As filed with the Securitiesand Exchange Commission on December 14, 2001
Registration No. 333-69600
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE
AMENDMENT NO. 1 TO
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 shares $10.00 $45,314,000 $11,350(2)
============================================== ================ ================= ================= ========================
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Registration fee previously paid.
===========================================
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 SUPPLEMENT
WAYNE SAVINGS BANCSHARES, INC.
WAYNE SAVINGS 401(K) RETIREMENT PLAN
Wayne Savings Bancshares, Inc. is providing this prospectus supplement
to participants in the Wayne Savings 401(k) Retirement Plan ("401(k) Plan"). As
a participant in this 401(k) plan, you may direct the trustee of the 401(k) plan
to purchase common stock of Wayne Savings Bancshares, Inc. in its stock offering
with amounts allocated to your account under the 401(k) plan. If you cannot
acquire all the common stock you want in the stock offering, the trustee of the
401(k) plan will apply the amounts which were not used to acquire common stock
in the stock offering among the funds in which your account is invested in
proportion to your current investment allocation percentages.
The prospectus of Wayne Savings Bancshares, Inc. dated November__,
2001, attached to this prospectus supplement includes detailed information with
respect to the offering and the financial condition, results of operations and
business of Wayne Savings Community Bank. You should read this prospectus
supplement, which provides information with respect to the 401(k) plan, together
with the prospectus.
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FOR A DISCUSSION OF RISKS THAT YOU SHOULD CONSIDER, SEE "RISK FACTORS"
BEGINNING ON PAGE 14 OF THE PROSPECTUS.
The interests in the 401(k) plan and the offering of the common stock
have not been approved or disapproved by the Office of Thrift Supervision, the
Securities and Exchange Commission or any other Federal or state agency. Any
representation to the contrary is a criminal offense.
The securities offered in this prospectus supplement are not deposits
or accounts and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
The 401(k) plan's investment in common stock is subject to loss.
The date of this prospectus supplement is November __, 2001.
TABLE OF CONTENTS
THE OFFERING ..............................................................................1
Securities Offered ...............................................................1
Election to Purchase Common Stock in the Offering; Priorities ....................1
Value of 401(k) Plan Assets ......................................................2
Method of Directing Transfer .....................................................2
Time for Directing Transfer ......................................................2
Irrevocability of Transfer Direction .............................................2
Direction to Purchase Common Stock After the Offering ............................3
Purchase Price of Common Stock ...................................................3
Nature of a Participant's Interest in the Common Stock ...........................3
Voting Rights of Common Stock ....................................................3
DESCRIPTION OF THE 401(k) PLAN ............................................................4
Introduction .....................................................................4
Eligibility and Participation ....................................................4
Contributions Under the 401(k) Plan ..............................................5
Limitations on 401(k) Plan Contributions .........................................5
Benefits Under the 401(k)Plan ....................................................7
Investment of Contributions and Account Balances .................................8
Withdrawals and Distributions from the 401(k) Plan ..............................14
Trustee .........................................................................15
Plan Administrator ..............................................................15
Reports to 401(k) Plan Participants .............................................15
Amendment and Termination .......................................................16
Merger, Consolidation or Transfer ...............................................16
Federal Income Tax Consequences .................................................16
Additional Employee Retirement Income and Security Act Considerations ...........21
Securities and Exchange Commission Reporting and Short-Swing Profit Liability ...21
Financial Information Regarding 401(k) Plan Assets ..............................22
LEGAL OPINION ............................................................................22
THE OFFERING
SECURITIES OFFERED
Wayne Savings Bancshares, Inc. is offering participation interests in
the Wayne Savings 401(k) Retirement Plan (the "401(k) plan"). The participation
interests represent indirect ownership of Wayne Savings Bancshares, Inc.'s
common stock through the 401(k) plan. The 401(k) plan may acquire up to 31,500
shares of Wayne Savings Bancshares, Inc. common stock in the offering. This will
be in addition to new shares of Wayne Savings Bancshares, Inc. which are
received in exchange for shares of Wayne Savings Bancshares, Inc. common stock
it presently holds. The shares of common stock of Wayne Savings Bancshares, Inc.
will be exchanged for new shares of Wayne Savings Bancshares, Inc. pursuant to
the exchange ratio established in the reorganization and conversion of Wayne
Savings Bancshares, Inc. to stock holding company form, as is more fully
discussed in the prospectus. Only employees of Wayne Savings Community Bank and
Village Savings Bank, F.S.B. may become participants in the 401(k) plan. The
common stock of Wayne Savings Bancshares, Inc. to be issued hereby is
conditioned on the consummation of the conversion. Your investment in the common
stock of Wayne Savings Bancshares, Inc. through the 401(k) plan in the offering
is subject to the priorities listed below. Information with regard to the 401(k)
plan is contained in this prospectus supplement and information with regard to
the financial condition, results of operations and business of Wayne Savings
Community Bank is contained in the attached prospectus. The address of the
principal executive office of Wayne Savings Community Bank is 151 N. Market
Street, Wooster, Ohio 44691. Wayne Savings Community Bank's telephone number is
(330) 264-5767.
ELECTION TO PURCHASE COMMON STOCK IN THE OFFERING; PRIORITIES
In connection with the conversion and stock offering, you may elect to
transfer all or part of your account balances in the 401(k) plan to the Wayne
Savings Bancshares, Inc. Stock Fund, to be used to purchase common stock issued
in the offering. The trustee of the Wayne Savings Bancshares, Inc. Stock Fund
will purchase common stock in accordance with your directions. In the event the
offering is oversubscribed, I.E. there are more orders for common stock than
shares available for sale in the offering, and the trustee is unable to use the
full amount allocated by you to purchase common stock in the offering, the
amount that cannot be invested in common stock will be reinvested in the
investment funds of the 401(k) plan in accordance with your then existing
investment election (in proportion to your investment direction allocation
percentages). If you fail to direct the investment of your account balances
towards the purchase of any shares in connection with the offering, your account
balances will remain in the investment funds of the 401(k) plan as previously
directed by you.
The shares of common stock are being offered for sale in the following
priorities:
(1) Depositors with $50 or more on deposit as of June 30, 2000, get
first priority.
(2) Wayne Savings Bancshares, Inc. and Wayne Savings Community Bank's
employee stock benefit plans, including the employee stock
ownership plan, get second priority. The employee stock ownership
plan expects to purchase from 122,400 to 165,600 shares of common
stock.
(3) Depositors with $50 or more on deposit as of September 30, 2001,
get third priority.
(4) Depositors as of ____________ __, _________, and borrowers as of
June 25, 1993, who continue as borrowers as of __________ __,
_____, get fourth priority.
To the extent you fall into one of these categories, you may use funds
in your plan account to subscribe or pay for the common stock being acquired.
Common stock so purchased will be placed in the Wayne Savings Bancshares, Inc.
Stock Fund and allocated to your 401(k) plan account.
VALUE OF 401(K) PLAN ASSETS
As of September 30, 2001, the market value of the assets of the 401(k)
plan was approximately $423,319. The plan administrator informed each
participant of the value of his or her account balance under the 401(k) plan as
of September 30, 2001.
METHOD OF DIRECTING TRANSFER
You will receive a form on which you can elect to transfer all or a
portion of your account balance in the 401(k) plan to the Wayne Savings
Bancshares, Inc. Stock Fund for the purchase of stock in the offering (other
than amounts you currently have invested in such fund). If you wish to use all
or part of your account balance in the 401(k) plan to purchase common stock
issued in the offering (other than amounts you currently have invested in the
Wayne Savings Bancshares, Inc. Stock Fund), you should indicate that decision on
the investment allocation form.
TIME FOR DIRECTING TRANSFER
If you wish to purchase common stock with your 401(k) account balances,
you must return your election form to Michael Anderson, Wayne Savings Community
Bank, 151 N. Market Street, Wooster, Ohio 44691 no later than 12:00 noon on
___________ __, 200__.
IRREVOCABILITY OF TRANSFER DIRECTION
YOU MAY NOT REVOKE YOUR SPECIAL ELECTION TO TRANSFER AMOUNTS CREDITED
TO YOUR ACCOUNT IN THE 401(K) PLAN TO THE WAYNE SAVINGS BANCSHARES, INC. STOCK
FUND FOR THE PURCHASE OF STOCK IN THE OFFERING. You will, however, continue to
have the ability to transfer amounts not directed
2
towards the purchase of stock in the offering amongst all of the investment
funds, including the Wayne Savings Bancshares, Inc. Stock Fund, on a daily
basis.
3
DIRECTION TO PURCHASE COMMON STOCK AFTER THE OFFERING
Whether you choose to purchase stock in the offering, or attempt to
purchase stock in the offering but are unable to do so because the offering is
oversubscribed, you will also be able to purchase stock AFTER the offering
through your investment in the Wayne Savings Bancshares, Inc. Stock Fund. You
may direct that a certain percentage of your account balance in the 401(k) plan
be transferred to the Wayne Savings Bancshares, Inc. Stock Fund and invested in
common stock, or to the other investment funds available under the 401(k) plan.
You may change your investment allocation on a daily basis. Special restrictions
may apply to transfers directed to and from the Wayne Savings Bancshares, Inc.
Stock Fund by the participants who are subject to the provisions of section
16(b) of the Securities Exchange Act of 1934, as amended, relating to the
purchase and sale of securities by officers, directors and principal
shareholders of Wayne Savings Bancshares, Inc.
PURCHASE PRICE OF COMMON STOCK
The trustee will use the funds transferred to the Wayne Savings
Bancshares, Inc. Stock Fund to purchase common stock in the offering, subject to
your ability to purchase shares in accordance with the priorities listed on the
first and second pages of this prospectus supplement and, except in the event of
an oversubscription, as discussed above. The trustee will pay $10.00 per share,
which will be the same price paid by all other persons in the offering.
After the offering, the trustee will acquire common stock in open
market transactions at the prevailing price. The trustee will pay transaction
fees associated with the purchase, sale or transfer of the common stock after
the offering.
NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK
The trustee will hold the common stock, in trust, for the participants
of the 401(k) plan. Shares of common stock acquired by the trustee at your
direction will be allocated to your account. Therefore, investment decisions of
other participants should not affect the earnings allocated to your account.
VOTING RIGHTS OF COMMON STOCK
The trustee generally will exercise voting rights attributable to all
common stock held by the Wayne Savings Bancshares, Inc. Stock Fund as directed
by participants with accounts invested in the fund. When stockholders have a
right to vote on a matter, you will be allocated voting instruction rights
reflecting your proportionate interest in the fund. The trustee will vote the
common stock affirmatively and negatively on each matter, in proportion to the
voting instructions the trustee receives from the participants.
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5
DESCRIPTION OF THE 401(K) PLAN
INTRODUCTION
Wayne Savings Community Bank originally adopted the Wayne Savings
401(k) Retirement Plan effective April 1, 1998 and restated the plan effective
October 1, 1999. The 401(k) plan is a tax-qualified plan that permits
participants to defer current compensation to their account balances. The plan
also permits participant direction of investment.
Wayne Savings Community Bank intends that the 401(k) plan, in
operation, will comply with the requirements of the Internal Revenue Code and
the Employee Retirement Income Security Act. Wayne Savings Community Bank may
amend the 401(k) plan from time to time in the future, as it sees fit or to
maintain compliance with Federal law. Since the 401(k) plan is governed by the
Employee Retirement Income Securities Act, Federal law provides you with various
rights and protections as a participant in the 401(k) plan. Although the 401(k)
plan is subject to many of the provisions of the Employee Retirement Income
Security Act, your benefits under the 401(k) plan are not governed by the
Pension Benefit Guaranty Corporation.
REFERENCE TO FULL TEXT OF PLAN. The following statements are summaries
of certain provisions of the 401(k) plan. They are not complete and are
qualified in their entirety by the full text of the 401(k) plan. You may obtain
a copy of the 401(k) plan by filing a request with Wayne Savings Community Bank,
attention: Michael Anderson, 151 N. Market Street, Wooster, Ohio 44691. We urge
each employee to read carefully the full text of the 401(k) plan.
ELIGIBILITY AND PARTICIPATION
Any employee of Wayne Savings Community Bank is eligible to become a
participant in the 401(k) plan upon the first entry date after both attainment
of age 21 and completion of one "year of service" in which the employee has at
least 1,000 hours of service. Your effective date of participation will be the
earlier of January 1 or July 1 of the plan year coinciding with or next
following the date you satisfy the plan's eligibility requirements. The 401(k)
plan year is January 1 to December 31.
As of October 1, 2001, there were 88 employees eligible to participate
in the 401(k) plan and 73 employees participating by making elective deferral
contributions.
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CONTRIBUTIONS UNDER THE 401(K) PLAN
401(K) PLAN CONTRIBUTIONS. As a participant in the 401(k) plan, you are
permitted to defer any whole percentage (not less than 1% nor more than 15%) of
your compensation on a pre-tax basis, subject to the limitations of the Internal
Revenue Code and to have that amount contributed to the 401(k) plan on your
behalf. For purposes of the 401(k) plan, "compensation" means, generally, your
total compensation reported on Internal Revenue Service Form W-2, plus pre-tax
contributions made to this 401(k) plan or a section 125 cafeteria plan. In 2001,
the maximum amount of your annual salary that can be taken into account under
the 401(k) plan is limited to $170,000. Limits established by the Internal
Revenue Service are subject to increase pursuant to an annual cost-of-living
adjustment. For years beginning after December 31, 2001, the compensation limit
will increase to $200,000. You may elect to modify the amount contributed to the
401(k) plan by filing a new elective deferral agreement with the 401(k) plan
administrator which will be effective the first day of the following month.
EMPLOYER CONTRIBUTIONS. Wayne Savings Community Bank may make
discretionary contributions to the 401(k) plan, which are allocated to eligible
employees based on the ratio of such employees annual compensation as of the
last day of the plan year to the total of such compensation for all eligible
employees. Wayne Savings Community Bank's matching contributions, if any, will
be a discretionary percentage of up to 4% of the participants' salary
reductions.
LIMITATIONS ON 401(K) PLAN CONTRIBUTIONS
LIMITATION ON EMPLOYEE SALARY DEFERRALS. The amount of your elective
deferral contributions may not currently exceed $10,500 per calendar year. The
Internal Revenue Service will periodically increase this annual limitation. In
2002, the dollar limit on annual elective deferrals will be increased to
$11,000. If you defer salary in excess of this limitation, your gross income for
Federal income tax purposes will include the excess in the year of the deferral.
In addition, unless the excess deferral is distributed before April 15 of the
following year, it will be taxed again in the year distributed. Income on the
excess deferral distributed by April 15 of the immediately succeeding year will
be treated, for Federal income tax purposes, as earned and received by the
participant in the tax year in which the distribution is made.
LIMITATIONS ON ANNUAL ADDITIONS AND BENEFITS. The contributions and
forfeitures you receive under the 401(k) plan and employee stock ownership plan,
in the aggregate, cannot currently exceed the lesser of $35,000 (the dollar
limitation) or 25% (the percentage limitation) of your compensation, as defined
in the 401(k) plan. The Internal Revenue Service has increased the current
dollar limitation from $35,000 to $40,000 and the 25% percentage limitation to
100% for years beginning after December 31, 2001. To the extent contributions
and forfeitures exceed these limitations, the plan administrator will reallocate
discretionary contributions in the same manner as initial allocations of
discretionary contributions to these eligible employees to whom
7
the limitations do not apply for the year. The discretionary contributions shall
be limited if there are no remaining eligible employees.
If you are also covered under Wayne Savings Community Bank's employee
stock ownership plan and annual additions exceed the maximum permissible amount,
the plan administrator will reduce your contributions under the 401(k) plan, so
that the total annual additions do not exceed the maximum permissible amount. If
discretionary contributions and elective deferral contributions are both made to
the plan in the year that the excess occurs, discretionary contributions shall
be reduced before elective deferral contributions.
LIMITATION ON PLAN CONTRIBUTIONS FOR HIGHLY COMPENSATED EMPLOYEES. The
Internal Revenue Code limits the amount of elective deferral contributions that
may be made to the 401(k) plan in any plan year on behalf of highly compensated
employees in relation to the amount of elective deferral contributions made by
or on behalf of all other employees eligible to participate in the 401(k) plan.
Specifically, the actual deferral percentage, i.e., the average of the actual
deferral ratios, expressed as a percentage, of each eligible employee's elective
deferral contribution, if any, for the plan year over the employee's
compensation, must meet either of the following tests:
(1) the actual deferral percentage of the eligible highly
compensated employees is not more than 125% of the actual deferral percentage of
all other eligible employees; or
Example: If the actual deferral percentage of non-highly compensated
employees is 10%, the maximum deferral percentage of highly
compensated employees cannot exceed 12.5% (or 10% x 125% =
12.5%)
(2) the actual deferral percentage of the eligible highly
compensated employees is not more than 200% of the actual deferral percentage of
all other eligible employees, and the excess of the actual deferral percentage
for the eligible highly compensated employees over the actual deferral
percentage of all other eligible employees is not more than two percentage
points.
Example: If the actual deferral percentage of non-highly compensated
employees is 4%, the actual deferral percentage of highly
compensated employees cannot exceed 6% (or 4% x 200% = 8%,
but not more than 2 percentage points, reducing the 8% to
6%).
Similarly, the actual contribution percentage, I.E., the average of the
actual contribution ratios, expressed as a percentage, of each eligible
employee's matching contributions, if any, for the plan year over the employee's
salary, must meet either of the following tests:
(1) the actual contribution percentage of the eligible highly
compensated employees is not more than 125% of the actual contribution
percentage of all other eligible employees; or
8
(2) the actual contribution percentage of the eligible highly
compensated employees is not more than 200% of the actual contribution
percentage of all other eligible employees, and the excess of the actual
contribution percentage for the eligible highly compensated employees over the
actual contribution percentage of all other employees is not more than two
percentage points.
In general, for plan years beginning in 1998, a highly compensated
employee includes:
(1) an employee who, during the plan year or the preceding plan
year, was at any time a 5% owner of the stock of Wayne Savings Bancshares, Inc.,
or stock possessing more than 5% of the total combined voting power of all stock
of Wayne Savings Bancshares, Inc.; or
(2) an employee who, for the preceding plan year, received salary
from Wayne Savings Community Bank in excess of $80,000 was in the group
consisting of the top 20% of employees when ranked on the basis of salary paid
during the plan year. The dollar amounts set forth above are adjusted annually
to reflect increases in the cost of living.
The trustee will distribute amounts contributed by highly compensated
employees that exceed the actual deferral percentage limitation in any plan
year, together with any income allocable. These contributions must be
distributed before the close of the following plan year, first to highly
compensated employees with the greatest dollar amount of deferrals, until the
plan satisfies the actual deferral percentage test. Moreover, Wayne Savings
Community Bank will be subject to a 10% excise tax on these contributions
unless, together with any income allocable thereto, they either are
re-characterized or are distributed before the close of the first 2-1/2 months
following the plan year to which the contributions relate. In addition, the
trustee will distribute any contributions by highly compensated employees that
exceed the actual contribution percentage limitation in any plan year, together
with any income allocable thereto, before the close of the following plan year.
A 10% excise tax will also be imposed on Wayne Savings Community Bank with
respect to these contributions, unless such contributions, plus any income
allocable thereto, are distributed within 2-1/2 months following the close of
the plan year in which they arose.
BENEFITS UNDER THE 401(K) PLAN
VESTING. At all times, you have a fully vested, nonforfeitable interest
in your elective deferral contributions and earnings under the 401(k) plan. You
are vested in any employer matching contributions and discretionary
contributions, in accordance with the following schedule:
Years of Service Vesting Percentage
---------------- ------------------
1 0%
2 0%
3 20%
4 40%
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5 60%
6 80%
7 or more 100%
For plan years beginning after December 31, 2001, employer matching
contributions will vest on the following schedule:
YEARS OF SERVICE VESTING PERCENTAGE
---------------- ------------------
1 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
You are also 100% vested in employer matching contributions, if any, and
discretionary contributions made to your account, regardless of your years of
employment, upon attainment of your normal retirement age (as defined by the
401(k) plan), your death or total and permanent disability. Any non-vested
employer contributions which are forfeited shall be treated as discretionary
contributions and allocated as such.
INVESTMENT OF CONTRIBUTIONS AND ACCOUNT BALANCES
All amounts credited to your accounts under the 401(k) plan are held in the
plan trust which is administered by the trustee appointed by Wayne Savings
Community Bank's board of directors.
As participants in the 401(k) Plan, you are provided the opportunity to
direct the investment of your accounts into one of the following funds:
1. ABJanus Worldwide Fund.
2. ABINVESCO Dynamics Fund.
3. ABJanus Twenty Fund.
4. ABMFS Massachusetts Investors Growth Fund.
5. ABAIM Value Fund.
6. ABDreyfus S&P 500 Index Fund.
7. ABINVESCO Balanced Fund.
8. ABFederated High Yield Bond Fund.
9. ABStrong Short-Term Bond Fund.
10. ABMET Managed GIC Fund.
11. ABWayne Savings Bancshares, Inc. Stock Fund.
10
You may elect to have both past contributions and earnings, as well as
future contributions to your account invested among the funds listed above.
Transfers of past contributions and the earnings thereon do not affect the
investment mix of future contributions. Generally, if you make an election to
direct investment of assets into the Wayne Savings Bancshares, Inc. Stock Fund,
you may change your investment at any time. This may be done by a telephone
transfer in accordance with established procedures to dispose of a 401(k) plan
investment and reinvest the net proceeds in an alternative investment under the
401(k) plan. The proceeds of the sale, net of expenses, will be allocated to
your account and reinvested in accordance with your election. If you make a
special election to invest all or a portion of your account (other than amounts
presently invested in the Wayne Savings Bancshares, Inc. Stock Fund) towards the
purchase of Wayne Savings Bancshares, Inc. common stock in the offering, you
will not be able to change this investment election until the stock offering is
concluded. Therefore you should carefully consider whether to allocate any
portion of your account to the purchase of stock in the offering.
PERFORMANCE HISTORY
The following table provides performance data with respect to the
investment funds available under the 401(k) plan:
NET INVESTMENT PERFORMANCE - FUND RETURNS THROUGH JUNE 30, 2001
---------------------------------------------------------------
Annualized
-----------------------------
YTD 1 YR. 3 YR. 5YR. 10 YR.
Janus Worldwide Fund -13.75 -29.96 5.93 13.56 17.29
INVESCO Dynamics Fund -20.95 -34.73 9.27 15.21 18.33
Janus Twenty Fund -19.51 -41.22 4.62 17.73 16.75
MFS Massachusetts Investors Growth Fund -16.63 -25.30 6.59 19.22 17.66
AIM Value Fund -6.08 -19.79 5.12 13.19 16.68
Dreyfus S&P 500 Index Fund -6.96 -15.26 3.34 13.87 14.55
INVESCO Balanced Fund -6.99 -9.26 4.23 10.26 n/a
Federated High Yield Bond Fund -0.36 -8.02 -3.52 2.89 7.88
Strong Short-Term Bond Fund 4.52 9.19 5.86 6.62 6.93
Wayne Savings Bancshares, Inc. Stock Fund
MET Managed GIC Fund 5.90% through 12/31/01
The following is a description of each of the 401(k) plan's eleven
investment funds:
JANUS WORLDWIDE FUND. The fund seeks long-term growth of capital in a
manner consistent with the preservation of capital. The portfolio managers apply
a "bottom up" approach in choosing investments. In other words, the fund's
portfolio managers look at companies one at a time to determine if a company is
an attractive investment opportunity and consistent with the fund's investment
policies. If the portfolio managers are unable to find such investment, a
significant portion of the fund's assets may be in cash or similar investments.
The fund will limit its investment in high-yield/high-risk bonds to less than
35% of its net assets. The fund invests primarily in common stocks of companies
of any size located throughout the world. The fund
11
normally invests in issuers from at least five different countries, including
the United States. The fund may at times invest in fewer than five countries or
even in a single country. An investment in the fund is not a deposit of a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency. As with any mutual fund, there is always a risk
that you may lose money on your investment in the fund.
INVESCO DYNAMICS FUND - INVESTOR CLASS. The fund invests primarily in
common stocks of mid-sized companies - those with market capitalizations between
$2 billion and $15 billion at the time of purchase - but also has the
flexibility to invest in other types of securities including preferred stock,
convertible securities and bonds. The fund's strategy relies on many short-term
factors including current information about a company, investor interest, price
movements of a company's securities and general market and monetary conditions.
Consequently, the fund's investments are usually bought and sold relatively
frequently. While the fund generally invests in mid-sized companies, it
sometimes invests in the securities of smaller companies. The prices of these
securities tend to move up and down more rapidly than the securities prices of
larger, more established companies, and the price of fund shares tends to
fluctuate more than it would if the fund invested in the securities of larger
companies. An investment in the fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. As with any mutual fund, there is always a risk that you may
lose money on your investment in the fund.
JANUS TWENTY FUND. The fund is designed for long-term investors who can
tolerate the greater risks associated with common stock investments. The
portfolio manager applies a "bottom up" approach in choosing investments. In
other words, the fund's portfolio manager looks at companies one at a time to
determine if a company is an attractive investment opportunity and consistent
with the fund's investment policies. If the portfolio manager is unable to find
such investments, a significant portion of the fund's asset may be in cash or
similar investments. The fund may invest in foreign equity and debt securities.
It will limit its investment in high-yield/high-risk bonds to less than 35% of
its net assets. The fund normally concentrates its investments in a core group
of 20-30 common stocks selected for their growth potential. An investment in the
fund is not a deposit of a bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. As with any mutual
fund, there is always a risk that you may lose money on your investment in the
fund.
