common
stock.
The Company accounts for its stock option plans in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation," which provides a fair
value-based method for valuing stock-based compensation that entities may use,
which measures compensation cost at the grant date based on the fair value of
the award. Compensation is then recognized over the service period, which is
usually the vesting period. Alternatively, SFAS No. 123 permits entities to
continue to account for stock options and similar equity instruments under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Entities that continue to account for stock options using APB
Opinion No. 25 are required to make pro forma disclosures of net earnings and
earnings per share, as if the fair value-based method of accounting defined in
SFAS No. 123 had been applied. Management has determined that the Company will
continue to account for stock based compensation pursuant to APB Opinion No. 25.
In accordance with APB Opinion No. 25, no compensation cost has been
recognized for the plans. Had compensation cost for the Company's stock option
plans been determined based on the fair value at the grant dates for awards
under the plans consistent with the accounting method
______________________________________ 26 ______________________________________
______________________________________________________________________________WS
utilized in SFAS No. 123, the Company's net earnings and earnings per share
would have been reported in the manner presented below:
2003 2002 2001
______ ______ ______
Net earnings $2,772 $1,823 $1,332
Stock-based compensation,
net of tax (21) -- --
______ ______ ______
Pro forma net earnings $2,751 $1,823 $1,332
====== ====== ======
Earnings per share
Basic $ .71 $ .47 $ .34
Stock-based compensation,
net of tax -- -- --
______ ______ ______
Pro forma earnings per share $ .71 $ .47 $ .34
====== ====== ======
Diluted $ .71 $ .47 $ .34
Stock-based compensation,
net of tax (.01) -- --
______ ______ ______
Pro forma earnings per share $ .70 $ .47 $ .34
====== ====== ======
The following information applies to options outstanding at March 31, 2003:
Number outstanding 18,543
Range of exercise prices $3.31
Number outstanding 10,123
Range of exercise prices $11.67
Weighted-average exercise price $6.26
Weighted-average remaining contractual life 3.52
At March 31, 2003, all of the stock options granted were subject to
exercise at the discretion of the grantees and expire in fiscal 2004.
A summary of the status of the Company's stock option plans as of March 31,
2003, 2002 and 2001, and changes during the years ending on those dates is
presented below:
2003 2002 2001
___________________ ___________________ ___________________
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
______ ________ ______ ________ ______ ________
Outstanding at beginning of year 23,378 $ 3.31 26,400 $3.31 41,787 $3.31
Granted 10,123 11.67 -- -- -- --
Exercised (4,835) 3.31 (3,022) 3.31 (11,936) 3.31
Forfeited -- -- -- -- (3,451) 3.31
______ ________ ______ ________ ______ ________
Outstanding at end of year 28,666 $ 6.26 23,378 $3.31 26,400 $3.31
====== ======== ====== ======== ====== ========
Options exercisable at year-end 28,666 $ 6.26 23,378 $3.31 26,400 $3.31
====== ======== ====== ======== ====== ========
Fair value of options granted $ 3.17 -- --
======== ======== ========
________________________________________________________________________________
10. CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks, federal funds sold, and interest-bearing deposits due
from other financial institutions with original maturities of less than three
months.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of the fair value of financial instruments, both assets and
liabilities whether or not recognized in the consolidated statements of
financial condition, for which it is practicable to estimate that value. For
financial instruments where quoted market prices are not available, fair values
are based on estimates using present value and other valuation methods.
The methods used are greatly affected by the assumptions applied, including
the discount rate and estimates of future cash flows. Therefore, the fair values
presented may not represent amounts that could be realized in an exchange for
certain financial instruments.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments at March 31,
2003 and 2002:
CASH AND CASH EQUIVALENTS: The carrying amounts presented in the
consolidated statements of financial condition for cash and cash
equivalents are deemed to approximate fair value.
INTEREST-BEARING DEPOSITS IN OTHER FINANCIAL INSTITUTIONS: The carrying
amounts presented in the consolidated statements of financial condition for
certificates of deposit in other financial institutions are deemed to
approximate fair value.
INVESTMENT AND MORTGAGE-BACKED SECURITIES: For investment and
mortgage-backed securities, fair value is deemed to equal the quoted market
price.
______________________________________ 27 ______________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON'T.)
WS______________________________________________________________________________
March 31, 2003, 2002, and 2001
LOANS RECEIVABLE: The loan portfolio has been segregated into categories
with similar characteristics, such as one-to-four family residential,
multi-family residential and nonresidential real estate. These loan
categories were further delineated into fixed-rate and adjustable-rate
loans. The fair values for the resultant loan categories were computed via
discounted cash flow analysis, using current interest rates offered for
loans with similar terms to borrowers of similar credit quality. For loans
on deposit accounts and consumer and other loans, fair values were deemed
to equal the historic carrying values. The historical carrying amount of
accrued interest on loans is deemed to approximate fair value.
FEDERAL HOME LOAN BANK STOCK: The carrying amount presented in the
consolidated statements of financial condition is deemed to approximate
fair value.
DEPOSITS: The fair value of NOW accounts, passbook and club accounts, money
market deposits and advances by borrowers is deemed to approximate the
amount payable on demand. Fair values for fixed-rate certificates of
deposit have been estimated using a discounted cash flow calculation using
the interest rates currently offered for deposits of similar remaining
maturities.
ADVANCES FROM FEDERAL HOME LOAN BANK: The fair value of these advances is
estimated using the rates currently offered for similar advances of similar
remaining maturities or, when available, quoted market prices.
