-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T/JN2M342ZlOyFPMOjjsCLbKvuiLytXrUwDi7qFtdo6MoxWvbvOTeLo9OoTx8svz Q5L9+Ei7x6+dgANwz1dOgA== 0000891554-98-001202.txt : 19980924 0000891554-98-001202.hdr.sgml : 19980924 ACCESSION NUMBER: 0000891554-98-001202 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980923 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WYMAN PARK BANCORPORATION INC CENTRAL INDEX KEY: 0001046354 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 522068893 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-23345 FILM NUMBER: 98713425 BUSINESS ADDRESS: STREET 1: 11 WEST RIDGELY RD CITY: LUTHERVILLE STATE: MD ZIP: 21903-5172 BUSINESS PHONE: 4102526450 MAIL ADDRESS: STREET 1: 11 WEST RIDGELY RD CITY: LUTHERVILLE STATE: MD ZIP: 21903-5172 10KSB 1 ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ____________ to ______________ Commission file number 0-23345 WYMAN PARK BANCORPORATION, INC. - -------------------------------------------------------------------------------- (Name of small business issuer in its charter) Delaware 52-2068893 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 11 West Ridgely Road, Lutherville, Maryland 21093 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (410) 252-6450 Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 per share (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X . NO ___. Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained herein, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State the issuer's revenues for its most recent fiscal year: $5,174,000. The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the average of the bid and ask price of such stock as of June 30, 1998, was approximately $12.2 million. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.) As of June 30, 1998, there were 1,011,713 shares issued and outstanding of the Registrant's Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Parts II of Form 10-KSB - Annual Report to Stockholders for the fiscal year ended June 30, 1998. Part III of Form 10-KSB - Portions of Proxy Statement for 1998 Annual Meeting of Stockholders. PART I Item 1. Description of Business General Forward-Looking Statements When used in this filing and in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "would be," "will allow," "intends to," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties, including but not limited to changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area and competition, all or some of which could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and advises readers that various factors, including regional and national economic conditions, substantial changes in levels of market interest rates, credit and other risks of lending and investment activities and competitive and regulatory factors, could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from those anticipated or projected. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements. Impact of the Year 2000 The Company has conducted a comprehensive review of its computer systems to identify applications that could be affected by the "Year 2000" issue, and has developed an implementation plan to address the issue. The Company's data processing is performed by a service provider, however, software and hardware utilized in-house is under maintenance agreements with third party vendors, consequently the Company is very dependent on those vendors to conduct its business. The Company has already contacted each vendor to request time tables for Year 2000 compliance and expected costs, if any, to be passed along to the Company. To date, the Company has been informed that its primary service providers anticipate that all reprogramming efforts will be completed by December 31, 1998, allowing the Company adequate time for testing. Certain other vendors have not yet responded, however, the Company will pursue other options if it appears that these vendors will be unable to comply. Management does not currently expect its costs to have a significant impact on its financial position or results of operations, however, there can be no assurance that the vendors' systems will be Year 2000 compliant, consequently, the Company could incur incremental 1 costs to convert to another vendor. The Company has identified certain of its hardware and software equipment that will not be Year 2000 compliant and intends to purchase new equipment and software prior to March 31, 1999. These capital expenditures are expected to total approximately $10,000. The Company. Wyman Park Bancorporation, Inc. (the "Company") was formed in September, 1997 by Wyman Park Federal Savings & Loan Association (the "Association" or "Wyman Park"). The acquisition of the Association by the Company was consummated on January 5, 1998, in connection with the Association's conversion from the mutual to the stock form. All references to the Company prior to January 5, 1998, except where otherwise indicated, are to the Association. At June 30, 1998, the Company had $70.5 million of assets and stockholders' equity of $14.3 million (or 20.3% of total assets). The executive offices of the Company are located at 11 West Ridgely Road, Lutherville, Maryland 21093, and its telephone number at that address is (410) 252-6450. The activities of the Company itself have been limited to investment in the stock of the Association, interest-bearing deposits at financial institutions and a note receivable from the Association's Employee Stock Ownership Plan. Unless otherwise indicated, all activities discussed below are of the Association. The Association. The Association is a federally-chartered savings association headquartered in Lutherville, Maryland. Its deposits are insured up to applicable limits, by the Federal Deposit Insurance Corporation (the "FDIC"), which is backed by the full faith and credit of the United States. The Association is primarily engaged in the business of attracting savings deposits from the general public and investing such funds in permanent mortgage loans secured by one- to four-family residential real estate located primarily in central Baltimore county and northern Baltimore City, Maryland. Through its branch office located in Glen Burnie, a suburb to the south of Baltimore, the Association also services Anne Arundel County, Maryland. In addition to permanent mortgage loans, the Association also originates, to a lesser extent, loans for the construction of one- to four-family real estate, commercial loans secured by multi-family real estate (over four units) and nonresidential real estate, and consumer loans, including home equity lines of credit, home improvement loans, and loans secured by savings deposits. The Association invests in U.S. government obligations, interest-bearing deposits in other financial institutions, mortgage-backed securities, and other investments permitted by applicable law. 2 Lending Activities Market Area. The Company's office is located at 11 West Ridge Road, Lutherville, Maryland. Through this office and a branch location the Company primarily serves central Baltimore County and northern Baltimore City, Maryland, as well as Glen Burnie, a suburb south of Baltimore and Anne Arundel County, Maryland. General. The principal lending activity of the Company is originating first mortgage loans secured by owner-occupied one- to four-family residential properties located in its primary market areas. In addition, in order to increase the yield and the interest rate sensitivity of its portfolio and in order to provide more comprehensive financial services to families and community businesses in the Company's primary market area, the Company also originates commercial real estate, multi-family, consumer (secured and unsecured), land, and second mortgage loans. See "- Originations, Purchases and Sales of Loans." The Company reserves the right in the future to adjust or discontinue any product offerings to respond to competitive or economic factors. Loan Portfolio Composition. The following information concerning the composition of the Company's loan portfolios in dollar amounts and in percentages (before deductions for loans in process, deferred fees and discounts and allowances for losses) as of the dates indicated.
June 30, ---------------------------------------------------------- 1998 1997 ---------------------------------------------------------- Amount Percent Amount Percent -------- ------- ------- ------- (Dollars in Thousands) Real Estate Loans: One- to four-family ....... $51,779 82.80% $46,346 82.92% Multi-family .............. 362 .58 211 .38 Commercial ................ 6,683 10.69 5,806 10.39 Construction or development -- -- 150 .27 -------- ------ -------- ------ Total real estate loans 58,824 94.07 52,513 93.96 -------- ------ -------- ------ Other Loans: Consumer Loans: Deposit account loans .... 309 .49 176 .31 Home equity .............. 3,390 5.42 3,184 5.70 Home improvement ......... 12 .02 16 .03 -------- ------ -------- ------ Total consumer loans .. 3,711 5.93 3,376 6.04 -------- ------ -------- ------ Total loans, gross .... 62,535 100.00% 55,889 100.00% -------- ====== -------- ====== Less: Loans in process .......... -- (231) Deferred fees and discounts (215) (199) Allowance for losses ...... (278) (270) -------- -------- Total loans receivable, net $62,042 $55,189 ======== ========
3 The following table shows the composition of the Company's loan portfolios by fixed- and adjustable-rates at the dates indicated.
June 30, --------------------------------------------------- 1998 1997 --------------------------------------------------- Amount Percent Amount Percent ------- ------- -------- ------- (Dollars in Thousands) Fixed-Rate Loans: Real estate: One- to four-family .......... $40,122 64.16% $30,505 54.58% Multi-family ................. 66 .11 -- -- Commercial ................... 5,492 8.78 4,596 8.22 Construction or development .. -- -- 150 .27 ------- ------ ------- ------ Total real estate loans ... 45,680 73.05 35,251 63.07 Consumer ...................... 321 .51 192 .34 ------- ------ ------- ------ Total fixed-rate loans .... 46,001 73.56 35,443 63.41 ------- ------ ------- ------ Adjustable-Rate Loans: Real estate: One- to four-family .......... 11,657 18.64 15,841 28.34 Multi-family ................. 296 .47 211 .38 Commercial ................... 1,191 1.91 1,210 2.17 ------- ------ ------- ------ Total real estate loans ... 13,144 21.02 17,262 30.89 Consumer ...................... 3,390 5.42 3,184 5.70 ------- ------ ------- ------ Total adjustable-rate loans 16,534 26.44 20,446 36.59 ------- ------ ------- ------ Total loans ............... 62,535 100.00% 55,889 100.00% ------- ====== ------- ====== Less: Loans in process............... -- (231) Deferred fees and discounts.... (215) (199) Allowance for loan losses...... (278) (270) ------- ------- Total loans receivable, net. $62,042 $55,189 ======= =======
4 The following schedule illustrates the interest rate sensitivity of the Company's loan portfolio at June 30, 1998. Mortgages which have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due. The schedule does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses.
Real Estate ------------------------------------------- Multi-family and One- to Four-Family Commercial Consumer Total -------------------- ------------------- --------------------- ---------------- Weighted Weighted Weighted Weighted Average Average Average Average Amount Rate Amount Rate Amount Rate Amount Rate ------- -------- ------- --------- ------- --------- ------ ------- (Dollars in Thousands) Due During Years Ending June 30, - ----------------------------------- 1999(1) ............................ $10,694 7.42% $ 2,225 9.92% $ 3,699 8.99% $16,618 8.10% 2000 - 2003 ........................ 8,940 6.85 1,078 9.59 12 9.49 10,030 7.15 2004 and following ................. 32,145 7.13 3,742 9.15 -- -- 35,887 7.34 ------- ------- ------- ------ $51,779 7.14 $ 7,045 9.46 $ 3,711 8.99 $62,535 7.76 ======= ======= ======= =======
- ---------- (1) Includes demand loans and loans having no stated maturity. The total amount of loans due after June 30, 1998 which have predetermined interest rates is $46,001,000 while the total amount of loans due after such dates which have floating or adjustable interest rates is $16,534,000. 5 Under federal law, the aggregate amount of loans that the Company is permitted to make to any one borrower is generally limited to 15% of unimpaired capital and surplus (25% if the security for such loan has a "readily ascertainable" value or 30% for certain residential development loans). At June 30, 1998, based on the above, the Company's regulatory loan-to-one borrower limit was approximately $1,415,000. On the same date, the Company had no borrowers with outstanding balances in excess of this amount. As of June 30, 1998, the largest dollar amount of indebtedness to one borrower or group of related borrowers was a $641,000 loan secured by raw land for development of residential homes. The next two largest loans had outstanding balances of $622,000 and $613,000, respectively, and were secured by a strip shopping center and a warehouse. Such loans are performing in accordance with their terms. Loan applications are accepted by salaried employees at the Company's offices. Loan applications are presented for approval to the Loan or Executive Loan Committees of the Board of Directors or to the full Board of Directors, depending on the loan amount. Generally, the Loan Committee acts with respect to loan requests equal to or less than $250,000 (except for single family loan requests conforming to certain criteria, as to which the Loan Committee may approve amounts up to $750,000), while the Executive Loan Committee acts with respect to commercial loan requests for more than $250,000 up to $750,000. Decisions on loan applications are made on the basis of detailed applications and property valuations (consistent with the Company's written lending policy) by qualified independent appraisers. The loan applications are designed primarily to determine the borrower's ability to repay and include income, length of employment, past credit history and the amount of current indebtedness. Significant items on the application are verified through use of credit reports, financial statements, tax returns and/or confirmations. The Company is an equal opportunity lender. One- to Four-Family Residential Real Estate Lending The cornerstone of the Company's lending program has long been the origination of long-term permanent loans secured by mortgages on owner-occupied one- to four-family residences. At June 30, 1998, $51.8 million, or 82.8% of the Company's gross loan portfolio consisted of permanent loans on one- to four-family residences. At that date, the average outstanding residential loan balance was approximately $79,000 and the largest outstanding residential loan had a principal balance of $335,000. Virtually all of the residential loans originated by the Company are secured by properties located in the Company's market area. See "- Originations, Purchases and Sales of Loans." Although the Company has generally sold its fixed-rate loan production since 1989, historically, the Company originated for retention in its own portfolio 30-year fixed-rate loans secured by one- to four-family residential real estate. Beginning in the mid-1980s, in order to reduce its exposure to changes in interest rates, the Company began to originate adjustable rate mortgage loans ("ARMs"), subject to market conditions and consumer preference. The Company has from time to time sold some of its ARM production, which conforms to standards promulgated by the Federal Home Loan Mortgage Corporation ("FHLMC"), and as a result of continued consumer demand, particularly during periods of relatively low interest rates, the Company has also continued to originate fixed-rate residential loans in amounts and at rates and terms which are monitored for compliance with the Company's asset/liability management policy. Currently, the Company originates both conforming and jumbo construction and jumbo fixed-rate permanent loans with 6 maturities of up to 30 years. At June 30, 1998, the Company had $40.1 million of fixed-rate permanent residential loans, constituting 64.2% of the Company's loan portfolio at such date. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Asset/Liability Management contained in the Annual Report to Shareholders." The Company's ARM and balloon loans are offered at rates, terms and points determined in accordance with market and competitive factors. The Company's current one- to four-family residential ARMs are fully amortizing loans with contractual maturities of up to 30 years. Balloon loans also have terms of up to 30 years. Though from time to time "teaser" rates are offered, applicants are qualified pursuant to FHLMC guidelines, which permits qualifications at less than the fully indexed rate, and no ARMs allow for negative amortization. The interest rates on the ARMs originated by the Company are generally subject to adjustment at one-, three- and five-year intervals based on a margin over the Treasury Securities Constant Maturity Index. Decreases or increases in the interest rate of the Company's ARMs are generally limited to 6% above the initial interest rate over the life of the loan, and up to a 2% per adjustment period per year or per adjustment period. The Company's ARMs may be convertible into fixed-rate loans, depending on the program selected, and do not contain prepayment penalties. Loans are not assumable. At June 30, 1998, the total balance of one- to four-family ARMs was $11.7 million, or 18.6% of the Company's loan portfolio. As a service to its older customers, the Company also has originated, and thereafter sold, reverse mortgages, enabling the "homeowner" to utilize equity values that have built up in the underlying property. As discussed above, the Company evaluates both the borrower's ability to make principal, interest and escrow payments and the value of the property that will secure the loan. The Company originates residential mortgage loans with loan-to-value ratios up to 97%. On mortgage loans exceeding an 80% loan-to-value ratio at the time of origination, the Company will generally require private mortgage insurance in an amount intended to reduce the Company's exposure to less than 80% of the appraised value of the underlying property. The Company requires title insurance on its mortgage loans as well as fire and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan. The Company also requires flood insurance to protect the property securing its interest when the property is located in a flood plain. The Company's residential mortgage loans customarily include due-on-sale clauses giving the Company the right to declare the loan immediately due and payable in the event that, among other things, the borrower sells or otherwise disposes of the property subject to the mortgage and the loan is not repaid. 7 Construction and Development Lending The Company makes construction loans to individuals for the construction of their primary or secondary residences. Loans to individuals for the construction of their residences typically run for up to nine months. The borrower pays interest only during the construction period. Residential construction loans are generally underwritten pursuant to the same guidelines used for originating permanent residential loans. At June 30, 1998, the Company had no construction loans. The Company has participated in loans to builders and developers to finance the construction of residential property. Such loans generally have adjustable interest rates based upon prime or treasury indexes with variable terms. The proceeds of the loan are advanced during construction based upon the percentage of completion as determined by an inspection by the lead lender. The loan amount normally does not exceed 75% of the projected completed value. Whether the Company is willing to provide permanent takeout financing to the purchaser of the home is determined independently of the construction loan by separate underwriting. In the event that upon completion the house is not sold, the builder is required to make principal and interest payments until the house is sold. Building lot loans, which include loans to acquire vacant or raw land, are made to individuals. All of such loans are secured by land zoned for residential developments and located within the Company's market area. Before extending credit, the Company will require percolation tests and related permits to be secured. Construction and development lending, through participation or direct lending, generally affords the Company an opportunity to receive interest at rates higher than those obtainable from residential lending and to receive higher origination and other loan fees. In addition, such loans are generally made for relatively short terms. Nevertheless, construction lending to persons other than owner-occupants is generally considered to involve a higher level of credit risk than one- to four-family permanent residential lending due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions on construction projects, real estate developers and managers. In addition, the nature of these loans is such that they are more difficult to evaluate and monitor. The Company's risk of loss on a construction or development loan is dependent largely upon the accuracy of the initial estimate of the property's value upon completion of the project and the estimated cost (including interest) of the project. If the estimate of value proves to be inaccurate, the Company may be confronted, at or prior to the maturity of the loan, with a project with a value which is insufficient to assure full repayment and/or the possibility of having to make substantial investments to complete and sell the project. Because defaults in repayment may not occur during the construction period, it may be difficult to identify problem loans at an early stage. When loan payments become due, the cash flow from the property may not be adequate to service the debt. In such cases, the Company may be required to modify the terms of the loan. Commercial Real Estate Lending The Company's commercial real estate loan portfolio consists of loans on a variety of non-residential properties including retail facilities, warehouses, small office buildings, small industrial parks and shopping centers. At June 30, 1998, the Company's largest commercial real estate loan totaled $641,000. At that date, the Company had 27 other commercial real estate loans, all totaling 8 $6.7 million or 10.7% of gross loans receivable. As of June 30, 1998, none of these loans were non-performing. The Company has originated both balloon, adjustable-rate and fixed-rate commercial real estate loans, although most current originations have balloon or adjustable rates. Commercial loans generally adjust based on a constant maturity index plus a margin. Adjustable rate loans generally have a balloon feature after one or two adjustment periods to allow the Company to re-evaluate the terms of the loan. Balloon loans mature at the end of the initial balloon term and may be modified, extended or refinanced by the Company. Commercial loans are generally underwritten in amounts of up to 75% of the appraised value of the underlying property. Appraisals on properties securing commercial real estate loans originated by the Company are performed by a qualified independent appraiser at the time the loan is made. In addition, the Company's underwriting procedures generally require verification of the borrower's credit history, income and financial statements, banking relationships and income projections or operating histories for the property. Personal guarantees are generally obtained for the Company's commercial real estate loans. Substantially all of the commercial real estate loans originated by the Company are secured by properties located within the Company's market area. The table below sets forth by type of security property the estimated number, loan amount and outstanding balance of the Company's commercial real estate loans at June 30, 1998. Outstanding Number of Original Principal Loans Loan Amount Balance ---------- ----------- ----------- (Dollars in Thousands) Office ............................ 12 $2,041 $1,763 Retail ............................ 5 2,085 1,843 Small industrial .................. 2 535 459 Warehouse ......................... 4 1,518 1,234 Apartment ......................... 1 83 55 Land .............................. 4 1,517 1,329 ------ ------ ------ Total .......................... 28 $7,779 $6,683 ====== ====== ====== Commercial real estate loans generally present a higher level of credit risk than loans secured by one- to four-family residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed), the borrower's ability to repay the loan may be impaired. 9 Multi-Family Lending The Company has historically made few permanent multi-family loans in its primary market area. As with commercial real estate loans, multi-family loans present a higher level of credit risk than do loans secured by one-to four-family residences. At June 30, 1998, loans secured by multi-family properties aggregated $362,000, or .6% of the Company's gross loans receivable. The Company's multi-family loan portfolio includes loans secured by five or more unit residential buildings located primarily in the Company's market area. Consumer Lending Management believes that offering consumer loan products helps to expand the Company's customer base and to create stronger ties to its existing customer base. In addition, because consumer loans generally have shorter terms to maturity and carry higher rates of interest than do residential mortgage loans, they can be valuable asset/liability management tools. The Company currently originates substantially all of its consumer loans in its market area. At June 30, 1998, the Company's consumer loans totaled $3.7 million or 5.9% of the Company's gross loan portfolio. The Company offers a variety of consumer loans, including loans secured by savings deposits and home equity lines of credit as well as unsecured home improvement loans. The largest component of the Company's consumer lending program is its home equity line. At June 30, 1998, home equity loans totaled $3.4 million or 5.4% of gross loans receivable. The Company also employs its standard underwriting criteria discussed above in deciding whether to extend credit. The Company's home equity lines of credit are originated in amounts which, together with the amount of the first mortgage, generally do not exceed 80% of the appraised value of the property securing the loan. At June 30, 1998, the Company had $5.8 million of funds committed, but undrawn, under such lines. Home equity loans are adjustable in nature, floating at a stated margin above prime. The terms of other types of consumer loans vary according to the type of collateral, length of contract and creditworthiness of the borrower. The underwriting standards employed by the Company for consumer loans include a determination of the applicant's payment history on other debts and an assessment of the borrower's ability to meet payments on the proposed loan along with his existing obligations. In addition to the creditworthiness of the applicant, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount. Consumer loans may entail greater risk than residential mortgage loans, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciable assets. In addition, consumer loan collections are dependent on the borrower's continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. 10 Originations, Purchases and Sales of Loans The Company originates real estate and other loans through employees located at the Company's offices. Walk-in customers and referrals from its current customer base, advertisement, real estate brokers, mortgage loan brokers and builders are also important sources of loan originations as well as the Company's internet web-site (www.wymanpark.com). The Company utilizes the services of mortgage or loan brokers from time to time. While generally a portfolio lender, the Company may in the future evaluate loan sale opportunities as they arise and make sales depending on market conditions. The following table shows the loan origination, purchase, sale and repayment activities of the Company for the periods indicated. Year Ended June 30, -------------------------- 1998 1997 -------------------------- (Dollars in Thousands) Originations by type: Adjustable rate: Real estate - one- to four-family ............ $ 4,492 $ 2,843 - multi-family ............... 165 90 - commercial ................. -- 1,100 -------- -------- Total adjustable-rate ................. 4,657 4,033 -------- -------- Fixed rate: Real estate - one- to four-family ............ 11,493 3,907 - commercial ................. 41 936 Non-real estate - consumer ................... 277 18 -------- -------- Total fixed-rate ...................... 11,811 4,861 -------- -------- Total loans originated ................ 16,468 8,894 -------- -------- Purchases: Real estate - one- to four-family ............ -- 983 - commercial ................. 1,560 805 -------- -------- Total loans purchased ................. 1,560 1,788 -------- -------- Sales and Repayments: Real estate - one- to four-family ............ 711 395 - commercial ................. -- 900 -------- -------- Total loans sold ...................... 711 1,295 Principal repayments ......................... 9,729 7,177 -------- -------- Total reductions ...................... 10,440 8,472 Decrease in other items, net ................... (735) (265) -------- -------- Net increase .......................... $ 6,853 $ 1,945 ======== ======== Delinquencies and Non-Performing Assets Loan Portfolio Management. When a borrower fails to make a required payment on a loan, the Company attempts to cause the delinquency to be cured by contacting the borrower. A late notice is generated on all loans over 15 and 30 days delinquent. Another late notice is sent 60 days after the due date followed by telephone contact. 11 If the delinquency is not cured by the 65th day, the customer is provided written notice that the account will be referred to counsel for collection and foreclosure, if necessary. A good faith effort by the borrower at this time will defer foreclosure for a reasonable length of time depending on individual circumstances. After 90 days, foreclosure proceedings are generally instituted. The Company may agree to accept a deed in lieu of foreclosure. If it becomes necessary to foreclose, the property is sold at public sale and the Company may bid on the property to protect its interest. Unsecured consumer loans are charged off if they remain delinquent for 120 days unless the borrower and lender agree on a payment plan. If terms of the plan are not met, they are then subject to charge off. Real estate acquired by the Company as a result of foreclosure is classified as real estate owned until it is sold. When property is acquired by foreclosure, it is recorded at the lower of cost or estimated fair value, less estimated selling costs, at the date of acquisition, and any write-down resulting therefrom is charged to the allowance for loan losses. Subsequent decreases in the value of the property are charged to operations through the creation of a valuation allowance. After acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell. The following table sets forth the Company's loan delinquencies by type, by amount and by percentage of type at June 30, 1998.
