SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report pursuant to section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended June 30, 1999
-------------
OR
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to .
----- -----
Commission File No. 0-22997
WSB Holding Company
-------------------
(Name of Small Business Issuer in Its Charter)
Pennsylvania 23-2908963
- --------------------------------- ------------------
(State or Other Jurisdiction of I.R.S.Employer
Incorporation or Organization) Identification No.
807 Middle Street, Pittsburgh, Pennsylvania 15212
- ------------------------------------------- ------------------
(Address of Principal Executive Offices (Zip Code)
Issuer's Telephone Number, Including Area Code: (412) 231-7297
--------------
Securities registered under to Section 12(b) of the Exchange Act: None
----
Securities registered under to Section 12(g) of the Exchange Act:
Common Stock, par value $0.10 per share
---------------------------------------
(Title of Class)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO .
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $2,864,000
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant, based on the average bid and asked
price of the registrant's Common Stock on August 31,1999, was $1.7 million.
As of August 31, 1999, there were issued and outstanding 303,434 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, 1999. (Part II)
2. Portions of the Proxy Statement for the Annual Meeting of Stockholders
for the Fiscal Year ended June 30, 1999. (Part III)
<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.
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. Workingmens 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.
1
<PAGE>
Workingmens 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. To a lesser extent, the Bank also originates
multi-family real estate loans and consumer loans which primarily consist of
home equity and second mortgage loans. 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.
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 on the dates
indicated:
<TABLE>
<CAPTION>
June 30,
-----------------------------------------
1999 1998
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Type of Loans:
Real Estate Loans:
One- to four-Family......................... $10,571 61.6% $11,033 66.8%
Multi-family................................ 2,483 14.5 1,637 10.0
Commercial.................................. 1,298 7.6 1,086 6.6
-------- ----- ------- -----
Total real estate loans....................... 14,352 83.7 13,756 83.4
-------- ----- ------- -----
Consumer Loans:
Home equity and second mortgage loans....... 1,707 9.9 1,441 8.7
Share and other............................. 1,100 6.4 1,308 7.9
-------- ----- ------- -----
Total consumer loans.......................... 2,807 16.3 2,749 16.6
-------- ----- ------- -----
Total loans.............................. 17,159 100.0% 16,505 100.0%
Less: ===== =====
Deferred loan origination fees and costs.... (3) (6)
Allowance for loan losses................... (166) (198)
-------- -------
Total loans, net......................... $ 16,990 $16,301
======== =======
</TABLE>
2
<PAGE>
Loan Maturity Tables
The following table sets forth the estimated maturity of the Bank's
loan portfolio at June 30, 1999. 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 .......... $ 4 $ 631 $ 9,936 $10,571
Multi-family real estate.............................. -- 59 2,424 2,483
Commercial real estate................................ -- 275 1,023 1,298
Consumer - home equity and second mortgages........... 422 661 624 1,707
Consumer - share and other............................ 400 280 420 1,100
---- ------ ------- -------
Total................................................. $826 $1,906 $14,427 $17,159
==== ====== ======= =======
</TABLE>
The following table sets forth the dollar amount of all loans due after
June 30, 2000, which have fixed interest rates and floating or adjustable
interests rates.
<TABLE>
<CAPTION>
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In Thousands)
<S> <C> <C> <C>
One- to four-family residential........ $ 10,567 $ - - $10,567
Multi-family........................... 1,874 609 2,483
Commercial............................. 1,298 - - 1,298
Home equity and second mortgages....... 1,285 - - 1,285
Other consumer......................... 312 388 700
-------- ----- -------
Total.............................. $ 15,336 $ 997 $16,333
======== ===== =======
</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.
3
<PAGE>
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.
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, 1999, commitments
to cover originations of mortgage loans totaled $665,000 and commitments to fund
commercial real estate loans totaled $85,000. The Bank believes that virtually
all of their commitments will be funded.
4
<PAGE>
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.
At June 30,
--------------------
1999 1998
---- ----
(Dollars in Thousands)
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One- to four-family residential real estate .......... $ - $ 301
All other mortgage loans.............................. - -
Non-mortgage loans:
Home equity and second mortgages...................... - -
Other consumer........................................ - -
---- ------
Total non-accrual loans................................. $ - $ 301
==== ======
Real estate owned....................................... $ - $ 319
==== ======
Total non-performing assets............................. $ - $ 620
==== ======
Total non-accrual loans to net loans.................... --% 1.84%
==== ======
Total non-accrual loans to total assets................. --% .79%
==== ======
Total non-performing assets to total assets............. --% 1.62%
==== ======
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.
5
<PAGE>
The following table sets forth the Bank's classified assets in
accordance with the Bank's classification system:
At June 30, 1999
----------------
(In Thousands)
Special Mention $ 806
Substandard 31
Doubtful 8
Loss --
-----
$ 845
=====
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.
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,
----------------------
1999 1998
-------- ---------
(Dollars in Thousands)
<S> <C> <C>
Total loans outstanding .................................................. $ 17,159 $ 16,505
======== ========
Average loans outstanding ................................................ $ 16,832 $ 15,507
======== ========
Allowance balances at beginning of period ................................ $ 198 $ 209
Provision:
1-4 family residential ................................................. -- 24
Consumer ............................................................... -- 8
Charge-offs:
1-4 family residential ................................................. (33) (43)
Consumer ............................................................... -- --
Recoveries:
1-4 family residential ................................................. -- --
-------- --------
Allowance balance at end of period ....................................... $ 165 $ 198
======== ========
Allowance for loan losses as a percent of total loans outstanding......... .96% 1.20%
======== ========
Net loans charged off as a percent of average loans outstanding........... .20% .28%
======== ========
</TABLE>
6
<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.
At June 30,
--------------------------------------------------
1999 1998
------------------------ -------------------------
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(Dollars in Thousands)
One- to four-family ...... 125 61.6% $174 66.8%
Multi-family.............. 25 14.5 8 10.0
Other real estate......... 13 7.6 14 6.6
Consumer.................. 2 16.3 2 16.6
------- ----- ---- -----
Total allowance......... $ 165 100.0% $198 100.0%
======= ===== ==== =====
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, 1999, 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, 1999 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 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
7
<PAGE>
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.
At June 30,
--------------------------
1999 1998
------- ---------
(In Thousands)
Securities Held to Maturity:
U.S. Government and Agency Securities .......... $13,879 $11,570
CMOs............................................ 396 98
Certificate of deposit.......................... 99 --
------- -------
Total Securities Held to Maturity................ 14,374 11,668
------- -------
Securities Available for Sale:
FHLMC............................................ 55 75
GNMA............................................. 1,080 1,057
FNMA............................................. 259 452
FHLMC Stock...................................... 87 118
FNMA stock....................................... 102 --
Municipal bonds.................................. 891 --
Corporate Notes.................................. 298 497
Equity Securities................................ 1,119 1,014
CMOs............................................. 19 32
------- -------
Total Securities Available for Sale.............. 3,910 3,245
------- -------
Total Investment and Mortgage-Backed Securities.. $18,284 $14,913
======= =======
8
<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, 1999 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, 1999
--------------------------------------------------------------------------------------------------------
Total Investment
One Year or Less One to Five Years Five to Ten Years More than Ten Years Securities (1)
---------------- ----------------- ----------------- ------------------- -----------------------------
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...... $ - - $2,099 6.1% $4,870 6.5% $6,910 6.8% $13,879 6.6% $13,472
Corporate Notes
and Bonds................. 100 6.0 198 5.5 - - - - 298 5.7 298
FHLMC Stock............... - - - - - - 87 - 87 - 87
FNMA Stock................ - - - - - - 102 - 102 - 102
Municipal bonds........... - - - - - - 891 4.8 891 4.8 891
Mortgage-Backed
Securities & CMOs......... - - - - - - 1,809 6.4 1,809 6.4 1,801
Certificates of deposit... 99 5.9 - - - - - - 99 5.9 99
---- ------ ------ ------ ------- -------
Total................... $199 5.9% $2,297 6.0% $4,870 6.5% $9,799 6.4% $17,165 6.4% $16,750
==== === ====== === ====== === ====== === ======= === =======
</TABLE>
- ----------------
(1) Equity securities in the amount of $1,119 are not included in the above
table. Such securities are comprised of mutual funds which have no
stated maturity or stated interest rate.
9
<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, 1999, 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, 1999.
Maturity Period Time Deposits
--------------- -------------
(In Thousands)
Within three months.................... $ 200
More than three through six months..... 393
More than six through nine months...... --
Over nine months....................... 1,264
-------
Total............................. $ 1,857
=======
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.
Employees
At June 30, 1999 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.
10
<PAGE>
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."
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.
Insurance of Deposit Accounts. The deposit accounts held by the Bank
are insured by the SAIF to a maximum of $100,000 for each insured member (as
defined by law and regulation). Insurance of deposits may be terminated by the
FDIC upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
FDIC or the institution's primary regulator.
A member of the SAIF pays an annual insurance premium to the FDIC of at
least 0.064% of total deposits of that member. The FDIC also maintains another
insurance fund, the Bank Insurance Fund
11
<PAGE>
("BIF"), which primarily insures commercial bank deposits. Most members of BIF
pay a lower premium to the FDIC.
