0001133884-01-500540.txt : 20011008 0001133884-01-500540.hdr.sgml : 20011008 ACCESSION NUMBER: 0001133884-01-500540 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 20010918 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WAYNE SAVINGS BANCSHARES INC /DE/ CENTRAL INDEX KEY: 0001036030 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 311557791 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-69600 FILM NUMBER: 1740000 BUSINESS ADDRESS: STREET 1: 151 N MARKET ST CITY: WOOSTER STATE: OH ZIP: 44691-4809 BUSINESS PHONE: 3302645767 MAIL ADDRESS: STREET 1: 151 N MARKET ST CITY: WOOSTER STATE: OH ZIP: 44691-4809 FORMER COMPANY: FORMER CONFORMED NAME: WAYNE SAVINGS BANKSHARES INC DATE OF NAME CHANGE: 19970319 SB-2 1 gsb2-25709.txt SB-2 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 2001 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM SB-2 REGISTRATION STATEMENT UNDER INCLUDING THE SECURITIES ACT OF 1933 EXHIBITS WAYNE SAVINGS BANCSHARES, INC. (Name of Small Business Issuer in Its Charter) DELAWARE 6712 31-1557791 (State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification No.) 151 NORTH MARKET STREET WOOSTER, OHIO 44691-7858 (330) 264-5767 (Address and Telephone Number of Principal Executive Offices) 151 NORTH MARKET STREET WOOSTER, OHIO 44691-7858 (330) 264-5767 (Address of Principal Place of Business or Intended Principal Place of Business) CHARLES F. FINN 151 NORTH MARKET STREET WOOSTER, OHIO 44691-7858 (330) 264-5767 (Name, Address and Telephone Number of Agent for Service) COPIES TO: KENNETH R. LEHMAN, ESQ. ROBERT B. POMERENK, ESQ. LUSE LEHMAN GORMAN POMERENK & SCHICK, P.C. 5335 WISCONSIN AVENUE, N.W., SUITE 400 WASHINGTON, D.C. 20015 APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933, check the following box: /X/ If this Form is filed to register additional shares for an offering pursuant to Rule 462(b) under the Securities Act please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: / /
CALCULATION OF REGISTRATION FEE ============================================== ================ ================= ================= ======================== PROPOSED PROPOSED AMOUNT TO BE MAXIMUM MAXIMUM TITLE OF EACH CLASS OF REGISTERED OFFERING PRICE AGGREGATE AMOUNT OF REGISTRATION SECURITIES TO BE REGISTERED PER SHARE OFFERING FEE PRICE(1) ---------------------------------------------- ---------------- ----------------- ----------------- ------------------------ Common Stock, $0.01 par value per share 4,531,347 $10.00 $45,314,000 $11,350 shares ============================================== ================ ================= ================= ========================
(1) Estimated solely for the purpose of calculating the registration fee. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. PROSPECTUS WAYNE SAVINGS BANCSHARES, INC. (HOLDING COMPANY FOR WAYNE SAVINGS COMMUNITY BANK) UP TO 2,070,000 SHARES OF COMMON STOCK Wayne Savings Bancshares, Inc. is offering common stock for sale in connection with the conversion of Wayne Savings Bankshares, MHC from the mutual to the stock form of organization. The shares we are offering represent the 52.5% ownership interest in Wayne Savings Bancshares, Inc. now owned by Wayne Savings Bankshares, MHC. The existing publicly held shares of Wayne Savings Bancshares, Inc., which represent the remaining 47.5% interest in Wayne Savings Bancshares, Inc. will be exchanged for new shares of common stock in Wayne Savings Bancshares, Inc. All shares offered for sale are offered at a price of $10.00 per share. You will not have to pay any sales commissions on shares of common stock that you purchase in the offering. o If you are a current or former customer of Wayne Savings Community Bank you may have priority rights to purchase shares. o If you are a current stockholder of Wayne Savings Bancshares, Inc. your shares will be exchanged for new shares of Wayne Savings Bancshares, Inc. You may purchase additional shares in the offering after priority orders are filled. ================================================================================ OFFERING SUMMARY PRICE: $10.00 PER SHARE MINIMUM MAXIMUM ------- ------- Number of shares: 1,530,000 2,070,000 Gross offering proceeds: $15,300,000 $20,700,000 Estimated offering expenses: $931,000 $1,027,000 Estimated net proceeds: $14,369,000 $19,673,000 Estimated net proceeds per share: $9.39 $9.50 ================================================================================ The maximum number of shares offered may be increased up to 2,380,500 shares. We will terminate the offering of new stock and the exchange of existing shares if we do not sell the minimum number of shares. If we terminate the offering, we will return all subscriptions received, together with accrued interest. Ryan, Beck & Co., LLC will assist Wayne Savings Bancshares, Inc. in the sale of the common stock on a best efforts basis. In a best efforts offering, Ryan, Beck & Co., LLC is not required to purchase any of the common stock that is being offered for sale. Subscriptions received prior to completion of the offering will be held in an escrow account at Wayne Savings Community Bank and will bear interest at Wayne Savings Community Bank's passbook rate. Our common stock will trade on the Nasdaq National Market under the symbol "WAYN". The offering will end at 10:00 a.m., Eastern time, on December ___, 2001, unless we extend it. FOR A DISCUSSION OF THE RISKS THAT YOU SHOULD CONSIDER BEFORE MAKING AN INVESTMENT DECISION, SEE "RISK FACTORS" BEGINNING ON PAGE ____. THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. RYAN BECK & CO. THE DATE OF THIS PROSPECTUS IS NOVEMBER ____, 2001 [INSERT MAP SHOWING WAYNE SAVINGS' MARKET AREA] 2
TABLE OF CONTENTS Page ---- QUESTIONS AND ANSWERS.............................................................................................4 --------------------- SUMMARY...........................................................................................................8 ------- RISK FACTORS.....................................................................................................15 ------------ SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA...................................................................18 ---------------------------------------------- OF WAYNE SAVINGS BANCSHARES, INC. AND SUBSIDIARIES...............................................................18 -------------------------------------------------- HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE......................................................................20 ------------------------------------------- USE OF PROCEEDS..................................................................................................21 --------------- DIVIDEND POLICY..................................................................................................22 --------------- MARKET FOR THE COMMON STOCK......................................................................................23 --------------------------- CAPITALIZATION...................................................................................................25 -------------- PRO FORMA DATA...................................................................................................26 -------------- WAYNE SAVINGS BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS..............................30 ----------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................31 ------------------------------------------------------------------------------------- BUSINESS OF WAYNE SAVINGS BANCSHARES, INC........................................................................44 ------------------------------------------ AND WAYNE SAVINGS COMMUNITY BANK.................................................................................44 -------------------------------- REGULATION.......................................................................................................64 ---------- TAXATION.........................................................................................................70 -------- MANAGEMENT OF WAYNE SAVINGS BANCSHARES, INC......................................................................71 -------------------------------------------- SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS................................................................78 ------------------------------------------------- THE CONVERSION...................................................................................................79 -------------- RESTRICTIONS ON ACQUISITION OF WAYNE SAVINGS BANCSHARES, INC....................................................103 ------------------------------------------------------------- DESCRIPTION OF CAPITAL STOCK OF WAYNE SAVINGS BANCSHARES, INC...................................................104 ------------------------------------------------------------- FOLLOWING THE CONVERSION........................................................................................104 ------------------------ TRANSFER AGENT..................................................................................................105 -------------- EXPERTS.........................................................................................................105 ------- LEGAL MATTERS...................................................................................................106 ------------- ADDITIONAL INFORMATION..........................................................................................106 ----------------------
3 QUESTIONS AND ANSWERS Q: HOW MANY SHARES OF COMMON STOCK ARE BEING OFFERED, AND AT WHAT PRICE PER SHARE? A: Wayne Savings Bancshares, Inc. is offering between 1,530,000 and 2,070,000 shares of common stock for a subscription price of $10.00 per share. We may increase the number of shares offered up to 2,380,500 shares under certain circumstances. The amount of common stock being offered is based upon an independent appraisal of the market value of Wayne Savings Bancshares, Inc., assuming completion of the mutual-to-stock conversion and offering. Q: WHO MAY PURCHASE COMMON STOCK IN THE SUBSCRIPTION OFFERING? A: Rights to subscribe for common stock have been granted under the plan of conversion and reorganization to the following persons in the following descending order of priority: (1) Wayne Savings Community Bank depositors with $50.00 or more on deposit as of June 30, 2000; (2) Wayne Savings Community Bank's tax-qualified employee stock benefit plans, including its employee stock ownership plan; (3) Wayne Savings Community Bank depositors with $50.00 or more on deposit as of September 30, 2001; and (4) Wayne Savings Community Bank depositors as of _______________ and borrowers as of June 23, 1993 who continue as borrowers as of _________________. Q: WHO MAY PURCHASE COMMON STOCK IN THE COMMUNITY OFFERING? A. Any shares that are not purchased in the subscription offering may be available for purchase by the public in a community offering. The community offering will be conducted at the same time as the subscription offering. In the community offering we will give a preference first to stockholders of Wayne Savings Bancshares, Inc. as of ______________, and second to residents of Wayne, Holmes, Ashland, Medina and Stark Counties, Ohio. Q: WILL ANY COMMISSION BE CHARGED FOR COMMON STOCK I PURCHASE IN THE STOCK OFFERING? A: No. Q: HOW DO I PURCHASE COMMON STOCK? A: First, you should read this document. Then, complete and return the enclosed stock order form, together with your payment. You may submit stock order forms in three ways: you may send the stock order form by regular mail, using the reply envelope provided; you may send the stock order form by overnight delivery to the address indicated on the back of the stock order form; or you may hand-deliver the stock order form to our stock information center, located at Wayne Savings Community Bank's main office at 151 North Market Street, Wooster, Ohio. STOCK ORDER FORMS MAY NOT BE DELIVERED TO THE BRANCH OFFICES OF WAYNE SAVINGS COMMUNITY BANK. Q: HOW CAN I PAY FOR THE COMMON STOCK? A: Full payment for shares must accompany your stock order form at the time it is submitted. You may pay for your shares by check or money order payable to Wayne Savings Bancshares, Inc., or by authorizing a withdrawal from the types of Wayne Savings Community Bank deposit accounts designated on the stock order form (we will waive any penalty for early withdrawal of certificate of deposit accounts). Authorized withdrawals will not be made until the completion of the stock offering, but the designated funds will not be available to you in the interim. If you wish to use IRA funds, see the discussion below. Funds authorized to be withdrawn from Wayne Savings Community Bank deposit account(s) MUST BE available in 4 your account at the time you submit your stock order form. Checks and money orders will be cashed upon receipt, so funds must be available in your account. Q: MAY I OBTAIN A LOAN OR LINE OF CREDIT FROM WAYNE SAVINGS COMMUNITY BANK OR VILLAGE SAVINGS BANK TO PAY FOR MY COMMON STOCK? A. No. Federal law prohibits Wayne Savings Community Bank or Village Savings Bank from loaning funds to purchase common stock in the stock offering. However, other financial institutions may make such a loan. Q: MAY I SUBSCRIBE FOR SHARES USING FUNDS IN MY INDIVIDUAL RETIREMENT ACCOUNT AT WAYNE SAVINGS COMMUNITY BANK OR ELSEWHERE? A: Yes. However, common stock must be held in a self-directed retirement account. By regulation, Wayne Savings Community Bank's IRAs are not self-directed, so they cannot be invested in stock. If you wish to use some or all of the funds in your Wayne Savings Community Bank IRA, the applicable funds must be transferred to a self-directed account maintained by an independent trustee, such as a brokerage firm. If you do not have such an account, you will need to establish one before placing your stock order. An annual administrative fee may be payable to the independent trustee. Because individual circumstances differ and processing takes time, we recommend that you contact the stock information center early in the offering period for assistance with purchases using your IRA, or other retirement account that you may have. Whether you may use such funds for the purchase of shares in the stock offering may depend on timing constraints and, possibly, the institution where the funds are currently held. Q: MAY I CHANGE MY MIND AFTER I PLACE AN ORDER TO SUBSCRIBE FOR COMMON STOCK? A: No. After your stock order form and payment are received, you may not cancel or modify your order. Q: WILL I RECEIVE INTEREST ON MY SUBSCRIPTION PAYMENT? A: Yes. Payments by check received with the stock order form will be cashed and placed in an interest-bearing escrow account at Wayne Savings Community Bank, and will earn interest at the passbook savings rate until the conclusion of the stock offering. At that time, a check for the accrued interest will be mailed to you. Subscribers who elect to pay by deposit account withdrawal will continue to accrue interest in the account at its contractual rate until the funds are withdrawn, at the conclusion of the offering. Q: HOW MANY SHARES MAY I BUY? A: The minimum order is 25 shares, or $250. There are maximum purchase limitations, and there is a stock ownership limitation which applies to current Wayne Savings Bancshares, Inc. stockholders. These limitations are described on the stock order form and in the section of this document entitled "The Conversion." Q: WHAT IS THE DEADLINE FOR PLACING AN ORDER? A: Orders in the subscription offering and community offering must be RECEIVED (not postmarked) by no later than 10:00 a.m. Eastern time, on December ___, 2001. -------- Q: HOW CAN I BUY OR SELL WAYNE SAVINGS BANCSHARES, INC. COMMON STOCK IN THE FUTURE? A: Existing publicly held shares of Wayne Savings Bancshares, Inc. common stock trade on the Nasdaq Small Cap Market under the symbol "WAYN." Upon completion of the conversion and offering, the new shares of common stock of Wayne Savings Bancshares, Inc. will replace existing shares and be traded on the Nasdaq National Market. For a period of 20 trading days following completion of our offering, our symbol will be "WAYND." Thereafter the symbol will be "WAYN." You will be able to buy or sell shares through a stockbroker or discount broker. AS SOON AS POSSIBLE AFTER THE OFFERING, INVESTORS WILL BE MAILED STOCK CERTIFICATES. ALTHOUGH THE COMMON STOCK WILL HAVE BEGUN TRADING, BROKERAGE FIRMS MAY 5 REQUIRE THAT YOU HAVE RECEIVED YOUR STOCK CERTIFICATE PRIOR TO SELLING SHARES THAT YOU PURCHASED IN THE STOCK OFFERING. Q: WILL DIVIDENDS BE PAID ON THE COMMON STOCK? A: Wayne Savings Bancshares, Inc. intends to pay quarterly dividends following the stock offering, reflecting an annual amount of between $0.600 and $0.384 per share, depending on how many shares are sold in the offering. The amount of dividends that we intend to pay will preserve the per share dividend amount, adjusted to reflect the exchange ratio, that Wayne Savings Bancshares, Inc. stockholders currently receive. At the midpoint of the offering range, the annual dividend is expected to be $0.512 per share. There can be no assurance that dividends will be paid or that they will not be subsequently reduced or eliminated. Q: AS AN ELIGIBLE DEPOSITOR OR BORROWER OF WAYNE SAVINGS COMMUNITY BANK PLACING AN ORDER IN THE SUBSCRIPTION OFFERING, MAY I REGISTER THE SHARES IN SOMEONE ELSE'S NAME? A: No. To preserve your purchase priority in the subscription offering, you must register the shares only in the name or names of eligible purchasers at the applicable date of eligibility. You may not add the names of others who were not eligible to purchase common stock in the subscription offering on the applicable date of eligibility. Q: I AM ELIGIBLE TO PURCHASE SHARES IN THE SUBSCRIPTION OFFERING, BUT I DO NOT WANT TO BECOME A STOCKHOLDER. MAY I ALLOW SOMEONE ELSE TO USE MY STOCK ORDER FORM TO TAKE ADVANTAGE OF MY PRIORITY? A: No. Transferring your subscription rights to someone who does not have subscription rights is illegal under federal law. Wayne Savings Bancshares, Inc. intends to take legal action against anyone who attempts to transfer subscription rights. If anyone offers to give you money to buy common stock in your name in exchange for later transferring the common stock, or requests to share in cash proceeds upon your future sale of Wayne Savings Bancshares, Inc. stock, please inform our stock information center at the number below. Q: WILL THE CONVERSION AND STOCK OFFERING HAVE ANY EFFECT ON MY WAYNE SAVINGS COMMUNITY BANK DEPOSIT OR LOAN ACCOUNTS? A: No. The amount, interest rate and other terms of deposit accounts will not change. Deposit accounts will continue to be insured by the FDIC. Likewise, the loan accounts and rights of borrowers will not be affected. Q: WILL THE COMMON STOCK BE INSURED BY THE FDIC? A: No. Unlike deposit accounts at Wayne Savings Community Bank, common stock cannot be insured or guaranteed by the FDIC or any other government agency. The trading price of common stock may fluctuate, so an investment in the common stock is subject to investment risk, including loss of principal invested. There can be no assurance that you will be able to sell your Wayne Savings Bancshares, Inc. shares at or above the $10.00 per share purchase price in the offering. Q: BY PLACING AN ORDER, AM I GUARANTEED TO RECEIVE ALL THE SHARES I REQUESTED? A: No. If there is an oversubscription, shares will be allocated as described in the prospectus section entitled "The Conversion." If we do not fill an order (either wholly or in part), funds submitted but not used will be refunded, with interest, and deposit account withdrawal authorizations will be canceled to the extent not used. 6 Q: CAN MY WAYNE SAVINGS COMMUNITY BANK LOCAL BRANCH ASSIST ME WITH PURCHASING SHARES OR COMPLETING THE STOCK ORDER FORM? A: No. Our branch personnel may not, by law, assist with investment-related questions about the stock offering. We have established a stock information center staffed by registered representatives who can assist you. You may call the stock information center at the number below. ADDITIONAL QUESTIONS? Please call our Stock Information Center (800) __________ from 9:00 a.m. to 4:00p.m., Eastern time, Monday through Friday. The Stock Information Center is located at Wayne Savings Community Bank's main office at 151 North Market Street, Wooster, Ohio TO ENSURE THAT EACH PERSON RECEIVES A PROSPECTUS AT LEAST 48 HOURS PRIOR TO THE EXPIRATION DATE OF DECEMBER __, 2001 IN ACCORDANCE WITH FEDERAL LAW, NO PROSPECTUS WILL BE MAILED ANY LATER THAN FIVE DAYS PRIOR TO DECEMBER __, 2001 OR HAND-DELIVERED ANY LATER THAN TWO DAYS PRIOR TO DECEMBER __, 2001. 7 SUMMARY THE FOLLOWING SUMMARY EXPLAINS THE SIGNIFICANT ASPECTS OF THE CONVERSION, THE OFFERING AND THE EXCHANGE OF EXISTING SHARES OF WAYNE SAVINGS BANCSHARES, INC. COMMON STOCK FOR NEW SHARES OF WAYNE SAVINGS BANCSHARES, INC. COMMON STOCK. IT MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. FOR ADDITIONAL INFORMATION, YOU SHOULD READ THIS ENTIRE DOCUMENT CAREFULLY, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. THE COMPANIES WAYNE SAVINGS BANCSHARES, INC. 151 NORTH MARKET STREET, WOOSTER, OHIO 44691 (330) 264-5767 Wayne Savings Bancshares, Inc. is currently the stock holding company that owns all of the outstanding common stock of Wayne Savings Community Bank. As of June 30, 2001, Wayne Savings Bancshares, Inc. had 2,571,093 issued and outstanding shares of common stock. Wayne Savings Bankshares, MHC owns 1,350,699 shares of Wayne Savings Bancshares, Inc.'s outstanding common stock. The remaining 1,220,394 shares are held by the public. At June 30, 2001, Wayne Savings Bancshares, Inc. had consolidated assets of $317.7 million, deposits of $284.4 million and consolidated stockholders' equity of $25.3 million. Following the conversion this corporation will cease to exist, but will be succeeded by a new Delaware corporation with the same name. The new corporation's certificate of incorporation and bylaws will be identical to the current certificate of incorporation and bylaws of Wayne Savings Bancshares, Inc., except that the new certificate of incorporation provides for a greater number of authorized shares of common and preferred stock and eliminates references to Wayne Savings Bankshares, MHC. WAYNE SAVINGS BANKSHARES, MHC 151 NORTH MARKET STREET, WOOSTER, OHIO 44691 (330) 264-5767 Wayne Savings Bankshares, MHC is currently the mutual holding company parent of Wayne Savings Bancshares, Inc. As of June 30, 2001, Wayne Savings Bankshares, MHC's principal business activity was the ownership of 1,350,699 shares, or 52.5% of the outstanding common stock of Wayne Savings Bancshares, Inc. common stock. Wayne Savings Bankshares, MHC will cease to exist at the conclusion of the conversion and offering. WAYNE SAVINGS COMMUNITY BANK 151 NORTH MARKET STREET, WOOSTER, OHIO 44691 (330) 264-5767 Wayne Savings Community Bank is an Ohio-chartered savings and loan association headquartered in Wooster, Ohio. Wayne Savings Community Bank is a community-oriented financial institution that offers a broad range of financial services. As of the date of this prospectus, Wayne Savings Community Bank operated through its main office in Wooster, Ohio, nine branch offices located in Wayne, Holmes, Ashland, and Medina Counties, Ohio, and its Village Savings Bank subsidiary in Stark County, Ohio. This contiguous five-county area is located in north central Ohio, and is an active manufacturing and agricultural market. A full description of our products and services begins on page __ of this prospectus. Village Savings Bank is a federally-chartered stock savings bank that operates out of a single office in North Canton, Ohio that was chartered as a wholly-owned subsidiary of Wayne Savings Community Bank in July 1998. Village Savings Bank also is a community-oriented financial institution that offers a broad range of financial services to its primary lending and deposit gathering area, which includes North Canton, Jackson Township and Plain Township, in Stark County, Ohio. OUR ORGANIZATIONAL STRUCTURE Wayne Community Bank's predecessor was formed as a mutual institution in 1899. As a mutual institution, we were not authorized to issue shares of capital stock, and we had no stockholders. In 1993, we reorganized into the mutual holding company form of organization, and sold a minority of our shares to our 8 customers in a stock offering. The majority of our outstanding shares were held by Wayne Savings Bankshares, MHC. Wayne Savings Bankshares, MHC is a mutual holding company that has no stockholders. In 1998 we formed Wayne Savings Bancshares, Inc. as a mid-tier stock holding company. Wayne Savings Bancshares, Inc. owns 100% of the outstanding shares of Wayne Savings Community Bank. A majority of the outstanding shares of Wayne Savings Bancshares, Inc. is held by Wayne Savings Bankshares, MHC, and a minority is held by other stockholders. Pursuant to the terms of our plan of conversation and reorganization, our organization will convert from the mutual holding company form to the fully-public form of corporate structure. To facilitate the conversion, we are offering for sale, in a subscription offering and a community offering, the majority ownership interest of Wayne Savings Bankshares, Inc. that is currently held by Wayne Savings Bankshares, MHC. Upon the completion of the conversion and stock offering, Wayne Savings Bankshares, MHC will cease to exist, and we will complete the transition from partial to full public ownership. Existing public stockholders of Wayne Savings Bancshares, Inc. at the conclusion of the conversion will receive new shares of common stock in exchange for their existing shares of Wayne Savings Bancshares, Inc. Additional shares of stock will be issued to purchasers in the stock offering. The following chart shows our current ownership structure, which is commonly referred to as the "two-tier" mutual holding company structure:
--------------------------------------------- WAYNE SAVINGS BANKSHARES, MHC --------------------------------------------- 52.5% OF COMMON STOCK --------------------------------------------- ---------------------------- WAYNE SAVINGS BANCSHARES, INC. 47.5% OF PUBLIC STOCKHOLDERS ------------------------------------------------------------------ COMMON STOCK --------------------------------------------- 100% OF COMMON STOCK --------------------------------------------- WAYNE SAVINGS COMMUNITY BANK ---------------------------------------------
Following our conversion and offering, our ownership structure will be as follows: ----------------------------------------------- PUBLIC STOCKHOLDERS ----------------------------------------------- 100% OF COMMON STOCK ----------------------------------------------- WAYNE SAVINGS BANCSHARES, INC. ----------------------------------------------- 100% OF COMMON STOCK ----------------------------------------------- WAYNE SAVINGS COMMUNITY BANK ----------------------------------------------- 9 BUSINESS STRATEGIES We have several business strategies that are designed to improve our profitability and enhance our franchise in our market area. These strategies include: o Closely monitoring the needs of customers and providing personal community banking and customer service; o Emphasizing the origination of one- to four-family residential mortgage loans in our market area; o Maintaining high asset quality; o Managing interest rate risk; o Increasing fee income; o Controlling expenses; o Maintaining a strong retail deposit base; and o Maintaining capital in excess of regulatory requirements. These strategies are discussed in detail beginning on page __ of this prospectus. THE CONVERSION THE CONVERSION Pursuant to our plan of conversion, our organization will convert from the partially public to the fully public form of corporate structure. 10 THE OFFERING In connection with the conversion, we are selling in this offering common stock representing the 52.5% ownership interest in Wayne Savings Bancshares, Inc. now owned by Wayne Savings Bankshares, MHC. Under the plan of conversion, eligible current and former customers of Wayne Savings Community Bank and Wayne Savings Bancshares, Inc.'s employee stock ownership plan have priority rights to subscribe for shares in Wayne Savings Bancshares, Inc. The priorities in this subscription offering are as follows: (1) First, depositors with $50 or more on deposit as of June 30, 2000. (2) Second, Wayne Savings Bancshares, Inc.'s tax-qualified employee stock benefit plans, including the employee stock ownership plan. The employee stock ownership plan expects to purchase from 122,400 to 165,600 shares of common stock. (3) Third, depositors with $50 or more on deposit as of September 30, 2001. (4) Fourth, depositors of Wayne Savings Community Bank as of _____________ and borrowers as of June 23, 1993 who continue as borrowers as of We are selling between 1,530,000 and 2,070,000 shares of common stock, all at a price of $10.00 per share. The number of shares to be sold may be increased up to 2,380,500. The amount of shares offered is based on an independent appraisal of Wayne Savings Bankshares, MHC and Wayne Savings Bancshares, Inc. performed by RP Financial, LC, an independent appraisal firm. RP Financial, LC will receive a fee of $45,000 for preparing the initial appraisal. The factors considered in the appraisal are discussed under "The Conversion--Stock Pricing and Number of Shares to Be Issued." The subscription offering expires at 10:00 a.m., Eastern time, on December ___, 2001, unless extended by Wayne Savings Bancshares, Inc. You cannot transfer your subscription rights. If you attempt to transfer your rights, you may lose the right to purchase shares and may be subject to criminal prosecution and/or other sanctions. We may also offer shares of common stock to the general public in a community offering. In this part of the offering, stockholders of Wayne Savings Bancshares, Inc., as of ____________, will have first preference. People who reside in the Ohio Counties of Wayne, Holmes, Ashland, Medina and Stark will have second preference. The community offering will end on December ___, 2001, unless extended with the approval of the Office of Thrift Supervision, if necessary. You will not pay a commission to buy any shares in the offering. Ryan, Beck & Co., LLC is managing the offering on a best efforts basis. Ryan, Beck will not purchase any shares of common stock in our offering. Ryan, Beck & Co., LLC is a registered broker dealer and member of the National Association of Securities Dealers, Inc. Shares not sold in the subscription offering and community offering may be offered for sale in a syndicated community offering, which would be an offering to the general public on a best efforts basis by a selling group of broker-dealers managed by Ryan, Beck & Co., LLC. We have described the offering in greater detail beginning on page __ of this prospectus. THE EXCHANGE OF WAYNE SAVINGS BANCSHARES, INC. COMMON STOCK If you are now a stockholder of Wayne Savings Bancshares, Inc., your existing shares will be cancelled and exchanged for new shares in Wayne Savings Bancshares, Inc. The number of shares you will get will be based on an exchange ratio determined as of the closing of the conversion. The actual number of shares you receive will depend upon the number of shares we sell in our offering, which in turn will depend upon the final appraised value of Wayne Savings Bancshares, Inc. and Wayne Savings Bankshares, MHC. The following table shows how the exchange ratio will adjust, based on the number of shares sold in our offering. The table also shows how many 11 shares a hypothetical owner of Wayne Savings Bancshares, Inc. common stock would receive in the exchange, based on the number of shares sold in the offering.
NEW SHARES NEW SHARES TO BE EXCHANGED NEW SHARES TO BE SOLD FOR EXISTING SHARES OF WAYNE TOTAL SHARES TO BE IN THIS OFFERING SAVINGS BANCSHARES, INC. OF COMMON STOCK RECEIVED FOR ----------------------- ---------------------------- TO BE EXCHANGE 100 EXISTING AMOUNT PERCENT AMOUNT PERCENT OUTSTANDING RATIO SHARES ----------- --------- ------------- ------------- --------------- -------- ------------ Minimum............... 1,530,000 52.53 % 1,382,397 47.47 % 2,912,397 1.1327 113 Midpoint.............. 1,800,000 52.53 1,626,350 47.47 3,426,350 1.3326 133 Maximum............... 2,070,000 52.53 1,870,302 47.47 3,940,302 1.5325 153 15% above Maximum..... 2,380,500 52.53 2,150,847 47.47 4,531,347 1.7624 176
Shares of Wayne Savings Bancshares, Inc. held in "street name," will be exchanged without action being taken by the stockholder. Stockholders who hold stock certificates will receive, after the conversion and offering are completed, a transmittal form with instructions to surrender stock certificates. New certificates of Wayne Savings Bancshares, Inc. common stock will be mailed within five business days after the exchange agent receives properly executed transmittal forms and certificates. No fractional shares of Wayne Savings Bancshares, Inc. common stock will be issued to any public stockholder of Wayne Savings Bancshares, Inc. upon consummation of the conversion. For each fractional share that would otherwise be issued, Wayne Savings Bancshares, Inc. will pay an amount equal to the product obtained by multiplying the fractional share interest to which the holder would otherwise be entitled by the $10.00 per share subscription price. See "The Conversion-Share Exchange Ratio and the Effect of the Conversion on Public Stockholders." Under federal regulations, current public stockholders of Wayne Savings Bancshares, Inc. do not have dissenters' rights or appraisal rights. REASONS FOR THE CONVERSION We are pursuing the conversion for the following reasons: o The offering will increase our capital which will enable us to continue to be a well-capitalized institution. o The additional funds resulting from the offering will support increased lending, continued growth and diversification of new financial products and services. CONDITIONS TO COMPLETION OF THE CONVERSION We cannot complete our conversion and related offering unless: o The plan of conversion is approved by at least A MAJORITY OF VOTES ELIGIBLE to be cast by members of Wayne Savings Bankshares, MHC; o The plan of conversion is approved by at least TWO-THIRDS OF THE OUTSTANDING SHARES of Wayne Savings Bancshares, Inc. common stock; o The plan of conversion is approved by at least A MAJORITY OF THE VOTES CAST by stockholders of Wayne Savings Bancshares, Inc. common stock, not including those shares held by Wayne Savings Bankshares, MHC; o We sell at least the minimum number of shares offered; and 12 o We receive the final approval of the Office of Thrift Supervision to complete the conversion and offering. Wayne Savings Bankshares, MHC intends to vote its 52.5% ownership interest in favor of the conversion. In addition, as of June 30, 2001, directors and executive officers of Wayne Savings Bancshares, Inc. and their associates beneficially owned 233,544 shares of Wayne Savings Bancshares, Inc., or 9.1% of the outstanding shares. They intend to vote those shares in favor of the plan of conversion. $10.00 PER SHARE STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION AND OFFERING We are offering each share of stock at a price of $10.00 per share. The amount of common stock we are offering is based on an independent appraisal of the estimated market value of Wayne Savings Bancshares, Inc., assuming the conversion and offering are completed. RP Financial, LC, the independent appraiser, has estimated that, as of September 7, 2001, this market value was between $29.1 million and $39.4 million, with a midpoint of $34.3 million. The appraisal was based in part on Wayne Savings Bancshares, Inc.'s financial condition and results of operations, and the effect of the additional capital raised by the sale of common stock in this offering. Based on this valuation and the approximate 52.5% ownership interest of Wayne Savings Bankshares, MHC being sold in this offering, the Boards of Directors of Wayne Savings Bankshares, MHC and Wayne Savings Bancshares, Inc. established an offering range of between 1,530,000 and 2,070,000 shares. The independent appraisal will be updated prior to the completion of the conversion. If the market value changes to either below $29.1 million or above $45.3 million, subscribers will be notified and provided with the opportunity to modify or cancel their orders. See "The Conversion--Stock Pricing and Number of Shares to be Issued" for additional details. PURCHASE LIMITATIONS The minimum number of shares that may be purchased is 25. IF YOU ARE NOT NOW A WAYNE SAVINGS BANCSHARES, INC. STOCKHOLDER - You, together with associates or persons acting in concert with you, may not purchase more than 25,000 shares. IF YOU ARE NOW A WAYNE SAVINGS BANCSHARES, INC. STOCKHOLDER - In addition to the above limitations, shares that you purchase in the offering individually and together with associates or persons acting in concert with you, plus shares you and they receive in the exchange for existing Wayne Savings Bancshares, Inc. common stock, may not exceed 5% of the shares of common stock outstanding immediately following the offering. For further discussion of the purchase limits and definitions of "associate" and "acting in concert," see "The Conversion--Limitations on Common Stock Purchases" on page __. HOW INVESTORS CAN PURCHASE COMMON STOCK You can subscribe for shares of common stock in the offering by delivering a signed and completed original stock order form, together with full payment, provided that we receive the stock order form before the end of the offering. Following the instructions on the stock order form, you may use the mail or overnight courier or hand deliver your subscription to the stock information center. Payment for shares may be made by check, money order or bank draft which will be immediately cashed, so the funds must be available in your account. We will pay interest at Wayne Savings Community Bank's passbook rate, from the date funds are received until completion or termination of the conversion. Alternatively, subscribers may authorize withdrawal from the types of deposit accounts with Wayne Savings Community Bank designated on the order form. Withdrawals from certificates of deposit may be made without incurring an early withdrawal penalty. All funds authorized for withdrawal from deposit accounts with Wayne Savings Community Bank must be in the accounts at the time the stock order is received, but will not be withdrawn from the accounts until the completion of the offering and will earn interest at 13 the applicable deposit account rate until the completion of the offering. However, a hold will be placed on those funds when your stock order is received, making the designated funds unavailable to you. After we receive an order, the order cannot be withdrawn or changed, except with our consent. Except for those with priority rights to purchase shares, we have the discretion to accept or reject orders received in the offering. If an order is rejected in part, there is no right to cancel the remainder of the order. For further information on how to purchase stock, see "The Conversion--Procedure for Purchasing Shares" on page __. USE OF PROCEEDS We will use the proceeds of this offering as follows: o We estimate net proceeds will be between $14.4 million and $19.7 million. Approximately $7.2 million to $9.8 million of the net proceeds will be invested in Wayne Savings Community Bank. Funds invested in Wayne Savings Community Bank will be used to support continued growth and to offer new products and banking services. The remainder of the net proceeds will be used to support asset growth. Initially, the net proceeds received by Wayne Savings Community Bank will be invested in federal funds, cash and cash equivalents, and short-term investment grade marketable securities. o Wayne Savings Bancshares, Inc. intends to retain approximately 50% of the net proceeds (between $7.2 million and $9.8 million). A portion (between $1.2 million and $1.7 million) will be used to provide a loan to the employee stock ownership plan to fund the purchase of common stock in the offering. The balance of the net proceeds (between $6.0 million and approximately $8.2 million) retained by Wayne Savings Bancshares, Inc. will be used for general corporate purposes. These purposes may include paying dividends, repurchasing shares of common stock, or funding a stock recognition and retention plan. The net proceeds may be used for future diversification or acquisition activities, although we do not have plans to do so now. For further discussion, see "Use of Proceeds." PURCHASES BY OFFICERS AND DIRECTORS We expect our directors and executive officers, together with their families, to subscribe for ________ shares, which equals approximately ________% of the shares sold at the midpoint of the offering range. The purchase price paid by them will be the same $10.00 per share price paid by all other persons who purchase shares in the offering. See "Subscriptions by Executive Officers and Directors." BENEFITS OF THE CONVERSION TO MANAGEMENT Wayne Savings Community Bank's employee stock ownership plan expects to purchase up to 8.0% of the shares we sell in this offering, or 165,600 shares, assuming we sell the maximum number of shares proposed to be sold. If we sell more than 2,070,000 shares in the offering, the employee stock ownership plan will have first priority to purchase shares over this maximum, up to a total of 8.0% of the shares sold. This plan is a tax-qualified retirement plan for all eligible employees. Assuming the employee stock ownership plan purchases 165,600 shares in the offering, Wayne Savings Bancshares, Inc. will recognize additional compensation expense of $1.7 million over a period of 20 years, or approximately $82,800 per year, from the consummation of the conversion, assuming the shares have a fair market value of $10.00 per share for the full 20-year period. If, in the future, the shares have a fair market value greater or less than $10.00, the compensation expenses will increase or decrease accordingly. We also intend to implement two additional stock-based incentive plans. Neither plan will be implemented earlier than six months after the conversion, and stockholder approval will be required. The stock recognition and retention plan is a restricted stock plan that would reserve an amount equal to 4% of the shares sold in the offering (assuming Wayne Savings Community Bank has a tangible capital to assets ratio in excess of 10%), or 82,800 shares at the maximum of the offering range, for awards to key employees and directors, at no cost to the recipients. More than 4% of the shares offered in the offering may be reserved under the stock recognition and retention plan if 14 the plan is implemented more than one year after the conversion. If the shares awarded under the stock recognition plan come from authorized but unissued shares, stockholders would experience dilution of approximately 2.1% in their ownership interest in Wayne Savings Bancshares, Inc. The second plan would be a stock option plan, and would reserve an amount equal to 10% of the shares sold in this offering, or up to 207,000 shares at the maximum of the offering range, for key employees and directors upon their exercise. If the shares issued upon the exercise of options come from authorized but unissued shares, stockholders would experience dilution of approximately 5.3% in their ownership interest in Wayne Savings Bancshares, Inc. Awards made under these plans would be subject to vesting over a period of years. We will also convert options previously awarded under the Wayne Savings Community Bank stock option plan into options to purchase our common stock, with the number and exercise price to be adjusted, based on the exchange ratio. The term and vesting period of the previously awarded options will remain unchanged. The following table summarizes the number of shares and aggregate dollar value of grants that are expected under the new stock recognition and retention plan, the new stock option plan and the employee stock ownership plan as a result of the conversion. A portion of the stock grants shown in the table below would be made to non-management employees. The value of shares shown in the table assumes a value of $10.00 per share, the price at which shares in the offering will be sold. No value is given for options because their exercise price will be equal to the fair market value of the common stock on the day the options are granted. As a result, value can be received under an option only if the market price of common stock increases after the option grant.
NUMBER OF SHARES TO BE GRANTED VALUE OF GRANTS(1) PERCENTAGE OF ----------------------------- -------------------------------- PERCENTAGE COMMON STOCK AT MINIMUM AT MAXIMUM OF COMMON TO BE OF OF AT MINIMUM AT MAXIMUM STOCK TO OUTSTANDING OFFERING OFFERING OF OF BE SOLD IN THE AFTER THE RANGE RANGE OFFERING RANGE OFFERING RANGE OFFERING OFFERING -------------- -------------- ---------------- --------------- ------------- -------------- Employee stock ownership plan...... 122,400 165,600 $ 1,224,000 $ 1,656,000 8.0% 4.2% Restricted stock plan.............. 61,200 82,800 612,000 828,000 4.0 2.1 Stock option plan.................. 153,000 207,000 -- -- 10.0 5.3 Total.............................. 336,600 455,400 $ 1,836,000 $ 2,484,000 22.0% 11.6% ============== ============== ================ =============== ============= ============== --------------------
(1) Options are assumed to have no value because the strike price of the options is equal to the fair market value of the common stock on the date of the award. MARKET FOR COMMON STOCK Existing publicly held shares of our common stock trade on the Nasdaq SmallCap Market under the symbol "WAYN." Upon completion of the conversion and offering, the new shares of common stock of Wayne Savings Bancshares, Inc. will replace existing shares and be traded on the Nasdaq National Market. For a period of 20 trading days following completion of our offering our symbol will be "WAYND." Thereafter it will be "WAYN." Although it is expected that Wayne Savings Bancshares, Inc. common stock will be more easily tradable after the offering because there will be significantly more outstanding shares, there can be no assurance of this. Ryan, Beck & Co., LLC has advised us that it intends to remain a market maker in the common stock and will assist us in obtaining additional market makers. DIVIDEND POLICY Wayne Savings Bancshares, Inc. currently pays a cash dividend of $0.17 per share per quarter, or $0.68 per share per year. After the conversion, we intend to pay a dividend of $0.150, $0.128, $0.111 and $.096 per share per quarter at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, which represents a dividend rate of 6.0%, 5.1%, 4.4% and 3.8%, at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, based upon a price of $10.00 per share. The amount of dividends that we intend to pay after the conversion will preserve the per share dividend amount, adjusted to reflect the exchange ratio that Wayne Savings Bancshares, Inc. stockholders currently receive. The dividend rate and the continued payment of dividends will depend on a number of factors, including our capital requirements, our financial condition 15 and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. No assurance can be given that we will continue to pay dividends or that they will not be reduced in the future. TAX CONSEQUENCES The conversion will not be a taxable transaction to Wayne Savings Bankshares, MHC, Wayne Savings Bancshares, Inc., Wayne Savings Community Bank, or persons eligible to subscribe in the offering, with respect to federal or state income tax. A more detailed description of the federal tax opinion is set forth at page ___. The federal and state tax opinions are filed as exhibits to the registration statement. RISK FACTORS YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS BEFORE DECIDING WHETHER TO INVEST IN OUR COMMON STOCK. THE GROWTH OF OUR BRANCH NETWORK HAS INCREASED OUR EXPENSES AND MAY CONTINUE TO REDUCE OUR PROFITABILITY IN THE NEAR TERM. At March 31, 1998, Wayne Savings Community Bank had six branches. In July 1998, Village Savings Bank commenced operations, through one office. In each of May and July 1999 and May 2001, Wayne Savings Community Bank opened a new branch. As a result of this growth, our general and administrative expenses have increased. New branches incur start-up costs before they open and, thereafter, it takes time for a new branch to gather sufficient loans and deposits to generate enough income to offset its ongoing expenses, some of which, like compensation and occupancy costs, are relatively fixed. At March 31, 1998, we employed 101 fulltime-equivalent employees. We had 114 fulltime-equivalent employees at September 30, 2000, and, after we initiated a cost containment program in that month, our fulltime-equivalent employees decreased to 110 at June 30, 2001. As a result of the expenses associated with our new offices, our efficiency ratio has been high. It was 71.9% for the 1999 fiscal year, 78.6% for the 2000 fiscal year, 75.5% for the 2001 fiscal year and was 76.5% for the three months ended June 30, 2001. Although Village Savings Bank became profitable for fiscal year 2001, there can be no assurance whether or when our recently opened branches will be accretive to earnings. Numerous factors contribute to the performance of a new branch, such as suitable location, qualified personnel and an efficient marketing strategy. CHANGING INTEREST RATES MAY CAUSE EARNINGS TO DECLINE. To be profitable, we have to earn more interest income and other income than we pay as interest on deposits and for other expenses such as facilities and personnel. Our loan portfolio primarily consists of loans that generally either mature or reprice over a longer period of time than our deposits. At June 30, 2001, our deposit accounts consisted of certificate of deposit accounts with remaining terms to maturity of less than one year, as well as demand deposits such as NOW accounts. If interest rates fall, many borrowers may refinance their loans at lower rates, mortgage-backed securities may prepay, and interest rates on interest earning assets could fall, perhaps faster than interest rates on our deposits. This could cause our earnings to decrease. If interest rates rise, the amount of interest we pay on deposits is likely to increase faster than the amount of interest we receive on our loans, mortgage-backed securities and investment securities. This could also cause our earnings to decrease. Additionally, higher rates could make it more difficult for borrowers to repay loans and could reduce loan demand. For additional information on our exposure to interest rates, see "Management's Discussion and Analysis of Financial Condition and Results of Operations." STRONG COMPETITION WITHIN OUR MARKET AREA MAKES IT DIFFICULT TO ACHIEVE A DESIRED LEVEL OF PROFITABILITY. Competition in the banking and financial services industry in Ohio is intense. We have competed for customers by offering excellent service and competitive rates on our loans and deposit products. In our market, we compete with commercial banks, savings institutions, mortgage banking firms, credit unions, finance companies, mutual funds, insurance companies, securities brokerage firms and investment banking firms. Many of these competitors, such as regional banks, have greater resources than we, and offer services that we do not provide. Moreover, many of our local competitors offer services through the Internet, which we do not, and many larger institutions that do not have a physical presence in our market area compete with us through the use of the Internet. Our profitability depends upon our continued ability to successfully compete in our market area. 16 In addition, the Gramm-Leach-Bliley Financial Services Modernization Act of 1999 further deregulated the financial services industry by permitting affiliations among commercial banks, insurance companies, securities firms and other financial service providers. This legislation is likely to result in further consolidation of the financial services industry. This could result in a growing number of larger financial institutions that offer a wider variety of financial services than we currently offer and that can aggressively compete in the markets we currently serve. This could adversely impact our profitability. FUTURE ECONOMIC GROWTH IN OUR AREA MAY BE MODERATE IN RESPONSE TO ANY SLOWDOWN IN THE NATIONAL ECONOMY. Our loans and deposits are concentrated in our market area. Management believes that growth in our market area may be moderate in the future. In the event that the growth of our local economy significantly slows due to the general slow-down in the national economy, our profitability will be adversely affected. There can be no assurances that in the months ahead there may not be business closings among the manufacturing and service companies in our market area. An economic downturn may reduce loan demand and the amount of customer funds on deposit, and may result in increased nonperforming loans. OUR LOW RETURN ON EQUITY AFTER THE STOCK OFFERING MAY CAUSE OUR COMMON STOCK PRICE TO DECLINE. Our return on equity, or the amount we earn in relation to the amount of equity we have, has been lower than that of many thrift institutions. Our return on average equity for the fiscal years ended March 31, 2001, 2000 and 1999 was 5.79%, 4.98%, and 6.90%, respectively. We cannot deploy the increased capital from this offering immediately, which will cause our return on equity to decrease further and our ability to profitably leverage our new capital will be significantly affected by competition for loans and deposits. Initially, we intend to invest the net proceeds in short-term investments, which have lower yields than mortgage and other loans. Until we can leverage our increased capital by growing interest-earning assets and interest-bearing liabilities, and until our investment in new staff, branches and products is fully leveraged, we expect our return on equity to continue to be below the industry average, which may negatively impact the value of our common stock. YOU MAY NOT BE ABLE TO SELL YOUR SHARES WHEN YOU DESIRE, OR FOR $10.00 OR MORE PER SHARE AND THE TRADING PRICE MAY BE VOLATILE. Our common stock will trade on the Nasdaq National Market. We cannot predict whether a liquid trading market in shares of our common stock will develop or how liquid that market will remain. Persons purchasing shares may not be able to sell their shares when they desire if a liquid trading market does not develop or may not be able to sell them at a price equal to or above the initial offering price of $10.00 per share, even if a liquid trading market develops. The appraisal is based on projections, and it is not intended as a recommendation to purchase shares of stock. In several cases, common stock issued by recently converted financial institutions has traded at a price that is below the price at which such shares were sold in the initial public offerings of those companies. The purchase price of our common stock in the offering is based on the independent appraisal by RP Financial, LC. After our shares begin trading, the trading price of our common stock will be determined by the marketplace, and may be influenced by many factors, including prevailing interest rates, investor perceptions and general industry and economic conditions. An investor should understand that the value of any investment in common stock is subject to fluctuation, including loss, due to volatility in stock markets generally or for other reasons. Moreover, price volatility may be unrelated to the operating performance of the issuer. IF WE HAVE HIGHER LOAN LOSSES THAN FOR WHICH WE HAVE ALLOWED, OUR EARNINGS COULD DECREASE. Our loan customers may not repay their loans according to the terms of these loans, and the collateral securing the payment of these loans may be insufficient to assure repayment. We may experience significant credit losses that could have a material effect on our operating results. We make various assumptions and judgments about the collectibility of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the size of the allowance for loan losses, we rely on our experience and our evaluation of economic conditions. If our assumptions prove to be incorrect, our current allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio and adjustments may be necessary to allow for different economic conditions or adverse developments in our loan portfolio. Consequently, a problem with one or more loans could require that we significantly increase the level of our provision for loan losses. In addition, federal and state regulators periodically review our allowance for 17 loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs. Material additions to our allowance would materially decrease our net income. EXPECTED VOTING CONTROL BY MANAGEMENT AND EMPLOYEES MAY PREVENT STOCKHOLDERS FROM TAKING ACTIONS OPPOSED BY MANAGEMENT. The shares of common stock that Wayne Savings Bancshares, Inc. directors and executive officers intend to purchase in the offering, when combined with the shares already owned and that may be awarded to participants under Wayne Savings Bancshares, Inc.'s benefit plans, could result in management and employees controlling a significant percentage of Wayne Savings Bancshares, Inc.'s common stock. If these individuals were to act together, they could have significant influence over the outcome of any stockholder vote. In addition, the total voting power of management and employees is likely to exceed 20% of Wayne Savings Bancshares, Inc.'s outstanding stock. That level would enable management and employees as a group to defeat any stockholder matter that requires an 80% vote. VARIOUS FACTORS COULD MAKE TAKEOVER ATTEMPTS MORE DIFFICULT TO ACHIEVE. The Board of Directors has no current intention to sell control of Wayne Savings Bancshares, Inc. Provisions of Wayne Savings Bancshares, Inc.'s certificate of incorporation and bylaws, federal and state regulations and various other factors may make it more difficult for companies or persons to acquire control of Wayne Savings Bancshares, Inc. without the consent of Wayne Savings Bancshares, Inc.'s Board of Directors. It is possible, however, that you might like to see a takeover attempt succeed because, for example, the potential acquiror could be offering a premium over the then prevailing price of Wayne Savings Bancshares, Inc.'s common stock. The factors that may discourage takeover attempts or make them more difficult include: o ANTI-TAKEOVER PROVISIONS AND STATUTORY PROVISIONS. Provisions in Wayne Savings Bancshares, Inc.'s certificate of incorporation and bylaws, the corporate law of the State of Delaware, and federal regulations may make it difficult and expensive to pursue a takeover attempt that management opposes. These provisions will also make the removal of the current Board of Directors or management of Wayne Savings Bancshares, Inc., or the appointment of new directors, more difficult. These provisions include: limitations on voting rights of beneficial owners of more than 10% of Wayne Savings Bancshares, Inc.'s common stock; supermajority voting requirements for certain business combinations; and the election of directors to staggered terms of three years. The bylaws of Wayne Savings Bancshares, Inc. also contain provisions regarding the timing and content of stockholder proposals and nominations and qualification for service on the Board of Directors. o REQUIRED CHANGE IN CONTROL PAYMENTS. Wayne Savings Bancshares, Inc. intends to enter into employment agreements and change of control agreements with certain executive officers that will require payments to be made to them in the event they are terminated following a change in control of Wayne Savings Bancshares, Inc. or Wayne Savings Community Bank. These payments may have the effect of increasing the costs of acquiring Wayne Savings Bancshares, Inc., thereby discouraging future attempts to take over Wayne Savings Bancshares, Inc. WAYNE SAVINGS BANCSHARES, INC.'S STOCK PRICE MAY DECLINE WHEN TRADING COMMENCES. Wayne Savings Bancshares, Inc. cannot guarantee that if you purchase shares in the conversion that you will be able to sell them at or above the $10.00 purchase price. In several recent cases, common stock issued by converted financial institutions has commenced trading at a price that is below the price at which these shares were sold in the initial offerings of those companies. After the shares of Wayne Savings Bancshares, Inc. begin trading, the trading price of the common stock will be determined by the marketplace, and will be influenced by many factors, including prevailing interest rates, investor perceptions and general industry and economic conditions. 18 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF WAYNE SAVINGS BANCSHARES, INC. AND SUBSIDIARIES The following tables set forth selected consolidated historical financial and other data of Wayne Savings Bancshares, Inc. for the periods and at the dates indicated. The information at June 30, 2001 and 2000, and for the three months ended June 30, 2001 and 2000 is unaudited. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of financial position and results of operations have been made. The financial information at March 31, 2001 and 2000, and for the three months ended June 30, 2001 and 2000 and the years ended March 30, 2001, 2000 and 1999, is derived in part from, and should be read together with, the audited Consolidated Financial Statements and Notes thereto of Wayne Savings Bancshares, Inc. beginning at page F-2 of this prospectus. The information at March 31, 1999, 1998 and 1997 and for the years ended March 31, 1998 and 1997 was derived in part from audited consolidated financial statements that are not included in this prospectus.
AT JUNE 30, AT MARCH 31, ------------ ----------------------------------------------------------- 2001 2001 2000 1999 1998 1997 ------------ ---------- ----------- ---------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SELECTED FINANCIAL CONDITION DATA: Total assets............................ $ 317,741 $ 311,774 $ 304,069 $ 271,274 $ 259,752 $ 252,175 Loans receivable, net(1)................ 254,837 247,480 237,412 215,679 207,879 209,404 Mortgage-backed securities(2)........... 7,155 8,613 10,496 7,230 4,275 873 Investment securities(3)................ 12,123 19,341 27,199 17,830 21,901 24,470 Cash and cash equivalents(4)............ 26,843 20,902 14,309 16,245 13,169 7,606 Deposits................................ 284,384 277,706 264,952 235,327 217,621 211,442 Stockholders' equity.................... 25,321 25,285 25,121 24,956 24,426 23,115 Book value per common share(5).......... 9.85 9.79 9.67 9.57 10.30 13.34 ----------------------
(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 due from banks, interest-bearing deposits in other financial institutions and federal funds sold. (5) Adjusted to reflect all stock splits and stock dividends effected during the relevant periods.
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE YEARS ENDED MARCH 31, ----------------------- --------------------------------------------------------------- 2001 2000 2001 2000 1999 1998 1997 ---------- ---------- ---------- ------------ ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SELECTED OPERATING DATA: Interest income......... $ 5,419 $ 5,337 $ 21,499 $ 20,701 $ 19,296 $ 19,236 $ 18,719 Interest expense........ 3,344 3,161 13,100 12,014 11,187 11,084 10,610 Net interest income..... 2,075 2,176 8,399 8,687 8,109 8,152 8,109 Provision for losses on loans................... 2 51 96 120 64 60 20 Net interest income after provision for losses on loans.................. 2,073 2,125 8,303 8,567 8,045 8,092 8,089 Other income............ 364 218 1,045 742 991 854 575 General, administrative and other expense(1)... 1,866 1,904 7,133 7,414 6,547 6,144 7,588 Earnings before income taxes................... 571 439 2,215 1,895 2,489 2,802 1,076 Federal income taxes.... 195 149 754 644 846 953 367 Net earnings............ $ 376 $ 290 $ 1,461 $ 1,251 $ 1,643 $ 1,849 $ 709 EARNINGS PER SHARE: Basic(2)................ $ .15 $ .11 $ .56 $ .48 $ .63 $ .71 $ .28 Diluted(2).............. $ .15 $ .11 $ .56 $ .48 $ .62 $ .70 $ .27 Cash dividends declared per common share(2)(3). $ .17 $ .16 $ .64 $ .64 $ .59 $ .54 $ .52 --------------------
(1) The fiscal year ended March 31, 1997, included a one-time pre-tax charge of $1.3 million to recapitalize the Savings Association Insurance Fund, a charge to which all members were subject. The fiscal year ended March 31, 1997 also included a $113,000 write-off of certain fixed assets relating to construction of a new facility at the Cleveland Road location. (2) Adjusted to reflect all stock splits and stock dividends effected during the relevant periods. (3) During fiscal years ended March 31, 1997 through March 31, 1999, inclusive, Wayne Savings Bankshares, M.H.C. waived its right to receive all dividends paid by Wayne Savings Bancshares, Inc. During fiscal years ended March 31, 2001 and 2000, Wayne Savings Bankshares, M.H.C. waived approximately $.45 and $.59 of the $.64 dividend paid per share in each respective year. 19
AT OR FOR THE THREE AT OR FOR THE MONTHS ENDED JUNE YEARS ENDED 30, MARCH 31, ---------------------- --------------------------------------------------- 2001 2000 2001 2000 1999 1998 1997 ---------- ---------- --------- -------- ---------- -------- -------- KEY OPERATING RATIOS AND OTHER DATA: Return on average assets (net earnings divided by average total assets)(1)(5).......................... .48% .38% .49% .43% .63% .73% .29% Return on average equity (net earnings divided by average stockholders' equity)(1)(5)........................ 5.94 4.62 5.79 4.98 6.90 7.72 3.08 Interest rate spread (difference between average yield on interest-earning assets and average cost of interest-bearing liabilities)........................... 2.33 2.82 2.57 2.88 2.93 2.98 3.03 Net interest margin (net interest income as a percentage of average interest-earning assets).............................. 2.78 3.07 2.91 3.14 3.23 3.34 3.40 Average interest-earning assets to average interest-bearing liabilities......... 105.00 103.58 107.62 106.05 106.99 108.02 108.35 Net interest income after provision for losses on loans, to general, administrative and other expense (1)(2)................. 108.59 111.61 116.40 115.72 124.98 131.71 106.60 General, administrative and other expense to average assets(1)(2)(5).............. 2.37 2.51 2.39 2.53 2.45 2.42 3.07 Efficiency ratio(3).................... 76.51 79.53 75.53 78.51 70.74 68.22 87.38 Dividend payout ratio.................. 54.52 68.97 72.42 70.50 45.89 36.45 88.94 ASSET QUALITY RATIOS: Non-performing loans to loans receivable, net........................ .70 .08 .21 .08 .13 .15 .46 Non-performing assets to total assets.. .56 .09 .20 .10 .12 .48 .70 Allowance for loan losses to non-performing Loans................................ 36.98 440.63 127.18 396.50 242.14 234.09 95.01 Allowance for loan losses to non-performing assets............................... 36.59 300.00 102.50 273.45 211.21 57.50 51.61 Allowance for loan losses to total loans.................................. .26 .35 .27 .33 .32 .35 .44 CAPITAL RATIOS: Average stockholders' equity to average assets............................... 8.04 8.28 8.44 8.57 9.07 9.42 9.32 Stockholders' equity to assets at period end............................. 7.97 8.30 8.11 8.26 9.20 9.40 9.17 REGULATORY CAPITAL OF WAYNE SAVINGS COMMUNITY BANK (4): Tangible capital....................... 7.89 8.16 8.05 8.01 8.60 9.13 9.16 Core capital........................... 7.89 8.16 8.05 8.01 8.60 9.13 9.16 Risk-based capital..................... 15.14 16.51 15.51 15.68 16.40 17.37 17.44 OTHER DATA: Number of full-service offices......... 10 9 10 9 7 6 6
-------------------- (1) The fiscal year ended March 31, 1997, included a one-time pre-tax charge of $1.3 million to recapitalize the Savings Association Insurance Fund, a charge to which all members were subject. The fiscal year ended March 31, 1997, also includes 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. (3) Represents the ratio of non-interest expense divided by the sum of net interest income and non-interest income. (4) Consolidated with Village Savings Bank. (5) Calculated using mathematical averages from consolidated statements of financial condition. 20 HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE At June 30, 2001, Wayne Savings Community Bank exceeded all of the applicable regulatory capital requirements. The table on the following pages sets forth the historical regulatory capital of Wayne Savings Community Bank (consolidated with Village Savings Bank) at June 30, 2001, and the pro forma regulatory capital of Wayne Savings Community Bank after giving effect to the conversion, based upon the sale at $10.00 per share of the number of shares shown in the table. The pro forma regulatory capital amounts reflect the receipt by Wayne Savings Community Bank of 50% of the net conversion proceeds, and the retention of approximately 50% of the net proceeds by Wayne Savings Bancshares, Inc. The pro forma risk-based capital amounts assume the investment of the net proceeds received by Wayne Savings Community Bank in assets which have a risk-weight of 20% under applicable regulations, as if the net proceeds had been received and so applied at June 30, 2001. See "Pro Forma Data" for the assumptions used to determine the net proceeds of the offering. For purposes of the table below, the entire amount expected to be borrowed by the employee stock ownership plan and the entire cost of the shares expected to be acquired by the stock recognition plan are deducted from pro forma regulatory capital.
WAYNE SAVINGS COMMUNITY PRO FORMA AT JUNE 30, 2001 BANK HISTORICAL AT JUNE 30, ------------------------------------------------------------------------------ 2001 MINIMUM MIDPOINT MAXIMUM --------------------------- ------------------------ ------------------------ ----------------------- PERCENT OF PERCENT OF PERCENT OF PERCENT OF AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) ---------- ------- ---------- ------- ---------- ------- ---------- ------- GAAP Capital.............. $ 25,405 7.99% $ 32,591 10.03% $ 33,922 10.39% $ 35,253 10.76% ========== ======= ========== ======= ========== ======= ========== ======= Tangible Capital.......... $ 25,120 7.91% $ 32,306 9.95% $ 33,637 10.32% $ 34,968 10.68% Tangible Requirement...... 4,763 1.50 4,871 1.50 4,891 1.50 4,911 1.50 ---------- ------- ---------- ------- ---------- ------- ---------- ------- Excess.................... $ 20,357 6.41% $ 27,435 8.45% $ 28,745 8.82% $ 30,057 9.18% ========== ======= ========== ======= ========== ======= ========== ======= Core Capital.............. $ 25,124 7.91% $ 32,310 9.95% $ 33,641 10.32% $ 34,972 10.69% Core Requirement(3)....... 12,698 4.00 12,985 4.00 13,038 4.00 13,092 4.00 ---------- ------- ---------- ------- ---------- ------- ---------- ------- Excess.................... $ 12,426 3.91% $ 19,324 5.95% $ 20,602 6.32% $ 21,880 6.69% ========== ======= ========== ======= ========== ======= ========== ======= Total Capital(4).......... $ 25,780 15.19% $ 32,966 19.26% $ 34,297 20.00% $ 35,628 20.75% Risk-based Requirement.... 13,580 8.00 13,695 8.00 13,717 8.00 13,738 8.00 ---------- ------- ---------- ------- ---------- ------- ---------- ------- Excess.................... $ 12,200 7.19% $ 19,270 11.26% $ 20,580 12.00% $ 21,890 12.75% ========== ======= ========== ======= ========== ======= ========== ======= PRO FORMA AT JUNE 30, 2001 -------------------------- MAXIMUM AS ADJUSTED(1) ------------------------ PERCENT OF AMOUNT ASSETS(2) ---------- ------- GAAP Capital.............. $ 36,783 11.17% ========== ======= Tangible Capital.......... $ 36,498 11.10% Tangible Requirement...... 4,934 1.50 ---------- ------- Excess.................... $ 31,563 9.60% ========== ======= Core Capital.............. $ 36,502 11.10% Core Requirement(3)....... 13,153 4.00 ---------- ------- Excess.................... $ 23,349 7.10% ========== ======= Total Capital(4).......... $ 37,158 21.60% Risk-based Requirement.... 13,762 8.00 ---------- ------- Excess.................... $ 23,396 13.60% ========== =======
-------------------------------- (1) As adjusted to give effect to an increase in the number of shares which could occur due to a 15% increase in the offering range to reflect changes in market or general financial conditions following the commencement of the offering. (2) Tangible and core capital levels are shown as a percentage of total adjusted assets. Risk-based capital levels are shown as a percentage of risk-weighted assets. (3) The current Office of Thrift Supervision core capital requirement for savings banks is 3% of total adjusted assets for savings banks that receive the highest supervisory rating for safety and soundness, and a 4% to 5% core capital ratio requirement for all other savings banks. (4) Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk-weighting. 21 USE OF PROCEEDS Although the actual net proceeds from the sale of the common stock in the offering cannot be determined until the offering is completed, it is presently anticipated that the net proceeds will be between $14.4 million and $19.7 million, or $22.7 million if the offering range is increased by 15%. See "Pro Forma Data" and "--Stock Pricing and Number of Shares to be Issued" as to the assumptions used to arrive at these amounts. Wayne Savings Bancshares, Inc. will be unable to use any of the net proceeds of the offering until the conversion is completed. Wayne Savings Bancshares, Inc. estimates that it will invest between $7.2 million and $9.8 million, or $11.4 million if the offering range is increased by 15%, in Wayne Savings Community Bank. Wayne Savings Bancshares, Inc. intends to retain approximately 50% of the net proceeds, a portion of which is expected to be used to fund the loan to the employee stock ownership plan. The loan to the employee stock ownership plan will enable it to purchase up to 8.0% of the shares of Wayne Savings Bancshares, Inc. common stock issued in the offering. Wayne Savings Bancshares, Inc. and Wayne Savings Community Bank instead may elect to fund the employee stock ownership plan's stock purchases by borrowing from a third-party financial institution. See "Management of Wayne Savings Bancshares, Inc.--Benefits." The balance of funds retained by Wayne Savings Bancshares, Inc. will be used for general corporate purposes. These purposes may include investment in federal funds, short-term investment grade marketable securities and mortgage-backed securities. Wayne Savings Bancshares, Inc. also may use the net proceeds from the offering to support the expansion of new products and banking services, the establishment of new branch offices, and the acquisition of other financial institutions or branches or diversification into other banking related businesses, as well as fund a stock recognition and retention plan. Neither Wayne Savings Bancshares, Inc. nor Wayne Savings Community Bank have any current specific plans, arrangements or understandings regarding any acquisitions at this time, nor have criteria been established to identify potential candidates for acquisition. We currently have no commitments to use any of the net proceeds for branch expansion. Wayne Savings Bancshares, Inc. intends to use the net proceeds as follows:
MINIMUM MAXIMUM SHARES SHARES ------------ ----------- (IN THOUSANDS) Net proceeds........................................... $ 14,369 $ 19,673 Investment in Wayne Savings Community Bank............. (7,185) (9,837) Funds loaned to ESOP................................... (1,224) (1,656) ------------ ----------- Funds retained for general corporate purposes.......... $ 5,960 $ 8,180 ============ ===========
Upon completion of the conversion, the board of directors of Wayne Savings Bancshares, Inc. will have the authority to repurchase stock, as permitted by statutory and regulatory authority. The Office of Thrift Supervision may permit Wayne Savings Bancshares, Inc. to repurchase up to 5% of its common stock during the first year following completion of the conversion, and Wayne Savings Bancshares, Inc. may repurchase its shares without restriction thereafter. Based upon facts and circumstances following the conversion and subject to applicable regulatory requirements, the board of directors may determine to repurchase stock in the future. These facts and circumstances may include, but are not limited to the following: (1).market and economic factors such as the price at which the stock is trading in the market, the volume of trading, the attractiveness of other investment alternatives in terms of the rate of return and risk involved in the investment, the ability to increase the book value and/or earnings per share of the remaining outstanding shares, and the opportunity to improve our return on equity; (2).the avoidance of dilution to stockholders by not having to issue additional shares to cover the exercise of stock options or to fund our employee stock benefit plans; and 22 (3).any other circumstances in which repurchases would be in the best interests of Wayne Savings Bancshares, Inc. and our stockholders. In the event we determine to repurchase our stock, repurchases may be made at market prices which may be in excess of the $10.00 subscription price in the offering. To the extent that we repurchase stock at market prices in excess of the per-share book value, such repurchases may dilute the book value per share of existing stockholders. The portion of the net proceeds not retained by Wayne Savings Bancshares, Inc., will be invested in Wayne Savings Community Bank. These funds will be used for general corporate purposes and to support asset growth. The funds also will be used to make investments in one- to four-family residential mortgage loans, federal funds, short-term investment grade marketable securities and mortgage-backed and investment securities. Wayne Savings Community Bank also may use such funds for the expansion of its branch network and to acquire other financial institutions, branch offices, or other financial services companies, although it has no immediate plans to do so. Wayne Savings Community Bank and Wayne Savings Bancshares, Inc. have not determined the approximate amount of net proceeds to be used for each of the purposes mentioned above. DIVIDEND POLICY Wayne Savings Bancshares, Inc. currently pays a cash dividend of $0.17 per share per quarter, or $0.68 per share per year. After the conversion, we intend to pay a dividend of $0.15, $0.128, $0.111 and $.096 per share per quarter at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, which represents a dividend rate of 6.0%, 5.1%, 4.4% and 3.8% at the minimum, midpoint, maximum and adjusted maximum of the range, respectively, based upon a price of $10.00 per share. The amount of dividends that we intend to pay to our stockholders following the conversion is intended to preserve the per share dividend amount, adjusted to reflect the exchange ratio, that our stockholders currently receive on their Wayne Savings Bancshares, Inc. common stock. The dividend rate and the continued payment of dividends will depend on a number of factors including our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. No assurance can be given that we will not reduce or eliminate dividends in the future. Assuming the offering is completed in December 2001, the first dividend is expected to be declared for the quarter ending March 31, 2002. Under the rules of the Office of Thrift Supervision, Wayne Savings Community Bank will not be permitted to pay dividends on its capital stock to Wayne Savings Bancshares, Inc. if Wayne Savings Community Bank's stockholders' equity would be reduced below the amount of the liquidation account. See "The Conversion--Liquidation Rights." For information concerning federal and state law and regulations which apply to Wayne Savings Community Bank in determining the amount of proceeds that may be retained by Wayne Savings Bancshares, Inc. and regarding a savings institution's ability to make capital distributions, including payment of dividends to its holding company, see "Taxation--Federal Taxation" and "Regulation--Federal Regulation of Savings Institutions." Unlike Wayne Savings Community Bank, Wayne Savings Bancshares, Inc. is not restricted by Office of Thrift Supervision regulations on the payment of dividends to its stockholders, although the source of dividends will depend on the net proceeds retained by Wayne Savings Bancshares, Inc. and earnings thereon, and may depend, in part, upon dividends from Wayne Savings Community Bank. Wayne Savings Bancshares, Inc. is subject, however, to the requirements of Delaware law, which generally limit dividends to an amount equal to the excess of the net assets of Wayne Savings Bancshares, Inc. over its statutory capital or, if there is no excess, to its net earnings for the current and/or immediately preceding fiscal year. For these purposes, net assets means the amount by which total assets exceed total liabilities, and statutory capital generally means the aggregate par value of the outstanding shares of Wayne Savings Bancshares, Inc.'s capital stock. Additionally, in connection with the conversion, Wayne Savings Bancshares, Inc. and Wayne Savings Community Bank have committed to the Office of Thrift Supervision that during the one-year period following the consummation of the conversion, Wayne Savings Bancshares, Inc. will not take any action to declare an extraordinary dividend to stockholders that would be treated by recipient stockholders as a tax-free return of capital for federal income tax purposes without prior approval of the Office of Thrift Supervision. 23 MARKET FOR THE COMMON STOCK Wayne Savings Bancshares, Inc. common stock is currently listed on the Nasdaq SmallCap Market under the symbol "WAYN", and there is an established market for such common stock. At June 30, 2001, Wayne Savings Bancshares, Inc. had __ market makers, including Ryan, Beck & Co., LLC. Upon completion of the conversion and offering, the new shares of common stock of Wayne Savings Bancshares, Inc. will replace existing shares and be traded on the Nasdaq National Market. Ryan, Beck & Co., LLC intends to remain a market maker in Wayne Savings Bancshares, Inc. common stock following the conversion. Ryan, Beck & Co., LLC also will assist Wayne Savings Bancshares, Inc. in obtaining other market makers after the conversion. There can be no assurance that other market makers will be obtained or that an active and liquid trading market for the common stock will develop or, if developed, will be maintained. For a period of 20 trading days following completion of our offering, our symbol will be "WAYND", after which it will be "WAYN". The development of a public market having the desirable characteristics of depth, liquidity and orderliness depends on the existence of willing buyers and sellers, the presence of which is not within the control of Wayne Savings Bancshares, Inc. or any market maker. The number of active buyers and sellers of the common stock at any particular time may be limited, which may have an adverse effect on the price at which the common stock can be sold. THERE CAN BE NO ASSURANCE THAT PERSONS PURCHASING THE COMMON STOCK WILL BE ABLE TO SELL THEIR SHARES AT OR ABOVE THE SUBSCRIPTION PRICE OF $10.00 PER SHARE. PURCHASERS OF THE COMMON STOCK SHOULD HAVE A LONG-TERM INVESTMENT INTENT AND SHOULD RECOGNIZE THAT THERE MAY BE A LIMITED TRADING MARKET IN THE COMMON STOCK. 24 The following table sets forth the high and low bid quotations for Wayne Savings Bancshares, Inc. common stock and cash dividends per share declared for the periods indicated. These quotations represent prices between dealers and do not include retail markups, markdowns, or commissions and do not reflect actual transactions. This information has been obtained from monthly statistical summaries provided by the Nasdaq Stock Market. As of June 30, 2001, there were 1,220,894 publicly held shares of Wayne Savings Bancshares, Inc. common stock issued and outstanding. In connection with the conversion, each existing share of common stock of Wayne Savings Bancshares, Inc. will be converted into a number of new shares of common stock, based upon the exchange ratio that is described in other parts of this prospectus.
CASH DIVIDEND HIGH BID LOW BID DECLARED ---------------- ---------------- ---------------- FISCAL YEAR 2002 Quarter Ended September 30, 2001........ $ $ $ 0.17 Quarter Ended June 30, 2001............. $ $ $ 0.17 FISCAL YEAR 2001 Quarter Ended March 31, 2001 $ 18.00 $ 13.00 $ 0.16 Quarter Ended December 31, 2000 $ 16.00 $ 13.50 $ 0.16 Quarter Ended September 30, 2000 $ 15.75 $ 14.00 $ 0.16 Quarter Ended June 30, 2000 $ 16.50 $ 15.38 $ 0.16 FISCAL YEAR 2000 Quarter Ended March 31, 2000............ $ 16.63 $ 10.50 $ 0.16 Quarter Ended December 31, 1999......... $ 17.25 $ 14.25 $ 0.16 Quarter Ended September 30, 1999........ $ 16.88 $ 14.13 $ 0.16 Quarter Ended June 30, 1999............. $ 17.00 $ 15.24 $ 0.16
At July 10, 2001, the business day immediately preceding the public announcement of the conversion, and at November ____, 2001, the closing prices of Wayne Savings Bancshares, Inc. common stock as reported on the Nasdaq National Market were $13.75 per share and $_____ per share, respectively. At June 30, 2001, Wayne Savings Bancshares, Inc. had approximately 815 stockholders of record. On the effective date of the conversion, all publicly held shares of Wayne Savings Bancshares, Inc. common stock, including shares held by Wayne Savings Bancshares, Inc.'s officers and directors, will be converted automatically into and become the right to receive a number of shares of Wayne Savings Bancshares, Inc. common stock determined pursuant to the exchange ratio, and options to purchase shares of Wayne Savings Bancshares, Inc. common stock will be converted into options to purchase a number of shares of Wayne Savings Bancshares, Inc. common stock determined pursuant to the exchange ratio, for the same aggregate exercise price. See "Beneficial Ownership of Common Stock." 25 CAPITALIZATION The following table presents the historical consolidated capitalization of Wayne Savings Bancshares, Inc. at June 30, 2001, and the pro forma consolidated capitalization of Wayne Savings Bancshares, Inc. after giving effect to the conversion, based upon the assumptions set forth in the "Pro Forma Data" section.
PRO FORMA AT JUNE 30, 2001 ------------------------------------------------------------ 4,531,347 2,912,397 3,426,350 3,940,302 MAXIMUM AS MINIMUM MIDPOINT MAXIMUM ADJUSTED WAYNE SAVINGS SHARES SHARES SHARES SHARES BANCSHARES, OUTSTANDING, OUTSTANDING, OUTSTANDING, OUTSTANDING, INC. 1,530,000 1,800,000 2,070,000 2,380,500 --------------- SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD HISTORICAL AT AT $10.00 AT $10.00 AT $10.00 AT $10.00 JUNE 30, 2001 PER SHARE PER SHARE PER SHARE PER SHARE(1) --------------- -------------- -------------- --------------- --------------- (DOLLARS IN THOUSANDS) Deposits.............................. $ 284,384 $ 284,384 $ 284,384 $ 284,384 $ 284,384 Borrowed funds(2)..................... 6,000 6,000 6,000 6,000 6,000 Total deposits and borrowed funds..... $ 290,384 $ 290,384 $ 290,384 $ 290,384 $ 290,384 Stockholders' equity: Preferred stock, $0.10 par value (post-conversion), 500,000 shares authorized(3)......................... $ -- $ -- $ -- $ -- $ -- Common stock $0.10 par value (post- ====================================== conversion) 8,000,000 shares authorized; shares to be issued as reflected(3). 2,639 2,912 3,426 3,940 4,531 Additional paid-in capital............ 14,436 28,523 30,671 32,819 35,289 Retained earnings(5).................. 9,351 9,351 9,351 9,351 9,351 Accumulated other comprehensive loss.. 38 38 38 38 38 Less: Treasury stock....................... (1,143) (1,143) (1,143) (1,143) (1,143) Common stock held by existing employee stock ownership plan............... -- -- -- -- -- Less: Existing plans(4) Common stock to be acquired by ESOP.............................. -- -- -- -- -- Common stock to be acquired by recognition plan................ -- -- -- -- -- Less: Common stock to be acquired by ESOP(6)........................... -- (1,224) (1,440) (1,656) (1,904) Common stock to be acquired by recognition plan(7)............. -- (612) (720) (828) (952) Total stockholders' equity............ $ 25,321 $ 37,845 $ 40,183 $ 42,522 $ 45,209 Total stockholders' equity as a percentage of total assets..................... 7.97% 11.46% 12.08% 12.70% 13.39% ------------------------------------
(1) As adjusted to give effect to an increase in the number of shares which could occur due to a 15% increase in the offering range to reflect changes in market or general financial conditions following the commencement of the subscription and community offerings. (2) Does not reflect withdrawals from deposit accounts for the purchase of common stock in the conversion. These withdrawals would reduce pro forma deposits by the amount of the withdrawals. (3) Wayne Savings Bancshares, Inc. (a federal corporation) has 500,000 authorized shares of preferred stock. Wayne Savings Bancshares, Inc. (a Delaware corporation) has 8,000,000 authorized shares of common stock, par value $0.10 per share. Pro forma Wayne Savings Bancshares, Inc. common stock and additional paid-in capital have been increased to reflect the number of shares of Wayne Savings Bancshares, Inc. common stock to be outstanding, which includes the exchange of the 47.5% currently outstanding shares of common stock pursuant to the exchange ratio. Pro forma additional paid-in capital reflects consolidation of $11,000 of capital from Wayne Savings Bankshares, MHC. (4) No effect has been given to the issuance of additional shares of Wayne Savings Bancshares, Inc. common stock pursuant to an additional stock option plan and stock recognition plan that may be adopted by Wayne Savings Bancshares, Inc. If these plans are approved by stockholders, an amount equal to 10% of the shares of Wayne Savings Bancshares, Inc. common stock sold in the offering will be reserved for issuance upon the exercise of options under the stock option plan, and the stock recognition plan will acquire an amount of common stock equal to 4% of the number of shares sold in the offering, either through open market purchases or from authorized but unissued shares. No effect has been given to the exercise of options currently outstanding. See "Management of Wayne Savings Bancshares, Inc.--Benefits." (5) The retained earnings of Wayne Savings Community Bank will be substantially restricted after the conversion, see "The Conversion--Liquidation Rights" and "Regulation --Federal Regulation of Savings Institutions." (FOOTNOTES CONTINUED ON NEXT PAGE) 26 (6) Assumes that 8% of the shares sold in the offering will be acquired by the employee stock ownership plan financed by a loan from Wayne Savings Bancshares, Inc. The loan will be repaid principally from Wayne Savings Community Bank's contributions to the employee stock ownership plan. Since Wayne Savings Bancshares, Inc. will finance the employee stock ownership plan debt, this debt will be eliminated through consolidation and no liability will be reflected on Wayne Savings Bancshares, Inc.'s consolidated financial statements. Accordingly, the amount of stock acquired by the employee stock ownership plan is shown in this table as a reduction of total stockholders' equity. (7) Assumes a number of shares of common stock equal to 4% of the common stock to be sold in the offering will be purchased by the stock recognition plan in open market purchases. The dollar amount of common stock to be purchased is based on the $10.00 per share subscription price in the offering and represents unearned compensation and is reflected as a reduction of capital. This amount does not reflect possible increases or decreases in the value of stock relative to the subscription price in the offering. As Wayne Savings Bancshares, Inc. accrues compensation expense to reflect the vesting of shares pursuant to the stock recognition plan, the deferred charge against capital will be reduced through a charge to operations. Implementation of the stock recognition plan will require stockholder approval. If the shares to fund the plan are assumed to come from authorized but unissued shares purchased by the stock recognition plan from Wayne Savings Bancshares, Inc. at the subscription price, at the minimum, midpoint, maximum and the maximum, as adjusted, of the offering range, the number of outstanding shares would be 2,973,597, 3,498,350, 4,023,102 and 4,626,567, respectively, and total stockholders' equity would be $38.8 million, $41.3 million, $43.8 million, and $46.7 million, respectively, at June 30, 2001. If the stock recognition plan acquires authorized but unissued shares of Wayne Savings Bancshares, Inc., stockholders' ownership in Wayne Savings Bancshares, Inc. would be diluted by approximately 2.1%. PRO FORMA DATA The following tables summarize historical data of Wayne Savings Bancshares, Inc. and pro forma data of Wayne Savings Bancshares, Inc. at or for the year ended March 31, 2001 and at or for the three months ended June 30, 2001, based on assumptions set forth below and in the table, and should not be used as a basis for projections of market value of the common stock following the conversion. No effect has been given in the tables to the possible issuance of additional shares reserved for future issuance pursuant to currently outstanding stock options or the 2001 stock option plan, or 2001 recognition and retention plan nor does book value give effect to the liquidation account to be established in the conversion, or to the tax bad debt reserve on liquidation. See "The Conversion--Liquidation Rights," and "Management of Wayne Savings Bancshares, Inc.--Directors' Compensation." Pro forma consolidated net earnings of Wayne Savings Bancshares, Inc. for the fiscal year ended March 31, 2001 and the three months ended June 30, 2001, has been calculated as if the estimated net proceeds received by Wayne Savings Bancshares, Inc. and Wayne Savings Community Bank had been invested at an assumed interest rate of 4.15% and 3.72% for the fiscal year ended March 31, 2001 and for the three months ended June 30, 2001, respectively. The reinvestment rate was calculated based on the one-year United States Treasury bill rate (which, in light of changes in interest rates in recent periods is deemed by Wayne Savings Bancshares, Inc. and Wayne Savings Community Bank to reflect more accurately the pro forma reinvestment rate in recent periods than the arithmetic average method). The effect of withdrawals from deposit accounts for the purchase of common stock has not been reflected. The pro forma after-tax yield on the estimated net proceeds is assumed to be 2.73% and 2.46% for the fiscal year ended March 31, 2001 and for the three months ended June 30, 2001, respectively. Historical and pro forma per share amounts have been calculated by dividing historical and pro forma amounts by the indicated number of shares of common stock. No effect has been given in the pro forma stockholders' equity calculations for the assumed earnings on the net proceeds. It is assumed that Wayne Savings Bancshares, Inc. will retain 50% of the estimated net conversion proceeds. The actual net proceeds from the sale of common stock will not be determined until the conversion is completed; however, we currently estimate the net proceeds to be between $14.4 million and $19.7 million. It is assumed that all shares will be sold in the subscription offering and community offering. The following pro forma information may not be representative of the financial effects of the foregoing transactions at the dates on which such transactions actually occur and should not be taken as indicative of future results of operations. Pro forma consolidated stockholders' equity represents the difference between the stated amounts of assets and liabilities of Wayne Savings Bancshares, Inc. The pro forma stockholders' equity is not intended to represent the fair market value of the common stock and may be greater than amounts that would be available for distribution to stockholders in the event of liquidation. 27
AT OR FOR THE THREE MONTHS ENDED JUNE 30, 2001 BASED UPON THE SALE FOR $10.00 OF ------------------------------------------------------------- 1,530,000 1,800,000 2,070,000 2,380,500 SHARES SHARES SHARES SHARES(1) MINIMUM OF MIDPOINT OF MINIMUM OF 15% ABOVE ESTIMATED ESTIMATED ESTIMATED MAXIMUM OF PRICE PRICE PRICE ESTIMATED RANGE RANGE RANGE PRICE RANGE ------------ ------------ ------------- --------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Gross proceeds........................................ $ 15,300 $ 18,000 $ 20,700 $ 23,805 Expenses............................................. 951 989 1,027 1,071 ------------- -------------- ------------- ------------- Estimated net proceeds............................... 14,369 17,011 19,673 22,734 Common stock purchased by employee stock ownership plan (2).................................................. (1,224) (1,440) (1,656) (1,904) Common stock purchased by recognition plan(3)........ (612) (720) (828) (952) Assets reinvested from the MHC....................... 11 11 11 11 ------------- -------------- ------------- ------------- Estimated net proceeds, as adjusted.................. $ 12,524 $ 14,862 $ 17,200 $ 19,888 ============= ============== ============= ============= FOR THE QUARTER ENDED JUNE 30, 2001: Consolidated net earnings: Historical........................................... $ 376 $ 376 $ 376 $ 376 Pro forma adjustments: Income on adjusted net proceeds...................... 77 91 106 122 Pro forma state franchise taxes...................... (15) (18) (21) (24) Employee stock ownership plan(2)..................... (10) (12) (14) (16) Recognition plan(3).................................. (20) (24) (27) (31) ------------- -------------- ------------- ------------- Pro forma net income.............................. $ 408 $ 413 $ 420 $ 427 ============= ============== ============= ============= Earnings per share(4): Historical........................................... $ 0.13 $ 0.11 $ 0.10 $ 0.09 Pro forma adjustments: Income on net proceeds............................... 0.04 0.04 0.02 0.03 Pro forma state franchise taxes...................... (0.01) (0.01) (0.01) (0.01) Employee stock ownership plan(2)..................... 0.00 0.00 0.00 0.00 Recognition plan(3).................................. (0.01) (0.01) (0.01) (0.01) ------------- -------------- ------------- ------------- Pro forma earnings per share(4)(5)................ $ 0.15 $ 0.13 $ 0.11 $ 0.10 ============= ============== ============= ============= Pro forma price to earnings........................... 16.67x 19.23x 22.73x 25.00x ============= ============== ============= ============= Number of shares used in price-to-earnings ratio calculations.......................................... 2,791,527 3,284,150 3,776,772 4,343,287 AT JUNE 30, 2001: Stockholders' equity: Historical........................................... $ 25,321 $ 25,321 $ 25,321 $ 25,321 Estimated net proceeds............................... 14,349 17,011 19,673 22,734 MHC capital consolidation............................ 11 11 11 11 Less: Common stock acquired by employee stock ownership plan (2)........................ (1,224) (1,440) (1,656) (1,904) Common stock acquired by recognition plan(3) (612) (720) (828) (952) ------------- -------------- ------------- ------------- Pro forma stockholders' equity(6)..................... 37,845 40,183 42,522 45,209 ------------- -------------- ------------- ------------- Intangible assets.................................... 285 285 285 285 Pro forma tangible stockholders' equity.............. $ 37,560 $ 39,898 $ 42,237 $ 44,924 ============= ============== ============= ============= Stockholders' equity per share(7): Historical........................................... $ 8.69 $ 7.39 $ 6.43 5.59 Estimated net proceeds............................... 4.93 4.97 4.99 5.02 MHC capital consolidation............................ 0.00 0.00 0.00 $ 0.00 Less: Common stock acquired by employee stock ========================================================== ownership plan(2)......................... (0.42) (0.42) (0.42) (0.42) Common stock acquired by recognition plan(3) (0.21) (0.21) (0.21) (0.21) ------------- -------------- ------------- ------------- Pro forma stockholders' equity per share(6)(7)....... $ 12.99 $ 11.73 $ 10.79 $ 9.98 ============= ============== ============= ============= Pro forma tangible stockholders' equity per share.... $ 12.90 $ 11.64 $ 10.72 $ 9.91 ============= ============== ============= ============= Offering price as a percentage of pro forma stockholders' equity per share..................................... 76.98% 85.25% 92.68% 100.20% =========== =========== ============ =========== Offering price as a percentage of pro forma tangible stockholders' equity per share....................... 77.52% 85.91% 93.28% 100.91% =========== =========== ============ =========== Number of shares used in book value per share calculations 2,912,397 3,426,350 3,940,302 4,531,347 (FOOTNOTES FOLLOW NEXT PAGE)
28
AT OR FOR THE YEAR ENDED MARCH 31, 2001 BASED UPON THE SALE FOR $10.00 OF -------------------------------------------------------------- 1,530,000 1,800,000 2,070,000 2,380,500 SHARES SHARES SHARES SHARES(1) MIDPOINT OF MINIMUM OF MAXIMUM OF 15% ABOVE ESTIMATED ESTIMATED ESTIMATED MAXIMUM OF PRICE PRICE PRICE ESTIMATED RANGE RANGE RANGE PRICE RANGE -------------- -------------- --------------- ---------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Gross proceeds........................................ $ 15,300 $ 18,000 $ 20,700 $ 23,805 Expenses............................................. 951 989 1,027 1,071 ---------- ----------- ------------ ------------ Estimated net proceeds............................... 14,349 17,011 19,673 22,734 Common stock purchased by employee stock ownership plan (2)............................................ (1,224) (1,440) (1,656) (1,904) Common stock purchased by recognition plan(3)........ (612) (720) (828) (952) Assets reinvested from the MHC....................... 11 11 11 11 ---------- ----------- ------------ ------------ Estimated net proceeds, as adjusted.................. $ 12,524 $ 14,862 $ 17,200 $ 19,888 ========== =========== ============ ============ FOR THE FISCAL YEAR ENDED MARCH 31, 2001: Consolidated net earnings: Historical........................................... 1,461 1,461 1,461 1,461 Pro forma adjustments: Income on adjusted net proceeds...................... 343 407 471 545 Pro forma state franchise taxes...................... (62) (73) (84) (98) Employee stock ownership plan(2)..................... (40) (48) (55) (63) Recognition plan(3).................................. (81) (95) (109) (126) ---------- ----------- ------------ ------------ Pro forma net earnings............................ $ 1,621 $ 1,652 $ 1,684 $ 1,719 ========== =========== ============ ============ Earnings per share(4): Historical........................................... $ 0.52 $ 0.44 $ 0.39 $ 0.34 Pro forma adjustments: Income on net proceeds............................... 0.12 0.12 0.12 0.12 Pro forma state franchise taxes...................... (0.02) (0.02) (0.02) (0.02) Employee stock ownership plan(2)..................... (0.01) (0.01) (0.01) (0.01) Recognition plan(3).................................. (0.03) (0.03) (0.03) (0.03) ---------- ----------- ------------ ------------ Pro forma earnings per share(4)(5)................ $ 0.58 $ 0.50 $ 0.45 $ 0.40 ---------- ----------- ------------ ------------ Pro forma price to earnings........................... 17.24x 20.00x 22.22x 25.00x ========== =========== ============ ============ Number of shares used in price-to-earnings ratio calculations.......................................... 2,796,117 3,289,550 3,782,982 4,350,429 AT MARCH 31, 2001: Stockholders' equity: Historical........................................... $ 25,285 $ 25,285 $ 25,285 $ 25,285 Estimated net proceeds............................... 14,349 17,011 19,673 22,734 MHC capital consolidation............................ 11 11 11 11 Less: Common stock acquired by employee stock ownership plan (2)........................ (1,224) (1,440) (1,656) (1,904) Common stock acquired by recognition plan(3) (612) (720) (828) (952) ---------- ----------- ------------ ------------ Pro forma stockholders' equity(6)..................... 37,809 40,147 42,486 45,173 Intangible assets.................................... 287 287 287 287 ---------- ----------- ------------ ------------ Pro forma tangible stockholders' equity.............. $ 37,522 $ 39,860 $ 42,199 $ 44,886 ========== =========== ============ ============ Stockholders' equity per share(7): Historical........................................... $ 8.68 $ 7.38 $ 6.42 $ 5.58 Estimated net proceeds............................... 4.93 4.97 4.99 5.02 MHC capital consolidation............................ 0.00 0.00 0.00 0.00 Less: Common stock acquired by employee stock ownership plan(2)......................... (0.42) (0.42) (0.42) (0.42) Common stock acquired by recognition plan(3) (0.21) (0.21) (0.21) (0.21) ---------- ----------- ------------ ------------ Pro forma stockholders' equity per share(6)(7)....... 12.98 11.72 10.78 9.97 ========== =========== ============ ============ Pro forma tangible stockholders' equity per share.... 12.88 11.63 10.71 9.91 ========== =========== ============ ============ Offering price as a percentage of pro forma stockholders' equity per share..................................... 77.04% 85.32% 92.76% 100.30% ========== =========== ============ ============ Offering price as a percentage of pro forma tangible stockholders' equity per share....................... 77.64% 85.98 93.37% 100.91% ========== =========== ============ ============ Number of shares used in book value per share calculations 2,912,397 3,426,350 3,940,302 4,531,347
29 -------------------------------- (1) As adjusted to give effect to an increase in the number of shares which could occur due to a 15% increase in the offering range to reflect changes in market and financial conditions following the commencement of the offering. (2) Assumes that 8.0% of shares of common stock sold in the offering will be purchased by the employee stock ownership plan. For purposes of this table, the funds used to acquire these shares are assumed to be borrowed by the employee stock ownership plan from the net proceeds of the offering retained by Wayne Savings Bancshares, Inc. Wayne Savings Community Bank intends to make annual contributions to the employee stock ownership plan in an amount at least equal to the principal and interest of the debt. Wayne Savings Community Bank's total annual payments on the employee stock ownership plan debt are based upon 20 equal annual installments of principal. Statement of Position 93-6 requires that an employer record compensation expense in an amount equal to the fair value of the shares committed to be released. The pro forma adjustments assume that the employee stock ownership plan shares are allocated in equal annual installments based on the number of loan repayment installments assumed to be paid by Wayne Savings Community Bank, the fair value of the common stock remains at the subscription price and the employee stock ownership plan expense reflects an effective combined federal and state tax rate of 34%. The unallocated employee stock ownership plan shares are reflected as a reduction of stockholders' equity. No reinvestment is assumed on proceeds contributed to fund the employee stock ownership plan. The pro forma net income further assumes (i) that 1,530, 1,800, 2,070, and 2,380 shares were committed to be released during the fiscal quarter ended June 30, 2001, at the minimum, midpoint, maximum, and adjusted maximum of the offering range, respectively, (ii) that 6,120, 7,200, 8,280, and 9,522 shares were committed to be released during the fiscal year ended March 31, 2001, at the minimum, midpoint, maximum, and adjusted maximum of the offering range, respectively, and (iii) in accordance with Statement of Position 93-6, only the employee stock ownership plan shares committed to be released during the periods were considered outstanding for purposes of net income per share calculations. (3) If approved by Wayne Savings Bancshares, Inc.'s stockholders, the stock recognition plan intends to purchase an aggregate number of shares of common stock equal to 4% of the shares to be sold in the offering. Stockholder approval of the stock recognition plan and purchases by the plan may not occur earlier than six months after the completion of the conversion. The shares may be acquired directly from Wayne Savings Bancshares, Inc., or through open market purchases. The funds to be used by the stock recognition plan to purchase the shares will be provided by Wayne Savings Bancshares, Inc. or Wayne Savings Community Bank. The table assumes that (i) the stock recognition plan acquires the shares through open market purchases at the subscription price with funds contributed by Wayne Savings Bancshares, Inc., (ii) 5% of the amount contributed to the stock recognition plan is amortized as an expense during the fiscal quarter ended June 30, 2001, (iii) 20% of the amount contributed to the stock recognition plan is amortized as an expense during the fiscal year ended March 31, 2001, and (iv) the stock recognition plan expense reflects an effective combined federal and state tax rate of 34%. Assuming stockholder approval of the plan and that the plan shares are awarded through the use of authorized but unissued shares of common stock, stockholders would have their voting interests diluted by approximately 2.1%. (4) Per share figures include shares of Wayne Savings Bancshares, Inc. common stock that will be exchanged for the publicly held shares of Wayne Savings Bancshares, Inc. common stock in the share exchange. Net income per share computations are determined by taking the number of subscription shares assumed to be sold in the offering and the number of exchange shares assumed to be issued in the share exchange and, in accordance with Statement of Position 93-6, subtracting the employee stock ownership plan shares which have not been committed for release during the respective period. See Note 2 above. The number of shares of common stock actually sold and the corresponding number of exchange shares may be more or less than the assumed amounts. (5) No effect has been given to the issuance of additional shares of common stock pursuant to the stock option plan, which is expected to be adopted by Wayne Savings Bancshares, Inc. following the offering and presented to stockholders for approval not earlier than six months after the completion of the conversion. If the stock option plan is approved by stockholders, a number of shares equal to 10% of the shares sold in the offering will be reserved for future issuance upon the exercise of options to be granted under the stock option plan. The issuance of authorized but previously unissued shares of common stock pursuant to the exercise of options under such plan would dilute existing stockholders' interests by approximately 5.5%. (6) The retained earnings of Wayne Savings Community Bank will be substantially restricted after the conversion. See "Dividend Policy," "The Conversion--Liquidation Rights" and "Regulation--Federal Regulation of Savings Institutions--Capital Distributions." (7) Per share figures include shares of Wayne Savings Bancshares, Inc. common stock that will be exchanged for publicly held shares of Wayne Savings Bancshares, Inc. common stock in the share exchange. Stockholders' equity per share calculations are based upon the sum of (i) the number of subscription shares assumed to be sold in the offering, and (ii) exchange shares to be issued at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively. The exchange shares reflect an exchange ratio of 1.1327, 1.3326, 1.5325 and 1.7624, respectively, at the minimum, midpoint, maximum, and adjusted maximum of the offering range, respectively. The number of subscription shares actually sold and the corresponding number of exchange shares may be more or less than the assumed amounts. 30 WAYNE SAVINGS BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS The following Consolidated Statements of Earnings of Wayne Savings Bancshares, Inc. for the years ended March 31, 2001, 2000 and 1999, have been audited by Grant Thornton LLP, independent certified public accountants, whose report thereon appears elsewhere in this prospectus. With respect to information for the three months ended June 30, 2001 and 2000, which is unaudited, in the opinion of management, all adjustments necessary for a fair presentation of such periods have been included and are of a normal recurring nature. Results for the three months ended June 30, 2001 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2002. These statements should be read in conjunction with the consolidated financial statements of Wayne Savings Bancshares, Inc. and related notes thereto included elsewhere in this prospectus.
