AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 2001
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER INCLUDING
THE SECURITIES ACT OF 1933 EXHIBITS
WAYNE SAVINGS BANCSHARES, INC.
(Name of Small Business Issuer in Its Charter)
DELAWARE 6712 31-1557791
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
151 NORTH MARKET STREET
WOOSTER, OHIO 44691-7858
(330) 264-5767
(Address and Telephone Number of Principal Executive Offices)
151 NORTH MARKET STREET
WOOSTER, OHIO 44691-7858
(330) 264-5767
(Address of Principal Place of Business or Intended Principal Place of Business)
CHARLES F. FINN
151 NORTH MARKET STREET
WOOSTER, OHIO 44691-7858
(330) 264-5767
(Name, Address and Telephone Number of Agent for Service)
COPIES TO:
KENNETH R. LEHMAN, ESQ.
ROBERT B. POMERENK, ESQ.
LUSE LEHMAN GORMAN POMERENK & SCHICK, P.C.
5335 WISCONSIN AVENUE, N.W., SUITE 400
WASHINGTON, D.C. 20015
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
check the following box: /X/
If this Form is filed to register additional shares for an offering pursuant to
Rule 462(b) under the Securities Act please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
============================================== ================ ================= ================= ========================
PROPOSED PROPOSED
AMOUNT TO BE MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF REGISTERED OFFERING PRICE AGGREGATE AMOUNT OF REGISTRATION
SECURITIES TO BE REGISTERED PER SHARE OFFERING FEE
PRICE(1)
---------------------------------------------- ---------------- ----------------- ----------------- ------------------------
Common Stock, $0.01 par value per share 4,531,347 $10.00 $45,314,000 $11,350
shares
============================================== ================ ================= ================= ========================
(1) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
PROSPECTUS
WAYNE SAVINGS BANCSHARES, INC.
(HOLDING COMPANY FOR WAYNE SAVINGS COMMUNITY BANK)
UP TO 2,070,000 SHARES OF COMMON STOCK
Wayne Savings Bancshares, Inc. is offering common stock for sale in
connection with the conversion of Wayne Savings Bankshares, MHC from the mutual
to the stock form of organization. The shares we are offering represent the
52.5% ownership interest in Wayne Savings Bancshares, Inc. now owned by Wayne
Savings Bankshares, MHC. The existing publicly held shares of Wayne Savings
Bancshares, Inc., which represent the remaining 47.5% interest in Wayne Savings
Bancshares, Inc. will be exchanged for new shares of common stock in Wayne
Savings Bancshares, Inc. All shares offered for sale are offered at a price of
$10.00 per share. You will not have to pay any sales commissions on shares of
common stock that you purchase in the offering.
o If you are a current or former customer of Wayne Savings Community Bank you
may have priority rights to purchase shares.
o If you are a current stockholder of Wayne Savings Bancshares, Inc. your
shares will be exchanged for new shares of Wayne Savings Bancshares, Inc.
You may purchase additional shares in the offering after priority orders
are filled.
================================================================================
OFFERING SUMMARY
PRICE: $10.00 PER SHARE
MINIMUM MAXIMUM
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Number of shares: 1,530,000 2,070,000
Gross offering proceeds: $15,300,000 $20,700,000
Estimated offering expenses: $931,000 $1,027,000
Estimated net proceeds: $14,369,000 $19,673,000
Estimated net proceeds per share: $9.39 $9.50
================================================================================
The maximum number of shares offered may be increased up to 2,380,500
shares. We will terminate the offering of new stock and the exchange of existing
shares if we do not sell the minimum number of shares. If we terminate the
offering, we will return all subscriptions received, together with accrued
interest. Ryan, Beck & Co., LLC will assist Wayne Savings Bancshares, Inc. in
the sale of the common stock on a best efforts basis. In a best efforts
offering, Ryan, Beck & Co., LLC is not required to purchase any of the common
stock that is being offered for sale. Subscriptions received prior to completion
of the offering will be held in an escrow account at Wayne Savings Community
Bank and will bear interest at Wayne Savings Community Bank's passbook rate. Our
common stock will trade on the Nasdaq National Market under the symbol "WAYN".
The offering will end at 10:00 a.m., Eastern time, on December ___, 2001, unless
we extend it.
FOR A DISCUSSION OF THE RISKS THAT YOU SHOULD CONSIDER BEFORE MAKING AN
INVESTMENT DECISION, SEE "RISK FACTORS" BEGINNING ON PAGE ____.
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED OF
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
RYAN BECK & CO.
THE DATE OF THIS PROSPECTUS IS NOVEMBER ____, 2001
[INSERT MAP SHOWING WAYNE SAVINGS' MARKET AREA]
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TABLE OF CONTENTS
Page
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QUESTIONS AND ANSWERS.............................................................................................4
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SUMMARY...........................................................................................................8
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RISK FACTORS.....................................................................................................15
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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA...................................................................18
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OF WAYNE SAVINGS BANCSHARES, INC. AND SUBSIDIARIES...............................................................18
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HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE......................................................................20
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USE OF PROCEEDS..................................................................................................21
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DIVIDEND POLICY..................................................................................................22
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MARKET FOR THE COMMON STOCK......................................................................................23
---------------------------
CAPITALIZATION...................................................................................................25
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PRO FORMA DATA...................................................................................................26
--------------
WAYNE SAVINGS BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS..............................30
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................31
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BUSINESS OF WAYNE SAVINGS BANCSHARES, INC........................................................................44
------------------------------------------
AND WAYNE SAVINGS COMMUNITY BANK.................................................................................44
--------------------------------
REGULATION.......................................................................................................64
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TAXATION.........................................................................................................70
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MANAGEMENT OF WAYNE SAVINGS BANCSHARES, INC......................................................................71
--------------------------------------------
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS................................................................78
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THE CONVERSION...................................................................................................79
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RESTRICTIONS ON ACQUISITION OF WAYNE SAVINGS BANCSHARES, INC....................................................103
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DESCRIPTION OF CAPITAL STOCK OF WAYNE SAVINGS BANCSHARES, INC...................................................104
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FOLLOWING THE CONVERSION........................................................................................104
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TRANSFER AGENT..................................................................................................105
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EXPERTS.........................................................................................................105
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LEGAL MATTERS...................................................................................................106
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ADDITIONAL INFORMATION..........................................................................................106
----------------------
3
QUESTIONS AND ANSWERS
Q: HOW MANY SHARES OF COMMON STOCK ARE BEING OFFERED, AND AT WHAT PRICE PER
SHARE?
A: Wayne Savings Bancshares, Inc. is offering between 1,530,000 and 2,070,000
shares of common stock for a subscription price of $10.00 per share. We may
increase the number of shares offered up to 2,380,500 shares under certain
circumstances. The amount of common stock being offered is based upon an
independent appraisal of the market value of Wayne Savings Bancshares,
Inc., assuming completion of the mutual-to-stock conversion and offering.
Q: WHO MAY PURCHASE COMMON STOCK IN THE SUBSCRIPTION OFFERING?
A: Rights to subscribe for common stock have been granted under the plan of
conversion and reorganization to the following persons in the following
descending order of priority:
(1) Wayne Savings Community Bank depositors with $50.00 or more on deposit
as of June 30, 2000;
(2) Wayne Savings Community Bank's tax-qualified employee stock benefit
plans, including its employee stock ownership plan;
(3) Wayne Savings Community Bank depositors with $50.00 or more on deposit
as of September 30, 2001; and
(4) Wayne Savings Community Bank depositors as of _______________ and
borrowers as of June 23, 1993 who continue as borrowers as of
_________________.
Q: WHO MAY PURCHASE COMMON STOCK IN THE COMMUNITY OFFERING?
A. Any shares that are not purchased in the subscription offering may be
available for purchase by the public in a community offering. The community
offering will be conducted at the same time as the subscription offering.
In the community offering we will give a preference first to stockholders
of Wayne Savings Bancshares, Inc. as of ______________, and second to
residents of Wayne, Holmes, Ashland, Medina and Stark Counties, Ohio.
Q: WILL ANY COMMISSION BE CHARGED FOR COMMON STOCK I PURCHASE IN THE STOCK
OFFERING?
A: No.
Q: HOW DO I PURCHASE COMMON STOCK?
A: First, you should read this document. Then, complete and return the
enclosed stock order form, together with your payment. You may submit stock
order forms in three ways: you may send the stock order form by regular
mail, using the reply envelope provided; you may send the stock order form
by overnight delivery to the address indicated on the back of the stock
order form; or you may hand-deliver the stock order form to our stock
information center, located at Wayne Savings Community Bank's main office
at 151 North Market Street, Wooster, Ohio. STOCK ORDER FORMS MAY NOT BE
DELIVERED TO THE BRANCH OFFICES OF WAYNE SAVINGS COMMUNITY BANK.
Q: HOW CAN I PAY FOR THE COMMON STOCK?
A: Full payment for shares must accompany your stock order form at the time it
is submitted. You may pay for your shares by check or money order payable
to Wayne Savings Bancshares, Inc., or by authorizing a withdrawal from the
types of Wayne Savings Community Bank deposit accounts designated on the
stock order form (we will waive any penalty for early withdrawal of
certificate of deposit accounts). Authorized withdrawals will not be made
until the completion of the stock offering, but the designated funds will
not be available to you in the interim. If you wish to use IRA funds, see
the discussion below. Funds authorized to be withdrawn from Wayne Savings
Community Bank deposit account(s) MUST BE available in
4
your account at the time you submit your stock order form. Checks and money
orders will be cashed upon receipt, so funds must be available in your
account.
Q: MAY I OBTAIN A LOAN OR LINE OF CREDIT FROM WAYNE SAVINGS COMMUNITY BANK OR
VILLAGE SAVINGS BANK TO PAY FOR MY COMMON STOCK?
A. No. Federal law prohibits Wayne Savings Community Bank or Village Savings
Bank from loaning funds to purchase common stock in the stock offering.
However, other financial institutions may make such a loan.
Q: MAY I SUBSCRIBE FOR SHARES USING FUNDS IN MY INDIVIDUAL RETIREMENT ACCOUNT
AT WAYNE SAVINGS COMMUNITY BANK OR ELSEWHERE?
A: Yes. However, common stock must be held in a self-directed retirement
account. By regulation, Wayne Savings Community Bank's IRAs are not
self-directed, so they cannot be invested in stock. If you wish to use some
or all of the funds in your Wayne Savings Community Bank IRA, the
applicable funds must be transferred to a self-directed account maintained
by an independent trustee, such as a brokerage firm. If you do not have
such an account, you will need to establish one before placing your stock
order. An annual administrative fee may be payable to the independent
trustee. Because individual circumstances differ and processing takes time,
we recommend that you contact the stock information center early in the
offering period for assistance with purchases using your IRA, or other
retirement account that you may have. Whether you may use such funds for
the purchase of shares in the stock offering may depend on timing
constraints and, possibly, the institution where the funds are currently
held.
Q: MAY I CHANGE MY MIND AFTER I PLACE AN ORDER TO SUBSCRIBE FOR COMMON STOCK?
A: No. After your stock order form and payment are received, you may not
cancel or modify your order.
Q: WILL I RECEIVE INTEREST ON MY SUBSCRIPTION PAYMENT?
A: Yes. Payments by check received with the stock order form will be cashed
and placed in an interest-bearing escrow account at Wayne Savings Community
Bank, and will earn interest at the passbook savings rate until the
conclusion of the stock offering. At that time, a check for the accrued
interest will be mailed to you. Subscribers who elect to pay by deposit
account withdrawal will continue to accrue interest in the account at its
contractual rate until the funds are withdrawn, at the conclusion of the
offering.
Q: HOW MANY SHARES MAY I BUY?
A: The minimum order is 25 shares, or $250. There are maximum purchase
limitations, and there is a stock ownership limitation which applies to
current Wayne Savings Bancshares, Inc. stockholders. These limitations are
described on the stock order form and in the section of this document
entitled "The Conversion."
Q: WHAT IS THE DEADLINE FOR PLACING AN ORDER?
A: Orders in the subscription offering and community offering must be RECEIVED
(not postmarked) by no later than 10:00 a.m. Eastern time, on December ___,
2001. --------
Q: HOW CAN I BUY OR SELL WAYNE SAVINGS BANCSHARES, INC. COMMON STOCK IN THE
FUTURE?
A: Existing publicly held shares of Wayne Savings Bancshares, Inc. common
stock trade on the Nasdaq Small Cap Market under the symbol "WAYN." Upon
completion of the conversion and offering, the new shares of common stock
of Wayne Savings Bancshares, Inc. will replace existing shares and be
traded on the Nasdaq National Market. For a period of 20 trading days
following completion of our offering, our symbol will be "WAYND."
Thereafter the symbol will be "WAYN." You will be able to buy or sell
shares through a stockbroker or discount broker. AS SOON AS POSSIBLE AFTER
THE OFFERING, INVESTORS WILL BE MAILED STOCK CERTIFICATES. ALTHOUGH THE
COMMON STOCK WILL HAVE BEGUN TRADING, BROKERAGE FIRMS MAY
5
REQUIRE THAT YOU HAVE RECEIVED YOUR STOCK CERTIFICATE PRIOR TO SELLING
SHARES THAT YOU PURCHASED IN THE STOCK OFFERING.
Q: WILL DIVIDENDS BE PAID ON THE COMMON STOCK?
A: Wayne Savings Bancshares, Inc. intends to pay quarterly dividends following
the stock offering, reflecting an annual amount of between $0.600 and
$0.384 per share, depending on how many shares are sold in the offering.
The amount of dividends that we intend to pay will preserve the per share
dividend amount, adjusted to reflect the exchange ratio, that Wayne Savings
Bancshares, Inc. stockholders currently receive. At the midpoint of the
offering range, the annual dividend is expected to be $0.512 per share.
There can be no assurance that dividends will be paid or that they will not
be subsequently reduced or eliminated.
Q: AS AN ELIGIBLE DEPOSITOR OR BORROWER OF WAYNE SAVINGS COMMUNITY BANK
PLACING AN ORDER IN THE SUBSCRIPTION OFFERING, MAY I REGISTER THE SHARES IN
SOMEONE ELSE'S NAME?
A: No. To preserve your purchase priority in the subscription offering, you
must register the shares only in the name or names of eligible purchasers
at the applicable date of eligibility. You may not add the names of others
who were not eligible to purchase common stock in the subscription offering
on the applicable date of eligibility.
Q: I AM ELIGIBLE TO PURCHASE SHARES IN THE SUBSCRIPTION OFFERING, BUT I DO NOT
WANT TO BECOME A STOCKHOLDER. MAY I ALLOW SOMEONE ELSE TO USE MY STOCK
ORDER FORM TO TAKE ADVANTAGE OF MY PRIORITY?
A: No. Transferring your subscription rights to someone who does not have
subscription rights is illegal under federal law. Wayne Savings Bancshares,
Inc. intends to take legal action against anyone who attempts to transfer
subscription rights. If anyone offers to give you money to buy common stock
in your name in exchange for later transferring the common stock, or
requests to share in cash proceeds upon your future sale of Wayne Savings
Bancshares, Inc. stock, please inform our stock information center at the
number below.
Q: WILL THE CONVERSION AND STOCK OFFERING HAVE ANY EFFECT ON MY WAYNE SAVINGS
COMMUNITY BANK DEPOSIT OR LOAN ACCOUNTS?
A: No. The amount, interest rate and other terms of deposit accounts will not
change. Deposit accounts will continue to be insured by the FDIC. Likewise,
the loan accounts and rights of borrowers will not be affected.
Q: WILL THE COMMON STOCK BE INSURED BY THE FDIC?
A: No. Unlike deposit accounts at Wayne Savings Community Bank, common stock
cannot be insured or guaranteed by the FDIC or any other government agency.
The trading price of common stock may fluctuate, so an investment in the
common stock is subject to investment risk, including loss of principal
invested. There can be no assurance that you will be able to sell your
Wayne Savings Bancshares, Inc. shares at or above the $10.00 per share
purchase price in the offering.
Q: BY PLACING AN ORDER, AM I GUARANTEED TO RECEIVE ALL THE SHARES I REQUESTED?
A: No. If there is an oversubscription, shares will be allocated as described
in the prospectus section entitled "The Conversion." If we do not fill an
order (either wholly or in part), funds submitted but not used will be
refunded, with interest, and deposit account withdrawal authorizations will
be canceled to the extent not used.
6
Q: CAN MY WAYNE SAVINGS COMMUNITY BANK LOCAL BRANCH ASSIST ME WITH PURCHASING
SHARES OR COMPLETING THE STOCK ORDER FORM?
A: No. Our branch personnel may not, by law, assist with investment-related
questions about the stock offering. We have established a stock information
center staffed by registered representatives who can assist you. You may
call the stock information center at the number below.
ADDITIONAL QUESTIONS?
Please call our Stock Information Center
(800) __________
from 9:00 a.m. to 4:00p.m., Eastern time, Monday through Friday.
The Stock Information Center is located at
Wayne Savings Community Bank's main office
at 151 North Market Street, Wooster, Ohio
TO ENSURE THAT EACH PERSON RECEIVES A PROSPECTUS AT LEAST 48 HOURS PRIOR TO THE
EXPIRATION DATE OF DECEMBER __, 2001 IN ACCORDANCE WITH FEDERAL LAW, NO
PROSPECTUS WILL BE MAILED ANY LATER THAN FIVE DAYS PRIOR TO DECEMBER __, 2001 OR
HAND-DELIVERED ANY LATER THAN TWO DAYS PRIOR TO DECEMBER __, 2001.
7
SUMMARY
THE FOLLOWING SUMMARY EXPLAINS THE SIGNIFICANT ASPECTS OF THE CONVERSION,
THE OFFERING AND THE EXCHANGE OF EXISTING SHARES OF WAYNE SAVINGS BANCSHARES,
INC. COMMON STOCK FOR NEW SHARES OF WAYNE SAVINGS BANCSHARES, INC. COMMON STOCK.
IT MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. FOR ADDITIONAL
INFORMATION, YOU SHOULD READ THIS ENTIRE DOCUMENT CAREFULLY, INCLUDING THE
CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS.
THE COMPANIES
WAYNE SAVINGS BANCSHARES, INC.
151 NORTH MARKET STREET, WOOSTER, OHIO 44691
(330) 264-5767
Wayne Savings Bancshares, Inc. is currently the stock holding company that
owns all of the outstanding common stock of Wayne Savings Community Bank. As of
June 30, 2001, Wayne Savings Bancshares, Inc. had 2,571,093 issued and
outstanding shares of common stock. Wayne Savings Bankshares, MHC owns 1,350,699
shares of Wayne Savings Bancshares, Inc.'s outstanding common stock. The
remaining 1,220,394 shares are held by the public. At June 30, 2001, Wayne
Savings Bancshares, Inc. had consolidated assets of $317.7 million, deposits of
$284.4 million and consolidated stockholders' equity of $25.3 million. Following
the conversion this corporation will cease to exist, but will be succeeded by a
new Delaware corporation with the same name. The new corporation's certificate
of incorporation and bylaws will be identical to the current certificate of
incorporation and bylaws of Wayne Savings Bancshares, Inc., except that the new
certificate of incorporation provides for a greater number of authorized shares
of common and preferred stock and eliminates references to Wayne Savings
Bankshares, MHC.
WAYNE SAVINGS BANKSHARES, MHC
151 NORTH MARKET STREET, WOOSTER, OHIO 44691
(330) 264-5767
Wayne Savings Bankshares, MHC is currently the mutual holding company
parent of Wayne Savings Bancshares, Inc. As of June 30, 2001, Wayne Savings
Bankshares, MHC's principal business activity was the ownership of 1,350,699
shares, or 52.5% of the outstanding common stock of Wayne Savings Bancshares,
Inc. common stock. Wayne Savings Bankshares, MHC will cease to exist at the
conclusion of the conversion and offering.
WAYNE SAVINGS COMMUNITY BANK
151 NORTH MARKET STREET, WOOSTER, OHIO 44691
(330) 264-5767
Wayne Savings Community Bank is an Ohio-chartered savings and loan
association headquartered in Wooster, Ohio. Wayne Savings Community Bank is a
community-oriented financial institution that offers a broad range of financial
services. As of the date of this prospectus, Wayne Savings Community Bank
operated through its main office in Wooster, Ohio, nine branch offices located
in Wayne, Holmes, Ashland, and Medina Counties, Ohio, and its Village Savings
Bank subsidiary in Stark County, Ohio. This contiguous five-county area is
located in north central Ohio, and is an active manufacturing and agricultural
market. A full description of our products and services begins on page __ of
this prospectus.
Village Savings Bank is a federally-chartered stock savings bank that
operates out of a single office in North Canton, Ohio that was chartered as a
wholly-owned subsidiary of Wayne Savings Community Bank in July 1998. Village
Savings Bank also is a community-oriented financial institution that offers a
broad range of financial services to its primary lending and deposit gathering
area, which includes North Canton, Jackson Township and Plain Township, in Stark
County, Ohio.
OUR ORGANIZATIONAL STRUCTURE
Wayne Community Bank's predecessor was formed as a mutual institution
in 1899. As a mutual institution, we were not authorized to issue shares of
capital stock, and we had no stockholders. In 1993, we reorganized into the
mutual holding company form of organization, and sold a minority of our shares
to our
8
customers in a stock offering. The majority of our outstanding shares were held
by Wayne Savings Bankshares, MHC. Wayne Savings Bankshares, MHC is a mutual
holding company that has no stockholders. In 1998 we formed Wayne Savings
Bancshares, Inc. as a mid-tier stock holding company. Wayne Savings Bancshares,
Inc. owns 100% of the outstanding shares of Wayne Savings Community Bank. A
majority of the outstanding shares of Wayne Savings Bancshares, Inc. is held by
Wayne Savings Bankshares, MHC, and a minority is held by other stockholders.
Pursuant to the terms of our plan of conversation and reorganization, our
organization will convert from the mutual holding company form to the
fully-public form of corporate structure. To facilitate the conversion, we are
offering for sale, in a subscription offering and a community offering, the
majority ownership interest of Wayne Savings Bankshares, Inc. that is currently
held by Wayne Savings Bankshares, MHC.
Upon the completion of the conversion and stock offering, Wayne Savings
Bankshares, MHC will cease to exist, and we will complete the transition from
partial to full public ownership. Existing public stockholders of Wayne Savings
Bancshares, Inc. at the conclusion of the conversion will receive new shares of
common stock in exchange for their existing shares of Wayne Savings Bancshares,
Inc. Additional shares of stock will be issued to purchasers in the stock
offering.
The following chart shows our current ownership structure, which is
commonly referred to as the "two-tier" mutual holding company structure:
---------------------------------------------
WAYNE SAVINGS BANKSHARES, MHC
---------------------------------------------
52.5% OF COMMON STOCK
--------------------------------------------- ----------------------------
WAYNE SAVINGS BANCSHARES, INC. 47.5% OF PUBLIC STOCKHOLDERS
------------------------------------------------------------------
COMMON STOCK
---------------------------------------------
100% OF COMMON STOCK
---------------------------------------------
WAYNE SAVINGS COMMUNITY BANK
---------------------------------------------
Following our conversion and offering, our ownership structure will be as
follows:
-----------------------------------------------
PUBLIC STOCKHOLDERS
-----------------------------------------------
100% OF COMMON STOCK
-----------------------------------------------
WAYNE SAVINGS BANCSHARES, INC.
-----------------------------------------------
100% OF COMMON STOCK
-----------------------------------------------
WAYNE SAVINGS COMMUNITY BANK
-----------------------------------------------
9
BUSINESS STRATEGIES
We have several business strategies that are designed to improve our
profitability and enhance our franchise in our market area. These strategies
include:
o Closely monitoring the needs of customers and providing personal
community banking and customer service;
o Emphasizing the origination of one- to four-family residential
mortgage loans in our market area;
o Maintaining high asset quality;
o Managing interest rate risk;
o Increasing fee income; o Controlling expenses;
o Maintaining a strong retail deposit base; and
o Maintaining capital in excess of regulatory requirements.
These strategies are discussed in detail beginning on page __ of this
prospectus.
THE CONVERSION
THE CONVERSION
Pursuant to our plan of conversion, our organization will convert from the
partially public to the fully public form of corporate structure.
10
THE OFFERING
In connection with the conversion, we are selling in this offering common
stock representing the 52.5% ownership interest in Wayne Savings Bancshares,
Inc. now owned by Wayne Savings Bankshares, MHC. Under the plan of conversion,
eligible current and former customers of Wayne Savings Community Bank and Wayne
Savings Bancshares, Inc.'s employee stock ownership plan have priority rights to
subscribe for shares in Wayne Savings Bancshares, Inc. The priorities in this
subscription offering are as follows:
(1) First, depositors with $50 or more on deposit as of June 30, 2000.
(2) Second, Wayne Savings Bancshares, Inc.'s tax-qualified employee stock
benefit plans, including the employee stock ownership plan. The
employee stock ownership plan expects to purchase from 122,400 to
165,600 shares of common stock.
(3) Third, depositors with $50 or more on deposit as of September 30,
2001.
(4) Fourth, depositors of Wayne Savings Community Bank as of _____________
and borrowers as of June 23, 1993 who continue as borrowers as of
We are selling between 1,530,000 and 2,070,000 shares of common stock, all
at a price of $10.00 per share. The number of shares to be sold may be increased
up to 2,380,500. The amount of shares offered is based on an independent
appraisal of Wayne Savings Bankshares, MHC and Wayne Savings Bancshares, Inc.
performed by RP Financial, LC, an independent appraisal firm. RP Financial, LC
will receive a fee of $45,000 for preparing the initial appraisal. The factors
considered in the appraisal are discussed under "The Conversion--Stock Pricing
and Number of Shares to Be Issued."
The subscription offering expires at 10:00 a.m., Eastern time, on December
___, 2001, unless extended by Wayne Savings Bancshares, Inc. You cannot transfer
your subscription rights. If you attempt to transfer your rights, you may lose
the right to purchase shares and may be subject to criminal prosecution and/or
other sanctions.
We may also offer shares of common stock to the general public in a
community offering. In this part of the offering, stockholders of Wayne Savings
Bancshares, Inc., as of ____________, will have first preference. People who
reside in the Ohio Counties of Wayne, Holmes, Ashland, Medina and Stark will
have second preference. The community offering will end on December ___, 2001,
unless extended with the approval of the Office of Thrift Supervision, if
necessary.
You will not pay a commission to buy any shares in the offering.
Ryan, Beck & Co., LLC is managing the offering on a best efforts basis.
Ryan, Beck will not purchase any shares of common stock in our offering. Ryan,
Beck & Co., LLC is a registered broker dealer and member of the National
Association of Securities Dealers, Inc.
Shares not sold in the subscription offering and community offering may be
offered for sale in a syndicated community offering, which would be an offering
to the general public on a best efforts basis by a selling group of
broker-dealers managed by Ryan, Beck & Co., LLC.
We have described the offering in greater detail beginning on page __ of
this prospectus.
THE EXCHANGE OF WAYNE SAVINGS BANCSHARES, INC. COMMON STOCK
If you are now a stockholder of Wayne Savings Bancshares, Inc., your
existing shares will be cancelled and exchanged for new shares in Wayne Savings
Bancshares, Inc. The number of shares you will get will be based on an exchange
ratio determined as of the closing of the conversion. The actual number of
shares you receive will depend upon the number of shares we sell in our
offering, which in turn will depend upon the final appraised value of Wayne
Savings Bancshares, Inc. and Wayne Savings Bankshares, MHC. The following table
shows how the exchange ratio will adjust, based on the number of shares sold in
our offering. The table also shows how many
11
shares a hypothetical owner of Wayne Savings Bancshares, Inc. common stock would
receive in the exchange, based on the number of shares sold in the offering.
NEW SHARES
NEW SHARES TO BE EXCHANGED NEW SHARES
TO BE SOLD FOR EXISTING SHARES OF WAYNE TOTAL SHARES TO BE
IN THIS OFFERING SAVINGS BANCSHARES, INC. OF COMMON STOCK RECEIVED FOR
----------------------- ---------------------------- TO BE EXCHANGE 100 EXISTING
AMOUNT PERCENT AMOUNT PERCENT OUTSTANDING RATIO SHARES
----------- --------- ------------- ------------- --------------- -------- ------------
Minimum............... 1,530,000 52.53 % 1,382,397 47.47 % 2,912,397 1.1327 113
Midpoint.............. 1,800,000 52.53 1,626,350 47.47 3,426,350 1.3326 133
Maximum............... 2,070,000 52.53 1,870,302 47.47 3,940,302 1.5325 153
15% above Maximum..... 2,380,500 52.53 2,150,847 47.47 4,531,347 1.7624 176
Shares of Wayne Savings Bancshares, Inc. held in "street name," will be
exchanged without action being taken by the stockholder. Stockholders who hold
stock certificates will receive, after the conversion and offering are
completed, a transmittal form with instructions to surrender stock certificates.
New certificates of Wayne Savings Bancshares, Inc. common stock will be mailed
within five business days after the exchange agent receives properly executed
transmittal forms and certificates.
No fractional shares of Wayne Savings Bancshares, Inc. common stock will be
issued to any public stockholder of Wayne Savings Bancshares, Inc. upon
consummation of the conversion. For each fractional share that would otherwise
be issued, Wayne Savings Bancshares, Inc. will pay an amount equal to the
product obtained by multiplying the fractional share interest to which the
holder would otherwise be entitled by the $10.00 per share subscription price.
See "The Conversion-Share Exchange Ratio and the Effect of the Conversion on
Public Stockholders."
Under federal regulations, current public stockholders of Wayne Savings
Bancshares, Inc. do not have dissenters' rights or appraisal rights.
REASONS FOR THE CONVERSION
We are pursuing the conversion for the following reasons:
o The offering will increase our capital which will enable us to
continue to be a well-capitalized institution.
o The additional funds resulting from the offering will support
increased lending, continued growth and diversification of new
financial products and services.
CONDITIONS TO COMPLETION OF THE CONVERSION
We cannot complete our conversion and related offering unless:
o The plan of conversion is approved by at least A MAJORITY OF
VOTES ELIGIBLE to be cast by members of Wayne Savings Bankshares,
MHC;
o The plan of conversion is approved by at least TWO-THIRDS OF THE
OUTSTANDING SHARES of Wayne Savings Bancshares, Inc. common
stock;
o The plan of conversion is approved by at least A MAJORITY OF THE
VOTES CAST by stockholders of Wayne Savings Bancshares, Inc.
common stock, not including those shares held by Wayne Savings
Bankshares, MHC;
o We sell at least the minimum number of shares offered; and
12
o We receive the final approval of the Office of Thrift Supervision
to complete the conversion and offering.
Wayne Savings Bankshares, MHC intends to vote its 52.5% ownership interest
in favor of the conversion. In addition, as of June 30, 2001, directors and
executive officers of Wayne Savings Bancshares, Inc. and their associates
beneficially owned 233,544 shares of Wayne Savings Bancshares, Inc., or 9.1% of
the outstanding shares. They intend to vote those shares in favor of the plan of
conversion.
$10.00 PER SHARE STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE
CONVERSION AND OFFERING
We are offering each share of stock at a price of $10.00 per share. The
amount of common stock we are offering is based on an independent appraisal of
the estimated market value of Wayne Savings Bancshares, Inc., assuming the
conversion and offering are completed. RP Financial, LC, the independent
appraiser, has estimated that, as of September 7, 2001, this market value was
between $29.1 million and $39.4 million, with a midpoint of $34.3 million. The
appraisal was based in part on Wayne Savings Bancshares, Inc.'s financial
condition and results of operations, and the effect of the additional capital
raised by the sale of common stock in this offering. Based on this valuation and
the approximate 52.5% ownership interest of Wayne Savings Bankshares, MHC being
sold in this offering, the Boards of Directors of Wayne Savings Bankshares, MHC
and Wayne Savings Bancshares, Inc. established an offering range of between
1,530,000 and 2,070,000 shares.
The independent appraisal will be updated prior to the completion of the
conversion. If the market value changes to either below $29.1 million or above
$45.3 million, subscribers will be notified and provided with the opportunity to
modify or cancel their orders. See "The Conversion--Stock Pricing and Number of
Shares to be Issued" for additional details.
PURCHASE LIMITATIONS
The minimum number of shares that may be purchased is 25.
IF YOU ARE NOT NOW A WAYNE SAVINGS BANCSHARES, INC. STOCKHOLDER -
You, together with associates or persons acting in concert with you, may
not purchase more than 25,000 shares.
IF YOU ARE NOW A WAYNE SAVINGS BANCSHARES, INC. STOCKHOLDER -
In addition to the above limitations, shares that you purchase in the
offering individually and together with associates or persons acting in concert
with you, plus shares you and they receive in the exchange for existing Wayne
Savings Bancshares, Inc. common stock, may not exceed 5% of the shares of common
stock outstanding immediately following the offering.
For further discussion of the purchase limits and definitions of
"associate" and "acting in concert," see "The Conversion--Limitations on Common
Stock Purchases" on page __.
HOW INVESTORS CAN PURCHASE COMMON STOCK
You can subscribe for shares of common stock in the offering by delivering
a signed and completed original stock order form, together with full payment,
provided that we receive the stock order form before the end of the offering.
Following the instructions on the stock order form, you may use the mail or
overnight courier or hand deliver your subscription to the stock information
center. Payment for shares may be made by check, money order or bank draft which
will be immediately cashed, so the funds must be available in your account. We
will pay interest at Wayne Savings Community Bank's passbook rate, from the date
funds are received until completion or termination of the conversion.
Alternatively, subscribers may authorize withdrawal from the types of deposit
accounts with Wayne Savings Community Bank designated on the order form.
Withdrawals from certificates of deposit may be made without incurring an early
withdrawal penalty. All funds authorized for withdrawal from deposit accounts
with Wayne Savings Community Bank must be in the accounts at the time the stock
order is received, but will not be withdrawn from the accounts until the
completion of the offering and will earn interest at
13
the applicable deposit account rate until the completion of the offering.
However, a hold will be placed on those funds when your stock order is received,
making the designated funds unavailable to you. After we receive an order, the
order cannot be withdrawn or changed, except with our consent.
Except for those with priority rights to purchase shares, we have the
discretion to accept or reject orders received in the offering. If an order is
rejected in part, there is no right to cancel the remainder of the order.
For further information on how to purchase stock, see "The
Conversion--Procedure for Purchasing Shares" on page __.
USE OF PROCEEDS
We will use the proceeds of this offering as follows:
o We estimate net proceeds will be between $14.4 million and $19.7
million. Approximately $7.2 million to $9.8 million of the net
proceeds will be invested in Wayne Savings Community Bank. Funds
invested in Wayne Savings Community Bank will be used to support
continued growth and to offer new products and banking services. The
remainder of the net proceeds will be used to support asset growth.
Initially, the net proceeds received by Wayne Savings Community Bank
will be invested in federal funds, cash and cash equivalents, and
short-term investment grade marketable securities.
o Wayne Savings Bancshares, Inc. intends to retain approximately 50% of
the net proceeds (between $7.2 million and $9.8 million). A portion
(between $1.2 million and $1.7 million) will be used to provide a loan
to the employee stock ownership plan to fund the purchase of common
stock in the offering. The balance of the net proceeds (between $6.0
million and approximately $8.2 million) retained by Wayne Savings
Bancshares, Inc. will be used for general corporate purposes. These
purposes may include paying dividends, repurchasing shares of common
stock, or funding a stock recognition and retention plan. The net
proceeds may be used for future diversification or acquisition
activities, although we do not have plans to do so now.
For further discussion, see "Use of Proceeds."
PURCHASES BY OFFICERS AND DIRECTORS
We expect our directors and executive officers, together with their
families, to subscribe for ________ shares, which equals approximately ________%
of the shares sold at the midpoint of the offering range. The purchase price
paid by them will be the same $10.00 per share price paid by all other persons
who purchase shares in the offering. See "Subscriptions by Executive Officers
and Directors."
BENEFITS OF THE CONVERSION TO MANAGEMENT
Wayne Savings Community Bank's employee stock ownership plan expects to
purchase up to 8.0% of the shares we sell in this offering, or 165,600 shares,
assuming we sell the maximum number of shares proposed to be sold. If we sell
more than 2,070,000 shares in the offering, the employee stock ownership plan
will have first priority to purchase shares over this maximum, up to a total of
8.0% of the shares sold. This plan is a tax-qualified retirement plan for all
eligible employees. Assuming the employee stock ownership plan purchases 165,600
shares in the offering, Wayne Savings Bancshares, Inc. will recognize additional
compensation expense of $1.7 million over a period of 20 years, or approximately
$82,800 per year, from the consummation of the conversion, assuming the shares
have a fair market value of $10.00 per share for the full 20-year period. If, in
the future, the shares have a fair market value greater or less than $10.00, the
compensation expenses will increase or decrease accordingly.
We also intend to implement two additional stock-based incentive plans.
Neither plan will be implemented earlier than six months after the conversion,
and stockholder approval will be required. The stock recognition and retention
plan is a restricted stock plan that would reserve an amount equal to 4% of the
shares sold in the offering (assuming Wayne Savings Community Bank has a
tangible capital to assets ratio in excess of 10%), or 82,800 shares at the
maximum of the offering range, for awards to key employees and directors, at no
cost to the recipients. More than 4% of the shares offered in the offering may
be reserved under the stock recognition and retention plan if
14
the plan is implemented more than one year after the conversion. If the shares
awarded under the stock recognition plan come from authorized but unissued
shares, stockholders would experience dilution of approximately 2.1% in their
ownership interest in Wayne Savings Bancshares, Inc. The second plan would be a
stock option plan, and would reserve an amount equal to 10% of the shares sold
in this offering, or up to 207,000 shares at the maximum of the offering range,
for key employees and directors upon their exercise. If the shares issued upon
the exercise of options come from authorized but unissued shares, stockholders
would experience dilution of approximately 5.3% in their ownership interest in
Wayne Savings Bancshares, Inc. Awards made under these plans would be subject to
vesting over a period of years.
We will also convert options previously awarded under the Wayne Savings
Community Bank stock option plan into options to purchase our common stock, with
the number and exercise price to be adjusted, based on the exchange ratio. The
term and vesting period of the previously awarded options will remain unchanged.
The following table summarizes the number of shares and aggregate dollar
value of grants that are expected under the new stock recognition and retention
plan, the new stock option plan and the employee stock ownership plan as a
result of the conversion. A portion of the stock grants shown in the table below
would be made to non-management employees. The value of shares shown in the
table assumes a value of $10.00 per share, the price at which shares in the
offering will be sold. No value is given for options because their exercise
price will be equal to the fair market value of the common stock on the day the
options are granted. As a result, value can be received under an option only if
the market price of common stock increases after the option grant.
NUMBER OF SHARES
TO BE GRANTED VALUE OF GRANTS(1) PERCENTAGE OF
----------------------------- -------------------------------- PERCENTAGE COMMON STOCK
AT MINIMUM AT MAXIMUM OF COMMON TO BE
OF OF AT MINIMUM AT MAXIMUM STOCK TO OUTSTANDING
OFFERING OFFERING OF OF BE SOLD IN THE AFTER THE
RANGE RANGE OFFERING RANGE OFFERING RANGE OFFERING OFFERING
-------------- -------------- ---------------- --------------- ------------- --------------
Employee stock ownership plan...... 122,400 165,600 $ 1,224,000 $ 1,656,000 8.0% 4.2%
Restricted stock plan.............. 61,200 82,800 612,000 828,000 4.0 2.1
Stock option plan.................. 153,000 207,000 -- -- 10.0 5.3
Total.............................. 336,600 455,400 $ 1,836,000 $ 2,484,000 22.0% 11.6%
============== ============== ================ =============== ============= ==============
--------------------
(1) Options are assumed to have no value because the strike price of the options
is equal to the fair market value of the common stock on the date of the award.
MARKET FOR COMMON STOCK
Existing publicly held shares of our common stock trade on the Nasdaq
SmallCap Market under the symbol "WAYN." Upon completion of the conversion and
offering, the new shares of common stock of Wayne Savings Bancshares, Inc. will
replace existing shares and be traded on the Nasdaq National Market. For a
period of 20 trading days following completion of our offering our symbol will
be "WAYND." Thereafter it will be "WAYN." Although it is expected that Wayne
Savings Bancshares, Inc. common stock will be more easily tradable after the
offering because there will be significantly more outstanding shares, there can
be no assurance of this.
Ryan, Beck & Co., LLC has advised us that it intends to remain a market
maker in the common stock and will assist us in obtaining additional market
makers.
DIVIDEND POLICY
Wayne Savings Bancshares, Inc. currently pays a cash dividend of $0.17 per
share per quarter, or $0.68 per share per year. After the conversion, we intend
to pay a dividend of $0.150, $0.128, $0.111 and $.096 per share per quarter at
the minimum, midpoint, maximum and adjusted maximum of the offering range,
respectively, which represents a dividend rate of 6.0%, 5.1%, 4.4% and 3.8%, at
the minimum, midpoint, maximum and adjusted maximum of the offering range,
respectively, based upon a price of $10.00 per share. The amount of dividends
that we intend to pay after the conversion will preserve the per share dividend
amount, adjusted to reflect the exchange ratio that Wayne Savings Bancshares,
Inc. stockholders currently receive. The dividend rate and the continued payment
of dividends will depend on a number of factors, including our capital
requirements, our financial condition
15
and results of operations, tax considerations, statutory and regulatory
limitations, and general economic conditions. No assurance can be given that we
will continue to pay dividends or that they will not be reduced in the future.
TAX CONSEQUENCES
The conversion will not be a taxable transaction to Wayne Savings
Bankshares, MHC, Wayne Savings Bancshares, Inc., Wayne Savings Community Bank,
or persons eligible to subscribe in the offering, with respect to federal or
state income tax. A more detailed description of the federal tax opinion is set
forth at page ___. The federal and state tax opinions are filed as exhibits to
the registration statement.
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS BEFORE DECIDING WHETHER
TO INVEST IN OUR COMMON STOCK.
THE GROWTH OF OUR BRANCH NETWORK HAS INCREASED OUR EXPENSES AND MAY CONTINUE TO
REDUCE OUR PROFITABILITY IN THE NEAR TERM.
At March 31, 1998, Wayne Savings Community Bank had six branches. In July 1998,
Village Savings Bank commenced operations, through one office. In each of May
and July 1999 and May 2001, Wayne Savings Community Bank opened a new branch. As
a result of this growth, our general and administrative expenses have increased.
New branches incur start-up costs before they open and, thereafter, it takes
time for a new branch to gather sufficient loans and deposits to generate enough
income to offset its ongoing expenses, some of which, like compensation and
occupancy costs, are relatively fixed. At March 31, 1998, we employed 101
fulltime-equivalent employees. We had 114 fulltime-equivalent employees at
September 30, 2000, and, after we initiated a cost containment program in that
month, our fulltime-equivalent employees decreased to 110 at June 30, 2001. As a
result of the expenses associated with our new offices, our efficiency ratio has
been high. It was 71.9% for the 1999 fiscal year, 78.6% for the 2000 fiscal
year, 75.5% for the 2001 fiscal year and was 76.5% for the three months ended
June 30, 2001. Although Village Savings Bank became profitable for fiscal year
2001, there can be no assurance whether or when our recently opened branches
will be accretive to earnings. Numerous factors contribute to the performance of
a new branch, such as suitable location, qualified personnel and an efficient
marketing strategy.
CHANGING INTEREST RATES MAY CAUSE EARNINGS TO DECLINE.
To be profitable, we have to earn more interest income and other income
than we pay as interest on deposits and for other expenses such as facilities
and personnel. Our loan portfolio primarily consists of loans that generally
either mature or reprice over a longer period of time than our deposits. At June
30, 2001, our deposit accounts consisted of certificate of deposit accounts with
remaining terms to maturity of less than one year, as well as demand deposits
such as NOW accounts. If interest rates fall, many borrowers may refinance their
loans at lower rates, mortgage-backed securities may prepay, and interest rates
on interest earning assets could fall, perhaps faster than interest rates on our
deposits. This could cause our earnings to decrease. If interest rates rise, the
amount of interest we pay on deposits is likely to increase faster than the
amount of interest we receive on our loans, mortgage-backed securities and
investment securities. This could also cause our earnings to decrease.
Additionally, higher rates could make it more difficult for borrowers to repay
loans and could reduce loan demand. For additional information on our exposure
to interest rates, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
STRONG COMPETITION WITHIN OUR MARKET AREA MAKES IT DIFFICULT TO ACHIEVE A
DESIRED LEVEL OF PROFITABILITY.
Competition in the banking and financial services industry in Ohio is
intense. We have competed for customers by offering excellent service and
competitive rates on our loans and deposit products. In our market, we compete
with commercial banks, savings institutions, mortgage banking firms, credit
unions, finance companies, mutual funds, insurance companies, securities
brokerage firms and investment banking firms. Many of these competitors, such as
regional banks, have greater resources than we, and offer services that we do
not provide. Moreover, many of our local competitors offer services through the
Internet, which we do not, and many larger institutions that do not have a
physical presence in our market area compete with us through the use of the
Internet. Our profitability depends upon our continued ability to successfully
compete in our market area.
16
In addition, the Gramm-Leach-Bliley Financial Services Modernization Act of
1999 further deregulated the financial services industry by permitting
affiliations among commercial banks, insurance companies, securities firms and
other financial service providers. This legislation is likely to result in
further consolidation of the financial services industry. This could result in a
growing number of larger financial institutions that offer a wider variety of
financial services than we currently offer and that can aggressively compete in
the markets we currently serve. This could adversely impact our profitability.
FUTURE ECONOMIC GROWTH IN OUR AREA MAY BE MODERATE IN RESPONSE TO ANY SLOWDOWN
IN THE NATIONAL ECONOMY.
Our loans and deposits are concentrated in our market area. Management
believes that growth in our market area may be moderate in the future. In the
event that the growth of our local economy significantly slows due to the
general slow-down in the national economy, our profitability will be adversely
affected. There can be no assurances that in the months ahead there may not be
business closings among the manufacturing and service companies in our market
area. An economic downturn may reduce loan demand and the amount of customer
funds on deposit, and may result in increased nonperforming loans.
OUR LOW RETURN ON EQUITY AFTER THE STOCK OFFERING MAY CAUSE OUR COMMON STOCK
PRICE TO DECLINE.
Our return on equity, or the amount we earn in relation to the amount of
equity we have, has been lower than that of many thrift institutions. Our return
on average equity for the fiscal years ended March 31, 2001, 2000 and 1999 was
5.79%, 4.98%, and 6.90%, respectively. We cannot deploy the increased capital
from this offering immediately, which will cause our return on equity to
decrease further and our ability to profitably leverage our new capital will be
significantly affected by competition for loans and deposits. Initially, we
intend to invest the net proceeds in short-term investments, which have lower
yields than mortgage and other loans. Until we can leverage our increased
capital by growing interest-earning assets and interest-bearing liabilities, and
until our investment in new staff, branches and products is fully leveraged, we
expect our return on equity to continue to be below the industry average, which
may negatively impact the value of our common stock.
YOU MAY NOT BE ABLE TO SELL YOUR SHARES WHEN YOU DESIRE, OR FOR $10.00 OR MORE
PER SHARE AND THE TRADING PRICE MAY BE VOLATILE.
Our common stock will trade on the Nasdaq National Market. We cannot
predict whether a liquid trading market in shares of our common stock will
develop or how liquid that market will remain. Persons purchasing shares may not
be able to sell their shares when they desire if a liquid trading market does
not develop or may not be able to sell them at a price equal to or above the
initial offering price of $10.00 per share, even if a liquid trading market
develops. The appraisal is based on projections, and it is not intended as a
recommendation to purchase shares of stock. In several cases, common stock
issued by recently converted financial institutions has traded at a price that
is below the price at which such shares were sold in the initial public
offerings of those companies. The purchase price of our common stock in the
offering is based on the independent appraisal by RP Financial, LC. After our
shares begin trading, the trading price of our common stock will be determined
by the marketplace, and may be influenced by many factors, including prevailing
interest rates, investor perceptions and general industry and economic
conditions. An investor should understand that the value of any investment in
common stock is subject to fluctuation, including loss, due to volatility in
stock markets generally or for other reasons. Moreover, price volatility may be
unrelated to the operating performance of the issuer.
IF WE HAVE HIGHER LOAN LOSSES THAN FOR WHICH WE HAVE ALLOWED, OUR EARNINGS COULD
DECREASE.
Our loan customers may not repay their loans according to the terms of
these loans, and the collateral securing the payment of these loans may be
insufficient to assure repayment. We may experience significant credit losses
that could have a material effect on our operating results. We make various
assumptions and judgments about the collectibility of our loan portfolio,
including the creditworthiness of our borrowers and the value of the real estate
and other assets serving as collateral for the repayment of many of our loans.
In determining the size of the allowance for loan losses, we rely on our
experience and our evaluation of economic conditions. If our assumptions prove
to be incorrect, our current allowance for loan losses may not be sufficient to
cover losses inherent in our loan portfolio and adjustments may be necessary to
allow for different economic conditions or adverse developments in our loan
portfolio. Consequently, a problem with one or more loans could require that we
significantly increase the level of our provision for loan losses. In addition,
federal and state regulators periodically review our allowance for
17
loan losses and may require us to increase our provision for loan losses or
recognize further loan charge-offs. Material additions to our allowance would
materially decrease our net income.
EXPECTED VOTING CONTROL BY MANAGEMENT AND EMPLOYEES MAY PREVENT STOCKHOLDERS
FROM TAKING ACTIONS OPPOSED BY MANAGEMENT.
The shares of common stock that Wayne Savings Bancshares, Inc. directors
and executive officers intend to purchase in the offering, when combined with
the shares already owned and that may be awarded to participants under Wayne
Savings Bancshares, Inc.'s benefit plans, could result in management and
employees controlling a significant percentage of Wayne Savings Bancshares,
Inc.'s common stock. If these individuals were to act together, they could have
significant influence over the outcome of any stockholder vote. In addition, the
total voting power of management and employees is likely to exceed 20% of Wayne
Savings Bancshares, Inc.'s outstanding stock. That level would enable management
and employees as a group to defeat any stockholder matter that requires an 80%
vote.
VARIOUS FACTORS COULD MAKE TAKEOVER ATTEMPTS MORE DIFFICULT TO ACHIEVE.
The Board of Directors has no current intention to sell control of Wayne
Savings Bancshares, Inc. Provisions of Wayne Savings Bancshares, Inc.'s
certificate of incorporation and bylaws, federal and state regulations and
various other factors may make it more difficult for companies or persons to
acquire control of Wayne Savings Bancshares, Inc. without the consent of Wayne
Savings Bancshares, Inc.'s Board of Directors. It is possible, however, that you
might like to see a takeover attempt succeed because, for example, the potential
acquiror could be offering a premium over the then prevailing price of Wayne
Savings Bancshares, Inc.'s common stock. The factors that may discourage
takeover attempts or make them more difficult include:
o ANTI-TAKEOVER PROVISIONS AND STATUTORY PROVISIONS. Provisions in Wayne
Savings Bancshares, Inc.'s certificate of incorporation and bylaws,
the corporate law of the State of Delaware, and federal regulations
may make it difficult and expensive to pursue a takeover attempt that
management opposes. These provisions will also make the removal of the
current Board of Directors or management of Wayne Savings Bancshares,
Inc., or the appointment of new directors, more difficult. These
provisions include: limitations on voting rights of beneficial owners
of more than 10% of Wayne Savings Bancshares, Inc.'s common stock;
supermajority voting requirements for certain business combinations;
and the election of directors to staggered terms of three years. The
bylaws of Wayne Savings Bancshares, Inc. also contain provisions
regarding the timing and content of stockholder proposals and
nominations and qualification for service on the Board of Directors.
o REQUIRED CHANGE IN CONTROL PAYMENTS. Wayne Savings Bancshares, Inc.
intends to enter into employment agreements and change of control
agreements with certain executive officers that will require payments
to be made to them in the event they are terminated following a change
in control of Wayne Savings Bancshares, Inc. or Wayne Savings
Community Bank. These payments may have the effect of increasing the
costs of acquiring Wayne Savings Bancshares, Inc., thereby
discouraging future attempts to take over Wayne Savings Bancshares,
Inc.
WAYNE SAVINGS BANCSHARES, INC.'S STOCK PRICE MAY DECLINE WHEN TRADING COMMENCES.
Wayne Savings Bancshares, Inc. cannot guarantee that if you purchase shares
in the conversion that you will be able to sell them at or above the $10.00
purchase price. In several recent cases, common stock issued by converted
financial institutions has commenced trading at a price that is below the price
at which these shares were sold in the initial offerings of those companies.
After the shares of Wayne Savings Bancshares, Inc. begin trading, the trading
price of the common stock will be determined by the marketplace, and will be
influenced by many factors, including prevailing interest rates, investor
perceptions and general industry and economic conditions.
18
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
OF WAYNE SAVINGS BANCSHARES, INC. AND SUBSIDIARIES
The following tables set forth selected consolidated historical financial
and other data of Wayne Savings Bancshares, Inc. for the periods and at the
dates indicated. The information at June 30, 2001 and 2000, and for the three
months ended June 30, 2001 and 2000 is unaudited. However, in the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation of financial position and results of operations have
been made. The financial information at March 31, 2001 and 2000, and for the
three months ended June 30, 2001 and 2000 and the years ended March 30, 2001,
2000 and 1999, is derived in part from, and should be read together with, the
audited Consolidated Financial Statements and Notes thereto of Wayne Savings
Bancshares, Inc. beginning at page F-2 of this prospectus. The information at
March 31, 1999, 1998 and 1997 and for the years ended March 31, 1998 and 1997
was derived in part from audited consolidated financial statements that are not
included in this prospectus.