COMMITMENTS TO EXTEND CREDIT: For fixed-rate and adjustable-rate loan
commitments, the fair value estimate considers the difference between
current levels of interest rates and committed rates. At March 31, 2003 and
2002, the difference between the fair value and notional amount of loan
commitments was not material.
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Company's financial instruments at March 31 are as follows:
2003 2002
__________________ _____________________
Carrying Fair Carrying Fair
value value value value
________ ________ ________ ________
(In thousands)
Financial assets
Cash and cash equivalents
and interest-bearing
deposits $ 17,496 $ 17,496 $ 27,883 $ 27,883
Investment
securities 35,841 36,247 22,286 22,098
Mortgage-backed
securities 76,002 76,078 17,326 17,284
Loans receivable 228,373 236,633 251,172 253,233
Federal Home Loan
Bank stock 4,041 4,041 3,767 3,767
________ ________ ________ ________
$361,753 $370,495 $322,434 $324,265
======== ======== ======== ========
Financial liabilities
Deposits $300,931 $303,316 $300,957 $301,292
Advances from the
Federal Home
Loan Bank 30,000 30,515 5,000 5,025
Advances by
borrowers for taxes
and insurance 712 712 880 880
________ ________ ________ ________
$331,643 $334,543 $306,837 $307,197
======== ======== ======== ========
12. ADVERTISING
Advertising costs are expensed when incurred. The Company's advertising
expense totaled $151,000, $136,000 and $106,000 for the fiscal years ended March
31, 2003, 2002 and 2001, respectively.
13. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." SFAS No. 146 provides
financial accounting and reporting guidance for costs associated with exit or
disposal activities, including one-time termination benefits, contract
termination costs other than for a capital lease, and costs to consolidate
facilities or relocate employees. SFAS No. 146 is effective for exit or disposal
activities initiated after December 31, 2002. SFAS No. 146 is not expected to
have a material effect on the Company's financial condition or results of
operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to
______________________________________ 28 ______________________________________
______________________________________________________________________________WS
the fair value based method of accounting for stock-based employee compensation.
In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. SFAS No. 148 is effective for
fiscal years beginning after December 15, 2002. The expanded annual disclosure
requirements and the transition provisions are effective for fiscal years ending
after December 15, 2002. The interim disclosure provisions are effective for
financial reports containing financial statements for interim periods beginning
after December 15, 2002. SFAS No. 148 is not expected to have a material effect
on the Company's consolidated financial position or results of operations.
In November 2002, the FASB issued Financial Interpretation No. 45 ("FIN
45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires a
guarantor entity, at the inception of a guarantee covered by the measurement
provisions of the interpretation, to record a liability for the fair value of
the obligation undertaken in issuing a guarantee. Financial letters of credit
require the Company to make payment in the customer's financial condition
deteriorates, as defined in the agreements. FIN 45 requires the Company to
record an initial liability generally equal to the fees received for these
letters of credit, when guaranteeing obligations unless it became probable that
the Company would have to perform under the guarantee. FIN 45 applies
prospectively to letters of credit the Company issues or modifies subsequent to
December 31, 2002. The Company adopted FIN 45 in fiscal 2003, without material
effect on its financial statements.
The Company defines the initial fair value of these letters of credit as
the fee received from the customer. The maximum potential undiscounted amount of
future payments of these letters of credit as of March 31, 2003 totaled $5,000.
Amounts due under these letters of credit would be reduced by any proceeds that
the Company would be able to obtain in liquidating the collateral for the loans,
which varies depending on the customer.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities." FIN 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns, or both. FIN 46 also requires
disclosures about variable interest entities that a company is not required to
consolidate, but in which it has a significant variable interest. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply to
existing entities in the first fiscal year or interim period beginning after
June 15, 2003. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established. FIN 46 is not expected to have a material
effect on the Company's consolidated financial position or results of
operations.
14. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the March
31, 2003 consolidated financial statement presentation.
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES
Carrying values and estimated fair values of investment securities at March
31 are summarized as follows:
March 31, 2003
__________________________________________________
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
_________ __________ __________ _________
(In thousands)
Held-to-maturity
Corporate bonds
and notes $10,587 $ 218 $ 22 $10,783
U.S. Government and
agency obligations 8,093 201 4 8,290
Municipal obligations 125 13 -- 138
_______ _____ _____ _______
$18,805 $ 432 $ 26 $19,211
======= ===== ===== =======
Available for sale
Mutual funds $10,009 $ -- $ -- $10,009
Corporate bonds
and notes 1,534 -- 3 1,531
U.S. Government and
agency obligations 2,022 -- 3 2,019
Municipal obligations 3,499 10 32 3,477
_______ _____ _____ _______
$17,064 $ 10 $ 38 $17,036
======= ===== ===== =======
March 31, 2002
__________________________________________________
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
_________ __________ __________ _________
(In thousands)
Held-to-maturity
Corporate bonds
and notes $ 2,998 $ 53 $ -- $ 3,051
U.S. Government and
agency obligations 19,152 56 304 18,904
Municipal obligations 136 7 -- 143
_______ _____ _____ _______
$22,286 $ 116 $ 304 $22,098
======= ===== ===== =======
______________________________________ 29 ______________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON'T.)
WS______________________________________________________________________________
March 31, 2003, 2002, and 2001
The amortized cost and estimated fair value of investment securities at
March 31, 2003, by term to maturity are shown below.
