EXHIBIT 13
2000 ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
DIRECTORS AND OFFICERS
WAYNE SAVINGS BANCSHARES, INC.
Board of Directors Executive Officers
Charles Finn Charles Finn
Chairman President And Chief Executive Officer
Kenneth Rhode Wanda Christopher-Finn
Executive Vice President
Russell Harpster And Chief Administrative Officer
Joseph Retzler Gary Miller
Senior Vice President And
Donald Massaro Chief Lending Officer
Terry Gardner Todd Tappel
Senior Vice President And
James Morgan Chief Financial Officer;
Corporate Secretary And
Treasurer
TABLE OF CONTENTS
Page
Stockholder Information ................................................... 5
Chairman's Letter ......................................................... 6
Selected Consolidated Financial and Other Data ............................ 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................... 10
Report of Independent Certified Public Accountants ........................ 20
Consolidated Statements of Financial Condition ............................ 21
Consolidated Statements of Earnings ....................................... 22
Consolidated Statements of Comprehensive Income ........................... 23
Consolidated Statements of Stockholders' Equity ........................... 24
Consolidated Statements of Cash Flows ..................................... 25
Notes to Consolidated Financial Statements ................................ 27
4
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STOCKHOLDER INFORMATION
Annual Meeting
The Annual Meeting of Stockholders
will be held at 10:00 a.m. on July 27, 2000,
at The Black Tie Affair Conference Center,
50 Riffel Road,
Wooster, Ohio.
Special Counsel
Luse Lehman Gorman Pomerenk &Schick
5335 Wisconsin Avenue NW
Suite 400
Washington, D. C. 20015
Independent Auditors
Grant Thornton LLP
625 Eden Park Drive o Suite 900
Cincinnati, Ohio 45202
Transfer Agent
ChaseMellon Shareholder Services
85 Challenger Road o Overpeck Centre
Ridgefield Park, New Jersey 07660
Annual Report on Form 10-KSB
A copy of the Company's Form 10-KSB for the fiscal year ended March 31, 2000,
will be furnished without charge to stockholders upon written request to the
Corporate Secretary, Wayne Savings Bancshares, Inc., 151 North Market Street,
Wooster, Ohio 44691 (330) 264-5767
Investor Information
Executive Offices
Wayne Saving Bancshares, Inc.
151 N. Market Street o P.O. Box 858
Wooster, Ohio 44691 (330) 264-5767
5
<PAGE>
CHAIRMAN'S LETTER
TO OUR STOCKHOLDERS
AND CUSTOMERS:
It is a great privilege to present this Annual Report to the Stockholders
and Customers of Wayne Savings Bancshares, Inc., our first annual report of the
21st century.
The fiscal year ended March 31, 2000, was another exciting year of progress
and achievement for our Company, and we believe the accomplishments during the
past year further strengthened the foundation of Wayne Savings as we move
forward into the new millennium. First of all, we were quite gratified by the
public response to the year-long 100th anniversary celebration of Wayne Savings
Community Bank, the wholly-owned subsidiary of Wayne Savings Bancshares, Inc.
The extensive publicity and community events surrounding the centennial
celebration greatly enhanced the image and public awareness of Wayne Savings.
The current generation of officers, directors, and staff are indeed proud to
represent Wayne Savings at this momentous time in the Company's history.
The most obvious accomplishment for Wayne Savings Bancshares, Inc. in
Fiscal 2000 was accelerated growth, as our investment in expanded banking
locations continued to produce the anticipated gains in new customers and
deposits. One of the key objectives of our business plan has been to achieve
internal asset growth of the Company through market expansion and new branch
facilities. In May 1999, we successfully opened our new Madison South office at
the southern perimeter of Wooster, and, in July 1999, the NorthSide office was
established in Wooster's rapidly developing northend commercial and residential
area. The opening of the two additional branch offices in the past year
increased the number of Wayne Savings' full-service banking locations from six
to eight, with four being in the Wooster area. Our expanded market place has
enhanced our ability to cross-sell our products and services and to serve our
customer base.
We are pleased that our strategic investment in people, technology, and
expanded banking locations is producing the desired results, as evidenced by a
12% growth in assets in the past year, a 13% growth in deposits, a 10% growth in
loans receivable, and a 7% growth in net interest income.
The Company reached a new growth milestone at March 31, 2000, as assets
topped the $300 million mark. Total assets amounted to $304.1 million, a $32.8
million growth from total assets of $271.3 million a year ago. Deposit account
balances increased $29.6 million during the fiscal year to a new total of $265.0
million, and loans receivable increased $21.7 million, from $215.7 million to
$237.4 million, in the same twelve month period.
As anticipated, the start-up costs related to the opening of the two
additional banking offices in Fiscal 2000 did result in what is expected to be a
temporary decrease in net earnings. For the fiscal year ended March 31, 2000,
Wayne Savings
6
<PAGE>
Bancshares, Inc. reported net earnings of $1.3 million or $.48 per diluted
share, as compared to $1.6 million or $.62 per diluted share in the prior year.
In addition to the increased operating costs related to branch office openings,
gains on sale of loans were $287,000 less than in the prior year. Net interest
income increased $578,000, or 7%, from $8.1 million in the prior year to $8.7
million in the current fiscal year.
For the fourth quarter ended March 31, 2000, net earnings amounted to
$301,000 or $.11 per diluted share, compared to $294,000 or $.11 per diluted
share for the same quarter last year. Net interest income in the quarter ended
March 31, 2000, increased $180,000, or 9%, over the prior year quarter, from
$2.0 million to $2.2 million.
Another hallmark of Wayne Savings is the continuing high quality of our
loan portfolio, as the level of non-performing loans remains far below the
industry average. At the end of the 2000 fiscal year, stockholders' equity
amounted to $25.1 million, resulting in a capital-to-assets ratio of 8.26%. For
its continued operation as a safe and sound bank, Wayne Savings has received a
five-star rating for 23 consecutive quarters from Bauer Financial Reports Inc.,
a nationally recognized firm that rates financial institutions. This is the
highest safety and soundness rating awarded to banks.
It is also a pleasure to report on the substantial progress of Village
Savings Bank, F.S.B., the "de novo" federal savings bank established July 1998
in North Canton, Ohio. While Village Savings Bank has an independent charter and
separate federal insurance of accounts, it is a wholly-owned subsidiary of Wayne
Savings Community Bank. The Bank operates as a local community bank specializing
in responsive, personal customer service. At March 31, 2000, the Bank had grown
to $21.2 million in assets, $17.8 million in deposits, and $15.0 million in
loans. Village Savings Bank became profitable in February 2000 after 20 months
of operation, only two months longer than our original 18 month projection.
Village Savings Bank is expected to make a substantial profit contribution to
Wayne Savings and its stockholders in the months and years ahead.
In the past two years, Wayne Savings has made a considerable investment in
building our capabilities to attract and retain valuable customer relationships
and to enhance revenue growth. We have also put much effort into diversifying
our products and services to keep pace with the changes in financial
modernization laws and trends. For example, we plan to expand our alternative
investments this year to include the sale of mutual funds and variable rate
annuities to complement our current fixed-rate annuity offerings.
In the past year, we believe the Company has gained significant momentum
that will result in positive long-term results. The ultimate goal of our efforts
is to increase the investment value of our franchise for our stockholders and to
improve our ability to serve our customers.
On behalf of the directors, officers, and staff of Wayne Savings, we thank
you deeply for your continued confidence and support.
Sincerely,
/s/Charles F. Finn
Charles F. Finn
Chairman, President and Chief Executive Officer
7
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth certain consolidated financial and other
data of Wayne Savings Bancshares, Inc. (the "Company"), the stock holding
company parent of Wayne Savings Community Bank ("Wayne Savings" or the "Bank"),
and Village Savings Bank, F.S.B. ("Village"), a wholly-owned subsidiary of Wayne
Savings, together referred to as the "Banks," at the dates and for the periods
indicated. For additional information about the Company, reference is made to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and related
notes included elsewhere herein.
<TABLE>
<CAPTION>
At March 31,
---------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In thousands)
Selected Financial Condition Data
<S> <C> <C> <C> <C> <C>
Total assets ................. $304,069 $271,274 $259,752 $252,175 $248,503
Loans receivable, net(1)...... 237,412 215,679 207,879 209,404 206,513
Mortgage-backed securities(2). 10,496 7,230 4,275 873 1,929
Investment securities(3)...... 27,199 17,830 21,901 24,470 19,675
Cash and cash equivalents(4).. 14,309 16,245 13,169 7,606 10,190
Deposits ..................... 264,952 235,327 217,621 211,442 210,158
Stockholders' equity ......... 25,121 24,956 24,426 23,115 22,852
</TABLE>
-----------
(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 and due from banks, interest-bearing deposits in other
financial institutions, and federal funds sold.
Year Ended March 31,
-----------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In thousands)
Selected Operating Data:
Interest income .............. $20,701 $19,296 $19,236 $18,719 $18,328
Interest expense ............. 12,014 11,187 11,084 10,610 10,541
------- ------- ------- ------- -------
Net interest income ......... 8,687 8,109 8,152 8,109 7,787
Provision for loan losses .... 120 64 60 20 20
------- ------- ------- ------- -------
Net interest income after
provision for loan losses .. 8,567 8,045 8,092 8,089 7,767
Other income ................. 742 991 854 575 607
General, administrative
and other expense(1)......... 7,414 6,547 6,144 7,588 6,189
------- ------- ------- ------- -------
Earnings before income taxes . 1,895 2,489 2,802 1,076 2,185
Federal income taxes ......... 644 846 953 367 774
------- ------- ------- ------- -------
Net earnings ................ $ 1,251 $ 1,643 $ 1,849 $ 709 $ 1,411
======= ======= ======= ======= =======
-----------
(1) The fiscal year ended March 31, 1997, includes a one-time pre-tax charge of
$1.3 million to recapitalize the Savings Association Insurance Fund
("SAIF") and a $113,000 write-off of certain fixed assets relating to
construction of a new facility at the Cleveland Road location.
8
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER ATA (con't.)
<TABLE>
<CAPTION>
At or For the Year Ended March 31,
---------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Key Operating Ratios and Other Data:
Return on average assets (net
earnings divided by average
total assets)(1)............... .43% .63% .73% .29% .58%
Return on average equity
(net earnings divided by
average equity)(1)............. 4.98 6.90 7.72 3.08 6.32
Average equity to average
assets ratio .................. 8.57 9.07 9.42 9.32 9.21
Equity to assets at period end . 8.26 9.20 9.40 9.17 9.20
Interest rate spread
(difference between average
yield on interest earning
assets and average cost of
interest bearing liabilities) . 2.88 2.93 2.98 3.03 2.92
Net interest margin (net
interest income as a
percentage of average interest-
earning assets) ............... 3.14 3.23 3.34 3.40 3.30
General, administrative and
other expense to average
assets(1)(2)................... 2.53 2.45 2.42 3.07 2.57
Non-performing loans to
loans receivable, net ......... .08 .13 .15 .46 1.01
Non-performing assets to total
assets ........................ .10 .12 .48 .70 1.35
Average interest-earning
assets to average
interest-bearing liabilities .. 106.05 106.99 108.02 108.35 108.48
Allowance for loan losses to
non-performing loans .......... 396.50 242.14 234.09 95.01 42.57
Allowance for loan losses to
non-performing assets ......... 273.45 211.21 57.50 51.61 26.41
Net interest income after
provision for loan losses,
to general, administrative
and other expense(1)(2)........ 115.72 124.98 131.71 106.60 124.77
Number of full-service
offices ....................... 9 7 6 6 6
Dividend payout ratio .......... 70.50 45.89 36.45 88.94 52.66
</TABLE>
-----------
(1) The fiscal year ended March 31, 1997, includes a one-time pre-tax charge of
$1.3 million to recapitalize the SAIF and a $113,000 write-off of certain
fixed assets relating to construction of a new facility at the Cleveland
Point location.
