UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to _______________
Commission File Number: 0-23433
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WAYNE SAVINGS BANCSHARES, INC.
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(Exact name of small business issuer as specified in its charter)
United States 31-1557791
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
151 North Market Street, Wooster, Ohio 44691
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(Address of principal executive offices)
(330) 264-5767
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(Issuer's telephone number)
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(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: August 8, 2000 - 2,606,415 shares of
common stock at $1.00 par value
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
1
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Wayne Savings Bancshares, Inc.
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II - OTHER INFORMATION 12
SIGNATURES 13
2
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Wayne Savings Bancshares, Inc.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
June 30, March 31,
ASSETS 2000 2000
<S> <C> <C>
Cash and due from banks $ 2,526 $ 2,502
Federal funds sold 2,775 3,475
Interest-bearing deposits in other financial institutions 7,443 8,332
------- -------
Cash and cash equivalents 12,744 14,309
Certificates of deposit in other financial institutions - 4,000
Investment securities - at amortized cost, approximate
market value of $22,386 and $22,634 as of June 30, 2000
and March 31, 2000 23,148 23,199
Mortgage-backed securities available for sale - at market 3,392 3,450
Mortgage-backed securities - at cost, approximate
market value of $7,058 and $6,938 as of June 30, 2000
and March 31, 2000 7,053 7,046
Loans receivable - net 240,199 237,095
Loans held for sale - at lower of cost or market 618 317
Office premises and equipment - at depreciated cost 8,461 8,160
Real estate acquired through foreclosure 90 90
Federal Home Loan Bank stock - at cost 3,322 3,160
Accrued interest receivable on loans 1,306 1,255
Accrued interest receivable on mortgage-backed securities 72 60
Accrued interest receivable on investments and interest-bearing deposits 351 354
Prepaid expenses and other assets 1,426 1,390
Prepaid federal income taxes 22 184
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Total assets $302,204 $304,069
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $264,835 $264,952
Advances from the Federal Home Loan Bank 10,000 12,000
Advances by borrowers for taxes and insurance 779 777
Accrued interest payable 283 228
Accounts payable on mortgage loans serviced for others 115 100
Other liabilities 728 516
Deferred federal income taxes 376 375
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Total liabilities 277,116 278,948
Stockholders' equity
Common stock (20,000,000 shares of $1.00 par value authorized; 2,637,629 and
2,632,229 shares issued at June 30, 2000
and March 31, 2000) 2,638 2,632
Additional paid-in capital 14,414 14,393
Retained earnings - substantially restricted 8,707 8,777
Less 33,214 shares, of treasury stock - at cost (645) (645)
Unrealized losses on securities available for sale, net of related tax effects (26) (36)
------- -------
Total stockholders' equity 25,088 25,121
------- -------
Total liabilities and stockholders' equity $302,204 $304,069
======= =======
</TABLE>
3
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Wayne Savings Bancshares, Inc.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended June 30,
(In thousands, except share data)
2000 1999
<S> <C> <C>
Interest income
Loans $4,595 $4,304
Mortgage-backed securities 164 108
Investment securities 361 170
Interest-bearing deposits and other 217 324
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Total interest income 5,337 4,906
Interest expense
Deposits 3,045 2,682
Borrowings 116 127
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Total interest expense 3,161 2,809
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Net interest income 2,176 2,097
Provision for losses on loans 51 21
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Net interest income after provision for
losses on loans 2,125 2,076
Other income
Gain on sale of loans 20 20
Gain on sale of assets - 1
Service fees, charges and other operating 198 169
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Total other income 218 190
General, administrative and other expense
Employee compensation and benefits 1,066 877
Occupancy and equipment 329 342
Federal deposit insurance premiums 18 35
Franchise taxes 50 88
Other operating 441 407
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Total general, administrative and other expense 1,904 1,749
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Earnings before income taxes 439 517
Federal income taxes
Current 148 376
Deferred 1 (201)
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Total federal income taxes 149 175
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NET EARNINGS $ 290 $ 342
===== =====
EARNINGS PER SHARE
Basic $0.11 $0.13
==== ====
Diluted $0.11 $0.13
==== ====
</TABLE>
4
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Wayne Savings Bancshares, Inc.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended June 30,
(In thousands, except share data)