AT JUNE 30, AT MARCH 31,
------------ -----------------------------------------------------------
2001 2001 2000 1999 1998 1997
------------ ---------- ----------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SELECTED FINANCIAL CONDITION DATA:
Total assets............................ $ 317,741 $ 311,774 $ 304,069 $ 271,274 $ 259,752 $ 252,175
Loans receivable, net(1)................ 254,837 247,480 237,412 215,679 207,879 209,404
Mortgage-backed securities(2)........... 7,155 8,613 10,496 7,230 4,275 873
Investment securities(3)................ 12,123 19,341 27,199 17,830 21,901 24,470
Cash and cash equivalents(4)............ 26,843 20,902 14,309 16,245 13,169 7,606
Deposits................................ 284,384 277,706 264,952 235,327 217,621 211,442
Stockholders' equity.................... 25,321 25,285 25,121 24,956 24,426 23,115
Book value per common share(5).......... 9.85 9.79 9.67 9.57 10.30 13.34
----------------------
(1) Includes loans held for sale.
(2) Includes mortgage-backed securities available for sale.
(3) Includes certificates of deposit in other financial institutions.
(4) Includes cash due from banks, interest-bearing deposits in other financial
institutions and federal funds sold. (5) Adjusted to reflect all stock
splits and stock dividends effected during the relevant periods.
FOR THE THREE MONTHS
ENDED JUNE 30, FOR THE YEARS ENDED MARCH 31,
----------------------- ---------------------------------------------------------------
2001 2000 2001 2000 1999 1998 1997
---------- ---------- ---------- ------------ ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SELECTED OPERATING DATA:
Interest income......... $ 5,419 $ 5,337 $ 21,499 $ 20,701 $ 19,296 $ 19,236 $ 18,719
Interest expense........ 3,344 3,161 13,100 12,014 11,187 11,084 10,610
Net interest income..... 2,075 2,176 8,399 8,687 8,109 8,152 8,109
Provision for losses on
loans................... 2 51 96 120 64 60 20
Net interest income after
provision for losses on
loans.................. 2,073 2,125 8,303 8,567 8,045 8,092 8,089
Other income............ 364 218 1,045 742 991 854 575
General, administrative
and other expense(1)... 1,866 1,904 7,133 7,414 6,547 6,144 7,588
Earnings before income
taxes................... 571 439 2,215 1,895 2,489 2,802 1,076
Federal income taxes.... 195 149 754 644 846 953 367
Net earnings............ $ 376 $ 290 $ 1,461 $ 1,251 $ 1,643 $ 1,849 $ 709
EARNINGS PER SHARE:
Basic(2)................ $ .15 $ .11 $ .56 $ .48 $ .63 $ .71 $ .28
Diluted(2).............. $ .15 $ .11 $ .56 $ .48 $ .62 $ .70 $ .27
Cash dividends declared
per common share(2)(3). $ .17 $ .16 $ .64 $ .64 $ .59 $ .54 $ .52
--------------------
(1) The fiscal year ended March 31, 1997, included a one-time pre-tax charge of
$1.3 million to recapitalize the Savings Association Insurance Fund, a
charge to which all members were subject. The fiscal year ended March 31,
1997 also included a $113,000 write-off of certain fixed assets relating to
construction of a new facility at the Cleveland Road location.
(2) Adjusted to reflect all stock splits and stock dividends effected during
the relevant periods.
(3) During fiscal years ended March 31, 1997 through March 31, 1999, inclusive,
Wayne Savings Bankshares, M.H.C. waived its right to receive all dividends
paid by Wayne Savings Bancshares, Inc. During fiscal years ended March 31,
2001 and 2000, Wayne Savings Bankshares, M.H.C. waived approximately $.45
and $.59 of the $.64 dividend paid per share in each respective year.
19
AT OR FOR THE THREE AT OR FOR THE
MONTHS ENDED JUNE YEARS ENDED
30, MARCH 31,
---------------------- ---------------------------------------------------
2001 2000 2001 2000 1999 1998 1997
---------- ---------- --------- -------- ---------- -------- --------
KEY OPERATING RATIOS AND OTHER DATA:
Return on average assets (net earnings
divided by average total
assets)(1)(5).......................... .48% .38% .49% .43% .63% .73% .29%
Return on average equity (net earnings
divided by average stockholders'
equity)(1)(5)........................ 5.94 4.62 5.79 4.98 6.90 7.72 3.08
Interest rate spread (difference
between
average yield on interest-earning
assets and
average cost of interest-bearing
liabilities)........................... 2.33 2.82 2.57 2.88 2.93 2.98 3.03
Net interest margin (net interest
income as a
percentage of average
interest-earning
assets).............................. 2.78 3.07 2.91 3.14 3.23 3.34 3.40
Average interest-earning assets to
average
interest-bearing liabilities......... 105.00 103.58 107.62 106.05 106.99 108.02 108.35
Net interest income after provision
for losses
on loans, to general, administrative
and
other expense (1)(2)................. 108.59 111.61 116.40 115.72 124.98 131.71 106.60
General, administrative and other
expense to
average assets(1)(2)(5).............. 2.37 2.51 2.39 2.53 2.45 2.42 3.07
Efficiency ratio(3).................... 76.51 79.53 75.53 78.51 70.74 68.22 87.38
Dividend payout ratio.................. 54.52 68.97 72.42 70.50 45.89 36.45 88.94
ASSET QUALITY RATIOS:
Non-performing loans to loans
receivable, net........................ .70 .08 .21 .08 .13 .15 .46
Non-performing assets to total assets.. .56 .09 .20 .10 .12 .48 .70
Allowance for loan losses to
non-performing
Loans................................ 36.98 440.63 127.18 396.50 242.14 234.09 95.01
Allowance for loan losses to
non-performing
assets............................... 36.59 300.00 102.50 273.45 211.21 57.50 51.61
Allowance for loan losses to total
loans.................................. .26 .35 .27 .33 .32 .35 .44
CAPITAL RATIOS:
Average stockholders' equity to
average
assets............................... 8.04 8.28 8.44 8.57 9.07 9.42 9.32
Stockholders' equity to assets at
period end............................. 7.97 8.30 8.11 8.26 9.20 9.40 9.17
REGULATORY CAPITAL OF WAYNE SAVINGS
COMMUNITY BANK (4):
Tangible capital....................... 7.89 8.16 8.05 8.01 8.60 9.13 9.16
Core capital........................... 7.89 8.16 8.05 8.01 8.60 9.13 9.16
Risk-based capital..................... 15.14 16.51 15.51 15.68 16.40 17.37 17.44
OTHER DATA:
Number of full-service offices......... 10 9 10 9 7 6 6
--------------------
(1) The fiscal year ended March 31, 1997, included a one-time pre-tax charge of
$1.3 million to recapitalize the Savings Association Insurance Fund, a
charge to which all members were subject. The fiscal year ended March 31,
1997, also includes a $113,000 write-off of certain fixed assets relating
to construction of a new facility at the Cleveland Point location.
(2) 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.
(3) Represents the ratio of non-interest expense divided by the sum of net
interest income and non-interest income.
(4) Consolidated with Village Savings Bank.
(5) Calculated using mathematical averages from consolidated statements of
financial condition.
20
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
At June 30, 2001, Wayne Savings Community Bank exceeded all of the
applicable regulatory capital requirements. The table on the following pages
sets forth the historical regulatory capital of Wayne Savings Community Bank
(consolidated with Village Savings Bank) at June 30, 2001, and the pro forma
regulatory capital of Wayne Savings Community Bank after giving effect to the
conversion, based upon the sale at $10.00 per share of the number of shares
shown in the table. The pro forma regulatory capital amounts reflect the receipt
by Wayne Savings Community Bank of 50% of the net conversion proceeds, and the
retention of approximately 50% of the net proceeds by Wayne Savings Bancshares,
Inc. The pro forma risk-based capital amounts assume the investment of the net
proceeds received by Wayne Savings Community Bank in assets which have a
risk-weight of 20% under applicable regulations, as if the net proceeds had been
received and so applied at June 30, 2001. See "Pro Forma Data" for the
assumptions used to determine the net proceeds of the offering. For purposes of
the table below, the entire amount expected to be borrowed by the employee stock
ownership plan and the entire cost of the shares expected to be acquired by the
stock recognition plan are deducted from pro forma regulatory capital.
WAYNE SAVINGS COMMUNITY PRO FORMA AT JUNE 30, 2001
BANK HISTORICAL AT JUNE 30, ------------------------------------------------------------------------------
2001 MINIMUM MIDPOINT MAXIMUM
--------------------------- ------------------------ ------------------------ -----------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2)
---------- ------- ---------- ------- ---------- ------- ---------- -------
GAAP Capital.............. $ 25,405 7.99% $ 32,591 10.03% $ 33,922 10.39% $ 35,253 10.76%
========== ======= ========== ======= ========== ======= ========== =======
Tangible Capital.......... $ 25,120 7.91% $ 32,306 9.95% $ 33,637 10.32% $ 34,968 10.68%
Tangible Requirement...... 4,763 1.50 4,871 1.50 4,891 1.50 4,911 1.50
---------- ------- ---------- ------- ---------- ------- ---------- -------
Excess.................... $ 20,357 6.41% $ 27,435 8.45% $ 28,745 8.82% $ 30,057 9.18%
========== ======= ========== ======= ========== ======= ========== =======
Core Capital.............. $ 25,124 7.91% $ 32,310 9.95% $ 33,641 10.32% $ 34,972 10.69%
Core Requirement(3)....... 12,698 4.00 12,985 4.00 13,038 4.00 13,092 4.00
---------- ------- ---------- ------- ---------- ------- ---------- -------
Excess.................... $ 12,426 3.91% $ 19,324 5.95% $ 20,602 6.32% $ 21,880 6.69%
========== ======= ========== ======= ========== ======= ========== =======
Total Capital(4).......... $ 25,780 15.19% $ 32,966 19.26% $ 34,297 20.00% $ 35,628 20.75%
Risk-based Requirement.... 13,580 8.00 13,695 8.00 13,717 8.00 13,738 8.00
---------- ------- ---------- ------- ---------- ------- ---------- -------
Excess.................... $ 12,200 7.19% $ 19,270 11.26% $ 20,580 12.00% $ 21,890 12.75%
========== ======= ========== ======= ========== ======= ========== =======
PRO FORMA AT JUNE 30, 2001
--------------------------
MAXIMUM AS ADJUSTED(1)
------------------------
PERCENT OF
AMOUNT ASSETS(2)
---------- -------
GAAP Capital.............. $ 36,783 11.17%
========== =======
Tangible Capital.......... $ 36,498 11.10%
Tangible Requirement...... 4,934 1.50
---------- -------
Excess.................... $ 31,563 9.60%
========== =======
Core Capital.............. $ 36,502 11.10%
Core Requirement(3)....... 13,153 4.00
---------- -------
Excess.................... $ 23,349 7.10%
========== =======
Total Capital(4).......... $ 37,158 21.60%
Risk-based Requirement.... 13,762 8.00
---------- -------
Excess.................... $ 23,396 13.60%
========== =======
--------------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to a 15% increase in the offering range to reflect changes
in market or general financial conditions following the commencement of the
offering.
(2) Tangible and core capital levels are shown as a percentage of total
adjusted assets. Risk-based capital levels are shown as a percentage of
risk-weighted assets.
(3) The current Office of Thrift Supervision core capital requirement for
savings banks is 3% of total adjusted assets for savings banks that receive
the highest supervisory rating for safety and soundness, and a 4% to 5%
core capital ratio requirement for all other savings banks.
(4) Pro forma amounts and percentages assume net proceeds are invested in
assets that carry a 20% risk-weighting.
21
USE OF PROCEEDS
Although the actual net proceeds from the sale of the common stock in the
offering cannot be determined until the offering is completed, it is presently
anticipated that the net proceeds will be between $14.4 million and $19.7
million, or $22.7 million if the offering range is increased by 15%. See "Pro
Forma Data" and "--Stock Pricing and Number of Shares to be Issued" as to the
assumptions used to arrive at these amounts. Wayne Savings Bancshares, Inc. will
be unable to use any of the net proceeds of the offering until the conversion is
completed.
Wayne Savings Bancshares, Inc. estimates that it will invest between $7.2
million and $9.8 million, or $11.4 million if the offering range is increased by
15%, in Wayne Savings Community Bank. Wayne Savings Bancshares, Inc. intends to
retain approximately 50% of the net proceeds, a portion of which is expected to
be used to fund the loan to the employee stock ownership plan. The loan to the
employee stock ownership plan will enable it to purchase up to 8.0% of the
shares of Wayne Savings Bancshares, Inc. common stock issued in the offering.
Wayne Savings Bancshares, Inc. and Wayne Savings Community Bank instead may
elect to fund the employee stock ownership plan's stock purchases by borrowing
from a third-party financial institution. See "Management of Wayne Savings
Bancshares, Inc.--Benefits." The balance of funds retained by Wayne Savings
Bancshares, Inc. will be used for general corporate purposes. These purposes may
include investment in federal funds, short-term investment grade marketable
securities and mortgage-backed securities.
Wayne Savings Bancshares, Inc. also may use the net proceeds from the
offering to support the expansion of new products and banking services, the
establishment of new branch offices, and the acquisition of other financial
institutions or branches or diversification into other banking related
businesses, as well as fund a stock recognition and retention plan. Neither
Wayne Savings Bancshares, Inc. nor Wayne Savings Community Bank have any current
specific plans, arrangements or understandings regarding any acquisitions at
this time, nor have criteria been established to identify potential candidates
for acquisition. We currently have no commitments to use any of the net proceeds
for branch expansion.
Wayne Savings Bancshares, Inc. intends to use the net proceeds as follows:
MINIMUM MAXIMUM
SHARES SHARES
------------ -----------
(IN THOUSANDS)
Net proceeds........................................... $ 14,369 $ 19,673
Investment in Wayne Savings Community Bank............. (7,185) (9,837)
Funds loaned to ESOP................................... (1,224) (1,656)
------------ -----------
Funds retained for general corporate purposes.......... $ 5,960 $ 8,180
============ ===========
Upon completion of the conversion, the board of directors of Wayne Savings
Bancshares, Inc. will have the authority to repurchase stock, as permitted by
statutory and regulatory authority. The Office of Thrift Supervision may permit
Wayne Savings Bancshares, Inc. to repurchase up to 5% of its common stock during
the first year following completion of the conversion, and Wayne Savings
Bancshares, Inc. may repurchase its shares without restriction thereafter.
Based upon facts and circumstances following the conversion and subject to
applicable regulatory requirements, the board of directors may determine to
repurchase stock in the future. These facts and circumstances may include, but
are not limited to the following:
(1).market and economic factors such as the price at which the stock is
trading in the market, the volume of trading, the attractiveness of other
investment alternatives in terms of the rate of return and risk involved in the
investment, the ability to increase the book value and/or earnings per share of
the remaining outstanding shares, and the opportunity to improve our return on
equity;
(2).the avoidance of dilution to stockholders by not having to issue
additional shares to cover the exercise of stock options or to fund our employee
stock benefit plans; and
22
(3).any other circumstances in which repurchases would be in the best
interests of Wayne Savings Bancshares, Inc. and our stockholders.
In the event we determine to repurchase our stock, repurchases may be made
at market prices which may be in excess of the $10.00 subscription price in the
offering. To the extent that we repurchase stock at market prices in excess of
the per-share book value, such repurchases may dilute the book value per share
of existing stockholders.
The portion of the net proceeds not retained by Wayne Savings Bancshares,
Inc., will be invested in Wayne Savings Community Bank. These funds will be used
for general corporate purposes and to support asset growth. The funds also will
be used to make investments in one- to four-family residential mortgage loans,
federal funds, short-term investment grade marketable securities and
mortgage-backed and investment securities. Wayne Savings Community Bank also may
use such funds for the expansion of its branch network and to acquire other
financial institutions, branch offices, or other financial services companies,
although it has no immediate plans to do so. Wayne Savings Community Bank and
Wayne Savings Bancshares, Inc. have not determined the approximate amount of net
proceeds to be used for each of the purposes mentioned above.
DIVIDEND POLICY
Wayne Savings Bancshares, Inc. currently pays a cash dividend of $0.17 per
share per quarter, or $0.68 per share per year. After the conversion, we intend
to pay a dividend of $0.15, $0.128, $0.111 and $.096 per share per quarter at
the minimum, midpoint, maximum and adjusted maximum of the offering range,
respectively, which represents a dividend rate of 6.0%, 5.1%, 4.4% and 3.8% at
the minimum, midpoint, maximum and adjusted maximum of the range, respectively,
based upon a price of $10.00 per share. The amount of dividends that we intend
to pay to our stockholders following the conversion is intended to preserve the
per share dividend amount, adjusted to reflect the exchange ratio, that our
stockholders currently receive on their Wayne Savings Bancshares, Inc. common
stock. The dividend rate and the continued payment of dividends will depend on a
number of factors including our capital requirements, our financial condition
and results of operations, tax considerations, statutory and regulatory
limitations, and general economic conditions. No assurance can be given that we
will not reduce or eliminate dividends in the future. Assuming the offering is
completed in December 2001, the first dividend is expected to be declared for
the quarter ending March 31, 2002.
Under the rules of the Office of Thrift Supervision, Wayne Savings
Community Bank will not be permitted to pay dividends on its capital stock to
Wayne Savings Bancshares, Inc. if Wayne Savings Community Bank's stockholders'
equity would be reduced below the amount of the liquidation account. See "The
Conversion--Liquidation Rights." For information concerning federal and state
law and regulations which apply to Wayne Savings Community Bank in determining
the amount of proceeds that may be retained by Wayne Savings Bancshares, Inc.
and regarding a savings institution's ability to make capital distributions,
including payment of dividends to its holding company, see "Taxation--Federal
Taxation" and "Regulation--Federal Regulation of Savings Institutions."
Unlike Wayne Savings Community Bank, Wayne Savings Bancshares, Inc. is not
restricted by Office of Thrift Supervision regulations on the payment of
dividends to its stockholders, although the source of dividends will depend on
the net proceeds retained by Wayne Savings Bancshares, Inc. and earnings
thereon, and may depend, in part, upon dividends from Wayne Savings Community
Bank. Wayne Savings Bancshares, Inc. is subject, however, to the requirements of
Delaware law, which generally limit dividends to an amount equal to the excess
of the net assets of Wayne Savings Bancshares, Inc. over its statutory capital
or, if there is no excess, to its net earnings for the current and/or
immediately preceding fiscal year. For these purposes, net assets means the
amount by which total assets exceed total liabilities, and statutory capital
generally means the aggregate par value of the outstanding shares of Wayne
Savings Bancshares, Inc.'s capital stock.
Additionally, in connection with the conversion, Wayne Savings Bancshares,
Inc. and Wayne Savings Community Bank have committed to the Office of Thrift
Supervision that during the one-year period following the consummation of the
conversion, Wayne Savings Bancshares, Inc. will not take any action to declare
an extraordinary dividend to stockholders that would be treated by recipient
stockholders as a tax-free return of capital for federal income tax purposes
without prior approval of the Office of Thrift Supervision.
23
MARKET FOR THE COMMON STOCK
Wayne Savings Bancshares, Inc. common stock is currently listed on the
Nasdaq SmallCap Market under the symbol "WAYN", and there is an established
market for such common stock. At June 30, 2001, Wayne Savings Bancshares, Inc.
had __ market makers, including Ryan, Beck & Co., LLC. Upon completion of the
conversion and offering, the new shares of common stock of Wayne Savings
Bancshares, Inc. will replace existing shares and be traded on the Nasdaq
National Market. Ryan, Beck & Co., LLC intends to remain a market maker in Wayne
Savings Bancshares, Inc. common stock following the conversion. Ryan, Beck &
Co., LLC also will assist Wayne Savings Bancshares, Inc. in obtaining other
market makers after the conversion. There can be no assurance that other market
makers will be obtained or that an active and liquid trading market for the
common stock will develop or, if developed, will be maintained. For a period of
20 trading days following completion of our offering, our symbol will be
"WAYND", after which it will be "WAYN".
The development of a public market having the desirable characteristics of
depth, liquidity and orderliness depends on the existence of willing buyers and
sellers, the presence of which is not within the control of Wayne Savings
Bancshares, Inc. or any market maker. The number of active buyers and sellers of
the common stock at any particular time may be limited, which may have an
adverse effect on the price at which the common stock can be sold. THERE CAN BE
NO ASSURANCE THAT PERSONS PURCHASING THE COMMON STOCK WILL BE ABLE TO SELL THEIR
SHARES AT OR ABOVE THE SUBSCRIPTION PRICE OF $10.00 PER SHARE. PURCHASERS OF THE
COMMON STOCK SHOULD HAVE A LONG-TERM INVESTMENT INTENT AND SHOULD RECOGNIZE THAT
THERE MAY BE A LIMITED TRADING MARKET IN THE COMMON STOCK.
24
The following table sets forth the high and low bid quotations for Wayne
Savings Bancshares, Inc. common stock and cash dividends per share declared for
the periods indicated. These quotations represent prices between dealers and do
not include retail markups, markdowns, or commissions and do not reflect actual
transactions. This information has been obtained from monthly statistical
summaries provided by the Nasdaq Stock Market. As of June 30, 2001, there were
1,220,894 publicly held shares of Wayne Savings Bancshares, Inc. common stock
issued and outstanding. In connection with the conversion, each existing share
of common stock of Wayne Savings Bancshares, Inc. will be converted into a
number of new shares of common stock, based upon the exchange ratio that is
described in other parts of this prospectus.
CASH DIVIDEND
HIGH BID LOW BID DECLARED
---------------- ---------------- ----------------
FISCAL YEAR 2002
Quarter Ended September 30, 2001........ $ $ $ 0.17
Quarter Ended June 30, 2001............. $ $ $ 0.17
FISCAL YEAR 2001
Quarter Ended March 31, 2001 $ 18.00 $ 13.00 $ 0.16
Quarter Ended December 31, 2000 $ 16.00 $ 13.50 $ 0.16
Quarter Ended September 30, 2000 $ 15.75 $ 14.00 $ 0.16
Quarter Ended June 30, 2000 $ 16.50 $ 15.38 $ 0.16
FISCAL YEAR 2000
Quarter Ended March 31, 2000............ $ 16.63 $ 10.50 $ 0.16
Quarter Ended December 31, 1999......... $ 17.25 $ 14.25 $ 0.16
Quarter Ended September 30, 1999........ $ 16.88 $ 14.13 $ 0.16
Quarter Ended June 30, 1999............. $ 17.00 $ 15.24 $ 0.16
At July 10, 2001, the business day immediately preceding the public
announcement of the conversion, and at November ____, 2001, the closing prices
of Wayne Savings Bancshares, Inc. common stock as reported on the Nasdaq
National Market were $13.75 per share and $_____ per share, respectively. At
June 30, 2001, Wayne Savings Bancshares, Inc. had approximately 815 stockholders
of record. On the effective date of the conversion, all publicly held shares of
Wayne Savings Bancshares, Inc. common stock, including shares held by Wayne
Savings Bancshares, Inc.'s officers and directors, will be converted
automatically into and become the right to receive a number of shares of Wayne
Savings Bancshares, Inc. common stock determined pursuant to the exchange ratio,
and options to purchase shares of Wayne Savings Bancshares, Inc. common stock
will be converted into options to purchase a number of shares of Wayne Savings
Bancshares, Inc. common stock determined pursuant to the exchange ratio, for the
same aggregate exercise price. See "Beneficial Ownership of Common Stock."
25
CAPITALIZATION
The following table presents the historical consolidated capitalization
of Wayne Savings Bancshares, Inc. at June 30, 2001, and the pro forma
consolidated capitalization of Wayne Savings Bancshares, Inc. after giving
effect to the conversion, based upon the assumptions set forth in the "Pro Forma
Data" section.
PRO FORMA AT JUNE 30, 2001
------------------------------------------------------------
4,531,347
2,912,397 3,426,350 3,940,302 MAXIMUM AS
MINIMUM MIDPOINT MAXIMUM ADJUSTED
WAYNE SAVINGS SHARES SHARES SHARES SHARES
BANCSHARES, OUTSTANDING, OUTSTANDING, OUTSTANDING, OUTSTANDING,
INC. 1,530,000 1,800,000 2,070,000 2,380,500
--------------- SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
HISTORICAL AT AT $10.00 AT $10.00 AT $10.00 AT $10.00
JUNE 30, 2001 PER SHARE PER SHARE PER SHARE PER SHARE(1)
--------------- -------------- -------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
Deposits.............................. $ 284,384 $ 284,384 $ 284,384 $ 284,384 $ 284,384
Borrowed funds(2)..................... 6,000 6,000 6,000 6,000 6,000
Total deposits and borrowed funds..... $ 290,384 $ 290,384 $ 290,384 $ 290,384 $ 290,384
Stockholders' equity:
Preferred stock, $0.10 par value
(post-conversion), 500,000 shares
authorized(3)......................... $ -- $ -- $ -- $ -- $ --
Common stock $0.10 par value (post-
======================================
conversion) 8,000,000 shares
authorized;
shares to be issued as reflected(3). 2,639 2,912 3,426 3,940 4,531
Additional paid-in capital............ 14,436 28,523 30,671 32,819 35,289
Retained earnings(5).................. 9,351 9,351 9,351 9,351 9,351
Accumulated other comprehensive loss.. 38 38 38 38 38
Less:
Treasury stock....................... (1,143) (1,143) (1,143) (1,143) (1,143)
Common stock held by existing
employee
stock ownership plan............... -- -- -- -- --
Less: Existing plans(4)
Common stock to be acquired by
ESOP.............................. -- -- -- -- --
Common stock to be acquired by
recognition plan................ -- -- -- -- --
Less:
Common stock to be acquired by
ESOP(6)........................... -- (1,224) (1,440) (1,656) (1,904)
Common stock to be acquired by
recognition plan(7)............. -- (612) (720) (828) (952)
Total stockholders' equity............ $ 25,321 $ 37,845 $ 40,183 $ 42,522 $ 45,209
Total stockholders' equity as a
percentage
of total assets..................... 7.97% 11.46% 12.08% 12.70% 13.39%
------------------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to a 15% increase in the offering range to reflect changes
in market or general financial conditions following the commencement of the
subscription and community offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
common stock in the conversion. These withdrawals would reduce pro forma
deposits by the amount of the withdrawals.
(3) Wayne Savings Bancshares, Inc. (a federal corporation) has 500,000
authorized shares of preferred stock. Wayne Savings Bancshares, Inc. (a
Delaware corporation) has 8,000,000 authorized shares of common stock, par
value $0.10 per share. Pro forma Wayne Savings Bancshares, Inc. common
stock and additional paid-in capital have been increased to reflect the
number of shares of Wayne Savings Bancshares, Inc. common stock to be
outstanding, which includes the exchange of the 47.5% currently outstanding
shares of common stock pursuant to the exchange ratio. Pro forma additional
paid-in capital reflects consolidation of $11,000 of capital from Wayne
Savings Bankshares, MHC.
(4) No effect has been given to the issuance of additional shares of Wayne
Savings Bancshares, Inc. common stock pursuant to an additional stock
option plan and stock recognition plan that may be adopted by Wayne Savings
Bancshares, Inc. If these plans are approved by stockholders, an amount
equal to 10% of the shares of Wayne Savings Bancshares, Inc. common stock
sold in the offering will be reserved for issuance upon the exercise of
options under the stock option plan, and the stock recognition plan will
acquire an amount of common stock equal to 4% of the number of shares sold
in the offering, either through open market purchases or from authorized
but unissued shares. No effect has been given to the exercise of options
currently outstanding. See "Management of Wayne Savings Bancshares,
Inc.--Benefits."
(5) The retained earnings of Wayne Savings Community Bank will be substantially
restricted after the conversion, see "The Conversion--Liquidation Rights"
and "Regulation --Federal Regulation of Savings Institutions."
(FOOTNOTES CONTINUED ON NEXT PAGE)
26
(6) Assumes that 8% of the shares sold in the offering will be acquired by the
employee stock ownership plan financed by a loan from Wayne Savings
Bancshares, Inc. The loan will be repaid principally from Wayne Savings
Community Bank's contributions to the employee stock ownership plan. Since
Wayne Savings Bancshares, Inc. will finance the employee stock ownership
plan debt, this debt will be eliminated through consolidation and no
liability will be reflected on Wayne Savings Bancshares, Inc.'s
consolidated financial statements. Accordingly, the amount of stock
acquired by the employee stock ownership plan is shown in this table as a
reduction of total stockholders' equity.
(7) Assumes a number of shares of common stock equal to 4% of the common stock
to be sold in the offering will be purchased by the stock recognition plan
in open market purchases. The dollar amount of common stock to be purchased
is based on the $10.00 per share subscription price in the offering and
represents unearned compensation and is reflected as a reduction of
capital. This amount does not reflect possible increases or decreases in
the value of stock relative to the subscription price in the offering. As
Wayne Savings Bancshares, Inc. accrues compensation expense to reflect the
vesting of shares pursuant to the stock recognition plan, the deferred
charge against capital will be reduced through a charge to operations.
Implementation of the stock recognition plan will require stockholder
approval. If the shares to fund the plan are assumed to come from
authorized but unissued shares purchased by the stock recognition plan from
Wayne Savings Bancshares, Inc. at the subscription price, at the minimum,
midpoint, maximum and the maximum, as adjusted, of the offering range, the
number of outstanding shares would be 2,973,597, 3,498,350, 4,023,102 and
4,626,567, respectively, and total stockholders' equity would be $38.8
million, $41.3 million, $43.8 million, and $46.7 million, respectively, at
June 30, 2001. If the stock recognition plan acquires authorized but
unissued shares of Wayne Savings Bancshares, Inc., stockholders' ownership
in Wayne Savings Bancshares, Inc. would be diluted by approximately 2.1%.
PRO FORMA DATA
The following tables summarize historical data of Wayne Savings Bancshares,
Inc. and pro forma data of Wayne Savings Bancshares, Inc. at or for the year
ended March 31, 2001 and at or for the three months ended June 30, 2001, based
on assumptions set forth below and in the table, and should not be used as a
basis for projections of market value of the common stock following the
conversion. No effect has been given in the tables to the possible issuance of
additional shares reserved for future issuance pursuant to currently outstanding
stock options or the 2001 stock option plan, or 2001 recognition and retention
plan nor does book value give effect to the liquidation account to be
established in the conversion, or to the tax bad debt reserve on liquidation.
See "The Conversion--Liquidation Rights," and "Management of Wayne Savings
Bancshares, Inc.--Directors' Compensation."
Pro forma consolidated net earnings of Wayne Savings Bancshares, Inc. for
the fiscal year ended March 31, 2001 and the three months ended June 30, 2001,
has been calculated as if the estimated net proceeds received by Wayne Savings
Bancshares, Inc. and Wayne Savings Community Bank had been invested at an
assumed interest rate of 4.15% and 3.72% for the fiscal year ended March 31,
2001 and for the three months ended June 30, 2001, respectively. The
reinvestment rate was calculated based on the one-year United States Treasury
bill rate (which, in light of changes in interest rates in recent periods is
deemed by Wayne Savings Bancshares, Inc. and Wayne Savings Community Bank to
reflect more accurately the pro forma reinvestment rate in recent periods than
the arithmetic average method). The effect of withdrawals from deposit accounts
for the purchase of common stock has not been reflected. The pro forma after-tax
yield on the estimated net proceeds is assumed to be 2.73% and 2.46% for the
fiscal year ended March 31, 2001 and for the three months ended June 30, 2001,
respectively. Historical and pro forma per share amounts have been calculated by
dividing historical and pro forma amounts by the indicated number of shares of
common stock. No effect has been given in the pro forma stockholders' equity
calculations for the assumed earnings on the net proceeds. It is assumed that
Wayne Savings Bancshares, Inc. will retain 50% of the estimated net conversion
proceeds. The actual net proceeds from the sale of common stock will not be
determined until the conversion is completed; however, we currently estimate the
net proceeds to be between $14.4 million and $19.7 million. It is assumed that
all shares will be sold in the subscription offering and community offering.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amounts of assets and liabilities of Wayne
Savings Bancshares, Inc. The pro forma stockholders' equity is not intended to
represent the fair market value of the common stock and may be greater than
amounts that would be available for distribution to stockholders in the event of
liquidation.
27
AT OR FOR THE THREE MONTHS ENDED JUNE 30, 2001
BASED UPON THE SALE FOR $10.00 OF
-------------------------------------------------------------
1,530,000 1,800,000 2,070,000 2,380,500
SHARES SHARES SHARES SHARES(1)
MINIMUM OF MIDPOINT OF MINIMUM OF 15% ABOVE
ESTIMATED ESTIMATED ESTIMATED MAXIMUM OF
PRICE PRICE PRICE ESTIMATED
RANGE RANGE RANGE PRICE RANGE
------------ ------------ ------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Gross proceeds........................................ $ 15,300 $ 18,000 $ 20,700 $ 23,805
Expenses............................................. 951 989 1,027 1,071
------------- -------------- ------------- -------------
Estimated net proceeds............................... 14,369 17,011 19,673 22,734
Common stock purchased by employee stock ownership plan
(2).................................................. (1,224) (1,440) (1,656) (1,904)
Common stock purchased by recognition plan(3)........ (612) (720) (828) (952)
Assets reinvested from the MHC....................... 11 11 11 11
------------- -------------- ------------- -------------
Estimated net proceeds, as adjusted.................. $ 12,524 $ 14,862 $ 17,200 $ 19,888
============= ============== ============= =============
FOR THE QUARTER ENDED JUNE 30, 2001:
Consolidated net earnings:
Historical........................................... $ 376 $ 376 $ 376 $ 376
Pro forma adjustments:
Income on adjusted net proceeds...................... 77 91 106 122
Pro forma state franchise taxes...................... (15) (18) (21) (24)
Employee stock ownership plan(2)..................... (10) (12) (14) (16)
Recognition plan(3).................................. (20) (24) (27) (31)
------------- -------------- ------------- -------------
Pro forma net income.............................. $ 408 $ 413 $ 420 $ 427
============= ============== ============= =============
Earnings per share(4):
Historical........................................... $ 0.13 $ 0.11 $ 0.10 $ 0.09
Pro forma adjustments:
Income on net proceeds............................... 0.04 0.04 0.02 0.03
Pro forma state franchise taxes...................... (0.01) (0.01) (0.01) (0.01)
Employee stock ownership plan(2)..................... 0.00 0.00 0.00 0.00
Recognition plan(3).................................. (0.01) (0.01) (0.01) (0.01)
------------- -------------- ------------- -------------
Pro forma earnings per share(4)(5)................ $ 0.15 $ 0.13 $ 0.11 $ 0.10
============= ============== ============= =============
Pro forma price to earnings........................... 16.67x 19.23x 22.73x 25.00x
============= ============== ============= =============
Number of shares used in price-to-earnings ratio
calculations.......................................... 2,791,527 3,284,150 3,776,772 4,343,287
AT JUNE 30, 2001:
Stockholders' equity:
Historical........................................... $ 25,321 $ 25,321 $ 25,321 $ 25,321
Estimated net proceeds............................... 14,349 17,011 19,673 22,734
MHC capital consolidation............................ 11 11 11 11
Less: Common stock acquired by employee stock
ownership plan (2)........................ (1,224) (1,440) (1,656) (1,904)
Common stock acquired by recognition plan(3) (612) (720) (828) (952)
------------- -------------- ------------- -------------
Pro forma stockholders' equity(6)..................... 37,845 40,183 42,522 45,209
------------- -------------- ------------- -------------
Intangible assets.................................... 285 285 285 285
Pro forma tangible stockholders' equity.............. $ 37,560 $ 39,898 $ 42,237 $ 44,924
============= ============== ============= =============
Stockholders' equity per share(7):
Historical........................................... $ 8.69 $ 7.39 $ 6.43 5.59
Estimated net proceeds............................... 4.93 4.97 4.99 5.02
MHC capital consolidation............................ 0.00 0.00 0.00 $ 0.00
Less: Common stock acquired by employee stock
==========================================================
ownership plan(2)......................... (0.42) (0.42) (0.42) (0.42)
Common stock acquired by recognition plan(3) (0.21) (0.21) (0.21) (0.21)
------------- -------------- ------------- -------------
Pro forma stockholders' equity per share(6)(7)....... $ 12.99 $ 11.73 $ 10.79 $ 9.98
============= ============== ============= =============
Pro forma tangible stockholders' equity per share.... $ 12.90 $ 11.64 $ 10.72 $ 9.91
============= ============== ============= =============
Offering price as a percentage of pro forma stockholders'
equity per share..................................... 76.98% 85.25% 92.68% 100.20%
=========== =========== ============ ===========
Offering price as a percentage of pro forma tangible
stockholders' equity per share....................... 77.52% 85.91% 93.28% 100.91%
=========== =========== ============ ===========
Number of shares used in book value per share calculations 2,912,397 3,426,350 3,940,302 4,531,347
(FOOTNOTES FOLLOW NEXT PAGE)
28
AT OR FOR THE YEAR ENDED MARCH 31, 2001
BASED UPON THE SALE FOR $10.00 OF
--------------------------------------------------------------
1,530,000 1,800,000 2,070,000 2,380,500
SHARES SHARES SHARES SHARES(1)
MIDPOINT OF MINIMUM OF MAXIMUM OF 15% ABOVE
ESTIMATED ESTIMATED ESTIMATED MAXIMUM OF
PRICE PRICE PRICE ESTIMATED
RANGE RANGE RANGE PRICE RANGE
-------------- -------------- --------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Gross proceeds........................................ $ 15,300 $ 18,000 $ 20,700 $ 23,805
Expenses............................................. 951 989 1,027 1,071
---------- ----------- ------------ ------------
Estimated net proceeds............................... 14,349 17,011 19,673 22,734
Common stock purchased by employee stock ownership
plan (2)............................................ (1,224) (1,440) (1,656) (1,904)
Common stock purchased by recognition plan(3)........ (612) (720) (828) (952)
Assets reinvested from the MHC....................... 11 11 11 11
---------- ----------- ------------ ------------
Estimated net proceeds, as adjusted.................. $ 12,524 $ 14,862 $ 17,200 $ 19,888
========== =========== ============ ============
FOR THE FISCAL YEAR ENDED MARCH 31, 2001:
Consolidated net earnings:
Historical........................................... 1,461 1,461 1,461 1,461
Pro forma adjustments:
Income on adjusted net proceeds...................... 343 407 471 545
Pro forma state franchise taxes...................... (62) (73) (84) (98)
Employee stock ownership plan(2)..................... (40) (48) (55) (63)
Recognition plan(3).................................. (81) (95) (109) (126)
---------- ----------- ------------ ------------
Pro forma net earnings............................ $ 1,621 $ 1,652 $ 1,684 $ 1,719
========== =========== ============ ============
Earnings per share(4):
Historical........................................... $ 0.52 $ 0.44 $ 0.39 $ 0.34
Pro forma adjustments:
Income on net proceeds............................... 0.12 0.12 0.12 0.12
Pro forma state franchise taxes...................... (0.02) (0.02) (0.02) (0.02)
Employee stock ownership plan(2)..................... (0.01) (0.01) (0.01) (0.01)
Recognition plan(3).................................. (0.03) (0.03) (0.03) (0.03)
---------- ----------- ------------ ------------
Pro forma earnings per share(4)(5)................ $ 0.58 $ 0.50 $ 0.45 $ 0.40
---------- ----------- ------------ ------------
Pro forma price to earnings........................... 17.24x 20.00x 22.22x 25.00x
========== =========== ============ ============
Number of shares used in price-to-earnings ratio
calculations.......................................... 2,796,117 3,289,550 3,782,982 4,350,429
AT MARCH 31, 2001:
Stockholders' equity:
Historical........................................... $ 25,285 $ 25,285 $ 25,285 $ 25,285
Estimated net proceeds............................... 14,349 17,011 19,673 22,734
MHC capital consolidation............................ 11 11 11 11
Less: Common stock acquired by employee stock
ownership plan (2)........................ (1,224) (1,440) (1,656) (1,904)
Common stock acquired by recognition plan(3) (612) (720) (828) (952)
---------- ----------- ------------ ------------
Pro forma stockholders' equity(6)..................... 37,809 40,147 42,486 45,173
Intangible assets.................................... 287 287 287 287
---------- ----------- ------------ ------------
Pro forma tangible stockholders' equity.............. $ 37,522 $ 39,860 $ 42,199 $ 44,886
========== =========== ============ ============
Stockholders' equity per share(7):
Historical........................................... $ 8.68 $ 7.38 $ 6.42 $ 5.58
Estimated net proceeds............................... 4.93 4.97 4.99 5.02
MHC capital consolidation............................ 0.00 0.00 0.00 0.00
Less: Common stock acquired by employee stock
ownership plan(2)......................... (0.42) (0.42) (0.42) (0.42)
Common stock acquired by recognition plan(3) (0.21) (0.21) (0.21) (0.21)
---------- ----------- ------------ ------------
Pro forma stockholders' equity per share(6)(7)....... 12.98 11.72 10.78 9.97
========== =========== ============ ============
Pro forma tangible stockholders' equity per share.... 12.88 11.63 10.71 9.91
========== =========== ============ ============
Offering price as a percentage of pro forma stockholders'
equity per share..................................... 77.04% 85.32% 92.76% 100.30%
========== =========== ============ ============
Offering price as a percentage of pro forma tangible
stockholders' equity per share....................... 77.64% 85.98 93.37% 100.91%
========== =========== ============ ============
Number of shares used in book value per share calculations 2,912,397 3,426,350 3,940,302 4,531,347
29
--------------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to a 15% increase in the offering range to reflect changes
in market and financial conditions following the commencement of the
offering.
(2) Assumes that 8.0% of shares of common stock sold in the offering will be
purchased by the employee stock ownership plan. For purposes of this table,
the funds used to acquire these shares are assumed to be borrowed by the
employee stock ownership plan from the net proceeds of the offering
retained by Wayne Savings Bancshares, Inc. Wayne Savings Community Bank
intends to make annual contributions to the employee stock ownership plan
in an amount at least equal to the principal and interest of the debt.
Wayne Savings Community Bank's total annual payments on the employee stock
ownership plan debt are based upon 20 equal annual installments of
principal. Statement of Position 93-6 requires that an employer record
compensation expense in an amount equal to the fair value of the shares
committed to be released. The pro forma adjustments assume that the
employee stock ownership plan shares are allocated in equal annual
installments based on the number of loan repayment installments assumed to
be paid by Wayne Savings Community Bank, the fair value of the common stock
remains at the subscription price and the employee stock ownership plan
expense reflects an effective combined federal and state tax rate of 34%.
The unallocated employee stock ownership plan shares are reflected as a
reduction of stockholders' equity. No reinvestment is assumed on proceeds
contributed to fund the employee stock ownership plan. The pro forma net
income further assumes (i) that 1,530, 1,800, 2,070, and 2,380 shares were
committed to be released during the fiscal quarter ended June 30, 2001, at
the minimum, midpoint, maximum, and adjusted maximum of the offering range,
respectively, (ii) that 6,120, 7,200, 8,280, and 9,522 shares were
committed to be released during the fiscal year ended March 31, 2001, at
the minimum, midpoint, maximum, and adjusted maximum of the offering range,
respectively, and (iii) in accordance with Statement of Position 93-6, only
the employee stock ownership plan shares committed to be released during
the periods were considered outstanding for purposes of net income per
share calculations.
(3) If approved by Wayne Savings Bancshares, Inc.'s stockholders, the stock
recognition plan intends to purchase an aggregate number of shares of
common stock equal to 4% of the shares to be sold in the offering.
Stockholder approval of the stock recognition plan and purchases by the
plan may not occur earlier than six months after the completion of the
conversion. The shares may be acquired directly from Wayne Savings
Bancshares, Inc., or through open market purchases. The funds to be used by
the stock recognition plan to purchase the shares will be provided by Wayne
Savings Bancshares, Inc. or Wayne Savings Community Bank. The table assumes
that (i) the stock recognition plan acquires the shares through open market
purchases at the subscription price with funds contributed by Wayne Savings
Bancshares, Inc., (ii) 5% of the amount contributed to the stock
recognition plan is amortized as an expense during the fiscal quarter ended
June 30, 2001, (iii) 20% of the amount contributed to the stock recognition
plan is amortized as an expense during the fiscal year ended March 31,
2001, and (iv) the stock recognition plan expense reflects an effective
combined federal and state tax rate of 34%. Assuming stockholder approval
of the plan and that the plan shares are awarded through the use of
authorized but unissued shares of common stock, stockholders would have
their voting interests diluted by approximately 2.1%.
(4) Per share figures include shares of Wayne Savings Bancshares, Inc. common
stock that will be exchanged for the publicly held shares of Wayne Savings
Bancshares, Inc. common stock in the share exchange. Net income per share
computations are determined by taking the number of subscription shares
assumed to be sold in the offering and the number of exchange shares
assumed to be issued in the share exchange and, in accordance with
Statement of Position 93-6, subtracting the employee stock ownership plan
shares which have not been committed for release during the respective
period. See Note 2 above. The number of shares of common stock actually
sold and the corresponding number of exchange shares may be more or less
than the assumed amounts.
(5) No effect has been given to the issuance of additional shares of common
stock pursuant to the stock option plan, which is expected to be adopted by
Wayne Savings Bancshares, Inc. following the offering and presented to
stockholders for approval not earlier than six months after the completion
of the conversion. If the stock option plan is approved by stockholders, a
number of shares equal to 10% of the shares sold in the offering will be
reserved for future issuance upon the exercise of options to be granted
under the stock option plan. The issuance of authorized but previously
unissued shares of common stock pursuant to the exercise of options under
such plan would dilute existing stockholders' interests by approximately
5.5%.
(6) The retained earnings of Wayne Savings Community Bank will be substantially
restricted after the conversion. See "Dividend Policy," "The
Conversion--Liquidation Rights" and "Regulation--Federal Regulation of
Savings Institutions--Capital Distributions."
(7) Per share figures include shares of Wayne Savings Bancshares, Inc. common
stock that will be exchanged for publicly held shares of Wayne Savings
Bancshares, Inc. common stock in the share exchange. Stockholders' equity
per share calculations are based upon the sum of (i) the number of
subscription shares assumed to be sold in the offering, and (ii) exchange
shares to be issued at the minimum, midpoint, maximum and adjusted maximum
of the offering range, respectively. The exchange shares reflect an
exchange ratio of 1.1327, 1.3326, 1.5325 and 1.7624, respectively, at the
minimum, midpoint, maximum, and adjusted maximum of the offering range,
respectively. The number of subscription shares actually sold and the
corresponding number of exchange shares may be more or less than the
assumed amounts.
30
WAYNE SAVINGS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
The following Consolidated Statements of Earnings of Wayne Savings
Bancshares, Inc. for the years ended March 31, 2001, 2000 and 1999, have been
audited by Grant Thornton LLP, independent certified public accountants, whose
report thereon appears elsewhere in this prospectus. With respect to information
for the three months ended June 30, 2001 and 2000, which is unaudited, in the
opinion of management, all adjustments necessary for a fair presentation of such
periods have been included and are of a normal recurring nature. Results for the
three months ended June 30, 2001 are not necessarily indicative of the results
that may be expected for the fiscal year ending March 31, 2002. These statements
should be read in conjunction with the consolidated financial statements of
Wayne Savings Bancshares, Inc. and related notes thereto included elsewhere in
this prospectus.
FOR THE THREE MONTHS FOR THE YEAR ENDED
ENDED JUNE 30, MARCH 31,
------------------------- -----------------------------------
2001 2000 2001 2000 1999
----------- ------------ ---------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Interest income:
Loans............................................. $ 4,796 $ 4,595 $ 18,694 $ 17,928 $ 17,037
Mortgage-backed securities........................ 131 164 583 602 405
Investment securities............................. 207 361 1,423 1,033 784
Interest-bearing deposits and other............... 285 217 799 1,138 1,070
----------- ------------ ---------- ----------- -----------
Total interest income.......................... 5,419 5,337 21,499 20,701 19,296
Interest expense:
Deposits.......................................... 3,262 3,045 12,652 11,530 10,516
Borrowings........................................ 82 116 448 484 671
----------- ------------ ---------- ----------- -----------
Total interest income.......................... 3,344 3,161 13,100 12,014 11,187
----------- ------------ ---------- ----------- -----------
Net interest income............................ 2,075 2,176 8,399 8,687 8,109
Provision for losses on loans...................... 2 51 96 120 64
----------- ------------ ---------- ----------- -----------
Net interest income after provision for losses
on loans........................... 2,073 2,125 8,303 8,567 8,045
Other income:
Gain on sale of loans............................. 76 20 154 22 309
Service fees, charges and other operating income.. 288 198 891 720 682
----------- ------------ ---------- ----------- -----------
Total other income............................. 364 218 1,045 742 991
General, administrative and other expense:
Employee compensation and benefits................ 1,055 1,066 4,012 3,817 3,308
Occupancy and equipment........................... 330 329 1,211 1,394 1,111
Federal deposit insurance premiums................ 12 18 63 209 202
Franchise taxes................................... 67 50 176 318 335
Loss on disposal of real estate acquired through
foreclosure....................................... -- -- -- 11 110
Other operating expenses.......................... 402 441 1,671 1,665 1,481
----------- ------------ ---------- ----------- -----------
Total general, administrative and other expense 1,866 1,904 7,133 7,414 6,547
----------- ------------ ---------- ----------- -----------
Earnings before income taxes................... 571 439 2,215 1,895 2,489
Federal income taxes:
Current............................................ 165 148 719 600 686
Deferred........................................... 30 1 35 44 160
----------- ------------ ---------- ----------- -----------
Total federal income taxes........................ 195 149 754 644 846
----------- ----------- ---------- ---------- ----------
NET EARNINGS................................... $ 376 $ 290 $ 1,461 $ 1,251 $ 1,643
=========== ============ ========== =========== ===========
EARNINGS PER SHARE:
Basic.......................................... $ 0.15 $ 0.11 $ 0.56 $ 0.48 $ 0.63
=========== ============ ========== =========== ===========
Diluted........................................ $ 0.15 $ 0.11 $ 0.56 $ 0.48 $ 0.62
=========== ============ ========== =========== ===========
Net earnings....................................... $ 376 $ 290 $ 1,461 $ 1,251 $ 1,643
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on securities during
the period net of taxes (benefits) of $3, $5, $36,
$(20), and $(8)................................... 5 10 69 (38) (15)
=========== ============ ========== =========== ===========
Comprehensive income............................... $ 381 $ 300 $ 1,530 $ 1,213 $ 1,628
=========== ============ ========== =========== ===========
Accumulated comprehensive income (loss).......... $ 38 $ (26) $ 33 $ (36) $ 2
=========== ============ ========== =========== ===========
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion and analysis reflects Wayne Savings Bancshares, Inc.'s
consolidated financial statements and other relevant statistical data and is
intended to enhance your understanding of our financial condition and results of
operations. You should read the information in this section in conjunction with
Wayne Savings Bancshares, Inc.'s consolidated financial statements and their
notes beginning on page F-1 of this prospectus, and the other statistical data
provided in this prospectus. This prospectus contains certain "forward-looking
statements" that may be identified by the use of such words as "believe,"
"expect," "intend," "anticipate," "should," "planned," "estimated" and
"potential." Examples of forward-looking statements include, but are not limited
to, estimates with respect to our financial condition, results of operations and
business that are subject to various factors that could cause actual results to
differ materially from these estimates and most other statements that are not
historical in nature. These factors include, but are not limited to, general and
local economic conditions; changes in interest rates, deposit flows, demand for
mortgage and other loans, real estate values, and competition; changes in
accounting principles, policies, or guidelines; changes in legislation or
regulation; and other economic, competitive, governmental, regulatory, and
technological factors affecting our operations, pricing, products and services.
GENERAL
We conduct no business other than holding the common stock of Wayne Savings
Community Bank. Consequently, our net earnings depends on the net earnings of
Wayne Savings Community Bank and its subsidiary, Village Savings Bank. Our
financial information is presented on a consolidated basis to include Wayne
Savings Community Bank and Village Savings Bank. The net earnings of Wayne
Savings Community Bank is derived primarily from its net interest income, which
is the difference between interest income earned on investments in loans,
mortgage-backed securities and other investment securities, and its cost of
funds consisting of interest paid on deposits and borrowings. Wayne Savings
Community Bank's net earnings also is affected by its provision for loan losses,
as well as by the amount of other income, including income from fees and service
charges, and net gains and losses on sales of loans and investments, and
operating expenses such as employee compensation and benefits, deposit insurance
premiums, occupancy and equipment costs, and income taxes. In addition, earnings
are affected significantly by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities, which events are beyond our control.
