U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-QSB
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-22997
WSB HOLDING COMPANY
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(Exact name of Registrant as specified in its Charter)
Pennsylvania 23-2908963
- ----------------------------------- -------------------------------------
(State or other jurisdiction of I.R.S. Employer Identification Number
incorporation or organization)
807 Middle Street, Pittsburgh, Pennsylvania 15212
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 231-7297
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Indicate by check mark whether the registrant (1) has files all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
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As of May 5, 1998, there were 330,600 shares of the Registrant's common
stock, par value $0.10 per share, outstanding. The Registrant has no other
classes of common equity outstanding.
Transitional small business disclosure format:
Yes X No
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WSB HOLDING COMPANY AND SUBSIDIARY
PITTSBURGH, PENNSYLVANIA
TABLE OF CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - (Unaudited) as of
March 31, 1998 and June 30, 1997 3
Consolidated Statements of Income - (Unaudited) for
the nine months ended March 31, 1998 and 1997 4
Consolidated Statements of Income - (Unaudited) for
the three months ended March 31, 1998 and 1997 5
Consolidated Statements of Cash Flows - (Unaudited)
for the nine months ended March 31, 1998 and 1997 6
Notes to (Unaudited) Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
(2)
WSB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
March 31, June 30,
1998 1997
------------ ------------
Cash and cash equivalents:
Interest bearing $ 5,593,629 $ 2,547,897
Non-interest bearing 327,618 256,907
Securities held-to-maturity (estimated fair
value of $ 10,090,595 and $ 11,980,618) 10,062,175 12,007,456
Securities available-for-sale, at fair value 3,417,717 2,684,039
Loans and real estate, (net of allowance
for loan losses of $ 199,682 and $ 208,791) 16,066,833 14,590,996
Foreclosed real estate 2,500 -
Federal Home Loan Bank stock, at cost 153,300 153,300
Accrued interest receivable 212,610 299,469
Premises and equipment, net 1,028,751 1,057,667
Other assets 110,417 146,503
Deferred income taxes 4,538 52,426
------------ ------------
TOTAL ASSETS $ 36,980,088 $ 33,796,660
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 30,728,304 $ 28,405,775
Federal Home Loan Bank advances 1,000,000 3,000,000
Advances from borrowers for taxes and insurance 125,551 233,818
Accrued expenses and other liabilities 342,095 113,272
Accrued income taxes 15,006 -
------------ ------------
TOTAL LIABILITIES 32,210,956 31,752,865
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Commitments and contingencies
Stockholders' equity:
Preferred stock ($ .10 par value, 1,000,000 shares
authorized, none outstanding) - -
Common stock ($ .10 par value, 4,000,000 shares
authorized; 330,600 shares issued and outstanding
at March 31, 1998) 33,060 -
Paid-in capital 2,987,756 -
Retained earnings, substantially restricted 2,152,825 2,063,990
Net unrealized gain (loss) on securities
available-for-sale, net of applicable
income taxes of $ 19,614 and $ (9,124) 52,820 (20,195)
Unearned Employee Stock Ownership Plan shares (ESOP) (249,051) -
Unearned compensation (208,278) -
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,769,132 2,043,795
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 36,980,088 $ 33,796,660
============ ============
See accompanying notes to the unaudited consolidated financial statements.