Amortized Estimated
cost fair value
_________ __________
(In thousands)
Held-to-maturity
Due in one year or less $ 1,500 $ 1,522
Due within one to three years 9,104 9,467
Due within three to five years 6,983 6,995
Due in over five years 1,218 1,227
_______ _______
$18,805 $19,211
======= =======
Available for sale
Due in one year or less $12,044 $12,038
Due within one to three years 515 515
Due within three to five years 1,006 1,006
Due in over five years 3,499 3,477
_______ _______
$17,064 $17,036
======= =======
The Company had pledged $3.1 million and $2.3 million in investment
securities to secure public deposits at March 31, 2003 and 2002, respectively.
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of mortgage-backed securities at March 31, 2003 and 2002,
including those designated as available for sale, are summarized as follows:
2003
__________________________________________________
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
_________ __________ __________ _________
(In thousands)
Held-to-maturity
Federal Home Loan
Mortgage Corporation
participation certificates $ 2,976 $ 19 $ 4 $ 2,991
Government National
Mortgage Association
participation certificates 2,800 32 -- 2,832
Federal National
Mortgage Association
participation certificates 4,075 29 -- 4,104
_______ _____ ____ _______
$ 9,851 $ 80 $ 4 $ 9,927
======= ===== ==== =======
Available for sale
Federal Home Loan
Mortgage Corporation
participation certificates $20,403 $ 120 $ -- $20,523
Government National
Mortgage Association
participation certificates 1,898 23 -- 1,921
Federal National
Mortgage Association
participation certificates 43,636 150 79 43,707
_______ _____ ____ _______
$65,937 $ 293 $ 79 $66,151
======= ===== ==== =======
2002
__________________________________________________
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
_________ __________ __________ _________
(In thousands)
Held-to-maturity
Federal Home Loan
Mortgage Corporation
participation certificates $ 4,452 $ -- $ 45 $ 4,407
Government National
Mortgage Association
participation certificates 2,558 16 12 2,562
Federal National
Mortgage Association
participation certificates 6,867 29 30 6,866
_______ _____ ____ _______
$13,877 $ 45 $ 87 $13,835
======= ===== ==== =======
Available for sale
Federal Home Loan
Mortgage Corporation
participation certificates $ 1,687 $ 25 $ 5 $ 1,707
Government National
Mortgage Association
participation certificates 55 9 -- 64
Federal National
Mortgage Association
participation certificates 1,674 20 16 1,678
_______ _____ ____ _______
$ 3,416 $ 54 $ 21 $ 3,449
======= ===== ==== =======
The amortized cost of mortgage-backed securities, including those
designated as available for sale at March 31, 2003, by contractual term to
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may generally prepay obligations without prepayment
penalties.
March 31, 2003
Amortized Cost
(In thousands)
Held-to-maturity
Due within three years $ 270
Due after three years 9,581
________
$ 9,851
========
Available for sale
Due within three years $ 1,301
Due after three years 64,636
________
$ 65,937
========
______________________________________ 30 ______________________________________
______________________________________________________________________________WS
NOTE C -- LOANS RECEIVABLE
The composition of the loan portfolio at March 31 is as follows:
2003 2002
-------- --------
(In Thousands)
Residential real estate - 1 to 4 family $200,764 $220,145
Residential real estate - multi-family 8,512 7,368
Residential real estate - construction 3,548 8,728
Nonresidential real estate and land 8,211 9,725
Commercial 7,427 5,832
Consumer and other 3,892 6,096
________ ________
232,354 257,894
Less:
Undisbursed portion of loans in process 2,244 4,616
Deferred loan origination fees 1,059 1,376
Allowance for loan losses 678 730
________ ________
$228,373 $251,172
======== ========
As depicted above, the Banks' lending efforts have historically focused on
one-to-four family residential and multi-family residential real estate loans,
which comprise approximately $210.6 million, or 92%, of the total loan portfolio
at March 31, 2003, and $231.6 million, or 92%, of the total loan portfolio at
March 31, 2002. Generally, such loans have been underwritten on the basis of no
more than an 80% loan-to-value ratio, which has historically provided the
Company with adequate collateral coverage in the event of default. Nevertheless,
the Banks, as with any lending institution, are subject to the risk that real
estate values could deteriorate in their primary lending areas of north central
Ohio, thereby impairing collateral values. However, management is of the belief
that residential real estate values in the Company's primary lending area are
presently stable.
As discussed previously, Wayne Savings has sold whole loans and
participating interests in loans in the secondary market, retaining servicing on
the loans sold. Loans sold and serviced for others totaled approximately $47.9
million, $60.6 million and $47.1 million at March 31, 2003, 2002 and 2001,
respectively.
In the normal course of business, the Banks have made loans to their
directors, officers and their related business interests. Related party loans
are made on the same terms that are widely available to other employees, as long
as the director or executive officer is not given preferential treatment
compared to other participating employees. The aggregate dollar amount of loans
outstanding to directors, officers and their related business interests totaled
approximately $2.6 million, $2.7 million and $2.5 million at March 31, 2003,
2002 and 2001, respectively. During fiscal 2003, the Company disbursed $190,000
of loans to officers and directors and received principal repayments of
$250,000. At March 31, 2003, $2.1 million of the related party loans was a
nonresidential real estate loan.
