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 (No Fee required)
For the fiscal year ended June 30, 1997
[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required) For the transition period from to .
----- -----
Commission File No. 0-22997
WSB Holding Company
----------------------------------------------
(Name of Small Business Issuer in Its Charter)
Pennsylvania 23-2908963
- --------------------------------------------- ------------------
(State or Other Jurisdiction of Incorporation I.R.S. Employer
or Organization) Identification No.
807 Middle St., Pittsburgh, Pennsylvania 15212
- ---------------------------------------- -----
(Address of Principal Executive Offices (Zip Code)
Issuer's Telephone Number, Including Area Code: (412) 231-7297
--------------
Securities registered under to Section 12(b) of the Exchange Act: None
----
Securities registered under to Section 12(g) of the Exchange Act:
Common Stock, par value $0.10 per share
---------------------------------------
(Title of Class)
Check whether the issuer: (1) has 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. $2,376,075
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based on the last sale price of the registrant's Common Stock
on September 25, 1997, was approximately $3.2 million.
As of September 29, 1997, there were issued and outstanding 330,600
shares of the registrant's Common Stock.
Transition Small Business Disclosure Format (check one):
YES NO X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
EXPLANATION OF FILING
General
The Registrant's Registration Statement on Form SB-2 (File No.
333-29389) and Registration Statement on Form 8-A, (File No. 0-22997) as filed
with the Securities and Exchange Commission in connection with the Registrant's
initial public offering, became effective on July 15, 1997 and August 21, 1997,
respectively. The Registrant's initial public offering was consummated on August
27, 1997, at which time the Registrant's wholly-owned subsidiary, Workingmens
Bank, formerly Workingmens Savings Bank FSB (the "Bank"), completed its
conversion from the mutual to the stock form of organization (the "Conversion").
Accordingly, the financial statements filed with this Form 10-KSB are those of
the Bank as it existed in the mutual form of organization as of June 30, 1997,
and do not reflect the receipt of the proceeds from the Registrant's initial
public offering or the completion of the Conversion. In addition, the
Registrant's Form 10-KSB does not include any other narrative items or tabular
information which are normally required to be filed in an Annual Report on Form
10-KSB. The Registrant's Common Stock is not traded on any exchange or on the
Nasdaq Stock Market.
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 marking 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
- ---------------------------------------------------------------------
Not applicable.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
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Not applicable.
1
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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Financial Condition
Total consolidated assets increased 3.2 million, or 10.5% to $ 33.8 million at
June 30, 1997 from $ 30.6 million at June 30, 1996. The increase in total assets
reflects a $ 482,000 increase in investment and mortgage-backed securities, a
$ 962,000 increase in loans and real estate, net, and a $ 1.6 million increase
in cash and cash equivalents.
Deposits increased $ 250,000 or 0.9% to $ 28.4 million at June 30, 1997 from $
28.2 million at June 30, 1996. Interest bearing liabilities increased $ 3.1
million, or 11.6% to $ 29.8 million at June 30, 1997 from $ 26.7 million at June
30, 1996. The increase reflects borrowings of $ 3.0 million from the FHLB.
Results of Operations for the Years Ended June 30, 1997 and 1996
Net Income. Net income decreased $ 95,000 or 309.0% from $ 31,000 for the year
ended June 30, 1996 to a net loss of $ 64,500 for the year ended June 30, 1997.
The decrease was primarily the result of the recognition of the one-time SAIF
special insurance assessment in the amount of $ 108,000 (after taxes) and the
increase in the provision for loan losses of $ 136,000 partially offset by an
increase in net interest income of $ 147,000.
Net Interest Income. Net interest income is the most significant component of
our income from operations. Net interest income is the difference between
interest we receive on our interest-earning assets (primarily loans, investment
and mortgage-backed securities) and interest we pay on our interest-bearing
liabilities (primarily deposits and borrowed funds). Net interest income depends
on the volume of and rates earned on interest-earning assets and the volume of
and rates paid on interest-bearing liabilities.
Our net interest income increased $ 147,000 or 18.5% to $ 943,000 for the year
ended June 30, 1997 compared to $ 796,000 for the year ended June 30, 1996. The
increase was due primarily to the growth of average interest-earning assets from
$ 28.3 million for the year ended June 30, 1996 to $ 30.6 million for the nine
months ended June 30, 1997. The increase in our average interest-earning assets
of $ 2.3 million reflects an increase of $ 956,000 in average loans, an increase
of $ 2.2 million in average investment and mortgage-backed securities offset by
a decrease of $ 830,000 million in average other interest-earnings assets.
Our interest rate spread and net interest margin increased for the year ended
June 30, 1997 compared to year ended June 30, 1996. This was due primarily to
the increase in the yield on interest-earning assets from 7.25% for the year
ended June 30, 1996 to 7.48% for the year ended June 30, 1997. The yield on our
average interest bearing liabilities of 4.63% at June 30, 1997 remained
relatively consistent with the June 30, 1996 yield of 4.66%.
2
<PAGE>
The yield on our average interest-earning assets increased for the year ended
June 30, 1997 due to an increase in the average balance of loans and investment
securities.
Provision for Loan Losses. Our provision for loan losses increased $ 101,000 or
287.0% to $ 136,000 for the year ended June 30, 1997 from $ 35,000 for the year
ended June 30, 1996.
The increase in the provision for loan losses for the year ended June 30, 1997
was attributable to changes in one of our borrower's ability to repay. The
borrower had outstanding, 15 non-performing loans that ranged from $ 30,000 to
$ 100,000, totalling $ 665,000, secured by 1- to 4- family residences. The
properties are located in Mount Washington, a highly desirable area for
development in the city of Pittsburgh. During the quarter, we became aware of
circumstances which might decrease the value of the collateral for these loans,
due to two properties being torn down by the borrower and maintenance for other
properties being neglected by the borrower. Full payment of the loan was due
June 30, 1997 and was not received.
Subsequent to June 30, 1997, this borrower declared bankruptcy. The bankruptcy
proceeding might delay foreclosure proceedings for a prolonged period of time.
If so, we would lose the ability to use any monies that we might receive from
the sale of these properties and there is no guarantee that value of these
properties will be maintained or that the value of the properties received from
foreclosure will be sufficient to pay the amounts outstanding on these loans.
While we believe our loan loss reserve is adequate, there can be no assurance
that our allowance for loan loss will be adequate to cover significant losses
that we might incur in the future. Also, risks associated with these loans and
losses incurred on these loans might result in higher provisions for loan losses
in the future.
Historically, we have emphasized our loss experience over other factors in
establishing the provision for loan losses. We review the allowance for loan
losses in relation to (i) our past loan loss experience, (ii) known and inherent
risks in our portfolio, (iii) adverse situations that may affect the borrower's
ability to repay, (iv) the estimated value of any underlying collateral, and (v)
current economic conditions. Because of the increased coverage of the allowances
for loan losses to total loans, management believes the allowance for loan
losses is at a level that is considered to be adequate to provide for estimated
losses; however, there can be no assurance that further additions will not be
made to the allowance and that such losses will not exceed the estimated amount.
