As filed with the Securities and Exchange Commission on June 17, 1997
Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
WSB Holding Company
(Exact name of Small Business Issuer as specified in charter)
Pennsylvania 6035 Requested
- ---------------------------- ------------------------- -------------------
(State or other jurisdiction (Primary SIC No.) (I.R.S. Employer
of incorporation or Identification No.)
organization)
807 Middle St., Pittsburgh, Pennsylvania 15212
(412) 231-7297
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(Address, including zip code, and telephone number, including area code,
of principal executive offices and principal place of business)
Mr. Robert Neudorfer
President and Chief Executive Officer
WSB Holding Company
807 Middle St., Pittsburgh, Pennsylvania 15212
(412) 231-7297
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(Name, address and telephone number of agent for service)
Please send copies of all communications to:
Samuel J. Malizia, Esq.
Gregory J. Rubis, Esq.
Felicia C. Battista, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Title of Dollar Proposed Proposed Amount
Each Class of Amount Maximum Maximum Aggregate of
Securities to be Offering Price Offering Registration
To Be Registered Registered Per Unit Price(1) Fee
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Common Stock,
$.10 Par Value $3,306,000 $10.00 $3,306,000 $1,001.82
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(1) Estimated solely for purposes of calculating the registration fee.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PROSPECTUS
Up to 287,500 Shares of Common Stock
WSB HOLDING COMPANY
807 Middle St.
Pittsburgh, Pennsylvania 15212
(412) 231-7297
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Workingmens Savings Bank, FSB is converting from the mutual form to the
stock form of organization. As part of the conversion, Workingmens Savings Bank,
FSB will become Workingmens Bank, a wholly owned subsidiary of WSB Holding
Company. WSB Holding Company was formed in June 1997 and upon consummation of
the conversion will own all of the shares of Workingmens Bank. The common stock
of WSB Holding Company is being offered to the public in accordance with a Plan
of Conversion. The Plan of Conversion must be approved by a majority of the
votes eligible to be cast by members of Workingmens Savings Bank, FSB and by the
Office of Thrift Supervision. No common stock will be sold if Workingmens
Savings Bank, FSB does not receive these approvals and WSB Holding Company does
not receive orders for at least the minimum number of shares.
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TERMS OF OFFERING
An independent appraiser has estimated the market value of the
converted Workingmens Savings Bank, FSB to be between $2,125,000 to $2,875,000,
which establishes the number of shares to be offered. Subject to Office of
Thrift Supervision approval, up to 330,600 shares, an additional 15% above the
maximum number of shares, may be offered. Based on these estimates, we are
making the following offering of shares of common stock:
o Price Per Share: $10
o Number of Shares
Minimum/Maximum: 212,500 to 287,500
o Underwriting Commissions and Expenses
Minimum/Maximum: $280,000
o Net Proceeds to WSB Holding Company
Minimum/Maximum: $1,845,000 to $2,595,000
o Net Proceeds Per Share $8.68 to $9.03
Please refer to Risk Factors beginning on page 1 of this document.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Neither the Securities and Exchange Commission, Office of Thrift Supervision,
nor any state securities regulator has approved or disapproved these securities
or determined if this prospectus is accurate or complete. Any representation to
the contrary is a criminal offense.
For information on how to subscribe, call the Stock Information Center at
(412) __________
TRIDENT SECURITIES, INC.
__________ ____, 1997
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TABLE OF CONTENTS
Page
----
Questions and Answers About the Stock Offering................................................... (i)
Summary.......................................................................................... (iii)
Selected Financial and Other Data................................................................ (vi)
Risk Factors..................................................................................... 1
Proposed Purchases by Directors and Officers..................................................... 3
Use of Proceeds.................................................................................. 4
Dividends........................................................................................ 4
Market for the Common Stock...................................................................... 5
Capitalization................................................................................... 6
Pro Forma Data................................................................................... 7
Historical and Pro Forma Capital Compliance...................................................... 12
The Conversion................................................................................... 13
Consolidated Statements of Income of
Workingmens Savings Bank, FSB.................................................................. 25
Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................................. 26
Business of WSB Holding Company.................................................................. 36
Business of Workingmens Savings Bank, FSB........................................................ 37
Regulation....................................................................................... 53
Taxation......................................................................................... 58
Management of WSB Holding Company................................................................ 60
Management of Workingmens Savings Bank, FSB...................................................... 60
Restrictions on Acquisitions of WSB Holding Company.............................................. 65
Description of Capital Stock..................................................................... 68
Legal and Tax Matters............................................................................ 70
Experts.......................................................................................... 70
Registration Requirements........................................................................ 70
Where You Can Find Additional Information........................................................ 71
Index to Consolidated Financial Statements of
Workingmens Savings Bank, FSB.................................................................. 72
This document contains forward-looking statements which involve risks
and uncertainties. WSB Holding Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors" beginning on page 1 of this document.
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QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
Q: How will I benefit from the Offering?
A: The offering means that you will have the chance to become a
stockholder of our newly formed holding company, WSB Holding Company
which will allow you to share in our future as a federal stock savings
bank. The stock offering will increase our capital and funds for
lending and investment activities. As a stock savings institution
operating through a holding company structure, we will have greater
flexibility for investments.
Q: How do I purchase the stock?
A: You must complete and return the Stock Order Form to us together with
your payment, on or before __________ ____, 1997. See pages __ to __.
Q: How much stock may I purchase?
A: The minimum purchase is 25 shares (or $250). The maximum purchase is
7,500 shares (or $75,000), for any individual person or persons
ordering through a single account. In addition, no person, together
with associates of and persons acting in concert with such persons, may
purchase more than 12,500 shares. However, no persons together with
associates of and persons acting in concert with such persons, may
purchase more than 5% of the amount of stock sold (i.e. 10,625 shares
at the minimum of 212,500 shares). We may decrease or increase the
maximum purchase limitation without notifying you. In the event that
the offering is oversubscribed, shares will be allocated based upon a
formula. See pages 22 to 23.
Q: What happens if there are not enough shares to fill all orders?
A: You might not receive any or all of the shares you want to purchase. If
there is an oversubscription, the stock will be offered on a priority
basis to the following persons:
o Persons who had a deposit account of at least $50 with us on
March 31, 1996. Any remaining shares will be offered to:
o Tax Qualified Employee Plans, including the employee stock
ownership plan of Workingmens Bank. Any remaining shares will
be offered to:
o Persons who had a deposit account of at least $50 with us on
June 30, 1997. Any remaining shares will be offered to:
o Other persons entitled to vote on the approval of the
Conversion.
If the above persons do not subscribe for all of the shares, the remaining
shares may be offered through Trident Securities, Inc. ("Trident") to certain
persons in a public offering. We have the right to reject any stock order in the
public offering.
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(i)
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Q: What particular factors should I consider when deciding whether to buy
the stock?
A: Because of the small size of the offering, there is not expected to be
an active market for the shares, which may make it difficult to resell
any shares you may own. Also, before you decide to purchase stock, you
should also read the Risk Factors section on pages 1-3 of this
document.
Q: As a depositor or borrower member of Workingmens Savings Bank, FSB,
what will happen if I do not purchase any stock?
A: You presently have voting rights while we are in the mutual form;
however, once we convert, voting rights will be held by stockholders.
You are not required to purchase stock. Your deposit account,
certificate accounts and any loans you may have with us will be not be
affected. See pages 14 to 16.
Q: Who can help answer any other questions I may have about the stock
offering?
A: In order to make an informed investment decision, you should read this
entire document. This section highlights selected information and may
not contain all of the information that is important to you. In
addition, you should contact:
Stock Information Center
WSB Holding Company
5035 Curry Road
Pittsburgh, Pennsylvania
(412) __________
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(ii)
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SUMMARY
This summary highlights selected information from this document and may
not contain all the information that is important to you. To understand the
stock offering fully, you should read carefully this entire document, including
the consolidated financial statements and the notes to the consolidated
financial statements of Workingmens Savings Bank, FSB. References is this
document to "we", "us", and "our" refer to Workingmens Savings Bank, FSB or
Workingmens Bank after the Conversion. In certain instances where appropriate,
"us" or "our" refers collectively to WSB Holding Company and Workingmens Savings
Bank, FSB including Workingmens Bank. References in this document to "WSB"
refers to WSB Holding Company
The Companies
WSB Holding Company
807 Middle St.
Pittsburgh, Pennsylvania 37643-3378
(412) 231-7297
WSB Holding Company is not an operating company and has not engaged in
any significant business to date. It was formed in June 1997 as a
Pennsylvania-chartered corporation to be the holding company for Workingmens
Savings Bank, FSB. The holding company structure will provide greater
flexibility in terms of operations, expansion and diversification. See page 36.
Workingmens Savings Bank, FSB
807 Middle St.
Pittsburgh, Pennsylvania 37643-3378
(412) 231-7297
Workingmens Savings Bank, FSB began operations in 1881 under the name,
"Workingmens Premium and Loan Association of Allegheny County." We are a
community and customer oriented federal mutual savings bank. We provide
financial services to individuals, families and small business. Historically, we
have emphasized residential mortgage lending, primarily originating one- to
four-family mortgage loans. At March 31, 1997 we had total assets of $33.1
million, deposits of $27.9 million, and total equity of $2.0 million. After the
completion of the conversion, we will change our name to "Workingmens Bank." See
pages 37 to 52.
The Stock Offering
Between 212,500 and 287,500 shares of common stock are being offered at
$10 per share. As a result of changes in market and financial conditions prior
to completion of the Conversion or to fill the order of our employee stock
ownership plan and subject to the Office of Thrift Supervision approval, the
offering may be increased to 330,600 shares without further notice to you. In
such event, you will not have the opportunity to change or cancel any stock
order previously delivered to us.
Stock Purchases
The shares of common stock will be offered on the basis of priorities.
As a depositor or borrower member, you will receive subscription rights to
purchase the shares. The shares will be offered first in a Subscription Offering
and any remaining shares will be offered in a Public Offering. See pages __ to
__.
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(iii)
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Subscription Rights
You may not sell or assign your subscription rights. Any transfer of
subscription rights is prohibited by law.
The Offering Range and Determination of the Price Per Share
The offering range is based on an independent appraisal of the pro
forma market value of the common stock by Ferguson & Company, ("Ferguson"), an
appraisal firm experienced in appraisals of savings institutions. Ferguson has
estimated, that in its opinion as of June 6, 1997 the aggregate pro forma market
value of the common stock ranged between $2,125,000 and $2,875,000 (with a
mid-point of $2,500,000). The pro forma market value of the shares is our market
value after giving effect to the sale of shares in this offering. The appraisal
was based in part upon our financial condition and operations and the effect of
the additional capital raised by the sale of common stock in this offering. The
$10.00 price per share
was determined by our board of directors and is the price most commonly
used in stock offerings involving conversions of mutual savings institutions.
The independent appraisal will be updated prior to the consummation of the
Conversion. If the pro forma market value of the Common Stock is either below
$2,125,000 or above $3,306,000, you will be notified and will have the
opportunity to modify or cancel your order. See pages 21 to 22.
Termination of the Offering
The Subscription Offering will terminate at 12:00 p.m., Eastern Time,
on __________ ____, 1997. The Public Offering, if any, may terminate at any time
without notice but no later than __________ ____, 1997, without approval by the
OTS.
Benefits to Management from the Offering
Our full-time employees will participate in the offering through
individual purchases and purchases of stock by our employee stock ownership
plan, which is a form of retirement plan. We also intend to implement a
restricted stock plan and a stock option plan following completion of the
Conversion, which will benefit the President and other officers and directors.
However, the restricted stock plan and stock option plan may not be adopted
until after the Conversion and are subject to stockholder approval and
compliance with OTS regulations. See pages 63 to 65.
Use of the Proceeds Raised from the Sale of Common Stock
WSB Holding Company will use approximately 50% of the net proceeds from
the stock offerings to purchase all the common stock to be issued by us in the
Conversion and to make a loan to our employee stock ownership plan to fund its
purchase of stock in the Conversion. The balance of the funds will be retained
as WSB Holding Company's initial capitalization. See page 4.
Dividends
WSB does not expect to establish a cash dividend policy during the
first year following the Conversion.
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(iv)
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Market for the Common Stock
Since the size of the offering is relatively small, it is unlikely that
an active and liquid trading market for the trading market will develop and be
maintained. Investors should have a long-term investment intent. Persons
purchasing shares may not be able to sell their shares when they desire or sell
them at a price equal to or above $10.00. See page 5.
Important Risks in Owning WSB Holding Company's Common Stock
Before you decide to purchase stock in the offering, you should read
the Risk Factors section on pages 1-3 of this document.
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(v)
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SELECTED FINANCIAL AND OTHER DATA
We are providing the following summary financial information about us
for your benefit. This information is derived from our 1996 and 1995 audited
financial statements as well as our unaudited period March 31, 1997, as shown
below. The following information is only a summary and you should read it in
conjunction with our consolidated (including consolidated data from operations
of our subsidiary) financial statements and notes beginning on page F-1.
Selected Financial and Other Data
At March 31, At June 30,
------------------ -----------------------------------------
1997 1996 1995
------------------ ----------------- ---------------------
(Dollars in Thousands)
Total Amount of:
Total assets.............................. $33,127 $30,579 $28,282
Loans receivable, net..................... 14,125 13,629 12,798
Securities held-to maturity .............. 12,989 10,892 8,941
Federal home loan bank advances........... 3,000 -- --
Securities available for sale............. 2,758 3,318 1,402
Deposits.................................. 27,860 28,157 25,779
Retained earnings......................... 2,020 2,091 2,101
Number of:
Deposit accounts.......................... 4,791 4,732 4,358
Full service offices...................... 2 2 2
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(vi)
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Summary of Operations
For the Nine Months Ended For the Years Ended
March 31, June 30,
----------------------------------- ----------------------------------
1997 1996 1996 1995
---------------- ---------------- --------------- ----------------
(In Thousands)
Interest and dividend income........... $1,675 $1,528 $2,053 $1,805
Interest expense....................... 990 940 1,257 1,039
----- ------ ----- -----
Net interest income.................... 685 588 796 766
Provision for loan losses.............. 128 13 35 19
------ ------ ------ ------
Net interest income after
provision for loan losses............ 557 575 761 747
Noninterest income..................... 65 65 82 114
Noninterest expense.................... 774(1) 603 798 700
----- ----- ----- -----
Income before income taxes............. (152) 37 45 161
Income tax expense (benefit)........... (77) 6 10 11
------ ----- ----- -----
Net income (loss)...................... $ (75) $ 31 $ 35 $ 150
====== ====== ====== ======
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(1) Includes a non-recurring expense of $161 for the nine months ended
March 31, 1997 for a one-time deposit premium to recapitalize the SAIF.
Key Operating Ratios
At or For the At and For the
Nine Months Ended Years Ended
March 31, June 30,
----------------------------- ---------------------------
1997(1) 1996(1) 1996 1995
------------ -------------- ------------ ----------
Performance Ratios:
Return on average assets
(net income divided by average total assets)....... (0.32)% 0.14% 0.12% 0.55%
Return on average equity
(net income divided by average equity)............. (4.88) 1.96 1.65 7.42
Ratio of average equity to average total assets
(average equity divided by average total assets)... 6.45 7.12 7.12 7.48
Equity to assets at period end....................... 6.10 6.82 6.84 7.43
Interest rate spread................................. 2.92 2.57 2.59 2.61
Net interest margin.................................. 3.02 2.78 2.81 2.90
Average interest-earning assets to average
interest-bearing liabilities....................... 102.43 104.71 104.98 107.20
Net interest income after provision for loan losses,
to total noninterest expense....................... 71.85 95.20 95.38 106.77
Asset Quality Ratios:
Non-performing loans to total assets................. 2.34 2.31 2.38 2.55
Non-performing assets to total assets................ 2.34 2.31 2.38 2.91
Non-performing loans to total loans.................. 5.42 5.30 5.30 5.60
Allowance for loan losses to total loans
at end of period................................... 1.40 0.48 0.55 0.69
Allowance for loan losses to non-performing
loans.............................................. 25.86 8.97 10.41 12.33
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(1) Ratios for nine month periods are stated on an annualized basis. Such
ratios and results are not necessarily indicative of results that may
be expected for the full year.
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(vii)
RISK FACTORS
In addition to the other information in this document, you should
consider carefully the following risk factors in evaluating an investment in our
common stock.
Lack of Active Market for Common Stock
Due to the small size of the offering, it is highly unlikely that an
active trading market will develop and be maintained. If an active market does
not develop, you may not be able to sell your shares promptly or perhaps at all,
or sell your shares at a price equal to or above the price you paid for the
shares. The common stock may not be appropriate as a short-term investment. See
"Market for the Common Stock."
Potential Impact of Changes in Interest Rates and the Current Interest Rate
Environment
Our ability to make a profit, like that of most financial institutions,
is substantially dependent on our net interest income, which is the difference
between the interest income we earn on our interest-earning assets (such as
mortgage loans and investment securities) and the interest expense we pay on our
interest-bearing liabilities (such as deposits and borrowings). All of our
mortgage loans have rates of interest which are fixed for the term of the loan
("fixed rate") and are originated with terms of 15 years, while deposit accounts
have significantly shorter terms to maturity. Because our interest-earning
assets generally have fixed rates of interest and have longer effective
maturities than our interest-bearing liabilities, the yield on our
interest-earning assets generally will adjust more slowly to changes in interest
rates than the cost of our interest-bearing liabilities. As a result, our net
interest income will be adversely affected by material and prolonged increases
in interest rates. In addition, rising interest rates may adversely affect our
earnings because there might be a lack of customer demand for loans. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Asset/Liability Management."
Changes in interest rates also can affect the average life of loans and
mortgage-backed securities. Historically lower interest rates in recent periods
have resulted in increased prepayments of loans and mortgage-backed securities,
as borrowers refinanced their mortgages in order to reduce their borrowing cost.
Under these circumstances, we are subject to reinvestment risk to the extent
that we are not able to reinvest such prepayments at rates which are comparable
to the rates on the prepaid loans or securities.
Asset Quality
At March 31, 1997, we had loans totalling $769,000 in our loan
portfolio that were classified as nonperforming loans. Payment of $736,000 is
due from one borrower on June 30, 1997. In the beginning of June 1997, certain
circumstances came to our attention that the borrower might have difficulty in
repaying the loans on June 30, 1997. If payment is not received, we will begin
foreclosure on the loan in July 1997 and the loans will be classified as other
real estate owned. This borrower held 16 individual loans, that ranged from
$30,000 to $100,000, and were secured by one- to four-family residences in the
city of Pittsburgh. While we believe our loan loss reserve was adequate, there
can be no assurance that our allowance for loan loss will be adequate to cover
all losses that we might incur in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of
Operations for the Nine Months Ended March 31, 1997 and 1996 - Provision for
Loan Losses."
1
Decreased Return on Average Equity and Increased Expenses Immediately After
Conversion
As a result of the Conversion, our equity will increase substantially.
Our expenses also will increase because of the costs associated with our
employee stock ownership plan, restricted stock ownership plan, and the costs of
being a public company. Because of the increases in our equity and expenses, our
return on equity may decrease as compared to our performance in previous years.
Initially, we intend to invest the net proceeds in short term investments which
generally have lower yields than residential mortgage loans. A lower return on
equity could reduce the trading price of our shares. See "Use of Proceeds."
Anti-Takeover Provisions and Statutory Provisions That Could Discourage Hostile
Acquisitions of Control
Provisions in WSB's articles of incorporation and bylaws, the general
corporation law of the Commonwealth of Pennsylvania, and certain federal
regulations may make it difficult and expensive to pursue a tender offer, change
in control or takeover attempt which we oppose. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. Such provisions will also render the removal of the current board of
directors or management of WSB more difficult. In addition, these provisions may
reduce the trading price of our stock. These provisions include: restrictions on
the acquisition of WSB's equity securities and limitations on voting rights; the
classification of the terms of the members of the board of directors; certain
provisions relating to the meeting of stockholders; denial of cumulative voting
by stockholders in the election of directors; the issuance of preferred stock
and additional shares of common stock without shareholder approval; and
supermajority provisions for the approval of certain business combinations. See
"Restrictions on Acquisitions of WSB Holding Company"
Possible Voting Control by Directors and Officers
The proposed purchases of the common stock by our directors, officers
and employee stock ownership plan, as well as the potential acquisition of the
common stock through the stock option plan and restricted stock plan, could make
it difficult to obtain majority support for stockholder proposals which are
opposed by us. In addition, the voting of those shares could enable us to block
the approval of transactions (i.e., business combinations and amendment to our
articles of incorporation and bylaws) requiring the approval of 80% of the
stockholders under the WSB's articles of incorporation. See "Management of
Workingmens Savings Bank, FSB -- Executive Compensation," "Description of
Capital Stock," and "Restrictions on Acquisitions of WSB Holding Company"
Possible Dilutive Effect of RSP and Stock Options
If the Conversion is completed and shareholders approve the restricted
stock plan and stock option plan, we will issue stock to our officers and
directors through these plans. If the shares for the restricted stock plan and
stock options are issued from our authorized but unissued stock, your ownership
percentage could be cumulatively diluted by up to approximately 12.3% and the
trading price of our stock may be reduced. See "Pro Forma Data," "Management of
Workingmens Savings Bank, FSB -- Proposed Future Stock Benefit Plans," and "--
Restricted Stock Plan."
2
Financial Institution Regulation and Future of the Thrift Industry
We are subject to extensive regulation, supervision, and examination by the
OTS and FDIC. Bills have been introduced in Congress that could consolidate the
OTS with the Office of the Comptroller of the Currency ("OCC") and require the
Bank to adopt a commercial charter. If we become a commercial bank, our
investment authority and the ability of WSB to engage in diversified activities
may be limited, which could affect our value and profitability. See
"Regulation."
Restrictions on Repurchase of Shares
Generally, during the first year following the Conversion, WSB may not
repurchase its shares. During each of the second and third years following the
Conversion, WSB may repurchase up to 5% of its outstanding shares. During those
periods, if we decide that additional repurchases would be a good use of funds,
we would not be able to do so, without obtaining OTS approval. There is no
assurance that OTS approval would be given. See "The Conversion -- Restrictions
on Repurchase of Stock."
PROPOSED PURCHASES BY DIRECTORS AND OFFICERS
The following table sets forth the approximate purchases of common stock by
each director and executive officer and their associates in the Conversion. All
shares will be purchased for investment purposes and not for purposes of resale.
The table assumes that 250,000 shares (the midpoint of the estimated valuation
range, "EVR") of the common stock will be sold at $10.00 per share and that
sufficient shares will be available to satisfy subscriptions in all categories.
However, officers and directors and their associates may not buy more than 35%
of the total amount of shares sold in the Conversion. Aggregate Total Price of
Percent Shares Shares of Shares Name Position Purchased(1) Purchased(1)
Purchased(1)
Aggregate
Total Price of Percent
Shares Shares of Shares
Name Position Purchased(1) Purchased(1) Purchased(1)
- ---- -------- ------------ ------------ ------------
Joseph J. Manfred Chairman and
Director 7,500 $ 75,000 3.0%
Robert Neudorfer President and
Director 12,500 125,000 5.0%
Stanford H. Rosenberg Vice-President and
Director 12,500 125,000 5.0%
Johanna C. Guehl Secretary and
Director 12,500 125,000 5.0%
John P. Mueller Director 12,500 125,000 5.0%
John T. Ringland Director 12,500 125,000 5.0%
Ronald W. Moreschi Vice-President and
Treasurer 7,500 75,000 3.0%
----- ------ ---
77,500 $775,000 31.0%
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(1) Does not include shares purchased by the ESOP.
3
USE OF PROCEEDS
WSB will use 50% of the net proceeds from the offering to purchase all
of the capital stock we will issue in connection with the Conversion. A portion
of the net proceeds to be retained by WSB will be loaned to our employee stock
plan to fund its purchase of up to 8% of the shares sold in the Conversion. On a
short-term basis, the balance of the net proceeds retained by WSB initially will
be invested in short-term investments. Although there are no current plans, the
net proceeds subsequently may be used to diversify activities. The net proceeds
may also serve as a source of funds for the payment of dividends to stockholders
or for the repurchase of the shares. A portion of the net proceeds may also be
used to fund the purchase of 4% of the shares for a restricted stock plan (the
RSP) which is anticipated to be adopted following the Conversion. See "Pro Forma
Data."
The funds we received from the sale of our capital stock to WSB will be
added to our general funds and be used for general corporate purposes including:
(i) investment in mortgages and other loans, (ii) U.S. Government and federal
agency securities, (iii) mortgage-backed securities, (iv) funding loan
commitments or (v) repaying FHLB advances. However, initially we intend to
invest the net proceeds in short-term investments until we can deploy the
proceeds into higher yielding loans. The funds added to our capital will further
strengthen our capital position.
If additional benefit plans, such as the RSP, are adopted within one
year and our tangible capital is not equal to or greater than 10% of total
assets at the time, WSB will provide additional capital to us so that tangible
capital equals 10% of total assets to comply with OTS rules requiring such
capital prior to implementation of the RSP. See footnote (1) under "Historical
and Pro Forma Capital Compliance."
The net proceeds may vary because the total expenses of the Conversion
may be more or less than those estimated. We expect our estimated expenses to be
$280,000. Our estimated net proceeds will range from $1,845,000 to $2,595,000
(or up to $3,026,000 in the event the maximum of the estimated valuation range
is increased to $3,306,000). See "Pro Forma Data." The net proceeds will also
vary if expenses are different or if the number of shares to be issued in the
Conversion is adjusted to reflect a change in our estimated pro forma market
value. Payments for shares made through withdrawals from existing deposit
accounts with us will not result in the receipt of new funds for investment by
us but will result in a reduction of our liabilities and interest expense as
funds are transferred from interest-bearing certificates or accounts.
DIVIDENDS
Upon Conversion, WSB's board of directors will have the authority to
declare dividends on the shares, subject to statutory and regulatory
requirements. WSB does not expect to establish a cash dividend policy during the
first year after the Conversion. Declarations of dividends by the board of
directors will depend upon a number of factors, including: (i) the amount of the
net proceeds retained by WSB in the Conversion, (ii) investment opportunities
available, (iii) capital requirements, (iv) regulatory limitations, (v) results
of operations and financial condition, (vi) tax considerations, and (vii)
general economic conditions. Upon review of such considerations, the board may
authorize future dividends if it deems such payment appropriate and in
compliance with applicable law and regulation. For a period of one year
following the completion of the Conversion, we will not pay any dividends that
would be construed as a return of capital nor take any actions to pursue or
propose such dividends. In addition, there can be no assurance that regular or
special dividends will be paid, or, if paid, will continue to be paid. See
"Historical and Pro Forma Capital Compliance," "The Conversion -- Effects
4
of Conversion to Stock Form on Savers and Borrowers of Workingmens Savings Bank,
FSB -- Liquidation Account" and "Regulation -- Dividend and Other Capital
Distribution Limitations."
WSB is not subject to OTS regulatory restrictions on the payment of
dividends to its stockholders although the source of such dividends will be
dependent in part upon the receipt of dividends from us. WSB is subject,
however, to the requirements of Pennsylvania law, which generally limit the
payment of dividends to amounts that will not affect the ability of WSB, after
the dividend has been distributed, to pay its debts in the ordinary course of
business.
In addition to the foregoing, the portion of our earnings which has
been appropriated for bad debt reserves and deducted for federal income tax
purposes cannot be used by us to pay cash dividends to WSB without the payment
of federal income taxes by us at the then current income tax rate on the amount
deemed distributed, which would include the amount of any federal income taxes
attributable to the distribution. See "Taxation -- Federal Taxation" and Note J
to the Consolidated Financial Statements. WSB does not contemplate any
distribution by us that would result in a recapture of our bad debt reserve or
otherwise create federal tax liabilities.
MARKET FOR THE COMMON STOCK
As a newly organized company, WSB has never issued capital stock, and
consequently there is no established market for the common stock. Following the
completion of the offering, it is anticipated that the common stock will be
traded on the over-the-counter market with quotations available through the OTC
Electronic Bulletin Board. Trident Securities is expected to make a market in
the common stock. Making a market may include the solicitation of potential
buyers and sellers in order to match buy and sell orders. However, Trident
Securities will not be subject to any obligation with respect to such efforts.
If the common stock cannot be quoted and traded on the OTC Bulletin Board it is
expected that the transactions in the common stock will be reported in the pink
sheets of the National Quotation Bureau, Inc.
The development of an active trading market depends on the existence of
willing buyers and sellers. Due to the small size of the offering, it is highly
unlikely that an active trading market will develop and be maintained. You could
have difficulty disposing of your shares and you should not view the shares as a
short-term investment. You may not be able to sell your shares at a price equal
to or above the price you paid for the shares.
5
CAPITALIZATION
The following table presents, as of March 31, 1997, our historical
capitalization and the consolidated capitalization of WSB after giving effect to
the Conversion and the other assumptions set forth below and under "Pro Forma
Data," based upon the sale of shares at the minimum, midpoint, maximum, and 15%
above the maximum of the EVR at a price of $10.00 per share:
Pro Forma Consolidated Capitalization
Based on the Sale of (2)(3)
-----------------------------------------------------------------------------------
Historical 212,500 250,000 287,500 330,600
Capitalization Shares at Shares at Shares at Shares At
at March 31, $10.00 $10.00 $10.00 $10.00
1997 Per Share Per Share Per Share Per Share
------ --------- --------- --------- ---------
(In Thousands)
Deposits(1) .................................. $27,860 $27,860 $27,860 $27,860 $27,860
Other Borrowings.............................. 3,000 3,000 3,000 3,000 3,000
------- ------- ------- ------- -------
Total deposits and other borrowings......... $30,860 $30,860 $30,860 $30,860 $30,860
====== ====== ====== ====== ======
Stockholders' Equity:
Preferred Stock, $.10 par value per share,
1,000,000 shares authorized; none to be
issued..................................... $ - $ - $ - $ - $ -
Common Stock, $.10 par value, 4,000,000
shares authorized; total shares to be
issued as reflected........................ - 21 25 29 33
Additional paid in capital.................... - 1,824 2,195 2,566 2,994
Stockholders' equity(4)..................... 2,020 2,020 2,020 2,020 2,020
Less:
Common Stock acquired by ESOP............... - (170) (200) (230) (265)
Common Stock acquired by RSP................ - (85) (100) (115) (132)
------ ------ ------ ------ -----
Total stockholders' equity.................... $ 2,020 $ 3,610 $ 3,940 $ 4,270 $ 4,650
====== ====== ====== ====== ======
- ---------------------
(1) Excludes accrued interest payable on deposits. Withdrawals from savings
accounts for the purchase of stock have not been reflected in these
adjustments. Any withdrawals will reduce pro forma capitalization by
the amount of such withdrawals.
