FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
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 September 30, 1999
----------------------------------------------
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)
United States 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
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 November 5, 1999, the latest practicable date, 2,602,055 shares of the
registrant's common stock, $1.00 par value, were issued and outstanding.
Page 1 of 17 pages
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Wayne Savings Bancshares, Inc.
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II - OTHER INFORMATION 16
SIGNATURES 17
2
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<TABLE>
Wayne Savings Bancshares, Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
September 30, March 31,
ASSETS 1999 1999
<S> <C> <C>
Cash and due from banks $ 3,211 $ 1,540
Federal funds sold 2,000 4,295
Interest-bearing deposits in other financial institutions 7,780 10,410
------- -------
Cash and cash equivalents 12,991 16,245
Certificates of deposit in other financial institutions 4,000 6,000
Investment securities - at amortized cost, approximate
market value of $16,903 and $11,752 as of September 30, 1999
and March 31, 1999 17,246 11,830
Mortgage-backed securities available for sale - at market 10,865 6,411
Mortgage-backed securities - at cost, approximate
market value of $496 and $811 as of September 30, 1999
and March 31, 1999 504 819
Loans receivable - net 233,015 214,094
Loans held for sale - at lower of cost or market - 1,585
Real estate acquired through foreclosure 34 41
Office premises and equipment - at depreciated cost 8,247 7,748
Federal Home Loan Bank stock - at cost 3,052 2,919
Accrued interest receivable on loans 1,292 1,134
Accrued interest receivable on mortgage-backed securities 64 28
Accrued interest receivable on investments and interest-bearing deposits 218 184
Prepaid expenses and other assets 1,842 1,933
Prepaid federal income taxes 366 303
------- -------
Total assets $293,736 $271,274
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $258,529 $235,327
Advances from the Federal Home Loan Bank 8,000 9,000
Advances by borrowers for taxes and insurance 823 821
Accrued interest payable 183 179
Accounts payable on mortgage loans serviced for others 315 108
Other liabilities 479 497
Deferred federal income taxes 362 386
------- -------
Total liabilities 268,691 246,318
Stockholders' equity
Common stock (20,000,000 shares of $1.00 par value authorized;
2,631,033 and 2,505,082 shares issued at September 30, 1999
and March 31, 1999) 2,631 2,505
Additional paid-in capital 14,388 12,480
Retained earnings - substantially restricted 8,646 10,437
Less 28,978 and 22,583 shares, respectively, of treasury stock - at cost (574) (468)
Unrealized gains (losses) on securities available for sale, net of related tax effects (46) 2
------- -------
Total stockholders' equity 25,045 24,956
------- -------
Total liabilities and stockholders' equity $293,736 $271,274
======= =======
</TABLE>
3
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<TABLE>
WAYNE SAVINGS BANCSHARES, INC.
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except share data)
Six months ended Three months ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income
Loans $ 8,788 $8,515 $4,484 $4,221
Mortgage-backed securities 276 180 168 109
Investment securities 394 443 224 224
Interest-bearing deposits and other 628 536 304 255
------ ----- ----- -----
Total interest income 10,086 9,674 5,180 4,809
Interest expense
Deposits 5,519 5,250 2,837 2,643
Borrowings 254 389 127 195
------ ----- ----- -----
Total interest expense 5,773 5,639 2,964 2,838
------ ----- ----- -----
Net interest income 4,313 4,035 2,216 1,971
Provision for losses on loans 44 31 23 16
------ ----- ----- -----
Net interest income after provision for losses on loans 4,269 4,004 2,193 1,955
Other income
Gain on sale of loans 21 188 1 99
Gain on sale of assets - 1 - -
Service fees, charges and other operating 335 361 166 191
------ ----- ----- -----
Total other income 356 550 167 290
General, administrative and other expense
Employee compensation and benefits 1,895 1,650 1,018 813
Occupancy and equipment 731 548 389 276
Federal deposit insurance premiums 101 101 51 51
Franchise taxes 178 174 90 92
Other operating 742 703 351 358
------ ----- ----- -----
Total general, administrative and other expense 3,647 3,176 1,899 1,590
------ ----- ----- -----
Earnings before income taxes 978 1,378 461 655
Federal incomes taxes
Current 309 458 (67) 212
Deferred 24 11 225 11
------ ----- ----- -----
Total federal income taxes 333 469 158 223
------ ----- ----- -----
NET EARNINGS $ 645 $ 909 $ 303 $ 432
====== ===== ===== =====
EARNINGS PER SHARE
Basic $0.25 $0.35 $0.12 $0.16
==== ==== ==== ====
Diluted $0.25 $0.34 $0.12 $0.16
==== ==== ==== ====
</TABLE>
4
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<TABLE>
Wayne Savings Bancshares, Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except share data)