Noninterest Expense. Our noninterest expense increased by $ 221,000 or 27.4%
from $ 804,000 for the year ended June 30, 1996 to $ 1,025,000 for the year
ended June 30, 1997. The increase was primarily attributable to the one-time
special SAIF assessment of $ 161,000 and an increased in our pension expense of
$ 36,000. Our pension expense increased due to changes made in our plan's
actuarial assumptions and funding limitations. Pursuant to the Economic Growth
and Paperwork Reduction Act of 1996 (the "Act"), the FDIC imposed a special
assessment on SAIF members to capitalize the SAIF at the designated reserve
level of 1.25% as of October 1, 1996. Based on our deposits as of March 31,
1995, the date for measuring the amount of the special assessment pursuant to
the Act, our special assessment was
3
<PAGE>
$ 161,000. Due to the recapitalization of the SAIF, we expect lower premiums for
deposit insurance in future periods. The SAIF insurance assessment rate paid by
us before the recapitalization of SAIF was 23(cent) per $ 100 of deposits and
decreased to 6.5(cent) per $ 100 of deposits after the recapitalization of SAIF.
Pursuant to the Act, we will pay, in addition to our normal deposit insurance
premium as a member of the SAIF, an annual amount equal to approximately 6.5
basis points of outstanding SAIF-deposits toward the retirement of the Financing
Corporation Bonds ("Fico Bonds") issued in the 1980s to assist in the recovery
of the savings and loan industry. Members of the Bank Insurance Fund ("BIF"), by
contrast, will pay, in addition to their normal deposit insurance premium,
approximately 1.3 basis points. Beginning no later than January 1, 2000, the
rate paid to retire the Fico Bonds will be equal for members of the BIF and the
SAIF. The Act also provides for the merging of the BIF and the SAIF by January
1, 1999 provided there are no financial institutions still chartered as savings
associations at that time. Should the insurance funds be merged before January
1, 2000, the rate paid by all members of this new fund to retire the Fico Bonds
would be equal.
Income Tax Benefit. Our income tax benefit for the year ended June 30, 1997 was
$ 67,000 compared to $ 8,000 expense for the year ended June 30, 1996. The $
75,000 decrease was the result of pre-tax income decreasing by $ 170,000, which
was primarily the result of the SAIF special insurance assessment and the
increase in our pension expense. Additionally, we invest in tax-exempt
securities which provides us with nontaxable income.
Liquidity and Capital Resources
We are required to maintain minimum levels of liquid assets as defined by OTS
regulations. This requirement, which varies from time to time depending upon
economic conditions and deposit flows, is based upon a percentage of our
deposits and short-term borrowings. The required ratio currently is 5.0% and our
liquidity ratio average was 26.13% and 21.72% at June 30, 1997 and June 30,
1996, respectively.
Our primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investments and interest-bearing
deposits, funds provided from operations and advances from the FHLB of
Pittsburgh. While scheduled repayments of loans and mortgage-backed securities
and maturities of investment securities are predicable sources of funds, deposit
flows, and loan prepayments are greatly influenced by the general level of
interest rates, economic conditions and competition. We use our liquidity
resources principally to fund existing and future loan commitments, to fund
maturing certificates of deposit and demand deposit withdrawals, to invest in
other interest-earning assets, to maintain liquidity, and to meet operating
expenses.
Net cash provided (used) by our operating activities (the cash effects of
transactions that enter into our determination of net income -- e.g., non-cash
items, amortization and depreciation,
4
<PAGE>
provision for loan losses) for the year ended June 30, 1997 was $ (9,000) as
compared to $ 66,000 for the year ended June 30, 1996.
Net cash used in our investing activities for the year ended June 30, 1997
totalled $ 1.6 million, a decrease of $ 4.0 million from the net cash used at
June 30, 1996 of $ 5.6 million. The decrease in cash was due to $ 3.5 million
less in net investment purchases and the use of $ 800,000 to construct and equip
the new branch.
Net cash provided by our financing activities (i.e., cash receipts primarily
from net increases in deposits and net FHLB advances) for fiscal 1997 totalled $
3.2 million. This is primarily a result of a borrowing from the FHLB of $ 3.0
million and an increase in deposits of $ 250,000.
Item 7. Financial Statements
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5
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Hinds, Lind, Miller & Co.
A PROFESSIONAL CORPORATION
CERTIFIED PUBLIC ACCOUNTANTS
9401 McKnight Road Phone (412) 364-6070
Pittsburgh, Pennsylvania 15237-6000 Fax (412) 364-6176
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Workingmens Savings Bank, F.S.B. and Subsidiary
We have audited the accompanying consolidated balance sheets of Workingmens
Savings Bank, F.S.B. and Subsidiary ("Bank") at June 30, 1997 and 1996 (as
restated), and the related consolidated statements of income, changes in
retained earnings, and cash flows for the years ended June 30, 1997 and June 30,
1996 (as restated). These consolidated financial statements are the
responsibility of the Bank'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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Workingmens Savings
Bank, F.S.B. and Subsidiary at June 30, 1997 and 1996 (as restated), and the
results of their operations and their cash flows for the years ended June 30,
1997 and June 30, 1996 (as restated) in conformity with generally accepted
accounting principles.
/s/Hinds, Lind, Miller & Co.
Pittsburgh, Pennsylvania
September 18, 1997
6
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
(As Restated)
------------- -------------
<S> <C> <C>
Cash and cash equivalents:
Interest bearing $ 2,547,897 $ 984,667
Non-interest bearing 256,907 221,364
Securities held-to-maturity (estimated fair
value of $ 11,980,618 and $ 10,782,060) 12,007,456 10,892,081
Securities available-for-sale, at fair value 2,684,039 3,317,811
Loans and real estate, net 14,590,996 13,628,724
Federal Home Loan Bank stock, at cost 153,300 133,200
Accrued interest receivable 299,469 235,434
Premises and equipment, net 1,057,667 1,072,594
Other assets 146,503 83,382
Income taxes receivable - 3,537
Deferred income taxes 52,426 9,088
------------ ------------
$ 33,796,660 $ 30,581,882
============ ============
LIABILITIES AND RETAINED EARNINGS
Deposits $ 28,405,775 $ 28,156,791
Federal Home Loan Bank advances 3,000,000 -
Advances from borrowers for taxes and insurance 233,818 278,488
Accrued expenses and other liabilities 113,272 59,446
------------ ------------
31,752,865 28,494,725
------------ ------------
Commitments and contingencies
Retained earnings 2,063,990 2,128,450
Net unrealized gain (loss) on
securities available-for-sale,
net of applicable income taxes
of $ (9,124) and $ (28,695) (20,195) (41,293)
------------ ------------
2,043,795 2,087,157
------------ ------------
$ 33,796,660 $ 30,581,882
============ ============
</TABLE>
See accompanying notes.
