AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 2002
REGISTRATION NO. 333-69600
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE
AMENDMENT NO. 3 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
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
151 NORTH MARKET STREET
WOOSTER, OHIO 44691-7858
(330) 264-5767
(Name, Address and Telephone Number of Agent for Service)
COPIES TO:
ROBERT B. POMERENK, ESQ.
LUSE 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 5,160,156 shares $10.00 $51,601,560 $579(2)
============================================== ================ ================= ================= ========================
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Represents the fee for the registration of 628,809 additional shares.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
PROSPECTUS
WAYNE SAVINGS BANCSHARES, INC.
(HOLDING COMPANY FOR WAYNE SAVINGS COMMUNITY BANK)
UP TO 2,357,500 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: 1,742,500 2,357,500
Gross offering proceeds: $17,425,000 $23,575,000
Estimated offering expenses: $1,185,000 $1,270,000
Estimated net proceeds: $16,240,000 $22,305,000
Estimated net proceeds per share: $9.32 $9.46
================================================================================
The maximum number of shares offered may be increased up to 2,711,125
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 September __, 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 AUGUST ___, 2002
[INSERT MAP SHOWING WAYNE SAVINGS' MARKET AREA]
1
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS..........................................................3
SUMMARY........................................................................7
RISK FACTORS..................................................................14
FORWARD-LOOKING STATEMENTS....................................................18
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF WAYNE SAVINGS
BANCSHARES, INC............................................................19
RECENT DEVELOPMENTS...........................................................22
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE...................................23
HOW WE INTEND TO USE THE PROCEEDS FROM THIS OFFERING..........................24
OUR DIVIDEND POLICY...........................................................25
MARKET FOR THE COMMON STOCK...................................................25
CAPITALIZATION................................................................27
PRO FORMA DATA................................................................28
WAYNE SAVINGS BANCSHARES, INC. CONSOLIDATED STATEMENTS OF EARNINGS AND
COMPREHENSIVE INCOME.......................................................31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..............................................................32
BUSINESS OF WAYNE SAVINGS BANCSHARES, INC.
AND WAYNE SAVINGS COMMUNITY BANK...........................................43
REGULATION....................................................................65
TAXATION......................................................................71
MANAGEMENT OF WAYNE SAVINGS BANCSHARES, INC...................................71
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS.............................78
THE CONVERSION................................................................79
RESTRICTIONS ON ACQUISITION OF WAYNE SAVINGS BANCSHARES, INC.................101
DESCRIPTION OF CAPITAL STOCK OF WAYNE SAVINGS BANCSHARES, INC.
FOLLOWING THE CONVERSION..................................................102
TRANSFER AGENT...............................................................103
EXPERTS......................................................................103
LEGAL MATTERS................................................................104
ADDITIONAL INFORMATION.......................................................104
2
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 1,742,500 and 2,357,500
shares of common stock at a subscription price of $10.00 per share. We may
increase the number of shares offered up to 2,711,125 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 June 30, 2002; and
(4) Wayne Savings Community Bank depositors as of August __, 2002 and
borrowers as of June 23, 1993 who continue as borrowers as of August
__, 2002.
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 is expected to 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 August __,
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.
3
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 from certificate of deposit accounts for the purchase of
stock). 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 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 or money order 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
September ___, 2002.
Q: HOW CAN I BUY OR SELL WAYNE SAVINGS BANCSHARES, INC. COMMON STOCK IN THE
FUTURE?
4
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 COMPLETION OF 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
$0.528 and $0.340 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
$0.448 per share. There can be no assurance that dividends will be paid or
that they will not be subsequently reduced or eliminated.
Q: AS AN ELIGIBLE DEPOSITOR OR BORROWER OF WAYNE SAVINGS COMMUNITY BANK
PLACING AN ORDER IN THE SUBSCRIPTION OFFERING, MAY I REGISTER THE SHARES
IN SOMEONE ELSE'S NAME?
A: No. To preserve your purchase priority in the subscription offering, you
must register the shares only in the name or names of eligible purchasers
at the applicable date of eligibility. You may not add the names of others
who were not eligible to purchase common stock in the subscription
offering on the applicable date of eligibility.
Q: I AM ELIGIBLE TO PURCHASE SHARES IN THE SUBSCRIPTION OFFERING, BUT I DO
NOT WANT TO BECOME A STOCKHOLDER. MAY I ALLOW SOMEONE ELSE TO USE MY STOCK
ORDER FORM TO TAKE ADVANTAGE OF MY PRIORITY?
A: No. Transferring your subscription rights to someone 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 ^ 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 as a result of the conversion or offering. 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.
5
Q: CAN MY WAYNE SAVINGS COMMUNITY BANK LOCAL BRANCH ASSIST ME WITH PURCHASING
SHARES OR COMPLETING THE STOCK ORDER FORM?
A: No. Our branch personnel may not, by law, assist with investment-related
questions about the stock offering. We have established a stock
information center staffed by registered representatives who can assist
you. You may call the stock information center at the number below.
ADDITIONAL QUESTIONS?
Please call our Stock Information Center
(800) 804-8479
from 9:00 a.m. to 4:00 p.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 SEPTEMBER _, 2002 IN ACCORDANCE WITH FEDERAL LAW, NO
PROSPECTUS WILL BE MAILED ANY LATER THAN FIVE DAYS PRIOR TO SEPTEMBER _, 2002 OR
HAND-DELIVERED ANY LATER THAN TWO DAYS PRIOR TO SEPTEMBER _, 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 March 31, 2002, 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 and its net equity accounts will be merged with Wayne
Savings Bancshares, Inc.
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
March 31, 2002, Wayne Savings Bancshares, Inc. had 2,570,821 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 1,220,122 shares are held by the public. At March 31, 2002, Wayne
Savings Bancshares, Inc. had consolidated assets of $334.8 million, deposits of
$301.0 million and consolidated stockholders' equity of $26.0 million. Following
the conversion this corporation will cease to exist, but will be succeeded by a
new Delaware corporation with the same name.
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. Wayne Savings Community Bank operates
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.
OUR ORGANIZATIONAL STRUCTURE
Wayne Savings Community Bank's predecessor was formed as a mutual
institution in 1899. In 1993, Wane Savings Community Bank 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.
7
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 Bancshares, 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 Wayne Savings Bancshares, Inc. (our newly formed Delaware
corporation and the successor to the current Wayne Savings Bancshares, Inc.) 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:
- ---------------------------------------- PUBLIC STOCKHOLDERS
WAYNE SAVINGS BANKSHARES, MHC
- ----------------------------------------
52.5% OF 47.5% OF
COMMON STOCK COMMON STOCK
----------------------------------------------
---------------------------------------
WAYNE SAVINGS BANCSHARES, INC.
---------------------------------------
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:
o Closely monitoring the needs of customers and providing personal
banking service;
o Emphasizing the origination of one- to four-family residential
mortgage loans in our market area;
o Managing interest rate risk;
o Increasing fee income;
o Controlling expenses;
o Maintaining a strong retail deposit base; and
o Maintaining capital in excess of regulatory requirements.
These strategies are discussed in detail beginning on page 32 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 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.
(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 139,400
to 188,600 shares of common stock.
(3) Third, depositors with $50 or more on deposit as of June 30, 2002.
9
(4) Fourth, depositors of Wayne Savings Community Bank as of August __,
2002 and borrowers as of June 23, 1993 who continue as borrowers as
of August __, 2002.
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 offering between 1,742,500 and 2,357,500 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 2,711,125. 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 $50,000 for preparing the 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
September ___, 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 August __, 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 September __, 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 EXISTING SHARES 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 shares in Wayne Savings
Bancshares, Inc. (our newly formed Delaware corporation). 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.
NEW SHARES TO BE EXCHANGED NEW SHARES
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............... 1,742,500 52.54% 1,574,046 47.46% 3,316,546 1.2901 129
Midpoint.............. 2,050,000 52.54 1,851,819 47.46 3,901,819 1.5177 152
Maximum............... 2,357,500 52.54 2,129,592 47.46 4,487,092 1.7454 175
15% above Maximum..... 2,711,125 52.54 2,449,031 47.46 5,160,156 2.0072 201
If you hold shares of Wayne Savings Bancshares, Inc. in "street name," you
do not need to take any action to exchange the shares. 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
10
Wayne Savings Bancshares, Inc. common stock will be mailed within five business
days after the exchange agent receives properly executed transmittal forms and
certificates.
No fractional shares of Wayne Savings Bancshares, Inc. common stock will
be issued to any public stockholder of Wayne Savings Bancshares, Inc. upon
consummation of the conversion. For each fractional share that would otherwise
be issued, Wayne Savings Bancshares, Inc. will pay an amount equal to the
product obtained by multiplying the fractional share interest to which the
holder would otherwise be entitled by the $10.00 per share subscription price.
See "The Conversion - Share Exchange Ratio and the Effect of the Conversion on
Public Stockholders."
Under federal regulations, current public stockholders of Wayne Savings
Bancshares, Inc. do not have dissenters' rights or appraisal rights.
REASONS FOR THE CONVERSION
We are pursuing the conversion for the following reasons:
o The offering will increase our capital which will enable us to
continue to be a well-capitalized institution.
o The additional funds resulting from the offering will support
increased lending, continued growth and new financial products and
services.
CONDITIONS TO COMPLETION OF THE CONVERSION
We cannot complete our conversion and related offering unless:
o The plan of conversion is approved by at least a majority of votes
eligible to be cast by members of Wayne Savings Bankshares, MHC;
o The plan of conversion is approved by at least two-thirds of the
outstanding shares of Wayne Savings Bancshares, Inc. common stock;
o The plan of conversion is approved by at least a majority of the
votes cast by stockholders of Wayne Savings Bancshares, Inc. common
stock, not including those shares held by Wayne Savings Bankshares,
MHC;
o We sell at least the minimum number of shares offered;
o We receive the final approval of the Office of Thrift Supervision to
complete the conversion and offering; and
o 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 March 31, 2002,
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 July 12, 2002, this market value was
between $33.2 million and $44.9 million, with a midpoint of $39.0 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
11
this offering, the Boards of Directors of Wayne Savings Bankshares, MHC and
Wayne Savings Bancshares, Inc. established an offering range of between
1,742,500 and 2,357,500 shares.
The independent appraisal will be updated prior to the completion of the
conversion. If the market value changes to either below $33.2 million or above
$51.6 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.
LIMITS ON HOW MUCH COMMON STOCK YOU MAY PURCHASE
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 YOU MAY PURCHASE COMMON STOCK
You can subscribe for shares of common stock in the offering by delivering
a signed and completed original stock order form, together with full payment,
provided that we receive the stock order form before the end of the offering.
Following the instructions on the stock order form, you may use the mail or
overnight courier or hand deliver your subscription to the stock information
center. Payment for shares may be made by check, money order or bank draft which
will be immediately cashed, so the funds must be available in your account. We
will pay interest at Wayne Savings Community Bank's passbook rate, from the date
funds are received until completion or termination of the conversion.
Alternatively, subscribers may authorize withdrawal from the types of deposit
accounts with Wayne Savings Community Bank designated on the order form.
Withdrawals from certificates of deposit may be made without incurring an early
withdrawal penalty. All funds authorized for withdrawal from deposit accounts
with Wayne Savings Community Bank must be in the accounts at the time the stock
order is received. 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 __.
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
We will use the proceeds of this offering as follows:
o We estimate net proceeds will be between $16.2 million and $22.3
million. Approximately $8.1 million to $11.2 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.
Wayne Savings Community Bank also may use such funds to expand its
branch network, though it has no immediate plans to do so.
Initially, the net
12
proceeds received by Wayne Savings Community Bank will be invested
in federal funds, short-term investment-grade securities and
mortgage-backed securities.
o Wayne Savings Bancshares, Inc. intends to retain the balance of the
net proceeds (between $8.1 million and $11.2 million). A portion
(between $1.4 million and $1.9 million) will be used to provide a
loan to the employee stock ownership plan to fund the purchase of
common stock in the offering. The balance of the net proceeds
(between $6.7 million and approximately $9.3 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 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 2.2% 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 TO MANAGEMENT AND POTENTIAL DILUTION TO STOCKHOLDERS RESULTING FROM THE
CONVERSION
Our employee stock ownership plan expects to purchase up to 8.0% of the
shares we sell in this offering, or 188,600 shares, assuming we sell the maximum
number of shares proposed to be sold. If we sell more than 2,357,500 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 188,600 shares in the
offering, Wayne Savings Bancshares, Inc. will recognize additional compensation
expense of $1.9 million over a period of 20 years from the consummation of the
conversion, or approximately $94,300 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, compensation
expense will increase or decrease accordingly.
We also intend to implement two additional stock-based incentive plans.
Neither plan will be implemented earlier than six months after the conversion,
and stockholder approval will be required. The stock recognition and retention
plan is a restricted stock plan that would reserve an amount equal to 4% of the
shares sold in the offering (assuming Wayne Savings Community Bank and Village
Savings Bank have a tangible capital to assets ratio in excess of 10%, on a
consolidated basis), or 94,300 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 235,750 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' ownership interest in Wayne Savings
Bancshares, Inc. would be diluted by approximately 5.0%. 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.
13
NUMBER OF SHARES TO BE GRANTED
---------------------------------------- DILUTION
AS A RESULTING VALUE OF GRANTS (1)
PERCENTAGE FROM -------------------------
AT AT OF COMMON ISSUANCE OF AT AT
MINIMUM MAXIMUM STOCK TO BE SHARES FOR MINIMUM MAXIMUM
OF OFFERING OF OFFERING SOLD IN THE STOCK BENEFIT OF OFFERING OF OFFERING
RANGE RANGE OFFERING PLANS RANGE RANGE
------------- ------------- ------------ ------------- ----------- -----------
Employee stock ownership plan 139,400 188,600 8.0% N/A $1,394,000 $1,886,000
Restricted stock plan....... 69,700 94,300 4.0% 2.1% 697,000 943,000
Stock option plan........... 174,250 235,750 10.0% 5.0% -- --
---------- ---------- ---- ---------- ----------
Total.................... 383,350 518,650 22.0% 6.9% $2,091,000 $2,829,000
========== ========== ==== ==== ========== ==========
- --------------------
(1) The actual value of restricted stock grants will be determined based on
their fair value as of the date grants are made. For purposes of this
table, fair value is assumed to be the same as the offering price of
$10.00 per share. 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 the common stock increases after the
option grant.
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.
OUR 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. See the computation of our
dividend payments at footnote 3 of "Selected Consolidated Financial and Other
Data of Wayne Savings Bancshares, Inc." at page 20. After the conversion, we
intend to pay a dividend of $0.132, $0.112, $0.097 and $0.085 per share per
quarter at the minimum, midpoint, maximum and adjusted maximum of the offering
range, respectively, which represents a dividend rate of 5.3%, 4.5%, 3.9% and
3.4%, 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 current
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 taxable under federal and Ohio income tax law
to Wayne Savings Bankshares, MHC, Wayne Savings Bancshares, Inc., Wayne Savings
Community Bank, or persons eligible to subscribe in the offering. 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.
14
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
and, in August 2001, a drive-through facility. 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
substantially fixed. At March 31, 1998, we employed 101 fulltime-equivalent
employees. We had 118 fulltime-equivalent employees at March 31, 2002. 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 71.8% for the 1999 fiscal year, 78.8% for the 2000
fiscal year, 77.7% for the 2001 fiscal year and 72.7% for the 2002 fiscal year.
Although Village Savings Bank became profitable during fiscal year 2001, there
can be no assurance whether or when our four new facilities ^ 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, many borrowers refinance their loans at lower rates,
mortgage-backed securities prepay, and yields on interest earning assets 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,
however, 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 also could 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 quality service and competitive
rates on our loans and deposit products. In our market, we compete with
commercial banks, savings institutions, mortgage banking firms, credit unions,
finance companies, mutual funds, insurance companies, securities brokerage firms
and investment banking firms. Many of these competitors, such as regional banks,
have greater resources than we 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
greater number of larger financial institutions that offer a broader range of
financial services than we currently offer and that can aggressively compete in
the markets we currently serve. This could adversely affect our profitability.
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 or other factors, our profitability
will be affected adversely. We cannot assure you that in the future there will
be no 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 financial institutions. Our
return on average equity for the fiscal years ended March 31, 2002, 2001 and
2000 was 7.1%, 5.3%, and 4.6% respectively. We cannot deploy all of the
increased capital from this offering immediately, which will cause our return on
equity to decrease further. Our ability to profitably leverage our new capital
will be significantly affected by competition for loans and deposits. Initially,
we intend to
15
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 will
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 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 $1,394,000 at the minimum of the offering range and $2,168,900
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 $697,000 at the minimum of the offering
range and $1,084,450 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. Further, if the
shares awarded under the recognition plan come from authorized but unissued
shares, the ownership interest of our stockholders would be
16
diluted by approximately 2.1%. If the shares issued upon the exercise of options
come from authorized but unissued shares, the interest of our stockholders would
be diluted by approximately 5.0%.
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.
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:
o 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.
o 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.
o OFFICE OF THRIFT SUPERVISION REGULATIONS. Office of Thrift
Supervision regulations prohibit, for three years following the
completion of a mutual-to-stock conversion, the acquisition of more
than 10% of any class of equity security of a converted institution
without prior approval of the Office of Thrift Supervision. The
charter of Wayne Savings Community Bank also will include a
provision for a period of five years after the conversion, that
prohibits any person from acquiring or offering to acquire, directly
or indirectly, more than 10% of any class of equity security from
Wayne Savings Community Bank.
17
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, which can be
identified by the use of such words as estimate, project, believe, intend,
anticipate, plan, seek, expect and similar expressions. These forward-looking
statements include:
o statements of our goals, intentions and expectations;
o statements regarding our business plans, prospects, growth and
operating strategies;
o statements regarding the asset quality of our loan and investment
portfolios; and
o estimates of our risks and future costs and benefits.
These forward-looking statements are subject to significant risks,
assumptions and uncertainties, including, among other things, the following
important factors that could affect the actual outcome of future events:
o general economic conditions, either nationally or in our market
areas, that are worse than expected;
o significantly increased competition among depository and other
financial institutions;
o inflation and changes in the interest rate environment that reduce
our margins or reduce the fair value of financial instruments;
o adverse changes in the securities markets;
o legislative or regulatory changes that adversely affect our
business;
o our ability to enter new markets successfully and capitalize on
growth opportunities;
o changes in consumer spending, borrowing and savings habits;
o changes in accounting policies and practices, as may be adopted by
the bank regulatory agencies and the Financial Accounting Standards
Board; and
o changes in our organization, compensation and benefit plans.
Because of these and other uncertainties, our actual future results may be
materially different from the results indicated by these forward-looking
statements. We discuss some of these uncertainties and others in "Risk Factors"
beginning on page __.
18
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
OF WAYNE SAVINGS BANCSHARES, INC.
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 financial information for the years ended March 31, 2002,
2001 and 2000, as restated, 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, 2000, 1999 and 1998 and for the years ended March 31,
1999 and 1998 was derived in part from audited consolidated financial statements
that are not included in this prospectus.
AT MARCH 31,
----------------------------------------------------------------
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SELECTED FINANCIAL CONDITION DATA:
Total assets............................ $ 334,843 $ 311,640 $ 304,030 $ 270,954 $ 259,711
Loans receivable, net(1)................ 251,172 247,480 237,418 215,636 207,879
Mortgage-backed securities(2)........... 17,326 8,574 10,459 7,230 4,275
Investment securities(3)................ 22,286 13,641 23,199 11,830 13,401
Cash and cash equivalents(4)............ 27,883 20,902 14,296 16,245 13,169
Deposits................................ 300,957 277,706 264,952 235,327 217,621
Stockholders' equity.................... 26,047 25,255 24,962 24,900 24,385
Book value per common share(5).......... 10.13 9.78 9.60 9.55 10.29
- ----------------------
(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.
19
FOR THE YEARS ENDED MARCH 31,
-----------------------------------------------------------
2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SELECTED OPERATING DATA:(1)
Interest income.................................. $ 21,309 $ 21,506 $ 20,700 $ 19,234 $ 19,236
Interest expense................................. 12,348 13,100 12,014 11,187 11,084
--------- --------- --------- --------- ---------
Net interest income.............................. 8,961 8,406 8,686 8,047 8,152
Provision for losses on loans.................... 134 96 106 78 60
--------- --------- --------- --------- ---------
Net interest income after provision for losses
on loans........................................ 8,827 8,310 8,580 7,969 8,092
Other income..................................... 1,657 1,045 748 985 854
General, administrative and other expense........ 7,722 7,348 7,434 6,488 6,144
--------- --------- --------- --------- ---------
Earnings before income taxes..................... 2,762 2,007 1,894 2,466 2,802
Federal income taxes............................. 939 675 624 838 953
--------- --------- --------- --------- ---------
Net earnings before change in accounting
principle ...................................... 1,823 1,332 1,270 1,628 1,849
Change in accounting principle related to
allocated organizational costs, net of taxes of
$63,000......................................... -- -- (122) -- --
--------- --------- --------- --------- ---------
Net earnings..................................... $ 1,823 $ 1,332 $ 1,148 $ 1,628 $ 1,849
========= ========= ========= ========= =========
EARNINGS PER SHARE:
Basic (2)
Earnings before cumulative change in accounting
principle....................................... $ .71 $ .51 $ .49 $ .62 $ .71
Cumulative change in accounting principle........ -- -- (.05) -- --
--------- --------- --------- --------- ---------
Basic earnings per share......................... $ .71 $ .51 $ .44 $ .62 $ .71
--------- --------- --------- --------- ---------
Diluted earnings per share (2)
Earnings before cumulative change in accounting
principle....................................... $ .71 $ .51 $ .49 $ .62 $ .70
Cumulative change in accounting principle........ -- -- (.05) -- --
--------- --------- --------- --------- ---------
Diluted earnings per share....................... $ .71 $ .51 $ .44 $ .62 $ .70
--------- --------- --------- --------- ---------
Cash dividends declared per common share (2)(3). $ .68 $ .64 $ .64 $ .59 $ .54
========= ========= ========= ========= =========
- --------------------
(1) During fiscal 2002, Wayne Savings Bancshares, Inc. restated its
consolidated financial statements to include as expenses certain operating
costs that were previously paid or reimbursed by Wayne Savings Bankshares,
MHC. The adjustment related to the reimbursements resulted in a reduction
of net earnings of $100,000, or $.04 per diluted share, $177,000, or $.07
per diluted share, and $15,000, or $.00 per diluted share, for each of the
three years ended March 31, 2001, 2000 and 1999, respectively,
substantially offset by an increase to stockholders' equity as a result of
a reduction in cash dividends paid to Wayne Savings Bankshares, MHC
totaling $258,000. Additionally, management restated Wayne Savings
Bancshares, Inc.'s 2001, 2000 and 1999 consolidated financial statements
for various adjustments related to depreciation expense and other
adjustments. These adjustments resulted in a decrease in net earnings of
$29,000, or $.01 per diluted share in fiscal 2001, an increase in net
earnings of $74,000, or $.03 per diluted share in fiscal 2000, and a
decrease of $2,000, or $.00 per diluted share in fiscal 1999. The
cumulative effect of the two adjustments resulted in a reduction in net
earnings of $129,000, or $.05 per diluted share in fiscal 2001, $103,000,
or $.04 per diluted share in fiscal 2000, and $11,000, or $.00 per diluted
share in fiscal 1999. The cumulative effect of these adjustments on
stockholders' equity at March 31, 2001, was a decrease of $30,000, or $.01
per diluted share.
(2) Adjusted to reflect all stock splits and stock dividends during the
relevant periods.
(3) During fiscal years ended March 31, 1998 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 $.63 and $.59, respectively, of the $.64 dividend paid per
share in each respective year. During fiscal 2002, Wayne Savings
Bankshares, MHC waived the receipt of approximately $.65 of the $.68
dividend declared on common stock.