MFS MASSACHUSETTS INVESTORS GROWTH STOCK FUND. The fund's investment
objective is to provide long-term growth of capital and future income rather
than current income. The fund invests its assets, except for working cash
balances, in the common stocks and securities convertible into common stocks of
companies which its investment adviser, Massachusetts Financial Services Company
("MFS"), believes offer better than average prospects for long-term growth. MFS
uses a bottom-up investment style in managing the equity-oriented funds it
advises. This means that securities are selected based upon fundamental analysis
(such as an analysis of earnings, cash flows, competitive position and
management's abilities) performed by the fund's portfolio manager and MFS's
large group of equity research analysts. In managing the
12
fund, MFS seeks to purchase securities of companies which MFS considers well run
and poised for growth. MFS looks particularly for companies which demonstrate a
strong franchise, strong cash flows and a recurring revenue stream; a strong
industry position where there is potential for high-profit margins and
substantial barriers to new entry in the industry. MFS also looks for a strong
management with a clearly defined strategy and new products or services. The
principal risks of investing in the fund are: market risks (the risk that the
price of a security in the fund will fall due to changing economic, political or
market conditions or disappointing earnings results); growth companies risk
(prices of growth company securities held by the fund may fall to a greater
extent than the overall equity markets); active or frequent trading risk (active
trading may result in the realization and distribution to shareholders of higher
capital gains as compared to a fund with less active trading policies, which
would increase your tax liability; frequent trading also increases transaction
costs, which could detract from the fund's performance); foreign securities risk
(investments in foreign securities involve risks relating to political, social
and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject). As we any mutual fund, you could lose money on your
investment in the fund. An investment in the fund is not a bank deposit and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
AIM VALUE FUND. The fund's investment objective is to achieve long-term
growth of capital. The portfolio managers focus on undervalued equity securities
of (1) out-of-favor cyclical growth companies, (2) established growth companies
that are undervalued compared to historical relative valuation parameters, (3)
companies where there is early but tangible evidence of improving prospects that
are not yet reflected in the price of the company's equity securities, and (4)
companies whose equity securities are selling at prices that do not reflect the
current market value of their assets and where there is reason to expect
realization of this potential in the form of increased equity values. There is a
risk that you could lose all or a portion of your investment in the fund and
that the income you may receive from your investment may vary. An investment in
the fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
DREYFUS S&P 500 INDEX FUND. The fund seeks to match the performance of
the Standard & Poor's 500 Composite Stock Price Index. The fund generally
invests in all 500 stocks in the S&P 500 in proportion to their weighting in the
index. The S&P 500 is an unmanaged index of 500 common stocks chosen to reflect
the industries of the U.S. economy and is often considered a proxy for the stock
market in general. Each stock is weighted by its market capitalization, which
means larger companies have greater representation in the index than smaller
ones. The fund may also use stock index futures as a substitute for the sale or
purchase of securities. While stocks have historically been a leading choice of
long-term investors, they do fluctuate in price, depending on the performance of
the companies that issued them, general market and economic conditions and
investor confidence. Because different types of stocks tend to shift in and out
of favor depending on market and economic conditions, the fund's performance may
sometimes be lower or higher than that of other types of funds. As the fund
13
uses an indexing strategy, it does not attempt to manage market volatility, use
defensive strategies or reduce the effects of any long-term periods of poor
stock performance. The correlation between fund and index performance may be
affected by the fund's expenses, changes in securities markets, changes in the
composition of the index and the timing of purchases and redemptions of fund
shares. The fund may invest in stock index futures, which could carry additional
risks such as losses due to unanticipated market price movements, and could also
reduce the opportunity for gain. As with any mutual fund, you could lose money
on your investment in the fund. An investment in the fund is not a bank deposit
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
INVESCO BALANCED FUND - INVESTOR CLASS. The fund invests in a
combination of common stocks and fixed-income securities, including preferred
stock, convertible securities and bonds. The fund normally invests the majority
of its total assets in common stocks and approximately one-quarter of its assets
in investment-grade debt securities. The portion of the funds' portfolio
invested in equity securities emphasizes companies INVESCO believes to have
better-than-average earnings growth potential, as well as companies within
industries that INVESCO believes are well-positioned for the current and
expected economic climate. Since current income is a component of total return,
the fund also consider companies' dividend payout records. Most of these holding
are traded on national stock exchanges or in the over-the-counter market. The
fund may also take positions in securities traded on regional or foreign
exchanges. A portion of the fund's portfolio invested in debt securities may
include obligations of the U.S. Government, government agencies, and
investment-grade corporate bonds. These securities tend to offer lower income
than bonds of lower quality but are more shielded from credit risk. Obligations
issued by U.S. Government agencies may include some supported only by the credit
of the issuing agency rather than by the full faith and credit of the U.S.
Government. An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. As with any mutual fund, there is always a risk that you may
lose money on your investment in the fund.
FEDERATED HIGH YIELD BOND FUND. The fund's investment objective is to
seek high current income by investing primarily in a professionally managed,
diversified portfolio of high-yield, lower-rated corporate bonds (also know as
"junk bonds"). At least 65% of the fund's assets are invested in corporate bonds
rated below BBB. The adviser manages the fund's portfolio seeking to realize the
potentially higher returns of high-yield bonds ("junk bonds") compared to
returns of high-grade securities by seeking to minimize default risk and other
risks through careful security selection and diversification. The securities in
which the fund invests have high yields primarily because of the market's
greater uncertainty about the issuer's ability to make all required interest and
principal payments, and therefore about the returns that will in fact be
realized by the fund. It is possible to lose money by investing in the fund. An
investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
14
STRONG SHORT-TERM BOND FUND. The fund seeks total return by investing
for a high level of current income with a low degree of share-price fluctuation.
The fund invests, under normal conditions, primarily in short- and
intermediate-term corporate, mortgage- and asset-backed, and U.S. Government
(and its agencies) bonds. The fund invests primarily in higher- and
medium-quality bonds. The fund's dollar-weighted average maturity will normally
be between one and three years. The fund may also invest a portion of its assets
in lower-quality, high-yield bonds. The managers focus primarily upon high-yield
bonds rated BB with positive or improving credit fundamentals. To a limited
extent, the fund may also invest in foreign securities. It is possible to lose
money by investing in the fund. An investment in the fund is not a deposit of a
bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
MET MANAGED GIC FUND. The fund's objective is to protect principal and
offer fixed returns that compare favorably with the yields on intermediate-term
fixed income securities. Principal and interest are backed by the full faith and
credit of Metropolitan Life Insurance Company. The fund may be appropriate for
investors seeking preservation of principal, as well as other investors looking
to construct a well-diversified retirement savings program.
WAYNE SAVINGS BANCSHARES, INC. STOCK FUND. The Wayne Savings
Bancshares, Inc. Stock Fund will consist primarily of investments in common
stock of Wayne Savings Bancshares, Inc. The trustee will use all amounts
reallocated to the Wayne Savings Bancshares, Inc. Stock Fund in the special
election to acquire shares in the offering. Shares of Wayne Savings Bancshares,
Inc. which were held in the Wayne Savings Bancshares, Inc. Stock Fund prior to
the conversion and offering will be converted into new shares of common stock of
Wayne Savings Bancshares, Inc., in accordance with the exchange ratio. After the
offering, the trustee will, to the extent practicable, use all amounts held by
it in the Wayne Savings Bancshares, Inc. Stock Fund, including cash dividends
paid on common stock held in the Wayne Savings Bancshares, Inc. Stock Fund, to
purchase shares of common stock of Wayne Savings Bancshares, Inc. It is expected
that all purchases will be made at prevailing market prices. Under certain
circumstances, the trustee may be required to limit the daily volume of shares
purchased. Pending investment in common stock, amounts allocated towards the
purchase of shares in the offering will be held in the Wayne Savings Bancshares,
Inc. Stock Fund in an interest-bearing account. In the event of an
oversubscription, any earnings that result therefrom will be reinvested among
the other funds of the 401(k) plan in accordance with your then existing
investment election (in proportion to your investment direction allocation
percentages).
As of the date of this prospectus supplement, none of the new shares of
common stock of Wayne Savings Bancshares, Inc. have been issued or are
outstanding. However, shares of its predecessor Wayne Savings Bancshares, Inc.
have been actively traded on an established market since 1997. The historical
performance of the Wayne Savings Bancshares, Inc. Stock Fund is set forth on
page 9. Performance of the Wayne Savings Bancshares, Inc. Stock Fund will be
dependent upon a number of factors, including the financial condition and
profitability of Wayne Savings Bancshares, Inc. and Wayne Savings Community Bank
and market conditions for the common stock generally.
15
FOR A DISCUSSION OF RISKS THAT YOU SHOULD CONSIDER, SEE "RISK FACTORS"
BEGINNING ON PAGE 14 OF THE PROSPECTUS.
Withdrawals and Distributions from the 401(k) Plan
FEDERAL LAW REQUIRES THE 401(K) PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON YOUR RIGHT TO WITHDRAW AMOUNTS HELD FOR YOUR BENEFIT UNDER THE 401(K) PLAN
PRIOR TO YOUR TERMINATION OF EMPLOYMENT WITH WAYNE SAVINGS COMMUNITY BANK. A
FEDERAL TAX PENALTY EQUAL TO 10% OF THE WITHDRAWAL, OVER AND ABOVE THE NORMAL
FEDERAL AND STATE INCOME TAX, MAY ALSO BE IMPOSED ON WITHDRAWALS MADE PRIOR TO
YOUR ATTAINMENT OF AGE 59-1/2, REGARDLESS OF WHETHER THE WITHDRAWALS OCCUR
DURING YOUR EMPLOYMENT WITH WAYNE SAVINGS COMMUNITY BANK OR AFTER TERMINATION OF
EMPLOYMENT.
WITHDRAWALS PRIOR TO TERMINATION OF EMPLOYMENT. You may withdraw your
employee elective deferral contributions (not including earnings) and rollover
contributions prior to termination of employment in the event of financial
hardship, subject to the hardship distribution rules under the plan. These
requirements insure that you have a true financial need before you make a
withdrawal.
In addition, once you attain age 59-1/2, you may withdraw all or any
portion of your account, if you are 100% vested.
Finally, you may receive a loan from the 401(k) plan of a portion of
your account balance, not to exceed (i) $50,000 or (ii) one-half of your vested
account balance. Loans shall be made only for hardship or financial necessity.
The minimum amount of any loan shall be $1,000. The interest rate on any loan
shall be equal to the prime rate on the day the loan application is signed, plus
1%. Only one loan is permitted at a time.
DISTRIBUTION UPON TERMINATION OF EMPLOYMENT OR DISABILITY. Payment of
your benefits upon your normal retirement (as defined under the 401(k) plan),
disability, or other termination of employment shall be made in a single
lump-sum payment or in installments, over a period which cannot exceed your life
expectancy (or your life expectancy and that of your beneficiary.)
Alternatively, your benefit may be transferred to another qualified employee
benefit plan or individual retirement account. You may elect to receive your
distribution payable from the Wayne Savings Bancshares, Inc. Stock Fund in
shares of Wayne Savings Bancshares, Inc. common stock.
DISTRIBUTION UPON DEATH. If you die prior to the benefit commencement
date for retirement, disability or termination of employment, your benefit will
be paid to your surviving spouse or other properly designated beneficiary in a
lump sum or installments. Your entire death benefit must generally be paid to
your beneficiaries within five years after your death (the "five-year rule").
However, if your designated beneficiary is a person (instead of your estate or
most trusts), then you or your beneficiary may elect to have minimum
distributions begin within one year of your death and it may be paid over the
designated beneficiary's life expectancy (the "one-
16
year rule"). If your spouse is the beneficiary, then under the "one-year rule,"
the start of payments may be delayed until the year in which you would have
attained age 70 1/2. The election to have death benefits distributed under the
"one-year rule" instead of the "five-year rule" must be made no later than the
time at which minimum distributions must commence under the "one-year rule" (or,
in the case of a surviving spouse, the "five-year rule," if earlier).
NONALIENATION OF BENEFITS. Except for Federal income tax withholding or
a qualified domestic relations order, your benefits payable under the 401(k)
plan cannot be alienated. Examples of alienation include transferring your
benefits voluntarily and a creditor placing a lien on your benefits. Any attempt
to alienate your benefits, whether voluntary or involuntary, shall be void.
TRUSTEE
The trustees of the Wayne Savings Community Bank 401(k) Savings Plan
are Charles F. Finn and Michael Anderson. The trustees receive, hold and invest
the contributions to the 401(k) plan in trust and distribute them to you and
your beneficiaries in accordance with the terms of the 401(k) plan and the
directions of the plan administrator. The trustees are responsible for
investment of the assets of the trust.
PLAN ADMINISTRATOR
The 401(k) plan is administered by the plan administrator. Wayne
Savings Community Bank is the 401(k) plan administrator. The address of the
401(k) plan administrator is 151 N. Market Street, Wooster, Ohio 44691, and its
telephone number is (330) 264-5767. The 401(k) plan administrator is responsible
for the administration of the 401(k) plan, interpretation of the provisions of
the 401(k) plan, prescribing procedures for filing applications for benefits,
preparation and distribution of information explaining the 401(k) plan,
maintenance of 401(k) plan records, books of account and all other data
necessary for the proper administration of the 401(k) plan, preparation and
filing of all returns and reports relating to the 401(k) plan which are required
to be filed and for all disclosures required to be made to participants,
beneficiaries and others.
REPORTS TO 401(K) PLAN PARTICIPANTS
The plan administrator will furnish you with a quarterly statement
showing:
(1) the current market value of each fund as of the end of the
quarter; and
(2) the amount of contributions and earnings allocated to your
account for that period.
AMENDMENT AND TERMINATION
17
It is the intention of Wayne Savings Community Bank to continue the
401(k) plan indefinitely. Nevertheless, Wayne Savings Community Bank may
terminate the 401(k) plan at any time. If the 401(k) plan is terminated in whole
or in part, then regardless of other provisions in the 401(k) plan, you will
have a fully vested interest in your accounts. Wayne Savings Community Bank
reserves the right to make, from time to time, any amendment or amendments to
the 401(k) plan which do not cause any part of the trust to be used for, or
diverted to, any purpose other than the exclusive benefit of participants or
their beneficiaries; provided, however, that Wayne Savings Community Bank may
make any amendment it determines necessary or desirable, with or without
retroactive effect, to comply with the Employee Retirement Income Security Act.
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the 401(k) plan with
another 401(k) plan, or the transfer of the trust assets to another plan, the
401(k) plan requires that you would, if either the 401(k) plan or the other plan
then terminated, receive a benefit immediately after the merger, consolidation
or transfer which is equal to or greater than the benefit you would have been
entitled to receive immediately before the merger, consolidation or transfer, if
the plan had then terminated.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material Federal income tax aspects
of the 401(k) plan. However, statutory provisions are subject to change, as are
their interpretations, and their application may vary in individual
circumstances. The consequences under state and local income tax laws may not be
the same as under the Federal income tax laws. You are urged to consult your tax
advisors with respect to any distribution from the 401(k) plan and transactions
involving the 401(k) plan.
The 401(k) plan is tax-qualified and the related trust is exempt from
tax under the Internal Revenue Code. As a result, the 401(k) plan is afforded
special tax treatment which include the following:
(1) Wayne Savings Community Bank is allowed an immediate tax
deduction for the amount contributed to the 401(k) plan each year;
(2) you pay no current income tax on amounts contributed by Wayne
Savings Community Bank on your behalf; and
(3) earnings of the 401(k) plan are tax-exempt, thereby permitting
the tax-free accumulation of income and gains on investments.
The 401(k) plan will be administered to comply in operation with the
requirements of the Internal Revenue Code as of the effective date of any change
in the law. Wayne Savings
18
Community Bank expects to timely adopt any amendments to the 401(k) plan that
may be necessary to maintain the qualified status of the 401(k) plan under the
Internal Revenue Code.
Assuming that the 401(k) plan is administered in accordance with the
requirements of the Internal Revenue Code, participation in the 401(k) plan
under existing Federal income tax laws will have the following effects:
(1) The contributions to your account and the investment earnings on
the account are not includable in your Federal taxable income until the
contributions or earnings are actually distributed or withdrawn from the 401(k)
plan. Special tax treatment may apply to the taxable portion of any distribution
that includes common stock or qualifies as a lump-sum distribution, as described
below; and
(2) Income earned on assets held by the trust will not be taxable to
the trust.
LUMP-SUM DISTRIBUTION. A distribution from the 401(k) plan to you or
your beneficiary will qualify as a lump-sum distribution if it:
(1) is made within one calendar year;
(2) is on account of your death, disability or separation from
service, or after you attain age 59-1/2; and
(3) consists of your balance under this 401(k) plan and all other
profit sharing plans, if any, maintained by Wayne Savings Community Bank. The
portion of any lump-sum distribution that is required to be included in your
taxable income for Federal income tax purposes consists of the entire amount of
the lump-sum distribution less the amount of after-tax contributions, if any,
made by you to this or any other profit sharing plan maintained by Wayne Savings
Community Bank which is included as part of the lump-sum distribution.
AVERAGING RULES. The portion of the total taxable amount of a lump-sum
distribution that is attributable to participation after 1973 in the 401(k) plan
or in any other profit-sharing plan maintained by Wayne Savings Community Bank,
referred to as the ordinary income portion, will be taxable generally as
ordinary income for Federal income tax purposes.
For years beginning after December 31, 1999, five-year income averaging
is repealed. Under a special rule adopted in the 1986 Tax Reform Act, if you
turned 50 by 1985, you may elect to have your lump-sum distribution taxed under
a ten-year income averaging rule which would allow you to pay a separate tax on
the lump-sum distribution that would approximate the tax (under the rates in
effect in 1986) that would have been due if the distribution had been received
in ten equal annual installments; you also may elect to have that portion of the
lump-sum distribution attributable to your pre-1974 participation in the 401(k)
plan treated as a long-term capital gain and taxed at a rate of 20%.
19
COMMON STOCK INCLUDED IN LUMP-SUM DISTRIBUTION. If a lump-sum
distribution includes common stock, the distribution generally will be taxed in
the manner described above under lump-sum distributions, except that the total
taxable amount will be reduced by the amount of any net unrealized appreciation
with respect to such common stock, I.E., the net unrealized appreciation is the
excess of the value of such common stock at the time of the distribution over
the cost or other basis to the trust.
Example: Assume the 401(k) plan purchases 100 shares of
common stock in the offering at $10 per share. Ten
dollars would be the cost basis of the stock to the
401(k) plan. If the 401(k) plan distributes the
common stock to you in a lump-sum distribution when
the stock is trading at $18 per share, you will be
taxed in the year of distribution on the $10 cost
basis of the stock to the 401(k) plan. The
additional $8 per share, or the net unrealized
appreciation, will not be taxed until you sell the
stock.
The tax basis of such common stock for purposes of computing gain or
loss on its subsequent sale will be the value of the common stock at the time of
distribution less the amount of net unrealized appreciation.
Example: Assuming the same facts as above, your cost basis in
the stock is $10, which is the $18 value of the
stock at the time of distribution MINUS the $8 of
net unrealized appreciation.
Any gain on a sale or other taxable disposition of such common stock,
to the extent of the amount of net unrealized appreciation at the time of
distribution, will be considered long-term capital gain regardless of the
holding period of such common stock. Any gain on a sale or other taxable
disposition of the common stock in excess of the amount of net unrealized
appreciation at the time of distribution will be considered short-term, mid-term
or long-term capital gain depending upon the length of the holding period of the
common stock.
Example: Assume you sell 50 shares of the stock in January,
seven months after you receive the distribution, for
$20 per share. You will be taxed as follows: You
will not be taxed again on the $10 cost basis you
recognized as income at the time of distribution.
The $8 in net unrealized appreciation will be taxed
at long-term capital gains rates. However, the $2
appreciation in the value of the stock that occurred
since the distribution will be taxed at short-term
capital gains rates since you have only held the
stock for seven months following its distribution to
you.
20
As a recipient of a distribution, you may elect to include the amount
of any net unrealized appreciation in the total taxable amount of such
distribution to the extent allowed by the regulations to be issued by the
Internal Revenue Service.
CONTRIBUTION TO ANOTHER QUALIFIED PLAN OR TO AN INDIVIDUAL RETIREMENT
ACCOUNT. You may defer Federal income taxation of all or any portion of the
total taxable amount of a lump-sum distribution, including the proceeds from the
sale of any common stock included in the lump-sum distribution, to the extent
that such amount, or a portion thereof, is contributed, within 60 days after the
date of its receipt by you, to another qualified plan or to an individual
retirement account. If less than the total taxable amount of a lump-sum
distribution is contributed to another qualified plan or to an individual
retirement account within the applicable 60-day period, the amount not so
contributed must be included in your income for Federal income tax purposes and
will not be eligible for the special averaging rules or for capital gains
treatment.
Example: You receive a distribution of 500 shares of stock
and $3,000 cash from the 401(k) plan on June 30. If
you intend to roll your distribution over to another
tax-qualified plan or individual retirement account,
you must do so no later than August 29, which is 60
days after you received the distribution. If you
roll over all the stock but none of the cash, you
must include the $3,000 cash in your income for the
calendar year in which the distribution is made to
you.
You generally may defer the Federal income taxation of any portion of
any other distribution made on account of your disability or separation from
service, if the amount is distributed within one taxable year, and is
contributed, within 60 days after the date of its receipt by you, to an
individual retirement account.
Effective January 1, 1993, you have the right to elect to have the
trustee transfer all or any portion of an "eligible rollover distribution"
directly to another qualified plan or to an individual retirement account. If
you do not elect to have an eligible rollover distribution transferred directly
to another qualified plan or to an individual retirement account, the
distribution will be subject to a mandatory Federal withholding tax equal to 20%
of the taxable distribution. An eligible rollover distribution means any amount
distributed from the 401(k) plan except:
(1) a distribution that is (a) one of a series of substantially
equal periodic payments made, not less frequently than annually, over your life
or the joint lives of you and your designated beneficiary, or (b) for a
specified period of ten years or more;
(2) any amount that is required to be distributed under the minimum
distribution rules; and
(3) any other distributions excepted under applicable Federal law.
21
If your beneficiary is your surviving spouse, he or she also may defer
Federal income taxation of all or any portion of a distribution from the 401(k)
plan to the extent that such amount, or a portion thereof, is contributed within
60 days after the date of its receipt by your surviving spouse, to an individual
retirement account. If all or any portion of the total taxable amount of a
lump-sum distribution is contributed by your surviving spouse to an individual
retirement account within the applicable 60-day period, any subsequent
distribution from the individual retirement account will not be eligible for the
special averaging rules or for capital gains treatment. Any amount received by
your surviving spouse that is not contributed to another qualified plan or to an
individual retirement account within the applicable 60-day period and any amount
received by a nonspouse beneficiary will be included in such beneficiary's
income for Federal tax purposes in the year in which it is received.
ADDITIONAL TAX ON EARLY DISTRIBUTIONS. If you receive a distribution
from the 401(k) plan prior to attaining age 59-1/2, it will be subject to an
additional income tax equal to 10% of the taxable amount of the distribution.
The 10% additional income tax will not apply, however, to the extent the
distribution is rolled over into an IRA or another qualified plan or the
distribution is:
(1) made to a beneficiary, or to your estate, on or after your
death;
(2) attributable to your disability;
(3) part of a series of substantially equal periodic payments not
less frequently than annually made for your life or life expectancy or the joint
lives or joint life expectancies of you and your beneficiary;
(4) made to you after separation from service on account of early
retirement under the 401(k) plan after attainment of age 55;
(5) made to pay medical expenses to the extent deductible for
Federal income tax purposes;
(6) made to an alternate payee pursuant to a qualified domestic
relations order; or
(7) made to effect the distribution of excess contributions or
excess deferrals.
ADDITIONAL EMPLOYEE RETIREMENT INCOME AND SECURITY ACT CONSIDERATIONS
As noted above, the 401(k) plan is subject to certain provisions of the
Employee Retirement Income Security Act, including special provisions relating
to control over the 401(k) plan's assets by participants and beneficiaries. The
401(k) plan's feature that allows you to direct the investment of your account
balances is intended to satisfy the requirements of section 404(c) of the
Employee Retirement Income Security Act of 1974 relating to control over plan
assets by a participant or beneficiary. The effect of this is two-fold. First,
you will not be deemed a
22
"fiduciary" because of your exercise of investment discretion. Second, no person
who otherwise is a fiduciary, such as your employer, the plan administrator, or
the plan's trustee is liable under the fiduciary responsibility provision of the
Employee Retirement Income Security Act for any loss which results from your
exercise of control over the assets in your 401(k) plan account.
Because you will be entitled to invest all or a portion of your account
balance in the 401(k) plan in Wayne Savings Bancshares, Inc. common stock, the
regulations under section 404(c) of the Employee Retirement Income Security Act
require that the 401(k) plan establish procedures that ensure the
confidentiality of your decision to purchase, hold, or sell employer securities,
except to the extent that disclosure of such information is necessary to comply
with Federal or state laws not preempted by the Employee Retirement Income
Security Act. These regulations also require that your exercise of voting and
similar rights with respect to the common stock be conducted in a way that
ensures the confidentiality of your exercise of these rights. Accordingly, the
401(k) plan committee designates Michael Anderson, as the person to whom your
investment instructions should be returned.
23
SECURITIES AND EXCHANGE COMMISSION REPORTING AND SHORT-SWING PROFIT LIABILITY
Section 16 of the Securities Exchange Act of 1934 imposes reporting and
liability requirements on officers, directors, and persons beneficially owning
more than 10% of public companies such as Wayne Savings Bancshares, Inc. Section
16(a) of the Securities Exchange Act of 1934 requires the filing of reports of
beneficial ownership. Within 10 days of becoming an officer, director or person
beneficially owning more than 10% of the shares of Wayne Savings Bancshares,
Inc., a Form 3 reporting initial beneficial ownership must be filed with the
Securities and Exchange Commission. Changes in beneficial ownership, such as
purchases, sales and gifts generally must be reported periodically, either on a
Form 4 within 10 days after the end of the month in which a change occurs, or
annually on a Form 5 within 45 days after the close of Wayne Savings Bancshares,
Inc.'s fiscal year. Discretionary transactions in and beneficial ownership of
the common stock through the Wayne Savings Bancshares, Inc. stock fund of the
401(k) plan by officers, directors and persons beneficially owning more than 10%
of the common stock of Wayne Savings Bancshares, Inc. generally must be reported
to the Securities and Exchange Commission by such individuals.
In addition to the reporting requirements described above, section
16(b) of the Securities Exchange Act of 1934 provides for the recovery by Wayne
Savings Bancshares, Inc. of profits realized by an officer, director or any
person beneficially owning more than 10% of Wayne Savings Bancshares, Inc.'s
common stock resulting from non-exempt purchases and sales of Wayne Savings
Bancshares, Inc. common stock within any six-month period.
The Securities and Exchange Commission has adopted rules that provide
exemptions from the profit recovery provisions of section 16(b) for all
transactions in employer securities within an employee benefit plan, provided
certain requirements are met. These requirements generally involve restrictions
upon the timing of elections to acquire or dispose of employer securities for
the accounts of section 16(b) persons.
Except for distributions of common stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, persons affected by section 16(b) are required to hold shares of common
stock distributed from the 401(k) plan for six months following such
distribution and are prohibited from directing additional purchases of units
within the Wayne Savings Bancshares, Inc. stock fund for six months after
receiving such a distribution.
FINANCIAL INFORMATION REGARDING 401(K) PLAN ASSETS
Unaudited financial statements representing the net assets available
for 401(k) plan benefits at September 30, 2001, are attached to this prospectus
supplement.
24
LEGAL OPINION
The validity of the issuance of the common stock will be passed upon by
Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C., which firm acted
as special counsel to Wayne Savings Bancshares, Inc. in connection with Wayne
Savings Bancshares, Inc.'s stock offering.
25
WAYNE SAVINGS COMMUNITY BANK
Statement of Net Assets Available for Plan Benefits
with Fund Information
, [date]
---------- -- ---------
26
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
------- -------
Number of shares: 1,530,000 2,070,000
Gross offering proceeds: $15,300,000 $20,700,000
Estimated offering expenses: $1,099,000 $1,173,000
Estimated net proceeds: $14,201,000 $19,527,000
Estimated net proceeds per share: $9.28 $9.43
================================================================================
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 February ___, 2002,
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 JANUARY ____, 2002
[INSERT MAP SHOWING WAYNE SAVINGS' MARKET AREA]
1
TABLE OF CONTENTS
PAGE
QUESTIONS AND ANSWERS........................................................2
- ---------------------
SUMMARY......................................................................7
- -------
RISK FACTORS................................................................15
- ------------
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF
WAYNE SAVINGS BANCSHARES, INC. AND SUBSIDIARIES..........................19
-----------------------------------------------
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE.................................21
- -------------------------------------------
USE OF PROCEEDS.............................................................22
- ---------------
DIVIDEND POLICY.............................................................23
- ---------------
MARKET FOR THE COMMON STOCK.................................................23
- ---------------------------
CAPITALIZATION..............................................................25
- --------------
PRO FORMA DATA..............................................................26
- --------------
WAYNE SAVINGS BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF EARNINGS...................................................30
----------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................................31
-----------------------------------
BUSINESS OF WAYNE SAVINGS BANCSHARES, INC. AND
WAYNE SAVINGS COMMUNITY BANK.............................................44
----------------------------
REGULATION..................................................................65
- ----------
TAXATION....................................................................71
- --------
MANAGEMENT OF WAYNE SAVINGS BANCSHARES, INC.................................72
- --------------------------------------------
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS...........................80
- -------------------------------------------------
THE CONVERSION..............................................................80
- --------------
RESTRICTIONS ON ACQUISITION OF WAYNE SAVINGS BANCSHARES, INC...............104
- -------------------------------------------------------------
DESCRIPTION OF CAPITAL STOCK OF WAYNE SAVINGS BANCSHARES, INC..............105
- -------------------------------------------------------------
FOLLOWING THE CONVERSION...................................................105
- ------------------------
TRANSFER AGENT.............................................................106
- --------------
EXPERTS....................................................................106
- -------
LEGAL MATTERS..............................................................106
- -------------
ADDITIONAL INFORMATION.....................................................106
- ----------------------
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 at 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 described in this document.
