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, 1998
----------------
OR
[ ] 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 or I.R.S. Employer
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
----
Scurities 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. [ ]
State issuer's revenues for its most recent fiscal year. $2,702,000
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 September 23, 1998 was $2.9 million.
As of September 23, 1998, there were issued and outstanding 314,635
shares of the registrant's Common Stock.
Transition 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
June 30, 1998. (Part II)
2. Portions of the Proxy Statement for the Annual Meeting of Stockholders for
the Fiscal Year ended June 30, 1998. (Part III)
1
<PAGE>
PART I
WSB HOLDING COMPANY (THE "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 RATE, 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 SAVINGS HABITS; AND THE SUCCESS OF THE COMPANY AT MANAGING THE RISKS
INVOLVED IN THE FOREGOING.
THE COMPANY CAUTIONS THAT THE FOREGOING LIST OF IMPORTANT FACTORS IS
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.
2
<PAGE>
Item 1. Business
- -----------------
General
The Company is a Pennsylvania corporation organized in June 1997 at the
direction of Workingmens Bank (the "Bank" or "Workingmens") 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 August 27, 1997, 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 and investing the Company's portion of the net proceeds obtained in the
conversion.
The Bank is a federally chartered stock savings bank headquartered in
Pittsburgh, Pennsylvania. The Bank is subject to examination and comprehensive
regulation by the Office of Thrift Supervision ("OTS") and its deposits are
federally insured by the Savings Association Insurance Fund ("SAIF"). The Bank
is a member of and owns capital stock in the FHLB of Pittsburgh, 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
Competition for deposits comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions,
finance companies, and multi-stage regional banks in our market areas. 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 commercial banks, thrift institutions, credit unions and mortgage
bankers.
3
<PAGE>
Lending Activities
Analysis of Loan Portfolio. Set forth below is selected data relating
to the composition of the Bank's loan portfolio by type of loan and type of
security on the dates indicated:
<TABLE>
<CAPTION>
June 30,
---------------------------------------------
1998 1997
------------------------ --------------------
Amount Percent Amount Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Type of Loans:
Real Estate Loans:
One- to four-Family ............................... $11,033 66.8% $11,035 74.5%
Multi-family ...................................... 1,637 10.0 1,295 8.8
Commercial......................................... 1,086 6.6 599 4.0
Other.............................................. - - - -
Consumer Loans:
Home equity and second mortgage loans.............. 1,441 8.7 1,213 8.2
Share and other.................................... 1,308 7.9 668 4.5
------ ----- ------- -----
Total loans..................................... 16,505 100.0% 14,810 100.0%
------ ===== ------ =====
Less:
Deferred loan origination fees and costs........... (6) (10)
Allowance for loan losses.......................... (198) (209)
------ -------
Total loans, net................................ $16,301 $14,591
====== ======
</TABLE>
Loan Maturity Tables
The following table sets forth the estimated maturity of the Bank's
loan portfolio at June 30, 1998. The table does not include prepayments or
scheduled principal repayments. All 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 real estate............. $ 25 $ 783 $10,225 $11,033
Multi-family real estate................................ 4 116 1,517 1,637
Commercial real estate.................................. 3 77 1,006 1,086
Consumer - home equity and second mortgages............. 509 481 451 1,441
Other consumer.......................................... 625 235 448 1,308
------ ------ ------ ------
Total Amount Due........................................ $1,166 $1,692 $13,647 $16,505
===== ===== ====== ======
</TABLE>
4
<PAGE>
The following table sets forth the dollar amount of all loans due after
June 30, 1999, which have fixed interest rates.
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
One- to four-family residential..................... $11,008
Multi-family........................................ 1,633
Commercial.......................................... 1,083
Home equity and second mortgages.................... 932
Other consumer...................................... 683
------
Total........................................... $15,339
======
</TABLE>
One- to Four-Family Residential Loans. The Bank's primary lending
activity consists of the origination of one- to four-family fixed rate
residential mortgage loans secured by property located in our primary market
area. The Bank generally originate one- to four-family fixed rate residential
mortgage loans in amounts up to 90% of the lesser of the appraised value or
purchase price, with private mortgage insurance required on loans with a
loan-to-value ratio in excess of 80%. The maximum loan-to-value ratio on
mortgage loans secured by non-owner occupied properties generally is limited to
80%. The Bank retains all of the mortgage loans and originates these loans with
maturities of up to 20 years. On a limited basis, the Bank originates and
retains fixed rate balloon loans having terms of up to 15 years, with principal
and interest payments calculated using up to a 30-year amortization period.
Mortgage loans originated and held by the Bank generally include due-on-sale
clauses. This gives the Bank the right to deem the loan immediately due and
payable in the event the borrower transfers ownership of the property securing
the mortgage loan without the Bank's consent.
Home Equity Loans and Second Mortgages. The Bank originates home equity
loans and second mortgage loans which are secured by one to four-family
residences. These loans are originated on one- to four-family residences with
fixed rate terms of up to 10 years. The loans are generally subject to a 80%
combined loan-to-value limitation, including any other outstanding mortgages or
liens.
Multi-Family and Commercial Loans. Our multi-family loans are secured
by apartment buildings and these loans generally have not exceeded $500,000 or
have terms greater than 20 years. Commercial real estate loans are secured by
office buildings, and other commercial properties.
Multi-family and commercial 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 supply and demand conditions in the market for office and retail
space and may also be subject to adverse conditions in the economy. To minimize
these risks, the Bank generally limit this type of lending to the Bank market
area and to borrowers who are otherwise well known to them.
Loan Approval Authority and Underwriting. The Bank has established
various lending limits for their officers and maintain a loan committee. The
President has loan authority to approve all loans and the Vice President and
Treasurer has authority to approve all applications for secured and unsecured
consumer loans. The loan committee ratifies all fixed rate residential mortgage
loans of $200,000 or more and all other real estate loans and consumer loans.
5
<PAGE>
Upon receipt of a completed loan application from a prospective
borrower, a credit report is ordered. Income and certain other information is
verified. If necessary, additional financial information may be requested. An
appraisal or other estimate of value of the real estate intended to be used as
security for the proposed loan is obtained. Appraisals are processed by
independent fee appraisers.
Title insurance is generally required on all real estate mortgage
loans. We do not require title insurance on home equity loans and second
mortgages, but we obtain a property report from our local state tax office which
indicates whether there are any liens or other encumbrances against the
property. Borrowers also must obtain fire and casualty insurance. Flood
insurance is also required on loans secured by property that is located in a
flood zone.
Loan Commitments. Written commitments are given to prospective
borrowers on all approved real estate loans. Generally, the commitment requires
acceptance within 60 days of the date of issuance. At June 30, 1998, commitments
to cover originations of mortgage loans totalled $131,000. The Bank believes
that virtually all of their commitments will be funded.
Nonperforming Assets. The following table sets forth information
regarding nonaccrual loans and real estate owned, as of the dates indicated. The
Bank had no loans categorized as troubled debt restructurings within the meaning
of SFAS 15 and no accruing loans that were delinquent more than 90 days.
Interest income that would have been recorded on loans accounted for on a
nonaccrual basis under the original terms of such loans was $30,000 for the year
ended June 30, 1998.
<TABLE>
<CAPTION>
At June 30,
----------------------
1998 1997
--------- ----------
<S> <C> <C>
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One- to four-family residential real estate.................................... $300,655 $743,000
All other mortgage loans....................................................... - -
Non-mortgage loans:
Home equity and second mortgages............................................... - -
Other consumer................................................................. - -
------- -------
Total non-accrual loans.......................................................... $300,655 $743,000
======= =======
Real estate owned................................................................ $319,073 $ -
======= =======
Total non-performing assets...................................................... $619,728 $743,000
======= =======
Total non-accrual loans to net loans............................................. 1.84% 5.09%
==== ====
Total non-accrual loans to total assets.......................................... .79% 2.20%
==== ====
Total non-performing assets to total assets...................................... 1.62% 2.20%
==== ====
</TABLE>
6
<PAGE>
Classified Assets. OTS regulations provide for a classification system
for problem assets of savings associations which covers all problem assets.
Under this classification system, problem assets of savings institutions such as
ours 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 borrower or of the collateral pledged, if any.
Substandard assets include those characterized by the "distinct possibility"
that the savings institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as doubtful have all of the weaknesses inherent
in those classified substandard, with the added characteristic that the
weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as loss are those considered "uncollectible" and
of such little value that their continuance as assets without the establishment
of a specific loss reserve is not warranted. Assets may be designated "special
mention" because of potential weakness that do not currently warrant
classification in one of the aforementioned categories.
When a savings association 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 a savings association 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. A savings association'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 a savings association's regulatory capital. Specific
valuation allowances for loan losses generally do not qualify as regulatory
capital.
At June 30, 1998, the Bank had loans classified as doubtful,
substandard and special mention in amounts equal to $0, $308,000, and $0,
respectively.
Allowances for Loan Losses. A provision for loan losses is charged to
operations based on management's evaluation of the losses that may be incurred
in our loan portfolio. The evaluation, including a review of all loans on which
full collectibility of interest and principal may not be reasonably assured,
considers: (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.
Management monitors the allowance for loan losses and makes additions
to the allowance as economic conditions dictate. There can be no assurance that
the allowance for losses will be adequate to cover losses which in fact may be
realized in the future and that additional provisions for losses will not be
required.