Loans Delinquent For: ------------------------------------------------------------ ---------------------------- 60-89 Days 90 Days and Over Total Delinquent Loans ------------------------------------------------------------ ---------------------------- Percent Percent Percent of Loan of Loan of Loan Number Amount Category Number Amount Category Number Amount Category ------ ------ -------- ------ ------ -------- ------ ------ -------- Real Estate: One- to four-family ........... 6 $463 .89% 1 $25 .05% 7 $488 .94% ------ ------ ------ ------ ------ ------ -------- Total ...................... 6 $463 .75% 1 $25 .04% 7 $488 .79% ====== ====== ====== ====== ====== ====== ========
Non-Performing Assets. The table below sets forth the amounts and categories of non-performing assets in the Company's loan portfolio. Loans are placed on non-accrual status when the collection of principal and/or interest become doubtful. Foreclosed assets include assets acquired in settlement of loans. June 30, --------------------- 1998 1997 ---------- --------- (Dollars in Thousands) Non-accruing loans: One- to four family ............................ $ 25 $176 ---- ---- Total non-performing assets ...................... $ 25 $176 ==== ==== Total as a percentage of total assets............ .04% .28% ==== ==== 12 For the year ended June 30, 1998 gross interest income which would have been recorded had the non-accruing loans been current in accordance with their original terms amounted to $3,659. The amount that was included in interest income on such loans was $2,389 for the year ended June 30, 1998. Classification of Assets. Federal regulations require that each savings institution classify its own assets on a regular basis. In addition, in connection with examinations of savings institutions, OTS and FDIC examiners have authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: Substandard, Doubtful and Loss. Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of Substandard assets, with the additional characteristics that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified Loss is considered uncollectible and of such little value that continuance as an asset on the balance sheet of the institution, without establishment of a specific valuation allowance or charge-off, is not warranted. Assets classified as Substandard or Doubtful require the institution to establish prudent general allowances for loan losses. If an asset or portion thereof is classified as a Loss, the institution may charge off such amount against the loan loss allowance. If an institution does not agree with an examiner's classification of an asset, it may appeal this determination to the District Director of the OTS. On the basis of management's review of its assets, at June 30, 1998, the Company had one loan classified substandard with total principal of $25,000. Other Assets of Concern. In addition to non-performing loans and substandard loans discussed above, as of June 30, 1998, the Company had six loans totaling $463,000, which, because of known information about the possible credit problems of the borrowers or the cash flows of the security property, would cause management to have some doubts as to the ability of the borrowers to comply with present loan repayment terms and may result in the future inclusion of such assets in non-performing asset categories. Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to earnings based on management's evaluation of the risk inherent in its entire loan portfolio and changes in the nature and volume of its loan activity. Such evaluation, which includes a review of all loans of which full collectibility may not be reasonably assured, considers the estimated net realizable value of the underlying collateral, economic conditions, historical loan loss experience and other factors that warrant recognition in providing for an adequate allowance for loan losses. In determining the general reserves under these policies, historical charge-offs and recoveries, changes in the mix and levels of the various types of loans, net realizable values, the current loan portfolio and current economic conditions are considered. Management also considers the Company's non-performing assets in establishing its allowance for loan losses. As of June 30, 1998, the Company's allowance for loan losses as a percent of gross loans receivable and as a percent of non-performing loans amounted to .4% and 1,112%, respectively. In light of the level of non-performing assets to total assets and the nature of these assets, management believes that the allowance for loan losses is adequate. While management believes that it uses the 13 best information available to determine the allowance for loan losses, unforeseen market conditions could result in adjustments to the allowance for loan losses, and net earnings could be significantly affected, if circumstances differ substantially from the assumptions used in making the final determination. The following table sets forth an analysis of the Company's allowance for loan losses. Year Ended June 30, --------------------- 1998 1997 ---------- --------- (Dollars in Thousands) Balance at beginning of period .................... $270 $125 Charge-offs: Commercial real estate .......................... -- -- ---- ---- Net charge-offs ................................... -- -- Additions charged to operations ................... 8 145 ---- ---- Balance at end of period .......................... $278 $270 ==== ==== Ratio of net charge-offs during the period to average loans outstanding during the period ...... -- % -- % ==== ==== Ratio of net charge-offs during the period to average non-performing assets .................... -- % -- % ==== ==== The distribution of the Company's allowance for losses on loans at the dates indicated is summarized as follows:
June 30, ----------------------------------------------------------------------------------- 1998 1997 --------------------------------------- ------------------------------------------ Percent Percent of Loans of Loans Loan in Each Loan in Each Amount of Amounts Category Amount of Amounts Category Loan Loss by to Total Loan Loss by to Total Allowance Category Loans Allowance Category Loans ----------- -------------- -------------- ------------- -------------- ------------ (Dollars in Thousands) One- to four-family ................ $ 27 $51,779 82.80% $ 25 $46,346 82.92% Multi-family ....................... -- 362 .58 -- 211 .38 Commercial real estate ............. 64 6,683 10.69 56 5,806 10.39 Construction or development ....... -- -- -- -- 150 .27 Consumer ........................... -- 3,711 5.93 -- 3,376 6.04 Unallocated ........................ 187 -- -- 189 -- -- ------- ------- ------ ------- ------- ------ Total ......................... $ 278 $62,535 100.00% $ 270 $55,889 100.00% ======= ======= ====== ======= ======= ======
14 Investment Activities As part of its asset/liability management strategy and liquidity requirements, the Company invests in U.S. government and agency obligations to supplement its lending activities. The Company's investment policy also allows for investments in overnight funds, mortgage-backed securities and certificates of deposit. The Company may consider the expansion of investments into other securities if deemed appropriate. At June 30, 1998, the Company did not own any securities of a single issuer which exceeded 10% of the Company's retained earnings. See Note 3 of the Notes to the Consolidated Financial Statements for additional information regarding the Company's investment securities portfolio. The Company is required by federal regulations to maintain a minimum amount of liquid assets that may be invested in specified securities and is also permitted to make certain other securities investments. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital." Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is provided. As of June 30, 1998, the Company's liquidity ratio (liquid assets as a percentage of net withdrawable savings and current borrowings) was 18.7% as compared to the OTS requirement of 4.0%. All of the Company's investment securities, except mortgage-backed securities, are classified as available for sale. Mortgage-backed securities are classified as held to maturity. There were no sales of investment securities in fiscal 1998 or 1997. The Company may elect to classify investment securities acquired in the future as trading securities or as held to maturity, instead of available-for- sale, but there are no current plans to do so. The following table sets forth the composition of the Company's investment and mortgage-backed securities at the dates indicated.
June 30, -------------------------------------------------------- 1998 1997 -------------------------- ----------------------------- Book % of Book % of Value Total Value Total ---------- --------------- ---------------- ------------ (Dollars in Thousands) Investment securities: Federal agency obligations ......................... $ -- -- % $2,992 85.44% ------ ------ ------ ------ Subtotal ........................................ -- -- 2,992 85.44 FHLB stock ......................................... 510 100.00 510 14.56 ------ ------ ------ ------ Total investment securities and FHLB stock ...... $ 510 100.00% $3,502 100.00% ====== ====== ====== ====== Average remaining life of investment securities ...... -- 1.3 years Other interest-earning assets: Interest-bearing deposits with banks ............... $2,071 31.18% $1,093 57.05% Federal funds sold ................................. 4,571 68.82 823 42.95 ------ ------ ------ ------ Total ........................................... $6,642 100.00% $1,916 100.00% ====== ====== ====== ====== Mortgage-backed securities: FNMA ............................................... $ 2 .70% $ 2 .56% FHLMC .............................................. 282 99.30 354 99.44 ------ ------ ------ ------ Total mortgage-backed securities ................ $ 284 100.00% $ 356 100.00% ====== ====== ====== ======
15 Mortgage-Backed Securities. The Company has a $284,000 portfolio of mortgage-backed securities, all of which are insured or guaranteed by FHLMC or the Federal National Mortgage Company ("FNMA"). Accordingly, management believes that the Company's mortgage-backed securities are generally resistant to credit problems. Because these securities represent a passthrough of principal and interest from underlying individual thirty year mortgages, such securities do present prepayment risk. Any such individual security contains mortgages that can be prepaid at any time over the life of the security. In a rising interest rate environment the underlying mortgages are likely to extend their lives versus a stable or declining rate environment. A declining rate environment can result in rapid prepayment. There is no certainty as to the security life or speed of prepayment. The geographic makeup and correlated economic conditions of the underlying mortgages also play an important role in determining prepayment. In addition to prepayment risk, interest rate risk is inherent in holding any debt security. As interest rates rise the value of the security declines and conversely as interest rates decline values rise. Adjustable rate mortgage-backed securities have the advantage of moving their interest rate within limits with the contractual index used, subject to the risk of prepayment. All of the adjustable rate mortgage-backed securities in the portfolio are tied to the One Year Constant Maturity Treasury Index and all are considered held for investment. The market valuation does not consequently present a direct impact on equity. Mortgage-backed securities can serve as collateral for borrowings and, through sales and repayments, as a source of liquidity. For information regarding the carrying and market values of the Company's mortgage-backed securities portfolio, see Note 3 of the Notes to Consolidated Financial Statements. Under the Company's risk-based capital requirement, mortgage-backed securities have a risk weight of 20% in contrast to the 50% risk weight carried by residential loans. See "Regulation." The following table sets forth the contractual maturities of the Company's mortgage-backed securities at June 30, 1998. Due in June 30, 1998 10 to 20 Balance Years Outstanding -------- ------------- (In Thousands) Federal Home Loan Mortgage Corporation ............. $282 $282 Federal National Mortgage Association .............. 2 2 ---- ---- Total ......................................... $284 $284 ==== ==== Sources of Funds General. The Company's primary sources of funds are deposits, amortization and prepayment of loan principal, maturities of investment securities, short-term investments and funds provided from operations as well as FHLB advances. Deposits. The Company offers a variety of deposit accounts having a wide range of interest rates and terms. The Company's deposits consist of passbook and statement accounts, NOW accounts, Christmas Club and money market and certificate accounts, including Individual Retirement Accounts. The Company relies primarily on advertising, including newspaper and radio, 16 pricing policies and customer service to attract and retain these deposits. Neither premiums nor brokered deposits are utilized. The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates and competition. The Company's mix of transaction accounts and certificate accounts is less favorable than its peers, resulting in a higher cost of funds for the Company in relation to its peer group. At June 30, 1998, 27.9% of the Company's deposits were in transaction accounts, versus 72.1% in certificates. The Company has become more susceptible to short-term fluctuations in deposit flows, as customers have become more interest rate conscious. The Company manages the pricing of its deposits in keeping with its asset/liability management, profitability and growth objectives. Based on its experience, the Company believes that its passbook, demand and NOW accounts are relatively stable sources of deposits. However, the ability of the Company to attract and maintain certificate deposits, and the rates paid on these deposits, has been and will continue to be significantly affected by market conditions. The following table sets forth the savings flows at the Company during the periods indicated. Year Ended June 30, ----------------------------- 1998 1997 ----------------------------- (Dollars in Thousands) Opening balance ...................... $ 56,097 $ 57,871 Deposits ............................. 65,445 53,394 Withdrawals .......................... (70,212) (57,930) Interest credited .................... 2,688 2,762 -------- -------- Ending balance ....................... $ 54,018 $ 56,097 ======== ======== Net decrease ......................... $ (2,079) $ (1,774) ======== ======== Percent decrease ..................... (3.71)% (3.07)% ======== ======== 17 The following table sets forth the dollar amount of savings deposits in the various types of deposit programs offered by the Company for the periods indicated. Year Ended June 30, ------------------------------------ 1998 1997 ------------------------------------ Percent Percent Amount of Total Amount of Total ------ -------- ------ -------- (Dollars in Thousands) Transactions and Savings Deposits: Commercial Demand 0% ................... $ 560 1.04% $ 587 1.05% Passbook Accounts 2.96% ................ 5,612 10.39 6,027 10.74 NOW Accounts 1.75% ..................... 1,845 3.41 1,615 2.88 Money Market Accounts 3.10% ............ 7,024 13.00 7,627 13.59 ------- ------ ------- ------ Total Non-Certificates ................. 15,041 27.84 15,856 28.26 ------- ------ ------- ------ Certificates: 4.00 - 5.99% .......................... $23,442 43.38% $26,366 46.99% 6.00 - 7.99% .......................... 15,348 28.40 13,492 24.04 8.00 - 9.99% .......................... 187 .35 383 .68 ------- ------ ------- ------ Total Certificates ..................... 38,977 72.13 40,241 71.71 ------- ------ ------- ------ Accrued Interest ....................... 17 .03 19 .03 ------- ------ ------- ------ Total Deposits ......................... $54,035 100.00% $56,116 100.00% ======= ====== ======= ====== 18 The following table shows rate and maturity information for the Association's certificates of deposit as of June 30, 1998.
4.00- 6.00- 8.00- Percent 5.99% 7.99% 9.99% Total of Total -------------------------------------------------- (Dollars in Thousands) Certificate accounts maturing in quarter ending: September 30, 1998 .......... $ 5,856 $ 65 $ 165 $ 6,086 15.61% December 31, 1998 ........... 4,867 14 4 4,885 12.53 March 31, 1999 .............. 2,982 440 18 3,440 8.83 June 30, 1999 ............... 2,604 1,002 -- 3,606 9.25 September 30, 1999 .......... 1,166 3,022 -- 4,188 10.74 December 31, 1999 ........... 815 2,582 -- 3,397 8.72 March 30, 2000 .............. 751 3,076 -- 3,827 9.82 June 30, 2000 ............... 1,227 1,327 -- 2,554 6.55 September 30, 2000 .......... 302 153 -- 455 1.17 December 31, 2000 ........... 495 128 -- 623 1.60 March 31, 2001 .............. 418 99 -- 517 1.33 June 30, 2001 ............... 138 7 -- 145 .37 Thereafter .................. 1,821 3,433 -- 5,254 13.48 ------- ------- ------- ------- ------ Total .................... $23,442 $15,348 $ 187 $38,977 100.00% ======= ======= ======= ======= ====== Percent of total ......... 60.14% 39.38% .48% ======= ======= ======
At June 30, 1998 the Association had approximately $4.2 million in certificate accounts in amounts of $100,000 or more maturing as follows: Weighted Maturity Period Amount Average Rate - --------------------------------------------- ------------ -------------- (Dollars in thousands) Three months or less ..................... $ 330 5.29% Over three through six months ............ 412 5.40 Over six through 12 months ............... 1,211 5.69 Over 12 months ........................... 2,215 6.50 ------ Total .................................... $4,168 6.06% ====== 19 The following table indicates the amount of the Association's certificates of deposit and other deposits by time remaining until maturity as of June 30, 1998.