2000 1999
<S> <C> <C>
Net earnings $290 $342
Other comprehensive income (loss) net of tax:
Unrealized holding gains (losses) on securities during the period, net of tax
of $5 and $(23) in 2000 and 1999, respectively 10 (44)
--- ---
Comprehensive income $300 $298
=== ===
Accumulated comprehensive loss $(26) $(42)
=== ===
</TABLE>
5
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Wayne Savings Bancshares, Inc.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended June 30,
(In thousands)
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 290 $ 342
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 4 4
Amortization of deferred loan origination fees (44) (116)
Depreciation and amortization 146 168
Loans originated for sale in the secondary market (2,421) (1,750)
Proceeds from sale of loans 2,119 3,321
Loss on sale of loans 1 14
Provision for losses on loans 51 21
Federal Home Loan Bank stock dividends (60) (51)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (51) (20)
Accrued interest receivable on mortgage-backed securities (12) (11)
Accrued interest receivable on investments and interest-bearing deposits 3 (86)
Prepaid expenses and other assets (36) 574
Accrued interest payable 55 15
Accounts payable on mortgage loans serviced for others 15 94
Other liabilities 212 (126)
Federal income taxes
Current 162 25
Deferred 1 (201)
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Net cash provided by operating activities 435 2,217
Cash flows provided by (used in) investing activities:
Purchase of investment securities - (2,000)
Proceeds from maturity of investment securities 58 1,062
Purchase of mortgaged-backed securities (1,000) (4,835)
Principal repayments on mortgage-backed securities 1,060 1,164
Loan principal repayments 9,304 12,225
Loan disbursements (12,689) (21,669)
Purchase of office premises and equipment - net (445) (952)
Decrease in certificates of deposit in other financial institutions 4,000 -
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Net cash provided by (used in) investing activities 288 (15,005)
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Net cash provided by (used in) operating and investing activities
(balance carried forward) 723 (12,788)
------ ------
</TABLE>
6
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Wayne Savings Bancshares, Inc.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended June 30,
(In thousands)
2000 1999
<S> <C> <C>
Net cash provided by (used in) operating and investing activities
(balance brought forward) $ 723 $(12,788)
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts (117) 14,115
Proceeds from Federal Home Loan Bank advances 2,000 -
Repayment of Federal Home Loan Bank advances (4,000) -
Advances by borrowers for taxes and insurance 2 (398)
Proceeds from exercise of stock options 27 1
Dividends paid on common stock (200) (192)
Purchase of treasury shares - (52)
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Net cash provided by (used in) financing activities (2,288) 13,474
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Net increase (decrease) in cash and cash equivalents (1,565) 686
Cash and cash equivalents at beginning of period 14,309 16,245
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Cash and cash equivalents at end of period $12,744 $ 16,931
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ - $ -
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Interest on deposits and borrowings $ 3,106 $ 2,794
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Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects $ 10 $ (44)
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Recognition of mortgage servicing rights in accordance
with SFAS No. 125 $ 21 $ 34
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Issuance of mortgage loan upon sale of real estate acquired
through foreclosure $ - $ 699
====== =======
</TABLE>
7
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Wayne Savings Bancshares, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended June 30, 2000 and 1999
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-QSB and,
therefore, do not include information or footnotes necessary for a
complete presentation of financial position, results of operations and
cash flows in conformity with generally accepted accounting principles.
Accordingly, these financial statements should be read in conjunction
with the financial statements and notes thereto of Wayne Savings
Bancshares, Inc. included in the Annual Report on Form 10-KSB for the
year ended March 31, 2000. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) which are
necessary for a fair presentation of the financial statements have been
included. The results of operations for the three-month period ended
June 30, 2000 are not necessarily indicative of the results which may
be expected for an entire fiscal year.
Wayne Savings Community Bank has eight banking locations in Wayne,
Holmes, Ashland and Medina counties, Ohio, in addition to its Village
Savings Bank, F.S.B. subsidiary now serving Stark county.
2. Principles of Consolidation
The accompanying consolidated financial statements include Wayne
Savings Bancshares, Inc. (the "Company") and its wholly-owned
subsidiary, Wayne Savings Community Bank ("Wayne Savings" or the
"Bank"). In fiscal 1999 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".