Total dividends paid for each of the years ended March 31, 2002, 2001 and
2000 are computed as follows:
YEAR ENDED MARCH 31,
------------------------------
2002 2001 2000
-------- -------- --------
Shares held by public at $0.68, $0.64, and $0.64 per share, respectively..... $ 811 $ 786 $ 814
Shares held by MHC at $0.03, $0.01 and $0.05 per share, respectively......... 41 14 68
Total dividends paid......................................................... $ 852 $ 800 $ 882
20
AT OR FOR THE YEARS ENDED MARCH 31,
--------------------------------------------------------------
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
KEY OPERATING RATIOS AND OTHER DATA:
Return on average assets (net earnings
divided by average total assets)(1)........ .56% .45% .39% .62% .73%
Return on average equity (net earnings
divided by average stockholders' equity)
(1)........................................ 7.12 5.28 4.57 6.85 7.72
Interest rate spread (difference between
average yield on interest-earning assets
and average cost of interest-bearing
liabilities)............................... 2.77 2.57 2.88 2.93 2.98
Net interest margin (net interest income as a
percentage of average interest-earning
assets).................................... 2.93 2.92 3.14 3.23 3.34
Average interest-earning assets to average
interest-bearing liabilities............... 103.98 107.62 106.05 106.99 108.02
Net interest income after provision for losses
on loans, to general, administrative and
other expense (2).......................... 114.31 113.31 115.51 122.56 131.71
General, administrative and other expense to
average assets (1)(2)...................... 2.39 2.46 2.54 2.50 2.42
Efficiency ratio (3).......................... 72.73 77.75 78.80 71.83 68.22
Dividend payout ratio......................... 46.74 60.06 76.83 46.20 36.45
ASSET QUALITY RATIOS:
Non-performing and impaired loans to loans
receivable, net............................ 1.52 .47 .48 .13 .15
Non-performing and impaired assets to total
assets..................................... 1.14 .41 .40 .12 .48
Allowance for loan losses to non-performing
and impaired loans......................... 19.16 56.47 69.56 242.14 234.09
Allowance for loan losses to non-performing
and impaired assets........................ 19.07 51.01 64.47 211.21 57.50
Allowance for loan losses to total loans...... .29 .27 .33 .32 .35
CAPITAL RATIOS:
Average stockholders' equity to average assets 7.93 8.44 8.57 9.07 9.42
Stockholders' equity to assets at period end.. 7.79 8.10 8.21 9.19 9.39
REGULATORY CAPITAL OF WAYNE SAVINGS
COMMUNITY BANK (4):
Tangible capital.............................. 7.79 8.12 8.07 8.59 9.13
Core capital.................................. 7.79 8.12 8.07 8.59 9.13
Risk-based capital............................ 14.13 15.65 15.81 16.39 17.37
OTHER DATA:
Number of full-service offices (4)............ 10 9 9 7 6
- --------------------
(1) Calculated using monthly averages from consolidated statements of
financial condition.
(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.
21
RECENT DEVELOPMENTS
[TO COME]
22
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
At March 31, 2002, 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 March 31, 2002, 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 March 31, 2002. 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 MARCH 31, 2002
BANK HISTORICAL AT -------------------------------------------------------------------------------------
MARCH 31, 2002 MINIMUM MIDPOINT MAXIMUM MAXIMUM AS ADJUSTED(1)
----------------------- ------------------- -------------------- -------------------- ----------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2)
-------- ------------ -------- ---------- -------- ---------- -------- ---------- -------- -----------
GAAP Capital........... $ 26,140 7.81% $ 34,430 10.04% $ 35,946 10.43% $ 37,462 10.82% $ 39,215 11.27%
Tangible Capital....... $ 26,063 7.79% $ 34,353 10.02% $ 35,869 10.41% $ 37,385 10.80% $ 39,138 11.25%
Tangible Requirement... 5,021 1.50 5,145 1.50 5,168 1.50 5,190 1.50 5,217 1.50
-------- ------- -------- -------- -------- ------- -------- ------- -------- -------
Excess................. $ 21,042 6.29% $ 29,208 8.52% $ 30,701 8.91% $ 32,195 9.30% $ 33,921 9.75%
Core Capital........... $ 26,063 7.79% $ 34,353 10.02% $ 35,869 10.41% $ 37,385 10.80% $ 39,138 11.25%
Core Requirement(3).... 13,389 4.00 13,720 4.00 13,780 4.00 13,841 4.00 13,911 4.00
-------- ------- -------- -------- -------- ------- -------- ------- -------- -------
Excess................. $ 12,674 3.79% $ 20,633 6.02% $ 22,089 6.41% $ 23,544 6.80% $ 25,227 7.25%
Total Capital(4)....... $ 26,688 14.13% $ 34,978 18.36% $ 36,494 19.13% $ 38,010 19.89% $ 39,763 20.77%
Risk-based Requirement. 15,108 8.00 15,240 8.00 15,265 8.00 15,289 8.00 15,317 8.00
-------- ------- -------- -------- -------- ------- -------- ------- -------- -------
Excess................. $ 11,580 6.13% $ 19,738 10.36% $ 21,229 11.13% $ 22,721 11.89% $ 24,446 12.77%
- --------------------------------
(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.
23
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
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 $16.2 million and $22.3
million, or $25.8 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 $8.1
million and $11.2 million, or $12.9 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, including
acquiring other financial institutions, diversifying into other banking related
businesses, funding our stock recognition and retention plan or paying 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..................................... $ 16,240 $ 22,305
Investment in Wayne Savings Community Bank....... (8,120) (11,153)
Funds loaned to ESOP............................. (1,394) (1,886)
----------- ----------
Funds retained for general corporate purposes.... $ 6,726 $ 9,266
=========== ==========
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 and valid
business purposes" 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, our 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.
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
24
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.
OUR 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. See the computation of our
dividend payments at footnote 3 of "Selected Consolidated Financial and Other
Data of Wayne Savings Bancshares, Inc." at page 20. After the conversion, we
intend to pay a dividend of $0.132, $0.112, $0.097 and $0.085 per share per
quarter at the minimum, midpoint, maximum and adjusted maximum of the offering
range, respectively, which represents a dividend rate of 5.3%, 4.5%, 3.9% and
3.4% 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 September 2002 and closed in October 2002, we expect to
declare the first dividend for the quarter ending December 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 upon dividends from Wayne Savings Community Bank. Wayne Savings
Bancshares, Inc., however, is subject to the requirements of Delaware law, which
generally limit dividends to an amount equal to the excess of its stockholders'
equity over its statutory capital or, if there is no excess, to its net earnings
for the current and/or immediately preceding fiscal year.
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 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 March 31, 2002, 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 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 Ryan, Beck & Co., LLC will continue to be a market
maker in our common stock indefinitely, or 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
25
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 March 31, 2002, there were
1,220,122 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 2003
Quarter Ended September 30, 2002
(through August __, 2002).......... $ [ ] $ [ ] $ [ ]
Quarter Ended June 30, 2002.......... $ 21.50 $ 20.00 $ 0.17
FISCAL YEAR 2002
Quarter Ended March 31, 2002......... $ 22.00 $ 16.25 $ 0.17
Quarter Ended December 31, 2001...... $ 17.82 $ 13.86 $ 0.17
Quarter Ended September 30, 2001..... $ 20.55 $ 13.75 $ 0.17
Quarter Ended June 30, 2001.......... $ 17.94 $ 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
At July 10, 2001, the business day immediately preceding the public
announcement of the conversion, and at August ___, 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 August ___,
2002, Wayne Savings Bancshares, Inc. had approximately ____ 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."
26
CAPITALIZATION
The following table presents the historical consolidated capitalization of
Wayne Savings Bancshares, Inc. at March 31, 2002, 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 MARCH 31, 2002
-----------------------------------------------------------
5,156,141
3,313,966 3,898,784 4,483,601 MAXIMUM AS
MINIMUM MIDPOINT MAXIMUM ADJUSTED
WAYNE SAVINGS SHARES SHARES SHARES SHARES
BANCSHARES, OUTSTANDING, OUTSTANDING, OUTSTANDING, OUTSTANDING,
INC. 1,742,500 2,050,000 2,357,500 2,711,125
HISTORICAL AT SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
MARCH 31, AT $10.00 PER AT $10.00 AT $10.00 AT $10.00 PER
2002 SHARE PER SHARE PER SHARE SHARE(1)
------------- ------------- ------------ ------------ -------------
(DOLLARS IN THOUSANDS)
Deposits(2)........................... $ 300,957 $ 300,957 $ 300,957 $ 300,957 $ 300,957
Borrowed funds........................ 5,000 5,000 5,000 5,000 5,000
----------- ----------- ----------- ----------- -----------
Total deposits and borrowed funds..... $ 305,957 $ 305,957 $ 305,957 $ 305,957 $ 305,957
=========== =========== =========== =========== ===========
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)(5)..................... 2,641 332 390 449 516
Additional paid-in capital............ 14,444 31,982 34,956 37,930 41,367
Retained earnings(4).................. 10,121 10,121 10,121 10,121 10,121
Accumulated other comprehensive
income................................ ^ 22 22 22 22 22
Less:
Treasury stock....................... (1,181) -- -- -- --
Common stock to be acquired by
ESOP(6).............................. -- (1,394) (1,640) (1,886) (2,169)
Common stock to be acquired by ^
recognition plan(7)............... -- (697) (820) (943) (1,084)
----------- ------------ ------------ ------------ -----------
Total stockholders' equity............ $ 26,047 $ 40,366 $ 43,029 $ 45,693 $ 48,773
=========== =========== =========== =========== ===========
Total stockholders' equity as a
percentage of total assets........... 7.79% 11.66% 12.33% 13.00% 13.75%
============ ============ ============ ============ ============
- ------------------------------------
(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 $170,000 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 that may be adopted by Wayne Savings Bancshares, Inc. If this
plan is implemented, 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. No
effect has been given to the exercise of options currently outstanding. See
"Management of Wayne Savings Bancshares, Inc.--Benefits."
(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.
(FOOTNOTES CONTINUED ON NEXT PAGE)
27
(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 3,386,346, 3,983,819,
4,581,392 and 5,268,601, respectively, and total stockholders' equity
would be $41.1 million, $43.8 million, $46.6 million, and $49.9 million,
respectively, at March 31, 2002. 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, ^ 2002, 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 six
months after the conversion. Moreover, book value does not give effect to the
liquidation account to be established in the conversion or, in the event of a
liquidation of Wayne Savings Community Bank, to the tax effect of the recapture
of the bad debt reserve. 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, 2002, 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 2.70% for the
fiscal year ended March 31, 2002. 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 1.78% for the fiscal year ended March
31, 2002. 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 $16.2 million and $22.3 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.
28
AT OR FOR THE YEAR ENDED MARCH 31, 2002
BASED UPON THE SALE FOR $10.00 OF
-----------------------------------------------------------
1,742,500 2,050,000 2,357,500 2,711,125
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........................................ $ 17,425 $ 20,500 $ 23,575 $ 27,111
Expenses............................................. 1,185 1,228 1,270 1,302
------------ ------------ ------------ ------------
Estimated net proceeds............................... 16,240 19,272 22,305 25,809
Common stock purchased by employee stock ownership
plan (2)............................................ (1,394) (1,640) (1,886) (2,169)
Common stock purchased by recognition plan (3)....... (697) (820) (943) (1,084)
Assets reinvested from the MHC....................... 170 170 170 170
------------ ------------ ------------ ------------
Estimated net proceeds, as adjusted.................. $ 14,319 $ 16,982 $ 19,646 $ 22,726
============ ============ ============ ============
FOR THE FISCAL YEAR ENDED MARCH 31, 2002:
Consolidated net earnings:
Historical........................................... $ 1,823 $ 1,823 $ 1,823 $ 1,823
Pro forma adjustments:
Income on adjusted net proceeds...................... 255 303 350 405
Pro forma state franchise taxes...................... (74) (83) (96) (111)
Employee stock ownership plan (2).................... (46) (54) (62) (72)
Recognition plan (3)................................. (92) (108) (124) (143)
------------- ------------- ------------- -------------
Pro forma net earnings............................ $ 1,866 $ 1,881 $ 1,891 $ 1,902
============ ============ ============ ============
Earnings per share (4):
Historical........................................... $ 0.57 $ 0.49 $ 0.42 $ 0.37
Pro forma adjustments:
Income on net proceeds............................... 0.08 0.07 0.08 0.07
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)(8)............ 0.59 $ 0.50 $ 0.44 $ 0.38
------------ ------------ ------------ ------------
Pro forma price to earnings (8)....................... 16.95 20.00 22.73 26.32
============ ============ ============ ============
Number of shares used in price-to-earnings ratio
calculations.......................................... 3,184,116 3,746,019 4,307,922 4,954,111
========= ========= ========= =========
AT MARCH 31, 2002: Stockholders' equity:
Historical........................................... $ 26,047 $ 26,047 $ 26,047 $ 26,047
Estimated net proceeds............................... 16,240 19,272 22,305 25,809
MHC capital consolidation............................ 170 170 170 170
Less: Common stock acquired by employee stock
ownership plan (2)...................... (1,394) (1,640) (1,886) (2,169)
Common stock acquired by recognition plan (3) (697) (820) (943) (1,084)
------------- ------------- ------------- -------------
Pro forma stockholders' equity (6).................... 40,366 43,029 45,694 48,773
Intangible assets.................................... -- -- -- --
------------ ------------ ------------ ------------
Pro forma tangible stockholders' equity.............. $ 40,366 $ 43,029 $ 45,694 $ 48,773
============ ============ ============ ============
Stockholders' equity per share (7):
Historical........................................... $ 7.85 $ 6.68 $ 5.80 $ 5.05
Estimated net proceeds............................... 4.90 4.94 4.97 5.00
MHC capital consolidation............................ 0.05 0.04 0.04 0.03
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)...... $ 12.17 $ 11.03 $ 10.18 $ 9.45
============ ============ ============ ============
Pro forma tangible stockholders' equity per share.... $ 12.17 $ 11.03 $ 10.18 $ 9.45
Offering price as a percentage of pro forma
stockholders' equity per share...................... 82.17% 90.66% 98.23% 105.82%
Offering price as a percentage of pro forma tangible
stockholders' equity per share...................... 82.17% 90.66% 98.23% 105.82%
Number of shares used in book value per share
calculations 3,316,546 3,901,819 4,487,092 5,160,156
(FOOTNOTES ON NEXT PAGE)
29
- --------------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to a 15% increase in the offering range to reflect changes
in market and financial conditions following the commencement of the
offering.
(2) Assumes that 8.0% of shares of common stock sold in the offering will be
purchased by the employee stock ownership plan. For purposes of this
table, the funds used to acquire these shares are assumed to be borrowed
by the employee stock ownership plan from the net proceeds of the offering
retained by Wayne Savings Bancshares, Inc. Wayne Savings Community Bank
intends to make annual contributions to the employee stock ownership plan
in an amount at least equal to the principal and interest of the debt.
Wayne Savings Community Bank's total annual payments on the employee stock
ownership plan debt are based upon 20 equal annual installments of
principal. Statement of Position 93-6 requires that an employer record
compensation expense in an amount equal to the fair value of the shares
committed to be released. The pro forma adjustments assume that the
employee stock ownership plan shares are allocated in equal annual
installments based on the number of loan repayment installments assumed to
be paid by Wayne Savings Community Bank, the fair value of the common
stock remains at $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 6,970, 8,200, 9,430, and 10,845 shares
were committed to be released during the fiscal year ended March 31, 2002,
at the minimum, midpoint, maximum, and adjusted maximum of the offering
range, respectively, and (ii) 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) 20% of the amount contributed to the stock
recognition plan is amortized as an expense during the fiscal year ended
March 31, 2002, and (iii) 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
5.0%.
(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 1.2901,
1.5177, 1.7454 and 2.0072, 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.
(8) As noted above, pro forma consolidated net earnings has been calculated as
if the estimated net proceeds had been invested based on the equivalent
yield on the one-year United States Treasury bill rate. If the
reinvestment rate was calculated based on the arithmetic average method,
the pro forma yield on the estimated net proceeds would be 5.57% for the
fiscal year ended March 31, 2002. The pro forma after-tax yield on the
estimated net proceeds would be 3.68% for the fiscal year ended March 31,
2002. Based on the arithmetic average reinvestment rate, pro forma
earnings per share for the fiscal year ended March 31, 2002 would be equal
to $0.67, $0.59, $0.53^ and $0.47 and the pro forma price to earnings
multiple would be 14.93x, 16.95x, 18.87x and 21.28x at the minimum,
midpoint, maximum and adjusted maximum of the offering range,
respectively.
30
WAYNE SAVINGS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
The following Consolidated Statements of Earnings and Comprehensive Income
of Wayne Savings Bancshares, Inc. for the years ended March 31, 2002, 2001 and
2000, have been audited by Grant Thornton LLP, independent certified public
accountants, whose report thereon appears elsewhere in this prospectus. 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 YEAR ENDED MARCH 31,
--------------------------------------
2002 2001 2000
----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA)
Interest income:
Loans............................................. $ 19,059 $ 18,701 $ 17,927
Mortgage-backed securities........................ 571 583 602
Investment securities............................. 871 1,423 1,033
Interest-bearing deposits and other............... 808 799 1,138
----------- ---------- ---------
Total interest income.......................... 21,309 21,506 20,700
Interest expense:
Deposits.......................................... 12,055 12,652 11,530
Borrowings........................................ 293 448 484
----------- ---------- ---------
Total interest expense......................... 12,348 13,100 12,014
----------- ---------- ---------
Net interest income............................ 8,961 8,406 8,686
Provision for losses on loans...................... 134 96 106
----------- ---------- ---------
Net interest income after provision for losses
on loans........................... 8,827 8,310 8,580
Other income:
Gain on sale of loans............................. 514 154 28
Service fees, charges and other operating income.. 1,143 891 720
----------- ---------- ---------
Total other income............................. 1,657 1,045 748
General, administrative and other expense:
Employee compensation and benefits................ 4,312 3,957 3,817
Occupancy and equipment........................... 1,388 1,335 1,394
Federal deposit insurance premiums................ 46 86 173
Franchise taxes................................... 274 230 329
Loss on disposal of real estate acquired through
foreclosure.................................... -- -- 6
Other operating expenses.......................... 1,667 1,590 1,631
Operating expenses previously reimbursed or
allocated to MHC................................ 35 150 84
----------- ---------- ---------
Total general, administrative and other expense 7,722 7,348 7,434
----------- ---------- ---------
Earnings before income taxes................... 2,762 2,007 1,894
Federal income taxes:
Current........................................... 620 640 580
Deferred.......................................... 319 35 44
----------- ---------- ---------
Total federal income taxes..................... 939 675 624
----------- ---------- ---------
Net earnings before change in accounting
principle.................................... 1,823 1,332 1,270
Change in accounting principle related to allocated
organization costs, net of taxes of $63,000....... -- -- (122)
----------- ---------- ---------
NET EARNINGS................................... $ 1,823 $ 1,332 $ 1,148
Basic earnings per share:
Earnings before cumulative change in accounting
principle...................................... $ 0.71 $ 0.51 $ 0.49
Cumulative change in accounting principle......... -- -- (0.05)
----------- ---------- ---------
Basic earnings per share....................... $ 0.71 $ 0.51 $ 0.44
Diluted earnings per share:
Earnings before cumulative change in accounting
principle......................................... $ 0.71 $ 0.51 $ 0.49
Cumulative change in accounting principle......... -- -- (0.05)
----------- ---------- ---------
Diluted........................................ $ 0.71 $ 0.51 $ 0.44
Net earnings....................................... $ 1,823 $ 1,332 $ 1,148
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on securities
during the period, net of taxes (benefits) of
$(6), $36 and $(20)............................... (11) 69 (38)
----------- ---------- ---------
Comprehensive income............................. $ 1,812 $ 1,401 $ 1,110
Accumulated comprehensive income (loss).......... $ 22 $ 33 $ (36)
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion and analysis reflects Wayne Savings Bancshares, Inc.'s
consolidated financial statements and other relevant statistical data and is
intended to enhance your understanding of our financial condition and results of
operations. You should read the information in this section in conjunction with
Wayne Savings Bancshares, Inc.'s consolidated financial statements and their
notes beginning on page F-1 of this prospectus, and the other statistical data
provided in this prospectus. The preparation of consolidated financial
statements involves the application of accounting policies relevant to the
business of our corporation and its subsidiaries. Application of certain
accounting policies requires management to make estimates and assumptions about
the effect of matters that are inherently uncertain. These estimates and
assumptions affect the reported amounts of certain assets, liabilities, revenues
and expenses. Different amounts could be reported under different conditions, or
if different assumptions were used in the application of certain accounting
policies. In this respect, the accounting policy considered by us to be critical
relates to the determination of the allowance for loan losses. This accounting
policy is discussed in the "--Allowance for Loan Losses" section of this
prospectus and in note 1 of the notes to consolidated financial statements
appearing elsewhere in this prospectus.
GENERAL
We conduct no business other than owning all of the common stock of Wayne
Savings Community Bank. Consequently, our net earnings depend 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, net 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 residential first mortgage loans
secured by properties located in our market area, 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 a
drive-through facility and establishing Village Savings Bank as a
separately-chartered federal savings bank.
Specifically, our business strategy incorporates the following elements:
(1) emphasizing community banking by 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; (4) increasing fee income; (5)
maintaining a strong retail deposit base; (6) controlling expenses; and (7)
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.
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 fiscal 1999, we expanded into
Stark
32
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 secured by properties in our market area. At March 31, 2002,
these loans constituted 84.9% of our total loan portfolio. We also originate
loans secured 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, home equity loans and other adjustable rate or
short-term loans, such as consumer loans. We also purchase mortgage-backed
securities generally with estimated remaining average lives of 5 years or less.
At March 31, 2002, approximately $64.9 million, or 23.6%, of our total loans and
mortgage-backed securities due after March 31, 2002, consisted of loans or
securities with adjustable interest rates. 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, 2002, our ARM
portfolio increased by $390,000, or 0.6%. Third, our fixed rate mortgage loans
generally are underwritten according to standards that permit their 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.
Finally, we maintain a significant percentage of our assets in cash and cash
equivalents, which totaled $27.9 million, or 8.3% of total assets, at ^ March
31, 2002.
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 $252,000, or 28.3%, for the fiscal year ended March 31, 2002
compared to the fiscal year ended March 31, 2001 and increased by $171,000, or
23.8%, for the fiscal year ended March 31, 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 sales culture in our
branches and by our expanded branch franchise. Since March 31, 1999, deposits
have increased 27.9%. At March 31, 2002, our "core deposits," which includes
checking, money market, passbook and statement savings accounts, totaled $127.7
million, or 42.4% of our total deposits, an increase from 35.1% at March 31,
1999. Core deposits are a more stable and lower cost source of funds than
certificates of deposit, and often generate fee income.
CONTROLLING EXPENSES. Our general and administrative expenses have grown
in recent years, largely due to the increase in the number of our banking
offices. We opened Village Savings Bank early in fiscal year 1999. Wayne Savings
Bank had six offices at March 31, 1998 and had ten offices at March 31, 2002. In
August 2001, we opened a drive-through facility. We recognize the importance of
monitoring and controlling our operating expenses even as our franchise grows.
Our efficiency ratio is a measure of the success of our cost control efforts.
Our efficiency ratio was 68.0% for fiscal year 1998 and climbed to 78.0% for
fiscal years 2000 and 2001. For fiscal year 2002, the ratio improved to 72.7%,
as new branches matured towards profitability. 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 March 31, 2002, Wayne Savings Community Bank had core capital of
$26.1 million, or 7.79% 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.
33
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2002 AND MARCH 31, 2001
At March 31, 2002, we had total assets of $334.8 million, an increase of
$23.3 million, or 7.5%, over total assets of $311.6 million at March 31, 2001.
Cash and cash equivalents, certificates of deposit, and investment
securities totaled approximately $50.2 million, an increase of approximately
$9.9 million, or 24.7%, from March 31, 2001 levels. During the fiscal year ended
March 31, 2002, investment securities totaling $7.6 million matured, while $16.3
million of securities were purchased. Cash and cash equivalents increased by
$7.0 million, or 33.4%, to a total of $27.9 million at March 31, 2002.