(2) In calculating this ratio, general, administrative and other expense does
not include provisions for losses or gains on the sale of real estate
acquired through foreclosure.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The consolidated financial statements include Wayne Savings Bancshares,
Inc. (the "Company") and its wholly-owned subsidiaries. In fiscal year 1999,
Wayne Savings Community Bank ("Wayne Savings" or the "Bank") formed a new
federal savings bank subsidiary in North Canton, Ohio named Village Savings
Bank, F.S.B. ("Village"), together referred to as the "Banks." Intercompany
transactions and balances are eliminated in the consolidated financial
statements.
Effective November 25, 1997, Wayne Savings completed its reorganization
into a two-tier mutual holding company structure. In the reorganization, each
share of Wayne Savings common stock was automatically converted into one share
of Company common stock. The reorganization of Wayne Savings was structured as a
tax-free reorganization and was accounted for in the same manner as a
pooling-of-interests. As a result of the reorganization, the Company now serves
as the stock holding company parent of Wayne Savings.
The Company's net earnings are primarily dependent on its net interest
income, which is the difference between interest income earned on its loan,
mortgage-backed securities, and investment portfolios, and its cost of funds
consisting of interest paid on deposits and borrowings. The Company's net
earnings also are affected by its provision for loan losses, as well as the
amount of other income, including fees and service charges, and general,
administrative and other expense, such as salaries and employee benefits,
deposit insurance premiums, occupancy and equipment costs, and income taxes.
Earnings of the Company also are affected significantly by general economic and
competitive conditions, particularly changes in market interest rates,
government policies, and actions of regulatory authorities.
Business Strategy
The Company's current business strategy is to operate a well-capitalized,
profitable and independent community-oriented savings association dedicated to
financing home ownership and providing quality service to its customers. The
Company has sought to implement this strategy in recent years by: (1) closely
monitoring the needs of customers and providing personal, quality customer
service; (2) emphasizing the origination of one-to-four family residential
mortgage loans and consumer loans in the Company's market area; (3) reducing
interest rate risk exposure by better matching asset and liability maturities
and rates; (4) maintaining high asset quality; (5) maintaining a strong retail
deposit base; and (6) maintaining capital in excess of regulatory requirements.
Discussion of Financial Condition
In addition to the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances, the Company's operations, and actual
results could differ significantly from those discussed in forward-looking
statements. Some of the factors that could cause or contribute to such
differences are discussed herein but also include changes in the economy and
interest rates in the nation and the Company's general market area. The
forward-looking statements contained herein include, but are not limited to,
those with respect to the following matters: (1) management's determination of
the amount and adequacy of the allowance for loan losses; (2) the effect of
changes in interest rates; and (3) management's opinion as to the effects of
recent accounting pronouncements on the Company's consolidated financial
statements.
At March 31, 2000, the Company had total assets of $304.1 million, an
increase of $32.8 million, or 12.1%, from total assets of $271.3 million at
March 31, 1999.
Cash and due from banks, federal funds sold, interest-bearing deposits,
certificates of deposit and investment securities totaled approximately $41.5
million, an increase of approximately $7.4 million, or 21.8% from March 31, 1999
levels. Regulatory liquidity approximated 19.6% at
10
<PAGE>
March 31, 2000, compared to 20.5% at March 31, 1999.
Loans receivable, including loans held for sale, increased by approximately
$21.7 million, or 10.1%, to $237.4 million at March 31, 2000, from $215.7
million at March 31, 1999. This increase resulted from loan disbursements of
$64.9 million, which were partially offset by principal repayments of $37.1
million and sales of $6.4 million. Loans secured by one-to-four family
residential real estate increased by $22.3 million during fiscal 2000. The
allowance for loan losses totaled $793,000 at March 31, 2000, as compared to
$678,000 at March 31, 1999. Nonperforming loans totaled $200,000 at March 31,
2000, and $280,000 at March 31, 1999. The allowance for loan losses totaled
396.5% and 242.1% of nonperforming loans at March 31, 2000 and 1999,
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 such allowance will not be necessary in future
periods, which would adversely affect the Company's results of operations.
Deposits increased by approximately $29.6 million, or 12.6%, from $235.3
million at March 31, 1999, to a total of $265.0 million at March 31, 2000. The
increase in deposits is primarily attributable to growth achieved at the two new
branch locations and management's continuing efforts to achieve a moderate rate
of growth through marketing and business strategies.
Advances from the Federal Home Loan Bank increased by $3.0 million, or
33.3%, from $9.0 million outstanding at March 31, 1999, to $12.0 million
outstanding at March 31, 2000.
The Banks are subject to capital standards which generally require the
maintenance of regulatory capital sufficient to meet each of three tests; i.e.,
the tangible capital requirement, the core capital requirement, and the
risk-based capital requirement. At March 31, 2000, the Banks' capital met all
regulatory requirements to which they were subject.
Results of Operations
General. The earnings of the Company depend primarily on its level of net
interest income, which is the difference between interest earned on the
Company's interest-earning assets and the interest paid on interest-bearing
liabilities. Net interest income is substantially affected by the Company's
interest rate spread, which is the difference between the average yield earned
on interest-earning assets and the average rate paid on interest-bearing
liabilities, as well as by the average balance of interest-earning assets as
compared to interest-bearing liabilities.
The Company reported net earnings of $1.3 million for the fiscal year ended
March 31, 2000. This represents a 23.9% decrease from net earnings of $1.6
million reported in the prior fiscal year.
Net interest income increased $578,000, or 7.1% from the prior fiscal year,
representing growth in core earnings. The decrease in earnings in fiscal 2000
was due primarily to start up costs related to the opening of two additional
full-service banking offices in Wooster, coupled with a $287,000 decrease in
gain on sale of loans.
Interest Income. Interest income totaled $20.7 million for the fiscal year
ended March 31, 2000, an increase of $1.4 million, or 7.3%, from interest income
of $19.3 million for the fiscal year ended March 31, 1999. Interest income
increased due to an increase in the average balance of interest-earning assets
of $26.0 million, or 10.4%, to $276.7 million, partially offset by a decrease in
the average yield to 7.48% from 7.70% for the prior year.
Interest income on loans receivable increased by $891,000, or 5.2%, due to
a $20.7 million, or 9.9%, increase in the average balance of loans outstanding,
which was partially offset by a decrease in the average yield from 8.14% to
7.80%.
Interest income on mortgage-backed securities increased by $197,000, or
48.6%, primarily due to an increase in the average balance of $3.0 million, or
41.6%, to $10.2 million for the year ended March 31, 2000. The yield on these
assets increased to 5.93%, from 5.65%for the previous year.
Interest income on both investment securities and interest-bearing deposits
increased for the year, primarily as a result of an increase in the average
yield on these assets as interest rates continually rose throughout the fiscal
year. The yield on investment securities increased to 6.86%, from 6.03%for the
prior year, while the yield on interest-bearing deposits rose to 5.25%, from
5.01% for the prior fiscal year. The average balance of these assets increased
approximately $2.4 million, as the Company maintained a liquid position to take
advantage of a future increase in rates.
Interest income totaled $19.3 million for the fiscal year ended March 31,
1999, a slight increase from interest income of $19.2 million for the fiscal
year ended March 31, 1998. Interest income remained stable, while the average
balance of interest-earning assets increased $6.9 million, or 2.8%, to $250.7
million, while the average yield decreased to 7.70% from 7.89% the prior year.
Interest income on loans receivable remained stable, as a drop in interest
rates offset an increase in the average balance of $1.8 million, or .9%, as
compared to the previous year's average balance of $207.4 million.
Interest income on mortgage-backed securities increased by $302,000, to
$405,000 from $103,000. The increase was due to a $5.5 million, or 319.8%
increase in the average balance, to $7.2 million, for the year ended March 31,
1999, offset by a drop in the yield to 5.65%, from 6.03% the previous year.
Interest income on both investment securities and
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (con't. )
interest-bearing deposits decreased for the year ended March 31, 1999, primarily
as a result of a decrease in the average yield on these assets as interest rates
dropped throughout the fiscal year. The yield on investment securities dropped
to 6.03% in fiscal 1999, from 6.26% the prior year, while the yield on
interest-bearing deposits fell to 5.01%, from 5.69% the prior fiscal year. The
average balance of these assets remained stable at approximately $34 million, as
the Company maintained a liquid position to take advantage of a future increase
in rates.
Interest Expense. Interest expense for the fiscal year ended March 31,
2000, totaled $12.0 million, an increase of $827,000, or 7.4%, from interest
expense of $11.2 million for the previous year. The increase resulted from an
increase in the average balance of interest bearing liabilities of $26.6
million, or 11.4%, to $260.9 million, which was offset by a decrease in the
average cost of funds to 4.60% for the current year from 4.77% for the previous
fiscal year.
Interest expense on deposits increased $1.0 million, or 9.6%, to $11.5
million as a result of an increase in the average deposits outstanding from
$222.6 million for fiscal 1999 to $252.3 million in fiscal 2000, partially
offset by a decrease in the cost of deposits from 4.72% to 4.57% in fiscal 2000.
Interest expense on borrowings for the fiscal year ended March 31, 2000,
decreased $187,000, or 27.9%, to $484,000. The decrease was the result of a
decrease in the average balance of borrowings outstanding of $3.1 million, or
26.3%, coupled with a decrease in interest rates from 5.75% to 5.63%, in fiscal
2000.
Interest expense for the fiscal year ended March 31, 1999, totaled $11.2
million, an increase of $103,000, or .9%, from interest expense of $11.1 million
for the previous year. The increase resulted from an increase in the average
balance of interest bearing liabilities of $8.6 million, or 3.8%, to $234.3
million, which was partially offset by a decrease in the average cost of funds
to 4.77% in fiscal year 1999, from 4.91% in the previous fiscal year.
Interest expense on deposits increased $322,000, or 3.2%, to $10.5 million
as a result of an increase in the average deposits outstanding from $210.7
million for fiscal 1998 to $222.6 million in fiscal 1999, partially offset by a
decrease in the cost of deposits from 4.84% to 4.72% in fiscal 1999.