BUSINESS STRATEGY
Our current business strategy is to operate as a well-capitalized,
profitable and independent community-oriented financial institution dedicated to
providing quality customer service. We emphasize retail deposits as our primary
source of funds. We maintain a substantial part of our assets in locally
originated residential first mortgage loans, and, to a substantially lesser
extent, other types of loans, mortgage-backed securities and other liquid
investment securities. Since 1998, we have increased our presence in our market
area by opening three new Wayne Savings Community Bank branch locations and
establishing Village Savings Bank as a separately-chartered federal savings
bank.
Specifically, our business strategy incorporates the following elements:
(1) closely monitoring the needs of our customers and providing convenient,
personal, quality customer service; (2) emphasizing the origination of one- to
four-family residential mortgage loans in our market area; (3) managing interest
rate risk exposure; (4) maintaining high asset quality; (5) increasing fee
income; (6) maintaining a strong retail deposit base; (7) controlling expenses;
and (8) maintaining capital in excess of regulatory requirements.
Highlights of our business strategy are as follows:
COMMUNITY BANKING AND CUSTOMER SERVICE. Wayne Savings Community Bank was
established in 1899 and has been operating continuously since that time.
Throughout its history, Wayne Savings Community Bank has been committed to
meeting the financial needs of the communities in which it operates and
providing
32
quality service to its customers. We believe that our community-oriented
approach can be more effective than many of our larger competitors, which are
headquartered out of the area, because our customers have direct access to
senior management.
We believe that a well-positioned branch network is important to increasing
market share and customer convenience. Since March 1998, we have expanded our
market presence by opening offices in favorable locations that provide access to
new customers. Since the end of 1998, Wayne Savings Community Bank has increased
its number of branches from six to nine. We opened two full-service branches in
May and July 1999, and, in May 2001, we opened a full-service branch in a newly
constructed shopping center. In 1998, we expanded into Stark County by
establishing Village Savings Bank, which has one office. None of our new
locations were acquired from other financial institutions.
EMPHASIZING ONE- TO FOUR-FAMILY RESIDENTIAL MORTGAGE LOANS IN OUR MARKET
AREA. We focus on originating one- to four-family residential mortgage loans and
home equity loans collateralized by properties in our market area. At June 30,
2001, these loans constituted 84.4% of our total loan portfolio. We also
originate loans collateralized by non-residential and multi-family residential
real estate, as well as commercial business loans and consumer loans. Such loans
constitute a relatively small part of our lending activities, but help to create
strong ties to our customers by increasing relationships and providing
cross-marketing opportunities.
MANAGING INTEREST RATE RISK EXPOSURE. In order to attempt to reduce the
potential volatility of our earnings in a rapidly changing interest rate
environment, we have implemented the following strategies. First, we have
attempted to better match the maturities of our interest rate sensitive assets
and liabilities. Second, we continue to emphasize the origination of adjustable
rate mortgage (ARM) loans and other adjustable rate or short-term loans, such as
consumer and commercial business loans. However, particularly in the current low
interest rate environment, mortgage loan borrowers typically prefer fixed-rate
loans to ARM loans. During the year ended March 31, 2001, our ARM portfolio
increased by $7.4 million, or 13.0%, and ARM loans constituted 28.1% of our
total loan portfolio at June 30, 2001. Third, our fixed rate mortgage loans
generally are underwritten according to standards that permit resale in the
secondary mortgage market. Fourth, we attempt to lengthen the maturities of
certificates of deposit as market conditions permit; however, in the current low
market interest rate environment, depositors typically prefer shorter-term
deposits.
MAINTAINING HIGH ASSET QUALITY. We have consistently maintained a high
level of asset quality. We concentrate on originating one- to four-family
residential mortgage loans collateralized by properties in our market area. One-
to four-family residential mortgage loans typically pose less credit risk than
multi-family and non-residential real estate loans. We believe that our high
asset quality also is the result of a stable economy, conservative underwriting
standards and experienced loan officers, as well as diligent monitoring of our
loan portfolio by our collections department. During the three months ended June
30, 2001 and the years ended March 31, 2001, 2000 and 1999, loan charged-offs
totaled $1,000, $234,000, $5,000 and $107,000, respectively. At June 30, 2001
and at March 31, 2001, 2000 and 1999, our percentage of non-performing loans to
net loans receivable was 0.70%, 0.21%, 0.08% and 0.13%, respectively.
INCREASING FEE INCOME. In order to decrease our reliance on net interest
income, we have sought to increase non-interest income. In this regard, we
restructured our service fees in July 2000, increasing the type and rate
structure of fees associated with our deposits. Service fees and charges
increased by $171,000 or 23.8%, for the fiscal year ended March 31, 2001
compared to the preceding fiscal year. In addition, beginning in 1997, we began
to build a line of investment products, which we offer through a third party.
The product line now includes fixed and variable annuities and mutual funds. We
also began offering debit cards in December 2000. We are currently considering
additional fee-based products to offer our customers.
MAINTAINING A STRONG RETAIL DEPOSIT BASE. We historically have had a
relatively strong and stable retail deposit base drawn from our market area. Our
deposit-gathering strength is enhanced by the strong sales culture in our
branches and by our branch franchise, which we have expanded since 1998. In the
three year period ended March 31, 2001, deposits grew 28%. At June 30, 2001, our
"core deposits," which includes, checking, money market, passbook and savings
accounts, totaled $105.1 million or 37.0% of our total deposits. Core deposits
are a more stable and lower cost source of funds than certificates of deposit,
and they often generate fee income.
33
COMMITMENT TO EXPENSE CONTROL. In large part due to the increase in the
number of banking offices since March 1998, our general and administrative
expenses have grown. We recognized the need to study our costs and develop a
broad-based cost containment program, which we implemented in September 2000. As
a result of this initiative, our expenses, most notably occupancy costs, have
diminished, and compensation expense has decreased slightly, despite normal
merit raises and the need to staff our most recently opened branch. Full-time
equivalent employees decreased from 114 at September 30, 2000 to 110 at June 30,
2001, despite the opening of a new branch office during the period. We believe
that, as result of cross-training, the longevity of many of our senior managers
and technological efficiencies, the decrease in the number of our personnel has
not negatively impacted the quality of customer service or operations. We will
continue to monitor and refine our cost control efforts.
MAINTAINING CAPITAL IN EXCESS OF REGULATORY REQUIREMENTS. Our policy is to
maintain financial strength through conservative risk-management and consistent
earnings. At June 30, 2001, our regulatory capital amounted to $25.4 million,
substantially in excess of regulatory requirements. At June 30, 2001, Wayne
Savings Community Bank maintained core capital of $25.0 million, or 7.98% of
total assets, substantially in excess of the regulatory core capital requirement
of 4.00% of total assets. We intend to maintain capital in excess of regulatory
requirements following the offering.
34
CHANGES IN FINANCIAL CONDITION
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2001 AND MARCH 31, 2001
At June 30, 2001, our total assets amounted to $317.7 million, an increase
of $6.0 million, or 1.9%, over our total assets at March 31, 2001. The increase
was funded primarily by a $6.7 million increase in interest-earning deposits at
other financial institutions.
Cash and due from banks, federal funds sold, interest-bearing deposits,
certificates of deposit and investment securities totaled approximately $39.0
million at June 30, 2001, a decrease of approximately $1.3 million, or 3.2%,
from March 31, 2001 levels. Regulatory liquidity approximated 17.9% at June 30,
2001, compared to 17.5% at March 31, 2001.
Mortgage-backed securities decreased by $1.5 million, or 16.9%, to $7.2
million at June 30, 2001. This decrease was primarily due to principal
repayments on mortgage-backed securities totaling $1.5 million for the three
months ended June 30, 2001.
Loans receivable increased by $7.4 million, or 3.0%, over the March 31,
2001 total. This increase resulted from loan disbursements of $30.1 million,
which were partially offset by principal repayments of $16.5 million and sales
of $6.4 million. The majority of loan disbursements during the quarter ended
June 30, 2001 were comprised of loans secured by one-to four-family residential
real estate. The allowance for loan losses totaled $656,000 at June 30, 2001,
compared to $655,000 at March 31, 2001. Nonaccrual loans totaled $358,000 at
June 30, 2001 and $515,000 at March 31, 2001. The allowance for loan losses
totaled 183.2% and 127.2% of nonaccrual loans at June 30, 2001 and March 31,
2001, respectively. Nonperforming assets totaled $1.8 million and $639,000 at
June 30, 2001 and March 31, 2001, respectively. The allowance for loan losses
totaled 36.6% and 102.5% of nonperforming assets at June 30, 2001 and March 31,
2001, respectively. See "Nonperforming Assets." Although management believes
that its allowance for loan losses at June 30, 2001, 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 our results of operations.
Deposits increased by approximately $6.7 million, or 2.4%, during the
quarter ended June 30, 2001, to a total of $284.4 million at June 30, 2001. This
growth was mainly due to competitive passbook rates as well as our elimination
of correspondent banking services, which resulted in our transferring corporate
checking accounts from other financial institutions to internal deposits.
Stockholders' equity increased by $36,000 or 0.1% to $25.3 million at June
30, 2001, due primarily to net earnings of $376,000, partially offset by
dividends paid totaling $205,000 and repurchases of common stock totaling
$140,000 during the quarter ended June 30, 2001.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2001 AND MARCH 31, 2000
At March 31, 2001, our total assets amounted to $311.8 million, an increase
of $7.7 million, or 2.5%, over total assets of $304.1 million at March 31, 2000.
Cash and due from banks, federal funds sold, interest-bearing deposits,
certificates of deposit and investment securities totaled $40.2 million, a
decrease of $1.3 million, or 3.0%, from March 31, 2000 levels. During the fiscal
year ended March 31, 2001, investment securities totaling $12.1 million matured,
while $2.5 million of investment securities were purchased. Cash and cash
equivalents increased by $6.6 million, or 46.1%, to a total of $20.9 million at
March 31, 2001. Regulatory liquidity approximated 17.5% at March 31, 2001,
compared to 19.6% at March 31, 2000.
Mortgage-backed securities totaled $8.6 million at March 31, 2001, a $1.9
million, or 17.9%, decrease from the total at March 31, 2000. The decrease
resulted primarily from principal repayments of $4.0 million, which were
partially offset by purchases totaling $2.0 million.
35
Loans receivable, including loans held for sale, increased by approximately
$10.1 million, or 4.2%, to $247.5 million at March 31, 2001, from $237.4 million
at March 31, 2000. This increase resulted from loan disbursements of $75.7
million, which were partially offset by principal repayments of $56.5 million
and sales of $9.2 million. Loans secured by residential real estate increased by
$8.3 million during fiscal 2001. The allowance for loan losses totaled $655,000
at March 31, 2001, as compared to $793,000 at March 31, 2000. Nonperforming
loans totaled $515,000 at March 31, 2001, and $200,000 at March 31, 2000. The
allowance for loan losses totaled 127.2% and 396.5% of nonperforming loans at
March 31, 2001 and 2000, respectively. At March 31, 2001, the nonperforming
loans consisted primarily of one- to four-family loans. See "Delinquencies and
Classified Assets - Non-Performing Assets."
Deposits increased by $12.8 million, or 4.8%, to a total of $277.7 million
at March 31, 2001. The increase in deposits was primarily attributable to
management's continuing efforts to achieve a moderate rate of deposit growth
through marketing strategies.
Advances from the Federal Home Loan Bank decreased by $6.0 million, or
50.0%, from $12.0 million outstanding at March 31, 2000, to $6.0 million
outstanding at March 31, 2001.
Stockholders' equity totaled $25.3 million at March 31, 2001, a $164,000,
or 0.7%, increase over March 31, 2000. The increase was due primarily to net
earnings of $1.5 million, which were partially offset by dividends paid of $1.1
million, or $0.64 per share, and repurchases of common stock totaling $358,000.
RESULTS OF OPERATIONS
Our earnings depend primarily on our level of net interest income, which is
the difference between interest earned on our interest-earning assets and
interest paid on our interest-bearing liabilities. Net interest income is
substantially affected by our interest rate spread, which is the difference
between the average yield earned on interest-earning assets and the average rate
paid on interest-bearing liabilities, as well as by the average balance of
interest-earning assets as compared to interest-bearing liabilities.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000
GENERAL. Net earnings totaled $376,000 for the three months ended June 30,
2001, compared to net earnings of $290,000 for the same period in 2000, an
increase of $86,000, or 29.7%. The increase in net earnings resulted primarily
from an increase in other income of $146,000, a decrease of $49,000 in the
provision for losses on loans and a $38,000 decrease in general, administrative
and other expenses, which were partially offset by a decrease in net interest
income of $101,000 and an increase in federal income taxes of $46,000.
INTEREST INCOME. Interest on loans and mortgage-backed securities totaled
$4.9 million for the three months ended June 30, 2001, an increase of $168,000,
or 3.5%, over the same period in 2000. The increase can be primarily attributed
to a $10.4 million, or 4.3%, increase in the average balance of loans
outstanding while the average yield on such loans was unchanged at 7.69%.
Interest on investments and interest-bearing deposits decreased by $86,000,
or 14.9%, during the three months ended June 30, 2001, as compared to the same
period in 2000, as a result of a decrease in the average yield on investment
securities to 6.56% from 7.15% and on interest-bearing deposits to 3.97% from
6.36%, reflecting the generally lower market interest rate environment. The
average balance of such assets increased by $7.5 million, or 22.2%, which
partially offset the lower average yields on such assets.
INTEREST EXPENSE. Interest expense on deposits and borrowings increased by
$183,000, or 5.8%, during the three months ended June 30, 2001, over the same
period in 2000. The increase can be primarily attributed to a $10.7 million, or
3.9%, increase in the average balance of interest-bearing liabilities and an
increase in the cost of interest-bearing liabilities of eight basis points to
4.70% from 4.62%.
NET INTEREST INCOME. As a result of the foregoing changes in interest
income and interest expense, net interest income decreased by $101,000, or 4.6%,
during the three months ended June 30, 2001, as compared to the same period in
2000. Our interest rate spread decreased to 2.56% for the three months ended
June 30, 2001
36
from 2.91% for the three months ended June 30, 2000, offset in part by an
increase in the ratio of interest-earning assets to interest-bearing liabilities
to 105.00% from 103.58%.
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 we conduct, the status of past due principal and interest payments,
general economic conditions, particularly as such conditions relate to our
market area, and other factors related to the collectibility of our loan
portfolio. As a result of such analysis, management recorded a $2,000 provision
for losses on loans during the three months ended June 30, 2001, primarily due
to growth in the loan portfolio, coupled with management's assessment of the
collateral securing nonperforming loans. There can be no assurance that the loan
loss allowance will be adequate to cover losses on nonperforming assets in the
future.
OTHER INCOME. Other income totaled $364,000 for the three months ended June
30, 2001, an increase of $146,000, or 67.0%, over the comparable 2000 period.
This increase was due primarily to a $90,000, or 45.5%, increase in service
fees, charges and other operating income, coupled with a $56,000, or 280.0%,
increase in gain on sale of loans. The increase in service fees, charges and
other operating income was due primarily to a new service fee structure
implemented on deposit accounts beginning in July 2000. The increase in gain on
sale of loans was a result of loan sales of $6.4 million in 2001 compared to the
$2.1 million sold in the quarter ended June 30, 2000.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other expense, consisting primarily of employee compensation and benefits,
occupancy and equipment expense, federal deposit insurance premiums, and other
operating expense, decreased by $38,000, or 2.0%, during the three months ended
June 30, 2001, due primarily to a $39,000, or 8.8%, decrease in other operating
expenses and an $11,000, or 1.0%, decrease in employee compensation and
benefits, which were partially offset by a $17,000, or 34.0%, increase in
franchise taxes due to increased capital levels. General, administrative and
other expenses have decreased due to the continuing effects of management's cost
reduction program implemented in September 2000.
FEDERAL INCOME TAXES. The provision for federal income taxes amounted to
$195,000 for the three months ended June 30, 2001, an increase of $46,000, or
30.9%, compared to the same period in 2000. The increase resulted primarily from
a $132,000, or 30.1%, increase in pretax earnings year to year. The effective
tax rate for the three months ended June 30, 2001 and 2000 was 34.2% and 33.9%,
respectively.
RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 2001, 2000 AND 1999
GENERAL. Net earnings amounted to $1.5 million for the fiscal year ended
March 31, 2001. This represented a 16.8% increase from net earnings of $1.3
million reported in the prior fiscal year. Net earnings were $1.3 million for
the fiscal year ended March 31, 2000 compared to $1.6 million for the fiscal
year ended March 31, 1999. The increase in net earnings in fiscal year 2001 was
due to a $281,000 decrease in general, administrative, and other expense, a
$171,000 increase in other operating income and a $132,000 increase in gain on
sale of loans, which were partially offset by a $110,000 increase in the
provision for federal income taxes and a decrease of $288,000 in net interest
income. The decrease in earnings in fiscal year 2000 compared to fiscal year
1999 was due primarily to an increase of $867,000 in general, administrative and
other expense and a decrease of $249,000 in total other income, which was
partially offset by an increase of $578,000 in net interest income.
INTEREST INCOME. Interest income totaled $21.5 million for the fiscal year
ended March 31, 2001, an increase of $798,000, or 3.9%, from interest income of
$20.7 million for the fiscal year ended March 31, 2000. Interest income
increased due to an increase in the average balance of interest-earning assets
of $11.5 million, or 4.1%, to $288.2 million, partially offset by a decrease in
the average yield to 7.46% from 7.48% for the prior year.
Interest income on loans receivable increased by $766,000, or 4.3%, due to
a $15.8 million, or 6.9%, increase in the average balance of loans outstanding,
which was partially offset by a decrease in the average yield to 7.61% from
7.80%.
37
Interest income on mortgage-backed securities decreased by $19,000, or
3.2%, primarily due to a decrease in the average balance of $398,000, or 3.9%,
to $9.8 million for the year ended March 31, 2001. The average yield on these
assets increased to 5.98%, from 5.93% for the previous fiscal year.
Interest income on investment securities and interest-bearing deposits
increased for the year, primarily as a result of an increase in the average
yield on these assets. The yield on investment securities increased to 7.36%,
from 6.86% for the prior fiscal year, while the yield on interest-bearing
deposits rose to 5.93%, from 5.25% for the prior fiscal year. The average
balance of these assets decreased by approximately $3.9 million, as we funded
loan growth.
For the fiscal year ended March 31, 2000, interest income totaled $20.7
million, an increase of $1.4 million, or 7.3%, from interest income of $19.3
million for the fiscal year ended March 31, 1999. Interest income increased due
to an increase in the average balance of interest-earning assets of $26.0
million, or 10.4%, to $276.7 million, partially offset by a decrease in the
average yield to 7.48% from 7.70% for the prior year.
Interest income on loans receivable increased by $891,000, or 5.2%, due to
a $20.7 million, or 9.9%, increase in the average balance of loans outstanding,
which was partially offset by a decrease in the average yield to 7.80% from
8.14%.
Interest income on mortgage-backed securities increased by $197,000, or
48.6%, primarily due to an increase in the average balance of $3.0 million, or
41.6%, to $10.2 million for the fiscal year ended March 31, 2000. The yield on
these assets increased to 5.93%, from 5.65% for the fiscal year ended March 31,
1999.
Interest income on both investment securities and interest-bearing deposits
increased for the fiscal year ended March 31, 2000, primarily as a result of an
increase in the average yield on these assets as market interest rates
continually rose throughout the fiscal year. The yield on investment securities
increased to 6.86%, from 6.03% for the fiscal year ended March 31, 1999, while
the yield on interest-bearing deposits rose to 5.25%, from 5.01%. The average
balance of these assets increased by approximately $2.4 million, as we
maintained a liquid position to take advantage of a future increase in rates.
INTEREST EXPENSE. Interest expense for the fiscal year ended March 31, 2001
totaled $13.1 million, an increase of $1.1 million, or 9.0%, from interest
expense of $12.0 million for the previous fiscal year. The increase resulted
from an increase in the average balance of interest-bearing liabilities of $6.8
million, or 2.6%, to $267.8 million, coupled with an increase in the average
cost of funds to 4.89% for fiscal year 2001 from 4.60% for the previous fiscal
year.
Interest expense on deposits increased $1.1 million, or 9.7%, to $12.7
million in fiscal year 2001 as a result of an increase in the cost of deposits
to 4.87% from 4.57%, coupled with a 3.0% increase in the average deposits
outstanding, to $259.9 million in fiscal 2001 from $252.3 million in fiscal
2000.
Interest expense on borrowings for the fiscal year ended March 31, 2001,
decreased $36,000, or 7.4%, to $448,000. The decrease was the result of a
decrease in the average balance of borrowings outstanding of $719,000, or 8.4%,
partially offset by an increase in the cost of borrowings to 5.69% in fiscal
year 2001 from 5.63% in fiscal year 2000.
For the fiscal year ended March 31, 2000, interest expense totaled $12.0
million, an increase of $827,000, or 7.4%, from interest expense of $11.2
million for fiscal year 1999. The increase resulted from an increase in the
average balance of interest-bearing liabilities of $26.6 million, or 11.4%, to
$260.9 million, which was offset by a decrease in the average cost of funds to
4.60% for fiscal year 2000 from 4.77% for fiscal year 1999.
Interest expense on deposits increased $1.0 million, or 9.6%, to $11.5
million as a result of an increase in the average deposits outstanding to $252.3
million in fiscal year 2000 from $222.6 million for fiscal year 1999, partially
offset by a decrease in the cost of deposits to 4.57% in fiscal year 2000 from
4.72% in fiscal year 1999.
38
Interest expense on borrowings for the fiscal year ended March 31, 2000,
decreased $187,000, or 27.9%, to $484,000. The decrease was the result of a
decrease in the average balance of borrowings outstanding of $3.1 million, or
26.3%, coupled with a decrease in the cost of borrowings to 5.63% in fiscal year
2000 from 5.75% in fiscal year 1999.
NET INTEREST INCOME. Net interest income for the fiscal year ended March
31, 2001 was $8.4 million, compared to $8.7 million for the previous fiscal
year, a 3.3% decrease, as our interest rate spread decreased to 2.57% in fiscal
year 2001 from 2.88% in fiscal year 2000. This was partially offset by growth of
$11.5 million in average interest-earning assets resulting in an increase in the
ratio of average interest-earning assets to average interest-bearing liabilities
to 107.62% in fiscal year 2001 from 106.05% in fiscal year 2000.
Net interest income for fiscal year 2000 was $8.7 million, compared to $8.1
million for fiscal year 1999, a 7.1% increase, as average interest-earning
assets increased by $26.0 million, or 10.4%. This was partially offset by a
decline in our interest rate spread to 2.88% from 2.93%, and a decrease in the
ratio of average interest-earning assets to average interest-bearing liabilities
to 106.05% in fiscal year 2000 from 106.99% in fiscal year 1999.
PROVISION FOR LOSSES ON LOANS. Our allowance for loan losses was $655,000,
or 0.27% of loans receivable at March 31, 2001, $793,000, or 0.33% of loans
receivable at March 31, 2000, and $678,000, or 0.32% of loans receivable at
March 31, 1999. We recorded a provision for losses on loans of $96,000 for the
fiscal year ended March 31, 2001, primarily due to growth in the loan portfolio
coupled with management's assessment of the collateral securing non-performing
loans. We recorded a provision for losses on loans at $120,000 and $64,000 for
the fiscal years ended March 31, 2000 and 1999, respectively.
OTHER INCOME. Other income, consisting primarily of gain on sale of loans,
service fees, and charges on deposit accounts, increased $303,000, or 40.8%, to
$1.0 million for fiscal year 2001. The increase was a result of an increase of
$132,000, or 600.0%, in gain on sale of fixed-rate mortgage loans. Fixed-rate
mortgage loans sold totaled $9.2 million compared to $6.4 million sold in the
previous fiscal year. Service fees, charges, and other operating income
increased $171,000, or 23.8%, to $891,000 in fiscal year 2001 as fees related to
deposit accounts increased.
Other income decreased $249,000, or 25.1%, to $742,000 for fiscal year
2000. The decrease was a result of a decrease of $287,000, or 92.9%, in gain on
sale of fixed-rate mortgage loans. Fixed-rate mortgage loans sold totaled $6.4
million compared to $15.9 million sold in fiscal year 1999. Service fees,
charges, and other operating income increased $38,000, or 5.6%, to $720,000 in
fiscal year 2000, as fee activity related to deposit accounts increased.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other expense totaled $7.1 million for the fiscal year ended March 31, 2001, a
decrease of $281,000, or 3.8%, compared to fiscal year 2000. The decrease was
primarily a result of a decrease in federal deposit insurance premiums of
$146,000, or 69.9%, a decrease in occupancy and equipment of $183,000, or 13.1%,
and a decrease in franchise taxes of $142,000, or 44.7%, which were partially
offset by an increase of $195,000, or 5.1%, in employee compensation and
benefits. The decrease in federal deposit insurance premiums was due to a
reduction in premium rates. The decrease in franchise taxes reflected refunds
received in fiscal year 2001, as well as a decline in the rate of tax year to
year. The decrease in occupancy and equipment reflected the results of
management's cost containment initiative during fiscal year 2001. The increase
in employee compensation and benefits was due primarily to normal merit
increases and a reduction in the level of deferred loan origination costs.
General, administrative and other expense totaled $7.4 million for the
fiscal year ended March 31, 2000, an increase of $867,000, or 13.2%, compared to
fiscal year 1999. The increase is due primarily to an increase of $509,000, or
15.4%, in employee compensation, an increase of $283,000, or 25.5%, in occupancy
and equipment and an increase of $184,000, or 12.4%, in other operating expense,
the effects of which were partially offset by a decrease of $99,000, or 90.0%,in
loss on disposal of real estate acquired through foreclosure. These increases
were primarily a result of increased operating costs, as a result of opening two
new branch offices in fiscal year 2000.
39
FEDERAL INCOME TAXES. The provision for federal income taxes totaled
$754,000 for the fiscal year ended March 31, 2001, an increase of $110,000, or
17.1%, compared to the $644,000 provision recorded for the previous fiscal year.
The increase in federal income taxes reflected the higher pre-tax earnings for
the period ended March 31, 2001, as the effective tax rate was 34.0% for both
periods.
The provision for federal income taxes totaled $644,000 for the fiscal year
ended March 31, 2000, a decrease of $202,000, or 23.9%, compared to the $846,000
provision recorded for fiscal year 1999. The decrease in federal income taxes
reflected the lower pre-tax earnings for the period ended March 31, 2000, as the
effective tax rate was 34.0% for both periods.
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID
The following table sets forth certain information relating to our 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.
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------
2001 2000
------------------------------------ ------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- ---------- --------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
Loans receivable, net(1)......... $ 249,324 $ 4,796 7.69% $ 238,963 $ 4,595 7.69%
Mortgage-backed securities(2).... 7,981 131 6.57 10,711 164 6.12
Investment securities............ 12,625 207 6.56 20,208 361 7.15
Interest-bearing deposits(3)..... 28,725 285 3.97 13,651 217 6.36
---------- ---------- ---------- ----------- ------- ----------
Total interest-earning assets.... 298,655 5,419 7.26 283,533 5,337 7.53
Non-interest-earning assets...... 13,944 20,778
---------- -----------
Total assets..................... $ 312,599 $ 304,311
========== ==========
INTEREST-BEARING LIABILITIES:
Deposits......................... $ 278,441 $ 3,262 4.69 $ 265,230 $ 3,045 4.59
Borrowings....................... 6,000 82 5.47 8,513 116 5.45
---------- ---------- ---------- ----------- ------- ----------
Total interest-bearing
liabilities...................... 284,441 3,344 4.70 273,743 3,161 4.62
Non-interest-bearing liabilities. 2,923 5,368
---------- -----------
Total liabilities................ 287,364 279,111
Stockholders' equity............. 25,235 25,200
---------- -----------
Total liabilities and
stockholders' equity............. $ 312,599 $ 304,311
---------- ---------- ----------- --------
Net interest income.............. $ 2,075 $ 2,176
========== =======
---------- ---------
Interest rate spread(4).......... 2.56% 2.91%
========== =========
Net yield on interest-earning 3.07%
=========
assets(5)........................ 2.78%
==========
Ratio of average
interest-earning assets to
average interest-bearing
liabilities...................... 105.00% 103.58%
========= =========
-------------------------
(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.
40
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------
2001 2000
-------------------------------------- -------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- ------------ ---------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans receivable, net(1).... $ 245,624 $ 18,694 7.61% $ 229,845 $ 17,928 7.80%
Mortgage-backed securities(2) 9,754 583 5.98 10,152 602 5.93
Investment securities....... 19,342 1,423 7.36 15,053 1,033 6.86
Interest-bearing deposits(3)... 13,481 799 5.93 21,669 1,138 5.25
----------- ------------ ---------- ----------- ----------- -----------
Total interest-earning assets.. 288,201 21,499 7.46 276,719 20,701 7.48
Non-interest-earning assets. 10,727 16,165
----------- -----------
Total assets................ $ 298,928 $ 292,884
=========== ===========
Interest-bearing liabilities:
Deposits.................... $ 259,914 12,652 4.87 $ 252,346 11,530 4.57
Borrowings.................. 7,877 448 5.69 8,596 484 5.63
----------- ------------ ---------- ----------- ----------- -----------
Total interest-bearing
liabilities................. 267,791 13,100 4.89 260,942 12,014 4.60
Non-interest-bearing
liabilities................. 5,893 6,844
----------- -----------
Total liabilities........... 273,684 267,786
Stockholders' equity........ 25,244 25,098
----------- -----------
Total liabilities and
stockholders' equity....... $ 298,928 $ 292,884
=========== ------------ =========== -----------
Net interest income......... $ 8,399 $ 8,687
============ ----------- =========== -----------
Interest rate spread(4)..... 2.57% 2.88%
======== ==========
Net yield on interest-earning
assets(5).................. 2.91% 3.14%
======== ==========
Ratio of average
interest-earning assets to
average interest-bearing
liabilities................ 107.62% 106.05%
======== ==========
YEAR ENDED MARCH 31,
---------------------------------------
1999
---------------------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE
------------ ------------- -----------
Interest-earning assets:
Loans receivable, net(1).... $ 209,178 $ 17,037 8.14%
Mortgage-backed securities(2) 7,170 405 5.65
Investment securities....... 12,999 784 6.03
Interest-bearing deposits(3).. 21,345 1,070 5.01
------------ ------------- -----------
Total interest-earning assets. 250,692 19,296 7.70
Non-interest-earning assets. 11,988
------------
Total assets................ $ 262,680
============
Interest-bearing liabilities:
Deposits.................... $ 222,645 10,516 4.72
Borrowings.................. 11,667 671 5.75
------------ ------------- -----------
Total interest-bearing
liabilities................. 234,312 11,187 4.77
Non-interest-bearing
liabilities................. 4,549
------------
Total liabilities........... 238,861
Stockholders' equity........ 23,819
------------
Total liabilities and
stockholders' equity....... $ 262,680
=========== -------------
Net interest income......... $ 8,109
============= ----------
Interest rate spread(4)..... 2.93%
========
Net yield on interest-earning
assets(5).................. 3.23%
========
Ratio of average
interest-earning assets to
average interest-bearing
liabilities................ 106.99%
========
--------------
(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.
41
RATE/VOLUME ANALYSIS
The table below sets forth certain information regarding changes in our
interest income and interest expense 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) has been allocated
proportionately between changes in rate and changes in volume, and the net
change.
THREE MONTHS ENDED JUNE 30, YEAR ENDED MARCH 31,
----------------------------------- --------------------------------------
2001 VS. 2000 2001 VS. 2000
----------------------------------- -------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO TOTAL DUE TO TOTAL
------------------------ INCREASE ------------------------- INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
------------ ----------- ---------- ------------- ----------- ----------
(DOLLARS IN THOUSANDS)
Interest income attributable to:
Loans receivable............. $ 201 $ -- $ 201 $ 1,210 $ (444) $ 766
Mortgage-backed securities...
(44) 11 (33) (24) 5 (19)
Other interest-earning assets 112 (198) (86) (245) 296 51
------------ ----------- ---------- ------------- ----------- ----------
Total interest-earning assets 269 (187) 82 941 (143) 798
Interest expense
attributable to:
Deposits..................... 151 66 217 352 770 1,122
Borrowings...................
(34) -- (34) (41) 5 (36)
------------ ----------- ---------- ------------- ----------- ----------
Total interest-bearing
liabilities.................. 117 66 183 311 775 1,086
------------ ----------- ---------- ------------- ----------- ----------
Increase (decrease) in net
interest income............ $ 150 $ (251) $ (101) $ 630 $ (918) $ (288)
============ =========== ========== ============= =========== ==========
YEAR ENDED MARCH 31,
-------------------------------------
2000 VS. 1999
-------------------------------------
INCREASE (DECREASE)
DUE TO TOTAL
------------------------- INCREASE
VOLUME RATE (DECREASE)
------------- ----------- -----------
Interest income attributable to
Loans receivable................. $ 1,625 $ (734) $ 891
Mortgage-backed securities.......
176 21 197
Other interest-earning assets ... 134 183 317
------------- ----------- -----------
Total interest-earning assets ... 1,935 (530) 1,405
Interest expense
attributable to:
Deposits......................... 1,358 (344) 1,014
Borrowings....................... (173) (14) (187)
------------- ----------- -----------
Total interest-bearing
liabilities...................... 1,185 (358) 827
------------- ----------- -----------
Increase (decrease) in net
interest income................. $ 750 $ (172) $ 578
============= =========== ===========
42
ASSET AND LIABILITY MANAGEMENT-INTEREST RATE SENSITIVITY ANALYSIS
We, like other financial institutions, are subject to interest rate risk to
the extent that our interest-earning assets reprice at a different time than our
interest-bearing liabilities. As part of our effort to monitor and manage
interest rate risk, we 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 our 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 that 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 June 30, 2001 and March 31, 2001, is an analysis of
our 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 OF JUNE 30, 2001
--------------------------------------------------------------------------------------------------------------------
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 19,181 (20,537) (52)% 6.17% (572) bp
+200 bp 26,109 (13,608) (34) 8.20 (370) bp
+100 bp 32,951 (6,766) (17) 10.10 (180) bp
0 bp 39,717 -- -- 11.90 --
-100 bp 44,163 4,446 11 13.02 112 bp
-200 bp 46,198 6,481 16 13.49 159 bp
-300 bp 47,935 8,218 21 13.87 197 bp
AS OF MARCH 31, 2001
--------------------------------------------------------------------------------------------------------------------
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 $ 20,998 $ (19,023) (48)% 6.92% (532 bp)
+200 bp 27,428 (12,593) (31) 8.81 (343 bp)
+100 bp 33,598 (6,243) (16) 10.53 (171 bp)
0 bp 40,021 -- -- 12.24 --
-100 bp 43,048 3,027 8 12.99 75 bp
-200 bp 43,135 3,114 8 12.95 71 bp
-300 bp 43,539 3,518 9 13.00 76 bp
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.
Our policy in recent years has been to attempt to reduce our exposure to
interest rate risk generally by better matching the maturities of our interest
rate sensitive assets and 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. However, particularly in the lower
long-term interest rate environment that currently exists, borrowers typically
prefer fixed rate loans to ARM loans. Accordingly, ARM loan originations were
very limited during the
43
fiscal year ended March 31, 2001. During the fiscal year 2001, $9.2 million of
long-term fixed rate loans were sold as part of our strategy to reduce interest
rate risk. We sought to lengthen the maturities of our deposits by promoting
longer-term certificates; however, we were not successful in lengthening the
maturities of our deposits in the generally low market interest rate environment
throughout the year.
We have an Asset-Liability Management Committee that is responsible for
reviewing our 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. We have operated within the
framework of their prescribed asset/liability risk ranges for each of the last
three years.
LIQUIDITY AND CAPITAL RESOURCES
Wayne Savings Community Bank is required to maintain minimum levels of
liquid assets as defined by Office of Thrift Supervision regulations. This
requirement, which varies from time to time depending upon economic conditions
and deposit flows, is based upon a percentage of deposits and short-term
borrowings. The required liquidity ratio currently is 4.0% of assets. Our
liquidity ratio averaged 16.4%, 16.1%, 16.8% and 14.7%, for the three months
ended June 30, 2001 and for the years ended March 31, 2001, 2000 and 1999,
respectively. We adjust our liquidity levels to fund deposit outflows, pay real
estate taxes on mortgage loans, repay our borrowings and fund loan commitments.
We also adjust liquidity as appropriate to meet asset and liability management
objectives.
Our primary sources of funds are deposits, amortization 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 market interest rates, economic conditions, and
competition. We set the interest rates on our deposits to maintain a desired
level of total deposits. In addition, we invest excess funds in short-term
interest-earning and other assets, which provide liquidity to meet lending
requirements. Cash and cash equivalents (including interest bearing deposits in
other financial institutions and federal funds sold) totaled $26.8 million,
$20.9 million, $14.3 million and $16.2 million at June 30, 2001 and at March 31,
2001, 2000 and 1999, respectively. At such dates, other assets qualifying for
liquidity purposes totaled $19.3 million, $28.9 million, $37.4 million and $23.4
million, respectively. For additional information about cash flows from our
operating, financing, and investing activities, see Consolidated Statements of
Cash Flows included in the Financial Statements.
Liquidity management is both a daily and long-term function of business
management. If we require funds beyond our ability to generate them internally,
borrowing agreements exist with the Federal Home Loan Bank of Cincinnati, which
provide an additional source of funds. At June 30, 2001, we had $6.0 million in
advances from the Federal Home Loan Bank of Cincinnati. We borrow from the
Federal Home Loan Bank of Cincinnati in order to reduce interest rate risk, and
for liquidity purposes.
At June 30, 2001, we had outstanding loan commitments of $9.4 million to
originate mortgage loans. This amount did not include the unfunded portion of
loans in process. Certificates of deposit scheduled to mature in less than one
year, totaled $136.2 million at June 30, 2001. Based on prior experience,
management believes that a significant portion of such deposits will remain with
Wayne Savings Community Bank, although there can be no assurance that this will
be the case.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of Wayne Savings Bancshares, Inc. and
notes thereto, presented elsewhere herein, have been prepared in accordance with
accounting principles generally accepted in the United States of America, which
require 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 Wayne Savings Community Bank's operations.
Unlike most industrial companies, nearly all the assets and liabilities of Wayne
Savings Community Bank are monetary. As a result, interest rates have a greater
impact on Wayne Savings Community Bank'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 changes in the price of goods and services.
44
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In September 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 140 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
which revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain disclosures,
but carries over most of the provisions of SFAS No. 125 without reconsideration.
SFAS No. 140 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. The Statement is
effective for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000. Management adopted SFAS No. 140 effective April 1,
2001, as required, without material effect on our financial position or results
of operations.
In June 2001, the FASB issued SFAS No. 141 "Business Combinations," which
requires that all business combinations initiated after June 30, 2001 be
accounted for using the purchase method. The pooling-of-interests method of
accounting is prohibited except for combinations initiated before June 30, 2001.
The remaining provisions of SFAS No. 141 relating to business combinations
accounted for by the purchase method, including identification of intangible
assets, accounting for negative goodwill, financial statement presentation and
disclosure, are effective for combinations completed after June 30, 2001.
Management will follow the provisions of SFAS No. 141 for any acquisitions
initiated after July 1, 2001.
In June 2001, the FASB issued SFAS No. 142 "Goodwill and Intangible
Assets," which prescribed accounting for all purchased goodwill and intangible
assets. Pursuant to SFAS No. 142, acquired goodwill is not amortized, but is
tested for impairment at the reporting unit level annually and whenever an
impairment indicator arises. All goodwill should be assigned to reporting units
that are expected to benefit from the goodwill. When an entity reorganizes its
reporting structure, goodwill should be reallocated to reporting units based on
the relative fair values of the units. Goodwill impairment should be tested with
a two-step approach. First, the fair value of the reporting unit should be
compared to its carrying value, including goodwill. If the reporting unit's
carrying value exceeds its fair value, then any goodwill impairment should be
measured as the excess of goodwill's carrying value over its implied fair value.
The implied fair value of goodwill should be calculated in the same manner as
goodwill is calculated for a business combination, using the reporting unit's
fair value as the "purchase price" over the amounts allocated to assets,
including unrecognized intangible assets, and liabilities of the reporting unit.
Goodwill impairment losses should be reported in the income statement as a
separate line item within operations, except for such losses included in the
calculation of a gain or loss from discontinued operations.
An acquired intangible asset, other than goodwill, should be amortized over
its useful economic life. The useful life of an intangible asset is indefinite
if it extends beyond the foreseeable horizon. If an asset's life is indefinite,
the asset should not be amortized until the life is determined to be finite.
Intangible assets being amortized should be tested for impairment in accordance
with SFAS No. 121. Intangible assets not being amortized should be tested for
impairment, annually and whenever there are indicators of impairment, by
comparing the asset's fair value to its carrying amount.
SFAS No. 142 is effective for fiscal years beginning after December 15,
2001. Early adoption is permitted for companies with fiscal years beginning
after March 15, 2001, but only if the first quarter financial statements have
not previously been issued. Calendar year end companies may not adopt early.
SFAS No. 142 will have no current effect on our financial position or results of
operations.
BUSINESS OF WAYNE SAVINGS BANCSHARES, INC.
AND WAYNE SAVINGS COMMUNITY BANK
WAYNE SAVINGS BANCSHARES, INC.
Wayne Savings Bancshares, Inc. is a federal corporation which was organized
on August 5, 1997. Its only significant asset is its investment in Wayne Savings
Community Bank. Wayne Savings Bancshares, Inc. is majority-owned by Wayne
Savings Bankshares, M.H.C., a federally-chartered mutual holding company. On
November 25, 1997, Wayne Savings Bancshares, Inc. acquired all of the issued and
outstanding common stock of Wayne Savings
45
Community Bank in connection with the bank's reorganization into the "two-tier"
form of mutual holding company ownership. At that time, each share of the bank's
common stock was automatically converted into one share of Wayne Savings
Bancshares, Inc. common stock.
WAYNE SAVINGS COMMUNITY BANK
Wayne Savings Community Bank is an Ohio-chartered stock savings and loan
association headquartered in Wooster, Ohio. Its deposits are insured by the
Federal Deposit Insurance Corporation under the Savings Association Insurance
Fund. The bank has been a member of the Federal Home Loan Bank System since
1937.
Wayne Savings Community Bank is a community-oriented savings institution
offering a broad range of financial services to its local community. The bank's
primary lending and deposit gathering area includes Wayne, Holmes, Ashland, and
Medina counties, where it operates nine full-service offices. This contiguous
four-county area is located in north central Ohio, and is an active
manufacturing and agricultural market. The bank's principal business activity
consists of originating one- to four-family residential real estate loans in its
market area. The bank also originates multi-family residential and
non-residential real estate loans, although such loans constitute a small
portion of the bank's lending activities and a small portion of the bank's loan
portfolio. The bank also originates consumer loans, and to a lesser extent,
construction loans and commercial business loans. The bank also invests in
mortgage-backed securities and currently maintains a significant portion of its
assets in liquid investments, such as United States Government securities,
federal funds, and deposits in other financial institutions.
Wayne Savings Community Bank also maintains Village Savings Bank as a
federally-chartered stock savings bank subsidiary. Village Savings Bank is
headquartered in North Canton, Ohio. Village Savings Bank's deposits are insured
by the Federal Deposit Insurance Corporation under the Savings Association
Insurance Fund. Village Savings Bank is a member of the Federal Home Loan Bank
system.
Village Savings Bank is a community-oriented savings institution offering
traditional financial services to its local community. Its primary lending and
deposit gathering area includes North Canton, Jackson Township and Plain
Township, which are all located in Stark County. Its principal business activity
consists of originating one- to four-family residential real estate loans in its
market area. Village Savings Bank also originates multi-family residential and
non-residential real estate loans, although such loans constitute a small
portion of its lending activities. Village Savings Bank also originates consumer
loans, and to a lesser extent, construction loans. It also invests in
mortgage-backed securities and currently maintains a significant portion of its
assets in liquid investments, such as United States Government securities,
federal funds, and deposits in other financial institutions.
MARKET AREA/LOCAL ECONOMY
Wayne County is characterized by a diverse economic base, which is not
dependent on any particular industry. It is one of the leading agricultural
counties in the state. Since 1892, Wooster has been the headquarters of the Ohio
Agricultural Research and Development Center, the agricultural research arm of
The Ohio State University. In addition, Wayne County is the home base of such
nationally known companies as Rubbermaid Incorporated, J.M. Smucker Company
(located in the City of Orrville) and the Wooster Brush Company. It is also the
home of many industrial plants, including those of Carauster Composite
Container, Morton Salt, Bell and Howell Micro Photo Division, FritoLay, Inc.,
and The Gerstenslager Company. Wayne County is also known for its excellence in
education. The College of Wooster was founded in 1866. Other quality educational
opportunities are offered by the Agricultural Technical Institute of Ohio State
University, and Wayne College, a branch of The University of Akron. Wayne
Savings Community Bank operates four full-service offices in Wooster and one
full-service office in Rittman.
Ashland County, which is located due west of Wayne County, also has a
diverse economic base. In addition to its agricultural segment, Ashland County
has manufacturing plants producing rubber and plastics, machinery,
transportation equipment, chemicals, apparel, and other items. Ashland is also
the home of Ashland University. The City of Ashland is the county seat and the
location of two of Wayne Savings Community Bank's branch offices.
Medina County, located just north of Wayne County, is the center of a
fertile agricultural region. Farming remains the largest industry in the county
in terms of dollar value of goods produced. However, over 100 small
46
manufacturing firms also operate in the county. The City of Medina is located in
the center of the Cleveland-Akron-Lorain Standard Consolidated Statistical
Metropolitan Area. Medina is located approximately 30 miles south of Cleveland
and 15 miles west of Akron. Due to its proximity to Akron and Cleveland, a
majority of Medina County's labor force is employed in these two cities. Wayne
Savings Community Bank operates one full-service office in Medina County, which
is located in the Village of Lodi.
Holmes County, located directly south of Wayne County, has a primarily
rural economy. The local economy depends mostly upon agriculture, light
manufacturing, fabrics, and wood products. Because of the scenic beauty and a
large Amish settlement, revenues from tourism are becoming increasingly
significant. The county is also noted for its many fine cheese-making
operations. A large number of Holmes County residents are employed in Wayne
County. The City of Millersburg is the county seat and the location of one of
Wayne Savings Community Bank's branch offices.
Stark County, located directly east of Wayne County, is characterized by a
diverse economy and over 1,500 different products are manufactured in the
county. Stark County also has a strong agricultural base, and ranks fourth in
Ohio in the production of dairy products. The major employers in North Canton
are the Hoover Company, Diebold Incorporated (a major manufacturer of bank
security products and automated teller machines) and the Timken Company (a
world-wide manufacturer of tapered roller bearings and specialty steels).
Jackson Township is the home to the Belden Village Shopping Center, while Plain
Township is a residential and agricultural area with a few widely scattered
light industries. Village Savings Bank's banking office is located in Stark
County.
COMPETITION
Our market area in north central Ohio has a large number of financial
institutions. All of these financial institutions compete with us to varying
degrees, and many of them are significantly larger and have greater financial
resources than we have. As a result, we encounter strong competition both in
attracting deposits and in originating real estate and other loans. Our most
direct competition for deposits historically has come from commercial banks,
securities brokerage firms, other savings associations, and credit unions, and
we expect continued strong competition from these financial institutions in the
foreseeable future. Our market area includes branches of several commercial
banks that are substantially larger than Wayne Savings Community Bank in terms
of state-wide deposits. We compete for deposits by offering customers a high
level of personal service and expertise, and a wide range of financial services.
The competition for real estate and other loans comes principally from
commercial banks, mortgage banking companies, credit unions and other savings
associations. This competition for loans has increased substantially in recent
years as a result of the number of institutions competing in our market area, as
well as the increased efforts by commercial banks to expand mortgage loan
originations.
We compete for loans primarily through the interest rates and loan fees we
charge, and the efficiency and quality of services we provide to borrowers, real
estate brokers, and builders. Factors that also affect competition include
general and local economic conditions, current interest rate levels, and the
volatility of the mortgage markets.
LENDING ACTIVITIES
GENERAL. Historically, our principal lending activity has been the
origination of fixed and adjustable rate mortgage ("ARM") loans collateralized
by one- to four-family residential properties located in our market area. We
originate ARM loans for retention in our portfolio, and fixed rate loans that
are eligible for resale in the secondary mortgage market. We also originate
loans collateralized by non-residential and multi-family residential real estate
as well as commercial business loans; however, such lending currently
constitutes a relatively small portion of our lending activities. We also
originate consumer loans to broaden services offered to customers and to
decrease our interest rate risk exposure.
We have sought to make our interest-earning assets more interest rate
sensitive by originating adjustable rate loans, such as ARM loans, home equity
loans, and medium-term consumer loans. We also purchase mortgage-backed
securities generally with estimated remaining average lives of five years or
less. At June 30, 2001,
47
approximately $68.3 million, or 25.9%, of our total loans and mortgage-backed
and investment securities, due after June 30, 2001, consisted of loans or
securities with adjustable interest rates.
We continue actively to originate fixed rate mortgage loans, generally with
15 to 30 year terms to maturity, collateralized by one- to four-family
residential properties. One- to four-family fixed rate residential mortgage
loans generally are originated and underwritten according to standards that
allow us to resell such loans in the secondary mortgage market for purposes of
managing interest rate risk and liquidity. While we retain the majority of such
one- to four-family fixed rate residential mortgage loans in portfolio, we have
increased the number of loans we sell in the secondary market in the current low
market interest rate environment. We retain servicing on the mortgage loans that
we sell, thereby realizing monthly service fee income. We also originate interim
construction loans on one- to four-family residential properties.
ANALYSIS OF LOAN PORTFOLIO. Set forth below are selected data relating to
the composition of our loan portfolio by type of loan as of the dates indicated.
AT MARCH 31,
AT JUNE 30, ----------------------------------------------------------------------------
2001 2001 2000 1999
------------------------ -------------------------- ------------------------ ------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
------------------------ ----------- -------------- ----------- ------------ ----------- ------------
(DOLLARS IN THOUSANDS)
Mortgage loans:
One- to four-family
residential(1)............ $ 222,561 84.37% $ 215,464 85.00% $ 211,222 86.72% $ 187,638 84.82%
Residential construction
loans..................... 7,253 2.75 7,078 2.79 4,035 1.66 7,668 3.47
Multi-family residential... 9,150 3.47 9,039 3.56 8,028 3.30 7,086 3.20
Non-residential real
estate/land(2)............ 9,777 3.71 7,525 2.97 6,068 2.49 5,610 2.53
----------- ---------- ---------- ----------- ---------- ----------- ---------- -----------
Total mortgage loans...... 248,741 94.30 239,106 94.32 229,353 94.17 208,002 94.02
Other loans:
Consumer loans(4)......... 9,013 3.42 9,630 3.80 9,041 3.71 8,415 3.80
Commercial business loans. 6,015 2.28 4,765 1.88 5,168 2.12 4,810 2.18
----------- ---------- ---------- ----------- ---------- ----------- ---------- -----------
Total other loans......... 15,028 5.70 14,395 5.68 14,209 5.83 13,225 5.98
----------- ---------- ---------- ----------- ---------- ----------- ---------- -----------
Total loans before net
items..................... 263,769 100.00% 253,501 100.00% 243,562 100.00% 221,227 100.00%
========== =========== =========== ===========
Less:
Loans in process.......... 6,836 4,764 4,136 4,600
Deferred loan original
fees...................... 1,440 1,463 1,538 1,855
Allowance for loan losses. 656 655 793 678
----------- ---------- ---------- ---------
Total loans
receivable, net........ $ 254,837 $ 246,619 $ 237,095 $ 214,094
=========== ========== ========== =========
Mortgage-backed
securities, net(3)........ $ 7,155 $ 8,613 $ 10,496 $ 7,230
=========== ========== ========== =========
-------------------------
(1) Includes home equity loans collateralized by second mortgages in the
aggregate amount of $16.3 million as of June 30, 2001, and $15.7 million,
$11.1 million and $8.7 million as of March 31, 2001, 2000 and 1999,
respectively. Such loans have been underwritten on substantially the same
basis as our first mortgage loans.
(2) Includes land loans of $928,000 as of June 30, 2001 and of $923,000,
$949,000 and $951,000 as of March 31, 2001, 2000 and 1999, respectively.
(3) Includes mortgage-backed securities designated as available for sale, which
was $2.7 million at June 30, 2001.
(4) Includes second mortgage loans of $1.6 million as of June 30, 2001, and
$1.8 million, $1.6 million and $1.7 million as of March 31, 2001, 2000 and
1999.
48
LOAN AND MORTGAGE-BACKED SECURITIES MATURITY AND REPRICING SCHEDULE. The
following table sets forth certain information as of June 30, 2001, regarding
the dollar amount of loans and mortgage-backed securities maturing in our
portfolio based on their contractual terms to maturity. Demand loans, loans
having no stated schedule of repayments and no stated maturity, are reported as
due in one year or less. Adjustable and floating rate loans are included in the
period in which interest rates are next scheduled to adjust rather than in which
they mature, and fixed rate loans and mortgage-backed securities are included in
the period in which the final contractual repayment is due. Fixed rate
mortgage-backed securities are assumed to mature in the period in which the
final contractual payment is due on the underlying mortgage.