FOR THE THREE MONTHS FOR THE YEAR ENDED ENDED JUNE 30, MARCH 31, ------------------------- ----------------------------------- 2001 2000 2001 2000 1999 ----------- ------------ ---------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Interest income: Loans............................................. $ 4,796 $ 4,595 $ 18,694 $ 17,928 $ 17,037 Mortgage-backed securities........................ 131 164 583 602 405 Investment securities............................. 207 361 1,423 1,033 784 Interest-bearing deposits and other............... 285 217 799 1,138 1,070 ----------- ------------ ---------- ----------- ----------- Total interest income.......................... 5,419 5,337 21,499 20,701 19,296 Interest expense: Deposits.......................................... 3,262 3,045 12,652 11,530 10,516 Borrowings........................................ 82 116 448 484 671 ----------- ------------ ---------- ----------- ----------- Total interest income.......................... 3,344 3,161 13,100 12,014 11,187 ----------- ------------ ---------- ----------- ----------- Net interest income............................ 2,075 2,176 8,399 8,687 8,109 Provision for losses on loans...................... 2 51 96 120 64 ----------- ------------ ---------- ----------- ----------- Net interest income after provision for losses on loans........................... 2,073 2,125 8,303 8,567 8,045 Other income: Gain on sale of loans............................. 76 20 154 22 309 Service fees, charges and other operating income.. 288 198 891 720 682 ----------- ------------ ---------- ----------- ----------- Total other income............................. 364 218 1,045 742 991 General, administrative and other expense: Employee compensation and benefits................ 1,055 1,066 4,012 3,817 3,308 Occupancy and equipment........................... 330 329 1,211 1,394 1,111 Federal deposit insurance premiums................ 12 18 63 209 202 Franchise taxes................................... 67 50 176 318 335 Loss on disposal of real estate acquired through foreclosure....................................... -- -- -- 11 110 Other operating expenses.......................... 402 441 1,671 1,665 1,481 ----------- ------------ ---------- ----------- ----------- Total general, administrative and other expense 1,866 1,904 7,133 7,414 6,547 ----------- ------------ ---------- ----------- ----------- Earnings before income taxes................... 571 439 2,215 1,895 2,489 Federal income taxes: Current............................................ 165 148 719 600 686 Deferred........................................... 30 1 35 44 160 ----------- ------------ ---------- ----------- ----------- Total federal income taxes........................ 195 149 754 644 846 ----------- ----------- ---------- ---------- ---------- NET EARNINGS................................... $ 376 $ 290 $ 1,461 $ 1,251 $ 1,643 =========== ============ ========== =========== =========== EARNINGS PER SHARE: Basic.......................................... $ 0.15 $ 0.11 $ 0.56 $ 0.48 $ 0.63 =========== ============ ========== =========== =========== Diluted........................................ $ 0.15 $ 0.11 $ 0.56 $ 0.48 $ 0.62 =========== ============ ========== =========== =========== Net earnings....................................... $ 376 $ 290 $ 1,461 $ 1,251 $ 1,643 Other comprehensive income (loss), net of tax: Unrealized holding gains (losses) on securities during the period net of taxes (benefits) of $3, $5, $36, $(20), and $(8)................................... 5 10 69 (38) (15) =========== ============ ========== =========== =========== Comprehensive income............................... $ 381 $ 300 $ 1,530 $ 1,213 $ 1,628 =========== ============ ========== =========== =========== Accumulated comprehensive income (loss).......... $ 38 $ (26) $ 33 $ (36) $ 2 =========== ============ ========== =========== ===========
31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion and analysis reflects Wayne Savings Bancshares, Inc.'s consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations. You should read the information in this section in conjunction with Wayne Savings Bancshares, Inc.'s consolidated financial statements and their notes beginning on page F-1 of this prospectus, and the other statistical data provided in this prospectus. This prospectus contains certain "forward-looking statements" that may be identified by the use of such words as "believe," "expect," "intend," "anticipate," "should," "planned," "estimated" and "potential." Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors that could cause actual results to differ materially from these estimates and most other statements that are not historical in nature. These factors include, but are not limited to, general and local economic conditions; changes in interest rates, deposit flows, demand for mortgage and other loans, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services. GENERAL We conduct no business other than holding the common stock of Wayne Savings Community Bank. Consequently, our net earnings depends on the net earnings of Wayne Savings Community Bank and its subsidiary, Village Savings Bank. Our financial information is presented on a consolidated basis to include Wayne Savings Community Bank and Village Savings Bank. The net earnings of Wayne Savings Community Bank is derived primarily from its net interest income, which is the difference between interest income earned on investments in loans, mortgage-backed securities and other investment securities, and its cost of funds consisting of interest paid on deposits and borrowings. Wayne Savings Community Bank's net earnings also is affected by its provision for loan losses, as well as by the amount of other income, including income from fees and service charges, and net gains and losses on sales of loans and investments, and operating expenses such as employee compensation and benefits, deposit insurance premiums, occupancy and equipment costs, and income taxes. In addition, earnings are affected significantly by general economic and competitive conditions, particularly changes in market interest rates, government policies and actions of regulatory authorities, which events are beyond our control. BUSINESS STRATEGY Our current business strategy is to operate as a well-capitalized, profitable and independent community-oriented financial institution dedicated to providing quality customer service. We emphasize retail deposits as our primary source of funds. We maintain a substantial part of our assets in locally originated residential first mortgage loans, and, to a substantially lesser extent, other types of loans, mortgage-backed securities and other liquid investment securities. Since 1998, we have increased our presence in our market area by opening three new Wayne Savings Community Bank branch locations and establishing Village Savings Bank as a separately-chartered federal savings bank. Specifically, our business strategy incorporates the following elements: (1) closely monitoring the needs of our customers and providing convenient, personal, quality customer service; (2) emphasizing the origination of one- to four-family residential mortgage loans in our market area; (3) managing interest rate risk exposure; (4) maintaining high asset quality; (5) increasing fee income; (6) maintaining a strong retail deposit base; (7) controlling expenses; and (8) maintaining capital in excess of regulatory requirements. Highlights of our business strategy are as follows: COMMUNITY BANKING AND CUSTOMER SERVICE. Wayne Savings Community Bank was established in 1899 and has been operating continuously since that time. Throughout its history, Wayne Savings Community Bank has been committed to meeting the financial needs of the communities in which it operates and providing 32 quality service to its customers. We believe that our community-oriented approach can be more effective than many of our larger competitors, which are headquartered out of the area, because our customers have direct access to senior management. We believe that a well-positioned branch network is important to increasing market share and customer convenience. Since March 1998, we have expanded our market presence by opening offices in favorable locations that provide access to new customers. Since the end of 1998, Wayne Savings Community Bank has increased its number of branches from six to nine. We opened two full-service branches in May and July 1999, and, in May 2001, we opened a full-service branch in a newly constructed shopping center. In 1998, we expanded into Stark County by establishing Village Savings Bank, which has one office. None of our new locations were acquired from other financial institutions. EMPHASIZING ONE- TO FOUR-FAMILY RESIDENTIAL MORTGAGE LOANS IN OUR MARKET AREA. We focus on originating one- to four-family residential mortgage loans and home equity loans collateralized by properties in our market area. At June 30, 2001, these loans constituted 84.4% of our total loan portfolio. We also originate loans collateralized by non-residential and multi-family residential real estate, as well as commercial business loans and consumer loans. Such loans constitute a relatively small part of our lending activities, but help to create strong ties to our customers by increasing relationships and providing cross-marketing opportunities. MANAGING INTEREST RATE RISK EXPOSURE. In order to attempt to reduce the potential volatility of our earnings in a rapidly changing interest rate environment, we have implemented the following strategies. First, we have attempted to better match the maturities of our interest rate sensitive assets and liabilities. Second, we continue to emphasize the origination of adjustable rate mortgage (ARM) loans and other adjustable rate or short-term loans, such as consumer and commercial business loans. However, particularly in the current low interest rate environment, mortgage loan borrowers typically prefer fixed-rate loans to ARM loans. During the year ended March 31, 2001, our ARM portfolio increased by $7.4 million, or 13.0%, and ARM loans constituted 28.1% of our total loan portfolio at June 30, 2001. Third, our fixed rate mortgage loans generally are underwritten according to standards that permit resale in the secondary mortgage market. Fourth, we attempt to lengthen the maturities of certificates of deposit as market conditions permit; however, in the current low market interest rate environment, depositors typically prefer shorter-term deposits. MAINTAINING HIGH ASSET QUALITY. We have consistently maintained a high level of asset quality. We concentrate on originating one- to four-family residential mortgage loans collateralized by properties in our market area. One- to four-family residential mortgage loans typically pose less credit risk than multi-family and non-residential real estate loans. We believe that our high asset quality also is the result of a stable economy, conservative underwriting standards and experienced loan officers, as well as diligent monitoring of our loan portfolio by our collections department. During the three months ended June 30, 2001 and the years ended March 31, 2001, 2000 and 1999, loan charged-offs totaled $1,000, $234,000, $5,000 and $107,000, respectively. At June 30, 2001 and at March 31, 2001, 2000 and 1999, our percentage of non-performing loans to net loans receivable was 0.70%, 0.21%, 0.08% and 0.13%, respectively. INCREASING FEE INCOME. In order to decrease our reliance on net interest income, we have sought to increase non-interest income. In this regard, we restructured our service fees in July 2000, increasing the type and rate structure of fees associated with our deposits. Service fees and charges increased by $171,000 or 23.8%, for the fiscal year ended March 31, 2001 compared to the preceding fiscal year. In addition, beginning in 1997, we began to build a line of investment products, which we offer through a third party. The product line now includes fixed and variable annuities and mutual funds. We also began offering debit cards in December 2000. We are currently considering additional fee-based products to offer our customers. MAINTAINING A STRONG RETAIL DEPOSIT BASE. We historically have had a relatively strong and stable retail deposit base drawn from our market area. Our deposit-gathering strength is enhanced by the strong sales culture in our branches and by our branch franchise, which we have expanded since 1998. In the three year period ended March 31, 2001, deposits grew 28%. At June 30, 2001, our "core deposits," which includes, checking, money market, passbook and savings accounts, totaled $105.1 million or 37.0% of our total deposits. Core deposits are a more stable and lower cost source of funds than certificates of deposit, and they often generate fee income. 33 COMMITMENT TO EXPENSE CONTROL. In large part due to the increase in the number of banking offices since March 1998, our general and administrative expenses have grown. We recognized the need to study our costs and develop a broad-based cost containment program, which we implemented in September 2000. As a result of this initiative, our expenses, most notably occupancy costs, have diminished, and compensation expense has decreased slightly, despite normal merit raises and the need to staff our most recently opened branch. Full-time equivalent employees decreased from 114 at September 30, 2000 to 110 at June 30, 2001, despite the opening of a new branch office during the period. We believe that, as result of cross-training, the longevity of many of our senior managers and technological efficiencies, the decrease in the number of our personnel has not negatively impacted the quality of customer service or operations. We will continue to monitor and refine our cost control efforts. MAINTAINING CAPITAL IN EXCESS OF REGULATORY REQUIREMENTS. Our policy is to maintain financial strength through conservative risk-management and consistent earnings. At June 30, 2001, our regulatory capital amounted to $25.4 million, substantially in excess of regulatory requirements. At June 30, 2001, Wayne Savings Community Bank maintained core capital of $25.0 million, or 7.98% of total assets, substantially in excess of the regulatory core capital requirement of 4.00% of total assets. We intend to maintain capital in excess of regulatory requirements following the offering. 34 CHANGES IN FINANCIAL CONDITION COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2001 AND MARCH 31, 2001 At June 30, 2001, our total assets amounted to $317.7 million, an increase of $6.0 million, or 1.9%, over our total assets at March 31, 2001. The increase was funded primarily by a $6.7 million increase in interest-earning deposits at other financial institutions. Cash and due from banks, federal funds sold, interest-bearing deposits, certificates of deposit and investment securities totaled approximately $39.0 million at June 30, 2001, a decrease of approximately $1.3 million, or 3.2%, from March 31, 2001 levels. Regulatory liquidity approximated 17.9% at June 30, 2001, compared to 17.5% at March 31, 2001. Mortgage-backed securities decreased by $1.5 million, or 16.9%, to $7.2 million at June 30, 2001. This decrease was primarily due to principal repayments on mortgage-backed securities totaling $1.5 million for the three months ended June 30, 2001. Loans receivable increased by $7.4 million, or 3.0%, over the March 31, 2001 total. This increase resulted from loan disbursements of $30.1 million, which were partially offset by principal repayments of $16.5 million and sales of $6.4 million. The majority of loan disbursements during the quarter ended June 30, 2001 were comprised of loans secured by one-to four-family residential real estate. The allowance for loan losses totaled $656,000 at June 30, 2001, compared to $655,000 at March 31, 2001. Nonaccrual loans totaled $358,000 at June 30, 2001 and $515,000 at March 31, 2001. The allowance for loan losses totaled 183.2% and 127.2% of nonaccrual loans at June 30, 2001 and March 31, 2001, respectively. Nonperforming assets totaled $1.8 million and $639,000 at June 30, 2001 and March 31, 2001, respectively. The allowance for loan losses totaled 36.6% and 102.5% of nonperforming assets at June 30, 2001 and March 31, 2001, respectively. See "Nonperforming Assets." Although management believes that its allowance for loan losses at June 30, 2001, 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 our results of operations. Deposits increased by approximately $6.7 million, or 2.4%, during the quarter ended June 30, 2001, to a total of $284.4 million at June 30, 2001. This growth was mainly due to competitive passbook rates as well as our elimination of correspondent banking services, which resulted in our transferring corporate checking accounts from other financial institutions to internal deposits. Stockholders' equity increased by $36,000 or 0.1% to $25.3 million at June 30, 2001, due primarily to net earnings of $376,000, partially offset by dividends paid totaling $205,000 and repurchases of common stock totaling $140,000 during the quarter ended June 30, 2001. COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2001 AND MARCH 31, 2000 At March 31, 2001, our total assets amounted to $311.8 million, an increase of $7.7 million, or 2.5%, over total assets of $304.1 million at March 31, 2000. Cash and due from banks, federal funds sold, interest-bearing deposits, certificates of deposit and investment securities totaled $40.2 million, a decrease of $1.3 million, or 3.0%, from March 31, 2000 levels. During the fiscal year ended March 31, 2001, investment securities totaling $12.1 million matured, while $2.5 million of investment securities were purchased. Cash and cash equivalents increased by $6.6 million, or 46.1%, to a total of $20.9 million at March 31, 2001. Regulatory liquidity approximated 17.5% at March 31, 2001, compared to 19.6% at March 31, 2000. Mortgage-backed securities totaled $8.6 million at March 31, 2001, a $1.9 million, or 17.9%, decrease from the total at March 31, 2000. The decrease resulted primarily from principal repayments of $4.0 million, which were partially offset by purchases totaling $2.0 million. 35 Loans receivable, including loans held for sale, increased by approximately $10.1 million, or 4.2%, to $247.5 million at March 31, 2001, from $237.4 million at March 31, 2000. This increase resulted from loan disbursements of $75.7 million, which were partially offset by principal repayments of $56.5 million and sales of $9.2 million. Loans secured by residential real estate increased by $8.3 million during fiscal 2001. The allowance for loan losses totaled $655,000 at March 31, 2001, as compared to $793,000 at March 31, 2000. Nonperforming loans totaled $515,000 at March 31, 2001, and $200,000 at March 31, 2000. The allowance for loan losses totaled 127.2% and 396.5% of nonperforming loans at March 31, 2001 and 2000, respectively. At March 31, 2001, the nonperforming loans consisted primarily of one- to four-family loans. See "Delinquencies and Classified Assets - Non-Performing Assets." Deposits increased by $12.8 million, or 4.8%, to a total of $277.7 million at March 31, 2001. The increase in deposits was primarily attributable to management's continuing efforts to achieve a moderate rate of deposit growth through marketing strategies. Advances from the Federal Home Loan Bank decreased by $6.0 million, or 50.0%, from $12.0 million outstanding at March 31, 2000, to $6.0 million outstanding at March 31, 2001. Stockholders' equity totaled $25.3 million at March 31, 2001, a $164,000, or 0.7%, increase over March 31, 2000. The increase was due primarily to net earnings of $1.5 million, which were partially offset by dividends paid of $1.1 million, or $0.64 per share, and repurchases of common stock totaling $358,000. RESULTS OF OPERATIONS Our earnings depend primarily on our level of net interest income, which is the difference between interest earned on our interest-earning assets and interest paid on our interest-bearing liabilities. Net interest income is substantially affected by our 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. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000 GENERAL. Net earnings totaled $376,000 for the three months ended June 30, 2001, compared to net earnings of $290,000 for the same period in 2000, an increase of $86,000, or 29.7%. The increase in net earnings resulted primarily from an increase in other income of $146,000, a decrease of $49,000 in the provision for losses on loans and a $38,000 decrease in general, administrative and other expenses, which were partially offset by a decrease in net interest income of $101,000 and an increase in federal income taxes of $46,000. INTEREST INCOME. Interest on loans and mortgage-backed securities totaled $4.9 million for the three months ended June 30, 2001, an increase of $168,000, or 3.5%, over the same period in 2000. The increase can be primarily attributed to a $10.4 million, or 4.3%, increase in the average balance of loans outstanding while the average yield on such loans was unchanged at 7.69%. Interest on investments and interest-bearing deposits decreased by $86,000, or 14.9%, during the three months ended June 30, 2001, as compared to the same period in 2000, as a result of a decrease in the average yield on investment securities to 6.56% from 7.15% and on interest-bearing deposits to 3.97% from 6.36%, reflecting the generally lower market interest rate environment. The average balance of such assets increased by $7.5 million, or 22.2%, which partially offset the lower average yields on such assets. INTEREST EXPENSE. Interest expense on deposits and borrowings increased by $183,000, or 5.8%, during the three months ended June 30, 2001, over the same period in 2000. The increase can be primarily attributed to a $10.7 million, or 3.9%, increase in the average balance of interest-bearing liabilities and an increase in the cost of interest-bearing liabilities of eight basis points to 4.70% from 4.62%. NET INTEREST INCOME. As a result of the foregoing changes in interest income and interest expense, net interest income decreased by $101,000, or 4.6%, during the three months ended June 30, 2001, as compared to the same period in 2000. Our interest rate spread decreased to 2.56% for the three months ended June 30, 2001 36 from 2.91% for the three months ended June 30, 2000, offset in part by an increase in the ratio of interest-earning assets to interest-bearing liabilities to 105.00% from 103.58%. 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 we conduct, the status of past due principal and interest payments, general economic conditions, particularly as such conditions relate to our market area, and other factors related to the collectibility of our loan portfolio. As a result of such analysis, management recorded a $2,000 provision for losses on loans during the three months ended June 30, 2001, primarily due to growth in the loan portfolio, coupled with management's assessment of the collateral securing nonperforming loans. There can be no assurance that the loan loss allowance will be adequate to cover losses on nonperforming assets in the future. OTHER INCOME. Other income totaled $364,000 for the three months ended June 30, 2001, an increase of $146,000, or 67.0%, over the comparable 2000 period. This increase was due primarily to a $90,000, or 45.5%, increase in service fees, charges and other operating income, coupled with a $56,000, or 280.0%, increase in gain on sale of loans. The increase in service fees, charges and other operating income was due primarily to a new service fee structure implemented on deposit accounts beginning in July 2000. The increase in gain on sale of loans was a result of loan sales of $6.4 million in 2001 compared to the $2.1 million sold in the quarter ended June 30, 2000. 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 expense, decreased by $38,000, or 2.0%, during the three months ended June 30, 2001, due primarily to a $39,000, or 8.8%, decrease in other operating expenses and an $11,000, or 1.0%, decrease in employee compensation and benefits, which were partially offset by a $17,000, or 34.0%, increase in franchise taxes due to increased capital levels. General, administrative and other expenses have decreased due to the continuing effects of management's cost reduction program implemented in September 2000. FEDERAL INCOME TAXES. The provision for federal income taxes amounted to $195,000 for the three months ended June 30, 2001, an increase of $46,000, or 30.9%, compared to the same period in 2000. The increase resulted primarily from a $132,000, or 30.1%, increase in pretax earnings year to year. The effective tax rate for the three months ended June 30, 2001 and 2000 was 34.2% and 33.9%, respectively. RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 2001, 2000 AND 1999 GENERAL. Net earnings amounted to $1.5 million for the fiscal year ended March 31, 2001. This represented a 16.8% increase from net earnings of $1.3 million reported in the prior fiscal year. Net earnings were $1.3 million for the fiscal year ended March 31, 2000 compared to $1.6 million for the fiscal year ended March 31, 1999. The increase in net earnings in fiscal year 2001 was due to a $281,000 decrease in general, administrative, and other expense, a $171,000 increase in other operating income and a $132,000 increase in gain on sale of loans, which were partially offset by a $110,000 increase in the provision for federal income taxes and a decrease of $288,000 in net interest income. The decrease in earnings in fiscal year 2000 compared to fiscal year 1999 was due primarily to an increase of $867,000 in general, administrative and other expense and a decrease of $249,000 in total other income, which was partially offset by an increase of $578,000 in net interest income. INTEREST INCOME. Interest income totaled $21.5 million for the fiscal year ended March 31, 2001, an increase of $798,000, or 3.9%, from interest income of $20.7 million for the fiscal year ended March 31, 2000. Interest income increased due to an increase in the average balance of interest-earning assets of $11.5 million, or 4.1%, to $288.2 million, partially offset by a decrease in the average yield to 7.46% from 7.48% for the prior year. Interest income on loans receivable increased by $766,000, or 4.3%, due to a $15.8 million, or 6.9%, increase in the average balance of loans outstanding, which was partially offset by a decrease in the average yield to 7.61% from 7.80%. 37 Interest income on mortgage-backed securities decreased by $19,000, or 3.2%, primarily due to a decrease in the average balance of $398,000, or 3.9%, to $9.8 million for the year ended March 31, 2001. The average yield on these assets increased to 5.98%, from 5.93% for the previous fiscal year. Interest income on investment securities and interest-bearing deposits increased for the year, primarily as a result of an increase in the average yield on these assets. The yield on investment securities increased to 7.36%, from 6.86% for the prior fiscal year, while the yield on interest-bearing deposits rose to 5.93%, from 5.25% for the prior fiscal year. The average balance of these assets decreased by approximately $3.9 million, as we funded loan growth. For the fiscal year ended March 31, 2000, interest income totaled $20.7 million, 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 to 7.80% from 8.14%. 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 fiscal year ended March 31, 2000. The yield on these assets increased to 5.93%, from 5.65% for the fiscal year ended March 31, 1999. Interest income on both investment securities and interest-bearing deposits increased for the fiscal year ended March 31, 2000, primarily as a result of an increase in the average yield on these assets as market interest rates continually rose throughout the fiscal year. The yield on investment securities increased to 6.86%, from 6.03% for the fiscal year ended March 31, 1999, while the yield on interest-bearing deposits rose to 5.25%, from 5.01%. The average balance of these assets increased by approximately $2.4 million, as we maintained a liquid position to take advantage of a future increase in rates. INTEREST EXPENSE. Interest expense for the fiscal year ended March 31, 2001 totaled $13.1 million, an increase of $1.1 million, or 9.0%, from interest expense of $12.0 million for the previous fiscal year. The increase resulted from an increase in the average balance of interest-bearing liabilities of $6.8 million, or 2.6%, to $267.8 million, coupled with an increase in the average cost of funds to 4.89% for fiscal year 2001 from 4.60% for the previous fiscal year. Interest expense on deposits increased $1.1 million, or 9.7%, to $12.7 million in fiscal year 2001 as a result of an increase in the cost of deposits to 4.87% from 4.57%, coupled with a 3.0% increase in the average deposits outstanding, to $259.9 million in fiscal 2001 from $252.3 million in fiscal 2000. Interest expense on borrowings for the fiscal year ended March 31, 2001, decreased $36,000, or 7.4%, to $448,000. The decrease was the result of a decrease in the average balance of borrowings outstanding of $719,000, or 8.4%, partially offset by an increase in the cost of borrowings to 5.69% in fiscal year 2001 from 5.63% in fiscal year 2000. For the fiscal year ended March 31, 2000, interest expense totaled $12.0 million, an increase of $827,000, or 7.4%, from interest expense of $11.2 million for fiscal year 1999. 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 fiscal year 2000 from 4.77% for fiscal year 1999. 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 to $252.3 million in fiscal year 2000 from $222.6 million for fiscal year 1999, partially offset by a decrease in the cost of deposits to 4.57% in fiscal year 2000 from 4.72% in fiscal year 1999. 38 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 the cost of borrowings to 5.63% in fiscal year 2000 from 5.75% in fiscal year 1999. NET INTEREST INCOME. Net interest income for the fiscal year ended March 31, 2001 was $8.4 million, compared to $8.7 million for the previous fiscal year, a 3.3% decrease, as our interest rate spread decreased to 2.57% in fiscal year 2001 from 2.88% in fiscal year 2000. This was partially offset by growth of $11.5 million in average interest-earning assets resulting in an increase in the ratio of average interest-earning assets to average interest-bearing liabilities to 107.62% in fiscal year 2001 from 106.05% in fiscal year 2000. Net interest income for fiscal year 2000 was $8.7 million, compared to $8.1 million for fiscal year 1999, a 7.1% increase, as average interest-earning assets increased by $26.0 million, or 10.4%. This was partially offset by a decline in our interest rate spread to 2.88% from 2.93%, and a decrease in the ratio of average interest-earning assets to average interest-bearing liabilities to 106.05% in fiscal year 2000 from 106.99% in fiscal year 1999. PROVISION FOR LOSSES ON LOANS. Our allowance for loan losses was $655,000, or 0.27% of loans receivable at March 31, 2001, $793,000, or 0.33% of loans receivable at March 31, 2000, and $678,000, or 0.32% of loans receivable at March 31, 1999. We recorded a provision for losses on loans of $96,000 for the fiscal year ended March 31, 2001, primarily due to growth in the loan portfolio coupled with management's assessment of the collateral securing non-performing loans. We recorded a provision for losses on loans at $120,000 and $64,000 for the fiscal years ended March 31, 2000 and 1999, respectively. OTHER INCOME. Other income, consisting primarily of gain on sale of loans, service fees, and charges on deposit accounts, increased $303,000, or 40.8%, to $1.0 million for fiscal year 2001. The increase was a result of an increase of $132,000, or 600.0%, in gain on sale of fixed-rate mortgage loans. Fixed-rate mortgage loans sold totaled $9.2 million compared to $6.4 million sold in the previous fiscal year. Service fees, charges, and other operating income increased $171,000, or 23.8%, to $891,000 in fiscal year 2001 as fees related to deposit accounts increased. Other income decreased $249,000, or 25.1%, to $742,000 for fiscal year 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 fiscal year 1999. Service fees, charges, and other operating income increased $38,000, or 5.6%, to $720,000 in fiscal year 2000, as fee activity related to deposit accounts increased. GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and other expense totaled $7.1 million for the fiscal year ended March 31, 2001, a decrease of $281,000, or 3.8%, compared to fiscal year 2000. The decrease was primarily a result of a decrease in federal deposit insurance premiums of $146,000, or 69.9%, a decrease in occupancy and equipment of $183,000, or 13.1%, and a decrease in franchise taxes of $142,000, or 44.7%, which were partially offset by an increase of $195,000, or 5.1%, in employee compensation and benefits. The decrease in federal deposit insurance premiums was due to a reduction in premium rates. The decrease in franchise taxes reflected refunds received in fiscal year 2001, as well as a decline in the rate of tax year to year. The decrease in occupancy and equipment reflected the results of management's cost containment initiative during fiscal year 2001. The increase in employee compensation and benefits was due primarily to normal merit increases and a reduction in the level of deferred loan origination costs. General, administrative and other expense totaled $7.4 million for the fiscal year ended March 31, 2000, an increase of $867,000, or 13.2%, compared to fiscal year 1999. The increase is due primarily to an increase of $509,000, or 15.4%, in employee compensation, an increase of $283,000, or 25.5%, in occupancy and equipment and an increase of $184,000, or 12.4%, in other operating expense, the effects of which were partially offset by a decrease of $99,000, or 90.0%,in loss on disposal of real estate acquired through foreclosure. These increases were primarily a result of increased operating costs, as a result of opening two new branch offices in fiscal year 2000. 39 FEDERAL INCOME TAXES. The provision for federal income taxes totaled $754,000 for the fiscal year ended March 31, 2001, an increase of $110,000, or 17.1%, compared to the $644,000 provision recorded for the previous fiscal year. The increase in federal income taxes reflected the higher pre-tax earnings for the period ended March 31, 2001, as the effective tax rate was 34.0% for both periods. The provision for federal income taxes totaled $644,000 for the fiscal year ended March 31, 2000, a decrease of $202,000, or 23.9%, compared to the $846,000 provision recorded for fiscal year 1999. The decrease in federal income taxes reflected the lower pre-tax earnings for the period ended March 31, 2000, as the effective tax rate was 34.0% for both periods. AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID The following table sets forth certain information relating to our 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.
THREE MONTHS ENDED JUNE 30, -------------------------------------------------------------------------- 2001 2000 ------------------------------------ ------------------------------------ AVERAGE AVERAGE AVERAGE AVERAGE BALANCE INTEREST RATE BALANCE INTEREST RATE ---------- ---------- --------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) INTEREST-EARNING ASSETS: Loans receivable, net(1)......... $ 249,324 $ 4,796 7.69% $ 238,963 $ 4,595 7.69% Mortgage-backed securities(2).... 7,981 131 6.57 10,711 164 6.12 Investment securities............ 12,625 207 6.56 20,208 361 7.15 Interest-bearing deposits(3)..... 28,725 285 3.97 13,651 217 6.36 ---------- ---------- ---------- ----------- ------- ---------- Total interest-earning assets.... 298,655 5,419 7.26 283,533 5,337 7.53 Non-interest-earning assets...... 13,944 20,778 ---------- ----------- Total assets..................... $ 312,599 $ 304,311 ========== ========== INTEREST-BEARING LIABILITIES: Deposits......................... $ 278,441 $ 3,262 4.69 $ 265,230 $ 3,045 4.59 Borrowings....................... 6,000 82 5.47 8,513 116 5.45 ---------- ---------- ---------- ----------- ------- ---------- Total interest-bearing liabilities...................... 284,441 3,344 4.70 273,743 3,161 4.62 Non-interest-bearing liabilities. 2,923 5,368 ---------- ----------- Total liabilities................ 287,364 279,111 Stockholders' equity............. 25,235 25,200 ---------- ----------- Total liabilities and stockholders' equity............. $ 312,599 $ 304,311 ---------- ---------- ----------- -------- Net interest income.............. $ 2,075 $ 2,176 ========== ======= ---------- --------- Interest rate spread(4).......... 2.56% 2.91% ========== ========= Net yield on interest-earning 3.07% ========= assets(5)........................ 2.78% ========== Ratio of average interest-earning assets to average interest-bearing liabilities...................... 105.00% 103.58% ========= =========
------------------------- (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. 40
YEAR ENDED MARCH 31, ----------------------------------------------------------------------------- 2001 2000 -------------------------------------- ------------------------------------- AVERAGE AVERAGE AVERAGE AVERAGE BALANCE INTEREST RATE BALANCE INTEREST RATE ----------- ------------ ---------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Interest-earning assets: Loans receivable, net(1).... $ 245,624 $ 18,694 7.61% $ 229,845 $ 17,928 7.80% Mortgage-backed securities(2) 9,754 583 5.98 10,152 602 5.93 Investment securities....... 19,342 1,423 7.36 15,053 1,033 6.86 Interest-bearing deposits(3)... 13,481 799 5.93 21,669 1,138 5.25 ----------- ------------ ---------- ----------- ----------- ----------- Total interest-earning assets.. 288,201 21,499 7.46 276,719 20,701 7.48 Non-interest-earning assets. 10,727 16,165 ----------- ----------- Total assets................ $ 298,928 $ 292,884 =========== =========== Interest-bearing liabilities: Deposits.................... $ 259,914 12,652 4.87 $ 252,346 11,530 4.57 Borrowings.................. 7,877 448 5.69 8,596 484 5.63 ----------- ------------ ---------- ----------- ----------- ----------- Total interest-bearing liabilities................. 267,791 13,100 4.89 260,942 12,014 4.60 Non-interest-bearing liabilities................. 5,893 6,844 ----------- ----------- Total liabilities........... 273,684 267,786 Stockholders' equity........ 25,244 25,098 ----------- ----------- Total liabilities and stockholders' equity....... $ 298,928 $ 292,884 =========== ------------ =========== ----------- Net interest income......... $ 8,399 $ 8,687 ============ ----------- =========== ----------- Interest rate spread(4)..... 2.57% 2.88% ======== ========== Net yield on interest-earning assets(5).................. 2.91% 3.14% ======== ========== Ratio of average interest-earning assets to average interest-bearing liabilities................ 107.62% 106.05% ======== ========== YEAR ENDED MARCH 31, --------------------------------------- 1999 --------------------------------------- AVERAGE AVERAGE BALANCE INTEREST RATE ------------ ------------- ----------- Interest-earning assets: Loans receivable, net(1).... $ 209,178 $ 17,037 8.14% Mortgage-backed securities(2) 7,170 405 5.65 Investment securities....... 12,999 784 6.03 Interest-bearing deposits(3).. 21,345 1,070 5.01 ------------ ------------- ----------- Total interest-earning assets. 250,692 19,296 7.70 Non-interest-earning assets. 11,988 ------------ Total assets................ $ 262,680 ============ Interest-bearing liabilities: Deposits.................... $ 222,645 10,516 4.72 Borrowings.................. 11,667 671 5.75 ------------ ------------- ----------- Total interest-bearing liabilities................. 234,312 11,187 4.77 Non-interest-bearing liabilities................. 4,549 ------------ Total liabilities........... 238,861 Stockholders' equity........ 23,819 ------------ Total liabilities and stockholders' equity....... $ 262,680 =========== ------------- Net interest income......... $ 8,109 ============= ---------- Interest rate spread(4)..... 2.93% ======== Net yield on interest-earning assets(5).................. 3.23% ======== Ratio of average interest-earning assets to average interest-bearing liabilities................ 106.99% ========
-------------- (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. 41 RATE/VOLUME ANALYSIS The table below sets forth certain information regarding changes in our interest income and interest expense 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). Changes 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, and the net change.
THREE MONTHS ENDED JUNE 30, YEAR ENDED MARCH 31, ----------------------------------- -------------------------------------- 2001 VS. 2000 2001 VS. 2000 ----------------------------------- ------------------------------------- INCREASE (DECREASE) INCREASE (DECREASE) DUE TO TOTAL DUE TO TOTAL ------------------------ INCREASE ------------------------- INCREASE VOLUME RATE (DECREASE) VOLUME RATE (DECREASE) ------------ ----------- ---------- ------------- ----------- ---------- (DOLLARS IN THOUSANDS) Interest income attributable to: Loans receivable............. $ 201 $ -- $ 201 $ 1,210 $ (444) $ 766 Mortgage-backed securities... (44) 11 (33) (24) 5 (19) Other interest-earning assets 112 (198) (86) (245) 296 51 ------------ ----------- ---------- ------------- ----------- ---------- Total interest-earning assets 269 (187) 82 941 (143) 798 Interest expense attributable to: Deposits..................... 151 66 217 352 770 1,122 Borrowings................... (34) -- (34) (41) 5 (36) ------------ ----------- ---------- ------------- ----------- ---------- Total interest-bearing liabilities.................. 117 66 183 311 775 1,086 ------------ ----------- ---------- ------------- ----------- ---------- Increase (decrease) in net interest income............ $ 150 $ (251) $ (101) $ 630 $ (918) $ (288) ============ =========== ========== ============= =========== ========== YEAR ENDED MARCH 31, ------------------------------------- 2000 VS. 1999 ------------------------------------- INCREASE (DECREASE) DUE TO TOTAL ------------------------- INCREASE VOLUME RATE (DECREASE) ------------- ----------- ----------- Interest income attributable to Loans receivable................. $ 1,625 $ (734) $ 891 Mortgage-backed securities....... 176 21 197 Other interest-earning assets ... 134 183 317 ------------- ----------- ----------- Total interest-earning assets ... 1,935 (530) 1,405 Interest expense attributable to: Deposits......................... 1,358 (344) 1,014 Borrowings....................... (173) (14) (187) ------------- ----------- ----------- Total interest-bearing liabilities...................... 1,185 (358) 827 ------------- ----------- ----------- Increase (decrease) in net interest income................. $ 750 $ (172) $ 578 ============= =========== ===========
42 ASSET AND LIABILITY MANAGEMENT-INTEREST RATE SENSITIVITY ANALYSIS We, like other financial institutions, are subject to interest rate risk to the extent that our interest-earning assets reprice at a different time than our interest-bearing liabilities. As part of our effort to monitor and manage interest rate risk, we use the "net portfolio value" ("NPV") methodology adopted by the OTS as part of its interest rate sensitivity regulations. The application of NPV methodology illustrates certain aspects of our 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 that 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. Presented below, as of June 30, 2001 and March 31, 2001, is an analysis of our 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 JUNE 30, 2001 -------------------------------------------------------------------------------------------------------------------- CHANGE IN INTEREST NET PORTFOLIO VALUE NPV AS % OF PV OF ASSETS ---------------------------------------- -------------------------------------- ---------------------------------- RATES (BASIS POINTS) $ AMOUNT $ CHANGE % CHANGE NPV RATIO CHANGE ---------------------------------------- ---------- ------------ ------------ ---------------- ----------------- (IN THOUSANDS) +300 bp 19,181 (20,537) (52)% 6.17% (572) bp +200 bp 26,109 (13,608) (34) 8.20 (370) bp +100 bp 32,951 (6,766) (17) 10.10 (180) bp 0 bp 39,717 -- -- 11.90 -- -100 bp 44,163 4,446 11 13.02 112 bp -200 bp 46,198 6,481 16 13.49 159 bp -300 bp 47,935 8,218 21 13.87 197 bp AS OF MARCH 31, 2001 -------------------------------------------------------------------------------------------------------------------- CHANGE IN INTEREST NET PORTFOLIO VALUE NPV AS % OF PV OF ASSETS ---------------------------------------- -------------------------------------- ---------------------------------- RATES (BASIS POINTS) $ AMOUNT $ CHANGE % CHANGE NPV RATIO CHANGE ---------------------------------------- ---------- ------------ ------------ ---------------- ----------------- (IN THOUSANDS) +300 bp $ 20,998 $ (19,023) (48)% 6.92% (532 bp) +200 bp 27,428 (12,593) (31) 8.81 (343 bp) +100 bp 33,598 (6,243) (16) 10.53 (171 bp) 0 bp 40,021 -- -- 12.24 -- -100 bp 43,048 3,027 8 12.99 75 bp -200 bp 43,135 3,114 8 12.95 71 bp -300 bp 43,539 3,518 9 13.00 76 bp
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. Our policy in recent years has been to attempt to reduce our exposure to interest rate risk generally by better matching the maturities of our interest rate sensitive assets and liabilities and by originating adjustable rate mortgage ("ARM") loans and other adjustable rate or short-term loans, as well as by purchasing short-term investments. However, particularly in the lower long-term interest rate environment that currently exists, borrowers typically prefer fixed rate loans to ARM loans. Accordingly, ARM loan originations were very limited during the 43 fiscal year ended March 31, 2001. During the fiscal year 2001, $9.2 million of long-term fixed rate loans were sold as part of our strategy to reduce interest rate risk. We sought to lengthen the maturities of our deposits by promoting longer-term certificates; however, we were not successful in lengthening the maturities of our deposits in the generally low market interest rate environment throughout the year. We have an Asset-Liability Management Committee that is responsible for reviewing our 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. We have operated within the framework of their prescribed asset/liability risk ranges for each of the last three years. LIQUIDITY AND CAPITAL RESOURCES Wayne Savings Community Bank is required to maintain minimum levels of liquid assets as defined by Office of Thrift Supervision 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 liquidity ratio currently is 4.0% of assets. Our liquidity ratio averaged 16.4%, 16.1%, 16.8% and 14.7%, for the three months ended June 30, 2001 and for the years ended March 31, 2001, 2000 and 1999, respectively. We adjust our liquidity levels to fund deposit outflows, pay real estate taxes on mortgage loans, repay our borrowings and fund loan commitments. We also adjust liquidity as appropriate to meet asset and liability management objectives. Our 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 market interest rates, economic conditions, and competition. We set the interest rates on our deposits to maintain a desired level of total deposits. In addition, we invest excess funds in short-term interest-earning and other assets, which provide liquidity to meet lending requirements. Cash and cash equivalents (including interest bearing deposits in other financial institutions and federal funds sold) totaled $26.8 million, $20.9 million, $14.3 million and $16.2 million at June 30, 2001 and at March 31, 2001, 2000 and 1999, respectively. At such dates, other assets qualifying for liquidity purposes totaled $19.3 million, $28.9 million, $37.4 million and $23.4 million, respectively. For additional information about cash flows from our operating, financing, and investing activities, see Consolidated Statements of Cash Flows included in the Financial Statements. Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Cincinnati, which provide an additional source of funds. At June 30, 2001, we had $6.0 million in advances from the Federal Home Loan Bank of Cincinnati. We borrow from the Federal Home Loan Bank of Cincinnati in order to reduce interest rate risk, and for liquidity purposes. At June 30, 2001, we had outstanding loan commitments of $9.4 million to originate mortgage loans. This amount did not include the unfunded portion of loans in process. Certificates of deposit scheduled to mature in less than one year, totaled $136.2 million at June 30, 2001. Based on prior experience, management believes that a significant portion of such deposits will remain with Wayne Savings Community Bank, although there can be no assurance that this will be the case. IMPACT OF INFLATION AND CHANGING PRICES The consolidated financial statements of Wayne Savings Bancshares, Inc. and notes thereto, presented elsewhere herein, have been prepared in accordance with accounting principles generally accepted in the United States of America, which require 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 Wayne Savings Community Bank's operations. Unlike most industrial companies, nearly all the assets and liabilities of Wayne Savings Community Bank are monetary. As a result, interest rates have a greater impact on Wayne Savings Community Bank'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 changes in the price of goods and services. 44 IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS In September 2000, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but carries over most of the provisions of SFAS No. 125 without reconsideration. SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The Statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. Management adopted SFAS No. 140 effective April 1, 2001, as required, without material effect on our financial position or results of operations. In June 2001, the FASB issued 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, financial statement presentation and disclosure, are effective for combinations completed after June 30, 2001. Management will follow the provisions of SFAS No. 141 for any acquisitions initiated after July 1, 2001. In June 2001, the FASB issued SFAS No. 142 "Goodwill and Intangible Assets," which prescribed 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. All goodwill should be assigned to reporting units that are expected to benefit from the goodwill. When an entity reorganizes its reporting structure, goodwill should be reallocated to reporting units based on the relative fair values of the units. Goodwill impairment should be tested with a two-step approach. First, the fair value of the reporting unit should be compared to its carrying value, including goodwill. If the reporting unit's carrying value exceeds its fair value, then any goodwill impairment should be measured as the excess of goodwill's carrying value over its implied fair value. The implied fair value of goodwill should be calculated in the same manner as goodwill is calculated for a business combination, using the reporting unit's fair value as the "purchase price" over the amounts allocated to assets, including unrecognized intangible assets, and liabilities of the reporting unit. Goodwill impairment losses should be reported in the income statement as a separate line item within operations, except for such losses included in the calculation of a gain or loss from discontinued operations. An acquired intangible asset, other than goodwill, should be amortized over its useful economic life. The useful life of an intangible asset is indefinite if it extends beyond the foreseeable horizon. If an asset's life is indefinite, the asset should not be amortized until the life is determined to be finite. Intangible assets being amortized should be tested for impairment in accordance with SFAS No. 121. Intangible assets not being amortized should be tested for impairment, annually and whenever there are indicators of impairment, by comparing the asset's fair value to its carrying amount. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Early adoption is permitted for companies with fiscal years beginning after March 15, 2001, but only if the first quarter financial statements have not previously been issued. Calendar year end companies may not adopt early. SFAS No. 142 will have no current effect on our financial position or results of operations. BUSINESS OF WAYNE SAVINGS BANCSHARES, INC. AND WAYNE SAVINGS COMMUNITY BANK WAYNE SAVINGS BANCSHARES, INC. Wayne Savings Bancshares, Inc. is a federal corporation which was organized on August 5, 1997. Its only significant asset is its investment in Wayne Savings Community Bank. Wayne Savings Bancshares, Inc. is majority-owned by Wayne Savings Bankshares, M.H.C., a federally-chartered mutual holding company. On November 25, 1997, Wayne Savings Bancshares, Inc. acquired all of the issued and outstanding common stock of Wayne Savings 45 Community Bank in connection with the bank's reorganization into the "two-tier" form of mutual holding company ownership. At that time, each share of the bank's common stock was automatically converted into one share of Wayne Savings Bancshares, Inc. common stock. WAYNE SAVINGS COMMUNITY BANK Wayne Savings Community Bank is an Ohio-chartered stock savings and loan association headquartered in Wooster, Ohio. Its deposits are insured by the Federal Deposit Insurance Corporation under the Savings Association Insurance Fund. The bank has been a member of the Federal Home Loan Bank System since 1937. Wayne Savings Community Bank is a community-oriented savings institution offering a broad range of financial services to its local community. The bank's primary lending and deposit gathering area includes Wayne, Holmes, Ashland, and Medina counties, where it operates nine full-service offices. This contiguous four-county area is located in north central Ohio, and is an active manufacturing and agricultural market. The bank's principal business activity consists of originating one- to four-family residential real estate loans in its market area. The bank also originates multi-family residential and non-residential real estate loans, although such loans constitute a small portion of the bank's lending activities and a small portion of the bank's loan portfolio. The bank also originates consumer loans, and to a lesser extent, construction loans and commercial business loans. The bank also invests in mortgage-backed securities and currently maintains a significant portion of its assets in liquid investments, such as United States Government securities, federal funds, and deposits in other financial institutions. Wayne Savings Community Bank also maintains Village Savings Bank as a federally-chartered stock savings bank subsidiary. Village Savings Bank is headquartered in North Canton, Ohio. Village Savings Bank's deposits are insured by the Federal Deposit Insurance Corporation under the Savings Association Insurance Fund. Village Savings Bank is a member of the Federal Home Loan Bank system. Village Savings Bank is a community-oriented savings institution offering traditional financial services to its local community. Its primary lending and deposit gathering area includes North Canton, Jackson Township and Plain Township, which are all located in Stark County. Its principal business activity consists of originating one- to four-family residential real estate loans in its market area. Village Savings Bank also originates multi-family residential and non-residential real estate loans, although such loans constitute a small portion of its lending activities. Village Savings Bank also originates consumer loans, and to a lesser extent, construction loans. It also invests in mortgage-backed securities and currently maintains a significant portion of its assets in liquid investments, such as United States Government securities, federal funds, and deposits in other financial institutions. MARKET AREA/LOCAL ECONOMY Wayne County is characterized by a diverse economic base, which is not dependent on any particular industry. It is one of the leading agricultural counties in the state. Since 1892, Wooster has been the headquarters of the Ohio Agricultural Research and Development Center, the agricultural research arm of The Ohio State University. In addition, Wayne County is the home base of such nationally known companies as Rubbermaid Incorporated, J.M. Smucker Company (located in the City of Orrville) and the Wooster Brush Company. It is also the home of many industrial plants, including those of Carauster Composite Container, Morton Salt, Bell and Howell Micro Photo Division, FritoLay, Inc., and The Gerstenslager Company. Wayne County is also known for its excellence in education. The College of Wooster was founded in 1866. Other quality educational opportunities are offered by the Agricultural Technical Institute of Ohio State University, and Wayne College, a branch of The University of Akron. Wayne Savings Community Bank operates four full-service offices in Wooster and one full-service office in Rittman. Ashland County, which is located due west of Wayne County, also has a diverse economic base. In addition to its agricultural segment, Ashland County has manufacturing plants producing rubber and plastics, machinery, transportation equipment, chemicals, apparel, and other items. Ashland is also the home of Ashland University. The City of Ashland is the county seat and the location of two of Wayne Savings Community Bank's branch offices. Medina County, located just north of Wayne County, is the center of a fertile agricultural region. Farming remains the largest industry in the county in terms of dollar value of goods produced. However, over 100 small 46 manufacturing firms also operate in the county. The City of Medina is located in the center of the Cleveland-Akron-Lorain Standard Consolidated Statistical Metropolitan Area. Medina is located approximately 30 miles south of Cleveland and 15 miles west of Akron. Due to its proximity to Akron and Cleveland, a majority of Medina County's labor force is employed in these two cities. Wayne Savings Community Bank operates one full-service office in Medina County, which is located in the Village of Lodi. Holmes County, located directly south of Wayne County, has a primarily rural economy. The local economy depends mostly upon agriculture, light manufacturing, fabrics, and wood products. Because of the scenic beauty and a large Amish settlement, revenues from tourism are becoming increasingly significant. The county is also noted for its many fine cheese-making operations. A large number of Holmes County residents are employed in Wayne County. The City of Millersburg is the county seat and the location of one of Wayne Savings Community Bank's branch offices. Stark County, located directly east of Wayne County, is characterized by a diverse economy and over 1,500 different products are manufactured in the county. Stark County also has a strong agricultural base, and ranks fourth in Ohio in the production of dairy products. The major employers in North Canton are the Hoover Company, Diebold Incorporated (a major manufacturer of bank security products and automated teller machines) and the Timken Company (a world-wide manufacturer of tapered roller bearings and specialty steels). Jackson Township is the home to the Belden Village Shopping Center, while Plain Township is a residential and agricultural area with a few widely scattered light industries. Village Savings Bank's banking office is located in Stark County. COMPETITION Our market area in north central Ohio has a large number of financial institutions. All of these financial institutions compete with us to varying degrees, and many of them are significantly larger and have greater financial resources than we have. As a result, we encounter strong competition both in attracting deposits and in originating real estate and other loans. Our most direct competition for deposits historically has come from commercial banks, securities brokerage firms, other savings associations, and credit unions, and we expect continued strong competition from these financial institutions in the foreseeable future. Our market area includes branches of several commercial banks that are substantially larger than Wayne Savings Community Bank in terms of state-wide deposits. We compete for deposits by offering customers a high level of personal service and expertise, and a wide range of financial services. The competition for real estate and other loans comes principally from commercial banks, mortgage banking companies, credit unions and other savings associations. This competition for loans has increased substantially in recent years as a result of the number of institutions competing in our market area, as well as the increased efforts by commercial banks to expand mortgage loan originations. We compete for loans primarily through the interest rates and loan fees we charge, and the efficiency and quality of services we provide to borrowers, real estate brokers, and builders. Factors that also affect competition include general and local economic conditions, current interest rate levels, and the volatility of the mortgage markets. LENDING ACTIVITIES GENERAL. Historically, our principal lending activity has been the origination of fixed and adjustable rate mortgage ("ARM") loans collateralized by one- to four-family residential properties located in our market area. We originate ARM loans for retention in our portfolio, and fixed rate loans that are eligible for resale in the secondary mortgage market. We also originate loans collateralized by non-residential and multi-family residential real estate as well as commercial business loans; however, such lending currently constitutes a relatively small portion of our lending activities. We also originate consumer loans to broaden services offered to customers and to decrease our interest rate risk exposure. We have sought to make our interest-earning assets more interest rate sensitive by originating adjustable rate loans, such as ARM loans, home equity loans, and medium-term consumer loans. We also purchase mortgage-backed securities generally with estimated remaining average lives of five years or less. At June 30, 2001, 47 approximately $68.3 million, or 25.9%, of our total loans and mortgage-backed and investment securities, due after June 30, 2001, consisted of loans or securities with adjustable interest rates. We continue actively to originate fixed rate mortgage loans, generally with 15 to 30 year terms to maturity, collateralized by one- to four-family residential properties. One- to four-family fixed rate residential mortgage loans generally are originated and underwritten according to standards that allow us to resell such loans in the secondary mortgage market for purposes of managing interest rate risk and liquidity. While we retain the majority of such one- to four-family fixed rate residential mortgage loans in portfolio, we have increased the number of loans we sell in the secondary market in the current low market interest rate environment. We retain servicing on the mortgage loans that we sell, thereby realizing monthly service fee income. We also originate interim construction loans on one- to four-family residential properties. ANALYSIS OF LOAN PORTFOLIO. Set forth below are selected data relating to the composition of our loan portfolio by type of loan as of the dates indicated.
AT MARCH 31, AT JUNE 30, ---------------------------------------------------------------------------- 2001 2001 2000 1999 ------------------------ -------------------------- ------------------------ ------------------------ AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE ------------------------ ----------- -------------- ----------- ------------ ----------- ------------ (DOLLARS IN THOUSANDS) Mortgage loans: One- to four-family residential(1)............ $ 222,561 84.37% $ 215,464 85.00% $ 211,222 86.72% $ 187,638 84.82% Residential construction loans..................... 7,253 2.75 7,078 2.79 4,035 1.66 7,668 3.47 Multi-family residential... 9,150 3.47 9,039 3.56 8,028 3.30 7,086 3.20 Non-residential real estate/land(2)............ 9,777 3.71 7,525 2.97 6,068 2.49 5,610 2.53 ----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------- Total mortgage loans...... 248,741 94.30 239,106 94.32 229,353 94.17 208,002 94.02 Other loans: Consumer loans(4)......... 9,013 3.42 9,630 3.80 9,041 3.71 8,415 3.80 Commercial business loans. 6,015 2.28 4,765 1.88 5,168 2.12 4,810 2.18 ----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------- Total other loans......... 15,028 5.70 14,395 5.68 14,209 5.83 13,225 5.98 ----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------- Total loans before net items..................... 263,769 100.00% 253,501 100.00% 243,562 100.00% 221,227 100.00% ========== =========== =========== =========== Less: Loans in process.......... 6,836 4,764 4,136 4,600 Deferred loan original fees...................... 1,440 1,463 1,538 1,855 Allowance for loan losses. 656 655 793 678 ----------- ---------- ---------- --------- Total loans receivable, net........ $ 254,837 $ 246,619 $ 237,095 $ 214,094 =========== ========== ========== ========= Mortgage-backed securities, net(3)........ $ 7,155 $ 8,613 $ 10,496 $ 7,230 =========== ========== ========== =========
------------------------- (1) Includes home equity loans collateralized by second mortgages in the aggregate amount of $16.3 million as of June 30, 2001, and $15.7 million, $11.1 million and $8.7 million as of March 31, 2001, 2000 and 1999, respectively. Such loans have been underwritten on substantially the same basis as our first mortgage loans. (2) Includes land loans of $928,000 as of June 30, 2001 and of $923,000, $949,000 and $951,000 as of March 31, 2001, 2000 and 1999, respectively. (3) Includes mortgage-backed securities designated as available for sale, which was $2.7 million at June 30, 2001. (4) Includes second mortgage loans of $1.6 million as of June 30, 2001, and $1.8 million, $1.6 million and $1.7 million as of March 31, 2001, 2000 and 1999. 48 LOAN AND MORTGAGE-BACKED SECURITIES MATURITY AND REPRICING SCHEDULE. The following table sets forth certain information as of June 30, 2001, regarding the dollar amount of loans and mortgage-backed securities maturing in our portfolio based on their contractual terms to maturity. Demand loans, loans having no stated schedule of repayments and no stated maturity, are reported as due in one year or less. Adjustable and floating rate loans are included in the period in which interest rates are next scheduled to adjust rather than in which they mature, and fixed rate loans and mortgage-backed securities are included in the period in which the final contractual repayment is due. Fixed rate mortgage-backed securities are assumed to mature in the period in which the final contractual payment is due on the underlying mortgage.
ONE THREE FIVE TEN WITHIN THROUGH THROUGH THROUGH THROUGH ONE YEAR THREE YEARS FIVE YEARS TEN YEARS TWENTY YEARS ------------ ------------- ------------ ------------- -------------- (IN THOUSANDS) Mortgage loans(1): One- to four-family residential: Adjustable............................... $ 48,762 $ 2,385 $ -- $ -- $ -- Fixed.................................... 2,246 778 916 14,970 63,542 Multi-family residential and nonresidential: Adjustable............................... 543 228 1,625 5,981 -- Fixed.................................... 128 853 993 181 81 Second mortgage loans(2)..................... 3 48 200 1,251 54 Commercial business loans(3)................. 3,599 47 56 897 -- Consumer loans(4)............................ 2,892 1,427 2,517 523 -- ---------- ---------- ---------- ---------- ---------- Total loans.................................. $ 58,173 $ 5,766 $ 6,307 $ 23,803 $ 63,677 ========== ========== ========== ========== ========== Mortgage-backed securities(5)................ $ 6,042 $ 130 $ -- $ 728 $ 122 ========== ========== ========== ========== ========== BEYOND TWENTY YEARS TOTAL ----------- ----------- Mortgage loans(1): One- to four-family residential: Adjustable...............................$ -- $ 51,147 Fixed.................................... 89,116 171,568 Multi-family residential and nonresidential: Adjustable............................... 8,263 16,640 Fixed.................................... 51 2,287 Second mortgage loans(2)..................... -- 1,556 Commercial business loans(3)................. -- 4,599 Consumer loans(4)............................ -- 7,359 ---------- ---------- Total loans..................................$ 97,430 $ 255,156 ========== ========== Mortgage-backed securities(5)................$ -- $ 7,022 ========== ==========
----------------------------- (1) Amounts shown are net of loans in process of $6.8 million. Does not include loans held for sale or $263,000 of non-performing loans. (2) This total does not include home equity loans collateralized by second mortgages, which are included as one-to four-family residential loans. (3) Amounts shown are net of non-performing loans of $1,416,000. (4) Amounts shown are net of non-performing loans of $96,000. (5) Includes mortgage-backed securities available for sale. Does not include premiums of $98,000, discounts of $23,000 and unrealized gains of $58,000. 49 The following table sets forth at June 30, 2001 the dollar amount of all fixed rate and adjustable rate loans and mortgage-backed securities due after June 30, 2002.
FIXED ADJUSTABLE TOTAL ----------- -------------- --------- (IN THOUSANDS) Mortgage loans: (1) One- to four-family residential............. $ 170,648 $ 51,144 $ 221,792 Multi-family residential and nonresidential. 2,159 15,881 18,040 Other loans: Commercial business......................... 1,220 2,754 3,974 Consumer.................................... 7,068 1,059 8,127 --------- -------- --------- Total loans.............................. $ 181,095 $ 70,838 $ 251,933 ========= ======== ========= Mortgage-backed securities(2)................ $ 2,738 $ 4,284 $ 7,022 ========= ======== =========
---------------------------- (1) Includes loans held for sale. (2) Includes mortgage-backed securities available for sale, which was $2.7 million as of June 30, 2001. ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LOANS. Our primary lending activity consists of the origination of one- to four-family, owner-occupied, residential mortgage loans on properties located in our market area. We generally do not originate one- to four-family residential loans on properties outside of our market area. At June 30, 2001, we had $206.2 million, or 78.2%, of our total loan portfolio invested in one- to four-family residential mortgage loans. Our fixed rate loans generally are originated and underwritten according to standards that permit resale in the secondary mortgage market. Whether we can or will sell fixed rate loans into the secondary market, however, depends on a number of factors including, but not limited to, our portfolio mix, interest rate sensitivity and liquidity positions, and market conditions. Our fixed rate mortgage loans are amortized on a monthly basis with principal and interest due each month. One- to four-family residential real estate loans often remain outstanding for significantly shorter periods than their contractual terms because borrowers may refinance or prepay loans at their option. Our recent secondary market activities have been limited to sales of $6.4 million, $9.2 million, $6.4 million and $15.9 million for the three months ended June 30, 2001 and for the fiscal years ended March 31, 2001, 2000 and 1999, respectively. Such sales generally constituted current period originations. There were no loans held for sale at June 30, 2001. Mortgage loans held for sale at March 31, 2001, 2000 and 1999 totaled $861,000, $317,000 and $1.6 million, respectively. We currently offer one- to four-family residential mortgage loans with terms typically ranging from 15 to 30 years, and with adjustable or fixed interest rates. Originations of fixed rate mortgage loans versus ARM loans are monitored on an ongoing basis and are affected significantly by the level of market interest rates, customer preference, our interest rate sensitivity position, and loan products offered by our competitors. Particularly in a relatively low interest rate environment, borrowers typically prefer fixed rate loans to ARM loans. Therefore, even if management's strategy is to emphasize ARM loans, market conditions may be such that there is greater demand for fixed rate mortgage loans. During the year ended March 31, 2001, our ARM portfolio increased by $7.4 million, or 13.0%. We offer two ARM loan products. The Treasury ARM loan adjusts annually with interest rate adjustment limitations of 2% per year and with a cap of 5% on total rate increases or decreases over the life of the loan. The index on the Treasury ARM loan is the weekly average yield on U.S. Treasury securities, adjusted to a constant maturity of one year. The Treasury ARM loan has an initially discounted rate of 1% below the current index, plus margin. However, these loans are underwritten at the fully-indexed interest rate. The Cost of Funds ARM loan adjusts annually and has periodic and lifetime interest rate caps of 1% and 3%, respectively. The index is the Ohio Cost of Funds from SAIF Insured Savings Associations, which index is published quarterly by the OTS. The initial interest rate on Cost of Fund ARM loans is not discounted. In the past, we have used different indices for ARM loans, such as the National Average Contract Rate for Previously Occupied Homes and the National Average Cost 50 of Funds. Consequently, the interest rate adjustments on our portfolio of ARM loans do not reflect changes in a particular interest rate index. One- to four-family residential ARM loans totaled $51.1 million, or 19.4%, of our total loan portfolio at June 30, 2001. The primary purpose of offering ARM loans is to make our loan portfolio more interest rate sensitive. However, as the interest income earned on ARM loans varies with prevailing interest rates, such loans do not offer us the predictable cash flows as would long-term, fixed rate loans. ARM loans carry increased credit risk associated with potentially higher monthly payments by borrowers as general market interest rates increase. It is possible, therefore, that during periods of rising interest rates, the risk of default on ARM loans may increase due to the upward adjustment of interest costs to the borrower. Management believes that the credit risk associated with our ARM loans is reduced because we have either a 3% or 5% cap on interest rate increases during the life of our ARM loans. We also offer home equity loans and equity lines of credit collateralized by a second mortgage on the borrower's principal residence. In underwriting these home equity loans, we require that the maximum loan-to-value ratios, including the principal balances of both the first and second mortgage loans, not to exceed 85%. The home equity loan portfolio consists of adjustable rate loans, which use the Ohio Average Cost of Funds for SAIF-Insured Savings Association and the prime rate as published in THE WALL STREET JOURNAL as interest rate indices. Home equity loans include fixed term adjustable rate loans, as well as lines of credit. As of June 30, 2001, our home equity loan portfolio totaled $16.3 million, or 7.3% of our one- to four-family mortgage loan portfolio. Our one- to four-family residential first mortgage loans customarily include due-on-sale clauses, which are provisions giving us the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells or otherwise disposes of the underlying real property serving as security for the loan. Due-on-sale clauses are an important means of adjusting the rates on our fixed rate mortgage loan portfolio. Regulations limit the amount that a savings association may lend relative to the appraised value of the real estate securing the loan, as determined by an appraisal at the time of loan origination. Our lending policies limit the maximum loan-to-value ratio on both fixed rate and ARM loans without private mortgage insurance to 80% of the lesser of the appraised value or the purchase price of the property to serve as collateral for the loan. However, we make one- to four-family real estate loans with loan-to-value ratios in excess of 80%. For 15-year ARM loans with loan-to-value ratios of 80.01% to 85%, 85.01% to 90%, 90.01% to 95%, and 95.01% to 97%, we require the first 6%, 12%, 25% and 30%, respectively, of the loan to be covered by private mortgage insurance. For 30-year fixed rate loans with loan-to-value ratios of 80.01% to 85%, 85.01% to 90%, and 90.01% to 97%, we require the first 12%, 25%, and 30%, respectively, of the loan to be covered by private mortgage insurance. We require fire and casualty insurance, as well as title insurance regarding good title, on all properties securing real estate loans and flood insurance, where applicable. MULTI-FAMILY RESIDENTIAL REAL ESTATE LOANS. Loans secured by multi-family real estate constituted approximately $9.2 million, or 3.5%, of our total loan portfolio at June 30, 2001. Our multi-family real estate loans are secured by multi-family residences, such as apartment buildings. At June 30, 2001, 86.0% of our multi-family loans were secured by properties located within our market area. At June 30, 2001, our multi-family real estate loans had an average balance of $187,000, and the largest multi-family real estate loan had a principal balance of $1.1 million. Multi-family real estate loans currently are offered with adjustable interest rates or short-term balloon maturities, although in the past we originated fixed rate long term multi-family real estate loans. The terms of each multi-family loan are negotiated on a case by case basis, although such loans typically have adjustable interest rates tied to a market index, and amortize over 15 to 25 years. We currently do not emphasize multi-family real estate construction loans; however, our policies do not preclude such lending. Loans secured by multi-family real estate generally involve a greater degree of credit risk than one- to four-family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family real estate is typically dependent upon the successful operation of the related real estate property. If the cash flow from the project is reduced, the borrower's ability to repay the loan may be impaired. 51 NON-RESIDENTIAL REAL ESTATE AND LAND LOANS. Loans secured by non-residential real estate constituted approximately $9.8 million, or 3.7%, of our total loan portfolio at June 30, 2001. Our non-residential real estate loans are secured by improved property such as offices, small business facilities, and other non-residential buildings. Our loan portfolio includes a limited number of non-residential construction loans. At June 30, 2001, 92.7% of our non-residential real estate loans were secured by properties located within our market area. At June 30, 2001, our non-residential loans had an average balance of $119,000 and the largest non-residential real estate loan had a principal balance of $2.1 million and was current at June 30, 2001. The terms of each non-residential real estate loan are negotiated on a case by case basis. Non-residential real estate loans are currently offered with adjustable interest rates or short-term balloon maturities, although in the past we have originated fixed rate long term non-residential real estate loans. Non-residential real estate loans originated by us generally amortize over 15 to 25 years. Loans secured by non-residential real estate generally involve a greater degree of risk than one- to four-family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by non-residential real estate is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced, the borrower's ability to repay the loan may be impaired. We also originate a limited number of land loans secured by individual improved and unimproved lots for future residential construction. Land loans are generally offered with a fixed rate and with terms of up to five years. Land loans totaled $928,000 at June 30, 2001. RESIDENTIAL CONSTRUCTION LOANS. To a lesser extent, we originate loans to finance the construction of one- to four-family residential property. At June 30, 2001, we had $7.3 million, or 2.8%, of our total loan portfolio invested in interim construction loans. We make construction loans to private individuals for construction of their homes and, to a lesser extent, to builders who do not have a contract for resale to individuals. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant. Construction loans are typically structured as permanent one- to four-family loans originated by us with a 12-month construction phase. Accordingly, upon completion of the construction phase, there is no change in interest rate or term to maturity of the original construction loan, nor is a new permanent loan originated. COMMERCIAL BUSINESS LOANS. Commercial loans totaled $6.0 million, or 2.3% of our total loan portfolio at June 30, 2001. We do not emphasize commercial lending, but evaluate and meet the needs of our customer base. Commercial business loans are frequently secured by real estate, although the decision to grant a commercial business loan depends primarily on the creditworthiness and cash flow of the borrower (and any guarantors) and secondarily on the value of and ability to liquidate the collateral. We generally require annual financial statements from our corporate borrowers and personal guarantees from the corporate principals. We also generally require an appraisal of any real estate that secures the loan. Commercial business lending generally involves greater risk than residential mortgage lending and involves risks that are different from those associated with residential and commercial real estate lending. Real estate lending is generally considered to be collateral based, with loan amounts based on predetermined loan to collateral values and liquidation of the underlying real estate collateral is viewed as the primary source of repayment in the event of borrower default. Although commercial business loans may be collateralized by equipment or other business assets, the liquidation of collateral in the event of a borrower default is often an insufficient source of repayment because equipment and other business assets may be obsolete or of limited use, among other things. Accordingly, the repayment of a commercial business loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is a secondary and often insufficient source of repayment. CONSUMER LOANS. As of June 30, 2001, consumer loans totaled $9.0 million, or 3.4%, of our total loan portfolio. The principal types of consumer loans offered by us are fixed rate, fixed term second mortgage loans, auto and truck loans, education loans, credit card loans, unsecured personal loans, and loans secured by deposit accounts. Consumer loans are offered primarily on a fixed rate basis with maturities generally of less than ten years. Our second mortgage consumer loans are secured by the borrower's principal residence with a maximum loan-to-value 52 ratio, including the principal balances of both the first and second mortgage loans, of 80% or less. Such loans are offered on a fixed rate basis with terms of up to ten years. At June 30, 2001, second mortgage loans totaled $1.6 million, or 17.3%, of consumer loans. The underwriting standards employed by us for consumer loans include a determination of the applicant's credit history and an assessment of ability to meet existing obligations and payments on the proposed loan. The quality and stability of the applicant's monthly income are determined by analyzing the gross monthly income from primary employment, and additionally from any verifiable secondary income. Creditworthiness of the applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount. Consumer loans entail greater credit risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly, such as automobiles, mobile homes, boats, and recreational vehicles. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency often does not warrant further substantial collection efforts against the borrower. In particular, amounts realizable on the sale of repossessed automobiles may be significantly reduced based upon the condition of the automobiles and the lack of demand for used automobiles. We add a general provision on a regular basis to our consumer loan loss allowance, based on general economic conditions and prior loss experience. MORTGAGE-BACKED SECURITIES. We also invest in mortgage-backed securities issued or guaranteed by the United States Government or agencies thereof. Investments in mortgage-backed securities are made either directly or by exchanging mortgage loans in our portfolio for such securities. These securities consist primarily of adjustable rate mortgage-backed securities issued or guaranteed by the Freddie Mac, Ginnie Mae or Fannie Mae, each of which is an agency of the federal government or a government-sponsored corporation. Total mortgage-backed securities, including those designated as available for sale, decreased from $8.6 million at March 31, 2001 to $7.2 million at June 30, 2001. Our objectives in investing in mortgage-backed securities vary from time to time depending upon market interest rates, local mortgage loan demand, and our level of liquidity. Mortgage-backed securities are more liquid than whole loans and can be readily sold in response to market conditions and interest rates. Mortgage-backed securities purchased by us also have lower credit risk than loans we originate because principal and interest are either insured or guaranteed by the United States Government or agencies thereof. LOAN ORIGINATIONS, SOLICITATION, PROCESSING, AND COMMITMENTS. Loan originations are derived from a number of sources such as real estate broker referrals, existing customers, borrowers, builders, attorneys, and walk-in customers. Upon receiving a loan application, we obtain a credit report and employment verification to verify specific information relating to the applicant's employment, income, and credit standing. In the case of a real estate loan, an appraiser approved by us appraises the real estate intended to secure the proposed loan. An underwriter in our loan department checks the loan application file for accuracy and completeness, and verifies the information provided. One- to four-family and multi-family residential, and non-residential real estate loans, for up to $150,000, may be approved by the manager of the mortgage loan department, loans between $150,000 and $250,000 must be approved by the Chief Lending Officer. The Chief Executive Officer can approve loans up to $300,000, and loans in excess of $300,000 must be approved by the Board of Directors. The Loan Committee meets once a week to review and verify that management's approvals of loans are made within the scope of management's authority. All approvals subsequently are ratified monthly by the full Board of Directors. Fire and casualty insurance is required at the time the loan is made and throughout the term of the loan. After the loan is approved, a loan commitment letter is promptly issued to the borrower. At June 30, 2001, we had commitments to originate $9.4 million of loans. If the loan is approved, the commitment letter specifies the terms and conditions of the proposed loan including the amount of the loan, interest rate, amortization term, a brief description of the required collateral, and required insurance coverage. The borrower must provide proof of fire and casualty insurance on the property serving as collateral, which insurance must be maintained during the full term of the loan. A title search of the property is required on all loans secured by real property. 53 Although in the past we have purchased loans originated by other lenders, we have not purchased any such loans in at least 10 years. At June 30, 2001, 0.3% of all loans in our portfolio were purchased from others and the majority of such loans were collateralized by properties located in Ohio. ORIGINATION, PURCHASE AND SALE OF LOANS AND MORTGAGE-BACKED SECURITIES. The table below shows our loan origination, purchase and sales activity for the periods indicated.
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE YEAR ENDED MARCH 31, --------------------------- --------------------------------------- 2001 2000 2001 2000 1999 ------------ ------------- ------------ ----------- ----------- (IN THOUSANDS) Total loans receivable, net at beginning of period......................................... $ 246,619 $ 237,095 $ 237,095 $ 214,094 $ 206,685 Loans originated: One to four family residential(1)(3).......... 25,757 7,028 60,192 52,485 59,578 Multi-family residential(2)................... 746 494 2,803 549 1,930 Non-residential real estate/land.............. 2,772 2,785 4,255 223 179 Consumer loans................................ 599 3,518 6,854 7,498 6,498 Commercial business loans..................... 214 1,285 1,611 4,194 3,681 --------- --------- --------- --------- --------- Total loans originated..................... 30,088 15,110 75,715 64,949 71,866 Loans sold: Whole loans................................... (6,383) (2,120) (9,185) (6,425) (15,860) --------- --------- --------- --------- --------- Total loans sold.............................. (6,383) (2,120) (9,185) (6,425) (15,860) Mortgage loans transferred to REO.............. -- -- (98) (64) (58) Loan repayment schedule........................ (16,533) (9,304) (56,478) (37,106) (48,814) Other loan activity, net....................... 1,046 (582) (430) 1,647 275 --------- --------- --------- --------- --------- Total loans receivable, net at end of period $ 254,837 $ 240,199 24 $ 246,619 $ 237,095 $ 214,094 ========= ========= ========= ========= ========= Mortgage-backed securities at beginning of period......................................... $ 8,613 $ 10,496 $ 10,496 $ 7,230 $ 4,275 Mortgage-backed securities purchased........... -- 1,000 2,025 8,030 6,576 Principal repayments and other activities...... 1,458 1,051 (3,908) (4,764) (3,621) --------- --------- --------- --------- --------- Mortgage-backed securities at end of period $ 7,155 $ 10,445 $ 8,613 $ 10,496 $ 7,230 ========= ========= ========= ========= =========
-------------------------- (1) Includes loans to finance the construction of one- to four-family residential properties, and loans held for sale. (2) Includes loans to finance the sale of real estate acquired through foreclosure. (3) Includes $15.7 million in refinanced loans for the quarter ended June 30, 2001 and $3.3 million for the period ended June 30, 2000. LOAN ORIGINATION FEES AND OTHER INCOME. In addition to interest earned on loans, we generally receive loan origination fees. We account for loan origination fees in accordance with Statement of Financial Accounting Standards ("SFAS") No. 91 "Accounting for Non-refundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases." To the extent that loans are originated or acquired for our portfolio, SFAS No. 91 requires that we defer loan origination fees and costs and amortize such amounts as an adjustment of yield over the life of the loan by use of the level yield method. SFAS No. 91 reduces the amount of revenue recognized by many financial institutions at the time such loans are originated or acquired. Fees deferred under SFAS No. 91 are recognized into income immediately upon prepayment or the sale of the related loan. At June 30, 2001, we had $1.4 million of deferred loan origination fees. Loan origination fees are volatile sources of income. Such fees vary with the volume and type of loans and commitments made and purchased, principal repayments, and competitive conditions in the mortgage markets, which in turn respond to the demand for and availability of money. We receive other fees, service charges, and other income that consist primarily of deposit transaction account service charges, late charges, credit card fees, and income from REO operations. We recognized fees and service charges of $288,000, $891,000, $720,000 and $682,000, for the three months ended June 30, 2001, and for fiscal years ended March 31, 2001, 2000 and 1999, respectively. LOANS TO ONE BORROWER. Savings associations are subject to the same limits as those applicable to national banks, which under current regulations restrict loans to one borrower to an amount equal to 15% of unimpaired capital and unimpaired surplus on an unsecured basis, and an additional amount equal to 10% of unimpaired capital 54 and unimpaired surplus if the loan is secured by readily marketable collateral (generally, financial instruments and bullion, but not real estate). At June 30, 2001, our largest borrower had an aggregate principal outstanding balance of $3.4 million. The loans were current at June 30, 2001. We had no loans at June 30, 2001 that exceeded the loans to one borrower regulations. DELINQUENCIES AND CLASSIFIED ASSETS DELINQUENCIES. Our collection procedures provide that when a loan is 15 days past due, a computer-generated late charge notice is sent to the borrower requesting payment, plus a late charge. This notice is followed with a letter again requesting payment when the payment becomes 20 days past due. If delinquency continues, at 30 days another collection letter is sent and personal contact efforts are attempted, either in person or by telephone, to strengthen the collection process and obtain reasons for the delinquency. Also, plans to arrange a repayment plan are made. If a loan becomes 60 days past due, the loan becomes subject to possible legal action if suitable arrangements to repay have not been made. In addition, the borrower is given information which provides access to consumer counseling services, to the extent required by HUD regulations. When a loan continues in a delinquent status for 90 days or more, and a repayment schedule has not been made or kept by the borrower, a notice of intent to foreclose is sent to the borrower, giving 30 days to cure the delinquency. If not cured, foreclosure proceedings are initiated. NON-PERFORMING ASSETS. Loans are reviewed on a regular basis and are placed on a non-accrual status when, in the opinion of management, the collection of additional interest is doubtful. Mortgage loans are placed on non-accrual status generally when either principal or interest is 90 days or more past due and management considers the interest uncollectible. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. At June 30, 2001, we had non-performing assets of $1,793,000 and a ratio of non-performing assets to total assets of 0.56%. At March 31, 2001 and 2000, we had non-performing assets of $639,000 and $290,000, respectively. At June 30, 2001, accruing loans 90 days or more delinquent consisted of a loan concentration to one borrower secured by real estate with an aggregate appraised value of $2.2 million. Management believes these loans are adequately collateralized. Real estate acquired by us as a result of foreclosure or by deed in lieu of foreclosure is deemed REO until such time as it is sold. When REO is acquired, it is recorded at the lower of the unpaid principal balance of the related loan or its fair value, less estimated selling expenses. Valuations are periodically performed by management, and any subsequent decline in fair value is charged to operations. The following table sets forth information regarding our non-accrual loans and real estate acquired by foreclosure at the dates indicated. For all the dates indicated, we did not have any material restructured loans within the meaning of SFAS 15.