After 1999, assessments for BIF and SAIF members should be the same. It
is expected that these continuing assessments for both SAIF and BIF members will
be used to repay outstanding Financing Corporation bond obligations.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) a leverage ratio (core capital) equal to
at least 4% of total adjusted assets (3% for institutions receiving the highest
rating on the CAMEL financial institution rating system), 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. In
addition, the Bank may not declare or pay a cash dividend on its capital stock
if the dividend would (1) reduce the regulatory capital of the Bank below the
amount required for the liquidation account established in connection with the
conversion from mutual to stock form or (2) reduce the amount of capital of the
Bank below the amounts required in accordance with other OTS regulations.
Loans to One Borrower. The maximum amount of loans which the Bank may
make to any one borrower may not exceed the greater of $500,000 or 15% of the
Bank's unimpaired capital and unimpaired surplus. The Bank may lend an
additional 10% of its unimpaired capital and unimpaired surplus if the loan is
fully secured by readily marketable collateral.
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, 1999, the Bank was
in compliance with its QTL requirement with 68% 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.
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.
12
<PAGE>
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, 1999, the Bank's actual liquid
asset ratio was 54%.
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, 1999, the Bank was in compliance with these Federal Reserve Board
requirements.
Item 2. Description of Property
- --------------------------------
(a) Properties. The Bank owns its main office and branch office located
in Pittsburgh, Pennsylvania. The main office is located at 807 Middle Street and
the branch office is located at 5035 Curry Road.
(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."
(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.
13
<PAGE>
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, 1999 (the "Annual Report") is incorporated herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
- ------------------------------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" 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.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance
- --------------------------------------------------------------------------------
with Section 16(a) of the Exchange Act
- --------------------------------------
The information required under this item is incorporated herein by
reference to the Proxy Statement for the 1999 Annual Meeting (the "Proxy
Statement") contained under the sections captioned "Principal Holders," "Section
16(a) Beneficial Ownership Reporting Compliance," "Proposal I - Election of
Directors," and " Biographical Information."
Item 10. Executive Compensation
- --------------------------------
The information required under this item is incorporated herein by
reference to the Proxy Statement contained under the section captioned "Director
and Executive Officer Compensation."
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
(b) Security Ownership of Management
The information required by items (a) and (b) is incorporated
herein by reference to the Proxy Statement contained under
the sections captioned "Principal Holders" and "Proposal I -
Election of Directors."
(c) Management of the Company knows of no arrangements, including
any pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a change
in control of the Company.
14
<PAGE>
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference to the Proxy Statement contained under the section captioned "Certain
Relationships and Related Transactions."
Item 13. Exhibits, List, and Reports on Form 8-K
- -------------------------------------------------
(a) Listed below are all financial statements and exhibits filed as
part of this report.
1. The consolidated balance sheets of WSB Holding
Company as of June 30, 1999 and 1998 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, 1999,
together with the related notes and the independent
auditors' report of Stokes Kelly & 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:
<TABLE>
<CAPTION>
(a) List of Exhibits:
<S> <C>
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 D. Neudorfer **
10.1 1998 Stock Option Plan ***
10.2 Restricted Stock Plan and Trust Agreement ***
10.3 Form of Supplemental Benefit Agreement
10.4 Form of Split Dollar Agreement
13 Portions of the 1999 Annual Report to Stockholders
21 Subsidiaries of the Registrant (See "Item 1- Description of
Business")
23 Consent of Stokes Kelly & Hinds, LLC
27 Financial Data Schedule (electronic filing only)
</TABLE>
-------------------
* 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.
15
<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 22,
1999.
WSB HOLDING COMPANY
By: /s/Robert D. Neudorfer
-----------------------------------------------
Robert D. 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 22, 1999.
/s/Robert D. Neudorfer /s/Joseph J. Manfred
- ----------------------------------------------- ---------------------------
Robert D. 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/Joseph P. Mueller /s/Johanna C. Guehl
- ----------------------------------------------- ---------------------------
John P. Mueller Johanna C. Guehl
Director Director
/s/John T. Ringland
- -----------------------------------------------
John T. Ringland
Director
EXHIBIT 10.3
<PAGE>
FORM OF
SUPPLEMENTAL EXECUTIVE BENEFIT AGREEMENT
BY AND BETWEEN NAMED EXECUTIVE OFFICER OR DIRECTOR
WORKINGMEN'S SAVINGS BANK (the "Bank") hereby enters into this Supplemental
Executive Benefit Agreement (the "Agreement") with ___________________ (the
"Executive") in accordance with the terms set forth below as of this __________
day of ________________, 1999.
WHEREAS, the Executive is a member of a select group of management or highly
compensated employees of the Bank; and
WHEREAS, the Executive has provided many years of dedicated service to the Bank
which has contributed greatly to the Bank's success; and
WHEREAS, the Bank is hopeful that the Executive will continue to contribute to
the future success of the Bank; and
WHEREAS, the Bank desires to reward the Executive for such past services and to
encourage the Executive to continue in his dedicated service for the Bank.
NOW THEREFORE, the Bank and Executive agree to the following terms of this
Agreement.
Section 1. Definitions. Except as otherwise provided herein, the capitalized
terms set forth below shall be defined as follows:
(a) After-Tax Adjusted Investment Rate. The percentage that is determined as
the product of
(i) the one year rate of interest paid for U. S. Treasury Bills as
determined on the Anniversary Date multiplied by (ii) the estimated
effective after-tax rate of the Bank as determined by the Committee. If the
tax consequences to the Executive of benefits under this Agreement are
changed pursuant to legal, legislative or administrative decisions, then
the After-Tax Adjusted Investment Rate will be changed accordingly and the
defined terms in that situation are After-Tax Adjustment Investment Rate
and Executive.
(b) Bank. Workingmen's Savings Bank and any successors or assigns which accept
the terms of this Agreement.
(c) Beneficiary. The beneficiary designated by the Executive in writing and
delivered to the Committee. In the absence of any such writing, the
beneficiary shall be the Executive's spouse, if living, and if not living,
the Executive's estate.
(d) Change in Control. The purchase or other acquisition by any person, entity
or group of persons, within the meaning of section 13(d) or 14(d) of the
Securities Exchange Act of 1934 ("Act") , or any comparable successor
provisions of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Act) of 30 percent or more of either the outstanding
shares of common stock or the combined voting power of the Bank's then
outstanding voting securities entitled to vote generally, or the approval
by the stockholders of the Bank of a reorganization, merger, or
consolidation in each case, with respect to which persons who were
stockholders of the Bank immediately prior to such reorganization, merger
or consolidation do not, immediately thereafter own more that 50 percent of
the combined voting power entitled to vote generally
<PAGE>
in the election of directors of the reorganized, merged or consolidated
Bank's ten outstanding securities, or a liquidation of the employer or of
the sale of all or substantially all of the Bank's assets. The Bank shall
have the duty to inform the Trustee in writing upon the occurrence of a
Change of Control. The Trustee shall be entitled to conclusively rely upon
such written certification of the Bank.
(e) Code. The Internal Revenue Service Code of 1986, as amended.
(f) Committee. The Board of Directors of the Bank.
(g) Cost of -Funds Expense. For the First Plan Year, the Cost of Funds Expense
shall equal the Total Premium Amount multiplied by the After-Tax Adjusted
Investment Rate. For each Plan Year thereafter, the Cost of Funds Expense
shall equal the sum of (i) Total Premium Amount for the previous Plan Year,
plus (ii) the Cost of Funds Expense f or the previous Plan Year multiplied
by the After-Tax Adjusted Investment Rate.
(h) Defined Contribution Amount. The defined Contribution Amount for any Plan
Year shall be the annual after-tax income from the Policy for the Plan
Year.
(i) Effective Date. The Effective Date of this Agreement shall be the date
first written above.
(j) ERISA. The Employee Retirement Income Security Act of 1974, as amended.
(k) Executive.________________
(1) Normal Retirement Date. The later of the Executive's termination of
employment date or his 65th birthday.
(m) Plan Year. The Plan Year shall be the calendar year, except that in the
first year, the Plan Year shall be the short year from the Effective Date
of this Agreement to December 31 of that calendar year.
(n) Policy. one or more Key-Man Life Insurance Policies and/or Annuity Policies
which may be purchased on the life of the Executive and which are described
in Exhibit A to this Agreement. Notwithstanding any provision in this
Agreement to the contrary the Bank is not obligated to purchase such a
Policy for the Executive, and if the Bank , in fact, has not purchased such
a Policy for the Executive then the Defined Contribution Amount shall be
determined based on illustrations provided by the Insurer as if the policy
were in effect.
(o) Pre-Retirement Contribution. The annual amount credited to the Executive's
Pre- Retirement Account for a Plan Year as provided under Section 2 of this
Agreement.
(p) Pre-Retirement Contribution Account. The Account of the Executive which is
credited with Pre-Retirement Contributions as provided under Section 2 of
this Agreement.
(q) Supplemental Retirement Benefit. The annual benefit payable to the
Executive as determined under Section 5 of this Agreement.
(r) Terminated for Cause. The Executive shall be Terminated for Cause for
purposes of this Agreement if the Executive is terminated on account of (i)
gross negligence, (ii) gross neglect, or the conviction of a felony or
gross misdemeanor involving moral turpitude, fraud, dishonesty or willful
violation of any law that results in any adverse effect on the Bank. If a
dispute arises as to whether the Executive has been Terminated for Cause
the dispute shall be resolved through binding arbitration.
(s) Total Cost of Funds Expense. For any Plan Year, the Total Cost of Funds
Expense shall equal the sum of (i) the Cost of Funds for the Plan Year,
plus (ii) the sum of all of the Cost of Funds Expenses for all prior Plan
Years.