ONE THREE FIVE TEN
WITHIN THROUGH THROUGH THROUGH THROUGH
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS TWENTY YEARS
------------ ------------- ------------ ------------- --------------
(IN THOUSANDS)
Mortgage loans(1):
One- to four-family residential:
Adjustable............................... $ 48,762 $ 2,385 $ -- $ -- $ --
Fixed.................................... 2,246 778 916 14,970 63,542
Multi-family residential and nonresidential:
Adjustable............................... 543 228 1,625 5,981 --
Fixed.................................... 128 853 993 181 81
Second mortgage loans(2)..................... 3 48 200 1,251 54
Commercial business loans(3)................. 3,599 47 56 897 --
Consumer loans(4)............................ 2,892 1,427 2,517 523 --
---------- ---------- ---------- ---------- ----------
Total loans.................................. $ 58,173 $ 5,766 $ 6,307 $ 23,803 $ 63,677
========== ========== ========== ========== ==========
Mortgage-backed securities(5)................ $ 6,042 $ 130 $ -- $ 728 $ 122
========== ========== ========== ========== ==========
BEYOND
TWENTY
YEARS TOTAL
----------- -----------
Mortgage loans(1):
One- to four-family residential:
Adjustable...............................$ -- $ 51,147
Fixed.................................... 89,116 171,568
Multi-family residential and nonresidential:
Adjustable............................... 8,263 16,640
Fixed.................................... 51 2,287
Second mortgage loans(2)..................... -- 1,556
Commercial business loans(3)................. -- 4,599
Consumer loans(4)............................ -- 7,359
---------- ----------
Total loans..................................$ 97,430 $ 255,156
========== ==========
Mortgage-backed securities(5)................$ -- $ 7,022
========== ==========
-----------------------------
(1) Amounts shown are net of loans in process of $6.8 million. Does not include
loans held for sale or $263,000 of non-performing loans.
(2) This total does not include home equity loans collateralized by second
mortgages, which are included as one-to four-family residential loans.
(3) Amounts shown are net of non-performing loans of $1,416,000.
(4) Amounts shown are net of non-performing loans of $96,000.
(5) Includes mortgage-backed securities available for sale. Does not include
premiums of $98,000, discounts of $23,000 and unrealized gains of $58,000.
49
The following table sets forth at June 30, 2001 the dollar amount of all
fixed rate and adjustable rate loans and mortgage-backed securities due after
June 30, 2002.
FIXED ADJUSTABLE TOTAL
----------- -------------- ---------
(IN THOUSANDS)
Mortgage loans: (1)
One- to four-family residential............. $ 170,648 $ 51,144 $ 221,792
Multi-family residential and nonresidential. 2,159 15,881 18,040
Other loans:
Commercial business......................... 1,220 2,754 3,974
Consumer.................................... 7,068 1,059 8,127
--------- -------- ---------
Total loans.............................. $ 181,095 $ 70,838 $ 251,933
========= ======== =========
Mortgage-backed securities(2)................ $ 2,738 $ 4,284 $ 7,022
========= ======== =========
----------------------------
(1) Includes loans held for sale.
(2) Includes mortgage-backed securities available for sale, which was $2.7
million as of June 30, 2001.
ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LOANS. Our primary lending
activity consists of the origination of one- to four-family, owner-occupied,
residential mortgage loans on properties located in our market area. We
generally do not originate one- to four-family residential loans on properties
outside of our market area. At June 30, 2001, we had $206.2 million, or 78.2%,
of our total loan portfolio invested in one- to four-family residential mortgage
loans.
Our fixed rate loans generally are originated and underwritten according to
standards that permit resale in the secondary mortgage market. Whether we can or
will sell fixed rate loans into the secondary market, however, depends on a
number of factors including, but not limited to, our portfolio mix, interest
rate sensitivity and liquidity positions, and market conditions. Our fixed rate
mortgage loans are amortized on a monthly basis with principal and interest due
each month. One- to four-family residential real estate loans often remain
outstanding for significantly shorter periods than their contractual terms
because borrowers may refinance or prepay loans at their option. Our recent
secondary market activities have been limited to sales of $6.4 million, $9.2
million, $6.4 million and $15.9 million for the three months ended June 30, 2001
and for the fiscal years ended March 31, 2001, 2000 and 1999, respectively. Such
sales generally constituted current period originations. There were no loans
held for sale at June 30, 2001. Mortgage loans held for sale at March 31, 2001,
2000 and 1999 totaled $861,000, $317,000 and $1.6 million, respectively.
We currently offer one- to four-family residential mortgage loans with
terms typically ranging from 15 to 30 years, and with adjustable or fixed
interest rates. Originations of fixed rate mortgage loans versus ARM loans are
monitored on an ongoing basis and are affected significantly by the level of
market interest rates, customer preference, our interest rate sensitivity
position, and loan products offered by our competitors. Particularly in a
relatively low interest rate environment, borrowers typically prefer fixed rate
loans to ARM loans. Therefore, even if management's strategy is to emphasize ARM
loans, market conditions may be such that there is greater demand for fixed rate
mortgage loans. During the year ended March 31, 2001, our ARM portfolio
increased by $7.4 million, or 13.0%.
We offer two ARM loan products. The Treasury ARM loan adjusts annually with
interest rate adjustment limitations of 2% per year and with a cap of 5% on
total rate increases or decreases over the life of the loan. The index on the
Treasury ARM loan is the weekly average yield on U.S. Treasury securities,
adjusted to a constant maturity of one year. The Treasury ARM loan has an
initially discounted rate of 1% below the current index, plus margin. However,
these loans are underwritten at the fully-indexed interest rate. The Cost of
Funds ARM loan adjusts annually and has periodic and lifetime interest rate caps
of 1% and 3%, respectively. The index is the Ohio Cost of Funds from SAIF
Insured Savings Associations, which index is published quarterly by the OTS. The
initial interest rate on Cost of Fund ARM loans is not discounted. In the past,
we have used different indices for ARM loans, such as the National Average
Contract Rate for Previously Occupied Homes and the National Average Cost
50
of Funds. Consequently, the interest rate adjustments on our portfolio of ARM
loans do not reflect changes in a particular interest rate index. One- to
four-family residential ARM loans totaled $51.1 million, or 19.4%, of our total
loan portfolio at June 30, 2001.
The primary purpose of offering ARM loans is to make our loan portfolio
more interest rate sensitive. However, as the interest income earned on ARM
loans varies with prevailing interest rates, such loans do not offer us the
predictable cash flows as would long-term, fixed rate loans. ARM loans carry
increased credit risk associated with potentially higher monthly payments by
borrowers as general market interest rates increase. It is possible, therefore,
that during periods of rising interest rates, the risk of default on ARM loans
may increase due to the upward adjustment of interest costs to the borrower.
Management believes that the credit risk associated with our ARM loans is
reduced because we have either a 3% or 5% cap on interest rate increases during
the life of our ARM loans.
We also offer home equity loans and equity lines of credit collateralized
by a second mortgage on the borrower's principal residence. In underwriting
these home equity loans, we require that the maximum loan-to-value ratios,
including the principal balances of both the first and second mortgage loans,
not to exceed 85%. The home equity loan portfolio consists of adjustable rate
loans, which use the Ohio Average Cost of Funds for SAIF-Insured Savings
Association and the prime rate as published in THE WALL STREET JOURNAL as
interest rate indices. Home equity loans include fixed term adjustable rate
loans, as well as lines of credit. As of June 30, 2001, our home equity loan
portfolio totaled $16.3 million, or 7.3% of our one- to four-family mortgage
loan portfolio.
Our one- to four-family residential first mortgage loans customarily
include due-on-sale clauses, which are provisions giving us the right to declare
a loan immediately due and payable in the event, among other things, that the
borrower sells or otherwise disposes of the underlying real property serving as
security for the loan. Due-on-sale clauses are an important means of adjusting
the rates on our fixed rate mortgage loan portfolio.
Regulations limit the amount that a savings association may lend relative
to the appraised value of the real estate securing the loan, as determined by an
appraisal at the time of loan origination. Our lending policies limit the
maximum loan-to-value ratio on both fixed rate and ARM loans without private
mortgage insurance to 80% of the lesser of the appraised value or the purchase
price of the property to serve as collateral for the loan. However, we make one-
to four-family real estate loans with loan-to-value ratios in excess of 80%. For
15-year ARM loans with loan-to-value ratios of 80.01% to 85%, 85.01% to 90%,
90.01% to 95%, and 95.01% to 97%, we require the first 6%, 12%, 25% and 30%,
respectively, of the loan to be covered by private mortgage insurance. For
30-year fixed rate loans with loan-to-value ratios of 80.01% to 85%, 85.01% to
90%, and 90.01% to 97%, we require the first 12%, 25%, and 30%, respectively, of
the loan to be covered by private mortgage insurance. We require fire and
casualty insurance, as well as title insurance regarding good title, on all
properties securing real estate loans and flood insurance, where applicable.
MULTI-FAMILY RESIDENTIAL REAL ESTATE LOANS. Loans secured by multi-family
real estate constituted approximately $9.2 million, or 3.5%, of our total loan
portfolio at June 30, 2001. Our multi-family real estate loans are secured by
multi-family residences, such as apartment buildings. At June 30, 2001, 86.0% of
our multi-family loans were secured by properties located within our market
area. At June 30, 2001, our multi-family real estate loans had an average
balance of $187,000, and the largest multi-family real estate loan had a
principal balance of $1.1 million. Multi-family real estate loans currently are
offered with adjustable interest rates or short-term balloon maturities,
although in the past we originated fixed rate long term multi-family real estate
loans. The terms of each multi-family loan are negotiated on a case by case
basis, although such loans typically have adjustable interest rates tied to a
market index, and amortize over 15 to 25 years. We currently do not emphasize
multi-family real estate construction loans; however, our policies do not
preclude such lending.
Loans secured by multi-family real estate generally involve a greater
degree of credit risk than one- to four-family residential mortgage loans and
carry larger loan balances. This increased credit risk is a result of several
factors, including the concentration of principal in a limited number of loans
and borrowers, the effects of general economic conditions on income producing
properties, and the increased difficulty of evaluating and monitoring these
types of loans. Furthermore, the repayment of loans secured by multi-family real
estate is typically dependent upon the successful operation of the related real
estate property. If the cash flow from the project is reduced, the borrower's
ability to repay the loan may be impaired.
51
NON-RESIDENTIAL REAL ESTATE AND LAND LOANS. Loans secured by
non-residential real estate constituted approximately $9.8 million, or 3.7%, of
our total loan portfolio at June 30, 2001. Our non-residential real estate loans
are secured by improved property such as offices, small business facilities, and
other non-residential buildings. Our loan portfolio includes a limited number of
non-residential construction loans. At June 30, 2001, 92.7% of our
non-residential real estate loans were secured by properties located within our
market area. At June 30, 2001, our non-residential loans had an average balance
of $119,000 and the largest non-residential real estate loan had a principal
balance of $2.1 million and was current at June 30, 2001. The terms of each
non-residential real estate loan are negotiated on a case by case basis.
Non-residential real estate loans are currently offered with adjustable interest
rates or short-term balloon maturities, although in the past we have originated
fixed rate long term non-residential real estate loans. Non-residential real
estate loans originated by us generally amortize over 15 to 25 years.
Loans secured by non-residential real estate generally involve a greater
degree of risk than one- to four-family residential mortgage loans and carry
larger loan balances. This increased credit risk is a result of several factors,
including the concentration of principal in a limited number of loans and
borrowers, the effects of general economic conditions on income producing
properties, and the increased difficulty of evaluating and monitoring these
types of loans. Furthermore, the repayment of loans secured by non-residential
real estate is typically dependent upon the successful operation of the related
real estate project. If the cash flow from the project is reduced, the
borrower's ability to repay the loan may be impaired.
We also originate a limited number of land loans secured by individual
improved and unimproved lots for future residential construction. Land loans are
generally offered with a fixed rate and with terms of up to five years. Land
loans totaled $928,000 at June 30, 2001.
RESIDENTIAL CONSTRUCTION LOANS. To a lesser extent, we originate loans to
finance the construction of one- to four-family residential property. At June
30, 2001, we had $7.3 million, or 2.8%, of our total loan portfolio invested in
interim construction loans. We make construction loans to private individuals
for construction of their homes and, to a lesser extent, to builders who do not
have a contract for resale to individuals. Loan proceeds are disbursed in
increments as construction progresses and as inspections warrant. Construction
loans are typically structured as permanent one- to four-family loans originated
by us with a 12-month construction phase. Accordingly, upon completion of the
construction phase, there is no change in interest rate or term to maturity of
the original construction loan, nor is a new permanent loan originated.
COMMERCIAL BUSINESS LOANS. Commercial loans totaled $6.0 million, or 2.3%
of our total loan portfolio at June 30, 2001. We do not emphasize commercial
lending, but evaluate and meet the needs of our customer base. Commercial
business loans are frequently secured by real estate, although the decision to
grant a commercial business loan depends primarily on the creditworthiness and
cash flow of the borrower (and any guarantors) and secondarily on the value of
and ability to liquidate the collateral. We generally require annual financial
statements from our corporate borrowers and personal guarantees from the
corporate principals. We also generally require an appraisal of any real estate
that secures the loan.
Commercial business lending generally involves greater risk than
residential mortgage lending and involves risks that are different from those
associated with residential and commercial real estate lending. Real estate
lending is generally considered to be collateral based, with loan amounts based
on predetermined loan to collateral values and liquidation of the underlying
real estate collateral is viewed as the primary source of repayment in the event
of borrower default. Although commercial business loans may be collateralized by
equipment or other business assets, the liquidation of collateral in the event
of a borrower default is often an insufficient source of repayment because
equipment and other business assets may be obsolete or of limited use, among
other things. Accordingly, the repayment of a commercial business loan depends
primarily on the creditworthiness of the borrower (and any guarantors), while
liquidation of collateral is a secondary and often insufficient source of
repayment.
CONSUMER LOANS. As of June 30, 2001, consumer loans totaled $9.0 million,
or 3.4%, of our total loan portfolio. The principal types of consumer loans
offered by us are fixed rate, fixed term second mortgage loans, auto and truck
loans, education loans, credit card loans, unsecured personal loans, and loans
secured by deposit accounts. Consumer loans are offered primarily on a fixed
rate basis with maturities generally of less than ten years. Our second mortgage
consumer loans are secured by the borrower's principal residence with a maximum
loan-to-value
52
ratio, including the principal balances of both the first and second mortgage
loans, of 80% or less. Such loans are offered on a fixed rate basis with terms
of up to ten years. At June 30, 2001, second mortgage loans totaled $1.6
million, or 17.3%, of consumer loans.
The underwriting standards employed by us for consumer loans include a
determination of the applicant's credit history and an assessment of ability to
meet existing obligations and payments on the proposed loan. The quality and
stability of the applicant's monthly income are determined by analyzing the
gross monthly income from primary employment, and additionally from any
verifiable secondary income. Creditworthiness of the applicant is of primary
consideration; however, the underwriting process also includes a comparison of
the value of the collateral in relation to the proposed loan amount.
Consumer loans entail greater credit risk than residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
assets that depreciate rapidly, such as automobiles, mobile homes, boats, and
recreational vehicles. In such cases, repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment for the
outstanding loan and the remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In particular, amounts
realizable on the sale of repossessed automobiles may be significantly reduced
based upon the condition of the automobiles and the lack of demand for used
automobiles. We add a general provision on a regular basis to our consumer loan
loss allowance, based on general economic conditions and prior loss experience.
MORTGAGE-BACKED SECURITIES. We also invest in mortgage-backed securities
issued or guaranteed by the United States Government or agencies thereof.
Investments in mortgage-backed securities are made either directly or by
exchanging mortgage loans in our portfolio for such securities. These securities
consist primarily of adjustable rate mortgage-backed securities issued or
guaranteed by the Freddie Mac, Ginnie Mae or Fannie Mae, each of which is an
agency of the federal government or a government-sponsored corporation. Total
mortgage-backed securities, including those designated as available for sale,
decreased from $8.6 million at March 31, 2001 to $7.2 million at June 30, 2001.
Our objectives in investing in mortgage-backed securities vary from time to
time depending upon market interest rates, local mortgage loan demand, and our
level of liquidity. Mortgage-backed securities are more liquid than whole loans
and can be readily sold in response to market conditions and interest rates.
Mortgage-backed securities purchased by us also have lower credit risk than
loans we originate because principal and interest are either insured or
guaranteed by the United States Government or agencies thereof.
LOAN ORIGINATIONS, SOLICITATION, PROCESSING, AND COMMITMENTS. Loan
originations are derived from a number of sources such as real estate broker
referrals, existing customers, borrowers, builders, attorneys, and walk-in
customers. Upon receiving a loan application, we obtain a credit report and
employment verification to verify specific information relating to the
applicant's employment, income, and credit standing. In the case of a real
estate loan, an appraiser approved by us appraises the real estate intended to
secure the proposed loan. An underwriter in our loan department checks the loan
application file for accuracy and completeness, and verifies the information
provided. One- to four-family and multi-family residential, and non-residential
real estate loans, for up to $150,000, may be approved by the manager of the
mortgage loan department, loans between $150,000 and $250,000 must be approved
by the Chief Lending Officer. The Chief Executive Officer can approve loans up
to $300,000, and loans in excess of $300,000 must be approved by the Board of
Directors. The Loan Committee meets once a week to review and verify that
management's approvals of loans are made within the scope of management's
authority. All approvals subsequently are ratified monthly by the full Board of
Directors. Fire and casualty insurance is required at the time the loan is made
and throughout the term of the loan. After the loan is approved, a loan
commitment letter is promptly issued to the borrower. At June 30, 2001, we had
commitments to originate $9.4 million of loans.
If the loan is approved, the commitment letter specifies the terms and
conditions of the proposed loan including the amount of the loan, interest rate,
amortization term, a brief description of the required collateral, and required
insurance coverage. The borrower must provide proof of fire and casualty
insurance on the property serving as collateral, which insurance must be
maintained during the full term of the loan. A title search of the property is
required on all loans secured by real property.
53
Although in the past we have purchased loans originated by other lenders,
we have not purchased any such loans in at least 10 years. At June 30, 2001,
0.3% of all loans in our portfolio were purchased from others and the majority
of such loans were collateralized by properties located in Ohio.
ORIGINATION, PURCHASE AND SALE OF LOANS AND MORTGAGE-BACKED SECURITIES. The
table below shows our loan origination, purchase and sales activity for the
periods indicated.
FOR THE THREE MONTHS ENDED
JUNE 30, FOR THE YEAR ENDED MARCH 31,
--------------------------- ---------------------------------------
2001 2000 2001 2000 1999
------------ ------------- ------------ ----------- -----------
(IN THOUSANDS)
Total loans receivable, net at beginning of
period......................................... $ 246,619 $ 237,095 $ 237,095 $ 214,094 $ 206,685
Loans originated:
One to four family residential(1)(3).......... 25,757 7,028 60,192 52,485 59,578
Multi-family residential(2)................... 746 494 2,803 549 1,930
Non-residential real estate/land.............. 2,772 2,785 4,255 223 179
Consumer loans................................ 599 3,518 6,854 7,498 6,498
Commercial business loans..................... 214 1,285 1,611 4,194 3,681
--------- --------- --------- --------- ---------
Total loans originated..................... 30,088 15,110 75,715 64,949 71,866
Loans sold:
Whole loans................................... (6,383) (2,120) (9,185) (6,425) (15,860)
--------- --------- --------- --------- ---------
Total loans sold.............................. (6,383) (2,120) (9,185) (6,425) (15,860)
Mortgage loans transferred to REO.............. -- -- (98) (64) (58)
Loan repayment schedule........................ (16,533) (9,304) (56,478) (37,106) (48,814)
Other loan activity, net....................... 1,046 (582) (430) 1,647 275
--------- --------- --------- --------- ---------
Total loans receivable, net at end of period $ 254,837 $ 240,199 24 $ 246,619 $ 237,095 $ 214,094
========= ========= ========= ========= =========
Mortgage-backed securities at beginning of
period......................................... $ 8,613 $ 10,496 $ 10,496 $ 7,230 $ 4,275
Mortgage-backed securities purchased........... -- 1,000 2,025 8,030 6,576
Principal repayments and other activities...... 1,458 1,051 (3,908) (4,764) (3,621)
--------- --------- --------- --------- ---------
Mortgage-backed securities at end of period $ 7,155 $ 10,445 $ 8,613 $ 10,496 $ 7,230
========= ========= ========= ========= =========
--------------------------
(1) Includes loans to finance the construction of one- to four-family
residential properties, and loans held for sale.
(2) Includes loans to finance the sale of real estate acquired through
foreclosure.
(3) Includes $15.7 million in refinanced loans for the quarter ended June 30,
2001 and $3.3 million for the period ended June 30, 2000.
LOAN ORIGINATION FEES AND OTHER INCOME. In addition to interest earned on
loans, we generally receive loan origination fees. We account for loan
origination fees in accordance with Statement of Financial Accounting Standards
("SFAS") No. 91 "Accounting for Non-refundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases." To the
extent that loans are originated or acquired for our portfolio, SFAS No. 91
requires that we defer loan origination fees and costs and amortize such amounts
as an adjustment of yield over the life of the loan by use of the level yield
method. SFAS No. 91 reduces the amount of revenue recognized by many financial
institutions at the time such loans are originated or acquired. Fees deferred
under SFAS No. 91 are recognized into income immediately upon prepayment or the
sale of the related loan. At June 30, 2001, we had $1.4 million of deferred loan
origination fees. Loan origination fees are volatile sources of income. Such
fees vary with the volume and type of loans and commitments made and purchased,
principal repayments, and competitive conditions in the mortgage markets, which
in turn respond to the demand for and availability of money.
We receive other fees, service charges, and other income that consist
primarily of deposit transaction account service charges, late charges, credit
card fees, and income from REO operations. We recognized fees and service
charges of $288,000, $891,000, $720,000 and $682,000, for the three months ended
June 30, 2001, and for fiscal years ended March 31, 2001, 2000 and 1999,
respectively.
LOANS TO ONE BORROWER. Savings associations are subject to the same limits
as those applicable to national banks, which under current regulations restrict
loans to one borrower to an amount equal to 15% of unimpaired capital and
unimpaired surplus on an unsecured basis, and an additional amount equal to 10%
of unimpaired capital
54
and unimpaired surplus if the loan is secured by readily marketable collateral
(generally, financial instruments and bullion, but not real estate). At June 30,
2001, our largest borrower had an aggregate principal outstanding balance of
$3.4 million. The loans were current at June 30, 2001. We had no loans at June
30, 2001 that exceeded the loans to one borrower regulations.
DELINQUENCIES AND CLASSIFIED ASSETS
DELINQUENCIES. Our collection procedures provide that when a loan is 15
days past due, a computer-generated late charge notice is sent to the borrower
requesting payment, plus a late charge. This notice is followed with a letter
again requesting payment when the payment becomes 20 days past due. If
delinquency continues, at 30 days another collection letter is sent and personal
contact efforts are attempted, either in person or by telephone, to strengthen
the collection process and obtain reasons for the delinquency. Also, plans to
arrange a repayment plan are made. If a loan becomes 60 days past due, the loan
becomes subject to possible legal action if suitable arrangements to repay have
not been made. In addition, the borrower is given information which provides
access to consumer counseling services, to the extent required by HUD
regulations. When a loan continues in a delinquent status for 90 days or more,
and a repayment schedule has not been made or kept by the borrower, a notice of
intent to foreclose is sent to the borrower, giving 30 days to cure the
delinquency. If not cured, foreclosure proceedings are initiated.
NON-PERFORMING ASSETS. Loans are reviewed on a regular basis and are placed
on a non-accrual status when, in the opinion of management, the collection of
additional interest is doubtful. Mortgage loans are placed on non-accrual status
generally when either principal or interest is 90 days or more past due and
management considers the interest uncollectible. Interest accrued and unpaid at
the time a loan is placed on non-accrual status is charged against interest
income.
At June 30, 2001, we had non-performing assets of $1,793,000 and a ratio of
non-performing assets to total assets of 0.56%. At March 31, 2001 and 2000, we
had non-performing assets of $639,000 and $290,000, respectively. At June 30,
2001, accruing loans 90 days or more delinquent consisted of a loan
concentration to one borrower secured by real estate with an aggregate appraised
value of $2.2 million. Management believes these loans are adequately
collateralized.
Real estate acquired by us as a result of foreclosure or by deed in lieu of
foreclosure is deemed REO until such time as it is sold. When REO is acquired,
it is recorded at the lower of the unpaid principal balance of the related loan
or its fair value, less estimated selling expenses. Valuations are periodically
performed by management, and any subsequent decline in fair value is charged to
operations.
The following table sets forth information regarding our non-accrual loans
and real estate acquired by foreclosure at the dates indicated. For all the
dates indicated, we did not have any material restructured loans within the
meaning of SFAS 15.
AT MARCH 31,
AT JUNE 30, ------------------------------------
2001 2001 2000 1999
----------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)
Non-accrual loans:
Mortgage loans:
One- to four-family loans............................. $ 239 $ 443 $ 170 $ 224
All other mortgage loans.............................. 23 -- -- --
Non-mortgage loans:
Commercial business................................... -- -- -- --
Consumer.............................................. 96 72 30 12
--------- -------- -------- --------
Total non-accrual loans.................................. 358 515 200 236
Accruing loans 90 days or more delinquent................ 1,416 -- -- 44
--------- -------- -------- --------
Total non-performing loans............................... 1,774 515 200 280
Total real estate owned (1).............................. 19 124 90 41
--------- -------- -------- --------
Total non-performing assets.............................. $ 1,793 $ 639 $ 290 $ 321
========= ======== ======== ========
Total non-performing loans to net loans receivable....... 0.70% 0.21% 0.08% 0.13%
========= ======== ======== ========
Total non-performing loans to total assets............... 0.56% 0.17% 0.07% 0.10%
========= ======== ======== ========
Total non-performing assets to total assets.............. 0.56% 0.20% 0.10% 0.12%
========= ======== ======== ========
55
--------------------------------
(1) Represents the net book value of property acquired by us through
foreclosure or deed in lieu of foreclosure. These properties are recorded
at the lower of the loan's unpaid principal balance or fair value less
estimated selling expenses.
During the three months ended June 30, 2001 and the fiscal year ended March
31, 2001, gross interest income of $8,000 and $12,000, respectively, would have
been recorded on loans currently accounted for on a non-accrual basis if the
loans had been current throughout the period.
The following table sets forth information with respect to loans past due
by 60-89 days and 90 days or more in our portfolio at the dates indicated.
AT MARCH 31,
AT JUNE 30, -----------------------------------------
2001 2001 2000 1999
----------- ----------- ---------- -----------
(IN THOUSANDS)
Loans past due 60-89 days............................. $ 1,459 $ 2,536 $ 1,539 $ 1,710
Loans past due 90 days or more........................ 1,774 515 200 280
----------- ----------- ---------- -----------
Total past due 90 days or more..................... $ 3,233 $ 3,051 $ 1,739 $ 1,990
=========== =========== ========== ===========
CLASSIFICATION OF ASSETS. Federal regulations provide for the
classification of loans and other assets such as debt and equity securities
considered by the OTS to be of lesser quality as "substandard," "doubtful," or
"loss" assets. An asset is considered "substandard" if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. "Substandard" assets include those characterized by
the "distinct possibility" that the savings institution will sustain "some loss"
if the deficiencies are not corrected. Assets classified as "doubtful" have all
of the weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
that do not expose the savings institution to risk sufficient to warrant
classification in one of the aforementioned categories, but which possess some
weaknesses, are required to be designated "special mention" by management.
When a savings institution classifies problem assets as either substandard
or doubtful, it is required to establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances that have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When a savings institution classifies
problem assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of the amount of the assets so classified, or
to charge off such amount. A savings institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the OTS, which can order the establishment of additional
general or specific loss allowances. We regularly review the problem loans in
its portfolio to determine whether any loans require classification in
accordance with applicable regulations.
The following table sets forth the aggregate amount of our classified
assets at the dates indicated.
AT MARCH 31,
AT JUNE 30, ----------------------------------------
2001 2001 2000 1999
----------- ----------- ---------- ----------
(IN THOUSANDS)
Substandard assets(1)................................ $ 470 $ 569 $ 290 $ 206
Doubtful assets...................................... -- -- -- --
Loss assets.......................................... -- -- -- 8
----------- ----------- ---------- ----------
Total classified assets........................... $ 470 $ 569 $ 290 $ 214
=========== =========== ========== ==========
-----------------------------
(1) Includes REO.
56
ALLOWANCE FOR LOAN LOSSES. Management's policy is to provide for estimated
losses on our loan portfolio based on management's evaluation of the potential
losses that may be incurred. We regularly review our loan portfolio, including
problem loans, to determine whether any loans require classification or the
establishment of appropriate reserves or allowances for losses. Such evaluation,
which includes a review of all loans of which full collectibility of interest
and principal may not be reasonably assured, considers, among other matters, the
estimated fair value of the underlying collateral. Other factors considered by
management include the size and risk exposure of each segment of the loan
portfolio, present indicators such as delinquency rates and the borrower's
current financial condition, and the potential for losses in future periods.
Management calculates the general allowance for loan losses in part based on
past experience, and in part based on specified percentages of loan balances.
While both general and specific loss allowances are charged against earnings,
general loan loss allowances are added back to capital in computing risk-based
capital under OTS regulations.
During the three months ended June 30, 2001 and the fiscal years ended
March 31, 2001, 2000 and 1999, we added $2,000, $96,000, $120,000 and $64,000,
respectively, to the provision for loan losses. Our allowance for loan losses
totaled $656,000, $655,000, $793,000 and $678,000, at June 30, 2001, and at
March 31, 2001, 2000 and 1999, respectively. We base the provision for loan loss
on several factors, including loan volume, portfolio mix, delinquencies, etc.
Management believes that our current allowance for loan losses is adequate,
however, there can be no assurance that the allowance for loan losses will be
adequate to cover losses that may in fact be realized in the future or that
additional provisions for loan losses will not be required.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES. The following table sets forth
the analysis of the allowance for loan losses for the periods indicated.
AT OR FOR THE
THREE MONTHS ENDED
JUNE 30, AT OR FOR THE YEAR ENDED MARCH 31,
--------------------------- ------------------------------------------
2001 2000 2001 2000 1999
----------- ------------ ------------ ------------ -----------
(IN THOUSANDS)
Loans receivable, net.................... $254,837 $ 240,199 $ 246,619 $ 237,095 $214,094
======== ========== ========== ========== ========
Average loans receivable, net............ 249,324 238,963 245,624 229,845 209,178
======== ========== ========== ========== ========
Allowance balance (at beginning of period) 655 793 793 678 721
Provision for losses:
Mortgage.............................. -- -- -- -- --
Non-mortgage.......................... -- -- -- -- --
General............................... 2 51 96 120 64
(Charge-offs) Recoveries:
Mortgage.............................. -- -- -- -- (108)
Non-mortgage (1)...................... (1) 2 (234) (5) 1
-------- ---------- ---------- ---------- --------
Allowance balance (at end of period)..... $ 656 $ 846 $ 655 $ 793 $ 678
======== ========== ========== ========== ========
loans receivable, net at end of period... 0.26% 0.35% 0.27% 0.33% 0.32%
======== ========== ========== ========== ========
Net loans charged off as a percent of
average loans receivable, net............ --% --% 0.10% --% 0.05%
======== ========== ========== ========== ========
Ratio of allowance for loan losses to
total non-performing assets at end of
period................................... 36.59% 300.00% 102.50% 237.45% 211.21%
======== ========== ========== ========== ========
Ratio of allowance for loan losses to
non-performing loans at end of period.... 36.98% 440.63% 127.18% 396.50% 242.14%
======== ========== ========== ========== ========
-----------------
(1) The fiscal 2001 charge-offs include a $172,000 charge-off related to an
impaired loan. Such loan is current at June 30, 2001.
57
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES. The following table sets forth the
allocation of allowance for loan losses by loan category for the periods
indicated. Management believes that the allowance can be allocated by category
only on an approximate basis. The allocation of the allowance by category is not
necessarily indicative of future losses and does not restrict the use of the
allowance to absorb losses in any category.
AT JUNE 30,
----------------------------------------------
2001 2000
---------------------- ----------------------
% OF % OF
LOANS LOANS
IN EACH IN EACH
CATEGORY CATEGORY
TO TO
TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS
-------- ---------- -------- ----------
Balance at end of period
applicable to:
One- to four-family residential
loans........................... $ 572 87.1% $ 745 88.0%
Multi-family residential loans.. 23 3.5 30 3.6
Consumer and commercial......... 37 5.7 51 6.1
Non-residential real estate..... 24 3.7 20 2.3
--------- -------- ------- ---------
Total allowance for loan losses. $ 656 100.00% $ 846 100.00%
========= ======== ======= =========
AT MARCH 31,
---------------------------------------------------------------------------
2001 2000 1999
----------------------- -------------------------- ----------------------
% OF % OF
LOANS % OF LOANS
IN LOANS IN
EACH IN EACH EACH
CATEGORY CATEGORY CATEGORY
TO TO TO
TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
Balance at end of period
applicable to:
One- to four-family residential
loans........................... $ 574 87.7% $ 423 88.4% $ 386 88.3%
Multi-family residential loans.. 24 3.6 37 3.3 38 3.2
Consumer and commercial......... 37 5.7 333 5.8 252 6.0
Non-residential real estate..... 20 3.0 -- 2.5 2 2.5
------- -------- ------- --------- ------- --------
Total allowance for loan losses. $ 655 100.00% $ 793 100.00% $ 678 100.00%
======= ======== ======= ========= ======= ========
58
INVESTMENT ACTIVITIES
Our investment portfolio is comprised of investment securities and
certificates of deposit in other financial institutions. The carrying value of
our investment securities totaled $12.1 million at June 30, 2001, compared to
$19.3 million at March 31, 2001 and $27.2 million at March 31, 2000. Our cash
and cash equivalents, consisting of cash and due from banks, federal funds sold,
and interest bearing deposits due from other financial institutions with
original maturities of three months or less, totaled $26.8 million at June 30,
2001, compared to $20.9 million at March 31, 2001 and $14.3 million at March 31,
2000.
We are required under federal regulations to maintain liquid assets that
may be invested in specified short-term securities and certain other
investments. Liquidity levels may be increased or decreased depending upon the
yields on investment alternatives and upon management's judgment as to the
attractiveness of the yields then available in relation to other opportunities
and its expectation of the level of yield that will be available in the future,
as well as management's projections as to the short term demand for funds to be
used in our loan origination and other activities.
INVESTMENT PORTFOLIO. The following table sets forth the carrying value of
our investment securities portfolio, short-term investments and FHLB stock, at
the dates indicated.
AT JUNE 30, AT MARCH 31,
------------------ ------------------------------------------------------------------
2001 2001 2000 1999
------------------ --------------------- --------------------- ---------------------
CARRYING MARKET CARRYING MARKET CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE
--------- -------- --------- ---------- ---------- --------- ----------- ---------
(IN THOUSANDS)
Investment Securities:
Corporate bonds and notes.............. $ 3,995 $4,081 $3,994 $ 4,061 $2,987 $2,951 $ -- $ --
U.S. Government and agency securities.. 7,987 8,048 9,501 9,567 20,057 19,528 11,666 11,588
Obligations of state and political
subdivisions........................... 141 148 146 146 155 155 164 164
Certificates of deposit in other
financial institutions................. -- -- 5,700 5,700 4,000 4,000 6,000 6,000
------- ------- ------- ------- ------- ------- ------- -------
Total investment securities............ 12,123 12,277 19,341 19,474 27,199 26,634 17,830 17,752
Other Investments:
Interest-bearing deposits in other
financial institutions................. 18,260 18,260 12,891 12,891 8,332 8,332 10,410 10,410
Federal funds sold..................... 6,000 6,000 6,000 6,000 3,475 3,475 4,295 4,295
Federal Home Loan Bank stock........... 3,612 3,612 3,510 3,510 3,160 3,160 2,919 2,919
------- ------- ------- ------- ------- ------- ------- -------
Total investments...................... $39,995 $40,149 $41,742 $41,875 $42,166 $41,601 $35,454 $35,376
======= ======= ======= ======= ======= ======= ======= ========
59
INVESTMENT PORTFOLIO MATURITIES. The following table sets forth the
scheduled maturities, carrying values, market values and average yields for our
investment securities at June 30, 2001. We do not hold any investment securities
with maturities in excess of 25 years.
AT JUNE 30, 2001
------------------------------------------------------------------------------
ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS
----------------------- ------------------------- ------------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD
--------- ---------- ------------ ----------- ------------ ----------
(DOLLARS IN THOUSANDS)
Investment Securities:
Corporate bonds and notes................ $ 1,001 6.56% $ 2,994 6.47% $ -- --
U.S. Government and agency............... 3,495 6.04 2,530 5.77 -- --
Obligations of state and political
subdivisions........................... -- -- -- -- -- --
--------- -------- ---------- ---------- ---------- --------
Total investment securities.............. $ 4,496 6.16% $ 5,524 6.15% $ -- --
========= ======== ========== ========== ========== ========
AT JUNE 30, 2001
-------------------------
MORE THAN TEN YEARS
-------------------------
CARRYING AVERAGE
VALUE YIELD
------------- ----------
Investment Securities:
Corporate bonds and notes................ $ -- --%
U.S. Government and agency............... 1,962 6.29
Obligations of state and political
subdivisions........................... 141 5.50
--------- -------
Total investment securities.............. $ 2,103 6.24%
========= =======
AT JUNE 30, 2001
--------------------------------------------------
TOTAL INVESTMENT SECURITIES
--------------------------------------------------
AVERAGE WEIGHTED
LIFE IN CARRYING MARKET AVERAGE
YEARS VALUE VALUE YIELD
---------- ---------- ------------ -----------
(DOLLARS IN THOUSANDS)
Investment Securities:
Corporate bonds and notes................ 1.19 $ 3,995 $ 4,081 6.48%
U.S. Government and agency............... 6.64 7,987 8,048 6.02
Obligations of state and political
subdivisions............................. 10.93 141 148 5.50
--------- -------- -------
Total investment securities............ 4.89 $ 12,123 $ 12,277 6.26%
========= ======== =======
60
SOURCES OF FUNDS
GENERAL. Deposits are the major source of our funds for lending and other
investment purposes. In addition to deposits, we derive funds from the
amortization, prepayment or sale of loans and mortgage-backed securities, the
sale or maturity of investment securities, operations and, if needed, advances
from the Federal Home Loan Bank of Cincinnati. Scheduled loan principal
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and market conditions. Borrowings may be used on a short-term basis to
compensate for reductions in the availability of funds from other sources or on
a longer term basis for general business purposes. We had $6.0 million of
advances from the Federal Home Loan Bank of Cincinnati at June 30, 2001.
DEPOSITS. Consumer and commercial deposits are attracted principally from
within our market area through the offering of a broad selection of deposit
instruments including NOW accounts, passbook savings, money market deposit and
term certificate accounts, including individual retirement accounts. We accept
deposits of $100,000 or more and offer negotiated interest rates on such
deposits. Deposit account terms vary according to the minimum balance required,
the period of time during which the funds must remain on deposit, and the
interest rate, among other factors. We regularly evaluate our internal cost of
funds, survey rates offered by competing institutions, review our cash flow
requirements for lending and liquidity, and execute rate changes when deemed
appropriate. We do not obtain funds through brokers, nor do we solicit funds
outside our market area.
DEPOSIT PORTFOLIO. Savings and other deposits in Wayne Savings Community
Bank as of June 30, 2001, comprised the following:
WEIGHTED AVERAGE CHECKING AND SAVINGS MINIMUM PERCENTAGE OF
INTEREST RATE MINIMUM TERM DEPOSITS AMOUNT BALANCES TOTAL DEPOSITS
--------------------- ------------------ ------------------------ ------------ ------------ ------------------
(IN THOUSANDS)
1.56% None NOW accounts $ -- $ 37,309 13.12%
3.09 None Passbook/Statement -- 58,630 20.62
savings
3.23 None Money market Investor 2,500 9,175 3.23
CERTIFICATES OF DEPOSIT
------------------------
4.72 12 months or Fixed term, fixed rate 500 37,166 13.07
less
5.99 12 to 24 months Fixed term, fixed rate 500 88,235 31.03
5.21 25 to 36 months Fixed term, fixed rate 500 9,957 3.50
5.54 36 months or Fixed term, fixed rate 500 6,132 2.16
more
6.16 Negotiable Jumbo certificates 100,000 37,780 13.27
------------ -----------
$ 284,384 100.00%
============ ===========
61
The following table sets forth the change in dollar amount of savings
deposits in the various types of savings accounts offered by us at the dates
indicated.
BALANCE AT BALANCE AT BALANCE AT
JUNE 30, % OF INCREASE MARCH 31, % OF INCREASE MARCH 31,
2001 DEPOSITS (DECREASE) 2001 DEPOSITS (DECREASE 2000
---------- ---------- ----------- ---------- -------- --------- ----------
(DOLLARS IN THOUSANDS)
NOW accounts............................. $ 37,309 13.12% $ 3,667 $ 33,642 12.11% $ 2,628 $ 31,014
Passbook/Statement savings............... 58,630 20.62 4,056 54,574 19.65 1,500 53,074
Money market Investor.................... 9,175 3.23 270 8,905 3.21 (1,922) 10,827
Certificates of deposit(1)
Original maturities of:
12 months or less.................... 37,166 13.07 11,672 25,494 9.18 (16,228) 41,722
12 to 24 months...................... 88,235 31.03 (12,870) 101,105 36.41 46,764 54,341
25 to 36 months...................... 9,957 3.50 (79) 10,036 3.61 (14,751) 24,787
36 months or more.................... 6,132 2.16 (43) 6,175 2.22 (2,713) 8,888
Negotiated jumbo..................... 37,780 13.27 5 37,775 13.61 (2,524) 40,299
--------- ------- --------- ---------- ------ --------- ---------
Total................................ $ 284,384 100.00% $ 6,678 $ 277,706 100.00% $ 12,754 $ 264,952
========= ======= ========= ========= ====== ========= =========
BALANCE AT
% OF INCREASE MARCH 31, % OF
DEPOSITS (DECREASE 1999 DEPOSITS
-------- --------- ---------- --------
NOW accounts............................. 11.71% $ 6,135 $ 24,879 10.57%
Passbook/Statement savings............... 20.03 6,608 46,466 19.75
Money market Investor.................... 4.09 (438) 11,265 4.79
Certificates of deposit(1)
Original maturities of:
12 months or less.................... 15.74 3,909 37,813 16.07
12 to 24 months...................... 20.51 20,340 34,001 14.45
25 to 36 months...................... 9.36 (13,909) 38,696 16.44
36 months or more.................... 3.35 (2,532) 11,420 4.85
Negotiated jumbo..................... 15.21 9,512 30,787 13.08
------ ---------- ---------- -------
Total................................ 100.00% $ 29,625 $ 235,327 100.00%
====== ========== ========== =======
------------------------------
(1) Individual Retirement Accounts ("IRAs") are included in the respective
certificate balances. IRAs totaled $31.8 million as of June 30, 2001.
62
The following table sets forth the change in dollar amount of savings
deposits in the various types of savings accounts offered by us between the
dates indicated.
YEARS ENDED MARCH 31,
THREE MONTHS ENDED JUNE 30, -----------------------------------------------------------------
2001 2001 2000
-------------------------------- ------------------------------- --------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE PERCENT OF AVERAGE AVERAGE PERCENT OF AVERAGE AVERAGE PERCENT OF AVERAGE
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
--------- ---------- ---------- --------- ---------- -------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
Noninterest-bearing demand
deposits.................... $ 8,221 2.95% 0.00% $ 5,684 2.19% 0.00% $ 4,652 1.84% 0.00%
NOW accounts................ 26,573 9.54 2.63 25,527 9.82 1.73 23,912 9.48 2.08
Passbook/Statement savings.. 55,518 19.94 3.09 45,800 17.62 3.16 45,790 18.15 3.13
Money market investor....... 8,983 3.23 3.23 9,637 3.71 3.23 11,411 4.52 3.28
Certificates of deposit..... 179,146 64.34 5.84 173,266 66.66 6.03 166,581 66.01 5.54
-------- ------- ------- --------- ------ ------ -------- ------- -------
Total deposits.......... $278,441 100.00% 4.91% $ 259,914 100.00% 4.87% $252,346 100.00% 4.57%
======== ======= ======= ========= ====== ====== ======== ======= =======
YEARS ENDED MARCH 31,
---------------------------------
1999
--------------------------------
WEIGHTED
AVERAGE PERCENT OF AVERAGE
BALANCE DEPOSITS RATE
--------- ---------- --------
Noninterest-bearing demand
deposits.................... $ 4,477 2.01% 0.00%
NOW accounts................ 16,062 7.21 2.11
Passbook/Statement savings.. 40,927 18.38 3.10
Money market investor....... 9,615 4.32 3.31
Certificates of deposit..... 151,564 68.08 5.66
--------- ------ ------
Total deposits.......... $ 222,645 100.00% 4.72%
========= ====== ======
63
The following table sets forth our certificates of deposit classified by
rates as of the dates indicated:
AT MARCH 31,
AT JUNE ----------------------------------------
30, 2001 2001 2000 1999
---------- ------------ ------------ ----------
(DOLLARS IN THOUSANDS)
2.01-4.00%..................................... $ 9,692 $ -- $ -- $ --
4.01-6.00%..................................... 81,130 73,177 127,653 120,446
6.01-8.00%..................................... 88,448 107,408 42,382 29,486
8.01-10.00%.................................... -- -- 2 2,785
--------- ----------- ----------- ----------
Total...................................... $ 179,270 $ 180,585 $ 170,037 $ 152,717
========= =========== =========== ==========
The following table sets forth the amount and maturities of our
certificates of deposit at June 30, 2001.
AMOUNT DUE
-------------------------------------------------------
LESS THAN 1-2 2-3 AFTER
RATE ONE YEAR YEARS YEARS 3 YEARS TOTAL
---------- --------- ----------- --------- --------
(IN THOUSANDS)
2.01 - 4.00%................................... $ 8,852 $ 840 $ -- $ -- $ 9,692
4.01-6.00%..................................... 62,528 13,604 2,711 2,287 81,130
6.01-8.00%..................................... 64,841 23,014 148 445 88,448
-------- -------- ------- ------- --------
Total...................................... $136,221 $ 37,458 $ 2,859 $ 2,732 $179,270
======== ======== ======= ======= ========
The following table indicates the amount of our negotiable certificates of
deposit of $100,000 or more by time remaining until maturity as of June 30,
2001.
MATURITY PERIOD CERTIFICATES OF DEPOSIT
--------------- -----------------------
(IN THOUSANDS)
Three months or less.......................................... $ 12,656
Over three months through six months.......................... 6,570
Over six months through twelve months......................... 12,279
Over twelve months............................................ 6,275
---------
Total.................................................... $ 37,780
=========
BORROWINGS
Savings deposits are the primary source of funds for our lending and
investment activities and for our general business purposes. We may rely upon
advances from the Federal Home Loan Bank of Cincinnati and the Federal Reserve
Bank discount window to supplement our supply of lendable funds and to meet
deposit withdrawal requirements. Advances from the Federal Home Loan Bank of
Cincinnati typically are collateralized by stock in the Federal Home Loan Bank
of Cincinnati and a portion of first mortgage loans held by us. At June 30,
2001, we had $6.0 million in advances outstanding.
The Federal Home Loan Bank functions as a central reserve bank providing
credit for member savings associations and financial institutions. As a member,
we are required to own capital stock in the Federal Home Loan Bank and are
authorized to apply for advances on the security of such stock and certain home
mortgages and other assets (principally, securities that are obligations of, or
guaranteed by, the United States) provided certain standards related to
creditworthiness have been met. Advances are made pursuant to several different
programs. Each credit program has its own interest rate and range of maturities.
Depending on the program, limitations on the amount of advances are based either
on a fixed percentage of a member institution's net worth or on the Federal Home
Loan Bank's assessment of the institution's creditworthiness. Although advances
may be used on a short-term basis for cash management needs, Federal Home Loan
Bank advances have not been, nor are they expected to be, a significant
long-term funding source for us.
64
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
------------------- -----------------------------
2001 2000 2001 2000 1999
--------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
FEDERAL HOME LOAN BANK
ADVANCES:
Maximum month-end balance... $ 6,000 $12,000 $10,000 $12,000 $16,000
Balance at end of period.... 6,000 10,000 6,000 12,000 9,000
Average balance............. 6,000 8,513 7,877 8,596 11,667
Weighted average interest rate on:
Balance at end of period. 5.21% 6.05% 5.54% 5.98% 5.68%
Average balance for
period................... 5.47% 5.45% 5.69% 5.63% 5.75%
PERSONNEL
As of June 30, 2001, we had 95 full-time and 32 part-time employees. None
of our employees is represented by a collective bargaining group. We believe
that we have a good relationship with our employees.
PROPERTY
At June 30, 2001, we conducted our business through our main banking office
located in Wooster, Ohio, our nine additional full service branch offices
located in our market area, and the full service office of Village Savings Bank.
We lease two of our office properties. The aggregate net book value of our
premises and equipment was $8.9 million at June 30, 2001.
LEGAL PROCEEDINGS
We are periodically involved in various claims and lawsuits that arise
incident to our financial services business. We believe that these routine legal
proceedings, in the aggregate, are not material to our financial condition and
results of operations.
REGULATION
As a state-chartered, Savings Association Insurance Fund-insured savings
association, Wayne Savings Community Bank is subject to examination, supervision
and extensive regulation by the Office of Thrift Supervision, the Ohio Division
of Financial Institutions, and the Federal Deposit Insurance Corporation. As a
federally chartered Savings Association Insurance Fund-insured savings bank,
Village Savings Bank also is subject to examination, supervision and extensive
regulation by the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation. Wayne Savings Community Bank and Village Savings Bank are members
of, and own stock in, the Federal Home Loan Bank of Cincinnati, which is one of
the twelve regional banks in the Federal Home Loan Bank System. This regulation
and supervision establishes a comprehensive framework of activities in which an
institution can engage and is intended primarily for the protection of the
insurance fund and depositors. The banks also are subject to regulation by the
Board of Governors of the Federal Reserve System governing reserves to be
maintained against deposits and certain other matters. The Office of Thrift
Supervision and Ohio Division of Financial Institutions regularly examine us and
prepare reports for the consideration of their Boards of Directors on any
deficiencies that they may find in our operations. The Federal Deposit Insurance
Corporation also examines the banks in its role as the administrator of the
Savings Association Insurance Fund. The banks' relationship with depositors and
borrowers also is regulated to a great extent by both federal and state laws
especially in such matters as the ownership of savings accounts and the form and
content of our mortgage documents. Any change in such regulations could have a
material adverse impact on Wayne Savings Bancshares, Inc., Wayne Savings
Community Bank, Village Savings Bank and their operations.
FEDERAL REGULATION OF SAVINGS INSTITUTIONS
BUSINESS ACTIVITIES. The activities of savings associations are governed by
the Home Owners' Loan Act, as amended and, in certain respects, the Federal
Deposit Insurance Act. These federal statutes, among other things, (i) limit the
types of loans a savings association may make, (ii) prohibit the acquisition of
any corporate debt security
65
that is not rated in one of the four highest rating categories, and (iii)
restrict the aggregate amount of loans secured by non-residential real estate
property to 400% of capital. The description of statutory provisions and
regulations applicable to savings associations set forth herein does not purport
to be a complete description of such statutes and regulations and their effect
on us.
The capital regulations also incorporate an interest rate risk component.
Savings institutions with "above normal" interest rate risk exposure are subject
to a deduction from total capital for purposes of calculating their risk-based
capital requirements. For the present time, the Office of Thrift Supervision has
deferred implementation of the interest rate risk capital charge. At June 30,
2001, Wayne Savings Community Bank and Village Savings Bank met each of the
capital requirements.
CAPITAL REQUIREMENTS. The Office of Thrift Supervision capital regulations
require savings institutions to meet three minimum capital standards: a 1.5%
tangible capital ratio; a 4% leverage ratio (3% for institutions receiving the
highest rating on the CAMELS rating system); and an 8% risk-based capital ratio.
In addition, the prompt corrective action regulations discussed below also
establish, in effect, a minimum 2% tangible capital standard, a 4% leverage
ratio (3% for institutions receiving the highest CAMELS rating), and together
with the risk-based capital standard itself, a 4% Tier 1 risk-based capital
standard. Institutions must generally deduct from capital investments in and
loans to subsidiaries engaged in activities as principle that are not
permissible for a national bank.
The risk-based capital standards for savings institutions require the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weighted
factor of 0% to 100%, assigned by the Office of Thrift Supervision capital
regulation based on the risks believed inherent in the type of asset. Core (tier
1) capital is defined as common stockholders' equity (including retained
earnings), certain nonconclusive perpetual preferred stock and related surplus
and minority interests in equity accounts of consolidated subsidiaries, less
intangible assets other than certain mortgage servicing rights and credit card
relationships. The components of supplementary capital currently include
cumulative preferred stock, long-term perpetual preferred stock, mandatory
convertible securities, subordinated debt and intermediate preferred stock, the
allowance for loan and lease losses limited to a maximum of 1.25% of
risk-weighted assets, and up to 45% of unrealized gains on available-for-sale
equity securities with readily determinable fair market values. Overall, the
amount of supplementary capital included as part of total capital may not exceed
100% of core capital.