AT MARCH 31, AT JUNE 30, ------------------------------------ 2001 2001 2000 1999 ----------- ----------- ---------- ---------- (DOLLARS IN THOUSANDS) Non-accrual loans: Mortgage loans: One- to four-family loans............................. $ 239 $ 443 $ 170 $ 224 All other mortgage loans.............................. 23 -- -- -- Non-mortgage loans: Commercial business................................... -- -- -- -- Consumer.............................................. 96 72 30 12 --------- -------- -------- -------- Total non-accrual loans.................................. 358 515 200 236 Accruing loans 90 days or more delinquent................ 1,416 -- -- 44 --------- -------- -------- -------- Total non-performing loans............................... 1,774 515 200 280 Total real estate owned (1).............................. 19 124 90 41 --------- -------- -------- -------- Total non-performing assets.............................. $ 1,793 $ 639 $ 290 $ 321 ========= ======== ======== ======== Total non-performing loans to net loans receivable....... 0.70% 0.21% 0.08% 0.13% ========= ======== ======== ======== Total non-performing loans to total assets............... 0.56% 0.17% 0.07% 0.10% ========= ======== ======== ======== Total non-performing assets to total assets.............. 0.56% 0.20% 0.10% 0.12% ========= ======== ======== ========
55 -------------------------------- (1) Represents the net book value of property acquired by us through foreclosure or deed in lieu of foreclosure. These properties are recorded at the lower of the loan's unpaid principal balance or fair value less estimated selling expenses. During the three months ended June 30, 2001 and the fiscal year ended March 31, 2001, gross interest income of $8,000 and $12,000, respectively, would have been recorded on loans currently accounted for on a non-accrual basis if the loans had been current throughout the period. The following table sets forth information with respect to loans past due by 60-89 days and 90 days or more in our portfolio at the dates indicated.
AT MARCH 31, AT JUNE 30, ----------------------------------------- 2001 2001 2000 1999 ----------- ----------- ---------- ----------- (IN THOUSANDS) Loans past due 60-89 days............................. $ 1,459 $ 2,536 $ 1,539 $ 1,710 Loans past due 90 days or more........................ 1,774 515 200 280 ----------- ----------- ---------- ----------- Total past due 90 days or more..................... $ 3,233 $ 3,051 $ 1,739 $ 1,990 =========== =========== ========== ===========
CLASSIFICATION OF ASSETS. Federal regulations provide for the classification of loans and other assets such as debt and equity securities considered by the OTS to be of lesser quality as "substandard," "doubtful," or "loss" assets. An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the savings institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses inherent in those classified "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions, and values, "highly questionable and improbable." Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets that do not expose the savings institution to risk sufficient to warrant classification in one of the aforementioned categories, but which possess some weaknesses, are required to be designated "special mention" by management. When a savings institution classifies problem assets as either substandard or doubtful, it is required to establish general allowances for loan losses in an amount deemed prudent by management. General allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When a savings institution classifies problem assets as "loss," it is required either to establish a specific allowance for losses equal to 100% of the amount of the assets so classified, or to charge off such amount. A savings institution's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the OTS, which can order the establishment of additional general or specific loss allowances. We regularly review the problem loans in its portfolio to determine whether any loans require classification in accordance with applicable regulations. The following table sets forth the aggregate amount of our classified assets at the dates indicated.
AT MARCH 31, AT JUNE 30, ---------------------------------------- 2001 2001 2000 1999 ----------- ----------- ---------- ---------- (IN THOUSANDS) Substandard assets(1)................................ $ 470 $ 569 $ 290 $ 206 Doubtful assets...................................... -- -- -- -- Loss assets.......................................... -- -- -- 8 ----------- ----------- ---------- ---------- Total classified assets........................... $ 470 $ 569 $ 290 $ 214 =========== =========== ========== ==========
----------------------------- (1) Includes REO. 56 ALLOWANCE FOR LOAN LOSSES. Management's policy is to provide for estimated losses on our loan portfolio based on management's evaluation of the potential losses that may be incurred. We regularly review our loan portfolio, including problem loans, to determine whether any loans require classification or the establishment of appropriate reserves or allowances for losses. Such evaluation, which includes a review of all loans of which full collectibility of interest and principal may not be reasonably assured, considers, among other matters, the estimated fair value of the underlying collateral. Other factors considered by management include the size and risk exposure of each segment of the loan portfolio, present indicators such as delinquency rates and the borrower's current financial condition, and the potential for losses in future periods. Management calculates the general allowance for loan losses in part based on past experience, and in part based on specified percentages of loan balances. While both general and specific loss allowances are charged against earnings, general loan loss allowances are added back to capital in computing risk-based capital under OTS regulations. During the three months ended June 30, 2001 and the fiscal years ended March 31, 2001, 2000 and 1999, we added $2,000, $96,000, $120,000 and $64,000, respectively, to the provision for loan losses. Our allowance for loan losses totaled $656,000, $655,000, $793,000 and $678,000, at June 30, 2001, and at March 31, 2001, 2000 and 1999, respectively. We base the provision for loan loss on several factors, including loan volume, portfolio mix, delinquencies, etc. Management believes that our current allowance for loan losses is adequate, however, there can be no assurance that the allowance for loan losses will be adequate to cover losses that may in fact be realized in the future or that additional provisions for loan losses will not be required. ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES. The following table sets forth the analysis of the allowance for loan losses for the periods indicated.
AT OR FOR THE THREE MONTHS ENDED JUNE 30, AT OR FOR THE YEAR ENDED MARCH 31, --------------------------- ------------------------------------------ 2001 2000 2001 2000 1999 ----------- ------------ ------------ ------------ ----------- (IN THOUSANDS) Loans receivable, net.................... $254,837 $ 240,199 $ 246,619 $ 237,095 $214,094 ======== ========== ========== ========== ======== Average loans receivable, net............ 249,324 238,963 245,624 229,845 209,178 ======== ========== ========== ========== ======== Allowance balance (at beginning of period) 655 793 793 678 721 Provision for losses: Mortgage.............................. -- -- -- -- -- Non-mortgage.......................... -- -- -- -- -- General............................... 2 51 96 120 64 (Charge-offs) Recoveries: Mortgage.............................. -- -- -- -- (108) Non-mortgage (1)...................... (1) 2 (234) (5) 1 -------- ---------- ---------- ---------- -------- Allowance balance (at end of period)..... $ 656 $ 846 $ 655 $ 793 $ 678 ======== ========== ========== ========== ======== loans receivable, net at end of period... 0.26% 0.35% 0.27% 0.33% 0.32% ======== ========== ========== ========== ======== Net loans charged off as a percent of average loans receivable, net............ --% --% 0.10% --% 0.05% ======== ========== ========== ========== ======== Ratio of allowance for loan losses to total non-performing assets at end of period................................... 36.59% 300.00% 102.50% 237.45% 211.21% ======== ========== ========== ========== ======== Ratio of allowance for loan losses to non-performing loans at end of period.... 36.98% 440.63% 127.18% 396.50% 242.14% ======== ========== ========== ========== ========
----------------- (1) The fiscal 2001 charge-offs include a $172,000 charge-off related to an impaired loan. Such loan is current at June 30, 2001. 57 ALLOCATION OF ALLOWANCE FOR LOAN LOSSES. The following table sets forth the allocation of allowance for loan losses by loan category for the periods indicated. Management believes that the allowance can be allocated by category only on an approximate basis. The allocation of the allowance by category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.
AT JUNE 30, ---------------------------------------------- 2001 2000 ---------------------- ---------------------- % OF % OF LOANS LOANS IN EACH IN EACH CATEGORY CATEGORY TO TO TOTAL TOTAL AMOUNT LOANS AMOUNT LOANS -------- ---------- -------- ---------- Balance at end of period applicable to: One- to four-family residential loans........................... $ 572 87.1% $ 745 88.0% Multi-family residential loans.. 23 3.5 30 3.6 Consumer and commercial......... 37 5.7 51 6.1 Non-residential real estate..... 24 3.7 20 2.3 --------- -------- ------- --------- Total allowance for loan losses. $ 656 100.00% $ 846 100.00% ========= ======== ======= ========= AT MARCH 31, --------------------------------------------------------------------------- 2001 2000 1999 ----------------------- -------------------------- ---------------------- % OF % OF LOANS % OF LOANS IN LOANS IN EACH IN EACH EACH CATEGORY CATEGORY CATEGORY TO TO TO TOTAL TOTAL TOTAL AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS -------- ---------- -------- ---------- -------- ---------- (DOLLARS IN THOUSANDS) Balance at end of period applicable to: One- to four-family residential loans........................... $ 574 87.7% $ 423 88.4% $ 386 88.3% Multi-family residential loans.. 24 3.6 37 3.3 38 3.2 Consumer and commercial......... 37 5.7 333 5.8 252 6.0 Non-residential real estate..... 20 3.0 -- 2.5 2 2.5 ------- -------- ------- --------- ------- -------- Total allowance for loan losses. $ 655 100.00% $ 793 100.00% $ 678 100.00% ======= ======== ======= ========= ======= ========
58 INVESTMENT ACTIVITIES Our investment portfolio is comprised of investment securities and certificates of deposit in other financial institutions. The carrying value of our investment securities totaled $12.1 million at June 30, 2001, compared to $19.3 million at March 31, 2001 and $27.2 million at March 31, 2000. Our cash and cash equivalents, consisting of cash and due from banks, federal funds sold, and interest bearing deposits due from other financial institutions with original maturities of three months or less, totaled $26.8 million at June 30, 2001, compared to $20.9 million at March 31, 2001 and $14.3 million at March 31, 2000. We are required under federal regulations to maintain liquid assets that may be invested in specified short-term securities and certain other investments. Liquidity levels may be increased or decreased depending upon the yields on investment alternatives and upon management's judgment as to the attractiveness of the yields then available in relation to other opportunities and its expectation of the level of yield that will be available in the future, as well as management's projections as to the short term demand for funds to be used in our loan origination and other activities. INVESTMENT PORTFOLIO. The following table sets forth the carrying value of our investment securities portfolio, short-term investments and FHLB stock, at the dates indicated.
AT JUNE 30, AT MARCH 31, ------------------ ------------------------------------------------------------------ 2001 2001 2000 1999 ------------------ --------------------- --------------------- --------------------- CARRYING MARKET CARRYING MARKET CARRYING MARKET CARRYING MARKET VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE --------- -------- --------- ---------- ---------- --------- ----------- --------- (IN THOUSANDS) Investment Securities: Corporate bonds and notes.............. $ 3,995 $4,081 $3,994 $ 4,061 $2,987 $2,951 $ -- $ -- U.S. Government and agency securities.. 7,987 8,048 9,501 9,567 20,057 19,528 11,666 11,588 Obligations of state and political subdivisions........................... 141 148 146 146 155 155 164 164 Certificates of deposit in other financial institutions................. -- -- 5,700 5,700 4,000 4,000 6,000 6,000 ------- ------- ------- ------- ------- ------- ------- ------- Total investment securities............ 12,123 12,277 19,341 19,474 27,199 26,634 17,830 17,752 Other Investments: Interest-bearing deposits in other financial institutions................. 18,260 18,260 12,891 12,891 8,332 8,332 10,410 10,410 Federal funds sold..................... 6,000 6,000 6,000 6,000 3,475 3,475 4,295 4,295 Federal Home Loan Bank stock........... 3,612 3,612 3,510 3,510 3,160 3,160 2,919 2,919 ------- ------- ------- ------- ------- ------- ------- ------- Total investments...................... $39,995 $40,149 $41,742 $41,875 $42,166 $41,601 $35,454 $35,376 ======= ======= ======= ======= ======= ======= ======= ========
59 INVESTMENT PORTFOLIO MATURITIES. The following table sets forth the scheduled maturities, carrying values, market values and average yields for our investment securities at June 30, 2001. We do not hold any investment securities with maturities in excess of 25 years.
AT JUNE 30, 2001 ------------------------------------------------------------------------------ ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS ----------------------- ------------------------- ------------------------ CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE VALUE YIELD VALUE YIELD VALUE YIELD --------- ---------- ------------ ----------- ------------ ---------- (DOLLARS IN THOUSANDS) Investment Securities: Corporate bonds and notes................ $ 1,001 6.56% $ 2,994 6.47% $ -- -- U.S. Government and agency............... 3,495 6.04 2,530 5.77 -- -- Obligations of state and political subdivisions........................... -- -- -- -- -- -- --------- -------- ---------- ---------- ---------- -------- Total investment securities.............. $ 4,496 6.16% $ 5,524 6.15% $ -- -- ========= ======== ========== ========== ========== ======== AT JUNE 30, 2001 ------------------------- MORE THAN TEN YEARS ------------------------- CARRYING AVERAGE VALUE YIELD ------------- ---------- Investment Securities: Corporate bonds and notes................ $ -- --% U.S. Government and agency............... 1,962 6.29 Obligations of state and political subdivisions........................... 141 5.50 --------- ------- Total investment securities.............. $ 2,103 6.24% ========= ======= AT JUNE 30, 2001 -------------------------------------------------- TOTAL INVESTMENT SECURITIES -------------------------------------------------- AVERAGE WEIGHTED LIFE IN CARRYING MARKET AVERAGE YEARS VALUE VALUE YIELD ---------- ---------- ------------ ----------- (DOLLARS IN THOUSANDS) Investment Securities: Corporate bonds and notes................ 1.19 $ 3,995 $ 4,081 6.48% U.S. Government and agency............... 6.64 7,987 8,048 6.02 Obligations of state and political subdivisions............................. 10.93 141 148 5.50 --------- -------- ------- Total investment securities............ 4.89 $ 12,123 $ 12,277 6.26% ========= ======== =======
60 SOURCES OF FUNDS GENERAL. Deposits are the major source of our funds for lending and other investment purposes. In addition to deposits, we derive funds from the amortization, prepayment or sale of loans and mortgage-backed securities, the sale or maturity of investment securities, operations and, if needed, advances from the Federal Home Loan Bank of Cincinnati. Scheduled loan principal repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are influenced significantly by general interest rates and market conditions. Borrowings may be used on a short-term basis to compensate for reductions in the availability of funds from other sources or on a longer term basis for general business purposes. We had $6.0 million of advances from the Federal Home Loan Bank of Cincinnati at June 30, 2001. DEPOSITS. Consumer and commercial deposits are attracted principally from within our market area through the offering of a broad selection of deposit instruments including NOW accounts, passbook savings, money market deposit and term certificate accounts, including individual retirement accounts. We accept deposits of $100,000 or more and offer negotiated interest rates on such deposits. Deposit account terms vary according to the minimum balance required, the period of time during which the funds must remain on deposit, and the interest rate, among other factors. We regularly evaluate our internal cost of funds, survey rates offered by competing institutions, review our cash flow requirements for lending and liquidity, and execute rate changes when deemed appropriate. We do not obtain funds through brokers, nor do we solicit funds outside our market area. DEPOSIT PORTFOLIO. Savings and other deposits in Wayne Savings Community Bank as of June 30, 2001, comprised the following:
WEIGHTED AVERAGE CHECKING AND SAVINGS MINIMUM PERCENTAGE OF INTEREST RATE MINIMUM TERM DEPOSITS AMOUNT BALANCES TOTAL DEPOSITS --------------------- ------------------ ------------------------ ------------ ------------ ------------------ (IN THOUSANDS) 1.56% None NOW accounts $ -- $ 37,309 13.12% 3.09 None Passbook/Statement -- 58,630 20.62 savings 3.23 None Money market Investor 2,500 9,175 3.23 CERTIFICATES OF DEPOSIT ------------------------ 4.72 12 months or Fixed term, fixed rate 500 37,166 13.07 less 5.99 12 to 24 months Fixed term, fixed rate 500 88,235 31.03 5.21 25 to 36 months Fixed term, fixed rate 500 9,957 3.50 5.54 36 months or Fixed term, fixed rate 500 6,132 2.16 more 6.16 Negotiable Jumbo certificates 100,000 37,780 13.27 ------------ ----------- $ 284,384 100.00% ============ ===========
61 The following table sets forth the change in dollar amount of savings deposits in the various types of savings accounts offered by us at the dates indicated.
BALANCE AT BALANCE AT BALANCE AT JUNE 30, % OF INCREASE MARCH 31, % OF INCREASE MARCH 31, 2001 DEPOSITS (DECREASE) 2001 DEPOSITS (DECREASE 2000 ---------- ---------- ----------- ---------- -------- --------- ---------- (DOLLARS IN THOUSANDS) NOW accounts............................. $ 37,309 13.12% $ 3,667 $ 33,642 12.11% $ 2,628 $ 31,014 Passbook/Statement savings............... 58,630 20.62 4,056 54,574 19.65 1,500 53,074 Money market Investor.................... 9,175 3.23 270 8,905 3.21 (1,922) 10,827 Certificates of deposit(1) Original maturities of: 12 months or less.................... 37,166 13.07 11,672 25,494 9.18 (16,228) 41,722 12 to 24 months...................... 88,235 31.03 (12,870) 101,105 36.41 46,764 54,341 25 to 36 months...................... 9,957 3.50 (79) 10,036 3.61 (14,751) 24,787 36 months or more.................... 6,132 2.16 (43) 6,175 2.22 (2,713) 8,888 Negotiated jumbo..................... 37,780 13.27 5 37,775 13.61 (2,524) 40,299 --------- ------- --------- ---------- ------ --------- --------- Total................................ $ 284,384 100.00% $ 6,678 $ 277,706 100.00% $ 12,754 $ 264,952 ========= ======= ========= ========= ====== ========= ========= BALANCE AT % OF INCREASE MARCH 31, % OF DEPOSITS (DECREASE 1999 DEPOSITS -------- --------- ---------- -------- NOW accounts............................. 11.71% $ 6,135 $ 24,879 10.57% Passbook/Statement savings............... 20.03 6,608 46,466 19.75 Money market Investor.................... 4.09 (438) 11,265 4.79 Certificates of deposit(1) Original maturities of: 12 months or less.................... 15.74 3,909 37,813 16.07 12 to 24 months...................... 20.51 20,340 34,001 14.45 25 to 36 months...................... 9.36 (13,909) 38,696 16.44 36 months or more.................... 3.35 (2,532) 11,420 4.85 Negotiated jumbo..................... 15.21 9,512 30,787 13.08 ------ ---------- ---------- ------- Total................................ 100.00% $ 29,625 $ 235,327 100.00% ====== ========== ========== =======
------------------------------ (1) Individual Retirement Accounts ("IRAs") are included in the respective certificate balances. IRAs totaled $31.8 million as of June 30, 2001. 62 The following table sets forth the change in dollar amount of savings deposits in the various types of savings accounts offered by us between the dates indicated.
YEARS ENDED MARCH 31, THREE MONTHS ENDED JUNE 30, ----------------------------------------------------------------- 2001 2001 2000 -------------------------------- ------------------------------- -------------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE PERCENT OF AVERAGE AVERAGE PERCENT OF AVERAGE AVERAGE PERCENT OF AVERAGE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE --------- ---------- ---------- --------- ---------- -------- --------- ---------- -------- (DOLLARS IN THOUSANDS) Noninterest-bearing demand deposits.................... $ 8,221 2.95% 0.00% $ 5,684 2.19% 0.00% $ 4,652 1.84% 0.00% NOW accounts................ 26,573 9.54 2.63 25,527 9.82 1.73 23,912 9.48 2.08 Passbook/Statement savings.. 55,518 19.94 3.09 45,800 17.62 3.16 45,790 18.15 3.13 Money market investor....... 8,983 3.23 3.23 9,637 3.71 3.23 11,411 4.52 3.28 Certificates of deposit..... 179,146 64.34 5.84 173,266 66.66 6.03 166,581 66.01 5.54 -------- ------- ------- --------- ------ ------ -------- ------- ------- Total deposits.......... $278,441 100.00% 4.91% $ 259,914 100.00% 4.87% $252,346 100.00% 4.57% ======== ======= ======= ========= ====== ====== ======== ======= ======= YEARS ENDED MARCH 31, --------------------------------- 1999 -------------------------------- WEIGHTED AVERAGE PERCENT OF AVERAGE BALANCE DEPOSITS RATE --------- ---------- -------- Noninterest-bearing demand deposits.................... $ 4,477 2.01% 0.00% NOW accounts................ 16,062 7.21 2.11 Passbook/Statement savings.. 40,927 18.38 3.10 Money market investor....... 9,615 4.32 3.31 Certificates of deposit..... 151,564 68.08 5.66 --------- ------ ------ Total deposits.......... $ 222,645 100.00% 4.72% ========= ====== ======
63 The following table sets forth our certificates of deposit classified by rates as of the dates indicated:
AT MARCH 31, AT JUNE ---------------------------------------- 30, 2001 2001 2000 1999 ---------- ------------ ------------ ---------- (DOLLARS IN THOUSANDS) 2.01-4.00%..................................... $ 9,692 $ -- $ -- $ -- 4.01-6.00%..................................... 81,130 73,177 127,653 120,446 6.01-8.00%..................................... 88,448 107,408 42,382 29,486 8.01-10.00%.................................... -- -- 2 2,785 --------- ----------- ----------- ---------- Total...................................... $ 179,270 $ 180,585 $ 170,037 $ 152,717 ========= =========== =========== ========== The following table sets forth the amount and maturities of our certificates of deposit at June 30, 2001. AMOUNT DUE ------------------------------------------------------- LESS THAN 1-2 2-3 AFTER RATE ONE YEAR YEARS YEARS 3 YEARS TOTAL ---------- --------- ----------- --------- -------- (IN THOUSANDS) 2.01 - 4.00%................................... $ 8,852 $ 840 $ -- $ -- $ 9,692 4.01-6.00%..................................... 62,528 13,604 2,711 2,287 81,130 6.01-8.00%..................................... 64,841 23,014 148 445 88,448 -------- -------- ------- ------- -------- Total...................................... $136,221 $ 37,458 $ 2,859 $ 2,732 $179,270 ======== ======== ======= ======= ========
The following table indicates the amount of our negotiable certificates of deposit of $100,000 or more by time remaining until maturity as of June 30, 2001.
MATURITY PERIOD CERTIFICATES OF DEPOSIT --------------- ----------------------- (IN THOUSANDS) Three months or less.......................................... $ 12,656 Over three months through six months.......................... 6,570 Over six months through twelve months......................... 12,279 Over twelve months............................................ 6,275 --------- Total.................................................... $ 37,780 =========
BORROWINGS Savings deposits are the primary source of funds for our lending and investment activities and for our general business purposes. We may rely upon advances from the Federal Home Loan Bank of Cincinnati and the Federal Reserve Bank discount window to supplement our supply of lendable funds and to meet deposit withdrawal requirements. Advances from the Federal Home Loan Bank of Cincinnati typically are collateralized by stock in the Federal Home Loan Bank of Cincinnati and a portion of first mortgage loans held by us. At June 30, 2001, we had $6.0 million in advances outstanding. The Federal Home Loan Bank functions as a central reserve bank providing credit for member savings associations and financial institutions. As a member, we are required to own capital stock in the Federal Home Loan Bank and are authorized to apply for advances on the security of such stock and certain home mortgages and other assets (principally, securities that are obligations of, or guaranteed by, the United States) provided certain standards related to creditworthiness have been met. Advances are made pursuant to several different programs. Each credit program has its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of a member institution's net worth or on the Federal Home Loan Bank's assessment of the institution's creditworthiness. Although advances may be used on a short-term basis for cash management needs, Federal Home Loan Bank advances have not been, nor are they expected to be, a significant long-term funding source for us. 64
THREE MONTHS ENDED JUNE 30, YEAR ENDED MARCH 31, ------------------- ----------------------------- 2001 2000 2001 2000 1999 --------- -------- --------- -------- -------- (DOLLARS IN THOUSANDS) FEDERAL HOME LOAN BANK ADVANCES: Maximum month-end balance... $ 6,000 $12,000 $10,000 $12,000 $16,000 Balance at end of period.... 6,000 10,000 6,000 12,000 9,000 Average balance............. 6,000 8,513 7,877 8,596 11,667 Weighted average interest rate on: Balance at end of period. 5.21% 6.05% 5.54% 5.98% 5.68% Average balance for period................... 5.47% 5.45% 5.69% 5.63% 5.75%
PERSONNEL As of June 30, 2001, we had 95 full-time and 32 part-time employees. None of our employees is represented by a collective bargaining group. We believe that we have a good relationship with our employees. PROPERTY At June 30, 2001, we conducted our business through our main banking office located in Wooster, Ohio, our nine additional full service branch offices located in our market area, and the full service office of Village Savings Bank. We lease two of our office properties. The aggregate net book value of our premises and equipment was $8.9 million at June 30, 2001. LEGAL PROCEEDINGS We are periodically involved in various claims and lawsuits that arise incident to our financial services business. We believe that these routine legal proceedings, in the aggregate, are not material to our financial condition and results of operations. REGULATION As a state-chartered, Savings Association Insurance Fund-insured savings association, Wayne Savings Community Bank is subject to examination, supervision and extensive regulation by the Office of Thrift Supervision, the Ohio Division of Financial Institutions, and the Federal Deposit Insurance Corporation. As a federally chartered Savings Association Insurance Fund-insured savings bank, Village Savings Bank also is subject to examination, supervision and extensive regulation by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation. Wayne Savings Community Bank and Village Savings Bank are members of, and own stock in, the Federal Home Loan Bank of Cincinnati, which is one of the twelve regional banks in the Federal Home Loan Bank System. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The banks also are subject to regulation by the Board of Governors of the Federal Reserve System governing reserves to be maintained against deposits and certain other matters. The Office of Thrift Supervision and Ohio Division of Financial Institutions regularly examine us and prepare reports for the consideration of their Boards of Directors on any deficiencies that they may find in our operations. The Federal Deposit Insurance Corporation also examines the banks in its role as the administrator of the Savings Association Insurance Fund. The banks' relationship with depositors and borrowers also is regulated to a great extent by both federal and state laws especially in such matters as the ownership of savings accounts and the form and content of our mortgage documents. Any change in such regulations could have a material adverse impact on Wayne Savings Bancshares, Inc., Wayne Savings Community Bank, Village Savings Bank and their operations. FEDERAL REGULATION OF SAVINGS INSTITUTIONS BUSINESS ACTIVITIES. The activities of savings associations are governed by the Home Owners' Loan Act, as amended and, in certain respects, the Federal Deposit Insurance Act. These federal statutes, among other things, (i) limit the types of loans a savings association may make, (ii) prohibit the acquisition of any corporate debt security 65 that is not rated in one of the four highest rating categories, and (iii) restrict the aggregate amount of loans secured by non-residential real estate property to 400% of capital. The description of statutory provisions and regulations applicable to savings associations set forth herein does not purport to be a complete description of such statutes and regulations and their effect on us. The capital regulations also incorporate an interest rate risk component. Savings institutions with "above normal" interest rate risk exposure are subject to a deduction from total capital for purposes of calculating their risk-based capital requirements. For the present time, the Office of Thrift Supervision has deferred implementation of the interest rate risk capital charge. At June 30, 2001, Wayne Savings Community Bank and Village Savings Bank met each of the capital requirements. CAPITAL REQUIREMENTS. The Office of Thrift Supervision capital regulations require savings institutions to meet three minimum capital standards: a 1.5% tangible capital ratio; a 4% leverage ratio (3% for institutions receiving the highest rating on the CAMELS rating system); and an 8% risk-based capital ratio. In addition, the prompt corrective action regulations discussed below also establish, in effect, a minimum 2% tangible capital standard, a 4% leverage ratio (3% for institutions receiving the highest CAMELS rating), and together with the risk-based capital standard itself, a 4% Tier 1 risk-based capital standard. Institutions must generally deduct from capital investments in and loans to subsidiaries engaged in activities as principle that are not permissible for a national bank. The risk-based capital standards for savings institutions require the maintenance of Tier 1 (core) and total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of at least 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weighted factor of 0% to 100%, assigned by the Office of Thrift Supervision capital regulation based on the risks believed inherent in the type of asset. Core (tier 1) capital is defined as common stockholders' equity (including retained earnings), certain nonconclusive perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangible assets other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets, and up to 45% of unrealized gains on available-for-sale equity securities with readily determinable fair market values. Overall, the amount of supplementary capital included as part of total capital may not exceed 100% of core capital. The capital regulations also incorporate an interest rate risk component. Savings institutions with "above normal" interest rate risk exposure are subject to a deduction from total capital for purposes of calculating their risk-based capital requirements. For the present time, the Office of Thrift Supervision has deferred implementation of the interest rate risk capital charge. At June 30, 2001, Wayne Savings Community Bank and Village Savings Bank met each of the capital requirements. LOANS TO ONE BORROWER. Under federal law, savings institutions generally may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus on an unsecured basis. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily-marketable collateral, which is defined to include certain securities and bullion, but generally does not include real estate. At June 30, 2001, Wayne Savings Community Bank and Village Savings Bank were in compliance with the loans-to-one-borrower limitation. QUALIFIED THRIFT LENDER TEST. Federal law requires savings associations to meet a qualified thrift lender test whereby a savings association is required to maintain at least 65% of its "portfolio assets" (total assets less (i) specified liquid assets up to 20% of total assets, (ii) intangibles, including goodwill, and (iii) the value of property used to conduct business) in certain "qualified thrift investments," primarily residential mortgages and related investments, including certain mortgage-backed and related securities on a monthly basis in 9 out of every 12 months. A savings association that fails this test must either convert to a bank charter or operate under specified restrictions. As of June 30, 2001, Wayne Savings Community Bank and Village Savings Bank maintained 103.4% and 92.6%, respectively, of their portfolio assets in qualified thrift investments and, therefore, met the qualified thrift lender test. LIMITATIONS ON CAPITAL DISTRIBUTIONS. Federal regulations impose limitations upon all capital distributions by a savings institution, such as cash dividends, payments to repurchase shares and other distributions charged against the 66 institution's capital account. A savings association must file an application for Office of Thrift Supervision approval of a capital distribution if either (i) the total capital distributions for the applicable calendar year exceed the sum of the savings association's net income for that year to date plus the savings association's retained net income for the preceding two years, (ii) the savings association would not be at least adequately capitalized following the distribution, (iii) the distribution would violate any applicable statute, regulation, agreement or Office of Thrift Supervision-imposed condition, or (iv) the savings association is not eligible for expedited treatment of its filings. If an application is not required to be filed, a savings association must still file a notice with the Office of Thrift Supervision at least thirty days before the Board of Directors declares a dividend or approves a capital distribution. Any additional capital distributions will require prior Office of Thrift Supervision approval. If the capital of Wayne Savings Community Bank or Village Savings Bank falls below its required levels or the Office of Thrift Supervision notifies the institution that it is in need of more than normal supervision, the banks' ability to make capital distributions could be restricted. In addition, the Office of Thrift Supervision may prohibit a proposed capital distribution by any institution, which would otherwise be permitted by regulation, if the Office of Thrift Supervision determines that the distribution would constitute an unsafe or unsound practice. LIQUIDITY. Wayne Savings Community Bank and Village Savings Bank are required to maintain an average daily balance of specified liquid assets equal to a quarterly average of not less than a specified percentage of their respective net withdrawable deposit accounts plus borrowing payable in one year or less. The current requirement is 4%. Wayne Savings Community Bank and Village Savings Bank had average liquidity ratios of 15.5% and 26.8%, respectively, for the three months ended June 30, 2001, which exceeded the applicable requirements. COMMUNITY REINVESTMENT ACT AND FAIR LENDING LAWS. Wayne Savings Community Bank and Village Savings Bank have a responsibility under the Community Reinvestment Act and related regulations of the Office of Thrift Supervision to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. An institution's failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in regulatory restrictions on its activities, and failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the Office of Thrift Supervision, as well as other federal regulatory agencies and the Department of Justice. Wayne Savings Community Bank and Village Savings Bank received satisfactory Community Reinvestment Act ratings under the current Community Reinvestment Act regulations in their most recent federal examinations. TRANSACTIONS WITH RELATED PARTIES. Wayne Savings Community Bank and Village Savings Bank's authority to engage in transactions with related parties or "affiliates" or to make loans to specified insiders is limited by Sections 23A and 23B of the Federal Reserve Act. The term "affiliates" for these purposes generally means any company that controls or is under common control with an institution, including Wayne Savings Bancshares, Inc. and its non-savings institution subsidiaries. Section 23A limits the aggregate amount of certain "covered" transactions with any individual affiliate to 10% of the capital and surplus of the savings institution and also limits the aggregate amount of covered transactions with all affiliates to 20% of the savings institution's capital and surplus. Covered transactions with affiliates are required to be secured by collateral in an amount and of a type described in Section 23A, and the purchase of low quality assets from affiliates is generally prohibited. Section 23B provides that covered transactions with affiliates, including loans and asset purchases, must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated companies. In addition, savings institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies, and no savings institution may purchase the securities of any affiliate other than a subsidiary. Wayne Savings Community Bank's and Village Savings Bank's authority to extend credit to executive officers, directors and 10% stockholders, as well as entities controlled by these persons, is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act, and also by Regulation O. Among other things, these regulations generally require that these loans be made on terms substantially the same as those offered to unaffiliated individuals and do not involve more than the normal risk of repayment. However, recent 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 executive officer is not given preferential treatment compared to other participating employees. Regulation O also places individual and aggregate limits on the amount of loans Wayne Savings Community Bank and Village Savings Bank may make to these persons based, in part, on 67 their respective capital position, and requires approval procedures to be followed. At June 30, 2001 the banks were in compliance with these regulations. ENFORCEMENT. The Office of Thrift Supervision has primary enforcement responsibility over savings institutions, and has the authority to bring enforcement action against all "institution-related parties," including stockholders, and attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution, receivership, conservatorship or the termination of deposit insurance. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. The Federal Deposit Insurance Corporation also has the authority to recommend to the Director of the Office of Thrift Supervision that enforcement action be taken with respect to a particular savings institution. If action is not taken by the Director, the Federal Deposit Insurance Corporation has authority to take such action under specified circumstances. STANDARDS FOR SAFETY AND SOUNDNESS. Federal law requires each federal banking agency to prescribe for all insured depository institutions standards relating to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, and such other operational and managerial standards as the agency deems appropriate. The federal banking agencies adopted Interagency Guidelines Prescribing Standards for Safety and Soundness to implement the safety and soundness standards required under federal law. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The guidelines address internal controls and information systems; internal audit systems; credit underwriting; loan documentation; interest rate risk exposure; asset growth; and compensation, fees and benefits. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to submit a compliance plan. PROMPT CORRECTIVE REGULATORY ACTION Under federal Prompt Corrective Action regulations, the Office of Thrift Supervision is required to take supervisory actions against undercapitalized institutions, the severity of which depends upon the institution's level of capital. Generally, a savings institution that has total risk-based capital of less than 8.0% or a leverage ratio or a Tier 1 core capital ratio that is less than 4.0% is considered to be undercapitalized. A savings institution that has total risk-based capital of less than 6.0%, a Tier 1 core risk-based capital ratio of less than 3.0%, or a leverage ratio that is less than 3.0%, is considered to be "significantly undercapitalized" and a savings institution that has a tangible capital to assets ratio equal to or less than 2.0% is deemed to be "critically undercapitalized." Generally, the applicable banking regulator is required to appoint a receiver or conservator for an institution that is "critically undercapitalized." The regulation also provides that a capital restoration plan must be filed with the Office of Thrift Supervision within 45 days of the date an institution receives notice that it is "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." In addition, numerous mandatory supervisory actions become immediately applicable to the institution, including, but not limited to, restrictions on growth, investment activities, capital distributions, and affiliate transactions. The Office of Thrift Supervision could also take any one of a number of discretionary supervisory actions against undercapitalized institutions, including the issuance of a capital directive and the replacement of senior executive officers and directors. INSURANCE OF DEPOSIT ACCOUNTS The Federal Deposit Insurance Corporation has adopted a risk-based deposit insurance assessment system. The Federal Deposit Insurance Corporation assigns an institution to one of three capital categories, based on the institution's financial information, as of the reporting period ending seven months before the assessment period, and one of three supervisory subcategories within each capital group. The three capital categories are well capitalized, adequately capitalized and undercapitalized. The supervisory subgroup to which an institution is assigned is based on a supervisory evaluation provided to the Federal Deposit Insurance Corporation by the institution's primary federal regulator and information which the Federal Deposit Insurance Corporation determines to be relevant to the institution's financial condition and the risk posed to the deposit insurance funds. An institution's assessment rate depends on the capital category and supervisory category to which it is assigned. The Federal Deposit Insurance 68 Corporation is authorized to raise the assessment rates. The Federal Deposit Insurance Corporation has exercised this authority several times in the past and may raise insurance premiums in the future. If this type of action is taken by the Federal Deposit Insurance Corporation, it could have an adverse effect on the earnings of Wayne Savings Community Bank and Village Savings Bank. FEDERAL HOME LOAN BANK SYSTEM The Federal Home Loan Bank System provides a central credit facility primarily for member institutions. Wayne Savings Community Bank and Village Savings Bank, as members of the Federal Home Loan Bank of Cincinnati, are required to acquire and hold shares of capital stock in that Federal Home Loan Bank in an amount at least equal to 1% of the aggregate principal amount of their unpaid residential mortgage loans and similar obligations at the beginning of each year, or 1/20 of their borrowings from the Federal Home Loan Bank, whichever is greater. As of June 30, 2001, the banks were in compliance with this requirement. The Federal Home Loan Banks are required to provide funds for the resolution of insolvent thrifts and to contribute funds for affordable housing programs. These requirements could reduce the amount of dividends that the Federal Home Loan Banks pay to their members and could also result in the Federal Home Loan Banks imposing a higher rate of interest on loans to their members. FEDERAL RESERVE SYSTEM Federal Reserve Board regulations require savings institutions to maintain non-interest-earning reserves against their transaction accounts, such as negotiable order of withdrawal and regular checking accounts. At June 30, 2001, Wayne Savings Community Bank and Village Savings Bank were in compliance with these reserve requirements. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy liquidity requirements imposed by the Office of Thrift Supervision. OHIO REGULATION As a savings and loan association organized under the laws of the State of Ohio, Wayne Savings Community Bank is subject to regulation by the Ohio Division of Financial Institutions. Regulation by the Ohio Division of Financial Institutions affects Wayne Savings Community Bank's internal organization as well as its savings, mortgage lending, and other investment activities. Periodic examinations by the Ohio Division of Financial Institutions are usually conducted on a joint basis with the Office of Thrift Supervision. Ohio law requires that Wayne Savings Community Bank maintain federal deposit insurance as a condition of doing business. Under Ohio law, an Ohio association may buy any obligation representing a loan that would be a legal loan if originated by the association, subject to various requirements including: loans secured by liens on income-producing real estate may not exceed 20% of an association's assets; consumer loans, commercial paper, and corporate debt securities may not exceed 20% of an association's assets; loans for commercial, corporate, business, or agricultural purposes may not exceed 10% of an association's assets unless the Ohio Division of Financial Institutions increases the limitation to 30%, provided that an association's required reserve must increase proportionately; certain other types of loans may be made for lesser percentages of the association's assets; and, with certain limitations and exceptions, certain additional loans may be made if not in excess of 3% of the association's total assets. In addition, no association may make real estate acquisition and development loans for primarily residential use to one borrower in excess of 2% of assets. The total investments in commercial paper or corporate debt of any issuer cannot exceed 1% of an association's assets, with certain exceptions. Ohio law authorizes Ohio-chartered associations to, among other things: (i) invest up to 15% of assets in the capital stock, obligations, and other securities of service corporations organized under the laws of Ohio, and an additional 20% of net worth may be invested in loans to majority owned service corporations; (ii) invest up to 10% of assets in corporate equity securities, bonds, debentures, notes, or other evidence of indebtedness; (iii) exceed limits otherwise applicable to certain types of investments (other than investments in service corporations) by and between 3% and 10% of assets, depending upon the level of the institution's permanent stock, general reserves, surplus, and undivided profits; and (iv) invest up to 15% of assets in any loans or investments not otherwise specifically authorized or prohibited, subject to authorization by the institution's board of directors. An Ohio association may invest in such real property or interests therein as its board of directors deems necessary or convenient for the conduct of the business of the association, but the amount so invested may not exceed the net 69 worth of the association at the time the investment is made. Additionally, an association may invest an amount equal to 10% of its assets in any other real estate. This limitation does not apply, however, to real estate acquired by foreclosure, conveyance in lieu of foreclosure, or other legal proceedings in relation to loan security interests. Notwithstanding the above powers authorized under Ohio law and regulation, a state-chartered savings association, such as Wayne Savings Community Bank, is subject to certain limitations on its permitted activities and investments under federal law, which may restrict the ability of an Ohio-chartered association to engage in activities and make investments otherwise authorized under Ohio law. Ohio has adopted statutory limitations on the acquisition of control of an Ohio savings and loan association by requiring the written approval of the Ohio Division of Financial Institutions prior to the acquisition by any person or company, as defined under the Ohio Revised Code, of a controlling interest in an Ohio association. Control exists, for purposes of Ohio law, when any person or company, either directly, indirectly, or acting in concert with one or more other persons or companies (a) acquires 15% of any class of voting stock, irrevocable proxies, or any combination thereof, (b) directs the election of a majority of directors, (c) becomes the general partner of the savings and loan association, (d) has influence over the management and policies of the savings and loan association, (e) has the ability to direct shareholder votes, or (f) anything else deemed to be control by the Ohio Division. The Ohio Division of Financial Institution's written permission is required when the total amount of control held by the acquirer was less than or equal to 25% control before the acquisition and more than 25% control after the acquisition, or when the total amount of control held by the acquirer was less than 50% before the acquisition and more than 50% after the acquisition. Ohio law also prescribes other situations in which the Ohio Division of Financial Institutions must be notified of the acquisition even though prior approval is not required. Any person or company, which would include a director, will not be deemed to be in control by virtue of an annual solicitation of proxies voted as directed by a majority of the board of directors. Under certain circumstances, interstate mergers and acquisitions involving associations incorporated under Ohio law are permitted by Ohio law. A savings and loan association or savings and loan holding company with its principal place of business in another state may acquire a savings and loan association or savings and loan holding company incorporated under Ohio law if the laws of such other state permit an Ohio savings and loan association or an Ohio holding company reciprocal rights. Additionally, recently enacted legislation permits interstate branching by savings and loan associations incorporated under Ohio law. Ohio law requires prior written approval of the Ohio Superintendent of Savings and Loans of a merger of an Ohio association with another savings and loan association or a holding company affiliate. HOLDING COMPANY REGULATION Upon completion of the conversion, Wayne Savings Bancshares, Inc. will be a non-diversified unitary savings and loan holding company, subject to regulation and supervision by the Office of Thrift Supervision. A non-diversified unitary savings and loan holding company is a savings and loan holding company which controls only one subsidiary savings association which, together with all related activities, represented more than 50% of the holding company's consolidated net worth. In addition, the Office of Thrift Supervision has enforcement authority over Wayne Savings Bancshares, Inc. and its non-savings institution subsidiaries. Among other things, this authority permits the Office of Thrift Supervision to restrict or prohibit activities that are determined to be a risk to Wayne Savings Community Bank. Under prior law, a unitary savings and loan holding company was not generally restricted as to the types of business activities in which it may engage, provided that its subsidiary savings bank was a qualified thrift lender. The Gramm-Leach-Bliley Act of 1999, however, restricts unitary savings and loan holding companies not existing or applied for before May 4, 1999 to those activities permissible for financial holding companies or for multiple savings and loan holding companies. Wayne Savings Bancshares, Inc. will not be a grandfathered unitary savings and loan holding company and, therefore will be limited to the activities permissible for financial holding companies or for multiple savings and loan holding companies. A financial holding company may engage in activities that are financial in nature including underwriting equity securities and insurance incidental to financial activities or complementary to a financial activity. A multiple savings and loan holding company is generally limited to activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the Office of Thrift Supervision, and certain additional activities authorized by Office of Thrift Supervision regulations. 70 Federal law prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries, from acquiring control of another savings institution or holding company thereof, without prior written approval of the Office of Thrift Supervision. It also prohibits the acquisition or retention of, with specified exceptions, more than 5% of the equity securities of a company engaged in activities that are not closely related to banking or financial in nature; or acquiring or retaining control of an institution that is not federally insured. In evaluating applications by holding companies to acquire savings institutions, the Office of Thrift Supervision must consider the financial and managerial resources, future prospects of the savings institution involved, the effect of the acquisition on the risk to the insurance fund, the convenience and needs of the community and competitive factors. PROSPECTIVE REGULATION AND LEGISLATION Regulations that affect Wayne Savings Community Bank, Village Savings Bank and Wayne Savings Bancshares, Inc. on a daily basis may be changed at any time, and the interpretation of the relevant law and regulations may also change because of new interpretations by the authorities who administer those laws and regulations. Any change in the regulatory structure or the applicable statutes or regulations, whether by the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, the Ohio Division of Financial Institutions or the United States Congress, could have a material impact on the business and operations of Wayne Savings Community Bank, Village Savings Bank and Wayne Savings Bancshares, Inc. FEDERAL SECURITIES LAWS Wayne Savings Bancshares, Inc. has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended, for the registration of the common stock to be issued pursuant to the conversion. Upon completion of the conversion, Wayne Savings Bancshares, Inc. common stock will be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Wayne Savings Bancshares, Inc. will be subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934. The registration under the Securities Act of 1933 of shares of common stock to be issued in the conversion does not cover the resale of those shares. Shares of the common stock purchased by persons who are not affiliates of Wayne Savings Bancshares, Inc. may be resold without registration. Shares purchased by an affiliate of Wayne Savings Bancshares, Inc. will be subject to the resale restrictions of Rule 144 under the Securities Act of 1933. If Wayne Savings Bancshares, Inc. meets the current public information requirements of Rule 144 under the Securities Act of 1933, each affiliate of Wayne Savings Bancshares, Inc. who complies with the other conditions of Rule 144, including those that require the affiliate's sale to be aggregated with those of other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of the outstanding shares of Wayne Savings Bancshares, Inc., or the average weekly volume of trading in the shares during the preceding four calendar weeks. Provision may be made in the future by Wayne Savings Bancshares, Inc. to permit affiliates to have their shares registered for sale under the Securities Act of 1933. TAXATION FEDERAL TAXATION. Income taxes are accounted for under the asset and liability method that requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The federal tax bad debt reserve method available to thrift institutions was repealed in 1996 for tax years beginning after 1995. As a result, Wayne Savings Bancshares, Inc. was required to change from the reserve method to the specific charge-off method to compute its bad debt deduction. In addition, Wayne Savings Bancshares, Inc. is required generally to recapture into income the portion of its bad debt reserve (other than the supplemental reserve) that exceeds its base year reserves, or approximately $300,000. The recapture amount resulting from the change in a thrift's method of accounting for its bad debt reserves generally will be taken into taxable income ratably (on a straight-line basis) over a six-year period. Wayne Savings Community Bank began recapture of the bad debt reserve during fiscal 1999. 71 Retained earnings as of June 30, 2001 include approximately $1.2 million for which no provision for federal income tax has been made. This reserve (base year and supplemental) is frozen/not forgiven as certain events could trigger a recapture such as stock redemption or distributions to shareholders in excess of current or accumulated earnings and profits. Wayne Savings Bancshares, Inc.'s tax returns have been audited or closed without audit through fiscal year 1997. OHIO TAXATION. Wayne Savings Bancshares, Inc. files Ohio franchise tax returns. For Ohio franchise tax purposes, savings institutions are currently taxed at a rate equal to 1.3% of taxable net worth. Wayne Savings Bancshares, Inc. is not currently under audit with respect to its Ohio franchise tax returns. MANAGEMENT OF WAYNE SAVINGS BANCSHARES, INC. DIRECTORS Wayne Savings Bancshares, Inc.'s Board of Directors is currently composed of seven members. Approximately one-third of the directors are elected annually. Directors are generally elected to serve for three year-periods and until their respective successors shall have been elected and shall qualify. The table below sets forth certain information regarding the composition of the Board of Directors as of June 30, 2001, including the terms of office of Board members.
NAME AGE POSITIONS HELD IN THE COMPANY DIRECTOR SINCE(1) CURRENT TERM TO EXPIRE --------------------- ------------ ------------------------------- ------------------- ------------------------ Charles F. Finn 63 Chairman of the Board,President, 1976 2002 and Chief Executive Officer Joseph L. Retzler 73 Director 1985 2002 Kenneth G. Rhode 92 Director 1958 2003 James C. Morgan 63 Director 1995 2003 Donald E. Massaro 72 Director 1990 2004 Russell L. Harpster 66 Director 1979 2004 Terry A. Gardner 54 Director 1994 2004 --------------------------------
(1) Reflects initial appointment to the Board of Directors of Wayne Savings Community Bank. The principal occupation during the past five years of each director and executive officer of Wayne Savings Bancshares, Inc. is set forth below. All directors and executive officers have held their present positions for five years unless otherwise stated. CHARLES F. FINN has been President and Chief Executive Officer of Wayne Savings Community Bank since 1983. He has been employed by Wayne Savings Community Bank for 37 years. Mr. Finn is the spouse of Wanda Christopher-Finn, Executive Vice President of Wayne Savings Bancshares, Inc. He was appointed Chairman of the Board of Directors of Wayne Savings Bancshares, Inc. on September 25, 1997. JOSEPH L. RETZLER is President of Retzler Hardware in Wooster, Ohio. KENNETH G. RHODE has been Chairman of the Board of Wayne Savings Community Bank since 1972. He was Chief Executive Officer of Lightning Rod Mutual and Western Reserve Mutual Insurance Companies of Wooster, Ohio, prior to his retirement in 1988. JAMES C. MORGAN is President of Franklin Oil & Gas, Inc. in Wooster, Ohio. He was elected director on February 28, 1995 to fill the unexpired term of a retiring director. DONALD E. MASSARO has been affiliated with Wayne Savings Community Bank for 35 years. He previously was an officer of Wayne Savings Community Bank and retired in December 1992. RUSSELL L. HARPSTER is an attorney and a partner in the law firm of Henderson, Harpster & Vanosdall in Ashland, Ohio. 72 TERRY A. GARDNER is President and General Partner of Terra Management, Inc., in Wooster, Ohio, a firm involved in the construction and management of multi-family housing projects. He was elected director on October 25, 1994 to fill the unexpired term of a retiring director. EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS WANDA CHRISTOPHER-FINN is Executive Vice President, Chief Administrative Officer and has been affiliated with Wayne Savings Community Bank since 1972. Ms. Christopher-Finn is the spouse of Charles Finn. GARY C. MILLER became Senior Vice President, Manager of the Loan Origination Division in February 1996 and was promoted to Chief Lending Officer in August 1997. He was previously Vice President, Manager of Mortgage Loans. He has been affiliated with Wayne Savings Community Bank since 1971. MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS The business of Wayne Savings Bancshares, Inc.'s Board of Directors is conducted through meetings and activities of the Board and its committees. During the year ended March 31, 2001, the Board of Directors held 12 regular meetings and one special meeting. During the year ended March 31, 2001, no director attended fewer than 75 percent of the total meetings of the Board of Directors of Wayne Savings Bancshares, Inc. and committees on which such director served. The Executive Committee of the Board of Directors, consisting of Directors Kenneth Rhode, Charles Finn, Russell Harpster and Joseph Retzler, also serves as the Compensation Committee of Wayne Savings Bancshares, Inc., and meets periodically to review the performance of officers and employees and determine compensation programs and adjustments. The Executive Committee met two times in its capacity as the Compensation Committee during the year ended March 31, 2001. The Audit Committee consists of Directors Kenneth Rhode, Donald Massaro, Terry Gardner and James Morgan. This Committee meets on a quarterly basis with the internal auditor to review audit programs and the results of audits of specific areas as well as other regulatory compliance issues. Wayne Savings Bancshares, Inc.'s Audit Committee met four times during the year ended March 31, 2001. The Nominating Committee consists of the full Board of Directors. While the Nominating Committee will consider nominees recommended by stockholders, it has not actively solicited recommendations from stockholders for nominees, nor established any procedures for this purpose. Any nominations must, however, be made pursuant to applicable provisions of the Bylaws of Wayne Savings Bancshares, Inc. The Board of Directors met one time in its capacity as the Nominating Committee during the fiscal year ended March 31, 2001. 73 EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE. The following table sets forth for the fiscal years ended March 31, 2001, 2000 and 1999 certain information as to the total remuneration paid by Wayne Savings Bancshares, Inc. to its Chief Executive Officer and to its Executive Vice President. Information in the table below has been adjusted for the 5% stock dividend paid in June 1999. During the fiscal year ended March 31, 2001, no other officer of Wayne Savings Bancshares, Inc. earned salary and bonus which exceeded $100,000.
==================== ================================================= ====================================== ================ LONG-TERM COMPENSATION -------------------- ------------------------------------------------- -------------------------------------- ---------------- ANNUAL COMPENSATION (1) AWARDS PAYOUT -------------------- ------------------------------------------------- ---------------------------- --------- FISCAL YEARS ENDED OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER NAME AND PRINCIPAL MARCH SALARY BONUS COMPENSATION STOCK UNDERLYING LTIP COMPENSATION POSITION 31, ($) ($) (2) AWARD(S) OPTIONS/SARS PAYOUTS (3) ==================== ========= ============ ========= ================ ============ =============== ========= ================ Charles F. Finn 2001 $ 152,800 $ 16,000 -- -- -- -- $ -- Chairman, 2000 147,800 15,000 -- -- -- -- -- President and 1999 142,000 15,000 -- -- -- -- 7,688 Chief Executive Officer -------------------- --------- ------------ --------- ---------------- ------------ --------------- --------- ---------------- Wanda 2001 $ 97,500 $ 13,000 -- -- -- -- $ -- Christopher-Finn, 2000 94,500 10,500 -- -- -- -- -- Executive Vice 1999 89,500 10,400 -- -- -- -- 4,953 President ==================== ========= ============ ========= ================ ============ =============== ========= ================
(1) No compensation has been deferred at the election of the executive. Does not include benefits pursuant to Wayne Savings Bancshares, Inc.'s Pension Plan. (2) Wayne Savings Community Bancshares, Inc. also provides certain members of senior management with the use of an automobile, membership dues and other personal benefits. The aggregate amount of such other benefits provided did not exceed the lesser of $50,000 or 10% of total annual salary. (3) Includes the market value at March 31 of shares of common stock allocated to Mr. Finn and Ms. Christopher-Finn pursuant to Wayne Savings Community Bank's Employee Stock Ownership Plan. STOCK OPTION PLAN. The Board of Directors of Wayne Savings Community Bank adopted the 1993 Incentive Stock Option Plan in connection with its conversion to stock form in 1993. The plan was ratified by the stockholders at the 1993 Annual Meeting. Set forth below is information concerning exercised and unexercisable options held by the named executive officers at March 31, 2001.
==================================================================================================================== AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES ==================================================================================================================== NUMBER OF UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END (1) ------------------------- -------------------------- SHARES ACQUIRED VALUE NAME UPON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ---------------------------- ---------------- ----------------- ------------------------- -------------------------- Charles F. Finn 3,300 $34,650 3,200/-- $ 41,402 /-- Wanda Christopher-Finn 2,100 $ 22,050 2,041/-- $ 26,406/-- ============================ ================ ================= ========================= ==========================
(1) Equals the difference between the aggregate exercise price of such options and the aggregate fair market value of the shares of common stock that would be received upon exercise, assuming such exercise occurred on March 31, 2001 (based on the price of the last sale reported on the Nasdaq SmallCap Market on March 31, 2001). EMPLOYMENT AND SEVERANCE AGREEMENTS EMPLOYMENT AGREEMENTS. Wayne Savings Community Bank intends to enter into employment agreements with Chairman, President and Chief Executive Officer Charles F. Finn, and Executive Vice Presidents Wanda 74 Christopher-Finn and ______________. Mr. Finn's agreement will provide for a term of 36 months, and Ms. Christopher-Finn's and ___________ will provide for terms of 24 months. On each anniversary date, the agreements may be extended for an additional 12 months, so that the remaining term shall be 36 months and 24 months, respectively. If the agreement is not renewed, the agreements will expire 36 months, or 24 months, respectively, following the anniversary date. The base salaries under the agreements may be increased but not decreased. In addition to the base salaries, the agreements provide for, among other things, insurance benefits, and participation in other employee and fringe benefits applicable to executive personnel. The agreements provide for termination of the executive by Wayne Savings Community Bank for cause at any time. In the event Wayne Savings Community Bank terminates the executive's employment during the term of the agreement for reasons other than cause, or in the event of the executive's resignation from Wayne Savings Community Bank upon (i) failure to re-elect the executive to his current offices, (ii) a material change in the executive's functions, duties or responsibilities, or relocation of his principal place of employment by more than a specified number of miles, (iii) liquidation or dissolution of Wayne Savings Community Bank, or (iv) a breach of the agreement by Wayne Savings Community Bank, Mr. Finn, Ms. Christopher-Finn, or Mr. ________ , or in the event of death, his or her beneficiary would be entitled to severance pay in an amount equal to three times, or two times, as applicable, his or her highest annual Base Salary and bonus. Wayne Savings Community Bank would also continue the executive's life and, if applicable, dental coverage for the remaining unexpired term of the agreement. In the event the payments to the executive would include an "excess parachute payment" as defined in the Internal Revenue Code, the payments would be reduced in order to avoid having an excess parachute payment. The agreement may be revised based upon comments of the Office of Thrift Supervision. An executive's employment may be terminated upon his or her attainment of a retirement age to which the executive consents. Upon an executive's retirement, he or she will be entitled to all benefits available to him under any retirement or other benefit plan maintained by Wayne Savings Community Bank. In the event of an executive's disability for a period of six months, Wayne Savings Community Bank may terminate the agreement provided that Wayne Savings Community Bank will be obligated to pay the executive a bi-weekly payment equal to three quarters of the executive's bi-weekly rate of base salary, reduced by any benefits paid to the executive pursuant to any disability insurance policy or similar arrangement maintained by Wayne Savings Community Bank. The disability payments shall end on the earlier of (i) the date the executive returns to full-time employment with Wayne Savings Community Bank or another employer, (ii) his attainment of retirement age, or (iii) his death. CHANGE OF CONTROL AGREEMENTS. Wayne Savings Community Bank intends to enter into a change of control agreement with Gary C. Miller that will provide certain benefits in the event of a change of control of Wayne Savings Bancshares, Inc. or Wayne Savings Community Bank. Upon a change in control of Wayne Savings Community Bank followed by the involuntary or, in certain instances, voluntary, termination, other than termination for cause, Mr. Miller would be entitled to severance pay in an amount equal to two times his base salary. In the event the payments to the executive would include an "excess parachute payment" as defined in the Internal Revenue Code, the payments would be reduced in order to avoid having an excess parachute payment. The agreement may be revised based upon comments of the Office of Thrift Supervision. DIRECTORS' COMPENSATION FEES. Wayne Savings Bancshares, Inc.'s directors receive no fees for serving on the Board of Directors or committees of Wayne Savings Bancshares, Inc. Each outside director who served on the Board of Directors of Wayne Savings Community Bank during the fiscal year ended March 31, 2001 received a monthly meeting fee of $789 and a monthly retainer of $526. The monthly meeting fee is paid to the director only if the director attends the meeting or has an excused absence. No additional fees were paid for special meetings of the Board of Directors. During the fiscal year ended March 31, 2001, the members of the Executive Committee received an annual fee of $2,000; however, Kenneth Rhode, Chairman of the Board of Directors of Wayne Savings Community Bank, received a grandfathered executive committee fee of $4,000. Members of the Loan Committee and Audit Committee received an annual fee of $1,800. Directors who attend the quarterly meetings of Wayne Savings Bancshares, Inc.'s Asset Review Committee received a fee of $100 for each meeting attended. The Chairman of the Board of Directors of Wayne Savings Community Bank and Chairman of the Executive Committee received $12,850 in additional fees during the fiscal year ended March 31, 2001. Mr. Finn did not receive any fees as Chairman of the Board of Wayne Savings Bancshares, Inc. DIRECTORS DEFERRED COMPENSATION PLAN. Wayne Savings Bancshares, Inc. intends to implement a Directors Deferred Compensation Plan. Pursuant to the plan, retiring directors will be entitled to receive five annual 75 payments, each of which is equal to 50% of the fees received by the retiring director during the year prior to retirement. Wayne Savings Bancshares, Inc. estimates that the after-tax cost of implementing the plan will be approximately $120,000. STOCK OPTION PLAN FOR OUTSIDE DIRECTORS. The Board of Directors of Wayne Savings Community Bank adopted the 1993 Stock Option Plan for Outside Directors in connection with its conversion to stock form in 1993. The plan was ratified by Wayne Savings Community Bank's stockholders at the 1993 Annual Meeting. The plan authorizes the grant of non-statutory stock options for 36,018 shares (adjusted for stock-splits and stock dividends) of common stock to non-employee directors of Wayne Savings Bancshares, Inc. The plan is a self administering plan that granted to Messrs. Rhode, Harpster, Retzler, and Massaro non-statutory options to purchase 7,204, 5,467, 5,467 and 5,336 shares of common stock (as adjusted), respectively. The exercise price of the options was originally $10.00 per share, the fair market value of the shares of common stock underlying such option on the date the option was granted. As of June 30, 2001, the exercise price of all such options was $5.00 due to stock-splits and stock dividends. All options granted under the plan may be exercised from time to time in whole or in part, and expire upon the earlier of 10 years following the date of grant or one year following the date the optionee ceases to be a director. EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST Wayne Savings Community Bank implemented an employee stock ownership plan in connection with its stock offering in 1993. The employee stock ownership plan purchased 8% of the shares sold in the 1993 offering, all of which have been allocated. As part of the conversion, the employee stock ownership plan intends to borrow funds from Wayne Savings Bancshares, Inc. and use those funds to purchase 8% of the common stock to be sold in the offering. Employees with at least one year of employment with Wayne Savings Community Bank and who have attained age 18 are eligible to participate. Collateral for the loan will be the common stock purchased by the employee stock ownership plan. The loan will be repaid principally from Wayne Savings Community Bank's discretionary contributions to the employee stock ownership plan over a period of up to 20 years, provided that the loan documents will permit repayment over a shorter period, without penalty for prepayments. It is anticipated that the interest rate for the loan will be a floating rate equal to the prime rate. Shares purchased by the employee stock ownership plan will be held in a suspense account for allocation among participants as the loan is repaid. Contributions to the employee stock ownership plan and shares released from the suspense account in an amount proportional to the repayment of the employee stock ownership plan loan will be allocated among employee stock ownership plan participants on the basis of compensation in the year of allocation. A participant who terminates employment for reasons other than death, retirement, or disability prior to five years of credited service under the employee stock ownership plan will forfeit his benefits. Nonvested benefits will become fully vested upon five years of credited service, or prior to five years of credited service in connection with a participants death or disability or termination of the plan. Vested benefits will be payable in the form of common stock and/or cash. Wayne Savings Community Bank's contributions to the employee stock ownership plan are discretionary, subject to the loan terms and tax law limits; therefore, benefits payable under the employee stock ownership plan cannot be estimated. Pursuant to SOP 93-6, Wayne Savings Community Bank is required to record compensation expense in an amount equal to the fair market value of the shares released from the suspense account. In the event of a change in control (as defined in the plan) the employee stock ownership plan will terminate. A committee of nonemployee directors will administer the employee stock ownership plan. Wayne Savings Community Bank will appoint an independent financial institution or its outside directors to serve as trustee of the employee stock ownership plan. The employee stock ownership plan trustee, subject to its fiduciary duty, must vote all allocated shares held in the employee stock ownership plan in accordance with the instructions of participating employees. Under the employee stock ownership plan, nondirected shares and shares held in the suspense account will be voted in a manner calculated to most accurately reflect the instructions it has received from participants regarding the allocated stock, so long as the vote is in accordance with the provisions of ERISA. PENSION PLAN Wayne Savings Community Bank makes available to all full-time employees who have attained the age of 21 and completed one year of service with the bank a defined benefit pension plan. The pension plan provides for 76 monthly payments to or on behalf of each covered employee upon the employee's normal retirement date (I.E., the first day of the month coincident with or next following the later of age 65 or 5 years of participation). These payments are calculated in accordance with a formula based on the employee's "average monthly compensation," which is defined as the highest average of total compensation for five consecutive calendar years of employment. The normal retirement benefit is equal to 29% of the "average monthly compensation" up to the integration level, plus 51% of the "average monthly compensation" in excess of the integration level, reduced for less than 35 years of service. The normal form of benefit is a monthly income payable for life. Optional forms of benefit are available. Under the pension plan, the bank makes an annual contribution for the benefit of eligible employees computed on an actuarial basis. Employee benefits under the plan vest as designated in the schedule below: COMPLETED YEARS VESTED OF EMPLOYMENT PERCENTAGES ------------- ----------- Fewer than 3 ............................................... 0 3 but less than 4 .......................................... 20% 4 but less than 5 .......................................... 40% 5 but less than 6 .......................................... 60% 6 but less than 7 .......................................... 80% 7 or more .................................................. 100% The following table illustrates regular annual allowance amounts at age 65 under the regular retirement benefit plan provisions available at various levels of compensation and years of benefit service (figured on formula described above):
YEARS OF BENEFIT SERVICE AVERAGE SALARY 10 15 20 25 30 35 -------------- ---------- ---------- ---------- ---------- ---------- --------- $ 20,000 $ 1,811 $ 2,717 $ 3,622 $ 4,528 $ 5,433 $ 6,339 $ 30,000 $ 3,268 $ 4,902 $ 6,537 $ 8,171 $ 9,805 $ 11,439 $ 50,000 $ 6,183 $ 9,274 $ 12,365 $ 15,456 $ 18,548 $ 21,639 $ 80,000 $10,554 $ 15,831 $ 21,108 $ 26,385 $ 31,662 $ 37,939 $ 100,000 $13,468 $ 20,202 $ 27,937 $ 33,671 $ 40,405 $ 47,139
At March 31, 2001, Mr. Finn and Ms. Christopher-Finn had 37 years and 29 years of credited service under the pension plan, respectively. CERTAIN TRANSACTIONS WITH WAYNE SAVINGS BANCSHARES, INC. Federal law and regulation generally requires that all loans or extensions of credit to executive officers and directors must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with the general public and must not involve more than the normal risk of repayment or present other unfavorable features. However, recent 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 executive officer is not given preferential treatment compared to the other participating employees. All loans made to a director or executive officer in excess of the greater of $25,000 or 5% of Wayne Savings Bancshares, Inc.'s capital and surplus must be approved in advance by a majority of the disinterested members of the Board of Directors. As of June 30, 2001, loans to officers, directors and their related business interests totaled $2.5 million. All loans, the principal balances of which exceeded $60,000 at any time during the fiscal year ended March 31, 2001, made by Wayne Savings Bancshares, Inc. to executive officers, directors, immediate family members of executive officers and directors, or organizations with which executive officers and directors are affiliated, were made in the ordinary course of business, on substantially the same terms including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. Director Russell L. Harpster is a partner in the law firm of Henderson, Harpster & Vanosdall of Ashland, Ohio, which has represented Wayne Savings Bancshares, Inc. in certain legal matters since 1979. During the fiscal year ending March 31, 2001, Wayne Savings Bancshares, Inc. paid $8,133 in legal fees to the law firm. No retainer was paid, and Wayne Savings Bancshares, Inc. was billed for services performed at the firm's hourly rate. 77 BENEFITS TO BE CONSIDERED FOLLOWING COMPLETION OF THE CONVERSION STOCK OPTION PLAN. We intend to submit for stockholder approval, no earlier than six months after the completion of the conversion, a new stock option plan for directors and officers of Wayne Savings Community Bank and Wayne Savings Bancshares, Inc. If approved by the stockholders, the new stock option plan would reserve 10% of the shares sold in the offering for issuance when options granted to officers and directors are exercised. Ten percent of the shares issued in the offering would amount to 153,000 shares, 180,000 shares, 207,000 shares or 238,050 shares at the minimum, mid-point, maximum and adjusted maximum of the offering range, respectively. No options would be granted under the new stock option plan until stockholder approval of the plan is received. In the event that shares underlying options come from authorized but unissued shares, stockholders would experience dilution of approximately 5.5% in their ownership interest in Wayne Savings Bancshares, Inc. at the mid-point of the offering range. The exercise price of the options granted under the new stock option plan will be equal to the fair market value of Wayne Savings Bancshares, Inc. common stock on the date of grant of the stock options. If the stock option plan is adopted within one year following the conversion, options will vest at a rate of 20% at the end of each 12 months of service with Wayne Savings Community Bank after the date of grant. Options granted under the stock option plan would be adjusted for capital changes such as stock splits and stock dividends. Awards will be 100% vested upon termination of employment due to death or disability, and if the stock option plan is adopted more than one year after the conversion, awards would be 100% vested upon normal retirement or a change in control of Wayne Savings Community Bank or Wayne Savings Bancshares, Inc. Under Office of Thrift Supervision rules, if the stock option plan is adopted within one year of the conversion, no individual officer may receive more than 25% of the awards under the plan, no non-employee director may receive more than 5% of the awards under the plan, and all non-employee directors as a group can receive no more than 30% of the awards under the plan in the aggregate. The stock option plan would be administered by a committee of non-employee members of the Wayne Savings Bancshares, Inc.'s board of directors. Options granted under the stock option plan to employees may be "incentive" stock options, designed to result in a beneficial tax treatment to the employee but no tax deduction to Wayne Savings Bancshares, Inc. Non-qualified stock options may also be granted to employees under the stock option plan, and will be granted to the non-employee directors who receive stock options. In the event an option recipient terminated his employment or service as an employee or director, the options would terminate during certain specified periods. STOCK RECOGNITION PLAN. We also intend to request stockholder approval of a new stock recognition plan, no earlier than six months after the completion of the conversion. If approved by stockholders, the new stock recognition plan would, if implemented within one year of conversion, reserve 4% of the shares sold in the offering (assuming Wayne Savings Community Bank has a tangible capital to assets ratio in excess of 10%) or 61,200 shares, 72,000 shares, 82,800 or 95,220 shares at the minimum, mid-point, maximum and adjusted maximum of the offering range, respectively. The officers and directors will be awarded common stock under the stock recognition plan without having to pay cash for the shares. No awards would be made under the stock recognition plan until the plan is approved by stockholders. If the shares awarded under the stock recognition plan come from authorized but unissued shares totaling 4% of the shares sold in the offering, stockholders would experience dilution of approximately 2.1% in their ownership interest in Wayne Savings Bancshares, Inc. at the mid-point of the offering range. Awards under the stock recognition plan would be nontransferable and nonassignable. Under OTS rules, if the stock recognition plan is adopted within one year following the conversion, the shares which are subject to an award would vest at a rate of 20% at the end of each full 12 months of service with Wayne Savings Community Bank after the date of grant of the award. Awards would be adjusted for capital changes such as stock dividends and stock splits. Awards would be 100% vested upon termination of employment or service due to death or disability, and if the stock recognition plan is adopted more than one year after the conversion, awards would be 100% vested upon normal retirement or a change in control of Wayne Savings Community Bank or Wayne Savings Bancshares, Inc. If employment or service were to terminate for other reasons, the award recipient would forfeit any nonvested award. If employment or service is terminated for cause (as defined), shares not already delivered would be forfeited. Under OTS rules, if the stock recognition plan is adopted within one year of the conversion, no individual officer may receive more than 25% of the awards under the plan, no non-employee director may receive more than 5% of the awards under the plan, and all non-employee directors as a group may receive no more than 30% of the awards under the plan in the aggregate. 78 The recipient of an award will recognize income equal to the fair market value of the stock earned, determined as of the date of vesting, unless the recipient makes an election under Section 83(b) of the Internal Revenue Code to be taxed earlier. The amount of income recognized by the recipient would be a deductible expense for tax purposes for Wayne Savings Bancshares, Inc. If the stock recognition plan is adopted within one year following the conversion, dividends and other earnings will accrue and be payable to the award recipient when the shares vest. If the stock recognition plan is adopted within one year following the conversion, shares not yet vested will be voted by the trustee of the stock recognition plan, taking into account the best interests of the award recipients. If the stock recognition plan is adopted more than one year following the conversion, dividends declared on unvested shares will be distributed to the recipient when paid, and the recipient will be entitled to vote the unvested shares. BENEFICIAL OWNERSHIP OF COMMON STOCK The following table provides the beneficial ownership of our common stock held by our directors and executive officers, individually and as a group as of June 30, 2001. The business address of each director and executive officer is 151 North Market Street, Wooster, Ohio.
PERCENT OF NUMBER OF SHARES OF COMMON ALL COMMON STOCK NAME OF BENEFICIAL OWNER STOCK BENEFICIALLY OWNED(1) OUTSTANDING ------------------------------------------------- ----------------------------- ------------------ Charles F. Finn 34,664(2) 1.3% Terry A. Gardner 31,492 1.2 Russell L. Harpster 38,482(3) 1.5 Donald E. Massaro 10,230 * James C. Morgan 11,412 * Joseph L. Retzler 15,471(4) * Kenneth G. Rhode 60,220 2.3 Wanda Christopher-Finn 21,677(5) * Gary C. Miller 9,896 * All directors and executive officers as a group (9 persons) 233,544 9.1 -------------------------------
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to be the beneficial owner for purposes of this table, of any shares of Common Stock if he has sole or shared voting or investment power with respect to such security, or has a right to acquire beneficial ownership at any time within 60 days from the date as of which beneficial ownership is being determined. As used herein, "voting power" is the power to vote or direct the voting of shares and "investment power" is the power to dispose or direct the disposition of shares. Includes all shares held directly as well as by spouses and minor children, in trust and other indirect ownership, over which shares the named individuals effectively exercise sole or shared voting and investment power. (2) Includes options to purchase 3,200 shares. (3) Includes options to purchase 842 shares. (4) Includes options to purchase 4,467 shares. (5) Includes options to purchase 2,041 shares. SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS The table below sets forth, for each of Wayne Savings Bancshares, Inc.'s directors and executive officers and for all of the directors and executive officers as a group, the following information: (1) the number of exchange shares to be held upon consummation of the conversion, based upon their beneficial ownership of Wayne Savings Bancshares, Inc. common stock as of June 30, 2001; (2) the proposed purchases of subscription shares, assuming sufficient shares are available to satisfy their subscriptions; and (3) the total amount of Wayne Savings Bancshares, Inc. common stock to be held upon consummation of the conversion. In each case, it is assumed that subscription shares are sold at the midpoint of the offering range. See "The Conversion--Limitations on Common Stock Purchases." 79
PROPOSED PURCHASES OF STOCK IN TOTAL COMMON STOCK TO BE HELD THE OFFERING(1) ---------------------------------------- NUMBER OF ---------------------------------- PERCENTAGE OF EXCHANGE SHARES NUMBER OF NUMBER OF TOTAL NAME OF BENEFICIAL OWNER TO BE HELD(2) SHARES AMOUNT SHARES OUTSTANDING ------------------------------- --------------- ----------------- --------------- -------------- ---------------------- Charles F. Finn 46,193 Terry A. Gardner 41,966 Russell L. Harpster 51,281 Donald E. Massaro 13,632 James C. Morgan 15,207 Joseph L. Retzler 20,616 Kenneth G. Rhode 80,249 Wanda Christopher-Finn 28,886 Gary C. Miller 13,187 All directors and executive officers as a group (9 persons) 264,535 -------------------------------
* Less than 1%. (1) Includes proposed subscriptions, if any, by associates. (2) Based on information presented in "Beneficial Ownership of Common Stock." THE CONVERSION The Boards of Directors of Wayne Savings Bancshares, Inc. and Wayne Savings Bankshares, MHC have approved the plan of conversion. The plan of conversion must also be approved by the members of Wayne Savings Bankshares, MHC, and the stockholders of Wayne Savings Bancshares, Inc. A special meeting of members and a special meeting of stockholders have been called for this purpose. The Office of Thrift Supervision has also approved the plan; however, such approval does not constitute a recommendation or endorsement of the plan of conversion by that agency. GENERAL The Board of Directors of Wayne Savings Bankshares, MHC adopted the plan of conversion on July 10, 2001. Pursuant to the plan of conversion, our organization will convert from the mutual holding company form of organization to the fully public form. Wayne Savings Bankshares, MHC, the mutual holding company parent of Wayne Savings Bancshares, Inc., will be merged into Wayne Savings Community Bank, and Wayne Savings Bankshares, MHC will no longer exist. Pursuant to the plan, Wayne Savings Bancshares, Inc., which owns 100% of Wayne Savings Community Bank, also will be succeeded by a new Delaware corporation with the same name. As part of the conversion, shares of common stock of Wayne Savings Bancshares, Inc. representing the ownership interest of Wayne Savings Bankshares, MHC, will be offered for sale in the subscription offering and community offering. Following the completion of the conversion, all of the capital stock of Wayne Savings Community Bank will be held by Wayne Savings Bancshares, Inc. A diagram of our corporate structure before and after the conversion is set forth at page __. Under the plan of conversion, at the conclusion of the conversion and related offering, each share of Wayne Savings Bancshares, Inc. common stock held by persons other than Wayne Savings Bankshares, MHC will be converted automatically into and become a right to receive new shares of Wayne Savings Bancshares, Inc. common stock determined pursuant to the exchange ratio. The exchange ratio will ensure that immediately after the conversion and the share exchange, excluding any shares purchased in the offering, the public stockholders of Wayne Savings Bancshares, Inc. common stock will own the same aggregate percentage of Wayne Savings Bancshares, Inc. common stock that they owned immediately prior to the conversion. Wayne Savings Bancshares, Inc. intends to retain 50% of the net proceeds of the offering and contribute the balance of the net proceeds to Wayne Savings Community Bank. The conversion will be effected only upon completion of the sale of at least the minimum number of shares of common stock of Wayne Savings Bancshares, Inc. to be offered pursuant to the plan of conversion. The plan of conversion provides generally that Wayne Savings Bancshares, Inc. will offer shares of common stock for sale in the subscription offering to eligible account holders, Wayne Savings Community Bank's tax-qualified benefit plans, including the employee stock ownership plan, supplemental eligible account holders and other members. Subject to the prior rights of these holders of subscription rights, Wayne Savings Bancshares, Inc. will offer common stock for sale in a community offering to members of the general public, with a preference given to the public stockholders of Wayne Savings Bancshares, Inc. common stock as of November __, 2001, and then to 80 natural persons residing in Wayne, Holmes, Ashland, Medina and Stark Counties, Ohio. Wayne Savings Bancshares, Inc. has the right to accept or reject, in whole or in part, any orders to purchase shares of the common stock received in the community offering. The community offering may commence at the same time as the subscription offering and must be completed within 45 days after the completion of the subscription offering unless otherwise extended by the Office of Thrift Supervision. See "--Community Offering." The number of shares of common stock to be offered in the offering was determined based upon an independent appraisal of the estimated pro forma market value of Wayne Savings Bancshares, Inc. All shares of common stock to be sold in the offering will be sold at $10.00 per share. The independent valuation will be updated and the final number of the shares to be issued in the offering will be determined at the completion of the offering. See "--Stock Pricing and Number of Shares to be Issued" for more information as to the determination of the estimated pro forma market value of the common stock. The appraisal was prepared pursuant to written guidelines promulgated by the Office of Thrift Supervision. RP Financial, LC made its appraisal in reliance upon the information contained in this document, including the financial statements. RP Financial, LC also considered the following factors, among others: o the present and projected operating results and financial condition of Wayne Savings Bancshares, Inc. and the economic and demographic conditions in Wayne Savings Bancshares, Inc.'s existing market area; o certain historical, financial and other information relating to Wayne Savings Bancshares, Inc.; o a comparative evaluation of the operating and financial characteristics of Wayne Savings Bancshares, Inc. with those of other similarly situated publicly traded savings institutions located in Ohio and other regions of the United States; o the aggregate size of the offering of the common stock; o the impact of the conversion on Wayne Savings Bancshares, Inc.'s stockholders' equity and earnings potential; o the proposed dividend policy of Wayne Savings Bancshares, Inc.; and o the trading market for securities of comparable institutions and general conditions in the market for such securities. The appraisal considered the pro forma impact of the offering. Consistent with the Office of Thrift Supervision appraisal guidelines, the appraisal applied three primary methodologies: the pro forma price-to-book value approach applied to both reported book value and tangible book value; the pro forma price-to-earnings approach applied to reported and core earnings; and the pro forma price-to-assets approach. The market value ratios applied in the three methodologies were based upon the current market valuations of the peer group companies, subject to valuation adjustments applied by RP Financial, LC to account for differences between Wayne Savings Bancshares, Inc. and the peer group. RP Financial, LC placed the greatest emphasis on the price-to-earnings and price-to-book approaches in estimating pro forma market value. RP Financial, LC's analysis provides an approximation of the pro forma market value of Wayne Savings Bancshares, Inc. as converted based on the valuation approaches applied and the assumptions outlined in its report. Included in its report were certain assumptions as to the pro forma earnings of Wayne Savings Bancshares, Inc. after the conversion that were utilized in determining the appraised value. These assumptions included estimated expenses and an assumed after-tax rate of return on the net conversion proceeds as described under "Pro Forma Data," purchases by the employee stock ownership plan of an amount equal to 8% of the common stock issued in the offering, and purchases in the open market by the recognition plan of a number of shares equal to 4% of the common stock issued in the offering at the $10.00 purchase price. See "Pro Forma Data" for additional information concerning theses assumptions. The use of different assumptions may yield different results. The following is a brief summary of the conversion and is qualified in its entirety by reference to the provisions of the plan of conversion. A copy of the plan of conversion is available for inspection at each branch of Wayne 81 Savings Community Bank and at the Central Regional and Washington, D.C. offices of the Office of Thrift Supervision. The plan of conversion is also filed as an exhibit to the application to convert from mutual to stock form of which this prospectus is a part, copies of which may be obtained from the Office of Thrift Supervision. See "Additional Information." PURPOSES OF CONVERSION Wayne Savings Community Bank reorganized into the mutual holding company corporate structure in 1993 and sold only a minority interest in the common stock based on its capital needs at that time. If Wayne Savings Community Bank had undertaken a full conversion to public ownership in 1993, it would have offered 100% of its common stock for sale, and it would have raised more capital than management believed could have been effectively reinvested in its market area. Wayne Savings Bancshares, Inc. now has the need for additional capital, and it will sell the portion of its shares now owned by Wayne Savings Bankshares, MHC to the public. This will complete the transition to full public ownership. The potential impact of the conversion upon Wayne Savings Community Bank's capital base is significant. Wayne Savings Community Bank had stockholders' equity in accordance with generally accepted accounting principles of $25.4 million, or 8.0% of assets, at June 30, 2001. Assuming that the offering raises $18.0 million in gross proceeds, the midpoint of the offering range, and assuming that 50% of the net proceeds are contributed to Wayne Savings Community Bank as additional capital, Wayne Savings Community Bank's ratio of capital to pro forma assets, calculated under generally accepted accounting principles, will increase to 10.4%. The investment of the net proceeds from the sale of the common stock will provide Wayne Savings Community Bank with additional income to grow and further increase its capital position. The additional capital may also assist Wayne Savings Community Bank in offering new programs and expanded services to its customers. Additionally, the proceeds retained by Wayne Savings Bancshares, Inc. may be used for the acquisition of financial institution branches or banking related businesses, although we have no current plans to make any such acquisitions. After completion of the conversion and depending on market conditions, the unissued common and preferred stock authorized by the certificate of incorporation of Wayne Savings Bancshares, Inc. will permit Wayne Savings Bancshares, Inc. to raise additional equity capital through further sales of securities, and to issue securities in connection with possible acquisitions. At the present time, we have no plans with respect to additional offerings of securities, other than the issuance of additional shares upon exercise of stock options or the possible issuance of authorized but unissued shares to our stock benefit programs. APPROVALS REQUIRED The affirmative vote of a majority of the total eligible votes of the members of Wayne Savings Bankshares, MHC, at the special meeting of members is required to approve the plan of conversion. By their approval of the plan of conversion, the members of Wayne Savings Bankshares, MHC will also be deemed to approve the merger of Wayne Savings Bankshares, MHC into Wayne Savings Community Bank. The affirmative vote of the holders of at least two-thirds of the outstanding common stock of Wayne Savings Bancshares, Inc. and a majority of the publicly held shares of Wayne Savings Bancshares, Inc. common stock are also required to approve the plan of conversion. The plan of conversion must also be approved by the OTS. SHARE EXCHANGE RATIO Office of Thrift Supervision regulations provide that in a conversion of a mutual holding company to fully stock form, the public stockholders will be entitled to exchange their shares of a subsidiary's common stock for common stock of the converted holding company, provided that the mutual holding company demonstrates to the satisfaction of the Office of Thrift Supervision that the basis for the exchange is fair and reasonable. The board of directors of Wayne Savings Bancshares, Inc. has determined that each publicly held share of Wayne Savings Bancshares, Inc. common stock will, on the effective date of the conversion, be converted automatically into and become the right to receive a number of new shares of Wayne Savings Bancshares, Inc. common stock determined pursuant to the exchange ratio whereby the public stockholders of Wayne Savings Bancshares, Inc. common stock will own the same percentage of common stock in Wayne Savings Bancshares, Inc. after the conversion as they held in Wayne Savings Bancshares, Inc. immediately prior to the conversion, exclusive of their purchase of additional shares, and the receipt of cash in lieu of fractional shares. At June 30, 2001, there were 2,571,093 shares of Wayne Savings Bancshares, Inc. common stock outstanding (net of treasury stock), and 1,220,394 shares, or 47.5% of the total, were 82 publicly held. The exchange ratio is not dependent on the market value of Wayne Savings Bancshares, Inc. common stock. It is calculated based on the percentage of Wayne Savings Bancshares, Inc. common stock held by the public and the number of shares sold in the offering. The exchange ratio is expected to range from approximately 1.1327 exchange shares for each publicly held share of Wayne Savings Bancshares, Inc. at the minimum of the offering range to 1.7624 exchange shares for each publicly held share of Wayne Savings Bancshares, Inc. at the adjusted maximum of the offering range. If you are now a stockholder of Wayne Savings Bancshares, Inc., your existing shares will be cancelled and exchanged for new shares in Wayne Savings Bancshares, Inc. The number of shares you will get will be based on an exchange ratio determined as of the closing of the conversion. The actual number of shares you receive will depend upon the number of shares we sell in our offering, which in turn will depend upon the final appraised value of Wayne Savings Bancshares, Inc. The following table shows how the exchange ratio will adjust, based on the number of shares sold in our offering. The table also shows how many shares a hypothetical owner of Wayne Savings Bancshares, Inc. common stock would receive in the exchange, adjusted for the number of shares sold in the offering.