7
<PAGE>
The following table sets forth information with respect to our
allowance for loan losses at the dates and for the periods indicated:
<TABLE>
<CAPTION>
June 30,
-------------------------
1998 1997
------------ -----------
(Dollars in Thousands)
<S> <C> <C>
Total loans outstanding................................................ $ 16,505 $ 14,810
======== =========
Average loans outstanding.............................................. $ 15,507 $ 14,412
======== =========
Allowance balances at beginning of period.............................. $ 209 $ 76
Provision (credit):
1-4 family residential............................................... 24 124
Consumer............................................................. 8 12
Charge-offs:
1-4 family residential............................................... (43) (2)
Consumer............................................................. - (2)
Recoveries:
1-4 family residential............................................... - 1
--------- ---------
Allowance balance at end of period..................................... $ 198 $ 209
======== ========
Allowance for loan losses as a percent of total loans
outstanding............................................................ 1.20% 1.41%
==== ====
Net loans charged off as a percent of average loans
outstanding............................................................ .28% .03%
==== ====
</TABLE>
8
<PAGE>
Analysis of the Allowance for Loan Losses. The following table
illustrates the allocation of the allowance for loan losses for each category of
loan. The allocation of the allowance to each category is not necessarily
indicative of future loss in any particular category and does not restrict our
use of the allowance to absorb losses in other loan categories.
<TABLE>
<CAPTION>
At June 30,
------------------------------------------
1998 1997
-------------------- -------------------
Percent of Percent of
Loans in Loans in
Each Each
Category to Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
One- to four-family.................. $174 87.9% $191 91.6%
Multi-family......................... 8 4.1 8 3.7
Other real estate.................... 14 7.0 8 3.7
Consumer............................. 2 1.0 2 1.0
--- ----- --- -----
Total allowance.................... $198 100.0% $209 100.0%
=== ===== === =====
</TABLE>
Investment Activities
Investment Securities. The Bank 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) the Bank's judgment as to the attractiveness of the yields
then available in relation to other opportunities, (iii) expectation of future
yield levels, and (iv) the Bank's projections as to the short-term demand for
funds to be used in loan origination and other activities. The Bank classifies
its investment securities as "available for sale" or "held to maturity" in
accordance with SFAS No. 115. At June 30, 1998, the Bank's 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, (vii) federal funds, including FHLB
overnight and term deposits (up to six months), and (viii) investment grade
corporate bonds, commercial paper and mortgage derivative products. The board of
directors may authorize additional investments.
The Bank's investment securities "available for sale" and "held to
maturity" portfolios at June 30, 1998 did not contain securities of any issuer
with an aggregate book value in excess of 10% of our equity, excluding those
issued by the United States Government or its agencies.
Mortgage-backed Securities. To supplement lending activities, the Bank
has 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
9
<PAGE>
from the mortgage originators, through intermediaries (generally
quasi-governmental agencies) that pool and repackage the participation interests
in the form of securities, to investors such as 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.")
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. Mortgage-backed securities issued by FHLMC and GNMA
make up a majority of the pass-through certificates market.
Securities Portfolio. The following table sets forth the carrying value
of the Bank's securities at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Securities Held to Maturity:
U.S. Government and Agency Securities..................... $11,569,585 $11,882,290
Corporate Debt Instruments................................ - -
FHLMC..................................................... - -
GNMA...................................................... - -
CMOs...................................................... 98,073 125,166
---------- ----------
Total Securities Held to Maturity.......................... 11,667,658 12,007,456
---------- ----------
Securities Available for Sale:
FHLMC...................................................... 74,788 91,891
GNMA....................................................... 1,057,006 1,369,735
FNMA....................................................... 452,537 443,474
FHLMC Stock................................................ 117,656 248,750
Corporate Notes............................................ 496,873 486,580
Equity Securities.......................................... 1,013,649 -
CMOs....................................................... 32,506 43,609
---------- ----------
Total Securities Available for Sale........................ 3,245,015 2,684,039
---------- ----------
Total Investment and Mortgage-Backed Securities............ $14,912,673 $14,691,495
========== ==========
</TABLE>
10
<PAGE>
The following table sets forth information regarding the scheduled
maturities, carrying values, approximate fair values, and weighted average
yields for our investment securities portfolio at June 30, 1998 by contractual
maturity. The following table does not take into consideration the effects of
scheduled repayments or the effects of possible prepayments.
<TABLE>
<CAPTION>
As of June 30, 1998
--------------------------------------------------------------------------------------------------------
More than Total
One Year or Less One to Five Years Five to 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>
U.S. Government and
Agency Obligations......... $1,150,000 5.32% $4,413,366 6.56% 4,719,303 6.98% $1,286,916 7.11% $11,569,585 6.67% $11,605,245
Corporate Notes and Bonds.... 199,723 5.38 297,150 5.67 - - - - 496,873 5.55 496,873
FHLMC Stock.................. - - - - - - 117,656 - 117,656 - 117,656
Mortgage-Backed Securities &
CMOs......................... - - - - - - 1,714,910 7.09 1,714,910 7.09 1,713,588
--------- --------- --------- --------- --------- ----------
Total...................... $1,349,723 5.33% $4,710,516 6.51% $4,719,303 6.98% $3,119,482 7.10% $13,899,024 6.68% $13,933,362
========= ==== ========= ==== ========= ==== ========== ==== ========== ==== ==========
</TABLE>
11
<PAGE>
Sources of Funds
General. Deposits are the major external source of the Bank's funds for
lending and other investment purposes. The Bank 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 Bank's primary market area through the offering of a selection
of deposit instruments including regular savings accounts, money market
accounts, and term certificate 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 June 30, 1998, the Bank had no
brokered accounts.
Time Deposits. The following table indicates the amount of the Bank's
time deposits of $100,000 or more by time remaining until maturity as of June
30, 1998.
<TABLE>
<CAPTION>
Maturity Period Time Deposits
--------------- -------------
(Dollar in Thousands)
<S> <C>
Within three months........................................ $100
More than three through six months......................... 380
More than six through nine months.......................... -
Over nine months........................................... 1,559
-----
Total............................................. $2,039
=====
</TABLE>
Borrowings
The Bank may obtain advances from the FHLB of Pittsburgh to supplement
its supply of lendable funds. Advances from the FHLB of Pittsburgh are typically
secured by a pledge of the Bank's stock in the FHLB of Pittsburgh and a portion
of the Bank'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 Bank, if the need arises, may also access the Federal Reserve
Bank discount window to supplement its supply of lendable funds and to meet
deposit withdrawal requirements.
12
<PAGE>
The following table sets forth information concerning borrowings during
the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------
1998 1997
---------- -----------
(Dollars In Thousands)
FHLB advances:
<S> <C> <C>
Ending Balance....................................................... $1,000 $3,000
Average Balance during year ......................................... 1,708 1,500
Maximum month-end balance during the year............................ 3,000 3,000
Average interest rate during the year................................ 5.69% 5.70%
Weighted average rate at year end.................................... 5.78% 5.86%
</TABLE>
Employees
At June 30, 1998 the Bank had ten full-time and four part-time
employees. The employees of the Bank perform clerical work for the Company from
time to time; otherwise, the Company has no employees other than its officers.
None of the Bank's employees are represented by a collective bargaining group.
The Bank 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.
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 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."
13
<PAGE>
Regulation of the Bank
General. 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.
Under separate proposed legislation, Congress is considering the
elimination of the federal thrift charter and the separate federal regulation of
thrifts. As a result, the Bank might have to convert to a different financial
institution charter and be regulated under federal law as a bank, including
being subject to the more restrictive activity limitations imposed on national
banks. The Bank cannot predict the impact of its conversion to, or regulation
as, a bank until the legislation requiring such change is enacted.
Insurance of Deposit Accounts. The Bank's deposit accounts 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.
As a member of the SAIF, the Bank paid an insurance premium to the FDIC
equal to a minimum of 0.23% of its total deposits. The FDIC also maintains
another insurance fund, the Bank Insurance Fund ("BIF"), which primarily insures
commercial bank deposits. In 1996, the annual insurance premium for most BIF
members was lowered to $2,000. The lower insurance premiums for BIF members
placed SAIF members at a competitive disadvantage to BIF members.
Effective September 30, 1996, federal law was revised to mandate a
one-time special assessment on SAIF members such as the Bank of approximately
.657% of deposits held on March 31, 1995. Beginning January 1, 1997, the deposit
insurance assessment for most SAIF members was reduced to .064% of deposits on
an annual basis through the end of 1999. During this same period, BIF members
will be assessed approximately .013% of deposits. After 1999, assessments for
BIF and SAIF members
14
<PAGE>
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. As a result of these changes, beginning January 1, 1997, the
rate of deposit insurance assessed the Bank declined by approximately 70%.
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. OTS regulations
require the Bank to give the OTS 30 days advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the Company.
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out merger and other distributions charged against capital. The rule
establishes three tiers of institutions, based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory approval. As of
June 30, 1998, the Bank was a Tier 1 institution. In the event the Bank's
capital fell below its fully phased-in requirement or the OTS notified it that
it was in need of more than normal supervision, the Bank's ability to make
capital distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice.
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 Pittsburgh. 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 June 30, 1998, the Bank was
in compliance with its QTL requirement with 76% of its assets invested in QTIs.
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Pittsburgh, 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.
15
<PAGE>
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Pittsburgh in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations or 5%
of its outstanding borrowings to the FHLB of Pittsburgh, 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 June 30, 1998, the Bank's actual liquid
asset ratio was 64%.
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 June
30, 1998, the Bank was in compliance with these Federal Reserve Board
requirements.
Item 2. Description of Property
(a) Properties.
The Bank operates from its main office and one branch office.
<TABLE>
<CAPTION>
Leased or Year Leased
Location Owned or Acquired
-------- --------- -----------
<S> <C> <C>
807 Middle St. Owned 1974
Pittsburgh, Pennsylvania
5035 Curry Road Owned 1995
Pittsburgh, Pennsylvania
</TABLE>
(b) Investment Policies.
See "Item 1. Business" above for a general description of the Bank's
investment policies and any regulatory or Board of Directors' percentage of
assets limitations regarding certain investments. The Bank'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 of the Bank," and "Item 2.