(2) Does not reflect the increase in the number of shares of common stock
after the Conversion in the event of implementation of the Option Plan
or RSP. See "Management of Workingmens Savings Bank, FSB - Proposed
Future Stock Benefit Plans -- Stock Option Plan" and "-- Restricted
Stock Plan."
(3) Assumes that 8% and 4% of the shares issued in the Conversion will be
purchased by the ESOP and RSP, respectively. No shares will be
purchased by the RSP in the Conversion. It is assumed on a pro forma
basis that the RSP will be adopted by the board of directors, approved
by stockholders of WSB, and reviewed by the OTS. It is assumed that the
RSP will purchase common stock in the open market within one year of
the Conversion in order to give an indication of its effect on
capitalization. The pro forma presentation does not show the impact of:
(a) results of operations after the Conversion, (b) changing market
prices of shares of common stock after the Conversion, or (c) a smaller
than 4% or 8% purchase by the RSP or ESOP, respectively. Assumes that
the funds used to acquire the ESOP shares will be borrowed from WSB for
a ten year term at the prime rate as published in The Wall Street
Journal. For an estimate of the impact of the ESOP on earnings, see
"Pro Forma Data." The Bank intends to make contributions to the ESOP
sufficient to service and ultimately retire its debt. The amount to be
acquired by the ESOP and RSP is reflected as a reduction of
stockholders' equity. The issuance of authorized but unissued shares
for the RSP in an amount equal to 4% of the outstanding shares of
common stock will have the effect of diluting existing stockholders'
interests by 3.9%. There can be no assurance that stockholder approval
of the RSP will be obtained. See "Management of Workingmens Savings
Bank, FSB - Proposed Future Stock Benefit Plans - Restricted Stock
Plan."
(4) The equity of the Bank will be substantially restricted after the
Conversion. See "Dividends," "Regulation - Dividends and Other Capital
Distribution Limitations," "The Conversion - Effects of Conversion to
Stock Form on Depositors and Borrowers of Workingmens Savings Bank, FSB
- Liquidation Account" and Note R to the Consolidated Financial
Statements.
6
PRO FORMA DATA
The actual net proceeds from the sale of the common stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $1.8 million and $3.0 million at the minimum
and maximum, as adjusted, of the EVR, based upon the following assumptions: (i)
8% of the shares will be sold to the ESOP and 77,500 shares will be sold to
officers, directors, and members of their immediate families; (ii) Trident will
have received sales fees including expenses of $85,000; (iii) no shares will be
sold in a Public Offering; (iv) other Conversion expenses, excluding the sales
fees paid to Trident, will be $195,000; and (v) 4% of the shares will be sold to
the RSP. Because management of the Savings Bank presently intends to adopt the
RSP within the first year following the Conversion, a purchase by the RSP in the
Conversion has been included with the pro forma data to give an indication of
the effect of a 4% purchase by the RSP, at a $10.00 per share purchase price in
the market, even though the RSP does not currently exist and is prohibited by
OTS regulation from purchasing shares in the Conversion. The pro forma
presentation does not show the effect of: (a) results of operations after the
Conversion, (b) changing market prices of the shares after the Conversion or (c)
less than a 4% purchase by the RSP.
The following table sets forth, our historical net earnings and
stockholders' equity prior to the Conversion and the pro forma consolidated net
earnings and stockholders' equity of WSB following the Conversion. Unaudited pro
forma consolidated net earnings and stockholders' equity have been calculated
for the nine months ended March 31, 1997 and fiscal year ended June 30, 1996 as
if the common stock to be issued in the Conversion had been sold at July 1, 1996
and July 1, 1995, and the estimated net proceeds had been invested at 6%,
respectively for the fiscal year ended June 30, 1996 and the nine months ended
March 31, 1997, which was approximately equal to the one-year U.S. Treasury bill
rate at March 31, 1997. The one-year U.S. Treasury bill rate, rather than an
arithmetic average of the average yield on interest-earning assets and average
rate paid on deposits, has been used to estimate income on net proceeds because
it is believed that the one-year U.S. Treasury bill rate is a more accurate
estimate of the rate that would be obtained on an investment of net proceeds
from the offering. In calculating pro forma income, an effective state and
federal income tax rate of 33% has been assumed for the respective periods,
resulting in an after tax yield of 4.02% for the nine months ended March 31,
1997 and the fiscal year ended June 30, 1996. Withdrawals from deposit accounts
for the purchase of shares are not reflected in the pro forma adjustments. The
computations are based upon the assumptions that 212,500 shares (minimum of EVR)
shares, 250,000 (midpoint of EVR), 287,500 shares (maximum of EVR) or 330,600
shares (maximum, as adjusted, of the EVR) are sold at a price of $10.00 per
share. As discussed under "Use of Proceeds," WSB expects to retain 50% of the
net Conversion proceeds, part of which will be loaned to the ESOP to fund its
anticipated purchase of 8% of shares issued in the Conversion. It is assumed
that the yield on the net proceeds of the Conversion retained by WSB will be the
same as the yield on the net proceeds of the Conversion transferred to us.
Historical and pro forma per share amounts have been calculated by dividing
historical and pro forma amounts by the indicated number of shares. Per share
amounts have been computed as if the shares had been outstanding at the
beginning of the periods or at the dates shown, but without any adjustment of
per share historical or pro forma stockholders' equity to reflect the earnings
on the estimated net proceeds.
The stockholders' equity information is not intended to represent the
fair market value of the shares, or the current value of our assets or
liabilities, or the amounts, if any, that would be available for distribution to
stockholders in the event of liquidation. For additional information regarding
the liquidation account, see "The Conversion -- Certain Effects of the
Conversion to Stock Form on Savers and Borrowers of Workingmens Savings Bank,
FSB -- Liquidation Account" and Note R to the Consolidated Financial Statements.
The pro forma income derived from the assumptions set forth above should not be
considered indicative of the actual results of our
7
operations for any period. Such pro forma data may be materially affected by a
change in the price per share or number of shares to be issued in the Conversion
and by other factors. For information regarding investment of the proceeds see
"Use of Proceeds" and "The Conversion -- Stock Pricing" and "-- Number of Shares
to be Issued in the Conversion."
At or For the Nine Months Ended March 31, 1997
-------------------------------------------------------------
212,500 250,000 287,500 330,600
Shares at Shares at Shares at Shares at
$10.00 $10.00 $10.00 $10.00
per share per share per share per share
--------- --------- --------- ---------
(Dollars in Thousands, except per share amounts)
Gross proceeds..................................................... $ 2,125 $ 2,500 $ 2,875 $ 3,306
Less estimated offering expenses................................... (280) (280) (280) (280)
--------- --------- --------- ---------
Estimated net proceeds........................................... 1,845 2,220 2,595 3,026
Less: ESOP funded by the Company................................. (170) (200) (230) (265)
RSP funded by the Company................................ (85) (100) (115) (132)
--------- --------- --------- ---------
Estimated investable net proceeds:............................... $ 1,590 $ 1,920 $ 2,250 $ 2,630
======== ======== ======== ========
Net income:
Historical net income............................................ $ (75) $ (75) $ (75) $ (75)
Pro forma earnings on investable net proceeds.................... 48 58 68 79
Pro forma ESOP adjustment(1)..................................... (9) (10) (12) (13)
Pro forma RSP adjustment(2)...................................... (9) (10) (12) (13)
-------- -------- --------- ---------
..Total............................................................ $ (44) $ (37) $ (30) $ (22)
========= ======== ========= =========
Net income per share:
Historical net income per share.................................. $ (0.38) $ (0.32) $ (0.28) $ (0.24)
Pro forma earnings on net proceeds............................... 0.24 0.25 0.25 0.26
Pro forma ESOP adjustment(1)..................................... (0.04) (0.04) (0.04) (0.04)
Pro forma RSP adjustment(2)...................................... (0.04) (0.04) (0.04) (0.04)
--------- --------- --------- ---------
..Total(5)......................................................... $ (0.22) $ (0.16) $ (0.11) $ (0.07)
========= ========= ========= =========
Stockholders' equity:(3)
Historical....................................................... $ 2,020 $ 2,020 $ 2,020 $ 2,020
Estimated net proceeds........................................... 1,845 2,220 2,595 3,026
Less: Common stock acquired by ESOP(1)........................... (170) (200) (230) (265)
.. Common stock acquired by RSP(2)............................ (85) (100) (115) (132)
--------- --------- --------- ---------
..Total............................................................ $ 3,610 $ 3,940 $ 4,270 $ 4,650
======== ======== ======== ========
Stockholders' equity per share:(3)
Historical....................................................... $ 9.51 $ 8.08 $ 7.03 $ 6.11
Estimated net proceeds........................................... 8.68 8.88 9.03 9.15
Less: Common stock acquired by ESOP(1)........................... (0.80) (0.80) (0.80) (0.80)
.. Common stock acquired by RSP(2)............................ (0.40) (0.40) (0.40) (0.40)
-------- -------- -------- --------
..Total............................................................ $ 16.99 $ 15.76 $ 14.85 $ 14.06
======== ======== ======== ========
Offering price as a percentage of pro forma stockholders'
equity per share(4).............................................. 58.9% 63.5% 67.3% 71.1%
========= ========= ========= =========
Ratio of offering price to pro forma earnings per share(5)......... - - - -
======= ======= ======= =======
(footnotes on following pages)
8
At or For the Year Ended June 30, 1996
-----------------------------------------------------------------
212,500 250,000 287,500 330,600
Shares at Shares at Shares at Shares at
$10.00 $10.00 $10.00 $10.00
per share per share per share per share
--------- --------- --------- ---------
(Dollars in Thousands, except per share amounts)
Gross proceeds.................................................... $ 2,125 $ 2,500 $ 2,875 $ 3,306
Less estimated offering expenses.................................. (280) (280) (280) (280)
--------- --------- --------- ---------
Estimated net proceeds.......................................... 1,845 2,220 2,595 3,026
Less: ESOP funded by the Company................................ (170) (200) (230) (265)
RSP funded by the Company............................... (85) (100) (115) (132)
--------- --------- --------- ---------
Estimated investable net proceeds:.............................. $ 1,590 $ 1,920 $ 2,250 $ 2,630
======== ======== ======== ========
Net income:
Historical net income........................................... $ 35 $ 35 $ 35 $ 35
Pro forma earnings on investable net proceeds................... 64 77 90 106
Pro forma ESOP adjustment(1).................................... (11) (13) (15) (18)
Pro forma RSP adjustment(2)..................................... (11) (13) (15) (18)
--------- --------- --------- ---------
..Total........................................................... $ 76 $ 85 $ 95 $ 105
========= ========= ========= =========
Net income per share:
Historical net income per share................................. $ 0.18 $ 0.15 $ 0.13 $ 0.11
Pro forma earnings on net proceeds.............................. 0.32 0.33 0.34 0.34
Pro forma ESOP adjustment(1).................................... (0.06) (0.06) (0.06) (0.06)
Pro forma RSP adjustment(2)..................................... (0.06) (0.06) (0.06) (0.06)
--------- --------- --------- ---------
..Total(5)........................................................ $ 0.39 $ 0.37 $ 0.35 $ 0.34
========= ========= ========= =========
Stockholders' equity:(3)
Historical...................................................... $ 2,091 $ 2,091 $ 2,091 $ 2,091
Estimated net proceeds.......................................... 1,845 2,220 2,595 3,026
Less: Common stock acquired by ESOP(1).......................... (170) (200) (230) (265)
.. Common stock acquired by RSP(2)........................... (85) (100) (115) (132)
--------- --------- --------- ---------
..Total........................................................... $ 3,681 $ 4,011 $ 4,341 $ 4,721
======== ======== ======== ========
Stockholders' equity per share:(3)
Historical...................................................... $ 9.84 $ 8.36 $ 7.27 $ 6.32
Estimated net proceeds.......................................... 8.68 8.88 9.03 9.15
Less: Common stock acquired by ESOP(1).......................... (0.80) (0.80) (0.80) (0.80)
.. Common stock acquired by RSP(2)........................... (0.40) (0.40) (0.40) (0.40)
-------- -------- -------- --------
..Total........................................................... $ 17.32 $ 16.04 $ 15.10 $ 14.28
======== ======== ======== ========
Offering price as a percentage of pro forma stockholders'
equity per share(4)............................................. 57.7% 62.3% 66.2% 70.0%
======== ========= ========= =========
Ratio of offering price to pro forma earnings per share(5)........ 25.6x 27.0x 28.6x 29.4x
======= ======= ======= =======
(footnotes on following page)
9
- --------------------
(1) Assumes 8% of the shares sold in the Conversion are purchased by the
ESOP, and that the funds used to purchase such shares are borrowed from
WSB. The approximate amount expected to be borrowed by the ESOP is not
reflected as a liability but is reflected as a reduction of capital. We
intend to make annual contributions to the ESOP over a ten year period
in an amount at least equal to the principal and interest requirement
of the debt. The pro forma net income assumes: (i) that 1,700, 2,000,
2,300, and 2,645 shares at the minimum, mid-point, maximum and maximum,
as adjusted of the EVR, were committed to be released during the year
ended June 30, 1996 and the nine months ended March 31, 1997 at an
average fair value of $10.00 per share in accordance with Statement of
Position ("SOP") 93-6 of the American Institute of Certified Public
Accountants ("AICPA"); (ii) the effective tax rate was 33% for such
periods; and (iii) only the ESOP shares committed to be released were
considered outstanding for purposes of the per share net earnings. The
pro forma stockholders' equity per share calculation assumes all ESOP
shares were outstanding, regardless of whether such shares would have
been released. Because WSB will be providing the ESOP loan, only
principal payments on the ESOP loan are reflected as employee
compensation and benefits expense. As a result, to the extent the value
of the shares appreciates over time, compensation expense related to
the ESOP will increase. For purposes of the preceding tables, it was
assumed that a ratable portion of the ESOP shares purchased in the
Conversion were committed to be released during the period ended March
31, 1997 and June 30, 1996. See Note 5 below. If it is assumed that all
of the ESOP shares were included in the calculation of earnings per
share for the period ended at March 31, 1997 and June 30, 1996,
earnings per share would have been $(.21), $(.15), $(.10) and $(.07),
and $.35, $.34, $.33, and $.32, at March 31, 1997 and June 30, 1996,
respectively, based on the sale of shares at the minimum, midpoint,
maximum and the maximum, as adjusted, of the EVR. See "Management of
Workingmens Savings Bank, FSB - Other Benefits - Employee Stock
Ownership Plan."
(2) Assumes issuance to the RSP of 8,500, 10,000, 11,500, and 13,224 shares
at the minimum, mid-point, maximum, and maximum, as adjusted of the
EVR. The assumption in the pro forma calculation is that (i) shares
were purchased by WSB following the Conversion, (ii) the purchase price
for the shares purchased by the RSP was equal to the purchase price of
$10 per share and (iii) 20% of the amount contributed was an amortized
expense during such period. Such amount does not reflect possible
increases or decreases in the value of such stock relative to the
Purchase Price. As we accrue compensation expense to reflect the five
year vesting period of such shares pursuant to the RSP, the charge
against capital will be reduced accordingly. Implementation of the RSP
within one year of Conversion would require regulatory and stockholder
approval at a meeting of our stockholders to be held no earlier than
six months after the Conversion. For purposes of this table, it is
assumed that the RSP will be adopted by the board of directors,
reviewed by the OTS, and approved by the stockholders, and that the RSP
will purchase the shares in the open market within the year following
the Conversion. If the shares to be purchased by the RSP are assumed at
July 1, 1996 and July 1, 1995, to be newly issued shares purchased from
WSB by the RSP at the Purchase Price, at the minimum, midpoint, maximum
and maximum, as adjusted, of the EVR, pro forma stockholders' equity
per share would have been $16.33, $15.15, $14.28, and $13.52, and
$16.65, $15.43, $14.52, and $13.73 at March 31, 1997 and June 30, 1996,
respectively, and pro forma earnings per share would have been $(.16),
$(.10), $(.06), and (.03), and $.39, $.33, $.37, and $.36, for the nine
months ended March 31, 1997, and the year ended June 30, 1996,
respectively. As a result of the RSP, stockholders' ownership interests
will be diluted by approximately 3.9%. See "Management of Workingmens
Savings Bank, FSB - Proposed Future Stock Benefit Plans - Restricted
Stock Plan."
(3) Assumes that following the consummation of the Conversion, WSB will
adopt the Option Plan, which if implemented within one year of
Conversion would be subject to regulatory review and board of director
and stockholder approval, and that such plan would be considered and
voted upon at a meeting of WSB stockholders to be held no earlier than
six months after the Conversion. Under the Option Plan, employees and
directors could be granted options to purchase an aggregate amount of
shares equal to 10% of the shares issued in the Conversion at an
exercise price equal to the market price of the shares on the date of
grant. In the event the shares issued under the Option Plan were
awarded, the ownership interests of existing stockholders would be
diluted by approximately 9.1%. At the minimum, midpoint, maximum and
the maximum, as adjusted, of the EVR, if all shares under the Option
Plan were newly issued at the
10
beginning of the respective periods and the exercise price for the
option shares were equal to the Purchase Price, the number of
outstanding shares would increase to 233,750, 275,000, 316,250, and
363,660, respectively, pro forma stockholders' equity per share would
have been $16.35, $15.23, $14.41, and $13.70 and $16.66, $15.49, $14.64,
and $13.89 at March 31, 1997 and June 30, 1996, respectively, and pro
forma earnings per share would have been $(.15), $(.10), $(.06), and
$.02), and $.36, $.35, $.34, and $.32, respectively.
(4) Consolidated stockholders' equity represents the excess of the carrying
value of the assets of the over its liabilities. The calculations are
based upon the number of shares issued in the Conversion, without
giving effect to SOP 93-6. The amounts shown do not reflect the federal
income tax consequences of the potential restoration to income of the
tax bad debt reserves for income tax purposes, which would be required
in the event of liquidation. The amounts shown also do not reflect the
amounts required to be distributed in the event of liquidation to
eligible depositors from the liquidation account which will be
established upon the consummation of the Conversion. Pro forma
stockholders' equity information is not intended to represent the fair
market value of the shares, the current value of our assets or
liabilities or the amounts, if any, that would be available for
distribution to stockholders in the event of liquidation. Such pro
forma data may be materially affected by a change in the number of
shares to be sold in the Conversion and by other factors.
(5) Pro forma net income per share calculations include the number of
shares assumed to be sold in the Conversion and, in accordance with SOP
93-6, exclude ESOP shares which would not have been released during the
period. Accordingly, 15,300, 18,000, 20,700, and 23,803 shares have
been subtracted from the shares assumed to be sold at the minimum,
mid-point, maximum, and maximum, as adjusted, of the EVR, respectively,
and 1,700, 2,000, 2,300, and 2,645 shares are assumed to be outstanding
at the minimum, mid-point, maximum, and maximum, as adjusted of the
EVR. See Note 1 above.
11
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The following table presents our historical and pro forma capital
position relative to our capital requirements as of March 31, 1997. For a
discussion of the assumptions underlying the pro forma capital calculations
presented below, see "Use of Proceeds," "Capitalization" and "Pro Forma Data."
The definitions of the terms used in the table are those provided in the capital
regulations issued by the OTS. For a discussion of the capital standards
applicable to us, see "Regulation -- Savings Institution Regulation Regulatory
Capital Requirements."
Pro Forma(1)
------------------------------------------------------------------------------------
$2,125,000 $2,500,000 $2,875,000 $3,306,000
Historical Minimum Midpoint Maximum Maximum, as adjusted
------------------- ------------------- ------------------- -------------------- ------------------
Percent Percent Percent Percent Percent
Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2)
------ --------- ------ ----------- ------ ------------ ------ ------------ ------ ------------
(Dollars in Thousands)
GAAP Capital.......... $2,020 6.10% $2,688 7.91% $2,830 8.29% $2,973 8.67% $3,136 9.09%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Tangible Capital...... $2,057 6.20% $2,725 8.01% $2,867 8.39% $3,010 8.76% $3,173 9.19%
Tangible Capital
Requirement......... 497 1.50 510 1.50 513 1.50 515 1.50 518 1.50
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Excess................ $1,560 4.70% $2,215 6.51% $2,354 6.89% $2,495 7.26% $2,655 7.69%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Core Capital.......... $2,057 6.20% $2,725 8.01% $2,867 8.39% $3,010 8.76% $ 3,173 9.19%
Core Capital
Requirement(3)...... 995 3.00 1,020 3.00 1,025 3.00 1,030 3.00 1,036 3.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Excess................ $1,062 3.20% $1,705 5.01% $1,824 5.39% $1,980 5.76% $2,137 6.19%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total Risk-Based
Capital(4).......... $2,229 16.23% $2,897 20.84% $3,039 21.80% $3.182 22.77% $3,345 23.87%
Risk-Based Capital
Requirement......... 1,099 8.00 1,112 8.00 1,115 8.00 1,118 8.00 1,121 8.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Excess................ $1,130 8.23% $1,785 12.84% $1,924 13.80% $2,064 14.77% $2,224 15.87%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
- --------------------
(1) WSB will provide additional paid-in capital prior to the formation of
the RSP in order to attain a 10% capitalization level at that time if
the RSP is adopted within one year of the Conversion and our tangible
capital is below 10% to comply with OTS rules requiring such capital
prior to implementation of the RSP. Assuming that the RSP was formed
immediately upon conversion, to attain that capitalization level, WSB
would invest approximately an additional $750,000, $612,000, $472,000,
and $313,000 at the minimum, midpoint, maximum, and maximum, as
adjusted of the EVR, respectively.
(2) GAAP, adjusted, or risk-weighted assets as appropriate.
(3) The unrealized loss on securities available for sale of $37,000 has
been added to GAAP Capital to arrive at our Tangible and Core Capital.
(4) Proposed regulations of the OTS could increase the core capital
requirement to a ratio between 4% and 5%, based upon an association's
regulatory examination rating. See "Regulation - Regulatory Capital
Requirements." Our Risk-Based Capital includes our Tangible Capital
plus $172,000 of our allowance for loan losses. Our Risk- weighted
assets as of March 31, 1997 totaled approximately $13.7 million. Net
proceeds available for investment by us are assumed to be invested in
interest earning assets that have a 20% risk-weighting.
12
THE CONVERSION
Our board of directors and the OTS have approved the Plan subject to
the Plan's approval by our members, and subject to the satisfaction of certain
other conditions imposed by the OTS in its approval. OTS approval, however, does
not constitute a recommendation or endorsement of the Plan by the OTS.
General
On May 19, 1997, our board of directors adopted a Plan of Conversion,
pursuant to which we will convert from a federally chartered mutual savings bank
to a federally chartered stock savings bank and become a wholly owned subsidiary
of WSB. The Conversion will include adoption of the proposed Federal Stock
charter and Bylaws which will authorize the issuance of capital stock by us.
Under the Plan, our capital stock is being sold to WSB and the common stock of
WSB is being offered to our eligible depositors and then to the public. The
Conversion will be accounted for at historical cost in a manner similar to a
pooling of interests.
The OTS has approved WSB's application to become a savings and loan
holding company and to acquire all of our common stock to be issued in the
Conversion. Pursuant to such OTS approval, WSB plans to retain 50% of the net
proceeds from the sale of shares of its common stock and to use the remaining
50% to purchase all of the common stock we will issue in the Conversion.
However, if additional benefit plans, such as the RSP, are adopted within one
year and our tangible capital is not equal to or greater than 10% of total
assets at that time, WSB will provide additional capital to us so that tangible
capital equals 10% of total assets to comply with OTS rules requiring such
capital prior to the implementation of the RSP. See "Use of Proceeds."
The shares are first being offered in a Subscription Offering to
holders of subscription rights. To the extent shares of common stock remain
available after the Subscription Offering, shares of common stock may be offered
in a Public Offering. The Public Offering, if any, may commence anytime
subsequent to the commencement of the Subscription Offering. Shares not
subscribed for in the Subscription and Public Offerings may be offered for sale
by WSB in a Syndicated Public Offering. We have the right, in our sole
discretion, to accept or reject, in whole or in part, any orders to purchase
shares of the common stock received in the Public and Syndicated Public
Offering. See "-- Public Offering."
Shares of common stock in an amount equal to our pro forma market value
as a stock savings institution must be sold in order for the Conversion to
become effective. The Public Offering must be completed within 45 days after the
last day of the Subscription Offering period unless such period is extended by
us with the approval of the OTS. The Plan provides that the Conversion must be
completed within 24 months after the date of the approval of the Plan by our
members.
In the event that we are unable to complete the sale of common stock
and effect the Conversion within 45 days after the end of the Subscription
Offering, we may request an extension of the period by the OTS. No assurance can
be given that the extension would be granted if requested. Due to the volatile
nature of market conditions, no assurances can be given that our valuation would
not substantially change during any such extension. If the EVR of the shares
must be amended, no assurance can be given that such amended EVR would be
approved by the OTS. Therefore, it is possible that if the Conversion cannot be
completed within the requisite period, we may not be permitted to complete the
Conversion. A substantial delay caused by an extension of the period may also
significantly increase the expense of
13
the Conversion. No sales of the shares may be completed in the offering unless
the Plan is approved by our members.
The completion of the offering is subject to market conditions and
other factors beyond our control. No assurance can be given as to the length of
time following approval of the Plan at the meeting of our members that will be
required to complete the shares being offered in the Conversion. If delays are
experienced, significant changes may occur in our estimated pro forma market
value upon Conversion together with corresponding changes in the offering price
and the net proceeds to be realized by us from the sale of the shares. In the
event the Conversion is terminated, we will charge all Conversion expenses
against current income and any funds collected by us in the offering will be
promptly returned, with interest, to each potential investor.
Effects of Conversion to Stock Form on Depositors and Borrowers of Workingmens
Savings Bank, FSB
Voting Rights. Currently in our mutual form, our depositor and certain
borrower members have voting rights and may vote for the election of directors.
Following the Conversion, all voting rights will be held solely by stockholders.
Savings Accounts and Loans. The balances, terms and FDIC insurance
coverage of savings accounts will not be affected by the Conversion.
Furthermore, the amounts and terms of loans and obligations of the borrowers
under their individual contractual arrangements with us will not be affected by
the Conversion.
Tax Effects. We have received an opinion from our counsel, Malizia,
Spidi, Sloane & Fisch, P.C. on the federal tax consequences of the Conversion.
The opinion provides, in part, that: (i) the Conversion will qualify as a
reorganization under Section 368(a)(1)(F) of the Code, and no gain or loss will
be recognized by us by reason of the proposed Conversion; (ii) no gain or loss
will be recognized by us upon the receipt of money from WSB for our stock, and
no gain or loss will be recognized by WSB upon the receipt of money for the
shares; (iii) our assets will have the same basis before and after the
Conversion; (iv) the holding period of our assets will include the period during
which the assets were held by us in our mutual form; (v) no gain or loss will be
recognized by the Eligible Account Holders, Supplemental Eligible Account
Holders, and Other Members upon the issuance to them of withdrawable savings
accounts in us in the stock form in the same dollar amount as their savings
accounts in us in the mutual form plus an interest in the liquidation account of
us in the stock form in exchange for their savings accounts in us in the mutual
form; (vi) provided that the amount to be paid for the shares pursuant to the
subscription rights is equal to the fair market value of such shares, no gain or
loss will be recognized by Eligible Account Holders, Supplemental Eligible
Account Holders, and Other Members under the Plan upon the distribution to them
of nontransferable subscription rights; (vii) the basis of each account holder's
savings accounts after the Conversion will be the same as the basis of his
savings accounts prior to the Conversion, decreased by the fair market value of
the nontransferable subscription rights received and increased by the amount, if
any, of gain recognized on the exchange; (viii) the basis of each account
holder's interest in the liquidation account will be zero; (ix) the holding
period of the common stock acquired through the exercise of subscription rights
shall begin on the date on which the subscription rights are exercised; (x) we
will succeed to and take into account the earnings and profits or deficit in
earnings and profits of us as of the date of Conversion; (xi) immediately after
Conversion, we will succeed to the bad debt reserve accounts of the Savings
Bank, and the bad debt reserves will have the same character in our hands after
Conversion as if no distribution or transfer had occurred; and (xii) the
creation of the liquidation account will have no effect on our taxable income.
14
The opinion from Malizia, Spidi, Sloane & Fisch, P.C. is based in part
on the assumption that the exercise price of the subscription rights will be
approximately equal to the fair market value of those shares at the time of the
completion of the proposed Conversion. We have received an opinion of Ferguson
which, based on certain assumptions, concludes that the subscription rights to
be received by Eligible Account Holders and other eligible subscribers do not
have any economic value at the time of distribution or at the time the
subscription rights are exercised. Such opinion is based on the fact that such
rights are: (i) acquired by the recipients without payment therefor, (ii)
non-transferable, (iii) of short duration, and (iv) afford the recipients the
right only to purchase shares at a price equal to their estimated fair market
value, which will be the same price at which shares for which no subscription
right is received in the Subscription Offering will be offered in the Public
Offering. If the subscription rights granted to Eligible Account Holders or
other eligible subscribers are deemed to have an ascertainable value, receipt of
such rights would be taxable only to those Eligible Account Holders or other
eligible subscribers who exercise the subscription rights in an amount equal to
such value (either as a capital gain or ordinary income), and we could recognize
gain on such distribution.
We are also subject to Pennsylvania income taxes and have received an
opinion from Malizia, Spidi, Sloane & Fisch, P.C. that the Conversion will be
treated for Pennsylvania state tax purposes similar to the Conversion's
treatment for federal tax purposes.
Unlike a private letter ruling, the opinions of Malizia, Spidi, Sloane
& Fisch, P.C. and Ferguson have no binding effect or official status, and no
assurance can be given that the conclusions reached in any of those opinions
would be sustained by a court if contested by the IRS or the Pennsylvania tax
authorities. Eligible Account Holders, Supplemental Eligible Account Holders,
and Other Members are encouraged to consult with their own tax advisers as to
the tax consequences in the event the
subscription rights are deemed to have an ascertainable value.
Liquidation Account. In the unlikely event of our complete liquidation
in our present mutual form, each depositor is entitled to equal distribution of
any of our assets, pro rata to the value of his accounts, remaining after
payment of claims of all creditors (including the claims of all depositors to
the withdrawal value of their accounts). Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
accounts was to the total value of all deposit accounts in us at the time of
liquidation.
