UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ______________
Commission file number 0-23345
WYMAN PARK BANCORPORATION, INC.
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Delaware 52-2068893
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11 West Ridgely Road, Lutherville, Maryland 21093
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 252-6450
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 herein, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State the issuer's revenues for its most recent fiscal year: $5,174,000.
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the average of the bid and ask price of
such stock as of June 30, 1998, was approximately $12.2 million. (The exclusion
from such amount of the market value of the shares owned by any person shall not
be deemed an admission by the registrant that such person is an affiliate of the
registrant.)
As of June 30, 1998, there were 1,011,713 shares issued and outstanding of
the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts II of Form 10-KSB - Annual Report to Stockholders for the fiscal year
ended June 30, 1998.
Part III of Form 10-KSB - Portions of Proxy Statement for 1998 Annual
Meeting of Stockholders.
<PAGE>
PART I
Item 1. Description of Business
General
Forward-Looking Statements
When used in this filing and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be,"
"will allow," "intends to," "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
risks and uncertainties, including but not limited to changes in economic
conditions in the Company's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Company's
market area and competition, all or some of which could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected.
The Company wishes to caution readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made, and
advises readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation,
to update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
Impact of the Year 2000
The Company has conducted a comprehensive review of its computer systems to
identify applications that could be affected by the "Year 2000" issue, and has
developed an implementation plan to address the issue. The Company's data
processing is performed by a service provider, however, software and hardware
utilized in-house is under maintenance agreements with third party vendors,
consequently the Company is very dependent on those vendors to conduct its
business. The Company has already contacted each vendor to request time tables
for Year 2000 compliance and expected costs, if any, to be passed along to the
Company. To date, the Company has been informed that its primary service
providers anticipate that all reprogramming efforts will be completed by
December 31, 1998, allowing the Company adequate time for testing. Certain other
vendors have not yet responded, however, the Company will pursue other options
if it appears that these vendors will be unable to comply. Management does not
currently expect its costs to have a significant impact on its financial
position or results of operations, however, there can be no assurance that the
vendors' systems will be Year 2000 compliant, consequently, the Company could
incur incremental
1
<PAGE>
costs to convert to another vendor. The Company has identified certain of its
hardware and software equipment that will not be Year 2000 compliant and intends
to purchase new equipment and software prior to March 31, 1999. These capital
expenditures are expected to total approximately $10,000.
The Company. Wyman Park Bancorporation, Inc. (the "Company") was formed in
September, 1997 by Wyman Park Federal Savings & Loan Association (the
"Association" or "Wyman Park"). The acquisition of the Association by the
Company was consummated on January 5, 1998, in connection with the Association's
conversion from the mutual to the stock form. All references to the Company
prior to January 5, 1998, except where otherwise indicated, are to the
Association.
At June 30, 1998, the Company had $70.5 million of assets and stockholders'
equity of $14.3 million (or 20.3% of total assets).
The executive offices of the Company are located at 11 West Ridgely Road,
Lutherville, Maryland 21093, and its telephone number at that address is (410)
252-6450.
The activities of the Company itself have been limited to investment in the
stock of the Association, interest-bearing deposits at financial institutions
and a note receivable from the Association's Employee Stock Ownership Plan.
Unless otherwise indicated, all activities discussed below are of the
Association.
The Association. The Association is a federally-chartered savings
association headquartered in Lutherville, Maryland. Its deposits are insured up
to applicable limits, by the Federal Deposit Insurance Corporation (the "FDIC"),
which is backed by the full faith and credit of the United States. The
Association is primarily engaged in the business of attracting savings deposits
from the general public and investing such funds in permanent mortgage loans
secured by one- to four-family residential real estate located primarily in
central Baltimore county and northern Baltimore City, Maryland. Through its
branch office located in Glen Burnie, a suburb to the south of Baltimore, the
Association also services Anne Arundel County, Maryland. In addition to
permanent mortgage loans, the Association also originates, to a lesser extent,
loans for the construction of one- to four-family real estate, commercial loans
secured by multi-family real estate (over four units) and nonresidential real
estate, and consumer loans, including home equity lines of credit, home
improvement loans, and loans secured by savings deposits. The Association
invests in U.S. government obligations, interest-bearing deposits in other
financial institutions, mortgage-backed securities, and other investments
permitted by applicable law.
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Lending Activities
Market Area. The Company's office is located at 11 West Ridge Road,
Lutherville, Maryland. Through this office and a branch location the Company
primarily serves central Baltimore County and northern Baltimore City, Maryland,
as well as Glen Burnie, a suburb south of Baltimore and Anne Arundel County,
Maryland.
General. The principal lending activity of the Company is originating first
mortgage loans secured by owner-occupied one- to four-family residential
properties located in its primary market areas. In addition, in order to
increase the yield and the interest rate sensitivity of its portfolio and in
order to provide more comprehensive financial services to families and community
businesses in the Company's primary market area, the Company also originates
commercial real estate, multi-family, consumer (secured and unsecured), land,
and second mortgage loans. See "- Originations, Purchases and Sales of Loans."
The Company reserves the right in the future to adjust or discontinue any
product offerings to respond to competitive or economic factors.
Loan Portfolio Composition. The following information concerning the
composition of the Company's loan portfolios in dollar amounts and in
percentages (before deductions for loans in process, deferred fees and discounts
and allowances for losses) as of the dates indicated.
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------------
1998 1997
----------------------------------------------------------
Amount Percent Amount Percent
-------- ------- ------- -------
(Dollars in Thousands)
Real Estate Loans:
<S> <C> <C> <C> <C>
One- to four-family ....... $51,779 82.80% $46,346 82.92%
Multi-family .............. 362 .58 211 .38
Commercial ................ 6,683 10.69 5,806 10.39
Construction or development -- -- 150 .27
-------- ------ -------- ------
Total real estate loans 58,824 94.07 52,513 93.96
-------- ------ -------- ------
Other Loans:
Consumer Loans:
Deposit account loans .... 309 .49 176 .31
Home equity .............. 3,390 5.42 3,184 5.70
Home improvement ......... 12 .02 16 .03
-------- ------ -------- ------
Total consumer loans .. 3,711 5.93 3,376 6.04
-------- ------ -------- ------
Total loans, gross .... 62,535 100.00% 55,889 100.00%
-------- ====== -------- ======
Less:
Loans in process .......... -- (231)
Deferred fees and discounts (215) (199)
Allowance for losses ...... (278) (270)
-------- --------
Total loans receivable, net $62,042 $55,189
======== ========
</TABLE>
3
<PAGE>
The following table shows the composition of the Company's loan portfolios
by fixed- and adjustable-rates at the dates indicated.
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------
1998 1997
---------------------------------------------------
Amount Percent Amount Percent
------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family .......... $40,122 64.16% $30,505 54.58%
Multi-family ................. 66 .11 -- --
Commercial ................... 5,492 8.78 4,596 8.22
Construction or development .. -- -- 150 .27
------- ------ ------- ------
Total real estate loans ... 45,680 73.05 35,251 63.07
Consumer ...................... 321 .51 192 .34
------- ------ ------- ------
Total fixed-rate loans .... 46,001 73.56 35,443 63.41
------- ------ ------- ------
Adjustable-Rate Loans:
Real estate:
One- to four-family .......... 11,657 18.64 15,841 28.34
Multi-family ................. 296 .47 211 .38
Commercial ................... 1,191 1.91 1,210 2.17
------- ------ ------- ------
Total real estate loans ... 13,144 21.02 17,262 30.89
Consumer ...................... 3,390 5.42 3,184 5.70
------- ------ ------- ------
Total adjustable-rate loans 16,534 26.44 20,446 36.59
------- ------ ------- ------
Total loans ............... 62,535 100.00% 55,889 100.00%
------- ====== ------- ======
Less:
Loans in process............... -- (231)
Deferred fees and discounts.... (215) (199)
Allowance for loan losses...... (278) (270)
------- -------
Total loans receivable, net. $62,042 $55,189
======= =======
</TABLE>
4
<PAGE>
The following schedule illustrates the interest rate sensitivity of the
Company's loan portfolio at June 30, 1998. Mortgages which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract is due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
-------------------------------------------
Multi-family and
One- to Four-Family Commercial Consumer Total
-------------------- ------------------- --------------------- ----------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate
------- -------- ------- --------- ------- --------- ------ -------
(Dollars in Thousands)
Due During
Years Ending
June 30,
- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999(1) ............................ $10,694 7.42% $ 2,225 9.92% $ 3,699 8.99% $16,618 8.10%
2000 - 2003 ........................ 8,940 6.85 1,078 9.59 12 9.49 10,030 7.15
2004 and following ................. 32,145 7.13 3,742 9.15 -- -- 35,887 7.34
------- ------- ------- ------
$51,779 7.14 $ 7,045 9.46 $ 3,711 8.99 $62,535 7.76
======= ======= ======= =======
</TABLE>
- ----------
(1) Includes demand loans and loans having no stated maturity.
The total amount of loans due after June 30, 1998 which have predetermined
interest rates is $46,001,000 while the total amount of loans due after such
dates which have floating or adjustable interest rates is $16,534,000.
5
<PAGE>
Under federal law, the aggregate amount of loans that the Company is
permitted to make to any one borrower is generally limited to 15% of unimpaired
capital and surplus (25% if the security for such loan has a "readily
ascertainable" value or 30% for certain residential development loans). At June
30, 1998, based on the above, the Company's regulatory loan-to-one borrower
limit was approximately $1,415,000. On the same date, the Company had no
borrowers with outstanding balances in excess of this amount. As of June 30,
1998, the largest dollar amount of indebtedness to one borrower or group of
related borrowers was a $641,000 loan secured by raw land for development of
residential homes. The next two largest loans had outstanding balances of
$622,000 and $613,000, respectively, and were secured by a strip shopping center
and a warehouse. Such loans are performing in accordance with their terms.
Loan applications are accepted by salaried employees at the Company's
offices. Loan applications are presented for approval to the Loan or Executive
Loan Committees of the Board of Directors or to the full Board of Directors,
depending on the loan amount. Generally, the Loan Committee acts with respect to
loan requests equal to or less than $250,000 (except for single family loan
requests conforming to certain criteria, as to which the Loan Committee may
approve amounts up to $750,000), while the Executive Loan Committee acts with
respect to commercial loan requests for more than $250,000 up to $750,000.
Decisions on loan applications are made on the basis of detailed applications
and property valuations (consistent with the Company's written lending policy)
by qualified independent appraisers. The loan applications are designed
primarily to determine the borrower's ability to repay and include income,
length of employment, past credit history and the amount of current
indebtedness. Significant items on the application are verified through use of
credit reports, financial statements, tax returns and/or confirmations. The
Company is an equal opportunity lender.
One- to Four-Family Residential Real Estate Lending
The cornerstone of the Company's lending program has long been the
origination of long-term permanent loans secured by mortgages on owner-occupied
one- to four-family residences. At June 30, 1998, $51.8 million, or 82.8% of the
Company's gross loan portfolio consisted of permanent loans on one- to
four-family residences. At that date, the average outstanding residential loan
balance was approximately $79,000 and the largest outstanding residential loan
had a principal balance of $335,000. Virtually all of the residential loans
originated by the Company are secured by properties located in the Company's
market area. See "- Originations, Purchases and Sales of Loans."
Although the Company has generally sold its fixed-rate loan production
since 1989, historically, the Company originated for retention in its own
portfolio 30-year fixed-rate loans secured by one- to four-family residential
real estate. Beginning in the mid-1980s, in order to reduce its exposure to
changes in interest rates, the Company began to originate adjustable rate
mortgage loans ("ARMs"), subject to market conditions and consumer preference.
The Company has from time to time sold some of its ARM production, which
conforms to standards promulgated by the Federal Home Loan Mortgage Corporation
("FHLMC"), and as a result of continued consumer demand, particularly during
periods of relatively low interest rates, the Company has also continued to
originate fixed-rate residential loans in amounts and at rates and terms which
are monitored for compliance with the Company's asset/liability management
policy. Currently, the Company originates both conforming and jumbo construction
and jumbo fixed-rate permanent loans with
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<PAGE>
maturities of up to 30 years. At June 30, 1998, the Company had $40.1 million of
fixed-rate permanent residential loans, constituting 64.2% of the Company's loan
portfolio at such date. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Asset/Liability Management contained in
the Annual Report to Shareholders."
The Company's ARM and balloon loans are offered at rates, terms and points
determined in accordance with market and competitive factors. The Company's
current one- to four-family residential ARMs are fully amortizing loans with
contractual maturities of up to 30 years. Balloon loans also have terms of up to
30 years. Though from time to time "teaser" rates are offered, applicants are
qualified pursuant to FHLMC guidelines, which permits qualifications at less
than the fully indexed rate, and no ARMs allow for negative amortization. The
interest rates on the ARMs originated by the Company are generally subject to
adjustment at one-, three- and five-year intervals based on a margin over the
Treasury Securities Constant Maturity Index. Decreases or increases in the
interest rate of the Company's ARMs are generally limited to 6% above the
initial interest rate over the life of the loan, and up to a 2% per adjustment
period per year or per adjustment period. The Company's ARMs may be convertible
into fixed-rate loans, depending on the program selected, and do not contain
prepayment penalties. Loans are not assumable. At June 30, 1998, the total
balance of one- to four-family ARMs was $11.7 million, or 18.6% of the Company's
loan portfolio.
As a service to its older customers, the Company also has originated, and
thereafter sold, reverse mortgages, enabling the "homeowner" to utilize equity
values that have built up in the underlying property.
As discussed above, the Company evaluates both the borrower's ability to
make principal, interest and escrow payments and the value of the property that
will secure the loan. The Company originates residential mortgage loans with
loan-to-value ratios up to 97%. On mortgage loans exceeding an 80% loan-to-value
ratio at the time of origination, the Company will generally require private
mortgage insurance in an amount intended to reduce the Company's exposure to
less than 80% of the appraised value of the underlying property.
The Company requires title insurance on its mortgage loans as well as fire
and extended coverage casualty insurance in amounts at least equal to the
principal amount of the loan or the value of improvements on the property,
depending on the type of loan. The Company also requires flood insurance to
protect the property securing its interest when the property is located in a
flood plain.
The Company's residential mortgage loans customarily include due-on-sale
clauses giving the Company the right to declare the loan immediately due and
payable in the event that, among other things, the borrower sells or otherwise
disposes of the property subject to the mortgage and the loan is not repaid.
7
<PAGE>
Construction and Development Lending
The Company makes construction loans to individuals for the construction of
their primary or secondary residences. Loans to individuals for the construction
of their residences typically run for up to nine months. The borrower pays
interest only during the construction period. Residential construction loans are
generally underwritten pursuant to the same guidelines used for originating
permanent residential loans. At June 30, 1998, the Company had no construction
loans.
The Company has participated in loans to builders and developers to finance
the construction of residential property. Such loans generally have adjustable
interest rates based upon prime or treasury indexes with variable terms. The
proceeds of the loan are advanced during construction based upon the percentage
of completion as determined by an inspection by the lead lender. The loan amount
normally does not exceed 75% of the projected completed value. Whether the
Company is willing to provide permanent takeout financing to the purchaser of
the home is determined independently of the construction loan by separate
underwriting. In the event that upon completion the house is not sold, the
builder is required to make principal and interest payments until the house is
sold.
Building lot loans, which include loans to acquire vacant or raw land, are
made to individuals. All of such loans are secured by land zoned for residential
developments and located within the Company's market area. Before extending
credit, the Company will require percolation tests and related permits to be
secured.
Construction and development lending, through participation or direct
lending, generally affords the Company an opportunity to receive interest at
rates higher than those obtainable from residential lending and to receive
higher origination and other loan fees. In addition, such loans are generally
made for relatively short terms. Nevertheless, construction lending to persons
other than owner-occupants is generally considered to involve a higher level of
credit risk than one- to four-family permanent residential lending due to the
concentration of principal in a limited number of loans and borrowers and the
effects of general economic conditions on construction projects, real estate
developers and managers. In addition, the nature of these loans is such that
they are more difficult to evaluate and monitor. The Company's risk of loss on a
construction or development loan is dependent largely upon the accuracy of the
initial estimate of the property's value upon completion of the project and the
estimated cost (including interest) of the project. If the estimate of value
proves to be inaccurate, the Company may be confronted, at or prior to the
maturity of the loan, with a project with a value which is insufficient to
assure full repayment and/or the possibility of having to make substantial
investments to complete and sell the project. Because defaults in repayment may
not occur during the construction period, it may be difficult to identify
problem loans at an early stage. When loan payments become due, the cash flow
from the property may not be adequate to service the debt. In such cases, the
Company may be required to modify the terms of the loan.
Commercial Real Estate Lending
The Company's commercial real estate loan portfolio consists of loans on a
variety of non-residential properties including retail facilities, warehouses,
small office buildings, small industrial parks and shopping centers. At June 30,
1998, the Company's largest commercial real estate loan totaled $641,000. At
that date, the Company had 27 other commercial real estate loans, all totaling
8
<PAGE>
$6.7 million or 10.7% of gross loans receivable. As of June 30, 1998, none of
these loans were non-performing.
The Company has originated both balloon, adjustable-rate and fixed-rate
commercial real estate loans, although most current originations have balloon or
adjustable rates. Commercial loans generally adjust based on a constant maturity
index plus a margin. Adjustable rate loans generally have a balloon feature
after one or two adjustment periods to allow the Company to re-evaluate the
terms of the loan. Balloon loans mature at the end of the initial balloon term
and may be modified, extended or refinanced by the Company. Commercial loans are
generally underwritten in amounts of up to 75% of the appraised value of the
underlying property.
Appraisals on properties securing commercial real estate loans originated
by the Company are performed by a qualified independent appraiser at the time
the loan is made. In addition, the Company's underwriting procedures generally
require verification of the borrower's credit history, income and financial
statements, banking relationships and income projections or operating histories
for the property. Personal guarantees are generally obtained for the Company's
commercial real estate loans.
Substantially all of the commercial real estate loans originated by the
Company are secured by properties located within the Company's market area.
The table below sets forth by type of security property the estimated
number, loan amount and outstanding balance of the Company's commercial real
estate loans at June 30, 1998.
Outstanding
Number of Original Principal
Loans Loan Amount Balance
---------- ----------- -----------
(Dollars in Thousands)
Office ............................ 12 $2,041 $1,763
Retail ............................ 5 2,085 1,843
Small industrial .................. 2 535 459
Warehouse ......................... 4 1,518 1,234
Apartment ......................... 1 83 55
Land .............................. 4 1,517 1,329
------ ------ ------
Total .......................... 28 $7,779 $6,683
====== ====== ======
Commercial real estate loans generally present a higher level of credit
risk than loans secured by one- to four-family residences. This greater risk is
due to several factors, including the concentration of principal in a limited
number of loans and borrowers, the effects of general economic conditions on
income producing properties and the increased difficulty of evaluating and
monitoring these types of loans. Furthermore, the repayment of loans secured by
commercial real estate is typically dependent upon the successful operation of
the related real estate project. If the cash flow from the project is reduced
(for example, if leases are not obtained or renewed), the borrower's ability to
repay the loan may be impaired.
9
<PAGE>
Multi-Family Lending
The Company has historically made few permanent multi-family loans in its
primary market area. As with commercial real estate loans, multi-family loans
present a higher level of credit risk than do loans secured by one-to
four-family residences. At June 30, 1998, loans secured by multi-family
properties aggregated $362,000, or .6% of the Company's gross loans receivable.
The Company's multi-family loan portfolio includes loans secured by five or
more unit residential buildings located primarily in the Company's market area.
Consumer Lending
Management believes that offering consumer loan products helps to expand
the Company's customer base and to create stronger ties to its existing customer
base. In addition, because consumer loans generally have shorter terms to
maturity and carry higher rates of interest than do residential mortgage loans,
they can be valuable asset/liability management tools. The Company currently
originates substantially all of its consumer loans in its market area. At June
30, 1998, the Company's consumer loans totaled $3.7 million or 5.9% of the
Company's gross loan portfolio.
The Company offers a variety of consumer loans, including loans secured by
savings deposits and home equity lines of credit as well as unsecured home
improvement loans.
The largest component of the Company's consumer lending program is its home
equity line. At June 30, 1998, home equity loans totaled $3.4 million or 5.4% of
gross loans receivable. The Company also employs its standard underwriting
criteria discussed above in deciding whether to extend credit. The Company's
home equity lines of credit are originated in amounts which, together with the
amount of the first mortgage, generally do not exceed 80% of the appraised value
of the property securing the loan. At June 30, 1998, the Company had $5.8
million of funds committed, but undrawn, under such lines. Home equity loans are
adjustable in nature, floating at a stated margin above prime.