Six months ended Three months ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net earnings $645 $909 $303 $432
Other comprehensive income (loss) net of tax:
Unrealized holding gains(losses) on securities during
the period, net of tax (48) 22 (4) 27
--- --- --- ---
Comprehensive income $597 $931 $299 $459
=== === === ===
Accumulated comprehensive income (loss) $(46) $ 39 $(46) $ 39
=== === === ===
</TABLE>
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<TABLE>
Wayne Savings Bancshares, Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended September 30,
(In thousands)
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 645 $ 909
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 14 13
Amortization of deferred loan origination fees (290) (253)
Depreciation and amortization 367 237
Loans originated for sale in the secondary market (1,750) (7,280)
Proceeds from sale of loans 3,350 7,969
(Gain) loss on sale of loans 12 (112)
Provision for losses on loans 44 31
Federal Home Loan Bank stock dividends (106) (100)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (159) (26)
Accrued interest receivable on mortgage-backed securities (35) (9)
Accrued interest receivable on investments and interest-bearing deposits (34) 43
Prepaid expenses and other assets 91 (39)
Accrued interest payable 4 (24)
Accounts payable on mortgage loans serviced for others 207 (40)
Other liabilities (18) 18
Federal income taxes
Current (63) (88)
Deferred (24) 11
------ ------
Net cash provided by operating activities 2,255 1,260
Cash flows provided by (used in) investing activities:
Purchase of investment securities (7,500) (4,062)
Proceeds from maturity of investment securities 1,066 6,222
Purchase of mortgaged-backed securities (6,985) (3,913)
Principal repayments on mortgage-backed securities 2,722 1,047
Loan principal repayments 20,545 34,310
Loan disbursements (37,941) (36,006)
Purchase of office premises and equipment - net (1,128) (1,004)
Proceeds from sale of real estate acquired through foreclosure - 63
Additions to real estate acquired through foreclosure - (60)
Decrease in certificates of deposit in other financial institutions 2,000 7,000
------ ------
Net cash provided by (used in) investing activities (27,221) 3,597
------ ------
Net cash provided by (used in) operating and investing activities
(balance carried forward) (24,966) 4,857
------ ------
</TABLE>
6
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<TABLE>
Wayne Savings Bancshares, Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended September 30,
(In thousands)
1999 1998
<S> <C> <C>
Net cash provided by (used in) operating and investing activities
(balance brought forward) $(24,966) $ 4,857
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 23,202 3,874
Proceeds from Federal Home Loan Bank advances - 10,000
Repayment of Federal Home Loan Bank advances (1,000) (14,000)
Advances by borrowers for taxes and insurance 2 3
Proceeds from exercise of stock options 6 74
Dividends paid on common stock (392) (186)
Purchase of treasury shares (106) -
------- ------
Net cash provided by (used in) financing activities 21,712 (235)
------- ------
Net increase (decrease) in cash and cash equivalents (3,254) 4,622
Cash and cash equivalents at beginning of period 16,245 13,169
------- ------
Cash and cash equivalents at end of period $ 12,991 $17,791
======= ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 396 $ 553
======= ======
Interest on deposits and borrowings $ 5,769 $ 5,663
======= ======
Supplemental disclosure of noncash investing activities:
Unrealized gain(losses) on securities designated as
available for sale, net of related tax effects $ (48) $ 22
======== ======
Recognition of mortgage servicing rights in accordance
with SFAS No. 125 $ 33 $ 76
======== ======
</TABLE>
7
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Wayne Savings Bancshares, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended September 30, 1999
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 Wayne Savings
Bancshares, Inc. included in the Annual Report on Form 10-KSB for the
year ended March 31, 1999.
The accompanying consolidated financial statements include Wayne
Savings Bancshares, Inc. (the "Company") and its wholly-owned
subsidiary, Wayne Savings Community Bank ("Wayne Savings" or the
"Bank") and its federal savings bank subsidiary in North Canton, Ohio
named Village Savings Bank, F.S.B. ("Village"), together referred to as
"the Banks".
During the quarter ended June 30, 1999, Wayne Savings opened the new
Madison South office at the southern perimeter of Wooster, as planned.
Additionally, Wayne Savings also opened its Northside office on July
12, 1999. The new office is in leased office space formerly occupied by
a local commercial bank. These two openings increase the number of
Wayne Savings full-service offices from six to eight, with four offices
located in Wooster.
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 six month periods ended September 30, 1999
are not necessarily indicative of the results which may be expected for
an entire fiscal year.
