FORM 10-QSB
OFFICE OF THRIFT SUPERVISION
Washington, D. C. 20552
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
-----------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File No. 0-23433
WAYNE SAVINGS BANCSHARES INC.
(Exact name of registrant as specified in its charter)
Ohio 31-1557791
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
151 North Market Street
Wooster, Ohio 44691
(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (330) 264-5767
WAYNE SAVINGS COMMUNITY BANK
(Former name, changed since last report)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
As of February 9, 1998, the latest practicable date, 2,257,310 shares of the
registrant's common stock, $1.00 par value, were issued and outstanding.
Page 1 of 16 pages
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Wayne Savings Bancshares Inc.
INDEX
Page
PART I - FINANCIAL INFORMATION
Statements of Financial Condition 3
Statements of Earnings 4
Statements of Cash Flows 5
Notes to Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II - OTHER INFORMATION 15
SIGNATURES 16
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<TABLE>
Wayne Savings Bancshares Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
December 31, March 31,
ASSETS 1997 1997
<S> <C> <C>
Cash and due from banks $ 1,453 $ 1,302
Federal funds sold 3,550 1,125
Interest-bearing deposits in other financial institutions 8,519 5,179
--------- ---------
Cash and cash equivalents 13,522 7,606
Certificates of deposit in other financial institutions 6,500 7,500
Investment securities - at amortized cost, approximate
market value of $14,237 and $16,904 as of December 31, 1997
and March 31, 1997 14,419 16,970
Mortgage-backed securities available for sale - at market 2,263 378
Mortgage-backed securities - at cost, approximate
market value of $297 and $497 as of December 31, 1997
and March 31, 1997 295 495
Loans receivable - net 205,736 209,404
Loans held for sale - at lower of cost or market 583 -
Real estate acquired through foreclosure 846 809
Office premises and equipment - at depreciated cost 5,756 3,991
Federal Home Loan Bank stock - at cost 2,672 2,531
Accrued interest receivable on loans 1,118 1,139
Accrued interest receivable on mortgage-backed securities 16 7
Accrued interest receivable on investments and
interest-bearing deposits 350 226
Prepaid expenses and other assets 1,024 790
Prepaid federal income taxes 24 329
----------- ----------
Total assets $255,124 $252,175
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $214,605 $211,442
Advances from the Federal Home Loan Bank 14,000 16,000
Loan payable to Employee Stock Ownership Plan - 35
Advances by borrowers for taxes and insurance 1,356 701
Accrued interest payable 129 226
Accounts payable on mortgage loans serviced for others 260 126
Other liabilities 396 382
Accrued federal income taxes 188 148
---------- ----------
Total liabilities 230,934 229,060
Stockholders' equity
Common stock (20,000,000 shares of $1.00 par value authorized; 2,257,310 and
1,498,889 shares issued and outstanding at December 31, 1997
and March 31, 1997) 2,258 1,499
Additional paid-in capital 5,942 5,844
Retained earnings - substantially restricted 15,979 15,777
Less shares acquired by Employee Stock Ownership Plan - (35)
Less treasury stock (10) -
Unrealized gains on securities available for sale, net of related tax effects 21 30
----------- -----------
Total stockholders' equity 24,190 23,115
-------- --------
Total liabilities and stockholders' equity $255,124 $252,175
======= =======
</TABLE>
3
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<TABLE>
Wayne Savings Bancshares Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Nine months ended Three months ended
December 31, December 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income
Loans $12,799 $12,796 $4,240 $4,253
Mortgage-backed securities 57 77 28 19
Investment securities 741 623 215 187
Interest-bearing deposits and other 781 544 295 190
-------- -------- ------ ------
Total interest income 14,378 14,040 4,778 4,649
Interest expense
Deposits 7,589 7,491 2,545 2,501
Borrowings 674 421 210 139
-------- -------- ------ ------
Total interest expense 8,263 7,912 2,755 2,640
------- ------- ----- -----
Net interest income 6,115 6,128 2,023 2,009
Provision for losses on loans 45 15 15 5
--------- --------- ------- --------
Net interest income after provision for
losses on loans 6,070 6,113 2,008 2,004