(3)
WSB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Nine Months Ended
March 31,
1998 1997
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INTEREST AND DIVIDEND INCOME
Loans $ 964,643 $ 861,065
Investments 745,303 746,877
Other interest earning assets 212,240 67,389
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TOTAL INTEREST AND DIVIDEND INCOME 1,922,186 1,675,331
---------- ----------
INTEREST EXPENSE
Deposits 1,019,339 935,206
Advances from FHLB 82,597 55,046
---------- ----------
TOTAL INTEREST EXPENSE 1,101,936 990,252
---------- ----------
NET INTEREST INCOME 820,250 685,079
PROVISION FOR LOAN LOSSES 25,797 127,844
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 794,453 557,235
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NONINTEREST INCOME
Service charges and other fees 60,596 63,464
Gain on sale of securities
available-for-sale 14,313 -
(Loss) on sale of securities
available-for-sale - (1,608)
Income from real estate rental 3,200 3,200
---------- ----------
TOTAL NONINTEREST INCOME 78,109 65,056
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NONINTEREST EXPENSE
Compensation and benefits 364,060 302,006
Occupancy and equipment expense 102,498 101,845
Insurance premiums 22,180 204,411
Other 260,833 190,010
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TOTAL NONINTEREST EXPENSE 749,571 798,272
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INCOME (LOSS) BEFORE INCOME TAXES 122,991 (175,981)
INCOME TAX EXPENSE (BENEFIT) 34,156 (85,826)
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NET INCOME (LOSS) $ 88,835 $ (90,155)
========== ==========
EARNINGS PER COMMON SHARE-BASIC (since inception) $ .23 N/A
===== ===
EARNINGS PER COMMON SHARE-DILUTED (since inception) $ .23 N/A
===== ===
See accompanying notes to the unaudited consolidated financial statements.
(4)
WSB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March 31,
1998 1997
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INTEREST AND DIVIDEND INCOME
Loans $ 324,513 $ 278,046
Investments 247,697 252,940
Other interest earning assets 60,488 23,563
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TOTAL INTEREST AND DIVIDEND INCOME 632,698 554,549
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INTEREST EXPENSE
Deposits 345,679 304,191
Advances from FHLB 14,450 28,277
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TOTAL INTEREST EXPENSE 360,129 332,468
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NET INTEREST INCOME 272,569 222,081
PROVISION FOR LOAN LOSSES 9,476 108,211
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 263,093 113,870
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NONINTEREST INCOME
Service charges and other fees 19,321 20,152
Gain on sale of securities
available-for-sale 14,313 -
Income from real estate rental 1,300 950
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TOTAL NONINTEREST INCOME 34,934 21,102
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NONINTEREST EXPENSE
Compensation and benefits 125,448 116,071
Occupancy and equipment expense 34,614 34,461
Insurance premiums 7,678 6,293
Other 104,271 67,502
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TOTAL NONINTEREST EXPENSE 272,011 224,327
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INCOME BEFORE INCOME TAXES 26,016 (89,355)
INCOME TAX BENEFIT (333) (33,026)
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NET INCOME $ 26,349 $ (56,329)
========== ==========
EARNINGS PER COMMON SHARE-BASIC (since inception) $ .09 N/A
===== ===
EARNINGS PER COMMON SHARE-DILUTED (since inception) $ .09 N/A
===== ===
See accompanying notes to the unaudited consolidated financial statements.
(5)
WSB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
March 31,
1998 1997
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OPERATIONS
Net income (loss) $ 88,835 $ (90,155)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Amortization of:
Deferred loan origination fees (2,919) (3,608)
Premiums and discounts on
investment securities (13,468) 3,445
Net (gain) loss on sale of securities
available-for-sale (14,313) 1,608
Unearned ESOP shares 21,867 -
Compensation expense related to RSP 1,736 -
Provision for loan losses 25,797 127,844
Depreciation of premises and equipment 40,082 39,717
(Increase) decrease in:
Accrued interest receivable 86,859 (65,654)
Other assets 36,086 14,320
Income taxes receivable - 3,537
Deferred income taxes 19,150 (87,825)
Increase (decrease) in:
Accrued expenses and other liabilities 18,809 97,131
Accrued income taxes 15,006 -
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NET CASH PROVIDED BY OPERATIONS 323,527 40,360
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INVESTING ACTIVITIES
Purchases of securities held-to-maturity (8,700,000) (4,525,000)
Proceeds from maturities of and principal
repayments on securities held-to-maturity 10,658,749 2,424,834
Proceeds from sale of securities
available-for-sale 173,000 298,392
Purchases of securities available-for-sale (1,123,254) -
Proceeds from maturities of and principal
repayments on securities available-for-sale 332,642 273,227
Net loan originations and principal
repayments on loans (1,501,215) (620,970)
Net purchase of FHLB stock - (20,100)
Purchases of premises and equipment (11,166) (29,873)
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NET CASH USED BY INVESTING ACTIVITIES (171,244) (2,199,490)
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See accompanying notes to the unaudited consolidated financial statements.