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 December 31, 2001; and
2
(4) Wayne Savings Community Bank depositors as of _______________, 2001
and borrowers as of June 23, 1993 who continue as borrowers as of
December 31, 2001.
Q: WILL DEPOSITORS OR BORROWERS OF VILLAGE SAVINGS BANK, F.S.B. HAVE PRIORITY
RIGHTS TO PURCHASE SHARES IN THE OFFERING?
A. No. Applicable federal regulations limit priority rights to purchase shares
in the offering to certain depositors and borrowers of Wayne Savings
Community Bank, as described immediately above.
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 ^__________, 2002, 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 ^ the common stock 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 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
3
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 of retirement fund orders
takes additional time, we recommend that you contact the stock information
center ^ promptly, preferably at least two weeks before the end of 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, limitations imposed by the institution where the
funds are ^ 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 ^ our 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 February ___,
2002.
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 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 ^ $0.51 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?
4
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 ^ else 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.
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 ^ may assist you. You may
call the stock information center at the number below.
5
ADDITIONAL QUESTIONS?
Please call our Stock Information Center
(800) 804-8479
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 FEBRUARY _, 2002 IN ACCORDANCE WITH FEDERAL LAW, NO
PROSPECTUS WILL BE MAILED ANY LATER THAN FIVE DAYS PRIOR TO FEBRUARY _, 2002 OR
HAND-DELIVERED ANY LATER THAN TWO DAYS PRIOR TO FEBRUARY _, 2002.
6
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 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 September 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. Wayne Savings Bankshares, MHC will cease to exist at the conclusion of the
conversion and offering.
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
^ September 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 ^ September 30, 2001,
Wayne Savings Bancshares, Inc. had consolidated assets of ^ $326.4 million,
deposits of ^ $292.4 million and consolidated stockholders' equity of ^ $25.5
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 COMMUNITY BANK
151 NORTH MARKET STREET, WOOSTER, OHIO 44691
(330) 264-5767
Wayne Savings Community Bank is an Ohio-chartered ^ community bank
headquartered in Wooster, Ohio. Wayne Savings Community Bank ^ offers a broad
range of financial products and 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 ^ from a single office in North Canton, Ohio ^. Village Savings Bank
was chartered as a wholly-owned subsidiary of Wayne Savings Community Bank in
July 1998. Village Savings Bank ^ is a community-oriented financial institution
that offers a broad range of financial services ^ in its primary lending and
deposit ^ taking area, which includes North Canton, Jackson Township and Plain
Township, in Stark County, Ohio.
7
OUR ORGANIZATIONAL STRUCTURE
Wayne Savings 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 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 ^ 1997, 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. Wayne Savings Community Bank owns 100% of the outstanding shares of
Village Savings Bank, F.S.B. 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 public stockholders.
Pursuant to the terms of our plan of ^ conversion and reorganization, ^
we 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
------------------ ----------------------
100% OF COMMON STOCK
------------------ ----------------------
VILLAGE SAVINGS BANK, F.S.B.
------------------ ----------------------
8
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
---------------------- -----------------------
100% OF COMMON STOCK
---------------------- -----------------------
VILLAGE SAVINGS BANK, F.S.B.
---------------------- -----------------------
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:
Closely monitoring the needs of customers and providing personal banking service;
Emphasizing the origination of one- to four-family residential mortgage loans in our market area;
Maintaining high asset quality;
Managing interest rate risk;
Increasing fee income;
Controlling expenses;
Maintaining a strong retail deposit base; and
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.
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 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.
9
(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 December 31,
2001.
(4) Fourth, depositors of Wayne Savings Community Bank as of
_______________, 2001 and borrowers as of June 23, 1993 who
continue as borrowers as of December 31, 2001.
Village Savings Bank depositors and borrowers will not have priority
rights to purchase shares in the offering, but may purchase shares in our
community offering (described below) to the extent shares remain available.
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
February ___, 2002, 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 January __, 2002, 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 February __, 2002,
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 & Co., LLC 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 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 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.
10
- ------------------------- ------------------------ --------------------------- -------------- ------------ ------------
New shares
New shares to be exchanged New shares
to be sold for existing shares of Wayne Total shares of to be
in this offering Savings Bancshares, Inc. 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:
The offering will increase our capital which will enable us to
continue to be a well-capitalized institution.
The additional funds resulting from the offering will support
increased lending, continued growth and new financial
products and services.
CONDITIONS TO COMPLETION OF THE CONVERSION
We cannot complete our conversion and related offering unless:
The plan of conversion is approved by at least A MAJORITY OF
VOTES ELIGIBLE to be cast by members of Wayne Savings
Bankshares, MHC;
The plan of conversion is approved by at least TWO-THIRDS OF
THE OUTSTANDING SHARES of Wayne Savings Bancshares, Inc.
common stock;
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;
We sell at least the minimum number of shares offered;
11
We receive the final approval of the Office of Thrift
Supervision to complete the conversion and offering; and
We receive the approval of the Ohio Division of Financial
Institutions of certain interim merger transactions involving
Wayne Savings Community Bank that will facilitate the
completion of the conversion.
Wayne Savings Bankshares, MHC intends to vote its 52.5% ownership
interest in favor of the conversion. In addition, as of September 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 November 30, 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
12
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. However, funds will not be withdrawn from the
accounts until the completion of the offering and will earn interest at the
applicable deposit account rate until the completion of the offering. 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.
Unless you have subscription rights to purchase shares, we have the
discretion to accept or reject your order. If we reject your order in part,
you will not have the right to cancel the remainder of your 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 $14.2 million and
$19.5 million. Approximately $7.1 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 increased lending and to offer new products
and banking services. Initially, the net proceeds received
by Wayne Savings Community Bank will be invested in federal
funds, cash equivalents, and short-term investment grade
marketable securities.
o Wayne Savings Bancshares, Inc. intends to retain approximately
50% of the net proceeds (between $7.1 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 $5.9 million and
approximately $8.1 million) retained by Wayne Savings
Bancshares, Inc. will be used for general corporate purposes.
These purposes may include paying cash dividends, repurchasing
shares of common stock, or funding a stock recognition and
retention plan. The net proceeds may be used for future
business diversification, branching or acquisitions, 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 45,500 shares, which equals approximately 2.5% 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
Our 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 from the
consummation of the conversion, or approximately $82,800 per year, 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.
13
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 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
AT MINIMUM AT MAXIMUM OF COMMON STOCK TO BE
OF OF AT MINIMUM AT MAXIMUM STOCK TO BE OUTSTANDING
OFFERING OFFERING OF OF 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 will 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
14
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 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 began 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 generate sufficient loans and deposits to
produce 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 115 fulltime-equivalent
employees at September 30, 2000, and, after we initiated a cost containment
program in that month, our fulltime-equivalent employees decreased to 112 at
September 30, 2001. As a result of the expenses associated with our new offices,
our efficiency ratio, which is the ratio of non-interest expense to net interest
income and other income, has been high. It was 70.7% for the 1999 fiscal year,
78.5% for the 2000 fiscal year, 75.5% for the 2001 fiscal year and was 74.0% for
the six months ended September 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 consists primarily of loans that generally
either mature or reprice over a longer period of time than our deposits. When
interest rates fall, as has occurred in calendar year 2001, many borrowers
refinance their loans at lower rates, mortgage-backed securities may prepay, and
yields on interest earning assets could fall, perhaps faster than interest rates
on our deposits. This could cause our earnings to decrease. Due to the generally
short-term nature of our deposits, 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 compete for customers by offering excellent service and competitive
rates on our loans and deposit products. In our market, we compete
15
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 have, 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.
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 ^ greater variety
of financial services than we currently offer and that can aggressively compete
in the markets we currently serve. This could adversely affect our
profitability.
RECENT TERRORIST ATTACKS IN THE UNITED STATES HAVE AFFECTED THE STOCK MARKET AND
THE NATIONAL ECONOMY.
On September 11, 2001, the World Trade Center in New York was destroyed
and the Pentagon in the Washington, DC area was damaged as a result of terrorist
attacks. Following these attacks, stock prices declined in general, and
questions were raised concerning the impact that the terrorist attacks and the
United States' response would have on the national economy. These uncertainties
have contributed to the existing slowdown in economic activity in the United
States. To date, the terrorist attacks have not had an adverse effect on the
financial position or operations of Wayne Savings Bancshares, Inc. Continuing
weakness in the national economy could, however, have an adverse impact on our
local economy.
FUTURE ECONOMIC GROWTH IN OUR AREA MAY BE MODERATE IN RESPONSE TO ANY SLOWDOWN
IN THE LOCAL ECONOMY.
Our loans and deposits are concentrated in our market area. Management
believes that economic 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 savings banks. 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 loans and other loans. Until we can leverage our
additional capital by increasing 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. This 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. In several cases, common stock issued by newly converted savings
institutions has traded 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.
The appraisal is based on projections, and it is not intended as a
recommendation to purchase shares of stock. After our shares begin trading, the
trading price of our common stock will be determined by the marketplace, and may
be influenced by many
16
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 OUR ACTUAL LOAN LOSSES EXCEED OUR ALLOWANCE FOR LOAN LOSSES, OUR EARNINGS
COULD DECREASE.
Our loan customers may not repay their loans according to their terms,
and the value of the collateral securing the payment of these loans may be
less than the unpaid loan amount. Therefore, we may experience significant
credit losses that could have a material adverse 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 are incorrect, our current allowance for loan
losses may not be sufficient to cover actual loan losses and increases in the
allowance may be necessary. Consequently, we may need to significantly increase
our provision for loan losses if one or more of our larger loans becomes
delinquent. In addition, federal and state regulators periodically review our
allowance for 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.
OUR EMPLOYEE STOCK BENEFIT PLANS WILL INCREASE OUR COSTS, WHICH WILL REDUCE OUR
INCOME AND STOCKHOLDERS' EQUITY AND MAY CAUSE DILUTION TO OUR STOCKHOLDERS'
OWNERSHIP INTEREST.
We anticipate that our employee stock ownership plan will purchase 8.0%
of the common stock sold in the offering, with funds borrowed from Wayne Savings
Bancshares, Inc. The cost of acquiring the employee stock ownership plan shares
will be between $1,224,000 at the minimum of the offering range and $1,904,400
at the adjusted maximum of the offering range. We will record annual employee
stock ownership plan compensation expenses in an amount equal to the fair value
of shares committed to be released to employees. If shares of common stock
appreciate in value over time, compensation expense relating to the employee
stock ownership plan would increase. We also intend to implement a recognition
and retention plan. If the recognition and retention plan is implemented within
12 months after the reorganization, our officers and directors could be awarded,
at no cost to them, up to an aggregate of 4% of the shares sold in the offering.
In the event we implement the recognition and retention plan more than 12 months
after the reorganization, the recognition and retention plan would not be
subject to an Office of Thrift Supervision regulation limiting the plan to no
more than 4% of the shares sold in the offering. Assuming the shares of common
stock to be awarded under the plan are repurchased in the open market and cost
$10.00 per share, the purchase price in the offering, the reduction to
stockholders' equity would be between $612,000 at the minimum of the offering
range and $952,200 at the adjusted maximum of the offering range, if 4% of the
shares sold in the offering were awarded. See "Pro Forma Data" for a discussion
of the increased benefit costs we will incur after the offering and how these
costs will decrease our return on equity. If a portion of the shares used to (i)
award stock under the recognition and retention plan or (ii) satisfy the
exercise of options from our stock option plan, is obtained from authorized but
unissued shares, stockholders' equity will not be reduced, but the increase in
outstanding shares will decrease our net income per share. If the shares awarded
under the recognition plan come from authorized but unissued shares, the
ownership interest of our stockholders would be diluted by approximately 2.1%.
If the shares issued upon the exercise of options come from authorized but
unissued shares, the ownership interest of our stockholders would be diluted by
approximately 5.3%.
THE EXPECTED VOTING CONTROL BY MANAGEMENT AND EMPLOYEES MAY PREVENT
STOCKHOLDERS FROM TAKING ACTIONS OPPOSED BY MANAGEMENT.
The shares of common stock that our 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 our benefit plans, could result
in management and employees controlling a significant percentage of our 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 our
outstanding stock. That level would enable management and employees as a group
to defeat any stockholder matter that requires an 80% vote, such as certain
proposed merger transactions and certain amendments to our certificate of
incorporation and bylaws.
17
VARIOUS FACTORS COULD MAKE TAKEOVER ATTEMPTS MORE DIFFICULT TO ACHIEVE.
Our Board of Directors has no current intention to sell control of
Wayne Savings Bancshares, Inc. Provisions of our 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 our Board of Directors. It is possible,
however, that you would want a takeover attempt to succeed because, for example,
a potential acquiror offers a premium over the then prevailing price of our
common stock. The factors that may discourage takeover attempts or make them
more difficult include:
ANTI-TAKEOVER PROVISIONS AND STATUTORY PROVISIONS. Provisions
in the certificate of incorporation and bylaws of Wayne
Savings Bancshares, Inc., 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 our
current Board of Directors or management, or the appointment
of new directors, more difficult. These provisions include:
limitations on voting rights of beneficial owners of more than
10% of our common stock; supermajority voting requirements
for certain business combinations; and the election of
directors to staggered terms of three years. Our bylaws also
contain provisions regarding the timing and content of
stockholder proposals and nominations and qualification for
service on the Board of Directors.
REQUIRED CHANGE IN CONTROL PAYMENTS. We intend 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. ^
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 September 30, 2001 and 2000, and
for the six months ended September 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 for the years ended March
31, 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- 1 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
SEPTEMBER 30, AT MARCH 31,
------------- ---------------------------------------------------------
2001 2001 2000 1999 1998 1997
------------- ---------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SELECTED FINANCIAL CONDITION DATA:
Total assets............................ $ 326,383 $ 311,774 $ 304,069 $ 271,274 $ 259,752 $ 252,175
Loans receivable, net(1)................ 258,099 247,480 237,412 215,679 207,879 209,404
Mortgage-backed securities(2)........... 7,875 8,613 10,496 7,230 4,275 873
Investment securities(3)................ 14,114 19,341 27,199 17,830 21,901 24,470
Cash and cash equivalents(4)............ 30,867 20,902 14,309 16,245 13,169 7,606
Deposits................................ 292,396 277,706 264,952 235,327 217,621 211,442
Stockholders' equity.................... 25,526 25,285 25,121 24,956 24,426 23,115
Book value per common share(5).......... 9.93 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
SIX MONTHS ENDED
SEPTEMBER 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........... $ 10,749 $ 10,695 $ 21,499 $ 20,701 $ 19,296 $ 19,236 $ 18,719
Interest expense.......... 6,556 6,409 13,100 12,014 11,187 11,084 10,610
----------- ---------- ------------ ------------- ------------ ------------ ----------
Net interest income....... 4,193 4,286 8,399 8,687 8,109 8,152 8,109
Provision for losses on
loans..................... 97 73 96 120 64 60 20
----------- ---------- ------------ ------------- ------------ ------------ ----------
Net interest income after
provision for losses on
loans..................... 4,096 4,213 8,303 8,567 8,045 8,092 8,089
Other income............... 797 477 1,045 742 991 854 575
General, administrative and
other expense(1)...... 3,691 3,695 7,133 7,414 6,547 6,144 7,588
----------- ---------- ------------ ------------- ------------ ------------ ----------
Earnings before income
taxes...................... 1,202 995 2,215 1,895 2,489 2,802 1,076
Federal income taxes....... 409 340 754 644 846 953 367
----------- ---------- ------------ ------------- ------------ ------------ ----------
Net earnings............... $ 793 $ 655 $ 1,461 $ 1,251 $ 1,643 $ 1,849 $ 709
=========== ========== ============ ============= ============ ============ ==========
EARNINGS PER SHARE:
Basic(2)................... $ .31 $ .25 $ .56 $ .48 $ .63 $ .71 $ .28
=========== ========== ============ ============= ============ ============ ==========
Diluted(2)................. $ .31 $ .25 $ .56 $ .48 $ .62 $ .70 $ .27
=========== ========== ============ ============= ============ ============ ==========
Cash dividends declared
per common share(2)(3).... $ .34 $ .32 $ .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 branch location.
(2) Adjusted to reflect all stock splits and stock dividends during the
relevant periods. (FOOTNOTES CONTINUED ON NEXT PAGE)
19
(3) During fiscal years ended March 31, 1997 through March 31, 1999, inclusive,
Wayne Savings Bankshares, MHC 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, MHC waived approximately $.45 and
$.59 of the $.64 dividend paid per share in each respective year.
AT OR FOR THE SIX AT OR FOR THE
MONTHS ENDED YEARS ENDED
SEPTEMBER 30, (6) MARCH 31,
---------------------- ------------------------------------------------------
2001 2000 2001 2000 1999 1998 1997
---------- ----------- ---------- ---------- ---------- --------- -----------
KEY OPERATING RATIOS AND OTHER DATA (6):
Return on average assets (net earnings
divided by average total assets)(1)(5)......... .50% .44% .49% .43% .63% .73% .29%
Return on average equity (net earnings
divided by average stockholders'
equity)(1)(5)................................... 6.24 5.19 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)... 2.61 2.71 2.57 2.88 2.93 2.98 3.03
Net interest margin (net interest
income as a
percentage of average
interest-earning
assets)......................................... 2.80 3.02 2.91 3.14 3.23 3.34 3.40
Average interest-earning assets to
average
interest-bearing liabilities.................... 103.18 106.87 107.62 106.05 106.99 108.02 108.35
Net interest income after provision for losses
on loans, to general, administrative and
other expense (1)(2)............................ 110.97 114.02 116.40 115.72 124.98 131.71 106.60
General, administrative and other expense to
average assets(1)(2)(5)......................... 2.34 2.46 2.39 2.53 2.45 2.42 3.07
Efficiency ratio(3)............................... 73.97 77.58 75.53 78.51 70.74 68.22 87.38
Dividend payout ratio............................. 55.23 85.20 72.42 70.50 45.89 36.45 88.94
ASSET QUALITY RATIOS:
Non-performing loans to loans receivable, net..... 1.14 .10 .21 .08 .13 .15 .46
Non-performing assets to total assets............. .90 .11 .20 .10 .12 .48 .70
Allowance for loan losses to non-performing
loans......................................... 25.36 342.29 127.18 396.50 242.14 234.09 95.01
Allowance for loan losses to non-performing
assets.......................................... 25.20 252.48 102.50 273.45 211.21 57.50 51.61
Allowance for loan losses to total
loans............................................. .28 .36 .27 .33 .32 .35 .44
CAPITAL RATIOS:
Average stockholders' equity to average
assets.......................................... 8.06 8.41 8.44 8.57 9.07 9.42 9.32
Stockholders' equity to assets at period end..... 7.82 8.33 8.11 8.26 9.20 9.40 9.17
REGULATORY CAPITAL OF WAYNE SAVINGS
COMMUNITY BANK (4):
Tangible capital.................................. 7.75 8.05 8.05 8.01 8.60 9.13 9.16
Core capital...................................... 7.75 8.05 8.05 8.01 8.60 9.13 9.16
Risk-based capital................................ 14.38 15.41 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 ^ Road branch 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 ^ other income.
(4) Consolidated with Village Savings Bank.
(5) Calculated using mathematical averages from consolidated statements of
financial condition.
(6) The ratios presented under the heading "Key Operating Ratios and Other
Data" are annualized where appropriate.
20
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
At September 30, 2001, Wayne Savings Community Bank exceeded all of
the applicable regulatory capital requirements. The table below sets forth the
historical regulatory capital of Wayne Savings Community Bank (consolidated with
Village Savings Bank) at September 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.
However, Wayne Savings Community Bank will receive greater than 50% of the net
conversion proceeds to the extent necessary to ensure its tangible capital ratio
exceeds 10% following the offering. 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 ^ September 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 ^ SEPTEMBER 30, 2001
BANK HISTORICAL AT -----------------------------------------------------------------------------
SEPTEMBER 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.............. $ 25,662 7.86% $ 33,824 10.11% $ 34,105 10.18% $ 35,437 10.54%
====== ===== = ====== ====== = ====== ====== = ====== ======
Tangible Capital.......... $ 25,274 7.75% $ 33,436 10.00% $ 33,717 10.08% $ 35,049 10.44%
= ====== ===== = ====== ====== = ====== ====== = ====== ======
Tangible Requirement...... 4,891 1.50 5,013 1.50 5,017 1.50 5,037 1.50
===== ==== ===== ==== ===== ==== ===== ====
Excess.................... $ 20,383 6.25% $ 28,423 8.50% $ 28,700 8.58% $ 30,012 8.94%
= ====== ===== = ====== ===== = ====== ===== = ====== =====
Core Capital.............. $ 25,274 7.75% $ 33,436 10.00% $ 33,717 10.08% $ 35,049 10.44%
= ====== ===== = ====== ====== = ====== ====== = ====== ======
Core Requirement(3)....... 13,042 4.00 13,368 4.00 13,380 4.00 13,433 4.00
====== ==== ====== ==== ====== ==== ====== ====
Excess.................... $ 12,232 3.75% $ 20,068 6.00% $ 20,337 6.08% $ 21,616 6.44%
= ====== ===== = ====== ===== = ====== ===== = ====== =====
Total Capital(4).......... $ 26,017 14.38% $ 34,179 18.72% $ 34,460 18.87% $ 35,792 19.57%
= ====== ====== = ====== ====== = ====== ====== = ====== ======
Risk-based Requirement.... 14,472 8.00 14,603 8.00 14,607 8.00 14,628 8.00
====== ==== ====== ==== ====== ==== ====== ====
Excess.................... $ 11,545 6.38% $ 19,576 10.72% $ 19,853 10.87% $ 21,164 11.57%
= ====== ===== = ====== ====== = ====== ====== = ====== ======
MAXIMUM AS ADJUSTED(1)
----------------------------
PERCENT OF
AMOUNT ASSETS(2)
----------- ----------------
GAAP Capital.............. $ 36,968 10.95%
= ====== ======
Tangible Capital.......... $ 36,580 10.84%
= ====== ======
Tangible Requirement...... 5,060 1.50
===== ====
Excess.................... $ 31,520 9.34%
= ====== =====
Core Capital.............. $ 36,580 10.84%
= ====== ======
Core Requirement(3)....... 13,494 4.00
====== ====
Excess.................... $ 23,086 6.84%
= ====== =====
Total Capital(4).......... $ 37,323 20.38%
= ====== ======
Risk-based Requirement.... 14,653 8.00
====== ====
Excess.................... $ 22,670 12.38%
= ====== ======
- --------------------------------
(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 we cannot determine what the actual net proceeds from the sale
of the common stock in the offering will be until the offering is completed,
we anticipate that the net proceeds will be between $14.2 million and $19.5
million, or $22.6 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 we used to arrive at these amounts. We 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
$8.2 million and $9.8 million, or $11.3 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. We 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 acquire other financial institutions, to diversify into other
banking related businesses, to fund our stock recognition and retention
plan or to pay cash dividends. We do not have any current specific plans,
arrangements or understandings regarding any acquisitions, nor have we
established criteria to identify potential acquisitions. 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........................................... $ 14,201 $ 19,527
====== = ======
Investment in Wayne Savings Community Bank............. (8,151) (9,764)
======= =======
Funds loaned to ESOP................................... (1,224) (1,656)
------------- ------------
Funds retained for general corporate purposes.......... $ 4,826 $ 8,107
============= ============
After the conversion is completed, we will be authorized to
repurchase our common stock, subject to certain regulatory restrictions during
the first year following the conversion. Office of Thrift Supervision
regulations do not permit a converted institution or its holding company to
repurchase its common stock for the first year following the conversion unless
"compelling" reasons exist for the repurchase, in which case up to 5% of the
stock may be repurchased. We may repurchase our common stock without obtaining
regulatory approval beginning the year after the completion of the conversion^.
Based upon facts and circumstances following the completion of 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 conditions such as the price at which the
stock is trading, 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
(3) any other circumstances in which repurchases would be in the
best interests of Wayne Savings Bancshares, Inc. and our stockholders.
22
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 the expansion of new
products and banking services. The funds also will be used to originate loans
and to invest in federal funds, short-term investment grade marketable
securities and mortgage-backed securities. Wayne Savings Community Bank also may
use such funds to expand its branch network, 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 offering
range, respectively, based upon a stock 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. We cannot assure
you that we will not reduce or eliminate dividends in the future. Assuming the
offering is completed in February 2002, we expect to declare the first dividend
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 regarding the ability of Wayne Savings Community Bank to
make capital distributions, including the payment of dividends, to Wayne Savings
Bancshares, Inc., 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. Statutory capital
generally means the aggregate par value of the outstanding shares of Wayne
Savings Bancshares, Inc.'s capital stock.
Additionally, we have committed to the Office of Thrift Supervision
that during the one-year period following the completion of the conversion,
Wayne Savings Bancshares, Inc. will not take any action to declare an
extraordinary dividend to our stockholders that would be treated by such
stockholders as a tax-free return of capital for federal income tax purposes,
without prior approval of the Office of Thrift Supervision.
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 September 30, 2001, we had three 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
23
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. We cannot assure you 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 our control or that of any
market maker. The number of active buyers and sellers of our common stock at
any particular time may be limited, which may have an adverse effect on the
price at which our 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 OUR COMMON
STOCK SHOULD HAVE A LONG-TERM INVESTMENT INTENT AND SHOULD RECOGNIZE THAT THERE
MAY BE A LIMITED TRADING MARKET IN THE COMMON STOCK.
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 September 30,
2001, there were 1,220,394 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 December 31, 2001......... $ [ ] $ [ ] $ [ ]
Quarter Ended September 30, 2001........ $ 20.55 $ 13.75 $ 0.17
Quarter Ended June 30, 2001............. $ 17.9375 $ 11.30 $ 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 January ___, 2002, the closing prices of
Wayne Savings Bancshares, Inc. common stock as reported on the Nasdaq Small Cap
Market were $13.75 per share and $_____ per share, respectively. At October 12,
2001, Wayne Savings Bancshares, Inc. had ap proximately 808 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 our
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."