Upon a complete liquidation after the Conversion, each depositor would
have a claim, as a creditor, of the same general priority as the claims of all
other general creditors of ours. Therefore, except as described below, a
depositor's claim would be solely in the amount of the balance in his deposit
account plus accrued interest. A depositor would not have an interest in the
residual value of our assets above that amount, if any.
The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders. Each Eligible Account
Holder and Supplemental Eligible Account Holder, if he continues to maintain his
deposit account with us, would be entitled on a complete liquidation of us after
Conversion, to an interest in the liquidation account prior to any payment to
stockholders. Each Eligible Account Holder would have an initial interest in
such liquidation account for each deposit account held in us on the qualifying
date, March 31, 1996. Each Supplemental Eligible Account Holder would have a
similar interest as of the qualifying date, June 30, 1997. The interest as to
each deposit account would be in the same proportion of the total liquidation
account as the balance of the deposit account on the qualifying dates was to the
aggregate balance in all the deposit accounts of Eligible Account Holders and
15
Supplemental Eligible Account Holders on such qualifying dates. However, if the
amount in the deposit account on any annual closing date of ours (June 30) is
less than the amount in such account on the respective qualifying dates, then
the interest in this special liquidation account would be reduced from time to
time by an amount proportionate to any such reduction, and the interest would
cease to exist if such deposit account were closed. The interest in the special
liquidation account will never be increased despite any increase in the related
deposit account after the respective qualifying dates.
No merger, consolidation, purchase of bulk assets with assumptions of
savings accounts and other liabilities, or similar transactions with another
insured institution in which transaction we in our converted form are not the
surviving institution shall be considered a complete liquidation. In such
transactions, the liquidation account shall be assumed by the surviving
institution.
Subscription Rights and the Subscription Offering
Non-transferable subscription rights to purchase shares of the common
stock have been granted to all persons and entities entitled to purchase shares
in the Subscription Offering under the Plan. If the Public Offering, as
described below, extends beyond 45 days following the completion of the
Subscription Offering, subscribers will be resolicited. Subscription priorities
have been established for the allocation of stock to the extent that shares are
available after satisfaction of all subscriptions of all persons having prior
rights and subject to the purchase limitations set forth in the Plan and as
described below under "-- Limitations on Purchases of Shares." The following
priorities have been established:
Category 1: Eligible Account Holders (First Priority). Each Eligible Account
Holder will receive non-transferable subscription rights on a priority basis to
purchase that number of shares of common stock which is equal to the greater of
7,500 shares ($75,000), or 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares to be issued by a
fraction of which the numerator is the amount of the qualifying deposit of the
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders. If such allocation results in an
oversubscription, shares shall be allocated among subscribing Eligible Account
Holders so as to permit each such account holder, to the extent possible, to
purchase the lesser of 100 shares or the total amount of his subscription. Any
shares not so allocated shall be allocated among the subscribing Eligible
Account Holders on an equitable basis, related to the amounts of their
respective qualifying deposits as compared to the total qualifying deposits of
all subscribing Eligible Account Holders. Only a Person(s) with a Qualifying
Deposit as of the Eligibility Record Date (or a successor entity or estate)
shall receive subscription rights. Any Person(s) added to a Savings Account
after the Eligibility Record Date is not an Eligible Account Holder.
Subscription rights received by officers and directors in this category based on
their increased deposits in us in the one-year period preceding March 31, 1996,
are subordinated to the subscription rights of other Eligible Account Holders.
See "-- Limitations on Purchases and Transfer of Shares."
Category 2: Tax-Qualified Employee Benefit Plans (Second Priority). Our
tax-qualified employee benefit plans ("Employee Plans") have been granted
subscription rights to purchase up to 8% of the total shares issued in the
Conversion. The ESOP is an Employee Plan.
The right of Employee Plans to subscribe for shares is subordinate to
the right of the Eligible Account Holders to subscribe for shares. However, in
the event the offering result in the issuance of shares above the maximum of the
EVR (i.e., more than 287,500 shares), the Employee Plans have a priority right
to fill their subscription (the ESOP, the only Employee Plan, currently intends
to purchase up to 8% of the common stock issued in the Conversion). The Employee
Plans may, however, determine
16
to purchase some or all of the shares covered by their subscriptions after the
Conversion in the open market or, if approved by the OTS, out of authorized but
unissued shares in the event of an oversubscription.
Category 3: Supplemental Eligible Account Holders (Third Priority). Each
Supplemental Eligible Account Holder who is not an Eligible Account Holder will
receive non-transferable subscription rights to purchase that number of shares
which is equal to the greater of 7,500 shares ($75,000), or 15 times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares to be issued by a fraction of which the numerator is the amount of the
qualifying deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of qualifying deposits of all Supplemental
Eligible Account Holders. If the allocation made in this paragraph results in an
oversubscription, shares shall be allocated among subscribing Supplemental
Eligible Account Holders so as to permit each such account holder, to the extent
possible, to purchase the lesser of 100 shares or the total amount of his
subscription. Any shares not so allocated shall be allocated among the
subscribing Supplemental Eligible Account Holders on an equitable basis, related
to the amounts of their respective qualifying deposits as compared to the total
qualifying deposits of all subscribing Supplemental Eligible Account Holders.
See "-- Limitations on Purchases and Transfer of Shares."
The right of Supplemental Eligible Account Holders to subscribe for
shares is subordinate to the rights of the Eligible Account Holders and Employee
Plans to subscribe for shares.
Category 4: Other Members (Fourth Priority). Each Other Member who is not an
Eligible Account Holder or Supplemental Eligible Account Holder, will receive
non-transferable subscription rights to purchase up to 7,500 shares ($75,000) to
the extent such shares are available following subscriptions by Eligible Account
Holders, Employee Plans, and Supplemental Eligible Account Holders. In the event
there are not enough shares to fill the orders of the Other Members, the
subscriptions of the Other Members will be allocated so that each subscribing
Other Member will be entitled to purchase the lesser of 100 shares or the number
of shares ordered. Any remaining shares will be allocated among Other Members
whose subscriptions remain unsatisfied on a 100 share (or whatever lesser amount
is available) per order basis until all orders have been filled on the remaining
shares have been allocated. See "-- Limitations on Purchases and Transfer of
Shares."
Members in Non-Qualified States. We will make reasonable efforts to
comply with the securities laws of all states in the United States in which
persons entitled to subscribe for the shares pursuant to the Plan reside.
However, no person will be offered or allowed to purchase any shares under the
Plan if he resides in a foreign country or in a state with respect to which any
of the following apply: (i) a small number of persons otherwise eligible to
subscribe for shares under the Plan reside in that state or foreign country;
(ii) the granting of subscription rights or offer or sale of shares of common
stock to those persons would require either us, or our employees to register,
under the securities laws of that state or foreign country, as a broker or
dealer or to register or otherwise qualify our securities for sale in that state
or foreign country; or (iii) such registration or qualification would be
impracticable for reasons of cost or otherwise. No payments will be made in lieu
of the granting of subscription rights to any person.
Restrictions on Transfer of Subscription Rights and Shares. Persons are
prohibited from transferring or entering into any agreement or understanding to
transfer the legal or beneficial ownership of their subscription rights.
Subscription rights may be exercised only by the person to whom they are granted
and only for his account. Each person subscribing for shares will be required to
certify that he is purchasing shares solely for his own account and has not
entered into an agreement or understanding regarding the sale or transfer of
those shares. The regulations also prohibit any person from offering or
17
making an announcement of an offer or intent to make an offer to purchase
subscription rights or shares of common stock prior to the completion of the
Conversion.
We will pursue any and all legal and equitable remedies in the event we
become aware of the transfer of subscription rights and will not honor orders
believed by us to involve the transfer of subscription rights.
Expiration Date. The Subscription Offering will expire at 12:00 p.m.,
Eastern Time, on __________ ____, 1997, (Expiration Date). Subscription rights
will become void if not exercised prior to the Expiration Date.
Public Offering
To the extent that shares remain available and subject to market
conditions at or near the completion of the Subscription Offering, we may offer
shares to selected persons in a Public Offering on a best-efforts basis through
Trident in such a manner as to promote a wide distribution of the Common Stock.
Any orders received in connection with the Public Offering, if any, will receive
a lower priority than orders properly made in the Subscription Offering by
persons exercising Subscription Rights. Common Stock sold in the Public Offering
will be sold at the same price as all other shares in the Subscription Offering.
We have the right to reject any orders in the Public Offering.
No person, together with any associate or group of persons acting in
concert, will be permitted to purchase more than 12,500 shares or $125,000 of
Common Stock in the Public Offering. However, no person, together with
associates of and persons acting in concert with such persons may purchase more
than 5% of the amount of stock sold. To order Common Stock in connection with
the Public Offering, if held, an executed stock order and account withdrawal
authorization (if applicable) must be received by Trident prior to the
termination of the Public Offering. Promptly upon receipt of available funds,
together with a properly executed stock order and account withdrawal
authorization, if applicable, and certification, Trident will forward such funds
to the Bank to be deposited in a subscription escrow account.
The date by which orders must be received in the Public Offering
("Public Offering Expiration Date") will be set by us at the time of
commencement of the Public Offering; provided however, if the Offering are
extended beyond __________ ____, 1997, each purchaser will have the opportunity
to maintain, modify, or rescind his order. In such event, all funds received in
the Public Offering will be promptly returned with interest unless he
affirmatively indicates otherwise.
If an order in the Public Offering is accepted, promptly after the
completion of the Conversion, a certificate for the appropriate amount of shares
will be forwarded to Trident as nominee for the beneficial owner. In the event
that an order is not accepted or the Conversion is not consummated, the Bank
will promptly refund with interest the funds received to Trident which will then
return the funds to purchaser's accounts. If the aggregate pro forma market
value of the Bank, as converted, is less than $2,125,000 or more than
$3,306,000, each purchaser will have the right to modify or rescind his order.
The Plan also permits Trident to conduct a Syndicated Public Offering, which is
not expected to occur.
Ordering and Receiving Shares
Use of Order Forms. Rights to subscribe in the Subscription Offering or
purchase stock in the Public Offering (if any) may only be exercised by
completion of an original order form. Persons
18
ordering shares in the Subscription Offering must deliver by mail or in person a
properly completed and executed original order form to us prior to the
Expiration Date. Order forms must be accompanied by full payment for all shares
ordered. See "-- Payment for Shares." Subscription rights under the Plan will
expire on the Expiration Date, whether or not we have been able to locate each
person entitled to subscription rights. Once submitted, subscription orders
cannot be revoked without our consent unless the Conversion is not completed
within 45 days of the Expiration Date.
In the event an order form (i) is not delivered and is returned to us
by the United States Postal Service or we are unable to locate the addressee,
(ii) is not received or is received after the Expiration Date, (iii) is
defectively completed or executed, or (iv) is not accompanied by full payment
for the shares subscribed for (including instances where a savings account or
certificate balance from which withdrawal is authorized is insufficient to fund
the amount of such required payment), the subscription rights for the person to
whom such rights have been granted will lapse as though that person failed to
return the completed order form within the time period specified. We may, but
will not be required to, waive any irregularity on any order form or require the
submission of corrected order forms or the remittance of full payment for
subscribed shares by such date as we specify. The waiver of an irregularity on
an order form in no way obligates us to waive any other irregularity on that, or
any irregularity on any other, order form. Waivers will be considered on a case
by case basis. Photocopies of order forms, payments from private third parties,
or electronic transfers of funds will not be accepted. Our interpretation of the
terms and conditions of the Plan and of the acceptability of the order forms
will be final. We have the right to investigate any irregularity on any order
form.
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the order
form will confirm receipt or delivery in accordance with Rule 15c2-8. Order
forms will only be distributed with a prospectus.
Payment for Shares. Payment for shares of common stock may be made (i)
in cash, if delivered in person, (ii) by check or money order, or (iii) by
authorization of withdrawal from savings accounts (including certificates of
deposit) maintained with us or (iv) by an IRA not held by us. Appropriate means
by which such withdrawals may be authorized are provided in the order form. Once
such a withdrawal has been authorized, none of the designated withdrawal amount
may be used by the subscriber for any purpose other than to purchase the shares.
Where payment has been authorized to be made through withdrawal from a savings
account, the sum authorized for withdrawal will continue to earn interest at the
contract rate until the Conversion has been completed or terminated. Interest
penalties for early withdrawal applicable to certificate accounts will not apply
to withdrawals authorized for the purchase of shares; however, if a partial
withdrawal results in a certificate account with a balance less than the
applicable minimum balance requirement, the certificate evidencing the remaining
balance will earn interest at the passbook savings account rate subsequent to
the withdrawal. Payments made in cash or by check or money order, will be placed
in a segregated savings account and interest will be paid by us at our passbook
savings account rate from the date payment is received until the Conversion is
completed or terminated. An executed order form, once received by us, may not be
modified, amended, or rescinded without our consent, unless the Conversion is
not completed within 45 days after the conclusion of the Subscription Offering,
in which event subscribers may be given an opportunity to increase, decrease, or
rescind their order. In the event that the Conversion is not consummated, all
funds submitted pursuant to the offering will be refunded promptly with
interest.
19
Owners of self-directed IRAs may use the assets of such IRAs to
purchase shares in the offering, provided that such IRAs are not maintained on
deposit with us. Persons with IRAs maintained with us must have their accounts
transferred to an unaffiliated institution or broker to purchase shares in the
offering. The Stock Information can assist you in transferring your
self-directed IRA. Because of the paperwork involved, persons owning IRAs with
us who wish to use their IRA account to purchase stock in the Offering, must
contact the Stock Information Center no later than __________ ____, 1997.
The ESOP may subscribe for shares by submitting its order form along
with evidence of a loan commitment from a financial institution or WSB for the
purchase of the shares during the Subscription Offering and by making payment
for shares on the date of completion of the Conversion.
Federal regulations prohibit us from lending funds or extending credit
to any person to purchase shares in the Conversion.
Delivery of Stock Certificates. Certificates representing shares of
common stock issued in the Conversion will be mailed to the person(s) at the
address noted on the order form, as soon as practicable following consummation
of the Conversion. Any certificates returned as undeliverable will be held until
properly claimed or otherwise disposed. Persons ordering shares might not be
able to sell their shares until they receive their stock certificates.
Plan of Distribution
Materials for the offering have been distributed to eligible
subscribers by mail. Additional copies are available at our main office. Our
officers may be available to answer questions about the Conversion. Responses to
questions about us will be limited to the information contained in this
document. Officers will not be authorized to render investment advice. All
subscribers for the shares being offered will be instructed to send payment
directly to us. The funds will be held in a segregated special escrow account
and will not be released until the closing of the Conversion or its termination.
Marketing Arrangements
Trident has been engaged as our financial advisor in connection with
the offering. Trident has agreed to exercise its best efforts to assist us in
the sale of the shares in the offering. Trident will receive $85,000 which
includes payment for out-of-pocket and legal expenses. Also, we have agreed to
indemnify Trident for reasonable costs and expenses in connection with certain
claims or liabilities which might be asserted against Trident. This
indemnification covers the investigation, preparation of defense and defense of
any action, proceeding or claim relating to misrepresentation or breach of
warranty of the written agreement among Trident and us or the omission or
alleged omission of a material fact required to be stated or necessary in the
prospectus or other documents.
The shares will be offered principally by the distribution of this
document and through activities conducted at a Stock Information Center located
at our branch office. The Stock Information Center is expected to operate during
our normal business hours throughout the offering. A registered representative
employed by Trident will be working at, and supervising the operation of, the
Stock Information Center. Trident will assist us in responding to questions
regarding the Conversion and the offering and processing order forms. Our
personnel will be present in the Stock Information Center to assist Trident with
clerical matters and to answer questions related solely to our business.
20
Stock Pricing
Ferguson, an independent economic consulting and appraisal firm, which
is experienced in the evaluation and appraisal of business entities, including
savings institutions involved in the conversion process has been retained by us
to prepare an appraisal of our estimated pro forma market value. Ferguson will
receive a fee of $14,000 for preparing the appraisal and its assistance in
connection with the preparation of a business plan and will be reimbursed up to
$3,500 for reasonable out-of-pocket expenses. We have agreed to indemnify
Ferguson under certain circumstances against liabilities and expenses arising
out of or based on any misstatement or untrue statement of a material fact
contained in the information supplied by us to Ferguson.
The appraisal was prepared by Ferguson in reliance upon the information
contained herein, including the financial statements. The appraisal contains an
analysis of a number of factors including, but not limited to, our financial
condition and operating trends, the competitive environment within which we
operate, operating trends of certain savings institutions and savings and loan
holding companies, relevant economic conditions, both nationally and in the
state of Pennsylvania which affect the operations of savings institutions, and
stock market values of certain savings institutions. In addition, Ferguson has
advised us that it has considered the effect of the additional capital raised by
the sale of the shares on our estimated aggregate pro forma market value.
On the basis of the above, Ferguson has determined, in its opinion,
that as of June 6, 1997 our estimated aggregate pro forma market value was
$2,500,000. OTS regulations require, however, that the appraiser establish a
range of value for the stock to allow for fluctuations in the aggregate value of
the stock due to changing market conditions and other factors. Accordingly,
Ferguson has established a range of value from $2,125,000 to $2,875,000 for the
offering (the Estimated Valuation Range or EVR). The EVR will be updated prior
to consummation of the Conversion and the EVR may increase to $3,306,000.
The board of directors has reviewed the independent appraisal,
including the stated methodology of the independent appraiser and the
assumptions used in the preparation of the independent appraisal. The board of
directors is relying upon the expertise, experience and independence of the
appraiser and is not qualified to determine the appropriateness of the
assumptions.
In order for stock sales to take place Ferguson must confirm to the OTS
that, to the best of Ferguson's knowledge and judgment, nothing of a material
nature has occurred which would cause Ferguson to conclude that the Purchase
Price on an aggregate basis was incompatible with Ferguson's estimate of our pro
forma market value of us in converted form at the time of the sale. If, however,
facts do not justify such a statement, an amended EVR may be established.
The appraisal is not a recommendation of any kind as to the
advisability of purchasing these shares. In preparing the appraisal, Ferguson
has relied upon and assumed the accuracy and completeness of financial and
statistical information provided by us. Ferguson did not independently verify
the financial statements and other information provided by us, nor did Ferguson
value independently our assets and liabilities. The appraisal considers us only
as a going concern and should not be considered as our liquidation value.
Moreover, because the appraisal is based upon estimates and projections of a
number of matters which are subject to change, the market price of the common
stock could decline below $10.00.
21
Change in Number of Shares to be Issued in the Conversion
Depending on market and financial conditions at the time of the
completion of the Subscription and Public Offerings, if applicable, we may
significantly increase or decrease the number of shares to be issued in the
Conversion. In the event of an increase in the valuation, we may increase the
total number of shares to be issued in the Conversion. An increase in the total
number of shares to be issued in the Conversion would decrease a subscriber's
percentage ownership interest and the pro forma net worth (book value) per share
and increase the pro forma net income and net worth (book value) on an aggregate
basis. In the event of a material reduction in the valuation, we may decrease
the number of shares to be issued to reflect the reduced valuation. A decrease
in the number of shares to be issued in the Conversion would increase a
subscriber's percentage ownership interest and the pro forma net worth (book
value) per share and decrease pro forma net income and net worth on an aggregate
basis.
Persons ordering shares will not be permitted to modify or cancel their
orders unless the change in the number of shares to be issued in the Conversion
results in an offering which is either less than $2,125,000 or more than
$3,306,000.
Limitations on Purchases and Transfer of Shares
The Plan provides for certain additional purchase limitations. The
minimum purchase is 25 shares and the maximum purchase for any individual person
or persons ordering through a single account, is 7,500 shares. No person,
together with associates, or group of persons acting in concert, may purchase
more than 12,500 shares except for the Employee Plans which may purchase up to
8% of the shares sold. However, no person, together with associates and persons
acting in concert with such persons may purchase more than 5% of the amount of
stock sold. The OTS regulations governing the Conversion provide that officers
and directors and their associates may not purchase, in the aggregate, more than
35% of the shares issued pursuant to the Conversion.
Depending on market conditions and the results of the offering, the
board of directors may increase or decrease any of the purchase limitations
without the approval of our members and without resoliciting subscribers. If the
maximum purchase limitation is increased, persons who ordered the maximum amount
will be given the first opportunity to increase their orders. In doing so the
preference categories in the offerings will be followed.
In the event of an increase in the total number of shares offered in
the Conversion due to an increase in the EVR of up to 15% (the "Adjusted
Maximum"), the additional shares will be allocated in the following order of
priority: (i) to fill the Employee Plans' subscription of up to 8% of the
Adjusted Maximum number of shares (the ESOP currently intends to subscribe for
8%); (ii) in the event that there is an oversubscription by Eligible Account
Holders, to fill unfulfilled subscriptions of Eligible Account Holders exclusive
of the Adjusted Maximum; (iii) in the event that there is an oversubscription by
Supplemental Eligible Account Holders, to fill unfulfilled subscriptions to
Supplemental Eligible Account Holders exclusive of the Adjusted Maximum; (iv) in
the event that there is an oversubscription by Other Members, to fill
unfulfilled subscriptions of Other Members exclusive of the Adjusted Maximum;
and (v) to fill unfulfilled subscriptions in the Public Offering to the extent
possible, exclusive of the Adjusted Maximum.
The term "associate" of a person means (i) any corporation or
organization (other than us or a majority-owned subsidiary of ours) of which
such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities, (ii) any
trust or other
22
estate in which such person has a substantial beneficial interest or as to which
such person serves as director or in a similar fiduciary capacity (excluding
tax-qualified employee stock benefit plans), and (iii) any relative or spouse of
such person or any relative of such spouse, who has the same home as such person
or who is a director or officer of us, or any of our subsidiaries. For example,
a corporation of which a person serves as an officer would be an associate of
that person, and therefore all shares purchased by that corporation would be
included with the number of shares which that person individually could purchase
under the above limitations.
The term "officer" may include our chairman of the board, president,
vice presidents in charge of principal business functions, Secretary and
Treasurer and any other person performing similar functions. All references
herein to an officer have the same meaning as used for an officer in the Plan.
To order shares in the Conversion, persons must certify that their
purchase does not conflict with the purchase limitations. In the event that the
purchase limitations are violated by any person (including any associate or
group of persons affiliated or otherwise acting in concert with such persons),
we will have the right to purchase from that person at $10.00 per share all
shares acquired by that person in excess of the purchase limitations. If the
excess shares have been sold by that person, we may recover the profit from the
sale of the shares by that person. We may assign our right either to purchase
the excess shares or to recover the profits from their sale.
Shares of common stock purchased pursuant to the Conversion will be
freely transferable, except for shares purchased by our directors and officers.
For certain restrictions on the shares purchased by directors and officers, see
" -- Restrictions on Sales and Purchases of Shares by Directors and Officers."
In addition, under guidelines of the NASD, members of the NASD and their
associates are subject to certain restrictions on the transfer of securities
purchased in accordance with subscription rights and to certain reporting
requirements upon purchase of such securities.
Restrictions on Repurchase of Shares
Generally, during the first year following the Conversion, WSB may not
repurchase its shares and during each of the second and third years following
the Conversion, WSB may repurchase five percent of the outstanding shares
provided they are purchased in open-market transactions. Repurchases must not
cause us to become undercapitalized and at least 10 days prior notice of the
repurchase must be provided to the OTS. The OTS may disapprove a repurchase
program upon a determination that (1) the repurchase program would adversely
affect our financial condition, (2) the information submitted is insufficient
upon which to base a conclusion as to whether the financial condition would be
adversely affected, or (3) a valid business purpose was not demonstrated.
However, the OTS may grant special permission to repurchase shares after six
months following the Conversion and to repurchase more than five percent during
each of the second and third years. In addition, SEC rules also govern the
method, time, price, and number of shares of common stock that may be
repurchased by WSB and affiliated purchasers. If, in the future, the rules and
regulations regarding the repurchase of stock are liberalized, WSB may utilize
the rules and regulations then in effect.
Restrictions on Sales and Purchases of Shares by Directors and Officers
Shares purchased by directors and officers of WSB may not be sold for
one year following the Conversion, except in the event of the death of the
director or officer. Any shares issued to directors and officers as a stock
dividend, stock split, or otherwise with respect to restricted stock shall be
subject to the same restrictions.
23
For three years following the Conversion, directors and officers may
purchase shares only through a registered broker or dealer. Exceptions are
available only if the OTS has approved the purchase or the purchase is an arm's
length transaction and involves more than one percent of the outstanding shares.
Interpretation and Amendment of the Plan
We have the authority to interpret and amend the Plan. Our
interpretations are final. Amendments to the Plan after the receipt of member
approval will not need further member approval unless required by the OTS.
Conditions and Termination
Completion of the Conversion requires (i) the approval of the Plan by
the affirmative vote of not less than a majority of the total number of votes
eligible to be cast by our members; and (ii) completion of the sale of shares
within 24 months following approval of the Plan by our members. If these
conditions are not satisfied, the Plan will be terminated and we will continue
our business in the mutual form of organization. We may terminate the Plan at
any time prior to the meeting of members to vote on the Plan or at any time
thereafter with the approval of the OTS.
Other
All statements made in this document are hereby qualified by the
contents of the Plan of Conversion, the material terms of which are set forth
herein. The Plan of Conversion is attached to the proxy statement mailed to
certain depositors and borrowers. Copies of the Plan are available from us and
we should be consulted for further information. Adoption of the Plan by our
members authorizes us to interpret, amend or terminate the Plan.
24
Workingmens Savings Bank, FSB and Subsidiary
Consolidated Statements of Income
NINE MONTHS ENDED YEARS ENDED
MARCH 31, JUNE 30,
------------------------------------ ------------------------------
1997 1996
(UNAUDITED) (UNAUDITED) 1996 1995
----------- ----------- ----------- -------------
INTEREST AND DIVIDEND INCOME
Loans $ 861,065 $ 832,142 $ 1,122,699 $ 1,081,162
Investments 746,877 568,779 781,105 642,252
Other interest earning assets 67,389 127,204 149,012 81,887
----------- ----------- ----------- -----------
TOTAL INTEREST AND
DIVIDEND INCOME 1,675,331 1,528,125 2,052,816 1,805,301
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 935,206 940,412 1,256,267 1,035,045
Advances from FHLB 55,046 - - 3,859
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 990,252 940,412 1,256,267 1,038,904
----------- ----------- ----------- -----------
NET INTEREST INCOME 685,079 587,713 796,549 766,397
PROVISION FOR LOAN LOSSES 127,844 13,370 35,142 19,297
----------- ----------- ----------- -----------
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES 557,235 574,343 761,407 747,100
----------- ----------- ----------- -----------
NONINTEREST INCOME
Service charges and other fees 63,464 53,038 72,441 64,340
Net gain (loss) on sales of securities
available-for-sale (1,608) - 969 31,455
Income from real estate rental 3,200 6,875 7,825 9,613
Net gain on sale of foreclosed real estate - 5,486 650 8,780
------------- ----------- ----------- -----------
TOTAL NONINTEREST
INCOME 65,056 65,399 81,885 114,188
----------- ----------- ----------- -----------
NONINTEREST EXPENSE
Compensation and benefits 277,708 270,825 348,421 338,257
Occupancy and equipment expense 101,845 78,615 106,517 78,608
Insurance premiums 204,411 51,138 69,365 63,581
Other 190,010 202,724 273,956 219,253
----------- ----------- ----------- -----------
TOTAL NONINTEREST
EXPENSE 773,974 603,302 798,259 699,699
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES (151,683) 36,440 45,033 161,589
INCOME TAX EXPENSE (BENEFIT) (76,412) 5,714 10,382 11,376
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (75,271) $ 30,726 $ 34,651 $ 150,213
=========== =========== =========== ===========
See accompanying notes.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations is intended to assist you in understanding our financial condition
and results of operations. The information in this section should also be read
with our Consolidated Financial Statements and Notes to the Consolidated
Financial Statements elsewhere in this document.
WSB has recently been formed, and accordingly, has no results of
operations. The following discussion relates only to our consolidated financial
condition and results of operations.
Our results of operations depend primarily on net interest income,
which is determined by (i) the difference between rates of interest we earn on
our interest-earning assets and the rates we pay on interest-bearing liabilities
(interest rate spread), and (ii) the relative amounts of interest -earning
assets and interest-bearing liabilities. Our results of operations are also
affected by non-interest income, including, primarily, income from customer
deposit account service charges, gains and losses from the sale of investments
and mortgage-backed securities and non-interest expense, including, primarily,
compensation and employee benefits, federal deposit insurance premiums, office
occupancy costs, and data processing cost. Our results of operations also are
affected significantly by general and economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities, all of which are beyond our control.
Asset/Liability Management
Our assets and liabilities may be analyzed by examining the extent to
which our assets and liabilities are interest rate sensitive and by monitoring
the expected effects of interest rate changes on our net portfolio value.
An asset or liability is interest rate sensitive within a specific time
period if it will mature or reprice within that time period. If our assets
mature or reprice more quickly or to a greater extent than our liabilities, our
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. Conversely, if our assets mature or reprice more slowly or to a lesser
extent than our liabilities, our 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. Our policy has been to address the
interest rate risk inherent in the historical savings institution business of
originating long-term loans funded by short-term deposits by maintaining
sufficient liquid assets for material and prolonged changes in interest rates.
We originate fixed rate real estate loans which approximated 85% of our
loan portfolio at March 31, 1997. To manage the interest rate risk of this type
of loan portfolio, we limit maturities of fixed rate loans to no more than 20
years and maintain a portfolio of liquid assets. Maintaining liquid assets tends
to reduce potential net income because liquid assets usually provide a lower
yield than less liquid assets. At March 31, 1997, the average weighted term to
maturity of our mortgage loan portfolio was slightly more than 13 years and the
average weighted term of our deposits was slightly less than 8 months. See
"Business -- Lending Activities."
26
Net Portfolio Value
In recent years, we have measured our interest rate sensitivity by
computing the "gap" between the assets and liabilities which were expected to
mature or reprice within certain time periods, based on assumptions regarding
loan prepayment and deposit decay rates formerly provided by the OTS. However,
we now compute amounts by which the net present value of our cash flow from
assets, liabilities and off balance sheet items (our net portfolio value or
"NPV") would change in the event of a range of assumed changes in market
interest rates. These computations estimate the effect on an our NPV from
instantaneous and permanent 1% to 4% (100 to 400 basis points) increases and
decreases in market interest rates. Based upon OTS assumptions, the following
table presents our NPV at March 31, 1997.