NEW SHARES TOTAL SHARES NEW SHARES TO NEW SHARES TO BE EXCHANGED OF COMMON BE RECEIVED FOR TO BE SOLD FOR EXISTING SHARES OF WAYNE STOCK TO BE EXCHANGE 100 EXISTING IN THIS OFFERING SAVINGS BANCSHARES, INC. OUTSTANDING RATIO SHARES AMOUNT PERCENT AMOUNT PERCENT Minimum............... 1,530,000 52.53 % 1,382,397 47.47 % 2,912,397 1.1327 113 Midpoint.............. 1,800,000 52.53 1,626,350 47.47 3,426,350 1.3326 133 Maximum............... 2,070,000 52.53 1,870,302 47.47 3,940,302 1.5325 153 15% above Maximum..... 2,380,500 52.53 2,150,847 47.47 4,531,347 1.7624 176
Options to purchase shares of Wayne Savings Bancshares, Inc. common stock will also be converted into and become options to purchase Wayne Savings Bancshares, Inc. common stock. The number of shares of common stock to be received upon exercise of these options will be determined pursuant to the exchange ratio. The aggregate exercise price, duration, and vesting schedule of these options will not be affected. At June 30, 2001, all the options to purchase common stock were vested. At June 30, 2001, there were outstanding options to purchase 17,473 shares of Wayne Savings Bancshares, Inc. common stock. Executive officers and directors of Wayne Savings Bancshares, Inc. do not intend to exercise options prior to the effective date. EFFECTS OF CONVERSION ON DEPOSITORS, BORROWERS AND MEMBERS GENERAL. Each depositor in Wayne Savings Community Bank has both a deposit account in Wayne Savings Community Bank and a pro rata ownership interest in the net worth of Wayne Savings Bankshares, MHC based upon the balance in his or her account. This interest may only be realized in the event of a complete liquidation of Wayne Savings Bankshares, MHC and Wayne Savings Community Bank. However, this ownership interest is tied to the depositor's account and has no tangible market value separate from the deposit account. Any depositor who opens a deposit account obtains a pro rata ownership interest in Wayne Savings Bankshares, MHC without any additional payment beyond the amount of the deposit. A depositor who reduces or closes his account receives a portion or all of the balance in the account but nothing for his ownership interest in the net worth of Wayne Savings Bankshares, MHC, which is lost to the extent that the balance in the account is reduced or closed. Consequently, depositors in a stock subsidiary of a mutual holding company normally have no way of realizing the value of their ownership interest, which has realizable value only in the unlikely event that Wayne Savings Bankshares, MHC and Wayne Savings Community Bank are liquidated. If this occurs, the depositors of record at that time, as owners, would share pro rata in any residual surplus and reserves of Wayne Savings Bankshares, MHC after other claims, including claims of depositors to the amounts of their deposits, are paid. CONTINUITY. While the conversion is being accomplished, the normal business of Wayne Savings Community Bank of accepting deposits and making loans will continue without interruption. Wayne Savings Community Bank will continue to be regulated by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation. After the conversion, Wayne Savings Community Bank will continue to provide services for depositors and 83 borrowers under current policies by its present management and staff. The directors serving Wayne Savings Bancshares, Inc. at the time of the conversion will serve as directors of Wayne Savings Bancshares, Inc. after the conversion. EFFECT ON DEPOSIT ACCOUNTS. Under the plan of conversion, each depositor in Wayne Savings Community Bank at the time of the conversion will automatically continue as a depositor after the conversion, and each of the deposit accounts will remain the same with respect to deposit balance, interest rate and other terms. Each such account will be insured by the Federal Deposit Insurance Corporation to the same extent as before the conversion. Depositors will continue to hold their existing certificates, passbooks and other evidences of their accounts. EFFECT ON LOANS. No loan outstanding from Wayne Savings Community Bank will be affected by the conversion, and the amount, interest rate, maturity and security for each loan will remain as they were contractually fixed prior to the conversion. EFFECT ON VOTING RIGHTS OF MEMBERS. At present, all depositors, and borrowers as of June 23, 1993, who continue as borrowers of Wayne Savings Community Bank, are members of, and have voting rights in, Wayne Savings Bankshares, MHC as to all matters requiring membership action. Upon completion of the conversion, depositors and borrowers will cease to be members of Wayne Savings Bankshares, MHC and will no longer be entitled to vote at meetings of Wayne Savings Bankshares, MHC. Upon completion of the conversion, all voting rights in Wayne Savings Community Bank will be vested in Wayne Savings Bancshares, Inc. as the sole stockholder of Wayne Savings Community Bank. Exclusive voting rights with respect to Wayne Savings Bancshares, Inc. will be vested in the holders of its common stock. Depositors and borrowers of Wayne Savings Community Bank will not have voting rights after the conversion, except to the extent that they become stockholders of Wayne Savings Bancshares, Inc. through the purchase of common stock. TAX EFFECTS. Wayne Savings Bancshares, Inc. will receive an opinion of counsel or tax advisor with regard to federal and state income taxation to the effect that the adoption and implementation of the plan of conversion will not be taxable for federal or state income tax purposes to Wayne Savings Bankshares, MHC, Wayne Savings Bancshares, Inc., the public stockholders of Wayne Savings Bancshares, Inc., members of Wayne Savings Bankshares, MHC, eligible account holders, supplemental eligible account holders, or Wayne Savings Community Bank. See "--Tax Aspects." EFFECT ON LIQUIDATION RIGHTS. If Wayne Savings Community Bank were to liquidate prior to the conversion, all claims of creditors of Wayne Savings Community Bank, including those of depositors to the extent of their deposit balances, would be paid first. Thereafter, if there were any assets of Wayne Savings Community Bank remaining, these assets would be distributed to Wayne Savings Bankshares, MHC, to the extent of its stock ownership interest in Wayne Savings Bancshares, Inc. Were Wayne Savings Bankshares, MHC to liquidate, all claims of creditors would be paid first. Thereafter, if there were any assets of Wayne Savings Bankshares, MHC remaining, members of Wayne Savings Bankshares, MHC would receive the remaining assets, pro rata, based upon the balances in their deposit accounts in Wayne Savings Community Bank immediately prior to liquidation. In the unlikely event that Wayne Savings Community Bank were to liquidate after the conversion, all claims of creditors, including those of depositors, would also be paid first, followed by distribution of the "liquidation account" to depositors as of June 30, 2000 and September 30, 2001, with any assets remaining thereafter distributed to Wayne Savings Bancshares, Inc. as the holder of Wayne Savings Community Bank's capital stock. Pursuant to the rules and regulations of the Office of Thrift Supervision, a post-conversion merger, consolidation, sale of bulk assets or similar combination or transaction with another insured savings institution would not be considered a liquidation and, in such a transaction, the liquidation account would be assumed by the surviving institution. STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED The plan of conversion and federal regulations require that the aggregate purchase price of the common stock in the offering must be based on the appraised pro forma market value of the common stock, as determined by the independent valuation. Wayne Savings Community Bank and Wayne Savings Bancshares, Inc. have retained RP Financial, LC to make the valuation. For its services in preparing the initial valuation, RP Financial, LC will receive a fee of $45,000. This amount does not include a fee of $12,000 to be paid to RP Financial, LC for assistance in the preparation of a business plan. Wayne Savings Community Bank and Wayne Savings Bancshares, Inc. have agreed to indemnify RP Financial, LC and its employees and affiliates against specified losses, including any losses in 84 connection with claims under the federal securities laws, arising out of its services as appraiser, except where RP Financial, LC's liability results from its negligence or bad faith. The independent valuation was prepared by RP Financial, LC in reliance upon the information contained in this prospectus, including the consolidated financial statements. RP Financial, LC also considered the following factors, among others: the present and projected operating results and financial condition of Wayne Savings Bancshares, Inc. and Wayne Savings Community Bank; the economic and demographic conditions in Wayne Savings Community Bank's existing marketing area; certain historical, financial and other information relating to Wayne Savings Community Bank; a comparative evaluation of the operating and financial statistics of Wayne Savings Community Bank with those of other publicly traded savings institutions located in Wayne Savings Community Bank's region and on a national basis; the aggregate size of the offering of the common stock; the impact of the conversion on Wayne Savings Community Bank's stockholders' equity and earnings potential; the proposed dividend policy of Wayne Savings Bancshares, Inc. and Wayne Savings Community Bank; and the trading market for securities of comparable institutions and general conditions in the market for the securities. The independent valuation was prepared based on the assumption that the aggregate amount of common stock sold in the offering would be equal to the estimated pro forma market value of Wayne Savings Bancshares, Inc., assuming completion of the conversion and offering multiplied by the percentage of Wayne Savings Bancshares, Inc. common stock owned by Wayne Savings Bankshares, MHC. The independent valuation states that as of September 7, 2001, the estimated pro forma market value, or valuation range, of Wayne Savings Bancshares, Inc. ranged from a minimum of $29.1 million to a maximum of $39.4 million, with a midpoint of $34.3 million. The Board of Directors determined to offer the shares for a price of $10.00 per share. The aggregate offering price of the shares will be equal to the valuation range multiplied by the percentage of Wayne Savings Bancshares, Inc. common stock owned by Wayne Savings Bankshares, MHC. The number of shares offered will be equal to the aggregate offering price of the shares divided by the price per share. Based on the valuation range, the percentage of Wayne Savings Bancshares, Inc. common stock owned by Wayne Savings Bankshares, MHC, and the $10.00 price per share, the minimum of the offering range will be 1,530,000 subscription shares, the midpoint of the offering range will be 1,800,000 subscription shares, and the maximum of the offering range will be 2,070,000 subscription shares. The Board of Directors reviewed the independent valuation and, in particular, considered the following: o Wayne Savings Bancshares, Inc.'s financial condition and results of operations; o financial comparisons of Wayne Savings Bancshares, Inc. in relation to institutions of similar size and asset quality; o stock market conditions generally and in particular for financial institutions; and o the historical trading price of the publicly held shares of Wayne Savings Bancshares, Inc. common stock. All of these factors are set forth in the independent valuation. The Board also reviewed the methodology and the assumptions used by RP Financial, LC in preparing the independent valuation and the Board believes that such assumptions were reasonable. The offering range may be amended with the approval of the Office of Thrift Supervision, if required, as a result of subsequent developments in the financial condition of Wayne Savings Bancshares, Inc. or Wayne Savings Community Bank or market conditions generally. In the event the independent valuation is updated to amend the pro forma market value of Wayne Savings Bancshares, Inc. to less than $29.1 million or more than $45.3, the appraisal will be filed with the Securities and Exchange Commission by post-effective amendment. THE INDEPENDENT VALUATION, HOWEVER, IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING SHARES. RP FINANCIAL, LC DID NOT INDEPENDENTLY VERIFY THE CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION PROVIDED BY WAYNE SAVINGS BANCSHARES, INC., NOR DID RP FINANCIAL, LC VALUE INDEPENDENTLY THE ASSETS OR LIABILITIES OF WAYNE SAVINGS COMMUNITY BANK. THE INDEPENDENT VALUATION CONSIDERS WAYNE SAVINGS COMMUNITY BANK AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE LIQUIDATION VALUE OF WAYNE SAVINGS COMMUNITY BANK. MOREOVER, BECAUSE THE VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER OF MATTERS, ALL OF WHICH MAY CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING SHARES IN THE OFFERING WILL THEREAFTER BE ABLE TO SELL THEIR SHARES AT PRICES AT OR ABOVE THE $10.00 PRICE. 85 Following commencement of the subscription offering, the maximum of the valuation range may be increased by up to 15% to up to $45.3 million, which will result in a corresponding increase of up to 15% in the maximum of the offering range to up to 2,380,500 shares, to reflect changes in the market and financial conditions, without a resolicitation of subscribers. The minimum of the valuation range and of the offering range may not be decreased without a resolicitation of subscribers. The subscription price of $10.00 per share will remain fixed. See "--Limitations on Common Stock Purchases" as to the method of distribution and allocation of additional shares that may be issued in the event of an increase in the offering range to fill unfilled orders in the subscription and community offerings. If the update to the independent valuation at the conclusion of the offering results in an increase in the maximum of the valuation range to more than $45.3 million and a corresponding increase in the offering range to more than 2,380,500 shares, or a decrease in the minimum of the valuation range to less than $29.1 million and a corresponding decrease in the offering range to fewer than 1,530,000 shares, then Wayne Savings Bancshares, Inc., after consulting with the Office of Thrift Supervision, may terminate the plan of conversion and return by check all funds promptly with interest at Wayne Savings Community Bank's passbook rate of interest on payments made by check, bank draft or money order and cancel withdrawal authorizations. Alternatively, Wayne Savings Bancshares, Inc. may hold a new offering, establish a new offering range, extend the offering period and commence a resolicitation of subscribers or take other actions as permitted by the Office of Thrift Supervision in order to complete the conversion. In the event that a resolicitation is commenced, unless an affirmative response is received within a reasonable period of time, all funds will be promptly returned to investors as described above. A resolicitation, if any, following the conclusion of the subscription and community offerings would not exceed 45 days unless further extended by the Office of Thrift Supervision for periods of up to 90 days. An increase in the number of shares to be issued in the offering would decrease both a subscriber's ownership interest and Wayne Savings Bancshares, Inc.'s pro forma earnings and stockholders' equity on a per share basis while increasing pro forma earnings and stockholders' equity on an aggregate basis. A decrease in the number of shares to be issued in the offering would increase both a subscriber's ownership interest and Wayne Savings Bancshares, Inc.'s pro forma earnings and stockholders' equity on a per share basis while decreasing pro forma earnings and stockholders' equity on an aggregate basis. For a presentation of the effects of these changes, see "Pro Forma Data." Copies of the appraisal report of RP Financial, LC and the detailed memorandum of the appraiser setting forth the method and assumptions for the appraisal are available for inspection at the main office of Wayne Savings Community Bank and as specified under "Additional Information." 86 EXCHANGE OF STOCK CERTIFICATES The conversion of existing outstanding shares of Wayne Savings Bancshares, Inc. common stock into the right to receive new shares of Wayne Savings Bancshares, Inc. common stock will occur automatically on the effective date of the conversion. As soon as practicable after the effective date of the conversion, Wayne Savings Bancshares, Inc. or a bank or trust company designated by Wayne Savings Bancshares, Inc. in the capacity of exchange agent, will send a transmittal form to each public stockholder of Wayne Savings Bancshares, Inc. who holds stock certificates. The transmittal forms are expected to be mailed within five business days after the effective date of the conversion and will contain instructions with respect to the surrender of certificates representing Wayne Savings Bancshares, Inc. (a federal corporation) common stock to be exchanged for new shares of Wayne Savings Bancshares, Inc. (a Delaware corporation) common stock. It is expected that stock certificates for new shares of Wayne Savings Bancshares, Inc. common stock will be distributed within five business days after the receipt of properly executed transmittal forms and other required documents. Shares held by public stockholders in street name will be exchanged automatically; no transmittal forms will be mailed relating to these shares. No fractional shares of Wayne Savings Bancshares, Inc. common stock will be issued to any public stockholder of Wayne Savings Bancshares, Inc. upon consummation of the conversion. For each fractional share that would otherwise be issued to stockholders who hold certificates, Wayne Savings Bancshares, Inc. will pay by check an amount equal to the product obtained by multiplying the fractional share interest to which the holder would otherwise be entitled to by $10.00. Payment for fractional shares will be made as soon as practicable after the receipt by the exchange agent of surrendered Wayne Savings Bancshares, Inc. stock certificates. Stockholders whose shares are held in street name will automatically receive cash in lieu of fractional shares. WAYNE SAVINGS BANCSHARES, INC. STOCKHOLDERS SHOULD NOT FORWARD THEIR STOCK CERTIFICATES UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS, WHICH WILL INCLUDE FORWARDING INSTRUCTIONS. Until existing certificates representing Wayne Savings Bancshares, Inc. common stock are surrendered for exchange after the conversion in compliance with the terms of the transmittal form, holders of such certificates will not receive new shares of Wayne Savings Bancshares, Inc. common stock and will not be paid dividends on the Wayne Savings Bancshares, Inc. common stock into which their shares have been converted. When certificates are surrendered, any unpaid dividends will be paid without interest. For all other purposes, however, each certificate which represents shares of Wayne Savings Bancshares, Inc. common stock outstanding at the effective date of the conversion will be deemed to evidence ownership of new shares of Wayne Savings Bancshares, Inc. common stock into which those shares have been converted by virtue of the conversion. All new shares of Wayne Savings Bancshares, Inc. common stock issued upon exchange of shares of Wayne Savings Bancshares, Inc. common stock shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Wayne Savings Bancshares, Inc. common stock, subject, however, to Wayne Savings Bancshares, Inc.'s obligation to pay any dividends or make any other distributions with a record date prior to the effective date which may have been declared or made by Wayne Savings Bancshares, Inc. on its common stock on or prior to the effective date and which remain unpaid at the effective date. If a certificate for Wayne Savings Bancshares, Inc. common stock has been lost, stolen or destroyed, the exchange agent will issue the new stock certificates upon receipt of appropriate evidence as to the loss, theft or destruction, appropriate evidence as to the ownership of the certificate by the claimant, and appropriate and customary indemnification. SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS In accordance with the plan of conversion, rights to subscribe for the purchase of common stock in the subscription offering have been granted under the plan of conversion in the following order of descending priority. All subscriptions received will depend on the availability of common stock after satisfaction of all subscriptions of all persons having prior rights in the subscription offering and to the maximum, minimum, and overall purchase limitations set forth in the plan of conversion and as described below under "--Limitations on Common Stock Purchases." PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Wayne Savings Community Bank depositor with aggregate deposit account balances, including demand deposit accounts, of $50 or more (a "Qualifying Deposit") on June 30, 87 2000, ("Eligible Account Holders") will receive, without payment therefor, nontransferable subscription rights to purchase up to 25,000 shares of common stock, subject to the overall purchase limitations and exclusive of shares purchased by the employee stock ownership plan from any increase in the shares offered pursuant to an increase in the maximum of the offering range. See "--Limitations on Common Stock Purchases." If there are not sufficient shares available to satisfy all subscriptions, shares will first be allocated so as to permit each subscribing Eligible Account Holder to purchase a number of shares sufficient to make his total allocation equal to the lesser of 100 shares or the number of shares for which he subscribed. Thereafter, unallocated shares, except for additional shares issued to the employee stock ownership plan upon an increase in the maximum of the offering range, will be allocated to each subscribing Eligible Account Holder whose subscription remains unfilled in the proportion that the amount of his aggregate Qualifying Deposit bears to the total amount of Qualifying Deposits of all subscribing Eligible Account Holders whose subscriptions remain unfilled. If an amount so allocated exceeds the amount subscribed for by any one or more Eligible Account Holders, the excess shall be reallocated among those Eligible Account Holders whose subscriptions are not fully satisfied until all available shares have been allocated. To ensure proper allocation of stock, each Eligible Account Holder must list on his stock order form all deposit accounts in which he has an ownership interest on June 30, 2000. Failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed. The subscription rights of Eligible Account Holders who are also directors or officers of Wayne Savings Bancshares, Inc. or their associates will be subordinated to the subscription rights of other Eligible Account Holders to the extent attributable to increased deposits in the twelve months preceding June 30, 2000. PRIORITY 2: TAX-QUALIFIED PLANS. To the extent that there are sufficient shares remaining after satisfaction of subscriptions by Eligible Account Holders, the tax-qualified employee stock benefit plans of Wayne Savings Bancshares, Inc. and Wayne Savings Community Bank, including the employee stock ownership plan, will receive, without payment therefor, nontransferable subscription rights to purchase in the aggregate up to 8% of the common stock sold, of which Wayne Savings Community Bank's employee stock ownership plan intends to purchase8% of the shares sold in the offering. PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent that there are sufficient shares remaining after satisfaction of subscriptions by Eligible Account Holders and the tax-qualified employee stock benefit plans, each Wayne Savings Community Bank depositor with a Qualifying Deposit on September 30, 2001 who is not an Eligible Account Holder ("Supplemental Eligible Account Holder") will receive, without payment therefor, nontransferable subscription rights to purchase up to 25,000 shares of common stock, subject to the overall purchase limitations. See "--Limitations on Common Stock Purchases." If there are not sufficient shares available to satisfy all subscriptions, shares will be allocated so as to permit each subscribing Supplemental Eligible Account Holder to purchase a number of shares sufficient to make his total allocation equal to the lesser of 100 shares or the number of shares for which he subscribed. Thereafter, unallocated shares will be allocated to each subscribing Supplemental Eligible Account Holder whose subscription remains unfilled in the proportion that the amount of his Qualifying Deposit bears to the total amount of Qualifying Deposits of all subscribing Supplemental Eligible Account Holders whose subscriptions remain unfilled. To ensure proper allocation of stock, each Supplemental Eligible Account Holder must list on his stock order form all deposit accounts in which he has an ownership interest at September 30, 2001. Failure to list an account could result in less shares being allocated than if all accounts had been disclosed. PRIORITY 4: OTHER MEMBERS. To the extent that there are shares remaining after satisfaction of subscriptions by Eligible Account Holders, the tax-qualified employee stock benefit plans, and Supplemental Eligible Account Holders, each member of Wayne Savings Bankshares, MHC on the voting record date of _____________ (including Wayne Savings Community Bank depositors and borrowers as of June 23, 1993 whose borrowing remains outstanding) who is not an Eligible Account Holder or Supplemental Eligible Account Holder ("Other Members") will receive, without payment therefor, nontransferable subscription rights to purchase up to 25,000 shares of common stock, subject to the overall purchase limitations. See "--Limitations on Common Stock Purchases." If there are not sufficient shares available to satisfy all subscriptions, available shares will be allocated on a pro rata basis based on the size of the order of each Other Member. EXPIRATION DATE FOR THE SUBSCRIPTION OFFERING. The Subscription Offering will expire on December ___, 2001, unless extended for up to 45 days or such additional periods by Wayne Savings Community Bank with the approval of the Office of Thrift Supervision, if necessary. Wayne Savings Community Bank and Wayne Savings 88 Bancshares, Inc. may determine to extend the subscription offering and/or the community offering for any reason, whether or not subscriptions have been received for shares at the minimum, midpoint, or maximum of the offering range. Subscription rights which have not been exercised prior to the expiration date will become void. Wayne Savings Bancshares, Inc. will not execute orders until at least the minimum number of shares of common stock have been subscribed for or otherwise sold. If 1,530,000 shares have not been subscribed for or sold within 45 days after the expiration date, unless the period is extended with the consent of the Office of Thrift Supervision, all funds delivered to Wayne Savings Community Bank pursuant to the offering will be returned promptly to the subscribers with interest and all withdrawal authorizations will be cancelled. If an extension beyond the 45 day period following the expiration date is granted, Wayne Savings Bancshares, Inc. will notify subscribers of the extension of time and of the rights of subscribers to modify or rescind their subscriptions. Extensions may not go beyond December __, 2003 which is two years after the special meeting of members of Wayne Savings Bankshares, MHC to approve the conversion. PERSONS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES. Wayne Savings Bancshares, Inc. will make reasonable efforts to comply with the securities laws of all states in the United States in which persons entitled to subscribe for stock in the subscription offering pursuant to the plan of conversion reside. However, Wayne Savings Bancshares, Inc. is not required to offer stock in the offering to any person who resides in a foreign country or resides in a state of the United States with respect to which: (1) a small number of persons otherwise eligible to subscribe for shares of common stock reside; or (2) Wayne Savings Bancshares, Inc. determines that compliance with the securities laws of a state would be impracticable for reasons of cost or otherwise, including but not limited to a request that Wayne Savings Bancshares, Inc. or its officers or directors, under the securities laws of a state, register as a broker, dealer, salesman or selling agent or register or otherwise qualify the subscription rights or common stock for sale in a state. Where the number of persons eligible to subscribe for shares in one state is small, Wayne Savings Bancshares, Inc. will base its decision as to whether or not to offer the common stock in a state on a number of factors, including the size of accounts being held by account holders in the state, the cost of registering or qualifying the shares or the need to register Wayne Savings Bancshares, Inc., its officers, directors or employees as brokers, dealers or salesmen. COMMUNITY OFFERING To the extent that shares remain available for purchase after satisfaction of all subscriptions of the Eligible Account Holders, the tax-qualified employee stock benefit plans, Supplemental Eligible Account Holders, and Other Members, Wayne Savings Bancshares, Inc. may offer shares pursuant to the plan of conversion to certain members of the general public in a community offering, with preference given first to the public stockholders of Wayne Savings Bancshares, Inc. common stock as of November __, 2001, and then to natural persons residing in the Ohio counties of Wayne, Holmes, Ashland, Medina and Stark. These persons may purchase up to 25,000 shares of common stock, subject to the overall purchase limitations. See "--Limitations on Common Stock Purchases." The minimum purchase is 25 shares. THE OPPORTUNITY TO PURCHASE SHARES OF COMMON STOCK IN THE COMMUNITY OFFERING CATEGORY IS SUBJECT TO THE RIGHT OF WAYNE SAVINGS BANCSHARES, INC., IN ITS SOLE DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS IN WHOLE OR IN PART EITHER AT THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING THE EXPIRATION DATE. If the amount of common stock remaining is insufficient to fill the orders of common stockholders of Wayne Savings Bancshares, Inc. as of November __, 2001, the remaining stock will be allocated among those persons in the manner that permits each of these persons, to the extent possible, to purchase the number of shares necessary to make his total allocation of common stock equal to the lesser of 100 shares or the number of shares subscribed for by each such person. However, if there are insufficient shares available for this allocation, then shares will be allocated among such persons whose orders remain unsatisfied in the proportion that the unfilled subscription of each bears to the total unfilled subscriptions of all those persons whose subscriptions remain unsatisfied. Similar allocation procedures will be used for orders of persons residing in the Ohio counties of Wayne, Holmes, Ashland, Medina and Stark. If all orders of persons residing in these counties are filled, any shares remaining will be allocated to other persons who purchase in the community offering applying the same allocation described above. 89 The term "resided" or "residing" as used herein shall mean any person who occupies a dwelling within Wayne Savings Community Bank's community, has a present intent to remain within the community for a period of time, and manifests the genuineness of that intent by establishing an ongoing physical presence within the community, together with an indication that this presence within Wayne Savings Community Bank's community is something other than merely transitory in nature. To the extent the person is a corporation or other business entity, the principal place of business or headquarters shall be in Wayne Savings Community Bank's community. To the extent a person is a personal benefit plan, the circumstances of the beneficiary shall apply with respect to this definition. In the case of all other benefit plans, circumstances of the trustee shall be examined for purposes of this definition. Wayne Savings Community Bank may utilize deposit or loan records or other evidence provided to it to make a determination as to whether a person is a resident. In all cases, however, the determination shall be in the sole discretion of Wayne Savings Community Bank. The community offering may commence with or during the subscription offering, and is expected to terminate at the same time as the subscription offering, but is required to terminate no more than 45 days following the subscription offering which may be extended by Wayne Savings Bancshares, Inc. with the approval of the Office of Thrift Supervision, if necessary. Wayne Savings Bancshares, Inc. may determine to extend the community offering for any reason, and is not required to give purchasers notice of any such extension. If 1,530,000 shares have not been subscribed for or sold within 45 days after the expiration date, unless this period is extended with the consent of the Office of Thrift Supervision, all funds delivered to Wayne Savings Bancshares, Inc. will be returned promptly to the purchasers with interest and all withdrawal authorizations will be cancelled. If an extension beyond the 45 day period following the expiration date is granted, Wayne Savings Bancshares, Inc. will notify purchasers of the extension of time and of the rights of purchasers to modify or rescind their orders. These extensions may not go beyond December __, 2003, which is two years after the special meeting of members of Wayne Savings Bankshares, MHC to approve the conversion. The Board of Directors has the right to reject any order submitted in the offering by a person whose representations the Board of Directors believes to be false or who it otherwise believes, either alone or acting in concert with others, is violating, evading, circumventing, or intends to violate, evade or circumvent the terms and conditions of the plan of conversion. SYNDICATED COMMUNITY OFFERING If feasible, the Board of Directors may determine to offer for sale all shares of common stock not subscribed for or purchased in the subscription and community offerings in a syndicated community offering, subject to such terms, conditions and procedures as may be determined by Wayne Savings Bancshares, Inc., in a manner that will achieve the widest distribution of the common stock. However, Wayne Savings Bancshares, Inc. retains the right to accept or reject in whole or in part any subscriptions in the syndicated community offering. In the syndicated community offering, any person may purchase up to 25,000 shares of common stock, subject to the overall maximum purchase limitations. If the syndicated community offering is not sooner commenced pursuant to the provisions of the preceding sentence, the syndicated community offering will be commenced as soon as practicable following the date upon which the subscription and community offerings terminate. If for any reason a syndicated community offering of shares of subscription shares not sold in the subscription and community offerings cannot be effected, or in the event that any insignificant residue of subscription shares is not sold in the subscription and community offerings or in the syndicated community offering, other arrangements will be made for the disposition of unsubscribed shares by Wayne Savings Bancshares, Inc., if possible. The Office of Thrift Supervision must approve these other purchase arrangements. PLAN OF DISTRIBUTION; SELLING AGENT COMPENSATION Offering materials have been distributed, initially by mail, to those with subscription rights at the last known address on Wayne Savings Bancshares, Inc.'s records. Subscription rights expire whether or not eligible subscribers can be located. To assist in the marketing of the common stock, Wayne Savings Bancshares, Inc. has retained Ryan Beck & Co., LLC, which is a broker/dealer registered with the National Association of Securities Dealers, Inc. Ryan, Beck & Co., LLC will assist Wayne Savings Community Bank in the offering by: 90 o acting as the financial advisor to Wayne Savings Bancshares, Inc.; o providing administrative services and stock information center management; and o providing securities marketing services. For these services, Ryan, Beck & Co., LLC, will receive an advisory and management fee of $50,000 and a marketing fee equal to 1.5% of the dollar amount of common stock sold in the subscription and community offerings other than shares purchased by officers, directors and employees or their immediate families and common stock purchased by tax-qualified and non-qualified employee benefit plans, for which no fee need be paid. The management fee and marketing fee, together, shall not exceed $350,000. In the event that Ryan, Beck & Co., LLC sells common stock through a group of broker-dealers in a syndicated community offering, it will be paid a fee of 1.5% of the dollar amount of total shares sold in the syndicated community offering. The fees payable directly to the selected broker-dealers, which may include Ryan, Beck & Co., LLC, for their sales will not exceed 5.5% of the value of the common stock sold by them in the syndicated community offering. Ryan, Beck & Co., LLC will also be reimbursed for allocable expenses in an amount not to exceed $25,000, without the approval of Wayne Savings Bancshares, Inc., and for attorney's fees and expenses in an amount not to exceed $35,000, without the approval of Wayne Savings Bancshares, Inc. Wayne Savings Community Bank has made an advance payment to Ryan, Beck & Co., LLC in the amount of $25,000. Wayne Savings Bancshares, Inc. will indemnify Ryan, Beck & Co., LLC against liabilities and expenses, including legal fees, incurred in connection with certain claims or litigation arising out of or based upon untrue statements or omissions contained in the offering material for the common stock, including liabilities under the Securities Act of 1933. Some directors and executive officers of Wayne Savings Bancshares, Inc. and Wayne Savings Community Bank may participate in the solicitation of offers to purchase common stock. These persons will be reimbursed for their reasonable out-of-pocket expenses incurred in connection with the solicitation. Other regular, full-time employees of Wayne Savings Community Bank may participate in the offering but only in ministerial capacities, providing clerical work in effecting a sales transaction and no offers or sales may be made by tellers or at the teller counter. All sales activity will be conducted in a segregated or separately identifiable area of Wayne Savings Community Bank's main offices apart from the area accessible to the general public for the purpose of making deposits or withdrawals. Other questions of prospective purchasers will be directed to executive officers or registered representatives of Ryan, Beck & Co., LLC. These other employees have been instructed not to solicit offers to purchase common stock or provide advice regarding the purchase of common stock. Wayne Savings Bancshares, Inc. will rely on Rule 3a4-1 under the Securities Exchange Act of 1934, and sales of common stock will be conducted within the requirements of Rule 3a4-1, so as to permit officers, directors and employees to participate in the sale of common stock. No officer, director or employee of Wayne Savings Bancshares, Inc. or Wayne Savings Community Bank will be compensated in connection with his participation by the payment of commissions or other remuneration, based either directly or indirectly on the transactions in the common stock. PROCEDURE FOR PURCHASING SHARES EXPIRATION DATE. The offering will terminate at 10:00 a.m., Eastern time, on December ___, 2001, unless extended by Wayne Savings Community Bank and Wayne Savings Bancshares, Inc., with the approval of the Office of Thrift Supervision, if required. This extension may be approved by Wayne Savings Community Bank and Wayne Savings Bancshares, Inc., in their sole discretion, without further approval or additional notice to purchasers in the offering. Any extension of the offering beyond 45 days after the expiration date of the offering would require the Office of Thrift Supervision's approval and potential purchasers would be given the right to increase, decrease, or rescind their orders for common stock. If the minimum number of shares offered in the offering is not sold by the expiration date or any extension thereof, Wayne Savings Bancshares, Inc. may terminate the offering and promptly refund all orders for common stock. If the number of shares offered is reduced below the minimum of the offering range, purchasers will be given an opportunity to increase, decrease, or rescind their orders. To ensure that each purchaser receives a prospectus at least 48 hours before the expiration date of the offering in accordance with Rule 15c2-8 of the Securities Exchange Act of 1934, no prospectus will be mailed any later than five days prior to this date or hand delivered any later than two days prior to this date. Execution of an order form will confirm receipt of delivery in accordance with Rule 15c2-8. Order forms will be distributed only 91 with a prospectus. Subscription funds will be maintained in a special escrow account at Wayne Savings Community Bank. Wayne Savings Bancshares, Inc. reserves the right in its sole discretion to terminate the offering at any time and for any reason, in which case Wayne Savings Bancshares, Inc. will cancel any withdrawal orders, and return all funds submitted, plus interest at Wayne Savings Community Bank's current passbook rate from the date of receipt. USE OF ORDER FORMS. In order to purchase shares of the common stock in the subscription offering and community offering, each purchaser must complete an order form and remit payment. Incomplete order forms, or order forms that are not signed are not required to be accepted. Wayne Savings Bancshares, Inc. will not be required to accept orders submitted on photocopied or facsimiled stock order forms. ALL ORDER FORMS MUST BE RECEIVED PRIOR TO 10:00 A.M., EASTERN TIME ON DECEMBER ___, 2001. Order forms that are not received by that time or are executed defectively or are received without full payment or without appropriate withdrawal instructions are not required to be accepted. Wayne Savings Community Bank and Wayne Savings Bancshares, Inc. are not required to notify subscribers of incomplete or improperly executed order forms, and have the right to waive or permit the correction of incomplete or improperly executed order forms, but do not represent that they will do so. You may submit your order form and payment by mail using the return envelope provided, by bringing your order form to our stock information center, or by overnight delivery to the indicated address on the back of the order form. Order forms may NOT be delivered to Wayne Savings Community Bank branches. Once tendered, an order form cannot be modified or revoked without the consent of Wayne Savings Bancshares, Inc. Wayne Savings Bancshares, Inc. reserves the absolute right, in its sole discretion, to reject orders received in the community offering, in whole or in part, at the time of receipt or at any time prior to completion of the offering. Each person ordering shares is required to represent that he is purchasing shares for his own account and that he has no agreement or understanding with any person for the sale or transfer of the shares. The interpretation by Wayne Savings Bancshares, Inc. of the terms and conditions of the plan of conversion and of the acceptability of the order forms will be final. By signing the order form subscribers acknowledge that the common stock is not a deposit or savings account that is federally insured or otherwise guaranteed by Wayne Savings Community Bank or the Federal Government and that the subscribers received a copy of this prospectus. HOWEVER, SIGNING THE ORDER FORM WILL NOT RESULT IN SUBSCRIBERS WAIVING THEIR RIGHTS UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934. PAYMENT FOR SHARES. Payment for all shares will be required to accompany all completed order forms for the purchase to be valid. Payment for shares may be made by: (1) check, money order, or bank draft made payable to Wayne Savings Bancshares, Inc.; or (2) authorization of withdrawal from Wayne Savings Community Bank deposit accounts without check-writing privileges designated on the stock order form. Appropriate means for designating withdrawals from deposit accounts at Wayne Savings Community Bank are provided in the order forms. The funds designated must be available in the account(s) at the time the order form is received. A hold will be placed on these funds, making them unavailable to the depositor. Funds authorized for withdrawal will continue to earn interest within the account at the contract rate until the offering is completed, at which time the designated withdrawal will be made. Interest penalties for early withdrawal applicable to certificate accounts will not apply to withdrawals authorized for the purchase of shares of common stock; however, if a withdrawal results in a certificate account with a balance less than the applicable minimum balance requirement, the certificate shall be cancelled at the time of withdrawal without penalty, and the remaining balance will earn interest at the current passbook rate subsequent to the withdrawal. In the case of payments made by check, money order, or bank draft, these funds must be available in the account(s) and will be immediately cashed and placed in a segregated escrow account at Wayne Savings Community Bank and interest will be paid at the current passbook rate of 2.5% annual percentage yield, from the date payment is received until the offering is completed or terminated. An executed order form, once received by Wayne Savings Bancshares, Inc., may not be modified, amended or rescinded without the consent of Wayne Savings Bancshares, Inc., unless the offering is not completed by the expiration date, in which event purchasers may be given the opportunity to increase, decrease, or rescind their orders for a specified period of time. 92 A depositor interested in using his or her individual retirement account funds to purchase common stock must do so through a self-directed individual retirement account. Wayne Savings Community Bank, by law, cannot maintain self-directed individual retirement accounts. Therefore, if you wish to use your funds that are currently in a Wayne Savings Community Bank individual retirement account you may not designate on the order form that you wish funds to be withdrawn from the account for the purchase of common stock. The funds you wish to use for the purchase of common stock will have to be transferred to a brokerage account. There will be no early withdrawal or Internal Revenue Service interest penalties for these transfers. Depositors interested in using funds in an individual retirement account or any other retirement account to purchase common stock should contact the stock information center as soon as possible during the offering period because processing such transactions takes time, and whether such funds can be used may depend on the institutions where such funds are currently held. The employee stock ownership plan will not be required to pay for shares purchased until consummation of the offering, provided that there is in force from the time the order is received a loan commitment from an unrelated financial institution or Wayne Savings Bancshares, Inc. to lend to the employee stock ownership plan the necessary amount to fund the purchase. Regulations prohibit Wayne Savings Community Bank or Village Savings Bank from lending funds or extending credit to any persons to purchase common stock in the offering. DELIVERY OF STOCK CERTIFICATES. Certificates representing common stock issued in the offering and Wayne Savings Community Bank checks representing any applicable refund and/or interest paid on subscriptions made by check, money order, or bank draft will be mailed to the persons entitled thereto at the certificate registration address noted on the order form, as soon as practicable following consummation of the offering and receipt of all necessary regulatory approvals. Any certificates returned as undeliverable will be held by the transfer agent until claimed by persons legally entitled thereto or otherwise disposed of in accordance with applicable law. Until certificates for the common stock are available and delivered to purchasers, purchasers may not be able to sell the shares of stock which they ordered, even though the common stock will have begun trading. OTHER RESTRICTIONS. Notwithstanding any other provision of the plan of conversion, no person is entitled to purchase any common stock to the extent the purchase would be illegal under any federal or state law or regulation, including state "blue sky" registrations, or would violate regulations or policies of the National Association of Securities Dealers, Inc., particularly those regarding free riding and withholding. Wayne Savings Community Bank and/or its agents may ask for an acceptable legal opinion from any purchaser as to the legality of their purchase and may refuse to honor any purchase order if an opinion is not timely furnished. RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES OFFICE OF THRIFT SUPERVISION CONVERSION REGULATIONS PROHIBIT ANY PERSON WITH SUBSCRIPTION RIGHTS, INCLUDING THE ELIGIBLE ACCOUNT HOLDERS, SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS AND OTHER MEMBERS OF WAYNE SAVINGS COMMUNITY BANK, FROM TRANSFERRING OR ENTERING INTO ANY AGREEMENT OR UNDERSTANDING TO TRANSFER THE LEGAL OR BENEFICIAL OWNERSHIP OF THE SUBSCRIPTION RIGHTS ISSUED UNDER THE PLAN OF CONVERSION OR THE SHARES OF COMMON STOCK TO BE ISSUED UPON THEIR EXERCISE. THESE RIGHTS MAY BE EXERCISED ONLY BY THE PERSON TO WHOM THEY ARE GRANTED AND ONLY FOR HIS ACCOUNT. EACH PERSON EXERCISING SUBSCRIPTION RIGHTS WILL BE REQUIRED TO CERTIFY THAT HE IS PURCHASING SHARES SOLELY FOR HIS OWN ACCOUNT AND THAT HE HAS NO AGREEMENT OR UNDERSTANDING REGARDING THE SALE OR TRANSFER OF SUCH SHARES. THE REGULATIONS ALSO PROHIBIT ANY PERSON FROM OFFERING OR MAKING AN ANNOUNCEMENT OF AN OFFER OR INTENT TO MAKE AN OFFER TO PURCHASE SUBSCRIPTION RIGHTS OR SHARES OF COMMON STOCK TO BE ISSUED UPON THEIR EXERCISE PRIOR TO COMPLETION OF THE OFFERING. WAYNE SAVINGS COMMUNITY BANK AND WAYNE SAVINGS BANCSHARES, INC. WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT THEY BECOME AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE THE TRANSFER OF SUBSCRIPTION RIGHTS. 93 STOCK INFORMATION CENTER If you have any questions regarding the offering, please call the Stock Information Center toll free, at (800) ___-____, from 9:00 a.m. to 4:00 p.m. Eastern time, Monday through Friday. The Stock Information Center is located at 151 North Market Street, Wooster, Ohio. LIMITATIONS ON COMMON STOCK PURCHASES The plan of conversion includes the following limitations on the number of shares of common stock which may be purchased during the conversion: (1) No person may purchase less than 25 shares of common stock or more than 25,000 shares; (2) The tax-qualified employee stock benefit plans, including the employee stock ownership plan, may purchase in the aggregate up to 8% of the shares issued in the offering, including shares issued in the event of an increase in the offering range of up to 15%. The employee stock ownership plan expects to subscribe for8% of the shares sold, or 122,400 shares at the minimum of the offering range and 165,600 shares at the maximum of the offering range; (3) Except for the employee stock ownership plan, as described above, no person or entity, together with associates or persons acting in concert with such person or entity, may purchase in all categories more than 25,000 shares in the offering; (4) Current stockholders of Wayne Savings Bancshares, Inc. are subject to an additional limitation upon the number of shares that may be purchased in the offering. As previously described, current stockholders of Wayne Savings Bancshares, Inc. will receive new shares of Wayne Savings Bancshares, Inc. common stock in exchange for their existing shares of Wayne Savings Bankshares, Inc. common stock. The number of shares that a stockholder may purchase in the offering, together with associates or persons acting in concert with such purchaser, when combined with the shares that the stockholder and his associates will receive in exchange for existing Wayne Savings Bancshares, Inc. common stock, may not exceed 5% of the outstanding shares of common stock of Wayne Savings Bancshares, Inc. at the completion of the offering; and (5) The maximum number of shares of common stock which may be purchased in all categories of the offering by officers and directors of Wayne Savings Community Bank and their associates, in the aggregate, when combined with new shares of common stock issued in exchange for existing shares, may not exceed 29% of the shares issued in the offering. Depending upon market or financial conditions, the Board of Directors of Wayne Savings Bancshares, Inc., with the approval of the Office of Thrift Supervision and without further approval of members of Wayne Savings Bankshares, MHC, may decrease or further increase the purchase and ownership limitations. Wayne Savings Bancshares, Inc. may need regulatory approval to increase the purchase limitations. If a purchase limitation is increased, subscribers in the subscription offering who ordered the maximum amount will be, and some other large subscribers who through their subscriptions evidence a desire to purchase the maximum allowable number of shares, in the sole discretion of Wayne Savings Community Bank may be given the opportunity to increase their subscriptions up to the then applicable limit. The effect of this type of resolicitation will be an increase in the number of shares owned by subscribers who choose to increase their subscriptions. The Board of Directors of Wayne Savings Bancshares, Inc. may, in its sole discretion, increase the maximum purchase limitations up to 9.99% of the shares issued in the conversion, provided that orders for shares exceeding 5% of the shares being issued shall not exceed, in the aggregate, 10% of the total issued. Requests to purchase additional shares under this provision will be determined by the respective Boards of Directors in their sole discretion. In the event of an increase in the total number of shares offered in the offering due to an increase in the offering range of up to 15%, shares will be allocated in the following order of priority in accordance with the plan of conversion: (1) to fill the employee stock ownership plan's subscription for 8% of the total number of shares sold; 94 (2) in the event that there is an oversubscription at the Eligible Account Holder, Supplemental Eligible Account Holder or Other Member levels, to fill unfulfilled subscriptions of these subscribers according to their respective priorities; and (3) to fill unfulfilled subscriptions in the community offering, with preference given first to Wayne Savings Bancshares, Inc. stockholders as of November __, 2001, and then to natural persons residing in Wayne Savings Community Bank's community. The term "associate" of a person is defined to mean: (1) any corporation or organization, other than Wayne Savings Bancshares, Inc., Wayne Savings Community Bank, or a majority-owned subsidiary of Wayne Savings Community Bank, of which the person is an officer, partner or 10% stockholder; (2) any trust or other estate in which the person has a substantial beneficial interest or serves as a director or in a similar fiduciary capacity; provided, however, that this term shall not include any employee stock benefit plan in which the person has a substantial beneficial interest or serves as director or in a similar fiduciary capacity; and (3) any relative or spouse of the persons, or any relative of the spouse, who either has the same home as the person or who is a director or officer of Wayne Savings Bancshares, Inc., or Wayne Savings Community Bank. The term "acting in concert" means: (1) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or (2) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. A person or company which acts in concert with another person or company ("other party") shall also be deemed to be acting in concert with any person or company who is also acting in concert with that other party, except that any tax-qualified employee stock benefit plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether stock held by the trustee and stock held by the plan will be aggregated. Directors are not treated as associates of each other solely because of their Board membership. Wayne Savings Community Bank has the right to determine whether prospective purchasers are associates or acting in concert. For a further discussion of limitations on purchases of a converting institution's stock at the time of conversion and subsequent to conversion, see "Certain Restrictions on Purchase or Transfer of Shares after Conversion" and "Restrictions on Acquisition of Wayne Savings Bancshares, Inc." LIQUIDATION RIGHTS In the unlikely event of a complete liquidation of Wayne Savings Bancshares, Inc. prior to the conversion, all claims of creditors of Wayne Savings Bancshares, Inc., including those of depositors to the extent of their deposit balances, would be paid first. Thereafter, if there were any assets of Wayne Savings Bancshares, Inc. remaining, these assets would be distributed to stockholders, including Wayne Savings Bankshares, MHC. Were Wayne Savings Bankshares, MHC and Wayne Savings Bancshares, Inc. to liquidate prior to the conversion, all claims of creditors would be paid first. Then, if there were any assets of Wayne Savings Bankshares, MHC remaining, members of Wayne Savings Bankshares, MHC would receive these remaining assets, pro rata, based upon the deposit balances in their deposit account in Wayne Savings Community Bank immediately prior to liquidation. In the unlikely event that Wayne Savings Community Bank were to liquidate after the conversion, all claims of creditors, including those of depositors, also would be paid first, followed by distribution of the "liquidation account" to certain depositors, with any assets remaining thereafter distributed to Wayne Savings Bancshares, Inc. as the holder of Wayne Savings Community Bank capital stock. Pursuant to the rules and regulations of the Office 95 of Thrift Supervision, a post-conversion merger, consolidation, sale of bulk assets or similar combination or transaction with another insured savings institution would not be considered a liquidation and, in these types of transactions, the liquidation account would be assumed by the surviving institution. The plan of conversion provides for the establishment, upon the completion of the conversion, of a special "liquidation account" for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders in an amount equal to the greater of: (1) Wayne Savings Bankshares, MHC's ownership interest in the surplus and reserves of Wayne Savings Bancshares, Inc. as of the date of its latest balance sheet contained in this prospectus; or (2) the retained earnings of Wayne Savings Community Bank at the time that Wayne Savings Community Bank reorganized into Wayne Savings Bankshares, MHC in 1993. The purpose of the liquidation account is to provide Eligible Account Holders and Supplemental Eligible Account Holders who maintain their deposit accounts with Wayne Savings Community Bank after the conversion with a distribution upon complete liquidation of Wayne Savings Community Bank after the conversion. Each Eligible Account Holder and Supplemental Eligible Account Holder, if he were to continue to maintain his deposit account at Wayne Savings Community Bank, would be entitled, on a complete liquidation of Wayne Savings Community Bank after the conversion, to an interest in the liquidation account prior to any payment to the stockholders of Wayne Savings Bancshares, Inc. Each Eligible Account Holder and each Supplemental Eligible Account Holder would have an initial interest in the liquidation account for each deposit account, including savings accounts, transaction accounts such as negotiable order of withdrawal accounts, money market deposit accounts, and certificates of deposit, with a balance of $50 or more held in Wayne Savings Community Bank on June 30, 2000, or September 30, 2001, respectively. Each Eligible Account Holder and Supplemental Eligible Account Holder will have a pro rata interest in the total liquidation account for each such deposit account, based on the proportion that the balance of each such deposit account on June 30 ,2000, or September 30, 2001, respectively, bore to the balance of all deposit accounts in Wayne Savings Bancshares, Inc. on such dates. If, however, on any December 31 annual closing date commencing after the effective date of the conversion, the amount in any such deposit account is less than the amount in the deposit account on June 30, 2000, or September 30, 2001, respectively, or any other annual closing date, then the interest in the liquidation account relating to such deposit account would be reduced from time to time by the proportion of any such reduction, and such interest will cease to exist if such deposit account is closed. In addition, no interest in the liquidation account would ever be increased despite any subsequent increase in the related deposit account. Payment pursuant to liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders would be separate and apart from any insured deposit accounts to such depositor. Any assets remaining after the above liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders are satisfied would be distributed to Wayne Savings Bancshares, Inc. as the sole stockholder of Wayne Savings Community Bank. 96 TAX ASPECTS Consummation of the conversion is expressly conditioned upon the prior receipt of an opinion of counsel or tax advisor with respect to federal and state income taxation that indicates that the conversion will not be a taxable transaction to Wayne Savings Bankshares, MHC, Wayne Savings Bancshares, Inc., Wayne Savings Community Bank, Eligible Account Holders, Supplemental Eligible Account Holders, and/or other members of Wayne Savings Bankshares, MHC. Unlike private letter rulings, opinions of counsel or tax advisors are not binding on the IRS or any state taxing authority, and such authorities could disagree with such opinions. In the event of such disagreement, there can be no assurance that Wayne Savings Bancshares, Inc. or Wayne Savings Community Bank would prevail in a judicial proceeding. Wayne Savings Bankshares, MHC and Wayne Savings Bancshares, Inc. have received an opinion of counsel, Luse Lehman Gorman Pomerenk & Schick, A Professional Corporation, regarding the federal income tax consequences of the conversion which includes, but is not limited to, the following opinions: 1. The merger of Wayne Savings Bancshares, Inc. with and into Wayne Savings Community Bank qualifies as a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the Code. 2. The merger of Wayne Savings Bankshares, MHC with and into Wayne Savings Community Bank qualifies as a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the Code. 3. The exchange of the members' equity interests in Wayne Savings Bankshares, MHC for interests in a liquidation account established in Wayne Savings Community Bank will satisfy the continuity of interest requirement of Section 1.368-1(b) of the Income Tax Regulations. 4. Wayne Savings Bankshares, MHC will not recognize any gain or loss on the transfer of its assets to Wayne Savings Community Bank in exchange for an interest in a liquidation account established in Wayne Savings Community Bank for the benefit of Wayne Savings Bankshares, MHC members who remain depositors of Wayne Savings Community Bank. 5. No gain or loss will be recognized by Wayne Savings Community Bank upon the receipt of the assets of Wayne Savings Bankshares, MHC in exchange for the transfer to the members of Wayne Savings Bankshares, MHC of an interest in the liquidation account in Wayne Savings Community Bank. 6. Members of Wayne Savings Bankshares, MHC will recognize no gain or loss upon the receipt of an interest in the liquidation account in Wayne Savings Community Bank in exchange for their interests in Wayne Savings Bankshares, MHC. 7. Current stockholders of Wayne Savings Bancshares, Inc. will not recognize any gain or loss upon their exchange of Wayne Savings Bancshares, Inc. common stock solely for new shares of Wayne Savings Bancshares, Inc. common stock. 8. Cash received by any current stockholder of Wayne Savings Bancshares, Inc. in lieu of a fractional share interest in new shares of Wayne Savings Bancshares, Inc. common stock will be treated as having been received as a distribution in full payment in exchange for a fractional share interest of new Wayne Savings Bancshares, Inc. common stock, which such stockholder would otherwise be entitled to receive, and will qualify as capital gain or loss, assuming common stock of Wayne Savings Bancshares, Inc. surrendered in exchange therefor was held as a capital asset by such stockholder at the effective time of the conversion. 9. Each stockholder's aggregate basis in new shares of Wayne Savings Bancshares, Inc. common stock received in the exchange will be the same as the aggregate basis of Wayne Savings Bancshares, Inc. common stock surrendered in exchange therefor. 10. Each stockholder's holding period in his or her Wayne Savings Bancshares, Inc. common stock received in the exchange will include the period during which Wayne Savings Bancshares, Inc. common stock surrendered was held, provided that the Wayne Savings Bancshares, Inc. common stock surrendered is a capital asset in the hands of the stockholder on the date of the exchange. 97 11. No gain or loss will be recognized by Eligible Account Holders, Supplemental Eligible Account Holders or other members upon distribution to them of subscription rights to purchase shares of Wayne Savings Bancshares, Inc. common stock, provided that the amount to be paid for Wayne Savings Bancshares, Inc. common stock is equal to the fair market value of Wayne Savings Bancshares, Inc. common stock. 12. No gain or loss will be recognized by Wayne Savings Bancshares, Inc. on the receipt of money in exchange for Wayne Savings Bancshares, Inc. common stock sold in the offering. In the view of RP Financial, LC, which view is not binding on the Internal Revenue Service, the subscription rights do not have any value, based on the fact that these rights are acquired by the recipients without cost, are nontransferable and of short duration, and afford the recipients the right only to purchase the common stock at a price equal to its estimated fair market value, which will be the same price as the subscription price for the unsubscribed shares of common stock. If the subscription rights granted to Eligible Account Holders and Supplemental Eligible Account Holders are deemed to have an ascertainable value, receipt of these rights could result in taxable gain to those Eligible Account Holders and Supplemental Eligible Account Holders who exercise the subscription rights in an amount equal to the value and Wayne Savings Bancshares, Inc. could recognize gain on a distribution. Eligible Account Holders and Supplemental Eligible Account Holders are encouraged to consult with their own tax advisors as to the tax consequences in the event that subscription rights are deemed to have an ascertainable value. Unlike private rulings, an opinion of RP Financial, LC is not binding on the Internal Revenue Service and the Internal Revenue Service could disagree with the conclusions reached therein. The federal tax opinion has been filed with the Securities and Exchange Commission as an exhibit to Wayne Savings Bancshares, Inc.'s registration statement. An opinion on the Ohio state income tax consequences consistent with the federal tax opinion has been issued by Grant Thornton, LLP, tax advisors to Wayne Savings Bankshares, MHC and Wayne Savings Bancshares, Inc. CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER CONVERSION All shares purchased in the offering by a director or an executive officer of Wayne Savings Community Bank generally may not be sold for a period of one year following the conversion, except in the event of the death of the director or executive officer. Each certificate for restricted shares will bear a legend giving notice of this restriction on transfer, and instructions will be issued to the effect that any transfer within this time period of any certificate or record ownership of the shares other than as provided above is a violation of the restriction. Any shares of common stock issued at a later date as a stock dividend, stock split, or otherwise, with respect to the restricted stock will be similarly restricted. The directors and executive officers of Wayne Savings Community Bank also will be restricted by the insider trading rules promulgated pursuant to the Securities Exchange Act of 1934. Purchases of shares of common stock of Wayne Savings Bancshares, Inc. by directors, executive officers, or any person who was an executive officer after adoption of the plan of conversion, and their associates, during the three-year period following the conversion may be made only through a broker or dealer registered with the Securities and Exchange Commission, except with the prior written approval of the Office of Thrift Supervision. This restriction does not apply, however, to negotiated transactions involving more than 1% of Wayne Savings Bancshares, Inc.'s outstanding common stock or to the purchase of stock pursuant to a stock option plan or any tax-qualified employee stock benefit plan or nontax-qualified employee stock benefit plan of Wayne Savings Community Bank or Wayne Savings Bancshares, Inc., including any employee plans, recognition plans or restricted stock plans. Office of Thrift Supervision regulations applicable to Wayne Savings Bancshares, Inc. as a result of the conversion prohibit Wayne Savings Bancshares, Inc. from repurchasing more than 5% of its outstanding shares of its common stock during the first year following conversion. After one year the OTS does not impose any repurchase restriction. 98 COMPARISON OF STOCKHOLDERS' RIGHTS GENERAL. As a result of the conversion, holders of Wayne Savings Bancshares, Inc. common stock will become stockholders of Wayne Savings Bancshares, Inc., a Delaware corporation. There are certain differences in stockholder rights arising from distinctions between Wayne Savings Bancshares, Inc.'s federal stock charter and bylaws and Wayne Savings Bancshares, Inc.'s certificate of incorporation and bylaws and from distinctions between laws applicable to federally chartered savings institutions and laws applicable to Delaware corporations. The discussion herein is not intended to be a complete statement of the differences affecting the rights of stockholders, but rather summarizes the material differences and similarities affecting the rights of stockholders. The discussion herein is qualified in its entirety by reference to the certificate of incorporation and bylaws of Wayne Savings Bancshares, Inc. and the Delaware General Corporate Law. See "Additional Information" for procedures for obtaining a copy of Wayne Savings Bancshares, Inc.'s certificate of incorporation and bylaws. AUTHORIZED CAPITAL STOCK. Wayne Savings Bancshares, Inc.'s authorized capital stock consists of 20,000,000 shares of common stock, par value $1.00 per share, and 10,000,000 shares of preferred stock, par value $1.00 per share. Wayne Savings Bancshares, Inc.'s authorized capital stock as a Delaware corporation consists of 8,000,000 shares of common stock, $0.10 par value per share, and 500,000 shares of preferred stock, par value $0.10 per share. The shares of Wayne Savings Bancshares, Inc. common stock and preferred stock were authorized in an amount greater than that to be issued in the conversion to provide our Board of Directors with flexibility to effect, among other transactions, financing, acquisitions, stock dividends, stock splits and employee stock options. However, these additional authorized shares may also be used by the Board of Directors consistent with its fiduciary duty to deter future attempts to gain control of Wayne Savings Bancshares, Inc. The Board of Directors of Wayne Savings Bancshares, Inc. also has sole authority to determine the terms of any one or more series of preferred stock, including voting rights, conversion rates, and liquidation preferences. As a result of the ability to fix voting rights for a series of preferred stock, the Board has the power, to the extent consistent with its fiduciary duty, to issue a series of preferred stock to persons friendly to management in order to attempt to block a post tender offer merger or other transaction by which a third party seeks control, and thereby assist management to retain its position. Wayne Savings Bancshares, Inc.'s Board currently has no plans for the issuance of additional shares, other than the issuance of additional shares pursuant to stock benefit plans. ISSUANCE OF CAPITAL STOCK. Pursuant to applicable laws and regulations, Wayne Savings Bankshares, MHC is required to own not less than a majority of the outstanding Wayne Savings Bancshares, Inc. common stock. There will be no such restriction applicable to Wayne Savings Bancshares, Inc. following consummation of the conversion. Wayne Savings Bancshares, Inc.'s Delaware certificate of incorporation does not contain restrictions on the issuance of shares of capital stock to directors, officers or controlling persons, whereas Wayne Savings Bancshares, Inc.'s federal stock charter restricts such issuances to general public offerings, or if qualifying shares, to directors, unless the share issuance or the plan under which they would be issued has been approved by a majority of the total votes eligible to be cast at a legal stockholders' meeting. Thus, stock related compensation plans, such as stock option plans, could be adopted by Wayne Savings Bancshares, Inc. without stockholder approval and shares of Wayne Savings Bancshares, Inc. capital stock could be issued directly to directors or officers without stockholder approval. The bylaws of the National Association of Securities Dealers, Inc., however, generally require corporations with securities which are quoted on the Nasdaq National Market System to obtain stockholder approval of most stock compensation plans for directors, officers and key employees of the corporation. Moreover, although generally not required, stockholder approval of stock-related compensation plans may be sought in certain instances in order to qualify such plans for favorable federal income tax and securities law treatment under current laws and regulations. VOTING RIGHTS. Neither Wayne Savings Bancshares, Inc.'s federal stock charter or bylaws nor Wayne Savings Bancshares, Inc.'s Delaware certificate of incorporation or bylaws currently provide for cumulative voting in elections of directors. For additional information regarding voting rights, see "--Limitations on Acquisitions of Voting Stock and Voting Rights" below. PAYMENT OF DIVIDENDS. The ability of Wayne Savings Bancshares, Inc. to pay dividends on its capital stock is restricted by Office of Thrift Supervision regulations and by federal income tax considerations related to savings 99 institutions such as Wayne Savings Bancshares, Inc. See "Regulation--Limitation on Capital Distributions." Although Wayne Savings Bancshares, Inc. is not subject to these restrictions as a Delaware corporation, such restrictions will indirectly affect Wayne Savings Bancshares, Inc. because dividends from Wayne Savings Community Bank will be a primary source of funds of Wayne Savings Bancshares, Inc. for the payment of dividends to stockholders of Wayne Savings Bancshares, Inc. Certain restrictions generally imposed on Delaware corporations may also have an impact on Wayne Savings Bancshares, Inc.'s ability to pay dividends. Delaware law generally provides that Wayne Savings Bancshares, Inc. is limited to paying dividends in an amount equal to the excess of its net assets (total assets minus total liabilities) over its statutory capital or, if no such excess exists, equal to its net profits for the current year and/or the immediately preceding fiscal year. BOARD OF DIRECTORS. Wayne Savings Bancshares, Inc.'s federal stock charter and bylaws and Wayne Savings Bancshares, Inc.'s Delaware certificate of incorporation and bylaws each require the Board of Directors to be divided into three classes as nearly equal in number as possible and that the members of each class shall be elected for a term of three years and until their successors are elected and qualified, with one class being elected annually. Under Wayne Savings Bancshares, Inc.'s federal bylaws, any vacancies in the Board of Directors of Wayne Savings Bancshares, Inc. may be filled by the affirmative vote of a majority of the remaining directors although less than a quorum of the Board of Directors. Persons elected by the directors of Wayne Savings Bancshares, Inc. to fill vacancies may only serve until the next annual meeting of stockholders. Under Wayne Savings Bancshares, Inc.'s Delaware certificate of incorporation, any vacancy occurring in the Board of Directors of Wayne Savings Bancshares, Inc., including any vacancy created by reason of an increase in the number of directors, may be filled by the remaining directors, and any director so chosen shall hold office for the remainder of the term to which the director has been elected and until his or her successor is elected and qualified. Under Wayne Savings Bancshares, Inc.'s federal bylaws, any director may be removed for cause by the holders of a majority of the outstanding voting shares. Wayne Savings Bancshares, Inc.'s Delaware certificate of incorporation provides that any director may be removed for cause by the holders of at least 80% of the outstanding voting shares of Wayne Savings Bancshares, Inc. LIMITATIONS ON LIABILITY. Wayne Savings Bancshares, Inc.'s Delaware certificate of incorporation provides that the directors of Wayne Savings Bancshares, Inc. shall not be personally liable for monetary damages to Wayne Savings Bancshares, Inc. for certain actions as directors, except for liabilities that involve intentional misconduct or a knowing violation of law by the director, the authorization or illegal distributions or receipt of an improper personal benefit from their positions as directors. This provision might, in certain instances, discourage or deter shareholders or management from bringing a lawsuit against directors for a breach of their duties even though such an action, if successful, might have benefited Wayne Savings Bancshares, Inc. Currently, federal law does not permit federally chartered companies such as Wayne Savings Bancshares, Inc. to limit the personal liability of directors in the manner provided by the Delaware law and the laws of many other states. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. Wayne Savings Bancshares, Inc.'s federal stock charter and bylaws do not contain any provision relating to indemnification of directors and officers of Wayne Savings Bancshares, Inc. Under current Office of Thrift Supervision regulations, however, Wayne Savings Bancshares, Inc. shall indemnify its directors, officers and employees for any costs incurred in connection with any litigation involving any such person's activities as a director, officer or employee if such person obtains a final judgment on the merits in his or her favor. In addition, indemnification is permitted in the case of a settlement, a final judgment against such person or final judgment other than on the merits, if a majority of disinterested directors determine that such person was acting in good faith within the scope of his or her employment as he or she could reasonably have perceived it under the circumstances and for a purpose he or she could reasonably have believed under the circumstances was in the best interest of Wayne Savings Bancshares, Inc. or its stockholders. Wayne Savings Bancshares, Inc. also is permitted to pay ongoing expenses incurred by a director, officer or employee if a majority of disinterested directors concludes that such person may ultimately be entitled to indemnification. Before making any indemnification payment, Wayne Savings Bancshares, Inc. is required to notify the Office of Thrift Supervision of its intention and such payment cannot be made if the Office of Thrift Supervision objects thereto. 100 The officers, directors, agents and employees of Wayne Savings Bancshares, Inc. are indemnified with respect to certain actions pursuant to Wayne Savings Bancshares, Inc.'s Delaware certificate of incorporation, which complies with Delaware law regarding indemnification. Delaware law allows Wayne Savings Bancshares, Inc. to indemnify the aforementioned persons for expenses, settlements, judgments and fines in suits in which such person has been made a party by reason of the fact that he or she is or was an agent of Wayne Savings Bancshares, Inc. No such indemnification may be given if the acts or omissions of the person are adjudged to be in violation of law, if such person is liable to the corporation for an unlawful distribution, or if such person personally received a benefit to which he or she was not entitled. SPECIAL MEETINGS OF STOCKHOLDERS. Wayne Savings Bancshares, Inc.'s Delaware certificate of incorporation provides that special meetings of the stockholders of Wayne Savings Bancshares, Inc. may be called only by the board of directors. Wayne Savings Bancshares, Inc.'s federal stock charter provides that special meetings of Wayne Savings Bancshares, Inc.'s stockholders may be called by the Chairman, President, a majority of the Board of Directors or the holders of not less than a majority of the outstanding capital stock of Wayne Savings Bancshares, Inc. entitled to vote at the meeting. STOCKHOLDER NOMINATIONS AND PROPOSALS. Wayne Savings Bancshares, Inc.'s federal bylaws generally provide that stockholders may submit nominations for election of director at an annual meeting of stockholders and any new business to be taken up at such a meeting by filing such in writing with Wayne Savings Bancshares, Inc. at least thirty days before the date of any such meeting. Wayne Savings Bancshares, Inc.'s Delaware bylaws generally provide that any stockholder desiring to make a nomination for the election of directors or a proposal for new business at a meeting of stockholders must submit written notice to Wayne Savings Bancshares, Inc. at least 90 days in advance of the meeting, together with certain information relating to the nomination or new business. However, if less than 100 days notice or prior disclosure of the date of the meeting is given, stockholders must submit such written notice no later than the tenth day following the date on which notice of the meeting is mailed to stockholders or such public disclosure was made. Failure to comply with these advance notice requirements will preclude such nominations or new business from being considered at the meeting. Management believes that it is in the best interests of Wayne Savings Bancshares, Inc. and its stockholders to provide sufficient time to enable management to disclose to stockholders information about a dissident slate of nominations for directors. This advance notice requirement may also give management time to solicit its own proxies in an attempt to defeat any dissident slate of nominations, should management determine that doing so is in the best interest of stockholders generally. Similarly, adequate advance notice of stockholder proposals will give management time to study such proposals and to determine whether to recommend to the stockholders that such proposals be adopted. In certain instances, such provisions could make it more difficult to oppose management's nominees or proposals, even if stockholders believe such nominees or proposals are in their best interests. STOCKHOLDER ACTION WITHOUT A MEETING. The federal bylaws of Wayne Savings Bancshares, Inc. provide that any action to be taken or which may be taken at any annual or special meeting of stockholders may be taken if a consent in writing, setting forth the actions so taken, is given by the holders of all outstanding shares entitled to vote. Wayne Savings Bancshares, Inc.'s Delaware certificate of incorporation specifically denies the authority of stockholders to act without a meeting. STOCKHOLDER'S RIGHT TO EXAMINE BOOKS AND RECORDS. A federal regulation which is applicable to Wayne Savings Bancshares, Inc. provides that stockholders may inspect and copy specified books and records of a federally chartered savings institution after proper written notice for a proper purpose. Delaware law similarly provides that a stockholder may inspect books and records upon written demand stating the purpose of the inspection, if such purpose is reasonably related to such person's interest as a stockholder. LIMITATIONS ON ACQUISITIONS OF VOTING STOCK AND VOTING RIGHTS. Wayne Savings Bancshares, Inc.'s Delaware certificate of incorporation provides that in no event shall any record owner of any outstanding common stock which is beneficially owned, directly or indirectly, by a person who beneficially owns in excess of 10% of the then outstanding shares of common stock be entitled or permitted to any vote in respect of the shares held in excess of such limit. MERGERS, CONSOLIDATIONS AND SALES OF ASSETS. A federal regulation requires the approval of two-thirds of the Board of Directors of Wayne Savings Bancshares, Inc. and the holders of two-thirds of the outstanding stock of 101 Wayne Savings Bancshares, Inc. entitled to vote thereon for mergers, consolidations and sales of all or substantially all of Wayne Savings Bancshares, Inc.'s assets. Such regulation permits Wayne Savings Bancshares, Inc. to merge with another corporation without obtaining the approval of its stockholders if: (1) it does not involve an interim savings institution; (2) Wayne Savings Bancshares, Inc.'s federal stock charter is not changed; (3) each share of Wayne Savings Bancshares, Inc.'s stock outstanding immediately prior to the effective date of the transaction is to be an identical outstanding share or a treasury share of Wayne Savings Bancshares, Inc. after such effective date; and (4) either: (a) no shares of voting stock of Wayne Savings Bancshares, Inc. and no securities convertible into such stock are to be issued or delivered under the plan of combination or (b) the authorized unissued shares or the treasury shares of voting stock of Wayne Savings Bancshares, Inc. to be issued or delivered under the plan of combination, plus those initially issuable upon conversion of any securities to be issued or delivered under such plan, do not exceed 15% of the total shares of voting stock of Wayne Savings Bancshares, Inc. outstanding immediately prior to the effective date of the transaction. Wayne Savings Bancshares, Inc.'s Delaware certificate of incorporation requires the approval of the holders of at least 80% of Wayne Savings Bancshares, Inc.'s outstanding shares of voting stock to approve certain "Business Combinations" involving an "Interested Stockholder" except in cases where the proposed transaction has been approved in advance by two-thirds of those members of Wayne Savings Bancshares, Inc.'s Board of Directors who are unaffiliated with the Interested Stockholder and were directors prior to the time when the Interested Stockholder became an Interested Stockholder. The term "Interested Stockholder" is defined to include any individual, corporation, partnership or other entity, other than Wayne Savings Bancshares, Inc. or its subsidiary, which owns beneficially or controls, directly or indirectly, 10% or more of the outstanding shares of voting stock of Wayne Savings Bancshares, Inc. or an affiliate of such person or entity. This provision of the certificate of incorporation applies to any "Business Combination," which is defined to include, among other things: (1) any merger or consolidation of Wayne Savings Bancshares, Inc. with or into any Interested Stockholder; (2) any sale, lease, exchange, mortgage, transfer, or other disposition of 25% or more of the assets of Wayne Savings Bancshares, Inc. and its subsidiaries to an Interested Stockholder; (3) the issuance or transfer of any securities of Wayne Savings Bancshares, Inc. or a subsidiary of Wayne Savings Bancshares, Inc. to an Interested Stockholder having a value exceeding 25% of the combined fair market value of the outstanding sections of Wayne Savings Bancshares, Inc.; or (4) any reclassification of common stock of Wayne Savings Bancshares, Inc. or any recapitalization involving the common stock of Wayne Savings Bancshares,Inc. Under Delaware law, absent this provision, business combinations, including mergers, consolidations and sales of substantially all of the assets of a corporation must, subject to certain exceptions, be approved by the vote of the holders of a majority of the outstanding shares of common stock of Wayne Savings Bancshares, Inc. and any other affected class of stock. One exception under Delaware law to the majority approval requirement applies to stockholders owning 15% or more of the common stock of a corporation for a period of less than three years. Such 15% stockholder, in order to obtain approval of a business combination, must obtain the approval of two-thirds of the outstanding stock, excluding the stock owned by such 15% stockholder, or satisfy other requirements under Delaware law relating to board of director approval of his or her acquisition of the shares of Wayne Savings Bancshares, Inc. The increased stockholder vote required to approve a business combination may have the effect of foreclosing mergers and other business combinations which a majority of stockholders deem desirable and placing the power to prevent such a merger or combination in the hands of a minority of stockholders. 102 Wayne Savings Bancshares, Inc.'s Delaware certificate of incorporation requires the Wayne Savings Bancshares, Inc.'s Board of Directors to consider certain factors in addition to the amount of consideration to be paid when evaluating certain business combinations or a tender or exchange offer. These additional factors include the social and economic effects of the transaction on its customers and employees and the communities served by Wayne Savings Bancshares, Inc. DISSENTERS' RIGHTS OF APPRAISAL. Office of Thrift Supervision regulations generally provide that a stockholder of a federally chartered savings institution that engages in a merger, consolidation or sale of all or substantially all of its assets shall have the right to demand from such institution payment of the fair or appraised value of his or her stock in the institution, subject to specified procedural requirements. This regulation also provides, however, that the stockholders of a federally chartered savings institution with stock which is listed on a national securities exchange or quoted on the Nasdaq Stock Market are not entitled to dissenters' rights in connection with a merger involving such savings institution if the stockholder is required to accept only "qualified consideration" for his or her stock, which is defined to include cash, shares of stock of any institution or corporation which at the effective date of the merger will be listed on a national securities exchange or quoted on the Nasdaq Stock Market or any combination of such shares of stock and cash. Under Delaware law, shareholders of Wayne Savings Bancshares, Inc. generally will not have dissenters' appraisal rights in connection with a plan of merger or consolidation to which Wayne Savings Bancshares, Inc. is a party because the common stock is expected to be listed on the Nasdaq National Market. AMENDMENT OF GOVERNING INSTRUMENTS. No amendment of Wayne Savings Bancorp, Inc.'s federal stock charter may be made unless it is first proposed by the Board of Directors of Wayne Savings Bancorp, Inc., then preliminarily approved by the Office of Thrift Supervision, and thereafter approved by the holders of a majority of the total votes eligible to be cast at a legal meeting. Wayne Savings Bancshares, Inc.'s Delaware certificate of incorporation may be amended by the vote of the holders of a majority of the outstanding shares of Wayne Savings Bancshares, Inc. common stock, except that the provisions of the certificate of incorporation governing the calling of meeting of stockholders, stockholders' nominations and proposals, authorized capital stock, denial of preemptive rights, the number and staggered terms of directors, removal of directors, approval of certain business combinations, the evaluation of certain business combinations, elimination of directors' liability, indemnification of officers and directors, and the manner of amending the certificate of incorporation and bylaws, each may not be repealed, altered, amended or rescinded except by the vote of the holders of at least 80% of the outstanding shares of Wayne Savings Bancshares, Inc. This provision is intended to prevent the holders of a lesser percentage of the outstanding stock of Wayne Savings Bancshares, Inc. from circumventing any of the foregoing provisions by amending the certificate of incorporation to delete or modify one of such provisions. The federal bylaws of Wayne Savings Bancshares, Inc. may be amended by a majority vote of the full Board of Directors of Wayne Savings Bancshares, Inc. or by a majority vote of the votes cast by the stockholders of Wayne Savings Bancshares, Inc. at any legal meeting. Wayne Savings Bancshares, Inc.'s Delaware bylaws may only be amended by a two-thirds vote of the Board of Directors of Wayne Savings Bancshares, Inc. or by the holders of at least 80% of the outstanding stock of Wayne Savings Bancshares, Inc. PURPOSE AND ANTI-TAKEOVER EFFECTS OF WAYNE SAVINGS BANCSHARES, INC.'S DELAWARE CERTIFICATE OF INCORPORATION AND BYLAWS. The Board of Directors of Wayne Savings Bancshares, Inc. believes that the provisions described above are prudent and will reduce Wayne Savings Bancshares, Inc. vulnerability to takeover attempts and certain other transactions that have not been negotiated with and approved by its Board of Directors. These provisions will also assist Wayne Savings Bancshares, Inc. in the orderly deployment of the conversion proceeds into productive assets during the initial period after the conversion. The Board of Directors believes these provisions are in the best interest of Wayne Savings Bancshares, Inc. and its stockholders. In the judgment of the Board of Directors, Wayne Savings Bancshares, Inc.'s Board will be in the best position to determine the true value of Wayne Savings Bancshares, Inc. and to negotiate more effectively for what may be in the best interests of its stockholders. Accordingly, the Board of Directors believes that it is in the best interest of Wayne Savings Bancshares, Inc. and its stockholders to encourage potential acquirer to negotiate directly with the Board of Directors of Wayne Savings Bancshares, Inc. and that these provisions will encourage such negotiations and discourage hostile takeover attempts. It is also the view of the Board of Directors that these provisions should not discourage persons from proposing a merger or other transaction at a price reflective of the true value of Wayne Savings Bancshares, Inc. and that is in the best interest of all stockholders. 103 Attempts to acquire control of financial institutions and their holding companies have recently become increasingly common. Takeover attempts that have not been negotiated with and approved by the Board of Directors present to stockholders the risk of a takeover on terms that may be less favorable than might otherwise be available. A transaction that is negotiated and approved by the Board of Directors, on the other hand, can be carefully planned and undertaken at an opportune time in order to obtain maximum value of Wayne Savings Bancshares, Inc. for its stockholders, with due consideration given to matters such as the management and business of the acquiring corporation and maximum strategic development of Wayne Savings Bancshares, Inc.'s assets. An unsolicited takeover proposal can seriously disrupt the business and management of a corporation and cause it great expense. Although a tender offer or other takeover attempt may be made at a price substantially above the current market price, such offers are sometimes made for less than all of the outstanding shares of a target company. As a result, stockholders may be presented with the alternative of partially liquidating their investment at a time that may be disadvantageous, or retaining their investment in an enterprise that is under different management and whose objectives may not be similar to those of the remaining stockholders. The concentration of control, which could result from a tender offer or other takeover attempt, could also deprive Wayne Savings Bancshares, Inc.'s remaining stockholders of benefits of certain protective provisions of the Securities Exchange Act of 1934, if the number of beneficial owners became less than 300, thereby allowing for deregistration under the Securities Exchange Act of 1934. Despite the belief of Wayne Savings Bancshares, Inc. as to the benefits to stockholders of these provisions of Wayne Savings Bancshares, Inc.'s Delaware certificate of incorporation and bylaws, these provisions may also have the effect of discouraging a future takeover attempt that would not be approved by Wayne Savings Bancshares, Inc.'s Board, but pursuant to which stockholders may receive a substantial premium for their shares over then current market prices. As a result, stockholders who might desire to participate in such a transaction may not have any opportunity to do so. Such provisions will also render the removal of Wayne Savings Bancshares, Inc.'s Board of Directors and of management more difficult. The Board of Directors of Wayne Savings Bancshares, Inc., however, has concluded that the potential benefits outweigh the possible disadvantages. Following the conversion, pursuant to applicable law and, if required, following the approval by stockholders, Wayne Savings Bancshares, Inc. may adopt additional anti-takeover charter provisions or other devices regarding the acquisition of its equity securities that would be permitted for a Delaware business corporation. The cumulative effect of the restriction on acquisition of Wayne Savings Bancshares, Inc. contained in the Delaware certificate of incorporation and bylaws of Wayne Savings Bancshares, Inc. and in Delaware law may be to discourage potential takeover attempts and perpetuate incumbent management, even though certain stockholders of Wayne Savings Bancshares, Inc. may deem a potential acquisition to be in their best interests, or deem existing management not to be acting in their best interests. RESTRICTIONS ON ACQUISITION OF WAYNE SAVINGS BANCSHARES, INC. The following discussion is a summary of certain provisions of federal law and regulations and corporate law relating to stock ownership and transfers, the Board of Directors and business combinations, all of which may be deemed to have "anti-takeover" effects. The description of these provisions is necessarily general and reference should be made to the actual law and regulations. CONVERSION REGULATIONS Office of Thrift Supervision regulations prohibit any person from making an offer, announcing an intent to make an offer or participating in any other arrangement to purchase stock or acquiring stock or subscription rights in a converting institution or its holding company from another person prior to completion of its conversion. Further, without the prior written approval of the Office of Thrift Supervision, no person may make such an offer or announcement of an offer to purchase shares or actually acquire shares in the converting institution or its holding company, for a period of three years from the date of the completion of the conversion if, upon the completion of such offer, announcement or acquisition, that person would become the beneficial owner of more than 10% of the outstanding stock of the institution or its holding company. The Office of Thrift Supervision has defined "person" to include any individual, group acting in concert, corporation, partnership, association, joint stock company, trust, unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities of an insured institution. However, offers made exclusively to an association or its 104 holding company, or an underwriter or member of a selling group acting on the converting institution's or its holding company's behalf for resale to the general public are excepted. The regulation also provides civil penalties for willful violation or assistance in any such violation of the regulation by any person connected with the management of the converting institution or its holding company or who controls more than 9.9% of the outstanding shares or voting rights of a converted institution or its holding company. CHANGE OF CONTROL REGULATIONS Under the Change in Bank Control Act, no person may acquire control of an insured federal savings association or its parent holding company unless the Office of Thrift Supervision has been given 60 days' prior written notice and has not issued a notice disapproving the proposed acquisition. In addition, Office of Thrift Supervision regulations provide that no company may acquire control of a savings association without the prior approval of the Office of Thrift Supervision. Any company that acquires such control becomes a "savings and loan holding company" subject to registration, examination and regulation by the Office of Thrift Supervision. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 9.9% of any class of voting stock, control in any manner of the election of a majority of the savings association's directors, or a determination by the Office of Thrift Supervision that the acquiror has the power to direct, or directly or indirectly to exercise a controlling influence over, the management or policies of the institution. Acquisition of more than 9.9% of any class of a savings association's voting stock, if the acquiror is also subject to any one of eight "control factors," constitutes a rebuttable determination of control under the regulations. Such control factors include the acquiror being one of the two largest stockholders. The determination of control may be rebutted by submission to the Office of Thrift Supervision, prior to the acquisition of stock or the occurrence of any other circumstances giving rise to such determination, of a statement setting forth facts and circumstances which would support a finding that no control relationship will exist and containing certain undertakings. The regulations provide that persons or companies which acquire beneficial ownership exceeding 9.9% or more of any class of a savings association's stock must file with the Office of Thrift Supervision a certification form that the holder is not in control of such institution, is not subject to a rebuttable determination of control and will take no action which would result in a determination or rebuttable determination of control without prior notice to or approval of the Office of Thrift Supervision, as applicable. There are also rebuttable presumptions in the regulations concerning whether a group "acting in concert" exists, including presumed action in concert among members of an "immediate family." The Office of Thrift Supervision may prohibit an acquisition of control if it finds, among other things, that: (1) the acquisition would result in a monopoly or substantially lessen competition; (2) the financial condition of the acquiring person might jeopardize the financial stability of the institution; or (3) the competence, experience or integrity of the acquiring person indicates that it would not be in the interest of the depositors or the public to permit the acquisition of control by such person. DESCRIPTION OF CAPITAL STOCK OF WAYNE SAVINGS BANCSHARES, INC FOLLOWING THE CONVERSION GENERAL At the effective date, Wayne Savings Bancshares, Inc. will be authorized to issue 8,000,000 shares of common stock having a par value of $0.10 per share and 500,000 shares of preferred stock. Wayne Savings Bancshares, Inc. currently expects to issue in the offering up to 2,070,000 shares of common stock, subject to adjustment, and up to 2,380,500 shares, subject to adjustment, in exchange for the publicly held shares of Wayne Savings Bancshares, Inc. Wayne Savings Bancshares, Inc. will not issue shares of preferred stock in the conversion. Each share of Wayne Savings Bancshares, Inc. common stock will have the same relative rights as, and will be identical in all respects with, each other share of common stock. Upon payment of the subscription price for the common stock, in accordance with the plan of conversion, all of the common stock will be duly authorized, fully paid and nonassessable. 105 THE COMMON STOCK OF WAYNE SAVINGS BANCSHARES, INC. WILL REPRESENT NONWITHDRAWABLE CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. COMMON STOCK DIVIDENDS. Wayne Savings Bancshares, Inc. can pay dividends out of statutory surplus or from net profits if, as and when declared by its Board of Directors. The payment of dividends by Wayne Savings Bancshares, Inc. is subject to limitations that are imposed by law and applicable regulation. The holders of common stock of Wayne Savings Bancshares, Inc. will be entitled to receive and share equally in dividends as may be declared by the Board of Directors of Wayne Savings Bancshares, Inc. out of funds legally available therefor. If Wayne Savings Bancshares, Inc. issues preferred stock, the holders thereof may have a priority over the holders of the common stock with respect to dividends. VOTING RIGHTS. Upon the conversion, the holders of common stock of Wayne Savings Bancshares, Inc. will possess exclusive voting rights in Wayne Savings Bancshares, Inc. They will elect Wayne Savings Bancshares, Inc.'s Board of Directors and act on other matters as are required to be presented to them under Delaware law or as are otherwise presented to them by the Board of Directors. Generally, each holder of common stock will be entitled to one vote per share and will not have any right to cumulate votes in the election of directors. If Wayne Savings Bancshares, Inc. issues preferred stock, holders of the preferred stock may also possess voting rights. Certain matters require an 80% stockholder vote. As an Ohio stock savings and loan association, corporate powers and control of Wayne Savings Community Bank are vested in its Board of Directors, who elect the officers of Wayne Savings Community Bank and who fill any vacancies on the Board of Directors. Voting rights of Wayne Savings Community Bank are vested exclusively in the owners of the shares of capital stock of Wayne Savings Community Bank, which will be Wayne Savings Bancshares, Inc., and voted at the direction of Wayne Savings Bancshares, Inc.'s Board of Directors. Consequently, the holders of the common stock will not have direct control of Wayne Savings Community Bank. LIQUIDATION. In the event of any liquidation, dissolution or winding up of Wayne Savings Community Bank, Wayne Savings Bancshares, Inc., as the holder of 100% of Wayne Savings Community Bank's capital stock, would be entitled to receive, after payment or provision for payment of all debts and liabilities of Wayne Savings Community Bank, including all deposit accounts and accrued interest thereon, and after distribution of the balance in the special liquidation account to Eligible Account Holders and Supplemental Eligible Account Holders, all assets of Wayne Savings Community Bank available for distribution. In the event of liquidation, dissolution or winding up of Wayne Savings Bancshares, Inc., the holders of its common stock would be entitled to receive, after payment or provision for payment of all its debts and liabilities, all of the assets of Wayne Savings Bancshares, Inc. available for distribution. If preferred stock is issued, the holders thereof may have a priority over the holders of the common stock in the event of liquidation or dissolution. PREEMPTIVE RIGHTS. Holders of the common stock of Wayne Savings Bancshares, Inc. will not be entitled to preemptive rights with respect to any shares that may be issued. The common stock is not subject to redemption. PREFERRED STOCK None of the shares of Wayne Savings Bancshares, Inc.'s authorized preferred stock will be issued in the conversion. Preferred stock may be issued with preferences and designations as the Board of Directors may from time to time determine. The Board of Directors may, without stockholder approval, issue preferred stock with voting, dividend, liquidation and conversion rights that could dilute the voting strength of the holders of the common stock and may assist management in impeding an unfriendly takeover or attempted change in control. TRANSFER AGENT The transfer agent and registrar for Wayne Savings Bancshares, Inc. common stock is Mellon Investor Services, LLC, South Hackensack, New Jersey. EXPERTS 106 The consolidated financial statements as of March 31, 2001 and 2000, and for each of the three years in the period ended March 31, 2001, included in this prospectus have been audited by Grant Thornton LLP, independent auditors, as stated in their report appearing herein, and has been so included in reliance upon the report of such firm given their authority as experts in accounting and auditing. RP Financial, LC has consented to the publication herein of the summary of its report to Wayne Savings Bancshares, Inc. setting forth its opinion as to the estimated pro forma market value of the common stock upon completion of the stock offering and its letter with respect to subscription rights. LEGAL MATTERS The legality of the common stock has been opined upon for Wayne Savings Bancshares, Inc. by Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C., special counsel to Wayne Savings Bancshares, Inc. Certain legal matters will be passed upon for Ryan, Beck & Co., LLC by Klehr, Harrison, Harvey, Branzburg & Ellers, LLP, Philadelphia, Pennsylvania. ADDITIONAL INFORMATION Wayne Savings Bancshares, Inc. has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 with respect to the common stock offered hereby. As permitted by the rules and regulations of the Securities and Exchange Commission, this prospectus does not contain all the information set forth in the registration statement. Such information, including the appraisal report which is an exhibit to the registration statement, can be examined without charge at the public reference facilities of the Securities and Exchange Commission located at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such material can be obtained from the SEC at prescribed rates. The Securities and Exchange Commission telephone number is 1-800-SEC-0330. In addition, the SEC maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC, including Wayne Savings Bancshares, Inc. The statements contained in this prospectus as to the contents of any contract or other document filed as an exhibit to the Registration Statement are, of necessity, brief descriptions of the material terms of, and should be read in conjunction with, such contract or document. Wayne Savings Bankshares, MHC has filed an Application on Form AC with respect to the conversion. This prospectus omits certain information contained in the Application. The Application may be examined at the principal office of the Office of Thrift Supervision, 1700 G Street, N.W., Washington, D.C. 20552, and at the Central Regional Office of the Office of Thrift Supervision, One South Wacker Drive, Suite 2000, Chicago, Illinois 60606. IN CONNECTION WITH THE STOCK OFFERING, WAYNE SAVINGS BANCSHARES, INC. WILL REGISTER ITS COMMON STOCK WITH THE SEC UNDER SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934, AND, UPON SUCH REGISTRATION, WAYNE SAVINGS BANCSHARES, INC. AND THE HOLDERS OF ITS STOCK WILL BECOME SUBJECT TO THE PROXY SOLICITATION RULES, REPORTING REQUIREMENTS AND RESTRICTIONS ON STOCK PURCHASES AND SALES BY DIRECTORS, OFFICERS AND GREATER THAN 10% STOCKHOLDERS, THE ANNUAL AND PERIODIC REPORTING AND CERTAIN OTHER REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934. UNDER THE STOCK ISSUANCE PLAN, WAYNE SAVINGS BANCSHARES, INC. HAS UNDERTAKEN THAT IT WILL NOT TERMINATE SUCH REGISTRATION FOR A PERIOD OF AT LEAST THREE YEARS FOLLOWING THE STOCK OFFERING. 107 Consolidated financial statements and report of independent certified public accountants WAYNE SAVINGS BANCSHARES, INC. June 30, 2001, 2000 and 1999 CONTENTS Page REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3 FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION F-4 CONSOLIDATED STATEMENTS OF EARNINGS 31 CONSOLIDAED STATEMENTS OF COMPREHENSIVE INCOME 31 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8 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, 2001 and 2000, and the related consolidated statements of earnings, stockholders' equity, comprehensive income and cash flows for each of the three years in the period ended March 31, 2001. 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 auditing standards generally accepted in the United States of America. 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, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 2001, in conformity with accounting principles generally accepted in the United States of America. Cincinnati, Ohio May 11, 2001 F - 3 WAYNE SAVINGS BANCSHARES, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in thousands, except share data)
JUNE 30, MARCH 31, MARCH 31, ASSETS 2000 2001 2001 (UNAUDITED) Cash and due from banks $ 2,583 $ 2,011 $ 2,502 Federal funds sold 6,000 6,000 3,475 Interest-bearing deposits in other financial institutions 18,260 12,891 8,332 -------- -------- --------- Cash and cash equivalents 26,843 20,902 14,309 Certificates of deposit in other financial institutions - 5,700 4,000 Investment securities held to maturity - at amortized cost, approximate market value of $12,277, $13,774 and $22,634 as of June 30, 2001, March 31, 2001 and 2000 12,123 13,641 23,199 Mortgage-backed securities available for sale - at market 2,666 2,911 3,450 Mortgage-backed securities held to maturity - at amortized cost, approximate market value of $4,492, $5,694 and $6,938 as of June 30, 2001, March 31, 2001 and 2000 4,489 5,702 7,046 Loans receivable - net 254,837 246,619 237,095 Loans held for sale - at lower of cost or market - 861 317 Office premises and equipment - net 8,882 8,607 8,160 Real estate acquired through foreclosure 19 124 90 Federal Home Loan Bank stock - at cost 3,612 3,510 3,160 Accrued interest receivable on loans 1,275 1,328 1,255 Accrued interest receivable on mortgage-backed securities 39 42 60 Accrued interest receivable on investments and interest bearing deposits 194 203 354 Prepaid expenses and other assets 2,762 1,624 1,390 Prepaid federal income taxes - - 184 --------- --------- ---------- Total assets $317,741 $311,774 $304,069 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $284,384 $277,706 $264,952 Advances from the Federal Home Loan Bank 6,000 6,000 12,000 Advances by borrowers for taxes and insurance 322 827 777 Accrued interest payable 309 245 228 Accounts payable on mortgage loans serviced for others 246 234 100 Other liabilities 437 991 516 Accrued federal income taxes 234 31 - Deferred federal income taxes 488 455 375 ---------- ---------- ---------- Total liabilities 292,420 286,489 278,948 Commitments - - - Stockholders' equity Common stock (20,000,000 shares of $1.00 par value authorized; 2,638,835, 2,638,835 and 2,632,229 shares issued at June 30, 2001, March 31, 2001 and 2000, respectively) 2,639 2,639 2,632 Additional paid-in capital 14,436 14,436 14,393 Retained earnings - substantially restricted 9,351 9,180 8,777 Less 67,742, 57,042 and 33,214 shares of treasury stock, respectively - at cost (1,143) (1,003) (645) Accumulated other comprehensive income (loss), unrealized gain (loss) on securities designated as available for sale, net of related tax effects 38 33 (36) ----------- ----------- ----------- Total stockholders' equity 25,321 25,285 25,121 -------- -------- -------- Total liabilities and stockholders' equity $317,741 $311,774 $304,069 ======= ======= =======
The accompanying notes are an integral part of these statements. F-4 WAYNE SAVINGS BANCSHARES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 (Dollars in thousands, except share data)
Unrealized gains (losses) on securities Total Additional Treasury designated stock- Common paid-in Retained stock- as available holders' stock capital earnings at cost for sale equity Balance at April 1, 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 Stock options exercised 7 43 - - - 50 Net earnings for the year ended March 31, 2001 - - 1,461 - - 1,461 Cash dividends of $.64 per share - - (1,058) - - (1,058) Purchase of treasury shares - at cost - - - (358) - (358) Unrealized gains on securities designated as available for sale, net of related tax effects - - - - 69 69 ----- ------- ------- ------ ---- --------- Balance at March 31, 2001 2,639 14,436 9,180 (1,003) 33 25,285 Net earnings for the period ended June 30, 2001 - - 376 - - 376 Cash dividends of $.17 per share - - (205) - - (205) Purchase of treasury shares - at cost - - - (140) - (140) Unrealized gains on securities designated as available for sale, net of related tax effects - - - - 5 5 ----- ------- ------- ------ ----- ---------- Balance at June 30, 2001 (unaudited) $2,639 $14,436 $ 9,351 $(1,143) $ 38 $25,321 ===== ====== ======= ======= ==== ======
The accompany notes are an integral part of these statements. F - 5 WAYNE SAVINGS BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 (In thousands)
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE YEAR ENDED MARCH 31, 2001 2000 2001 2000 1999 (UNAUDITED) Cash flows from operating activities: Net earnings for the period $ 376 $ 290 $ 1,461 $ 1,251 $ 1,643 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 6 4 (9) 18 (25) Amortization of deferred loan origination fees (94) (44) (161) (532) (574) Depreciation and amortization 113 146 433 653 481 (Gain) loss on sale of loans (12) 1 (62) 42 (149) Proceeds from sale of loans in the secondary market 6,395 2,119 9,247 6,383 16,009 Loans originated for sale in the secondary market (5,522) (2,421) (9,729) (5,157) (16,251) Provision for losses on loans 2 51 96 120 64 Loss on sale of real estate acquired through foreclosure - - - 11 110 Federal Home Loan Bank stock dividends (64) (60) (247) (214) (199) Increase (decrease) in cash due to changes in: Accrued interest receivable on loans 53 (51) (73) (121) 18 Accrued interest receivable on mortgage-backed securities 3 (12) 18 (32) (5) Accrued interest receivable on investments and interest-bearing deposits 9 3 151 (170) (4) Prepaid expenses and other assets (1,138) (36) (234) 543 (886) Accrued interest payable 64 55 17 49 (18) Accounts payable on mortgage loans serviced for others 12 15 134 (8) (91) Other liabilities (554) 212 476 19 206 Federal income taxes Current 203 162 215 119 (304) Deferred 30 1 35 44 160 --------- ---------- --------- --------- -------- Net cash provided by (used in) operating activities (118) 435 1,768 3,018 185 Cash flows provided by (used in) investing activities: Purchase of investment securities - - (2,477) (13,411) (12,484) Proceeds from the maturity of investment securities 1,517 58 12,069 2,080 14,055 Purchase of mortgage-backed securities - (1,000) (2,025) (8,030) (6,576) Principal repayments on mortgage-backed securities 1,461 1,060 3,997 4,620 3,470 Loan principal repayments 16,533 9,304 56,478 37,106 48,814 Loan disbursements (24,566) (12,689) (65,986) (59,792) (55,615) Purchase of office premises and equipment (388) (445) (1,115) (1,065) (1,768) Proceeds from the sale of land - - 235 - - Proceeds from sale of real estate acquired through foreclosure 12 - 14 5 820 (Increase) decrease in certificates of deposit in other financial institutions 5,700 4,000 (1,700) 2,000 2,500 Purchase of Federal Home Loan Bank stock (38) - (103) - - --------- ------- -------- ------- ------- Net cash provided by (used in) investing activities 231 288 (613) (36,487) (6,784) -------- -------- -------- ------ ------- Net cash provided by (used in) operating and investing activities (balance carried forward) 113 723 1,155 (33,469) (6,599) -------- -------- ------- ------ -------
F-6 WAYNE SAVINGS BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 (In thousands)
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE YEAR ENDED MARCH 31, 2001 2000 2001 2000 1999 (UNAUDITED) Net cash provided by (used in) operating and investing activities (balance brought forward) $ 113 $ 723 $ 1,155 $(33,469) $ (6,599) Cash flows provided by (used in) financing activities: Net increase (decrease) in deposit accounts 6,678 (117) 12,754 29,625 17,706 Proceeds from Federal Home Loan Bank advances 5,000 2,000 11,000 4,000 16,000 Repayments of Federal Home Loan Bank advances (5,000) (4,000) (17,000) (1,000) (23,000) Advances by borrowers for taxes and insurance (505) 2 50 (44) 38 Dividends paid on common stock (205) (200) (1,058) (882) (725) Proceeds from the exercise of stock options - 27 50 11 87 Purchase of treasury shares - at cost (140) - (358) (177) (431) -------- ------- -------- --------- -------- Net cash provided by (used in) financing activities 5,828 (2,288) 5,438 31,533 9,675 -------- ------- -------- --------- -------- Net increase (decrease) in cash and cash equivalents 5,941 (1,565) 6,593 (1,936) 3,076 Cash and cash equivalents at beginning of period 20,902 14,309 14,309 16,245 13,169 --------- ------- -------- --------- -------- Cash and cash equivalents at end of period $ 26,843 $12,744 $ 20,902 $ 14,309 $ 16,245 ========= ====== ======== ========= ======== Supplemental disclosure of cash flow information: Cash paid during the period for: Federal income taxes $ 20 $ - $ 490 $ 516 $ 892 ========= ======= ======== ========= ======== Interest on deposits and borrowings $ 3,280 $ 3,106 $ 13,083 $ 11,965 $ 11,205 ========= ======= ======== ========= ======== Supplemental disclosure of noncash investing activities: Transfers from loans to real estate acquired through foreclosure $ - $ - $ 98 $ 64 $ 8 ======= ======= ========= ========== ======== Issuance of mortgage loan upon sale of real estate acquired through foreclosure $ 93 $ - $ 50 $ - $ 699 ======= ======= ========= ========== ======== Unrealized gains (losses) on securities designated as available for sale, net of related tax effects $ 5 $ 10 $ 69 $ (38) $ (15) ======= ========= ========= ========== ======== Recognition of mortgage servicing rights in accordance with SFAS No. 140 $ 64 $ 21 $ 92 $ 64 $ 160 ======= ========= ========= ========== ======== Supplemental disclosure of noncash financing activities: Acquisition of treasury stock in exchange for outstanding shares $ - $ - $ - $ - $ 27 ======= ========= ========= ========== ========
The accompanying notes are an integral part of these statements. F-7 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The 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, Wayne Savings formed a new federal savings bank subsidiary in North Canton, Ohio, Village Savings Bank, F.S.B. ("Village"), hereinafter collectively referred to as "the Banks." Intercompany transactions and balances are eliminated in the consolidated financial statements. 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 accounting principles generally accepted in the United States of America ("U.S. GAAP") and general accounting practices within the financial services industry. In preparing financial statements in accordance with U.S. 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 June 30, 2001, March 31, 2001 and 2000, the Company's equity accounts reflected a net unrealized gain (loss) on securities designated as available for sale of $38,000, $33,000 and $(36,000), respectively. Realized gains or losses on sales of securities are recognized using the specific identification method. F-8 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 Banks recognize rights to service mortgage loans for others pursuant to SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." In accordance with SFAS No. 140, 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 Banks recognized $64,000, $21,000, $92,000, $64,000, and $160,000 of pre-tax gains on sales of loans related to capitalized mortgage servicing rights during the three month periods ended June 30, 2001 and 2000 and the fiscal years ended March 31, 2001, 2000, and 1999, respectively. SFAS No. 140 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 Banks, calculated in accordance with the provisions of SFAS No. 140, are segregated into pools for valuation purposes, using as pooling criteria the loan term and coupon rate. Once pooled, each grouping of loans is 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 are 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 Banks recorded amortization related to mortgage servicing rights totaling approximately $15,000, $12,000, $52,000, $44,000, and $32,000 for the three month periods ended June 30, 2001 and 2000, and the years ended March 31, 2001, 2000, and 1999, respectively. At June 30, 2001, March 31, 2001 and 2000, the carrying value of the Banks' mortgage servicing rights, which approximated fair value, totaled approximately $406,000, $357,000 and $317,000, respectively. F-9 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, 2001 and 2000, loans held for sale were carried at cost. F-10 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. F-11 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 4. ALLOWANCE FOR LOAN LOSSES (continued) 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 under SFAS No. 114 at that time. At June 30, 2001, March 31, 2001 and 2000, the Banks' investment in impaired loans totaled approximately $645,000, $645,000 and $940,000 respectively. During fiscal 2001, the Company charged-off $172,000 of principal related to an impaired loan through the allowance for loan losses. For the three month periods ended June 30, 2001 and 2000, and for the fiscal years ended March 31, 2000 and 1999, there were no charge-offs or recoveries in the allowance for loan losses related to impaired loans. 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 F-12 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. F-13 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 7. FEDERAL INCOME TAXES (continued) 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 $48,000, $60,000, $204,000, $222,000, and $144,000 for the three month periods ending June 30, 2001 and 2000, and the three years ended March 31, 2001, 2000, and 1999, 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, 2000, the most recent valuation date, the amount of net assets available for benefits was $1.3 million, and the benefit obligation totaled approximately $1.9 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 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 $10,000 for each of the three month periods ended June 30, 2001 and 2000, and $44,000, $39,000 and $36,000 for the fiscal years ended March 31, 2001, 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 the three-month periods ended June 30, 2001 and 2000, and the fiscal years ended March 31, 2001, 2000 and 1999. F-14 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 10. 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 are as follows:
JUNE 30, MARCH 31, 2001 2000 2001 2000 1999 (UNAUDITED) Weighted-average common shares outstanding (basic) 2,574,113 2,603,644 2,596,754 2,602,141 2,609,762 Dilutive effect of assumed exercise of stock options 6,454 14,974 11,752 18,735 26,104 --------- --------- --------- --------- --------- Weighted-average common shares outstanding (diluted) 2,580,567 2,618,618 2,608,506 2,620,876 2,635,866 ========= ========= ========= ========= =========
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. F-15 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments at June 30, 2001 and March 31, 2001 and 2000: 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 currently 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 June 30, 2001 and March 31, 2001 and 2000, the differences between the fair value and notional amount of loan commitments were not material. F-16 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) Based on the foregoing methods and assumptions, the carrying value and fair value of the Company's financial instruments are as follows:
JUNE 30, MARCH 31. 2001 2001 2000 CARRYING FAIR CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE VALUE VALUE (UNAUDITED) (In thousands) Financial assets Cash and cash equivalents and certificates of deposit $ 26,843 $26,843 $ 26,602 $ 26,602 $ 18,309 $ 18,309 Investment securities 12,123 12,277 13,641 13,774 23,199 22,634 Mortgage-backed securities 7,155 7,158 8,613 8,605 10,496 10,388 Loans receivable 254,837 267,395 247,480 259,538 237,412 228,469 Federal Home Loan Bank stock 3,612 3,612 3,510 3,510 3,160 3,160 ------- ------- ------- ------- ------- ------- $304,570 $317,285 $299,846 $312,029 $292,576 $282,960 ======= ======= ======= ======= ======= ======= Financial liabilities Deposits $284,384 $285,783 $277,706 $278,715 $264,952 $265,428 Advances from the Federal Home Loan Bank 6,000 6,000 6,000 6,000 12,000 11,999 Advances by borrowers for taxes and insurance 322 322 827 827 777 777 ------- ------- ------- ------- ------- ------- $290,706 $292,105 $284,533 $285,542 $277,729 $278,204 ======= ======= ======= ======= ======= =======
13. ADVERTISING Advertising costs are expensed when incurred. The Company's advertising expense totaled $35,000 for each of the three months ended June 30, 2001 and 2000, respectively, and $140,000, $189,000 and $148,000 for the fiscal years ended March 31, 2001, 2000, and 1999, respectively. 14. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the 2001 financial statement presentation. F-17 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 15. BASIS OF PRESENTATION The financial statements as of June 30, 2001, and for the three months ended June 30, 2001 and 2000, are unaudited. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of financial position and results of operations have been made. The results of operations for the three months ended June 30, 2001, are not necessarily indicative of results, which may be expected for the entire fiscal year. F-18 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES Carrying values and estimated fair values of investment securities are summarized as follows:
JUNE 30, MARCH 31. 2001 2001 2000 ESTIMATED ESTIMATED ESTIMATED CARRYING FAIR CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE VALUE VALUE (UNAUDITED) (In thousands) Corporate bonds and notes $ 3,995 $ 4,081 $ 3,994 $ 4,061 $ 2,987 $ 2,951 U.S. Government and agency obligations 7,987 8,048 9,501 9,567 20,057 19,528 Municipal obligations 141 148 146 146 155 155 -------- -------- -------- -------- -------- -------- $12,123 $12,277 $13,641 $13,774 $23,199 $22,634 ====== ====== ====== ====== ====== ======
At June 30, 2001, the carrying value of the Company's investment securities below estimated fair value totaled $154,000, consisting of $170,000 in gross unrealized gains and $16,000 in gross unrealized losses. At March 31, 2001, the carrying value of the Company's investment securities below estimated fair value totaled $133,000, consisting of gross unrealized gains totaling $140,000 and gross unrealized losses of $7,000. 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. The amortized cost and estimated fair value of investment securities by term to maturity are shown below.
