10QSB/A 1 wayne10qsba_123101.txt WAYNE SAVINGS BANCSHARES, INC. (10QSB/A) FORM 10-QSB/A SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20552 (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2001 ------------------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _______________ Commission File No. 0-23433 WAYNE SAVINGS BANCSHARES, INC. ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) United States 31-1557791 ------------------------------------ ----------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 151 North Market Street Wooster, Ohio 44691 ------------------------------- ------------- (Address of principal (Zip Code) executive office) Registrant's telephone number, including area code: (330) 264-5767 Check whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- As of February 12, 2002, the latest practicable date, 2,568,821 shares of the registrant's common stock, $1.00 par value, were issued and outstanding. Page 1 of 19 Wayne Savings Bancshares, Inc. INDEX Page PART I - FINANCIAL INFORMATION Consolidated Statements of Financial Condition 3 Consolidated Statements of Earnings 4 Consolidated Statements of Comprehensive Income 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II - OTHER INFORMATION 18 SIGNATURES 19 2 Wayne Savings Bancshares, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands, except share data) December 31, March 31, ASSETS 2001 2001 (Restated) (Restated) Cash and due from banks $ 3,242 $ 2,011 Federal funds sold 14,000 6,000 Interest-bearing deposits in other financial institutions 9,969 12,891 ------- ------- Cash and cash equivalents 27,211 20,902 Certificates of deposit in other financial institutions - 5,700 Investment securities - at amortized cost, approximate market value of $16,325 and $13,774 as of December 31, 2001 and March 31, 2001, respectively 16,126 13,641 Mortgage-backed securities available for sale - at market 4,016 2,911 Mortgage-backed securities - at cost, approximate market value of $11,022 and $5,694 as of December 31, 2001 and March 31, 2001, respectively 11,070 5,663 Loans receivable - net 257,795 246,619 Loans held for sale - at lower of cost or market - 861 Office premises and equipment - net 9,281 8,780 Real estate acquired through foreclosure 19 124 Federal Home Loan Bank stock - at cost 3,726 3,510 Accrued interest receivable on loans 1,171 1,328 Accrued interest receivable on mortgage-backed securities 73 42 Accrued interest receivable on investments and interest-bearing deposits 260 211 Prepaid expenses and other assets 1,404 1,285 Prepaid federal income taxes - 63 ------- ------- Total assets $332,152 $311,640 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $298,173 $277,706 Advances from the Federal Home Loan Bank 5,000 6,000 Advances by borrowers for taxes and insurance 1,604 827 Accrued interest payable 32 245 Accounts payable on mortgage loans serviced for others 315 234 Other liabilities 589 918 Accrued federal income taxes 21 - Deferred federal income taxes 735 455 ------- ------- Total liabilities 306,469 286,385 Commitments - - Stockholders' equity Common stock (20,000,000 shares of $1.00 par value authorized; 2,638,835 shares issued) 2,639 2,639 Additional paid-in capital 14,436 14,436 Retained earnings - substantially restricted 9,749 9,150 Less: 70,014 and 57,042 shares of treasury stock at December 31, 2001 and March 31, 2001, respectively - at cost (1,181) (1,003) Accumulated comprehensive income, unrealized gains on securities designated as available for sale, net of related tax effects 40 33 ------- ------- Total stockholders' equity 25,683 25,255 ------- ------- Total liabilities and stockholders' equity $332,152 $311,640 ======= =======
3 Wayne Savings Bancshares, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except share data) Nine months Three months ended ended December 31, December 31, 2001 2000 2001 2000 (Restated) (Restated) (Restated) (Restated) Interest income Loans $14,325 $13,958 $4,737 $4,708 Mortgage-backed securities 376 449 127 137 Investment securities 654 1,119 247 362 Interest-bearing deposits and other 661 563 159 182 ------ ------ ----- ----- Total interest income 16,016 16,089 5,270 5,389 Interest expense Deposits 9,371 9,370 2,975 3,202 Borrowings 228 360 68 119 ------ ------ ----- ----- Total interest expense 9,599 9,730 3,043 3,321 ------ ------ ----- ----- Net interest income 6,417 6,359 2,227 2,068 Provision for losses on loans 118 75 21 2 ------ ------ ----- ----- Net interest income after provision for losses on loans 6,299 6,284 2,206 2,066 Other income Gain on sale of loans 425 102 214 47 Service fees, charges and other operating 874 664 288 242 ------ ------ ----- ----- Total other income 1,299 766 502 289 General, administrative and other expense Employee compensation and benefits 3,217 3,042 1,124 952 Occupancy and equipment 1,002 992 310 340 Federal deposit insurance premiums 66 66 24 22 Franchise taxes 205 231 69 88 Other operating 1,148 1,164 441 375 Operating expenses previously reimbursed or allocated to MHC 35 150 - 36 ------ ------ ----- ----- Total general, administrative and other expense 5,673 5,645 1,968 1,813 ------ ------ ----- ----- Earnings before income taxes 1,925 1,405 740 542 Federal income taxes Current 375 345 (38) 48 Deferred 276 116 291 124 ------ ------ ----- ----- Total federal income taxes 651 461 253 172 ------ ------ ----- ----- NET EARNINGS $ 1,274 $ 944 $ 487 $ 370 ====== ====== ===== ===== EARNINGS PER SHARE Basic $.50 $.36 $.19 $.14 === === === === Diluted $.50 $.36 $.19 $.14 === === === ===