Maturity ----------------------------------------------- Over Over 3 Months 3 to 6 6 to 12 Over or Less Months Months 12 months Total ------- ------ ------ --------- ----- Certificates of deposit less than $100,000 .... $ 5,756 $ 4,473 $ 5,835 $18,745 $34,809 Certificates of deposit of $100,000 or more ... 330 412 1,211 2,215 4,168 ------- ------- ------- ------- ------- Total certificates of deposit ................. $ 6,086 $ 4,885 $ 7,046 $20,960 $38,977 ======= ======= ======= ======= =======
For additional information regarding the composition of the Association's deposits, see Note 7 of Notes to Consolidated Financial Statements. Borrowings. The Company's other available sources of funds, not currently utilized, include advances from the FHLB of Atlanta and other borrowings. As a member of the FHLB of Atlanta, the Association is required to own capital stock in the FHLB of Atlanta and is authorized to apply for advances from the FHLB of Atlanta. Each FHLB credit program has its own interest rate, which may be fixed or variable, and range of maturities. The FHLB of Atlanta may prescribe the acceptable uses for these advances, as well as limitations on the size of the advances and repayment provisions. The Association's immediate credit availability at the FHLB of Atlanta was approximately $8.0 million at June 30, 1998. The Association did not have any outstanding borrowings at the end of the last two fiscal years, although the Association did borrow $2 million from the FHLB of Atlanta during fiscal 1998. Service Corporations As a federally chartered savings association, Wyman Park is permitted by OTS regulations to invest up to 2% of its assets, or approximately $1.3 million at June 30, 1998, in the stock of, or loans to, service corporation subsidiaries. As of such date, the Company had one investment in a service corporation, WP Financial Corporation, which engages in the sale of annuities. The income derived from WP Financial Corporation is not material to the Association's results of operations. Competition The Company experiences strong competition both in originating real estate loans and in attracting deposits. This competition arises from a highly competitive market area with numerous commercial banks and savings institutions, as well as credit unions and mortgage bankers and, with respect to deposits, banking institutions and other financial intermediaries. The Association competes for loans principally on the basis of the interest rates and loan fees it charges, the types of loans it originates and the quality of services it provides to borrowers. The Association attracts all of its deposits through the communities in which its offices are located; therefore, competition for those deposits is principally from other savings institutions, commercial banks, securities firms, money market and mutual funds and credit unions located in the 20 same community. The ability of the Association to attract and retain deposits depends on its ability to provide an investment opportunity that satisfies the requirements of investors as to rate of return, liquidity, risk, convenient locations and other factors. The Association competes for these deposits by offering a variety of deposit accounts at competitive rates, convenient business hours and a customer-oriented staff. At June 30, 1998, the Association had in excess 60 financial institutions competing with it in its market area. The Association estimates its market share of savings deposits in its market area to be approximately 11.4%. Employees At June 30, 1998, the Association had a total of 16 full-time employees and no part-time employees. None of the Association's employees are represented by any collective bargaining group. Management considers its employee relations to be good. REGULATION General Wyman Park is a federally chartered savings association, the deposits of which are federally insured and backed by the full faith and credit of the United States Government. Accordingly, Wyman Park is subject to broad federal regulation and oversight extending to all its operations. Wyman Park is a member of the FHLB of Atlanta and is subject to certain limited regulation by the Board of Governors of the Federal Reserve System ("Federal Reserve Board"). As the savings and loan holding company of Wyman Park, the Holding Company also is subject to federal regulation and oversight. The purpose of the regulation of the Holding Company and other holding companies is to protect subsidiary savings associations. Wyman Park is a member of the SAIF, which together with the BIF are the two deposit insurance funds administered by the FDIC, and the deposits of Wyman Park are insured by the FDIC. As a result, the FDIC has certain regulatory and examination authority over Wyman Park. Certain of these regulatory requirements and restrictions are discussed below or elsewhere in this document. Federal Regulation of Savings Associations The OTS has extensive authority over the operations of savings associations. As part of this authority, Wyman Park is required to file periodic reports with the OTS and is subject to periodic examinations by the OTS and the FDIC. The last regular OTS examination of Wyman Park was as of December, 1996. Under agency scheduling guidelines, it is likely that another examination will be initiated in the near future. When these examinations are conducted by the OTS and the FDIC, the examiners may require the Association to provide for higher general or specific loan loss reserves. All savings associations are subject to a semi-annual assessment, based upon the savings association's total assets, to fund the operations of the OTS. The Association's OTS assessment for the fiscal year ended June 30, 1998 was $22,000. 21 The OTS also has extensive enforcement authority over all savings institutions and their holding companies, including Wyman Park and the Company. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with the OTS. Except under certain circumstances, public disclosure of final enforcement actions by the OTS is required. In addition, the investment, lending and branching authority of the Association is prescribed by federal laws and it is prohibited from engaging in any activities not permitted by such laws. For instance, no savings institution may invest in non-investment grade corporate debt securities. In addition, the permissible level of investment by federal associations in loans secured by non-residential real property may not exceed 400% of total capital, except with approval of the OTS. Federal savings associations are also generally authorized to branch nationwide. Wyman Park is in compliance with the noted restrictions. Wyman Park's general permissible lending limit for loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired capital and surplus (except for loans fully secured by certain readily marketable collateral, in which case this limit is increased to 25% of unimpaired capital and surplus). At June 30, 1998, the Association's lending limit under this restriction was $1,415,000. Wyman Park is in compliance with the loans-to-one-borrower limitation. The OTS, as well as the other federal banking agencies, has adopted guidelines establishing safety and soundness standards on such matters as loan underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk exposure and compensation and other employee benefits. Any institution which fails to comply with these standards must submit a compliance plan. Insurance of Accounts and Regulation by the FDIC Wyman Park is a member of the SAIF, which is administered by the FDIC. Deposits are insured up to applicable limits by the FDIC and such insurance is backed by the full faith and credit of the United States Government. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the SAIF or the BIF. The FDIC also has the authority to initiate enforcement actions against savings associations, after giving the OTS an opportunity to take such action, and may terminate the deposit insurance if it determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition. The FDIC's deposit insurance premiums are assessed through a risk-based system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums based upon their level of capital and supervisory evaluation. Under the system, institutions classified as well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1 or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at least 6% and a risk-based capital ratio of at least 10%) and considered healthy pay the lowest premium while institutions that 22 are less than adequately capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a risk-based capital ratio of less than 8%) and considered of substantial supervisory concern pay the highest premium. Risk classification of all insured institutions is made by the FDIC for each semi-annual assessment period. The FDIC is authorized to increase assessment rates, on a semiannual basis, if it determines that the reserve ratio of the SAIF will be less than the designated reserve ratio of 1.25% of SAIF insured deposits. In setting these increased assessments, the FDIC must seek to restore the reserve ratio to that designated reserve level, or such higher reserve ratio as established by the FDIC. The FDIC may also impose special assessments on SAIF members to repay amounts borrowed from the United States Treasury or for any other reason deemed necessary by the FDIC. Effective January 1, 1997, the premium schedule for BIF and SAIF insured institutions ranged from 0 to 27 basis points. However, SAIF-insured institutions are required to pay a Financing Corporation (FICO) assessment, in order to fund the interest on bonds issued to resolve thrift failures in the 1980s, equal to approximately 6.48 basis points for each $100 in domestic deposits, while BIF- insured institutions pay an assessment equal to approximately 1.52 basis points for each $100 in domestic deposits. The assessment is expected to be reduced to 2.43 basis points no later than January 1, 2000, when BIF insured institutions fully participate in the assessment. These assessments, which may be revised based upon the level of BIF and SAIF deposits will continue until the bonds mature in the year 2017. Regulatory Capital Requirements Federally insured savings associations, such as Wyman Park, are required to maintain a minimum level of regulatory capital. The OTS has established capital standards, including a tangible capital requirement, a leverage ratio (or core capital) requirement and a risk-based capital requirement applicable to such savings associations. These capital requirements must be generally as stringent as the comparable capital requirements for national banks. The OTS is also authorized to impose capital requirements in excess of these standards on individual associations on a case-by-case basis. The capital regulations require tangible capital of at least 1.5% of adjusted total assets (as defined by regulation). Tangible capital generally includes common stockholders' equity and retained income, and certain noncumulative perpetual preferred stock and related income. In addition, all intangible assets, other than a limited amount of purchased mortgage servicing rights, must be deducted from tangible capital for calculating compliance with the requirement. At June 30, 1997, the Association did not have any intangible assets. The OTS regulations establish special capitalization requirements for savings associations that own subsidiaries. In determining compliance with the capital requirements, all subsidiaries engaged solely in activities permissible for national banks or engaged in certain other activities solely as agent for its customers are "includable" subsidiaries that are consolidated for capital purposes in proportion to the association's level of ownership. For excludable subsidiaries the debt and equity investments in such subsidiaries are deducted from assets and capital. Wyman Park does not have any non- includable subsidiaries. 23 At June 30, 1998, Wyman Park had tangible capital of $9.4 million, or 14.0% of total assets, which is approximately $8.4 million above the minimum requirement of 1.5% of adjusted total assets in effect on that date. The capital standards also require core capital equal to at least 3% of adjusted total assets. Core capital generally consists of tangible capital plus certain intangible assets, including a limited amount of purchased credit card relationships. As a result of the prompt corrective action provisions discussed below, however, a savings association must maintain a core capital ratio of at least 4% to be considered adequately capitalized unless its supervisory condition is such to allow it to maintain a 3% ratio. At June 30, 1998, Wyman Park had no intangibles which were subject to these tests. At June 30, 1998, Wyman Park had core capital equal to $9.4 million, or 14.0% of adjusted total assets, which is $7.4 million above the minimum leverage ratio requirement of 3% as in effect on that date. The OTS risk-based requirement requires savings associations to have total capital of at least 8% of risk-weighted assets. Total capital consists of core capital, as defined above, and supplementary capital. Supplementary capital consists of certain permanent and maturing capital instruments that do not qualify as core capital and general valuation loan and lease loss allowances up to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used to satisfy the risk-based requirement only to the extent of core capital. The OTS is also authorized to require a savings association to maintain an additional amount of total capital to account for concentration of credit risk and the risk of non-traditional activities. At June 30, 1998, Wyman Park had $278,000 of general loss reserves, which was less than 1.25% of risk-weighted assets. Certain exclusions from capital and assets are required to be made for the purpose of calculating total capital. Such exclusions consist of equity investments (as defined by regulation) and that portion of land loans and nonresidential construction loans in excess of an 80% loan-to-value ratio and reciprocal holdings of qualifying capital instruments. Wyman Park had no such exclusions from capital and assets at June 30, 1998. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet items, will be multiplied by a risk weight, ranging from 0% to 100%, based on the risk inherent in the type of asset. For example, the OTS has assigned a risk weight of 50% for prudently underwritten permanent one- to four-family first lien mortgage loans not more than 90 days delinquent and having a loan to value ratio of not more than 80% at origination unless insured to such ratio by an insurer approved by the FNMA or FHLMC. OTS regulations also require that savings associations with more than normal interest rate risk exposure deduct from its total capital, for purposes of determining compliance with such requirement, an amount equal to 50% of its interest-rate risk exposure multiplied by the present value of its assets. This exposure is a measure of the potential decline in the net portfolio value of a savings association, greater than 2% of the present value of its assets, based upon a hypothetical 200 basis point increase or decrease in interest rates (whichever results in a greater decline). Net portfolio value is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The rule will not become effective until the OTS evaluates the process by which 24 savings associations may appeal an interest rate risk deduction determination. It is uncertain as to when this evaluation may be completed. Any savings association with less than $300 million in assets and a total risk-based capital ratio in excess of 12% is exempt from this requirement unless the OTS determines otherwise. At the present time, the proposal is not expected to have a material impact on the Association. On June 30, 1998, Wyman Park had total risk-based capital of approximately $9.7 million (including $9.4 million in core capital and $278,000 in qualifying supplementary capital) and risk- weighted assets of $38.0 million; or total capital of 25.6% of risk-weighted assets. This amount was $6.7 million above the 8% requirement in effect on that date. The OTS and the FDIC are authorized and, under certain circumstances required, to take certain actions against savings associations that fail to meet their capital requirements. The OTS is generally required to take action to restrict the activities of an "undercapitalized association" (generally defined to be one with less than either a 4% core capital ratio, a 4% Tier 1 risked-based capital ratio or an 8% risk-based capital ratio). Any such association must submit a capital restoration plan and until such plan is approved by the OTS may not increase its assets, acquire another institution, establish a branch or engage in any new activities, and generally may not make capital distributions. The OTS is authorized to impose the additional restrictions that are applicable to significantly undercapitalized associations. As a condition to the approval of the capital restoration plan, any company controlling an undercapitalized association must agree that it will enter into a limited capital maintenance guarantee with respect to the institution's achievement of its capital requirements. Any savings association that fails to comply with its capital plan or is "significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios of less than 3% or a risk-based capital ratio of less than 6%) must be made subject to one or more of additional specified actions and operating restrictions which may cover all aspects of its operations and include a forced merger or acquisition of the association. An association that becomes "critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is subject to further mandatory restrictions on its activities in addition to those applicable to significantly undercapitalized associations. In addition, the OTS must appoint a receiver (or conservator with the concurrence of the FDIC) for a savings association, with certain limited exceptions, within 90 days after it becomes critically undercapitalized. Any undercapitalized association is also subject to the general enforcement authority of the OTS and the FDIC, including the appointment of a conservator or a receiver. The OTS is also generally authorized to reclassify an association into a lower capital category and impose the restrictions applicable to such category if the institution is engaged in unsafe or unsound practices or is in an unsafe or unsound condition. The imposition by the OTS or the FDIC of any of these measures on the Association may have a substantial adverse effect on its operations and profitability. 25 Limitations on Dividends and Other Capital Distributions OTS regulations impose various restrictions on savings associations with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account. OTS regulations also prohibit a savings association from declaring or paying any dividends or from repurchasing any of its stock if, as a result, the regulatory capital of the association would be reduced below the amount required to be maintained for the liquidation account established in connection with its mutual to stock conversion. Generally, savings associations, such as Wyman Park, that before and after the proposed distribution meet their capital requirements, may make capital distributions during any calendar year equal to the greater of 100% of net income for the year-to-date plus 50% of the amount by which the lesser of the association's tangible, core or risk-based capital exceeds its capital requirement for such capital component, as measured at the beginning of the calendar year, or 75% of their net income for the most recent four quarter period. However, an association deemed to be in need of more than normal supervision by the OTS may have its dividend authority restricted by the OTS. Wyman Park may pay dividends in accordance with this general authority. Savings associations proposing to make any capital distribution need only submit written notice to the OTS 30 days prior to such distribution. Savings associations that do not, or would not meet their current minimum capital requirements following a proposed capital distribution, however, must obtain OTS approval prior to making such distribution. The OTS may object to the distribution during that 30-day period based on safety and soundness concerns. See "- Regulatory Capital Requirements." The OTS has proposed regulations that would revise the current capital distribution restrictions. Under the proposal a savings association may make a capital distribution without notice to the OTS (unless it is a subsidiary of a holding company) provided that it has a CAMEL 1 or 2 rating, is not of supervisory concern, and would remain adequately capitalized (as defined in the OTS prompt corrective action regulations) following the proposed distribution. Savings associations that would remain adequately capitalized following the proposed distribution but do not meet the other noted requirements must notify the OTS 30 days prior to declaring a capital distribution. The OTS stated it will generally regard as permissible that amount of capital distributions that do not exceed 50% of the institution's excess regulatory capital plus net income to date during the calendar year. A savings association may not make a capital distribution without prior approval of the OTS and the FDIC if it is undercapitalized before, or as a result of, such a distribution. As under the current rule, the OTS may object to a capital distribution if it would constitute an unsafe or unsound practice. No assurance may be given as to whether or in what form the regulations may be adopted. Liquidity All savings associations, including Wyman Park, are required to maintain an average daily balance of liquid assets equal to a certain percentage of the average daily balance of its liquidity base during the preceding calendar quarter or a percentage of the amount of its liquidity base at the end of the preceding quarter. For a discussion of what Wyman Park includes in liquid assets, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - 26 Liquidity and Capital Resources contained in the Annual Report to Shareholders." This liquid asset ratio requirement may vary from time to time (between 4% and 10%) depending upon economic conditions and savings flows of all savings associations. At the present time, the minimum liquid asset ratio is 4%. Penalties may be imposed upon associations for violations of the liquid asset ratio requirement. At June 30, 1998, the Association was in compliance with the requirement, with an overall liquid asset ratio of 18.7%. Qualified Thrift Lender Test All savings associations, including Wyman Park, are required to meet a qualified thrift lender ("QTL") test to avoid certain restrictions on their operations. This test requires a savings association to have at least 65% of its portfolio assets (as defined by regulation) in qualified thrift investments on a monthly average for nine out of every 12 months on a rolling basis. As an alternative, the savings association may maintain 60% of its assets in those assets specified in Section 7701(a)(19) of the Internal Revenue Code. Under either test, such assets primarily consist of residential housing related loans and investments. At June 30, 1998, the Association met the test and has always met the test since its effectiveness. Any savings association that fails to meet the QTL test must convert to a national bank charter, unless it requalifies as a QTL and thereafter remains a QTL. If an association does not requalify and converts to a national bank charter, it must remain SAIF-insured until the FDIC permits it to transfer to the BIF. If such an association has not yet requalified or converted to a national bank, its new investments and activities are limited to those permissible for both a savings association and a national bank, and it is limited to national bank branching rights in its home state. In addition, the association is immediately ineligible to receive any new FHLB borrowings and is subject to national bank limits for payment of dividends. If such association has not requalified or converted to a national bank within three years after the failure, it must divest of all investments and cease all activities not permissible for a national bank. In addition, it must repay promptly any outstanding FHLB borrowings, which may result in prepayment penalties. If any association that fails the QTL test is controlled by a holding company, then within one year after the failure, the holding company must register as a bank holding company and become subject to all restrictions on bank holding companies. See "- Holding Company Regulation." Community Reinvestment Act Under the Community Reinvestment Act ("CRA"), every FDIC insured institution has a continuing and affirmative obligation consistent with safe and sound banking practices to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the OTS, in connection with the examination of Wyman Park, to assess the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications, such as a merger or the establishment of a branch, by Wyman Park. An unsatisfactory rating may be used as the basis for the denial of an application by the OTS. 27 The federal banking agencies, including the OTS, have recently revised the CRA regulations and the methodology for determining an institution's compliance with the CRA. Due to the heightened attention being given to the CRA in the past few years, the Association may be required to devote additional funds for investment and lending in its local community. The Association was examined for CRA compliance in September 1995 and received a rating of satisfactory. Transactions with Affiliates Generally, transactions between a savings association or its subsidiaries and its affiliates are required to be on terms as favorable to the association as transactions with non-affiliates. In addition, certain of these transactions, such as loans to an affiliate, are restricted to a percentage of the association's capital. Affiliates of Wyman Park include the Holding Company and any company which is under common control with the Association. In addition, a savings association may not lend to any affiliate engaged in activities not permissible for a bank holding company or acquire the securities of most affiliates. The OTS has the discretion to treat subsidiaries of savings associations as affiliates on a case by case basis. Certain transactions with directors, officers or controlling persons are also subject to conflict of interest regulations enforced by the OTS. These conflict of interest regulations and other statutes also impose restrictions on loans to such persons and their related interests. Among other things, such loans must generally be made on terms substantially the same as for loans to unaffiliated individuals. Holding Company Regulation The Company is a unitary savings and loan holding company subject to regulatory oversight by the OTS. As such, the Company is required to register and file reports with the OTS and is subject to regulation and examination by the OTS. In addition, the OTS has enforcement authority over the Company and its non-savings association subsidiaries which also permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings association. As a unitary savings and loan holding company, the Company generally is not subject to activity restrictions. If the Company acquires control of another savings association as a separate subsidiary, it would become a multiple savings and loan holding company, and the activities of the Company and any of its subsidiaries (other than Wyman Park or any other SAIF-insured savings association) would become subject to such restrictions unless such other associations each qualify as a QTL and were acquired in a supervisory acquisition. If Wyman Park fails the QTL test, the Company must obtain the approval of the OTS prior to continuing after such failure, directly or through its other subsidiaries, any business activity other than those approved for multiple savings and loan holding companies or their subsidiaries. In addition, within one year of such failure the Company must register as, and will become subject to, the restrictions applicable to bank holding companies. The activities authorized for a bank holding company are more limited than are the activities authorized for a unitary or multiple savings and loan holding company. See "--Qualified Thrift Lender Test." 28 The Company must obtain approval from the OTS before acquiring control of any other SAIF-insured association. Such acquisitions are generally prohibited if they result in a multiple savings and loan holding company controlling savings associations in more than one state. However, such interstate acquisitions are permitted based on specific state authorization or in a supervisory acquisition of a failing savings association. Federal Securities Law The stock of the Company will be registered with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company will be subject to the information, proxy solicitation, insider trading restrictions and other requirements of the SEC under the Exchange Act. Company stock held by persons who are affiliates (generally officers, directors and principal stockholders) of the Company may not be resold without registration or unless sold in accordance with certain resale restrictions. If the Company meets specified current public information requirements, each affiliate of the Company is able to sell in the public market, without registration, a limited number of shares in any three-month period. Federal Reserve System The Federal Reserve Board requires all depository institutions to maintain noninterest bearing reserves at specified levels against their transaction accounts (primarily checking, NOW and Super NOW checking accounts). At June 30, 1998, Wyman Park was in compliance with these reserve requirements. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy liquidity requirements that may be imposed by the OTS. See "--Liquidity." Savings associations are authorized to borrow from the Federal Reserve Association "discount window," but Federal Reserve Board regulations require associations to exhaust other reasonable alternative sources of funds, including FHLB borrowings, before borrowing from the Federal Reserve Association. Federal Home Loan Bank System Wyman Park is a member of the FHLB of Atlanta, which is one of 12 regional FHLBs, that administers the home financing credit function of savings associations. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures, established by the board of directors of the FHLB, which are subject to the oversight of the Federal Housing Finance Board. All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB. In addition, all long-term advances are required to provide funds for residential home financing. As a member, Wyman Park is required to purchase and maintain stock in the FHLB of Atlanta. At June 30, 1998, Wyman Park had $510,000 in FHLB stock, which was in compliance with this requirement. In past years, Wyman Park has received substantial dividends on its FHLB 29 stock. Over the past five fiscal years such dividends have averaged 6.8% and were 7.3% for fiscal year 1998. Under federal law the FHLBs are required to provide funds for the resolution of troubled savings associations and to contribute to low- and moderately priced housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate- income housing projects. These contributions have affected adversely the level of FHLB dividends paid and could continue to do so in the future. These contributions could also have an adverse effect on the value of FHLB stock in the future. A reduction in value of Wyman Park's FHLB stock may result in a corresponding reduction in Wyman Park's capital. For the year ended June 30, 1998, dividends paid by the FHLB of Atlanta to Wyman Park totaled $37,000, which was no increase over the amount of dividends received in fiscal year 1997. Federal and State Taxation Savings associations such as Wyman Park that meet certain conditions prescribed by the Internal Revenue Code of 1986, as amended (the "Code"), are permitted to establish reserves for bad debts and to make annual additions thereto which may, within specified formula limits, be taken as a deduction in computing taxable income for federal income tax purposes. The amount of the bad debt reserve deduction is computed under the experience method. Under the experience method, the bad debt reserve deduction is an amount determined under a formula based generally upon the bad debts actually sustained by the savings association over a period of years. In August 1996, legislation was enacted that repealed the percentage of taxable income method used by many thrifts, including the Association, to calculate their bad debt reserve for federal income tax purposes. As a result, small thrifts such as the Association must recapture that portion of the reserve that exceeds the amount that could have been taken under the experience method for tax years beginning after December 31, 1987. The recapture will occur over a six-year period, the commencement of which will be delayed until the first taxable year beginning after December 31, 1997, provided the institution meets certain residential lending requirements. At June 30, 1998, the Association had approximately $62,000 in bad debt reserves subject to recapture for federal income tax purposes. The deferred tax liability related to the recapture has been previously established so there will be no effect on future net income. In addition to the regular income tax, corporations, including savings associations such as Wyman Park, generally are subject to a minimum tax. An alternative minimum tax is imposed at a minimum tax rate of 20% on alternative minimum taxable income, which is the sum of a corporation's regular taxable income (with certain adjustments) and tax preference items, less any available exemption. The alternative minimum tax is imposed to the extent it exceeds the corporation's regular income tax and net operating losses can offset no more than 90% of alternative minimum taxable income. A portion of the Association's reserves for losses on loans may not, without adverse tax consequences, be utilized for the payment of cash dividends or other distributions to a shareholder 30 (including distributions on redemption, dissolution or liquidation) or for any other purpose (except to absorb bad debt losses). As of June 30, 1998, the portion of Wyman Park's reserves subject to this treatment for tax purposes totaled approximately $1.8 million. Wyman Park files federal income tax returns on a fiscal year basis using the accrual method of accounting. The Company does not anticipate filing consolidated federal income tax returns with Wyman Park. Savings associations that file federal income tax returns as part of a consolidated group are required by applicable Treasury regulations to reduce their taxable income for purposes of computing the percentage bad debt deduction for losses attributable to activities of the non-savings association members of the consolidated group that are functionally related to the activities of the savings association member. Wyman Park has been audited by the IRS with respect to federal income tax returns through June, 1996. With respect to years examined by the IRS, either all deficiencies have been satisfied or sufficient reserves have been established to satisfy asserted deficiencies. In the opinion of management, any examination of still open returns (including returns of subsidiaries and predecessors of, or entities merged into, Wyman Park) would not result in a deficiency which could have a material adverse effect on the financial condition of Wyman Park. Maryland Taxation. The State of Maryland generally imposes a franchise tax on thrift institutions computed at a rate of 7% of net earnings. For the purpose of the 7% franchise tax, net earnings are defined as the net income of the thrift institution as determined for federal corporate income tax purposes, plus (i) interest income from obligations of the United States, of any state, including Maryland, and of any country, municipal or public corporation authority, special district or political subdivision of any state, including Maryland, (ii) any profit realized from the sale or exchange of bonds issued by the State of Maryland or any of its political subdivisions, and (iii) any deduction for state income taxes. Delaware Taxation. As a Delaware holding company, the Company is exempted from Delaware corporate income tax but is required to file an annual report with and pay an annual fee to the State of Delaware. The Company is also subject to an annual franchise tax imposed by the State of Delaware. 31 Item 2. Description of Properties The following table sets forth information concerning the main office and a branch office of the Association at June 30, 1998. The Association believes that its current facilities are adequate. Owned Net Book Year or Value at Location Opened Leased(1) June 30, 1998 -------- ------ --------- ------------- Main Office: 11 Ridgely Road 1977 Land Leased;(2) Lutherville, MD 21093 Building Owned $76,000 Branch Office: 7963 Baltimore/Annapolis Blvd. 1981 Leased(3) N/A Glen Burnie, MD 21060 - -------------- (1) See Note 6 to Notes to Consolidated Financial Statements. (2) There are five, five-year options which expire in May 2027. (3) Lease expires in November, 2001. The Association's depositor and borrower customer files are maintained by an independent data processing company. The net book value of the data processing and computer equipment utilized by the Association at June 30, 1998 was approximately $20,000. Item 3. Legal Proceedings From time to time, the Company is involved as plaintiff or defendant in various legal proceedings arising in the normal course of its business. While the ultimate outcome of these various legal proceedings cannot be predicted with certainty, it is the opinion of management that the resolution of these legal actions should not have a material effect on the Company's financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the quarter ended June 30, 1998. 32 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Page 48 of the attached 1998 Annual Report to Stockholders is herein incorporated by reference. Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operation Pages 4 through 17 of the attached 1998 Annual Report to Stockholders are herein incorporated by reference. Item 7. Financial Statements The following information appearing in the Company's Annual Report to Stockholders for the year ended June 30, 1998, is incorporated by reference in this Annual Report on Form 10-KSB as Exhibit 13. Pages in Annual Annual Report Section Report - --------------------- -------- Report of Independent Auditors....................................... 18 Consolidated Statements of Financial Condition as of June 30, 1998 and 1997.......................................... 19 Consolidated Statements of Operations for the Years Ended June 30, 1998 and 1997............................................. 20 Consolidated Statements of Stockholders' Equity for Years Ended June 30, 1998 and 1997.................................. 21 Consolidated Statements of Cash Flows for Years Ended June 30, 1998 and 1997............................................. 22 to 23 Notes to Consolidated Financial Statements........................... 24 to 47 With the exception of the aforementioned information, the Company's Annual Report to Stockholders for the year ended June 30, 1998, is not deemed filed as part of this Annual Report on Form 10-KSB. Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The Company filed a Current Report on Form 8-K on March 17, 1998 to report a change of accountants, and an amendment on Form 8-K/A on March 19, 1998 to report the letter on the change of certifying accountants. 33 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act Directors Information concerning Directors of the Company is incorporated herein by reference from the definitive Proxy Statement for the Annual Meeting of Stockholders to be held in 1998, a copy of which will be filed not later than 120 days after the close of the fiscal year. Executive Officers Information concerning Executive Officers of the Company is incorporated herein by reference from the definitive Proxy Statement for the Annual Meeting of Stockholders to be held in October 1998, a copy of which will be filed not later than 120 days after the close of the fiscal year. Compliance with Section 16(a) Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than 10% of a registered class of the Company's equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than 10% stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended June 30, 1998, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10 percent beneficial owners were complied with. Item 10. Executive Compensation Information concerning executive compensation is incorporated herein by reference from the definitive Proxy Statement for the Annual Meeting of Stockholders to be held in 1998, a copy of which will be filed not later than 120 days after the close of the fiscal year. Item 11. Security Ownership of Certain Beneficial Owners and Management Information concerning security ownership of certain beneficial owners and management is incorporated herein by reference from the definitive Proxy Statement for the Annual Meeting of Stockholders to be held in 1998, a copy of which will be filed not later than 120 days after the close of the fiscal year. 34 Item 12. Certain Relationships and Related Transactions Information concerning certain relationships and related transactions is incorporated herein by reference from the definitive Proxy Statement for the Annual Meeting of Stockholders to be held in 1998, a copy of which will be filed not later than 120 days after the close of the fiscal year. Item 13. Exhibits and Reports on Form 8-K (a) Exhibits Regulation Reference to S-B Prior Filing or Exhibit Exhibit Number Number Document Attached Hereto ------ -------- --------------- 3(i) Certificate of Incorporation * 3(ii) Bylaws * 4 Instruments defining the rights of security holders, ** including debentures 10 Material Contracts (a) Employment Contract between ** Ernest A. Moretti and the Association (b) Executive Supplemental Retirement Plan 10(b) 13 Annual Report to Stockholders 13 16 Letter on change in certifying accountant *** 21 Subsidiaries of Registrant 21 23 Consents of Experts and Counsel 23 27 Financial Data Schedule 27 - ---------- * Filed as exhibits to the Company's Form SB-2 registration statement filed on September 22, 1997 (File No. 333-36119) of the Securities Act of 1933. All of such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-B. ** Filed as exhibits to the Company's Pre-effective Amendment No. One to Form SB-2 filed on November 6, 1997 (File No. 333-36119) of the Securities Act of 1933. All of such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-B. *** Filed as an exhibit to the Company's current report on Form 8-K/A (File No. 0-23345) filed on March 19, 1998. (b) Reports on Form 8-K The Company filed a report on Form 8-K on March 17, 1998 (File No. 0-23345) regarding a change in the Company's principal accountants and an amendment to the Company's Bylaws. The Company filed a report on Form 8-K/A on March 19, 1998 (File No. 0-23345) to report the receipt of their former accountants' letter to the Securities and Exchange Commission stating the accountants' agreement with the Company's statements in the March 17, 1998 8-K. 35 SIGNATURES In accordance with Section 13 of 15(d) of the Exchange Act, the Issuer caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WYMAN PARK BANCORPORATION, INC. Date: September 23, 1998 By: /s/ Ernest A. Moretti ------------------------------------------ Ernest A. Moretti (Duly Authorized Representative) In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Issuer and in the capacities and on the dates indicated. By: /s/ Ernest A. Moretti By: /s/ Ronald W. Robinson ------------------------------------------ ------------------------------------------ Ernest A. Moretti, Director, President Ronald W. Robinson, and Chief Executive Officer Chief Financial Officer (Principal Executive and Operating (Chief Financial and Accounting Officer) Officer) Date: September 23, 1998 Date: September 23, 1998 By: /s/ Allan B. Heaver By: /s/ H. Douglas Huether ------------------------------------------ ------------------------------------------ Allan B. Heaver, Chairman of H. Douglas Huether, Director the Board Date: September 23, 1998 Date: September 23, 1998 By: /s/ John K. White By: /s/ John R. Beever ------------------------------------------ ------------------------------------------ John K. White, Director John R. Beever, Director Date: September 23, 1998 Date: September 23, 1998 By: /s/ Albert M. Copp By: /s/ Gilbert D. Marsiglia, Sr. ------------------------------------------ ------------------------------------------ Albert M. Copp, Director Gilbert D. Marsiglia, Sr., Director Date: September 23, 1998 Date: September 23, 1998 By: /s/ Jay H. Salkin By: /s/ G. Scott Barhight ------------------------------------------ ------------------------------------------ Jay H. Salkin, Director G. Scott Barhight, Director Date: September 23, 1998 Date: September 23, 1998
36 EX-10.(B) 2 EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN EXHIBIT 10(b) EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN AND COMPENSATION CONTINUATION AGREEMENT THIS AGREEMENT, made and entered into as of the 30th day of September, 1997, by and between Wyman Park Federal Savings and Loan Association of Lutherville, Maryland (hereinafter called the "Association") and Ernest A. Moretti of Churchville, Maryland (hereinafter called the "Executive"). WITNESSETH: WHEREAS, the Executive has been in the employ of the Association, and is now serving the Association as its President and Chief Executive Officer; and WHEREAS, because of the Executive's experience, knowledge of affairs of the Association, and reputation and contacts in the savings and loan industry, the Association deems the Executive's continued employment with the Association important for its future growth; and WHEREAS, it is the desire of the Association, and in its best interest, that the Executive's services be retained; and WHEREAS, in order to induce the Executive to continue in the employ of the Association and in recognition of his past service, the Association has entered into an Executive Supplemental Retirement Plan and Compensation Continuation Agreement, dated as of September 30, 1997, ("the Agreement") to provide him and his beneficiaries with certain benefits in accordance with the terms and conditions therein set forth. NOW, THEREFORE, in the consideration of services performed in the past and to be performed in the future by the Executive as well as of the mutual promises and covenants herein contained, the Association and the Executive hereby agree as follows: ARTICLE ONE 1.01 Employment. The Association shall employ the Executive, and the Executive shall serve the in the employ of the Association, in accordance with the employment agreement by and between the Association and the Executive, as such agreement may be amended from time to time. Nothing herein shall restrict or otherwise affect the right of the Executive to enter into any other agreement with the Association concerning the terms and conditions of his employment. Nothing herein shall require the Executive to remain in the employ of the Association or require the Association to employ the Executive. This Agreement is not part of any salary reduction plan or an arrangement deferring a bonus or a salary increase. The Executive has no option to take any current payment or bonus in lieu of the salary continuation or other benefits provided herein. ARTICLE TWO 2.01 Benefits Upon Termination. If the Executive's employment with the Association terminates for any reason (including, without limitation, voluntary resignation or termination for cause) on or after the date of this Agreement, regardless of whether the Executive has attained the age of sixty-five (65), the Association shall pay to the Executive, in equal monthly installments on the first day of each month, for the period commencing on the first day of the month next following the month on which such termination occurs and terminating on the Executive's death, an annual amount, payable in twelve (12) monthly installments, over the greater of the life of the Executive or one hundred twenty (120) months, equal to the excess of (A) sixty-five percent of the Executive's highest five-year average annual compensation, as defined in the defined benefit retirement plan provided by the Association through the Pentegra Group in White Plains, New York (the "Qualified Plan"), but without regard to the limitations imposed by Section 401(a)(17) of the Internal Revenue Code of 1986, as amended, reduced by (B) the Executive's annualized monthly retirement benefit payable under the Qualified Plan under the normal form of benefit, as defined as of September 30, 1997, under the Qualified Plan, such form being a 10-year certain and continuous annuity. 2.02 Lump Sum Form of Payment. In lieu of the form of benefits provided in Section 2.01 above, the Executive shall be paid the benefit described in Section 2.01 above in the form of a lump sum form of payment. Such lump sum form of payment shall be the actuarial equivalent, using the actuarial assumptions that are used for the Qualified Plan on the date on which the Executive's employment terminates, of the payment provided for in such Section 2.01, or, in the event that the Qualified Plan terminates prior to such date, such reasonable actuarial assumptions as the Association shall determine. Notwithstanding the foregoing, the Executive may elect the 10-year certain and continuous form of payment described in Section 2.01. In the event that the Executive shall elect the 10-year certain and continuous form of payment, such election shall be effective only if made at least two years prior to the date on which the first payment pursuant to Section 2.01 above becomes payable. ARTICLE THREE 3.01 Death of Executive. If the employment of the Executive with the Association terminates on account of the death of the Executive, his beneficiaries, as provided in Section 3.04, shall be entitled to receive a death benefit as provided herein. 3.02 Death Prior to Commencement of Benefits. If the Executive dies prior to the payment of any benefit provided hereunder, his beneficiaries shall be entitled to a lump sum death benefit equal to the actuarial equivalent of 120 monthly benefit payments, as determined and payable under Section 2.01 herein, as though the Executive 's benefit had commenced as of the first day of the month in which he died. If the Executive elects, prior to death, the death benefit may be paid in the form of installments over a period of ten years, equivalent to amount that would be paid under the 10-year certain and continuous form of benefit if the Executive lived for ten years, as set forth in Section 2.01. 2 3.03 Death After Commencement of Payments. In the event that the Executive, prior to his death and after the commencement of the payment of his benefits hereunder, shall not have received his benefit in the form of a lump sum and shall have elected instead to have received his benefit as provided in Section 2.01 in the form of a 10-year certain and continuous annuity and he shall die prior to his receipt of 120 monthly installment payments under such form of benefit, then his beneficiaries, as provided in Section 3.04, shall be entitled to receive the remainder of his monthly installment payments until a total of 120 payments shall have been made hereunder. In addition, the Executive, prior to his death, shall be entitled to elect that the remainder of such 120 monthly installment payments shall be made to his beneficiaries in the form of a lump sum. 3.04 Beneficiaries. The Executive's beneficiary shall be his surviving spouse. If the Executive has no surviving spouse, or if such spouse dies prior to the termination of such period during which benefits hereunder are payable, then said payments, or the balance thereof, shall be paid in equal parts to the Executive's children living at the time a payment is due; provided, however, that if any child of the Executive shall not be living at the time a payment is due to be paid to such child but shall have died leaving issue living at such time, such issue shall take in equal share per stirpes the share that such child would have taken if he of she had been living at such time. If at the time payment is due there are no such surviving spouse, children or issue, said payments shall terminate. ARTICLE FOUR 4.01 Payment Obligations Absolute. The Association's obligations to pay the Executive any amounts provided for hereunder shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right to which the Association may have against him. All amounts payable by the Association hereunder shall be paid without notice or demand. Except as expressly provided herein, and to the extent allowed by law or applicable regulations of any governmental entity, the Association waives all rights which it may now have or may hereafter have conferred upon it, by statue or otherwise, to amend, to terminate, cancel or rescind this Agreement in whole or in part. Each and every payment made hereunder by the Association shall be final and the Association shall not seek to recover all or any part of such payment from the Executive of from whomsoever may be entitled thereto, for any reason whatsoever. 4.02 Alienability. Neither the Executive nor the Executive's surviving spouse or issue, shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify, or otherwise encumber in advance any of the benefits payable hereunder, nor shall any said benefits be subject to seizure for any payment of any debts, judgments, alimony or separate maintenance, owed by the Executive or his beneficiary or any of them, or be transferable by operation of law in the event that this Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, heirs, distributees, devisees, legatees, or beneficiaries. 3 4.03 Tax Adjustment. The amount of payments provided for under this Agreement shall be increased to the extent necessary to pay (i) any excise tax imposed by Section 4999 of the Internal Revenue code of 1986, as amended (the "Code"), on the payments and benefits provided for by this Agreement and (ii) any such excise tax and any other federal, state, local income taxes imposed on the payments provided for by this Section 4.03. The Association shall pay to the Executive the payments provided for by this Section 4.03 as soon as practical following the determination of counsel referred to below. If any such excise tax is imposed as a result of the combination of payments or benefits not provided under this agreement, then in calculating the amount of payments required pursuant to this Section 4.03, the excise tax shall be treated as first being imposed as a result of payments and benefits provided under this Agreement, including the payments provided for by this Section 4.03. Counsel selected by the Executive and reasonably acceptable to the Association shall determine whether the increase provided for by this Section 4.03 shall be required. All determinations of such counsel shall be binding on the Association and the Executive. Such counsel shall determine that payments shall be increased only if, and to the extent that, it is more likely than not that the payments or benefits provided or under this Agreement are subject to the excise tax imposed by Section 4999 of the Code and any other excise tax. In making the determinations required by this Section 4.03, such counsel may rely on benefits consultants, accountants or other experts. The Association hereby agrees to pay all reasonable fees and expenses of such counsel and other experts and shall indemnify and hold such counsel and other experts harmless from any and all cost, expense, liability or damage arising out of any reasonable determination pursuant to this Section 4.03. If, subsequent to any determination pursuant to this Section 4.03, such counsel reasonably determines that the amount of the payments paid pursuant to this Section 4.03 are greater, or less, than the amount which should have been paid, the Executive shall reimburse the Association an amount, or the Association shall pay the Executive an additional amount, respectively, based upon such determination (including interest if appropriate), ARTICLE FIVE 5.01 Entire Agreement; Participation in Other Plans. Except as specifically provided for herein, this Agreement supersedes any and all other oral or written agreements heretofore made relating to the subject matter hereof and constitutes the entire agreement of the parties relating to the subject matter hereof; provided, that, except as specifically provided herein, this Agreement shall not be construed to alter, abridge, or in any manner affect the rights and privileges of the Executive to participate in and be covered by any pension, profit-sharing, group insurance, bonus or other employee plans which the Association may now or hereafter maintain. ARTICLE SIX 6.01 Funding. The Association shall establish a grantor trust to fund its obligations under this Agreement, which trust shall prohibit the return of any assets to the Association until the obligations to the Executive hereunder have been fully paid and satisfied, but the assets of which trust shall be subject to the claims of the creditors of the Association in the event of the insolvency of the Association. 