24
CAPITALIZATION
The following table presents the historical consolidated capitalization
of Wayne Savings Bancshares, Inc. at September 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 SEPTEMBER 30, 2001
----------------------------------------------------------
4,531,347
2,912,397 3,426,350 3,940,302 MAXIMUM AS
WAYNE MINIMUM MIDPOINT MAXIMUM ADJUSTED
SAVINGS SHARES SHARES SHARES SHARES
BANCSHARES, OUTSTANDING, OUTSTANDING, OUTSTANDING, OUTSTANDING,
INC. 1,530,000 1,800,000 2,070,000 2,380,500
HISTORICAL AT SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
SEPTEMBER 30, AT $10.00 AT $10.00 AT $10.00 AT $10.00
2001 PER SHARE PER SHARE PER SHARE PER SHARE(1)
-------------- -------------- ------------ ------------- ---------------
(DOLLARS IN THOUSANDS)
Deposits(2)...................................... $ 292,396 $ 292,396 $ 292,396 $ 292,396 $ 292,396
Borrowed funds .................................. 6,000 6,000 6,000 6,000 6,000
----------- ----------- ----------- ----------- -----------
Total deposits and borrowed funds................ $ 298,396 $ 298,396 $ 298,396 $ 298,396 $ 298,396
=========== =========== =========== =========== ===========
Stockholders' equity:
Preferred stock, $0.10 par value(post-
conversion), 500,000 shares authorized(3)........ $ -- $ -- $ -- $ -- $ --
Common stock $0.10 par value (post-
conversion) 9,000,000 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 28,375 30,524 32,673 35,144
Retained earnings(4)............................. 9,535 9,535 9,535 9,535 9,535
Accumulated other comprehensive
income........................................... 60 60 60 60 60
Less:
Treasury stock.................................. (1,144) (1,144) (1,144) (1,144) (1,144)
Common stock held by existing employee
stock ownership plan.......................... -- -- -- -- --
Less: Existing plans(5)
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....................... $ 25,526 $ 37,902 $ 40,241 $ 42,580 $ 45,270
=========== =========== =========== =========== ===========
Total stockholders' equity as a percentage
of total assets..................... 7.82% 11.19% 11.80% 12.40% 13.08%
=========== =========== =========== =========== ===========
=========================================
(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. has 500,000 authorized shares of preferred
stock^ and 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) 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."
(5) 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."
(FOOTNOTES CONTINUED ON NEXT PAGE)
25
(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 ^ $10.00 per share, 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 ^ $38.5
million, ^ $41.0 million, ^ $43.4 million, and ^ $46.2 million,
respectively, at ^ September 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 six months ended September 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 for the possible issuance of additional shares
pursuant to any stock option plan or stock recognition and retention plan that
may be adopted by our stockholders no earlier than one year after the
conversion. Moreover, book value does note 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 six months ended September 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 2.49% for the fiscal year ended March 31,
2001 and for the six months ended September 30, 2001, respectively. The
reinvestment rate was calculated based on the equivalent yield of the one-year
United States Treasury bill rate (which we believe more accurately reflects the
pro forma reinvestment rate than the arithmetic average method, in view of
changes in market interest rates in recent periods). 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
2.74% and 1.64% for the fiscal year ended March 31, 2001 and for the six months
ended September 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 $14.2 million and $19.5
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.
26
AT OR FOR THE ^ SIX MONTHS ENDED ^ SEPTEMBER 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 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...................................................... (1,099) (1,136) (1,173) (1,216)
------------ ----------- ----------- -----------
Estimated net proceeds........................................ 14,201 16,864 19,527 22,589
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........................... $ 12,376 $ 14,715 $ 17,054 $ 19,744
============ =========== =========== ===========
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001:
Consolidated net earnings:
Historical..................................................... $ 793 $ 793 $ 793 $ 793
Pro forma adjustments:
Income on adjusted net proceeds................................ 102 121 140 162
Pro forma state franchise taxes................................ (30) (36) (42) (48)
Employee stock ownership plan(2)............................... (20) (24) (27) (31)
Recognition plan(3)............................................ (40) (48) (55) (63)
------------ ----------- ----------- -----------
Pro forma net income........................................ $ 805 $ 806 $ 809 $ 813
============ =========== =========== ===========
Earnings per share(4):
Historical..................................................... $ 0.28 $ 0.24 $ 0.21 $ 0.18
Pro forma adjustments:
Income on net proceeds......................................... 0.04 0.04 0.04 0.04
Pro forma state franchise taxes................................ (0.01) (0.01) (0.01) (0.01)
Employee stock ownership plan(2)............................... (0.01) (0.01) (0.01) (0.01)
Recognition plan(3)............................................ (0.01) (0.01) (0.01) (0.01)
------------ ----------- ----------- -----------
Pro forma earnings per share(4)(5).......................... $ 0.29 $ 0.25 $ 0.22 $ 0.19
============ =========== =========== ===========
Pro forma price to earnings..................................... 17.24x 20.00x 23.81x 26.32x
Number of shares used in price-to-earnings ratio calculations... 2,793,057 3,285,949 3,778,842 4,345,668
AT SEPTEMBER 30, 2001:
Stockholders' equity:
Historical..................................................... $ 25,526 $ 25,526 $ 25,526 $ 25,526
Estimated net proceeds......................................... 14,201 16,864 19,527 22,589
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)............................... 37,902 40,241 42,580 45,270
Intangible assets.............................................. (283) (283) (283) (283)
------------ ----------- ----------- -----------
Pro forma tangible stockholders' equity........................ $ 37,619 $ 39,958 $ 42,297 $ 44,987
============ =========== =========== ===========
Stockholders' equity per share(7):
Historical..................................................... $ 8.76 $ 7.45 $ 6.48 $ 5.63
Estimated net proceeds......................................... 4.88 4.92 4.96 4.99
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)................. $ 13.01 $ 11.74 $ 10.81 $ 9.99
============ =========== =========== ===========
Pro forma tangible stockholders' equity per share.............. $ 12.92 $ 11.66 $ 10.73 $ 9.93
============ =========== =========== ===========
Offering price as a percentage of pro forma stockholders' equity
per share....................................................... 76.86% 85.18% 92.51% 100.10%
Offering price as a percentage of pro forma tangible stockholders'
equity per share................................................. 77.40% 85.76% 93.20% 100.70%
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)
27
AT OR FOR THE SIX MONTHS ENDED SEPTEMBER 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 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........................................................ (1,099) (1,136) (1,173) (1,216)
Estimated net proceeds.......................................... 14,201 16,864 19,527 22,589
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............................. $ 12,376 $ 14,715 $ 17,054 $ 19,744
=========== =========== ============ ============
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................................. 339 403 467 541
Pro forma state franchise taxes................................. (61) (72) (84) (97)
Employee stock ownership plan(2)................................ (40) (48) (55) (63)
Recognition plan(3)............................................. (81) (95) (109) (126)
----------- ----------- ------------ ------------
Pro forma net earnings....................................... $ 1,618 $ 1,649 $ 1,680 $ 1,716
=========== =========== ============ ============
Earnings per share(4):
Historical...................................................... $ 0.52 $ 0.44 $ 0.39 $ 0.34
Pro forma adjustments:
Income on net proceeds.......................................... 0.12 0.12 0.11 0.11
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 $ 0.44 $ 0.39
=========== =========== ============ ============
Pro forma price to earnings...................................... 17.24x 20.00x 22.73x 25.64x
=========== =========== ============ ============
Number of shares used in price-to-earnings ratio calculations.... 2,796,117 3,289,549 3,782,982 4,350,429
AT MARCH 31, 2001:
Stockholders' equity:
Historical...................................................... $ 25,285 $ 25,285 $ 25,285 $ 25,285
Estimated net proceeds.......................................... 14,201 16,864 19,527 22,589
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)................................ 37,661 40,000 42,339 45,029
Intangible assets............................................... (287) (287) (287) (287)
----------- ----------- ------------ ------------
Pro forma tangible stockholders' equity......................... $ 37,374 $ 39,713 $ 42,052 $ 44,742
=========== =========== ============ ============
Stockholders' equity per share(7):
Historical...................................................... $ 8.68 $ 7.38 $ 6.42 $ 5.58
Estimated net proceeds.......................................... 4.88 4.92 4.96 4.99
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).................. 12.93 11.67 10.75 9.94
----------- ----------- ------------ ------------
Pro forma tangible stockholders' equity per share............... 12.83 11.59 10.67 9.87
Offering price as a percentage of pro forma stockholders' equity
per share...................................................... 77.34% 85.69% 93.02% 100.60%
Offering price as a percentage of pro forma tangible stockholders'
equity per share............................................... 77.94% 86.28% 93.72% 101.32%
Number of shares used in book value per share calculations....... 2,912,397 3,426,350 3,940,302 4,531,347
28
- --------------------------------
(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 $10.00 per share, 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 3,060, 3,600, 4,140, and 4,761 shares
were committed to be released during the six months ended September 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 $10.00 per share with funds contributed by Wayne Savings
Bancshares, Inc., (ii) 10% of the amount contributed to the stock
recognition plan is amortized as an expense during the six months ended
September 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 publicly held shares of Wayne Savings Bancshares,
Inc. common stock that will be exchanged for new shares of Wayne Savings
Bancshares, Inc. common stock in the conversion. Net income per share
computations are determined by taking the number of shares assumed to be
sold in the offering and the number of new shares assumed to be issued in
exchange for publicly held shares 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 periods. 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
5.3%.
(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 publicly held shares of Wayne Savings Bancshares,
Inc. common stock that will be exchanged for new shares of Wayne Savings
Bancshares, Inc. common stock in the conversion. 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) new shares to be
issued in exchange for publicly held shares 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.
29
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 six months ended September 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
six months ended September 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 SIX MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, MARCH 31,
----------------------------- ----------------------------------
2001 2000 2001 2000 1999
---------- --------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Interest income:
Loans........................................................ $ 9,591 $ 9,245 $ 18,694 $ 17,928 $ 17,037
Mortgage-backed securities................................... 249 312 583 602 405
Investment securities........................................ 407 757 1,423 1,033 784
Interest-bearing deposits and other.......................... 502 381 799 1,138 1,070
---------- --------- ---------- ---------- ----------
Total interest income..................................... 10,749 10,695 21,499 20,701 19,296
Interest expense:
Deposits..................................................... 6,396 6,168 12,652 11,530 10,516
Borrowings................................................... 160 241 448 484 671
---------- --------- ---------- ---------- ----------
Total interest expense.................................... 6,556 6,409 13,100 12,014 11,187
---------- --------- ---------- ---------- ----------
Net interest income....................................... 4,193 4,286 8,399 8,687 8,109
Provision for losses on loans................................. 97 73 96 120 64
---------- --------- ---------- ---------- ----------
Net interest income after provision for losses on loans... 4,096 4,213 8,303 8,567 8,045
Other income:
Gain on sale of loans........................................ 211 55 154 22 309
Service fees, charges and other operating income............. 586 422 891 720 682
---------- --------- ---------- ---------- ----------
Total other income........................................ 797 477 1,045 742 991
General, administrative and other expense:
Employee compensation and benefits........................... 2,091 2,109 4,012 3,817 3,308
Occupancy and equipment...................................... 680 677 1,211 1,394 1,111
Federal deposit insurance premiums........................... 28 32 63 209 202
Franchise taxes.............................................. 136 125 176 318 335
Loss on disposal of real estate acquired through foreclosure. -- -- -- 11 110
Other operating expenses..................................... 756 752 1,671 1,665 1,481
---------- --------- ---------- ---------- ----------
Total general, administrative and other expense........... 3,691 3,695 7,133 7,414 6,547
---------- --------- ---------- ---------- ----------
Earnings before income taxes.............................. 1,202 995 2,215 1,895 2,489
Federal income taxes:
Current....................................................... 424 348 719 600 686
Deferred...................................................... (15) (8) 35 44 160
---------- --------- ---------- ---------- ----------
Total federal income taxes................................. 409 340 754 644 846
---------- --------- ---------- ---------- ----------
NET EARNINGS............................................... $ 793 $ 655 $ 1,461 $ 1,251 $ 1,643
========== ========= ========== ========== ==========
EARNINGS PER SHARE:
Basic...................................................... $ 0.31 $ 0.25 $ 0.56 $ 0.48 $ 0.63
========== ========= ========== ========== ==========
Diluted.................................................... $ 0.31 $ 0.25 $ 0.56 $ 0.48 $ 0.62
========== ========= ========== ========== ==========
Net earnings................................................... $ 793 $ 655 $ 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 $14, $13, $36, $(20),
and $(8)....................................................... 27 25 69 (38) (15)
---------- --------- ---------- ---------- ----------
Comprehensive income........................................... $ 820 $ 680 $ 1,530 $ 1,213 $ 1,628
========== ========= ========== ========== ==========
Accumulated comprehensive income (loss)........................ $ 60 $ (11) $ 33 $ (36) $ 2
========== ========= ========== ========== ==========
30
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 owning all of 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 are 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 are 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 bank 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 offices 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 and 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 our history, we have been committed to meeting the financial needs of
the communities in which we operate, and to providing quality service to our
customers. We believe that our community-oriented approach gives us an advantage
over many of our larger competitors headquartered outside of our market area,
because our customers have direct access to senior management.
31
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 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 supermarket. In 1998, we expanded into Stark County by
establishing Village Savings Bank, which has one office. None of our new offices
was acquired from other financial institutions.
EMPHASIZING ONE- TO FOUR-FAMILY RESIDENTIAL MORTGAGE LENDING 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
September 30, 2001, these loans constituted 83.8% of our total loan portfolio.
We also originate loans collateralized by commercial 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. We have implemented the
following strategies that are intended to reduce the potential volatility of our
earnings to changes in market interest rates. First, we have attempted to better
match the maturities or repricing 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 19.3% of our
total loan portfolio at September 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
interest rate environment, depositors typically prefer shorter-term deposits.
MAINTAINING HIGH ASSET QUALITY. We have consistently maintained a high
level of asset quality, and our emphasis on originating one- to four-family
residential mortgage loans collateralized by properties in our market area has
contributed to this asset quality. One- to four-family residential mortgage
loans typically have 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 loan underwriting standards and experienced loan
officers, as well as diligent monitoring of our loan portfolio by our
collections department. During the six months ended September 30, 2001 and the
years ended March 31, 2001, 2000 and 1999, net loan charge-offs totaled $9,000,
$234,000, $5,000 and $107,000, respectively. At September 30, 2001 and at March
31, 2001, 2000 and 1999, our percentage of non-performing loans to net loans
receivable was 1.14%, 0.21%, 0.08% and 0.13%, respectively.
INCREASING FEE INCOME. We have tried to increase our non-interest
income as a means of decreasing our reliance on net interest income. In this
regard, we restructured our service fees in July 2000 by 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 prior fiscal year, and increased by $164,000 or 38.9% for the
six months ended September 30, 2001 compared to the prior fiscal year. In
addition, in 1997 we began to offer a line of investment products 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- generating strength has been enhanced by the strong sales culture in
our branches and by our expanded branch franchise. In the three year period
ended March 31, 2001, deposits grew 27.6%. At September 30, 2001, our "core
deposits," which includes, checking, money market, passbook and statement
savings accounts, totaled $110.9 million or 37.9% 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.
COMMITMENT TO EXPENSE CONTROL. Our general and administrative
expenses have grown in recent years largely due to the increase in the number of
banking offices. We recognized the need to study our costs and develop a
broad-based cost containment program, which we implemented in September 2000.
Partly as a result of this initiative, our general and administrative expenses
have remained stable, and our compensation expense
32
decreased slightly for the six months ended September 30, 2001 compared to the
prior period, despite normal merit raises and the need to staff our most
recently opened branch. Full-time equivalent employees decreased from 115 at
September 30, 2000 to 112 at September 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 our technological efficiencies,
the decrease in the number of our personnel has not negatively affected the
quality of customer service or operations. In addition to monitoring our
operating expense, we monitor our expenses attributable to fixed assets. Where
possible, we have attempted to extend the useful lives of these assets, and
defer the cost of replacing them for as long as we can. 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 September 30, 2001, our regulatory capital was $26.0
million, which substantially exceeded the highest of applicable regulatory
requirements. At September 30, 2001, Wayne Savings Community Bank had core
capital of $25.3 million, or 7.8% of total assets, which substantially
exceeded the regulatory core capital requirement of 4.0% of total assets. We
intend to maintain capital in excess of regulatory requirements following the
offering.
CHANGES IN FINANCIAL CONDITION
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2001 AND MARCH 31,
2001
At September 30, 2001, our total assets were $326.4 million, an
increase of $14.6 million, or 4.7%, over total assets at March 31, 2001. The
increase was funded primarily by a $14.7 million increase in deposits.
Cash and due from banks, federal funds sold, interest-bearing deposits,
certificates of deposit and investment securities totaled $45.0 million at
September 30, 2001, an increase of $4.7 million, or 11.8%, over March 31,
2001 levels.
Mortgage-backed securities decreased by $738,000, or 8.6%, to $7.9
million at September 30, 2001 from $8.6 million at March 31, 2001. This decrease
was due primarily to principal repayments on mortgage-backed securities totaling
$2.8 million for the six months ended September 30, 2001, partially offset by
purchases of mortgage-backed securities totaling $2.0 million.
Loans receivable increased by $10.6 million, or 4.3%, to $258.1
million at September 30, 2001 from $247.5 million at March 31, 2001. This
increase resulted from new loan originations of $61.2 million, which were
partially offset by principal repayments of $38.5 million and loan sales of
$12.3 million. The majority of new loan originations during the six month period
consisted of loans secured by one- to four-family residential real estate. The
allowance for loan losses totaled $743,000 at September 30, 2001, compared to
$655,000 at March 31, 2001, representing .28% and .26% of gross loans at those
respective dates. Nonperforming loans totaled $2.9 million at September 30, 2001
and $515,000 at March 31, 2001. Nonperforming loans at September 30, 2001
consisted primarily of loans secured by nonresidential real estate. The
allowance for loan losses totaled 25.4% and 127.2% of nonperforming loans at
September 30, 2001 and March 31, 2001, respectively. To the best of management's
knowledge, all known losses as of September 30, 2001 and March 31, 2001^ have
been recorded.
Deposits increased by $14.7 million, or 5.3%, to $292.4 million at
September 30, 2001 from $247.5 million at March 31, 2001. We believe this growth
was mainly due to the competitive rates we offer on our passbook accounts, and
our elimination of correspondent banking services, which resulted in our
transferring corporate checking accounts from other financial institutions to
internal deposits beginning in April 2001.
Stockholders' equity increased by approximately $241,000, or 1.0%, to
$25.5 million at September 30, 2001, due primarily to net earnings of $793,000,
which was partially offset by dividends paid totaling $438,000 and repurchases
of common stock totaling $141,000.
33
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2001 AND MARCH 31, 2000
At March 31, 2001, our total assets were $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 decreased $1.9 million, or 17.9%, to $8.6
million at March 31, 2001 from $10.5 million 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.
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 loan 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, 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 $277.7 million at
March 31, 2001 from $265.0 million at March 31, 2000. The increase in deposits
was attributable primarily 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 increased by $164,000, or 0.7%, to $25.3 million
at March 31, 2001 from $25.1 million at 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 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 our interest-earning assets and the average
rate paid on our 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 SIX MONTHS ENDED SEPTEMBER 30, 2001 AND
SEPTEMBER 30, 2000
GENERAL. Net earnings totaled $793,000 for the six months ended
September 30, 2001, compared to net earnings of $655,000 for the same period
in 2000, an increase of $138,000, or 21.1%. The increase in net earnings
resulted primarily from an increase in other income of $320,000 and a $4,000
decrease in general, administrative and other expenses, which were partially
offset by a decrease in net interest income of $93,000, an increase in federal
income taxes of $69,000 and an increase in the provision for losses on loans
totaling $24,000.
INTEREST INCOME. Interest income on loans and mortgage-backed
securities increased by $283,000, or 3.0%, to $9.8 million for the six months
ended September 30, 2001 from $9.6 million over the same period in 2000. The
increase resulted primarily from a $3.3 million, or 1.3%, increase in the
average balance of loans and mortgage-backed securities outstanding, from $250.2
million for the six months ended September 30, 2000, to
34
$253.5 million for the six months ended September 30, 2001, combined with an
increase in the average yield from 7.64% to 7.67%.
Interest income on investments and interest-bearing deposits
decreased by $229,000, or 20.1%, during the six months ended September 30, 2001,
as compared to the same period in 2000, as a result of a decrease in the average
yield to 4.58% for the six months ended September 30, 2001, from 6.73% for the
period ended September 30, 2000, which was partially offset by an increase in
the average balance of investments and interest-bearing deposits of
approximately $5.9 million, or 17.5%.
INTEREST EXPENSE. Interest expense on deposits and borrowings increased
by $147,000, or 2.3%, to $6.8 million for the six months ended September 30,
2001 from $6.4 million over the same period in 2000. The increase was primarily
attributed to a $21.0 million, or 7.9%, increase in the average balance of
interest-bearing liabilities, which was partially offset by a 25 basis point
decrease in the average cost of interest-bearing liabilities, to 4.57% from
4.82%.
NET INTEREST INCOME. As a result of the foregoing changes in interest
income and interest expense, net interest income decreased by $93,000, or 2.2%,
to $4.1 million for the six months ended September 30, 2001, from $4.2 million
for the same period in 2000. Our interest rate spread decreased from 2.71% for
the six months ended September 30, 2000 to 2.61% for the six months ended
September 30, 2001. Our net interest margin decreased from 3.02% for the
six-months ended September 30, 2000, to 2.80% for the same period ended
September 30, 2001.
PROVISION FOR LOSSES ON LOANS. We record a provision for losses on
loans in an amount sufficient to cover known losses and losses in the portfolio
that are both probable and reasonable to estimate. Such estimates were based on
the facts and circumstances in existence at the time. Nonperforming loans
totaled $2.9 million at September 30, 2001 and $253,000 at September 30, 2000.
Based upon this methodology, we recorded a provision for losses on loans
totaling $97,000 for the six-month period ended September 30, 2001, compared to
a provision for losses on loans of $73,000 for the six months ended September
30, 2000. To the best of management's knowledge, all known losses as of
September 30, 2001 and September 30, 2000 have been recorded.
OTHER INCOME. Other income increased by $320,000, or 67.1%, to
$797,000 for the six months ended September 30, 2001 over the comparable 2000
period. This increase was due primarily to a $164,000, or 38.9%, increase in
service fees, charges and other operating income, coupled with a $156,000
increase in gain on sale of loans. The increase in gain on sale of loans
resulted from loan sales of $12.3 million for the six months ended September 30,
2001 compared to $4.1 million for the six months ended September 30, 2000.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other expense, consisting primarily of employee compensation and benefits, and
occupancy and equipment expense, decreased by $4,000 to $2.8 million during the
six month period ended September 30, 2001, compared to the same period in 2000.
The decrease resulted from an $18,000, or 0.9%, decrease in employee
compensation and benefits and a $4,000 decrease in federal deposit insurance
premiums, which was partially offset by an $11,000, or 8.8%, increase in Ohio
franchise taxes due to increased capital levels, a $4,000, or 0.5%, increase in
other operating expenses, and a $3,000, or 0.4%, increase in occupancy and
equipment expense. The stable amount of general and administrative expense
during a period in which we opened an additional branch in May 2001 and in which
our total assets and liabilities were higher than the prior period was due to
the continuing effects of management's cost reduction program implemented in
September 2000.
FEDERAL INCOME TAXES. The provision for federal income taxes
increased by $69,000, or 20.3%, to $409,000, for the six months ended September
30, 2001 compared to the same period in 2000. The increase resulted primarily
from a $207,000, or 20.8%, increase in pretax earnings year to year. The
effective tax rates for the six months ended September 30, 2001 and 2000 were
34.0% and 34.2%, respectively.
RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 2001, 2000 AND 1999
GENERAL. Net earnings were $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
35
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%, for
the fiscal year ended March 31, 2001 compared to the prior fiscal year 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%.
Interest income on mortgage-backed securities decreased by $19,000, or
3.2%, for the fiscal year ended March 31, 2001 primarily due to a $398,000, or
3.9%, decrease in the average balance of mortgage-backed securities 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 ended March 31, 2001, primarily as a result of an
increase in the average yield on these assets which was partially offset by a
decrease in the average balance of these assets. The yield on investment
securities increased to 7.36% from 6.86% for the fiscal year ended March 31,
2000, while the yield on interest-bearing deposits rose to 5.93%, from 5.25% for
the fiscal year ended March 31, 2000. The average balance of investment
securities and interest-bearing deposits 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 on interest-earning assets to 7.48% from 7.70% for the prior year.
Interest income on loans receivable for the fiscal year ended March 31,
2000 increased by $891,000, or 5.2%, compared to the prior fiscal year 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%, for the fiscal year ended March 31, 2000 primarily due to a $3.0 million,
or 41.6%, increase in the average balance of mortgage-backed securities to $10.2
million for the fiscal year ended March 31, 2000, and an increase in the average
yield on these assets 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 compared to the
fiscal year ended March 31, 1999, 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 average yield on investment securities increased
to 6.86% for the fiscal year ended March 31, 2000, 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 increased our liquidity 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.
36
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 average 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 resulted from a
decrease in the average balance of borrowings 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 for the fiscal year ended March 31, 2000, as a result of an increase in
average deposits outstanding to $252.3 million in fiscal year 2000 from $222.6
million for fiscal year 1999, which was partially offset by a decrease in the
average cost of deposits to 4.57% in fiscal year 2000 from 4.72% in fiscal year
1999.
Interest expense on borrowings for the fiscal year ended March 31,
2000, decreased $187,000, or 27.9%, to $484,000. The decrease resulted from a
decrease in the average balance of borrowings 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 decreased $288,000, or 3.3%,
to $8.4 million for the fiscal year ended March 31, 2001 from $8.7 million for
the fiscal year ended March 31, 2000, as our average interest rate spread
decreased to 2.57% in fiscal year 2001 from 2.88% in fiscal year 2000. This
decrease in interest rate spread 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 increased by $578,000, or 7.1%, to $8.7 million for
fiscal year 2000, compared to $8.1 million for fiscal year 1999, notwithstanding
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. We recorded provisions for losses on
loans totaling $96,000, $120,000, and $64,000 for the fiscal years ended March
31, 2001, 2000, and 1999, respectively. To the best of our knowledge, all known
losses as of March 31, 2001, 2000, and 1999 have been recorded.
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 from $742,000 for fiscal year 2000.
The increase resulted partly from 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, in part due to a new deposit account fee structure implemented
in July 2000. Deposit fee income increased by $91,000.
Other income decreased $249,000, or 25.1%, to $742,000 for fiscal year
2000 from $1.0 million in fiscal year 1999. 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 decreased $281,000, or 3.8%, to $7.1 million for the fiscal year
ended March 31, 2001, compared to fiscal year 2000. The decrease resulted
primarily from a $146,000, or 69.9%, decrease in federal deposit insurance
premiums, a $183,000, or 13.1%, decrease in occupancy and equipment expense and
a $142,000, or 44.7%, decrease in Ohio
37
franchise taxes, which were partially offset by a $195,000, or 5.1%, increase in
employee compensation and benefits. 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. 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
expense reflected management's cost-saving decision not to replace data
processing assets at the end of the original estimated five year service life.
The retention of data processing equipment for an extended 21-month period
resulted in a $69,000 reduction in depreciation expense over the amount of
scheduled depreciation for fiscal 2001. Additionally, depreciation expense
reflected a $104,000 reduction due to assets becoming fully depreciated during
fiscal 2000. We are presently evaluating replacing our data processing equipment
in 2002 at an approximate cost of $500,000, which would be depreciated over a
seven-year period.
General, administrative and other expense increased $867,000, or 13.2%,
to $7.4 million for the fiscal year ended March 31, 2000, compared to the fiscal
year ended March 31, 1999. The increase was due primarily to a $509,000, or
15.4%, increase in employee compensation, a $283,000, or 25.5%, increase in
occupancy and equipment expense and a $184,000, or 12.4%, increase in other
operating expense, the effects of which were partially offset by a $99,000, or
90.0%, decrease in loss on disposal of real estate acquired through foreclosure.
These increases resulted primarily from increased operating costs^ associated
with opening two new branch offices in fiscal year 2000.
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 fiscal year 2000. 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. The average balances have been derived using daily average balances. Such
yields and costs are derived by dividing income or expense by the average
balance of assets or liabilities, respectively, for the periods presented.
