SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
---------- ----------
Commission File No. 0-27606
WHG Bancshares Corporation
--------------------------
(Exact name of small business issuer as specified in its charter)
Maryland 52-1953867
-------- ----------
(State of incorporation (I.R.S. employer
or organization) identification no.)
1505 York Road, Lutherville, Maryland 21093
- ------------------------------------- -----
(Address of principal executive offices) (zip code)
(410) 583-8700
--------------
Issuer"s telephone number, including area code
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
--- ---
Number of shares of Common Stock outstanding as of August 10, 1998: 1,389,002
Transitional Small Business Disclosure Format (check one)
YES NO X
--- ---
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARY
Contents
<TABLE>
<CAPTION>
Pages
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PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements.........................................................................................3
Consolidated statements of financial condition at June 30, 1998
(unaudited) and September 30, 1997...............................................................................3
Consolidated statements of operations (unaudited) for nine months and three months
Ended June 30, 1998 and June 30, 1997............................................................................4
Consolidated statements of cash flows (unaudited) for the nine months
Ended June 30, 1998 and June 30, 1997..........................................................................5-6
Notes to financial statements..................................................................................7-9
Item 2. Management's Discussion and Analysis or Plan of Operation................................................10-15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...........................................................................................16
Item 2. Changes in Securities.......................................................................................16
Item 3. Defaults upon Senior Securities.............................................................................16
Item 4. Submission of Matters to a Vote of Security-Holders.........................................................16
Item 5. Other Information...........................................................................................16
Item 6. Exhibits and Reports on Form 8-K............................................................................16
Signatures.................................................................................................................17
</TABLE>
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<PAGE>
PART I - FINANCIAL INFORMATION
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
-------------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
------------- -------------
1998 1997
------------- -------------
(Unaudited)
Assets
------
<S> <C> <C>
Cash $ 986,409 $ 1,003,528
Interest bearing deposits in other banks 3,255,271 3,898,946
Federal funds sold 3,822,000 3,481,833
Investment securities - available for sale 17,994,692 -
Investment securities - held to maturity 16,100,000 3,750,000
Mortgage backed securities - held to maturity 7,469,127 2,845,210
Loans receivable - net 76,519,219 78,450,370
Accrued interest receivable - loans 347,664 374,561
- investments 573,143 69,230
- mortgage backed securities 42,071 15,998
Premises and equipment - net 835,458 721,932
Federal Home Loan Bank of Atlanta stock, at cost 1,000,000 753,200
Investment in and loans to affiliated corporation 2,575,000 2,925,000
Income taxes receivable 62,408 -
Deferred income taxes 221,611 116,394
Other assets 163,255 150,517
------------- -------------
Total assets $ 131,967,328 $ 98,556,719
============= =============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
- -----------
Deposits $ 89,843,948 $ 74,186,112
Federal Home Loan Bank advances 20,000,000 4,000,000
Advance payments by borrowers for taxes and insurance 1,782,491 330,671
Income taxes payable - 64,284
Other liabilities 168,411 146,519
------------- -------------
Total liabilities 111,794,850 78,727,586
Stockholders' Equity
- --------------------
Common stock .10 par value; authorized 1,620,062
shares; issued and outstanding 1,389,002 shares in
1998 and 1,392,415 shares in 1997 138,900 139,241
Additional paid-in capital 11,519,249 11,390,312
Retained earnings (substantially restricted) 9,544,668 9,381,773
------------- -------------
21,202,817 20,911,326
Unrealized loss on investment securities available for sale (45,349) -
Employee Stock Ownership Plan (984,990) (1,082,193)
------------- -------------
Total stockholders' equity 20,172,478 19,829,133
------------- -------------
Total liabilities and stockholders' equity $ 131,967,328 $ 98,556,719
============= =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-3-
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARY
-----------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-------------------------------------------------
<TABLE>
<CAPTION>
For Nine Months Ended For Three Months Ended
--------------------- ----------------------
June 30, June 30,
--------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and fees on loans $4,529,548 $4,432,860 $1,497,085 $1,507,575
Interest on mortgage backed securities 219,283 150,645 126,165 49,536
Interest and dividends on investment
securities 857,792 283,001 543,263 112,811
Other interest income 458,174 396,261 154,453 131,166
---------- ---------- ---------- ----------
Total interest income 6,064,797 5,262,767 2,320,966 1,801,088
Interest on deposits 2,824,529 2,381,083 1,031,707 801,418
Interest on short-term borrowings 263,058 106,359 121,758 62,210
Interest on long term borrowings 158,078 - 152,568 -
---------- ---------- ---------- ----------
Total interest expense 3,245,665 2,487,442 1,306,033 863,628
---------- ---------- ---------- ----------
Net interest income 2,819,132 2,775,325 1,014,933 937,460
Provision for loan losses 180,000 45,644 50,000 15,000
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses 2,639,132 2,729,681 964,933 922,460
Non-Interest Income
- -------------------
Fees and charges on loans 21,766 18,594 6,935 3,972
Fees on transaction accounts 47,944 34,812 14,328 12,491
Other income 24,492 33,627 8,314 9,513
---------- ---------- ---------- ----------
Total non-interest income 94,202 87,033 29,577 25,976
Non-Interest Expenses
- ---------------------
Salaries and related expenses 1,204,115 1,157,018 398,516 354,443
Occupancy 115,469 122,256 36,411 37,961
SAIF deposit insurance premium 35,289 56,477 11,902 11,624
Depreciation of equipment 40,429 35,849 17,415 11,960
Advertising 84,335 32,706 32,582 15,831
Data processing costs 62,219 56,662 22,133 18,408
Professional services 135,085 130,569 48,462 43,946
Other expenses 276,996 246,636 106,230 76,628
---------- ---------- ---------- ----------
Total non-interest expenses 1,953,937 1,838,173 673,651 570,801
---------- ---------- ---------- ----------
Income before tax provision 779,397 978,541 320,859 377,635
Provision for income taxes 309,632 389,214 123,814 146,325
---------- ---------- ---------- ----------
Net income $ 469,765 $ 589,327 $ 197,045 $ 231,310
========== ========== ========== ==========
Basic earnings per share $ .38 $ .41 $ .16 $ .16
========== ========== ========== ==========
Diluted earnings per share $ .37 $ .41 $ .15 $ .16
========== ========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-4-
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARY
-----------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
<TABLE>
<CAPTION>
For Nine Months Ended
-----------------------------
June 30, June 30,
-------- --------
1998 1997
---- ----
<S> <C> <C>
Operating Activities
Net income $ 469,765 $ 589,327
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
------------------------------------------
Amortization of discount on mortgage backed
securities (522) (619)