The terms of other types of consumer loans vary according to the type of
collateral, length of contract and creditworthiness of the borrower. The
underwriting standards employed by the Company for consumer loans include a
determination of the applicant's payment history on other debts and an
assessment of the borrower's ability to meet payments on the proposed loan along
with his existing obligations. In addition to the creditworthiness of the
applicant, the underwriting process also includes a comparison of the value of
the security, if any, in relation to the proposed loan amount.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciable assets. In addition, consumer loan collections are dependent
on the borrower's continuing financial stability, and thus are more likely to be
affected by adverse personal circumstances. Furthermore, the application of
various federal and state laws, including federal and state bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans.
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<PAGE>
Originations, Purchases and Sales of Loans
The Company originates real estate and other loans through employees
located at the Company's offices. Walk-in customers and referrals from its
current customer base, advertisement, real estate brokers, mortgage loan brokers
and builders are also important sources of loan originations as well as the
Company's internet web-site (www.wymanpark.com). The Company utilizes the
services of mortgage or loan brokers from time to time. While generally a
portfolio lender, the Company may in the future evaluate loan sale opportunities
as they arise and make sales depending on market conditions.
The following table shows the loan origination, purchase, sale and
repayment activities of the Company for the periods indicated.
Year Ended June 30,
--------------------------
1998 1997
--------------------------
(Dollars in Thousands)
Originations by type:
Adjustable rate:
Real estate - one- to four-family ............ $ 4,492 $ 2,843
- multi-family ............... 165 90
- commercial ................. -- 1,100
-------- --------
Total adjustable-rate ................. 4,657 4,033
-------- --------
Fixed rate:
Real estate - one- to four-family ............ 11,493 3,907
- commercial ................. 41 936
Non-real estate - consumer ................... 277 18
-------- --------
Total fixed-rate ...................... 11,811 4,861
-------- --------
Total loans originated ................ 16,468 8,894
-------- --------
Purchases:
Real estate - one- to four-family ............ -- 983
- commercial ................. 1,560 805
-------- --------
Total loans purchased ................. 1,560 1,788
-------- --------
Sales and Repayments:
Real estate - one- to four-family ............ 711 395
- commercial ................. -- 900
-------- --------
Total loans sold ...................... 711 1,295
Principal repayments ......................... 9,729 7,177
-------- --------
Total reductions ...................... 10,440 8,472
Decrease in other items, net ................... (735) (265)
-------- --------
Net increase .......................... $ 6,853 $ 1,945
======== ========
Delinquencies and Non-Performing Assets
Loan Portfolio Management. When a borrower fails to make a required payment
on a loan, the Company attempts to cause the delinquency to be cured by
contacting the borrower. A late notice is generated on all loans over 15 and 30
days delinquent. Another late notice is sent 60 days after the due date followed
by telephone contact.
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If the delinquency is not cured by the 65th day, the customer is provided
written notice that the account will be referred to counsel for collection and
foreclosure, if necessary. A good faith effort by the borrower at this time will
defer foreclosure for a reasonable length of time depending on individual
circumstances. After 90 days, foreclosure proceedings are generally instituted.
The Company may agree to accept a deed in lieu of foreclosure. If it becomes
necessary to foreclose, the property is sold at public sale and the Company may
bid on the property to protect its interest.
Unsecured consumer loans are charged off if they remain delinquent for 120
days unless the borrower and lender agree on a payment plan. If terms of the
plan are not met, they are then subject to charge off.
Real estate acquired by the Company as a result of foreclosure is
classified as real estate owned until it is sold. When property is acquired by
foreclosure, it is recorded at the lower of cost or estimated fair value, less
estimated selling costs, at the date of acquisition, and any write-down
resulting therefrom is charged to the allowance for loan losses. Subsequent
decreases in the value of the property are charged to operations through the
creation of a valuation allowance. After acquisition, all costs incurred in
maintaining the property are expensed. Costs relating to the development and
improvement of the property, however, are capitalized to the extent of estimated
fair value less estimated costs to sell.
The following table sets forth the Company's loan delinquencies by type, by
amount and by percentage of type at June 30, 1998.
<TABLE>
<CAPTION>
Loans Delinquent For:
------------------------------------------------------------ ----------------------------
60-89 Days 90 Days and Over Total Delinquent Loans
------------------------------------------------------------ ----------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
Real Estate:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family ........... 6 $463 .89% 1 $25 .05% 7 $488 .94%
------ ------ ------ ------ ------ ------ --------
Total ...................... 6 $463 .75% 1 $25 .04% 7 $488 .79%
====== ====== ====== ====== ====== ====== ========
</TABLE>
Non-Performing Assets. The table below sets forth the amounts and
categories of non-performing assets in the Company's loan portfolio. Loans are
placed on non-accrual status when the collection of principal and/or interest
become doubtful. Foreclosed assets include assets acquired in settlement of
loans.
June 30,
---------------------
1998 1997
---------- ---------
(Dollars in Thousands)
Non-accruing loans:
One- to four family ............................ $ 25 $176
---- ----
Total non-performing assets ...................... $ 25 $176
==== ====
Total as a percentage of total assets............ .04% .28%
==== ====
12
<PAGE>
For the year ended June 30, 1998 gross interest income which would have
been recorded had the non-accruing loans been current in accordance with their
original terms amounted to $3,659. The amount that was included in interest
income on such loans was $2,389 for the year ended June 30, 1998.
Classification of Assets. Federal regulations require that each savings
institution classify its own assets on a regular basis. In addition, in
connection with examinations of savings institutions, OTS and FDIC examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: Substandard,
Doubtful and Loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the Company will sustain some
loss if the deficiencies are not corrected. Doubtful assets have the weaknesses
of Substandard assets, with the additional characteristics that the weaknesses
make collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified Loss is considered uncollectible and of such little value that
continuance as an asset on the balance sheet of the institution, without
establishment of a specific valuation allowance or charge-off, is not warranted.
Assets classified as Substandard or Doubtful require the institution to
establish prudent general allowances for loan losses. If an asset or portion
thereof is classified as a Loss, the institution may charge off such amount
against the loan loss allowance. If an institution does not agree with an
examiner's classification of an asset, it may appeal this determination to the
District Director of the OTS.
On the basis of management's review of its assets, at June 30, 1998, the
Company had one loan classified substandard with total principal of $25,000.
Other Assets of Concern. In addition to non-performing loans and
substandard loans discussed above, as of June 30, 1998, the Company had six
loans totaling $463,000, which, because of known information about the possible
credit problems of the borrowers or the cash flows of the security property,
would cause management to have some doubts as to the ability of the borrowers to
comply with present loan repayment terms and may result in the future inclusion
of such assets in non-performing asset categories.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses charged to earnings based on management's
evaluation of the risk inherent in its entire loan portfolio and changes in the
nature and volume of its loan activity. Such evaluation, which includes a review
of all loans of which full collectibility may not be reasonably assured,
considers the estimated net realizable value of the underlying collateral,
economic conditions, historical loan loss experience and other factors that
warrant recognition in providing for an adequate allowance for loan losses. In
determining the general reserves under these policies, historical charge-offs
and recoveries, changes in the mix and levels of the various types of loans, net
realizable values, the current loan portfolio and current economic conditions
are considered. Management also considers the Company's non-performing assets in
establishing its allowance for loan losses.
As of June 30, 1998, the Company's allowance for loan losses as a percent
of gross loans receivable and as a percent of non-performing loans amounted to
.4% and 1,112%, respectively. In light of the level of non-performing assets to
total assets and the nature of these assets, management believes that the
allowance for loan losses is adequate. While management believes that it uses
the
13
<PAGE>
best information available to determine the allowance for loan losses,
unforeseen market conditions could result in adjustments to the allowance for
loan losses, and net earnings could be significantly affected, if circumstances
differ substantially from the assumptions used in making the final
determination.
The following table sets forth an analysis of the Company's allowance for
loan losses.
Year Ended June 30,
---------------------
1998 1997
---------- ---------
(Dollars in Thousands)
Balance at beginning of period .................... $270 $125
Charge-offs:
Commercial real estate .......................... -- --
---- ----
Net charge-offs ................................... -- --
Additions charged to operations ................... 8 145
---- ----
Balance at end of period .......................... $278 $270
==== ====
Ratio of net charge-offs during the period to
average loans outstanding during the period ...... -- % -- %
==== ====
Ratio of net charge-offs during the period to
average non-performing assets .................... -- % -- %
==== ====
The distribution of the Company's allowance for losses on loans at the
dates indicated is summarized as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------------------------------------
1998 1997
--------------------------------------- ------------------------------------------
Percent Percent
of Loans of Loans
Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans
----------- -------------- -------------- ------------- -------------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family ................ $ 27 $51,779 82.80% $ 25 $46,346 82.92%
Multi-family ....................... -- 362 .58 -- 211 .38
Commercial real estate ............. 64 6,683 10.69 56 5,806 10.39
Construction or development ....... -- -- -- -- 150 .27
Consumer ........................... -- 3,711 5.93 -- 3,376 6.04
Unallocated ........................ 187 -- -- 189 -- --
------- ------- ------ ------- ------- ------
Total ......................... $ 278 $62,535 100.00% $ 270 $55,889 100.00%
======= ======= ====== ======= ======= ======
</TABLE>
14
<PAGE>
Investment Activities
As part of its asset/liability management strategy and liquidity
requirements, the Company invests in U.S. government and agency obligations to
supplement its lending activities. The Company's investment policy also allows
for investments in overnight funds, mortgage-backed securities and certificates
of deposit. The Company may consider the expansion of investments into other
securities if deemed appropriate. At June 30, 1998, the Company did not own any
securities of a single issuer which exceeded 10% of the Company's retained
earnings. See Note 3 of the Notes to the Consolidated Financial Statements for
additional information regarding the Company's investment securities portfolio.
The Company is required by federal regulations to maintain a minimum amount
of liquid assets that may be invested in specified securities and is also
permitted to make certain other securities investments. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital." Cash flow projections are regularly reviewed and updated
to assure that adequate liquidity is provided. As of June 30, 1998, the
Company's liquidity ratio (liquid assets as a percentage of net withdrawable
savings and current borrowings) was 18.7% as compared to the OTS requirement of
4.0%.
All of the Company's investment securities, except mortgage-backed
securities, are classified as available for sale. Mortgage-backed securities are
classified as held to maturity. There were no sales of investment securities in
fiscal 1998 or 1997. The Company may elect to classify investment securities
acquired in the future as trading securities or as held to maturity, instead of
available-for- sale, but there are no current plans to do so.
The following table sets forth the composition of the Company's investment
and mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
June 30,
--------------------------------------------------------
1998 1997
-------------------------- -----------------------------
Book % of Book % of
Value Total Value Total
---------- --------------- ---------------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Investment securities:
Federal agency obligations ......................... $ -- -- % $2,992 85.44%
------ ------ ------ ------
Subtotal ........................................ -- -- 2,992 85.44
FHLB stock ......................................... 510 100.00 510 14.56
------ ------ ------ ------
Total investment securities and FHLB stock ...... $ 510 100.00% $3,502 100.00%
====== ====== ====== ======
Average remaining life of investment securities ...... -- 1.3 years
Other interest-earning assets:
Interest-bearing deposits with banks ............... $2,071 31.18% $1,093 57.05%
Federal funds sold ................................. 4,571 68.82 823 42.95
------ ------ ------ ------
Total ........................................... $6,642 100.00% $1,916 100.00%
====== ====== ====== ======
Mortgage-backed securities:
FNMA ............................................... $ 2 .70% $ 2 .56%
FHLMC .............................................. 282 99.30 354 99.44
------ ------ ------ ------
Total mortgage-backed securities ................ $ 284 100.00% $ 356 100.00%
====== ====== ====== ======
</TABLE>
15
<PAGE>
Mortgage-Backed Securities. The Company has a $284,000 portfolio of
mortgage-backed securities, all of which are insured or guaranteed by FHLMC or
the Federal National Mortgage Company ("FNMA"). Accordingly, management believes
that the Company's mortgage-backed securities are generally resistant to credit
problems. Because these securities represent a passthrough of principal and
interest from underlying individual thirty year mortgages, such securities do
present prepayment risk. Any such individual security contains mortgages that
can be prepaid at any time over the life of the security. In a rising interest
rate environment the underlying mortgages are likely to extend their lives
versus a stable or declining rate environment. A declining rate environment can
result in rapid prepayment. There is no certainty as to the security life or
speed of prepayment. The geographic makeup and correlated economic conditions of
the underlying mortgages also play an important role in determining prepayment.
In addition to prepayment risk, interest rate risk is inherent in holding any
debt security. As interest rates rise the value of the security declines and
conversely as interest rates decline values rise. Adjustable rate
mortgage-backed securities have the advantage of moving their interest rate
within limits with the contractual index used, subject to the risk of
prepayment. All of the adjustable rate mortgage-backed securities in the
portfolio are tied to the One Year Constant Maturity Treasury Index and all are
considered held for investment. The market valuation does not consequently
present a direct impact on equity.
Mortgage-backed securities can serve as collateral for borrowings and,
through sales and repayments, as a source of liquidity. For information
regarding the carrying and market values of the Company's mortgage-backed
securities portfolio, see Note 3 of the Notes to Consolidated Financial
Statements. Under the Company's risk-based capital requirement, mortgage-backed
securities have a risk weight of 20% in contrast to the 50% risk weight carried
by residential loans. See "Regulation."
The following table sets forth the contractual maturities of the Company's
mortgage-backed securities at June 30, 1998.
Due in June 30, 1998
10 to 20 Balance
Years Outstanding
-------- -------------
(In Thousands)
Federal Home Loan Mortgage Corporation ............. $282 $282
Federal National Mortgage Association .............. 2 2
---- ----
Total ......................................... $284 $284
==== ====
Sources of Funds
General. The Company's primary sources of funds are deposits, amortization
and prepayment of loan principal, maturities of investment securities,
short-term investments and funds provided from operations as well as FHLB
advances.
Deposits. The Company offers a variety of deposit accounts having a wide
range of interest rates and terms. The Company's deposits consist of passbook
and statement accounts, NOW accounts, Christmas Club and money market and
certificate accounts, including Individual Retirement Accounts. The Company
relies primarily on advertising, including newspaper and radio,
16
<PAGE>
pricing policies and customer service to attract and retain these deposits.
Neither premiums nor brokered deposits are utilized.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition. The Company's mix of transaction accounts and certificate accounts
is less favorable than its peers, resulting in a higher cost of funds for the
Company in relation to its peer group. At June 30, 1998, 27.9% of the Company's
deposits were in transaction accounts, versus 72.1% in certificates.
The Company has become more susceptible to short-term fluctuations in
deposit flows, as customers have become more interest rate conscious. The
Company manages the pricing of its deposits in keeping with its asset/liability
management, profitability and growth objectives. Based on its experience, the
Company believes that its passbook, demand and NOW accounts are relatively
stable sources of deposits. However, the ability of the Company to attract and
maintain certificate deposits, and the rates paid on these deposits, has been
and will continue to be significantly affected by market conditions.
The following table sets forth the savings flows at the Company during the
periods indicated.
Year Ended June 30,
-----------------------------
1998 1997
-----------------------------
(Dollars in Thousands)
Opening balance ...................... $ 56,097 $ 57,871
Deposits ............................. 65,445 53,394
Withdrawals .......................... (70,212) (57,930)
Interest credited .................... 2,688 2,762
-------- --------
Ending balance ....................... $ 54,018 $ 56,097
======== ========
Net decrease ......................... $ (2,079) $ (1,774)
======== ========
Percent decrease ..................... (3.71)% (3.07)%
======== ========
17
<PAGE>
The following table sets forth the dollar amount of savings deposits in the
various types of deposit programs offered by the Company for the periods
indicated.
Year Ended June 30,
------------------------------------
1998 1997
------------------------------------
Percent Percent
Amount of Total Amount of Total
------ -------- ------ --------
(Dollars in Thousands)
Transactions and Savings Deposits:
Commercial Demand 0% ................... $ 560 1.04% $ 587 1.05%
Passbook Accounts 2.96% ................ 5,612 10.39 6,027 10.74
NOW Accounts 1.75% ..................... 1,845 3.41 1,615 2.88
Money Market Accounts 3.10% ............ 7,024 13.00 7,627 13.59
------- ------ ------- ------
Total Non-Certificates ................. 15,041 27.84 15,856 28.26
------- ------ ------- ------
Certificates:
4.00 - 5.99% .......................... $23,442 43.38% $26,366 46.99%
6.00 - 7.99% .......................... 15,348 28.40 13,492 24.04
8.00 - 9.99% .......................... 187 .35 383 .68
------- ------ ------- ------
Total Certificates ..................... 38,977 72.13 40,241 71.71
------- ------ ------- ------
Accrued Interest ....................... 17 .03 19 .03
------- ------ ------- ------
Total Deposits ......................... $54,035 100.00% $56,116 100.00%
======= ====== ======= ======
18
<PAGE>
The following table shows rate and maturity information for the
Association's certificates of deposit as of June 30, 1998.
<TABLE>
<CAPTION>
4.00- 6.00- 8.00- Percent
5.99% 7.99% 9.99% Total of Total
--------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Certificate accounts maturing
in quarter ending:
September 30, 1998 .......... $ 5,856 $ 65 $ 165 $ 6,086 15.61%
December 31, 1998 ........... 4,867 14 4 4,885 12.53
March 31, 1999 .............. 2,982 440 18 3,440 8.83
June 30, 1999 ............... 2,604 1,002 -- 3,606 9.25
September 30, 1999 .......... 1,166 3,022 -- 4,188 10.74
December 31, 1999 ........... 815 2,582 -- 3,397 8.72
March 30, 2000 .............. 751 3,076 -- 3,827 9.82
June 30, 2000 ............... 1,227 1,327 -- 2,554 6.55
September 30, 2000 .......... 302 153 -- 455 1.17
December 31, 2000 ........... 495 128 -- 623 1.60
March 31, 2001 .............. 418 99 -- 517 1.33
June 30, 2001 ............... 138 7 -- 145 .37
Thereafter .................. 1,821 3,433 -- 5,254 13.48
------- ------- ------- ------- ------
Total .................... $23,442 $15,348 $ 187 $38,977 100.00%
======= ======= ======= ======= ======
Percent of total ......... 60.14% 39.38% .48%
======= ======= ======
</TABLE>
At June 30, 1998 the Association had approximately $4.2 million in
certificate accounts in amounts of $100,000 or more maturing as follows:
Weighted
Maturity Period Amount Average Rate
- --------------------------------------------- ------------ --------------
(Dollars in
thousands)
Three months or less ..................... $ 330 5.29%
Over three through six months ............ 412 5.40
Over six through 12 months ............... 1,211 5.69
Over 12 months ........................... 2,215 6.50
------
Total .................................... $4,168 6.06%
======
19
<PAGE>
The following table indicates the amount of the Association's certificates
of deposit and other deposits by time remaining until maturity as of June 30,
1998.
<TABLE>
<CAPTION>
Maturity
-----------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 months Total
------- ------ ------ --------- -----
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000 .... $ 5,756 $ 4,473 $ 5,835 $18,745 $34,809
Certificates of deposit of $100,000 or more ... 330 412 1,211 2,215 4,168
------- ------- ------- ------- -------
Total certificates of deposit ................. $ 6,086 $ 4,885 $ 7,046 $20,960 $38,977
======= ======= ======= ======= =======
</TABLE>
For additional information regarding the composition of the Association's
deposits, see Note 7 of Notes to Consolidated Financial Statements.
Borrowings. The Company's other available sources of funds, not currently
utilized, include advances from the FHLB of Atlanta and other borrowings. As a
member of the FHLB of Atlanta, the Association is required to own capital stock
in the FHLB of Atlanta and is authorized to apply for advances from the FHLB of
Atlanta. Each FHLB credit program has its own interest rate, which may be fixed
or variable, and range of maturities. The FHLB of Atlanta may prescribe the
acceptable uses for these advances, as well as limitations on the size of the
advances and repayment provisions. The Association's immediate credit
availability at the FHLB of Atlanta was approximately $8.0 million at June 30,
1998.
The Association did not have any outstanding borrowings at the end of the
last two fiscal years, although the Association did borrow $2 million from the
FHLB of Atlanta during fiscal 1998.
Service Corporations
As a federally chartered savings association, Wyman Park is permitted by
OTS regulations to invest up to 2% of its assets, or approximately $1.3 million
at June 30, 1998, in the stock of, or loans to, service corporation
subsidiaries. As of such date, the Company had one investment in a service
corporation, WP Financial Corporation, which engages in the sale of annuities.
The income derived from WP Financial Corporation is not material to the
Association's results of operations.
Competition
The Company experiences strong competition both in originating real estate
loans and in attracting deposits. This competition arises from a highly
competitive market area with numerous commercial banks and savings institutions,
as well as credit unions and mortgage bankers and, with respect to deposits,
banking institutions and other financial intermediaries. The Association
competes for loans principally on the basis of the interest rates and loan fees
it charges, the types of loans it originates and the quality of services it
provides to borrowers.
