SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report pursuant to section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the fiscal year ended September 30, 1999
[ ] 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
--------------------------
(Name of Small Business Issuer in Its Charter)
Maryland 52-1953867
- ------------------------------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1505 York Road, Lutherville, Maryland 21093
- ------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Cod (410) 583-8700
--------------
Securities registered under Section 12(b) of the Exchange Act: None
----
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.10 per share
---------------------------------------
(Title of Class)
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 .
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
---
State issuer's revenues for its most recent fiscal year: $10,435,000.
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based on the average bid and asked price of the registrant's
Common Stock on December 3, 1999, was $7.9 million.
As of December 3, 1999, there were issued and outstanding 1,285,609
shares of the registrant's Common Stock.
Transitional Small Business Disclosure Format (check one): YES NO X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year
ended September 30, 1999. (Parts I and II)
2. Portions of the Proxy Statement for the Annual Meeting of
Stockholders for the Fiscal Year ended September 30, 1999. (Part
III)
<PAGE>
PART I
WHG Bancshares Corporation (the "Registrant" or "Company") may from
time to time make written or oral "forward-looking statements", including
statements contained in the Company's filings with the Securities and Exchange
Commission (including this annual report on Form 10-KSB and the exhibits
thereto), in its reports to stockholders and in other communications by the
Company, which are made in good faith by the Company pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the board of governors of the
federal reserve system, inflation, interest rates, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes; acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks
resulting from these factors.
The Company cautions that the listed factors are not exclusive. The
Company does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by or on behalf of the
Company.
Item 1. Description of Business
- --------------------------------
General
The Company is a Maryland corporation organized in December of 1995 at
the direction of Heritage Savings Bank, F.S.B. (the "Bank") to acquire all of
the capital stock that the Bank issued in its conversion from the mutual to
stock form of ownership (the "Conversion"). On March 29, 1996, the Bank
completed the Conversion and became a wholly owned subsidiary of the Company.
The Company is a unitary savings and loan holding company which, under existing
laws, generally is not restricted in the types of business activities in which
it may engage provided that the Bank retains a specified amount of its assets in
housing-related investments. The Company conducts no significant business or
operations of its own other than holding all of the outstanding stock of the
Bank. As a result, references to the Registrant or Company generally refer to
the Bank unless the context indicates otherwise.
1
<PAGE>
The Bank is a federally chartered stock savings bank headquartered in
Lutherville, Maryland and was originally founded in 1902. The Bank is subject to
examination and comprehensive regulation by the Office of Thrift Supervision
("OTS") and its deposits have been federally insured by the Savings Association
Insurance Fund ("SAIF"). The Bank is a member of and owns capital stock in the
FHLB of Atlanta, which is one of the 12 regional banks in the FHLB System.
The Bank operates a traditional savings bank business, attracting
deposit accounts from the general public and using those deposits, together with
other funds, primarily to originate and invest in loans secured by single-family
residential real estate.
Competition
The Company is one of many financial institutions serving its market
area which consists of the Baltimore, Maryland metropolitan area that includes
Baltimore City and its five surrounding counties, Baltimore County, Hartford
County, Howard County, Carroll County, and Anne Arundel County. The competition
for deposit products comes from other insured financial institutions such as
commercial banks, thrift institutions, credit unions, and multi-state regional
banks in the Company's market area. Deposit competition also includes a number
of insurance products sold by local agents and investment products such as
mutual funds and other securities sold by local and regional brokers. Loan
competition varies depending upon market conditions and comes from other insured
financial institutions such as commercial banks, thrift institutions, credit
unions, multi-state regional banks, and mortgage bankers.
2
<PAGE>
Lending Activities
Loan Portfolio Data. Set forth below is selected data relating to the
composition of the Registrant's loan portfolio by type of loan and type of
security on the dates indicated:
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------
1999 1998
----------------------- ---------------------
$ % $ %
--- --- --- ---
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
Residential loans:
One-to four family .................... 71,042 74.7 67,057 85.9
Multi-family .......................... 2,352 2.5 92 .1
Commercial .............................. 6,772 7.1 4,799 6.2
Construction ............................ 5,183 5.5 1,968 2.5
-------- ---------- ------ --------
Total mortgage loans ............. 85,349 89.8 73,916 94.7
-------- ---------- ------ --------
Consumer and other loans:
Consumer .............................. 7,298 7.7 267 .3
Land/lot .............................. 833 .8 952 1.3
Commercial lines of credit ............ 1,174 1.2 2,031 2.6
Commercial loans secured by lease
receivables ....................... 438 .5 853 1.1
-------- ---------- -------- ----------
Total consumer and other loans ... 9,743 10.2 4,103 5.3
-------- ---------- -------- ----------
Total loans ................ 95,092 100.0% 78,019 100.0%
========== ==========
Less:
Undisbursed portion of loans in process (3,568) (1,714)
Deferred loan origination fees ........ (520) (521)
Allowance for loan losses ............. (345) (301)
Unamortized discount .................. (725) (125)
Other ................................. (2) --
------- --------
Total loans, net ........................ $ 89,932 75,358
======= ========
</TABLE>
3
<PAGE>
Loan Maturity Tables
The following table sets forth the estimated maturity of the Registrant's loan
portfolio at September 30, 1999. The table does not include prepayments or
scheduled principal repayments. Prepayments and scheduled principal repayments
on loans totaled $19.3 million for the year ended September 30, 1999.
Adjustable-rate mortgage loans are shown as maturing based on contractual
maturities.
<TABLE>
<CAPTION>
Due after
Due within 1 through Due after
1 year 5 years 5 years Total
------ ------- ------- -----
(In thousands)
<S> <C> <C> <C> <C>
One-to-four family residential and
multi-family ......................... $ 157 $ 899 $72,338 $73,394
Commercial real estate loans and land/lot 52 1,530 6,023 7,605
Construction ............................. -- -- 5,183 5,183
Consumer ................................. 545 2,438 4,315 7,298
Commercial lines of credit ............... 1,140 34 -- 1,174
Commercial loans secured by lease
finance receivables .................... 71 367 -- 438
------- ------- ------- -------
$ 1,965 $ 5,268 $87,859 $95.092
======= ======= ======= =======
</TABLE>
The following table sets forth the dollar amount of all loans due after
September 30, 2000, which have fixed interest rates and floating or adjustable
interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In thousands)
<S> <C> <C> <C>
One-to-four family residential and
multi-family .............................. $53,714 $19,523 $73,237
Commercial real estate loans and land/lot ..... 5,421 2,132 7,553
Construction .................................. 5,183 -- 5,183
Consumer ...................................... 3,252 3,501 6,753
Commercial lines of credit and commercial loans
secured by lease finance receivables .......... 401 -- 401
------- ------- -------
Total ..................................... $67,971 $25,156 $93,127
======= ======= =======
</TABLE>
One- to Four-Family Residential Loans. The Registrant's primary lending
activity consists of the origination of one- to four-family residential mortgage
loans secured by property located in the Registrant's primary market area. The
Registrant generally originates one- to four-family residential mortgage loans
in amounts up to 80% of the lesser of the appraised value or selling price of
the mortgaged property without requiring mortgage insurance. In certain
instances, the Registrant will originate a mortgage loan in an amount up to 95%
of the lesser of the appraised value or selling price of a mortgaged property,
however, mortgage insurance for the borrower is required. A mortgage loan
originated by the Registrant, whether fixed- or adjustable-rate, can have a term
of up to 30 years.
4
<PAGE>
The Registrant requires for all adjustable-rate mortgage loans that the
borrower qualify at the current fully indexed rate. The Registrant's
adjustable-rate mortgage loans provide for periodic interest rate adjustments of
plus or minus 2% with a maximum adjustment over the term of the loan to 10.75%
and a minimum adjustment to 6%, except during the first year following
origination. Adjustable-rate mortgage loans typically reprice every year, and
provide for terms of up to 30 years with most loans having terms of between 15
and 30 years. Mortgage loans originated and held by the Registrant in its
portfolio generally include due-on-sale clauses which provide the Registrant
with the contractual right to deem the loan immediately due and payable in the
event that the borrower transfers ownership of the property without the
Registrant consent.
The Registrant offers adjustable-rate mortgage loans using the weekly
average yield on U.S. Treasury securities adjusted to a constant maturity of one
year. Interest rates charged on mortgage loans are competitively priced based on
market conditions and the Registrant's cost of funds. Generally, the Company's
standard underwriting guidelines for mortgage loans conform to FHLMC guidelines.
It is the current policy of the Registrant to remain a portfolio lender. The
Registrant typically charges a 1% to 2% origination or commitment fee.
Adjustable-rate mortgage loans decrease the risks associated with
changes in interest rates by more closely reflecting these changes, but involve
other risks because as interest rates increase, the underlying payments by the
borrower increase, thus increasing the potential for default. At the same time,
the marketability of the underlying collateral may be adversely affected by
higher interest rates. Upward adjustment of the contractual interest rate is
also limited by the adjustable-rate mortgage loan documents, thereby potentially
limiting their effectiveness during periods of rising interest rates. These
risks have not had an adverse effect on the Registrant.
Multi-Family Real Estate Loans. These loans are primarily secured by
apartment houses, located in the Registrant's primary market area. Loans secured
by multi-family property may be originated in amounts up to 75% of the appraised
value with either fixed or adjustable rates of interest. Fixed rate interest
loans have maturities generally of up to 25 years, with principal and interest
payments calculated on a 25 year amortization period. Adjustable rate loans
typically have a 5 to 25 year amortization period, with a fixed rate of interest
for the first five years, with repricing following every five years after that
initial fixed period.
Multi-family real estate lending entails significant additional risks
compared to residential property lending. These loans typically involve large
loan balances to single borrowers or groups of related borrowers. The repayment
of these loans typically is dependent on the successful operation of the real
estate project securing the loan. These risks can be significantly affected by
adverse conditions in the economy.
Commercial Real Estate Loans. Commercial loan portfolio consist
primarily of loans secured by real estate, such as church loans and small office
building loans. Loans secured by commercial property may be in amounts up to 75%
of the appraised value for a maximum term of 25 years. Commercial lending
entails significant additional risks when compared with one- to four-family
residential lending. For example, commercial loans typically involve larger loan
balances to single borrowers or groups of related borrowers, the payment
experience on such loans typically is dependent on the successful
5
<PAGE>
operation of the project and these risks can be significantly impacted by the
cash flow of the borrowers and supply and demand conditions in the market for
commercial office, retail and warehouse space.
Construction Loans. Construction loans are made on a long term basis
and are classified as construction/permanent loans. Approximately 95% of the
Registrant's construction loan portfolio is for the construction of
single-family residential property to the individuals who will be the owners and
occupants upon completion of construction. These construction loans usually
require no principal payments during the first six months, after which the
payments are set at an amount that will amortize over the term of the permanent
loan. The terms, including interest rate, of single family residential
construction loans are the same as those for a loan to purchase or refinance a
previously constructed single family residence. The maximum loan to value for
other construction loans is dependent on the type of property that will be
constructed.
Consumer Loans. Prior to 1999, consumer loans, which included home
equity lines of credit, were originated by Banker's Affiliate, Inc. The
Registrant owned a one-third interest of Banker's Affiliate, Inc. and purchased
the remaining interest during fiscal 1999.
Home equity lines of credit loans are primarily secured by one-to four
family residential mortgage loans. The loans generally have terms of 15 to 30
years, some of which are at fixed rates and some of which have rates that adjust
periodically. Home equity lines of credit are subject to a 80% combined
loan-to-value limitation, including any outstanding mortgages or liens. At
September 30, 1999, these loans totaled $3.5 million of the consumer loan
portfolio.
Other consumer loans primarily consist of automobile loans, boat loans,
and share loans. Loans secured by vehicles are financed for terms up to 60
months. Share loans are secured by deposits of the bank are granted in amounts
of up to 90% of the deposited amount.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
assets that depreciate rapidly. Repossessed collateral for a defaulted consumer
loan may not be sufficient for repayment of the outstanding loan, and the
remaining deficiency may not be collectible.
Loan Approval Authority and Underwriting. All loans must be approved by
the Registrant's loan committee and all loans over $500,000 must be approved by
the Registrant's Board of Directors. Upon receipt of a completed loan
application from a prospective borrower, a credit report is generally ordered,
income and certain other information is verified and, if necessary, additional
financial information is requested. An appraisal from an independent fee
appraiser of the real estate intended to be used as security for the proposed
loan is obtained. The Registrant makes construction/permanent loans on
individual properties. Funds advanced during the construction phase are held in
a loan-in-process account and disbursed based upon various stages of completion
in accordance with the results of inspection reports that are based upon
physical inspection of the construction by a loan officer. For real estate
loans, the Registrant requires title insurance. Borrowers must also obtain fire
and casualty insurance (for loans on property located in a flood zone, flood
insurance is required) prior to the closing of the loan.
6
<PAGE>
Loan Commitments. The Registrant issues written commitments to
prospective borrowers on all approved real estate loans. Generally, the
commitment requires acceptance within 15 days of the date of issuance. At
September 30, 1999, the Registrant had $1.6 million of commitments to cover
originations and $3.6 million in undisbursed funds for loans in process.
Management believes that virtually all of the Registrant's commitments will be
funded.
Loans to One Borrower. SAIF-insured savings bank are subject to certain
lending limitations to a single borrower or group of borrowers. Under current
law, the Registrant's lending limits equals 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 and unimpaired surplus if the loan is secured
by readily marketable collateral (generally financial instruments, not real
estate) or $500,000, whichever is greater. The Registrant's maximum loan to one
borrower limit was approximately $2.2 million at September 30, 1999.
Non-Performing and Problem Assets
Loan Delinquencies. If a loan continues in a delinquent status for 90
days past due and no repayment plan is in effect, the account is turned over to
an attorney for foreclosure. Management meets regularly to determine when
foreclosure proceedings should be initiated and the borrower is notified when
foreclosure has been commenced.
Loans are generally placed on a non-accrual status when the loan
becomes more than 90 days delinquent or when, in the opinion of management, the
collection of additional interest is doubtful. Interest accrued and unpaid at
the time a loan is placed on non-accrual status is charged against interest
income. Subsequent interest payments, if any, are either applied to the
outstanding principal and interest balance in accordance with the contractual
terms of the loan.
Non-Performing Assets. The following table sets forth information
regarding non-accrual loans, real estate owned, and certain other repossessed
assets and loans. As of the dates indicated, the Registrant had no loans
categorized as troubled debt restructuring or impaired loans.
7
<PAGE>
<TABLE>
<CAPTION>
At September 30,
----------------
1999 1998
------ -------
(Dollars in thousands)
<S> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
1-4 family real estate ....................................... $ -- $ 383
Home equity lines of credit .................................. 45
Commercial ................................................... 66 --
Non-mortgage loans:
Consumer ..................................................... 19 --
Commercial loan secured by lease financed receivables ........ 33 --
---- -------
Total non-accrual loans ........................................ 163 383
Accruing loans which are contractually past due 90 days or more:
Mortgage loans:
Permanent loans secured by 1-4 family real estate ............ -- --
Commercial ................................................... 38 --
Non-mortgage loans:
Consumer ..................................................... -- --
---- -------
Total accruing loans greater than 90 days past due ............. 38 --
---- -------
Total non-performing loans ..................................... $201 $ 383
==== =======
Foreclosed real estate ......................................... 13 --
==== =======
Total non-performing assets .................................... $214 $ 383
==== =======
Total non-accrual and accrual loans to net loans ............... .22% .51%
==== =======
Allowance for loan losses to total non-performing loans,
including loans contractually past due 90 days or more ....... 171.64% 78.59%
==== =======
Total non-accrual and accruing loans greater than
90 days past due to total assets ............................. .13% .29%
==== =======
Total non-performing assets to total assets .................... .14% .29%
==== =======
</TABLE>
Interest income that would have been recorded and collected on loans
accounted for on a non-accrual basis under the original terms of such loans was
$15,498 for the year ended September 30, 1999.
Classified Assets. OTS regulations provide for a classification system
for problem assets of insured institutions. Under this classification system,
problem assets of insured institutions are classified as "substandard,"
"doubtful," or "loss." 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 insured 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
may be designated "special mention" because of potential weakness that does not
currently warrant classification in one of the aforementioned categories.
8
<PAGE>
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which 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 an insured institution classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. An 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 may order the establishment of additional general or specific loss
allowances. A portion of general loss allowances established to cover possible
losses related to assets classified as substandard or doubtful may be included
in determining an institution's regulatory capital, while specific valuation
allowances for loan losses generally do not qualify as regulatory capital.
At September 30,
----------------
1999
----
(In Thousands)
Special Mention $2,290
Substandard 161
Doubtful --
Loss --
------
$2,451
======
Allowances for Loan Losses. It is management's policy to provide for
losses on unidentified loans in its loan portfolio. A provision for loan losses
is charged to operations based on management's evaluation of the losses that may
be incurred in the Registrant's loan portfolio. Such evaluation, which includes
a review of all loans of which full collectibility of interest and principal may
not be reasonably assured, considers the Registrant's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, estimated value of any underlying collateral,
any existing guarantees, past performance of the loan, available documentation
for the loan, legal impediments to collection, financial condition of the
borrower, and current economic conditions.
Management will continue to review the entire loan portfolio to
determine the extent, if any, to which further additional loss provisions may be
deemed necessary. There can be no assurance that the allowance for losses will
be adequate to cover losses which may in fact be realized in the future and that
additional provisions for losses will not be required.
9
<PAGE>
The following table sets forth information with respect to the
Registrant's allowance for loan losses at the dates indicated:
At September 30,
----------------
1999 1998
---- ----
(Dollars in Thousands)
Total loans outstanding ................... $ 89,931 $ 75,358
======== ========
Average loans outstanding ................. $ 83,094 $ 77,911
======== ========
Allowance balances (at beginning of period) $ 301 $ 250
Provision (credit):
Residential ............................. 30 185
Commercial real estate .................. -- 10
Consumer ................................ 40 --
Net (charge-offs) recoveries:
Residential ............................. (11) (144)
Commercial real estate .................. -- --
Consumer ................................ (15) --
-------- --------
Allowance balance (at end of period) ...... $ 345 $ 301
======== ========
Allowance for loan losses as a percent
of total loans outstanding .............. .38% .40%
======== ========
Net loans charged off as a percent of
average loans outstanding ............... .30% .18%
======== ========
Analysis of the Allowance for Loan Losses
The following table sets forth the allocation of the allowance by
category, which management believes can be allocated only on an approximate
basis. The allocation of the allowance to each category is not necessarily
indicative of future loss and does not restrict the use of the allowance to
absorb losses in any category.