Amortization of premium on mortgage backed
securities 185 -
Amortization of deferred loan fees (139,062) (134,094)
Loan fees deferred 140,923 64,491
Decrease in discount on loans purchased (16,406) (15,749)
Provision for loan losses 180,000 45,644
Non-cash compensation under stock-based
benefit plans 279,553 248,806
Increase in accrued interest receivable (503,089) (75,521)
Provision for depreciation 50,604 45,185
(Increase) decrease in deferred income tax (45,095) 202,158
Increase in prepaid income taxes (62,408) -
(Increase) decrease in other assets (12,738) 62,392
Decrease in accrued interest payable (95) (1,647)
Decrease in income taxes payable (64,284) (202,344)
Increase (decrease) in other liabilities 21,892 (511,284)
----------- ----------
Net cash provided by operating activities 299,223 316,745
Cash Flows from Investment Activities
- -------------------------------------
Proceeds from maturing interest bearing deposits 1,759,019 683,000
Purchases of interest bearing deposits (1,568,589) (295,000)
Decrease in securities purchased under an
agreement to resell - 2,000,000
Purchase of securities available for sale (23,100,050) -
Proceeds from maturing securities - available for sale 5,000,000 -
Proceeds from maturing securities - held to maturity 7,000,000 1,000,000
Purchase of securities - held to maturity (19,350,000) (3,000,000)
Purchase of mortgage backed securities - held to maturity (4,958,225) -
Principal collected on mortgage backed securities - held
to maturity 334,645 113,795
Net decrease (increase) in shorter term loans 112,570 (126,398)
Loans purchased (203,488) -
Longer term loans originated or acquired (9,987,650) (8,317,894)
Principal collected on longer term loans 11,844,264 4,766,724
Investment in premises and equipment (164,130) (16,277)
Purchase of stock in Federal Home Loan Bank
of Atlanta (246,800) (70,400)
(Increase) decrease on investment in and loans
to joint ventures 350,000 (50,000)
----------- ----------
Net cash used by investment activities (33,178,434) (3,312,450)
</TABLE>
-5-
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARY
-----------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
<TABLE>
<CAPTION>
For Nine Months Ended
---------------------
June 30, June 30,
-------- --------
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Financing Activities
Net (decrease) increase in demand deposits, money
market, passbook accounts and advances by
borrowers for taxes and insurance $(2,680,914) $ 1,403,341
Net increase in certificates of deposit 19,790,552 1,561,501
Net increase in borrowings 16,000,000 4,000,000
Management Stock Bonus Plan - (882,927)
Dividends on stock (306,870) (216,315)
Stock repurchase (53,754) (2,281,234)
------------ ------------
Net cash provided by financing activities 32,749,014 3,584,366
------------ ------------
Increase (decrease) in cash and cash equivalents (130,197) 588,661
Cash and cash equivalents at beginning of period 7,946,628 7,305,109
------------ ------------
Cash and cash equivalents at end of period $ 7,816,431 $ 7,893,770
============ ============
The following is a Summary of Cash and Cash Equivalents:
Cash $ 986,409 $ 617,600
Interest bearing deposits in other banks 3,255,271 3,215,642
Federal funds sold 3,822,000 4,455,528
------------ ------------
Balance of cash items reflected on
Statement of Financial Condition 8,063,680 8,288,770
Less - certificates of deposit with original
maturities of more than three months
that are included in interest
bearing deposits in other banks 247,249 395,000
------------ ------------
Cash and cash equivalents reflected on the
Statement of Cash Flows $ 7,816,431 $ 7,893,770
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 3,245,570 $ 2,489,089
============ ============
Taxes $ 538,851 $ 390,500
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-6-
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARY
-----------------------------------------
Lutherville, Maryland
---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
Note 1 - Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of WHG
Bancshares Corporation ("the Company") and its wholly-owned
subsidiary, Heritage Savings Bank, F.S.B. ("the Bank") and the Bank's
subsidiary, Mapleleaf Mortgage Corporation. All intercompany accounts
and transactions have been eliminated in the accompanying consolidated
financial statements.
Note 2 - Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and in accordance with
the instructions to Form 10-QSB. Accordingly, they do not include all
of the disclosures required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments necessary for a fair presentation of the
results of operations for the interim periods presented have been
made. Such adjustments were of a normal recurring nature. The results
of operations for the nine months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the
entire fiscal year September 30, 1998 or any other interim period. The
consolidated financial statements should be read in conjunction with
the consolidated financial statements and related notes which are
incorporated by reference in the Company's Annual Report on Form
10-KSB for the year ended September 30, 1997.
Note 3 - Federal Home Loan Advances
--------------------------
During the quarter ended June 30, 1998, the Bank obtained the
following advances:
Description Rate Amount Maturity
----------- ---- ------ --------
FHLB advances 5.68% $ 5,000,000 08/26/98
FHLB advances 5.80% 2,000,000 11/06/98
FHLB advances 6.02% 1,000,000 12/09/98
FHLB advances 5.71% 1,000,000 01/08/99
FHLB advances 5.52% 5,000,000 04/02/03
FHLB advances 5.51% 6,000,000 03/26/08
----------
$20,000,000
==========
-7-
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------
Note 4 - Earnings Per Share
------------------
As required, the Company adopted statement of Financial Accounting
Standards No. 128 during the quarter ended December 31, 1997. This
Statement requires dual presentation of basic and diluted earnings per
share ("EPS") with a reconciliation of the numerator and denominator
of the EPS computations. Basic per share amounts are based on the
weighted average shares of common stock outstanding. Diluted earnings
per share assume the conversion, exercise or issuance of all potential
common stock instruments such as options, warrants and convertible
securities, unless the effect is to reduce a loss or increase earnings
per share. No adjustments were made to net income (numerator) for all
periods presented. Accordingly, this presentation has been adopted for
all periods presented. The basic and diluted weighted average shares
outstanding for the three and six month periods are as follows:
Nine Months Ended Nine Months Ended
June 30, 1998 June 30, 1997
------------------ -------------------
Basic Diluted Basic Diluted
----- ------- ----- -------
Net income $ 469,765 $ 469,765 $ 589,327 $ 589,327
Weighted average shares
outstanding 1,230,887 1,230,887 1,433,936 1,433,936
Diluted securities:
MSBP shares - 10,228 - 801
Options - 40,310 - 5,034
--------- --------- --------- ---------
Adjusted weighted average
shares 1,230,887 1,281,425 1,433,936 1,439,771
Per share amount $ 0.38 $ 0.37 $ 0.41 $ 0.41
-8-
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------
Note 4 - Earnings Per Share - Continued
------------------
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
----------------------- -----------------------
Basic Diluted Basic Diluted
----- ------- ----- -------
Net income $ 197,045 $ 197,045 $ 231,310 $ 231,310
Weighted average shares
outstanding 1,233,748 1,233,748 1,432,676 1,432,676
Diluted securities:
MSBP shares - 10,400 - 2,135
Options - 40,925 - 11,395
--------- --------- --------- ---------
Adjusted weighted average
shares 1,233,748 1,285,073 1,432,676 1,446,206
Per share amount $ 0.16 $ 0.15 $ 0.16 $ 0.16
-9-
<PAGE>
Item 2
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
- -------------------
Total assets of the Company were $131,967,000 as of June 30, 1998, compared
to $98,557,000 as of September 30, 1997, an increase of $33,410,000 or 33.90%.