AT JUNE 30, 2001 AT MARCH 31, 2001 AMORTIZED ESTIMATED AMORTIZED ESTIMATED COST FAIR VALUE COST FAIR VALUE (UNAUDITED) (In thousands) Due in one year or less $ 4,496 $ 4,553 $ 4,995 $ 5,050 Due within one to three years 4,524 4,628 4,526 4,603 Due within three to five years 1,000 1,001 500 500 Due in over five years 2,103 2,095 3,620 3,621 ------- ------- ------- ------- $12,123 $12,277 $13,641 $13,774 ====== ====== ====== ======
The Company had pledged $1.0 million in investment securities to secure public deposits at both June 30, 2001 and March 31, 2001. The Company had not pledged any investment or mortgage-backed securities to secure public deposits at March 31, 2000. F-19 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued) The amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair values of mortgage-backed securities at June 30, 2001, March 31, 2001 and 2000, including those designated as available for sale, are summarized as follows:
JUNE 30, 2001 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE (In thousands) HELD-TO-MATURITY Federal Home Loan Mortgage Corporation participation certificates $ 715 $ 3 $ 7 $ 711 Government National Mortgage Association participation certificates 1,686 13 17 1,682 Federal National Mortgage Association participation certificates 2,088 23 12 2,099 ----- -- ---- ----- $4,489 $39 $ 36 $4,492 ===== == ==== ===== AVAILABLE FOR SALE Federal Home Loan Mortgage Corporation participation certificates $1,134 $42 $- $1,176 Government National Mortgage Association participation certificates 86 10 - 96 Federal National Mortgage Association participation certificates 1,381 13 - 1,394 ----- -- -- ----- $2,601 $65 $- $2,666 ===== == == ===== MARCH 31, 2001 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE (In thousands) HELD-TO-MATURITY Federal Home Loan Mortgage Corporation participation certificates $1,118 $ 7 $ 4 $1,121 Government National Mortgage Association participation certificates 2,052 10 13 2,049 Federal National Mortgage Association participation certificates 2,532 4 12 2,524 ----- ----- ---- ----- $5,702 $ 21 $ 29 $5,694 ===== ==== ==== ===== AVAILABLE FOR SALE Federal Home Loan Mortgage Corporation participation certificates $1,220 $ 35 $- $1,255 Government National Mortgage Association participation certificates 86 11 - 97 Federal National Mortgage Association participation certificates 1,552 8 1 1,559 ----- ----- ----- ----- $2,858 $ 54 $ 1 $2,911 ===== ==== ===== =====
F-20 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued)
MARCH 31, 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 ===== ==== ==== =====
The amortized cost of mortgage-backed securities, including those designated as available for sale by contractual term to maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may generally prepay obligations without prepayment penalties.
AT JUNE 30, 2001 AT MARCH 31, 2001 AMORTIZED AMORTIZED COST COST (UNAUDITED) (In thousands) Due in one year or less $ - $ - Due within one to three years 1,007 1,180 Due within three to five years 897 993 Due after five years 5,186 6,387 ----- ----- $7,090 $8,560 ===== =====
F-21 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE C - LOANS RECEIVABLE The composition of the loan portfolio at is as follows:
JUNE 30, MARCH 31, 2001 2001 2000 (UNAUDITED) (In thousands) Residential real estate - 1 to 4 family $222,561 $215,464 $211,222 Residential real estate - multi-family 9,150 9,039 8,028 Residential real estate - construction 7,253 7,078 4,035 Nonresidential real estate and land 9,777 7,525 6,068 Education 1,974 2,143 2,780 Commercial 6,015 4,765 5,168 Consumer and other 7,039 7,487 6,261 --------- --------- --------- 263,769 253,501 243,562 Less: Undisbursed portion of loans in process 6,836 4,764 4,136 Deferred loan origination fees 1,440 1,463 1,538 Allowance for loan losses 656 655 793 ---------- ---------- ---------- $254,837 $246,619 $237,095 ======= ======= =======
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 $232.1 million, or 91%, of the total loan portfolio at June 30, 2001, $226.8 million, or 92%, of the total loan portfolio at March 31, 2001, and $219.1 million, or 92%, of the total loan portfolio at March 31, 2000. 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 $50.4 million at June 30, 2001, and $47.1 million, $44.3 million and $44.0 million at March 31, 2001, 2000, and 1999, respectively. F-22 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE C - LOANS RECEIVABLE (continued) 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 those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collectibility. 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 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 $2.5 million at June 30, 2001, and $371,000, $189,000 and $340,000 at March 31, 2001, 2000, and 1999, respectively. NOTE D - ALLOWANCE FOR LOAN LOSSES The activity in the allowance for loan losses is summarized as follows:
JUNE 30, MARCH 31, 2001 2000 2001 2000 1999 (UNAUDITED) (In thousands) Balance at beginning of year $655 $793 $793 $678 $721 Provision for losses on loans 2 51 96 120 64 Recoveries (charge-offs) of loans - net (1) 2 (234) (5) (107) ----- ----- --- ----- --- Balance at end of year $656 $846 $655 $793 $678 === === === === ===
As of June 30, 2001 and March 31, 2001, 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 $1.8 million, $192,000, $515,000, $200,000 and $280,000 at June 30, 2001 and 2000, and March 31, 2001, 2000, and 1999, respectively. During the three-month periods ended June 30, 2001 and 2000, interest income of approximately $8,000 and $5,000, respectively, would have been recognized had nonaccrual loans been performing in accordance with contractual terms. During the fiscal years ended March 31, 2001, 2000, and 1999, interest income of approximately $12,000, $8,000 and $7,000, respectively, would have been recognized had nonaccrual loans been performing in accordance with contractual terms. F-23 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE E - OFFICE PREMISES AND EQUIPMENT Office premises and equipment are comprised of the following:
JUNE 30, MARCH 31, 2001 2001 2000 (UNAUDITED) (In thousands) Land and improvements $ 1,615 $ 1,615 $ 1,750 Office buildings and improvements 6,446 6,167 6,752 Furniture, fixtures and equipment 4,042 3,931 4,463 Automobiles 60 60 60 --------- --------- --------- 12,163 11,773 13,025 Less accumulated depreciation and amortization 3,281 3,166 4,865 ------- ------- ------- $ 8,882 $ 8,607 $ 8,160 ======= ======= =======
F-24 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE F - DEPOSITS Deposits consist of the following major classifications:
DEPOSIT TYPE AND WEIGHTED- JUNE 30, MARCH 31, AVERAGE INTEREST RATE 2001 2001 2000 (UNAUDITED) (In thousands) NOW accounts June 30, 2001 - 1.56% $37,309 March 31, 2001 - 1.73% $ 33,642 March 31, 2000 - 2.08% $ 31,014 Passbook June 30, 2001 - 3.09% 58,630 March 31, 2001 - 3.18% 54,574 March 31, 2000 - 3.13% 53,074 Money Market Investor June 30, 2001 - 3.23% 9,175 March 31, 2001 - 3.23% 8,905 March 31, 2000 - 3.28% 10,827 - - -------- Total demand, transaction and passbook deposits 105,114 97,121 94,915 Certificates of deposit Original maturities of: Less than 12 months June 30, 2001 - 4.72% 37,166 March 31, 2001 - 5.51% 25,494 March 31, 2000 - 5.00% 41,722 12 months to 24 months June 30, 2001 - 5.99% 88,235 March 31, 2001 - 6.03% 101,105 March 31, 2000 - 5.60% 54,341 25 months to 36 months June 30, 2001 - 5.21% 9,957 March 31, 2001 - 5.26% 10,036 March 31, 2000 - 5.71% 24,787 More than 36 months June 30, 2001 - 5.54% 6,132 March 31, 2001 - 5.56% 6,175 March 31, 2000 - 5.52% 8,888 Jumbo June 30, 2001 - 6.16% 37,780 March 31, 2001 - 6.46% 37,775 March 31, 2000 - 6.07% 40,299 - - -------- Total certificates of deposit 179,270 180,585 170,037 ------- ------- ------- Total deposit accounts $284,384 $277,706 $264,952 ======= ======= =======
F-25 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE F - DEPOSITS (continued) At June 30, 2001, the Banks had certificates of deposit with balance in excess of $100,000 totaling $37.9 million. At March 31, 2001 and 2000, the Banks had certificates of deposit with balances in excess of $100,000 totaling $37.4 million and $34.7 million, respectively. Interest expense on deposits is summarized as follows:
THREE MONTHS ENDED YEAR ENDED JUNE 30, MARCH, 31 2001 2000 2001 2000 1999 (UNAUDITED) (In thousands) Passbook $ 431 $ 415 $ 1,642 $ 1,569 $ 1,220 NOW and money market deposit accounts 215 229 875 979 787 Certificates of deposit 2,616 2,401 10,135 8,982 8,509 ----- ----- ------ ------- ------- $3,262 $3,045 $12,652 $11,530 $10,516 ===== ===== ====== ====== ======
Maturities of outstanding certificates of deposit are summarized as follows:
JUNE 30, MARCH 31, 2001 2001 2000 (UNAUDITED) (In thousands) Less than one year $136,221 $129,044 $123,870 One to three years 40,317 48,533 41,855 Over three years 2,732 3,008 4,312 --------- --------- --------- $179,270 $180,585 $170,037 ======= ======= =======
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK Advances from the Federal Home Loan Bank, collateralized at June 30, 2001 and March 31, 2001 and 2000 by pledges of certain residential mortgage loans totaling $7.5 million, $7.5 million and $18.0 million, respectively, and the Banks' investment in Federal Home Loan Bank stock, are summarized as follows:
MATURING IN YEAR JUNE 30, MARCH 31, INTEREST RATE ENDING MARCH 31, 2001 2001 2000 (UNAUDITED) (In thousands) 6.20% - 6.50% 2001 $ - $ - $ 6,000 5.04% - 5.98% 2002 1,000 6,000 6,000 5.07% - 5.29% 2005 5,000 - - ----- ----- ------- $6,000 $6,000 $12,000 ===== ===== ====== Weighted-average interest rate 5.21% 5.54% 5.98% ==== ==== ====
F-26 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE H - FEDERAL INCOME TAXES The provision for federal income taxes on earnings differs from that computed at the statutory corporate tax rate as follows:
THREE MONTHS ENDED YEAR ENDED JUNE 30, MARCH 31, 2001 2000 2001 2000 1999 (Unaudited) (In thousands) Federal income taxes computed at statutory rate $194 $149 $753 $644 $846 Increase (decrease) in taxes resulting from: Tax exempt interest (1) (1) (8) (7) (3) Other 2 1 9 7 3 ----- ----- ----- ----- ----- Federal income tax provision per consolidated financial statements $195 $149 $754 $644 $846 === === === === ===
The composition of the Company's net deferred tax liability is as follows:
TAXES (PAYABLE) REFUNDABLE ON TEMPORARY JUNE 30, MARCH 31, DIFFERENCES AT STATUTORY RATE: 2001 2001 2000 (Unaudited) (In thousands) DEFERRED TAX ASSETS Deferred loan origination fees $ 108 $ 108 $ 218 General loan loss allowance 261 263 308 Book/tax depreciation differences 24 24 - Organizational costs 50 62 - Pension expense 11 72 - Unrealized loss on securities designated as available for sale - - 19 Other 53 16 11 ----- ------- ----- Deferred tax assets 507 545 556 DEFERRED TAX LIABILITIES Federal Home Loan Bank stock dividends (748) (748) (664) Book/tax depreciation differences - - (91) Unrealized gains on securities designated as available for sale (22) (20) - Bad debt deduction (104) (111) (68) Mortgage servicing rights (121) (121) (108) ---- ------ ---- Deferred tax liabilities (995) (1,000) (931) ---- ----- ---- Total deferred tax liability $(488) $ (455) $(375) ==== ====== ====
F-27 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE H - FEDERAL INCOME TAXES (continued) 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. This cumulative percentage of earnings bad debt deduction totaled approximately $2.7 million as of June 30, 2001 and March 31, 2001. If the amounts that qualified 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 June 30, 2001 and March 31, 2001. Wayne Savings is required to recapture as taxable income approximately $300,000 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 is amortizing the recapture of the bad debt reserve in taxable income over a six-year period, commencing in fiscal 1999. 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 June 30, 2001, the Company had outstanding commitments to originate fixed rate and adjustable rate loans of $8.9 million and $500,000, respectively. At March 31, 2001 and 2000, the Company had outstanding commitments to originate fixed rate loans of approximately $4.7 million and $1.8 million, respectively, and adjustable rate loans of approximately $423,000 and $520,000, respectively. The Company had unused lines of credit under home equity loans of $17.4 million, $12.1 million and $10.7 million at June 30, 2001, March 31, 2001 and 2000, respectively. Additionally, the Company had unused lines of credit under commercial loans of $3.4 million, $2.0 million and $3.1 million at June 30, 2001, March 31, 2001 and 2000, 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. F-28 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE I - COMMITMENTS (continued) 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 includes a mortgage interest in real estate as security. In connection with the opening of the NorthSide branch in July 1999, the Company entered into a lease of branch banking facilities. The lease of the banking facility requires the Company to make payments of approximately $30,000 per year. The operating 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 the consolidated 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. 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. 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 June 30, 2001, and March 31, 2001 and 2000, management believes that the Banks met all capital adequacy requirements to which they were subject. F-29 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE J - REGULATORY CAPITAL (continued) 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.
WAYNE SAVINGS COMMUNITY BANK AS OF JUNE 30, 2001 (UNAUDITED) REQUIRED TO BE "WELL- REQUIRED CAPITALIZED" UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO (Dollars in thousands) Tangible capital $25,040 7.9% =>$ 4,762 =>1.5% =>$15,873 => 5.0% Core capital $25,040 7.9% =>$12,699 =>4.0% =>$19,048 => 6.0% Risk-based capital $25,696 15.1% =>$13,580 =>8.0% =>$16,975 =>10.0% WAYNE SAVINGS COMMUNITY BANK AS OF MARCH 31, 2001 REQUIRED TO BE "WELL- REQUIRED CAPITALIZED" UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO (Dollars in thousands) Tangible capital $25,078 8.1% =>$ 4,674 =>1.5% =>$15,580 => 5.0% Core capital $25,078 8.1% =>$12,464 =>4.0% =>$18,696 => 6.0% Risk-based capital $25,733 15.5% =>$13,274 =>8.0% =>$16,593 =>10.0%
F-30 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE J - REGULATORY CAPITAL (continued)
WAYNE SAVINGS COMMUNITY BANK AS OF MARCH 31, 2000 REQUIRED TO BE "WELL- REQUIRED CAPITALIZED" UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO (Dollars in thousands) Tangible capital $24,305 8.1% =>$ 4,558 =>1.5% =>$15,192 => 5.0% Core capital $24,305 8.1% =>$12,155 =>4.0% =>$18,230 => 6.0% Risk-based capital $25,098 15.7% =>$12,802 =>8.0% =>$16,003 =>10.0% VILLAGE SAVINGS BANK, F.S.B. AS OF JUNE 30, 2001 (UNAUDITED) REQUIRED TO BE "WELL- REQUIRED CAPITALIZED" UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO (Dollars in thousands) Tangible capital $2,730 8.7 % =>$ 471 =>1.5% =>$1,571 => 5.0% Core capital $2,730 8.7% =>$1,257 =>4.0% =>$1,885 => 6.0% Risk-based capital $2,771 17.8 % =>$1,247 =>8.0% =>$1,559 =>10.0% VILLAGE SAVINGS BANK, F.S.B. AS OF MARCH 31, 2001 REQUIRED TO BE "WELL- REQUIRED CAPITALIZED" UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO (Dollars in thousands) Tangible capital $2,721 9.6% =>$ 424 =>1.5% =>$1,413 => 5.0% Core capital $2,721 9.6% =>$1,131 =>4.0% =>$1,696 => 6.0% Risk-based capital $2,761 19.0% =>$1,163 =>8.0% =>$1,454 =>10.0%
F-31 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE J - REGULATORY CAPITAL (continued)
VILLAGE SAVINGS BANK, F.S.B. AS OF MARCH 31, 2000 REQUIRED TO BE "WELL- REQUIRED CAPITALIZED" UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO (Dollars in thousands) Tangible capital $2,683 12.7% =>$318 =>1.5% =>$1,060 => 5.0% Core capital $2,683 12.7% =>$848 =>4.0% =>$1,272 => 6.0% Risk-based capital $2,717 24.8% =>$875 =>8.0% =>$1,094 =>10.0%
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 same time period. Insured institutions are required to file an application with the OTS for capital distributions in excess of the limitation. During April 2001, Wayne Savings received OTS approval to make up to $2.0 million in capital distributions during fiscal 2002. Regulations of the OTS governing mutual holding companies permit Wayne Savings Bankshares M.H.C. (the "M.H.C.") to waive the receipt by it of any dividend declared by the Company or the Bank on the common stock, provided that the OTS does not object to such waiver. The M.H.C. accepted dividends totaling $260,000 and $75,000 during fiscal years 2001 and 2000, respectively. For the fiscal year ended March 31, 1999, the M.H.C. waived its share of all dividends declared on the common stock. Total dividends waived by the M.H.C. through March 31, 2001 amounted to $5.3 million. NOTE K - STOCK OPTION PLANS The Company has an incentive Stock Option Plan that previously provided 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 provided for the issuance of 36,018 shares of authorized, but unissued shares of common stock. The number of shares under option has been adjusted to reflect all past stock dividends. F-32 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE K - STOCK OPTION PLANS (continued) 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, 2001, 2000, and 1999. A summary of the status of the Company's stock option plans and changes during the periods ending on those dates is presented below:
JUNE 30, MARCH 31, 2001 2001 2000 1999 EXERCISE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE Outstanding at beginning of period 17,473 $5.00 27,657 $5.00 34,596 $5.00 60,548 $5.00 Granted - - - - - - - - Exercised - - 7,900 5.00 2,301 5.00 22,743 5.00 Forfeited - - 2,284 5.00 4,638 5.00 3,209 5.00 ------- ------- ------- ---- ------- ---- ------- ---- Outstanding at end of period 17,473 $5.00 17,473 $5.00 27,657 $5.00 34,596 $5.00 ====== ==== ====== ==== ====== ==== ====== ==== Options exercisable at period-end 17,473 $5.00 17,473 $5.00 27,657 $5.00 34,596 $5.00 ====== ==== ====== ==== ====== ==== ====== ====
The following information applies to options outstanding at June 30, 2001: Number outstanding 17,473 Range of exercise prices $5.00 Weighted-average exercise price $5.00 Weighted-average remaining contractual life 2.00 At June 30, 2001, all of the stock options granted were subject to exercise at the discretion of the grantees and expire in 2003. F-33 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 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 June 30, 2001 and March 31, 2001 and 2000, and the results of its operations and its cash flows for the three-month periods ending June 30, 2001 and 2000 and the years ended March 31, 2001, 2000 and 1999. Wayne Savings Bancshares, Inc. STATEMENTS OF FINANCIAL CONDITION
JUNE 30, MARCH 31, 2001 2001 2000 (UNAUDITED) (In thousands) ASSETS Cash and due from banks $ 56 $ 86 $ 169 Interest-bearing deposits in other financial institutions - - 475 Investment in subsidiary 25,405 25,434 24,596 Prepaid expenses and other 73 56 100 --------- --------- -------- Total assets $25,534 $25,576 $25,340 ====== ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Other liabilities $ 213 $ 291 $ 219 Stockholders' equity Common stock and additional paid-in capital 17,075 17,075 17,025 Retained earnings 9,351 9,180 8,777 Less shares held in treasury (67,742, 57,042 and 33,214 shares, respectively) (1,143) (1,003) (645) Accumulated other comprehensive income (loss), unrealized gain (loss) on securities designated as available for sale, net 38 33 (36) --------- --------- --------- Total stockholders' equity 25,321 25,285 25,121 ------ ------ ------ Total liabilities and stockholders' equity $25,534 $25,576 $25,340 ====== ====== ======
F-35 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE L - CONDENSED FINANCIAL STATEMENTS OF WAYNE SAVINGS BANCSHARES, INC. (continued) Wayne Savings Bancshares, Inc. STATEMENTS OF EARNINGS
THREE MONTHS ENDED YEARS ENDED JUNE 30, MARCH 31, 2001 2000 2001 2000 1999 (UNAUDITED) (In thousands) Income Interest income $- $ 6 $ 17 $ 58 $ 53 Equity in earnings of subsidiary 395 307 1,530 1,302 1,676 --- --- ----- ----- ----- Total revenue 395 313 1,547 1,360 1,729 General and administrative expenses 29 32 122 135 102 ---- ---- ------ ------ ------ Earnings before income tax 366 281 1,425 1,225 1,627 Federal income tax credits (10) (9) (36) (26) (16) ---- ----- ------- ------- ------- NET EARNINGS $376 $290 $1,461 $1,251 $1,643 === === ===== ===== ===== Wayne Savings Bancshares, Inc. STATEMENTS OF CASH FLOWS THREE MONTHS ENDED YEARS ENDED JUNE 30, MARCH 31, 2001 2000 2001 2000 1999 (UNAUDITED) (In thousands) Cash flows from operating activities: Net earnings for the period $376 $290 $1,461 $1,251 $1,643 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Excess contributions (undistributed earnings) of consolidated subsidiary 34 (307) (769) (1,238) 324 Increase (decrease) in cash due to changes in: Prepaid expenses and other assets (17) 43 44 (2) (25) Other liabilities (78) (19) 72 (30) (8) ---- ---- ------- ------- -------- Net cash provided by (used in) operating activities 315 7 808 (19) 1,934 Cash flows provided by (used in) financing activities: Payment of dividends on common stock (205) (200) (1,058) (882) (725) Purchase of treasury stock - at cost (140) - (358) (177) (431) Proceeds from exercise of stock options - 27 50 11 87 -- ---- ------- ------ ------ Net cash used in financing activities (345) (173) (1,366) (1,048) (1,069) --- --- ----- ----- ----- Net increase (decrease) in cash and cash equivalents (30) (166) (558) (1,067) 865 Cash and cash equivalents at beginning of period 86 644 644 1,711 846 ---- --- ------ ----- ------ Cash and cash equivalents at end of period $ 56 $478 $ 86 $ 644 $1,711 ==== === ======= ====== =====
F-35 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE M - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following table summarizes the Company's quarterly results for the fiscal years ended March 31, 2001 and 2000.
FOR THE THREE MONTH PERIODS ENDED JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, 2000 2000 2000 2001 (In thousands, except share data) Total interest income $5,337 $5,358 $5,388 $5,416 Total interest expense 3,161 3,248 3,321 3,370 ----- ----- ----- ----- Net interest income 2,176 2,110 2,067 2,046 Provision for losses on loans 51 22 2 21 Other income 218 259 289 279 General, administrative and other expense 1,904 1,791 1,758 1,680 ----- ----- ----- ----- Earnings before income taxes 439 556 596 624 Federal income taxes 149 191 201 213 ------ ------ ------ ------ Net earnings $ 290 $ 365 $ 395 $ 411 ====== ====== ====== ====== Earnings per share Basic $.11 $.14 $.15 $.16 === === === === Diluted $.11 $.14 $.15 $.16 === === === === FOR THE THREE MONTH PERIODS ENDED JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, 1999 1999 1999 2000 (In thousands, except share data) 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 === === === ===
F-36 WAYNE SAVINGS BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three months ended June 30, 2001 and 2000 (unaudited) and years ended March 31, 2001, 2000, and 1999 NOTE N - REORGANIZATION AND CHANGE OF CORPORATE FORM (UNAUDITED) The Board of Directors of Wayne Savings Bankshares, M.H.C (the "M.H.C.")adopted a Plan of Conversion (the "Plan") on July 10, 2001. Pursuant to the Plan, the M.H.C. will convert from the mutual holding company form of organization to the fully public form. Wayne Savings Bankshares, M.H.C., the mutual holding company parent of Wayne Savings Bancshares, Inc., will be merged into Wayne Savings Community Bank, and Wayne Savings Bankshares, M.H.C. will no longer exist. Pursuant to the Plan, Wayne Savings Bancshares, Inc., which owns 100% of Wayne Savings Community Bank, also will be succeeded by a new Delaware corporation with the same name. As part of the conversion, 1,350,699 shares of common stock of Wayne Savings Bancshares, Inc. representing the 52.5% ownership interest of Wayne Savings Bankshares, M.H.C., will be offered for sale in the subscription and community offering. Following the completion of the conversion, all of the capital stock of Wayne Savings Community Bank will be held by Wayne Savings Bancshares, Inc. Under the Plan, at the conclusion of the conversion and related offering, each share of Wayne Savings Bancshares, Inc. common stock held by persons other than Wayne Savings Bankshares, M.H.C. will be converted automatically into and become a right to receive new shares of Wayne Savings Bancshares, Inc. common stock determined pursuant to the exchange ratio. The exchange ratio will ensure that immediately after the conversion and the share exchange, the public stockholders of Wayne Savings Bancshares, Inc. common stock will own the same aggregate percentage of Wayne Savings Bancshares, Inc. common stock that they owned immediately prior to the conversion. The rights of Wayne's depositors in liquidation in the conversion to stock form will be maintained by the in an amount equal to the retained earnings of Wayne Savings reflected in the statement of financial condition used in the conversion offering circular. The liquidation account will be maintained for the benefit of eligible savings account holders who maintained deposit accounts in Wayne after the conversion. F-37 -------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY WAYNE SAVINGS BANCSHARES, INC. OR WAYNE SAVINGS COMMUNITY BANK. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF WAYNE SAVINGS BANCSHARES, INC. OR WAYNE SAVINGS COMMUNITY BANK SINCE ANY OF THE DATES AS OF WHICH INFORMATION IS FURNISHED HEREIN OR SINCE THE DATE HEREOF. UP TO 2,070,000 SHARES (ANTICIPATED MAXIMUM) WAYNE SAVINGS BANCSHARES, INC. (HOLDING COMPANY FOR WAYNE SAVINGS COMMUNITY BANK) COMMON STOCK PAR VALUE $0.10 PER SHARE ------------------ PROSPECTUS ------------------ RYAN BECK & CO. NOVEMBER ____, 2001 ---------------- THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT FEDERALLY INSURED OR GUARANTEED. UNTIL ____________ OR 25 DAYS AFTER COMMENCEMENT OF THE SYNDICATED COMMUNITY OFFERING, IF ANY, WHICHEVER IS LATER, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OF SUBSCRIPTIONS. -------------------------------------------------------------------------------- PART II: INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS Article NINTH of the Certificate of Incorporation of Wayne Savings Bancshares, Inc. (the "Corporation") sets forth circumstances under which directors, officers, employees and agents of the Corporation may be insured or indemnified against liability which they incur in their capacities as such: NINTH: A. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a Director or an Officer of the Corporation or is or was serving at the request of the Corporation as a Director, Officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a Director, Officer, employee or agent or in any other capacity while serving as a Director, Officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in Section C hereof with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. B. The right to indemnification conferred in Section A of this Article NINTH shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a Director or Officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Section or otherwise. The rights to indemnification and to the advancement of expenses conferred in Sections A and B of this Article NINTH shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a Director, Officer, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators. C. If a claim under Section A or B of this Article NINTH is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation 2 (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article NINTH or otherwise shall be on the Corporation. D. The rights to indemnification and to the advancement of expenses conferred in this Article NINTH shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation's Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested Directors or otherwise. E. The Corporation may maintain insurance, at its expense, to protect itself and any Director, Officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. F. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article NINTH with respect to the indemnification and advancement of expenses of Directors and Officers of the Corporation. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
AMOUNT * Legal Fees and Expenses............................................ $ 200,000 * Printing, Postage, Mailing and EDGAR............................... 155,000 * Appraisal and Business Plan Fees and Expenses...................... 57,500 * Blue Sky Filing Fees and Expenses (including counsel fees)......... 5,000 * Accounting Fees and Expenses....................................... 75,000 * Conversion Agent and Data Processing Fees.......................... 30,000 ** Marketing Agent Fees and Expenses.................................. 250,000 * Marketing Agent Counsel Fees and expenses.......................... 35,000 * Filing Fees (OTS, NASD, Nasdaq and SEC)............................ 81,400 * Other Expenses..................................................... 45,000 -------------- * Total ............................................................. $ 933,900 ==============
------------------ * Estimated ** Wayne Savings Bancorp, Inc. has retained Ryan, Beck & Co., LLC to assist in the sale of common stock on a best efforts basis in the Offerings. Fees estimated at the midpoint of the offering range. ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES Not Applicable. 3 ITEM 27. EXHIBITS: The exhibits filed as part of this registration statement are as follows: (a) LIST OF EXHIBITS 1.1 Engagement Letter between the Registrant and Ryan, Beck & Co., LLC 1.2 Form of Agency Agreement between the Registrant and Ryan, Beck & Co., LLC 2 Plan of Conversion and Reorganization 3.1 Delaware Certificate of Incorporation of Wayne Savings Bancshares, Inc. (Included in Exhibit 2) 3.2 Delaware Bylaws of Wayne Savings Bancshares, Inc. (Included in Exhibit 2) 4 Form of Common Stock Certificate of Wayne Savings Bancshares, Inc. 5 Opinion of Luse Lehman Gorman Pomerenk & Schick regarding legality of securities being registered 8.1 Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick 8.2 Opinion of RP Financial, LC with respect to Subscription Rights 10.1 Form of Employment Agreement 10.2 Form of Change of Control Agreements 10.3 Subsidiaries of Registrant 23.1 Consent of Luse Lehman Gorman Pomerenk & Schick (contained in Opinions included on Exhibits 5 and 8.1) 23.2 Consent of Grant Thornton 23.3 Consent of RP Financial, LC 24 Power of Attorney (set forth on signature page) 99.1 Appraisal Agreement between the Registrant and RP Financial, LC 99.2 Appraisal Report of RP Financial, LC** 99.3 Marketing Materials* 99.4 Order and Acknowledgment Form* 99.5 Business Plan Agreement between the Registrant and RP Financial, LC 99.6 Special Meeting proxy Statement * To be filed supplementally or by amendment. ** Supporting financial schedules filed pursuant to Rule 202 of Regulation S-T. ITEM 28. UNDERTAKINGS The undersigned Registrant hereby undertakes: (1) File, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (i) Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)Reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any duration from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) Include any additional or changed material information on the plan of distribution. 4 (2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. The small business issuer will provide to the underwriter at the closing specified in the Underwriting Agreement certificates in such documentation and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the questions whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 5 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the city of Wooster, State of Ohio on September 17, 2001. WAYNE SAVINGS BANCSHARES, INC. By: /s/ Charles F. Finn ---------------------------------------- Charles F. Finn Chairman of the Board and President (Duly Authorized Representative) POWER OF ATTORNEY We, the undersigned directors and officers of Wayne Savings Bancshares, Inc. (the "Company") hereby severally constitute and appoint Charles F. Finn as our true and lawful attorney and agent, to do any and all things in our names in the capacities indicated below which said Charles F. Finn may deem necessary or advisable to enable the Company to comply with the Securities Act of 1933, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the registration statement on Form SB-2 relating to the offering of the Company's Common Stock, including specifically, but not limited to, power and authority to sign for us in our names in the capacities indicated below the registration statement and any and all amendments (including post-effective amendments) thereto; and we hereby approve, ratify and confirm all that said Charles F. Finn shall do or cause to be done by virtue thereof. In accordance with the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the dates stated.
SIGNATURES TITLE DATE /s/ Charles F. Finn Chairman of the Board and September 17, 2001 ----------------------- President (Principal Executive, Charles F. Finn Financial and Accounting Officer) /s/ Kenneth Rhode ----------------------- Director September 17, 2001 Kenneth Rhode /s/ Russell Harpster ----------------------- Director September 17, 2001 Russell Harpster /s/ Joseph Retzler ----------------------- Director September 17, 2001 Joseph Retzler /s/ Donald Massaro ----------------------- Director September 17, 2001 Donald Massaro /s/ Terry Gardner ----------------------- Director September 17, 2001 Terry Gardner /s/ James Morgan ---------------------- Director September 17, 2001 James Morgan
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 2001 REGISTRATION NO. 333- ================================================================================ --------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------------------- EXHIBITS TO REGISTRATION STATEMENT ON FORM SB-2 WAYNE SAVINGS BANCSHARES, INC. WOOSTER, OHIO ================================================================================ EXHIBIT INDEX 1.1 Engagement Letter between the Registrant and Ryan, Beck & Co., LLC 1.2 Form of Agency Agreement between the Registrant and Ryan, Beck & Co., LLC 2 Plan of Conversion and Reorganization 3.1 Delaware Certificate of Incorporation of Wayne Savings Bancshares, Inc. (Included in Exhibit 2) 3.2 Delaware Bylaws of Wayne Savings Bancshares, Inc. (Included in Exhibit 2) 4 Form of Common Stock Certificate of Wayne Savings Bancshares, Inc. 5 Opinion of Luse Lehman Gorman Pomerenk & Schick regarding legality of securities being registered 8.1 Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick 8.2 Opinion of RP Financial, LC with respect to Subscription Rights 10.1 Form of Employment Agreement 10.2 Form of Change of Control Agreements 10.3 Subsidiaries of Registrant 23.1 Consent of Luse Lehman Gorman Pomerenk & Schick (contained in Opinions included on Exhibits 5 and 8.1) 23.2 Consent of Grant Thornton 23.3 Consent of RP Financial, LC 24 Power of Attorney (set forth on signature page) 99.1 Appraisal Agreement between the Registrant and RP Financial, LC 99.2 Appraisal Report of RP Financial, LC** 99.3 Marketing Materials* 99.4 Order and Acknowledgment Form* 99.5 Business Plan Agreement between the Registrant and RP Financial, LC 99.6 Special Meeting Proxy Statement -------------------------------------------- * To be filed supplementally or by amendment. ** Supporting financial schedules filed pursuant to Rule 202 of Regulation S-T. EX-1.1 3 gex1_1-25709.txt EX-1.1 CONFIDENTIAL July 9, 2001 Mr. Charles F. Finn President & Chief Executive Officer Wayne Savings Bancshares, Inc. 151 North Market Street Wooster, OH 44691-4809 Mr. Charles F. Finn President & Chief Executive Officer Wayne Savings Bankshares, M.H.C. 151 North Market Street Wooster, OH 44691-4809 Re: "SECOND STEP" CONVERSION - SELLING AGENT SERVICES, PROXY SOLICITATION & ADMINISTRATIVE SERVICES Dear Mr. Finn: Ryan, Beck & Co. ("Ryan, Beck") is pleased to submit this engagement letter setting forth the terms of the proposed engagement between Ryan, Beck and Wayne Savings Bancshares, Inc. (the "Company") and Wayne Savings Bankshares, MHC (the "MHC") in connection with the proposed conversion and sale of the Common Stock of the Company held by Wayne Savings Bankshares, MHC. 1. BACKGROUND ON RYAN, BECK Ryan, Beck, Inc., was organized in 1946 and is one of the nation's leading investment bankers for financial institutions. The firm is a registered broker-dealer with the Securities and Exchange Commission, a member of the National Association of Securities Dealers, Inc., Securities Industry Association and a member of the Securities Investor Protection Corporation. Ryan, Beck's Financial Institutions Group, including corporate finance and research, represents one of the largest such groups devoted solely to financial institutions matters in the country. Moreover, Ryan, Beck is one of the largest market makers in bank and thrift stocks. 2. SECOND STEP STOCK OFFERING It is our understanding that the Company proposes to issue shares of common stock of the Company held by the MHC in a subscription offering with any remaining shares sold in a community offering (collectively the "Offering"). Shares sold in the Offering shall represent those shares representing the final independent appraisal times the adjusted majority Mr. Charles F. Finn July 9, 2001 Page 2 ownership of the MHC. In connection therewith, the Company's Board of Directors will adopt a reorganization and stock issuance plan (the "Plan") whereby shares of Common Stock will be offered for sale in the Offering. Ryan, Beck proposes to act as financial advisor to the Company with respect to the Plan and selling agent with respect to the subscription and community offering. Specific terms of services shall be set forth in a definitive agency agreement (the "Definitive Agreement") between Ryan, Beck and the Company to be executed on the date the offering document is declared effective by the appropriate regulatory authorities. The Definitive Agreement will include customary representations and warranties, covenants, conditions, termination provisions and indemnification, contribution and limitation of liability provisions, all to be mutually agreed upon by Ryan, Beck and the Company (and its successors). Ryan, Beck's willingness to execute a Definitive Agreement and conduct the Offering will be subject to its satisfaction, in its sole discretion and judgment, with a number of other factors, including but not limited to the following: i. there being no material adverse change in the condition or operation of the Company; ii. satisfactory disclosure of all relevant financial information in the disclosure documents and determination that the sale of the securities is reasonable given such disclosures; iii. the current financial position, earnings performance and future prospects of the Company; iv. receipt of a "comfort letter" from the Company's accountants containing no material exceptions; and v. the condition of the credit and equity markets and particularly as they relate to securities of financial institutions. 3. SERVICES TO BE PROVIDED BY RYAN, BECK a. ADVISORY SERVICES - Thorough planning is essential to a successful offering. Ryan, Beck serves as lead coordinator of the marketing and logistic efforts necessary to prepare for an offering. Our actions are intended to clearly define responsibilities and timetables, while avoiding costly surprises. We assume responsibility for the initial preparation of marketing materials--saving you time and legal expense. Moreover, as your investment banker, Ryan, Beck will evaluate the financial, marketing and regulatory issues involved in the Offering. Our specific responsibilities include: - Review and advice with respect to the Plan; - Review and provide input with respect to the Business Plan to be prepared in connection with the Reorganization; - Participate in drafting the Prospectus and assist in obtaining all requisite regulatory approvals on terms most favorable to the Company; - Review and opine to the Board of Directors on the adequacy of the appraisal process; - Develop a marketing plan for the Offering including direct mail, advertising, community meetings and telephone solicitation; - Provide specifications and assistance in selecting data processing assistance, printer and other professionals; Mr. Charles F. Finn July 9, 2001 Page 3 - Develop an operating plan for the Stock Sale Center (the "Center"); - Provide a list of equipment and supplies needed for the Center; - Draft marketing materials including letters, brochures, slide show script and advertisements; and - Assist in arranging market-makers for post-reorganization trading. b. ADMINISTRATIVE SERVICES AND STOCK SALE CENTER MANAGEMENT - Ryan, Beck will manage all aspects of the Offering. A --------------------------------------------------------- successful Offering requires an enormous amount of attention to detail. Working knowledge and familiarity with the law and "lore" of bank regulators, Securities and Exchange Commission and National Association of Securities Dealers is essential. Ryan, Beck's experience in managing many thrift reorganizations and second step conversion offerings will minimize the burden on your management and disruption to normal banking business. At the same time, our legal, accounting and regulatory background ensures that details are attended to in a professional fashion. An Offering requires accurate and timely record keeping and reporting. Furthermore, customer inquiries must be handled professionally and accurately. The Center centralizes all data and work effort relating to the Offering. - Provide experienced on-site registered representatives to minimize disruption of day-to-day business; - Identify and organize space for the Center, the focal point of sales and proxy solicitation activity; - Administer the Center. All substantive stock and proxy related matters will be handled by employees of Ryan, Beck; - Organize and implement all proxy solicitation efforts; - Prepare procedures for processing proxies, stock orders and cash, and for handling requests for information; - Ryan, Beck will outsource all reorganization agent/data processing/transfer agent function - Provide scripts, training and guidance for the telephone team in soliciting proxies and in the stock sales telemarketing effort; - Educate the Company's directors, officers and employees about the Reorganization and Offering, their roles and relevant securities laws; - Train branch managers and customer-contact employees on the proper response to stock purchase inquiries; - Train and supervise Center staff assisting with proxy and order processing; - Prepare daily sales reports for management and ensure funds received balance to such reports; - Coordinate functions with the data processing agent, printer, transfer agent, stock certificate printer and other professionals; - Design and implement procedures for handling IRA and other retirement plan orders; and - Provide post-offering subscriber assistance and management of the pro-ration process. c. SECURITIES MARKETING SERVICES - Ryan, Beck uses various sales techniques including direct mail, advertising, community investor meetings, telephone solicitation, and if necessary, selling group formation. The sales approach is tailored to fit your specific situation. Our techniques are Mr. Charles F. Finn July 9, 2001 Page 4 designed to attract a stockholder base comprised largely of community-oriented individuals loyal to the Company. Our specific actions include: - Assign licensed registered representatives from our staff to work at the Center to solicit orders on behalf of the Company from eligible prospects who have been targeted as likely and desirable stockholders; - Assist management in developing a list of potential investors who are viewed as priority prospects; - Respond to inquiries concerning the Offering and investment opportunities; - Organize, coordinate and participate in community informational meetings. These meetings are intended to both relieve customer anxiety and attract potential investors. The meetings generate widespread publicity for the Offering while providing local exposure of the Company and promoting favorable stockholder relations; - Supervise and conduct a telemarketing campaign to identify prospects from among the Company's customer base; - Continually advise management on market conditions and the community's responsiveness to the Offering; - If appropriate and at the request of the Company, arrange a syndicated community Offering involving a selling group of selected broker-dealers acting on a "best efforts" basis to assist in selling stock during the Offering. In so doing, prepare broker "fact sheets" and arrange "road shows" for the purpose of stimulating interest in the stock and informing the brokerage community of the particulars of the Offering. - Coordinate efforts to maximize after-market support and Company sponsorship. 4. COMPENSATION a. For its services hereunder, the Company will pay to Ryan, Beck the following compensation in connection with the Reorganization and Offering. (1) An advisory and management fee of $50,000 in connection with the advisory, administrative and proxy solicitation services set forth in section 3.a. and 3.b. hereof (the "Management Fee"); the Management Fee shall be payable as follows: $25,000 upon signing this Agreement and $25,000 upon the initial filing of the Registration Statement. (2) A fee of one and one half percent (1.50%) of the dollar amount of the Common Stock sold in the Offering other than those shares sold pursuant to (3) below, provided that the aggregate fee under 4a (1) and 4a (2) shall not exceed $350,000. No fee shall be payable pursuant to this subsection in connection with the sale of stock to officers, directors, employees or immediate family of such persons ("Insiders") and qualified and non-qualified employee benefit plans of the Company or the Insiders. Mr. Charles F. Finn July 9, 2001 Page 5 (3) For stock sold by a group of NASD member firms (which will include Ryan, Beck & Co.) pursuant to a syndicated community offering solely managed by Ryan, Beck (the "Selling Group"), a fee equal to one and one half percent (1.50%) which fee along with the fee payable directly by the Company to selected dealers shall not exceed seven percent (7.00%) in the aggregate. Ryan, Beck will not commence sales of the stock through members of the Selling Group without the specific prior approval of the Company. Such fees (less the amount of any advance payments) are to be paid to Ryan, Beck at the closing of the Offering. If, pursuant to a resolicitation undertaken by the Company, Ryan, Beck is required to provide significant additional services, or expend significant additional time, the parties shall mutually agree to the dollar amount of the additional compensation due. b. If (i) the Plan is abandoned or terminated by the Company; (ii) the Offering is not consummated by June 30, 2002; (iii) Ryan, Beck terminates this relationship because there has been a material adverse change in the financial condition or operations of the Company since March 31, 2001; or (iv) immediately prior to commencement of the Offering, Ryan, Beck terminates this relationship because in its opinion, which shall have been formed in good faith after reasonable determination and consideration of all relevant factors, there has been a failure to satisfactorily disclose all relevant information in the disclosure documents or the existence of market conditions which might render the sale of the shares by the Company hereby contemplated inadvisable; Ryan, Beck shall not be entitled to the fees set forth above under subparagraph (a), but in addition to reimbursement of its reasonable out-of-pocket expenses as set forth in paragraph 7 below, shall be entitled to retain the Management Fee already paid. 5. DOCUMENTS The Company and its counsel will complete, file with the appropriate regulatory authorities and, as appropriate, amend from time to time, the information to be contained in the Company's applications to banking and securities regulators and any related exhibits thereto. In this regard, the Company and its counsel will prepare a prospectus and any other necessary disclosure documents relating to the offering of the Common Stock in conformance with applicable rules and regulations. As the Company's financial advisor, Ryan, Beck will in conjunction with counsel, conduct an examination of the relevant documents and records of the Company and will make such other reasonable investigation as deemed necessary and appropriate under the circumstances. The Company agrees to make all such documents, records and other information deemed necessary by Ryan, Beck, or its counsel, available to them upon reasonable request. Ryan, Beck's counsel will prepare, subject to the approval of the Company's counsel, the Definitive Agreement. Ryan, Beck's counsel shall be selected by Ryan, Beck, subject to the approval of the Company. 6. EXPENSES AND REIMBURSEMENT The Company will bear all of its expenses in connection with the Reorganization and the Offering of its Common Stock including, but not limited to, the Company's attorney fees, NASD filing fees, "blue sky" legal fees, expenses for appraisal, auditing and accounting services, advertising expenses, printing Mr. Charles F. Finn July 9, 2001 Page 6 expenses, "road show" expenses, syndicate related expenses, temporary personnel expenses and the preparation of stock certificates. In the event Ryan, Beck incurs such expenses on behalf of the Company, the Company shall pay or reimburse Ryan, Beck for such reasonable fees and expenses regardless of whether the Reorganization is successfully completed. Ryan, Beck will not incur any single expense of more than $2,000, pursuant to this paragraph without the prior approval of the Company. The Company also agrees to reimburse Ryan, Beck for reasonable out-of-pocket expenses, including legal fees and expenses, incurred by Ryan, Beck in connection with the services contemplated hereunder. Ryan, Beck will not incur legal fees (including expenses of councel) in excess of $35,000 without the approval of the Company. Other out-of-pocket expenses directly incurred by Ryan, Beck will not exceed $25,000,exclutive of legal, without the approval of the Company. The parties acknowledge, however, that such caps may be increased by the mutual consent of the Company and Ryan, Beck in the event of any material delay in the Offering which would require an update of the financial information in tabular form contained in the Prospectus for a period later than June 30, 2001. Not later than two days before closing, we will provide you with a detailed accounting of all reimbursable expenses to be paid at closing. 7. MARKET MAKING Ryan, Beck agrees to use its best efforts to maintain a market and if necessary solicit other broker dealers to make a market in the Common Stock after the "Second Step Conversion". 8. INFORMATION TO BE SUPPLIED; DOCUMENTS AND CONFIDENTIALITY a. The Company and its counsel will complete, file with the appropriate regulatory authorities and, as appropriate, amend from time to time, the information to be contained in the Company applications to banking and securities regulators and any related exhibits thereto. In this regard, the Company and its counsel will prepare a prospectus and any other necessary disclosure documents relating to the offering of the Common Stock in conformance with applicable rules and regulations. As the Company's financial advisor, Ryan, Beck will in conjunction with counsel, conduct an examination of the relevant documents and records of the Company and will make such other reasonable investigation as deemed necessary and appropriate under the circumstances. b. The Company acknowledges that all advice (written or oral) given by Ryan, Beck to the Company is intended solely for the benefit and use of the Company. Other than to the extent required to be reflected in Board and committee meeting minutes, no advice (written or oral) of Ryan, Beck hereunder shall be used, reproduced, disseminated, quoted or referred to at any time, in any manner, or for any purpose, nor shall any public references to Ryan, Beck be made by the Company (or such persons), without the prior written consent of Ryan, Beck. c. Ryan, Beck will maintain the confidentiality of the Information and, unless and until such information shall have been made publicly available by the Company or by others without breach of a confidentiality agreement, shall disclose the Information only as authorized by the Company Mr. Charles F. Finn July 9, 2001 Page 7 or as required by law or by order of a governmental authority or court of competent jurisdiction. In the event that Ryan, Beck is legally required to make disclosure of any of the Information, Ryan, Beck will give notice to the Company prior to such disclosure, to the extent that Ryan, Beck can practically do so. The foregoing paragraph shall not apply to information that: i. at the time of disclosure by the Company is, or thereafter becomes, generally available to the public or within the industries in which the Company or Ryan, Beck or its affiliates conduct business, other than as a result of a breach by Ryan, Beck of its obligations under this Agreement; ii. prior to or at the time of disclosure by the Company, was already in the possession of, or conceived by, Ryan, Beck or any of its affiliates, or could have been developed by them from information then in their possession, by the application of other information or techniques in their possession, generally available to the public, or available to Ryan, Beck or its affiliates other than from the Company; iii. at the time of disclosure by the Company or thereafter, is obtained by Ryan, Beck or any of its affiliates from a third party who Ryan, Beck reasonably believes to be in possession of the information not in violation of any contractual, legal or fiduciary obligation to the Company with respect to that information; or iv. is independently developed by Ryan, Beck or its affiliates. d. In connection with Ryan, Beck's activities on behalf of the Company, the Company will furnish Ryan, Beck with all financial and other information regarding the Company that Ryan, Beck reasonably believes appropriate to its assignment (all such information so furnished by the Company, whether furnished before or after the date of this Agreement, being referred to herein as the "Information"). The Company will provide Ryan, Beck with access to the officers, directors, employees, independent accountants, legal counsel and other advisors and consultants for the Company. The Company recognizes and agrees that Ryan, Beck: i. will use and rely primarily on the Information and information available from generally recognized public sources in performing the services contemplated by this Agreement without independently verifying the Information or such other information; ii. does not assume responsibility for the accuracy of the Information or such other information; and iii. will not make an appraisal of any assets or liabilities owned or controlled by the Company or its market competitors. e. Nothing in this Agreement shall be construed to limit the ability of Ryan, Beck or its affiliates to pursue, investigate, analyze, invest in, or engage in investment banking, financial advisory or any other business relationships with, entities other than the Company, notwithstanding that such entities may be engaged in a business which is similar to or competitive with the business of the Company, and notwithstanding that such entities may have actual or potential operations, products, services, plans, ideas, customers or supplies similar or identical to the Company, or may have been identified by the Company as potential merger or acquisition targets or potential Mr. Charles F. Finn July 9, 2001 Page 8 candidates for some other business combination, cooperation or relationship. The Company expressly acknowledges and agrees that it does not claim any proprietary interest in the identity of any other entity in its industry or otherwise, and that the identity of any such entity is not confidential information. 9. BLUE SKY To the extent required by applicable state law, Ryan, Beck and the Company will need to obtain or confirm exemptions, qualifications or registration of the Common Stock under applicable state securities laws and NASD policies. Such work will be performed by the Company's counsel and the cost of such legal work and related filing fees will be paid by the Company. The Company will cause the counsel performing such services to prepare a Blue Sky memorandum related to the Offering including Ryan, Beck's participation therein and shall furnish Ryan, Beck a copy thereof addressed to Ryan, Beck or upon which such counsel shall state Ryan, Beck may rely. 10. AVAILABILITY OF "STARS" PROGRAM As an additional service to the Company, Ryan, Beck will make available for a period of 1 year following the completion of the Offering, advisory services through the Ryan, Beck Strategic Advisory Services ("STARS") program. The undersigned will serve as the senior relationship manager for this program. If the Company elects to avail itself of the STARS program, Ryan, Beck will meet with the Company at its request. Ryan, Beck also will provide opinions and recommendations, upon request, for the areas covered below: Valuation Analysis Merger and Acquisition Planning and Analysis Merger and Acquisition Trends Planning, Forecasting & Competitive Strategy Capital, Asset & Liability Structure & Management Stock Repurchase Programs Dividend Policy Dividend Reinvestment Programs Market Development and Sponsorship of Bank Securities Financial Disclosure Financial Relations Financial Reports Branch Sales and Purchases Stock Benefit Plan Analysis and Advisory Stockholder & Investor Relations Presentations & Programs Fairness Opinions Mr. Charles F. Finn July 9, 2001 Page 9 Scanning of Potential Acquisition Candidates Based on Published Statement Information (This screening does not extend to any in-depth merger and acquisition analyses or studies which are available under Ryan, Beck's normal fee schedule, and does not include retention of Ryan, Beck by the Company for any specific merger/acquisition situation.) If the Company elects to utilize the STARS program Ryan, Beck will waive the regular retainer fee and hourly charges for this program for the first year. The Company also will reimburse Ryan, Beck's reasonable out-of-pocket expenses incurred in conjunction with the performance of these services. Such out-of-pocket expenses shall include travel, legal and other miscellaneous expenses. Ryan, Beck will not incur any single expense in excess of $2,000 pursuant to this paragraph without the prior approval of the Company. If negotiations for a transaction conducted during the term of the STARS Advisory Agreement described above result in the execution of a definitive agreement and/or consummation of a transaction for which Ryan, Beck customarily would be entitled to a fee for its advisory or other investment banking services, Ryan, Beck shall receive a contingent advisory fee ("Advisory Fee") in accordance with the terms of a separate engagement letter with respect to such transaction. 11. INDEMNIFICATION The Definitive Agreement will provide for indemnification of the type usually found in underwriting agreements as to certain liabilities, including liabilities under the Securities Act of 1933. The Company also agrees to defend, indemnify and hold harmless Ryan, Beck and its officers, directors, employees and agents against all claims, losses, actions, judgments, damages or expenses, including but not limited to reasonable attorneys' fees, arising solely out of the engagement described herein, except that such indemnification shall not apply to Ryan, Beck's own bad faith, willful misconduct or gross negligence. 12. CONFIDENTIALITY To the extent consistent with legal requirements and except as otherwise set forth in the Prospectus, all information given to Ryan, Beck by the Company, unless publicly available or otherwise available to Ryan, Beck without restriction to breach of any confidentiality agreement ("Confidential Information"), will be held by Ryan, Beck in confidence and will not be disclosed to anyone other than Ryan, Beck's agents without the Company's prior approval or used for any purpose other than those referred to in this engagement letter. Upon any termination of its engagement, Ryan, Beck shall promptly deliver to the Company all materials specifically produced for it and will return to the Company all Confidential Information provided to Ryan, Beck during the course of its engagement hereunder. 13. NASD MATTERS Ryan, Beck has an obligation to file certain documents and to make certain representations to the National Association of Security Dealers ("NASD") in connection with the Reorganization. The Mr. Charles F. Finn July 9, 2001 Page 10 Company agrees to cooperate with Ryan, Beck and provide such information as may be necessary for Ryan, Beck to comply with all NASD requirements applicable to it in connection with its participation as contemplated herein in the Reorganization. Ryan, Beck is and will remain through completion of the Reorganization a member in a good standing of the NASD and will comply with all applicable NASD requirements. 14. OBLIGATIONS (a) Except as set forth below, this engagement letter is merely a statement of intent. While Ryan, Beck and the Company agree in principle to the contents hereof and propose to proceed promptly and in good faith to work out the arrangements with respect to the Reorganization, any legal obligations between Ryan, Beck and the Company shall be only: (i) those set forth herein in paragraphs 2, 3 and 4 regarding services and payments; (ii) those set forth in paragraph 6 regarding reimbursement for certain expenses; (iii) those set forth in paragraph 11 regarding indemnification; (iv) those set forth in paragraph 12 regarding confidentiality; and (v) as set forth in a duly negotiated and executed Definitive Agreement. (b) The obligation of Ryan, Beck to enter into the Definitive Agreement shall be subject to there being, in Ryan, Beck's opinion, which shall have been formed in good faith after reasonable determination and consideration of all relevant factors: (i) no material adverse change in the condition or operation of the Company; (ii) satisfactory disclosure of all relevant information in the disclosure documents and a determination that the sale of stock is reasonable given such disclosures; (iii) no market conditions which might render the sale of the shares by the Company hereby contemplated inadvisable; and (iv) agreement that the price established by the independent appraiser is reasonable in the then prevailing market conditions. 15. INDEPENDENT CONTRACTOR; NO FIDUCIARY DUTY The Company acknowledges and agrees that it is a sophisticated business enterprise and that Ryan, Beck has been retained pursuant to this Agreement to act as financial advisor to the Company solely with respect to the matters set forth herein. In such capacity, Ryan, Beck shall act as an independent contractor, and any duties of Ryan, Beck arising out of its engagement pursuant to this Agreement shall be contractual in nature and shall be owed solely to the Company. Each party disclaims any intention to impose any fiduciary duty on the other. 16. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Florida applicable to contracts executed and to be wholly performed therein without giving effects to its conflicts of laws principles or rules. Any dispute hereunder shall be brought in a court in the State of Florida. 17. WAIVER OF TRIAL BY JURY Mr. Charles F. Finn July 9, 2001 Page 11 EACH OF RYAN, BECK AND THE COMPANY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) RELATED TO OR ARISING OUT OF THIS AGREEMENT. Please acknowledge your agreement to the foregoing by signing in the place provided below and returning one copy of this letter to our office together with the retainer payment in the amount of $25,000. We look forward to working with you. RYAN, BECK & CO., INC. BY: /s/ Ben A. Plotkin ------------------------------------------------------ Ben A. Plotkin, Chairman & Chief Executive Officer Accepted and Agreed to This Day of July, 2001 -------- WAYNE SAVINGS BANCSHARES, INC. BY: /s/ Charles F. Finn ------------------------------------------------------------------------ Charles F. Finn, President & Chief Executive Officer WAYNE SAVINGS BANKSHARES, MHC BY: /s/ Charles F. Finn ------------------------------------------------------------------------ Charles F. Finn, President & Chief Executive Officer Cc: Kenneth R. Lehman EX-1.2 4 gex1_2-25709.txt EX-1.2 KHHB&E DRAFT SEPTEMBER 14, 2001 WAYNE SAVINGS BANCSHARES, INC. (a Delaware-chartered Stock Corporation) Up to 2,070,000 Shares (Subject to Increase Up to 2,380,500 Shares) COMMON STOCK ($.10 Par Value) Subscription Price $10.00 Per Share AGENCY AGREEMENT __________, 2001 Ryan, Beck & Co., LLC 220 South Orange Avenue Livingston, NJ 07039-5817 Ladies and Gentlemen: Wayne Savings Bancshares, Inc., a federal-chartered stock corporation (the "Mid-Tier Holding Company"), Wayne Savings Bancshares, M.H.C., a federally-chartered mutual holding company which owns 52.5% of the common stock of the Mid-Tier Holding Company (the "MHC"), and Wayne Savings Community Bank, an Ohio savings and loan association (together with its subsidiaries, the "Bank") whose common stock is owned in its entirety by the Mid-Tier Holding Company (collectively, the "Primary Parties") hereby confirm, jointly and severally, their agreement with Ryan, Beck & Co., LLC (the "Agent"), as follows: SECTION 1. THE OFFERING. The MHC, in accordance with the Plan of Conversion and Reorganization adopted __________, 2001 (the "Plan"), intends to convert from a federally-chartered mutual holding company to a newly formed Delaware-chartered stock form corporation (the "Holding Company") which will offer stock on a priority basis to (i) Eligible Account Holders; (ii) Employee Plans of the Holding Company; (iii) Supplemental Account Holders; and (iv) Other Members (all capitalized terms used in this Agreement and not defined in this Agreement shall have the meanings set forth in the Plan). Pursuant to the Plan, the Holding Company is offering a minimum of 1,530,000 and a maximum of 2,070,000 shares of common stock, par value $.10 per share (the "Common Stock") (subject to an increase of up to 2,380,000 shares), in the Subscription Offering, and, if necessary, (i) the Community Offering and/or (ii) Syndicated Community Offering. Pursuant to the Plan, the Holding Company will offer and sell shares of its Common Stock (the "Shares") in the Subscription Offering, Community Offering, and/or Syndicated Community Offering (the "Offerings") and issue shares of the Holding Company to existing public shareholders of the Mid-Tier Holding Company in exchange for such shares (the "Exchange") so that, upon completion of the Offerings, 100% of the outstanding Common Stock of the Holding Company will be publicly held. The Holding Company will sell the Shares in the Offerings at $10.00 per share (the "Purchase Price"). If the number of Shares is increased or decreased in accordance with the Plan, the term "Shares" shall mean such greater or lesser number, where applicable. Pursuant to the Plan, in the Subscription Offering, the Holding Company will offer the Shares in descending order of priority to: (1) the Bank's depositors with aggregate account balances of $50 or more on June 30, 2000, subject to the allocation procedures and purchase limitations set forth in the Plan; (2) Employee Plans of the Company; (3) the Bank's depositors with aggregate account balances of $50 or more on the Supplemental Eligibility Record Date; and (4) Other Members. The Holding Company may offer Shares, if any, remaining after the Subscription Offering, in the Community Offering on a priority basis to the Mid-Tier Holding Company's public stockholders at the Voting Record Date, and then to the natural persons residing within the Ohio counties of Wayne, Ashland, Holmes, Medina and Stark, and then to the general public. In the event a Community Offering is held, it may be held at any time during or immediately after the Subscription Offering. Depending on market conditions, Shares available for sale but not subscribed for in the Subscription Offering or purchased in the Community Offering may be offered in the Syndicated Community Offering to the general public on a best efforts basis, as described in subsection 4(c) below. The Holding Company has filed with the U.S. Securities and Exchange Commission (the "Commission") Registration Statements on Form SB-2 (File No. 333-_____) and Form 8-A (File No. 333-_____) in order to register the Shares under the Securities Act of 1933, as amended (the "1933 Act"), and has filed such amendments thereto as have been required to the date hereof (the "Registration Statement"). The prospectus, as amended, included in the Registration Statement at the time it initially became effective is hereinafter called the "Prospectus," except that if any prospectus is filed by the Holding Company pursuant to Rule 424(b) or (c) of the regulations of the Commission under the 1933 Act differing from the prospectus included in the Registration Statement at the time it initially becomes effective, the term "Prospectus" shall refer to the prospectus filed pursuant to Rule 424(b) or (c) from and after the time said prospectus is filed with the Commission and shall include any supplements and amendments thereto from and after their dates of effectiveness or use, respectively. In connection with the Conversion, the MHC and the Mid-Tier Holding Company each filed with the Office of Thrift Supervision (the "OTS") an application for conversion to a stock company (the "Conversion Application") and amendments thereto as required by the OTS. The Holding Company has also filed with the OTS its application on Form H-(e)1-S (the "Holding Company Application") to become a unitary savings and loan holding company under the Home Owners Loan Act of 1933, as amended, and the regulations promulgated thereunder (the "HOLA"). Collectively, the Conversion Application and the Holding Company Application may also be termed the "Applications." SECTION 2. APPOINTMENT OF AGENT. Subject to the terms and conditions of this Agreement, the Primary Parties hereby appoint the Agent to consult with, advise and assist the Primary Parties with the solicitation of subscriptions and purchase orders for the Shares in connection with the sale of the Shares in the Offerings. 2 On the basis of the representations and warranties of the Primary Parties contained in, and subject to the terms and conditions of, this Agreement, the Agent accepts such appointment and agrees to use its best efforts to assist the Primary Parties with the solicitation of subscriptions and purchase orders for the shares and agrees to consult with and advise the Primary Parties as to the matters set forth in Section 3 of the letter agreement (the "Letter Agreement"), dated July 9, 2001, between the MHC, the Mid-Tier Holding Company and Agent (a copy of which is attached hereto as EXHIBIT A). It is acknowledged by the Primary Parties that the Agent shall not be obligated to purchase any Shares and shall not be obligated to take any action which is inconsistent with any applicable law, regulation, decision or order. The appointment of the Agent to provide services hereunder shall terminate upon consummation of the Offerings. If requested by the MHC or the Mid-Tier Holding Company, Agent may also assemble and manage a selling group of broker-dealers that are members of the National Association of Securities Dealers, Inc. ("NASD") to participate in the solicitation on a "best efforts" basis of purchase orders for the Shares (the "Assisting Brokers") under a selected dealer agreement ("Selected Dealer Agreement"), the form of which is set forth as EXHIBIT B to this Agreement. The Agent will distribute the Shares among dealers in the Syndicated Community Offering in a fashion which best meets the distribution objectives of the Bank and the Plan. The Agent will not commence the Syndicated Community Offering without the prior approval of the Primary Parties. SECTION 3. REFUND OF PURCHASE PRICE. In the event that the Conversion is not consummated for any reason, including but not limited to the inability to sell a minimum of 1,530,000 Shares during the Offerings (including any permitted extension thereof) or such other minimum number of Shares as shall be established consistent with the Plan and the Conversion Regulations, this Agreement shall terminate and any persons who have subscribed for any of the Shares shall have refunded to them within five (5) business days of the date of such termination the full amount which has been received from such person, together with interest as provided in the Prospectus. SECTION 4. FEES. In addition to the expenses specified in Section 9 hereof, as compensation for the Agent's services under this Agreement, the Agent has received or will receive the following fees from the Primary Parties: (a) An advisory and management fee and customer proxy solicitation of $50,000 shall be paid as follows: (i) $25,000 was paid upon execution of the Letter Agreement, and (ii) $25,000 shall be paid upon the initial filing of the Registration Statement. Fees for services shall be one and one half percent (1.5%) of the dollar amount of the Common Stock sold in the Offering which will be paid at Closing; provided, however, that such fees payable under this Section 4(a) shall not exceed $350,000. No fee shall be payable for stock sold in the Offering to officers, directors, employees or immediate family of such persons ("Insiders") and qualified and non-qualified employee benefit plans of the Company or the Insiders. The term "immediate family" includes spouse, siblings, parents and also children who reside within the same household as an officer, director or employee. (b) If any of the Shares remain unsubscribed after the Subscription Offering and Community Offering, at the request of the Holding Company, the Agent will form a group of 3 approved broker-dealer firms in accordance with Section 2 for purposes of the Syndicated Community Offering. The fees payable by the Holding Company pursuant to this subsection to the Agent will not exceed seven percent (7%) of the aggregate dollar amount of the Shares sold in the Syndicated Community Offering. Of such fee, the Agent will receive (1.5%) of the aggregate dollar amount of the shares sold pursuant to this subsection 4(b) as a management fee, and the Primary Parties will pay the remainder to the Assisting Brokers, which may include the Agent, in amounts relating to the number of Shares sold by such Assisting Brokers pursuant to this Section 4(b). All such fees payable under this Section 4(b) shall be in addition to all fees payable under Section 4(a). In the event that the Holding Company is required to resolicit subscribers for Shares in the Subscription Offering and Community Offering and the Agent is required to provide significant additional services in connection with such a resolicitation, the Primary Parties and the Agent shall mutually agree to the dollar amount of additional compensation due to the Agent and the Primary Parties shall pay such amount, if any. Until any agreement called for by this paragraph is reached, the Agent shall not incur expenses relating to any resolicitation in an amount that would cause the total expenses incurred by the Agent that are reimbursable by the Bank pursuant to Section 9 hereof to be greater than those permitted without the prior written consent of the Holding Company, which consent shall not be unreasonably withheld. SECTION 5. CLOSING. If the minimum number of Shares permitted to be sold in the Offerings on the basis of the most recently updated Appraisal (as defined in Section 6(g)) are subscribed for at or before the termination date of the Offerings (which may be extended), and the other conditions (including those in Section 10) to the completion of the Conversion are satisfied, the Holding Company agrees to issue the Shares on the Closing Date (as hereinafter defined) against payment therefor by the means authorized by the Plan and to deliver certificates evidencing ownership of the Shares in such authorized denominations and registrations directly to the purchasers thereof or as instructed as promptly as practicable after the Closing Date. The closing (the "Closing") shall be held at the offices of Klehr, Harrison, Harvey, Branzburg & Ellers LLP, Philadelphia, Pennsylvania, or at such other place as shall be agreed upon among the Primary Parties and the Agent, at 10:00 a.m., Eastern Time, on the business day selected by the Holding Company, which business day shall be no less than two business days following the giving of prior notice by the Holding Company to the Agent or at such other time as shall be agreed upon by the Primary Parties and the Agent. At the Closing, the Primary Parties shall deliver to the Agent by wire transfer in same-day funds the commissions, fees and expenses owing to the Agent as set forth in Sections 4 and 9 hereof and the opinions required hereby and other documents deemed reasonably necessary for the Agent shall be executed and delivered to effect the sale of the Shares as contemplated hereby and pursuant to the terms of the Prospectus; provided, however, that all out-of-pocket expenses to which the Agent is entitled under this Section 4 and 9 hereof shall be due and payable upon receipt by the Holding Company or the Bank of a written accounting therefor setting forth in reasonable detail the expenses incurred by the Agent. The hour and date upon which the Holding Company shall release the Shares for delivery in accordance with the terms hereof is referred to herein as the "Closing Date." SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE PRIMARY PARTIES. The Primary Parties jointly and severally represent and warrant to the Agent that: 4 (a) The MHC, the Mid-Tier Holding Company and the Bank have all such power, authority, authorizations, approvals and orders as may be required to enter into this Agreement, and, as of the Closing Date, the MHC, the Holding Company and the Bank will have all such power, authority, authorizations, approvals and orders as may be required to carry out the provisions and conditions hereof and to issue and sell the Shares as provided herein and as described in the Prospectus. The consummation of the Conversion, the execution, delivery and performance of this Agreement and the Letter Agreement and the consummation of the transactions contemplated herein have been duly and validly authorized by all necessary corporate action on the part of the MHC, the Holding Company and the Bank. This Agreement has been validly executed and delivered by the Primary Parties, and is a valid, legal and binding obligation of the Primary Parties, in each case enforceable in accordance with its terms, except as the legality, validity, binding nature and enforceability thereof may be limited by (i) bankruptcy, insolvency, moratorium, reorganization, conservatorship, receivership or other similar laws relating to or affecting the enforcement of creditors' rights generally, (ii) general equity principles regardless of whether such enforceability is considered in a proceeding in equity or at law, and (iii) the extent, if any, that the provisions of Sections 11 or 12 hereof may be unenforceable as against public policy. (b) The Registration Statement was declared effective by the Commission on __________, 2001. No stop order has been issued with respect to the Prospectus. No proceedings related to the Prospectus have been initiated or threatened by the Commission. At the time the Registration Statement, including the Prospectus contained therein (including any amendment or supplement thereto), became effective, the Registration Statement complied as to form with the 1933 Act and the regulations promulgated thereunder. The Registration Statement and the Prospectus did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. At the time any Rule 424(b) or (c) Prospectus was filed with the Commission and at the Closing Date referred to in Section 5, the Registration Statement, including the Prospectus (including any amendment or supplement thereto) and, when taken together with the Prospectus, any Blue Sky Application or Sales Information authorized for use by any of the Primary Parties in connection with the Offerings, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this Section 6(b) shall not apply to statements or omissions made in reliance upon and in conformity with written information furnished to the Primary Parties by the Agent expressly regarding the Agent for use under the caption " The Conversion - Plan of Distribution, Selling Agent Compensation."] (c) The Conversion Application has been approved by the OTS. The Conversion Application did, and will, as of the Closing Date comply as to form in all material respects with the Conversion Regulations and any other applicable rules and regulations of the OTS. (d) No order has been issued by the Commission preventing or suspending the use of the Registration Statement or the Prospectus and, except as disclosed in Schedule 6(d), no action by or before any such government entity to revoke any approval, authorization or order of 5 effectiveness related to the Conversion is, to the best knowledge of the Primary Parties, pending or threatened. (e) The Plan has been duly adopted by the Board of the MHC. To the best knowledge of the Primary Parties, except as disclosed in Schedule 6(d), no person has, or at the Closing Date will have, sought to obtain review of the final action of the OTS in approving the Plan or the Conversion Application or the Holding Company Application, pursuant to the HOLA or any other statute or regulation. (f) The Holding Company has filed the Holding Company Application with the OTS. As of the Closing Date, the OTS will have approved of the Holding Company's becoming a unitary savings and loan holding company with respect to the Bank. (g) RP Financial, LC, which prepared the appraisal of the faggregate pro forma market value of the Common Stock on which the Offerings were based (the "Appraisal"), has advised the Primary Parties in writing that it is independent with respect to each of the Primary Parties and the Primary Parties believe RP Financial, LC to be expert in preparing appraisals of savings institutions. (h) Grant Thornton LLP, which certified the financial statements filed as part of the Registration Statement and the Conversion Application, has advised the Primary Parties that it is an independent certified public accountant within the meaning of the Code of Ethics of the AICPA, and Grant Thornton LLP is, with respect to the Holding Company, the Bank and each subsidiary of the Bank, independent certified public accountants as required by the 1933 Act and the 1933 Act Regulations. (i) The financial statements and the notes thereto which are included in the Registration Statement and which are a part of the Prospectus present fairly in all material respects the financial condition and retained earnings of the Mid-Tier Holding Company and the Bank as of the dates indicated and the results of operations and cash flows for the periods specified. The financial statements comply in all material respects with the applicable accounting requirements of Title 12 of the Code of Federal Regulations, Regulation S-X of the Commission and generally accepted accounting principles ("GAAP") applied on a consistent basis during the periods presented, except as otherwise noted therein, and present fairly in all material respects the information required to be stated therein. The other financial, statistical and pro forma information and related notes included in the Prospectus present fairly the information shown therein on a basis consistent with the audited and any unaudited financial statements included in the Prospectus, and as to the pro forma adjustments, the adjustments made therein have been consistently applied on the basis described therein. (j) Since the respective dates as of which information is given in the Registration Statement, including the Prospectus; (i) there has not been any material adverse change in the financial condition, results of operation, earnings, capital, properties, business affairs or prospects of the Primary Parties considered as one enterprise, whether or not arising in the ordinary course of business; (ii) there have not been any material transactions entered into by any of the Primary Parties, other than those in the ordinary course of business; and (iii) the capitalization, liabilities, assets, properties and business of the Primary Parties conform in all 6 material respects to the descriptions thereof contained in the Prospectus and, none of the Primary Parties has any material liabilities of any kind, contingent or otherwise, except as disclosed in the Registration Statement or the Prospectus. (k) As of the Closing Date, the Holding Company will be a stock corporation duly organized and in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and to conduct its business as described in the Prospectus, and will be qualified to transact business and in good standing in Delaware and in each jurisdiction in which the conduct of business requires such qualification, unless the failure to qualify in one or more of such jurisdictions would not have a material adverse effect on the financial condition, results of operation, earnings, capital, properties, business affairs or prospects of the Primary Parties taken as a whole (a "Material Adverse Effect"). As of the Closing Date, the Holding Company will have obtained all licenses, permits and other governmental authorizations required for the conduct of its business, except those that individually or in the aggregate would not materially adversely affect the financial condition, earnings, or business of the Primary Parties taken as a whole; and as of the Closing Date, all such licenses, permits and governmental authorizations will be in full force and effect, and the Holding Company will be in compliance therewith in all material respects. (l) The Holding Company does not, and as of the Closing Date, will not own any equity securities or any equity interest in any business enterprise except as described in the Prospectus. (m) The Bank is a duly organized and validly existing Ohio savings and loan association, duly authorized to conduct its business as described in the Prospectus; the activities of the Bank are permitted by the rules, regulations and practices of the OTS; the Bank has obtained all licenses, permits and other governmental authorizations currently required for the conduct of its business, except those that individually or in the aggregate would not have a Material Adverse Effect; all such licenses, permits and other governmental authorizations are in full force and effect and the Bank is in good standing under the laws of State of Ohio and the Bank is duly qualified as a foreign corporation to transact business in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect; all of the issued and outstanding capital stock of the Bank after the Conversion will be duly and validly issued and fully paid and nonassessable; and the Holding Company will directly own all of the capital stock of the Bank free and clear of any mortgage, pledge, lien, encumbrance, claim or restriction of any kind. The Bank does not own equity securities or any equity interest in any other business enterprise except as otherwise described in the Prospectus or as are immaterial in amount and are not required to be described in the Prospectus. (n) The MHC is a federally chartered mutual holding company operating under the laws and regulations of the United States and under the supervision of the OTS and is in good standing under such laws. (o) The Mid-Tier Holding Company is a duly organized and validly existing federal-chartered stock corporation, duly authorized to conduct its business as described in the Prospectus; the activities of the Mid-Tier Holding Company are permitted by the rules, regulations and practices of the OTS; the Mid-Tier Holding Company has obtained all licenses, 7 permits and other governmental authorizations currently required for the conduct of its business, except those that, individually or in the aggregate, would not have a Material Adverse Effect; all such licenses, permits and other governmental authorizations are in full force and effect and the Mid-Tier Holding Company is in good standing under the laws of United States and the Mid-Tier Holding Company is duly qualified as a foreign corporation to transact business in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect. (p) The deposit accounts of the Bank are insured by the FDIC up to applicable limits. Upon consummation of the Conversion, the Bank will establish a liquidation account for the benefit of the Bank's depositors, in accordance with the Plan and the requirements of applicable Conversion Regulations. (q) As of the Closing Date, the Bank will be a wholly owned subsidiary of the Holding Company. (r) Upon consummation of the Conversion, the authorized, issued and outstanding capital stock of the Holding Company will be within the range set forth in the Prospectus under the caption "Capitalization" and no shares of Common Stock have been or will be issued and outstanding prior to the Closing Date; the shares of Common Stock to be subscribed for in the Offerings have been duly and validly authorized for issuance and, when issued and delivered by the Holding Company pursuant to the Plan against payment of the consideration calculated as set forth in the Plan and the Prospectus, will be duly and validly issued and fully paid and nonassessable; the issuance of the Shares is not subject to preemptive rights, except for the subscription rights granted pursuant to the Plan; and the terms and provisions of the shares of Common Stock will conform in all material respects to the description thereof contained in the Prospectus. Upon issuance of the Shares sold, good title to the Shares will be transferred from the Holding Company to the purchasers of Shares against payment therefor in the Offering as set forth in the Plan and the Prospectus. (s) The Primary Parties are not in violation of their respective certificates of incorporation or charter or their respective bylaws, or in material default in the performance or observance of any obligation, agreement, covenant, or condition contained in any contract, lease, loan agreement, indenture or other instrument to which they are a party or by which they, or any of their respective properties, may be bound which would result in a Material Adverse Effect. The consummation of the transactions contemplated herein and in the Plan will not (i) conflict with or constitute a breach of, or default under, the Certificate of Incorporation, charter or bylaws of any of the Primary Parties, or conflict with or constitute a breach of, or default under, any material contract, lease or other instrument to which any of the Primary Parties has a beneficial interest, or any applicable law, rule, regulation or order that is material to the financial condition of the Bank; (ii) violate any authorization, approval, judgment, decree, order, statute, rule or regulation applicable to the Primary Parties except for such violations which would not have a Material Adverse Effect on the financial condition and results of operations of the Bank or Holding Company; or (iii) result in the creation of any lien, charge or encumbrance upon any property of the Primary Parties, except for such liens, changes or encumbrances that would not individually or in the aggregate have a Material Adverse Effect. 8 (t) No default exists, and no event has occurred which with notice or lapse of time, or both, would constitute a default on the part of any of the Primary Parties, in the due performance and observance of any term, covenant or condition of any indenture, mortgage, deed of trust, note, bank loan or credit agreement or any other instrument or agreement to which any of the Primary Parties is a party or by which any of their property is bound or affected in any respect which, in any such case, would have a Material Adverse Effect on the Primary Parties taken as a whole, and such agreements are in full force and effect; and no other party to any such agreements has instituted or, to the best knowledge of any of the Primary Parties, threatened any action or proceeding wherein any of the Primary Parties is alleged to be in default thereunder under circumstances where such action or proceeding, if determined adversely to any of the Primary Parties, would have a Material Adverse Effect. (u) The Primary Parties have good and marketable title to all assets which are material to the businesses of the Primary Parties, free and clear of all liens, charges, encumbrances, restrictions or other claims, except such as are described in the Prospectus or which do not have a Material Adverse Effect; and all of the leases and subleases which are material to the businesses of the Primary Parties, including those described in the Registration Statement or Prospectus, are in full force and effect. (v) The Primary Parties are not in violation of any material directive from the OTS, the FDIC, or any other agency to make any material change in the method of conducting their respective businesses; the Primary Parties have conducted and are conducting their respective businesses so as to comply in all respects with all applicable statutes and regulations (including, without limitation, regulations, decisions, directives and orders of the OTS, the Commission and the FDIC), except where the failure to so comply would not reasonably be expected to result in a Material Adverse Effect, and there is no charge, investigation, action, suit or proceeding before or by any court, regulatory authority or governmental agency or body pending or, to the best knowledge of any of the Primary Parties, threatened, which would reasonably be expected to materially and adversely affect the Conversion, the performance of this Agreement, or the consummation of the transactions contemplated in the Plan as described in the Registration Statement, or which would reasonably be expected to result in a Material Adverse Effect. (w) Prior to the Closing Date, the Primary Parties will have received an opinion of their special counsel, Luse Lehman Gorman Pomerenk & Schick, with respect to the federal income tax consequences of the Conversion, as described in the Registration Statement and the Prospectus, and an opinion from Grant Thornton LLP with respect to the tax consequences of the Conversion under the laws of the State of Ohio; and the facts and representations upon which such opinions will be based, will be truthful, accurate and complete, and none of the Primary Parties will take any action inconsistent therewith. (x) The Mid-Tier Holding Company and the Bank have filed all required federal and state tax returns, paid all taxes that have become due and payable, except where permitted to be extended, and no deficiency has been asserted with respect thereto by any taxing authority. 