The capital regulations also incorporate an interest rate risk component.
Savings institutions with "above normal" interest rate risk exposure are subject
to a deduction from total capital for purposes of calculating their risk-based
capital requirements. For the present time, the Office of Thrift Supervision has
deferred implementation of the interest rate risk capital charge. At June 30,
2001, Wayne Savings Community Bank and Village Savings Bank met each of the
capital requirements.
LOANS TO ONE BORROWER. Under federal law, savings institutions generally
may not make a loan or extend credit to a single or related group of borrowers
in excess of 15% of unimpaired capital and surplus on an unsecured basis. An
additional amount may be loaned, equal to 10% of unimpaired capital and surplus,
if the loan is secured by readily-marketable collateral, which is defined to
include certain securities and bullion, but generally does not include real
estate. At June 30, 2001, Wayne Savings Community Bank and Village Savings Bank
were in compliance with the loans-to-one-borrower limitation.
QUALIFIED THRIFT LENDER TEST. Federal law requires savings associations to
meet a qualified thrift lender test whereby a savings association is required to
maintain at least 65% of its "portfolio assets" (total assets less (i) specified
liquid assets up to 20% of total assets, (ii) intangibles, including goodwill,
and (iii) the value of property used to conduct business) in certain "qualified
thrift investments," primarily residential mortgages and related investments,
including certain mortgage-backed and related securities on a monthly basis in 9
out of every 12 months. A savings association that fails this test must either
convert to a bank charter or operate under specified restrictions. As of June
30, 2001, Wayne Savings Community Bank and Village Savings Bank maintained
103.4% and 92.6%, respectively, of their portfolio assets in qualified thrift
investments and, therefore, met the qualified thrift lender test.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. Federal regulations impose
limitations upon all capital distributions by a savings institution, such as
cash dividends, payments to repurchase shares and other distributions charged
against the
66
institution's capital account. A savings association must file an application
for Office of Thrift Supervision approval of a capital distribution if either
(i) the total capital distributions for the applicable calendar year exceed the
sum of the savings association's net income for that year to date plus the
savings association's retained net income for the preceding two years, (ii) the
savings association would not be at least adequately capitalized following the
distribution, (iii) the distribution would violate any applicable statute,
regulation, agreement or Office of Thrift Supervision-imposed condition, or (iv)
the savings association is not eligible for expedited treatment of its filings.
If an application is not required to be filed, a savings association must still
file a notice with the Office of Thrift Supervision at least thirty days before
the Board of Directors declares a dividend or approves a capital distribution.
Any additional capital distributions will require prior Office of Thrift
Supervision approval. If the capital of Wayne Savings Community Bank or Village
Savings Bank falls below its required levels or the Office of Thrift Supervision
notifies the institution that it is in need of more than normal supervision, the
banks' ability to make capital distributions could be restricted. In addition,
the Office of Thrift Supervision may prohibit a proposed capital distribution by
any institution, which would otherwise be permitted by regulation, if the Office
of Thrift Supervision determines that the distribution would constitute an
unsafe or unsound practice.
LIQUIDITY. Wayne Savings Community Bank and Village Savings Bank are
required to maintain an average daily balance of specified liquid assets equal
to a quarterly average of not less than a specified percentage of their
respective net withdrawable deposit accounts plus borrowing payable in one year
or less. The current requirement is 4%. Wayne Savings Community Bank and Village
Savings Bank had average liquidity ratios of 15.5% and 26.8%, respectively, for
the three months ended June 30, 2001, which exceeded the applicable
requirements.
COMMUNITY REINVESTMENT ACT AND FAIR LENDING LAWS. Wayne Savings Community
Bank and Village Savings Bank have a responsibility under the Community
Reinvestment Act and related regulations of the Office of Thrift Supervision to
help meet the credit needs of their communities, including low- and
moderate-income neighborhoods. In addition, the Equal Credit Opportunity Act and
the Fair Housing Act prohibit lenders from discriminating in their lending
practices on the basis of characteristics specified in those statutes. An
institution's failure to comply with the provisions of the Community
Reinvestment Act could, at a minimum, result in regulatory restrictions on its
activities, and failure to comply with the Equal Credit Opportunity Act and the
Fair Housing Act could result in enforcement actions by the Office of Thrift
Supervision, as well as other federal regulatory agencies and the Department of
Justice. Wayne Savings Community Bank and Village Savings Bank received
satisfactory Community Reinvestment Act ratings under the current Community
Reinvestment Act regulations in their most recent federal examinations.
TRANSACTIONS WITH RELATED PARTIES. Wayne Savings Community Bank and Village
Savings Bank's authority to engage in transactions with related parties or
"affiliates" or to make loans to specified insiders is limited by Sections 23A
and 23B of the Federal Reserve Act. The term "affiliates" for these purposes
generally means any company that controls or is under common control with an
institution, including Wayne Savings Bancshares, Inc. and its non-savings
institution subsidiaries. Section 23A limits the aggregate amount of certain
"covered" transactions with any individual affiliate to 10% of the capital and
surplus of the savings institution and also limits the aggregate amount of
covered transactions with all affiliates to 20% of the savings institution's
capital and surplus. Covered transactions with affiliates are required to be
secured by collateral in an amount and of a type described in Section 23A, and
the purchase of low quality assets from affiliates is generally prohibited.
Section 23B provides that covered transactions with affiliates, including loans
and asset purchases, must be on terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to the
institution as those prevailing at the time for comparable transactions with
non-affiliated companies. In addition, savings institutions are prohibited from
lending to any affiliate that is engaged in activities that are not permissible
for bank holding companies, and no savings institution may purchase the
securities of any affiliate other than a subsidiary.
Wayne Savings Community Bank's and Village Savings Bank's authority to
extend credit to executive officers, directors and 10% stockholders, as well as
entities controlled by these persons, is currently governed by Sections 22(g)
and 22(h) of the Federal Reserve Act, and also by Regulation O. Among other
things, these regulations generally require that these loans be made on terms
substantially the same as those offered to unaffiliated individuals and do not
involve more than the normal risk of repayment. However, recent regulations now
permit executive officers and directors to receive the same terms through
benefit or compensation plans 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. Regulation O also places individual
and aggregate limits on the amount of loans Wayne Savings Community Bank and
Village Savings Bank may make to these persons based, in part, on
67
their respective capital position, and requires approval procedures to be
followed. At June 30, 2001 the banks were in compliance with these regulations.
ENFORCEMENT. The Office of Thrift Supervision has primary enforcement
responsibility over savings institutions, and has the authority to bring
enforcement action against all "institution-related parties," including
stockholders, and attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors of the institution, receivership, conservatorship or the termination
of deposit insurance. Civil penalties cover a wide range of violations and
actions, and range up to $25,000 per day, unless a finding of reckless disregard
is made, in which case penalties may be as high as $1 million per day. The
Federal Deposit Insurance Corporation also has the authority to recommend to the
Director of the Office of Thrift Supervision that enforcement action be taken
with respect to a particular savings institution. If action is not taken by the
Director, the Federal Deposit Insurance Corporation has authority to take such
action under specified circumstances.
STANDARDS FOR SAFETY AND SOUNDNESS. Federal law requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, compensation, and such other operational and managerial
standards as the agency deems appropriate. The federal banking agencies adopted
Interagency Guidelines Prescribing Standards for Safety and Soundness to
implement the safety and soundness standards required under federal law. The
guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. The guidelines address internal controls and
information systems; internal audit systems; credit underwriting; loan
documentation; interest rate risk exposure; asset growth; and compensation, fees
and benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard. If an institution fails to meet these
standards, the appropriate federal banking agency may require the institution to
submit a compliance plan.
PROMPT CORRECTIVE REGULATORY ACTION
Under federal Prompt Corrective Action regulations, the Office of Thrift
Supervision is required to take supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution's level of
capital. Generally, a savings institution that has total risk-based capital of
less than 8.0% or a leverage ratio or a Tier 1 core capital ratio that is less
than 4.0% is considered to be undercapitalized. A savings institution that has
total risk-based capital of less than 6.0%, a Tier 1 core risk-based capital
ratio of less than 3.0%, or a leverage ratio that is less than 3.0%, is
considered to be "significantly undercapitalized" and a savings institution that
has a tangible capital to assets ratio equal to or less than 2.0% is deemed to
be "critically undercapitalized." Generally, the applicable banking regulator is
required to appoint a receiver or conservator for an institution that is
"critically undercapitalized." The regulation also provides that a capital
restoration plan must be filed with the Office of Thrift Supervision within 45
days of the date an institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." In addition,
numerous mandatory supervisory actions become immediately applicable to the
institution, including, but not limited to, restrictions on growth, investment
activities, capital distributions, and affiliate transactions. The Office of
Thrift Supervision could also take any one of a number of discretionary
supervisory actions against undercapitalized institutions, including the
issuance of a capital directive and the replacement of senior executive officers
and directors.
INSURANCE OF DEPOSIT ACCOUNTS
The Federal Deposit Insurance Corporation has adopted a risk-based deposit
insurance assessment system. The Federal Deposit Insurance Corporation assigns
an institution to one of three capital categories, based on the institution's
financial information, as of the reporting period ending seven months before the
assessment period, and one of three supervisory subcategories within each
capital group. The three capital categories are well capitalized, adequately
capitalized and undercapitalized. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation provided to the
Federal Deposit Insurance Corporation by the institution's primary federal
regulator and information which the Federal Deposit Insurance Corporation
determines to be relevant to the institution's financial condition and the risk
posed to the deposit insurance funds. An institution's assessment rate depends
on the capital category and supervisory category to which it is assigned. The
Federal Deposit Insurance
68
Corporation is authorized to raise the assessment rates. The Federal Deposit
Insurance Corporation has exercised this authority several times in the past and
may raise insurance premiums in the future. If this type of action is taken by
the Federal Deposit Insurance Corporation, it could have an adverse effect on
the earnings of Wayne Savings Community Bank and Village Savings Bank.
FEDERAL HOME LOAN BANK SYSTEM
The Federal Home Loan Bank System provides a central credit facility
primarily for member institutions. Wayne Savings Community Bank and Village
Savings Bank, as members of the Federal Home Loan Bank of Cincinnati, are
required to acquire and hold shares of capital stock in that Federal Home Loan
Bank in an amount at least equal to 1% of the aggregate principal amount of
their unpaid residential mortgage loans and similar obligations at the beginning
of each year, or 1/20 of their borrowings from the Federal Home Loan Bank,
whichever is greater. As of June 30, 2001, the banks were in compliance with
this requirement. The Federal Home Loan Banks are required to provide funds for
the resolution of insolvent thrifts and to contribute funds for affordable
housing programs. These requirements could reduce the amount of dividends that
the Federal Home Loan Banks pay to their members and could also result in the
Federal Home Loan Banks imposing a higher rate of interest on loans to their
members.
FEDERAL RESERVE SYSTEM
Federal Reserve Board regulations require savings institutions to maintain
non-interest-earning reserves against their transaction accounts, such as
negotiable order of withdrawal and regular checking accounts. At June 30, 2001,
Wayne Savings Community Bank and Village Savings Bank were in compliance with
these reserve requirements. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements imposed by the Office of Thrift Supervision.
OHIO REGULATION
As a savings and loan association organized under the laws of the State of
Ohio, Wayne Savings Community Bank is subject to regulation by the Ohio Division
of Financial Institutions. Regulation by the Ohio Division of Financial
Institutions affects Wayne Savings Community Bank's internal organization as
well as its savings, mortgage lending, and other investment activities. Periodic
examinations by the Ohio Division of Financial Institutions are usually
conducted on a joint basis with the Office of Thrift Supervision. Ohio law
requires that Wayne Savings Community Bank maintain federal deposit insurance as
a condition of doing business.
Under Ohio law, an Ohio association may buy any obligation representing a
loan that would be a legal loan if originated by the association, subject to
various requirements including: loans secured by liens on income-producing real
estate may not exceed 20% of an association's assets; consumer loans, commercial
paper, and corporate debt securities may not exceed 20% of an association's
assets; loans for commercial, corporate, business, or agricultural purposes may
not exceed 10% of an association's assets unless the Ohio Division of Financial
Institutions increases the limitation to 30%, provided that an association's
required reserve must increase proportionately; certain other types of loans may
be made for lesser percentages of the association's assets; and, with certain
limitations and exceptions, certain additional loans may be made if not in
excess of 3% of the association's total assets. In addition, no association may
make real estate acquisition and development loans for primarily residential use
to one borrower in excess of 2% of assets. The total investments in commercial
paper or corporate debt of any issuer cannot exceed 1% of an association's
assets, with certain exceptions.
Ohio law authorizes Ohio-chartered associations to, among other things: (i)
invest up to 15% of assets in the capital stock, obligations, and other
securities of service corporations organized under the laws of Ohio, and an
additional 20% of net worth may be invested in loans to majority owned service
corporations; (ii) invest up to 10% of assets in corporate equity securities,
bonds, debentures, notes, or other evidence of indebtedness; (iii) exceed limits
otherwise applicable to certain types of investments (other than investments in
service corporations) by and between 3% and 10% of assets, depending upon the
level of the institution's permanent stock, general reserves, surplus, and
undivided profits; and (iv) invest up to 15% of assets in any loans or
investments not otherwise specifically authorized or prohibited, subject to
authorization by the institution's board of directors.
An Ohio association may invest in such real property or interests therein
as its board of directors deems necessary or convenient for the conduct of the
business of the association, but the amount so invested may not exceed the net
69
worth of the association at the time the investment is made. Additionally, an
association may invest an amount equal to 10% of its assets in any other real
estate. This limitation does not apply, however, to real estate acquired by
foreclosure, conveyance in lieu of foreclosure, or other legal proceedings in
relation to loan security interests.
Notwithstanding the above powers authorized under Ohio law and regulation,
a state-chartered savings association, such as Wayne Savings Community Bank, is
subject to certain limitations on its permitted activities and investments under
federal law, which may restrict the ability of an Ohio-chartered association to
engage in activities and make investments otherwise authorized under Ohio law.
Ohio has adopted statutory limitations on the acquisition of control of an
Ohio savings and loan association by requiring the written approval of the Ohio
Division of Financial Institutions prior to the acquisition by any person or
company, as defined under the Ohio Revised Code, of a controlling interest in an
Ohio association. Control exists, for purposes of Ohio law, when any person or
company, either directly, indirectly, or acting in concert with one or more
other persons or companies (a) acquires 15% of any class of voting stock,
irrevocable proxies, or any combination thereof, (b) directs the election of a
majority of directors, (c) becomes the general partner of the savings and loan
association, (d) has influence over the management and policies of the savings
and loan association, (e) has the ability to direct shareholder votes, or (f)
anything else deemed to be control by the Ohio Division. The Ohio Division of
Financial Institution's written permission is required when the total amount of
control held by the acquirer was less than or equal to 25% control before the
acquisition and more than 25% control after the acquisition, or when the total
amount of control held by the acquirer was less than 50% before the acquisition
and more than 50% after the acquisition. Ohio law also prescribes other
situations in which the Ohio Division of Financial Institutions must be notified
of the acquisition even though prior approval is not required. Any person or
company, which would include a director, will not be deemed to be in control by
virtue of an annual solicitation of proxies voted as directed by a majority of
the board of directors.
Under certain circumstances, interstate mergers and acquisitions involving
associations incorporated under Ohio law are permitted by Ohio law. A savings
and loan association or savings and loan holding company with its principal
place of business in another state may acquire a savings and loan association or
savings and loan holding company incorporated under Ohio law if the laws of such
other state permit an Ohio savings and loan association or an Ohio holding
company reciprocal rights. Additionally, recently enacted legislation permits
interstate branching by savings and loan associations incorporated under Ohio
law.
Ohio law requires prior written approval of the Ohio Superintendent of
Savings and Loans of a merger of an Ohio association with another savings and
loan association or a holding company affiliate.
HOLDING COMPANY REGULATION
Upon completion of the conversion, Wayne Savings Bancshares, Inc. will be a
non-diversified unitary savings and loan holding company, subject to regulation
and supervision by the Office of Thrift Supervision. A non-diversified unitary
savings and loan holding company is a savings and loan holding company which
controls only one subsidiary savings association which, together with all
related activities, represented more than 50% of the holding company's
consolidated net worth. In addition, the Office of Thrift Supervision has
enforcement authority over Wayne Savings Bancshares, Inc. and its non-savings
institution subsidiaries. Among other things, this authority permits the Office
of Thrift Supervision to restrict or prohibit activities that are determined to
be a risk to Wayne Savings Community Bank.
Under prior law, a unitary savings and loan holding company was not
generally restricted as to the types of business activities in which it may
engage, provided that its subsidiary savings bank was a qualified thrift lender.
The Gramm-Leach-Bliley Act of 1999, however, restricts unitary savings and loan
holding companies not existing or applied for before May 4, 1999 to those
activities permissible for financial holding companies or for multiple savings
and loan holding companies. Wayne Savings Bancshares, Inc. will not be a
grandfathered unitary savings and loan holding company and, therefore will be
limited to the activities permissible for financial holding companies or for
multiple savings and loan holding companies. A financial holding company may
engage in activities that are financial in nature including underwriting equity
securities and insurance incidental to financial activities or complementary to
a financial activity. A multiple savings and loan holding company is generally
limited to activities permissible for bank holding companies under Section
4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the
Office of Thrift Supervision, and certain additional activities authorized by
Office of Thrift Supervision regulations.
70
Federal law prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring control of
another savings institution or holding company thereof, without prior written
approval of the Office of Thrift Supervision. It also prohibits the acquisition
or retention of, with specified exceptions, more than 5% of the equity
securities of a company engaged in activities that are not closely related to
banking or financial in nature; or acquiring or retaining control of an
institution that is not federally insured. In evaluating applications by holding
companies to acquire savings institutions, the Office of Thrift Supervision must
consider the financial and managerial resources, future prospects of the savings
institution involved, the effect of the acquisition on the risk to the insurance
fund, the convenience and needs of the community and competitive factors.
PROSPECTIVE REGULATION AND LEGISLATION
Regulations that affect Wayne Savings Community Bank, Village Savings Bank
and Wayne Savings Bancshares, Inc. on a daily basis may be changed at any time,
and the interpretation of the relevant law and regulations may also change
because of new interpretations by the authorities who administer those laws and
regulations. Any change in the regulatory structure or the applicable statutes
or regulations, whether by the Office of Thrift Supervision, the Federal Deposit
Insurance Corporation, the Ohio Division of Financial Institutions or the United
States Congress, could have a material impact on the business and operations of
Wayne Savings Community Bank, Village Savings Bank and Wayne Savings Bancshares,
Inc.
FEDERAL SECURITIES LAWS
Wayne Savings Bancshares, Inc. has filed with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933, as
amended, for the registration of the common stock to be issued pursuant to the
conversion. Upon completion of the conversion, Wayne Savings Bancshares, Inc.
common stock will be registered with the Securities and Exchange Commission
under the Securities Exchange Act of 1934. Wayne Savings Bancshares, Inc. will
be subject to the information, proxy solicitation, insider trading restrictions
and other requirements under the Securities Exchange Act of 1934.
The registration under the Securities Act of 1933 of shares of common stock
to be issued in the conversion does not cover the resale of those shares. Shares
of the common stock purchased by persons who are not affiliates of Wayne Savings
Bancshares, Inc. may be resold without registration. Shares purchased by an
affiliate of Wayne Savings Bancshares, Inc. will be subject to the resale
restrictions of Rule 144 under the Securities Act of 1933. If Wayne Savings
Bancshares, Inc. meets the current public information requirements of Rule 144
under the Securities Act of 1933, each affiliate of Wayne Savings Bancshares,
Inc. who complies with the other conditions of Rule 144, including those that
require the affiliate's sale to be aggregated with those of other persons, would
be able to sell in the public market, without registration, a number of shares
not to exceed, in any three-month period, the greater of 1% of the outstanding
shares of Wayne Savings Bancshares, Inc., or the average weekly volume of
trading in the shares during the preceding four calendar weeks. Provision may be
made in the future by Wayne Savings Bancshares, Inc. to permit affiliates to
have their shares registered for sale under the Securities Act of 1933.
TAXATION
FEDERAL TAXATION. Income taxes are accounted for under the asset and
liability method that requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The federal tax bad debt reserve method available to thrift institutions
was repealed in 1996 for tax years beginning after 1995. As a result, Wayne
Savings Bancshares, Inc. was required to change from the reserve method to the
specific charge-off method to compute its bad debt deduction. In addition, Wayne
Savings Bancshares, Inc. is required generally to recapture into income the
portion of its bad debt reserve (other than the supplemental reserve) that
exceeds its base year reserves, or approximately $300,000.
The recapture amount resulting from the change in a thrift's method of
accounting for its bad debt reserves generally will be taken into taxable income
ratably (on a straight-line basis) over a six-year period. Wayne Savings
Community Bank began recapture of the bad debt reserve during fiscal 1999.
71
Retained earnings as of June 30, 2001 include approximately $1.2 million
for which no provision for federal income tax has been made. This reserve (base
year and supplemental) is frozen/not forgiven as certain events could trigger a
recapture such as stock redemption or distributions to shareholders in excess of
current or accumulated earnings and profits.
Wayne Savings Bancshares, Inc.'s tax returns have been audited or closed
without audit through fiscal year 1997.
OHIO TAXATION. Wayne Savings Bancshares, Inc. files Ohio franchise tax
returns. For Ohio franchise tax purposes, savings institutions are currently
taxed at a rate equal to 1.3% of taxable net worth. Wayne Savings Bancshares,
Inc. is not currently under audit with respect to its Ohio franchise tax
returns.
MANAGEMENT OF WAYNE SAVINGS BANCSHARES, INC.
DIRECTORS
Wayne Savings Bancshares, Inc.'s Board of Directors is currently composed
of seven members. Approximately one-third of the directors are elected annually.
Directors are generally elected to serve for three year-periods and until their
respective successors shall have been elected and shall qualify.
The table below sets forth certain information regarding the composition of
the Board of Directors as of June 30, 2001, including the terms of office of
Board members.
NAME AGE POSITIONS HELD IN THE COMPANY DIRECTOR SINCE(1) CURRENT TERM TO EXPIRE
--------------------- ------------ ------------------------------- ------------------- ------------------------
Charles F. Finn 63 Chairman of the Board,President, 1976 2002
and Chief Executive Officer
Joseph L. Retzler 73 Director 1985 2002
Kenneth G. Rhode 92 Director 1958 2003
James C. Morgan 63 Director 1995 2003
Donald E. Massaro 72 Director 1990 2004
Russell L. Harpster 66 Director 1979 2004
Terry A. Gardner 54 Director 1994 2004
--------------------------------
(1) Reflects initial appointment to the Board of Directors of Wayne Savings
Community Bank.
The principal occupation during the past five years of each director and
executive officer of Wayne Savings Bancshares, Inc. is set forth below. All
directors and executive officers have held their present positions for five
years unless otherwise stated.
CHARLES F. FINN has been President and Chief Executive Officer of Wayne
Savings Community Bank since 1983. He has been employed by Wayne Savings
Community Bank for 37 years. Mr. Finn is the spouse of Wanda Christopher-Finn,
Executive Vice President of Wayne Savings Bancshares, Inc. He was appointed
Chairman of the Board of Directors of Wayne Savings Bancshares, Inc. on
September 25, 1997.
JOSEPH L. RETZLER is President of Retzler Hardware in Wooster, Ohio.
KENNETH G. RHODE has been Chairman of the Board of Wayne Savings Community
Bank since 1972. He was Chief Executive Officer of Lightning Rod Mutual and
Western Reserve Mutual Insurance Companies of Wooster, Ohio, prior to his
retirement in 1988.
JAMES C. MORGAN is President of Franklin Oil & Gas, Inc. in Wooster, Ohio.
He was elected director on February 28, 1995 to fill the unexpired term of a
retiring director.
DONALD E. MASSARO has been affiliated with Wayne Savings Community Bank for
35 years. He previously was an officer of Wayne Savings Community Bank and
retired in December 1992.
RUSSELL L. HARPSTER is an attorney and a partner in the law firm of
Henderson, Harpster & Vanosdall in Ashland, Ohio.
72
TERRY A. GARDNER is President and General Partner of Terra Management,
Inc., in Wooster, Ohio, a firm involved in the construction and management of
multi-family housing projects. He was elected director on October 25, 1994 to
fill the unexpired term of a retiring director.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
WANDA CHRISTOPHER-FINN is Executive Vice President, Chief Administrative
Officer and has been affiliated with Wayne Savings Community Bank since 1972.
Ms. Christopher-Finn is the spouse of Charles Finn.
GARY C. MILLER became Senior Vice President, Manager of the Loan
Origination Division in February 1996 and was promoted to Chief Lending Officer
in August 1997. He was previously Vice President, Manager of Mortgage Loans. He
has been affiliated with Wayne Savings Community Bank since 1971.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of Wayne Savings Bancshares, Inc.'s Board of Directors is
conducted through meetings and activities of the Board and its committees.
During the year ended March 31, 2001, the Board of Directors held 12 regular
meetings and one special meeting. During the year ended March 31, 2001, no
director attended fewer than 75 percent of the total meetings of the Board of
Directors of Wayne Savings Bancshares, Inc. and committees on which such
director served.
The Executive Committee of the Board of Directors, consisting of Directors
Kenneth Rhode, Charles Finn, Russell Harpster and Joseph Retzler, also serves as
the Compensation Committee of Wayne Savings Bancshares, Inc., and meets
periodically to review the performance of officers and employees and determine
compensation programs and adjustments. The Executive Committee met two times in
its capacity as the Compensation Committee during the year ended March 31, 2001.
The Audit Committee consists of Directors Kenneth Rhode, Donald Massaro,
Terry Gardner and James Morgan. This Committee meets on a quarterly basis with
the internal auditor to review audit programs and the results of audits of
specific areas as well as other regulatory compliance issues. Wayne Savings
Bancshares, Inc.'s Audit Committee met four times during the year ended March
31, 2001.
The Nominating Committee consists of the full Board of Directors. While the
Nominating Committee will consider nominees recommended by stockholders, it has
not actively solicited recommendations from stockholders for nominees, nor
established any procedures for this purpose. Any nominations must, however, be
made pursuant to applicable provisions of the Bylaws of Wayne Savings
Bancshares, Inc. The Board of Directors met one time in its capacity as the
Nominating Committee during the fiscal year ended March 31, 2001.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth for the fiscal
years ended March 31, 2001, 2000 and 1999 certain information as to the total
remuneration paid by Wayne Savings Bancshares, Inc. to its Chief Executive
Officer and to its Executive Vice President. Information in the table below has
been adjusted for the 5% stock dividend paid in June 1999. During the fiscal
year ended March 31, 2001, no other officer of Wayne Savings Bancshares, Inc.
earned salary and bonus which exceeded $100,000.
==================== ================================================= ====================================== ================
LONG-TERM COMPENSATION
-------------------- ------------------------------------------------- -------------------------------------- ----------------
ANNUAL COMPENSATION (1) AWARDS PAYOUT
-------------------- ------------------------------------------------- ---------------------------- ---------
FISCAL
YEARS
ENDED OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL MARCH SALARY BONUS COMPENSATION STOCK UNDERLYING LTIP COMPENSATION
POSITION 31, ($) ($) (2) AWARD(S) OPTIONS/SARS PAYOUTS (3)
==================== ========= ============ ========= ================ ============ =============== ========= ================
Charles F. Finn 2001 $ 152,800 $ 16,000 -- -- -- -- $ --
Chairman, 2000 147,800 15,000 -- -- -- -- --
President and 1999 142,000 15,000 -- -- -- -- 7,688
Chief Executive
Officer
-------------------- --------- ------------ --------- ---------------- ------------ --------------- --------- ----------------
Wanda 2001 $ 97,500 $ 13,000 -- -- -- -- $ --
Christopher-Finn, 2000 94,500 10,500 -- -- -- -- --
Executive Vice 1999 89,500 10,400 -- -- -- -- 4,953
President
==================== ========= ============ ========= ================ ============ =============== ========= ================
(1) No compensation has been deferred at the election of the executive. Does
not include benefits pursuant to Wayne Savings Bancshares, Inc.'s Pension
Plan.
(2) Wayne Savings Community Bancshares, Inc. also provides certain members of
senior management with the use of an automobile, membership dues and other
personal benefits. The aggregate amount of such other benefits provided did
not exceed the lesser of $50,000 or 10% of total annual salary.
(3) Includes the market value at March 31 of shares of common stock allocated
to Mr. Finn and Ms. Christopher-Finn pursuant to Wayne Savings Community
Bank's Employee Stock Ownership Plan.
STOCK OPTION PLAN. The Board of Directors of Wayne Savings Community Bank
adopted the 1993 Incentive Stock Option Plan in connection with its conversion
to stock form in 1993. The plan was ratified by the stockholders at the 1993
Annual Meeting. Set forth below is information concerning exercised and
unexercisable options held by the named executive officers at March 31, 2001.
====================================================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
====================================================================================================================
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END (1)
------------------------- --------------------------
SHARES ACQUIRED VALUE
NAME UPON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---------------------------- ---------------- ----------------- ------------------------- --------------------------
Charles F. Finn 3,300 $34,650 3,200/-- $ 41,402 /--
Wanda Christopher-Finn 2,100 $ 22,050 2,041/-- $ 26,406/--
============================ ================ ================= ========================= ==========================
(1) Equals the difference between the aggregate exercise price of such options
and the aggregate fair market value of the shares of common stock that
would be received upon exercise, assuming such exercise occurred on March
31, 2001 (based on the price of the last sale reported on the Nasdaq
SmallCap Market on March 31, 2001).
EMPLOYMENT AND SEVERANCE AGREEMENTS
EMPLOYMENT AGREEMENTS. Wayne Savings Community Bank intends to enter into
employment agreements with Chairman, President and Chief Executive Officer
Charles F. Finn, and Executive Vice Presidents Wanda
74
Christopher-Finn and ______________. Mr. Finn's agreement will provide for a
term of 36 months, and Ms. Christopher-Finn's and ___________ will provide for
terms of 24 months. On each anniversary date, the agreements may be extended for
an additional 12 months, so that the remaining term shall be 36 months and 24
months, respectively. If the agreement is not renewed, the agreements will
expire 36 months, or 24 months, respectively, following the anniversary date.
The base salaries under the agreements may be increased but not decreased. In
addition to the base salaries, the agreements provide for, among other things,
insurance benefits, and participation in other employee and fringe benefits
applicable to executive personnel. The agreements provide for termination of the
executive by Wayne Savings Community Bank for cause at any time. In the event
Wayne Savings Community Bank terminates the executive's employment during the
term of the agreement for reasons other than cause, or in the event of the
executive's resignation from Wayne Savings Community Bank upon (i) failure to
re-elect the executive to his current offices, (ii) a material change in the
executive's functions, duties or responsibilities, or relocation of his
principal place of employment by more than a specified number of miles, (iii)
liquidation or dissolution of Wayne Savings Community Bank, or (iv) a breach of
the agreement by Wayne Savings Community Bank, Mr. Finn, Ms. Christopher-Finn,
or Mr. ________ , or in the event of death, his or her beneficiary would be
entitled to severance pay in an amount equal to three times, or two times, as
applicable, his or her highest annual Base Salary and bonus. Wayne Savings
Community Bank would also continue the executive's life and, if applicable,
dental coverage for the remaining unexpired term of the agreement. In the event
the payments to the executive would include an "excess parachute payment" as
defined in the Internal Revenue Code, the payments would be reduced in order to
avoid having an excess parachute payment. The agreement may be revised based
upon comments of the Office of Thrift Supervision.
An executive's employment may be terminated upon his or her attainment of a
retirement age to which the executive consents. Upon an executive's retirement,
he or she will be entitled to all benefits available to him under any retirement
or other benefit plan maintained by Wayne Savings Community Bank. In the event
of an executive's disability for a period of six months, Wayne Savings Community
Bank may terminate the agreement provided that Wayne Savings Community Bank will
be obligated to pay the executive a bi-weekly payment equal to three quarters of
the executive's bi-weekly rate of base salary, reduced by any benefits paid to
the executive pursuant to any disability insurance policy or similar arrangement
maintained by Wayne Savings Community Bank. The disability payments shall end on
the earlier of (i) the date the executive returns to full-time employment with
Wayne Savings Community Bank or another employer, (ii) his attainment of
retirement age, or (iii) his death.
CHANGE OF CONTROL AGREEMENTS. Wayne Savings Community Bank intends to enter
into a change of control agreement with Gary C. Miller that will provide certain
benefits in the event of a change of control of Wayne Savings Bancshares, Inc.
or Wayne Savings Community Bank. Upon a change in control of Wayne Savings
Community Bank followed by the involuntary or, in certain instances, voluntary,
termination, other than termination for cause, Mr. Miller would be entitled to
severance pay in an amount equal to two times his base salary. In the event the
payments to the executive would include an "excess parachute payment" as defined
in the Internal Revenue Code, the payments would be reduced in order to avoid
having an excess parachute payment. The agreement may be revised based upon
comments of the Office of Thrift Supervision.
DIRECTORS' COMPENSATION
FEES. Wayne Savings Bancshares, Inc.'s directors receive no fees for
serving on the Board of Directors or committees of Wayne Savings Bancshares,
Inc. Each outside director who served on the Board of Directors of Wayne Savings
Community Bank during the fiscal year ended March 31, 2001 received a monthly
meeting fee of $789 and a monthly retainer of $526. The monthly meeting fee is
paid to the director only if the director attends the meeting or has an excused
absence. No additional fees were paid for special meetings of the Board of
Directors. During the fiscal year ended March 31, 2001, the members of the
Executive Committee received an annual fee of $2,000; however, Kenneth Rhode,
Chairman of the Board of Directors of Wayne Savings Community Bank, received a
grandfathered executive committee fee of $4,000. Members of the Loan Committee
and Audit Committee received an annual fee of $1,800. Directors who attend the
quarterly meetings of Wayne Savings Bancshares, Inc.'s Asset Review Committee
received a fee of $100 for each meeting attended. The Chairman of the Board of
Directors of Wayne Savings Community Bank and Chairman of the Executive
Committee received $12,850 in additional fees during the fiscal year ended March
31, 2001. Mr. Finn did not receive any fees as Chairman of the Board of Wayne
Savings Bancshares, Inc.
DIRECTORS DEFERRED COMPENSATION PLAN. Wayne Savings Bancshares, Inc.
intends to implement a Directors Deferred Compensation Plan. Pursuant to the
plan, retiring directors will be entitled to receive five annual
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payments, each of which is equal to 50% of the fees received by the retiring
director during the year prior to retirement. Wayne Savings Bancshares, Inc.
estimates that the after-tax cost of implementing the plan will be approximately
$120,000.
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS. The Board of Directors of Wayne
Savings Community Bank adopted the 1993 Stock Option Plan for Outside Directors
in connection with its conversion to stock form in 1993. The plan was ratified
by Wayne Savings Community Bank's stockholders at the 1993 Annual Meeting. The
plan authorizes the grant of non-statutory stock options for 36,018 shares
(adjusted for stock-splits and stock dividends) of common stock to non-employee
directors of Wayne Savings Bancshares, Inc. The plan is a self administering
plan that granted to Messrs. Rhode, Harpster, Retzler, and Massaro non-statutory
options to purchase 7,204, 5,467, 5,467 and 5,336 shares of common stock (as
adjusted), respectively. The exercise price of the options was originally $10.00
per share, the fair market value of the shares of common stock underlying such
option on the date the option was granted. As of June 30, 2001, the exercise
price of all such options was $5.00 due to stock-splits and stock dividends. All
options granted under the plan may be exercised from time to time in whole or in
part, and expire upon the earlier of 10 years following the date of grant or one
year following the date the optionee ceases to be a director.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
Wayne Savings Community Bank implemented an employee stock ownership plan
in connection with its stock offering in 1993. The employee stock ownership plan
purchased 8% of the shares sold in the 1993 offering, all of which have been
allocated. As part of the conversion, the employee stock ownership plan intends
to borrow funds from Wayne Savings Bancshares, Inc. and use those funds to
purchase 8% of the common stock to be sold in the offering.
Employees with at least one year of employment with Wayne Savings Community Bank
and who have attained age 18 are eligible to participate. Collateral for the
loan will be the common stock purchased by the employee stock ownership plan.
The loan will be repaid principally from Wayne Savings Community Bank's
discretionary contributions to the employee stock ownership plan over a period
of up to 20 years, provided that the loan documents will permit repayment over a
shorter period, without penalty for prepayments. It is anticipated that the
interest rate for the loan will be a floating rate equal to the prime rate.
Shares purchased by the employee stock ownership plan will be held in a suspense
account for allocation among participants as the loan is repaid.
Contributions to the employee stock ownership plan and shares released from the
suspense account in an amount proportional to the repayment of the employee
stock ownership plan loan will be allocated among employee stock ownership plan
participants on the basis of compensation in the year of allocation. A
participant who terminates employment for reasons other than death, retirement,
or disability prior to five years of credited service under the employee stock
ownership plan will forfeit his benefits. Nonvested benefits will become fully
vested upon five years of credited service, or prior to five years of credited
service in connection with a participants death or disability or termination of
the plan. Vested benefits will be payable in the form of common stock and/or
cash. Wayne Savings Community Bank's contributions to the employee stock
ownership plan are discretionary, subject to the loan terms and tax law limits;
therefore, benefits payable under the employee stock ownership plan cannot be
estimated. Pursuant to SOP 93-6, Wayne Savings Community Bank is required to
record compensation expense in an amount equal to the fair market value of the
shares released from the suspense account. In the event of a change in control
(as defined in the plan) the employee stock ownership plan will terminate.
A committee of nonemployee directors will administer the employee stock
ownership plan. Wayne Savings Community Bank will appoint an independent
financial institution or its outside directors to serve as trustee of the
employee stock ownership plan. The employee stock ownership plan trustee,
subject to its fiduciary duty, must vote all allocated shares held in the
employee stock ownership plan in accordance with the instructions of
participating employees. Under the employee stock ownership plan, nondirected
shares and shares held in the suspense account will be voted in a manner
calculated to most accurately reflect the instructions it has received from
participants regarding the allocated stock, so long as the vote is in accordance
with the provisions of ERISA.
PENSION PLAN
Wayne Savings Community Bank makes available to all full-time employees who
have attained the age of 21 and completed one year of service with the bank a
defined benefit pension plan. The pension plan provides for
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monthly payments to or on behalf of each covered employee upon the employee's
normal retirement date (I.E., the first day of the month coincident with or next
following the later of age 65 or 5 years of participation). These payments are
calculated in accordance with a formula based on the employee's "average monthly
compensation," which is defined as the highest average of total compensation for
five consecutive calendar years of employment. The normal retirement benefit is
equal to 29% of the "average monthly compensation" up to the integration level,
plus 51% of the "average monthly compensation" in excess of the integration
level, reduced for less than 35 years of service. The normal form of benefit is
a monthly income payable for life. Optional forms of benefit are available.
Under the pension plan, the bank makes an annual contribution for the
benefit of eligible employees computed on an actuarial basis. Employee benefits
under the plan vest as designated in the schedule below:
COMPLETED YEARS VESTED
OF EMPLOYMENT PERCENTAGES
------------- -----------
Fewer than 3 ............................................... 0
3 but less than 4 .......................................... 20%
4 but less than 5 .......................................... 40%
5 but less than 6 .......................................... 60%
6 but less than 7 .......................................... 80%
7 or more .................................................. 100%
The following table illustrates regular annual allowance amounts at age 65
under the regular retirement benefit plan provisions available at various levels
of compensation and years of benefit service (figured on formula described
above):
YEARS OF BENEFIT SERVICE
AVERAGE SALARY 10 15 20 25 30 35
-------------- ---------- ---------- ---------- ---------- ---------- ---------
$ 20,000 $ 1,811 $ 2,717 $ 3,622 $ 4,528 $ 5,433 $ 6,339
$ 30,000 $ 3,268 $ 4,902 $ 6,537 $ 8,171 $ 9,805 $ 11,439
$ 50,000 $ 6,183 $ 9,274 $ 12,365 $ 15,456 $ 18,548 $ 21,639
$ 80,000 $10,554 $ 15,831 $ 21,108 $ 26,385 $ 31,662 $ 37,939
$ 100,000 $13,468 $ 20,202 $ 27,937 $ 33,671 $ 40,405 $ 47,139
At March 31, 2001, Mr. Finn and Ms. Christopher-Finn had 37 years and 29
years of credited service under the pension plan, respectively.
CERTAIN TRANSACTIONS WITH WAYNE SAVINGS BANCSHARES, INC.
Federal law and regulation generally requires that all loans or extensions
of credit to executive officers and directors must be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with the general public and must not involve
more than the normal risk of repayment or present other unfavorable features.
However, recent regulations now permit executive officers and directors to
receive the same terms through benefit or compensation plans that are widely
available to other employees, as long as the director or executive officer is
not given preferential treatment compared to the other participating employees.
All loans made to a director or executive officer in excess of the greater of
$25,000 or 5% of Wayne Savings Bancshares, Inc.'s capital and surplus must be
approved in advance by a majority of the disinterested members of the Board of
Directors. As of June 30, 2001, loans to officers, directors and their related
business interests totaled $2.5 million. All loans, the principal balances of
which exceeded $60,000 at any time during the fiscal year ended March 31, 2001,
made by Wayne Savings Bancshares, Inc. to executive officers, directors,
immediate family members of executive officers and directors, or organizations
with which executive officers and directors are affiliated, were made in the
ordinary course of business, on substantially the same terms including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons.
Director Russell L. Harpster is a partner in the law firm of Henderson,
Harpster & Vanosdall of Ashland, Ohio, which has represented Wayne Savings
Bancshares, Inc. in certain legal matters since 1979. During the fiscal year
ending March 31, 2001, Wayne Savings Bancshares, Inc. paid $8,133 in legal fees
to the law firm. No retainer was paid, and Wayne Savings Bancshares, Inc. was
billed for services performed at the firm's hourly rate.
77
BENEFITS TO BE CONSIDERED FOLLOWING COMPLETION OF THE CONVERSION
STOCK OPTION PLAN. We intend to submit for stockholder approval, no earlier
than six months after the completion of the conversion, a new stock option plan
for directors and officers of Wayne Savings Community Bank and Wayne Savings
Bancshares, Inc. If approved by the stockholders, the new stock option plan
would reserve 10% of the shares sold in the offering for issuance when options
granted to officers and directors are exercised. Ten percent of the shares
issued in the offering would amount to 153,000 shares, 180,000 shares, 207,000
shares or 238,050 shares at the minimum, mid-point, maximum and adjusted maximum
of the offering range, respectively. No options would be granted under the new
stock option plan until stockholder approval of the plan is received. In the
event that shares underlying options come from authorized but unissued shares,
stockholders would experience dilution of approximately 5.5% in their ownership
interest in Wayne Savings Bancshares, Inc. at the mid-point of the offering
range.
The exercise price of the options granted under the new stock option plan
will be equal to the fair market value of Wayne Savings Bancshares, Inc. common
stock on the date of grant of the stock options. If the stock option plan is
adopted within one year following the conversion, options will vest at a rate of
20% at the end of each 12 months of service with Wayne Savings Community Bank
after the date of grant. Options granted under the stock option plan would be
adjusted for capital changes such as stock splits and stock dividends. Awards
will be 100% vested upon termination of employment due to death or disability,
and if the stock option plan is adopted more than one year after the conversion,
awards would be 100% vested upon normal retirement or a change in control of
Wayne Savings Community Bank or Wayne Savings Bancshares, Inc. Under Office of
Thrift Supervision rules, if the stock option plan is adopted within one year of
the conversion, no individual officer may receive more than 25% of the awards
under the plan, no non-employee director may receive more than 5% of the awards
under the plan, and all non-employee directors as a group can receive no more
than 30% of the awards under the plan in the aggregate.
The stock option plan would be administered by a committee of non-employee
members of the Wayne Savings Bancshares, Inc.'s board of directors. Options
granted under the stock option plan to employees may be "incentive" stock
options, designed to result in a beneficial tax treatment to the employee but no
tax deduction to Wayne Savings Bancshares, Inc. Non-qualified stock options may
also be granted to employees under the stock option plan, and will be granted to
the non-employee directors who receive stock options. In the event an option
recipient terminated his employment or service as an employee or director, the
options would terminate during certain specified periods.
STOCK RECOGNITION PLAN. We also intend to request stockholder approval of a
new stock recognition plan, no earlier than six months after the completion of
the conversion. If approved by stockholders, the new stock recognition plan
would, if implemented within one year of conversion, reserve 4% of the shares
sold in the offering (assuming Wayne Savings Community Bank has a tangible
capital to assets ratio in excess of 10%) or 61,200 shares, 72,000 shares,
82,800 or 95,220 shares at the minimum, mid-point, maximum and adjusted maximum
of the offering range, respectively. The officers and directors will be awarded
common stock under the stock recognition plan without having to pay cash for the
shares. No awards would be made under the stock recognition plan until the plan
is approved by stockholders. If the shares awarded under the stock recognition
plan come from authorized but unissued shares totaling 4% of the shares sold in
the offering, stockholders would experience dilution of approximately 2.1% in
their ownership interest in Wayne Savings Bancshares, Inc. at the mid-point of
the offering range.
Awards under the stock recognition plan would be nontransferable and
nonassignable. Under OTS rules, if the stock recognition plan is adopted within
one year following the conversion, the shares which are subject to an award
would vest at a rate of 20% at the end of each full 12 months of service with
Wayne Savings Community Bank after the date of grant of the award. Awards would
be adjusted for capital changes such as stock dividends and stock splits. Awards
would be 100% vested upon termination of employment or service due to death or
disability, and if the stock recognition plan is adopted more than one year
after the conversion, awards would be 100% vested upon normal retirement or a
change in control of Wayne Savings Community Bank or Wayne Savings Bancshares,
Inc. If employment or service were to terminate for other reasons, the award
recipient would forfeit any nonvested award. If employment or service is
terminated for cause (as defined), shares not already delivered would be
forfeited. Under OTS rules, if the stock recognition plan is adopted within one
year of the conversion, no individual officer may receive more than 25% of the
awards under the plan, no non-employee director may receive more than 5% of the
awards under the plan, and all non-employee directors as a group may receive no
more than 30% of the awards under the plan in the aggregate.
78
The recipient of an award will recognize income equal to the fair market
value of the stock earned, determined as of the date of vesting, unless the
recipient makes an election under Section 83(b) of the Internal Revenue Code to
be taxed earlier. The amount of income recognized by the recipient would be a
deductible expense for tax purposes for Wayne Savings Bancshares, Inc. If the
stock recognition plan is adopted within one year following the conversion,
dividends and other earnings will accrue and be payable to the award recipient
when the shares vest. If the stock recognition plan is adopted within one year
following the conversion, shares not yet vested will be voted by the trustee of
the stock recognition plan, taking into account the best interests of the award
recipients. If the stock recognition plan is adopted more than one year
following the conversion, dividends declared on unvested shares will be
distributed to the recipient when paid, and the recipient will be entitled to
vote the unvested shares.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table provides the beneficial ownership of our common stock
held by our directors and executive officers, individually and as a group as of
June 30, 2001. The business address of each director and executive officer is
151 North Market Street, Wooster, Ohio.
PERCENT OF
NUMBER OF SHARES OF COMMON ALL COMMON STOCK
NAME OF BENEFICIAL OWNER STOCK BENEFICIALLY OWNED(1) OUTSTANDING
------------------------------------------------- ----------------------------- ------------------
Charles F. Finn 34,664(2) 1.3%
Terry A. Gardner 31,492 1.2
Russell L. Harpster 38,482(3) 1.5
Donald E. Massaro 10,230 *
James C. Morgan 11,412 *
Joseph L. Retzler 15,471(4) *
Kenneth G. Rhode 60,220 2.3
Wanda Christopher-Finn 21,677(5) *
Gary C. Miller 9,896 *
All directors and executive officers as a group (9
persons) 233,544 9.1
-------------------------------
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
be the beneficial owner for purposes of this table, of any shares of Common
Stock if he has sole or shared voting or investment power with respect to
such security, or has a right to acquire beneficial ownership at any time
within 60 days from the date as of which beneficial ownership is being
determined. As used herein, "voting power" is the power to vote or direct
the voting of shares and "investment power" is the power to dispose or
direct the disposition of shares. Includes all shares held directly as well
as by spouses and minor children, in trust and other indirect ownership,
over which shares the named individuals effectively exercise sole or shared
voting and investment power.
(2) Includes options to purchase 3,200 shares.
(3) Includes options to purchase 842 shares.
(4) Includes options to purchase 4,467 shares.
(5) Includes options to purchase 2,041 shares.
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth, for each of Wayne Savings Bancshares, Inc.'s
directors and executive officers and for all of the directors and executive
officers as a group, the following information:
(1) the number of exchange shares to be held upon consummation of the
conversion, based upon their beneficial ownership of Wayne Savings
Bancshares, Inc. common stock as of June 30, 2001;
(2) the proposed purchases of subscription shares, assuming sufficient
shares are available to satisfy their subscriptions; and
(3) the total amount of Wayne Savings Bancshares, Inc. common stock to be
held upon consummation of the conversion.
In each case, it is assumed that subscription shares are sold at the
midpoint of the offering range. See "The Conversion--Limitations on Common Stock
Purchases."
79
PROPOSED PURCHASES OF STOCK IN TOTAL COMMON STOCK TO BE HELD
THE OFFERING(1) ----------------------------------------
NUMBER OF ---------------------------------- PERCENTAGE OF
EXCHANGE SHARES NUMBER OF NUMBER OF TOTAL
NAME OF BENEFICIAL OWNER TO BE HELD(2) SHARES AMOUNT SHARES OUTSTANDING
------------------------------- --------------- ----------------- --------------- -------------- ----------------------
Charles F. Finn 46,193
Terry A. Gardner 41,966
Russell L. Harpster 51,281
Donald E. Massaro 13,632
James C. Morgan 15,207
Joseph L. Retzler 20,616
Kenneth G. Rhode 80,249
Wanda Christopher-Finn 28,886
Gary C. Miller 13,187
All directors and executive
officers as a group (9
persons) 264,535
-------------------------------
* Less than 1%.
(1) Includes proposed subscriptions, if any, by associates.
(2) Based on information presented in "Beneficial Ownership of Common Stock."
THE CONVERSION
The Boards of Directors of Wayne Savings Bancshares, Inc. and Wayne Savings
Bankshares, MHC have approved the plan of conversion. The plan of conversion
must also be approved by the members of Wayne Savings Bankshares, MHC, and the
stockholders of Wayne Savings Bancshares, Inc. A special meeting of members and
a special meeting of stockholders have been called for this purpose. The Office
of Thrift Supervision has also approved the plan; however, such approval does
not constitute a recommendation or endorsement of the plan of conversion by that
agency.
GENERAL
The Board of Directors of Wayne Savings Bankshares, MHC adopted the plan of
conversion on July 10, 2001. Pursuant to the plan of conversion, our
organization will convert from the mutual holding company form of organization
to the fully public form. Wayne Savings Bankshares, MHC, the mutual holding
company parent of Wayne Savings Bancshares, Inc., will be merged into Wayne
Savings Community Bank, and Wayne Savings Bankshares, MHC will no longer exist.
Pursuant to the plan, Wayne Savings Bancshares, Inc., which owns 100% of Wayne
Savings Community Bank, also will be succeeded by a new Delaware corporation
with the same name. As part of the conversion, shares of common stock of Wayne
Savings Bancshares, Inc. representing the ownership interest of Wayne Savings
Bankshares, MHC, will be offered for sale in the subscription offering and
community offering. Following the completion of the conversion, all of the
capital stock of Wayne Savings Community Bank will be held by Wayne Savings
Bancshares, Inc. A diagram of our corporate structure before and after the
conversion is set forth at page __.
Under the plan of conversion, at the conclusion of the conversion and
related offering, each share of Wayne Savings Bancshares, Inc. common stock held
by persons other than Wayne Savings Bankshares, MHC will be converted
automatically into and become a right to receive new shares of Wayne Savings
Bancshares, Inc. common stock determined pursuant to the exchange ratio. The
exchange ratio will ensure that immediately after the conversion and the share
exchange, excluding any shares purchased in the offering, the public
stockholders of Wayne Savings Bancshares, Inc. common stock will own the same
aggregate percentage of Wayne Savings Bancshares, Inc. common stock that they
owned immediately prior to the conversion.
Wayne Savings Bancshares, Inc. intends to retain 50% of the net proceeds of
the offering and contribute the balance of the net proceeds to Wayne Savings
Community Bank. The conversion will be effected only upon completion of the sale
of at least the minimum number of shares of common stock of Wayne Savings
Bancshares, Inc. to be offered pursuant to the plan of conversion.
The plan of conversion provides generally that Wayne Savings Bancshares,
Inc. will offer shares of common stock for sale in the subscription offering to
eligible account holders, Wayne Savings Community Bank's tax-qualified benefit
plans, including the employee stock ownership plan, supplemental eligible
account holders and other members. Subject to the prior rights of these holders
of subscription rights, Wayne Savings Bancshares, Inc. will offer common stock
for sale in a community offering to members of the general public, with a
preference given to the public stockholders of Wayne Savings Bancshares, Inc.
common stock as of November __, 2001, and then to
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natural persons residing in Wayne, Holmes, Ashland, Medina and Stark Counties,
Ohio. Wayne Savings Bancshares, Inc. has the right to accept or reject, in whole
or in part, any orders to purchase shares of the common stock received in the
community offering. The community offering may commence at the same time as the
subscription offering and must be completed within 45 days after the completion
of the subscription offering unless otherwise extended by the Office of Thrift
Supervision. See "--Community Offering."