Description of Property."
(2) Investments in Real Estate Mortgages. See "Item 1. Business - Lending
Activities and - Regulation of the Bank."
16
<PAGE>
(3) Investments in Securities of or Interests in Persons Primarily Engaged
in Real Estate Activities. See "Item 1. Business - Lending Activities and -
Regulation of the Bank."
(c) Description of Real Estate and Operating Data.
Not Applicable.
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 "Stock Market
Information" of the Company's Annual Report to Stockholders for the fiscal year
ended June 30, 1998 (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" in 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.
17
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance
- --------------------------------------------------------------------------------
with Section 16(a) of the Exchange Act.
- ---------------------------------------
The information contained under the sections captioned "Section 16(a)
Beneficial Ownership Reporting Compliance" and "I - Information with Respect to
Nominees for Director, Directors Continuing in Office, and Executive Officers -
Election of Directors" and " - Biographical Information" in the "Proxy
Statement" is incorporated herein by reference.
Item 10. Executive Compensation
- --------------------------------
The information contained in the section captioned "Director and
Executive Officer Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the first chart in the section captioned "I -
Information with Respect to Nominees for Director, Directors
Continuing in Office, and Executive Officers" in the Proxy
Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the first chart in the section captioned "I -
Information with Respect to Nominees for Director, Directors
Continuing in Office, and Executive Officers" in the Proxy
Statement.
(c) Management of the Registrant knows of no arrangements,
including any pledge by any person of securities of the
Registrant, the operation of which may at a subsequent date
result in a change in control of the Registrant.
Item 12. Certain Relationships and Related Transactions
--------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Certain Relationships and Related
Transactions" in the Proxy Statement.
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 balance sheets of WSB Holding Company as of June
30, 1998 and 1997 and the related consolidated statements of
income, changes in stockholders' equity and cash flows for each
of the years in the two year period ended June 30, 1998, together
with the related notes and the independent
18
<PAGE>
auditors' report of Stokes Kelly and Hinds, LLC independent
certified public accountants.
2. Schedules omitted as they are not applicable.
3. The following exhibits are included in this Report or
incorporated herein by reference:
(a) 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 **
10.1 1998 Stock Option Plan ***
10.2 Restricted Stock Plan and Trust Agreement ***
13 Portions of the 1998 Annual Report to Stockholders
21 Subsidiaries of the Registrant (See "Item 1-
Description of Business)
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.
*** Incorporated by reference to the Proxy Statement for the Special Meeting of
Stockholders on March 16, 1998 and filed with the SEC on February 4, 1998.
(b) None.
19
<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 28,
1998.
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 28, 1998.
/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 R. Ringland
- -------------------------------------
John R. Ringland
Director
EXHIBIT 13
<PAGE>
WSB Holding Company
Corporate Profile
WSB Holding Company (the "Company") is a Pennsylvania corporation
organized in June 1997 at the direction of Workingmens Bank (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 August 27, 1997,
Workingmens Savings Bank, FSB completed the Conversion, changed its name to
Workingmens Bank 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 and investing the Company's portion of the net proceeds obtained in the
Conversion.
Workingmens Bank began operations in 1881 under the name "Workingmens
Premium and Loan Association of Allegheny County," and is a federally chartered
stock savings bank headquartered in Pittsburgh, Pennsylvania. The Bank is
subject to examination and comprehensive regulation by the Office of Thrift
Supervision and its deposits are federally insured by the Savings Association
Insurance Fund. The Bank is a member of and owns capital stock in the FHLB of
Pittsburgh, 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.
Stock Market Information
The Company's common stock has been traded on the OTC Bulletin Board
under the trading symbol of "WSBH" since it commenced trading in August 1997.
The following table reflects high and low bid quotations as published by
Bloomberg, L.P. The quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission, and may not represent actual transactions.
During and for the year ended June 30, 1998, the Company did not pay nor declare
any dividends.
Date High ($) Low ($)
---- -------- -------
August 27, 1997 to September 30, 1997 14.25 10.00
October 1, 1997 to December 31, 1997 14.25 13.75
January 1, 1998 to March 31, 1998 16.375 14.25
April 1, 1998 to June 30, 1998 17.00 14.88
The number of shareholders of record of common stock as of the record
date of September 1, 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 September 1, 1998, there were 330,600 shares
outstanding. The Company's ability to pay dividends to stockholders is dependent
upon the dividends it receives from the Bank. The Bank may not declare or pay a
cash dividend on any of its stock if the effect thereof would cause the Bank's
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 OTS.
-4-
<PAGE>
Selected Financial Ratios and Other Data
<TABLE>
<CAPTION>
For the Years Ended
June 30,
--------------------
1998 (%) 1997 (%)
-------- --------
<S> <C> <C>
Return on average assets
(net income divided by average total assets) ............ .32 (0.38)
Return on average equity
(net income divided by average equity) .................. 2.70 (5.86)
Average equity to average assets ratio
(average equity divided by average total assets) ........ 11.83 6.42
Equity to assets at period end ............................ 12.54 6.04
Net interest rate spread .................................. 2.61 2.68
Net yield on average interest-earnings assets ............. 3.25 3.07
Non-performing loans to total assets ...................... .79 2.34
Non-performing loans to total loans ....................... 1.82 5.42
Allowance for loan losses to non-performing assets ........ 65.91 25.86
</TABLE>
-5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Workingmen's Bank (the "Bank") converted from a federal chartered
mutual savings bank to a federal chartered stock savings bank on August 27,
1998. In the conversion, 330,600 shares of common stock of WSB Holding Company
(the "Company") were sold, generating net proceeds after conversion expenses of
$3,012,535. Of this amount, $1,625,000 was used to purchase 100% of the common
stock of the Bank and $264,480 to fund the stock purchase made by the Employee
Stock Ownership Plan. The remainder was retained by the Company.
The Bank Is principally engaged in the business of accepting deposits
from the general public and originating mortgage loans that are secured by one
to four family residential properties located in its market area. The Bank also
originates multi-family and non-residential real estate loans and consumer
loans.
The Bank's net income is dependent primarily on its net interest
income, which is the difference between interest income earned on its loans and
investments and interest paid on interest bearing liabilities. Lending
activities are influenced by the demand for and supply of housing, competition
among lenders, the level of interest rates and the availability of funds.
Deposit flows and cost of funds are influenced by prevailing market rates of
interest, primarily on competing investments, account maturities and the level
of personal income and savings in the Bank's market area.
Asset and Liability Management
The Bank's objective in its asset/liability management program is to
manage liquidity and interest rate risk, so as to maximize net income and return
on equity in a changing interest rate environment. The ability to maximize net
interest income is largely dependent upon achieving a positive interest rate
spread that can be sustained during fluctuations in prevailing interest rates.
The Bank, like many other thrift institutions, is subject to interest rate risk
as a result of the difference in the maturity of interest-bearing liabilities
(including deposits) and interest-earning assets (including loans) and the
volatility of interest rates. Because most deposit accounts, given their shorter
terms to maturity, react more quickly to market interest rate movements than do
traditional mortgage loans, increases in interest rates may have an adverse
effect on the Bank's earnings. The Bank is reducing this exposure by
diversifying the loan portfolio to include more consumer loans. Consumer loans
by their nature have shorter maturities.
The Bank attempts to manage the interest rate it pays on deposits while
maintaining a stable deposit base and providing quality services to its
customers. The Bank has continued to rely primarily upon deposits at its source
of funds. To the extent the Bank is unable to invest these funds in loans
originated in the Bank's market area, it will continue to purchase (i)
mortgage-backed securities and (ii) high quality investment securities.
Net Portfolio Value
Management measures the Bank's interest rate risk by computing amounts
by which the net present value of the Bank's cash flow from assets, liabilities
and off balance sheet items (net portfolio value or "NPV") would change in the
event of a range of assumed changes in market interest rates. These computations
estimate the effect on the Bank's NPV from instantaneous and permanent 1% to 4%
(100 to 400 basis points) increases and decreases in market interest rates.
Based upon OTS assumptions, the following table presents the Bank's NPV at June
30, 1998.
-6-
<PAGE>
Changes in Net Portfolio Value
Changes
in Market Change in
Interest Rates NPV Ratio(1) NPV Ratio(2)
-------------- ------------ ------------
+400 bp -39.0% -378 bp
+300 bp -28.9% -274 bp
+200 bp -18.3% -169 bp
+100 bp - 8.2% - 73 bp
0 bp 0 -
-100 bp 11.6% 103 bp
-200 bp 23.4% 240 bp
-300 bp 36.9% 314 bp
-400 bp 51.7% 432 bp
- -------------
(1) Calculated as the estimated NPV divided by present value of total 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 the Bank's net portfolio value could
be adversely affected by increases in interest rates but could be favorably
affected by decreases in interest rates. In addition, the Bank would 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.
Comparison of Financial Condition at June 30, 1998 and 1997
Total consolidated assets increased by approximately $4.4 million, or
13.01% to $38.2 at June 30, 1998 from $33.8 million at June 30, 1997. The
increase in total assets was primarily attributable to the net proceeds received
from the initial public offering. The increase in total assets reflects a
$221,000 increase in investments and mortgage-backed securities, a $2,029,000
increase in loans and real estate, net and a $2.4 million increase in cash and
cash equivalents.
-7-
<PAGE>
Deposits increased $3.5 million, or 12.2% to $31.9 million at June 30,
1998 from $28.4 million at June 30, 1997. Interest bearing liabilities increased
$599,000, or 2.0% to $30.4 million at June 30, 1998 from $29.8 million at June
30, 1997. The increase reflects a $2.6 million increase in interest bearing
deposits and repayments of FHLB borrowings of $2.0 million.