4 Wayne Savings Bancshares, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Nine months Three months ended ended December 31, December 31, 2001 2000 2001 2000 (Restated) (Restated) (Restated) (Restated) Net earnings $1,274 $944 $487 $370 Other comprehensive income (loss) net of tax: Unrealized holding gains (losses) on securities, net of taxes (benefits) of $4, $24, $(10) and $11 during the respective periods 7 47 (20) 22 ----- --- --- --- Comprehensive income $1,281 $991 $467 $392 ===== === === === Accumulated comprehensive income $ 40 $ 11 $ 40 $ 11 ===== === === ===
5 Wayne Savings Bancshares, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended December 31, (In thousands) 2001 2000 (Restated) (Restated) Cash flows from operating activities: Net earnings for the period $ 1,274 $ 944 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 (22) 15 Amortization of deferred loan origination fees (357) (112) Depreciation and amortization 331 401 Loans originated for sale in the secondary market (16,886) (7,147) Proceeds from sale of loans 17,990 6,663 Gain on sale of loans (243) (47) Provision for losses on loans 118 75 Federal Home Loan Bank stock dividends (178) (186) Increase (decrease) in cash due to changes in: Accrued interest receivable on loans 157 (73) Accrued interest receivable on mortgage-backed securities (31) 5 Accrued interest receivable on investments and interest-bearing deposits (49) (103) Prepaid expenses and other assets (119) 316 Accrued interest payable (213) (192) Accounts payable on mortgage loans serviced for others 81 71 Other liabilities (360) 48 Federal income taxes Current 84 7 Deferred 276 116 ------ ------ Net cash provided by operating activities 1,853 801 Cash flows provided by (used in) investing activities: Purchase of investment securities designated as held to maturity (9,049) - Proceeds from maturity of investment securities designated as held to maturity 6,529 1,062 Purchase of mortgage-backed securities designated as available for sale (2,053) - Purchase of mortgage-backed securities designated as held to maturity (8,404) (1,000) Principal repayments on mortgage-backed securities designated as available for sale 959 461 Principal repayments on mortgage-backed securities designated as held to maturity 3,054 2,073 Loan principal repayments 59,132 26,371 Loan disbursements (69,976) (33,688) Purchase of office premises and equipment - net (832) (921) Proceeds from sale of land - 235 Proceeds from sale of real estate acquired through foreclosure 12 14 Decrease in certificates of deposit in other financial institutions 5,700 3,300 Purchase of Federal Home Loan Bank stock (38) (103) ------ ------ Net cash used in investing activities (14,966) (2,196) ------ ------ Net cash used in operating and investing activities (balance carried forward) (13,113) (1,395) ------ ------
6 Wayne Savings Bancshares, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the nine months ended December 31, (In thousands) 2001 2000 (Restated) (Restated) Net cash used in operating and investing activities (balance brought forward) $(13,113) $(1,395) Cash flows provided by (used in) financing activities: Net increase in deposit accounts 20,467 3,333 Proceeds from Federal Home Loan Bank advances 5,000 11,000 Repayment of Federal Home Loan Bank advances (6,000) (13,000) Advances by borrowers for taxes and insurance 777 692 Proceeds from exercise of stock options - 36 Dividends paid on common stock (644) (601) Purchase of treasury shares (178) (188) ------- ------ Net cash provided by financing activities 19,422 1,272 ------- ------ Net increase (decrease) in cash and cash equivalents 6,309 (123) Cash and cash equivalents at beginning of period 20,902 14,309 ------- ------ Cash and cash equivalents at end of period $ 27,211 $14,186 ======= ====== Supplemental disclosure of cash flow information: Cash paid during the period for: Federal income taxes $ 457 $ 460 ======= ====== Interest on deposits and borrowings $ 9,812 $ 9,922 ======= ====== Supplemental disclosure of noncash investing activities: Unrealized gains on securities designated as available for sale, net of related tax effects $ 7 $ 47 ======= ====== Recognition of mortgage servicing rights in accordance with SFAS No. 140 $ 182 $ 55 ======= ====== Issuance of mortgage loan upon sale of real estate acquired through foreclosure $ 93 $ - ======= ======