7
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
(As Restated)
----------- -----------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans $ 1,176,149 $ 1,122,699
Investments 1,021,953 781,105
Other interest earning assets 90,343 149,012
----------- -----------
TOTAL INTEREST AND DIVIDEND INCOME 2,288,445 2,052,816
----------- -----------
INTEREST EXPENSE
Deposits 1,246,448 1,256,267
Advances from FHLB 98,571 -
----------- --------
TOTAL INTEREST EXPENSE 1,345,019 1,256,267
----------- -----------
NET INTEREST INCOME 943,426 796,549
PROVISION FOR LOAN LOSSES 136,039 35,142
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 807,387 761,407
----------- -----------
NONINTEREST INCOME
Service charges and other fees 83,330 72,441
Net gain (loss) on sales of
securities available-for-sale (1,608) 969
Income from real estate rental 4,300 7,825
Net gain on sale of foreclosed
real estate - 650
----------- -----------
TOTAL NONINTEREST INCOME 86,022 81,885
----------- -----------
NONINTEREST EXPENSE
Compensation and benefits 423,786 354,638
Occupancy and equipment expense 142,352 106,517
Insurance premiums 208,873 69,365
Other 249,986 273,956
----------- -----------
TOTAL NONINTEREST EXPENSE 1,024,997 804,476
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (131,588) 38,816
INCOME TAX EXPENSE (BENEFIT) (67,128) 7,974
----------- -----------
NET INCOME (LOSS) $ (64,460) $ 30,842
=========== ===========
</TABLE>
See accompanying notes.
8
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS
Years Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN (LOSS) ON
SECURITIES
RETAINED AVAILABLE-FOR-
EARNINGS SALE TOTAL
--------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT JULY 1, 1995 $ 2,097,608 $ 3,718 $ 2,101,326
Change in unrealized gain (loss) on
securities available-for-sale,
net of applicable income tax
benefit of $ (31,278) - (45,011) (45,011)
Net income 30,842 - 30,842
----------- ----------- -----------
BALANCE AT JUNE 30, 1996 2,128,450 (41,293) 2,087,157
Change in unrealized gain (loss) on
securities available-for-sale, net
of applicable income taxes of
$ 19,571 - 21,098 21,098
Net income (loss) (64,460) - (64,460)
----------- ----------- -----------
BALANCE AT JUNE 30, 1997 $ 2,063,990 $ (20,195) $ 2,043,795
=========== =========== ===========
</TABLE>
See accompanying notes.
9
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
(As Restated)
----------- -----------
<S> <C> <C>
OPERATIONS
Net income (loss) $ (64,460) $ 30,842
Adjustments to reconcile
net income (loss) to net cash provided
by operating activities:
Amortization of:
Deferred loan origination fees (4,411) (13,367)
Premiums and discounts on loans
and investment securities 2,010 5,808
Provision for loan losses 136,039 35,142
(Gain) loss on sales of
real estate owned - (650)
Net (gain) loss on sales of
securities available-for-sale 1,608 (969)
Depreciation of premises
and equipment 53,170 41,859
(Increase) decrease in:
Accrued interest receivable (64,035) (67,082)
Other assets (63,121) (16,563)
Income taxes receivable 3,537 30,483
Deferred income taxes (62,909) 12,395
Increase (decrease) in:
Accrued expenses and
other liabilities 53,826 8,238
----------- -----------
NET CASH PROVIDED (USED) BY OPERATIONS (8,746) 66,136
----------- -----------
INVESTMENT ACTIVITIES
Purchases of securities held-to-maturity (4,710,730) (9,665,088)
Proceeds from maturities of and principal
repayments on securities held-to-maturity 3,595,776 5,151,167
Purchases of securities available-for-sale - (503,594)
Proceeds from maturities of
and principal repayments on
securities available-for-sale 439,033 393,280
Proceeds from sales of securities available-
for-sale 231,369 675,969
Net loan originations and principal
repayments on loans (1,093,900) (1,010,211)
Proceeds from sales of real estate owned - 160,827
Capitalized improvements on real estate owned - (2,150)
Net (purchase) sale of Federal
Home Loan Bank stock (20,100) 6,400
Purchases of premises and equipment (38,243) (809,049)
----------- -----------
NET CASH USED BY INVESTMENT ACTIVITIES (1,596,795) (5,602,449)
----------- -----------
</TABLE>
See accompanying notes.
10
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
(As Restated)
------------ -----------
<S> <C> <C>
FINANCING ACTIVITIES
Net increase in deposits $ 248,984 $ 2,377,906
Net proceeds from FHLB advances 3,000,000 -
Net decrease in advances from borrowers
for taxes and insurance (44,670) (62,438)
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,204,314 2,315,468
------------ -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 1,598,773 (3,220,845)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 1,206,031 4,426,876
------------ -----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 2,804,804 $ 1,206,031
============ ===========
SUPPLEMENTAL DISCLOSURES Cash paid during the period for:
Interest on deposits, advances,
and other borrowings $ 1,299,115 $ 1,235,757
Income taxes $ - $ -
Noncash investing and financing activities:
Transfer from loans to real estate owned $ - $ 106,949
Transfers from securities held to maturity
to securities available-for-sale,
at amortized cost $ - $ 2,564,286
Total increase (decrease) in unrealized
gain (loss) on securities
available-for-sale $ 40,669 $ (76,289)
Less: income tax expense (benefit) (19,571) 31,278
------------ -----------
Net increase (decrease) in unrealized
gain (loss) on securities
available-for-sale $ 21,098 $ (45,011)
============ ===========
</TABLE>
See accompanying notes.
11
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Workingmens Savings Bank and Subsidiary
(the "Bank") and the methods of applying those policies conform with generally
accepted accounting principles. The accounting and reporting policies and the
methods of applying those policies which significantly affect the determination
of financial position, results of operations, and cash flows are summarized
below.
Nature of Operations
Workingmens Savings Bank, F.S.B. is a federally chartered, Savings Association
Insurance Fund (SAIF) insured mutual savings bank conducting its business from
its two locations in the Northside section of the City of Pittsburgh and South
Hills suburb of Pittsburgh. The Bank's principal sources of revenue emanate from
its portfolio of residential real estate mortgage loans and investment
securities.
The Bank is subject to regulation and supervision by the Federal Deposit
Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses. In connection with
the determination of the allowance for loan losses, management obtains
independent appraisals for significant properties.
A majority of the Bank's loan portfolio consists of single-family residential
loans in the Pittsburgh area. The regional economy is currently stable and
consists of various types of industry. Real estate prices in this market are
also stable, however, the ultimate collectibility of a substantial portion of
the Bank's loan portfolio are susceptible to changes in local market conditions.
While management uses available information to recognize losses on loans and
foreclosed real estate, further reductions in the carrying amounts of loans and
foreclosed assets may be necessary based on changes in local economic
conditions. In addition, regulatory agencies, as an integral part of their
examination process, periodically, review the estimated losses on loans and
foreclosed real estate. Such agencies may require the Bank to recognize
additional losses based on their judgments about information available to them
at the time of their examination. Because of these factors, it is reasonably
possible that the estimated losses on loans and foreclosed real estate may
change materially in the near term. However, the amount of the change that is
reasonably possible cannot be estimated.
12
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
Principles of Consolidation
The consolidated financial statements include the accounts of the Bank and its
wholly-owned subsidiary, Workingmens Service Corporation. Intercompany balances
and transactions have been eliminated. Workingmens Service Corporation is
currently inactive and its impact on the consolidated financial statements is
insignificant.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Bank considers cash on hand and
deposits in other financial institutions with an original maturity of ninety
(90) days or less to be cash and cash equivalents.