Average Balance Sheet
The following table sets forth certain information relating to the
Company's average interest earning assets, interest bearing liabilities and net
interest income.
-8-
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended June 30,
-------------------------------------------------------------------------------
1998 1997
---------------------------------- --------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 15,507 $ 1,308 8.44% $ 14,412 $ 1,176 8.16%
Investment securities 14,840 999 6.73 14,451 1,022 7.07
Other interest-earning assets 4,185 283 6.77 1,909 90 4.73
-------- ------- ------ -------- ------- -------
Total interest-earning assets 34,532 2,590 7.50 30,772 2,288 7.44
------- -------
Non-interest-earning assets 1,735 1,577
-------- --------
Total assets $ 36,267 $ 32,349
======== ========
Interest-bearing liabilities:
Passbook and club accounts 10,364 320 3.09% 10,147 320 3.15
Certificates of deposit 17,913 1,049 5.86 16,607 927 5.58
Other liabilities 1,708 97 5.69 1,500 98 6.53
------- ------- ------- ------- ------ -------
Total interest-bearing liabilities 29,985 1,466 4.89 28,254 1,345 4.76
------- -------
Non-interest-bearing liabilities 2,001 2,030
------- -------
Total liabilities 31,986 30,284
------- -------
Stockholders' equity 4,281 2,065
------- -------
Total liabilities and Stockholders' equity $ 36,267 $ 32,349
======= =======
Net interest income $ 1,124 $ 943
======= ========
Interest rate spread 2.61% 2.68%
Net yield on interest-earning assets 3.25% 3.07%
Ratio of average interest-earning assets 108.91%
to average interest-bearing liabilities 115.16%
</TABLE>
-9-
<PAGE>
Rate/Volume Analysis
The table below sets forth information regarding the Company's interest
income and interest expense for the year ended June 30, 1998. For each category
of the Company's interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to: (i) changes in volume
(changes in volume multiplied by old rate); (ii) changes in rate (changes in
rate multiplied by old volume); (iii) changes in rate-volume (changes in rate
multiplied by the change in volume).
Year Ended June 30,
--------------------------------
1998 vs. 1997
--------------------------------
Increase (Decrease)
Due to
--------------------------------
Rate
Volume Rate Volume Net
------ ---- ------ ---
Interest income:
Loans receivable $ 104 $ 26 $ 2 $ 132
Investment securities 28 (50) (1) (23)
Other interest-earning assets 108 39 46 193
----- ----- ----- -----
Total interest-earning assets $ 240 15 $ 47 $ 302
===== ===== ===== =====
Interest expense:
Passbook and club accounts $ 7 $ (7) $-- $--
Certificates of deposit 73 46 3 122
Other liabilities 14 (13) (2) (1)
----- ----- ----- -----
Total interest-bearing liabilities $ 94 $ 26 $ 1 $ 121
===== ===== ===== =====
Change in net interest income $ 146 $ (11) $ 46 $ 181
===== ===== ===== =====
Comparison of Operating Results for the Years Ended June 30, 1998 and 1997
Net Income. Net income increased $179,000 or 279.7% from a net loss of
$64,000 for the year ended June 30, 1997 to net income of $115,000 for the year
ended June 30, 1998. The increase in net income was primarily the result of a
reduction of $104,000 in the provision for credit losses and a decrease in the
SAIF insurance assessment in the amount of $108,000 (after taxes) during the
year ended June 30, 1997.
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.
-10-
<PAGE>
Our net interest income increased $181,000 or 19.2% to $1,124,000 for
the year ended June 30, 1998 compared to $943,000 for the year ended June 30,
1997. The increase was due primarily to the growth of average interest-earning
assets from $30.8 million for the year ended June 30, 1997 to $34.5 million for
the year ended June 30, 1998. The increase in our average interest-earning
assets of $3.7 million reflects an increase of $1.1 million in average loans, an
increase of $389,000 in average investment and mortgage-backed securities and an
increase of $2.2 million in average other interest-earnings assets.
Our interest rate spread decreased and our net interest margin
increased for the year ended June 30, 1998 compared to the year ended June 30,
1997. This was due primarily to the increase in the yield on interest-earning
assets from 7.44% for the year ended June 30, 1997 to 7.50% for the year ended
June 30, 1998, offset by an increase in our average cost on interest bearing
liabilities to 4.89% at June 30, 1998 from 4.76% at June 30, 1997. The yield on
our average interest-earning assets increased for the year ended June 30, 1998
due to an increase in the average balance of loans and investment securities.
The increase in our average cost of funds was primarily due to an increase in
average interest-bearing liabilities.
Provision for Loan Losses. Our provision for loan losses decreased to
$104,000 from $136,000 for the year ended June 30, 1997 to $32,000 for the year
ended June 30, 1998. The decrease in the provision for loan losses for the year
ended June 30, 1998 was attributable to the large provision we recorded for the
year ended June 30, 1997. This was due to a change in one of our borrower's
ability to repay. The borrower had outstanding, 14 non-performing loans that
ranged from $30,000 to $100,000, totaling $665,000, secured by 1- to 4- family
residences. Full payment of these loans was due June 30, 1997 and was not
received. Since then we were repaid in full on six loans, and we foreclosed on
six properties for which we subsequently sold four of the six without incurring
any additional losses. For the remaining two loans we do not expect to incur any
additional losses.
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 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.
Non-Interest Expense. Our non-interest expense increased by $17,000 or
1.6% from $1,025,000 for the year ended June 30, 1997 to $1,042,000 for the year
ended June 30, 1998, primarily as a result of anticipated expenses related to
compensation increases and the implementation of the ESOP and the restricted
stock plan totaling $90,000. Due to the special SAIF assessment paid in fiscal
1997, FDIC insurance premiums decreased $179,000. Legal, accounting and other
fees increased $60,000 due to activities relating to being a public company. The
remainder of the increases in non-interest expenses was associated with
increased loan expenses, advertising and upgrades associated with the Bank's
technology.
Income Tax Expense. Our income tax expense for the year ended June 30,
1998 was $47,000 compared to an income benefit of $(67,000) for the year ended
June 30, 1997. The $114,000 increase was the result of pre-tax income increasing
by $294,000. Additionally, we invest in tax-exempt securities which provided us
with non-taxable income.
-12-
<PAGE>
Liquidity and Capital Resources
The Bank is required to maintain minimum levels of liquid assets as
defined by the OTS regulations. The OTS minimum required liquidity ratio is 4%.
Short-term liquidity at June 30, 1998 was 64%. The Bank adjusts its liquidity
levels in order to meet funding needs for deposit outflows, payment of real
estate taxes from escrow accounts on mortgage loans, loan funding commitments,
and repayment of borrowings, when applicable. The Bank adjusts its liquidity
level as appropriate to meets it asset/liability objectives. The primary source
of funds are deposits, amortization and prepayment of loans and mortgage-backed
securities, maturity of investments, and funds provided from operations. As an
alternative to supplement liquidity needs, the Bank has the ability to borrow
from the Federal Home Loan Bank of Pittsburgh. Scheduled loan amortization and
maturing investment securities are a relatively predictable source of funds,
however, deposit flow and loan prepayments are greatly influenced by, among
other things, market interest rates, economic conditions, and competition. The
Bank's liquidity, represented by cash, cash equivalents, and securities
available for sale, is a product of its operating, investing, and financing
activities.
Year 2000 Compliance
A great deal of information has been disseminated about the global
computer crash that may occur in the year 2000 which would affect the speed and
accuracy of the data processing that is essential to our operations. We have
established a Year 2000 Plan to review our internal information systems as well
as the efforts of our outside data processing service provider. The progress of
the Plan is monitored by the Board and is progressing satisfactorily.
All of our material data processing that could be affected by this
problem is provided by a third party service bureau ("service bureau"). This
service bureau has advised us that it expects to resolve this potential problem
before the year 2000. However, if this service bureau is unable to resolve this
potential problem in a timely manner, the Bank will activate all contingency
plans in an attempt to avoid what would otherwise be significant data processing
delays, mistakes or failures. Any delays, mistakes or failures could have a
significant adverse impact on our financial condition and our results of
operations.
The Bank is monitoring its service bureau to evaluate whether its data
processing system will fail and is being provided with periodic updates on the
status of testing and upgrades being made by the service bureau. If the Bank
service bureau fails, the Bank will attempt to locate an alternative service
bureau that is year 2000 compliant. If the Bank is unsuccessful, the Bank will
enter deposit and loan transactions by hand in its general ledger and compute
loan payments and deposit balances and interest in its existing computer system.
The Bank believes that they would be able to operate in this manner for a
limited time, until their existing service bureau, or their replacement, is able
to again provide data processing services. If very few financial institution
service bureaus were operating in the year 2000, their replacement costs,
assuming the Bank could negotiate an agreement, could be material.
Impact of New Accounting Standards
Comprehensive Income. In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income". This statement is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
-13-
<PAGE>
prominence as other financial statements. It also requires that an enterprise
(a) classify items of other comprehensive income by their nature in a financial
statement and (b) display accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a financial statement of financial position. The Company intends to
adopt SFAS No. 130 on July 1, 1998. Management does not expect the adoption of
SFAS No. 130 to have a material effect on the Company's consolidated financial
condition or results of operations.
Pensions and other Postretirement Benefits. In February 1998, the FASB
issued SFAS No. 132, "Employers' Disclosures about Pension and other
Postretirement Standards". This statement is effective for fiscal years
beginning after December 15, 1997. Restatement of comparative period disclosures
is required unless the information is not readily available, in which case the
notes to the financial statements shall include all available information and a
description of the information not available. This statement standardizes the
disclosure requirements of SFAS No. 87 and No. 106 to the extent practicable and
recommends a parallel format for presenting information about pensions and other
postretirement benefits. Statement 132 does not change any of the measurement or
recognition provisions provides for in SFAS No. 87, No. 88 or No. 106. The
Company intends to adopt SFAS No. 132 on July 1, 1998. Management does not
expect the adoption of SFAS No. 132 to have a material effect on the Company's
consolidated financial condition or results of operations.