Other income
Gain on sale of loans 190 39 66 22
Service fees, charges and other operating 467 401 154 124
-------- -------- ------ ------
Total other income 657 440 220 146
General, administrative and other expense
Employee compensation and benefits 2,394 2,456 813 803
Occupancy and equipment 729 771 256 227
Federal deposit insurance premiums 152 1,729 48 112
Franchise taxes 228 215 76 73
Other operating 1,009 954 334 325
------- -------- ------ ------
Total general, administrative and other expense 4,512 6,125 1,527 1,540
------- ------- ----- -----
Earnings before income taxes 2,215 428 701 610
Federal income taxes
Current 709 98 240 209
Deferred 45 49 - -
--------- --------- ----- ----
Total federal income taxes 754 147 240 209
-------- -------- ------ ------
NET EARNINGS $ 1,461 $ 281 $ 461 $ 401
======= ======== ======== ========
EARNINGS PER SHARE
Basic $0.65 $0.13 $0.20 $0.18
==== ==== ==== ====
Diluted $0.65 $0.13 $0.20 $0.18
==== ==== ==== ====
</TABLE>
4
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<TABLE>
Wayne Savings Bancshares Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended December 31,
(In thousands)
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 1,461 $ 281
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 11 (4)
Amortization of deferred loan origination fees (274) (257)
Amortization expense of stock benefit plans 23 58
Depreciation and amortization 318 129
Loans originated for sale in the secondary market (6,280) (1,430)
Proceeds from sale of loans 5,803 1,050
Gain on sale of loans (106) (39)
Provision for losses on loans 45 15
Federal Home Loan Bank stock dividends (141) (126)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 21 86
Accrued interest receivable on mortgage-backed securities (9) 4
Accrued interest receivable on investments and interest-bearing deposits (124) 41
Prepaid expenses and other assets (234) 276
Accrued interest payable (97) (94)
Accounts payable on mortgage loans serviced for others 134 15
Other liabilities 14 (10)
Federal income taxes
Current 305 (318)
Deferred 45 49
--------- ---------
Net cash provided by (used in) operating activities 915 (274)
Cash flows provided by (used in) investing activities:
Purchase of investment securities (2,500) (1,500)
Proceeds from maturity of investment securities 5,051 5,624
Purchase of mortgage-backed securities (1,970) -
Principal repayments on mortgage-backed securities 280 802
Loan principal repayments 45,371 34,671
Loan disbursements (41,703) (36,879)
Purchase of office premises and equipment - net (2,083) (212)
Proceeds from sale of real estate acquired through foreclosure - 503
Additions to real estate acquired through foreclosure (37) (30)
Decrease in certificates of deposit in other financial institutions 1,000 500
------- --------
Net cash provided by investing activities 3,409 3,479
------- -------
Net cash provided by operating and investing activities
(balance carried forward) 4,324 3,205
------- -------
</TABLE>
5
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<TABLE>
Wayne Savings Bancshares Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended December 31,
(In thousands)
1997 1996
<S> <C> <C>
Net cash provided by operating and investing activities
(balance brought forward) $ 4,324 $ 3,205
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts 3,163 (958)
Proceeds from Federal Home Loan Bank advances 4,000 19,000
Repayment of Federal Home Loan Bank advances (6,000) (17,000)
Advances by borrowers for taxes and insurance 655 708
Proceeds from exercise of stock options 42 39
Dividends paid on common stock (268) (488)
------- --------
Net cash provided by financing activities 1,592 1,301
------- -------
Net increase in cash and cash equivalents 5,916 4,506
Cash and cash equivalents at beginning of period 7,606 10,190
------- ------
Cash and cash equivalents at end of period $13,522 $14,696
====== ======
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Federal income taxes $ 433 $ 396
======= ======
Interest on deposits and borrowings $ 8,360 $ 8,006
======= ======
Supplemental disclosure of noncash investing activities:
Unrealized losses on securities designated as
available for sale, net $ (9) $ (1)
======== =======
Recognition of mortgage servicing rights in accordance
with SFAS No. 125 $ 84 $ -
======= ======
</TABLE>
6
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Wayne Savings Bancshares Inc.