Investment and Mortgage-Backed Securities
The Bank follows the provisions of Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". Accordingly, management determines the appropriate classification
of securities at the time of purchase and reevaluates such designation as of
each balance sheet date. Debt securities are classified as held-to-maturity when
the Bank has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost.
Debt securities not classified as held-to-maturity are classified as
available-for- sale. Available-for-sale securities are stated at fair value,
with the unrealized gains and losses, net of tax, reported as a separate
component of retained earnings.
The amortized cost of debt securities classified as held-to-maturity or
available-for- sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest income
from investments. Interest and dividends are included in interest income from
investments. Realized gains and losses, and declines in value judged to be
other-than-temporary are included in gain (loss) on sale of investments. The
cost of securities sold is based on the specific identification method.
In October, 1994 the Financial Accounting Standards Board ("FASB") issued SFAS
No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments." SFAS No. 119 established disclosures about derivatives
and other financial instruments. Derivatives are various instruments used to
construct a transaction that is derived from and reflects the underlying value
of assets, other instruments or various indices. The primary purpose of
derivatives, which include such items as forward contracts, interest rate swaps,
options and futures, is to transfer price risk associated with the fluctuations
in asset values rather than to borrow or lend funds. At present, the Bank does
not invest in such derivative instruments for trading, investing, hedging or
other purposes.
13
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
Loans Receivable
Loans receivable are stated at unpaid principal balances, less the allowance for
loan losses and net deferred loan-origination fees.
Loan origination fees, as well as certain direct origination costs, are deferred
and amortized as a yield adjustment over the lives of the related loans using
the interest method.
Uncollected interest on loans is periodically reviewed. An allowance is
established based on management's periodic evaluation for interest deemed
uncollectible. The allowance is established by a charge to interest income equal
to all interest previously accrued, and income is subsequently recognized only
to the extent cash payments are received until, in management's judgment, the
borrower is able to make periodic interest and principal repayments, as
scheduled, in which case the loan is returned to accrual status.
The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions. Allowances for impaired loans are
generally determined based on collateral values or the present value of
estimated cash flows. While management believes it uses the best information
available to make evaluations, future adjustments to the allowances may be
necessary if circumstances differ substantially from the assumptions used in
making the evaluations.
Effective July 1, 1995, the Bank adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan", as
amended by Statement No. 118, "Accounting by Creditors for Impairment of a Loan
- - Income Recognition and Disclosures." These Statements prescribe recognition
criteria for loan impairment, generally related to commercial loans, and
multi-family real estate loans, and measurement methods for certain impaired
loans and all loans whose terms are modified in trouble debt restructurings
subsequent to the adoption of these Statements. A loan is considered impaired
when it is probable that the borrower will not repay the loan according to the
original contractual terms of the loan agreement.
Management has determined that first mortgage loans on one-to-four family
properties, home equity, second mortgage loans, and all consumer loans are large
groups of smaller-balance homogenous loans are to be collectively evaluated.
Accordingly, such loans are outside the scope of Statement Nos. 114 and 118.
Management considers an insignificant delay, which is determined as 90 days by
the Bank, will not cause a loan to be classified as impaired. A loan is not
impaired during a period of delay in payment if the Bank expects to collect all
amounts due including interest accrued at the contractual interest rate for the
period of delay. All loans identified as impaired are evaluated independently by
management.
14
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
Under this Standard, the Bank estimates credit losses in impaired loans based on
the present value of expected cash flows or the fair value of the underlying
collateral if the loan repayment is expected to come from the sale or operation
of such collateral. Statement No. 118 amends Statement No. 114 to permit a
creditor to use existing methods for recognizing interest income in impaired
loans eliminating the income recognition provisions of Statement No. 114. Prior
to 1995, the credit losses related to these loans were estimated based on
undiscounted cash flows or the fair value of the underlying collateral. The
adoption of the statements did not have a material effect on the Bank's
financial position or results of operations.
Real Estate Owned
Real estate acquired by foreclosure or voluntary deed in lieu of foreclosure is
initially carried at the lower of fair value minus estimated disposal costs or
the balance of the loan on the property at the date of acquisition. Any
write-downs based on the asset's fair value at date of acquisition are charged
to the allowance for loan losses. Subsequent costs directly related to the
development or improvement of real estate are capitalized. Other costs of
maintaining real estate ($ 0 and $ 8,014 in fiscal years 1997 and 1996,
respectively) are charged to income as incurred and are reported in "Other
Noninterest Expense."
Federal Home Loan Bank Stock
Investment in stock of a Federal Home Loan Bank is required by law of every
federally insured savings and loan or savings bank. The investment is carried at
cost. No ready market exists for the stock, and it has no quoted market value.
Premises and Equipment
Land is carried at cost. Buildings, leasehold improvements, and furniture,
fixtures, and equipment are carried at cost, less accumulated depreciation and
amortization. Buildings, leasehold improvements, and furniture, fixtures, and
equipment are depreciated using the straight-line method over the estimated
useful lives of the assets (ranging from 5 to 70 years).
15
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
Income Taxes
The Bank and its subsidiary follow the practice of filing federal consolidated
income tax returns. Income taxes are allocated to the Bank as though separate
returns are being filed.
Income taxes are provided for the tax effects of the transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of available-for-sale
securities, allowance for loan losses, estimated losses on foreclosed real
estate, and accumulated depreciation for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Deferred tax assets and liabilities
are reflected at income tax rates applicable to the period in which the deferred
tax assets or liabilities are expected to be realized or settled. As changes in
tax laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
Pension Plan
The Bank has a pension plan covering substantially all employees. It is the
policy of the Bank to fund the maximum amount that can be deducted for federal
income tax purposes but in amounts not less than the minimum amounts required by
law.
Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires disclosure of fair value information
about financial instruments, whether or not recognized in the statement of
financial condition. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instruments. Statement No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts present do not represent the
underlying value of the Bank.
The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the statements of
financial condition for cash and cash equivalents approximate those assets' fair
values.
Investment and mortgage-backed securities: Fair values for investments and
mortgage-backed securities are based on quoted market prices, where available.
If quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
16
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
Loans: The fair values for loans are estimated using discounted cash flow
analysis, based on interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Loan fair value estimates include
judgments regarding future expected loss experience and risk characteristics.
Fair values for impaired loans are estimated using discounted cash flow analysis
or underlying collateral values, where applicable. The carrying amount of
accrued interest receivable approximates its fair value.
Federal Home Loan Bank (FHLB) Stock: No ready market exists for this stock and
it has no quoted market value. However, redemption of this stock has
historically been at par value. Accordingly, the carrying amount is deemed to be
a reasonable estimate of fair value.
Deposits: The fair values disclosed for demand deposits are, by definition,
equal to the amount payable on demand at the reporting date (that is, their
carrying amounts). Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits. The carrying amount of accrued interest payable
approximates fair value.
Federal Home Loan Bank (FHLB) advances: Fair values of FHLB advances are
estimated using discounted cash flow analyses based on the Bank's current
incremental borrowing rates for similar types of borrowing arrangements.