-13-
<PAGE>
[LOGO]
Stokes Kelly & Hinds,
Certified Public Accountants
& Business Advisors
Members:
American and Pennsylvania Institutes
of Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
Division for CPA Firms:
SEC Practice Section
The Board of Directors
WSB Holding Company
We have audited the accompanying consolidated statements of financial condition
of WSB Holding Company and subsidiary (the "Company") as of June 30, 1998 and
1997 and the related consolidated statements of income, stockholders' equity,
and cash flows for the years ended. 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 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 WSB Holding Company
and subsidiary as of June 30, 1998 and 1997, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/Stokes Kelly & Hinds, LLC
Pittsburgh, Pennsylvania
September 1, 1998
9401 McKnight Road
Pittsburgh, Pennsylvania
15234-6000
Phone 412-364-0590
Voice Mail 412-364-6070
Fax 412-364-6176
-14-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
----------------- ---------------
<S> <C> <C>
Cash and cash equivalents:
Interest bearing $ 4,750,915 $ 2,547,897
Non-interest bearing 406,629 256,907
Securities held-to-maturity (estimated fair
value of $ 11,701,996 and $ 11,980,616 in 1998 and 1997) 11,667,658 12,007,456
Securities available-for-sale, at fair value 3,245,015 2,684,039
Loans and real estate, net 16,620,321 14,590,996
Federal Home Loan Bank stock, at cost 153,300 153,300
Accrued interest receivable 228,175 299,469
Premises and equipment, net 1,017,168 1,057,667
Other assets 106,431 146,503
Income taxes receivable 9,859 -
Deferred income taxes 3,001 52,426
----------- -----------
TOTAL ASSETS $38,208,472 $33,796,660
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $31,867,605 $28,405,775
Federal Home Loan Bank advances 1,000,000 3,000,000
Advances from borrowers for taxes and insurance 223,848 233,818
Accrued expenses and other liabilities 327,473 113,272
----------- -----------
TOTAL LIABILITIES 33,418,926 31,752,865
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock ($ .10 par value, 1,000,000 shares
authorized, none outstanding) - -
Common stock ($ .10 par value, 4,000,000 shares
authorized; 330,600 shares issued and
outstanding at June 30, 1998) 33,060 -
Additional paid-in capital 2,989,212 -
Retained earnings, substantially restricted 2,179,378 2,063,990
Unearned Employee Stock Ownership Plan (ESOP) shares (242,438) -
Unearned compensation - Restricted Stock Plan (RSP) (197,864) -
Treasury stock, at cost; 1,165 shares (19,431) -
Net unrealized gain (loss) on securities
available-for-sale, net of applicable
income taxes of $17,360 and $ (9,124) 47,629 (20,195)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,789,546 2,043,795
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $38,208,472 $33,796,660
=========== ===========
</TABLE>
-15-
See accompanying notes to consolidated financial statements.
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans $1,308,118 $ 1,176,149
Investments 998,625 1,021,953
Other interest earning assets 283,488 90,343
---------- ------------
TOTAL INTEREST AND DIVIDEND INCOME 2,590,231 2,288,445
---------- ------------
INTEREST EXPENSE
Deposits 1,368,937 1,246,448
Advances from FHLB 97,047 98,571
---------- ------------
TOTAL INTEREST EXPENSE 1,465,984 1,345,019
---------- ------------
NET INTEREST INCOME 1,124,247 943,426
PROVISION FOR LOAN LOSSES 32,113 136,039
---------- ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,092,134 807,387
---------- ------------
NONINTEREST INCOME
Service charges and other fees 83,401 83,330
Net gain (loss) on sales of
securities available-for-sale 24,245 (1,608)
Income from real estate rental 4,325 4,300
---------- ----------
TOTAL NONINTEREST INCOME 111,971 86,022
---------- ----------
NONINTEREST EXPENSE
Compensation and benefits 513,032 423,786
Occupancy and equipment expense 142,619 142,352
Federal insurance premiums 29,883 208,873
Other 356,013 249,986
----------- ----------
TOTAL NONINTEREST EXPENSE 1,041,547 1,024,997
----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 162,558 (131,588)
INCOME TAX EXPENSE (BENEFIT) 47,170 (67,128)
---------- -----------
NET INCOME (LOSS) $ 115,388 $ (64,460)
========== ===========
Earnings per common share-BASIC (since inception) $ .28 N/A
========= ===========
Earnings per common share-DILUTED (since inception) $ .28 N/A
========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-16-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Additional Unearned Unearned Securities
Common Paid-in Retained ESOP Compensation Treasury Available-for-
Stock Capital Earnings Shares - RSP Stock Sale Total
-------- ------------ -------------------------- -------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE
AT JULY 1, 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 (loss) -- -- (64,460) -- -- -- -- (64,460)
------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
BALANCE AT
JUNE 30, 1997 -- -- 2,063,990 -- -- -- (20,195) 2,043,795
Proceeds from sale
of common stock,
net of issuance
costs 33,060 2,979,475 -- (264,480) -- -- -- 2,748,055
ESOP shares
allocated -- 9,737 -- 22,042 -- -- -- 31,779
Award of shares
under
restricted
stock plan -- -- -- -- (208,278) -- -- (208,278)
Amortization of
restricted
stock plan -- -- -- -- 10,414 -- -- 10,414
Purchase of
treasury stock -- -- -- -- -- (19,431) -- (19,431)
Change in
unrealized
gain (loss) on
securities
available-for-
sale, net of
applicable
income taxes
of $26,484 -- -- -- -- -- -- 67,824 67,824
Net income -- -- 115,388 -- -- -- -- 115,388
------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
BALANCE AT
JUNE 30, 1998 $33,060 $ 2,989,212 $ 2,179,378 $ (242,438) $ (197,864) $ (19,431) $ 47,629 $4,789,546
======= =========== =========== =========== =========== =========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-17-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 115,388 $ (64,460)
Adjustments to reconcile
net income (loss) to net cash provided
by operating activities:
Amortization of:
Deferred loan origination fees (3,730) (4,411)
Premiums and discounts on investment securities (9,758) 2,010
Unearned ESOP shares 31,779 -
Compensation expense related to RSP 10,414 -
Provision for loan losses 32,113 136,039
Net (gain) loss on sales of
securities available-for-sale (24,245) 1,608
Depreciation of premises and equipment 52,940 53,170
(Increase) decrease in:
Accrued interest receivable 71,294 (64,035)
Other assets 40,072 (63,121)
Income taxes receivable (9,859) 3,537
Deferred income taxes 22,941 (62,909)
Increase (decrease) in:
Accrued expenses and other liabilities 5,923 53,826
------------ ----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 335,272 (8,746)
----------- ----------
INVESTING ACTIVITIES
Purchases of securities held-to-maturity (13,650,000) (4,710,730)
Proceeds from maturities of and principal
repayments on securities held-to-maturity 14,000,056 3,595,776
Purchases of securities available-for-sale (1,276,813) -
Proceeds from maturities of and principal repayments
on securities available-for-sale 580,890 439,033
Proceeds from sales of securities available-for-sale 253,000 231,369
Net loan originations and principal
repayments on loans (2,057,708) (1,093,900)
Net (purchase) sale of Federal
Home Loan Bank stock - (20,100)
Purchases of premises and equipment (12,441) (38,243)
------------ -----------
NET CASH USED BY INVESTING ACTIVITIES (2,163,016) (1,596,795)
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
-18-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------------- --------------
<S> <C> <C>
FINANCING ACTIVITIES
Net increase in deposits $ 3,461,830 $ 248,984
Net increase (decrease) in FHLB advances (2,000,000) 3,000,000
Purchase of treasury stock (19,431) -
Proceeds from issuance of common stock 3,041,520 -
Payments of conversion costs (293,465) -
Net decrease in advances from borrowers
for taxes and insurance (9,970) (44,670)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,180,484 3,204,314
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,352,740 1,598,773
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,804,804 1,206,031
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,157,544 $ 2,804,804
========== ===========
SUPPLEMENTAL DISCLOSURES Cash paid during the period for:
Interest on deposits, advances,
and other borrowings $ 1,496,794 $ 1,299,115
Income taxes $ 25,000 $ -
Noncash investing and financing activities:
Transfer from loans to real estate owned $ 319,073 $ -
Total increase (decrease) in unrealized
gain (loss) on securities
available-for-sale $ 94,308 $ 40,669
Less: income tax expense (benefit) 26,484 19,571
---------- -----------
Net increase (decrease) in unrealized
gain (loss) on securities
available-for-sale $ 67,824 $ 21,098
========== ===========
Award of shares under restricted stock plan $ 208,278 $ -
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-19-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
WSB Holding Company (the "Company") was incorporated under the laws of the
Commonwealth of Pennsylvania for the purpose of becoming the holding company of
Workingmens Bank (the "Bank") in connection with the Bank's conversion from a
federally chartered mutual savings bank to a federally chartered stock savings
bank, pursuant to its Plan of Conversion. The Company commenced operations on
August 27, 1997, the date of a Subscription Offering of its shares in connection
with the conversion of the Savings Bank (the "Conversion"). Prior to fiscal
1998, the financial statements include the accounts of the Bank only.
The Company conducts its business from its two locations in the North side
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 Company primarily
competes with other financial institutions in its market area, which it
considers to be metropolitan Pittsburgh.
The Bank is subject to regulation and supervision by the Federal Deposit
Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS).
The accounting and reporting policies of the Company 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.
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 Company'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 Company'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 Company 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.