Mortgage-backed securities totaled $17.3 million at March 31, 2002, an
$8.8 million, or 102.1%, increase from the total at March 31, 2001. The increase
resulted primarily from purchases of $14.2 million, which were partially offset
by repayments totaling $5.4 million.
Loans receivable, including loans held for sale, totaled $251.2 million at
March 31, 2002, an increase of $3.7 million, or 1.5%, over the March 31, 2001,
total. This increase resulted from loan disbursements of $96.5 million, which
were partially offset by principal repayments of $66.0 million and sales of
$27.1 million. The majority of loan disbursements during the ^ 2002 period
consisted of loans secured by one- to four-family residential real estate, which
increased by $3.5 million.^
At March 31, 2002, the allowance for loan losses totaled $730,000, or
0.29% of loans, compared to $655,000, or 0.27% of loans, at March 31, 2001. In
determining the amount of the loan loss allowance at any point in time,
management and the Board apply a systematic process focusing on the risk of loss
in the portfolio. First, delinquent nonresidential, multi-family and commercial
business loans are evaluated individually for potential impairments in their
carrying value. At March 31, 2002, the analysis of impaired loans resulted in a
$105,000 allocation to the allowance due to an impaired nonresidential loan with
a principal balance of $519,000. This loan was repaid in May 2002 without
additional loss. The remainder of the impaired nonresidential, multi-family and
commercial loans were viewed as well-secured, with no measured loss under SFAS
No. 114. As a result of this detailed loss analysis, the increase in
nonperforming loans and impaired loans to $3.1 million at March 31, 2002, did
not result in a proportional increase in the allowance for loan losses.
The second step in determining the allowance for loan losses entails the
application of historic loss experience to the individual loan types in the
portfolio. In addition to the historic loss percentage, management employs an
additional risk percentage tailored to the perception of overall risk in the
economy. This segment of the loss analysis resulted in assigning $625,000 to the
allowance for loan losses at March 31, 2002. The analysis of the allowance for
loan losses requires an element of judgment and is subject to the possibility
that the allowance may need to be increased, with a corresponding reduction in
earnings. To the best of management's knowledge, all known losses as of March
31, 2002, have been recorded.
Nonperforming and impaired loans totaled $3.8 million at March 31, 2002,
compared to $1.2 million at March 31, 2001. Nonperforming loans at March 31,
2002, consisted of $1.1 million of nonresidential real estate loans, $1.4
million of commercial loans and approximately $600,000 of one- to four-family
residential mortgage loans. The allowance for loan losses totaled 19.2% and ^
56.5% of nonperforming and impaired loans at March 31, 2002 and 2001,
respectively.
Although management believes that its allowance for loan losses is
adequate based upon the available facts and circumstances, there can be no
assurance that additions to the allowance will not be necessary in future
periods, which would adversely affect our results of operations.
Deposits increased by approximately $23.3 million, or 8.4%, to a total of
$301.0 million at March 31, 2002. The increase in deposits was attributable
primarily to management's continuing efforts to achieve a moderate rate of
growth through branch expansion, marketing and business strategies.
Advances from the Federal Home Loan Bank decreased by $1.0 million, or
16.7%, from $6.0 million outstanding at March 31, 2001, to $5.0 million
outstanding at March 31, 2002.
Stockholders' equity totaled $26.0 million at March 31, 2002, a $792,000,
or 3.1%, increase over March 31, 2001. The increase was due primarily to net
earnings of $1.8 million, which were partially offset by dividends paid of
$852,000, or $.68 per share, and purchases of treasury shares totaling $178,000.
34
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 2002 AND 2001
GENERAL. 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.
Net earnings totaled $1.8 million for the fiscal year ended March 31,
2002, an increase of $491,000, or 36.9%, over the net earnings of $1.3 million
for the fiscal year ended March 31, 2001. The increase in net earnings was due
primarily to a $555,000, or 6.6%, increase in net interest income and a
$612,000, or 58.6%, increase in other income, which were partially offset by a
$374,000, or 5.1%, increase in general, administrative and other expense, a
$264,000, or 39.1%, increase in federal income taxes , and a $38,000, or 39.6%,
increase in the provision for losses on loans.
INTEREST INCOME. Interest income on loans totaled $19.1 million for the
fiscal year ended March 31, 2002, an increase of $358,000, or 1.9%, from
interest income of $18.7 million for fiscal 2001. The increase in interest
income on loans was due primarily to a $7.4 million, or 3.0%, increase in the
average outstanding balance to $253.1 million, which was partially offset by a
decrease in the average yield of 8 basis points to 7.53% for the fiscal year
ended March 31, 2002.
Interest income on mortgage-backed securities decreased $12,000, or 2.1%,
to $571,000 for fiscal 2002 from $583,000 for fiscal 2001. The decrease was
primarily attributable to a 46 basis point decrease in the average yield to
5.52%, which was partially offset by a $586,000, or 6.0%, increase in the
average outstanding balance of mortgage-backed securities.
Interest income on investments and interest- bearing deposits decreased
$543,000, or 24.4%, to $1.7 million for the fiscal year ended March 31, 2002
from $2.2 million for fiscal 2001. The decrease was primarily attributable to a
decrease in the average yield of 284 basis points to 3.93%, which was partially
offset by an increase in the average outstanding balance of $9.9 million, or
30.1%, to $42.7 million for the fiscal year ended March 31, 2002.
INTEREST EXPENSE. Interest expense on deposits decreased $597,000, or
4.7%, to $12.1 million for the fiscal year ended March 31, 2002 from $12.7
million for fiscal 2001. The decrease in interest expense on deposits was
primarily attributable to a 70 basis point decrease in the average cost of
deposits to 4.17% for the fiscal year ended March 31, 2002, which was partially
offset by a $29.0 million, or 11.1%, increase in the average outstanding balance
to $288.9 million in fiscal 2002.
Interest expense on borrowings decreased $155,000, or 34.6%, to $293,000
for the fiscal year ended March 31, 2002, from $448,000 for fiscal 2001. The
decrease in interest expense on borrowings was attributable to a 37 basis point
decrease in the average cost of borrowings, to 5.32% for the fiscal year ended
March 31, 2002, from 5.69% for the fiscal year ended March 31, 2001, coupled
with a $2.4 million, or 30.1%, decrease in the average outstanding balance of
borrowings.
NET INTEREST INCOME. Net interest income totaled $9.0 million for the
fiscal year ended March 31, 2002, an increase of $555,000, or 6.6%, over the
$8.4 million recorded in fiscal 2001. The increase in net interest income was
primarily attributable to a $17.9 million, or 6.2%, increase in average
interest-earning assets to $306.1 million for the fiscal year ended March 31,
2002, which was partially offset by a 50 basis point decrease in the average
yield to 6.96% from 7.46%. The interest rate spread increased by 20 basis points
to 2.77% in fiscal 2002 from 2.57% in fiscal 2001. The net interest margin
increased to 2.93% for the fiscal year ended March 31, 2002 from 2.92% for
fiscal 2001.
PROVISION FOR LOSSES ON LOANS. We record a provision for losses on loans
in an amount to cover known losses and losses in the portfolio that are both
probable and reasonable to estimate. Such estimates are based on the facts and
circumstances in existence as of March 31, 2002, and include a consideration of
the factors discussed elsewhere herein relating to the increase in nonperforming
loans at March 31, 2002. Our provision for losses on loans totaled $134,000 and
$96,000 for the fiscal years ended March 31, 2002 and 2001, respectively. To the
best of the management's knowledge, all known losses as of March 31, 2002 and
2001 have been recorded.
OTHER INCOME. Other income, consisting primarily of gain on sale of loans,
service fees and charges on deposit accounts, increased by $612,000, or 58.6%,
to $1.7 million for the fiscal year ended March 31, 2002, compared to fiscal
2001. The increase in other income was attributable primarily to an increase of
$360,000, or
35
233.8%, in gain on sale of loans. Service fees, charges and other operating
income increased by $252,000, or 28.3%, to $1.1 million for the fiscal year
ended March 31, 2002, due primarily to increased income from credit cards and an
enhanced service fee structure implemented on deposit accounts in July 2000.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other expense totaled $7.7 million for the fiscal year ended March 31, 2002, an
increase of $374,000, or 5.1%, over the $7.3 million for fiscal 2001. The
increase in general, administrative and other expense was primarily attributable
to a $355,000, or 9.0%, increase in employee compensation and benefits, a
$53,000, or 4.0%, increase in occupancy and equipment expense, and a $44,000, or
19.1%, increase in franchise taxes, which were partially offset by a $115,000
reduction in operating expenses previously paid by Wayne Savings Bankshares,
MHC. We decided to replace our data processing equipment in February 2002 at the
approximate cost of $500,000, which will be depreciated over a seven-year
period.
Wayne Savings Bancshares, Inc. restated its consolidated financial
statements to include as expenses certain operating costs that were previously
paid or reimbursed by Wayne Savings Bankshares, MHC. The adjustment related to
Wayne Savings Bankshares, MHC's reimbursements resulted in a reduction of net
earnings of $100,000, or $.04 per diluted share, $177,000, or $.07 per diluted
share (including $122,000 in reimbursed organizational costs), and $15,000, or
$.00 per diluted share, for each of the three years ended March 31, 2001, 2000
and 1999, respectively, substantially offset by an increase to stockholders'
equity as a result of a reduction in cash dividends paid to Wayne Savings
Bankshares, MHC totaling $258,000. See Notes A.12 and O to the Consolidated
Financial Statements. Additionally, management restated Wayne Savings
Bancshares, Inc.'s 2001, 2000 and 1999 consolidated financial statements for
various adjustments related to depreciation expense and other adjustments. These
adjustments resulted in a decrease in net earnings of $29,000, or $.01 per
diluted share in fiscal 2001, an increase in net earnings of $74,000, or $.03
per share in fiscal 2000, and a decrease of $2,000, or $.00 per diluted share in
fiscal 1999. The combined effect of the two adjustments resulted in a reduction
in net earnings of $129,000, or $.05 per diluted share in fiscal 2001, $103,000,
or $.04 per diluted share in fiscal 2000, and $11,000, or $.00 per diluted share
in fiscal 1999. The cumulative effect of these adjustments on stockholders'
equity at March 31, 2001, was a decrease of $30,000, or $.01 per diluted share.
The increase in employee compensation and benefits was primarily
attributable to normal merit increases, an increase in employee benefit plan
costs and additional staff needed for operating a new full service branch and a
new drive-through facility. The increase in occupancy and equipment expense was
primarily attributable to costs incurred in the new operating facilities. The
increase in franchise taxes was due to refunds received in fiscal 2001 that were
not applicable for fiscal 2002.
FEDERAL INCOME TAXES. The provision for federal income taxes was $939,000
for the fiscal year ended March 31, 2002, an increase of $264,000, or 39.1%,
compared to fiscal 2001. The increase resulted primarily from a $755,000, or
37.6%, increase in pretax earnings. The effective tax rate for the fiscal year
ended March 31, 2002, was 34.0%, as compared to 33.6% for fiscal 2001.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 2001 AND MARCH 31,
2000
GENERAL. Net earnings totaled $1.3 million for the fiscal year ended March
31, 2001, a 16.0% increase over net earnings of $1.1 million in the prior fiscal
year. Net interest income decreased by $280,000, or 3.2%, from the prior fiscal
year, caused by rising short-term rates through most of the fiscal year. The
increase in earnings in fiscal 2001 was due primarily to an $86,000 decrease in
general, administrative and other expense, coupled with a $126,000 increase in
gain on sale of loans and an increase in service fees, charges and other
operating income of $171,000, which were partially offset by a $51,000 increase
in the provision for federal income taxes. Our net earnings in fiscal 2000 were
also negatively impacted by the change in accounting principle related to
organizational costs of $122,000, net of tax, that were previously reimbursed by
Wayne Savings Bankshares, MHC. For additional information, see Note A.12 of the
Notes to the Consolidated Financial Statements.
INTEREST INCOME. Interest income totaled $21.5 million for the fiscal year
ended March 31, 2001, an increase of $806,000, 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 increased by $774,000, or 4.3%, due to a $15.8
million, or 6.9%, increase in the average balance of loans outstanding, which
was partially offset by a decrease in the average yield to 7.61% from 7.80%.
Interest income on mortgage-backed securities decreased by $19,000, or
3.2%, primarily due to a
36
decrease in the average balance of $398,000, or 3.9%, to $9.8 million for the
year ended March 31, 2001. The yield on these assets increased to 5.98%, from
5.93% for the previous year.
Interest income on investment securities and interest-bearing deposits
increased by $51,000, or 2.3%, primarily as a result of an increase in average
yield. The yield on investment securities increased to 7.36%, from 6.86% for the
prior year, while the yield on interest-bearing deposits rose to 5.93%, from
5.25% for the prior fiscal year. The average balance of these assets decreased
by approximately $3.9 million, as we funded loan growth.
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 ^ 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 the fiscal year ended March 31, 2001, from 4.60% for the
previous fiscal year.
Interest expense on deposits increased $1.1 million, or 9.7%, to $12.7
million as a result of an increase in the cost of deposits from 4.57% to 4.87%
in fiscal 2001, coupled with an increase in the average deposits outstanding,
from $252.3 million for fiscal 2000 to $259.9 million in fiscal 2001.
Interest expense on borrowings for the fiscal year ended March 31, 2001
decreased $36,000, or 7.4%, to $448,000. The decrease was the result of a
decrease in the average balance of borrowings outstanding of $719,000, or 8.4%,
partially offset by an increase in the cost of borrowings from 5.63% to 5.69%,
in fiscal 2001.
NET INTEREST INCOME. Net interest income for the fiscal year ended March
31, 2001 was $8.4 million, compared to $8.7 million for the previous fiscal
year, as our interest rate spread decreased from 2.88% to 2.57% in fiscal 2001.
This was partially offset by growth of $11.5 million in average interest-earning
assets and an increase in the ratio of average interest-earning assets to
average interest-bearing liabilities to 107.62% in fiscal 2001 from 106.05% in
fiscal 2000.
PROVISION FOR LOSSES ON LOANS. We recorded a provision for losses on loans
of $96,000 for the fiscal year ended March 31, 2001, primarily due to growth in
the loan portfolio coupled with our assessment of the collateral securing
non-performing loans.
OTHER INCOME. Other income, consisting primarily of gain on sale of loans,
service fees and charges on deposit accounts, increased by $297,000, or 39.7%,
to $1.0 million for fiscal 2001. The increase was a result of an increase of
$126,000, or 450.0%, 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
by $171,000, or 23.8%, to $891,000 in fiscal 2001 , partially because fees
relating to deposit accounts increased due to an enhanced fee structure
implemented in July 2000.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other expense, consisting primarily of employee compensation and benefits,
occupancy and equipment expense, federal deposit insurance premiums, and other
operating expenses, totaled $7.3 million for the year ended March 31, 2001, a
decrease of $86,000, or 1.2%, compared to fiscal 2000. The decrease was
primarily a result of a decrease in federal deposit insurance premiums of
$87,000, or 50.3% a decrease in occupancy and equipment of $59,000, or 4.2%, and
a decrease in franchise taxes of $99,000, or 30.0%, which were partially offset
by an increase of $140,000, or 3.7%, in employee compensation and benefits. The
decrease in federal deposit insurance premiums was due to a reduction in premium
rates. The decrease in franchise taxes reflects refunds received in fiscal 2001,
as well as a decline in the rate of tax year to year. The decrease in occupancy
and equipment expense generally reflected a reduction in depreciation expense
due to assets becoming fully depreciated in fiscal 2001. The increase in
employee compensation and benefits was due primarily to normal merit increases
and a reduction in the level of deferred loan origination costs year to year.
INCOME TAXES. The provision for income taxes totaled $675,000 for the year
ended March 31, 2001, an increase of $51,000, or 8.1%, compared to the $624,000
provision recorded for the previous fiscal year. The increase in income taxes
generally reflects the higher pre-tax earnings for the fiscal year ended March
31, 2001. The effective tax rates were 33.6% and 33.0% for the years ended March
31, 2001 and 2000.
37
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.
YEAR ENDED MARCH 31,
2002 2001
------------------------------------ ------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- --------- -------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
Loans receivable, net(1).......... $ 253,058 $ 19,059 7.53% $ 245,624 $ 18,701 7.61%
Mortgage-backed securities(2) 10,340 571 5.52 9,754 583 5.98
Investment securities............. 15,628 871 5.57 19,342 1,423 7.36
Interest-bearing deposits(3)...... 27,083 808 2.98 13,481 799 5.93
--------- --------- ---- ---------- --------- ----
Total interest-earning assets..... 306,109 21,309 6.96 288,201 21,506 7.46
Non-interest-earning assets....... 17,057 10,727
--------- ----------
Total assets...................... $ 323,166 $ 298,928
========= ==========
INTEREST-BEARING LIABILITIES:
Deposits.......................... $ 288,882 12,055 4.17 $ 259,914 12,652 4.87
Borrowings........................ 5,505 293 5.32 7,877 448 5.69
--------- --------- ---- ---------- --------- ----
Total interest-bearing liabilities 294,387 12,348 4.19 267,791 13,100 4.89
Non-interest-bearing liabilities.. 3,159 5,893
--------- ----------
Total liabilities................. 297,546 273,684
Stockholders' equity.............. 25,620 25,244
--------- ----------
Total liabilities and
stockholders' equity............ $ 323,166 $ 298,928
Net interest income............... $ 8,961 $ 8,406
Interest rate spread(4)........... 2.77% 2.57%
Net yield on interest-earning
assets(5)....................... 2.93% 2.92%
Ratio of average
interest-earning assets to
average interest-bearing
liabilities..................... 103.98% 107.62%
2000
-----------------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE
--------- --------- --------
INTEREST-EARNING ASSETS:
Loans receivable, net(1).......... $ 229,845 $ 17,927 7.80%
Mortgage-backed securities(2) 10,152 602 5.93
Investment securities............. 15,053 1,033 6.86
Interest-bearing deposits(3)...... 21,669 1,138 5.25
---------- --------- ----
Total interest-earning assets..... 276,719 20,700 7.48
Non-interest-earning assets....... 16,165
----------
Total assets...................... $ 292,884
==========
INTEREST-BEARING LIABILITIES:
Deposits.......................... $ 252,346 11,530 4.57
Borrowings........................ 8,596 484 5.63
---------- --------- ----
Total interest-bearing liabilities 260,942 12,014 4.60
Non-interest-bearing liabilities.. 6,844
----------
Total liabilities................. 267,786
Stockholders' equity.............. 25,098
----------
Total liabilities and
stockholders' equity............ $ 292,884
Net interest income............... $ 8,686
Interest rate spread(4)........... 2.88%
Net yield on interest-earning
assets(5)....................... 3.14%
Ratio of average
interest-earning assets to
average interest-bearing
liabilities..................... 106.05%
- --------------
(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 average interest-earning assets and the average cost of average
interest-bearing liabilities.
(5) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
38
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.
YEAR ENDED MARCH 31,
2002 VS. 2001 2001 VS. 2000
--------------------------------- -------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO TOTAL DUE TO TOTAL
---------------------- INCREASE -------------------- INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
-------- --------- ---------- --------- -------- ----------
(DOLLARS IN THOUSANDS)
Interest income attributable to:
Loans receivable.................... $ 534 $ (176) $ 358 $ 1,218 $ (444) $ 774
Mortgage-backed securities.......... 34 (46) (12) (24) 5 (19)
Other interest-earning assets....... 552 (1,095) (543) (245) 296 51
-------- --------- ------- -------- ------- -------
Total interest-earning assets....... 1,120 (1,317) (197) 949 (143) 806
Interest expense attributable to:
Deposits............................ 1,328 (1,925) (597) 352 770 1,122
Borrowings.......................... (128) (27) (155) (41) 5 (36)
-------- --------- ------- -------- ------- -------
Total interest-bearing
liabilities......................... 1,200 (1,952) (752) 311 775 1,086
-------- --------- ------- -------- ------- -------
Increase (decrease) in net
interest income.................... $ (80) $ 635 $ 555 $ 638 $ (918) $ (280)
======== ========= ======= ======== ======= =======
39
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 Office of Thrift Supervision 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 and March 31, 2002, 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 MARCH 31, 2002
- -----------------------------------------------------------------------------------------------------------------
NPV AS % OF PV
--------------
OF
--
CHANGE IN INTEREST NET PORTFOLIO VALUE ASSETS
- -------------------------------------- ---------------------------------------- ------
RATES (BASIS POINTS) $ AMOUNT $ CHANGE % CHANGE NPV RATIO CHANGE
- -------------------------------------- ----------- ------------ ----------- ------------ ----------------
(IN THOUSANDS)
+300 bp $ 25,393 $ (19,439) (43)% 7.68% (499 bp)
+200 bp 32,181 (12,651) (28) 9.50 (317 bp)
+100 bp 39,069 (5,763) (13) 11.26 (141 bp)
0 bp 44,832 -- -- 12.67 --
-100 bp 48,566 3,734 8 13.53 86 bp
-200 bp 48,786 3,954 9 13.53 86 bp
-300 bp 48,263 3,431 8 13.37 70 bp
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 fiscal year ended March 31, 2002. During the fiscal year
ended March 31, 2002, $27.1 million 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 ^ fiscal
year ended March 31, 2002.
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 its prescribed asset/liability risk ranges for ^ each of the last
three fiscal years.
40
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
influenced greatly by market interest rates, economic conditions, and
competition. We set the interest rates on our deposits to maintain a desired
amount of total deposits. In addition, we invest excess funds in short-term
interest-earning and other assets, which provide liquidity to meet our lending
requirements. Cash and cash equivalents (including interest bearing deposits in
other financial institutions and federal funds sold) totaled $27.9 million,
$26.6 million, and $14.3 million at March 31, 2002, 2001, and 2000,
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,
we can borrow from the Federal Home Loan Bank of Cincinnati pursuant to existing
borrowing agreements. At March 31, 2002, we had $5.0 million of 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 March 31, 2002, we had $5.4 million of commitments to originate 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 $142.5
million at March 31, 2002. Based on prior experience, we believe 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.
REGULATORY CAPITAL
The table below sets forth Wayne Savings Community Bank's (consolidated
with Village Savings Bank) capital position relative to its regulatory capital
requirements at March 31, 2002. The definitions of the terms used in the table
are those provided in the capital regulations issued by the Office of Thrift
Supervision. See "Regulation - Regulatory Capital Requirements."
AT MARCH 31, 2002
----------------------------
PERCENT OF
AMOUNT ASSETS
------------ -----------
(DOLLARS IN THOUSANDS)
TANGIBLE CAPITAL:
Capital level......................... $ 26,063 7.79%
Requirement........................... 5,021 1.50
------------ -----------
Excess.............................. $ 21,042 6.29%
============ ===========
CORE CAPITAL:
Capital level......................... $ 26,063 7.79%
Requirement........................... 13,389 4.00
------------ -----------
Excess.............................. $ 12,674 3.79%
============ ===========
RISK BASED CAPITAL:
Capital level......................... $ 26,793 14.13%
Requirement........................... 15,108 8.00
------------ -----------
Excess.............................. $ 11,685 6.13%
============ ===========
41
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.
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 consolidated 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, and 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.^
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.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 carries over the
recognition and measurement provisions in SFAS No. 121. Accordingly, an entity
should recognize an impairment loss if the carrying value of a long-lived asset
or asset group (a) is not recoverable and (b) exceeds its fair value. Similar to
SFAS No. 121, SFAS No. 144 requires an entity to test an asset or asset group
for impairment whenever events or changes in circumstances indicate that its
carrying amount may not be recoverable. SFAS No. 144 differs from SFAS No. 121
in that it provides guidance on estimating future cash flows to test
recoverability. An entity may use either a probability-weighted approach or
best-estimate approach in developing estimates of cash flow to test
recoverability. SFAS No. 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001 and interim periods within those
fiscal years. Management adopted SFAS No. 144 effective April 1, 2002, ^ without
material effect on our financial condition or results of operations.