(6)
WSB HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
March 31,
1998 1997
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FINANCING ACTIVITIES
Net increase (decrease) in deposits 2,322,529 (297,286)
Net increase (decrease) in FHLB advances (2,000,000) 3,000,000
Proceeds from issuance of common stock 3,041,520 -
Payment of conversion costs (291,622) -
Net increase (decrease) in advances from
borrowers for taxes and insurance (108,267) (156,838)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 2,964,160 2,545,876
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NET INCREASE IN CASH AND CASH EQUIVALENTS 3,116,443 386,746
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,804,804 1,206,031
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,921,247 $ 1,592,777
============ ============
SUPPLEMENTAL DISCLOSURES Cash paid during the period for:
Interest on deposits, advances,
and other borrowings $ 1,117,744 $ 979,012
Income taxes $ 25,000 $ -
Transfer from loans to real estate
acquired through foreclosure $ 2,500 $ -
See accompanying notes to the unaudited consolidated financial statements.
(7)
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
WSB Holding Company (the "Company") was incorporated under the laws of the
Commonwealth of Pennsylvania for the purpose of becoming the holding company of
Workingmens Bank (the "Bank") in connection with the Bank's conversion from a
federally chartered mutual savings bank to a federally chartered stock savings
bank, pursuant to its Plan of Conversion. The Company commenced operations on
August 27, 1997, the date of a Subscription Offering of its shares in connection
with the conversion of the Savings Bank (the "Conversion"). The financial
statements of the Bank are presented on a consolidated basis with those of the
Company.
The consolidated financial statements included herein are for the Company, the
Bank and the Bank's wholly owned subsidiary, Workingmens Service Corporation
(WSC). The impact of WSC on the consolidated financial statements is not
material.
NOTE B - BASIS OF PREPARATION
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-QSB and therefore, do not include all
disclosures necessary for a complete presentation of the consolidated balance
sheets, consolidated statements of income, consolidated statements of
stockholders' equity, and consolidated statements of cash flows in conformity
with generally accepted accounting principles. However, all adjustments which
are, in the opinion of management, necessary for the fair presentation of the
interim financial statements have been included. All such adjustments are of a
normal recurring nature. The statements of income for the nine month and three
month periods ended March 31, 1998 are not necessarily indicative of the results
which may be expected for the entire year or any other interim period.
These consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto for the Company for
the year ended June 30, 1997 which are included in the Form 10KSB (file no.
0-22997).
NOTE C - EARNINGS PER SHARE
During 1997, the Company adopted the provisions of the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share". SFAS No. 128 supersedes Accounting
Principles Board Opinion No. 15, "Earnings Per Share", and specifies the
computation, presentation, and disclosure requirements for earnings per share
(EPS). SFAS No. 128 replaces the presentation of primary EPS and fully diluted
EPS with a presentation of basic EPS and diluted EPS, respectively. SFAS No. 128
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures. All prior
period EPS data is required to be restated to confirm with SFAS No. 128.
Basic EPS excludes dilution and is computed by dividing net income by
weighted-average shares outstanding. Diluted EPS is computed by dividing net
income by weighted-average shares outstanding plus potential common stock
resulting from dilutive stock options and Restricted Stock Plan (RSP) shares
that have not yet vested.
For purposes of computing weighted-average shares outstanding, unallocated
shares under the Company's employee stock ownership plan are not considered
outstanding until they are committed to be released for allocation.
(8)
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following data shows the amounts used in computing earnings per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock.