NOTES TO CONSOLIDAED FINANCIAL STATEMENTS
For the three and nine months ended December 31, 1997
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-QSB and,
therefore, do not include information or footnotes necessary for a
complete presentation of financial position, results of operations and
cash flows in conformity with generally accepted accounting principles.
Accordingly, these financial statements should be read in conjunction
with the financial statements and notes thereto of The Wayne Savings
and Loan Company included in the Annual Report on Form 10-KSB for the
year ended March 31, 1997.
Effective November 25, 1997, Wayne Savings Community Bank (the
"Company"), formerly named The Wayne Savings and Loan Company,
completed its reorganization into a two-tier mutual holding company
structure with the establishment of a stock holding company as parent
of the Company. In the reorganization, each share of Wayne Savings
Community Bank's common stock was automatically converted into one
share of Wayne Savings Bancshares Inc. common stock. The reorganization
of the Company was structured as a tax-free reorganization and was
accounted for in the same manner as a pooling-of-interests. Wayne
Savings Community Bank is now the wholly-owned subsidiary of Wayne
Savings Bancshares Inc., the stock holding company ("Wayne").
In the opinion of management, all adjustments (consisting only of
normal recurring accruals) which are necessary for a fair presentation
of the financial statements have been included. The results of
operations for the three and nine month periods ended December 31, 1997
and 1996 are not necessarily indicative of the results which may be
expected for an entire fiscal year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Wayne and the Company. All significant intercompany items have been
eliminated.
3. Earnings Per Share
Basic earnings per share is computed based upon the weighted-average
shares outstanding during the period, less shares in the ESOP that are
unallocated and not committed to be released. Weighted-average common
shares outstanding, which gives effect to 4,452 unallocated ESOP
shares, totaled 2,251,587 and 2,255,687 for the nine and three month
periods ended December 31, 1997, respectively. Weighted-averages common
shares outstanding, which gives effect to 2,546 unallocated ESOP
shares, totaled 2,224,173 and 2,227,710 for the nine and three month
periods ended December 31, 1996.
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common shares to be issued
under the Corporation's stock option plan. Weighted-average common
shares deemed outstanding for purposes of computing diluted earnings
per share totaled 2,256,039 and 2,260,139 for the nine and three month
periods ended December 31, 1997, respectively, and 2,226,719 and
2,230,256 for the nine and three month periods ended December 31, 1996,
respectively.
7
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Wayne Savings Bancshares Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Effects of Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", that provides accounting guidance on
transfers of financial assets, servicing of financial assets, and
extinguishment of liabilities. SFAS No. 125 introduces an approach to
accounting for transfers of financial assets that provides a means of
dealing with more complex transactions in which the seller disposes of
only a partial interest in the assets, retains rights or obligations,
makes use of special purpose entities in the transaction, or otherwise
has continuing involvement with the transferred assets.
The new accounting method, the financial components approach, provides
that the carrying amount of the financial assets transferred be
allocated to components of the transaction based on their relative fair
values. SFAS No. 125 provides criteria for determining whether control
of assets has been relinquished and whether a sale has occurred. If the
transfer does not qualify as a sale, it is accounted for as a secured
borrowing. Transactions subject to the provisions of SFAS No. 125
include, among others, transfers involving repurchase agreements,
securitizations of financial assets, loan participations, factoring
arrangements, and transfers of receivables with recourse. An entity
that undertakes an obligation to service financial assets recognizes
either a servicing asset or liability for the servicing contract
(unless related to a securitization of assets, and all the securitized
assets are retained and classified as held-to-maturity). A servicing
asset or liability that is purchased or assumed is initially recognized
at its fair value. Servicing assets and liabilities are amortized in
proportion to and over the period of estimated net servicing income or
net servicing loss and are subject to subsequent assessments for
impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance
sheet only if the debtor either pays the creditor and is relieved of
its obligation for the liability or is legally released from being the
primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31,
1997, and is to be applied prospectively. Earlier or retroactive
application is not permitted. Management adopted SFAS No. 125 effective
January 1, 1998, as required, without material effect on the Company's
financial position or results of operations.