<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------------
1999 1998
-------------------------- --------------------------------
% of Loans in % of Loans in
Each Category Each Category
Amount To Total Loans Amount To Total Loans
------ -------------- ------ --------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate:
Residential mortgage ................................................ $176 77.2% $157 86.0%
Commercial real estate .............................................. 61 7.1 61 6.2
Construction ........................................................ 68 5.5 68 2.5
Commercial lines of credit .......................................... 4 1.2 4 2.6
Land/lot ............................................................ 1 .8 1 1.3
Consumer ............................................................ 25 7.7 -- .3
Commercial loans secured by lease
finance receivables ............................................... 10 .5 10 1.1
---- ------ ---- ------
$345 100.00% $301 100.00%
==== ====== ==== ======
</TABLE>
10
<PAGE>
Investment Activities
The Registrant is required under federal regulations to maintain a
minimum amount of liquid assets which may be invested in specified short-term
securities and certain other investments. The level of liquid assets varies
depending upon several factors, including: (i) the yields on investment
alternatives, (ii) management's judgment as to the attractiveness of the yields
then available in relation to other opportunities, (iii) expectation of future
yield levels, and (iv) management's projections as to the short-term demand for
funds to be used in loan origination and other activities. Investment
securities, including mortgage-backed securities, are classified at the time of
purchase, based upon management's intentions and abilities, as securities held
to maturity or securities available for sale. Debt securities acquired with the
intent and ability to hold to maturity are classified as held to maturity and
are stated at cost and adjusted for amortization of premium and accretion of
discount, which are computed using the level yield method and recognized as
adjustments of interest income. All other debt securities are classified as
available for sale to serve principally as a source of liquidity.
Current regulatory and accounting guidelines regarding investment
securities (including mortgage backed securities) require the Registrant to
categorize securities as "held to maturity," "available for sale" or "trading."
As of September 30, 1999, Registrant had securities classified as "held to
maturity" and "available for sale" in the amount of $33,633,000 and $19,701,000,
respectively and had no securities classified as "trading." Securities
classified as "available for sale" are reported for financial reporting purposes
at the fair market value with net changes in the market value from period to
period included as a separate component of stockholders' equity, net of income
taxes. At September 30, 1999, the Registrant's securities available for sale had
an amortized cost of $21,287,000 and market value of $19,701,000 (unrealized
loss of $1,586,000). Changes in the market value of securities available for
sale do not affect Company's income. In addition, changes in the market value of
securities available for sale do not affect the Bank's regulatory capital
requirements or its loan-to-one borrower limit.
At September 30, 1999, our investment portfolio policy allowed
investments in instruments such as: (i) U.S. Treasury obligations, (ii) U.S.
federal agency or federally sponsored agency obligations, (iii) local municipal
obligations, (iv) mortgage-backed securities, (v) banker's acceptances, (vi)
certificates of deposit, and (vii) investment grade corporate bonds, and
commercial paper. The board of directors may authorize additional investments.
As a source of liquidity and to supplement our lending activities, we
have invested in residential mortgage-backed securities. Mortgage-backed
securities can serve as collateral for borrowings and, through repayments, as a
source of liquidity. Mortgage-backed securities represent a participation
interest in a pool of single-family or other type of mortgages. Principal and
interest payments are passed from the mortgage originators, through
intermediaries (generally quasi-governmental agencies) that pool and repackage
the participation interests in the form of securities, to investors, like us.
The quasi-governmental agencies guarantee the payment of principal and interest
to investors and include the Federal Home Loan Mortgage Corporation ("FHLMC"),
Government National Mortgage Association ("GNMA"), and Federal National Mortgage
Association ("FNMA").
11
<PAGE>
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed rate or adjustable
rate mortgage loans. Mortgage-backed securities are generally referred to as
mortgage participation certificates or pass-through certificates. The interest
rate risk characteristics of the underlying pool of mortgages (i.e., fixed rate
or adjustable rate) and the prepayment risk, are passed on to the certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying mortgages. Expected maturities will differ from contractual
maturities due to scheduled repayments and because borrowers may have the right
to call or prepay obligations with or without prepayment penalties.
Mortgage-backed securities issued by FHLMC, GNMA, and FNMA make up a majority of
the pass-through certificates market.
Investment Portfolio. The following table sets forth the carrying value
of the Registrant's investment securities portfolio, short term investments,
FHLB stock and mortgage-backed securities at the dates indicated.
At September 30,
----------------
1999 1998
---- ----
(In thousands)
Investment Securities Available For Sale:
Equity Investments .............................. $ 352 $ 562
FHLB bonds ...................................... 16,322 14,630
FHLMC bonds ..................................... 3,027 --
------- -------
Total Investment Securities Available For Sale 19,701 $15,192
------- -------
Investment Securities Held to Maturity:
FNMA bonds ...................................... $ 2,750 $ 3,750
FHLB bonds ...................................... 11,300 10,850
FHLMC bonds ..................................... 1,600 --
------- -------
Total Investment Securities Held To Maturity . 15,650 14,600
------- -------
Interest-bearing deposits in other banks ........ $ 3,689 $ 9,849
Federal funds sold .............................. 2,290 3,394
Mortgage-backed securities held to maturity ..... 17,983 7,276
FHLB stock ...................................... 1,200 1,000
------- -------
25,162 21,519
------- -------
$60,513 $51,311
======= =======
12
<PAGE>
The following table sets forth information regarding the scheduled
maturities, carrying values, market value and weighted average yields for the
Registrant's investment securities portfolio at September 30, 1999. The
following table does not take into consideration the effects of scheduled
repayments or the effects of possible prepayments.
<TABLE>
<CAPTION>
More than One to More than Five to More than Total
One Year or Less Five Years Ten Years Ten Years Investment Securities
----------------- ---------------- ---------------- ---------------- -----------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Securities Available For Sale:
Equity Investments..................... - - - - - - 352 1.75 352 1.75 352
FHLB bonds............................. - - - - - - 16,322 6.78 16,322 6.78 16,322
Investment Securities Held to Maturity: 3,027 6.59 3,027 6.59 3,027
FNMA bonds............................. - - - - - - 2,750 6.78 2,750 6.78 2,569
FHLB bonds............................. - - - - 250 7.25 11,050 6.77 11,300 6.78 10,588
FHLMC bonds............................ - - - - 100 7.00 1,500 6.59 1,600 6.62 1,493
Interest-bearing deposits in other banks. 3,689 5.45 - - - - - - 3,689 5.45 3,689
Federal funds sold....................... 2,290 5.48 - - - - - - 2,290 5.48 2,290
Mortgage-backed securities held
to maturity............................ - - 2 8.00 231 7.59 17,750 6.46 17,983 6.47 17,192
FHLB stock............................... - - - - - - 1,200 7.37 1,200 7.37 1,200
----- --- --- ------ ------ ------
Total.................................. 5,979 5.46 2 8.00 581 7.34 53,951 6.62 60,513 6.53 58,722
===== ==== === ==== === ==== ====== ==== ====== ==== ======
</TABLE>
13
<PAGE>
Sources of Funds
General. Deposits are the major external source of the Registrant's
funds for lending and other investment purposes. The Registrant derives funds
from amortization and prepayment of loans and, to a much lesser extent,
maturities of investment securities, borrowings, mortgage-backed securities and
operations. Scheduled loan principal repayments are a relatively stable source
of funds, while deposit inflows and outflows and loan prepayments are
significantly influenced by general interest rates and market conditions.
Deposits. Consumer and commercial deposits are attracted principally
from within the Registrant's's primary market area through the offering of a
selection of deposit instruments including regular savings accounts, money
market accounts, and term certificate accounts. The Registrant also offers IRA
accounts. Deposit account terms vary according to the minimum balance required,
the time period the funds must remain on deposit, and the interest rate, among
other factors. At September 30, 1999, the Registrant had no brokered accounts.
Certificates of Deposit. The following table indicates the amount of
the Registrant's certificates of deposit of $100,000 or more by time remaining
until maturity as of September 30, 1999.
Certificates
of Deposits
-----------
Maturity Period (In thousands)
- ---------------
Within three months $ 208
Three through six months 1,230
Six through twelve months 833
Over twelve months 5,114
------
$7,385
======
Borrowings
The Registrant may obtain advances from the FHLB of Atlanta to
supplement its supply of lendable funds. Advances from the FHLB of Atlanta are
typically secured by a pledge of the Registrant's stock in the FHLB of Atlanta
and a portion of the Registrant's first mortgage loans and certain other assets.
Each FHLB credit program has its own interest rate, which may be fixed or
variable, and range of maturities. The Registrant, if the need arises, may also
access the Federal Reserve Registrant discount window to supplement its supply
of lendable funds and to meet deposit withdrawal requirements.
14
<PAGE>
<TABLE>
<CAPTION>
During the Year Ended
September 30,
----------------------
1999 1998
----------------------
(In thousands)
<S> <C> <C>
Maximum amount of short-term borrowings outstanding at any month end:
Advances from Federal Home Loan Bank .............................. $ 9,000 $20,000
Approximate average short-term borrowings outstanding with respect to:
Advances from Federal Home Loan Bank .............................. $ 6,250 $ 6,917
Approximate weighted average rate paid on:
Advances from Federal Home Loan Bank .............................. 5.43% 5.63%
</TABLE>
Employees
At September 30, 1999, the Registrant had 27 full-time and 6 part-time
employees. None of the Registrant 's employees are represented by a collective
bargaining group. The Registrant believes that its relationship with its
employees is good.
Regulation
Set forth below is a brief description of certain laws which related to
the regulation of the Company and the Bank . The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act (the "Act") which will, effective March 11, 2000, permit
qualifying bank holding companies to become financial holding companies and
thereby affiliate with securities firms and insurance companies and engage in
other activities that are financial in nature. The Act defines "financial in
nature" to include securities underwriting, dealing and market making;
sponsoring mutual funds and investment companies; insurance underwriting and
agency; merchant banking activities; and activities that the Board has
determined to be closely related to banking. A qualifying national bank also may
engage, subject to limitations on investment, in activities that are financial
in nature, other than insurance underwriting, insurance company portfolio
investment, real estate development, and real estate investment, through a
financial subsidiary of the bank.
The Act also prohibits new unitary thrift holding companies from
engaging in nonfinancial activities or from affiliating with an nonfinancial
entity. As a grandfathered unitary thrift holding company, the Company will
retain its authority to engage in nonfinancial activities.
Company Regulation
General. The Company is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Company is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over
15
<PAGE>
the Company and its non-savings association subsidiaries, should such
subsidiaries be formed, which also permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the subsidiary savings
association. This regulation and oversight is intended primarily for the
protection of the depositors of the Bank and not for the benefit of stockholders
of the Company.
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions, provided
the Bank satisfies the Qualified Thrift Lender ("QTL") test. If the Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Company and any of its subsidiaries (other than the Bank or any other
SAIF-insured savings association) would become subject to restrictions
applicable to bank holding companies unless such other associations each also
qualify as a QTL and were acquired in a supervisory acquisition. See "-
Regulation of the Bank - Qualified Thrift Lender Test."
Regulation of the Bank
General. Set forth below is a brief description of certain laws that
relate to the regulation of the Bank. The description does not purport to be
complete and is qualified in its entirety by reference to applicable laws and
regulations. As a federally chartered, SAIF-insured savings association, the
Bank is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with various federal statutory and
regulatory requirements. The Bank is also subject to certain reserve
requirements promulgated by the Federal Reserve Board.
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that are found in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law, especially in such matters as the ownership of savings accounts
and the form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. 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 SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes.
Insurance of Deposit Accounts. The deposit accounts held by the Bank
are insured by the SAIF to a maximum of $100,000 for each insured member (as
defined by law and regulation). Insurance of deposits may be terminated by the
FDIC upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
FDIC or the institution's primary regulator.
16
<PAGE>
A member of the SAIF pays an annual insurance premium to the FDIC of at
least 0.064% of total deposits of that member. The FDIC also maintains another
insurance fund, the Bank Insurance Fund ("BIF"), which primarily insures
commercial bank deposits. Most members of BIF pay a lower premium to the FDIC.
After 1999, assessments for BIF and SAIF members should be the same. It
is expected that these continuing assessments for both SAIF and BIF members will
be used to repay outstanding Financing Corporation bond obligations.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) a leverage ratio (core capital) equal to
at least 3% of total adjusted assets, and (3) a risk-based capital requirement
equal to 8.0% of total risk-weighted assets.
Dividend and Other Capital Distribution Limitations. The OTS imposes
various restrictions or requirements on the ability of savings institutions to
make capital distributions, including cash dividends.
A savings association that is a subsidiary of a savings and loan
holding company, such as the Bank must file an application or a notice with the
OTS at least 30 days before making a capital distribution. Savings associations
are not required to file an application for permission to make a capital
distribution and need only file a notice if the following conditions are met:
(1) they are eligible for expedited treatment under OTS regulations, (2) they
would remain adequately capitalized after the distribution, (3) the annual
amount of capital distribution does not exceed net income for that year to date
added to retained net income for the two preceding years, and (4) the capital
distribution would not violate any agreements between the OTS and the savings
association or any OTS regulations. Any other situation would require an
application to the OTS.
The OTS may disapprove an application or notice if the proposed capital
distribution would: (i) make the savings association undercapitalized,
significantly undercapitalized, or critically undercapitalized; (ii) raise
safety or soundness concerns; or (iii) violate a statute, regulation, or
agreement with the OTS (or with the FDIC), or a condition imposed in an
OTS-approved application or notice. Further, a federal savings association, like
the Bank, cannot distribute regulatory capital that is needed for its
liquidation account.
Qualified Thrift Lender Test. Savings institutions must meet a QTL
test. If the Bank maintains an appropriate level of Qualified Thrift Investments
(primarily residential mortgages and related investments, including certain
mortgage-related securities) ("QTIs") and otherwise qualifies as a QTL, it will
continue to enjoy full borrowing privileges from the FHLB of Atlanta. The
required percentage of QTIs is 65% of portfolio assets (defined as all assets
minus intangible assets, property used by the institution in conducting its
business and liquid assets equal to 10% of total assets). Certain assets are
subject to a percentage limitation of 20% of portfolio assets. In addition,
savings associations may include shares of stock of the FHLBs, FNMA and FHLMC as
qualifying QTIs. An association must be in compliance with the QTL test on a
monthly basis in nine out of every 12 months. As of September 30, 1999, the Bank
was in compliance with its QTL requirement with 72.4% of its assets invested in
QTIs.
17
<PAGE>
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Atlanta, which is one of 12 regional FHLBs that administers the home financing
credit function of savings associations. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Atlanta in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year.
Liquidity Requirements. All savings associations are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations. At September 30, 1999, the Bank's required
liquid asset ratio was 4%.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW, and Super
NOW checking accounts) and non-personal time deposits. The balances maintained
to meet the reserve requirements imposed by the Federal Reserve Board may be
used to satisfy the liquidity requirements that are imposed by the OTS. At
September 30, 1999, the Bank was in compliance with these Federal Reserve Board
requirements.
18
<PAGE>
Item 2. Description of Property
- -------------------------------
(a) Properties.
The Registrant operates from its main office and four branch offices.
Location Leased or Owned
- -------- ---------------
MAIN OFFICE:
1505 York Road
Lutherville, Maryland 21093 Owned
HAMILTON OFFICE:
4228 Harford Road
Baltimore, Maryland 21214 Owned
WOODLAWN OFFICE:
Gwynn Oak Avenue and
Windsor Mill Road Leased until
Baltimore, Maryland 21207 January 2002
ELLICOTT CITY OFFICE:
9396 Baltimore National Pike
Ellicott City, Maryland 21042 Leased until
May 2000
GOLDEN RING OFFICE:
8767 K Philadelphia Road Leased until
Baltimore, Maryland 21237 May 2001
(b) Investment Policies. See "Item 1. Business" above for a general
description of the Registrant's investment policies and any regulatory or Board
of Directors' percentage of assets limitations regarding certain investments.
The Registrant's's investments are primarily acquired to produce income, and to
a lesser extent, possible capital gain.
(1) Investments in Real Estate or Interests in Real Estate. See "Item
1. Business - Lending Activities and - Regulation," and "Item 2. Description of
Property."
(2) Investments in Real Estate Mortgages. See "Item 1. Business -
Lending Activities and - Regulation."
(3) Investments in Securities of or Interests in Persons Primarily
Engaged in Real Estate Activities. See "Item 1. Business - Lending Activities
and - Regulation."
(c) Description of Real Estate and Operating Data.
Not applicable.
19
<PAGE>
Item 3. Legal Proceedings
- -------------------------
There are various claims and lawsuits in which the Company or the Bank
are periodically involved, such as claims to enforce liens, condemnation
proceedings on properties in which the Bank holds security interests, claims
involving the making and servicing of real property loans, and other issues
incident to the Bank's business. In the opinion of management, no material loss
is expected from any of such pending claims or lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------
The information contained under the section captioned "Market Price of
the Common Stock" of the Company's Annual Report to Stockholders for the fiscal
year ended September 30, 1999 (the "Annual Report"), is incorporated herein by
reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
- -------------------------------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of the
Annual Report is incorporated herein by reference.
Item 7. Financial Statements
- ------------------------------
The Registrant's financial statements listed under Item 13 are
incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants On Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure.
---------------------
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance
- --------------------------------------------------------------------------------
with Section 16(a) of the Exchange Act.
---------------------------------------
The information required under this item is incorporated herein by
reference to the Proxy Statement for the 2000 Annual Meeting (the "Proxy
Statement") contained under the sections captioned "Section 16(a) Beneficial
Ownership Reporting Compliance," "Proposal I - Election of Directors," and "-
Biographical Information."
20
<PAGE>
Item 10. Executive Compensation
- --------------------------------
The information required by this item is incorporated by reference to
the Proxy Statement contained under the section captioned "Director and
Executive Officer Compensation."
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
(b) Security Ownership of Management
The information required by items (a) and (b) is incorporated
herein by reference to the Proxy Statement contained under the
sections captioned "Principal Holders" and "Proposal I -
Election of Directors."
(c) Management of the Company knows of no arrangements, including
any pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a change
in control of the Company.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference to the Proxy Statement contained under the section captioned "Certain
Relationships and Related Transactions".
Item 13. Exhibits, List, and Reports on Form 8-K
- -------------------------------------------------
(a) Listed below are all financial statements and exhibits filed as
part of this report.
1. The consolidated statements of financial condition of WHG
Bancshares Corporation as of September 30, 1999 and 1998 and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the years in the two year period ended September 30, 1999,
together with the related notes and the independent auditors' report of Anderson
Associates, LLP independent certified public accountants.