The Association attracts all of its deposits through the communities in
which its offices are located; therefore, competition for those deposits is
principally from other savings institutions, commercial banks, securities firms,
money market and mutual funds and credit unions located in the
20
<PAGE>
same community. The ability of the Association to attract and retain deposits
depends on its ability to provide an investment opportunity that satisfies the
requirements of investors as to rate of return, liquidity, risk, convenient
locations and other factors. The Association competes for these deposits by
offering a variety of deposit accounts at competitive rates, convenient business
hours and a customer-oriented staff. At June 30, 1998, the Association had in
excess 60 financial institutions competing with it in its market area. The
Association estimates its market share of savings deposits in its market area to
be approximately 11.4%.
Employees
At June 30, 1998, the Association had a total of 16 full-time employees and
no part-time employees. None of the Association's employees are represented by
any collective bargaining group. Management considers its employee relations to
be good.
REGULATION
General
Wyman Park is a federally chartered savings association, the deposits of
which are federally insured and backed by the full faith and credit of the
United States Government. Accordingly, Wyman Park is subject to broad federal
regulation and oversight extending to all its operations. Wyman Park is a member
of the FHLB of Atlanta and is subject to certain limited regulation by the Board
of Governors of the Federal Reserve System ("Federal Reserve Board"). As the
savings and loan holding company of Wyman Park, the Holding Company also is
subject to federal regulation and oversight. The purpose of the regulation of
the Holding Company and other holding companies is to protect subsidiary savings
associations. Wyman Park is a member of the SAIF, which together with the BIF
are the two deposit insurance funds administered by the FDIC, and the deposits
of Wyman Park are insured by the FDIC. As a result, the FDIC has certain
regulatory and examination authority over Wyman Park.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations
The OTS has extensive authority over the operations of savings
associations. As part of this authority, Wyman Park is required to file periodic
reports with the OTS and is subject to periodic examinations by the OTS and the
FDIC. The last regular OTS examination of Wyman Park was as of December, 1996.
Under agency scheduling guidelines, it is likely that another examination will
be initiated in the near future. When these examinations are conducted by the
OTS and the FDIC, the examiners may require the Association to provide for
higher general or specific loan loss reserves. All savings associations are
subject to a semi-annual assessment, based upon the savings association's total
assets, to fund the operations of the OTS. The Association's OTS assessment for
the fiscal year ended June 30, 1998 was $22,000.
21
<PAGE>
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including Wyman Park and the Company.
This enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of the
Association is prescribed by federal laws and it is prohibited from engaging in
any activities not permitted by such laws. For instance, no savings institution
may invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans secured by
non-residential real property may not exceed 400% of total capital, except with
approval of the OTS. Federal savings associations are also generally authorized
to branch nationwide. Wyman Park is in compliance with the noted restrictions.
Wyman Park's general permissible lending limit for loans-to-one-borrower is
equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus). At
June 30, 1998, the Association's lending limit under this restriction was
$1,415,000. Wyman Park is in compliance with the loans-to-one-borrower
limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal
controls and audit systems, interest rate risk exposure and compensation and
other employee benefits. Any institution which fails to comply with these
standards must submit a compliance plan.
Insurance of Accounts and Regulation by the FDIC
Wyman Park is a member of the SAIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance is
backed by the full faith and credit of the United States Government. As insurer,
the FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of and to require reporting by FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious risk to the SAIF or the BIF.
The FDIC also has the authority to initiate enforcement actions against savings
associations, after giving the OTS an opportunity to take such action, and may
terminate the deposit insurance if it determines that the institution has
engaged in unsafe or unsound practices or is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that
22
<PAGE>
are less than adequately capitalized (i.e., core or Tier 1 risk-based capital
ratios of less than 4% or a risk-based capital ratio of less than 8%) and
considered of substantial supervisory concern pay the highest premium. Risk
classification of all insured institutions is made by the FDIC for each
semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on a semiannual basis,
if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.
Effective January 1, 1997, the premium schedule for BIF and SAIF insured
institutions ranged from 0 to 27 basis points. However, SAIF-insured
institutions are required to pay a Financing Corporation (FICO) assessment, in
order to fund the interest on bonds issued to resolve thrift failures in the
1980s, equal to approximately 6.48 basis points for each $100 in domestic
deposits, while BIF- insured institutions pay an assessment equal to
approximately 1.52 basis points for each $100 in domestic deposits. The
assessment is expected to be reduced to 2.43 basis points no later than January
1, 2000, when BIF insured institutions fully participate in the assessment.
These assessments, which may be revised based upon the level of BIF and SAIF
deposits will continue until the bonds mature in the year 2017.
Regulatory Capital Requirements
Federally insured savings associations, such as Wyman Park, are required to
maintain a minimum level of regulatory capital. The OTS has established capital
standards, including a tangible capital requirement, a leverage ratio (or core
capital) requirement and a risk-based capital requirement applicable to such
savings associations. These capital requirements must be generally as stringent
as the comparable capital requirements for national banks. The OTS is also
authorized to impose capital requirements in excess of these standards on
individual associations on a case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement. At June 30, 1997, the Association did not have any intangible
assets.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital. Wyman Park does not have any non- includable
subsidiaries.
23
<PAGE>
At June 30, 1998, Wyman Park had tangible capital of $9.4 million, or 14.0%
of total assets, which is approximately $8.4 million above the minimum
requirement of 1.5% of adjusted total assets in effect on that date.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a savings association must maintain a core capital ratio of at
least 4% to be considered adequately capitalized unless its supervisory
condition is such to allow it to maintain a 3% ratio. At June 30, 1998, Wyman
Park had no intangibles which were subject to these tests.
At June 30, 1998, Wyman Park had core capital equal to $9.4 million, or
14.0% of adjusted total assets, which is $7.4 million above the minimum leverage
ratio requirement of 3% as in effect on that date.
The OTS risk-based requirement requires savings associations to have total
capital of at least 8% of risk-weighted assets. Total capital consists of core
capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At June 30, 1998, Wyman Park had
$278,000 of general loss reserves, which was less than 1.25% of risk-weighted
assets.
Certain exclusions from capital and assets are required to be made for the
purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. Wyman Park had no such
exclusions from capital and assets at June 30, 1998.
In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, will be multiplied by a risk weight, ranging
from 0% to 100%, based on the risk inherent in the type of asset. For example,
the OTS has assigned a risk weight of 50% for prudently underwritten permanent
one- to four-family first lien mortgage loans not more than 90 days delinquent
and having a loan to value ratio of not more than 80% at origination unless
insured to such ratio by an insurer approved by the FNMA or FHLMC.
OTS regulations also require that savings associations with more than
normal interest rate risk exposure deduct from its total capital, for purposes
of determining compliance with such requirement, an amount equal to 50% of its
interest-rate risk exposure multiplied by the present value of its assets. This
exposure is a measure of the potential decline in the net portfolio value of a
savings association, greater than 2% of the present value of its assets, based
upon a hypothetical 200 basis point increase or decrease in interest rates
(whichever results in a greater decline). Net portfolio value is the present
value of expected cash flows from assets, liabilities and off-balance sheet
contracts. The rule will not become effective until the OTS evaluates the
process by which
24
<PAGE>
savings associations may appeal an interest rate risk deduction determination.
It is uncertain as to when this evaluation may be completed. Any savings
association with less than $300 million in assets and a total risk-based capital
ratio in excess of 12% is exempt from this requirement unless the OTS determines
otherwise. At the present time, the proposal is not expected to have a material
impact on the Association.
On June 30, 1998, Wyman Park had total risk-based capital of approximately
$9.7 million (including $9.4 million in core capital and $278,000 in qualifying
supplementary capital) and risk- weighted assets of $38.0 million; or total
capital of 25.6% of risk-weighted assets. This amount was $6.7 million above the
8% requirement in effect on that date.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any company
controlling an undercapitalized association must agree that it will enter into a
limited capital maintenance guarantee with respect to the institution's
achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made
subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.
The OTS is also generally authorized to reclassify an association into a
lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on the
Association may have a substantial adverse effect on its operations and
profitability.
25
<PAGE>
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions on savings associations with
respect to their ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations also prohibit a
savings association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result, the regulatory capital of the association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion.
Generally, savings associations, such as Wyman Park, that before and after
the proposed distribution meet their capital requirements, may make capital
distributions during any calendar year equal to the greater of 100% of net
income for the year-to-date plus 50% of the amount by which the lesser of the
association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of their net income for the most recent four quarter
period. However, an association deemed to be in need of more than normal
supervision by the OTS may have its dividend authority restricted by the OTS.
Wyman Park may pay dividends in accordance with this general authority.
Savings associations proposing to make any capital distribution need only
submit written notice to the OTS 30 days prior to such distribution. Savings
associations that do not, or would not meet their current minimum capital
requirements following a proposed capital distribution, however, must obtain OTS
approval prior to making such distribution. The OTS may object to the
distribution during that 30-day period based on safety and soundness concerns.
See "- Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a savings association may make a
capital distribution without notice to the OTS (unless it is a subsidiary of a
holding company) provided that it has a CAMEL 1 or 2 rating, is not of
supervisory concern, and would remain adequately capitalized (as defined in the
OTS prompt corrective action regulations) following the proposed distribution.
Savings associations that would remain adequately capitalized following the
proposed distribution but do not meet the other noted requirements must notify
the OTS 30 days prior to declaring a capital distribution. The OTS stated it
will generally regard as permissible that amount of capital distributions that
do not exceed 50% of the institution's excess regulatory capital plus net income
to date during the calendar year. A savings association may not make a capital
distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. As under the
current rule, the OTS may object to a capital distribution if it would
constitute an unsafe or unsound practice. No assurance may be given as to
whether or in what form the regulations may be adopted.
Liquidity
All savings associations, including Wyman Park, are required to maintain an
average daily balance of liquid assets equal to a certain percentage of the
average daily balance of its liquidity base during the preceding calendar
quarter or a percentage of the amount of its liquidity base at the end of the
preceding quarter. For a discussion of what Wyman Park includes in liquid
assets, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -
26
<PAGE>
Liquidity and Capital Resources contained in the Annual Report to Shareholders."
This liquid asset ratio requirement may vary from time to time (between 4% and
10%) depending upon economic conditions and savings flows of all savings
associations. At the present time, the minimum liquid asset ratio is 4%.
Penalties may be imposed upon associations for violations of the liquid
asset ratio requirement. At June 30, 1998, the Association was in compliance
with the requirement, with an overall liquid asset ratio of 18.7%.
Qualified Thrift Lender Test
All savings associations, including Wyman Park, are required to meet a
qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. This test requires a savings association to have at least 65% of its
portfolio assets (as defined by regulation) in qualified thrift investments on a
monthly average for nine out of every 12 months on a rolling basis. As an
alternative, the savings association may maintain 60% of its assets in those
assets specified in Section 7701(a)(19) of the Internal Revenue Code. Under
either test, such assets primarily consist of residential housing related loans
and investments. At June 30, 1998, the Association met the test and has always
met the test since its effectiveness.
Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with the examination of Wyman
Park, to assess the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a branch, by Wyman Park.
An unsatisfactory rating may be used as the basis for the denial of an
application by the OTS.
27
<PAGE>
The federal banking agencies, including the OTS, have recently revised the
CRA regulations and the methodology for determining an institution's compliance
with the CRA. Due to the heightened attention being given to the CRA in the past
few years, the Association may be required to devote additional funds for
investment and lending in its local community. The Association was examined for
CRA compliance in September 1995 and received a rating of satisfactory.
Transactions with Affiliates
Generally, transactions between a savings association or its subsidiaries
and its affiliates are required to be on terms as favorable to the association
as transactions with non-affiliates. In addition, certain of these transactions,
such as loans to an affiliate, are restricted to a percentage of the
association's capital. Affiliates of Wyman Park include the Holding Company and
any company which is under common control with the Association. In addition, a
savings association may not lend to any affiliate engaged in activities not
permissible for a bank holding company or acquire the securities of most
affiliates. The OTS has the discretion to treat subsidiaries of savings
associations as affiliates on a case by case basis.
Certain transactions with directors, officers or controlling persons are
also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must generally be made on terms substantially the same as for loans to
unaffiliated individuals.
Holding Company Regulation
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 which also permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings association.
As a unitary savings and loan holding company, the Company generally is not
subject to activity restrictions. 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 Wyman Park or any other SAIF-insured savings
association) would become subject to such restrictions unless such other
associations each qualify as a QTL and were acquired in a supervisory
acquisition.
If Wyman Park fails the QTL test, the Company must obtain the approval of
the OTS prior to continuing after such failure, directly or through its other
subsidiaries, any business activity other than those approved for multiple
savings and loan holding companies or their subsidiaries. In addition, within
one year of such failure the Company must register as, and will become subject
to, the restrictions applicable to bank holding companies. The activities
authorized for a bank holding company are more limited than are the activities
authorized for a unitary or multiple savings and loan holding company. See
"--Qualified Thrift Lender Test."
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<PAGE>
The Company must obtain approval from the OTS before acquiring control of
any other SAIF-insured association. Such acquisitions are generally prohibited
if they result in a multiple savings and loan holding company controlling
savings associations in more than one state. However, such interstate
acquisitions are permitted based on specific state authorization or in a
supervisory acquisition of a failing savings association.
Federal Securities Law
The stock of the Company will be registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company
will be subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act.
Company stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Company may not be resold without
registration or unless sold in accordance with certain resale restrictions. If
the Company meets specified current public information requirements, each
affiliate of the Company is able to sell in the public market, without
registration, a limited number of shares in any three-month period.
Federal Reserve System
The Federal Reserve Board requires all depository institutions to maintain
noninterest bearing reserves at specified levels against their transaction
accounts (primarily checking, NOW and Super NOW checking accounts). At June 30,
1998, Wyman Park was in compliance with these reserve requirements. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve Board
may be used to satisfy liquidity requirements that may be imposed by the OTS.
See "--Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Association "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Association.
Federal Home Loan Bank System
Wyman Park is a member of the FHLB of Atlanta, which is one of 12 regional
FHLBs, that administers the home financing credit function of savings
associations. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures, established
by the board of directors of the FHLB, which are subject to the oversight of the
Federal Housing Finance Board. All advances from the FHLB are required to be
fully secured by sufficient collateral as determined by the FHLB. In addition,
all long-term advances are required to provide funds for residential home
financing.
As a member, Wyman Park is required to purchase and maintain stock in the
FHLB of Atlanta. At June 30, 1998, Wyman Park had $510,000 in FHLB stock, which
was in compliance with this requirement. In past years, Wyman Park has received
substantial dividends on its FHLB
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stock. Over the past five fiscal years such dividends have averaged 6.8% and
were 7.3% for fiscal year 1998.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate- income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of Wyman Park's FHLB stock may result in a corresponding
reduction in Wyman Park's capital.
For the year ended June 30, 1998, dividends paid by the FHLB of Atlanta to
Wyman Park totaled $37,000, which was no increase over the amount of dividends
received in fiscal year 1997.
Federal and State Taxation
Savings associations such as Wyman Park that meet certain conditions
prescribed by the Internal Revenue Code of 1986, as amended (the "Code"), are
permitted to establish reserves for bad debts and to make annual additions
thereto which may, within specified formula limits, be taken as a deduction in
computing taxable income for federal income tax purposes. The amount of the bad
debt reserve deduction is computed under the experience method. Under the
experience method, the bad debt reserve deduction is an amount determined under
a formula based generally upon the bad debts actually sustained by the savings
association over a period of years.
In August 1996, legislation was enacted that repealed the percentage of
taxable income method used by many thrifts, including the Association, to
calculate their bad debt reserve for federal income tax purposes. As a result,
small thrifts such as the Association must recapture that portion of the reserve
that exceeds the amount that could have been taken under the experience method
for tax years beginning after December 31, 1987. The recapture will occur over a
six-year period, the commencement of which will be delayed until the first
taxable year beginning after December 31, 1997, provided the institution meets
certain residential lending requirements. At June 30, 1998, the Association had
approximately $62,000 in bad debt reserves subject to recapture for federal
income tax purposes. The deferred tax liability related to the recapture has
been previously established so there will be no effect on future net income.
In addition to the regular income tax, corporations, including savings
associations such as Wyman Park, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income.
A portion of the Association's reserves for losses on loans may not,
without adverse tax consequences, be utilized for the payment of cash dividends
or other distributions to a shareholder
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(including distributions on redemption, dissolution or liquidation) or for any
other purpose (except to absorb bad debt losses). As of June 30, 1998, the
portion of Wyman Park's reserves subject to this treatment for tax purposes
totaled approximately $1.8 million.
Wyman Park files federal income tax returns on a fiscal year basis using
the accrual method of accounting. The Company does not anticipate filing
consolidated federal income tax returns with Wyman Park. Savings associations
that file federal income tax returns as part of a consolidated group are
required by applicable Treasury regulations to reduce their taxable income for
purposes of computing the percentage bad debt deduction for losses attributable
to activities of the non-savings association members of the consolidated group
that are functionally related to the activities of the savings association
member.
Wyman Park has been audited by the IRS with respect to federal income tax
returns through June, 1996. With respect to years examined by the IRS, either
all deficiencies have been satisfied or sufficient reserves have been
established to satisfy asserted deficiencies. In the opinion of management, any
examination of still open returns (including returns of subsidiaries and
predecessors of, or entities merged into, Wyman Park) would not result in a
deficiency which could have a material adverse effect on the financial condition
of Wyman Park.
Maryland Taxation. The State of Maryland generally imposes a franchise tax
on thrift institutions computed at a rate of 7% of net earnings. For the purpose
of the 7% franchise tax, net earnings are defined as the net income of the
thrift institution as determined for federal corporate income tax purposes, plus
(i) interest income from obligations of the United States, of any state,
including Maryland, and of any country, municipal or public corporation
authority, special district or political subdivision of any state, including
Maryland, (ii) any profit realized from the sale or exchange of bonds issued by
the State of Maryland or any of its political subdivisions, and (iii) any
deduction for state income taxes.
Delaware Taxation. As a Delaware holding company, the Company is exempted
from Delaware corporate income tax but is required to file an annual report with
and pay an annual fee to the State of Delaware. The Company is also subject to
an annual franchise tax imposed by the State of Delaware.
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Item 2. Description of Properties
The following table sets forth information concerning the main office and a
branch office of the Association at June 30, 1998. The Association believes that
its current facilities are adequate.
Owned Net Book
Year or Value at
Location Opened Leased(1) June 30, 1998
-------- ------ --------- -------------
Main Office:
11 Ridgely Road 1977 Land Leased;(2)
Lutherville, MD 21093 Building Owned $76,000
Branch Office:
7963 Baltimore/Annapolis Blvd. 1981 Leased(3) N/A
Glen Burnie, MD 21060
- --------------
(1) See Note 6 to Notes to Consolidated Financial Statements.
(2) There are five, five-year options which expire in May 2027.
(3) Lease expires in November, 2001.
The Association's depositor and borrower customer files are maintained by
an independent data processing company. The net book value of the data
processing and computer equipment utilized by the Association at June 30, 1998
was approximately $20,000.
Item 3. Legal Proceedings
From time to time, the Company is involved as plaintiff or defendant in
various legal proceedings arising in the normal course of its business. While
the ultimate outcome of these various legal proceedings cannot be predicted with
certainty, it is the opinion of management that the resolution of these legal
actions should not have a material effect on the Company's financial position or
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended June 30, 1998.
32
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Page 48 of the attached 1998 Annual Report to Stockholders is herein
incorporated by reference.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Pages 4 through 17 of the attached 1998 Annual Report to Stockholders are
herein incorporated by reference.
Item 7. Financial Statements
The following information appearing in the Company's Annual Report to
Stockholders for the year ended June 30, 1998, is incorporated by reference in
this Annual Report on Form 10-KSB as Exhibit 13.
Pages in
Annual
Annual Report Section Report
- --------------------- --------
Report of Independent Auditors....................................... 18
Consolidated Statements of Financial Condition as
of June 30, 1998 and 1997.......................................... 19
Consolidated Statements of Operations for the Years Ended
June 30, 1998 and 1997............................................. 20
Consolidated Statements of Stockholders' Equity for
Years Ended June 30, 1998 and 1997.................................. 21
Consolidated Statements of Cash Flows for Years Ended
June 30, 1998 and 1997............................................. 22 to 23
Notes to Consolidated Financial Statements........................... 24 to 47
With the exception of the aforementioned information, the Company's Annual
Report to Stockholders for the year ended June 30, 1998, is not deemed filed as
part of this Annual Report on Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
The Company filed a Current Report on Form 8-K on March 17, 1998 to report
a change of accountants, and an amendment on Form 8-K/A on March 19, 1998 to
report the letter on the change of certifying accountants.
33
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act
Directors
Information concerning Directors of the Company is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in 1998, a copy of which will be filed not later than
120 days after the close of the fiscal year.
Executive Officers
Information concerning Executive Officers of the Company is incorporated
herein by reference from the definitive Proxy Statement for the Annual Meeting
of Stockholders to be held in October 1998, a copy of which will be filed not
later than 120 days after the close of the fiscal year.