(t) Total Defined Contribution Amount. For any Plan Year, the Total Defined
Contribution Amount shall equal the sum of (i) the Defined Contribution
Amount for the Plan Year, plus (ii)
<PAGE>
the sum of all of the Defined Contribution Amount for all prior Plan Years.
(u) Total Premium Amount. The total amount of premiums contributed by the Bank
to the Policy.
(v) Vesting Percentage. All amounts payable hereunder shall be fully vested as
of the date of allocation as a Pre-Retirement Contribution.
Section 2. Pre-Retirement Contribution. The Committee may, in its sole
discretion as per Section 5 Amount of Benefits, allocate a positive or negative
amount as a Pre-Retirement Contribution for the benefit of the Executive with
respect to each Plan Year to the Executive's Pre- Retirement Contribution
Account until the earlier of (i) the termination of this Agreement, or (ii) the
year the Executive terminates employment with the Bank. Although the Committee
has complete discretion to allocate a larger amount, it is intended that the
amount of the Supplemental Retirement Contribution for a calendar year will
approximate the amount equal to the Total Defined Contribution Amount as of a
Plan Year minus the Total Cost of Funds Expense as of a Plan Year.
Section 3. Funding of Benefits. The Bank may purchase and make contributions to
a Policy on the life of the Executive for purposes of assisting it in satisfying
its obligation to pay benefits under this Agreement. The Bank shall be the owner
and beneficiary under the Policy. The Executive shall have no rights under the
Policy which is allocated to current death benefit protection. The Bank's
transfer of amounts from the Policy shall not cause the Agreement to be "funded"
for purposes of code Sections 83 and 402 and Title I of ERISA.
Section 4. Unsecured Right To Benefits. The Executive shall have only the
unsecured and unfunded promise to be paid benefits under this Agreement.
Therefore, this Agreement shall not create a transfer of "property" for federal
income tax purposes and shall be a "Top-Hat Plan" for purposes of Title I of
ERISA.
Section 5. Amount of Benefits. The annual amount of the Executive's Supplemental
Retirement Benefit under this Agreement shall equal the amount which is the sum
of (i) the total amount allocated to the Executive's Pre-Retirement Contribution
Account plus (ii) for each year, the amount determined by subtracting the Cost
of Funds Expenses for the Plan Year from the Defined Contribution Amount for the
Plan Year.
Section 6. Payment of Benefits Upon Normal Retirement Date. If the Executive is
an employee of the Bank until his Normal Retirement Date, the Executive shall
receive his Supplemental Retirement Benefit under this Agreement as soon as
practicable after his Normal Retirement Date and on each succeeding anniversary
for his life after his Normal Retirement Date.
Section 7. Payment of Benefits Upon Termination of Employment. Subject to the
forfeiture provision of Section 8, if the Executive terminates employment with
the Bank before his Normal Retirement Date, the Executive shall receive a
portion of his Supplemental Retirement Benefit determined by multiplying his
Supplemental Retirement Benefit by the Vesting Percentage.
Section 8. Forfeiture of Benefits. If the Executive is Terminated For Cause at
any time prior
<PAGE>
to his Normal Retirement Date, all Supplemental Retirement Benefits under this
Agreement shall be forfeited.
Section 9. Death Benefits. If the Executive dies prior to receiving all of his
Supplemental Retirement Benefits under this Agreement, the Executive's
Beneficiary shall receive such benefits in a lump-sum cash payment as soon as
practicable after the Executive's death.
Section 10. Administration. This Agreement shall be administered by the
Committee. All determinations by the Committee as to any questions arising under
this Agreement, including questions of construction and interpretation, shall be
final, binding and conclusive upon all persons. The Committee may delegate any
of its responsibilities under this Agreement to another committee of the Bank or
to any other delegate; except that the Executive may not make any decisions
under this Agreement.
Section 11. Interest not Transferable. All benefits provided under this
Agreement may not be assigned, alienated, attached or encumbered by the
Executive or his Beneficiary.
Section 12. Effect on Other Benefit Plans. Amounts credited or paid under this
Agreement shall not be considered to be compensation for the purposes of any
qualified retirement plans maintained by the Bank. The treatment of such amounts
under other employee benefit plans will be determined pursuant to the provisions
of such plans.
Section 13. Incompetency. In the event the Executive is determined by a court to
be incompetent, the Committee may, in its discretion, pay the benefits provided
herein to the Executive's legal guardian for the benefit of the Executive.
Section 14. Claims Provision. The Executive may make a claim to the Committee
with regard to a payment of benefits provided herein. If the Committee receives
a claim in writing, the Committee must give notice to the Executive in writing
within a responsible period of time after receipt of the claim, (not to exceed
90 days; or under special circumstances, 120 days) . The notice of denial shall
set forth the following information:
(a) The specific reasons for such denial;
(b) Specific reference to pertinent Agreement provisions on which the
denial is based;
(c) A description of any additional material or information necessary
for the Executive to perfect a claim and an explanation of why
such material or information is necessary; and (d) An explanation
of the Agreement's claim review procedure.
If the Executive does not receive a notice of denial within 180 days
after receipt of the claim, the claim will be deemed to have been denied. The
Executive may request a review of a denial (or deemed denial) by filing with the
Committee a written request for such review. The request must be filed within 60
days after the notice of denial is received, or within 60 days after
<PAGE>
the denial is deemed to have occurred. The Executive may review pertinent
documents and submit issues and comments in writing within the same 60 day
period. If a request for review is filed, such review shall be made by the
Committee with in 60 days after receipt of such request, unless special.
circumstances require an extension of time for processing, in which case the
Executive shall be so notified and a decision shall be rendered as soon as
possible, but not later than 120 days after receipt of the request for review.
Upon completion of the review, the Executive shall be given written notice of
the decision resulting from such review, which notice shall include specific
reasons for the decision and specific references to the pertinent provisions on
which the decision is based.
Section 15. Employment Agreement. The terms of this Agreement shall not affect
in any way the Executive's agreement of employment with the Bank. Also, this
Agreement shall not be construed as to require the Executive's retirement at any
specific date.
Section 16. Severability. In the event that any provision of the Agreement shall
be held invalid or illegal for any reason, any illegality or invalidity shall
not affect the remaining parts of the Agreement. Instead the Agreement shall be
construed and enforced as if the illegal or invalid provision had never been
inserted and the Bank shall have the privilege and opportunity to correct and
remedy such questions of illegality or invalidity by amendment.
Section 17. Applicable Law. To the extent that state law applies, the Agreement
shall be governed and construed in accordance with the laws of the Commonwealth
of Pennsylvania.
Section 18. Amendment. The Bank expressly reserves the right to amend this
Agreement at any time. This Agreement nay be amended at any time by a written
action of the Committee.
Section 19. Termination. The Bank expressly reserves the right to terminate this
Agreement. Upon such termination, if the Executive has already begun receiving
benefits under this Agreement, the Bank shall have the option to either continue
paying annual benefits or pay the Executive a lump sum payment of the present
value of his total remaining benefits under this Agreement. The present value of
benefits shall be determined in accordance with the mid-term Applicable Federal
Rate (AFR) in effect as of the date of termination or such other mutually agreed
upon rate by the Bank and the Executive.
EXHIBIT 10.4
<PAGE>
FORM OF
SPLIT DOLLAR AGREEMENT
BETWEEN NAMED EXECUTIVE OFFICER OR DIRECTOR
THIS AGREEMENT is entered into by and between workingmen's Savings Bank
(the "Bank") and __________________ (the "Executive") as of this ________ day of
____________, 1999 in accordance with the provisions below.
WHEREAS, the Executive is a member of a select group of management or
highly compensated employees of the Bank; and
WHEREAS, the Executive has provided many years of dedicated service to
the Bank which has contributed greatly to the Bank's success; and
WHEREAS, the Bank is hopeful that the Executive will continue to the
future success of the Bank, and
WHEREAS, the Bank is the owner of a life insurance policy on the life
of the Executive (the "Policy"); and
WHEREAS, the Bank and the Executive desire to enter into an agreement
regarding the allocation of premiums and benefits under the Policy.
NOW THEREFORE, the Bank and the Executive hereby agrees to the terms of
the split dollar agreement as follows:
Section 1. Policy. The Policy which is subject to this Agreement is
listed on Schedule "All attached hereto. Any additional insurance contracts
which become subject to this Agreement shall be listed on Schedule "All as they
become subject to this Agreement.
Section 2. Ownership of Policy. The Bank shall have custody of the
Policy subject to this Agreement and shall be the sold and exclusive owner of
the Policy, and may to the extent of its interest, exercise the right to borrow
or withdraw on the policy cash values. The Bank shall be responsible for and pay
all interest charges on any policy loans made by the Bank.
Section 3. Beneficiary. Subject to the right of the Bank to death
benefits under this Agreement, the Executive shall have the right to name and
change the beneficiary of the Policy.
Section 4. Payment of Premiums. The premiums on the Policy shall be
paid in the following manner:
(a) the Executive shall have the option with respect to each
calendar year or portion thereof that this Agreement is in effect to contribute
a portion of the premium under the Policy equal to the economic benefit
conferred each year by the Bank, which shall equal the lesser of (i) the rate
established by the Internal Revenue Service for the cost of pure life
<PAGE>
insurance protection (P.S. 58 cost) from time to time, or (ii) the rate, if any,
established by the company which issued the Policy, for individual one year term
life insurance available to all standard risks in the amount of the particular
Policy at the insured's then attained age. In addition, the executive may pay a
portion of the annual premium that is greater than the economic benefit.