The number of shares of common stock to be offered in the offering was
determined based upon an independent appraisal of the estimated pro forma market
value of Wayne Savings Bancshares, Inc. All shares of common stock to be sold in
the offering will be sold at $10.00 per share. The independent valuation will be
updated and the final number of the shares to be issued in the offering will be
determined at the completion of the offering. See "--Stock Pricing and Number of
Shares to be Issued" for more information as to the determination of the
estimated pro forma market value of the common stock.
The appraisal was prepared pursuant to written guidelines promulgated by
the Office of Thrift Supervision. RP Financial, LC made its appraisal in
reliance upon the information contained in this document, including the
financial statements. RP Financial, LC also considered the following factors,
among others:
o the present and projected operating results and financial condition of
Wayne Savings Bancshares, Inc. and the economic and demographic
conditions in Wayne Savings Bancshares, Inc.'s existing market area;
o certain historical, financial and other information relating to Wayne
Savings Bancshares, Inc.;
o a comparative evaluation of the operating and financial
characteristics of Wayne Savings Bancshares, Inc. with those of other
similarly situated publicly traded savings institutions located in
Ohio and other regions of the United States;
o the aggregate size of the offering of the common stock;
o the impact of the conversion on Wayne Savings Bancshares, Inc.'s
stockholders' equity and earnings potential;
o the proposed dividend policy of Wayne Savings Bancshares, Inc.; and
o the trading market for securities of comparable institutions and
general conditions in the market for such securities.
The appraisal considered the pro forma impact of the offering. Consistent
with the Office of Thrift Supervision appraisal guidelines, the appraisal
applied three primary methodologies: the pro forma price-to-book value approach
applied to both reported book value and tangible book value; the pro forma
price-to-earnings approach applied to reported and core earnings; and the pro
forma price-to-assets approach. The market value ratios applied in the three
methodologies were based upon the current market valuations of the peer group
companies, subject to valuation adjustments applied by RP Financial, LC to
account for differences between Wayne Savings Bancshares, Inc. and the peer
group. RP Financial, LC placed the greatest emphasis on the price-to-earnings
and price-to-book approaches in estimating pro forma market value. RP Financial,
LC's analysis provides an approximation of the pro forma market value of Wayne
Savings Bancshares, Inc. as converted based on the valuation approaches applied
and the assumptions outlined in its report. Included in its report were certain
assumptions as to the pro forma earnings of Wayne Savings Bancshares, Inc. after
the conversion that were utilized in determining the appraised value. These
assumptions included estimated expenses and an assumed after-tax rate of return
on the net conversion proceeds as described under "Pro Forma Data," purchases by
the employee stock ownership plan of an amount equal to 8% of the common stock
issued in the offering, and purchases in the open market by the recognition plan
of a number of shares equal to 4% of the common stock issued in the offering at
the $10.00 purchase price. See "Pro Forma Data" for additional information
concerning theses assumptions. The use of different assumptions may yield
different results.
The following is a brief summary of the conversion and is qualified in its
entirety by reference to the provisions of the plan of conversion. A copy of the
plan of conversion is available for inspection at each branch of Wayne
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Savings Community Bank and at the Central Regional and Washington, D.C. offices
of the Office of Thrift Supervision. The plan of conversion is also filed as an
exhibit to the application to convert from mutual to stock form of which this
prospectus is a part, copies of which may be obtained from the Office of Thrift
Supervision. See "Additional Information."
PURPOSES OF CONVERSION
Wayne Savings Community Bank reorganized into the mutual holding company
corporate structure in 1993 and sold only a minority interest in the common
stock based on its capital needs at that time. If Wayne Savings Community Bank
had undertaken a full conversion to public ownership in 1993, it would have
offered 100% of its common stock for sale, and it would have raised more capital
than management believed could have been effectively reinvested in its market
area. Wayne Savings Bancshares, Inc. now has the need for additional capital,
and it will sell the portion of its shares now owned by Wayne Savings
Bankshares, MHC to the public. This will complete the transition to full public
ownership.
The potential impact of the conversion upon Wayne Savings Community Bank's
capital base is significant. Wayne Savings Community Bank had stockholders'
equity in accordance with generally accepted accounting principles of $25.4
million, or 8.0% of assets, at June 30, 2001. Assuming that the offering raises
$18.0 million in gross proceeds, the midpoint of the offering range, and
assuming that 50% of the net proceeds are contributed to Wayne Savings Community
Bank as additional capital, Wayne Savings Community Bank's ratio of capital to
pro forma assets, calculated under generally accepted accounting principles,
will increase to 10.4%. The investment of the net proceeds from the sale of the
common stock will provide Wayne Savings Community Bank with additional income to
grow and further increase its capital position. The additional capital may also
assist Wayne Savings Community Bank in offering new programs and expanded
services to its customers. Additionally, the proceeds retained by Wayne Savings
Bancshares, Inc. may be used for the acquisition of financial institution
branches or banking related businesses, although we have no current plans to
make any such acquisitions.
After completion of the conversion and depending on market conditions, the
unissued common and preferred stock authorized by the certificate of
incorporation of Wayne Savings Bancshares, Inc. will permit Wayne Savings
Bancshares, Inc. to raise additional equity capital through further sales of
securities, and to issue securities in connection with possible acquisitions. At
the present time, we have no plans with respect to additional offerings of
securities, other than the issuance of additional shares upon exercise of stock
options or the possible issuance of authorized but unissued shares to our stock
benefit programs.
APPROVALS REQUIRED
The affirmative vote of a majority of the total eligible votes of the
members of Wayne Savings Bankshares, MHC, at the special meeting of members is
required to approve the plan of conversion. By their approval of the plan of
conversion, the members of Wayne Savings Bankshares, MHC will also be deemed to
approve the merger of Wayne Savings Bankshares, MHC into Wayne Savings Community
Bank. The affirmative vote of the holders of at least two-thirds of the
outstanding common stock of Wayne Savings Bancshares, Inc. and a majority of the
publicly held shares of Wayne Savings Bancshares, Inc. common stock are also
required to approve the plan of conversion. The plan of conversion must also be
approved by the OTS.
SHARE EXCHANGE RATIO
Office of Thrift Supervision regulations provide that in a conversion of a
mutual holding company to fully stock form, the public stockholders will be
entitled to exchange their shares of a subsidiary's common stock for common
stock of the converted holding company, provided that the mutual holding company
demonstrates to the satisfaction of the Office of Thrift Supervision that the
basis for the exchange is fair and reasonable. The board of directors of Wayne
Savings Bancshares, Inc. has determined that each publicly held share of Wayne
Savings Bancshares, Inc. common stock will, on the effective date of the
conversion, be converted automatically into and become the right to receive a
number of new shares of Wayne Savings Bancshares, Inc. common stock determined
pursuant to the exchange ratio whereby the public stockholders of Wayne Savings
Bancshares, Inc. common stock will own the same percentage of common stock in
Wayne Savings Bancshares, Inc. after the conversion as they held in Wayne
Savings Bancshares, Inc. immediately prior to the conversion, exclusive of their
purchase of additional shares, and the receipt of cash in lieu of fractional
shares. At June 30, 2001, there were 2,571,093 shares of Wayne Savings
Bancshares, Inc. common stock outstanding (net of treasury stock), and 1,220,394
shares, or 47.5% of the total, were
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publicly held. The exchange ratio is not dependent on the market value of Wayne
Savings Bancshares, Inc. common stock. It is calculated based on the percentage
of Wayne Savings Bancshares, Inc. common stock held by the public and the number
of shares sold in the offering. The exchange ratio is expected to range from
approximately 1.1327 exchange shares for each publicly held share of Wayne
Savings Bancshares, Inc. at the minimum of the offering range to 1.7624 exchange
shares for each publicly held share of Wayne Savings Bancshares, Inc. at the
adjusted maximum of the offering range.
If you are now a stockholder of Wayne Savings Bancshares, Inc., your
existing shares will be cancelled and exchanged for new shares in Wayne Savings
Bancshares, Inc. The number of shares you will get will be based on an exchange
ratio determined as of the closing of the conversion. The actual number of
shares you receive will depend upon the number of shares we sell in our
offering, which in turn will depend upon the final appraised value of Wayne
Savings Bancshares, Inc. The following table shows how the exchange ratio will
adjust, based on the number of shares sold in our offering. The table also shows
how many shares a hypothetical owner of Wayne Savings Bancshares, Inc. common
stock would receive in the exchange, adjusted for the number of shares sold in
the offering.
NEW SHARES TOTAL SHARES NEW SHARES TO
NEW SHARES TO BE EXCHANGED OF COMMON BE RECEIVED FOR
TO BE SOLD FOR EXISTING SHARES OF WAYNE STOCK TO BE EXCHANGE 100 EXISTING
IN THIS OFFERING SAVINGS BANCSHARES, INC. OUTSTANDING RATIO SHARES
AMOUNT PERCENT AMOUNT PERCENT
Minimum............... 1,530,000 52.53 % 1,382,397 47.47 % 2,912,397 1.1327 113
Midpoint.............. 1,800,000 52.53 1,626,350 47.47 3,426,350 1.3326 133
Maximum............... 2,070,000 52.53 1,870,302 47.47 3,940,302 1.5325 153
15% above Maximum..... 2,380,500 52.53 2,150,847 47.47 4,531,347 1.7624 176
Options to purchase shares of Wayne Savings Bancshares, Inc. common
stock will also be converted into and become options to purchase Wayne Savings
Bancshares, Inc. common stock. The number of shares of common stock to be
received upon exercise of these options will be determined pursuant to the
exchange ratio. The aggregate exercise price, duration, and vesting schedule of
these options will not be affected. At June 30, 2001, all the options to
purchase common stock were vested. At June 30, 2001, there were outstanding
options to purchase 17,473 shares of Wayne Savings Bancshares, Inc. common
stock. Executive officers and directors of Wayne Savings Bancshares, Inc. do not
intend to exercise options prior to the effective date.
EFFECTS OF CONVERSION ON DEPOSITORS, BORROWERS AND MEMBERS
GENERAL. Each depositor in Wayne Savings Community Bank has both a deposit
account in Wayne Savings Community Bank and a pro rata ownership interest in the
net worth of Wayne Savings Bankshares, MHC based upon the balance in his or her
account. This interest may only be realized in the event of a complete
liquidation of Wayne Savings Bankshares, MHC and Wayne Savings Community Bank.
However, this ownership interest is tied to the depositor's account and has no
tangible market value separate from the deposit account. Any depositor who opens
a deposit account obtains a pro rata ownership interest in Wayne Savings
Bankshares, MHC without any additional payment beyond the amount of the deposit.
A depositor who reduces or closes his account receives a portion or all of the
balance in the account but nothing for his ownership interest in the net worth
of Wayne Savings Bankshares, MHC, which is lost to the extent that the balance
in the account is reduced or closed.
Consequently, depositors in a stock subsidiary of a mutual holding company
normally have no way of realizing the value of their ownership interest, which
has realizable value only in the unlikely event that Wayne Savings Bankshares,
MHC and Wayne Savings Community Bank are liquidated. If this occurs, the
depositors of record at that time, as owners, would share pro rata in any
residual surplus and reserves of Wayne Savings Bankshares, MHC after other
claims, including claims of depositors to the amounts of their deposits, are
paid.
CONTINUITY. While the conversion is being accomplished, the normal business of
Wayne Savings Community Bank of accepting deposits and making loans will
continue without interruption. Wayne Savings Community Bank will continue to be
regulated by the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation. After the conversion, Wayne Savings Community Bank will continue to
provide services for depositors and
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borrowers under current policies by its present management and staff. The
directors serving Wayne Savings Bancshares, Inc. at the time of the conversion
will serve as directors of Wayne Savings Bancshares, Inc. after the conversion.
EFFECT ON DEPOSIT ACCOUNTS. Under the plan of conversion, each depositor in
Wayne Savings Community Bank at the time of the conversion will automatically
continue as a depositor after the conversion, and each of the deposit accounts
will remain the same with respect to deposit balance, interest rate and other
terms. Each such account will be insured by the Federal Deposit Insurance
Corporation to the same extent as before the conversion. Depositors will
continue to hold their existing certificates, passbooks and other evidences of
their accounts.
EFFECT ON LOANS. No loan outstanding from Wayne Savings Community Bank will be
affected by the conversion, and the amount, interest rate, maturity and security
for each loan will remain as they were contractually fixed prior to the
conversion.
EFFECT ON VOTING RIGHTS OF MEMBERS. At present, all depositors, and borrowers
as of June 23, 1993, who continue as borrowers of Wayne Savings Community Bank,
are members of, and have voting rights in, Wayne Savings Bankshares, MHC as to
all matters requiring membership action. Upon completion of the conversion,
depositors and borrowers will cease to be members of Wayne Savings Bankshares,
MHC and will no longer be entitled to vote at meetings of Wayne Savings
Bankshares, MHC. Upon completion of the conversion, all voting rights in Wayne
Savings Community Bank will be vested in Wayne Savings Bancshares, Inc. as the
sole stockholder of Wayne Savings Community Bank. Exclusive voting rights with
respect to Wayne Savings Bancshares, Inc. will be vested in the holders of its
common stock. Depositors and borrowers of Wayne Savings Community Bank will not
have voting rights after the conversion, except to the extent that they become
stockholders of Wayne Savings Bancshares, Inc. through the purchase of common
stock.
TAX EFFECTS. Wayne Savings Bancshares, Inc. will receive an opinion of
counsel or tax advisor with regard to federal and state income taxation to the
effect that the adoption and implementation of the plan of conversion will not
be taxable for federal or state income tax purposes to Wayne Savings Bankshares,
MHC, Wayne Savings Bancshares, Inc., the public stockholders of Wayne Savings
Bancshares, Inc., members of Wayne Savings Bankshares, MHC, eligible account
holders, supplemental eligible account holders, or Wayne Savings Community Bank.
See "--Tax Aspects."
EFFECT ON LIQUIDATION RIGHTS. If Wayne Savings Community Bank were to
liquidate prior to the conversion, all claims of creditors of Wayne Savings
Community Bank, including those of depositors to the extent of their deposit
balances, would be paid first. Thereafter, if there were any assets of Wayne
Savings Community Bank remaining, these assets would be distributed to Wayne
Savings Bankshares, MHC, to the extent of its stock ownership interest in Wayne
Savings Bancshares, Inc. Were Wayne Savings Bankshares, MHC to liquidate, all
claims of creditors would be paid first. Thereafter, if there were any assets of
Wayne Savings Bankshares, MHC remaining, members of Wayne Savings Bankshares,
MHC would receive the remaining assets, pro rata, based upon the balances in
their deposit accounts in Wayne Savings Community Bank immediately prior to
liquidation. In the unlikely event that Wayne Savings Community Bank were to
liquidate after the conversion, all claims of creditors, including those of
depositors, would also be paid first, followed by distribution of the
"liquidation account" to depositors as of June 30, 2000 and September 30, 2001,
with any assets remaining thereafter distributed to Wayne Savings Bancshares,
Inc. as the holder of Wayne Savings Community Bank's capital stock. Pursuant to
the rules and regulations of the Office of Thrift Supervision, a post-conversion
merger, consolidation, sale of bulk assets or similar combination or transaction
with another insured savings institution would not be considered a liquidation
and, in such a transaction, the liquidation account would be assumed by the
surviving institution.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
The plan of conversion and federal regulations require that the aggregate
purchase price of the common stock in the offering must be based on the
appraised pro forma market value of the common stock, as determined by the
independent valuation. Wayne Savings Community Bank and Wayne Savings
Bancshares, Inc. have retained RP Financial, LC to make the valuation. For its
services in preparing the initial valuation, RP Financial, LC will receive a fee
of $45,000. This amount does not include a fee of $12,000 to be paid to RP
Financial, LC for assistance in the preparation of a business plan. Wayne
Savings Community Bank and Wayne Savings Bancshares, Inc. have agreed to
indemnify RP Financial, LC and its employees and affiliates against specified
losses, including any losses in
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connection with claims under the federal securities laws, arising out of its
services as appraiser, except where RP Financial, LC's liability results from
its negligence or bad faith.
The independent valuation was prepared by RP Financial, LC in reliance upon
the information contained in this prospectus, including the consolidated
financial statements. RP Financial, LC also considered the following factors,
among others: the present and projected operating results and financial
condition of Wayne Savings Bancshares, Inc. and Wayne Savings Community Bank;
the economic and demographic conditions in Wayne Savings Community Bank's
existing marketing area; certain historical, financial and other information
relating to Wayne Savings Community Bank; a comparative evaluation of the
operating and financial statistics of Wayne Savings Community Bank with those of
other publicly traded savings institutions located in Wayne Savings Community
Bank's region and on a national basis; the aggregate size of the offering of the
common stock; the impact of the conversion on Wayne Savings Community Bank's
stockholders' equity and earnings potential; the proposed dividend policy of
Wayne Savings Bancshares, Inc. and Wayne Savings Community Bank; and the trading
market for securities of comparable institutions and general conditions in the
market for the securities.
The independent valuation was prepared based on the assumption that the
aggregate amount of common stock sold in the offering would be equal to the
estimated pro forma market value of Wayne Savings Bancshares, Inc., assuming
completion of the conversion and offering multiplied by the percentage of Wayne
Savings Bancshares, Inc. common stock owned by Wayne Savings Bankshares, MHC.
The independent valuation states that as of September 7, 2001, the estimated pro
forma market value, or valuation range, of Wayne Savings Bancshares, Inc. ranged
from a minimum of $29.1 million to a maximum of $39.4 million, with a midpoint
of $34.3 million. The Board of Directors determined to offer the shares for a
price of $10.00 per share. The aggregate offering price of the shares will be
equal to the valuation range multiplied by the percentage of Wayne Savings
Bancshares, Inc. common stock owned by Wayne Savings Bankshares, MHC. The number
of shares offered will be equal to the aggregate offering price of the shares
divided by the price per share. Based on the valuation range, the percentage of
Wayne Savings Bancshares, Inc. common stock owned by Wayne Savings Bankshares,
MHC, and the $10.00 price per share, the minimum of the offering range will be
1,530,000 subscription shares, the midpoint of the offering range will be
1,800,000 subscription shares, and the maximum of the offering range will be
2,070,000 subscription shares.
The Board of Directors reviewed the independent valuation and, in
particular, considered the following:
o Wayne Savings Bancshares, Inc.'s financial condition and results
of operations;
o financial comparisons of Wayne Savings Bancshares, Inc. in
relation to institutions of similar size and asset quality;
o stock market conditions generally and in particular for financial
institutions; and
o the historical trading price of the publicly held shares of Wayne
Savings Bancshares, Inc. common stock.
All of these factors are set forth in the independent valuation. The
Board also reviewed the methodology and the assumptions used by RP Financial, LC
in preparing the independent valuation and the Board believes that such
assumptions were reasonable. The offering range may be amended with the approval
of the Office of Thrift Supervision, if required, as a result of subsequent
developments in the financial condition of Wayne Savings Bancshares, Inc. or
Wayne Savings Community Bank or market conditions generally. In the event the
independent valuation is updated to amend the pro forma market value of Wayne
Savings Bancshares, Inc. to less than $29.1 million or more than $45.3, the
appraisal will be filed with the Securities and Exchange Commission by
post-effective amendment.
THE INDEPENDENT VALUATION, HOWEVER, IS NOT INTENDED, AND MUST NOT BE
CONSTRUED, AS A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING
SHARES. RP FINANCIAL, LC DID NOT INDEPENDENTLY VERIFY THE CONSOLIDATED FINANCIAL
STATEMENTS AND OTHER INFORMATION PROVIDED BY WAYNE SAVINGS BANCSHARES, INC., NOR
DID RP FINANCIAL, LC VALUE INDEPENDENTLY THE ASSETS OR LIABILITIES OF WAYNE
SAVINGS COMMUNITY BANK. THE INDEPENDENT VALUATION CONSIDERS WAYNE SAVINGS
COMMUNITY BANK AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED AS AN INDICATION
OF THE LIQUIDATION VALUE OF WAYNE SAVINGS COMMUNITY BANK. MOREOVER, BECAUSE THE
VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER OF
MATTERS, ALL OF WHICH MAY CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN
THAT PERSONS PURCHASING SHARES IN THE OFFERING WILL THEREAFTER BE ABLE TO SELL
THEIR SHARES AT PRICES AT OR ABOVE THE $10.00 PRICE.
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Following commencement of the subscription offering, the maximum of the
valuation range may be increased by up to 15% to up to $45.3 million, which will
result in a corresponding increase of up to 15% in the maximum of the offering
range to up to 2,380,500 shares, to reflect changes in the market and financial
conditions, without a resolicitation of subscribers. The minimum of the
valuation range and of the offering range may not be decreased without a
resolicitation of subscribers. The subscription price of $10.00 per share will
remain fixed. See "--Limitations on Common Stock Purchases" as to the method of
distribution and allocation of additional shares that may be issued in the event
of an increase in the offering range to fill unfilled orders in the subscription
and community offerings.
If the update to the independent valuation at the conclusion of the
offering results in an increase in the maximum of the valuation range to more
than $45.3 million and a corresponding increase in the offering range to more
than 2,380,500 shares, or a decrease in the minimum of the valuation range to
less than $29.1 million and a corresponding decrease in the offering range to
fewer than 1,530,000 shares, then Wayne Savings Bancshares, Inc., after
consulting with the Office of Thrift Supervision, may terminate the plan of
conversion and return by check all funds promptly with interest at Wayne Savings
Community Bank's passbook rate of interest on payments made by check, bank draft
or money order and cancel withdrawal authorizations. Alternatively, Wayne
Savings Bancshares, Inc. may hold a new offering, establish a new offering
range, extend the offering period and commence a resolicitation of subscribers
or take other actions as permitted by the Office of Thrift Supervision in order
to complete the conversion. In the event that a resolicitation is commenced,
unless an affirmative response is received within a reasonable period of time,
all funds will be promptly returned to investors as described above. A
resolicitation, if any, following the conclusion of the subscription and
community offerings would not exceed 45 days unless further extended by the
Office of Thrift Supervision for periods of up to 90 days.
An increase in the number of shares to be issued in the offering would
decrease both a subscriber's ownership interest and Wayne Savings Bancshares,
Inc.'s pro forma earnings and stockholders' equity on a per share basis while
increasing pro forma earnings and stockholders' equity on an aggregate basis. A
decrease in the number of shares to be issued in the offering would increase
both a subscriber's ownership interest and Wayne Savings Bancshares, Inc.'s pro
forma earnings and stockholders' equity on a per share basis while decreasing
pro forma earnings and stockholders' equity on an aggregate basis. For a
presentation of the effects of these changes, see "Pro Forma Data."
Copies of the appraisal report of RP Financial, LC and the detailed
memorandum of the appraiser setting forth the method and assumptions for the
appraisal are available for inspection at the main office of Wayne Savings
Community Bank and as specified under "Additional Information."
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EXCHANGE OF STOCK CERTIFICATES
The conversion of existing outstanding shares of Wayne Savings
Bancshares, Inc. common stock into the right to receive new shares of Wayne
Savings Bancshares, Inc. common stock will occur automatically on the effective
date of the conversion. As soon as practicable after the effective date of the
conversion, Wayne Savings Bancshares, Inc. or a bank or trust company designated
by Wayne Savings Bancshares, Inc. in the capacity of exchange agent, will send a
transmittal form to each public stockholder of Wayne Savings Bancshares, Inc.
who holds stock certificates. The transmittal forms are expected to be mailed
within five business days after the effective date of the conversion and will
contain instructions with respect to the surrender of certificates representing
Wayne Savings Bancshares, Inc. (a federal corporation) common stock to be
exchanged for new shares of Wayne Savings Bancshares, Inc. (a Delaware
corporation) common stock. It is expected that stock certificates for new shares
of Wayne Savings Bancshares, Inc. common stock will be distributed within five
business days after the receipt of properly executed transmittal forms and other
required documents. Shares held by public stockholders in street name will be
exchanged automatically; no transmittal forms will be mailed relating to these
shares.
No fractional shares of Wayne Savings Bancshares, Inc. common stock
will be issued to any public stockholder of Wayne Savings Bancshares, Inc. upon
consummation of the conversion. For each fractional share that would otherwise
be issued to stockholders who hold certificates, Wayne Savings Bancshares, Inc.
will pay by check an amount equal to the product obtained by multiplying the
fractional share interest to which the holder would otherwise be entitled to by
$10.00. Payment for fractional shares will be made as soon as practicable after
the receipt by the exchange agent of surrendered Wayne Savings Bancshares, Inc.
stock certificates. Stockholders whose shares are held in street name will
automatically receive cash in lieu of fractional shares.
WAYNE SAVINGS BANCSHARES, INC. STOCKHOLDERS SHOULD NOT FORWARD THEIR STOCK
CERTIFICATES UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS, WHICH WILL INCLUDE
FORWARDING INSTRUCTIONS.
Until existing certificates representing Wayne Savings Bancshares, Inc.
common stock are surrendered for exchange after the conversion in compliance
with the terms of the transmittal form, holders of such certificates will not
receive new shares of Wayne Savings Bancshares, Inc. common stock and will not
be paid dividends on the Wayne Savings Bancshares, Inc. common stock into which
their shares have been converted. When certificates are surrendered, any unpaid
dividends will be paid without interest. For all other purposes, however, each
certificate which represents shares of Wayne Savings Bancshares, Inc. common
stock outstanding at the effective date of the conversion will be deemed to
evidence ownership of new shares of Wayne Savings Bancshares, Inc. common stock
into which those shares have been converted by virtue of the conversion.
All new shares of Wayne Savings Bancshares, Inc. common stock issued
upon exchange of shares of Wayne Savings Bancshares, Inc. common stock shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Wayne Savings Bancshares, Inc. common stock, subject, however, to
Wayne Savings Bancshares, Inc.'s obligation to pay any dividends or make any
other distributions with a record date prior to the effective date which may
have been declared or made by Wayne Savings Bancshares, Inc. on its common stock
on or prior to the effective date and which remain unpaid at the effective date.
If a certificate for Wayne Savings Bancshares, Inc. common stock has
been lost, stolen or destroyed, the exchange agent will issue the new stock
certificates upon receipt of appropriate evidence as to the loss, theft or
destruction, appropriate evidence as to the ownership of the certificate by the
claimant, and appropriate and customary indemnification.
SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS
In accordance with the plan of conversion, rights to subscribe for the
purchase of common stock in the subscription offering have been granted under
the plan of conversion in the following order of descending priority. All
subscriptions received will depend on the availability of common stock after
satisfaction of all subscriptions of all persons having prior rights in the
subscription offering and to the maximum, minimum, and overall purchase
limitations set forth in the plan of conversion and as described below under
"--Limitations on Common Stock Purchases."
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Wayne Savings Community Bank
depositor with aggregate deposit account balances, including demand deposit
accounts, of $50 or more (a "Qualifying Deposit") on June 30,
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2000, ("Eligible Account Holders") will receive, without payment therefor,
nontransferable subscription rights to purchase up to 25,000 shares of common
stock, subject to the overall purchase limitations and exclusive of shares
purchased by the employee stock ownership plan from any increase in the shares
offered pursuant to an increase in the maximum of the offering range. See
"--Limitations on Common Stock Purchases." If there are not sufficient shares
available to satisfy all subscriptions, shares will first be allocated so as to
permit each subscribing Eligible Account Holder to purchase a number of shares
sufficient to make his total allocation equal to the lesser of 100 shares or the
number of shares for which he subscribed. Thereafter, unallocated shares, except
for additional shares issued to the employee stock ownership plan upon an
increase in the maximum of the offering range, will be allocated to each
subscribing Eligible Account Holder whose subscription remains unfilled in the
proportion that the amount of his aggregate Qualifying Deposit bears to the
total amount of Qualifying Deposits of all subscribing Eligible Account Holders
whose subscriptions remain unfilled. If an amount so allocated exceeds the
amount subscribed for by any one or more Eligible Account Holders, the excess
shall be reallocated among those Eligible Account Holders whose subscriptions
are not fully satisfied until all available shares have been allocated.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his stock order form all deposit accounts in which he has an ownership
interest on June 30, 2000. Failure to list an account could result in fewer
shares being allocated than if all accounts had been disclosed. The subscription
rights of Eligible Account Holders who are also directors or officers of Wayne
Savings Bancshares, Inc. or their associates will be subordinated to the
subscription rights of other Eligible Account Holders to the extent attributable
to increased deposits in the twelve months preceding June 30, 2000.
PRIORITY 2: TAX-QUALIFIED PLANS. To the extent that there are
sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders, the tax-qualified employee stock benefit plans of Wayne Savings
Bancshares, Inc. and Wayne Savings Community Bank, including the employee stock
ownership plan, will receive, without payment therefor, nontransferable
subscription rights to purchase in the aggregate up to 8% of the common stock
sold, of which Wayne Savings Community Bank's employee stock ownership plan
intends to purchase8% of the shares sold in the offering.
PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent that
there are sufficient shares remaining after satisfaction of subscriptions by
Eligible Account Holders and the tax-qualified employee stock benefit plans,
each Wayne Savings Community Bank depositor with a Qualifying Deposit on
September 30, 2001 who is not an Eligible Account Holder ("Supplemental Eligible
Account Holder") will receive, without payment therefor, nontransferable
subscription rights to purchase up to 25,000 shares of common stock, subject to
the overall purchase limitations. See "--Limitations on Common Stock Purchases."
If there are not sufficient shares available to satisfy all subscriptions,
shares will be allocated so as to permit each subscribing Supplemental Eligible
Account Holder to purchase a number of shares sufficient to make his total
allocation equal to the lesser of 100 shares or the number of shares for which
he subscribed. Thereafter, unallocated shares will be allocated to each
subscribing Supplemental Eligible Account Holder whose subscription remains
unfilled in the proportion that the amount of his Qualifying Deposit bears to
the total amount of Qualifying Deposits of all subscribing Supplemental Eligible
Account Holders whose subscriptions remain unfilled.
To ensure proper allocation of stock, each Supplemental Eligible
Account Holder must list on his stock order form all deposit accounts in which
he has an ownership interest at September 30, 2001. Failure to list an account
could result in less shares being allocated than if all accounts had been
disclosed.
PRIORITY 4: OTHER MEMBERS. To the extent that there are shares
remaining after satisfaction of subscriptions by Eligible Account Holders, the
tax-qualified employee stock benefit plans, and Supplemental Eligible Account
Holders, each member of Wayne Savings Bankshares, MHC on the voting record date
of _____________ (including Wayne Savings Community Bank depositors and
borrowers as of June 23, 1993 whose borrowing remains outstanding) who is not an
Eligible Account Holder or Supplemental Eligible Account Holder ("Other
Members") will receive, without payment therefor, nontransferable subscription
rights to purchase up to 25,000 shares of common stock, subject to the overall
purchase limitations. See "--Limitations on Common Stock Purchases." If there
are not sufficient shares available to satisfy all subscriptions, available
shares will be allocated on a pro rata basis based on the size of the order of
each Other Member.
EXPIRATION DATE FOR THE SUBSCRIPTION OFFERING. The Subscription
Offering will expire on December ___, 2001, unless extended for up to 45 days or
such additional periods by Wayne Savings Community Bank with the approval of the
Office of Thrift Supervision, if necessary. Wayne Savings Community Bank and
Wayne Savings
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Bancshares, Inc. may determine to extend the subscription offering and/or the
community offering for any reason, whether or not subscriptions have been
received for shares at the minimum, midpoint, or maximum of the offering range.
Subscription rights which have not been exercised prior to the expiration date
will become void.
Wayne Savings Bancshares, Inc. will not execute orders until at least
the minimum number of shares of common stock have been subscribed for or
otherwise sold. If 1,530,000 shares have not been subscribed for or sold within
45 days after the expiration date, unless the period is extended with the
consent of the Office of Thrift Supervision, all funds delivered to Wayne
Savings Community Bank pursuant to the offering will be returned promptly to the
subscribers with interest and all withdrawal authorizations will be cancelled.
If an extension beyond the 45 day period following the expiration date is
granted, Wayne Savings Bancshares, Inc. will notify subscribers of the extension
of time and of the rights of subscribers to modify or rescind their
subscriptions. Extensions may not go beyond December __, 2003 which is two years
after the special meeting of members of Wayne Savings Bankshares, MHC to approve
the conversion.
PERSONS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES. Wayne Savings
Bancshares, Inc. will make reasonable efforts to comply with the securities laws
of all states in the United States in which persons entitled to subscribe for
stock in the subscription offering pursuant to the plan of conversion reside.
However, Wayne Savings Bancshares, Inc. is not required to offer stock in the
offering to any person who resides in a foreign country or resides in a state of
the United States with respect to which:
(1) a small number of persons otherwise eligible to subscribe for
shares of common stock reside; or
(2) Wayne Savings Bancshares, Inc. determines that compliance with the
securities laws of a state would be impracticable for reasons of cost or
otherwise, including but not limited to a request that Wayne Savings Bancshares,
Inc. or its officers or directors, under the securities laws of a state,
register as a broker, dealer, salesman or selling agent or register or otherwise
qualify the subscription rights or common stock for sale in a state. Where the
number of persons eligible to subscribe for shares in one state is small, Wayne
Savings Bancshares, Inc. will base its decision as to whether or not to offer
the common stock in a state on a number of factors, including the size of
accounts being held by account holders in the state, the cost of registering or
qualifying the shares or the need to register Wayne Savings Bancshares, Inc.,
its officers, directors or employees as brokers, dealers or salesmen.
COMMUNITY OFFERING
To the extent that shares remain available for purchase after
satisfaction of all subscriptions of the Eligible Account Holders, the
tax-qualified employee stock benefit plans, Supplemental Eligible Account
Holders, and Other Members, Wayne Savings Bancshares, Inc. may offer shares
pursuant to the plan of conversion to certain members of the general public in a
community offering, with preference given first to the public stockholders of
Wayne Savings Bancshares, Inc. common stock as of November __, 2001, and then to
natural persons residing in the Ohio counties of Wayne, Holmes, Ashland, Medina
and Stark. These persons may purchase up to 25,000 shares of common stock,
subject to the overall purchase limitations. See "--Limitations on Common Stock
Purchases." The minimum purchase is 25 shares. THE OPPORTUNITY TO PURCHASE
SHARES OF COMMON STOCK IN THE COMMUNITY OFFERING CATEGORY IS SUBJECT TO THE
RIGHT OF WAYNE SAVINGS BANCSHARES, INC., IN ITS SOLE DISCRETION, TO ACCEPT OR
REJECT ANY SUCH ORDERS IN WHOLE OR IN PART EITHER AT THE TIME OF RECEIPT OF AN
ORDER OR AS SOON AS PRACTICABLE FOLLOWING THE EXPIRATION DATE.
If the amount of common stock remaining is insufficient to fill the
orders of common stockholders of Wayne Savings Bancshares, Inc. as of November
__, 2001, the remaining stock will be allocated among those persons in the
manner that permits each of these persons, to the extent possible, to purchase
the number of shares necessary to make his total allocation of common stock
equal to the lesser of 100 shares or the number of shares subscribed for by each
such person. However, if there are insufficient shares available for this
allocation, then shares will be allocated among such persons whose orders remain
unsatisfied in the proportion that the unfilled subscription of each bears to
the total unfilled subscriptions of all those persons whose subscriptions remain
unsatisfied. Similar allocation procedures will be used for orders of persons
residing in the Ohio counties of Wayne, Holmes, Ashland, Medina and Stark. If
all orders of persons residing in these counties are filled, any shares
remaining will be allocated to other persons who purchase in the community
offering applying the same allocation described above.
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The term "resided" or "residing" as used herein shall mean any person
who occupies a dwelling within Wayne Savings Community Bank's community, has a
present intent to remain within the community for a period of time, and
manifests the genuineness of that intent by establishing an ongoing physical
presence within the community, together with an indication that this presence
within Wayne Savings Community Bank's community is something other than merely
transitory in nature. To the extent the person is a corporation or other
business entity, the principal place of business or headquarters shall be in
Wayne Savings Community Bank's community. To the extent a person is a personal
benefit plan, the circumstances of the beneficiary shall apply with respect to
this definition. In the case of all other benefit plans, circumstances of the
trustee shall be examined for purposes of this definition. Wayne Savings
Community Bank may utilize deposit or loan records or other evidence provided to
it to make a determination as to whether a person is a resident. In all cases,
however, the determination shall be in the sole discretion of Wayne Savings
Community Bank.
The community offering may commence with or during the subscription
offering, and is expected to terminate at the same time as the subscription
offering, but is required to terminate no more than 45 days following the
subscription offering which may be extended by Wayne Savings Bancshares, Inc.
with the approval of the Office of Thrift Supervision, if necessary. Wayne
Savings Bancshares, Inc. may determine to extend the community offering for any
reason, and is not required to give purchasers notice of any such extension. If
1,530,000 shares have not been subscribed for or sold within 45 days after the
expiration date, unless this period is extended with the consent of the Office
of Thrift Supervision, all funds delivered to Wayne Savings Bancshares, Inc.
will be returned promptly to the purchasers with interest and all withdrawal
authorizations will be cancelled. If an extension beyond the 45 day period
following the expiration date is granted, Wayne Savings Bancshares, Inc. will
notify purchasers of the extension of time and of the rights of purchasers to
modify or rescind their orders. These extensions may not go beyond December __,
2003, which is two years after the special meeting of members of Wayne Savings
Bankshares, MHC to approve the conversion.
The Board of Directors has the right to reject any order submitted in
the offering by a person whose representations the Board of Directors believes
to be false or who it otherwise believes, either alone or acting in concert with
others, is violating, evading, circumventing, or intends to violate, evade or
circumvent the terms and conditions of the plan of conversion.
SYNDICATED COMMUNITY OFFERING
If feasible, the Board of Directors may determine to offer for sale all
shares of common stock not subscribed for or purchased in the subscription and
community offerings in a syndicated community offering, subject to such terms,
conditions and procedures as may be determined by Wayne Savings Bancshares,
Inc., in a manner that will achieve the widest distribution of the common stock.
However, Wayne Savings Bancshares, Inc. retains the right to accept or reject in
whole or in part any subscriptions in the syndicated community offering. In the
syndicated community offering, any person may purchase up to 25,000 shares of
common stock, subject to the overall maximum purchase limitations. If the
syndicated community offering is not sooner commenced pursuant to the provisions
of the preceding sentence, the syndicated community offering will be commenced
as soon as practicable following the date upon which the subscription and
community offerings terminate.
If for any reason a syndicated community offering of shares of
subscription shares not sold in the subscription and community offerings cannot
be effected, or in the event that any insignificant residue of subscription
shares is not sold in the subscription and community offerings or in the
syndicated community offering, other arrangements will be made for the
disposition of unsubscribed shares by Wayne Savings Bancshares, Inc., if
possible. The Office of Thrift Supervision must approve these other purchase
arrangements.
PLAN OF DISTRIBUTION; SELLING AGENT COMPENSATION
Offering materials have been distributed, initially by mail, to those
with subscription rights at the last known address on Wayne Savings Bancshares,
Inc.'s records. Subscription rights expire whether or not eligible subscribers
can be located.
To assist in the marketing of the common stock, Wayne Savings
Bancshares, Inc. has retained Ryan Beck & Co., LLC, which is a broker/dealer
registered with the National Association of Securities Dealers, Inc. Ryan, Beck
& Co., LLC will assist Wayne Savings Community Bank in the offering by:
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o acting as the financial advisor to Wayne Savings Bancshares,
Inc.;
o providing administrative services and stock information center
management; and
o providing securities marketing services.
For these services, Ryan, Beck & Co., LLC, will receive an advisory and
management fee of $50,000 and a marketing fee equal to 1.5% of the dollar amount
of common stock sold in the subscription and community offerings other than
shares purchased by officers, directors and employees or their immediate
families and common stock purchased by tax-qualified and non-qualified employee
benefit plans, for which no fee need be paid. The management fee and marketing
fee, together, shall not exceed $350,000. In the event that Ryan, Beck & Co.,
LLC sells common stock through a group of broker-dealers in a syndicated
community offering, it will be paid a fee of 1.5% of the dollar amount of total
shares sold in the syndicated community offering. The fees payable directly to
the selected broker-dealers, which may include Ryan, Beck & Co., LLC, for their
sales will not exceed 5.5% of the value of the common stock sold by them in the
syndicated community offering. Ryan, Beck & Co., LLC will also be reimbursed for
allocable expenses in an amount not to exceed $25,000, without the approval of
Wayne Savings Bancshares, Inc., and for attorney's fees and expenses in an
amount not to exceed $35,000, without the approval of Wayne Savings Bancshares,
Inc.
Wayne Savings Community Bank has made an advance payment to Ryan, Beck
& Co., LLC in the amount of $25,000. Wayne Savings Bancshares, Inc. will
indemnify Ryan, Beck & Co., LLC against liabilities and expenses, including
legal fees, incurred in connection with certain claims or litigation arising out
of or based upon untrue statements or omissions contained in the offering
material for the common stock, including liabilities under the Securities Act of
1933.
Some directors and executive officers of Wayne Savings Bancshares, Inc.
and Wayne Savings Community Bank may participate in the solicitation of offers
to purchase common stock. These persons will be reimbursed for their reasonable
out-of-pocket expenses incurred in connection with the solicitation. Other
regular, full-time employees of Wayne Savings Community Bank may participate in
the offering but only in ministerial capacities, providing clerical work in
effecting a sales transaction and no offers or sales may be made by tellers or
at the teller counter. All sales activity will be conducted in a segregated or
separately identifiable area of Wayne Savings Community Bank's main offices
apart from the area accessible to the general public for the purpose of making
deposits or withdrawals. Other questions of prospective purchasers will be
directed to executive officers or registered representatives of Ryan, Beck &
Co., LLC. These other employees have been instructed not to solicit offers to
purchase common stock or provide advice regarding the purchase of common stock.
Wayne Savings Bancshares, Inc. will rely on Rule 3a4-1 under the Securities
Exchange Act of 1934, and sales of common stock will be conducted within the
requirements of Rule 3a4-1, so as to permit officers, directors and employees to
participate in the sale of common stock. No officer, director or employee of
Wayne Savings Bancshares, Inc. or Wayne Savings Community Bank will be
compensated in connection with his participation by the payment of commissions
or other remuneration, based either directly or indirectly on the transactions
in the common stock.
PROCEDURE FOR PURCHASING SHARES
EXPIRATION DATE. The offering will terminate at 10:00 a.m., Eastern
time, on December ___, 2001, unless extended by Wayne Savings Community Bank and
Wayne Savings Bancshares, Inc., with the approval of the Office of Thrift
Supervision, if required. This extension may be approved by Wayne Savings
Community Bank and Wayne Savings Bancshares, Inc., in their sole discretion,
without further approval or additional notice to purchasers in the offering. Any
extension of the offering beyond 45 days after the expiration date of the
offering would require the Office of Thrift Supervision's approval and potential
purchasers would be given the right to increase, decrease, or rescind their
orders for common stock. If the minimum number of shares offered in the offering
is not sold by the expiration date or any extension thereof, Wayne Savings
Bancshares, Inc. may terminate the offering and promptly refund all orders for
common stock. If the number of shares offered is reduced below the minimum of
the offering range, purchasers will be given an opportunity to increase,
decrease, or rescind their orders.
To ensure that each purchaser receives a prospectus at least 48 hours
before the expiration date of the offering in accordance with Rule 15c2-8 of the
Securities Exchange Act of 1934, no prospectus will be mailed any later than
five days prior to this date or hand delivered any later than two days prior to
this date. Execution of an order form will confirm receipt of delivery in
accordance with Rule 15c2-8. Order forms will be distributed only
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with a prospectus. Subscription funds will be maintained in a special escrow
account at Wayne Savings Community Bank.
Wayne Savings Bancshares, Inc. reserves the right in its sole
discretion to terminate the offering at any time and for any reason, in which
case Wayne Savings Bancshares, Inc. will cancel any withdrawal orders, and
return all funds submitted, plus interest at Wayne Savings Community Bank's
current passbook rate from the date of receipt.
USE OF ORDER FORMS. In order to purchase shares of the common stock in
the subscription offering and community offering, each purchaser must complete
an order form and remit payment. Incomplete order forms, or order forms that are
not signed are not required to be accepted. Wayne Savings Bancshares, Inc. will
not be required to accept orders submitted on photocopied or facsimiled stock
order forms. ALL ORDER FORMS MUST BE RECEIVED PRIOR TO 10:00 A.M., EASTERN TIME
ON DECEMBER ___, 2001. Order forms that are not received by that time or are
executed defectively or are received without full payment or without appropriate
withdrawal instructions are not required to be accepted. Wayne Savings Community
Bank and Wayne Savings Bancshares, Inc. are not required to notify subscribers
of incomplete or improperly executed order forms, and have the right to waive or
permit the correction of incomplete or improperly executed order forms, but do
not represent that they will do so. You may submit your order form and payment
by mail using the return envelope provided, by bringing your order form to our
stock information center, or by overnight delivery to the indicated address on
the back of the order form. Order forms may NOT be delivered to Wayne Savings
Community Bank branches. Once tendered, an order form cannot be modified or
revoked without the consent of Wayne Savings Bancshares, Inc. Wayne Savings
Bancshares, Inc. reserves the absolute right, in its sole discretion, to reject
orders received in the community offering, in whole or in part, at the time of
receipt or at any time prior to completion of the offering. Each person ordering
shares is required to represent that he is purchasing shares for his own account
and that he has no agreement or understanding with any person for the sale or
transfer of the shares. The interpretation by Wayne Savings Bancshares, Inc. of
the terms and conditions of the plan of conversion and of the acceptability of
the order forms will be final.
By signing the order form subscribers acknowledge that the common stock
is not a deposit or savings account that is federally insured or otherwise
guaranteed by Wayne Savings Community Bank or the Federal Government and that
the subscribers received a copy of this prospectus. HOWEVER, SIGNING THE ORDER
FORM WILL NOT RESULT IN SUBSCRIBERS WAIVING THEIR RIGHTS UNDER THE SECURITIES
ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934.
PAYMENT FOR SHARES. Payment for all shares will be required to
accompany all completed order forms for the purchase to be valid. Payment for
shares may be made by:
(1) check, money order, or bank draft made payable to Wayne Savings
Bancshares, Inc.; or
(2) authorization of withdrawal from Wayne Savings Community Bank
deposit accounts without check-writing privileges designated on
the stock order form.
Appropriate means for designating withdrawals from deposit accounts at
Wayne Savings Community Bank are provided in the order forms. The funds
designated must be available in the account(s) at the time the order form is
received. A hold will be placed on these funds, making them unavailable to the
depositor. Funds authorized for withdrawal will continue to earn interest within
the account at the contract rate until the offering is completed, at which time
the designated withdrawal will be made. Interest penalties for early withdrawal
applicable to certificate accounts will not apply to withdrawals authorized for
the purchase of shares of common stock; however, if a withdrawal results in a
certificate account with a balance less than the applicable minimum balance
requirement, the certificate shall be cancelled at the time of withdrawal
without penalty, and the remaining balance will earn interest at the current
passbook rate subsequent to the withdrawal. In the case of payments made by
check, money order, or bank draft, these funds must be available in the
account(s) and will be immediately cashed and placed in a segregated escrow
account at Wayne Savings Community Bank and interest will be paid at the current
passbook rate of 2.5% annual percentage yield, from the date payment is received
until the offering is completed or terminated. An executed order form, once
received by Wayne Savings Bancshares, Inc., may not be modified, amended or
rescinded without the consent of Wayne Savings Bancshares, Inc., unless the
offering is not completed by the expiration date, in which event purchasers may
be given the opportunity to increase, decrease, or rescind their orders for a
specified period of time.
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A depositor interested in using his or her individual retirement
account funds to purchase common stock must do so through a self-directed
individual retirement account. Wayne Savings Community Bank, by law, cannot
maintain self-directed individual retirement accounts. Therefore, if you wish to
use your funds that are currently in a Wayne Savings Community Bank individual
retirement account you may not designate on the order form that you wish funds
to be withdrawn from the account for the purchase of common stock. The funds you
wish to use for the purchase of common stock will have to be transferred to a
brokerage account. There will be no early withdrawal or Internal Revenue Service
interest penalties for these transfers. Depositors interested in using funds in
an individual retirement account or any other retirement account to purchase
common stock should contact the stock information center as soon as possible
during the offering period because processing such transactions takes time, and
whether such funds can be used may depend on the institutions where such funds
are currently held.
The employee stock ownership plan will not be required to pay for
shares purchased until consummation of the offering, provided that there is in
force from the time the order is received a loan commitment from an unrelated
financial institution or Wayne Savings Bancshares, Inc. to lend to the employee
stock ownership plan the necessary amount to fund the purchase. Regulations
prohibit Wayne Savings Community Bank or Village Savings Bank from lending funds
or extending credit to any persons to purchase common stock in the offering.
DELIVERY OF STOCK CERTIFICATES. Certificates representing common stock
issued in the offering and Wayne Savings Community Bank checks representing any
applicable refund and/or interest paid on subscriptions made by check, money
order, or bank draft will be mailed to the persons entitled thereto at the
certificate registration address noted on the order form, as soon as practicable
following consummation of the offering and receipt of all necessary regulatory
approvals. Any certificates returned as undeliverable will be held by the
transfer agent until claimed by persons legally entitled thereto or otherwise
disposed of in accordance with applicable law. Until certificates for the common
stock are available and delivered to purchasers, purchasers may not be able to
sell the shares of stock which they ordered, even though the common stock will
have begun trading.
OTHER RESTRICTIONS. Notwithstanding any other provision of the plan of
conversion, no person is entitled to purchase any common stock to the extent the
purchase would be illegal under any federal or state law or regulation,
including state "blue sky" registrations, or would violate regulations or
policies of the National Association of Securities Dealers, Inc., particularly
those regarding free riding and withholding. Wayne Savings Community Bank and/or
its agents may ask for an acceptable legal opinion from any purchaser as to the
legality of their purchase and may refuse to honor any purchase order if an
opinion is not timely furnished.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
OFFICE OF THRIFT SUPERVISION CONVERSION REGULATIONS PROHIBIT ANY PERSON
WITH SUBSCRIPTION RIGHTS, INCLUDING THE ELIGIBLE ACCOUNT HOLDERS, SUPPLEMENTAL
ELIGIBLE ACCOUNT HOLDERS AND OTHER MEMBERS OF WAYNE SAVINGS COMMUNITY BANK, FROM
TRANSFERRING OR ENTERING INTO ANY AGREEMENT OR UNDERSTANDING TO TRANSFER THE
LEGAL OR BENEFICIAL OWNERSHIP OF THE SUBSCRIPTION RIGHTS ISSUED UNDER THE PLAN
OF CONVERSION OR THE SHARES OF COMMON STOCK TO BE ISSUED UPON THEIR EXERCISE.
THESE RIGHTS MAY BE EXERCISED ONLY BY THE PERSON TO WHOM THEY ARE GRANTED AND
ONLY FOR HIS ACCOUNT. EACH PERSON EXERCISING SUBSCRIPTION RIGHTS WILL BE
REQUIRED TO CERTIFY THAT HE IS PURCHASING SHARES SOLELY FOR HIS OWN ACCOUNT AND
THAT HE HAS NO AGREEMENT OR UNDERSTANDING REGARDING THE SALE OR TRANSFER OF SUCH
SHARES. THE REGULATIONS ALSO PROHIBIT ANY PERSON FROM OFFERING OR MAKING AN
ANNOUNCEMENT OF AN OFFER OR INTENT TO MAKE AN OFFER TO PURCHASE SUBSCRIPTION
RIGHTS OR SHARES OF COMMON STOCK TO BE ISSUED UPON THEIR EXERCISE PRIOR TO
COMPLETION OF THE OFFERING.
WAYNE SAVINGS COMMUNITY BANK AND WAYNE SAVINGS BANCSHARES, INC. WILL
PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT THEY BECOME AWARE
OF THE TRANSFER OF SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY THEM
TO INVOLVE THE TRANSFER OF SUBSCRIPTION RIGHTS.
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STOCK INFORMATION CENTER
If you have any questions regarding the offering, please call the Stock
Information Center toll free, at (800) ___-____, from 9:00 a.m. to 4:00 p.m.