Compliance with Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
10% stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended June 30, 1998, all Section
16(a) filing requirements applicable to its officers, directors and greater than
10 percent beneficial owners were complied with.
Item 10. Executive Compensation
Information concerning executive compensation is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in 1998, a copy of which will be filed not later than
120 days after the close of the fiscal year.
Item 11. Security Ownership of Certain Beneficial
Owners and Management
Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the definitive Proxy
Statement for the Annual Meeting of Stockholders to be held in 1998, a copy of
which will be filed not later than 120 days after the close of the fiscal year.
34
<PAGE>
Item 12. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions is
incorporated herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in 1998, a copy of which will be filed
not later than 120 days after the close of the fiscal year.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Regulation Reference to
S-B Prior Filing or
Exhibit Exhibit Number
Number Document Attached Hereto
------ -------- ---------------
3(i) Certificate of Incorporation *
3(ii) Bylaws *
4 Instruments defining the rights of security holders, **
including debentures
10 Material Contracts
(a) Employment Contract between **
Ernest A. Moretti and the Association
(b) Executive Supplemental Retirement Plan 10(b)
13 Annual Report to Stockholders 13
16 Letter on change in certifying accountant ***
21 Subsidiaries of Registrant 21
23 Consents of Experts and Counsel 23
27 Financial Data Schedule 27
- ----------
* Filed as exhibits to the Company's Form SB-2 registration statement filed
on September 22, 1997 (File No. 333-36119) of the Securities Act of 1933.
All of such previously filed documents are hereby incorporated herein by
reference in accordance with Item 601 of Regulation S-B.
** Filed as exhibits to the Company's Pre-effective Amendment No. One to Form
SB-2 filed on November 6, 1997 (File No. 333-36119) of the Securities Act
of 1933. All of such previously filed documents are hereby incorporated
herein by reference in accordance with Item 601 of Regulation S-B.
*** Filed as an exhibit to the Company's current report on Form 8-K/A (File No.
0-23345) filed on March 19, 1998.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on March 17, 1998 (File No. 0-23345)
regarding a change in the Company's principal accountants and an amendment to
the Company's Bylaws.
The Company filed a report on Form 8-K/A on March 19, 1998 (File No.
0-23345) to report the receipt of their former accountants' letter to the
Securities and Exchange Commission stating the accountants' agreement with the
Company's statements in the March 17, 1998 8-K.
35
<PAGE>
SIGNATURES
In accordance with Section 13 of 15(d) of the Exchange Act, the Issuer
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
<TABLE>
<S> <C>
WYMAN PARK BANCORPORATION,
INC.
Date: September 23, 1998 By: /s/ Ernest A. Moretti
------------------------------------------
Ernest A. Moretti
(Duly Authorized Representative)
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Issuer and in the capacities and on the
dates indicated.
By: /s/ Ernest A. Moretti By: /s/ Ronald W. Robinson
------------------------------------------ ------------------------------------------
Ernest A. Moretti, Director, President Ronald W. Robinson,
and Chief Executive Officer Chief Financial Officer
(Principal Executive and Operating (Chief Financial and Accounting
Officer) Officer)
Date: September 23, 1998 Date: September 23, 1998
By: /s/ Allan B. Heaver By: /s/ H. Douglas Huether
------------------------------------------ ------------------------------------------
Allan B. Heaver, Chairman of H. Douglas Huether, Director
the Board
Date: September 23, 1998 Date: September 23, 1998
By: /s/ John K. White By: /s/ John R. Beever
------------------------------------------ ------------------------------------------
John K. White, Director John R. Beever, Director
Date: September 23, 1998 Date: September 23, 1998
By: /s/ Albert M. Copp By: /s/ Gilbert D. Marsiglia, Sr.
------------------------------------------ ------------------------------------------
Albert M. Copp, Director Gilbert D. Marsiglia, Sr., Director
Date: September 23, 1998 Date: September 23, 1998
By: /s/ Jay H. Salkin By: /s/ G. Scott Barhight
------------------------------------------ ------------------------------------------
Jay H. Salkin, Director G. Scott Barhight, Director
Date: September 23, 1998 Date: September 23, 1998
</TABLE>
36
EXHIBIT 10(b)
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
<PAGE>
WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
AND COMPENSATION CONTINUATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 30th day of September,
1997, by and between Wyman Park Federal Savings and Loan Association of
Lutherville, Maryland (hereinafter called the "Association") and Ernest A.
Moretti of Churchville, Maryland (hereinafter called the "Executive").
WITNESSETH:
WHEREAS, the Executive has been in the employ of the Association, and is
now serving the Association as its President and Chief Executive Officer; and
WHEREAS, because of the Executive's experience, knowledge of affairs of the
Association, and reputation and contacts in the savings and loan industry, the
Association deems the Executive's continued employment with the Association
important for its future growth; and
WHEREAS, it is the desire of the Association, and in its best interest,
that the Executive's services be retained; and
WHEREAS, in order to induce the Executive to continue in the employ of the
Association and in recognition of his past service, the Association has entered
into an Executive Supplemental Retirement Plan and Compensation Continuation
Agreement, dated as of September 30, 1997, ("the Agreement") to provide him and
his beneficiaries with certain benefits in accordance with the terms and
conditions therein set forth.
NOW, THEREFORE, in the consideration of services performed in the past and
to be performed in the future by the Executive as well as of the mutual promises
and covenants herein contained, the Association and the Executive hereby agree
as follows:
ARTICLE ONE
1.01 Employment. The Association shall employ the Executive, and the
Executive shall serve the in the employ of the Association, in accordance with
the employment agreement by and between the Association and the Executive, as
such agreement may be amended from time to time. Nothing herein shall restrict
or otherwise affect the right of the Executive to enter into any other agreement
with the Association concerning the terms and conditions of his employment.
Nothing herein shall require the Executive to remain in the employ of the
Association or require the Association to employ the Executive. This Agreement
is not part of any salary reduction plan or an arrangement deferring a bonus or
a salary increase. The Executive has no option to take any current payment or
bonus in lieu of the salary continuation or other benefits provided herein.
<PAGE>
ARTICLE TWO
2.01 Benefits Upon Termination. If the Executive's employment with the
Association terminates for any reason (including, without limitation, voluntary
resignation or termination for cause) on or after the date of this Agreement,
regardless of whether the Executive has attained the age of sixty-five (65), the
Association shall pay to the Executive, in equal monthly installments on the
first day of each month, for the period commencing on the first day of the month
next following the month on which such termination occurs and terminating on the
Executive's death, an annual amount, payable in twelve (12) monthly
installments, over the greater of the life of the Executive or one hundred
twenty (120) months, equal to the excess of (A) sixty-five percent of the
Executive's highest five-year average annual compensation, as defined in the
defined benefit retirement plan provided by the Association through the Pentegra
Group in White Plains, New York (the "Qualified Plan"), but without regard to
the limitations imposed by Section 401(a)(17) of the Internal Revenue Code of
1986, as amended, reduced by (B) the Executive's annualized monthly retirement
benefit payable under the Qualified Plan under the normal form of benefit, as
defined as of September 30, 1997, under the Qualified Plan, such form being a
10-year certain and continuous annuity.
2.02 Lump Sum Form of Payment. In lieu of the form of benefits provided in
Section 2.01 above, the Executive shall be paid the benefit described in Section
2.01 above in the form of a lump sum form of payment. Such lump sum form of
payment shall be the actuarial equivalent, using the actuarial assumptions that
are used for the Qualified Plan on the date on which the Executive's employment
terminates, of the payment provided for in such Section 2.01, or, in the event
that the Qualified Plan terminates prior to such date, such reasonable actuarial
assumptions as the Association shall determine. Notwithstanding the foregoing,
the Executive may elect the 10-year certain and continuous form of payment
described in Section 2.01. In the event that the Executive shall elect the
10-year certain and continuous form of payment, such election shall be effective
only if made at least two years prior to the date on which the first payment
pursuant to Section 2.01 above becomes payable.
ARTICLE THREE
3.01 Death of Executive. If the employment of the Executive with the Association
terminates on account of the death of the Executive, his beneficiaries, as
provided in Section 3.04, shall be entitled to receive a death benefit as
provided herein.
3.02 Death Prior to Commencement of Benefits. If the Executive dies prior to the
payment of any benefit provided hereunder, his beneficiaries shall be entitled
to a lump sum death benefit equal to the actuarial equivalent of 120 monthly
benefit payments, as determined and payable under Section 2.01 herein, as though
the Executive 's benefit had commenced as of the first day of the month in which
he died. If the Executive elects, prior to death, the death benefit may be paid
in the form of installments over a period of ten years, equivalent to amount
that would be paid under the 10-year certain and continuous form of benefit if
the Executive lived for ten years, as set forth in Section 2.01.
2
<PAGE>
3.03 Death After Commencement of Payments. In the event that the Executive,
prior to his death and after the commencement of the payment of his benefits
hereunder, shall not have received his benefit in the form of a lump sum and
shall have elected instead to have received his benefit as provided in Section
2.01 in the form of a 10-year certain and continuous annuity and he shall die
prior to his receipt of 120 monthly installment payments under such form of
benefit, then his beneficiaries, as provided in Section 3.04, shall be entitled
to receive the remainder of his monthly installment payments until a total of
120 payments shall have been made hereunder. In addition, the Executive, prior
to his death, shall be entitled to elect that the remainder of such 120 monthly
installment payments shall be made to his beneficiaries in the form of a lump
sum.
3.04 Beneficiaries. The Executive's beneficiary shall be his surviving spouse.
If the Executive has no surviving spouse, or if such spouse dies prior to the
termination of such period during which benefits hereunder are payable, then
said payments, or the balance thereof, shall be paid in equal parts to the
Executive's children living at the time a payment is due; provided, however,
that if any child of the Executive shall not be living at the time a payment is
due to be paid to such child but shall have died leaving issue living at such
time, such issue shall take in equal share per stirpes the share that such child
would have taken if he of she had been living at such time. If at the time
payment is due there are no such surviving spouse, children or issue, said
payments shall terminate.
ARTICLE FOUR
4.01 Payment Obligations Absolute. The Association's obligations to pay the
Executive any amounts provided for hereunder shall be absolute and unconditional
and shall not be affected by any circumstances, including, without limitation,
any set-off, counterclaim, recoupment, defense or other right to which the
Association may have against him. All amounts payable by the Association
hereunder shall be paid without notice or demand. Except as expressly provided
herein, and to the extent allowed by law or applicable regulations of any
governmental entity, the Association waives all rights which it may now have or
may hereafter have conferred upon it, by statue or otherwise, to amend, to
terminate, cancel or rescind this Agreement in whole or in part. Each and every
payment made hereunder by the Association shall be final and the Association
shall not seek to recover all or any part of such payment from the Executive of
from whomsoever may be entitled thereto, for any reason whatsoever.
4.02 Alienability. Neither the Executive nor the Executive's surviving spouse or
issue, shall have any power or right to transfer, assign, anticipate,
hypothecate, mortgage, commute, modify, or otherwise encumber in advance any of
the benefits payable hereunder, nor shall any said benefits be subject to
seizure for any payment of any debts, judgments, alimony or separate
maintenance, owed by the Executive or his beneficiary or any of them, or be
transferable by operation of law in the event that this Agreement shall inure to
the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, heirs, distributees, devisees,
legatees, or beneficiaries.
3
<PAGE>
4.03 Tax Adjustment. The amount of payments provided for under this Agreement
shall be increased to the extent necessary to pay (i) any excise tax imposed by
Section 4999 of the Internal Revenue code of 1986, as amended (the "Code"), on
the payments and benefits provided for by this Agreement and (ii) any such
excise tax and any other federal, state, local income taxes imposed on the
payments provided for by this Section 4.03. The Association shall pay to the
Executive the payments provided for by this Section 4.03 as soon as practical
following the determination of counsel referred to below. If any such excise tax
is imposed as a result of the combination of payments or benefits not provided
under this agreement, then in calculating the amount of payments required
pursuant to this Section 4.03, the excise tax shall be treated as first being
imposed as a result of payments and benefits provided under this Agreement,
including the payments provided for by this Section 4.03. Counsel selected by
the Executive and reasonably acceptable to the Association shall determine
whether the increase provided for by this Section 4.03 shall be required. All
determinations of such counsel shall be binding on the Association and the
Executive. Such counsel shall determine that payments shall be increased only
if, and to the extent that, it is more likely than not that the payments or
benefits provided or under this Agreement are subject to the excise tax imposed
by Section 4999 of the Code and any other excise tax. In making the
determinations required by this Section 4.03, such counsel may rely on benefits
consultants, accountants or other experts. The Association hereby agrees to pay
all reasonable fees and expenses of such counsel and other experts and shall
indemnify and hold such counsel and other experts harmless from any and all
cost, expense, liability or damage arising out of any reasonable determination
pursuant to this Section 4.03. If, subsequent to any determination pursuant to
this Section 4.03, such counsel reasonably determines that the amount of the
payments paid pursuant to this Section 4.03 are greater, or less, than the
amount which should have been paid, the Executive shall reimburse the
Association an amount, or the Association shall pay the Executive an additional
amount, respectively, based upon such determination (including interest if
appropriate),
ARTICLE FIVE
5.01 Entire Agreement; Participation in Other Plans. Except as specifically
provided for herein, this Agreement supersedes any and all other oral or written
agreements heretofore made relating to the subject matter hereof and constitutes
the entire agreement of the parties relating to the subject matter hereof;
provided, that, except as specifically provided herein, this Agreement shall not
be construed to alter, abridge, or in any manner affect the rights and
privileges of the Executive to participate in and be covered by any pension,
profit-sharing, group insurance, bonus or other employee plans which the
Association may now or hereafter maintain.
ARTICLE SIX
6.01 Funding. The Association shall establish a grantor trust to fund its
obligations under this Agreement, which trust shall prohibit the return of any
assets to the Association until the obligations to the Executive hereunder have
been fully paid and satisfied, but the assets of which trust shall be subject to
the claims of the creditors of the Association in the event of the insolvency of
the Association.
4
<PAGE>
Any asset of such a grantor trust shall not in any way be considered to be
security for the performance of the obligations of this Agreement. If the
Association purchases a life insurance or annuity policy on the life of the
Executive, he agrees to sign any papers that may be required for that purpose
and to undergo any medical examination or tests which may be necessary, and to
generally cooperate with the Association in securing such policy.
ARTICLE SEVEN
7.01 Reorganization. The Association shall require any successor (whether direct
or indirect, by purchase, merger, consolidation, liquidation or otherwise) to
all or substantially all of the business and/or assets of the Company to agree
to assume all of the obligations of the Association under this Agreement upon or
prior to such succession taking place. A copy of such assumption and agreement
shall be delivered to the Executive promptly after its execution by the
successor. Failure of the Association to obtain such agreement upon or prior to
any such succession shall be a breach of this Agreement. Such breach shall
entitle the Executive to receive the payments described in Articles TWO and
THREE herein, in such amounts and at such times as provided in such Articles, as
if the Executive's employment had been terminated by the Association without
cause on the date on which such succession occurs. As used in this Agreement,
"Association" shall mean the Association as hereinbefore defined and any
successor to is business and/or assets, as aforesaid.
ARTICLE EIGHT
8.01 Association. As used in this Agreement, Association shall mean Wyman Park
Federal Savings and Loan Association, whether in mutual or stock form, and any
affiliated entity, successor organization, parent, subsidiary or holding
company.
ARTICLE NINTH
9.01 Communications. Any notice or communication required of either party with
respect to this Agreement shall be made in writing and may either be delivered
personally or sent by first class mail, as the case may be:
To the Association:
Wyman Park Federal Savings
and Loan Association
11 West Ridgely Road
Lutherville, Maryland 21093
To the Executive:
Mr. Ernest Moretti
14 Bramble Lane
5
<PAGE>
Churchville, Maryland 21028
Each party shall have the right by written notice to change the place to
which any notice may be addressed.
ARTICLE TEN
10.01 Arbitration of Disputes.
(i) Any disagreement, dispute, controversy or claim arising out of or relating
to this Agreement or the interpretation or validity hereof shall be settled
exclusively and finally by arbitration. It is specifically understood and agreed
that any disagreement, dispute or controversy which cannot be resolved between
the parties, including without limitation any matter relating to the
interpretation of this Agreement, may be submitted to arbitration irrespective
of the magnitude thereof, the amount in controversy or whether such
disagreement, dispute or controversy would otherwise be considered justiciable
or ripe for resolution by court or arbitral tribunal. Either party may petition
the appropriate court in the State of Maryland for an order compelling the
submission of the controversy or dispute to arbitration in accordance with the
rules of the American Arbitration Association, and that any award or finding
made pursuant to such arbitration shall in all respects be well and fairly kept
and observed and may be imposed by judgment of the appropriate court of the
State of Maryland pursuant to the applicable laws relating thereto, the parties
expressly agreeing that Sections 3-201 through 3- 234 of Subtitle 2 of Title 3
of the Courts and Judicial Proceedings Article of the Annotated Code of Maryland
(Maryland Uniform Arbitration Act) shall apply and be applicable hereto.
(ii) The arbitration shall be conducted in accordance with the Commercial
Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA").
(iii) The arbitral tribunal shall consist of one arbitrator. The parties to the
arbitration jointly shall directly appoint such arbitrator within 30 days of
initiation of the arbitration. If the parties shall fail to appoint such
arbitrator as provided above, such arbitrator shall be appointed by the AAA as
provided in the Arbitration Rules and shall be a person who (a) maintains his
principal place of business within 30 miles of the City of Baltimore, Maryland,
and (b) has had substantial experience in mergers and acquisitions. The
Association shall pay all of the fees, if any, and expenses of such arbitrator.
(iv) The arbitration shall be conducted within 30 miles of the City of
Baltimore, Maryland, or in such other city in the United States of America as
the parties to the dispute may designate by mutual written consent.
(v) At any oral hearing of evidence in connection with the arbitration, each
party thereto or its legal counsel shall have the right to examine its witness
and to cross-examine the witnesses of any opposing party. No evidence of any
witness shall be presented unless the opposing party or parties shall have the
opportunity to cross-examine such witness, except as the parties to the dispute
otherwise agree
6
<PAGE>
in writing or except under extraordinary circumstances where the interest of the
justice require a different procedure.
(vi) Any decision or award of the arbitral tribunal shall be final and binding
upon the parties to the arbitration proceeding. The parties hereto hereby waive
to the extent permitted by law any rights to appeal or to seek review of such
award by any court or tribunal. The parties hereto agree that the arbitral award
may be enforced against the parties to the arbitration proceeding or their
assets wherever they may be found and that a judgment upon the arbitral ward may
be entered by any court having jurisdiction.
(vii) Nothing herein contained shall be deemed to give the arbitral tribunal any
authority, power, or right to alter, change, amend, modify, add to, or subtract
from any of the provisions of this Agreement.
ARTICLE ELEVENTH
11.01 Amendment. No provisions of this Agreement may be modified, waived or
discharged unless such modification, waiver or discharge is agreed to in a
writing signed by the Executive and an authorized representative of the
Association. Waiver by any party of any beach of, or failure to comply with any
provisions of, this Agreement by the other party shall not be construed as, or
constitute, a continuing waiver of such provision, or a waiver or any other
breach of, or failure to comply with, any other provision of this Agreement.
11.02 Choice of Law. The terms and conditions of this Agreement are subject to
the laws of the State of Maryland.
11.03 Severability. If any terms or provisions of this Agreement or the
application thereof to any person or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Agreement or the application of
such terms or provisions to persons or circumstances other than those as to
which it is held invalid or unenforceable shall not be affected thereby, and
each term and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
11.04 Headings. The headings in the Agreement are inserted for convenience of
reference only and shall not be part of or control or affect the meaning of this
Agreement.
11.05 Counterparts. This Agreement may be executed in several counterparts, each
of which shall be deemed an original.
11.06 Payroll and Withholding Taxes. The Association may withhold from any
amounts payable
7
<PAGE>
to the Executive hereunder all federal, state, city or other taxes that the
Association may reasonably determine are required to be withheld pursuant to any
applicable law or regulation.
IN WITNESS WHEREOF, the Association has caused this Agreement to be duly
executed by its duly authorized officers and Executive Committee members, and
its corporate seal affixed, and the Executive has hereunto set his hand at
Lutherville, Maryland, as of the day and year first above written.