Nine Months Three Months
Ended Ended
March 31, 1998 March 31 1998
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Net income $ 88,835 $ 26,349
Less income attributable to pre-
stock conversion (7/1/97 - 8/26/97) (18,479) -
--------- ---------
Income available to common
stockholders used in basic and
diluted EPS $ 70,356 $ 26,349
========= =========
Weighted average number of shares
used in basic EPS 305,033 305,363
Effect of dilutive securities:
Stock options - -
Restricted Stock Plan - -
--------- ---------
Weighted number of shares and
dilutive potential common stock
used in diluted EPS 305,033 305,363
========= =========
We revised our EPS calculations for the quarter ended September 30, 1997 and the
six months ended December 31, 1997, to reflect earnings from the date of the
stock conversion (8/27/97) through the end of the periods instead of previously
reported earnings for the entire period as follows:
As
Previously As
Reported Revised
---------- -------
9/30/97 Form 10QSB $ .16 $ .06
12/31/97 Form 10QSB $ .21 $ .14
The EPS calculation for the quarter ended December 31, 1997 was properly
computed as reported on the December 31, 1997 Form 10QSB.
(9)
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - STOCKHOLDERS' EQUITY
The Company was incorporated under Pennsylvania law in May 1997 to acquire and
hold all the outstanding common stock of the Bank, as part of the Bank's
conversion from a federally chartered mutual savings bank to a federally
chartered stock savings bank. In connection with the conversion, which was
consummated on August 27, 1997, the Company issued and sold 330,600 shares of
common stock at a price of $10.00 per share for total net proceeds of
$3,014,378 after conversion expenses of $ 291,622. The Company retained
$1,124,898 of the proceeds and used the remaining proceeds to purchase the newly
issued capital stock of the Bank in the amount of $ 1,625,000 and a loan to the
ESOP of $ 264,480.
The Bank may not declare or pay a cash dividend if the effect thereof would
cause its net worth to be reduced below either the amounts required for the
liquidation account discussed below or the regulatory capital requirements
imposed by federal and state regulations.
At the time of conversion, the Bank established a liquidation account in an
amount equal to its retained income as reflected in the latest consolidated
balance sheet used in the final conversion prospectus. The liquidation account
is maintained for the benefit of eligible account holders who continue to
maintain their deposit accounts in the Bank after conversion. In the event of a
complete liquidation of the Bank (and only in such an event), eligible
depositors who continue to maintain accounts shall be entitled to receive a
distribution from the liquidation account before any liquidation may be made
with respect to common stock.
NOTE E - EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
As part of the conversion discussed in Note D, an Employee Stock Ownership Plan
(ESOP) was established for all employees who have completed one year of service
and have attained the age of 21. The ESOP borrowed $ 264,480 from the Company
and used the funds to purchase 26,448 shares of common stock of the Company
issued in the offering. The loan will be repaid principally from the Bank's
discretionary contributions to the ESOP over a period of 10 years. On March 31,
1998, the loan had an outstanding balance of $ 251,255 and an interest rate of
8.5%. The loan obligation of the ESOP is considered unearned compensation and,
as such, recorded as a reduction of the Company's stockholders' equity. Both the
loan obligation and the unearned compensation are reduced by an amount of the
loan repayments made by the ESOP. Shares purchased with the loan proceeds are
held in a suspense account for allocation among participants as the loan is
repaid. Contributions to the ESOP and shares released from the suspense account
are allocated among participants on the basis of compensation in the year of
allocation. Benefits become fully vested at the end of seven years of service
under the terms of the ESOP Plan. Benefits may be payable upon retirement,
death, disability, or separation from service. Since the Bank's annual
contributions are discretionary, benefits payable under the ESOP cannot be
estimated. Compensation expenses are recognized to the extent of the fair value
of shares committed to be released.
(10)
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended March 31, 1998, compensation from the ESOP of $ 21,867
was expensed. For the three month period ended March 31, 1998, compensation from
the ESOP of $ 9,697 was expensed. Compensation is recognized at the average fair
value of the ratably released shares during the accounting period as the
employees performed services. At March 31, 1998, the ESOP had 1,541 allocated
shares and 24,907 unallocated shares.
The ESOP administrators will determine whether dividends on allocated and
unallocated shares will be used for debt service. Any allocated dividends used
will be replaced with common stock of equal value. For the purpose of computing
earnings per share, all ESOP shares committed to be released have been
considered outstanding.