7 Wayne Savings Bancshares, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the nine and three month periods ended December 31, 2001 and 2000 1. Basis of Presentation The accompanying restated unaudited consolidated financial statements for the three and nine months ended December 31, 2001 and 2000 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 accounting principles generally accepted in the United States of America. Accordingly, these financial statements should be read in conjunction with the financial statements and notes thereto of Wayne Savings Bancshares, Inc. included in the amended and restated Annual Report on Form 10-KSB for the year ended March 31, 2001. In the opinion of management, all adjustments (consisting only of normal recurring accruals) which are necessary for a fair presentation of the unaudited financial statements have been included. The results of operations for the nine and three-month periods ended December 31, 2001 are not necessarily indicative of the results which may be expected for the entire fiscal year. 2. Principles of Consolidation The accompanying consolidated financial statements include Wayne Savings Bancshares, Inc. (the "Company") and the Bank's wholly-owned subsidiary, Wayne Savings Community Bank ("Wayne Savings" or the "Bank") and its wholly-owned subsidiary, Village Savings Bank, F.S.B. ("Village"), hereinafter collectively referred to as "the Banks". Wayne Savings Community Bank has nine banking locations in Wayne, Holmes, Ashland, and Medina counties, Ohio, in addition to its Village Savings Bank, F.S.B. subsidiary serving Stark county. All significant intercompany transactions and balances have been eliminated in the consolidation. 3. Earnings Per Share Basic earnings per common share are 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 are as follows:
For the nine months ended December 31, 2001 2000 Weighted-average common shares outstanding (basic) 2,571,574 2,601,692 Dilutive effect of assumed exercise of stock options 11,713 13,523 --------- --------- Weighted-average common shares outstanding (diluted) 2,583,287 2,615,215 ========= =========
8 Wayne Savings Bancshares, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the nine and three month periods ended December 31, 2001 and 2000 3. Earnings Per Share (continued)
For the three months ended December 31, 2001 2000 Weighted-average common shares outstanding (basic) 2,569,544 2,596,948 Dilutive effect of assumed exercise of stock options 11,713 13,305 --------- --------- Weighted-average common shares outstanding (diluted) 2,581,257 2,610,253 ========= =========
4. Effects of Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141 "Business Combinations," which requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method. The pooling-of-interests method of accounting is prohibited except for combinations initiated before June 30, 2001. The remaining provisions of SFAS No. 141 relating to business combinations accounted for by the purchase method, including identification of intangible assets, accounting for negative goodwill and financial statement presentation and disclosure, are effective for combinations completed after June 30, 2001. Management adopted SFAS No. 141 effective June 30, 2001, as required, without material effect on the Company's financial position or results of operations. In June 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible Assets," which prescribes accounting for all purchased goodwill and intangible assets. Pursuant to SFAS No. 142, acquired goodwill is not amortized, but is tested for impairment at the reporting unit level annually and whenever an impairment indicator arises. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. SFAS No. 142 is not expected to have a material effect on the Company's financial position or results of operations. 5. Forward-looking Statements This quarterly report on Form 10-QSB contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans", "expects" and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those contemplated by such forward-looking statements. These important factors include, without limitation, the Banks' continued ability to originate quality loans, fluctuation of interest rates, real estate market conditions in the Banks' lending areas, general and local economic conditions, the continued ability of the Banks to attract and retain deposits, the Company's ability to control costs, new accounting pronouncements and changing regulatory requirements. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Discussion of Financial Condition Changes from March 31, 2001 to December 31, 2001 At December 31, 2001, the Company had total assets of $332.2 million, an increase of $20.5 million, or 6.6%, over March 31, 2001. The increase was funded primarily by a $20.5 million increase in deposits. Cash and due from banks, federal funds sold, interest-bearing deposits, certificates of deposit and investment securities totaled $43.3 million at December 31, 2001, an increase of $3.1 million, or 7.7%, over March 31, 2001 levels. During the nine months ended December 31, 2001, investment securities purchases totaled $9.0 million, while maturities amounted to $6.5 million. Mortgage-backed securities increased by $6.5 million, or 76.0%, to $15.1 million at December 31, 2001. This increase was primarily due to purchases totaling $10.5 million, partially offset by principal repayments on mortgage-backed securities totaling $4.0 million for the nine months ended December 31, 2001. Loans receivable, including loans held for sale, totaled $257.8 million at December 31, 2001, an increase of $10.3 million, or 4.2%, over the March 31, 2001 total. This increase resulted primarily from loan disbursements of $86.9 million, which were partially offset by principal repayments of $59.1 million and sales of $17.7 million. The majority of loan disbursements during the 2001 period were comprised of loans secured by one- to four-family residential real estate. The allowance for loan losses totaled $722,000 at December 31, 2001, compared to $655,000 at March 31, 2001, representing .28% and .26% of gross loans at those respective dates. In determining the amount of the loan loss allowance at any point in time, management and the Board apply a systematic process focusing on the risk of loss in the portfolio. First, delinquent nonresidential, multi-family and commercial loans are evaluated individually for potential impairments in their carrying value. At December 31, 2001, the analysis of $3.0 million of impaired loans resulted in a $105,000 allocation of the allowance to an impaired nonresidential loan with a principal balance of $519,000. The remainder of the impaired nonresidential, multi-family and commercial loans were viewed as well-secured, with no measured loss. As a result of this detailed loss analysis, the increase in nonperforming loans to $3.5 million at December 31, 2001, did not result in a proportional increase in the allowance for loan losses. The second step in determining the allowance for loan losses entails the application of historic loss experience to the individual loan types in the portfolio. In addition to the historic loss percentage, management employs an additional risk percentage tailored to the perception of overall risk in the economy. This segment of the loss analysis resulted in assigning $617,000 of the allowance for loan losses at December 31, 2001. The analysis of the allowance for loan losses requires an element of judgment and is subject to the possibility that the allowance may need to be increased, with a corresponding reduction in earnings. To the best of management's knowledge all known losses as of December 31, 2001, have been recorded. Nonperforming loans totaled $3.5 million at December 31, 2001, compared to $515,000 at December 31, 2000. Nonperforming loans at December 31, 2001, consisted of $1.1 million of nonresidential real estate loans, $1.6 million of commercial loans and approximately $800,000 of one- to four-family residential mortgage loans. The allowance for loan losses totaled 20.4% and 127.2% of nonperforming loans at December 31, 2001 and 2000, respectively. Although management believes that its allowance for loan losses is adequate based upon the available facts and circumstances, there can be no assurance that additions to the allowance will not be necessary in future periods, which would adversely affect the Company's results of operations. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Discussion of Financial Condition Changes from March 31, 2001 to December 31, 2001 (continued) Deposits increased by approximately $20.5 million, or 7.4%, during the nine months ended December 31, 2001, to a total of $298.2 million. This growth was mainly due to the impact of the Bank's use of an official checks program beginning April 1, 2001 and the effects of competitive passbook rates offered by the Bank. The proceeds from deposit growth were generally used to fund new loan originations during the period. Stockholders' equity increased by approximately $428,000, or 1.7%, due primarily to net earnings of $1.3 million, partially offset by dividends paid totaling $644,000 and repurchases of common stock totaling $178,000. 