WYMAN PARK FEDERAL
SAVINGS AND LOAN
ASSOCIATION
ATTEST:
/s/ Ronald W. Robinson
----------------------------------
Ronald W. Robinson, Treasurer
/s/ Charmaine Snyder
- ---------------------------------
Charmaine Snyder, Secretary
EXECUTIVE
WITNESS:
/s/ Ernest A. Moretti
----------------------------------
Ernest A. Moretti
/s/ Charmaine Snyder
- ---------------------------------
8
EXHIBIT 13
ANNUAL REPORT TO SECURITY HOLDERS
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
June 30,
-------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets ..................................................... $ 70,541 $ 62,241 $ 63,866 $ 64,258 $ 64,666
Loans receivable, net ............................................ 62,042 55,189 53,244 54,403 52,093
Mortgage-backed securities ....................................... 284 356 424 520 605
Investment securities ............................................ -- 2,993 2,964 5,920 7,935
Deposits ......................................................... 54,018 56,095 57,871 58,474 59,389
Total equity ..................................................... 14,266 4,750 4,599 4,277 3,854
<CAPTION>
Year Ended June 30,
-------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Selected Operations Data:
Total interest income ............................................ $ 5,081 $ 4,658 $ 4,725 $ 4,788 $ 4,537
Total interest expense ........................................... 2,722 2,756 3,073 2,891 2,777
-------- -------- -------- -------- --------
Net interest income ............................................. 2,359 1,902 1,652 1,897 1,760
Provision for (recovery of) loan losses .......................... 8 145 25 (88) 183
-------- -------- -------- -------- --------
Net interest income after provision for loan losses .............. 2,351 1,757 1,627 1,985 1,577
Fees and service charges ......................................... 60 48 47 36 28
Gain on sales of loans, mortgage-backed
securities and investment securities ............................ 6 6 20 23 442
Other non-interest income ........................................ 27 24 39 26 177
-------- -------- -------- -------- --------
Total non-interest income ........................................ 93 78 106 85 647
Total non-interest expense ....................................... 1,597 1,614 1,278 1,361 1,411
-------- -------- -------- -------- --------
Income before taxes .............................................. 847 221 455 709 813
Income tax provision ............................................. 329 87 161 276 315
-------- -------- -------- --------
Net income ....................................................... $ 518 $ 134 $ 294 $ 433 $ 498
2
<PAGE>
Year Ended June 30,
-------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average total
assets) ....................................................... .77% .22% .46% .67% .80%
Return on equity (ratio of net income to average equity) ....... 5.49 2.87 6.56 10.52 13.22
Interest rate spread information:
Average during period ......................................... 2.75 2.76 2.26 2.70 2.46
End of period ................................................. 2.68 2.77 2.19 2.25 2.93
Net interest margin(1) ......................................... 3.55 3.14 2.63 2.98 2.75
Ratio of operating expense to average total assets ............. 2.37 2.62 2.01 2.11 2.27
Ratio of average interest-earning assets to average
interest-bearing liabilities .................................. 119.45 108.40 107.66 106.24 106.66
Loans as a percentage of total assets .......................... 87.95 88.67 83.37 84.66 80.56
Quality Ratios:
Non-performing assets to total assets at end of period .......... .04 .28 .04 .30 .25
Allowance for loan losses to non-performing loans ............... 1,112.00 153.11 456.89 51.89 196.32
Allowance for loan losses to loans receivable, net .............. .45 .49 .24 .18 .60
Capital Ratios:
Stockholders' equity to total assets at end of period ........... 20.28 7.64 7.24 6.73 6.02
Average stockholders' equity to average assets .................. 14.03 7.58 7.04 6.36 6.05
Other Data:
Number of full-service offices .................................. 2 2 2 2 2
</TABLE>
- ----------
(1) Net interest income divided by average interest-earning assets.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
When used in this filing and in future filings by Wyman Park
Bancorporation, Inc. (the "Company") with the Securities and Exchange
Commission, in the Company's press releases or other public or shareholder
communications, or in oral statements made with the approval of an authorized
executive officer, the words or phrases "would be," "will allow," "intends to,"
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to risks and
uncertainties, including but not limited to changes in economic conditions in
the Company's market area, changes in policies by regulatory agencies,
fluctuations in interest rates, demand for loans in the Company's market area
and competition, all or some of which could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected.
The Company wishes to caution readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made, and
advises readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation,
to update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
General
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Company. The information contained in this section
should be read in conjunction with the consolidated financial statements and
accompanying notes thereto. The principal business of the Company consists of
accepting deposits from the general public and investing these funds primarily
in loans, investment securities and short-term liquid investments. The Company's
loans consist primarily of loans secured by residential real estate located in
its market areas, commercial real estate loans and consumer loans.
The Company's net income is dependent primarily on its net interest income,
which is the difference between interest earned on interest-earning assets and
the interest paid on interest-bearing liabilities. Net interest income is a
function of the Company's "interest rate spread," which is the difference
between the average yield earned on interest-earning assets and the average rate
paid on
4
<PAGE>
interest-bearing liabilities. The interest rate spread is affected by
regulatory, economic and competitive factors that influence interest rates, loan
demand and deposit flows. To a lesser extent, the Company's net income also is
affected by the level of general and administrative expenses and the level of
other income, which primarily consists of service charges and other fees.
The operations of the Company are significantly affected by prevailing
economic conditions, competition and the monetary, fiscal and regulatory
policies of government agencies. Lending activities are influenced by the demand
for and supply of housing, competition among lenders, the level of interest
rates and the availability of funds. Deposit flows and costs of funds are
influenced by prevailing market rates of interest, primarily on competing
investments, account maturities and the levels of personal income and savings in
the Company's market area. The Company has been notified by its service
providers that they are making satisfactory progress in addressing the year 2000
matter and that costs associated with resolving the issue will not be material.
Management of the Company will continue to monitor this issue.
Historically, the Company's mission has been to originate loans on a
profitable basis to the communities it serves. In seeking to accomplish this
mission, the Board of Directors and management have adopted a business strategy
designed (i) to maintain the Company's capital level in excess of regulatory
requirements; (ii) to maintain the Company's asset quality; (iii) to maintain,
and if possible, increase the Company's earnings; and (iv) to manage the
Company's exposure to changes in interest rates.
Financial Condition
June 30, 1998 compared to June 30, 1997
Total assets increased approximately $8.3 million or 13.3%, to $70.5
million at June 30, 1998 from $62.2 million at June 30, 1997. Proceeds from the
recent stock conversion allowed the Company to increase its loans receivable by
$6.8 million or 12.3%, to $62.0 million at June 30, 1998 from $55.2 million at
June 30, 1997. The $6.8 million increase in net loans receivable consisted of
$5.6 million in residential real estate loans, $877,000 in commercial real
estate loans and $335,000 in consumer loans. Cash and cash equivalents increased
$4.4 million or 183.3%, to $6.8 million at June 30, 1998 from $2.4 million at
June 30, 1997 also as a result of the stock conversion. Investment securities
decreased $3.0 million or 100%, to zero at June 30, 1998 from $3.0 million at
June 30, 1997 due to increased investments in loans receivable and cash and cash
equivalents.
Total savings deposits declined approximately $2.1 million or 3.7%, to
$54.0 million at June 30, 1998 from $56.1 million at June 30, 1997. The decrease
in deposits was primarily the result of customer withdrawals for the purpose of
purchasing stock in the Company. Management does not expect the decline in
deposits to continue, as marketing efforts are continuing to attract transaction
accounts and small commercial accounts to replace higher costing certificate
accounts.
Total liabilities decreased approximately $1.2 million or 2.1%, to $56.3
million at June 30, 1998 from $57.5 million at June 30, 1997. This decrease was
primarily the result of the $2.1 million decline in savings deposits offset by
an increase of $328,000 in accrued expenses and other liabilities primarily as a
result of the establishment of a supplemental executive retirement plan for the
5
<PAGE>
Company's President and CEO, and also an increase of $263,000 in federal and
state income taxes payable as a result of the Company's increased earnings.
Total stockholders' equity increased by $9.6 million or 204.3%, to $14.3
million at June 30, 1998 from $4.7 million at June 30, 1997. The increase was
the result of $9.7 million in additional capital from the stock conversion and
net income of $518,000 partially offset by $720,000 for the Company's Employee
Stock Ownership Plan (ESOP).
Operating Results
Comparison of Operating Results for the Years Ended June 30, 1998 and 1997
Performance Summary. Net income for the year ended June 30, 1998 was
approximately $518,000, an increase of $384,000, or 286.6% from net income of
$134,000 for the year ended June 30, 1997. The increase was primarily due to an
increase in net interest income of $457,000, a decrease in provision for loan
losses of $137,000, an increase in non-interest income of $14,000 and a decrease
in non-interest expense of $18,000, producing an increase in income before
provision for income taxes of $626,000 to $847,000 for the year ended June 30,
1998 as compared to $221,000 for the year ended June 30, 1997. For the years
ended June 30, 1998 and 1997, the returns on average assets were .77% and .22%,
respectively, while the returns on average equity were 5.49% and 2.87%,
respectively.
Net Interest Income. Net interest income increased by approximately
$457,000, or 24.0%, to $2,359,000 for the year ended June 30, 1998 from
$1,902,000 for the year ended June 30, 1997. This reflects an increase of
$423,000, or 9.1%, in interest income to $5,081,000 in fiscal 1998 from
$4,658,000 in fiscal 1997, while interest expense was decreasing by $34,000, or
1.2%, to $2,722,000 in fiscal 1998 from $2,756,000 in fiscal 1997. The increase
in net interest margin was primarily from the increase in the average balance of
interest-earning assets.
For the year ended June 30, 1998, the yield on average interest-earning
assets was 7.64% compared to 7.69% for the year ended June 30, 1997. The cost of
average interest-bearing liabilities was 4.89% for the year ended June 30, 1998,
a decrease from 4.93% for the year ended June 30, 1997. The average balance of
interest-earning assets increased by $5.9 million or 9.7%, to $66.5 million for
the year ended June 30, 1998 from $60.6 million for the year ended June 30,
1997. The average balance of interest-bearing liabilities decreased by $241,000
or .4%, to $55.7 million for the year ended June 30, 1998, compared to $55.9
million for the year ended June 30, 1997.
The interest rate spread decreased to 2.75% for the year ended June 30,
1998 from 2.76% for the year ended June 30, 1997. The net interest margin
increased to 3.55% for the year ended June 30, 1998 from 3.14% for the year
ended June 30, 1997.
Provision for Loan Losses. During the year ended June 30, 1998, the Company
recorded a provision for loan losses of $8,000 compared to $145,000 for the year
ended June 30, 1997. This provision was recorded based on an increase of
$877,000 in commercial real estate loans in the year ended June 30, 1998.
6
<PAGE>
During the year ended June 30, 1998, the Company's nonperforming loans
decreased to $25,000 from $176,000, comprised of one residential loan. This
decrease did not have a significant effect on the Company's provision for loan
losses, as management expects minimal loss, if any, related to this one loan.
Management will continue to monitor its allowance for loan losses, making
additions to the allowance through the provision for loan losses as economic
conditions and other factors dictate. Although the Company maintains its
allowance for loan losses at a level which it considers to be adequate to
provide for loan losses, there can be no assurance that future losses will not
exceed estimated amounts or that additional provisions for loan losses will not
be required in the future.
Non-Interest Income. For the year ended June 30, 1998 non-interest income
increased approximately $14,000 or 17.7%, to $93,000 from $79,000 for the year
ended June 30, 1997. This increase is primarily due to an increase in loan fees
and service charges of $12,000.
Non-Interest Expense. Non-interest expense decreased $18,000 or 1.1%, to
$1,597,000 for the year ended June 30, 1998 from $1,615,000 for the year ended
June 30, 1997. This decrease was primarily due to a decrease in federal deposit
insurance expense of $426,000 or 92.4%, to $35,000 for the year ended June 30,
1998 from $461,000 for the year ended June 30, 1997. The June 30, 1997 figure
included approximately $383,000, the Company's portion of a one-time assessment
to recapitalize the SAIF fund. This decrease in non-interest expense was offset
by an increase in compensation and employee benefits expense of approximately
$369,000 or 59.4%, to $990,000 for the year ended June 30, 1998 from $621,000
for the year ended June 30, 1997, due to the funding of a supplemental executive
retirement plan and ESOP expenses.
Income Taxes. The provision for income taxes increased by approximately
$242,000 or 278.2%, to $329,000 for the year ended June 30, 1998 from $87,000
for the year ended June 30, 1997. This increase results from the corresponding
$626,000 increase in income before the tax provision. The Company's effective
tax rates were 38.9% and 39.3% for the years ended June 30, 1998 and 1997,
respectively.
The Company is generally taxed at a federal rate of 34% based on the IRS
tax rate schedule for corporations. The Company is also subject to a Maryland
franchise tax based on earnings at a flat rate of 7% of taxable income. This
produces a combined federal and Maryland tax rate of 38.6% when the
deductibility of the Maryland tax for federal purposes is considered. Variances
from this rate in any given year are the result of certain items of income or
expense not being included in or deducted from taxable income; and, from changes
in the tax estimates of prior periods.
7
<PAGE>
Yields Earned and Rates Paid
The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made.
All average balances are monthly average balances. The use of monthly averages,
rather than daily averages, does not materially affect the information in the
table. Non-accruing loans have been included in the table as loans carrying a
zero yield.
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------------------
1998 1997
---------------------------------------------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
---------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable(1) ..................................... $59,695 $ 4,681 7.84% $53,903 $ 4,250 7.88%
Mortgage-backed securities .............................. 318 23 7.23 383 27 7.05
Investment securities ................................... 1,334 85 6.37 2,402 140 5.83
FHLB stock .............................................. 510 37 7.25 510 37 7.25
Other investments ....................................... 4,624 255 5.51 3,382 204 6.03
------- ------- ------- ------- ------- -------
Total interest-earning assets(1) $66,481 5,081 7.64 $60,580 4,658 7.69
======= ------- ======= -------
Interest-Bearing Liabilities:
Savings deposits ........................................ $ 5,737 181 3.15 $ 5,856 174 2.97
Demand and NOW deposits ................................. 9,520 273 2.87 9,745 309 3.17
Certificate accounts .................................... 39,720 2,226 5.60 40,182 2,267 5.64
Escrow deposits ......................................... 97 5 5.15 115 6 5.22
Borrowings .............................................. 583 37 6.35 -- -- --
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities $55,657 2,722 4.89 $55,898 2,756 4.93
======= ------- =======
Net interest income....................................... $ 2,359 $1,902
======= =======
Net interest rate spread.................................. 2.75% 2.76%
======= =======
Net earning assets........................................ $10,824 $4,682
======= =======
Net yield on average
interest-earning assets.................................. 3.55% 3.14%
======= =======
Average interest-earning assets to
average interest-bearing liabilities..................... 1.19x 1.08x
======= =======
</TABLE>
- ----------
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
loss reserves.
8
<PAGE>
The following table presents the weighted average yields earned on loans,
investments and other interest-earning assets, and the weighted average rates
paid on savings deposits and the resultant interest rate spreads at the dates
indicated.
At June 30,
-----------------
1998 1997
-----------------
Weighted average yield on:
Loans receivable......................................... 7.76% 7.89%
Mortgage-backed securities............................... 7.04 7.52
Investment securities.................................... --- 5.94
Other interest-earning assets............................ 5.73 5.95
Combined weighted average yield on
interest-earning assets............................. 7.63 7.71
Weighted average rate paid on:
Savings deposits......................................... 2.78 3.11
Demand and NOW deposits.................................. 2.76 2.93
Certificate accounts..................................... 5.79 5.71
Other interest-bearing liabilities....................... 5.50 5.50
Combined weighted average rate paid on interest-
bearing liabilities.................................. 4.95 4.94
Spread.................................................... 2.68 2.77
9
<PAGE>
Rate Volume Analysis
The following schedule presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the changes related to
outstanding balances and that due to the changes in interest rates. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------------------------
1997 vs. 1998 1996 vs. 1997
----------------------------------------------------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Total Due to Total
-------------------- Increase --------------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
----------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable .................................... $ 454 $ (23) $ 431 $ 68 $ 25 $ 93
Mortgage-backed securities .......................... (5) 1 (4) (6) (2) (8)
Investment securities ............................... (68) 13 (55) (169) 2 (167)
Other ............................................... 71 (20) 51 (10) 25 15
----- ----- ----- ----- ----- -----
Total interest-earning assets ..................... $ 452 $ (29) 423 $(117) $ 50 (67)
===== ===== ----- ===== ===== -----
Interest-bearing liabilities:
Savings deposits .................................... $(4) $ 11 7 $ 8 $ (12) (4)
Demand and NOW deposits ............................. (7) (29) (36) 3 (11) (8)
Borrowings .......................................... 37 -- 37 -- -- --
Certificate accounts ................................ (25) (16) (41) (169) (134) (303)
Escrow deposits ..................................... (1) -- (1) (2) -- (2)
Total interest-bearing liabilities.. $ ............ -- $ (34) (34) $(160) $(157) (317)
===== ===== ----- ===== ===== -----
Net interest income .................................. $ 457 $ 250
===== =====
</TABLE>
10
<PAGE>
Asset/Liability Management
Quantitative Aspects of Market Risk. The Company does not maintain a
trading account for any class of financial instrument. Further, it is not
currently subject to foreign currency exchange rate risk or commodity price
risk. The stock in the FHLB of Atlanta does not have equity price risk because
it is issued only to members and is redeemable for its $100 par value. The
following table illustrates quantitative sensitivity to interest rate risk for
financial instruments other than cash and cash equivalents, FHLB stock and
demand deposit accounts for the Company as of June 30, 1998.
<TABLE>
<CAPTION>
Maturing in Years Ended June 30,
-------------------------------------------------------------------------
2000 & 2002 & 2004 - 2009 -
1999 2001 2003 2008 2018 Thereafter Total
-------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans receivable:
Amount .......................... $16,989 $ 7,557 $3,435 $11,880 $16,368 $6,306 $62,535
Average interest rate ........... 8.17% 7.13% 7.33% 7.30% 7.23% 7.54% 7.76%
Mortgage-backed securities:
Amount .......................... -- -- -- -- 284 -- 284
Average interest rates .......... -- -- -- -- 7.04 -- 7.04
Investment securities:
Amount .......................... -- -- -- -- -- -- --
Average interest rates .......... -- -- -- -- -- -- --
Liabilities
Deposit Certificate Accounts:
Amount .......................... 18,017 15,706 5,254 -- -- -- 38,977
Average interest rates .......... 5.37% 5.94% 5.92% -- -- -- 5.79%
</TABLE>
Qualitative Aspects of Market Risk. One of the Company's principal
financial objectives is to achieve long-term profitability while reducing its
exposure to fluctuations in interest rates. The Company has sought to reduce
exposure of its earnings to changes in market interest rates by managing the
mismatch between asset and liability maturities and interest rates. The
principal element in achieving this objective has been to increase the
interest-rate sensitivity of the Company's assets by originating loans with
interest rates subject to periodic repricing to market conditions. Accordingly,
the Company has emphasized the origination of one- to three-year adjustable rate
mortgage loans, balloon loans, short-term and adjustable-rate commercial loans,
and consumer loans for retention in its portfolio.
An asset or liability is interest rate sensitive within a specific time
period if it will mature or reprice within that time period. If the Company's
assets mature or reprice more quickly or to a greater extent than its
liabilities, the Company's net portfolio value and net interest income would
tend to increase during periods of rising interest rates but decrease during
periods of falling interest rates. If the Company's assets mature or reprice
more slowly or to a lesser extent than its liabilities, the Company's net
portfolio value and net interest income would tend to decrease during periods of
rising interest rates but increase during periods of falling interest rates.
11
<PAGE>
The Company's Board of Directors has formulated an Interest Rate Risk
Management Policy designed to promote long-term profitability while managing
interest-rate risk. The Board of Directors has established an Asset/Liability
Committee which consists primarily of the management team of the Company. This
committee meets periodically and reports to the Board of Directors quarterly
concerning asset/liability policies, strategies and the Company's current
interest rate risk position. The committee's first priority is to structure and
price the Company's assets and liabilities to maintain an acceptable interest
rate spread while reducing the net effects of changes in interest rates.
Management's principal strategy in managing the Company's interest rate
risk has been to maintain short and intermediate term assets in the portfolio,
including one and three year adjustable rate mortgage loans, as well as
increased levels of commercial and consumer loans, which typically are for short
or intermediate terms and carry higher interest rates than residential mortgage
loans. In addition, in managing the Company's portfolio of investment securities
and mortgage-backed and related securities, management seeks to purchase
securities that mature on a basis that approximates as closely as possible the
estimated maturities of the Company's liabilities or purchase securities that
have adjustable rate provisions. The Company does not engage in hedging
activities.
In addition to shortening the average repricing of its assets, the Company
has sought to lengthen the average maturity of its liabilities by adopting a
tiered pricing program for its certificates of deposit, which provides higher
rates of interest on its longer term certificates in order to encourage
depositors to invest in certificates with longer maturities. This policy is
blended with management's strategy for reducing the overall balance in
certificate accounts in order to reduce the Company's interest expense.