NOTE F - STOCK OPTION PLAN
In March 1998, the Company approved a stock option plan (the "Option Plan")
whereby 33,060 authorized shares are reserved for issuance by the Company upon
exercise of stock options granted to officers, directors, and employees of the
Company from time to time. Options constitute both incentive stock options and
nonqualified stock options. Options awarded are exercisable at a rate of 20%
annually with the first 20% exercisable on the one-year anniversary of the date
of grant. Any shares subject to an award which expires or is terminated
unexercised will again be available for issuance. The Option Plan has a term of
ten years, unless sooner terminated. The exercise price for the purchase of
shares subject to an incentive stock option may not be less than 100 percent of
the fair market value of the common stock on the date of grant of such option.
The exercise price per share for nonqualified stock options shall be the price
as determined by an option committee, but not less than the fair market value of
the common stock on the date of grant. On March 16, 1998, 33,060 options were
granted under the Option Plan. The fair market value of the Company's common
stock on March 16, 1998 was $ 15.75 per share.
The Company applies Accounting Principles Board (APB) Opinion No. 25 in
accounting for stock options. On March 16, 1998, the quoted market price of the
stock was equal to the exercise price of the stock, accordingly, no compensation
cost has been recognized for the nine and three month periods ended March 31,
1998.
NOTE G - RESTRICTED STOCK PLAN
In March 1998, the Bank established a Restricted Stock Plan ("RSP"). Under the
terms of the RSP, a total of 13,224 shares of the Company's common stock is
available for the granting of awards to officers, directors and employees during
a period of twenty-one years, unless sooner terminated. The Bank will contribute
sufficient funds to the RSP to purchase shares of the Company's common stock
either in the open market or from unissued or treasury shares. All stock to be
purchased by the RSP will be purchased at the fair market value on the date of
purchase. At the present time, the Bank intends to acquire such stock for RSP
purposes through the open market purchases. Stock awarded is earned at a rate of
20% annually with the first 20% awarded on the one-year anniversary of the date
of grant. The market value of the common stock at the date of award is included
as a reduction of stockholders' equity in the consolidated balance sheet and is
recorded as compensation expense using the straight-line method over the vesting
period of the awards. The awards vest pro rata over five years at each
anniversary of the award. On March 16, 1998, 13,224 shares of the Company's
common stock was awarded under the RSP. The fair market value of the Company's
stock on March 16, 1998 was $ 15.75 per share.
The Company applies Accounting Principles Board (APB) Opinion No. 25 in
accounting for the RSP. Aggregate compensation expense with respect to the
foregoing RSP awards was $ 1,736 for the nine and three month periods ended
March 31, 1998.
(11)
WSB HOLDING COMPANY AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE H - ASSET QUALITY
At March 31, 1998 and June 30, 1997, the Company had total nonperforming loans
(i.e., loans which are contractually past due 90 days or more) of approximately
$ 766,000 and $ 744,000, respectively. Nonperforming loans were 4.7% of total
loans at March 31, 1998. Total nonperforming assets as a percent of total assets
at March 31, 1998 was 2.1%.
NOTE I - DISCLOSURE INFORMATION ABOUT CAPITAL STRUCTURE
On January 1, 1998, the Company adopted the Financial Accounting Standards Board
issued SFAS No. 129, "Disclosure Information about Capital Structure". SFAS No.
129 summarizes previously issued disclosure guidance contained within APB
Opinion No. 10 and 15, as well as SFAS No. 47. The Company's current disclosures
were not affected by the adoption of SFAS No. 129.
(12)
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The following discussion and analysis is intended to assist in understanding the
financial condition and the results of operations of the Company. References to
the "Company" and "Bank" include WSB Holding Company and/or Workingmens Bank as
appropriate.
Comparison of Financial Condition at March 31, 1998 and June 30, 1997.