2. Principles of Consolidation
All significant intercompany transactions and balances have been
eliminated in consolidation.
3. Earnings Per Share
Basic earnings per common share is computed based upon the weighted
average number of common shares outstanding during the period, less
shares in the ESOP that are unallocated and not committed to be
released. Diluted earnings per common share include the dilutive effect
of additional potential common shares issuable under the Company's
stock option plan. Earnings and dividends per share have been restated
for all stock dividends through the date of issuance of the financial
statements. The computations were as follows:
8
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Wayne Savings Bancshares, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the six months ended September 30, 1999
3. Earnings Per Share (continued)
<TABLE>
<CAPTION>
For the six months ended September 30, 1999 1998
<S> <C> <C>
Weighted average common shares
outstanding (basic) 2,603,715 2,609,324
Dilutive effect of assumed exercise
of stock options 18,903 28,062
--------- ---------
Weighted average common shares
outstanding (diluted) 2,622,618 2,637,386
========= =========
For the three months ended September 30, 1999 1998
Weighted average common shares
outstanding (basic) 2,603,235 2,610,876
Dilutive effect of assumed exercise
of stock options 18,903 28,062
--------- ---------
Weighted average common shares
outstanding (diluted) 2,622,138 2,638,938
========= =========
</TABLE>
4. Effects of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
requires entities to recognize all derivatives in their financial
statements as either assets or liabilities measured at fair value. SFAS
No. 133 also specified new methods of accounting for hedging
transactions, prescribes the items and transactions that may be hedged,
and specifies detailed criteria to be met to qualify for hedge
accounting.
The definition of a derivative financial instrument is complex, but in
general, it is an instrument with one or more underlyings, such as an
interest rate or foreign exchange rate that is applied to a notional
amount, such as an amount of currency, to determine the settlement
amount(s). It generally requires no significant initial investment and
can be settled net or by delivery of an asset that is readily
convertible to cash. SFAS No. 133 applies to derivatives embedded in
other contracts, unless the underlyings of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. On adoption, entities are permitted to
transfer held-to-maturity debt securities to the available-for-sale or
trading category without calling into question their intent to hold
other debt securities to maturity in the future. SFAS No. 133 is not
expected to have a material impact on the Company's financial
statements.
9
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Wayne Savings Bancshares, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from March 31, 1999 to September 30,
1999
At September 30, 1999, the Company had total assets of $293.7 million, an
increase of $22.5 million, or 8.3%, over March 31, 1999.
Cash and due from banks, federal funds sold, interest-bearing deposits,
certificates of deposit and investment securities totaled approximately $34.2
million, an increase of approximately $162,000, over March 31, 1999 levels.
Regulatory liquidity approximated 12.9% at September 30, 1999, compared to 11.0%
at March 31, 1999.
Loans receivable increased by approximately $17.3 million, or 8.0%, over the
March 31, 1999 total. This increase resulted from loan disbursements of $39.7
million, which were partially offset by principal repayments of $20.6 million
and sales of $3.4 million. The allowance for loan losses totaled $727,000 at
September 30, 1999, as compared to $678,000 at March 31, 1999. Nonperforming
loans totaled $293,000 at September 30, 1999 and $280,000 at March 31, 1999. The
allowance for loan losses totaled 248.1% and 242.1% of nonperforming loans at
September 30, 1999 and March 31, 1999, respectively. Although management
believes that its allowance for loan losses at September 30, 1999, 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 $23.2 million, or 9.9%, from the March 31,
1999 level to $258.5 million at September 30, 1999. The increase in deposits was
primarily attributable to growth achieved at new branch office locations,
coupled with management's continuing efforts to achieve a moderate rate of
growth through marketing and business strategies.
The Banks are subject to capital standards which generally require the
maintenance of regulatory capital sufficient to meet each of three tests, the
tangible capital requirement, the core capital requirement and the risk-based
capital requirement. At September 30, 1999, both Wayne Savings and Village's
regulatory capital exceeded all minimum capital requirements.
Comparison of Operating Results for the Six Month Periods Ended September 30,
1999 and 1998
Net earnings totaled $645,000 for the six months ended September 30, 1999, as
compared to net earnings of $909,000 for the same period in 1998, a decrease of
264,000, or 29.0%. The decrease in net earnings resulted primarily from an
increase of $471,000, or 14.8%, in general, administrative and other expense and
a decrease in other income of $194,000, or 35.3%, which were partially offset by
an increase of $278,000, or 6.9%, in net interest income and a decrease of
$136,000 in the provision for federal income taxes.