4 Any asset of such a grantor trust shall not in any way be considered to be security for the performance of the obligations of this Agreement. If the Association purchases a life insurance or annuity policy on the life of the Executive, he agrees to sign any papers that may be required for that purpose and to undergo any medical examination or tests which may be necessary, and to generally cooperate with the Association in securing such policy. ARTICLE SEVEN 7.01 Reorganization. The Association shall require any successor (whether direct or indirect, by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the business and/or assets of the Company to agree to assume all of the obligations of the Association under this Agreement upon or prior to such succession taking place. A copy of such assumption and agreement shall be delivered to the Executive promptly after its execution by the successor. Failure of the Association to obtain such agreement upon or prior to any such succession shall be a breach of this Agreement. Such breach shall entitle the Executive to receive the payments described in Articles TWO and THREE herein, in such amounts and at such times as provided in such Articles, as if the Executive's employment had been terminated by the Association without cause on the date on which such succession occurs. As used in this Agreement, "Association" shall mean the Association as hereinbefore defined and any successor to is business and/or assets, as aforesaid. ARTICLE EIGHT 8.01 Association. As used in this Agreement, Association shall mean Wyman Park Federal Savings and Loan Association, whether in mutual or stock form, and any affiliated entity, successor organization, parent, subsidiary or holding company. ARTICLE NINTH 9.01 Communications. Any notice or communication required of either party with respect to this Agreement shall be made in writing and may either be delivered personally or sent by first class mail, as the case may be: To the Association: Wyman Park Federal Savings and Loan Association 11 West Ridgely Road Lutherville, Maryland 21093 To the Executive: Mr. Ernest Moretti 14 Bramble Lane 5 Churchville, Maryland 21028 Each party shall have the right by written notice to change the place to which any notice may be addressed. ARTICLE TEN 10.01 Arbitration of Disputes. (i) Any disagreement, dispute, controversy or claim arising out of or relating to this Agreement or the interpretation or validity hereof shall be settled exclusively and finally by arbitration. It is specifically understood and agreed that any disagreement, dispute or controversy which cannot be resolved between the parties, including without limitation any matter relating to the interpretation of this Agreement, may be submitted to arbitration irrespective of the magnitude thereof, the amount in controversy or whether such disagreement, dispute or controversy would otherwise be considered justiciable or ripe for resolution by court or arbitral tribunal. Either party may petition the appropriate court in the State of Maryland for an order compelling the submission of the controversy or dispute to arbitration in accordance with the rules of the American Arbitration Association, and that any award or finding made pursuant to such arbitration shall in all respects be well and fairly kept and observed and may be imposed by judgment of the appropriate court of the State of Maryland pursuant to the applicable laws relating thereto, the parties expressly agreeing that Sections 3-201 through 3- 234 of Subtitle 2 of Title 3 of the Courts and Judicial Proceedings Article of the Annotated Code of Maryland (Maryland Uniform Arbitration Act) shall apply and be applicable hereto. (ii) The arbitration shall be conducted in accordance with the Commercial Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association (the "AAA"). (iii) The arbitral tribunal shall consist of one arbitrator. The parties to the arbitration jointly shall directly appoint such arbitrator within 30 days of initiation of the arbitration. If the parties shall fail to appoint such arbitrator as provided above, such arbitrator shall be appointed by the AAA as provided in the Arbitration Rules and shall be a person who (a) maintains his principal place of business within 30 miles of the City of Baltimore, Maryland, and (b) has had substantial experience in mergers and acquisitions. The Association shall pay all of the fees, if any, and expenses of such arbitrator. (iv) The arbitration shall be conducted within 30 miles of the City of Baltimore, Maryland, or in such other city in the United States of America as the parties to the dispute may designate by mutual written consent. (v) At any oral hearing of evidence in connection with the arbitration, each party thereto or its legal counsel shall have the right to examine its witness and to cross-examine the witnesses of any opposing party. No evidence of any witness shall be presented unless the opposing party or parties shall have the opportunity to cross-examine such witness, except as the parties to the dispute otherwise agree 6 in writing or except under extraordinary circumstances where the interest of the justice require a different procedure. (vi) Any decision or award of the arbitral tribunal shall be final and binding upon the parties to the arbitration proceeding. The parties hereto hereby waive to the extent permitted by law any rights to appeal or to seek review of such award by any court or tribunal. The parties hereto agree that the arbitral award may be enforced against the parties to the arbitration proceeding or their assets wherever they may be found and that a judgment upon the arbitral ward may be entered by any court having jurisdiction. (vii) Nothing herein contained shall be deemed to give the arbitral tribunal any authority, power, or right to alter, change, amend, modify, add to, or subtract from any of the provisions of this Agreement. ARTICLE ELEVENTH 11.01 Amendment. No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in a writing signed by the Executive and an authorized representative of the Association. Waiver by any party of any beach of, or failure to comply with any provisions of, this Agreement by the other party shall not be construed as, or constitute, a continuing waiver of such provision, or a waiver or any other breach of, or failure to comply with, any other provision of this Agreement. 11.02 Choice of Law. The terms and conditions of this Agreement are subject to the laws of the State of Maryland. 11.03 Severability. If any terms or provisions of this Agreement or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such terms or provisions to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 11.04 Headings. The headings in the Agreement are inserted for convenience of reference only and shall not be part of or control or affect the meaning of this Agreement. 11.05 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original. 11.06 Payroll and Withholding Taxes. The Association may withhold from any amounts payable 7 to the Executive hereunder all federal, state, city or other taxes that the Association may reasonably determine are required to be withheld pursuant to any applicable law or regulation. IN WITNESS WHEREOF, the Association has caused this Agreement to be duly executed by its duly authorized officers and Executive Committee members, and its corporate seal affixed, and the Executive has hereunto set his hand at Lutherville, Maryland, as of the day and year first above written. WYMAN PARK FEDERAL SAVINGS AND LOAN ASSOCIATION ATTEST: /s/ Ronald W. Robinson ---------------------------------- Ronald W. Robinson, Treasurer /s/ Charmaine Snyder - --------------------------------- Charmaine Snyder, Secretary EXECUTIVE WITNESS: /s/ Ernest A. Moretti ---------------------------------- Ernest A. Moretti /s/ Charmaine Snyder - --------------------------------- 8 EX-13 3 ANNUAL REPORT TO SECURITY HOLDERS EXHIBIT 13 ANNUAL REPORT TO SECURITY HOLDERS
SELECTED CONSOLIDATED FINANCIAL INFORMATION June 30, ------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------------------------------------------------------- (In Thousands) Selected Financial Condition Data: Total assets ..................................................... $ 70,541 $ 62,241 $ 63,866 $ 64,258 $ 64,666 Loans receivable, net ............................................ 62,042 55,189 53,244 54,403 52,093 Mortgage-backed securities ....................................... 284 356 424 520 605 Investment securities ............................................ -- 2,993 2,964 5,920 7,935 Deposits ......................................................... 54,018 56,095 57,871 58,474 59,389 Total equity ..................................................... 14,266 4,750 4,599 4,277 3,854 Year Ended June 30, ------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------------------------------------------------------- (In Thousands) Selected Operations Data: Total interest income ............................................ $ 5,081 $ 4,658 $ 4,725 $ 4,788 $ 4,537 Total interest expense ........................................... 2,722 2,756 3,073 2,891 2,777 -------- -------- -------- -------- -------- Net interest income ............................................. 2,359 1,902 1,652 1,897 1,760 Provision for (recovery of) loan losses .......................... 8 145 25 (88) 183 -------- -------- -------- -------- -------- Net interest income after provision for loan losses .............. 2,351 1,757 1,627 1,985 1,577 Fees and service charges ......................................... 60 48 47 36 28 Gain on sales of loans, mortgage-backed securities and investment securities ............................ 6 6 20 23 442 Other non-interest income ........................................ 27 24 39 26 177 -------- -------- -------- -------- -------- Total non-interest income ........................................ 93 78 106 85 647 Total non-interest expense ....................................... 1,597 1,614 1,278 1,361 1,411 -------- -------- -------- -------- -------- Income before taxes .............................................. 847 221 455 709 813 Income tax provision ............................................. 329 87 161 276 315 -------- -------- -------- -------- Net income ....................................................... $ 518 $ 134 $ 294 $ 433 $ 498 2 Year Ended June 30, ------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------------------------------------------------------- (In Thousands) Selected Financial Ratios and Other Data: Performance Ratios: Return on assets (ratio of net income to average total assets) ....................................................... .77% .22% .46% .67% .80% Return on equity (ratio of net income to average equity) ....... 5.49 2.87 6.56 10.52 13.22 Interest rate spread information: Average during period ......................................... 2.75 2.76 2.26 2.70 2.46 End of period ................................................. 2.68 2.77 2.19 2.25 2.93 Net interest margin(1) ......................................... 3.55 3.14 2.63 2.98 2.75 Ratio of operating expense to average total assets ............. 2.37 2.62 2.01 2.11 2.27 Ratio of average interest-earning assets to average interest-bearing liabilities .................................. 119.45 108.40 107.66 106.24 106.66 Loans as a percentage of total assets .......................... 87.95 88.67 83.37 84.66 80.56 Quality Ratios: Non-performing assets to total assets at end of period .......... .04 .28 .04 .30 .25 Allowance for loan losses to non-performing loans ............... 1,112.00 153.11 456.89 51.89 196.32 Allowance for loan losses to loans receivable, net .............. .45 .49 .24 .18 .60 Capital Ratios: Stockholders' equity to total assets at end of period ........... 20.28 7.64 7.24 6.73 6.02 Average stockholders' equity to average assets .................. 14.03 7.58 7.04 6.36 6.05 Other Data: Number of full-service offices .................................. 2 2 2 2 2
- ---------- (1) Net interest income divided by average interest-earning assets. 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements When used in this filing and in future filings by Wyman Park Bancorporation, Inc. (the "Company") with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "would be," "will allow," "intends to," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties, including but not limited to changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area and competition, all or some of which could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and advises readers that various factors, including regional and national economic conditions, substantial changes in levels of market interest rates, credit and other risks of lending and investment activities and competitive and regulatory factors, could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from those anticipated or projected. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements. General Management's discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the consolidated financial statements and accompanying notes thereto. The principal business of the Company consists of accepting deposits from the general public and investing these funds primarily in loans, investment securities and short-term liquid investments. The Company's loans consist primarily of loans secured by residential real estate located in its market areas, commercial real estate loans and consumer loans. The Company's net income is dependent primarily on its net interest income, which is the difference between interest earned on interest-earning assets and the interest paid on interest-bearing liabilities. Net interest income is a function of the Company's "interest rate spread," which is the difference between the average yield earned on interest-earning assets and the average rate paid on 4 interest-bearing liabilities. The interest rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. To a lesser extent, the Company's net income also is affected by the level of general and administrative expenses and the level of other income, which primarily consists of service charges and other fees. The operations of the Company are significantly affected by prevailing economic conditions, competition and the monetary, fiscal and regulatory policies of government agencies. Lending activities are influenced by the demand for and supply of housing, competition among lenders, the level of interest rates and the availability of funds. Deposit flows and costs of funds are influenced by prevailing market rates of interest, primarily on competing investments, account maturities and the levels of personal income and savings in the Company's market area. The Company has been notified by its service providers that they are making satisfactory progress in addressing the year 2000 matter and that costs associated with resolving the issue will not be material. Management of the Company will continue to monitor this issue. Historically, the Company's mission has been to originate loans on a profitable basis to the communities it serves. In seeking to accomplish this mission, the Board of Directors and management have adopted a business strategy designed (i) to maintain the Company's capital level in excess of regulatory requirements; (ii) to maintain the Company's asset quality; (iii) to maintain, and if possible, increase the Company's earnings; and (iv) to manage the Company's exposure to changes in interest rates. Financial Condition June 30, 1998 compared to June 30, 1997 Total assets increased approximately $8.3 million or 13.3%, to $70.5 million at June 30, 1998 from $62.2 million at June 30, 1997. Proceeds from the recent stock conversion allowed the Company to increase its loans receivable by $6.8 million or 12.3%, to $62.0 million at June 30, 1998 from $55.2 million at June 30, 1997. The $6.8 million increase in net loans receivable consisted of $5.6 million in residential real estate loans, $877,000 in commercial real estate loans and $335,000 in consumer loans. Cash and cash equivalents increased $4.4 million or 183.3%, to $6.8 million at June 30, 1998 from $2.4 million at June 30, 1997 also as a result of the stock conversion. Investment securities decreased $3.0 million or 100%, to zero at June 30, 1998 from $3.0 million at June 30, 1997 due to increased investments in loans receivable and cash and cash equivalents. Total savings deposits declined approximately $2.1 million or 3.7%, to $54.0 million at June 30, 1998 from $56.1 million at June 30, 1997. The decrease in deposits was primarily the result of customer withdrawals for the purpose of purchasing stock in the Company. Management does not expect the decline in deposits to continue, as marketing efforts are continuing to attract transaction accounts and small commercial accounts to replace higher costing certificate accounts. Total liabilities decreased approximately $1.2 million or 2.1%, to $56.3 million at June 30, 1998 from $57.5 million at June 30, 1997. This decrease was primarily the result of the $2.1 million decline in savings deposits offset by an increase of $328,000 in accrued expenses and other liabilities primarily as a result of the establishment of a supplemental executive retirement plan for the 5 Company's President and CEO, and also an increase of $263,000 in federal and state income taxes payable as a result of the Company's increased earnings. Total stockholders' equity increased by $9.6 million or 204.3%, to $14.3 million at June 30, 1998 from $4.7 million at June 30, 1997. The increase was the result of $9.7 million in additional capital from the stock conversion and net income of $518,000 partially offset by $720,000 for the Company's Employee Stock Ownership Plan (ESOP). Operating Results Comparison of Operating Results for the Years Ended June 30, 1998 and 1997 Performance Summary. Net income for the year ended June 30, 1998 was approximately $518,000, an increase of $384,000, or 286.6% from net income of $134,000 for the year ended June 30, 1997. The increase was primarily due to an increase in net interest income of $457,000, a decrease in provision for loan losses of $137,000, an increase in non-interest income of $14,000 and a decrease in non-interest expense of $18,000, producing an increase in income before provision for income taxes of $626,000 to $847,000 for the year ended June 30, 1998 as compared to $221,000 for the year ended June 30, 1997. For the years ended June 30, 1998 and 1997, the returns on average assets were .77% and .22%, respectively, while the returns on average equity were 5.49% and 2.87%, respectively. Net Interest Income. Net interest income increased by approximately $457,000, or 24.0%, to $2,359,000 for the year ended June 30, 1998 from $1,902,000 for the year ended June 30, 1997. This reflects an increase of $423,000, or 9.1%, in interest income to $5,081,000 in fiscal 1998 from $4,658,000 in fiscal 1997, while interest expense was decreasing by $34,000, or 1.2%, to $2,722,000 in fiscal 1998 from $2,756,000 in fiscal 1997. The increase in net interest margin was primarily from the increase in the average balance of interest-earning assets. For the year ended June 30, 1998, the yield on average interest-earning assets was 7.64% compared to 7.69% for the year ended June 30, 1997. The cost of average interest-bearing liabilities was 4.89% for the year ended June 30, 1998, a decrease from 4.93% for the year ended June 30, 1997. The average balance of interest-earning assets increased by $5.9 million or 9.7%, to $66.5 million for the year ended June 30, 1998 from $60.6 million for the year ended June 30, 1997. The average balance of interest-bearing liabilities decreased by $241,000 or .4%, to $55.7 million for the year ended June 30, 1998, compared to $55.9 million for the year ended June 30, 1997. The interest rate spread decreased to 2.75% for the year ended June 30, 1998 from 2.76% for the year ended June 30, 1997. The net interest margin increased to 3.55% for the year ended June 30, 1998 from 3.14% for the year ended June 30, 1997. Provision for Loan Losses. During the year ended June 30, 1998, the Company recorded a provision for loan losses of $8,000 compared to $145,000 for the year ended June 30, 1997. This provision was recorded based on an increase of $877,000 in commercial real estate loans in the year ended June 30, 1998. 6 During the year ended June 30, 1998, the Company's nonperforming loans decreased to $25,000 from $176,000, comprised of one residential loan. This decrease did not have a significant effect on the Company's provision for loan losses, as management expects minimal loss, if any, related to this one loan. Management will continue to monitor its allowance for loan losses, making additions to the allowance through the provision for loan losses as economic conditions and other factors dictate. Although the Company maintains its allowance for loan losses at a level which it considers to be adequate to provide for loan losses, there can be no assurance that future losses will not exceed estimated amounts or that additional provisions for loan losses will not be required in the future. Non-Interest Income. For the year ended June 30, 1998 non-interest income increased approximately $14,000 or 17.7%, to $93,000 from $79,000 for the year ended June 30, 1997. This increase is primarily due to an increase in loan fees and service charges of $12,000. Non-Interest Expense. Non-interest expense decreased $18,000 or 1.1%, to $1,597,000 for the year ended June 30, 1998 from $1,615,000 for the year ended June 30, 1997. This decrease was primarily due to a decrease in federal deposit insurance expense of $426,000 or 92.4%, to $35,000 for the year ended June 30, 1998 from $461,000 for the year ended June 30, 1997. The June 30, 1997 figure included approximately $383,000, the Company's portion of a one-time assessment to recapitalize the SAIF fund. This decrease in non-interest expense was offset by an increase in compensation and employee benefits expense of approximately $369,000 or 59.4%, to $990,000 for the year ended June 30, 1998 from $621,000 for the year ended June 30, 1997, due to the funding of a supplemental executive retirement plan and ESOP expenses. Income Taxes. The provision for income taxes increased by approximately $242,000 or 278.2%, to $329,000 for the year ended June 30, 1998 from $87,000 for the year ended June 30, 1997. This increase results from the corresponding $626,000 increase in income before the tax provision. The Company's effective tax rates were 38.9% and 39.3% for the years ended June 30, 1998 and 1997, respectively. The Company is generally taxed at a federal rate of 34% based on the IRS tax rate schedule for corporations. The Company is also subject to a Maryland franchise tax based on earnings at a flat rate of 7% of taxable income. This produces a combined federal and Maryland tax rate of 38.6% when the deductibility of the Maryland tax for federal purposes is considered. Variances from this rate in any given year are the result of certain items of income or expense not being included in or deducted from taxable income; and, from changes in the tax estimates of prior periods. 7 Yields Earned and Rates Paid The following table presents for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. No tax equivalent adjustments were made. All average balances are monthly average balances. The use of monthly averages, rather than daily averages, does not materially affect the information in the table. Non-accruing loans have been included in the table as loans carrying a zero yield.
Year Ended June 30, --------------------------------------------------------------------- 1998 1997 --------------------------------------------------------------------- Average Interest Average Interest Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Balance Paid Rate Balance Paid Rate --------------------------------------------------------------------- (Dollars in Thousands) Interest-Earning Assets: Loans receivable(1) ..................................... $59,695 $ 4,681 7.84% $53,903 $ 4,250 7.88% Mortgage-backed securities .............................. 318 23 7.23 383 27 7.05 Investment securities ................................... 1,334 85 6.37 2,402 140 5.83 FHLB stock .............................................. 510 37 7.25 510 37 7.25 Other investments ....................................... 4,624 255 5.51 3,382 204 6.03 ------- ------- ------- ------- ------- ------- Total interest-earning assets(1) $66,481 5,081 7.64 $60,580 4,658 7.69 ======= ------- ======= ------- Interest-Bearing Liabilities: Savings deposits ........................................ $ 5,737 181 3.15 $ 5,856 174 2.97 Demand and NOW deposits ................................. 9,520 273 2.87 9,745 309 3.17 Certificate accounts .................................... 39,720 2,226 5.60 40,182 2,267 5.64 Escrow deposits ......................................... 97 5 5.15 115 6 5.22 Borrowings .............................................. 583 37 6.35 -- -- -- ------- ------- ------- ------- ------- ------- Total interest-bearing liabilities $55,657 2,722 4.89 $55,898 2,756 4.93 ======= ------- ======= Net interest income....................................... $ 2,359 $1,902 ======= ======= Net interest rate spread.................................. 2.75% 2.76% ======= ======= Net earning assets........................................ $10,824 $4,682 ======= ======= Net yield on average interest-earning assets.................................. 3.55% 3.14% ======= ======= Average interest-earning assets to average interest-bearing liabilities..................... 1.19x 1.08x ======= =======
- ---------- (1) Calculated net of deferred loan fees, loan discounts, loans in process and loss reserves. 8 The following table presents the weighted average yields earned on loans, investments and other interest-earning assets, and the weighted average rates paid on savings deposits and the resultant interest rate spreads at the dates indicated. At June 30, ----------------- 1998 1997 ----------------- Weighted average yield on: Loans receivable......................................... 7.76% 7.89% Mortgage-backed securities............................... 7.04 7.52 Investment securities.................................... --- 5.94 Other interest-earning assets............................ 5.73 5.95 Combined weighted average yield on interest-earning assets............................. 7.63 7.71 Weighted average rate paid on: Savings deposits......................................... 2.78 3.11 Demand and NOW deposits.................................. 2.76 2.93 Certificate accounts..................................... 5.79 5.71 Other interest-bearing liabilities....................... 5.50 5.50 Combined weighted average rate paid on interest- bearing liabilities.................................. 4.95 4.94 Spread.................................................... 2.68 2.77 9 Rate Volume Analysis The following schedule presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and that due to the changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.
Year Ended June 30, ---------------------------------------------------------------------------- 1997 vs. 1998 1996 vs. 1997 ---------------------------------------------------------------------------- Increase Increase (Decrease) (Decrease) Due to Total Due to Total -------------------- Increase --------------------- Increase Volume Rate (Decrease) Volume Rate (Decrease) ---------------------------------------------------------------------------- (Dollars in Thousands) Interest-earning assets: Loans receivable .................................... $ 454 $ (23) $ 431 $ 68 $ 25 $ 93 Mortgage-backed securities .......................... (5) 1 (4) (6) (2) (8) Investment securities ............................... (68) 13 (55) (169) 2 (167) Other ............................................... 71 (20) 51 (10) 25 15 ----- ----- ----- ----- ----- ----- Total interest-earning assets ..................... $ 452 $ (29) 423 $(117) $ 50 (67) ===== ===== ----- ===== ===== ----- Interest-bearing liabilities: Savings deposits .................................... $(4) $ 11 7 $ 8 $ (12) (4) Demand and NOW deposits ............................. (7) (29) (36) 3 (11) (8) Borrowings .......................................... 37 -- 37 -- -- -- Certificate accounts ................................ (25) (16) (41) (169) (134) (303) Escrow deposits ..................................... (1) -- (1) (2) -- (2) Total interest-bearing liabilities.. $ ............ -- $ (34) (34) $(160) $(157) (317) ===== ===== ----- ===== ===== ----- Net interest income .................................. $ 457 $ 250 ===== =====
10 Asset/Liability Management Quantitative Aspects of Market Risk. The Company does not maintain a trading account for any class of financial instrument. Further, it is not currently subject to foreign currency exchange rate risk or commodity price risk. The stock in the FHLB of Atlanta does not have equity price risk because it is issued only to members and is redeemable for its $100 par value. The following table illustrates quantitative sensitivity to interest rate risk for financial instruments other than cash and cash equivalents, FHLB stock and demand deposit accounts for the Company as of June 30, 1998.