Eastern time, Monday through Friday. The Stock Information Center is located at
151 North Market Street, Wooster, Ohio.
LIMITATIONS ON COMMON STOCK PURCHASES
The plan of conversion includes the following limitations on the number
of shares of common stock which may be purchased during the conversion:
(1) No person may purchase less than 25 shares of common stock or
more than 25,000 shares;
(2) The tax-qualified employee stock benefit plans, including the
employee stock ownership plan, may purchase in the aggregate up to 8% of the
shares issued in the offering, including shares issued in the event of an
increase in the offering range of up to 15%. The employee stock ownership plan
expects to subscribe for8% of the shares sold, or 122,400 shares at the minimum
of the offering range and 165,600 shares at the maximum of the offering range;
(3) Except for the employee stock ownership plan, as described
above, no person or entity, together with associates or persons acting in
concert with such person or entity, may purchase in all categories more than
25,000 shares in the offering;
(4) Current stockholders of Wayne Savings Bancshares, Inc. are
subject to an additional limitation upon the number of shares that may be
purchased in the offering. As previously described, current stockholders of
Wayne Savings Bancshares, Inc. will receive new shares of Wayne Savings
Bancshares, Inc. common stock in exchange for their existing shares of Wayne
Savings Bankshares, Inc. common stock. The number of shares that a stockholder
may purchase in the offering, together with associates or persons acting in
concert with such purchaser, when combined with the shares that the stockholder
and his associates will receive in exchange for existing Wayne Savings
Bancshares, Inc. common stock, may not exceed 5% of the outstanding shares of
common stock of Wayne Savings Bancshares, Inc. at the completion of the
offering; and
(5) The maximum number of shares of common stock which may be
purchased in all categories of the offering by officers and directors of Wayne
Savings Community Bank and their associates, in the aggregate, when combined
with new shares of common stock issued in exchange for existing shares, may not
exceed 29% of the shares issued in the offering.
Depending upon market or financial conditions, the Board of Directors
of Wayne Savings Bancshares, Inc., with the approval of the Office of Thrift
Supervision and without further approval of members of Wayne Savings Bankshares,
MHC, may decrease or further increase the purchase and ownership limitations.
Wayne Savings Bancshares, Inc. may need regulatory approval to increase the
purchase limitations. If a purchase limitation is increased, subscribers in the
subscription offering who ordered the maximum amount will be, and some other
large subscribers who through their subscriptions evidence a desire to purchase
the maximum allowable number of shares, in the sole discretion of Wayne Savings
Community Bank may be given the opportunity to increase their subscriptions up
to the then applicable limit. The effect of this type of resolicitation will be
an increase in the number of shares owned by subscribers who choose to increase
their subscriptions. The Board of Directors of Wayne Savings Bancshares, Inc.
may, in its sole discretion, increase the maximum purchase limitations up to
9.99% of the shares issued in the conversion, provided that orders for shares
exceeding 5% of the shares being issued shall not exceed, in the aggregate, 10%
of the total issued. Requests to purchase additional shares under this provision
will be determined by the respective Boards of Directors in their sole
discretion.
In the event of an increase in the total number of shares offered in
the offering due to an increase in the offering range of up to 15%, shares will
be allocated in the following order of priority in accordance with the plan of
conversion:
(1) to fill the employee stock ownership plan's subscription for
8% of the total number of shares sold;
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(2) in the event that there is an oversubscription at the
Eligible Account Holder, Supplemental Eligible Account
Holder or Other Member levels, to fill unfulfilled
subscriptions of these subscribers according to their
respective priorities; and
(3) to fill unfulfilled subscriptions in the community offering,
with preference given first to Wayne Savings Bancshares, Inc.
stockholders as of November __, 2001, and then to natural
persons residing in Wayne Savings Community Bank's community.
The term "associate" of a person is defined to mean:
(1) any corporation or organization, other than Wayne Savings
Bancshares, Inc., Wayne Savings Community Bank, or a
majority-owned subsidiary of Wayne Savings Community Bank, of
which the person is an officer, partner or 10% stockholder;
(2) any trust or other estate in which the person has a
substantial beneficial interest or serves as a director or in
a similar fiduciary capacity; provided, however, that this
term shall not include any employee stock benefit plan in
which the person has a substantial beneficial interest or
serves as director or in a similar fiduciary capacity; and
(3) any relative or spouse of the persons, or any relative of the
spouse, who either has the same home as the person or who is
a director or officer of Wayne Savings Bancshares, Inc., or
Wayne Savings Community Bank.
The term "acting in concert" means:
(1) knowing participation in a joint activity or interdependent
conscious parallel action towards a common goal whether or
not pursuant to an express agreement; or
(2) a combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any
contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise.
A person or company which acts in concert with another person or
company ("other party") shall also be deemed to be acting in concert with any
person or company who is also acting in concert with that other party, except
that any tax-qualified employee stock benefit plan will not be deemed to be
acting in concert with its trustee or a person who serves in a similar capacity
solely for the purpose of determining whether stock held by the trustee and
stock held by the plan will be aggregated.
Directors are not treated as associates of each other solely because of
their Board membership. Wayne Savings Community Bank has the right to determine
whether prospective purchasers are associates or acting in concert. For a
further discussion of limitations on purchases of a converting institution's
stock at the time of conversion and subsequent to conversion, see "Certain
Restrictions on Purchase or Transfer of Shares after Conversion" and
"Restrictions on Acquisition of Wayne Savings Bancshares, Inc."
LIQUIDATION RIGHTS
In the unlikely event of a complete liquidation of Wayne Savings
Bancshares, Inc. prior to the conversion, all claims of creditors of Wayne
Savings Bancshares, Inc., including those of depositors to the extent of their
deposit balances, would be paid first. Thereafter, if there were any assets of
Wayne Savings Bancshares, Inc. remaining, these assets would be distributed to
stockholders, including Wayne Savings Bankshares, MHC. Were Wayne Savings
Bankshares, MHC and Wayne Savings Bancshares, Inc. to liquidate prior to the
conversion, all claims of creditors would be paid first. Then, if there were any
assets of Wayne Savings Bankshares, MHC remaining, members of Wayne Savings
Bankshares, MHC would receive these remaining assets, pro rata, based upon the
deposit balances in their deposit account in Wayne Savings Community Bank
immediately prior to liquidation. In the unlikely event that Wayne Savings
Community Bank were to liquidate after the conversion, all claims of creditors,
including those of depositors, also would be paid first, followed by
distribution of the "liquidation account" to certain depositors, with any assets
remaining thereafter distributed to Wayne Savings Bancshares, Inc. as the holder
of Wayne Savings Community Bank capital stock. Pursuant to the rules and
regulations of the Office
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of Thrift Supervision, a post-conversion merger, consolidation, sale of bulk
assets or similar combination or transaction with another insured savings
institution would not be considered a liquidation and, in these types of
transactions, the liquidation account would be assumed by the surviving
institution.
The plan of conversion provides for the establishment, upon the
completion of the conversion, of a special "liquidation account" for the benefit
of Eligible Account Holders and Supplemental Eligible Account Holders in an
amount equal to the greater of:
(1) Wayne Savings Bankshares, MHC's ownership interest in the
surplus and reserves of Wayne Savings Bancshares, Inc. as of
the date of its latest balance sheet contained in this
prospectus; or
(2) the retained earnings of Wayne Savings Community Bank at the
time that Wayne Savings Community Bank reorganized into Wayne
Savings Bankshares, MHC in 1993.
The purpose of the liquidation account is to provide Eligible Account
Holders and Supplemental Eligible Account Holders who maintain their deposit
accounts with Wayne Savings Community Bank after the conversion with a
distribution upon complete liquidation of Wayne Savings Community Bank after the
conversion. Each Eligible Account Holder and Supplemental Eligible Account
Holder, if he were to continue to maintain his deposit account at Wayne Savings
Community Bank, would be entitled, on a complete liquidation of Wayne Savings
Community Bank after the conversion, to an interest in the liquidation account
prior to any payment to the stockholders of Wayne Savings Bancshares, Inc. Each
Eligible Account Holder and each Supplemental Eligible Account Holder would have
an initial interest in the liquidation account for each deposit account,
including savings accounts, transaction accounts such as negotiable order of
withdrawal accounts, money market deposit accounts, and certificates of deposit,
with a balance of $50 or more held in Wayne Savings Community Bank on June 30,
2000, or September 30, 2001, respectively. Each Eligible Account Holder and
Supplemental Eligible Account Holder will have a pro rata interest in the total
liquidation account for each such deposit account, based on the proportion that
the balance of each such deposit account on June 30 ,2000, or September 30,
2001, respectively, bore to the balance of all deposit accounts in Wayne Savings
Bancshares, Inc. on such dates.
If, however, on any December 31 annual closing date commencing after
the effective date of the conversion, the amount in any such deposit account is
less than the amount in the deposit account on June 30, 2000, or September 30,
2001, respectively, or any other annual closing date, then the interest in the
liquidation account relating to such deposit account would be reduced from time
to time by the proportion of any such reduction, and such interest will cease to
exist if such deposit account is closed. In addition, no interest in the
liquidation account would ever be increased despite any subsequent increase in
the related deposit account. Payment pursuant to liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders would be separate and
apart from any insured deposit accounts to such depositor. Any assets remaining
after the above liquidation rights of Eligible Account Holders and Supplemental
Eligible Account Holders are satisfied would be distributed to Wayne Savings
Bancshares, Inc. as the sole stockholder of Wayne Savings Community Bank.
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TAX ASPECTS
Consummation of the conversion is expressly conditioned upon the prior
receipt of an opinion of counsel or tax advisor with respect to federal and
state income taxation that indicates that the conversion will not be a taxable
transaction to Wayne Savings Bankshares, MHC, Wayne Savings Bancshares, Inc.,
Wayne Savings Community Bank, Eligible Account Holders, Supplemental Eligible
Account Holders, and/or other members of Wayne Savings Bankshares, MHC. Unlike
private letter rulings, opinions of counsel or tax advisors are not binding on
the IRS or any state taxing authority, and such authorities could disagree with
such opinions. In the event of such disagreement, there can be no assurance that
Wayne Savings Bancshares, Inc. or Wayne Savings Community Bank would prevail in
a judicial proceeding.
Wayne Savings Bankshares, MHC and Wayne Savings Bancshares, Inc. have
received an opinion of counsel, Luse Lehman Gorman Pomerenk & Schick, A
Professional Corporation, regarding the federal income tax consequences of the
conversion which includes, but is not limited to, the following opinions:
1. The merger of Wayne Savings Bancshares, Inc. with and into Wayne
Savings Community Bank qualifies as a tax-free reorganization within the meaning
of Section 368(a)(1)(A) of the Code.
2. The merger of Wayne Savings Bankshares, MHC with and into Wayne
Savings Community Bank qualifies as a tax-free reorganization within the meaning
of Section 368(a)(1)(A) of the Code.
3. The exchange of the members' equity interests in Wayne Savings
Bankshares, MHC for interests in a liquidation account established in Wayne
Savings Community Bank will satisfy the continuity of interest requirement of
Section 1.368-1(b) of the Income Tax Regulations.
4. Wayne Savings Bankshares, MHC will not recognize any gain or loss
on the transfer of its assets to Wayne Savings Community Bank in exchange for an
interest in a liquidation account established in Wayne Savings Community Bank
for the benefit of Wayne Savings Bankshares, MHC members who remain depositors
of Wayne Savings Community Bank.
5. No gain or loss will be recognized by Wayne Savings Community
Bank upon the receipt of the assets of Wayne Savings Bankshares, MHC in exchange
for the transfer to the members of Wayne Savings Bankshares, MHC of an interest
in the liquidation account in Wayne Savings Community Bank.
6. Members of Wayne Savings Bankshares, MHC will recognize no gain
or loss upon the receipt of an interest in the liquidation account in Wayne
Savings Community Bank in exchange for their interests in Wayne Savings
Bankshares, MHC.
7. Current stockholders of Wayne Savings Bancshares, Inc. will not
recognize any gain or loss upon their exchange of Wayne Savings Bancshares, Inc.
common stock solely for new shares of Wayne Savings Bancshares, Inc. common
stock.
8. Cash received by any current stockholder of Wayne Savings
Bancshares, Inc. in lieu of a fractional share interest in new shares of Wayne
Savings Bancshares, Inc. common stock will be treated as having been received as
a distribution in full payment in exchange for a fractional share interest of
new Wayne Savings Bancshares, Inc. common stock, which such stockholder would
otherwise be entitled to receive, and will qualify as capital gain or loss,
assuming common stock of Wayne Savings Bancshares, Inc. surrendered in exchange
therefor was held as a capital asset by such stockholder at the effective time
of the conversion.
9. Each stockholder's aggregate basis in new shares of Wayne Savings
Bancshares, Inc. common stock received in the exchange will be the same as the
aggregate basis of Wayne Savings Bancshares, Inc. common stock surrendered in
exchange therefor.
10. Each stockholder's holding period in his or her Wayne Savings
Bancshares, Inc. common stock received in the exchange will include the period
during which Wayne Savings Bancshares, Inc. common stock surrendered was held,
provided that the Wayne Savings Bancshares, Inc. common stock surrendered is a
capital asset in the hands of the stockholder on the date of the exchange.
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11. No gain or loss will be recognized by Eligible Account Holders,
Supplemental Eligible Account Holders or other members upon distribution to them
of subscription rights to purchase shares of Wayne Savings Bancshares, Inc.
common stock, provided that the amount to be paid for Wayne Savings Bancshares,
Inc. common stock is equal to the fair market value of Wayne Savings Bancshares,
Inc. common stock.
12. No gain or loss will be recognized by Wayne Savings Bancshares,
Inc. on the receipt of money in exchange for Wayne Savings Bancshares, Inc.
common stock sold in the offering.
In the view of RP Financial, LC, which view is not binding on the
Internal Revenue Service, the subscription rights do not have any value, based
on the fact that these rights are acquired by the recipients without cost, are
nontransferable and of short duration, and afford the recipients the right only
to purchase the common stock at a price equal to its estimated fair market
value, which will be the same price as the subscription price for the
unsubscribed shares of common stock. If the subscription rights granted to
Eligible Account Holders and Supplemental Eligible Account Holders are deemed to
have an ascertainable value, receipt of these rights could result in taxable
gain to those Eligible Account Holders and Supplemental Eligible Account Holders
who exercise the subscription rights in an amount equal to the value and Wayne
Savings Bancshares, Inc. could recognize gain on a distribution. Eligible
Account Holders and Supplemental Eligible Account Holders are encouraged to
consult with their own tax advisors as to the tax consequences in the event that
subscription rights are deemed to have an ascertainable value. Unlike private
rulings, an opinion of RP Financial, LC is not binding on the Internal Revenue
Service and the Internal Revenue Service could disagree with the conclusions
reached therein.
The federal tax opinion has been filed with the Securities and Exchange
Commission as an exhibit to Wayne Savings Bancshares, Inc.'s registration
statement. An opinion on the Ohio state income tax consequences consistent with
the federal tax opinion has been issued by Grant Thornton, LLP, tax advisors to
Wayne Savings Bankshares, MHC and Wayne Savings Bancshares, Inc.
CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER CONVERSION
All shares purchased in the offering by a director or an executive
officer of Wayne Savings Community Bank generally may not be sold for a period
of one year following the conversion, except in the event of the death of the
director or executive officer. Each certificate for restricted shares will bear
a legend giving notice of this restriction on transfer, and instructions will be
issued to the effect that any transfer within this time period of any
certificate or record ownership of the shares other than as provided above is a
violation of the restriction. Any shares of common stock issued at a later date
as a stock dividend, stock split, or otherwise, with respect to the restricted
stock will be similarly restricted. The directors and executive officers of
Wayne Savings Community Bank also will be restricted by the insider trading
rules promulgated pursuant to the Securities Exchange Act of 1934.
Purchases of shares of common stock of Wayne Savings Bancshares, Inc.
by directors, executive officers, or any person who was an executive officer
after adoption of the plan of conversion, and their associates, during the
three-year period following the conversion may be made only through a broker or
dealer registered with the Securities and Exchange Commission, except with the
prior written approval of the Office of Thrift Supervision. This restriction
does not apply, however, to negotiated transactions involving more than 1% of
Wayne Savings Bancshares, Inc.'s outstanding common stock or to the purchase of
stock pursuant to a stock option plan or any tax-qualified employee stock
benefit plan or nontax-qualified employee stock benefit plan of Wayne Savings
Community Bank or Wayne Savings Bancshares, Inc., including any employee plans,
recognition plans or restricted stock plans.
Office of Thrift Supervision regulations applicable to Wayne Savings
Bancshares, Inc. as a result of the conversion prohibit Wayne Savings
Bancshares, Inc. from repurchasing more than 5% of its outstanding shares of its
common stock during the first year following conversion. After one year the OTS
does not impose any repurchase restriction.
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COMPARISON OF STOCKHOLDERS' RIGHTS
GENERAL. As a result of the conversion, holders of Wayne Savings Bancshares,
Inc. common stock will become stockholders of Wayne Savings Bancshares, Inc., a
Delaware corporation. There are certain differences in stockholder rights
arising from distinctions between Wayne Savings Bancshares, Inc.'s federal stock
charter and bylaws and Wayne Savings Bancshares, Inc.'s certificate of
incorporation and bylaws and from distinctions between laws applicable to
federally chartered savings institutions and laws applicable to Delaware
corporations.
The discussion herein is not intended to be a complete statement of the
differences affecting the rights of stockholders, but rather summarizes the
material differences and similarities affecting the rights of stockholders. The
discussion herein is qualified in its entirety by reference to the certificate
of incorporation and bylaws of Wayne Savings Bancshares, Inc. and the Delaware
General Corporate Law. See "Additional Information" for procedures for obtaining
a copy of Wayne Savings Bancshares, Inc.'s certificate of incorporation and
bylaws.
AUTHORIZED CAPITAL STOCK. Wayne Savings Bancshares, Inc.'s authorized capital
stock consists of 20,000,000 shares of common stock, par value $1.00 per share,
and 10,000,000 shares of preferred stock, par value $1.00 per share. Wayne
Savings Bancshares, Inc.'s authorized capital stock as a Delaware corporation
consists of 8,000,000 shares of common stock, $0.10 par value per share, and
500,000 shares of preferred stock, par value $0.10 per share. The shares of
Wayne Savings Bancshares, Inc. common stock and preferred stock were authorized
in an amount greater than that to be issued in the conversion to provide our
Board of Directors with flexibility to effect, among other transactions,
financing, acquisitions, stock dividends, stock splits and employee stock
options. However, these additional authorized shares may also be used by the
Board of Directors consistent with its fiduciary duty to deter future attempts
to gain control of Wayne Savings Bancshares, Inc. The Board of Directors of
Wayne Savings Bancshares, Inc. also has sole authority to determine the terms of
any one or more series of preferred stock, including voting rights, conversion
rates, and liquidation preferences. As a result of the ability to fix voting
rights for a series of preferred stock, the Board has the power, to the extent
consistent with its fiduciary duty, to issue a series of preferred stock to
persons friendly to management in order to attempt to block a post tender offer
merger or other transaction by which a third party seeks control, and thereby
assist management to retain its position. Wayne Savings Bancshares, Inc.'s Board
currently has no plans for the issuance of additional shares, other than the
issuance of additional shares pursuant to stock benefit plans.
ISSUANCE OF CAPITAL STOCK. Pursuant to applicable laws and regulations, Wayne
Savings Bankshares, MHC is required to own not less than a majority of the
outstanding Wayne Savings Bancshares, Inc. common stock. There will be no such
restriction applicable to Wayne Savings Bancshares, Inc. following consummation
of the conversion.
Wayne Savings Bancshares, Inc.'s Delaware certificate of incorporation does
not contain restrictions on the issuance of shares of capital stock to
directors, officers or controlling persons, whereas Wayne Savings Bancshares,
Inc.'s federal stock charter restricts such issuances to general public
offerings, or if qualifying shares, to directors, unless the share issuance or
the plan under which they would be issued has been approved by a majority of the
total votes eligible to be cast at a legal stockholders' meeting. Thus, stock
related compensation plans, such as stock option plans, could be adopted by
Wayne Savings Bancshares, Inc. without stockholder approval and shares of Wayne
Savings Bancshares, Inc. capital stock could be issued directly to directors or
officers without stockholder approval. The bylaws of the National Association of
Securities Dealers, Inc., however, generally require corporations with
securities which are quoted on the Nasdaq National Market System to obtain
stockholder approval of most stock compensation plans for directors, officers
and key employees of the corporation. Moreover, although generally not required,
stockholder approval of stock-related compensation plans may be sought in
certain instances in order to qualify such plans for favorable federal income
tax and securities law treatment under current laws and regulations.
VOTING RIGHTS. Neither Wayne Savings Bancshares, Inc.'s federal stock charter
or bylaws nor Wayne Savings Bancshares, Inc.'s Delaware certificate of
incorporation or bylaws currently provide for cumulative voting in elections of
directors. For additional information regarding voting rights, see
"--Limitations on Acquisitions of Voting Stock and Voting Rights" below.
PAYMENT OF DIVIDENDS. The ability of Wayne Savings Bancshares, Inc. to pay
dividends on its capital stock is restricted by Office of Thrift Supervision
regulations and by federal income tax considerations related to savings
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institutions such as Wayne Savings Bancshares, Inc. See "Regulation--Limitation
on Capital Distributions." Although Wayne Savings Bancshares, Inc. is not
subject to these restrictions as a Delaware corporation, such restrictions will
indirectly affect Wayne Savings Bancshares, Inc. because dividends from Wayne
Savings Community Bank will be a primary source of funds of Wayne Savings
Bancshares, Inc. for the payment of dividends to stockholders of Wayne Savings
Bancshares, Inc.
Certain restrictions generally imposed on Delaware corporations may also have
an impact on Wayne Savings Bancshares, Inc.'s ability to pay dividends. Delaware
law generally provides that Wayne Savings Bancshares, Inc. is limited to paying
dividends in an amount equal to the excess of its net assets (total assets minus
total liabilities) over its statutory capital or, if no such excess exists,
equal to its net profits for the current year and/or the immediately preceding
fiscal year.
BOARD OF DIRECTORS. Wayne Savings Bancshares, Inc.'s federal stock charter and
bylaws and Wayne Savings Bancshares, Inc.'s Delaware certificate of
incorporation and bylaws each require the Board of Directors to be divided into
three classes as nearly equal in number as possible and that the members of each
class shall be elected for a term of three years and until their successors are
elected and qualified, with one class being elected annually.
Under Wayne Savings Bancshares, Inc.'s federal bylaws, any vacancies in the
Board of Directors of Wayne Savings Bancshares, Inc. may be filled by the
affirmative vote of a majority of the remaining directors although less than a
quorum of the Board of Directors. Persons elected by the directors of Wayne
Savings Bancshares, Inc. to fill vacancies may only serve until the next annual
meeting of stockholders. Under Wayne Savings Bancshares, Inc.'s Delaware
certificate of incorporation, any vacancy occurring in the Board of Directors of
Wayne Savings Bancshares, Inc., including any vacancy created by reason of an
increase in the number of directors, may be filled by the remaining directors,
and any director so chosen shall hold office for the remainder of the term to
which the director has been elected and until his or her successor is elected
and qualified.
Under Wayne Savings Bancshares, Inc.'s federal bylaws, any director may be
removed for cause by the holders of a majority of the outstanding voting shares.
Wayne Savings Bancshares, Inc.'s Delaware certificate of incorporation provides
that any director may be removed for cause by the holders of at least 80% of the
outstanding voting shares of Wayne Savings Bancshares, Inc.
LIMITATIONS ON LIABILITY. Wayne Savings Bancshares, Inc.'s Delaware
certificate of incorporation provides that the directors of Wayne Savings
Bancshares, Inc. shall not be personally liable for monetary damages to Wayne
Savings Bancshares, Inc. for certain actions as directors, except for
liabilities that involve intentional misconduct or a knowing violation of law by
the director, the authorization or illegal distributions or receipt of an
improper personal benefit from their positions as directors. This provision
might, in certain instances, discourage or deter shareholders or management from
bringing a lawsuit against directors for a breach of their duties even though
such an action, if successful, might have benefited Wayne Savings Bancshares,
Inc.
Currently, federal law does not permit federally chartered companies such as
Wayne Savings Bancshares, Inc. to limit the personal liability of directors in
the manner provided by the Delaware law and the laws of many other states.
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. Wayne Savings
Bancshares, Inc.'s federal stock charter and bylaws do not contain any provision
relating to indemnification of directors and officers of Wayne Savings
Bancshares, Inc. Under current Office of Thrift Supervision regulations,
however, Wayne Savings Bancshares, Inc. shall indemnify its directors, officers
and employees for any costs incurred in connection with any litigation involving
any such person's activities as a director, officer or employee if such person
obtains a final judgment on the merits in his or her favor. In addition,
indemnification is permitted in the case of a settlement, a final judgment
against such person or final judgment other than on the merits, if a majority of
disinterested directors determine that such person was acting in good faith
within the scope of his or her employment as he or she could reasonably have
perceived it under the circumstances and for a purpose he or she could
reasonably have believed under the circumstances was in the best interest of
Wayne Savings Bancshares, Inc. or its stockholders. Wayne Savings Bancshares,
Inc. also is permitted to pay ongoing expenses incurred by a director, officer
or employee if a majority of disinterested directors concludes that such person
may ultimately be entitled to indemnification. Before making any indemnification
payment, Wayne Savings Bancshares, Inc. is required to notify the Office of
Thrift Supervision of its intention and such payment cannot be made if the
Office of Thrift Supervision objects thereto.
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The officers, directors, agents and employees of Wayne Savings Bancshares,
Inc. are indemnified with respect to certain actions pursuant to Wayne Savings
Bancshares, Inc.'s Delaware certificate of incorporation, which complies with
Delaware law regarding indemnification. Delaware law allows Wayne Savings
Bancshares, Inc. to indemnify the aforementioned persons for expenses,
settlements, judgments and fines in suits in which such person has been made a
party by reason of the fact that he or she is or was an agent of Wayne Savings
Bancshares, Inc. No such indemnification may be given if the acts or omissions
of the person are adjudged to be in violation of law, if such person is liable
to the corporation for an unlawful distribution, or if such person personally
received a benefit to which he or she was not entitled.
SPECIAL MEETINGS OF STOCKHOLDERS. Wayne Savings Bancshares, Inc.'s Delaware
certificate of incorporation provides that special meetings of the stockholders
of Wayne Savings Bancshares, Inc. may be called only by the board of directors.
Wayne Savings Bancshares, Inc.'s federal stock charter provides that special
meetings of Wayne Savings Bancshares, Inc.'s stockholders may be called by the
Chairman, President, a majority of the Board of Directors or the holders of not
less than a majority of the outstanding capital stock of Wayne Savings
Bancshares, Inc. entitled to vote at the meeting.
STOCKHOLDER NOMINATIONS AND PROPOSALS. Wayne Savings Bancshares, Inc.'s
federal bylaws generally provide that stockholders may submit nominations for
election of director at an annual meeting of stockholders and any new business
to be taken up at such a meeting by filing such in writing with Wayne Savings
Bancshares, Inc. at least thirty days before the date of any such meeting.
Wayne Savings Bancshares, Inc.'s Delaware bylaws generally provide that any
stockholder desiring to make a nomination for the election of directors or a
proposal for new business at a meeting of stockholders must submit written
notice to Wayne Savings Bancshares, Inc. at least 90 days in advance of the
meeting, together with certain information relating to the nomination or new
business. However, if less than 100 days notice or prior disclosure of the date
of the meeting is given, stockholders must submit such written notice no later
than the tenth day following the date on which notice of the meeting is mailed
to stockholders or such public disclosure was made. Failure to comply with these
advance notice requirements will preclude such nominations or new business from
being considered at the meeting. Management believes that it is in the best
interests of Wayne Savings Bancshares, Inc. and its stockholders to provide
sufficient time to enable management to disclose to stockholders information
about a dissident slate of nominations for directors. This advance notice
requirement may also give management time to solicit its own proxies in an
attempt to defeat any dissident slate of nominations, should management
determine that doing so is in the best interest of stockholders generally.
Similarly, adequate advance notice of stockholder proposals will give management
time to study such proposals and to determine whether to recommend to the
stockholders that such proposals be adopted. In certain instances, such
provisions could make it more difficult to oppose management's nominees or
proposals, even if stockholders believe such nominees or proposals are in their
best interests.
STOCKHOLDER ACTION WITHOUT A MEETING. The federal bylaws of Wayne Savings
Bancshares, Inc. provide that any action to be taken or which may be taken at
any annual or special meeting of stockholders may be taken if a consent in
writing, setting forth the actions so taken, is given by the holders of all
outstanding shares entitled to vote. Wayne Savings Bancshares, Inc.'s Delaware
certificate of incorporation specifically denies the authority of stockholders
to act without a meeting.
STOCKHOLDER'S RIGHT TO EXAMINE BOOKS AND RECORDS. A federal regulation which
is applicable to Wayne Savings Bancshares, Inc. provides that stockholders may
inspect and copy specified books and records of a federally chartered savings
institution after proper written notice for a proper purpose. Delaware law
similarly provides that a stockholder may inspect books and records upon written
demand stating the purpose of the inspection, if such purpose is reasonably
related to such person's interest as a stockholder.
LIMITATIONS ON ACQUISITIONS OF VOTING STOCK AND VOTING RIGHTS. Wayne Savings
Bancshares, Inc.'s Delaware certificate of incorporation provides that in no
event shall any record owner of any outstanding common stock which is
beneficially owned, directly or indirectly, by a person who beneficially owns in
excess of 10% of the then outstanding shares of common stock be entitled or
permitted to any vote in respect of the shares held in excess of such limit.
MERGERS, CONSOLIDATIONS AND SALES OF ASSETS. A federal regulation requires the
approval of two-thirds of the Board of Directors of Wayne Savings Bancshares,
Inc. and the holders of two-thirds of the outstanding stock of
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Wayne Savings Bancshares, Inc. entitled to vote thereon for mergers,
consolidations and sales of all or substantially all of Wayne Savings
Bancshares, Inc.'s assets. Such regulation permits Wayne Savings Bancshares,
Inc. to merge with another corporation without obtaining the approval of its
stockholders if:
(1) it does not involve an interim savings institution;
(2) Wayne Savings Bancshares, Inc.'s federal stock charter is not changed;
(3) each share of Wayne Savings Bancshares, Inc.'s stock outstanding
immediately prior to the effective date of the transaction is to be an identical
outstanding share or a treasury share of Wayne Savings Bancshares, Inc. after
such effective date; and
(4) either:
(a) no shares of voting stock of Wayne Savings Bancshares, Inc. and no
securities convertible into such stock are to be issued or delivered under the
plan of combination or
(b) the authorized unissued shares or the treasury shares of voting stock of
Wayne Savings Bancshares, Inc. to be issued or delivered under the plan of
combination, plus those initially issuable upon conversion of any securities to
be issued or delivered under such plan, do not exceed 15% of the total shares of
voting stock of Wayne Savings Bancshares, Inc. outstanding immediately prior to
the effective date of the transaction.
Wayne Savings Bancshares, Inc.'s Delaware certificate of incorporation
requires the approval of the holders of at least 80% of Wayne Savings
Bancshares, Inc.'s outstanding shares of voting stock to approve certain
"Business Combinations" involving an "Interested Stockholder" except in cases
where the proposed transaction has been approved in advance by two-thirds of
those members of Wayne Savings Bancshares, Inc.'s Board of Directors who are
unaffiliated with the Interested Stockholder and were directors prior to the
time when the Interested Stockholder became an Interested Stockholder. The term
"Interested Stockholder" is defined to include any individual, corporation,
partnership or other entity, other than Wayne Savings Bancshares, Inc. or its
subsidiary, which owns beneficially or controls, directly or indirectly, 10% or
more of the outstanding shares of voting stock of Wayne Savings Bancshares, Inc.
or an affiliate of such person or entity. This provision of the certificate of
incorporation applies to any "Business Combination," which is defined to
include, among other things:
(1) any merger or consolidation of Wayne Savings Bancshares, Inc. with or into
any Interested Stockholder;
(2) any sale, lease, exchange, mortgage, transfer, or other disposition of 25%
or more of the assets of Wayne Savings Bancshares, Inc. and its subsidiaries to
an Interested Stockholder;
(3) the issuance or transfer of any securities of Wayne Savings Bancshares,
Inc. or a subsidiary of Wayne Savings Bancshares, Inc. to an Interested
Stockholder having a value exceeding 25% of the combined fair market value of
the outstanding sections of Wayne Savings Bancshares, Inc.; or
(4) any reclassification of common stock of Wayne Savings Bancshares, Inc. or
any recapitalization involving the common stock of Wayne Savings Bancshares,Inc.
Under Delaware law, absent this provision, business combinations, including
mergers, consolidations and sales of substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of a majority of the outstanding shares of common stock of Wayne Savings
Bancshares, Inc. and any other affected class of stock. One exception under
Delaware law to the majority approval requirement applies to stockholders owning
15% or more of the common stock of a corporation for a period of less than three
years. Such 15% stockholder, in order to obtain approval of a business
combination, must obtain the approval of two-thirds of the outstanding stock,
excluding the stock owned by such 15% stockholder, or satisfy other requirements
under Delaware law relating to board of director approval of his or her
acquisition of the shares of Wayne Savings Bancshares, Inc. The increased
stockholder vote required to approve a business combination may have the effect
of foreclosing mergers and other business combinations which a majority of
stockholders deem desirable and placing the power to prevent such a merger or
combination in the hands of a minority of stockholders.
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Wayne Savings Bancshares, Inc.'s Delaware certificate of incorporation
requires the Wayne Savings Bancshares, Inc.'s Board of Directors to consider
certain factors in addition to the amount of consideration to be paid when
evaluating certain business combinations or a tender or exchange offer. These
additional factors include the social and economic effects of the transaction on
its customers and employees and the communities served by Wayne Savings
Bancshares, Inc.
DISSENTERS' RIGHTS OF APPRAISAL. Office of Thrift Supervision regulations
generally provide that a stockholder of a federally chartered savings
institution that engages in a merger, consolidation or sale of all or
substantially all of its assets shall have the right to demand from such
institution payment of the fair or appraised value of his or her stock in the
institution, subject to specified procedural requirements. This regulation also
provides, however, that the stockholders of a federally chartered savings
institution with stock which is listed on a national securities exchange or
quoted on the Nasdaq Stock Market are not entitled to dissenters' rights in
connection with a merger involving such savings institution if the stockholder
is required to accept only "qualified consideration" for his or her stock, which
is defined to include cash, shares of stock of any institution or corporation
which at the effective date of the merger will be listed on a national
securities exchange or quoted on the Nasdaq Stock Market or any combination of
such shares of stock and cash.
Under Delaware law, shareholders of Wayne Savings Bancshares, Inc. generally
will not have dissenters' appraisal rights in connection with a plan of merger
or consolidation to which Wayne Savings Bancshares, Inc. is a party because the
common stock is expected to be listed on the Nasdaq National Market.
AMENDMENT OF GOVERNING INSTRUMENTS. No amendment of Wayne Savings Bancorp,
Inc.'s federal stock charter may be made unless it is first proposed by the
Board of Directors of Wayne Savings Bancorp, Inc., then preliminarily approved
by the Office of Thrift Supervision, and thereafter approved by the holders of a
majority of the total votes eligible to be cast at a legal meeting. Wayne
Savings Bancshares, Inc.'s Delaware certificate of incorporation may be amended
by the vote of the holders of a majority of the outstanding shares of Wayne
Savings Bancshares, Inc. common stock, except that the provisions of the
certificate of incorporation governing the calling of meeting of stockholders,
stockholders' nominations and proposals, authorized capital stock, denial of
preemptive rights, the number and staggered terms of directors, removal of
directors, approval of certain business combinations, the evaluation of certain
business combinations, elimination of directors' liability, indemnification of
officers and directors, and the manner of amending the certificate of
incorporation and bylaws, each may not be repealed, altered, amended or
rescinded except by the vote of the holders of at least 80% of the outstanding
shares of Wayne Savings Bancshares, Inc. This provision is intended to prevent
the holders of a lesser percentage of the outstanding stock of Wayne Savings
Bancshares, Inc. from circumventing any of the foregoing provisions by amending
the certificate of incorporation to delete or modify one of such provisions.
The federal bylaws of Wayne Savings Bancshares, Inc. may be amended by a
majority vote of the full Board of Directors of Wayne Savings Bancshares, Inc.
or by a majority vote of the votes cast by the stockholders of Wayne Savings
Bancshares, Inc. at any legal meeting. Wayne Savings Bancshares, Inc.'s Delaware
bylaws may only be amended by a two-thirds vote of the Board of Directors of
Wayne Savings Bancshares, Inc. or by the holders of at least 80% of the
outstanding stock of Wayne Savings Bancshares, Inc.
PURPOSE AND ANTI-TAKEOVER EFFECTS OF WAYNE SAVINGS BANCSHARES, INC.'S DELAWARE
CERTIFICATE OF INCORPORATION AND BYLAWS. The Board of Directors of Wayne Savings
Bancshares, Inc. believes that the provisions described above are prudent and
will reduce Wayne Savings Bancshares, Inc. vulnerability to takeover attempts
and certain other transactions that have not been negotiated with and approved
by its Board of Directors. These provisions will also assist Wayne Savings
Bancshares, Inc. in the orderly deployment of the conversion proceeds into
productive assets during the initial period after the conversion. The Board of
Directors believes these provisions are in the best interest of Wayne Savings
Bancshares, Inc. and its stockholders. In the judgment of the Board of
Directors, Wayne Savings Bancshares, Inc.'s Board will be in the best position
to determine the true value of Wayne Savings Bancshares, Inc. and to negotiate
more effectively for what may be in the best interests of its stockholders.
Accordingly, the Board of Directors believes that it is in the best interest of
Wayne Savings Bancshares, Inc. and its stockholders to encourage potential
acquirer to negotiate directly with the Board of Directors of Wayne Savings
Bancshares, Inc. and that these provisions will encourage such negotiations and
discourage hostile takeover attempts. It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transaction at a price reflective of the true value of Wayne
Savings Bancshares, Inc. and that is in the best interest of all stockholders.
103
Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common. Takeover attempts that have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms that may be less favorable than
might otherwise be available. A transaction that is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value of Wayne
Savings Bancshares, Inc. for its stockholders, with due consideration given to
matters such as the management and business of the acquiring corporation and
maximum strategic development of Wayne Savings Bancshares, Inc.'s assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above the current
market price, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
that is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive Wayne
Savings Bancshares, Inc.'s remaining stockholders of benefits of certain
protective provisions of the Securities Exchange Act of 1934, if the number of
beneficial owners became less than 300, thereby allowing for deregistration
under the Securities Exchange Act of 1934.
Despite the belief of Wayne Savings Bancshares, Inc. as to the benefits to
stockholders of these provisions of Wayne Savings Bancshares, Inc.'s Delaware
certificate of incorporation and bylaws, these provisions may also have the
effect of discouraging a future takeover attempt that would not be approved by
Wayne Savings Bancshares, Inc.'s Board, but pursuant to which stockholders may
receive a substantial premium for their shares over then current market prices.
As a result, stockholders who might desire to participate in such a transaction
may not have any opportunity to do so. Such provisions will also render the
removal of Wayne Savings Bancshares, Inc.'s Board of Directors and of management
more difficult. The Board of Directors of Wayne Savings Bancshares, Inc.,
however, has concluded that the potential benefits outweigh the possible
disadvantages.
Following the conversion, pursuant to applicable law and, if required,
following the approval by stockholders, Wayne Savings Bancshares, Inc. may adopt
additional anti-takeover charter provisions or other devices regarding the
acquisition of its equity securities that would be permitted for a Delaware
business corporation.
The cumulative effect of the restriction on acquisition of Wayne Savings
Bancshares, Inc. contained in the Delaware certificate of incorporation and
bylaws of Wayne Savings Bancshares, Inc. and in Delaware law may be to
discourage potential takeover attempts and perpetuate incumbent management, even
though certain stockholders of Wayne Savings Bancshares, Inc. may deem a
potential acquisition to be in their best interests, or deem existing management
not to be acting in their best interests.
RESTRICTIONS ON ACQUISITION OF WAYNE SAVINGS BANCSHARES, INC.
The following discussion is a summary of certain provisions of federal
law and regulations and corporate law relating to stock ownership and transfers,
the Board of Directors and business combinations, all of which may be deemed to
have "anti-takeover" effects. The description of these provisions is necessarily
general and reference should be made to the actual law and regulations.
CONVERSION REGULATIONS
Office of Thrift Supervision regulations prohibit any person from
making an offer, announcing an intent to make an offer or participating in any
other arrangement to purchase stock or acquiring stock or subscription rights in
a converting institution or its holding company from another person prior to
completion of its conversion. Further, without the prior written approval of the
Office of Thrift Supervision, no person may make such an offer or announcement
of an offer to purchase shares or actually acquire shares in the converting
institution or its holding company, for a period of three years from the date of
the completion of the conversion if, upon the completion of such offer,
announcement or acquisition, that person would become the beneficial owner of
more than 10% of the outstanding stock of the institution or its holding
company. The Office of Thrift Supervision has defined "person" to include any
individual, group acting in concert, corporation, partnership, association,
joint stock company, trust, unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution. However, offers made
exclusively to an association or its
104
holding company, or an underwriter or member of a selling group acting on the
converting institution's or its holding company's behalf for resale to the
general public are excepted. The regulation also provides civil penalties for
willful violation or assistance in any such violation of the regulation by any
person connected with the management of the converting institution or its
holding company or who controls more than 9.9% of the outstanding shares or
voting rights of a converted institution or its holding company.
CHANGE OF CONTROL REGULATIONS
Under the Change in Bank Control Act, no person may acquire control of
an insured federal savings association or its parent holding company unless the
Office of Thrift Supervision has been given 60 days' prior written notice and
has not issued a notice disapproving the proposed acquisition. In addition,
Office of Thrift Supervision regulations provide that no company may acquire
control of a savings association without the prior approval of the Office of
Thrift Supervision. Any company that acquires such control becomes a "savings
and loan holding company" subject to registration, examination and regulation by
the Office of Thrift Supervision.
Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 9.9% of any class of voting
stock, control in any manner of the election of a majority of the savings
association's directors, or a determination by the Office of Thrift Supervision
that the acquiror has the power to direct, or directly or indirectly to exercise
a controlling influence over, the management or policies of the institution.
Acquisition of more than 9.9% of any class of a savings association's voting
stock, if the acquiror is also subject to any one of eight "control factors,"
constitutes a rebuttable determination of control under the regulations. Such
control factors include the acquiror being one of the two largest stockholders.
The determination of control may be rebutted by submission to the Office of
Thrift Supervision, prior to the acquisition of stock or the occurrence of any
other circumstances giving rise to such determination, of a statement setting
forth facts and circumstances which would support a finding that no control
relationship will exist and containing certain undertakings. The regulations
provide that persons or companies which acquire beneficial ownership exceeding
9.9% or more of any class of a savings association's stock must file with the
Office of Thrift Supervision a certification form that the holder is not in
control of such institution, is not subject to a rebuttable determination of
control and will take no action which would result in a determination or
rebuttable determination of control without prior notice to or approval of the
Office of Thrift Supervision, as applicable. There are also rebuttable
presumptions in the regulations concerning whether a group "acting in concert"
exists, including presumed action in concert among members of an "immediate
family."
The Office of Thrift Supervision may prohibit an acquisition of control
if it finds, among other things, that:
(1) the acquisition would result in a monopoly or substantially
lessen competition;
(2) the financial condition of the acquiring person might jeopardize
the financial stability of the institution; or
(3) the competence, experience or integrity of the acquiring person
indicates that it would not be in the interest of the depositors
or the public to permit the acquisition of control by such
person.
DESCRIPTION OF CAPITAL STOCK OF WAYNE SAVINGS BANCSHARES, INC
FOLLOWING THE CONVERSION
GENERAL
At the effective date, Wayne Savings Bancshares, Inc. will be
authorized to issue 8,000,000 shares of common stock having a par value of $0.10
per share and 500,000 shares of preferred stock. Wayne Savings Bancshares, Inc.
currently expects to issue in the offering up to 2,070,000 shares of common
stock, subject to adjustment, and up to 2,380,500 shares, subject to adjustment,
in exchange for the publicly held shares of Wayne Savings Bancshares, Inc. Wayne
Savings Bancshares, Inc. will not issue shares of preferred stock in the
conversion. Each share of Wayne Savings Bancshares, Inc. common stock will have
the same relative rights as, and will be identical in all respects with, each
other share of common stock. Upon payment of the subscription price for the
common stock, in accordance with the plan of conversion, all of the common stock
will be duly authorized, fully paid and nonassessable.
105
THE COMMON STOCK OF WAYNE SAVINGS BANCSHARES, INC. WILL REPRESENT
NONWITHDRAWABLE CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL
NOT BE INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
COMMON STOCK
DIVIDENDS. Wayne Savings Bancshares, Inc. can pay dividends out of
statutory surplus or from net profits if, as and when declared by its Board of
Directors. The payment of dividends by Wayne Savings Bancshares, Inc. is subject
to limitations that are imposed by law and applicable regulation. The holders of
common stock of Wayne Savings Bancshares, Inc. will be entitled to receive and
share equally in dividends as may be declared by the Board of Directors of Wayne
Savings Bancshares, Inc. out of funds legally available therefor. If Wayne
Savings Bancshares, Inc. issues preferred stock, the holders thereof may have a
priority over the holders of the common stock with respect to dividends.
VOTING RIGHTS. Upon the conversion, the holders of common stock of
Wayne Savings Bancshares, Inc. will possess exclusive voting rights in Wayne
Savings Bancshares, Inc. They will elect Wayne Savings Bancshares, Inc.'s Board
of Directors and act on other matters as are required to be presented to them
under Delaware law or as are otherwise presented to them by the Board of
Directors. Generally, each holder of common stock will be entitled to one vote
per share and will not have any right to cumulate votes in the election of
directors. If Wayne Savings Bancshares, Inc. issues preferred stock, holders of
the preferred stock may also possess voting rights. Certain matters require an
80% stockholder vote.
As an Ohio stock savings and loan association, corporate powers and
control of Wayne Savings Community Bank are vested in its Board of Directors,
who elect the officers of Wayne Savings Community Bank and who fill any
vacancies on the Board of Directors. Voting rights of Wayne Savings Community
Bank are vested exclusively in the owners of the shares of capital stock of
Wayne Savings Community Bank, which will be Wayne Savings Bancshares, Inc., and
voted at the direction of Wayne Savings Bancshares, Inc.'s Board of Directors.
Consequently, the holders of the common stock will not have direct control of
Wayne Savings Community Bank.
LIQUIDATION. In the event of any liquidation, dissolution or winding up
of Wayne Savings Community Bank, Wayne Savings Bancshares, Inc., as the holder
of 100% of Wayne Savings Community Bank's capital stock, would be entitled to
receive, after payment or provision for payment of all debts and liabilities of
Wayne Savings Community Bank, including all deposit accounts and accrued
interest thereon, and after distribution of the balance in the special
liquidation account to Eligible Account Holders and Supplemental Eligible
Account Holders, all assets of Wayne Savings Community Bank available for
distribution. In the event of liquidation, dissolution or winding up of Wayne
Savings Bancshares, Inc., the holders of its common stock would be entitled to
receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of Wayne Savings Bancshares, Inc. available for
distribution. If preferred stock is issued, the holders thereof may have a
priority over the holders of the common stock in the event of liquidation or
dissolution.
PREEMPTIVE RIGHTS. Holders of the common stock of Wayne Savings
Bancshares, Inc. will not be entitled to preemptive rights with respect to any
shares that may be issued. The common stock is not subject to redemption.
PREFERRED STOCK
None of the shares of Wayne Savings Bancshares, Inc.'s authorized
preferred stock will be issued in the conversion. Preferred stock may be issued
with preferences and designations as the Board of Directors may from time to
time determine. The Board of Directors may, without stockholder approval, issue
preferred stock with voting, dividend, liquidation and conversion rights that
could dilute the voting strength of the holders of the common stock and may
assist management in impeding an unfriendly takeover or attempted change in
control.
TRANSFER AGENT
The transfer agent and registrar for Wayne Savings Bancshares, Inc.
common stock is Mellon Investor Services, LLC, South Hackensack, New Jersey.
EXPERTS
106
The consolidated financial statements as of March 31, 2001 and 2000,
and for each of the three years in the period ended March 31, 2001, included in
this prospectus have been audited by Grant Thornton LLP, independent auditors,
as stated in their report appearing herein, and has been so included in reliance
upon the report of such firm given their authority as experts in accounting and
auditing.
RP Financial, LC has consented to the publication herein of the summary
of its report to Wayne Savings Bancshares, Inc. setting forth its opinion as to
the estimated pro forma market value of the common stock upon completion of the
stock offering and its letter with respect to subscription rights.
LEGAL MATTERS
The legality of the common stock has been opined upon for Wayne
Savings Bancshares, Inc. by Luse Lehman Gorman Pomerenk & Schick, P.C.,
Washington, D.C., special counsel to Wayne Savings Bancshares, Inc. Certain
legal matters will be passed upon for Ryan, Beck & Co., LLC by Klehr, Harrison,
Harvey, Branzburg & Ellers, LLP, Philadelphia, Pennsylvania.
ADDITIONAL INFORMATION
Wayne Savings Bancshares, Inc. has filed with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933
with respect to the common stock offered hereby. As permitted by the rules and
regulations of the Securities and Exchange Commission, this prospectus does not
contain all the information set forth in the registration statement. Such
information, including the appraisal report which is an exhibit to the
registration statement, can be examined without charge at the public reference
facilities of the Securities and Exchange Commission located at 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of such material can be
obtained from the SEC at prescribed rates. The Securities and Exchange
Commission telephone number is 1-800-SEC-0330. In addition, the SEC maintains a
web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC, including Wayne Savings Bancshares, Inc. The statements contained
in this prospectus as to the contents of any contract or other document filed as
an exhibit to the Registration Statement are, of necessity, brief descriptions
of the material terms of, and should be read in conjunction with, such contract
or document.
Wayne Savings Bankshares, MHC has filed an Application on Form AC with
respect to the conversion. This prospectus omits certain information contained
in the Application. The Application may be examined at the principal office of
the Office of Thrift Supervision, 1700 G Street, N.W., Washington, D.C. 20552,
and at the Central Regional Office of the Office of Thrift Supervision, One
South Wacker Drive, Suite 2000, Chicago, Illinois 60606.
IN CONNECTION WITH THE STOCK OFFERING, WAYNE SAVINGS BANCSHARES, INC.
WILL REGISTER ITS COMMON STOCK WITH THE SEC UNDER SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934, AND, UPON SUCH REGISTRATION, WAYNE SAVINGS BANCSHARES,
INC. AND THE HOLDERS OF ITS STOCK WILL BECOME SUBJECT TO THE PROXY SOLICITATION
RULES, REPORTING REQUIREMENTS AND RESTRICTIONS ON STOCK PURCHASES AND SALES BY
DIRECTORS, OFFICERS AND GREATER THAN 10% STOCKHOLDERS, THE ANNUAL AND PERIODIC
REPORTING AND CERTAIN OTHER REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934.
UNDER THE STOCK ISSUANCE PLAN, WAYNE SAVINGS BANCSHARES, INC. HAS UNDERTAKEN
THAT IT WILL NOT TERMINATE SUCH REGISTRATION FOR A PERIOD OF AT LEAST THREE
YEARS FOLLOWING THE STOCK OFFERING.
107
Consolidated financial statements and report of independent certified public
accountants
WAYNE SAVINGS BANCSHARES, INC.
June 30, 2001, 2000 and 1999
CONTENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION F-4
CONSOLIDATED STATEMENTS OF EARNINGS 31
CONSOLIDAED STATEMENTS OF COMPREHENSIVE INCOME 31
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
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, 2001 and 2000, 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, 2001.
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, 2001 and 2000, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended March 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.
Cincinnati, Ohio
May 11, 2001
F - 3
WAYNE SAVINGS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
JUNE 30, MARCH 31, MARCH 31,
ASSETS 2000 2001 2001
(UNAUDITED)
Cash and due from banks $ 2,583 $ 2,011 $ 2,502
Federal funds sold 6,000 6,000 3,475
Interest-bearing deposits in other financial institutions 18,260 12,891 8,332
-------- -------- ---------
Cash and cash equivalents 26,843 20,902 14,309
Certificates of deposit in other financial institutions - 5,700 4,000
Investment securities held to maturity - at amortized cost, approximate
market value of $12,277, $13,774 and $22,634 as of June 30, 2001,
March 31, 2001 and 2000 12,123 13,641 23,199
Mortgage-backed securities available for sale - at market 2,666 2,911 3,450
Mortgage-backed securities held to maturity - at amortized cost, approximate
market value of $4,492, $5,694 and $6,938 as of June 30, 2001, March 31, 2001
and 2000 4,489 5,702 7,046
Loans receivable - net 254,837 246,619 237,095
Loans held for sale - at lower of cost or market - 861 317
Office premises and equipment - net 8,882 8,607 8,160
Real estate acquired through foreclosure 19 124 90
Federal Home Loan Bank stock - at cost 3,612 3,510 3,160
Accrued interest receivable on loans 1,275 1,328 1,255
Accrued interest receivable on mortgage-backed securities 39 42 60
Accrued interest receivable on investments and interest bearing deposits 194 203 354
Prepaid expenses and other assets 2,762 1,624 1,390
Prepaid federal income taxes - - 184
--------- --------- ----------
Total assets $317,741 $311,774 $304,069
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $284,384 $277,706 $264,952
Advances from the Federal Home Loan Bank 6,000 6,000 12,000
Advances by borrowers for taxes and insurance 322 827 777
Accrued interest payable 309 245 228
Accounts payable on mortgage loans serviced for others 246 234 100
Other liabilities 437 991 516
Accrued federal income taxes 234 31 -
Deferred federal income taxes 488 455 375
---------- ---------- ----------
Total liabilities 292,420 286,489 278,948
Commitments - - -
Stockholders' equity
Common stock (20,000,000 shares of $1.00 par value authorized; 2,638,835,
2,638,835 and 2,632,229 shares issued at
June 30, 2001, March 31, 2001 and 2000, respectively) 2,639 2,639 2,632
Additional paid-in capital 14,436 14,436 14,393
Retained earnings - substantially restricted 9,351 9,180 8,777
Less 67,742, 57,042 and 33,214 shares of treasury stock,
respectively - at cost (1,143) (1,003) (645)
Accumulated other comprehensive income (loss),
unrealized gain (loss) on securities designated as available for sale,
net of related tax effects 38 33 (36)
----------- ----------- -----------
Total stockholders' equity 25,321 25,285 25,121
-------- -------- --------
Total liabilities and stockholders' equity $317,741 $311,774 $304,069
======= ======= =======
The accompanying notes are an integral part of these statements.