Interest expense on borrowings for the fiscal year ended March 31, 1999,
decreased $219,000, or 24.6%, to $671,000. The decrease was the result of a
reduction in the average balance in borrowings of $3.3 million, or 22.3%,
coupled with the reduction in interest rates from 5.93% to 5.75%, in fiscal
1999.
Net Interest Income. Net interest income for fiscal year 2000 was $8.7
million, compared to $8.1 million for the previous fiscal year, as the Company
grew $26.0 million in average interest-earning assets. This was partially offset
by a decline in the Company's average interest rate spread and a decrease in the
ratio of average interest-earning assets to average interest-bearing
liabilities, from 106.99% in fiscal 1999 to 106.05% in fiscal 2000.
Net interest income for 1999 was $8.1 million, compared to $8.2 million for
the previous fiscal year, as the interest rate spread was narrowed due primarily
to falling interest rates on the Company's assets throughout the fiscal year, as
well as a decrease in the ratio of average interest-earning assets to average
interest-bearing liabilities, from 108.02% in fiscal 1998 to 106.99% in fiscal
1999.
Provision for Losses on Loans. The Company maintains an allowance for loan
losses based on prior loss experience, the level of non-performing and problem
loans in the portfolio, and the potential effects on the portfolio of general
economic conditions. The Company's allowance for loan losses was $793,000, or
.33% of loans receivable at March 31, 2000, $678,000, or .32% of loans
receivable at March 31, 1999, and $721,000, or .35% of loans receivable at March
31, 1998. The Company recorded a provision for loan losses of $120,000 for the
fiscal year ended March 31, 2000, primarily due to growth in the loan portfolio
coupled with management's assessment of the collateral securing non-performing
loans. The Company recorded its provision for loan losses at $64,000 and $60,000
for the fiscal years ended March 31, 1999 and 1998, respectively, primarily as a
result of the Company's low level of non-performing loans.
At March 31, 2000, 1999, and 1998, respectively, the Company's loss
allowance was primarily composed of $793,000, $670,000, and $706,000, in general
allowances as defined by Office of Thrift Supervision ("OTS") regulations. The
breakdown of general loss allowances and specific loss allowances is made for
regulatory accounting only. General loan valuation allowances are added back to
capital in computing risk-based capital. Both general and specific loss
allowances are charged against earnings. The financial statements of the Company
are prepared in accordance with Generally Accepted Accounting Principles
("GAAP") and, accordingly, provisions for loan losses are based on management's
assessment of the factors set forth above. The Company reviews on a monthly
basis its loan portfolio, including problem loans, to determine whether any
loans require classification and/or the establishment of appropriate allowances.
12
<PAGE>
Other Income. Other income consisting primarily of gain on sale of loans,
service fees, and charges on deposit accounts decreased $249,000, or 25.1%, to
$742,000 for fiscal 2000. The decrease was a result of a decrease of $287,000,
or 92.9%, in gain on sale of fixed-rate mortgage loans. Fixed-rate mortgage
loans sold totaled $6.4 million compared to $15.9 million sold in the previous
fiscal year. Service fees, charges, and other operating income increased
$38,000, or 5.6%, to $720,000 in fiscal 2000 as fee activity related to the
deposit accounts increased.
Other income increased $137,000, or 16.0%, to $991,000 for fiscal 1999. The
increase was a result of an increase of $72,000, or 30.4%, in gain on sales of
loans in fiscal 1999, due to a higher volume of sales. Fixed-rate mortgage loans
sold totaled $15.9 million in fiscal 1999 compared to $7.1 million sold in the
previous fiscal year. Service fees, charges, and other operating income
increased $69,000, or 11.3%, to $682,000 in fiscal 1999 as fee activity related
to the deposit accounts increased.
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 $7.4 million for the year ended March 31, 2000, an increase of
$867,000, or 13.2%, compared to 1999. The increase was primarily a result of
increased operating costs as reflected in higher employee compensation,
occupancy and equipment, and other operating expenses at the new branch
locations.
General, administrative and other expense totaled $6.5 million for the year
ended March 31, 1999, an increase of $403,000, or 6.6% compared to 1998. The
increase was primarily a result of operating costs at Village totaling $419,000
and the loss on the sale of real estate owned totaling $110,000. The increases
due to the subsidiary bank are reflected in the increases in employee
compensation, occupancy and equipment, and franchise taxes.
Income Taxes. The provision for income taxes totaled $644,000 for the year
ended March 31, 2000, a decrease of $202,000, or 23.9%, compared to the $846,000
provision recorded for the previous fiscal year. The decrease in income taxes is
reflective of the lower level of pre-tax earnings for the period ended March 31,
2000, as the effective tax rate was 34.0% for both periods.
The provision for income taxes totaled $846,000 for the year ended March
31, 1999, a decrease of $107,000, or 11.2%, compared to the $953,000 provision
recorded for the previous fiscal year. The decrease in income taxes is
reflective of the lower levels of pre-tax earnings for the period ended March
31, 1999, as the effective tax rate was 34.0% for both periods.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (con't.)
Average Balance Sheet
The following table sets forth certain information relating to the
Company's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods presented.
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------------------------------------------------------
2000 1999 1998
---------------------------- ---------------------------- ----------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net(1)......... $229,845 $ 17,928 7.80 $209,178 $ 17,037 8.14 $207,377 $ 17,068 8.23%
Mortgage-backed securities(2).... 10,152 602 5.93 7,170 405 5.65 1,708 103 6.03
Investment securities ........... 15,053 1,033 6.86 12,999 784 6.03 15,598 977 6.26
Interest-bearing deposits(3)..... 21,669 1,138 5.25 21,345 1,070 5.01 19,112 1,088 5.69
------ ----- ---- ------ ----- ---- ------ ----- ----
Total interest-earning assets .. 276,719 20,701 7.48 250,692 19,296 7.70 243,795 19,236 7.89
Non-interest -earning assets ...... 16,165 11,988 10,531
------ ------ ------
Total assets ................... $292,884 $262,680 $254,326
======== ======== ========
Interest-bearing liabilities:
Deposits ........................ $252,346 11,530 4.57 $222,645 10,516 4.72 $210,697 10,194 4.84
Borrowings ...................... 8,596 484 5.63 11,667 671 5.75 15,007 890 5.93
----- --- ---- ------ --- ---- ------ --- ----
Total interest-bearing
liabilities ................... 260,942 12,014 4.60 234,312 11,187 4.77 225,704 11,084 4.91
Non-interest-bearing liabilities... 6,844 4,549 4,666
----- ----- -----
Total liabilities .............. 267,786 238,861 230,370
Stockholders' equity .............. 25,098 23,819 23,956
------ ------ ------
Total liabilities and
stockholders' equity .......... $292,884 $262,680 $254,326
======== -------- ======== -------- ======== -------
Net interest income ............... $ 8,687 $ 8,109 $ 8,152
======== ---- ======== ---- ======= ----
Interest rate sprea(4) ............ 2.88% 2.93% 2.98%
==== ==== ====
Net yield on interest-earning
assets(5)........................ 3.14% 3.23% 3.34%
==== ==== ====
Ratio of average interest-earning
assets to average interest-
bearing liabilities ............. 106.05% 106.99% 108.02%
====== ====== ======
</TABLE>
(1) Includes non-accrual loan balances.
(2) Includes mortgage-backed securities designated as available for sale.
(3) Includes federal funds sold and interest-bearing deposits in other
financial institutions.
(4) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(5) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
14
<PAGE>
Rate/Volume Analysis
The table below sets forth certain information regarding changes in
interest income and interest expense of the Company for the periods indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in average volume
(changes in average volume multiplied by old rate) and (ii) changes in rate
(change in rate multiplied by old average volume), and the net change in rate-
volume (changes in rate multiplied by the change in average volume) has been
allocated proportionately between changes in rate and changes in volume.
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------------------------
2000 vs. 1999 1999 vs. 1998
----------------------------- ---------------------------
Increase (Decrease) Increase (Decrease)
Due to Total Due to Total
-------------- Increase ------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Loans receivable .................... $ 1,625 $(734) $ 891 $ 151 $(182) $ (31)
Mortgage-backed securities .......... 176 21 197 361 (59) 302
Other interest-earning assets ....... 134 183 317 (22) (189) (211)
--- --- --- --- ---- ----
Total interest-earning assets ...... 1,935 (530) 1,405 490 (430) 60
Interest expense attributable to:
Deposits ............................ 1,358 (344) 1,014 575 (253) 322
Borrowings .......................... (173) (14) (187) (193) (26) (219)
---- --- ---- ---- --- ----
Total interest-bearing liabilities.. 1,185 (358) 827 382 (279) 103
----- ---- --- --- ---- ---
Increase (decrease) in
net interest income ................ $ 750 $(172) $ 578 $ 108 $(151) $ (43)
======= ===== ======= ===== ===== =====
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (con't.)
Asset and Liability Management-Interest Rate Sensitivity Analysis
The Banks, like other financial institutions, are subject to interest rate
risk to the extent that their interest-earning assets reprice differently than
their interest-bearing liabilities. As part of their effort to monitor and
manage interest rate risk, the Banks use the "net portfolio value" ("NPV")
methodology adopted by the Office of Thrift Supervision ("OTS") as part of its
capital regulations. The application of NPV methodology illustrates certain
aspects of the Banks 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 which 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. If the
NPV would decrease more than 2% of the present value of the institution's assets
with either an increase or a decrease in market rates, the institution must
deduct 50% of the amount of the decrease in excess of such 2% in the calculation
of the institution's risk-based capital. See "Liquidity and Capital Resources."
Presented below, as of March 31, 2000 and 1999, is an analysis of the
Banks' 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, 2000
--------------------------------------------------------------------------------
Net Portfolio Value NPV as % of PV of Assets
Change in Interest ------------------------------ ------------------------
Rates (Basis points) $Amount $Change %Change NPV Ratio Change
-------------------- ------- ------- ------- --------- ------
(In thousands)
+300 bp $ 9,103 $(18,531) (67)% 3.22% (585 bp)
+200 bp 15,310 (12,324) (45) 5.28 (379 bp)
+100 bp 21,549 (6,085) (22) 7.24 (183 bp)
0 bp 27,634 -- -- 9.07 --
-100 bp 32,731 5,097 18 10.53 146 bp
-200 bp 35,593 7,959 29 11.30 223 bp
-300 bp 37,958 10,324 37 11.91 284 bp
As of March 31, 1999
--------------------------------------------------------------------------------
Net Portfolio Value NPV as % of PV of Assets
Change in Interest ------------------------------ ------------------------
Rates (Basis points) $Amount $Change %Change NPV Ratio Change
-------------------- ------- ------- ------- --------- ------
(In thousands)
+300 bp $ 15,602 $(13,730) (47)% 6.02% (463 bp)
+200 bp 20,989 (8,343) (28) 7.91 (274 bp)
+100 bp 25,715 (3,617) (12) 9.49 (116 bp)
0 bp 29,332 -- -- 10.65 --
-100 bp 32,110 2,778 9 11.50 85 bp
-200 bp 34,161 4,829 16 12.09 144 bp
-300 bp 36,776 7,444 25 12.83 218 bp
16
<PAGE>
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Further, in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-backed securities and
early withdrawal levels from certificates of deposit would likely deviate
significantly from those assumed in making the risk calculations.