2. Schedules omitted as they are not applicable.
21
<PAGE>
3. The following exhibits are included in this Report or
incorporated herein by reference:
<TABLE>
<CAPTION>
<S> <C>
(a) List of Exhibits:
3(i) Articles of Incorporation of WHG Bancshares Corporation *
3(ii) Amended Bylaws of WHG Bancshares
Corporation
10.1 Amendment to Employment Agreement with Peggy J. Stewart **
10.2 Restated Severance Agreement with Robin L. Taylor **
10.3 Restated Severance Agreement with Diana Rohrback **
10.4 Amendment to the 1996 Stock Option Plan ***
10.5 Amendment to Management Stock Bonus Plan and Trust Agreement ***
10.6 Form of Directors Change In Control Severance Plan
13 Portions of Annual Report to Stockholders for the fiscal year ended September 30, 1999
21 Subsidiaries of the Registrant (See Item 1 - Description of Business)
23 Consent of Anderson Associates, LLP
27 Financial Data Schedule (electronic filing only)
</TABLE>
- ---------------------
* Incorporated by reference to the registration statement on Form S-1 (File
No. 33-80487) declared effective by the SEC on February 7, 1996.
** Incorporated by reference to the June 30, 1998 Form 10-QSB filed with the
SEC on August 12, 1998.
*** Incorporated by reference to the proxy statement for the annual meeting of
stockholders filed with the SEC on or about December 19, 1997.
(b) Not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized as of
December 21, 1999.
WHG BANCSHARES CORPORATION
By: /s/Peggy J. Stewart
-----------------------------------------------
Peggy J. Stewart
President, Chief Executive Officer and Director
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated as of December 21, 1999.
<TABLE>
<CAPTION>
<S> <C>
/s/Peggy J. Stewart /s/Robin L. Taylor
- -------------------------------------------- ---------------------------------------------
Peggy J. Stewart Robin L. Taylor
President, Chief Executive Officer and Director Controller
(Principal Executive Officer) Principal Accounting and Financial Officer)
/s/John E. Lufburrow /s/Herbert A. Davis
- -------------------------------------------- ---------------------------------------------
John E. Lufburrow Herbert A. Davis
Chairman of the Board Director
/s/Philip W. Chase, Jr. /s/D. Edward Lauterbach, Jr.
- -------------------------------------------- ---------------------------------------------
Philip W. Chase, Jr. D. Edward Lauterbach, Jr.
Director Director
/s/Urban P. Francis, Jr. /s/Edwin C. Muhly, Jr.
- -------------------------------------------- ---------------------------------------------
Urban P. Francis, Jr. Edwin C. Muhly, Jr.
Director Director
/s/Hugh P. McCormick /s/August J. Seifert
- -------------------------------------------- ---------------------------------------------
Hugh P. McCormick August J. Seifert
Director Director
</TABLE>
EXHIBIT 3(ii)
<PAGE>
AMENDED BYLAWS
OF
WHG BANCSHARES CORPORATION
ARTICLE I
Principal Office
The principal office of WHG Bancshares Corporation (the "Corporation")
shall be at 1505 York Road, Lutherville, Maryland 21903.
ARTICLE II
Stockholders
SECTION 1. Place of Meetings. All annual and special meetings of
stockholders shall be held at the principal office of the Corporation or at such
other place within or without the State of Maryland as the board of directors
may determine and as designated in the notice of such meeting.
SECTION 2. Annual Meeting. A meeting of the stockholders of the
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually at such date and time as the
board of directors may determine.
SECTION 3. Special Meetings. Special meetings of the stockholders for
any purpose or purposes may be called at any time by the president or by a
majority of the board of directors or by a committee of the board, whose members
will be designated from time to time by the board, and which committee will have
the power and authority to call such meetings. Except to the extent an exception
is authorized by the General Laws of the State of Maryland, a special meeting
may also be called by the secretary of the Corporation upon the written request
of the holders of not less than 25% of all votes entitled to be cast at the
meeting. Such written request will state the purpose or purposes of the meeting
and the matters proposed to be acted on at the meeting and shall be delivered at
the home office of the Corporation addressed to the chairman of the board, the
president or the secretary. The secretary shall inform the stockholders who make
the request of the reasonable estimated cost of preparing and mailing a notice
of the meeting and, upon payment of the costs to the Corporation, the secretary
shall then notify each stockholder entitled to notice of the meeting.
SECTION 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the rules and procedures established by the board
of directors. The board of directors shall designate, when present, the chairman
of the board, the president or any director or to preside at such meetings.
SECTION 5. Notice of Meetings. Written notice stating the place, day
and hour of the meeting and the purpose or purposes for which the meeting is
called shall be mailed by the secretary or the officer performing his duties,
not less than ten days nor more than ninety days before the meeting to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be
<PAGE>
delivered when deposited in the United States mail, addressed to the stockholder
at his address as it appears on the stock transfer books or records of the
Corporation as of the record date prescribed in Section 6 of this Article II,
with postage thereon prepaid. If a stockholder is present at a meeting, or in
writing waives notice thereof before or after the meeting, notice of the meeting
to such stockholder shall be unnecessary. When any stockholders' meeting, either
annual or special, is adjourned for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, notice of the
adjourned meeting shall be given as in the case of an original meeting. It shall
not be necessary to give any notice of the time and place of any meeting
adjourned for thirty days or less or of the business to be transacted at such
adjourned meeting, other than an announcement at the meeting at which such
adjournment is taken.
SECTION 6. Fixing of Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders, or
any adjournment thereof, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the board of directors shall fix in advance a date as the record
date for any such determination of stockholders. Such date in any case shall be
not more than sixty days, and in case of a meeting of stockholders, not less
than ten days prior to the date on which the particular action, requiring such
determination of stockholders, is to be taken. When a determination of
stockholders entitled to vote at any meeting of stockholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
SECTION 7. Voting Lists. The officer or agent, having charge of the
stock transfer books for shares of the Corporation shall make and verify, within
20 days of a request for the stockholder list by a stockholder who meets the
requirements of Maryland law for requesting such list, a complete record of the
stockholders with the address of and the number of shares held by each. The
record shall be kept on file at the principal office of the Corporation, and
shall be subject to inspection or made available to any shareholder whose
request is granted because the shareholder meets the requirements for requesting
the list under Maryland law.
SECTION 8. Quorum. One-third of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time, subject to the notice
requirements of Section 5 of this Article II. At such adjourned meeting at which
a quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. The
stockholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
SECTION 9. Proxies. At all meetings of stockholders, a stockholder may
vote by proxy executed by the stockholder in the manner provided by the Articles
of Incorporation. Proxies solicited on behalf of the management shall be voted
as directed by the stockholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
after eleven months from the date of its execution unless otherwise provided in
the proxy.
SECTION 10. Voting. At each election for directors every stockholder
entitled to vote at such election shall be entitled to one vote for each share
of stock held by him. Directors shall be elected by a plurality of votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Unless otherwise provided in the Articles of
Incorporation, by statute, or by
-2-
<PAGE>
these Bylaws, in matters other than the election of directors, a majority of
those votes cast by stockholders at a lawful meeting shall be sufficient to pass
on a transaction or matter.
SECTION 11. Voting of Shares in the Name of Two or More Persons. When
ownership of stock stands in the name of two or more persons, in the absence of
written directions to the Corporation to the contrary, at any meeting of the
stockholders of the Corporation any one or more of such stockholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose name shares of stock stand, the vote or votes to
which these persons are entitled shall be cast as directed by a majority of
those holding such stock and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
SECTION 12. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian trustee or conservator may be voted by him,
either in person or by proxy, without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer thereof into his name if authority to do so is contained in
an appropriate order of the court or other public authority by which such
receiver was appointed.
A stockholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the name of the
pledgee and thereafter the pledgee shall be entitled to vote the shares so
transferred.
Neither treasury shares of its own stock held by the
Corporation, nor shares held by another corporation, if a majority of the shares
entitled to vote for the election of directors of such other corporation are
held by the Corporation, shall be voted at any meeting or counted in determining
the total number of outstanding shares at any given time for purposes of any
meeting.
SECTION 13. Inspectors of Election. In advance of any meeting of
stockholders, the board of directors may appoint any persons, other than
nominees for office, as inspectors of election to act at such meeting or any
adjournment thereof. The number of inspectors shall be either one or three. If
the board of directors so appoints either one or three inspectors, that
appointment shall not be altered at the meeting. If inspectors of election are
not so appointed, the chairman of the board of directors or the president may
make such appointment at the meeting. In case any person appointed as inspector
fails to appear or fails or refuses to act, the vacancy may be filled by
appointment by the board of directors in advance of the meeting or at the
meeting by the chairman of the meeting or the president.
Unless otherwise prescribed by applicable law, the duties of
such inspectors shall include: determining the number of shares of stock and the
voting power of each share, the shares of stock represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges and
questions in any way arising in connection with the right to vote; counting and
tabulating all votes or consents; determining the result; and such acts as may
be proper to conduct the election or vote with fairness to all stockholders.
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SECTION 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least twenty days prior to the
date of the annual meeting. Provided such committee makes such nominations, no
nominations for directors except those made by the nominating committee shall be
voted upon at the annual meeting unless other nominations by stockholders are
made in writing and delivered to the secretary of the Corporation in accordance
with the provisions of Article II, Section 15 of these Bylaws.
SECTION 15. Notice for Nominations and Proposals. Nominations of
candidates for election as directors at any annual meeting of stockholders may
be made (a) by, or at the direction of, a majority of the board of directors or
(b) by any stockholder entitled to vote at such annual meeting. Only persons
nominated in accordance with the procedures set forth in this Section 15 shall
be eligible for election as directors at an annual meeting. Ballots bearing the
names of all the persons who have been nominated for election as directors at an
annual meeting in accordance with the procedures set forth in this Section 15
shall be provided for use at the annual meeting.
Nominations, other than those made by or at the direction of the board
of directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this Section 15. To be timely, a
stockholder's notice shall be delivered to, or mailed and received at, the
principal office of the Corporation not less than 60 days prior to the
anniversary date of the immediately preceding annual meeting of stockholders of
the Corporation; provided, however, that with respect to the first scheduled
annual meeting, notice by the stockholder must be so delivered or received no
later than the close of business on the tenth day following the day on which
notice of the date of the scheduled meeting must be delivered or received no
later than the close of business on the fifth day preceding the date of the
meeting. Such stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or re-election as a director
and as to the stockholder giving the notice (i) the name, age, business address
and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of Corporation
stock which are Beneficially Owned (as defined in Article XIII of the Articles
of Incorporation) by such person on the date of such stockholder notice, and
(iv) any other information relating to such person that is required to be
disclosed in solicitations of proxies with respect to nominees for election as
directors, pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), including, but not limited to, information
required to be disclosed by Items 4, 5, 6 and 7 of Schedule 14A to be filed with
the Securities and Exchange Commission (or any successors of such items or
schedule); and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the Corporation's books, of such stockholder and any
other stockholders known by such stockholder to be supporting such nominees and
(ii) the class and number of shares of Corporation stock which are Beneficially
Owned by such stockholder on the date of such stockholder notice and, to the
extent known, by any other stockholders known by such stockholder to be
supporting such nominees on the date of such stockholder notice. At the request
of the board of directors, any person nominated by, or at the direction of, the
Board for election as a director at an annual meeting 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.
Proposals, other than those made by or at the direction of the board of
directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation as set forth in this Section 15. For stockholder proposals to
be included in the Corporation's proxy materials, the stockholder must comply
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with all the timing and informational requirements of Rule 14a-8 of the Exchange
Act (or any successor regulation). With respect to stockholder proposals to be
considered at the annual meeting of stockholders but not included in the
Corporation's proxy materials, the stockholder's notice shall be delivered to,
or mailed and received at, the principal office of the Corporation not less than
60 days prior to the anniversary date of the immediately preceding annual
meeting of stockholders of the Corporation. Such stockholder's notice shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the proposal desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the Corporation's books, of
the stockholder proposing such business and, to the extent known, any other
stockholders known by such stockholder to be supporting such proposal, (c) the
class and number of shares of the Corporation stock which are Beneficially Owned
by the stockholder on the date of such stockholder notice and, to the extent
known, by any other stockholders known by such stockholder to be supporting such
proposal on the date of such stockholder notice, and (d) any financial interest
of the stockholder in such proposal (other than interests which all stockholders
would have).
The board of directors may reject any nomination by a stockholder or
stockholder proposal not timely made in accordance with the requirements of this
Section 15. If the board of directors, or a designated committee thereof,
determines that the information provided in a stockholder's notice does not
satisfy the informational requirements of this Section 15 in any material
respect, the Secretary of the Corporation shall notify such stockholder of the
deficiency in the notice. The stockholder shall have an opportunity to cure the
deficiency by providing additional information to the Secretary within such
period of time, not to exceed five days from the date such deficiency notice is
given to the stockholder, as the board of directors or such committee shall
reasonably determine. If the deficiency is not cured within such period, or if
the board of directors or such committee reasonably determines that the
additional information provided by the stockholder, together with information
previously provided, does not satisfy the requirements of this Section 15 in any
material respect, then the board of directors may reject such stockholder's
nomination or proposal. The Secretary of the Corporation shall notify a
stockholder in writing whether his nomination or proposal has been made in
accordance with the time and informational requirements of this Section 15.
Notwithstanding the procedures set forth in this paragraph, if neither the board
of directors nor such committee makes a determination as to the validity of any
nominations or proposals by a stockholder, the presiding officer of the annual
meeting shall determine and declare at the annual meeting whether the nomination
or proposal was made in accordance with the terms of this Section 15. If the
presiding officer determines that a nomination or proposal was made in
accordance with the terms of this Section 15, he shall so declare at the annual
meeting and ballots shall be provided for use at the meeting with respect to
such nominee or proposal. If the presiding officer determines that a nomination
or proposal was not made in accordance with the terms of this Section 15, he
shall so declare at the annual meeting and the defective nomination or proposal
shall be disregarded.
ARTICLE III
Board of Directors
SECTION 1. General Powers. The business and affairs of the Corporation
shall be under the direction of its board of directors. The board of directors
shall annually elect a president from among its members and may also elect a
chairman of the board from among its members. The board of directors shall
designate, when present, any director or the president to preside at its
meetings.
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SECTION 2. Number, Term and Election. The board of directors shall
consist of nine members and shall be divided into three classes as nearly equal
in number as possible. The members of each class shall be elected for a term of
three years and until their successors are elected or qualified. The board of
directors shall be classified in accordance with the provisions of the
Corporation's Articles of Incorporation. Directors are to be elected by a
plurality of votes cast by the shares entitled to vote in the election at a
meeting of stockholders at which a quorum is present. The board of directors may
increase the number of members of the board of directors but in no event shall
the number of directors be increased in excess of fifteen.
SECTION 3. Place of Meetings. All annual and special meetings of the
board of directors shall be held at the principal office of the Corporation or
at such other place within or without the State in which the principal office of
the Corporation is located as the board of directors may determine and as
designated in the notice of such meeting.
SECTION 4. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this Bylaw at such time and
date as the board of directors may determine.
SECTION 5. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the president, the chairman of the board
of directors or by one-third of the directors. The persons authorized to call
special meetings of the board of directors may fix any place within or without
the State of Maryland as the place for holding any special meeting of the board
of directors called by such persons.
Members of the board of directors may participate in special meetings
by means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other.
SECTION 6. Notice. Written notice of any special meeting shall be given
to each director at least two days previous thereto delivered personally or by
telegram or at least five days previous thereto delivered by mail at the address
at which the director is most likely to be reached. Such notice shall be deemed
to be delivered when deposited in the United States mail so addressed, with
postage thereon prepaid if mailed or when delivered to the telegraph company if
sent by telegram. Any director may waive notice of any meeting by a writing
filed with the secretary. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any meeting of the board of directors need
be specified in the notice or waiver of notice of such meeting.
SECTION 7. Quorum. A majority of the number of directors fixed by
Section 2 of Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 6 of Article III.
SECTION 8. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by these Bylaws, the
Articles of Incorporation, or the laws of Maryland.
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SECTION 9. Action Without a Meeting. Any action required or permitted
to be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
SECTION 10. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the principal office of the Corporation
addressed to the Chairman of the Board or the president. Unless otherwise
specified herein such resignation shall take effect upon receipt thereof by the
president.
SECTION 11. Vacancies. Any vacancy occurring in the board of directors
shall be filled in accordance with the provisions of the Corporation's Articles
of Incorporation. Any directorship to be filled by reason of an increase in the
number of directors may be filled by the affirmative vote of two-thirds of the
directors then in office. The term of such director shall be in accordance with
the provisions of the Corporation's Articles of Incorporation.
SECTION 12. Removal of Directors. Any director or the entire board of
directors may be removed for cause and then only in accordance with the
provisions of the Corporation's Articles of Incorporation.
SECTION 13. Compensation. Directors, as such, may receive a stated fee
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the board of directors. Members
of either standing or special committees may be allowed such compensation for
actual attendance at committee meetings as the board of directors may determine.
Nothing herein shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving remuneration therefor.
SECTION 14. Presumption of Assent. A director of the Corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent or abstention shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the Corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to a
director who votes in favor of such action.
ARTICLE IV
Committees of the Board of Directors
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, as they may determine to be
necessary or appropriate for the conduct of the business of the Corporation, and
may prescribe the duties, constitution and procedures thereof. Each committee
shall consist of one or more directors of the Corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
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The board of directors shall have power, by the affirmative vote of a
majority of the authorized number of directors, at any time to change the
members of, to fill vacancies in, and to discharge any committee of the board.
Any member of any such committee may resign at any time by giving notice to the
Corporation provided, however, that notice to the board, the chief executive
officer, the chairman of such committee, or the secretary shall be deemed to
constitute notice to the Corporation. Such resignation shall take effect upon
receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective. Any member of any such committee may be removed
at any time, either with or without cause, by the affirmative vote of a majority
of the authorized number of directors at any meeting of the board called for
that purpose.
ARTICLE V
Officers
SECTION 1. Positions. The officers of the Corporation shall include a
chief executive officer, president, one or more vice presidents, a secretary and
a treasurer, each of whom shall be elected by the board of directors. The
offices of the secretary and treasurer may be held by the same person and a vice
president may also be either the secretary or the treasurer. The board of
directors may designate one or more vice presidents as executive vice president
or senior vice president. The board of directors may also elect or authorize the
appointment of such other officers as the business of the Corporation may
require. The officers shall have such authority and perform such duties as the
board of directors may from time to time authorize or determine. In the absence
of action by the board of directors, the officers shall have such powers and
duties as generally pertain to their respective offices.