Net Portfolio Value. In order to encourage associations to reduce their
interest rate risk, the OTS adopted a rule incorporating an interest rate risk
("IRR") component into the risk-based capital rules. The IRR component is a
dollar amount that will be deducted from total capital for the purpose of
calculating an institution's risk-based capital requirement and is measured in
terms of the sensitivity of its net portfolio value ("NPV") to changes in
interest rates. NPV is the difference between incoming and outgoing discounted
cash flows from assets, liabilities, and off-balance sheet contracts. An
institution's IRR is measured as the change to its NPV as a result of a
hypothetical 200 basis points ("bp") change in market interest rates. A
resulting change in NPV of more than 2% of the estimated market value of its
assets will require the institution to deduct from its capital 50% of that
excess change. The rules provide that the OTS will calculate the IRR component
quarterly for each institution. Management reviews the OTS measurements on a
quarterly basis. In addition to monitoring selected measures on NPV, management
also monitors effects on net interest income resulting from increases or
decreases in rates. This measure is used in conjunction with NPV measures to
identify excessive interest rate risk. The following table presents the
Company's NPV at June 30, 1998, as calculated by the OTS, based on information
provided to the OTS by the Company.
12
<PAGE>
NPV as % of
Portfolio Value
Net Portfolio Value of Assets
------------------- ---------
Change
in Rates $Amount $Change %Change NPV Ratio %Change
-------- ------- ------- ------- --------- -------
(Dollars in Thousands)
+400 $ 7,383 $(4,193) (36)% 11.78% (5.07)%
+300 8,547 (3,030) (26) 13.30 (3.55)
+200 9,691 (1,886) (16) 14.71 (2.14)
+100 10,749 (828) (7) 15.95 (.90)
Static 11,577 -- -- 16.85 --
(100) 12,093 516 4 17.35 .50
(200) 12,153 576 5 17.29 .44
(300) 12,255 678 6 17.28 .43
(400) 12,514 938 8 17.45 .60
In the above table, the first column on the left presents the basis points
increments of yield curve shifts. The second column presents the overall dollar
amount of NPV at each basis point increment. The third and fourth columns
present the Company's actual position in dollar change and percentage change in
NPV at each basis point increment. The remaining columns present the Company's
percentage and percentage change in its NPV as a percentage of portfolio value
of assets.
Had it been subject to the IRR component at June 30, 1998 the Company would
have been considered to have had a greater than normal level of interest rate
exposure and a deduction from capital of $46,000 would have been required.
Although the OTS has informed the Company that it is not subject to the IRR
component discussed above, the Company is still subject to interest rate risk
and, as can be seen above, rising interest rates will reduce the Company's NPV.
The OTS has the authority to require otherwise exempt institutions to comply
with the rule concerning interest rate risk.
Certain shortcomings are inherent in the method of analysis presented in
the computation of NPV. Although certain assets and liabilities may have similar
maturities or periods within which they will reprice, they may react differently
to changes in market interest rates. The interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates.
The Company's Board of Directors is responsible for reviewing the Company's
asset and liability policies. The Board reviews interest rate risk and trends on
a quarterly basis and liquidity, capital ratios and requirements, on a monthly
basis. Management is responsible for administering the policies and
determinations of the Board of Directors with respect to the Association's
assets and liability goals and strategies.
Notwithstanding its efforts with respect to asset/liability management, the
Company remains subject to IRR, and expects that its profit margin will decrease
if interest rates rise.
13
<PAGE>
Liquidity and Capital Resources
The primary investment activity of the Company is originating one- to
four-family residential mortgages, commercial real estate loans, and consumer
loans to be held to maturity. For the fiscal years ended June 30, 1998 and 1997
the Company originated loans for its portfolio in the amount of $16.5 million
and $8.9 million, respectively. For the same two fiscal years, these activities
were funded from repayments of $9.7 million and $7.2 million, respectively, and
sales and participations of $711,000 and $1.3 million, respectively.
The Company is required to maintain minimum levels of liquid assets under
government regulations. The Company's liquid assets are determined by adding (1)
cash on hand, (2) daily investable deposits, (3) U.S. Government agency
obligations with maturities of less than five years and (4) accrued interest on
unpledged liquid assets. The liquidity base is defined as net withdrawable
accounts maturing in less than one year, plus short-term borrowings. The
Company's liquidity ratio is determined by dividing the sum of the liquid assets
for each calendar day in the current quarter by the liquidity base at the end of
the preceding quarter multiplied by the number of calendar days in the current
quarter.
The Company's most liquid assets are cash and cash equivalents, which
include short-term investments. At June 30, 1998 and 1997, cash and cash
equivalents were $6.8 million and $2.4 million, respectively. In addition, the
Company has used jumbo certificates of deposit as a source of funds. Deposits of
$100,000 or more represented $5.7 million at June 30, 1998 (of which $4.2
million were jumbo certificates of deposit) and $5.7 million at June 30, 1997,
or 10.6% and 10.2% of total deposits, respectively. The regulatory liquidity
requirement for the Company is 4.0%. The Company has always met the liquidity
requirements. The Company's eligible total liquidity ratios were 18.7% and 9.8%,
respectively, at June 30, 1998 and 1997.
Liquidity management for the Company is both an ongoing and long-term
function of the Company's asset/liability management strategy. Excess funds,
when applicable, generally are invested in overnight deposits at a correspondent
bank and at the FHLB of Atlanta. Currently when the Company requires funds,
beyond its ability to generate deposits, additional sources of funds are
available through the FHLB of Atlanta. The Company has the ability to pledge its
FHLB of Atlanta stock or certain other assets as collateral for such advances.
Management and the Board of Directors believe that due to significant amounts of
adjustable rate mortgage loans that could be sold and the Company's ability to
acquire funds from the FHLB of Atlanta, the Company's liquidity is adequate.
The Company has experienced a decline in total deposits since 1993 as a
result of its asset/liability management strategies and market conditions as
well as approximately $2 million being withdrawn by customers for purchase of
the Company's stock. Since the conversion, total assets have increased and total
loans have increased resulting in improved net yield on interest-earning assets.
Management of the Company does not expect the decline in deposits to continue as
marketing efforts are expanded to attract transaction accounts to replace higher
costing certificate accounts; or, for there to be a negative impact on the
Company's operations or liquidity. Further, certificate accounts in the amount
of $18.0 million or 46.2% of total certificate accounts at June 30, 1998 mature
within one year compared to $20.3 million or 50.3% at June 30, 1997. Management
of the Company expects the majority of these accounts to renew with no material
adverse effect on the Company's operations or liquidity.
14
<PAGE>
Year Ended June 30,
1998 1997
---- ----
(In Thousands)
Net income............................................ $ 518 $ 134
Adjustment to reconcile net income to net cash
from operating activities............................ 643 118
------ ------
Net cash provided from operating activities........... 1,161 252
Net cash used in investing activities................. (3,747) (1,937)
Net cash provided from (used in)
financing activities................................. 7,057 (1,739)
------ ------
Net change in cash and cash equivalents............... 4,471 (3,424)
Cash and cash equivalents at beginning of period...... 2,377 5,801
------ ------
Cash and cash equivalents at end of period............ $6,848 $2,377
====== ======
The Company's principal sources of funds are deposits, loan repayments and
prepayments, and other funds provided by operations. While scheduled loan
repayments are relatively predictable, deposit flows and early loan prepayments
are more influenced by interest rates, general economic conditions, and
competition. The Company maintains investments in liquid assets based upon
management's assessment of (1) need for funds, (2) expected deposit flows, (3)
yields available on short-term liquid assets and (4) objectives of the
asset/liability management program.
OTS regulations presently require the Association to maintain an average
daily balance of investments in United States Treasury, federal agency
obligations and other investments having maturities of five years or less in an
amount equal to 4.0% of the sum of the Association's average daily balance of
net withdrawable deposit accounts maturing in less than one year and borrowings
payable in one year or less. The liquidity requirement, which may be changed
from time to time by the OTS to reflect changing economic conditions, is
intended to provide a source of relatively liquid funds upon which the
Association may rely, if necessary, to fund deposit withdrawals or other
short-term funding needs. At June 30, 1998, the Association's regulatory
liquidity was 18.7%. For the last five fiscal years, the Association was in
compliance with such requirement and management believes that the Association's
liquidity is adequate. It should be noted that the Association has an
immediately accessible line of credit with the FHLB of Atlanta for $8.0 million.
On June 30, 1998, the Association had commitments to originate fixed-rate
commercial and residential loans totaling $619,000, and variable rate commercial
and residential real estate mortgage loans totaling $661,000. Loan commitments
are generally for 60 days. The Association considers its liquidity and capital
reserves sufficient to meet its outstanding short- and long-term needs.
The Association is required by OTS regulations to meet certain minimum
capital requirements, which must be generally as stringent as the requirements
established for banks. Current capital requirements call for tangible capital of
1.5% of adjusted total assets, core capital (which for the Association consists
solely of tangible capital) of 3.0% of adjusted total assets and risk-based
capital (which for the Association consists of core capital and general
valuation allowances) of 8% of risk-weighted assets (assets are weighted at
percentage levels ranging from 0% to 100% depending on their relative risk). The
OTS has proposed to amend the core capital
15
<PAGE>
requirement so that those associations that do not have the highest examination
rating and an acceptable level of risk will be required to maintain core capital
of from 4% to 5%, depending on the association's examination rating and overall
risk. The Association does not anticipate that it will be adversely affected if
the core capital requirements regulations are amended as proposed.
The following table summarizes the Association's regulatory capital
requirements and actual capital at June 30, 1998. (See Note 11 of Notes to
Consolidated Financial Statements for a reconciliation of capital under
generally accepted accounting principles and regulatory capital amounts.)
<TABLE>
<CAPTION>
Excess of Actual
Capital Over
Current Current
Actual Capital Requirement Requirement
-------------- ----------- -----------
Asset
Amount Percent Amount Percent Amount Percent Total
------ ------- ------ ------- ------ ------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Tangible Capital.......... $9,430 14.0% $1,011 1.5% $8,419 12.5% $67,415
Core Capital.............. 9,430 14.0 2,022 3.0 7,408 11.0 67,415
Risk-based Capital........ 9,708 25.6 3,040 8.0 6,668 17.6 37,994
</TABLE>
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. The primary impact of inflation on the
operations of the Company is reflected in increased operating costs. Unlike most
industrial companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates, generally, have
a more significant impact on a financial institution's performance than does
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the prices of goods and services.
Current Accounting Issues
SFAS No. 130, "Reporting Comprehensive Income" was issued in June 1997.
This Statement requires that comprehensive income - made up of all revenues,
expenses, gains and losses - be reported and displayed in an entity's financial
statements with the same prominence as its other financial statements.
Currently, the only item that would be presented as a component of its net
income is the change during the year in unrealized gain or loss on available for
sale securities. The Statement, which is effective for years beginning after
December 15, 1997, will not affect the Company's financial position or its
results of operations.
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" was also issued in June 1997. This Statement requires that public
business enterprises report financial
16
<PAGE>
and descriptive information about their reportable operating segments.
Reportable operating segments are defined as components of an enterprise about
which separate financial information is available and is evaluated regularly by
the chief operating decision maker as a basis for allocating resources and
assessing performance. It also requires those enterprises to report information
about countries in which they do business and about major customers. The
Statement, which is effective for financial statements for periods beginning
after December 15, 1997, will not affect the Company's financial position or its
results of operations.
SFAS No. 132, "Employers' Disclosures About Pensions and Other
Postretirement Benefits" was issued in February 1998. This Statement
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable. The Statement, which is effective for fiscal
years beginning after December 15, 1997, will not affect the Company's financial
position or its results of operations.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June, 1998. This Statement standardizes the accounting
for derivative instruments including certain derivative instruments embedded in
other contracts, by requiring that an entity recognize these items as assets or
liabilities in the statement of financial position and measure them at fair
value. This Statement generally provides for matching the timing of gain or loss
recognition on the hedging instrument with the recognition of the changes in the
fair value of the hedged asset or liability that are attributable to the hedged
risk or the earnings effect of the hedged forecasted transaction. The Statement,
which is effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999, will not affect the Company's financial position or its results
of operations.
Impact of the Year 2000
The Company has conducted a comprehensive review of its computer systems to
identify applications that could be affected by the "Year 2000" issue, and has
developed an implementation plan to address the issue. The Company's data
processing is performed by a service provider, however, software and hardware
utilized in-house is under maintenance agreements with third party vendors,
consequently the Company is very dependent on those vendors to conduct its
business. The Company has already contacted each vendor to request time tables
for Year 2000 compliance and expected costs, if any, to be passed along to the
Company. To date, the Company has been informed that its primary service
providers anticipate that all reprogramming efforts will be completed by
December 31, 1998, allowing the Company adequate time for testing. Certain other
vendors have not yet responded, however, the Company will pursue other options
if it appears that these vendors will be unable to comply. Management does not
currently expect its costs to have a significant impact on its financial
position or results of operations, however, there can be no assurance that the
vendors' systems will be Year 2000 compliant, consequently, the Company could
incur incremental costs to convert to another vendor. The Company has identified
certain of its hardware and software equipment that will not be Year 2000
compliant and intends to purchase new equipment and software prior to March 31,
1999. These capital expenditures are expected to total approximately $10,000.
17
<PAGE>
Independent Auditor's Report
The Board of Directors
Wyman Park Bancorporation, Inc.
Lutherville, Maryland
We have audited the accompanying consolidated statements of financial condition
of Wyman Park Bancorporation, Inc. and Subsidiaries as of June 30, 1998, and the
related consolidated statements of income, stockholders' equity and cash flows
for the year ended June 30, 1998. These consolidated financial statements are
the responsibility of Wyman Park Bancorporation, Inc.'s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The consolidated statement of financial condition
of Wyman Park Bancorporation, Inc. and Subsidiaries as of June 30, 1997 and the
related statements of income, stockholders' equity and cash flows for the year
ended June 30, 1997 were audited by other auditors whose report, dated July 18,
1997, expressed on those statements an unqualified opinion.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Wyman
Park Bancorporation, Inc. and Subsidiaries at June 30, 1998, and the
consolidated results of their operations and their cash flows for the year ended
June 30, 1998, in conformity with generally accepted accounting principles.
Anderson Associates, LLP
July 24, 1998
18
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1998 AND 1997
1998 1997
---- ----
<S> <C> <C>
Assets
Cash and non-interest bearing deposits $ 206,303 $ 461,268
Interest-bearing deposits in other banks 2,071,076 1,092,682
Federal funds sold 4,570,744 823,142
------------- ------------
Total cash and cash equivalents (Notes 1 and 12) 6,848,123 2,377,092
Loans receivable, net (Notes 1, 4 and 12) 62,042,464 55,188,566
Mortgage backed securities held-to-maturity at amortized
cost, fair value of $291,212 (1998) and $360,666 (1997)
(Notes 1, 3 and 12) 283,715 356,187
Investment securities available-for-sale at fair value, amortized
cost of $3,000,000 (1997) (Notes 1, 3 and 12) -- 2,992,500
Federal Home Loan Bank of Atlanta stock, at cost
(Notes 2 and 12) 509,900 509,900
Accrued interest receivable (Note 5) 328,934 337,394
Ground rents owned, at cost (Note 12) 129,108 129,108
Property and equipment, net (Notes 1 and 6) 188,120 203,319
Prepaid expenses and other assets 60,504 88,764
Federal and state income taxes receivable 130 --
Deferred tax asset (Notes 1 and 8) 150,019 58,506
------------- ------------
Total assets $ 70,541,017 $ 62,241,336
============= ============
Liabilities and Equity
Liabilities
Demand deposits $ 5,611,764 $ 5,892,975
Money market and NOW accounts 9,429,037 9,960,827
Time deposits 38,977,347 40,241,530
------------- ------------
Total deposits (Notes 7 and 12) 54,018,148 56,095,332
Checks outstanding in excess of bank balance 143,430 --
Advance payments by borrowers for taxes,
insurance and ground rents (Note 12) 1,368,467 1,240,877
Accrued interest payable on savings deposits 17,495 18,994
Accrued expenses and other liabilities 448,120 120,151
Federal and state income taxes payable 279,073 16,163
------------- ------------
Total liabilities 56,274,733 57,491,517
Commitments and contingencies (Notes 4, 6, 8, 9 and 12)
Stockholders' Equity
Common stock, par value $.01 per share, authorized 2,000,000
shares, issued and outstanding 1,011,713 10,117 --
Additional paid-in capital 9,704,005 --
Contra equity - Employee Stock Ownership Plan (ESOP) (720,090) --
Retained earnings, substantially restricted 5,272,252 4,754,419
Net unrealized holding losses on investments available
for sale -- (4,600)
------------- ------------
Total stockholders' equity 14,266,284 4,749,819
------------- ------------
Total liabilities and stockholders' equity $ 70,541,017 $ 62,241,336
============= ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
19
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
CONSOLIDATED STATEMENTS OF OPERATIONS
JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Interest and fees on loans receivable $4,680,659 $4,250,470
Interest on mortgage-backed securities 23,301 26,733
Interest on investment securities 85,215 140,065
Interest on other investments 292,130 240,959
---------- ----------
Total interest income 5,081,305 4,658,227
Interest on savings deposits 2,679,815 2,749,541
Interest on Federal Home Loan Bank advances (short term) 37,394 --
Interest on escrow deposits 5,327 6,424
---------- ----------
Total interest expense 2,722,536 2,755,965
Net interest income before provision for loan losses 2,358,769 1,902,262
Provision for loan losses (Notes 1 and 4) 8,000 145,000
---------- ----------
Net interest income 2,350,769 1,757,262
Other Income
Loan fees and service charges 59,831 48,284
Gains on sales of loans receivable 6,518 5,816
Other 26,834 24,411
---------- ----------
Total other income 93,183 78,511
General and Administrative Expenses
Salaries and employee benefits 989,616 620,513
Occupancy costs 94,999 91,219
Federal deposit insurance premiums (Note 11) 35,112 461,177
Data processing 73,262 67,071
Advertising 52,770 63,145
Franchise and other taxes 51,500 44,730
Other 299,640 267,225
---------- ----------
Total general and administrative expenses 1,596,899 1,615,080
Income before tax provision 847,053 220,693
Provision for income taxes (Notes 1 and 8) 329,220 86,888
---------- ----------
Net income $ 517,833 $ 133,805
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
20
<PAGE>
<TABLE>
<CAPTION>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
Net Unrealized
Additional Contra Equity Holding Losses
Common Paid-In Employee Stock Retained on Investments
Stock Capital Ownership Plan Earnings Available for Sale Total
----- ------- -------------- -------- ------------------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 $ -- $ -- $ -- $ 4,620,614 $ (21,830) $ 4,598,784
Net income -- -- -- 133,805 -- 133,805
Adjustment to unrealized holding
losses on available for sale
securities -- -- -- -- 17,230 17,230
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1997 -- -- -- 4,754,419 (4,600) 4,749,819
Proceeds from stock offering net
of cost 10,117 9,662,936 -- -- -- 9,673,053
Borrowings for Employee Stock
Ownership Plan -- -- (809,370) -- -- (809,370)
Compensation under stock based
benefit plan -- 41,069 89,280 -- -- 130,349
Net income -- -- -- 517,833 -- 517,833
Adjustment to unrealized holding
losses on available for sale
securities -- -- -- -- 4,600 4,600
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1998 $ 10,117 $ 9,704,005 $ (720,090) $ 5,272,252 $ -- $ 14,266,284
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
21
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 517,833 $ 133,805
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 62,158 59,693
Non-cash compensation under Stock Based
Benefit Plan 130,349 --
Deferred income tax provision (benefit) (94,413) (95,712)
Provision for loan losses 8,000 145,000
Amortization of loan fees, premiums and
discounts, net (88,909) (88,311)
Loss on disposal of property and equipment -- 5,730
Gain on sales of loans receivable (6,518) (5,816)
Loans originated for resale (710,700) --
Proceeds from sale of loans originated for resale 717,218 --
Decrease in accrued interest receivable 8,460 12,083
Decrease in prepaid expenses and other assets 28,260 10,140
Increase (decrease) in accrued expenses and
other liabilities 327,969 (22,812)
(Increase) decrease in federal and state income
taxes receivable (130) 83,632
Increase in federal and state income taxes payable 262,910 16,163
Decrease in accrued interest payable on savings
deposits (1,499) (1,880)
----------- -----------
Net cash provided by operating activities 1,160,988 251,715
----------- -----------
Cash flows from investment activities
Purchases of investment securities available for sale -- (1,000,000)
Maturity of investment securities available for sale 3,000,000 1,000,000
Net increase in loans receivable (5,212,938) (1,502,401)
Purchases of loans receivable (1,560,051) (1,788,457)
Sales of loans receivable -- 1,295,000
Mortgage backed securities principal repayments 72,472 67,822
Purchases of property and equipment (46,959) (9,697)
Sale of ground rents owned -- 1,021
----------- -----------
Net cash provided by (used in) investing activities (3,747,476) (1,936,712)
----------- -----------
</TABLE>
22
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from financing activities
Net decrease in savings deposits $(2,077,184) $(1,773,481)
Net increase in checks outstanding in excess
of bank balance 143,430 --
Increase in advance payments by borrowers
for taxes, insurance and ground rents 127,590 34,324
Net proceeds from issuance of common stock 8,863,683 --
----------- -----------
Net cash provided by (used in) financing activities 7,057,519 (1,739,157)
----------- -----------
Net increase (decrease) in cash and cash equivalents 4,471,031 (3,424,154)
Cash and cash equivalents at beginning of year 2,377,092 5,801,246
----------- -----------
Cash and cash equivalents at end of year $ 6,848,123 $ 2,377,092
=========== ===========
Supplemental information
Interest paid on savings deposits and borrowed funds $ 2,724,709 $ 2,751,421
=========== ===========
Income taxes $ 159,604 $ 82,805
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
23
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements for the year
ended June 30, 1998 include Wyman Park Bancorporation, Inc. (the
"Company") and its wholly-owned subsidiaries, Wyman Park Federal
Savings and Loan Association (the "Association") and W. P. Financial
Corporation. All significant intercompany transactions have been
eliminated. The Company is the holding company of the Association.