(b) The Bank shall pay the balance, representing the excess,
if any, of the minimum premium necessary to keep the Policy in force f rom year
to year, over any portion the may be paid by the Executive under (a) above.
(c) Notwithstanding (a) and (b) above, either the Executive or
the Bank or both may make such additional premium payments in excess of the
minimum premium required to keep the Policy in force, as they, or either of
them, find desirable from time to time with respect to funding the Policy over
time.
Section 5. Policy Proceeds. The Executive's Beneficiary shall be
entitled to an amount equal to 25 percent of the net at risk insurance portion
of the proceeds. The net at risk insurance portion is the total proceeds less
the cash value of the policy. The Bank shall be entitled to the remainder of
such proceeds.
The Bank and the Executive (or assignees) shall share in any interest due on the
death proceeds on a pro rata basis as the proceeds due each respectively bear to
the total proceeds, excluding any such interest.
The Bank shall at all times be entitled to an amount equal to the Policies' cash
value less any Policy loans and unpaid interest or cash withdrawals previously
incurred by the Bank and any applicable surrender charges.
In the event the Policy involves an endowment or annuity element, the Bank's
right and interest in any endowment proceeds or annuity benefits, on expiration
of the deferment period, shall be determined under the provisions of this
Agreement by regarding such endowment proceeds or the commuted value of such
annuity benefits as the policy's cash value. Such endowment proceeds or annuity
benefits shall be considered to be like death proceeds for the purposes of
division under this Agreement.
Section 6. Termination of the Agreement. This Agreement shall terminate
upon a distribution of death benefit proceeds and, at the option of the Bank, in
the event the Executive terminates employment from the Bank prior to attaining
20 years of service with the Bank. Upon such termination, the Executive (or
assignee) shall have a ninety (90) day option to receive from the Bank an
absolute assignment of the policy in consideration of a cash payment to the
Bank, whereupon this Agreement shall terminate.
Such cash payment shall be the greater of (i) the Bank's share of the cash value
of the policy on the date of such assignment, or (ii) the amount of the premiums
which have been paid by the Bank prior to the date of such assignment.
<PAGE>
Should the Executive (or assignee) fail to exercise this option within the
prescribed ninety (90) day period, the Executive (or assignee) agrees that all
of his rights, interest and claims in the Policy shall terminate as of the date
of the termination of this Agreement.
Section 7. Assignment. Neither party shall have the right to assign its
interests hereunder without the written consent of the other party.
Section 8. Further Assurances. The parties hereto agree to execute any
documents which may be necessary or proper to carry out the purpose and the
intent of this Agreement.
Section 9. Amendment. This Agreement may not be amended or modified
except by a written instrument signed by the parties hereto.
Section 10. Responsibility of Insurance Company. The parties hereto
agree that any insurance company shall be fully discharged by payment of the
death benefit to the beneficiaries designated in the Policy, subject to the
terms and conditions of the Policy. No insurance company shall be considered a
part to this Agreement; therefore, a copy of this Agreement need not be filed
with any such company. Nothing in this Agreement nor in any modifications,
amendments or supplements hereto shall in any way be construed to enlarge,
change, vary or in any way affect the obligations of any insurance company as
expressly provided by the Policy.
Section 11. Binding Effect. This Agreement shall be binding upon the
parties hereto and their successors, assigns, executors, or administrators and
beneficiaries.
Section 12. ERISA Rights. In the event a dispute arises over benefits
under this Agreement and benefits are not paid to the Executive (or to his
beneficiary in the case of the Executive's death) and such claimants feet they
are entitled to receive such benefits, then a written claim must be made to the
Bank as Plan Administrator within ninety (90) days from the date payments are
refused. The Plan Administrator shall review the written claim and if the claim
is denied, in whole or in part, it shall provide in writing in ninety (90) days
of receipt of such claim the specific reasons for such denial, reference to the
provisions of this Agreement upon which the denial is based and any additional
material or information necessary to perfect the claim. Such written notice
shall further indicate the additional steps to be taken by claimants if a
further review of the claim denial is desired. A claim shall be deemed denied if
the Plan Administrator fails to take any action within the aforesaid ninety day
period.
If claimants desire a second review, they shall notify the Plan
Administrator in writing within ninety (90) days of the first claim denial.
Claimants may review this Agreement or any documents relating thereto an submit
any written issues and comments they may feel appropriate, In its sole
discretion within ninety (90) days of receipt of such claim. This decision shall
likewise state the specific reasons for the decision and shall include reference
to specific provisions of this Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of
<PAGE>
this Agreement or the meaning and effect of the terms and conditions thereof,
then claimants may submit the dispute to a Board of Arbitration for final
arbitration. The Board shall operate under any generally recognized set of
arbitration rules. The parties hereto agree that they and their heirs, personal
representatives, successors and assigns shall be bound by the decision of such
Board with respect to any controversy properly submitted to it for
determination.
Section 13. Governing Law. This Agreement shall be subject to and
construed according to the laws of the Commonwealth of Pennsylvania.
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 Federal
Home Loan Bank ("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.
Dividends
Date High ($) Low ($) Declared($)
---- -------- ------- -----------
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 16.38 14.25 -
April 1, 1998 to June 30, 1998 17.00 14.88 -
July 1, 1998 to September 30, 1998 14.88 13.50 -
October 1, 1998 to December 31, 1998 14.00 9.88 .04
January 1, 1999 to March 31, 1999 12.75 10.00 -
April 1, 1999 to June 30, 1999 11.25 9.00 -
July 1, 1999 to August 31, 1999 10.88 10.00 .08
The number of shareholders of record of common stock as of the record
date of August 31, 1999, was approximately 244. This does not reflect the number
of persons or entities who held stock in nominee or "street" name through
various brokerage firms. At August 31, 1999, there were 303,434 shares
outstanding. The Company's ability to pay dividends to stockholders is dependent
upon the dividends it
<PAGE>
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.
Selected Financial Ratios and Other Data
For the Years Ended
June 30,
-------------------
1999 1998
-------- --------
Return on average assets
(net income divided by average total assets)............ .31% .32%
Return on average equity
(net income divided by average equity).................. 2.56% 2.70%
Average equity to average assets ratio
(average equity divided by average total assets)........ 12.03% 11.83%
Equity to assets at period end............................ 11.57% 12.54%
Dividend payout ratio
(dividends declared per share divided by net income
per share)............................................. 9.76% --
Net interest rate spread.................................. 2.25% 2.61%
Net yield on average interest-earnings assets............. 2.96% 3.25%
Non-performing loans to total assets...................... -- .79%
Non-performing loans to total loans....................... -- 1.82%
Allowance for loan losses to non-performing assets........ -- 65.91%
Book value per share...................................... $15.29 $14.54
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words "believes", "anticipates", "contemplates", "expects", and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risks associated with the ability to control costs
and expenses, and general economic conditions. We undertake no obligation to
publicly release the results of any revisions to those forward looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
References in this discussion to "we," "us," and "our," refer collectively to
WSB Holding Company and Workingmens Bank.
Overview
Our results of operations are primarily dependent on our net interest income,
which is the difference between the interest earned on our assets, primarily
loans and investments, and the interest expense on our liabilities, primarily
deposits and borrowings. Net interest income may be affected significantly by
general economic and competitive conditions and policies of regulatory agencies,
particularly those with respect to market interest rates. The results of
operations are also significantly influenced by the level of non-interest
expenses, such as compensation and employee benefits, non-interest income, such
as service charges on deposit related services, and our provision for loan
losses.
Asset and Liability Management
Our objective in our asset and liability management program is to manage
liquidity and interest rate risk, in order 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.
We are 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 our earnings.
We attempt to manage the interest rate we pay on deposits while maintaining a
stable deposit base and providing quality services to our customers. We have
continued to rely primarily upon deposits as our source of funds. To the extent
we are unable to invest these funds in loans originated in our market area, we
will continue to purchase (i) mortgage-backed securities and (ii) high quality
investment securities.
Net Portfolio Value
We measure our interest rate risk by computing amounts by which the net present
value of our cash flow from assets, liabilities and off balance sheet items
("NPV") would change in the event of a range of assumed changes in market
interest rates. These computations estimate the effect on our NPV from
instantaneous and permanent 1% to 3% (100 to 300 basis points) increases and
decreases in market interest rates. Based upon the Office of Thrift Supervision
("OTS") assumptions, the following table presents our NPV at June 30, 1999.
<PAGE>
Changes in Net Portfolio Value
----------------------------------------------------------------------
Changes in Market Changes in
Interest Rates NPV Ratio(1) NPV Ratio(2)
----------------- ------------ ------------
+300bp -61.9% -568bp
+200bp -41.9% -373bp
+100bp -21.2% -184bp
0bp 0 0bp
-100bp 4.1% 28bp
-200bp -1.4% -5bp
-300bp -2.1% -44bp
- -------------
(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 our NPV could not only be adversely affected by
increases in interest rates but also could be adversely affected by a 200 or 300
basis point decrease in interest rates. In addition, we may be deemed to have
more than a normal level of interest rate risk under applicable regulatory
capital requirements.
Computations of prospective effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, prepayments and deposit run-offs and should not be relied upon as
indicative of actual results. Certain shortcomings are inherent in such
computations. Although certain assets and liabilities may have similar maturity
or periods of repricing, they may react at different times and in different
degrees to changes in the market interest rates. The interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while rates on other types of assets and liabilities may lag
behind changes in market interest rates. Certain assets, such as adjustable rate
mortgages, generally have features which restrict changes in interest rates on a
short term basis and over the life of the asset. In the event of a change in
interest rates, prepayments and early withdrawal levels could deviate
significantly from those assumed in making calculations set forth above.