All significant intercompany transactions and balances have been
eliminated in the consolidation.
3. Earnings Per Share
Basic earnings per common share is computed based upon the weighted
average number of common shares outstanding during the period. Diluted
earnings per common share include the dilutive effect of additional
potential common shares issuable under the Company's stock option plan.
The computations were as follows:
8
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Wayne Savings Bancshares, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three months ended June 30, 2000 and 1999
3. Earnings Per Share (continued)
<TABLE>
<CAPTION>
For the three months ended June 30 2000 1999
<S> <C> <C>
Weighted average common shares
outstanding (basic) 2,603,644 2,604,350
Dilutive effect of assumed exercise
of stock options 14,974 20,807
--------- ---------
Weighted average common shares
outstanding (diluted) 2,618,618 2,625,157
========= =========
</TABLE>
4. Effects of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
requires entities to recognize all derivatives in their financial
statements as either assets or liabilities measured at fair value. SFAS
No. 133 also specified new methods of accounting for hedging
transactions, prescribes the items and transactions that may be hedged,
and specifies detailed criteria to be met to qualify for hedge
accounting.
The definition of a derivative financial instrument is complex, but in
general, it is an instrument with one or more underlyings, such as an
interest rate or foreign exchange rate that is applied to a notional
amount, such as an amount of currency, to determine the settlement
amount(s). It generally requires no significant initial investment and
can be settled net or by delivery of an asset that is readily
convertible to cash. SFAS No. 133 applies to derivatives embedded in
other contracts, unless the underlyings of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. On adoption, entities are permitted to
transfer held-to-maturity debt securities to the available-for-sale or
trading category without calling into question their intent to hold
other debt securities to maturity in the future. SFAS No. 133 is not
expected to have a material impact on the Company's financial
statements.
Discussion of Financial Condition Changes from March 31, 2000 to June 30, 2000
At June 30, 2000, the Company had total assets of $302.2 million, a decrease of
$1.9 million, or 0.6%, from March 31, 2000. The decrease was due primarily to a
$2.0 million reduction in the balance of advances from the Federal Home Loan
Bank.
Cash and due from banks, federal funds sold, interest-bearing deposits,
certificates of deposit and investment securities totaled approximately $35.9
million, a decrease of approximately $5.6 million, or 13.5%, from March 31, 2000
levels. Regulatory liquidity approximated 15.8% at June 30, 2000, compared to
17.9% at March 31, 2000. During the quarter ended June 30, 2000, excess
liquidity was used to fund loan originations and to repay Federal Home Loan Bank
advances.
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Wayne Savings Bancshares, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from March 31, 2000 to June 30, 2000
(continued)
Loans receivable increased by approximately $3.4 million, or 1.4%, over the
March 31, 2000 total. This increase resulted from loan disbursements of $15.1
million, which were partially offset by principal repayments of $9.3 million and
sales of $2.1 million. The allowance for loan losses totaled $846,000 at June
30, 2000, as compared to $793,000 at March 31, 2000. Nonperforming loans totaled
$192,000 at June 30, 2000 and $200,000 at March 31, 2000. The allowance for loan
losses totaled 440.6% and 396.5% of nonperforming loans at June 30, 2000 and
March 31, 2000, respectively. Although management believes that its allowance
for loan losses at June 30, 2000, 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 decreased by approximately $117,000 during the quarter, to a total of
$264.8 million at June 30, 2000. Interest crediting of $3.0 million during the
quarter nearly offset withdrawals of $3.1 million.
The Banks are subject to capital standards, which generally require the
maintenance of regulatory capital sufficient to meet each of three tests, the
tangible capital requirement, the core capital requirement and the risk-based
capital requirement. At June 30, 2000, both Wayne Savings and Village's
regulatory capital exceeded all minimum capital requirements.
Comparison of Operating Results for the Three Month Periods Ended June 30, 2000
and 1999
Net earnings totaled $290,000 for the three months ended June 30, 2000, as
compared to net earnings of $342,000 for the same period in 1999, a decrease of
$52,000, or 15.2%. The decrease in net earnings resulted primarily from an
increase of $155,000, or 8.9%, in general, administrative and other expense,
which was partially offset by an increase of $79,000, or 3.8%, in net interest
income, and an increase of $28,000, or 14.7%, in other income.