Nature of Operations
The Association operates as a thrift institution taking deposits
from the general public and using those funds to promote home
ownership by making real estate loans in its service area. The
Association also engages in other forms of lending and investments. As
such, the Association is subject to the inherent risk that borrowers
will default and properties or other collateral will not be sufficient
to recover the loan balance. The Association's sound lending policies
have mitigated this risk and losses from loans have been minimal. The
Association is also subject to the risk that severe changes in
prevailing interest rates could cause impairment of its earnings
capability and the fair value of its net assets. However, management's
operating strategies combined with a relatively stable interest rate
environment since the mid-1980's, have resulted in the Association
being profitable and increasing its capital position.
Basis of Presentation
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
revenue and expenses during the reporting period. Actual results could
differ from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the
determination of the allowance for loan losses and the valuation of
investments in real estate. In connection with these determinations,
management obtains independent appraisals for significant properties
and prepares net realizable value analyses as appropriate.
Management believes that the allowances for losses on loans and
investments in real estate are adequate. While management uses
available information to recognize losses on loans and investments in
real estate, future additions to the allowances may be necessary based
on changes in economic
24
<PAGE>
WYMAN PARK BANCORPOATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Summary of Significant accounting Policies - Continued
Basis of Presentation - Continued
conditions, particularly in the State of Maryland. In addition,
various regulatory agencies, as an integral part of their examination
process, periodically review the Association's allowances for losses
on loans and investments in real estate. Such agencies may require the
Association to recognize additions to the allowances based on their
judgments about information available to them at the time to their
examination.
Investment Securities and Mortgage Backed Securities
The Association's debt and equity securities are classified into
two categories. Debt securities that the Association has the positive
intent and ability to hold to maturity are classified as
held-to-maturity and recorded at amortized cost. Debt securities not
classified as held-to-maturity and equity securities with readily
determinable fair values are considered available-for-sale and are
reported at fair value, with unrealized gains and losses excluded from
earnings and reported as a separate component of retained earnings
(net of tax effects). The Association does not invest in securities
for trading purposes. Fair value is determined based on bid prices
published in financial newspapers or bid quotations received from
securities dealers.
Premiums and discounts on investment and mortgage backed
securities are amortized over the term of the security using the
interest method. Gain or loss on sale of investments
available-for-sale is reflected in income at the time of sale using
the specific identification method.
Property and Equipment
Property and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation and amortization are
accumulated using the straight-line method over the estimated useful
lives of the assets. Additions and improvements are capitalized, and
charges for repairs and maintenance are expensed when incurred. The
related cost and accumulated depreciation or amortization are
eliminated from the accounts when an asset is sold or retired and the
resultant gain or loss is credited or charged to income.
Income Taxes
Deferred income taxes result primarily because of temporary
differences resulting from recognizing loan origination fees and costs
in different periods for financial reporting purposes and income taxes
purposes prior to January 1, 1994, depreciation methods, loan loss
recognition, Federal Home Loan Bank (FHLB) stock dividends, and a
deferred compensation agreement. The Association changed its method of
accounting for loan origination fees and
25
<PAGE>
costs for tax purposes for all transactions occurring on or after July
1, 1994 to conform with the method utilized for financial reporting
purposes.
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Summary of Significant Accounting Policies - Continued
Loan Fees
Origination and commitment fees and direct origination costs are
deferred and amortized to income over the contractual lives of the
related loans using the interest method. Under certain circumstances,
commitment fees are recognized over the commitment period or upon
expiration of the commitment. Unamortized loan fees are recognized in
income when the related loans are sold or prepaid.
Origination and commitment fees and direct origination costs on
loans originated for sale are deferred and recognized as a component
of gain or loss at the time of sale.
Provision for Loan Losses
The provision for loan losses is determined based on management's
review of the loan portfolio and analyses of the borrowers' ability to
repay, past collection experience, risk characteristics of individual
loans or groups of similar loans and underlying collateral, current
and prospective economic conditions and status of non-performing
loans. Loans or portions thereof are charged-off when considered, in
the opinion of management, uncollectible.
Interest on potential problem loans is not accrued when, in the
opinion of management, the full collection of principal or interest is
in doubt. Any interest ultimately collected on such loans is recorded
in income in the period of recovery.
The Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 114 "Accounting by
Creditors for Impairment of a Loan" as amended by Statement No. 118
"Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures" (collectively referred to as SFAS No. 114) addresses
the accounting by creditors for impairment of certain loans. It is
generally applicable for all loans except large groups of smaller
balance homogeneous loans that are collectively evaluated for
impairment, including residential mortgage loans and consumer
installment loans. It also applies to all loans that are restructured
in a troubled debt restructuring involving a modification of terms.
However, if a loan was restructured in a troubled debt restructuring
involving a modification of terms before the effective date of this
Statement and it is not impaired based on the terms specified by the
restructuring agreement, a creditor may continue to account for the
loan in accordance with the provisions of Statement No. 15,
"Accounting for Troubled Debt Restructurings" prior to its amendment
by this Statement.
26
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Summary of Significant Accounting Policies - Continued
Provision for Loan Losses - Continued
SFAS No. 114 requires that impaired loans be measured based on
the present value of expected future cash flows discounted at the
loan's effective interest rate, or at the loan's observable market
price or the fair value of the collateral if the loan is collateral
dependent. A loan is considered impaired when, based on current
information and events, it is probable that a creditor will be unable
to collect all amounts due according to the contractual terms of the
loan agreement.
Foreclosed Real Estate
Real estate acquired through foreclosure is initially recorded at
the lower of cost or estimated fair value, less estimated selling
costs. Management periodically evaluates the carrying value of real
estate owned and establishes a valuation allowance for declines in
fair value, less estimated selling costs, below the initially recorded
value. Costs relating to holding such real estate are charged against
income in the current period, while costs relating to improving such
real estate are capitalized until a saleable condition is reached.
Earnings Per Share
Basic and diluted earnings per share have not been presented
since the Association converted to stock January 5, 1998 and such
information would not be meaningful.
Statement of Cash Flows
For the purposes of the statement of cash flows, the Association
considers all highly liquid investments with maturities at date of
purchase of three months or less to be cash equivalents. Cash
equivalents consist of interest-bearing deposits and federal funds.
Note 2 Insurance of Savings Accounts and Related Matters
The Federal Deposit Insurance Corporation, through the Savings
Association Insurance Fund, insures deposits of account holders up to
$100,000. The Association pays an annual premium to provide for this
insurance. The Association is a member of the Federal Home Loan Bank
System and is required to maintain an investment in the stock of the
Federal Home Loan Bank of Atlanta equal to at least 1% of the unpaid
principal balances of its residential mortgage loans, .3% of its total
assets or 5% of its outstanding advances from the bank, whichever is
greater. Purchases and sales of stock are made directly with the bank
at par value.
27
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 Investment Securities
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Available-for-Sale Investments:
June 30, 1998
U.S. government and
agency securities $ -- $ -- $ -- $ --
June 30, 1997
U.S. government and
agency securities 3,000,000 -- (7,500) 2,992,500
Held-to-Maturity Securities:
</TABLE>
Mortgage backed securities are guaranteed by the Federal National
Mortgage Association (FNMA) or the Federal Home Loan Mortgage
Corporation (FHLMC) as follows:
<TABLE>
<CAPTION>
June 30, 1998
<S> <C> <C> <C> <C>
FNMA $ 2,098 $ 81 $-- $ 2,179
FHLMC 281,617 7,416 -- 289,033
-------- -------- --- --------
Mortgage backed
securities $283,715 $ 7,497 $-- $291,212
======== ======== === ========
June 30, 1997
FNMA $ 2,328 $ 81 $-- $ 2,409
FHLMC 353,859 4,398 -- 358,257
-------- -------- --- --------
Mortgage backed
securities $356,187 $ 4,479 $-- $360,666
======== ======== === ========
</TABLE>
28
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 Investment Securities - Continued
The scheduled maturities of securities held-to-maturity and
securities (other than equity securities) available-for-sale at June
30, 1998, were as follows:
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
---------------- ------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ -- $ -- $ -- $ --
Due from one to five years
Mortgage backed securities 283,715 291,212 -- --
--------- --------- -------- --------
$ 283,715 $ 291,212 $ -- $ --
========= ========= ======== ========
</TABLE>
There were no sales of investment securities during the years
ended June 30, 1998 and 1997.
Note 4 Loans Receivable
Substantially all of the Association's loans receivable are
mortgage loans secured by residential and commercial real estate
properties located in the State of Maryland. Loans are extended only
after evaluation by management of customers' creditworthiness and
other relevant factors on a case-by-case basis. The Association
generally does not lend more than 90% of the appraised value of a
property and requires private mortgage insurance on residential
mortgages with loan-to-value ratios in excess of 80%. In addition, the
Association generally obtains personal guarantees of repayment from
borrowers and/or others for construction, commercial and multi-family
residential loans and disburses the proceeds of construction and
similar loans only as work progresses on the related projects.
Residential lending is generally considered to involve less risk
than other forms of lending, although payment experience on these
loans is dependent to some extent on economic and market conditions in
the Association's primary lending area. Commercial and construction
loan repayments are generally dependent on the operations of the
related properties or the financial condition of its borrower or
guarantor. Accordingly, repayment of such loans can be more
susceptible to adverse conditions in the real estate market and the
regional economy.
29
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 Loans Receivable - Continued
Loans receivable are summarized as follows at June 30:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Loans secured by first mortgages on real estate:
Residential - one-to-four family $51,779,174 $46,345,319
Residential - multi-family 361,994 210,587
Commercial 6,683,136 5,806,328
Construction loans -- 150,000
----------- -----------
Total first mortgage loans 58,824,304 52,512,234
Home equity lines-of-credit 3,390,206 3,183,895
Home improvement loans 12,183 16,358
Loans secured by savings deposits 309,222 175,898
----------- -----------
62,535,915 55,888,385
Less: Undisbursed portion of loans in process -- (231,000)
Unearned loan fees, net (215,451) (198,819)
Allowance for loan losses (278,000) (270,000)
----------- -----------
Loans receivable, net $62,042,464 $55,188,566
=========== ===========
Average annual yield on loans receivable for
the years ended June 30 7.84% 7.88%
=========== ===========
The following is a summary of non-performing loans and troubled
debt restructuring as of June 30:
1998 1997
---- ----
Non-accrual loans $ 25,296 $ 176,349
Troubled debt restructuring -- --
----------- -----------
Total non-performing loans and troubled
debt restructuring $ 25,296 $ 176,349
=========== ===========
</TABLE>
30
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 Loans Receivable - Continued
Loans are placed on non-accrual status when they become ninety
days or more delinquent. Interest income on such loans is recognized
only to the extent that payments have been received. The accrual of
interest income on these loans is resumed only after the borrowers
have taken steps to bring the loans current and management has reason
to believe the loans are no longer impaired. The contractual amount of
interest that would have been recorded on the above non-accrual loans
at June 30, 1998 and 1997 was $1,270 and $4,472, respectively. Actual
interest income recorded on such loans was $2,389 and $14,492 for the
years ended June 30, 1998 and 1997, respectively. Non-accrual loans at
June 30, 1998 and 1997 and for the years then ended were all
residential mortgage loans not included within the scope of SFAS No.
114. Accordingly, there were no allowances for loan losses established
specifically for these loans.
The Association, through its normal asset review process,
classifies certain loans which management believes involve a degree of
risk warranting additional attention. Not included above in
non-performing and restructured loans was $462,579 and $178,260 at
June 30, 1998 and 1997, respectively, which had not yet become ninety
days or more delinquent, but had been designated by management for
additional collection and monitoring efforts.
Changes in the allowance for losses on loans are summarized as
follows for the years ended June 30:
1998 1997
---- ----
Balance at beginning of the year $270,000 $125,000
Provision for loan losses 8,000 145,000
Charge-offs, net of recoveries -- --
-------- --------
Balance at end of the year $278,000 $270,000
======== ========
Commitments to extend credit are agreements to lend to customers,
provided that terms and conditions established in the related
contracts are met. At June 30, 1998, the Association had commitments
to originate first mortgage loans on real estate and home equity loans
exclusive of undisbursed loan funds of $1,279,700, of which $618,800
carry a fixed rate, ranging between 6.125% and 8%, based on the market
rate at the date of commitment and $660,900 carry a variable rate of
interest. At June 30, 1997, the Association had commitments to
originate first mortgage loans on real estate and home equity loans,
exclusive of undisbursed loan funds, of $1,821,100, of which
$1,772,300 carry a fixed rate, ranging between 7% and 8.5%, based on
the market rate at the date of commitment and $48,800 carry a variable
rate of interest.
31
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 Loans Receivable - Continued
For the years ended June 30, 1998 and 1997 the Association also
had commitments to loan funds under unused home-equity lines of credit
aggregating approximately $5,755,244 and $5,464,623, respectively.
Such commitments carry a floating rate of interest.
Commitments for mortgage loans generally expire within six months
and such loans and other commitments are generally funded from loan
principal repayments, excess liquidity and savings deposits. Since
certain of the commitments may expire without being drawn upon or may
not be utilized, the total commitment amounts do not necessarily
represent future cash requirements.
Substantially all of the Association's outstanding commitments at
June 30, 1998 are for loans which would be secured by real estate with
appraised values in excess of the commitment amounts. The
Association's exposure to credit loss under these contracts in the
event of non-performance by the other parties, assuming that the
collateral proves to be of no value, is represented by the commitment
amounts.
Loans serviced for others, which are not included in the
Association's assets, were approximately $2,274,655 and $2,338,256 at
June 30, 1998 and 1997, respectively. A fee is charged for such
servicing based on the unpaid principal balances.
In the normal course of business, loans are made to officers and
directors of the Association and their related interests. These loans
are consistent with sound banking practices, are within regulatory
lending limitations and do not involve more than normal risk of
collectibility. Transactions in these loans (omitting loans which
aggregate less than $60,000 per officer or director) for the year
ended June 30, 1998 are summarized as follows:
Balance at June 30, 1997 $423,716
New loans 430,500
Repayments (65,104)
--------
Balance at June 30, 1998 $789,112
========
32
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 Accrued Interest Receivable
Accrued interest receivable is summarized as follows at June 30:
1998 1997
-------- --------
Loans receivable $308,231 $269,162
Mortgage backed securities 3,405 4,360
Investment securities -- 57,688
Other 17,298 6,184
-------- --------
$328,934 $337,394
======== ========
Note 6 Property and Equipment
Property and equipment are summarized as follows at June 30:
Estimated
---------
Useful
1998 1997 Lives
-------- -------- ----------
Buildings and improvements $357,668 $357,668 23 years
Furniture, fixtures and equipment 345,607 308,110 3-20 years
Leasehold improvements 81,499 75,220 5-10 years
-------- --------
Total at cost 784,774 740,998
Less accumulated depreciation
and amortization 596,654 537,679
-------- --------
Property and equipment, net $188,120 $203,319
======== ========
The provision for depreciation charged to operations for the
years ended June 30, 1998 and 1997 amounted to $62,158 and $59,693,
respectively. Depreciation is calculated on a straight line basis over
the estimated useful life.
33
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 Property and Equipment - Continued
The Association is obligated under long-term operating leases for
its branch offices. These leases expire at various dates to 2002,
subject to renewal options. The approximate future minimum rental
payments under these leases at June 30, 1998 are as follows:
Due in Year
Ended June 30,
--------------
1999 $ 37,896
2000 37,896
2001 37,896
2002 28,390
Subsequent to 2002 21,600
--------
Total $163,678
========
Rent expense was $38,396 and $37,906 for the years ended June 30,
1998 and 1997, respectively.
Note 7 Deposits
Time deposits are summarized as follows at June 30:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
Amount % Amount %
Contractual maturity of Certificate
Accounts from June 30:
<S> <C> <C> <C> <C> <C>
Under 12 months $18,017,936 46.2 $20,255,689 50.3
12 to 24 months 13,965,905 35.8 8,026,606 20.0
24 to 36 months 1,739,829 4.5 6,013,397 15.0
36 to 48 months 4,796,680 12.3 1,107,957 2.8
48 to 60 months 445,512 1.2 4,802,948 11.9
Over 60 months 11,485 0.0 34,933 0.0
----------- ----- ----------- -----
$38,977,347 100.0 $40,241,530 100.0
=========== ===== =========== =====
</TABLE>
Average annual rate on savings deposits
for the year ended June 30 4.88% 4.94%
==== ====
34
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 Deposits - Continued
Interest expenses on savings deposits consists of the following
for the years ended June 30:
1998 1997
---------- ----------
Certificates $2,225,469 $2,267,188
Passbook 180,969 173,461
NOW and money market 273,377 308,892
---------- ----------
$2,679,815 $2,749,541
========== ==========
As of June 30, 1998 and 1997, the Association had customer
deposits in savings accounts of $100,000 or more of approximately
$5,715,858 and $5,680,377, respectively.
Note 8 Income Taxes
The provision for income taxes consists of the following for the
years ended June 30:
1998 1997
---- ----
Current:
Federal $346,898 $149,745
State 76,735 32,855
-------- --------
423,633 182,600
-------- --------
Deferred:
Federal (78,262) (78,364)
State (16,151) (17,348)
-------- --------
(94,413) (95,712)
-------- --------
Provision for income taxes $329,220 $ 86,888
======== ========
35
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 Income Taxes - Continued
The net deferred tax asset at June 30, 1998 and 1997 consists of
total deferred tax assets of $278,211 and $175,506, respectively, and
deferred tax liabilities of $128,192 and $117,000, respectively. The
tax effects of temporary differences between the financial reporting
and income tax basis of assets and liabilities relate to the following
at June 30:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Interest and fees on loans $ 36,508 $ 51,392
Allowance for losses on loans 107,364 104,274
Federal Home Loan Bank stock dividends (80,684) (80,684)
Deferred compensation 13,989 16,940
Unrealized loss on investment securities -- 2,900
Tax bad debt reserve (11,897) (11,897)
Senior Executive Retirement Plan 111,081 --
Other (26,342) (24,419)
--------- ---------
$ 150,019 $ 58,506
========= =========
</TABLE>
No valuation allowance has been provided against the net deferred
tax asset at June 30, 1998 because the amount could be realized
through a carryback against taxable income of prior years.
A reconciliation between the provision for income taxes and the
amount computed by multiplying income before provision for income
taxes by the statutory federal income tax rate is as follows for the
years ended June 30:
<TABLE>
<CAPTION>
1998 1997
---- ----
Percent Percent
of Pretax of Pretax
Amount Income Amount Income
------ ------ ------ ------
<S> <C> <C> <C> <C>
Tax provision at statutory rate $288,000 34.0% $ 75,036 34.0%
State income taxes, net of
federal income tax benefit 39,745 4.7 10,235 4.6
Other 1,475 .2 1,617 0.7
-------- ---- -------- ----
$329,220 38.9% $ 86,888 39.3%
======== ==== ======== ====
</TABLE>
36
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 Income Taxes - Continued
Before 1996, the Association was able to use the most beneficial
of either the percentage of income method or an experience method,
similar to that used by commercial banks, to determine its tax
deduction for bad debts under Section 593 of the Internal Revenue
Code. Under provisions of the Small Business Protection Act of 1996,
Section 593 was repealed. The new law also provided that cumulative
bad debt deductions taken after 1987 (the base year) were to be
recaptured as taxable income over a six-year period beginning in 1996.
It further provided that the first installment of the recapture could
be deferred for up to two years if a residential lending test is met.
The Association did not meet this test in the year ended June 30,
1997. There was no material adverse effect on the Association's
financial position or results of operations as a result of the new
law. The Association qualifies as a small bank eligible to use the
bank experience method for bad debt deductions. However, the
deductions under this method are not expected to be as beneficial for
determining the current tax provision as the method previously
allowed.
Retained earnings at June 30, 1998 include approximately
$1,777,000 for which no deferred income tax liability has been
recognized. This amount represents an allocation of income to bad-debt
deductions for tax purposes only. Reduction of amounts so allocated
for purposes other than tax bad-debt losses or adjustments arising
from carryback of net operation losses would create income for tax
purposes only, which would be subject to the then current corporate
income tax rate. The unrecorded deferred income tax liability on the
above amount is approximately $686,000.