-20-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company, the Bank and the Bank's wholly owned subsidiary, Workingmens Service
Corporation (WSC). The impact of WSC on the consolidated financial statements is
not material. All intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company 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 Company 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 Company has the positive intent and ability to hold
the securities to maturity. Held-to-maturity securities are stated at amortized
cost. At present, the Company does not invest in any derivative investments for
trading, investing, hedging or other purposes.
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
stockholders' equity.
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 using a method approximating the effective
interest method. For mortgage-backed securities, such amortization and accretion
is determined taking into consideration assumed prepayment patterns. Such
amortization is included in interest income from investments. Interest and
dividends are recognized when earned. 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.
-21-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Company extends credit to customers throughout its market area which
includes Metropolitan Pittsburgh. Most of the Company's loans are secured by
real estate in Metropolitan Pittsburgh and a substantial portion of its
borrowers' ability to repay such loans is dependent upon the economy in the
Company's market area.
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 Company'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.
Impaired loans are 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. Loans that are determined to be impaired require a
valuation allowance equivalent to the amount of impairment. The valuation
allowance is to be established by a charge to the provision for loan losses.
A loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect all amounts due according
to the contractual terms of the note agreement. Cash receipts on impaired loans
which are accruing interest are applied to principal and interest under the
contractual terms of the loan agreement. Cash receipts on impaired loans for
which the accrual of interest has been discontinued are applied to reduce the
principal amount of such loans until all required contractual principal payments
have been made and are recognized as interest income thereafter.
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 which 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 Company, will not cause a loan to be classified as impaired. A loan is not
impaired during a period of delay in payment if the Company 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.
-22-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Fair value
is determined on the basis of current appraisals, comparable sales, and other
estimates of value obtained principally from independent sources. 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 in fiscal years 1998 and 1997) are charged to
income as incurred and are reported in "Other Noninterest Expense." Gains
recognized on the disposition of the properties are recorded in noninterest
income.
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
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is recorded on a straight-line basis over the estimated useful
lives of the related assets which are from five to thirty-five years.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. 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.
Earnings per Share
During fiscal 1998, the Company adopted the provisions of the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share". SFAS No. 128 supersedes
Accounting Principles Board Opinion No. 15, "Earnings Per Share", and specifies
the computation, presentation, and disclosure requirements for earnings per
share (EPS). SFAS No. 128 replaces the presentation of primary EPS and fully
diluted EPS with a presentation of basic EPS and diluted EPS, respectively. SFAS
No. 128 also requires dual presentation of basic and diluted EPS on the face of
the income statement for all entities with complex capital structures. All prior
period EPS data is required to be restated to confirm with SFAS No. 128.
Basic EPS excludes dilution and is computed by dividing net income by
weighted-average shares outstanding. Diluted EPS is computed by dividing net
income by weighted-average shares outstanding plus potential common stock
resulting from dilative stock options and Restricted Stock Plan (RSP) shares
that have not yet vested.
For purposes of computing weighted-average shares outstanding, unallocated
shares under the Company's employee stock ownership plan are not considered
outstanding until they are committed to be released for allocation.
-23-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EPS is not applicable for periods prior to the completion of the Bank's stock
conversion on August 27, 1997. EPS for fiscal 1998 has been computed based upon
net income per share for the post conversion period from August 27, 1997 to June
30, 1998.
The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations for income from continuing operations for the
year ended June 30, 1998:
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS $ 85,384 $ 305,363 $ 0.28
Effect of dilutive securities - -
-------- ---------
Diluted EPS $ 85,384 $ 305,363 $ 0.28
======== ========= ======
Conversion to Stock Form of Ownership
The Company was incorporated under Pennsylvania law in May 1997 to acquire and
hold all the outstanding common stock of the Bank, as part of the Bank's
conversion from a federally chartered mutual savings bank to a federally
chartered stock savings bank. In connection with the conversion, which was
consummated on August 27, 1997, the Company issued and sold 330,600 shares of
common stock at a price of $ 10.00 per share for total net proceeds of $
3,012,535 after conversion expenses of $ 293,465. The Company retained $
1,123,055 of the proceeds and used the remaining proceeds to purchase the newly
issued capital stock of the Bank in the amount of $ 1,625,000 and a loan to the
ESOP of $ 264,480.
The Bank may not declare or pay a cash dividend if the effect thereof would
cause its net worth to be reduced below either the amounts required for the
liquidation account discussed below or the regulatory capital requirements
imposed by federal and state regulations.
At the time of conversion, the Bank established a liquidation account in an
amount equal to its retained income as reflected in the latest consolidated
balance sheet used in the final conversion prospectus. The liquidation account
is maintained for the benefit of eligible account holders who continue to
maintain their deposit accounts in the Bank after conversion. In the event of a
complete liquidation of the Bank (and only in such an event), eligible
depositors who continue to maintain accounts shall be entitled to receive a
distribution from the liquidation account before any liquidation may be made
with respect to common stock.
-24-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pension Plan
The Company has a pension plan covering substantially all employees. It is the
policy of the Company 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 Company.
The following methods and assumptions were used by the Company 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.
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.
-25-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Company'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.
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. This
statement establishes standards for reporting and displaying comprehensive
income and its components in a full set of general purpose financial statements.
SFAS No. 130 requires all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed in equal prominence with the other
financial statements. The term "comprehensive income" is used in the statement
to describe the total of all components of comprehensive income including net
income. "Other comprehensive income" refers to revenues, expenses, gains, and
losses that are included in comprehensive income but excluded from earnings
under current accounting standards. Currently, "other comprehensive income" for
the Company consists of items previously recorded directly in equity under SFAS
No. 115, Accounting for Certain Investments in Debt and Equity Securities. SFAS
No. 130 is effective for financial statements for years beginning after December
15, 1997. The Company will adopt SFAS No. 130 effective July 1, 1998.
-26-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - INVESTMENT SECURITIES
The amortized cost and estimated fair values of securities held-to-maturity as
of June 30, are as follows:
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Government and
government agency
obligations $11,569,585 $ 37,039 $ (1,377) $11,605,247
Collateralized mortgage
obligations 98,073 - (1,324) 96,749
----------- -------- -------- -----------
$11,667,658 $37,039 $ (2,701) $11,701,996
=========== ======= ======== ===========
</TABLE>
<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 125,166 - (2,621) 122,545
------------ -------- ----------- ------------
$ 12,007,456 $ 22,193 $ (49,033) $11,980,616
============ ======== ========== ===========
</TABLE>
-27-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and estimated fair values of securities available-for-sale as
of June 30, are as follows:
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Mortgage-backed securities:
Federal Home Loan Mortgage
Corporation $ 73,070 $ 1,718 $ - $ 74,788
Government National
Mortgage Association 1,049,175 13,475 (5,644) 1,057,006
Federal National
Mortgage Association 449,026 3,511 - 452,537
FHLMC Preferred Stock 118,125 - (469) 117,656
Corporate notes 499,352 - (2,479) 496,873
Equity securities 949,605 64,044 - 1,013,649
Collateralized mortgage
obligations 41,674 - (9,168) 32,506
---------- ------- -------- ----------
$3,180,027 $82,748 $(17,760) $3,245,015
========== ======= ======== ==========
</TABLE>
-28-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<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 Notes 499,267 - (12,687) 486,580
Collateralized mortgage
obligations 58,146 - (14,537) 43,609
----------- -------- --------- ----------
$ 2,713,358 $ 20,941 $ (50,260) $2,684,039
=========== ======== ========= ==========
</TABLE>
The amortized cost and approximate fair values of securities held-to-maturity
and available-for-sale as of June 30, 1998, by contractual maturity are shown
below.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE
SECURITIES HELD TO MATURITY FOR SALE
-------------------------------------- --------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Due within one year $ 1,150,000 $ 1,149,086 $ 200,066 $ 199,723
Due from one to five years 4,413,366 4,424,878 299,286 297,150
Due from five to ten years 4,719,303 4,743,623 - -
Due after ten years 1,384,989 1,384,409 1,731,070 1,734,493
----------- ----------- ----------- -----------
$11,667,658 $11,701,996 $ 2,230,422 $ 2,231,366
=========== =========== =========== ===========
</TABLE>
-29-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C - LOANS AND REAL ESTATE
Loans and real estate at June 30, are summarized as follows:
1998 1997
------------- ------------
First mortgage loans:
Secured by 1-to-4 family residences $11,032,985 $ 11,034,886
Secured by over 4 family units 1,636,997 1,294,595
Commercial 1,085,968 598,866
Home equity and second mortgage loans 1,441,620 1,213,212
Lease pools - 4,043
Share loans 449,801 396,133
Consumer loans 858,036 267,773
Real estate owned 319,073 -
---------- ---------
16,824,480 14,809,508
Allowance for loan losses (198,168) (208,791)
Deferred loan origination fees (5,991) (9,721)
------------ ----------
$16,620,321 $ 14,590,996
========== ==========
The Company conducts its business through two offices located in Pittsburgh,
Pennsylvania. As of June 30, 1998, the majority of the Company's loan portfolio
was secured by properties located in this region. The Company evaluates each
customer's credit worthiness on a case-by-case basis. Collateral held includes
mortgages on residential and income-producing properties. The Company 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, 1998. 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 $ 301,000 at June 30, 1998. The amount the Company 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 Company has adequate
collateral on these loans and additional losses are not expected to occur in the
event of foreclosure.
At June 30, 1998 and 1997, the Company had approximately $301,000 and 743,000,
respectively, of nonaccrual loans primarily consisting of residential first
mortgage loans. Interest income on nonaccrual loans for the year ended June 30,
1998, which would have been reported on an accrual basis, amounted to
approximately $30,000.