F-4
WAYNE SAVINGS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three months ended June 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000, and 1999
(Dollars in thousands, except share data)
Unrealized gains
(losses) on
securities Total
Additional Treasury designated stock-
Common paid-in Retained stock- as available holders'
stock capital earnings at cost for sale equity
Balance at April 1, 1998 $2,258 $ 5,963 $16,198 $ (10) $ 17 $24,426
Stock options exercised 22 92 - (27) - 87
Net earnings for the year ended
March 31, 1999 - - 1,643 - - 1,643
Stock dividend 225 6,425 (6,650) - - -
Cash dividends of $.59 per share - - (754) - - (754)
Purchase of treasury shares - at cost - - - (431) - (431)
Unrealized losses on securities
designated as available for
sale, net of related tax effects - - - - (15) (15)
----- ------- ------- ------ ---- ---------
Balance at March 31, 1999 2,505 12,480 10,437 (468) 2 24,956
Stock options exercised 2 9 - - - 11
Net earnings for the year ended
March 31, 2000 - - 1,251 - - 1,251
Stock dividend 125 1,904 (2,029) - - -
Cash dividends of $.64 per share - - (882) - - (882)
Purchase of treasury shares - at cost - - - (177) - (177)
Unrealized losses on securities
designated as available for sale,
net of related tax effects - - - - (38) (38)
----- ------- ------- ------ ---- ---------
Balance at March 31, 2000 2,632 14,393 8,777 (645) (36) 25,121
Stock options exercised 7 43 - - - 50
Net earnings for the year ended
March 31, 2001 - - 1,461 - - 1,461
Cash dividends of $.64 per share - - (1,058) - - (1,058)
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 9,180 (1,003) 33 25,285
Net earnings for the period ended
June 30, 2001 - - 376 - - 376
Cash dividends of $.17 per share - - (205) - - (205)
Purchase of treasury shares - at cost - - - (140) - (140)
Unrealized gains on securities
designated as available for sale,
net of related tax effects - - - - 5 5
----- ------- ------- ------ ----- ----------
Balance at June 30, 2001 (unaudited) $2,639 $14,436 $ 9,351 $(1,143) $ 38 $25,321
===== ====== ======= ======= ==== ======
The accompany notes are an integral part of these statements.
F - 5
WAYNE SAVINGS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended June 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000, and 1999
(In thousands)
FOR THE THREE
MONTHS ENDED
JUNE 30, FOR THE YEAR ENDED MARCH 31,
2001 2000 2001 2000 1999
(UNAUDITED)
Cash flows from operating activities:
Net earnings for the period $ 376 $ 290 $ 1,461 $ 1,251 $ 1,643
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 6 4 (9) 18 (25)
Amortization of deferred loan origination fees (94) (44) (161) (532) (574)
Depreciation and amortization 113 146 433 653 481
(Gain) loss on sale of loans (12) 1 (62) 42 (149)
Proceeds from sale of loans in the secondary market 6,395 2,119 9,247 6,383 16,009
Loans originated for sale in the secondary market (5,522) (2,421) (9,729) (5,157) (16,251)
Provision for losses on loans 2 51 96 120 64
Loss on sale of real estate acquired through foreclosure - - - 11 110
Federal Home Loan Bank stock dividends (64) (60) (247) (214) (199)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 53 (51) (73) (121) 18
Accrued interest receivable on mortgage-backed securities 3 (12) 18 (32) (5)
Accrued interest receivable on investments
and interest-bearing deposits 9 3 151 (170) (4)
Prepaid expenses and other assets (1,138) (36) (234) 543 (886)
Accrued interest payable 64 55 17 49 (18)
Accounts payable on mortgage loans serviced for others 12 15 134 (8) (91)
Other liabilities (554) 212 476 19 206
Federal income taxes
Current 203 162 215 119 (304)
Deferred 30 1 35 44 160
--------- ---------- --------- --------- --------
Net cash provided by (used in) operating activities (118) 435 1,768 3,018 185
Cash flows provided by (used in) investing activities:
Purchase of investment securities - - (2,477) (13,411) (12,484)
Proceeds from the maturity of investment securities 1,517 58 12,069 2,080 14,055
Purchase of mortgage-backed securities - (1,000) (2,025) (8,030) (6,576)
Principal repayments on mortgage-backed securities 1,461 1,060 3,997 4,620 3,470
Loan principal repayments 16,533 9,304 56,478 37,106 48,814
Loan disbursements (24,566) (12,689) (65,986) (59,792) (55,615)
Purchase of office premises and equipment (388) (445) (1,115) (1,065) (1,768)
Proceeds from the sale of land - - 235 - -
Proceeds from sale of real estate acquired through foreclosure 12 - 14 5 820
(Increase) decrease in certificates of deposit in other
financial institutions 5,700 4,000 (1,700) 2,000 2,500
Purchase of Federal Home Loan Bank stock (38) - (103) - -
--------- ------- -------- ------- -------
Net cash provided by (used in) investing activities 231 288 (613) (36,487) (6,784)
-------- -------- -------- ------ -------
Net cash provided by (used in) operating and
investing activities (balance carried forward) 113 723 1,155 (33,469) (6,599)
-------- -------- ------- ------ -------
F-6
WAYNE SAVINGS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Three months ended June 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000, and 1999
(In thousands)
FOR THE THREE
MONTHS ENDED
JUNE 30, FOR THE YEAR ENDED MARCH 31,
2001 2000 2001 2000 1999
(UNAUDITED)
Net cash provided by (used in) operating and
investing activities (balance brought forward) $ 113 $ 723 $ 1,155 $(33,469) $ (6,599)
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts 6,678 (117) 12,754 29,625 17,706
Proceeds from Federal Home Loan Bank advances 5,000 2,000 11,000 4,000 16,000
Repayments of Federal Home Loan Bank advances (5,000) (4,000) (17,000) (1,000) (23,000)
Advances by borrowers for taxes and insurance (505) 2 50 (44) 38
Dividends paid on common stock (205) (200) (1,058) (882) (725)
Proceeds from the exercise of stock options - 27 50 11 87
Purchase of treasury shares - at cost (140) - (358) (177) (431)
-------- ------- -------- --------- --------
Net cash provided by (used in) financing activities 5,828 (2,288) 5,438 31,533 9,675
-------- ------- -------- --------- --------
Net increase (decrease) in cash and cash equivalents 5,941 (1,565) 6,593 (1,936) 3,076
Cash and cash equivalents at beginning of period 20,902 14,309 14,309 16,245 13,169
--------- ------- -------- --------- --------
Cash and cash equivalents at end of period $ 26,843 $12,744 $ 20,902 $ 14,309 $ 16,245
========= ====== ======== ========= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 20 $ - $ 490 $ 516 $ 892
========= ======= ======== ========= ========
Interest on deposits and borrowings $ 3,280 $ 3,106 $ 13,083 $ 11,965 $ 11,205
========= ======= ======== ========= ========
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired through
foreclosure $ - $ - $ 98 $ 64 $ 8
======= ======= ========= ========== ========
Issuance of mortgage loan upon sale of real estate
acquired through foreclosure $ 93 $ - $ 50 $ - $ 699
======= ======= ========= ========== ========
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects $ 5 $ 10 $ 69 $ (38) $ (15)
======= ========= ========= ========== ========
Recognition of mortgage servicing rights
in accordance with SFAS No. 140 $ 64 $ 21 $ 92 $ 64 $ 160
======= ========= ========= ========== ========
Supplemental disclosure of noncash financing activities:
Acquisition of treasury stock in exchange for outstanding
shares $ - $ - $ - $ - $ 27
======= ========= ========= ========== ========
The accompanying notes are an integral part of these statements.
F-7
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended June 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000, and 1999
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"). In fiscal 1999, Wayne Savings formed a new
federal savings bank subsidiary 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. At June 30, 2001, March 31, 2001 and 2000, the Company's
equity accounts reflected a net unrealized gain (loss) on securities
designated as available for sale of $38,000, $33,000 and $(36,000),
respectively. Realized gains or losses on sales of securities are recognized
using the specific identification method.
F-8
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000, and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 amortization of premiums and accretion of 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 $64,000, $21,000, $92,000, $64,000, and $160,000 of
pre-tax gains on sales of loans related to capitalized mortgage servicing
rights during the three month periods ended June 30, 2001 and 2000 and the
fiscal years ended March 31, 2001, 2000, and 1999, respectively.
SFAS No. 140 requires that capitalized mortgage servicing rights and
capitalized excess servicing receivables 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, are segregated into pools for valuation purposes, using as pooling
criteria the loan term and coupon rate. Once pooled, each grouping of loans
is 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 are projected from a variety of sources including
loan-servicing fees, interest earned on float, 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 $15,000, $12,000, $52,000, $44,000, and $32,000 for
the three month periods ended June 30, 2001 and 2000, and the years ended
March 31, 2001, 2000, and 1999, respectively. At June 30, 2001, March 31,
2001 and 2000, the carrying value of the Banks' mortgage servicing rights,
which approximated fair value, totaled approximately $406,000, $357,000 and
$317,000, respectively.
F-9
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. At March 31, 2001
and 2000, loans held for sale were carried at cost.
F-10
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000, and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 estimated losses
on loans based on past loss experience, trends in the level of delinquent
and problem loans, adverse situations that may affect the borrower's ability
to repay, the estimated value of any underlying collateral and current and
anticipated economic conditions in their primary market areas. 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 determined 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 and nonresidential loans, and their 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.
F-11
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000, and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
4. ALLOWANCE FOR LOAN LOSSES (continued)
It is the Banks' policy to charge off unsecured credits that are more than
ninety days delinquent. Similarly, collateral dependent loans which are more
than ninety days delinquent are considered to constitute more than a minimum
delay in repayment and are evaluated for impairment under SFAS No. 114 at
that time.
At June 30, 2001, March 31, 2001 and 2000, the Banks' investment in impaired
loans totaled approximately $645,000, $645,000 and $940,000 respectively.
During fiscal 2001, the Company charged-off $172,000 of principal related to
an impaired loan through the allowance for loan losses. For the three month
periods ended June 30, 2001 and 2000, and for the fiscal years ended March
31, 2000 and 1999, there were no charge-offs or recoveries in the allowance
for loan losses related to impaired loans.
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 and
declining-balance methods over the useful lives of the assets, estimated to
be twenty to fifty years for buildings and improvements, and five to ten
years for furniture and equipment. 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
F-12
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.
F-13
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000, and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
7. FEDERAL INCOME TAXES (continued)
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. BENEFIT PLANS
The Banks have a defined benefit pension plan covering all employees who
have attained 21 years of age and have completed one full year of service.
Annual contributions are made to fund current service costs and amortization
of past service costs. The Banks' provision for pension expense totaled
$48,000, $60,000, $204,000, $222,000, and $144,000 for the three month
periods ending June 30, 2001 and 2000, and the three years ended March 31,
2001, 2000, and 1999, respectively. These amounts reflect the expense
computed by the Banks' actuaries utilizing the modified aggregate funding
method and implicitly assuming a 7.50% rate of return on plan assets. As of
November 1, 2000, the most recent valuation date, the amount of net assets
available for benefits was $1.3 million, and the benefit obligation totaled
approximately $1.9 million. The Company has not provided disclosures
required by SFAS No. 87, "Accounting for Pension Plans," based upon
materiality.
During fiscal 1999, the Banks instituted a Section 401(k) 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 $10,000 for each
of the three month periods ended June 30, 2001 and 2000, and $44,000,
$39,000 and $36,000 for the fiscal years ended March 31, 2001, 2000, and
1999, respectively.
9. STOCK BENEFIT PLAN
The Bank has an Employee Stock Ownership Plan ("ESOP"), which provides
retirement benefits for substantially all employees who have completed one
year of service and have attained the age of 21. The final allocation of
shares to plan participants occurred in fiscal 1998. The Company made no
contributions to the ESOP during the three-month periods ended June 30, 2001
and 2000, and the fiscal years ended March 31, 2001, 2000 and 1999.
F-14
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000, and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
10. EARNINGS PER SHARE
Basic earnings per common share is computed based upon the weighted-average
number of common shares outstanding during the period. Diluted earnings per
common share include the dilutive effect of additional potential common
shares issuable under the Company's stock option plan. The computations are
as follows:
JUNE 30, MARCH 31,
2001 2000 2001 2000 1999
(UNAUDITED)
Weighted-average
common shares
outstanding (basic) 2,574,113 2,603,644 2,596,754 2,602,141 2,609,762
Dilutive effect of
assumed exercise
of stock options 6,454 14,974 11,752 18,735 26,104
--------- --------- --------- --------- ---------
Weighted-average
common shares
outstanding (diluted) 2,580,567 2,618,618 2,608,506 2,620,876 2,635,866
========= ========= ========= ========= =========
11. 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.
12. 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.
F-15
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000, and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
12. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments at June 30, 2001 and
March 31, 2001 and 2000:
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.
CERTIFICATES OF DEPOSIT 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.
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 June 30, 2001 and March 31, 2001
and 2000, the differences between the fair value and notional
amount of loan commitments were not material.
F-16
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000, and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
12. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Company's financial instruments are as follows:
JUNE 30, MARCH 31.
2001 2001 2000
CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
(UNAUDITED) (In thousands)
Financial assets
Cash and cash equivalents
and certificates of
deposit $ 26,843 $26,843 $ 26,602 $ 26,602 $ 18,309 $ 18,309
Investment securities 12,123 12,277 13,641 13,774 23,199 22,634
Mortgage-backed
securities 7,155 7,158 8,613 8,605 10,496 10,388
Loans receivable 254,837 267,395 247,480 259,538 237,412 228,469
Federal Home Loan
Bank stock 3,612 3,612 3,510 3,510 3,160 3,160
------- ------- ------- ------- ------- -------
$304,570 $317,285 $299,846 $312,029 $292,576 $282,960
======= ======= ======= ======= ======= =======
Financial liabilities
Deposits $284,384 $285,783 $277,706 $278,715 $264,952 $265,428
Advances from the
Federal Home
Loan Bank 6,000 6,000 6,000 6,000 12,000 11,999
Advances by
borrowers for taxes
and insurance 322 322 827 827 777 777
------- ------- ------- ------- ------- -------
$290,706 $292,105 $284,533 $285,542 $277,729 $278,204
======= ======= ======= ======= ======= =======
13. ADVERTISING
Advertising costs are expensed when incurred. The Company's advertising
expense totaled $35,000 for each of the three months ended June 30, 2001 and
2000, respectively, and $140,000, $189,000 and $148,000 for the fiscal years
ended March 31, 2001, 2000, and 1999, respectively.
14. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 2001
financial statement presentation.
F-17
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000, and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
15. BASIS OF PRESENTATION
The financial statements as of June 30, 2001, and for the three months
ended June 30, 2001 and 2000, are unaudited. In the opinion of
management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of financial position and
results of operations have been made. The results of operations for the
three months ended June 30, 2001, are not necessarily indicative of
results, which may be expected for the entire fiscal year.
F-18
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000
(unaudited) and years ended March 31, 2001,
2000, and 1999
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES
Carrying values and estimated fair values of investment securities are
summarized as follows:
JUNE 30, MARCH 31.
2001 2001 2000
ESTIMATED ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
(UNAUDITED) (In thousands)
Corporate bonds
and notes $ 3,995 $ 4,081 $ 3,994 $ 4,061 $ 2,987 $ 2,951
U.S. Government and
agency obligations 7,987 8,048 9,501 9,567 20,057 19,528
Municipal obligations 141 148 146 146 155 155
-------- -------- -------- -------- -------- --------
$12,123 $12,277 $13,641 $13,774 $23,199 $22,634
====== ====== ====== ====== ====== ======
At June 30, 2001, the carrying value of the Company's investment securities
below estimated fair value totaled $154,000, consisting of $170,000 in gross
unrealized gains and $16,000 in gross unrealized losses.
At March 31, 2001, the carrying value of the Company's investment securities
below estimated fair value totaled $133,000, consisting of gross unrealized
gains totaling $140,000 and gross unrealized losses of $7,000.
At March 31, 2000, the carrying value of the Company's investment securities
in excess of estimated fair value totaled $565,000 in gross unrealized
losses.
The amortized cost and estimated fair value of investment securities by term
to maturity are shown below.
AT JUNE 30, 2001 AT MARCH 31, 2001
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
(UNAUDITED) (In thousands)
Due in one year or less $ 4,496 $ 4,553 $ 4,995 $ 5,050
Due within one to three years 4,524 4,628 4,526 4,603
Due within three to five years 1,000 1,001 500 500
Due in over five years 2,103 2,095 3,620 3,621
------- ------- ------- -------
$12,123 $12,277 $13,641 $13,774
====== ====== ====== ======
The Company had pledged $1.0 million in investment securities to secure
public deposits at both June 30, 2001 and March 31, 2001. The Company had
not pledged any investment or mortgage-backed securities to secure public
deposits at March 31, 2000.
F-19
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000
(unaudited) and years ended March 31, 2001,
2000, and 1999
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost, gross unrealized gains, gross unrealized losses, and
estimated fair values of mortgage-backed securities at June 30, 2001, March
31, 2001 and 2000, including those designated as available for sale, are
summarized as follows:
JUNE 30, 2001
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In thousands)
HELD-TO-MATURITY
Federal Home Loan Mortgage
Corporation participation certificates $ 715 $ 3 $ 7 $ 711
Government National Mortgage
Association participation certificates 1,686 13 17 1,682
Federal National Mortgage
Association participation certificates 2,088 23 12 2,099
----- -- ---- -----
$4,489 $39 $ 36 $4,492
===== == ==== =====
AVAILABLE FOR SALE
Federal Home Loan Mortgage
Corporation participation certificates $1,134 $42 $- $1,176
Government National Mortgage
Association participation certificates 86 10 - 96
Federal National Mortgage
Association participation certificates 1,381 13 - 1,394
----- -- -- -----
$2,601 $65 $- $2,666
===== == == =====
MARCH 31, 2001
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In thousands)
HELD-TO-MATURITY
Federal Home Loan Mortgage
Corporation participation certificates $1,118 $ 7 $ 4 $1,121
Government National Mortgage
Association participation certificates 2,052 10 13 2,049
Federal National Mortgage
Association participation certificates 2,532 4 12 2,524
----- ----- ---- -----
$5,702 $ 21 $ 29 $5,694
===== ==== ==== =====
AVAILABLE FOR SALE
Federal Home Loan Mortgage
Corporation participation certificates $1,220 $ 35 $- $1,255
Government National Mortgage
Association participation certificates 86 11 - 97
Federal National Mortgage
Association participation certificates 1,552 8 1 1,559
----- ----- ----- -----
$2,858 $ 54 $ 1 $2,911
===== ==== ===== =====
F-20
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000
(unaudited) and years ended March 31, 2001,
2000, and 1999
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued)
MARCH 31, 2000
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In thousands)
HELD-TO-MATURITY
Federal Home Loan Mortgage
Corporation participation certificates $1,044 $- $ 21 $1,023
Government National Mortgage
Association participation certificates 2,701 - 34 2,667
Federal National Mortgage
Association participation certificates 3,301 - 53 3,248
----- -- ---- -----
$7,046 $- $108 $6,938
===== == === =====
AVAILABLE FOR SALE
Federal Home Loan Mortgage
Corporation participation certificates $1,519 $- $ 16 $1,503
Government National Mortgage
Association participation certificates 82 15 - 97
Federal National Mortgage
Association participation certificates 1,904 - 54 1,850
----- -- ---- -----
$3,505 $ 15 $ 70 $3,450
===== ==== ==== =====
The amortized cost of mortgage-backed securities, including those designated
as available for sale by contractual term to maturity are shown below.
Expected maturities will differ from contractual maturities because
borrowers may generally prepay obligations without prepayment penalties.
AT JUNE 30, 2001 AT MARCH 31, 2001
AMORTIZED AMORTIZED
COST COST
(UNAUDITED) (In thousands)
Due in one year or less $ - $ -
Due within one to three years 1,007 1,180
Due within three to five years 897 993
Due after five years 5,186 6,387
----- -----
$7,090 $8,560
===== =====
F-21
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000
(unaudited) and years ended March 31, 2001,
2000, and 1999
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio at is as follows:
JUNE 30, MARCH 31,
2001 2001 2000
(UNAUDITED) (In thousands)
Residential real estate - 1 to 4 family $222,561 $215,464 $211,222
Residential real estate - multi-family 9,150 9,039 8,028
Residential real estate - construction 7,253 7,078 4,035
Nonresidential real estate and land 9,777 7,525 6,068
Education 1,974 2,143 2,780
Commercial 6,015 4,765 5,168
Consumer and other 7,039 7,487 6,261
--------- --------- ---------
263,769 253,501 243,562
Less:
Undisbursed portion of loans in
process 6,836 4,764 4,136
Deferred loan origination fees 1,440 1,463 1,538
Allowance for loan losses 656 655 793
---------- ---------- ----------
$254,837 $246,619 $237,095
======= ======= =======
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 $232.1 million, or 91%, of the total
loan portfolio at June 30, 2001, $226.8 million, or 92%, of the total loan
portfolio at March 31, 2001, and $219.1 million, or 92%, of the total loan
portfolio at March 31, 2000. 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 $50.4 million at June 30, 2001, and $47.1 million, $44.3
million and $44.0 million at March 31, 2001, 2000, and 1999, respectively.
F-22
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000
(unaudited) and years ended March 31, 2001,
2000, and 1999
NOTE C - LOANS RECEIVABLE (continued)
In the normal course of business, the Banks have made loans to their
directors, officers and their related business interests. Prior to fiscal
1999, related party loans were made on the same terms including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than the normal
risk of collectibility. However, regulations now permit executive officers
and directors to receive the same terms through benefit or compensation
plans 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 $2.5 million at June 30, 2001, and $371,000, $189,000 and
$340,000 at March 31, 2001, 2000, and 1999, respectively.
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is summarized as follows:
JUNE 30, MARCH 31,
2001 2000 2001 2000 1999
(UNAUDITED) (In thousands)
Balance at beginning of year $655 $793 $793 $678 $721
Provision for losses on loans 2 51 96 120 64
Recoveries (charge-offs) of loans - net (1) 2 (234) (5) (107)
----- ----- --- ----- ---
Balance at end of year $656 $846 $655 $793 $678
=== === === === ===
As of June 30, 2001 and March 31, 2001, 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 and nonperforming loans totaled approximately $1.8 million,
$192,000, $515,000, $200,000 and $280,000 at June 30, 2001 and 2000, and
March 31, 2001, 2000, and 1999, respectively.
During the three-month periods ended June 30, 2001 and 2000, interest income
of approximately $8,000 and $5,000, respectively, would have been recognized
had nonaccrual loans been performing in accordance with contractual terms.
During the fiscal years ended March 31, 2001, 2000, and 1999, interest
income of approximately $12,000, $8,000 and $7,000, respectively, would have
been recognized had nonaccrual loans been performing in accordance with
contractual terms.
F-23
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000
(unaudited) and years ended March 31, 2001,
2000, and 1999
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment are comprised of the following:
JUNE 30, MARCH 31,
2001 2001 2000
(UNAUDITED) (In thousands)
Land and improvements $ 1,615 $ 1,615 $ 1,750
Office buildings and improvements 6,446 6,167 6,752
Furniture, fixtures and equipment 4,042 3,931 4,463
Automobiles 60 60 60
--------- --------- ---------
12,163 11,773 13,025
Less accumulated depreciation and amortization 3,281 3,166 4,865
------- ------- -------
$ 8,882 $ 8,607 $ 8,160
======= ======= =======
F-24
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000
(unaudited) and years ended March 31, 2001,
2000, and 1999
NOTE F - DEPOSITS
Deposits consist of the following major classifications:
DEPOSIT TYPE AND WEIGHTED- JUNE 30, MARCH 31,
AVERAGE INTEREST RATE 2001 2001 2000
(UNAUDITED) (In thousands)
NOW accounts
June 30, 2001 - 1.56% $37,309
March 31, 2001 - 1.73% $ 33,642
March 31, 2000 - 2.08% $ 31,014
Passbook
June 30, 2001 - 3.09% 58,630
March 31, 2001 - 3.18% 54,574
March 31, 2000 - 3.13% 53,074
Money Market Investor
June 30, 2001 - 3.23% 9,175
March 31, 2001 - 3.23% 8,905
March 31, 2000 - 3.28% 10,827
- - --------
Total demand, transaction and
passbook deposits 105,114 97,121 94,915
Certificates of deposit
Original maturities of:
Less than 12 months
June 30, 2001 - 4.72% 37,166
March 31, 2001 - 5.51% 25,494
March 31, 2000 - 5.00% 41,722
12 months to 24 months
June 30, 2001 - 5.99% 88,235
March 31, 2001 - 6.03% 101,105
March 31, 2000 - 5.60% 54,341
25 months to 36 months
June 30, 2001 - 5.21% 9,957
March 31, 2001 - 5.26% 10,036
March 31, 2000 - 5.71% 24,787
More than 36 months
June 30, 2001 - 5.54% 6,132
March 31, 2001 - 5.56% 6,175
March 31, 2000 - 5.52% 8,888
Jumbo
June 30, 2001 - 6.16% 37,780
March 31, 2001 - 6.46% 37,775
March 31, 2000 - 6.07% 40,299
- - --------
Total certificates of deposit 179,270 180,585 170,037
------- ------- -------
Total deposit accounts $284,384 $277,706 $264,952
======= ======= =======
F-25
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000
(unaudited) and years ended March 31, 2001,
2000, and 1999
NOTE F - DEPOSITS (continued)
At June 30, 2001, the Banks had certificates of deposit with balance in
excess of $100,000 totaling $37.9 million. At March 31, 2001 and 2000, the
Banks had certificates of deposit with balances in excess of $100,000
totaling $37.4 million and $34.7 million, respectively.
Interest expense on deposits is summarized as follows:
THREE MONTHS ENDED YEAR ENDED
JUNE 30, MARCH, 31
2001 2000 2001 2000 1999
(UNAUDITED) (In thousands)
Passbook $ 431 $ 415 $ 1,642 $ 1,569 $ 1,220
NOW and money market
deposit accounts 215 229 875 979 787
Certificates of deposit 2,616 2,401 10,135 8,982 8,509
----- ----- ------ ------- -------
$3,262 $3,045 $12,652 $11,530 $10,516
===== ===== ====== ====== ======
Maturities of outstanding certificates of deposit are summarized as follows:
JUNE 30, MARCH 31,
2001 2001 2000
(UNAUDITED) (In thousands)
Less than one year $136,221 $129,044 $123,870
One to three years 40,317 48,533 41,855
Over three years 2,732 3,008 4,312
--------- --------- ---------
$179,270 $180,585 $170,037
======= ======= =======
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at June 30, 2001
and March 31, 2001 and 2000 by pledges of certain residential mortgage loans
totaling $7.5 million, $7.5 million and $18.0 million, respectively, and the
Banks' investment in Federal Home Loan Bank stock, are summarized as
follows:
MATURING IN YEAR JUNE 30, MARCH 31,
INTEREST RATE ENDING MARCH 31, 2001 2001 2000
(UNAUDITED) (In thousands)
6.20% - 6.50% 2001 $ - $ - $ 6,000
5.04% - 5.98% 2002 1,000 6,000 6,000
5.07% - 5.29% 2005 5,000 - -
----- ----- -------
$6,000 $6,000 $12,000
===== ===== ======
Weighted-average interest rate 5.21% 5.54% 5.98%
==== ==== ====
F-26
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000
(unaudited) and years ended March 31, 2001,
2000, and 1999
NOTE H - FEDERAL INCOME TAXES
The provision for federal income taxes on earnings differs from that
computed at the statutory corporate tax rate as follows:
THREE MONTHS ENDED YEAR ENDED
JUNE 30, MARCH 31,
2001 2000 2001 2000 1999
(Unaudited)
(In thousands)
Federal income taxes computed
at statutory rate $194 $149 $753 $644 $846
Increase (decrease) in taxes
resulting from:
Tax exempt interest (1) (1) (8) (7) (3)
Other 2 1 9 7 3
----- ----- ----- ----- -----
Federal income tax provision
per consolidated financial statements $195 $149 $754 $644 $846
=== === === === ===
The composition of the Company's net deferred tax liability is as follows:
TAXES (PAYABLE) REFUNDABLE ON TEMPORARY JUNE 30, MARCH 31,
DIFFERENCES AT STATUTORY RATE: 2001 2001 2000
(Unaudited)
(In thousands)
DEFERRED TAX ASSETS
Deferred loan origination fees $ 108 $ 108 $ 218
General loan loss allowance 261 263 308
Book/tax depreciation differences 24 24 -
Organizational costs 50 62 -
Pension expense 11 72 -
Unrealized loss on securities designated as available for sale - - 19
Other 53 16 11
----- ------- -----
Deferred tax assets 507 545 556
DEFERRED TAX LIABILITIES
Federal Home Loan Bank stock dividends (748) (748) (664)
Book/tax depreciation differences - - (91)
Unrealized gains on securities designated as available for sale (22) (20) -
Bad debt deduction (104) (111) (68)
Mortgage servicing rights (121) (121) (108)
---- ------ ----
Deferred tax liabilities (995) (1,000) (931)
---- ----- ----
Total deferred tax liability $(488) $ (455) $(375)
==== ====== ====
F-27
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000
(unaudited) and years ended March 31, 2001,
2000, and 1999
NOTE H - FEDERAL INCOME TAXES (continued)
The Bank 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 June 30, 2001 and March
31, 2001. 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 is approximately $918,000 at June 30, 2001 and March 31, 2001.
Wayne Savings is required to recapture as taxable income approximately
$300,000 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, commencing in fiscal
1999.
NOTE I - COMMITMENTS
The Company is 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 nonperformance 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 June 30, 2001, the Company had outstanding commitments to originate fixed
rate and adjustable rate loans of $8.9 million and $500,000, respectively.
At March 31, 2001 and 2000, the Company had outstanding commitments to
originate fixed rate loans of approximately $4.7 million and $1.8 million,
respectively, and adjustable rate loans of approximately $423,000 and
$520,000, respectively. The Company had unused lines of credit under home
equity loans of $17.4 million, $12.1 million and $10.7 million at June 30,
2001, March 31, 2001 and 2000, respectively. Additionally, the Company had
unused lines of credit under commercial loans of $3.4 million, $2.0 million
and $3.1 million at June 30, 2001, March 31, 2001 and 2000, respectively.
Management believes that all loan commitments are able to be funded through
cash flow from operations and existing excess liquidity. Fees received in
connection with these commitments have not been recognized in earnings.
F-28
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000
(unaudited) and years ended March 31, 2001,
2000, and 1999
NOTE I - COMMITMENTS (continued)
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 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.
In connection with the opening of the NorthSide branch in July 1999, the
Company entered into a lease of branch banking facilities. The lease of the
banking facility requires the Company to make payments of approximately
$30,000 per year. The operating lease expires in April 2009, and contains
two renewable five-year options with lease payments to be determined by the
parties upon such time of a renewal.
NOTE J - REGULATORY CAPITAL
The Banks are subject to minimum regulatory capital standards promulgated by
the Office of Thrift Supervision (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 June 30, 2001, and March 31, 2001 and 2000, management believes that
the Banks met all capital adequacy requirements to which they were subject.
F-29
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000
(unaudited) and years ended March 31, 2001,
2000, and 1999
NOTE J - REGULATORY CAPITAL (continued)
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.
WAYNE SAVINGS COMMUNITY BANK AS OF JUNE 30, 2001
(UNAUDITED) REQUIRED
TO BE "WELL-
REQUIRED CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
Tangible capital $25,040 7.9% =>$ 4,762 =>1.5% =>$15,873 => 5.0%
Core capital $25,040 7.9% =>$12,699 =>4.0% =>$19,048 => 6.0%
Risk-based capital $25,696 15.1% =>$13,580 =>8.0% =>$16,975 =>10.0%
WAYNE SAVINGS COMMUNITY BANK AS OF MARCH 31, 2001
REQUIRED
TO BE "WELL-
REQUIRED CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
Tangible capital $25,078 8.1% =>$ 4,674 =>1.5% =>$15,580 => 5.0%
Core capital $25,078 8.1% =>$12,464 =>4.0% =>$18,696 => 6.0%
Risk-based capital $25,733 15.5% =>$13,274 =>8.0% =>$16,593 =>10.0%
F-30
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000
(unaudited) and years ended March 31, 2001,
2000, and 1999
NOTE J - REGULATORY CAPITAL (continued)
WAYNE SAVINGS COMMUNITY BANK AS OF MARCH 31, 2000
REQUIRED
TO BE "WELL-
REQUIRED CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
Tangible capital $24,305 8.1% =>$ 4,558 =>1.5% =>$15,192 => 5.0%
Core capital $24,305 8.1% =>$12,155 =>4.0% =>$18,230 => 6.0%
Risk-based capital $25,098 15.7% =>$12,802 =>8.0% =>$16,003 =>10.0%
VILLAGE SAVINGS BANK, F.S.B. AS OF JUNE 30, 2001
(UNAUDITED) REQUIRED
TO BE "WELL-
REQUIRED CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
Tangible capital $2,730 8.7 % =>$ 471 =>1.5% =>$1,571 => 5.0%
Core capital $2,730 8.7% =>$1,257 =>4.0% =>$1,885 => 6.0%
Risk-based capital $2,771 17.8 % =>$1,247 =>8.0% =>$1,559 =>10.0%
VILLAGE SAVINGS BANK, F.S.B. AS OF MARCH 31, 2001
REQUIRED
TO BE "WELL-
REQUIRED CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
Tangible capital $2,721 9.6% =>$ 424 =>1.5% =>$1,413 => 5.0%
Core capital $2,721 9.6% =>$1,131 =>4.0% =>$1,696 => 6.0%
Risk-based capital $2,761 19.0% =>$1,163 =>8.0% =>$1,454 =>10.0%
F-31
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000
(unaudited) and years ended March 31, 2001,
2000, and 1999
NOTE J - REGULATORY CAPITAL (continued)
VILLAGE SAVINGS BANK, F.S.B. AS OF MARCH 31, 2000
REQUIRED
TO BE "WELL-
REQUIRED CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
Tangible capital $2,683 12.7% =>$318 =>1.5% =>$1,060 => 5.0%
Core capital $2,683 12.7% =>$848 =>4.0% =>$1,272 => 6.0%
Risk-based capital $2,717 24.8% =>$875 =>8.0% =>$1,094 =>10.0%
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 same time period. Insured institutions are
required to file an application with the OTS for capital distributions in
excess of the limitation. During April 2001, Wayne Savings received OTS
approval to make up to $2.0 million in capital distributions during fiscal
2002.
Regulations of the OTS governing mutual holding companies permit 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
totaling $260,000 and $75,000 during fiscal years 2001 and 2000,
respectively. For the fiscal year ended March 31, 1999, the M.H.C. waived
its share of all dividends declared on the common stock. Total dividends
waived by the M.H.C. through March 31, 2001 amounted to $5.3 million.
NOTE K - STOCK OPTION PLANS
The Company has an incentive Stock Option Plan that previously provided for
the issuance of 84,044 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 36,018 shares of authorized, but unissued shares of
common stock. The number of shares under option has been adjusted to reflect
all past stock dividends.
F-32
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000
(unaudited) and years ended March 31, 2001,
2000, and 1999
NOTE K - STOCK OPTION PLANS (continued)
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. The pro-forma
disclosures required by SFAS No. 123 are not applicable as no options were
granted by the Company during the fiscal years ended March 31, 2001, 2000,
and 1999.
A summary of the status of the Company's stock option plans and changes
during the periods ending on those dates is presented below:
JUNE 30, MARCH 31,
2001 2001 2000 1999
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
Outstanding at beginning of period 17,473 $5.00 27,657 $5.00 34,596 $5.00 60,548 $5.00
Granted - - - - - - - -
Exercised - - 7,900 5.00 2,301 5.00 22,743 5.00
Forfeited - - 2,284 5.00 4,638 5.00 3,209 5.00
------- ------- ------- ---- ------- ---- ------- ----
Outstanding at end of period 17,473 $5.00 17,473 $5.00 27,657 $5.00 34,596 $5.00
====== ==== ====== ==== ====== ==== ====== ====
Options exercisable at period-end 17,473 $5.00 17,473 $5.00 27,657 $5.00 34,596 $5.00
====== ==== ====== ==== ====== ==== ====== ====
The following information applies to options outstanding at June 30, 2001:
Number outstanding 17,473
Range of exercise prices $5.00
Weighted-average exercise price $5.00
Weighted-average remaining contractual life 2.00
At June 30, 2001, all of the stock options granted were subject to exercise
at the discretion of the grantees and expire in 2003.
F-33
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000
(unaudited) and years ended March 31, 2001,
2000, and 1999
NOTE L - CONDENSED FINANCIAL STATEMENTS OF WAYNE SAVINGS BANCSHARES, INC.
The following condensed financial statements summarize the financial
position of Wayne Savings Bancshares, Inc. as of June 30, 2001 and March 31,
2001 and 2000, and the results of its operations and its cash flows for the
three-month periods ending June 30, 2001 and 2000 and the years ended March
31, 2001, 2000 and 1999.
Wayne Savings Bancshares, Inc.
STATEMENTS OF FINANCIAL CONDITION
JUNE 30, MARCH 31,
2001 2001 2000
(UNAUDITED) (In thousands)
ASSETS
Cash and due from banks $ 56 $ 86 $ 169
Interest-bearing deposits in other financial institutions - - 475
Investment in subsidiary 25,405 25,434 24,596
Prepaid expenses and other 73 56 100
--------- --------- --------
Total assets $25,534 $25,576 $25,340
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 213 $ 291 $ 219
Stockholders' equity
Common stock and additional paid-in capital 17,075 17,075 17,025
Retained earnings 9,351 9,180 8,777
Less shares held in treasury (67,742, 57,042 and 33,214 shares,
respectively) (1,143) (1,003) (645)
Accumulated other comprehensive income (loss),
unrealized gain (loss) on securities designated as
available for sale, net 38 33 (36)
--------- --------- ---------
Total stockholders' equity 25,321 25,285 25,121
------ ------ ------
Total liabilities and stockholders' equity $25,534 $25,576 $25,340
====== ====== ======
F-35
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000
(unaudited) and years ended March 31, 2001,
2000, and 1999
NOTE L - CONDENSED FINANCIAL STATEMENTS OF WAYNE SAVINGS BANCSHARES, INC.
(continued)
Wayne Savings Bancshares, Inc.
STATEMENTS OF EARNINGS
THREE MONTHS ENDED YEARS ENDED
JUNE 30, MARCH 31,
2001 2000 2001 2000 1999
(UNAUDITED) (In thousands)
Income
Interest income $- $ 6 $ 17 $ 58 $ 53
Equity in earnings of subsidiary 395 307 1,530 1,302 1,676
--- --- ----- ----- -----
Total revenue 395 313 1,547 1,360 1,729
General and administrative expenses 29 32 122 135 102
---- ---- ------ ------ ------
Earnings before income tax 366 281 1,425 1,225 1,627
Federal income tax credits (10) (9) (36) (26) (16)
---- ----- ------- ------- -------
NET EARNINGS $376 $290 $1,461 $1,251 $1,643
=== === ===== ===== =====
Wayne Savings Bancshares, Inc.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED YEARS ENDED
JUNE 30, MARCH 31,
2001 2000 2001 2000 1999
(UNAUDITED) (In thousands)
Cash flows from operating activities:
Net earnings for the period $376 $290 $1,461 $1,251 $1,643
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Excess contributions (undistributed earnings) of
consolidated subsidiary 34 (307) (769) (1,238) 324
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets (17) 43 44 (2) (25)
Other liabilities (78) (19) 72 (30) (8)
---- ---- ------- ------- --------
Net cash provided by (used in) operating activities 315 7 808 (19) 1,934
Cash flows provided by (used in) financing activities:
Payment of dividends on common stock (205) (200) (1,058) (882) (725)
Purchase of treasury stock - at cost (140) - (358) (177) (431)
Proceeds from exercise of stock options - 27 50 11 87
-- ---- ------- ------ ------
Net cash used in financing activities (345) (173) (1,366) (1,048) (1,069)
--- --- ----- ----- -----
Net increase (decrease) in cash and cash equivalents (30) (166) (558) (1,067) 865
Cash and cash equivalents at beginning of period 86 644 644 1,711 846
---- --- ------ ----- ------
Cash and cash equivalents at end of period $ 56 $478 $ 86 $ 644 $1,711
==== === ======= ====== =====
F-35
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000
(unaudited) and years ended March 31, 2001,
2000, and 1999
NOTE M - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the Company's quarterly results for the
fiscal years ended March 31, 2001 and 2000.
FOR THE THREE MONTH PERIODS ENDED
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
2000 2000 2000 2001
(In thousands, except share data)
Total interest income $5,337 $5,358 $5,388 $5,416
Total interest expense 3,161 3,248 3,321 3,370
----- ----- ----- -----
Net interest income 2,176 2,110 2,067 2,046
Provision for losses on loans 51 22 2 21
Other income 218 259 289 279
General, administrative and other expense 1,904 1,791 1,758 1,680
----- ----- ----- -----
Earnings before income taxes 439 556 596 624
Federal income taxes 149 191 201 213
------ ------ ------ ------
Net earnings $ 290 $ 365 $ 395 $ 411
====== ====== ====== ======
Earnings per share
Basic $.11 $.14 $.15 $.16
=== === === ===
Diluted $.11 $.14 $.15 $.16
=== === === ===
FOR THE THREE MONTH PERIODS ENDED
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1999 1999 1999 2000
(In thousands, except share data)
Total interest income $4,906 $5,180 $5,282 $5,333
Total interest expense 2,809 2,964 3,077 3,164
----- ----- ----- -----
Net interest income 2,097 2,216 2,205 2,169
Provision for losses on loans 21 23 38 38
Other income 190 167 211 174
General, administrative and other expense 1,749 1,899 1,917 1,849
----- ----- ----- -----
Earnings before income taxes 517 461 461 456
Federal income taxes 175 158 156 155
------ ------ ------ ------
Net earnings $ 342 $ 303 $ 305 $ 301
====== ====== ====== ======
Earnings per share
Basic $.13 $.12 $.12 $.11
=== === === ===
Diluted $.13 $.12 $.12 $.11
=== === === ===
F-36
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended June 30, 2001 and 2000
(unaudited) and years ended March 31, 2001,
2000, and 1999
NOTE N - REORGANIZATION AND CHANGE OF CORPORATE FORM (UNAUDITED)
The Board of Directors of Wayne Savings Bankshares, M.H.C (the
"M.H.C.")adopted a Plan of Conversion (the "Plan") on July 10, 2001.
Pursuant to the Plan, the M.H.C. will convert from the mutual holding
company form of organization to the fully public form. Wayne Savings
Bankshares, M.H.C., the mutual holding company parent of Wayne Savings
Bancshares, Inc., will be merged into Wayne Savings Community Bank, and
Wayne Savings Bankshares, M.H.C. will no longer exist. Pursuant to the Plan,
Wayne Savings Bancshares, Inc., which owns 100% of Wayne Savings Community
Bank, also will be succeeded by a new Delaware corporation with the same
name. As part of the conversion, 1,350,699 shares of common stock of Wayne
Savings Bancshares, Inc. representing the 52.5% ownership interest of Wayne
Savings Bankshares, M.H.C., will be offered for sale in the subscription and
community offering. Following the completion of the conversion, all of the
capital stock of Wayne Savings Community Bank will be held by Wayne Savings
Bancshares, Inc.
Under the Plan, at the conclusion of the conversion and related offering,
each share of Wayne Savings Bancshares, Inc. common stock held by persons
other than Wayne Savings Bankshares, M.H.C. will be converted automatically
into and become a right to receive new shares of Wayne Savings Bancshares,
Inc. common stock determined pursuant to the exchange ratio. The exchange
ratio will ensure that immediately after the conversion and the share
exchange, the public stockholders of Wayne Savings Bancshares, Inc. common
stock will own the same aggregate percentage of Wayne Savings Bancshares,
Inc. common stock that they owned immediately prior to the conversion.
The rights of Wayne's depositors in liquidation in the conversion to stock
form will be maintained by the in an amount equal to the retained earnings
of Wayne Savings reflected in the statement of financial condition used in
the conversion offering circular. The liquidation account will be maintained
for the benefit of eligible savings account holders who maintained deposit
accounts in Wayne after the conversion.
F-37
--------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY WAYNE SAVINGS BANCSHARES, INC. OR WAYNE SAVINGS COMMUNITY
BANK. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF WAYNE SAVINGS BANCSHARES, INC. OR WAYNE SAVINGS
COMMUNITY BANK SINCE ANY OF THE DATES AS OF WHICH INFORMATION IS FURNISHED
HEREIN OR SINCE THE DATE HEREOF.
UP TO 2,070,000 SHARES
(ANTICIPATED MAXIMUM)
WAYNE SAVINGS BANCSHARES, INC.
(HOLDING COMPANY FOR
WAYNE SAVINGS COMMUNITY BANK)
COMMON STOCK
PAR VALUE $0.10 PER SHARE
------------------
PROSPECTUS
------------------
RYAN BECK & CO.
NOVEMBER ____, 2001
----------------
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT FEDERALLY
INSURED OR GUARANTEED.
UNTIL ____________ OR 25 DAYS AFTER COMMENCEMENT OF THE SYNDICATED COMMUNITY
OFFERING, IF ANY, WHICHEVER IS LATER, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OF SUBSCRIPTIONS.
--------------------------------------------------------------------------------
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article NINTH of the Certificate of Incorporation of Wayne Savings
Bancshares, Inc. (the "Corporation") sets forth circumstances under which
directors, officers, employees and agents of the Corporation may be insured or
indemnified against liability which they incur in their capacities as such:
NINTH:
A. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a Director or an
Officer of the Corporation or is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action in an official capacity as a
Director, Officer, employee or agent or in any other capacity while serving as a
Director, Officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that,
except as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation.
B. The right to indemnification conferred in Section A of this
Article NINTH shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a Director or Officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Section or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections A and B of this Article NINTH shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a Director, Officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article NINTH is not paid
in full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation
2
(including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article NINTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article NINTH shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to
protect itself and any Director, Officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article NINTH with respect to the
indemnification and advancement of expenses of Directors and Officers of the
Corporation.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
AMOUNT
* Legal Fees and Expenses............................................ $ 200,000
* Printing, Postage, Mailing and EDGAR............................... 155,000
* Appraisal and Business Plan Fees and Expenses...................... 57,500
* Blue Sky Filing Fees and Expenses (including counsel fees)......... 5,000
* Accounting Fees and Expenses....................................... 75,000
* Conversion Agent and Data Processing Fees.......................... 30,000
** Marketing Agent Fees and Expenses.................................. 250,000
* Marketing Agent Counsel Fees and expenses.......................... 35,000
* Filing Fees (OTS, NASD, Nasdaq and SEC)............................ 81,400
* Other Expenses..................................................... 45,000
--------------
* Total ............................................................. $ 933,900
==============
------------------
* Estimated
** Wayne Savings Bancorp, Inc. has retained Ryan, Beck & Co., LLC to
assist in the sale of common stock on a best efforts basis in the
Offerings. Fees estimated at the midpoint of the offering range.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
3
ITEM 27. EXHIBITS:
The exhibits filed as part of this registration statement are
as follows:
(a) LIST OF EXHIBITS
1.1 Engagement Letter between the Registrant and Ryan, Beck & Co., LLC
1.2 Form of Agency Agreement between the Registrant and Ryan, Beck & Co.,
LLC
2 Plan of Conversion and Reorganization
3.1 Delaware Certificate of Incorporation of Wayne Savings Bancshares, Inc.
(Included in Exhibit 2)
3.2 Delaware Bylaws of Wayne Savings Bancshares, Inc. (Included in
Exhibit 2)
4 Form of Common Stock Certificate of Wayne Savings Bancshares, Inc.
5 Opinion of Luse Lehman Gorman Pomerenk & Schick regarding legality of
securities being registered
8.1 Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick
8.2 Opinion of RP Financial, LC with respect to Subscription Rights
10.1 Form of Employment Agreement
10.2 Form of Change of Control Agreements
10.3 Subsidiaries of Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick (contained in Opinions
included on Exhibits 5 and 8.1)
23.2 Consent of Grant Thornton
23.3 Consent of RP Financial, LC
24 Power of Attorney (set forth on signature page)
99.1 Appraisal Agreement between the Registrant and RP Financial, LC
99.2 Appraisal Report of RP Financial, LC**
99.3 Marketing Materials*
99.4 Order and Acknowledgment Form*
99.5 Business Plan Agreement between the Registrant and RP Financial, LC
99.6 Special Meeting proxy Statement
* To be filed supplementally or by amendment.
** Supporting financial schedules filed pursuant to Rule 202 of Regulation S-T.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii)Reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
duration from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;
(iii) Include any additional or changed material information
on the plan of distribution.
4
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
The small business issuer will provide to the underwriter at the
closing specified in the Underwriting Agreement certificates in such
documentation and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
questions whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
5
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the city of Wooster,
State of Ohio on September 17, 2001.
WAYNE SAVINGS BANCSHARES, INC.
By: /s/ Charles F. Finn
----------------------------------------
Charles F. Finn
Chairman of the Board and President
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned directors and officers of Wayne Savings Bancshares,
Inc. (the "Company") hereby severally constitute and appoint Charles F. Finn as
our true and lawful attorney and agent, to do any and all things in our names in
the capacities indicated below which said Charles F. Finn may deem necessary or
advisable to enable the Company to comply with the Securities Act of 1933, and
any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the registration statement on Form SB-2 relating
to the offering of the Company's Common Stock, including specifically, but not
limited to, power and authority to sign for us in our names in the capacities
indicated below the registration statement and any and all amendments (including
post-effective amendments) thereto; and we hereby approve, ratify and confirm
all that said Charles F. Finn shall do or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates stated.
SIGNATURES TITLE DATE
/s/ Charles F. Finn Chairman of the Board and September 17, 2001
----------------------- President (Principal Executive,
Charles F. Finn Financial and Accounting Officer)
/s/ Kenneth Rhode
----------------------- Director September 17, 2001
Kenneth Rhode
/s/ Russell Harpster
----------------------- Director September 17, 2001
Russell Harpster
/s/ Joseph Retzler
----------------------- Director September 17, 2001
Joseph Retzler
/s/ Donald Massaro
----------------------- Director September 17, 2001
Donald Massaro
/s/ Terry Gardner
----------------------- Director September 17, 2001
Terry Gardner
/s/ James Morgan
---------------------- Director September 17, 2001
James Morgan
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 2001
REGISTRATION NO. 333-
================================================================================
---------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------
EXHIBITS
TO
REGISTRATION STATEMENT
ON
FORM SB-2
WAYNE SAVINGS BANCSHARES, INC.
WOOSTER, OHIO
================================================================================
EXHIBIT INDEX
1.1 Engagement Letter between the Registrant and Ryan, Beck & Co., LLC
1.2 Form of Agency Agreement between the Registrant and Ryan, Beck & Co.,
LLC
2 Plan of Conversion and Reorganization
3.1 Delaware Certificate of Incorporation of Wayne Savings Bancshares, Inc.
(Included in Exhibit 2)
3.2 Delaware Bylaws of Wayne Savings Bancshares, Inc. (Included in
Exhibit 2)
4 Form of Common Stock Certificate of Wayne Savings Bancshares, Inc.
5 Opinion of Luse Lehman Gorman Pomerenk & Schick regarding legality of
securities being registered
8.1 Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick
8.2 Opinion of RP Financial, LC with respect to Subscription Rights
10.1 Form of Employment Agreement
10.2 Form of Change of Control Agreements
10.3 Subsidiaries of Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick (contained in Opinions
included on Exhibits 5 and 8.1)
23.2 Consent of Grant Thornton
23.3 Consent of RP Financial, LC
24 Power of Attorney (set forth on signature page)
99.1 Appraisal Agreement between the Registrant and RP Financial, LC
99.2 Appraisal Report of RP Financial, LC**
99.3 Marketing Materials*
99.4 Order and Acknowledgment Form*
99.5 Business Plan Agreement between the Registrant and RP Financial, LC
99.6 Special Meeting Proxy Statement
--------------------------------------------
* To be filed supplementally or by amendment.
** Supporting financial schedules filed pursuant to Rule 202 of Regulation S-T.