SECTION 2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual meeting of the stockholders. If the
election of officers is not held at such meeting, such election shall be held as
soon thereafter as possible. Each officer shall hold office until his successor
shall have been duly elected and qualified or until his death or until he shall
resign or shall have been removed in the manner hereinafter provided. Election
or appointment of an officer, employee or agent shall not of itself create
contract rights. The board of directors may authorize the Corporation to enter
into an employment contract with any officer in accordance with state law; but
no such contract shall impair the right of the board of directors to remove any
officer at any time in accordance with Section 3 of this Article V.
SECTION 3. Removal. Any officer may be removed by the vote of the
majority of the board of directors whenever, in its judgment, the best interests
of the Corporation will be served thereby, but such removal, other than for
cause, shall be without prejudice to the contract rights, if any, of the person
so removed.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
SECTION 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the board of directors and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the Corporation.
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ARTICLE VI
Contracts, Loans, Checks and Deposits
SECTION 1. Contracts. To the extent permitted by applicable law, and
except as otherwise prescribed by the Corporation's Articles of Incorporation or
these Bylaws with respect to certificates for shares, the board of directors may
authorize any officer, employee, or agent of the Corporation to enter into any
contract or execute and deliver any instrument in the name of and on behalf of
the Corporation. Such authority may be general or confined to specific
instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
SECTION 3. Checks, Drafts, Etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by one or more officers, employees or
agents of the Corporation in such manner as shall from time to time be
determined by resolution of the board of directors.
SECTION 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in any of its duly authorized depositories as the board of directors may select.
ARTICLE VII
Certificates for Shares and Their Transfer
SECTION 1. Certificates for Shares. The shares of the Corporation shall
be represented by certificates signed by the president or a vice president and
by the treasurer or by the secretary of the Corporation, and may be sealed with
the seal of the Corporation or a facsimile thereof. Any or all of the signatures
upon a certificate may be facsimiles if the certificate is countersigned by a
transfer agent, or registered by a registrar, other than the Corporation itself
or an employee of the Corporation. If any officer who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such officer before the certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the date of its
issue.
SECTION 2. Form of Share Certificates. All certificates representing
shares issued by the Corporation shall set forth upon the face or back that the
Corporation will furnish to any shareholder upon request and without charge a
full statement of the designations, preferences, limitations, and relative
rights of the shares of each class authorized to be issued, the variations in
the relative rights and preferences between the shares of each such series so
far as the same have been fixed and determined, and the authority of the board
of directors to fix and determine the relative rights and preferences of
subsequent series.
Each certificate representing shares shall state upon the face thereof:
that the Corporation is organized under the laws of the State of Maryland; the
name of the person to whom issued; the number
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and class of shares; the date of issue; the designation of the series, if any,
which such certificate represents; the par value of each share represented by
such certificate, or a statement that the shares are without par value. Other
matters in regard to the form of the certificates shall be determined by the
board of directors.
SECTION 3. Payment for Shares. No certificate shall be issued for any
share until such share is fully paid.
SECTION 4. Form of Payment for Shares. The consideration for the
issuance of shares shall be paid in accordance with the provisions of Maryland
law.
SECTION 5. Transfer of Shares. Transfer of shares of capital stock of
the Corporation shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record thereof or by his
legal representative, who shall furnish proper evidence of such authority, or by
his attorney thereunto authorized by power of attorney duly executed and filed
with the Corporation. Such transfer shall be made only on surrender for
cancellation of the certificate for such shares. The person in whose name shares
of capital stock stand on the books of the Corporation shall be deemed by the
Corporation to be the owner thereof for all purposes.
SECTION 6. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 6 of Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 7. Lost Certificates. The board of directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate, or his legal representative, to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 8. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such shares on
the part of any other person, whether or not the Corporation shall have express
or other notice thereof, except as otherwise provided by law.
ARTICLE VIII
Fiscal Year; Annual Audit
The fiscal year of the Corporation shall end on the last day of
September of each year. The Corporation shall be subject to an annual audit as
of the end of its fiscal year by independent public accountants appointed by and
responsible to the board of directors.
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ARTICLE IX
Dividends
Subject to the provisions of the Articles of Incorporation and
applicable law, the board of directors may, at any regular or special meeting,
declare dividends on the Corporation's outstanding capital stock. Dividends may
be paid in cash, in property or in the Corporation's own stock.
ARTICLE X
Corporate Seal
The corporate seal of the Corporation shall be in such form as the
board of directors shall prescribe.
ARTICLE XI
Amendments
The Bylaws may be altered, amended or repealed or new Bylaws may be
adopted in the manner set forth in the Articles of Incorporation.
EXHIBIT 10.6
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HERITAGE SAVINGS BANK, F.S.B.
DIRECTORS CHANGE IN CONTROL SEVERANCE PLAN
WHEREAS, Heritage Savings Bank, F.S.B. (the "Savings Bank") wishes to
provide assurances to its members of the Board of Directors ("Board") that their
continued service and contribution is valued and to offer a degree of economic
security to such individuals so long as such service is deemed beneficial to the
Board as indicated by their continued election and re-election to such Board
from time to time; and
WHEREAS, it is deemed advisable and in the best interests of the
Savings Bank to offer to its members of the Board a degree of financial security
in the event that their service is terminated as a result of a Change in Control
of the Bank;
NOW THEREFORE, BE IT RESOLVED that the Plan shall be implemented as of
the Effective Date as follows:
ARTICLE I
DEFINITIONS
The following words and phrases as used herein shall, for the purpose
of the Plan and any subsequent amendment thereof, have the following meanings
unless a different meaning is plainly required by the content:
1.1 "Board" means the Board of Directors of the Savings Bank, as
constituted from time to time, and successors thereto.
1.2 "Change in Control" shall mean: (i) the sale of all, or a material
portion, of the assets of the Savings Bank or its Parent; (ii) the merger or
recapitalization of the Savings Bank or Parent whereby the Savings Bank or the
Parent is not the surviving entity; (iii) a change in control of the Savings
Bank or the Parent, as otherwise defined or determined by the Office of Thrift
Supervision ("OTS") 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, as
amended, and the rules and regulations promulgated thereunder) of twenty-five
percent (25%) or more of the outstanding voting securities of the Savings Bank
or Parent by any person, trust, entity or group. The term "person" refers to an
individual or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization or any other
form of entity not specifically listed herein. The decision of the Committee as
to whether a change in control has occurred shall be conclusive and binding.
<PAGE>
1.3 "Committee" means the Board or the administrative committee as
appointed by the Board pursuant to Section 6.11 herein.
1.4 "Director" means a member of the Board of Directors of the Savings
Bank as of the Effective Date.
1.5 "Effective Date" means February 8, 1999.
1.6 "Parent" shall mean WHG Bancshares Corporation, or any successor
corporation thereto.
1.7 "Participant" means a Director serving as a member of the Board on
or after the Effective Date. A Director's participation in the Plan shall
continue as long as he or she continues to serve as a Director subject to the
right of termination, amendment, and modification of the Plan set forth herein.
1.8 "Plan" means the Heritage Savings Bank, F.S.B. Directors Change in
Control Severance Plan as set forth herein, and as may be amended from time to
time by the Board.
1.9 "Savings Bank" means Heritage Savings Bank, F.S.B., or any
successor thereto.
1.10 "Service" means all years of service as a Director of the Savings
Bank and all predecessor (or successor) entities of the Savings Bank. Years of
service as a Director need not be continuous.
1.11 "Severance Benefit Amount" means the benefit payable under the
Plan in accordance Section 2.4 herein.
1.12 "Termination Event" means the termination of service as a Director
following the date of a Change in Control of the Savings Bank or Parent or
within eighteen months thereafter.
ARTICLE II
BENEFITS
2.1 Severance Benefits. Upon the occurrence of a Termination Event, the
Savings Bank shall pay monthly to the Participant the Severance Benefit Amount,
as described and in the amount set forth at Article II, Section 2.2. Payment of
such Severance Benefit Amount shall begin on the first business day of the month
following such Termination Event. The payments will continue to be paid monthly
until all scheduled payments are made to the Participant. Except as provided at
Article II, Section 2.2 upon a Participant's termination from service as a
Director of the Savings Bank prior to a Termination Event, the Savings Bank
shall have no financial obligations to the Participant under the Plan.
3
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2.2 Severance Benefit Amount. The Severance Benefit Amount shall be
calculated and payable as follows:
a. A Severance Benefit Amount shall be paid for a period of
months based upon service of the Participant prior to the Termination
Event as follows:
Years of Service Maximum Number of Monthly Payments
---------------- ----------------------------------
less than 1 year 0
1 or more 18
b. The Severance Benefit Amount shall be calculated as
one-twelfth of the aggregate annual Board retainer and regular monthly
Board fees in effect with respect to such Director at the Termination
Event which would normally be paid during the next twelve month period
to such Participant as a Director of the Bank.
c. Benefits payable in accordance with the Plan are exclusive
of any other benefits that may be payable to a participant under any other plan
of the Bank.
2.3 Death of Participant. Upon the death of a Participant who is
receiving benefit payments under the Plan prior to his or her death, the
remaining monthly payments will cease immediately and all obligations of the
Savings Bank under the Plan shall cease to exist with respect to such
Participant.
2.4 Alternative Forms Of Benefit Payment. The Committee may at any time
distribute the Severance Benefit Amount with respect to all future benefits
payable pursuant to Article II of the Plan, in a lump sum payment equal to the
present value of all future benefits payable to such Participant. The interest
rate in effect for a six month U.S. Treasury Bill on the date of the lump sum
payment shall be used for purposes of calculating the present value of amounts
payable in accordance with Section 2.4.
ARTICLE III
TRUST/NON-FUNDED STATUS OF PLAN
3.1 Trust/Non-Funded Status of Plan. Except as may be specifically
provided, nothing contained in this Plan and no action taken pursuant to the
provisions of this Plan shall create or be construed to create a trust of any
kind, or a fiduciary relationship between the Savings Bank and the Participant
or any other person. Any funds which may be invested under the provisions of
this Plan shall continue for all purposes to be a part of the general funds of
the Savings Bank. No person other than the Savings Bank shall by virtue of the
provisions of this Plan have any interest in such funds. The Savings Bank shall
not be under any obligation to use such funds solely to provide benefits
hereunder, and no representations have been made to any Participant that such
funds can or will be used only to provide benefits hereunder. To the extent that
any person
4
<PAGE>
acquires a right to receive payments from the Savings Bank under the Plan, such
rights shall be no greater than the right of any unsecured general creditor of
the Savings Bank.
ARTICLE IV
VESTING
4.1 Vesting. All benefits under this Plan are deemed non-vested and
forfeitable prior to a Termination Event. All benefits payable hereunder shall
be deemed 100% vested and non-forfeitable by the Participant upon his or her
meeting the requirements set forth at Article II upon a Termination Event. No
benefits shall be deemed payable hereunder for any period prior to the time that
such benefits shall be deemed 100% vested and non-forfeitable.
ARTICLE V
TERMINATION
5.1 Termination. All the rights of a Participant shall terminate
immediately upon the Participant ceasing to be in the active service of the
Savings Bank prior to a Termination Event. A leave of absence approved by the
Board shall not constitute a cessation of service within the meaning of this
Section 5.1.
ARTICLE VI
GENERAL PROVISIONS
6.1 Other Benefits. Nothing in this Plan shall diminish or impair a
Participant's eligibility, participation or benefit entitlement under any other
benefit, insurance or compensation plan or agreement of the Savings Bank now or
hereinafter in effect.
6.2 No Effect on Employment or Service. This Plan shall not be deemed
to give any Participant or other person in the employ or service of the Savings
Bank any right to be retained in the employment or service of the Savings Bank,
or to interfere with the right of the Savings Bank to terminate any Participant
or such other person at any time and to treat him or her without regard to the
effect which such treatment might have upon him or her as a Participant in this
Plan.
6.3 Legally Binding. The rights, privileges, benefits and obligations
under this Plan are intended to be legal obligations of the Savings Bank and
binding upon the Savings Bank, its successors and assigns.
6.4 Modification. The Savings Bank, by action of the Board of
Directors, reserves the exclusive right to amend, modify, or terminate this
Plan. Any such termination, modification or
5
<PAGE>
amendment shall not terminate or diminish any rights or benefits accrued by any
Participant prior thereto without regard to whether such rights or benefits
shall be deemed vested as of such date. The Savings Bank shall give thirty (30)
days notice in writing to any Participant prior to the effective date of any
amendment, modification or termination of this Plan.
6.5 Arbitration. Any controversy or claim arising out of or relating to
the Plan or the breach thereof shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
with such arbitration hearing to be held at the offices of the American
Arbitration Association ("AAA") nearest to the home office of the Savings Bank,
unless otherwise mutually agreed to by the Participant and the Savings Bank, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
6.6 Limitation. No rights of any Participant are assignable by any
Participant, in whole or in part, either by voluntary or involuntary act or by
operation of law. The rights of a Participant hereunder are not subject to
anticipation, alienation, sale, transfer, assignment, pledge, hypothecation,
encumbrance or garnishment by creditors of the Participant. Further, a
Participant's rights under the Plan are not subject to the debts, contracts,
liabilities, engagements, or torts of any Participant. No Participant shall have
any right under this Plan or right against any assets held or acquired pursuant
thereto other than the rights of a general, unsecured creditor of the Savings
Bank pursuant to the unsecured promise of the Savings Bank to pay the benefits
accrued hereunder in accordance with the terms of this Plan. The Savings Bank
has no obligation under this Plan to fund or otherwise secure its obligations to
render payments hereunder to a Participant. No Participant shall have any
discretion in the use, disposition, or investment of any asset acquired or set
aside by the Savings Bank to provide benefits under this Plan.
6.7 ERISA and IRC Disclaimer. It is intended that the Plan be neither
an "employee welfare benefit plan" nor an "employee pension benefit plan" for
purposes of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Further, it is intended that the Plan will not cause the interest of
a Participant under the Plan to be includable in the gross income of such
Participant prior to the actual receipt of a payment under the Plan for purposes
of the Internal Revenue Code of 1986, as amended ("IRC").
6.8 Regulatory Matters.
(a) The Participant shall have no right to receive compensation or
other benefits in accordance with the Plan for any period after termination of
service for Just Cause. Termination for "Just Cause" shall include termination
because of the Participant'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 Plan.
(b) Notwithstanding anything herein to the contrary, any payments made
to a Participant pursuant to the Plan shall be subject to and conditioned upon
compliance with 12 USC ss.1828(k) and any regulations promulgated thereunder.
6
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6.9 Incompetency. If the Savings Bank shall find that any person to
whom any payment is payable under the Plan is deemed unable to care for his or
her personal affairs because of illness or accident, any payment due (unless a
prior claim therefor shall have been made by a duly appointed guardian,
committee or other legal representative) may be paid to the spouse, a child, a
parent, or a brother or sister, or to any person deemed by the Savings Bank to
have incurred expense for such person otherwise entitled to payment, in such
manner and proportions as the Board may determine in its sole discretion. Any
such payments shall constitute a complete discharge of the liabilities of the
Savings Bank under the Plan.
6.10 Construction. The Committee shall have full power and authority to
interpret, construe and administer this Plan and the Committee's interpretations
and construction thereof, and actions thereunder, shall be binding and
conclusive on all persons for all purposes. Directors of the Savings Bank shall
not be liable to any person for any action taken or omitted in connection with
the interpretation and administration of this Plan unless attributable to his or
her own willful, gross misconduct or lack of good faith.
6.11 Plan Administration. The Board shall administer the Plan;
provided, however, that the Board may appoint an administrative committee (i.e.,
the Committee) to provide administrative services or perform duties required by
this Plan. The Committee shall have only the authority granted to it by the
Board.
6.12 Governing Law. This Plan shall be construed in accordance with and
governed by the laws of the State of Maryland ("State"), except to the extent
that federal law shall be deemed to apply.
6.13 Successors and Assigns. The Plan shall be binding upon any
successor or successors of the Savings Bank, and unless clearly inapplicable,
reference herein to the Savings Bank shall be deemed to include any successor or
successors of the Savings Bank.
6.14 Sole Agreement. The Plan expresses, embodies, and supersedes all
previous agreements, understandings, and commitments, whether written or oral,
between the Savings Bank and any Participants hereto with respect to the subject
matter hereof.
EXHIBIT 13
<PAGE>
WHG BANCSHARES CORPORATION
Corporate Profile
We are the holding company for Heritage Savings Bank, F.S.B. (the "Heritage
Savings"). Heritage Savings is a federally chartered stock savings bank which
conducts business through five full service offices located in Howard and
Baltimore counties and Baltimore City, Maryland.
Heritage Savings was founded in 1902 as West Baltimore Building Association. The
Bank is, and continues to be, a community -oriented institution whose business
consists of accepting deposits from customers and investing those funds,
together with borrowings, primarily in residential loans, including those
secured by single-family residential properties. Heritage Savings is subject to
examination and comprehensive regulation by the Office of Thrift Supervision and
its deposits are insured by the Savings Association Insurance Fund.
Stock Market Information
Our common stock is traded on the Nasdaq SmallCap Market under the trading
symbol of "WHGB", We began trading in April 1996, upon completion of the
conversion of Heritage Savings. The following table reflects high and low bid
quotations. The quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission, and may not represent actual transactions.
Dividends
Date High Low Declared
---- ---- --- --------
October 1, 1997 to December 31, 1997 18.88 15.00 .08
January 1, 1998 to March 31, 1998 19.00 17.75 .08
April 1, 1998 to June 30, 1998 19.75 15.75 .08
July 1, 1998 to September 30, 1998 16.75 11.00 .08
October 1, 1998 to December 31, 1998 12.06 10.13 .09
January 1, 1999 to March 31, 1999 12.25 10.75 .09
April 1, 1999 to June 30, 1999 11.25 8.44 .09
July 1, 1999 to September 30, 1999 9.25 8.63 .09
The number of shareholders of record of common stock as of the record date of
December 3, 1998, was approximately 241. This does not reflect the number of
persons or entities who held stock in nominee or "street" name through various
brokerage firms. At December 3, 1999, there were 1,285,609 shares outstanding.
Our ability to pay dividends to stockholders is dependent upon the dividends we
receive from Heritage Savings. Heritage Savings may not declare or pay a cash
dividend on any of its stock if the effect of the declaration or payment of
dividends would cause their regulatory capital to be reduced below (1) the
amount required for the liquidation account established in connection with the
conversion, or (2) the regulatory capital requirements imposed by the Office of
Thrift Supervision.