Percentage Change in Net Portfolio Value
----------------------------------------
Changes Change in NPV
in Market NPV Ratio(1) Ratio(2)
------------ --------
Interest Rates
--------------
(basis points)
+ 400 1.55% -696bp
+ 300 3.37% -514bp
+ 200 5.14% -337bp
+ 100 6.86% -165bp
0 8.51%
- 100 9.93% 142bp
- 200 11.15% 264bp
- 300 12.86% 435bp
- 400 14.62% 611bp
- ------------------
(1) Calculated as the estimated NPV dividend by present value of total
assets.
(2) Calculated as the excess (deficiency) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio
assuming no change in interest rates.
Because most of our loans have a fixed rate, these calculations
indicate that we would be deemed to have a more than normal level of interest
rate risk under applicable regulatory capital requirements.
See "Regulations."
While we cannot predict future interest rates or their effects on our
NPV or net interest income, we do not expect current interest rates, assuming
rates remain stable, to have a material adverse effect on our NPV or net
interest income. Computations of prospective effects of hypothetical interest
rate changes are based on numerous assumptions, including relative levels of
market interest rates, prepayments and deposit run-offs and should not be relied
upon as indicative of actual results. Certain shortcomings are inherent in such
computations. Although certain assets and liabilities may have similar maturity
or periods of repricing they may react at different times and in different
degrees to changes in the market interest rates. The interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while rates on other types of assets and liabilities may lag
behind changes in market interest rates. In the event of a change in interest
rates, prepayments and early withdrawal levels could deviate significantly from
those assumed in making calculations set forth above. Additionally, an increased
credit risk may result as the ability of many borrowers to service their debt
may decrease in the event of an interest rate increase.
27
The board of directors reviews our asset and liability policies. The
board of directors meets quarterly to review interest rate risk and trends, as
well as liquidity and capital ratios and requirements. Management administers
the policies and determinations of the board of directors with respect to our
asset and liability goals and strategies. We expect that our asset and liability
policies and strategies will continue as described so long as competitive and
regulatory conditions in the financial institution industry and market interest
rates continue as they have in recent years.
Financial Condition
Total consolidated assets increased $2.5 million, or 8.3% to $33.1
million at March 31, 1997 from $30.6 million at June 30, 1996. The increase in
total assets reflects a $1.5 million increase in investment and mortgage-backed
securities, a $497,000 increase in loans and real estate, net, and a $387,000
increase in cash and cash equivalents.
Deposits decreased $297,000 or 1.1% to $27.9 million at March 31, 1997
from $28.2 million at June 30, 1996, whereas deposits increased $2.4 million or
9.2% to $28.2 million at June 30, 1997 from $25.8 million at June 30, 1995. The
increase in fiscal 1996, as well as the decrease in the nine months ended March
31, 1997 was a result of new deposits being attracted due to promoting the
opening of a new branch office and the subsequent movement of such new deposits
once the branch was operating for some time. We believe that the aggregate
dollar amount of deposits will remain stable. In the future, the relatively new
branch office is expected to attract additional deposits while the main office
might continue to experience slight declines in deposits. Interest bearing
liabilities increased $2.7 million, or 9.6% to $30.9 million at March 31, 1997
from $28.2 million at June 30, 1996. The increase reflects borrowings of $3.0
million from the FHLB which funded the purchases of our investments.
Results of Operations for the Nine Months Ended March 31, 1997 and 1996
Net Income. Net income decreased $106,000 or 345.0% from $31,000 for
the nine months ended March 31, 1996 to a net loss of $75,000 for the nine
months ended March 31, 1997. The decrease was primarily the result of the
recognition of the one-time SAIF special insurance assessment in the amount of
$108,000 (after taxes) and the increase in the provision for loan losses of
$114,000 partially offset by an increase in net interest income of $97,000.
Excluding the SAIF special insurance assessment, we would have recognized net
income of $33,000, an increase of 6.5% from the nine months ended March 31,
1996.
Net Interest Income. Net interest income is the most significant
component of our income from operations. Net interest income is the difference
between interest we receive on our interest-earning assets (primarily loans,
investment and mortgage-backed securities) and interest we pay on our
interest-bearing liabilities (primarily deposits and borrowed funds). Net
interest income depends on the volume of and rates earned on interest-earning
assets and the volume of and rates paid on interest-bearing liabilities.
The following tables set forth a summary of average balances of assets
and liabilities as well as average yield and cost information. Average balances
are derived from monthly balances, however, we do not believe the use of
month-end balances has caused any material differences in the information
presented. There has been no tax equivalent adjustments made to yields.
28
For the Nine Months Ended March 31, (4) At March 31,
-------------------------------------------------------------------- ----------------------
1997 1996 1997
----------------------------------- ------------------------------- ----------------------
Average Average Average
Average Yield/ Average Yield/ Yield/
Balance Interest Cost Balance Interest Cost Balance Cost
------- -------- -------- ------- -------- ------ -------- -----
Interest-earning assets: (Dollars in Thousands)
Loans receivable(1).................. $14,015 $ 861 8.19% $13,068 $ 832 8.49% $14,326 8.59%
Investment securities ............... 14,973 747 6.65 11,650 569 6.51 15,736 6.99
Other interest-earning assets........ 1,237 67 7.27 3,493 127 4.85 1,355 5.60
------ ------ ------ ----- ------
Total interest-earning assets.......... $30,225 $1,675 7.39% $28,211 $1,528 7.22% $31,417 7.66%
----- -----
Non-interest-earning assets............ 1,628 1,136 1,710
------ ------ ------
Total assets........................... $31,853 $29,347 $33,127
====== ====== ======
Interest-bearing liabilities:
NOW accounts......................... $ 1,467 $ - -% $ 1,336 $ - -% $ 1,493 -%
Passbook and club accounts........... 10,064 240 3.18 10,032 249 3.31 10,130 3.19
Certificates of deposit.............. 16,477 695 5.63 15,575 691 5.92 16,237 5.68
Other liabilities.................. 1,500 55 4.89 - - - 3,000 5.80
------ ----- ------- ------- ------
Total interest-bearing
liabilities.......................... $29,508 $ 990 4.47% $26,943 $ 940 4.65% $30,860 4.60%
------ ------
Non-interest-bearing
liabilities........................ 290 316 247
------ ------ ------
Total liabilities.................. $29,798 $27,259 $31,107
------ ------ ------
Retained earnings...................... 2,055 2,088 2,020
------ ------ ------
Total liabilities and
retained earnings.................... $31,853 $29,347 $33,127
====== ====== ======
Net interest income.................. $ 685 $ 588
===== =====
Interest rate spread(2).............. 2.92% 2.57% 3.06%
Net yield on interest-
earning assets(3).................... 3.02% 2.78% -%
Ratio of average interest-
earning assets to average
interest-bearing liabilities........ 102.43% 104.71% 101.81%
- ---------------------------------
(1) Average balances include non-accrual loans.
(2) Interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(3) Net yield on interest-earning assets represents net interest income as
a percentage of average interest-earning assets.
(4) Annualized (where appropriate) for purposes of comparability with
fiscal year date.
29
Year Ended June 30,
-----------------------------------------------------------------------------------
1996 1995
----------------------------------- -----------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
Interest-earning assets: (Dollars in Thousands)
Loans receivable(1)......................... $13,296 $1,123 8.44% $12,821 $1,081 8.43%
Investment securities ...................... 12,276 781 6.36 11,152 642 5.76
Other interest-earning assets............... 2,738 149 5.44 2,482 82 3.30
------ ------ ------ -----
Total interest-earning assets................. $28,310 $2,053 7.25% $26,455 $1,805 6.82%
----- -----
Non-interest-earning assets................... 1,121 620
------ ------
Total assets.................................. $29,431 $27,075
====== ======
Interest-bearing liabilities:
NOW accounts................................ $ 1,344 $ - -% $ 1,353 $ 7 0.54%
Passbook and club accounts.................. 10,034 328 3.27 11,203 397 3.55
Certificates of deposit..................... 15,590 928 5.95 12,122 635 5.23
Other liabilities........................... - - - - - -
------ ----- ------- -----
Total interest-bearing liabilities.......... $26,968 $1,256 4.66% $24,678 $1,039 4.21%
Non-interest-bearing liabilities............ 367 373
------ ------
Total liabilities........................... $27,335 $25,051
------ ------
Retained earnings........................... 2,096 2,024
------ ------
Total liabilities and retained earnings... $29,431 $27,075
====== ======
Net interest income......................... $ 797 $ 766
===== =====
Interest rate spread(2)..................... 2.59% 2.61%
Net yield on interest-earning assets(3)....... 2.82% 2.89%
Ratio of average interest-earning assets to
average interest-bearing liabilities........ 104.98% 107.20%
- ---------------------------------
(1) Average balances include non-accrual loans.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
30
The table below sets forth information regarding changes in our
interest income and interest expense for the periods indicated. For each
category of our interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in volume multiplied by old rate); (ii) changes in rate (changes in
rate multiplied by old volume); (iii) changes in rate-volume (changes in rate
multiplied by the change in volume).
Nine Months Ended Year Ended June 30,
------------------------------------------------- ------------------------------------------
1997 vs. 1996 1996 vs. 1995
------------------------------------------------- ------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------------------------------------- ------------------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------------ --------- -------- ------------- ------- ------- ------------ -------
(Dollars in Thousands)
Interest income:
Loans receivable................... $ 60 $(29) $ (2) $ 29 $ 40 $ 2 $ - $ 42
Investment securities.............. 162 12 4 178 65 67 7 139
Other interest-earning assets...... (82) 63 (41) (60) 8 53 6 67
---- ---- --- --- --- --- --- ---
Total interest-earning assets..... $140 $ 46 $ (39) $147 $ 113 $122 $ 13 $248
=== === === === === === === ===
Interest expense:
Non-interest-bearing
and NOW accounts................ $ - $ - $ - $ - $ - $ (7) $ - $ (7)
Passbook and club accounts........ 1 (10) - (9) (42) (30) 3 (69)
Certificates of deposit 40 (34) (2) (4) 181 87 25 293
Other liabilities.................. 55 - - 55 - - - -
--- ---- ---- ---- ---- ---- ---- ----
Total interest-bearing $ 96 $(44) $ (2) $ 50 $ 139 $ 50 $ 28 $217
=== === === === === === ==== ===
liabilities....................
Net change in interest income....... $ 44 $ 90 $ (37) $ 97 $ (26) $ 72 $ (15) $ 31
==== === ==== === ==== ==== ==== ====
31
Our net interest income increased $97,000 or 16.6% to $685,000 for the
nine months ended March 31, 1997 compared to $588,000 for the nine months ended
March 31, 1996. The increase was due primarily to the growth of average
interest-earning assets from $28.2 million for the nine months ended March 31,
1996 to $30.2 million for the nine month ended March 31, 1997.
The increase in our average interest-earning assets of $2.0 million
reflects an increase of $947,000 in average loans, an increase of $3.3 million
in average investment and mortgage-backed securities offset by a decrease of
$2.3 million in average other interest-earning assets.
Our interest rate spread and net interest margin increased for the nine
months ended March 31, 1997 compared to the nine months ended March 31, 1996.
This was due to the increase in the yield on interest-earning assets from 7.22%
for the nine months ended March 31, 1996 to 7.39% for the nine months ended
March 31, 1997, and by the decrease in the interest cost of average interest
bearing liabilities from 4.65% in the nine months ended March 31, 1996 to 4.47%
in the nine months ended March 31, 1997.
The yield on our average interest-earning assets increased in the nine
months ended March 31, 1997 due to an increase in the average balance of loans
and investment securities.
The decrease in the cost of our average interest-bearing liabilities
was due primarily to a decrease in the cost of certificates of deposit from
5.92% in the nine months ended March 31, 1996 to 5.63% in the nine months ended
March 31, 1997 and interest-bearing demand deposits from 3.31% in the nine
months ended March 31, 1996 to 3.18% in the nine months ended March 31, 1997,
offset partially by an increase in the average other interest-bearing
liabilities.
Provision for Loan Losses. Our provision for loan losses increased
$115,000 or 856% to $128,000 for the nine months ended March 31, 1997 from
$13,000 for the nine months ended March 31, 1996.
The increase in the provision for loan losses for the nine months ended
March 31, 1997 was attributable to changes in one of our borrower's ability to
repay. The borrower had outstanding, 16 non-performing loans that ranged from
$30,000 to $100,000, totalling $736,000, secured by 1- to 4-family residences.
The properties are located in Mount Washington, a highly desirable area for
development in the city of Pittsburgh. During the quarter, we became aware of
circumstances which might decrease the value of the collateral for these loans,
due to two properties being torn down by the borrower and maintenance for other
properties being neglected by the borrower. Full payment of the loan is due June
30, 1997 and if not paid, foreclosure proceedings will occur on July 7, 1997.
In the beginning of June 1997 certain circumstances came to our
attention that the borrower might have difficulty in repaying the loans on June
30, 1997. If payment is not received on this date, the loans will be classified
as other real estate owned. We do not anticipate any additional loss on the
properties.
Historically, we have emphasized our loss experience over other factors
in establishing the provision for loan losses. We review the allowance for loan
losses in relation to (i) our past loan loss experience, (ii) known and inherent
risks in our portfolio, (iii) adverse situations that may affect the borrower's
ability to repay, (iv) the estimated value of any underlying collateral, and (v)
current economic conditions. Because of the increased coverage of the allowances
for loan losses to total loans, management believes the allowance for loan
losses is at a level that is considered to be adequate to
32
provide for estimated losses; however, there can be no assurance that further
additions will not be made to the allowance and that such losses will not exceed
the estimated amount.
Noninterest Expense. Our noninterest expense increased by $171,000 or
28.3% from $603,000 for the nine months ended March 31, 1996 to $774,000 for the
nine months ended March 31, 1997. The increase was primarily attributable to the
one-time special SAIF assessment of $161,000. Pursuant to the Economic Growth
and Paperwork Reduction Act of 1996 (the "Act"), the FDIC imposed a special
assessment on SAIF members to capitalize the SAIF at the designated reserve
level of 1.25% as of October 1, 1996. Based on our deposits as of March 31,
1995, the date for measuring the amount of the special assessment pursuant to
the Act, our special assessment was $161,000. Due to the recapitalization of the
SAIF, we expect lower premiums for deposit insurance in future periods. The SAIF
insurance assessment rate paid by us before the recapitalization of SAIF was
23(cent) per $100 of deposits and decreased to 6.5(cent) per $100 of deposits
after the recapitalization of SAIF.
Pursuant to the Act, we will pay, in addition to our normal deposit
insurance premium as a member of the SAIF, an annual amount equal to
approximately 6.5 basis points of outstanding SAIF deposits toward the
retirement of the Financing Corporation Bonds ("Fico Bonds") issued in the
1980's to assist in the recovery of the savings and loan industry. Members of
the Bank Insurance Fund ("BIF"), by contrast, will pay, in addition to their
normal deposit insurance premium, approximately 1.3 basis points. Beginning no
later than January 1, 2000, the rate paid to retire the Fico Bonds will be equal
for members of the BIF and the SAIF. The Act also provides for the merging of
the BIF and the SAIF by January 1, 1999 provided there are no financial
institutions still chartered as savings associations at that time. Should the
insurance funds be merged before January 1, 2000, the rate paid by all members
of this new fund to retire the Fico Bonds would be equal.
Income Tax Benefit. Our income tax benefit for the nine months ended
March 31, 1997 was $76,000 compared to $6,000 expense for the nine months ended
March 31, 1996. The $ 82,000 decrease was the result of pre-tax income
decreasing by $188,000, which was primarily the result of the SAIF special
insurance assessment.
Results of Operations for the Years Ending June 30, 1996 and 1995
Net Income. Net income decreased $115,000 or 76.9% from $150,000 for
fiscal 1995 to $35,000 for fiscal 1996. The decrease was primarily the result of
a reduction in gain on sale of securities available-for-sale of $30,000 and
increases in noninterest expenses associated with the opening of our new branch
office building in November, 1995.
Net Interest Income. Our net interest income increased $31,000 or 3.9%
to $797,000 in fiscal 1996 compared to $766,000 in fiscal 1995. The increase was
due primarily to the growth of average interest-earning assets from $26.5
million in fiscal 1995 to $28.3 million in fiscal 1996.
The increase in our average interest-earning assets of $1.8 million
reflects an increase of $475,000 in average loans, an increase of $1.1 million
in average investment and mortgage-backed securities and an increase of $256,000
in average other interest-earning assets.
Our interest rate spread and net interest margin decreased in fiscal
1996 compared to fiscal 1995. This was due to the increase in the yield on
interest-earning assets from 6.82% in fiscal 1995 to 7.25% in fiscal 1996 being
exceeded by the increase in the interest cost of average interest bearing
liabilities from 4.21% in fiscal 1995 to 4.66% in fiscal 1996.
33
The yield on our average interest-earning assets increased in fiscal
1996 due to an increase in the yield on investment securities. This increase in
yield on our investment securities reflected the investment of the proceeds
received from maturities of tax-exempt securities into taxable securities.
The increase in the cost of our average interest-bearing liabilities
was due primarily to an increase in the cost of certificates of deposit from
5.23% in fiscal 1995 to 5.95% in fiscal 1996, and an increase in the average
balance of $3.5 million, offset partially by a decrease in the cost of
interest-bearing demand deposits from 3.55% in fiscal 1995 to 3.27% in fiscal
1996.
Provision for Loan Losses. Our provision for loan losses for fiscal
1996 was $35,000 and for fiscal 1995 was $19,000. The provision for loan losses
for both years was due to our assessment of market and economic conditions. Our
loan portfolio consists primarily of one- to four-family mortgage loans and we
experienced little change in the composition of our loan portfolio. In addition,
we experienced minimal charge-offs in the past two years.
NonInterest Income. Our non-interest income decreased approximately
$32,000 in fiscal 1996 as compared to fiscal 1995. This was attributable to
$39,000 higher gains on securities and foreclosed real estate in fiscal 1995
offset by a $7,000 increase in service charges and fees in fiscal 1996.
NonInterest Expense. Our non-interest expense increased by $99,000 or
14.1% from $699,000 for fiscal 1995 to $798,000 for fiscal 1996. The increase
was primarily attributable to expenses associated with the opening of our newly
constructed branch office. Such expenses included advertising and promotion, ATM
expenses, depreciation, occupancy and equipment expenses, printing and data
processing.
Income Tax Expense. Our income tax expense remained relatively constant
at $10,000 for fiscal 1996 and $11,000 for fiscal 1995.
Liquidity and Capital Resources
We are required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which varies from time to time depending
upon economic conditions and deposit flows, is based upon a percentage of our
deposits and short-term borrowings. The required ratio currently is 5.0% and our
liquidity ratio average was 24.40% and 21.72% at March 31, 1997 and June 30
1996, respectively.
Our primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investments and interest-bearing
deposits, funds provided from operations and advances from the FHLB of
Pittsburgh. While scheduled repayments of loans and mortgage-backed securities
and maturities of investment securities are predicable sources of funds, deposit
flows, and loan prepayments are greatly influenced by the general level of
interest rates, economic conditions and competition. We use our liquidity
resources principally to fund existing and future loan commitments, to fund
maturing certificates of deposit and demand deposit withdrawals, to invest in
other interest-earning assets, to maintain liquidity, and to meet operating
expenses.
34
Net cash provided by our operating activities (the cash effects of
transactions that enter into our determination of net income -- e.g., non-cash
items, amortization and depreciation, provision for loan losses) for the year
ended June 30, 1996 was $66,000 as compared to $94,000 for the year ended June
30, 1995 and $40,000 for the nine months ended March 31, 1997 as compared to
$7,000 for the nine months ended March 31, 1996.
Net cash used in our investing activities (i.e., cash receipts,
primarily from our investment securities and mortgage-backed securities
portfolios and our loan portfolio) for the year ended June 30, 1996 totalled
$5.6 million, an increase of $7.0 million from June 30, 1995. The increase was
primarily attributable to our use of $1.0 million in cash to fund the increase
in loan originations, the use of $3.9 million in cash to fund the net increase
in investment and mortgage-backed securities and the use of $809,000 to
construct and equip the new branch office. Net cash used in our investing
activities for the nine months ended March 31, 1997 totalled $2.2 million, an
increase of $1.6 million from the nine months ended March 31, 1996. The increase
was primarily attributable to the use of $1.5 million in cash to fund the net
increase in investment and mortgage-backed securities, and the use of $620,000
in cash to fund the increase in loan originations.
Net cash provided by our financing activities (i.e., cash receipts
primarily from net increases in deposits and net FHLB advances) for fiscal 1996
totalled $2.3 million. This is a result of a net increase in deposits of $2.4
million offset by a decrease in advances from borrowers for taxes and insurance
of $62,000. Net cash provided by our financing activities for the nine months
ended March 31, 1997 totalled $2.5 million. This is a result of a borrowing from
the FHLB of $3.0 million offset by a decrease in deposits of $297,000 and a
decrease in advances from borrowers for taxes and insurance of $157,000.
Recent Accounting Pronouncements
FASB Statement on Earnings Per Share. In March 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128. The Statement establishes standards for computing
and presenting earnings per share and applies to entities with publicly held
common stock or potential common stock. This Statement simplifies the standards
for computing earnings per share previously found in Accounting Principal Board
("APB") Opinion No. 15, Earnings per Share ("EPS"), and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted Earnings per Share on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and the denominator of the basic EPS computation to the numerator and
denominator of the diluted Earnings per Share computation. Basic EPS excludes
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB
Opinion No. 15. This statement supersedes Opinion 15 and AICPA Accounting
Interpretation 1-102 of Opinion 15. This statement is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods. SFAS No. 128 will be adopted by us in the initial period after December
15, 1997. We do not believe the impact of adopting SFAS No. 128 will be material
to our financial statements.
FASB Statement on Disclosure of Information about Capital Structure. In
February 1997, the FASB issued SFAS No. 129. The Statement incorporates the
disclosure requirements of APB Opinion No. 15, Earnings per Share, and makes
them applicable to all public and nonpublic entities that have
35
issued securities addressed by the Statement. APB Opinion No. 15 requires
disclosure of descriptive information about securities that is not necessarily
related to the computation of earnings per share. This statement continues the
previous requirements to disclose certain information about an entity's capital
structure found in APB Opinions No. 10, Omnibus Opinion - 1966, and No. 15,
Earnings per Share, and FASB Statement No. 47, Disclosure of Long-Term
Obligations, for entities that were subject to the requirements of those
standards. This Statement eliminates the exemption of nonpublic entities from
certain disclosure requirements of Opinion 15 as provided by FASB Statement No.
21, Suspension of the Reporting of Earnings per Share and Segment Information by
Nonpublic Enterprises. It supersedes specific disclosure requirements of
Opinions 10 and 15 and Statement 47 and consolidates them in this Statement for
ease of retrieval and for greater visibility to nonpublic entities. The
Statement is effective for financial statements for periods ending after
December 15, 1997. SFAS No. 129 will be adopted by us in the initial period
after December 15, 1997. We do not believe the impact of adopting SFAS No.
129 will be material to our financial statements.
FASB Statement of on Accounting for Stock-Based Compensation. In
October 1995, the FASB issued SFAS No. 123. SFAS No. 123 defines a "fair value
based method" of accounting for an employee stock option whereby compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period. FASB has encouraged all entities to adopt
the fair value based method, however, it will allow entities to continue the use
of the "intrinsic value based method" prescribed by APB Opinion No. 25. Under
the intrinsic value based method, compensation cost is the excess of the market
price of the stock at the grant date over the amount an employee must pay to
acquire the stock. However, most stock option plans have no intrinsic value at
the grant date and, as such, no compensation cost is recognized under APB
Opinion No. 25. Entities electing to continue use of the accounting treatment of
APB Opinion No. 25 must make certain pro forma disclosures as if the fair value
based method had been applied. The accounting requirements of SFAS No. 123 are
effective for transactions entered into in fiscal years beginning after December
15, 1995. Pro forma disclosures must include the effects of all awards granted
in fiscal years beginnings after December 15, 1994. We will continue to use the
"intrinsic value based method" as prescribed by APB Opinion No. 25. Accordingly,
we do not believe the impact of adopting SFAS No. 123 will be material to our
financial statements.
In November 1993, the American Institute of Certified Public
Accountants ("AICPA") issued SOP 93-6 Employers' Accounting for Employee Stock
Ownership Plan. SOP 93-6 addresses accounting for shares of stock issued to
employees by an employee stock ownership plan. SOP 93-6 requires that the
employer record compensation expense in an amount equal to the fair value of
shares committed to be released from the ESOP to employees. SOP 93-6 is
effective for fiscal years beginning after December 15, 1993 and relates to
shares purchased by an ESOP after December 31, 1992. If the common stock
appreciates over time, SOP 93-6 will increase compensation expense relative to
the ESOP, as compared with prior guidance that required recognition of
compensation expense based on the cost of the shares acquired by the ESOP. The
amount of any such increase, however, cannot be determined at this time because
the expense will be based on the fair value of the shares committed to be
released to employees, which amount is not determinable. See "Pro Forma Data."
BUSINESS OF WSB HOLDING COMPANY
WSB is not an operating company and has not engaged in any significant
business to date. It was formed in June 1997 as a Pennsylvania-chartered
corporation to be the holding company for Workingmens Savings Bank, FSB. The
holding company structure and retention of proceeds will facilitate: (i)
diversification into non-banking activities, (ii) acquisitions of other
financial institutions, such
36
as savings institutions, (iii) expansion within existing and into new market
areas and (iv) stock repurchases without adverse tax consequences. There are no
present plans regarding diversification, acquisitions, expansion, or
repurchases.
Since WSB will own only one savings association, it generally will not
be restricted in the types of business activities in which it may engage;
provided, that we retain a specified amount of our assets in housing-related
investments. WSB initially will not conduct any active business and does not
intend to employ any persons other than officers but will utilize our support
staff from time to time.
The office of the WSB is located at 807 Middle St., Pittsburgh,
Pennsylvania. The telephone number is (412) 231-7297.
BUSINESS OF WORKINGMENS SAVINGS BANK, FSB
The principal sources of funds for our activities are deposits,
payments on loans and borrowings from the FHLB of Pittsburgh. Our deposits
totalled $27.9 million at March 31, 1997. Funds are used principally for the
origination of loans secured by first mortgages on one- to four-family
residences which are located in our market area and investment securities. Such
loans totalled $10.6 million, or 73.91%, of our total loans receivable portfolio
at March 31, 1997. Our principal source of revenue is interest received on loans
and investments and our principal expense is interest paid on deposits.
Market Area
Our main office is located in the North Side of Pittsburgh and our
branch office is located in Baldwin, a suburb of Pittsburgh. The communities of
North Side, Baldwin, and surrounding areas of Allegheny County are considered to
be our primary market area. Most of our deposits and lending activity is
generated from individuals who live in these areas. We are a community-oriented
thrift and have served the local Allegheny County community since 1881. However,
our main office is located in an area where there is limited growth
opportunities for loan originations and deposit needs and, our branch office is
located in a more affluent area, where a significant amount of our loans are
originated and deposit accounts are generated.
The Greater Pittsburgh area has been in the process of restructuring
over the past decade. Once centered on heavy manufacturing, primarily steel, its
economic base is now more diverse, including technology, health and business
services. Several "Fortune 500" industrial firms are headquartered in the
Greater Pittsburgh area, including USX Corporation and Westinghouse Electric
Corporation. The largest employers in Pittsburgh, by the number of local
employees, include the United States Government, the Commonwealth of
Pennsylvania, Westinghouse, USAir, and the University of Pittsburgh. Seven
colleges and universities are located in the general Pittsburgh area.
Lending Activities
Most of our loans are mortgage loans which are secured by one- to
four-family residences. We also make multi-family, commercial real estate and
consumer loans. Loans originated by us have rates of interest which are fixed
for the term of the loan ("fixed rate").
37
The following table sets forth information concerning the types of
loans held by us.
At March 31, At June 30,
------------------------- ------------------------------------------------------------
1997 1996 1995
------------------------- --------------------------- ------------------------------
Amount Percent Amount Percent Amount Percent
(Dollars in Thousands)
Type of Loans:
Real Estate Loans:
One- to four- family ................... $10,596 73.91% $10,022 73.06% $ 9,708 75.76%
Multi-family............................ 1,608 11.22 1,811 13.20 1,220 9.52
Commercial.............................. 619 4.32 666 4.86 765 5.97
Other................................... 4 .03 6 .04 26 .20
Consumer Loans:
Home equity and second mortgage loans... 1,109 7.73 856 6.24 817 6.38
Share loans............................. 154 1.07 172 1.25 151 1.18
Other................................... 246 1.72 185 1.35 127 0.99
------- ------ ------- ------ ------- ------
Total loans......................... 14,336 100.00% 13,718 100.00% 12,814 100.00%
====== ====== ======
Less:
Deferred loan origination fees and costs 10 13 28
Allowance of loan losses ............... 201 76 89
------- -------- -------
Total loans, net..................... $14,125 $13,629 $12,798
====== ====== ======
The following table sets forth the estimated maturity of our loan
portfolio at March 31, 1997. The table does not include the effects of possible
prepayments or scheduled repayments. All mortgage loans are shown as maturing
based on the date of the last payment required by the loan agreement.
Home
One- to four- Other Equity and
Family Multi- Real Second Other
Residential Family Estate Mortgages Consumer Total
----------- ------ ------ --------- -------- -----
(In Thousands)
Amounts due:
Within 1 year........ $ 93 $ 15 $ - $ 255 $ 5 $ 368
Over 1 to 3 years.... 234 18 4 93 87 436
Over 3 to 5 years.... 995 221 - 252 154 1,622
Over 5 to 10 years... 2,006 329 - 509 - 2,844
Over 10 years........ 7,268 1,644 - - 154 9,066
------ ----- ------- ------- ------ ------
Total amount due..... $10,596 $2,227 $ 4 $1,109 $ 400 $14,336
====== ===== ======= ===== ====== ======
38
The following table sets forth the dollar amount of all loans for which
final payment is not due until after March 31, 1997. The table also shows the
amount of loans which have fixed rates of interest.
At March 31, 1997, we had no loans with adjustable rates of interest.
Fixed rates
-----------
(In Thousands)
Real Estate Loans:
One- to four-family residential............. $10,503
Multi-family................................ 2,212
Other real estate........................... 4
Home equity and second mortgages.............. 854
Other consumer................................ 395
------
Total....................................... $13,968
======
The following table contains information concerning changes in the
amount of loans held by us.