Total consolidated assets increased by approximately 3.2 million, or 9.5% to
$37.0 million at March 31, 1998 from $ 33.8 million at June 30, 1997. The
increase in total assets was primarily attributable to the net proceeds received
from the initial public offering and growth in our customer deposits. Our loans
increased $ 1.5 million, or 10.3% to $ 16.1 million at March 31, 1998 from
$14.6 at June 30, 1997, mainly due to an active real estate market in our
lending area, mortgage loan refinancing and an increased emphasis in consumer
lending.
Savings deposits increased $ 2.3 million, or 8.1% to $ 30.7 million at March 31,
1998 from $ 28.4 million at June 30, 1997, while other interest bearing
liabilities decreased $ 2.0 million which reflects a $ 2.0 million repayment on
borrowings from the FHLB. Our increase in deposits was attributable to our
branch office issuing certificates of deposit to new customers who previously
banked at large commercial banks. Additionally, we implemented a free checking
service for senior citizens which increased deposits.
Comparison of Results of Operations for the nine months ended March 31, 1998 and
1997.
Net Income. Net income increased $ 179,000 from a loss of $ 90,000 for the nine
months ended March 31, 1997 to a profit of $ 89,000 for the nine months ended
March 31, 1998. The change was primarily the result of the 1996 recognition of
the one-time SAIF special insurance assessment in the amount of $ 108,000 (after
taxes) and a reduction of $ 102,000 in provision for loan losses.
Net Interest Income. Net interest income increased $ 135,000 or 19.7% from $
685,000 for the nine months ended March 31, 1997 to $ 820,000 for the nine
months ended March 31, 1998. The improvement in net interest income primarily
reflects an increase in average interest-earning assets over average
interest-bearing liabilities for the Company of $ 2.2 million for the nine
months ended March 31, 1998 as compared to 1997. This was primarily a result of
the proceeds from the stock offering. The interest rate spread increased to
2.92% for nine months ending March 31, 1998 as compared to 2.68% for the nine
months ended March 31, 1997.
Provision for Loan Losses. Our provision for loan losses decreased $ 102,000 to
$ 26,000 for the nine months ended March 31, 1998 from $ 128,000 for the nine
months ended March 31, 1997.
(13)
The decrease in the provision for loan losses for the nine months ended March
31, 1998 was attributable to the large provision we recorded for the nine months
ended March 31, 1997. This was due to a change in one of our borrower's ability
to repay. The borrower at March 31, 1997 had outstanding, 16 nonperforming loans
that ranged from $ 30,000 to $ 100,000, totalling $ 736,000, secured by 1 to
4-family residences. Since then we were repaid in full on one loan, and, we
foreclosed on another loan for which we currently own and hold for sale as real
estate owned. Full payment of the other 14 loans totalling approximately $
665,000 was due June 30, 1997 and was not received.
Subsequent to June 30, 1997, this borrower declared bankruptcy. The bankruptcy
proceedings delayed our ability to proceed with foreclosure of the properties.
Currently the 14 properties are scheduled for foreclosure sale on May 26, 1998.
We expect that 9 of the properties will be acquired by an independent
third-party buyer at the foreclosure sale. We do not expect to recognize any
significant gain or loss as a result of these sales. We expect to acquire the
remaining 5 properties at the foreclosure sale. These properties are located in
Mount Washington, a desirable area for development in the City of Pittsburgh. We
intend to offer the properties for sale immediately after we acquire them. Based
on inspections of the exteriors of the properties we do not expect to incur any
additional losses.
Noninterest Expense. Our noninterest expense decreased by $ 48,000 or 6.0% from
$ 798,000 for the nine months ended March 31, 1997 to $ 750,000 for the nine
months ended March 31, 1998. The decrease was primarily attributable to a
decrease in our insurance premiums due to the 1996 one-time special SAIF
assessment of $ 161,000 offset by an increase in our compensation and benefits
expense of $ 62,000 and additional expenses of $ 44,000 attributable to being a
publicly held company. The increase in our compensation and benefits expense was
primarily due to salary increases and related payroll taxes of $ 51,000 and $
22,000 expensed to the Employee Stock Ownership Plan offset by a decrease of $
11,000 in contributions to the retirement plan due to changes in our plan's
actuarial assumptions and funding limitations.