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is summarized as follows for
the years ended March 31:
2003 2002 2001
_____ _____ _____
(In thousands)
Balance at beginning of year $ 730 $655 $793
Provision for losses on loans 91 134 96
Charge-offs of loans (158) (63) (240)
Recovery of loans previously
charged off 15 4 6
_____ ____ ____
Balance at end of year $ 678 $730 $655
===== ==== ====
As of March 31, 2003, the Banks' allowance for loan losses was comprised
solely of a general loan loss allowance, which is includible as a component of
regulatory risk-based capital.
Nonaccrual, nonperforming and impaired loans totaled approximately $2.5
million, $3.8 million and $1.2 million at March 31, 2003, 2002 and 2001,
respectively.
During the years ended March 31, 2003, 2002 and 2001, interest income of
approximately $208,000, $99,000 and $12,000, respectively, would have been
recognized had nonaccrual loans been performing in accordance with contractual
terms.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment at March 31 are comprised of the following:
2003 2002
_______ _______
(In thousands)
Land and improvements $ 1,643 $ 1,617
Office buildings and improvements 6,583 6,439
Furniture, fixtures and equipment 3,112 4,452
Leasehold improvements 356 354
_______ _______
11,694 12,862
Less accumulated depreciation
and amortization 2,876 3,654
_______ _______
$ 8,818 $ 9,208
======= =======
______________________________________ 31 ______________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON'T.)
WS______________________________________________________________________________
March 31, 2003, 2002, and 2001
NOTE F - DEPOSITS
Deposits consist of the following major classifications at March 31:
2003 2002
________ ________
DEPOSIT TYPE AND WEIGHTED- (In thousands)
AVERAGE INTEREST RATE
NOW accounts
2003 - .56% $ 39,982
2002 - .96% $ 38,396
Passbook
2003 - 1.05% 84,478
2002 - 2.25% 77,485
Money Market Investor
2003 - 1.20% 13,647
2002 - 2.13% 11,809
________ ________
Total demand, transaction and
passbook deposits 138,107 127,690
Certificates of deposit
Original maturities of:
Less than 12 months
2003 - 1.66% 19,400
2002 - 3.09% 28,497
12 months to 24 months
2003 - 2.44% 53,755
2002 - 4.74% 81,005
25 months to 36 months
2003 - 3.92% 15,870
2002 - 4.57% 9,628
More than 36 months
2003 - 4.75% 35,184
2002 - 5.15% 11,843
Jumbo
2003 - 4.04% 38,615
2002 - 5.30% 42,294
________ ________
Total certificates of deposit 162,824 173,267
________ ________
Total deposit accounts $300,931 $300,957
======== ========
At March 31, 2003 and 2002, the Banks had certificates of deposit with
balances in excess of $100,000 totaling $48.7 million and $55.5 million,
respectively.
Interest expense on deposits for the years ended March 31 is summarized as
follows:
2003 2002 2001
______ _______ _______
(In thousands)
Passbook $1,474 $ 1,674 $ 1,642
NOW and money market
deposit accounts 540 771 875
Certificates of deposit 6,418 9,610 10,135
______ _______ _______
$8,432 $12,055 $12,652
====== ======= =======
Maturities of outstanding certificates of deposit at March 31 are
summarized as follows:
2003 2002
________ ________
(In thousands)
Less than one year $ 95,625 $142,486
One to three years 34,396 22,282
Over three years 32,803 8,499
________ ________
$162,824 $173,267
======== ========
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at March 31, 2003
and 2002 by pledges of certain residential mortgage loans totaling $37.5 million
and $6.3 million, respectively, and the Banks' investment in Federal Home Loan
Bank stock, are summarized as follows:
Interest Maturing in year
rate ending March 31, 2003 2002
_____________ ________________ _______ _______
(Dollars in thousands)
5.07% - 5.29% 2005 $ 5,000 $ 5,000
3.13% - 3.36% 2007 7,500 --
3.51% - 3.61% 2008 5,000 --
4.01% - 4.87% 2009 and
thereafter 12,500 --
------- -----
$30,000 $ 5,000
====== =====
Weighted-average interest rate 4.15% 5.24%
====== =====
______________________________________ 32 ______________________________________
______________________________________________________________________________WS
NOTE H - FEDERAL INCOME TAXES
The effective tax rates were 30.5%, 34.0% and 33.6% for the fiscal years
ended March 31, 2003, 2002 and 2001, respectively. The decrease in the effective
tax rate for fiscal 2003 was primarily due to tax-free income arising from
various interest-earning assets.
The composition of the Company's net deferred tax liability at March 31 is
as follows:
2003 2002
_______ _______
(In thousands)
Taxes (payable) refundable on
temporary differences at
statutory rate:
Deferred tax assets
Deferred loan origination fees $ -- $ 72
General loan loss allowance 231 286
Pension expense 184 20
Reserve for uncollected interest 71 34
Real estate acquired through
foreclosure 38 38
Other 69 8
_______ _______
Deferred tax assets 593 458
_______ _______
Deferred tax liabilities
Federal Home Loan Bank
stock dividends (882) (822)
Book/tax depreciation differences (156) (157)
Deferred loan origination costs (33) --
Unrealized gains on securities
designated as available for sale (63) (11)
Tax bad debt reserve (11) (44)
Mortgage servicing rights (130) (191)
_______ _______
Deferred tax liabilities (1,275) (1,225)
_______ _______
Total deferred tax liability $ (682) $ (767)
======= =======
Prior to fiscal 1997, Wayne Savings was allowed a special bad debt
deduction based on a percentage of earnings, generally limited to 8% of
otherwise taxable income and subject to certain limitations based on aggregate
loans and deposit account balances at the end of the year. This cumulative
percentage of earnings bad debt deduction totaled approximately $2.7 million as
of March 31, 2003. If the amounts that qualified as deductions for federal
income taxes are later used for purposes other than bad debt losses, including
distributions in liquidation, such distributions will be subject to federal
income taxes at the then current corporate income tax rate. The amount of
unrecognized deferred tax liability relating to the cumulative bad debt
deduction was approximately $918,000 at March 31, 2003. Wayne Savings is
required to recapture as taxable income approximately $200,000 of its bad debt
reserve, which represents the post-1987 additions to the reserve, and will be
unable to utilize the percentage of earnings method to compute the reserve in
the future. Wayne Savings has provided deferred taxes for this amount and is
amortizing the recapture of the bad debt reserve in taxable income over a
six-year period, which commenced in fiscal 1999.
