EXHIBIT 99.2
FORM 10-QSB
OFFICE OF THRIFT SUPERVISION
Washington, D.C. 20552
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Office of Thrift Supervision Docket Number 04195
THE WAYNE SAVINGS AND LOAN COMPANY
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(Exact name of registrant as specified in its charter)
Ohio 34-0606020
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
151 North Market Street
Wooster, Ohio 44691
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(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (330) 264-5767
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days.
Yes X No _____
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As of August 11, 1997, the latest practicable date, 2,250,709 shares of the
registrant's common stock, $1.00 par value, were issued and outstanding.
Page 1 of 13 pages
The Wayne Savings and Loan Company
INDEX
Page
PART I - FINANCIAL INFORMATION
Statements of Financial Condition 3
Statements of Earnings 4
Statements of Cash Flows 5
Notes to Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II - OTHER INFORMATION 12
SIGNATURES 13
THE WAYNE SAVINGS AND LOAN COMPANY
STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
JUNE 30, MARCH 31,
ASSETS 1997 1997
Cash and due from banks $ 1,547 $ 1,302
Federal funds sold 2,700 1,125
Interest-bearing deposits in other financial institutions 7,183 5,179
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Cash and cash equivalents 11,430 7,606
Certificates of deposit in other financial institutions 5,500 7,500
Investment securities - at amortized cost, approximate
market value of $17,396 and $16,904 as of June 30, 1997
and March 31, 1997 17,448 16,970
Mortgage-backed securities available for sale - at market 342 378
Mortgage-backed securities - at cost, approximate
market value of $405 and $497 as of June 30, 1997
and March 31, 1997 401 495
Loans receivable - net 207,901 209,404
Loans held for sale - at lower of cost or market 685 -
Real estate acquired through foreclosure 820 809
Office premises and equipment - at depreciated cost 4,577 3,991
Federal Home Loan Bank stock - at cost 2,577 2,531
Accrued interest receivable on loans 1,155 1,139
Accrued interest receivable on mortgage-backed securities 5 7
Accrued interest receivable on investments and
interest-bearing deposits 383 226
Prepaid expenses and other assets 901 790
Prepaid federal income taxes 105 329
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Total assets $254,230 $252,175
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $212,808 $211,442
Advances from the Federal Home Loan Bank 16,000 16,000
Loan payable to Employee Stock Ownership Plan 11 35
Advances by borrowers for taxes and insurance 884 701
Accrued interest payable 172 226
Accounts payable on mortgage loans serviced for others 257 126
Other liabilities 400 382
Accrued federal income taxes 193 148
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Total liabilities 230,725 229,060
Stockholders' equity
Common stock (20,000,000 shares of $1.00 par value authorized;
2,250,622 and 1,498,889 shares issued and outstanding at June 30, 1997
and March 31, 1997) 2,251 1,499
Additional paid-in capital 5,870 5,844
Retained earnings - substantially restricted 15,364 15,777
Less shares acquired by Employee Stock Ownership Plan (11) (35)
Unrealized gains on securities available for sale, net of related tax effects 31 30
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Total stockholders' equity 23,505 23,115
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Total liabilities and stockholders' equity $254,230 $252,175
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3
THE WAYNE SAVINGS AND LOAN COMPANY
STATEMENTS OF EARNINGS
For the three months ended June 30,
(In thousands, except share data)
1997 1996
Interest income
Loans $4,280 $4,296
Mortgage-backed securities 15 32
Investment securities 260 219
Interest-bearing deposits and other 237 183
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Total interest income 4,792 4,730
Interest expense
Deposits 2,518 2,503
Borrowings 236 143
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Total interest expense 2,754 2,646
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Net interest income 2,038 2,084
Provision for losses on loans 15 5
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Net interest income after provision for
losses on loans 2,023 2,079
Other income
Gain on sale of loans 57 -
Service fees, charges and other operating 151 139
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Total other income 208 139
General, administrative and other expense
Employee compensation and benefits 778 829
Occupancy and equipment 233 208
Federal deposit insurance premiums 51 136
Franchise taxes 76 71
Other operating 328 323
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Total general, administrative and other expense 1,466 1,567
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Earnings before income taxes 765 651
Federal income taxes
Current 216 165
Deferred 45 56
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Total federal income taxes 261 221
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NET EARNINGS $ 504 $ 430
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EARNINGS PER SHARE $.22 $.19
====== ======
4
THE WAYNE SAVINGS AND LOAN COMPANY
STATEMENTS OF CASH FLOWS
For the three months ended June 30,
(In thousands)
1997 1996
Cash flows from operating activities:
Net earnings for the period $ 504 $ 430
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 18 1
Amortization of deferred loan origination fees (87) (106)
Amortization expense of employee benefit plans 14 29
Depreciation and amortization 96 96
Loans originated for sale in the secondary market (2,484) -
Proceeds from sale of loans 1,829 -
Gain on sale of loans (30) -
Provision for losses on loans 15 5