9 (y) No approval, authorization, consent or other order of any regulatory or supervisory or other public authority is required for the execution and delivery by the Primary Parties of this Agreement, or the issuance of the Shares, except for the approval of the OTS and the Commission and any necessary qualification, notification, or registration or exemption under the securities or blue sky laws of the various states in which the Shares are to be offered. (z) None of the Primary Parties has: (i) issued any securities within the last 18 months (except for (a) notes to evidence bank loans or other liabilities in the ordinary course of business or as described in the Prospectus, and (b) shares of Common Stock issued with respect to the initial capitalization of the Holding Company); (ii) had any dealings with respect to sales of securities within the 12 months prior to the date hereof with any member of the NASD, or any person related to or associated with such member, other than discussions and meetings relating to the Offerings and purchases and sales of U.S. government and agency and other securities in the ordinary course of business; or (iii) engaged any intermediary between the Agent and the Primary Parties in connection with the Offerings or the offering of shares of the common stock of the Mid-Tier Holding Company, and no person is being compensated in any manner for such services. (aa) The Primary Parties have not made any payment of funds of the Primary Parties as a loan to any person for the purchase of Shares, except for the Holding Company's loan to the employee stock ownership plan the proceeds of which will be used to purchase Shares, or has made any other payment or loan of funds prohibited by law, and no funds have been set aside to be used for any payment prohibited by law. (bb) The Bank complies in all material respects with the applicable financial record keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, and the regulations and rules thereunder. (cc) The Primary Parties have not relied upon Agent or its counsel for any legal, tax or accounting advice in connection with the Conversion. (dd) The records of Eligible Account Holders and Supplemental Eligible Account Holders and Other Members are accurate and complete in all material respects. (ee) The Primary Parties comply with all laws, rules and regulations relating to environmental protection, and none of them has been notified or is otherwise aware that any of them is potentially liable, or is considered potentially liable, under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or any other Federal, state or local environmental laws and regulations except to the extent that any non-compliance would not have a Material Adverse Effect; no action, suit, regulatory investigation or other proceeding is pending, or to the knowledge of the Primary Parties, threatened against the Primary Parties relating to environmental protection, nor do the Primary Parties have any reason to believe any such proceedings may be brought against any of them; and, to the knowledge of the Primary Parties, no disposal, release or discharge of hazardous or toxic substances, pollutants or contaminants, including petroleum and gas products, as any of such terms may be defined under federal, state or local law, has occurred on, in, at or about any facilities or properties owned or leased by any of the Primary Parties or in which the Bank has a security interest, 10 except to the extent such disposal, release or discharge would not have a Material Adverse Effect. (ff) All of the loans represented as assets on the recent developments or financial information of the Primary Parties included in the Prospectus meet or are exempt from all requirements of federal, state and local law pertaining to lending, including, without limitation, truth in lending (including the requirements of Regulations Z and 12 C.F.R. Part 226), real estate settlement procedures, consumer credit protection, equal credit opportunity and all disclosure laws applicable to such loans, except for violations which, if asserted, would not result in a Material Adverse Effect. (gg) None of the Primary Parties are required to be registered as an investment company under the Investment Company Act of 1940. (hh) Any certificates signed by an officer of any of the Primary Parties and delivered to the Agent or its counsel that refer to this Agreement shall be deemed to be a representation and warranty by the Primary Parties to the Agent as to the matters covered thereby with the same effect as if such representation and warranty were set forth herein. (ii) The Primary Parties have taken all actions necessary to obtain at closing a Blue Sky Memorandum from Luse Lehman Gorman Pomerenk & Schick. SECTION 7. REPRESENTATIONS AND WARRANTIES OF THE AGENT. Agent represents and warrants to the Primary Parties that: (a) Agent is a corporation and is validly existing and in good standing under the laws of the State of New Jersey with full power and authority to provide the services to be furnished to the Primary Parties hereunder. (b) The execution, delivery and performance of this Agreement and the Letter Agreement and the consummation of the transactions contemplated herein have been duly and validly authorized by all necessary corporate action on the part of Agent, and this Agreement is the legal, valid and binding agreement of Agent, enforceable in accordance with its terms, except as the legality, validity, binding nature and enforceability thereof may be limited by (i) bankruptcy, insolvency, moratorium, reorganization, conservatorship, receivership or other similar laws relating to or affecting the enforcement of creditors' rights generally, and (ii) general equity principles regardless of whether such enforceability is considered in a proceeding in equity or at law. (c) Each of Agent and its employees, agents and representatives who shall perform any of the services hereunder shall have, and until the Offerings are consummated or terminated shall maintain, all licenses, approvals and permits necessary to perform such services and shall comply in all material respects with all applicable laws and regulations in connection with the performance of such services. (d) No action, suit, charge or proceeding before the Commission, the NASD, any state securities commission or any court is pending, or to the knowledge of Agent 11 threatened, against Agent which, if determined adversely to Agent, would have a material adverse effect upon the ability of Agent to perform its obligations under this Agreement. (e) Agent is registered as a broker/dealer pursuant to Section 15(b) of the Securities Exchange Act of 1934, as amended (the "1934 Act") and is a member of the National Association of Securities Dealers, Inc. (f) Any funds received in the Offerings by the Agent will be handled by the Agent in accordance with Rule 15c2-4 under the 1934 Act to the extent applicable. SECTION 8. COVENANTS OF THE PRIMARY PARTIES. The Primary Parties hereby jointly and severally covenant with the Agent as follows: (a) The Holding Company will not, at any time after the date the Registration Statement is declared effective, file any amendment or supplement to the Registration Statement without providing the Agent and its counsel an opportunity to review and comment on such amendment or supplement. The Holding Company will furnish promptly to the Agent and its counsel copies of all correspondence from the Commission with respect to the Registration Statement and the Holding Company's responses thereto. (b) The Primary Parties will not, at any time after the date any Application is approved, file any amendment or supplement to such Application without providing the Agent and its counsel an opportunity to review and comment on such amendment or supplement. The Primary Parties will furnish promptly to the Agent and its counsel copies of all correspondence from the OTS with respect to the Applications and the Primary Parties' responses thereto. (c) The Primary Parties will use their best efforts to cause the OTS to approve the Holding Company's acquisition of the Bank, and will use their best efforts to cause any post-effective amendment to the Registration Statement to be declared effective by the Commission and any post-effective amendment to the Conversion Application to be approved by the OTS, as applicable, and will promptly upon receipt of any information concerning the events listed below notify the Agent (i) when the Registration Statement, as amended, has become effective; (ii) when the Conversion Application as amended, has received the approval of the OTS; (iii) when the Holding Company Application, as amended, has been approved by the OTS; (iv) of the receipt of any comments from the OTS or any other governmental entity with respect to the Conversion or the transactions contemplated by this Agreement; (v) of any request by the Commission, the OTS, or any other governmental entity for any amendment or supplement to the Registration Statement or the Applications or for additional information; (vi) of the issuance by the Commission or the OTS, or any other governmental agency of any order or other action suspending the Offerings or the use of the Registration Statement or the Prospectus or any other filing of the Primary Parties under the Conversion Regulations or other applicable law, or the threat of any such action; (vii) of the issuance by the Commission or the OTS, or any other state authority of any stop order suspending the effectiveness of the Registration Statement or of the initiation or threat of initiation or threat of any proceedings for that purpose; or (viii) of the occurrence of any event mentioned in subsection (f) below. The Primary Parties will make every reasonable effort to prevent the issuance by the Commission, the OTS, or any other state 12 authority of any order referred to in (vi) and (vii) above and, if any such order shall at any time be issued, to obtain the lifting thereof at the earliest possible time. (d) The Primary Parties will deliver to the Agent and to its counsel conformed copies of each of the following documents, with all exhibits: the Applications as originally filed and of each amendment or supplement thereto, and the Registration Statement, as originally filed and each amendment thereto. Further, the Primary Parties will deliver such additional copies of the foregoing documents to counsel to the Agent as may be required for any NASD filings. In addition, the Primary Parties will also deliver to the Agent such number of copies of the Prospectus, as amended or supplemented, as the Agent may reasonably request. (e) The Primary Parties will comply in all material respects with any and all terms, conditions, requirements and provisions with respect to the Conversion and the transactions contemplated thereby imposed by the Commission, by applicable state law and regulations, and by the 1933 Act, the 1934 Act, and the rules and regulations of the Commission promulgated under such Acts, to be complied with prior to the Closing Date; and when the Prospectus is required to be delivered, the Primary Parties will comply in all material respects, at their own expense, with all requirements imposed upon them by the OTS, the Conversion Regulations (except as modified or waived in writing by the OTS), the Commission, by applicable state law and regulations and by the 1933 Act, the 1934 Act and the rules and regulations of the Commission promulgated under such statutes, in each case as from time to time in force, so far as is necessary to permit the continuance of sales or dealing in shares of Common Stock during such period in accordance with the provisions hereof and the Prospectus. (f) During any period when the Prospectus is required to be delivered, each of the Primary Parties will inform the Agent of any event or circumstance of which it is or becomes aware as a result of which the Registration Statement and/or Prospectus, as then supplemented or amended, would include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading. If it is necessary, in the reasonable opinion of counsel for the Primary Parties, to amend or supplement the Registration Statement or the Prospectus in order to correct such untrue statement of a material fact or to make the statements therein not misleading in light of the circumstances existing at the time of their use, the Primary Parties will, at their expense, prepare, file with the Commission and the OTS, and furnish to the Agent, a reasonable number of copies of an amendment or amendments of, or a supplement or supplements to, the Registration Statement and the Prospectus (after a reasonable time for review by counsel for the Agent) which will amend or supplement the Registration Statement and/or the Prospectus so that as amended or supplemented it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances existing at the time, not misleading. For the purpose of this subsection, each of the Primary Parties will furnish such information with respect to itself as the Agent may from time to time reasonably request. (g) Pursuant to the terms of the Plan, the Holding Company will endeavor in good faith, in cooperation with the Agent, to register or to qualify the Shares for offering and sale or to exempt such Shares from registration and to exempt the Holding Company and its officers, directors and employees from registration as broker-dealers, under the applicable securities laws of the jurisdictions in which the Offering will be conducted; provided, however, 13 that the Holding Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation to do business in any jurisdiction in which it is not so qualified. In each jurisdiction where any of the Shares shall have been registered or qualified as above provided, the Holding Company will make and file such statements and reports as are requested in connection with such registration or qualification for a period of not less than one year from the effective date of the Registration Statement. (h) The Holding Company will not sell or issue, contract to sell or otherwise dispose of, for a period of 90 days after the date hereof, any shares of Common Stock or securities into or exercisable for shares of Common Stock, without the Agent's prior written consent other than in connection with any plan or arrangement described in the Prospectus. (i) For a period of three years from the date of this Agreement, the Holding Company will furnish to the Agent, as soon as practical after such information is available (i) a copy of each report of the Holding Company furnished to or filed with the Commission under the 1934 Act or any national securities exchange or system on which any class of securities of the Holding Company is listed or quoted, (ii) a copy of each report of the Holding Company mailed to holders of Common Stock, (iii) each press release and material news item and article released by the Holding Company and/or Bank, and (iv) from time-to-time, such other publicly available information concerning the Primary Parties as the Agent may reasonably request. (j) The Primary Parties will use the net proceeds from the sale of the Common Stock in the manner set forth in the Prospectus under the caption "Use of Proceeds." (k) The Holding Company and the Bank will distribute the Prospectus or other offering materials in connection with the offering and sale of the Common Stock only in accordance with the Conversion Regulations of the OTS, the 1933 Act and the 1934 Act and the rules and regulations promulgated under such statutes, and the laws of any state in which the shares are qualified for sale. (l) Prior to the Closing Date, the Holding Company shall register its Common Stock under Section 12(b) or 12(g) of the 1934 Act, and will request that such registration statement shall be effective no later than the completion of the Conversion. The Holding Company shall maintain the effectiveness of such registration for not less than three years. (m) For so long as the Shares are registered under the 1934 Act, the Holding Company will furnish to its stockholders as soon as practicable after the end of each fiscal year such reports and other information as are required to be furnished to its stockholders under the 1934 Act. (n) The Holding Company will report the use of proceeds of the Offering in accordance with Rule 463 under the 1933 Act. (o) The Primary Parties will maintain appropriate arrangements for depositing all funds received from persons mailing subscriptions for or orders to purchase Shares on an interest bearing basis as described in the Prospectus until the Closing Date and satisfaction of all conditions precedent to the release of the Holding Company's obligation to refund payments received from persons subscribing for or ordering Shares in the Offerings, in accordance with the 14 Plan as described in the Prospectus, or until refunds of such funds have been made to the persons entitled thereto or withdrawal authorizations canceled in accordance with the Plan and as described in the Prospectus. The Primary Parties will maintain such records of all funds received to permit the funds of each subscriber to be separately insured by the FDIC (to the maximum extent allowable) and to enable the Primary Parties to make the appropriate refunds of such funds in the event that such refunds are required to be made in accordance with the Plan and as described in the Prospectus. (p) The Holding Company will register as a unitary savings and loan holding company under HOLA. (q) The Primary Parties will take such actions and furnish such information as are reasonably requested by the Agent in order for the Agent to ensure compliance with the "Interpretation of the Board of Governors of the NASD on Free Riding and Withholding." (r) The Primary Parties will conduct their businesses in compliance in all material respects with all applicable federal and state laws, rules, regulations, decisions, directives and orders, including all decisions, directives and orders of the Commission, the FDIC and the OTS. (s) The Primary Parties shall comply with any and all terms, conditions, requirements and provisions with respect to the Conversion and the transactions contemplated thereby imposed by the OTS, the HOLA, the Commission, the 1933 Act, the Regulations, the 1934 Act and the regulations promulgated by the Commission pursuant to the 1934 Act to be complied with subsequent to the Closing Date. The Holding Company will comply with all provisions of all undertakings contained in the Registration Statement. (t) The Primary Parties will not amend the Plan without notifying the Agent prior thereto. (u) The Holding Company shall provide the Agent with any information necessary to allow the Agent to manage the allocation process in order to permit the Holding Company to carry out the allocation of the Shares in the event of an oversubscription, and such information shall be accurate and reliable in all material respects. (v) The Holding Company will not deliver the Shares until the Primary Parties have satisfied or caused to be satisfied each condition set forth in Section 10 hereof, unless such condition is waived in writing by the Agent. (w) Immediately upon completion of the sale by the Holding Company of the Shares contemplated by the Plan and the Prospectus and the completion of certain transactions necessary to implement the Plan, (i) all of the issued and outstanding shares of capital stock of the Bank shall be owned by the Holding Company, (ii) the Holding Company shall have no direct subsidiaries other than the Bank, and (iii) the Conversion shall have been effected in accordance with all applicable statutes, regulations, decisions and orders; and all terms, conditions, requirements and provisions with respect to the Conversion (except those that are conditions subsequent) imposed by the Commission, the OTS or any other governmental agency, if any, shall have been complied with by the Primary Parties in all material respects or 15 appropriate waivers shall have been obtained and all notice and waiting periods shall have been satisfied, waived or elapsed. (x) Prior to the Closing Date, the Plan shall have been approved by the voting members of the MHC and the stockholders of the Mid-Tier Holding Company in accordance with the Plan and the Conversion Regulations and the applicable provisions, if any, of the MHC's charter and bylaws. (y) On or before the Closing Date, the Primary Parties will have used their best efforts to obtain approval for quotation of shares of the Common Stock on the NASDAQ National Market System by the Closing Date and will use its best efforts to maintain such quotation and will have completed all conditions precedent to the Conversion specified in the Plan and the offer and sale of the Shares will have been conducted in all material respects in accordance with the Plan, the Conversion Regulations (except as modified or waived in writing by the OTS) and with all other applicable laws, regulations, decisions and orders, including all terms, conditions, requirements and provisions precedent to the Conversion imposed upon any of the Primary Parties by the OTS, the Commission or any other regulatory authority and in the manner described in the Prospectus. (z) The Holding Company shall notify the Agent when funds shall have been received for the minimum number of Shares set forth in the Prospectus. SECTION 9. PAYMENT OF EXPENSES. Whether or not the Conversion is completed or the sale and exchange of the Shares by the Holding Company is consummated, the Primary Parties will pay for all expenses incident to the performance of this Agreement, including without limitation: (a) the preparation and filing of the Application and Registration Statement; (b) the preparation, printing, filing, delivery and mailing of the Registration Statement, including the Prospectus, and all documents related to the Offerings and proxy solicitation; (c) all filing fees and expenses in connection with the qualification or registration of the Shares for offer and sale by the Holding Company or the Bank under the securities or "blue sky" laws, including without limitation filing fees, reasonable legal fees and disbursements of counsel in connection therewith, and in connection with the preparation of a blue sky law survey; (d) the filing fees of the NASD related to the Agent's fairness filing under NASD Rule 2710 and the application of the Holding Company to list its shares; (e) fees and expenses related to the preparation of the independent appraisal; (f) fees and expenses related to auditing and accounting services; (g) expenses relating to advertising, temporary personnel, investor meetings and stock information center; (h) transfer agent fees and costs of preparation and distribution of stock certificates; and (i) Nasdaq listing fees. The Primary Parties also agree to reimburse Agent for reasonable out-of-pocket expenses, including legal fees and expenses, incurred by Agent in connection with the services hereunder. Agent will not incur legal fees (excluding counsel's out-of-pocket expenses not to exceed $10,000) in excess of $35,000 without the approval of the Mid-Tier Holding Company. The Agent will not incur other out-of-pocket expenses in excess of $25,000 without prior approval of the Mid-Tier Holding Company. In the event that the Agent incurs any such expenses on behalf of the Primary Parties, the Primary Parties will pay or reimburse the Agent for such expenses regardless of whether the Conversion is successfully completed, and such reimbursements will not be included in the expense limitations set forth in the following paragraph. The Agent will not incur any single expense of more than $3,000 pursuant to this 16 paragraph without the prior approval of MHC or the Bank. The Primary Parties acknowledge, however, that such limitations may be increased by the mutual consent of the Bank and Agent in the event of delay in the Offering requiring the Agent to utilize a Syndicated Community Offering, a delay as a result of circumstances requiring material additional work by Agent or its counsel or an update of the financial information in tabular form contained in the Prospectus for a period later than September 30, 2001. Not later than two days prior to the Closing Date, the Agent will provide the Bank with a detailed accounting of all reimbursable expenses to be paid at the Closing. SECTION 10. CONDITIONS TO THE AGENT'S OBLIGATIONS. The obligations of the Agent hereunder and the occurrence of the Closing and the Conversion are subject to the condition that all representations and warranties of the Primary Parties herein contained are, at and as of the commencement of the Offering and at and as of the Closing Date, true and correct, the condition that the Primary Parties shall have performed, in all material respects, all of their obligations hereunder to be performed on or before such dates and to the following further conditions: (a) The Registration Statement shall have been declared effective by the Commission, the Conversion Application and Holding Company Application shall have been approved by the OTS and no stop order or other action suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission or any state authority and no order or other action suspending the authorization for use of the Prospectus or the consummation of the Conversion shall have been issued, or proceedings therefor initiated or threatened by the OTS, the Commission, or any other governmental body. (b) At the Closing Date, the Agent shall have received: (1) The opinion, dated as of the Closing Date, of Luse Lehman Gorman Pomerenk & Schick, and/or local counsel acceptable to the Agent, in form and substance satisfactory to the Agent and counsel for the Agent to the effect that: (i) The Holding Company is a corporation duly organized and validly existing and in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and to conduct its business as described in the Prospectus, and is duly qualified to transact business and is in good standing in Delaware and in each other jurisdiction in which the conduct of its business requires such qualification and except where the failure to qualify would have a Material Adverse Effect. (ii) On the date hereof, the Bank is a validly existing federally-chartered stock savings bank, and upon consummation of the Conversion, the Bank will continue to be a validly existing federally-chartered stock savings bank, with full power and authority to own its properties and to conduct its business as described in the Prospectus and to enter into this Agreement and perform its obligations hereunder; the activities of the 17 Bank as described in the Prospectus are permitted by federal law and the rules, regulations and practices of the FDIC and the OTS; the issuance and sale of the capital stock of the Bank to the Holding Company in the Conversion has been duly and validly authorized by all necessary corporate action on the part of the Holding Company and the Bank and, upon payment therefor in accordance with the terms of the Plan, will be validly issued, fully paid and nonassessable and will be owned of record and beneficially by the Holding Company, free and clear of any mortgage, pledge, lien, encumbrance, claim or restriction. Similarly, any subsidiaries of the Bank are validly existing corporations in good standing in the jurisdiction of incorporation and authorized under state and applicable federal law to conduct the businesses in which they now engage. (iii) The activities of the Mid-Tier Holding Company, the MHC and the Bank, as described in the Prospectus, are permitted for savings and loan holding companies, mutual holding companies and a federally-chartered stock holding company under applicable federal law. To the best of such counsel's knowledge, each of the MHC, the Mid-Tier Holding Company and the Bank has obtained all licenses, permits, and other governmental authorizations that are material for the conduct of its business, and all such licenses, permits and other governmental authorization are in full force and effect, and to the best of such counsel's knowledge the Mid-Tier Holding Company and the Bank comply therewith in all material respects. (iv) The Bank is an insured depository institution under the provisions of the Federal Deposit Insurance Act, as amended, and to such counsel's knowledge, no proceedings for the termination or revocation of the federal or state deposit insurance of the Bank are pending or threatened. (v) Upon consummation of the Conversion, (a) the authorized, issued and outstanding capital stock of the Holding Company will be within the range set forth in the Prospectus under the caption "Capitalization," and no shares of Common Stock have been or will be issued and outstanding prior to the Closing Date (except for the shares issued upon incorporation of the Holding Company to facilitate the Conversion); (b) the shares to be subscribed for in the Offerings will have been duly and validly authorized for issuance, and when issued and delivered by the Holding Company pursuant to the Plan against payment of the consideration calculated as set forth in the Plan, will be fully paid and nonassessable; and (c) the issuance of the Shares is not subject to preemptive rights under the charter, certificate of incorporation or bylaws of the Holding Company, or arising or outstanding by operation of law or, under any contract, indenture, agreement, instrument or other document known to such counsel, except for the subscription rights under the Plan. 18 (vi) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Primary Parties; and this Agreement constitutes a valid, legal and binding obligation of each of the Primary Parties, enforceable in accordance with its terms, except as rights to indemnity and contribution thereunder may be limited under applicable law, subject to the qualification that (i) enforcement thereof may be limited by bankruptcy, insolvency, moratorium, reorganization or other laws (including the laws of fraudulent conveyance) or judicial decisions affecting the enforceability of creditors' rights generally, the rights of creditors of savings banks or financial institutions, the accounts of which are insured by the FDIC, and (ii) enforcement thereof is subject to general equity principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and to the effect of certain laws and judicial decisions upon the availability of injunctive relief and enforceability of equitable remedies, including the remedies of specific performance and self-help. (vii) The Plan has been duly adopted by the Board of Directors of the MHC in the manner required by the Conversion Regulations and the MHC's charter and bylaws. (viii) The Conversion Application and the Holding Company Application have been approved by the OTS, and subject to the satisfaction of any conditions set forth in such approvals, no further approval, registration, authorization, consent or other order of any federal or state regulatory agency, public board or body is required in connection with the execution and delivery of this Agreement, the offer, sale and issuance of the Shares and the consummation of the Conversion, except as may be required under the securities or "blue sky" laws of various jurisdictions as to which no opinion need be rendered. (ix) The Registration Statement has become effective under the 1933 Act and to such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued, or proceedings for that purpose have been instituted or threatened by the Commission. (x) The terms and provisions of the shares of Common Stock conform to the description thereof contained in the Registration Statement and the Prospectus, and the forms of certificates proposed to be used to evidence the shares of Common Stock are in due and proper form. (xi) A the time the Conversion Application was approved, the Conversion Application (as amended or supplemented), complied as to form in all material respects with the requirements of the Conversion Regulations and all applicable laws, rules and regulations and decisions 19 and orders of the OTS, except as modified or waived in writing by the OTS (other than the financial statements, notes to financial statements, financial tables and other financial and statistical data included therein and the appraisal valuation and the business plan as to which counsel need express no opinion). To such counsel's knowledge, no person has sought to obtain regulatory or judicial review of the final action of the OTS in approving the Applications. (xii) At the time that the Registration Statement became effective and as of the Closing Date the Registration Statement, including the Prospectus (as amended or supplemented) (other than the financial statements, notes to financial statements, financial tables or other financial and statistical data included therein and the appraisal valuation and the business plan as to which counsel need express no opinion), complied as to form in all material respects with the requirements of the 1933 Act and the rules and regulations promulgated thereunder. (xiii) There are no legal or governmental proceedings pending, or, to such counsel's knowledge, threatened (i) asserting the invalidity of this Agreement or (ii) seeking to prevent the Conversion or the offer, sale or issuance of the Shares. (xiv) The information in the Prospectus under the captions "Regulation," "Taxation," "Restrictions on Acquisition of Wayne Savings Bancshares, Inc.," "Description of Capital Stock of Wayne Savings Bancshares, Inc.," and "The Conversion," to the extent that such information constitutes matters of law, summaries of legal matters, documents or proceedings, or legal conclusions, has been reviewed by such counsel and is accurate in all material respects. (xv) None of the Primary Parties are required to be registered as an investment company under the Investment Company Act of 1940. (xvi) None of the Primary Parties is in violation of its Certificate of Incorporation or its charter, as the case may be, or its bylaws or, to the best of such counsel's knowledge, any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument filed as an exhibit to, or incorporated by reference in, the Registration Statement, which violation would have a Material Adverse Effect. In addition, the execution and delivery of and performance under this Agreement by the Primary Parties, the incurrence of the obligations set forth herein and the consummation of the transactions contemplated herein will not result in (i) any violation of the provisions of the articles of incorporation or charter, as the case may be, or the bylaws of any of the Primary Parties, (ii) any violation of any applicable law, act, regulation, or to such counsel's knowledge, order or court order, writ, injunction or decree, and (iii) any violation of any 20 obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument filed as an exhibit to, or incorporated by reference in, the Registration Statement or otherwise known by such counsel, which violation would have a Material Adverse Effect. The Agent's counsel may rely for purposes of its own opinion the opinion(s) of Luse Lehman Gorman Pomerenk & Schick and/or local counsel, whose opinion(s) shall expressly authorize such reliance. The opinion may be limited to matters governed by the laws of the United States and the corporate laws of the State of Delaware and, in the case of local counsel, the State of Ohio. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the United States, to the extent such counsel deems proper and specified in such opinion, upon the opinion of counsel reasonably acceptable to the Agent, as long as such other opinion indicates that the Agent may rely on the opinion, and (B) as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Primary Parties and public officials; provided copies of any such opinion(s) or certificates of public officials are delivered to Agent together with the opinion to be rendered hereunder by special counsel to the Primary Parties. In rendering such opinion, all statements contained therein "to our knowledge" or "to our attention" means the actual knowledge, following reasonable investigation, of the attorneys who have worked on the transactions contemplated herein. The opinion of such counsel for the Primary Parties shall state that it has no reason to believe that the Agent is not reasonably justified in relying thereon. (2) The letter of Luse Lehman Gorman Pomerenk & Schick shall also state that during the preparation of the Registration Statement and the Prospectus, Luse Lehman Gorman Pomerenk & Schick participated in conferences with certain officers of and other representatives of the Primary Parties, counsel to the Agent, representatives of the independent public accountants for the Primary Parties and representatives of the Agent at which the contents of the Registration Statement and the Prospectus and related matters were discussed and has considered the matters required to be stated therein and the statements contained therein and, although (without limiting the opinions provided pursuant to Section 10(b)(1)), Luse Lehman Gorman Pomerenk & Schick has not independently verified the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus, on the basis of the foregoing, nothing has come to the attention of Luse Lehman Gorman Pomerenk & Schick that caused Luse Lehman Gorman Pomerenk & Schick to believe that the Registration Statement at the time it was declared effective by the Commission and as of the date of such letter, contained or contains any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading (it being understood that counsel need express no comment or opinion with respect to statements, notes to financial statements, schedules and other financial and statistical data included, or statistical or appraisal methodology employed, in the Registration Statement or Prospectus, the appraisal valuation or the business plan). (3) The favorable opinion, dated as of the Closing Date, of Klehr, 21 Harrison, Harvey, Branzburg & Ellers LLP, counsel for the Agent, with respect to such matters as the Agent may reasonably require; such opinion may rely, as to matters of fact, upon certificates of officers and directors of the Primary Parties delivered pursuant hereto or as such counsel may reasonably request. (4) A Blue Sky Memorandum from Luse Lehman Gorman Pomerenk & Schick and/or local counsel relating to the offering, including Agent's participation therein, and should be furnished to Agent with a copy thereof addressed to Agent or upon which Luse Lehman Gorman Pomerenk & Schick and/or local counsel shall state Agent may rely. The Blue Sky Memorandum will relate to the necessity of obtaining or confirming exemptions, qualifications or the registration of the common stock under applicable state securities law. (c) Concurrently with the execution of this Agreement, the Agent shall receive a letter from Grant Thornton LLP, dated the date hereof and addressed to the Agent, such letter (i) confirming that Grant Thornton LLP is a firm of independent public accountants within the meaning of the 1933 Act and the regulations promulgated thereunder, and stating in effect that in Grant Thornton LLP's opinion the financial statements of the Mid-Tier Holding Company included in the Prospectus comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the 1934 Act and the related rules and regulations of the Commission thereunder; (ii) stating in effect that, on the basis of certain agreed upon procedures (but not an audit examination in accordance with generally accepted auditing standards) consisting of a review (in accordance with Statement of Auditing Standards No. 71) of the latest available unaudited interim financial statements of the Mid-Tier Holding Company prepared by the Mid-Tier Holding Company, a reading of the minutes of the meetings of the Board of Directors, Executive Committee and stockholders and Audit Committee of the Mid-Tier Holding Company and the Bank and consultations with officers of the Mid-Tier Holding Company and the Bank responsible for financial and accounting matters, nothing came to their attention which caused them to believe that: (A) such unaudited financial statements are not in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included in the Prospectus; or (B) during the period from the date of the latest audited consolidated financial statements included in the Prospectus to a specified date not more than five business days prior to the date of the Prospectus, there was any material increase in borrowings (defined as securities sold under agreements to repurchase and any other form of debt other than deposits), or non-performing loans or decrease in the deposits or loan allowance, total assets, stockholders equity or changes in common stock outstanding (other than for stock option plans) of the Bank at the date of such letter as compared with amounts shown in the latest audited statement of condition included in the Prospectus or there was any decrease in net income, non-interest income or net interest income, provision for loan losses or increase in non-interest expense of the Bank for the period commencing immediately after the period covered by the latest audited income statement included in the Prospectus and ended not more than five business days prior to the date of the Prospectus as compared to the corresponding period in the preceding year; and (iii) stating that, in addition to the audit examination referred to in its opinion included in the Prospectus and the performance of the procedures referred to in clause (ii) of this subsection (c), they have compared with the general accounting records of the Mid-Tier Holding Company, which are subject to the internal controls of the accounting system of the Bank and other data prepared by 22 the Primary Parties from accounting records, to the extent specified in such letter, such amounts and/or percentages set forth in the Prospectus as the Agent may reasonably request, and they have found such amounts and percentages to be in agreement therewith (subject to rounding). (d) At the Closing Date, the Agent shall receive a letter from Grant Thornton LLP dated the Closing Date, addressed to the Agent, confirming the statements made by its letter delivered by it pursuant to subsection (c) of this Section 10, the "specified date" referred to in clause (ii)(B) thereof to be a date specified in such letter, which shall not be more than one business day prior to the Closing Date. (e) At the Closing Date, counsel to the Agent shall have been furnished with such documents and opinions as counsel for the Agent may require for the purpose of enabling them to advise the Agent with respect to the issuance and sale of the Common Stock as herein contemplated and related proceedings, or in order to evidence the accuracy of any of the representations and warranties, or the fulfillment of any of the conditions herein contained. (f) At the Closing Date, the Agent shall receive a certificate of the Chief Executive Officer and Chief Financial Officer of each of the Primary Parties, dated the Closing Date, to the effect that: (i) they have examined the Registration Statement and at the time the Registration Statement became authorized for final use, the Prospectus did not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading; (ii) there has not been, since the respective dates as of which information is given in the Registration Statement, any Material Adverse Effect otherwise than as set forth or contemplated in the Registration Statement; (iii) the representations and warranties contained in Section 6 of this Agreement are true and correct with the same force and effect as though made at and as of the Closing Date; (iv) the Primary Parties have complied in all material respects with all material agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Date including the conditions contained in this Section 10; (v) no stop order has been issued or, to the best of their knowledge, is threatened, by the Commission or any other governmental body; (vi) no order suspending the Offering, the Conversion, the acquisition of all of the shares of the Bank by the Holding Company, the transactions required under the Plan to consummate the conversion or the effectiveness of the Prospectus has been issued and to the best of their knowledge, no proceedings for any such purpose have been initiated or threatened by the OTS, the Commission, or any other federal or state authority; (vii) to the best of their knowledge, no person has sought to obtain regulatory or judicial review of the action of the OTS in approving the Plan or to enjoin the Conversion. (g) At the Closing Date, the Agent shall receive a letter from RP Financial, LC, dated as of the Closing Date, (i) confirming that said firm is independent of the Primary Parties and is experienced and expert in the area of corporate appraisals, (ii) stating in effect that the Appraisal complies in all material respects with the applicable requirements of the Conversion Regulations, and (iii) further stating that its opinion of the aggregate pro forma market value of the Primary Parties, as converted, expressed in the appraisal as most recently updated, remains in effect. (h) None of the Primary Parties shall have sustained, since the date of the latest financial statements included in the Registration Statement and Prospectus, any material 23 loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth in the Registration Statement and the Prospectus, and since the respective dates as of which information is given in the Registration Statement and the Prospectus, there shall not have been any Material Adverse Effect, otherwise than as set forth or contemplated in the Registration Statement and the Prospectus, the effect of which, in any such case described above, is in the Agent's reasonable judgment sufficiently material and adverse as to make it impracticable or inadvisable to proceed with the Offering or the delivery of the Shares on the terms and in the manner contemplated in the Prospectus. (i) Prior to and at the Closing Date, in the reasonable opinion of the Agent there shall have been no material adverse change in the financial condition or in the earnings, business affairs or prospects of any of the Primary Parties independently, or the Primary Parties taken as a whole, from and as of the latest dates as of which such condition is set forth in the Prospectus, except as referred to therein. (j) At or prior to the Closing Date, the Agent shall receive (i)a copy of the Conversion Application and a copy of the letter from the OTS approving the Conversion Application, (ii) a copy of the order from the Commission declaring the Registration Statement effective, (iii) a certified copy of the certificate of incorporation of the Holding Company, (iv) a copy of the letter from the OTS approving the Holding Company Application, (v) a certificate from the FDIC evidencing the Bank's insurance of accounts, and (vi) any other documents that Agent shall reasonably request. (k) Subsequent to the date hereof, there shall not have occurred any of the following: (i) a suspension or limitation in trading in securities generally on the New York Stock Exchange or American Stock Exchange or in the over-the-counter market, or quotations halted generally on the Nasdaq Stock Market, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required by either of such exchanges or the NASD or by order of the Commission or any other governmental authority other than temporary trading halts or limitation (A) imposed as a result of intraday changes in the Dow Jones Industrial Average, and (B) lasting no longer than until the regularly scheduled commencement of trading on the next succeeding business-day; (ii) a general moratorium on the operations of federally-insured financial institutions or a general moratorium on the withdrawal of deposits from commercial banks or other federally-insured financial institutions declared by either federal or state authorities; or (iii) there shall not have occurred any material adverse change in the financial markets in the United States or elsewhere or any outbreak of hostilities or escalation thereof or other calamity or crisis the effect of which, in the judgment of the Agent, is so material and adverse as to make it impracticable to market the Shares or to enforce contracts, including subscriptions or orders, for the sale of the Shares. (l) All such opinions, certificates, letters and documents will be in compliance with the provisions hereof only if they are reasonably satisfactory in form and substance to the Agent and to counsel for the Agent. Any certificate signed by an officer of the Mid-Tier Holding Company, the Holding Company or the Bank and delivered to the Agent or to counsel for the Agent shall be deemed a representation and warranty by the Mid-Tier Holding 24 Company, the Holding Company or the Bank, as the case may be, to the Agent as to the statements made therein. SECTION 11. INDEMNIFICATION. (a) The Primary Parties jointly and severally agree to indemnify and hold harmless the Agent, its officers, directors, agents, attorneys, servants and employees and each person, if any, who controls the Agent within the meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act, against any and all loss, liability, claim, damage or expense whatsoever (including but not limited to settlement expenses, subject to the limitation set forth in the last sentence of subsection (c) below), joint or several, that the Agent or any of such officers, directors, agents, attorneys, servants, employees and controlling Persons (collectively, the "Related Persons") may suffer or to which the Agent or the Related Persons may become subject under all applicable federal and state laws or otherwise, and to promptly reimburse the Agent and any Related Persons upon written demand for any reasonable expenses (including reasonable fees and disbursements of counsel and Agent's time spent according to normal hourly rates) incurred by the Agent or any Related Persons in connection with investigating, preparing or defending any actions, proceedings or claims (whether commenced or threatened) to the extent such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment or supplement thereto), the Prospectus (or any amendment or supplement thereto), the Applications, or other instrument or document of the Primary Parties or based upon written information supplied by any of the Primary Parties filed in any state or jurisdiction to register or qualify any or all of the Shares under the securities laws thereof (collectively, the "Blue Sky Applications"), or any application or other document, advertisement, or communication ("Sales Information") prepared, made or executed by or on behalf of any of the Primary Parties with its consent or based upon information furnished by or on behalf of any of the Primary Parties, in order to qualify or register the Shares under the securities laws thereof, (ii) arise out of or are based upon the omission or alleged omission to state in any of the foregoing documents or information, a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (iii) arise from any theory of liability whatsoever relating to or arising from or based upon the Registration Statement (or any amendment or supplement thereto), the Prospectus (or any amendment or supplement thereto), the Applications, any Blue Sky Applications or Sales Information or other documentation distributed in connection with the Offerings; or (iv) result from any claims made with respect to the accuracy, reliability and completeness of the records of Eligible Account Holders and Supplemental Eligible Account Holders or Other Members or for any denial or reduction of a subscription or order to purchase Common Stock, whether as a result of a properly calculated allocation pursuant to the Plan or otherwise, based upon such records; provided, however, that no indemnification is required under this subsection (a) to the extent such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue material statements or alleged untrue material statements in, or material omission or alleged material omission from, the Registration Statement (or any amendment or supplement thereto) or the Prospectus (or any amendment or supplement thereto), the Applications, the Blue Sky Applications or Sales Information or other documentation distributed in connection with the Conversion made in reliance upon and in conformity with information furnished to the Primary Parties by the Agent or its representatives (including counsel) with respect to the Agent expressly 25 for use in the Registration Statement (or any amendment or supplement thereto) or Prospectus (or any amendment or supplement thereto) under the caption "The Conversion -- Plan of Distribution; Selling Agent Compensation" except for information derived from the Prospectus. Provided further, that the Primary Parties will not be responsible for any loss, liability, claim, damage or expense to the extent a court of competent jurisdiction finds they result primarily from material oral misstatements by the Agent to a purchaser of Shares which are not based upon information in the Registration Statement or Prospectus, or from actions taken or omitted to be taken by the Agent in bad faith or from the Agent's gross negligence or willful misconduct. (b) The Agent agrees to indemnify and hold harmless the Primary Parties, their directors and officers, agents, servants and employees and each person, if any, who controls any of the Primary Parties within the meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act against any and all loss, liability, claim, damage or expense whatsoever (including but not limited to settlement expenses, subject to the limitation set forth in the last sentence of subsection (c) below), joint or several, which they, or any of them, may suffer or to which they, or any of them, may become subject under all applicable federal and state laws or otherwise, and to promptly reimburse the Primary Parties and any such persons upon written demand for any reasonable expenses (including out-of-pocket expenses, fees and disbursements of counsel) incurred by them in connection with investigating, preparing or defending any actions, proceedings or claims (whether commenced or threatened) to the extent such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment or supplement thereto), the Applications or any Blue Sky Applications or Sales Information or are based upon the omission or alleged omission to state in any of the foregoing documents a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Agent's obligations under this Section 11(b) shall exist only if and only to the extent that such untrue statement or alleged untrue statement was made in, or such material fact or alleged material fact was omitted from, the Applications, Registration Statement (or any amendment or supplement thereto) or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with information furnished to the Primary Parties by the Agent or its representatives (including counsel) expressly for use under the caption "The Conversion - Plan of Distribution; Selling Agent Compensation." (c) Each indemnified party shall give prompt written notice to each indemnifying party of any action, proceeding, claim (whether commenced or threatened), or suit instituted against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve it from any liability which it may have on account of this Section 11, Section 12 or otherwise, unless the failure to give such notice promptly results in material prejudice to the indemnifying party. An indemnifying party may participate at its own expense in the defense of such action. In addition, if it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel chosen by it reasonably acceptable to the indemnified parties that are defendants in such action, unless such indemnified parties reasonably object to such assumption on the ground that there may be legal defenses available to them that are different from or in addition to those available to such indemnifying party. If an indemnifying party assumes the defense of such action, the 26 indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action, proceeding or claim, other than reasonable costs of investigation. In no event shall the indemnifying parties be liable for the fees and expenses of more than one separate firm of attorneys (unless an indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or in addition to those of other indemnified parties) for all indemnified parties in connection with any one action, proceeding or claim or separate but similar or related actions, proceedings or claims in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party, shall be liable for any settlement of any action, proceeding or suit, which settlement is effected without its prior written consent. The Primary Parties shall not, without the written consent of the Agent, settle or compromise any claim against them based upon circumstances giving rise to an indemnification claim against the Primary Parties hereunder unless such settlement or compromise provides that the Agent and the other indemnified parties shall be unconditionally and irrevocably released from all liability in respect to such claim. (d) The agreements contained in this Section 11 and in Section 12 hereof and the representations and warranties of the Primary Parties set forth in this Agreement shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of the Agent or its officers, directors, controlling persons, agents, attorneys, servants or employees or by or on behalf of any of the Primary Parties or any officers, directors, controlling persons, agents, attorneys , servants or employees of any of the Primary Parties; (ii) delivery of and payment hereunder for the Shares; or (iii) any termination of this Agreement. Notwithstanding the prior sentence, Sections 11 and 12 hereof are subject to and limited by Section 23A of the Federal Reserve Act, as applicable. SECTION 12. CONTRIBUTION. (a) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in Section 11 is due in accordance with its terms but is for any found in a final judgment by a court to be unavailable from the Primary Parties or the Agent, the Primary Parties and the Agent shall contribute to the aggregate losses, claims, damages and liabilities of the nature contemplated by such indemnification (including any investigation, legal and other expenses incurred in connection therewith and any amount paid in settlement of any action, suit, or proceeding of any claims asserted, but after deducting any contribution received by the Primary Parties or the Agent from persons other than the other party thereto, who may also be liable for contribution) in such proportion so that (i) the Agent is responsible for that portion represented by the percentage that the fees paid to the Agent pursuant to Section 4 of this Agreement (not including expenses) ("Agent's Fees"), less any portion of Agent's Fees paid by Agent to Assisting Brokers, bear to the total proceeds received by the Primary Parties from the sale of the Shares in the Offering, net of all expenses of the Offering, except Agent's fees and (ii) the Primary Parties shall be responsible for the balance. If, however, the allocation provided above is not permitted by applicable law or if the indemnified party failed to give the notice required under Section 11 above, then each indemnifying party shall contribute to such amount paid or payable to such indemnified party in such proportion as is appropriate to reflect not only such relative fault of the Primary Parties on the one hand and the Agent on the other in connection with the statements or omissions which resulted in such losses, 27 claims, damages or liabilities (or actions, proceedings or claims in respect thereof), but also the relative benefits received by the Primary Parties on the one hand and the Agent on the other from the Offering, as well as any other relevant equitable considerations. The relative benefits received by the Primary Parties on the one hand and the Agent on the other hand shall be deemed to be in the same proportion as the total proceeds from the Offering, except Agent's fees, net of all expenses of the Offering, received by the Primary Parties bear, with respect to the Agent, to the total fees (not including expenses) received by the Agent less the portion of such fees paid by the Agent to Assisting Brokers. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Primary Parties on the one hand or the Agent on the other and the parties relative intent, good faith, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Primary Parties and the Agent agree that it would not be just and equitable if contribution pursuant to this Section 12 were determined by pro-rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 12. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or action, proceedings or claims in respect thereof) referred to above in this Section 12 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action, proceeding or claim. It is expressly agreed that the Agent shall not be liable for any loss, liability, claim, damage or expense or be required to contribute any amount which in the aggregate exceeds the amount paid (excluding reimbursable expenses) to the Agent under this Agreement less the portion of such fees paid by the Agent to Assisting Brokers. It is understood and agreed that the above-stated limitation on the Agent's liability is essential to the Agent and that the Agent would not have entered into this Agreement if such limitation had not been agreed to by the parties to this Agreement. No person found guilty of any fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution with respect to any loss or liability arising from such misrepresentation from any person who was not found guilty of such fraudulent misrepresentation. The duties, obligations and liabilities of the Primary Parties and the Agent under this Section 12 and under Section 11 shall be in addition to any duties, obligations and liabilities which the Primary Parties and the Agent may otherwise have. For purposes of this Section 12, each of the Agent's and the Primary Parties' officers, directors and, controlling persons within the meaning of the 1933 Act and the 1934 Act shall have the same rights to contribution as the Primary Parties and the Agent. Any party entitled to contribution, promptly after receipt of notice of commencement of any action, suit, claim or proceeding against such party in respect of which a claim for contribution may be made against another party under this Section 12, will notify such party from whom contribution may be sought, but the omission to so notify such party shall not relieve the party from whom contribution may be sought from any other obligation it may have hereunder or otherwise than under this Section 12. SECTION 13. SURVIVAL. (a) All representations, warranties and indemnities and other statements contained in this Agreement (and in Paragraph 11 of the Letter Agreement), or contained in certificates of officers of the Primary Parties or the Agent submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of the Agent or its controlling persons, or 28 by or on behalf of the Primary Parties and shall survive the issuance of the Shares, and any legal representative, successor or assign of the Agent, any of the Primary Parties, and any indemnified person shall be entitled to the benefit of the respective agreements, indemnities, warranties and representations. (b) The provisions of Paragraph 10 of the Letter Agreement, "Availability of `Stars' Program," shall survive the issuance of the Shares (but not any termination or cancellation of this Agreement) for a period of one (1) year, and any legal representative, successor or assign of the Agent, and any of the Primary Parties shall be entitled during such period to the benefit of the agreements contained therein. SECTION 14. TERMINATION. Agent may terminate this Agreement by giving the notice indicated below in this Section at any time after this Agreement becomes effective as follows: (a) In the event the Holding Company fails to consummate the sale of the minimum number of the Shares prior to January 14, 2002, in accordance with the provisions of the Plan or as required by the Conversion Regulations and applicable law, this Agreement shall terminate and the Primary Parties shall refund to each person who has subscribed for or ordered any of the Shares the full amount which it may have received from such person, together with interest in accordance with Section 3 hereof and any such termination shall be without liability of any party to any other party except as otherwise provided in Sections 3, 4, 9, 11 and 12 hereof and Paragraph 11 of the Letter Agreement, "Indemnification." (b) If any of the conditions specified in Section 10 hereof shall not have been fulfilled when and as required by this Agreement, or by January 14, 2002, or waived in writing by the Agent, this Agreement and all of the Agent's obligations hereunder may be canceled by the Agent by notifying the Bank of such cancellation in writing at any time at or prior to the Closing Date, and any such cancellation shall be without liability of any party to any other party except as otherwise provided in Sections 3, 4, 9, 11 and 12 hereof and Paragraph 11 of the Letter Agreement, "Indemnification." (c) If Agent elects to terminate this Agreement as provided in this Section, the Mid-Tier Holding Company and the MHC shall be notified by the Agent as provided in Section 15 hereof. (d) If this Agreement is terminated in accordance with the provisions of this Agreement, the Primary Parties shall pay the Agent the $50,000 advisory and management fee (less any portion previously paid) pursuant to Section 4 and will reimburse the Agent for its reasonable expenses pursuant to Section 9, including without limitation, communication, legal and travel expenses. SECTION 15. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to Agent shall be directed to Ryan, Beck & Co. LLC, 401 City Avenue, Suite 902, Bala Cynwyd, PA 19004, Attention: Ms. Michelle Darcey, Director (with a copy to Klehr, Harrison, Harvey, Branzburg & Ellers LLP, 260 South Broad Street, Philadelphia, Pennsylvania 19102, Attention: Stephen T. Burdumy, Esq.); notices to the Primary 29 Parties shall be directed to Wayne Savings Bancshares, Inc., 151 North Market Street, P.O. Box 858, Wooster, Ohio 44691, Attention: Charles F. Finn, President and Chief Executive Officer (with a copy to Luse Lehman Gorman Pomerenk & Schick, 5535 Wisconsin Avenue, N.W., Washington, D.C. 20005, Attention: Kenneth R. Lehman, Esq.) SECTION 16. PARTIES. This Agreement shall inure to the benefit of and be binding upon the Agent and the Primary Parties, and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the parties hereto and their respective successors and the controlling persons and officers and directors referred to in Sections 11 and 12 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provisions herein contained. It is understood and agreed that this Agreement is the exclusive agreement among the parties, supersedes any prior Agreement among the parties and may not be varied except by a writing signed by all parties, except for Paragraphs 4, 10, 11 and 17 of the Letter Agreement, which are not hereby superseded. SECTION 17. PARTIAL INVALIDITY. In the event that any term, provision or covenant herein or the application thereof to any circumstances or situation shall be invalid or unenforceable, in whole or in part, the remainder hereof and the application of said term, provision or covenant to any other circumstance or situation shall not be affected thereby, and each term, provision or covenant herein shall be valid and enforceable to the full extent permitted by law. SECTION 18. CONSTRUCTION AND WAIVER OF JURY TRIAL. This Agreement shall be construed in accordance with the laws of the State of New York and the parties agree to waive any rights to a jury trial. [REST OF PAGE INTENTIONALLY LEFT BLANK] 30 If the foregoing is in accordance with your understanding of our agreement, please sign and return to us a counterpart hereof, whereupon this instrument along with all counterparts will become a binding agreement between you and us in accordance with its terms. Very truly yours, WAYNE SAVINGS BANCSHARES, M.H.C. By: /s/ Charles F. Finn ----------------------------------------- Charles F. Finn President and Chief Executive Officer WAYNE SAVINGS BANCSHARES, INC. By: /s/ Charles F. Finn ------------------------------------------ Charles F. Finn President and Chief Executive Officer WAYNE SAVINGS BANCSHARES II, INC. By: /s/ Charles F. Finn ----------------------------------------- Charles F. Finn President and Chief Executive Officer WAYNE SAVINGS COMMUNITY BANK By: /s/ Charles F. Finn ---------------------------------------- Charles F. Finn President and Chief Executive Officer The foregoing Agency Agreement is hereby confirmed and accepted as of the date first set forth above. RYAN, BECK & CO., LLC By: /s/ Michelle Darcey -------------------------- Michelle Darcey Director EX-2 5 gex2-25709.txt EX-2 PLAN OF CONVERSION AND REORGANIZATION OF WAYNE SAVINGS BANKSHARES, M.H.C. TABLE OF CONTENTS
1. INTRODUCTION............................................................................................1 -- ------------ 2. DEFINITIONS.............................................................................................1 -- ----------- 3. PROCEDURES FOR CONVERSION...............................................................................5 -- ------------------------- 4. HOLDING COMPANY APPLICATIONS AND APPROVALS..............................................................7 -- ------------------------------------------ 5. SALE OF SUBSCRIPTION SHARES.............................................................................7 -- --------------------------- 6. PURCHASE PRICE AND NUMBER OF SUBSCRIPTION SHARES........................................................8 -- ------------------------------------------------ 7. RETENTION OF CONVERSION PROCEEDS BY THE HOLDING COMPANY.................................................8 -- ------------------------------------------------------- 8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)........................................8 -- ---------------------------------------------------------------- 9. SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY).................................................9 -- ------------------------------------------------------- 10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY)..........................9 --- ------------------------------------------------------------------------------ 11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY).................................................10 --- ------------------------------------------------------ 12. COMMUNITY OFFERING.....................................................................................10 --- ------------------ 13. SYNDICATED COMMUNITY OFFERING..........................................................................10 --- ----------------------------- 14. LIMITATIONS ON PURCHASES...............................................................................11 --- ------------------------ 15. PAYMENT FOR HOLDING COMPANY COMMON STOCK...............................................................12 --- ---------------------------------------- 16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS...........................................13 --- ------------------------------------------------------------ 17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT........................................14 --- --------------------------------------------------------------- 18. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES......................................................14 --- ------------------------------------------------- 19. ESTABLISHMENT OF LIQUIDATION ACCOUNT...................................................................14 --- ------------------------------------ 20. VOTING RIGHTS OF STOCKHOLDERS..........................................................................15 --- ----------------------------- 21. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION.......................................................15 --- ------------------------------------------------ 22. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING THE CONVERSION....................16 --- ----------------------------------------------------------------------------------- 23. TRANSFER OF DEPOSIT ACCOUNTS...........................................................................16 --- ---------------------------- 24. REGISTRATION AND MARKETING.............................................................................16 --- -------------------------- 25. TAX RULINGS OR OPINIONS................................................................................16 --- ----------------------- 26. STOCK BENEFIT PLANS AND EMPLOYMENT AGREEMENTS..........................................................16 --- --------------------------------------------- 27. RESTRICTIONS ON ACQUISITION OF BANK AND HOLDING COMPANY................................................17 --- ------------------------------------------------------- 28. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK...........................................................18 --- -------------------------------------------- 29. CHARTER AND BYLAWS.....................................................................................18 --- ------------------ 30. CONSUMMATION OF CONVERSION AND EFFECTIVE DATE..........................................................18 --- --------------------------------------------- 31. EXPENSES OF CONVERSION.................................................................................18 --- ---------------------- 32. AMENDMENT OR TERMINATION OF PLAN.......................................................................18 --- -------------------------------- 33. CONDITIONS TO CONVERSION...............................................................................19 --- ------------------------ 34. INTERPRETATION.........................................................................................19 --- --------------
EXHIBIT A AGREEMENT OF MERGER BETWEEN WAYNE SAVINGS BANCSHARES, INC., WAYNE INTERIM I AND WAYNE SAVINGS COMMUNITY BANK EXHIBIT B AGREEMENT OF MERGER BETWEEN WAYNE SAVINGS BANKSHARES, M.H.C., WAYNE SAVINGS INTERM SAVINGS BANK II AND WAYNE SAVINGS COMMUNITY BANK EXHIBIT C AGREEMENT OF MERGER BETWEEN WAYNE SAVINGS COMMUNITY BANK AND WAYNE INTERIM III EXHIBIT D CERTIFICATE OF INCORPORATION OF THE HOLDING COMPANY EXHIBIT E BYLAWS OF THE HOLDING COMPANY PLAN OF CONVERSION AND REORGANIZATION OF WAYNE SAVINGS BANKSHARES, M.H.C. 1. INTRODUCTION This Plan of Conversion and Reorganization (the "Plan") provides for the conversion of Wayne Savings Bankshares, M.H.C., a federal mutual holding company (the "Mutual Holding Company") into the capital stock form of organization. The Mutual Holding Company currently owns a majority of the common stock of Wayne Savings Bancshares, Inc., a federal corporation (the "Mid-Tier Holding Company"), which owns 100% of the common stock of Wayne Savings Community Bank (the "Bank"), an Ohio savings and loan association that is headquartered in Wooster, Ohio. The purpose of the Conversion is to provide the Bank and its stock holding company resulting from the conversion (the "Holding Company") with greater operating flexibility and capital resources to respond to changing regulatory and market conditions, and to effect corporate transactions, including mergers and acquisitions. The Holding Company will offer for sale Holding Company Common Stock upon the terms and conditions set forth herein to Eligible Account Holders, the Employee Plans established by the Bank or the Holding Company, Supplemental Eligible Account Holders and Other Members according to the respective priorities set forth in this Plan. Any shares not subscribed for by the foregoing classes of Persons will be offered for sale to certain members of the public directly by the Holding Company through a Community Offering or a Syndicated Community Offering or through an underwritten firm commitment public offering, or through a combination thereof. As part of the Conversion, each Minority Stockholder will receive Holding Company Common Stock in exchange for Minority Shares. The Conversion will result in the voting interests of the Mutual Holding Company's Members being transferred to Persons who purchase Holding Company Common Stock in the Offering. The Conversion will have no impact on depositors, borrowers or customers of the Bank. The Bank will continue to be a member of the Federal Home Loan Bank System and all insured savings deposits in the Bank will continue to be insured by the FDIC to the extent provided by applicable law. This Plan has been adopted by the Board of Directors of the Mutual Holding Company, and must also be approved by (i) a majority of the total number of votes entitled to be cast by Voting Members of the Mutual Holding Company at a Special Meeting of Members to be called for that purpose, and (ii) at least two-thirds of the outstanding common stock of the Mid-Tier Holding Company at the Special Meeting of Stockholders, including at least a majority of the votes cast, in person or by proxy, by Minority Stockholders. Prior to presenting this Plan to the Voting Members and stockholders of the Mid-Tier Holding Company for consideration, the Plan must be approved by the OTS. 2. DEFINITIONS For the purposes of this Plan, the following terms have the following meanings: ACCOUNT HOLDER - Any Person holding a Deposit Account in the Bank. ACTING IN CONCERT - The term Acting in Concert means (i) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or (ii) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. A Person or company which acts in concert with another Person or company ("other party") shall also be deemed to be acting in concert with any Person or company who is also acting in concert with that other party, except that any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in concert with its trustee or a Person who serves in a similar capacity solely for the purpose of determining whether stock held by the trustee and stock held by the plan will be aggregated. AFFILIATE - Any Person that controls, is controlled by, or is under common control with another Person. APPRAISED VALUE RANGE - The range of the estimated consolidated pro forma market value of the Holding Company, which shall also be equal to the estimated pro forma market value of the total number of shares of Holding Company Common Stock to be issued in the Conversion, as determined by the Independent Appraiser prior to the Subscription Offering and as it may be amended from time to time thereafter. The maximum and minimum of the Appraised Value Range will vary within 15% above and 15% below, respectively, of the midpoint of the Appraised Value Range. ASSOCIATE - The term Associate when used to indicate a relationship with any Person, means (i) any corporation or organization (other than the Mid-Tier Holding Company, the Bank or a majority owned subsidiary of the Bank) of which such Person is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities, (ii) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity, except that for the purposes of this Plan relating to subscriptions in the Offering the term "Associate" does not include any NonTax-Qualified Employee Stock Benefit Plan or any Tax-Qualified Employee Stock Benefit Plan in which a Person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary capacity, and except that for purposes of aggregating total shares that may be held by Officers and Directors the term "Associate" does not include any Tax-Qualified Employee Stock Benefit Plan, and (iii) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person or who is a Director or Officer of the Mid-Tier Holding Company, the Bank or the Holding Company, or any of their parents or subsidiaries. BANK - Wayne Savings Community Bank. BANK MERGER - The merger of Interim with the Bank as set forth in this Plan. CODE - The Internal Revenue Code of 1986, as amended. COMMUNITY - The Ohio Counties in which a branch office of the Bank or Village Savings Bank is located. COMMUNITY OFFERING - The offering for sale to certain members of the general public directly by the Holding Company of shares not subscribed for in the Subscription Offering. CONTROL - (including the terms "controlled by", "controlling" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. CONVERSION - The conversion and reorganization of the Mutual Holding Company to stock form pursuant to this Plan, and all steps incident or necessary thereto, include the Exchange Offer and the Offering. DEPOSIT ACCOUNT - The term Deposit Account means any withdrawable account as defined in Section 561.42 of the Rules and Regulations of the OTS, and shall include all demand deposit accounts and certificates of deposit. DIRECTOR - A member of the Board of Directors of the Bank, the Mid-Tier Holding Company, the Holding Company or the Mutual Holding Company, as appropriate in the context. ELIGIBLE ACCOUNT HOLDER - Any Person holding a Qualifying Deposit on the Eligibility Record Date for purposes of determining subscription rights and establishing subaccount balances in the Liquidation Account. ELIGIBILITY RECORD DATE - June 30, 2000, the date for determining Eligible Account Holders of the Bank. EMPLOYEES - All Persons who are employed by the Bank, the Mid-Tier Holding Company or the Mutual Holding Company. EMPLOYEE PLANS - Any Tax-Qualified Employee Stock Benefit Plan of the Bank or the Holding Company, including any ESOP and 401(k) Plan. ESOP - Any Employee Stock Ownership Plan and related trust of the Bank or the Holding Company. 2 EXCHANGE OFFER - The offer of Holding Company Common Stock to Minority Stockholders in exchange for Minority Shares. EXCHANGE RATIO - The rate at which shares of Holding Company Common Stock are exchanged for Minority Shares upon consummation of the Conversion. The Exchange Ratio shall be determined as of the closing of the Conversion and shall be the rate that will result in the Minority Stockholders owning in the aggregate the same percentage of the outstanding shares of Holding Company Common Stock immediately upon completion of the Conversion (without giving effect to any shares purchased in the Offering and any cash issued in lieu of fractional shares), as the percentage of Mid-Tier Holding Company common stock owned by them in the aggregate immediately prior to the consummation of the Conversion. EXCHANGE SHARES - Shares of Holding Company Common Stock issued to Minority Stockholders in exchange for Minority Shares. FDIC - The Federal Deposit Insurance Corporation. HOLDING COMPANY - The Delaware corporation formed for the purpose of acquiring all of the shares of capital stock of the Bank in connection with the Conversion. The Holding Company will be the successor to the Mid-Tier Holding Company. Shares of Holding Company Common Stock will be issued in the Conversion to Participants and others in the Conversion. HOLDING COMPANY COMMON STOCK - The common stock, par value $.10 per share, of the Holding Company. INDEPENDENT APPRAISER - The appraiser retained by the Mutual Holding Company and the Bank to prepare an appraisal of the pro forma market value of the Holding Company Common Stock issued in the Conversion. INTERIM - Interim III, the interim federal savings bank subsidiary of the Holding Company established to effect the Conversion. LIQUIDATION ACCOUNT - One or more accounts established in accordance with 12 C.F.R. 563b.3(f) and OTS policy. MAJORITY OWNERSHIP INTEREST - The percentage of common stock of the Mid-Tier Holding Company owned by the Mutual Holding Company immediately prior to the completion of the Conversion. MEMBER - Any Person or entity who qualifies as a member of the Mutual Holding Company pursuant to its charter and bylaws. MHC MERGER - The conversion of the Mutual Holding Company into an interim federal stock savings bank and subsequent merger with and into the Bank as set forth in this Plan. MID-TIER HOLDING COMPANY - Wayne Savings Bancshares, Inc., the federal mid-tier stock holding company that owns 100% of the Bank's common stock, and any successor thereto. MID-TIER MERGER - The conversion of the Mid-Tier Holding Company into an interim federal stock savings bank and subsequent merger with and into the Bank as set forth in this Plan. MINORITY SHARE(S) - Any outstanding common stock of the Mid-Tier Holding Company, or shares of common stock of the Mid-Tier Holding Company issuable upon the exercise of options or grant of stock awards, in each case held by persons other than the Mutual Holding Company. MINORITY STOCKHOLDER - Any owner of Minority Shares. MUTUAL HOLDING COMPANY - Wayne Savings Bankshares, M.H.C., the mutual holding company of the Bank. 3 OTS - The Office of Thrift Supervision of the Department of the Treasury and any successor thereto. OFFERING - The offering for sale, pursuant to this Plan, of Holding Company Common Stock in a Subscription Offering, Community Offering, and Syndicated Community Offering (or underwritten public offering), as the case may be. The term "Offering" does not include the Holding Company Common Stock issued in exchange for Minority Shares pursuant to this Plan. OFFERING RANGE - The number of shares of Holding Company Stock offered for sale in the Offering multiplied by the Subscription Price. The Offering Range shall be equal to the Appraised Value Range multiplied by the Majority Ownership Percentage. OFFICER - An executive officer of the Bank, the Mid-Tier Holding Company, the Holding Company or the Mutual Holding Company as appropriate in the context, which includes the Chief Executive Officer, President, Senior Vice Presidents, Executive Vice President in charge of principal business functions, Secretary and Controller and any Person performing functions similar to those performed by the foregoing persons. ORDER FORM - Any form (together with any attached cover letter and/or certifications or acknowledgments), sent by the Bank to any Participant or Person containing among other things a description of the alternatives available to such Person under the Plan and by which any such Person may make elections regarding purchases of Holding Company Common Stock in the Subscription and Community Offerings. OTHER MEMBER - Any Member on the Voting Record Date who is not an Eligible Account Holder or Supplemental Eligible Account Holder. PARTICIPANT - Any Eligible Account Holder, Employee Plan, Supplemental Eligible Account Holder, or Other Member. PERSON - An individual, a corporation, a partnership, an association, a joint stock company, a trust (including Individual Retirement Accounts and KEOGH Accounts), any unincorporated organization, a government or political subdivision thereof or any other entity. PLAN - This Plan of Conversion and Reorganization of the Mutual Holding Company as it exists on the date hereof and as it may hereafter be amended in accordance with its terms. PROSPECTUS - The one or more documents used in offering the Holding Company Common Stock in the Offering and the Exchange Offer. QUALIFYING DEPOSIT - The aggregate balance of all Deposit Accounts in the Bank of (i) an Eligible Account Holder at the close of business on the Eligibility Record Date, provided such aggregate balance is not less than $50, and (ii) a Supplemental Eligible Account Holder at the close of business on the Supplemental Eligibility Record Date, provided such aggregate balance is not less than $50. RESIDENT - Any Person who occupies a dwelling within the Community, has a present intent to remain within the Community for a period of time, and manifests the genuineness of that intent by establishing an ongoing physical presence within the Community together with an indication that such presence within the Community is something other than merely transitory in nature. To the extent the Person is a corporation or other business entity, the principal place of business or headquarters shall be in the Community. To the extent a Person is a personal benefit plan, the circumstances of the beneficiary shall apply with respect to this definition. In the case of all other benefit plans, circumstances of the trustee shall be examined for purposes of this definition. The Bank may utilize deposit or loan records or such other evidence provided to it to make a determination as to whether a Person is a resident. In all cases, however, such a determination shall be in the sole discretion of the Mutual Holding Company and the Bank. A Participant or Person must be a "Resident" for purposes of determining whether such Person "resides" in the Community as such term is used in this Plan. 4 SEC - The Securities and Exchange Commission. SPECIAL MEETING OF MEMBERS - The special meeting of Members of the Mutual Holding Company and any adjournments thereof held to consider and vote upon this Plan. SPECIAL MEETING OF STOCKHOLDERS - The special meeting of stockholders of the Mid-Tier Holding Company and any adjournments thereof held to consider and vote upon the Plan. SUBSCRIPTION OFFERING - The offering of Subscription Shares to Participants. SUBSCRIPTION PRICE - The price per Subscription Share to be paid by Participants in the Subscription Offering and by Persons in the Community Offering and any Syndicated Community Offering. The Subscription Price will be determined by the Board of Directors of the Mutual Holding Company and fixed prior to the commencement of the Subscription Offering. SUBSCRIPTION SHARES - Shares of Holding Company Common Stock issued in the Subscription Offering. Subscription Shares do not include Exchange Shares. SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER - Any Person, other than Directors and Officers of the Bank, the Mid-Tier Holding Company or the Mutual Holding Company and their Associates, holding a Qualifying Deposit on the Supplemental Eligibility Record Date, who is not an Eligible Account Holder. SUPPLEMENTAL ELIGIBILITY RECORD DATE - The date for determining Supplemental Eligible Account Holders, which shall be the last day of the calendar quarter preceding OTS approval of the application for conversion. SYNDICATED COMMUNITY OFFERING - The offering of Holding Company Common Stock following the Subscription and Community Offerings through a syndicate of broker-dealers. TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLAN - Any defined benefit plan or defined contribution plan, such as an employee stock ownership plan, stock bonus plan, profit-sharing plan or other plan, which, with its related trust, meets the requirements to be "qualified" under Section 401 of the Internal Revenue Code. The Bank may make scheduled discretionary contributions to a tax-qualified employee stock benefit plan, PROVIDED such contributions do not cause the Bank to fail to meet its regulatory capital requirement. A "NonTax-Qualified Employee Stock Benefit Plan" is any defined benefit plan or defined contribution plan which is not so qualified. VOTING MEMBER - Any Person who at the close of business on the Voting Record Date is entitled to vote as a Member of the Mutual Holding Company pursuant to its charter and bylaws. VOTING RECORD DATE - The date fixed by the Directors in accordance with OTS regulations for determining eligibility to vote at the Special Meeting of Members and/or the Special Meeting of Stockholders. 3. PROCEDURES FOR CONVERSION A. After approval of the Plan by the Boards of Directors of the Bank and the Mutual Holding Company, the Plan together with all other requisite material shall be submitted to the OTS for its approval. Notice of the adoption of the Plan by the Boards of Directors of the Bank, the Mid-Tier Holding Company and the Mutual Holding Company and the submission of the Plan to the OTS for its approval will be published in a newspaper having general circulation in each community in which an office of the Bank is located, and copies of the Plan will be made available at each office of the Bank for inspection by the Members. Upon receipt of notice from the OTS to do so, the Mutual Holding Company also will publish a notice of the filing with the OTS of an application to convert in accordance with the provisions of this Plan. B. Promptly following approval by the OTS, the Plan will be submitted to a vote of (i) the Voting Members at the Special Meeting of Members, and (ii) the Stockholders of the Mid-Tier Holding Company at the Special 5 Meeting of Stockholders. The Mutual Holding Company will mail to all Members as of the Voting Record Date, at their last known address appearing on the records of the Bank, a proxy statement in either long or summary form describing the Plan which will be presented to a vote of the Members at the Special Meeting of Members. The Mid-Tier Holding Company also will mail to all stockholders as of the Voting Record Date, a proxy statement describing the Plan and the Conversion, which will be presented to a vote of stockholders at the Special Meeting of Stockholders. The Holding Company will also mail to all Participants either a Prospectus and Order Form for the purchase of Subscription Shares or a letter informing them of their right to receive a Prospectus and Order Form and a postage prepaid card to request such materials, subject to other provisions of this Plan. In addition, all Participants will receive, or be given the opportunity to request by either returning a postage prepaid card which may be distributed with the proxy statement or by letter addressed to the Bank's Secretary, a copy of the Plan as well as the certificate of incorporation or bylaws of the Holding Company. Upon approval of the Plan by (i) a majority of the total number of votes entitled to be cast by the Voting Members, (ii) at least two-thirds of the outstanding common stock of the Mid-Tier Holding Company, and (iii) a majority vote of Minority Stockholders present in person or by proxy, the Mutual Holding Company, the Holding Company and the Bank will take all other necessary steps pursuant to applicable laws and regulations to consummate the Conversion and Offering. The Conversion must be completed within 24 months of the approval of the Plan by the Voting Members, unless a longer time period is permitted by governing laws and regulations. C. The Conversion will be effected as follows, or in any other manner which is consistent with the purposes of this Plan and applicable laws and regulations. The choice of which method to use to effect the Conversion will be made by the Board of Directors of the Mutual Holding Company immediately prior to the closing of the Conversion. Each of the steps set forth below shall be deemed to occur in such order as is necessary to consummate the Conversion pursuant to the Plan, the intent of the Boards of Directors of the Mutual Holding Company and the Bank, and OTS regulations. Approval of the Plan by the Members and by the stockholders of the Mid-Tier Holding Company shall also constitute approval of each of the transactions necessary to implement the Plan. (1) The Bank will establish the Holding Company as a first-tier Delaware chartered stock holding company subsidiary. (2) The Holding Company will charter Interim as a wholly-owned subsidiary. (3) The Mid-Tier Holding Company will convert into or exchange its charter for an interim federal stock savings bank (which shall continue to be referred to as "Mid-Tier Holding Company") and will merge with and into the Bank (the "Mid-Tier Merger") with the Bank as the resulting entity, pursuant to the Agreement of Merger attached hereto as Exhibit A, whereby the Mid-Tier Holding Company stockholders will constructively receive shares of Bank common stock in exchange for their Mid-Tier Holding Company common stock. (4) The Mutual Holding Company will exchange its charter for an interim stock savings bank charter and simultaneously merge with and into the Bank (the "MHC Merger") pursuant to the Agreement of Merger attached hereto as Exhibit B between the Mutual Holding Company and the Bank, whereby the shares of common stock of the Bank constructively held by the Mutual Holding Company will be canceled and each Eligible Account Holder and Supplemental Eligible Account Holder will receive an interest in a Liquidation Account of the Bank in exchange for such person's interest in the Mutual Holding Company. (5) Contemporaneously with the MHC Merger, Interim will merge with and into the Bank with the Bank as the surviving entity (the "Bank Merger") pursuant to the Agreement of Merger attached hereto as Exhibit C between the Bank and Interim, whereby the Holding Company will become the sole stockholder of the Bank. Constructive shareholders of the Bank (i.e., Minority Stockholders) will exchange the shares of Bank common stock that they constructively received in the Mid-Tier Merger for Holding Company Common Stock. (6) Contemporaneously with the Bank Merger, the Holding Company will offer for sale its Common Stock in the Offering. 6 D. As part of the Conversion, each Minority Share shall automatically, without further action of the holder thereof, be converted into and become the right to receive Holding Company Common Stock based upon the Exchange Ratio. The basis for exchange of Minority Shares for Holding Company Common Stock shall be fair and reasonable. Options to purchase shares of Mid-Tier Holding Company common stock which are outstanding immediately prior to the consummation of the Conversion shall be converted into options to purchase shares of Holding Company Common Stock, with the number of shares subject to the option and the exercise price per share to be adjusted based upon the Exchange Ratio so that the aggregate exercise price remains unchanged, and with the duration of the option remaining unchanged. E. Concurrently with the filing of the Conversion application with the OTS, the Holding Company shall also seek to register the Holding Company Common Stock with the SEC and any appropriate state securities authorities. In addition, the Mid-Tier Holding Company shall prepare preliminary proxy materials as well as other applications and information for review by the SEC and the OTS in connection with the solicitation of stockholder approval of the Plan. F. The Certificate of Incorporation of the Holding Company (the "Certificate") shall read substantially in the form of Exhibit D. G. The home office and branch offices of the Bank shall be unaffected by the Conversion. The executive offices of the Holding Company shall be located at the current offices of the Mutual Holding Company. 4. HOLDING COMPANY APPLICATIONS AND APPROVALS The Board of Directors of the Holding Company and the Mutual Holding Company will take all necessary steps to convert the Mutual Holding Company to stock form, form the Holding Company and complete the Offering. The Holding Company shall make timely applications for any requisite regulatory approvals, including an Application on Form AC and a Holding Company Application on Form H-(e)1, to be filed with the OTS and a Registration Statement to be filed with the SEC. 5. SALE OF SUBSCRIPTION SHARES The Subscription Shares will be offered simultaneously in the Subscription Offering to the Participants in the respective priorities set forth in this Plan. Subscription Shares will be available for purchase only in the priorities set forth in this Plan. The Subscription Offering may begin as early as the mailing of the proxy statement for the Special Meeting of Members. The Holding Company Common Stock will not be insured by the FDIC. The Bank will not knowingly lend funds or otherwise extend credit to any Person to purchase shares of Holding Company Common Stock. Any Subscription Shares not subscribed for in the Subscription Offering may be offered for sale in the Community Offering. The Subscription Offering may begin prior to the Special Meeting of Members and, in that event, the Community Offering may also begin prior to the Special Meeting of Members. The offer and sale of Holding Company Common Stock prior to the Special Meeting of Members will, however, be conditioned upon approval of the Plan by the Voting Members and stockholders of the Mid-Tier Holding Company. If feasible, any shares of Holding Company Common Stock remaining after the Subscription and Community Offerings, will be offered for sale in a Syndicated Community Offering or underwritten public offering in a manner that will achieve the widest distribution of the Holding Company Common Stock. The sale of all Holding Company Common Stock purchased in the Subscription and Community Offerings will be consummated simultaneously with the sale of any Holding Company Common Stock in the Syndicated Community Offering or underwritten public offering. 6. PURCHASE PRICE AND NUMBER OF SUBSCRIPTION SHARES The total number of shares (or a range thereof) of Holding Company Common Stock to be offered for sale in the Offering will be determined jointly by the Boards of Directors of the Mid-Tier Holding Company and the Holding Company immediately prior to the commencement of the Subscription and Community Offerings, and will be equal to the Offering Range divided by the Subscription Price. The Offering Range will be equal to the Appraised Value Range 7 multiplied by the Majority Ownership Interest. The estimated pro forma consolidated market value of the Holding Company will be subject to adjustment within the Appraised Value Range if necessitated by market or financial conditions, with the approval of the OTS, if necessary, and the maximum of the Appraised Value Range may be increased by up to 15% subsequent to the commencement of the Subscription and Community Offerings to reflect changes in market and financial conditions. The number of shares of Holding Company Common Stock issued in the Conversion will be equal to the estimated pro forma consolidated market value of the Holding Company, as may be amended, divided by the Subscription Price, and the number of shares of Holding Company Common Stock sold in the Offering will be equal to the product of (i) the estimated pro forma consolidated market value of the Holding Company, as may be amended, divided by the Subscription Price, and (ii) the Majority Ownership Interest. In the event that the Subscription Price multiplied by the number of shares of Holding Company Common Stock to be issued in the Conversion is below the minimum of the Appraised Value Range, or materially above the maximum of the Appraised Value Range, a resolicitation of purchasers may be required, PROVIDED that up to a 15% increase above the maximum of the Appraised Value Range will not be deemed material so as to require a resolicitation. Any such resolicitation shall be effected in such manner and within such time as the Bank and the Mutual Holding Company shall establish, with the approval of the OTS if required. Notwithstanding the foregoing, shares of Holding Company Common Stock will not be issued unless, prior to the consummation of the Conversion, the Independent Appraiser confirms to the Bank, the Mutual Holding Company, the Holding Company and to the OTS that, to the best knowledge of the Independent Appraiser, nothing of a material nature has occurred which, taking into account all relevant factors, would cause the Independent Appraiser to conclude that the number of shares of Holding Company Common Stock issued in the Conversion multiplied by the Subscription Price is incompatible with its estimate of the aggregate pro forma consolidated market value of the Holding Company. An increase in the aggregate value of the Holding Company Common Stock by up to 15% above the maximum of the Appraised Value Range, would not be deemed to be material. If such confirmation is not received, the Holding Company may cancel the Offering, extend the Conversion, establish a new Subscription Price and/or Appraised Value Range and reopen or hold a new Offering, or take such other action as the OTS may permit. The Holding Company Common Stock to be issued in the Conversion shall be fully paid and nonassessable. 7. RETENTION OF CONVERSION PROCEEDS BY THE HOLDING COMPANY The Holding Company will apply to the OTS to retain up to 50% of the proceeds of the Offering. The Holding Company believes that the Offering proceeds will provide economic strength to the Holding Company and the Bank in a highly competitive financial services industry, and would facilitate the possible expansion through acquisitions of other financial institutions, possible diversification into other related businesses and for other business and investment purposes, including the possible payment of dividends and future repurchases of the Holding Company Common Stock. 8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY) A. Each Eligible Account Holder shall receive, without payment, nontransferable subscription rights to subscribe in the Subscription Offering for a number of shares equal to up to the greater of 25,000 shares, .10% of the total number of shares of Holding Company Common Stock issued in the Offering, or fifteen times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Holding Company Common Stock issued in the Offering by a fraction, the numerator of which is the amount of the Eligible Account Holder's Qualifying Deposit and the denominator is the total amount of Qualifying Deposits of all Eligible Account Holders, in each case on the Eligibility Record Date, subject to the provisions of Section 14. B. In the event that Eligible Account Holders exercise subscription rights for a number of Subscription Shares in excess of the total number of such shares eligible for subscription, the Subscription Shares shall be allocated among the subscribing Eligible Account Holders so as to permit each subscribing Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation of Subscription Shares equal to the lesser of 100 shares or the number of shares for which such Eligible Account Holder has subscribed. Any remaining shares will be allocated among the subscribing Eligible Account Holders whose subscriptions remain unsatisfied in the proportion that the 8 amount of the Qualifying Deposit of each Eligible Account Holder whose subscription remains unsatisfied bears to the total amount of the Qualifying Deposits of all Eligible Account Holders whose subscriptions remain unsatisfied. If the amount so allocated exceeds the amount subscribed for by any one or more Eligible Account Holders, the excess shall be reallocated (one or more times as necessary) among those Eligible Account Holders whose subscriptions are still not fully satisfied on the same basis until all available shares have been allocated. C. Subscription rights of Directors, Officers and their Associates as Eligible Account Holders which are based on deposits made by such Persons during the twelve (12) months preceding the Eligibility Record Date shall be subordinated to the subscription rights of all other Eligible Account Holders. 9. SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY) If Subscription Shares remain available after all subscriptions of Eligible Account Holders have been satisfied, the Employee Plans of the Holding Company and the Bank shall receive, without payment, subscription rights to purchase in the aggregate up to 8% of the total number of shares of Holding Company Common Stock issued in the Offering. Management shall determine the total amount of subscription rights that the Employee Plans shall exercise, and number of shares for which the Employee Plans shall subscribe, which amount shall be 8% or less. The Employee Plans may purchase any shares of Holding Company Common Stock to be issued in the Offering as a result of an increase in the maximum of the Appraised Value Range after commencement of the Subscription Offering and prior to completion of the Conversion, notwithstanding the subscription rights of Eligible Account Holders. Consistent with applicable laws and regulations and practices and policies of the OTS, the Employee Plans may use funds contributed by the Holding Company or the Bank and/or borrowed from an independent financial institution to exercise such subscription rights, and the Holding Company and the Bank may make scheduled discretionary contributions thereto, provided that such contributions do not cause the Holding Company or the Bank to fail to meet any applicable regulatory capital requirements. The Employee Plans shall not be deemed to be Associates or Affiliates of or Persons Acting in Concert with any Director or Officer of the Holding Company or the Bank. 10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY) A. Each Supplemental Eligible Account Holder shall receive, without payment, nontransferable subscription rights to subscribe in the Subscription Offering for a number of shares equal to up to the greater of 25,000 shares, .10% of the total number of shares of Holding Company Common Stock issued in the Offering, or fifteen times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Holding Company Common Stock issued in the Offering by a fraction, the numerator of which is the amount of the Supplemental Eligible Account Holder's Qualifying Deposit and the denominator is the total amount of Qualifying Deposits of all Supplemental Eligible Account Holders, in each case on the Supplemental Eligibility Record Date, subject to the availability of sufficient shares after filling in full all subscription orders of the Eligible Account Holders and Employee Plans and to the purchase limitations specified in Section 14. B. In the event that Supplemental Eligible Account Holders exercise subscription rights for a number of Subscription Shares in excess of the total number of such shares eligible for subscription, the Subscription Shares shall be allocated among the subscribing Supplemental Eligible Account Holders so as to permit each such subscribing Supplemental Eligible Account Holder, to the extent possible, to purchase a number of shares sufficient to make his or her total allocation of Subscription Shares equal to the lesser of 100 shares or the number of shares for which each such Supplemental Eligible Account Holder has subscribed. Any remaining shares will be allocated among the subscribing Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in the proportion that the amount of the Qualifying Deposit of each such Supplemental Eligible Account Holder bears to the total amount of the Qualifying Deposits of all Supplemental Eligible Account Holders whose subscriptions remain unsatisfied. If the amount so allocated exceeds the amount subscribed for by any one or more Supplemental Eligible Account Holders, the excess shall be reallocated (one or more times as necessary) among those Supplemental Eligible Account Holders whose subscriptions are still not fully satisfied on the same basis until all available shares have been allocated or all subscriptions satisfied. 9 11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY) A. Each Other Member shall receive, without payment, nontransferable subscription rights to subscribe in the Subscription Offering for a number of Subscription Shares equal to up to the greater of 25,000 shares, or .10% of the total number of shares of Holding Company Common Stock issued in the Offering, subject to the availability of sufficient shares after filling in full all subscription orders of Eligible Account Holders, Employee Plans and Supplemental Eligible Account Holders and to the purchase limitations specified in Section 14. B. In the event that such Other Members subscribe for a number of Subscription Shares which, when added to the Subscription Shares subscribed for by the Eligible Account Holders, Employee Plans and Supplemental Eligible Account Holders, is in excess of the total number of Subscription Shares to be issued, the subscriptions of such Other Members will be allocated to Other Members in proportion to the amounts of their relative subscriptions. 12. COMMUNITY OFFERING If less than the total number of shares of Holding Company Common Stock to be sold in the Offering are subscribed for in the Subscription Offering, shares remaining unsubscribed for may be made available for purchase in the Community Offering to members of the general public. In the Community Offering, any Person may purchase up to 25,000 shares, subject to the overall purchase limitations specified in Section 14. The shares may be made available in the Community Offering through a direct community marketing program which may provide for a broker, dealer, consultant or investment banking firm experienced and expert in the sale of savings institutions securities. Such entities may be compensated on a fixed fee basis or on a commission basis, or a combination thereof. In the event orders for Holding Company Common Stock in the Community Offering exceed the number of shares available for sale, shares may be allocated (to the extent shares remain available) first to cover orders of Minority Stockholders as of the Voting Record Date, next to cover orders of natural persons residing in the Community, and thereafter to cover orders of other members of the general public. In the event orders for Holding Company Common Stock in any of these categories exceed the number of shares available for sale, shares any be allocated on a pro rata basis within a category based on the amount of the respective orders. The Holding Company shall make the distribution of Holding Company Common Stock to be sold in the Community Offering in such a manner as to promote a wide distribution of the Holding Company Common Stock. The Holding Company reserves the right to reject any or all orders, in whole or in part, which are received in the Community Offering. 