The increase was primarily attributable to a net increase in investment
securities available for sale and held to maturity of $30,345,000 and an
increase in mortgage backed securities of $4,624,000. These increases were
slightly offset by a decrease in loans of $1,931,000. The purchase of
investments is part of management's strategy to maximize the high level of
equity and to increase profitability. As liquidity levels increased with the
inflow of deposits and FHLB advances, and the funds used to purchase higher
yielding bonds and mortgage backed securities. Of the total increase in
investment securities, approximately $18.0 million of the investments are held
as "available for sale" as it is management's intention to use these bonds to
fund future loan originations.
Total liabilities of the Company were $111,795,000 as of June 30, 1998,
compared to $78,728,000 as of September 30, 1997, an increase of $33,067,000 or
42.00%. The increase was due to a net increase in deposits of $15,658,000,
Federal Home Loan Bank ("FHLB of Atlanta") advances of $16,000,000 and advance
payments by borrowers for taxes and insurance of $1,452,000. The increase in
deposits was due to an increase in certificates of deposit of $19,791,000,which
was slightly offset by a decline in other deposits of $2,681,000. During the
quarter ended June 30, 1998, the Bank borrowed an additional $12,000,000 in
short and long term FHLB advances. Management's plan was to take advantage of
the low costs of funds and invest the proceeds in higher yielding investments
and loan originations. As the borrowings mature, they will be repaid with
deposits. The increase in advance payments by borrowers was due to the cyclical
nature of this account as borrowers increased the accounts monthly and
disbursements are made primarily in July through September.
Stockholders' equity was $20,172,000 as of June 30, 1998, compared to
$19,829,000 as of September 30 1997, an increase of $343,000. The increase was
due to net income for the period of $470,000 and the allocation of shares to the
Stock Based Benefit Plan of $280,000. The increase was offset by a dividend of
$307,000, the repurchase of shares of the Company's own stock of $54,000 and a
net unrealized loss on securities available for sale of $45,000.
Results of Operations
General
Net income for the nine and three months ended June 30, 1998 was $470,000
and $197,000 respectively, as compared to $589,000 and $231,000 for the same
period in 1997. The decrease in net income of $119,000 for the nine months ended
June 30, 1998 as compared with the same period in 1997 was primarily the result
of increases in provision for loan losses, total interest expense and
non-interest expense off-set by increases in total interest income and
non-interest income.
-10-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Interest Income
Total interest income for the nine and three months ended June 30, 1998 was
$6,065,000 and $2,321,000, respectively, compared to $5,263,000 and $1,801,000
for the same periods in 1997, an increase of $802,000 or 15.24% and $520,000 or
28.87%, respectively. The increase was primarily due to an increase of
$13,746,000 and$27,207,000 in the average balance of investment securities for
the nine and three months ended June 30, 1998. The weighted average yield on
interest-earning assets was 7.30% and 7.35% for the nine and three months ended
June 30, 1998, as compared to 7.34% and 7.37 for the same periods in 1997.
Interest Expense
Total interest expense for the nine and three months ended June 30, 1998
was $3,246,000 and $1,306,000, respectively, compared to $2,487,000 and $864,000
for the same respective periods in 1997, an increase of $759,000 and $442,000,
respectively. The increases resulted primarily from increases in the average
dollar amount of deposits of $10,070,000 and $15,738,000, respectively, as the
Bank conducted an aggressive advertising campaign for certificates of deposits.
The average yields paid were 4.60% and 4.68% for the nine and three month
periods, compared to 4.42% for both the same periods in 1997. The change in
yields had little effect on the increases in interest expense. The increases
were also the result of increases in the average dollar amount of borrowings of
$8,547,000 and $15,180,000, respectively. The weighted average rates paid on
interest-bearing liabilities were 4.63% and 4.78% for the nine and three months
ended June 30, 1998, respectively, as compared to 4.43% and 4.41% for the same
periods in 1997.
Provision for Loan Losses
The provision for loan losses for the nine and three month periods ended
June 30, 1998 was $180,000 and $50,000, respectively, as compared to $46,000 and
$15,000 for the same respective periods in 1997.
During the quarter ended June 30, 1998, the Bank increased its allowance
for loan losses by $50,000. Of this increase, $35,000 related to one residential
mortgage loan in the amount of $273,000. In May, the property underlying the
loan was sold to an independent third party at a loss of $35,000, resulting in
the Bank's reevaluation of reserves. The sale is to be ratified in July, 1998
and the Bank will finance the new loan at market conditions. Based upon the
additions to the allowance for loan losses, management believes the allowance
for loan losses is adequate, however, there can be no assurance that the
allowance for loan losses will be adequate to cover significant losses that the
Bank might incur in the future.