For the Nine For the Years Ended
Months Ended June 30,
March 31,
1997 1996 1995
----------------- ------------------ ----------
(In Thousands)
Total gross loans receivable at beginning of period........ $13,718 $12,915 $12,790
------ ------ ------
Loans originated:
One- to four-family residential.......................... 1,696 2,037 1,134
Multi-family............................................. - 184 200
Other real estate........................................ 40 30 68
Home equity and second mortgages......................... 586 477 738
Other consumer........................................... 163 166 129
------- -------- --------
Total loans originated..................................... 2,485 2,894 2,269
------ ------ ------
Loans purchased:
Participation loans, one- to four-family residential..... 36 7 100
------- ------- -------
Total loans purchased...................................... 36 7 100
------- ------- -------
Loan principal repayments.................................. (1,913) (2,098) (2,244)
------ ------ ------
Net loan activity.......................................... 608 803 125
------ ------ ------
Total gross loans receivable at end of period............ $14,326 $13,718 $12,915
====== ====== ======
39
One- to Four-Family Residential Loans. Our primary lending activity
consists of the origination of one- to four-family fixed rate residential
mortgage loans secured by property located in our primary market area. We
generally originate one- to four-family fixed rate residential mortgage loans in
amounts up to 90% of the lesser of the appraised value or purchase price, with
private mortgage insurance required on loans with a loan-to-value ratio in
excess of 80%. The maximum loan-to-value ratio on mortgage loans secured by
non-owner occupied properties generally is limited to 80%. We retain all of our
mortgage loans and originate these loans with maturities of up to 20 years. On a
limited basis, we originate and retain fixed rate balloon loans having terms of
up to 15 years, with principal and interest payments calculated using up to a
30-year amortization period. Loans originated at the main office consist almost
entirely of one- to four-family investment (non-owner occupied) mortgage loans
while the remainder of our loans are originated from our branch office, and
include most of our one- to four-family owner occupied residential mortgage
loans.
Mortgage loans originated and held by us generally include due-on-sale
clauses. This gives us the right to deem the loan immediately due and payable in
the event the borrower transfers ownership of the property securing the mortgage
loan without our consent.
Home Equity Loans and Second Mortgages. We originate home equity loans
and second mortgage loans which are secured by one to four-family residences. We
originate these loans on one- to four-family residences with fixed rate terms of
up to 10 years. The loans are generally subject to a 80% combined loan-to-value
limitation, including any other outstanding mortgages or liens.
Multi-Family and Commercial Loans. Our multi-family loans are secured
by apartment buildings. These loans generally have not exceeded $500,000 or have
terms greater than 20 years. Commercial real estate loans are secured by office
buildings, and other commercial properties.
Multi-family and commercial real estate lending entails significant
additional risks compared to residential property lending. These loans typically
involve large loan balances to single borrowers or groups of related borrowers.
The repayment of these loans typically is dependent on the successful operation
of the real estate project securing the loan. These risks can be significantly
affected by supply and demand conditions in the market for office and retail
space and may also be subject to adverse conditions in the economy. To minimize
these risks, we generally limit this type of lending to our market area and to
borrowers who are otherwise well known to us.
Loan Approval Authority and Underwriting. We established various
lending limits for our officers and maintain a loan committee. Mr. Neudorfer,
our President, has loan authority to approve all loans. Our Vice President and
Treasurer, Mr. Moreschi, has authority to approve all applications for secured
and unsecured consumer loans. The loan committee ratifies all fixed rate
residential mortgage loans of $200,000 or more and all other real estate loans
and consumer loans.
Upon receipt of a completed loan application from a prospective
borrower, a credit report is ordered. Income and certain other information is
verified. If necessary, additional financial information may be requested. An
appraisal or other estimate of value of the real estate intended to be used as
security for the proposed loan is obtained. Appraisals are processed by
independent fee appraisers.
Title insurance is generally required on all real estate mortgage
loans. We do not require title insurance on home equity loans and second
mortgages, but we obtain a property report from our local state tax office which
indicates whether there are any liens or other encumbrances against the
property.
40
Borrowers also must obtain fire and casualty insurance. Flood insurance is also
required on loans secured by property that is located in a flood zone.
Loan Commitments. Written commitments are given to prospective
borrowers on all approved real estate loans. Generally, the commitment requires
acceptance within 60 days of the date of issuance. At March 31, 1997,
commitments to cover originations of mortgage loans totalled $154,000. We
believe that virtually all of our commitments will be funded.
Loans to One Borrower. The maximum amount of loans which we may make to
any one borrower may not exceed the greater of $500,000 or 15% of our unimpaired
capital and unimpaired surplus. We may lend an additional 10% of our unimpaired
capital and unimpaired surplus if the loan is fully secured by readily
marketable collateral. Since 1989, our maximum loan-to-one borrower limit is
$500,000. At March 31, 1997, the aggregate loans outstanding of our five largest
borrowers have outstanding balances of between $236,000 and $736,000. Two of
these loans are in excess of our lending limit but were in compliance with OTS
regulations applicable at the time the loans were originated. One of these loans
is a non-performing loan. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Provision for Loan Losses".
Nonperforming and Problem Assets
Loan Delinquencies. When a mortgage loan becomes 30 days past due, a
notice of nonpayment is sent to the borrower. If, after 60 days, payment is
still delinquent, a notice of right to cure default is sent to the borrower
giving 30 additional days to bring the loan current before foreclosure is
commenced. If the loan continues in a delinquent status for 90 days past due and
no repayment plan is in effect, foreclosure proceedings will be initiated. The
customer will be notified when foreclosure is commenced.
Loans are reviewed on a monthly basis and are placed on a non-accrual
status when the loan becomes more than 90 days delinquent or when, in our
opinion, the collection of additional interest is doubtful. Interest accrued and
unpaid at the time a loan is placed on nonaccrual status is charged against
interest income. Subsequent interest payments, if any, are either applied to the
outstanding principal balance or recorded as interest income, depending on the
assessment of the ultimate collectibility of the loan.
Nonperforming Assets. The following table sets forth information
regarding nonaccrual loans and real estate owned, as of the dates indicated. We
have no loans categorized as troubled debt restructurings within the meaning of
SFAS 15 and no accruing loans that were delinquent more than 90 days. Interest
income that would have been recorded on loans accounted for on a nonaccrual
basis under the original terms of such loans was $71,000 for the nine months
ended March 31, 1997. Subsequent to March 31, 1997, certain circumstances came
to our attention which indicated that $736,000 of our nonaccrual loans might be
classified as other real estate owned. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations for
the Nine Months Ended March 31, 1997 and 1996 - Provision for Loan Losses".
41
At March 31, At June 30,
-------------- ----------------------------
1997 1996 1995
----------------- ------------ -------------
(Dollars in Thousands)
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One- to four-family residential real estate.................................... $769 $696 $701
All other mortgage loans....................................................... 4 1 8
Non-mortgage loans:
Home equity and second mortgages............................................... - 30 13
Other consumer................................................................. 3 - -
---- ----- -----
Total............................................................................ $776 $727 $722
=== === ===
Total non-accrual loans.......................................................... $776 $727 $722
=== === ===
Real estate owned................................................................ $ - $ - $101
==== ==== ===
Total non-performing assets...................................................... $776 $727 $823
=== === ===
Total non-accrual loans to net loans............................................. 5.46% 5.33% 6.43%
==== ==== ====
Total non-accrual loans to total assets.......................................... 2.34% 2.31% 2.38%
==== ==== ====
Total non-performing assets to total assets...................................... 2.34% 2.31% 2.38%
==== ==== ====
Classified Assets. OTS regulations provide for a classification system
for problem assets of savings associations which covers all problem assets.
Under this classification system, problem assets of savings institutions such as
ours are classified as "substandard," "doubtful," or "loss." An asset is
considered substandard if it is inadequately protected by the current net worth
and paying capacity of the borrower or of the collateral pledged, if any.
Substandard assets include those characterized by the "distinct possibility"
that the savings institutions will sustain "some loss" if the deficiencies are
not corrected. Assets classified as doubtful have all of the weaknesses inherent
in those classified substandard, with the added characteristic that the
weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as loss are those considered "uncollectible" and
of such little value that their continuance as assets without the establishment
of a specific loss reserve is not warranted. Assets may be designated "special
mention" because of potential weakness that do not currently warrant
classification in one of the aforementioned categories.
When a savings association classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When a savings association classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. A savings association's determination as to the classification
of its assets and the amount of its valuation allowances is subject to review by
the OTS, which may order the establishment of additional general or specific
loss allowances. A portion of general loss allowances established to cover
possible losses related to assets classified as substandard or doubtful may be
included in determining a savings association's regulatory capital. Specific
valuation allowances for loan losses generally do not qualify as regulatory
capital.
42
At March 31, 1997, we had loans classified as doubtful, substandard and
special mention in amounts equal to $22,000, $776,000, and $637,000,
respectively. The substandard loans are classified as nonperforming loans. See
"-- Nonperforming and Problem Assets." The special mention loan in the amount of
$637,000 is a 43-unit apartment building located in the city of Pittsburgh. In
1996, the building was severely damaged by fire and is now completely restored.
The collateral value of this property is in excess of the loan balance.
Allowances for Loan Losses. A provision for loan losses is charged to
operations based on management's evaluation of the potential losses that may be
incurred in our loan portfolio. The evaluation, including a review of all loans
on which full collectibility of interest and principal may not be reasonably
assured, considers: (i) our past loan loss experience, (ii) known and inherent
risks in our portfolio, (iii) adverse situations that may affect the borrower's
ability to repay, (iv) the estimated value of any underlying collateral, and (v)
current economic conditions. See "Risk Factors--Asset Quality."
We monitor our allowance for loan losses and make additions to the
allowance as economic conditions dictate. Although we maintain our allowance for
loan losses at a level that we consider adequate for the inherent risk of loss
in our loan portfolio, future losses could exceed estimated amounts and
additional provisions for loan losses could be required. In addition, our
determination as to the amount of its allowance for loan losses is subject to
review by the OTS, as part of its examination process. After a review of the
information available, the OTS might require the establishment of an additional
allowance.
The following table illustrates the allocation of the allowance for
loan losses for each category of loan. The allocation of the allowance to each
category is not necessarily indicative of future loss in any particular category
and does not restrict our use of the allowance to absorb losses in other loan
categories.
At March 31, At June 30,
-------------------------- --------------------------------------------------------------------
1997 1996 1995
-------------------------- ------------------------------- ----------------------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Each Each Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ -----------
(Dollars in Thousands)
At end of period allocated to:
One- to four-family............ $ 177 73.91% $ 46 73.06% $ 70 75.76%
Multi-family................... 8 11.22 9 13.20 8 9.52
Other real estate.............. 14 4.35 18 4.90 8 6.17
Consumer....................... 2 10.52 3 8.84 3 8.55
------- ------ ----- ------ ---- ------
Total allowance.............. $ 201 100.00% $ 76 100.00% $ 89 100.00%
====== ======= ===== ====== ===== ======
43
The following table sets forth information with respect to our
allowance for loan losses at the dates and for the periods indicated:
At March 31, At June 30,
------------ -----------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
Total loans outstanding.................................................. $14,336 $13,718 $12,915
====== ====== ======
Average loans outstanding................................................ $14,027 $13,317 $12,853
====== ====== ======
Allowance balances at beginning of period................................ $ 76 $ 89 $ 114
Provision (credit):
1-4 family residential................................................. 128 23 -
Other real estate...................................................... 3 5
Consumer............................................................... 9 14
Net Charge-offs (recoveries):
1-4 family residential................................................. 46 25
Other real estate...................................................... 3 2 19
------- ------- -------
Allowance balance at end of period....................................... $ 201 $ 76 $ 89
======= ======= =======
Allowance for loan losses as a percent of total loans
outstanding............................................................ 1.40% 0.55% 0.69%
==== ==== ====
Net loans charged off as a percent of average
loans outstanding...................................................... 0.02% 0.36% 0.35%
==== ==== ====
Investment Activities
Investment Securities. We are required under federal regulations to
maintain a minimum amount of liquid assets which may be invested in specified
short-term securities and certain other investments. See "Regulation -- Savings
Institution Regulation - Federal Home Loan Bank System" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." The level of liquid assets varies depending
upon several factors, including: (i) the yields on investment alternatives, (ii)
our judgment as to the attractiveness of the yields then available in relation
to other opportunities, (iii) expectation of future yield levels, and (iv) our
projections as to the short-term demand for funds to be used in loan origination
and other activities. We classify our investment securities as "available for
sale" or "held to maturity" in accordance with SFAS No. 115. At March 31, 1997,
our investment portfolio policy allowed investments in instruments such as: (i)
U.S. Treasury obligations, (ii) U.S. federal agency or federally sponsored
agency obligations, (iii) local municipal obligations, (iv) mortgage-backed
securities, (v) banker's acceptances, (vi) certificates of deposit, (vii)
federal funds, including FHLB overnight and term deposits (up to six months),
and (viii) investment grade corporate bonds, commercial paper and mortgage
derivative products. See "-- Mortgage-backed Securities." The board of directors
may authorize additional investments.
Our investment securities "available for sale" and "held to maturity"
portfolios at March 31, 1997 did not contain securities of any issuer with an
aggregate book value in excess of 10% of our equity, excluding those issued by
the United States Government or its agencies.
Mortgage-backed Securities. To supplement lending activities, we have
invested in residential mortgage-backed securities. Mortgage-backed securities
can serve as collateral for borrowings and, through repayments, as a source of
liquidity. Mortgage-backed securities represent a participation interest
44
in a pool of single-family or other type of mortgages. Principal and interest
payments are passed from the mortgage originators, through intermediaries
(generally quasi-governmental agencies) that pool and repackage the
participation interests in the form of securities, to investors such as us. The
quasi-governmental agencies guarantee the payment of principal and interest to
investors and include Federal Home Loan Mortgage Corporation ("FHLMC"),
Government National Mortgage Association ("GNMA"), and Federal National Mortgage
Association ("FNMA.")
At March 31, 1997, our mortgaged-backed securities portfolio was
classified as "available for sale" and totalled $2,152,000. Each security was
issued by GNMA, FHLMC or FNMA. Expected maturities will differ from contractual
maturities due to scheduled repayments and because borrowers may have the right
to call or prepay obligations with or without prepayment penalties.
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed rate or adjustable
rate mortgage loans. Mortgage-backed securities are generally referred to as
mortgage participation certificates or pass-through certificates. The interest
rate risk characteristics of the underlying pool of mortgages (i.e., fixed rate
or adjustable rate) and the prepayment risk, are passed on to the certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying mortgages. Mortgage-backed securities issued by FHLMC and GNMA
make up a majority of the pass-through certificates market.
Securities Portfolio. The following table sets forth the carrying
(i.e., amortized cost) value of our investment securities held to maturity, at
the dates indicated. Our securities portfolio classified as available for sale
is carried at market value. At March 31, 1997, the market value of our
investment securities, held to maturity, was $12.8 million. At March 31, 1997,
our securities portfolio available for sale contained net unrealized losses, net
of tax, of $37,459. See Notes B and C to our financial statements elsewhere in
this document.
45
At At June 30,
March 31, --------------------------------
---------
1997 1996 1995
------ ------ -----
(In Thousands)
Securities Held to Maturity:
U.S. Government and
Agency Securities.................. $12,858 $10,745 $6,187
Corporate Debt Instruments........... - - 398
FHLMC................................ - - 127
GNMA................................. - - 1,915
CMOs................................. 131 147 314
------- ------- -------
Total Securities Held to
Maturity............................ 12,989 10,892 8,941
------ ------ ------
Securities Available for Sale:
FHLMC................................. 96 235 150
GNMA.................................. 1,425 1,589 -
FNMA.................................. 465 480 -
FHLMC Preferred Stock................. 251 255 263
Municipal Bonds....................... - 225 891
Corporate Notes....................... 482 480 98
CMOs.................................. 39 54 -
------- ------ --------
Total Securities Available for
Sale.................................. 2,758 3,318 1,402
------ ----- ------
Total Investment and
Mortgage-Backed Securities....... $15,747 $14,210 $10,343
====== ====== ======
46
The following table sets forth information regarding the scheduled
maturities, carrying values, approximate fair values, and weighted average
yields for our investment securities portfolio at March 31, 1997 by contractual
maturity. The following table does not take into consideration the effects of
scheduled repayments or the effects of possible prepayments.
As of March 31, 1997
--------------------------------------------------------------
One Year or Less One to Five Years
------------------ -------------------
Carrying Average Carrying Average
Value Yield Value Yield
------- ------- ------- -------
U.S. Government and Agency
Obligations.................... $ - -% $5,199 6.51%
Corporate Notes and Bonds...... - - 482 5.55
FHLMC Preferred Stock.......... - - - -
Mortgage-Backed Securities..... - - - -
------ ----- ------- -----
Total........................ $ - -% $5,681 6.43%
====== ===== ===== ====
As of March 31, 1997
-------------------------------------------------------------------------------------------------
Five to Ten Years More than Ten Years Total Investment Securities
------------------- --------------------- -------------------------------------
Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value
------- ------- ------- ------- ------- ------- ------
(Dollars in Thousands)
U.S. Government and Agency
Obligations.................... $5,937 7.26% $1,722 7.78% $12,858 7.03% $12,701
Corporate Notes and Bonds...... - - - - 482 5.55 482
FHLMC Preferred Stock.......... - - 251 7.90 251 7.90 251
Mortgage-Backed Securities..... - - 2,156 7.04 2,156 7.04 2,152
------- ----- ----- ---- ------ ---- ------
Total........................ $5,937 7.26% $4,129 7.40% $15,747 6.99% $15,586
===== ==== ===== ==== ====== ==== ======
47
Sources of Funds
Deposits are our major external source of funds for lending and other
investment purposes. Funds are also derived from the receipt of payments on
loans and prepayment of loans and, maturities of investment securities and
mortgage-backed securities, and, to a much lesser extent, borrowings and
operations. Scheduled loan principal repayments are a relatively stable source
of funds, while deposit inflows and outflows and loan prepayments are
significantly influenced by general interest rates and market conditions.
Deposits. Consumer and commercial deposits are attracted principally
from within our primary market area through the offering of a selection of
deposit instruments including regular savings accounts, money market accounts,
and term certificate accounts. IRA accounts are also offered. Deposit account
terms vary according to the minimum balance required, the time period the funds
must remain on deposit, and the interest rate.
The interest rates paid by us on deposits are set weekly at the
direction of our senior management. Interest rates are determined based on our
liquidity requirements, interest rates paid by our competitors, and our growth
goals and applicable regulatory restrictions and requirements.
Passbook savings, money market and NOW accounts constituted $11.6
million, or 41.72%, of our deposit portfolio at March 31, 1997. Certificates of
deposit constituted $16.2 million or 58.28% of the deposit portfolio of which
$1.6 million or 5.76% of the deposit portfolio were certificates of deposit with
balances of $100,000 or more. Such deposits are offered at negotiated rates. As
of March 31, 1997, we had no brokered deposits.
48
At March 31, 1997, our deposits were represented by the various types
of savings programs described below.
Minimum Balance as of Percentage of
Category Term Interest Rate(1) Balance Amount March 31, 1997 Total Deposits
- -------- ---- ------------- -------------- -------------- --------------
(In Thousands)
Now Accounts None -% $ - $1,493 5.36%
Passbook and Club Accounts None 3.19% 50 10,130 36.36%
Certificates of Deposit:
Fixed Term, Fixed rate 1-3 Months -% - 0 -%
Fixed Term, Fixed rate 4-6 Months 5.00% 2,500 2,146 7.70%
Fixed Term, Fixed rate 7-12 Months 5.25% 500 3,119 10.84%
Fixed Term, Fixed rate 13-24 Months 5.40% 500 982 3.53%
Fixed Term, Fixed rate 25-36 Months 5.75% 500 5,558 19.95%
Fixed Term, Fixed rate 36-48 Months -% - - -
Fixed Term, Fixed rate 49-120 Months 6.00% 500 2,616 9.39%
Variable Term No longer offered -% 216 1.13%
Jumbo Certificates (2) 1,600 5.74%
----- ------
$27,860 100.00%
====== ======
- ---------------
(1) Interest rate offerings as of March 31, 1997.
(2) Negotiated rates and terms.
The following table sets forth our time deposits classified by interest
rate at the dates indicated.
At
March 31, As of June 30,
------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
Interest Rate
4.00% or less..................................... $ 3 $ - $ 47
4.01-4.99%........................................ 2,108 2,151 2,466
5.00-5.99%........................................ 8,432 11,132 6,673
6.00-6.99%........................................ 4,527 2,665 4,052
7.00-7.99%........................................ 1,167 770 974
8.00-9.99%........................................ - - 251
------ ------ ------
Total........................................... $16,237 $16,718 $14,463
====== ====== ======
49
The following table sets forth the amount and maturities of our time
deposits at March 31, 1997.
Amount Due
------------------------------------------------------------------------------------------------------------
After
March 31, March 31, March 31, March 31, March 31,
Interest Rate 1998 1999 2000 2001 2002 Total
- ------------- ---- ---- ---- ---- ---- -----
(In Thousands)
4.00% or less.......... $ 3 $ - $ - $ - $ - $ 3
4.01-4.99%............. 2,108 - - - - 2,108
5.00-5.99%............. 5,099 2,190 483 365 295 8,432
6.00-6.99%............. 2,817 606 123 768 213 4,527
7.00-7.99%............. 743 - 329 95 - 1,167
------- ------- --- ------ ----- ------
Total $ 10,770 $ 2,796 $ 935 $ 1,228 $ 508 $16,237
====== ===== === ===== === ======
The following table sets forth our savings activity for the
periods indicated:
Nine Months
Ended Year Ended June 30,
March 31, --------------------------------
---------
1997 1996 1995
--------------- ------------- ----------------
(In Thousands)
Net increase (decrease)
before interest credited..... $(1,232) $1,122 $1,166
Interest credited.............. 935 1,256 1,035
------- ----- -----
Net increase (decrease) in
savings deposits............. $ (297) $2,378 $2,201
======= ===== =====
The following table indicates the amount of our certificates of deposit
of $100,000 or more by time remaining until maturity as of March 31, 1997.
Certificates
of Deposits
(In Thousands)
Maturity Period
Within three months................... $ 300
Three through six months.............. 400
Six through twelve months............. 400
Over twelve months.................... 500
---
$1,600
======
50
Borrowings. Advances (borrowing) may be obtained from the FHLB of
Pittsburgh to supplement our supply of lendable funds. Advances from the FHLB of
Pittsburgh are typically secured by a pledge of our stock in the FHLB of
Pittsburgh, a portion of our first mortgage loans and other assets. Each FHLB
credit program has its own interest rate, which may be fixed or adjustable, and
range of maturities. We may borrow up to $15.2 million from the FHLB of
Pittsburgh. If the need arises, we may also access the Federal Reserve Bank
discount window to supplement our supply of lendable funds and to meet deposit
withdrawal requirements. At March 31, 1997, borrowings from the FHLB of
Pittsburgh totaled $3 million and ($2 million were short-term borrowings) and we
had no other borrowings outstanding.
We had no borrowings at June 30, 1995 and 1996.
The following table sets forth the teams of our short-term FHLB
advances of March 31, 1997.
(Dollars in Thousands)
Average balance outstanding.......................... $ 120
Maximum amount outstanding at any
month-end during the period........................ $2,000
Weighted average interest rates during the period.... 5.82%
Competition
Competition for deposits comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions,
finance companies, and multi-state regional banks in our market areas.
Competition for funds also includes a number of insurance products sold by local
agents and investment products such as mutual funds and other securities sold by
local and regional brokers. Loan competition varies depending upon market
conditions and comes from commercial banks, thrift institutions, credit unions
and mortgage bankers, most of whom have far greater resources than we have.
Subsidiary Activity
We are permitted to invest up to 2% of our assets in the capital stock
of or loans to subsidiary corporations. Additional investment of 1% of assets is
permitted when such additional investment is utilized primarily for community
development purposes. At March 31, 1997, we had a $1,050 investment in our
subsidiary, Workingmens Service Corporation. Workingmens Service Corporation
receives commissions for referrals by the subsidiary to a third party investor
advisor.
51
Properties
We operate from our main office and one branch office. Our total
investment in office equipment had a net book value of $151,000 at March 31,
1997.
Year Leased Net Book Value
Location Leased or Owned or Acquired Of Real Property
- -------- --------------- ----------- ----------------
MAIN OFFICE:
807 Middle St. Owned 1974 $130,000
Pittsburgh, Pennsylvania
15212
BRANCH OFFICE:
5035 Curry Road Owned 1995 $782,000
Pittsburgh, Pennsylvania
15236
Personnel
At March 31, 1997 we had 9 full-time and four part-time employees. None
of our employees are represented by a collective bargaining group. We believe
that our relationship with our employees is good.
Legal Proceedings
We are, from time to time, a party to legal proceedings arising in the
ordinary course of our business, including legal proceedings to enforce our
rights against borrowers. We are not currently a party to any legal proceedings
which are expected to have a material adverse effect on our financial
statements.
52
REGULATION
Set forth below is a brief description of certain laws which relate to
us. The description is not complete and is qualified in its entirety by
references to applicable laws and regulation.
Holding Company Regulation
General. WSB will be required to register and file reports with the OTS
and will be subject to regulation and examination by the OTS. In addition, the
OTS will have enforcement authority over WSB and any non-savings institution
subsidiaries. This will permit the OTS to restrict or prohibit activities that
it determines to be a serious risk to us. This regulation is intended primarily
for the protection of our depositors and not for the benefit of you, as
stockholders of WSB.
QTL Test. Since WSB will only own one savings institution, it will be
able to diversify its operations into activities not related to banking, but
only so long as we satisfy the QTL test. If WSB controls more than one savings
institution, it would lose the ability to diversify its operations into
non-banking related activities, unless such other savings institutions each also
qualify as a QTL or were acquired in a supervised acquisition. See "-- Savings
Institution Regulation - Qualified Thrift Lender Test."
Restrictions on Acquisitions. WSB must obtain approval from the OTS
before acquiring control of any other SAIF-insured savings institution. No
person may acquire control of a federally insured savings institution without
providing at least 60 days written notice to the OTS and giving the OTS an
opportunity to disapprove the proposed acquisition.
Savings Institution Regulation
General. As a federally chartered, SAIF-insured savings institution, we
are subject to extensive regulation by the OTS and the FDIC. Our lending
activities and other investments must comply with various federal and state
statutory and regulatory requirements. We are also subject to certain reserve
requirements promulgated by the Board of Governors of the Federal Reserve System
("Federal Reserve System").
The OTS, in conjunction with the FDIC, regularly examines us and
prepares reports for the consideration of our board of directors on any
deficiencies that the OTS finds in our operations. Our relationship with our
depositors and borrowers is also regulated to a great extent by federal and
state law, especially in such matters as the ownership of savings accounts and
the form and content of our mortgage documents.
We must file reports with the OTS and the FDIC concerning our
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other financial institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in regulations, whether by the OTS, the FDIC or any other
government agency, could have a material adverse impact on our operations.
53
Insurance of Deposit Accounts. The FDIC is authorized to establish
separate annual assessment rates for deposit insurance for members of the BIF
and the SAIF. The FDIC may increase assessment rates for either fund if
necessary to restore the fund's ratio of reserves to insured deposits to its
target level within a reasonable time and may decrease such assessment rates if
such target level has been met. The FDIC has established a risk-based assessment
system for both SAIF and BIF members. Under this system, assessments are set
within a range, based on the risk the institution poses to its deposit insurance
fund. This risk level is determined based on the institution's capital level and
the FDIC's level of supervisory concern about the institution.
Because a significant portion of the assessments paid into the SAIF by
savings institutions were used to pay the cost of prior savings institution
failures, the reserves of the SAIF were below the level required by law. The BIF
had, however, met its required reserve level during the third calendar quarter
of 1995. As a result, deposit insurance premiums for deposits insured by the BIF
were substantially less than premiums for deposits such as ours which are
insured by the SAIF. Legislation to capitalize the SAIF and to eliminate the
significant premium disparity between the BIF and the SAIF became effective
September 30, 1996. The recapitalization plan provided for a special assessment
equal to $.657 per $100 of SAIF deposits held at March 31, 1995, in order to
increase SAIF reserves to the level required by law. Certain BIF institutions
holding SAIF-insured deposits were required to pay a lower special assessment.
Based on our deposits at March 31, 1995, we paid a pre-tax special assessment of
$161,000.
The recapitalization plan also provides that the cost of prior failures
which were funded through the issuance of Fico Bonds (bonds issued to fund the
cost of savings institution failures in prior years) will be shared by members
of both the SAIF and the BIF. This will increase BIF assessments for healthy
banks to approximately $.013 per $100 of deposits in 1997. SAIF assessments for
healthy savings institutions in 1997 will be approximately $.064 per $100 in
deposits and may be reduced, but not below the level set for healthy BIF
institutions.
The FDIC has lowered the rates on assessments paid to the SAIF and
widened the spread of those rates. The FDIC's action established a base
assessment schedule for the SAIF with rates ranging from 4 to 31 basis points,
and an adjusted assessment schedule that reduces these rates by 4 basis points.
As a result, the effective SAIF rates range from 0 to 27 basis points as of
October 1, 1996. In addition, the FDIC's final rule prescribed a special interim
schedule of rates ranging from 18 to 27 basis points for SAIF-member savings
institutions for the last quarter of calendar 1996, to reflect the assessments
paid to the Financing Corp. (Fico Bonds). Finally, the FDIC's action established
a procedure for making limited adjustments to the base assessment rates by
rulemaking without notice and comment, for both the SAIF and the BIF.
The recapitalization plan also provides for the merger of the SAIF and
BIF effective January 1, 1999, assuming there are no savings institutions under
federal law. Under separate proposed legislation, Congress is considering the
elimination of the federal thrift charter and elimination of the separate
federal regulation of thrifts. As a result, we might have to convert to a
different financial institution charter and be regulated under federal law as a
bank, including being subject to the more restrictive activity limitations
imposed on national banks. We cannot predict the impact of our conversion to, or
regulation as, a bank until the legislation requiring such change is enacted.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted
assets. Our capital ratios are set forth under "Historical and Pro Forma Capital
Compliance."
54
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), less certain mortgage servicing rights and
less certain investments. Core capital is defined as common stockholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill, less nonqualifying intangible assets, certain
mortgage servicing rights and certain investments.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock, and the portion of the allowance for loan
losses not designated for specific loan losses. The portion of the allowance for
loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is
limited to 100% of core capital. A savings association must calculate its
risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the OTS, which range from 0% for cash to
100% for delinquent loans, property acquired through foreclosure, commercial
loans, and other assets.