A great deal of information has been disseminated about the global computer year
2000. Many computer programs that can only distinguish the final two digits of
the year entered (a common programming practice in earlier years) are expected
to read entries for the year 2000 as the year 1900 and compute payment, interest
or delinquency based on the wrong date or are expected to be unable to compute
payment, interest or delinquency. Rapid and accurate data processing is
essential to the operation of the Bank. Data processing is also essential to
most other financial institutions and many other companies. All of the material
data processing of the Bank that could be affected by this problem is provided
by a third party service bureau. The service bureau of the Bank has advised the
Bank that it expects to resolve this potential problem before the year 2000.
However, if the service bureau is unable to resolve this potential problem in
time, the Bank would likely experience significant data processing delays,
mistakes or failures. These delays, mistakes or failures could have a
significant adverse impact on the financial condition and results of operations
of the Bank.
Based on a preliminary study, the Bank expects to spend approximately $ 2,000 to
$ 10,000 from 1998 through 1999 to modify its computer information systems
enabling proper processing of transactions relative to the year 2000 and beyond.
In addition, the Bank has been advised by its third party service bureau that
the Bank may be assessed a one-time charge of approximately $ 10,000 payable
over twelve months for costs associated with the service bureau's year 2000
compliance. This charge will be in addition to any regular monthly data
processing charges. The Bank continues to evaluate appropriate courses of
corrective action, including replacement of certain systems whose associated
costs would be recorded as assets and amortized. Accordingly, the Bank does not
expect the amounts required to be expensed over the next two years to have a
material effect on its financial position or results of operations. The amount
expensed in 1997 and 1998 was immaterial.
(14)
Income Tax Expense (Benefit). Our income tax expense for the nine months ended
March 31, 1998 was $ 34,000 (effective tax rate of 27.8%) compared to a benefit
of $ 86,000 (effective tax rate of 48.8%) for the nine months ended March 31,
1997. The $ 120,000 change in expense was the result of pre-tax income
increasing by $ 299,000, which was primarily the result of the SAIF special
insurance assessment, the decrease in the provision for loan losses, and the
increase in our net interest income offset by an increase in our compensation
and benefits. The effective tax rate fluctuated due to a recording of a
previously unrecorded Federal net operating loss carryforward tax benefit for
the nine months ended March 31, 1997. Additionally, we invest in tax-exempt
securities which provides us with nontaxable income.
Comparison of the Results of the Operations for the Three Months Ended March 31,
1998 and 1997
Net income increased $ 82,000 from $ (56,000) for the three months ended March
31, 1997 to $ 26,000 for the three months ended March 31, 1998. This increase is
primarily attributed to an increase in net interest income of $ 51,000 due to an
increase in the average balance of interest-earning assets over interest-bearing
liabilities, an increase in noninterest income of $ 14,000, a decrease of $
99,000 in provision for loan losses, and offset by a $ 48,000 increase in
noninterest expense and a $ 33,000 increase in income tax expense.
Provision for loan losses for the three months ended March 31, 1998 decreased $
99,000 from $ 108,000 at March 31, 1997 to $ 9,000 at March 31, 1998. This
decrease resulted from large loss provisions being recorded during the three
months ended March 31, 1997, as discussed previously in the comparison of
results of operations for the nine months ended March 31, 1998 and 1997.
Noninterest income increased $ 14,000 to $ 35,000 for the three months ended
March 31, 1998 due primarily to a $ 14,000 gain on sales of securities available
for sale. The gain was realized during the three months ended March 31, 1998
when we purchased and subsequently sold FHLMC stock after the per share price
appreciated to our predetermined target sales price.
There was an increase of $ 48,000 in noninterest expense from $ 224,000 as of
March 31, 1997 to $ 272,000 as of March 31, 1998. As explained previously, this
increase was the result of $ 44,000 in additional expenditures of being
established as a publicly held company.