Advances from borrowers for taxes and insurance: The carrying amount of advances
from borrowers for taxes and insurance approximate fair value.
Off-Balance sheet items: Fair value of these items approximate their contractual
amounts.
17
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
NOTE B - SECURITIES HELD-TO-MATURITY
The amortized cost and estimated fair values of securities held-to-maturity as
of June 30, are as follows:
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
U.S. Government and
government agency
obligations $ 11,882,290 $ 22,193 $ (46,412) $ 11,858,071
Collateralized mortgage
obligations:
Government agency 73,843 - (2,221) 73,443
Private 51,323 - (400) 49,102
------------ --------- ---------- ------------
$ 12,007,456 $ 22,193 $ (49,033) $ 11,980,616
============ ========= ========== ============
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
U.S. Government and
government agency
obligations $ 10,744,807 $ 9,138 $ (116,383) $ 10,637,562
Collateralized mortgage
obligations 147,274 - (2,776) 144,498
------------ --------- ---------- ------------
$ 10,892,081 $ 9,138 $ (119,159) $ 10,782,060
============ ========= ========== ============
</TABLE>
18
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
The amortized cost and approximate fair values of securities held-to-maturity at
June 30, 1997, by contractual maturity are shown below. Collateralized mortgage
obligations are not due at a single maturity date; periodic payments are
received on these securities based on the payment patterns of the underlying
collateral.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
------------ ------------
<S> <C> <C>
Due from one year to five years $ 4,598,978 $ 4,581,286
Due from five years to ten years 5,586,816 5,566,669
Due after 10 years 1,696,496 1,710,116
------------ ------------
$ 11,882,290 $ 11,858,071
============ ============
</TABLE>
In November of 1995, the Financial Accounting Standards Board allowed financial
institutions to perform a one-time reassessment of the appropriateness of the
classifications of all securities held at that time. Any transfers from the
held-to- maturity classification as a result of this one-time reassessment would
not question the Bank's intent and ability to hold other debt securities to
maturity in the future. Accordingly, the Bank transferred securities
held-to-maturity with an amortized cost of $ 2,564,286 to securities
available-for-sale.
NOTE C - SECURITIES AVAILABLE-FOR-SALE
The amortized cost and estimated fair values of securities available-for-sale as
of June 30, are as follows:
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
----------- -------- --------- -----------
<S> <C> <C> <C> <C>
Mortgage-backed securities:
Federal Home Loan Mortgage
Corporation $ 90,610 $ 1,281 $ - $ 91,891
Government National Mortgage
Association 1,352,482 19,660 (2,407) 1,369,735
Federal National Mortgage
Association 456,103 - (12,629) 443,474
FHLMC Preferred Stock 256,750 - (8,000) 248,750
Corporate Bonds/Notes 499,267 - (12,687) 486,580
Collateralized mortgage
obligations:
Government Agency 58,146 - (14,537) 43,609
----------- -------- --------- -----------
$ 2,713,358 $ 20,941 $ (50,260) $ 2,684,039
=========== ======== ========= ===========
</TABLE>
19
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
----------- -------- --------- -----------
<S> <C> <C> <C> <C>
Mortgage-backed securities:
Federal Home Loan Mortgage
Corporation $ 235,181 $ - $ (186) $ 234,995
Government National
Mortgage Association 1,581,105 15,004 (6,849) 1,589,260
Federal National
Mortgage Association 502,050 - (22,559) 479,491
FHLMC Preferred Stock 256,750 2,000 (3,750) 255,000
Municipal bonds 227,898 - (2,683) 225,215
Corporate notes 499,181 - (18,852) 480,329
Collateralized mortgage
obligations 85,634 - (32,113) 53,521
----------- ---------- ---------- -----------
$ 3,387,799 $ 17,004 $ (86,992) $ 3,317,811
=========== ========== ========== ===========
</TABLE>
At June 30, 1997, securities available-for-sale with an amortized cost of
$499,267 and estimated fair values of $ 486,580 mature from one year to five
years. Mortgage-backed securities and collateralized mortgage obligations are
not due at a single maturity date; periodic payments are received on these
securities based on the payment patterns of the underlying collateral. FHLMC
preferred stock shares do not have a maturity date, however, these shares may be
called at a future date.
20
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
NOTE D - LOANS AND REAL ESTATE
Loans and real estate at June 30, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
First mortgage loans:
Secured by 1-to-4 family residences $ 11,034,886 $ 10,482,481
Secured by over 4 family units 1,294,595 1,350,604
Commercial 598,866 665,797
Home equity and second mortgage loans 1,213,212 855,454
Lease pools 4,043 6,337
Share loans 396,133 172,527
Consumer loans 267,773 185,154
Real estate owned - -
------------ ------------
14,809,508 13,718,354
Allowance for loan losses (208,791) (75,694)
Deferred loan origination fees (9,721) (13,936)
------------ ------------
$ 14,590,996 $ 13,628,724
============ ============
</TABLE>
The Bank conducts its business through two offices located in Pittsburgh,
Pennsylvania. As of June 30, 1997, the majority of the Bank's loan portfolio was
secured by properties located in this region. The Bank evaluates each customer's
credit worthiness on a case-by-case basis. Collateral held includes mortgages on
residential and income-producing properties. The Bank does not believe it has
significant concentration of credit risk to any one group of borrowers given its
underwriting and collateral requirements.
In accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan", no loans in non-homogenous groups were determined to be impaired for the
year ended or as of June 30, 1997. Commercial real estate, multi-family
residential and participation loans are included in the non-homogenous group.
First mortgage loans which are contractually past due ninety days or more total
approximately $ 743,000 at June 30, 1997. The amount the Bank will ultimately
realize from these loans could differ materially from their carrying value
because of unanticipated future developments affecting the underlying collateral
or the borrower's ability to repay the loans. If collection efforts are
unsuccessful, these loans will be subject to foreclosure proceedings in the
ordinary course of business. Management believes that the Bank has adequate
collateral on these loans and additional losses are not expected to occur in the
event of foreclosure.
21
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
Activity in the allowance for loan losses at June 30, is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Beginning balance $ 75,694 $ 89,010
Provision for loan losses 136,039 35,142
Charge-offs (4,091) (58,636)
Recoveries 1,149 10,178
----------- ------------
Ending balance $ 208,791 $ 75,694
=========== ============
</TABLE>
In the ordinary course of business, the Bank has and expects to continue to have
transactions, including borrowings, with its officers, directors, and their
affiliates (totalling $ 74,397 at June 30, 1997). In the opinion of management,
such transactions were on substantially the same terms, including interest rates
and collateral, as those prevailing at the time of comparable transactions with
other persons and did not involve more than a normal risk of collectibility or
present any other unfavorable features to the Bank.
NOTE E - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following at June 30:
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Loans $ 156,714 $ 88,352
Investments 217,602 187,073
----------- ------------
374,316 275,425
Allowance for uncollectible
interest (74,847) (39,991)
----------- ------------
$ 299,469 $ 235,434
=========== ============
</TABLE>
NOTE F - PREMISES AND EQUIPMENT
Premises and equipment at June 30, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cost:
Land $ 121,027 $ 121,027
Buildings and improvements 991,989 977,976
Furniture, fixtures, and
equipment 394,689 370,459
----------- -----------
1,507,705 1,469,462
Accumulated depreciation (450,038) (396,868)
----------- -----------
$ 1,057,667 $ 1,072,594
=========== ===========
</TABLE>
In November of 1995, the Bank opened the South Hills branch office at a total
cost including equipment of approximately $ 890,000.