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Selected Financial Ratios and Other Data
For the Years Ended
September 30,
--------------------
1999 1998
---- ----
Return on average assets ..................... .50% .57%
Return on average equity ..................... 4.66 3.46
Average equity to average assets ratios ...... 10.69 16.53
Equity to assets at period end ............... 9.63 12.22
Dividend payout ratio ........................ 60.00 58.18
Net interest rate spread ..................... 2.24 2.58
Net yield on average interest-
earnings assets ............................ 2.66 3.27
Non-performing loans to total assets ......... .13 .29
Allowance for loan loss to total loans ....... .38 .40
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words "believes", "anticipates", "contemplates", "expects", and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risks associated with the ability to control costs
and expenses, year 2000 issues and general economic conditions. We undertake no
obligation to publicly release the results of any revisions to those forward
looking statements which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
Since we conduct no significant business other than owning all of the common
stock of Heritage Savings Bank, F.S.B. ("Heritage Savings"), references in this
discussion to "we," "us," and "our," refer collectively to WHG Bancshares
Corporation and Heritage Savings.
Overview
We are the holding company for Heritage Savings. We principally operate through
five branch offices located throughout Baltimore and Howard counties and
Baltimore City, Maryland. During the 1999 fiscal year, we acquired the assets of
our minority owned service corporation, Banker's Affiliate, Inc.and closed the
operations of our subsidiary, Mapleleaf Mortgage Corporation.
Management of Interest Rate Risk and Market Risk
Because the majority of our assets and liabilities are sensitive to changes in
interest rates, our most significant form of market risk is interest rate risk,
or changes in interest rates. We are vulnerable to an increase in interest rates
to the extent that our interest-bearing liabilities mature or reprice more
rapidly than our interest-earning assets. Our lending activities have
historically emphasized the origination of long-term, adjustable rate and fixed
rate loans secured by single-family residences. The primary source of funds has
been deposits with substantially shorter maturities. While having
interest-bearing liabilities that reprice more frequently than interest-earning
assets is generally beneficial to net interest income during a period of
declining interest rates, this type of an asset/liability mismatch is generally
detrimental during periods of rising interest rates.
We have established an asset/liability committee which consists of our
department supervisors, our President and the Chairman of our Board of
Directors. The committee meets on a weekly basis to review loan and deposit
pricing and production volumes, interest rate risk analysis, liquidity and
borrowing needs, and a variety of other asset and liability management topics.
On behalf of the committee, the Chairman reports to our Board of Directors.
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<PAGE>
To reduce the effect of interest rate changes on net interest income,we have
adopted various strategies to enable us to improve the matching of
interest-earning asset maturities to interest-bearing liability maturities. The
principal elements of these strategies include seeking to:
- - originate one-to four family residential mortgage loans with adjustable
rate features or fixed rate loans with short maturities;
- - lengthen the maturities of our liabilities when it would be cost effective
through the pricing and promotion of higher rate certificates of deposit
and utilization of FHLB advances;
- - attract low cost checking and transaction accounts which tend to be less
interest rate sensitive when interest rates rise;
- - maintain interest- bearing deposits, federal funds and U.S. government
securities with short to intermediate terms to maturities; and
- - maintain an investment portfolio that provides a stable cash flow, thereby
providing investable funds in varying interest rate cycles.
We have made a significant effort to maintain our level of lower cost deposits
as a method of enhancing profitability. In the past year, our level of demand
deposits has increased significantly. At September 30, 1999, we had
approximately $27.3 million, or 24%, of our deposits in low-cost savings,
checking and money market accounts. These deposits have traditionally remained
relatively stable and are expected to be only moderately affected in a period of
rising interest rates. This stability has enabled us to offset the impact of
rising rates in other deposit accounts.
Net Portfolio Value
Exposure to interest rate risk is actively monitored by our management. Our
objective is to maintain a consistent level of profitability within acceptable
risk tolerances across a broad range of potential interest rate environments. We
use the OTS Net Portfolio Value ("NPV") Model to monitor our exposure to
interest rate risk, which calculates changes in net portfolio value. Reports
generated from assumptions provided and modified by management are reviewed by
the Asset/Liability Management Committee and reported to the Board of Directors
quarterly. The Interest Rate Sensitivity of Net Portfolio Value Report shows the
degree to which balance sheet line items and net portfolio value are potentially
affected by a 100 to 300 basis point (1/100th of a percentage point) upward and
downward parallel shift (shock) in the Treasury yield curve.
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<PAGE>
The following table represents our NPV at September 30, 1999. The NPV was
calculated by the OTS, based upon information we provided to the OTS.
Changes NPV
in Rate Ratio(1) Change(2)
------- -------- ---------
+300 bp 3.10% -918 bp
+200 bp 6.22% -606 bp
+100 bp 9.32% -297 bp
0 bp 12.28% 0 bp
-100 bp 14.92% +264 bp
-200 bp 17.24% +495 bp
-300 bp 19.52% +724 bp
(1) Calculated as the estimated NPV divided by present value of assets.
(2) Calculated as the excess (deficiency) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming no
change in interest rates.
These calculations indicate that our NPV could be adversely affected by
increases in interest rates but could be favorably affected by decreases in
interest rates. In addition, we may be deemed to have more than a normal level
of interest rate risk under applicable regulatory capital requirements.
Computations of prospective effects of hypothetical interest rate changes
are based on numerous assumptions, including relative levels of market interest
rates, prepayments and deposit run-offs and should not be relied upon as
indicative of actual results. Certain shortcomings are inherent in such
computations. Although certain assets and liabilities may have similar maturity
or periods of repricing they may react at different times and in different
degrees to changes in the market interest rates. The interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while rates on other types of assets and liabilities may lag
behind changes in market interest rates. Certain assets, such as adjustable rate
mortgages, generally have features which restrict changes in interest rates on a
short term basis and over the life of the asset. In the event of a change in
interest rates, prepayments and early withdrawal levels could deviate
significantly from those assumed in making calculations set forth above.
Additionally, an increased credit risk may result as the ability of many
borrowers to service their debt may decrease in the event of an interest rate
increase.
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Analysis of Net Interest Income
Our results of operations are primarily dependent on our net interest
income, which is the difference between the interest income earned on our
assets, primarily loans and investments, and the interest expense on our
liabilities, primarily deposits and borrowings. Net interest income may be
affected significantly by general economic and competitive conditions and
policies of regulatory agencies, particularly those with respect to market
interest rates. The results of our operations are also influenced by the level
of non-interest expenses, such as employee salaries and benefits and other
income, such as loan-related fees and fees on deposit-related services.
Average Balance Sheet
The following table sets forth information relating to our consolidated
average balance sheet and reflects the average yield on assets and average costs
of liabilities at and for the periods indicated. Such yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods presented. Average balances are
derived from month-end balances. Management does not believe that the use of
month-end balances instead of daily average balances has caused any material
differences in the information presented.
7
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------------
1999 1998
---------------------------- -----------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- -------
Interest-earnings assets:
<S> <C> <C> <C> <C> <C> <C>
Loans receivable(1)................................ $ 83,094 $ 6,272 7.55% $ 77,911 $ 6,012 7.72%
Investment securities(2)........................... 34,956 2,369 6.78% 22,247 1,440 6.47%
Mortgage-backed securities......................... 16,693 1,036 6.21% 5,091 342 6.72%
Other interest-earning assets(3)................... 8,620 495 5.74% 10,726 645 6.01%
------- ------ ------- ------
Total interest-earning assets.................. $143,363 $10,172 7.10% $115,975 $ 8,439 7.28%
====== ======
Non-interest-earning assets.......................... 3,560 3,086
------- -------
Total assets................................... $146,923 $119,061
======= =======
Interest-bearing liabilities:
Demand deposits.................................... $ 27,121 $ 732 2.70% $ 26,764 $ 738 2.76%
Time deposits...................................... 80,886 4,428 5.47% 58,046 3,201 5.52%
Other liabilities(4)............................... 22,687 1,193 5.26% 14,234 713 5.01%
------- ------ ------- ------
Total interest-bearing assets.................. 130,694 $ 6,353 4.86% 99,044 $ 4,652 4.70%
====== ======
Non-interest bearing liabilities..................... 528 333
------- -------
Total liabilities.............................. 131,222 99,377
Stockholders' equity................................. 15,701 19,684
------- -------
Total liabilities and stockholders' equity..... $146,923 $119,061
======= =======
Net interest income.................................. $ 3,819 $ 3,787
======= =======
Interest rate spread(5).............................. 2.24% 2.58%
== ==== ====
Net yield on interest-earning assets(6).............. 2.66% 3.27%
== ==== ====
Ratio of average interest-earning assets to average
interest-bearing liabilities..................... 109.69% 117.09%
====== ======
</TABLE>
(1) Average balances include non-accrual loans.
(2) Includes available for sale securities, other investments held to maturity,
ground rents and FHLB stock.
(3) Includes Federal Funds, interest-bearing deposits in other financial
institutions and interest-earning loans to affiliated corporations.
(4) Includes FHLB advances and interest-earning advance payments by borrowers
for taxes and insurance.
(5) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(6) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
8
<PAGE>
Rate/Volume Analysis
The following table analyzes the dollar amount of changes in interest
income and interest expense for major components of our interest-earning assets
and interest-bearing liabilities. The table distinguishes between (i) changes in
net income attributable to volume (changes in volume multiplied by the prior
period's interest rate), (ii) changes in net interest income attributable to
rate (changes in interest rates multiplied by the prior period's volume), and
(iii) changes in volume multiplied by changes in rates.
Year Ended September 30,
-------------------------------------
1999 vs. 1998
-------------------------------------
Increase (Decrease)
Due to
-------------------------------------
Rate/
Volume Rate Volume Net
------ ---- ------ ---
(Dollars in Thousands)
Interest income:
Loans receivable........................ $ 400 $ (131) $ (9) $ 260
Investment securities................... 822 68 39 929
Mortgage-backed securities.............. 779 (26) (59) 694
Other interest-earning assets........... (127) (29) 6 (150)
------- ------- ------- -------
Total interest-earning assets....... 1,874 (118) (23) 1,733
Interest expense:
Deposits................................ 1,072 117 32 1,221
Other liabilities(1).................... 423 36 21 480
------- ------- ------- -------
Total interest-bearing liabilities.. 1,495 153 53 1,701
------- ------- ------- -------
Net change in net interest income......... $ 379 $ (271) $ (76) $ 32
======= ======= ======= =======
(1) Includes interest on advances from the FHLB of Atlanta and advance payments
by borrowers for taxes and insurance.
Financial Condition
At September 30, 1999, our assets increased $22.0 million, or 16.6%, to
$154.9 million from $132.9 million at September 30, 1998. This increase was
primarily due to increases in investments securities available for sale of $4.5
million, mortgage backed securities of $10.7 million, loans receivable of $14.5
million. These increases were partially off-set by decreases in interest-bearing
deposits in other banks of $6.1 million and
9
<PAGE>
investment in and loans to affiliated corporation of $2.6 million. This
affiliated loan was redeemed when we purchased the assets of Banker's Affiliate,
Inc.
New loan originations and loan purchases outpaced loan repayments by $7.2
million. In addition, we purchased the assets (predominantly consumer loans
totaling $7.3 million) of Banker's Affiliate, Inc. for $4.8 million. Loan
repayments decreased during the 1999 fiscal year, due to rising mortgage
interest rates which reduced refinance-related loan repayments experienced in
prior years.
At September 30, 1999, our deposits increased by $20.2 million, or 21.2% to
$115.3 million from $95.1 million at September 30, 1998. The increase was a
result of a $19.2 million increase in certificates of deposit, due to the
continued promotion of our certificates of deposit products. Our increase in
deposits was also augmented by a $1.0 million increase in passbook accounts.
Borrowings increased by $3.1 million in order to fund the acquisition of assets
of Bankers Affiliate, Inc.
Our net worth decreased by $1.3 million to $14.9 million at September 30,
1999 from $16.2 million at September 30, 1998. The decrease reflects the
repurchase of 103,393 shares of our stock totaling $1.0 million and a $900,000
increase in accumulated other comprehensive loss. The increase in accumulated
loss resulted from the fluctuation in market value of our investment in
available for sale securities. Because of interest rate volatility, accumulated
other comprehensive loss and stockholders' equity could materially fluctuate for
each interim period and year-end period. The decrease in market value of the
investment securities available for sale is considered temporary in nature and
will not affect our net income until the securities are sold. We plan to hold
these securities until maturity or until the market values of these securities
increase. Accordingly, we do not expect, though there is no assurance, that our
investment in these securities will affect net income in future periods.
Results of Operations
Net Income
For September 30, 1999, net interest income increased $51,000, to $732,000
from $681,000 for the 1998 fiscal year. The increase was the result of decreases
in the provision for loan losses of $125,000 and non-interest expense of
$77,000. This was off-set by a decrease in non-interest income of $153,000 and
an increase in the provision for income taxes of $29,000.
Net Interest Income
Net interest income remained steady at $3.8 million for the 1999 fiscal
year and 1998 fiscal year. The interest rate spread, which is the difference
between the yield on average interest-earning assets and the percentage cost of
average interest-bearing
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<PAGE>
liabilities, decreased in fiscal 1999 to 2.24% from 2.58% for fiscal 1998. The
decrease in interest rate spread is primarily the result of a decline in the
average yield on loans and mortgage-backed securities combined with an increase
in the average cost of borrowings.
Interest Income
Total interest income increased $1.8 million, or 21.4%, to $10.2 million in
fiscal 1999 from $8.4 million in fiscal 1998. Interest income on loans increased
by approximately $300,000 to $6.3 million for fiscal 1999 from $6.0 million for
fiscal 1998. The increase was due to an increase in the average dollar amount of
loans outstanding in fiscal 1999 over fiscal 1998 of approximately $5.2 million.
This was off-set partially by a decrease in the average yield on loans of 17
basis points to 7.55% for fiscal 1999 compared to 7.72% for fiscal 1998.
Interest and dividend income on investment securities increased by $928,000
to $2,369,000 in fiscal 1999 from $1,441,000 in fiscal 1998. The increase was
the result of an increase in the average dollar amount of investment securities
outstanding of $12.7 million coupled with an increase in the average yield of 31
basis points to 6.78% for fiscal 1999 from 6.47% for fiscal 1998.
Interest income on mortgage backed securities increased by $694,000 to
$1,036,000 for fiscal 1999 from $342,000 for fiscal 1998. The increase resulted
from an increase of $11.6 million, or 227.5%, in the average dollar amount
invested, partially off-set by a decrease of 51 basis points in the average
yield to 6.21% in fiscal 1999 from 6.72% in fiscal 1998.
Interest Expense
Total interest expense increased $1.7 million or 36.2%, to $6.4 million in
fiscal 1999 from $4.7 million in fiscal 1998. Interest on deposits increased by
$1,220,000 to $5,160,000 in fiscal 1999 from $3,940,000 in fiscal 1998. The
increase was primarily due to an increase of $22.8 million in the average dollar
amount outstanding of time deposits combined with an increase in the average
cost of total deposits. Lower costing demand deposits comprised 23.7% of the
total deposit balance as of September 30, 1999, as compared to 27.7% of the
total deposit balance as of September 30, 1998. As a result, the average cost of
total deposits increased to 4.78% in fiscal 1999 from 4.64% in fiscal 1998.
Interest on short-term borrowings decreased $152,000 or 29.0%, to $373,000
in fiscal 1999 from $525,000 in fiscal 1998. During fiscal 1999, in order to
take advantage of the lower interest rate environment, we utilized long-term
borrowings to support our asset growth and manage our interest rate risk
strategies. This increased the average amount of total borrowings by $10,583,000
and rates paid by 41 basis points. As a result, interest on long-term borrowings
increased $633,000 to $820,000 in fiscal 1999 from $187,000 in fiscal 1998.
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<PAGE>
Provision for Loan Losses
The provision for loan losses for fiscal 1999 decreased $125,000 to $70,000
from $195,000 for fiscal 1998. During fiscal 1998, two borrowers experienced
financial difficulties that required the properties to be sold at foreclosure
sales. This resulted in our experiencing net charge-offs of $144,000 as compared
to $26,500 during fiscal 1999. We continually evaluate the adequacy of the
allowance for loan losses,which encompasses the overall risk characteristics of
the various portfolio segments, past experience with losses, the impact of
economic conditions on borrowers and other relevant 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, if any,
that we might incur in the future.
Non-Interest Income and Non-Interest Expenses
Non-interest income decreased $153,000 or 36.9% to $262,000 for fiscal 1999
from $415,000 for fiscal 1998. Non-interest expenses decreased $78,000 to
$2,789,000 for fiscal 1999 from $2,867,000 for fiscal 1998. The decrease in
non-interest income and non-interest expense result was primarily due to the
closing of operations of our subsidiary, Mapleleaf Mortgage Corporation.
Provision for Income Taxes
Provision for income taxes increased by approximately $29,000 or 6.3% to
$489,000 for fiscal 1999 from $460,000 for fiscal 1998. The increase was
primarily the result of an increase in pretax income. The effective tax rate
fell slightly to 40.0% for fiscal 1999 from 40.3% for fiscal 1998.
Year 2000
During fiscal 1998, in order to prepare us for the new millennium , we
adopted a Year 2000 Compliance Plan (the "Plan") and established a Year 2000
Compliance Committee (the "Committee"). As recommended by the Federal Financial
Institutions Examination Council, the Plan included the following phases:
Awareness, Assessment, Renovation, Validation and Implementation. These phases
enabled us to identify risks, develop an action plan, perform adequate testing
and complete certification that our processing systems will be Year 2000 ready
("Y2k"). We have completed all phases of our Plan. After a thorough review and
assessment of our computer operations, all of our computers were replaced with
Y2K compliant equipment and necessary software upgrades were made. All such
equipment and software packages have been tested and found to be Y2K compliant.
We also coordinated with our vendors and service providers to assure their
readiness for Y2K. All testing in this area has been completed.
12
<PAGE>
We currently estimate that our total cost (including capital expenditures)
for the Y2K issue will be $215,000, employee time not included. Through
September 30, 1999, we have incurred charges of $192,000 related to Y2K issues.
Charges include costs necessary to modify our computer information systems, both
internal and vendor maintained, to enable proper processing of transactions
relative to the year 2000 and beyond. Additionally, we also purchased
equipment,and incurred costs in connection with training of employees and
customer communications necessary to adequately our Y2K requirements and
readiness.