Maturing in Years Ended June 30, ------------------------------------------------------------------------- 2000 & 2002 & 2004 - 2009 - 1999 2001 2003 2008 2018 Thereafter Total ------------------------------------------------------------------------- (Dollars in Thousands) Assets Loans receivable: Amount .......................... $16,989 $ 7,557 $3,435 $11,880 $16,368 $6,306 $62,535 Average interest rate ........... 8.17% 7.13% 7.33% 7.30% 7.23% 7.54% 7.76% Mortgage-backed securities: Amount .......................... -- -- -- -- 284 -- 284 Average interest rates .......... -- -- -- -- 7.04 -- 7.04 Investment securities: Amount .......................... -- -- -- -- -- -- -- Average interest rates .......... -- -- -- -- -- -- -- Liabilities Deposit Certificate Accounts: Amount .......................... 18,017 15,706 5,254 -- -- -- 38,977 Average interest rates .......... 5.37% 5.94% 5.92% -- -- -- 5.79%
Qualitative Aspects of Market Risk. One of the Company's principal financial objectives is to achieve long-term profitability while reducing its exposure to fluctuations in interest rates. The Company has sought to reduce exposure of its earnings to changes in market interest rates by managing the mismatch between asset and liability maturities and interest rates. The principal element in achieving this objective has been to increase the interest-rate sensitivity of the Company's assets by originating loans with interest rates subject to periodic repricing to market conditions. Accordingly, the Company has emphasized the origination of one- to three-year adjustable rate mortgage loans, balloon loans, short-term and adjustable-rate commercial loans, and consumer loans for retention in its portfolio. An asset or liability is interest rate sensitive within a specific time period if it will mature or reprice within that time period. If the Company's assets mature or reprice more quickly or to a greater extent than its liabilities, the Company's net portfolio value and net interest income would tend to increase during periods of rising interest rates but decrease during periods of falling interest rates. If the Company's assets mature or reprice more slowly or to a lesser extent than its liabilities, the Company's net portfolio value and net interest income would tend to decrease during periods of rising interest rates but increase during periods of falling interest rates. 11 The Company's Board of Directors has formulated an Interest Rate Risk Management Policy designed to promote long-term profitability while managing interest-rate risk. The Board of Directors has established an Asset/Liability Committee which consists primarily of the management team of the Company. This committee meets periodically and reports to the Board of Directors quarterly concerning asset/liability policies, strategies and the Company's current interest rate risk position. The committee's first priority is to structure and price the Company's assets and liabilities to maintain an acceptable interest rate spread while reducing the net effects of changes in interest rates. Management's principal strategy in managing the Company's interest rate risk has been to maintain short and intermediate term assets in the portfolio, including one and three year adjustable rate mortgage loans, as well as increased levels of commercial and consumer loans, which typically are for short or intermediate terms and carry higher interest rates than residential mortgage loans. In addition, in managing the Company's portfolio of investment securities and mortgage-backed and related securities, management seeks to purchase securities that mature on a basis that approximates as closely as possible the estimated maturities of the Company's liabilities or purchase securities that have adjustable rate provisions. The Company does not engage in hedging activities. In addition to shortening the average repricing of its assets, the Company has sought to lengthen the average maturity of its liabilities by adopting a tiered pricing program for its certificates of deposit, which provides higher rates of interest on its longer term certificates in order to encourage depositors to invest in certificates with longer maturities. This policy is blended with management's strategy for reducing the overall balance in certificate accounts in order to reduce the Company's interest expense. Net Portfolio Value. In order to encourage associations to reduce their interest rate risk, the OTS adopted a rule incorporating an interest rate risk ("IRR") component into the risk-based capital rules. The IRR component is a dollar amount that will be deducted from total capital for the purpose of calculating an institution's risk-based capital requirement and is measured in terms of the sensitivity of its net portfolio value ("NPV") to changes in interest rates. NPV is the difference between incoming and outgoing discounted cash flows from assets, liabilities, and off-balance sheet contracts. An institution's IRR is measured as the change to its NPV as a result of a hypothetical 200 basis points ("bp") change in market interest rates. A resulting change in NPV of more than 2% of the estimated market value of its assets will require the institution to deduct from its capital 50% of that excess change. The rules provide that the OTS will calculate the IRR component quarterly for each institution. Management reviews the OTS measurements on a quarterly basis. In addition to monitoring selected measures on NPV, management also monitors effects on net interest income resulting from increases or decreases in rates. This measure is used in conjunction with NPV measures to identify excessive interest rate risk. The following table presents the Company's NPV at June 30, 1998, as calculated by the OTS, based on information provided to the OTS by the Company. 12 NPV as % of Portfolio Value Net Portfolio Value of Assets ------------------- --------- Change in Rates $Amount $Change %Change NPV Ratio %Change -------- ------- ------- ------- --------- ------- (Dollars in Thousands) +400 $ 7,383 $(4,193) (36)% 11.78% (5.07)% +300 8,547 (3,030) (26) 13.30 (3.55) +200 9,691 (1,886) (16) 14.71 (2.14) +100 10,749 (828) (7) 15.95 (.90) Static 11,577 -- -- 16.85 -- (100) 12,093 516 4 17.35 .50 (200) 12,153 576 5 17.29 .44 (300) 12,255 678 6 17.28 .43 (400) 12,514 938 8 17.45 .60 In the above table, the first column on the left presents the basis points increments of yield curve shifts. The second column presents the overall dollar amount of NPV at each basis point increment. The third and fourth columns present the Company's actual position in dollar change and percentage change in NPV at each basis point increment. The remaining columns present the Company's percentage and percentage change in its NPV as a percentage of portfolio value of assets. Had it been subject to the IRR component at June 30, 1998 the Company would have been considered to have had a greater than normal level of interest rate exposure and a deduction from capital of $46,000 would have been required. Although the OTS has informed the Company that it is not subject to the IRR component discussed above, the Company is still subject to interest rate risk and, as can be seen above, rising interest rates will reduce the Company's NPV. The OTS has the authority to require otherwise exempt institutions to comply with the rule concerning interest rate risk. Certain shortcomings are inherent in the method of analysis presented in the computation of NPV. Although certain assets and liabilities may have similar maturities or periods within which they will reprice, they may react differently to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. The Company's Board of Directors is responsible for reviewing the Company's asset and liability policies. The Board reviews interest rate risk and trends on a quarterly basis and liquidity, capital ratios and requirements, on a monthly basis. Management is responsible for administering the policies and determinations of the Board of Directors with respect to the Association's assets and liability goals and strategies. Notwithstanding its efforts with respect to asset/liability management, the Company remains subject to IRR, and expects that its profit margin will decrease if interest rates rise. 13 Liquidity and Capital Resources The primary investment activity of the Company is originating one- to four-family residential mortgages, commercial real estate loans, and consumer loans to be held to maturity. For the fiscal years ended June 30, 1998 and 1997 the Company originated loans for its portfolio in the amount of $16.5 million and $8.9 million, respectively. For the same two fiscal years, these activities were funded from repayments of $9.7 million and $7.2 million, respectively, and sales and participations of $711,000 and $1.3 million, respectively. The Company is required to maintain minimum levels of liquid assets under government regulations. The Company's liquid assets are determined by adding (1) cash on hand, (2) daily investable deposits, (3) U.S. Government agency obligations with maturities of less than five years and (4) accrued interest on unpledged liquid assets. The liquidity base is defined as net withdrawable accounts maturing in less than one year, plus short-term borrowings. The Company's liquidity ratio is determined by dividing the sum of the liquid assets for each calendar day in the current quarter by the liquidity base at the end of the preceding quarter multiplied by the number of calendar days in the current quarter. The Company's most liquid assets are cash and cash equivalents, which include short-term investments. At June 30, 1998 and 1997, cash and cash equivalents were $6.8 million and $2.4 million, respectively. In addition, the Company has used jumbo certificates of deposit as a source of funds. Deposits of $100,000 or more represented $5.7 million at June 30, 1998 (of which $4.2 million were jumbo certificates of deposit) and $5.7 million at June 30, 1997, or 10.6% and 10.2% of total deposits, respectively. The regulatory liquidity requirement for the Company is 4.0%. The Company has always met the liquidity requirements. The Company's eligible total liquidity ratios were 18.7% and 9.8%, respectively, at June 30, 1998 and 1997. Liquidity management for the Company is both an ongoing and long-term function of the Company's asset/liability management strategy. Excess funds, when applicable, generally are invested in overnight deposits at a correspondent bank and at the FHLB of Atlanta. Currently when the Company requires funds, beyond its ability to generate deposits, additional sources of funds are available through the FHLB of Atlanta. The Company has the ability to pledge its FHLB of Atlanta stock or certain other assets as collateral for such advances. Management and the Board of Directors believe that due to significant amounts of adjustable rate mortgage loans that could be sold and the Company's ability to acquire funds from the FHLB of Atlanta, the Company's liquidity is adequate. The Company has experienced a decline in total deposits since 1993 as a result of its asset/liability management strategies and market conditions as well as approximately $2 million being withdrawn by customers for purchase of the Company's stock. Since the conversion, total assets have increased and total loans have increased resulting in improved net yield on interest-earning assets. Management of the Company does not expect the decline in deposits to continue as marketing efforts are expanded to attract transaction accounts to replace higher costing certificate accounts; or, for there to be a negative impact on the Company's operations or liquidity. Further, certificate accounts in the amount of $18.0 million or 46.2% of total certificate accounts at June 30, 1998 mature within one year compared to $20.3 million or 50.3% at June 30, 1997. Management of the Company expects the majority of these accounts to renew with no material adverse effect on the Company's operations or liquidity. 14 Year Ended June 30, 1998 1997 ---- ---- (In Thousands) Net income............................................ $ 518 $ 134 Adjustment to reconcile net income to net cash from operating activities............................ 643 118 ------ ------ Net cash provided from operating activities........... 1,161 252 Net cash used in investing activities................. (3,747) (1,937) Net cash provided from (used in) financing activities................................. 7,057 (1,739) ------ ------ Net change in cash and cash equivalents............... 4,471 (3,424) Cash and cash equivalents at beginning of period...... 2,377 5,801 ------ ------ Cash and cash equivalents at end of period............ $6,848 $2,377 ====== ====== The Company's principal sources of funds are deposits, loan repayments and prepayments, and other funds provided by operations. While scheduled loan repayments are relatively predictable, deposit flows and early loan prepayments are more influenced by interest rates, general economic conditions, and competition. The Company maintains investments in liquid assets based upon management's assessment of (1) need for funds, (2) expected deposit flows, (3) yields available on short-term liquid assets and (4) objectives of the asset/liability management program. OTS regulations presently require the Association to maintain an average daily balance of investments in United States Treasury, federal agency obligations and other investments having maturities of five years or less in an amount equal to 4.0% of the sum of the Association's average daily balance of net withdrawable deposit accounts maturing in less than one year and borrowings payable in one year or less. The liquidity requirement, which may be changed from time to time by the OTS to reflect changing economic conditions, is intended to provide a source of relatively liquid funds upon which the Association may rely, if necessary, to fund deposit withdrawals or other short-term funding needs. At June 30, 1998, the Association's regulatory liquidity was 18.7%. For the last five fiscal years, the Association was in compliance with such requirement and management believes that the Association's liquidity is adequate. It should be noted that the Association has an immediately accessible line of credit with the FHLB of Atlanta for $8.0 million. On June 30, 1998, the Association had commitments to originate fixed-rate commercial and residential loans totaling $619,000, and variable rate commercial and residential real estate mortgage loans totaling $661,000. Loan commitments are generally for 60 days. The Association considers its liquidity and capital reserves sufficient to meet its outstanding short- and long-term needs. The Association is required by OTS regulations to meet certain minimum capital requirements, which must be generally as stringent as the requirements established for banks. Current capital requirements call for tangible capital of 1.5% of adjusted total assets, core capital (which for the Association consists solely of tangible capital) of 3.0% of adjusted total assets and risk-based capital (which for the Association consists of core capital and general valuation allowances) of 8% of risk-weighted assets (assets are weighted at percentage levels ranging from 0% to 100% depending on their relative risk). The OTS has proposed to amend the core capital 15 requirement so that those associations that do not have the highest examination rating and an acceptable level of risk will be required to maintain core capital of from 4% to 5%, depending on the association's examination rating and overall risk. The Association does not anticipate that it will be adversely affected if the core capital requirements regulations are amended as proposed. The following table summarizes the Association's regulatory capital requirements and actual capital at June 30, 1998. (See Note 11 of Notes to Consolidated Financial Statements for a reconciliation of capital under generally accepted accounting principles and regulatory capital amounts.)
Excess of Actual Capital Over Current Current Actual Capital Requirement Requirement -------------- ----------- ----------- Asset Amount Percent Amount Percent Amount Percent Total ------ ------- ------ ------- ------ ------- ----- (Dollars in Thousands) Tangible Capital.......... $9,430 14.0% $1,011 1.5% $8,419 12.5% $67,415 Core Capital.............. 9,430 14.0 2,022 3.0 7,408 11.0 67,415 Risk-based Capital........ 9,708 25.6 3,040 8.0 6,668 17.6 37,994
Impact of Inflation and Changing Prices The financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on the operations of the Company is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution's performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. Current Accounting Issues SFAS No. 130, "Reporting Comprehensive Income" was issued in June 1997. This Statement requires that comprehensive income - made up of all revenues, expenses, gains and losses - be reported and displayed in an entity's financial statements with the same prominence as its other financial statements. Currently, the only item that would be presented as a component of its net income is the change during the year in unrealized gain or loss on available for sale securities. The Statement, which is effective for years beginning after December 15, 1997, will not affect the Company's financial position or its results of operations. SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" was also issued in June 1997. This Statement requires that public business enterprises report financial 16 and descriptive information about their reportable operating segments. Reportable operating segments are defined as components of an enterprise about which separate financial information is available and is evaluated regularly by the chief operating decision maker as a basis for allocating resources and assessing performance. It also requires those enterprises to report information about countries in which they do business and about major customers. The Statement, which is effective for financial statements for periods beginning after December 15, 1997, will not affect the Company's financial position or its results of operations. SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits" was issued in February 1998. This Statement standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable. The Statement, which is effective for fiscal years beginning after December 15, 1997, will not affect the Company's financial position or its results of operations. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June, 1998. This Statement standardizes the accounting for derivative instruments including certain derivative instruments embedded in other contracts, by requiring that an entity recognize these items as assets or liabilities in the statement of financial position and measure them at fair value. This Statement generally provides for matching the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or the earnings effect of the hedged forecasted transaction. The Statement, which is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999, will not affect the Company's financial position or its results of operations. Impact of the Year 2000 The Company has conducted a comprehensive review of its computer systems to identify applications that could be affected by the "Year 2000" issue, and has developed an implementation plan to address the issue. The Company's data processing is performed by a service provider, however, software and hardware utilized in-house is under maintenance agreements with third party vendors, consequently the Company is very dependent on those vendors to conduct its business. The Company has already contacted each vendor to request time tables for Year 2000 compliance and expected costs, if any, to be passed along to the Company. To date, the Company has been informed that its primary service providers anticipate that all reprogramming efforts will be completed by December 31, 1998, allowing the Company adequate time for testing. Certain other vendors have not yet responded, however, the Company will pursue other options if it appears that these vendors will be unable to comply. Management does not currently expect its costs to have a significant impact on its financial position or results of operations, however, there can be no assurance that the vendors' systems will be Year 2000 compliant, consequently, the Company could incur incremental costs to convert to another vendor. The Company has identified certain of its hardware and software equipment that will not be Year 2000 compliant and intends to purchase new equipment and software prior to March 31, 1999. These capital expenditures are expected to total approximately $10,000. 17 Independent Auditor's Report The Board of Directors Wyman Park Bancorporation, Inc. Lutherville, Maryland We have audited the accompanying consolidated statements of financial condition of Wyman Park Bancorporation, Inc. and Subsidiaries as of June 30, 1998, and the related consolidated statements of income, stockholders' equity and cash flows for the year ended June 30, 1998. These consolidated financial statements are the responsibility of Wyman Park Bancorporation, Inc.'s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated statement of financial condition of Wyman Park Bancorporation, Inc. and Subsidiaries as of June 30, 1997 and the related statements of income, stockholders' equity and cash flows for the year ended June 30, 1997 were audited by other auditors whose report, dated July 18, 1997, expressed on those statements an unqualified opinion. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wyman Park Bancorporation, Inc. and Subsidiaries at June 30, 1998, and the consolidated results of their operations and their cash flows for the year ended June 30, 1998, in conformity with generally accepted accounting principles. Anderson Associates, LLP July 24, 1998 18 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION JUNE 30, 1998 AND 1997 1998 1997 ---- ---- Assets Cash and non-interest bearing deposits $ 206,303 $ 461,268 Interest-bearing deposits in other banks 2,071,076 1,092,682 Federal funds sold 4,570,744 823,142 ------------- ------------ Total cash and cash equivalents (Notes 1 and 12) 6,848,123 2,377,092 Loans receivable, net (Notes 1, 4 and 12) 62,042,464 55,188,566 Mortgage backed securities held-to-maturity at amortized cost, fair value of $291,212 (1998) and $360,666 (1997) (Notes 1, 3 and 12) 283,715 356,187 Investment securities available-for-sale at fair value, amortized cost of $3,000,000 (1997) (Notes 1, 3 and 12) -- 2,992,500 Federal Home Loan Bank of Atlanta stock, at cost (Notes 2 and 12) 509,900 509,900 Accrued interest receivable (Note 5) 328,934 337,394 Ground rents owned, at cost (Note 12) 129,108 129,108 Property and equipment, net (Notes 1 and 6) 188,120 203,319 Prepaid expenses and other assets 60,504 88,764 Federal and state income taxes receivable 130 -- Deferred tax asset (Notes 1 and 8) 150,019 58,506 ------------- ------------ Total assets $ 70,541,017 $ 62,241,336 ============= ============ Liabilities and Equity Liabilities Demand deposits $ 5,611,764 $ 5,892,975 Money market and NOW accounts 9,429,037 9,960,827 Time deposits 38,977,347 40,241,530 ------------- ------------ Total deposits (Notes 7 and 12) 54,018,148 56,095,332 Checks outstanding in excess of bank balance 143,430 -- Advance payments by borrowers for taxes, insurance and ground rents (Note 12) 1,368,467 1,240,877 Accrued interest payable on savings deposits 17,495 18,994 Accrued expenses and other liabilities 448,120 120,151 Federal and state income taxes payable 279,073 16,163 ------------- ------------ Total liabilities 56,274,733 57,491,517 Commitments and contingencies (Notes 4, 6, 8, 9 and 12) Stockholders' Equity Common stock, par value $.01 per share, authorized 2,000,000 shares, issued and outstanding 1,011,713 10,117 -- Additional paid-in capital 9,704,005 -- Contra equity - Employee Stock Ownership Plan (ESOP) (720,090) -- Retained earnings, substantially restricted 5,272,252 4,754,419 Net unrealized holding losses on investments available for sale -- (4,600) ------------- ------------ Total stockholders' equity 14,266,284 4,749,819 ------------- ------------ Total liabilities and stockholders' equity $ 70,541,017 $ 62,241,336 ============= ============
The accompanying notes to consolidated financial statements are an integral part of these statements. 19 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland CONSOLIDATED STATEMENTS OF OPERATIONS JUNE 30, 1998 AND 1997
1998 1997 ---- ---- Interest and fees on loans receivable $4,680,659 $4,250,470 Interest on mortgage-backed securities 23,301 26,733 Interest on investment securities 85,215 140,065 Interest on other investments 292,130 240,959 ---------- ---------- Total interest income 5,081,305 4,658,227 Interest on savings deposits 2,679,815 2,749,541 Interest on Federal Home Loan Bank advances (short term) 37,394 -- Interest on escrow deposits 5,327 6,424 ---------- ---------- Total interest expense 2,722,536 2,755,965 Net interest income before provision for loan losses 2,358,769 1,902,262 Provision for loan losses (Notes 1 and 4) 8,000 145,000 ---------- ---------- Net interest income 2,350,769 1,757,262 Other Income Loan fees and service charges 59,831 48,284 Gains on sales of loans receivable 6,518 5,816 Other 26,834 24,411 ---------- ---------- Total other income 93,183 78,511 General and Administrative Expenses Salaries and employee benefits 989,616 620,513 Occupancy costs 94,999 91,219 Federal deposit insurance premiums (Note 11) 35,112 461,177 Data processing 73,262 67,071 Advertising 52,770 63,145 Franchise and other taxes 51,500 44,730 Other 299,640 267,225 ---------- ---------- Total general and administrative expenses 1,596,899 1,615,080 Income before tax provision 847,053 220,693 Provision for income taxes (Notes 1 and 8) 329,220 86,888 ---------- ---------- Net income $ 517,833 $ 133,805 ========== ==========