-30-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Activity in the allowance for loan losses at June 30, is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
----------- --------
<S> <C> <C>
Beginning balance $ 208,791 $ 75,694
Provision for loan losses 32,113 136,039
Charge-offs (42,736) (4,091)
Recoveries - 1,149
--------- ---------
Ending balance $ 198,168 $ 208,791
========== =========
</TABLE>
In the ordinary course of business, the Company has and expects to continue to
have transactions, including borrowings, with its officers, directors, and their
affiliates (totaling $6,000 and $ 74,397 at June 30, 1998 and 1997,
respectively). 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 Company.
NOTE D - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following at June 30:
<TABLE>
<CAPTION>
1998 1997
-------------- ------------
<S> <C> <C>
Loans $ 73,932 $ 156,714
Investments 180,917 217,602
------------ -----------
254,849 374,316
Allowance for uncollectible interest (26,674) (74,847)
------------- -----------
$ 228,175 $ 299,469
============ ===========
</TABLE>
NOTE E - PREMISES AND EQUIPMENT
Premises and equipment at June 30, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Land $ 121,027 $ 121,027
Buildings and improvements 993,265 991,989
Furniture, fixtures, and equipment 405,855 394,689
------------ ------------
1,520,146 1,507,705
Accumulated depreciation (502,978) (450,038)
------------ ------------
$ 1,017,168 $ 1,057,667
=========== ===========
</TABLE>
-31-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F - DEPOSITS
Deposits at June 30, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RATE AMOUNT RATE AMOUNT
<S> <C> <C> <C> <C>
NOW accounts 0.00 % $2,476,029 0.00 % $1,613,841
Passbook savings 3.16 10,378,217 3.16 10,295,942
------- ----------- ------- -----------
2.55 12,854,246 2.76 11,909,783
------- ----------- ------- -----------
Certificates of deposit:
3.00% to 3.99% - - 3.00 3,675
4.00% to 4.99% 4.93 1,812,885 4.96 1,952,445
5.00% to 5.99% 5.52 9,987,486 5.42 8,797,914
6.00% to 6.99% 6.18 6,788,251 6.24 4,574,096
7.00% to 7.99% 7.04 424,737 7.09 1,167,862
------- ----------- ------- -----------
5.73 19,013,359 5.71 16,495,992
------ ----------- ------- -----------
4.45 % $31,867,605 4.47 % $28,405,775
====== =========== ======== ===========
</TABLE>
At June 30, 1998, the aggregate maturities of certificates of deposit in fiscal
years 1999 through 2003 is $ 8,794,553, $ 2,974,425, $ 3,268,187, $ 820,928 and
$ 3,155,266 respectively. The aggregate amount of certificates in denominations
of $ 100,000 or more totaled $ 2,038,656.
Deposits in excess of $100,000 are not insured by the Savings Association
Insurance Fund (SAIF).
At June 30, 1998, the Bank had deposits from its officers and directors totaling
approximately $ 207,000.
Interest expense and accrued interest payable on deposits consisted of the
following at June 30:
<TABLE>
<CAPTION>
ACCRUED INTEREST PAYABLE INTEREST EXPENSE
------------------------ ----------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Passbook savings $ 1,475 $ 1,561 $ 320,046 $ 319,945
Certificate accounts 41,042 51,068 1,048,891 926,503
-------- -------- ----------- ------------
Total interest on deposits $42,517 $52,629 $1,368,937 $1,246,448
======= ======= ========== ==========
</TABLE>
-32-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G - ADVANCES FROM FEDERAL HOME LOAN BANK
At June 30, 1998, the Company had the following outstanding advance from the
Federal Home Loan Bank (FHLB):
ISSUE MATURITY INTEREST
DATE DATE RATE AMOUNT
---- ---- ---- ------
10/25/96 10/25/01 5.78% $ 1,000,000
-----------
$ 1,000,000
===========
At June 30, 1997, the Company had the following outstanding advances from the
Federal Home Loan Bank (FHLB):
ISSUE MATURITY INTEREST
DATE DATE RATE AMOUNT
---- ---- ---- ------
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
===========
Certain mortgage loans are pledged as collateral on the outstanding advances.
NOTE H - BENEFIT PLANS
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 of the latest dates
valuations were prepared:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1997
----------- -----------
<S> <C> <C>
Vested accumulated benefit obligation $ 341,130 $ 230,341
Nonvested accumulated benefit obligation 4,055 1,280
--------- ---------
Accumulated benefit obligation 345,185 231,621
Effect of projected salary increases 113,774 (1)
--------- ---------
Projected benefit obligation 458,959 231,620
Fair value of plan assets 391,058 315,032
--------- ---------
Plan assets in excess of project benefit
obligation (unfunded projected benefit
obligation) (67,901) 83,412
Unrecognized net (gain) loss 71,711 (97,685)
Unrecognized net obligation 1,188 1,310
--------- ---------
Prepaid pension cost (pension liability) $ (4,998) $ (12,963)
========= =========
</TABLE>
-33-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- ---------
<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%
Components of net pension cost are as follows:
1998 1997
--------- ---------
Service cost $ 28,942 $ 27,982
Interest cost 28,237 25,378
Actual return on plan assets (22,919) (11,197)
Net amortization on deferrals 886 (5,766)
-------- ---------
Net periodic pension cost $ 35,146 $ 36,397
======== ========
</TABLE>
Employee Stock Ownership Plan (ESOP)
As part of the conversion discussed in Note A, an Employee Stock Ownership Plan
(ESOP) was established for all employees who have completed one year of service
and have attained the age of 21. The ESOP borrowed $ 264,480 from the Company
and used the funds to purchase 26,448 shares of common stock of the Company
issued in the offering. The loan will be repaid principally from the Company's
contributions to the ESOP over a period of 10 years. On June 30, 1998, the loan
had an outstanding balance of $ 244,642 and an interest rate of 8.5%. The loan
obligation of the ESOP is considered unearned compensation and, as such,
recorded as a reduction of the Company's stockholders' equity. Both the loan
obligation and the unearned compensation are reduced by an amount of the loan
repayments made by the ESOP. Shares purchased with the loan proceeds are held in
a suspense account for allocation among participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense account are
allocated among participants on the basis of compensation in the year of
allocation. Benefits become fully vested at the end of seven years of service
under the terms of the ESOP Plan. Benefits may be payable upon retirement,
death, disability, or separation from service. Since the Company's annual
contributions are discretionary, benefits payable under the ESOP cannot be
estimated.
At June 30, 1998, 2,201 ESOP shares have been allocated to the participating
employees. For purposes of computing net income per share, the remaining 24,247
unallocated shares are not considered outstanding until they are
committed-to-be-released for allocation. The Company is recognizing as
compensation expense the fair market value of the Company's common stock
allocated to participating employees. Compensation expense recognized by the
Company during the year ended June 30, 1998 was $ 31,779.
-34-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Option Plan
In March 1998, the Company approved a stock option plan (the "Option Plan")
whereby 33,060 authorized shares are reserved for issuance by the Company upon
exercise of stock options granted to officers, directors, and employees of the
Company from time to time. Options constitute both incentive stock options and
nonqualified stock options. Options awarded are exercisable at a rate of 20%
annually with the first 20% exercisable on the one-year anniversary of the date
of grant. Any shares subject to an award which expires or is terminated
unexercised will again be available for issuance. The Option Plan has a term of
ten years, unless sooner terminated. The exercise price for the purchase of
shares subject to an incentive stock option may not be less than 100 percent of
the fair market value of the common stock on the date of grant of such option.
The exercise price per share for nonqualified stock options shall be the price
as determined by an option committee, but not less than the fair market value of
the common stock on the date of grant.
Stock option activity is as follows:
Year ended
June 30, 1998
-------------
Options outstanding at beginning -
of year
Options granted 33,060
Options exercised -
Options canceled -
------
Options outstanding at end of year 33,060
======
Options exercisable at end of year -
======
Weighted-average option prices per share:
Options granted during $ 15.75
the year
Options exercised during -
the year
Options canceled during -
the year
Options outstanding at $ 15.75
end of year
The options outstanding at June 30, 1998 had a weighted-average contractual
maturity of 9.7 years and exercise price of $15.75.
The per share weighted-average fair value of stock options granted with an
exercise price equal to market for the year ended June 30, 1998 was $ 2.85 using
the Black Scholes option-pricing model with the following weighted-average
assumptions: expected life of 7 years, expected annual dividend rate of 2.0%,
risk-free interest rate of 4.80%, and an expected volatility of 15%.
-35-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company applies Accounting Principles Board Opinion No. 25 in accounting for
stock options. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS No. 123, the Company's
net income would have been reduced to the pro forma amounts indicated below:
Year Ended
June 30, 1998
-------------
Net income:
As reported $ 115,388
Pro forma 111,486
Net income per share:
As reported:
Basic .28
Diluted .28
Pro forma:
Basic .27
Diluted .27
Restricted Stock Plan
In March 1998, the Company established a Restricted Stock Plan ("RSP"). Under
the terms of the RSP, a total of 13,224 shares of the Company's common stock is
available for the granting of awards to officers, directors and employees during
a period of twenty-one years, unless sooner terminated. The Company will
contribute sufficient funds to the RSP to purchase shares of the Company's
common stock either in the open market or from unissued or treasury shares. All
stock to be purchased by the RSP will be purchased at the fair market value on
the date of purchase. Stock awarded is earned at a rate of 20% annually with the
first 20% awarded on the one-year anniversary of the date of grant. The market
value of the common stock at the date of award is included as a reduction of
stockholders' equity in the consolidated balance sheet and is recorded as
compensation expense using the straight-line method over the vesting period of
the awards. The awards vest pro rata over five years at each anniversary of the
award. On March 16, 1998, 13,224 shares of the Company's common stock was
awarded under the RSP. The fair market value of the Company's stock on March 16,
1998 was $ 15.75 per share. Aggregate compensation expense with respect to the
foregoing awards was $10,414 for the year ended June 30, 1998.