-11-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Provision for Loan Losses - Continued
The following tables set forth information with respect to the Bank's
allowance for loan losses and non-accrual loans at the dates indicated:
June September
30, 1998 30, 1997
--------- ---------
Balance at beginning of period $ 250,000 $ 195,000
Charge-Offs:
Real estate - mortgage (76,000) (6,000)
Addition to loan loss provision 180,000 61,000
--------- ---------
$ 354,000 $ 250,000
========= =========
Ratio of net charge-offs during the period to
Average loans outstanding during the period 0.10% 0.01%
======== =========
At June At September
30, 1998 30, 1997
--------- ---------
Loans accounted for on a non-accrual basis:
Real estate:
Permanent loans secured by 1-4 dwelling units $ 776,000 $ 767,000
Commercial -- 70,000
--------- ---------
Total $ 776,000 $ 837,000
========= =========
Accruing loans which are contractually past
due 90 days or more:
Real estate:
Permanent loans secured by 1-4 dwelling units $ - $ -
Commercial 81,000 -
--------- ---------
Total $ 81,000 $ -
========= =========
Total non-performing loans $ 857,000 $ 837,000
========= =========
Total non-accrual loans to net loans 1.12% 1.07%
========= =========
Allowance for loan losses to total non-performing
loans 41.31% 29.86%
========= =========
-12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Other Non-Interest Income
Other non-interest income for the nine and three months ended June 30, 1998
was $94,000 and $30,000, respectively, compared to $87,000 and $26,000 for the
same respective periods in 1997, increases of $7,000 and $4,000, respectively.
The increases for the nine and three month periods were primarily due to an
increase in transaction accounts of $13,000 and $2,000, respectively. The
increases in fees on transaction accounts were due to increased fees on NOW
accounts and the Bank installing an Automatic Teller Machine and charging
non-customers for usage. The increases were partially off-set by decreases in
other income for the same periods due to the decline of $7,000 in rental income.
In April 1997, the Bank's second floor tenant did not renew their lease.
Non-Interest Expense
Total non-interest expense for the nine and three months ended June 30,
1998 was $1,954,000 and $674,000, respectively, compared to $1,838,000 and
$571,000 for the same respective periods in 1997, increases of $116,000 or 6.31%
and $103,000 or 18.04%, respectively. The increases for the nine and three month
periods were the result of increases in salaries and related expenses,
advertising, data processing costs and professional services. Those increases
were partially off-set by decreases in SAIF deposit insurance premiums for the
nine month period and occupancy and other expenses for the nine and three month
periods. The increase in salaries and related expenses of $47,000 and $44,000,
respectively, was the result of general merit increases and increased costs
associated with the Company's Employee Stock Ownership Plan. The increase in
advertising of $52,000 and $17,000, respectively, for the nine and three months
ended June 30, 1998 as compared to the same period in 1997 was due to an
aggressive advertising campaign for certificates of deposits. The increase in
data processing costs of $5,557 and $3,725, respectively, for the nine and three
months ended June 30, 1998 as compared to the same period in 1997 was due to
expenses associated in complying with the Year 2000 requirements. The rate of
FDIC deposit insurance premiums declined by approximately 70% from the rate in
effect prior to September 30,1996 due to the one time special assessment in 1996
of $506,000. As of January 1,1997, the Bank's premium was reduced to .064% from
.23% of insured deposits. Occupancy expense declined $6,787 and $1,550,
respectively, for the nine and three months ended June 30, 1998 as compared to
the same periods in 1997 due to a decline in repairs and maintenance. The
increase in other expenses of $30,000 for both periods was the result of return
check losses of $24,000. The Bank is pursuing legal action against the
individuals for repayment of the funds.
A great deal of publicity has been made about the Computer Year 2000. The
Bank uses a third party service bureau to process the calculation and processing
payments, interest and delinquencies. The service bureau for the Bank has
advised the Bank that the problem is being resolved and that the year 2000 will
not affect the Bank's operations. In addition, the Bank is taking steps
internally to ensure that all in-house computers are in compliance with the Year
2000 requirements. The cost to the Bank to rectify the Year 2000 computer
problems includes hardware and software costs. To date, the Bank has spent
$167,000 on these costs and expects to spend an additional $15,000, of which a
significant portion has or will be capitalized.
-13-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Income Taxes
The Company's income tax expense for the nine and three months ended June
30, 1998 was $310,000 and $124,000, respectively, compared to $389,000 and
$146,000 for the same periods in 1997, representing a decrease of $79,000 or
20.31% and $22,000 or 15.07%, respectively. The changes were primarily the
result of the variations in pretax income. The effective tax rate for the nine
and three months ended June 30, 1998, was 39.73% and 38.59%, respectively,
compared to 39.78% and 38.75% for the same periods in 1997.
Liquidity and Capital Resources
The Company is required by OTS regulations to maintain, for each calendar
month, a daily average balance of cash and eligible liquid investments of not
less than 4% of the average daily balance of its net withdrawable savings and
borrowings (due in one year or less) during the preceding calendar month. This
liquidity requirement may be changed from time to time by the OTS to any amount
within the range of 4% to 10%. The Bank's liquidity ratio was 7.07% at June 30,
1998 and 9.79% at September 30, 1997.
The Bank is currently able to fund its operations internally. Additional
sources of funds include the ability to utilize Federal Home Loan Bank ("FHLB")
of Atlanta advances and the ability to borrow against mortgage backed and
investment securities. As of June 30, 1998, the Bank had a line of credit with
the FHLB of Atlanta of $20,000,000 and had outstanding advances of $20,000,000.
Management believes it has ample cash flows and liquidity to meet its loan and
investment commitments in the amount of $3,122,000 as of June 30, 1998.
The Company announced on July 30, 1998 that the Board of Directors had
declared a special cash distribution of $3.00 per share. In addition, the
Company announced the declaration of the regular quarterly dividend of $.08 per
share. Both distributions will be paid on September 10, 1998, to shareholders of
record as of August 13, 1998.
The Company estimates that the entire amount of the $3.00 per share special
distribution would be treated as a return of capital distribution. The $3.00
return of capital would be treated as a reduction in the cost basis of each
share and would not be subject to income tax as a dividend to shareholders.
However, a final determination as to an exact amount of the return of capital
portion of the special distribution cannot be made until after December 31,
1998.
-14-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Liquidity and Capital Resources - Continued
The following table presents the Bank's capital position based on the June
30, 1998 financial statements.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount % Amount % Amount %
---------- ----- --------- ---- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Tangible (1) $15,999,000 12.21% $ 1,966,000 1.50% $ N/A N/A
Tier I capital (2) 15,999,000 28.33% N/A N/A 3,388,000 6.00%
Core (1) 15,999,000 12.21% 3,933,000 3.00% 6,554,000 5.00%
Risk-weighted (2) 16,234,000 28.75% 4,518,000 8.00% 5,647,000 10.00%
</TABLE>
(1) To adjusted total assets.
(2) To risk-weighted assets.