Our contingency plan has been developed, approved, and tested to assure
uninterrupted service to our customers. This plan addresses perceived risks
associated with the year 2000 problem. These activities include remediation
contingency planning intended to mitigate any risks associated with unforeseen
system glitches, system failure, increased demands for cash, or processes
outside of our control. The remainder of 1999 will be used to further validate
the plan.
While this plan was designed to significantly address our Y2K issues, the
occurrence of the following could negatively impact us :
(a) utility service companies may be unable to provide the necessary
service to drive the our data systems or provide sufficient sanitary
conditions for our offices;
(b) our primary software provider could have a major malfunction in its
system or their service could be disrupted due to its utility
providers, or some combination of the two; or
(c) we may have to transact its business manually.
We will attempt to monitor these uncertainties by continuing to request an
update on all critical and important vendors through the remainder of 1999. If
we identify any concern related to any critical or important vendor, the
contingency plan will be implemented immediately to assure continued service to
our customers.
We continue to focus on the awareness phase with its efforts on providing
customers, our shareholders and employees with up-to-date information on our
state of preparedness for the year 2000. For the remainder of 1999, we will
focus on employee training to insure continued, uninterrupted customer service
in the new year.
Despite our best efforts to address this issue, the vast number of external
entities that have direct and indirect business relationships with us, such as
customers, vendors, payment systems providers, utility companies, and other
financial institutions, makes it impossible to assure that a failure to achieve
compliance by one or more of these entities would not have a material impact on
our financial statements .
13
<PAGE>
Liquidity and Capital Resources
Management believes it has ample cash flows and liquidity to meet its loan
commitments of $1.6 million and unused lines of credit of $2.8 million at
September 30, 1999. We have the ability to reduce its commitments for new loan
originations, adjust other cash outflows, and borrow from the FHLB of Atlanta,
or others, should the need arise. As of September 30, 1999, such borrowed funds
totaled $24.0 million.
We are required under federal regulations to monitor certain levels of
liquid assets, which include certain United States government obligations and
other approved investments. Current regulatory regulations require that our
subsidiary, Heritage Savings maintain liquid assets of not less than 4%. As of
September 30, 1999, Heritage Savings regulatory liquidity was 5.53%. Heritage
Savings is also subject to federal regulations that impose certain minimum
capital requirements. See Note 13 to our consolidated financial statements.
Net cash provided by operating activities was $1,160,000 and $563,000 for
fiscal 1999 and 1998. Cash flows from operations in fiscal 1999 increased from
fiscal 1998 primarily due to a substantially smaller increase in accrued
interest receivable and decreases in prepaid and refundable income taxes and
other assets as compared to increases in fiscal 1998. This was off-set in part
by an decrease in the provision for loan losses.
Net cash used by investment activities for fiscal 1999 totaled $30.2
million, an increase of $2.9 million from $27.3 million for fiscal 1998. The
increase in cash used was due to the $4.8 million purchase of the assets of
Bankers Affiliate, Inc. and stronger loan origination activity that exceeded
principal repayments as compared to the reverse trend in fiscal 1998. The
increase was partially offset by smaller net purchases of investment and
mortgage-backed securities.
Net cash provided by financing activities for fiscal 1999 totaled $21.8
million compared to $33.2 million in fiscal 1998. During fiscal 1999, the
increase resulted from an increase in deposits of $20.2 million and an increase
in borrowings of $3.1 million. This was partially offset by stock repurchases
totaling $1.0 million and dividends paid of $452,000. The fiscal 1998 increase
was due to an increase in net deposits of $20.9 million and an increase in
borrowings of $16.9 million, offset in part by a $4.2 million return of capital
and dividends paid of $410,000.
We monitor projected liquidity needs and determine the levels desired based
upon our commitments to make loans and our ability to generate funds. Liquidity
may be adversely affected by unexpected deposit outflows, excessive interest
rates paid by competitors, adverse publicity relating to the savings and loan
industry and similar matters. Additionally, Y2K issues could affect our
liquidity if customer withdrawals in anticipation of the year 2000 are greater
than expected or if lenders are unable to provide us with funds when needed .
14
<PAGE>
ANDERSON ASSOCIATES, LLP
CERTIFIED PUBLIC ACCOUNTANTS
7621 FITCH LANE
BALTIMORE, MARYLAND 21236
410-882-8050
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
WHG Bancshares Corporation
Lutherville, Maryland
We have audited the consolidated statements of financial condition of
WHG Bancshares Corporation and Subsidiaries as of September 30, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the two years in the two year period ended September 30,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 financial position of WHG
Bancshares Corporation and Subsidiaries at September 30, 1999 and 1998, and the
consolidated results of its operations and cash flows for each of the two years
in the two year period ended September 30, 1999, in conformity with generally
accepted accounting principles.
/s/ Anderson Associates, LLP
----------------------------
December 2, 1999
Baltimore, Maryland
15
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
-------------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
September 30,
--------------------------------
1999 1998
--------------- --------------
<S> <C> <C>
Assets
------
Cash $ 1,312,324 $ 1,179,349
Interest bearing deposits in other banks 3,689,305 9,849,431
Federal funds sold 2,290,000 3,394,000
Investments available for sale (Note 2) 19,700,713 15,191,491
Other investments held to maturity (Note 3) 15,650,000 14,600,000
Mortgage backed securities (Note 4) 17,983,370 7,275,803
Loans receivable - net (Note 5) 89,931,326 75,357,978
Foreclosed real estate 13,103 -
Accrued interest receivable - loans 389,587 365,022
- investments 647,790 581,865
- mortgage backed securities 96,914 40,979
Premises and equipment - net (Note 8) 838,527 876,926
Federal Home Loan Bank of Atlanta stock, at cost (Note 6) 1,200,000 1,000,000
Investment in and loans to affiliated corporation (Note 7) - 2,575,000
Deferred income taxes (Note 14) 852,384 170,695
Prepaid and refundable income taxes 68,590 131,353
Other assets 258,632 286,580
------------ ------------
Total assets $154,922,565 $132,876,472
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
Deposits (Note 9) $115,302,487 $ 95,065,922
Checks outstanding in excess of bank balance - 11,077
Borrowings (Note 10) 24,000,000 20,937,168
Advance payments by borrowers for taxes and insurance 315,463 314,125
Income taxes payable (Note 14) 49,289 16,780
Other liabilities 338,661 288,684
------------ ------------
Total liabilities 140,005,900 116,633,756
Commitments and contingencies (Notes 5, 8, 10 and 11)
Stockholders' Equity (Notes 12 and 13)
- --------------------
Common stock .10 par value; authorized 1,620,062
shares; issued and outstanding 1,285,609 shares in
1999 and 1,389,002 shares in 1998 128,561 138,900
Additional paid-in capital 6,561,355 7,392,663
Retained earnings (substantially restricted) 9,932,078 9,651,860
Accumulated other comprehensive income (973,504) (25,140)
Employee Stock Ownership Plan (731,825) (915,567)
------------ ------------
Total stockholders' equity 14,916,665 16,242,716
------------ ------------
Total liabilities and stockholders' equity $154,922,565 $132,876,472
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
16
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
-------------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
Years Ended September 30,
-------------------------
1999 1998
---- ----
Interest and fees on loans (Note 5) $ 6,271,546 $ 6,011,855
Interest and dividends on investment securities 2,369,493 1,440,571
Interest on mortgage backed securities 1,036,267 342,341
Other interest income 495,105 644,730
----------- -----------
Total interest income 10,172,411 8,439,497
Interest on deposits (Note 9) 5,159,849 3,939,755
Interest on short-term borrowings 373,213 525,449
Interest on long-term borrowings 820,123 187,171
----------- -----------
Total interest expense 6,353,185 4,652,375
----------- -----------
Net interest income 3,819,226 3,787,122
Provision for loan losses (Note 5) 70,000 195,000
----------- -----------
Net interest income after provision for loan losses 3,749,226 3,592,122
Non-Interest Income
Gain on sale of investments 4,372 7,325
Other commissions and fees 126,712 282,704
Fees and charges on loans 36,319 27,591
Fees on transaction accounts 54,977 63,003
Other income 39,711 34,764
----------- -----------
Total non-interest income 262,091 415,387
Non-Interest Expenses
Salaries and related expenses 1,782,354 1,816,659
Occupancy 136,662 140,648
SAIF deposit insurance premium 58,473 48,159
Depreciation of equipment 86,908 62,915
Advertising 72,827 107,476
Data processing costs 104,454 88,248
Professional services 177,625 216,559
Loss on sale of repossessed assets 2,612 --
Other expenses 367,821 386,374
----------- -----------
Total non-interest expenses 2,789,736 2,867,038
----------- -----------
Income before tax provision 1,221,581 1,140,471
Provision for income taxes (Note 14) 489,462 459,892
----------- -----------
Net income $ 732,119 $ 680,579
=========== ===========
Basic earnings per share $ .60 $ .55
=========== ===========
Diluted earnings per share $ .60 $ .51
=========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
17
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
-------------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR YEARS ENDED SEPTEMBER 30, 1999 AND 1998
-------------------------------------------
<TABLE>
<CAPTION>
Employee
Additional Accumulated Stock Total
Common Paid-In Retained Comprehensive Ownership Stockholders'
Stock Capital Earnings Income Plan Equity
----- ------- -------- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Balance - September 30, 1997 $ 139,241 $ 11,390,312 $ 9,381,773 $ -- $ (1,082,193) $ 19,829,133
Comprehensive Income
Net income -- -- 680,579 -- --
Unrealized holding losses on available for
sale securities net of taxes of $15,818 -- -- -- (25,140) --
Total comprehensive income 655,439
Purchase of 3,413 shares of common stock (341) (53,413) -- -- -- (53,754)
Compensation under Stock Bonus Plan -- 158,477 -- -- -- 158,477
Compensation under Stock-Based Benefit Plan -- 64,293 -- -- 166,626 230,919
Dividends paid ($.32 per share) -- -- (410,492) -- -- (410,492)
Special distribution ($3.00 per share) -- (4,167,006) -- -- -- (4,167,006)
--------- ------------ ------------ ------------ ------------ ------------
Balance - September 30, 1998 138,900 7,392,663 9,651,860 (25,140) (915,567) 16,242,716
Comprehensive Income
Net Income -- -- 732,119 -- --
Unrealized holding losses on available for
sale securities net of taxes of $596,706 -- -- -- (948,364) -- --
Total comprehensive income (216,245)
Purchase of 103,393 shares of common stock (10,339) (1,006,667) -- -- -- (1,017,006)
Compensation under Stock Bonus Plan -- 140,036 -- -- -- 140,036
Compensation under Stock-Based Benefit Plan -- 35,323 -- -- 183,742 219,065
Dividends paid ($.36 per share) -- -- (451,901) -- -- (451,901)
--------- ------------ ------------ ------------ ------------ ------------
Balance - September 30, 1999 $ 128,561 $ 6,561,355 $ 9,932,078 $ (973,504) $ (731,825) $ 14,916,665
========= ============ ============ ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
18
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
-------------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------
1999 1998
---- ----
Operating Activities
- --------------------
<S> <C> <C>
Net income before other comprehensive income $ 732,119 $ 680,579
Gain on sale of investment available for sale (4,372) (7,325)
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
-------------------------------------
Net accretion/amortization of premiums and discounts
of mortgage backed securities 5,629 371
Amortization of deferred loan fees (159,153) (183,240)
Loan fees deferred 158,084 165,963
Decrease in discount on loans purchased (60,164) (21,177)
Provision for loan losses 70,000 195,000
Non-cash compensation under stock-based
benefit plans 359,101 389,396
Increase in accrued interest receivable (146,425) (528,077)
Provision for depreciation 115,158 82,404
Increase in deferred income taxes (84,983) (38,483)
Decrease (increase) in prepaid and refundable income taxes 62,763 (131,353)
Decrease (increase) in other assets 32,812 (136,063)
Decrease in accrued interest payable (5) (77)
Increase (decrease) in income taxes payable 32,509 (47,504)
Increase in other liabilities 47,141 142,165
------------ ------------
Net cash provided by operating activities 1,160,214 562,579
Cash Flows from Investment Activities
- -------------------------------------
Proceeds from maturing interest-bearing deposits -- 437,679
Purchases of interest-bearing deposits (95,000) --
Proceeds from sales and maturities of investments
available for sale 3,437,496 11,434,712
Purchase of investments available for sale (9,487,272) (26,659,836)
Proceeds from maturing other investments - held
to maturity 7,250,000 11,600,000
Purchase of other investments - held to maturity (8,300,000) (22,450,000)
Purchase of mortgage backed securities (12,474,599) (4,936,300)
Principal collected on mortgage backed securities 1,761,259 505,336
Net decrease (increase) in shorter term loans (129,098) 40,194
Loans purchased (1,920,000) (224,480)
Longer term loans originated or acquired (24,558,609) (13,530,622)
Principal collected on longer term loans 19,345,632 16,650,754
Purchase of Bankers Affiliate, Inc.'s net assets (4,811,311) --
Investment in premises and equipment (75,619) (237,398)
Purchase of stock in Federal Home Loan Bank of Atlanta (200,000) (246,800)
Decrease in investment in and loans to joint ventures 50,000 350,000
------------ ------------
Net cash used by investment activities (30,207,121) (27,266,761)
</TABLE>
19
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
-------------------------------------------
Lutherville, Maryland
---------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Cash Flows from Financing Activities
- ------------------------------------
Net increase (decrease) in demand deposits, money
market, passbook accounts and advances by
borrowers for taxes and insurance $ 1,028,806 $ (540,191)
Net increase in certificates of deposit 19,209,102 21,403,532
(Decrease) increase in checks outstanding in excess
of bank balance (11,077) 11,077
Increase in borrowings 3,062,832 16,937,168
Special distribution -- (4,167,006)
Stock repurchase (1,017,006) (53,754)
Dividends (451,901) (410,492)
------------ ------------
Net cash provided by financing activities 21,820,756 33,180,334
------------ ------------
(Decrease) increase in cash and cash equivalents (7,226,151) 6,476,152
Cash and cash equivalents at beginning of year 14,422,780 7,946,628
------------ ------------
Cash and cash equivalents at end of year $ 7,196,629 $ 14,422,780
============ ============
The following is a Summary of Cash and Cash Equivalents:
- --------------------------------------------------------
Cash $ 1,312,324 $ 1,179,349
Interest bearing deposits in other banks 3,689,305 9,849,431
Federal funds sold 2,290,000 3,394,000
------------ ------------
Balance of cash items reflected on
Statement of Financial condition 7,291,629 14,422,780
Less - certificates of deposit with original
maturities of more than three months
that are included in interest bearing
deposits in other banks (95,000) --
------------ ------------
Cash and cash equivalents reflected on the
Statement of Cash Flows $ 7,196,629 $ 14,422,780
============ ============
Supplemental Disclosure of Cash Flow Information:
- -------------------------------------------------
Cash paid during the year for:
Interest $ 6,325,998 $ 3,388,967
============ ============
Taxes $ 654,300 $ 420,714
============ ============
Purchase of Bankers Affiliate, Inc.'s net assets funded
by retirement of note payable and capital stock $ 2,525,000 $ --
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
20
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
-------------------------------------------
Lutherville, Maryland
---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
SEPTEMBER 30, 1999
------------------
Note 1 - Summary of Significant Accounting Policies
------------------------------------------
A. Principles of Consolidation - The consolidated financial
statements include the accounts of WHG Bancshares Corporation
("the Company") and its wholly-owned subsidiary, Heritage Savings
Bank, FSB ("the Bank") and for the year ended September 30, 1998
the Bank's subsidiary, Mapleleaf Mortgage Corporation ("MMC").
All intercompany accounts and transactions have been eliminated
in the accompanying consolidated financial statements. During the
year ended September 30, 1999 the Bank's subsidiary discontinued
its operations. MMC's operations were not material to the Company
and no separate disclosure has been made.
B. Business - The Bank's primary business activity is the acceptance
of deposits from the general public and using the proceeds for
investments and loan originations. The Bank is subject to
competition from other financial institutions. The Bank is
subject to the regulations of certain federal agencies and
undergoes periodic examinations by those regulatory authorities.
C. Basis of Financial Statement Presentation - The consolidated
financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and
liabilities as of the date of the statement of financial
condition and revenues and expenses for the period. Actual
results could differ significantly from those estimates. Material
estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for
loan losses and the valuation of foreclosed real estate. See Note
H & I below for a discussion of the determination of that
estimate.
D. Federal Funds - Federal funds sold are carried at cost which
approximates market.
E. Investments - Investments classified as available for sale are
carried at fair value. Investments classified as held to maturity
are carried at amortized cost since management has the ability
and intent to hold them to maturity. Amortization of premiums and
accretion of discounts on all investment purchases are computed
using the straight-line method over the life of debt instrument.
Gains and losses on available for sale securities are determined
using the specific identification method.
21
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 1 - Summary of Significant Accounting Policies - Continued
------------------------------------------
F. Mortgage Backed Securities - Mortgage backed securities are
carried at amortized cost since management has the ability and
intention to hold them to maturity. Amortization of premiums and
accretion of discounts on purchases is computed using the
interest method.
G. Loans Receivable - Net - Loans receivable are stated at unpaid
principal balances, less undisbursed portion of loans in process,
unamortized discounts on loans purchased, deferred loan
origination fees and the allowance for loan losses, since
management has the ability and intention to hold them to
maturity.
Loans held for sale are carried at the lower of cost or estimated
market value, determined in the aggregate. In computing cost,
deferred loan origination fees are deducted from the principal
balances of the related loans. There were no loans held for sale
at September 30, 1999 and 1998.
The Bank services loans for others and pays the participant its
share of the Bank's collections, net of a stipulated servicing
fee. Loan servicing fees are credited to income when earned and
servicing costs are charged to expense as incurred.
H. Allowance for Loan Losses - An allowance for loan losses is
provided through charges to income in an amount that management
believes will be adequate to absorb losses on existing loans that
may become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in
the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic
conditions that may affect the borrowers' ability to pay.
Determining the amount of the allowance for loan losses requires
the use of estimates and assumptions, which is permitted under
generally accepted accounting principles. Actual results could
differ significantly from those estimates. Management believes
the allowance for losses on loans is adequate. While management
uses available information to estimate losses on loans, future
additions to the allowances may be necessary based on changes in
economic conditions, particularly in the State of Maryland. In
addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's
allowances for losses on loans. Such agencies may require the
Bank to recognize additions to the allowances based on their
judgments about information available to them at the time of
their examination.
22
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 1 - Summary of Significant Accounting Policies - Continued
------------------------------------------
H. Statement of Financial Accounting Standards ("SFAS") No. 114, as
amended by SFAS No. 118, addresses the accounting by creditors
for impairment of certain loans. It is generally applicable for
all loans except large groups of smaller balance homogeneous
loans that are collectively evaluated for impairment, including
residential mortgage loans and consumer installment loans. It
also applies to all loans that are restructured in a troubled
debt restructuring involving a modification of terms. SFAS No.