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 December 31, 2001, both Wayne Savings' and Village's regulatory capital exceeded all minimum capital requirements. Comparison of Operating Results for the Nine Month Periods Ended December 31, 2001 and 2000 Net earnings totaled $1.3 million for the nine months ended December 31, 2001, compared to net earnings of $944,000 for the same period in 2000, an increase of $330,000, or 35.0%. The increase in net earnings resulted primarily from an increase in other income of $533,000 and a $58,000 increase in net interest income, which were partially offset by an $28,000 increase in general, administrative and other expense, an increase in federal income taxes of $190,000 and an increase in the provision for losses on loans totaling $43,000. Net Interest Income Interest income on loans and mortgage-backed securities totaled $14.7 million for the nine months ended December 31, 2001, an increase of $294,000, or 2.0%, over the same period in 2000. The increase was primarily attributable to a $9.2 million, or 3.7%, increase in the average balance of loans and mortgage-backed securities outstanding, from $251.6 million for the nine months ended December 31, 2000, to $260.8 million for the nine months ended December 31, 2001, partially offset by a decrease in the average yield from 7.64% in 2000 to 7.52% in 2001. Interest income on investments and interest-bearing deposits decreased by $367,000, or 21.8%, during the nine months ended December 31, 2001, as compared to the same period in 2000, as a result of a decrease in the average yield to 4.20% for the nine months ended December 31, 2001, from 5.92% for the period ended December 31, 2000, partially offset by a $3.8 million, or 10.1%, increase in the average balance outstanding. Interest expense on deposits and borrowings decreased by $131,000, or 1.3%, for the nine months ended December 31, 2001, compared to the same period in 2000. The decrease can be primarily attributed to a 26 basis point decrease in the cost of interest-bearing liabilities, to 4.43% in 2001 from 4.69% in 2000, partially offset by an increase in the average balance of interest-bearing liabilities outstanding of $12.6 million, or 4.6%, from $276.6 million in 2000 to $289.2 million in 2001. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Comparison of Operating Results for the Nine Month Periods Ended December 31, 2001 and 2000 (continued) Net Interest Income (continued) As a result of the foregoing changes in interest income and interest expense, net interest income increased by $58,000, or 0.9%, during the nine months ended December 31, 2001, compared to the same period in 2000. The Company's interest rate spread decreased from 2.72% for the nine month period ended December 31, 2000 to 2.63% for the same period ended December 31, 2001. The Company's net interest margin decreased from 2.93% for the nine month period ended December 31, 2000, to 2.83% for the same period ended December 31, 2001. Provision for Losses on Loans The Company records a provision for losses on loans in an amount sufficient to cover known losses and losses in the portfolio that are both probable and reasonable to estimate. Such estimates were based on the facts and circumstances in existence as of December 31, 2001, and included a consideration of the factors discussed above relating to the increase in nonperforming loans at December 31, 2001. Based upon this methodology, the Company recorded a provision for losses on loans totaling $118,000 for the nine month period ended December 31, 2001, an increase of $43,000, or 57.3%, over the same period in 2000. To the best of management's knowledge, all known losses as of December 31, 2001 and 2000 have been recorded. Other Income Other income totaled $1.3 million for the nine months ended December 31, 2001, an increase of $533,000, or 69.6%, over the comparable 2000 period. This increase was due primarily to a $323,000 increase in gain on sale of loans, coupled with a $210,000, or 31.6%, increase in service fees, charges and other operating income. The increase in gain on sale of loans resulted from loan sales of $17.7 million for the nine months ended December 31, 2001, an increase of $11.1 million, or 168.2%, compared to the $6.6 million sold for the nine months ended December 31, 2000. The increase in service fees, charges and other operating income was due primarily to a new service fee structure implemented on deposit accounts. General, Administrative and Other Expense General, administrative and other expense totaled $5.7 million for the nine month period ended December 31, 2001, an increase of $28,000, or 0.5%, compared to the same period in 2000. This increase was primarily attributable to a $175,000, or 5.8%, increase in employee compensation and benefits, coupled with a $10,000, or 1.0%, increase in occupancy and equipment expense, which were partially offset by a decrease in other operating expense of $14,000, or 1.2%, and a decrease of $115,000, or 76.7%, in certain operating costs that were previously paid or reimbursed by Wayne Savings Bankshares, MHC (the "MHC"). As a result of discussions with its primary regulator arising from the Company's proposed conversion