-15-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The registrant is not engaged in any legal proceedings at the
present time. From time to time, the Bank is a party to legal
proceedings within the normal course of business wherein it
enforces its security interest in loans made by it, and other
matters of a like kind.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
<S> <C> <C>
(a) 10.1 Amendment to Employment Agreement between the Bank and Peggy J. Stewart
10.2 Form of Restated Severance Agreement between the Bank and Robin L. Taylor,
Diana L. Rohrback, Nicholas C. Tracht and Daniel J. Gallagher
27 Financial Data Schedule (electronic filing only)
(b) There were no Form 8-K's filed during the quarter.
</TABLE>
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WHG Bancshares Corporation
Date: August 10, 1998 By: /s/Peggy J. Stewart
-------------------
Peggy J. Stewart
President and Chief Executive Officer
(duly authorized officer)
Date: August 10, 1998 By: /s/Robin L. Taylor
------------------
Robin L. Taylor
Controller (chief accounting officer)
-17-
EXHIBIT 10.1
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AMENDED AND RESTATED
THIS AGREEMENT entered into this 11 th day of May, 1998 ("Effective Date")
by and between Heritage Savings Bank, F.S.B. (the "Bank") and Peggy J. Stewart
(the "Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as President
and is experienced in all phases of the business of the Bank; and
WHEREAS, the parties have previously enter into an Employment Agreement
dated December 11, 1995, as subsequently amended and renewed; and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed in the capacity as the President of
the Bank. The Employee shall render such administrative and management services
to the Bank and WHG Bancshares Corporation, its parent savings and loan holding
company ("Parent") as are currently rendered and as are customarily performed by
persons situated in a similar executive capacity. The Employee shall promote the
business of the Bank and Parent. The Employee's other duties shall be such as
the Board of Directors for the Bank (the "Board of Directors" or "Board") may
from time to time reasonably direct, including normal duties as an officer of
the Bank.
2. Base Compensation. The Bank agrees to pay the Employee during the term
of this Agreement a salary at the rate of $120,000 per annum, payable in cash
not less frequently than monthly; provided, that the rate of such salary shall
be reviewed by the Board of Directors not less often than annually, and Employee
shall be entitled to receive annually an increase at such percentage or in such
an amount as the Board of Directors in its sole discretion may decide at such
time.
3. Discretionary Bonus. The Employee shall be entitled to participate in an
equitable manner with all other senior management employees of the Bank in
discretionary bonuses that may be authorized and declared by the Board of
Directors to its senior management employees from time to time. No other
compensation provided for in this Agreement shall be deemed a substitute for the
Employee's right to participate in such discretionary bonuses when and as
declared by the Board of Directors.
4. (a) Participation in Retirement and Medical Plans. The Employee shall be
entitled to participate in any plan of the Bank relating to pension,
profit-sharing, or other retirement benefits
<PAGE>
and medical coverage or reimbursement plans that the Bank may adopt for the
benefit of its employees.
(b) Employee Benefits; Expenses. The Employee shall be eligible to
participate in any fringe benefits which may be or may become applicable to the
Bank's senior management employees, including by example, participation in any
stock option or incentive plans adopted by the Board of Directors of Bank or
Parent, club memberships, a reasonable expense account, and any other benefits
which are commensurate with the responsibilities and functions to be performed
by the Employee under this Agreement. The Bank shall reimburse Employee for all
reasonable out-of-pocket expenses which Employee shall incur in connection with
her service for the Bank.
5. Term. The term of employment of Employee under this Agreement shall be
for the period commencing on the Effective Date and ending thirty-six (36)
months thereafter ("Term"). Additionally, on each annual anniversary date from
the Effective Date, the term of employment under this Agreement shall be
extended for an additional one year period beyond the then effective expiration
date upon a determination and resolution of the Board of Directors that the
performance of the Employee has met the requirements and standards of the Board,
and that the term of such Agreement shall be extended.
6. Loyalty; Noncompetition.
(a) The Employee shall devote her full time and attention to the
performance of her employment under this Agreement. During the term of
Employee's employment under this Agreement, the Employee shall not engage in any
business or activity contrary to the business affairs or interests of the Bank
or Parent.
(b) Nothing contained in this Section 6 shall be deemed to prevent or limit
the right of Employee to invest in the capital stock or other securities of any
business dissimilar from that of the Bank or Parent, or, solely as a passive or
minority investor, in any business.
7. Standards. The Employee shall perform her duties under this Agreement in
accordance with such reasonable standards expected of employees with comparable
positions in comparable organizations and as may be established from time to
time by the Board of Directors.
8. Vacation and Sick Leave. At such reasonable times as the Board of
Directors shall in its discretion permit, the Employee shall be entitled,
without loss of pay, to absent herself voluntarily from the performance of her
employment under this Agreement, with all such voluntary absences to count as
vacation time; provided that:
2
<PAGE>
(a) The Employee shall be entitled to annual vacation leave in accordance
with the policies as are periodically established by the Board of Directors for
senior management employees of the Bank.
(b) The Employee shall not be entitled to receive any additional
compensation from the Bank on account of her failure to take vacation leave and
Employee shall not be entitled to accumulate unused vacation from one fiscal
year to the next, except in either case to the extent authorized by the Board of
Directors for senior management employees of the Bank.
(c) In addition to the aforesaid paid vacations, the Employee shall be
entitled without loss of pay, to absent herself voluntarily from the performance
of her employment with the Bank for such additional periods of time and for such
valid and legitimate reasons as the Board of Directors in its discretion may
determine. Further, the Board of Directors shall be entitled to grant to the
Employee a leave or leaves of absence with or without pay at such time or times
and upon such terms and conditions as the Board of Directors in its discretion
may determine.
(d) In addition, the Employee shall be entitled to an annual sick leave
benefit as established by the Board of Directors for senior management employees
of the Bank. In the event that any sick leave benefit shall not have been used
during any year, such leave shall accrue to subsequent years only to the extent
authorized by the Board of Directors for employees of the Bank.
9. Termination and Termination Pay.
The Employee's employment under this Agreement shall be terminated upon any
of the following occurrences:
(a) The death of the Employee during the term of this Agreement, in which
event the Employee's estate shall be entitled to receive the compensation due
the Employee through the last day of the calendar month in which Employee's
death shall have occurred.
(b) The Board of Directors may terminate the Employee's employment at any
time, but any termination by the Board of Directors other than termination for
Just Cause, shall not prejudice the Employee's right to compensation or other
benefits under the Agreement. The Employee shall have no right to receive
compensation or other benefits for any period after termination for Just Cause.
Termination for "Just Cause" shall include termination because of the Employee's
personal dishonesty, incompetence, willful misconduct, 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 the Agreement.