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 Six Month Periods Ended September 30,
1999 and 1998 (continued)
Net Interest Income
Interest on loans and mortgage-backed securities totaled $9.1 million for the
six months ended September 30, 1999, an increase of $369,000, or 4.2%, over the
same period in 1998. The increase can be primarily attributed to a $19.6
million, or 9.2%, increase in the average balance of loans and mortgage-backed
securities outstanding which was partially offset by a decrease in the yield
year to year.
Interest on investments and interest-bearing deposits increased by $43,000, or
4.4%, during the six months ended September 30, 1999, as compared to the same
period in 1998, as a result of a slight increase in the average balance from
year to year, coupled with an increase in the average yield.
Interest expense on deposits and borrowings increased by $134,000, or 2.4%,
during the six months ended September 30, 1999, over the same period in 1998.
The increase can be primarily attributed to an $21.9 million, or 9.4%, increase
in the average balance of interest-bearing liabilities which was partially
offset by a decrease in cost of funds year to year.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $278,000, or 6.9%, during the six months ended
September 30, 1999, as compared to the same period in 1998.
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 $44,000
provision for losses on loans during the six months ended September 30, 1999, an
increase of $13,000, or 41.9%, over the comparable 1998 period, primarily due to
growth in the loan portfolio coupled with management's assessment of the
collateral securing nonperforming loans. The provision for losses on loans is
recorded based upon management's assessment of the risk inherent in the loan
portfolio. 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 $356,000 for the six months ended September 30, 1999, a
decrease of $194,000, or 35.3%, from the comparable 1998 period. This decrease
was due primarily to the $167,000, or 88.8%, decrease in gain on sale of loans.
11
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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 Six Month Periods Ended September 30,
1999 and 1998 (continued)
General, Administrative and Other Expense
General, administrative and other expense increased by $471,000, or 14.8%,
during the current six month period, due primarily to a $183,000, or 33.4%,
increase in occupancy and equipment, a $245,000, or 14.8%, increase in employee
compensation and benefits and a $39,000, or 5.5%, increase in other operating
expenses. The increases were due primarily to the costs associated with the
addition of Village and the new branches as previously discussed.
Federal Income Taxes
The provision for federal income taxes amounted to $333,000 for the six months
ended September 30, 1999, a decrease of $136,000, or 29.0%, as compared to the
same period in 1998. The decrease resulted primarily from a $400,000, or 29.0%,
decrease in pretax earnings year to year. The effective tax rate for the six
months ended September 30, 1999 and 1998 was 34.0%.
Comparison of Operating Results for the Three Month Periods Ended September 30,
1999 and 1998
Net earnings totaled $303,000 for the three months ended September 30, 1999, as
compared to net earnings of $432,000 for the same period in 1998, a decrease of
$129,000, or 29.9%. The decrease in net earnings resulted primarily from an
increase of $309,000, or 19.4%, in general, administrative and other expense and
a decrease in other income of $123,000, or 42.4%, which were partially offset by
an increase of $245,000, or 12.4%, in net interest income and a $65,000 decrease
in the provision for federal income taxes.
Net Interest Income
Interest on loans and mortgage-backed securities increased by $322,000, or 7.4%,
for the three months ended September 30, 1999 over the same period in 1998. The
increase can be primarily attributed to an increase in the average balance of
loans and mortgage-backed securities outstanding.
Interest on investments and interest-bearing deposits increased $49,000, or
10.2%, during the current three-month period, as compared to the same period in
1998, as a result of an increase in the average balance of interest-earning
assets from year to year.
Interest expense on deposits and borrowings increased by $126,000, or 4.4%, for
the three month period ended September 30, 1999 over the comparable period in
1998. The increase can be primarily attributed to an increase in the average
balance of interest-bearing liabilities year to year.
12
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Wayne Savings Bancshares, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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 $23,000 provision for losses on loans during the three
months ended September 30, 1999, an increase of $7,000, or 43.8%, over the same
period in 1998. The provision for losses on loans is recorded based upon growth
in the loan portfolio, management's assessment of the risk inherent in the loan
portfolio and management's assessment of the collateral securing non-performing
loans. There can be no assurance that the loan loss allowance of the Company
will be adequate to cover losses on non-performing assets in the future.
Other Income
Other income totaled $167,000 for the three months ended September 30, 1999, a
decrease of $123,000 or 42.4%, from the comparable 1998 period. This decrease
was due primarily to the $98,000, or 99.0%, decrease in gain on sale of loans.