The Company's policy in recent years has been to reduce its exposure to
interest rate risk generally by better matching the maturities of its interest
rate sensitive assets and liabilities and by originating ARM loans and other
adjustable rate or short-term loans, as well as by purchasing short-term
investments. However, particularly in the interest rate environment which
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, 2000. The Company seeks to lengthen the maturities of its
deposits by promoting longer-term certificates; however, the Company has not
been successful in lengthening the maturities of its deposits in the current
increasing interest rate environment. The Company also negotiates interest rates
on certificates of deposit of $100,000 or more.
The Company has an Asset-Liability Management Committee which is
responsible for reviewing the Company's 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. The
Banks have operated within the framework of their prescribed asset/liability
risk ranges for each of the last three years.
Liquidity and Capital Resources
The Banks are required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which varies from time to time
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The required ratio currently is 4%. The
Company's liquidity ratio averaged 17.9% during the month of March 2000 and
16.4% during the fiscal year ended March 31, 2000. The Company adjusts liquidity
as appropriate to meet its asset and liability management objectives.
The Banks' primary sources of funds are deposits, amortization and
prepayment of loans and mortgage-backed securities, maturities of investment
securities and other short-term investments, and earnings and funds provided
from operations. While scheduled principal repayments on loans and
mortgage-backed securities are a relatively predictable source of funds, deposit
flows and loan prepayments are greatly influenced by general interest rates,
economic conditions, and competition. The Banks manage the pricing of deposits
to maintain a desired level of deposits and cost of funds. In addition, the
Banks invest excess funds in federal funds, and other short-term
interest-earning and other assets, which provide liquidity to meet lending
requirements. Federal funds sold and other assets qualifying for liquidity
outstanding at March 31, 2000, 1999, and 1998, amounted to $47.8 million, $37.7
million, and $38.9 million, respectively. For additional information about cash
flows from the Company's operating, financing, and investing activities, see
Statements of Cash Flows included in the Financial Statements.
A major portion of the Banks' liquidity consists of cash and cash
equivalents, which are a product of its operating, investing, and financing
activities. The primary sources of cash were net earnings, principal repayments
on loans and mortgage-backed securities, and increases in deposit accounts.
Liquidity management is both a daily and long-term function of business
management. If the Banks require funds beyond their ability to generate them
internally, borrowing agreements exist with the Federal Home Loan Bank ("FHLB")
which provide an additional source of funds. At March 31, 2000, the Company had
$12.0 million in outstanding advances from the FHLB.
At March 31, 2000, the Company had outstanding loan commitments of $20.3
million, including the unfunded portion of loans in process. Certificates of
deposit scheduled to mature in less than one year at March 31, 2000, totaled
$123.9 million. Based on prior experience, management believes that a
significant portion of such deposits will remain with the Company.
Year 2000 Compliance Matters
The Year 2000 ("Y2K") issue related to certain computer programs which used
a two-digit format, as opposed to four digits, to indicate the year. Such
computer systems may have been unable to interpret dates beyond the year 1999,
which could have caused a system failure or other computer errors, leading to
disruption in operations. The potential impact was that date sensitive
calculations would be based on erroneous data, or could cause a system failure.
The Y2K issue may have affected all forms of financial accounting, including
interest computation, due dates, pensions/personnel benefits, investments, and
record keeping.
During the three year period leading up to January 1, 2000, the Company
developed and implemented a program to ensure Y2K information systems
compliance. The Company does not perform in-house programming. All systems have
been purchased from third-party vendors.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (con't.)
Therefore, the primary thrust of the Company's Y2K effort involved ongoing
discussions and monitoring of vendors' progress, including receipt of
confirmation from its vendors that Y2K compliant versions of their systems were
in place.
The Company had expended a total of approximately $50,000 for hard costs
related to renovation and testing, approximately $30,000 of which was expensed
during fiscal 2000.
The Company experienced no technology-related problems upon arrival of
January 1, 2000, nor was there any disruption of services to its customers. 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 primary market area is not
significantly dependent upon one employer or industry, the Company does not
expect, and to date has not realized, any significant or prolonged difficulties
that will affect net earnings or cash flow.
Impact of Inflation and Changing Prices
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with Generally
Accepted Accounting Principles ("GAAP"), which requires 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
the Company's operations. Unlike most industrial companies, nearly all the
assets and liabilities of the Company are monetary. As a result, interest rates
have a greater impact on the Company's performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.
Impact 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 specifies 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 underlying 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.
Common Stock and Related Matters
Effective June 23, 1993, the Bank reorganized from mutual to stock form and
established Wayne Savings Bankshares, M.H.C., a mutual holding company (the
"Holding Company"). The Bank's initial public offering of Common Stock closed on
June 23, 1993. Shares of Common Stock were issued and sold in that offering at
$5.00 (adjusted) per share. On June 10, 1999, the Company, paid a 5% stock
dividend. In June of 1998 and 1997, the Company paid a 10% stock dividend, and a
three-for-two stock split, respectively. References herein to an adjusted number
of shares or price per share reflect an adjustment due to these stock
distributions.
Effective November 25, 1997, Wayne Savings Community Bank completed its
reorganization into a two-tier mutual holding company structure with the
establishment of a stock holding company parent of the Bank. In the
reorganization, each share of the Bank's common stock was automatically
converted into one share of Wayne Savings Bancshares, Inc. common stock. The
reorganization of Wayne Savings was structured as a tax-free reorganization and
was accounted for in the same manner as a pooling-of-interests. As a result of
the reorganization, the Company now serves as the stock holding company parent
of the Bank.
The Company's Common Stock trades over-the-counter on the Nasdaq SmallCap
Market using the symbol "WAYN." The following table sets forth the high and low
trading prices of the Company's common stock (adjusted) during the two most
recent fiscal years, together with the cash dividends declared (adjusted).
18
<PAGE>
Fiscal Year Ended Cash Dividends
March 31, 1999 High Low Declared
-------------- ---- --- --------
First quarter $27.27 $24.76 $.148
Second quarter 24.76 17.14 .148
Third quarter 21.19 16.07 .148
Fourth quarter 17.86 14.29 .148
Fiscal Year Ended Cash Dividends
March 31, 2000 High Low Declared
-------------- ---- --- --------
First quarter $17.00 $15.24 $.160
Second quarter 16.88 14.13 .160
Third quarter 17.25 14.25 .160
Fourth quarter 16.63 10.50 .160
As of April 13, 2000, the Company had 858 stockholders of record and
2,599,015 shares of outstanding Common Stock. This does not reflect the number
of persons whose stock is in nominee or "street" name accounts through brokers.
Payment of dividends on the Common Stock is subject to determination and
declaration by the Board of Directors and will depend upon a number of factors,
including capital requirements, regulatory limitations on the payment of
dividends, the Company's results of operations and financial condition, tax
considerations and general economic conditions. No assurance can be given that
dividends will be declared or, if declared, what the amount of dividends will
be, or whether such dividends, once declared, will continue.
A "well capitalized" institution such as Wayne Savings can, after prior
notice but without the approval of the OTS, make capital distributions during a
calendar year in an amount up to 100 percent of its net income during the
calendar year, plus its retained net income for the preceding two years.
In addition to the foregoing, earnings of the Company appropriated to bad
debt reserves and deducted for federal income tax purposes are not available for
payment of cash dividends or other distributions to stockholders without payment
of taxes at the then-current tax rate by the Company on the amount of earnings
removed from the reserves for such distributions. The Company intends to make
full use of this favorable tax treatment and does not contemplate any
distribution that would create federal tax liability.
19
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
[GRANT THORNTON LLP LETTERHEAD]
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, 2000 and 1999, and the related
consolidated statements of earnings, stockholders' equity, comprehensive income
and cash flows for each of the three years ended March 31, 2000, 1999, and 1998.
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 generally accepted auditing
standards. 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, 2000 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years ended
March 31, 2000, 1999, and 1998, in conformity with generally accepted accounting
principles.
/s/Grant Thornton LLP
Cincinnati, Ohio
May 26, 2000
20
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
As of March 31,
(Dollars in thousands, except share data)
ASSETS 2000 1999
-------- --------
Cash and due from banks.................................... $ 2,502 $ 1,540
Federal funds sold......................................... 3,475 4,295
Interest-bearing deposits in other financial institutions.. 8,332 10,410
-------- --------
Cash and cash equivalents.............................. 14,309 16,245
Certificates of deposit in other financial institutions.... 4,000 6,000
Investment securities held to maturity - at amortized cost,
approximate market value of $22,634 and $11,752 as of
March 31, 2000 and 1999.................................. 23,199 11,830
Mortgage-backed securities available for sale - at market.. 3,450 3,846
Mortgage-backed securities held to maturity - at amortized
cost, approximate market value of $6,938 and $3,363 as
of March 31, 2000 and 1999............................... 7,046 3,384
Loans receivable - net..................................... 237,095 214,094
Loans held for sale - at lower of cost or market........... 317 1,585
Office premises and equipment - net........................ 8,160 7,748
Real estate acquired through foreclosure................... 90 41
Federal Home Loan Bank stock - at cost..................... 3,160 2,919
Accrued interest receivable on loans....................... 1,255 1,134
Accrued interest receivable on mortgage-backed securities.. 60 28
Accrued interest receivable on investments and
interest-bearing deposits................................ 354 184
Prepaid expenses and other assets.......................... 1,390 1,933
Prepaid federal income taxes............................... 184 303
-------- --------
Total assets........................................... $304,069 $271,274
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits................................................... $264,952 $235,327
Advances from Federal Home Loan Bank....................... 12,000 9,000
Advances by borrowers for taxes and insurance.............. 777 821
Accrued interest payable................................... 228 179
Accounts payable on mortgage loans serviced for others..... 100 108
Other liabilities.......................................... 516 497
Deferred federal income taxes.............................. 375 386
-------- --------
Total liabilities...................................... 278,948 246,318
Commitments................................................ -- --
Stockholders' equity
Common stock (20,000,000 shares of $1.00 par value
authorized; 2,632,229 and 2,505,082 shares issued
at March 31, 2000 and 1999, respectively).............. 2,632 2,505
Additional paid-in capital................................. 14,393 12,480
Retained earnings - substantially restricted............... 8,777 10,437
Less 33,214 and 22,583 shares of treasury stock,
respectively - at cost................................... (645) (468)
Accumulated other comprehensive income (loss), unrealized
gain (loss) on securities designated as available for
sale, net of related tax effects......................... (36) 2
-------- --------
Total stockholders' equity............................. 25,121 24,956
-------- --------
Total liabilities and stockholders' equity............. $304,069 $271,274
======== ========
The accompanying notes are an integral part of these statements.