42
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, MHC, 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.
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 has a diverse economic base, which is not dependent on any
particular industry or employer. 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,
43
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 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 secured 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 secured 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
44
securities generally with estimated remaining average maturities of five years
or less. At March 31, 2002, approximately $21.6 million, or 8.0%, of our total
loans and mortgage-backed, due or repricing after March 31, 2003, consisted of
loans or securities with adjustable interest rates.
We actively originate fixed rate mortgage loans, generally with 15 to 30
year terms to maturity, secured 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.
45
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,
--------------------------------------------------------------------------------
2002 2001 2000
------------------------- ------------------------- -------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
---------- ------------ ----------- ------------ ---------- -----------
(DOLLARS IN THOUSANDS)
Mortgage loans:
One- to four-family
residential(1).................... $ 218,981 84.91% $ 215,464 85.00% $ 211,222 86.72%
Residential construction loans..... 8,728 3.38 7,078 2.79 4,035 1.66
Multi-family residential........... 7,368 2.86 9,039 3.56 8,028 3.30
Non-residential realestate/land(2). 9,725 3.77 7,525 2.97 6,068 2.49
---------- ------- ---------- ------- ---------- -------
Total mortgage loans.............. 244,802 94.92 239,106 94.32 229,353 94.17
Other loans:
Consumer loans(4)................. 7,260 2.82 9,630 3.80 9,041 3.71
Commercial business loans......... 5,832 2.26 4,765 1.88 5,168 2.12
---------- ------- ---------- ------- ---------- -------
Total other loans................. 13,092 5.08 14,395 5.68 14,209 5.83
---------- ------- ---------- ------- ---------- -------
Total loans before net items...... 257,894 100.00% 253,501 100.00% 243,562 100.00%
======= ======= =======
Less:
Loans in process.................. 4,616 4,764 4,136
Deferred loan origination fees... 1,376 1,463 1,538
Allowance for loan losses......... 730 655 793
---------- ---------- ----------
Total loans receivable, net.... $ 251,172 $ 246,619 $ 237,095
========== ========== ==========
Mortgage-backed securities, net(3). $ 17,326 $ 8,574 $ 10,459
========== ========== ==========
----------------------------------------------------
1999 1998
------------------------- -------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
---------- ------------ ----------- ------------
Mortgage loans:
One- to four-family
residential(1).................... $ 187,638 84.82% $ 180,895 85.58%
Residential construction loans..... 7,668 3.47 3,963 1.87
Multi-family residential........... 7,086 3.20 7,091 3.36
Non-residential realestate/land(2). 5,610 2.53 5,838 2.76
Total mortgage loans.............. 208,002 94.02 197,787 93.57
Other loans:
Consumer loans(4)................. 8,415 3.80 10,477 4.96
Commercial business loans......... 4,810 2.18 3,112 1.47
Total other loans................. 13,225 5.98 13,589 6.43
Total loans before net items...... 221,227 100.00% 211,376 100.00%
Less:
Loans in process.................. 4,600 2,088
Deferred loan origination fees... 1,855 1,882
Allowance for loan losses......... 678 721
Total loans receivable, net.... $ 214,094 $ 206,685
Mortgage-backed securities, net(3). $ 7,230 $ 4,275
- ---------------------
(1) Includes home equity loans secured by second mortgages in the aggregate
amount of $18.9 million, $15.7 million, $11.1 million, $8.7 million and
$7.9 million as of March 31, 2002, 2001, 2000, 1999 and 1998,
respectively. Such loans have been underwritten on substantially the same
basis as our first mortgage loans and are therefore included in the total.
(2) Includes land loans of $736,000, $923,000, $949,000, $951,000 and
$584,000, as of March 31, 2002, 2001, 2000, 1999 and 1998, respectively.
(3) Includes mortgage-backed securities designated as available for sale,
which were $3.4 million, $2.9 million, $3.5 million, $3.8 million and $4.0
million, at March 31, 2002, 2001, 2000, 1999 and 1998, respectively.
(4) Includes second mortgage loans of $1.2 million, $1.8 million, $1.6
million, $1.7 million and $2.5 million, as of March 31, 2002, 2001, 2000,
1999 and 1998, respectively.
46
LOAN AND MORTGAGE-BACKED SECURITIES MATURITY AND REPRICING SCHEDULE. The
following table sets forth certain information as of March 31, 2002, 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:
One- to four-family residential:
Adjustable............................... $ 48,912 $ 1,123 $ -- $ -- $ --
Fixed.................................... 2,418 480 1,333 13,637 60,128
Construction(1):
Adjustable............................... 664 -- -- -- --
Fixed.................................... 156 -- 41 -- 489
Multi-family residential and nonresidential(1):
Adjustable............................... 6,809 4,792 1,224 34 --
Fixed.................................... 237 1,483 384 263 21
Other loans:
Consumer loans........................... 2,872 1,744 1,509 1,135 --
Commercial business loans................ 3,632 11 49 727 --
--------- ---------- ---------- ---------- ----------
Total loans.................................. $ 65,700 $ 9,633 $ 4,540 $ 15,796 $ 60,638
========= ========== ========== ========== ==========
Mortgage-backed securities(2)................ $ 350 $ 688 $ -- $ 1,466 $ 1,854
========= ========== ========== ========== ==========
BEYOND
TWENTY
YEARS TOTAL
--------- ---------
Mortgage loans:
One- to four-family residential:
Adjustable............................... $ -- $ 50,035
Fixed.................................... 90,950 168,946
Construction(1):
Adjustable............................... -- 664
Fixed.................................... 4,398 5,084
Multi-family residential and nonresidential(1):
Adjustable............................... -- 12,859
Fixed.................................... 210 2,598
Other loans:
Consumer loans........................... -- 7,260
Commercial business loans................ 1,413 5,832
Total loans.................................. $ 96,971 $ 253,278
Mortgage-backed securities(2)................ $ 12,613 $ 16,971
- -----------------------------
(1) Amounts shown are net of loans in process of $3.0 million in construction
loans and $1.6 million in multi-family residential and nonresidential
loans.
(2) Includes mortgage-backed securities available for sale. Does not include
premiums of $340,000, discounts of $18,000 and unrealized gains of ^
$33,000.
47
The following table sets forth at March 31, 2002 the dollar amount of all
fixed rate and adjustable rate loans and mortgage-backed securities maturing or
repricing after March 31, 2003.
FIXED ADJUSTABLE
(IN THOUSANDS)
Mortgage loans:
One- to four-family residential............. $ 166,528 $ 1,123
Construction(2)............................. 4,928 --
Multi-family residential and
non-residential (2)......................... 2,361 6,050
Consumer.................................... 4,349 39
Commercial business......................... 757 1,413
Total loans.............................. $ 178,953 $ 8,625
Mortgage-backed securities(1)................ $ 3,672 $ 12,949
- ----------------------
(1) Includes mortgage-backed securities available for sale, which ^ totaled
$3.4 million as of March 31, 2002. Does not include premiums of $340,000,
discounts of $18,000 and unrealized gains of $33,000.
(2) Net of loans in process of $3.0 million construction loans and $1.6
million multi-family residential and non-residential.
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 March 31, 2002, $219.0 million, or 84.9%
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 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 $27.1 million, $9.2 million, and $6.4
million for the fiscal years ended March 31, 2002, 2001 and 2000, respectively.
At March 31, 2002, there were no loans identified as held for sale. Mortgage
loans held for sale at March 31, 2001 and 2000 totaled $861,000 and $317,000,
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. Our ability to originate fixed-rate mortgage loans versus ARM
loans is 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, 2002, our ARM portfolio increased by $390,000 or 0.6%, and for
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 $50.0 million, or 19.4%, of our total loan
portfolio at March 31, 2002.
The primary purpose of offering ARM loans is to make our loan portfolio
more interest rate sensitive. However, because the interest income earned on ARM
loans changes as market interest rates change, such loans do not offer us the
predictable cash flows offered by long-term, fixed rate loans. ARM loans carry
increased credit risk 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
48
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 secured 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 March 31, 2002, our home equity loan portfolio totaled
$18.9 million, or 8.6% 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 give 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 $7.4 million, or 2.9% of our total loan portfolio, at March
31, 2002. Our multi-family real estate loans are secured by multi-family
residences, such as apartment buildings. At March 31, 2002, 92.0% of our
multi-family loans were secured by properties located within our market area. At
March 31, 2002, our multi-family real estate loans had an average balance of
$236,000, 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 $9.0 million, or 3.5% of our total loan
portfolio, at March 31, 2002. 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 March 31, 2002, 91.2% of our
non-residential real estate loans were secured by properties located within our
market area. At March 31, 2002, our non-residential loans had an average balance
of $118,000, and the largest non-residential real estate loan had a principal
balance of $2.1 million and was current at March 31, 2002. This $2.1 million
loan was made to a partnership in which one of our Board members is a partner.
The terms of each non-residential real estate loan are negotiated on a
case-by-case basis. Non-residential real estate loans are currently offered with
adjustable interest rates or short-term balloon maturities, although in the past
we have originated fixed rate long term non-residential real estate loans. Our
non-residential real estate loans generally amortize over 15 to 25 years.
49
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 have also originated 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 $736,000 at March 31, 2002.
RESIDENTIAL CONSTRUCTION LOANS. To a lesser extent, we originate loans to
finance the construction of one- to four-family residential property. At March
31, 2002, we had $8.7 million, or 3.4% 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 $5.8 million, or 2.3%
of our total loan portfolio at March 31, 2002. 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 $7.3 million, or 2.8% of our total
loan portfolio, at March 31, 2002. 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 March 31, 2002, second mortgage loans
totaled $1.2 million, or 16.5% of consumer loans.
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 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
50
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,
increased from $8.6 million at March 31, 2001 to $17.3 million at ^ March 31,
2002.
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 changes in
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 March 31, 2002, we had commitments to
originate $5.4 million of loans.
If the loan is approved, the commitment letter specifies the terms and
conditions of the proposed loan including the amount of the loan, interest rate,
amortization term, a brief description of the required collateral, and required
insurance coverage. The borrower must provide proof of fire and casualty
insurance on the property serving as collateral, which insurance must be
maintained during the full term of the loan. A title search of the property is
required on all loans secured by real property.
Although in the past we have purchased loans originated by other lenders,
we have not purchased any such loans in at least ten years. At March 31, 2002,
0.3% loans in our portfolio were purchased from other lenders, and the majority
of such loans were secured by properties located in Ohio.
51
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 YEAR ENDED MARCH 31,
-------------------------------------
2002 2001 2000
--------- --------- ---------
(IN THOUSANDS)
Total loans receivable, net at beginning of
year........................................... $ 246,619 $ 237,095 $ 214,094
Loans originated:
One-to four-family residential(1)............. 89,376 60,192 52,485
Multi-family residential(2)................... -- 2,803 549
Non-residential real estate/land.............. 3,712 4,255 223
Consumer loans................................ 2,534 6,854 7,498
Commercial business loans..................... 886 1,611 4,194
--------- --------- ---------
Total loans originated..................... 96,508 75,715 64,949
Loans sold:
Whole loans................................... (27,130) (9,185) (6,425)
--------- --------- ---------
Total loans sold.............................. (27,130) (9,185) (6,425)
Mortgage loans transferred to REO.............. -- (98) (64)
Loan repayments................................ (66,077) (56,485) (37,105)
Other loan activity, net....................... 1,252 (423) 1,646
--------- --------- ---------
Total loans receivable, net at end of year. $ 251,172 $ 246,619 $ 237,095
Mortgage-backed securities at beginning of
year........................................... $ 8,574 $ 10,459 $ 7,230
Mortgage-backed securities purchased........... 14,155 2,025 8,030
Principal repayments and other activities...... (5,403) (3,910) (4,801)
--------- --------- ---------
Mortgage-backed securities at end of year.. $ 17,326 $ 8,574 $ 10,459
========= ========= =========
- --------------------------
(1) Includes loans to finance the construction of one- to four-family
residential properties, and loans ^ disbursed for sale in the secondary
market.
(2) Includes loans to finance the sale of real estate acquired through
foreclosure.
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 March 31, 2002, 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. Income from fees and service charges
totaled $1.1 million, $891,000, and $720,000, for the fiscal years ended March
31, 2002, 2001 and 2000, 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 March 31, 2002, our largest potential borrower had an aggregate
principal balance available under outstanding lines of credit totaling $2.5
million. Our largest concentration of loans to one borrower outstanding at March
31, 2002 totaled $2.5 million. These credit facilities were current at March 31,
2002. We had no loans at March 31, 2002 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 ^ the
loan becomes 30 days
52
past due, another collection letter is sent and personal contact efforts are
attempted, either in person or by telephone, to strengthen the collection
process and obtain reasons for the delinquency. Also, plans to arrange a
repayment plan are made. If a loan becomes 60 days past due, the loan becomes
subject to possible legal action if suitable arrangements to repay have not been
made. In addition, the borrower is given information which provides access to
consumer counseling services, to the extent required by HUD regulations. When a
loan continues in a delinquent status for 90 days or more, and a repayment
schedule has not been made or kept by the borrower, a notice of intent to
foreclose is sent to the borrower, giving 30 days to cure the delinquency. If
not cured, foreclosure proceedings are initiated.
NON-PERFORMING AND IMPAIRED 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.
Under the provisions of SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," a loan is defined as impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due under the contractual terms of the loan agreement. In applying
the provisions of SFAS No. 114, we consider investment in one-to four-family
residential loans and consumer installment loans to be homogeneous and therefore
excluded from separate identification for impairment. With respect to our
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.
At March 31, 2002, we had non-performing and impaired assets of $3.8
million and a ratio of non-performing and impaired assets to total assets of
1.14%. At March 31, 2001 and 2000, we had non-performing and impaired assets of
$1.3 million and $1.2 million, respectively. The increase in nonperforming
assets as of March 31, 2002 was attributable primarily to a $1.8 million
commercial business and real estate loan concentration to a land developer and a
$519,000 loan secured by an office and retail building (which is included in the
following table in the "all other mortgage loan" total). The $1.8 million loan
concentration consists of four loans that are cross-collateralized by
non-residential and residential real estate. One loan totaling $475,000,
depicted in the following table in the one- to four-family total, was originated
in October 1996, two loans totaling $1.3 million were originated in November
1999, and one loan totaling $49,000 was originated in October 2000, which are
included in the following table in the "commercial business loan" totals. In
September 2001, we ceased accruing interest on these loans. The loan
concentration was brought current in January 2002, and a current appraisal
indicates value for the loan collateral of more than $3.0 million; however, we
continue to carry the concentration on non-accrual status. There is no specific
allowance for loan losses on this loan concentration. The $519,000 loan was
repaid in May 2002 without further loss. In the opinion of management these
loans are adequately collateralized and no loss on them is anticipated.
Real estate acquired by us as a result of foreclosure or by deed in lieu
of foreclosure is deemed real estate owned until the real estate is sold. When
real estate owned 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.
53
The following table sets forth information regarding our non-accrual and
impaired loans and real estate acquired by foreclosure at the dates indicated.
For all the dates indicated, we did not have any material loans which had been
restructured pursuant to SFAS No. 15.
AT MARCH 31,
------------------------------------------------------------
2002 2001 2000 1999 1998
--------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
Non-accrual loans:
Mortgage loans:
Permanent loans secured by one- to
four-family dwelling units.................... $ 616 $ 443 $ 170 $ 224 $ 299
All other mortgage loans........................ 1,070 -- -- -- 1
Non-mortgage loans:
Commercial business loans....................... 1,416 -- --
Consumer........................................ 25 72 30 12 --
--------- --------- --------- -------- --------
Total non-accrual loans (3)......................... 3,127 515 200 236 300
Accruing loans 90 days or more delinquent........... 38 -- -- 44 8
--------- --------- --------- -------- --------
Total non-performing loans (1)...................... 3,165 515 200 280 308
Loans deemed impaired which are performing.......... 645 645 940 -- --
--------- --------- --------- -------- --------
Total non-performing and impaired loans............. 3,810 1,160 1,140 280 308
Total real estate owned (2)......................... 19 124 90 41 946
--------- --------- --------- -------- --------
Total non-performing and impaired assets............ $ 3,829 $ 1,284 $ 1,230 $ 321 $ 1,254
========= ========= ========= ======== ========
Total non-performing and impaired loans to net
loans receivable.................................. 1.52% 0.47% 0.48% 0.13% 0.15%
========= ========= ========= ======== ========
Total non-performing and impaired loans to total
assets.............................................. 1.14% 0.37% 0.37% 0.10% 0.12%
========= ========= ========= ======== ========
Total non-performing and impaired assets to total
assets.............................................. 1.14% 0.41% 0.40% 0.12% 0.48%
========= ========= ========= ======== ========
- --------------------------------
(1) May include loans also deemed impaired.
(2) 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.
(3) Includes a loan concentration of $1.8 million that was brought current in
January 2002 but for which interest is not being accrued.
During the fiscal years ended March 31, 2002, 2001 and 2000, gross
interest income of $99,000, $12,000, and $8,000 respectively, would have been
recorded on loans accounted for on a non-accrual basis if the loans had been
current throughout the period. Interest recognized on nonaccrual loans totaled
$227,000, $49,000 and $8,000, respectively, for the years ended March 31, 2002,
2001 and 2000. Interest income on impaired loans is recognized using the cash
method of accounting and totaled approximately $233,000, $71,000 and $85,000 for
the fiscal years ended March 31, 2002, 2001 and 2000, respectively.
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,
----------------------------------------------------
2002 2001 2000 1999 1998
------- ------- ------- ------- -------
(IN THOUSANDS)
Loans past due 60-89 days........... $ 431 $ 2,536 $ 1,539 $ 1,710 $ 1,136
Loans past due 90 days or more...... 3,165 515 200 280 308
------- ------- ------- ------- -------
Total past due 60 days or more... $ 3,596 $ 3,051 $ 1,739 $ 1,990 $ 1,444
======= ======= ======= ======= =======
CLASSIFICATION OF ASSETS. Federal regulations provide for the
classification of loans and other assets such as debt and equity securities
considered by the OTS to be of lesser quality as "substandard," "doubtful," or
"loss" assets. An asset is considered "substandard" if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. "Substandard" assets include those characterized by
the "distinct possibility" that the savings institution will sustain "some loss"
if the deficiencies are not corrected. Assets classified as "doubtful" have all
of the weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
that do not expose the savings institution to risk sufficient to warrant
classification in one of the aforementioned categories, but which possess some
weaknesses, are required to be designated "special mention" by management.
When a savings institution classifies problem assets as either substandard
or doubtful, it is required to establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances that have been established to recognize the inherent risk associated
with lending activities,
54
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.
As of our most recent examination in February 2002, the OTS did not take
exception to the amount of our loan loss allowance. We regularly review the
problem loans in the 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,
---------------------------------------
2002 2001 2000
--------- -------- --------
(IN THOUSANDS)
Substandard assets(1)............ $ 3,303 $ 569 $ 290
Doubtful assets.................. -- -- --
Loss assets...................... 105 -- --
--------- -------- --------
Total classified assets....... $ 3,408 $ 569 $ 290
========= ======== ========
- -----------------------------
(1) Includes REO.
At March 31, 2002, classified assets consisted primarily of $616,000 of
residential one-to four-family loans, $2.5 million of nonresidential real estate
and commercial business loans, $260,000 of multi-family residential loans and
$27,000 of well-secured consumer loans. Of the $2.5 million classified
nonresidential real estate and commercial business loan total, management had
classified a $519,000 loan as impaired at March 31, 2002 and allocated $105,000
of the loss allowance to this impairment. The remaining $1.8 million classified
nonresidential loan total, consisting of a loan concentration to one borrower,
is also classified as impaired with no measurement of loss and was brought
current in January 2002. 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, 2001, and March 31, 2000, 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 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^ for the fiscal years ended March 31, 2002, 2001, and
2000, we added $134,000, $96,000 and $106,000, respectively, to our provision
for loan losses. Our allowance for loan losses totaled $730,000, $655,000 and
$793,000, at March 31, 2002, 2001 and 2000, respectively. To the best of our
knowledge, all known losses as of March 31, 2002, 2001 and 2000, have been
recorded.
55
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 YEAR ENDED MARCH 31,
----------------------------------------------------------------------
2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Loans receivable, net.................... $ 251,172 $ 246,619 $ 237,095 $ 214,094 $ 206,685
Average loans receivable, net............ 253,058 245,624 229,845 209,178 207,377
Allowance balance (at beginning of
period).................................. 655 793 692 721 914
Provision for losses..................... 134 96 106 78 60
Charge- offs:
Mortgage loans:
One-to-four family.................. -- (7) -- (8) --
Residential construction............ -- -- (21) -- --
Multi-family residential............ -- -- -- -- --
Non-residential real estate and land -- -- -- -- (253)
Other loans:
Consumer............................ (63) (61) (12) -- --
Commercial (1)...................... -- (172) -- (107) --
----------- ----------- ----------- ----------- -----------
Gross charge-offs............... (63) (240) (33) (115) (253)
----------- ----------- ----------- ----------- -----------
Recoveries:
Mortgage loans:
One-to-four family.................. -- -- -- 8 --
Residential construction............ -- -- -- -- --
Multi-family residential............ -- -- 6 -- --
Non-residential real estate and land -- -- -- -- --
Other loans: --
Consumer............................ 4 6 22 -- --
Commercial.......................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Gross recoveries................ 4 6 28 8 --
----------- ----------- ----------- ----------- -----------
Net (charge-offs)/recoveries.... (59) (234) (5) (107) (253)
----------- ----------- ----------- ----------- -----------
Additions charged to operations.......... 134 96 106 78 60
----------- ----------- ----------- ----------- -----------
Allowance for loan losses balance (at
end of period) (2).................... $ 730 $ 655 $ 793 $ 692 $ 721
=========== =========== =========== =========== ===========
Allowance for loan losses as a percent
of loans receivable, net at end of
period................................ 0.29% 0.27% 0.33% 0.32% 0.35%
=========== =========== =========== =========== ===========
Net loans charged off as a percent of
average loans receivable, net......... 0.02% 0.10% --% 0.05% 0.12%
=========== =========== =========== =========== ===========
Ratio of allowance for loan losses to
total non-performing and impaired
assets at end of period............... 19.07% 51.01% 64.47% 211.21% 57.50%
=========== =========== =========== =========== ===========
Ratio of allowance for loan losses to
non-performing and impaired loans at
end of period......................... 19.16% 56.47% 69.56% 242.14% 234.09%
=========== =========== =========== =========== ===========
- -----------------
(1) The fiscal 2001 charge-offs include a $172,000 charge-off related to an
impaired loan. This loan was current at March 31, 2002 and March 31, 2001.
(2) At March 31, 2002, a specific allowance of $105,000 was reserved for a
nonresidential loan that met the definition of impaired pursuant to SFAS
No. 114.