114 requires that impaired loans be measured based on the present
value of expected future cash flows discounted at the loan's
effective interest rate, or at the loan's observable market price
or the fair value of the collateral if the loan is collateral
dependent. A loan is considered 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.
Accrual of interest is discontinued on a loan when management
believes, after considering economic and business conditions and
collection efforts, that the borrower's financial condition is
such that collection of interest is doubtful. When a payment is
received on a loan on non-accrual status, the amount received is
allocated to principal and interest in accordance with the
contractual terms of the loan.
Loan origination fees and certain direct loan origination costs
are deferred and are recognized by the interest method over the
contractual life of the related loan as an adjustment of yield.
Premiums and discounts on loans purchased are recognized in
income over the estimated life of the related loans using the
level yield method.
I. Foreclosed Real Estate - Real estate acquired through or in the
process of foreclosure is recorded at the lower of cost or fair
value. Management periodically evaluates the recoverability of
the carrying value of the real estate acquired through
foreclosure using estimates as described under the caption
"Allowance for Loan Losses". In the event of a subsequent
decline, management provides an additional allowance to reduce
real estate acquired through foreclosure to fair value less
estimated disposal cost. Expenses incurred on foreclosed real
estate prior to disposition are charged to expense. Gains on the
sale of foreclosed real estate are recognized upon disposition of
the property.
23
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 1 - Summary of Significant Accounting Policies - Continued
------------------------------------------
J. Premises and Equipment - Premises and equipment are carried at
cost less accumulated depreciation. Depreciation and amortization
of premises and equipment are accumulated by the use of the
straight-line method over the estimated useful lives of the
assets. Additions and improvements are capitalized, and charges
for repairs and maintenance are expensed when incurred. The
related cost and accumulated depreciation are eliminated from the
accounts when an asset is sold or retired and the resultant gain
or loss is credited or charged to income.
K. Investment In and Loans To Affiliated Corporation - Investments
in and loans to affiliated corporation represented common stock
owned and advances to a company formed for the purpose of making
consumer installment loans. The Bank had a 33-1/3% interest in
this company and its proportionate share of income or losses was
not recorded on the equity method, since such amounts are not
material to the accompanying consolidated financial statements.
The Bank was using the cost method of accounting to record this
investment. (See Note 7)
L. Defined Benefit Pension Plan - The Bank accounts for its Pension
Plan in accordance with Statement of Financial Accounting
Standards No. 87. Funding is limited to amounts that are
available for deduction under the Internal Revenue Code (See Note
11).
M. Employee Stock Ownership Plan - The Company accounts for its
Employee Stock Ownership Plan ("ESOP") in accordance with
Statement of Position 93-6 of the Accounting Standards Division
of the American Institute of Certified Public Accountants. (See
Note 12)
N. Stock-Based Compensation - SFAS No. 123, "Accounting for
Stock-Based Compensation" defines a "fair value based method" of
accounting for an employee stock option whereby compensation cost
is measured at the grant date based on the value of the award and
is recognized over the service period. FASB encourages all
entities to adopt the fair value based method, however, it will
allow entities to continue the use of the "intrinsic value based
method" prescribed by Accounting Principles Board ("APB") Opinion
No. 25. Management decided to continue using the "intrinsic value
based method" as prescribed by APB Opinion No. 25.
24
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 1 - Summary of Significant Accounting Policies - Continued
------------------------------------------
O. Income Taxes - Deferred income taxes are recognized for temporary
differences between the financial reporting basis and income tax
basis of assets and liabilities based on enacted tax rates
expected to be in effect when such amounts are realized or
settled. Deferred tax assets are recognized only to the extent
that is more likely than not that such amounts will be realized
based on consideration of available evidence. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
P. Statement of Cash Flows - In the statement of cash flows, cash
and equivalents include cash, Federal Home Loan Bank of Atlanta
overnight deposits, federal funds and certificates of deposit
with an original maturity date less than ninety days.
Q. Basic and Diluted Earnings Per Share - The Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" in 1998. This Standard establishes revised standards
for computing and presenting earnings per share data ("EPS"). It
requires dual presentation of "basic" and "diluted" EPS on the
face of the statements of income and a reconciliation of the
numerators and denominations used in the calculation of the
"basic" and "diluted" EPS.
BasicEPS is computed by dividing net income by the weighted
average number of common shares outstanding for the appropriate
period. Unearned ESOP shares are not included in outstanding
shares. Diluted EPS is computed by dividing net income by the
weighted average shares outstanding as adjusted for the dilutive
effect of stock options and unvested stock awards based on the
"treasury stock" method. Information relating to the calculation
of net income per share of common stock is summarized for the
years ended September 30, as follows:
1999 1998
--------- -----------
Net income $ 732,119 $ 680,579
========= ==========
Weighted Average Shares
Outstanding basic EPS 1,210,570 1,233,797
Dilutive Items
Stock options - 57,983
Unvested stock awards 4,508 53,750
--------- -----------
Adjusted weighted average shares
used for dilutive EPS 1,215,078 1,345,530
========= ========
25
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 2 - Investments Available for Sale
------------------------------
The amortized cost and fair values of investments available for sale at are
as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
September 30, 1999
- ------------------
Equity investments $ 544,324 $ -- $ 192,136 $ 352,188
Federal Home Loan
Bank Bonds 17,493,370 -- 1,171,721 16,321,649
Federal Home Loan
Mortgage Corporation
Bonds 3,249,047 -- 222,171 3,026,876
----------- ----------- ----------- -----------
$21,286,741 -- $ 1,586,028 $19,700,713
=========== =========== =========== ===========
September 30, 1998
- ------------------
Equity investments $ 727,448 $ -- $ 165,823 $ 561,625
Federal Home Loan
Bank Bonds 14,505,000 124,886 -- 14,629,866
----------- ----------- ----------- -----------
$15,232,448 $ 124,866 $ 165,823 $15,191,491
=========== =========== =========== ===========
During the year ended September 30, 1999, the Company received proceeds of
$127,495 from the sale of investments that resulted in gross gains of $4,372.
During the year ended September 30, 1998, the Company received proceeds of
$5,184,712 from the sale of investments that resulted in gross gains of $13,718
and gross losses of $6,393.
The equity investments have no stated maturity and all of the Federal Home
Loan Bank and Federal Home Loan Mortgage Corporation Bonds have a stated
maturity date of ten years or more.
26
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 3 - Other Investments - Held to Maturity
------------------------------------
The amortized cost and fair values of other investments are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
September 30, 1999
-----------------------------------------------------
<S> <C> <C> <C> <C>
Federal National Mortgage
Association Bonds $ 2,750,000 $ -- $ 180,620 $ 2,569,380
Federal Home Loan
Bank Bonds 11,300,000 -- 711,934 10,588,066
Federal Home Loan
Mortgage Corporation
Bonds 1,600,000 -- 106,968 1,493,032
----------- ----------- ----------- -----------
$15,650,000 $ -- $ 999,522 $14,650,478
=========== =========== =========== ===========
September 30, 1998
-----------------------------------------------------
Federal National Mortgage
Association Bonds $ 3,750,000 $ 37,304 $ 3,611 $ 3,783,693
Federal Home Loan
Bank Bonds 10,850,000 74,169 1,000 10,923,169
----------- ----------- ----------- -----------
$14,600,000 $ 111,473 $ 4,611 $14,706,862
=========== =========== =========== ===========
</TABLE>
No gains or losses were realized during the years ended September 30, 1999
or 1998.
The scheduled maturities of other investments at September 30, 1999:
Amortized Fair
Cost Value
---------- ----------
Due after five years through ten years $ 350,000 $ 345,453
Due after ten years 15,300,000 14,305,025
---------- ----------
$ 15,650,000 $ 14,650,478
========== ==========
27
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 4 - Mortgage Backed Securities
--------------------------
The amortized cost and fair value of mortgage backed
securities are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
September 30, 1999
-----------------------------------------------------
<S> <C> <C> <C> <C>
FHLMC participating certificates $ 1,786,228 $ -- $ 67,727 $ 1,718,501
GNMA participating certificates 15,402,200 4,982 698,741 14,708,441
FNMA participating certificates 794,942 -- 30,345 764,597
----------- ----------- ----------- -----------
$17,983,370 $ 4,982 $ 796,813 $17,191,539
=========== =========== =========== ===========
September 30, 1998
-----------------------------------------------------
GNMA participating certificates $ 6,823,137 $ 174,119 $ -- $ 6,997,256
FNMA participating certificates 452,666 9,369 -- 462,035
----------- ----------- ----------- -----------
$ 7,275,803 $ 183,488 $ -- $ 7,459,291
=========== =========== =========== ===========
</TABLE>
No gains or losses were realized during the years ended September 30, 1999
and 1998.
28
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 5 - Loans Receivable
----------------
Loans receivable at September 30, 1999 and 1998 consist of the following:
1999 1998
------------ ------------
One to four family residential mortgage loans $ 71,041,820 $ 67,057,267
Multifamily residential mortgage loans 2,352,325 92,008
Commercial mortgage loans 6,772,077 4,799,463
Construction loans 5,183,370 1,967,500
Lines of credit 1,174,432 2,031,161
Home equity lines of credit 3,500,846 --
Land/lot loans 832,531 952,173
Home improvement loans 4,608 5,668
Consumer loans 3,401,338 --
Share loans 390,723 260,565
Commercial loans secured by lease
finance receivables 438,089 853,408
------------ ------------
95,092,159 78,019,213
Less - undisbursed portion of loans
in process (3,568,811) (1,713,800)
- unamortized discount (725,393) (125,337)
- deferred loan origination fees (519,604) (520,673)
- unearned insurance commissions (2,118) --
- allowance for loan losses (344,907) (301,425)
------------ ------------
$ 89,931,326 $ 75,357,978
============ ============
The following is a summary of the allowance for loan losses:
September 30,
------------------------
Beginning balance $ 301,425 $ 250,000
Provision for loan losses 70,000 195,000
Charge-offs (26,518) (143,575)
--------- ---------
Balance end $ 344,907 $ 301,425
========= =========
29
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1998
- ------------------
Note 5 - Loans Receivable - Continued
----------------
Residential lending is generally considered to involve less risk
than other forms of lending, although payment experience on these
loans is dependent to some extent on economic and market conditions in
the Bank's lending area. Multifamily residential, commercial,
construction and other loan repayments are generally dependent on the
operations of the related properties or the financial condition of its
borrower or guarantor. Accordingly, repayment of such loans can be
more susceptible to adverse conditions in the real estate market and
the regional economy.
Substantially all of the Bank's loans receivable are mortgage
loans secured by residential and commercial real estate properties
located in the State of Maryland. Loans are extended only after
evaluation by management of customers' creditworthiness and other
relevant factors on a case-by-case basis. The Bank generally does not
lend more than 95% of the appraised value of a property and requires
private mortgage insurance on residential mortgages with loan-to-value
ratios in excess of 80%. In addition, the Bank generally obtains
personal guarantees of repayment from borrowers and/or others for
multifamily residential, commercial and construction loans and
disburses the proceeds of construction and similar loans only as work
progresses on the related projects.
There were no impaired loans as defined by SFAS No. 114 at
September 30, 1999 and 1998. There was no interest income recognized
on impaired loans during those periods.
Non-accrual loans that are not subject to SFAS No. 114 for which
interest has been reduced totaled approximately $177,199 and $382,725
at September 30, 1999 and 1998.
Interest income that would have been recorded under the original
terms of such loans and the interest actually recognized for the years
ended September 30, are summarized below:
1999 1998
---- ----
Interest income that would have
been recognized $24,119 $30,781
Interest income recognized 8,621 5,390
------- -------
Interest income not recognized $15,498 $25,391
======= =======
30
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 5 - Loans Receivable - Continued
----------------
Loans outstanding to officers and directors and their affiliates
of the Bank at September 30, 1999 and 1998:
Balance At Balance At Balance At
September Loans Principal September Loans Principal September
30, 1999 Made Repayment 30, 1998 Made Repayment 30, 1997
---------- ----- --------- ---------- -------- --------- ------------
$1,517,263 $330,325 $355,278 $1,542,216 $213,104 $48,546 $1,377,658
Mortgage loans serviced for others are not included in the
accompanying statements of financial condition. The unpaid principal
balances of these loans at September 30, are summarized as follows:
1999 1998
---------- ----------
Mortgage loan portfolios serviced for:
Other investors $5,717,050 $7,038,699
========== ==========
Custodial Escrow balances maintained in connection with the
foregoing loan servicings were approximately $40,466 and $36,799 at
September 30, 1999 and 1998.
Unless otherwise noted, the Bank requires collateral or other
security to support financial instruments with off-balance-sheet
credit risk.
Financial Instruments Whose Contract Contract Amount
Amounts Represent Credit Risk At September 30,
----------------------------------- -------------------------
1999 1998
---- ----
Loan commitments $1,648,250 $1,084,750
Unused lines of credit 2,792,468 1,646,339
Mortgage loan commitments not reflected in the accompanying
financial statements at September 30, 1999 are for fixed rate
mortgages totaling $1,648,250 ranging from 7.125% to 8.375%.
Mortgage loan commitments not reflected in the accompanying
financial statements at September 30, 1998 are for fixed rate
mortgages totaling $1,084,750 ranging from 6.75% to 7.75%.
31
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 5 - Loans Receivable - Continued
----------------
Lines of credit are loan commitments to individuals and companies
and have fixed expiration dates as long as there is no violation of
any condition established in the contract. The Bank evaluates each
customer's credit worthiness on a case-by-case basis.
The credit risk involved in these financial instruments is
essentially the same as that involved in extending loan facilities to
customers. No amount has been recognized in the statement of financial
condition at September 30, 1999 as a liability for credit loss.
Note 6 - Investment in Federal Home Loan Bank of Atlanta Stock
-----------------------------------------------------
The Bank is required to maintain an investment in the stock of
the Federal Home Loan Bank of Atlanta ("FHLB") in an amount equal to
at least 1% of the unpaid principal balances of the Bank's residential
mortgage loans or 1/20 of its outstanding advances from the FHLB,
whichever is greater. Purchases and sales of stock are made directly
with the FHLB at par value.
Note 7 - Investment in and Loans to Affiliated Corporation
-------------------------------------------------
On April 1, 1999, the Bank purchased substantially all the assets
and liabilities of Bankers Affiliate, Inc. for $5 million in cash
($4,811,311 net of cash received) and the retirement of a $2.5 million
note and $25,000 of Bankers Affiliate, Inc. stock. The purchase
consisted primarily of automobile, boat and home equity loans.
Bankers Affiliate, Inc. was equally owned by the Bank and two
other thrift institutions and made consumer loans to their customers.
Loans to Bankers Affiliate, Inc. were due on demand and bore an
adjustable interest rate. The Bank had a 33-1/3% interest in this
company and its proportionate share of income or losses was not
recorded on the equity method, since such amounts were not material to
the accompanying consolidated financial statements. The Bank was using
the cost method of accounting to record this investment.
32
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 7 - Investment in and Loans to Affiliated Corporation - Continued
-------------------------------------------------
The Bank's investment in and loans to an affiliated corporation,
Bankers Affiliate, Inc. (See Note 1) are summarized as follows:
September 30,
-------------
1998
----
Capital stock, at cost $ 25,000
Loan payable 2,550,000
---------
$ 2,575,000
=========
Summarized financial information as of June 30, 1998 and for the
year then ended for Bankers Affiliate, Inc. is as follows:
1998
----------
Cash $ 24,587
Finance receivables 8,153,347
Real estate acquired through foreclosure 31,103
Other assets 42,571
----------
$8,251,608
==========
Loans payable $8,150,000
Other liabilities 21,596
----------
8,171,596
Stockholders' equity 80,012
----------
$8,251,608
==========
33
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 7 - Investment in and Loans to Affiliated Corporation - Continued
-------------------------------------------------
1998
----
Income and Expense
------------------
Income:
Interest $ 857,925
Other income 32,330
---------
890,255
Expenses:
Interest 636,195
Provision for losses on loans 32,515
Salaries and related expenses 149,744
Other expenses 79,249
---------
897,703
---------
Loss before income tax benefit (7,448)
Income tax benefit (5,358)
---------
Net loss (2,090)
Retained earnings at beginning of fiscal year 7,102
---------
Retained earnings at end of fiscal year $ 5,012
=========
Note 8 - Premises and Equipment
----------------------
Premises and equipment at September 30, 1999 and 1998 are
summarized by major classification as follows:
Useful Life
1999 1998 in Years
----------- ---------- -----------
Land $ 224,056 $ 224,056 -
Office buildings 602,549 602,549 5-50
Furniture, fixtures and equipment 919,593 862,980 3-20
---------- ---------
1,746,198 1,689,585
Accumulated depreciation (907,671) (812,659)
---------- ---------
$ 838,527 $ 876,926
========== =========
34
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 8 - Premises and Equipment - Continued
----------------------
The provision for depreciation for the periods ended September
30, 1999 and 1998 was $115,158 and $82,404, respectively.
The Bank has entered into several operating leases for the
premises of its branch offices. Rental expense under these leases for
the years ended September 30, 1999 and 1998 was $59,221 and $60,523,
respectively. At September 30, 1999, the minimum rental commitments
under noncancellable leases are as follows:
Year Ended September 30, Total
------------------------ -------
2000 $51,903
2001 27,856
2002 3,600
-------
$83,359
=======
Note 9 - Deposits
--------
Deposits are summarized as follows at September 30:
<TABLE>
<CAPTION>
1999 1998
------------------------ ------------------------
Weighted- Weighted-
Average Average
Type of Account Amount Rate Amount Rate
--------------- ------ ------------ ------ ----------
<S> <C> <C> <C> <C>
NOW and money market
accounts including
non-interest bearing deposits
of $981,921 in 1999 and
$981,343 in 1998 $ 11,523,206 1.05% $11,586,661 2.33%
Passbook savings 15,817,791 3.05% 14,726,868 3.05%
Certificates of deposit 87,961,311 5.46% 68,752,209 5.82%
------------ ----------
115,302,308 95,065,738
Accrued interest 179 184
------------ -----------
$115,302,487 $95,065,922
============ ===========
</TABLE>
35
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 9 - Deposits - Continued
--------
The aggregate amount of certificates of deposit with a minimum
denomination of $100,000 was approximately $7,384,506 and $5,883,859
at September 30, 1999 and 1998. Deposits in excess of $100,000 are not
insured by the Savings Association Insurance Fund.