21
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
For the year ended March 31,
(Dollars in thousands, except share data)
2000 1999 1998
---- ---- ----
Interest income:
Loans ............................................. $17,928 $17,037 $17,068
Mortgage-backed securities ........................ 602 405 103
Investment securities ............................. 1,033 784 977
Interest-bearing deposits and other ............... 1,138 1,070 1,088
----- ----- -----
Total interest income ............................ 20,701 19,296 19,236
Interest expense:
Deposits .......................................... 11,530 10,516 10,194
Borrowings ........................................ 484 671 890
----- ----- -----
Total interest expense ........................... 12,014 11,187 11,084
------ ------ ------
Net interest income .............................. 8,687 8,109 8,152
Provision for losses on loans ....................... 120 64 60
------ ------ ------
Net interest income after
provision for losses on loans ................... 8,567 8,045 8,092
Other income:
Gain on sale of loans ............................. 22 309 237
Service fees, charges and other operating ......... 720 682 617
------ ------ ------
Total other income ............................... 742 991 854
General, administrative and other expense:
Employee compensation and benefits ................ 3,817 3,308 3,203
Occupancy and equipment ........................... 1,394 1,111 982
Federal deposit insurance premiums ................ 209 202 203
Franchise taxes ................................... 318 335 298
Loss on disposal of real estate
acquired through foreclosure ..................... 11 110 --
Other operating ................................... 1,665 1,481 1,458
------ ------ ------
Total general, administrative
and other expense ............................... 7,414 6,547 6,144
------ ------ ------
Earnings before incomes taxes .................... 1,895 2,489 2,802
Federal incomes taxes:
Current ........................................... 600 686 860
Deferred .......................................... 44 160 93
------ ------ ------
Total federal income taxes ....................... 644 846 953
NET EARNINGS ................................... $ 1,251 $ 1,643 $ 1,849
======= ======= =======
EARNINGS PER SHARE
Basic ........................................ $ .48 $ .63 $ .71
======= ======= =======
Diluted ...................................... $ .48 $ .62 $ .70
======= ======= =======
The accompanying notes are an integral part of these statements
22
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the year ended March 31,
(In thousands)
2000 1999 1998
---- ---- ----
Net earnings ........................................... $1,251 $1,643 $1,849
Other comprehensive loss,net of tax:
Unrealized holding losses on securities
during the period, net of tax of $(20), $(8),and $(7) .. (38) (15) (13)
------ ------ ------
Comprehensive income ................................... $1,213 $1,628 $1,836
====== ====== ======
Accumulated comprehensive income (loss) ................ $ (36) $ 2 $ 17
====== ====== ======
The accompanying notes are an integral part of these statements
23
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended March 31, 2000, 1999, and 1998
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Unrealized gains
(losses) on
securities Total
Additional Shares Treasury designated stock-
Common paid-in Retained acquired stock- as available holders'
stock capital earnings by ESOP at cost for sale equity
----- ------- -------- ------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1997 ................... $ 1,499 $ 5,844 $ 15,777 $ (35) $-- $ 30 $ 23,115
Principal payments on loan to ESOP ......... -- 71 -- 35 -- -- 106
Stock options exercised .................... 10 48 -- -- (10) -- 48
Net earnings for the year
ended March 31, 1998 ...................... -- -- 1,849 -- -- -- 1,849
Effect of three-for-two stock split ........ 749 -- (754) -- -- -- (5)
Cash dividends of $.54 per share ........... -- -- (674) -- -- -- (674)
Unrealized losses on securities
designated as available for sale,
net of related tax effects ................ -- -- -- -- -- (13) (13)
------- ------- ------- ------- ------- ------- -------
Balance at March 31, 1998 .................. 2,258 5,963 16,198 -- (10) 17 24,426
Stock options exercised .................... 22 92 -- -- (27) -- 87
Net earnings for the year
ended March 31, 1999 ...................... -- -- 1,643 -- -- -- 1,643
Stock dividend ............................. 225 6,425 (6,650) -- -- -- --
Cash dividends of $.59 per share ........... -- -- (754) -- -- -- (754)
Purchase of treasury shares - at cost ...... -- -- -- -- (431) -- (431)
Unrealized losses on securities
designated as available for sale,
net of related tax effects ................ -- -- -- -- -- (15) (15)
------- ------- ------- ------- ------- ------- -------
Balance at March 31, 1999 .................. 2,505 12,480 10,437 -- (468) 2 24,956
Stock options exercised .................... 2 9 -- -- -- -- 11
Net earnings for the year ended
March 31, 2000 ............................ -- -- 1,251 -- -- -- 1,251
Stock dividend ............................. 125 1,904 (2,029) -- -- -- --
Cash dividends of $.64 per share ........... -- -- (882) -- -- -- (882)
Purchase of treasury shares - at cost ...... -- -- -- -- (177) -- (177)
Unrealized losses on securities designated
as available for sale, net of
related tax effects ....................... -- -- -- -- -- (38) (38)
------- ------- ------- ------- ------- ------- -------
Balance at March 31, 2000 .................. $ 2,632 $ 14,393 $ 8,777 $ -- $ (645) $ (36) $ 25,121
======== ======== ======== ======= ======== ======== ========
</TABLE>
The accompany notes are an integral part of these statements
24
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended March 31,
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings for the year .......................................... $ 1,251 $ 1,643 $ 1,849
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 ................ 18 (25) 14
Amortization of deferred loan origination fees .................... (532) (574) (399)
Depreciation and amortization ..................................... 653 481 430
(Gain) loss on sale of loans ...................................... 42 (149) (130)
Proceeds from sale of loans in the secondary market ............... 6,383 16,009 7,196
Loans originated for sale in the secondary market ................. (5,157) (16,251) (8,260)
Provision for losses on loans ..................................... 120 64 60
(Gain) loss on sale of real estate acquired through foreclosure ... 11 110 (4)
Federal Home Loan Bank stock dividends ............................ (214) (199) (188)
Amortization expense of employee stock benefit plans .............. -- -- 161
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans ............................. (121) 18 (13)
Accrued interest receivable on mortgage-backed securities ........ (32) (5) (16)
Accrued interest receivable on investments
and interest-bearing deposits ................................... (170) (4) 46
Prepaid expenses and other assets ................................ 543 (886) (257)
Accrued interest payable.. ....................................... 49 (18) (29)
Accounts payable on mortgage loans serviced for others ........... (8) (91) 73
Other liabilities ................................................ 19 206 (91)
Federal income taxes
Current ......................................................... 119 (304) (330)
Deferred ........................................................ 44 160 93
------- ------ ------
Net cash provided by operating activities ...................... 3,018 185 205
Cash flows provided by (used in) investing activities:
Purchase of investment securities .................................. (13,411) (12,484) (11,000)
Proceeds from the maturity of investment securities ................ 2,080 14,055 14,569
Purchase of mortgage-backed securities ............................. (8,030) (6,576) (4,010)
Principal repayments on mortgage-backed securities ................. 4,620 3,470 614
Loan principal repayments .......................................... 37,106 48,814 49,359
Loan disbursements ................................................. (59,792) (55,615) (45,963)
Purchase of office premises and equipment .......................... (1,065) (1,768) (2,900)
Proceeds from sale of real estate acquired through foreclosure ..... 5 820 59
(Increase) decrease in certificates of deposit in other
financial institutions ............................................ 2,000 2,500 (1,000)
------- ------ ------
Net cash used in investing activities ......................... (36,487) (6,784) (272)
------- ------ ------
Net cash used in operating and investing activities
(balance carried forward) .................................... (33,469) (6,599) (67)
------- ------ ------
</TABLE>
25
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (con't.)
For the year ended March 31,
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net cash used in operating and investing
activities (balance brought forward) .............................. $(33,469) $ (6,599) $ (67)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts ...................................... 29,625 17,706 6,179
Proceeds from Federal Home Loan Bank advances ......................... 4,000 16,000 13,000
Repayment of Federal Home Loan Bank advances .......................... (1,000) (23,000) (13,000)
Advances by borrowers for taxes and insurance ......................... (44) 38 82
Dividends paid on common stock ........................................ (882) (725) (679)
Proceeds from the exercise of stock options ........................... 11 87 48
Purchase of treasury shares - at cost ................................. (177) (431) --
-------- -------- --------
Net cash provided by financing activities ............................ 31,533 9,675 5,630
-------- -------- --------
Net increase (decrease) in cash and cash equivalents .................. (1,936) 3,076 5,563
Cash and cash equivalents at beginning of year ........................ 16,245 13,169 7,606
-------- -------- --------
Cash and ash equivalents at end of year .............................. $ 14,309 $ 16,245 $ 13,169
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes ................................................. $ 516 $ 892 $ 797
======== ======== ========
Interest on deposits and borrowings .................................. $ 11,965 $ 11,205 $ 11,113
======== ======== ========
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired through foreclosure ...... $ 64 $ 58 $ 162
======== ======== ========
Issuance of mortgage loan upon sale of real estate
acquired through foreclosure .......................................... $-- $ 699 $--
======== ======== ========
Unrealized losses on securities designated as available for sale,
net of related tax effects ............................................ $ (38) $ (15) $ (13)
======== ======== ========
Recognition of mortgage servicing rights
in accordance with SFAS No. 125 ...................................... $ 64 $ 160 $ 107
======== ======== ========
Supplemental disclosure of noncash financing activities
Acquisition of treasury stock in exchange
for outstanding shares ............................................... $ -- $ 27 $ 10
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000, 1999, and 1998
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include Wayne Savings Bancshares,
Inc. (the "Company") and its wholly-owned subsidiaries. In fiscal year 1999,
Wayne Savings Community Bank ("Wayne Savings" or the "Bank") formed a new
federal savings bank subsidiary in North Canton, Ohio, Village Savings Bank, F.
S. B. ("Village"), together referred to as "the Banks." Intercompany
transactions and balances are eliminated in the consolidated financial
statements.
Effective November 25, 1997, Wayne Savings, 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 Bank. In the reorganization, each share of Wayne Savings' common
stock was automatically converted into one share of Wayne Savings Bancshares,
Inc. common stock. The reorganization of the Bank 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.
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 generally accepted accounting principles ("GAAP") and general accounting
practices within the financial services industry. In preparing financial
statements in accordance with GAAP, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from such estimates.
The following is a summary of the Company's significant accounting policies
which have been consistently applied in the preparation of the accompanying
financial statements.
1. Investment Securities and Mortgage-Backed Securities
The Company accounts for investment and mortgage-backed securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115
requires that investments be categorized as held-to-maturity, trading, or
available for sale. Securities classified as held-to-maturity are carried at
cost only if the Company has the positive intent and ability to hold these
securities to maturity. Trading securities and securities designated as
available for sale are carried at fair value with resulting unrealized gains or
losses recorded to operations or stockholders' equity, respectively. At March
31, 2000 and 1999, the Company's equity accounts reflected a net unrealized gain
(loss) on securities designated as available for sale of $(36,000) and $2,000,
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
amortization of premiums and accretion of discounts on loans purchased and sold.
Premiums and discounts on loans purchased and sold are amortized and accreted to
operations using the interest method over the average life of the underlying
loans.