The risk-based capital standards of the OTS generally require savings
institutions with more than a "normal" level of interest rate risk to maintain
additional total capital. An institution's interest rate risk will be measured
in terms of the sensitivity of its "net portfolio value" to changes in interest
rates. Net portfolio value is defined, generally, as the present value of
expected cash inflows from existing assets and off-balance sheet contracts less
the present value of expected cash outflows from existing liabilities. A savings
institution will be considered to have a "normal" level of interest rate risk
exposure if the decline in its net portfolio value after an immediate 200 basis
point increase or decrease in market interest rates (whichever results in the
greater decline) is less than two percent of the current estimated economic
value of its assets. An institution with a greater than normal interest rate
risk will be required to deduct from total capital, for purposes of calculating
its risk-based capital requirement, an amount (the "interest rate risk
component") equal to one-half the difference between the institution's measured
interest rate risk and the normal level of interest rate risk, multiplied by the
economic value of its total assets.
The OTS calculates the sensitivity of an institution's net portfolio
value based on data submitted by the institution in a schedule to its quarterly
Thrift Financial Report and using the interest rate risk measurement model
adopted by the OTS. The amount of the interest rate risk component, if any, to
be deducted from an institution's total capital will be based on the
institution's Thrift Financial Report filed two quarters earlier. Savings
institutions with less than $300 million in assets and a risk-based capital
ratio above 12% are generally exempt from filing the interest rate risk schedule
with their Thrift Financial Reports. However, the OTS may require any exempt
institution that it determines may have a high level of interest rate risk
exposure to file such schedule on a quarterly basis and may be subject to an
additional capital requirement based upon its level of interest rate risk as
compared to its peers. However, due to our net size and risk-based capital
level, we are exempt from the interest rate risk component.
Dividend and Other Capital Distribution Limitations. OTS regulations
require us to give the OTS 30 days advance notice of any proposed declaration of
dividends to WSB, and the OTS has the authority under its supervisory powers to
prohibit the payment of dividends by us to WSB. In addition, we may not declare
or pay a cash dividend on our capital stock if the effect would be to reduce our
55
regulatory capital below the amount required for the liquidation account to be
established at the time of the Conversion. See "The Conversion -- Effects of
Conversion to Stock Form on Depositors and Borrowers of Workingmens Savings
Bank, FSB -- Liquidation Account."
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to stockholders of another institution in
a cash-out merger, and other distributions charged against capital. The rule
establishes three tiers of institutions based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory notice. As of
December 31, 1996, we qualified as a Tier 1 institution.
In the event our capital falls below our fully phased-in requirement or
the OTS notifies us that we are in need of more than normal supervision, we
would become a Tier 2 or Tier 3 institution and as a result, our ability to make
capital distributions could be restricted. Tier 2 institutions, which are
institutions that before and after the proposed distribution meet their current
minimum capital requirements, may only make capital distributions of up to 75%
of net income over the most recent four quarter period. Tier 3 institutions,
which are institutions that do not meet current minimum capital requirements and
propose to make any capital distribution, and Tier 2 institutions that propose
to make a capital distribution in excess of the noted safe harbor level, must
obtain OTS approval prior to making such distribution. In addition, the OTS
could prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice. The OTS has
proposed rules relaxing certain approval and notice requirements for
well-capitalized institutions.
A savings institution is prohibited from making a capital distribution
if, after making the distribution, the savings institution would be
undercapitalized (i.e., not meet any one of its minimum regulatory capital
requirements). Further, a savings institution cannot distribute regulatory
capital that is needed for its liquidation account.
Qualified Thrift Lender Test. Savings institutions must meet a
qualified thrift lender ("QTL") test. If we maintain an appropriate level of
qualified thrift investments ("QTIs") (primarily residential mortgages and
related investments, including certain mortgage-related securities) and
otherwise qualify as a QTL, we will continue to enjoy full borrowing privileges
from the FHLB of Pittsburgh. The required percentage of QTIs is 65% of portfolio
assets (defined as all assets minus intangible assets, property used by the
institution in conducting its business and liquid assets equal to 10% of total
assets). Certain assets are subject to a percentage limitation of 20% of
portfolio assets. In addition, savings institutions may include shares of stock
of the FHLBs, FNMA, and FHLMC as QTIs. Compliance with the QTL test is
determined on a monthly basis in nine out of every 12 months. As of March 31,
1997, we were in compliance with our QTL requirement with approximately 88.55%
of our assets invested in QTIs.
Transactions With Affiliates. Generally, restrictions on transactions
with affiliates require that transactions between a savings institution or its
subsidiaries and its affiliates be on terms as favorable to
56
the savings institution as comparable transactions with non-affiliates. In
addition, certain of these transactions are restricted to an aggregate
percentage of the savings institution's capital. Collateral in specified amounts
must usually be provided by affiliates in order to receive loans from the
savings institution. Our affiliates include WSB and any company which would be
under common control with us. In addition, a savings institution may not extend
credit to any affiliate engaged in activities not permissible for a bank holding
company or acquire the securities of any affiliate that is not a subsidiary. The
OTS has the discretion to treat subsidiaries of savings institution as
affiliates on a case-by-case basis.
Liquidity Requirements. All savings institutions are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. At March 31, 1997, our required liquid asset
ratio was 5.0% and our actual ratio was 25.40%. Monetary penalties may be
imposed upon institutions for violations of liquidity requirements.
Federal Home Loan Savings Bank System. We are a member of the FHLB of
Pittsburgh, which is one of 12 regional FHLBs. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from funds deposited by savings institutions and proceeds derived from the sale
of consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the board of
directors of the FHLB.
As a member, we are required to purchase and maintain stock in the FHLB
of Pittsburgh in an amount equal to at least 1% of our aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At March 31, 1997, we had $153,000 in FHLB stock, at
cost, which was in compliance with this requirement. The FHLB imposes various
limitations on advances such as limiting the amount of certain types of real
estate related collateral to 30% of a member's capital and limiting total
advances to a member.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future.
Federal Reserve System. The Federal Reserve System requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve System may be used
to satisfy the liquidity requirements that are imposed by the OTS. At March 31,
1997, our reserve met the minimum level required by the Federal Reserve System.
Savings institutions have authority to borrow from the Federal Reserve
System "discount window," but Federal Reserve System policy generally requires
savings institutions to exhaust all other sources before borrowing from the
Federal Reserve System. We had no borrowings from the Federal Reserve System at
March 31, 1997.
57
TAXATION
Federal Taxation
We are subject to the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), in the same general manner as other corporations.
However, prior to August 1996, savings institutions such as us, which met
certain definitional tests and other conditions prescribed by the Code could
benefit from certain favorable provisions regarding their deductions from
taxable income for annual additions to their bad debt reserve. The amount of the
bad debt deduction that a qualifying savings institution could claim with
respect to additions to its reserve for bad debts was subject to certain
limitations. We reviewed the most favorable way to calculate the deduction
attributable to an addition to our bad debt reserve on an annual basis.
In August 1996, the Code was revised to equalize the taxation of
thrifts and banks. Thrifts, such as us, no longer have a choice between the
percentage of taxable income method and the experience method in determining
additions to bad debt reserves. Thrifts with $500 million of assets or less may
still use the experience method, which is generally available to small banks
currently. Larger thrifts must use the specific charge off method regarding bad
debts. Any reserve amounts added after 1987 will be taxed over a six year period
beginning in 1996; however, bad debt reserves set aside through 1987 are
generally not taxed. A savings institution may delay recapturing into income its
post-1987 bad debt reserves for an additional two years if it meets a
residential-lending test. This law is not expected to have a material impact on
us. At March 31, 1997, we had no post 1987 bad-debt reserves.
Under the percentage of taxable income method, the bad debt deduction
attributable to "qualifying real property loans" could not exceed the greater of
(i) the amount deductible under the experience method, or (ii) the amount which,
when added to the bad debt deduction for non-qualifying loans, equaled the
amount by which 12% of the sum of the total deposits and the advance payments by
borrowers for taxes and insurance at the end of the taxable year exceeded the
sum of the surplus, undivided profits and reserves at the beginning of the
taxable year. The amount of the bad debt deduction attributable to qualifying
real property loans computed using the percentage of taxable income method was
permitted only to the extent that the institution's reserve for losses on
qualifying real property loans at the close of the taxable year did not exceed
6% of such loans outstanding at such time.
Under the experience method, the bad debt deduction may be based on (i)
a six-year moving average of actual losses on qualifying and non-qualifying
loans, or (ii) a fill-up to the institution's base year reserve amount, which is
the tax bad debt reserve determined as of December 31, 1987.
The percentage of specially computed taxable income that was used to
compute a savings institution's bad debt reserve deduction under the percentage
of taxable income method (the "percentage bad debt deduction") was 8%. The
percentage of taxable income bad debt deduction thus computed was reduced by the
amount permitted as a deduction for non-qualifying loans under the experience
method. The availability of the percentage of taxable income method permitted
qualifying savings institutions to be taxed at a lower effective federal income
tax rate than that applicable to corporations generally (approximately 31.3%
assuming the maximum percentage bad debt deduction).
If a savings institution's qualifying assets (generally, loans secured
by residential real estate or deposits, educational loans, cash and certain
government obligations) constitute less than 60% of its total assets, the
institution may not deduct any addition to a bad debt reserve and generally must
include existing reserves in income over a four year period, which is
immediately accruable for financial
58
reporting purposes. As of March 31, 1997, at least 60% of our assets were
qualifying assets as defined in the Code. No assurance can be given that we will
meet the 60% test for subsequent taxable years.
Earnings appropriated to our bad debt reserve and claimed as a tax
deduction including our supplemental reserves for losses will not be available
for the payment of cash dividends or for distribution to you, our stockholders
(including distributions made on dissolution or liquidation), unless we include
the amount in income, along with the amount deemed necessary to pay the
resulting federal income tax. As of March 31, 1997, we had $419,000 of
accumulated earnings, representing our base year tax reserve, for which federal
income taxes have not been provided. If such amount is used for any purpose
other than bad debt losses, including a dividend distribution or a distribution
in liquidation, it will be subject to federal income tax at the then current
rate.
Generally, for taxable years beginning after 1986, the Code also
requires most corporations, including savings institutions, to utilize the
accrual method of accounting for tax purposes. Further, for taxable years ending
after 1986, the Code disallows 100% of a savings institution's interest expense
deemed allocated to certain tax-exempt obligations acquired after August 7,
1986. Interest expense allocable to (i) tax-exempt obligations acquired after
August 7, 1986 which are not subject to this rule, and (ii) tax-exempt
obligations issued after 1982 but before August 8, 1986, are subject to the rule
which applied prior to the Code disallowing the deductibility of 20% of the
interest expense.
The Code imposes a tax ("AMT") on alternative minimum taxable income
("AMTI") at a rate of 20%. AMTI is increased by certain preference items,
including the excess of the tax bad debt reserve deduction using the percentage
of taxable income method over the deduction that would have been allowable under
the experience method. Only 90% of AMTI can be offset by net operating loss
carryovers of which we currently have none. AMTI is also adjusted by determining
the tax treatment of certain items in a manner that negates the deferral of
income resulting from the regular tax treatment of those items. Thus, our AMTI
is increased by an amount equal to 75% of the amount by which our adjusted
current earnings exceeds our AMTI (determined without regard to this adjustment
and prior to reduction for net operating losses). In addition, for taxable years
beginning after December 31, 1986 and before January 1, 1996, an environmental
tax of 0.12% of the excess of AMTI (with certain modifications) over $2 million
is imposed on corporations, including us, whether or not an AMT is paid. Under
pending legislation, the AMT rate would be reduced to zero for taxable years
beginning after December 31, 1994, but this rate reduction would be suspended
for taxable years beginning in 1995 and 1996 and the suspended amounts would be
refunded as tax credits in subsequent years.
WSB may exclude from its income 100% of dividends received from us as a
member of the same affiliated group of corporations. A 70% dividends received
deduction generally applies with respect to dividends received from corporations
that are not members of such affiliated group, except that an 80% dividends
received deduction applies if WSB owns more than 20% of the stock of a
corporation paying a dividend. The above exclusion amounts, with the exception
of the affiliated group figure, were reduced in years in which we availed
ourself of the percentage of taxable income bad debt deduction method.
Our federal income tax returns have not been audited by the IRS since
our fiscal year ended 1992. There was no material effect to our financial
statements, as a result of the audit.
State Taxation
We are subject to the Mutual Thrift Institutions Tax of the
Commonwealth of Pennsylvania based on our financial net income determined in
accordance with generally accepted accounting principles with
59
certain adjustments. Our tax rate under the Mutual Thrift Institutions Tax is
11.5%. Interest on state and federal obligations is excluded from net income. An
allocable portion of net interest expense incurred to carry the obligations is
disallowed as a deduction. Three year carryforwards of losses are allowed.
Upon consummation of the Conversion, we will also be subject to the
Corporate Net Income Tax and the Capital Stock Tax of the Commonwealth of
Pennsylvania.
MANAGEMENT OF WSB HOLDING COMPANY
Our board of directors consists of the same individuals who serve as
directors of our subsidiary, Workingmens Savings Bank, FSB. Our articles of
incorporation and bylaws require that directors be divided into four classes, as
nearly equal in number as possible. Each class of directors serves for a
four-year period, with approximately one-fourth of the directors elected each
year. Our officers will be elected annually by the board and serve at the
board's discretion. See "Management of Workingmens Savings Bank, FSB."
MANAGEMENT OF WORKINGMENS SAVINGS BANK, FSB
Directors and Executive Officers
Our board of directors is composed of six members each of whom serves
for a term of three years, with approximately one-third of the directors elected
each year. Our proposed stock articles of incorporation and bylaws require that
directors be divided into four classes, as nearly equal in number as possible.
Our officers are elected annually by our board and serve at the board's
discretion.
The following table sets forth information with respect to our
directors and executive officers, all of whom will continue to serve in the same
capacities after the Conversion.
Age at Current
March 31, Director Term
1997 Position Since Expires
---- -------- ------- -------
Directors
- ---------
Joseph J. Manfred 74 Chairman of the Board and 1973 1998
Director
Robert Neudorfer 60 President and Director 1988 2000
Stanford H. Rosenberg 63 Vice President 1985 2000
and Director
Johanna C. Guehl 43 Secretary and Director 1990 1999
John P. Mueller 59 Director 1994 1998
John T. Ringland 69 Director 1978 1999
Ronald W. Moreschi 54 Vice President and - -
Treasurer
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The business experience for the past five years of each of the
directors and executive officers is as follows:
Joseph J. Manfred has been a member of the board of directors and
Chairman of the Board since 1973. Mr. Manfred is a choir member of St. John
Fisher Church and a eucharistic minister for Forbes Regional Hospital. Mr.
Manfred is also a retired insurance agent who owned Manfred Insurance Agency.
Robert Neudorfer has been employed by us since 1975 and has been the
President and a member of the board of directors since 1988. Mr. Neudorfer is a
member of the board of directors and the treasurer of Community Development
Foundation and is also a member of the board of directors of the Western
Pennsylvania League of Savings Institutions. Mr. Neudorfer is a choir member of
the Baldwin Community United Methodist Church.
Stanford H. Rosenberg has been Director and Vice President since 1985.
Since 1974, he has been a professor at La Roche College in Pittsburgh.
Johanna C. Guehl has been a Director and Secretary since 1991. Since
1991, Ms. Guehl has been a partner in the law firm of Brabender & Guehl. Ms.
Guehl is a member of the board of directors for Women's Leadership Assembly and
she is the treasurer for Center For Victims of Violent Crimes and Women's
Business Network.
John P. Mueller has been a member of the board of directors since 1994.
Mr. Mueller is President and majority stockholder of Mueller's Hardware in
Pittsburgh. He is also the President of East Allegheny Business District and a
member of the board of directors of St. Ambrose Manor and Northside Chamber of
Commerce.
John T. Ringland has been a member of the board of directors since
1978. Mr. Ringland is a retired controller for Minsky Brothers.
Ronald W. Moreschi has been vice president and treasurer since 1987.
Meetings and Committees of the Board of Directors
The board of directors conducts its business through meetings of the
board and through activities of its committees. During the year ended June 30,
1996, the board of directors held 12 regular meetings and 8 special meetings. No
director attended fewer than 75% of the total meetings of the board of directors
and committees on which such director served during the year ended June 30,
1996.
Director Compensation
Each non-salaried director is paid monthly with two paid absences per
year. Total aggregate fees paid to the current non-salaried directors for the
year ended June 30, 1996 were $31,500. Beginning July 1, 1997, each non-salaried
directors will be paid a monthly fee of $700 and the Chairman of the Board will
be paid a monthly fee of $750.
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Executive Compensation
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by our chief executive officer at
June 30, 1996. No employee earned in excess of $100,000 for the year ended June
30, 1996.
Annual Compensation
---------------------------------------------------
Other Annual
Compensation
Name and Principal Position Salary Bonus (1)
- --------------------------- ------ ----- ----
Robert Neudorfer, President $61,000 $2,750
- --------------------
(1) Aggregate value does not exceed the lesser of $50,000 or 10% of Mr.
Neudorfer's total salary and bonus.
Employment Agreement. We have entered into an employment agreement with
our President, Robert Neudorfer. Mr. Neudorfer's base salary under the
employment agreement is $60,000. The agreement has a term of three years and is
terminable by us for "just cause". If we terminate Mr. Neudorfer without just
cause, he will be entitled to a continuation of his base salary from the date of
termination through the remaining term of the agreement.
Employee Stock Ownership Plan. We have established an employee stock
ownership plan, the ESOP, for the exclusive benefit of participating employee of
ours, to be implemented upon the completion of the Conversion. Participating
employees are employees who have completed one year of service with us or our
subsidiary and have attained the age of 21. An application for a letter of
determination as to the tax-qualified status of the ESOP will be submitted to
the IRS. Although no assurances can be given, we expect that the ESOP will
receive a favorable letter of determination from the IRS.
The ESOP is to be funded by contributions made by us in cash or common
stock. Benefits may be paid either in shares of the common stock or in cash. In
accordance with the Plan, the ESOP may borrow funds with which to acquire up to
8% of the common stock to be issued in the Conversion. The ESOP intends to
borrow funds from WSB. The loan is expected to be for a term of ten years at an
annual interest rate equal to the prime rate as published in The Wall Street
Journal. Presently it is anticipated that the ESOP will purchase up to 8% of the
common stock to be issued in the offering (i.e., $200,000, based on the midpoint
of the EVR). The loan will be secured by the shares purchased and earnings of
ESOP assets. Shares purchased with such loan proceeds will be held in a suspense
account for allocation among participants as the loan is repaid. We anticipate
contributing approximately $20,000 annually (based on a $200,000 purchase) to
the ESOP to meet principal obligations under the ESOP loan, as proposed. It is
anticipated that all such contributions will be tax-deductible. This loan is
expected to be fully repaid in approximately 10 years.
Shares sold above the maximum of the EVR (i.e., more than 287,500
shares) may be sold to the ESOP before satisfying remaining unfilled orders of
Eligible Account Holders to fill the ESOP's subscription or the ESOP may
purchase some or all of the shares covered by its subscription after the
Conversion in the open market.
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Contributions to the ESOP and shares released from the suspense account
will be allocated among participants on the basis of total compensation. All
participants must be employed at least 1,000 hours in a plan year, or have
terminated employment following death, disability or retirement, in order to
receive an allocation. Participant benefits become vested in plan payments as
follows: after 3 years - 20%, 4 years - 40%, 5 years - 60%, 6 years - 80% and 7
years -100%. Employment prior to the adoption of the ESOP shall be credited for
the purposes of vesting. Vesting will be accelerated upon retirement, death,
disability, change in control of WSB, or termination of the ESOP. Forfeitures
will be reallocated to participants on the same basis as other contributions in
the plan year. Benefits may be payable in the form of a lump sum upon
retirement, death, disability or separation from service. Our contributions to
the ESOP are discretionary and may cause a reduction in other forms of
compensation.
Therefore, benefits payable under the ESOP cannot be estimated.
The board of directors has appointed non-employee directors to the ESOP
Committee to administer the ESOP and to serve as the initial ESOP Trustees. The
board of directors or the ESOP Committee may instruct the ESOP Trustees
regarding investments of funds contributed to the ESOP. The ESOP Trustees must
vote all allocated shares held in the ESOP in accordance with the instructions
of the participating employees. Unallocated shares and allocated shares for
which no timely direction is received will be voted by the ESOP Trustees as
directed by the board of directors or the ESOP Committee, subject to the
Trustees' fiduciary duties.
Pension Plan. We sponsor a tax-qualified defined benefit pension plan
(the "Pension Plan"). All our full-time employees are eligible to participate
after six months of service and attainment of age 20 1/2. A qualifying employee
becomes fully vested in the Pension Plan upon completion of six years of
qualifying service. The Pension Plan is intended to comply with the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
Our Pension Plan provides for monthly payments to each participating
employee at normal retirement age (age 65). Upon termination at or after age 65
and completion of 25 or more years of service, the annual retirement benefit
would be determined based upon 42.8% of a participant's Final Average
Compensation. Retirement benefits at age 65 with less than 25 years of service
are reduced proportionately.
Benefits are paid for the life of the participant following retirement.
The Pension Plan also provides for payments in the event of death. At March 31,
1997, Mr. Neudorfer had 22 years of credited service under the Pension Plan and
the monthly benefit payable to Mr. Neudorfer at normal retirement age would have
been $1,567.
Benefits are payable in the form of various annuity alternatives,
including a joint and survivor option. For the Pension Plan year ended March 31,
1997, the highest permissible annual benefit under the Internal Revenue Code is
$120,000. Benefits under the Pension Plan are not subject to offset for Social
Security benefits.
Proposed Future Stock Benefit Plans
Stock Option Plan. The boards of directors intend to adopt a stock
option plan (the Option Plan) following the Conversion, subject to approval and
WSB's stockholders, at a stockholders meeting to be held no sooner than six
months after the Conversion. The Option Plan would be in compliance with the OTS
regulations in effect. See "-- Restrictions on Stock Benefit Plans." If the
Option Plan is implemented within one year after the Conversion, in accordance
with OTS regulations, a number of
63
shares equal to 10% of the aggregate shares of common stock to be issued in the
Offering (i.e., 25,000 shares based upon the sale of 250,000 shares at the
midpoint of the EVR) would be reserved for issuance by WSB upon exercise of
stock options to be granted to our officers, directors and employees from time
to time under the Option Plan. The purpose of the Option Plan would be to
provide additional performance and retention incentives to certain officers,
directors and employees by facilitating their purchase of a stock interest in
WSB. Under the OTS regulations, the Option Plan, would provide for a term of 10
years, after which no awards could be made, unless earlier terminated by the
board of directors pursuant to the Option Plan and the options would vest over a
five year period (i.e., 20% per year), beginning one year after the date of
grant of the option. Options would be granted based upon several factors,
including seniority, job duties and responsibilities, job performance, our
financial performance and a comparison of awards given by other savings
institutions converting from mutual to stock form.
WSB would receive no monetary consideration for the granting of stock
options under the Option Plan. It would receive the option price for each share
issued to optionees upon the exercise of such options. Shares issued as a result
of the exercise of options will be either authorized but unissued shares or
shares purchased in the open market by WSB. However, no purchases in the open
market will be made that would violate applicable regulations restricting
purchases by WSB. The exercise of options and payment for the shares received
would contribute to the equity of WSB.
If the Option Plan is implemented more than one year after the
Conversion, the Option Plan will comply with OTS regulations and policies that
are applicable at such time.
Restricted Stock Plan. The board of directors intends to adopt the RSP
following the Conversion, the objective of which is to enable us to retain
personnel and directors of experience and ability in key positions of
responsibility. WSB expects to hold a stockholders' meeting no sooner than six
months after the Conversion in order for stockholders to vote to approve the
RSP. If the RSP is implemented within one year after the Conversion, in
accordance with applicable OTS regulations, the shares granted under the RSP
will be in the form of restricted stock vesting over a five year period (i.e.,
20% per year) beginning one year after the date of grant of the award.
Compensation expense in the amount of the fair market value of the common stock
granted will be recognized pro rata over the years during which the shares are
payable. Until they have vested, such shares may not be sold, pledged or
otherwise disposed of and are required to be held in escrow. Any shares not so
allocated would be voted by the RSP Trustees. The RSP will be implemented in
accordance with applicable OTS regulations. See "-- Restrictions on Stock
Benefit Plans." Awards would be granted based upon a number of factors,
including seniority, job duties and responsibilities, job performance, our
performance and a comparison of awards given by other institutions converting
from mutual to stock form. The RSP would be managed by a committee of
non-employee directors (the "RSP Trustees"). The RSP Trustees would have the
responsibility to invest all funds contributed by us to the trust created for
the RSP (the "RSP Trust").
We expect to contribute sufficient funds to the RSP so that the RSP
Trust can purchase, in the aggregate, up to 4% of the amount of common stock
that is sold in the Conversion. The shares purchased by the RSP would be
authorized but unissued shares or would be purchased in the open market. In the
event the market price of the common stock is greater than $10.00 per share, our
contribution of funds will be increased. Likewise, in the event the market price
is lower than $10.00 per share, our contribution will be decreased. In
recognition of their prior and expected services to us and WSB, as the case may
be, the officers, other employees and directors responsible for implementation
of the policies adopted by the board of directors and our profitable operation
will, without cost to them, be
64
awarded stock under the RSP. Based upon the sale of 250,000 shares of common
stock in the offering at the midpoint of the EVR, the RSP Trust is expected to
purchase up to 10,000 shares of common stock.
If the RSP is implemented more than one year after the Conversion, the
RSP will comply with such OTS regulations and policies that are applicable at
such time.
Restrictions on Stock Benefit Plans. OTS regulations provide that in
the event stock option or management and/or employee stock benefit plans are
implemented within one year from the date of Conversion, such plans must comply
with the following restrictions: (1) the plans must be fully disclosed in the
prospectus, (2) for stock option plans, the total number of shares for which
options may be granted may not exceed 10% of the shares issued in the
Conversion, (3) for restricted stock plans, the shares may not exceed 3% of the
shares issued in the Conversion (4% for institutions with 10% or greater
tangible capital), (4) the aggregate amount of stock purchased by the ESOP in
the Conversion may not exceed 10% (8% for well-capitalized institutions
utilizing a 4% restricted stock plan), (5) no individual employee may receive
more than 25% of the available awards under the option plan or the restricted
stock plans, (6) directors who are not employees may not receive more than 5%
individually or 30% in the aggregate of the awards under any plan, (7) all plans
must be approved by a majority of the total votes eligible to be cast at any
duly called meeting of WSB's stockholders held no earlier than six months
following the Conversion, (8) for stock option plans, the exercise price must be
at least equal to the market price of the stock at the time of grant, (9) for
restricted stock plans, no stock issued in a conversion may be used to fund the
plan, (10) neither stock option awards nor restricted stock awards may vest
earlier than 20% as of one year after the date of stockholder approval and 20%
per year thereafter, and vesting may be accelerated only in the case of
disability or death (or if not inconsistent with applicable OTS regulations in
effect at such time, in the event of a change in control), (11) the proxy
material must clearly state that the OTS in no way endorses or approves of the
plans, and (12) prior to implementing the plans, all plans must be submitted to
the Regional Director of the OTS within five days after stockholder approval
with a certification that the plans approved by the stockholders are the same
plans that were filed with and disclosed in the proxy materials relating to the
meeting at which stockholder approval was received.
RESTRICTIONS ON ACQUISITIONS OF WSB HOLDING COMPANY
While the board of directors is not aware of any effort that might be
made to obtain control of WSB after Conversion, the board of directors believes
that it is appropriate to include certain provisions as part of WSB's articles
of incorporation to protect the interests of WSB and its stockholders from
hostile takeovers ("anti-takeover"provisions) which the board of directors might
conclude are not in the best interests of us or our stockholders. These
provisions may have the effect of discouraging a future takeover attempt which
is not approved by the board of directors but which individual stockholders may
deem to be in their best interests or in which stockholders may receive a
substantial premium for their shares over the current market prices. As a
result, stockholders who might desire to participate in such a transaction may
not have an opportunity to do so. Such provisions will also render the removal
of the current board of directors or management of WSB more difficult.
The following discussion is a general summary of the material
provisions of the articles of incorporation, bylaws, and certain other
regulatory provisions of WSB, which may be deemed to have such an anti-takeover
effect. The description of these provisions is necessarily general and reference
should be made in each case to the articles of incorporation and bylaws of WSB
which are incorporated herein by reference. See "Where You Can Find Additional
Information" as to how to obtain a copy of these documents.
65
Provisions of WSB Articles of Incorporation and Bylaws
Limitations on Voting Rights. The articles of incorporation of WSB
provide that for a period of five years from completion of the Conversion, in no
event shall any record owner of any outstanding equity security which is
beneficially owned, directly or indirectly, by a person who beneficially owns in
excess of 10% of any class of equity security outstanding (the "Limit") be
entitled or permitted to any vote in respect of the shares held in excess of the
Limit. The number of votes which may be cast by any record owner who
beneficially owned shares in excess of the Limit shall be a number equal to the
total number of votes which a single record owner of all common stock owned by
such person would be entitled to cast, multiplied by a fraction, the numerator
of which is the number of shares of such class or series which are both
beneficially owned by such person and owned of record by such record owner and
the denominator of which is the total number of shares of common stock
beneficially owned by such person owning shares in excess of the Limit. In
addition, for a period of five years from the completion of our Conversion, no
person may directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of any class of an equity security of WSB.
The impact of these provisions on the submission of a proxy on behalf
of a beneficial holder of more than 10% of the common stock is (1) to disregard
for voting purposes and require divestiture of the amount of stock held in
excess of 10% (if within five years of the Conversion more than 10% of the
common stock is beneficially owned by a person) and (2) limit the vote on common
stock held by the beneficial owner to 10% or possibly reduce the amount that may
be voted below the 10% level (if more than 10% of the common stock is
beneficially owned by a person more than five years after the Conversion).
Unless the grantor of a revocable proxy is an affiliate or an associate of such
a 10% holder or there is an arrangement, agreement or understanding with such a
10% holder, these provisions would not restrict the ability of such a 10% holder
of revocable proxies to exercise revocable proxies for which the 10% holder is
neither a beneficial nor record owner. A person is a beneficial owner of a
security if he has the power to vote or direct the voting of all or part of the
voting rights of the security, or has the power to dispose of or direct the
disposition of the security. The articles of incorporation of WSB further
provide that this provision limiting voting rights may only be amended upon the
vote of 80% of the outstanding shares of voting stock.