<TABLE>
<CAPTION>
1999 1998
----------- ------------
Amount Amount
------ ------
<S> <C> <C>
Certificates accounts mature as follows:
One year or less $34,938,382 $32,396,930
More than 1 year through 2 years 24,070,423 14,801,388
More than 2 years through 3 years 7,926,915 6,384,738
More than 3 years 21,025,591 15,169,153
---------- ----------
$87,961,311 $68,752,209
========== ==========
Interest expense on deposits is summarized as follows for the
years ended September 30:
1999 1998
---- ----
Certificates $ 4,429,927 $ 3,201,106
NOW and money market 268,188 294,378
Passbook 461,734 444,271
----------- -----------
$ 5,159,849 $ 3,939,755
=========== ===========
</TABLE>
Note 10- Borrowings
----------
The Company's borrowings at September 30 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Short-term Federal Home Loan Bank advances $ 4,000,000 $ 9,000,000
Long-term Federal Home Loan Bank advances 20,000,000 11,000,000
Other - 937,168
----------- -----------
Total $24,000,000 $20,937,168
=========== ===========
</TABLE>
36
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 10- Borrowings - Continued
----------
Federal Home Loan Bank advances at September 30, 1999 consist of
short term fixed and adjustable rate advances bearing interest at
5.11% to 5.75% per annum and long term fixed rate advances bearing
interest at 4.89% to 5.52% per annum.
The Bank's stock in the Federal Home Loan Bank of Atlanta is
pledged as security for the loan and under a blanket floating lien
security agreement with the Federal Home Loan Bank of Atlanta, the
Bank is required to maintain as collateral for its advances, qualified
home mortgage loans in an amount equal to 175% of the advances.
At September 30, 1998, other borrowings consisted of a long-term
note that bore interest of 8.5%. The interest rate was adjusted
quarterly and was based on the commercial prime rate. The note was
repurchased in February 1999.
Aggregate maturities required on Federal Home Loan Bank advances
at September 30, 1999 are as follows:
September 30, 2000 $ 4,000,000
September 30, 2003 5,000,000
After September 30, 2003 15,000,000
-----------
Total $24,000,000
===========
At September 30, 1999, the Bank had a $5.0 million secured bank
line of credit that is subject to termination at either party's
discretion. There were no borrowings outstanding under this agreement
at September 30, 1999.
Note 11- Pension Plan
------------
Substantially all employees of the Bank are included in a
non-contributory defined benefit pension plan. The Bank's policy is to
fund pension costs accrued. There were no unfunded or unamortized
prior service costs at September 30, 1999 and 1998. The costs of
funding this plan were $25,191 and $21,240 for the years ended
September 30, 1999 and 1998, respectively.
37
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 11- Pension Plan - Continued
------------
The following table sets forth the plan's related costs at
September 30:
1999 1998
--------- --------
Service cost $ 24,512 $ 20,479
Interest cost 53,123 48,224
Actual return on plan assets (58,419) (37,216)
Other components 5,975 (10,247)
--------- --------
Net period pension costs $ 25,191 $ 21,240
========= ========
The following table sets forth the plan's funded status at
September 30:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Accumulated Benefit Obligation
------------------------------
Vested $584,421 $509,795
Non-vested 6,945 4,522
--------- ---------
Total $591,366 $514,317
========= =========
Projected benefit obligation $882,248 $762,500
Fair value of plan assets as of September 30 819,527 722,564
------- -------
Plan assets in deficit of projected
benefit obligation (62,721) (39,936)
Unrecognized net loss 234,038 168,620
Unrecognized net transition obligation 1,823 2,025
--------- ---------
Prepaid pension cost $173,140 $130,709
========= =========
</TABLE>
38
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 11- Pension Plan - Continued
------------
1999 1998
--------- ---------
Reconciliation of Projected Benefit Obligation
Projected benefit obligation beginning of year $ 762,500 $ 701,623
Interest cost for the fiscal year 53,123 48,224
Service cost for the fiscal year 24,512 20,479
Benefit payments for the fiscal year (6,817) (36,268)
Actuarial (gain) loss for the fiscal year 48,930 28,442
--------- ---------
Projected benefit obligation as of September 30
before settlement 882,248 762,500
Effect of settlement -- --
--------- ---------
Projected benefit obligation as of September 30
after settlement $ 882,248 $ 762,500
========= =========
The following interest rate assumptions were used for September
30:
1999 1998
---- ----
Weighted-average discount rate 7.50% 7.00%
Long term rate of return 8.00% 8.00%
Rate of compensation increase 5.00% 4.50%
Note 12- Common Stock and Stock Benefit Plans
------------------------------------
In 1996, the Bank converted from a federally chartered mutual
savings bank to a federally chartered stock savings bank.
Simultaneously, the Bank consummated the formation of a new holding
company, WHG Bancshares Corporation, of which the Bank is a
wholly-owned subsidiary. In connection with the conversion, the
Company issued 1,620,062 shares of its common stock.
The Bank has established an Employee Stock Ownership Plan
("ESOP"), and acquired 129,604 shares of the Company's common stock.
The Employee Stock Ownership Plan purchased 30,616 additional shares
with the proceeds from the special distribution. Funds used to acquire
the initial shares were borrowed from the Company by the ESOP with a
direct loan from the Company requiring annual payments of $129,604.
During the fiscal year ended September 30, 1998 the Company assigned
the loan to a third party. During February 1999, the Company exercised
its option to repurchase the loan.
39
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 12- Common Stock and Stock Benefit Plans - Continued
------------------------------------
The ESOP holds the common stock in a Trust for allocation among
participating employees.
All employees of the Bank who have completed one year of service
and attained the age of 21 are eligible to participate. Participants
will become 100% vested in their accounts after five years of service
with the Bank or earlier upon death, disability or retirement.
The ESOP is funded by contributions made by the Bank in cash or
common stock and dividends on the shares held in the Trust. The Bank
recognizes compensation expense as shares are committed for release
from collateral at their current market price. Dividends on allocated
shares are recorded as a reduction of retained earnings and dividends
on unallocated shares are recorded as a reduction of Debt.
Compensation cost for the year ended September 30, 1999 and 1998 was
$219,065 and $230,919, respectively.
The ESOP shares as of September 30 were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Allocated shares 64,826 35,887
Shares earned, but unallocated 4,092 2,160
Unearned shares 94,243 91,557
Fair value of unearned shares at September 30 $854,124 $1,064,350
</TABLE>
The Company has a Stock Option Plan (the "Plan") whereby 183,058
shares of common stock have been reserved for issuance under the Plan.
Options granted under the Plan may be Incentive Stock Options within
the meaning of Section 422 of the Internal Revenue Code of 1986 as
amended or Non-Incentive Stock Options. Options are exercisable in
five annual installments at the market price of common stock at the
date of grant. The Options must be exercised within ten years from the
date of grant. During the year ended September 30, 1997, the Company
granted options to purchase 162,006 shares at a weighted average price
of $13.30 per share. Such shares and fair value have been adjusted to
183,058 shares at a weighted average price of $11.77 for the effect of
the special distribution.
40
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 12- Common Stock and Stock Benefit Plans - Continued
------------------------------------
The following table summarizes the status of and changes in the
Company's stock option plan during the past two years, as
retroactively adjusted for the Company's special distribution.
Weighted
Average
Exercise
Shares Price
------ -----
Outstanding at September 30, 1997 183,058 $11.77
-------
Outstanding at September 30, 1998 183,058 11.77
Forfeited options (2,306) 11.89
-------
Outstanding at September 30, 1999 180,752 11.77
=======
Exercisable at September 30, 1999 80,756
=======
The Company has established a Management Stock Bonus Plan (the
"Stock Bonus Plan" or "MSBP") to encourage directors, officers and key
employees to remain in the service of the Bank. Up to 64,802 shares of
common stock may be awarded under the terms of the Stock Bonus Plan.
Shares of common stock awarded under the plan vest in five annual
installments at a rate of 20% each year following the date of grant.
On October 8, 1996, awards of 55,860 shares of common stock were
granted. On November 22, 1996, the Bank funded the purchase of 64,802
shares of its common stock at a price of $13.62 to provide shares for
distribution under the Stock Bonus Plan.
During fiscal 1998, the Company declared a special distribution
of $3.00 per common stock share from funds retained by the Company in
the conversion. Management obtained a Private Letter Ruling from the
Internal Revenue Service which states that the Company's dividend
payments in excess of accumulated earnings and profits are considered
a tax-free return of capital for federal income tax purposes. As a
result, management believes the entire distribution constitutes a
tax-free return of capital. Accordingly, the Company charged the
return of capital distribution to additional paid-in-capital.
41
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 13- Retained Earnings
-----------------
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possible
additional discretionary, actions by the regulators that, if
undertaken, could have a direct material effect on the Bank's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The Bank's capital
amounts and classifications are also subject to qualitative judgments
by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in
the regulations) and risk-weighted assets (as defined), and of Tier I
capital (as defined) to average assets (as defined). Management
believes, as of September 30, 1999, that the Bank meets all capital
adequacy requirements to which it is subject.
As of September 30, 1999, the most recent notification from the
Office of Thrift Supervision categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth
in the table. There are no conditions or events since that
notification that management believes have changed the Bank's
category. The Bank's actual capital amounts and ratios are also
presented in the table.
<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>
September 30, 1999
Tangible (1) $15,572,000 9.9% $ 2,355,435 1.5% $ N/A N/A%
Tier I capital (2) 15,572,000 23.1% N/A N/A% 4,038,120 6.0%
Core (1) 15,572,000 9.9% 4,710,810 3.0% 7,851,450 5.0%
Risk-weighted (2) 15,793,000 23.5% 5,384,160 8.0% 6,730,200 10.0%
</TABLE>
42
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 13- Retained Earnings - Continued
-----------------
<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>
September 30, 1998
Tangible (1) $16,374,614 12.3% $ 1,994,442 1.5% $ N/A N/A%
Tier I capital (2) 16,374,614 28.8% N/A N/A% 3,411,420 6.0%
Core (1) 16,374,614 12.3% 3,988,884 3.0% 6,648,140 5.0%
Risk-weighted (2) 16,626,614 29.2% 4,548,560 8.0% 5,685,700 10.0%
</TABLE>
(1) To adjusted total assets.
(2) To risk-weighted assets.
Note 14- Income Taxes
------------
The income tax provision consists of the following:
For Years Ended
September 30,
----------------------
1999 1998
Current
- -------
Federal $ 506,606 $ 432,533
State 108,303 93,712
--------- ---------
614,909 526,245
Deferred
- --------
Federal (69,580) (31,343)
State (15,403) (7,140)
--------- ---------
(84,983) (38,483)
Other
- -----
Market value adjustments for Employee Stock
Ownership Plan and Management Stock
Bonus Plan
Federal (33,555) (23,112)
State (6,909) (4,758)
--------- ---------
(40,464) (27,870)
--------- ---------
$ 489,462 $ 459,892
========= =========
43
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 14- Income Taxes - Continued
------------
The amount computed by applying the statutory federal income tax
rate to income before taxes differs from the taxes provided for the
following reasons:
Years Ended September 30,
-------------------------------------------
1999 1998
--------------------- --------------------
Percent Percent
of Pretax of Pretax
Amount Income Amount Income
------ ------ ------ ------
Tax at statutory rate $415,338 34.00 $387,760 34.00
Increases (Decreases)
Resulting From
-----------------------------
State income tax net of
federal income tax benefit 56,754 4.65 53,997 4.73
Other 17,370 1.42 18,135 1.59
-------- ------ -------- ------
$489,462 40.07 $459,892 40.32
======== ====== ======== ======
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at September 30, 1999 and 1998 are presented below:
1999 1998
----------- -----------
Deferred Tax Assets:
Deferred loan origination fees $ 200,671 $ 201,084
Allowance for loan losses 133,203 116,411
Reserve for uncollected interest 4,944 9,806
ESOP contribution 8,331 8,331
Net unrealized holding losses 612,524 15,818
Other 93,621 20,101
NOL carryforward of subsidiary - 5,566
----------- -----------
Total gross deferred tax assets 1,053,294 377,117
44
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 14- Income Taxes - Continued
------------
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Deferred Tax Liabilities:
Tax reserve for bad debts in excess of
base year amount $ 56,169 $ 81,134
Federal Home Loan Bank of Atlanta stock
dividends 56,965 56,965
Depreciation 20,909 17,843
Pension plan 66,867 50,480
----------- -----------
Total gross deferred tax liabilities 200,910 206,422
----------- -----------
Net deferred tax assets $ 852,384 $ 170,695
=========== ===========
</TABLE>
Qualified thrift lenders such as the Bank are not required to
provide a deferred tax liability for bad debt reserves for tax
purposes that arose in fiscal years beginning before December 31,
1987. Such bad debt reserve for the Bank amounted to approximately
$2,022,261 with an income tax effect of approximately $780,997 at
September 30, 1999. This bad debt reserve would become taxable if
certain conditions are met by the Bank.
The Company and its Subsidiary file their income tax returns on a
calendar year basis.
Note 15- Disclosure About Fair Value of Financial Instruments
----------------------------------------------------
The estimated fair values of the Bank's financial instruments are
summarized below. The fair values of a significant portion of these
financial instruments are estimates derived using present value
techniques prescribed by the FASB and may not be indicative of the net
realizable or liquidation values. Also, the calculation of estimated
fair values is based on market conditions at a specific point in time
and may not reflect current or future fair values.
The carrying amount is a reasonable estimate of fair value for
cash, federal funds, interest-bearing deposits in other banks and
securities purchased under agreements to resell due to the short-term
nature of these investments. Fair value is based upon market prices
quoted by dealers for investment securities and mortgage backed
securities. The carrying amount of Federal Home Loan Bank of Atlanta
stock is a reasonable estimate of fair value. Loans receivable were
discounted using a single
45
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 15- Disclosure About Fair Value of Financial Instruments - Continued
----------------------------------------------------
discount rate, comparing the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the
same remaining maturities, except for adjustable rate mortgages which
were considered to be at market rates. These rates were used for each
aggregated category of loans as reported on the Office of Thrift
Supervision Quarterly Report. The fair value of demand deposits,
savings accounts and money market deposits is the amount payable on
demand at the reporting date. The fair value of fixed-maturity
certificates of deposit is estimated using the rates currently offered
on deposits of similar remaining maturities.
The Bank is a party to financial instruments with off-balance
sheet risk in the normal course of business, including loan
commitments. The loan commitments were a blended rate based on the
relative risk of the properties involved and the lines of credit are
at adjustable rates.
The estimated fair values of the Bank's financial instruments are
as follows:
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
--------------------------- -------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----- ---------- ----- ----------
<S> <C> <C> <C> <C>
Financial Assets
Cash, interest-bearing
deposits in other banks
and federal funds $ 7,291,629 $ 7,291,629 $ 14,422,780 $ 14,422,780
Investments available
for sale 19,700,713 19,700,713 15,191,491 15,191,491
Other investment securities
held to maturity 15,650,000 14,650,478 14,600,000 14,706,862
Mortgage backed securities 17,983,370 17,191,539 7,275,803 7,459,291
Loans receivable 89,931,326 86,230,000 75,357,978 77,370,000
Federal Home Loan Bank
of Atlanta stock 1,200,000 1,200,000 1,000,000 1,000,000
Financial Liabilities
Deposits $115,302,487 $115,492,000 $ 95,065,922 $ 95,448,000
Commitments -- 1,648,250 -- 1,084,750
Borrowings 24,000,000 22,942,000 20,937,168 20,896,000
</TABLE>
46
<PAGE>
WHG BANCSHARES CORPORATION AND SUBSIDIARIES
- -------------------------------------------
Lutherville, Maryland
- ---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
SEPTEMBER 30, 1999
- ------------------
Note 16- Recent Accounting Pronouncements
--------------------------------
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June, 1998. This Statement standardizes the
accounting for derivative instruments including certain derivative
instruments embedded in other contracts, by requiring that an entity
recognize these items as assets or liabilities in the statement of
financial position and measure them at fair value. This Statement
generally provides for matching the timing of gain or loss recognition
on the hedging instrument with the recognition of the changes in the
fair value of the hedged asset or liability that are attributable to
the hedged risk or the earnings effect of the hedged forecasted
transaction. The Statement, which is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000, will not affect the
Company's financial position or its results of operations.
Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-Up Activities". This Statement provides guidance on the
financial reporting of start-up cost and organization cost. It
requires costs of start-up activities and organization cost to be
expensed as incurred. The "SOP" also requires the initial application
to be reported as a cumulative effect of a change in accounting
principle. This "SOP" which is effective for fiscal years beginning
after December 15, 1998 will not affect the Company's financial
position or results of operations.
47
EXHIBIT 23
<PAGE>
Anderson Associates, LLP
Certified Public Accountants
7621 Fitch Lane
Baltimore, Maryland 21236
410-882-8050
CONSENT OF INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the incorporation of our
report, dated December 2, 1999, incorporated by reference in this annual report
of WHG Bancshares Corporation on Form 10KSB, into the Corporation's previously
filed Form S-8 Registration Statement File No. 333-34659.
/s/Anderson Associates LLP
Baltimore, Maryland
December 21, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,312
<INT-BEARING-DEPOSITS> 3,689
<FED-FUNDS-SOLD> 2,290
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,701
<INVESTMENTS-CARRYING> 33,633
<INVESTMENTS-MARKET> 31,842
<LOANS> 89,931
<ALLOWANCE> 345
<TOTAL-ASSETS> 154,923
<DEPOSITS> 115,302
<SHORT-TERM> 4,000
<LIABILITIES-OTHER> 703
<LONG-TERM> 20,000
0
0
<COMMON> 129
<OTHER-SE> 14,788
<TOTAL-LIABILITIES-AND-EQUITY> 154,923
<INTEREST-LOAN> 6,272
<INTEREST-INVEST> 3,406
<INTEREST-OTHER> 495
<INTEREST-TOTAL> 10,172
<INTEREST-DEPOSIT> 5,160
<INTEREST-EXPENSE> 6,353
<INTEREST-INCOME-NET> 3,819
<LOAN-LOSSES> 70
<SECURITIES-GAINS> 4
<EXPENSE-OTHER> 2,790
<INCOME-PRETAX> 1,222
<INCOME-PRE-EXTRAORDINARY> 1,222
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 732
<EPS-BASIC> .60
<EPS-DILUTED> .60
<YIELD-ACTUAL> 2.24
<LOANS-NON> 163
<LOANS-PAST> 38
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 301
<CHARGE-OFFS> 27
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 345
<ALLOWANCE-DOMESTIC> 345
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