13. SYNDICATED COMMUNITY OFFERING If feasible, the Board of Directors may determine to offer for sale in a Syndicated Community Offering shares of Holding Company Common Stock not purchased in the Subscription and Community Offerings, subject to such terms, conditions and procedures as may be determined by the Holding Company, in a manner that will achieve the widest distribution of the Holding Company Common Stock, subject to the right of the Bank to accept or reject in whole or in part any subscriptions in the Syndicated Community Offering. In the Syndicated Community Offering, any Person may purchase up to 25,000 shares, subject to the overall purchase limitations specified in Section 14. Provided the Subscription Offering has begun, the Bank may begin the Syndicated Community Offering at any time after the mailing to the Members of the proxy statement to be used in connection with the Special Meeting of Members, PROVIDED that the completion of the offer and sale of Holding Company Common Stock in the Conversion shall be conditioned upon the approval of this Plan by the Voting Members. If the Syndicated Community Offering does not begin pursuant to the provisions of the preceding sentence, the Syndicated Community Offering will begin as soon as practicable following the date upon which the Subscription and Community Offerings terminate. Alternatively, if a Syndicated Community Offering is not held, the Bank shall have the right to sell any shares of Holding Company Common Stock remaining following the Subscription and Community Offerings in an underwritten firm commitment public offering. The provisions of Section 14 shall not be applicable to sales to underwriters for purposes of such an offering but shall be applicable to the sales by the underwriters to the public. The price to be paid by the underwriters in such an offering shall be equal to the Subscription Price less an underwriting discount to be negotiated among such underwriters and the Bank, which will in no event exceed an amount deemed to be acceptable by the OTS. 10 If for any reason a Syndicated Community Offering or an underwritten firm commitment public offering of shares of Holding Company Common Stock not sold in the Subscription and Community Offerings cannot be effected, or in the event that any insignificant residue of shares of Holding Company Common Stock is not sold in the Subscription and Community Offerings or in the Syndicated Community or underwritten firm commitment public offering, other arrangements will be made for the disposition of unsubscribed shares by the Bank, if possible. Such other purchase arrangements will be subject to the approval of the OTS. 14. LIMITATIONS ON PURCHASES The following limitations shall apply to all purchases of shares of Holding Company Common Stock in the Conversion: A. The maximum number of shares of Holding Company Common Stock which may be subscribed for or purchased in all categories in the Offering by any Person or Participant together with any Associate or group of Persons Acting in Concert shall not exceed 25,000 shares of Holding Company Common Stock, except for the Employee Plans which may subscribe for up to 8% of the Holding Company Common Stock issued in the Offering (including shares issued in the event of an increase in the maximum of the Offering Range of up to15%). B. The maximum number of shares of Holding Company Common Stock which may be purchased in all categories of the Offering by Officers and Directors and their Associates in the aggregate, when combined with Exchange Shares received by such persons, shall not exceed 29% of the shares of Holding Company Common Stock issued in the Conversion. C. A minimum of 25 shares of Holding Company Common Stock must be purchased by each Person purchasing shares in the Offering to the extent those shares are available; PROVIDED, HOWEVER, that in the event the minimum number of shares of Holding Company Common Stock purchased times the price per share exceeds $500, then such minimum purchase requirement shall be reduced to such number of shares which when multiplied by the price per share shall not exceed $500, as determined by the Board. D. The maximum number of shares of Holding Company Common Stock which may be subscribed for or purchased in all categories of the Offering by any Person or Participant together with any Associate or group of Persons Acting in Concert, combined with Exchange Shares received by any such Person or Participant together with any Associate or group of Persons Acting in Concert, shall not exceed 5% of the shares of Holding Company Common Stock, except for the Employee Plans which may subscribe for up to 8% of the shares of Holding Company Common Stock issued in the Offering (including shares issued in the event of an increase in the maximum of the Offering Range of 15%). If the number of shares of Holding Company Common Stock otherwise allocable pursuant to Sections 8 through 13, inclusive, to any Person or that Person's Associates would be in excess of the maximum number of shares permitted as set forth above, the number of shares of Holding Company Common Stock allocated to each group consisting of a Person and that Person's Associates shall be reduced so that the aggregate allocation to that Person and his or her Associates complies with the above limits. Depending upon market or financial conditions, the Board of Directors of the Holding Company, with the approval of the OTS and without further approval of the Members, may decrease or further increase the purchase limitations in this Plan, PROVIDED that the maximum purchase limitations may not be increased to a percentage in excess of 5% of the shares issued in the Conversion except as provided below. If the Holding Company increases the maximum purchase limitations, the Holding Company is only required to resolicit Persons who subscribed in the Subscription Offering for the maximum purchase amount and may, in the sole discretion of the Holding Company, resolicit certain other large subscribers. In the event that the maximum purchase limitation is increased to 5% of the shares issued in the Conversion, such limitation may be further increased to 9.99% of the shares issued in the Conversion, PROVIDED that orders for Holding Company Common Stock exceeding 5% of the shares of Holding Company Common Stock issued in the Conversion shall not exceed in the aggregate 10% of the total shares of Holding Company Common Stock issued in the Conversion. Requests to purchase additional shares of the Holding Company Common Stock in the event that the 11 purchase limitation is so increased will be determined by the Board of Directors of the Holding Company in its sole discretion. In the event of an increase in the total number of shares offered in the Subscription Offering due to an increase in the maximum of the Offering Range of up to 15% (the "Adjusted Maximum"), the additional shares will be used in the following order of priority: (i) to fill the Employee Plans' subscription to the Adjusted Maximum; (ii) in the event that there is an oversubscription at the Eligible Account Holder, Supplemental Eligible Account Holder or Other Member levels, to fill unfulfilled subscriptions of such subscribers according to such respective priorities; and (iii) to fill unfulfilled subscriptions in the Community Offering with preference given first to Minority Stockholders as of the Voting Record Date and then to natural persons residing in the Community. For purposes of this Section 14, the Directors of the Bank, the Mid-Tier Holding Company and the Holding Company shall not be deemed to be Associates or a group affiliated with each other or otherwise Acting in Concert solely as a result of their being Directors of the Bank, the Mid-Tier Holding Company, the Mutual Holding Company or the Holding Company. Each Person purchasing Holding Company Common Stock in the Conversion shall be deemed to confirm that such purchase does not conflict with the above purchase limitations contained in this Plan. 15. PAYMENT FOR HOLDING COMPANY COMMON STOCK All payments for Holding Company Common Stock purchased in the Subscription and Community Offerings must be delivered in full to the Holding Company, together with a properly completed and executed Order Form, on or prior to the expiration date of the Offering; PROVIDED, HOWEVER, that if the Employee Plans subscribe for shares during the Subscription Offering, such plans will not be required to pay for the shares at the time they subscribe but rather may pay for such shares of Holding Company Common Stock subscribed for by such plans at the Subscription Price upon consummation of the Conversion. Notwithstanding the foregoing, the Holding Company shall have the right, in its sole discretion, to permit institutional investors to submit contractually irrevocable orders in the Offering and to thereafter submit payment by wire transfer for the Holding Company Common Stock for which they are subscribing in the Offering at any time prior to 48 hours before the completion of the Conversion, unless such 48 hour period is waived by the Holding Company in its sole discretion. Payment for Holding Company Common Stock subscribed for shall be made either by check, money order or bank draft. Alternatively, subscribers in the Subscription and Community Offerings may pay for the shares for which they have subscribed by authorizing the Bank on the Order Form to make a withdrawal from the types of Deposit Accounts at the Bank indicated on the Order Form in an amount equal to the Subscription Price of such shares. Such authorized withdrawal, whether from a savings passbook or certificate account, shall be without penalty as to premature withdrawal. If the authorized withdrawal is from a certificate account, and the remaining balance does not meet the applicable minimum balance requirement, the certificate shall be canceled at the time of withdrawal, without penalty, and the remaining balance will earn interest at the Bank's passbook rate. Funds for which a withdrawal is authorized will remain in the subscriber's Deposit Account but may not be used by the subscriber during the Offering. Thereafter, the withdrawal will be given effect only to the extent necessary to satisfy the subscription (to the extent it can be filled) at the Subscription Price per share. Interest will continue to be earned on any amounts authorized for withdrawal until such withdrawal is given effect. Interest will be paid by the Bank at the passbook rate on payments for Holding Company Common Stock received by check. Such interest will be paid from the date payment is received by the Bank until consummation or termination of the Conversion. If for any reason the Conversion is not consummated, all payments made by subscribers in the Subscription and Community Offerings will be refunded to them with interest. In case of amounts authorized for withdrawal from Deposit Accounts, refunds will be made by canceling the authorization for withdrawal. The Bank is prohibited by regulation from knowingly making any loans or granting any lines of credit for the purchase of stock in the Conversion, and therefore, will not do so. 16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS As soon as practicable after the Prospectus prepared by the Holding Company and Bank has been declared effective by the SEC, Order Forms will be distributed to the Eligible Account Holders, Employee Plans, Supplemental Eligible Account Holders and Other Members at their last known addresses appearing on the records of the Bank for the 12 purpose of subscribing for shares of Holding Company Common Stock in the Subscription Offering and will be made available for use by Persons in the Community Offering. Notwithstanding the foregoing, the Bank may elect to send Order Forms only to those Persons who request them after receipt of such notice in a form approved by the OTS and which is adequate to apprise the Eligible Account Holders, Employee Plans, Supplemental Eligible Account Holders and Other Members of the pendency of the Subscription Offering. Such notice may be included with the proxy statement for the Special Meeting of Members and the proxy statement for the Special Meeting of Stockholders, and may also be included in the notice of the pendency of the Conversion and the Special Meeting of Members sent to all Eligible Account Holders in accordance with regulations of the OTS. Each Order Form will be preceded or accompanied by a Prospectus describing the Holding Company, the Bank, the Holding Company Common Stock and the Offering. Each Order Form will contain, among other things, the following: A. A specified date by which all Order Forms must be received by the Holding Company, which date shall be not less than twenty (20), nor more than forty-five (45) days, following the date on which the Order Forms are mailed by the Holding Company, and which date will constitute the termination of the Subscription Offering; B. The Subscription Price per share for shares of Holding Company Common Stock to be sold in the Offering; C. A description of the minimum and maximum number of Subscription Shares which may be subscribed for pursuant to the exercise of subscription rights or otherwise purchased in the Community Offering; D. Instructions as to how the recipient of the Order Form is to indicate thereon the number of Subscription Shares for which such person elects to subscribe and the available alternative methods of payment therefor; E. An acknowledgment that the recipient of the Order Form has received a final copy of the Prospectus prior to execution of the Order Form; F. A statement to the effect that all subscription rights are nontransferable, will be void at the end of the Subscription Offering, and can only be exercised by delivering to the Holding Company within the subscription period such properly completed and executed Order Form, together with payment in the full amount of the aggregate purchase price as specified in the Order Form for the shares of Holding Company Common Stock for which the recipient elects to subscribe (or by authorizing on the Order Form that the Bank withdraw said amount from the subscriber's Deposit Account at the Bank); and G. A statement to the effect that the executed Order Form, once received by the Holding Company, may not be modified or amended by the subscriber without the consent of the Holding Company. Notwithstanding the above, the Holding Company reserves the right in its sole discretion to accept or reject orders received on photocopied or facsimiled Order Forms. 17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT In the event Order Forms (a) are not delivered and are returned to the Holding Company or the Bank by the United States Postal Service, (b) are not received by the Holding Company or are received by the Holding Company after the expiration date specified thereon, (c) are completed or executed defectively, (d) are not accompanied by the full required payment, or, in the case of institutional investors in the Community Offering, by delivering irrevocable orders together with a legally binding commitment to pay by wire transfer the full amount of the Subscription Price prior to 48 hours before the completion of the Conversion, unless waived by the Holding Company, for the shares of Holding Company Common Stock subscribed or ordered (including cases in which Deposit Accounts from which withdrawals are authorized are insufficient to cover the amount of the required payment), or (e) are not mailed pursuant to a "no mail" order placed in effect by the Account Holder, the subscription rights of the Person to whom such rights have been granted will lapse as though such Person failed to return the completed Order Form within the time period specified 13 thereon; PROVIDED, HOWEVER, that the Holding Company may, but will not be required to, waive any immaterial irregularity on any Order Form or require the submission of corrected Order Forms or the remittance of full payment for subscribed or ordered shares by such date as the Holding Company may specify. The interpretation of the Holding Company of terms and conditions of this Plan and of the Order Forms will be final, subject to the authority of the OTS. 18. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES The Holding Company will make reasonable efforts to comply with the securities laws of all states in the United States in which Persons entitled to subscribe for shares of Holding Company Common Stock pursuant to this Plan reside. However, no such Person will be granted subscription rights or be permitted to purchase shares of Holding Company Common Stock in the Subscription Offering if such Person resides in a foreign country, or in a state of the United States with respect to which any of the following apply: (A) a small number of Persons otherwise eligible to subscribe for shares under the Plan reside in such state; (B) the issuance of subscription rights or the offer or sale of shares of Holding Company Common Stock to such Persons would require the Holding Company under the securities laws of such state, to register as a broker, dealer, salesman or agent or to register or otherwise qualify its securities for sale in such state; (C) such registration or qualification would be impracticable for reasons of cost or otherwise. 19. ESTABLISHMENT OF LIQUIDATION ACCOUNT The Bank shall establish at the time of the MHC Merger a Liquidation Account in an amount equal to the greater of: (a) the percentage of the outstanding shares of the common stock of the Mid-Tier Holding Company owned by the Mutual Holding Company prior to the Mid-Tier Merger multiplied by the Mid-Tier Holding Company's total stockholders' equity as reflected in the latest statement of financial condition contained in the final Prospectus utilized in the Conversion; or (b) the retained earnings of the Bank at the time the Bank underwent its mutual holding company reorganization. Following the Conversion, the Liquidation Account will be maintained by the Bank for the benefit of the Eligible Account Holders and Supplemental Eligible Account Holders who continue to maintain their Deposit Accounts at the Bank. Each Eligible Account Holder and Supplemental Eligible Account Holder shall, with respect to his Deposit Account, hold a related inchoate interest in a portion of the Liquidation Account balance, in relation to his Deposit Account balance at the Eligibility Record Date or Supplemental Eligibility Record Date, respectively, or to such balance as it may be subsequently reduced, as hereinafter provided. In the unlikely event of a complete liquidation of the Bank (and only in such event), following all liquidation payments to creditors (including those to Account Holders to the extent of their Deposit Accounts), each Eligible Account Holder and Supplemental Eligible Account Holder shall be entitled to receive a liquidating distribution from the Liquidation Account in the amount of the then adjusted subaccount balance of his Deposit Account then held, before any liquidation distribution may be made to any holders of the Bank's capital stock. No merger, consolidation, purchase of bulk assets with assumption of Deposit Accounts and other liabilities, or similar transactions with an FDIC insured institution, in which the Bank is not the surviving institution, shall be deemed to be a complete liquidation for this purpose. In such transactions, the Liquidation Account shall be assumed by the surviving institution. The initial subaccount balance for a Deposit Account held by an Eligible Account Holder and Supplemental Eligible Account Holder shall be determined by multiplying the opening balance in the Liquidation Account by a fraction, the numerator of which is the amount of the Qualifying Deposits of such Account Holder and the denominator of which is the total amount of all Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible Account Holders. Such initial subaccount balance shall not be increased, but shall be subject to downward adjustment as described below. If, at the close of business on any December 31 annual closing date, commencing on or after the effective date of the Conversion, the deposit balance in the Deposit Account of an Eligible Account Holder or Supplemental Eligible Account Holder is less than the lesser of (i) the balance in the Deposit Account at the close of business on any other annual closing date subsequent to the Eligibility Record Date or Supplemental Eligibility Record Date, or (ii) the amount of the Qualifying Deposit in such Deposit Account as of the Eligibility Record Date or Supplemental Eligibility Record Date, the subaccount balance for such Deposit Account shall be adjusted by reducing such subaccount balance in an amount proportionate to the reduction in such deposit balance. In the event of such downward adjustment, the subaccount balance shall not be subsequently increased, notwithstanding any subsequent increase in the deposit balance of the related Deposit Account. If any such Deposit Account is closed, the related subaccount shall be reduced to zero. 14 The creation and maintenance of the Liquidation Account shall not operate to restrict the use or application of any of the net worth accounts of the Bank, except that the Bank shall not declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect thereof would cause its net worth to be reduced below (i) the amount required for the Liquidation Account; or (ii) the minimum regulatory capital requirements of the Bank contained in Part 567 of the Rules and Regulations of the OTS. 20. VOTING RIGHTS OF STOCKHOLDERS Following consummation of the Conversion, voting rights with respect to the Bank shall be held and exercised exclusively by the holders of its capital stock. The holders of the voting capital stock of the Holding Company shall have the exclusive voting rights with respect to the Holding Company. 21. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION A. All shares of Holding Company Common Stock purchased by Directors or Officers in the Offering shall be subject to the restriction that, except as provided in this Section or as may be approved by the OTS, no interest in such shares may be sold or otherwise disposed of for value for a period of one year following the date of purchase in the Offering. B. The restriction on disposition of Holding Company Common Stock set forth above in this Section shall not apply to the following: (1) Any exchange of such shares in connection with a merger or acquisition involving the Bank or the Holding Company, as the case may be, which has been approved by the OTS; and (2) Any disposition of such shares following the death of the person to whom such shares were initially sold under the terms of this Plan. C. With respect to all shares of Holding Company Common Stock subject to the restrictions on resale or subsequent disposition described in paragraph A above, each of the following provisions shall apply: (1) Each certificate representing shares restricted by this section shall bear a legend prominently stamped on its face giving notice of the restriction; (2) Instructions shall be issued to the stock transfer agent for the Holding Company not to recognize or effect any transfer of any certificate or record of ownership of any such shares in violation of the restriction on transfer; and (3) Any shares of capital stock of the Holding Company issued with respect to a stock dividend, stock split, or otherwise with respect to ownership of outstanding shares of Holding Company Common Stock subject to the restriction on transfer hereunder shall be subject to the same restriction as is applicable to such Holding Company Common Stock. 22. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING THE CONVERSION For a period of three years following the Conversion, no Officer, Director or their Associates shall purchase, without the prior written approval of the OTS, any outstanding shares of Holding Company Common Stock except from a broker-dealer registered with the SEC. This provision shall not apply to negotiated transactions involving more than 1% of the outstanding shares of Holding Company Common Stock, the exercise of any options pursuant to a stock option plan or purchases of Holding Company Common Stock made by or held by any Tax-Qualified Employee Stock Benefit Plan or NonTax-Qualified Employee Stock Benefit Plan of the Bank or the Holding Company (including the Employee Plans) which may be attributable to any Officer or Director. As used herein, the term "negotiated transaction" means a transaction in which the securities are offered and the terms and arrangements relating to any sale are arrived at through 15 direct communications between the seller or any Person acting on its behalf and the purchaser or his investment representative. The term "investment representative" shall mean a professional investment advisor acting as agent for the purchaser and independent of the seller and not acting on behalf of the seller in connection with the transaction. 23. TRANSFER OF DEPOSIT ACCOUNTS Each Person holding a Deposit Account at the Bank at the time of Conversion shall retain an identical Deposit Account at the Bank following the Conversion in the same amount and subject to the same terms and conditions (except as to voting and liquidation rights). 24. REGISTRATION AND MARKETING Within the time period required by applicable laws and regulations, the Holding Company will register the securities issued in connection with the Conversion pursuant to the Securities Exchange Act of 1934 (or will be a successor issuer that succeeds to the registration of the Mid-Tier Holding Company) and will not deregister such securities for a period of at least three years thereafter, except that the maintenance of registration for three years requirement may be fulfilled by any successor to the Bank or any holding company of the Bank. In addition, the Bank or Holding Company will use its best efforts to encourage and assist a market-maker to establish and maintain a market for the Holding Company Common Stock and to list those securities on a national or regional securities exchange or the Nasdaq Stock Market. 25. TAX RULINGS OR OPINIONS Consummation of the Conversion is expressly conditioned upon prior receipt by the Mutual Holding Company, the Mid-Tier Holding Company and the Bank of either a ruling or an opinion of counsel with respect to federal tax laws, and either a ruling, an opinion of counsel, or a letter of advice from their tax advisor with respect to Ohio tax laws, to the effect that consummation of the transactions contemplated by the Conversion and this Plan will not result in a taxable reorganization under the provisions of the applicable codes or otherwise result in any adverse tax consequences to the Mutual Holding Company, the Mid-Tier Holding Company, the Holding Company or the Bank, or the Account Holders receiving subscription rights before or after the Conversion, except in each case to the extent, if any, that subscription rights are deemed to have value on the date such rights are issued. 26. STOCK BENEFIT PLANS AND EMPLOYMENT AGREEMENTS A. The Holding Company and the Bank are authorized to adopt Tax-Qualified Employee Stock Benefit Plans and Non-Tax-Qualified Employee Stock Benefit Plans in connection with the Conversion, including without limitation, an ESOP. Any existing as well as any newly created such plan may purchase shares of Holding Company Common Stock in the Conversion, to the extent permitted by the terms of such benefit plans and this Plan. B. As a result of the Conversion, the Holding Company shall be deemed to have ratified and approved the stock benefit plans maintained by the Bank and the Mid-Tier Holding Company and shall have agreed to issue (and reserve for issuance) Holding Company Common Stock in lieu of common stock of the Mid-Tier Holding Company pursuant to the terms of such benefit plans. Upon consummation of the Conversion, the Mid-Tier Holding Company common stock held by such benefit plans shall be converted into Holding Company Common Stock based upon the Exchange Ratio. Also upon consummation of the Conversion, (i) all rights to purchase, sell or receive Mid-Tier Holding Company common stock and all rights to elect to make payment in Mid-Tier Holding Company common stock under any agreement between the Bank or the Mid-Tier Holding Company and any Director, Officer or Employee thereof or under any plan or program of the Bank or the Mid-Tier Holding Company shall automatically, by operation of law, be converted into and shall become an identical right to purchase, sell or receive Holding Company Common Stock and an identical right to make payment in Holding Company Common Stock under any such agreement between the Bank or the Mid-Tier Holding Company and any Director, Officer or Employee thereof or under such plan or program of the Bank, and (ii) rights outstanding under the any stock option plan of the Bank or the Mid-Tier Holding Company shall be assumed by the Holding Company and thereafter shall be rights only for shares of Holding Company Common Stock, with each such right being for a number of shares of Holding Company Common Stock based upon the Exchange Ratio 16 and the number of shares of Mid-Tier Holding Company common stock that were available thereunder immediately prior to consummation of the Conversion, with the price adjusted to reflect the Exchange Ratio but with no change in any other term or condition of such right. C. The Holding Company and the Bank are authorized to enter into employment agreements with their executive officers. D. The Holding Company and the Bank are authorized to adopt stock option plans, restricted stock grant plans and other Non-Tax-Qualified Employee Stock Benefit Plans, provided that such plans conform to any applicable requirements of OTS regulations. 27. RESTRICTIONS ON ACQUISITION OF BANK AND HOLDING COMPANY A. In accordance with OTS regulations, for a period of three years from the date of consummation of the Conversion, no Person, other than the Holding Company, shall directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10% of any class of an equity security of the Bank without the prior written consent of the OTS. (1) To the extent permitted by regulatory authority, the charter of the Bank may contain a provision stipulating that no Person, except the Holding Company, for a period of five years following the closing date of the Conversion, may directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10.0% of any class of an equity security of the Bank, without the prior written approval of the OTS. In addition, such charter may also provide that for a period of five years following the closing date of the Conversion, shares beneficially owned in violation of the above-described charter provision shall not be entitled to vote and shall not be voted by any Person or counted as voting stock in connection with any matter submitted to stockholders for a vote. In addition, special meetings of the stockholders relating to changes in control or amendment of the charter may only be called by the Board of Directors, and shareholders shall not be permitted to cumulate their votes for the election of Directors. (2) The Certificate of Incorporation of the Holding Company will contain a provision stipulating that in no event shall any record owner of any outstanding shares of Holding Company Common Stock who beneficially owns in excess of 10% of such outstanding shares be entitled or permitted to any vote in respect to any shares held in excess of 10%. In addition, the Certificate of Incorporation and Bylaws of the Holding Company contain provisions which provide for staggered terms of the Directors, noncumulative voting for Directors, limitations on the calling of special meetings and certain notice requirements. B. For the purposes of this section: (1) The term "Person" includes an individual, a firm, a corporation or other entity; (2) The term "offer" includes every offer to buy or acquire, solicitation of an offer to sell, tender offer for, or request or invitation for tenders of, a security or interest in a security for value; (3) The term "acquire" includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise; and (4) The term "security" includes nontransferable subscription rights issued pursuant to a plan of conversion as well as a "security" as defined in Section 2(a)(l) of the Securities Act of 1933. 17 28. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK A. The Holding Company shall comply with any applicable OTS regulation in the repurchase of any shares of its capital stock during the first year following consummation of the Conversion. B. The Bank shall not declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect thereof would cause its regulatory capital to be reduced below (i) the amount required for the Liquidation Account or (ii) the minimum regulatory capital requirement in Section 567.2 of the Rules and Regulations of the OTS. Otherwise, the Bank may declare dividends or make capital distributions in accordance with applicable law and regulations, including 12 C.F.R. Section 563.141 or its successor. 29. CHARTER AND BYLAWS By voting to adopt this Plan, Members of the Mutual Holding Company will be voting to adopt a Stock Certificate of Incorporation and Bylaws for the Holding Company attached as Exhibits E and F to this Plan. 30. CONSUMMATION OF CONVERSION AND EFFECTIVE DATE The Effective Date of the Conversion shall be the date upon which the Articles of Combination shall be filed with the OTS with respect to the MHC Merger, the Mid-Tier Merger and the Bank Merger. The Articles of Combination shall be filed with the OTS after all requisite regulatory, member and stockholder approvals have been obtained, all applicable waiting periods have expired, and sufficient subscriptions and orders for Subscription Shares have been received. The Closing of the sale of all shares of Holding Company Common Stock sold in the Subscription Offering, Community Offering and/or Syndicated Community Offering shall occur simultaneously on the effective date of the Closing. 31. EXPENSES OF CONVERSION The Mutual Holding Company, the Mid-Tier Holding Company, the Bank and the Holding Company may retain and pay for the services of legal, financial and other advisors to assist in connection with any or all aspects of the Conversion, including the Offering, and such parties shall use their best efforts to assure that such expenses shall be reasonable. 32. AMENDMENT OR TERMINATION OF PLAN This Plan may be substantively amended by the Board of Directors of the Mutual Holding Company at the discretion of the Board of Directors or as a result of comments from regulatory authorities at any time prior to the solicitation of proxies from Members and Mid-Tier Holding Company stockholders to vote on this Plan, and at any time thereafter by the Board of Directors of the Mutual Holding Company with the concurrence of the OTS. Any amendment to this Plan made after approval by the Members and Mid-Tier Holding Company stockholders with the approval of the OTS shall not necessitate further approval by the Members unless otherwise required by the OTS. This Plan may be terminated by the Board of Directors of the Mutual Holding Company at any time prior to the Special Meeting of Members and the Special Meeting of Stockholders to vote on this Plan, and at any time thereafter with the concurrence of the OTS. By adoption of the Plan, the Members of the Mutual Holding Company authorize the Board of Directors of the Mutual Holding Company to amend or terminate the Plan under the circumstances set forth in this Section. 33. CONDITIONS TO CONVERSION Consummation of the Conversion pursuant to this Plan is expressly conditioned upon the following: 18 A. Prior receipt by the Mutual Holding Company, the Mid-Tier Holding Company, and the Bank of rulings of the United States Internal Revenue Service and the Ohio State taxing authorities, or opinions of counsel or tax advisers as described in Section 25 hereof; B. The sale of the shares of Holding Company Common Stock offered in the Conversion; and C. The completion of the Conversion within the time period specified in Section 3 of this Plan. 34. INTERPRETATION All interpretations of this Plan and application of its provisions to particular circumstances by a majority of the Board of Directors of the Mutual Holding Company shall be final, subject to the authority of the OTS. Dated: July 10, 2001. 19 EXHIBIT A AGREEMENT OF MERGER BETWEEN WAYNE SAVINGS BANCSHARES, INC., WAYNE INTERIM I AND WAYNE SAVINGS COMMUNITY BANK FORM OF AGREEMENT OF MERGER BETWEEN WAYNE SAVINGS BANCSHARES, INC. (A FEDERAL CORPORATION), WAYNE INTERIM I AND WAYNE SAVINGS COMMUNITY BANK THIS AGREEMENT OF MERGER (this "Merger Agreement"), dated as of _____________, 2001, is made by and between Wayne Savings Bancshares, Inc., a federal corporation (the "Mid-Tier Holding Company"), Wayne Savings Community Bank (the "Bank") and Wayne Interim I, an interim federal savings bank ("Interim I"). R E C I T A L S : 1. Mid-Tier Holding Company is a federal company that owns 100% of the common stock of Wayne Savings Community Bank (the "Bank"). As of the date hereof, Mid-Tier Holding Company has authorized capital stock consisting of 20,000,000 shares of common stock and 10,000,000 shares of preferred stock. 2. Pursuant to this Merger Agreement, Mid-Tier Holding Company will convert to or exchange its charter for the federal interim savings bank charter of Interim I, and Interim I shall merge with and into the Bank with the Bank as the surviving entity (the "Mid-Tier Merger"). Mid-Tier Holding Company / Interim I stockholders shall constructively receive shares of Bank common stock in exchange for Mid-Tier Holding Company Interim I common stock that they actually or constructively hold. 3. At least two-thirds of the members of the boards of directors of the Bank, Interim I and Mid-Tier Holding Company have approved this Merger Agreement under which Mid-Tier Holding Company shall convert its charter to Interim I and Interim I shall be merged with and into the Bank with the Bank as the surviving or resulting institution (the "Resulting Institution"), and authorized the execution and delivery thereof. 4. This Merger Agreement (and the transactions contemplated hereby) are being entered into to facilitate the conversion of Wayne Savings Bankshares, M.H.C. to stock form pursuant to that certain Plan of Conversion and Reorganization of Wayne Savings Bankshares, M.H.C. ("the Plan"). NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, the parties hereto have agreed as follows: 1. MERGER. At and on the Effective Date (as defined below), (i) Mid-Tier Holding Company shall exchange its charter for the charter of Interim I, and Interim I will merge with and into the Bank (the "Mid-Tier Merger") with the Bank as the Resulting Institution, and (ii) Mid-Tier Holding Company/Interim I stockholders shall constructively receive shares of Bank common stock in exchange for their Mid-Tier Holding Company/Interim I common stock. 2. EFFECTIVE DATE. The Mid-Tier Merger shall not be effective until and unless it is approved by the Office of Thrift Supervision (the "OTS") after approval by (i) at least two-thirds of the outstanding common stock of Mid-Tier Holding Company and (ii) a majority vote of the Minority Stockholders, and the Articles of Combination shall have been filed with the OTS with respect to the Mid-Tier Merger. 3. NAME. The name of the Resulting Institution shall be Wayne Savings Community Bank. 4. OFFICES. The main office of the Resulting Institution shall be 151 North Market Street, Wooster, Ohio. The offices of the Bank that were in lawful operation prior to the Mid-Tier Merger shall be operated as offices of the Resulting Institution after the Mid-Tier Merger. 5. DIRECTORS AND OFFICERS. The directors and officers of the Bank immediately prior to the Effective Date shall be the directors and officers of the Resulting Institution after the Effective Date. A-1 6. RIGHTS AND DUTIES OF THE RESULTING INSTITUTION. At the Effective Date, the Mid-Tier Holding Company shall convert to Interim I, which shall be merged with and into the Bank with the Bank as the Resulting Institution. The business of the Resulting Institution shall be that of a savings and loan association as provided in its charter. All assets, rights, interests, privileges, powers, franchises and property (real, personal and mixed) of Mid-Tier Holding Company, Interim I and the Bank shall be automatically transferred to and vested in the Resulting Institution by virtue of the Mid-Tier Merger without any deed or other document of transfer. The Resulting Institution, without any order or action on the part of any court or otherwise and without any documents of assumption or assignment, shall hold and enjoy all of the properties, franchises and interests, including appointments, powers, designations, nominations and all other rights and interests as the agent or other fiduciary in the same manner and to the same extent as such rights, franchises, and interests and powers were held or enjoyed by Mid-Tier Holding Company, Interim I and the Bank. The Resulting Institution shall be responsible for all of the liabilities, restrictions and duties of every kind and description of Mid-Tier Holding Company, Interim I and the Bank immediately prior to the Mid-Tier Merger, including liabilities for all debts, obligations and contracts of Mid-Tier Holding Company, Interim I and the Bank, matured or unmatured, whether accrued, absolute, contingent or otherwise and whether or not reflected or reserved against on balance sheets, books of accounts or records of the Mid-Tier Holding Company and the Bank. The stockholders of the Bank shall possess all voting rights with respect to the shares of stock of the Bank. All rights of creditors and other obligees and all liens on property of Mid-Tier Holding Company, Interim I and the Bank shall be preserved and shall not be released or impaired. 7. OTHER TERMS. All terms used in this Merger Agreement shall, unless defined herein, have the meanings set forth in the Plan. The Plan is incorporated herein by this reference and made a part hereof to the extent necessary or appropriate to effect and consummate the terms of this Merger Agreement and the Conversion. IN WITNESS WHEREOF, Mid-Tier Holding Company, Interim I and the Bank have caused this Merger Agreement to be executed as of the date first above written. WAYNE SAVINGS BANCSHARES, INC. (a federal corporation) ATTEST: By: ------------------------------- By: /s/ Charles F. Finn , Secretary ------------------------------- ------------- Charles F. Finn, President WAYNE SAVINGS COMMUNITY BANK ATTEST: By: By: /s/ Charles F. Finn ------------------------------- ------------------------------- , Secretary Charles F. Finn, President ------------- WAYNE INTERIM I ATTEST: By: By: /s/ Charles F. Finn ------------------------------- -------------------------------- , Secretary Charles F. Finn, President ------------- A-2 EXHIBIT B AGREEMENT OF MERGER BETWEEN WAYNE SAVINGS BANKSHARES, M.H.C., WAYNE INTERIM II AND WAYNE SAVINGS COMMUNITY BANK FORM OF AGREEMENT OF MERGER BETWEEN WAYNE SAVINGS BANKSHARES, M.H.C., WAYNE INTERIM II AND WAYNE SAVINGS COMMUNITY BANK THIS AGREEMENT OF MERGER (this "Merger Agreement"), dated as of ___________, 2001, is made by and between Wayne Savings Bankshares, M.H.C., a federal mutual holding company (the "Mutual Holding Company"), Wayne Savings Community Bank (the "Bank"), and Wayne Interim II, an interim federal savings bank ("Interim II"). R E C I T A L S : 1. The Mutual Holding Company is a federal mutual holding company with no authorized shares of capital stock. 2. After the merger of Wayne Savings Bancshares, Inc., a federal mid-tier holding company and Wayne Interim I into the Bank, the majority of the shares of common stock of the Bank will be owned by the Mutual Holding Company, and the remainder of the shares of common stock of the Bank will be owned and held constructively by the Bank's employees, directors and the public (the "Minority Stockholders"). 3. Pursuant to this Merger Agreement, the Mutual Holding Company will convert to or exchange its charter for the federal interim savings bank charter of Interim II, and Interim II shall merge with and into the Bank with the Bank as the surviving entity (the "MHC Merger"). Each Eligible Account Holder and Supplemental Eligible Account Holder, as defined in the Plan of Conversion and Reorganization of Wayne Savings Bankshares, M.H.C. (the "Plan"), will receive as interest in a liquidation account ("Liquidation Account") of the Bank in exchange for such person's interest in the Mutual Holding Company. 4. At least two-thirds of the members of the boards of directors of the Bank and the Mutual Holding Company have approved this Merger Agreement and the MHC Merger (as described below) and authorized the execution and delivery thereof. 5. This Merger Agreement (and the transactions contemplated hereby) are being entered into to facilitate the conversion of the Mutual Holding Company to stock form pursuant to the Plan. NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, the parties hereto have agreed as follows: 1. MERGER. At and on the Effective Date (as defined below), (i) the Mutual Holding Company shall convert to or exchange its charter for the charter of Interim II, and Interim II will merge with and into the Bank (the "MHC Merger") with the Bank as the surviving or resulting institution (the "Resulting Institution"), (ii) each share of Bank common stock owned by the Mutual Holding Company shall be canceled, and (iii) each Eligible Account Holder and Supplemental Eligible Account Holder shall automatically receive an interest in the Liquidation Account established in the Bank in exchange for such person's interest in the Mutual Holding Company, as set forth in the Plan. 2. EFFECTIVE DATE. The MHC Merger shall not be effective until and unless it is approved by the Office of Thrift Supervision (the "OTS") after approval by (i) two-thirds of the outstanding common stock of the Bank, and (ii) a majority of the members of the Mutual Holding Company, and the Articles of Combination shall have been filed with the OTS with respect to the MHC Merger. Approval of the Plan by the members of the Mutual Holding Company shall also constitute approval of this Merger Agreement. 3. NAME. The name of the Resulting Institution shall be Wayne Savings Community Bank. B-1 4. OFFICES. The main offices of the Resulting Institution shall be 151 North Market Street, Wooster, Ohio. The offices of the Bank that were in lawful operation prior to the MHC Merger shall continue to be operated as the offices of the Resulting Institution after the MHC Merger. 5. DIRECTORS and OFFICERS. The directors and officers of the Bank immediately prior to the Effective Date shall be the directors and officers of the Resulting Institution after the Effective Date. 6 RIGHTS AND DUTIES OF THE RESULTING INSTITUTION. At the Effective Date, the Mutual Holding Company shall convert to Interim II, which shall merge with and into the Bank with the Bank as the Resulting Institution. The business of the Resulting Institution shall be that of a savings and loan association as provided in its Charter. All assets, rights, interests, privileges, powers, franchises and property (real, personal and mixed) of the Mutual Holding Company, Interim II and the Bank shall be automatically transferred to and vested in the Resulting Institution by virtue of such merger without any deed or other document of transfer. The Resulting Institution, without any order or action on the part of any court or otherwise and without any documents of assumption or assignment, shall hold and enjoy all of the properties, franchises and interests, including appointments, powers, designations, nominations and all other rights and interests as the agent or other fiduciary in the same manner and to the same extent as such rights, franchises, and interests and powers were held or enjoyed by the Mutual Holding Company, Interim II and the Bank. The Resulting Institution shall be responsible for all of the liabilities, restrictions and duties of every kind and description of both the Mutual Holding Company, Interim II and the Bank immediately prior to the MHC Merger, including liabilities, debts, obligations and contracts of the Mutual Holding Company, Interim II and the Bank, matured or unmatured, whether accrued, absolute, contingent or otherwise and whether or not reflected or reserved against on balance sheets, books of accounts or records of the Mutual Holding Company, Interim II and the Bank. The stockholders of the Bank shall possess all voting rights with respect to the shares of stock of the Bank. All rights of creditors and other obligees and all liens on property of either the Mutual Holding Company, Interim II and the Bank shall be preserved and shall not be released or impaired. 7. OTHER TERMS. All terms used in this Merger Agreement shall, unless defined herein, have the meanings set forth in the Plan. The Plan is incorporated herein by this reference and made a part hereof to the extent necessary or appropriate to effect and consummate the terms of this Merger Agreement and the Conversion. IN WITNESS WHEREOF, the Mutual Holding Company, Interim II and the Bank have caused this Merger Agreement to be executed as of the date first above written. WAYNE SAVINGS BANKSHARES, M.H.C. ATTEST: By: By: /s/ Charles F. Finn ---------------------------- ------------------------------ , Secretary Charles F. Finn, President ------------ WAYNE SAVINGS COMMUNITY BANK ATTEST: By: By: /s/ Charles F. Finn ---------------------------- ------------------------------ , Secretary Charles F. Finn, President ------------ WAYNE INTERIM II ATTEST: By: By: /s/ Charles F. Finn ---------------------------- ------------------------------ , Secretary Charles F. Finn, President ------------ B-2 EXHIBIT C AGREEMENT OF MERGER BETWEEN WAYNE SAVINGS COMMUNITY BANK AND WAYNE INTERIM III FORM OF AGREEMENT OF MERGER BETWEEN WAYNE SAVINGS COMMUNITY BANK AND WAYNE INTERIM III THIS AGREEMENT OF MERGER (this "Merger Agreement"), dated as of __________________, 2001, is made by and between Wayne Savings Community Bank, an Ohio-chartered savings and loan association (the "Bank"), and Wayne Interim III, an interim federal savings Bank ("Interim"). R E C I T A L S : 1. The Bank is an Ohio-chartered savings and loan association that immediately prior to the transactions contemplated by this Merger Agreement and the Plan of Conversion and Reorganization of Wayne Savings Bankshares, M.H.C. (the "Plan") was a wholly-owned subsidiary of Wayne Savings Bancshares, Inc. (the "Mid-Tier Holding Company"), a federal corporation. The Mid-Tier Holding Company was a majority-owned subsidiary of Wayne Savings Bankshares, M.H.C. (the "Mutual Holding Company"). 2. Pursuant to the Plan and its related merger agreements, (i) the Mid-Tier Holding Company shall convert into Wayne Interim I, an interim federal savings bank ("Interim I") and merge with and into the Bank (the "Mid-Tier Merger") with the Bank as the resulting entity, (ii) the Mid-Tier Holding Company stockholders shall constructively receive shares of Bank common stock in exchange for their Mid-Tier Holding Company common stock, (iii) the Mutual Holding Company will convert to, or exchange its charter for, a federal interim savings bank ("Interim II") which shall merge with and into the Bank with the Bank as the resulting entity, and (iv) each Eligible Account Holder and Supplemental Eligible Account Holder (as defined in the Plan) shall receive an interest in a Liquidation Account of the Bank in exchange for such person's interest in the Mutual Holding Company. 3. Pursuant to the Plan and this Merger Agreement, the Bank shall organize Wayne Savings Bancshares, Inc., a Delaware corporation (the "Holding Company"), which will become the holding company of the Bank. 4. At least two-thirds of the members of the boards of directors of the Bank and Interim have approved this Merger Agreement under which Interim shall be merged with and into the Bank with the Bank as the surviving or resulting institution, and authorized the execution and delivery thereof. 5. This Merger Agreement (and the transactions contemplated hereby) is being entered into to facilitate the conversion of Wayne Savings Bankshares, M.H.C. to stock form pursuant to the Plan. NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, the parties hereto have agreed as follows: 1. MERGER. At and on the Effective Date (as defined below) and immediately following the Mid-Tier Merger and the MHC Merger (i) Interim will merge with and into the Bank (the "Bank Merger") with the Bank as the surviving or resulting institution ("Resulting Institution"), whereby (ii) all constructive shareholders of the Bank (I.E., Minority Stockholders immediately prior to the Conversion) will exchange the shares of Bank common stock that they constructively received in the Mid-Tier Merger for Holding Company Common Stock. 2. STOCK OFFERING. Immediately after the Bank Merger, the Holding Company shall sell shares of its common stock in a subscription and community offering as described in the Plan. 3. EFFECTIVE DATE. The Bank Merger shall not be effective until and unless it isapproved by the Office of Thrift Supervision (the "OTS") after approval by at least two-thirds of the outstanding common stock of the Bank and Interim, and the Articles of Combination shall have been filed with the OTS with respect to the Bank Merger. 4. NAME. The name of the Resulting Institution shall be Wayne Savings Community Bank. C-1 5. OFFICES. The main offices of the Resulting Institution shall be 151 North Market Street, Wooster, Ohio. The offices of the Bank that were in lawful operation prior to the Bank Merger shall be operated as offices of the Resulting Institution after the Bank Merger. 6. DIRECTORS AND OFFICERS. The directors and officers of the Bank immediately prior to the Effective Date shall be the directors and officers of the Resulting Institution after the Effective Date. 7. RIGHTS AND DUTIES OF THE RESULTING INSTITUTION. At the Effective Date, Interim shall be merged with and into the Bank with the Bank as the Resulting Institution. The business of the Resulting Institution shall be that of a savings and loan association as provided in its charter. All assets, rights, interests, privileges, powers, franchises and property (real, personal and mixed) of Interim and the Bank shall be automatically transferred to and vested in the Resulting Institution by virtue of the Bank Merger without any deed or other document of transfer. The Resulting Institution, without any order or action on the part of any court or otherwise and without any documents of assumption or assignment, shall hold and enjoy all of the properties, franchises and interests, including appointments, powers, designations, nominations and all other rights and interests as the agent or other fiduciary in the same manner and to the same extent as such rights, franchises, and interests and powers were held or enjoyed by Interim and the Bank. The Resulting Institution shall be responsible for all of the liabilities, restrictions and duties of every kind and description of Interim and the Bank immediately prior to the Bank Merger, including liabilities for all debts, obligations and contracts of Bank and Interim, matured or unmatured, whether accrued, absolute, contingent or otherwise and whether or not reflected or reserved against on balance sheets, books of accounts or records of Interim and the Bank. The stockholders of the Bank shall possess all voting rights with respect to the shares of stock of the Bank. All rights of creditors and other obligees and all liens on property of Interim and the Bank shall be preserved and shall not be released or impaired. 8. OTHER TERMS. All terms used in this Merger Agreement shall, unless defined herein, have the meanings set forth in the Plan. The Plan is incorporated herein by this reference and made a part hereof to the extent necessary or appropriate to effect and consummate the terms of the Merger Agreement and the Conversion. IN WITNESS WHEREOF, the Bank and Interim have caused this Merger Agreement to be executed as of the date first above written. WAYNE SAVINGS COMMUNITY BANK ATTEST: By: By: /s/ Charles F. Finn ----------------------------- --------------------------------- , Secretary Charles F. Finn, President ------------ WAYNE INTERIM III ATTEST: By: By: /s/ Charles F. Finn ----------------------------- -------------------------------- , Secretary Charles F. Finn, President ------------ C-2 EXHIBIT D CERTIFICATE OF INCORPORATION OF THE HOLDING COMPANY CERTIFICATE OF INCORPORATION OF WAYNE SAVINGS BANCSHARES, INC. FIRST: The name of the Corporation is Wayne Savings Bancshares, Inc. (hereinafter referred to as the "Corporation"). SECOND: The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent at that address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware. FOURTH: A. The total number of shares of all classes of stock that the Corporation shall have authority to issue is eight million, five-hundred thousand (8,500,000) consisting of: 1. five-hundred thousand (500,000) shares of Preferred Stock, par value ten cents ($.10) per share (the "Preferred Stock"); and 2. eight million (8,000,000) shares of Common Stock, par value ten cents ($.10) per share (the "Common Stock"). B. The Board of Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware (such certificate being hereinafter referred to as a "Preferred Stock Designation"), to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences, and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of any Preferred Stock Designation. C. 1. Notwithstanding any other provision of this Certificate of Incorporation, in no event shall any record owner of any outstanding Common Stock which is beneficially owned, directly or indirectly, by a person who, as of any record date for the determination of stockholders entitled to vote on any matter, beneficially owns in excess of 10% of the then-outstanding shares of Common Stock (the "Limit"), be entitled, or permitted to any vote in respect of the shares held in excess of the Limit. The number of votes which may be cast by any record owner by virtue of the provisions hereof in respect of Common Stock beneficially owned by such person owning shares in excess of the Limit shall be a number equal to the total number of votes which a single record owner of all Common Stock owned by such person would be entitled to cast, multiplied by a fraction, the numerator of which is the number of shares of such class or series which are both beneficially owned by such person and owned of record by such record owner and the denominator of which is the total number of shares of Common Stock beneficially owned by such person owning shares in excess of the Limit. 2. The following definitions shall apply to this Section C of this Article FOURTH: D-1 (a) "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Securities Act of 1934, as in effect on the date of filing of this Certificate of Incorporation. (b) "Beneficial ownership" shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 (or any successor rule or statutory provision), or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule or statutory provision thereto, pursuant to said Rule 13d-3 as in effect on the date of filing of this Certificate of Incorporation; provided, however, that a person shall, in any event, also be deemed the "beneficial owner" of any Common Stock: (1) which such person or any of its affiliates beneficially owns, directly or indirectly; or (2) which such person or any of its affiliates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of an agreement, contract, or other arrangement with this Corporation to effect any transaction which is described in any one or more clauses of Section A of Article EIGHTH) or upon the exercise of conversion rights, exchange rights, warrants, or options or otherwise, or (ii) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding, relationship or otherwise (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, with respect to shares of which neither such person nor any such affiliate is otherwise deemed the beneficial owner); or (3) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its affiliates acts as a partnership, limited partnership, syndicate or other group pursuant to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of this Corporation; and provided further, however, that (1) no Director or Officer of this Corporation (or any affiliate of any such Director or Officer) shall, solely by reason of any or all of such Directors or Officers acting in their capacities as such, be deemed, for any purposes hereof, to beneficially own any Common Stock beneficially owned by another such Director or Officer (or any affiliate thereof), and (2) neither any employee stock ownership plan or similar plan of this Corporation or any subsidiary of this Corporation, nor any trustee with respect thereto or any affiliate of such trustee (solely by reason of such capacity of such trustee), shall be deemed, for any purposes hereof, to beneficially own any Common Stock held under any such plan. For purposes of computing the percentage beneficial ownership of Common Stock of a person, the outstanding Common Stock shall include shares deemed owned by such person through application of this subsection but shall not include any other Common Stock which may be issuable by this Corporation pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. For all other purposes, the outstanding Common Stock shall include only Common Stock then outstanding and shall not include any Common Stock which may be issuable by this Corporation pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise. (c) A "person" shall mean any individual, firm, corporation, or other entity. 3. The Board of Directors shall have the power to construe and apply the provisions of this section and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters D-2 with respect to (i) the number of shares of Common Stock beneficially owned by any person, (ii) whether a person is an affiliate of another, (iii) whether a person has an agreement, arrangement, or understanding with another as to the matters referred to in the definition of beneficial ownership, (iv) the application of any other definition or operative provision of this section to the given facts, or (v) any other matter relating to the applicability or effect of this section. 4. The Board of Directors shall have the right to demand that any person who is reasonably believed to beneficially own Common Stock in excess of the Limit (or holds of record Common Stock beneficially owned by any person in excess of the Limit) supply the Corporation with complete information as to (i) the record owner(s) of all shares beneficially owned by such person who is reasonably believed to own shares in excess of the Limit, and (ii) any other factual matter relating to the applicability or effect of this section as may reasonably be requested of such person. 5. Except as otherwise provided by law or expressly provided in this section, the presence, in person or by proxy, of the holders of record of shares of capital stock of the Corporation entitling the holders thereof to cast a majority of the votes (after giving effect, if required, to the provisions of this section) entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the stockholders, and every reference in this Certificate of Incorporation to a majority or other proportion of capital stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for stockholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof) then entitled to be cast in respect of such capital stock. 6. Any constructions, applications, or determinations made by the Board of Directors pursuant to this section in good faith and on the basis of such information and assistance as was then reasonably available for such purpose shall be conclusive and binding upon the Corporation and its stockholders. 7. In the event any provision (or portion thereof) of this section shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this section shall remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of this Corporation and its stockholders that such remaining provision (or portion thereof) of this section remain, to the fullest extent permitted by law, applicable and enforceable as to all stockholders, including stockholders owning an amount of stock over the Limit, notwithstanding any such finding. FIFTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its Directors and stockholders: A. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by this Certificate of Incorporation or the Bylaws of the Corporation, the Directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. B. The Directors of the Corporation need not be elected by written ballot unless the Bylaws so provide. C. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. D. Special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directorships (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption) (the "Whole Board") or as otherwise provided in the Bylaws. SIXTH: D-3 A. The number of Directors shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the Whole Board. The Directors shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the first annual meeting of stockholders, the term of office of the second class to expire at the annual meeting of stockholders one year thereafter and the term of office of the third class to expire at the annual meeting of stockholders two years thereafter. At each annual meeting of stockholders following such initial classification and election, Directors elected to succeed those Directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. B. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of Directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the Directors then in office, though less than a quorum, and Directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been chosen expires. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. C. Advance notice of stockholder nominations for the election of Directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation. D. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any Director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 80 percent of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of Directors (after giving effect to the provisions of Article FOURTH of this Certificate of Incorporation ("Article FOURTH")), voting together as a single class. SEVENTH: The Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board of Directors shall require the approval of two-thirds of the Whole Board. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least 80 percent of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of Directors (after giving effect to the provisions of Article FOURTH), voting together as a single class, shall be required to adopt, amend or repeal any provisions of the Bylaws of the Corporation. EIGHTH: A. In addition to any affirmative vote required by law or this Certificate of Incorporation, and except as otherwise expressly provided in this section: 1. any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Stockholder; or 2. any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder, or any Affiliate of any Interested Stockholder, of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value (as hereinafter defined) equaling or exceeding 25% or more of the combined assets of the Corporation and its Subsidiaries; or 3. the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any D-4 Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value (as hereinafter defined) equaling or exceeding 25% of the combined Fair Market Value of the then-outstanding common stock of the Corporation and its Subsidiaries, except pursuant to an employee benefit plan of the Corporation or any Subsidiary thereof; or 4. the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Stockholder or any Affiliate of an Interested Stockholder; or 5. any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportional share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by an Interested Stockholder or any Affiliate of an Interested Stockholder; shall require the affirmative vote of the holders of at least 80% of the voting power of the then-outstanding shares of stock of the Corporation entitled to vote in the election of Directors (the "Voting Stock") (after giving effect to the provision of Article FOURTH), voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or by any other provisions of this Certificate of Incorporation or any Preferred Stock Designation or in any agreement with any national securities exchange or otherwise. The term "Business Combination" as used in this Article EIGHTH shall mean any transaction which is referred to in any one or more of paragraphs 1 through 5 of Section A of this Article EIGHTH. B. The provisions of Section A of this Article EIGHTH shall not be applicable to any particular Business Combination, and such Business Combination shall require only the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote, or such vote as is required by law or by this Certificate of Incorporation, if, in the case of any Business Combination that does not involve any cash or other consideration being received by the stockholders of the Corporation solely in their capacity as stockholders of the Corporation, the condition specified in the following paragraph 1 is met or, in the case of any other Business Combination, all of the conditions specified in either of the following paragraphs 1 or 2 are met: 1. The Business Combination shall have been approved by two-thirds of the Disinterested Directors (as hereinafter defined). 2. All of the following conditions shall have been met: (a) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by the holders of Common Stock in such Business Combination shall at least be equal to the higher of the following: (1) (if applicable) the Highest Per Share Price (as hereinafter defined), including any brokerage commissions, transfer taxes and soliciting dealers' fees, paid by the Interested Stockholder or any of its Affiliates for any shares of Common Stock acquired by it (i) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date"), or (ii) in the transaction in which it became an Interested Stockholder, whichever is higher; and (2) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (such latter date is referred to in this Article EIGHTH as the "Determination Date"), whichever is higher. D-5 (b) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any class of outstanding Voting Stock other than Common Stock shall be at least equal to the highest of the following (it being intended that the requirements of this subparagraph (b) shall be required to be met with respect to every such class of outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired any shares of a particular class of Voting Stock): (1) (if applicable) the Highest Per Share Price (as hereinafter defined), including any brokerage commissions, transfer taxes and soliciting dealers' fees, paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it (i) within the two-year period immediately prior to the Announcement Date, or (ii) in the transaction in which it became an Interested Stockholder, whichever is higher; (2) (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; and (3) the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher. (c) The consideration to be received by holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Stockholder has paid for shares of such class of Voting Stock. If the Interested Stockholder has previously paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration to be received per share by holders of shares of such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by the Interested Stockholder. The price determined in accordance with subparagraph B.2 of this Article EIGHTH shall be subject to appropriate adjustment in the event of any stock dividend, stock split, combination of shares or similar event. (d) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (1) except as approved by a majority of the Disinterested Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding stock having preference over the Common Stock as to dividends or liquidation; (2) there shall have been (i) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Disinterested Directors, and (ii) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure to so increase such annual rate is approved by a majority of the Disinterested Directors; and (3) neither such Interested Stockholder or any of its Affiliates shall have become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder. (e) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise. D-6 (f) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). C. For the purposes of this Article EIGHTH: 1. A "Person" shall include an individual, a group acting in concert, a corporation, a partnership, an association, a joint venture, a pool, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities. 2. "Interested Stockholder" shall mean any person (other than the Corporation or any holding company or Subsidiary thereof) who or which: (a) is the beneficial owner, directly or indirectly, of more than 10% of the voting power of the outstanding Voting Stock; or (b) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then-outstanding Voting Stock; or (c) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by an Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. 3. For purposes of this Article EIGHTH, "beneficial ownership" shall be determined in the manner provided in Section C of Article FOURTH hereof. 4. "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the date of filing of this Certificate of Incorporation. 5. "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in paragraph 2 of this section, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. 6. "Disinterested Director" means any member of the Board of Directors who is unaffiliated with the Interested Stockholder and was a member of the Board of Directors prior to the time that the Interested Stockholder became an Interested Stockholder, and any Director who is thereafter chosen to fill any vacancy of the Board of Directors or who is elected and who, in either event, is unaffiliated with the Interested Stockholder and in connection with his or her initial assumption of office is recommended for appointment or election by a majority of Disinterested Directors then on the Board of Directors. 7. "Fair Market Value" means: (a) in the case of stock, the highest closing sales price of the stock during the 30-day period immediately preceding the date in question of a share of such stock on the National Association of Securities Dealers Automated Quotation System or any system then in use, or, if such stock is admitted to trading on a principal United States securities exchange registered under the Securities Exchange Act of 1934, Fair Market Value shall be the highest sales price reported during the 30-day period preceding the D-7 date in question, or, if no such quotations are available, the Fair Market Value on the date in question of a share of such stock as determined by the Board of Directors in good faith, in each case with respect to any class of stock, appropriately adjusted for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock, and (b) in the case of property other than cash or stock, the Fair Market Value of such property on the date in question as determined by the Board of Directors in good faith. 8. Reference to "Highest Per Share Price" shall in each case with respect to any class of stock reflect an appropriate adjustment for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock. 9. In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash to be received" as used in subparagraphs (a) and (b) of paragraph 2 of Section B of this Article EIGHTH shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares. D. A majority of the Directors of the Corporation shall have the power and duty to determine for the purposes of this Article EIGHTH, on the basis of information known to them after reasonable inquiry: (a) whether a person is an Interested Stockholder; (b) the number of shares of Voting Stock beneficially owned by any person; (c) whether a person is an Affiliate or Associate of another; and (d) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has an aggregate Fair Market Value equaling or exceeding 25% of the combined Fair Market Value of the common stock of the Corporation and its Subsidiaries. A majority of the Directors shall have the further power to interpret all of the terms and provisions of this Article EIGHTH. E. Nothing contained in this Article EIGHTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. F. Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock required by law, this Certificate of Incorporation or any Preferred Stock Designation, the affirmative vote of the holders of at least 80 percent of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class, shall be required to alter, amend or repeal this Article EIGHTH. NINTH: The Board of Directors of the Corporation, when evaluating any offer of another Person (as defined in Article EIGHTH hereof) to (A) make a tender or exchange offer for any equity security of the Corporation, (B) merge or consolidate the Corporation with another corporation or entity or (C) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation, may, in connection with the exercise of its judgment in determining what is in the best interest of the Corporation and its stockholders, give due consideration to all relevant factors, including, without limitation, the social and economic effect of acceptance of such offer on the Corporation's present and future customers and employees and those of its Subsidiaries (as defined in Article EIGHTH hereof); on the communities in which the Corporation and its Subsidiaries operate or are located; on the ability of the Corporation to fulfill its corporate objectives as a savings bank holding company and on the ability of its subsidiary savings bank to fulfill the objectives of a stock savings bank under applicable statutes and regulations. TENTH: A. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a Director or an Officer of the Corporation or is or was serving at the request of the Corporation as a Director, Officer, employee or agent of another corporation or of a partnership, joint venture, D-8 trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a Director, Officer, employee or agent or in any other capacity while serving as a Director, Officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in Section C hereof with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. B. The right to indemnification conferred in Section A of this Article TENTH shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a Director of Officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Section or otherwise. The rights to indemnification and to the advancement of expenses conferred in Sections A and B of this Article TENTH shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a Director, Officer, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators. C. If a claim under Section A or B of this Article TENTH is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article TENTH or otherwise shall be on the Corporation. D. The rights to indemnification and to the advancement of expenses conferred in this Article TENTH shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation's Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested Directors or otherwise. D-9 E. The Corporation may maintain insurance, at its expense, to protect itself and any Director, Officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. F. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article TENTH with respect to the indemnification and advancement of expenses of Directors and Officers of the Corporation. ELEVENTH: A Director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except for liability (i) for any breach of the Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the Director derived an improper personal benefit. If the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of Directors, then the liability of a Director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a Director of the Corporation existing at the time of such repeal or modification. TWELFTH: The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation; provided, however, that, notwithstanding any other provision of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least 80 percent of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of Directors (after giving effect to the provisions of Article FOURTH), voting together as a single class, shall be required to amend or repeal this Article TWELFTH, Section C of Article FOURTH, Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH or Article TENTH. THIRTEENTH: The name and mailing address of the sole incorporator are as follows: NAME MAILING ADDRESS Kenneth R. Lehman 5335 Wisconsin Avenue, N.W. Suite 400 Washington, D.C. 20015 I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a corporation under the laws of the State of Delaware, do make, file and record this Certificate of Incorporation, do certify that the facts herein stated are true, and accordingly, have hereto set my hand this 17 day of September, 2001. /s/ Kenneth R. Lehman -------------------------- Kenneth R. Lehman Incorporator D-10 D-11 EXHIBIT E BYLAWS OF THE HOLDING COMPANY WAYNE SAVINGS BANCSHARES, INC. BY-LAWS ARTICLE I - STOCKHOLDERS SECTION 1. ANNUAL MEETING. An annual meeting of the stockholders, for the election of Directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix, which date shall be within thirteen (13) months subsequent to the later of the date of incorporation or the last annual meeting of stockholders. SECTION 2. SPECIAL MEETINGS. Subject to the rights of the holders of any class or series of preferred stock of the Corporation, special meetings of stockholders of the Corporation may be called by the Board of Directors pursuant to a resolution adopted by a majority of the total number of Directors which the Corporation would have if there were no vacancies on the Board of Directors (hereinafter the "Whole Board"). SECTION 3. NOTICE OF MEETINGS. Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the Corporation). When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. SECTION 4. QUORUM. At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy (after giving effect to the Article FOURTH of the Corporation's Certificate of Incorporation), shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law. Where a separate vote by a class or classes is required, a majority of the shares of such class or classes present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time. If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, then except as otherwise required by law, those present at such adjourned meeting shall constitute a quorum, and all matters shall be determined by a majority of the votes cast at such meeting. SECTION 5. ORGANIZATION. E-1 Such person as the Board of Directors may have designated or, in the absence of such a person, the Chairman of the Board of the Corporation or, in his or her absence, the Chief Executive Officer or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman appoints. SECTION 6. CONDUCT OF BUSINESS. (a) The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in order. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. (b) At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting: (i) by or at the direction of the Board of Directors or: (ii) by any stockholder of the Corporation who is entitled to vote with respect thereto and who complies with the notice procedures set forth in this Section 6(b). For business to be properly brought before an annual meeting by a stockholder, the business must relate to a proper subject matter for stockholder action and the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered or mailed to and received at the principal executive offices of the Corporation not less than ninety (90) days prior to the anniversary date of the mailing of proxy materials by the Corporation in connection with the immediately preceding annual meeting of stockholders of the Corporation or, in the case of the first annual meeting of stockholders of the Corporation, not less than ninety (90) days prior to the anniversary date of the mailing of proxy materials by Wayne Savings Bancshares, Inc., a federal corporation, in connection with that corporation's immediately preceding annual meeting of stockholders. A stockholder's notice to the Secretary shall set forth as to each matter such stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business; (iii) the class and number of shares of the Corporation's capital stock that are beneficially owned by such stockholder and (iv) any material interest of such stockholder in such business. Notwithstanding anything in these By-laws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this Section 6(b). The Officer of the Corporation or other person presiding over the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 6(b) and, if he or she should so determine, he or she shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted. At any special meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of Directors. (c) Only persons who are nominated in accordance with the procedures set forth in these By-laws shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders at which Directors are to be elected only: (i) by or at the direction of the Board of Directors or; (ii) by any stockholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section 6(c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made by timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered or mailed to and received at the principal executive offices of the Corporation not less than ninety (90) days prior to the anniversary date of the mailing of proxy materials by the Corporation in connection with the immediately preceding annual meeting of stockholders of the Corporation or, in the case of the first annual meeting of stockholders of the Corporation, not less than ninety (90) days prior to the anniversary date of the mailing of proxy materials by Wayne Savings Bancshares, Inc., a federal corporation, in connection with that corporation's immediately preceding annual meeting of stockholders. Such stockholder's notice shall set forth: (i) as to each person whom such stockholder proposes to nominate for election or re-election as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for the election of Directors, or is E-2 otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); and (ii) as to the stockholder giving notice (x) the name and address, as they appear on the Corporation's books, of such stockholder and (y) the class and number of shares of the Corporation's capital stock that are beneficially owned by such stockholder. At the request of the Board of Directors any person nominated by the Board of Directors for election as a Director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a Director of the Corporation unless nominated in accordance with the provisions of this Section 6(c). The Officer of the Corporation or other person presiding at the meeting shall, if the facts so warrant, determine that a nomination was not made in accordance with such provisions and, if he or she should so determine, he or she shall declare to the meeting and the defective nomination shall be disregarded. SECTION 7. PROXIES AND VOTING. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. All voting, including on the election of Directors but excepting where otherwise required by law or by the governing documents of the Corporation, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or by his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by the Certificate of Incorporation or by law, all other matters shall be determined by a majority of the votes present and cast at a properly called meeting of stockholders. SECTION 8. STOCK LIST. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. E-3 SECTION 9. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Subject to the rights of the holders of any class or series of preferred stock of the Corporation, any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. ARTICLE II - BOARD OF DIRECTORS SECTION 1. GENERAL POWERS, NUMBER AND TERM OF OFFICE. The business and affairs of the Corporation shall be under the direction of its Board of Directors. The number of Directors who shall constitute the Whole Board shall be such number as the Board of Directors shall from time to time have designated by resolution. The Board of Directors shall annually elect a Chairman of the Board from among its members who shall, when present, preside at its meetings. The Directors, other than those who may be elected by the holders of any class or series of Preferred Stock, shall be divided, with respect to the time for which they severally hold office, into three classes, with the term of office of the first class to expire at the first annual meeting of stockholders, the term of office of the second class to expire at the annual meeting of stockholders one year thereafter and the term of office of the third class to expire at the annual meeting of stockholders two years thereafter, with each Director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, commencing with the first annual meeting, Directors elected to succeed those Directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each Director to hold office until his or her successor shall have been duly elected and qualified. SECTION 2. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to the rights of the holders of any class or series of preferred stock, and unless the Board of Directors otherwise determines, newly created Directorships resulting from any increase in the authorized number of Directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the Directors then in office, though less than a quorum, and Directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such Director's successor shall have been duly elected and qualified. No decrease in the number of authorized Directors constituting the Board shall shorten the term of any incumbent Director. SECTION 3. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all Directors. A notice of each regular meeting shall not be required. SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by one-third (1/3) of the Directors then in office (rounded up to the nearest whole number) or by the Chairman of the Board and shall be held at such place, on such date, and at such time as they or he or she shall fix. Notice of the place, date, and time of each such special meeting shall be given to each Director by whom it is not waived by mailing written notice not less than five (5) days before the meeting or be telegraphing or telexing or by facsimile transmission of the same not less than twenty-four (24) hours before the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. SECTION 5. QUORUM. E-4 At any meeting of the Board of Directors, a majority of the Whole Board shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof. SECTION 6. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting. SECTION 7. CONDUCT OF BUSINESS. At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the Directors present, except as otherwise provided herein or required by law. Action may be taken by the Board of Directors without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. SECTION 8. POWERS. The Board of Directors may, except as otherwise required by law, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the unqualified power: (1) To declare dividends from time to time in accordance with law; (2) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine; (3) To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, and to do all things necessary in connection therewith; (4) To remove any Officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any Officer upon any other person for the time being; (5) To confer upon any Officer of the Corporation the power to appoint, remove and suspend subordinate Officers, employees and agents; (6) To adopt from time to time such stock, option, stock purchase, bonus or other compensation plans for Directors, Officers, employees and agents of the Corporation and its subsidiaries as it may determine; (7) To adopt from time to time such insurance, retirement, and other benefit plans for Directors, Officers, employees and agents of the Corporation and its subsidiaries as it may determine; and (8) To adopt from time to time regulations, not inconsistent with these By-laws, for the management of the Corporation's business and affairs. SECTION 9. COMPENSATION OF DIRECTORS. Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as Directors, including, without limitation, their services as members of committees of the Board of Directors. E-5 ARTICLE III - COMMITTEES SECTION 1. COMMITTEE OF THE BOARD OF DIRECTORS. The Board of Directors, by a vote of a majority of the Whole Board, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a Director or Directors to serve as the member or members, designating, if it desires, other Directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law if the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provide. In the absence or disqualification of any member of any committee and any alternate member in his or her place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. SECTION 2. CONDUCT OF BUSINESS. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one-third (1/3) of the members shall constitute a quorum unless the committee shall consist of one (1) or two (2) members, in which event one (1) member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filled with the minutes of the proceedings of such committee. SECTION 3. NOMINATING COMMITTEE. The Board of Directors shall appoint a Nominating Committee of the Board, consisting of not less than three (3) members, one of which shall be the Chairman of the Board. The Nominating Committee shall have authority (a) to review any nominations for election to the Board of Directors made by a stockholder of the Corporation pursuant to Section 6(c) (ii) of Article I of these By-laws in order to determine compliance with such By-law provision and (b) to recommend to the Whole Board nominees for election to the Board of Directors to replace those Directors whose terms expire at the annual meeting of stockholders next ensuing. ARTICLE IV - OFFICERS SECTION 1. GENERALLY. (a) The Board of Directors as soon as may be practicable after the annual meeting of stockholders shall choose a Chairman of the Board, a President and Chief Executive Officer, one or more Vice Presidents, and a Secretary and from time to time may choose such other Officers as it may deem proper. The Chairman of the Board shall be chosen from among the Directors. Any number of offices may be held by the same person. (b) The term of office of all Officers shall be until the next annual election of Officers and until their respective successors are chosen, but any Officer may be removed from office at any time by the affirmative vote of two-thirds of the authorized number of Directors then constituting the Board of Directors. E-6 (c) All Officers chosen by the Board of Directors shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV. Such Officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors or by any committee thereof. SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board shall, subject to the provisions of these By-laws and to the direction of the Board of Directors, serve in a general executive capacity and, when present, shall preside at all meetings of the Board of Directors. The Chairman of the Board shall perform all duties and have all powers which are commonly incident to the office of Chairman of the Board or which are delegated to him or her by the Board of Directors. He or she shall have power to sign all stock certificates, contracts and other instruments of the Corporation which are authorized. SECTION 3. PRESIDENT AND CHIEF EXECUTIVE OFFICER. The President and Chief Executive Officer (the "President") shall have general responsibility for the management and control of the business and affairs of the Corporation and shall perform all duties and have all powers which are commonly incident to the offices of President and Chief Executive Officer or which are delegated to him or her by the Board of Directors. Subject to the direction of the Board of Directors, the President shall have power to sign all stock certificates, contracts and other instruments of the Corporation which are authorized and shall have general supervision of all of the other Officers (other than the Chairman of the Board), employees and agents of the Corporation. SECTION 4. VICE PRESIDENT. The Vice President or Vice Presidents shall perform the duties of the President in his or her absence or during his disability to act. In addition, the Vice Presidents shall perform the duties and exercise the powers usually incident to their respective offices and/or such other duties and powers as may be properly assigned to them by the Board of Directors, the Chairman of the Board or the President. A Vice President or Vice Presidents may be designated as Executive Vice President or Senior Vice President or any such designation as the Board of Directors, Chairman of the Board or President deems appropriate. SECTION 5. SECRETARY. The Secretary or an Assistant Secretary shall issue notices of meetings, shall keep their minutes, shall have charge of the seal and the corporate books, shall perform such other duties and exercise such other powers as are usually incident to such offices and/or such other duties and powers as are properly assigned thereto by the Board of Directors, the Chairman of the Board or the President. SECTION 6. ASSISTANT SECRETARIES AND OTHER OFFICERS. The Board of Directors may appoint one or more Assistant Secretaries and such other Officers who shall have such powers and shall perform such duties as are provided in these By-laws or as may be assigned to them by the Board of Directors, the Chairman of the Board or the President. SECTION 7. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless otherwise directed by the Board of Directors, the President or any Officer of the Corporation authorized by the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which the Corporation may hold securities and otherwise to exercise any and all rights and powers which the Corporation may possess by reason of its ownership of securities in such other corporation. E-7 ARTICLE V - STOCK SECTION 1. CERTIFICATES OF STOCK Each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, the Chairman of the Board or the President, and by the Secretary or an Assistant Secretary, or any Treasurer or Assistant Treasurer, certifying the number of shares owned by him or her. Any or all of the signatures on the certificate may be by facsimile. SECTION 2. TRANSFERS OF STOCK. Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 4 of Article V of these By-laws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor. SECTION 3. RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for such other action as hereinbefore described; provided, however, that if no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of rights or to exercise any rights of change, conversion or exchange of stock or for any other purpose, the record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 4. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity. SECTION 5. REGULATIONS. The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. E-8 ARTICLE VI - NOTICES SECTION 1. NOTICES. Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, Director, Officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by prepaid telegram or mailgram or other courier. Any such notice shall be addressed to such stockholder, Director, Officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice is received, if hand delivered, or dispatched, if delivered through the mails or by telegram or mailgram or other courier, shall be the time of the giving of the notice. SECTION 2. WAIVERS. A written waiver of any notice, signed by a stockholder, Director, Officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, Director, Officer, employee or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver. ARTICLE VII - MISCELLANEOUS SECTION 1. FACSIMILE SIGNATURES. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these By-laws, facsimile signatures of any Officer or Officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. SECTION 2. CORPORATE SEAL. The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Comptroller or by an Assistant Secretary or an assistant to the Comptroller. SECTION 3. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each Director, each member of any committee designated by the Board of Directors, and each Officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its Officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such Director or committee member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be as fixed by the Board of Directors. SECTION 5. TIME PERIODS. In applying any provision of these By-laws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included. E-9 ARTICLE VIII - AMENDMENT The Board of Directors may by a two-thirds vote amend, alter or repeal these By-laws at any meeting of the Board, provided notice of the proposed change is given not less than two days prior to the meeting. The stockholders shall also have power to amend, alter or repeal these By-laws at any meeting of stockholders, provided notice of the proposed change was given in the Notice of the Meeting; provided, however, that, notwithstanding any other provisions of these By-laws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock Designation or these By-laws, the affirmative votes of the holders of at least 80% of the voting power of all the then-outstanding shares of the Voting Stock, voting together as a single class, shall be required to alter, amend or repeal any provisions of these By-laws. E-10 EX-4 6 gex4-25709.txt EX-4 EXHIBIT 4 INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE WAYNE SAVINGS BANCSHARES, INC. WOOSTER, OHIO $0.01 par value common stock--fully paid and non-assessable This certifies that _____________________________ is the owner of __________ shares of the common stock of Wayne Savings Bancshares, Inc. (the "Corporation"), a Delaware corporation. The shares evidenced by this certificate are transferable only on the stock transfer books of the Corporation by the holder of record hereof, in person or by his duly authorized attorney or legal representative, upon surrender of this certificate properly endorsed. This Certificate is not valid until countersigned and registered by the Corporation's transfer agent and registrar. THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED. IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed by the facsimile signatures of its duly authorized officers and has caused its seal to be affixed hereto. DATED:____________________ --------------------------------- ---------------------------------- Secretary (SEAL) President The shares evidenced by this Certificate are subject to a limitation contained in the Certificate of Incorporation to the effect that in no event shall any record owner of any outstanding Common Stock which is beneficially owned, directly or indirectly, by a person who beneficially owns in excess of 10% of the outstanding shares of Common Stock (the "Limit") be entitled or permitted to any vote in respect of shares held in excess of the Limit. The Board of Directors of the Corporation is authorized by resolution or resolutions, from time to time adopted, to provide for the issuance of serial preferred stock in series and to fix and state the voting powers, designations, preferences, limitations and restrictions thereof. The Corporation will furnish to any shareholder upon request and without charge a full description of each class of stock and any series thereof. The shares represented by this Certificate may not be cumulatively voted on any matter. The Certificate of Incorporation requires the affirmative vote of the holders of at least 80% of the voting stock of the Corporation, voting together as a single class, to approve certain transactions and to amend certain provisions of the Certificate of Incorporation. The following abbreviations when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian ------- ------------- TEN ENT - as tenants by the entireties (CUST) (MINOR) JT TEN - as joint tenants with right Under Uniform Transfers to Minors Act of survivorship and not as tenants in common(STATE) -------------------------------------