At March 31, 2003, the Company's tax return for the year ended March 31,
1999, was under examination. The Company does not expect any material adverse
adjustments as a result of the examination.
NOTE I - COMMITMENTS
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers,
including commitments to extend credit. Such commitments involve, to varying
degrees, elements of credit and interest-rate risk in excess of the amount
recognized in the consolidated statements of financial condition. The contract
or notional amounts of the commitments reflect the extent of the Company's
involvement in such financial instruments.
The Company's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The Company
uses the same credit policies in making commitments and conditional obligations
as those utilized for on-balance-sheet instruments.
At March 31, 2003, the Company had total outstanding commitments of
approximately $4.0 million to originate loans, of which $2.8 million were
comprised of fixed-rate loans at rates ranging from 5.13% to 7.25% and $1.2
million were comprised of adjustable-rate loans at rates ranging from 4.38% to
5.50%. The Company had unused lines of credit outstanding under home equity
loans $17.1 million and $13.9 million at March 31, 2003 and 2002. The Company
had unused lines of credit outstanding under credit cards of $4.7 million and
$4.6 million at March 31, 2003 and 2002, respectively. Additionally, the Company
had unused lines of credit under commercial loans of $4.3 million and $4.0
million at March 31, 2003 and 2002. At March 31, 2003 and 2002, the Company had
outstanding commitments to purchase $2.0 million and $1.5 million of
mortgage-backed securities, respectively. Management believes that all loan and
mortgage-backed security commitments at March 31, 2003, are able to be funded
through cash flow from operations and existing excess liquidity.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments may expire
without being drawn upon, the total commitment
______________________________________ 33 ______________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON'T.)
WS______________________________________________________________________________
March 31, 2003, 2002, and 2001
amounts do not necessarily represent future cash requirements. The Company
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if it is deemed necessary by the Company upon extension
of credit, is based on management's credit evaluation of the counterparty.
Collateral on loans may vary but the preponderance of loans granted generally
includes a mortgage interest in real estate as security.
The Company leases certain branch banking facilities under operating
leases. The minimum annual lease payments over the initial lease term are as
follows:
Fiscal year ended (In thousands)
_________________ ______________
2004 $ 73
2005 73
2006 73
2007 97
Thereafter 97
---
Total $413
===
The Company incurred rental expense under operating leases totaling
approximately $68,000, $66,000 and $30,000 for the fiscal years ended March 31,
2003, 2002 and 2001, respectively.
There were no material contingent liabilities at March 31, 2003 or 2002.
NOTE J - REGULATORY CAPITAL
The Banks are subject to minimum regulatory capital standards promulgated
by the OTS. Failure to meet minimum capital requirements can initiate certain
mandatory -and possibly additional discretionary - actions by regulators that,
if undertaken, could have a direct material effect on the consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Banks must meet specific capital guidelines that
involve quantitative measures of the Banks' assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Banks' capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk-weightings and other factors.
The minimum capital standards of the OTS generally require the maintenance of
regulatory capital sufficient to meet each of three tests, hereinafter described
as the tangible capital requirement, the core capital requirement and the
risk-based capital requirement. The tangible capital requirement provides for
minimum tangible capital (defined as stockholders' equity less all intangible
assets) equal to 1.5% of adjusted total assets. The core capital requirement
provides for minimum core capital (tangible capital plus certain forms of
supervisory goodwill and other qualifying intangible assets) generally equal to
4.0% of adjusted total assets except for those associations with the highest
examination rating and acceptable levels of risk. The risk-based capital
requirement provides for the maintenance of core capital plus general loss
allowances equal to 8.0% of risk-weighted assets. In computing risk-weighted
assets, the Banks multiply the value of each asset on their statement of
financial condition by a defined risk-weighting factor, e.g. one- to four-family
residential loans carry a risk-weighted factor of 50%.
As of March 31, 2003, management believes that the Banks met all capital
adequacy requirements to which they were subject. As of the most recent
examination date, the Banks were advised by the OTS that they met the definition
of "well capitalized" institutions.
The Banks' management believes that, under the current regulatory capital
regulations, the Banks will continue to meet their minimum capital requirements
in the foreseeable future. However, events beyond the control of the Banks, such
as increased interest rates or a downturn in the economy in the Banks' market
area, could adversely affect future earnings and, consequently, the ability to
meet future minimum regulatory capital requirements.
The Banks are subject to regulations imposed by the OTS regarding the
amount of capital distributions payable to the Company. Generally, the Banks'
payment of dividends is limited, without prior OTS approval, to net earnings for
the current calendar year, plus the two preceding years, less capital
distributions paid over the comparable time period. Insured institutions are
required to file an application with the OTS for capital distributions in excess
of the limitation.