Election of Directors. Certain provisions of WSB's articles of
incorporation and bylaws will impede changes in majority control of the board of
directors. WSB's articles of incorporation provide that the board of directors
of WSB will be divided into four staggered classes, with directors in each class
elected for four-year terms. Thus, it would take three annual elections to
replace a majority of WSB's board. WSB's articles of incorporation provide that
the size of the board of directors may be increased or decreased only if
two-thirds of the directors then in office concur in such action. The articles
of incorporation also provide that any vacancy occurring in the board of
directors, including a vacancy created by an increase in the number of
directors, shall be filled for the remainder of the unexpired term by a majority
vote of the directors then in office. Finally, the articles of incorporation and
the bylaws impose certain notice and information requirements in connection with
the nomination by stockholders of candidates for election to the board of
directors or the proposal by stockholders of business to be acted upon at an
annual meeting of stockholders.
The articles of incorporation provide that a director may only be
removed for cause by the affirmative vote of at least 80% of the shares of WSB
entitled to vote generally in an election of directors cast at a meeting of
stockholders called for that purpose.
66
Restrictions on Call of Special Meetings. The articles of incorporation
of WSB provide that a special meeting of stockholders may be called only
pursuant to a resolution adopted by a majority of the board of directors, or a
Committee of the board.
Absence of Cumulative Voting. WSB's articles of incorporation provides
that stockholders may not cumulate their votes in the election of directors.
Authorized Shares. The articles of incorporation authorizes the
issuance of 4,000,000 shares of common stock and 1,000,000 shares of preferred
stock. The shares of common stock and preferred stock were authorized in an
amount greater than that to be issued in the Conversion to provide WSB board of
directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and the
exercise of stock options. However, these additional authorized shares may also
be used by the board of directors consistent with its fiduciary duty to deter
future attempts to gain control of WSB. The board of directors also has sole
authority to determine the terms of any one or more series of Preferred Stock,
including voting rights, conversion rates, and liquidation preferences. As a
result of the ability to fix voting rights for a series of Preferred Stock, the
board has the power, to the extent consistent with its fiduciary duty, to issue
a series of Preferred Stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
WSB's board currently has no plans for the issuance of additional shares, other
than the issuance of additional shares upon exercise of stock options.
Procedures for Certain Business Combinations. The articles of
incorporation require the affirmative vote of at least 80% of the outstanding
shares of WSB entitled to vote in the election of directors in order for WSB to
engage in or enter into certain "Business Combinations," as defined therein,
with any Principal Shareholder (as defined below) or any affiliates of the
Principal Shareholder, unless the proposed transaction has been approved in
advance by WSB's board of directors, excluding those who were not directors
prior to the time the Principal Shareholder became the Principal Shareholder.
The term "Principal Shareholder" is defined to include any person and the
affiliates and associates of the person (other than WSB or its subsidiary) who
beneficially owns, directly or indirectly, 10% or more of the outstanding shares
of voting stock of WSB. Any amendment to this provision requires the affirmative
vote of at least 80% of the shares of WSB entitled to vote generally in an
election of directors.
Amendment to Articles of Incorporation and Bylaws. Amendments to WSB's
articles of incorporation must be approved by WSB's board of directors and also
by a majority of the outstanding shares of WSB's voting stock, provided,
however, that approval by at least 80% of the outstanding voting stock is
generally required for certain provisions (i.e., provisions relating to
restrictions on the acquisition and voting of greater than 10% of the common
stock; number, classification, election and removal of directors; amendment of
Bylaws; call of special stockholder meetings; director liability; certain
business combinations; power of indemnification; and amendments to provisions
relating to the foregoing in the articles of incorporation).
The bylaws may be amended by a majority vote of the board of directors
or the affirmative vote of the holders of at least 80% of the outstanding shares
of WSB entitled to vote in the election of directors cast at a meeting called
for that purpose.
Benefit Plans. In addition to the provisions of WSB's articles of
incorporation and bylaws described above, certain benefit plans of ours adopted
in connection with the Conversion contain provisions which also may discourage
hostile takeover attempts which the boards of directors might
67
conclude are not in the best interests for us or our stockholders. For a
description of the benefit plans and the provisions of such plans relating to
changes in control, see "Management of Workingmens Savings Bank, FSB - Proposed
Future Stock Benefit Plans."
Regulatory Restrictions. A federal regulation prohibits any person
prior to the completion of a conversion from transferring, or entering into any
agreement or understanding to transfer, the legal or beneficial ownership of the
subscription rights issued under a plan of conversion or the stock to be issued
upon their exercise. This regulation also prohibits any person prior to the
completion of a conversion from offering, or making an announcement of an offer
or intent to make an offer, to purchase such subscription rights or stock. For
three years following conversion, OTS regulations prohibit any person, without
the prior approval of the OTS, from acquiring or making an offer to acquire more
than 10% of the stock of any converted savings institution if such person is, or
after consummation of such acquisition would be, the beneficial owner of more
than 10% of such stock. In the event that any person, directly or indirectly,
violates this regulation, the securities beneficially owned by such person in
excess of 10% shall not be counted as shares entitled to vote and shall not be
voted by any person or counted as voting shares in connection with any matter
submitted to a vote of stockholders.
Federal regulations require that, prior to obtaining control of an
insured institution, a person, other than a company, must give 60 days notice to
the OTS and have received no OTS objection to such acquisition of control, and a
company must apply for and receive OTS approval of the acquisition. Control,
involves a 25% voting stock test, control in any manner of the election of a
majority of the institution's directors, or a determination by the OTS that the
acquiror has the power to direct, or directly or indirectly to exercise a
controlling influence over, the management or policies of the institution.
Acquisition of more than 10% of an institution's voting stock, if the acquiror
also is subject to any one of either "control factors," constitutes a rebuttable
determination of control under the regulations. The determination of control may
be rebutted by submission to the OTS, prior to the acquisition of stock or the
occurrence of any other circumstances giving rise to such determination, of a
statement setting forth facts and circumstances which would support a finding
that no control relationship will exist and containing certain undertakings. The
regulations provide that persons or companies which acquire beneficial ownership
exceeding 10% or more of any class of a savings association's stock after the
effective date of the regulations must file with the OTS a certification that
the holder is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the OTS, as applicable.
DESCRIPTION OF CAPITAL STOCK
WSB is authorized to issue 4,000,000 shares of the common stock, $0.10
par value per share, and 1,000,000 shares of serial preferred stock, $.10 par
value per share. WSB currently expects to issue up to 330,600 shares of common
stock in the Conversion. WSB does not intend to issue any shares of serial
preferred stock in the Conversion, nor are there any present plans to issue such
preferred stock following the Conversion. The aggregate par value of the issued
shares will constitute the capital account of WSB. The balance of the purchase
price will be recorded for accounting purposes as additional paid-in capital.
See "Capitalization." The capital stock of WSB will represent nonwithdrawable
capital and will not be insured by us, the FDIC, or any other government agency.
68
Common Stock
Voting Rights. Each share of the common stock will have the same
relative rights and will be identical in all respects with every other share of
the common stock. The holders of the common stock will possess exclusive voting
rights in WSB, except to the extent that shares of serial preferred stock issued
in the future may have voting rights, if any. Each holder of the common stock
will be entitled to only one vote for each share held of record on all matters
submitted to a vote of holders of the common stock and will not be permitted to
cumulate their votes in the election of WSB's directors.
Liquidation. In the unlikely event of the complete liquidation or
dissolution of WSB, the holders of the common stock will be entitled to receive
all assets of WSB available for distribution in cash or in kind, after payment
or provision for payment of (i) all debts and liabilities of WSB; (ii) any
accrued dividend claims; and (iii) liquidation preferences of any serial
preferred stock which may be issued in the future.
Restrictions on Acquisition of the Common Stock. See "Certain
Restrictions on Acquisition of WSB" for a discussion of the limitations on
acquisition of shares of the common stock.
Other Characteristics. Holders of the common stock will not have
preemptive rights with respect to any additional shares of the common stock
which may be issued. Therefore, the board of directors may sell shares of
capital stock of WSB without first offering such shares to existing stockholders
of WSB. The common stock is not subject to call for redemption, and the
outstanding shares of common stock when issued and upon receipt by WSB of the
full purchase price therefor will be fully paid and non-assessable.
Issuance of Additional Shares. Except in the Subscription and Public
Offerings and possibly pursuant to the RSP or Option Plan, the WSB has no
present plans, proposals, arrangements or understandings to issue additional
authorized shares of the common stock. In the future, the authorized but
unissued and unreserved shares of the common stock will be available for general
corporate purposes, including, but not limited to, possible issuance: (i) as
stock dividends; (ii) in connection with mergers or acquisitions; (iii) under a
cash dividend reinvestment or stock purchase plan; (iv) in a public or private
offering; or (v) under employee benefit plans. See "Risk Factors -- Possible
Dilutive Effect of RSP and Stock Options and Effect of Purchases by the RSP and
ESOP" and "Pro Forma Data." Normally no stockholder approval would be required
for the issuance of these shares, except as described herein or as otherwise
required to approve a transaction in which additional authorized shares of the
common stock are to be issued.
For additional information, see "Dividends," "Regulation" and
"Taxation" with respect to restrictions on the payment of cash dividends; "--
Restrictions on Transferability by Directors and Officers" relating to certain
restrictions on the transferability of shares purchased by directors and
officers; and "Certain Restrictions on Acquisition of WSB" for information
regarding restrictions on acquiring common stock of WSB.
Serial Preferred Stock
None of the 1,000,000 authorized shares of serial preferred stock of
WSB will be issued in the Conversion. After the Conversion is completed, the
board of directors of WSB will be authorized to issue serial preferred stock and
to fix and state voting powers, designations, preferences or other special
rights of such shares and the qualifications, limitations and restrictions
thereof, subject to regulatory
69
approval but without stockholder approval. If and when issued, the serial
preferred stock is likely to rank prior to the common stock as to dividend
rights, liquidation preferences, or both, and may have full or limited voting
rights. The board of directors, without stockholder approval, can issue serial
preferred stock with voting and conversion rights which could adversely affect
the voting power of the holders of the common stock. The board of directors has
no present intention to issue any of the serial preferred stock.
LEGAL AND TAX MATTERS
The legality of the common stock has been passed upon for us by
Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C. Certain legal matters for
Trident Securities, Inc. may be passed upon by Brooks, Pierce, McLendon,
Humphrey & Leonard, L.L.P., Greensboro, North Carolina. The federal and state
income tax consequences of the Conversion have been passed upon for us by
Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C.
EXPERTS
The consolidated financial statements of Workingmens Savings Bank,
FSB as of and for the years ended June 30, 1995 and 1996 appearing in this
document have been audited by Hinds, Lind, Miller & Co., independent certified
public accountants, as set forth in their report which appears elsewhere in this
document, and is included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
Ferguson has consented to the publication herein of a summary of its
letters to Workingmens Savings Bank, FSB setting forth its opinion as to the
estimated pro forma market value of us in the converted form and its opinion
setting forth the value of subscription rights and to the use of its name and
statements with respect to it appearing in this document.
REGISTRATION REQUIREMENTS
The common stock of WSB will be registered pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") prior to
completion of the Conversion. WSB will be subject to the information, proxy
solicitation, insider trading restrictions, tender offer rules, periodic
reporting and other requirements of the SEC under the Exchange Act. WSB may not
deregister the common stock under the Exchange Act for a period of at least
three years following the Conversion.
70
WHERE YOU CAN FIND ADDITIONAL INFORMATION
WSB and Workingmens Savings Bank, FSB are not currently subject to the
informational requirements of the Exchange Act.
WSB has filed with the SEC a registration statement on Form SB-2 under
the Securities Act of 1933, as amended, with respect to the common stock offered
in this document. As permitted by the rules and regulations of the SEC, this
document does not contain all the information set forth in the registration
statement. Such information can be examined without charge at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of such material can be obtained from the SEC at
prescribed rates. The SEC also maintains an internet address ("Web site") that
contains reports, proxy and information statements and other information
regarding registrants, including the Company, that file electronically with the
SEC. The address for this Web site is "http://www.sec.gov." The statements
contained in this document as to the contents of any contract or other document
filed as an exhibit to the Form SB-2 are, of necessity, brief descriptions and
are not necessarily complete; each such statement is qualified by reference to
such contract or document.
Workingmens Savings Bank, FSB has filed an Application for Conversion
with the OTS with respect to the Conversion. Pursuant to the rules and
regulations of the OTS, this document omits certain information contained in
that Application. The Application may be examined at the principal office of the
OTS, 1700 G Street, N.W., Washington, D.C. 20552 and at the Central Regional
Office of the OTS, 111 East Wacker Drive, Suite 800, Chicago, Illinois
60601-4360 without charge.
A copy of the Articles of Incorporation and the Bylaws of WSB are
available without charge from Workingmens Savings Bank, FSB.
71
WORKINGMENS SAVINGS BANK, FSB
and Subsidiary
Index to Consolidated Financial Statements
Page
----
Independent Auditors' Report ............................................. F-1
Consolidated Balance Sheets............................................... F-2
Consolidated Statements of Income ........................................ 25
Consolidated Statements of Retained Earnings ............................. F-3
Consolidated Statements of Cash Flows .................................... F-4
Notes to Consolidated Financial Statements................................ F-6
All schedules are omitted because the required information is either not
applicable or is included in the consolidated financial statements or related
notes.
Separate financial statements for WSB have not been included since it will not
engage in material transactions until after the Conversion. WSB, which has been
inactive to date, has no significant assets, liabilities, revenues, expenses or
contingent liabilities.
72
HINDS, LIND MILLER & CO.
A PROFESSIONAL CORPORATION
CERTIFIED PUBLIC ACCOUNTANTS
9401 McKnight Road PHONE (412) 364-6070
Pittsburgh, Pennsylvania 15237-6000 FAX (412) 364-6176
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Workingmens Savings Bank, F.S.B. and Subsidiary
We have audited the accompanying consolidated balance sheets of Workingmens
Savings Bank, F.S.B. and Subsidiary ("Bank") at June 30, 1996 and 1995, and the
related consolidated statements of income, changes in retained earnings, and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Workingmens Savings
Bank, F.S.B. and Subsidiary at June 30, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note O to the consolidated financial statements, the Bank
changed its method of accounting for investment securities in fiscal year 1995
as permitted by the provisions of Statement of Financial Accounting Standards
No. 115.
/s/Hinds, Lind Miller & Co.
Pittsburgh, Pennsylvania
August 21, 1996
F-1
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MAR. 31,
(UNAUDITED) JUNE 30,
----------- -------------------------------------
1997 1996 1995
---- ---- ----
ASSETS
Cash and cash equivalents
Interest bearing $ 1,201,875 $ 984,667 $ 4,218,325
Non-interest bearing 390,902 221,364 208,551
Securities held-to-maturity (estimated fair value
of $12,828,035, $10,782,060 and $8,823,833) 12,988,802 10,892,081 8,941,199
Securities available-for-sale, at fair value 2,757,816 3,317,811 1,401,555
Loans and real estate, net 14,125,458 13,628,724 12,798,315
Federal Home Loan Bank stock, at cost 153,300 133,200 139,600
Accrued interest receivable 301,088 235,434 168,352
Premises and equipment, net 1,062,750 1,072,594 305,404
Other assets 69,520 83,382 66,819
Income taxes receivable - 3,537 34,020
Deferred income taxes 75,693 6,680 -
----------- ----------- -----------
$33,127,204 $30,579,474 $28,282,140
========== ========== ==========
LIABILITIES AND RETAINED EARNINGS
Deposits $27,859,505 $28,156,791 $25,778,885
Federal Home Loan Bank advances 3,000,000 - -
Advances from borrowers for taxes and insurance 121,650 278,488 340,926
Accrued expenses and other liabilities 126,520 53,229 51,208
Deferred income taxes - - 9,795
----------- ----------- -----------
31,107,675 28,488,508 26,180,814
----------- ----------- -----------
Commitments and contingencies
Retained earnings 2,056,988 2,132,259 2,097,608
Net unrealized gain (loss) on securities
available-for-sale, net of applicable income taxes (37,459) (41,293) 3,718
----------- ----------- -----------
of $(19,297), $(28,695), and $2,583
2,019,529 2,090,966 2,101,326
----------- ----------- -----------
$33,127,204 $30,579,474 $28,282,140
========== ========== ==========
See accompanying notes.
F-2
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS
NET UNREALIZED
GAIN (LOSS) ON
SECURITIES
RETAINED AVAILABLE-FOR-
EARNINGS SALE TOTAL
-------- ---- -----
BALANCE AT JULY 1, 1994 $ 1,947,395 $ - $ 1,947,395
Adjustment to beginning balance for
change in accounting principle,
net of applicable income taxes
of $9,343 - 13,446 13,446
Change in unrealized gain (loss) on
securities available-for-sale,
net of applicable income tax
benefit of $(6,760) - (9,728) (9,728)
Net income (loss) 150,213 - 150,213
----------- ----------- -----------
BALANCE AT JUNE 30, 1995 2,097,608 3,718 2,101,326
Change in unrealized gain (loss) on
securities available-for-sale,
net of applicable income tax
benefit of $(31,278) - (45,011) (45,011)
Net income (loss) 34,651 - 34,651
----------- ----------- -----------
BALANCE AT JUNE 30, 1996 2,132,259 (41,293) 2,090,966
Change in unrealized gain (loss) on
securities available-for-sale, net
of applicable income taxes of
$9,398 - 3,834 3,834
Net income (loss) (75,271) - (75,271)
----------- ----------- -----------
BALANCE AT MARCH 31, 1997 $ 2,056,988 $ (37,459) $ 2,019,529
=========== =========== ===========
See accompanying notes.
F-3
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED YEARS ENDED
MARCH 31, JUNE 30,
--------------------------------- -------------------------------
1997 1996
(UNAUDITED) (UNAUDITED) 1996 1995
------------ ------------ ------------- -----------
OPERATIONS
Net income (loss) $ (75,271) $ 30,726 $ 34,651 $ 150,213
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Amortization of:
Deferred loan origination fees (3,608) (12,418) (13,367) (8,237)
Premiums and discounts on loans
and investment securities 3,445 5,000 5,808 (23,202)
Provision for loan losses 127,844 13,370 35,142 19,297
(Gain) loss on sales of
real estate owned - (5,486) (650) (8,780)
Net (gain) loss on sales of
securities available-for-sale 1,608 - (969) (31,455)
Depreciation of premises and equipment 39,717 28,620 41,859 27,432
(Increase) decrease in:
Accrued interest receivable (65,654) (75,809) (67,082) 29,484
Other assets 13,862 (20,110) (16,563) (22,580)
Income taxes receivable 3,537 34,020 30,483 (34,020)
Deferred income taxes (78,411) (6,076) 14,803 7,364
Increase (decrease) in:
Accrued expenses and other liabilities 73,291 21,453 2,021 3,675
Income taxes payable - (6,157) - (15,152)
------------ ------------ ----------- -----------
NET CASH PROVIDED BY OPERATIONS 40,360 7,133 66,136 94,039
------------ ------------ ----------- -----------
INVESTMENT ACTIVITIES
Purchases of securities held-to-maturity (4,525,000) (5,461,406) (9,665,088) (1,606,953)
Proceeds from maturities of and
principal repayments on
securities held-to-maturity 2,424,834 3,028,574 5,151,167 770,945
Purchases of securities available-for-sale - (503,594) (503,594) (100,000)
Proceeds from maturities of and
principal repayments on
securities available-for-sale 273,227 259,772 393,280 335,601
Proceeds from sales of securities
available-for-sale 298,392 - 675,969 2,280,188
Net loan originations and
principal repayments on loans (620,970) (541,334) (1,010,211) (184,485)
Proceeds from sales of real estate owned - 160,827 160,827 58,480
Capitalized improvements on real estate owned - (2,150) (2,150) (34,570)
Net (purchase) sale of
Federal Home Loan Bank stock (20,100) 6,400 6,400 9,400
Purchases of premises and equipment (29,873) (794,350) (809,049) (81,951)
------------ ------------ ----------- -----------
NET CASH PROVIDED (USED)
BY INVESTMENT ACTIVITIES (2,199,490) (3,847,261) (5,602,449) 1,446,655
------------ ------------ ----------- -----------
F-4
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED YEARS ENDED
MARCH 31, JUNE 30,
--------------------------------- ------------------------------
1997 1996
(UNAUDITED) (UNAUDITED) 1996 1995
------------ ------------ ------------- -----------
FINANCING ACTIVITIES
Net increase (decrease) in deposits (297,286) 2,328,273 2,377,906 2,201,340
Net proceeds from FHLB advances 3,000,000 - - -
Net increase (decrease) in advances from borrowers
for taxes and insurance (156,838) (177,448) (62,438) 61,072
------------ ------------ ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 2,545,876 2,150,825 2,315,468 2,262,412
------------ ------------ ----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 386,746 (1,689,303) (3,220,845) $ 3,803,106
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,206,031 4,426,876 4,426,876 623,770
------------- ------------ ----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 1,592,777 $ 2,737,573 $ 1,206,031 $ 4,426,876
============= ============ =========== ===========
SUPPLEMENTAL DISCLOSURES Cash paid during the period for:
Interest on deposits, advances,
and other borrowings $ 979,012 $ 927,296 $ 1,235,757 $ 1,034,984
Income taxes $ - $ - $ - $ 55,084
Noncash investing and financing activities:
Transfer from loans to real estate owned $ - $ 106,949 $ 106,949 $ 67,095
Transfers from securities held to maturity
to securities available-for-sale,
at amortized cost $ - $ 2,564,286 $ 2,564,286 $ -
Total increase (decrease) in unrealized gain
(loss) on securities available-for-sale $ 13,232 $ (57,033) $ (76,289) $ 6,301
Less: income tax expense (benefit) (9,398) 23,384 31,278 (2,583)
------------- ------------ ----------- -----------
Net increase (decrease) in unrealized gain
(loss) on securities available-for-sale $ 3,834 $ (33,649) $ (45,011) $ 3,718
============= ============ =========== ===========
See accompanying notes.
F-5
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Workingmens Savings Bank and Subsidiary
(the "Bank") and the methods of applying those policies conform with generally
accepted accounting principles. The accounting and reporting policies and the
methods of applying those policies which significantly affect the determination
of financial position, results of operations, and cash flows are summarized
below.
The consolidated balance sheet as of March 31, 1997 and the related consolidated
statement of income, changes in retained earnings and cash flows for the nine
months ended March 31, 1997 and the related statement of income and cash flows
for the nine months ended March 31, 1996 are unaudited and have been prepared in
accordance with the requirements for a presentation of interim financial
statements and are in accordance with generally accepted accounting principles.
In the opinion of management, all adjustments, consisting of normal recurring
adjustments, that are necessary for a fair presentation of the interim periods
have been reflected.
Nature of Operations
Workingmens Savings Bank, F.S.B. is a federally chartered, Savings Association
Insurance Fund (SAIF) insured mutual savings bank conducting its business from
its two locations in the Northside section of the City of Pittsburgh and South
Hills suburb of Pittsburgh. The Bank's principal sources of revenue emanate from
its portfolio of residential real estate mortgage loans and investment
securities.
The Bank is subject to regulation and supervision by the Federal Deposit
Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses. In connection with
the determination of the allowance for loan losses, management obtains
independent appraisals for significant properties.
A majority of the Bank's loan portfolio consists of single-family residential
loans in the Pittsburgh area. The regional economy is currently stable and
consists of various types of industry. Real estate prices in this market are
also stable, however, the ultimate collectibility of a substantial portion of
the Bank's loan portfolio are susceptible to changes in local market conditions.
While management uses available information to recognize losses on loans and
foreclosed real estate, further reductions in the carrying amounts of loans and
foreclosed assets may be necessary based on changes in local economic
conditions. In addition, regulatory agencies, as an integral part of their
examination process, periodically, review the estimated losses on loans and
foreclosed real estate. Such agencies may require the Bank to recognize
additional losses based on their judgments about information available to them
at the time of their examination. Because of these factors, it is reasonably
possible that the estimated losses on loans and foreclosed real estate may
change materially in the near term. However, the amount of the change that is
reasonably possible cannot be estimated.
F-6
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principles of Consolidation
The consolidated financial statements include the accounts of the Bank and its
wholly-owned subsidiary, Workingmens Service Corporation. Intercompany balances
and transactions have been eliminated. Workingmens Service Corporation is
currently inactive and its impact on the consolidated financial statements is
insignificant.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Bank considers cash on hand and
deposits in other financial institutions with an original maturity of ninety
(90) days or less to be cash and cash equivalents.
Investment and Mortgage-Backed Securities
Effective July 1, 1994, the Bank adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". Pursuant to Statement 115 management determines the
appropriate classification of securities at the time of purchase and reevaluates
such designation as of each balance sheet date. Debt securities are classified
as held-to-maturity when the Bank has the positive intent and ability to hold
the securities to maturity. Held-to-maturity securities are stated at amortized
cost.
Debt securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are stated at fair value, with
the unrealized gains and losses, net of tax, reported as a separate component of
retained earnings.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest income
from investments. Interest and dividends are included in interest income from
investments. Realized gains and losses, and declines in value judged to be
other-than-temporary are included in gain (loss) on sale of investments. The
cost of securities sold is based on the specific identification method.
In October, 1994 the Financial Accounting Standards Board ("FASB") issued SFAS
No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments." SFAS No. 119 established disclosures about derivatives
and other financial instruments. Derivatives are various instruments used to
construct a transaction that is derived from and reflects the underlying value
of assets, other instruments or various indices. The primary purpose of
derivatives, which include such items as forward contracts, interest rate swaps,
options and futures, is to transfer price risk associated with the fluctuations
in asset values rather than to borrow or lend funds. At present, the Bank does
not invest in such derivative instruments for trading, investing, hedging or
other purposes.
F-7
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans Receivable
Loans receivable are stated at unpaid principal balances, less the allowance for
loan losses and net deferred loan-origination fees.
Loan origination fees, as well as certain direct origination costs, are deferred
and amortized as a yield adjustment over the lives of the related loans using
the interest method.
Uncollected interest on loans is periodically reviewed. An allowance is
established based on management's periodic evaluation for interest deemed
uncollectible. The allowance is established by a charge to interest income equal
to all interest previously accrued, and income is subsequently recognized only
to the extent cash payments are received until, in management's judgment, the
borrower is able to make periodic interest and principal repayments, as
scheduled, in which case the loan is returned to accrual status.
The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions. Allowances for impaired loans are
generally determined based on collateral values or the present value of
estimated cash flows. While management believes it uses the best information
available to make evaluations, future adjustments to the allowances may be
necessary if circumstances differ substantially from the assumptions used in
making the evaluations.
Real Estate Owned
Real estate acquired by foreclosure or voluntary deed in lieu of foreclosure is
initially carried at the lower of fair value minus estimated disposal costs or
the balance of the loan on the property at the date of acquisition. Any
write-downs based on the asset's fair value at date of acquisition are charged
to the allowance for loan losses. Subsequent costs directly related to the
development or improvement of real estate are capitalized. Other costs of
maintaining real estate ($0 and $7,542 (unaudited) for the nine months ended
March 31, 1997 and 1996, and $8,014 and $13,771 in fiscal years 1996 and 1995,
respectively) are charged to income as incurred and are reported in "Other
Noninterest Expense."
Federal Home Loan Bank Stock
Investment in stock of a Federal Home Loan Bank is required by law of every
federally insured savings and loan or savings bank. The investment is carried at
cost. No ready market exists for the stock, and it has no quoted market value.
Premises and Equipment
Land is carried at cost. Buildings, leasehold improvements, and furniture,
fixtures, and equipment are carried at cost, less accumulated depreciation and
amortization. Buildings, leasehold improvements, and furniture, fixtures, and
equipment are depreciated using the straight-line method over the estimated
useful lives of the assets (ranging from 5 to 35 years).
F-8
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
The Bank and its subsidiary follow the practice of filing federal consolidated
income tax returns. Income taxes are allocated to the Bank as though separate
returns are being filed.
Income taxes are provided for the tax effects of the transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of available-for-sale
securities, allowance for loan losses, estimated losses on foreclosed real
estate, and accumulated depreciation for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Deferred tax assets and liabilities
are reflected at income tax rates applicable to the period in which the deferred
tax assets or liabilities are expected to be realized or settled. As changes in
tax laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
Pension Plan
The Bank has a pension plan covering substantially all employees. It is the
policy of the Bank to fund the maximum amount that can be deducted for federal
income tax purposes but in amounts not less than the minimum amounts required by
law.
Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires disclosure of fair value information
about financial instruments, whether or not recognized in the statement of
financial condition. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instruments. Statement No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts present do not represent the
underlying value of the Bank.
The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the statements of
financial condition for cash and cash equivalents approximate those assets' fair
values.
Investment and mortgage-backed securities: Fair values for investments and
mortgage-backed securities are based on quoted market prices, where available.
If quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
F-9
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans: The fair values for loans are estimated using discounted cash flow
analysis, based on interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Loan fair value estimates include
judgments regarding future expected loss experience and risk characteristics.
Fair values for impaired loans are estimated using discounted cash flow analysis
or underlying collateral values, where applicable. The carrying amount of
accrued interest receivable approximates its fair value.
Federal Home Loan Bank (FHLB) Stock: No ready market exists for this stock and
it has no quoted market value. However, redemption of this stock has
historically been at par value. Accordingly, the carrying amount is deemed to be
a reasonable estimate of fair value.
Deposits: The fair values disclosed for demand deposits are, by definition,
equal to the amount payable on demand at the reporting date (that is, their
carrying amounts). Fair values for fixed rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits. The carrying amount of accrued interest payable
approximates fair value.
Federal Home Loan Bank (FHLB) advances: Fair values of FHLB advances are
estimated using discounted cash flow analyses based on the Bank's current
incremental borrowing rates for similar types of borrowing arrangements.
Advances from borrowers for taxes and insurance: The carrying amount of advances
from borrowers for taxes and insurance approximate fair value.
Off-Balance sheet items: Fair value of these items approximate their contractual
amounts.