Additional abbreviations may also be used though not in the above list For value received, _____________________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER --------------------------------------------------------- --------------------------------------------------------- -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE) -------------------------------------------------------------------------------- ---------------------------------------------------------------------- Shares of the Common Stock represented by the within Certificate, and do hereby constitute and appoint _____________________________________________________ Attorney to transfer the said shares on the books of the within named corporation with full power of substitution in the premises. Dated, ----------------------------- In the presence of Signature: ------------------------------------- -------------------------------------- NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. EX-5 7 gex5-25709.txt EX-5 EXHIBIT 5 [letterhead of Luse Lehman Gorman Pomerenk & Schick, P.C.] (202) 274-2000 September 18, 2001 The Board of Directors Wayne Savings Bancshares, Inc. 151 North Market Street Wooster, Ohio 44691-785 RE: WAYNE SAVINGS BANCSHARES, INC. COMMON STOCK PAR VALUE $.01 PER SHARE Ladies and Gentlemen: You have requested the opinion of this firm as to certain matters in connection with the offer and sale (the "Offering") of Wayne Savings Bancshares, Inc. (the "Company") Common Stock, par value $.01 per share ("Common Stock"). We have reviewed the Company's proposed Charter, Registration Statement on Form SB-2 (the "Form SB-2"), as well as applicable statutes and regulations governing the Company and the offer and sale of the Common Stock. We are of the opinion that upon the declaration of effectiveness of the Form SB-2, the Common Stock, when sold, will be legally issued, fully paid and non-assessable. This Opinion has been prepared solely for the use of the Company in connection with the Form SB-2. We hereby consent to our firm being referenced under the caption "Legal and Tax Matters." Very truly yours, /s/ Luse Lehman Gorman Pomerenk & Schick, P.C. ----------------------------------------------- Luse Lehman Gorman Pomerenk & Schick, P.C. EX-8.1 8 gex8_1-25709.txt EX-8.1 FORM OF FEDERAL TAX OPINION (202) 274-2000 ______________, 2001 Boards of Directors Wayne Savings Bankshares, Inc. Wayne Savings Bankshares, M.H.C. Wayne Savings Community Bank 151 North Market Street Wooster, Ohio 44691 Ladies and Gentlemen: You have requested this firm's opinion regarding certain federal income tax consequences which will result from the conversion of Wayne Savings Bankshares, M.H.C., a federal mutual holding company (the "Mutual Holding Company") into the capital stock form of organization, as effectuated pursuant to the three integrated transactions described below. In connection therewith, we have made such investigations as we have deemed relevant or necessary for the purpose of this opinion. In our examination, we have assumed the authenticity of original documents, the accuracy of copies and the genuineness of signatures. We have further assumed the absence of adverse facts not apparent from the face of the instruments and documents we examined and have relied upon the accuracy of the factual matters set forth in the Plan of Conversion and Reorganization (the "Plan") and the Registration Statement filed by Wayne Savings Bancshares, Inc. (the "Holding Company") with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended, and the Application for Conversion on Form AC filed with the Office of Thrift Supervision (the "OTS"). Our opinion is based upon the existing provisions of the Internal Revenue Code of 1986, as amended (the "Code), and regulations thereunder (the "Treasury Regulations"), and upon current Internal Revenue Service ("IRS") published rulings and existing court decisions, any of which could be changed at any time. Any such changes may be retroactive and could significantly modify the statements and opinions expressed herein. Similarly, any change in the facts and assumptions stated below, upon which this opinion is based, could modify the conclusions. This opinion is as of the date hereof, and we disclaim any obligation to advise you of any change in any matter considered herein after the date hereof. Boards of Directors Wayne Savings Bancshares, Inc. Wayne Savings Bankshares, M.H.C. Wayne Savings Community Bank _______________, 2001 Page 2 We, of course, opine only as to the matters we expressly set forth, and no opinions should be inferred as to any other matters or as to the tax treatment of the transactions that we do not specifically address. We express no opinion as to other federal laws and regulations, or as to laws and regulations of other jurisdictions, or as to factual or legal matters other than as set forth herein. For purposes of this opinion, we are relying on the opinion of RP Financial LC, the appraiser of the Holding Company, to the effect that the subscription rights distributed to Eligible Account Holders and Supplemental Eligible Account Holders have no value. We are also relying on the representations as to certain factual matters provided to us by the Mutual Holding Company, Wayne Savings Community Bank (as described below), and the Holding Company, as set forth in the affidavits of the authorized officers of each of the aforementioned entities, incorporated herein by reference. Capitalized terms used but not defined herein shall have the same meaning as set forth in the Plan. DESCRIPTION OF PROPOSED TRANSACTIONS Based solely upon our review of the documents described above, and in reliance upon such documents, we understand that the relevant facts are as follows. Based solely upon our review of the documents described above, and in reliance upon such documents, we understand that the relevant facts are as follows. On June 23, 1993, The Wayne Savings and Loan Company, an Ohio chartered mutual savings bank ("Wayne Savings") reorganized from a mutual savings and loan association to become the majority-owned stock subsidiary of the Mutual Holding Company. To accomplish this transaction, The Wayne Savings and Loan Company organized The Wayne Savings and Loan Company, an Ohio chartered stock bank (the "Bank"), as a wholly-owned subsidiary. The Wayne Savings and Loan Company then transferred substantially all of its assets and liabilities, including all of its deposit-taking, lending and other banking functions and its corporate name to the newly created stock savings bank called The Wayne Savings and Loan Company (which has subsequently changed its name to the Wayne Savings Community Bank). The Wayne Savings and Loan Company then converted its charter to a mutual holding company charter to become the Mutual Holding Company. In connection with the foregoing transaction, the Bank sold less than 50% of its outstanding shares of Bank common stock to depositors, certain tax-qualified plans and members of the public (the "Bank Minority Stockholders"). The remaining shares of Bank common stock were held by the Mutual Holding Company. The reorganization of The Wayne Savings and Loan Company into the mutual holding company form of organization, and the sale to the Bank Minority Stockholders of Boards of Directors Wayne Savings Bancshares, Inc. Wayne Savings Bankshares, M.H.C. Wayne Savings Community Bank _______________, 2001 Page 3 stock in the Bank, are sometimes herein collectively referred to as the "MHC Reorganization." On November 25, 1997, the Bank reorganized into a two-tier holding company form of organization whereby Wayne Savings Bancshares, Inc., a federally-chartered mutual holding company with the power to issue stock ("Mid-Tier Holding Company") became the parent of the Bank and the Mid-Tier Holding Company became the majority owned subsidiary of the Mutual Holding Company. To accomplish this transaction, the Bank chartered the Mid-Tier Holding Company as a wholly owned subsidiary and the Mid-Tier Holding Company chartered an interim federal stock savings bank as a wholly owned subsidiary. The interim federal savings bank then merged into the Bank with the Bank's shareholders, including the Mutual Holding Company, receiving shares of the Mid-Tier Holding Company in exchange for their shares of Bank common stock. The shares of the Mid-Tier Holding Company owned by the Bank were canceled. On July 10, 2001, the Board of Directors of the Mutual Holding Company adopted the Plan of Conversion and Reorganization ("Plan") providing for the conversion of the Mutual Holding Company from a federally chartered mutual holding company to a Delaware stock corporation to be named "Wayne Savings Bancshares, Inc." At the present time, three transactions referred to as the "MHC Merger", the "Mid-Tier Merger", and the "Bank Merger" are being undertaken. Pursuant to the Plan, the conversion ("Conversion") will be effected in the following steps, each of which will be completed contemporaneously. (i) The Bank will establish the Holding Company as a first-tier Delaware chartered stock holding company subsidiary. (ii) The Holding Company will charter an interim federal savings bank ("Interim") as a wholly owned subsidiary. (iii) The Mid-Tier Holding Company will convert into or exchange its charter for an interim stock savings bank (which shall continue to be referred to as "Mid-Tier Holding Company") and will merge with and into the Bank (the "Mid-Tier Merger"), with the Bank as the resulting entity, and the Mid-Tier Holding Company stockholders will constructively receive shares of the Bank common stock in exchange for their Mid-Tier Holding Company common stock. (vi) The Mutual Holding Company will exchange its charter for an interim stock savings bank charter and simultaneously merge with and into the Bank (the MHC Merger"), Boards of Directors Wayne Savings Bancshares, Inc. Wayne Savings Bankshares, M.H.C. Wayne Savings Community Bank _______________, 2001 Page 4 and shares of common stock of the Bank constructively held by the Mutual Holding Company will be canceled and each Eligible Account Holder and Supplemental Eligible Account Holder will receive an interest in a Liquidation Account of the Bank in exchange for such person's interest in the Mutual Holding Company. (vii) Contemporaneously with the MHC Merger, Interim will merge with and into the Bank, with the Bank as the surviving entity (the "Bank Merger"). Constructive shareholders of the Bank (i.e., Minority Holders) will exchange the shares of Bank common stock that they constructively received in the Mid-Tier Merger for Holding Company Common Stock. (viii) Contemporaneously with the Bank Merger, the Holding Company will offer for sale its common stock in the Offering. As part of the conversion, each of the Minority Shares shall automatically, without further action of the holder thereof, be converted into and become the right to receive Holding Company common Stock based upon the exchange ratio ("Exchange Ratio"). Options to purchase shares of Mid-Tier Holding Company common stock which are outstanding immediately prior to the consummation of the Conversion will be converted into options to purchase shares of Holding Company Common Stock, with the number of shares subject to the option and the exercise price per share to be adjusted based upon the Exchange Ratio so that the aggregate exercise price remains unchanged, and with the duration of the option remaining unchanged. As a result of the Mid-Tier Merger, the MHC Merger and the Bank Merger, the Holding Company will be a publicly held corporation, will register the Holding Company Common Stock under Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and will become subject to the rules and regulations thereunder and file periodic reports and proxy statements with the SEC. The Bank will become a wholly owned subsidiary of the Holding Company and will continue to carry on its business and activities as conducted immediately prior to the Conversion. The stockholders of the Holding Company will be the former Minority Stockholders of the Mid-Tier Holding Company immediately prior to the MHC Merger, plus those persons who purchase shares of Holding Company Common Stock in the Offering. Nontransferable rights to subscribe for the Holding Company Common Stock have been granted, in order of priority, to depositors of the Bank who have account balances of $50.00 or more as of the close of business on June 30, 2000 ("Eligible Account Holders"), the Bank's tax-qualified employee plans ("Employee Plans"), Boards of Directors Wayne Savings Bancshares, Inc. Wayne Savings Bankshares, M.H.C. Wayne Savings Community Bank _______________, 2001 Page 5 depositors of the Bank who have account balances of $50.00 or more as of the close of business on _______________ ("Supplemental Eligible Account Holders"), other members of the Bank (other than Eligible Account Holders and Supplemental Eligible Account Holders) ("Other Members"), and owners of shares of Bank common stock other than the Mutual Holding Company. Subscription rights are nontransferable. The Holding Company will also offer shares of Holding Company Common Stock not subscribed for in the subscription offering, if any, for sale in a community offering to certain members of the general public. OPINIONS Based on the foregoing description of the MHC Merger, the Mid-Tier Merger and the Bank Merger, and subject to the qualifications and limitations set forth in this letter, we are of the opinion that: 1. The conversion of the Mid-Tier Holding Company to a federally chartered interim stock savings association (which we shall continue to refer to as "Mid-Tier Holding Company") will constitute a mere change in identity, form or place of organization within the meaning of Section 368(a)(1)(F) of the Code. 2. The Mid-Tier Merger qualifies as a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the Code. (Section 368(a)(1)(A) of the Code.) 3. The Mid-Tier Holding Company will not recognize any gain or loss on the transfer of its assets to the Bank in exchange for shares of common stock in the Bank which are constructively received by Minority Stockholders and the Mutual Holding Company. (Section 361 of the Code.) 4. No gain or loss will be recognized by the Bank upon the receipt of the assets of Mid-Tier Holding Company in the Mid-Tier Merger (Section 1032(a) of the Code). 5. The basis of the assets of the Mid-Tier Holding Company (other than stock in the Bank) to be received by Bank will be the same as the basis of such assets in the hands of Mid-Tier Holding Company immediately prior to the transfer. (Section 362(b) of the Code.) 6. The holding period of the assets of Mid-Tier Holding Company (other than stock in Bank) to be received by Bank will include the holding period of those assets in the hands of Mid-Tier Holding Company immediately prior to the transfer. (Section 1223(2) of the Code.) Boards of Directors Wayne Savings Bancshares, Inc. Wayne Savings Bankshares, M.H.C. Wayne Savings Community Bank _______________, 2001 Page 6 7. Mid-Tier Holding Company shareholders will not recognize any gain or loss upon their constructive or actual exchange of Mid-Tier Holding Company common stock for Bank common stock. 8. The conversion of the Mutual Holding Company to a federally chartered interim stock savings association will constitute a mere change in identity, form or place of organization within the meaning of section 368(a)(1)(F) of the Code. 9. The MHC Merger qualifies as a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the Code. (Section 368(a)(1)(A) of the Code.) 10. The exchange of the members' equity interests in the Mutual Holding Company for interests in a Liquidation Account established in the Bank in the MHC Merger will satisfy the continuity of interest requirement of Section 1.368-1(b) of the Income Tax Regulations (CF. Rev. Rul. 69-3, 1969-1 C.B. 103, and Rev. Rul. 69-646, --- 1969-2 C.B. 54). 11. The Mutual Holding Company will not recognize any gain or loss on the transfer of its assets to the Bank in exchange for an interest in a Liquidation Account established in the Bank for the benefit of the Mutual Holding Company's members who remain depositors of the Bank. (Section 361 of the Code.) 12. No gain or loss will be recognized by the Bank upon the receipt of the assets of the Mutual Holding Company in the MHC Merger in exchange for the transfer to the members of the Mutual Holding Company of an interest in the Liquidation Account in the Bank. (Section 1032(a) of the Code.) 13. Persons who have an interest in the Mutual Holding Company will recognize no gain or loss upon the receipt of an interest in the Liquidation Account in the Bank in exchange for their voting and liquidation rights in the Mutual Holding Company. (Section 354(a) of the Code). 14. The basis of the assets of Mutual Holding Company (other than stock in the Bank) to be received by Bank will be the same as the basis of such assets in the hands of the Mutual Holding Company immediately prior to the transfer. (Section 362(b) of the Code.) Boards of Directors Wayne Savings Bancshares, Inc. Wayne Savings Bankshares, M.H.C. Wayne Savings Community Bank _______________, 2001 Page 7 15. The holding period of the assets of the Mutual Holding Company in the hands of the Bank will include the holding period of those assets in the hands of the Mutual Holding Company. (Section 1223(2) of the Code.) 16. The Bank Merger qualifies as a reorganization within the meaning of Section 368(a)(1)(A) of the Code, pursuant to Section 368(a)(2)(E) of the Code. For these purposes, each of the Bank, the Holding Company and Interim are "a party to the reorganization" within the meaning of Section 368(b) of the Code. 17. Interests in the Liquidation Account established at the Bank, and the shares of Bank common stock held by Mutual Holding Company prior to consummation of the MHC Merger, will be disregarded for the purpose of determining that an amount of stock in the Bank which constitutes "control" of such corporation was acquired by the Holding Company in exchange for shares of common stock of the Holding Company pursuant to the Bank Merger (Code Section 368(c)). 18. The exchange of shares of Bank common stock for the shares of the Holding Company Common Stock in the Bank Merger, following consummation of the Mid-Tier Merger and the MHC Merger, will satisfy the continuity of interest requirement of Income Tax Regulation Section 1.368-1(b) in the Bank Merger. 19. Interim Savings Bank will not recognize any gain or loss on the transfer of its assets to Bank in exchange for Bank common stock and the assumption by Bank of the liabilities, if any, of Interim. (Section 361(a) and 357(a) of the Code.) 20. The Holding Company will not recognize any gain or loss upon its receipt of Bank common stock in exchange for Interim Savings Bank common stock. (Section 354(a) of the Code.) 21. Bank shareholders will not recognize any gain or loss upon their exchange of Bank common stock solely for shares of Holding Company Common Stock. (Section 354(a) of the Code.) 22. The payment of cash to the Minority Stockholders in lieu of fractional shares of Holding Company will be treated as though the fractional shares were distributed as part of the Bank Merger and then redeemed by Holding Company. The cash payments will be treated as distributions in full payment for the fractional shares deemed redeemed under Section 302(a) of the Code, with the result that such shareholders will have short-term or long-term capital gain or loss to the extent that the cash they receive differs from the basis allocable to such fractional shares. (Rev. Rul. 66-365, 1966-2 C.B. 116 and Rev. Proc. 77-41, 1977-2 C.B. 574) Boards of Directors Wayne Savings Bancshares, Inc. Wayne Savings Bankshares, M.H.C. Wayne Savings Community Bank _______________, 2001 Page 8 23. Each Bank shareholder's aggregate basis in his or her Holding Company Common Stock received in the exchange will be the same as the aggregate basis of the Bank common stock surrendered in exchange therefor. (Section 358(a) of the Code.) 24. Each Bank shareholder's holding period in his or her Holding Company Common Stock received in the exchange will include the period during which the Bank common stock surrendered was held, provided that the Bank common stock surrendered is a capital asset in the hands of the Bank shareholder on the date of the exchange. (Section 1223(1) of the Code.) 25. No gain or loss will be recognized by Eligible Account Holders and Supplemental Eligible Account Holders upon distribution to them of subscription rights to purchase shares of Holding Company Common Stock, provided that the amount to be paid for the Holding Company Common Stock is equal to the fair market value of the Holding Company Common Stock. 26. No gain or loss will be recognized by Holding Company on the receipt of money in exchange for Holding Company Common Stock sold in the Offering. (Section 1032 of the Code.) We hereby consent to the filing of the opinion as an exhibit to the MHC's Application for Approval for Conversion filed with the Commissioner and to the Holding Company's Registration Statement on Form S-1 as filed with the SEC. We also consent to the references to our firm in the Prospectus contained in the Application for Approval of Conversion and S-1 under the captions "The Conversion-Tax Aspects" and "Legal Opinions." Very truly yours, /s/ LUSE LEHMAN GORMAN POMERENK SCHICK ------------------------------------ LUSE LEHMAN GORMAN POMERENK & SCHICK, A PROFESSIONAL CORPORATION By: ------------------------------------- EX-8.2 9 gex8_2-25709.txt EX-8.2 EXHIBIT 8.2 [R.P. Financial Letterhead] September 15, 2001 Board of Directors Wayne Savings Bankshares, MHC Wayne Savings Bancshares, Inc. 151 North Market Street Wooster, Ohio 44691-7858 Re: Plan of Conversion and Reorganization Wayne Savings Bankshares, MHC Gentlemen: All capitalized terms not otherwise defined in this letter have the meanings given such terms in the Plan of Conversion and Reorganization (the "Plan") adopted by the Board of Directors of Wayne Savings Bankshares, M.H.C. (the "Mutual Holding Company"). The Plan provides for the conversion of the Mutual Holding Company into the capital stock form of organization. The Mutual Holding Company currently owns a majority of the common stock of Wayne Savings Bancshares, Inc., a Federal corporation and stock holding company (the "Holding Company"), which owns 100 percent of the common stock of Wayne Savings Community Bank (the "Bank"), an Ohio-chartered savings and loan association that is headquartered in Wooster, Ohio. Pursuant to the Conversion, the Holding Company will sell shares of Common Stock in an offering that will represent the ownership interest in the Holding Company now owned by the Mutual Holding Company. We understand that in accordance with the Plan, subscription rights to purchase shares of common stock in the Holding Company are to be issued to: (1) Eligible Account Holders; (2) the tax-qualified employee stock benefit plans; (3) Supplemental Eligible Account Holders; and (4) Other Members. Based solely upon our observation that the subscription rights will be available to such parties without cost, will be legally non-transferable and of short duration, and will afford such parties the right only to purchase shares of common stock at the same price as will be paid by members of the general public in the community offering, but without undertaking any independent investigation of state or federal law or the position of the Internal Revenue Service with respect to this issue, we are of the belief that, as a factual matter: (1) the subscription rights will have no ascertainable market value; and, (2) the price at which the subscription rights are exercisable will not be more or less than the pro forma market value of the shares upon issuance. Changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability and may materially impact the value of thrift stocks as a whole or the Holding Company's value alone. Accordingly, no assurance can be given that persons who subscribe to shares of common stock in the subscription offering will thereafter be able to buy or sell such shares at the same price paid in the subscription offering. Sincerely, /s/ RP Financial, LC. --------------------- RP FINANCIAL, LC. EX-10.1 10 gex10_1-25709.txt EX-10.1 EXHIBIT 10.1 EMPLOYMENT AGREEMENT This Agreement is made effective as of ____________, 2001 by and between Wayne Savings Community Bank (the "Bank"), an Ohio savings and loan association, with its principal administrative office at 151 North Market Street, Wooster, Ohio and __________________ (the "Executive"). Any reference to "Company" herein shall mean Wayne Savings Bancshares, Inc. the stock holding company parent of the Bank or any successor thereto. WHEREAS, the Bank wishes to assure itself of the continued services of Executive for the period provided in this Agreement; and WHEREAS, Executive is willing to continue to serve in the employ of the Bank on a full-time basis for said period. NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows: 1. POSITION AND RESPONSIBILITIES During the period of his employment hereunder, Executive agrees to serve as ____________ of the Bank (the "Executive Position"). During said period, Executive also agrees to serve, if elected, as an officer of any subsidiary or affiliate of the Bank. Failure to reelect Executive to the Executive Position without the consent of the Executive during the term of this Agreement (except for any termination for Cause, as defined herein) shall constitute a breach of this Agreement. 2. TERMS AND DUTIES (a) The period of Executive's employment under this Agreement shall begin as of the date first above written and shall continue for a period of [thirty-six (36) or twenty-four (24)] full calendar months thereafter. Commencing on the first anniversary date of this Agreement, and continuing at each anniversary date thereafter, the Agreement shall renew for an additional year such that the remaining term shall be three (3) years; provided, however, if written notice of nonrenewal is provided to Executive at least ten (10) days and not more than thirty (30) days prior to any anniversary date, the employment of Executive hereunder shall cease at the end of [thirty-six (36) or twenty-four (24)] months following such anniversary date. Prior to each notice period for non-renewal, the disinterested members of the Board of Directors of the Bank ("Board") will conduct a performance evaluation and review of the Executive for purposes of determining whether to extend the Agreement, and the results thereof shall be included in the minutes of the Board's meeting and communicated to Executive. (b) During the period of his employment hereunder, except for periods of absence occasioned by illness, reasonable vacation periods, and reasonable leaves of absence, Executive shall devote substantially all his business time, attention, skill, and efforts to the faithful performance of his duties hereunder including activities and services related to the organization, operation and management of the Bank; provided, however, that, with the approval of the Board, as evidenced by a resolution of such Board, from time to time, Executive may serve, or continue to serve, on the boards of directors of, and hold any other offices or positions in, business companies or business organizations, which, in such Board's judgment, will not present any conflict of interest with the Bank, or materially affect the performance of Executive's duties pursuant to this Agreement (for purposes of this Section 2(b), Board approval shall be deemed provided as to service with any such business companies or organizations that Executive was serving as of the date of this Agreement). See Attached Exhibit. 3. COMPENSATION AND REIMBURSEMENT. (a) The compensation specified under this Agreement shall constitute the salary and benefits paid for the duties described in Section 2(b). The Bank shall pay Executive as compensation a salary of not less than $________________ per year ("Base Salary"). Such Base Salary shall be payable biweekly. During the period of this Agreement, Executive's Base Salary shall be reviewed at least annually. Such review shall be conducted by a Committee designated by the Board, and the Board may increase, but not decrease (except a decrease that is generally applicable to all employees), Executive's Base Salary (any increase in Base Salary shall become the "Base Salary" for purposes of this Agreement). In addition to the Base Salary provided in this Section 3(a), the Bank shall provide Executive at no cost to Executive with all such other benefits as are provided uniformly to permanent full-time employees of the Bank. Base Salary shall include any amounts of compensation deferred by Executive under qualified and nonqualified plans maintained by the Bank. (b) The Bank will provide Executive with employee benefit plans, arrangements and perquisites substantially equivalent to those in which Executive was participating or otherwise deriving benefit from immediately prior to the beginning of the term of this Agreement, and the Bank will not, without Executive's prior written consent, make any changes in such plans, arrangements or perquisites which would adversely affect Executive's rights or benefits thereunder, except as to any changes that are applicable to all employees or as reasonably or customarily available. Without limiting the generality of the foregoing provisions of this Subsection (b), Executive will be entitled to participate in or receive benefits under any employee benefit plans including but not limited to, retirement plans, supplemental retirement plans, pension plans, profit-sharing plans, health-and-accident plans, medical coverage or any other employee benefit plan or arrangement made available by the Bank in the future to its senior executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Executive will be entitled to incentive compensation and bonuses as provided in any plan of the Bank in which Executive is eligible to participate (and he shall be entitled to a pro rata distribution under any incentive compensation or bonus plan as to any year in which a termination of employment occurs, other than termination for Cause). Nothing paid to the Executive under any such plan or arrangement will be deemed to be in lieu of other compensation to which the Executive is entitled under this Agreement. (c) In addition to the Base Salary provided for by paragraph (a) of this Section 3, the Bank shall pay or reimburse Executive for all reasonable travel and other reasonable expenses incurred by Executive performing his obligations under this Agreement and may provide such 2 additional compensation in such form and such amounts as the Board may from time to time determine. 4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION. (a) Upon the occurrence of an Event of Termination (as herein defined) during the Executive's term of employment under this Agreement, the provisions of this Section shall apply. As used in this Agreement, an "Event of Termination" shall mean and include any one or more of the following: (i) the termination by the Bank or the Company of Executive's full-time employment hereunder for any reason other than (A) termination for Cause (as defined in Section 7 hereof), (B) upon Retirement (as defined in Section 6 hereof), or (C) for Disability (as set forth in Section 5 hereof); and (ii) Executive's resignation from the Bank's employ following (A) any failure to elect or reelect or to appoint or reappoint Executive to the Executive Position, (B) a material change in Executive's function, duties, or responsibilities, which change would cause Executive's position to become one of lesser responsibility, importance, or scope from the position and attributes thereof described in Section 1 above, to which Executive has not agreed in writing (and any such material change shall be deemed a continuing breach of this Agreement), (C) a relocation of Executive's principal place of employment to a location more than 30 miles outside the City of Wooster, or a material reduction in the benefits and perquisites, including Base Salary, to the Executive from those being provided as of the effective date of this Agreement (except for any reduction that is part of an employee-wide reduction in pay or benefits), (D) a liquidation or dissolution of the Bank or the Company, or (E) material breach of this Agreement by the Bank. Upon the occurrence of any event described in clauses (ii) (A), (B), (C), (D) or (E) above, Executive shall have the right to elect to terminate his employment under this Agreement by resignation upon not less than thirty (30) days prior written notice given within a reasonable period of time (not to exceed, except in case of a continuing breach, four calendar months) after the event giving rise to said right to elect, which termination by Executive shall be an Event of Termination. No payments or benefits shall be due to Executive under this Agreement upon the termination of Executive's employment except as provided in Sections 3, 4 or 5 hereof. (b) Upon the occurrence of an Event of Termination, the Bank shall pay Executive, or, in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be, as severance pay or liquidated damages, or both, a cash amount equal to the greater of the payments due for the remaining term of the Agreement, or three (3) times the sum of: (i) the highest annual rate of Base Salary paid to Executive at any time under this Agreement, and (ii) the greater of (x) the average annual cash bonus paid to Executive with respect to the three completed fiscal years prior to the Event of Termination, or (y) the cash bonus paid to Executive with respect to the fiscal year ended prior to the Event of Termination; PROVIDED HOWEVER, that if the Bank is not in compliance with its minimum capital requirements or if such payments would cause the Bank's capital to be reduced below its minimum capital requirements, such payments shall be deferred until such time as the Bank is in capital compliance. At the election of the Executive, which election may be made annually by January 31 of each year and is irrevocable for the year in which made (and once payments commence), such payments shall be made in a lump sum or paid quarterly during the remaining term of the agreement following the Executive's termination. In the event that no election 3 is made, payment to the Executive will be made on a quarterly basis during the remaining term of the Agreement. Such payments shall not be reduced in the event the Executive obtains other employment following termination of employment. (c) Upon the occurrence of an Event of Termination, the Bank will cause to be continued life, medical and dental coverage substantially comparable, as reasonably or customarily available, to the coverage maintained by the Bank for Executive prior to his termination, except to the extent such coverage may be changed in its application to all Bank employees or is not available on an individual basis to a terminated employee. Such coverage shall cease thirty-six (36) months following the Event of Termination. (d) Notwithstanding anything to the contrary in this Agreement, in the event that: (i) the aggregate payments or benefits to be made or afforded to Executive (the "Termination Benefits") would be deemed to include an "excess parachute payment" under Section 280G of the Code or any successor thereto, and (ii) if such Termination Benefits were reduced to an amount (the "Non-Triggering Amount"), the value of which is one dollar ($1.00) less than an amount equal to the total amount of payments permissible under Section 280G of the Code or any successor thereto, then the Termination Benefits to be paid to Executive shall be so reduced so as to be a Non-Triggering Amount. The allocation of the reduction required hereby among Termination Benefits provided by the preceding paragraphs of this Section 4 shall be determined by the Executive. 5. TERMINATION FOR DISABILITY. (a) If, as a result of Executive's incapacity due to physical or mental illness, he shall have been absent from his duties with the Bank or the Company on a full-time basis for six (6) consecutive months, and within thirty (30) days after written notice of potential termination is given he shall not have returned to the full-time performance of his duties, the Bank may terminate Executive's employment for "Disability." (b) The Bank will pay Executive, as disability pay, a bi-weekly payment equal to 75% of the Executive's bi-weekly rate of Base Salary on the effective date of such termination. These disability payments shall commence on the effective date of Executive's termination and will end on the earlier of (i) the date Executive returns to the full-time employment of the Bank in the same capacity as he was employed prior to his termination for Disability and pursuant to an employment agreement between Executive and the Bank; (ii) Executive's full-time employment by another employer; (iii) Executive attaining a Retirement age as identified in Section 6; or (iv) Executive's death. The disability pay shall be reduced by the amount, if any, paid to the Executive under any plan of the Bank or the Company providing disability benefits to the Executive. 4 (c) The Bank will cause to be continued life, medical, and dental coverage substantially comparable, as reasonable or customarily available, to the coverage maintained by the Bank for Executive prior to his termination for Disability, except to the extent such coverage may be changed in its application to all Bank employees. This coverage shall cease upon the earlier of (i) the date Executive returns to the full-time employment of the Bank in the same capacity as he was employed prior to his termination for Disability and pursuant to an employment agreement between Executive and the Bank; (ii) Executive's full-time employment by another employer; (iii) Executive attaining the Retirement age as identified in Section 6; or (iv) Executive's death. (d) Notwithstanding the foregoing, there will be no reduction in the compensation otherwise payable to Executive during any period during which Executive is incapable of performing his duties hereunder by reason of temporary disability. 6. TERMINATION UPON RETIREMENT. Termination by the Bank of the Executive based on "Retirement" shall mean termination of executive in accordance with any retirement policy established with Executive's consent with respect to him. Upon termination of Executive upon Retirement, no amounts or benefits shall be due Executive under this Agreement and the Executive shall be entitled to all benefits under any retirement plan of the Bank and other plans to which Executive is a party. 7. TERMINATION FOR CAUSE. The term "Termination for Cause" shall mean termination because of the Executive's personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. In determining incompetence, the acts or omissions shall be measured against standards generally prevailing in the savings institution and commercial banking industry. For purposes of this paragraph, no act or failure to act on the part of Executive shall be considered "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interest of the Bank. Notwithstanding the foregoing, Executive shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the members of the Board at a meeting of the Board called and held for that purpose (after reasonable notice to Executive and an opportunity for him, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of conduct justifying Termination for Cause and specifying the particulars thereof in detail. The Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause. Any non-vested stock options or restricted stock granted to Executive under any stock option plan or restricted stock plan of the Bank, the Company or any subsidiary or affiliate thereof, shall become null and void effective 5 upon Executive's receipt of Notice of Termination for Cause pursuant to Section 8 hereof, and any non-vested stock options shall not be exercisable by Executive at any time subsequent to such Termination for Cause, (unless it is determined in arbitration that grounds for termination of Executive for Cause did not exist, in which event all terms of the options or restricted stock as of the date of termination shall apply, and any time periods for exercising such options shall commence from the date of resolution in arbitration). 8. NOTICE. (a) Any purported termination by the Bank for Cause shall be communicated by Notice of Termination to the Executive. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. If, within thirty (30) days after any Notice of Termination for Cause is given, the Executive notifies the Bank or the Company that a dispute exists concerning the termination, the parties shall promptly proceed to arbitration. Notwithstanding the pendency of any such dispute, the Bank and the Company may discontinue to pay Executive compensation until the dispute is finally resolved in accordance with this Agreement. If it is determined that Executive is entitled to compensation and benefits under Section 4 of this Agreement, the payment of such compensation and benefits by the Bank and Company shall commence immediately following the date of resolution by arbitration, with interest due Executive on the cash amount that would have been paid pending arbitration (at the prime rate as published in the WALL STREET JOURNAL from time to time). (b) Any other purported termination by the Bank or by Executive shall be communicated by a Notice of Termination to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. "Date of Termination" shall mean the date of the Notice of Termination. If, within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the parties shall promptly proceed to arbitration as provided in Section 18 of this Agreement. Notwithstanding the pendency of any such dispute, the Bank shall continue to pay the Executive his Base Salary, and other compensation and benefits in effect when the notice giving rise to the dispute was given (except as to termination of Executive for Cause). In the event of the voluntary termination by the Executive of his employment, which is disputed by the Bank, and if it is determined in arbitration that Executive is not entitled to termination benefits pursuant to this Agreement, he shall return all cash payments made to him pending resolution by arbitration, with interest thereon at the prime rate as published in the WALL STREET JOURNAL from time to time if it is determined in arbitration that Executive's voluntary termination of employment was not taken in good faith and not in the reasonable belief that grounds existed for his voluntary termination. 9. POST-TERMINATION OBLIGATIONS. 6 (a) All payments and benefits to Executive under this Agreement shall be subject to Executive's compliance with paragraph (b) of this Section 9 during the term of this Agreement and for one (1) full year after the expiration or termination hereof. (b) Executive shall, upon reasonable notice, furnish such information and assistance to the Bank as may reasonably be required by the Bank in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party. (c) Executive recognizes and acknowledges that the knowledge of the business activities and plans for business activities of the Bank and affiliates thereof, as it may exist from time to time, is a valuable, special and unique asset of the business of the Bank. Executive will not, during or after the term of his employment, disclose any knowledge of the past, present, planned or considered business activities of the Bank or affiliates thereof to any person, firm, corporation, or other entity for any reason or purpose whatsoever (except for such disclosure as may be required to be provided to the Office of Thrift Supervision ("OTS"), the Federal Deposit Insurance Corporation (the "FDIC"), or other federal banking agency with jurisdiction over the Bank or Executive). Notwithstanding the foregoing, Executive may disclose any knowledge of banking, financial and/or economic principles, concepts or ideas which are not solely and exclusively derived from the business plans and activities of the Bank, and Executive may disclose any information regarding the Bank or the Company which is otherwise publicly available. In the event of a breach or threatened breach by the Executive of the provisions of this Section 9, the Bank will be entitled to an injunction restraining Executive from disclosing, in whole or in part, the knowledge of the past, present, planned or considered business activities of the Bank or affiliates thereof, or from rendering any services to any person, firm, corporation, other entity to whom such knowledge, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing herein will be construed as prohibiting the Bank from pursuing any other remedies available to the Bank for such breach or threatened breach, including the recovery of damages from Executive. 10. SOURCE OF PAYMENTS. All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Bank. The Company, however, guarantees payment and provision of all amounts and benefits due hereunder to Executive and, if such amounts and benefits due from the Bank are not timely paid or provided by the Bank, such amounts and benefits shall be paid or provided by the Company. 11. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS. This Agreement contains the entire understanding between the parties hereto and supersedes any prior employment agreement between the Bank or any predecessor of the Bank and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to the Executive of a kind elsewhere provided. No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to him without reference to this Agreement. 7 12. NO ATTACHMENT. (a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect. (b) This Agreement shall be binding upon, and inure to the benefit of, Executive and the Bank and their respective successors and assigns. 13. MODIFICATION AND WAIVER. (a) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. (b) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future as to any act other than that specifically waived. 14. REQUIRED REGULATORY PROVISIONS. (a) The Bank's Board of Directors may terminate the Executive's employment at any time, but any termination by the Bank's Board of Directors, other than Termination for Cause, shall not prejudice Executive's right to compensation or other benefits under this Agreement. Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause as defined in Section 8 hereinabove. (b) If the Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) (12 U.S.C. ss.ss. 1818(e)(3)) or 8(g) (12 U.S.C. ss. 1818(g)) of the Federal Deposit Insurance Act (the "FDI Act"), as amended by the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the Bank's obligations under this contract shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Executive all or part of the compensation withheld while their contract obligations were suspended and (ii) reinstate (in whole or in part) any of the obligations which were suspended. (c) If the Executive is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Section 8(e) (12 U.S.C. ss.ss. 1818(e)) or 8(g) (12 U.S.C. ss. 1818(g)) of the FDI Act, as amended by the Financial Institutions Reform, Recovery 8 and Enforcement Act of 1989, all obligations of the Bank under this contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected. (d) If the Bank is in default as defined in Section 3(x) (12 U.S.C. ss. 1813(x)(1)) of the Federal Deposit Insurance Act, as amended by the Financial Institutions Reform, Recovery and Enforcement Act of 1989, all obligations of the Bank under this contract shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties. (e) All obligations of the Bank under this contract shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the institution, (i) by the Director, at the time FDIC or the Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of the Bank; or (ii) by the OTS at the time the OTS or its District Director approves a supervisory merger to resolve problems related to the operations of the Bank or when the Bank is determined by the OTS or FDIC to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action. (f) Any payments made to Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 USC Section 1828(k) and any regulations promulgated thereunder. 15. SEVERABILITY. If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect. 16. HEADINGS FOR REFERENCE ONLY. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 17. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Ohio but only to the extent not superseded by federal law. 9 18. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators sitting in a location selected by the employee within the [Cleveland] metropolitan area, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 19. PAYMENT OF LEGAL FEES. All reasonable legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Bank, provided that the dispute or interpretation has been settled by Executive and the Bank or resolved in the Executive's favor. 20. INDEMNIFICATION. The Bank and the Company shall provide Executive (including his heirs, executors and administrators) with coverage under a standard directors' and officers' liability insurance policy at its expense, and shall indemnify Executive (and his heirs, executors and administrators) to the fullest extent permitted under federal law against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Bank or the Company (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys' fees and the cost of reasonable settlements (such settlements must be approved by the Board of Directors of the Bank or the Company, as appropriate), provided, however, neither the Bank nor Company shall be required to indemnify or reimburse the Executive for legal expenses or liabilities incurred in connection with an action, suit or proceeding arising from any illegal or fraudulent act committed by the Executive. 21. SUCCESSOR TO THE BANK. The Bank shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Bank or the Company, expressly and unconditionally to assume and agree to perform the Bank's obligations under this Agreement, in the same manner and to the same extent that the Bank would be required to perform if no such succession or assignment had taken place. SIGNATURES 10 IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement to be executed and their seals to be affixed hereunto by their duly authorized officers, and Executives have signed this Agreement, on the day and date first above written. ATTEST: WAYNE SAVINGS COMMUNITY BANK By: -------------------------- -------------------------------- Secretary WITNESS: EXECUTIVE: By: -------------------------- -------------------------------- CONSENT OF GUARANTOR (PURSUANT TO SECTION TEN HEREOF) WAYNE SAVINGS BANCSHARES, INC. By: ------------------------- 11 EX-10.2 11 gex10_2-25709.txt EX-10.2 FORM OF WAYNE SAVINGS COMMUNITY BANK CHANGE IN CONTROL AGREEMENT This AGREEMENT is made effective as of ____________________, 2001 by and between Wayne Savings Community Bank, a federal stock savings association (the "Bank"), and ______________________ ("Executive"). Any reference to "Company" herein shall mean Wayne Savings Bankshares, Inc., or any successor thereto. WHEREAS, the Bank recognizes the substantial contribution Executive has made to the Bank and wishes to protect his position therewith for the period provided in this Agreement; and WHEREAS, Executive has been elected to, and has agreed to serve in the position of _____________for the Bank, a position of substantial responsibility; NOW, THEREFORE, in consideration of the contribution and of Executive, and upon the other terms and conditions hereinafter provided, the parties hereto agree as follows: 1. TERM OF AGREEMENT The term of this Agreement shall be deemed to have commenced as of the date first above written and shall continue for a period of twenty-four (24) full calendar months thereafter. Commencing on the first anniversary date of this Agreement and continuing at each anniversary date thereafter, the term of this Agreement shall be extended for a period of one year in addition to the then-remaining term, provided that (1) the Bank has not given notice to the Employee in writing at least 90 days prior to such anniversary that the term of this Agreement shall not be extended further; and (2) prior to such anniversary, the Board of Trustees of the Bank ("Board") explicitly reviews and approves the extension. Reference herein to the term of this Agreement shall refer to both such initial term and such extended terms. 2. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL (a) Upon the occurrence of a Change in Control of the Bank or the Company (as herein defined) followed at any time during the term of this Agreement by (i) the involuntary termination of Executive's employment, other than for Cause, as defined in Section 2(c) hereof, or (ii) the voluntary termination of Executive's employment during the term of this Agreement following any demotion, loss of title, office or significant authority, reduction in his annual compensation or benefits, or relocation of his principal place of employment by more than 30 miles from its location immediately prior to the Change in Control, then the provisions of Section 3 shall apply. (b) A "Change in Control" of the Bank or the Company shall mean a change in control of a nature that: (i) would be required to be reported in response to Item 1(a) of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in Control of the Bank or the Company within the meaning of the Home Owners Loan Act, as amended ("HOLA"), and applicable rules and regulations promulgated thereunder, as in effect at the time of the Change in Control; or (iii) without limitation such a Change in Control shall be deemed to have occurred at such time as (a) any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of Company's outstanding securities except for any securities purchased by the Bank's employee stock ownership plan or trust; or (b) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, PROVIDED that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company's stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (b), considered as though he were a member of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Bank or the Company or similar transaction in which the Bank or Company is not the surviving institution occurs; or (d) a proxy statement soliciting proxies from stockholders of the Company, by someone other than the current management of the Company, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to the Plan are to be exchanged for or converted into cash or property or securities not issued by the Company; or (e) a tender offer is made for 25% or more of the voting securities of the Company and the shareholders owning beneficially or of record 25% or more of the outstanding securities of the Company have tendered or offered to sell their shares pursuant to such tender offer and such tendered shares have been accepted by the tender offeror. (c) Executive shall not have the right to receive termination benefits pursuant to Section 3 hereof upon Termination for Cause. The term "Termination for Cause" shall mean termination because of the Executive's intentional failure to perform stated duties, personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, willful violation of any law, rule, regulation (other than traffic violations or similar offenses) or final cease and desist order, or any material breach of any material provision of this Agreement. In determining incompetence, the acts or omissions shall be measured against standards generally prevailing in the savings institution industry. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than three-fourths of the members of the Board at a meeting of the Board called and held for that purpose (after reasonable notice to Executive and an opportunity for him, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of conduct justifying Termination for Cause and specifying the particulars thereof in detail. The Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause. 3. TERMINATION (a) Upon the occurrence of a Change in Control, followed at any time during the term of this Agreement by the involuntary termination of Executive's employment other than a Termination for Cause, or the voluntary termination of Executive's employment by Executive after the occurrence of an event set forth in Section 2(a) hereof, the Bank shall be obligated to pay the Executive, or in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be, as severance pay, a sum equal to two (2) times the average of the three preceding years' annual base salary paid and bonuses awarded to the Executive during such years. If the Executive has been employed by the Bank for less than one year, then the severance pay shall be a sum equal to two (2) times the Executive's most recent annual rate of base salary. At the election of the Executive, which election is to be made on an annual basis during the month of January, and which election is irrevocable for the year in which made and upon the occurrence of a Change in Control, any payments shall be made in a lump sum or paid monthly during the remaining term of this Agreement following the Executive's termination. In the event that no election is made, payment to the Executive will be made on a monthly basis during the remaining term of this Agreement, or at the sole 2 discretion of the Bank, in a lump sum. Such payments shall not be reduced in the event the Executive obtains other employment following termination of employment. (b) Upon the occurrence of a Change in Control of the Bank followed at any time during the term of this Agreement by the Executive's involuntary termination of employment, other than for Termination for Cause, or the voluntary termination of Executive's employment as set forth in Section 2(a) hereof, the Bank shall cause to be continued life, medical, dental and disability coverage substantially identical to the coverage maintained by the Bank for the Executive prior to his severance. Such coverage and payments shall cease upon expiration of twenty-four (24) months. (c) Notwithstanding the preceding paragraphs of this Section 3, in no event shall the aggregate payments or benefits to be made or afforded to Executive under said paragraphs (the "Termination Benefits") constitute an "excess parachute payment" under Section 280G of the Code or any successor thereto, and in order to avoid such a result Termination Benefits will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the value of which is one dollar ($1.00) less than an amount equal to three (3) times Executive's "base amount", as determined in accordance with said Section 280G. The allocation of the reduction required hereby among Termination Benefits provided by the preceding paragraphs of this Section 3 shall be determined by the Executive. 4. NOTICE OF TERMINATION (a) Any purported termination by the Bank or by Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. (b) "Date of Termination" shall mean the date specified in the Notice of Termination (which, in the case of a Termination for Cause, shall be immediate). In no event shall the Date of Termination exceed 30 days from the date Notice of Termination is given. 5. SOURCE OF PAYMENTS All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Bank. The Company, however, guarantees payment and provision of all amounts and benefits due hereunder to Executive and, if such amounts and benefits due from the Bank are not timely paid or provided by the Bank, such amounts and benefits shall be paid or provided by the Company. 6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS This Agreement contains the entire understanding between the parties hereto and supersedes any prior agreement between the Bank and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to Executive of a kind elsewhere provided. No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to him without reference to this Agreement. 7. NO ATTACHMENT 3 (a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect. (b) This Agreement shall be binding upon, and inure to the benefit of, Executive, the Bank and their respective successors and assigns. 8. MODIFICATION AND WAIVER (a) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. (b) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 9. REQUIRED PROVISIONS (a) The Bank may terminate the Executive's employment at any time. Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause as defined in Section 2(c) hereinabove. (b) If the Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) (12 USC ss.1818(e)(3)) or 8(g) (12 USC ss.1818(g)) of the Federal Deposit Insurance Act, as amended by the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the Bank's obligations under this contract shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Executive all or part of the compensation withheld while their contract obligations were suspended and (ii) reinstate (in whole or in part) any of the obligations which were suspended. (c) If the Executive is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Section 8(e) (12 USC ss.1818(e)) or 8(g) (12 USC ss.1818(g)) of the Federal Deposit Insurance Act, as amended by the Financial Institutions Reform, Recovery and Enforcement Act of 1989, all obligations of the Bank under this contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected. (d) If the Bank is in default as defined in Section 3(x) (12 USC ss.1813(x)(1)) of the Federal Deposit Insurance Act, as amended by the Financial Institutions Reform, Recovery and Enforcement Act of 1989, all obligations of the Bank under this contract shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties. (e) All obligations of the Bank under this contract shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the Bank, (i) by the 4 Federal Deposit Insurance Corporation ("FDIC"), at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) (12 USC ss.1823(c)) of the Federal Deposit Insurance Act, as amended by the Financial Institutions Reform, Recovery and Enforcement Act of 1989; or (ii) when the Bank is determined by the FDIC to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action. 10. SEVERABILITY If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect. 11. HEADINGS FOR REFERENCE ONLY The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 12. GOVERNING LAW The validity, interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of Ohio, unless preempted by Federal law as now or hereafter in effect. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators sitting in a location selected by the employee within fifty (50) miles from the location of the Bank, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that subject to Section 3(c) hereof, Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 13. PAYMENT OF LEGAL FEES All reasonable legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Bank if Executive is successful on the merits pursuant to a legal judgment, arbitration or settlement. 14. INDEMNIFICATION The Bank shall provide the Executive (including his heirs, executors and administrators) with coverage under a standard directors' and officers' liability insurance policy at its expense, or in lieu thereof, shall indemnify the Executive (and his heirs, executors and administrators) to the fullest extent permitted under federal law and as provided in the Bank's Charter and Bylaws against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Bank (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys' fees and the cost of reasonable settlements (such settlements must be approved by the Board of Directors of the Bank). If such action, suit 5 or proceeding is brought against Executive in his capacity as an officer or director of the Bank, however, such indemnification shall not extend to matters as to which Executive is finally adjudged to be liable for willful misconduct in the performance of his duties. No indemnifications shall be paid that would violate 12 U.S.C. 1828(k) or any regulations promulgated thereunder. 15. SUCCESSOR TO THE BANK The Bank shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Bank, expressly and unconditionally to assume and agree to perform the Bank's obligations under this Agreement, in the same manner and to the same extent that the Bank would be required to perform if no such succession or assignment had taken place. [Remainder of Page Intentionally Blank] 6 16. SIGNATURES IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed by its duly authorized officer, and Executive has signed this Agreement, on the day and date first above written. ATTEST: WAYNE SAVINGS COMMUNITY BANK By: --------------------------------------- --------------------------------- Secretary Charles F. Finn, President WAYNE SAVINGS BANKSHARES, INC. By: --------------------------------------- --------------------------------- Secretary Charles F. Finn, President WITNESS: By: ----------------------------------- --------------------------------- Executive 7 EX-10.3 12 gex10_3-25709.txt EX-10.3 EXHIBIT 10.3 EXHIBIT 10.3 SUBSIDIARIES OF WAYNE SAVINGS BANCSHARES, INC. Wayne Savings Community Bank, An Ohio savings and loan association SUBSIDIARIES OF WAYNE SAVINGS COMMUNITY BANK Village Savings Bank, a Federal savings bank EX-23.2 13 gex23_2-25709.txt EX-23.2 EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated May 11, 2001, accompanying the financial statements of Wayne Savings Bancshares, Inc. as contained in the Registration Statement and the Form AC of Wayne Savings Bancshares, Inc. to be filed with the Securities and Exchange Commission and the Office of Thrift Supervision on or about September 18, 2001. We consent to the use of the aforementioned reports in the Registration Statements and Prospectus and to the use of our name as it appears under the caption "Experts." /s/ Grant Thornton, LLC ------------------------ Cincinnati, Ohio September 13, 2001 EX-23.3 14 gex23_3-25709.txt EX-23.3 EXHIBIT 23.3 [R.P. FINANCIAL LETTERHEAD] September 17, 2001 Board of Directors Wayne Savings Bankshares, MHC Wayne Savings Bancshares, Inc. 151 North Market Street Wooster, Ohio 44691-7858 Members of the Board of Directors: We hereby consent to the use of our firm's name in the Form AC Application for Conversion and in the Form SB-2 Registration Statement for Wayne Savings Bancshares, Inc. We also hereby consent to the inclusion of, summary of and references to our Appraisal and our statement concerning subscription rights in such filings including the prospectus of Wayne Savings Bancshares, Inc. Sincerely, RP FINANCIAL, LC. /s/Gregory E. Dunn --------------------- Gregory E. Dunn Senior Vice President EX-99.1 15 gex99_1-25709.txt EX-99.1 RP FINANCIAL, LC. --------------------------------------- Financial Services Industry Consultants July 11, 2001 Mr. Charles F. Finn Chairman, President and Chief Executive Officer Wayne Savings Bankshares, Inc., subsidiary of Wayne Savings Bankshares, MHC 151 North Market Street Wooster, Ohio 44691 Dear Mr. Finn: This letter sets forth the agreement between Wayne Savings Bankshares, Inc. ("Wayne Savings" or the "Company"), subsidiary of Wayne Savings Bankshares, MHC, Wooster, Ohio (the "MHC"), and RP Financial, LC. ("RP Financial") for independent conversion appraisal services pertaining to the mutual-to-stock conversion of the MHC. The specific appraisal services to be rendered by RP Financial are described below. These appraisal services will be rendered by a team of two senior consultants on staff and will be directed by the undersigned. DESCRIPTION OF APPRAISAL SERVICES In conjunction with preparing the appraisal report, RP Financial will conduct a financial due diligence, including on-site interviews of senior management and reviews of financial and other documents and records, to gain insight into the operations, financial condition, profitability, market area, risks and various internal and external factors of Wayne Savings, all of which will be considered in estimating the pro forma market value of the Company. RP Financial will prepare a detailed written valuation report of the Company that will be fully consistent with applicable federal regulatory guidelines and standard pro forma valuation practices. The appraisal report will include an analysis of the Company's financial condition and operating results, as well as an assessment of the Company's interest rate risk, credit risk and liquidity risk. The appraisal report will describe the Company's business strategies, market area, prospects for the future and the intended use of proceeds. A peer group analysis relative to comparable publicly-traded savings and banking institutions will be conducted for the purpose of determining appropriate valuation adjustments for the Company relative to the peer group. We will review pertinent sections of the Company's prospectus and hold discussions with the Company to obtain necessary data and information for the appraisal report, including the impact of key deal elements on the pro forma market value, such as dividend policy, use of proceeds and reinvestment rate, tax rate, offering expenses, characteristics of stock plans, and the structure of any contribution to a charitable foundation immediately following the offering if applicable. -------------------------------------------------------------------------------- Mr. Charles F. Finn July 11, 2001 Page 2 The appraisal report will establish a midpoint pro forma market value. The appraisal report may be periodically updated throughout the conversion process as appropriate. There will be at least one updated valuation that would be prepared at the time of the closing of the stock offering. RP Financial agrees to deliver the original appraisal report and subsequent updates, in writing, to the Company at the above address in conjunction with the filing of the regulatory applications. Subsequent updates will be filed promptly as certain events occur which would warrant the preparation and filing of such valuation updates. Further, RP Financial agrees to perform such other services as are necessary or required in connection with the regulatory review of the appraisal and respond to the regulatory comments, if any, regarding the valuation appraisal and subsequent updates. RP Financial expects to formally present the appraisal report, including the appraisal methodology, peer group selection and assumptions, to the Board of Directors for review and acceptance. FEE STRUCTURE AND PAYMENT SCHEDULE The Company agrees to pay RP Financial a fixed fee of $45,000 for appraisal services, plus reimbursable expenses. Payment of these fees shall be made according to the following schedule: o $5,000 upon execution of the letter of agreement engaging RP Financial's appraisal services; o $37,500 upon delivery of the original appraisal report concurrent with filing the regulatory applications; and o $2,500 upon completion of the stock offering to cover all subsequent valuation updates that may be required, provided that the transaction is not delayed for reasons described below. The Company will reimburse RP Financial for reasonable out-of-pocket expenses incurred in preparation of the valuation. Such out-of-pocket expenses will likely include travel, printing, telephone, facsimile, shipping, computer and data services. RP Financial will agree to limit reimbursable expenses in conjunction with the appraisal and business planning engagements, subject to written authorization from the Company to exceed such level. In the event the Company shall, for any reason, discontinue the proposed transaction prior to delivery of the completed documents set forth above and payment of the respective progress payment fees, the Company agrees to compensate RP Financial according to RP Financial's standard billing rates for consulting services based on accumulated and verifiable time expenses, not to exceed the respective fee caps noted above, after applying full credit to the initial $5,000 retainer fee towards such payment. RP Financial's standard billing rates range from $75 per hour for research associates to $250 per hour for managing directors. Mr. Charles F. Finn July 11, 2001 Page 3 If during the course of the proposed transaction, unforeseen events occur so as to materially change the nature or the work content of the services described in this contract, the terms of said contract shall be subject to renegotiation by the Company and RP Financial. Such unforeseen events shall include, but not be limited to, major changes in the conversion regulations, appraisal guidelines or processing procedures as they relate to conversion appraisals, major changes in management or procedures, operating policies or philosophies, and excessive delays or suspension of processing of conversion applications by the regulators such that completion of the conversion transaction requires the preparation by RP Financial of a new appraisal. REPRESENTATIONS AND WARRANTIES The Company and RP Financial agree to the following: 1. The Company agrees to make available or to supply to RP Financial such information with respect to its business and financial condition as RP Financial may reasonably request in order to provide the aforesaid valuation. Such information heretofore or hereafter supplied or made available to RP Financial shall include: annual financial statements, periodic regulatory filings and material agreements, debt instruments, off balance sheet assets or liabilities, commitments and contingencies, unrealized gains or losses and corporate books and records. All information provided by the Company to RP Financial shall remain strictly confidential (unless such information is otherwise made available to the public), and if the conversion is not consummated or the services of RP Financial are terminated hereunder, RP Financial shall upon request promptly return to the Company the original and any copies of such information. 2. The Company hereby represents and warrants to RP Financial that any information provided to RP Financial does not and will not, to the best of the Company's knowledge, at the times it is provided to RP Financial, contain any untrue statement of a material fact or in response to informational requests by RP Financial fail to state a material fact necessary to make the statements therein not false or misleading in light of the circumstances under which they were made. 3. (a) The Company agrees that it will indemnify and hold harmless RP Financial, any affiliates of RP Financial, the respective directors, officers, agents and employees of RP Financial or their successors and assigns who act for or on behalf of RP Financial in connection with the services called for under this agreement (hereinafter referred to as "RP Financial"), from and against any and all losses, claims, damages and liabilities (including, but not limited to, reasonable attorneys fees, all losses and expenses in connection with claims under the federal securities laws) attributable to (i) any untrue statement or alleged untrue statement of a material fact contained in the financial statements or other information furnished or otherwise provided by the Company to RP Financial, either orally or in writing; (ii) the omission or alleged omission of a material fact from the financial statements or other information furnished or otherwise made available by the Company to RP Financial; or (iii) any action or omission to act by the Company, or the Company's respective officers, directors, employees or agents, which action or omission is Mr. Charles F. Finn July 11, 2001 Page 4 undertaken in bad faith or is negligent. The Company will be under no obligation to indemnify RP Financial hereunder if a court determines that RP Financial was negligent or acted in bad faith with respect to any actions or omissions of RP Financial related to a matter for which indemnification is sought hereunder. Reasonable time devoted by RP Financial to situations for which indemnification is provided hereunder, shall be an indemnifiable cost payable by the Company at the normal hourly professional rate chargeable by such employee. (b) RP Financial shall give written notice to the Company of such claim or facts within thirty days of the assertion of any claim or discovery of material facts upon which the RP Financial intends to base a claim for indemnification hereunder, including the name of counsel that RP Financial intends to engage in connection with any indemnification related matter. In the event the Company elects, within seven days of the receipt of the original notice thereof, to contest such claim by written notice to RP Financial, the Company shall not be obligated to make payments under Section 3(c), but RP Financial will be entitled to be paid any amounts payable by the Company hereunder, together with interest on such costs from the date incurred at the annual rate of prime plus two percent within five days after the final determination of such contest either by written acknowledgement of the Company or a final judgment of a court of competent jurisdiction, unless it is determined in accordance with Section 3(c) hereof that RP Financial is not entitled to indemnity hereunder. If the Company does not so elect to contest a claim for indemnification by RP Financial hereunder, RP Financial shall (subject to the Company's receipt of the written statement and undertaking under Section 3(c) hereof) be paid promptly and in any event within thirty days after receipt by the Company of billing statements or invoices for which RP Financial is entitled to reimbursement under Section 3(c) hereof. (c) Subject to the Company's right to contest under Section 3(b) hereof, the Company shall pay for or reimburse the reasonable expenses, including attorneys' fees, incurred by RP Financial in advance of the final disposition of any proceeding within thirty days of the receipt of such request if RP Financial furnishes the Company: (1) a written statement of RP Financial's good faith belief that it is entitled to indemnification hereunder; and (2) a written undertaking to repay the advance if it ultimately is determined in a final adjudication of such proceeding that it or he is not entitled to such indemnification. (d) In the event the Company does not pay any indemnified loss or make advance reimbursements of expenses in accordance with the terms of this agreement, RP Financial shall have all remedies available at law or in equity to enforce such obligation. This agreement constitutes the entire understanding of the Company and RP Financial concerning the subject matter addressed herein, and such contract shall be governed and construed in accordance with the laws of the Commonwealth of Virginia. This agreement may not be modified, supplemented or amended except by written agreement executed by both parties. Wayne Savings and RP Financial are not affiliated, and neither Wayne Savings nor RP Financial has an economic interest in, or is held in common with, the other and has not derived Mr. Charles F. Finn July 11, 2001 Page 5 a significant portion of its gross revenues, receipts or net income for any period from transactions with the other. * * * * * * * * * * * Please acknowledge your agreement to the foregoing by signing as indicated below and returning to RP Financial a signed copy of this letter, together with the initial retainer fee of $5,000. Sincerely, /s/ William E. Pommerening ----------------------------- William E. Pommerening Chief Executive Officer and Managing Director Agreed To and Accepted By: Charles F. Finn /s/ Charles F. Finn ------------------------------------ Chairman, President and Chief Executive Officer Upon Authorization by the Board of Directors For: Wayne Savings Bancshares,Inc., subsidiary of Wayne Savings Bankshares, MHC Wooster, Ohio Date Executed: ----------------------------- EX-99.5 16 gex99_5-25709.txt EX-99.5 EXHIBIT 99.5 RP FINANCIAL, LC. ------------------------------------------ FINANCIAL SERVICES INDUSTRY CONSULTANTS July 11, 2001 Mr. Charles F. Finn Chairman, President and Chief Executive Officer Wayne Savings Bankshares, Inc. Subsidiary of Wayne Savings Bankshares, MHC 151 North Market Street Wooster, Ohio 44691 Dear Mr. Finn: This letter sets forth the agreement between Wayne Savings Bankshares, Inc. ("Wayne Savings" or the "Company"), subsidiary of Wayne Savings Bankshares, MHC, Wooster, Ohio (the "MHC"), and RP Financial, LC. ("RP Financial"), whereby the Company has engaged RP Financial to prepare the written document and financial projections reflecting the pro forma impact of the mutual to stock conversion of the MHC and the post-conversion activities of the Company. These services are described in greater detail below. DESCRIPTION OF PROPOSED SERVICES RP Financial's business planning services will include the following areas: (1) determining the Company's current financial and operating condition, business strategies and anticipated future strategies, both currently and on a pro forma basis; (2) quantifying the impact of business strategies, incorporating the use of offering proceeds; (3) preparing detailed financial projections on a quarterly basis for a period of at least three fiscal years to reflect the impact of selected business strategies and the use of offering proceeds; (4) preparing the written business plan document which conforms with applicable regulatory guidelines, including a description of the use of offering proceeds and how the convenience and needs of the community will be addressed; and (5) preparing the detailed schedules of the capitalization and inter-company cash flows. Contents of the business plan will include: Philosophy/Goals; Economic Environment and Background; Lending, Leasing and Investment Activities; Deposit, Savings and Borrowing Activity; Asset and Liability Management; Operations; Records, Systems and Controls; Growth, Profitability and Capital; Responsibility for Monitoring this Plan. RP Financial agrees to prepare the business plan and accompanying financial projections in writing such that the business plan conforming to regulatory guidelines can be filed with the appropriate federal and state regulatory agencies in conjunction with the filing of the stock offering application. -------------------------------------------------------------------------------- Mr. Charles Finn July 11, 2001 Page 2 FEE STRUCTURE AND PAYMENT SCHEDULE The Company agrees to compensate RP Financial for preparation of the business plan on a fixed fee basis of $12,500. Payment of the professional fees shall be made upon delivery of the completed business plan. The Company also agrees to reimburse RP Financial for those direct reasonable out-of-pocket expenses necessary and incidental to providing the business planning services. Reimbursable expenses will likely include shipping, telephone/facsimile printing, computer and data services, and shall be paid to RP Financial as incurred and billed. RP Financial will agree to limit reimbursable expenses in conjunction with the business planning and appraisal engagements, subject to written authorization from the Company to exceed such level. In the event the Company shall, for any reason, discontinue this planning engagement prior to delivery of the completed business plan and payment of the progress payment fee, the Company agrees to compensate RP Financial according to RP Financial's standard billing rates for consulting services based on accumulated and verifiable time expenses, not to exceed the fixed fee described above, plus reimbursable expenses incurred. If during the course of the planning engagement, unforeseen events occur so as to materially change the nature or the work content of the business planning services described in this contract, the terms of said contract shall be subject to renegotiation by the Company and RP Financial. Such unforeseen events may include changes in regulatory requirements as it specifically relates to the Company. INDEMNIFICATIONS The provisions of paragraph 3 in that certain letter agreement dated July 11, 2001 between the Company and RP Financial are incorporated herein by reference. Please acknowledge your agreement to the foregoing by signing as indicated below and returning to RP Financial a signed copy of this letter. Sincerely, /s/ William E. Pommerening ----------------------------- William E. Pommerening Chief Executive Officer and Managing Director Agreed To and Accepted By: Charles F. Finn /s/ Charles F. Finn --------------------------------- President and Chief Executive Officer Upon Authorization by the Board of Directors For: Wayne Savings Bankshares, Inc. Subsidiary of Wayne Savings Bankshares, M.H.C. Wooster, Ohio Date Executed: ------------------------------ EX-99.6 17 gex99_6-25709.txt EX-99.6 WAYNE SAVINGS BANCSHARES, INC. 151 NORTH MARKET STREET WOOSTER, OHIO 44691 (330) 264-5767 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER ____, 2001 Notice is hereby given that the Special Meeting of Stockholders ("Meeting") of Wayne Savings Bancshares, Inc. (the "Company") will be held at ____________________________________, at 10:00 a.m., local time, on December ___, 2001. As of the date hereof, the Company owns 100% of the common stock of Wayne Savings Community Bank (the "Bank") and is majority-owned by Wayne Savings Bankshares, MHC (the "Mutual Holding Company"). A Proxy Statement and Proxy Card for the Meeting are enclosed. The Meeting is for the purpose of considering and acting upon: 1. A plan of conversion and reorganization (the "Plan") pursuant to which the Mutual Holding Company will be merged into the Bank, and the Company will be succeeded by a new Delaware corporation with the same name as the Company which has been established for the purpose of completing the conversion. As part of the conversion, shares of common stock representing the ownership interest in the Company held by the Mutual Holding Company will be offered for sale in a stock offering. Common stock of the Company currently held by stockholders will be converted into new shares pursuant to an exchange ratio that will insure that stockholders at the time of the conversion will own the same percentage of Wayne Savings Bancshares, Inc. after the conversion as was held just prior thereto, exclusive of any shares purchased by the stockholder and cash received in lieu of fractional shares; and such other matters as may properly come before the Meeting, or any adjournments thereof. The Board of Directors is not aware of any other business to come before the Meeting. Any action may be taken on the foregoing proposal at the Meeting on the date specified above, or on any date or dates to which by original or later adjournment the Meeting may be adjourned. Stockholders of record at the close of business on November ____, 2001 are the stockholders entitled to vote at the Meeting, and any adjournments thereof. EACH STOCKHOLDER, WHETHER HE OR SHE PLANS TO ATTEND THE MEETING, IS REQUESTED TO SIGN, DATE, AND RETURN THE ENCLOSED PROXY CARD WITHOUT DELAY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN BY THE STOCKHOLDER MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED. A PROXY MAY BE REVOKED BY FILING WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE MEETING MAY REVOKE HIS OR HER PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE MEETING. HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER IN ORDER TO VOTE PERSONALLY AT THE MEETING. By Order of the Board of Directors ------------------- Secretary Wooster, Ohio November ___, 2001 -------------------------------------------------------------------------------- IMPORTANT: A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES. -------------------------------------------------------------------------------- QUESTIONS AND ANSWERS FOR STOCKHOLDERS OF WAYNE SAVINGS BANCSHARES, INC. Q. WHAT ARE STOCKHOLDERS BEING ASKED TO APPROVE? A. Wayne Savings Bancshares, Inc. stockholders as of November ____, 2001 are asked to vote on the plan of conversion and reorganization. Pursuant to the plan, Wayne Savings Bankshares, MHC will convert from the mutual holding company form to the fully public form of corporate structure (the "Conversion") and as part of the Conversion, we will offer for sale Wayne Savings Bankshares, MHC's ownership interest in Wayne Savings Bancshares, Inc. Q. WHAT ARE REASONS FOR THE MUTUAL-TO-STOCK CONVERSION AND RELATED STOCK OFFERING? A. The primary reason for the Conversion and offering is to better serve existing and new customers. Funds raised in the stock offering will be available to increase lending activities and continue to expand Wayne Savings Community Bank's branch network, products and services. The additional capital will allow Wayne Savings Community Bank to continue to be a well-capitalized institution and will help support dividend payments and, possibly, future acquisitions of financial institutions or banking-related businesses. A. WHAT WILL STOCKHOLDERS RECEIVE FOR THEIR EXISTING WAYNE SAVINGS BANCSHARES, INC. SHARES? A. As more fully described in the Prospectus section entitled "The Conversion," depending on the number of shares sold in the offering, each share of common stock you own upon completion of the Conversion will be exchanged for between 1.1327 shares at the minimum and 1.5325 shares at the maximum (though cash will be paid in lieu of fractional shares). Q. WHY WILL THE SHARES THAT I RECEIVE BE BASED ON A PRICE OF $10.00 PER SHARE RATHER THAN THE TRADING PRICE OF THE COMMON STOCK PRIOR TO THE CONVERSION? A. The Board of Directors of Wayne Savings Bancshares, Inc. selected a price of $10.00 per share for the stock offered for sale because it is a commonly selected per share price for mutual-to-stock conversions. The number of new shares you receive for your existing Wayne Savings Bancshares, Inc. shares does not depend on the market price of Wayne Savings Bancshares, Inc. common stock. It will depend on the number of shares sold in the offering, which will in turn depend on the final independent appraisal of the pro forma market value of Wayne Savings Bancshares, Inc., assuming completion of the Conversion and offering. The result will be that each existing stockholder will own the same percentage of Wayne Savings Bancshares, Inc. after the Conversion as was held just prior thereto, exclusive of (i) any shares purchased by the stockholder and (ii) cash received in lieu of fractional shares. Q. SHOULD I SUBMIT MY STOCK CERTIFICATES NOW? A. No. If you hold your certificate(s), instructions for exchanging the shares will be sent to you AFTER ----- completion of the Conversion. If your shares are held in "street name," rather than in certificate form, the share exchange will occur automatically upon completion of the Conversion. Q. WILL MY DIVIDENDS DECREASE? A. No. Wayne Savings Bancshares, Inc. currently pays a quarterly dividend of $.17 per share (or $.68 per share annualized). The number of new stock shares that will be issued to you will be different from the number that you currently own. However, the per share dividend for these new shares will be adjusted to ensure that your aggregate dividends do not decrease. For example, if 1.3326 new shares are issued for each Wayne Savings Bancshares, Inc. share owned at the conclusion of the Conversion, the quarterly dividend per share will be $0.128. Of course, there is no assurance that the Board of Directors will not change the dividend policy in the future or eliminate dividends. Q. IF MY SHARES ARE HELD IN STREET NAME, WILL MY BROKER AUTOMATICALLY VOTE ON MY BEHALF? A. No. Your broker will not be able to vote your shares without instructions from you. You should instruct your broker to vote your shares, using the directions that your broker provides to you. Q. WHAT IF I DO NOT GIVE VOTING INSTRUCTIONS TO MY BROKER? A. Your vote is important. If you do not instruct your broker to vote your shares and the broker submits an unvoted proxy, that broker non-vote will be counted toward a quorum at the special meeting. However, broker non-votes will have THE SAME EFFECT AS A VOTE AGAINST the plan of conversion with respect to the requirement that it be approved by at least two-thirds of the outstanding common stock of Wayne Savings Bancshares, Inc. Q. MAY I PLACE AN ORDER TO PURCHASE SHARES IN THE STOCK OFFERING, IN ADDITION TO THE SHARES I WILL RECEIVE IN THE EXCHANGE? A. Yes. Eligible Wayne Savings Community Bank customers have priority subscription rights allowing them to purchase common stock in the subscription offering, because the stock offering is part of the Conversion. Shares not subscribed in the subscription offering may be available for sale to the public in a community offering, as fully described in the Prospectus. Wayne Savings Bancshares, Inc. stockholders as of November ____, 2001 have a preference in the community offering. IF YOU HOLD YOUR STOCK CERTIFICATE(S), YOU WERE MAILED A STOCK ORDER FORM AND ORDER REPLY ENVELOPE WITH THIS DOCUMENT. IF YOU HOLD YOUR SHARES IN STREET NAME WITH A BROKER, YOU MUST CALL THE STOCK INFORMATION CENTER IF YOU WOULD LIKE TO RECEIVE A STOCK ORDER FORM. THE TOLL FREE TELEPHONE NUMBER IS (___) __________. OTHER QUESTIONS? For answers to other questions, please read this Proxy Statement and the Prospectus, which includes a Questions and Answers section. Questions about the stock offering or voting may be directed to the Stock Information Center by calling our toll free number (____) ______________ , Monday through Friday, from 9:00 a.m. and 4:00 p.m. eastern time. PROXY STATEMENT OF WAYNE SAVINGS BANCSHARES, INC. 151 NORTH MARKET STREET WOOSTER, OHIO 44691 (330) 264-5767 SPECIAL MEETING OF STOCHOLDERS DECEMBER ____, 2001 This Proxy Statement is furnished in connection with the solicitation of proxies on behalf of the Board of Directors of Wayne Savings Bancshares, Inc. (the "Company"), to be used at the Special Meeting of Stockholders of the Company (the "Meeting"), which will be held at ___________________________, Wooster, Ohio, on December ___, 2001 at 10:00 a.m., local time, and all adjournments thereof. The accompanying Notice of Special Meeting of Stockholders and this Proxy Statement are first being mailed to stockholders on or about November _____, 2001. ================================================================================ REVOCATION OF PROXIES ================================================================================ Stockholders who execute proxies in the form solicited hereby retain the right to revoke them in the manner described below. Unless so revoked, the shares represented by such proxies will be voted at the Meeting and all adjournments thereof. Proxies solicited on behalf of the Board of Directors of the Company will be voted in accordance with the directions given thereon. PLEASE SIGN AND RETURN YOUR PROXY IN ORDER FOR YOUR VOTE TO BE COUNTED. WHERE NO INSTRUCTIONS ARE INDICATED, PROXIES, IF SIGNED, WILL BE VOTED "FOR" THE PROPOSAL SET FORTH IN THIS PROXY STATEMENT FOR CONSIDERATION AT THE MEETING. Proxies may be revoked by sending written notice of revocation to the Secretary of the Company, ________________, at the address shown above, or by filing a duly executed proxy bearing a later date. The presence at the Meeting of any stockholder who had given a proxy shall not revoke such proxy unless the stockholder delivers his or her ballot in person at the Meeting or delivers a written revocation to the Secretary of the Company prior to the voting of such proxy. ================================================================================ VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF ================================================================================ Holders of record of the Company's common stock at the close of business on November ____, 2001 (the "Voting Record Date") are entitled to one vote for each share held. As of the Voting Record Date, there were __________ shares of common stock issued and outstanding, 1,350,699 of which were held by Wayne Savings Bankshares, MHC (the "Mutual Holding Company"), and _________ of which were held by stockholders other than the Mutual Holding Company ("Public Stockholders"). The presence in person or by proxy of at least a majority of the issued and outstanding shares of common stock entitled to vote is necessary to constitute a quorum at the Meeting. Pursuant to Office of Thrift Supervision ("OTS") regulations and the plan of conversion and reorganization (the "Plan"), completion of the conversion of Wayne Savings Bankshares, MHC from the mutual to the stock form of organization (the "Conversion") is subject to the approval of the Plan by the OTS and by a majority of the total votes eligible to be cast by members (depositors and certain borrowers) of the Mutual Holding Company. In addition, the transactions incident to the Conversion and the Plan must be approved by at least two-thirds of the outstanding shares of common stock, and a majority of votes cast by public stockholders other than the Mutual Holding Company. With respect to the required affirmative vote of at least two-thirds of the outstanding shares of common stock, abstentions and broker non-votes will have the effect of a vote against the Plan. With respect to the required affirmative vote by a majority of votes cast by stockholders other than the Mutual Holding Company, broker non-votes will be considered as shares not voted. Management believes that the Mutual Holding Company will vote all of its shares to approve the Plan. ================================================================================ PROPOSAL I--APPROVAL OF THE PLAN OF CONVERSION AND REORGANIZATION ================================================================================ In addition to this Proxy Statement, you have received as part of this mailing a Prospectus that describes the Company and the Conversion and stock offering. The Prospectus is incorporated by reference into the Proxy Statement. Therefore, you should carefully read the Prospectus prior to voting on the proposal to be presented at the Meeting. Details of the Conversion are addressed in the Prospectus sections entitled "Summary" and "The Conversion". DISSENTERS' AND APPRAISAL RIGHTS Under OTS regulations, Public Stockholders will not have dissenters' rights or appraisal rights in connection with the exchange of their common stock for shares of common stock of Wayne Savings Bancshares, Inc. pursuant to the exchange ratio described in the Prospectus. OTHER MATTERS The Board of Directors is not aware of any business to come before the Meeting other than the matters described above in the Proxy Statement. However, if any matters should properly come before the Meeting, it is intended that holders of the proxies will act as directed by a majority of the Board of Directors, except for matters related to the conduct of the Meeting, as to which they shall act in accordance with their best judgment. The Plan sets forth the terms, conditions, and provisions of the proposed Conversion. The Certificate of Incorporation and Bylaws of the Company are exhibits to the Plan. If you would like to receive an additional copy of the Prospectus, or a copy of the Plan and the Certificate of Incorporation and Bylaws of the Company, you must request such materials in writing, addressed to the Company's Secretary at the address given above. Such requests must be received by the Company no later than November ____, 2001. If the Company does not receive your request by such date, you will not be entitled to have such materials mailed to you. To the extent necessary to permit approval of the Plan, proxies may be solicited by officers, directors, or regular employees of the Company and/or the Bank, in person, by telephone, or through other forms of communication and, if necessary, the Meeting may be adjourned to a later date. Such persons will be reimbursed by the Company and/or the Bank for their reasonable out-of-pocket expenses, including, but not limited to, telephone and postage expenses incurred in connection with such solicitation. The Company and/or the Bank have not retained a proxy solicitation firm to provide advisory services in connection with the solicitation of proxies. YOUR VOTE IS IMPORTANT! THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PLAN. THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SHARES IN THE STOCK OFFERING. THE OFFER IS MADE ONLY BY THE PROSPECTUS. The cost of solicitation of proxies will be borne by the Company. The Company will reimburse brokerage firms and other custodians, nominees, and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the beneficial owners of common stock. BY ORDER OF THE BOARD OF DIRECTORS ----------------------- Secretary Wooster, Ohio November ___, 2001 REVOCABLE PROXY WAYNE SAVINGS BANCSHARES, INC. SPECIAL MEETING OF STOCKHOLDERS DECEMBER ___, 2001 The undersigned hereby appoints the full Board of Directors, with full powers of substitution to act as attorneys and proxies for the undersigned to vote all shares of Common Stock of Wayne Savings Bancshares, Inc. (the "Company") which the undersigned is entitled to vote at a Special Meeting of Stockholders ("Meeting") to be held at the ______________________, Wooster, Ohio, at 10:00 a.m., local time, on December ___, 2001. The official proxy committee is authorized to cast all votes to which the undersigned is entitled as follows:
FOR AGAINST ABSTAIN --- ------- ------- 1. A plan of conversion and reorganization (the "Plan") / / / / / / pursuant to which the Mutual Holding Company will be merged into the Bank, and the Company will be succeeded by a new Delaware corporation with the same name as the Company which has been established for the purpose of completing the conversion. As part of the conversion, shares of common stock representing the ownership interest in the Company held by the Mutual Holding Company will be offered for sale in a stock offering. Common stock of the Company currently held by stockholders will be converted into new shares pursuant to an exchange ratio that will insure that stockholders at the time of the conversion will own the same percentage of Wayne Savings Bancshares, Inc. after the conversion as was held just prior thereto, exclusive of any shares purchased by the stockholder and cash received in lieu of fractional shares.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE LISTED PROPOSAL. ================================================================================ THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS PROXY, IF SIGNED, WILL BE VOTED FOR THE PROPOSITION STATED ABOVE. IF ANY OTHER BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THE ABOVE-NAMED PROXIES AT THE DIRECTION OF A MAJORITY OF THE BOARD OF DIRECTORS. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING. THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS Should the undersigned be present and elect to vote at the Meeting or at any adjournment thereof and after notification to the Secretary of the Company at the Meeting of the stockholder's decision to terminate this proxy, then the power of said attorneys and proxies shall be deemed terminated and of no further force and effect. This proxy may also be revoked by sending written notice to the Secretary of the Company at the address set forth on the Notice of Special Meeting of Stockholders, or by the filing of a later proxy statement prior to a vote being taken on a particular proposal at the Meeting. Dated: , 2001 / / Check Box if You Plan to Attend Meeting ------------------ ------------------------------- ----------------------------------- PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER ------------------------------- ----------------------------------- SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER Please sign exactly as your name appears on this card. When signing as attorney, executor, administrator, trustee, or guardian, please give your full title. If shares are held jointly, each holder should sign. ================================================================================ PLEASE COMPLETE AND DATE THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. ================================================================================