Regulations of the OTS governing mutual holding companies permitted Wayne
Savings Bankshares M.H.C. (the "M.H.C.") to waive the receipt by it of any
dividend declared by the Company or the Bank on the common stock, provided that
the OTS does not object to such waiver. The M.H.C. accepted dividends totalling
$25,000, $260,000 (of which $258,000 was treated as an offset to previously
allocated M.H.C. costs) and $75,000 during fiscal years 2002, 2001 and 2000,
respectively. For the fiscal year ended March 31, 2003, the M.H.C. waived its
share of all dividends declared on the common stock. Total dividends waived by
the M.H.C. through the date of conversion amounted to $6.2 million.
______________________________________ 34 ______________________________________
______________________________________________________________________________WS
WAYNE SAVINGS COMMUNITY BANK AS OF MARCH 31, 2003
(Dollars in thousands)
Required to be "well-
Required for capital capitalized" under prompt
Actual adequacy purposes corrective action provisions
___________________ _______________________________ ____________________________
Amount Ratio Amount Ratio Amount Ratio
Tangible capital $38,069 10.2% >$ 5,604 >1.5% >$ 18,680 > 5.0%
Core capital $38,069 10.2% >$14,944 >4.0% >$ 22,416 > 6.0%
Risk-based capital $38,748 20.2% >$15,353 >8.0% >$ 19,191 >10.0%
WAYNE SAVINGS COMMUNITY BANK AS OF MARCH 31, 2002
(Dollars in thousands)
Required to be "well-
Required for capital capitalized" under prompt
Actual adequacy purposes corrective action provisions
___________________ _______________________________ ____________________________
Amount Ratio Amount Ratio Amount Ratio
Tangible capital $26,063 7.8% >$ 5,021 >1.5% >$ 16,736 > 5.0%
Core capital $26,063 7.8% >$13,389 >4.0% >$ 20,083 > 6.0%
Risk-based capital $26,793 14.2% >$15,108 >8.0% >$ 18,885 >10.0%
________________________________________________________________________________
VILLAGE SAVINGS BANK, F.S.B. AS OF MARCH 31, 2003
(Dollars in thousands)
Required to be "well-
Required for capital capitalized" under prompt
Actual adequacy purposes corrective action provisions
___________________ _______________________________ ____________________________
Amount Ratio Amount Ratio Amount Ratio
Tangible capital $5,311 10.5% >$ 759 >1.5% >$ 2,529 > 5.0%
Core capital $5,311 10.5% >$ 2,023 >4.0% >$ 3,034 > 6.0%
Risk-based capital $5,358 28.7% >$ 1,471 >8.0% >$ 1,839 >10.0%
VILLAGE SAVINGS BANK, F.S.B. AS OF MARCH 31, 2002
(Dollars in thousands)
Required to be "well-
Required for capital capitalized" under prompt
Actual adequacy purposes corrective action provisions
___________________ _______________________________ ____________________________
Amount Ratio Amount Ratio Amount Ratio
Tangible capital $2,865 7.0% >$ 614 >1.5% >$ 2,047 > 5.0%
Core capital $2,865 7.0% >$ 1,637 >4.0% >$ 2,456 > 6.0%
Risk-based capital $2,906 15.8% >$ 1,471 >8.0% >$ 1,838 >10.0%
______________________________________ 35 ______________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON'T.)
WS______________________________________________________________________________
March 31, 2003, 2002, and 2001
NOTE K - PENSION AND BENEFIT PLANS
The Company has a non-contributory insured defined benefit pension plan
(the "Plan") covering all eligible employees. The Plan benefits are based on
years-of-service and other factors. The Company's funding policy is to
contribute at least annually amounts sufficient to satisfy legal funding
requirements plus such additional tax-deductible amounts deemed advisable under
the circumstances. Contributions are intended to provide not only for benefits
attributed to service-to-date, but also for those expected to be earned in the
future.
Information with respect to the Plan for the years ended March 31, 2003,
2002 and 2001 is as follows:
The changes in benefit obligations are computed as follows:
2003 2002 2001
______ ______ ______
(In thousands)
Projected benefit obligation
at beginning of year $1,592 $1,280 $1,117
Service cost 55 63 58
Interest cost 124 101 83
Actuarial loss 428 203 39
Benefits paid (197) (55) (17)
______ ______ ______
Projected benefit obligation
at end of year $2,002 $1,592 $1,280
====== ====== ======
The changes in the Plan's assets are computed as follows:
2003 2002 2001
______ ______ ______
(In thousands)
Fair value of plan assets at
beginning of year $1,508 $1,283 $1,122
Actual return on plan assets (22) 68 3
Employer contributions 210 212 175
Benefits paid (197) (55) (17)
______ ______ ______
Fair value of plan assets
at end of year $1,499 $1,508 $1,283
====== ====== ======
The following table sets forth the Plan's funded status at March 31:
2003 2002
______ ______
(In thousands)
Funded status $ (84) $ (84)
Unrecognized net actuarial loss -- (42)
Unrecognized net transition liability -- 42
Minimum additional liability (417) --
______ ______
Accrued pension cost $ (501) $ (84)
====== ======
The weighted-average actuarial assumptions used were:
2003 2002 2001
______ ______ ______
Weighted-average
discount rate 8.00% 7.25% 7.50%
Weighted-average rate of
compensation increase 1.00% 1.00% 1.00%
Weighted-average expected
long-term rate of return on
plan assets 7.00% 7.00% 7.00%
====== ====== ======
Net periodic pension costs includes the following components:
2003 2002 2001
______ ______ ______
(In thousands)
Service cost $ 55 $ 63 $ 58
Interest cost 124 101 83
Actual return on plan assets 21 (68) (3)
Amortization of prior net loss 2 199 141
Amortization of net transition
obligation 6 6 6
Unrecognized net actuarial loss (131) (27) (81)
______ ______ ______
Net periodic pension cost $ 77 $ 274 $ 204
====== ====== ======
Plan assets were invested in life insurance contracts and $1.0 million of
deposits at the Bank.