56
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 MARCH 31,
----------------------------------------------------------------------
2002 2001 2000
---------------------- --------------------- ---------------------
% OF % OF % OF
LOANS IN LOANS IN LOANS IN
EACH EACH EACH
CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------- ----- ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
Mortgage loans:
One- to four-family........... $ 126 84.9% $ 551 85.0% $ 414 86.7%
Residential construction...... -- 3.4 23 2.8 9 1.7
Multi-family residential...... 47 2.8 24 3.5 37 3.3
Non-residential real estate
and land...................... 207 3.8 20 3.0 -- 2.5
Other loans:
Consumer...................... 28 2.8 6 3.8 52 3.7
Commercial.................... 322( 2.3 31 1.9 281 2.1
------- ----- ------- ----- ------- -----
Total allowance for loan losses. $ 730 100.0% $ 655 100.0% $ 793 100.0%
======= ===== ======= ===== ======= =====
% OF % OF
LOANS IN LOANS IN
EACH EACH
CATEGORY CATEGORY
TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS
-------- ----- ------- -----
Mortgage loans:
One- to four-family........... $ 384 84.8% $ 446 85.6%
Residential construction...... 16 3.5 -- 1.9
Multi-family residential...... 38 3.2 36 3.3
Non-residential real estate
and land...................... 2 2.5 185 2.8
Other loans:
Consumer...................... 45 3.8 42 4.9
Commercial.................... 207 2.2 12 1.5
-------- ----- ------- -----
Total allowance for loan losses. $ 692 100.0% $ 721 100.0%
57
INVESTMENT ACTIVITIES
Our investment portfolio consists of investment securities, corporate
bonds and notes and state and local obligations. The carrying value of our
investment securities was $22.3 million at March 31, 2002, 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 $27.9 million at March 31, 2002,
compared to $26.6 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 MARCH 31,
-------------------------------------------------------------------
2002 2001 2000
-------------------- ------------------- --------------------
CARRYING MARKET CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE VALUE VALUE
-------- -------- ------- ------- -------- --------
(IN THOUSANDS)
Investment Securities:
Corporate bonds and notes.............. $ 2,998 $ 3,051 $ 3,994 $ 4,061 $ 2,987 $ 2,951
U.S. Government and agency securities.. 19,152 18,904 9,501 9,567 20,057 19,528
Obligations of state and political
subdivisions........................... 136 143 146 146 155 155
-------- -------- ------- ------- -------- --------
Total investment securities............ 22,286 22,098 13,641 13,774 23,199 22,634
======== ======== ======= ======= ======== ========
Other Investments:
Interest-bearing deposits in other
financial
institutions........................ 10,633 10,633 12,891 12,891 8,332 8,332
Federal funds sold..................... 15,000 15,000 6,000 6,000 3,475 3,475
Federal Home Loan Bank stock........... 3,767 3,767 3,510 3,510 3,160 3,160
-------- -------- ------- ------- -------- --------
Total investments...................... $ 51,686 $ 51,498 $36,042 $36,175 $ 38,166 $ 37,601
======== ======== ======= ======= ======== ========
58
INVESTMENT PORTFOLIO MATURITIES. The following table sets forth the
scheduled maturities, carrying values, market values and average yields for our
investment securities at March 31, 2002. We do not hold any investment
securities with maturities in excess of ^ 16 years.
AT MARCH 31, 2002
------------------------------------------------------------------------------------
ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS MORE THAN TEN YEARS
--------------------- ------------------ ------------------ -------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
-------- -------- -------- ------- -------- ------- -------- --------
(DOLLARS IN THOUSANDS)
Investment Securities:
Corporate bonds and notes................ $ 2,498 6.35% $ 500 7.00% $ -- --% $ -- --%
U.S. Government and agency............... 500 6.40 15,219 4.37 1,000 4.75 2,433 6.25
Obligations of state and political
subdivisions............................. -- -- -- -- -- -- 136 5.50
------- ------ -------- ---- ------- ----- ------- ----
Total investment securities............ $ 2,998 6.36% $ 15,719 4.45% $ 1,000 4.75% $ 2,569 6.21%
======= ====== ======== ==== ======= ===== ======= ====
AT MARCH 31, 2002
-------------------------------------------------------
TOTAL INVESTMENT SECURITIES
-------------------------------------------------------
AVERAGE LIFE CARRYING WEIGHTED
IN YEARS VALUE MARKET VALUE AVERAGE YIELD
------------- ---------- --------------- --------------
(DOLLARS IN THOUSANDS)
Investment Securities:
Corporate bonds and notes................ 0.69 $ 2,998 $ 3,051 6.46%
U.S. Government and agency obligations... 5.27 19,152 18,904 4.68
Obligations of state and political
subdivisions............................. 10.25 136 143 5.50
--------- ---------
Total investment securities............ 4.60 $ 22,286 $ 22,098 4.92%
==== ========= ========= ====
59
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 $5.0 million of
advances from the Federal Home Loan Bank of Cincinnati at March 31, 2002.
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.
Our savings and other deposits consisted of the following at March 31,
2002:
WEIGHTED AVERAGE CHECKING AND SAVINGS MINIMUM PERCENTAGE OF
INTEREST RATE MINIMUM TERM DEPOSITS AMOUNT BALANCES TOTAL DEPOSITS
- --------------------- -------------------- -------------------------- --------- -------------- -----------------
(IN THOUSANDS)
0.96% None NOW accounts $ -- $ 38,396 12.76%
2.25 None Passbook/Statement savings -- 77,485 25.75
2.13 None Money market investor 2,500 11,809 3.92
CERTIFICATES OF DEPOSIT
--------------------------
3.09 12 months or less Fixed term, fixed rate 500 28,497 9.47
4.74 12 to 24 months Fixed term, fixed rate 500 81,005 26.92
4.57 25 to 36 months Fixed term, fixed rate 500 9,628 3.20
5.15 36 months or more Fixed term, fixed rate 500 11,843 3.93
5.30 Negotiable Jumbo certificates 100,000 42,294 14.05
---------- ---------
$ 300,957 100.00%
========== =========
60
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
MARCH % OF INCREASE MARCH 31, % OF INCREASE MARCH 31, % OF
31, 2002 DEPOSITS (DECREASE) 2001 DEPOSITS (DECREASE 2000 DEPOSITS
-------- -------- -------- ---------- -------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
NOW accounts.......................... $ 38,396 12.76% $ 4,754 $ 33,642 12.11% $ 2,628 $ 31,014 11.71%
Passbook/Statement savings............ 77,485 25.75 22,911 54,574 19.65 1,500 53,074 20.03
Money market investor................. 11,809 3.92 2,904 8,905 3.21 (1,922) 10,827 4.09
Certificates of deposit(1)
Original maturities of:
12 months or less................. 28,497 9.47 3,003 25,494 9.18 (16,228) 41,722 15.74
12 to 24 months................... 81,005 26.92 (20,100) 101,105 36.41 46,764 54,341 20.51
25 to 36 months................... 9,628 3.20 (408) 10,036 3.61 (14,751) 24,787 9.36
36 months or more................. 11,843 3.93 5,668 6,175 2.22 (2,713) 8,888 3.35
Negotiated jumbo.................. 42,294 14.05 4,519 37,775 13.61 (2,524) 40,299 15.21
-------- ------ -------- -------- ------ ------- -------- ------
Total............................. $300,957 100.00% $ 23,251 $277,706 100.00% $12,754 $264,952 100.00%
======== ====== ======== ======== ====== ======= ======== ======
- ------------------------------
(1) Individual Retirement Accounts ("IRAs") are included in the respective
certificate and savings balances. IRAs totaled ^ $33.1 million, $31.8
million and $31.1 million, as of March 31, 2002, 2001 and 2000,
respectively.
61
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.
YEARS ENDED MARCH 31,
--------------------------------------------------------------------------------------------------
2002 2001 2000
------------------------------- -------------------------------- -------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE PERCENT OF AVERAGE AVERAGE PERCENT OF AVERAGE AVERAGE PERCENT OF AVERAGE
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
--------- ---------- -------- --------- ---------- -------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
Noninterest-bearing
demand deposits..... $ 8,735 3.02% 0.00% $ 5,684 2.19% 0.00% $ 4,652 1.84% 0.00%
NOW accounts.......... 27,569 9.54 1.78 25,527 9.82 1.73 23,912 9.48 2.08
Passbook/Statement
savings............. 63,091 21.84 2.65 45,800 17.62 3.16 45,790 18.15 3.13
Money market investor. 10,395 3.60 2.69 9,637 3.71 3.23 11,411 4.52 3.28
Certificates of
deposit............... 179,092 62.00 5.37 173,266 66.66 6.03 166,581 66.01 5.54
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total deposits.... $288,882 100.00% 4.17% $259,914 100.00% 4.87% $252,346 100.00% 4.57%
======== ====== ==== ======== ====== ==== ======== ====== ====
62
The following table sets forth our certificates of deposit classified by
rates as of the dates indicated:
AT MARCH 31,
-------------------------------------
2002 2001 2000
--------- --------- ---------
(DOLLARS IN THOUSANDS)
2.01-4.00%..................................... $ 61,208 $ -- $ --
4.01-6.00%..................................... 73,408 73,177 127,653
6.01-8.00%..................................... 38,651 107,408 42,382
8.01-10.00%.................................... -- -- 2
--------- --------- ---------
Total...................................... $ 173,267 $ 180,585 $ 170,037
========= ========= =========
The following table sets forth the amount and maturities of our
certificates of deposit at March 31, 2002.
AMOUNT DUE
-------------------------------------------------------
LESS THAN 1-2 2-3 AFTER
RATE ONE YEAR YEARS YEARS 3 YEARS TOTAL
- -------------- --------- -------- -------- ------- --------
(IN THOUSANDS)
2.01-4.00%..................................... $ 53,319 $ 6,098 $ 1,598 $ 193 $ 61,208
4.01-6.00%..................................... 51,469 10,091 3,738 8,110 73,408
6.01-8.00%..................................... 37,698 514 243 196 38,651
-------- -------- -------- ------- --------
Total...................................... $142,486 $ 16,703 $ 5,579 $ 8,499 $173,267
======== ======== ======== ======= ========
The following table indicates the amount of our certificates of deposit of
$100,000 or more by time remaining until maturity as of March 31, 2002.
MATURITY PERIOD CERTIFICATES OF DEPOSIT
(IN THOUSANDS)
Three months or less.......................................... $ 19,959
Over three months through six months.......................... 11,542
Over six months through twelve months......................... 15,678
Over twelve months............................................ 8,353
---------
Total.................................................... $ 55,532
=========
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 March 31,
2002, we had $5.0 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.
63
YEAR ENDED MARCH 31,
-------------------------------
2002 2001 2000
------- ------- ------
(DOLLARS IN THOUSANDS)
FEDERAL HOME LOAN BANK ADVANCES:
Maximum month-end balance............... $ 6,000 $ 10,000 $ 12,000
Balance at end of period................ 5,000 6,000 12,000
Average balance......................... 5,505 7,877 8,596
Weighted average interest rate on:
Balance at end of period............. 5.24% 5.54% 5.98%
Average balance for period........... 5.32% 5.69% 5.63%
PERSONNEL
As of March 31, 2002, we had 118 full-time equivalent 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 nine additional offices located in our market area, and the
full service office of Village Savings Bank. The following table sets forth
information about our offices as of March 31, 2002.
ORIGINAL
LEASED OR YEAR LEASED YEAR OF LEASE
LOCATION OWNED OR ACQUIRED EXPIRATION
------------------------------- ---------- ------------ -------------
North Market Street Office
151 N. Market Street Owned 1902 N/A
Wooster, Ohio
Cleveland Point Financial
Center
1908 Cleveland Road Owned 1978 N/A
Wooster, Ohio
Madison South Office
2024 Millersburg Road Owned 1999 N/A
Wooster, Ohio
Northside Office
543 Riffel Road Leased 1999 2019
Wooster, Ohio
Millersburg Office
90 N. Clay Street Owned 1964 N/A
Millersburg, Ohio
Claremont Avenue Office
233 Claremont Avenue Owned 1968 N/A
Ashland, Ohio
Buehlers-Sugarbush Office
1055 Sugarbush Drive Leased 2001 2021
Ashland, Ohio
Rittman Office
237 North Main Street Owned 1972 N/A
Rittman, Ohio
Lodi Office
303 Highland Drive Owned 1980 N/A
Lodi, Ohio
South Market Street
329 South Market Street Leased 2001 2021
Wooster, Ohio
Village Savings Bank
1265 S. Main Street Owned 1998 N/A
North Canton, Ohio
64
The aggregate net book value of our premises and equipment was $9.2
million at March 31, 2002.
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 consolidated financial
position 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,
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
65
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 March 31,
2002, 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 March 31, 2002, 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 March 31 ,2002, Wayne
Savings Community Bank and Village Savings Bank maintained 95.3% and 92.2%,
respectively, of their portfolio assets in qualified thrift investments and,
therefore, met the qualified thrift lender test.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. Federal regulations impose
limitations upon all capital distributions by a savings 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
66
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 March 31, 2002 we were in compliance with these regulations.
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
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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 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 March 31, 2002, 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 March 31, 2002,
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.
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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 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
69
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 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
70
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 $200,000.
The recapture amount resulting from the change in a thrift's method of
accounting for its bad debt reserves generally will be taken into taxable income
ratably (on a straight-line basis) over a six-year period. Wayne Savings
Community Bank began recapture of the bad debt reserve during fiscal 1999.
Retained earnings as of March 31, 2002 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. At March 31, 2002, our 1999 federal
income tax return was under audit. Management does not expect any material
adverse consequences as a result of this examination.
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 sevens 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 March 31, 2002, 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 64 Chairman of the Board, President, 1976 2005
and Chief Executive Officer
Joseph L. Retzler 74 Director 1985 2005
Kenneth G. Rhode 93 Director 1958 2003
James C. Morgan 64 Director 1995 2003
Donald E. Massaro 73 Director 1990 2004
Russell L. Harpster 67 Director 1979 2004
Terry A. Gardner 55 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.
71
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 ^ 38 years. Mr. Finn is the spouse of Wanda Christopher-Finn,
Executive Vice President of Wayne Savings Bancshares, Inc. He was appointed
Chairman of the Board of Directors of Wayne Savings Bancshares, Inc. on
September 25, 1997.
JOSEPH L. RETZLER is President of Retzler Hardware in Wooster, Ohio.
KENNETH G. RHODE has been Chairman of the Board of Wayne Savings Community
Bank since 1972. He was Chief Executive Officer of Lightning Rod Mutual and
Western Reserve Mutual Insurance Companies of Wooster, Ohio, prior to his
retirement in 1988.
JAMES C. MORGAN is President of Franklin Oil & Gas, Inc. in Wooster, Ohio.
He was elected director on February 28, 1995 to fill the unexpired term of a
retiring director.
DONALD E. MASSARO has been affiliated with Wayne Savings Community Bank
for 35 years. He previously was an officer of Wayne Savings Community Bank and
retired in December 1992.
RUSSELL L. HARPSTER is an attorney and a partner in the law firm of
Henderson, Harpster & Vanosdall in Ashland, Ohio.
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, 2002, the Board of Directors held 12 regular
meetings and four special meetings. During the year ended March 31, 2002, 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, 2002.
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, 2002.
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
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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, 2002.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth for the fiscal
years ended March 31, 2002, 2001 and 2000 certain information as to the total
remuneration paid to Wayne Savings Bancshares, Inc.'s 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, 2002, no other officer of Wayne Savings Bancshares, Inc. earned
salary and bonus which exceeded $100,000.
==================== ================================================= ====================================== ================
LONG-TERM COMPENSATION
- -------------------- ------------------------------------------------- -------------------------------------- ----------------
ANNUAL COMPENSATION (1) AWARDS PAYOUT
- -------------------- --------- ------------ --------- ---------------- ------------ --------------- --------- ----------------
FISCAL
YEARS
ENDED OTHER ANNUAL RESTRICTED SECURITIES
NAME AND PRINCIPAL MARCH SALARY BONUS COMPENSATION STOCK UNDERLYING LTIP ALL OTHER
POSITION 31, ($) ($) (2) AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION
==================== ========= ============ ========= ================ ============ =============== ========= ================
Charles F. Finn 2002 $159,600 $20,000 $ -- -- -- -- $ --
Chairman, 2001 152,800 16,000 -- -- -- -- --
President and 2000 147,800 15,000 -- -- -- -- --
Chief Executive
Officer
- -------------------- --------- ------------ --------- ---------------- ------------ --------------- --------- ----------------
Wanda 2002 $102,300 $15,000 $ -- -- -- -- $ --
Christopher-Finn, 2001 97,500 13,000 -- -- -- -- --
Executive Vice 2000 94,500 10,500 -- -- -- -- --
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.
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, 2002.
====================================================================================================================
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 -- $ -- 3,200/-- $44,800/--
Wanda Christopher-Finn -- $ -- 2,041/-- $28,514/--
============================ ================ ================= ========================= ==========================
- -------------------------
(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, 2002 (based on the price of the last sale reported on the Nasdaq
SmallCap Market on March 31, 2002).
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 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
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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, 2002 received a monthly meeting fee of $825 and a
monthly retainer of $550. 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, 2002, 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, 2002. Mr. Finn did not
receive any fees as Chairman of the Board of Wayne Savings Bancshares, Inc.
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 no individuals serving as Director Emeritus. For the fiscal year ended March
31, 2002, the fee paid to the then Director Emeritus was $9,000.
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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 March 31, 2002, 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 initial stock offering in 1993. The employee stock
ownership plan purchased 7% 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.
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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, we make 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, 2002, Mr. Finn and Ms. Christopher-Finn had 38 years and 30
years of credited service under the pension plan, respectively.
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 March 31, 2002, loans to
officers, directors and their related business interests totaled $2.5 million,
including a $2.1 million loan to a partnership in which one of our directors is
a partner. All loans outstanding made by Wayne Savings Bancshares, Inc. to
executive officers, directors, immediate family members of executive officers
and directors, or organizations with which executive officers and directors are
affiliated, were made in the ordinary course of business, on substantially the
same terms including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons.
Director Russell L. Harpster is a partner in the law firm of Henderson,
Harpster & Vanosdall of Ashland, Ohio, which has represented Wayne Savings
Bancshares, Inc. in certain legal matters since 1979. During the fiscal year
ending March 31, 2002, Wayne Savings Bancshares, Inc. paid $8,808 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.
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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 174,250 shares, 205,000 shares,
235,750 shares or 271,112 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 5.0% 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 69,700 shares, 82,000 shares,
94,300 or 108,445 shares at the minimum, mid-point, maximum and adjusted maximum
of the offering range, respectively. The officers and directors will be awarded
common stock under the stock recognition plan without having to pay cash for the
shares. No awards would be made under the stock recognition plan until the plan
is approved by stockholders. If the shares awarded under the stock recognition
plan come from authorized but unissued shares totaling 4% of the shares sold in
the offering, stockholders would experience dilution of approximately 2.1% in
their ownership interest in Wayne Savings Bancshares, Inc. at the mid-point of
the offering range.
Awards under the stock recognition plan would be nontransferable and
nonassignable. Under OTS rules, if the stock recognition plan is adopted within
one year following the conversion, the shares which are subject to an award
would vest at a rate of 20% at the end of each full 12 months of service with
Wayne Savings Community Bank after the date of grant of the award. Awards would
be adjusted for capital changes such as stock dividends and stock splits. Awards
would be 100% vested upon termination of employment or service due to death or
disability, and if the stock recognition plan is adopted more than one year
after the conversion, awards would be 100% vested upon normal retirement or a
change in control of Wayne Savings Community Bank or Wayne Savings Bancshares,
Inc. If employment or service were to terminate for other reasons, the award
recipient would forfeit any nonvested award. If employment or service is
terminated for cause (as defined), shares not already delivered would be
forfeited. Under 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.
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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
March 31, 2002. The business address of each director and executive officer is
151 North Market Street, Wooster, Ohio.
PERCENT OF
NUMBER OF SHARES OF COMMON ALL COMMON STOCK
NAME OF BENEFICIAL OWNER STOCK BENEFICIALLY OWNED(1) OUTSTANDING
- ------------------------------------------------- ----------------------------- ------------------
Charles F. Finn 34,664(2) 1.3%
Terry A. Gardner 31,492 1.2
Russell L. Harpster 38,482(3) 1.5
Donald E. Massaro 10,230 *
James C. Morgan 11,412 *
Joseph L. Retzler 15,471(4) *
Kenneth G. Rhode 60,220 2.3
Wanda Christopher-Finn 21,677(5) *
Gary C. Miller 9,896 *
All directors and executive officers as a group
(9 persons) 233,544 9.1
- ---------------------------------
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed
to be the beneficial owner for purposes of this table, of any shares of
Common Stock if he has sole or shared voting or investment power with
respect to such security, or has a right to acquire beneficial ownership
at any time within 60 days from the date as of which beneficial ownership
is being determined. As used herein, "voting power" is the power to vote
or direct the voting of shares and "investment power" is the power to
dispose or direct the disposition of shares. Includes all shares held
directly as well as by spouses and minor children, in trust and other
indirect ownership, over which shares the named individuals effectively
exercise sole or shared voting and investment power.
(2) Includes options to purchase 3,200 shares.
(3) Includes options to purchase 842 shares.
(4) Includes options to purchase 4,467 shares.
(5) Includes options to purchase 2,041 shares.
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth, for each of Wayne Savings Bancshares, Inc.'s
directors and executive officers and for all of the directors and executive
officers as a group, the following information:
(1) the number of exchange shares to be held upon consummation of the
conversion, based upon their beneficial ownership of Wayne Savings
Bancshares, Inc. common stock as of March 31, 2002;
(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."
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PROPOSED PURCHASES OF STOCK IN
THE OFFERING(1) TOTAL COMMON STOCK TO BE HELD
------------------------------ -------------------------------
NUMBER OF PERCENTAGE OF
EXCHANGE SHARES NUMBER OF TOTAL
NAME OF BENEFICIAL OWNER TO BE HELD(2) SHARES AMOUNT NUMBER OF 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 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 between $8.1 million (at the minimum of the offering
range) and $11.2 million (at the maximum of the offering range) 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
79
general public, with a preference given to the public stockholders of Wayne
Savings Bancshares, Inc. common stock as of August __, 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 range of 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
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
80
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 uses for additional capital, and it
will offer 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 $26.1
million, or 7.8% of assets, at March 31, 2002. Assuming that the offering raises
$20.5 million in gross proceeds at the midpoint of the offering range, and
assuming $9.6 million 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 10.0%. 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 branching and 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.
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 March 31, 2002, 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.
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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 1.2901
exchange shares for each publicly held share of Wayne Savings Bancshares, Inc.
at the minimum of the offering range to 2.0072 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 EXCHANGED
TO BE SOLD FOR EXISTING SHARES OF WAYNE TOTAL SHARES NEW SHARES TO
IN THIS OFFERING SAVINGS BANCSHARES, INC. OF COMMON BE RECEIVED FOR
------------------------- ---------------------------- STOCK TO BE EXCHANGE 100 EXISTING
AMOUNT PERCENT AMOUNT PERCENT OUTSTANDING RATIO SHARES
---------- ----------- ------------ ------------- ------------- ---------- ---------------
Minimum............... 1,742,500 52.54% 1,574,046 47.46% 3,316,546 1.2901 129
Midpoint.............. 2,050,000 52.54 1,851,819 47.46 3,901,819 1.5177 152
Maximum............... 2,357,500 52.54 2,129,592 47.46 4,487,092 1.7454 175
15% above Maximum..... 2,711,125 52.54 2,449,031 47.46 5,160,156 2.0072 201
Outstanding options to purchase shares of Wayne Savings Bancshares, Inc.
common stock will also be converted into and become options to purchase Wayne
Savings Bancshares, Inc. common stock. The number of shares of common stock to
be received upon exercise of these options will be determined pursuant to the
exchange ratio. The aggregate exercise price, duration, and vesting schedule of
these options will not be affected. At March 31, 2002, all the options to
purchase common stock were vested. At March 31, 2002, there were outstanding
options to purchase 15,473 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 the deposit balance, interest
rate and other terms of such deposit accounts will not change as a result of the
conversion. Each
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such account will be insured by the Federal Deposit Insurance Corporation to the
same extent as before the conversion. Depositors will continue to hold their
existing certificates, passbooks and other evidences of their accounts.
EFFECT ON LOANS. No loan outstanding from Wayne Savings Community Bank
will be affected by the conversion, and the amount, interest rate, maturity and
security for each loan will remain as they were contractually fixed prior to the
conversion.
EFFECT ON VOTING RIGHTS OF MEMBERS. At present, all depositors, and
borrowers as of June 23, 1993 who continue as borrowers of Wayne Savings
Community Bank, are members of, and have voting rights in, Wayne Savings
Bankshares, MHC as to all matters requiring membership action. Upon completion
of the conversion, depositors and borrowers will cease to be members of Wayne
Savings Bankshares, MHC and will no longer be entitled to vote at meetings of
Wayne Savings Bankshares, MHC. Upon completion of the conversion, all voting
rights in Wayne Savings Community Bank will be vested in Wayne Savings
Bancshares, Inc. as the sole stockholder of Wayne Savings Community Bank.