Additionally, an increased credit risk may result as the ability of many
borrowers to service their debt may decrease in the event of an interest rate
increase.
Financial Condition
Total consolidated assets increased by approximately $3.2 million, or 8.4%, to
$41.4 at June 30, 1999 from $38.2 million at June 30, 1998. The increase in
total assets primarily reflects a $3.4 million increase in investments and
mortgage-backed securities offset by a $1.7 million decrease in cash and cash
equivalents. Such funds were used to purchase insurance for a supplemental
retirement plan for our executive officers and directors. See Note H to our
Consolidated Statements of Financial Condition.
<PAGE>
Deposits increased $3.4 million, or 10.7%, to $35.3 million at June 30, 1999
from $31.9 million at June 30, 1998, primarily due to a $2.4 million increase in
certificates of deposit. The increase in certificates of deposit accounts are
primarily attributable to the $1.8 million increase from our new certificates of
deposit account products, which allow our customers to withdraw funds seven days
after deposit without incurring an early withdrawal penalty. Other increases in
certificates of deposit accounts resulted from providing our customers with more
favorable rates than our peers and in influx of deposits from customers seeking
to avoid the service charges usually associated with the larger banks in our
market area.
Average Balance Sheet
The following table sets forth a summary of our average balances of assets and
liabilities as well as average yield and cost information. Average balances are
derived from monthly balances, however, we do not believe the use of month-end
balances has caused any material differences in the information presented. There
has been no tax equivalent adjustments made to yields.
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended June 30,
-------------------------------------------------------------------------------------
1999 1998
------------------------------------------- ----------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable.................. $ 16,762 $ 1,323 7.89% $ 15,507 $ 1,308 8.44%
Investment securities............. 16,391 1,033 6.30 14,840 999 6.73
Other interest-earning assets..... 4,511 301 6.67 4,185 283 6.77
------ ----- ---- ------ ----- ----
Total interest-earning assets....... 37,664 2,657 7.06 34,532 2,590 7.50
Non-interest-earning assets......... 1,891 1,735
------ ------
Total assets........................ $ 39,555 $ 36,267
====== ======
Interest-bearing liabilities:
Passbook and club accounts........ $ 10,360 $ 330 3.18% $ 10,364 $ 320 3.09%
Certificates of deposit........... 20,401 1,135 5.56 17,913 1,049 5.86
Other liabilities................. 1,000 62 6.17 1,708 97 5.69
------ ----- ---- ------ ----- ----
Total interest-bearing liabilities.. 31,761 1,527 4.81 29,985 1,466 4.89
Non-interest-bearing liabilities.... 3,020 2,001
------ ------
Total liabilities................... 34,781 31,986
------ ------
Stockholders' equity................ 4,774 4,281
------ ------
Total liabilities and
stockholders' equity.............. $ 39,555 $ 36,267
====== ======
Net interest income............... $ 1,130 $ 1,124
===== =====
Interest rate spread................ 2.25% 2.61%
==== ====
Net yield on interest-earning
assets............................ 2.96% 3.25%
==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities ..... 118.59% 115.16%
====== ======
</TABLE>
Rate/Volume Analysis
The table below sets forth information regarding our interest income and
interest expenses for the years ended June 30, 1999 and 1998. For each category,
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).
<PAGE>
Year Ended June 30,
---------------------------------------
1999 vs. 1998
---------------------------------------
Increase (Decrease)
Due to
---------------------------------------
Rate
Volume Rate Volume Net
------ ---- ------ ---
(In Thousands)
Interest income:
Loans receivable $ 106 $ (85) $ (7) $ 14
Investment securities 105 (63) (7) 35
Other interest-earning assets 22 (5) - 17
--- ---- --- ----
Total interest-earning assets $ 233 $ (153) $ (14) $ 66
=== ==== === ====
Interest expense:
Passbook and club accounts $ - $ 10 $ - $ 10
Certificates of deposit 145 (52) (7) 86
Other liabilities (40) 8 (4) (36)
--- ---- --- ----
Total interest-bearing liabilities $ 105 $ (34) $ (11) $ 60
=== ==== === ====
Change in net interest income $ 128 $ (119) $ (3) $ 6
=== ==== === ====
Operating Results
Net Income. Net income increased $7,000 or 6.1%, to $122,000 for the year ended
June 30, 1999 as compared to $115,000 for the year ended June 30, 1998. This
increase resulted primarily from a decrease of $32,000 in provision for loan
losses, an increase in non-interest income of $96,000, a decrease in income tax
expense of $12,000, offset by an increase in non-interest expense of $139,000.
Net Interest Income. Net interest income is the most significant component of
our income from operations. Net interest income is the difference between
interest we receive on our interest-earning assets (primarily loans, investment
and mortgage-backed securities) and interest we pay on our interest-bearing
liabilities (primarily deposits and borrowed funds). Net interest income depends
on the volume of and rates earned on interest-earning assets and the volume of
and rates paid on interest-bearing liabilities.
Although our average interest-earning assets increased $3,132,000 in fiscal
1999, our net interest income increased slightly to $1,130,000 for the year
ended June 30, 1999 as compared to $1,124,000 for the year ended June 30, 1998.
This modest increase was primarily due to a 36 basis point decrease in our
interest rate spread. The decrease in our net interest rate spread was primarily
due to our modest increase in our average loan originations coupled with a
decrease in our average yield rates for such loans.
<PAGE>
Provision for Loan Losses. There was no provision for loan losses for the year
ended June 30, 1999 as compared to $32,000 for the year ended June 30, 1998. At
June 30, 1999, we had no non-performing loans in our loan portfolio.
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. 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 Income. Non-interest income consists substantially of service
charges and fees on deposit accounts and net gains or losses from sales of
securities and foreclosed real estate. Non-interest income increased $95,500, or
85.3%, to $207,500 for the year ended June 30, 1999 from $112,000 for the year
ended June 30, 1998. In fiscal 1999, service charges and fees increased $21,000
primarily attributable to a one-time life insurance dividend. Net gain on sale
of securities increased $48,000in fiscal 1999. In order to manage our interest
rate risk, we sold some of our available for sale securities. In fiscal 1999, we
sold several foreclosed properties which resulted in a net gain on sale of these
properties of $26,000. There were no gains on sale of foreclosed real estate in
fiscal 1998.
Non-Interest Expense. Our non-interest expense increased $138,000, or 13.2%, to
$1,180,000 for the year ended June 30, 1999 from $1,042,000 for the year ended
June 30, 1998. Compensation and benefits expense increased $55,000 primarily due
to our employee stock option plan and our restricted stock plan. Legal,
accounting and other fees increased $47,000 due to activities relating to being
a public company. The remainder of the increase in non-interest expense was
primarily due to our in-house computer upgrades and from our Year 2000
compliance plan.
Income Tax Expense. Our income tax expense for the year ended June 30, 1999 was
$35,000 compared to an $47,000 for the year ended June 30, 1998. The decrease
was mainly attributable to tax-free increases to cash values and dividends on
life insurance policies.
Liquidity and Capital Resources
Our primary sources of funds include deposits, loan repayments and prepayment,
cash flow from operations and borrowings from the Federal Home Loan Bank of
Pittsburgh. We use our capital resources principally to fund loan originations,
repay maturing borrowings, purchase investments, and for our short and long-term
liquidity needs. We expect to be able to fund , on a timely basis, our loan
commitments. At June 30, 1999, our commitments to fund loans totaled $750,000
and we had unused lines of credit of $477,000.
Net cash provided by our operating activities (the cash effects of transactions
that enter into our determination of net income - e.g., non-cash items,
amortization and depreciation, provision for loan losses, net gains on sales)
for the year ended June 30, 1999 was $65,000 as compared to $335,000 for the
year ended June 30, 1998.
Net cash used in our investing activities (i.e., cash receipts, primarily from
our investment securities and mortgage-backed securities portfolios and our loan
portfolio) for the year ended June 30, 1999 totaled $4,805,000, an increase of
$2,642,000 from $2,163,000 for June 30, 1998. The increase was primarily
attributable to use of $3,189,000 to fund the net increase in investment
securities and $1,150,000 to purchase life insurance for a supplemental
retirement plan for the executive officers and directors, offset by a decline in
net loan originations of $1,283,000.
<PAGE>
Net cash provided by our financing activities (i.e., cash receipts primarily
from net increases in deposits) for the year ended June 30, 1999 was $2,995,000,
a decline of $1,186,000 from $4,180,000 for June 30, 1998. The decrease was
primarily attributable to the $3,042,000 received from the issuance of stock
during the year ended June 30, 1998, offset by a net decrease of $2,000,000 in
Federal Home Loan Bank advances.
Our liquidity may be adversely affected by unexpected deposit outflows,
excessive interest rate paid by our competitors and economic conditions. We
monitor our projected liquidity needs and determine our desired level based on
our commitment to make loans and our ability to generate funds. We are also
subject to federal regulations that impose certain minimum capital requirements.
Year 2000 Readiness Disclosure
In July 1998, we adopted a Year 2000 compliance plan and established a Year 2000
compliance committee. The objectives of the plan and the committee were to
prepare for the Year 2000. The plan encompassed the following phases: awareness,
assessment , renovation, validation and implementation. We completed the
implementation phase of our plan on June 30, 1999. These phases enabled us to
identify risks, develop an action plan, perform adequate testing and complete
certification that the processing systems were Year 2000 ready.