F-10
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SECURITIES HELD-TO-MATURITY
The amortized cost and estimated fair values of securities held-to-maturity are
as follows:
MARCH 31, 1997 (UNAUDITED)
-------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
U.S. Government and
government agency
obligations $ 12,857,931 $ 177 $ (158,904) $ 12,699,204
Collateralized mortgage
obligations 130,871 - (2,040) 128,831
------------ --------- ---------- ------------
$ 12,988,802 $ 177 $ (160,944) $ 12,828,035
============ ========= ========== ============
JUNE 30, 1996
-------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ ------
U.S. Government and
government agency
obligations $ 10,744,807 $ 9,138 $ (116,383) $ 10,637,562
Collateralized mortgage
obligations 147,274 - (2,776) 144,498
------------ --------- ---------- ------------
$ 10,892,081 $ 9,138 $ (119,159) $ 10,782,060
============ ========= ========== ============
JUNE 30, 1995
-------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
U.S. Government and
government agency
obligations $ 6,186,558 $ 13,667 $ (69,500) $ 6,130,725
Mortgage-backed securities:
Federal Home Loan Mortgage
Corporation 127,263 1,432 - 128,695
Government National
Mortgage Association 1,914,676 27,296 (3,457) 1,938,515
Collateralized mortgage
obligations 314,175 - (69,777) 244,398
Corporate bonds 398,527 - (17,027) 381,500
----------- ---------- ---------- -----------
$ 8,941,199 $ 42,395 $ (159,761) $ 8,823,833
=========== ========== ========== ===========
F-11
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and approximate fair values of securities held-to-maturity at
March 31, 1997, by contractual maturity are shown below. Collateralized mortgage
obligations are not due at a single maturity date; periodic payments are
received on these securities based on the payment patterns of the underlying
collateral.
AMORTIZED FAIR
COST VALUE
(UNAUDITED) (UNAUDITED)
Due from one year to five years $ 5,199,331 $ 5,139,371
Due from five years to ten years 5,936,510 5,848,575
Due after 10 years 1,852,961 1,840,089
------------ ------------
$ 12,988,802 $ 12,828,035
============ ============
In November of 1995, the Financial Accounting Standards Board allowed financial
institutions to perform a one-time reassessment of the appropriateness of the
classifications of all securities held at that time. Any transfers from the
held-to- maturity classification as a result of this one-time reassessment would
not question the Bank's intent and ability to hold other debt securities to
maturity in the future. Accordingly, the Bank transferred securities
held-to-maturity with an amortized cost of $2,564,286 to securities
available-for-sale.
NOTE C - SECURITIES AVAILABLE-FOR-SALE
The amortized cost and estimated fair values of securities available-for-sale
are as follows:
MARCH 31, 1997 (UNAUDITED)
----------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
Mortgage-backed securities:
Federal Home Loan Mortgage
Corporation $ 95,010 $ 633 $ - $ 95,643
Government National
Mortgage Association 1,414,959 15,240 (5,027) 1,425,172
Federal National
Mortgage Association 488,790 - (23,635) 465,155
FHLMC Preferred Stock 256,750 500 (6,000) 251,250
Corporate notes 499,246 - (17,530) 481,716
Collateralized mortgage
obligations 59,817 - (20,937) 38,880
----------- ---------- ---------- -----------
$ 2,814,572 $ 16,373 $ (73,129) $ 2,757,816
=========== ========== ========== ===========
F-12
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
--------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
Mortgage-backed securities:
Federal Home Loan Mortgage
Corporation $ 235,181 $ - $ (186) $ 234,995
Government National
Mortgage Association 1,581,105 15,004 (6,849) 1,589,260
Federal National
Mortgage Association 502,050 - (22,559) 479,491
FHLMC Preferred Stock 256,750 2,000 (3,750) 255,000
Municipal bonds 227,898 - (2,683) 225,215
Corporate notes 499,181 - (18,852) 480,329
Collateralized mortgage
obligations 85,634 - (32,113) 53,521
----------- ---------- ---------- -----------
$ 3,387,799 $ 17,004 $ (86,992) $ 3,317,811
=========== ========== ========== ===========
JUNE 30, 1995
--------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
Mortgage-backed securities:
Federal Home Loan Mortgage
Corporation $ 149,257 $ 572 $ - $ 149,829
FHLMC Preferred Stock 255,283 7,217 - 262,500
Municipal bonds 890,714 7,013 (6,403) 891,324
Corporate bond 100,000 - (2,098) 97,902
----------- ---------- ---------- -----------
$ 1,395,254 $ 14,802 $ (8,501) $ 1,401,555
=========== ========== ========== ===========
F-13
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At March 31, 1997, securities available-for-sale with an amortized cost of
$499,246 (unaudited) and estimated fair values of $481,716 (unaudited) mature
from one year to five years. Mortgage-backed securities are not due at a single
maturity date; periodic payments are received on these securities based on the
payment patterns of the underlying collateral. FHLMC preferred stock shares do
not have a maturity date, however, these shares may be called at a future date.
NOTE D - LOANS AND REAL ESTATE
Loans and real estate are summarized as follows:
MAR. 31, 1997 JUNE 30,
----------------------------------
(UNAUDITED) 1996 1995
------------------------------------------------------
First mortgage loans:
Secured by 1- to 4-family residences $ 10,596,104 $ 9,432,022 $ 9,083,389
Secured by over 4 family units 1,068,443 1,810,664 1,220,196
Commercial 614,965 665,797 765,353
Participation loans 543,081 590,399 624,509
Home equity and second mortgage loans 1,109,512 855,454 816,694
Lease pools 4,172 6,337 26,031
Share loans 153,538 172,527 150,502
Consumer loans 246,567 185,154 127,271
Real estate owned - - 100,683
------------ ------------ -------
14,336,382 13,718,354 12,914,628
Allowance for loan losses (200,596) (75,694) (89,010)
Deferred loan origination fees (10,328) (13,936) (27,303)
------------ ------------ ------------
$14,125,458 $13,628,724 $12,798,315
=========== =========== ==========
The Bank conducts its business through two offices located in Pittsburgh,
Pennsylvania. As of March 31, 1997, the majority of the Bank's loan portfolio
was secured by properties located in this region. The Bank evaluates each
customer's credit worthiness on a case-by-case basis. Collateral held includes
mortgages on residential and income-producing properties. The Bank does not
believe it has significant concentration of credit risk to any one group of
borrowers given its underwriting and collateral requirements.
In accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan", no loans in non- homogenous groups were determined to be impaired for the
nine months ended or as of March 31, 1997. Commercial real estate, multi-family
residential and participation loans are included in the non-homogenous group.
First mortgage loans which are contractually past due ninety days or more total
approximately $700,000 at March 31, 1997. The amount the Bank will ultimately
realize from these loans could differ materially from their carrying value
because of unanticipated future developments affecting the underlying collateral
or the borrower's ability to repay the loans. If collection efforts are
unsuccessful, these loans will be subject to foreclosure proceedings in the
ordinary course of business. Management believes that the Bank has adequate
collateral on these loans and additional losses are not expected to occur in the
event of foreclosure.
F-14
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Activity in the allowance for loan losses is summarized as follows:
MAR. 31, 1997 JUNE 30,
(UNAUDITED) 1996 1995
------------- -----------------------------
Beginning balance $ 75,694 $ 89,010 $ 114,382
Provision for loan losses 127,844 35,142 19,297
Charge-offs and recoveries, net (2,942) (48,458) (44,669)
----------- ------------ ------------
Ending balance $ 200,596 $ 75,694 $ 89,010
=========== ============ ============
In the ordinary course of business, the Bank has and expects to continue to have
transactions, including borrowings, with its officers, directors, and their
affiliates (totalling $68,741 at March 31, 1997). In the opinion of management,
such transactions were on substantially the same terms, including interest rates
and collateral, as those prevailing at the time of comparable transactions with
other persons and did not involve more than a normal risk of collectibility or
present any other unfavorable features to the Bank.
NOTE E - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following:
MAR. 31, 1997 JUNE 30,
---------------------------------
(UNAUDITED) 1996 1995
------------ ------------ ------------
Loans $ 77,778 $ 88,352 $ 84,796
Investments 294,666 187,073 107,300
------------- ------------ ------------
372,444 275,425 192,096
Allowance for uncollectible
interest (71,356) (39,991) (23,744)
------------- ------------ ------------
$ 301,088 $ 235,434 $ 168,352
============= ============ ============
NOTE F - PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
MAR. 31, 1997 JUNE 30,
---------------------------------
(UNAUDITED) 1996 1995
------------- ----------- ------------
Cost:
Land $ 121,027 $ 121,027 $ 121,027
Buildings and improvements 991,989 977,976 229,044
Furniture, fixtures, and
equipment 386,319 370,459 228,391
Construction in process - - 81,951
-------------- -------------- -----------
1,499,335 1,469,462 660,413
Accumulated depreciation (436,585) (396,868) (355,009)
----------- ----------- -----------
$ 1,062,750 $ 1,072,594 $ 305,404
=========== =========== ===========
In November of 1995, the Bank opened the South Hills branch office at a total
cost including equipment of approximately $890,000.
F-15
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G - DEPOSITS
Deposits are summarized as follows:
MARCH 31, 1997
(UNAUDITED JUNE 30, 1996 JUNE 30, 1995
----------------------------- ------------------------------- ----------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RATE AMOUNT RATE AMOUNT RATE AMOUNT
---- ------ ---- ------ ---- ------
NOW accounts -% $ 1,492,814 -% $ 1,440,445 -% $ 1,247,822
Passbook savings 3.19 10,129,939 3.18 9,998,620 3.00 10,068,220
------ ---------- ------ ---------- ------ ----------
2.78% 11,622,753 2.77% 11,439,065 2.67% 11,316,042
------ ---------- ------ ---------- ------ ----------
Certificates of deposit:
Under 4.00% 3.00 3,675 - - 3.40 46,823
4.01% to 5.00% 4.94 2,107,810 4.62 2,150,893 4.56 2,466,229
5.01% to 6.00% 5.39 8,431,868 5.55 11,132,426 5.66 6,672,663
6.01% to 7.00% 6.21 4,526,760 6.63 2,664,629 6.56 4,052,186
7.01% to 8.00% 7.09 1,166,639 7.20 769,778 7.30 974,394
8.01% to 9.00% - - - - 8.21 250,548
----- ---------- ----- ---------- ------ -----------
5.68 16,236,752 5.68 16,717,726 5.87 14,462,843
------ ---------- ------ ---------- ------ ----------
4.47% $27,859,505 4.50% $28,156,791 4.47% $25,778,885
====== ========== ====== ========== ====== ==========
At March 31, 1997, the aggregate maturities of certificates of deposit in fiscal
years 1998 through 2002 is $10,770,794, $2,795,950, $934,615, $1,228,042 and
$507,351, respectively (unaudited). The aggregate amount of certificates in
denominations of $100,000 or more totaled $1,600,018 (unaudited).
Deposits in excess of $100,000 are not insured by the Savings Association
Insurance Fund (SAIF).
Interest expense on deposits consisted of the following:
NINE MONTHS ENDED YEARS ENDED
MARCH 31, JUNE 30
-------------------------------------- --------------------------------------
1997 1996
(UNAUDITED) (UNAUDITED) 1996 1995
------------------ ----------------- ------------------ -----------------
NOW and passbook savings $239,818 $249,369 $ 328,500 $ 400,657
Certificate accounts 695,388 691,043 927,767 638,001
------- ------- --------- ---------
935,206 940,412 1,256,267 1,038,658
Penalties for early withdrawal - - - (3,613)
---------- ---------- ------------ -----------
Total interest on deposits $935,206 $940,412 $1,256,267 $1,035,045
======= ======= ========= =========
NOTE H - ADVANCES FROM FEDERAL HOME LOAN BANK
At March 31, 1997, the Bank had outstanding advances from the Federal Home Loan
Bank (FHLB) totalling $3,000,000 (unaudited) bearing interest at a weighted rate
of 5.80% (unaudited). Certain mortgage loans are pledged to the FHLB as
collateral in the event the Bank requests future advances. The Bank had no
outstanding advances from the FHLB at June 30, 1996 and 1995.
F-16
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I - PENSION PLAN
The Bank has a qualified, noncontributory defined benefit retirement plan
covering substantially all of its employees. The benefits are based on each
employee's years of service up to a maximum of 25 years, and the average of the
highest five consecutive annual salaries excluding the four years prior to
retirement. The benefits are reduced by a specified percentage for each year of
participation less than 25 years. An employee becomes fully vested upon
completion of six years of qualifying service.
The following table sets forth the plan's funded status as of November 30, 1994,
the latest date information is available:
Vested accumulated benefit obligation $ 197,213
Nonvested accumulated benefit obligation 1,023
---------
Accumulated benefit obligation 198,236
Effect of projected salary increases 45,879
---------
Projected benefit obligation 244,115
Plan assets at market value 248,617
Plan assets in excess of project
benefit obligation 4,502
Unrecognized net gain (1,151)
Unrecognized net obligation 1,676
---------
Prepaid pension cost $ 5,027
=========
The following table represents certain significant assumptions used in
determining the actuarial present value of the projected benefit obligations and
the net periodic pension costs at November 30, 1994:
Weighted average discount rate used to
calculate benefit obligations 7.00%
Assumed rate of future compensation
increases 4.00%
Expected long-term rate of return of
plan assets 7.50%
Components of net pension cost are as follows for the fiscal year ended November
30, 1994:
Service cost $ 18,620
Interest cost 15,622
Actual return on plan assets (7,237)
Net amortization on deferrals (12,027)
---------
Net periodic pension cost $ 14,978
=========
F-17
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J - INCOME TAXES
Income tax expense (benefit) is summarized as follows:
NINE MONTHS ENDED YEARS ENDED
MARCH 31, JUNE 30,
----------------------------------- ------------------------------
1997 1996
(UNAUDITED) (UNAUDITED) 1996 1995
------------ ------------- ---------- ------------
Federal:
Current (benefit) $ (1,935) $ (1,012) $ (1,838) $ (3,350)
Deferred (74,477) 6,726 12,220 9,947
------------ ------------- ---------- ----------
$ (76,412) $ 5,714 $ 10,382 $ 6,597
============ ============= ========== ==========
State:
Current $ - $ - $ - $ 4,779
============ ============= ========== ==========
Totals:
Current (benefit) $ (1,935) $ (1,012) $ (1,838) $ 1,429
Deferred (74,477) 6,726 12,220 9,947
------------ ------------- ---------- ----------
$ (76,412) $ 5,714 $ 10,382 $ 11,376
============ ============= ========== ==========
Effective tax (benefit)
rate (50.4)% 15.7% 23.1% 7.0%
========== ========= ======== =======
The differences between actual income tax expense (benefit) and the amount
computed by applying the federal statutory income tax rate of 34% to income
before income taxes are reconciled as follows:
NINE MONTHS ENDED YEARS ENDED
MARCH 31, JUNE 30,
-------------------------------------- ------------------------------
1997 1996
(UNAUDITED) (UNAUDITED) 1996 1995
----------- ----------- ---------- -------------
Computed income tax
expense (benefit) $ (51,572) $ 12,390 $ 15,311 $ 54,940
Increase (decrease)
resulting in:
State income tax,
net of federal
benefit - - - 3,183
Tax-exempt income (6,296) (11,711) (15,614) (36,495)
Other, net (18,544) 5,035 10,685 (10,252)
----------- ----------- --------------------------
Actual income tax
expense (benefit) $ (76,412) $ 5,714 $ 10,382 $ 11,376
=========== =========== ==========================
F-18
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of net deferred tax assets and liabilities are as follows:
MAR. 31, 1997 JUNE 30,
-----------------------------------
(UNAUDITED) 1996 1995
-------------------------------------------------------
Deferred tax assets:
Loan origination fees, net $ 2,738 $ 2,254 $ 5,729
Allowance for loan losses 53,171 12,245 21,754
Net operating loss
carryforward 24,850 - -
Unrealized loss on
securities available-
for-sale 19,297 28,695 -
------------- --------- -------
100,056 43,194 27,483
------------- --------- ---------
Deferred tax liabilities:
Premises and equipment (9,476) (3,218) (3,057)
Accrued interest
receivable (14,887) (31,182) (26,152)
Unrealized gain on
securities available-
for-sale - - (2,583)
Section 481(a) adjustment -
loan fees - (2,114) (5,486)
------------- --------- ---------
(24,363) (36,514) (37,278)
------------- --------- ---------
Net deferred asset
(liability) $ 75,693 $ 6,680 $ (9,795)
============= ========= =========
The Bank's annual addition to its reserve for bad debts allowed under the
Internal Revenue Code may differ significantly from the bad debt expense used
for financial statement purposes. Such bad debt deductions for income tax
purposes are included in taxable income of later years only if the bad debt
reserves are used for purposes other than to absorb bad debt losses. Since the
Bank does not intend to use the reserve for purposes other than to absorb
losses, no deferred income taxes have been provided on the amount of bad debt
reserves for tax purposes that arose in tax years beginning before December 31,
1987, in accordance with SFAS No. 109. Therefore, retained earnings at March 31,
1997 and June 30, 1996 and 1995, includes approximately $143,000, representing
such bad debt deductions for which no deferred income taxes have been provided.
The use of the reserve method of accounting for thrift bad debt reserves has
been repealed for the tax year beginning after June 30, 1996. The law provides
that all thrifts must recapture into taxable income their post-1987 excess
reserves over a six-year period. Since the Bank has no such excess reserves, no
provision for income tax was needed to be recorded for the nine months ended
March 31, 1997.
The Bank has available Pennsylvania net operating loss carryforwards of
approximately $380,000. This carryforward can be utilized in fiscal years 1998
through 2000. The deferred tax benefit associated with this loss carryforward is
approximately $44,000. This benefit has been fully reserved.
F-19
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K - OTHER NONINTEREST INCOME AND EXPENSE
Other noninterest income and expense amounts are summarized as follows:
NINE MONTHS ENDED YEARS ENDED
MARCH 31, JUNE 30,
-------------------------------------- ------------------
1997 1996
(UNAUDITED) (UNAUDITED) 1996 1995
------------- ------------- --------- -------
Service charges and other fees:
Bank service charges and fees $ 52,462 $ 40,933 $ 55,344 $ 47,129
Loan late charges 10,694 11,713 16,512 16,229
Insurance commissions 308 392 585 982
------------ ------------- --------- ---------
$ 63,464 $ 53,038 $ 72,441 $ 64,340
============ ============= ========= =========
Other noninterest expense:
Service bureau expense $ 43,684 $ 44,255 $ 58,972 $ 43,808
FHLB bank account expense 32,463 30,344 41,235 38,361
Advertising and promotion 8,976 21,712 28,284 10,075
Loan expenses 12,270 10,842 17,266 14,410
Real estate owned expense - 7,542 8,014 13,771
Dues and subscriptions 5,162 5,877 8,331 4,885
ATM expense 12,907 2,910 7,478 -
Professional and supervisory fees 23,058 23,994 31,790 39,916
Printing, stationery, and supplies 12,809 15,235 19,096 15,063
Telephone and postage 12,587 12,726 15,956 14,386
Seminars and training 987 1,994 1,994 3,611
Other insurance 12,394 12,617 17,839 13,926
Miscellaneous 12,713 12,676 17,701 7,041
------------ ------------ --------- --------
$ 190,010 $ 202,724 $ 273,956 $219,253
============ ============ ========= ========
NOTE L - COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank has various outstanding commitments
and contingent liabilities that are not reflected in the accompanying financial
statements. The financial commitments of the Bank are as follows:
The Bank has outstanding commitments to originate loans as follows:
MAR. 31, 1997 JUNE 30,
--------------------------------------
(UNAUDITED) 1996 1995
------------- --------- --------------
First mortgage loans $ 154,000 $ 158,000 $ 230,000
Secured consumer (unused
lines of credit) loans $ 380,000 $ 323,000 $ 288,000
F-20
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amounts recognized in the statements of financial condition.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit is
represented by the contractual notional amount of those instruments (See Note
L). The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount and type of collateral
obtained, upon extension of credit, varies and is based on management's credit
evaluation of the counterparty.
NOTE N - DEPOSIT INSURANCE ASSESSMENT
The Bank incurred an expense for the nine months ended March 31, 1997 for the
one-time special assessment levied by the omnibus appropriation bill to
recapitalize the SAIF insurance fund. The special assessment for deposit
insurance premiums was approximately $161,000, with an after tax impact of
approximately $108,000. Effective January 1, 1997, the Bank began paying reduced
premium assessments in accordance with the new SAIF assessment rates.
NOTE O - ACCOUNTING CHANGE - INVESTMENT SECURITIES
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The Association adopted the provisions of the new
standard for investments held as of or acquired after July 1, 1994. In
accordance with the Statement, prior period financial statements have not been
restated to reflect the change in accounting principle.
There was no cumulative effect as of July 1, 1994 of adopting Statement No. 115.
The opening balance of retained earnings was increased by $13,446 (net of $9,343
in income taxes) to reflect the net unrealized holding gain on securities
classified as available-for-sale previously carried at amortized cost or lower
of cost or fair value.
F-21
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE P - FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial instruments are as follows:
MARCH 31, 1997 (UNAUDITED) JUNE 30, 1996
--------------------------- ---------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
Financial assets:
Cash and cash
equivalents $ 1,592,777 $ 1,592,777 $ 1,206,031 $ 1,206,031
Investment and mortgage-
backed securities 15,746,618 15,585,851 14,343,092 14,233,071
Loans 14,125,458 14,172,062 13,628,724 14,333,010
FHLB stock 153,300 153,300 133,200 133,200
Accrued interest
receivable 301,088 301,088 235,434 235,434
Financial liabilities:
Deposits 27,859,505 27,897,723 28,156,791 28,192,010
FHLB advances 3,000,000 3,000,000 - -
Advances from borrowers for
taxes and insurance 121,650 121,650 278,488 278,488
NOTE Q - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
its primary regulator, The Office of Thrift Supervision (OTS). Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative measure
of the Bank's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of March 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
As of March 31, 1997, the most recent notification from the OTS categorized the
Bank as "well capitalized". To be categorized as "well capitalized" the Bank
must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
F-22
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR CAPITAL TO BE WELL
ACTUAL ADEQUACY PURPOSES: CAPITALIZED
-------------------------------- --------------------------------- -------------------------
As of March 31, 1997 (unaudited) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------ ----------------- --------------- -------------- ----------- -----------
Total Risk-Based Capital
(to Risk-Weighted Assets) $2,228,688 16.23% $1,098,880 8.00% $1,373,600 10.00%
Tier I Capital
(to Risk-Weighted Assets) 2,056,988 14.98 549,440 4.00 824,160 6.00
Tier I Capital
(to Adjusted Total Assets) 2,056,988 6.21 1,325,088 4.00 1,656,360 5.00
Tangible Capital
(to Adjusted Total Assets) 2,056,988 6.21 496,908 1.50 496,908 1.50
As of June 30, 1996
Total Risk-Based Capital
(to Risk-Weighted Assets) 2,207,953 17.29 1,021,360 8.00 1,276,700 10.00
Tier I Capital
(to Risk-Weighted Assets) 2,132,259 16.70 510,680 4.00 766,020 6.00
Tier I Capital
(to Adjusted Total Assets) 2,132,259 6.97 1,223,179 4.00 1,528,974 5.00
Tangible Capital
(to Adjusted Total Assets) 2,132,259 6.97 458,692 1.50 458,692 1.50
As of June 30, 1995
Total Risk-Based Capital
(to Risk-Weighted Assets) 2,186,618 19.97 875,920 8.00 1,094,900 8.00
Tier I Capital
(to Risk-Weighted Assets) 2,097,608 19.16 437,960 4.00 656,940 4.00
Tier I Capital
(to Adjusted Total Assets) 2,097,608 7.42 1,131,286 4.00 1,414,107 4.00
Tangible Capital
(to Adjusted Total Assets) 2,097,608 7.42 424,232 1.50 424,232 1.50
Under the framework, the Association's capital levels do not allow the Bank to
accept brokered deposits without prior approval from regulators.
F-23
WORKINGMENS SAVINGS BANK, F.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE R - PLAN OF CONVERSION (UNAUDITED)
On May 19, 1997, the Bank's Board of Directors formally approved a plan ("Plan")
to convert from a federally-chartered mutual savings bank to a
federally-chartered stock savings bank subject to approval by the Bank's members
as of a still-to-be determined future voting record date. The Plan, which
includes formation of a holding company, is subject to approval by the Office of
Thrift Supervision (OTS) and includes the filing of a registration statement
with the Securities and Exchange Commission. As of March 31, 1997, the Bank had
incurred conversion costs of approximately $7,000. If the conversion is
ultimately successful, actual conversion costs will be accounted for as a
reduction in gross proceeds. If the conversion is unsuccessful, the conversion
costs will be expensed.
The Plan calls for the common stock of the Bank to be purchased by the holding
company and for the common stock of the holding company to be offered to various
parties in a subscription offering at a price based on an independent appraisal.
It is anticipated that any shares not purchased in the subscription offering
will be offered to the general public in a solicited offering.
The stockholders of the holding company will be asked to approve a proposed
stock option plan and a proposed restricted stock plan at a meeting of the
stockholders after the conversion. Shares issued to directors and employees
under these plans may be from authorized but unissued shares of common stock or
they may be purchased in the open market. In the event that options or shares
are issued under these plans, such issuances will be included in the earnings
per share calculation; thus, the interests of existing stockholders would be
diluted.
The Bank may not declare or pay a cash dividend if the effect thereof would
cause its net worth to be reduced below either the amounts required for the
liquidation account discussed below or the regulatory capital requirements
imposed by federal regulations.
At the time of conversion, the Bank will establish a liquidation account, which
will be a memorandum account that does not appear on the balance sheet, in an
amount equal to its retained earnings as reflected in the latest consolidated
balance sheet used in the final conversion prospectus. The liquidation account
will be maintained for the benefit of eligible account holders who continue to
maintain their deposit accounts in the Bank after conversion. In the event of a
complete liquidation of the Bank (and only in such an event), eligible
depositors who continue to maintain accounts shall be entitled to receive a
distribution from the liquidation account before any liquidation may be made
with respect to common stock.
F-24
No dealer, salesman or other person has been authorized to give any information
or to make any representations not contained in this document in connection with
the offering made hereby, and, if given or made, such information or
representations must not be relied upon as having been authorized by Workingmens
Savings Bank, FSB, WSB Holding Company or Trident Securities, Inc. This document
does not constitute an offer to sell, or the solicitation of an offer to buy,
any of the securities offered hereby to any person in any jurisdiction in which
such offer or solicitation would be unlawful. Neither the delivery of this
document by Workingmens Savings Bank, FSB, WSB Holding Company or Trident
Securities, Inc. nor any sale made hereunder shall in any circumstances create
an implication that there has been no change in the affairs of Workingmens
Savings Bank, FSB or WSB Holding Company since any of the dates as of which
information is furnished herein or since the date hereof.
WSB Holding Company
Up to 287,500 Shares
(Anticipated Maximum)
Common Stock
PROSPECTUS
TRIDENT SECURITIES, INC.
Dated __________ ____ 1997
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
Until the later of __________ ____, 1997, or 90 days after commencement of
the offering of common stock, all dealers that buy, sell or trade these
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors.
Sections 1741 through 1747 of the Pennsylvania Business Corporation Act
sets forth circumstances under which directors, officers, employees and agents
may be insured or indemnified against liability which they may incur in their
capacities as such.
The Articles of Incorporation of WSB Holding Company (the "Articles")
attached as Exhibit 3(i) hereto, requires indemnification of directors, officers
and employees to the fullest extent permitted by Pennsylvania law.
WSB Holding Company ("WSB") may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or agent of
WSB or is or was serving at the request of WSB as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity or arising out of his status as such, whether or not WSB would
have the power to indemnify him against such liability under the provisions of
the Articles.
Item 25. Other Expenses of Issuance and Distribution
* Special counsel and local counsel legal fees...... $ 50,000
* Printing and postage.............................. 45,000
* Appraisal/Business Plan........................... 22,000
* Accounting fees................................... 25,000
* Data processing/Conversion agent.................. 7,000
* SEC Registration Fee.............................. 1,000
* OTS Filing Fees................................... 8,400
* NASD Fairness Filing.............................. 800
* Blue Sky legal and filing fees.................... 10,000
* Underwriting fees................................. 60,000
* Underwriter's expenses, including legal fees...... 25,000
* Stock Certificates................................ 1,000
* Transfer Agent.................................... 4,000
* Miscellaneous expenses............................ 20,800
------
* TOTAL............................................. $280,000
=======
- -----------------
* Estimated.
Item 26. Recent Sales of Unregistered Securities.
Not Applicable
Item 27. Exhibits:
The exhibits filed as part of this Registration Statement are as
follows:
1.1 Form of Sales Agency Agreement with Trident Securities, Inc.
2 Plan of Conversion of Workingmens Savings Bank, FSB
3(i) Articles of Incorporation of WSB Holding Company
3(ii) Bylaws of WSB Holding Company
4 Specimen Stock Certificate of WSB Holding Company
5.1 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. regarding legality of securities registered
5.2 Opinion of Ferguson & Company as to the value of subscription rights
8.1 Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.2 State Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
10 Form of Employment Agreement with Robert Neudorfer
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (contained in its opinions filed as Exhibits 5.1,
8.1 and 8.2)
23.2 Consent of Hinds, Lind, Miller & Co.
23.3 Consent of Ferguson & Company
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule**
99.1 Stock Order Form
99.2 Appraisal Report of Ferguson & Company*
99.3 Marketing Materials
---------------
* To be filed by amendment
** Electronic filing only
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 ("Securities Act");
(ii) Reflect in the prospectus any facts or events which
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement, certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in Pittsburgh,
Pennsylvania, on June 17, 1997.
WSB HOLDING COMPANY
By: /s/Robert Neudorfer
-----------------------------------------------
Robert Neudorfer
President, Chief Executive Officer and Director
(Duly Authorized Representative)
We the undersigned directors and officers of WSB Holding Company do
hereby severally constitute and appoint Robert Neudorfer our true and lawful
attorney and agent, to do any and all things and acts in our names in the
capacities indicated below and to execute all instruments for us and in our
names in the capacities indicated below which said Robert Neudorfer may deem
necessary or advisable to enable WSB Holding Company to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with the registration
statement on Form SB-2 relating to the offering of WSB Holding Company's common
stock, including specifically but not limited to, power and authority to sign
for us or any of us, in our names in the capacities indicated below, the
registration statement and any and all amendments (including post-effective
amendments) thereto; and we hereby ratify and confirm all that Robert Neudorfer
shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated as of June 17, 1997.
/s/Joseph J. Manfred /s/Robert Neudorfer
- ------------------------------------------- -----------------------------------------------
Joseph J. Manfred Robert Neudorfer
Chairman of the Board and Director President, Chief Executive Officer and Director
(Principal Executive and Financial Officer)
/s/Robert W. Moreschi
- ------------------------------------------- -----------------------------------------------
Robert W. Moreschi Stanford H. Rosenberg
Treasurer and Chief Financial Officer Vice President and Director
(Principal Accounting Officer)
/s/John P. Mueller /s/Johanna C. Guehl
- ------------------------------------------- -----------------------------------------------
John P. Mueller Johanna C. Guehl
Director Director
/s/John T. Ringland
- -------------------------------------------
John T. Ringland
Director