Interest is accrued as earned unless the collectibility of the loan is in
doubt. Uncollectible interest on loans that are contractually past due is
charged off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income equal to
all interest previously accrued, and income is subsequently recognized only to
the extent that cash payments are received until, in management's judgment, the
borrower's ability to make periodic interest and principal payments has returned
to normal, in which case the loan is returned to accrual status.
The Bank retains the servicing on any loans sold and agrees to remit to the
investor loan principal and interest at agreed-upon rates. These rates generally
differ from the loan's contractual interest rate resulting in a "yield
differential." In addition to previously deferred loan origination fees and cash
gains, gains on sale of loans can represent the present value of the future
yield differential less a normal servicing fee, capitalized over the estimated
life of the loans sold. Normal servicing fees are determined by reference to the
stipulated servicing fee set forth in the loan sale agreement. Such fees
approximate the Bank's normal servicing costs. The resulting capitalized excess
servicing fee is amortized to operations over the estimated life of the loans
using the interest method. If prepayments are higher than
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2000, 1999, and 1998
expected, an immediate charge to operations is made. If prepayments are lower,
then adjustments are made prospectively.
The Bank recognizes rights to service mortgage loans for others, pursuant
to SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." In accordance with SFAS No. 125, 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 Bank recognized $64,000, $160,000, and $107,000 of pre-tax gains on
sales of loans related to capitalized mortgage servicing rights during the
fiscal years ended March 31, 2000, 1999, and 1998, respectively.
SFAS No. 125 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 Bank, calculated in
accordance with the provisions of SFAS No. 125, 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 Bank recorded amortization related to mortgage servicing rights
totaling approximately $44,000, $32,000, and $12,000 for the years ended March
31, 2000, 1999, and 1998, respectively. At March 31, 2000 and 1999, the fair
carrying value of the Bank's mortgage servicing rights totaled approximately
$317,000 and $296,000, respectively.
Loans held for sale are carried at the lower of cost or market, determined
in the aggregate. In computing cost, deferred loan origination fees are deducted
from the principal balances of the related loans. At March 31, 2000 and 1999,
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 estimated
losses on loans based on past loss experience, trends in the level of delinquent
and problem loans, adverse situations that may affect the borrower's ability to
repay, the estimated value of any underlying collateral and current and
anticipated economic conditions in their primary market areas. When the
collection of a loan becomes doubtful, or otherwise troubled, the Banks record a
charge-off equal to the difference between the fair value of the property
securing the loan and the loan's carrying value. In providing valuation
allowances, costs of holding real estate, including the cost of capital, are
considered. Major loans (including development projects), and major lending
areas are reviewed periodically to determined potential problems at an early
date. The allowance for loan losses is increased by charges to earnings and
decreased by charge-offs (net of recoveries).
The Banks account for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." This statement requires that
impaired loans be measured based upon the present value of expected future cash
flows discounted at the loan's effective interest rate or, as an alternative, at
the loan's observable market price or fair value of the collateral.
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the contractual terms of the loan agreement. In
applying the provisions of SFAS No. 114, the Banks consider investment in
one-to-four family residential loans and consumer installment loans to be
homogeneous and therefore excluded from separate identification for evaluation
of impairment. With respect to the Banks' investment in multi-family and
nonresidential loans, and their evaluation of impairment thereof, such loans are
collateral dependent and, as a result, are carried as a practical expedient at
the lower of cost or fair value.
It is the Banks' policy to charge off unsecured credits that are more than
ninety days delinquent. Similarly, collateral dependent loans which are more
than ninety days delinquent are considered to constitute more than a minimum
delay in repayment and are evaluated for impairment
28
<PAGE>
under SFAS No. 114 at that time.
At March 31, 2000, the Banks' investment in impaired loans totaled
approximately $940,000. The Banks' investment in impaired loans at March 31,
1999, totaled approximately $44,000.
5. Office Premises and Equipment
Office premises and equipment are carried at cost and include expenditures
which extend the useful lives of existing assets. Maintenance, repairs and minor
renewals are expensed as incurred. For financial reporting, depreciation and
amortization are provided on the straight-line and declining-balance methods
over the useful lives of the assets, estimated to be twenty to fifty years for
buildings and improvements, and five to ten years for furniture and equipment.
An accelerated method is used for tax reporting purposes.
6. Real Estate Acquired Through Foreclosure
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost) or fair value less estimated selling
expenses at the date of acquisition. Real estate loss provisions are recorded if
the properties' fair value subsequently declines below the value determined at
the recording date. In determining the lower of cost or fair value at
acquisition, costs relating to development and improvement of property are
capitalized. Costs relating to holding real estate acquired through foreclosure,
net of rental income, are charged against earnings as incurred.
7. Federal Income Taxes
The Company accounts for federal income taxes pursuant to SFAS No. 109
"Accounting for Income Taxes." In accordance with SFAS No. 109, a deferred tax
liability or deferred tax asset is computed by applying the current statutory
tax rates to net taxable or deductible temporary differences between the tax
basis of an asset or liability and its reported amount in the financial
statements that will result in net taxable or deductible amounts in future
periods. Deferred tax assets are recorded only to the extent that the amount of
net deductible temporary differences or carryforward attributes may be utilized
against current period earnings, carried back against prior years' earnings,
offset against taxable temporary differences reversing in future periods, or
utilized to the extent of management's estimate of future taxable income. A
valuation allowance is provided for deferred tax assets to the extent that the
value of net deductible temporary differences 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.
8. Benefit Plans
The Banks have a defined benefit pension plan covering all employees who
have attained 21 years of age and have completed one full year of service.
Annual contributions are made to fund current service costs and amortization of
past service costs. The Banks' provision for pension expense totaled $222,000,
$144,000, and $114,000 for the three years ended March 31, 2000, 1999, and 1998,
respectively. These amounts reflect the expense computed by the Banks' actuaries
utilizing the modified aggregate funding method and implicitly assuming a 7.50%
rate of return on plan assets. As of November 1, 1999, the most recent valuation
date, the amount of net assets available for benefits was $1.1 million. The
Company has not provided disclosures required by SFAS No. 87, "Accounting for
Pension Plans," based upon materiality.
During fiscal 1999, the Banks instituted a Section 401(k) savings plan
covering substantially all their 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 $39,000 and $36,000 for
the fiscal years ended March 31, 2000 and 1999, respectively.
9. Stock Benefit Plan
The Bank has an Employee Stock Ownership Plan ("ESOP"), which provides
retirement benefits for substantially all employees who have completed one year
of service and have attained the age of 21. The final allocation of shares to
plan participants occurred in fiscal 1998. The Company made no contributions to
the ESOP during fiscal years ended March 31, 2000 and 1999. Expense recognized
related to the ESOP totaled approximately $161,000 for the year ended March 31,
1998.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2000, 1999, and 1998
10. 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 stock option. Earnings and dividends per share have been restated
for the fiscal 1998 stock split and all stock dividends through the date of
issuance of the financial statements. The computations were as follows:
2000 1999 1998
---- ---- ----
Weighted average common
shares outstanding (basic) ... 2,602,141 2,609,762 2,602,228
Dilutive effect of assumed
exercise of stock options .... 18,735 26,104 43,120
------ ------ ------
Weighted average common
shares outstanding (diluted). 2,620,876 2,635,866 2,645,348
========= ========= =========
11. Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks, federal funds sold, and interest-bearing deposits due
from other financial institutions with original maturities of less than three
months.
12. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of the fair value of financial instruments, both assets and
liabilities whether or not recognized in the consolidated statements of
financial condition, for which it is practicable to estimate that value. For
financial instruments where quoted market prices are not available, fair values
are based on estimates using present value and other valuation methods.
The methods used are greatly affected by the assumptions applied, including
the discount rate and estimates of future cash flows. Therefore, the fair values
presented may not represent amounts that could be realized in an exchange for
certain financial instruments.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments at March 31,
2000 and 1999:
Cash and cash equivalents: The carrying amounts presented in the
consolidated statements of financial condition for cash and cash
equivalents are deemed to approximate fair value.
Certificates of deposit in other financial institutions: The carrying
amounts presented in the consolidated statements of financial condition for
certificates of deposit in other financial institutions are deemed to
approximate fair value.
Investment and mortgage-backed securities: For investment and
mortgage-backed securities, fair value is deemed to equal the quoted market
price.
Loans receivable: The loan portfolio has been segregated into categories
with similar characteristics, such as one-to-four family residential,
multi-family residential and nonresidential real estate. These loan
categories were further delineated into fixed-rate and adjustable-rate
loans. The fair values for the resultant loan categories were computed via
discounted cash flow analysis, using current interest rates offered for
loans with similar terms to borrowers of similar credit quality. For loans
on deposit accounts and consumer and other loans, fair values were deemed
to equal the historic carrying values. The historical carrying amount of
accrued interest on loans is deemed to approximate fair value.
Federal Home Loan Bank stock: The carrying amount presented in the
consolidated statements of financial condition is deemed to approximate
fair value.
Deposits: The fair value of NOW accounts, passbook and club accounts, money
market deposits and advances by borrowers is deemed to approximate the
amount payable on demand. Fair values for fixed-rate certificates of
deposit have been estimated using a discounted cash flow calculation using
the interest rates currently offered for deposits of similar remaining
maturities.
Advances from Federal Home Loan Bank: The fair value of these advances is
estimated using the rates cur- rently 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, 2000 and
1999, the difference between the fair value and notional amount of loan
commitments was not material.
30
<PAGE>
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:
2000 1999
----------------- ------------------
Carrying Fair Carrying Fair
value value value value
----- ----- ----- -----
(In thousands)
Financial assets
Cash and cash equivalents and
certificates of deposit ....... $ 18,309 $ 18,309 $ 22,245 $ 22,245
Investment securities .......... 23,199 22,634 11,830 11,752
Mortgage-backed securities ..... 10,496 10,388 7,230 7,209
Loans receivable ............... 237,412 228,469 215,679 220,159
Stock in Federal Home Loan Bank. 3,160 3,160 2,919 2,919
-------- -------- -------- --------
$292,576 $282,960 $259,903 $264,284
======== ======== ======== ========
Financial liabilities
Deposits ....................... $264,952 $265,428 $235,327 $235,876
Advances from the Federal
Home Loan Bank ................ 12,000 11,999 9,000 9,001
Advances by borrowers for
taxes and insurance ........... 777 777 821 821
-------- -------- -------- --------
$277,729 $278,204 $245,148 $245,698
======== ======== ======== ========
13. Reclassifications
Certain prior year amounts have been reclassified to conform to the 2000
financial statement presentation.
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES
Carrying values and estimated fair values of investment securities at March
31 are summarized as follows:
2000 1999
-------------------- --------------------
Estimated Estimated
Carrying fair Carrying fair
value value value value
----- ----- ----- -----
(In thousands)
Corporate bonds and notes .... $ 2,987 $ 2,951 $ -- $ --
U.S. Government and
agency obligations .......... 20,057 19,528 11,666 11,588
Municipal obligations ........ 155 155 164 164
------- ------- ------- -------
$23,199 $22,634 $11,830 $11,752
======= ======= ======= =======
At March 31, 2000, the carrying value of the Company's investment
securities in excess of estimated fair value totaled $565, 000 in gross
unrealized losses.