and offering of common stock, it was requested, as a matter of policy, that the Company expense certain operating costs that were previously paid or reimbursed by the MHC. These costs were substantially offset in the Company's equity accounts by a corresponding decrease in dividends paid to the MHC. See the section entitled "Restatement of Consolidated Financial Statements" for additional information. The increase in employee compensation and benefits was primarily attributable to normal merit increases, an increase in pension-related expense and additional staff needed for operating a new full service branch opened in May, 2001 and a new drive-through facility opened in August 2001. The increase in occupancy and equipment expense was also primarily attributable to costs incurred in the new operating facilities. The Company currently plans to install a new computer system during February 2002 at an approximate cost of $500,000. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Comparison of Operating Results for the Nine Month Periods Ended December 31, 2001 and 2000 (continued) Federal Income Taxes The provision for federal income taxes amounted to $651,000 for the nine months ended December 31, 2001, an increase of $190,000, or 41.2%, compared to the same period in 2000. The increase resulted primarily from a $520,000, or 37.0%, increase in pretax earnings period to period. The effective tax rates for the nine months ended December 31, 2001 and 2000 totaled 33.8% and 32.8%, respectively. Comparison of Operating Results for the Three Month Periods Ended December 31, 2001 and 2000 Net earnings totaled $487,000 for the three months ended December 31, 2001, compared to net earnings of $370,000 for the same period in 2000, an increase of $117,000, or 31.6%. The increase in net earnings resulted primarily from an increase in other income of $213,000 and an increase of $159,000 in net interest income, which were partially offset by an increase in general, administrative and other expense of $155,000, an increase in federal income taxes of $81,000 and an increase in the provision for losses on loans totaling $19,000. Net Interest Income Interest income on loans and mortgage-backed securities totaled $4.9 million for the three months ended December 31, 2001, an increase of $19,000, or 0.4%, over the same period in 2000. The increase can be primarily attributed to a $10.1 million, or 4.0%, increase in the average balance of loans and mortgage-backed securities outstanding, which was partially offset by a decrease in the average yield of 26 basis points, from 7.65% for the three months ended December 31, 2000, to 7.39% for the three months ended December 31, 2001. Interest income on investments and interest-bearing deposits decreased by $138,000, or 25.4%, during the three months ended December 31, 2001, compared to the same period in 2000, as a result of a decrease in the average yield to 3.56% for the three months ended December 31, 2001, from 6.00% for the same period ended December 31, 2000, partially offset by an increase in the average balance outstanding of approximately $9.3 million, or 25.7%, year to year. Interest expense on deposits and borrowings decreased by $278,000, or 8.4%, during the three months ended December 31, 2001, compared to the same period in 2000. The decrease can be primarily attributed to a decrease in the cost of deposits of 71 basis points, to 4.08% in 2001 from 4.79% in 2000, which was partially offset by a $4.3 million, or 7.7%, increase in the average balance of interest-bearing liabilities outstanding year to year. As a result of the foregoing changes in interest income and interest expense, net interest income increased by $159,000, or 7.7%, during the three months ended December 31, 2001, compared to the same period in 2000. The Company's interest rate spread increased from 2.65% at December 31, 2000 to 2.75% for the three months ended December 31, 2001. The Company's net interest margin increased from 2.85% for the three months ended December 31, 2000, to 2.89% for the quarter ended December 31, 2001. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Comparison of Operating Results for the Three Month Periods Ended December 31, 2001 and 2000 (continued) Provision for Losses on Loans The Company records a provision for losses on loans in an amount sufficient to cover known losses and losses in the portfolio that are both probable and reasonable to estimate. Such estimates are based on the facts and circumstances in existence as of December 31, 2001, and included a consideration of the factors discussed above relating to the increase in nonperforming loans as of December 31, 2001. Based upon this methodology, the Company recorded a provision for losses on loans totaling $21,000 for the three month period ended December 31, 2001, an increase of $19,000 over the same period in 2000. To