8
<PAGE>
Wayne Savings Bancshares Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Effects of Recent Accounting Pronouncements (continued)
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. SFAS
No. 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements. It does not require a
specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income
for the period in that financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided
for comparative purposes is required. SFAS No. 130 is not expected to
have a material impact on the Corporation's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 significantly
changes the way that public business enterprises report information
about operating segments in annual financial statements and requires
that those enterprises report selected information about reportable
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and
services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information
about the way that management organizes the segments within the
enterprise for making operating decisions and assessing performance.
For many enterprises, the management approach will likely result in
more segments being reported. In addition, SFAS No. 131 requires
significantly more information to be disclosed for each reportable
segment than is presently being reported in annual financial statements
and also requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 is not expected to have
a material impact on the Corporation's financial statements.
9
<PAGE>
Wayne Savings Bancshares Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from March 31, 1997 to December 31,
1997
At December 31, 1997, Wayne Savings Bancshares Inc. ("Wayne"), the stock holding
company parent of Wayne Savings Community Bank (the "Company"), had total assets
of $255.1 million, an increase of $2.9 million, or 1.2%, from March 31, 1997.
Cash and due from banks, federal funds sold, interest-bearing deposits,
certificates of deposit and investment securities totaled approximately $34.4
million, an increase of approximately $2.4 million, from March 31, 1997 levels.
Regulatory liquidity approximated 16.5% at December 31, 1997, compared to 15.3%
at March 31, 1997.
Loans receivable decreased by approximately $3.1 million from the March 31, 1997
total. This decrease resulted from principal repayments of $45.4 million and
sales of $5.7 million, which were partially offset by loan disbursements of
$48.0 million. The allowance for loan losses totaled $962,000 at December 31,
1997, as compared to $914,000 at March 31, 1997. Nonperforming loans totaled
$616,000 at December 31, 1997 and $962,000 at March 31, 1997. The allowance for
loan losses totaled 156.2% and 95.0% of nonperforming loans at December 31, 1997
and March 31, 1997, respectively. Although management believes that its
allowance for loan losses at December 31, 1997, is adequate based upon the
available facts and circumstances, there can be no assurance that additions to
such allowance will not be necessary in future periods, which would adversely
affect the Company's results of operations.
Deposits increased by approximately $3.2 million to a total of $214.6 million at
December 31, 1997. The increase in deposits is primarily attributable to
management's continuing efforts to achieve a moderate rate of growth through
marketing and pricing strategies.
The Company is subject to capital standards which generally require the
maintenance of regulatory capital sufficient to meet each of three tests,
hereinafter described as the tangible capital requirement, the core capital
requirement and the risk-based capital requirement. At December 31, 1997, the
Company's tangible and core capital of $23.2 million, or 9.1%, exceeded the
minimum 1.5% and 3.0% requirements of $3.8 million and $7.7 million,
respectively, by $19.4 million and $15.5 million. The Company's risk-based
capital of $23.9 million, or 17.5%, exceeded the 8.0% minimum requirement by
approximately $13.0 million.
Comparison of Operating Results for the Nine Month Periods Ended December 31,
1997 and 1996
Net earnings totaled $1.5 million for the nine months ended December 31, 1997,
as compared to net earnings of $281,000 for the same period in 1996, an increase
of $1.2 million. The increase in net earnings resulted primarily from an
increase in gain on sale of loans of $151,000 and a reduction in operating
expenses as described herein, of $1.6 million. The same period in 1996 had two
nonrecurring charges that affected net earnings for the year, a special
assessment charged to the Company to recapitalize the Savings Association
Insurance Fund ("SAIF") and a fixed asset write-off to prepare for construction
of a new branch.