Net Interest Income
Interest on loans and mortgage-backed securities totaled $4.8 million for the
three months ended June 30, 2000, an increase of $347,000, or 7.9%, over the
same period in 1999. The increase can be primarily attributed to a $20.7
million, or 9.1%, increase in the average balance of loans and mortgage-backed
securities outstanding.
Interest on investments and interest-bearing deposits increased by $84,000, or
17.0%, during the three months ended June 30, 2000, as compared to the same
period in 1999, as a result of a slight increase in the average balance from
year to year, coupled with an increase in the average yield.
Interest expense on deposits and borrowings increased by $352,000, or 12.5%,
during the three months ended June 30, 2000, over the same period in 1999. The
increase can be primarily attributed to an $24.5 million, or 9.7%, increase in
the average balance of interest-bearing liabilities year to year, coupled with
an increase in the average cost.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $79,000, or 3.8%, during the three months ended
June 30, 2000, as compared to the same period in 1999.
10
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Wayne Savings Bancshares, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods Ended June 30, 2000
and 1999(continued)
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the
Company, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Company's
market area, and other factors related to the collectibility of the Company's
loan portfolio. As a result of such analysis, management recorded a $51,000
provision for losses on loans during the three months ended June 30, 2000,
primarily due to growth in the loan portfolio coupled with management's
assessment of the collateral securing nonperforming loans. The provision for
losses on loans is recorded based upon management's assessment of the risk
inherent in the loan portfolio. There can be no assurance that the loan loss
allowance of the Company will be adequate to cover losses on nonperforming
assets in the future.
Other Income
Other income totaled $218,000 for the three months ended June 30, 2000, an
increase of $28,000, or 14.7%, from the comparable 1999 period. This increase
was due primarily to the $29,000, or 17.2%, increase in service fees, charges
and other operating income.
General, Administrative and Other Expense
General, administrative and other expense increased by $155,000, or 8.9%, during
the current three month period, due primarily to a $189,000, or 21.6%, increase
in employee compensation and benefits and a $34,000, or 8.4%, increase in other
operating expense, which were partially offset by a $17,000, or 48.6%, decrease
in federal deposit insurance premiums and a $38,000, or 43.2%, decrease in
franchise taxes. The increase in employee compensation and benefits was due
primarily to the costs associated with the addition of new branches as
previously discussed, as well as a reduction in loan costs deferred for the
period compared to the same period in 1999. The increase in other operating
expense was primarily attributable to increased advertising and related costs.
The decrease in federal deposit insurance premiums was due to a decline in
insurance rates. The decrease in franchise taxes was due primarily to a
reduction in the rate of tax.
Federal Income Taxes
The provision for federal income taxes amounted to $149,000 for the three months
ended June 30, 2000, a decrease of $26,000, or 14.9%, as compared to the same
period in 1999. The decrease resulted primarily from a $78,000, or 15.1%,
decrease in pretax earnings year to year. The effective tax rates for the three
months ended June 30, 2000 and 1999 were 33.9% and 33.8%, respectively.
11
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Wayne Savings Bancshares, Inc.
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
On July 27, 2000, the Annual Meeting of the Company's
Stockholders was held. Two directors were elected to terms
expiring in 2003 by the following votes:
Kenneth G. Rhode For: 2,211,527 Withheld: 22,994
James C. Morgan For: 2,216,819 Withheld: 17,702
One other matter was submitted to the stockholders, for which
the following votes were cast:
Ratification of the appointment of Grant Thornton LLP as
independent auditors of the Company for the fiscal year ended
March 31, 2001.
For: 2,180,455 Against: 0 Abstain: 54,066
ITEM 5. Other Information
The Board of Directors of Wayne Savings Bancshares, Inc. has
authorized to continue the repurchase of up to approximately
131,000 shares, or 5% of Wayne's outstanding stock, over the
next 12 months. Any repurchased shares, will be held as
treasury stock and will be available for general corporate
purposes.
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits:
27 Financial Data Schedule for the three month
period ended June 30, 2000.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 10, 2000 By: /s/Charles F. Finn
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Charles F. Finn
Chairman and President
Date: August 10, 2000 By: /s/Todd J. Tappel
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Todd J. Tappel
Chief Financial Officer
13