38
SIX MONTHS ENDED SEPTEMBER 30,
2001 2000
-------------------------------------- -----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
------------- ---------- --------- ------------ ---------- ---------
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
Loans receivable, net(1)............ $ 251,833 $ 9,591 7.62% $ 239,817 $ 9,245 7.71%
Mortgage-backed securities(2)....... 7,697 249 6.47 10,387 312 6.01
Investment securities............... 13,126 407 6.20 20,184 757 7.50
Interest-bearing deposits(3)........ 26,604 502 3.77 13,636 381 5.59
------------- ---------- --------- ------------ --------- --------
Total interest-earning assets....... 299,260 10,749 7.18 284,024 10,695 7.53
Non-interest-earning assets......... 16,204 16,030
------------- ------------
Total assets........................ $ 315,464 $ 300,054
============= =============
INTEREST-BEARING LIABILITIES:
Deposits............................ $ 280,759 $ 6,396 4.56 $ 257,223 $ 6,168 4.80
Borrowings.......................... 6,000 160 5.33 8,538 241 5.65
------------- ---------- --------- ------------ --------- --------
Total interest-bearing liabilities.. 286,759 6,556 4.57 265,761 6,409 4.82
Non-interest-bearing liabilities.... 3,284 9,070
------------- ------------
Total liabilities................... 290,043 274,831
Stockholders' equity................ 25,421 25,223
------------- ------------
Total liabilities and stockholders'
equity........................... $ 315,464 $ 300,054
============= ============
Net interest income................. $ 4,193 $ 4,286
========== =========
Interest rate spread(4).............
2.61% 2.71%
Net yield on interest-earning
assets(5)........................ 2.80% 3.02%
Ratio of average interest-earning
assets to average interest-bearing
liabilities...................... 103.18% 106.87%
- -------------------------------------------------------------------------------
(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.
39
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.
40
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
^(changes in rate multiplied by old average volume). Changes in rate-volume
(changes in rate multiplied by the ^ changes in average volume) has been
allocated proportionately between changes in rate and changes in volume, and the
net change.
SIX MONTHS ENDED SEPTEMBER 30,
--------------------------------------
2001 VS. 2000
--------------------------------------
INCREASE (DECREASE)
DUE TO TOTAL
------------------------- INCREASE
VOLUME RATE (DECREASE)
------------ ------------ ------------
Interest income attributable
to:
Loans receivable............. $ 456 $ (110) $ 346
Mortgage-backed securities... (88) 25 (63)
Other interest-earning assets 176 (405) (229)
---------- ----------- -----------
Total interest-earning assets 544 (490) 54
Interest expense
attributable to:
Deposits..................... 547 (319) 228
Borrowings................... (91) 10 (81)
---------- ----------- -----------
Total interest-bearing
liabilities.................. 456 (309) 147
---------- ----------- -----------
Increase (decrease) in net
interest income............. $ 88 $ (181) $ (93)
---------- ----------- -----------
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------
2001 VS. 2000 2000 VS. 1999
-------------------------------------- -------------------------------------
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............. $ 1,210 $ (444) $ 766 $ 1,625 $ (734) $ 891
Mortgage-backed securities... (24) 5 (19) 176 21 197
Other interest-earning assets (245) 296 51 134 183 317
---------- ----------- ----------- ----------- ---------- -----------
Total interest-earning assets 941 (143) 798 1,935 (530) 1,405
Interest expense
attributable to:
Deposits..................... 352 770 1,122 1,358 (344) 1,014
Borrowings................... (41) 5 (36) (173) (14) (187)
---------- ----------- ----------- ----------- ---------- -----------
Total interest-bearing
liabilities.................. 311 775 1,086 1,185 (358) 827
---------- ----------- ----------- ----------- ---------- -----------
Increase (decrease) in net
interest income............. $ 630 $ (918) $ (288) $ 750 $ (172) $ 578
---------- ----------- ----------- ----------- ---------- -----------
41
ASSET AND LIABILITY MANAGEMENT-INTEREST RATE SENSITIVITY ANALYSIS
Like other financial institutions, we are subject to interest rate risk
to the extent that our interest-earning assets reprice or mature 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 September 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 SEPTEMBER 30, 2001
- ---------------------------------------------------------------------------------------------------------------------
NPV AS % OF PV
--------------
CHANGE IN INTEREST NET PORTFOLIO VALUE OF ASSETS
- ------------------------------------- ---------------------------------------------- ---------
RATES (BASIS POINTS) $ AMOUNT $ CHANGE % CHANGE NPV RATIO CHANGE
- ------------------------------------- --------------- --------------- -------------- ------------- ---------------
(IN THOUSANDS)
+300 bp $ 22,962 $ (19,019) (45)% 7.13% (504 bp)
+200 bp 29,256 (12,726) (30) 8.88 (329 bp)
+100 bp 35,847 (6,134) (15) 10.62 (155 bp)
0 bp 41,981 -- -- 12.17 --
-100 bp 44,770 2,789 7 12.82 65 bp
-200 bp 45,182 3,201 8 12.87 70 bp
-300 bp 46,323 4,342 10 13.12 95 bp
AS OF MARCH 31, 2001
- ---------------------------------------------------------------------------------------------------------------------
NPV AS % OF PV
--------------
CHANGE IN INTEREST NET PORTFOLIO VALUE 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 differently 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 six months ended September 30, 2001 and the fiscal year
ended March 31, 2001. During the six months ended
42
September 30, 2001 and the fiscal year ended March 31, 2001, $12.3 million and
$9.2 million, respectively, of long-term fixed rate loans were sold as part of
our strategy to reduce interest rate risk. We have tried to lengthen the
maturities of our deposits by promoting longer-term certificates; however, we
have not been successful in lengthening the maturities of our deposits in the
generally low interest rate environment that has existed during the six months
ended September 30, 2001 and the fiscal year ended March 31, 2001.
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 the six months
ended September 30, 2001 and for each of the last three fiscal 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, in order
to operate in a safe and sound manner. Liquidity is calculated as a percentage
of deposits and short-term borrowings. 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, maturing 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 $30.9 million,
$20.9 million, $14.3 million and $16.2 million at September 30, 2001 and at
March 31, 2001, 2000 and 1999, 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 ^ September 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 September 30, 2001, we had $6.0 million of commitments 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 $149.3 million at September 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
the effects of inflation generally. Interest rates do not necessarily move in
the same direction or to the same extent as changes in the price of goods and
services.
43
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. 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 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.
44
WAYNE SAVINGS COMMUNITY BANK
Wayne Savings Community Bank is an Ohio-chartered community bank
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
Wayne Savings Community Bank is an Ohio-chartered community bank
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 offers a broad range of financial products
and services to its local community. The bank's primary lending and deposit
- -taking 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 mortgage 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 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 owns 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 financial institution that
offers a broad range of financial products and services to its local community.
Its primary lending and deposit -taking 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 mortgage 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 the excellence
of its educational institutions. The College of Wooster was founded in 1866.
Other educational centers include 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
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
45
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, has 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 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 try 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 maturities of five years or less. At
September 30, 2001, approximately $32.9 million, or 12.2%, of our total loans
and mortgage-backed and investment securities, due or repricing after September
30, 2002, consisted of loans or securities with adjustable interest rates.
46
We actively 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 our portfolio, we have
increased the number of loans we sell in the secondary market in the current low
market interest rate environment. We retain the 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 SEPTEMBER 30, --------------------------------------------------------
2001 2001 2000
--------------------------- --------------------------- ---------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
------------ -------------- ------------ -------------- ------------ --------------
(DOLLARS IN THOUSANDS)
Mortgage loans:
One- to four-family
residential(1)............ $ 219,637 83.78% $ 215,464 85.00% $ 211,222 86.72%
Residential construction
loans..................... 10,205 3.89 7,078 2.79 4,035 1.66
Multi-family residential... 8,436 3.22 9,039 3.56 8,028 3.30
Non-residential real
estate/land(2)............ 10,342 3.94 7,525 2.97 6,068 2.49
------------ ----------- ---------- ----------- ---------- ----------
Total mortgage loans...... 248,620 94.83 239,106 94.32 229,353 94.17
Other loans:
Consumer loans(4)......... 8,492 3.24 9,630 3.80 9,041 3.71
Commercial business loans. 5,059 1.93 4,765 1.88 5,168 2.12
------------ ----------- ---------- ----------- ---------- ----------
Total other loans......... 13,551 5.17 14,395 5.68 14,209 5.83
------------ ----------- ---------- ----------- ---------- ----------
Total loans before net
items..................... 262,171 100.00% 253,501 100.00% 243,562 100.00%
=========== =========== ==========
Less:
Loans in process.......... 5,981 4,764 4,136
Deferred loan origination
fees...................... 1,440 1,463 1,538
Allowance for loan losses. 743 655 793
------------ ---------- ----------
Total loans
receivable, net........ $ 254,007 $ 246,619 $ 237,095
============ ========== ==========
Mortgage-backed
securities, net(3)........ $ 7,875 $ 8,613 $ 10,496
============ ========== ==========
AT MARCH 31,
----------------------------
1999
---------------------------
AMOUNT PERCENTAGE
------------ --------------
Mortgage loans:
One- to four-family
residential(1)............ $ 187,638 84.82%
Residential construction
loans..................... 7,668 3.47
Multi-family residential... 7,086 3.20
Non-residential real
estate/land(2)............ 5,610 2.53
---------- ---------
Total mortgage loans...... 208,002 94.02
Other loans:
Consumer loans(4)......... 5 3.80
Commercial business loans. 4,810 2.18
---------- ---------
Total other loans......... 13,225 5.98
---------- ---------
Total loans before net
items..................... 221,227 100.00%
=========
Less:
Loans in process.......... 4,600
Deferred loan origination
fees...................... 1,855
Allowance for loan losses. 678
----------
Total loans
receivable, net........$ 214,094
----------
Mortgage-backed
securities, net(3)........$ 7,230
----------
- -------------------------
(1) Includes home equity loans collateralized by second mortgages in the
aggregate amount of $18.8 million as of September 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 $901,000 as of September 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 were $3.4 million at September 30, 2001, and $2.9 million, $3.5
million, and $6.4 million at March 31, 2001, 2000, and 1999,
respectively.
(4) Includes second mortgage loans of $1.5 million as of
September 30, 2001, and $1.8 million, $1.6 million and $1.7 million as
of March 31, 2001, 2000 and 1999.
47
LOAN AND MORTGAGE-BACKED SECURITIES MATURITY AND REPRICING SCHEDULE.
The following table sets forth certain information as of September 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(2):
Adjustable............................... $ 30,483 $ 18,950 $ -- $ -- $ --
Fixed.................................... 288 769 1,017 16,057 62,877
Construction(2):
Adjustable............................... 407 553 -- -- --
Fixed.................................... 220 230 35 -- 310
Multi-family residential and nonresidential:
Adjustable............................... 7,527 5,152 1,419 3,240 --
Fixed.................................... -- 1,322 118 -- --
Other Loans:
Consumer loans........................... 3,150 1,577 2,181 1,584 --
Commercial business loans................ 3,860 24 66 890 --
----------- ------------- ------------ ----------- --------------
Total loans(2)............................... $ 45,935 $ 28,577 $ 4,836 $ 21,771 $ 63,187
----------- ------------- ------------ ----------- --------------
Mortgage-backed securities(3)................ $ 2,027 $ 2,101 $ 765 $ 1,690 $ 116
=========== ============= ============ ============ ==============
BEYOND
TWENTY
YEARS TOTAL
------------ ------------
Mortgage loans(1):
One- to four-family residential(2):
Adjustable............................... $ -- $ 49,433
Fixed.................................... 89,196 170,204
Construction(2):
Adjustable............................... -- 960
Fixed.................................... 2,469 3,264
Multi-family residential and nonresidential:
Adjustable............................... -- 17,338
Fixed.................................... -- 1,440
Other Loans: --
Consumer loans........................... -- 8,492
Commercial business loans................ 219 5,059
------------ ------------
Total loans(2)............................... $ 91,884 $ 256,190
------------ ------------
Mortgage-backed securities(3)................ $ 987 $ 7,686
------------ ------------
- -----------------------------
(1) Does not include loans held for sale.
(2) Amounts shown are net of loans in process of $6.0 million.
(3) Includes mortgage-backed securities available for sale. Does not include
premiums of $121,000, discounts of $22,000 and unrealized gains of $90,000.
48
The following table sets forth at September 30, 2001 the dollar amount
of all fixed rate and adjustable rate loans and mortgage-backed securities
maturing or repricing after September 30, 2002.
FIXED ADJUSTABLE
----------- ------------
(IN THOUSANDS)
Mortgage loans: (1)
One- to four-family residential............. $ 169,916 $ 18,950
Construction................................ 3,044 553
Multi-family residential and non-residential 1,440 9,811
Consumer.................................... 5,342 --
Commercial business......................... 7 1,192
========== =========
Total loans.............................. $ 179,749 $ 30,506
========== =========
Mortgage-backed securities(2)................ $ 3,302 $ 2,357
========== =========
- ----------------------------
(1) Excludes loans held for sale.
(2) Includes mortgage-backed securities available for sale, which totaled $3.4
million as of September 30, 2001.
ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LOANS. Our primary lending
activity consists of originating 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
located outside of our market area. At September 30, 2001, $219.6 million, or
83.8% of our total loan portfolio, was invested in one- to four-family
residential mortgage loans.
Our fixed rate loans generally are originated and underwritten
according to standards that permit their resale in the secondary mortgage
market. Whether we can or will sell fixed rate loans in 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 mortgage
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
$12.3 million, $9.2 million, $6.4 million and $15.9 million for the six months
ended September 30, 2001 and for the fiscal years ended March 31, 2001, 2000 and
1999, respectively. Mortgage loans held for sale at September 30, 2001, March
31, 2001, 2000 and 1999 totaled $4.1 million, $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 types of ARM loans. Our "Treasury" ARM loan adjusts
annually with interest rate adjustment limitations of 2% per year and with a cap
of 5% on total interest 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. Our "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 for 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 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 $49.4 million, or 18.9%, of our total loan
portfolio at September 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 offered by long-term, fixed rate loans. ARM loans carry
increased credit risk
49
associated with potentially higher monthly payments by borrowers if 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 home 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%. Our home equity loan portfolio consists of
adjustable rate loans, which use the Ohio Average Cost of Funds for SAIF-Insured
Savings Associations 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 September 30, 2001,
our home equity loan portfolio totaled $18.8 million, or 8.4% 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 the loan is originated. 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 used 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 totaled $8.4 million, or 3.2% of our total loan
portfolio, at September 30, 2001. Our multi-family real estate loans are secured
by multi-family residences, such as apartment buildings. At September 30, 2001,
79.5% of our multi-family loans were secured by properties located within our
market area. At September 30, 2001, our multi-family real estate loans had an
average balance of $221,000, 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 typically depends 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.
NON-RESIDENTIAL REAL ESTATE AND LAND LOANS. Loans secured by
non-residential real estate totaled $10.3 million, or 3.9% of our total loan
portfolio, at September 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 September 30, 2001, 92.9% of our
non-residential real estate loans were secured by properties located within our
market area. At September 30, 2001, our non-residential loans had an average
balance of $197,000, and the largest non-residential real estate loan had a
principal balance of $2.1 million and was current at September 30, 2001. The
terms of each non-residential
50
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. Our non-residential real estate loans
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 typically depends 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 $901,000 at September 30, 2001.
RESIDENTIAL CONSTRUCTION LOANS. To a lesser extent, we originate loans
to finance the construction of one- to four-family residential property. At
September 30, 2001, we had $10.2 million, or 3.9% 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 $5.1 million, or
1.9% of our total loan portfolio at September 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 a borrower's default. Although commercial business loans may be
collateralized by equipment or other business assets, the liquidation of
collateral in the event of a borrower's default is often an insufficient source
of repayment because, among other things, equipment and other business assets
may be obsolete or of limited use. 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. Consumer loans totaled $8.5 million, or 3.2% of our
total loan portfolio, at September 30, 2001. The principal types of consumer
loans that we offer 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 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 September 30, 2001, second mortgage
loans totaled $1.5 million, or 17.6% of consumer loans. As of September 30,
2001, outstanding credit card balances totaled $855,000, with aggregate
commitments of $5.4 million.
The underwriting standards that we use 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
51
primary employment, and additionally from any verifiable secondary income.
Creditworthiness of the applicant is a 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 regularly add a general provision 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 $7.9 million at
September 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 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 may 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 loan approvals are 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 September 30, 2001, we had commitments to
originate $6.0 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.
Although in the past we have purchased loans originated by other
lenders, we have not purchased any such loans in at least five years. At
September 30, 2001, 34 loans in our portfolio (totaling $883,000 at September
30, 2001) were purchased from other lenders, and the majority of such loans were
collateralized by properties located in Ohio.
52
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 SIX MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED MARCH 31,
--------------------------- ---------------------------------------
2001 2000 2001 2000 1999
------------- ------------- ------------- ----------- -----------
(IN THOUSANDS)
Total loans receivable, net at beginning of $ 246,619 $ 237,095 $ 237,095 $ 214,094 $ 206,685
period.........................................
Loans originated:
One to four family residential(1)(3).......... 56,600 18,753 60,192 52,485 59,578
Multi-family residential(2)................... 120 538 2,803 549 1,930
Non-residential real estate/land.............. 3,055 2,704 4,255 223 179
Consumer loans................................ 1,186 3,458 6,854 7,498 6,498
Commercial business loans..................... 241 299 1,611 4,194 3,681
--------- ---------- --------- --------- ---------
Total loans originated..................... 61,202 25,752 75,715 64,949 71,866
Loans sold:
Whole loans................................... (12,280) (4,109) (9,185) (6,425) (15,860)
--------- ---------- --------- --------- ---------
Total loans sold.............................. (12,280) (4,109) (9,185) (6,425) (15,860)
Mortgage loans transferred to REO.............. -- -- (98) (64) (58)
Loan repayment schedule........................ (38,513) (16,329) (56,478) (37,106) (48,814)
Other loan activity, net....................... (3,021) (262) (430) 1,647 275
--------- ---------- --------- --------- ---------
Total loans receivable, net at end of period $ 254,007 $ 242,147 $ 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........... 2,033 1,000 2,025 8,030 6,576
Principal repayments and other activities...... (2,771) (2,068) (3,908) (4,764) (3,621)
--------- ---------- --------- --------- ---------
Mortgage-backed securities at end of period $ 7,875 $ 9,428 $ 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 $18.5 million in refinanced loans for the six months ended
September 30, 2001 and $3.3 million for the period ended September 30,
2000. The increase in refinancing was primarily a result of decreasing
market interest rates in calendar year 2001.
LOAN ORIGINATION FEES AND OTHER INCOME. In addition to interest earned
on loans, we generally charge and receive fees for originating loans. 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 September 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 $586,000, $891,000, $720,000 and $682,000, for the six months ended
September 30, 2001, and for fiscal years ended March 31, 2001, 2000 and 1999,
respectively.
LOANS TO ONE BORROWER. Savings banks 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 and unimpaired surplus if the loan is secured by readily
marketable collateral (generally, financial instruments and bullion, but not
real estate). At September 30, 2001, our largest borrower had an aggregate
principal outstanding
53
balance of $2.5 million consisting primarily of commercial real estate loans.
The loans were current at September 30, 2001. We had no loans at September 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, unless the
loan is in a "work out" situation, monitored by the bank.
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 September 30, 2001, we had non-performing assets of $2.9 million and
a ratio of non-performing assets to total assets of 0.89%. At March 31, 2001 and
2000, we had non-performing assets of $639,000 and $290,000, respectively. The
increase in nonperforming loans as of September 30, 2001 was attributable
primarily to a $1.9 million commercial business and real estate loan
concentration to a land developer and a loan secured by an office and retail
building, described below. The loan concentration consists of four loans that
are cross-collateralized by non-residential and residential real estate. One
loan totaling $475,000 was originated in October 1996, two loans totaling $1.4
million were originated in November 1999, and one totaling $49,000 was
originated in October 2000. In September 2001, we ceased accruing interest on
these loans. The developer has contracted to sell a commercial land parcel,
which is part of the loan collateral, to an independent third party. If the sale
is completed, the borrower is expected to pay $340,000 to Wayne Savings
Community Bank, which would reduce the loan principal by a like amount and bring
current all past due interest and principal payments on the four loans. The
amount of proceeds expected from the pending sale would indicate a current value
for the remaining collateral of more than $3.0 million. As of the date hereof,
the sale had not closed. There is no specific allowance for loan losses on this
loan concentration. Although in the opinion of management these loans are
adequately collateralized and no loss on them is anticipated, we cannot assure
you that the pending sale will actually close, that the net proceeds from the
sale will be $340,000, or that the value of the remaining collateral is more
than $3.0 million.
Real estate acquired by us as a result of foreclosure or by deed in
lieu of foreclosure is deemed REO until the real estate 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.
54
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 restructed loans within the
meaning of SFAS 15.
AT MARCH 31,
--------------------------------------
AT
SEPTEMBER
30, 2001 2001 2000 1999
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Non-accrual loans:
Mortgage loans:
One- to four-family loans............................. $ 480 $ 443 $ 170 $ 224
All other mortgage loans.............................. 956 -- -- --
Non-mortgage loans:
Commercial business................................... 1,416 -- -- --
Consumer.............................................. 77 72 30 12
--------- ------- -------- --------
Total non-accrual loans.................................. 2,929 515 200 236
Accruing loans 90 days or more delinquent................. 1 -- -- 44
--------- ------- -------- --------
Total non-performing loans............................... 2,930 515 200 280
Total real estate owned (1).............................. 19 124 90 41
--------- ------- -------- --------
Total non-performing assets.............................. $ 2,949 $ 639 $ 290 $ 321
========= ======= ======== ========
Total non-performing loans to net loans receivable....... 1.14% 0.21% 0.08% 0.13%
Total non-performing loans to total assets............... 0.90% 0.17% 0.07% 0.10%
Total non-performing assets to total assets.............. 0.90% 0.20% 0.10% 0.12%
- --------------------------------
(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 six months ended September 30, 2001 and the fiscal year
ended March 31, 2001, gross interest income of $166,000 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 -----------------------------------
SEPTEMBER 30,
2001 2001 2000 1999
------------- ----------- --------- ---------
(IN THOUSANDS)
Loans past due 60-89 days............................. $ 797 $ 2,536 $ 1,539 $ 1,710
Loans past due 90 days or more........................ 2,930 515 200 280
--------- -------- --------- ---------
Total past due 60 days or more................... $ 3,727 $ 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
55
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 ----------------------------------------
SEPTEMBER
30, 2001 2001 2000 1999
----------- ----------- ------------- ------------
(IN THOUSANDS)
Substandard assets(1)................................ $ 541 $ 569 $ 290 $ 206
Doubtful assets...................................... -- -- -- --
Loss assets.......................................... -- -- -- 8
-------- --------- --------- ---------
Total classified assets........................... $ 541 $ 569 $ 290 $ 214
======== ========= ========= =========
- -----------------------------
(1) Includes REO.
At September 30, 2001, classified assets consisted primarily of
$519,000 of nonresidential real estate which related to a first mortgage loan
secured by an office and retail building. This loan is in foreclosure, and
management has classified this loan as impaired at September 30, 2001 and
allocated $105,000 of the loss allowance to this impairment. At March 31, 2001,
classified assets consisted of $566,000 of residential one-to-four family loans
and $3,000 of consumer loans. All classified assets at March 31, 2000 were loans
secured by one-to-four residential real estate. At March 31, 1999, $194,000 of
the substandard assets consisted of residential real estate loans while $12,000
was consumer loans. At September 30, 2001, March 31, 2001, and March 31, 1999,
all loans classified as substandard were also either nonaccrual loans or real
estate owned.
ALLOWANCE FOR LOAN LOSSES. We record a provision for losses on loans in
an amount sufficient to cover all known losses in the portfolio and losses that
are both probable and reasonable to estimate. Such estimates are based on the
facts and circumstances in existence as of the date of the financial statements.
Based upon this methodology, during the six months ended September 30, 2001 and
the fiscal years ended March 31, 2001, 2000 and 1999, we added $97,000, $96,000,
$120,000 and $64,000, respectively, to our provision for loan losses. Our
allowance for loan losses totaled $743,000, $655,000, $793,000 and $678,000, at
September 30, 2001, and at March 31, 2001, 2000 and 1999, respectively. To the
best of our knowledge, all known losses as of September 30, 2001 and March 31,
2001, 2000, and 1999, have been recorded.
56
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
SIX MONTHS ENDED
SEPTEMBER 30, AT OR FOR THE YEAR ENDED MARCH 31,
--------------------------- -----------------------------------------
2001 2000 2001 2000 1999
------------ ------------ ------------- ------------- -----------
(IN THOUSANDS)
Loans receivable, net.................... $ 254,007 $ 242,147 $ 246,619 $ 237,095 $ 214,094
========== ========== =========== ========= =========
Average loans receivable, net............ 250,313 239,621 245,624 229,845 209,178
========== ========== =========== ========= =========
Allowance balance (at beginning of period) 655 793 793 678 721
Provision for losses:
Mortgage.............................. -- -- -- -- --
Non-mortgage.......................... -- -- -- -- --
General............................... 97 73 96 120 64
Charge-offs:
Mortgage loans:
^ One-to-four family................ -- -- (7) -- (8)
Residential construction............ -- -- -- (21) --
Multi-family residential............ -- -- -- -- --
Non-residential real estate and land -- -- -- -- --
Other loans:
Consumer............................ (11) -- (61) (12) --
Commercial.......................... -- -- (172) -- (107)
---------- ---------- ----------- --------- ---------
Gross charge-offs............... (11) -- (240) (33) (115)
---------- ---------- ----------- --------- ---------
Recoveries:
Mortgage loans:
One-to-four family.................. -- -- -- -- 8
Residential construction............ -- -- -- -- --
Multi-family residential............ -- -- -- 6 --
Non-residential real estate and land -- -- -- -- --
Other loans: --
Consumer............................ 2 -- 6 22 --
Commercial.......................... -- -- -- -- --
---------- ---------- ----------- --------- ---------
Gross recoveries................ 2 -- 6 28 8
---------- ---------- ----------- --------- ---------
Net (charge-offs)/recoveries.... (9) -- (234) (5) (107)
---------- ---------- ----------- --------- ---------
Allowance balance (at end of period)..... $ 743 $ 866 $ 655 $ 793 $ 678
========== ========== =========== ========= =========
Allowance for loan losses as a percent of
loans receivable, net at end of period... 0.28% 0.36% 0.27% 0.33% 0.32%
Net loans charged off as a percent of
average loans receivable, net............ 0.30% 0.36% 0.10% --% 0.05%
Ratio of allowance for loan losses to
total non-performing assets at end of
period................................... 25.2% 252.48% 102.50% 237.45% 211.21%
Ratio of allowance for loan losses to
non-performing loans at end of period.... 25.4% 342.29% 127.18% 396.50% 242.14%
- -----------------
(1) The fiscal 2001 charge-offs include a $172,000 charge-off related to an
impaired loan. This loan was current at September 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 SEPTEMBER 30,
--------------------------------------------------
2001 2000
----------------------- -------------------------
% OF % OF
LOANS IN LOANS IN
EACH EACH
CATEGORY CATEGORY
TO TO
TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS
---------- ----------- ---------- -------------
Mortgage loans:
One- to four-family........... $ 274 83.8% $ 399 84.2%
Residential construction...... -- 3.9 -- 3.3
Multi-family residential...... 9 3.2 9 3.7
Non-residential real estate
and land ..................... 114 3.9 -- 2.9
Other loans:
Consumer...................... 23 3.2 32 4.0
Commercial.................... 323 2.0 426 1.9
-------- -------- ------- --------
Total allowance for loan losses. $ 743 100.0% $ 866 100.0%
======== ======== ======= ========
AT MARCH 31,
-------------------------------------------------------------------------
2001 2000 1999
------------------------- ------------------------ ----------------------
% OF % OF % OF
LOANS IN LOANS IN LOANS IN
EACH EACH EACH
CATEGORY CATEGORY CATEGORY
TO TO TO
TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
---------- -------------- --------- ------------- ---------- ------------
(DOLLARS IN THOUSANDS)
Mortgage loans:
One- to four-family........... $ 551 85.0% $ 414 86.7% $ 370 84.8%
Residential construction...... 23 2.8 9 1.7 16 3.5
Multi-family residential...... 24 3.6 37 3.3 38 3.2
Non-residential real estate
and land .....................