Before the above prior year one-time charges, net earnings totaled $1.2 million
for the nine months ended December 31, 1996. The net earnings of $1.5 million
for the same nine month period in the current year represents an increase of
approximately $220,000, or 18%.
10
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Wayne Savings Bancshares Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine Month Periods Ended December 31,
1997 and 1996 (continued)
Net Interest Income
Interest on loans and mortgage-backed securities decreased by $17,000 for the
nine months ended December 31, 1997, from same period in 1996. Average loans
receivable decreased to $207.9 million for the nine months ended December 31,
1997, compared to $208.7 million for the same period in 1996. The average rate
on the portfolio decreased to 7.98% in the 1997 period compared to 8.22% in
1996.
Interest on investments and interest-bearing deposits increased by $355,000, or
30.4%, during the nine months ended December 31, 1997, as compared to the same
period in 1996, which is a result of a $3.3 million increase in the average
portfolio balance year to year.
Interest expense on deposits and borrowings increased by $351,000, or 4.4%,
during the nine months ended December 31, 1997, over the same period in 1996.
The increase can be primarily attributed to an increase in the average balance
of interest-bearing liabilities, which increased by $3.3 million from $213.0
million, coupled with an increase in the average cost of funds year to year.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $13,000, or .2%, during the nine months ended
December 31, 1997, as compared to the same period in 1996.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the
Company, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Company's
market area, and other factors related to the collectibility of the Company's
loan portfolio. As a result of such analysis, management recorded a $45,000
provision for losses on loans during the nine months ended December 31, 1997, an
increase of $30,000 over the same period in 1996. There can be no assurance that
the loan loss allowance of the Company will be adequate to cover losses on
nonperforming assets in the future.
Other Income
Other income totaled $657,000 for the nine months ended December 31, 1997, an
increase of $217,000, or 49.3%, over the comparable 1996 period. This increase
was due primarily to the $151,000 increase in gain on sale of loans coupled with
a $66,000, or 16.5%, increase in service fees, charges and other operating
income.
11
<PAGE>
Wayne Savings Bancshares Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine Month Periods Ended December 31,
1997 and 1996 (continued)
General, Administrative and Other Expense
General, administrative and other expense decreased by $1.6 million, or 26.3%,
during the current nine month period, due primarily to a $1.6 million decrease
in federal deposit insurance premiums, a $62,000, or 2.5%, decrease in employee
compensation and benefits and a $42,000, or 5.4%, decrease in occupancy and
equipment.
The one-time charge in 1996 in federal deposit insurance premiums was due to
legislation to recapitalize the SAIF. The one-time charge in 1996 in occupancy
and equipment was due to the write-off of certain fixed assets relating to the
construction of the new facility at the existing Cleveland Road branch. For the
Company, the one-time assessment amounted to $1.3 million, and the fixed asset
write-off to $122,000 for the 1996 period. Furthermore, the recapitalization
assessment paid last year resulted in a reduction in premium insurance rates
thereby reducing the Company's insurance premium for the nine months ended
December 31, 1997.
The decrease in employee compensation and benefits was due primarily to a
reduction in compensation expense following the expiration of the Management
Recognition and Retention Plan.
The decrease in occupancy and equipment was partially offset by an increase in
depreciation and other costs relating to the construction of the new facility at
the existing Cleveland Road branch and the main office renovation.
Federal Income Taxes
The provision for federal income taxes amounted to $754,000 for the nine months
ended December 31, 1997, an increase of $607,000 as compared to the same period
in 1996. The increase resulted primarily from an increase in pretax earnings
year to year. The effective tax rates for the nine months ended December 31,
1997 and 1996 were 34.0% and 34.3%, respectively.
Comparison of Operating Results for the Three Month Periods Ended December 31,
1997 and 1996
The Company recorded net earnings of $461,000 for the three months ended
December 31, 1997, an increase of $60,000, or 15.0%, as compared to net earnings
of $401,000 for the same period in 1996. The increase is a result of a $74,000
increase in other income, along with a $13,000 decrease in general,
administrative and other expense, which were partially offset by a $31,000
increase in the provision for federal income taxes.