Exclusive voting rights with respect to Wayne Savings Bancshares, Inc. will be
vested in the holders of its common stock. Depositors and borrowers of Wayne
Savings Community Bank will not have voting rights after the conversion, except
to the extent that they become stockholders of Wayne Savings Bancshares, Inc.
through the purchase of common stock.
TAX EFFECTS. Wayne Savings Bancshares, Inc. will receive an opinion of
counsel or tax advisor with regard to federal and state income taxation to the
effect that the adoption and implementation of the plan of conversion will not
be taxable for federal or state income tax purposes to Wayne Savings Bankshares,
MHC, Wayne Savings Bancshares, Inc., the public stockholders of Wayne Savings
Bancshares, Inc., members of Wayne Savings Bankshares, MHC, eligible account
holders, supplemental eligible account holders, or Wayne Savings Community Bank.
See "--Tax Aspects."
EFFECT ON LIQUIDATION RIGHTS. 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 ^ June 30, 2002, 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 $50,000. 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.
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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
(including its subsidiary, Village Savings 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 July 12, 2002, the estimated pro
forma market value, or valuation range, of Wayne Savings Bancshares, Inc. ranged
from a minimum of $33.2 million to a maximum of $44.9 million, with a midpoint
of $39.0 million. The Board of Directors determined to offer the shares for a
price of $10.00 per share. The aggregate offering price of the shares will be
equal to the valuation range multiplied by the percentage of Wayne Savings
Bancshares, Inc. common stock owned by Wayne Savings Bankshares, MHC. The number
of shares offered will be equal to the aggregate offering price of the shares
divided by the price per share. Based on the valuation range, the percentage of
Wayne Savings Bancshares, Inc. common stock owned by Wayne Savings Bankshares,
MHC, and the $10.00 price per share, the minimum of the offering range will be
1,742,500 subscription shares, the midpoint of the offering range will be
2,050,000 subscription shares, and the maximum of the offering range will be
2,357,500 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 ^ $33.2 million or more than $51.6
million, 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 $51.6 million, which will
result in a corresponding increase of up to 15% in the maximum of the offering
range to up to 2,711,125 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
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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 $51.6 million and a corresponding increase in the offering range to more
than 2,711,125 shares, or a decrease in the minimum of the valuation range to
less than $33.2 million and a corresponding decrease in the offering range to
fewer than 1,742,500 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.
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
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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.
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. 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 ^ June
30, 2002 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
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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 ^ June 30, 2002. 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 Eligible Account
Holders, each member of Wayne Savings Bankshares, MHC on the voting record date
of August __, 2002 (i.e., Wayne Savings Community Bank depositors and its
borrowers as of June 23, 1993 whose borrowings remain 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 September __, 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 1,742,500 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 September __, 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 members of the general
public in a community offering, with preference given first to our public
stockholders as of August __, 2002, 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 August __, 2002, 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
87
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 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
1,742,500 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 September __, 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.
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For these services, Ryan, Beck & Co., LLC, will receive an advisory and
management fee of $50,000 and a marketing fee equal to 1.5% of the dollar amount
of common stock sold in the subscription and community offerings other than
shares purchased by officers, directors and employees or their immediate
families and common stock purchased by 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 $55,000, 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. 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 September __, 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 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 SEPTEMBER ___, 2002. We are not
required to accept order forms that are not received by that time, are
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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 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 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.
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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 139,400 shares at the minimum
of the offering range and 188,600 shares at the maximum of the offering range;
(3) Except for the employee stock ownership plan, as described above, no
person or entity, together with associates or persons acting in concert with
such person or entity, may purchase 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
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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 August __, 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
(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.
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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 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 June 30, 2002, 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 ^ June 30, 2002,
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 June 30, 2002,
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
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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 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.
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.
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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 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 and the successor to the existing
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Wayne Savings Bancshares, Inc. 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 Corporation 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 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 that 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
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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. The federal stock charter and bylaws of Wayne
Savings Bancshares, Inc. do not 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 actions or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law by the
director, the authorization of illegal distributions or receipt of an improper
personal benefit from their positions as directors. This provision might, in
certain instances, discourage or deter shareholders or management from bringing
a lawsuit against directors for a breach of their duties even though such an
action, if successful, might have benefited Wayne Savings Bancshares, Inc.
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,
liabilities, 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 a director or
officer 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
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personally received a benefit to which he or she was not entitled. The right to
indemnification includes the right to be paid the expenses incurred in advance
of final disposition of a proceeding.
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 a majority vote of the total authorized 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 the secretary of
Wayne Savings Bancshares, Inc. at least two weeks and at least five days,
respectively, 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. not less than 90 days prior to the
anniversary date of the mailing of proxy materials by Wayne Savings Bancshares,
Inc. in connection with the immediately preceding annual meeting of
stockholders. However, if less than 100 days notice or prior disclosure of the
date of the meeting is given, stockholders must submit such written notice no
later than the tenth day following the date on which notice of the meeting is
mailed to stockholders or such public disclosure was made. Failure to comply
with these advance notice requirements will preclude such nominations or new
business from being considered at the meeting. Management believes that it is in
the best interests of Wayne Savings Bancshares, Inc. and its stockholders to
provide sufficient time to enable management to disclose to stockholders
information about a dissident slate of nominations for directors. This advance
notice requirement may also give management time to solicit its own proxies in
an attempt to defeat any dissident slate of nominations, should management
determine that doing so is in the best interest of stockholders generally.
Similarly, adequate advance notice of stockholder proposals will give management
time to study such proposals and to determine whether to recommend to the
stockholders that such proposals be adopted. In certain instances, such
provisions could make it more difficult to oppose management's nominees or
proposals, even if stockholders believe such nominees or proposals are in their
best interests.
STOCKHOLDER ACTION WITHOUT A MEETING. The federal bylaws of Wayne Savings
Bancshares, Inc. provide that any action to be taken or which may be taken at
any annual or special meeting of stockholders may be taken if a consent in
writing, setting forth the actions so taken, is given by the holders of all
outstanding shares entitled to vote. Wayne Savings Bancshares, Inc.'s Delaware
certificate of incorporation specifically denies the authority of stockholders
to act without a meeting.
STOCKHOLDER'S RIGHT TO EXAMINE BOOKS AND RECORDS. A federal regulation
which is applicable to Wayne Savings Bancshares, Inc. provides that stockholders
may inspect and copy specified books and records of a federally chartered
savings institution after proper written notice for a proper purpose. Delaware
law similarly provides that a stockholder may inspect books and records upon
written demand stating the purpose of the inspection, if such purpose is
reasonably related to such person's interest as a stockholder.
LIMITATIONS ON ACQUISITIONS OF VOTING STOCK AND VOTING RIGHTS. Wayne
Savings Bancshares, Inc.'s Delaware certificate of incorporation provides that
in no event shall any record owner of any outstanding common stock which is
beneficially owned, directly or indirectly, by a person who beneficially owns in
excess of 10% of the then outstanding shares of common stock be entitled or
permitted to any vote in respect of the shares held in excess of such limit.
MERGERS, CONSOLIDATIONS AND SALES OF ASSETS. A federal regulation requires
the approval of two-thirds of the Board of Directors of Wayne Savings
Bancshares, Inc. and the holders of two-thirds of the outstanding stock of 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;
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(3) each share of Wayne Savings Bancshares, Inc.'s stock outstanding
immediately prior to the effective date of the transaction ^ will 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 where (i)
the proposed transaction has been approved ^ 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, or (ii) certain "fair
price" provisions are complied with. The term "Interested Stockholder" ^
includes any individual, corporation, partnership or other entity, other than
Wayne Savings Bancshares, Inc. or its subsidiary, which owns beneficially or
controls, directly or indirectly, 10% or more of the outstanding shares of
voting stock of Wayne Savings Bancshares, Inc. or an affiliate of such person or
entity. This provision of the certificate of incorporation applies to any
"Business Combination," which is defined to include, among other things:
(1) any merger or consolidation of Wayne Savings Bancshares, Inc. with
or into any Interested Stockholder;
(2) any sale, lease, exchange, mortgage, transfer, or other disposition
of 25% or more of the assets of Wayne Savings Bancshares, Inc. and its
subsidiaries to an Interested Stockholder;
(3) the issuance or transfer of any securities of Wayne Savings
Bancshares, Inc. or a subsidiary of Wayne Savings Bancshares, Inc. to an
Interested Stockholder having a value exceeding 25% of the combined fair market
value of the outstanding securities of Wayne Savings Bancshares, Inc.;
(4) the adoption of any plan or proposal for the liquidation or
dissolution of Wayne Savings Bancshares, Inc. proposed by or on behalf of an
Interested Stockholder or any affiliate of an Interested Stockholder; or
(5) any reclassification of securities, any recapitalization, or any
merger with a subsidiary or other transaction that has the effect of increasing
an Interested Stockholder's proportional share of any class of securities 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 preventing 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
provides that the Wayne Savings Bancshares, Inc.'s Board of Directors may
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
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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. However, if the
federally chartered savings institution's stock is listed on a national
securities exchange or quoted on the Nasdaq Stock Market, stockholders are not
entitled to dissenters' rights in connection with a merger if stockholders are
required to accept only "qualified consideration" for their stock, which is
defined to include cash, shares of stock of any institution or corporation ^
that 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 ^ thereof.
Under Delaware law, except for cash merger transactions, 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, 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 and the prohibition of action by written
consent of stockholders, stockholder nominations and proposals, limitations on
voting rights of 10% stockholders, denial of preemptive rights, the number and
staggered terms of directors, removal of directors, approval of certain business
combinations, the evaluation of certain business combinations, elimination of
directors' liability, indemnification of officers and directors, and the manner
of amending the certificate of incorporation and bylaws, each may not be
repealed, altered, amended or rescinded except by the vote of the holders of at
least 80% of the outstanding shares of Wayne Savings Bancshares, Inc. This
provision is intended to prevent the holders of a lesser percentage of the
outstanding stock of Wayne Savings Bancshares, Inc. from circumventing any of
the foregoing provisions by amending the certificate of incorporation to delete
or modify one 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
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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
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
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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 25% 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 10% 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 ^
10% or more of any class of a savings association's stock who do not intend to
participate in or seek to exercise control over a savings association's
management or policies must qualify for a safe harbor by filing with the Office
of Thrift Supervision a certification form that the holder is not in control of
such institution, is not subject to a rebuttable determination of control and
will take no action which would result in a determination or rebuttable
determination of control without prior notice to or approval of the Office of
Thrift Supervision, as applicable. There are also rebuttable presumptions in the
regulations concerning whether a group "acting in concert" exists, including
presumed action in concert among members of an "immediate family."
The Office of Thrift Supervision may prohibit an acquisition of control if
it finds, among other things, that:
(1) the acquisition would result in a monopoly or substantially lessen
competition;
(2) the financial condition of the acquiring person might jeopardize the
financial stability of the institution; or
(3) the competence, experience or integrity of the acquiring person
indicates that it would not be in the interest of the depositors or
the public to permit the acquisition of control by such person.
DESCRIPTION OF CAPITAL STOCK OF WAYNE SAVINGS BANCSHARES, INC.
FOLLOWING THE CONVERSION
GENERAL
At the effective date, Wayne Savings Bancshares, Inc. will be authorized
to issue 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 2,357,500 shares of common stock, subject
to adjustment, and up to 2,129,592 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
102
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 of Wayne Savings Bancshares, Inc. will not have
direct control of Wayne Savings Community Bank.
LIQUIDATION. In the event of any liquidation, dissolution or winding up of
Wayne Savings Community Bank, Wayne Savings Bancshares, Inc., as the holder of
100% of Wayne Savings Community Bank's capital stock, would be entitled to
receive, after payment or provision for payment of all debts and liabilities of
Wayne Savings Community Bank, including all deposit accounts and accrued
interest thereon, and after distribution of the balance in the special
liquidation account to Eligible Account Holders and Supplemental Eligible
Account Holders, all assets of Wayne Savings Community Bank available for
distribution. In the event of liquidation, dissolution or winding up of Wayne
Savings Bancshares, Inc., the holders of its common stock would be entitled to
receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of Wayne Savings Bancshares, Inc. available for
distribution. If preferred stock is issued, the holders thereof may have a
priority over the holders of the common stock in the event of liquidation or
dissolution.
PREEMPTIVE RIGHTS. Holders of the common stock of Wayne Savings
Bancshares, Inc. will not be entitled to preemptive rights with respect to any
shares that may be issued. The common stock is not subject to redemption.
PREFERRED STOCK
None of the shares of Wayne Savings Bancshares, Inc.'s authorized
preferred stock will be issued in the conversion. Preferred stock may be issued
with preferences and designations as 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, 2002 and 2001, and
for each of the three years in the period ended March 31, 2002, included in this
prospectus and registration statement have been audited by Grant Thornton LLP,
independent auditors, as stated in their report appearing herein, and have 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.
103
LEGAL MATTERS
The legality of the common stock has been opined upon for Wayne Savings
Bancshares, Inc. by Luse 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 Drinker Biddle & Reath, LLP,
Philadelphia, Pennsylvania.
ADDITIONAL INFORMATION
Wayne Savings Bancshares, Inc. has filed with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933 with
respect to the common stock offered hereby. As permitted by the rules and
regulations of the Securities and Exchange Commission, this prospectus does not
contain all the information set forth in the registration statement. Such
information, including the appraisal report which is an exhibit to the
registration statement, can be examined without charge at the public reference
facilities of the Securities and Exchange Commission located at 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of such material can be
obtained from the SEC at prescribed rates. The Securities and Exchange
Commission telephone number is 1-800-SEC-0330. In addition, the SEC maintains a
web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC, including Wayne Savings Bancshares, Inc. The statements contained
in this prospectus as to the contents of any contract or other document filed as
an exhibit to the Registration Statement are, of necessity, brief descriptions
of the material terms of, and should be read in conjunction with, such contract
or document.
Wayne Savings Bankshares, MHC has filed an Application on Form AC with
respect to the conversion. This prospectus omits certain information contained
in the Application. The Application may be examined at the principal office of
the Office of Thrift Supervision, 1700 G Street, N.W., Washington, D.C. 20552,
and at the Central Regional Office of the Office of Thrift Supervision, One
South Wacker Drive, Suite 2000, Chicago, Illinois 60606.
IN CONNECTION WITH THE STOCK OFFERING, WAYNE SAVINGS BANCSHARES, INC. WILL
REGISTER ITS COMMON STOCK WITH THE SEC UNDER SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934, AND, UPON SUCH REGISTRATION, WAYNE SAVINGS BANCSHARES,
INC. AND THE HOLDERS OF ITS STOCK WILL BECOME SUBJECT TO THE PROXY SOLICITATION
RULES, REPORTING REQUIREMENTS AND RESTRICTIONS ON STOCK PURCHASES AND SALES BY
DIRECTORS, OFFICERS AND GREATER THAN 10% STOCKHOLDERS, THE ANNUAL AND PERIODIC
REPORTING AND CERTAIN OTHER REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934.
UNDER THE STOCK ISSUANCE PLAN, WAYNE SAVINGS BANCSHARES, INC. HAS UNDERTAKEN
THAT IT WILL NOT TERMINATE SUCH REGISTRATION FOR A PERIOD OF AT LEAST THREE
YEARS FOLLOWING THE STOCK OFFERING.
104
CONTENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (as of
March 31, 2002 and 2001) F-3
CONSOLIDATED STATEMENTS OF EARNINGS (for the years ended
March 31, 2002, 2001 and 2000) 31
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(for the years ended March 31, 2002, 2001 and 2000) 31
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (for the
years ended March 31, 2002, 2001 and 2000) F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS (for the years ended
March 31, 2002, 2001 and 2000) 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.
[ LOGO ]Grant Thornton
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, 2002 and 2001, 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, 2002.
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, 2002 and 2001, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended March 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Grant Thornton LLP
Cincinnati, Ohio
June 17, 2002
F-2
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
As of March 31,
(In thousands, except share data)
ASSETS 2002 2001
---- ----
Cash and due from banks................................................................... $ 2,250 $ 2,011
Federal funds sold........................................................................ 15,000 6,000
Interest-bearing deposits in other financial institutions................................. 10,633 12,891
-------- ---------
Cash and cash equivalents............................................................ 27,883 20,902
Certificates of deposit in other financial institutions................................... - 5,700
Investment securities held to maturity - at amortized cost, approximate
market value of $22,098 and $13,774 as of March 31, 2002 and 2001, respectively......... 22,286 13,641
Mortgage-backed securities available for sale - at market................................. 3,449 2,911
Mortgage-backed securities held to maturity - at amortized cost, approximate
market value of $13,835 and $5,694 as of March 31, 2002 and 2001, respectively......... 13,877 5,663
Loans receivable - net.................................................................... 251,172 246,619
Loans held for sale - at lower of cost or market.......................................... - 861
Office premises and equipment - net....................................................... 9,208 8,780
Real estate acquired through foreclosure.................................................. 19 124
Federal Home Loan Bank stock - at cost ................................................... 3,767 3,510
Accrued interest receivable on loans...................................................... 1,153 1,328
Accrued interest receivable on mortgage-backed securities................................. 83 42
Accrued interest receivable on investments and interest bearing deposits.................. 250 211
Prepaid expenses and other assets......................................................... 1,688 1,285
Prepaid federal income taxes.............................................................. 8 63
-------- ---------
Total assets......................................................................... $334,843 $311,640
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits.................................................................................. $300,957 $277,706
Advances from the Federal Home Loan Bank.................................................. 5,000 6,000
Advances by borrowers for taxes and insurance............................................. 880 827
Accrued interest payable.................................................................. 223 245
Accounts payable on mortgage loans serviced for others.................................... 116 234
Other liabilities......................................................................... 853 918
Deferred federal income taxes............................................................. 767 455
--------- ---------
Total liabilities.................................................................... 308,796 286,385
Commitments............................................................................... - -
Stockholders' equity
Common stock (20,000,000 shares of $1.00 par value authorized; 2,640,835 and
2,638,835 shares issued at March 31, 2002 and 2001,
respectively)......................................................................... 2,641 2,639
Additional paid-in capital.............................................................. 14,444 14,436
Retained earnings - substantially restricted............................................ 10,121 9,150
Less 70,014 and 57,042 shares of treasury stock, at March 31, 2002 and 2001,
respectively - at cost................................................................ (1,181) (1,003)
Accumulated other comprehensive income,
unrealized gain on securities designated as available for sale,
net of related tax effects............................................................ 22 33
--------- ---------
Total stockholders' equity........................................................... 26,047 25,255
--------- ---------
Total liabilities and stockholders' equity........................................... $334,843 $311,640
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended March 31, 2002, 2001, and 2000
(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 March 31, 1999.................... $2,505 $12,480 $10,381 $ (468) $ 2 $24,900
Stock options exercised...................... 2 9 - - - 11
Net earnings for the year ended
March 31, 2000............................. - - 1,148 - - 1,148
Stock dividend............................... 125 1,904 (2,029) - - -
Cash dividends............................... - - (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 8,618 (645) (36) 24,962
Stock options exercised...................... 7 43 - - - 50
Net earnings for the year ended
March 31, 2001............................. - - 1,332 - - 1,332
Cash dividends............................... - - (800) - - (800)
Purchase of treasury shares - at cost........ - - - (358) - (358)
Unrealized gains on securities
designated as available for sale,
net of related tax effects................. - - - - 69 69
----- ------- ------- ------ ---- ---------
Balance at March 31, 2001.................... 2,639 14,436 9,150 (1,003) 33 25,255
Stock options exercised...................... 2 8 - - - 10
Net earnings for the year ended
March 31, 2002 ............................ - - 1,823 - - 1,823
Cash dividends............................... - - (852) - - (852)
Purchase of treasury shares - at cost........ - - - (178) - (178)
Unrealized losses on securities
designated as available for sale,
net of related tax effects................. - - - - (11) (11)
----- ------- ------- ------ ---- ---------
Balance at March 31, 2002 ................... $2,641 $14,444 $10,121 $(1,181) $ 22 $26,047
===== ====== ====== ======= ==== ======
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended March 31,
(In thousands)
2002 2001 2000
---- ---- ----
Cash flows provided by (used in) operating activities:
Net earnings for the year.................................................. $ 1,823 $ 1,332 $ 1,148
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....................... (3) (16) 90
Amortization of deferred loan origination fees........................... (432) (161) (532)
Depreciation and amortization............................................ 590 555 586
(Gain) loss on sale of loans............................................. (241) (62) 42
Proceeds from sale of loans in the secondary market...................... 27,371 9,247 6,383
Loans originated for sale in the secondary market........................ (26,269) (9,729) (5,157)
Provision for losses on loans............................................ 134 96 106
Loss on disposal of real estate acquired through foreclosure............. - - 6
Federal Home Loan Bank stock dividends................................... (219) (247) (241)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans................................... 175 (73) (127)
Accrued interest receivable on mortgage-backed securities.............. (41) 18 (31)
Accrued interest receivable on investments
and interest-bearing deposits........................................ (39) 143 (165)
Prepaid expenses and other assets...................................... (403) (272) 965
Accrued interest payable............................................... (22) 17 49
Accounts payable on mortgage loans serviced for others................. (118) 134 (8)
Other liabilities...................................................... (65) 282 70
Federal income taxes
Current.............................................................. 55 208 63
Deferred............................................................. 319 44 9
------- ------ ------
Net cash provided by operating activities........................... 2,615 1,516 3,256
Cash flows provided by (used in) investing activities:
Purchase of investment securities held to maturity......................... (16,250) (2,477) (13,411)
Proceeds from maturity of investment securities held to maturity........... 7,617 12,069 2,080
Purchase of mortgage-backed securities held to maturity.................... (12,108) (2,025) (7,008)
Purchase of mortgage-backed securities available for sale.................. (2,047) - (1,022)
Principal repayments on mortgage-backed securities held to maturity........ 3,894 3,344 3,311
Principal repayments on mortgage-backed securities
designated as available for sale......................................... 1,482 653 1,289
Loan principal repayments.................................................. 66,077 56,485 37,105
Loan disbursements......................................................... (70,239) (65,986) (59,792)
Purchase of office premises and equipment.................................. (1,018) (1,115) (1,294)
Proceeds from sale of land................................................. - 235 -
Proceeds from sale of real estate acquired through foreclosure............. 12 14 5
(Increase) decrease in certificates of deposit in other
financial institutions................................................... 5,700 (1,700) 2,000
Purchase of Federal Home Loan Bank stock................................... (38) (103) -
------- ------ ------
Net cash used in investing activities............................... (16,918) (606) (36,737)
------- ------ ------
Net cash provided by (used in) operating and investing activities
(balance carried forward)......................................... (14,303) 910 (33,481)
------- ------ ------
F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS (con't.)
For the year ended March 31,
(In thousands)
2002 2001 2000
---- ---- ----
Net cash provided by (used in) operating and investing activities
(balance brought forward)......................................... $(14,303) $ 910 $(33,481)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts........................................... 23,251 12,754 29,625
Proceeds from Federal Home Loan Bank advances.............................. 5,000 11,000 4,000
Repayments of Federal Home Loan Bank advances.............................. (6,000) (17,000) (1,000)
Advances by borrowers for taxes and insurance.............................. 53 50 (45)
Dividends paid on common stock............................................. (852) (800) (882)
Proceeds from exercise of stock options.................................... 10 50 11
Purchase of treasury shares - at cost...................................... (178) (358) (177)
-------- -------- --------
Net cash provided by financing activities........................... 21,284 5,696 31,532
-------- -------- --------
Net increase (decrease) in cash and cash equivalents......................... 6,981 6,606 (1,949)
Cash and cash equivalents at beginning of year............................... 20,902 14,296 16,245
-------- -------- --------
Cash and cash equivalents at end of year..................................... $ 27,883 $ 20,902 $ 14,296
======== ======== ========
Supplemental disclosure of cash flow information: Cash paid during the year for:
Federal income taxes..................................................... $ 637 $ 490 $ 516
======== ======== ========
Interest on deposits and borrowings...................................... $ 12,370 $ 13,083 $ 11,965
======== ======== ========
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired through foreclosure........... $ - $ 98 $ 64
======== ======== ========
Issuance of mortgage loan upon sale of real estate
acquired through foreclosure............................................. $ 93 $ 50 $ -
======== ======== ========
Unrealized gains (losses) on securities designated as available for sale,
net of related tax effects............................................... $ (11) $ 69 $ (38)
======== ======== ========
Recognition of mortgage servicing rights
in accordance with SFAS No. 140.......................................... $ 273 $ 92 $ 64
======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002, 2001, and 2000
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," "parent" 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 following is a summary of the Company's significant accounting
policies, which have been consistently applied in the preparation of the
accompanying financial statements.
1. INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
The Company accounts for investment and mortgage-backed securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115
requires that investments be categorized as held-to-maturity, trading, or
available for sale. Securities classified as held-to-maturity are carried at
cost only if the Company has the positive intent and ability to hold these
securities to maturity. Trading securities and securities designated as
available for sale are carried at fair value with resulting unrealized gains or
losses recorded to operations or stockholders' equity, respectively. Realized
gains or losses on sales of securities are recognized using the specific
identification method.
2. LOANS RECEIVABLE
Loans held in portfolio are stated at the principal amount outstanding,
adjusted for deferred loan origination fees, the allowance for loan losses, and
premiums and discounts on loans purchased and sold. Premiums and discounts on
loans purchased and sold are amortized and accreted to operations using the
interest method over the average life of the underlying loans.
Interest is accrued as earned unless the collectibility of the loan is in
doubt. Uncollectible interest on loans that are contractually past due is
charged off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income equal to
all interest previously accrued, and income is subsequently recognized only to
the extent that cash payments are received until, in management's judgment, the
borrower's ability to make periodic interest and principal payments has returned
to normal, in which case the loan is returned to accrual status.
The Banks recognize rights to service mortgage loans for others pursuant
to SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." In accordance with SFAS No. 140, an institution
that acquires mortgage servicing rights through either the purchase or
origination of mortgage loans and sells those loans with servicing rights
retained must allocate some of the cost of the loans to the mortgage servicing
rights.
The Banks recognized $273,000, $92,000 and $64,000 of pre-tax gains on
sales of loans related to capitalized mortgage servicing rights during the
fiscal years ended March 31, 2002, 2001 and 2000, respectively.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2002, 2001, and 2000
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, were
segregated into pools for valuation purposes, using as pooling criteria the loan
term and coupon rate. Once pooled, each grouping of loans was evaluated on a
discounted earnings basis to determine the present value of future earnings that
a purchaser could expect to realize from each portfolio. Earnings were projected
from a variety of sources including loan servicing fees, interest earned on
float, net interest earned on escrows, miscellaneous income and costs to service
the loans. The present value of future earnings is the "economic" value for the
pool, i.e., the net realizable present value to an acquirer of the acquired
servicing.
The Banks recorded amortization related to mortgage servicing rights
totaling approximately $109,000, $52,000 and $44,000 for the years ended March
31, 2002, 2001 and 2000, respectively. At March 31, 2002 and 2001, the carrying
value of the Banks' mortgage servicing rights, which approximated fair value,
totaled $521,000 and $357,000, respectively.
Loans held for sale are carried at the lower of cost or market, determined
in the aggregate. In computing cost, deferred loan origination fees are deducted
from the principal balances of the related loans. There were no loans identified
as held for sale at March 31, 2002. At March 31, 2001, loans held for sale were
carried at cost.
3. LOAN ORIGINATION FEES
The Banks account for loan origination fees in accordance with SFAS No. 91
"Accounting for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases." Pursuant to the provisions
of SFAS No. 91, origination fees received from loans, net of certain direct
origination costs, are deferred and amortized to interest income using the
level-yield method, giving effect to actual loan prepayments. Additionally, SFAS
No. 91 generally limits deferred loan origination costs to the direct costs
attributable to the origination of a loan, i.e. principally, actual personnel
costs. Fees received for loan commitments that are expected to be drawn upon,
based on the Banks' experience with similar commitments, are deferred and
amortized over the life of the loan using the level-yield method. Fees for other
loan commitments are deferred and amortized over the loan commitment period on a
straight-line basis.
4. ALLOWANCE FOR LOAN LOSSES
It is the Banks' policy to provide valuation allowances for losses
inherent within the loan portfolio that are both probable and can be reasonably
estimated. When the collection of a loan becomes doubtful, or otherwise
troubled, the Banks record a charge-off equal to the difference between the fair
value of the property securing the loan and the loan's carrying value. In
providing valuation allowances, costs of holding real estate, including the cost
of capital, are considered. Major loans (including development projects) and
major lending areas are reviewed periodically to determine potential problems at
an early date. The allowance for loan losses is increased by charges to earnings
and decreased by charge-offs (net of recoveries).
The Banks account for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." This Statement requires that
impaired loans be measured based upon the present value of expected future cash
flows discounted at the loan's effective interest rate or, as an alternative, at
the loan's observable market price or fair value of the collateral.
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the contractual terms of the loan agreement. In
applying the provisions of SFAS No. 114, the Banks consider investment in
one-to-four family residential loans and consumer installment loans to be
homogeneous and therefore excluded from separate identification for evaluation
of impairment. With respect to the Banks' investment in multi-family, commercial
and nonresidential loans, and the evaluation of impairment thereof, such loans
are collateral dependent and, as a result, are carried as a practical expedient
at the lower of cost or fair value.
It is the Banks' policy to charge off unsecured credits that are more than
ninety days delinquent. Similarly, collateral dependent loans are evaluated for
impairment at the time it becomes possible that the Banks will not collect all
contractual amounts due. Generally, this analysis is performed before a loan
becomes ninety days delinquent.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2002, 2001, and 2000
Information with respect to loans defined as impaired under SFAS No. 114
is summarized below:
2002 2001 2000
---- ---- ----
(In thousands)
Investment in impaired loans........................................................ $3,012 $645 $940
Impaired loans with no measurement of loss.......................................... 2,493 645 940
Impaired loans with measurement of loss............................................. 519 - -
Allocated allowance for loan losses................................................. 105 - -
Average impaired loans.............................................................. 1,829 793 947
Charge-off of principal related to impaired loans................................... - 172 -
Recoveries of charged off principal related to impaired loans....................... - - -
During the time a loan is deemed impaired, the Company records interest
income using the cash method of accounting. Interest income on impaired loans
totaled approximately $233,000, $71,000 and $85,000 for the fiscal years ended
March 31, 2002, 2001 and 2000, respectively.
5. OFFICE PREMISES AND EQUIPMENT
Office premises and equipment are carried at cost and include
expenditures, which extend the useful lives of existing assets. Maintenance,
repairs and minor renewals are expensed as incurred. For financial reporting,
depreciation and amortization are provided on the straight-line method over the
remaining useful lives of the assets, estimated to be twenty to fifty-five years
for buildings and substantial improvements that extend the life of the original
building, ten to twenty years for routine building improvements, five to ten
years for furniture and equipment, ten to twenty years for leasehold
improvements (where the Company has the sole discretion to renew the lease) and
forty years for safe deposit boxes.
6. REAL ESTATE ACQUIRED THROUGH FORECLOSURE
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost) or fair value less estimated selling
expenses at the date of acquisition. Real estate loss provisions are recorded if
the properties' fair value subsequently declines below the value determined at
the recording date. In determining the lower of cost or fair value at
acquisition, costs relating to development and improvement of property are
capitalized. Costs relating to holding real estate acquired through foreclosure,
net of rental income, are charged against earnings as incurred.
7. FEDERAL INCOME TAXES
The Company accounts for federal income taxes pursuant to SFAS No. 109
"Accounting for Income Taxes." In accordance with SFAS No. 109, a deferred tax
liability or deferred tax asset is computed by applying the current statutory
tax rates to net taxable or deductible temporary differences between the tax
basis of an asset or liability and its reported amount in the financial
statements that will result in net taxable or deductible amounts in future
periods. Deferred tax assets are recorded only to the extent that the amount of
net deductible temporary differences or carryforward attributes may be utilized
against current period earnings, carried back against prior years' earnings,
offset against taxable temporary differences reversing in future periods, or
utilized to the extent of management's estimate of future taxable income. A
valuation allowance is provided for deferred tax assets to the extent that the
value of net deductible temporary differences and carryforward attributes
exceeds management's estimates of taxes payable on future taxable income.
Deferred tax liabilities are provided on the total amount of net temporary
differences taxable in the future.
The Company's principal temporary differences between pretax financial
income and taxable income result primarily from the different methods of
accounting for deferred loan origination fees, Federal Home Loan Bank stock
dividends, certain components of retirement expense, general loan loss
allowances, percentage of earnings bad debt deductions and mortgage servicing
rights. A temporary difference is also recognized for depreciation expense
computed using accelerated methods for federal income tax purposes.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2002, 2001, and 2000
8. EARNINGS PER SHARE
Basic earnings per common share is computed based upon the
weighted-average number of common shares outstanding during the year. Diluted
earnings per common share include the dilutive effect of additional potential
common shares issuable under the Company's stock option plan. For each of the
years presented, there were no shares excluded from the diluted earnings per
share calculation because the related options were anti-dilutive. The
computations were as follows:
2002 2001 2000
---- ---- ----
Weighted-average
common shares
outstanding (basic) 2,570,980 2,596,754 2,602,141
Dilutive effect of
assumed exercise
of stock options 10,836 11,752 18,735
--------- --------- ---------
Weighted-average
common shares
outstanding (diluted) 2,581,816 2,608,506 2,620,876
========= ========= =========
9. 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.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of the fair value of financial instruments, both assets and
liabilities whether or not recognized in the consolidated statements of
financial condition, for which it is practicable to estimate that value. For
financial instruments where quoted market prices are not available, fair values
are based on estimates using present value and other valuation methods.
The methods used are greatly affected by the assumptions applied,
including the discount rate and estimates of future cash flows. Therefore, the
fair values presented may not represent amounts that could be realized in an
exchange for certain financial instruments.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments at March 31,
2002 and 2001:
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.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2002, 2001, and 2000
DEPOSITS: The fair value of NOW accounts, passbook and club accounts,
money market deposits and advances by borrowers is deemed to approximate
the amount payable on demand. Fair values for fixed-rate certificates of
deposit have been estimated using a discounted cash flow calculation using
the interest rates currently offered for deposits of similar remaining
maturities.
ADVANCES FROM FEDERAL HOME LOAN BANK: The fair value of these advances is
estimated using the rates currently offered for similar advances of
similar remaining maturities or, when available, quoted market prices.
COMMITMENTS TO EXTEND CREDIT: For fixed-rate and adjustable-rate loan
commitments, the fair value estimate considers the difference between
current levels of interest rates and committed rates. At March 31, 2002
and 2001, the difference between the fair value and notional amount of
loan commitments was not material.
Based on the foregoing methods and assumptions, the carrying value and
fair value of the Company's financial instruments at March 31 are as follows:
2002 2001
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
(In thousands)
Financial assets
Cash and cash equivalents and certificates of
deposit.................................... $ 27,883 $ 27,883 $ 26,602 $ 26,602
Investment securities........................ 22,286 22,098 13,641 13,774
Mortgage-backed securities................... 17,326 17,284 8,574 8,605
Loans receivable............................. 251,172 253,233 247,480 259,538
Federal Home Loan Bank stock ................ 3,767 3,767 3,510 3,510
-------- -------- -------- --------
$322,434 $324,265 $299,807 $312,029
======== ======== ======== ========
Financial liabilities
Deposits..................................... $300,957 $301,292 $277,706 $278,715
Advances from the Federal Home
Loan Bank.................................. 5,000 5,025 6,000 6,000
Advances by borrowers for taxes
and insurance.............................. 880 880 827 827
-------- -------- -------- --------
$306,837 $307,197 $284,533 $285,542
======== ======== ======== ========
11. ADVERTISING
Advertising costs are expensed when incurred. The Company's advertising
expense totaled $136,000, $106,000 and $148,000 for the fiscal years ended March
31, 2002, 2001 and 2000, respectively.
12. ORGANIZATION COSTS
The Company's consolidated financial statements for fiscal 2000 reflect
the adoption of Statement of Position 98-5 (SOP 98-5) which requires immediate
recognition of previously deferred expenses related to incorporation costs.
Accordingly, in accordance with SOP 98-5, the effect of the change in accounting
principle related to organization costs, totaling $122,000 after-tax, has been
recognized in the consolidated statements of earnings for fiscal 2000.
13. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 2002
consolidated financial statement presentation.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2002, 2001, and 2000
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES
Carrying values and estimated fair values of investment securities at March
31 are summarized as follows:
MARCH 31, 2002
Gross Gross Estimated
Amortized unrealized unrealized fair
COST GAINS LOSSES VALUE
-------------------------------------------------
(In thousands)
Corporate bonds and notes.......................... $ 2,998 $ 53 $- $ 3,051
U.S. Government and agency obligations............. 19,152 56 304 18,904
Municipal obligations.............................. 136 7 - 143
---------------------------------------------------
$22,286 $116 $304 $22,098
====== === === ======
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
====== === ===== ======
The amortized cost and estimated fair value of investment securities at
March 31, 2002, by term to maturity are shown below.
Amortized Estimated
cost fair value
---- ----------
(In thousands)
Due in one year or less.......... $ 2,998 $ 3,049
Due within one to three years.... 3,519 3,544
Due within three to five years .. 12,200 12,081
Due in over five years........... 3,569 3,424
------- --------
$22,286 $22,098
======= =======
The Company had pledged $2.3 million and $1.0 million in investment
securities to secure public deposits at March 31, 2002 and 2001, respectively.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2002, 2001, and 2000
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of mortgage-backed securities at March 31, 2002 and 2001,
including those designated as available for sale, are summarized as follows:
2002
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
(In thousands)
Held-to-maturity
Federal Home Loan Mortgage Corporation
participation certificates..................... $ 4,452 $ - $ 45 $ 4,407
Government National Mortgage Association
participation certificates.................... 2,558 16 12 2,562
Federal National Mortgage Association
participation certificates.................... 6,867 29 30 6,866
-------- ----- ----- -------
$13,877 $ 45 $ 87 $13,835
======== ===== ===== =======
Available for sale
Federal Home Loan Mortgage Corporation
participation certificates..................... $ 1,687 $ 25 $ 5 $ 1,707
Government National Mortgage Association
participation certificates..................... 55 9 - 64
Federal National Mortgage Association
participation certificates..................... 1,674 20 16 1,678
-------- ----- ----- -------
$ 3,416 $ 54 $ 21 $ 3,449
======== ===== ===== =======
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.................... 2,013 49 13 2,049
Federal National Mortgage Association
participation certificates.................... 2,532 4 12 2,524
------ ----- ----- ------
$5,663 $ 60 $ 29 $5,694
====== ===== ===== ======
Available for sale
Federal Home Loan Mortgage Corporation
participation certificates..................... $1,220 $ 35 $- $1,255
Government National Mortgage Association
participation certificates..................... 86 11 - 97
Federal National Mortgage Association
participation certificates..................... 1,552 8 1 1,559
------ ----- ----- ------
$2,858 $ 54 $ 1 $2,911
====== ===== ===== ======
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2002, 2001, and 2000
The amortized cost of mortgage-backed securities, including those
designated as available for sale at March 31, 2002, by contractual term to
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may generally prepay obligations without prepayment
penalties.
March 31, 2002
Amortized Cost
--------------
(In thousands)
Held-to-maturity
Due within one to three years........................ $ 30
Due after twenty years or thereafter................. 13,847
--------
$ 13,877
========
Available for sale
Due within one to three years........................ $ 1,016
Due after five years................................. 2,400
--------
$ 3,416
========
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio at March 31 is as follows:
2002 2001
---- ----
(In thousands)
Residential real estate - 1 to 4 family $218,981 $215,464
Residential real estate - multi-family. 7,368 9,039
Residential real estate - construction. 8,728 7,078
Nonresidential real estate and land.... 9,725 7,525
Education.............................. 1,530 2,143
Commercial............................. 5,832 4,765
Consumer and other..................... 5,730 7,487
------- --------
257,894 253,501
Less:
Undisbursed portion of loans in
process.......................... 4,616 4,764
Deferred loan origination fees...... 1,376 1,463
Allowance for loan losses........... 730 655
------- --------
$251,172 $246,619
======= =======
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 $230.5 million, or 92%, of the total loan portfolio
at March 31, 2002, and $226.8 million, or 92%, of the total loan portfolio at
March 31, 2001. Generally, such loans have been underwritten on the basis of no
more than an 80% loan-to-value ratio, which has historically provided the
Company with adequate collateral coverage in the event of default. Nevertheless,
the Banks, as with any lending institution, are subject to the risk that real
estate values could deteriorate in their primary lending areas of north central
Ohio, thereby impairing collateral values. However, management is of the belief
that residential real estate values in the Company's primary lending area are
presently stable.
As discussed previously, Wayne Savings has sold whole loans and
participating interests in loans in the secondary market, retaining servicing on
the loans sold. Loans sold and serviced for others totaled approximately $60.6
million, $47.1 million and $44.3 million at March 31, 2002, 2001 and 2000,
respectively.
In the normal course of business, the Banks have made loans to their
directors, officers and their related business interests. Related party loans
are made on the same terms that are widely available to other employees, as long
as the director or executive officer is not given preferential treatment
compared to other participating employees. The aggregate dollar amount of loans
outstanding to directors, officers and their related business interests totaled
approximately $2.5 million, $371,000 and $189,000 at March 31, 2002, 2001 and
2000, respectively. During fiscal 2002, the Company disbursed $2.4 million of
loans to officers and directors and received principal repayments of $280,000.
At March 31, 2002, $2.1 million of the outstanding loans to officers and
directors was a nonresidential real estate loan with the remaining outstanding
balance residential real estate and consumer loans.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2002, 2001, and 2000
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is summarized as follows for
the years ended March 31:
2002 2001 2000
---- ---- ----
(In thousands)
Balance at beginning of year............... $655 $793 $692
Provision for losses on loans.............. 134 96 106
Charge-offs of loans....................... (63) (240) (33)
Recovery of loans previously
charged off............................. 4 6 28
--- --- ---
Balance at end of year..................... $730 $655 $793
=== === ===
As of March 31, 2002, the Banks' allowance for loan losses was
substantially comprised of a general loan loss allowance, which is includible as
a component of regulatory risk-based capital.
Nonaccrual, nonperforming and impaired loans totaled approximately $3.8
million, $1.2 million and $1.1 million at March 31, 2002, 2001 and 2000,
respectively.
During the years ended March 31, 2002, 2001 and 2000, interest income of
approximately $99,000, $12,000 and $8,000, respectively, would have been
recognized had nonaccrual loans been performing in accordance with contractual
terms.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment at March 31 are comprised of the following:
2002 2001
---- ----
(In thousands)
Land and improvements.............................. $ 1,617 $ 1,615
Office buildings and improvements.................. 6,439 6,469
Furniture, fixtures and equipment.................. 4,452 3,931
Leasehold improvements............................. 354 60
------- -------
12,862 12,075
Less accumulated depreciation
and amortization................................ 3,654 3,295
------- -------
$ 9,208 $ 8,780
======= =======
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2002, 2001, and 2000
NOTE F - DEPOSITS
Deposits consist of the following major classifications at March 31:
2002 2001
--------- ---------
DEPOSIT TYPE AND WEIGHTED- (In thousands)
AVERAGE INTEREST RATE
NOW accounts
2002 - .96%.................................... $ 38,396
2001 - 1.73%................................... $ 33,642
Passbook
2002 - 2.25%.................................... 77,485
2001 - 3.18%.................................... 54,574
Money Market Investor
2002 - 2.13%................................... 11,809
2001 - 3.23%................................... 8,905
--------- ---------
Total demand, transaction and
passbook deposits................................. 127,690 97,121
Certificates of deposit
Original maturities of:
Less than 12 months
2002 - 3.09%.................................. 28,497
2001 - 5.51%.................................. 25,494
12 months to 24 months
2002 - 4.74%.................................. 81,005
2001 - 6.03%.................................. 101,105
25 months to 36 months
2002 - 4.57% ................................. 9,628
2001 - 5.26%.................................. 10,036
More than 36 months
2002 - 5.15%................................... 11,843
2001 - 5.56%................................... 6,175
Jumbo
2002 - 5.30%................................... 42,294
2001 - 6.46%................................... 37,775
--------- ---------
Total certificates of deposit........................ 173,267 180,585
--------- ---------
Total deposit accounts............................... $ 300,957 $ 277,706
========= =========
At March 31, 2002 and 2001, the Banks had certificates of deposit with
balances in excess of $100,000 totaling $55.5 million and $37.4 million,
respectively.
Interest expense on deposits for the years ended March 31 is summarized as
follows:
2002 2001 2000
---- ---- ----
(In thousands)
Passbook............................... $ 1,674 $ 1,642 $ 1,569
NOW and money market
deposit accounts.................... 771 875 979
Certificates of deposit................ 9,610 10,135 8,982
------ ------ ------
$12,055 $12,652 $11,530
====== ====== ======
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2002, 2001, and 2000
Maturities of outstanding certificates of deposit at March 31 are
summarized as follows:
2002 2001
---- ----
(In thousands)
Less than one year............................... $142,486 $129,044
One to three years............................... 22,282 48,533
Over three years................................. 8,499 3,008
------- -------
$173,267 $180,585
======= =======
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at March 31, 2002
and 2001 by pledges of certain residential mortgage loans totaling $6.3 million
and $7.5 million, respectively, and the Banks' investment in Federal Home Loan
Bank stock, are summarized as follows:
Interest Maturing in year
rate ending March 31, 2002 2001
- --------------- ---------------- ---- ----
(Dollars in thousands)
5.04% - 5.98% 2002 $ - $6,000
5.07% - 5.29% 2005 5,000 -
----- -----
$5,000 $6,000
===== =====
Weighted-average interest rate 5.24% 5.54%
==== ====
NOTE H - FEDERAL INCOME TAXES
The provision for federal income taxes on earnings differs from that
computed at the statutory corporate rate as follows:
Year ended March 31,
2002 2001 2000
---- ---- ----
Federal income taxes computed at 34% statutory rate $939 $682 $644
Tax-exempt interest (16) (16) (10)
Other 16 9 (10)
---- ---- ----
Federal income tax provision per consolidated financial
statements before change in accounting principle $939 $675 $624
=== === ===
Effective tax rate 34.0% 33.6% 33.0%
==== ==== ====
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2002, 2001, and 2000
The composition of the Company's net deferred tax liability at March 31 is
as follows:
2002 2001
---- ----
(In thousands)
Taxes (payable) refundable on
temporary differences at statutory rate:
Deferred tax assets
Deferred loan origination fees..................... $ 72 $ 108
General loan loss allowance........................ 286 263
Book/tax depreciation differences.................. - 24
Pension expense.................................... 20 72
Other.............................................. 80 78
------ -----
Deferred tax assets............................. 458 545
Deferred tax liabilities
Federal Home Loan Bank
stock dividends.................................. (822) (748)
Book/tax depreciation differences.................. (155) -
Unrealized gains on securities
designated as available for sale................. (13) (20)
Tax bad debt reserve............................... (44) (111)
Mortgage servicing rights.......................... (191) (121)
----- -----
Deferred tax liabilities........................ (1,225) (1,000)
----- -----
Total deferred tax liability.................... $ (767) $ (455)
===== =====
Prior to fiscal 1997, Wayne Savings was allowed a special bad debt
deduction based on a percentage of earnings, generally limited to 8% of
otherwise taxable income and subject to certain limitations based on aggregate
loans and deposit account balances at the end of the year. This cumulative
percentage of earnings bad debt deduction totaled approximately $2.7 million as
of March 31, 2002. If the amounts that qualified as deductions for federal
income taxes are later used for purposes other than bad debt losses, including
distributions in liquidation, such distributions will be subject to federal
income taxes at the then current corporate income tax rate. The amount of
unrecognized deferred tax liability relating to the cumulative bad debt
deduction was approximately $918,000 at March 31, 2002. Wayne Savings is
required to recapture as taxable income approximately $200,000 of its bad debt
reserve, which represents the post-1987 additions to the reserve, and will be
unable to utilize the percentage of earnings method to compute the reserve in
the future. Wayne Savings has provided deferred taxes for this amount and is
amortizing the recapture of the bad debt reserve in taxable income over a
six-year period, which commenced in fiscal 1999.