Other loans: 20 3.0 -- 2.5 2 2.5
Consumer...................... 6 3.8 52 3.7 45 3.8
Commercial.................... 31 1.9 281 2.1 207 2.2
------- ------ ------- --------- -------- ---------
Total allowance for loan losses. $ 655 100.0% $ 793 100.0% $ 678 100.0%
======= ====== ======= ========= ======== =========
58
INVESTMENT ACTIVITIES
Our investment portfolio consists of investment securities and
certificates of deposit in other financial institutions. The carrying value of
our investment securities was $14.1 million at September 30, 2001, compared to
$13.6 million at March 31, 2001 and $23.2 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 $30.9 million at
September 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 yields available in relation to other investment opportunities
and its expectation of what yields may be available in the future, as well as
management's projections as to the short term demand for funds to be used in our
lending 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 SEPTEMBER 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.............. $ 3,996 $ 4,108 $ 3,994 $ 4,061 $ 2,987 $ 2,951 $ -- $ --
U.S. Government and agency securities.. 9,977 10,141 9,501 9,567 20,057 19,528 11,666 11,588
Obligations of state and political
subdivisions........................... 141 154 146 146 155 155 164 164
-------- -------- --------- -------- --------- -------- --------- --------
Total investment securities............ 14,114 14,403 13,641 13,774 23,199 22,634 11,830 11,752
Other Investments:
Interest-bearing deposits in other
financial institutions................. 22,382 22,382 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........... 3,676 3,676 3,510 3,510 3,160 3,160 2,919 2,919
-------- -------- --------- -------- --------- -------- --------- --------
Total investments...................... $ 46,172 $ 46,461 $ 36,042 $ 36,175 $ 38,166 $ 37,601 $ 26,454 $ 29,376
======== ======== ========= ======== ========= ======== ========= ========
59
INVESTMENT PORTFOLIO MATURITIES. The following table sets forth the
scheduled maturities, carrying values, market values and average yields for our
investment securities at September 30, 2001. We do not hold any investment
securities with maturities in excess of 25 years.
AT SEPTEMBER 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............... $ 1,000 6.56% $ 2,996 6.47% $ -- --%
U.S. Government and agency.............. 2,498 6.23 5,526 5.24 -- --
Obligations of state and political
subdivisions............................ -- -- -- -- -- --
-------- -------- --------- -------- -------- ---------
Total investment securities........... $ 3,498 6.32% $ 8,522 5.67% $ -- --%
======== ========= ========
AT SEPTEMBER 30, 2001
----------------------------
MORE THAN TEN YEARS
---------------------------
CARRYING AVERAGE
VALUE YIELD
------------- -------------
Investment Securities:
Corporate bonds and notes............... $ -- --%
U.S. Government and agency.............. 1,954 6.29
Obligations of state and political
subdivisions............................ 141 5.50
--------- --------
Total investment securities........... $ 2,095 6.24%
=========
AT SEPTEMBER 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................ 0.94 $ 3,996 $ 4,108 6.48%
U.S. Government and agency obligations... 6.00 9,977 10,141 5.70
Obligations of state and political
subdivisions............................. 10.75 141 154 5.50
--------- -------- --------
Total investment securities............ $ 14,114 $ 14,403 5.92%
========= ========
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 September 30, 2001.
DEPOSITS. We generate consumer and commercial deposits principally from
our market area by offering of a broad selection of deposit instruments,
including NOW accounts, passbook savings, money market deposits and term
certificate accounts, including individual retirement accounts. We accept
deposits of $100,000 or more and we may 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 we
consider it appropriate. We do not obtain funds through brokers, nor do we
solicit funds outside our market area.
DEPOSIT PORTFOLIO. Our savings and other deposits consisted of the
following at September 30, 2001:
WEIGHTED AVERAGE CHECKING AND SAVINGS MINIMUM PERCENTAGE OF
INTEREST RATE MINIMUM TERM DEPOSITS AMOUNT BALANCES TOTAL DEPOSITS
- ---------------------- ------------------ ------------------------ ---------- ---------------- ----------------
(IN THOUSANDS)
1.49% None NOW accounts $ -- $ 37,059 12.67%
2.70 None Passbook/Statement savings -- 63,172 21.61
2.87 None Money market investor 2,500 10,682 3.65
CERTIFICATES OF DEPOSIT
-----------------------
4.20 12 months or less Fixed term, fixed rate 500 39,142 13.39
5.78 12 to 24 months Fixed term, fixed rate 500 85,881 29.37
4.96 25 to 36 months Fixed term, fixed rate 500 7,315 2.50
5.31 36 months or more Fixed term, fixed rate 500 8,944 3.06
5.94 Negotiable Jumbo certificates 100,000 40,201 13.75
------------ ----------
$ 292,396 100.00%
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
SEPTEMBER % OF INCREASE MARCH 31, % OF INCREASE MARCH 31, % OF
30, 2001 DEPOSITS (DECREASE) 2001 DEPOSITS (DECREASE) 2000 DEPOSITS
------------ ---------- ---------- ---------- -------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
NOW accounts..................... $ 37,059 12.67% $ 3,417 $ 33,642 12.11% $ 2,628 $ 31,014 11.71%
Passbook/Statement savings....... 63,172 21.61 8,598 54,574 19.65 1,500 53,074 20.03
Money market investor............ 10,682 3.65 1,777 8,905 3.21 (1,922) 10,827 4.09
Certificates of deposit(1)
Original maturities of:
12 months or less............ 39,142 13.39 13,648 25,494 9.18 (16,228) 41,722 15.74
12 to 24 months.............. 85,881 29.37 (15,224) 101,105 36.41 46,764 54,341 20.51
25 to 36 months.............. 7,315 2.50 (2,721) 10,036 3.61 (14,751) 24,787 9.36
36 months or more............ 8,944 3.06 2,769 6,175 2.22 (2,713) 8,888 3.35
Negotiated jumbo............. 40,201 13.75 2,426 37,775 13.61 (2,524) 40,299 15.21
Total........................ $ 292,396 100.00 % $ 14,690 $ 277,706 100.00% $ 12,754 $ 264,952 100.00%
BALANCE AT
INCREASE MARCH 31, % OF
(DECREASE) 1999 DEPOSITS
---------- ----------- ---------
NOW accounts..................... $ 6,135 $ 24,879 10.57%
Passbook/Statement savings....... 6,608 46,466 19.75
Money market investor............ (438) 11,265 4.79
Certificates of deposit(1)
Original maturities of:
12 months or less............ 3,909 37,813 16.07
12 to 24 months.............. 20,340 34,001 14.45
25 to 36 months.............. (13,909) 38,696 16.44
36 months or more............ (2,532) 11,420 4.85
Negotiated jumbo............. 9,512 30,787 13.08
Total........................ $ 29,625 $ 235,327 100.00%
- ------------------------------
(1) Individual Retirement Accounts ("IRAs") are included in the respective
certificate and savings balances. IRAs totaled $27.8 million in
certificates and $153,000 in savings account balances as of September 30,
2001.
62
The following table sets forth the average dollar amount of savings
deposits in the various types of savings accounts offered by us for the dates
indicated.
SIX MONTHS ENDED SEPTEMBER
30, 2001
------------------------------
PERCENT WEIGHTED
AVERAGE OF AVERAGE
BALANCE DEPOSITS RATE
--------- -------- --------
Noninterest-bearing
demand deposits..... $ 4,925 1.75% 0.00%
NOW accounts.......... 27,439 9.77 2.10
Passbook/Statement
savings............. 59,597 21.23 2.82
Money market investor. 9,897 3.53 3.14
Certificates of
deposit............... 178,901 63.72 5.56
--------- ------ -----
Total deposits.... $ 280,759 100.00% 4.41%
=========
YEARS ENDED MARCH 31,
----------------------------------------------------------------------------------------------------
2001 2000 1999
--------------------------------- --------------------------------- --------------------------------
PERCENT WEIGHTED PERCENT WEIGHTED PERCENT WEIGHTED
AVERAGE OF AVERAGE AVERAGE OF AVERAGE AVERAGE OF AVERAGE
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
----------- -------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Noninterest-bearing
demand deposits..... $ 5,684 2.19% 0.00% $ 4,652 1.84% 0.00% $ 4,477 2.01% 0.00%
NOW accounts.......... 25,527 9.82 1.73 23,912 9.48 2.08 16,062 7.21 2.11
Passbook/Statement
savings............. 45,800 17.62 3.16 45,790 18.15 3.13 40,927 18.38 3.10
Money market investor. 9,637 3.71 3.23 11,411 4.52 3.28 9,615 4.32 3.31
Certificates of
deposit............... 173,266 66.66 6.03 166,581 66.01 5.54 151,564 68.08 5.66
--------- ------ ---- --------- ------ ----- --------- ------ ----
Total deposits.... $ 259,914 100.00% 4.87% $ 252,346 100.00% 4.57% $ 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 AT MARCH 31,
SEPTEMBER -----------------------------------------
30, 2001 2001 2000 1999
----------- ------------ ------------- ------------
(DOLLARS IN THOUSANDS)
2.01-4.00%..................................... $ 22,243 $ -- $ -- $ --
4.01-6.00%..................................... 87,226 73,177 127,653 120,446
6.01-8.00%..................................... 72,014 107,408 42,382 29,486
8.01-10.00%.................................... -- -- 2 2,785
Total...................................... $ 181,483 $ 180,585 $ 170,037 $ 152,717
The following table sets forth the amount and maturities of our
certificates of deposit at September 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%..................................... $ 18,317 $ 3,680 $ 208 $ 38 $ 22,243
4.01-6.00%..................................... 70,188 10,469 4,259 2,310 87,226
6.01-8.00%..................................... 60,747 10,678 139 450 72,014
--------- -------- ------- ------- --------
Total...................................... $ 149,252 $ 24,827 $ 4,606 $ 2,798 $181,483
--------- -------- ------- ------- --------
The following table indicates the amount of our negotiable certificates
of deposit of $100,000 or more by time remaining until maturity as of September
30, 2001.
MATURITY PERIOD CERTIFICATES OF DEPOSIT
--------------- -----------------------
(IN THOUSANDS)
Three months or less.......................................... $ 12,218
Over three months through six months.......................... 7,661
Over six months through twelve months......................... 14,122
Over twelve months............................................ 6,200
---------
Total.................................................... $ 40,201
=========
BORROWINGS
Savings deposits are the primary source of funds for our lending and
investment activities and for our general business purposes. We may borrow 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. Borrowings or "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 September
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 banks and savings 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
SIX MONTHS ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
------------------ ------------------------------
2001 2000 2001 2000 1999
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
FEDERAL HOME LOAN BANK
ADVANCES:
Maximum month-end balance... $ 6,000 $ 10,000 $ 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 9,000 7,877 8,596 11,667
Weighted average interest rate on:
Balance at end of period. 5.21% 4.82% 5.54% 5.98% 5.68%
Average balance for
period................... 5.35% 5.36% 5.69% 5.63% 5.75%
PERSONNEL
As of September 30, 2001, we had 96 full-time and 32 part-time
employees. None of our employees is represented by a collective bargaining
group. We believe that we have good relations with our employees.
PROPERTY
We conduct our business through our main banking office located in
Wooster, Ohio, our eight 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 September 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.
EXPENSE ALLOCATION
Village Savings Bank has entered into, and Wayne Savings Bancshares,
Inc. will enter into, agreements with Wayne Savings Community Bank in which
Wayne Savings Community Bank will provide each entity with certain
administrative support services for compensation not less than the fair market
value of the services provided.
REGULATION
Wayne Savings Community Bank is chartered as an Ohio savings
association and its deposits are insured by the Savings Association Insurance
Fund. As a result, 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 bank insured by the Savings
Association Insurance Fund, Village Savings Bank 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
our 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. Our
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 our operations. The
description of the various statutes, regulations and policies applicable to
savings associations described below does not purport to be a complete
description of such statutes,
65
regulations and policies, and their effect on us, and we recommend that you
refer to such statutes, regulations and policies.
FEDERAL REGULATION OF SAVINGS BANKS
BUSINESS ACTIVITIES. The activities of state-chartered savings
associations and Federal savings banks are governed by the Home Owners' Loan
Act^ 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 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.
CAPITAL REQUIREMENTS. The Office of Thrift Supervision capital
regulations require savings associations 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
principal that are not permissible for a national bank.
The risk-based capital standards for savings associations 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 noncumulative 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 September 30, 2001, Wayne Savings Community Bank and Village Savings
Bank met each of the capital requirements.
LOANS TO ONE BORROWER. Savings associations generally may not make a
loan or extend credit to a single or related group of borrowers in excess of 15%
of the association's unimpaired capital and surplus on an unsecured basis. An
additional amount may be loaned, equal to 10% of the association's 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 September 30, 2001, Wayne Savings Community Bank and
Village Savings Bank were in compliance with the loans-to-one-borrower
limitation.
QUALIFIED THRIFT LENDER TEST. Each savings association must satisfy a
"qualified thrift lender" test whereby it 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 September 30, 2001, Wayne
Savings Community Bank and Village Savings Bank maintained 85.9% and 91.5%,
respectively, of their portfolio assets in qualified thrift investments and,
therefore, met the qualified thrift lender test.
66
LIMITATIONS ON CAPITAL DISTRIBUTIONS. Federal regulations impose
limitations upon all capital distributions by a savings association, such as
cash dividends, payments to repurchase shares and other distributions charged
against the association'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 file a notice with the Office of Thrift Supervision at
least 30 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 either institution that it is in need of more than
normal supervision, our ability to make capital distributions could be
restricted. In addition, the Office of Thrift Supervision may prohibit a
proposed capital distribution by any association which would otherwise be
permitted by regulation, if the Office of Thrift Supervision determines that the
distribution would constitute an unsafe or unsound practice.
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. The authority of Wayne Savings
Community Bank or Village Savings Bank 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.
The authority of Wayne Savings Community Bank and Village Savings Bank
to extend credit to executive officers, directors and 10% stockholders, as well
as entities controlled by these persons, is governed by Sections 22(g) and 22(h)
of the Federal Reserve Act, and also by Federal Reserve Board 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 their respective capital positions, and requires approval procedures to
be followed. At September 30, 2001 we were in compliance with these regulations.
67
ENFORCEMENT. The Office of Thrift Supervision has primary enforcement
responsibility over savings associations, and has the authority to bring
enforcement action against all "institution-related parties," including
stockholders, 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 Corporation is authorized to raise the assessment
rates. The Federal Deposit Insurance Corporation has exercised
68
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 September 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 September
30, 2001, Wayne Savings Community Bank and Village Savings Bank were in
compliance with these reserve requirements.
OHIO REGULATION
As a savings 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 worth of the association at the time the investment is made.
Additionally, an association may invest
69
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 grant an Ohio savings 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 ^
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 generally
was not 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
70
to the prior approval of the Office of Thrift Supervision, and certain
additional activities authorized by Office of Thrift Supervision regulations.
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 the 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
Statutes and regulations that affect Wayne Savings Community Bank,
Village Savings Bank and Wayne Savings Bancshares, Inc. on a daily basis are
subject to change, and the interpretation of the relevant laws 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^
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.
71
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.
Retained earnings as of September 30, 2001 include approximately $2.7
million for which no provision for federal income tax has been made. This
reserve (base year and supplemental) is not recaptured at this time but may be
recaptured in the future as certain events , such as stock redemption or
distributions to shareholders in excess of current or accumulated earnings and
profits, could trigger a recapture.
Wayne Savings Bancshares, Inc.'s tax returns have been audited or
closed without audit through fiscal year 1997.
OHIO TAXATION. Wayne Savings Bancshares, Inc. and its subsidiary file
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
The Board of Directors of Wayne Savings Bancshares, Inc. currently
consists of seven members. Approximately one-third of the directors are elected
annually. Directors are generally elected to serve for three year-periods .
The table below sets forth certain information regarding the
composition of the Board of Directors as of September 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, 1976 2002
President, 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.
72
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.
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.
MICHAEL C. ANDERSON is Executive Vice President, Chief Financial
Officer and joined Wayne Savings Community Bank in October 2001. He has most
recently been a member of senior management in the health care field responsible
for accounting and financial operations. Mr. Anderson was Senior Vice President,
Chief Financial Officer of Wayne Savings Community Bank between 1984-1986.
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 to
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.
73
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 the mutual
holding company reorganization and stock offering 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
SHARES ACQUIRED VALUE OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME UPON EXERCISE REALIZED FISCAL YEAR-END FISCAL YEAR-END (1)
------------------------- --------------------------
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 Michael Anderson. Under the agreements, the base salaries
of Mr. Finn, Ms. Christopher-Finn and Mr. Anderson will be $159,600, $102,300
and $100,000, respectively. Mr. Finn's agreement will provide for a term of 36
months, and Ms. Christopher-Finn's and Mr. Anderson's 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 or her current offices, (ii) a material change in
the executive's functions, duties or responsibilities, or relocation of his or
her 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. Anderson, 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 retirement age . Upon an executive's retirement, he or she will be entitled
to all benefits available to him or her 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 or her attainment of
retirement age, or (iii) his or her 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. Our directors receive no fees for serving on the Board of
Directors or committees of Wayne Savings Bancshares, Inc. Each non-employee
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.
75
DIRECTOR EMERITUS PLAN. Wayne Savings Community Bank has adopted a
director emeritus plan pursuant to which retiring directors who have completed
at least eight years of continuous service on the Board may be designated as
"Director Emeritus" by a majority vote of the Board of Directors. The annual
compensation for a Director Emeritus is fixed by the Board but cannot exceed
two-thirds of annual board meeting fees. Wayne Savings Community Bank currently
has one individual serving as Director Emeritus. For the fiscal year ended March
31, 2001, the fee paid to the Director Emeritus was $9,000.
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 stock offering 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 September 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 service 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 participant's 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.
76
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 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 the 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.
The Board of Directors of Wayne Savings Community Bank is currently
considering freezing the defined benefit pension plan, but has not yet made a
final decision on this matter.
CERTAIN TRANSACTIONS WITH WAYNE SAVINGS BANCSHARES, INC.
Federal law and regulations generally require that all loans or
extensions of credit to executive officers and directors 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, regulations also permit executive officers and
directors to receive the same plan benefits 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 September 30, 2001, loans to officers, directors and their related business
interests totaled $2.5 million. All loans^ outstanding 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.
77
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.
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
78
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 Office of Thrift Supervision 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.
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 September 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.
79
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 September 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."
PROPOSED PURCHASES OF STOCK IN
THE OFFERING(1) TOTAL COMMON STOCK TO BE HELD
---------------------------------- --------------------------------
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 7,000 $ 70,000 53,193 1.6%
Terry A. Gardner 41,966 500 5,000 42,466 1.2%
Russell L. Harpster 51,281 10,000 100,000 61,281 1.8%
Donald E. Massaro 13,632 2,000 20,000 15,632 *
James C. Morgan 15,207 2,500 25,000 17,707 *
Joseph L. Retzler 20,616 500 5,000 21,116 *
Kenneth G. Rhode 80,249 10,000 100,000 90,249 2.6%
Wanda Christopher-Finn 28,886 5,000 50,000 33,886 *
Michael C. Anderson -- 5,000 50,000 5,000 *
Gary C. Miller 13,187 3,000 30,000 16,187 *
--------------- -------------- --------------- -------------- ---------------
All directors and executive
officers as a group (9 persons) 264,535 45,000 $455,000 310,035 9.0%
--------------- -------------- --------------- -------------- ---------------
- -------------------------------
* 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 conditionally approved the plan;
however, such approval does not constitute a recommendation or endorsement of
the plan of conversion by that agency.
GENERAL
The respective Boards of Directors of Wayne Savings Bankshares, MHC and
Wayne Savings Bancshares, Inc. 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
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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 in the Summary
of this prospectus.
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 exchange of
existing shares of Wayne Savings Bancshares, Inc. for new shares, excluding any
shares purchased in the offering, the public stockholders of Wayne Savings
Bancshares, Inc. common stock will own the same aggregate percentage of new
Wayne Savings Bancshares, Inc. common stock that they owned immediately prior to
the conversion.
We intend 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 our common stock to be offered pursuant to the plan
of conversion.
The plan of conversion provides generally that we will offer shares of
common stock for sale in the subscription offering to eligible account holders,
our 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, we 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 ____________, 2002, and then to natural persons residing in Wayne, Holmes,
Ashland, Medina and Stark Counties, Ohio. We have 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 begin 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."
We determined the number of shares of common stock to be offered in the
offering 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
81
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 of
8% of the common stock issued in the offering by our employee stock ownership
plan, and purchases in the open market of 4% of the common stock issued in the
offering by the recognition plan 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
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 $25.5 million, or 7.8% of assets, at September 30, 2001. Assuming that the
offering raises $18.0 million in gross proceeds at 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 institutions or banking related businesses, although we have no
current plans to make any acquisitions.
After we complete 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 us 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 plans.
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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
votes cast by the public stockholders 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, which has given its conditional
approval. The Ohio Division of Financial Institutions must also approve certain
interim merger transactions involving Wayne Savings Community Bank that will
facilitate the completion of the conversion.
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 September 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 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, the independent appraisal of Wayne Savings Bancshares,
Inc. prepared by RP Financial, LC 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 NEW SHARES
TO BE SOLD TO BE EXCHANGED TOTAL SHARES NEW SHARES TO
IN THIS OFFERING FOR EXISTING SHARES OF WAYNE OF COMMON BE RECEIVED FOR
------------------------ SAVINGS BANCSHARES, INC. STOCK 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
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
83
aggregate exercise price, duration, and vesting schedule of these options will
not be affected. At September 30, 2001, all the options to purchase common stock
were vested. At September 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 an Ohio savings association and will continue to be regulated by the
Office of Thrift Supervision, the Ohio Division of Financial Institutions and
the Federal Deposit Insurance Corporation. After the conversion, Wayne Savings
Community Bank will continue to provide services for depositors and 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
84
Bankshares, MHC, eligible account holders, supplemental eligible account
holders, or Wayne Savings Community Bank. See "--Tax Aspects."
EFFECT ON LIQUIDATION RIGHTS. In the unlikely event that Wayne Savings
Community Bank and Wayne Savings Community Bancshares, Inc. liquidated prior to
the conversion, all claims of creditors of Wayne Savings Community Bank and
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 Community Bank or Wayne Savings Bancshares, Inc.
remaining, these assets would be distributed to the public stockholders and to
Wayne Savings Bankshares, MHC, to the extent of their stock ownership interest
in Wayne Savings Bancshares, Inc. If Wayne Savings Bankshares, MHC liquidated,
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. There has never been a liquidation of a mutual holding
company with public stockholders, and management believes that it is unlikely
that such a liquidation would ever occur.
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 depositors as of June 30, 2000 and December 31, 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 an
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 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 November 30, 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
85
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:
Wayne Savings Bancshares, Inc.'s financial condition and results
of operations;
financial comparisons of Wayne Savings Bancshares, Inc. in
relation to institutions of similar size and asset quality;
stock market conditions generally and in particular for financial
institutions; and
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
OUR COMMON STOCK. RP FINANCIAL, LC DID NOT INDEPENDENTLY VERIFY OUR CONSOLIDATED
FINANCIAL STATEMENTS AND OTHER INFORMATION THAT WE PROVIDED TO THEM, NOR DID RP
FINANCIAL, LC INDEPENDENTLY VALUE OUR ASSETS OR LIABILITIES. 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 OUR COMMON STOCK
IN THE OFFERING WILL THEREAFTER BE ABLE TO SELL THEIR SHARES AT PRICES AT OR
ABOVE THE $10.00 PRICE.
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 resoliciting subscribers. We will not decrease the minimum
of the valuation range and of the minimum of the offering range 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 , after consulting with the Office of Thrift
Supervision, we 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, we 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, we will return all funds promptly 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.
87
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."
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 we or a bank or trust company designated by us 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, we 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.
YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES UNTIL YOU HAVE RECEIVED
TRANSMITTAL FORMS, WHICH WILL INCLUDE FORWARDING INSTRUCTIONS.
Until your 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, you will not receive new
shares of Wayne Savings Bancshares, Inc. common stock and you will not be paid
dividends on the new Wayne Savings Bancshares, Inc. common stock . When you
surrender your certificates , 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 considered 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 that we
issue to you in exchange for existing shares of Wayne Savings Bancshares, Inc.
common stock will be considered to have been issued in full satisfaction of all
rights pertaining to such shares , subject, however, to our obligation to pay
any dividends or make any other distributions with a record date prior to the
effective date of the conversion which may have been declared by us 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.
87 a
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 that we receive 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, 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, our tax-qualified employee stock benefit plans will receive,
without payment therefor, nontransferable subscription rights to purchase in the
aggregate up to 8% of the common stock sold, and our employee stock ownership
plan intends to purchase 8% 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 our tax-qualified employee stock benefit plans,
each Wayne Savings Community Bank depositor with a Qualifying Deposit on
December 31, 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 December 31, 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, our
tax-qualified employee stock benefit plans, and Supplemental
88
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.
In accordance with federal regulations, Village Savings Bank depositors
and borrowers will not have priority subscription rights to purchase common
stock in the subscription offering.
EXPIRATION DATE FOR THE SUBSCRIPTION OFFERING. The Subscription
Offering will expire on February ___, 2002, unless extended by us for up to 45
days or such additional periods with the approval of the Office of Thrift
Supervision, if necessary. We 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.
We 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 us 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, we 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 February __, 2004 which is two years after the special meeting of
members of Wayne Savings Bankshares, MHC to approve the conversion.
COMMUNITY OFFERING
To the extent that shares remain available for purchase after
satisfaction of all subscriptions of the Eligible Account Holders, our
tax-qualified employee stock benefit plans, Supplemental Eligible Account
Holders, and Other Members, we 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 our public stockholders as of _________________,
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
OUR RIGHT, IN OUR 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 we do not have sufficient shares available to fill the orders of
common stockholders of Wayne Savings Bancshares, Inc. as of _________________,
we will allocate the remaining available stock among those persons in a manner
that permits each of them, to the extent possible, to purchase 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 we will
allocate shares among 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 method of
allocation described above.
The term "resided" or "residing" as used in this prospectus means 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
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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.
We may utilize deposit or loan records or other evidence provided to us to make
a determination as to whether a person is a resident. In all cases, however, the
determination shall be in our sole discretion .
The community offering may begin during the subscription offering, and
is expected to terminate at the same time as the subscription offering, and must
terminate no more than 45 days following the subscription offering . 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
_________ 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 us 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, we 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 February __, 2004, which is two years after the special meeting of
members of Wayne Savings Bankshares, MHC to approve the conversion.
We have the right to reject any order submitted in the offering by a
person who we believe is making false representations or who we otherwise
believe, 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, our 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 we may determine, in a manner that will achieve the
widest distribution of the common stock. However, we retain the right to accept
or reject in whole or in part any orders 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.