22
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
NOTE G - DEPOSITS
Deposits at June 30, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------- -------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RATE AMOUNT RATE AMOUNT
--------- ------------- --------- ------------
<S> <C> <C> <C> <C>
NOW accounts 0.00% $1,613,841 0.00 % $1,440,445
Passbook savings 3.19 10,295,942 3.18 9,998,620
-------- ----------- -------- -----------
2.76% 11,909,783 2.77 % 11,439,065
-------- ----------- -------- ----------
Certificates of deposit:
3.00% to 3.99% 3.00 3,675 0.00 0
4.00% to 4.99% 4.96 1,952,445 4.62 2,150,893
5.00% to 5.99% 5.42 8,797,914 5.55 11,132,426
6.00% to 6.99% 6.24 4,574,096 6.63 2,664,629
7.00% to 7.99% 7.09 1,167,862 7.2 769,778
-------- ----------- -------- -----------
5.71% 16,495,992 5.68% 16,717,726
-------- ----------- -------- -----------
4.47% $28,405,775 4.5% $28,156,791
======== =========== ======== ===========
</TABLE>
At June 30, 1997, the aggregate maturities of certificates of deposit in fiscal
years 1998 through 2002 is $ 11,180,988, $ 1,914,225, $ 1,529,209, $ 1,017,860
and $ 853,710, respectively. The aggregate amount of certificates in
denominations of $ 100,000 or more totaled $ 1,766,018.
Deposits in excess of $ 100,000 are not insured by the Savings Association
Insurance Fund (SAIF).
At June 30, 1997, the Bank had deposits from its officers and directors
totalling $ 335,841.
Interest expense and accrued interest payable on deposits consisted of the
following at June 30:
<TABLE>
<CAPTION>
ACCRUED INTEREST PAYABLE INTEREST EXPENSE
------------------------------------- -------------------------------------
1997 1996 1997 1996
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Passbook savings $ 1,561 $ 1,530 $ 319,945 $ 328,500
Certificate accounts 51,068 37,500 926,503 927,767
-------------- ------------- ------------- -------------
Total interest on deposits $ 52,629 $ 39,030 $1,246,448 $1,256,267
============ ============ =========== ===========
</TABLE>
23
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
NOTE H - ADVANCES FROM FEDERAL HOME LOAN BANK
At June 30, 1997, the Bank had the following outstanding advances from the
Federal Home Loan Bank (FHLB):
<TABLE>
<CAPTION>
ISSUE MATURITY INTEREST
DATE DATE RATE AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
10/25/96 10/25/01 5.78% $ 1,000,000
3/19/97 12/19/01 5.86% 1,000,000
3/26/97 9/26/97 5.93% 1,000,000
-----------
$ 3,000,000
===========
</TABLE>
Certain mortgage loans are pledged as collateral on the outstanding advances.
The Bank had no outstanding advances at June 30, 1996.
NOTE I - PENSION PLAN
The Bank has a qualified, noncontributory defined benefit retirement plan
covering substantially all of its employees. The benefits are based on each
employee's years of service up to a maximum of 25 years, and the average of the
highest five consecutive annual salaries excluding the four years prior to
retirement. The benefits are reduced by a specified percentage for each year of
participation less than 25 years. An employee becomes fully vested upon
completion of six years of qualifying service.
The following table sets forth the plan's funded status as the latest dates
valuations were prepared:
<TABLE>
<CAPTION>
JUNE 30, NOVEMBER
1997 30, 1996
--------- ---------
<S> <C> <C>
Vested accumulated benefit obligation $ 230,341 $ 254,152
Nonvested accumulated benefit obligation 1,280 2,750
--------- ---------
Accumulated benefit obligation 231,621 256,902
Effect of projected salary increases (1) 99,981
--------- ---------
Projected benefit obligation 231,620 356,883
Fair value of plan assets 315,032 277,899
--------- ---------
Plan assets in excess of project benefit
obligation (unfunded projected benefit
obligation) 83,412 (78,984)
Unrecognized net (gain) loss (97,685) 58,294
Unrecognized net obligation 1,310 1,432
--------- ---------
Prepaid pension cost (pension liability) $ (12,963) $ (19,258)
========= =========
</TABLE>
24
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
The following table represents certain significant assumptions used in
determining the actuarial present value of the projected benefit obligations and
the net periodic pension costs at June 30, 1997 and November 30, 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Weighted average discount rate used to
calculate benefit obligations 7.00% 7.00%
Assumed rate of future compensation
increases 4.00% 4.00%
Expected long-term rate of return of
plan assets 7.50% 7.50%
</TABLE>
Components of net pension cost are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Service cost $ 27,982 $ 25,447
Interest cost 25,378 22,543
Actual return on plan assets (11,197) (22,232)
Net amortization on deferrals (5,766) 6,639
--------- ---------
Net periodic pension cost $ 36,397 $ 32,397
========= =========
</TABLE>
25
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
NOTE J - INCOME TAXES
Income tax expense (benefit) for the years ended June 30, is summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
--------- -----------
<S> <C> <C>
Federal:
Current (benefit) $ (1,935) $ (1,838)
Deferred (65,193) 9,812
--------- ----------
$ (67,128) $ 7,974
========= ==========
State:
Current $ - $ -
========= ==========
Totals:
Current (benefit) $ (1,935) $ (1,838)
Deferred (65,193) 9,812
--------- ----------
$ (67,128) $ 7,974
========= ==========
</TABLE>
The differences between actual income tax expense (benefit) and the amount
computed by applying the federal statutory income tax rate of 34% to income
before income taxes for the years ended June 30, are reconciled as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Computed income tax expense (benefit) $ (44,740) $ 13,197
Increase (decrease) resulting in:
Tax-exempt income (7,271) (15,614)
Other, net (15,117) 10,391
--------- ---------
Actual income tax
expense (benefit) $ (67,128) $ 7,974
========= =========
Effective tax (benefit) rate (51.0)% 20.5%
========= =========
</TABLE>
26
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
The components of net deferred tax assets and liabilities at June 30, are as
follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Loan origination fees, net $ 2,873 $ 2,254
Allowance for loan losses 61,712 12,245
Accrued pension expense 3,831 2,408
Net operating loss carryforward 8,768 -
State net operating loss carryforward 39,000 16,000
Unrealized loss on securities
available-for-sale 9,124 28,695
--------- ---------
125,308 61,602
--------- ---------
Deferred tax liabilities:
Premises and equipment (12,748) (3,218)
Accrued interest receivable (21,134) (31,182)
Section 481(a) adjustment - loan fees - (2,114)
--------- ---------
(33,882) (36,514)
--------- ---------
91,426 25,088
--------- ---------
Valuation allowance (39,000) (16,000)
--------- ---------
Net deferred asset $ 52,426 $ 9,088
========= =========
</TABLE>
The Bank's annual addition to its reserve for bad debts allowed under the
Internal Revenue Code may differ significantly from the bad debt expense used
for financial statement purposes. Such bad debt deductions for income tax
purposes are included in taxable income of later years only if the bad debt
reserves are used for purposes other than to absorb bad debt losses. Since the
Bank does not intend to use the reserve for purposes other than to absorb
losses, no deferred income taxes have been provided on the amount of bad debt
reserves for tax purposes that arose in tax years beginning before December 31,
1987, in accordance with SFAS No. 109. Therefore, retained earnings at June 30,
1997 and 1996, includes approximately $ 143,000, representing such bad debt
deductions for which no deferred income taxes have been provided.