3
<PAGE>
(c) Except as provided pursuant to Section 12 herein, in the event
Employee's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Bank shall be obligated to continue to pay the
Employee the salary provided pursuant to Section 2 herein, up to the date of
termination of the term (including any renewal term) of this Agreement and the
cost of Employee obtaining all health, life, disability, and other benefits
which the Employee would be eligible to participate in through such date based
upon the benefit levels substantially equal to those being provided Employee at
the date of termination of employment, but in neither case for a period of less
than one year from the date of termination of employment.
(d) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement
shall terminate, as of the effective date of the order, but the vested rights of
the parties shall not be affected.
(e) If the Bank is in default (as defined in Section 3(x)(1) of FDIA) all
obligations under this Agreement shall terminate as of the date of default, but
this paragraph shall not affect any vested rights of the contracting parties.
(f) All obligations under this Agreement shall be terminated, except to the
extent determined that continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Director of the Office of Thrift
Supervision ("Director of OTS"), or his or her designee, at the time that the
Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of FDIA; or (ii) by the Director of the OTS, or his or her
designee, at the time that the Director of the OTS, or his or her designee
approves a supervisory merger to resolve problems related to operation of the
Bank or when the Bank is determined by the Director of the OTS 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.
(g) The voluntary termination by the Employee during the term of this
Agreement with the delivery of no less than 60 days written notice to the Board
of Directors, other than pursuant to Section 12(b), in which case the Employee
shall be entitled to receive only the compensation, vested rights, and all
employee benefits up to the date of such termination.
(h) Notwithstanding anything herein to the contrary, any payments made to
the Employee pursuant to the Agreement, or otherwise, shall be subject to and
conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
4
<PAGE>
10. Suspension of Employment. If the Employee is suspended and/or
temporarily prohibited from participating in the conduct of the Bank's affairs
by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C.
1818(e)(3) and (g)(1)), the Bank's obligations under the Agreement 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 Employee all or part of the compensation withheld while its contract
obligations were suspended and (ii) reinstate any of its obligations which were
suspended.
11. Disability. If the Employee shall become disabled or incapacitated to
the extent that she is unable to perform her duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Employee shall be eligible for such benefits
as provided during such period under the provisions of disability insurance
coverage in effect for Bank employees. Upon returning to active full-time
employment, the Employee's full compensation as set forth in this Agreement
shall be reinstated as of the date of commencement of such activities. In the
event that the Employee returns to active employment on other than a full-time
basis, then her compensation (as set forth in Section 2 of this Agreement) shall
be reduced in proportion to the time spent in said employment, or as shall
otherwise be agreed to by the parties.
12. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the event of
the involuntary termination of Employee's employment during the term of this
Agreement following any Change in Control of the Bank or Parent, absent Just
Cause, Employee shall be paid an amount equal to the product of three (3) times
the Employee's "base amount" as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code") and regulations promulgated
thereunder less one dollar. Said sum shall be paid, at the option of Employee,
either (i) in periodic payments over the next 36 months or the remaining term of
this Agreement, whichever is less, as if Employee's employment had not been
terminated, or (ii) in one (1) lump sum within thirty (30) days of such
termination, and such payments shall be in lieu of any other future payments
which the Employee would be otherwise entitled to receive under Section 9 of
this Agreement. Further, Employee shall be eligible to continue participation
for the Employee and Employee's dependents under the medical and dental
insurance program of the Bank, and any successors thereto, from the date of such
termination of employment through the period ending as of the first day of the
month following Employee's attainment of age 65. Notwithstanding the forgoing,
all sums payable hereunder shall be reduced in such manner and to such extent so
that no such payments made hereunder when aggregated with all other payments to
be made to the Employee by the Bank or the Parent shall be deemed an "excess
parachute
5
<PAGE>
payment" in accordance with Section 280G of the Code and be subject to the
excise tax provided at Section 4999(a) of the Code. The term "Change in Control"
shall mean: (i) the sale of all, or a material portion, of the assets of the
Bank or Parent; (ii) the merger or recapitalization of the Parent whereby the
Parent is not the surviving entity; (iii) a change in control of the Bank or
Parent, as otherwise defined or determined by the Office of Thrift Supervision
or regulations promulgated by it; or (iv) the acquisition, directly or
indirectly, of the beneficial ownership (within the meaning of that term as it
is used in Section 13(d) of the Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder) of twenty-five percent (25%) or more of
the outstanding voting securities of the Parent by any person, trust, entity or
group. This limitation shall not apply to the purchase of shares by underwriters
in connection with a public offering of Parent stock, or the purchase of shares
of up to 25% of any class of securities of the Parent by a tax-qualified
employee stock benefit plan which is exempt from the approval requirements, set
forth under 12 C.F.R. ss.574.3(c)(1)(vi) as now in effect or as may hereafter be
amended. The term "person" means an individual other than the Employee, or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the contrary,
Employee may voluntarily terminate her employment during the term of this
Agreement following a Change in Control of the Bank or Parent, and Employee
shall thereupon be entitled to receive the payment described in Section 12(a) of
this Agreement, upon the occurrence, or within one year thereafter, of any of
the following events, which have not been consented to in advance by the
Employee in writing: (i) if Employee would be required to move her personal
residence or perform her principal executive functions more than thirty-five
(35) miles from the Employee's primary office as of the signing of this
Agreement; (ii) if in the organizational structure of the Bank or Parent,
Employee would be required to report to a person or persons other than the Board
of the Bank or Parent; (iii) if the Bank or Parent should fail to maintain
Employee's base compensation in effect as of the date of the Change in Control
and the existing employee benefits plans, including material fringe benefit,
stock option and retirement plans; (iv) if Employee would be assigned duties and
responsibilities other than those normally associated with her position as
referenced at Section 1, herein; (v) if Employee would not be elected or
reelected to the Board of Directors of the Bank or Parent; or (vi) if Employee's
responsibilities or authority have in any way been materially diminished or
reduced.
13. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of the Bank or Parent
6
<PAGE>
which shall acquire, directly or indirectly, by merger, consolidation, purchase
or otherwise, all or substantially all of the assets or stock of the Bank or
Parent.
(b) Since the Bank is contracting for the unique and personal skills of the
Employee, the Employee shall be precluded from assigning or delegating her
rights or duties hereunder without first obtaining the written consent of the
Bank.
14. Amendments. No amendments or additions to this Agreement shall be
binding upon the parties hereto unless made in writing and signed by both
parties, except as herein otherwise specifically provided.