As previously stated, the Banks have a savings plan covering substantially
all employees who meet certain age and service requirements. Under the plan, the
Banks match participant contributions up to 2% of each participant's
compensation during the year. This contribution is dependent on availability of
sufficient net earnings from current or prior years. Additional contributions
may be made as approved by the Board of Directors. Expense under the plan
totaled approximately $46,000, $44,000 and $44,000 for the fiscal years ended
March 31, 2003, 2002 and 2001, respectively.
______________________________________ 36 ______________________________________
______________________________________________________________________________WS
NOTE L - SERVICE FEES, CHARGES AND OTHER OPERATING INCOME
Service fees, charges and other operating income for the year ended March
31 is comprised of the following items:
2003 2002 2001
______ ______ ______
(In thousands)
Deposit fee income $ 719 $ 675 $ 501
Loan servicing fee income 139 133 120
Income from credit cards 287 157 69
Other service fees, charges
and other operating income 270 178 201
______ ______ ______
$1,415 $1,143 $ 891
====== ====== ======
NOTE M - OTHER OPERATING EXPENSE AND M.H.C. EXPENDITURES
Other operating expense for the year ended March 31 is comprised of the
following items:
2003 2002 2001
______ ______ ______
(In thousands)
Telephone and postage expense $ 253 $ 273 $ 247
Public relations and
advertising expense 211 198 214
Stationery, printing and office
supplies expense 172 172 189
Supervisory exam expense 152 137 128
Professional services expense 172 154 96
Other operating expenses 866 733 716
______ ______ ______
$1,826 $1,667 $1,590
====== ====== ======
Expenses paid by or previously allocated to the M.H.C. were comprised of
the following:
2003 2002 2001
______ ______ ______
(In thousands)
Fees related to M.H.C. and subsidiary
legal matters $ -- $ 30 $ 134
Intercompany cost allocations -- 5 7
Officer compensation -- -- 9
______ ______ ______
$ -- $ 35 $ 150
====== ====== ======
NOTE N - REORGANIZATION AND CHANGE OF CORPORATE FORM
In fiscal 2002, the Board of Directors of Wayne Savings Bankshares, M.H.C.
(the "M.H.C.") adopted a plan of conversion and reorganization (the "plan") to
convert the M.H.C from mutual to stock form and to complete a related stock
offering in which shares of common stock representing the MHC's ownership
interest in the Company would be sold to investors.
The plan was approved by the stockholders of the Company, the depositors of
Wayne Savings Community Bank and the Office of Thrift Supervision ("OTS") in
fiscal 2003, and the related stock offering was completed on January 8, 2003. As
of that date, 1,350,699 shares owned by the M.H.C. were retired and the Company
sold 2,040,816 shares of common stock for $10.00 per share. After consideration
of the employee stock ownership plan (ESOP) totaling $1.6 million and related
expenses of $1.9 million, net proceeds from the stock offering amounted to $17.1
million. An additional 1,847,820 shares were issued to existing shareholders
based on an exchange rate of 1.5109 new shares of common stock for each existing
share, resulting in 3,888,795 total new shares outstanding.
Upon completion of the conversion and stock offering, Wayne Savings
Bancshares, Inc. changed its charter to a Delaware holding company and is wholly
owned by public stockholders.
In the event of a complete liquidation (and only in such event), each
eligible member of Wayne's depositors will be entitled to receive a liquidation
distribution from the liquidation account in the amount of the then current
adjusted balance of deposit accounts held, before any liquidation distribution
may be made with respect to common stock. Except for the repurchase of stock and
payment of dividends by the Company, the existence of liquidation account will
not restrict the use or application of such retained earnings.
The Company may not declare, pay a cash dividend on, or repurchase any of
its common stock, if the effect thereof would cause retained earnings to be
reduced below either the amount required for the liquidation account or the
regulatory capital requirements of SAIF insured institutions.
______________________________________ 37 ______________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON'T.)
WS______________________________________________________________________________
March 31, 2003, 2002, and 2001
NOTE O -- CONDENSED FINANCIAL STATEMENTS OF WAYNE SAVINGS BANCSHARES, INC.
The following condensed financial statements summarize the financial
position of Wayne Savings Bancshares, Inc. as of March 31, 2003 and 2002, and
the results of its operations and its cash flows for the years ended March 31,
2003, 2002, and 2001.