Prioritization of the most critical applications has been addressed, along with
contract and service agreements. Our primary operating software is provided and
maintained by an external service bureau. We have maintained ongoing contact
with our external service bureau to ensure that testing and monitoring of the
system is progressing. In March 1999, we completed final testing with our
external service bureau and the results of the testing showed that there were no
problems in submitting information on transactions from us to our external
service bureau using January 2000 dates for all transactions tested. We also
contacted our material vendors and suppliers as well all material customers and
non-information technology suppliers regarding their Year 2000 readiness. Each
of these third parties has delivered written assurances to us that they expect
to be Year 2000 compliant prior to the Year 2000.
Costs have been and will be incurred due to enhancements made to non-compliant
teller software and fees incurred from our external service bureau. We do not
anticipate that the related overall costs will be material in any single year.
We estimated that our cost for compliance will amount to approximately $15, 000
over the two year period from 1998-1999, of which substantially all has been
incurred as of June 30, 1999.
A Contingency and Business Resumption Plan was approved by the Board in June
1999. This plan addresses perceived risks associated with the year 2000 problem.
These activities include remediation contingency planning intended to mitigate
any risks associated with unforeseen system glitches, system failure, increased
demands for cash, or processes outside of our control. The remainder of 1999
will be used to further validate the plan.
While this plan was designed to significantly address our year 2000 problems,
the occurrence of the following could negatively impact us:
(a) utility service companies may be unable to provide the necessary
service to implement our data systems or provide sufficient sanitary
conditions for our offices;
(b) our external service bureau could have a major malfunction in their
system or their service could be disrupted due to their utility
providers, or some combination of the two; or
(c) we may have to transact our business manually.
<PAGE>
Successful and timely completion of our Year 2000 readiness is based upon our
best estimates derived from various assumptions of future events which are
inherently uncertain, including the progress and results of our external service
bureau, testing plans, and all vendors, suppliers and customer readiness.
Despite our best efforts to address our Year 2000 readiness, the vast number of
external entities that have direct and indirect business relationships with us,
such as, customers, vendors, payment system providers and other financial
institutions, make it impossible to assure that a failure to achieve compliance
by one or more of these entities would not have a material adverse impact on our
business or on our consolidated financial statements.
<PAGE>
[LOGO]
Stokes Kelly & Hinds, LLC
Certified Public Accountants
& Business Advisors
Members:
American and Pennsylvania Institutes
of Certified Public Accountants
Division for CPA Firms:
SEC Practice Section
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
WSB Holding Company
We have audited the accompanying consolidated statements of financial condition
of WSB Holding Company and subsidiaries (the "Company") as of June 30, 1999 and
1998, and the related consolidated statements of income, stockholders' equity,
and cash flows for the years then 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 subsidiaries as of June 30, 1999 and 1998, 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
July 30, 1999
9401 McKnight Road
Pittsburgh, Pennsylvania
15237-6000
Phone 412-364-0590
Voice Mail 412-364-6070
Fax 412-364-6176
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS
1999 1998
------------ ------------
<S> <C> <C>
Cash and cash equivalents:
Interest bearing $ 3,161,518 $ 4,750,915
Non-interest bearing 250,666 406,629
Securities held-to-maturity (estimated fair
value of $13,959,821 and $11,701,996 in 1999 and 1998) 14,373,813 11,667,658
Securities available-for-sale, at fair value 3,909,755 3,245,015
Loans and real estate, net 16,989,946 16,620,321
Cash value of life insurance 1,162,749 --
Federal Home Loan Bank stock, at cost 153,300 153,300
Accrued interest receivable 303,415 228,175
Premises and equipment, net 986,468 1,017,168
Other assets 64,927 106,431
Income taxes receivable -- 9,859
Deferred income taxes -- 3,001
------------ ------------
TOTAL ASSETS $ 41,356,557 $ 38,208,472
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 35,250,627 $ 31,867,605
Federal Home Loan Bank advances 1,000,000 1,000,000
Advances from borrowers for taxes and insurance 227,241 223,848
Accrued expenses and other liabilities 79,665 327,473
Accrued income tax payable 10,690 --
Deferred income taxes 4,006 --
------------ ------------
TOTAL LIABILITIES 36,572,229 33,418,926
------------ ------------
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) 33,060 33,060
Additional paid-in capital 2,994,026 2,989,212
Retained earnings, substantially restricted 2,287,772 2,179,378
Unearned Employee Stock Ownership Plan (ESOP) shares (215,988) (242,438)
Unearned compensation - Restricted Stock Plan (RSP) (139,679) (197,864)
Treasury stock, at cost; 17,666 shares and 1,165 shares (204,792) (19,431)
Accumulated other comprehensive income,
net of applicable income taxes of $12,826 and $17,360 29,929 47,629
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,784,328 4,789,546
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 41,356,557 $ 38,208,472
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 1999 and 1998
1999 1998
---------- ----------
INTEREST AND DIVIDEND INCOME
Loans $1,322,470 $1,308,118
Investments 1,033,343 998,625
Other interest earning assets 300,701 283,488
---------- ----------
TOTAL INTEREST AND DIVIDEND INCOME 2,656,514 2,590,231
---------- ----------
INTEREST EXPENSE
Deposits 1,464,853 1,368,937
Advances from FHLB 61,723 97,047
---------- ----------
TOTAL INTEREST EXPENSE 1,526,576 1,465,984
---------- ----------
NET INTEREST INCOME 1,129,938 1,124,247
PROVISION FOR LOAN LOSSES -- 32,113
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,129,938 1,092,134
---------- ----------
NONINTEREST INCOME
Service charges and other fees 104,382 83,401
Net gain on sales of
securities available-for-sale 71,787 24,245
Gain on sale of foreclosed real estate 25,555 --
Income from real estate rental 5,790 4,325
---------- ----------
TOTAL NONINTEREST INCOME 207,514 111,971
---------- ----------
NONINTEREST EXPENSE
Compensation and benefits 567,592 513,032
Occupancy and equipment expense 166,757 142,619
Federal insurance premiums 31,451 29,883
Other 414,340 356,013
---------- ----------
TOTAL NONINTEREST EXPENSE 1,180,140 1,041,547
---------- ----------
INCOME BEFORE INCOME TAXES 157,312 162,558
INCOME TAX EXPENSE 35,000 47,170
---------- ----------
NET INCOME $ 122,312 $ 115,388
========== ==========
Earnings per common share-BASIC (since inception) $ .41 $ .28
========== ==========
Earnings per common share-DILUTED (since inception) $ .41 $ .28
========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Accumulated
Unearned Unearned Other
Common Paid-In Retained ESOP Compensation Treasury Comprehensive
Stock Capital Earnings Shares - RSP Stock Income Total
----- ------- -------- ------ ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 1, 1997 $ -- $ -- $2,063,990 $ -- $ -- $ -- $(20,195) $2,043,795
COMPREHENSIVE INCOME
Net Income -- -- 115,388 -- -- -- -- 115,388
Other comprehensive
income, net of tax:
Unrealized gains on
securities of
$83,826, net of
reclassification
adjustment for gains
included in net
income of $(16,002) -- -- -- -- -- -- 67,824 67,824
---------
TOTAL COMPREHENSIVE INCOME 183,212
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)
-------- ---------- ---------- --------- --------- --------- -------- ---------
BALANCE AT JUNE 30, 1998 33,060 2,989,212 2,179,378 (242,438) (197,864) (19,431) 47,629 4,789,546
COMPREHENSIVE INCOME
Net Income -- -- 122,312 -- -- -- -- 122,312
Other comprehensive
income, net of tax:
Unrealized gains
on securities
of $29,679, net
of reclassification
adjustment for
gains included in net
income of $(47,379) -- -- -- -- -- -- (17,700) (17,700)
---------
TOTAL COMPREHENSIVE INCOME 104,612
ESOP shares allocated -- 4,814 -- 26,450 -- -- -- 31,264
Amortization of
restricted stock plan -- -- -- -- 58,185 -- -- 58,185
Purchase of treasury stock -- -- -- -- -- (185,361) -- (185,361)
Dividends on common stock at
.04 per share -- -- (13,918) -- -- -- -- (13,918)
-------- ---------- ---------- --------- --------- --------- -------- ----------
BALANCE AT JUNE 30, 1999 $ 33,060 $2,994,026 $2,287,772 $(215,988) $(139,679) $(204,792) $ 29,929 $4,784,328
======== ========== ========== ========= ========= ========= ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 122,312 $ 115,388
Adjustments to reconcile
net income to net cash provided
by operating activities:
Amortization of:
Deferred loan origination fees (2,676) (3,730)
Premiums and discounts on investment securities (39,046) (9,758)
Unearned ESOP shares 31,264 31,779
Compensation expense related to RSP 41,655 10,414
Provision for loan losses -- 32,113
Net gain on sales of securities
available-for-sale (71,787) (24,245)
Gain on sale of real estate owned (25,555) --
Depreciation of premises and equipment 62,000 52,940
(Increase) decrease in:
Accrued interest receivable (75,240) 71,294
Other assets 41,504 40,072
Income taxes receivable 20,549 (9,859)
Deferred income taxes 11,541 22,941
Cash value of life insurance (12,749) --
Increase (decrease) in:
Accrued expenses and other liabilities (39,099) 5,923
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 64,673 335,272
------------ ------------
INVESTING ACTIVITIES
Purchases of securities held-to-maturity (15,143,656) (13,650,000)
Proceeds from maturities of and principal
repayments on securities held-to-maturity 12,437,311 14,000,056
Purchases of securities available-for-sale (6,736,933) (1,276,813)
Proceeds from maturities of and principal repayments
on securities available-for-sale 4,841,654 580,890
Proceeds from sales of securities available-for-sale 1,319,329 253,000
Proceeds from sale of real estate owned 432,831 --
Net loan originations and principal
repayments on loans (774,225) (2,057,708)
Purchase of life insurance (1,150,000) --
Purchases of premises and equipment (31,300) (12,441)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (4,804,989) (2,163,016)
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
FINANCING ACTIVITIES
Net increase in deposits $ 3,383,022 $ 3,461,830
Net decrease in FHLB advances -- (2,000,000)
Purchase of treasury stock (185,361) (19,431)
Purchase of stock for RSP (192,180) --
Proceeds from issuance of common stock -- 3,041,520
Payments of conversion costs -- (293,465)
Payment of dividends (13,918) --
Net increase (decrease) in advances from
borrowers for taxes and insurance 3,393 (9,970)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,994,956 4,180,484
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,745,360) 2,352,740
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,157,544 2,804,804
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,412,184 $ 5,157,544
=========== ===========
SUPPLEMENTAL DISCLOSURES Cash paid during the period for:
Interest on deposits, advances,
and other borrowings $ 1,571,980 $ 1,496,794
Income taxes $ 2,400 $ 25,000
Noncash investing and financing activities:
Transfer from loans to real estate owned $ 103,626 $ 319,073
Total (decrease) increase in unrealized
gain (loss) on securities
available-for-sale $ (22,234) $ 94,308
Less: income tax (benefit) expense (4,534) 26,484
----------- -----------
Net (decrease) increase in unrealized
gain (loss) on securities
available-for-sale $ (17,700) $ 67,824
=========== ===========
Award of shares under restricted stock plan $ -- $ 208,278
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
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").