Unless the syndicated community offering begins during the community offering,
the syndicated community offering will begin as soon as possible after the
completion of the subscription and community offerings.
If for any reason we cannot effect a syndicated community offering of
shares not sold in the subscription and community offerings , or in the event
that there is an insignificant number of unsold shares remaining after the
subscription and community offerings or in the syndicated community offering, we
will make other arrangements for the sale of unsubscribed shares , if possible.
The Office of Thrift Supervision must approve these other purchase arrangements.
PLAN OF DISTRIBUTION; SELLING AGENT COMPENSATION
Offering materials have been distributed by mail to those with
subscription rights at the last known address on our records. Subscription
rights expire whether or not eligible subscribers can be located.
To assist in the marketing of the common stock, we have 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 us in
the offering by:
acting as our financial advisor;
providing administrative services and stock information center
management; and
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
90
purchased by our 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 7% 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 $40,000,
without the approval of Wayne Savings Bancshares, Inc.
We have made an advance payment to Ryan, Beck & Co., LLC in the amount
of $50,000. We 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 ^ materials for the common stock, including liabilities under
the Securities Act of 1933.
Some of our directors and executive officers 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. We 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. None of our officers,
directors or employees will be compensated in connection with their
participation in the offering.
PROCEDURE FOR PURCHASING SHARES
EXPIRATION DATE. The offering will terminate at 10:00 a.m., Eastern
time, on February __, 2002, unless we extended it, with the approval of the
Office of Thrift Supervision, if required. This extension may be approved by us,
in our 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 we have not
sold the minimum number of shares offered in the offering by the expiration date
or any extension thereof, we 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 with a
prospectus. Subscription funds will be maintained in a special escrow account at
Wayne Savings Community Bank.
We reserve the right in our sole discretion to terminate the offering
at any time and for any reason, in which case we 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, you must complete an order
form and remit payment. Incomplete order forms, or order forms that are not
signed are not required to be accepted. We 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 FEBRUARY ___, 2002. We are not
required to accept order forms that are not received by that time, are
91
executed defectively or are received without full payment or without appropriate
withdrawal instructions . We are not required to notify subscribers of
incomplete or improperly executed order forms, and we have the right to waive or
permit the correction of incomplete or improperly executed order forms, but do
not represent that we will do so and we have no affirmative duty to notify any
prospective subscriber of any such defects. 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 our consent. We reserve the absolute right, in our 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.
If you are ordering shares you must represent that you are purchasing shares for
your own account and that you have no agreement or understanding with any person
for the sale or transfer of the shares. Our interpretation 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 you will be acknowledging 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
you received a copy of this prospectus. HOWEVER, SIGNING THE ORDER FORM WILL NOT
RESULT IN YOU WAIVING YOUR 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 will 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 ___%
annual percentage yield, from the date payment is received until the offering is
completed or terminated. Once we receive your executed order form, it may not be
modified, amended or rescinded without our consent, 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.
If you are interested in using your individual retirement account funds
to purchase common stock, you 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,
preferably at least two weeks prior to the end of the offering period, because
processing such transactions takes additional time, and whether such funds can
be used may depend on limitations imposed by the institutions where such funds
are currently held. We cannot guarantee that you will be able to use such funds.
Our employee stock ownership plan will not be required to pay for
shares purchased until consummation of the offering, provided there is a loan
commitment from an unrelated financial institution or Wayne Savings
92
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. ^ We may ask for an acceptable
legal opinion from any purchaser as to the legality of their purchase and we 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.
WE WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT WE
BECOME AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS AND WE WILL NOT HONOR ORDERS
THAT WE BELIEVE INVOLVE THE TRANSFER OF SUBSCRIPTION RIGHTS.
STOCK INFORMATION CENTER
If you have any questions regarding the offering, please call the Stock
Information Center toll free, at (800) 804-8479, 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) Our tax-qualified employee stock benefit plans, including our
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 for 8% 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;
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(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 more than 25,000 shares in all categories of
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, our Board of Directors,
with the approval of the Office of Thrift Supervision and without further
approval of members of Wayne Savings Bankshares, MHC, may decrease or increase
the purchase and ownership limitations. We 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 our sole
discretion 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. Our Board of Directors 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 our Board
of Directors in its 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 our employee stock ownership plan's subscription for
8% of the total number of shares sold;
(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 _____________, 2002, and then to natural
persons residing in the Ohio counties of Wayne, Holmes,
Ashland, Medina and Stark.
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
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(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.
Our directors are not treated as associates of each other solely
because of their membership on our Board of Directors. We have 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. In the unlikely event
that Wayne Savings Bankshares, MHC and Wayne Savings Bancshares, Inc. liquidated
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, 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 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 an
interest in the unlikely event of the complete liquidation of Wayne Savings
Community Bank after the conversion. Each Eligible Account Holder and
Supplemental Eligible Account Holder that continues to maintain
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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 December 31,
2001, respectively. Each Eligible Account Holder and Supplemental Eligible
Account Holder would 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 December 31, 2001, respectively, bears
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 December 31,
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.
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 Federal 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.
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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.
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 OUR 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
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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 our common stock by any of our 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 our outstanding
common stock or to purchases of our common stock by our stock option plan or any
of our tax-qualified employee stock benefit plans or nontax-qualified employee
stock benefit plans, including any employee plans, recognition plans or
restricted stock plans.
Office of Thrift Supervision regulations prohibit us from repurchasing
more than 5% of our outstanding shares of common stock during the first year
following conversion. After one year the OTS does not impose any repurchase
restrictions.
COMPARISON OF STOCKHOLDERS' RIGHTS
GENERAL. As a result of the conversion, our existing Wayne Savings
Bancshares, Inc. stockholders 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
Delaware certificate of incorporation and bylaws and from distinctions between
laws applicable to Delaware and federally chartered corporations.
This discussion 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. This
discussion 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. Our authorized capital stock currently
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. After the
conversion our authorized capital stock as a Delaware corporation will consist
of 9,000,000 shares of common stock, $0.10 par value per share, and 500,000
shares of preferred stock, par value $0.10 per share. We authorized more capital
stock than that which will be issued in the conversion to provide our Board of
Directors with flexibility to effect, among other transactions, financings,
acquisitions, stock dividends, stock splits and stock option grants. However,
these additional authorized shares may also be used by our Board of Directors
consistent with its fiduciary duty to deter future attempts to gain control of
Wayne Savings Bancshares, Inc. Our Board of Directors 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, our 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. We currently have
no plans for the issuance of additional shares, other than the issuance of
additional shares to our 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
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votes eligible to be cast at a legal stockholders' meeting. Thus, stock related
compensation plans, such as stock option plans, may be adopted by Wayne Savings
Bancshares, Inc. without stockholder approval and shares of Wayne Savings
Bancshares, Inc. capital stock may 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
associations such as Wayne Savings Community Bank. 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. 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.
Wayne Savings Bancshares, Inc.'s Delaware certificate of incorporation
provides that the directors of Wayne Savings Bancshares, Inc. will 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
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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.
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
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 determines 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 to such payment.
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
federal stock charter provides that special meetings of Wayne Savings
Bancshares, Inc.'s stockholders may be called by the chairman, the 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. 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.
STOCKHOLDER NOMINATIONS AND PROPOSALS. Wayne Savings Bancshares, Inc.'s
federal bylaws generally provide that stockholders may submit nominations for
election of directors 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 30 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
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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 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:
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(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 securities 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.
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
Bancshares, 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 meetings of
stockholders, stockholder 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
102
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 or more 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. Our Board of Directors
believes that the provisions described above are prudent and will reduce our
vulnerability to takeover attempts and certain other transactions that have not
been negotiated with and approved by our Board of Directors. These provisions
will also assist us in the orderly deployment of the conversion proceeds into
productive assets during the initial period after the conversion. Our Board of
Directors believes these provisions are in the best interest of Wayne Savings
Bancshares, Inc. and its stockholders. Our Board of Directors believes that it
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, our 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 our 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.
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 our Board of Directors present 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 our 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 our 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 our
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 our belief of 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 our 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 make it more difficult to remove our Board of
Directors and management. Our Board of Directors, 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, we may adopt additional anti-takeover
charter provisions or other devices regarding the acquisition of our 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
103
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 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."
104
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 9,000,000 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.
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. may 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. When the conversion is completed, the holders of common
stock of Wayne Savings Bancshares, Inc. will have 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 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
105
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 our Board of Directors may from time to
time determine. Our 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
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 and registration statement 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.
106
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
CONTENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (as of
September 30, 2001 (unaudited) and March 31, 2001 and 2000) F-3
CONSOLIDATED STATEMENTS OF EARNINGS (for the six months ended
September 30, 2001 and 2000 (unaudited) and the years ended March 31, 2001, 2000 and 1999) 31
--
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(for the six months ended September 30, 2001 and 2000 (unaudited) and the years
ended March 31, 2001, 2000 and 1999) 31
--
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (for the six months ended
September 30, 2001 and 2000 (unaudited) and the years ended
March 31, 2001, 2000 and 1999) F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS (for the six months ended
September 30 2001 and 2000 (unaudited) and the years ended March 31, 2001, 2000 and 1999) F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
ALL FINANCIAL STATEMENT SCHEDULES ARE OMITTED BECAUSE THE REQUIRED INFORMATION
EITHER IS NOT APPLICABLE OR IS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS
OR THE NOTES THERETO.
F-1
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-2
WAYNE SAVINGS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
SEPTEMBER 30, MARCH 31, MARCH 31,
ASSETS 2001 2001 2000
(Unaudited)
Cash and due from banks $ 2,485 $ 2,011 $ 2,502
Federal funds sold 6,000 6,000 3,475
Interest-bearing deposits in other financial institutions 22,382 12,891 8,332
-------- -------- ---------
Cash and cash equivalents 30,867 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 $14,403, $13,774 and $22,634 as of September 30, 2001
and March 31, 2001 and 2000, respectively 14,114 13,641 23,199
Mortgage-backed securities available for sale - at market 3,398 2,911 3,450
Mortgage-backed securities held to maturity - at amortized cost, approximate
market value of $4,474, $5,694 and $6,938 as of September 30, 2001 and
March 31, 2001 and 2000, respectively 4,477 5,702 7,046
Loans receivable - net 254,007 246,619 237,095
Loans held for sale - at lower of cost or market 4,092 861 317
Office premises and equipment - net 8,902 8,607 8,160
Real estate acquired through foreclosure - net 19 124 90
Federal Home Loan Bank stock - at cost 3,676 3,510 3,160
Accrued interest receivable on loans 1,282 1,328 1,255
Accrued interest receivable on mortgage-backed securities 41 42 60
Accrued interest receivable on investments and interest bearing deposits 172 203 354
Prepaid expenses and other assets 1,336 1,624 1,390
Prepaid federal income taxes - - 184
--------- --------- ----------
Total assets $326,383 $311,774 $304,069
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $292,396 $277,706 $264,952
Advances from the Federal Home Loan Bank 6,000 6,000 12,000
Advances by borrowers for taxes and insurance 872 827 777
Accrued interest payable 309 245 228
Accounts payable on mortgage loans serviced for others 132 234 100
Other liabilities 540 991 516
Accrued federal income taxes 124 31 -
Deferred federal income taxes 484 455 375
---------- ---------- ----------
Total liabilities 300,857 286,489 278,948
Commitments and Contingent Liabilities - - -
- --------------------------------------
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
September 30, 2001 and 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 9,535 9,180 8,777
Less 67,742, 57,042 and 33,214 shares of treasury stock, at September 30,
2001 and March 31, 2001, respectively - at cost (1,144) (1,003) (645)
Accumulated other comprehensive income (loss),
unrealized gains (losses) on securities designated as available for sale,
net of related tax effects 60 33 (36)
----------- ----------- -----------
Total stockholders' equity 25,526 25,285 25,121
-------- -------- --------
Total liabilities and stockholders' equity $326,383 $311,774 $304,069
======= ======= =======
The accompanying notes are an integral part of these statements.
F-3
WAYNE SAVINGS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six months ended September 30, 2001 (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 six months ended
September 30, 2001 - - 793 - - 793
Cash dividends of $.34 per share - - (438) - - (438)
Purchase of treasury shares - at cost - - - (141) - (141)
Unrealized gains on securities
designated as available for sale,
net of related tax effects - - - - 27 27
----- ------- ------- ------ ---- ---------
Balance at September 30, 2001 (unaudited) $2,639 $14,436 $ 9,535 $(1,144) $ 60 $25,526
===== ====== ======= ====== ==== ======
The accompany notes are an integral part of these statements.
F-4
WAYNE SAVINGS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended September 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000 and 1999
(In thousands)
FOR THE SIX
MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED MARCH 31,
2001 2000 2001 2000 1999
(Unaudited)
Cash flows provided by (used in) operating activities:
Net earnings for the period $ 793 $ 655 $ 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 5 9 (9) 18 (25)
Amortization of deferred loan origination fees (214) (64) (161) (532) (574)
Depreciation and amortization 236 218 433 653 481
(Gain) loss on sale of loans (84) (14) (62) 42 (149)
Proceeds from sale of loans in the secondary market 12,364 4,123 9,247 6,383 16,009
Loans originated for sale in the secondary market (15,511) (4,362) (9,729) (5,157) (16,251)
Provision for losses on loans 97 73 96 120 64
Loss on sale of real estate acquired through foreclosure - - - 11 110
Federal Home Loan Bank stock dividends (128) (122) (247) (214) (199)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 46 (22) (73) (121) 18
Accrued interest receivable on mortgage-backed securities 1 (5) 18 (32) (5)
Accrued interest receivable on investments
and interest-bearing deposits 31 33 151 (170) (4)
Prepaid expenses and other assets 288 (58) (234) 543 (886)
Accrued interest payable 64 38 17 49 (18)
Accounts payable on mortgage loans serviced for others (102) (13) 134 (8) (91)
Other liabilities (451) 108 476 19 206
Federal income taxes
Current 93 46 215 119 (304)
Deferred (15) (8) 35 44 160
--------- ---------- --------- --------- --------
Net cash provided by (used in) operating activities (2,487) 635 1,768 3,018 185
Cash flows provided by (used in) investing activities:
PURCHASE OF INVESTMENT SECURITIES HELD TO MATURITY (4,999) - (2,477) (13,411) (12,484)
PROCEEDS FROM THE MATURITY OF INVESTMENT SECURITIES
HELD TO MATURITY 4,529 55 12,069 2,080 14,055
PURCHASE OF MORTGAGE-BACKED SECURITIES HELD TO MATURITY (1,015) (1,000) (2,025) (7,008) (1,095)
PURCHASE OF MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE (1,018) - - (1,022) (5,481)
Principal repayments on mortgage-backed securities 2,834 1,878 3,997 4,620 3,470
Loan principal repayments 38,513 16,329 56,478 37,106 48,814
Loan disbursements (45,691) (21,390) (65,986) (59,792) (55,615)
Purchase of office premises and equipment (531) (528) (1,115) (1,065) (1,768)
Proceeds from 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 3,300 (1,700) 2,000 2,500
Purchase of Federal Home Loan Bank stock (38) (103) (103) - -
--------- -------- -------- ------- -------
Net cash used in investing activities (1,704) (1,459) (613) (36,487) (6,784)
------- ------- -------- ------ -------
Net cash provided by (used in) operating and
investing activities (balance carried forward) (4,191) (824) 1,155 (33,469) (6,599)
------- -------- ------- ------ -------
F-5
WAYNE SAVINGS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Six months ended September 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000 and 1999
(In thousands)
FOR THE SIX
MONTHS ENDED
SEPTEMBER 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) $ (4,191) $ (824) $ 1,155 $(33,469) $ (6,599)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 14,690 745 12,754 29,625 17,706
Proceeds from Federal Home Loan Bank advances 5,000 7,000 11,000 4,000 16,000
Repayments of Federal Home Loan Bank advances (5,000) (9,000) (17,000) (1,000) (23,000)
Advances by borrowers for taxes and insurance 45 (25) 50 (44) 38
Dividends paid on common stock (438) (558) (1,058) (882) (725)
Proceeds from exercise of stock options - 36 50 11 87
Purchase of treasury shares - at cost (141) (18) (358) (177) (431)
-------- --------- -------- --------- --------
Net cash provided by (used in) financing activities 14,156 (1,820) 5,438 31,533 9,675
------ ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents 9,965 (2,644) 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 $30,867 $11,665 $20,902 $ 14,309 $16,245
====== ====== ====== ======= ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 367 $ 290 $ 490 $ 516 $ 892
======== ======== ======== ========= ========
Interest on deposits and borrowings $ 6,492 $ 6,371 $ 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 $ - $ - $ 50 $ - $ 699
======= ======= ========= ======= ========
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects $ 27 $ 25 $ 69 $ (38) $ (15)
======= ======= ======= ====== ========
Recognition of mortgage servicing rights
in accordance with SFAS No. 140 $ 127 $ 41 $ 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-6
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six months ended September 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"). A majority (52.5%) of the Company's shares
are owned by Wayne Savings Bankshares M.H.C. ("Bankshares" or "M.H.C."), a
mutual holding company, as defined under Office of Thrift Supervision
("OTS") regulations. In fiscal 1999, Bankshares and Wayne Savings formed a
new federal savings bank subsidiary of Wayne Savings in North Canton, Ohio,
Village Savings Bank, F.S.B. ("Village"), hereinafter collectively referred
to as "the Banks." Intercompany transactions and balances are eliminated in
the consolidated financial statements.
The Banks conduct a general banking business in north central Ohio which
consists of attracting deposits from the general public and applying those
funds to the origination of loans for residential, consumer and
nonresidential purposes. The Banks' profitability is significantly dependent
on their net interest income, which is the difference between interest
income generated from interest-earning assets (i.e., loans and investments)
and the interest expense paid on interest-bearing liabilities (i.e.,
customer deposits and borrowed funds). Net interest income is affected by
the relative amount of interest-earning assets and interest-bearing
liabilities and the interest received or paid on these balances. The level
of interest rates paid or received by the Banks can be significantly
influenced by a number of environmental factors, such as governmental
monetary policy, that are outside of management's control.
The financial information presented herein has been prepared in accordance
with accounting principles generally accepted in the United States of
America ("U.S. GAAP") and general accounting practices within the financial
services industry. In preparing financial statements in accordance with U.S.
GAAP, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements
and revenues and expenses during the reporting period. Actual results could
differ from such estimates.
The consolidated financial statements as of September 30, 2001, and for the
six months ended September 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 consolidated financial
position and results of operations have been made. The consolidated results
of operations for the six months ended September 30, 2001, are not
necessarily indicative of results, which may be expected for the entire
fiscal year.
The following is a summary of the Company's significant accounting policies,
which have been consistently applied in the preparation of the accompanying
financial statements.
1. Investment Securities and Mortgage-backed Securities
----------------------------------------------------
The Company accounts for investment and mortgage-backed securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities." SFAS No.
115 requires that investments be categorized as held-to-maturity, trading,
or available for sale. Securities classified as held-to-maturity are carried
at cost only if the Company has the positive intent and ability to hold
these securities to maturity. Trading securities and securities designated
as available for sale are carried at fair value with resulting unrealized
gains or losses recorded to operations or stockholders' equity,
respectively. Realized gains or losses on sales of securities are recognized
using the specific identification method.
F-7
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 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.
Wayne Savings recognizes 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.
Wayne Savings recognized $127,000, $41,000, $92,000, $64,000, and $160,000
of pre-tax gains on sales of loans related to capitalized mortgage servicing
rights during the six month periods ended September 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.
Wayne Savings recorded amortization related to mortgage servicing rights
totaling approximately $31,000, $25,000, $52,000, $44,000, and $32,000 for
the six month periods ended September 30, 2001 and 2000, and the years ended
March 31, 2001, 2000 and 1999, respectively. At September 30, 2001 and March
31, 2001 and 2000, the carrying value of Wayne Savings' mortgage servicing
rights, which approximated fair value, totaled $453,000, $357,000 and
$317,000, respectively.
Loans held for sale are carried at the lower of cost or market, determined
in the aggregate. In computing cost, deferred loan origination fees are
deducted from the principal balances of the related loans. At September 30,
2001 and March 31, 2001 and 2000, loans held for sale were carried at cost.
F-8
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 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 LOSSES INHERENT
WITHIN THE LOAN PORTFOLIO THAT ARE BOTH PROBABLE AND CAN BE REASONABLY
ESTIMATED. When the collection of a loan becomes doubtful, or otherwise
troubled, the Banks record a charge-off equal to the difference between the
fair value of the property securing the loan and the loan's carrying value.
In providing valuation allowances, costs of holding real estate, including
the cost of capital, are considered. Major loans (including development
projects), and major lending areas are reviewed periodically to 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
their investment in one-to-four family residential loans and consumer
installment loans to be homogeneous and therefore excluded from separate
identification for evaluation of impairment. With respect to the Banks'
investment in multi-family, commercial and nonresidential loans, and the
evaluation of impairment thereof, such loans are collateral dependent and,
as a result, are carried as a practical expedient at the lower of cost or
fair value.
It is the Banks' policy to charge off unsecured credits that are more than
ninety days delinquent. Similarly, collateral dependent loans 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.
F-9
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 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)
-------------------------
At September 30, 2001 and March 31, 2001 and 2000, the Banks' investment in
impaired loans totaled approximately $1.2 million, $645,000 and $940,000
respectively. AVERAGE IMPAIRED LOANS TOTALED $851,000 FOR THE SIX MONTHS
ENDED SEPTEMBER 30, 2001 AND $793,000 AND $947,000 FOR THE FISCAL YEARS
ENDED MARCH 31, 2001 AND 2000, RESPECTIVELY. During fiscal 2001, the Company
charged-off $172,000 of principal related to an impaired loan through the
allowance for loan losses. AT SEPTEMBER 30, 2001, THE BANKS HAD ALLOCATED
$105,000 OF THE ALLOWANCE FOR LOAN LOSSES TO IMPAIRED LOANS. For the six
month periods ended September 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 remaining useful lives of the assets,
estimated to be forty to fifty-five years for buildings and improvements,
and five to ten years for furniture and equipment. The estimated lives of
the Company's buildings were revised upward in fiscal 2001 from a range of
twenty to fifty years to forty to fifty-five years. An accelerated method is
used for tax reporting purposes.
6. Real Estate Acquired Through Foreclosure
----------------------------------------
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost) or fair value less estimated selling
expenses at the date of acquisition. Real estate loss provisions are
recorded if the properties' fair value subsequently declines below the value
determined at the recording date. In determining the lower of cost or fair
value at acquisition, costs relating to development and improvement of
property are capitalized. Costs relating to holding real estate acquired
through foreclosure, net of rental income, are charged against earnings as
incurred.
7. Federal Income Taxes
--------------------
The Company accounts for federal income taxes pursuant to SFAS No. 109
"Accounting for Income Taxes." In accordance with SFAS No. 109, a deferred
tax liability or deferred tax asset is computed by applying the current
statutory tax rates to net taxable or deductible temporary differences
between the tax basis of an asset or liability and its reported amount in
the financial statements that will result in net taxable or deductible
amounts in future periods. Deferred tax assets are recorded only to the
extent that the amount of net deductible temporary differences or
carryforward attributes may be utilized against current period earnings,
carried back against prior years' earnings, offset against taxable temporary
differences reversing in future periods, or utilized to the extent of
management's estimate of future taxable income. A valuation allowance is
provided for deferred tax assets to the extent that the value of net
deductible temporary differences and carryforward attributes exceeds
management's estimates of taxes payable on future taxable income. Deferred
tax liabilities are provided on the total amount of net temporary
differences taxable in the future.
F-10
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 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. Stock Benefit Plan
------------------
The Bank has an Employee Stock Ownership Plan ("ESOP"), which provided
retirement benefits for substantially all employees who had completed one
year of service and had 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 six-month periods ended September 30,
2001 and 2000, and the fiscal years ended March 31, 2001, 2000 and 1999.
9. 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:
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, MARCH 31,
2001 2000 2001 2000 1999
(Unaudited)
Weighted-average
common shares
outstanding (basic) 2,572,595 2,604,077 2,596,754 2,602,141 2,609,762
Dilutive effect of
assumed exercise
of stock options 11,573 13,654 11,752 18,735 26,104
----------- ----------- ----------- ----------- -----------
Weighted-average
common shares
outstanding (diluted) 2,584,168 2,617,731 2,608,506 2,620,876 2,635,866
========= ========= ========= ========= =========
10. CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks, federal funds sold, and interest-bearing deposits due
from other financial institutions with original maturities of less than
three months.
F-11
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
11. Fair Value of Financial Instruments
-----------------------------------
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of the fair value of financial instruments, both assets
and liabilities whether or not recognized in the consolidated statements of
financial condition, for which it is practicable to estimate that value. For
financial instruments where quoted market prices are not available, fair
values are based on estimates using present value and other valuation
methods.
The methods used are greatly affected by the assumptions applied, including
the discount rate and estimates of future cash flows. Therefore, the fair
values presented may not represent amounts that could be realized in an
exchange for certain financial instruments.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments at SEPTEMBER 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.
F-12
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
11. Fair Value of Financial Instruments (continued)
-----------------------------------
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 September 30, 2001 and March 31,
2001 and 2000, the differences between the fair value and
notional amount of loan commitments were not material.
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Company's financial instruments are as follows:
SEPTEMBER 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 $30,867 $ 30,867 $ 26,602 $ 26,602 $ 18,309 $ 18,309
Investment securities 14,114 14,403 13,641 13,774 23,199 22,634
Mortgage-backed
securities 7,875 7,872 8,613 8,605 10,496 10,388
Loans receivable 258,099 264,103 247,480 259,538 237,412 228,469
Federal Home Loan
Bank stock 3,676 3,676 3,510 3,510 3,160 3,160
--------- --------- --------- --------- --------- ---------
$314,631 $320,921 $299,846 $312,029 $292,576 $282,960
======= ======= ======= ======= ======= =======
Financial liabilities
Deposits $292,396 $294,949 $277,706 $278,715 $264,952 $265,428
Advances from the
Federal Home
Loan Bank 6,000 6,169 6,000 6,000 12,000 11,999
Advances by
borrowers for taxes
and insurance 872 872 827 827 777 777
---------- ---------- ---------- ---------- ---------- ----------
$299,268 $301,990 $284,533 $285,542 $277,729 $278,204
======= ======= ======= ======= ======= =======
F-13
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
12. Advertising
-----------
Advertising costs are expensed when incurred. The Company's advertising
expense totaled $71,000 for each of the six months ended September 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.
13. Reclassifications
------------------
Certain prior year amounts have been reclassified to conform to the 2001
financial statement presentation.
F-14
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 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 held to
maturity are summarized as follows:
SEPTEMBER 30, 2001
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(Unaudited)
(In thousands)
Corporate bonds and notes $ 3,996 $112 $- $ 4,108
---- ---
U.S. Government and agency obligations 9,977 198 34 10,141
--- --
Municipal obligations 141 13 - 154
-------- ---- -- --------
$14,114 $323 $ 34 $14,403
====== === ==== ======
MARCH 31, 2001
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In thousands)
Corporate bonds and notes $ 3,994 $ 74 $ 7 $ 4,061
-----
U.S. Government and agency obligations 9,501 66 - 9,567
-- --
Municipal obligations 146 - - 146
-------- -- -- --------
$13,641 $140 $ 7 $13,774
====== === ===== ======
MARCH 31, 2000
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In thousands)
Corporate bonds and notes $ 2,987 $- $ 36 $ 2,951
--- -----
U.S. Government and agency obligations 20,057 - 529 19,528
-- ---
Municipal obligations 155 - - 155
-------- -- -- --------
$23,199 $- $565 $22,634
====== == === ======
F-15
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 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 and estimated fair value of investment securities by term
to maturity are shown below.