STATEMENTS OF FINANCIAL CONDITION
March 31,
2003 2002
_______ _______
(In thousands)
ASSETS
Cash and due from banks $ 263 $ 115
Investment securities available for sale at market 5,039 --
Notes receivable from Wayne Savings 1,612 --
Investment in Wayne Savings 38,233 26,140
Prepaid expenses and other 48 851
_______ _______
Total assets $45,195 $27,106
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities $ 532 $ 1,059
Stockholders' equity
Common stock and additional paid-in capital 34,597 17,085
Retained earnings 11,830 10,121
Less required contributions for ESOP shares (1,612) --
Less 70,014 shares held in treasury at March 31, 2002 -- (1,181)
Accumulated other comprehensive income (loss) (152) 22
_______ _______
Total stockholders' equity 44,663 26,047
_______ _______
Total liabilities and stockholders' equity $45,195 $27,106
======= =======
STATEMENTS OF EARNINGS
For the years ended March 31,
2003 2002 2001
_______ _______ _______
(In thousands)
Income
Interest income $ 43 $ 1 $ 18
Equity in earnings of subsidiary 2,800 1,928 1,371
_______ _______ _______
Total revenue 2,843 1,929 1,389
General and administrative expenses 192 160 92
_______ _______ _______
Earnings before income tax credits 2,651 1,769 1,297
Federal income tax credits (121) (54) (35)
_______ _______ _______
NET EARNINGS $ 2,772 $ 1,823 $ 1,332
======= ======= =======
STATEMENTS OF CASH FLOWS
For the years ended March 31,
2003 2002 2001
_______ _______ _______
(In thousands)
Cash flows from operating activities:
Net earnings for the year $ 2,772 $ 1,823 $ 1,332
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Undistributed earnings of consolidated subsidiary (2,121) (773) (807)
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets 820 (534) (238)
Accrued expenses and other liabilities (821) 534 262
_______ _______ _______
Net cash provided by operating activities 650 1,050 549
Cash flows provided by (used in) investing activities
Purchase of investment securities designated as available for sale (5,052) -- --
Investment in Wayne Savings - net (11,700) -- --
_______ _______ _______
Net cash provided by investing activities (16,752) -- --
Cash flows provided by (used in) financing activities:
Proceeds from reorganization and related stock offering - net 17,065 -- --
Payment of dividends on common stock (831) (852) (800)
Purchase of treasury stock -- (178) (358)
Proceeds from exercise of stock options 16 10 50
_______ _______ _______
Net cash provided by (used in) financing activities 16,250 (1,020) (1,108)
_______ _______ _______
Net increase (decrease) in cash and cash equivalents 148 30 (559)
Cash and cash equivalents at beginning of year 115 85 644
_______ _______ _______
Cash and cash equivalents at end of year $ 263 $ 115 $ 85
======= ======= =======
______________________________________ 38 ______________________________________
______________________________________________________________________________WS
NOTE P - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the Company's quarterly results for the
fiscal years ended March 31, 2003 and 2002.
For the three month periods ended
_____________________________________________________________________________
June 30, 2002 September 30, 2002 December 31, 2002 March 31, 2003
_____________ __________________ _________________ ______________
(In thousands, except share data)
Total interest income $ 5,049 $ 4,877 $ 5,056 $ 5,041
Total interest expense 2,498 2,300 2,305 2,066
_______ _______ _______ _______
Net interest income 2,551 2,577 2,751 2,975
Provision for losses on loans 17 21 37 16
Other income 344 361 468 476
General, administrative and other expense 2,039 2,009 2,107 2,268
_______ _______ _______ _______
Earnings before income taxes 839 908 1,075 1,167
Federal income taxes 285 301 336 295
_______ _______ _______ _______
Net earnings $ 554 $ 607 $ 739 $ 872
======= ======= ======= =======
Earnings per share
Basic $ .15 $ .16 $ .19 $ .21
======= ======= ======= =======
Diluted $ .15 $ .16 $ .19 $ .21
======= ======= ======= =======
For the three month periods ended
_____________________________________________________________________________
June 30, 2001 September 30, 2001 December 31, 2001 March 31, 2001
_____________ __________________ _________________ ______________
(In thousands, except share data)
Total interest income $ 5,416 $ 5,330 $ 5,270 $ 5,293
Total interest expense 3,344 3,212 3,043 2,749
_______ _______ _______ _______
Net interest income 2,072 2,118 2,227 2,544
Provision for losses on loans 2 95 21 16
Other income 364 433 502 358
General, administrative and other expense 1,874 1,831 1,968 2,049
_______ _______ _______ _______
Earnings before income taxes 560 625 740 837
Federal income taxes 185 213 253 288
_______ _______ _______ _______
Net earnings $ 375 $ 412 $ 487 $ 549
======= ======= ======= =======
Earnings per share
Basic $ .10 $ .11 $ .13 $ .13
======= ======= ======= =======
Diluted $ .10 $ .11 $ .13 $ .13
======= ======= ======= =======
______________________________________ 39 ______________________________________
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
WS______________________________________________________________________________
GRANT THORNTON
ACCOUNTANTS AND MANAGEMENT CONSULTANTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Wayne Savings Bancshares, Inc.
We have audited the accompanying consolidated statements of financial condition
of Wayne Savings Bancshares, Inc. as of March 31, 2003 and 2002, and the related
consolidated statements of earnings, stockholders' equity, comprehensive income
and cash flows for each of the three years in the period ended March 31, 2003.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Wayne
Savings Bancshares, Inc. as of March 31, 2003 and 2002, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended March 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.
/s/ GRANT THORNTON LLP
Grant Thornton LLP
Cincinnati, Ohio
May 8, 2003
Suite 900
625 Eden Park Drive
Cincinnati, OH 45202-4181
T 513.762.5000
F 513.241.6125
W www.grantthornton.com
Grant Thornton LLP
US Member of Grant Thornton International
______________________________________ 40 ______________________________________