The effective tax rates of 1.3% and 37.0% for the three months ended March 31,
1998 and 1997, respectively, fluctuated due to our overestimation of our
expected annualized earnings when computing our interim income tax provision for
the six months ended December 31, 1997. This overestimation of our annualized
earnings caused us to record current income tax expense at higher income tax
rates for the six months ended December 31, 1997 than what would have been
otherwise recorded. During the three months ended March 31, 1998, we revised our
annual earnings estimate which in turn reduced the tax rates to be used in
computing income tax expense for the year. The effect of the lower tax rates was
recorded as an adjustment to the income tax provision for the three months ended
March 31, 1998 which resulted in the significant fluctuation of the effective
tax rates.
Liquidity and Capital Resources
The Company's primary sources of funds are new deposits, proceeds from principal
and interest payments of loans, and repayments on mortgage-backed securities.
While maturities and scheduled amortization of loans are a predictable source of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition. The Company maintains
liquidity levels adequate to fund loan commitments, investment opportunities,
deposit withdrawals and other financial commitments. At March 31, 1998, the Bank
had obligations to fund outstanding loan commitments of approximately $ 638,000.
At March 31, 1998, management had no knowledge of any trends, events or
uncertainties that will have or are reasonably likely to have material effects
on the liquidity, capital resources or operations of the Company. Further at
March 31, 1998, management was not aware of any current recommendations by the
regulatory authorities which, if implemented, would have such an effect.
(15)
The Bank exceeded all of its capital requirements at March 31, 1998. The Bank
had the following capital ratios at March 31, 1998.
(IN THOUSANDS)
FOR CAPITAL CATEGORIZED AS
ACTUAL ADEQUACY PURPOSES: "WELL CAPITALIZED"
-------------------- ---------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ------- --------- ------- ---------- -------
As of March 31, 1998:
Total Risk-Based Capital
(to Risk-Weighted Assets) $3,780 24.6% $ 1,231 8.0% $ 1,539 10.0%
Tier 1 Capital
(to Risk-Weighted Assets) 3,588 23.3% 615 4.0% 923 6.0%
Tier I Capital
(to Total Assets) 3,588 10.0% 1,436 4.0% 1,795 5.0%
Tangible Capital
(to Total Assets) 3,588 10.0% 538 1.5% 1,795 5.0%
(16)
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
From time to time, the Company and its subsidiaries may be a party to
various legal proceedings incident to its or their business. At March
31, 1998, there were no legal proceedings to which the Company or any
subsidiary was a party, or to which of any of their property was
subject, which were expected by management to result in a material
loss.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On March 16, 1998, at a special meeting of the stockholders the
following two matters were voted upon:
1. The approval of the WSB Holding Company 1998 Stock Option Plan
(the "Option Plan"). The votes casted were as follows:
Cast for - 236,054
Cast against - 18,806
Abstentions - 175
2. The approval of the Workingmens Bank Restricted Stock Plan (the
"RSP"). The votes casted were as follows:
Cast for - 204,460
Cast against - 49,135
Abstentions - 1,525
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a)
(3) (i) Restated Articles of Incorporation of WSB Holding
Company*
(3) (ii) Bylaws of WSB Holding Company**
(4) Specimen Stock Certificate of WSB Holding Company**
(10) Employment Agreement between Workingmens Bank and
Robert Neudorfer ***
(10.1) 1998 Stock Option Plan ****
(10.2) Workingmens Bank Restricted Stock Plan and Trust
Agreement ****
(27) Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
None
- ------------------------------------
* Incorporated by reference to the registration statement on Form 8-A
(0-22997).
** Incorporated by reference to the registration statement on Form SB-2 (333-
29389).
*** Incorporated by reference to the Form 10QSB for December 31, 1997
(0-22997).
**** Incorporated by reference to the Definitive Proxy Statement filed February
6, 1998 (0-22997).
(17)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WSB Holding Company
Date: 5/12/98 By /s/Robert D. Neudorfer
------------------------ --------------------------------
Robert D. Neudorfer, President
(Principal Financial Officer)
Date: 5/12/98 By /s/Ronald W. Moreschi
------------------------ --------------------------------
Ronald W. Moreschi
Vice President and Treasurer
(Principal Accounting Officer)
(18)