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.
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 1999 and 1998) 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.
Advertising Costs
The Company follows the policy of charging the costs of advertising to expense
as incurred.
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. The Company and its subsidiaries file a consolidated federal
income tax return.
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.
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 dilutive 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.
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, 1999:
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS $122,312 296,964 $ .41
Effect of dilutive securities -- --
-------- --------
Diluted EPS $122,312 296,964 $ .41
======== ======== =======
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 $.28
Effect of dilutive securities - -
------- -------
Diluted EPS $85,384 305,363 $.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.
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
Cash value life insurance: The carrying amounts reported in the statements of
financial condition for cash value life insurance approximate the asset's 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.
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Segment Reporting
The Company's primary business activities include attracting deposits from the
general public and originating one-to-four family residential property loans and
also multi-family, nonresidential and construction real estate loans in its
market area. The Company also makes consumer loans. Operations are managed and
financial performance is evaluated at the bank level. Accordingly, all of the
Company's banking operations are considered by management to be generated in one
reportable operating segment.
Comprehensive Income
On July 1, 1998 the Company adopted 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. The adoption of SFAS No. 130 had no effect on the Company's net
income or stockholders' equity.
New Accounting Standard
The Financial Accounting Standards Board issued statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities," in June 1998. The Company is
required to adopt the statement on July 1, 2001. The adoption of the statement
is not expected to have any impact on the financial condition or results of
operations of the Company.
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
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>
1999
-----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government and
government agency
obligations $ 13,879,012 $ -- $ (406,583) $ 13,472,429
Collateralized mortgage
obligations 395,801 10 (7,419) 388,392
Certificates of deposit 99,000 -- -- $ 99,000
------------ ------------ ------------ ------------
$ 14,373,813 $ 10 $ (414,002) $ 13,959,821
============ ============ ============ ============
</TABLE>
<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>
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE B - INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated fair values of securities available-for-sale as
of June 30, are as follows:
<TABLE>
<CAPTION>
1999
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
Mortgage-backed securities:
Federal Home Loan Mortgage
Corporation $ 53,684 $ 1,160 $ -- $ 54,844
Government National
Mortgage Association 1,072,996 8,794 (2,206) 1,079,584
Federal National
Mortgage Association 264,129 -- (5,421) 258,708
FHLMC Preferred Stock 82,699 4,301 -- 87,000
FNMA Stock 100,789 1,582 -- 102,371
Corporate notes 299,573 62 (1,829) 297,806
Equity securities 1,021,022 98,370 -- 1,119,392
Collateralized mortgage
obligations 23,409 -- (4,448) 18,961
Municipal bonds 948,699 -- (57,610) 891,089
----------- ----------- ----------- -----------
$ 3,867,000 $ 114,269 $ (71,514) $ 3,909,755
=========== =========== =========== ===========
</TABLE>
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE B - INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
1998
----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES 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>
The amortized cost and approximate fair values of securities held-to-maturity
and available-for-sale as of June 30, 1999, by contractual maturity are shown
below.
<TABLE>
<CAPTION>
SECURITIES SECURITIES AVAILABLE
HELD TO MATURITY FOR SALE
--------------------------- --------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due within one year $ 99,000 $ 99,000 $ 100,000 $ 100,064
Due from one to five years 2,099,231 2,067,580 199,571 197,742
Due from five to ten years 4,870,267 4,755,891 -- --
Due after ten years 7,305,315 7,037,350 3,567,429 3,611,949
----------- ----------- ----------- -----------
$14,373,813 $13,959,821 $ 3,867,000 $ 3,909,755
=========== =========== =========== ===========
</TABLE>
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE C - LOANS AND REAL ESTATE
Loans and real estate at June 30, are summarized as follows:
1999 1998
------------ ------------
First mortgage loans:
Secured by 1-to-4 family residences $ 10,570,391 $ 11,032,985
Secured by over 4 family units 2,483,369 1,636,997
Commercial 1,297,790 1,085,968
Home equity and second mortgage loans 1,694,438 1,441,620
Share loans 429,091 449,801
Consumer loans 683,663 858,036
Real estate owned -- 319,073
------------ ------------
17,158,742 16,824,480
Allowance for loan losses (165,482) (198,168)
Deferred loan origination fees (3,314) (5,991)
------------ ------------
$ 16,989,946 $ 16,620,321
============ ============
The Company conducts its business through two offices located in Pittsburgh,
Pennsylvania. As of June 30, 1999, 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, 1999 and 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 $17,000 at June 30, 1999. 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, 1999 and 1998, the Company had $0 and approximately $301,000,
respectively, of nonaccrual loans primarily consisting of residential first
mortgage loans.
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE B - INVESTMENT SECURITIES (CONTINUED)
Activity in the allowance for loan losses at June 30, is summarized as follows:
1999 1998
--------- ---------
Beginning balance $ 198,168 $ 208,791
Provision for loan losses -- 32,113
Charge-offs (32,686) (42,736)
Recoveries -- --
--------- ---------
Ending balance $ 165,482 $ 198,168
========= =========
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 $84,558 and $ 6,000 at June 30, 1999 and 1998,
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:
1999 1998
--------- ---------
Loans $ 78,608 $ 73,932
Investments 226,158 180,917
--------- ---------
304,766 254,849
Allowance for uncollectible interest (1,351) (26,674)
--------- ---------
$ 303,415 $ 228,175
========= =========
NOTE E - PREMISES AND EQUIPMENT
Premises and equipment at June 30, are summarized as follows:
1999 1998
----------- -----------
Land $ 121,027 $ 121,027
Buildings and improvements 995,487 993,265
Furniture, fixtures, and equipment 434,932 405,855
----------- -----------
1,551,446 1,520,146
Accumulated depreciation (564,978) (502,978)
----------- -----------
$ 986,468 $ 1,017,168
=========== ===========
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE F - DEPOSITS
Deposits at June 30, are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------ -------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RATE AMOUNT RATE AMOUNT
---- ------ ---- ------
<S> <C> <C> <C> <C>
NOW accounts 0.00% $ 3,052,472 0.00 % $ 2,476,029
Passbook savings 3.16 10,835,383 3.16 10,378,217
--------- ------------ ---------- -----------
2.47 13,887,855 2.55 12,854,246
--------- ------------ ---------- -----------
Certificates of deposit:
3.00% to 3.99% 3.96 58,432 - -
4.00% to 4.99% 4.41 6,911,509 4.93 1,812,885
5.00% to 5.99% 5.52 7,765,369 5.52 9,987,486
6.00% to 6.99% 6.18 6,200,306 6.18 6,788,251
7.00% to 7.99% 7.04 427,156 7.04 424,737
--------- ------------ ---------- -----------
5.38 21,362,772 5.73 19,013,359
--------- ------------ ---------- -----------
4.23% $35,250,627 4.45% $31,867,605
--------- =========== ---------- ===========
</TABLE>
At June 30, 1999, the aggregate maturities of certificates of deposit in fiscal
years 2000 through 2004 is $9,720,669, $5,452,558, $1,737,781, $3,230,384 and
$1,221,380 respectively. The aggregate amount of certificates in denominations
of $100,000 or more totaled $1,856,595.
Deposits in excess of $100,000 are not insured by the Savings Association
Insurance Fund (SAIF).
At June 30, 1999 and 1998, the Bank had deposits from its officers and directors
totaling approximately $364,609 and $207,000, respectively.