the best of management's knowledge, all known losses as of December 31, 2001 have been recorded. Other Income Other income totaled $502,000 for the three months ended December 31, 2001, an increase of $213,000, or 73.7%, over the comparable 2000 period. This increase was due primarily to a $167,000 increase in gain on sale of loans, from $47,000 for the three months ended December 31, 2000 to $214,000 for the three months ended December 31, 2001, and a $46,000, or 19.0%, increase in service fees, charges and other operating income. The increase in gain on sale of loans was a result of increased loan sales in the 2001 period, compared to the same period in 2000. The increase in service fees, charges and other operating income was due primarily to a new service fee structure implemented on deposit accounts. General, Administrative and Other Expense General, administrative and other expense totaled $2.0 million for the three month period ended December 31, 2001, an increase of $155,000, or 8.5%, compared to the same period in 2000, primarily attributable to a $172,000, or 18.1%, increase in employee compensation and benefits and a $66,000, or 17.6%, increase in other operating expense, which were partially offset by a $36,000 reduction in operating expenses previously reimbursed or allocated to the MHC. The increase in employee compensation and benefits was primarily attributable to increased staffing levels related to the opening of two new operating facilities, normal merit increases and an increase in pension costs. The increase in other operating expenses was also primarily attributable to the opening of the new facilities. Federal Income Taxes The provision for federal income taxes amounted to $253,000 for the three months ended December 31, 2001, an increase of $81,000, or 47.1%, compared to the same period in 2000. The increase resulted primarily from a $198,000, or 36.5%, increase in pretax earnings year to year. The effective tax rates for the three months ended December 31, 2001 and 2000 were 34.2% and 31.7%, respectively. Restatement of Consolidated Financial Statements As a result of filings related to the Company's conversion offering and discussions with its primary regulator, the Company has restated its consolidated financial statements for the three and nine month periods ended December 31, 2001 and 2000. The restatement focused on three matters. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Restatement of Consolidated Financial Statements (continued) First, based on regulatory policy, the payment, allocation or reimbursement of operating expenses by the Company's parent, the MHC, have been included in the Company's financial statements with a corresponding reduction in dividends paid to the MHC. Accordingly, management has included in the Company's consolidated financial statements the following costs that were previously paid, allocated or reimbursed by the MHC.
Nine months ended Three months ended December 31, December 31, 2001 2000 2001 2000 (In thousands) Legal fees related to MHC litigation $ 19 $134 $- $ 36 Intercompany allocations 7 7 - - Officer compensation 9 9 - - --- --- -- --- Total pre-tax costs reimbursed, allocated or paid by the MHC $ 35 $150 $- $ 36 === === == ===
Substantially all of these expenses were offset in the Company's stockholders' equity accounts by a reduction in dividends paid to the MHC. The second matter giving rise to restatement centered on depreciation expense related to the Company's office premises and equipment. Specifically, that management reduce the estimated useful lives assigned to renovated buildings. Additionally, it was requested that the Company maintained the original estimated useful life and not extend the useful life of its data processing equipment. These restatement adjustments resulted in a $29,000 and $86,000 increase in depreciation expense during the three and nine months ended December 31, 2000, respectively, and a $10,000 and $28,000 decrease in depreciation expense for the three and nine month periods ended December 31, 2001. The final item subject to restatement related to the recording of various adjustments that were previously considered immaterial in preparation of the consolidated financial for the years ended March 31, 2001 and 2000, and the interim periods related thereto. These adjustments resulted in an increase of $11,000 and $56,000 in pre-tax earnings for the three and nine month periods ending December 31, 2001, and a decrease of $21,000 in pre-tax earnings for both the three and nine month periods ending December 31, 2000. The following tables set forth the integrated effects of the foregoing on the financial statements for the three and nine month periods ended December 31, 2000. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Restatement of Consolidated Financial Statements (continued) Wayne Savings Bancshares, Inc.