General, Administrative and Other Expense
General, administrative and other expense increased by $309,000, or 19.4%,
during the current three month period over the comparable 1998 period. The
increases were due primarily to the costs associated with the addition of
Village and the new branches as previously discussed. Employee compensation and
benefits increased by $205,000, or 25.2%, during the three months ended
September 30, 1999 as compared to the same period in 1998. Occupancy and
equipment increased by $113,000, or 40.9%, over the same period. These increases
were due primarily to costs associated with Village and new office locations.
Federal Income Taxes
The provision for federal income taxes amounted to $158,000 for the three months
ended September 30, 1999 as compared to $223,000 for the same period in 1998.
The effective tax rates for the three months ended September 30, 1999 and 1998
were 34.3% and 34.0%, respectively.
Year 2000 Compliance Matters
The Year 2000 ("Y2K") issue is the result of computer programs using a two-digit
format, as opposed to four digits, to indicate the year. Such computer systems
will be unable to interpret dates beyond the year 1999, which could cause a
system failure or other computer errors, leading to disruption in operations.
The potential impact is that date sensitive calculations would be based on
erroneous data or could cause a system failure. This affects all forms of
financial accounting including interest computation, due dates,
pensions/personnel benefits, and investments. It can also affect record keeping.
13
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Wayne Savings Bancshares, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000 Compliance Matters (continued)
In 1997, the Company developed a five-phase program for Y2K information systems
compliance. Phase I is awareness which consisted of establishing a Y2K project
team and gaining executive-level support for resources necessary to perform
compliance work. Phase II is assessment which consisted of the identification of
all hardware, software, networks, automated teller machines, other various
processing platforms, and customer and vendor interdependencies affected by the
Y2K date change. Phase III is renovation consisting of hardware and software
upgrades, system replacements, vendor certification, and other associated
changes for known non-compliant applications. Phase IV is validation consisting
of testing hardware, software, and systems to assure Y2K compliance. Phase V is
implementation whereby a contingency plan is enacted for any system failing Y2K
testing.
The Company does not perform in-house programming. All systems have been
purchased from third-party vendors. Therefore, the primary thrust of the
Company's Y2K effort has been ongoing discussions and monitoring of vendors'
progress.
The Company has received confirmation from its vendors that Y2K compliant
versions of their systems are available. The Company either had the compliant
version in place or has replaced a non-compliant version with the compliant one.
The most critical phase is validation. Although vendors have certified that
their systems are compliant, the Company tested these systems using critical
future dates. There are numerous testing methodologies to cover the unique
interdependencies between the vendors and the Company. Testing methodologies
used by the Company included point-to-point (tests verify the ability of a
financial institution to transmit data directly to another entity of system);
end-to-end (tests verify the ability of a financial institution originating a
transaction to transmit test data to a receiving entity or system through an
intermediary); and proxy (the service provider tests with a representative
sample of financial institutions who use a particular service on the same
platform).
The Company's Y2K action plan required that mission-critical systems testing be
substantially completed by March 31, 1999. A mission-critical system is an
application or system that is vital to the successful continuance of a core
business activity. The Company complied with the March 31, 1999 deadline and all
mission-critical systems have been deemed Y2K compliant. Testing of material non
mission-critical systems began by March 31, 1999 and was completed by June 30,
1999.
The Company had budgeted approximately $50,000 for hard costs related to
renovation and testing. Approximately $40,000 of the budget has been expended as
of September 30, 1999.
The Company has developed a business resumption contingency plan for each
mission-critical system in the event that there are system failures at critical
dates. The contingency plan consists of: event timelines, business impact
analysis, alternative options, minimum acceptable levels of output and services,
and core business processes that need to be recovered. The contingency plan is
not static. It will receive constant attention through the remainder of the
year.
14
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Wayne Savings Bancshares, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000 Compliance Matters (continued)
The Company expects that customers may desire to withdraw funds in the weeks
preceding the century date change. In order to address that potential
consequence, the Company will need to have sufficient liquid assets towards the
end of the year. The Company is currently significantly in excess of the OTS
liquidity requirements and anticipates remaining significantly in excess
throughout fiscal year 2000.
15
<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
The Board of Directors of Wayne Savings Bancshares, Inc. has
authorized to continue the repurchase of up to approximately 131,000
shares, or 5% of the Company's outstanding stock, over the next 12
months. Any repurchased shares, will be held as treasury stock and
will be available for general corporate purposes.
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits:
27.1 Financial Data Schedule for the six month
period ended September 30, 1999.
27.2 Restated Financial Data Schedule for the six
month period ended September 30, 1998.
16
<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: November 12, 1999 By: /s/Charles F. Finn
----------------- -----------------------------
Charles F. Finn
Chairman and President
Date: November 12, 1999 By: /s/Todd Tappel
------------------ -----------------------------
Todd Tappel
Chief Financial Officer
17
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