The use of the reserve method of accounting for thrift bad debt reserves has
been repealed for the tax year beginning after June 30, 1996. The law provides
that all thrifts must recapture into taxable income their post-1987 excess
reserves over a six-year period. Since the Bank has no such excess reserves, no
provision for income tax was needed to be recorded for the year ended June 30,
1997.
The Bank has available Pennsylvania net operating loss carryforwards of
approximately $ 340,000. This carryforward can be utilized in fiscal years 1998
through 2000. The deferred tax benefit associated with this loss carryforward is
approximately $ 39,000. This benefit has been fully reserved.
27
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
NOTE K - INTEREST AND DIVIDEND INCOME ON INVESTMENTS
Interest and dividend income on investments consisted of the following at June
30:
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
Taxable interest income $ 997,135 $ 724,332
Nontaxable interest income 5,120 37,075
Dividends 19,698 19,698
----------- ---------
$ 1,021,953 $ 781,105
=========== =========
</TABLE>
NOTE L - OTHER NONINTEREST INCOME AND EXPENSE
Other noninterest income and expense amounts are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED
JUNE 30,
---------------------------------
1997 1996
--------- ---------
<S> <C> <C>
Service charges and other fees:
Bank service charges and fees $ 69,344 $ 55,344
Loan late charges 13,621 16,512
Insurance commissions 365 585
--------- ---------
$ 83,330 $ 72,441
========= =========
Other noninterest expense:
Service bureau expense $ 63,949 $ 58,972
FHLB bank account expense 44,144 41,235
Advertising and promotion 12,644 28,284
Loan expenses 15,939 17,266
Real estate owned expense - 8,014
Dues and subscriptions 7,019 8,331
ATM expense 18,974 7,478
Professional and supervisory fees 29,308 31,790
Printing, stationery, and supplies 15,519 19,096
Telephone and postage 16,376 15,956
Seminars and training 1,037 1,994
Other insurance 16,376 17,839
Miscellaneous 8,701 17,701
--------- ---------
$ 249,986 $ 273,956
========= =========
</TABLE>
28
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
NOTE M - COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank has various outstanding commitments
and contingent liabilities that are not reflected in the accompanying financial
statements. The financial commitments of the Bank are as follows:
The Bank has outstanding commitments to originate loans as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
First mortgage loans $ 106,000 $ 158,000
Secured consumer (unused
lines of credit) loans $ 386,000 $ 323,000
</TABLE>
The range of interest rates on fixed rate first mortgage loan commitments was
8.00% to 8.25% at June 30, 1997.
NOTE N - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amounts recognized in the statements of financial condition.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit is
represented by the contractual notional amount of those instruments (See Note
M). The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on- balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount and type of collateral
obtained, upon extension of credit, varies and is based on management's credit
evaluation of the counterparty.
NOTE O - DEPOSIT INSURANCE ASSESSMENT
The Bank incurred an expense for the year ended June 30, 1997 for the one-time
special assessment levied by the omnibus appropriation bill to recapitalize the
SAIF insurance fund. The special assessment for deposit insurance premiums was
approximately $ 161,000, with an after tax impact of approximately $ 108,000.
Effective January 1, 1997, the Bank began paying reduced premium assessments in
accordance with the new SAIF assessment rates.
29
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
NOTE P - FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial instruments as of June 30, are
as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------------- -------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash
equivalents $ 2,804,804 $ 2,804,804 $ 1,206,031 $ 1,206,031
Investment and mortgage-
backed securities 14,691,495 14,664,657 14,209,892 14,099,871
Loans 14,590,996 14,794,171 13,628,724 14,333,010
FHLB stock 153,300 153,300 133,200 133,200
Accrued interest
receivable 299,469 299,469 235,434 235,434
Financial liabilities:
Deposits 28,405,775 28,445,929 28,156,791 28,192,010
FHLB advances 3,000,000 3,000,000 - -
Advances from borrowers
for taxes and
insurance 233,818 233,818 278,488 278,488
</TABLE>
NOTE Q - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
its primary regulator, The Office of Thrift Supervision (OTS). Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the 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 measure
of the Bank's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank's capital amounts and
classification 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
following table) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of June 30, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
As of June 30, 1997, the most recent notification from the OTS categorized the
Bank as "well capitalized". 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 institution's category.
30
<PAGE>
WORKINGMENS SAVINGS BANK, FSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
<TABLE>
<CAPTION>
FOR CAPITAL TO BE WELL
ACTUAL ADEQUACY PURPOSES: CAPITALIZED
------------------------- ------------------------- ---------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- ------- --------- ------ ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1997
Total Risk-Based Capital
(to Risk-Weighted Assets) 2,240,315 15.88 1,128,480 8.00 1,410,600 10.00
Tier I Capital
(to Risk-Weighted Assets) 2,063,990 14.63 564,240 4.00 846,360 6.00
Tier I Capital
(to Adjusted Total Assets) 2,063,990 6.11 1,351,886 4.00 1,689,833 5.00
Tangible Capital
(to Adjusted Total Assets) 2,063,990 6.11 506,950 1.50 506,950 1.50
As of June 30, 1996
Total Risk-Based Capital
(to Risk-Weighted Assets) 2,204,144 17.26 1,021,360 8.00 1,276,700 10.00
Tier I Capital
(to Risk-Weighted Assets) 2,128,450 16.67 510,680 4.00 766,020 6.00
Tier I Capital
(to Adjusted Total Assets) 2,128,450 6.96 1,223,275 4.00 1,529,094 5.00
Tangible Capital
(to Adjusted Total Assets) 2,128,450 6.96 458,728 1.50 458,728 1.50
</TABLE>
Under the framework, the Association's capital levels do not allow the Bank to
accept brokered deposits without prior approval from regulators.
31
<PAGE>
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
NOTE R - SUBSEQUENT EVENT - CONVERSION
On August 27, 1997, the Bank converted from a federally-chartered mutual savings
bank to a federally-chartered stock savings bank. As part of the conversion, the
Bank became and was renamed Workingmens Bank, a wholly owned subsidiary of WSB
Holding Company which was formed in June 1997. WSB Holding Company offered and
sold to various parties in a subscription offering 330,600 shares of its common
stock. Net proceeds from the stock offering was approximately $ 3,000,000.
NOTE S - PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Subsequent to the issuance of the Bank's June 30, 1996 financial statements,
management became aware that the Bank's defined benefit pension plan expense was
understated. This understatement was due to the Bank's method of recording
pension expense without the use of a current actuarial valuation in accordance
with SFAS No. 87.