AT SEPTEMBER 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 $ 3,498 $ 3,538 $ 4,995 $ 5,050
Due within one to three years 5,522 5,680 4,526 4,603
Due within three to five years 3,000 3,075 500 500
Due in over five years 2,094 2,110 3,620 3,621
------- ------- ------- -------
$14,114 $14,403 $13,641 $13,774
====== ====== ====== ======
The Company had pledged $2.5 million and $1.0 million in investment
securities to secure public deposits at September 30, 2001 and March 31,
2001, respectively. The Company had not pledged any investment or
mortgage-backed securities to secure public deposits at March 31, 2000.
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of mortgage-backed securities at September 30, 2001
and March 31, 2001 and 2000, including those designated as available for
sale, are summarized as follows:
SEPTEMBER 30, 2001
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(Unaudited)
(In thousands)
HELD-TO-MATURITY
Federal Home Loan Mortgage
Corporation participation certificates $ 528 $ 2 $ 9 $ 521
Government National Mortgage
Association participation certificates 1,397 18 15 1,400
Federal National Mortgage
Association participation certificates 2,552 18 17 2,553
----- -- ---- -----
$4,477 $38 $ 41 $4,474
===== == ==== =====
AVAILABLE FOR SALE
Federal Home Loan Mortgage
Corporation participation certificates $2,041 $57 $- $2,098
Government National Mortgage
Association participation certificates 86 14 - 100
Federal National Mortgage
Association participation certificates 1,181 19 - 1,200
----- -- -- -----
$3,308 $90 $- $3,398
===== == == =====
F-16
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000 and 1999
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued)
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
===== ==== ===== =====
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
===== ==== ==== =====
F-17
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 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 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.
SEPTEMBER 30, 2001 MARCH 31, 2001
AMORTIZED AMORTIZED
COST COST
(Unaudited)
(In thousands)
HELD-TO-MATURITY
Due Within One to Three Years $ 97 $ 171
-------- -------
Due After Five Years 4,380 5,531
----- -----
$4,477 $5,702
===== =====
AVAILABLE FOR SALE
Due Within One to Three Years $ 738 $1,009
------- ------
Due within three to five years 769 993
--- ---
Due After Five Years 1,801 856
----- -----
$3,308 $2,858
===== =====
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio is as follows:
SEPTEMBER 30, MARCH 31,
2001 2001 2000
(Unaudited)
(In thousands)
Residential real estate - 1 to 4 family $219,637 $215,464 $211,222
Residential real estate - multi-family 8,436 9,039 8,028
Residential real estate - construction 10,205 7,078 4,035
Nonresidential real estate and land 10,342 7,525 6,068
Education 1,882 2,143 2,780
Commercial 5,059 4,765 5,168
Consumer and other 6,610 7,487 6,261
--------- --------- ---------
262,171 253,501 243,562
Less:
Undisbursed portion of loans in
process 5,981 4,764 4,136
Deferred loan origination fees 1,440 1,463 1,538
Allowance for loan losses 743 655 793
---------- ---------- ----------
$254,007 $246,619 $237,095
======= ======= =======
F-18
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000 and 1999
NOTE C - LOANS RECEIVABLE (continued)
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 $232.3 million, or 91%, of the total
loan portfolio at September 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 areas 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 $53.7 million AND $45.6 MILLION at September 30, 2001 AND
2000, RESPECTIVELY, and $47.1 million, $44.3 million and $44.0 million at
March 31, 2001, 2000 and 1999, respectively.
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 SEPTEMBER 30, 2001, AND $371,000, $189,000 AND
$340,000 AT MARCH 31, 2001, 2000 AND 1999, RESPECTIVELY. DURING THE SIX
MONTHS SEPTEMBER 30, 2001, THE COMPANY DISBURSED $2.1 MILLION OF LOANS TO
OFFICERS AND DIRECTORS AND RECEIVED PRINCIPAL REPAYMENTS OF $25,000. FOR THE
FISCAL YEAR ENDED MARCH 31, 2001, THE COMPANY DISBURSED $208,000 OF NEW
LOANS TO OFFICERS AND DIRECTORS AND RECEIVED PRINCIPAL REPAYMENTS OF
$26,000.
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is summarized as follows:
SEPTEMBER 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 97 73 96 120 64
CHARGE-OFFS OF LOANS (11) - (240) (33) (115)
---- -- ----- ---- -----
RECOVERIES OF LOANS PREVIOUSLY CHARGED-OFF 2 - 6 28 8
----- -- ----- ---- -----
Balance at end of year $743 $866 $655 $793 $678
=== === === === ===
F-19
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000 and 1999
NOTE D - ALLOWANCE FOR LOAN LOSSES (continued)
As of September 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 $2.9 million and
$253,000 at September 30, 2001 and 2000, respectively and $515,000, $200,000
and $280,000 at March 31, 2001, 2000 and 1999, respectively.
During the six-month periods ended September 30, 2001 and 2000, interest
income of approximately $166,000 and $8,000, 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.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment are comprised of the following:
SEPTEMBER 30, MARCH 31,
2001 2001 2000
(Unaudited)
(In thousands)
Land and improvements $ 1,615 $ 1,615 $ 1,750
Office buildings and improvements 6,477 6,167 6,752
Furniture, fixtures and equipment 4,099 3,931 4,463
Automobiles 60 60 60
------- ------- -------
12,251 11,773 13,025
Less accumulated depreciation and amortization 3,349 3,166 4,865
------- ------- -------
$ 8,902 $ 8,607 $ 8,160
======= ======= =======
F-20
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 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- SEPTEMBER 30, MARCH 31,
AVERAGE INTEREST RATE 2001 2001 2000
(Unaudited)
(In thousands)
NOW accounts
September 30, 2001 - 1.49% $ 37,059
March 31, 2001 - 1.73% $ 33,642
March 31, 2000 - 2.08% $ 31,014
Passbook
September 30, 2001 - 2.70% 63,172
March 31, 2001 - 3.18% 54,574
March 31, 2000 - 3.13% 53,074
Money Market Investor
September 30, 2001 - 2.87% 10,682
March 31, 2001 - 3.23% 8,905
March 31, 2000 - 3.28% 10,827
------- ------- -------
Total demand, transaction and
passbook deposits 110,913 97,121 94,915
Certificates of deposit
Original maturities of:
Less than 12 months
September 30, 2001 - 4.20% 39,142
March 31, 2001 - 5.51% 25,494
March 31, 2000 - 5.00% 41,722
12 months to 24 months
September 30, 2001 - 5.78% 85,881
March 31, 2001 - 6.03% 101,105
March 31, 2000 - 5.60% 54,341
25 months to 36 months
September 30, 2001 - 4.96% 7,315
March 31, 2001 - 5.26% 10,036
March 31, 2000 - 5.71% 24,787
More than 36 months
September 30, 2001 - 5.31% 8,944
March 31, 2001 - 5.56% 6,175
March 31, 2000 - 5.52% 8,888
Jumbo
September 30, 2001 - 5.94% 40,201
March 31, 2001 - 6.46% 37,775
March 31, 2000 - 6.07% 40,299
------- ------- -------
Total certificates of deposit 181,483 180,585 170,037
------- ------- -------
Total deposit accounts $292,396 $277,706 $264,952
======= ======= =======
F-21
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000 and 1999
NOTE F - DEPOSITS (continued)
At September 30, 2001, the Banks had certificates of deposit with balances
in excess of $100,000 totaling $51.7 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. DEPOSITS IN EXCESS
OF $100,000 ARE NOT FEDERALLY INSURED DEPOSITS.
Interest expense on deposits is summarized as follows:
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, MARCH 31,
2001 2000 2001 2000 1999
(Unaudited)
(In thousands)
Passbook $ 853 $ 824 $ 1,642 $ 1,569 $ 1,220
NOW and money market
deposit accounts 438 449 875 979 787
Certificates of deposit 5,105 4,895 10,135 8,982 8,509
----- ----- ------ ------ ------
$6,396 $6,168 $12,652 $11,530 $10,516
===== ===== ====== ====== ======
Maturities of outstanding certificates of deposit are summarized as follows:
SEPTEMBER 30, MARCH 31,
2001 2001 2000
(Unaudited)
(In thousands)
Less than one year $149,252 $129,044 $123,870
One to three years 29,433 48,533 41,855
Over three years 2,798 3,008 4,312
------- ------- -------
$181,483 $180,585 $170,037
======= ======= =======
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at September 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 SEPTEMBER 30, MARCH 31,
INTEREST RATE ENDING MARCH 31, 2001 2001 2000
(Unaudited)
(Dollars 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-22
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 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:
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, MARCH 31,
2001 2000 2001 2000 1999
(Unaudited)
(Dollars in thousands)
Federal income taxes computed
at statutory rate OF 34% $409 $338 $753 $644 $846
Increase (decrease) in taxes
resulting from:
Tax exempt interest (4) (4) (8) (7) (3)
Other 4 6 9 7 3
--- --- --- --- ---
Federal income tax provision
per consolidated financial statements $409 $340 $754 $644 $846
=== === === === ===
Effective Tax Rate 34.0% 34.2% 34.0% 34.0% 34.0%
------------------ ==== ==== ==== ==== ====
The composition of the Company's net deferred tax liability is as follows:
TAXES (PAYABLE) REFUNDABLE ON TEMPORARY SEPTEMBER 30, MARCH 31,
DIFFERENCES AT STATUTORY RATE: 2001 2001 2000
(Unaudited)
(In thousands)
DEFERRED TAX ASSETS
Deferred loan origination fees $ 85 $ 108 $ 218
General loan loss allowance 295 263 308
Book/tax depreciation differences 58 24 -
Pension expense 105 72 -
Unrealized losses on securities designated as available for sale - - 19
Other 69 78 11
------ ------ ----
Deferred tax assets 612 545 556
DEFERRED TAX LIABILITIES
Federal Home Loan Bank stock dividends (791) (748) (664)
Book/tax depreciation differences - - (91)
Unrealized gains on securities designated as available for sale (31) (20) -
Tax bad debt reserve (120) (111) (68)
Mortgage servicing rights (154) (121) (108)
------ ------ ----
Deferred tax liabilities (1,096) (1,000) (931)
------ ------ ----
Total deferred tax liability $ (484) $ (455) $(375)
====== ====== ====
F-23
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000 and 1999
NOTE H - FEDERAL INCOME TAXES (continued)
Prior to fiscal 1997, Wayne Savings was allowed a special bad debt deduction
based on a percentage of earnings, generally limited to 8% of otherwise
taxable income and subject to certain limitations based on aggregate loans
and deposit account balances at the end of the year. This cumulative
percentage of earnings bad debt deduction totaled approximately $2.7 million
as of September 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
September 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 AND CONTINGENT LIABILITIES
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 September 30, 2001, the Company had total outstanding commitments of
approximately $6.0 million to originate loans, of which $4.6 million were
comprised of fixed rate loans at rates ranging from 6.125% TO 7.875% and
$1.4 million were comprised of adjustable rate loans at rates ranging from
6.50% TO 8.50%. At March 31, 2001, the Company had total outstanding loan
commitments of approximately $5.1 million, of which $4.7 million were
comprised of fixed rate loans at rates ranging from 6.13% TO 8.25% and
$423,000 were comprised of adjustable rate loans at rates ranging from 6.50%
TO 7.00%. At March 31, 2000, the Company had total outstanding loan
commitments of approximately $2.3 million, of which approximately $1.8
million were comprised of fixed rate loans at rates ranging from 7.50% TO
9.00% and $520,000 were comprised of adjustable rates ranging from 7.50% to
9.13%. The Company had unused lines of credit under home equity loans of
$12.7 million, $12.1 million and $10.7 million at September 30, 2001, March
31, 2001 and 2000, respectively. Additionally, the Company had unused lines
of credit under commercial loans of $3.7 million, $2.0 million and $3.1
million at September 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-24
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000 and 1999
NOTE I - COMMITMENTS AND CONTINGENT LIABILITIES (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 five-year renewal options with lease payments to be determined by the
parties at such time.
There were no material contingent liabilities at September 30, 2001, March
31, 2001 or March 31, 2000.
NOTE J - REGULATORY CAPITAL
The Banks are subject to minimum regulatory capital standards promulgated by
the OTS. Failure to meet minimum capital requirements can initiate certain
mandatory - and possibly additional discretionary - actions by regulators
that, if undertaken, could have a direct material effect on the consolidated
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Banks must meet specific capital
guidelines that involve quantitative measures of the Banks' assets,
liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Banks' capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors. The minimum capital
standards of the OTS generally require the maintenance of regulatory capital
sufficient to meet each of three tests, hereinafter described as the
tangible capital requirement, the core capital requirement and the
risk-based capital requirement. The tangible capital requirement provides
for minimum tangible capital (defined as stockholders' equity less all
intangible assets) equal to 1.5% of adjusted total assets. The core capital
requirement provides for minimum core capital (tangible capital plus certain
forms of supervisory goodwill and other qualifying intangible assets)
generally equal to 4.0% of adjusted total assets except for those
associations with the highest examination rating and acceptable levels of
risk. The risk-based capital requirement provides for the maintenance of
core capital plus general loss allowances equal to 8.0% of risk-weighted
assets. In computing risk-weighted assets, the Banks multiply the value of
each asset on their statement of financial condition by a defined
risk-weighting factor, e.g. one- to four-family residential loans carry a
risk-weighted factor of 50%.
As of September 30, 2001, and March 31, 2001 and 2000, management believes
that the Banks met all capital adequacy requirements to which they were
subject. As of the most recent examination date, the banks were advised by
the ots that they met the definition of "well capitalized" institutions.
F-25
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 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 SEPTEMBER 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 $25,274 7.8% $ 4,891 1.5% $16,302 5.0%
Core capital $25,274 7.8% $ 13,042 4.0% $19,563 6.0%
Risk-based capital $26,017 14.4% $ 14,472 8.0% $18,090 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-26
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 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 8.0% $ 4,558 1.5% $15,192 5.0%
Core capital $24,305 8.0% $ 12,155 4.0% $18,230 6.0%
Risk-based capital $25,098 15.7% $ 12,802 8.0% $16,003 10.0%
WAYNE SAVINGS BANCSHARES, INC.
RECONCILIATION OF GAAP TO BANKS' REGULATORY CAPITAL
SEPTEMBER 30, MARCH 31, MARCH 31,
2001 2001 2000
(IN THOUSANDS)
CONSOLIDATED GAAP CAPITAL $25,526 $25,285 $25,121
------------------------- ------- ------- -------
EFFECT OF WAYNE SAVINGS BANCSHARES, INC. IN CONSOLIDATION 136 149 (525)
--------------------------------------------------------- --- ---
UNREALIZED (GAINS) LOSSES ON SECURITIES DESIGNATED AS AVAILABLE
---------------------------------------------------------------
FOR SALE (60) (33) 36
---------- ---- ----
MORTGAGE SERVICING RIGHTS AND OTHER INTANGIBLES (328) (323) (327)
----------------------------------------------- -------- -------- --------
TANGIBLE AND CORE CAPITAL 25,274 25,078 24,305
------------------------- ------ ------ ------
GENERAL VALUATION ALLOWANCE 743 655 793
--------------------------- -------- -------- --------
RISK-BASED CAPITAL $26,017 $25,733 $25,098
------------------ ====== ====== ======
F-27
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 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 SEPTEMBER 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 $2,757 7.8% $ 532 1.5% $1,773 5.0%
Core capital $2,757 7.8% $ 1,418 4.0% $2,128 6.0%
Risk-based capital $2,799 15.4% $ 1,457 8.0% $1,822 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-28
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 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. 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. Additionally, during fiscal
2000, bankshares reimbursed the company $127,000 of organizational costs
previously incurred in the formation of village savings bank.
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-29
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 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 six months ended September 30, 2001 or the
fiscal years ended March 31, 2001, 2000 and 1999.
A summary of the status of the Company's stock option plans as of September
30, 2001 and March 31, 2001, 2000 and 1999 and changes during the periods
ending on those dates is presented below:
SEPTEMBER 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 September 30,
2001:
Numbe1r outstanding 17,473
Range of exercise prices $5.00
Weighted-average exercise price $5.00
Weighted-average remaining contractual life 1.75
At September 30, 2001, all of the stock options granted were subject to
exercise at the discretion of the grantees and expire in 2003.
F-30
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000 and 1999
NOTE L - PENSION AND BENEFIT PLANS
THE COMPANY HAS A NON-CONTRIBUTORY INSURED DEFINED BENEFIT PENSION PLAN (THE
"PLAN") COVERING ALL ELIGIBLE EMPLOYEES. THE PLAN'S BENEFIT FORMULA IS THE
PROJECTED UNIT CREDIT FORMULA WHICH ENCOMPASSES FUTURE SALARY LEVELS AND
PARTICIPANTS' YEARS OF SERVICE.
NET PENSION COSTS INCLUDES THE FOLLOWING COMPONENTS FOR THE YEARS ENDED
MARCH 31:
NOVEMBER 30,
2000 1999 1998
(IN THOUSANDS)
PROJECTED BENEFIT OBLIGATION AT BEGINNING OF YEAR SERVICE COST INTEREST COST
ACTUARIAL GAIN BENEFITS PAID
PROJECTED BENEFIT OBLIGATION AT END OF YEAR
THE CHANGES IN THE PLANS' ASSETS ARE COMPUTED AS FOLLOWS:
NOVEMBER 30,
2000 1999 1998
(IN THOUSANDS)
FAIR VALUE OF PLAN ASSETS AT BEGINNING OF YEAR ACTUAL RETURN ON PLAN ASSETS
EMPLOYER CONTRIBUTIONS BENEFITS PAID
FAIR VALUE OF PLAN ASSETS AT END OF YEAR
THE FOLLOWING TABLE SETS FOR THE PLANS' FUNDED STATUS AND AMOUNTS RECOGNIZED
ON THE COMPANY'S BALANCE SHEET:
2001 2000
(IN THOUSANDS)
FUNDED STATUS UNRECOGNIZED NET ACTUARIAL GAIN UNRECOGNIZED PRIOR SERVICE
COST UNRECOGNIZED NET TRANSITION (ASSET)
PREPAID BENEFIT COST
F-31
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED) AND
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
NOTE L - PENSION AND BENEFIT PLANS (CONTINUED)
THE WEIGHTED-AVERAGE ACTUARIAL ASSUMPTIONS USED WERE:
2001 2000 1999
WEIGHTED-AVERAGE DISCOUNT RATE WEIGHTED-AVERAGE RATE OF COMPENSATION
INCREASE WEIGHTED-AVERAGE EXPECTED LONG-TERM RATE OF RETURN ON PLAN ASSETS
NET PERIODIC PENSION (BENEFIT) COSTS INCLUDES THE FOLLOWING COMPONENTS:
2001 2000 1999
(IN THOUSANDS)
SERVICE COST INTEREST COST EXPECTED RETURN ON PLAN ASSETS AMORTIZATION OF
PRIOR SERVICE COST AMORTIZATION OF NET TRANSITION ASSET RECOGNIZED NET
ACTUARIAL GAIN
NET PERIODIC PENSION (BENEFIT) COST
PLAN ASSETS AT MARCH 31, 2001 AND 2000 WERE INVESTED IN CERTIFICATES OF
DEPOSIT AND LIFE INSURANCE CONTRACTS.
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
$96,000, $108,000, $204,000, $222,000, and $144,000 for the six month
periods ending September 30, 2001 and 2000, and the 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 $2.2 million.
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 $22,000 for each
of the six month periods ended September 30, 2001 and 2000, and $44,000,
$39,000 and $36,000 for the fiscal years ended March 31, 2001, 2000 and
1999, respectively.
F-32
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000 and 1999
NOTE M - CONDENSED FINANCIAL STATEMENTS OF WAYNE SAVINGS BANCSHARES, INC.
The following condensed financial statements summarize the financial
position of Wayne Savings Bancshares, Inc. as of September 30, 2001 and
March 31, 2001 and 2000, and the results of its operations and its cash
flows for the six-month periods ending September 30, 2001 and 2000 and the
years ended March 31, 2001, 2000 and 1999.
Wayne Savings Bancshares, Inc.
STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, MARCH 31,
2001 2001 2000
(UNAUDITED) (In thousands)
ASSETS
Cash and due from banks $ 22 $ 86 $ 169
Interest-bearing deposits in other financial institutions - - 475
Investment in subsidiary 25,662 25,434 24,596
Prepaid expenses and other 89 56 100
------ ------ ------
Total assets $25,773 $25,576 $25,340
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities $ 247 $ 291 $ 219
Stockholders' equity
Common stock and additional paid-in capital 17,075 17,075 17,025
Retained earnings 9,535 9,180 8,777
Less shares held in treasury (67,742, 57,042 and 33,214 shares,
respectively) (1,144) (1,003) (645)
Accumulated other comprehensive income (loss),
unrealized gains (losses) on securities designated as
available for sale, net 60 33 (36)
------ ------ ------
Total stockholders' equity 25,526 25,285 25,121
------ ------ ------
Total liabilities and stockholders' equity $25,773 $25,576 $25,340
====== ====== ======
F-33
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000 and 1999
NOTE M - CONDENSED FINANCIAL STATEMENTS OF WAYNE SAVINGS BANCSHARES, INC.
(continued)
Wayne Savings Bancshares, Inc.
STATEMENTS OF EARNINGS
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, MARCH 31,
2001 2000 2001 2000 1999
(Unaudited)
(In thousands)
Income
Interest income $ - $ 11 $ 17 $ 58 $ 53
Equity in earnings of subsidiary 831 690 1,530 1,302 1,676
--- --- ----- ----- -----
Total revenue 831 701 1,547 1,360 1,729
General and administrative expenses 58 59 122 135 102
--- --- ----- ----- -----
Earnings before income taxes 773 642 1,425 1,225 1,627
Federal income tax credits (20) (13) (36) (26) (16)
--- --- ----- ----- -----
NET EARNINGS $793 $655 $1,461 $1,251 $1,643
=== === ===== ===== =====
Wayne Savings Bancshares, Inc.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, MARCH 31,
2001 2000 2001 2000 1999
(Unaudited)
(In thousands)
Cash flows from operating activities:
Net earnings for the period $793 $655 $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 (201) (330) (769) (1,238) 324
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets (33) 66 44 (2) (25)
Other liabilities (44) (16) 72 (30) (8)
--- --- ----- ----- -----
Net cash provided by (used in) operating activities 515 375 808 (19) 1,934
Cash flows provided by (used in) financing activities:
Payment of dividends on common stock (438) (558) (1,058) (882) (725)
Purchase of treasury stock - at cost (141) (18) (358) (177) (431)
Proceeds from exercise of stock options - 36 50 11 87
--- --- ----- ----- -----
Net cash used in financing activities (579) (540) (1,366) (1,048) (1,069)
--- --- ----- ----- -----
Net increase (decrease) in cash and cash equivalents (64) (165) (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 $ 22 $479 $ 86 $ 644 $1,711
=== === ===== ===== =====
F-34
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000 and 1999
NOTE N - SERVICE FEES, CHARGES AND OTHER OPERATING INCOME
SERVICE FEES, CHARGES AND OTHER OPERATING INCOME IS COMPRISED OF THE
FOLLOWING ITEMS:
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, MARCH 31,
2001 2000 2001 2000 1999
(UNAUDITED)
(IN THOUSANDS)
DEPOSIT FEE INCOME $340 $259 $521 $430 $335
LOAN SERVICING FEE INCOME 61 59 120 117 102
INCOME FROM CREDIT CARDS 69 32 101 91 66
OTHER SERVICE FEES, CHARGES AND OTHER OPERATING INCOME 116 72 149 82 179
$586 $422 $891 $720 $682
NOTE O - OTHER OPERATING EXPENSES
OTHER OPERATING EXPENSE IS COMPRISED OF THE FOLLOWING ITEMS:
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, MARCH 31,
2001 2000 2001 2000 1999
(UNAUDITED)
(IN THOUSANDS)
TELEPHONE AND POSTAGE EXPENSE $116 $133 $ 247 $ 286 $ 249
PUBLIC RELATIONS AND ADVERTISING EXPENSE 109 108 214 272 211
STATIONARY, PRINTING AND OFFICE SUPPLIES EXPENSE 87 98 189 244 179
SUPERVISORY EXAM EXPENSE 67 61 128 51 42
PROFESSIONAL SERVICES EXPENSE 26 34 109 93 89
OTHER OPERATING EXPENSES 351 318 784 719 711
$756 $752 $1,671 $1,665 $1,481
F-35
WAYNE SAVINGS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended September 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000 and 1999
NOTE P - 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)
Six months ended September 30, 2001 and 2000 (unaudited) and
years ended March 31, 2001, 2000 and 1999
NOTE Q - 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.
AT SEPTEMBER 30, 2001, THE COMPANY HAD INCURRED COSTS ASSOCIATED WITH THE
PLAN TOTALING APPROXIMATELY $174,000. The plan costs will be netted against
proceeds received in the transaction. If, however, the conversion is not
completed, the costs associated with the conversion will be recorded through
the statement of earnings in the period in which the conversion is
terminated.
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.
JANUARY ____, 2002
----------------
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
II-1
(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............................................ $ 330,000
* Printing, Postage, Mailing and EDGAR............................... 130,000
* Appraisal and Business Plan Fees and Expenses...................... 57,500
* Blue Sky Filing Fees and Expenses (including counsel fees)......... 5,000
* Accounting Fees and Expenses....................................... 95,000
* Conversion Agent and Data Processing Fees.......................... 30,000
** Marketing Agent Fees and Expenses.................................. 320,000
* Marketing Agent Counsel Fees and expenses.......................... 40,000
* Filing Fees (OTS, NASD, Nasdaq and SEC)............................ 81,400
* Other Expenses..................................................... 47,100
* Total .......................................................,...... $ 1,136,000
- ----------------
* 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.
II-2
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***
1.3 Form of Selected Dealer Agreement
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 Form of Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick***
8.2 Opinion of RP Financial, LC with respect to Subscription Rights***
8.3 State Tax Opinion of Grant Thornton
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.
*** Previously filed.
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;
II-3
(iii) Include any additional or changed material information
on the plan of distribution.
(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.
II-4
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 December 13, 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 December 13, 2001
- ------------------------------ President (Principal Executive
Charles F. Finn Officer)
/s/ Michael C. Anderson Executive Vice President and December 13, 2001
- ------------------------------ Chief Financial Officer (Principal
Michael C. Anderson Financial and Accounting Officer)
/s/ Kenneth Rhode Director December 13, 2001
- ------------------------------
Kenneth Rhode
/s/ Russell Harpster Director December 13, 2001
- ------------------------------
Russell Harpster
/s/ Joseph Retzler Director December 13, 2001
- ------------------------------
Joseph Retzler
/s/ Donald Massaro Director December 13, 2001
- ------------------------------
Donald Massaro
/s/ Terry Gardner Director December 13, 2001
- ------------------------------
Terry Gardner
\s\ James Morgan Director December 13, 2001
- ------------------------------
James Morgan
II-5
As filed with the Securities and Exchange Commission on December 14, 2001
Registration No. 333-69600
================================================================================
---------------------------------------
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***
1.3 Form of Selected Dealer Agreement
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 Form of Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick***
8.2 Opinion of RP Financial, LC with respect to Subscription Rights***
8.3 State Tax Opinion of Grant Thornton
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 RPFinancial, 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.
^*** Previously filed.