At March 31, 2002, the Company's 1999 federal income tax return was under
audit. Management does not expect any material adverse consequences as a result
of this examination.
NOTE I - COMMITMENTS
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers, including commitments to extend credit. Such commitments involve, to
varying degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the consolidated statements of financial condition. The
contract or notional amounts of the commitments reflect the extent of the
Company's involvement in such financial instruments.
The Company's exposure to credit loss in the event of 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 March 31, 2002, the Company had total outstanding commitments of
approximately $5.4 million to originate loans, of which $5.1 million were
comprised of fixed-rate loans at rates ranging from 6.13% to 8.25% and $292,000
were comprised of adjustable-rate loans at rates ranging from 4.50% to 6.88%.
The Company had unused lines of credit outstanding under home equity loans of
$18.8 million and $12.1 million at March 31, 2002 and 2001, respectively.
Additionally, the Company had unused lines of credit under commercial loans of
$2.0 million at both March 31, 2002 and 2001. 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-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2002, 2001, and 2000
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.
The Company leases certain branch banking facilities under operating
leases. The minimum annual lease payments over the initial lease term are as
follows:
Fiscal year ended (In thousands)
- ----------------- ------------
2003.................................... $ 73
2004.................................... 73
2005.................................... 73
2006.................................... 73
2007.................................... 97
Thereafter.............................. 97
----
Total................................... $486
====
The Company incurred rental expense under operating leases totaling
approximately $66,000, $30,000 and $27,000 for the fiscal years ended March 31,
2002, 2001 and 2000, respectively.
There were no material contingent liabilities at March 31, 2002 or 2001.
NOTE J - REGULATORY CAPITAL
The Banks are subject to minimum regulatory capital standards promulgated
by the OTS. Failure to meet minimum capital requirements can initiate certain
mandatory - and possibly additional discretionary - actions by regulators that,
if undertaken, could have a direct material effect on the consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Banks must meet specific capital guidelines that
involve quantitative measures of the Banks' assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Banks' capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk-weightings and other factors.
The minimum capital standards of the OTS generally require the maintenance of
regulatory capital sufficient to meet each of three tests, hereinafter described
as the tangible capital requirement, the core capital requirement and the
risk-based capital requirement. The tangible capital requirement provides for
minimum tangible capital (defined as stockholders' equity less all intangible
assets) equal to 1.5% of adjusted total assets. The core capital requirement
provides for minimum core capital (tangible capital plus certain forms of
supervisory goodwill and other qualifying intangible assets) generally equal to
4.0% of adjusted total assets except for those associations with the highest
examination rating and acceptable levels of risk. The risk-based capital
requirement provides for the maintenance of core capital plus general loss
allowances equal to 8.0% of risk-weighted assets. In computing risk-weighted
assets, the Banks multiply the value of each asset on their statement of
financial condition by a defined risk-weighting factor, e.g. one- to four-family
residential loans carry a risk-weighted factor of 50%.
As of March 31, 2002 and 2001, management believes that the Banks met all
capital adequacy requirements to which they were subject. As of the most recent
examination date, the Banks were advised by the OTS that they met the definition
of "well capitalized" institutions.
The Banks' management believes that, under the current regulatory capital
regulations, the Banks will continue to meet their minimum capital requirements
in the foreseeable future. However, events beyond the control of the Banks, such
as increased interest rates or a downturn in the economy in the Banks' market
area, could adversely affect future earnings and, consequently, the ability to
meet future minimum regulatory capital requirements.
The Banks are subject to regulations imposed by the OTS regarding the
amount of capital distributions payable to the Company. Generally, the Banks'
payment of dividends is limited, without prior OTS approval, to net earnings for
the current calendar year, plus the two preceding years, less capital
distributions paid over the comparable time period. Insured institutions are
required to file an application with the OTS for capital distributions in excess
of the limitation. Wayne Savings anticipates filing, and receiving OTS approval,
for dividend payments of approximately $2.0 million to the Company during fiscal
2003.
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2002, 2001, and 2000
Regulations of the OTS governing mutual holding companies permit Wayne
Savings Bankshares M.H.C. (the "M.H.C.") to waive the receipt by it of any
dividend declared by the Company or the Bank on the common stock, provided that
the OTS does not object to such waiver. The M.H.C. accepted dividends totalling
$25,000, $260,000 (of which $258,000 was treated as an offset to previously
allocated M.H.C. costs) and $75,000 during fiscal years 2002, 2001 and 2000,
respectively. Total dividends waived by the M.H.C. through March 31,2002
amounted to $6.2 million.
WAYNE SAVINGS COMMUNITY BANK AS OF MARCH 31, 2002
(Dollars in thousands)
Required to be "well-
Required for capital capitalized" under prompt
Actual adequacy purposes corrective action provisions
------ ----------------- ----------------------------
Amount Ratio Amount Ratio Amount Ratio
Tangible capital $26,063 7.8% >$ 5,021 >1.5% >$16,736 > 5.0%
- - - -
Core capital $26,063 7.8% >$13,389 >4.0% >$20,083 > 6.0%
- - - -
Risk-based capital $26,688 14.1% >$15,108 >8.0% >$18,885 > 10.0%
- - - -
WAYNE SAVINGS COMMUNITY BANK AS OF MARCH 31, 2001
(Dollars in thousands)
Required to be "well-
Required for capital capitalized" under prompt
Actual adequacy purposes corrective action provisions
------ ----------------- ----------------------------
Amount Ratio Amount Ratio Amount Ratio
Tangible capital $25,309 8.1% >$ 4,678 >1.5% >$15,592 > 5.0%
- - - -
Core capital $25,309 8.1% >$12,473 >4.0% >$18,710 > 6.0%
- - - -
Risk-based capital $25,964 15.7% >$13,274 >8.0% >$16,593 > 10.0%
- - - -
WAYNE SAVINGS BANCSHARES, INC
RECONCILIATION OF GAAP TO BANKS' REGULATORY CAPITAL
(Dollars in thousands)
2002 2001 2000
---- ---- ----
(In thousands)
Consolidated GAAP capital.............................................................. $26,047 $25,255 $24,962
Effect of Wayne Savings Bancshares, Inc. in consolidation.............................. 93 123 (471)
Unrealized (gains) losses on securities designated as available for sale............... (22) (33) 36
Mortgage servicing rights and other deductions......................................... (55) (36) (32)
------ ------ ------
Tangible and core capital.............................................................. 26,063 25,309 24,495
General valuation allowance............................................................ 625 655 793
------ ------ ------
Risk-based capital..................................................................... $26,688 $25,964 $25,288
====== ====== ======
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2002, 2001, and 2000
VILLAGE SAVINGS BANK, F.S.B. AS OF MARCH 31, 2002
(Dollars in thousands)
Required to be "well-
Required for capital capitalized" under prompt
Actual adequacy purposes corrective action provisions
------ ----------------- ----------------------------
Amount Ratio Amount Ratio Amount Ratio
Tangible capital $2,865 7.0% >$ 614 >1.5% >$2,047 > 5.0%
- - - -
Core capital $2,865 7.0% >$1,637 >4.0% >$2,456 > 6.0%
- - - -
Risk-based capital $2,906 15.8% >$1,471 >8.0% >$1,838 > 10.0%
- - - -
VILLAGE SAVINGS BANK, F.S.B. AS OF MARCH 31, 2001
(Dollars in thousands)
Required to be "well-
Required for capital capitalized" under prompt
Actual adequacy purposes corrective action provisions
------ ----------------- ----------------------------
Amount Ratio Amount Ratio Amount Ratio
Tangible capital $2,704 9.6% >$ 424 >1.5% >$1,413 > 5.0%
- - - -
Core capital $2,704 9.6% >$1,131 >4.0% >$1,696 > 6.0%
- - - -
Risk-based capital $2,744 18.9% >$1,163 >8.0% >$1,454 > 10.0%
- - - -
NOTE K - STOCK OPTION PLANS
The Company has an incentive Stock Option Plan that provides 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 provides for the
issuance of 36,018 shares of authorized, but unissued shares of common stock.
The Company accounts for its stock option plans in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation," which provides a fair
value-based method for valuing stock-based compensation that entities may use,
which measures compensation cost at the grant date based on the fair value of
the award. Compensation is then recognized over the service period, which is
usually the vesting period. Alternatively, SFAS No. 123 permits entities to
continue to account for stock options and similar equity instruments under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Entities that continue to account for stock options using APB
Opinion No. 25 are required to make pro forma disclosures of net earnings and
earnings per share, as if the fair value-based method of accounting defined in
SFAS No. 123 had been applied. Management has determined that the Company will
continue to account for stock based compensation pursuant to APB Opinion No. 25.
The pro-forma disclosures required by SFAS No. 123 are not applicable as no
options were granted by the Company during the fiscal years ended March 31,
2002, 2001 and 2000.
A summary of the status of the Company's stock option plans as of March
31, 2002, 2001 and 2000, and changes during the years ending on those dates is
presented below:
2002 2001 2000
---- ---- ----
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- ----- ------ ----- ------ -----
Outstanding at beginning of year 17,473 $5.00 27,657 $5.00 34,596 $5.00
Granted - - - - - -
Exercised (2,000) 5.00 (7,900) 5.00 (2,301) 5.00
Forfeited - - (2,284) 5.00 (4,638) 5.00
------ ---- ------ ----- ------ -----
Outstanding at end of year 15,473 $5.00 17,473 $5.00 27,657 $5.00
====== ==== ====== ==== ====== ====
Options exercisable at year-end 15,473 $5.00 17,473 $5.00 27,657 $5.00
====== ==== ====== ==== ====== ====
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2002, 2001, and 2000
The following information applies to options outstanding at March 31,
2002:
Number outstanding.............................................. 15,473
Range of exercise prices........................................ $5.00
Weighted-average exercise price ................................ $5.00
Weighted-average remaining contractual life ................... 1.25
At March 31, 2002, all of the stock options granted were subject to
exercise at the discretion of the grantees and expire in 2003.
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 benefits are based on
years-of-service and other factors. The Company's funding policy is to
contribute at least annually amounts sufficient to satisfy legal funding
requirements plus such additional tax-deductible amounts deemed advisable under
the circumstances. Contributions are intended to provide not only for benefits
attributed to service-to-date, but also for those expected to be earned in the
future.
Information with respect to the Plan for the years ended March 31, 2002,
2001 and 2000 is as follows:
The changes in benefit obligations are computed as follows:
2002 2001 2000
---- ---- ----
(In thousands)
Projected benefit obligation
at beginning of year..................... $1,280 $1,117 $1,323
Service cost................................ 63 58 59
Interest cost............................... 101 83 77
Actuarial loss.............................. 203 39 103
Benefits paid............................... (55) (17) (445)
----- ----- ------
Projected benefit obligation
at end of year........................... $1,592 $1,280 $1,117
===== ===== =====
The changes in the Plan's assets are computed as follows:
2002 2001 2000
---- ---- ----
(In thousands)
Fair value of plan assets at
beginning of year........................ $1,283 $1,122 $1,331
Actual return on plan assets................ 68 3 26
Employer contributions...................... 212 175 210
Benefits paid............................... (55) (17) (445)
----- ----- ------
Fair value of plan assets
at end of year........................... $1,508 $1,283 $1,122
===== ===== =====
The following table sets forth the Plan's funded status at March 31:
2002 2001
---- ----
(In thousands)
Funded status............................................... $ (84) $ 3
Unrecognized net actuarial (gain) loss...................... (42) 120
Unrecognized net transition liability....................... 42 48
---- ----
Prepaid (accrued) pension cost.............................. $ (84) $ 171
==== ====
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2002, 2001, and 2000
The weighted-average actuarial assumptions used were:
2002 2001 2000
---- ---- ----
(In thousands)
Weighted-average discount rate....................... 7.25% 7.50% 7.00%
Weighted-average rate of
compensation increase............................. 1.00% 1.00% 1.00%
Weighted-average expected
long-term rate of return on
plan assets....................................... 7.00% 7.00% 7.00%
Net periodic pension costs includes the following components:
2002 2001 2000
---- ---- ----
(In thousands)
Service cost........................................... $ 63 $ 58 $ 59
Interest cost.......................................... 101 83 77
Actual return on plan assets........................... (68) (3) (26)
Amortization of prior net loss......................... 199 141 164
Amortization of net transition obligation.............. 6 6 6
Unrecognized net actuarial loss........................ (27) (81) (59)
--- --- ---
Net periodic pension cost.............................. $274 $204 $221
=== === ===
Plan assets were invested in certificates of deposit (including a $433,000
certificate of deposit in the Bank) and life insurance contracts.
As previously stated, the Banks have a savings plan covering substantially
all employees who meet certain age and service requirements. Under the plan, the
Banks match participant contributions up to 2% of each participant's
compensation during the year. This contribution is dependent on availability of
sufficient net earnings from current or prior years. Additional contributions
may be made as approved by the Board of Directors. Expense under the plan
totaled approximately $44,000, $44,000 and $39,000 for the fiscal years ended
March 31, 2002, 2001 and 2000, respectively.
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 March 31, 2002 and 2001, and
the results of its operations and its cash flows for the years ended March 31,
2002, 2001, and 2000.
Wayne Savings Bancshares, Inc.
STATEMENTS OF FINANCIAL CONDITION
March 31,
2002 2001
---- ----
ASSETS (In thousands)
Cash and due from banks.............................................................. $ 115 $ 85
Investment in subsidiary............................................................. 26,140 25,378
Prepaid expenses and other........................................................... 851 317
------ ------
Total assets.................................................................... $27,106 $25,780
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities............................................... $ 1,059 $ 525
Stockholders' equity
Common stock and additional paid-in capital........................................ 17,085 17,075
Retained earnings.................................................................. 10,121 9,150
Less shares held in treasury (57,042 and 33,214 shares, respectively).............. (1,181) (1,003)
Accumulated other comprehensive income, unrealized gains on securities
designated as available for sale, net............................................ 22 33
------ ------
Total stockholders' equity ..................................................... 26,047 25,255
------ ------
Total liabilities and stockholders' equity...................................... $27,106 $25,780
====== ======
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2002, 2001, and 2000
Wayne Savings Bancshares, Inc.
STATEMENTS OF EARNINGS
For the years ended March 31,
2002 2001 2000
---- ---- ----
Income (In thousands)
Interest income...................................................................... $ 1 $ 18 $ 58
Equity in earnings of subsidiary..................................................... 1,928 1,371 1,210
----- ----- -----
Total revenue..................................................................... 1,929 1,389 1,268
General and administrative expenses.................................................... 160 92 157
----- ----- -----
Earnings before income tax credits................................................... 1,769 1,297 1,111
Federal income tax credits........................................................... (54) (35) (37)
----- ----- -----
NET EARNINGS...................................................................... $1,823 $1,332 $1,148
===== ===== =====
Wayne Savings Bancshares, Inc.
STATEMENTS OF CASH FLOWS
For the years ended March 31,
2002 2001 2000
---- ---- ----
Cash flows from operating activities: (In thousands)
Net earnings for the year.............................................................. $1,823 $1,332 $1,148
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Undistributed earnings of consolidated subsidiary ................................. (773) (807) (1,219)
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets................................................ (534) (238) 23
Accrued expenses and other liabilities........................................... 534 262 29
----- ----- -----
Net cash provided by (used in) operating activities............................. 1,050 549 (19)
Cash flows provided by (used in) financing activities:
Payment of dividends on common stock................................................. (852) (800) (882)
Purchase of treasury stock........................................................... (178) (358) (177)
Proceeds from exercise of stock options.............................................. 10 50 11
----- ----- -----
Net cash used in financing activities........................................... (1,020) (1,108) (1,048)
----- ----- -----
Net increase (decrease) in cash and cash equivalents................................... 30 (559) (1,067)
Cash and cash equivalents at beginning of year......................................... 85 644 1,711
----- ----- -----
Cash and cash equivalents at end of year............................................... $ 115 $ 85 $ 644
===== ===== =====
NOTE N - SERVICE FEES, CHARGES AND OTHER OPERATING INCOME
Service fees, charges and other operating income at March 31 is comprised
of the following items:
2002 2001 2000
---- ---- ----
(In thousands)
Deposit fee income.............................. $ 644 $501 $430
Loan servicing fee income....................... 97 120 117
Income from credit cards........................ 157 69 91
Other service fees, charges
and other operating income................... 242 201 82
----- --- ---
$1,140 $891 $720
===== === ===
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2002, 2001, and 2000
NOTEO - OTHER OPERATING EXPENSES AND M.H.C. EXPENDITURES
Other operating expense at March 31 is comprised of the following items:
2002 2001 2000
---- ---- ----
(In thousands)
Telephone and postage expense.............................. $ 273 $ 247 $ 286
Public relations and
advertising expense..................................... 198 214 272
Stationery, printing and office
supplies expense........................................ 172 189 244
Supervisory exam expense................................... 137 128 51
Professional services expense.............................. 154 96 74
Other operating expenses................................... 733 716 704
----- ----- -----
$1,667 $1,590 $1,631
===== ===== =====
Expenses paid by or previously allocated to the M.H.C. are comprised of
the following:
Fees related to M.H.C. litigation and other legal matters.. $ 30 $134 $ 77
Intercompany cost allocations.............................. 5 7 7
Officer compensation....................................... - 9 -
---- --- ----
$ 35 $150 $ 84
==== === ====
NOTE P - REORGANIZATION AND CHANGE OF CORPORATE FORM
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 52.6% 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.
In the event of a complete liquidation (and only in such event), each
eligible member of Wayne's depositors will be entitled to receive a liquidation
distribution from the liquidation account in the amount of the then current
adjusted balance of deposit accounts held, before any liquidation distribution
may be made with respect to common stock. Except for the repurchase of stock and
payment of dividends by the Company, the existence of liquidation account will
not restrict the use or application of such retained earnings.
The Company may not declare, pay a cash dividend on, or repurchase any or
its common stock, if the effect thereof would cause retained earnings to be
reduced below either the amount required for the liquidation account or the
regulatory capital requirements of SAIF insured institutions.
At March 31, 2002, the Company had incurred costs associated with the Plan
totaling approximately $627,000. 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 consolidated
statement of earnings in the period in which the conversion is terminated.
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2002, 2001, and 2000
NOTE Q - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the Company's quarterly results for the
fiscal years ended March 31, 2002 and 2001. Certain amounts have been
reclassified to conform to the fiscal 2002 presentation and the Company's
amended and restated Form 10-QSB for the nine months ended December 31, 2001.
For the three month periods ended
---------------------------------
June 30, 2001 September 30, 2001 December 31, 2001 March 31, 2002
------------- ------------------ ----------------- --------------
(In thousands, except share data)
Total interest income................................... $5,416 $5,330 $5,270 $5,293
Total interest expense.................................. 3,344 3,212 3,043 2,749
----- ----- ----- -----
Net interest income..................................... 2,072 2,118 2,227 2,544
Provision for losses on loans........................... 2 95 21 16
Other income............................................ 364 433 502 358
General, administrative and other expense............... 1,874 1,831 1,968 2,049
----- ----- ----- -----
Earnings before income taxes............................ 560 625 740 837
Federal income taxes.................................... 185 213 253 288
----- ----- ----- -----
Net earnings ........................................... $ 375 $ 412 $ 487 $ 549
===== ===== ===== =====
Earnings per share
Basic................................................ $ .15 $ .16 $ .19 $ .21
===== ===== ===== =====
Diluted.............................................. $ .15 $ .16 $ .19 $ .21
===== ===== ===== =====
For the three month periods ended
---------------------------------
June 30, 2000 September 30, 2000 December 31, 2000 March 31, 2001
------------- ------------------ ----------------- --------------
(In thousands, except share data)
Total interest income................................... $5,341 $5,359 $5,389 $5,417
Total interest expense.................................. 3,161 3,248 3,321 3,370
----- ----- ----- -----
Net interest income..................................... 2,180 2,111 2,068 2,047
Provision for losses on loans........................... 51 22 2 21
Other income............................................ 218 259 289 279
General, administrative and other expense............... 1,933 1,899 1,813 1,703
----- ----- ----- -----
Earnings before income taxes............................ 414 449 542 602
Federal income taxes.................................... 147 142 172 214
----- ----- ----- -----
Net earnings ........................................... $ 267 $ 307 $ 370 $ 388
===== ===== ===== =====
Earnings per share
Basic................................................ $ .10 $ .12 $ .14 $ .15
===== ===== ===== =====
Diluted.............................................. $ .10 $ .12 $ .14 $ .15
===== ===== ===== =====
F-26
- --------------------------------------------------------------------------------
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 2,357,500 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.
AUGUST ____, 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
2
(including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article NINTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article NINTH shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the advancement
of expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article NINTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Amount
------
* Legal Fees and Expenses............................................ $ 410,000
* Printing, Postage, Mailing and EDGAR............................... 125,000
* Appraisal and Business Plan Fees and Expenses...................... 62,500
* Blue Sky Filing Fees and Expenses (including counsel fees)......... 5,000
* Accounting Fees and Expenses....................................... 110,000
* Conversion Agent and Data Processing Fees.......................... 35,000
** Marketing Agent Fees and Expenses.................................. 323,000
* Marketing Agent Counsel Fees and expenses.......................... 50,000
* Filing Fees (OTS, NASD, Nasdaq and SEC)............................ 81,400
* Other Expenses..................................................... 47,100
--------------
* Total ............................................................. $ 1,249,000
==============
- ------------------
* Estimated
** Wayne Savings Bancshares, Inc. has retained Ryan, Beck & Co., LLC to
assist in the sale of common stock on a best efforts basis in the
offering. Fees estimated at the midpoint of the offering range.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
3
ITEM 27. EXHIBITS:
The exhibits filed as part of this registration statement are as
follows:
(a) LIST OF EXHIBITS
1.1 Engagement Letter between the Registrant and Ryan, Beck & Co., LLC***
1.2 Form of Agency Agreement between the Registrant and Ryan, Beck & Co.,
LLC***
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 Gorman Pomerenk & Schick regarding legality of
securities being registered***
8.1 Form of Federal Tax Opinion of Luse 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 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*** 99.7 Appraisal Report Update
- --------------------
** 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;
4
(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.
5
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the city of Wooster,
State of Ohio on July 22, 2002.
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 July 22, 2002
-------------------------- President (Principal Executive
Charles F. Finn Officer)
/s/ Michael C. Anderson Executive Vice President and July 22, 2002
-------------------------- Chief Financial Officer
Michael C. Anderson (Principal Financial and
Accounting Officer)
/s/ Kenneth Rhode Director July 22, 2002
--------------------------
Kenneth Rhode
/s/ Russell Harpster Director July 22, 2002
--------------------------
Russell Harpster
/s/ Joseph Retzler Director July 22, 2002
--------------------------
Joseph Retzler
/s/ Donald Massaro Director July 22, 2002
--------------------------
Donald Massaro
/s/ Terry Gardner Director July 22, 2002
--------------------------
Terry Gardner
/s/ James Morgan Director July 22, 2002
--------------------------
James Morgan
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 2002
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 Gorman Pomerenk & Schick regarding legality of
securities being registered***
8.1 Form of Federal Tax Opinion of Luse 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 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***
99.7 Appraisal Report Update
- ------------------------
** Supporting financial schedules filed pursuant to Rule 202 of Regulation
S-T.
*** Previously filed.