Note 9 Pension Plan
Substantially all employees of the Association are participants
in the Financial Institutions Retirement Fund, a multi-employer
non-contributory defined benefit pension plan. The actuarial present
value of benefit obligations and fair value of plan assets
attributable to the Association are not available for this
multi-employer plan. Pension expense in connection with the Financial
Institutions Retirement Fund reflects the Association's required
annual contribution to the Fund. Pension expense for the years ended
June 30, 1998 and 1997 was $2,417 and $17,652, respectively.
During the year ended June 30, 1998, the Association established
a supplemental Executive Retirement Plan for the benefit of the
President of the Association. As a result of this Plan, the
Association incurred an expense of $287,625.
37
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 Common Stock and Stock Benefit Plan
On June 18, 1997, the Board of Directors adopted a plan of
conversion which provided for (i) the conversion of the Association
from a federally chartered mutual savings and loan association to a
federally chartered stock savings and loan association, the "Converted
Association," and (ii) the concurrent formation of a holding company
for the Converted Association, the "Company."
A subscription offering of shares of the Company's capital stock
was offered to eligible members, employees and officers of the
Association at a price based on an appraisal by an independent
appraisal firm. When the Conversion was completed, 1,011,713 shares of
common stock were sold for a total price of $10,117,130. Costs
associated with the Conversion totaling $444,077 were deducted from
the sales price.
At the time of the Conversion, the Association established a
liquidation account in the amount of $4,749,819, an amount equal to
the Association's retained earnings as of June 30, 1997. The
liquidation account is maintained for the benefit of eligible savings
account holders who maintained their savings accounts in the
Association after the Conversion. In the event of a complete
liquidation (and only in such event), each eligible savings account
holder would be entitled to receive a liquidation distribution from
the liquidation account in an amount equal to the account holder's
then interest in the liquidation account before any liquidation
distribution may be made with respect to capital stock.
The Company has no significant source of income other than
dividends from the Association. As a result, the Company's dividends
will depend primarily upon receipt of dividends from the Association.
OTS regulations limit the payment of dividends and other capital
distributions by the Association. The Association is able to pay
dividends during a calendar year without regulatory approval to the
extent of the greater of (i) an amount which will reduce by one-half
its surplus capital ratio at the beginning of the year plus all its
net income determined on the basis of generally accepted accounting
principles for that calendar year, or (ii) 75% of net income for the
last four calendar quarters.
The Association is restricted in paying dividends on its stock to
the greater of the restrictions described in the preceding paragraph,
or an amount that would reduce its retained earnings below its
regulatory capital requirement, the accumulated bad debt deduction, or
the liquidation account described above.
38
<PAGE>
WY
MAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 Common Stock and Stock Benefit Plan - Continued
Employee Stock Ownership Plan
The Association has established an Employee Stock Ownership Plan
(ESOP) for its employees. On January 5, 1998 the ESOP acquired 80,937
shares of the Company's common stock in connection with the
Association's conversion to a capital stock form of organization. The
ESOP holds the common stock in a trust for allocation among
participating employees, in trust or allocated to the participants'
accounts, and an annual contribution from the Association to the ESOP
and earnings thereon.
All employees of the Association who attain the age of 21 and
complete twelve months of service with the Association will be
eligible to participate in the ESOP. Participants will become 100%
vested in their accounts after six years of service with the
Association or, if earlier, upon death, disability or attainment of
normal retirement age. Participants receive credit for service with
the Association prior to the establishment of the ESOP.
The Association recognizes the cost of the ESOP in accordance
with AICPA Statement of Position 93-6 "Employers' Accounting for
Employee Stock Ownership Plans". As shares are committed to be
released from collateral, the Association reports compensation expense
equal to the current market price of the shares and the shares become
outstanding for earnings-per-share computations. Dividends on
allocated shares are recorded as a reduction of retained earnings;
dividends on unallocated shares are recorded as a reduction of debt.
For the year ended June 30, 1998 compensation expense recognized
related to the ESOP and the Association's contribution to the ESOP was
$130,349.
The ESOP shares were as follows as of June 30:
1998
----
Shares released and allocated 8,928
Unearned shares 72,009
----------
80,937
==========
Fair value of unearned shares $1,012,627
==========
39
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 Retained Earnings and Regulatory Matters
The Association is subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and
possible additional discretionary, actions by the regulators that, if
undertaken, could have a direct material effect on the Association's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Association
must meet specific capital guidelines that involve quantitative
measures of the Association's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting
practices. The Association's capital amounts and classifications are
also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Association to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier I capital (as
defined in the regulations) and risk-weighted assets (as defined), and
of Tier I capital (as defined) to average assets (as defined).
Management believes, as of June 30, 1998, that the Association meets
all capital adequacy requirements to which it is subject.
As of June 30, 1998, the most recent notification from the Office
of Thrift Supervision categorized the Association as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Association must maintain minimum
total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table. There are no conditions or events since that
notification that management believes have changed the Association's
category. The Association's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998:
Total Capital (to Risk
Weighted Assets) $9,708,167 25.6% $3,039,520 8.0% $3,799,400 10.0%
Tier I capital (to Risk
Weighted Assets) 9,430,167 24.8% 1,519,760 4.0% 2,279,640 6.0%
Tier I Capital (to
Average Assets) 9,430,167 14.0% 2,696,600 4.0% 3,370,750 5.0%
</TABLE>
40
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 Retained Earnings and Regulatory Matters - Continued
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1997:
Total Capital (to Risk
Weighted Assets) $5,024,419 14.6% $2,747,520 8% $3,434,400 10%
Tier I capital (to Risk
Weighted Assets) 4,754,419 13.8% 1,373,760 4% 2,060,640 6%
Tier I Capital (to
Average Assets 4,754,419 7.7% 2,461,062 4% 3,076,328 5%
The Association also exceeds the minimum capital standards
required by the Office of Thrift Supervision, its primary regulator,
as follows:
<CAPTION>
Actual Required Minimum Excess
------ ---------------- ------
<S> <C> <C> <C>
As of June 30, 1998:
Tangible capital $9,430,167 $1,011,225 $8,418,942
Core capital 9,430,167 2,022,450 7,407,717
Risk-based capital 9,708,167 3,039,520 6,668,647
As of June 30, 1997:
Tangible capital 4,754,419 934,000 3,820,419
Core capital 4,754,419 1,867,000 2,887,419
Risk-based capital 5,024,419 2,748,000 2,276,419
Total equity in accordance with generally accepted accounting
principles (GAAP capital) is reconciled to regulatory capital as
follows;
<CAPTION>
Tangible Core Risk-Based
Capital Capital Capital
------- ------- -------
<S> <C> <C> <C>
GAAP capital as of June 30, 1998 $14,266,284 $14,266,284 $14,266,284
Less: Equity of parent company (4,836,117) (4,836,117) (4,836,117)
Add: Allowance for losses on loans
included in risk-based capital-
limited to 1.25% of risk-
weighted assets -- -- 278,000
----------- ----------- -----------
Regulatory capital as of June 30, 1998 $ 9,430,167 $ 9,430,167 $ 9,708,167
=========== =========== ===========
</TABLE>
41
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 Retained Earnings and Regulatory Matters - Continued
<TABLE>
<CAPTION>
Tangible Core Risk-Based
Capital Capital Capital
-------- ------- ----------
<S> <C> <C> <C>
GAAP capital as of June 30, 1997 $4,749,819 $4,749,819 $4,749,819
Add: Unrealized losses on available
for sale securities not included
in regulatory capital 4,600 4,600 4,600
Allowance for losses on loans
included in risk-based capital-
limited to 1.25% of risk-
weighted assets -- -- 270,000
---------- ---------- ----------
Regulatory capital as of June 30, 1997 $4,754,419 $4,754,419 $5,024,419
========== ========== ==========
</TABLE>
The Economic Growth and Regulatory Paperwork Reduction Act of
1996 was signed into law on September 30, 1996. One major provision of
the act was that institutions such as the Association, with deposits
insured by the Federal Deposit Insurance Corporation's Savings
Association Insurance Fund (SAIF), were assessed a one time charge to
recapitalize the SAIF. Subsequent regulations established the amount
of this assessment at .657% of the institution's insured deposits as
of March 31, 1995. The law also provided that the assessment would be
deductible for tax purposes in the year it was paid. The Association
paid its one-time assessment in the amount of $382,726 in November
1996. It is anticipated that future deposit insurance premiums will be
less than those paid in the past because of the one-time assessment
making the SAIF solvent.
42
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value.
Cash and Cash Equivalents - For cash, non-interest bearing
deposits, variable rate interest-bearing deposits in other banks
and federal funds sold, the carrying amount is a reasonable
estimate of fair value.
Securities - For marketable securities available for sale and
mortgage backed securities, fair values are based on quoted
market prices or dealer quotes.
Loans Receivable - For fixed rate residential mortgages, fair
value is based on computed present value of cash flows using
weighted average term to maturity and weighted average rate of
the Association's portfolio. For variable rate loans, the
carrying amount is considered a reliable estimate of fair value.
Ground Rents - The fair value of ground rents is estimated by
management based on anticipated realization in the current
market. Ground rents are peculiar to the Baltimore Metropolitan
area. They carry a fixed interest rate of 6%. Consequently, the
fair value varies with fluctuations in market interest rates.
Although the fair value may never recover to the Association's
carrying amount because ground rents do not have a stated
maturity, any permanent decline in value will not be material to
the Association's financial statements.
Federal Home Loan Bank Stock - Because of the limited nature of
the market for this instrument, the carrying amount is a
reasonable estimate of fair value.
Deposits Liabilities - The fair value of demand deposits, savings
accounts and advance payments by borrowers for taxes, insurance
and ground rents is the amount payable on demand at the reporting
date. The fair value for certificate accounts is based on
computed present value of cash flows using the rates currently
offered for deposits of similar remaining maturities.
Commitments - For commitments to originate loans and purchase F
loans and mortgage backed securities, fair value considers the
differences between current levels of interest rates and
committed rates if any.
43
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 Disclosures About Fair Value of Financial Instruments - Continued
The estimated fair values of the Association's financial
instruments as of June 30 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents $ 6,848,123 $ 6,848,123 $ 2,377,092 $ 2,377,092
Investment securities
available-for-sale -- -- 2,992,500 2,992,500
Mortgage backed securities 283,715 291,212 356,187 360,666
Loans receivable 62,320,464 -- 55,458,566 --
Less: allowance for loan
losses 278,000 -- 270,000 --
------------ ------------
62,042,464 62,600,000 55,188,566 56,052,088
Ground rents 129,108 77,465 129,108 77,465
Federal Home Loan Bank
of Atlanta stock 509,900 509,900 509,900 509,900
Financial Liabilities
Savings deposits 54,018,148 54,180,224 56,095,332 56,485,590
Advance payments by
borrowers for taxes,
insurance and ground rents 1,368,467 1,368,467 1,240,877 1,240,877
Loan commitments 7,034,944 7,034,944 7,285,723 7,285,723
</TABLE>
44
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 Condensed Financial Information (Parent Company Only)
Information as to the financial position of Wyman Park
Bancorporation, Inc. as of June 30, 1998 and results of operations and
cash flows for the year ended June 30, 1998 is summarized below.
During the year ended June 30, 1998, the parent did not receive any
dividends from its subsidiary, the Association.
June 30,
1998
--------------
Statement of Financial Condition
Cash and non-interest bearing deposits $ 1,003,032
Federal funds sold 3,300,000
Loans receivable, net 728,433
Accrued interest receivable 532
Equity in net assets of subsidiary 9,430,167
--------------
$14,462,164
==============
Accrued expenses and other liabilities $ 195,880
Stockholders' equity 14,266,284
--------------
$14,462,164
==============
For the year ended June 30, 1998:
Statement of Operations
Interest Income $ 35,387
Equity in net income of subsidiary 518,243
--------------
Total Income 553,630
General and administrative expenses 35,797
--------------
Net income before income taxes 517,833
Provision for income taxes --
--------------
Net income $ 517,833
==============
45
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 Condensed Financial Information (Parent Company Only) - Continued
For the year ended June 30, 1998:
Statement of Cash Flows
<TABLE>
<CAPTION>
<S> <C>
Cash Flows from Operating Activities:
Net income $ 517,833
Adjustment to Reconcile Net Income to Net Cash
Provided by Operating Activities
Equity in net income of subsidiary (518,243)
Increase in accrued interest receivable (532)
Increase in accrued expenses and other liabilities 195,880
----------
Net cash provided by operating activities 194,938
Cash Flows from Investing Activities:
Purchase of stock from subsidiary (4,836,527)
Principal collected on loans 80,938
Cash used by investing activities (4,755,589)
Cash Flows from Financing Activities:
Proceeds from sale of common stock 8,863,683
Net cash provided by financing activities 8,863,683
Increase in cash and cash equivalents 4,303,032
Cash and cash equivalents at beginning of year --
----------
Cash and cash equivalents at end of year $4,303,032
==========
Supplemental Disclosures of Cash Flows Information:
There was no cash paid during the year ended June 30, 1998 for
income taxes or interest.
Loan receivable for common stock 809,370
==========
</TABLE>
46
<PAGE>
WYMAN PARK BANCORPORATION, INC.
AND SUBSIDIARIES
Lutherville, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 Accounting Pronouncements With Future Effective Dates
SFAS No. 130, "Reporting Comprehensive Income" was issued in June
1997. This Statement requires that comprehensive income - made up of
all revenues, expenses, gains and losses - be reported and displayed
in an entity's financial statements with the same prominence as its
other financial statements. Currently, the only item that would be
presented as a component of the Company's comprehensive income which
is not also a component of its net income is the change during the
year in unrealized gain or loss on available for sale securities. The
Statement, which is effective for years beginning after December 15,
1997, will not affect the Company's financial position or its results
of operations.
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" was also issued in June 1997. This Statement
requires that public business enterprises report financial and
descriptive information about their reportable operating segments.
Reportable operating segments are defined as components of an
enterprise about which separate financial information is available and
is evaluated regularly by the chief operating decision maker as a
basis for allocating resources and assessing performance. It also
requires those enterprises to report information about countries in
which they do business and about major customers. The Statement, which
is effective for financial statements for periods beginning after
December 15, 1997, will not affect the Company's financial position or
its results of operations.
SFAS No. 132, "Employers Disclosures About Pensions and Other
Postretirement Benefits" was issued in February 1998. This Statement
standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable. The Statement,
which is effective for fiscal years beginning after December 15, 1997,
will not affect the Company's financial position or its results of
operations.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June, 1998. This Statement standardizes the
accounting for derivative instruments including certain derivative
instruments embedded in other contracts, by requiring that an entity
recognize these items as assets or liabilities in the statement of
financial position and measure them at fair value. This Statement
generally provides for matching the timing of gain or loss recognition
on the hedging instrument with the recognition of the changes in the
fair value of the hedged asset or liability that are attributable to
the hedged risk or the earnings effect of the hedged forecasted
transaction. The Statement, which is effective for all fiscal quarters
of all fiscal years beginning after June 15, 1999, will not affect the
Company's financial position or its results of operations.
47
<PAGE>
WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES
STOCKHOLDER INFORMATION
ANNUAL MEETING
The annual meeting of stockholders will be held at 3:00 p.m., Lutherville,
Maryland time, October 21, 1998, at the main office located at 11 West Ridgely
Road, Lutherville, Maryland.
STOCK LISTING
The Company's stock is traded on the OTC Electronic Bulletin Board under the
symbol "WPBC."
PRICE RANGE OF COMMON STOCK
The following table sets forth the high and low prices of the Company's common
stock since it began trading on January 5, 1998. These prices do not represent
actual transactions and do not include retail mark-ups, mark-downs or
commissions.
High Low Dividends
--------------------------------------------
March 31, 1998......... $15 3/8 $15 1/8 N/A
June 30, 1998.......... 14 1/4 14 N/A
The Company has not declared any dividends during fiscal 1998. Dividend payment
decisions are made with consideration of a variety of factors including
earnings, financial condition, market considerations and regulatory
restrictions. Restrictions on dividend payments are described in Note 10 of the
Notes to Financial Statements included in this report.
As of June 30, 1998, the Company had approximately 536 stockholders of record
and 1,011,713 outstanding shares of common stock.
SHAREHOLDERS AND GENERAL INQUIRIES TRANSFER AGENT
Ernest A. Moretti, President and CEO Registrar and Transfer Company
Wyman Park Bancorporation, Inc. 10 Commerce Drive
11 West Ridgely Road Cranford, New Jersey 07016
Lutherville, Maryland 21093 (908) 272-8511
(410) 252-6450
ANNUAL AND OTHER REPORTS
The Company is required to file an annual report on Form 10-KSB for its fiscal
year ended June 30, 1998, with the Securities and Exchange Commission. Copies of
the Form 10-KSB annual report and the Company's quarterly reports may be
obtained without charge by contacting:
Ernest A. Moretti, President and CEO
Wyman Park Bancorporation, Inc.
11 West Ridgely Road
Lutherville, Maryland 21093
(410) 252-6450
48
<PAGE>
WYMAN PARK BANCORPORATION, INC.
CORPORATE INFORMATION
COMPANY AND BANK ADDRESS
<TABLE>
<S> <C> <C> <C>
11 West Ridgely Road Telephone: (410) 252-6450
Lutherville, Maryland 21093 Fax: (410) 252-6744
DIRECTORS OF THE BOARD
Allan B. Heaver John K. White
Managing General Partner Retired Executive Vice President and current
of Heaver Properties member of the Board of Directors of Baltimore
Lutherville, Maryland Life Insurance Company and Life of Maryland
Insurance
Ernest A. Moretti. John R. Beever
President and Chief Executive Officer Chairman of the Board and President of
of Wyman Park Bancorporation, Inc. John Dittmar & Sons, Inc.
H. Douglas Huether Albert M. Copp
President and Chairman of the Board Consultant for Woodhall Associates
Independent Can Company
Gilbert D. Marsiglia, Sr. Jay H. Salkin
President of the real estate brokerage Senior Vice President - Branch Manager
firm of Gilbert D. Marsiglia & Co., Inc. of Advest, Inc.
G. Scott Barhight.
Partner in the law firm of Whiteford,
Taylor & Preston, LLP.
WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARY OFFICERS
Ernest A. Moretti. Ronald W. Robinson
President and Chief Executive Officer Treasurer
Charmaine M. Snyder
Secretary and Loan Servicing Manager
INDEPENDENT AUDITORS SPECIAL COUNSEL
Anderson Associates, LLP Silver, Freedman & Taff, L.L.P.
7621 Fitch Lane 1100 New York Avenue, N.W.
Baltimore, Maryland 21236 Washington, D.C. 20005
</TABLE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<PAGE>
<TABLE>
<CAPTION>
State of
Incorporation
Percent of or
Parent Subsidiary Ownership Organization
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wyman Park Bancorporation, Inc. Wyman Park Federal 100% Federal
Savings & Loan Association
Wyman Park Federal Savings & Loan WP Financial Corporation 100% Maryland
Association
</TABLE>
EXHIBIT 23
CONSENTS OF EXPERTS AND COUNSEL
<PAGE>
[WOODEN & BENSON LETTERHEAD]
The Board of Directors
Wyman Park Bancorporation, Inc.
11 West Ridgely Road
Lutherville, Maryland 21094
We hereby consent to the use of our report dated July 18, 1997 for fiscal
year June 30, 1997, incorporated herein by reference.
/s/ Wooden & Benson
Wooden & Benson
September 21, 1998
Baltimore, Maryland
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30,1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jun-30-1998
<PERIOD-END> Jun-30-1998
<CASH> 206,303
<INT-BEARING-DEPOSITS> 2,071,076
<FED-FUNDS-SOLD> 4,570,744
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 283,715
<INVESTMENTS-MARKET> 291,212
<LOANS> 62,042,464
<ALLOWANCE> (278,000)
<TOTAL-ASSETS> 70,541,017
<DEPOSITS> 54,018,148
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,256,585
<LONG-TERM> 0
0
0
<COMMON> 10,117
<OTHER-SE> 14,256,167
<TOTAL-LIABILITIES-AND-EQUITY> 70,541,017
<INTEREST-LOAN> 4,680,659
<INTEREST-INVEST> 108,516
<INTEREST-OTHER> 292,130
<INTEREST-TOTAL> 5,081,305
<INTEREST-DEPOSIT> 2,679,815
<INTEREST-EXPENSE> 2,722,536
<INTEREST-INCOME-NET> 2,358,769
<LOAN-LOSSES> 8,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,596,899
<INCOME-PRETAX> 847,053
<INCOME-PRE-EXTRAORDINARY> 847,053
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 517,833
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.55
<LOANS-NON> 25,000
<LOANS-PAST> 488,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (270,000)
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> (278,000)
<ALLOWANCE-DOMESTIC> (278,000)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