At March 31, 1999, the carrying value of the Company's investment
securities in excess of estimated fair value totaled $78,000 in gross unrealized
losses.
The amortized cost and estimated fair value of U. S. Government and agency
obligations, corporate bonds and notes and municipal obligations at March 31,
2000, by term to maturity are shown below.
Estimated
Amortized fair
cost value
---- -----
(In thousands)
Due in one to three years ............ $14,954 $14,740
Due in three to five years ........... 5,590 5,345
Due in over five years ............... 2,655 2,549
------- -------
$23,199 $22,634
======= =======
The Company had not pledged any investment or mortgage-backed securities to
secure public deposits at either March 31, 2000 or 1999.
The amortized cost, gross unrealized gains, gross unrealized losses, and
estimated fair values of mortgage-backed securities at March 31, 2000 and 1999,
including those designated as available for sale, are summarized as follows:
<PAGE>
2000
-------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
(In thousands)
Held-to-maturity
Federal Home Loan
Mortgage Corporation
participation certificates .... $1,044 $-- $ 21 $1,023
Government National
Mortgage Association
participation certificates .... 2,701 -- 34 2,667
Federal National
Mortgage Association
participation certificates .... 3,301 -- 53 3,248
------ ---- ------ ------
$7,046 $-- $ 108 $6,938
====== ==== ====== ======
Available for sale
Federal Home Loan
Mortgage Corporation
participation certificates .... $1,519 -- $ 16 $1,503
Government National
Mortgage Association
participation certificates .... 82 15 -- 97
Federal National
Mortgage Association
participation certificates .... 1,904 -- 54 1,850
------ ---- ------ ------
$3,505 $15 $ 70 $3,450
====== ==== ====== ======
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2000, 1999, and 1998
1999
----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
(In thousands)
Held-to-maturity
REMICs ......................... $ 53 $-- $-- $ 53
Federal Home Loan
Mortgage Corporation
participation certificates .... 409 -- 7 402
Government National Mortgage
Association participation
certificates .................. 1,005 -- 14 991
Federal National
Mortgage Association
participation certificates .... 1,917 5 5 1,917
----- --- --- -----
$3,384 $ 5 $26 $3,363
====== === === ======
Available for sale
Federal Home Loan
Mortgage Corporation
participation certificates .... $ 757 $ 3 $-- $ 760
Government National
Mortgage Association
participation certificates .... 135 19 -- 154
Federal National
Mortgage Association
participation certificates .... 2,951 9 28 2,932
----- --- --- -----
$3,843 $31 $28 $3,846
====== === === ======
The amortized cost of mortgage-backed securities, including those
designated as available for sale at March 31, 2000, by contractual term to
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may generally prepay obligations without prepayment
penalties.
Amortized Cost
--------------
(In thousands)
Due in one year or less ................. $ 450
Due within one to three years ........... 1,153
Due within three to five years .......... 1,139
Due after five years .................... 7,809
-------
$10,551
=======
NOTE C -- LOANS RECEIVABLE
The composition of the loan portfolio at March 31 is as follows:
2000 1999
---- ----
(In thousands)
Residential real estate - 1 to 4 family ............... $211,222 $187,638
Residential real estate - multi--family ............... 8,028 7,086
Residential real estate - construction ................ 4,035 7,668
Nonresidential real estate and land ................... 6,068 5,610
Education ............................................. 2,780 3,245
Commercial ............................................ 5,168 4,810
Consumer and other .................................... 6,261 5,170
-------- --------
243,562 221,227
Less:
Undisbursed portion of loans in process .............. 4,136 4,600
Deferred loan origination fees ....................... 1,538 1,855
Allowance for loan losses ............................ 793 678
-------- --------
$237,095 $214,094
======== ========
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 $219.1 million, or 92%, of the total loan portfolio
at March 31, 2000, and $197.8 million, or 92%, of the total loan portfolio at
March 31, 1999. 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 $44.3
million, $44.0 million, and $37.8 million at March 31, 2000, 1999, and 1998,
respectively.
In the normal course of business, the Banks have made loans to their
directors, officers and their related business interests. Prior to fiscal 1999,
related party loans were made on the same terms including interest rates and
collateral, as unrelated persons and do not involve more than the normal risk of
collectiblilty. However, regulations now permit executive officers and directors
to receive the same terms through benefit or compensation plans that are widely
available to other employees, as long as the director or
32
<PAGE>
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
$189,000, $340,000 and $209,000 at March 31, 2000, 1999, and 1998, respectively.
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is summarized as follows for
the years ended March 31:
2000 1999 1998
---- ---- ----
(In thousands)
Balance at beginning of year ................ $678 $721 $914
Provision for loan losses ................... 120 64 60
Charge-offs of loans--net ................... (5) (107) (253)
---- ---- ----
Balance at end of year ...................... $793 $678 $721
==== ==== ====
As of March 31, 2000, the Banks' allowance for loan losses was comprised
solely of a general loan loss allowance which is includible as a component of
regulatory risk-based capital.
Nonaccrual and nonperforming loans totaled approximately $200,000,
$280,000, and $308,000 at March 31, 2000, 1999, and 1998, respectively.
During the years ended March 31, 2000, 1999, and 1998, interest income of
approximately $8,000, $7,000 and $23,000, 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:
2000 1999
---- ----
(In thousands)
Land and improvements ..................... $ 1,750 $ 1,596
Office buildings and improvements ......... 6,752 6,194
Furniture,fixtures and equipment .......... 4,463 4,127
Automobiles ............................... 60 84
------- -------
13,025 12,001
Less accumulated depreciation
and amortization ...................... 4,865 4,253
------- -------
$ 8,160 $ 7,748
======= =======
NOTE F - DEPOSITS
Deposits consist of the following major classifications at March 31:
2000 1999
---- ----
Deposit type and weighted- (In thousands)
average interest rate
NOW accounts
2000 - 2.08% .................... $ 31,014
1999 - 2.11% .................... $ 24,879
Passbook
2000 - 3.13% .................... 53,074
1999 - 3.10% .................... 46,466
Money Market Investor
2000 - 3.28% .................... 10,827
1999 - 3.31% .................... 11,265
-------- --------
Total demand,transaction and
passbook deposits ........... 94,915 82,610
<PAGE>
2000 1999
---- ----
(In thousands)
Certificates of deposit
Original maturities of:
Less than 12 months
2000 - 5.00% .................... 41,722
1999 - 4.81% .................... 37,813
12 months to 24 months
2000 - 5.60% .................... 54,341
1999 - 5.18% .................... 34,001
25 months to 36 months
2000 - 5.71% .................... 24,787
1999 - 5.84% .................... 38,696
More than 36 months
2000 - 5.52% .................... 8,888
1999 - 5.99% .................... 11,420
Jumbo
2000 - 6.07% .................... 40,299
1999 - 5.92% .................... 30,787
-------- --------
Total certificates of deposit.. 170,037 152,717
-------- --------
Total deposit accounts ........ $264,952 $235,327
======== ========
At March 31, 2000 and 1999, the Banks had certificates of deposit with
balances in excess of $100,000 totaling $34.7 million and $29.4 million,
respectively.
Interest expense on deposits for the years ended March 31 is summarized as
follows:
2000 1999 1998
---- ---- ----
(In thousands)
Passbook ................................ $ 1,569 $ 1,220 $ 1,181
NOW and money market deposit accounts ... 979 787 732
Certificates of deposit ................. 8,982 8,509 8,281
------- ------- -------
$11,530 $10,516 $10,194
======= ======= =======
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2000, 1999, and 1998
Maturities of outstanding certificates of deposit at March 31 are
summarized as follows:
2000 1999
---- ----
(In thousands)
Less than one year .................... $123,870 $107,483
One to three years .................... 41,855 40,595
Over three years ...................... 4,312 4,639
-------- --------
$170,037 $152,717
======== ========
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at March 31, 2000
and 1999 by pledges of certain residential mortgage loans totaling $18.0 million
and $13.5 million and the Banks' investment in Federal Home Loan Bank stock, are
summarized as follows:
Interest Maturing in year
rate ending March 31, 2000 1999
---- ---------------- ---- ----
(Dollars in thousands)
5.35% 2000 $ -- $ 1,000
6.20%-6.50% 2001 6,000 2,000
5.04%-5.98% 2002 6,000 6,000
------- -------
$12,000 $ 9,000
======= =======
Weighted-average interest rate .......... 5.98% 5.68%
======= =======
NOTE H - FEDERAL INCOME TAXES
The provision for federal income taxes on earnings differs from that
computed at the statutory corporate tax rate for the years ended March 31 as
follows:
2000 1999 1998
---- ---- ----
(In thousands)
Federal income taxes computed at statutory rate ........... $644 $846 $953
Increase (decrease) in taxes resulting from:
Tax exempt interest ................................... (7) (3) (3)
Other ................................................. 7 3 3
---- ---- ----
Federal income tax provision per financial statements ..... $644 $846 $953
==== ==== ====
The composition of the Company's net deferred tax liability at March 31 is
as follows:
2000 1999
---- ----
(In thousands)
Taxes (payable) refundable on temporary
differences at statutory rate:
Deferred tax assets
Deferred loan origination fees ...................... $ 218 $ 272
General loan loss allowance ......................... 308 228
Unrealized loss on securities
designated as available for sale .................. 19 --
Other ............................................... 11 14
----- -----
Deferred tax assets ....................................... 556 514
Deferred tax liabilities
Federal Home Loan Bank stock dividends ................... (664) (591)
Book/tax depreciation differences ........................ (91) (122)
Unrealized gains on securities designated as
available for sale ..................................... -- (1)
Percentage of earnings bad debt deduction ................ (68) (85)
Mortgage servicing rights ................................ (108) (101)
----- -----
Deferred tax liabilities .................................. (931) (900)
----- -----
Total deferred tax liability .......................... $(375) $(386)
===== =====
The Bank was allowed a special bad debt deduction based on a percentage of
earnings, generally limited to 8% of otherwise taxable income and subject to
certain limitations based on aggregate loans and deposit account balances at the
end of the year. The percentage of earnings bad debt deduction for additions
prior to fiscal 1988 totaled approximately $2.7 million as of March 31, 2000. If
the amounts that qualify as deductions for federal income taxes are later used
for purposes other than bad debt losses, including distributions in liquidation,
such distributions will be subject to federal income taxes at the then current
corporate income tax rate. The amount of unrecognized deferred tax liability
relating to the cumulative bad debt deduction is approximately $918,000 at March
31, 2000. Wayne Savings is required to recapture as taxable income approximately
$250,000 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 will amortize the recapture of the bad debt reserve in taxable
income over a six-year period, which commenced in fiscal 1999.
34
<PAGE>
NOTE I - COMMITMENTS
The Company is party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers,
including commitments to extend credit. Such commitments involve, to varying
degrees, elements of credit and interest-rate risk in excess of the amount
recognized in the consolidated statements of financial condition. The contract
or notional amounts of the commitments reflect the extent of the Company's
involvement in such financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The Company
uses the same credit policies in making commitments and conditional obligations
as those utilized for on-balance-sheet instruments.