15. Applicable Law. This agreement shall be governed by all respects
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the State of Maryland, except to the extent that Federal law shall be
deemed to apply. Notwithstanding anything herein to the contrary, all provisions
of the Agreement shall be subject to and conditioned upon compliance with 12 CFR
563.39(b).
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
17. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Bank, and
judgment upon the award rendered may be entered in any court having jurisdiction
thereof, except to the extend that the parties may otherwise reach a mutual
settlement of such issue. The Bank shall incur the cost of all fees and expenses
associated with filing a request for arbitration with the AAA, whether such
filing is made on behalf of the Bank or the Employee, and the costs and
administrative fees associated with employing the arbitrator and related
administrative expenses assessed by the AAA. The Bank shall reimburse Employee
for all reasonable costs and expenses, including reasonable attorneys' fees,
arising from such dispute, proceedings or actions, following the delivery of the
decision of the arbitrator. Further, the settlement of the dispute to be
approved by the Board of the Bank or the Parent may include a provision for the
reimbursement by the Bank or Parent to the Employee for all reasonable costs and
expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, or the Board of the Bank or the Parent may authorize
such reimbursement of such reasonable costs and expenses by separate action upon
a written action and determination of the Board following settlement of the
dispute. Such reimbursement shall be paid within ten (10) days of Employee
furnishing to the Bank or Parent evidence, which may be in the
7
<PAGE>
form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by Employee.
18. Indemnification; Insurance
(a) Indemnification. The Bank agrees to indemnify the Employee and his
heirs, executors, and administrators to the fullest extent permitted under
applicable law and regulations, including, without limitation 12 U.S.C. Section
1828(k), against any and all expenses and liabilities reasonably incurred by the
Employee in connection with or arising out of any action, suit or proceeding in
which the Employee may be involved by reason of his having been a director or
officer of the Bank or any of its subsidiaries, whether or not the Employee is a
director or officer at the time of incurring any such expenses or liabilities.
Such expenses and liabilities shall include, but shall not be limited to,
judgments, court costs and attorney's fees and the cost of reasonable
settlements. The Employee shall be entitled to indemnification in respect of a
settlement only if the Board of Directors of the Bank has approved such
settlement. Notwithstanding anything herein to the contrary, (i) indemnification
for expenses shall not extend to matters for which the Employee has been
terminated for, and (ii) the obligations of this Section 18 shall survive the of
this. Nothing contained herein shall be deemed to provide indemnification
prohibited by applicable law or regulation.
(b) Insurance. During the of the Agreement, the Bank shall provide the
Employee (and his heirs, executors, and administrators) with coverage under a
directors' and officers' liability policy at the Bank's expense, at least
equivalent to such coverage otherwise provided to the other directors and senior
officers of the Bank.
19. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
8
EXHIBIT 10.2
<PAGE>
FORM OF SEVERANCE AGREEMENT
---------------------------
RESTATED
--------
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") entered into this
11th day of May, 1998 ("Effective Date"), by and between Heritage Savings Bank,
F.S.B. (the "Bank") and _______________ (the "Employee").
WHEREAS, the Employee is currently employed by the Bank as Controller and
is experienced in all phases of the business of the Bank; and
WHEREAS, the parties have previously enter into an Agreement dated ________
__, ____, as amended; and
WHEREAS, the parties desire by this writing to set forth the rights and
responsibilities of the Bank and Employee if the Bank should undergo a change in
control (as defined hereinafter in the Agreement) after the Effective Date.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed in the capacity as the Controller
of the Bank. The Employee shall render such administrative and management
services to the Bank and its parent savings and loan holding company ("Parent")
as are currently rendered and as are customarily performed by persons situated
in a similar executive capacity. The Employee's other duties shall be such as
the Board of Directors for the Bank (the "Board of Directors" or "Board") may
from time to time reasonably direct, including normal duties as an officer of
the Bank and the Parent.
2. Term of Agreement. The term of this Agreement shall be for the period
commencing on the Effective Date and ending twenty-four (24) months thereafter.
Additionally, on or before each annual anniversary date from the Effective Date,
the term of this Agreement may be extended for an additional one year period
beyond the then effective expiration date upon a determination and resolution of
the Board of Directors that the performance of the Employee has met the
requirements and standards of the Board, and that the term of such Agreement
shall be extended.
3. Termination of Employment in Connection with or Subsequent to a Change
in Control.
(a) Notwithstanding any provision herein to the contrary, in the event of
the involuntary termination of Employee's employment under this Agreement,
absent Just Cause, in connection with, or within twenty-four (24) months after,
any Change in Control of the Bank or Parent, Employee shall be paid an amount
equal to 2.00 times the Employee's cash compensation paid by the Bank during the
1
<PAGE>
one year period prior to the date of termination of employment (whether said
amounts were received or deferred by the Employee) and the costs associated with
maintaining coverage under the Bank's medical and dental insurance reimbursement
plans similar to that in effect on the date of termination of employment for a
period of one year thereafter. Said sum shall be paid, at the option of
Employee, either in one (1) lump sum within thirty (30) days of such termination
of employment, or in periodic payments over the next 24 months, and such
payments shall be in lieu of any other future payments which the Employee would
be otherwise entitled to receive. Notwithstanding the forgoing, all sums payable
hereunder shall be reduced in such manner and to such extent so that no such
payments made hereunder when aggregated with all other payments to be made to
the Employee by the Bank or the Parent shall be deemed an "excess parachute
payment" in accordance with Section 280G of the Internal Revenue Codes of 1986,
as amended (the "Code") and be subject to the excise tax provided at Section
4999(a) of the Code. The term "Change in Control" shall mean: (i) the sale of
all, or a material portion, of the assets of the Bank or Parent; (ii) the merger
or recapitalization of the Parent whereby the Parent is not the surviving
entity; (iii) a change in control of the Bank or Parent, as otherwise defined or
determined by the Office of Thrift Supervision or regulations promulgated by it;
or (iv) the acquisition, directly or indirectly, of the beneficial ownership
(within the meaning of that term as it is used in Section 13(d) of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder) of twenty-five percent (25%) or more of the outstanding voting
securities of the Parent by any person, trust, entity or group. This limitation
shall not apply to the purchase of shares by underwriters in connection with a
public offering of Parent stock, or the purchase of shares of up to 25% of any
class of securities of the Parent by a tax-qualified employee stock benefit plan
which is exempt from the approval requirements, set forth under 12 C.F.R.