Summary information regarding outstanding RSP awards at June 30, 1998 is
presented below:
Period in which Market value Shares Vesting
awards granted at award date awarded period
-------------- ------------- ------- ------
Year ended June 30, 1998 $208,278 13,224 5 years
-36-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I - INCOME TAXES
Income tax expense (benefit) for the years ended June 30, is summarized as
follows:
1998 1997
---- ----
Federal:
Current (benefit) $24,206 $ (1,935)
Deferred 22,964 (65,193)
-------- ----------
$ 47,170 $ (67,128)
======== =========
State:
Current $ - $ -
======== =========
Totals:
Current (benefit) $ 24,206 $ (1,935)
Deferred 22,964 (65,193)
-------- ---------
$ 47,170 $ (67,128)
======== =========
The Company has not incurred state income taxes due to net operating loss
carryforwards.
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:
1998 1997
--------- ---------
Computed income tax expense (benefit) $ 55,270 $ (44,740)
Increase (decrease) resulting in:
Tax-exempt income (2,774) (7,271)
Other, net (5,326) (15,117)
--------- ---------
Actual income tax
expense (benefit) $ 47,170 $ (67,128)
======== =========
Effective tax rate (benefit) 29.02% (51.0)%
====== =======
-37-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of net deferred tax assets and liabilities at June 30, are as
follows:
<TABLE>
<CAPTION>
1998 1997
--------- ----------
Deferred tax assets:
<S> <C> <C>
Loan origination fees, net $ 1,600 $ 2,873
Allowance for loan losses 52,935 61,712
Accrued pension expense 3,462 3,831
Net operating loss carryforward - 8,768
State net operating loss carryforward 27,200 39,000
Restricted Stock Plan accrual 2,782 -
ESOP accrual 2,601 -
Unrealized loss on securities
available-for-sale - 9,124
-------- ---------
90,580 125,308
-------- ---------
Deferred tax liabilities:
Premises and equipment (15,664) (12,748)
Accrued interest receivable (27,355) (21,134)
Unrealized gain on securities
available-for-sale (17,360) -
-------- ---------
(60,379) (33,882)
-------- ---------
30,201 91,426
Valuation allowance (27,200) (39,000)
-------- ----------
Net deferred asset $ 3,001 $ 52,426
======== =========
</TABLE>
The Company'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
Company 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,
1998 and 1997, includes approximately $ 143,000, representing such bad debt
deductions for which no deferred income taxes have been provided.
The Company has available Pennsylvania net operating loss carryforwards of
approximately $ 236,000. This carryforward can be utilized in fiscal years 1998
through 2001. The deferred tax benefit associated with this loss carryforward is
approximately $ 27,200. This benefit has been fully reserved.
-38-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J - INTEREST AND DIVIDEND INCOME ON INVESTMENTS
Interest and dividend income on investments consisted of the following at June
30:
1998 1997
----------- -----------
Taxable interest income $ 983,516 $ 997,135
Nontaxable interest income 14,737 5,120
Dividends 372 19,698
---------- -----------
$ 998,625 $ 1,021,953
========== ===========
NOTE K - COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. The financial commitments of the
Company are as follows:
The Company has outstanding commitments to originate loans as follows:
1998 1997
--------- ---------
First mortgage loans $ 131,000 $ 106,000
Secured consumer (unused
lines of credit) loans $ 391,395 $ 386,000
NOTE L - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company 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 Company'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
K). The Company 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 Company 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.
-39-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - DEPOSIT INSURANCE ASSESSMENT
The Company 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 Company began paying
reduced premium assessments in accordance with the new SAIF assessment rates.
NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments as of June 30,
are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash
equivalents $ 5,157,544 $ 5,157,544 $ 2,804,804 $ 2,804,804
Investment and mortgage-
backed securities 14,912,673 14,947,011 14,691,495 14,664,655
Loans 16,620,321 17,447,788 14,590,996 14,794,171
FHLB stock 153,300 153,300 153,300 153,300
Accrued interest
receivable 228,175 228,175 299,469 299,469
Financial liabilities:
Deposits 31,867,605 32,016,399 28,405,775 28,445,929
FHLB advances 1,000,000 1,000,000 3,000,000 3,000,000
Advances from borrowers
for taxes and
insurance 223,848 223,848 233,818 233,818
</TABLE>
-40-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE O - REGULATORY MATTERS
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 possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Company'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 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 of: total risk-based
capital and Tier I capital to risk-weighted assets (as defined in the
regulations), Tier I capital to adjusted total assets (as defined), and tangible
capital to adjusted total assets (as defined). Management believes, as of June
30, 1998, that the Bank meets all capital adequacy requirements to which it is
subject.
As of June 30, 1998, 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 those notifications that management believes have changed the Bank's
capital category.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
-------------- ---------------------- ------------------------
Ratio Ratio
greater than greater than
Amount Ratio Amount or equal to Amount or equal to
------ ----- ------ ----------- ------ -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998:
Total Capital
(to Risk-Weighted Assets) $4,008 25.3% $1,269 8% $1,586 10%
Tier I Capital
(to Risk-Weighted Assets) 3,815 24.1 634 4 952 6
Tier I Capital
(to average assets) 3,815 10.5 1,447 4 2,179 5
As of June 30, 1997:
Total Capital - risk-based
(to risk-weighted assets) 2,240 15.9 1,128 8 1,411 10
Tier I Capital - risk-based
(to risk-weighted assets) 2,064 14.6 564 4 846 6
Tier I Capital - leverage
(to average assets) 2,064 6.1 1,352 4 1,690 5
</TABLE>
-41-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE P - PARENT COMPANY FINANCIAL INFORMATION
The following represents condensed financial information of WSB Holding
Company (Parent company only).
CONDENSED BALANCE SHEET
June 30, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $ 139,562
Securities available-for-sale, at fair value 1,013,649
Interest receivable from subsidiary 1,898
Note receivable from subsidiary 244,642
Prepaid income taxes 26,700
Investment in subsidiary, at equity 1,752,354
-----------
TOTAL ASSETS $ 3,178,805
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deferred income taxes $ 13,639
-----------
13,639
-----------
Stockholders' Equity:
Preferred stock ($.10 par value,
1,000,000 shares authorized, none outstanding) Common stock ($ .10 par
value, 4,000,000 shares authorized; 330,600 shares
issued and outstanding 33,060
Additional paid-in capital 2,989,212
Retained earnings 115,388
Treasury stock, at cost (19,431)
Net unrealized gain on securities available for sale 46,937
-----------
3,165,166
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,178,805
===========
</TABLE>
-42-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENT OF INCOME
Year Ended June 30, 1998
<TABLE>
<CAPTION>
<S> <C>
Interest and dividends on investments $ 31,752
Interest on loan to subsidiary 18,761
Gain on sale of investments 9,932
Operating expenses (77,557)
Income tax benefit 5,146
---------
Income before equity in undistributed
income of subsidiary (11,966)
Equity in undistributed income
of subsidiary 127,354
---------
$ 115,388
=========
</TABLE>
-43-
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENT OF CASH FLOWS
Year Ended June 30, 1998
OPERATING ACTIVITIES
Net income $ 115,388
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed income of subsidiary (127,354)
Gain on sale of investments (9,932)
(Increase) in interest receivable from subsidiary (1,898)
(Increase) in prepaid income taxes (26,700)
(Increase) in deferred income taxes (3,469)
Amortization of ESOP shares 9,737
-----------
NET CASH USED BY OPERATING ACTIVITIES (44,228)
-----------
INVESTING ACTIVITIES
Purchases of securities available-for-sale (1,019,672)
Proceeds from sales of securities available-for-sale 80,000
Purchase of subsidiary stock (1,625,000)
Net change of subsidiary loan (244,642)
-----------
NET CASH USED BY INVESTING ACTIVITIES (2,809,314)
-----------
FINANCING ACTIVITIES
Purchase of treasury stock (19,431)
Proceeds from issuance of common stock 3,306,000
Payments of conversion costs (293,465)
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,993,104
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 139,562
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR --
-----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 139,562
===========
Noncash investing activities:
Total increase in unrealized gain on securities
available-for-sale 64,045
Less: income tax expense 17,108
-----------
$ 46,937
===========
-44-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM
THE ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<CIK> 0001040790
<NAME> WSB Holding Company
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 406,629
<INT-BEARING-DEPOSITS> 4,750,915
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,245,015
<INVESTMENTS-CARRYING> 11,667,658
<INVESTMENTS-MARKET> 11,701,966
<LOANS> 16,499,416
<ALLOWANCE> 198,168
<TOTAL-ASSETS> 38,208,472
<DEPOSITS> 31,867,605
<SHORT-TERM> 0
<LIABILITIES-OTHER> 551,321
<LONG-TERM> 1,000,000
0
0
<COMMON> 33,060
<OTHER-SE> 2,529,479
<TOTAL-LIABILITIES-AND-EQUITY> 38,208,472
<INTEREST-LOAN> 1,308,118
<INTEREST-INVEST> 998,625
<INTEREST-OTHER> 283,488
<INTEREST-TOTAL> 2,590,231
<INTEREST-DEPOSIT> 1,368,937
<INTEREST-EXPENSE> 1,465,984
<INTEREST-INCOME-NET> 1,124,247
<LOAN-LOSSES> 32,113
<SECURITIES-GAINS> 24,245
<EXPENSE-OTHER> 1,041,547
<INCOME-PRETAX> 162,558
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,388
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
<YIELD-ACTUAL> 3.25
<LOANS-NON> 300,655
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 208,791
<CHARGE-OFFS> 42,736
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 198,168
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