12
<PAGE>
Wayne Savings Bancshares Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods Ended December 31,
1997 and 1996 (continued)
Net Interest Income
Interest on loans and mortgage-backed securities decreased slightly by $4,000,
or .1%, for the three months ended December 31, 1997 over the same period in
1996. The decline was due primarily to a $2.6 million decrease in average loans
receivable year to year.
Interest on investments and interest-bearing deposits increased by $133,000, or
35.3%, during the current three month period as a result of an increase in the
average portfolio balances outstanding year to year.
Interest expense on deposits and other borrowings increased by $115,000, or
4.4%, during the three months ended December 31, 1997 as compared to the same
period in 1996. The increase can be primarily attributed to an increase in the
average balance of interest-bearing liabilities.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management.
Management recorded a $15,000 provision for losses on loans during the three
months ended December 31, 1997, an increase of $10,000 over the same period in
1996. There can be no assurance that the loan loss allowance of the Company will
be adequate to cover losses on nonperforming assets in the future.
Other Income
Other income increased by $74,000, or 50.7%, during the current period due
primarily to an increase in gain on sale of loans and an increase in service
fees, charges and other operating income.
General, Administrative and Other Expense
General, administrative and other expense decreased by $13,000 during the
current three month period, due primarily to a decrease of federal deposit
insurance premiums.
Federal Income Taxes
The Company recorded federal income taxes totaling $240,000 for the three month
period ended December 31, 1997, an increase of $31,000 over the same period in
1996. The increase was a result of an increase in pretax earnings. The effective
tax rates for the three months ended December 31, 1997 and 1996 were 34.2% and
34.3%, respectively.
13
<PAGE>
Wayne Savings Bancshares Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods Ended December 31,
1997 and 1996 (continued)
Other Matters
As with all providers of financial services, the Company's operations are
heavily dependent on information technology systems. The Company is addressing
the potential problems associated with the possibility that the computers that
control or operate the Company's information technology system and
infrastructure may not be programmed to read four-digit date codes and, upon
arrival of the year 2000, may recognize the two-digit code "00" as the year
1900, causing systems to fail to function or to generate erroneous data. The
Company is working with the companies that supply or service its information
technology systems to identify and remedy any year 2000 related problems.
As of the date of this Form 10-QSB, the Company has not identified any specific
expenses that are reasonably likely to be incurred by the Company in connection
with this issue and does not expect to incur significant expense to implement
the necessary corrective measures. No assurance can be given, however, that
significant expense will not be incurred in future periods. In the event that
the Company is ultimately required to purchase replacement computer systems,
programs and equipment, or incur substantial expense to make the Company's
current systems, programs and equipment year 2000 compliant, the Company's net
earnings and financial condition could be adversely affected.
In addition to possible expense related to its own systems, the Company could
incur losses if loan payments are delayed due to year 2000 problems affecting
any major borrowers in the Company's primary market area. Because the Company's
loan portfolio is highly diversified with regard to individual borrowers and
types of businesses and the Company's primary market area is not significantly
dependent upon one employer or industry, the Company does not expect any
significant or prolonged difficulties that will affect net earnings or cash
flow.
14
<PAGE>
Wayne Savings Bancshares Inc.
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable
ITEM 5. Other Information
During the last quarter, Wayne Savings Community Bank,
formerly named The Wayne Savings and Loan Company, completed
its reorganization into a two-tier holding company structure.
Wayne Savings Community Bank is now the wholly-owned
subsidiary of Wayne Savings Bancshares Inc., the stock holding
company.
ITEM 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K: On November 25, 1997, the Company
filed a current report on Form
8-K in which it reported that it
had completed the reorganization
into a two-tier holdingcompany
structure.
Exhibits: Financial Data Schedule for the
nine month period ended
December 31, 1997.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 9, 1998 By: /s/Charles F. Finn
Charles F. Finn
Chairman and President
Date: February 9, 1998 By: /s/Todd J. Tappel
Todd J. Tappel
Senior Vice President
Chief Financial Officer
16
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