The effect on net income of adjustments to the previously issued financial
statements for the year ending June 30, 1996 is, as follows:
<TABLE>
<CAPTION>
<S> <C>
Net income as previously reported $ 34,651
Adjustments:
Pension expense (6,217)
Income tax expense 2,408
--------
Net income as restated $ 30,842
========
</TABLE>
32
<PAGE>
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.
- --------------------------------------------------------------------------------
Section 16(a) of the 1934 Act requires the Company's officers and
directors, and persons who own more than ten percent of the Common Stock, to
file reports of ownership and changes in ownership of the Common Stock, on Forms
3, 4 and 5, with the Securities and Exchange Commission ("SEC") and to provide
copies of those Forms 3, 4 and 5 to the Company. The Company is not aware of any
beneficial owner of more than ten percent of its Common Stock. Based upon a
review of the copies of the forms furnished to the Company, or written
representations from certain reporting persons that no Forms 5 were required,
the Company believes that all Section 16(a) filing requirements applicable to
its officers and directors were complied with during the 1997 fiscal year.
Item 10. Executive Compensation
- ----------------------------------------
The following table sets forth the cash and non-cash compensation
awarded to or earned by the chief executive officer. No other executive officer
of either the Bank or the Company had a salary and bonus during the years ended
June 30, 1997 and 1996 that exceeded $100,000 for services rendered in all
capacities to the Bank or the Company.
Annual Compensation
-------------------
<TABLE>
<CAPTION>
Name and Fiscal Other Annual
Principal Position Year Salary Bonus Compensation(1)
- ------------------ ---- ------ ----- ---------------
<S> <C> <C> <C> <C>
Robert Neudorfer 1997 $61,000 $4,000 $ --
President 1996 61,000 2,750 --
</TABLE>
1) Aggregate value does not exceed the lesser of $50,000 or 10% of Mr.
Neudorfer's salary.
33
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
as of August 27, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of Shares of
Amount and Nature of Common Stock
Name and Address of Beneficial Owner Beneficial Ownership Outstanding
- ------------------------------------ -------------------- -----------
<S> <C> <C>
Workingmens Bank
Employee Stock Ownership Plan ("ESOP")
807 Middle St.
Pittsburgh, Pennsylvania 15212 (1) 26,448 8.0%
Jeffrey L. Gendell
Tontine Partners, L.P.
31 West 52nd Street, 17th Floor
New York, New York 10019 (2) 33,050 9.9%
All directors and officers of the Company as a group (7 70,894 21.4%
persons) (3)
</TABLE>
-------------------------------------
(1) The ESOP purchased such shares for the exclusive benefit of plan
participants with funds borrowed from the Company. These shares are
held in a suspense account and will be allocated among ESOP
participants annually on the basis of compensation as the ESOP debt is
repaid. The ESOP Committee consisting of certain non-employee directors
or the Board instructs the ESOP Trustee regarding investment of ESOP
plan assets. The ESOP Trustee must vote all shares allocated to
participant accounts under the ESOP as directed by participants.
Unallocated shares and shares for which no timely voting direction is
received, will be voted by the ESOP Trustee as directed by the ESOP
Committee.
(2) Based upon a Schedule 13D filed with the Securities and Exchange
Commission, dated September 2, 1997, for which shared voting and
and dispositive power is shown with respect to 33,050 shares.
(3) Includes shares of Common Stock held directly as well as by spouses or
minor children, in trust and other indirect ownership, over which
shares the individuals effectively exercise sole voting and investment
power, unless otherwise indicated. Excludes 26,448 shares held by the
ESOP over which certain non-employee directors, as trustees to the
ESOP, exercise shared voting and investment power. Such individuals
disclaim beneficial ownership with respect to such shares held by the
ESOP.
34
<PAGE>
Item 12. Certain Relationships and Related Transactions
- ----------------------------------------------------------------
The Bank, like many financial institutions, has followed a policy of
granting various types of loans to officers, directors, and employees. The loans
have been made in the ordinary course of business and on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with the Bank's other customers, and do not involve
more than the normal risk of collectibility, or present other unfavorable
features.
Item 13. Exhibits, List, and Reports on Form 8-K
- ---------------------------------------------------------
(a)(3) List of Exhibits:
3(i) Restated Articles of Incorporation of WSB Holding Company *
3(ii) Bylaws of WSB Holding Company **
4 Specimen Stock Certificate **
10 Employment Agreement between the Bank and Robert Neudorfer **
21 Subsidiaries of the Registrant (See "General")
27 Financial Data Schedule (electronic filing only)
- ----------------------------
* Incorporated by reference to the Form 8A (File No. 0-22997) declared
effective by the SEC on August 21, 1997.
** Incorporated by reference to the registration statement on Form SB-2 (File
No. 333- 29389) declared effective by the SEC on July 15, 1997.
(b) Not applicable.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of September 26,
1997.
WSB HOLDING COMPANY
By: /s/Robert Neudorfer
-----------------------------------------------
Robert Neudorfer
President, Chief Executive Officer and Director
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of September 26, 1997.
/s/Robert Neudorfer /s/Joseph J. Manfred
- ----------------------------------------------- ------------------------------
Robert Neudorfer Joseph J. Manfred
President, Chief Executive Officer and Director Chairman of the Board
(Principal Executive and Financial Officer)
/s/Ronald W. Moreschi /s/Stanford H. Rosenberg
- ----------------------------------------------- ------------------------------
Ronald W. Moreschi Stanford H. Rosenberg
Treasurer and Chief Financial Officer Vice President and Director
(Principal Accounting Officer)
/s/John P. Mueller /s/Johanna C. Guehl
- ----------------------------------------------- ------------------------------
John P. Mueller Johanna C. Guehl
Director Director
/s/John T. Ringland
- -----------------------------------------------
John T. Ringland
Director
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 256,907
<INT-BEARING-DEPOSITS> 2,547,897
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,684,039
<INVESTMENTS-CARRYING> 12,007,456
<INVESTMENTS-MARKET> 11,980,618
<LOANS> 14,799,787
<ALLOWANCE> 208,791
<TOTAL-ASSETS> 33,796,660
<DEPOSITS> 28,405,775
<SHORT-TERM> 1,000,000
<LIABILITIES-OTHER> 347,090
<LONG-TERM> 2,000,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 33,796,660
<INTEREST-LOAN> 1,176,149
<INTEREST-INVEST> 1,021,953
<INTEREST-OTHER> 90,343
<INTEREST-TOTAL> 2,288,445
<INTEREST-DEPOSIT> 1,246,448
<INTEREST-EXPENSE> 1,345,019
<INTEREST-INCOME-NET> 943,426
<LOAN-LOSSES> 136,039
<SECURITIES-GAINS> (1,608)
<EXPENSE-OTHER> 1,024,997
<INCOME-PRETAX> (131,588)
<INCOME-PRE-EXTRAORDINARY> (131,588)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (64,460)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.08
<LOANS-NON> 744,163
<LOANS-PAST> 744,163
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 75,694
<CHARGE-OFFS> 4,091
<RECOVERIES> 1,149
<ALLOWANCE-CLOSE> 208,791
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