At March 31, 2000 and 1999, the Company had outstanding commitments to
originate fixed rate loans of approximately $1.8 million and $8.8 million,
respectively, and adjustable rate loans of approximately $520,000 and $436,000,
respectively. The Company had unused lines of credit under home equity loans of
$10.7 million and $8.2 million at March 31, 2000 and 1999, respectively.
Additionally, the Company had unused lines of credit under commercial loans of
$3.1 million and $1.8 million at March 31, 2000 and 1999, respectively.
Management believes that all loan commitments are able to be funded through cash
flow from operations and existing excess liquidity. Fees received in connection
with these commitments have not been recognized in earnings.
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 include a mortgage interest in
real estate as security.
In connection with the opening of the NorthSide branch in July 1999, the
Company assumed a lease of branch banking facilities. The lease of the banking
facility is in Wooster and requires the Company to make payments of
approximately $30,000 per year. The lease expires in April 2009, and contains
two renewable five year options with lease payments to be determined by the
parties upon such time of a renewal.
NOTE J - REGULATORY CAPITAL
The Banks are subject to minimum regulatory capital standards promulgated
by the Office of Thrift Supervision (the "OTS"). Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on their 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. Effective April 1999, 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. In fiscal 1999, the core capital requirement was
equal to 3.0% of adjusted total assets. 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, 2000 and 1999, management believes that the Banks met all
capital adequacy requirements to which they were subject.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2000, 1999, and 1998
Wayne Savings Community Bank as of March 31, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
To be "well-capitalized"
For capital under prompt corrective
Actual adequacy purposes action provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Tangible capital .... $24,305 8.1% > or equal $ 4,558 > or equal 1.5% > or equal $15,192 > or equal 5.0%
Core capital ........ $24,305 8.1% > or equal $12,155 > or equal 4.0% > or equal $18,230 > or equal 6.0%
Risk-based capital .. $25,098 15.7% > or equal $12,802 > or equal 8.0% > or equal $16,003 > or equal 10.0%
</TABLE>
Wayne Savings Community Bank as of March 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
To be "well-capitalized"
For capital under prompt corrective
Actual adequacy purposes action provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Tangible capital .... $23,146 8.6% > or equal $ 4,039 > or equal 1.5% > or equal $13,462 > or equal 5.0%
Core capital ........ $23,146 8.6% > or equal $ 8,078 > or equal 3.0% > or equal $16,154 > or equal 6.0%
Risk-based capital .. $23,816 16.4% > or equal $11,616 > or equal 8.0% > or equal $14,520 > or equal 10.0%
</TABLE>
Village Savings Bank, F.S.B. as of March 31, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
To be "well-capitalized"
For capital under prompt corrective
Actual adequacy purposes action provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Tangible capital .... $2,683 12.7% > or equal $318 > or equal 1.5% > or equal $1,060 > or equal 5.0%
Core capital ........ $2,683 12.7% > or equal $848 > or equal 4.0% > or equal $1,272 > or equal 6.0%
Risk-based capital .. $2,717 24.8% > or equal $875 > or equal 8.0% > or equal $1,094 > or equal 10.0%
</TABLE>
Village Savings Bank, F.S.B. as of March 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
To be "well-capitalized"
For capital under prompt corrective
Actual adequacy purposes action provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Tangible capital .... $2,638 19.5% > or equal $207 > or equal 1.5% > or equal $691 > or equal 5.0%
Core capital ........ $2,638 19.5% > or equal $414 > or equal 3.0% > or equal $829 > or equal 6.0%
Risk-based capital .. $2,641 53.3% > or equal $397 > or equal 8.0% > or equal $496 > or equal 10.0%
</TABLE>
36
<PAGE>
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. Pursuant to such OTS dividend regulations, the Banks had the
ability to pay approximately $4.9 million at March 31, 2000.
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 (adjusted) shares of authorized, but unissued shares of
common stock. The number of shares under option have been adjusted to reflect
the three-for two stock split and all stock dividends through the date of
issuance of the financial statements.
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,
2000, 1999, and 1998.
A summary of the status of the Company's stock option plans as of March 31,
2000, 1999, and 1998, and changes during the periods ending on those dates is
presented below:
<TABLE>
<CAPTION>
2000 1999 1998
---------------- ----------------- -----------------
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year ... 34,596 $5.00 60,548 $5.00 74,441 $5.00
Granted ............................ -- -- -- -- -- --
Exercised .......................... 2,301 5.00 22,743 5.00 11,651 5.00
Forfeited .......................... 4,638 5.00 3,209 5.00 2,242 5.00
----- ---- ----- ---- ------ ----
Outstanding at end of year ......... 27,657 $5.00 34,596 $5.00 60,548 $5.00
------ ----- ------ ----- ------ -----
Options exercisable at year-end .... 27,657 $5.00 34,596 $5.00 60,548 $5.00
====== ===== ====== ===== ====== =====
</TABLE>
The following information applies to options outstanding at March 31, 2000:
Number outstanding ............................. 27,657
Range of exercise prices ....................... $5.00
Weighted-average exercise price ................ $5.00
Weighted-average remaining contractual life .... 3.25
At March 31, 2000, all of the stock options granted were subject to
exercise at the discretion of the grantees and expire in 2003.
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
March 31, 2000, 1999, and 1998
NOTE L - CONDENSED FINANCIAL STATEMENTS OF WAYNE SAVINGS BANCSHARES, INC.
The following condensed financial statements summarize the financial
position of Wayne Savings Bancshares, Inc. as of March 31, 2000 and 1999, and
the results of its operations and its cash flows for periods ended March 31,
2000, 1999, and 1998.
<TABLE>
<CAPTION>
Wayne Savings Bancshares, Inc.
STATEMENTS OF FINANCIAL CONDITION
March 31,
2000 1999
---- ----
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks ................................................... $ 169 $ 86
Interest-bearing deposits in other financial institutions ................. 475 1,625
Investment in subsidiaries ................................................ 24,596 23,332
Prepaid expenses and other ................................................ 100 102
-------- --------
Total assets ............................................................. $ 25,340 $ 25,145
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities ......................................................... $ 219 $ 189
Stockholders' equity
Common stock and additional paid-in capital .............................. 17,025 14,985
Retained earnings ........................................................ 8,777 10,437
Less shares held in treasury (33,214 and 22,583 shares, respectively) .... (645) (468)
Accumulated other comprehensive income (loss), unrealized gain (loss)
on securities designated as available for sale, net .................... (36) 2
-------- --------
Total stockholders' equity ........................................... 25,121 24,956
-------- --------
Total liabilities and stockholders' equity ........................... $ 25,340 $ 25,145
======== ========
</TABLE>
Wayne Savings Bancshares,Inc.
STATEMENTS OF EARNINGS
For the periods ended March 31,
2000 1999 1998
---- ---- ----
Income (In thousands)
Interest income ...................... $ 58 $ 53 $ 5
Equity in earnings of subsidiary ..... 1,302 1,676 580
------ ------ ---
Total revenue ....................... 1,360 1,729 585
General and administrative expenses ... 135 102 64
------ ------ ------
Earnings before income tax credits ... 1,225 1,627 521
Federal income tax credits ............ (26) (16) (20)
------ ------ ------
NET EARNINGS ....................... $1,251 $1,643 $ 541
====== ====== ======
Wayne Savings Bancshares,Inc.
STATEMENTS OF CASH FLOWS
For the periods ended March 31,
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings for the period ............................. $ 1,251 $ 1,643 $ 541
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Excess contributions (undistributed earnings) of
consolidated subsidiary .............................. (1,238) 324 (580)
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets .................... (2) (25) (24)
Other liabilities .................................... (30) (8) --
------- ------- -------
Net cash provided by (used in) operating activities.. (19) 1,934 (63)
Cash flows provided by investing activities:
Effect of corporate reorganization ...................... -- -- 1,076
------- ------- -------
Net cash provided by investing activities ........... -- -- 1,076
Cash flows provided by (used in) financing activities:
Payment of dividends on common stock .................... (882) (725) (169)
Purchase of treasury stock - at cost .................... (177) (431) --
Proceeds from exercise of stock options ................. 11 87 2
------- ------- -------
Net cash used in financing activities .................... (1,048) (1,069) (167)
------- ------- -------
Net increase (decrease) in cash and cash equivalents ..... (1,067) 865 846
------- ------- -------
Cash and cash equivalents at beginning of period ......... 1,711 846 --
------- ------- -------
Cash and cash equivalents at end of period ............... $ 644 $ 1,711 $ 846
======= ======= =======
</TABLE>
38
<PAGE>
NOTE M - QUARTERLY RESULTS OF OPERATIONS (unaudited)
The following table summarizes the Company's quarterly results for the
fiscal years ended March 31, 2000 and 1999. Certain amounts, as previously
reported, have been reclassified to conform to the fiscal 2000 presentation.
<TABLE>
<CAPTION>
For the three months periods ended
--------------------------------------------------------------------
June 30, 1999 September 30, 1999 December 31, 1999 March 31, 2000
------------- ------------------ ----------------- --------------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Total interest income ..................... $4,906 $5,180 $5,282 $5,333
Total interest expense .................... 2,809 2,964 3,077 3,164
------ ------ ------ ------
Net interest income ....................... 2,097 2,216 2,205 2,169
Provision for losses on loans ............. 21 23 38 38
Other income .............................. 190 167 211 174
General, administrative and other expense.. 1,749 1,899 1,917 1,849
------ ------ ------ ------
Earnings before income taxes .............. 517 461 461 456
Federal income taxes ...................... 175 158 156 155
------ ------ ------ ------
Net earnings .............................. $ 342 $ 303 $ 305 $ 301
====== ====== ====== ======
Earnings per share
Basic .................................... $ .13 $ .12 $ .12 $ .11
====== ====== ====== ======
Diluted .................................. $ .13 $ .12 $ .12 $ .11
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
For the three months periods ended
--------------------------------------------------------------------
June 30, 1998 September 30, 1998 December 31, 1998 March 31,1999
------------- ------------------ ----------------- -------------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Total interest income ..................... $4,865 $4,809 $4,854 $4,768
Total interest expense .................... 2,801 2,838 2,769 2,779
------ ------ ------ ------
Net interest income ....................... 2,064 1,971 2,085 1,989
Provision for losses on loans ............. 15 16 16 17
Other income .............................. 260 290 225 217
General, administrative and other expense.. 1,586 1,590 1,627 1,745
------ ------ ------ ------
Earnings before income taxes .............. 723 655 667 444
Federal income taxes ...................... 246 223 227 150
------ ------ ------ ------
Net earnings .............................. $ 477 $ 432 $ 440 $ 294
====== ====== ====== ======
Earnings per share
Basic .................................... $ .18 $ .16 $ .17 $ .12
====== ====== ====== ======
Diluted .................................. $ .18 $ .16 $ .17 $ .11
====== ====== ====== ======
</TABLE>
39