Condensed Consolidated Statement of Earnings and Stockholders' Equity For the nine months ended December 31, 2001 (In thousands) As Previously Adjustments As Reported Inc. (Dec.) Restated Net interest income after provision for loan losses $6,305 $ (6) $6,299 Other income 1,299 - 1,299 General, administrative and other and expenses: Employee compensation 3,207 10 3,217 Occupancy and equipment 1,000 2 1,002 All other operating expenses 1,444 (25) 1,419 Operating expenses previously paid by or allocated to MHC - 35 35 ----- ---- ----- Total general, administrative and other expenses 5,651 22 5,673 ----- ---- ----- Net earnings before income taxes 1,953 (28) 1,925 Federal income taxes (benefits) 665 (14) 651 ----- ---- ----- Net earnings $1,288 $ (14) $1,274 ===== ==== ===== Basic and diluted earnings per share $.50 $- $.50 === == === Stockholders' equity $25,758 $ (75) $25,683 ====== ==== ======
Wayne Savings Bancshares, Inc.
Condensed Consolidated Statement of Earnings and Stockholders' Equity For the three months ended December 31, 2001 (In thousands) As Previously Adjustments As Reported Inc. (Dec.) Restated Net interest income after provision for loan losses $2,209 $ (3) $2,206 Other income 502 - 502 General, administrative and other expenses: Employee compensation 1,116 8 1,124 Occupancy and equipment 320 (10) 310 All other operating expenses 524 10 534 Operating expenses previously paid by or allocated to MHC - - - ----- -- ----- Total general, administrative and other expenses 1,960 8 1,968 ----- --- ----- Earnings before income taxes 751 (11) 740 Federal income taxes (benefits) 256 (3) 253 ----- --- ----- Net earnings $ 495 $ (8) $ 487 ===== === ===== Basic and diluted earnings per share $.19 $- $.19 === == ===
16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Restatement of Consolidated Financial Statements (continued) Wayne Savings Bancshares, Inc.
Condensed Consolidated Statement of Earnings and Stockholders' Equity For the nine months ended December 31, 2000 (In thousands) As Previously Adjustments As Reported Inc. (Dec.) Restated Net interest income after provision for loan losses $6,278 $ 6 $6,284 Other income 766 - 766 General, administrative and other and expenses: Employee compensation 3,079 (37) 3,042 Occupancy and equipment 906 86 992 All other operating expenses 1,468 (7) 1,461 Operating expenses previously paid by or allocated to MHC - 150 150 ----- ---- ----- Total general, administrative and other expenses 5,453 192 5,645 ----- ---- ----- Net earnings before income taxes 1,591 (186) 1,405 Federal income taxes (benefits) 541 (80) 461 ----- ---- ----- Net earnings $1,050 $(106) $ 944 ===== ==== ===== Basic and diluted earnings per share $.40 $(.04) $.36 === ==== === Stockholders' equity $25,207 $(106) $25,101 ====== ==== ======
Wayne Savings Bancshares, Inc.
Condensed Consolidated Statement of Earnings and Stockholders' Equity For the three months ended December 31, 2000 (In thousands) As Previously Adjustments As Reported Inc. (Dec.) Restated Net interest income after provision for loan losses $2,065 $ 1 $2,066 Other income 289 - 289 General, administrative and other expenses: Employee compensation 970 (18) 952 Occupancy and equipment 322 18 340 All other operating expenses 466 19 485 Operating expenses previously paid by or allocated to MHC - 36 36 ----- ---- ----- Total general, administrative and other expenses 1,758 55 1,813 ----- ---- ----- Earnings before income taxes 596 (54) 542 Federal income taxes (benefits) 201 (29) 172 ----- ---- ----- Net earnings $ 395 $ (25) $ 370 ===== ==== ===== Basic and diluted earnings per share $.15 $(.01) $.14 === ==== ===
17 Wayne Savings Bancshares, Inc. PART II ITEM 1. Legal Proceedings Not applicable ITEM 2. Changes in Securities and Use of Proceeds Not applicable ITEM 3. Defaults Upon Senior Securities Not applicable ITEM 4. Submission of Matters to a Vote of Security Holders Not applicable ITEM 5. Other Information Not applicable ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits: None. (b) Reports on Form 8-K: None. 18 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: June 18, 2002 By: /s/Charles C. Finn ------------------------- ----------------------------- Charles C. Finn Chairman and President Date: June 18, 2002 By: /s/Michael C. Anderson ------------------------- ---------------------------- Michael C. Anderson Chief Financial Officer 19