The accompanying notes to consolidated financial statements are an integral part of these statements. 20
WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JUNE 30, 1998 AND 1997 Net Unrealized Additional Contra Equity Holding Losses Common Paid-In Employee Stock Retained on Investments Stock Capital Ownership Plan Earnings Available for Sale Total ----- ------- -------------- -------- ------------------ ----- Balance at June 30, 1996 $ -- $ -- $ -- $ 4,620,614 $ (21,830) $ 4,598,784 Net income -- -- -- 133,805 -- 133,805 Adjustment to unrealized holding losses on available for sale securities -- -- -- -- 17,230 17,230 ------------ ------------ ------------ ------------ ------------ ------------ Balance at June 30, 1997 -- -- -- 4,754,419 (4,600) 4,749,819 Proceeds from stock offering net of cost 10,117 9,662,936 -- -- -- 9,673,053 Borrowings for Employee Stock Ownership Plan -- -- (809,370) -- -- (809,370) Compensation under stock based benefit plan -- 41,069 89,280 -- -- 130,349 Net income -- -- -- 517,833 -- 517,833 Adjustment to unrealized holding losses on available for sale securities -- -- -- -- 4,600 4,600 ------------ ------------ ------------ ------------ ------------ ------------ Balance at June 30, 1998 $ 10,117 $ 9,704,005 $ (720,090) $ 5,272,252 $ -- $ 14,266,284 ============ ============ ============ ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of these statements. 21 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1998 AND 1997 1998 1997 ---- ---- Cash flows from operating activities Net income $ 517,833 $ 133,805 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 62,158 59,693 Non-cash compensation under Stock Based Benefit Plan 130,349 -- Deferred income tax provision (benefit) (94,413) (95,712) Provision for loan losses 8,000 145,000 Amortization of loan fees, premiums and discounts, net (88,909) (88,311) Loss on disposal of property and equipment -- 5,730 Gain on sales of loans receivable (6,518) (5,816) Loans originated for resale (710,700) -- Proceeds from sale of loans originated for resale 717,218 -- Decrease in accrued interest receivable 8,460 12,083 Decrease in prepaid expenses and other assets 28,260 10,140 Increase (decrease) in accrued expenses and other liabilities 327,969 (22,812) (Increase) decrease in federal and state income taxes receivable (130) 83,632 Increase in federal and state income taxes payable 262,910 16,163 Decrease in accrued interest payable on savings deposits (1,499) (1,880) ----------- ----------- Net cash provided by operating activities 1,160,988 251,715 ----------- ----------- Cash flows from investment activities Purchases of investment securities available for sale -- (1,000,000) Maturity of investment securities available for sale 3,000,000 1,000,000 Net increase in loans receivable (5,212,938) (1,502,401) Purchases of loans receivable (1,560,051) (1,788,457) Sales of loans receivable -- 1,295,000 Mortgage backed securities principal repayments 72,472 67,822 Purchases of property and equipment (46,959) (9,697) Sale of ground rents owned -- 1,021 ----------- ----------- Net cash provided by (used in) investing activities (3,747,476) (1,936,712) ----------- -----------
22 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997 ---- ---- Cash flows from financing activities Net decrease in savings deposits $(2,077,184) $(1,773,481) Net increase in checks outstanding in excess of bank balance 143,430 -- Increase in advance payments by borrowers for taxes, insurance and ground rents 127,590 34,324 Net proceeds from issuance of common stock 8,863,683 -- ----------- ----------- Net cash provided by (used in) financing activities 7,057,519 (1,739,157) ----------- ----------- Net increase (decrease) in cash and cash equivalents 4,471,031 (3,424,154) Cash and cash equivalents at beginning of year 2,377,092 5,801,246 ----------- ----------- Cash and cash equivalents at end of year $ 6,848,123 $ 2,377,092 =========== =========== Supplemental information Interest paid on savings deposits and borrowed funds $ 2,724,709 $ 2,751,421 =========== =========== Income taxes $ 159,604 $ 82,805 =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. 23 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements for the year ended June 30, 1998 include Wyman Park Bancorporation, Inc. (the "Company") and its wholly-owned subsidiaries, Wyman Park Federal Savings and Loan Association (the "Association") and W. P. Financial Corporation. All significant intercompany transactions have been eliminated. The Company is the holding company of the Association. Nature of Operations The Association operates as a thrift institution taking deposits from the general public and using those funds to promote home ownership by making real estate loans in its service area. The Association also engages in other forms of lending and investments. As such, the Association is subject to the inherent risk that borrowers will default and properties or other collateral will not be sufficient to recover the loan balance. The Association's sound lending policies have mitigated this risk and losses from loans have been minimal. The Association is also subject to the risk that severe changes in prevailing interest rates could cause impairment of its earnings capability and the fair value of its net assets. However, management's operating strategies combined with a relatively stable interest rate environment since the mid-1980's, have resulted in the Association being profitable and increasing its capital position. Basis of Presentation The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of investments in real estate. In connection with these determinations, management obtains independent appraisals for significant properties and prepares net realizable value analyses as appropriate. Management believes that the allowances for losses on loans and investments in real estate are adequate. While management uses available information to recognize losses on loans and investments in real estate, future additions to the allowances may be necessary based on changes in economic 24 WYMAN PARK BANCORPOATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 Summary of Significant accounting Policies - Continued Basis of Presentation - Continued conditions, particularly in the State of Maryland. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Association's allowances for losses on loans and investments in real estate. Such agencies may require the Association to recognize additions to the allowances based on their judgments about information available to them at the time to their examination. Investment Securities and Mortgage Backed Securities The Association's debt and equity securities are classified into two categories. Debt securities that the Association has the positive intent and ability to hold to maturity are classified as held-to-maturity and recorded at amortized cost. Debt securities not classified as held-to-maturity and equity securities with readily determinable fair values are considered available-for-sale and are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of retained earnings (net of tax effects). The Association does not invest in securities for trading purposes. Fair value is determined based on bid prices published in financial newspapers or bid quotations received from securities dealers. Premiums and discounts on investment and mortgage backed securities are amortized over the term of the security using the interest method. Gain or loss on sale of investments available-for-sale is reflected in income at the time of sale using the specific identification method. Property and Equipment Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are accumulated using the straight-line method over the estimated useful lives of the assets. Additions and improvements are capitalized, and charges for repairs and maintenance are expensed when incurred. The related cost and accumulated depreciation or amortization are eliminated from the accounts when an asset is sold or retired and the resultant gain or loss is credited or charged to income. Income Taxes Deferred income taxes result primarily because of temporary differences resulting from recognizing loan origination fees and costs in different periods for financial reporting purposes and income taxes purposes prior to January 1, 1994, depreciation methods, loan loss recognition, Federal Home Loan Bank (FHLB) stock dividends, and a deferred compensation agreement. The Association changed its method of accounting for loan origination fees and 25 costs for tax purposes for all transactions occurring on or after July 1, 1994 to conform with the method utilized for financial reporting purposes. WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 Summary of Significant Accounting Policies - Continued Loan Fees Origination and commitment fees and direct origination costs are deferred and amortized to income over the contractual lives of the related loans using the interest method. Under certain circumstances, commitment fees are recognized over the commitment period or upon expiration of the commitment. Unamortized loan fees are recognized in income when the related loans are sold or prepaid. Origination and commitment fees and direct origination costs on loans originated for sale are deferred and recognized as a component of gain or loss at the time of sale. Provision for Loan Losses The provision for loan losses is determined based on management's review of the loan portfolio and analyses of the borrowers' ability to repay, past collection experience, risk characteristics of individual loans or groups of similar loans and underlying collateral, current and prospective economic conditions and status of non-performing loans. Loans or portions thereof are charged-off when considered, in the opinion of management, uncollectible. Interest on potential problem loans is not accrued when, in the opinion of management, the full collection of principal or interest is in doubt. Any interest ultimately collected on such loans is recorded in income in the period of recovery. The Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 114 "Accounting by Creditors for Impairment of a Loan" as amended by Statement No. 118 "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures" (collectively referred to as SFAS No. 114) addresses the accounting by creditors for impairment of certain loans. It is generally applicable for all loans except large groups of smaller balance homogeneous loans that are collectively evaluated for impairment, including residential mortgage loans and consumer installment loans. It also applies to all loans that are restructured in a troubled debt restructuring involving a modification of terms. However, if a loan was restructured in a troubled debt restructuring involving a modification of terms before the effective date of this Statement and it is not impaired based on the terms specified by the restructuring agreement, a creditor may continue to account for the loan in accordance with the provisions of Statement No. 15, "Accounting for Troubled Debt Restructurings" prior to its amendment by this Statement. 26 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 Summary of Significant Accounting Policies - Continued Provision for Loan Losses - Continued SFAS No. 114 requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, or at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. A loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Foreclosed Real Estate Real estate acquired through foreclosure is initially recorded at the lower of cost or estimated fair value, less estimated selling costs. Management periodically evaluates the carrying value of real estate owned and establishes a valuation allowance for declines in fair value, less estimated selling costs, below the initially recorded value. Costs relating to holding such real estate are charged against income in the current period, while costs relating to improving such real estate are capitalized until a saleable condition is reached. Earnings Per Share Basic and diluted earnings per share have not been presented since the Association converted to stock January 5, 1998 and such information would not be meaningful. Statement of Cash Flows For the purposes of the statement of cash flows, the Association considers all highly liquid investments with maturities at date of purchase of three months or less to be cash equivalents. Cash equivalents consist of interest-bearing deposits and federal funds. Note 2 Insurance of Savings Accounts and Related Matters The Federal Deposit Insurance Corporation, through the Savings Association Insurance Fund, insures deposits of account holders up to $100,000. The Association pays an annual premium to provide for this insurance. The Association is a member of the Federal Home Loan Bank System and is required to maintain an investment in the stock of the Federal Home Loan Bank of Atlanta equal to at least 1% of the unpaid principal balances of its residential mortgage loans, .3% of its total assets or 5% of its outstanding advances from the bank, whichever is greater. Purchases and sales of stock are made directly with the bank at par value. 27 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 Investment Securities Investment securities are summarized as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- Available-for-Sale Investments: June 30, 1998 U.S. government and agency securities $ -- $ -- $ -- $ -- June 30, 1997 U.S. government and agency securities 3,000,000 -- (7,500) 2,992,500 Held-to-Maturity Securities:
Mortgage backed securities are guaranteed by the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC) as follows:
June 30, 1998 FNMA $ 2,098 $ 81 $-- $ 2,179 FHLMC 281,617 7,416 -- 289,033 -------- -------- --- -------- Mortgage backed securities $283,715 $ 7,497 $-- $291,212 ======== ======== === ======== June 30, 1997 FNMA $ 2,328 $ 81 $-- $ 2,409 FHLMC 353,859 4,398 -- 358,257 -------- -------- --- -------- Mortgage backed securities $356,187 $ 4,479 $-- $360,666 ======== ======== === ========
28 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 Investment Securities - Continued The scheduled maturities of securities held-to-maturity and securities (other than equity securities) available-for-sale at June 30, 1998, were as follows:
Held-to-Maturity Available-for-Sale ---------------- ------------------ Amortized Estimated Amortized Estimated Cost Fair Value Cost Fair Value ---------- ---------- ---------- ---------- Due in one year or less $ -- $ -- $ -- $ -- Due from one to five years Mortgage backed securities 283,715 291,212 -- -- --------- --------- -------- -------- $ 283,715 $ 291,212 $ -- $ -- ========= ========= ======== ========
There were no sales of investment securities during the years ended June 30, 1998 and 1997. Note 4 Loans Receivable Substantially all of the Association's loans receivable are mortgage loans secured by residential and commercial real estate properties located in the State of Maryland. Loans are extended only after evaluation by management of customers' creditworthiness and other relevant factors on a case-by-case basis. The Association generally does not lend more than 90% of the appraised value of a property and requires private mortgage insurance on residential mortgages with loan-to-value ratios in excess of 80%. In addition, the Association generally obtains personal guarantees of repayment from borrowers and/or others for construction, commercial and multi-family residential loans and disburses the proceeds of construction and similar loans only as work progresses on the related projects. Residential lending is generally considered to involve less risk than other forms of lending, although payment experience on these loans is dependent to some extent on economic and market conditions in the Association's primary lending area. Commercial and construction loan repayments are generally dependent on the operations of the related properties or the financial condition of its borrower or guarantor. Accordingly, repayment of such loans can be more susceptible to adverse conditions in the real estate market and the regional economy. 29 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 4 Loans Receivable - Continued Loans receivable are summarized as follows at June 30:
1998 1997 ----------- ----------- Loans secured by first mortgages on real estate: Residential - one-to-four family $51,779,174 $46,345,319 Residential - multi-family 361,994 210,587 Commercial 6,683,136 5,806,328 Construction loans -- 150,000 ----------- ----------- Total first mortgage loans 58,824,304 52,512,234 Home equity lines-of-credit 3,390,206 3,183,895 Home improvement loans 12,183 16,358 Loans secured by savings deposits 309,222 175,898 ----------- ----------- 62,535,915 55,888,385 Less: Undisbursed portion of loans in process -- (231,000) Unearned loan fees, net (215,451) (198,819) Allowance for loan losses (278,000) (270,000) ----------- ----------- Loans receivable, net $62,042,464 $55,188,566 =========== =========== Average annual yield on loans receivable for the years ended June 30 7.84% 7.88% =========== =========== The following is a summary of non-performing loans and troubled debt restructuring as of June 30: 1998 1997 ---- ---- Non-accrual loans $ 25,296 $ 176,349 Troubled debt restructuring -- -- ----------- ----------- Total non-performing loans and troubled debt restructuring $ 25,296 $ 176,349 =========== ===========
30 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 4 Loans Receivable - Continued Loans are placed on non-accrual status when they become ninety days or more delinquent. Interest income on such loans is recognized only to the extent that payments have been received. The accrual of interest income on these loans is resumed only after the borrowers have taken steps to bring the loans current and management has reason to believe the loans are no longer impaired. The contractual amount of interest that would have been recorded on the above non-accrual loans at June 30, 1998 and 1997 was $1,270 and $4,472, respectively. Actual interest income recorded on such loans was $2,389 and $14,492 for the years ended June 30, 1998 and 1997, respectively. Non-accrual loans at June 30, 1998 and 1997 and for the years then ended were all residential mortgage loans not included within the scope of SFAS No. 114. Accordingly, there were no allowances for loan losses established specifically for these loans. The Association, through its normal asset review process, classifies certain loans which management believes involve a degree of risk warranting additional attention. Not included above in non-performing and restructured loans was $462,579 and $178,260 at June 30, 1998 and 1997, respectively, which had not yet become ninety days or more delinquent, but had been designated by management for additional collection and monitoring efforts. Changes in the allowance for losses on loans are summarized as follows for the years ended June 30: 1998 1997 ---- ---- Balance at beginning of the year $270,000 $125,000 Provision for loan losses 8,000 145,000 Charge-offs, net of recoveries -- -- -------- -------- Balance at end of the year $278,000 $270,000 ======== ======== Commitments to extend credit are agreements to lend to customers, provided that terms and conditions established in the related contracts are met. At June 30, 1998, the Association had commitments to originate first mortgage loans on real estate and home equity loans exclusive of undisbursed loan funds of $1,279,700, of which $618,800 carry a fixed rate, ranging between 6.125% and 8%, based on the market rate at the date of commitment and $660,900 carry a variable rate of interest. At June 30, 1997, the Association had commitments to originate first mortgage loans on real estate and home equity loans, exclusive of undisbursed loan funds, of $1,821,100, of which $1,772,300 carry a fixed rate, ranging between 7% and 8.5%, based on the market rate at the date of commitment and $48,800 carry a variable rate of interest. 31 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 4 Loans Receivable - Continued For the years ended June 30, 1998 and 1997 the Association also had commitments to loan funds under unused home-equity lines of credit aggregating approximately $5,755,244 and $5,464,623, respectively. Such commitments carry a floating rate of interest. Commitments for mortgage loans generally expire within six months and such loans and other commitments are generally funded from loan principal repayments, excess liquidity and savings deposits. Since certain of the commitments may expire without being drawn upon or may not be utilized, the total commitment amounts do not necessarily represent future cash requirements. Substantially all of the Association's outstanding commitments at June 30, 1998 are for loans which would be secured by real estate with appraised values in excess of the commitment amounts. The Association's exposure to credit loss under these contracts in the event of non-performance by the other parties, assuming that the collateral proves to be of no value, is represented by the commitment amounts. Loans serviced for others, which are not included in the Association's assets, were approximately $2,274,655 and $2,338,256 at June 30, 1998 and 1997, respectively. A fee is charged for such servicing based on the unpaid principal balances. In the normal course of business, loans are made to officers and directors of the Association and their related interests. These loans are consistent with sound banking practices, are within regulatory lending limitations and do not involve more than normal risk of collectibility. Transactions in these loans (omitting loans which aggregate less than $60,000 per officer or director) for the year ended June 30, 1998 are summarized as follows: Balance at June 30, 1997 $423,716 New loans 430,500 Repayments (65,104) -------- Balance at June 30, 1998 $789,112 ======== 32 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 Accrued Interest Receivable Accrued interest receivable is summarized as follows at June 30: 1998 1997 -------- -------- Loans receivable $308,231 $269,162 Mortgage backed securities 3,405 4,360 Investment securities -- 57,688 Other 17,298 6,184 -------- -------- $328,934 $337,394 ======== ======== Note 6 Property and Equipment Property and equipment are summarized as follows at June 30: Estimated --------- Useful 1998 1997 Lives -------- -------- ---------- Buildings and improvements $357,668 $357,668 23 years Furniture, fixtures and equipment 345,607 308,110 3-20 years Leasehold improvements 81,499 75,220 5-10 years -------- -------- Total at cost 784,774 740,998 Less accumulated depreciation and amortization 596,654 537,679 -------- -------- Property and equipment, net $188,120 $203,319 ======== ======== The provision for depreciation charged to operations for the years ended June 30, 1998 and 1997 amounted to $62,158 and $59,693, respectively. Depreciation is calculated on a straight line basis over the estimated useful life. 33 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6 Property and Equipment - Continued The Association is obligated under long-term operating leases for its branch offices. These leases expire at various dates to 2002, subject to renewal options. The approximate future minimum rental payments under these leases at June 30, 1998 are as follows: Due in Year Ended June 30, -------------- 1999 $ 37,896 2000 37,896 2001 37,896 2002 28,390 Subsequent to 2002 21,600 -------- Total $163,678 ======== Rent expense was $38,396 and $37,906 for the years ended June 30, 1998 and 1997, respectively. Note 7 Deposits Time deposits are summarized as follows at June 30:
1998 1997 ----------- ---------- Amount % Amount % Contractual maturity of Certificate Accounts from June 30: Under 12 months $18,017,936 46.2 $20,255,689 50.3 12 to 24 months 13,965,905 35.8 8,026,606 20.0 24 to 36 months 1,739,829 4.5 6,013,397 15.0 36 to 48 months 4,796,680 12.3 1,107,957 2.8 48 to 60 months 445,512 1.2 4,802,948 11.9 Over 60 months 11,485 0.0 34,933 0.0 ----------- ----- ----------- ----- $38,977,347 100.0 $40,241,530 100.0 =========== ===== =========== =====
Average annual rate on savings deposits for the year ended June 30 4.88% 4.94% ==== ==== 34 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 Deposits - Continued Interest expenses on savings deposits consists of the following for the years ended June 30: 1998 1997 ---------- ---------- Certificates $2,225,469 $2,267,188 Passbook 180,969 173,461 NOW and money market 273,377 308,892 ---------- ---------- $2,679,815 $2,749,541 ========== ========== As of June 30, 1998 and 1997, the Association had customer deposits in savings accounts of $100,000 or more of approximately $5,715,858 and $5,680,377, respectively. Note 8 Income Taxes The provision for income taxes consists of the following for the years ended June 30: 1998 1997 ---- ---- Current: Federal $346,898 $149,745 State 76,735 32,855 -------- -------- 423,633 182,600 -------- -------- Deferred: Federal (78,262) (78,364) State (16,151) (17,348) -------- -------- (94,413) (95,712) -------- -------- Provision for income taxes $329,220 $ 86,888 ======== ======== 35 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8 Income Taxes - Continued The net deferred tax asset at June 30, 1998 and 1997 consists of total deferred tax assets of $278,211 and $175,506, respectively, and deferred tax liabilities of $128,192 and $117,000, respectively. The tax effects of temporary differences between the financial reporting and income tax basis of assets and liabilities relate to the following at June 30:
1998 1997 ---- ---- Interest and fees on loans $ 36,508 $ 51,392 Allowance for losses on loans 107,364 104,274 Federal Home Loan Bank stock dividends (80,684) (80,684) Deferred compensation 13,989 16,940 Unrealized loss on investment securities -- 2,900 Tax bad debt reserve (11,897) (11,897) Senior Executive Retirement Plan 111,081 -- Other (26,342) (24,419) --------- --------- $ 150,019 $ 58,506 ========= =========
No valuation allowance has been provided against the net deferred tax asset at June 30, 1998 because the amount could be realized through a carryback against taxable income of prior years. A reconciliation between the provision for income taxes and the amount computed by multiplying income before provision for income taxes by the statutory federal income tax rate is as follows for the years ended June 30:
1998 1997 ---- ---- Percent Percent of Pretax of Pretax Amount Income Amount Income ------ ------ ------ ------ Tax provision at statutory rate $288,000 34.0% $ 75,036 34.0% State income taxes, net of federal income tax benefit 39,745 4.7 10,235 4.6 Other 1,475 .2 1,617 0.7 -------- ---- -------- ---- $329,220 38.9% $ 86,888 39.3% ======== ==== ======== ====
36 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8 Income Taxes - Continued Before 1996, the Association was able to use the most beneficial of either the percentage of income method or an experience method, similar to that used by commercial banks, to determine its tax deduction for bad debts under Section 593 of the Internal Revenue Code. Under provisions of the Small Business Protection Act of 1996, Section 593 was repealed. The new law also provided that cumulative bad debt deductions taken after 1987 (the base year) were to be recaptured as taxable income over a six-year period beginning in 1996. It further provided that the first installment of the recapture could be deferred for up to two years if a residential lending test is met. The Association did not meet this test in the year ended June 30, 1997. There was no material adverse effect on the Association's financial position or results of operations as a result of the new law. The Association qualifies as a small bank eligible to use the bank experience method for bad debt deductions. However, the deductions under this method are not expected to be as beneficial for determining the current tax provision as the method previously allowed. Retained earnings at June 30, 1998 include approximately $1,777,000 for which no deferred income tax liability has been recognized. This amount represents an allocation of income to bad-debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad-debt losses or adjustments arising from carryback of net operation losses would create income for tax purposes only, which would be subject to the then current corporate income tax rate. The unrecorded deferred income tax liability on the above amount is approximately $686,000. Note 9 Pension Plan Substantially all employees of the Association are participants in the Financial Institutions Retirement Fund, a multi-employer non-contributory defined benefit pension plan. The actuarial present value of benefit obligations and fair value of plan assets attributable to the Association are not available for this multi-employer plan. Pension expense in connection with the Financial Institutions Retirement Fund reflects the Association's required annual contribution to the Fund. Pension expense for the years ended June 30, 1998 and 1997 was $2,417 and $17,652, respectively. During the year ended June 30, 1998, the Association established a supplemental Executive Retirement Plan for the benefit of the President of the Association. As a result of this Plan, the Association incurred an expense of $287,625. 37 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 10 Common Stock and Stock Benefit Plan On June 18, 1997, the Board of Directors adopted a plan of conversion which provided for (i) the conversion of the Association from a federally chartered mutual savings and loan association to a federally chartered stock savings and loan association, the "Converted Association," and (ii) the concurrent formation of a holding company for the Converted Association, the "Company." A subscription offering of shares of the Company's capital stock was offered to eligible members, employees and officers of the Association at a price based on an appraisal by an independent appraisal firm. When the Conversion was completed, 1,011,713 shares of common stock were sold for a total price of $10,117,130. Costs associated with the Conversion totaling $444,077 were deducted from the sales price. At the time of the Conversion, the Association established a liquidation account in the amount of $4,749,819, an amount equal to the Association's retained earnings as of June 30, 1997. The liquidation account is maintained for the benefit of eligible savings account holders who maintained their savings accounts in the Association after the Conversion. In the event of a complete liquidation (and only in such event), each eligible savings account holder would be entitled to receive a liquidation distribution from the liquidation account in an amount equal to the account holder's then interest in the liquidation account before any liquidation distribution may be made with respect to capital stock. The Company has no significant source of income other than dividends from the Association. As a result, the Company's dividends will depend primarily upon receipt of dividends from the Association. OTS regulations limit the payment of dividends and other capital distributions by the Association. The Association is able to pay dividends during a calendar year without regulatory approval to the extent of the greater of (i) an amount which will reduce by one-half its surplus capital ratio at the beginning of the year plus all its net income determined on the basis of generally accepted accounting principles for that calendar year, or (ii) 75% of net income for the last four calendar quarters. The Association is restricted in paying dividends on its stock to the greater of the restrictions described in the preceding paragraph, or an amount that would reduce its retained earnings below its regulatory capital requirement, the accumulated bad debt deduction, or the liquidation account described above. 38 WY MAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 10 Common Stock and Stock Benefit Plan - Continued Employee Stock Ownership Plan The Association has established an Employee Stock Ownership Plan (ESOP) for its employees. On January 5, 1998 the ESOP acquired 80,937 shares of the Company's common stock in connection with the Association's conversion to a capital stock form of organization. The ESOP holds the common stock in a trust for allocation among participating employees, in trust or allocated to the participants' accounts, and an annual contribution from the Association to the ESOP and earnings thereon. All employees of the Association who attain the age of 21 and complete twelve months of service with the Association will be eligible to participate in the ESOP. Participants will become 100% vested in their accounts after six years of service with the Association or, if earlier, upon death, disability or attainment of normal retirement age. Participants receive credit for service with the Association prior to the establishment of the ESOP. The Association recognizes the cost of the ESOP in accordance with AICPA Statement of Position 93-6 "Employers' Accounting for Employee Stock Ownership Plans". As shares are committed to be released from collateral, the Association reports compensation expense equal to the current market price of the shares and the shares become outstanding for earnings-per-share computations. Dividends on allocated shares are recorded as a reduction of retained earnings; dividends on unallocated shares are recorded as a reduction of debt. For the year ended June 30, 1998 compensation expense recognized related to the ESOP and the Association's contribution to the ESOP was $130,349. The ESOP shares were as follows as of June 30: 1998 ---- Shares released and allocated 8,928 Unearned shares 72,009 ---------- 80,937 ========== Fair value of unearned shares $1,012,627 ========== 39 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 11 Retained Earnings and Regulatory Matters The Association is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional discretionary, actions by the regulators that, if undertaken, could have a direct material effect on the Association's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific capital guidelines that involve quantitative measures of the Association's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Association's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Association to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) and risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of June 30, 1998, that the Association meets all capital adequacy requirements to which it is subject. As of June 30, 1998, the most recent notification from the Office of Thrift Supervision categorized the Association as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Association must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Association's category. The Association's actual capital amounts and ratios are also presented in the table.
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ----------------- ----------------- ----------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of June 30, 1998: Total Capital (to Risk Weighted Assets) $9,708,167 25.6% $3,039,520 8.0% $3,799,400 10.0% Tier I capital (to Risk Weighted Assets) 9,430,167 24.8% 1,519,760 4.0% 2,279,640 6.0% Tier I Capital (to Average Assets) 9,430,167 14.0% 2,696,600 4.0% 3,370,750 5.0%
40 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 11 Retained Earnings and Regulatory Matters - Continued
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions --------------------- ----------------- ----------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of June 30, 1997: Total Capital (to Risk Weighted Assets) $5,024,419 14.6% $2,747,520 8% $3,434,400 10% Tier I capital (to Risk Weighted Assets) 4,754,419 13.8% 1,373,760 4% 2,060,640 6% Tier I Capital (to Average Assets 4,754,419 7.7% 2,461,062 4% 3,076,328 5% The Association also exceeds the minimum capital standards required by the Office of Thrift Supervision, its primary regulator, as follows: Actual Required Minimum Excess ------ ---------------- ------ As of June 30, 1998: Tangible capital $9,430,167 $1,011,225 $8,418,942 Core capital 9,430,167 2,022,450 7,407,717 Risk-based capital 9,708,167 3,039,520 6,668,647 As of June 30, 1997: Tangible capital 4,754,419 934,000 3,820,419 Core capital 4,754,419 1,867,000 2,887,419 Risk-based capital 5,024,419 2,748,000 2,276,419 Total equity in accordance with generally accepted accounting principles (GAAP capital) is reconciled to regulatory capital as follows; Tangible Core Risk-Based Capital Capital Capital ------- ------- ------- GAAP capital as of June 30, 1998 $14,266,284 $14,266,284 $14,266,284 Less: Equity of parent company (4,836,117) (4,836,117) (4,836,117) Add: Allowance for losses on loans included in risk-based capital- limited to 1.25% of risk- weighted assets -- -- 278,000 ----------- ----------- ----------- Regulatory capital as of June 30, 1998 $ 9,430,167 $ 9,430,167 $ 9,708,167 =========== =========== ===========
41 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 11 Retained Earnings and Regulatory Matters - Continued
Tangible Core Risk-Based Capital Capital Capital -------- ------- ---------- GAAP capital as of June 30, 1997 $4,749,819 $4,749,819 $4,749,819 Add: Unrealized losses on available for sale securities not included in regulatory capital 4,600 4,600 4,600 Allowance for losses on loans included in risk-based capital- limited to 1.25% of risk- weighted assets -- -- 270,000 ---------- ---------- ---------- Regulatory capital as of June 30, 1997 $4,754,419 $4,754,419 $5,024,419 ========== ========== ==========
The Economic Growth and Regulatory Paperwork Reduction Act of 1996 was signed into law on September 30, 1996. One major provision of the act was that institutions such as the Association, with deposits insured by the Federal Deposit Insurance Corporation's Savings Association Insurance Fund (SAIF), were assessed a one time charge to recapitalize the SAIF. Subsequent regulations established the amount of this assessment at .657% of the institution's insured deposits as of March 31, 1995. The law also provided that the assessment would be deductible for tax purposes in the year it was paid. The Association paid its one-time assessment in the amount of $382,726 in November 1996. It is anticipated that future deposit insurance premiums will be less than those paid in the past because of the one-time assessment making the SAIF solvent. 42 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 12 Disclosures About Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Cash and Cash Equivalents - For cash, non-interest bearing deposits, variable rate interest-bearing deposits in other banks and federal funds sold, the carrying amount is a reasonable estimate of fair value. Securities - For marketable securities available for sale and mortgage backed securities, fair values are based on quoted market prices or dealer quotes. Loans Receivable - For fixed rate residential mortgages, fair value is based on computed present value of cash flows using weighted average term to maturity and weighted average rate of the Association's portfolio. For variable rate loans, the carrying amount is considered a reliable estimate of fair value. Ground Rents - The fair value of ground rents is estimated by management based on anticipated realization in the current market. Ground rents are peculiar to the Baltimore Metropolitan area. They carry a fixed interest rate of 6%. Consequently, the fair value varies with fluctuations in market interest rates. Although the fair value may never recover to the Association's carrying amount because ground rents do not have a stated maturity, any permanent decline in value will not be material to the Association's financial statements. Federal Home Loan Bank Stock - Because of the limited nature of the market for this instrument, the carrying amount is a reasonable estimate of fair value. Deposits Liabilities - The fair value of demand deposits, savings accounts and advance payments by borrowers for taxes, insurance and ground rents is the amount payable on demand at the reporting date. The fair value for certificate accounts is based on computed present value of cash flows using the rates currently offered for deposits of similar remaining maturities. Commitments - For commitments to originate loans and purchase F loans and mortgage backed securities, fair value considers the differences between current levels of interest rates and committed rates if any. 43 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 12 Disclosures About Fair Value of Financial Instruments - Continued The estimated fair values of the Association's financial instruments as of June 30 are as follows:
1998 1997 -------------------------- -------------------------- Carrying Carrying Amount Fair Value Amount Fair Value ------ ---------- ------ ---------- Financial Assets Cash and cash equivalents $ 6,848,123 $ 6,848,123 $ 2,377,092 $ 2,377,092 Investment securities available-for-sale -- -- 2,992,500 2,992,500 Mortgage backed securities 283,715 291,212 356,187 360,666 Loans receivable 62,320,464 -- 55,458,566 -- Less: allowance for loan losses 278,000 -- 270,000 -- ------------ ------------ 62,042,464 62,600,000 55,188,566 56,052,088 Ground rents 129,108 77,465 129,108 77,465 Federal Home Loan Bank of Atlanta stock 509,900 509,900 509,900 509,900 Financial Liabilities Savings deposits 54,018,148 54,180,224 56,095,332 56,485,590 Advance payments by borrowers for taxes, insurance and ground rents 1,368,467 1,368,467 1,240,877 1,240,877 Loan commitments 7,034,944 7,034,944 7,285,723 7,285,723
44 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 13 Condensed Financial Information (Parent Company Only) Information as to the financial position of Wyman Park Bancorporation, Inc. as of June 30, 1998 and results of operations and cash flows for the year ended June 30, 1998 is summarized below. During the year ended June 30, 1998, the parent did not receive any dividends from its subsidiary, the Association. June 30, 1998 -------------- Statement of Financial Condition Cash and non-interest bearing deposits $ 1,003,032 Federal funds sold 3,300,000 Loans receivable, net 728,433 Accrued interest receivable 532 Equity in net assets of subsidiary 9,430,167 -------------- $14,462,164 ============== Accrued expenses and other liabilities $ 195,880 Stockholders' equity 14,266,284 -------------- $14,462,164 ============== For the year ended June 30, 1998: Statement of Operations Interest Income $ 35,387 Equity in net income of subsidiary 518,243 -------------- Total Income 553,630 General and administrative expenses 35,797 -------------- Net income before income taxes 517,833 Provision for income taxes -- -------------- Net income $ 517,833 ============== 45 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 13 Condensed Financial Information (Parent Company Only) - Continued For the year ended June 30, 1998: Statement of Cash Flows
Cash Flows from Operating Activities: Net income $ 517,833 Adjustment to Reconcile Net Income to Net Cash Provided by Operating Activities Equity in net income of subsidiary (518,243) Increase in accrued interest receivable (532) Increase in accrued expenses and other liabilities 195,880 ---------- Net cash provided by operating activities 194,938 Cash Flows from Investing Activities: Purchase of stock from subsidiary (4,836,527) Principal collected on loans 80,938 Cash used by investing activities (4,755,589) Cash Flows from Financing Activities: Proceeds from sale of common stock 8,863,683 Net cash provided by financing activities 8,863,683 Increase in cash and cash equivalents 4,303,032 Cash and cash equivalents at beginning of year -- ---------- Cash and cash equivalents at end of year $4,303,032 ========== Supplemental Disclosures of Cash Flows Information: There was no cash paid during the year ended June 30, 1998 for income taxes or interest. Loan receivable for common stock 809,370 ==========
46 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES Lutherville, Maryland NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 14 Accounting Pronouncements With Future Effective Dates SFAS No. 130, "Reporting Comprehensive Income" was issued in June 1997. This Statement requires that comprehensive income - made up of all revenues, expenses, gains and losses - be reported and displayed in an entity's financial statements with the same prominence as its other financial statements. Currently, the only item that would be presented as a component of the Company's comprehensive income which is not also a component of its net income is the change during the year in unrealized gain or loss on available for sale securities. The Statement, which is effective for years beginning after December 15, 1997, will not affect the Company's financial position or its results of operations. SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" was also issued in June 1997. This Statement requires that public business enterprises report financial and descriptive information about their reportable operating segments. Reportable operating segments are defined as components of an enterprise about which separate financial information is available and is evaluated regularly by the chief operating decision maker as a basis for allocating resources and assessing performance. It also requires those enterprises to report information about countries in which they do business and about major customers. The Statement, which is effective for financial statements for periods beginning after December 15, 1997, will not affect the Company's financial position or its results of operations. SFAS No. 132, "Employers Disclosures About Pensions and Other Postretirement Benefits" was issued in February 1998. This Statement standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable. The Statement, which is effective for fiscal years beginning after December 15, 1997, will not affect the Company's financial position or its results of operations. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June, 1998. This Statement standardizes the accounting for derivative instruments including certain derivative instruments embedded in other contracts, by requiring that an entity recognize these items as assets or liabilities in the statement of financial position and measure them at fair value. This Statement generally provides for matching the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or the earnings effect of the hedged forecasted transaction. The Statement, which is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999, will not affect the Company's financial position or its results of operations. 47 WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARIES STOCKHOLDER INFORMATION ANNUAL MEETING The annual meeting of stockholders will be held at 3:00 p.m., Lutherville, Maryland time, October 21, 1998, at the main office located at 11 West Ridgely Road, Lutherville, Maryland. STOCK LISTING The Company's stock is traded on the OTC Electronic Bulletin Board under the symbol "WPBC." PRICE RANGE OF COMMON STOCK The following table sets forth the high and low prices of the Company's common stock since it began trading on January 5, 1998. These prices do not represent actual transactions and do not include retail mark-ups, mark-downs or commissions. High Low Dividends -------------------------------------------- March 31, 1998......... $15 3/8 $15 1/8 N/A June 30, 1998.......... 14 1/4 14 N/A The Company has not declared any dividends during fiscal 1998. Dividend payment decisions are made with consideration of a variety of factors including earnings, financial condition, market considerations and regulatory restrictions. Restrictions on dividend payments are described in Note 10 of the Notes to Financial Statements included in this report. As of June 30, 1998, the Company had approximately 536 stockholders of record and 1,011,713 outstanding shares of common stock. SHAREHOLDERS AND GENERAL INQUIRIES TRANSFER AGENT Ernest A. Moretti, President and CEO Registrar and Transfer Company Wyman Park Bancorporation, Inc. 10 Commerce Drive 11 West Ridgely Road Cranford, New Jersey 07016 Lutherville, Maryland 21093 (908) 272-8511 (410) 252-6450 ANNUAL AND OTHER REPORTS The Company is required to file an annual report on Form 10-KSB for its fiscal year ended June 30, 1998, with the Securities and Exchange Commission. Copies of the Form 10-KSB annual report and the Company's quarterly reports may be obtained without charge by contacting: Ernest A. Moretti, President and CEO Wyman Park Bancorporation, Inc. 11 West Ridgely Road Lutherville, Maryland 21093 (410) 252-6450 48 WYMAN PARK BANCORPORATION, INC. CORPORATE INFORMATION COMPANY AND BANK ADDRESS 11 West Ridgely Road Telephone: (410) 252-6450 Lutherville, Maryland 21093 Fax: (410) 252-6744 DIRECTORS OF THE BOARD Allan B. Heaver John K. White Managing General Partner Retired Executive Vice President and current of Heaver Properties member of the Board of Directors of Baltimore Lutherville, Maryland Life Insurance Company and Life of Maryland Insurance Ernest A. Moretti. John R. Beever President and Chief Executive Officer Chairman of the Board and President of of Wyman Park Bancorporation, Inc. John Dittmar & Sons, Inc. H. Douglas Huether Albert M. Copp President and Chairman of the Board Consultant for Woodhall Associates Independent Can Company Gilbert D. Marsiglia, Sr. Jay H. Salkin President of the real estate brokerage Senior Vice President - Branch Manager firm of Gilbert D. Marsiglia & Co., Inc. of Advest, Inc. G. Scott Barhight. Partner in the law firm of Whiteford, Taylor & Preston, LLP. WYMAN PARK BANCORPORATION, INC. AND SUBSIDIARY OFFICERS Ernest A. Moretti. Ronald W. Robinson President and Chief Executive Officer Treasurer Charmaine M. Snyder Secretary and Loan Servicing Manager INDEPENDENT AUDITORS SPECIAL COUNSEL Anderson Associates, LLP Silver, Freedman & Taff, L.L.P. 7621 Fitch Lane 1100 New York Avenue, N.W. Baltimore, Maryland 21236 Washington, D.C. 20005
EX-21 4 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
State of Incorporation Percent of or Parent Subsidiary Ownership Organization - ------------------------------------------------------------------------------------------------------------------ Wyman Park Bancorporation, Inc. Wyman Park Federal 100% Federal Savings & Loan Association Wyman Park Federal Savings & Loan WP Financial Corporation 100% Maryland Association
EX-23 5 CONSENTS OF EXPERTS AND COUNSEL EXHIBIT 23 CONSENTS OF EXPERTS AND COUNSEL [WOODEN & BENSON LETTERHEAD] The Board of Directors Wyman Park Bancorporation, Inc. 11 West Ridgely Road Lutherville, Maryland 21094 We hereby consent to the use of our report dated July 18, 1997 for fiscal year June 30, 1997, incorporated herein by reference. /s/ Wooden & Benson Wooden & Benson September 21, 1998 Baltimore, Maryland EX-27 6
9 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30,1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 12-MOS Jun-30-1998 Jun-30-1998 206,303 2,071,076 4,570,744 0 0 283,715 291,212 62,042,464 (278,000) 70,541,017 54,018,148 0 2,256,585 0 0 0 10,117 14,256,167 70,541,017 4,680,659 108,516 292,130 5,081,305 2,679,815 2,722,536 2,358,769 8,000 0 1,596,899 847,053 847,053 0 0 517,833 0 0 3.55 25,000 488,000 0 0 (270,000) 0 0 (278,000) (278,000) 0 0
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