Federal Home Loan Bank stock dividends (46) (41)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (16) (10)
Accrued interest receivable on mortgage-backed
securities 2 1
Accrued interest receivable on investments and
interest-bearing deposits (157) (19)
Prepaid expenses and other assets (111) 384
Accrued interest payable (54) 25
Accounts payable on mortgage loans serviced for
others 131 6
Other liabilities 18 (69)
Federal income taxes
Current 224 130
Deferred 45 56
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Net cash provided by (used in) operating
activities (89) 918
Cash flows provided by (used in) investing activities:
Purchase of investment securities (500) -
Proceeds from maturity of investment securities 4 1,080
Principal repayments on mortgage-backed securities 131 246
Loan principal repayments 12,964 15,230
Loan disbursements (11,389) (16,774)
Purchase of office premises and equipment - net (682) (22)
Proceeds from sale of real estate acquired through
foreclosure - 503
Additions to real estate acquired through foreclosure (11) (20)
Decrease in certificates of deposit in other
financial institutions 2,000 -
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Net cash provided by investing activities 2,517 243
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Net cash provided by operating and
investing activities
(balance carried forward) 2,428 1,161
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5
THE WAYNE SAVINGS AND LOAN COMPANY
STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended June 30,
(In thousands)
1997 1996
Net cash provided by operating and investing activities
(balance brought forward) $ 2,428 $ 1,161
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 1,366 2,020
Proceeds from Federal Home Loan Bank advances 1,000 5,000
Repayment of Federal Home Loan Bank advances (1,000) (5,000)
Advances by borrowers for taxes and insurance 183 (600)
Proceeds from exercise of stock options 15 12
Dividends paid on common stock (168) (152)
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Net cash provided by financing activities 1,396 1,280
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Net increase in cash and cash equivalents 3,824 2,441
Cash and cash equivalents at beginning of period 7,606 10,190
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Cash and cash equivalents at end of period $11,430 $12,631
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ - $ 43
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Interest on deposits and borrowings $ 2,808 $ 2,621
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Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects $ 1 $ (1)
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Recognition of mortgage servicing rights in accordance
with SFAS No. 122 $ 27 $ -
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6
THE WAYNE SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
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The accompanying unaudited financial statements were prepared in accordance
with instructions for Form 10-QSB and, therefore, do not include
information or footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. Accordingly, these financial statements
should be read in conjunction with the financial statements and notes
thereto of The Wayne Savings and Loan Company (the "Company") included in
the Annual Report on Form 10-KSB for the year ended March 31, 1997.
However, all adjustments (consisting only of normal recurring accruals)
which, in the opinion of management, are necessary for a fair presentation
of the financial statements have been included. The results of operations
for the three month periods ended June 30, 1997 and 1996 are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
2. Earnings Per Share
------------------
Earnings per share for the three months ended June 30, 1997 and 1996 is
computed based on 2,244,637 and 2,229,907 weighted-average shares
outstanding, respectively. The weighted-average shares outstanding for the
three month period ended June 30, 1996, has been restated to give effect to
the three-for-two stock split which was distributed in June 1997.
3. Effects of Recent Accounting Pronouncements
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In October 1995, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," establishing financial
accounting and reporting standards for stock-based employee compensation
plans. SFAS No. 123 encourages all entities to adopt a new method of
accounting to measure compensation cost of all employee stock compensation
plans based on the estimated fair value of the award at the date it is
granted. Companies are, however, allowed to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting, which generally does not result in compensation expense
recognition for most plans.
Companies that elect to remain with the existing accounting are required to
disclose in a footnote to the financial statements pro forma net earnings
and, if presented, earnings per share, as if SFAS No. 123 had been adopted.
The accounting requirements of SFAS No. 123 are effective for transactions
entered into during fiscal years that begin after December 15, 1995;
however, companies are required to disclose information for awards granted
in their first fiscal year beginning after December 15, 1994. Management
has determined that the Company will continue to account for stock-based
compensation pursuant to Accounting Principles Board Opinion No. 25 and,
therefore, the disclosure provisions of SFAS No. 123 will have no effect on
its financial condition or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers of
Financial Assets, Servicing Rights, and Extinguishment of Liabilities",
that provides accounting guidance on transfers of financial assets,
servicing of financial assets, and extinguishment of liabilities. SFAS No.