ss.574.3(c)(1)(vi) as now in effect or as may hereafter be amended. The term
"person" means an individual other than the Employee, or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the contrary
except as provided at Sections 4(b), 4(c), 4(d), 4(e) and 5, Employee may
voluntarily terminate her employment under this Agreement within twelve (12)
months following a Change in Control of the Bank or Parent, and Employee shall
thereupon be entitled to receive the payment and benefits described in Section
3(a) of this Agreement, upon the occurrence, or within one year thereafter, of
any of the following events, which have not been consented to in advance by the
Employee in writing: (i) if Employee would be required to move her personal
residence or perform her principal executive functions more than thirty-five
(35) miles from the Employee's primary office as of the signing of this
Agreement; (ii)
2
<PAGE>
if in the organizational structure of the Bank or Parent, Employee would be
required to report to a person or persons other than the President of the Bank
or Parent; (iii) if the Bank or Parent should fail to maintain the Employee's
base compensation in effect as of the date of the Change in Control and existing
employee benefits plans, including material fringe benefit, stock option and
retirement plans, except to the extent that such reduction in benefit programs
is part of an overall adjustment in benefits for all employees of the Bank or
Parent and does not disproportionately adversely impact the Employee; (iv) if
Employee would be assigned duties and responsibilities other than those normally
associated with her position as referenced at Section 1, herein, for a period of
more than six months; or (v) if Employee's responsibilities or authority have in
any way been materially diminished or reduced for a period of more than six
months.
4. Other Changes in Employment Status.
(a) Except as provided for at Section 3, herein, the Board of Directors may
terminate the Employee's employment at any time with or without Just Cause
within its sole discretion. This Agreement shall not be deemed to give Employee
any right to be retained in the employment or service of the Bank, or to
interfere with the right of the Bank to terminate the employment of the Employee
at any time. The Employee shall have no right to receive compensation or other
benefits for any period after termination for Just Cause. Termination for "Just
Cause" shall include termination because of the Employee's personal dishonesty,
incompetence, willful misconduct, 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 the
Agreement.
(b) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement
shall terminate, as of the effective date of the order, but the vested rights of
the parties shall not be affected.
(c) If the Bank is in default (as defined in Section 3(x)(1) of FDIA) all
obligations under this Agreement shall terminate as of the date of default, but
this paragraph shall not affect any vested rights of the contracting parties.
(d) All obligations under this Agreement shall be terminated, except to the
extent determined that continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Director of the Office of Thrift
Supervision ("Director of OTS"), or his or her designee, at the time that the
Federal Deposit
3
<PAGE>
Insurance Corporation ("FDIC") enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of FDIA;
or (ii) by the Director of the OTS, or his or her designee, at the time that the
Director of the OTS, or his or her designee approves a supervisory merger to
resolve problems related to operation of the Bank or when the Bank is determined
by the Director of the OTS 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.
(e) Notwithstanding anything herein to the contrary, any payments made to
the Employee pursuant to the Agreement, or otherwise, shall be subject to and
conditioned upon compliance with 12 U.S.C. ss.1828(k) and any regulations
promulgated thereunder.
5. Suspension of Employment . If the Employee is suspended and/or
temporarily prohibited from participating in the conduct of the Bank's affairs
by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C.
1818(e)(3) and (g)(1)), the Bank's obligations under the Agreement 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 within its discretion
(i) pay the Employee all or part of the compensation withheld while its contract
obligations were suspended and (ii) reinstate any of its obligations which were
suspended.
6. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of the Bank which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank.
(b) The Employee shall be precluded from assigning or delegating her rights
or duties hereunder without first obtaining the written consent of the Bank.
7. Amendments. No amendments or additions to this Agreement shall be
binding upon the parties hereto unless made in writing and signed by both
parties, except as herein otherwise specifically provided.
8. Applicable Law. This agreement shall be governed by all respects whether
as to validity, construction, capacity, performance or otherwise, by the laws of
the State of Maryland, except to the extent that Federal law shall be deemed to
apply. Notwithstanding anything herein to the contrary, all provisions of the
Agreement shall be subject to and conditioned upon compliance with 12 CFR
563.39(b).
4
<PAGE>
9. Severability. The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof.
10. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Bank, and
judgment upon the award rendered may be entered in any court having jurisdiction
thereof, except to the extend that the parties may otherwise reach a mutual
settlement of such issue. The Bank shall incur the cost of all fees and expenses
associated with filing a request for arbitration with the AAA, whether such
filing is made on behalf of the Bank or the Employee, and the costs and
administrative fees associated with employing the arbitrator and related
administrative expenses assessed by the AAA. The Bank shall reimburse Employee
for all reasonable costs and expenses, including reasonable attorneys' fees,
arising from such dispute, proceedings or actions, following the delivery of the
decision of the arbitrator. Further, the settlement of the dispute to be
approved by the Board of the Bank or the Parent may include a provision for the
reimbursement by the Bank or Parent to the Employee for all reasonable costs and
expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, or the Board of the Bank or the Parent may authorize
such reimbursement of such reasonable costs and expenses by separate action upon
a written action and determination of the Board following settlement of the
dispute. Such reimbursement shall be paid within ten (10) days of Employee
furnishing to the Bank or Parent evidence, which may be in the form, among other
things, of a canceled check or receipt, of any costs or expenses incurred by
Employee.
11. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
5
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 986
<INT-BEARING-DEPOSITS> 3,255
<FED-FUNDS-SOLD> 3,822
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,995
<INVESTMENTS-CARRYING> 23,569
<INVESTMENTS-MARKET> 23,576
<LOANS> 76,519
<ALLOWANCE> 354
<TOTAL-ASSETS> 131,967
<DEPOSITS> 89,844
<SHORT-TERM> 9,000
<LIABILITIES-OTHER> 1,951
<LONG-TERM> 11,000
0
0
<COMMON> 139
<OTHER-SE> 20,034
<TOTAL-LIABILITIES-AND-EQUITY> 131,967
<INTEREST-LOAN> 4,530
<INTEREST-INVEST> 1,077
<INTEREST-OTHER> 458
<INTEREST-TOTAL> 6,065
<INTEREST-DEPOSIT> 2,825
<INTEREST-EXPENSE> 421
<INTEREST-INCOME-NET> 2,819
<LOAN-LOSSES> 180
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,954
<INCOME-PRETAX> 779
<INCOME-PRE-EXTRAORDINARY> 779
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 470
<EPS-PRIMARY> .38
<EPS-DILUTED> .37
<YIELD-ACTUAL> 2.67
<LOANS-NON> 776
<LOANS-PAST> 81
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 250
<CHARGE-OFFS> 76
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 354
<ALLOWANCE-DOMESTIC> 354
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