Interest expense and accrued interest payable on deposits consisted of the
following at June 30:
<TABLE>
<CAPTION>
ACCRUED INTEREST PAYABLE INTEREST EXPENSE
------------------------ -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Passbook savings $ -- $ 1,475 $ 329,639 $ 320,046
Certificate accounts 2,887 41,042 1,135,214 1,048,891
---------- ---------- ---------- ----------
Total interest on deposits $ 2,887 $ 42,517 $1,464,853 $1,368,937
========== ========== ========== ==========
</TABLE>
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE G - FEDERAL HOME LOAN BANK ADVANCES
At June 30, 1999, the Company had the following line of credit from the Federal
Home Loan Bank (FHLB):
ISSUE MATURITY INTEREST AVAILABLE AMOUNT
DATE DATE RATE AMOUNT OUTSTANDING
---- ---- ---- ------ -----------
5/14/99 3/15/00 5.17% $1,000,000 $ -
At June 30, 1999 and 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
==========
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 plan's funded status at June 30, follows:
1999 1998
--------- ---------
Vested accumulated benefit obligation $ 428,087 $ 341,130
Nonvested accumulated benefit obligation 2,978 4,055
--------- ---------
Accumulated benefit obligation 431,065 345,185
Effect of projected salary increases 157,753 113,774
--------- ---------
Projected benefit obligation 588,818 458,959
Fair value of plan assets 474,418 391,058
--------- ---------
Plan assets in excess of project benefit
obligation (unfunded projected benefit
obligation) (114,400) (67,901)
Unrecognized net (gain) loss 115,143 71,711
Unrecognized net obligation 1,066 1,188
--------- ---------
Prepaid pension cost (pension liability) $ (1,809) $ (4,998)
========= =========
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE H - BENEFIT PLANS (CONTINUED)
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, 1999 and 1998:
1999 1998
-------- --------
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:
1999 1998
-------- --------
Service cost $ 43,145 $ 28,942
Interest cost 41,146 28,237
Actual return on plan assets (25,675) (22,919)
Net amortization on deferrals 2,258 886
-------- --------
Net periodic pension cost $ 60,874 $ 35,146
======== ========
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, 1999, the loan
had an outstanding balance of $218,192 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, 1999, 4,841 ESOP shares have been allocated to the participating
employees. For purposes of computing net income per share, the remaining 21,607
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, 1999 and 1998 was $31,264 and $31,779,
respectively.
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE H - BENEFIT PLANS (CONTINUED)
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, 1999
-------------
Options outstanding at beginning
of year 33,060
Options granted --
Options exercised --
Options canceled --
------
Options outstanding at end of year 33,060
======
Options exercisable at end of year 6,612
======
Weighted-average option prices per share:
Options outstanding at beginning
of year $15.75
Options granted during --
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, 1999 had a weighted-average contractual
maturity of 8.7 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, 1999 and 1998 was
$1.45 and $2.85, respectively, using the Black Scholes option- pricing model
with the following weighted-average assumptions for 1999 and 1998: expected life
of 8.75 and 7 years, expected annual dividend rate of .8% and 2.0%, risk-free
interest rate of 5.45% and 4.80%, and an expected volatility of 15%, for both
years, respectively.
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE H - BENEFIT PLANS (CONTINUED)
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, 1999
-------------
Net income:
As reported $122,312
Pro forma 107,661
Net income per share:
As reported:
Basic .41
Diluted .41
Pro forma:
Basic .36
Diluted .36
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. 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 $41,655 and $10,414 for the
years ended June 30, 1999 and 1998, respectively. Unvested RSP shares are not
reflected in the June 30, 1999 and 1998 EPS calculation because their effect is
antidilutive.
Summary information regarding outstanding RSP awards at June 30, 1999 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
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE H - BENEFIT PLANS (CONTINUED)
Supplemental Retirement Plan
On March 23, 1999, the Company established a nonqualified indexed defined
contribution supplemental retirement plan (SRP) for its current directors and
key employees. The present value of estimated supplemental retirement benefits
is charged to operations. No set retirement benefit amount is promised to the
participants, and no deferral of salary or income is required by the
participants. Rather, the Company has agreed to place a certain amount of funds
into an insurance policy on behalf of the participants. Each year, whatever
income the policy generates above and beyond the Company's predetermined index
rate will be accrued into a retirement account that has been established for the
participant.
NOTE I - INCOME TAXES
Income tax expense for the years ended June 30, is summarized as follows:
1999 1998
------- -------
Federal:
Current $27,704 $24,206
Deferred 7,296 22,964
------- -------
$35,000 $47,170
======= =======
State:
Current $ -- $ --
======= =======
Totals:
Current $27,704 $24,206
Deferred 7,296 22,964
------- -------
$35,000 $47,170
======= =======
The Company has not incurred state income taxes due to net operating loss
carryforwards.
The differences between actual income tax expense 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:
1999 1998
-------- --------
Computed income tax expense $ 53,486 $ 55,270
Increase (decrease) resulting in:
Tax-exempt income (13,564) (2,774)
Other, net (4,922) (5,326)
-------- --------
Actual income tax
expense $ 35,000 $ 47,170
======== ========
Effective tax rate 22.25% 29.02%
======== ========
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE I - INCOME TAXES (CONTINUED)
The components of net deferred tax assets and liabilities at June 30, are as
follows:
1999 1998
-------- --------
Deferred tax assets:
Loan origination fees, net $ 530 $ 1,600
Allowance for loan losses 26,403 52,935
Accrued pension expense 2,068 3,462
State net operating loss carryforward 34,672 27,200
Restricted Stock Plan accrual 6,629 2,782
ESOP accrual -- 2,601
-------- --------
70,302 90,580
-------- --------
Deferred tax liabilities:
Premises and equipment (14,268) (15,664)
Accrued interest receivable (12,542) (27,355)
Unrealized gain on securities
available-for-sale (12,826) (17,360)
-------- --------
(39,636) (60,379)
-------- --------
30,666 30,201
Valuation allowance (34,672) (27,200)
-------- --------
Net deferred (liability) asset $ (4,006) $ 3,001
======== ========
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,
1999 and 1998, 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
$301,493. This carryforward can be utilized in fiscal years 2000 through 2001.
The deferred tax benefit associated with this loss carryforward is $34,672. This
benefit has been fully reserved.
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE J - INTEREST AND DIVIDEND INCOME ON INVESTMENTS
Interest and dividend income on investments consisted of the following at June
30:
1999 1998
---------- --------
Taxable interest income $1,019,786 $983,516
Nontaxable interest income 12,749 14,737
Dividends 808 372
---------- --------
$1,033,343 $998,625
========== ========
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:
1999 1998
----------- -----------
First mortgage loans $665,000 $131,000
Secured consumer (unused
lines of credit) loans $477,077 $391,395
Commercial loans $ 85,000 $ -
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.
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE M - FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments as of June 30,
are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash
equivalents $3,412,184 $3,412,184 $5,157,544 $5,157,544
Investment and mortgage-
backed securities 18,283,568 17,869,576 14,912,673 14,947,011
Loans 16,989,946 17,315,681 16,620,321 17,447,788
Cash value life insurance 1,162,749 1,162,749 - -
FHLB stock 153,300 153,300 153,300 153,300
Accrued interest
receivable 303,415 303,415 228,175 228,175
Financial liabilities:
Deposits 35,250,627 35,521,863 31,867,605 32,016,399
FHLB advances 1,000,000 989,605 1,000,000 1,000,000
Advances from borrowers
for taxes and
insurance 227,241 227,241 223,848 223,848
</TABLE>
<PAGE>
WSB HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE N - 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, 1999, that the Bank meets all capital adequacy requirements to which it is
subject.
As of June 30, 1999, the most recent notification from the Office of Thrift
Supervision categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I
leverage ratios as set forth in the table. There are no conditions or events
since 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
--------------- ----------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1999:
Total Capital
(to Risk-Weighted Assets) $3,985 22.2% $1,436 >8% $1,795 >10%
- -
Tier I Capital
(to Risk-Weighted Assets) 3,819 21.3 718 >4 1,077 >6
- -
Tier I Capital
(to average assets) 3,819 10.1 1,549 >4 2,323 >5
- -
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
- -
</TABLE>
EXHIBIT 23
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the incorporation of our report,
dated July 30, 1999, incorporated by reference in this annual report of WSB
Holding Company on Form 10KSB, into the Company's previously filed Form S-8
Registration Statement File No. 333-73279.
Stokes Kelly & Hinds, LLC
Pittsburgh, Pennsylvania
September 22, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 250,666
<INT-BEARING-DEPOSITS> 3,161,518
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,909,755
<INVESTMENTS-CARRYING> 14,373,813
<INVESTMENTS-MARKET> 13,959,821
<LOANS> 17,155,428
<ALLOWANCE> 165,482
<TOTAL-ASSETS> 41,356,557
<DEPOSITS> 35,250,627
<SHORT-TERM> 0
<LIABILITIES-OTHER> 321,602
<LONG-TERM> 1,000,000
0
0
<COMMON> 33,060
<OTHER-SE> 2,433,567
<TOTAL-LIABILITIES-AND-EQUITY> 41,356,557
<INTEREST-LOAN> 1,322,470
<INTEREST-INVEST> 1,033,343
<INTEREST-OTHER> 300,701
<INTEREST-TOTAL> 2,656,514
<INTEREST-DEPOSIT> 1,464,863
<INTEREST-EXPENSE> 1,526,576
<INTEREST-INCOME-NET> 1,129,938
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 71,787
<EXPENSE-OTHER> 1,180,140
<INCOME-PRETAX> 157,312
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122,312
<EPS-BASIC> .41
<EPS-DILUTED> .41
<YIELD-ACTUAL> 2.96
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 198,168
<CHARGE-OFFS> 32,686
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 165,482
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