125 introduces an approach to accounting for transfers of
7
THE WAYNE SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. Effects of Recent Accounting Pronouncements (continued)
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financial assets that provides a means of dealing with more complex
transactions in which the seller disposes of only a partial interest in the
assets, retains rights or obligations, makes use of special purpose
entities in the transaction, or otherwise has continuing involvement with
the transferred assets. The new accounting method, the financial
components approach, provides that the carrying amount of the financial
assets transferred be allocated to components of the transaction based on
their relative fair values. SFAS No. 125 provides criteria for determining
whether control of assets has been relinquished and whether a sale has
occurred. If the transfer does not qualify as a sale, it is accounted for
as a secured borrowing. Transactions subject to the provisions of SFAS No.
125 include, among others, transfers involving repurchase agreements,
securitizations of financial assets, loan participations, factoring
arrangements, and transfers of receivables with recourse.
An entity that undertakes an obligation to service financial assets
recognizes either a servicing asset or liability or the servicing contract
(unless related to a securitization of assets, and all the securitized
assets are retained and classified as held-to-maturity). A servicing asset
or liability that is purchased or assumed is initially recognized at its
fair value. Servicing assets and liabilities are amortized in proportion
to and over the period of estimated net servicing income or net servicing
loss and are subject to subsequent assessments for impairment based on fair
value.
SFAS No. 125 provides that a liability is removed from the balance sheet
only if the debtor either pays the creditor and is relieved of its
obligation for the liability or is legally released from being the primary
obligor.
SFAS No. 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1997, and
is to be applied prospectively. Earlier or retroactive application is not
permitted. Management does not believe that adoption of SFAS No. 125 will
have a material effect on the Company's financial position or results of
operations.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which
requires companies to present basic earnings per share and, if applicable,
diluted earnings per share, instead of primary and fully diluted earnings
per share, respectively. Basic earnings per share is computed without
including potential common shares, i.e., no dilutive effect. Diluted
earnings per share is computed taking into consideration common shares
outstanding and dilutive potential common shares, including options,
warrants, convertible securities and contingent stock agreements. SFAS No.
128 is effective for periods ending after December 15, 1997. Early
application is not permitted. Based upon the provisions of SFAS No. 128,
the Company's basic and diluted earnings per share for the three months
ended June 30, 1997, would have been $.22 and $.22, respectively.
8
THE WAYNE SAVINGS AND LOAN COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from March 31, 1997 to June 30, 1997
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At June 30, 1997, the Company had total assets of $254.2 million, an increase of
approximately $2.1 million, or .8%, over March 31, 1997. This increase was
funded primarily by a $1.4 million increase in deposits and undistributed net
earnings of $336,000.
Cash and due from banks, federal funds sold, interest-bearing deposits,
certificates of deposit and investment securities totaled approximately $34.4
million, an increase of approximately $2.3 million, or 7.2%, over March 31, 1997
levels. Regulatory liquidity approximated 16.4% at June 30, 1997, compared to
15.3% at March 31, 1997.
Loans receivable decreased by approximately $818,000, or .4%, from the March 31,
1997 total. This decrease resulted from principal repayments of $13.0 million
and sales of $1.8 million, which were partially offset by loan disbursements of
$13.9 million. The allowance for loan losses totaled $939,000 at June 30, 1997,
as compared to $914,000 at March 31, 1997. Nonperforming loans totaled $1.0
million at June 30, 1997 and $962,000 at March 31, 1997. The allowance for loan
losses totaled 90.9% and 95.0% of nonperforming loans at June 30, 1997 and March
31, 1997, respectively. Although management believes that its allowance for
loan losses at June 30, 1997, is adequate based upon the available facts and
circumstances, there can be no assurance that additions to such allowance will
not be necessary in future periods, which would adversely affect the Company's
results of operations.
Deposits increased by approximately $1.4 million, or .6%, to a total of $212.8
million at June 30, 1997. The increase in deposits is primarily attributable to
management's continuing efforts to achieve a moderate rate of growth through
marketing and pricing strategies.
The Company is subject to capital standards which 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. At June 30, 1997, the
Company's tangible and core capital of $23.5 million, or 9.2%, exceeded the
minimum 1.5% and 3.0% requirements of $3.8 million and $7.6 million,
respectively, by $19.7 million and $15.8 million. The Company's risk-based
capital of $24.2 million, or 17.8%, exceeded the 8.0% minimum requirement by
approximately $13.3 million.
Comparison of Operating Results for the Three Month Periods Ended June 30, 1997
- -------------------------------------------------------------------------------
and 1996
- --------
Net earnings totaled $504,000 for the three months ended June 30, 1997, as
compared to net earnings of $430,000 for the same period in 1996, an increase of
$74,000 or 17.2%. The increase in net earnings resulted primarily from a
decrease in general, administrative and other expense of $101,000 and an
increase in other income of $69,000, which were partially offset by a $46,000
decrease in net interest income, a $10,000 increase in the provision for losses
on loans, and a $40,000 increase in the provision for federal income taxes.
9
THE WAYNE SAVINGS AND LOAN COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods Ended June 30, 1997
- -------------------------------------------------------------------------------
and 1996 (continued)
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Net Interest Income
- -------------------
Interest on loans and mortgage-backed securities decreased by $33,000, or .8%,
for the three months ended June 30, 1997, from same period in 1996. The
decrease resulted primarily from a decrease in the weighted-average yield year-
to-year, which was partially offset by a $1.7 million increase in the loan
portfolio balance outstanding. Average loans receivable increased to $209.0
million for the three months ended June 30, 1997, compared to $207.3 million for
the same period in 1996.
Interest on investments and interest-bearing deposits increased by $95,000, or
23.6%, during the current three month period, which is a result of a $2.5
million increase in the average portfolio balance year-to-year.
Interest expense on deposits and borrowings increased by $108,000, or 4.1%,
during the three months ended June 30, 1997, as compared to the comparable
quarter in 1996. The increase can be primarily attributed to an increase in the
average balance of interest-bearing liabilities, which increased to $228.1
million from $225.3 million during the same period in 1996.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $46,000, or 2.2%, during the three month period
ended June 30, 1997, as compared to the same period in 1996.
Provision for Losses on Loans
- -----------------------------
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the
Company, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Company's
market area, and other factors related to the collectibility of the Company's
loan portfolio. As a result of such analysis, management recorded a $15,000
provision for losses on loans during the three months ended June 30, 1997, an
increase of $10,000 over the same period in 1996. There can be no assurance
that the loan loss allowance of the Company will be adequate to cover losses on
nonperforming assets in the future.
Other Income
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Other income totaled $208,000 for the three months ended June 30, 1997, an
increase of $69,000, or 49.6%, over the comparable 1996 quarter. This increase
was due primarily to the $57,000 gain on sale of loans realized in the current
period.
10
THE WAYNE SAVINGS AND LOAN COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods Ended June 30, 1997
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and 1996 (continued)
- --------
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense decreased by $101,000, or 6.4%, during
the current three month period, due primarily to an $85,000, or 62.5%, decrease
in federal deposit insurance premiums and a $51,000, or 6.2%, decrease in
employee compensation and benefits, which were partially offset by a $25,000, or
12.0%, increase in occupancy and equipment. The decrease in federal deposit
insurance premiums resulted from a reduction in premium insurance rates,
following the Savings Association Insurance Fund recapitalization assessment
paid in fiscal 1997. The decrease in employee compensation and benefits was due
primarily to a reduction in compensation expense following the expiration of the
Management Recognition and Retention Plan. The increase in occupancy and
equipment was due to the increased depreciation and other costs relating to the
construction of the new facility at the existing Cleveland Road branch and the
main office renovation.
Federal Income Taxes
- --------------------
The provision for federal income taxes amounted to $261,000 for the three months
ended June 30, 1997, an increase of $40,000, or 18.1%, as compared to the
$221,000 provision recorded for the same period in 1996. The increase resulted
primarily from a $114,000, or 17.5%, increase in pretax earnings year-to-year.
The effective tax rates for the three months ended June 30, 1997 and 1996 were
34.1% and 33.9%, respectively.
11
The Wayne Savings and Loan Company
PART II
ITEM 1. Legal Proceedings
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Not applicable
ITEM 2. Changes in Securities
---------------------
Not applicable
ITEM 3. Defaults Upon Senior Securities
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Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On July 24, 1997, the Annual Meeting of the Company's Stockholders was
held. Two directors were elected to terms expiring in 2000 by the
following votes:
Kenneth G. Rhode For: 1,926,527 Withheld: 3,466
James C. Morgan For: 1,926,109 Withheld: 3,884
Three other matters were submitted to the stockholders, for which the
following votes were cast:
1) Ratification of the compensation of the Board of Directors for the
fiscal year ended March 31, 1998.
For: 1,887,173 Against: 24,108 Abstain: 17,701
2) Ratification of an Agreement and Plan of Reorganization providing
for the establishment of Wayne Savings Bankshares, Inc. as the stock
holding company parent of the Company, which stock holding company
will be majority owned by Wayne Savings Bankshares, M.H.C., the
Company's mutual holding company.
For: 1,855,735 Against: 4,945 Abstain: 19,576
3) Ratification of the appointment of Grant Thornton LLP as
independent auditors of the Company for the fiscal year ended March
31, 1998.
For: 1,920,218 Against: 894 Abstain: 8,881
ITEM 5. Other Materially Important Events
---------------------------------
None
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
None
12
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 1997 By: /s/ Charles F. Finn
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Charles F. Finn
President
Date: August 13, 1997 By: /s/ Todd J. Tappel
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Todd J. Tappel
Principal Accounting Officer
13